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As Filed with Securities and Exchange Commission on August 26, 1998
Registration No. 333-47237
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM SB-2/A
AMENDMENT NO. 3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
COMPUTERIZED THERMAL IMAGING, INC.
(EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER)
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NEVADA 3815 87-0458721
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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476 HERITAGE PARK BOULEVARD, SUITE 210
LAYTON, UTAH 84041
(801) 776-4700
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DAVID A. PACKER WITH A COPY TO:
PRESIDENT NORMAN T. REYNOLDS, ESQ.
476 HERITAGE PARK BOULEVARD, SUITE 210 LOOPER, REED, MARK & MCGRAW
LAYTON, UTAH 84041 1300 POST OAK BOULEVARD, SUITE 2000
(801) 776-4700 HOUSTON, TEXAS 77056
(NAME, ADDRESS, INCLUDING ZIP CODE, (713) 986-7000
AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE FOR THE REGISTRANT)
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement has been declared effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE (1) (2) PRICE (1) (2) FEE
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Common Stock to be Resold (3):
Newly Issued Shares. . . . . . . . . . . . 18,229,167 $0.675 $12,304,688 $3,629.88
Shares Underlying Compensation Warrants. . 2,552,083 $0.675 $ 1,722,656 $ 508.19
Shares Outstanding . . . . . . . . . . . . 2,615,051 $0.675 $ 1,765,159 $ 520.72
Shares Underlying Resale Warrants. . . . . 3,840,615 $0.675 $ 2,592,415 $ 764.76
Shares Underlying Resale Options . . . . . 6,525,000 $0.675 $ 4,404,375 $1,299.29
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Total. . . . . . . . . . . . . . . . . . . . 33,761,916 $22,789,293 $6,722.84
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
(2) Based upon the average of the bid and ask prices of the Common Stock
reported on the OTC Bulletin Board on February 25, 1998.
(3) Common Stock to be Resold includes shares of the Common Stock underlying
certain outstanding securities which are exercisable for or convertible
into shares of the Common Stock which have not yet been exercised or
converted.
-----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
COMPUTERIZED THERMAL IMAGING, INC.
Cross-Reference Sheet
showing location in the Prospectus of
Information Required by Items of Form SB-2
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<CAPTION>
FORM SB-2 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
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1. Front of Registration Statement and
Outside Front Cover of Prospectus . . . . . . . . Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus . . . . . . . . . . . . . . . Inside Front Cover Page; Outside Back Cover
Page
3. Summary Information and Risk Factors . . . . . . . Prospectus Summary; Risk Factors; The Company
4. Use of Proceeds . . . . . . . . . . . . . . . . . Use of Proceeds
5. Determination of Offering Price . . . . . . . . . Outside Front Cover Page; Risk Factors
6. Dilution . . . . . . . . . . . . . . . . . . . . . *
7. Selling Security Holders . . . . . . . . . . . . . Plan of Distribution and Selling Stockholders
8. Plan of Distribution . . . . . . . . . . . . . . . Plan of Distribution and Selling Stockholders
9. Legal Proceedings . . . . . . . . . . . . . . . . Business - Litigation
10. Directors, Executive Officers, Promoters
and Control Persons . . . . . . . . . . . . . . . The Company; Management - Executive Officers
and Directors
11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . Principal Stockholders
12. Description of Securities . . . . . . . . . . . . Description of Securities
13. Interest of Named Experts and Counsel . . . . . . *
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities . . *
15. Organization Within Last Five Years . . . . . . . The Company
16. Description of Business . . . . . . . . . . . . . Business
17. Management's Discussion and Analysis
or Plan of Operation . . . . . . . . . . . . . . . Management's Discussion and Analysis of
Financial Condition and Results of Operations
18. Description of Property . . . . . . . . . . . . . Business - Patents and Intellectual Property, -
Facilities
19. Certain Relationships and Related Transactions . . Management - Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . Risk Factors; Price Range of Common Stock and
Dividend Policy; Description of Securities
21. Executive Compensation . . . . . . . . . . . . . . Management - Executive Compensation
22. Financial Statements . . . . . . . . . . . . . . . Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . Management's Discussion and Analysis of
Financial Condition and Results of Operations -
Change of Accountants
</TABLE>
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(*) None or Not Applicable.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST ___, 1998
COMPUTERIZED THERMAL IMAGING, INC.
RESALE OF 33,761,916 SHARES OF COMMON STOCK
This Prospectus relates to the resale of 33,761,916 shares of the common
stock of Computerized Thermal Imaging, Inc., a Nevada corporation (the
"Company"), which may be sold by the holders thereof (the "Selling
Stockholders") from time to time as market conditions permit in the market, or
otherwise, at prices and terms then prevailing or at prices related to the then
current market price, or in negotiated transactions. The shares of the common
stock of the Company, $0.001 par value per share (the "Common Stock"), to be
resold include: (i) 18,229,167 shares to be purchased by an unrelated investor
(the "Newly Issued Shares"); (ii) 2,552,083 shares to be issued upon the
exercise of warrants to be issued to such investor (the "Compensation Warrants")
which become exercisable upon issuance at variable prices based on the sales
price of the shares of the Common Stock and expire on the fifth anniversary of
the date of issuance; (iii) 2,615,051 shares currently issued and outstanding;
(iv) 3,840,615 shares underlying outstanding warrants exercisable at prices
ranging from $0.72 to $5.00 per share which expire on various dates ranging from
March 31, 1999 to March 13, 2002 (the "Resale Warrants"); and (v) 6,525,000
shares underlying outstanding options exercisable at prices ranging from $0.60
per share to $1.25 per share which expire automatically on various dates ranging
from July 21, 2000 to June 12, 2005 (the "Resale Options"). Unless otherwise
specified, the Compensation Warrants and the Resale Warrants are sometimes
collectively referred to herein as the "Warrants." See "Management - Stock
Options and Restricted Stock," "Management - Certain Transactions," "Description
of Securities," and "Plan of Distribution and Selling Stockholders." As used
herein, the term "Offering" includes all shares of the Common Stock covered by
this Prospectus. Shares offered by the Selling Stockholders may be sold in
unsolicited ordinary brokerage transactions or privately negotiated transactions
between the Selling Stockholders and purchasers without a broker-dealer. A
current prospectus must be in effect at the time of the sale of the shares of
the Common Stock to which this Prospectus relates. Each Selling Stockholder or
dealer effecting a transaction in the registered securities, whether or not
participating in a distribution, is required to deliver a current prospectus
upon such sale. The Company will not receive any proceeds from the resale of
the Common Stock by the Selling Stockholders. Unless otherwise exempted, the
Selling Stockholders and their agents engaged in the resale of the Common Stock
may be deemed underwriters under the Securities Act of 1933, as amended (the
"Securities Act"). The Common Stock is quoted on the OTC Bulletin Board of The
Nasdaq Stock Market under the symbol "COII." On June 30, 1998, the closing bid
and ask prices of the Common Stock were $0.99 and $1.05 per share, respectively.
There can be no assurance that an active trading market will be sustained. See
"Price Range of Common Stock and Dividend Policy."
---------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE
A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY
ANYONE WHO CANNOT AFFORD THE LOSS OF HIS ENTIRE INVESTMENT.
SEE "RISK FACTORS" BEGINNING ON PAGE 10.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------
THE DATE OF THIS PROSPECTUS IS ______, 1998
<PAGE>
CAUTIONARY STATEMENT
INFORMATION CONTAINED IN THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS"
WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY,"
"WILL," "SHOULD," "EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE
NEGATIVES THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE
CAUTIONARY STATEMENTS SET FORTH UNDER THE CAPTION "RISK FACTORS" AND ELSEWHERE
IN THIS PROSPECTUS IDENTIFY IMPORTANT FACTORS WITH RESPECT TO SUCH
FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH
FORWARD-LOOKING STATEMENTS.
TABLE OF CONTENTS
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PAGE
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Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Price Range of Common Stock And Dividend Policy. . . . . . . . . . . . . . 23
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Description of Securities. . . . . . . . . . . . . . . . . . . . . . . . . 60
Plan of Distribution And Selling Stockholders. . . . . . . . . . . . . . . 67
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . F-2
</TABLE>
2
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO OR FROM ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE BUSINESS OR AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF OR THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE AS OF WHICH SUCH INFORMATION IS FURNISHED.
AVAILABLE INFORMATION
The Company has not been previously subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
although it will become subject to the reporting requirements of the Exchange
Act following the registration of the securities described herein. In
accordance with the Exchange Act, the Company will file reports, proxy
statement, and other information with the Securities and Exchange Commission
(the "Commission"). In addition, the Company intends to furnish its
stockholders with annual reports containing audited financial statements and
such interim reports as it deems appropriate.
Pursuant to the Securities Act, the Company has filed a Registration
Statement on Form SB-2 with the Commission of which this Prospectus forms a
part. This Prospectus does not contain all of the information contained in the
Registration Statement and the exhibits thereto, certain parts of which have
been omitted in accordance with rules of the Commission. Any statements
contained herein concerning the provisions of any document filed as an exhibit
to the Registration Statement or otherwise filed with the Commission are not
necessarily complete, and, in each instance, reference is made to the copy of
the document so filed for a more complete description of the matter involved,
and each such statement is qualified in its entirety by such reference. The
Registration Statement and the exhibits thereto are on file with, and may be
examined without charge, at the following public reference facilities of the
Commission: 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 7 World
Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may be obtained, at prescribed rates, from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549.
The Commission maintains an Internet web site that contains information,
including registration statements, of issuers who file electronically with the
Commission. The address of that web site is http://www.sec.gov.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED HEREIN, THE
FINANCIAL, BUSINESS ACTIVITIES, MANAGEMENT AND OTHER PERTINENT INFORMATION
HEREIN RELATE ON A CONSOLIDATED BASIS TO THE COMPANY AND ITS 80 PERCENT OWNED
SUBSIDIARY, THERMAL MEDICAL IMAGING, INC. INVESTORS ARE URGED TO READ THIS
PROSPECTUS IN ITS ENTIRETY AND CAREFULLY CONSIDER THE INFORMATION SET FORTH
UNDER THE HEADING "RISK FACTORS." ADDITIONALLY, UNLESS OTHERWISE INDICATED, ALL
COMMON STOCK SHARE AND PER SHARE DATA AND INFORMATION IN THIS PROSPECTUS ASSUME
NO EXERCISE OF THE OUTSTANDING RESALE OPTIONS OR WARRANTS INTO SHARES OF THE
COMMON STOCK, OR THE ISSUANCE OF ANY UNVESTED SHARES OF THE RESTRICTED STOCK.
MOREOVER, UNLESS OTHERWISE INDICATED, ALL MONETARY AMOUNTS HAVE BEEN EXPRESSED
IN UNITED STATES DOLLARS.
THE COMPANY
Computerized Thermal Imaging, Inc. (the "Company") was incorporated on June
10, 1987 in the State of Nevada as Business Helpers, Inc. The Company amended
its Articles of Incorporation on August 25, 1989 to effect a name change to DTI
Dorex, Ltd. and again on November 3, 1989 to its current name. In April 1992,
the Company further amended its Articles of Incorporation to provide for a
capital structure of 100,000,000 shares of common stock, par value of $0.001 per
share, and 3,000,000 shares of preferred stock with such designations,
preferences and other features as may be required by the Company's Board of
Directors. On March 16, 1998, the Company further amended its Articles of
Incorporation which described in more detail the authority of the Board of
Directors with respect to any shares of the preferred stock which may be issued
by the Company. In addition, such amendment denied preemptive rights to all
stockholders of the Company from and after such date. In 1988, the Company,
through the issuance of shares of its Common Stock, acquired substantially all
of the assets of Thermal Imaging, Inc., an Oregon corporation (herein sometimes
referred to as "TII"), which assets consisted primarily of certain intellectual
property regarding thermal imaging intellectual property.
The Company is a development stage company that is a medical imaging
systems integrator producing a computerized clinical thermal imaging diagnostic
and patient management system (the "CTI System") that has been trademarked under
the name COMPUTERIZED THERMAL IMAGING. The Company plans to license the CTI
System to various health care providers such as hospitals, HMOs and free
standing image centers through "Use Agreements." Revenues will be generated
under the Use Agreements by charging the health care providers monthly for time
usage and for the disposable supplies purchased in conjunction with the CTI
System. The Company also plans to sell the CTI System to certain countries in
Asia, such as the People's Republic of China (the "PRC"), where use of thermal
imaging for medical use is more prevalent than in the United States. As of the
date of this Prospectus, the PRC's Ministry of Public Health has been unable to
obtain funding for a project for which the Company initially contracted in 1995,
although the Ministry of Public Health maintains its intention to pursue
placement of the CTI System in its hospitals. The Company does not plan to make
material expenditures for this project until funding is obtained from the PRC.
The CTI System is currently composed of four elements. One element is a
climate controlled lab (herein referred to as a "QTA Lab"). The second element
is the examination unit, consisting of an infra-red camera, imaging monitor,
high resolution printer, computer and proprietary software and telemedicine
interface. The third element of the CTI System is a digital health card that
encodes a patient's thermal image for subsequent comparison by physicians, or
even the patient's entire medical record, in a digital format on a plastic card
the size of a credit card. The fourth element is a proprietary medical
protocol. The Company's 80 percent owned subsidiary, Thermal Medical Imaging,
Inc., a Nevada corporation (herein sometimes referred to as "TMI") utilizes the
CTI System specially configured as a breast cancer system which is a
non-invasive, non-contact procedure that does not involve breast compression or
exposure to radiation (the "TMI System"), and which is comprised of an infra-red
camera, a central processing unit, a display unit, examination equipment for
which a patent application has been filed, and a power distribution unit. The
TMI System employs a proprietary patient positioning system in the data
acquisition process.
As of the date of this Prospectus, neither the CTI System nor the TMI
System has been formally approved by the United States Federal Drug
Administration (the "FDA"). Management believes that the CTI System has
clearance to be sold in the United States without obtaining further government
approval from the FDA because its components
4
<PAGE>
have been cleared for use for medical purposes by the FDA at the request of the
component manufacturers. As a practical matter, the market for the CTI System
is impeded because specific insurance and Medicare payment codes are not
available for patients to obtain cost reimbursement for use of a specific
medical imaging system without further FDA approval establishing the efficacy or
specific medial claims.
The sale of the TMI System in the United States for use in the detection of
breast cancer requires FDA approval. Management believes that no other
thermography or thermal imaging procedures currently being used for medical
purposes, even with FDA approval, are equivalent to the TMI System.
Consequently, the TMI System is presently undergoing clinical testing by
physicians at four independent hospital sites in accordance with a protocol
which management expects to lead to pre-market approval (hereinafter sometimes
referred to as "PMA") by the FDA. See "Business." While TMI hopes to receive
PMA within the next 12 months, various factors, including the length of the time
needed to collect sufficient research data, analyze patient images, submit
comparison findings to the FDA, and obtain independent FDA consultant review,
could effect delays, and there is no guarantee that any or all of the stages
will be completed or achieved. In addition, the cost associated with completing
clinical trials of the TMI System is estimated to be approximately $3,000,000,
but this figure could vary depending on numerous factors, including the length
of the clinical trials, the efficiency of the prototype TMI System, the testing
methods employed, and the results of the FDA review. The inability of the
Company and/or TMI to raise sufficient working capital to fund the clinical
trials could adversely affect the ability of TMI to complete the PMA process.
Several risk factors exist which should be carefully reviewed by
prospective investors prior to making a decision to invest in the Company.
These factors include, but are not limited to, the effect of the following
events or contingencies on the business of the Company: (i) lack of working
capital and guaranteed sources of financing; (ii) investigations or claims in
connection with prior offerings of shares of the Common Stock, Warrants and
Debentures by stockholders or state or federal securities regulators could delay
effective dates or increased legal fees in defense thereof (see "Risk Factors -
Select Capital Advisors, Inc. Debentures and Warrants" and "Business -
Litigation"); (iii) the failure of the Company, before March 16, 1998, to
provide stockholders with an opportunity to exercise preemptive rights; (iv) a
claim by the Company against Select Capital Advisors for fraud; (v) accounts
payable to a primary creditor, TRW, and substantial indebtedness to the
Company's primary legal counsel; (vi) the unknown but substantial cost required
both to obtain FDA approval to make any medical claims for efficacy and to
obtain insurance payment code authorizations for each procedure using the CTI
System and TMI System; and (vii) dependence on key employees.
The Company will require an estimated $6,000,000 over the next 12 months
for its research and development programs, preclinical and clinical testing,
development of its sales and distribution efforts, operating expenses,
regulatory processes and manufacturing and marketing programs. The Company's
capital requirements will depend on numerous factors, including the progress of
its research and development programs; results of preclinical and clinical
testing; the time and cost involved in obtaining regulatory approvals; the cost
of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights; the economic impact of competing technological and
market developments; developments and changes in the Company's existing
research, licensing and other relationships; and the terms of any new
collaborative, licensing and other arrangements that the Company may establish.
During the three years prior to the date of this Prospectus, David B. Johnston,
the Chairman of the Board and the Chief Executive Officer of the Company, and
certain affiliates of Mr. Johnston and the Company have contributed
approximately $3,500,000 to the capital of the Company in exchange for shares of
the Common Stock. The Company believes that its current assets and potential
additional contributions from affiliates of the Company and certain accredited
investors, as needed, will be sufficient to meet the Company's short-term
operating expenses and capital expenditures. At the present time, however,
there is no commitment from anyone with respect to any future capital
contributions to the Company, and there is no way to predict when and if any
such additional contributions may be made. Consequently, the bulk of the needed
capital over the next 12 months must come from one or more substantial new
investors.
In order to meet its expected capital needs for the next 12 months, the
Company executed the Investment Agreement with Bristol Asset Management, L.L.C.
("Bristol") on January 20, 1998. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." Subject to certain conditions, the Company may require Bristol to
purchase up to $7,000,000 worth of the Common Stock during the remaining portion
of the three year term of the Investment Agreement. The obligations of Bristol
to purchase such
5
<PAGE>
shares are subject to a number of conditions precedent. Such conditions
precedent include, but are not limited to, the unrestrained trading of the
Common Stock on the principal exchange on which the shares are traded (as of the
date of this Prospectus, such exchange is the OTC Bulletin Board operated by The
Nasdaq Stock Market), and the registration for resale of the Newly Issued Shares
of the Common Stock under the Securities Act. In addition, the Common Stock
must be registered pursuant to the Exchange Act. If the Company fails to
maintain its status under the Exchange Act, or the Common Stock is delisted from
the principal exchange on which the Common Stock is traded, Bristol shall have
no obligation to contribute any additional funds to the Company, or if no such
funds have been contributed, to contribute any funds to the Company. In
addition, if Bristol were to become the owner of at least 4.9 percent of the
issued and outstanding shares of the Common Stock, Bristol may elect not to
purchase any further shares of the Common Stock, even though the full $7,000,000
worth of the Common Stock has not been purchased. In computing the 4.9 percent
limitation, all shares of the Common Stock owned or deemed to be owned pursuant
to Section 13(d) of the Exchange Act and the rules promulgated thereunder, shall
count towards the ownership limitation. As a result of these conditions, it is
possible that Bristol's total investment under the Investment Agreement, if any,
could be limited to an aggregate cash contribution well below the $7,000,000
commitment. For example, assuming the Company had satisfied all conditions
precedent and market conditions as of May and June 1998 remained constant, if
Bristol actually purchases shares of the Common Stock, such shares when coupled
with the shares deemed to be owned under Section 13(d) of the Exchange Act and
the rules promulgated thereunder (E.G., the Warrant Shares discussed below),
Bristol would only be able to purchase approximately $1,377,465 worth of the
Common Stock before the 4.9 percent limitation would be reached. The Company
has no access to the financial statements of Bristol, a privately owned company,
and relies upon Ambient Capital Group, Inc., its financial adviser, to attest
for Bristol's ability to perform. See "Principal Stockholders - Bristol Asset
Management, L.L.C. Investment Agreement."
On each closing date with respect to the purchase of shares of the Common
Stock by Bristol, the Company shall also deliver to Bristol Compensation
Warrants to purchase shares of the Common Stock (the "Warrant Shares"), which
Compensation Warrants shall expire on the fifth anniversary of the date of
issuance thereof. The Compensation Warrants issuable at any such closing shall
entitle the holder thereof to purchase a number of Warrant Shares equal to 12
percent of the number of shares of the Common Stock purchased at the closing in
question at an initial exercise price, subject to the provisions of the
Investment Agreement, equal to 100 percent of the average closing sales price
for the Common Stock on the principal exchange on which the shares are traded
and as noted by Bloomberg (or other appropriate published source) during the
Look Back Period (defined below) in question.
Pursuant to the Investment Agreement, the maximum amount of the shares of
the Common Stock which the Company may obligate Bristol to purchase shall not to
exceed the lesser of (i) $7,000,000 less all amounts previously paid by Bristol,
and (ii) the product of (x) the number of shares of the Common Stock traded on
the principal exchange on which the shares of the Common Stock traded for the
preceding calendar month, multiplied by (y) the average of the closing bid
prices noted in Bloomberg (or other appropriate published source) for the Common
Stock during the prior calendar month, multiplied by (z) 14 percent. For
example, if a total of 1,000,000 shares of the Common Stock traded during
January of a particular year and the average of the closing bid prices was
$2.00, on or before February 10 the Company could request a draw down not to
exceed 14 percent of the $2,000,000 or $280,000, so long as such amount was
available under the Investment Agreement. Payment of the draw down amount must
be made by Bristol on the fifth business day following the proper delivery of a
Put Notice.
Simultaneously with the receipt of the funds from Bristol in the amount of
the draw down, the Company shall issue and sell to Bristol the number of shares
of the Common Stock equal to the draw down divided by 74 percent of the lowest
sales price for the Common Stock on the principal exchange on which the shares
are traded and as noted in Bloomberg (or other appropriate published source)
(the "Lowest Sale Price" during the 10 trading days prior to the Put Notice Date
(the "Look Back Period"). For example, if the Lowest Sale Price for the Look
Back Period was $2.00 and the draw down was $500,000, the number of shares of
the Common Stock to be issued would be 337,837 shares. Notwithstanding the
foregoing, in the event that the Lowest Sale Price during the 20 trading days
after a particular closing is less than 95 percent of the Lowest Sale Price
applicable to such closing, then the Company shall promptly issue to Bristol an
additional number of shares of the Common Stock with respect to such closing
such that the number of shares of the Common Stock issued to Bristol at such
closing plus such additional number of shares are equal to the funds drawn down
at such Closing divided by 74 percent of the Lowest Sale Price during such 20
trading day period. Bristol shall also be issued additional Compensation
Warrants equal to 12 percent of the number of additional shares
6
<PAGE>
so issued and the exercise price of such additional Compensation Warrants and
the Compensation Warrants issued at such closing shall be adjusted to 100
percent of the Lowest Sale Price during such 20 trading day period.
Other than Bristol, there are no other known sources of liquidity. The
Company's cash requirements may vary materially from those now forecasted due to
potential future acquisitions, the progress of research and development
programs, results of clinical testing, relationships with strategic partners, if
any, competitive and technological advances, decisions of the FDA and foreign
regulatory processes and other factors. There can be no assurance, however,
that additional capital or financing will be available when needed, or if
available, will be available on acceptable terms. Insufficient funds may
prevent the Company from implementing its business strategy or may require the
Company to delay, scale back or eliminate certain of its research and product
development programs, including the FDA clinical trials currently being
conducted by TMI, or to license third parties the rights to commercialize
products or technologies that the Company would otherwise seek to develop on its
own.
As noted above, Bristol will obtain essentially a 26 percent discount on
the purchase price of shares of the Common Stock pursuant to the Investment
Agreement. In addition, Bristol has the right to have additional shares and
additional Compensation Warrants issued to it if there has been a certain
decrease in the market price of the shares. The intention behind these two
provisions is to protect Bristol's relative stock position vis a vis other
stockholders who may acquire shares of the Common Stock at a time when the
market price per share has declined. Management does not believe that these two
provisions should adversely affect the market price for the shares of the Common
Stock, inasmuch as the various purchases of shares of the Common Stock by
affiliates of the Company over the past couple of years have involved discounts
of up to 50 percent in some instances without any seeming negative effect.
Likewise, management does not believe that the provisions of the Investment
Agreement should adversely affect the ability of the Company to raise capital in
the future. Neither Bristol nor any other stockholder of the Company currently
has any preemptive right to acquire any additional shares of the Common Stock,
and as a result, management does not believe that because Bristol has certain
rights to acquire additional shares at the time it purchases shares would have
any long-term effect on the decision by any other investor to invest in the
Company. However, the fact that there will be a large number of shares of the
Common Stock registered for resale by means of this Prospectus might adversely
affect the ability of the Company to raise capital in the future due to the fact
that so many stockholders could sell their shares at any time and thereby drive
down the market value of the shares of the Common Stock, at a time when price
stability would be an important issue for any new investor.
If the Company does not commence generating adequate revenues, or if it
does not attract new capital sufficient to meet its operating needs, the Company
will not be able maintain the existing clinical trials to obtain FDA approval
for the TMI System or to obtain insurance payment codes for the CTI System. In
such event, the Company would have difficulty selling its products in the United
States. The Company would then be forced to focus on sales to foreign markets
that do not require FDA approval.
The Company's principal executive office is located at 476 Heritage Park
Boulevard, Suite 210, Layton, Utah 84041, and its telephone number is (801)
776-4700. TMI's principal executive office is located at 1760 South Telegraph
Road, Suite 202, Bloomfield Hills, Michigan 48302, and its telephone number is
(248) 745-4960.
7
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Outstanding Prior
to the Offering. . . . . . . . . 48,608,848 shares (1)
Common Stock to be Resold. . . . . 33,761,916 shares (2). See "Plan of
Distribution and Selling Stockholders."
OTC Bulletin Board Symbol. . . . . . COII
</TABLE>
- ---------------------
(1) Includes shares of the Common Stock issued and outstanding as of June 30,
1998. Does not include (i) 18,229,167 shares proposed to be issued as
Newly Issued Shares; (ii) 2,552,083 shares underlying the Compensation
Warrants; (iii) 3,840,615 shares underlying the Resale Warrants; and (iv)
6,525,000 shares underlying the Resale Options. See "Management - Stock
Options and Restricted Stock" and "Description of Securities."
(2) Includes: (i) 18,229,167 Newly Issued Shares. (ii) 2,552,083 shares to be
issued upon the exercise of the Compensation Warrants. The number of Newly
Issued Shares and the shares underlying the Compensation Warrants being
registered hereby generally are calculated based on the formula set forth
in the Bristol Asset Management, L.L.C. Investment Agreement (the
"Investment Agreement"). The formula used to calculate the number of Newly
Issued Shares being registered hereunder is as follows: $7,000,000 DIVIDED
BY 74 percent x $0.52 (the lowest sales price for the Common Stock on the
principal exchange of the Company during the 10 trading days prior to
January 30, 1998) = 18,229,167 shares of the Common Stock. The number of
shares of the Common Stock underlying the Compensation Warrants was
calculated as follows: 18,229,167 MULTIPLIED BY 14 percent = 2,552,083
shares. If the sales price for the Common Stock used in the formula is
different than the example of $0.52 contained herein, then the number of
Newly Issued Shares and the number of shares underlying the Compensation
Warrants will change. However, for the purposes of this Prospectus, the
formula price of $0.52 per share is being used. If the sales price is
greater than $0.52 per share, a lesser number of shares of the Common Stock
will be issued pursuant to the Investment Agreement. (iii) 2,615,051
shares issued and outstanding. (iv) 3,840,615 shares underlying the Resale
Warrants. (v) 6,525,000 shares underlying the Resale Options. See "Plan
of Distribution and Selling Stockholders."
8
<PAGE>
SUMMARY SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table presents summary historical data of the Company on a
consolidated basis as of March 31, 1998 and 1997 and for the fiscal years ended
June 30, 1997 and 1996, respectively, which present the consolidated results of
continuing operations of the Company and its 80 percent owned subsidiary,
Thermal Medical Imaging, Inc. This historical data as of March 31, 1998 and
1997 and for the fiscal years ended June 30, 1997 and 1996 has been derived from
the Company's audited and unaudited Financial Statements included elsewhere in
this Prospectus. The summary historical consolidated financial information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and the Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
March 31, June 30,
--------- --------
1998 1997 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues, net. . . . . . . . . . . . . $0 $55,815 $55,815 $125,000
Other income . . . . . . . . . . . . . $2,688 $3,448 $5,762 $9,869
------ ------ ------ ------
Total revenues . . . . . . . . . . . . $2,688 $59,263 $61,577 $134,869
Loss from operations . . . . . . . . . ($4,485,000) ($2,380,322) ($3,349,614) ($3,241,762)
Net loss . . . . . . . . . . . . . . . ($4,485,000) ($2,380,322) ($3,349,614) ($3,241,762)
Net loss per weighted-average shares
of common outstanding stock. . . . . (0.11) (0.07) (0.10) (.0.11)
Shares of Outstanding Common Stock . . 42,139,248 33,158,177 38,803,045 30,875,600
BALANCE SHEET DATA:
Current assets . . . . . . . . . . . . $498,376 $195,385 $196,056 $163,928
Total assets . . . . . . . . . . . . . $871,788 $522,675 $528,675 $278,680
Current liabilities. . . . . . . . . . $1,998,712 $696,157 $1,671,448 $226,670
Total liabilities. . . . . . . . . . . $2,516,212 $1,371,157 $2,346,448 $226,670
Stockholders' equity (deficit) . . . . ($1,644,424) ($848,482) ($1,817,773) $52,000
Working capital (deficit). . . . . . . ($1,500,336) ($500,772) ($1,475,392) ($62,740)
</TABLE>
9
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMPANY INVOLVES CERTAIN RISKS. PROSPECTIVE INVESTORS
SHOULD CAREFULLY REVIEW THE FOLLOWING FACTORS TOGETHER WITH THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS PRIOR TO MAKING AN INVESTMENT DECISION.
DEVELOPMENT STAGE COMPANY. Since inception, the Company has been engaged
almost exclusively in organizational and research and development activities,
and has only recently begun product commercialization. Accordingly, as a
development stage company, the Company has a limited operating history upon
which an evaluation of the Company's prospects can be made. Consequently, the
likelihood of success must be considered in view of all of the risks, expenses
and delays inherent in the establishment of a new business, including, but not
limited to, expenses and delays of commencing a new business, slower than
forecasted manufacturing and marketing activities, the uncertainty of market
assimilation of the Company's products and other unforeseen factors.
Furthermore, there can be no assurance that the Company's proposed business as
described herein will prove successful or that the Company will ever be able to
operate profitably.
LIMITED OPERATING HISTORY; CONTINUING OPERATING LOSSES. The Company was
formed in June 1987 and has not generated significant revenues to date. As of
March 31, 1998, the Company had an accumulated deficit of $19,224,084 funded by
paid in capital. For the fiscal years ended June 30, 1997 and 1996, the Company
had operating losses of $3,349,614 and $3,241,762, respectively, resulting
principally from costs incurred in research and development efforts and other
costs of operations. The Company expects that operating losses will continue
until such time as product sales generate sufficient revenues to fund its
continuing operations, as to which there can be no assurance.
INDEPENDENT ACCOUNTANTS' REPORT; GOING CONCERN QUALIFICATION. The report
from the Company's independent accountants includes an explanatory paragraph
which describes substantial doubt concerning the ability of the Company to
continue as a going concern, without continuing additional contributions to
capital. The Company may incur losses for the foreseeable future due to the
significant costs associated with manufacturing, marketing and distributing its
CTI System and TMI System (hereinafter sometimes collectively referred to as the
"Systems" and individually referred to as a "System") and due to continual
research and development activities which will be necessary to develop
applications for the Company's thermal imaging technology. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Financial Statements - Report of Independent Accountants."
UNCERTAINTIES CONCERNING FUTURE PROFITABILITY. The Company's ability to
achieve profitability will depend, in part, on its ability to successfully
develop clinical applications and obtain regulatory approvals for its products
and to develop the capacity to manufacture and market such products on a wide
scale. There is no assurance that the Company will be able to successfully make
the transition from research and development to manufacturing and selling
commercial thermal imaging products on a broad basis. While attempting to make
this transition, the Company will be subject to all risks inherent in a growing
venture, including the need to produce reliable and effective products, develop
marketing expertise and enlarge its sales force. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
UNCERTAIN ABILITY TO MEET CAPITAL NEEDS. The Company will require an
estimated $6,000,000 over the next 12 months for its research and development
programs, preclinical and clinical testing, development of its sales and
distribution efforts, operating expenses, regulatory processes and manufacturing
and marketing programs. The Company's capital requirements will depend on
numerous factors, including the progress of its research and development
programs; results of preclinical and clinical testing; the time and cost
involved in obtaining regulatory approvals; the cost of filing, prosecuting,
defending and enforcing any patent claims and other intellectual property
rights; the economic impact of competing technological and market developments;
developments and changes in the Company's existing research, licensing and other
relationships; and the terms of any new collaborative, licensing and other
arrangements that the Company may establish. During the three years prior to
the date of this Prospectus, David B. Johnston, the Chairman of the Board and
the Chief Executive Officer of the Company, and certain affiliates of
Mr. Johnston and the Company have contributed approximately $3,500,000 to the
capital of the Company in exchange for shares of the Common Stock. The Company
believes that its current assets and potential additional
10
<PAGE>
contributions from affiliates of the Company and certain accredited investors,
as needed, will be sufficient to meet the Company's short-term operating
expenses and capital expenditures. At the present time, however, there is no
commitment from anyone with respect to any future capital contributions to the
Company, and there is no way to predict when and if any such additional
contributions may be made. Consequently, the bulk of the needed capital over
the next 12 months must come from one or more substantial new investors.
In order to meet its expected capital needs for the next 12 months, the
Company executed the Investment Agreement with Bristol Asset Management, L.L.C.
("Bristol") on January 20, 1998. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." Subject to certain conditions, the Company may require Bristol to
purchase up to $7,000,000 worth of the Common Stock during the remaining portion
of the three year term of the Investment Agreement. The obligations of Bristol
to purchase such shares are subject to a number of conditions precedent. Such
conditions precedent include, but are not limited to, the unrestrained trading
of the Common Stock on the principal exchange on which the shares are traded (as
of the date of this Prospectus, such exchange is the OTC Bulletin Board operated
by The Nasdaq Stock Market), and the registration for resale of the Newly Issued
Shares of the Common Stock under the Securities Act. In addition, the Common
Stock must be registered pursuant to the Exchange Act. If the Company fails to
maintain its status under the Exchange Act, or the Common Stock is delisted from
the principal exchange on which the Common Stock is traded, Bristol shall have
no obligation to contribute any additional funds to the Company, or if no such
funds have been contributed, to contribute any funds to the Company. In
addition, if Bristol were to become the owner of at least 4.9 percent of the
issued and outstanding shares of the Common Stock, Bristol may elect not to
purchase any further shares of the Common Stock, even though the full $7,000,000
worth of the Common Stock has not been purchased. In computing the 4.9 percent
limitation, all shares of the Common Stock owned or deemed to be owned pursuant
to Section 13(d) of the Exchange Act and the rules promulgated thereunder, shall
count towards the ownership limitation. As a result of these conditions, it is
possible that Bristol's total investment under the Investment Agreement, if any,
could be limited to an aggregate cash contribution well below the $7,000,000
commitment. For example, assuming the Company had satisfied all conditions
precedent and market conditions in May and June 1998 remained constant, if
Bristol actually purchases shares of the Common Stock, such shares when coupled
with the shares deemed to be owned under Section 13(d) of the Exchange Act and
the rules promulgated thereunder (E.G., the Warrant Shares discussed below),
Bristol would only be able to purchase approximately $1,377,465 worth of the
Common Stock before the 4.9 percent limitation would be reached. The Company
has no access to the financial statements of Bristol, a privately owned company,
and relies upon Ambient Capital Group, Inc., its financial adviser, to attest
for Bristol's ability to perform. See "Principal Stockholders - Bristol Asset
Management, L.L.C. Investment Agreement."
On each closing date with respect to the purchase of shares of the Common
Stock by Bristol, the Company shall also deliver to Bristol Compensation
Warrants to purchase shares of the Common Stock (the "Warrant Shares"), which
Compensation Warrants shall expire on the fifth anniversary of the date of
issuance thereof. The Compensation Warrants issuable at any such closing shall
entitle the holder thereof to purchase a number of Warrant Shares equal to 12
percent of the number of shares of the Common Stock purchased at the closing in
question at an initial exercise price, subject to the provisions of the
Investment Agreement, equal to 100 percent of the average closing sales price
for the Common Stock on the principal exchange on which the shares are traded
and as noted by Bloomberg (or other appropriate published source) during the
Look Back Period (defined below) in question.
Pursuant to the Investment Agreement, the maximum amount of the shares of
the Common Stock which the Company may obligate Bristol to purchase shall not to
exceed the lesser of (i) $7,000,000 less all amounts previously paid by Bristol,
and (ii) the product of (x) the number of shares of the Common Stock traded on
the principal exchange on which the shares of the Common Stock traded for the
preceding calendar month, multiplied by (y) the average of the closing bid
prices noted in Bloomberg (or other appropriate published source) for the Common
Stock during the prior calendar month, multiplied by (z) 14 percent. For
example, if a total of 1,000,000 shares of the Common Stock traded during
January of a particular year and the average of the closing bid prices was
$2.00, on or before February 10 the Company could request a draw down not to
exceed 14 percent of the $2,000,000 or $280,000, so long as such amount was
available under the Investment Agreement. Payment of the draw down amount must
be made by Bristol on the fifth business day following the proper delivery of a
Put Notice.
Simultaneously with the receipt of the funds from Bristol in the amount of
the draw down, the Company shall issue and sell to Bristol the number of shares
of the Common Stock equal to the draw down divided by 74 percent of
11
<PAGE>
the lowest sales price for the Common Stock on the principal exchange on which
the shares are traded and as noted in Bloomberg (or other appropriate published
source) (the "Lowest Sale Price" during the 10 trading days prior to the Put
Notice Date (the "Look Back Period"). For example, if the Lowest Sale Price for
the Look Back Period was $2.00 and the draw down was $500,000, the number of
shares of the Common Stock to be issued would be 337,837 shares.
Notwithstanding the foregoing, in the event that the Lowest Sale Price during
the 20 trading days after a particular closing is less than 95 percent of the
Lowest Sale Price applicable to such closing, then the Company shall promptly
issue to Bristol an additional number of shares of the Common Stock with respect
to such closing such that the number of shares of the Common Stock issued to
Bristol at such closing plus such additional number of shares are equal to the
funds drawn down at such Closing divided by 74 percent of the Lowest Sale Price
during such 20 trading day period. Bristol shall also be issued additional
Compensation Warrants equal to 12 percent of the number of additional shares so
issued and the exercise price of such additional Compensation Warrants and the
Compensation Warrants issued at such closing shall be adjusted to 100 percent of
the Lowest Sale Price during such 20 trading day period.
Other than Bristol, there are no other known sources of liquidity.
Moreover, the Company at the present time does not have any party working on any
other source of capital. The Company's cash requirements may vary materially
from those now forecasted due to potential future acquisitions, the progress of
research and development programs, results of clinical testing, relationships
with strategic partners, if any, competitive and technological advances,
decisions of the FDA and foreign regulatory processes and other factors. There
can be no assurance, however, that additional capital or financing will be
available when needed, or if available, will be available on acceptable terms.
Insufficient funds may prevent the Company from implementing its business
strategy or may require the Company to delay, scale back or eliminate certain of
its research and product development programs, including the FDA clinical trials
currently being conducted by TMI, or to license third parties the rights to
commercialize products or technologies that the Company would otherwise seek to
develop on its own.
As noted above, Bristol will obtain essentially a 26 percent discount on
the purchase price of shares of the Common Stock pursuant to the Investment
Agreement. In addition, Bristol has the right to have additional shares and
additional Compensation Warrants issued to it if there has been a certain
decrease in the market price of the shares. The intention behind these two
provisions is to protect Bristol's relative stock position vis a vis other
stockholders who may acquire shares of the Common Stock at a time when the
market price per share has declined. Management does not believe that these two
provisions should adversely affect the market price for the shares of the Common
Stock, inasmuch as the various purchases of shares of the Common Stock by
affiliates of the Company over the past couple of years have involved discounts
of up to 50 percent in some instances without any seeming negative effect.
Likewise, management does not believe that the provisions of the Investment
Agreement should adversely affect the ability of the Company to raise capital in
the future. Neither Bristol nor any other stockholder of the Company currently
has any preemptive right to acquire any additional shares of the Common Stock,
and as a result, management does not believe that because Bristol has certain
rights to acquire additional shares at the time it purchases shares would have
any long-term effect on the decision by any other investor to invest in the
Company. However, the fact that there will be a large number of shares of the
Common Stock registered for resale by means of this Prospectus might adversely
affect the ability of the Company to raise capital in the future due to the fact
that so many stockholders could sell their shares at any time and thereby drive
down the market value of the shares of the Common Stock, at a time when price
stability would be an important issue for any new investor.
SECURITIES LAWS ISSUES. Within the last three years of the date of this
Prospectus, the Company has raised working capital by means of the sale of its
securities through various private offerings thought to be exempt from the
registration requirements of the Securities Act or various applicable state
securities laws. Some of those sales were for services rendered and some were
to persons who were not provided with prepared offering materials and who did
not sign detailed subscription agreements supplying investor information,
including states of the sales, although management believes, based upon
information known by the Company or its agents, that the persons were qualified
accredited investors or otherwise qualified. In the event that any of the
exemptions from registration with respect to the sales of such securities under
the Securities Act and applicable state securities laws were not in fact
available, the Company may face exposure to claims by federal and state
regulators for any such violations. In addition, if any purchaser of the
Company's securities were to prevail in a suit resulting from inadequate
disclosure or the unavailability of such exemption, the Company could be liable
to return the amount paid for such securities with interest thereon upon tender
of such securities, or for damages if the purchaser no longer owns the
securities. As of the date of this Prospectus, management is not aware of any
alleged specific violation or the likelihood of any claim.
12
<PAGE>
There can be no assurance that litigation asserting such claims will not be
initiated, or that the Company would prevail in any such litigation.
PREEMPTIVE RIGHTS ISSUES. Pursuant to Title 7, Chapter 79 of the Nevada
Revised Statutes, stockholders of corporations organized before October 1, 1991,
with certain limited exceptions set out in the statute, have preemptive rights
to acquire pro rata unissued shares, treasury shares or securities convertible
into such shares, being offered for sale, except to the extent limited or denied
by the corporation's articles of incorporation. Prior to October 1, 1991, among
other circumstances, preemptive rights did not exist with respect to (i) shares
issued to directors, officers or employees of the Company pursuant to a vote of
the stockholders, or pursuant to a plan authorized by the stockholders, (ii)
shares sold for a consideration other than cash, and (iii) shares issued at the
same time that the stockholder who claims a preemptive right acquired his
shares. The Company was incorporated on June 10, 1987, and prior to March 16,
1998, its Articles of Incorporation did not provide for any limitation with
respect to preemptive rights. In the various offerings of its securities, the
Company did not offer to its existing stockholders preemptive rights to acquire
any of the securities so offered other than to persons in exchange for services
rendered. The applicable remedy, if any, for the failure by the Company to
offer to its stockholders the preemptive rights is not certain after the passage
of time and Common Stock price fluctuations. Under Nevada law, the preemptive
right is only an opportunity to acquire shares upon such terms as the Board of
Directors fixes for the purpose of providing a fair and reasonable opportunity
for the exercise of such right. If a stockholder were to timely demand
preemptive rights for a particular non-excepted prior sale, the Company might be
required in equity to sell additional shares of the Common Stock to the
complaining stockholder at previously offered prices to enable a stockholder
exercising such rights to maintain his ownership percentage for prior sales that
would effect preemptive rights. To the extent that any stockholders were
entitled to the right to purchase shares of the Common Stock upon the exercise
of any such preemptive rights, the Company plans to allow any such requesting
stockholder the right to purchase his pro rata amount of such shares at the same
price per share to which he would have been entitled if such preemptive rights
had been offered in conformity with Nevada law. Any such offering of preemptive
rights will be in conformity with the Securities Act and the various states
where any such stockholders may be located. If any stockholders were to
exercise their preemptive rights within the applicable statute of limitations
for any sale of securities which carried a preemptive right prior to March 16,
1998, the percentage interests of investors may be diluted by any such sales of
additional securities and the contributions to the Company from such sales, if
required to be offered at the price of previous issuances and if such price is
below the current market value, could result in contributions to the Company at
a per share contribution less than the current market value. The Company cannot
speculate whether any stockholders would elect such preemptive rights, if the
statute of limitations has not barred such rights, or how much additional
capital would be raised or how many shares would be issued or whether other
remedies would be available. Thus, the Company assigns no liability to this
contingency. As of the date of this Prospectus, management is not aware of any
stockholder who intends to make any claim with respect to the failure by the
Company to offer any such preemptive rights. On February 4, 1998, a majority of
the stockholders, by written consent, voted to amend the Articles of
Incorporation of the Company to deny preemptive rights with respect to each new
issuance of shares of the Common Stock. However, the amendment to the Articles
of Incorporation will have no effect with respect to preemptive rights which may
have existed for certain sales of the Common Stock prior to such amendment. See
"Description of Securities - Preemptive Rights."
SELECT CAPITAL ADVISORS, INC. DEBENTURES. On December 9, 1997, the Company
filed suit against Select Capital Advisors, Inc. ("Select"), Ronald G. Williams
("Williams"), and various other parties in the United States District Court for
the Southern District of Florida for damages and recission with respect to the
fraudulent sale of certain 12% Series A Senior Subordinated Convertible
Debentures issued by the Company. In March 1997, the Company was introduced to
Select and Williams who represented that they had the experience, reputation and
resources to raise the needed capital and to provide needed equipment and
operating financing of approximately $6,000,000. The Company entered into an
agreement with Select to raise the funds and perform certain financial advisory
services. In April 1997, Select negotiated the offering and issuance of the
convertible debentures for approximately $530,000 in proceeds. Following the
attempted conversion of the debentures by the investors, the Company discovered
evidence to indicate that numerous false and misleading statements were made by
unauthorized persons in connection with the sale of the debentures; various
documents were changed without the knowledge of the Company; unlicensed
broker-dealers sold the debentures; and Williams and Select made material
omissions to the Company and to the purchasers. The Company filed suit but has
since reached settlements with all of the investors. The Company plans to
continue with the prosecution of its claims against Select and Williams.
Management believes that it will prevail in the litigation against Select and
Williams. See "Business - Litigation."
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<PAGE>
CLAIMS INVOLVING STOCKHOLDERS. The Company has initiated a suit in Nevada
to recover shares issued and damages from a former director for failure of
consideration. During the year ended June 30, 1994, the Company issued
1,000,000 shares of the Common Stock to a former director of the Company based
upon the director's representation that he would arrange large-scale financing
and capital from certain proposed contributors. During the year ended June 30,
1997, actions were taken to cancel the shares of the Common Stock because the
Company contended that the issuance was conditional upon performance by the
former director to consummate the financing. The Company recently learned that
a lender to the former director asserted a pledge of 500,000 shares of the
Common Stock as collateral for a loan. The 500,000 pledged shares of the Common
Stock issued to the director are included as issued and outstanding shares in
the accompanying Consolidated Financial Statements at June 30, 1997 and 1996.
See "Business - Litigation."
PAST DUE ACCOUNTS. Over the last several months, the Company has had
discussions with its primary systems development vendor, TRW, Inc., an Ohio
corporation ("TRW"), regarding past due accounts. TRW has and continues to
perform software development and strategic integration and management services
regarding the testing, development and deployment of the Systems. The Company
became delinquent in the payment of costs and fees under contracts with TRW (see
Note 6 to the Consolidated Financial Statements that are included elsewhere in
this Prospectus) and, accordingly, TRW, although not having filed formal legal
actions, threatened the Company that it would withhold delivery of source codes
of developed software, if the past due amounts were not paid. The Company and
TRW verbally agreed that the Company would make payments at the rate of three
times TRW's weekly on-going costs with respect to work performed for the benefit
of the Company, plus a fee equal to 15 percent of costs, until the past due
accounts were liquidated. As of the date of this Prospectus, the Company has
made all payments agreed to be made to TRW, and management expects that the
Company will continue to do so. The payable to TRW at one time had been as high
as $897,762, but as of July 6, 1998 the outstanding account balance was
approximately $225,000. If the Company defaults in its agreed payment schedule,
and TRW carries through with its threat to withhold the delivery of the source
codes or other key deliverables, the TMI operations would be shut down, or
severely restricted from analyzing clinical data.
As of April 21, 1998, the Company owed approximately $397,745.56 in legal
fees to the law firm of Looper, Reed, Mark & McGraw Incorporated (the
"Attorneys"). The Company executed a Promissory Note dated May 1, 1998
consolidating the balance of fees owed to the Attorneys through April 21, 1998
(the "Promissory Note"). The terms of the Promissory Note provided for interest
to accrue on the unpaid principal at a rate of one percent per month. The
Company is obligated to make monthly installment payments of $50,000, including
accrued interest, which may increase in the event the Company obtains a certain
level of financing, until all principal and interest are paid in full. The
Promissory Note incorporates the terms of two pledge agreements executed by the
Company and TMI which provide security for the amounts due under the Promissory
Note and on future outstanding accounts with the Attorneys (the "Pledge
Agreements"). The security interests granted pursuant to the Promissory Note
and Pledge Agreements cover the Company's common stock holdings in TMI and the
intellectual property of both the Company and TMI. See "Business - Past Due
Accounts." If an event of default were to occur under the Promissory Note or
the Pledge Agreements, the Company's interest in TMI, its 80 percent subsidiary
(including the TMI System), and/or the intellectual property relating to the CTI
System could be sold to satisfy the outstanding debt. As of August 15, 1998,
the unpaid principal balance due on the Promissory Note was approximately
$209,261 and approximately $103,000 in additional fees have been incurred. As
of the date of this Prospectus, the Company has made all payments due under the
Promissory Note, and management expects that the Company will continue to do so.
NEW PRODUCT DEVELOPMENT AND INTEGRATION; TECHNOLOGICAL CHANGE. Upon first
introduction, many physicians may equate the Systems with the predecessor
technology of "thermography," an analog infra-red camera system without the
Company's computer algorithm analysis using computed thermal data gathered by
high quality digital thermal imaging cameras, and educating physicians that the
Systems are new technology may take more time than anticipated by management.
The market for the Systems is characterized by rapid technological advances,
changes in customer requirements and frequent new product introductions and
enhancements. The Company's future success will depend upon its ability to
enhance and integrate its current product line, to complete products currently
under development, to develop and introduce new products that keep pace with
technological developments, and to respond to evolving customer requirements.
Any failure by the Company to anticipate or respond adequately to technological
developments by its competitors or to changes in customer requirements, or any
significant delays in product integration, development
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or introduction could result in a loss of competitiveness or revenues.
Timeliness of delivery of either a System when ordered or services for a System
delivered is of critical importance to certain customers, and the Company's
failure to successfully develop and ship such products in a timely manner could
result in cancellation of customer orders which would have a material adverse
effect on the Company's business and results of operations. TMI has no
assurance that it can finance its development, marketing, or production costs.
In an effort to raise the needed capital, the Company has executed the
Investment Agreement with Bristol Asset Management, L.L.C. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources." At the date of this Prospectus there is no
known financing source for TMI, so the Company must fund or finance the balance
of the clinical trials and any subsequent development, operating costs,
marketing and production costs until TMI develops its business and either
arranges financing or is profitable. All risk factors set out in this
Prospectus for the Company also apply to the risks of the Company's investment
in TMI. There can be no assurance that the Company will be successful in
completing its product integration efforts or in developing and marketing new
products or product enhancements on a timely or cost-effective basis, and such
failure could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business - Products."
DEPENDENCE ON THE CTI SYSTEM AND THE TMI SYSTEM; UNCERTAINTY OF MARKET
ACCEPTANCE. The Company's success is dependent on the development and market
acceptance of its CTI System and the TMI System. All of the Company's revenues
will be derived from the placement or sale of the Systems for the global health
care market. The market for the Systems is still relatively undeveloped and may
not experience material expansion in the near future as planned by management.
In the event that the Company's market does not develop as anticipated, the
Company's business, financial condition and results of operations would be
adversely effected. The rate of deploying the TMI System in the United States
will depend upon the degree to which clinics and physicians accept, due to the
worldwide existence of mammography equipment, after PMA approval, if obtained,
the TMI System as complementary to mammography to detect breast cancer (the only
claim authorized for ongoing clinical trials) or as an independent examination
technology. TMI management believes the TMI System results will be accepted by
the medical community.
The commercial success of the Systems will depend upon their acceptance by
the medical community as useful and cost-effective. There can be no assurance
that the Company can market the Systems or that the Company will introduce new
products that achieve significant market acceptance in the future. Moreover,
when the Systems are being marketed for sale or use, new product introductions
or enhancements by the Company's competitors or the use of other technologies
could cause a decline in sales or loss of market acceptance of the Systems. In
addition, third-party payors in the U.S., such as governmental programs and
private insurance plans, can indirectly affect the pricing or the relative
attractiveness of the Systems by regulating the maximum amount of reimbursement
that they will provide for the taking, storing and interpretation of medical
images. A decrease in the reimbursement amounts for imaging procedures may
decrease the amount which physicians, clinics and hospitals are able to charge
patients for such services. In management's view, the acceptability and
adaptability of the Systems could be enhanced by such a decrease because the
Systems are less costly to use and deploy than magnetic resonance imaging
("MRI") or computed tomography ("CAT") scan. Third-party payors may require FDA
approval before authorizing any payment codes solely for use of either of the
Systems, although physicians might still use the Systems as a diagnostic tool
even without separate payment codes. In the event that the Systems and products
under development do not achieve market acceptance, the Company's business,
financial condition and results of operations could be adversely effected. See
"Business - Products" and "-Third-Party Reimbursement."
TMI DEPENDENCE ON THE COMPANY. TMI is an 80 percent owned subsidiary of
the Company that has developed the TMI System exclusively using contributions of
capital from the Company. The efficacy of the TMI System is currently subject
to confirmation in FDA clinical trials as a tool complementary to mammography.
TMI will have no source of revenue, other than contributions to its capital made
by the Company, until the clinical trials are successfully concluded and TMI or
the Company then is able to market for sale or use the TMI System. TMI has no
assurance that it can finance its development, marketing, or production costs.
The Company must fund or finance the balance of the clinical trials and any
subsequent development, operating, marketing and production costs until TMI
develops its business and then is capable of financing its operations.
Management believes that the Investment Agreement should provide the Company
with a sufficient amount of capital to fund the completion of FDA clinical
trials on the TMI System after the Registration Statement becomes effective to
which this Prospectus relates, a
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prerequisite to the obligations thereunder to make contributions to the Company.
All risk factors set forth in this Prospectus for the Company also apply to the
risk of the Company's investment in TMI.
RISKS APPLICABLE TO FOREIGN SALES. Sales of the Company's products to
foreign markets may account for a substantial portion of the Company's
forecasted revenues. Foreign sales expose the Company to certain risks,
including the difficulty and expense of maintaining foreign sales distribution
channels, barriers to trade, potential fluctuations in foreign currency exchange
rates, political and economic instability, availability of suitable export
financing, accounts receivable collections, tariff regulations, quotas, shipping
delays, foreign taxes, export licensing requirements and other United States and
foreign regulations that may apply to the export of medical equipment. The
regulation of medical devices worldwide also continues to develop, and there can
be no assurance that new laws or regulations will not have an adverse effect on
the Company. In addition, the Company may experience additional difficulties in
providing prompt and cost effective service of its thermal imaging systems in
foreign countries. The Company does not carry insurance against such risks.
The occurrence of any one or more of these events may individually or in the
aggregate have a material adverse effect upon the Company's business, financial
condition and results of operations. See "Business - Risks of Doing Business in
the PRC and Other Foreign Countries."
DEPENDENCE ON CONTRACTS WITH THIRD PARTIES. The Company does not
manufacture the hardware and operating software components of the Systems but
rather purchases these components from third parties in accordance with specific
design specifications. Although there is more than one manufacturer capable of
manufacturing these components, the failure of any one manufacturer to deliver
its components in a timely manner could result in a loss of business for the
Company and further result in time delays for installation of the Systems. The
anticipated cost of production could increase if the Company is required to seek
and make arrangements for different manufacturers to produce the components as a
precaution. Moreover, even though the Company may seek a remedy from a
manufacturer, any thermal imaging component manufactured by such third party may
be defective, resulting in a type of claim for damages against the Company for
which the Company may not have the right to claim from the manufacturer.
NEED FOR FDA AND FOREIGN GOVERNMENTAL APPROVALS; GOVERNMENT REGULATION.
The Company's products may be regulated as medical devices by the FDA under the
Federal Food, Drug and Cosmetic Act (the "FDC Act") and the regulations
promulgated thereunder. As such, these devices require compliance with either
FDC Act Section 510(k), or acceptance of a premarket approval application
(herein referred to as "PMA") by the FDA. Satisfaction of applicable regulatory
requirements may take several years and varies substantially based upon the
type, complexity and novelty of such devices, as well as the clinical procedure.
Although filings and governmental approvals may be required in some foreign
countries before the devices can be marketed, other countries may require no
approval. There can be no assurance that further clinical trials of the Systems
or of any future products will be successfully completed or, if they are
completed that any requisite FDA or foreign governmental clearances or approvals
will be obtained.
The CTI System includes a thermal camera, basic software, an application
protocol, and Quantitative Thermal Analysis ("QTA") Lab. The Company does not
have, and has not applied for, specific FDA approval for the basic CTI System.
The Company has concluded that the CTI System as configured, can be marketed and
sold in the United States without any further FDA approval pursuant to any
exemption under Section 510(k) of the FDC Act. A 510(k) exemption has been
issued by the FDA for the manufacturer of the camera and software currently used
by the Company in the basic CTI System. The Company intends to use thermal
imaging devices that would qualify under such 510(k) exemption. As a result,
management believes no additional FDA approval is required in order for health
care providers or radiologists in the United States to use the CTI System.
However, if the CTI System is marketed under the 510(k) exemption, any health
care provider could only rely upon non-specific payment codes for billing
purposes in connection with third-party reimbursement, which could limit the
incentive for health care providers to use the CTI System. Nevertheless, as
long as the Company uses a thermal imaging collection system that has been
cleared for 510(k) exemption in favor of the third-party manufacturer by the
FDA, management believes that the Company may sell the CTI System in the United
States without any further action by the FDA. The Company could add additional
analytical software to the basic system which may require the Company to apply
for a particular 510(k) exemption, or even for a PMA for a specific medical use
of the CTI System, in which case the 510(k) exemption process may take a few
months. Any PMA application will require substantial cost and many months of
clinical trials and independent examinations to confirm any specific medical
claims under which the CTI System may be sold in the United States.
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Sales of the basic CTI System outside the United States may require governmental
approvals in some countries and may require no approvals in others.
The TMI System consists of the same camera and software as the basic CTI
System along with additional image processing and analytical software and a
patient-positioning table. Because of the additional image processing and
analytical software, the TMI System will require FDA approval for its sale and
use. Consequently, TMI is conducting clinical trials, the results of which will
be submitted to the FDA for a PMA to enable the sale of the TMI System.
Management expects that the TMI System, after completion of the clinical trials
and confirmation, will be a unique process which is complementary to mammography
to identify and distinguish malignant from benign tumors. TMI has been
conducting clinical trials for almost one year, after completion of pre-testing
examinations and development of data required to qualify for the PMA. See
"Business - Government Regulation." To make any further medical efficacy claims
for use of the TMI System independent of mammography or any other imaging
modality, TMI would necessarily be required to conduct other clinical trials
further authorized by the FDA, which would require substantial cost and
additional time for development and conduct of pre-test and clinical trials.
The PMA process for the TMI System may not be successfully completed. If the
Company is unable to raise the necessary money to fund the ongoing clinical
trials which are a part of the PMA process for the TMI System, the Company would
be forced to abandon its attempt to obtain a PMA from the FDA. If the PMA is
not successfully completed, it could substantially restrict the sales of the TMI
System in the United States. Sales of the TMI System outside the U.S. may
require governmental approvals in some countries and may require no approvals in
others.
FDA or other governmental clearances or approvals of products developed by
the Company in the future may require substantial filing fees, or costs to
conduct clinical trials, which could limit the number of applications sought by
the Company and may entail limitations on the indicated uses for which such
products may be marketed. In addition, approved or cleared products may be
subject to additional testing and surveillance programs required by the FDA and
other regulatory agencies, and product approvals and clearances could be
withdrawn for failure to comply with regulatory standards or by the occurrence
of unforeseen problems following initial marketing. The Company is also
required to adhere to applicable requirements for current good manufacturing
practices and other health requirements, to engage in extensive record keeping
and reporting, and to comply with the FDA's product labeling, promotional and
advertising requirements. See "Business - Government Regulation."
DEPENDENCE UPON KEY PERSONNEL. Although the Company depends on outside
manufacturing and servicing capabilities, there are and will be acute dependence
upon certain key members of management and technical personnel. Particular
reliance will be made on David A. Packer, the President of the Company, formerly
an employee of TRW. Furthermore, a part of the Company's current marketing
emphasis is based upon opportunities in the PRC and Thailand. General Richard
V. Secord, the Company's Chief Operating Officer, has been a key person in
negotiating the Company's inroads into these markets. Moreover, Kenneth M.
Dodd, TMI's President, has been developing the TMI System, which is configured
for breast cancer detection. Certain other key personnel will be added on an
"as needed" basis to complete the tactical management group. Because of the
specialized nature of the Company's business, the Company's ability to maintain
its competitive position will depend, in part, upon its ability to attract and
retain highly qualified people in the areas of management and technology while
maintaining relationships with leading research institutions. However, if the
Company wishes to expand its scope of product and market coverage, there can be
no assurance that the Company will be able to attract the personnel on a timely
basis to accomplish such advancements. The loss of the services of
Messrs. Packer or Dodd or General Secord, or other key individuals may adversely
affect the Company's business and prospects. At this time, the Company does not
carry key man life insurance on any of its employees. See "Business" and
"Management."
ABILITY TO MANAGE PROJECTED GROWTH. Should the Company's growth strategy
prove successful, a significant strain may be placed on the Company's customer
service and support operations, sales, administrative personnel and other
resources. The Company's ability to manage future growth, if any, effectively
will require the Company to continue to improve its operational, management and
financial systems and controls and to train, motivate and manage its employees.
In particular, if financing or equity raising efforts are successful, the
Company will be required in the near future to recruit a significant number of
technically qualified personnel to expand its direct sales force and customer
support group. As a result, the Company is subject to certain growth-related
risks, including the risk that it will be unable to retain the necessary
personnel or acquire other resources necessary to service such growth
adequately. There can be no assurance that the Company can expand this resource
as rapidly as necessary or finance
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the working capital needed for such expansion. If the Company's management is
unable to effectively manage future growth, if any, the Company's business,
financial condition and results of operations could be adversely effected.
COMPETITION. Competition in some markets for the Systems may be intense.
A large number of companies offer imaging systems which may be offered as
competitive with those of the Company. Many of the Company's competitors are
larger and more established and have substantially more financial, technical,
research and development and marketing resources than the Company. Several
large multi-national corporations offer competitive products, such as X-ray or
MRI equipment. Other large corporations have the technical and financial
ability to design and market competitive products, and some of them have
produced and marketed such products in the past. There can be no assurance that
such large potential competitors will not elect to reenter the market competing
with the Systems, which could have a material adverse effect on the Company's
ability to sell the Systems. There can be no assurance that the Company will be
able to compete successfully in the future, or that future competition for
product sales will not have a material adverse effect on the business, financial
condition and results of operations of the Company. See "Business -
Competition."
UNCERTAIN PROTECTION FOR INTELLECTUAL PROPERTY; POSSIBLE CLAIMS OF OTHERS.
The Company generally does not rely solely on patent protection with respect to
its products. However, the Company does rely on a combination of copyright and
trade secret laws, employee and third-party nondisclosure agreements, and other
protective measures to protect intellectual property rights pertaining to its
products and technology. As of the date of this Prospectus, no patents have
been issued to the Company. However, TMI has filed one patent application with
respect to the TMI System, and expects to file additional patent applications in
the future. In the meantime, there can be no assurance that applicable
copyright or trade secret law or nondisclosure agreements will provide
meaningful protection of the Company's copyrights, trade secrets, know-how or
other proprietary information in the event of any unauthorized use,
misappropriation or disclosure of such copyrights, trade secrets, know-how or
other proprietary information. In addition, the laws of certain foreign
countries do not protect the Company's intellectual property rights to the same
extent as do the laws of the United States. There can be no assurance that the
Company or TMI will be able to protect its intellectual property successfully.
The Systems and component technology incorporate subject matter that the
Company believes is in the public domain or that it otherwise has the right to
use. There can be no assurance that third parties will not assert patent,
copyright or other intellectual property infringement claims against the Company
with respect to the Systems or technology or other matters. There may be third
party patents, copyrights and other intellectual property relevant to the
Systems and technology which are not known to the Company. Although no third
party has asserted that the Company is infringing such third party's patent
rights, copyrights or other intellectual property, there can be no assurance
that litigation asserting such claims will not be initiated, that the Company
would prevail in any such litigation, or that the Company would be able to
obtain any necessary licenses on reasonable terms if at all. Any such claims
against the Company, with or without merit, as well as claims initiated by the
Company against third parties, can be time consuming and expensive to defend or
prosecute and to resolve. See "Business - Patents and Intellectual Property."
LICENSE WITH TMI. Upon the formation of TMI, the Company entered a License
Agreement licensing to TMI all of its intellectual property, medical protocols,
CTI System configurations, independent contractor component trade secrets and
similar technology for the purpose of enabling TMI to proceed to develop its TMI
System for the detection of breast cancer in North America only. Under the
terms of the License Agreement, improvements made to the CTI System were
cross-licensed to both parties to use, royalty free, while ownership of such
improvements were retained by the party making the improvement. The technology
that continued to be owned by TMI after the expiration of the License Agreement
is the refinement made to the technology originally licensed by CTI to TMI.
This includes improvements made to the patient positioning bed and improvements
and automation applied to the system software. The License Agreement executed
on June 8, 1996 has now expired by its terms, but before such expiration, the
Company and TMI entered into the Stock Transfer Agreement dated January 28, 1997
by which the Company obtained controlling interest (over 80 percent) of the
outstanding common stock of TMI. In the Stock Transfer Agreement, TMI agreed,
in consideration for the Company's contributions for the development of its
technology, that TMI and the Company would cross-license each other for all
technology developments with respect to breast cancer imaging. The Company has
not entered a separate written license agreement with TMI, relying at this time
only on the above-
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referenced agreement requiring a reasonable cross-license as consideration for
such contributions, the terms of which would be further delineated in the event
the Company were to decide to transfer control of TMI.
Although the Company has voting control over TMI as of the date of this
Prospectus, certain events could occur, such as an event of bankruptcy or the
possible exercise of rights by any vendor in the event of a collateral or
statutory materialman's lien, that could result in the loss of control by the
Company over TMI or its technology. In such an event, the absence of a binding
license agreement could result in the loss by the Company of the TMI System
technology. The Company has granted to the Attorneys a lien on all of the
shares of the common stock of TMI owned by the Company. In addition, the
Attorneys also have a lien on all of TMI's technology in the TMI System. Both
liens have been granted to the Attorneys to secure a negotiable promissory note
for outstanding and accrued legal fees. See "Business - Patents and
Intellectual Property"; also see "Business - Litigation - Past Due Accounts."
UNCERTAINTY IN U.S. HEALTH CARE INDUSTRY. Cost containment measures
instituted by health care providers as a result of regulatory reform or
otherwise could result in greater selectivity in the allocation of capital
funds. Such selectivity could have a material adverse effect on the Company's
ability to sell the Systems and services. See "Business - Third Party
Reimbursement."
PRODUCT LIABILITY RISK; LIMITED INSURANCE COVERAGE. The manufacture and
sale of medical image information systems entail significant risk of product
liability claims. The Company believes it needs no product liability insurance
now because the Systems are either in development or operated by TMI, which
carries insurance for its clinical trials. There can be no assurance that the
Company can obtain insurance coverage with limits adequate to protect the
Company from any liabilities it might incur in connection with the sale of the
Systems. The Company anticipates obtaining product liability coverage as
products are commercialized. Such insurance is expensive and in the future may
not be available on acceptable terms, if at all. A successful product liability
claim or series of claims brought against the Company in excess of its insurance
coverage could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company believes thermal
imaging is a completely safe procedure, without the harmful radiation produced
with X-rays, but the Company could still be required to defend claims as a
defendant for a claim for failure to detect a malady. Even though the CTI
System is only a tool and does not diagnose, the Company could be called upon to
devote its capital toward defense costs. In the opinion of management, the
Company's liability should be limited to any foreseeable damages proximately
resulting from improper operation of a CTI System, but lawsuits without
insurance protection could occur.
NO COMMITMENT TO PURCHASE SHARES. No entity or individual, including any
selling agent, the Company, its officers or its directors, has any obligation to
purchase any of the shares of the Common Stock to be resold or underlying the
Compensation Warrants, Resale Warrants, or Resale Options . Any of the shares
of the Common Stock which may be offered for sale by the Selling Stockholders
will be offered through the secondary market, and consequently no assurance can
be given that any such shares will be sold or that the Selling Stockholders or
subsequent purchasers will be able to sell their shares of the Common Stock for
the same price as they were purchased. Pursuant to the terms of the Investment
Agreement, the Company may require Bristol Asset Management, L.L.C. ("Bristol")
to purchase the Newly Issued Shares. However, the number of the Newly Issued
Shares which the Company may require Bristol to purchase is subject to various
monthly and aggregate limitations. Moreover, Bristol is not required to
purchase any of the Newly Issued Shares until the Company has fulfilled certain
conditions precedent set forth in the Investment Agreement.
SALES OF SHARES OF THE COMMON STOCK TO AFFILIATES. Prior to the date of
this Prospectus, certain officers, directors and related parties engaged in
business transactions with the Company. Primarily, the Company sold shares of
the Common Stock for cash and in exchange for services rendered to the Company
by Thermal Imaging, Inc. (herein sometimes referred to as "TII"), a company
controlled by affiliates of David B. Johnston, the Chairman of the Board, to
Daron Dillia doing business as Manhattan Financial Group, a consultant to the
Company, and to PDH, Ltd., a company controlled by Doug Holt, a consultant to
the Company. All shares of the Common Stock to those persons were restricted
securities pursuant to Rule 144 promulgated under the Securities Act ("Rule
144"), and were priced at a value of about 50 percent of the then current
trading price of free trading shares. Management believes that the terms of
these transactions were as favorable to the Company as those which could have
been obtained from unaffiliated third parties under similar circumstances. All
future transactions between the Company and its affiliates will be on
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terms no less favorable than could be obtained from unaffiliated third parties
and will be approved by a majority of the disinterested members of the Board of
Directors of the Company. See "Management - Certain Transactions."
POSSIBLE CONFLICTS OF INTEREST. Many of the officers and directors of the
Company are also officers and/or directors of other companies, some of which are
affiliates of the Company. David B. Johnston is the Chairman of the Board and
Chief Executive Officer of the Company and also is a director and represents a
controlling stockholder (by attribution among family members) of TII, which
beneficially owns approximately 17.9 percent of the Common Stock. Potential
conflicts could arise in the future whenever the Company prices restricted
shares of the Common Stock to be sold to TII or any other affiliate of the
Company. Additionally, some decisions to be made by Mr. Johnston as a director
on behalf of the Company could be in conflict with the interest of a Selling
Stockholder. General Richard V. Secord is an officer and director of the
Company and is also a director of TMI and the Chief Operating Officer of
TriSun/CTI Asia, Ltd., a no-asset company formed in Cyprus to purchase the
Systems for installation in hospitals in the PRC. Each of the foregoing
companies can be construed as affiliated with the Company or a company with
which the Company has material contracts. There are numerous possibilities of
conflicts of interest which could arise based upon the common control of the
Company and the roles of Mr. Johnston, Kenneth M. Dodd, the President of TMI,
and General Secord, and their respective roles in management of the affiliates.
Although each of the officers and directors of the Company will make every
effort to work in the best interests of the Company, there is no assurance that
if a conflict arises it will be resolved in favor of the Company.
RETENTION OF CONTROL. The Company's officers, directors and principal
stockholders beneficially will own approximately 22.7 percent of the outstanding
shares of the Common Stock at the completion of the Offering, without taking
into account any of the Newly Issued Shares, any shares of the Common Stock
underlying the Compensation Warrants, Resale Warrants or Resale Options. As a
result, the officers, directors and principal stockholders of the Company will
have the ability to control the day-to-day affairs and the fundamental policies
of the Company. Voting together, such stockholders, including the officers and
directors of the Company, could possibly block any major corporate transactions,
such as a merger or a sale of substantially all of the Company's assets, which
under Nevada law require the affirmative vote of holders of a majority of the
outstanding shares of the Common Stock of the Company. See "Management" and
"Principal Stockholders."
ANTI-TAKEOVER PROVISIONS. The Company's Articles of Incorporation and
Bylaws contain provisions that may have the effect of discouraging certain
transactions involving an actual or threatened change of control of the Company.
In addition, the Board of Directors has the authority to issue up to 3,000,000
shares of the Preferred Stock defined hereinafter in one or more series and to
fix the preferences, rights and limitations of any such series without
stockholder approval. The ability to issue shares of the Preferred Stock could
have the effect of discouraging unsolicited acquisition proposals or making it
more difficult for a third party to gain control of the Company, or otherwise
could adversely affect the market price of the Common Stock. See "Description
of Securities." In addition, TMI's Articles of Incorporation likewise provide
for the issuance of preferred shares which could have anti-takeover
implications, but the Company maintains an 80 percent controlling interest to
change those terms if the Company desires to do so.
DIVIDEND POLICY. The Company has not paid or declared any cash dividends
with respect to the Common Stock, nor does it anticipate any such payments or
declarations in the foreseeable future. Any future dividends will be declared
at the discretion of the Board of Directors and will depend, among other things,
on the Company's earnings, if any, its financial requirements for future
operations and growth, and such other factors as the Company may then deem
appropriate. Investors should not rely on the receipt of dividends in the near
future or at any time in the future when evaluating the merits of an investment
in the shares of the Common Stock. See "Price Range of Common Stock and
Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of the
Common Stock in the public market following the completion of the Offering could
have an adverse effect on the market price of the Common Stock. As of June 30,
1998, there were approximately 48,608,848 shares of the Common Stock issued and
outstanding. Upon completion of the Offering, all of the shares of the Common
Stock being registered hereby and approximately 32,788,447 shares of the Common
Stock held by current stockholders of the Company will be immediately eligible
for public sale without restrictions. The remaining approximately 13,125,530
shares of the Common Stock are "restricted securities" as that term is defined
under Rule 144 promulgated under the Securities Act. No prediction can be made
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as to the effect, if any, that future sales of additional shares of the Common
Stock or the availability of such shares for sale under Rule 144, other
applicable exemptions or otherwise will have on the market price of the Common
Stock prevailing from time to time. Sales of substantial amounts of the Common
Stock in the public market, or the perception that such sales could occur, could
adversely affect prevailing market prices of the Common Stock. See "Principal
Stockholders."
IMPACT ON MARKET OF DEBENTURE CONVERSION OR WARRANT OR OPTION EXERCISE. In
the event of the exercise of a substantial number of the outstanding Warrants
and Resale Options within a reasonably short period of time after the right to
convert or exercise commences, the resulting increase in the amount of the
Common Stock in the trading market could substantially affect the market price
of the Common Stock. See "Description of Securities."
NO ASSURANCE OF ACTIVE PUBLIC MARKET; POSSIBLE VOLATILITY OF THE COMMON
STOCK. Although the Common Stock is quoted on the OTC Bulletin Board, there can
be no assurance that an active public market for the Common Stock will be
sustained after the Offering. The trading price of the Common Stock could be
subject to wide fluctuations in response to quarter to quarter variations in
operating results, announcements of innovations or new products by the Company
or its competitors, and other events or factors. In addition, the stock market
has from time to time experienced extreme price and volume fluctuations which
affects the market price of securities of publicly traded companies and which
have often been unrelated to the operating performance of these companies.
Broad market fluctuations may adversely affect the market price of the Common
Stock. See "Price Range of Common Stock and Dividend Policy" and "Description
of Securities."
"PENNY STOCK" ISSUES. The shares of the Common Stock are "penny stocks" as
defined in the Exchange Act, which are traded in the over-the-counter market on
the OTC Bulletin Board. As a result, an investor may find it more difficult to
dispose of or obtain accurate quotations as to the price of the shares of the
Common Stock being registered hereby. In addition, the "penny stock" rules
adopted by the Commission under the Exchange Act subject the sale of the shares
of the Common Stock to certain regulations which impose sales practice
requirements on broker-dealers. For example, broker-dealers selling such
securities must, prior to effecting the transaction, provide their customers
with a document which discloses the risks of investing in such securities.
Furthermore, if the person purchasing the securities is someone other than an
accredited investor or an established customer of the broker-dealer, the
broker-dealer must also approve the potential customer's account by obtaining
information concerning the customer's financial situation, investment experience
and investment objectives. The broker-dealer must also make a determination
whether the transaction is suitable for the customer and whether the customer
has sufficient knowledge and experience in financial matters to be reasonably
expected to be capable of evaluating the risk of transactions in such
securities. Accordingly, the Commission's rules may limit the number of
potential purchasers of the shares of the Common Stock.
If the Company can meet the listing requirements in the future, management
intends to apply to include the shares of the Common Stock being registered
hereby for quotation on The Nasdaq SmallCap Market operated by The Nasdaq Stock
Market. The Common Stock has not yet been approved for quotation on The Nasdaq
SmallCap Market and there can be no assurance that an active trading market will
develop or if such market is developed that it will be sustained. The Nasdaq
Stock Market recently approved changes to the standards for companies to become
listed on The Nasdaq SmallCap Market, including, without limitation, new
corporate governance standards, a new requirement that companies seeking listing
have net tangible assets of $2,000,000, market capitalization of $35,000,000 or
net income of $500,000 and other qualitative requirements. If the Company is
unable to satisfy the requirements for quotation on The Nasdaq SmallCap Market,
trading in the Common Stock being registered hereby would continue to be
conducted on the OTC Bulletin Board. Even if the shares of the Common Stock are
listed for quotation on The Nasdaq SmallCap Market, the market price of the
shares must remain above $5.00 per share or else such shares will be subject to
the "penny stock" rules of the Commission discussed above. If the market price
of such shares falls below $1.00 per share, such shares will be delisted from
The Nasdaq SmallCap Market and will once again be quoted on the OTC Bulletin
Board.
In addition to the recent changes in The Nasdaq SmallCap Market listing
requirements discussed above, the National Association of Securities Dealers,
Inc. (the "NASD") has recently announced changes in the requirements for
continued quotation on the OTC Bulletin Board. Essentially the new rules
require OTC Bulletin Board companies to file quarterly and annual reports,
required under the Exchange Act, with the Commission or appropriate banking
21
<PAGE>
or insurance regulators. If companies currently quoted on the OTC Bulletin
Board do not comply with the new NASD rules, their shares will only be quoted in
the less automated "Pink Sheets," a system run by the National Quotation Bureau,
Inc. As stated in this Prospectus, the Company is seeking registration under
the Exchange Act and consequently will be obligated to make all filings required
under the Exchange Act. If for some reason the Company should fail in its
registration efforts described in this Prospectus or not file its required
reports pursuant to the Exchange Act, it is possible that the Company would no
longer be eligible for quotation on the OTC Bulletin Board and would be
relegated to the "Pink Sheets." There can be no assurance that an active
trading market will develop for the shares of the Common Stock in the "Pink
Sheets" or if such market is developed that it will be sustained.
Moreover, various state securities laws impose restrictions on transferring
"penny stocks," and as a result, investors in the Common Stock may have their
ability to sell their shares of the Common Stock impaired. For example, the
Utah Securities Commission prohibits brokers from soliciting buyers for "penny
stocks," which makes selling them more difficult.
NEED TO MAINTAIN A CURRENT PROSPECTUS. The Company must maintain a current
prospectus in order for the Selling Stockholders to sell the shares of the
Common Stock to which this Prospectus relates. In the event that the Company is
unable to maintain a current prospectus due to lack of sufficient financial
resources or for other reasons, the Selling Stockholders may be unable to resell
their shares of the Common Stock in any public market.
SHARES RESERVED FOR ISSUANCE. The Company has 12,917,698 shares of the
Common Stock reserved for issuance upon the exercise of the Warrants and the
Resale Options. These convertible securities are convertible or exercisable at
prices that range from fixed prices of $0.60 to $5.00 per share and at variable
prices depending on the market price of the Common Stock and expire on various
dates extending to June 12, 2005. There can be no assurance that any of these
securities will be sold or converted or exercised, or that the Company will
receive any proceeds from the conversion or the exercise thereof. The exercise
or conversion of these securities, and the resale of the underlying shares of
the Common Stock, could have a dilutive effect on the prevailing market price of
the Common Stock. See "Management - Stock Options" and "Description of
Securities."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK. Management believes that
this Prospectus contains forward-looking statements, including statements
regarding, among other items, the Company's future plans and growth strategies
and anticipated trends in the industry in which the Company operates. These
forward-looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, many of which are beyond the
Company's control. Actual results could differ materially from these
forward-looking statements as a result of the factors described herein,
including, among others, regulatory or economic influences. In light of these
risks and uncertainties, there can be no assurance that the forward-looking
information contained in this Prospectus will in fact transpire or prove to be
accurate. The inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
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<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on the OTC Bulletin Board under the symbol
"COII." The following table sets forth the range of high and low closing bid
prices for the Common Stock for the periods indicated as reported by the NASD.
These prices represent inter-dealer prices, without adjustment for retail
mark-ups, mark-downs or commissions and do not necessarily represent actual
transactions. There can be no assurance that an active trading market in the
shares of the Common Stock will be sustained.
<TABLE>
<CAPTION>
Common Stock
Bid Price
-----------------------------
LOW HIGH
------------- -------------
<S> <C> <C>
CALENDAR YEAR 1995
- ------------------
Third Quarter $1.19 $2.28
Fourth Quarter $0.88 $2.38
CALENDAR YEAR 1996 LOW HIGH
- ------------------ ------------- -------------
First Quarter $1.00 $2.19
Second Quarter $1.06 $1.56
Third Quarter $0.94 $2.84
Fourth Quarter $1.19 $2.13
CALENDAR YEAR 1997 LOW HIGH
- ------------------ ------------- -------------
First Quarter $1.00 $2.00
Second Quarter $0.50 $1.25
Third Quarter $0.56 $1.69
Fourth Quarter $0.52 $1.06
CALENDAR YEAR 1998 LOW HIGH
- ------------------ ------------- -------------
First Quarter $0.47 $0.81
Second Quarter $0.50 $1.11
------ ------
------ ------
</TABLE>
As of December 31, 1997, there were approximately 40,279,948 shares of the
Common Stock issued and outstanding. The Company believes that the Common Stock
is held of record and beneficially by approximately 4,800 persons on that date.
Additional issuances for contributions through recent private offerings resulted
in approximately 48,608,848 shares of the Common Stock outstanding on June 30,
1998.
The Company has not paid or declared any dividends with respect to the
Common Stock, nor does it anticipate paying any cash dividends or other
distributions on the Common Stock in the foreseeable future. Any future
dividends will be declared at the discretion of the Board of Directors and will
depend, among other things, on the Company's earnings, if any, its financial
requirements for future operations and growth and such other facts as the
Company may then deem appropriate.
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1997, and March 31, 1998. This table should be read in conjunction with the
Company's Financial Statements and Notes thereto that are included elsewhere in
this Prospectus.
23
<PAGE>
<TABLE>
<CAPTION>
June 30, 1997 (1) March 31, 1998 (1)
---------------- -----------------
<S> <C> <C>
Stockholders' deficit:
Common Stock, $0.001 par value,
100,000,000 shares authorized;
35,737,649 and 47,630,848 shares
issued and outstanding on June 30, 1997
and March 31, 1998, respectively . . . . . . . . . . $35,738 $47,631
Additional paid-in capital . . . . . . . . . . . . . 13,410,573 18,057,030
Subscription receivable. . . . . . . . . . . . . . . (525,000) (525,000)
Losses accumulated during the development stage. . . (14,739,084) (19,224,084)
---------- ----------
Total stockholders' deficit. . . . . . . . . . . . . . ($1,817,773) ($1,644,423)
</TABLE>
- ------------------
(1) Does not give the effect to the issuance of (i) 18,229,167 shares of the
Common Stock upon the purchase of the Newly Issued Shares; (ii) 2,552,083
shares of the Common Stock upon exercise of the Compensation Warrants;
(iii) 3,840,615 shares of the Common Stock upon exercise of the Resale
Warrants; and (iv) 6,525,000 shares of the Common Stock upon exercise of
the Resale Options.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the combined financial condition
and results of operations should be read in conjunction with the Consolidated
Financial Statements of the Company and Notes thereto contained in this
Prospectus. Statements contained in this "Management's Discussion and Analysis
of Financial Conditions and Results of Operations," which are not historical
facts may be forward-looking statements. Such information involves risks and
uncertainties, including those created by general market conditions, competition
and the possibility that events may occur which could limit the ability of the
Company to maintain or improve its operating results or execute its primary
growth strategy. Although the Company believes that the assumptions underlying
the forward-looking statements are reasonable, any of the assumptions could be
inaccurate, and there can therefore be no assurance that the forward-looking
statements included herein will prove to be accurate. The inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
Moreover, such forward-looking statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these
forward-looking statements that speak only as of the date hereof.
In October 1996, the Company initiated its relationship with TRW Systems
Integration Group (some subsequent contracts have been entered with other
affiliates of the consolidated group, any of which companies may be referred to
in this Prospectus as "TRW") to design a plan for systems integration to
implement the Golden Health Telemedicine Contract and related contracts entered
by a subsidiary affiliate of the Company (TriSun/CTI Asia, Ltd.) and a company
formed by the Ministry of Public Health in the People's Republic of China. This
initial agreement formed the long-term relationship with TRW, which later
resulted in the execution of contracts with TRW for commercializing the CTI
System and for developing the software and data analysis systems integration for
the TMI System. The Company has deferred any further expenditures toward the
Golden Health Telemedicine Contract until the Ministry of Public Health performs
in causing the hospitals to place the letters of credit as provided in the
contracts, but the Company has maintained communications with representatives of
the Ministry of Public Health toward a plan for implementing those contracts.
The Asian relationships also include an agreement entered in 1996 with
Dr. Ladavan of the Orchard Hospital in Thailand for the purchase of one CTI
System for $125,000, or 50 percent of its anticipated market value, setting
forth an intention to enter a joint venture for the production and marketing of
the CTI System in Thailand. The decision of the Company to defer further
development for commencing those contracts was based primarily upon the decision
of the Company to channel all of its resources to TMI for completion of the FDA
clinical trials. The Company intends to resume its Asian relationships and to
commence that business when funds become available.
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<PAGE>
In 1996, the Company entered into a License Agreement with TMI and
initiated the development by TMI of a new configuration of the CTI System to
develop the TMI System for use in the detection of breast cancer for marketing
in North America. When TMI was incapable of financing its activities, and when
TMI had made progress through its pre-testing to obtain FDA approval to proceed
for a PMA, the Company executed the Stock Transfer Agreement in 1997 to devote a
primary portion of its funds toward the development of the TMI System and toward
the clinical trials designed to obtain a PMA. This resulted in the development
of clinical relationships with several health care providers and medical
university teaching institutions. The clinical trial agreements require TMI to
pay for the examinations using the TMI System as complementary medical
technology with mammography. Commencement of the clinical trials also has
resulted in TMI engaging QBRI, an independent consultant authorized by the FDA
to verify clinical examination results.
GENERAL
From inception through the most current interim period ending March 31,
1998, the Company has been involved in the research, development and production
of its thermal imaging technology products. Although still in the development
stage, the Company has generated nominal revenues of $125,000, from the sale of
a CTI System to Thailand in 1996, and $55,815, from the sale of laser cards to a
purchaser in the PRC in 1997. The Company has relied almost entirely on the
sale of its securities to fund its research and development operations. The
Company historically has sustained annual losses and will continue to sustain
losses from its operations until its products achieve acceptance within the
medical community and the public. As evidenced by the Consolidated Financial
Statements of the Company included elsewhere in this Prospectus, the level of
the Company's losses has been largely dictated by the amount of capital the
Company has been able to raise and the volume of costs incurred under the
research program being conducted with TRW.
CERTAIN MATERIAL CONTRACTS
In addition to other agreements discussed elsewhere herein, the Company and
TMI have entered into several material contracts over the last two years.
TRW AGREEMENT. On October 29, 1996, the Company and TRW, Inc. - Systems
Integration Group, Strategic Systems Division ("TRW") entered into an agreement
wherein TRW agreed to provide systems management services, including testing,
development, training, engineering, integration, and installation support, with
regard to the CTI System (the "CTI-TRW Agreement"). Under the terms of the
CTI-TRW Agreement, unless otherwise agreed to by the parties, the fee to be paid
to TRW for its services shall be equal to the total costs associated with the
performance of such services plus a fee of 15 percent of such costs. Payment
terms are net 30 days after the date of invoice. The scope of work to be
performed by TRW is established by the Company and may be revised from time to
time based on the development of the CTI System. The term of the CTI-TRW
Agreement is for two years from the date of execution. Either party may
terminate the agreement at any time upon the giving of 30 days notice. All
intellectual property developed by the parties during the term of the CTI-TRW
Agreement will become the sole and exclusive property of the Company. In the
event that new intellectual property is developed, the Company agrees to
license, without royalty or fee, to TRW the right to use such property in
non-medical applications or medical applications that do not involve the use of
thermal imaging or soft tissue disorders. Moreover, the Company retains all
ownership rights in and to any medical data collected or processed in connection
with the agreement, free of any licensing obligations. In addition, the parties
agree not to disclose certain confidential information exchanged under the
agreement for a period of 3 years from the date of receipt.
TMI-TRW AGREEMENT. TMI, the Company's 80 percent owned subsidiary, entered
into a separate technical management and support agreement with TRW on June 19,
1996, wherein TRW agreed to provide technical management and support services to
TMI in connection with clinical trials being conducted during TMI's breast
cancer screening program (the "TMI-TRW Agreement"). Specifically, TRW is
responsible for program management, subcontract management, systems engineering,
system integration, testing, software analysis, documentation, delivery,
installation, technician training and maintenance for each project phase. Under
the terms of the TMI-TRW Agreement, unless otherwise agreed to by the parties,
the fee to be paid to TRW for its services shall be equal to the total costs
associated with the performance of such services plus a fee of 12.8 percent of
such costs. Payment terms are net 30 days after the date of invoice. The scope
of work to be performed by TRW is established by TMI and may
25
<PAGE>
be revised from time to time based on the development of the project. The term
of the TMI-TRW Agreement is for a period of time until approximately 10,000
cases have been collected and analyzed. As clinical trials of the breast cancer
screening program have progressed the parties have concluded that the original
estimate of 10,000 cases will not be necessary to obtain sufficient patient
data. As such, the parties plan to amend the TMI-TRW Agreement to establish a
more definitive duration of the agreement.
All intellectual property developed by the parties during the term of the
TMI-TRW Agreement will become the sole and exclusive property of TMI. In the
event that new intellectual property is developed, TMI agrees to license,
without royalty or fee, to TRW the right to use such property in non-medical
applications or medical applications that do not involve the business of thermal
imaging for breast cancer detection or examination. Moreover, TMI retains all
ownership rights in and to any medical data collected or processed in connection
with the agreement, free of any licensing obligations. In addition, the parties
agree not to disclose certain confidential information exchanged under the
agreement for a period of three years from the date of receipt.
USC AGREEMENT. TMI and the University of Southern California ("USC"), a
California nonprofit educational institution, entered into a clinical trial
agreement (the "USC Agreement") on May 5, 1997. Under the terms of this
agreement, USC is to perform a clinical study of the screening of breasts for
identification of suspicious tissue using clinical examination and mammography
with and without the use of the TMI System. The goal of such study is to
establish a specific confidence interval for the detection of breast cancer
associated with the use of the TMI System. The USC Agreement provides that the
study will be conducted in accordance with a protocol established by TMI. The
estimated period of performance for the USC Agreement was undetermined at the
time of its execution. By its terms, total costs to TMI under the USC Agreement
shall not exceed $385,219. All right, title, and interest to any intellectual
property that is the direct and specific result of the performance of the
protocol shall belong to TMI. All right, title, and interest to any
intellectual property which are conceived or made jointly by one or more
employees of TMI and USC shall belong jointly to TMI and USC. All right, title,
and interest to any other intellectual property developed or conceived under the
study shall be considered property of USC.
HRA AGREEMENT. TMI and the Health Research Association ("HRA"), a
California nonprofit educational institution affiliated with the University of
Southern California Medical Center, entered into a clinical trial agreement (the
"HRA Agreement") on September 16, 1997. This agreement is under the same terms
and conditions as the USC Agreement. (See above). Under the terms of this
agreement, HRA is to perform a clinical study of the screening of breasts for
identification of suspicious tissue using clinical examination and mammography
with and without the use of the TMI System. The goal of such study is to
establish a specific confidence interval associated with the use of the TMI
System for the detection of breast cancer. The HRA Agreement provides that the
study will be conducted in accordance with a protocol established by TMI. The
protocol for the HRA Agreement is identical to the protocol established for the
USC Agreement. The estimated period of performance for this agreement is from
September 1, 1997 through September 1, 1998. By its terms, total costs to TMI
under the HRA Agreement shall not exceed $385,219. All right, title, and
interest to any intellectual property that is the direct and specific result of
the performance of the protocol shall belong to TMI. All right, title, and
interest to any intellectual property which are conceived or made jointly by one
or more employees of TMI and HRA shall belong jointly to TMI and HRA. All
right, title, and interest to any other intellectual property developed or
conceived under the study shall be considered property of HRA.
PROVIDENCE HOSPITAL AGREEMENT. TMI and the Providence Hospital of
Washington, D.C.,a non-profit institution incorporated under the laws of the
District of Columbia, entered into a clinical trial agreement (the "Providence
Hospital Agreement") on February 14, 1998. Under the terms of the Providence
Hospital Agreement, Providence Hospital is to perform a clinical study
involving the screening of human breast tissue for identification of potentially
cancerous tissue by using clinical examination and mammography with and without
the use of the TMI System. The goal of such study is to establish a specific
confidence interval for the detection of breast cancer utilizing the TMI System.
The Providence Hospital Agreement provides that the study will be conducted
by Providence Hospital in accordance with a protocol established by TMI. The
estimated term of the Providence Hospital Agreement is from February 15, 1998 to
February 15, 1999.
26
<PAGE>
All intellectual property that arises from, relates to, or is a direct and
specific result of performance of the protocol and directly related to the TMI
System shall belong to TMI. In addition, Providence Hospital agrees not to
disclose certain confidential information exchanged in connection with the
Providence Hospital Agreement and agrees to prevent disclosures of such
information to all third parties in a manner in which it treats its own similar
information.
MT. SINAI MEDICAL CENTER AGREEMENT. TMI and the Mt. Sinai Medical Center,
a non-profit institution incorporated under the laws of the State of Florida,
entered into a clinical trial agreement (the "Mt. Sinai Agreement") on June 4,
1998. Under the terms of the Mt. Sinai Agreement, Mt. Sinai is to perform a
clinical study involving the screening of human breast tissue for identification
of potentially cancerous tissue by using clinical examination and mammography
with and without the use of the TMI System. The goal of such study is to
establish a specific confidence interval for the detection of breast cancer
utilizing the TMI System.
The Mt. Sinai Agreement provides that the study will be conducted by Mt.
Sinai in accordance with a protocol established by TMI. The estimated term of
the Mt. Sinai Agreement is from June 1, 1998 to December 31, 1998.
All intellectual property that arises from, relates to, or is a direct and
specific result of performance of the protocol and directly related to the TMI
System shall belong to TMI. In addition, Mt. Sinai agrees not to disclose
certain confidential information exchanged in connection with the Mt. Sinai
Agreement and agrees to prevent disclosures of such information to all third
parties in a manner in which it treats its own similar information.
RESULTS OF OPERATIONS
INTERIM PERIOD. The Company incurred a loss of $4,485,000 for the nine
months ended March 31, 1998 as compared to $2,380,322 for the same period ended
March 31, 1997. The increase in the size of the loss was due to increased
spending under its research and development contract with TRW and the start-up
of clinical testing on the Company's process to achieve FDA approval. The
Company also recognized as compensation expenses $850,167 for stock options
issued to various consultants and companies in 1998; no comparable expenses
occurred in the comparable 1997 period. The Company has no significant revenues
in either period. Expenses consist of research and development expenses incurred
under its contract with TRW, research efforts - principally payroll being
conducted by the TMI staff, clinical trial costs being conducted by hospitals,
legal expenses incurred in connection with various financial transactions and
development of its business relationships in China. General and administrative
expenses increased to $2,921,027 from $955,080 in the prior comparable period.
The majority of the Company's general and administrative expenses are related to
fund raising activities, including accounting, travel, and outside consultants.
Research and development expenses decreased to $1,348,946 from $1,365,493 as the
result of funding constraints with the decreased expenditures with TRW in the
amount of $1,343,285 in 1997 to $1,059,996 in 1998. The clinical hospital
testing expenses increased to $249,567 from $22,208 in 1998 versus 1997.
Interest expense was $194,148 in 1998 versus $53,447 in 1997 due to a larger
amount of subordinated debentures being outstanding in 1998 than in 1997.
Professional fees were $457,733 in 1998 versus $157,766 in 1997 due to a larger
volume of transactions being analyzed and an increase in efforts to raise funds.
In addition, depreciation expenses increased to $23,567 in 1998 versus $8,720 in
1997.
The Company funded losses in 1998 by selling stock for cash in the amount
of $557,637 and it exchanged stock for cash and paid corporate expenses from TII
in the amount of $1,952,600. Common Stock was also issued to PDH, Ltd. for cash
advances of $244,900. The Company also utilized its stock and stock options to
fund general and administrative expenses totaling $1,233,387 during 1998.
During 1997 the Company raised $1,010,209 in cash through the sale of its stock
and was about to settle $405,498 of general and administrative expenses through
the issuance of its Common Stock. The Company accepted conversion of $640,660
of subordinated debentures during 1998 and $64,125 during 1997 through the
issuance of its Common Stock. The Company has expensed all costs associated
with its processes and the System, including software code writing, computer
system hardware and software purchased from third party vendors, material
expenses in the development of the examination table and all payroll related
development expenses throughout the periods presented.
FISCAL YEARS ENDED JUNE 30, 1997 AND JUNE 30, 1996. The Company incurred a
loss of $3,349,614 for the fiscal year ended June 30, 1997 and $2,878,250 for
the fiscal year ended June 30, 1996. The reduction in losses was largely
attributable to the fact that fewer shares of the Common Stock were issued in
consideration for services;
27
<PAGE>
$405,498 in 1997 and $893,152 in 1996. In 1996, the Company also settled a
lawsuit against the Company relating to an outstanding debt by issuing shares of
the Common Stock in the amount of $508,280. These issuances were made in
connection with the Assumption of Liabilities Agreement executed by the Company
and Thermal Imaging, Inc., an affiliate of Mr. Johnston.
Research expenses also increased substantially in fiscal year 1997 due to
the research and development relationship entered into by the Company with TRW.
As a result, research and development expenses increased from $491,320 in 1996
to $1,753,366 in 1997.
The Company funded its losses in fiscal year 1997 through the issuance of
shares of the Common Stock in exchange for cash contributions in the aggregate
amount of $1,010,209 compared to $2,259,070 raised in 1996. In addition,
outstanding debt obligations in the amount of $64,125 and represented by
certain convertible debentures were retired through conversions into shares of
the Common Stock. The Company received revenues from the sale of laser cards to
a purchaser in the PRC in the amount of $44,815 in 1997 and the sale of a CTI
System to Thailand in 1996 for $125,000. Neither transaction resulted in any
significant profit margins.
The Company relies upon independent contractors to perform much of its
software development, systems integration and installations. Although David A.
Packer, the President of the Company who was hired in 1997 from TRW, and Kenneth
M. Dodd and Bill Black, were employed by TMI in 1995 from EDS, all have
extensive systems integration, systems development and installation experience,
the Company and TMI have no other employees to perform the tasks of developing
and installing the CTI System and the TMI System. Both the Company and TMI have
contracted with TRW since late 1995 for specific technical support. The costs
incurred to engage TRW have totaled approximately $2,658,000 for research,
systems development, software development and data analysis through March 31,
1998. TRW is presently owed past due amounts for services. TRW by
September 1997 completed its software development required to enable TMI to
conduct clinical trials. The Company and TMI have slowed down additional
development work with TRW until this past due amount is substantially reduced
from new Company financing. TRW is being paid currently for its maintenance and
data analysis work being performed for TMI's clinical trials.
The report from the Company's independent accountants includes an
explanatory paragraph which describes substantial doubt concerning the ability
of the Company to continue as a going concern, without substantial additional
contributions to capital. The Company may incur losses for the foreseeable
future due to the significant costs associated with manufacturing, marketing and
distributing the CTI System and the TMI System, and due to continual research
and development activities which will be necessary to develop applications for
the Company's thermal imaging technology.
The Company's ability to achieve profitability will depend, in part, on its
ability to successfully develop clinical applications and obtain regulatory
approvals for its products and to develop the capacity to manufacture and market
such products on a wide scale. There is no assurance that the Company will be
able to successfully make the transition from research and development to
manufacturing and selling commercial thermal imaging products on a broad basis.
While attempting to make this transition, the Company will be subject to all
risks inherent in a growing venture, including the need to produce reliable and
effective products, develop marketing expertise and enlarge its sales force.
LIQUIDITY AND CAPITAL RESOURCES
The Company has had no significant revenues from operations in either of
the last two fiscal years nor in the first nine months of the fiscal year
beginning July 1, 1998. The Company's cash requirements consist of its
salaries, office expenditures, legal and accounting fees to comply with
securities registration needs, legal fees for contracting, TMI's operational
budget requirements, including TRW's technical support of TMI and the Company,
and the costs of maintaining TMI's clinical trials. Available funds are
insufficient to pay Company and TMI operating costs, incurred TRW development
costs and incurred legal fees of approximately $1,500,000. The Company intends
to raise additional equity funds from the sale of the Common Stock through
private offerings, either pursuant to the Investment Agreement or from new
investors introduced to the Company, to meet its cash requirements through 1998.
The Company has no assured source of liquidity from the sale of assets or from
financing until after the Registration Statement becomes effective to which this
Prospectus relates, and the Company becomes a fully reporting company
28
<PAGE>
pursuant to the Exchange Act, a condition to raising funds under the Investment
Agreement. Even then, any financing which might become available under the
Investment Agreement is potentially limited as to timing and amount. See below.
The Company will require an estimated $6,000,000 over the next 12 months
for its research and development programs, preclinical and clinical testing,
development of its sales and distribution efforts, operating expenses,
regulatory processes and manufacturing and marketing programs. The Company's
capital requirements will depend on numerous factors, including the progress of
its research and development programs; results of preclinical and clinical
testing; the time and cost involved in obtaining regulatory approvals; the cost
of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights; the economic impact of competing technological and
market developments; developments and changes in the Company's existing
research, licensing and other relationships; and the terms of any new
collaborative, licensing and other arrangements that the Company may establish.
During the three years prior to the date of this Prospectus, David B. Johnston,
the Chairman of the Board and the Chief Executive Officer of the Company, and
certain affiliates of Mr. Johnston and the Company have contributed
approximately $3,500,000 to the capital of the Company in exchange for shares of
the Common Stock. The Company believes that its current assets and potential
additional contributions from affiliates of the Company and certain accredited
investors, as needed, will be sufficient to meet the Company's short-term
operating expenses and capital expenditures. At the present time, however,
there is no commitment from anyone with respect to any future capital
contributions to the Company, and there is no way to predict when and if any
such additional contributions may be made. Moreover, the Company's agreement
with Ambient Capital Group, Inc. does not guarantee that Ambient will be able to
raise additional funding. Consequently, the bulk of the needed capital over the
next 12 months must come from one or more substantial new investors.
In order to meet its expected capital needs for the next 12 months, the
Company executed the Investment Agreement with Bristol Asset Management, L.L.C.
("Bristol") on January 20, 1998. Subject to certain conditions, the Company may
require Bristol to purchase up to $7,000,000 worth of the Common Stock during
the remaining portion of the three year term of the Investment Agreement. The
obligations of Bristol to purchase such shares are subject to a number of
conditions precedent which first must be satisfied. Such conditions precedent
include, but are not limited to, the unrestrained trading of the Common Stock on
the principal exchange on which the shares are traded (as of the date of this
Prospectus, such exchange is the OTC Bulletin Board operated by the NASD), and
the registration for resale of the Newly Issued Shares of the Common Stock under
the Securities Act. In addition, the Common Stock must be registered pursuant
to the Exchange Act. If the Company fails to maintain its status under the
Exchange Act, or the Common Stock is delisted from the principal exchange on
which the Common Stock is traded, Bristol shall have no obligation to contribute
any additional funds to the Company, or if no such funds have been contributed,
to contribute any funds to the Company. In addition, if Bristol were to become
the owner of at least 4.9 percent of the issued and outstanding shares of the
Common Stock, Bristol may elect not to purchase any further shares of the Common
Stock, even though the full $7,000,000 worth of the Common Stock has not been
purchased. In computing the 4.9 percent limitation, all shares of the Common
Stock owned or deemed to be owned pursuant to Section 13(d) of the Exchange Act
and the rules promulgated thereunder, shall count towards the ownership
limitation. As a result of these conditions, it is possible that Bristol's
total investment under the Investment Agreement, if any, could be limited to an
aggregate cash contribution well below the $7,000,000 commitment. For example,
using June 1, 1998 as a constant Put Notice date, if Bristol actually purchases
shares of the Common Stock, such shares when coupled with the shares deemed to
be owned under Section 13(d) of the Exchange Act and the rules promulgated
thereunder (E.G., the Warrant Shares discussed below), Bristol would only be
able to purchase approximately $1,377,465 worth of the Common Stock before the
4.9 percent limitation would be reached. The Company has no access to the
financial statements of Bristol, a privately owned company, and relies upon
Ambient Capital Group, Inc., its financial adviser, to attest for Bristol's
ability to perform. See "Principal Stockholders - Bristol Asset Management,
L.L.C. Investment Agreement."
On each closing date with respect to the purchase of shares of the Common
Stock by Bristol, the Company shall also deliver to Bristol Compensation
Warrants to purchase shares of the Common Stock (the "Warrant Shares"), which
Compensation Warrants shall expire on the fifth anniversary of the date of
issuance thereof. The Compensation Warrants issuable at any such closing shall
entitle the holder thereof to purchase a number of Warrant Shares equal to 12
percent of the number of shares of the Common Stock purchased at the closing in
question at an initial exercise
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price, subject to the provisions of the Investment Agreement, equal to 100
percent of the average closing sales price for the Common Stock on the principal
exchange on which the shares are traded and as noted by Bloomberg (or other
appropriate published source) during the Look Back Period (defined below) in
question.
Pursuant to the Investment Agreement, the maximum amount of the shares of
the Common Stock which the Company may obligate Bristol to purchase shall not to
exceed the lesser of (i) $7,000,000 less all amounts previously paid by Bristol,
and (ii) the product of (x) the number of shares of the Common Stock traded on
the principal exchange on which the shares of the Common Stock traded for the
preceding calendar month, multiplied by (y) the average of the closing bid
prices noted in Bloomberg (or other appropriate published source) for the Common
Stock during the prior calendar month, multiplied by (z) 14 percent. For
example, if a total of 1,000,000 shares of the Common Stock traded during
January of a particular year and the average of the closing bid prices was
$2.00, on or before February 10 the Company could request a draw down not to
exceed 14 percent of the $2,000,000 or $280,000, so long as such amount was
available under the Investment Agreement. Payment of the draw down amount must
be made by Bristol on the fifth business day following the proper delivery of a
Put Notice.
Simultaneously with the receipt of the funds from Bristol in the amount of
the draw down, the Company shall issue and sell to Bristol the number of shares
of the Common Stock equal to the draw down divided by 74 percent of the lowest
sales price for the Common Stock on the principal exchange on which the shares
are traded and as noted in Bloomberg (or other appropriate published source)
(the "Lowest Sale Price" during the 10 trading days prior to the Put Notice Date
(the "Look Back Period"). For example, if the Lowest Sale Price for the Look
Back Period was $2.00 and the draw down was $500,000, the number of shares of
the Common Stock to be issued would be 337,837 shares. Notwithstanding the
foregoing, in the event that the Lowest Sale Price during the 20 trading days
after a particular closing is less than 95 percent of the Lowest Sale Price
applicable to such closing, then the Company shall promptly issue to Bristol an
additional number of shares of the Common Stock with respect to such closing
such that the number of shares of the Common Stock issued to Bristol at such
closing plus such additional number of shares are equal to the funds drawn down
at such Closing divided by 74 percent of the Lowest Sale Price during such 20
trading day period. Bristol shall also be issued additional Compensation
Warrants equal to 12 percent of the number of additional shares so issued and
the exercise price of such additional Compensation Warrants and the Compensation
Warrants issued at such closing shall be adjusted to 100 percent of the Lowest
Sale Price during such 20 trading day period.
Other than Bristol, there are no other known sources of liquidity.
Moreover, the Company at the present time does not have any party working on any
other source of capital. The Company's cash requirements may vary materially
from those now forecasted due to potential future acquisitions, the progress of
research and development programs, results of clinical testing, relationships
with strategic partners, if any, competitive and technological advances,
decisions of the FDA and foreign regulatory processes and other factors. There
can be no assurance, however, that additional capital or financing will be
available when needed, or if available, will be available on acceptable terms.
Insufficient funds may prevent the Company from implementing its business
strategy or may require the Company to delay, scale back or eliminate certain of
its research and product development programs, including the FDA clinical trials
currently being conducted by TMI, or to license third parties the rights to
commercialize products or technologies that the Company would otherwise seek to
develop on its own.
As noted above, Bristol will obtain essentially a 26 percent discount on
the purchase price of shares of the Common Stock pursuant to the Investment
Agreement. In addition, Bristol has the right to have additional shares and
additional Compensation Warrants issued to it if there has been a certain
decrease in the market price of the shares. The intention behind these two
provisions is to protect Bristol's relative stock position vis a vis other
stockholders who may acquire shares of the Common Stock at a time when the
market price per share has declined. Management does not believe that these two
provisions should adversely affect the market price for the shares of the Common
Stock, inasmuch as the various purchases of shares of the Common Stock by
affiliates of the Company over the past couple of years have involved discounts
of up to 50 percent in some instances without any seeming negative effect.
Likewise, management does not believe that the provisions of the Investment
Agreement should adversely affect the ability of the Company to raise capital in
the future. Neither Bristol nor any other stockholder of the Company currently
has any preemptive right to acquire any additional shares of the Common Stock,
and as a result, management does not believe that because Bristol has certain
rights to acquire additional shares at the time it purchases shares would have
any long-term effect on the decision by any other investor to invest in the
Company. However, the fact that there will be a large number of shares of the
Common Stock registered for resale by means of this Prospectus might adversely
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affect the ability of the Company to raise capital in the future due to the fact
that so many stockholders could sell their shares at any time and thereby drive
down the market value of the shares of the Common Stock, at a time when price
stability would be an important issue for any new investor.
If the Company does not commence generating adequate revenues, or if it
does not attract new capital sufficient to meet its operating needs, the Company
will not be able maintain the existing clinical trials to obtain FDA approval
for the TMI System or to obtain insurance payment codes for the CTI System. In
such event, the Company would have difficulty selling its products in the United
States. The Company would then be forced to focus on sales to foreign markets
that do not require FDA approval.
TMI DEPENDENCE ON THE COMPANY. TMI is an 80 percent owned subsidiary of
the Company that has developed the TMI System exclusively using contributions of
capital from the Company. The efficacy of the TMI System is currently subject
to confirmation in FDA clinical trials as a tool complementary to mammography.
TMI will have no source of revenue, other than contributions to its capital made
by the Company, until the clinical trials are successfully concluded and TMI or
the Company then is able to market for sale or use the TMI System. TMI has no
assurance that it can finance its development, marketing, or production costs.
The Company must fund or finance the balance of the clinical trials and any
subsequent development, operating, marketing and production costs until TMI
develops its business and then is capable of financing its operations.
Management believes that the Investment Agreement should provide the Company
with a sufficient amount of capital to fund the completion of FDA clinical
trials on the TMI System after the Registration Statement becomes effective to
which this Prospectus relates, a prerequisite to the obligations thereunder to
make contributions to the Company. However, as discussed above, there is no
certainty that any funds will become available as a result of the Investment
Agreement. As of the date of this Prospectus, the Company does not know of any
other source for long-term liquidity, and there are no agreements with any party
to invest any sums in the Company's securities. All risk factors set forth in
this Prospectus for the Company also apply to the risk of the Company's
investment in TMI.
CLINICAL TRIALS. Although the Company expects to raise funds through the
Investment Agreement needed for paying its newly incurred expenses and for
paying its past due obligations to TRW and its law firm, the Company may delay
the clinical trial schedule to defer costs if necessary. The FDA clinical
trials requirements for TMI to receive its PMA approval requires four separate
medical facilities to conduct examinations, and produce clinical statistical
data, from use of the TMI System. Those clinical trials are being conducted at
Providence Hospital in Washington, D.C. (previously at Howard University
Hospital in Washington, D.C. through the end of February 1998 where the pretests
were conducted to qualify to proceed with clinical trials for a PMA), at two
Los Angeles hospitals managed by the University of Southern California Medical
School, and at Mt. Sinai Hospital located in Miami. The rate of conducting
examinations determines the monthly cash flow requirements and the time for
qualifying for the PMA. TMI also incurs costs for FDA legal counsel and for
QBRI, a consulting firm recognized by the FDA for overseeing clinical trial data
collection and adherence to FDA requirements. Management estimates the cost
associated with completion of the scheduled TMI clinical trials by the end of
1998 will be approximately $3,000,000. Fewer funds available would require TMI
to depend more on its employees and less on independent contractors, resulting
in delays in the schedule. The Company intends to fund the cost of completing
TMI's clinical trials through funds generated by affiliate stockholder
contributions or through private sales of the Common Stock either to private
investors or through the Investment Agreement. If the Company were incapable of
raising those funds plus funds needed to conduct the Company's business, TMI
would have to abort its FDA plans. In 1997, most of the equity funds raised by
the Company in exchange for the Common Stock was contributed by affiliates
(primarily TII) through private sales of the Common Stock. Management believes
those affiliates would continue to contribute the funds necessary to achieve the
Company's business plan, because of the past history of such contributions,
although the cash flow from such funding has been, and probably would continue
to be, slower than if a substantial new investor would invest. However, it
should be clearly understood that as of the date of this Prospectus there is no
firm understanding with any party to contribute any further amounts to the
capital of the Company.
To complete TMI's clinical trials, pay all operating expenses of the
Company and TMI, and pay all past due payables, the Company has budgeted
$6,000,000, of which approximately $1,500,000 is owed to TRW and the Attorneys.
The Company expects to achieve the liquidity necessary to satisfy this budget
through private sales of the Common Stock to Bristol Asset Management, L.L.C.
pursuant to the Investment Agreement or to other investors. The Company
understands that there are uncertainties in achieving performance under the
Investment Agreement,
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including the fact that the Company has no financial information to verify
the ability of Bristol Asset Management, L.L.C., to the perform under the
Investment Agreement.See "Principal Stockholders - Bristol Asset Management,
L.L.C. - Investment Agreement." Pending any time delays in achieving
liquidity pursuant to those agreements, the Company expects affiliate
stockholders to continue to support the Company either through loans or
contributions to capital in exchange for the Common Stock that would be
restricted securities.
CTI SYSTEM DEVELOPMENT. The Company has committed to devote a major
portion of its resources and subsequent capital financing, in excess of its
fixed operating costs, to the operations of TMI for the completion of the
ongoing FDA Clinical Trials. The Company anticipates funds from the Investment
Agreement to satisfy that budget requirement. After the Company is successful
in arranging new capital financing to fund completion of TMI clinical trials as
discussed above, the Company intends to use any excess funds, and any additional
funds raised through separate financings, in the further development of the CTI
System. When funding for the Company is available from investors, the Company
plans to conduct multiple clinical trials involving the CTI System in the
identification of soft tissue maladies. Although such clinical trials may not
be necessary for physicians to use the CTI System, the benefit of specific
purpose clinical trials will be to enable the Company to reference medical
efficacy claims in connection with marketing efforts, to enhance physician
confidence in the CTI System, and to obtain the designation of insurance payment
codes for particular CTI System procedures . Management believes that the
market in the United States alone for the CTI System would be dramatically
enhanced if clinical trials were to substantiate the Company's assertion that
the CTI System can distinguish and verify fraudulent (versus real muscular)
lower back pains.
MARKETING. The Company cannot assure investors that expenditures for
clinical trials will result in confirming results or an FDA approval, nor can
the Company be sure that any FDA approval or successful clinical trial will
result in a profitable business activity. In order to be successful, the TMI
System and the CTI System must be accepted both by physicians and the public.
The primary method for creating physician acceptance of the Systems will be
through the publication and presentation of technical research papers to
medical professional groups. Management has already collaborated with
physicians working on the TMI System clinical trial program to submit an
abstract report to the Radiological Society of North America for presentation at
their December 1998 conference in Chicago. If the abstract is selected by the
society, a detailed research paper will be presented as part of the conference
and published in the proceedings. As more research data becomes available, the
Company hopes to team with research physicians on similar projects in the
future.
A marketing campaign must also be undertaken to educate the general public
regarding the advantages associated with the use of the Systems. Management
understands that this marketing effort will require substantial funds which are
not presently available. Management estimates that an effective marketing plan
for the Systems during the next 12 months would cost at least $228,000, a line
item included in the $6,005,986 budget for 1998. While most of the funds needed
to engage in a large scale marketing effort would be necessary if the PMA were
approved and would likely have to come from equity financing, management
believes that usage charges from the TMI System will provide sufficient funds to
initiate the campaign. Based upon the current pace of clinical trials, the 600
qualified patient examinations required by the FDA should be completed by the
end of 1998 for consideration for the FDA to grant the PMA.
EQUIPMENT FINANCING. The Company expects to commence production and sales
for the CTI System when capital or debt financing is available and the Use
Agreements are in place. Equipment financing will be necessary for the Company
or TMI to market the Systems to enable manufacturing, production, and extensive
marketing. Foreign sales of the CTI System may be likely with adequate
marketing expenditures, but substantial U.S. sales are only likely to follow an
FDA program for approval. A the present time, management doe not expect to seek
FDA approval for the CTI System. However, TMI is actively pursuing FDA approval
(the "PMA") for the TMI System. The Company contemplates revenues from the CTI
System in the U.S. to be generated pursuant to Use Agreements, placing the CTI
System in a hospital or medical care facility under an agreement requiring the
user to compensate the Company based upon the time used. The Company
contemplates systems integration and sales agreements for overseas production
and sales. The Company expects to obtain equipment financing for the Company
and TMI, secured by the sales or Use Agreements and the inventory produced.
Assuming the PMA is granted after the TMI clinical trials are completed, TMI
anticipates funding to be available from capital and debt financing to commence
production and sales of the TMI System. The Company has entered into
discussions with equipment financing companies that have indicated that the
Systems can be financed in this manner.
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RECENT STOCK SALES. Pending the effective date of this Prospectus, when
the Company believes it will have sources of liquidity either through execution
of Put Notices pursuant to the Investment Agreement or through other sales of
the Common Stock to raise the capital necessary to provide the liquidity for
operations, the Company has relied upon affiliates to contribute to the Company
the cash necessary to maintain operations. This has resulted in the issuance of
additional shares of the Common Stock, which has further diluted the interests
of the stockholders by increasing the number of outstanding shares. From
July 1, 1997 through March 31, 1998, the Company has received $1,952,600 in
capital contributions from TII, an affiliate of Mr. Johnston, in exchange for
5,716,049 shares of the Common Stock. In March 1998, the Company issued
2,246,275 shares of the Common Stock to MFG for an aggregate contribution of
$539,106.
CHANGE OF ACCOUNTANTS
On May 13, 1997, King, Griffin & Adamson P.C. ("King Griffin"), resigned as
the independent accountants of the Company. King Griffin has not issued an
opinion with respect to of any of the Company's financial statements for any of
the preceding two years. The Company then discussed the audit needs with other
auditors and engaged Ham, Langston & Brezina, LLP on May 20, 1997. Prior to the
engagement of King Griffin, Randy Simpson, certified public accountant, audited
the financial statements of the Company for the year ended June 30, 1996. The
change of principal auditor for the Company's financial statements for the years
ended June 30, 1996 and 1997 was subsequently ratified by the Company's Board of
Directors on September 18, 1997.
King Griffin had been engaged on March 13, 1997, and performed certain
limited procedures in connection with the start of their audit of the financial
statements of the Company, but it did not reach any conclusions concerning those
financial statements. No disagreements existed between the Company and King
Griffin from the date of King Griffin's engagement through the termination date
of their engagement.
During Randy Simpson's tenure as principal independent accountant to the
Company, there were no disagreements between the Company and Mr. Simpson whether
resolved or not resolved, on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which, if not
resolved, would have caused him to make reference to the subject matter of the
disagreement in connection with his report. Furthermore, Mr. Simpson's report
for the past fiscal year did not contain any adverse opinion or disclaimer of
opinion, excepting a "going concern" qualification and an emphasis paragraph on
the reliability of certain assets, and was not qualified or modified as to audit
scope or accounting principles.
Management effected the change in accountants in order to provide the
Company with increased service potential in anticipation of a public
registration of the Common Stock. While no longer the principal independent
accountant, Mr. Simpson has been retained by the Company to provide accounting
assistance in connection with the preparation of this Prospectus.
Also, during the Company's two most recent fiscal years, and since then,
Mr. Simpson has not advised the Company that any of the following exist or are
applicable:
1. That the internal controls necessary for the Company to develop
reliable financial statements do not exist, that information has come
to his attention that has lead him to no longer be able to rely on
management's representation, or that has made him unwilling to be
associated with the financial statements prepared by management;
2. That the Company needs to expand significantly the scope of its audit,
or that information has come to his attention that if further
investigation may materially impact the fairness or reliability of a
previously issued audit report or the underlying financial statements
or any other financial presentation, or caused him to be unwilling to
rely on management's representations or be associated with the
Company's financial statements for the foregoing reasons or any other
reason; or
3. That he has advised the Company that information has come to his
attention that he has concluded materially impacts the fairness or
reliability of either a previously issued audit report or the
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underlying financial statements for the foregoing reasons or any other
reason, except as disclosed in the Company's financial statements.
Prior to the engagement of Ham, Langston & Brezina, L.L.P. as independent
auditors, the Company did not consult Ham, Langston & Brezina, L.L.P. regarding
the application of accounting principles to a specific transaction, either
completed or proposed; or the type of audit opinion that might be rendered on
the Company's financial statements or any other financial presentation
whatsoever.
BUSINESS
GENERAL
Computerized Thermal Imaging, Inc. (the "Company") was incorporated on June
10, 1987 in the State of Nevada as Business Helpers, Inc. The Company amended
its Articles of Incorporation on August 25, 1989 to effect a name change to DTI
Dorex, Ltd. and again on November 3, 1989 to its current name. In April 1992,
the Company further amended its Articles of Incorporation to provide for a
capital structure of 100,000,000 shares of common stock, par value of $0.001 per
share, and 3,000,000 shares of preferred stock with such designations,
preferences and other features as may be required by the Board of Directors. On
March 16, 1998, the Company further amended its Articles of Incorporation which
described in more detail the authority of the Board of Directors with respect to
any shares of the preferred stock which may be issued by the Company. In
addition, such amendment denied preemptive rights to all stockholders of the
Company. In 1988, the Company, through the issuance of shares of the Common
Stock, acquired all of the assets of Thermal Imaging, Inc., an Oregon
corporation ("TII"), which assets consisted primarily of certain thermal imaging
intellectual property, proprietary ideas, or technology.
The Company is a development stage company that is a medical imaging
systems integrator and proprietary protocol developer producing a computerized
clinical thermal imaging diagnostic system (the "CTI System") that has been
trademarked under the name COMPUTERIZED THERMAL IMAGING. The Company has not
filed any applications for patents covering specific aspects of the CTI System.
Instead, the Company owns computer software which is not generally subject to
the protection afforded by patents. However, the software is proprietary and
subject to protection as a "trade secret." Since 1995, the Company has spent
approximately $3,000,000 on research, software development, and further
development of the Systems.
The Company plans to place the CTI System in various health care providers
such as hospitals, HMOs and free standing image centers through Use Agreements.
Revenues will be generated under the Use Agreements by charging the health care
providers monthly for time usage and for the disposable supplies purchased in
conjunction with the CTI System. Once the CTI System is inserted into the
marketplace, the Company does not expect to rely on any one or a few major
customers. Consequently, it is anticipated that the CTI System will be
attractive to a widely dispersed number of customers.
PRODUCTS
The Company currently has five completed CTI Systems in use, four of which
have been supplied to TMI and have been configured for breast cancer detection
examinations (the "TMI System"). TMI has further developed the software and
hardware for the TMI System, including the engineering design and the patent of
a positioning table that protects the privacy of the patient and avoids invasive
compression examinations. Three units are currently being used by TMI in
clinical trials being conducted at Norris Comprehensive Cancer Center, Los
Angeles, Los Angeles County Hospital, and Providence Hospital, Washington, D.C.
Another CTI System was sold in May 1996 to Orchard Hospital in Bangkok,
Thailand, where the CTI System has been used by that teaching hospital for two
years for several medical examination purposes to establish the confidence level
of Orchard Hospital to consider a joint venture for distribution in Thailand.
The fifth CTI System was placed by the Company in the Friendship Hospital in
Beijing, China, which was originally installed by the Company as a demonstration
unit but was subsequently converted to a fee-for-use revenue generating unit.
The CTI System in Beijing produced revenue of 68,000 RMB, or the equivalent of
U.S.$8,200 through December 1997. The revenue generated in Beijing was used to
support the Company's operations in the PRC, where the Company maintained an
office until late 1997. This fifth CTI System has been returned to the Company
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offices in Layton, Utah for calibration, and then on to Mt. Sinai Hospital in
Miami for clinical trials in conjunction with TMI's attempt to attain a PMA from
the FDA for the TMI System. The Company intends to return this fifth CTI System
to the PRC in preparation of continuing marketing efforts in the PRC whenever
the clinical trials have been completed at Mt. Sinai Hospital, provided the
Company's anticipated funding from the Investment Agreement occurs.
CTI SYSTEM. The basis of the CTI System is predicated on the principle
that every externally or internally triggered physiological event causes an
associated caloric reaction. In the opinion of management, any such abnormal
caloric activity will stimulate the body's three temperature and thermal
regulatory systems. These responses are believed to be detectable and
interpretable through tell-tale thermal symptoms and temperature regulatory
response patterns over time. Management believes that the body's thermatome
(temperature) "map" has been well established by medical science, and can
provide a reliable set of clues for diagnostic and patient management purposes,
so long as the thermal symptoms are present. At other times, symptoms such as
pain or numbness and information from other medical tests, will triangulate to
indicate a disorder. Thus, the CTI System may be used by physicians to
eliminate or identify certain possible soft tissue ailments in the process of
making a diagnosis.
"Thermal imaging" as the observation technique is called generically, is a
methodology that long has held great promise, but has not realized its potential
because of deficiencies in the enabling technology. Thus, thermal imaging has
found fairly limited acceptance by the mainstream medical community because,
until the invention and development of the Company's technology, the testing and
evaluation techniques simply have not been scientifically completed, nor
medically reliable for most disorders. The CTI System represents an integration
of state-of-the-art thermal imaging technology hardware and software components,
most of which are configured to the Company's specific needs. The CTI System is
driven by sophisticated software developed over many years by the Company and
its research contractors. The software allows for quantification of data, and
significant flexibility in data manipulation, among other advantages. However,
equally important as the CTI System's components are, the CTI System's
scientifically structured patient examination administration protocols and
standards are expected to assure the accuracy, consistency and reliability of
the CTI System's generated data.
The CTI System is suitable for use as a screening or directional tool for
imaging or diagnosis modalities, some of which are surgical, chemical and
otherwise extremely invasive. By knowing where in the body to begin looking
because of thermal irregularities, other imaging and testing can proceed more
efficiently and economically; obviously an important advantage in containing
health care costs. Additionally, management believes that as a result of the
CTI System's comparatively low user cost (less than the cost of an MRI or CAT
scan), accuracy and non-invasive procedure, the CTI System will be advantageous
for diagnostic and patient therapy purposes, in both pre- and post-therapy
assessment and with any frequency deemed necessary by the physician. The CTI
System can examine patients dynamically to enable the physician to observe
thermal reactions while the patient moves and while the patient undergoes
thermal applications.
The CTI System is currently composed of four elements. The primary
component is the examination unit, consisting of a highly sensitive and accurate
infra-red camera, imaging monitor, high resolution printer, computer and
proprietary software. The most unique feature of the CTI System is the
application specific software that drives and integrates the entire system, not
only providing user friendliness and analytical flexibility for physicians and
technicians, but enabling scientifically essential calibration corrections.
Management believes that the Company will be the first thermal imaging company
to provide a consistently objective diagnostic assessment tool that will measure
multiple thermal parameters, including facile enclosure of thermal features,
dynamic graphing of temperature distribution in the inset domain, and the use of
temperature gradient profiles in diagnostic testing.
The CTI System is a non-invasive imaging modality scientifically applicable
for an extremely wide range of patient diagnostics and therapy management
situations. The CTI System provides precise, quantitative observation, as well
as computer-assisted interpretation of irregularities in the body's temperature
and thermal regulatory systems. It is expected that with the generated data
available, physicians will be able to detect or at least infer the presence of
many diseases, disorders and injuries within the body's physiological,
neurological and vascular systems that rarely can be detected or confirmed
through conventional dense tissue/skeletal imaging modalities such as X-ray, CAT
scan, MRI and others. The CTI System is non-dosage limited and has no
detrimental side effect.
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The second element of the CTI System is the proprietary medical protocols
that will be developed by the Company for each malady assessment. Computer
analysis requires consistently applied patient preparation and examination
application protocols.
Conformity is assured by using the third element, a climate controlled
laboratory (herein the Quantitative Thermal Assessment Laboratory or "QTA") in
which the patient examination occurs for equilibrating all patient examination
environments. In employing the CTI System, the Company anticipates constructing
QTAs for various potential customers including large hospital facilities, HMOs,
free-standing diagnostic centers and mobile clinics. The customer's own
technicians and physicians will operate the QTA after training. Each
installation will be linked electronically to the Company's main image archive.
A QTA center which consists of a three room suite will be constructed within a
standard 16 x 20 x 8 feet two-bed hospital room. The rooms will be precisely
temperature and humidity controlled by the erection of a modular
room-within-a-room. The patient temperature equilibrium rooms will consist of
two rooms within the suite for stabilization of patient temperature as well as
other preparations for testing. The imaging room is a room within the climate
controlled suite in which the patient is placed for infra-red scanning and in
which the camera, computer console and one technician is present during the
testing.
The fourth element of the CTI System is the use of a digital health card
that encodes a patient's thermal image (capable of storing the patient's medical
record) in a digital format on a plastic card the size of a credit card. Only
recently has the technology been improved to be capable of storing the quantity
of data for accurately carrying images from the CTI System. More than one
manufacturer now can produce such cards. The Company plans to embed in the CTI
System a "reader/writer" encoded for Company access only to permit recording the
images on the cards to enable subsequent comparisons of the images by physicians
at different clinical sites over an integrated telemedicine system.
TMI SYSTEM. The Company owns 80 percent of the outstanding capital stock
of Thermal Medical Imaging, Inc., a Nevada corporation (herein sometimes
referred to as "TMI"). TMI utilizes the CTI System specially configured as a
breast cancer screening system which is a non-invasive, non-contact procedure
that does not involve breast compression or exposure to radiation (the "TMI
System"), and which is comprised of an infra-red camera, a central processing
unit, input devices, a display unit, and a power distribution unit. The TMI
System also employs a proprietary patient positioning system (for which an
application for a patent has been filed) in the data acquisition process, which
replaces the need for a QTA construction. The positioning system was designed
to maximize breast area viewed and to include surrounding areas of interest, to
limit patient movement during the examination, to ensure consistent cooling, to
permit applications of localized thermal changes during the examination, and to
accommodate any residual patient breathing movement. Currently, the TMI System
is undergoing clinical testing in accordance with an FDA approved protocol which
management expects to lead to pre-market approval (herein referred to as "PMA")
by the FDA. Once it has finished its clinical trials, TMI expects to file for
PMA in the fall of 1998, as long as the Company can obtain the necessary
financing for the operations of TMI.
The TMI System performs three independent but interrelated functions; data
acquisition, data analysis and clinical evaluation. The TMI System will use the
Company's infra-red detection system for use in data acquisition. The thermal
data acquired will consist of a time sequence of digitized thermal images. The
images will then be post-processed on specially developed data analysis software
to generate images for clinical assessment. The interpreting physician will
view an image and the supporting mathematical data underlying that image.
The TMI System is currently in clinical testing at Providence Hospital in
Washington, D.C., in two hospitals managed by the University of Southern
California, Norris Cancer Center in Los Angeles and Los Angeles County Hospital,
and at Mt. Sinai Hospital located in Miami.
COMPETITION
CTI SYSTEM. The Company faces limited direct competition from the latest
versions of conventional thermal technology. Although the CTI System may have
application for detection or diagnosis of numerous soft tissue ailments,
physicians must broadly accept the CTI System as complementary detection
technology to prescribe its use to create a material market for its use. Many
physicians generally equate the CTI System, upon first introduction, with the
predecessor technology of "thermography," an analog infra-red camera system
without the Company's computer algorithm analysis of computed thermal data using
high quality thermal imaging cameras. Educating doctors of the
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fact that the Systems are new technology could take time and result in delays in
any financial revenues forecasts. In the opinion of management, thermography is
comparatively crude and unscientific and otherwise seen as inferior to the CTI
System and is not considered an economic barrier to market penetration. The CTI
System should not be seen as competitive to other diagnostic imaging products,
such as MRI, CAT scan, X-ray, ultrasonography, laser, and Doppler mapping (any
more than any one modality of that list is considered competitive to another).
Each of these anatomical modalities has established a niche in the hospital
diagnostics market, free standing imaging centers or physicians' offices. Each
modality is better for some disorder diagnosis situations and less effective for
others. The adoption pattern of the modalities is dictated by the degree of
advantage perceived by one modality as compared to the others.
By comparison to all of the above-described modalities, the CTI System has
no direct competition from existing modalities in many diagnostic situations
because the CTI System gathers data regarding the physiological and functional
domain of human health, as opposed to the anatomical or structural facets. Most
other imaging devices address "anatomical or structural patient issues" and are
therefore complementary and not competitive to the CTI System. Large companies
have the resources to attempt to compete in the long term with the Company in
the physiological assessment of medical issues, but at present are not deemed by
management to be a threat. MRIs, CAT scans, and X-rays all image hard or dense
structures such as bones, organs and other material masses within the body.
Many soft tissue disorders simply are not detectable by conventional modalities
until they become manifested as relatively advanced anatomical abnormalities
such as irregular tissue density or damage.
TMI SYSTEM. Mammography is an X-ray technology most widely used in the
Untied States as the imaging mode for detection of breast cancer. Statistics
have been published establishing a low reliability percentage of close to 75
percent for "false positive" indications, where mammography indicates a
suspicious tumor and a follow-up surgical biopsy establishes that the tissue is
benign. An even more frightening statistic is the percentage of mammography
"false negative" indications, by which a breast cancer is not detected.
Mammography is significantly less effective in dense breast tissue; women under
the age of 40 years typically have more dense breast tissue than women over the
age of 40 years. Therefore, mammography is currently most effective in women
over the age of 40 years. The initial clinical trials approved by the FDA for
TMI are designed to establish the TMI System as complementary to mammography.
The first PMA uses will be to employ the TMI System to examine any patient with
"suspicious tissue" indications resulting from a mammography image.
Potential competition for the TMI System includes an imaging device for the
detection of breast abnormalities being developed by Imaging Diagnostics
Systems, Inc. located in Sunrise, Florida, known as a Computer Tomography Laser
Mammography System ("CTLM"). This device relies on ultra-fast laser imaging
technology which can acquire data to allow visualization of the interior
structure of the breast. The ability to localize an abnormality within the
breast is greatly enhanced by the slice plane lateral and cranio-caudal images
produced by CTLM. Such images can be stored on CD-ROM and allow the physician
to recall previous studies instantly for immediate comparison with the current
study. The advantage of CTLM over mammography is its use of laser technology to
produce the image, which does not use harmful radiation. Management, however,
believes the TMI System will prove superior to CTLM for detection of cancer
because laser images still require density of tissue, as with mammography, to
produce an image. Dense tumor formations are a later stage of cancer and
management believes the TMI System detection of physiological thermal changes
will prove to be more accurate (because some tumors are benign) and detectable
at an earlier stage.
Also, an ultrasound technique is being developed by Advanced Technology
Laboratories ("ATL"), known as High-Definition Imaging. Ultrasound sends
high-frequency sound waves into the body, which are reflected back to create
images. While ultrasound is used in numerous medical procedures, ATL's system
is the first to provide adjunctive diagnostic capability for breast cancer.
COMPONENT COMPETITION. If the Company and TMI are successful with their
product development and marketing, some component parts for the CTI System could
be in short supply. There are few manufacturers that produce an infra-red
camera and unit cooling system of a high enough quality to satisfy the
specifications for a CTI System. The systems integration and software
development contractor for both CTI and TMI, TRW Systems in its TRW Healthcare
Technology Division (herein referred to as "TRW"), has tested numerous
manufacturer's products for certain parts. If the demand for the CTI System and
the TMI System increased dramatically, some parts may not be immediately
available.
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FUTURE PRODUCT AND SERVICE PLANS
The Company will continue to invest substantially for the remainder of
1998, to the extent of its available financing, to improve the effectiveness of
its proprietary application software. In addition, the Company will continue to
source from vendors who can improve the precision and reliability of the patient
testing of the CTI System. However, the area of innovation that the Company
believes will create the next quantum leap will be the integration of the
Systems with anatomical and other imaging data. Because the Systems are
digitally quantifiable, the Company believes it is highly technically and
economically feasible for the Systems to be the foundation of inter-modality
imaging, where, for instance, image data of the CTI System is overlaid on CAT
scan or MRI or X-ray or sonographic imaging data to create a multi-dimensional
"picture." This development is not forecast until after significant market
penetration.
At present, some other advanced modalities generally are what might be
termed "neo" or non-quantifiable. That is, even if the information from an MRI
is processed by computers digitally, the eventual interpretation of the image
still is subjective on the part of the technicians and diagnosing doctors. The
Company's plan is to first build quantified data bases of tests on the same
patient by other modalities and then develop the necessary interfaces to allow
overlay. Then, with this capability and the combined data base at hand, the
Company can begin offering computerized disorder pattern recognition assistance
based upon a multi-dimensional image of patients.
GOVERNMENT REGULATION
The FDA has no prohibiting regulations preventing the use of thermal
imaging equipment, generally perceived as an infra-red camera, for medical
purposes. There can be no assurance that any state regulatory bodies or the FDA
might not impose some restrictions, with which the Systems, or the users, must
comply. The Company believes no FDA approval is required for health care
physicians or radiologists to use the CTI System, but the Company believes that
broad acceptance for use of the CTI System will require verification of
clearance from the FDA. The CTI and TMI Systems are considered medical devices
as defined by Section201(h) of the FDC Act because they are intended for use in
the diagnosis of disease or other conditions, or in the cure, mitigation,
treatment or prevention of disease, in man or other animals. As such, these
devices require either compliance with FDC Act Section 510(k) under which the
Company currently relies with respect to the CTI System, or approval of a
premarket approval application (herein referred to as "PMA") by the FDA prior to
commercialization, with respect to the TMI System. Satisfaction of applicable
regulatory requirements may take years and varies substantially based upon the
type, complexity and novelty of such devices, as well as the clinical procedure.
Filings and governmental approvals may be required in foreign countries before
the devices can be marketed in these countries. There can be no assurance that
further clinical trials of the Company's thermal imaging systems or of any
future products will be successfully completed or, if they are completed, that
any requisite FDA or foreign governmental clearances or approvals will be
obtained. FDA or other governmental clearances or approvals of products
developed by the Company in the future may require substantial filing fees, or
costs to conduct clinical trials, which could limit the number of applications
sought by the Company and may entail limitations on the indicated uses for which
such products may be marketed. In addition, approved or cleared products may be
subject to additional testing and surveillance programs required by the FDA and
other regulatory agencies, and product approvals and clearances could be
withdrawn for failure to comply with regulatory standards or by the occurrence
of unforeseen problems following initial marketing. The Company is also
required to adhere to applicable requirements for current good manufacturing
practices, to engage in extensive record keeping and reporting and to comply
with the FDA's product labeling, promotional and advertising requirements.
Noncompliance with state, federal or foreign requirements can result in fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, delay, denial or withdrawal of premarket clearance or
approval of devices, recommendations by the FDA that the Company not be allowed
to enter into government contracts, and criminal prosecution, all of which would
have a material adverse effect on the Company's business, financial condition
and results of operations.
The FDA review of a PMA application consists of the following four steps:
(i) administrative and limited scientific review by the FDA staff to determine
that the application is complete; (ii) in-depth scientific and regulatory review
by the FDA compliance personnel; (iii) review and recommendation of the
appropriate advisory committee (panel review); and (iv) a FDA good manufacturing
practices inspection. Following the FDA review, the FDA will notify the
applicant by letter of its decision to approve or deny the application. A
notice will also be published in the
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FEDERAL REGISTER. These steps are internal FDA PMA processing so no information
is available for the time frame of the individual steps. However, the average
review time in 1997 for new PMA submittals was 207 days. Furthermore, 21
percent of the PMAs were reviewed in 180 days or less.
After TMI developed a product that could have beneficial medical use and
would merit FDA approval, the first step was to hold a series of discussions
with the FDA. These discussions were designed to allow the Company to present
to the FDA the new product to be tested, it's basis of operation, safety
ramifications, intended usage, desired trial composition and desired approval.
Pretrial data was presented to the FDA by TMI to demonstrate that there was
sufficient probability of success to warrant FDA consideration. These
discussions also reviewed the intended trial protocol. These discussions led to
modifications to the intended trial composition and protocol in order to ensure
that a trial would produce sufficient data quantity and quality to allow a
successful FDA review after the trial. TMI has successfully completed this step
and has an FDA approved trial protocol, requiring an initial data collection
phase where thermal images collected by the TMI System from approximately 600
qualified patients were collected. The next step was to set-up the trial
process with the appropriate trial oversight. TMI has engaged QBRI, a
consulting firm recognized by the FDA for overseeing clinical trial data
collection and adherence to FDA requirements. TMI has completed this step of
the process. The next step of the FDA approval process is to implement the
clinical trials by executing the approved protocol and collecting actual patient
data. TMI is currently in this phase of the approval process with clinical
trial data collection underway at USC/Norris Comprehensive Cancer Center,
Los Angeles County Hospital, both in Los Angeles, at Providence Hospital,
Washington, D.C., and Mt. Sinai Hospital in Miami. The clinical trials permit
the medical facilities to use the TMI System, to collect the required patient
information and examination results, to compare the TMI System data collected to
the pathology findings of malignant or benign tumors, to permit independent
review for adherence to examination procedures, and to categorize the collected
data for appropriate presentation to the FDA. This phase is expected to
continue through 1998. Following the completion of the trial data collection
phase, TMI and its consultants must analyze the trial results to prepare a PMA
submission. The Company makes no estimate of the time required by the FDA to
review TMI's PMA submission.
The Company will rely upon a 510(k) exemption under the FDC Act for general
medical applications, based upon the technology of the infra-red camera
components for sales of the CTI System. The Company expects in the future to
pursue specific medical applications by applications to the FDA for a PMA or
other approval, but none have been initiated at this time by the Company.
THIRD PARTY REIMBURSEMENT
Although use of the CTI System and the TMI System is permitted now by
physicians, the absence of FDA approval is a practical impediment. Most
physicians prescribe use of external procedures and imaging modalities when
there are approved payment codes acceptable for third party reimbursement (E.G.,
insurance, Medicare, etc.) to enable patients to obtain medical treatment
payment assistance. The Health Insurance Care Finance Administration ("HICFA")
is the agency that establishes for Medicare/Medicaid a payment code approval for
certain imaging modalities for particular suspected ailments. Generally, HICFA
does not set payment codes for use of new technology unless the technology has
obtained FDA approval. Most insurance company reimbursement plans establish
payment codes for their insureds based upon their own experience, and for new
procedures or imaging modalities, based upon HICFA's determination. Therefore,
FDA approval is needed, at least at the inception, for each ailment examination
for which the CTI System or the TMI System is used seeking reimbursement, if not
covered by other general payment codes.
Neither the Company nor TMI currently have FDA approval for any imaging
procedure. TMI clinical trials are in process for use of the TMI System for
breast cancer detection. The Company has initiated no process to obtain
separate FDA approval to proceed with clinical trials of the CTI System.
Therefore, the Company's efforts to market the CTI System in Asia (the PRC and
Thailand) may result in revenues quicker, if further contracts are entered to
sell the CTI System there, than with the Company's plan to place the CTI System
in U.S. hospitals, clinics, and HMO facilities subject to the Use Agreements.
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PATENTS AND INTELLECTUAL PROPERTY
On June 8, 1996, the Company entered into a License Agreement with TMI
which granted an exclusive license to TMI to distribute, research, and develop
the CTI System and related technology. The license covered applications of the
CTI System to the field of breast cancer detection and was limited in scope to
North America. The License Agreement also provided for a joint research program
whereby the parties would share research data relating to the CTI System and
cross-license any developed technologies. In addition, the terms of the License
Agreement established that the agreement would automatically terminate in the
event of any consolidation, merger, share exchange or other event causing a
change in more than 50 percent control of the voting shares of TMI or the
Company. As a result of the Stock Transfer Agreement executed on January 28,
1997 by the Company and TMI, the Company gained control of 80 percent of the
common stock of TMI. While the provisions of the Stock Transfer Agreement
manifests the parties' intent to execute a new licensing agreement and outlined
the terms of such an arrangement, no new licensing agreement has been reached.
Although no written licensing or research agreements presently exist between the
Company and TMI, management believes that the cross-licensing arrangement
between the two companies is still in place and, by virtue of the Company's 80
percent controlling ownership interest in TMI, it has the requisite ability to
ensure access for the Company to all material technological developments. The
risk of the absence of a clear, written licensing agreement is heightened by the
financial constraints upon the Company. If the Company or TMI were to be unable
to timely pay creditors, a judgment or lien or bankruptcy against the Company or
TMI could result in a challenge to the executory nature of any licensing
agreement, or the parties may have a disagreement as to the terms of such
agreement, due to the fact that specific licensing terms are not set forth in
writing. Although the Stock Transfer Agreement evidences the intent of the
parties to recognize a cross-license agreement and geographical restrictions
upon the use of the TMI System by TMI, that expression of intent set forth in
the Stock Transfer Agreement may not be recognized, if challenged by TMI or a
third party acquiring either TMI or some of the Company's technology, as a
binding license agreement. The result could be that TMI, if subsequently under
separate stockholder control, might be a competitor to the Company in the use of
the CTI System technology and marketing of related products. The Company
expects to control this risk by paying its creditors and establishing an
appropriate licensing agreement while controlling the stock of TMI.
The Company executed a Promissory Note dated May 1, 1998 consolidating the
balance of legal fees and expenses owed to the Attorneys through April 21, 1998
of $397,745.56 (the "Promissory Note"). The terms of the Promissory Note
provided for interest to accrue on the unpaid principal at a rate of one percent
per month. The Company is obligated to make monthly installment payments of
$50,000, including accrued interest, until all principal and interest are paid
in full. The Promissory Note incorporates the terms of two pledge agreements
executed by the Company and TMI which provide security for the amounts due under
the Promissory Note and on future outstanding accounts with the Attorneys (the
"Pledge Agreements"). The security interests granted pursuant to the Promissory
Note and Pledge Agreements cover the Company's common stock holdings in TMI and
the intellectual property of both the Company and TMI. See "Business - Past Due
Accounts." If an event of default were to occur under the Promissory Note or
the Pledge Agreements, the Company's interest in TMI, its 80 percent subsidiary
(including the TMI System), and/or the intellectual property relating to the CTI
System could be sold to satisfy the outstanding debt. As of August 15, 1998,
the total amount due on the Promissory Note and for subsequent fees is
approximately $313,215. As of the date of this Prospectus, the Company has made
all payments due under the Promissory Note, and management expects that the
Company will continue to do so.
Neither the Company nor TMI currently holds registered United States or
foreign patents. TMI has acquired, by assignment, a patent application on a
Functional Thermal Imaging Apparatus which has been filed with the United States
Patent and Trademark Office. Management believes other developed technologies
or components of either the CTI or TMI System may warrant patent protection in
the future. Substantial engineering costs and legal fees will be incurred in
order to research, develop and file additional patent applications. The Company
and TMI intend to explore this possibility when funds become available to
support such expenditures.
RISKS OF DOING BUSINESS IN THE PRC AND OTHER FOREIGN COUNTRIES
The Company intends to continue its efforts to market the CTI System to the
PRC, Thailand and hospitals in other foreign countries. Doing business in the
PRC, as well as in other developing countries, has risks not prevalent in the
United States or Canada. Judicial systems for enforcement of contracts in those
counties are not reliable. The
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Company has inserted arbitration clauses in its foreign contracts to date, but
there is risk to arbitration results, because the holding is not subject to
appeal, regardless of error in the application of law. Furthermore, foreign
government laws or regulations can change in a method not customary to American
companies, including the extreme measure of nationalization of assets.
The Company's existing contracts with a company owned by the Ministry of
Public Health in the PRC require letters of credit enforceable outside the PRC
to be issued as a precondition of performance by the Company. Management
intends to continue to take such financial precautions to protect against
financial risks of doing business in the PRC and developing countries.
Successful operations in developing countries usually require a joint
venture with a respected citizen of that country. The Company has continued one
full time employee in the PRC who maintains his relationships with the Ministry
of Public Health. The initial sale of the CTI System to the Orchard Hospital in
Thailand was brought about through a personal relationship established in
earlier years by General Richard V. Secord, the Chief Operating Officer of the
Company. There is no assurance that a venture will be formed in Thailand, but
the Company's contacts in Thailand have been successfully using and
demonstrating the CTI System and providing a recurring downloading of patient
information. Thailand and the PRC are countries where thermography (a
technology predecessor to the CTI System without computer data analysis and
without high definition cameras) has been accepted for years, largely due to its
use in proving the efficacy and proper location of acupuncture. Management
intends to use this relationship to establish a financing venture in Thailand,
when it can raise the necessary capital to pay start up costs.
EMPLOYEES
The Company and TMI currently employ eight persons on a full time basis.
The Company has in the past, and will continue in the future, to employ
independent contractors, and make extensive use of its outside directors and
other consultants. None of the employees of the Company and its subsidiaries
and joint operations are represented by a labor organization. The Company
believes its relationships with all of these employees are satisfactory.
FACILITIES
The Company leases approximately 1,000 square feet of office space in Lake
Oswego, Oregon for an annual rental of approximately $24,000, approximately
2,065 square feet of office space in Bloomfield Hills, Michigan for an annual
rental of approximately $30,000, and approximately 2,000 square feet of office
space in Layton, Utah for an annual rental of approximately $34,800. The
Company believes that its facilities are adequate for its current operations.
LITIGATION
SELECT CAPITAL ADVISORS, INC. DEBENTURES AND WARRANTS. On December 9,
1997, the Company filed suit against Select Capital Advisors, Inc. ("Select"),
Ronald G. Williams ("Williams"), and various other parties in the United States
District Court for the Southern District of Florida for damages and recission
with respect to the fraudulent sale of 12% Series A Senior Subordinated
Convertible Debentures issued by the Company. In March 1997, the Company was
introduced to Select and Williams for the purpose of raising capital and
establishing a line of credit. Select, Williams and several of the other
defendants represented that they had the experience, reputation and resources to
raise the needed money. The Company entered into an agreement with Select to
raise the needed money in stages through capital financing, to immediately loan
or guarantee a loan of $2,000,000 for operating capital, and to perform certain
investment banking services to raise at least $6,000,000. In addition, the
Company paid an initial fee of $10,000 to Select.
In April 1997, Select convinced the Company that Select could raise
$1,500,000 through the offering of the Company's 12% Series A Senior
Subordinated Convertible Debentures to foreign investors pursuant to
Regulation S of the Securities Act. As a result, investors purchased debentures
which provided for a 20 percent discount off an aggregate face value of
$662,500, an interest rate of 12 percent per annum, and rights to convert the
principal and interest into shares of the Common Stock, on three different
installment dates, at a price determined to be the lower of 90 percent of the
market value of Company free trading shares of the Common Stock at the date of
subscription or
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90 percent of the five day average price prior to the date of conversion. Upon
making an election to convert the amounts due under the debentures into Common
Stock, the investors demanded that free trading shares rather than restricted
shares of the Common Stock be issued, claiming that Select had represented to
the investors that they would be issued registered securities. Upon conducting
an investigation into the matter, the Company discovered that numerous false and
misleading statements were made by Select, Williams, and possibly other
defendants in connection with the sale of the debentures; that various documents
were changed by Select, Williams, and the other defendants without the knowledge
of the Company; that the agreement was breached by Select; that the defendants
engaged in market manipulation; that material omissions were made by Williams
and Select both to the Company and to the investors. Some shares of the Common
Stock were issued in conversion and delivered before the Company knew of the
misrepresentations.
During 1998, the Company reached settlements with all of the debenture
holders. Despite reaching settlements with the investors, the Company plans to
continue to seek damages of approximately $200,000,000 against Select and
Williams.
CLAIMS INVOLVING STOCKHOLDERS. The Company initiated litigation in 1998
against a former director to recover shares of the Common Stock, or resulting
damages, that had been issued to the director in consideration of an agreement
and representation to deliver a commitment from SPRINT, or a similar
telecommunications company, to contribute a substantial amount to the Company
for immediate delivery of planned China production of CTI Systems. The shares
were issued, but the stockholder failed to perform the promised consideration.
During the year ended June 30, 1995, the Company issued 1,000,000 shares of the
Common Stock to Richard Thompson, a former director of the Company, based upon
the director's representation that he would arrange large scale financing by
certain proposed contributors. During the year ended June 30, 1997, actions
were taken to cancel the Common Stock, because the Company contended that the
issuance was conditioned upon Mr. Thompson's performance, which has never
materialized. A lender to Mr. Thompson asserted a pledge of 500,000 shares of
the Common Stock as collateral for a loan and, as such, was a protected
purchaser under the Uniform Commercial Code. See "Description of Securities -
Canceled Shares." An Escrow Agreement was reached between the Company and the
lender that permitted the lender to liquidate the number of shares required to
satisfy the outstanding indebtedness and recoverable costs secured by the
shares. The remaining 48,000 shares have been delivered to the transfer agent
of the Company pursuant to the Escrow Agreement, and it is the transfer agent's
intention to interplead those shares to confirm the Company's right to cancel
the shares and recover damages. The certificate representing the 500,000 shares
of the Common Stock secured by a pledge was re-instated for purposes of the
agreement and are included as issued and outstanding shares in the accompanying
Consolidated Financial Statements at June 30, 1997.
PAST DUE ACCOUNTS. Over the last several months, the Company has had
discussions with its primary systems development vendor, TRW, Inc., an Ohio
corporation ("TRW"), regarding past due accounts. TRW has and continues to
perform software development and strategic integration and management services
regarding the testing, development and deployment of the Systems. The Company
became delinquent in the payment of costs and fees under contracts with TRW (see
Note 6 to the Consolidated Financial Statements that are included elsewhere in
this Prospectus) and, accordingly, TRW, although not having filed formal legal
actions, threatened the Company that it would withhold delivery of source codes
of developed software, if the past due amounts are not paid. The Company and
TRW verbally agreed that the Company would make payments at the rate of three
times TRW's weekly on-going costs with respect to work performed for the benefit
of the Company, plus a fee equal to 15 percent of costs, until the past due
accounts were liquidated. As of the date of this Prospectus, the Company has
made all payments agreed to be made to TRW, and management expects that the
Company will continue to do so. The payable to TRW at one time had been as high
as $897,762, but as of July 6, 1998 the outstanding account balance was
approximately $225,000. If the Company defaults in its agreed payment schedule,
and TRW carries through with its threat to withhold the delivery of the source
codes or other key deliverables, the TMI operations would be shut down, or
severely restricted from analyzing clinical data.
As of April 21, 1998, the Company owed approximately $397,745.56 in legal
fees to the law firm of Looper, Reed, Mark & McGraw Incorporated (the
"Attorneys"). The Company executed a Promissory Note dated May 1, 1998
consolidating the balance of fees owed to the Attorneys through April 21, 1998
(the " Promissory Note"). The terms of the Promissory Note provide for interest
to accrue on the unpaid principal at a rate of one percent per month. The
Company is obligated to make monthly installment payments of $50,000, including
accrued interest, which may
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increase in the event the Company obtains a certain level of financing, until
all principal and interest are paid in full. The Promissory Note incorporates
the terms of two pledge agreements executed by the Company and TMI which provide
security for the amounts due under the Promissory Note and on future outstanding
accounts with the Attorneys (the "Pledge Agreements"). The security interests
granted cover the Company's common stock holdings in TMI and the intellectual
property of both the Company and TMI. If an event of default were to occur
under the Promissory Note or the Pledge Agreements, the Company's interest in
TMI, its 80 percent subsidiary (including the TMI System), and/or the
intellectual property relating to the CTI System could be sold to satisfy the
outstanding debt. As of August 15, 1998, the total amount due on the Promissory
Note and for subsequent fees is $313,215. As of the date of this Prospectus,
the Company has made all payments due under the Promissory Note, and management
expects that the Company will continue to do so.
In addition to the above, the Company, in the normal course of its
business, is subject to claims and litigation in the areas of product and
general liability. The Company believes that TMI has adequate insurance
coverage for most claims that are incurred in the normal course of its business,
including liability coverage for commercial liability, premises, general
liability, crime, umbrella, and workers compensation, and directors and officers
coverage. The Company self-insures its current operations and carries no
separate liability insurance policies, but intends to obtain coverage as its
operations permit production and sales. In such cases, the effect on the
Company's financial statements is generally limited to the amount of its
insurance deductibles. Management does not believe at this time that any such
claims have a material impact on the Company's financial position, operations
and liquidity.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below are the directors and executive officers of the Company,
together with their ages as of the date of this Prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION DIRECTOR SINCE
---- --- -------- --------------
<S> <C> <C> <C>
David B. Johnston (1). . . . . . . 55 Chairman of the Board and Chief August 1987
Executive Officer
David A. Packer. . . . . . . . . . 47 President and Treasurer N/A
Richard V. Secord. . . . . . . . . 63 Chief Operating Officer, Secretary, February 1996
and Director
Brent M. Pratley, M.D. (1) (2) . . 61 Director June 1994
Milton R. Geilmann (1) (2) . . . . 61 Director January 1998
Harry C. Aderholt (2). . . . . . . 78 Director January 1998
</TABLE>
- ---------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
The Company may employ such additional management personnel as the Board of
Directors deems necessary. The Company has not identified or reached an
agreement or understanding with any other individuals to serve in such
management positions, but does not anticipate any difficulty in employing
qualified personnel.
A description of the business experience during the past several years for
each of the directors and executive officers of the Company is set forth below.
David B. Johnston has served as Chairman of the Board of the Company since
August 1987 and Chief Executive Officer, effective July 1, 1997. He currently
serves as an officer and/or director of TMI and of Thermal Imaging, Inc. (herein
sometimes referred to as "TII"), affiliates of the Company. From 1984 through
1989, Mr. Johnston was President of Funding Selection, Inc., an Oregon
investment banking and mergers and acquisitions firm.
43
<PAGE>
Prior to that, Mr. Johnston was Chairman of Grace Capital, Ltd. in Oregon, a
specialized medical and computer high technology private placement firm. Mr.
Johnston received a Bachelor of Science degree in Business Administration from
Brigham Young University and a graduate degree in banking and corporate finance
from the University of Southern California.
David A. Packer was elected President of the Company in April 1997.
Effective July 1, 1997, he was also elected to be Treasurer of the Company.
Before joining the Company Mr. Packer served as a senior manager for TRW's
engineering office in Ogden, Utah from 1976 until 1997. Mr. Packer received a
Bachelor of Science degree in Electronics from Brigham Young University in 1975.
Richard V. Secord (Major General, United States Air Force, Retired) was
elected Chief Operating Officer of the Company in June 1995 and currently serves
in that same position for TriSun/CTI Asia, Ltd., an affiliate of the Company.
He was elected as a director of the Company effective February 1996 and has
served as Vice Chairman and Secretary of the Company since July 1, 1997.
General Secord previously served as President of the Company from February 1996
to April 1997. He is also Executive Vice President and a director of TMI.
General Secord was instrumental in securing the Company's contracts in Thailand
and with the Chinese government through TriSun/CTI Asia, Ltd., a joint venture
between the Company and TriSun Medical America, Inc., which was formed at the
direction of the PRC Ministry of Public Health to effect the GOLDEN HEALTH CARE
PLAN for the People's Republic of China. General Secord was awarded THE ORDER
OF THE WHITE ELEPHANT, one of the highest decorations that can be awarded a
non-Thai military officer, for his distinguished valor and service in assisting
the Thai military. General Secord served in many positions while performing
military service. He was the first military officer to be appointed Deputy
Assistant Secretary of Defense (Near East, Africa and South Asia). General
Secord received a Bachelor of Science degree from the United States Military
Academy. He is also a graduate of the United States Air Force Command and Staff
College, and the United States Naval War College. In addition, he holds a
Masters degree in International Affairs from George Washington University.
Brent M. Pratley, M.D. was elected as a director of the Company in
June 1994 and served as the Secretary of the Company from June 1994 to
September 1997. Dr. Pratley is currently licensed to practice medicine in Utah
and California, and since 1978 has been in private practice in General
Orthopedics and Sports Medicine at Utah Valley Regional Medical Center located
in Provo, Utah, as well as in Los Angeles, California. Dr. Pratley received his
Doctor of Medicine degree in Orthopedic Surgery in 1968 from the College of
Medicine at the University of California, Irvine, California.
Kenneth M. Dodd was the Executive Vice President of the Company from
October 1995, through 1997, but his primary responsibilities and duties have
been to TMI since its formation. Mr. Dodd is President, Chief Executive Officer
and a director of TMI, an 80 percent owned subsidiary of the Company. He began
as an intern in 1984 in General Motor's financial department and moved through
the organization to become Director of International Sales, Document
Processing/Imaging Division of Electronic Data Systems, a subsidiary of GM,
where his responsibilities included developing global market plans and
recruiting, training and leading the sales force worldwide. Mr. Dodd graduated
from the Northwood Institute in Midland, Michigan in 1985 with honors in two
majors, Business and Economics.
Milton R. Geilmann was elected as a director of the Company in
January 1998. Mr. Geilmann has been associated with the medical field for over
32 years. From 1985 to 1993, he worked at E. R. Squibb and Sons, where he held
many positions, including Nuclear Consultant for Diagnostic Medicine. Mr.
Geilmann received a Masters of Science degree in Pharmacology in 1957 from State
University of New York.
Harry C. Aderholt (Brigadier General, United States Air Force, Retired) was
elected as a director of the Company in January 1998. General Aderholt served
in Southeast Asia, particularly Thailand, for many years both in and out of the
U.S. Air Force. Since his retirement from military service in 1976, General
Aderholt has engaged in various private business ventures, including serving as
Vice President of Air Siam in Bangkok, Thailand.
Directors of the Company are elected by the stockholders at each annual
meeting and serve until the next annual meeting of stockholders or until their
successors are duly elected and qualified. Officers are elected to serve,
subject to the discretion of the Board of Directors, until their successors are
appointed or their earlier resignation or
44
<PAGE>
removal from office. The Company does not have an Executive Committee.
However, the Company does have an Audit Committee and a Compensation Committee
which were created in January 1998. The Audit Committee reviews and reports to
the Board of Directors on the financial results of the Company's operations and
the results of the audit services provided by the Company's independent
accountants, including the fees and costs for such services. The Compensation
Committee reviews compensation paid to management, including administration of
the Company's 1997 Stock Option and Restricted Stock Plan, and recommends to the
Board of Directors appropriate executive compensation. There is no family
relationship between or among any of the directors and executive officers of the
Company, except for the relationship between Mr. Johnston and Mr. Packer, who
are cousins by marriage.
EXECUTIVE COMPENSATION
During the fiscal year ended June 30, 1997, General Secord and Mr. Dodd
were each paid salaries and bonuses exceeding $100,000. Mr. Johnston, the
Chairman of the Board and Chief Executive Officer, was not paid a cash salary
but was instead deemed compensated in the form of periodic issuances of
restricted shares of the Common Stock to Thermal Imaging, Inc. (herein referred
to as "TII"), an affiliate of Mr. Johnston. In certain instances during fiscal
year 1997, and prior years, funds raised from investors in the Company were
delivered to TII and deposited into TII's bank accounts. In those cases where
reliable evidence was not available to accurately verify the subsequent transfer
of funds from TII to the Company or to creditors of the Company, or to
distinguish contributions made by TII to the Company in return for restricted
shares of the Common Stock from transfers of funds collected by TII on behalf of
the Company, all unaccounted for funds, or excess restricted shares of the
Common Stock issued to TII, have been deemed compensation to Mr. Johnston. See
"Management - Certain Transactions - Proceeds From the Sale of Securities." The
periodic issuance of restricted shares of the Common Stock to TII are in
settlement of both services provided to and expenses incurred on behalf of the
Company by Mr. Johnston.
The total compensation and reimbursement of expenses to officers and
directors for the fiscal year ended June 30, 1997 was $575,231, including
$152,498 worth of restricted Common Stock deemed issued to Mr. Johnston due the
issuance of same to TII. In addition, Mr. Packer was granted options to
purchase 500,000 shares of the Common Stock, subject to certain vesting
requirements.
All corporate decisions regarding employee compensation and stock option
awards during the last three year period have been approved by the Board of
Directors. In January 1998, the Board of Directors created a Compensation
Committee composed of Dr. Pratley, Mr. Geilmann and General Aderholt, all
non-employee directors. The committee will assume responsibility for reviewing
all executive compensation matters and administering the Company's 1997 Stock
Option and Restricted Stock Plan.
45
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------------------------- ---------------------------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL FISCAL ALL OTHER RESTRICTED OPTIONS AND
POSITION YEAR SALARY BONUS COMPENSATION (1) COMMON STOCK WARRANTS (3)
-------- ---- ------ ----- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
David B. Johnston, 1997 -0- -0- $152,498 -0- -0-
Chairman of the Board, and 1996 -0- -0- $474,500 -0- -0-
Chief Executive Officer, and 1995 -0- -0- $2,000,000 (2) -0- -0-
Treasurer (2)
Richard V. Secord, 1997 $204,486 -0- -0- -0- -0-
President and 1996 $189,697 -0- -0- -0- -0-
Chief Operating Officer (4) 1995 $21,875 -0- -0- -0- 2,000,000
Kenneth M. Dodd, 1997 $156,667 -0- -0- -0- -0-
President of TMI (5) 1996 $52,000 -0- -0- -0- 500,000
David A. Packer, 1997 $31,657 -0- -0- -0- 500,000
President and Treasurer (6)
</TABLE>
- ----------------------
(1) Certain of the officers of the Company routinely receive other benefits
from the Company, including travel reimbursement, the amounts of which are
customary in the industry. The Company has concluded, after reasonable
inquiry, that the aggregate amounts of such benefits during the last three
completed fiscal years, which cannot be precisely ascertained, did not
exceed the lesser of $50,000 or 10 percent of the total compensation
reported for the named executive officers excepting Mr. Johnston who has
foregone annual monetary compensation in favor of the issuance of
restricted shares of the Common Stock. Included in All Other Compensation
for Mr. Johnston are reimbursements of travel expenses for himself and
other executives of the Company which were paid by TII. Based on available
information, General Secord's All Other Compensation, which is comprised of
reimbursed travel and a $500 per month car allowance, did not exceed 10
percent of annual compensation during the periods discussed, but did total
approximately $11,000 for fiscal year 1997.
(2) The valued referenced represents the fair market value of the shares of the
Common Stock, ranging from $0.28 to $1.00 per share, when issued in the
name of Thermal Imaging, Inc. ("TII"), an affiliate of Mr. Johnston. The
issuance of the referenced shares was treated as compensation to Mr.
Johnston as a result of discrepancies arising from the funding relationship
between TII and the Company. See "Management - Certain Transactions -
Proceeds From the Sale of Securities." Over the last three fiscal years,
Mr. Johnston indirectly has been issued 3,084,516 shares of the Common
Stock as compensation or repayment of expenses, which based on the fair
market value at the time of issuance equals an aggregate of $2,694,348.
Mr. Johnston is the beneficial owner of 8,731,381 shares of the Common
Stock of the Company as of June 30, 1998 (including shares of the Common
Stock held in the names of Thermal Imaging, Inc.). The aggregate value of
all Common Stock beneficially held by Mr. Johnston, pursuant to Section
13d-3 of the Exchange Act, as of June 30, 1998, based upon the closing
market price of the Company's unrestricted shares of the Common Stock as of
June 30, 1998, was $8,644,067.
(3) None of the options granted to employees have been exercised. Mr. Johnston
was granted options to purchase 1,000,000 shares of the Common Stock of the
Company on September 18, 1997. General Secord was granted an option to
purchase 1,250,000 shares of the Common Stock on September 18, 1997. See
"Employment Contracts." Of Mr. Johnston's options on 1,000,000 shares,
only 250,000 shares are vested as of the date hereof. Of General Secord's
options on 3,250,000 shares, only 1,312,500 shares are vested as of the
date hereof. Of the 500,000 optioned shares granted to Mr. Packer, none of
the options are vested as of the date hereof. Of Mr. Dodd's options on
500,000 shares, only 375,000 shares are vested as of the date hereof.
(4) General Secord served as President of the Company from February 1996 to
April 1997. He was elected Secretary of Company effective July 1, 1997.
(5) Mr. Dodd received $156,667 during the fiscal year ended June 30, 1997.
While Mr. Dodd resigned from his position of Executive Vice President of
the Company in May 1998, he still serves as President of TMI and his
employment continues to be governed by the terms of his original employment
agreement with the Company, executed on October 11, 1995. Options to
purchase 500,000 shares of the Common Stock were granted on October 11,
1995. Mr. Dodd has also received stock in TMI totaling approximately 7.5
percent of the outstanding TMI shares. The value of the TMI shares on the
date of issue was insignificant, and, therefore, not reflected as
compensation to Mr. Dodd.
(6) Mr. Packer was elected President of the Company in April 1997 and Treasurer
of the Company effective July 1, 1997.
EMPLOYMENT CONTRACTS
David B. Johnston, the Chief Executive Officer of the Company, and the
Company entered into an Employment Agreement dated October 29, 1997, but
effective September 18, 1997. The term of the agreement is for three years,
automatically renewable for additional periods of one year thereafter unless
terminated upon the giving of notice at least 14 days prior to the annual
renewal date. The agreement calls for no mandatory annual cash compensation,
but does provide for compensation in the form of non-statutory stock options
covering 1,000,000 shares of the Common Stock at an exercise price of $0.75 per
share. Twenty-five percent of the options vested upon the execution of the
agreement, and 25 percent of the remaining options vest on each anniversary date
of the agreement. The options granted to Mr. Johnston must be exercised within
five years from the date of grant. To the extent
46
<PAGE>
applicable, the options granted to Mr. Johnston are subject to the Company's
1997 Stock Option and Restricted Stock Plan. At the cost of the Company, Mr.
Johnston has "piggyback" registration rights with respect to the shares of the
Common Stock derived from the exercise of the options. As of the date of this
Prospectus, none of the options granted to Mr. Johnston under the agreement have
been exercised. The agreement subjects Mr. Johnston to a two year non-compete
restriction, the obligation not to induce any employee of the Company to leave
his employment with the Company during the term of the agreement or for two
years after the termination thereof, and the duty not to reveal any confidential
information about the business of the Company.
None of the shares of the Common Stock to be issued to Mr. Johnston in
connection with the exercise of the options is being registered under the
Securities Act pursuant to this Prospectus.
David A. Packer, the President of the Company, and the Company entered into
an Employment Agreement dated April 30, 1997. The term of the agreement is for
three years and calls for compensation of $135,000 per year, plus non-statutory
stock options covering 500,000 shares of the Common Stock at an exercise price
of $0.97 per share. One-third of the options vest on each anniversary date of
the agreement. The options granted to Mr. Packer must be exercised within five
years from the date of the agreement. If the agreement is terminated for
"cause" as defined in the agreement, or Mr. Packer voluntarily terminates the
agreement, all of the options granted to Mr. Packer thereunder, and which have
not been exercised, shall be forfeited. At the cost of the Company, Mr. Packer
has "piggyback" registration rights with respect to the shares of the Common
Stock derived from the exercise of the options. The agreement subjects Mr.
Packer to a two year non-compete restriction, the obligation to give the Company
the right to take advantage of any business opportunity, and the duty not to
reveal any confidential information about the business of the Company.
The resale of 500,000 shares of the Common Stock to be issued to Mr. Packer
in connection with the exercise of the options is being registered under the
Securities Act pursuant to this Prospectus.
Richard V. Secord, the Chief Operating Officer of the Company, and the
Company entered into an original Employment Agreement dated June 12, 1995, which
was superseded by a new agreement dated September 18, 1997. The term of the new
agreement is for three years and calls for compensation of $175,000 per year.
In addition to the cash compensation, the agreement ratifies an original grant
to General Secord of non-statutory stock options covering 2,000,000 shares of
the Common Stock at an exercise price of $1.25 per share, 50 percent of which
vested on June 12, 1996 and 50 percent of which vested on June 12, 1998. The
options granted pursuant to the original agreement must be exercised within ten
years from the date of grant. In addition, General Secord was granted
additional non-statutory options covering 1,250,000 shares of the Common Stock
at an exercise price of $0.70 per share. Twenty-five percent of these
additional options vested on September 18, 1997, and 25 percent of the remaining
options vest on each anniversary date of the agreement (September 18). These
options must be exercised within five years from the date of grant. To the
extent applicable, the additional options granted to General Secord are subject
to the Company's 1997 Stock Option and Restricted Stock Plan. At the cost of
the Company, General Secord has "piggyback" registration rights with respect to
the shares of the Common Stock derived from the exercise of the options. As of
the date of this Prospectus, none of the options granted to General Secord under
the agreement have been exercised. The agreement subjects General Secord to a
two year non-compete restriction, the obligation not to induce any employee of
the Company to leave his employment with the Company during the term of the
agreement or for two years after the termination thereof, and the duty not to
reveal any confidential information about the business of the Company.
The resale of 3,250,000 shares of the Common Stock to be issued to General
Secord in connection with the exercise of the options is being registered under
the Securities Act pursuant to this Prospectus.
Kenneth M. Dodd, the President of TMI, an 80 percent owned subsidiary of
the Company, executed an Employment Agreement with the Company on October 11,
1995. The term of the agreement is for three years and calls for compensation
of $150,000 per year, plus non-statutory stock options covering 500,000 shares
of the Common Stock at an exercise price of $1.25 per share. The annual cash
compensation shall increase to $175,000, if and when the Company sells its 100th
CTI System. One-half of the options vested on June 1,1996, 125,000 options
vested on June 2, 1997, and the remaining 125,000 options will vest on October
11, 1998. The options granted to Mr. Dodd must be exercised within 10 years
from the date of the agreement. If the agreement is terminated for "cause" as
defined in the agreement, or Mr. Dodd voluntarily terminates the agreement, all
of the options granted to Mr. Dodd thereunder,
47
<PAGE>
and which have not been exercised, shall be forfeited. At the cost of the
Company, Mr. Dodd has "piggyback" registration rights with respect to the shares
of the Common Stock derived from the exercise of the options. As of the date of
this Prospectus, none of the options granted to Mr. Dodd under the agreement
have been exercised. The agreement subjects Mr. Dodd to a two year non-compete
restriction, the obligation to give the Company the right to take advantage of
any business opportunity, and the duty not to reveal any confidential
information about the business of the Company. As part of the consideration for
the agreement, Mr. Dodd was appointed the Chief Executive Officer of TMI and
received 2,830,959 shares of the common stock of TMI (approximately 7.6 percent
of its issued and outstanding common stock).
The resale of 500,000 shares of the Common Stock to be issued to Mr. Dodd
in connection with the exercise of the options is being registered under the
Securities Act pursuant to this Prospectus.
DIRECTOR COMPENSATION
By appropriate resolution of the Board of Directors, directors may be
reimbursed or advanced cash for expenses, if any, relating to attendance at
meetings of the Board of Directors and may be paid a fixed sum (as determined
from time to time by the vote of a majority of the directors then in office) for
attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the Company
in any other capacity and receiving compensation therefor. Members of special
or standing committees may, by appropriate resolution of the Board of Directors,
be allowed similar reimbursement of expenses and compensation for attending
committee meetings.
STOCK OPTIONS AND RESTRICTED STOCK
In June 1995, the Board of Directors adopted the Company's 1995 Stock
Option Plan, which was never ratified by the stockholders and formally
terminated by the Board of Directors on September 18, 1997. On September 18,
1997, the Board of Directors adopted the Company's 1997 Stock Option and
Restricted Stock Plan (the "Plan") subject to the approval of the stockholders
of the Company. The Plan was formally adopted by the stockholders of the
Company on February 6, 1998. The Plan provides for the grant by the Company to
employees of the Company of (i) options to purchase shares of the Common Stock,
and (ii) shares of the Company's restricted Common Stock (the "Restricted
Stock"). The options and the Restricted Stock are hereinafter sometimes
collectively referred to as the "Plan Awards." Options granted under the Plan
may include non-statutory options that do not meet the requirements of Sections
421 through 424 of the Internal Revenue Code of 1986, as amended (the "Code"),
as well as incentive stock options ("ISO") intended to qualify under Section 422
of the Code. An aggregate of 5,125,000 shares of the Common Stock may be issued
pursuant to the provisions of the Plan. The Plan shall be administered by the
Board of Directors or by a committee of the Board composed solely of two or more
non-employee directors (the "Administrator"). The Administrator shall
administer the Plan so as to comply at all times with the Exchange Act,
including Rule 16b-3 (or any successor rule), and, subject to the Code, shall
otherwise have absolute and final authority to interpret the Plan. The Plan
shall continue in effect for a term of 10 years unless sooner terminated
pursuant to its provisions.
As mentioned above, the 1995 Stock Option Plan was to be submitted to the
stockholders in order to qualify for statutory stock option treatment under the
Code, but such submittal never occurred. Employees of the Company who were
awarded options pursuant or in reference to the 1995 Stock Option Plan have
ratified their agreements to reflect that the plan was never submitted to the
stockholders for approval but that such options shall incorporate, as
contractual terms, the terms and conditions of the 1995 Stock Option Plan.
STOCK OPTIONS. Pursuant to the Plan, the term of each option shall be 10
years from the date of grant or such shorter term as may be determined by the
Administrator; provided, in the case of an ISO granted to a 10 percent
stockholder, the term of such ISO shall be five years from the date of grant or
such shorter time as may be determined by the Administrator. Each option
granted under the Plan may only be exercised to the extent that the optionee is
vested in such option. Except as otherwise provided, all options issued under
the Plan shall vest 20 percent each year over a five year period.
Notwithstanding the foregoing, the Administrator shall have the discretionary
power to establish the vesting periods for any option granted under the Plan,
except that in no case may the Administrator permit more than 25 percent of any
option to vest before the first anniversary of the earlier of the date of grant
or the date on which the optionee began providing services to the Company. The
exercise price shall be such price as is determined
48
<PAGE>
by the Administrator in its sole discretion; provided, however, the exercise
price shall not be less than 100 percent of the Fair Market Value of the shares
of the Common Stock subject to such option on the date of grant (or 110 percent
in the case of an option granted to an employee who is a 10 percent stockholder
on the date of grant). A 10 percent stockholder shall mean a person that owns
more than 10 percent of the total combined voting power of all classes of
outstanding stock of the Company or any subsidiary, taking into account the
attribution rules set forth in Section 424 of the Code. Any shares of the
Common Stock issued upon exercise of an option shall be subject to such rights
of repurchase and other transfer restrictions as the Administrator may determine
in its sole discretion. To the extent that the aggregate Fair Market Value
(determined on the date of grant) of the shares with respect to which ISOs are
exercisable for the first time by an individual during any calendar year under
the Plan, and under all other plans maintained by the Company, exceeds $100,000,
such options shall be treated as non-statutory options. "Fair Market Value"
shall be the mean between the closing bid and asked prices of the shares of the
Common Stock on the date in question (on the principal market in which the
shares are traded), or if the shares were not traded on such date, the mean
between closing bid and asked prices of the shares on the next preceding trading
day during which the shares were traded.
RESTRICTED STOCK. The Administrator shall have the authority to grant
shares of the Common Stock to employees that are subject to certain terms,
conditions, and restrictions (the "Restricted Stock"). The Restricted Stock may
be granted by the Administrator either separately or in combination with
options. The terms, conditions and restrictions of the Restricted Stock shall
be determined from time to time by the Administrator without limitation, except
as otherwise provided in the Plan; provided, however, that each grant of
Restricted Stock to an employee shall require the employee to remain an employee
of the Company or any of its subsidiaries for at least six months from the date
of grant. The Restricted Stock shall be granted to employees for services
rendered and at no additional cost to the employee, provided, however, that the
value of the services performed must, in the opinion of the Administrator, equal
or exceed the par value of the Restricted Stock to be granted to the employee.
The terms, conditions, and restrictions of the Restricted Stock shall be
determined by the Administrator on the date of grant. No certificates will be
issued to an employee with respect to the Restricted Stock until the date the
Restricted Stock becomes vested in accordance with the Plan. The Restricted
Stock may not be sold, assigned, transferred, redeemed, pledged or otherwise
encumbered during the period in which the terms, conditions and restrictions
apply (the "Restriction Period"). More than one grant of Restricted Stock may
be outstanding at any one time, and the Restriction Periods may be of different
lengths. Receipt of the Restricted Stock is conditioned upon satisfactory
compliance with the terms, conditions and restrictions of the Plan and those
imposed by the Administrator. On the date the Restriction Period terminates,
the Restricted Stock shall vest in the employee. If an employee (i) with the
consent of the Administrator, ceases to be an employee of, or otherwise ceases
to provide services to, the Company or any of its subsidiaries, or (ii) dies or
suffers from permanent and total disability, the vesting or forfeiture
(including without limitation the terms, conditions and restrictions) of any
grant under the Plan shall be determined by the Administrator in its sole
discretion, subject to any limitations or terms of the Plan. If the employee
ceases to be an employee of, or otherwise ceases to provide services to, the
Company or any of its subsidiaries for any other reason, all grants of
Restricted Stock under the Plan shall be forfeited (subject to the terms of the
Plan).
As of the date of this Prospectus, no shares of the Restricted Stock have
been granted under the Plan.
49
<PAGE>
As of the date of this Prospectus, the following options were outstanding
under the Plan:
<TABLE>
<CAPTION>
NAME OF PERSON TO
WHOM OPTIONS NUMBER OF SHARES EXPIRATION DATE
WERE GRANTED UNDER OPTION OF OPTION VESTING DATE
------------ ------------ --------- ------------
<S> <C> <C> <C>
David B. Johnston, 250,000 09/18/02 (1) 09/18/97 (2)
Chairman of the Board, 250,000 09/18/02 (1) 09/18/98 (2)
Chief Executive Officer, 250,000 09/18/02 (1) 09/18/99 (2)
and Treasurer 250,000 09/18/02 (1) 09/18/00 (2)
Richard V. Secord, 312,500 09/18/02 (1) 09/18/97 (2)
Chief Operating Officer (3)(4) 312,500 09/18/02 (1) 09/18/98 (2)
312,500 09/18/02 (1) 09/18/99 (2)
312,500 09/18/02 (1) 09/18/00 (2)
Kenneth M. Dodd, -0- N/A N/A
President of TMI (3)
David A. Packer, -0- N/A N/A
President and Treasurer (3)(4)
</TABLE>
- ---------------------
(1) The option may terminate prior to this date. An option will automatically
terminate and revert to the Company upon the termination of employment with
"cause," as defined in the employee's Employment Agreement. In addition,
an option will automatically terminate and revert to the Company if vested
as of the date of resignation or termination "without cause," as defined in
the employee's Employment Agreement, but not exercised on or before the
expiration of 90 days after the termination date of employment.
(2) Conditioned on the employee's continued employment with the Company.
(3) The employee holds options granted prior to the adoption of the Plan. The
options were originally granted pursuant to the terms of the Company's 1995
Stock Option Plan which was never ratified by the stockholders and formally
terminated by the Board of Directors on September 18, 1997. See
"Management - Stock Options and Restricted Stock" and "Management -
Employment Contracts." The terms of the employee stock option agreements
were amended to ratify and incorporate the terms of the 1995 Stock Option
Plan into the respective stock option agreements as contractual provisions.
(4) General Secord was President of the Company from February 1996 to April
1997, and was elected Secretary effective July 1, 1997. Mr. Packer was
elected President in April 1997 and Treasurer effective July 1, 1997.
The resale of 1,250,000 shares of the Common Stock to be issued upon
the exercise of the above described options granted pursuant to the Plan and in
favor of General Secord is being registered under the Securities Act pursuant to
this Prospectus.
The following table shows, as to the named executive officers,
information concerning individual grants of options during the fiscal year ended
June 30, 1997.
50
<PAGE>
OPTION/WARRANT GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/WARRANTS
OPTIONS/WARRANTS GRANTED TO EXERCISE PRICE EXPIRATION
NAME GRANTED EMPLOYEES IN FY97 PER SHARE DATE
---- ------- ----------------- --------- ----
<S> <C> <C> <C> <C>
David B. Johnston, -0- N/A N/A N/A
Chairman of the Board,
Chief Executive Officer,
and Treasurer (4)
Richard V. Secord, -0- N/A N/A N/A
Chief Operating Officer (1)(4)
Kenneth M. Dodd, -0- N/A N/A N/A
President of TMI
David A. Packer, 500,000 (2) 100 $0.97 04/30/02 (3)
President and Treasurer (1)
</TABLE>
- ----------------------
(1) General Secord was President of the Company from February 1996 to April
1997, and was elected Secretary effective July 1, 1997. Mr. Packer was
elected President in April 1997 and Treasurer effective July 1, 1997.
(2) Represents options to purchase shares of the Common Stock.
(3) The option may terminate prior to this date. An option will automatically
terminate and revert to the Company upon the termination of employment with
"cause," as defined in the employee's Employment Agreement. In addition,
an option will automatically terminate and revert to the Company if vested
as of the date of resignation or termination "without cause," as defined in
the employee's Employment Agreement, but not exercised on or before the
expiration of 90 days after the termination date of employment.
(4) Mr. Johnston was granted an option to purchase 1,000,000 shares of the
Common Stock on September 18, 1997. General Secord was granted an option
to purchase 1,250,000 shares of the Common Stock on September 18, 1997.
See "Management - Employment Contracts."
No warrants to purchase shares of the Common Stock have been granted to any
officer, director, or employee of the Company.
51
<PAGE>
The following table shows, as to the named executive officers, information
concerning aggregate option and warrant exercises during the fiscal year ended
June 30, 1997 and the option and warrant values as of June 30, 1997.
AGGREGATED OPTION AND WARRANT EXERCISES IN LAST FISCAL YEAR
AND YEAR END OPTION AND WARRANT VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/WARRANTS OPTIONS/WARRANTS AT
SHARES ACQUIRED AT JUNE 30, 1997 JUNE 30, 1997
NAME ON EXERCISE VALUE REALIZED EXERCISABLE/ UNEXERCISABLE EXERCISABLE/ UNEXERCISABLE (1)
---- ----------- -------------- -------------------------- ------------------------------
<S> <C> <C> <C> <C>
David B. Johnston, -0- -0- -0- -0-
Chairman of the Board,
Chief Executive Officer,
and Treasurer
Richard V. Secord, -0- -0- 1,000,000/1,000,000 -0-
Chief Operating Officer (2)
David A. Packer, -0- -0- 0/500,000 -0-
President and Treasurer (2)
Kenneth M. Dodd, -0- -0- 375,000/125,000 -0-
President of TMI
</TABLE>
- ---------------------
(1) The value of the unexercised in-the-money options/warrants at June 30, 1997
was determined by calculating the difference between the exercise price per
share of the Common Stock, as set forth in the respective stock option
agreement, and the closing price per share of the Common Stock on June 30,
1997. The resulting amount is deemed to be the value of the
options/warrants for purposes of this table. In the event the exercise
price per share of the Common Stock exceeded the closing price per share of
the Common Stock on June 30, 1997, a "zero" value is shown.
(2) General Secord was President of the Company from February 1996 to April
1997, and was elected Secretary effective July 1, 1997. Mr. Packer was
elected President in April 1997 and Treasurer effective July 1, 1997.
LONG-TERM INCENTIVE PLANS
The Company has not established, nor does it provide for, long-term
incentive plans or defined benefit or actuarial plans.
CERTAIN TRANSACTIONS
Management believes that all prior related party transactions are on terms
no less favorable to the Company as could be obtained from unaffiliated third
parties. Management's reasonable belief of fair values is based upon expert
opinions received by management, with respect to share valuations, and, with
respect to the consideration to the Company, is based upon proximate similar
transactions with third parties or attempts to obtain the consideration from
third parties. All ongoing and future transactions with such persons, including
any loans or compensation to such persons, will be approved by a majority of
disinterested, independent outside members of the Board of Directors.
Since its inception the Company has been dependent upon certain
individuals, consultants, officers/stockholders and the related corporations
under their control (collectively referred to as the "affiliates") to provide
capital, management services, assistance in finding new sources for debt and
equity financing and guidance in the development of the Company's Systems. The
affiliates have generally provided services and incurred expenses on behalf of
the Company in exchange for shares of the Common Stock. The Company has issued
Form 1099's for all such share issuances for services rendered after July 1,
1996.
PROCEEDS FROM THE SALE OF SECURITIES. In certain instances in years prior
to 1997, affiliates accepted cash raised through the issuance of short term
promissory notes and private placements of securities, including shares of the
Common Stock and debentures, on behalf of the Company. Such amounts were
deposited into the separate bank accounts of certain affiliates and either
transferred directly to the account of the Company or transferred to third
parties in payment of debts of the Company. In a majority of these instances,
Thermal Imaging, Inc. ("TII"), an affiliate of
52
<PAGE>
Mr. Johnston, the Chief Executive Officer of the Company, received funds raised
from investors and deposited the amounts in an account over which Mr. Johnston
had sole control. The funds received in the TII account were commingled with
other assets of TII.
In an effort to account for such proceeds, the auditors have assumed that
all funds raised during the past three fiscal years which were not paid by
investors directly to the Company were initially transferred to TII. In those
cases where reliable evidence is not available to accurately verify the
subsequent transfer of funds from TII to the Company or to creditors of the
Company, or to distinguish contributions made by TII to the Company in return
for shares of the Common Stock from transfers of funds collected on behalf of
the Company for which shares of the Common Stock had been issued to subscribers,
the discrepancies have been treated as compensation to Mr. Johnston and charged
as a compensation expense to the Company and reflected as operating, general and
administrative expenses in the Consolidated Financial Statements included
elsewhere in this Prospectus. For example, this amount for the fiscal year
ending June 30, 1997, was $152,498, as reflected in the Summary Compensation
Table. This resulting amount constitutes the total of all compensation paid
during such period to Mr. Johnston.
DOREX SETTLEMENT. Between July and October 1995, the Company reached
various settlements with former stockholders of Dorex, Inc. ("Dorex") regarding
threats of litigation arising out of the Company's acquisition of certain
research contracts with the State University of New York - Buffalo ("SUNY") and
intellectual property relating to thermal imaging technology. In 1989, Dorex
entered into a research agreement with SUNY regarding the development and
application of computerized thermography analysis. After Dorex became unable to
meet funding obligations under the research program, TII, an affiliate of Mr.
Johnston and a stockholder in Dorex, paid arrearages due under the agreement and
assumed future payment obligations in order to continue the project. As a
result of an arrangement negotiated, TII gained an assignment of the research
agreement and related technology to the exclusion of Dorex. TII subsequently
transferred all of its contractual and proprietary rights in the project to the
Company. According to management, certain Dorex stockholders threatened
litigation against the Company as a result of its role in the acquisition of the
research agreement and related technology. In order to avoid litigation,
management issued 630,000 shares of the Common Stock to Dorex stockholders in
1995 in consideration of their discharge and release of the Company from all
claims and liabilities relating to the technology. Settling Dorex stockholders
executed written agreements acknowledging their release of the Company. Some
remaining stockholders have not settled. In an effort to protect the Company
from future costs associated with the Dorex transaction, the Company entered
into an Assumption of Liability Agreement (the "Liability Agreement") with TII,
effective April 17, 1996. The terms of the Liability Agreement provide that in
exchange of the issuance of 112,500 shares of the Common Stock to TII, TII
agrees to assume liability for all claims made by Dorex stockholders against the
Company after April 17, 1996.
STOCK TRANSACTIONS WITH AFFILIATES. A substantial portion of the cash
contributed to the Company over the past several years has come from affiliates.
The primary affiliate contributors have been TII, an affiliate of Mr. Johnston,
Daron Dillia doing business as Manhattan Financial Group, and Paul D. Holt doing
business as PDH, Ltd., an independent contractor who provides various
administrative services to the Company. All of the restricted shares of the
Common Stock issued to the affiliates, unless otherwise noted, has been valued
at 50 percent of the average monthly trading price of free trading shares of the
Common Stock. Management believes that such a valuation method fairly and
accurately reflected the fair market value of restricted shares of the Common
Stock at the respective dates of issue.
53
<PAGE>
The following is an analysis of transactions involving the affiliates
during the fiscal years ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
TII PDH, LTD.
------------------------------------------------------------
YEAR ENDED JUNE 30, 1997 SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares of the Common Stock issued as
compensation and repayment of expenses
incurred on behalf of the Company by the
affiliates at prices ranging from $0.18 to
$0.73 per share . . . . . . . . . . . . . . . . . . . 287,266 $152,498 400,000 $253,000
Investment in the Company . . . . . . . . . . . . . . . 1,960,418 980,209 -- --
--------- ------- ------- --------
Total - 1997. . . . . . . . . . . . . . . . . . . . . . 2,247,684 $1,132,707 400,000 $253,000
--------- ------- ------- --------
--------- ------- ------- --------
YEAR ENDED JUNE 30, 1996
Shares of the Common Stock issued as
compensation and repayment of expenses
incurred on behalf of the Company by the
affiliates at prices ranging from $0.53 to
$0.70 per share . . . . . . . . . . . . . . . . . . . 530,000 $474,500 194,383 $122,461
Investment in the Company . . . . . . . . . . . . . . . 1,120,000 672,000 -- --
--------- ------- ------- --------
Total - 1996. . . . . . . . . . . . . . . . . . . . . . 1,650,000 $1,146,500 194,383 $122,461
--------- ------- ------- --------
--------- ------- ------- --------
</TABLE>
The following is an analysis of transactions involving the Affiliates
during the nine months ended March 31, 1998:
<TABLE>
<CAPTION>
TII PDH, LTD. MFG
-------------------------- -------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Nine Months Ended March 31, 1998 Shares Amount Shares Amount Shares Amount
Shares of the Common Stock issued as
compensation and repayment of
expenses incurred on behalf of the
Company by the Affiliates at prices
ranging from $0.25 to $0.75 per share . . . 0 $0 0 $0 100,000 $30,000
Investment in the Company . . . . . . . . . . 5,716,047 $1,952,600 666,666 $250,000 2,746,275 $689,106
--------- --------- --------- --------- --------- --------
Total - Nine Months ended 3/31/98 . . . . . . 5,716,047 $1,952,600 666,666 $250,000 2,846,275 $719,106
--------- --------- --------- --------- --------- --------
--------- --------- --------- --------- --------- --------
Advances (cash) from Affiliates in
excess of stock issued . . . . . . . . . . 0 $470,731 0 $101,391 0 $0
--------- --------- --------- --------- --------- --------
Total - Nine Months Ended 3/31/98 . . . . . . 0 $470,731 0 $101,391 0 $0
--------- --------- --------- --------- --------- --------
--------- --------- --------- --------- --------- --------
Options issued are compensation to
purchase shares at $0.75 per share . . . . 0 $0 0 $0 2,000,000 $700,000
--------- --------- --------- --------- --------- --------
0 $0 0 $0 2,000,000 $700,000
--------- --------- --------- --------- --------- --------
--------- --------- --------- --------- --------- --------
</TABLE>
54
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table presents certain information regarding the beneficial
ownership of all shares of the Common Stock at June 30, 1998 (i) each person who
owns beneficially more than five percent of the outstanding shares of the Common
Stock, (ii) each director of the Company, (iii) each named executive officer,
and (iv) all directors and officers as a group. See "Management - Stock Options
and Restricted Stock" and "- Certain Transactions."
<TABLE>
<CAPTION>
Shares Beneficially Owned
-------------------------
Name of Beneficial Owner (1) Number Percent (8)
---------------------------- ------ -----------
<S> <C> <C>
David B. Johnston (2). . . . . . . . . . . . 8,731,381 17.9
Richard V. Secord (3). . . . . . . . . . . . 2,312,500 4.5
Brent M. Pratley, M.D. . . . . . . . . . . . 600 *
Kenneth M. Dodd (4). . . . . . . . . . . . . 375,000 *
David A. Packer (5). . . . . . . . . . . . . 257,405 *
Harry C. Aderholt. . . . . . . . . . . . . . 45,000 *
Milton R. Geilmann . . . . . . . . . . . . . 15,000 *
Daron Dillia (6) . . . . . . . . . . . . . . 5,514,025 10.7
All directors and officers
as a group (seven persons) (7) . . . . . . 11,736,886 22.7
</TABLE>
- -----------------------
* Less than one percent.
(1) Unless otherwise indicated, each person named in the above-described table
has the sole voting and investment power with respect to his shares of the
Common Stock beneficially owned. The business address of each individual
is the same as the address of the Company's principal executive offices
except for Dr. Pratley whose business address is 1055 North 300 W., No.
501, Provo, Utah 84604; Mr. Geilmann, whose business address is 20660 S.W.
Shoshone Drive, Tualatin, Oregon 97062; and General Aderholt, whose address
is 23 Miracle Strip Parkway, N.E., Ft. Walton Beach, Florida 32548.
(2) Includes 250,000 shares of the Common Stock which are covered by options
are exercisable within 60 days from June 30, 1998, and 8,481,381 shares of
the Common Stock owned by Thermal Imaging, Inc., an affiliate of Mr.
Johnston.
(3) Includes 2,312,500 shares of the Common Stock which are covered by options
are exercisable within 60 days from June 30, 1998.
(4) Includes 375,000 shares of the Common Stock which are covered by options
are exercisable within 60 days from June 30, 1998.
(5) Includes 90,739 shares of the Common Stock issued and outstanding, and
166,666 shares of the Common Stock which are covered by options exercisable
within 60 days from June 30, 1998.
(6) Includes 261,500 shares of the Common Stock issued and outstanding and
700,000 shares of the Common Stock underlying the Resale Warrants in the
name of Daron Dillia. Also includes 2,346,275 shares of the Common Stock
issued and outstanding, 2,000,000 shares of the Common Stock which are
covered by options exercisable within 60 days of June 30, 1998, and 206,250
beneficially held, in the name of Manhattan Financial Group. See "Plan of
Distributions and Selling Stockholders."
(7) Includes an aggregate of 8,632,720 shares of the Common Stock issued and
outstanding and an aggregate of 3,104,166 shares of the Common Stock which
are covered by options exercisable within 60 days from June 30, 1998.
(8) Unless otherwise provided, the calculation of percentage ownership is based
on the total number of shares of the Common Stock outstanding as of
June 30, 1998. Any shares of the Common Stock which are not outstanding as
of such date but are subject to options, warrants, or rights of conversion
exercisable within 60 days of June 30, 1998 shall be deemed to be
outstanding for the purpose of computing percentage ownership of
outstanding shares of the Common Stock by such person but shall not be
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
MANHATTAN FINANCIAL GROUP CONSULTING AGREEMENT
Effective January 1, 1997, the Company and Manhattan Financial Group of
Manhattan Beach, California ("MFG"), executed a Consulting Agreement covering
financial services. MFG provides regular financial advising services to the
Company, such as strategic consulting to arrange financing of projects. For
example, MFG arranged, for no additional fee other than the Common Stock set
forth below, the sale of convertible debentures in 1996 and the 8% Convertible
Debenture in 1997, and MFG negotiated and arranged an equipment financing
commitment not utilized in 1996. The term of the agreement is for one year,
automatically renewable for additional periods of one year thereafter unless
terminated upon proper notice. The consideration for the agreement was 100,000
shares of the Common Stock and an option to purchase 2,000,000 shares of the
Common Stock at an exercise price of $0.60 per share (the original executed
agreement referenced an exercise price of $0.75 per share, but the agreement was
amended to reflect a reduced exercise price of $0.60 per share). Fifty percent
of the options vested upon the execution of the agreement, and the remaining 50
percent of the options vested on December 31, 1997. At the cost of the Company,
MFG has "piggyback" registration rights with respect to the shares of the Common
Stock derived from the exercise of the options. As of the date of this
Prospectus, none of the options granted to MFG under the agreement have been
55
<PAGE>
exercised. In the event of termination of the agreement before its expiration
date, all options exercisable must be exercised on or before the expiration of
three years following the termination date, extended by agreement, from an
original exercise period of 90 days following the termination date. In
addition, the agreement subjects MFG to a duty not to reveal any confidential
information about the business of the Company.
In a related transaction, on July 9, 1997, MFG and the Company entered into
a Restricted Stock Purchase Agreement wherein the Company would issue to MFG
500,000 shares of the Common Stock in consideration for, and subject to, total
contributions of up to $150,000 to the Company in conjunction with the PR
Expense Administration Agreement between the Company and Liberty Capital Group,
Inc. As of the date of this Prospectus, MFG has funded approximately $50,000
pursuant to its obligation. The effective purchase price of the Common Stock
was set at $0.30 per share.
The resale of 2,600,000 shares of the Common Stock issued, or to be issued,
to MFG in connection with the above described Consulting Agreement and
Restricted Stock Purchase Agreement, including any shares to be issued upon the
exercise of any options, is being registered under the Securities Act pursuant
to this Prospectus.
AMBIENT CAPITAL GROUP, INC. FINANCIAL ADVISORY AGREEMENT
On October 29, 1997, the Company executed a Financial Advisory Agreement
with Ambient Capital Group, Inc. ("Ambient") appointing Ambient to act as its
financial adviser with respect to planning and executing capital structure
strategies, revising the Company's business plan, and certain other matters
related thereto. These financial advisory services include negotiation of
capital financing for equipment and will include the introduction of new capital
financing sources to the Company. The term of the agreement is for 12 months,
with month-to-month extensions thereafter, until terminated upon 60 days notice
by either party. Ambient received as an initial retainer fee for its services
of 83,333 shares of the Common Stock and 83,333 warrants giving Ambient the
right to purchase five shares of the Common Stock at $0.72 per share for each
warrant issued. These warrants are valid for a period of four years from the
date of issue. In addition, Ambient will receive success fees for raising
equity and debt capital, for advising on mergers and acquisitions, and for other
corporate finance transactions pursuant to separate engagement agreements for
each transaction to be negotiated in good faith at such time as the specific
type transaction and/or amount of capital to be raised is determined. If
Ambient terminates the engagement before the end of the initial 12 month term,
then Ambient agreed to a pro-rated cancellation of all unexercised warrants
based on the number of months that the agreement was in effect. The agreement
provides Ambient with anti-dilution protection for stock splits, stock
dividends, and similar corporate events. Moreover, the shares of the Common
Stock issued pursuant to the agreement and all shares of the Common Stock
underlying the warrants shall have standard "piggyback" registration rights at
no cost to Ambient.
The resale of 499,998 shares of the Common Stock to be issued to Ambient in
connection with the above described agreement, including any shares to be issued
upon the exercise of any warrants, is being registered under the Securities Act
pursuant to this Prospectus.
LIBERTY CAPITAL GROUP, INC. SERVICES AGREEMENT
On July 21, 1997, the Company and Liberty Capital Group, Inc. ("Liberty
Capital") executed that certain Services Agreement whereby the Company engaged
Liberty Capital to perform services associated with the development of a
comprehensive business plan, future acquisition strategies, and any other
ancillary services relating to the foregoing. The Services Agreement expanded
upon the terms of an earlier agreement, the Liberty Capital Group, Inc.
Consulting Agreement. In consideration of such services, the Company granted to
Liberty Capital options to purchase all or any portion of 300,000 shares of the
Common Stock at a purchase price equal to $0.60 per share. Options for up to
100,000 shares shall become exercisable on or after the first date, following
the effective date, that the "stock price" (defined as the low bid price for the
Common Stock over three consecutive business days) reaches a level of $2.00 per
share. Options for up to an additional 100,000 shares shall become exercisable
on or after the first date thereafter that the stock price reaches a level of
$3.00 per share, and options for up to an additional 100,000 shares shall become
exercisable on or after the first date thereafter that the stock price reaches a
level of $5.00 per share. In the event the Company terminates the agreement for
"cause" then any options that are exercisable as of the date of such termination
shall be deemed earned by Liberty Capital surviving termination and exercisable
on or before three years
56
<PAGE>
after the effective date, and any options that are not yet exercisable as of the
date of such termination will terminate automatically without notice and be of
no further force or effect. The options will terminate automatically without
notice and be of no further force or effect to the extent the options are not
yet exercised within three years after the effective date. If an event has
occurred which would permit Liberty Capital to exercise the options, Liberty
Capital has the right to demand registration of the shares when issued. In
addition, if shares of the Common Stock covered by the options have been
exercised but not yet registered, Liberty Capital shall have "piggyback"
registration rights to require the shares which have been issued to be
registered in the event the Company is filing any other registration statement
to register any other shares of the Common Stock.
In conjunction with the Liberty Capital Group, Inc. Consulting Agreement,
the Company, Liberty Capital and MFG executed the PR Expense Funds
Administration Agreement discussed above. See "Management - Manhattan Financial
Group Consulting Agreement."
The Company terminated the services of Liberty Capital in 1998. As of the
date of this Prospectus, the Company is not aware of the occurrence of any event
which would have triggered vesting of the options granted to Liberty Capital.
None of the shares of the Common Stock to be issued to Liberty Capital in
connection with the exercise of the options are being registered under the
Securities Act pursuant to this Prospectus.
WILLARD HARPSTER CONSULTING AGREEMENT
Effective January 1, 1997, the Company and Willard Harpster ("Harpster")
executed a Consulting Agreement covering financial services associated with the
development of a comprehensive business plan, future acquisition strategies,
capital development and fund raising. The Company requested in 1997 and 1998
numerous consultations with Harpster for advice to inhibit short selling of the
Common Stock, for review of the Common Stock sales and trading compliance, and
for advice in development of its business plan for presentation to capital
markets. In consideration of such services, Harpster was granted an option to
purchase all or any portion of 275,000 shares of the Common Stock at a purchase
price of $0.75 per share. All of the options are currently exercisable. The
agreement shall remain in effect for a period of one year commencing on the
effective date, but shall automatically renew, if not terminated as therein
provided, for successive one year periods. Notwithstanding the foregoing, the
Company or Harpster may terminate the agreement at any time upon 10 days written
notice. In the event Harpster terminates the agreement or the Company
terminates the agreement for "cause" then any options that are exercisable as of
the date of such termination shall be deemed earned by Harpster, surviving
termination, but in all cases must be exercised on or before the expiration of
90 days following the termination date, and any options that are not yet
exercisable as of the date of such termination will terminate automatically
without notice and be of no further force or effect. In the event the Company
terminates the agreement without cause then any portion of the options which
Harpster has the right to exercise as of the date of such termination of
employment must be exercised on or before 90 days after the date of termination.
All options not exercisable as of the date of termination of employment and all
options earned by Harpster, if any, not exercised on or before the expiration of
the 90 day period will terminate automatically without notice and be of no
further force or effect. The options will terminate automatically without
notice and be of no further force or effect to the extent the options are not
yet exercised before January 1, 2002. All shares of the Common Stock which
Harpster obtains from the exercise of options will be subject to "piggyback"
registration rights.
The resale of 275,000 shares of the Common Stock to be issued to Harpster
in connection with the exercise of the options as described in the above
described agreement is being registered under the Securities Act pursuant to
this Prospectus.
PDH, LTD. AGREEMENT
PDH, Ltd. has been issued shares of the Common Stock valued at $124,406 as
compensation and reimbursement of expenses for public relations services
rendered from July 1, 1995 through June 30, 1996, and $163,000 as compensation
and reimbursement of expenses for public relations services rendered through
June 30, 1997. The resale of all of the shares of the Common Stock issued to
PDH, Ltd. is being registered under the Securities Act pursuant to this
Prospectus. PDH, Ltd. is an assumed business name for Paul Douglas Holt and any
persons engaged
57
<PAGE>
by him. This consultant has been engaged by the Company for several years to
assist the Company with advisory and administrative duties, including
stockholder communications. The Company has engaged PDH, Ltd. in lieu of full
time employees. PDH, Ltd. coordinates stockholder requests for management
review and response and processes Company payables, eliminating the need for
administrative staff. PDH, Ltd. has been familiar with the Company's
administrative expenses and operations requirements and has on occasion paid
such costs in exchange for shares of the Common Stock in the Company.
BRISTOL ASSET MANAGEMENT, L.L.C. INVESTMENT AGREEMENT
On January 20, 1998, the Company entered into an Investment Agreement
(herein referred to as the "Investment Agreement") with Bristol Asset
Management, L.L.C., a Delaware limited liability company ("Bristol"), regarding
the periodic purchase of shares of the Common Stock. Ambient Capital Group,
Inc. ("Ambient") produced the Investment Agreement for the Company, and the
Company has no financial information available to confirm the financial
capability of Bristol to perform. Subject to the provisions of the Investment
Agreement, the Company shall issue and sell to Bristol, and Bristol shall be
obligated to purchase from the Company, up to $7,000,000 worth of the Common
Stock, which shall continue for the remainder of the three year term of the
Investment Agreement.
The determination of the timing and amount of the Common Stock to be sold
shall be made by the Company, in its sole discretion, to the extent not limited
by the terms of Investment Agreement. The Company is permitted to deliver
written notices to Bristol (the "Put Notice") stating a dollar amount of the
Common Stock which the Company intends to sell to Bristol five business days
following the date (the "Put Notice Date") on which the Put Notice is given to
Bristol; provided the Company may not deliver a Put Notice if (i) trading of the
Common Stock on the principal market on which it is then traded (the "Principal
Exchange") is suspended or the Common Stock has been delisted, (ii) the closing
price of the Common Stock on the Principal Exchange is less than $0.15 per
share, (iii) a registration statement filed with the Commission is not effective
or is subject to a stop order or is otherwise suspended, (iv) the Dow Jones
Industrial Average has dropped more than five percent within the preceding five
business days, or (v) the Common Stock to be sold is not then registered for
resale under the Exchange Act. The maximum amount to be purchased under a Put
Notice may not exceed the lesser of (i) $7,000,000 less all amounts previously
paid by Bristol, and (ii) the product of (x) the number of shares of the Common
Stock of the Company traded on the Principal Exchange on which the Common Stock
traded for the preceding calendar month, multiplied by (y) the average of the
closing bid prices for the Common Stock during the prior calendar month,
multiplied by (z) 14 percent.
Unless otherwise provided, Bristol shall be required to contribute the
amount of funds specified in the Put Notice. Payment of the draw down amount
must be made by Bristol on the fifth business day following the proper delivery
of a Put Notice. Simultaneously with the receipt of the funds from Bristol in
the amount specified in the Put Notice, the Company shall issue and sell to
Bristol the number of shares of the Common Stock equal to the draw down divided
by 74 percent of the lowest sales price for the Common Stock on the Principal
Exchange (the "Lowest Sale Price") during the 10 trading days prior to the Put
Notice Date (the "Look Back Period"). In the event that the Lowest Sale Price
during the 20 trading days after a particular closing is less than 95 percent of
the Lowest Sale Price applicable to such closing, then the Company shall
promptly issue to Bristol an additional number of shares of the Common Stock
with respect to such closing such that the number of shares of the Common Stock
issued to Bristol at such closing plus such additional number of shares are
equal to the funds drawn down at such closing divided by 74 percent of the
Lowest Sale Price during such 20 trading day period. Bristol shall also be
issued additional warrants equal to 12 percent of the number of additional
shares so issued and the exercise price of such additional warrants and the
warrants issued at such closing shall be adjusted to 100 percent of the Lowest
Sale Price during such 20 trading day period.
Generally, at each closing, the Company shall also deliver to Bristol
warrants to purchase shares of the Common Stock (the "Warrant Shares"). The
warrants shall expire on the fifth anniversary of the date of issuance.
Generally, the warrants shall entitle the holder thereof to purchase a number of
Warrant Shares equal to 12 percent of the number of shares of the Common Stock
purchased at the closing in question at an initial exercise price equal to 100
percent of the average closing sales price for the Common Stock on the Principal
Exchange during the Look Back Period in question.
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The Company agrees that all shares of the Common Stock issued to Bristol
pursuant to the Investment Agreement shall, at the time of such issuance and for
so long thereafter as is required by the Investment Agreement, be subject to an
effective registration statement on Form S-1 or an equivalent thereof, covering
the resale or other disposition thereof by Bristol at any time and from time to
time after each such issuance, and with respect to the Warrant Shares, covering
the resale or other disposition by the holders thereof at any time and from time
to time after each such issuance.
As conditions precedent to the obligation of Bristol to purchase any shares
of the Common Stock, the Company must meet numerous organizational, financial,
and reporting criteria, including the ability to engage in the contemplated
transactions, unrestrained trading of the Common Stock on the Principal
Exchange, effectiveness of the Company's registration statement and
certification of corporate authority to engage in the contemplated transactions.
In addition to conditions precedent which must be satisfied prior to
Bristol's obligation to purchase the Common Stock under the Investment
Agreement, the total amount of the Common Stock which the Company can require
Bristol to purchase may be limited to a percentage of the total shares of the
Common Stock outstanding. Under the Investment Agreement, Bristol may refuse to
purchase the Common Stock, as requested in a properly delivered Put Notice, if
the purchase of the Common Stock would result in Bristol beneficially owning
more than 4.9 percent of the Common Stock outstanding, determined in accordance
with Section 13(d) of the Exchange Act, including shares of the Common Stock
acquired pursuant to the Investment Agreement or through unrelated transactions.
As a result, it is possible that Bristol's total investment under the Investment
Agreement could be limited to an aggregate dollar amount well below $7,000,000.
As an illustration, assuming that all of the necessary conditions have been
met and using June 1, 1998 as a constant Put Notice Date, Bristol could be
required to contribute approximately $1,377,465 to the Company in exchange for
an estimated 2,127,360 shares of the Common Stock and 255,284 shares of the
Common Stock underlying the Compensation Warrants before reaching a beneficial
ownership position in excess of 4.9 percent of the Common Stock of the Company
outstanding as of June 30, 1998. Pursuant to Section 1.3 of the Investment
Agreement, the draw down amount would be determined by taking the product of the
number of shares of the Common Stock of the Company traded on the principal
exchange during the applicable month (4,342,200), multiplied by the average of
the closing bid prices for the Common Stock during the applicable month
($0.9865) multiplied by 14 percent. The number of shares to be issued in
exchange for the maximum draw down amount of $599,701 would be determined by
dividing the amount by 74 percent of the lowest sales price for the Common Stock
during the 10 trading days prior to the Put Notice Date ($0.6475). Based on
this calculation, Bristol would be entitled to receive approximately 926,180
shares of the Common Stock of the Company upon payment of the monthly draw down
amount. In addition to the issuance of shares of the Common Stock, Bristol
would receive, upon each closing, warrants entitling Bristol to purchase
111,142 shares of the Common Stock at $0.964 per share.
Assuming the above figures are constant, all necessary conditions have been
met, and the Company properly delivers Put Notices for the maximum possible
amount in successive months, Bristol could acquire 4.9 percent of the Common
Stock of the Company, calculated as of June 30, 1998, within a period of three
months in exchange for an approximate aggregate contribution of $1,377,465. The
amount contributed by Bristol and the number of shares of Common Stock issued
by the Company under the Investment Agreement could vary significantly based on
fluctuations in the trading price of the Common Stock. In addition, if Bristol
acquires beneficial ownership of shares of the Common Stock through any other
means, the amount Bristol could be required to purchase under the Investment
Agreement would be reduced. In the event the trading price of the Company's
Common Stock were to decline in value, the aggregate contributions the Company
could require Bristol to fund under the Investment Agreement would be reduced.
The Investment Agreement may be terminated at any time only with the mutual
consent of the Company and Bristol. The Investment Agreement shall
automatically terminate without any further action of either party when Bristol
has invested an aggregate of $7,000,000 in Common Stock pursuant to the
Investment Agreement.
Pursuant to the Investment Agreement, 20,781,250 shares of the Common Stock
to be issued to Bristol, including any shares to be issued upon the exercise of
the Compensation Warrants, are being registered under the Securities Act
pursuant to this Prospectus. The number of shares described in this section
includes (i) 18,229,167
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Newly Issued Shares; and (ii) 2,552,083 shares to be issued upon the exercise of
the Compensation Warrants. The number of Newly Issued Shares and shares
underlying Compensation Warrants being registered hereby are generally
calculated based on the formula set forth in the Investment Agreement. The
formula used to calculate the number of Newly Issued Shares being registered
hereunder is as follows: $7,000,000 DIVIDED BY 74 percent x $0.52 (the lowest
sales price for the Common Stock on the Principal Exchange of the Company during
the 10 trading days prior to January 30, 1998) = 18,229,167 shares of the Common
Stock. The number of shares of the Common Stock underlying the Compensation
Warrants were calculated as follows: 18,229,167 MULTIPLIED BY 14 percent =
2,552,083 shares. If the sales price for the Common Stock used in the formula
is different than the example of $0.52 contained herein, then the number of
Newly Issued Shares and the number of shares underlying the Compensation
Warrants will change. However, for the purposes of this Prospectus, the formula
price of $0.52 per share is being used. If the sales price is greater than
$0.52 per share, a lesser number of shares of the Common Stock will be issued.
DESCRIPTION OF SECURITIES
Under the Company's Articles of Incorporation, the authorized capital stock
of the Company consists of 103,000,000 shares, of which 100,000,000 are shares
of common stock, par value $0.001 per share (the "Common Stock") and 3,000,000
are shares of preferred stock (the "Preferred Stock"). As of June 30, 1998,
there were 48,608,848 shares of the Common Stock issued and outstanding, while
no shares of the Preferred Stock were issued or outstanding. The Company has
reserved 18,229,167 shares of the Common Stock for issuance upon the purchase of
the Newly Issued Shares, 2,552,083 shares of the Common Stock for issuance upon
the exercise of the Compensation Warrants, 3,840,615 shares of the Common Stock
for issuance upon the exercise of the Resale Warrants, and 6,525,000 shares of
the Common Stock for issuance upon exercise of the Resale Options.
The following description of certain matters relating to the Common Stock,
the Preferred Stock, and the Warrants is a summary and is qualified in its
entirety by the provisions of the Company's Articles of Incorporation and
Bylaws.
COMMON STOCK
The holders of the Common Stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders of the Company. The holders of
the Common Stock have the sole right to vote, except as otherwise provided by
law or by the Company's Articles of Incorporation, including provisions
governing any shares of the Preferred Stock. In addition, such holders are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor,
subject to the payment of preferential dividends with respect to any shares of
the Preferred Stock that from time to time may be outstanding. In the event of
the dissolution, liquidation or winding up of the Company, the holders of the
Common Stock are entitled to share ratably in all assets remaining after payment
of all liabilities of the Company and subject to the prior distribution rights
of the holders of any shares of the Preferred Stock that may be outstanding at
that time. All outstanding shares of the Common Stock being registered for
resale hereby, will be fully paid and nonassessable. The resale of (i)
2,615,051 shares of the Common Stock issued and outstanding, (ii) 6,525,000
shares of the Common Stock pursuant to the exercise of the Resale Options, and
(iii) 18,229,167 shares of the Common Stock with respect to the Newly Issued
Shares are being registered hereby.
CUMULATIVE VOTING RIGHTS
The holders of the Common Stock do not have cumulative voting rights.
Accordingly, the holders of more than 50 percent of the issued and outstanding
shares of the Common Stock voting for the election of directors can elect all of
the directors if they choose to do so, and in such event, the holders of the
remaining shares of the Common Stock voting for the election of the directors
will be unable to elect any person or persons to the Board of Directors.
PREEMPTIVE RIGHTS
Pursuant to Title 7, Chapter 79 of the Nevada Revised Statutes,
stockholders of corporations organized before October 1, 1991, with certain
limited exceptions set out in the statute, have preemptive rights to acquire pro
rata
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unissued shares, treasury shares or securities convertible into such shares,
being offered for sale, except to the extent limited or denied by the
corporation's articles of incorporation. Prior to October 1, 1991, among other
circumstances, preemptive rights did not exist with respect to (i) shares issued
to directors, officers or employees of the Company pursuant to a vote of the
stockholders, or pursuant to a plan authorized by the stockholders, (ii) shares
sold for a consideration other than cash, and (iii) shares issued at the same
time that the stockholder who claims a preemptive right acquired his shares.
The Company was incorporated on June 10, 1987, and prior to March 16, 1998, its
Articles of Incorporation did not provide for any limitation with respect to
preemptive rights. In the various offerings of its securities, the Company did
not offer to its existing stockholders preemptive rights to acquire any of the
securities so offered other than to persons in exchange for services rendered.
The applicable remedy, if any, for the failure by the Company to offer to its
stockholders the preemptive rights is not certain after the passage of time and
Common Stock price fluctuations. Under Nevada law, the preemptive right is only
an opportunity to acquire shares upon such terms as the Board of Directors fixes
for the purpose of providing a fair and reasonable opportunity for the exercise
of such right. If a stockholder were to timely demand preemptive rights for a
particular non-excepted prior sale, the Company might be required in equity to
sell additional shares of the Common Stock to the complaining stockholder at
previously offered prices to enable a stockholder exercising such rights to
maintain his ownership percentage for prior sales that would effect preemptive
rights. To the extent that any stockholders were entitled to the right to
purchase shares of the Common Stock upon the exercise of any such preemptive
rights, the Company plans to allow any such requesting stockholder the right to
purchase his pro rata amount of such shares at the same price per share to which
he would have been entitled if such preemptive rights had been offered in
conformity with Nevada law. Any such offering of preemptive rights will be in
conformity with the Securities Act and the various states where any such
stockholders may be located. If any stockholders were to exercise their
preemptive rights within the applicable statute of limitations for any sale of
securities which carried a preemptive right prior to March 16, 1998, the
percentage interests of investors may be diluted by any such sales of additional
securities and the contributions to the Company from such sales, if required to
be offered at the price of previous issuances and if such price is below the
current market value, could result in contributions to the Company at a per
share contribution less than the current market value. The Company cannot
speculate whether any stockholders would elect such preemptive rights, if the
statute of limitations has not barred such rights, or how much additional
capital would be raised or how many shares would be issued or whether other
remedies would be available. Thus, the Company assigns no liability to this
contingency. As of the date of this Prospectus, management is not aware of any
stockholder who intends to make any claim with respect to the failure by the
Company to offer any such preemptive rights. On February 4, 1998, a majority of
the stockholders, by written consent, voted to amend the Articles of
Incorporation of the Company to deny preemptive rights with respect to each new
issuance of shares of the Common Stock. However, the amendment to the Articles
of Incorporation will have no effect with respect to preemptive rights which may
have existed for certain sales of the Common Stock prior to such amendment.
PREFERRED STOCK
The Board of Directors is authorized, without action by the holders of the
Common Stock, to provide for the issuance of the Preferred Stock in one or more
series, to establish the number of shares to be included in each series and to
fix the designations, powers, preferences and rights of the shares of each such
series and the qualifications, limitations or restrictions thereof. This
includes, among other things, voting rights, conversion privileges, dividend
rates, redemption rights, sinking fund provisions and liquidation rights which
shall be superior to the Common Stock. The issuance of one or more series of
the Preferred Stock could adversely affect the voting power of the holders of
the Common Stock and could have the effect of discouraging or making more
difficult any attempt by a person or group to attain control of the Company. As
of the date of this Prospectus, there are no shares of the Preferred Stock
issued and outstanding.
DEBENTURES
6% CONVERTIBLE DEBENTURE. On August 15, 1996, the Company issued its 6%
Convertible Debenture due August 15, 1999 in the principal amount of $550,000
(the "6% Convertible Debenture"). This debenture included a provision under
which a penalty equal to 1.5 percent of the then outstanding principal shall be
payable monthly, in addition to the six percent interest otherwise due to be
paid, if the shares of the Common Stock issuable upon conversion of the 6%
Convertible Debenture were not the subject of a registration statement filed
with the Commission pursuant to the Securities Act on or before August 30, 1996
and declared effective on or before October 31, 1996. It was subsequently
agreed between the Company and the holder of the 6% Convertible Debenture that
any such penalties
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would not commence to accrue until April 1, 1997. The 6% Convertible Debenture
was convertible into shares of the Common Stock at a price per share equal to
the lesser of the average closing bid price of the Common Stock for the five
consecutive trading days immediately preceding the date of the 6% Convertible
Debenture, or 77 percent of the average closing bid price of the Common Stock
for the five consecutive trading days prior to conversion. In connection with
the issuance of the 6% Convertible Debenture, the Company also issued to the
holder a warrant to purchase 100,000 shares of the Common Stock at $2.00 per
share. See "Description of Securities - Warrants." The 6% Convertible
Debentures have been fully converted and are no longer outstanding.
8% CONVERTIBLE DEBENTURE. On March 13, 1997, the Company issued its 8%
Convertible Debenture due March 13, 2000 in the principal amount of $125,000
(the "8% Convertible Debenture"). This debenture included a provision under
which a penalty equal to two percent of the then outstanding principal shall be
payable monthly, in addition to the six percent interest otherwise due to be
paid, if the shares of the Common Stock issuable upon conversion of the 8%
Convertible Debenture were not the subject of a registration statement filed
with the Commission pursuant to the Securities Act on or before May 15, 1997 and
declared effective on or before July 15, 1997. The 8% Convertible Debenture was
convertible into shares of the Common Stock at a price per share equal to the
lesser of the average closing bid price of the Common Stock for the five
consecutive trading days immediately preceding the date of the 8% Convertible
Debenture, or 77 percent of the average closing bid price of the Common Stock
for the five consecutive trading days prior to conversion. In connection with
the issuance of the 8% Convertible Debenture, the Company also issued to the
holder a warrant to purchase 50,000 shares of the Common Stock at $1.50 per
share. See "Description of Securities - Warrants." The 8% Convertible
Debentures have been fully converted and are no longer outstanding.
12% SERIES A SENIOR SUBORDINATED CONVERTIBLE REDEEMABLE DEBENTURE. In
April 1997, the Company issued its 12% Series A Senior Subordinated Redeemable
Debentures in the aggregate amount of $662,500 (the "12% Convertible
Debenture"). These debentures generally matured in April 1998 and were
convertible into shares of the Common Stock at a conversion price equal to the
lower of 90 percent of the average closing bid price of the Common Stock for the
five business days immediately preceding the notice of conversion or 90 percent
of the closing bid price of the Common Stock of the business day immediately
preceding the date of subscription by the holder. All of the 12% Convertible
Debentures have been converted or canceled through a recission effected pursuant
to settlement agreements reached with the respective holders. See "Business -
Litigation."
WARRANTS
PRIVATE PLACEMENT WARRANTS. During the period from November 1995 though
February 1996, in connection with a private placement of 2,000,000 shares of the
Common Stock at $1.00 per share, the Company also granted to the investors
warrants to acquire an equal number of shares at $5.00 per share for a two-year
period. Warrants for an additional 203,150 shares of the Common Stock were
issued to the investors in the private placement in September 1996 due to the
failure by the Company to file a registration statement covering the shares of
the Common Stock offered in the private placement. These additional warrants
were likewise exercisable at $5.00 per share. In the spring of 1997, the
Company effected a further settlement with investors in the private placement
regarding the Company's obligation to register the shares of the Common Stock
offered in the private placement. The terms of the settlement provided that
certain investors would turn in the warrants held at that time in exchange for
warrants equal to one and one-half times the warrants held at a new exercise
price of $2.50 per share. Due to the various settlements effected by the
Company, as of February 6, 1998 such investors held warrants which upon exercise
would represent 3,273,950 shares of the Common Stock (the"PPM Warrants").
DEBENTURE WARRANTS. In connection with the purchase of the Company's 6%
Convertible Debenture, (which was fully converted and canceled by the Company on
February 6, 1998) on August 15, 1996 the Company issued a warrant for 100,000
shares of the Common Stock at $2.00 per share which expires on August 15, 2001
(the "6% Convertible Debenture Warrant"). In connection with the purchase of
the Company's 8% Convertible Debenture, on March 13, 1997 the Company issued a
warrant for 50,000 shares of the Common Stock at $1.50 per share which expires
on March 13, 2002 (the "8% Convertible Debenture Warrant").
AMBIENT WARRANTS. As additional compensation to Ambient Capital Group,
Inc. ("Ambient") for providing services relating to capital structure strategies
and the revision of the Company's business plan, the Company issued
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Ambient 83,333 warrants on October 29, 1997 (the "Ambient Warrants"). The
Ambient Warrants entitle the holder to purchase five shares of the Common Stock
at $0.72 per share for each warrant issued. The Ambient Warrants are valid for
a period of four years from the date of issuance.
The resale of 3,273,950 shares of the Common Stock underlying the PPM
Warrants, 100,000 shares of the Common Stock underlying the 6% Convertible
Debenture Warrant, 50,000 shares of the Common Stock underlying the 8%
Convertible Debenture Warrant and 416,665 shares of the Common Stock underlying
the Ambient Warrants (collectively, the "Resale Warrants") is being registered
hereby pursuant to registration rights granted to the holders thereof. The
Company has agreed to pay all expenses in connection with such registration,
except for underwriting discounts and commissions and legal fees for counsel to
the holders.
COMPENSATION WARRANTS. In conjunction with purchase of the Newly Issued
Shares under the Investment Agreement, Bristol shall generally be issued
warrants to purchase a number of shares of the Common Stock equal to 12 percent
of the number of Newly Issued Shares purchased at each closing at an initial
exercise price equal to 100 percent of the average closing sales price for the
Common Stock on the Principal Exchange during the Look Back Period (the
"Compensation Warrants"). See "Principal Stockholders - Bristol Asset
Management, L.L.C. Investment Agreement." The Compensation Warrants will expire
five years from the date of issuance. The resale of 2,552,083 shares of the
Common Stock underlying the Compensation Warrants is being registered pursuant
to this Prospectus.
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CANCELED SHARES
As a result of an internal audit conducted by the Company's management,
including a review of all stock transactions within the past four years, the
Board of Directors approved the cancellation of 5,897,960 shares of the Common
Stock during 1997. The shares of the Common Stock were canceled for various
reasons, including failure of consideration, duplicative issuances, and the
disparity in value between the number of shares issued and the services rendered
to the Company by the respective stockholders. In addition, the Company
recalled and canceled an aggregate of 400,322 shares of the Common Stock issued
to TII (252,597) and MFG (147,725) in 1998 due to mathematical errors in
calculating the purchase price. The following is a summary of the cancellations
which have been effected by the Transfer Agent:
<TABLE>
<CAPTION>
Name Number of Shares Canceled
---- -------------------------
<S> <C>
Thermal Imaging, Inc (1) . . . . . . . . 4,582,597
PDH, Ltd (2) . . . . . . . . . . . . . . 467,260
Bin Zhou (3) . . . . . . . . . . . . . . 250,000
Richard Thompson (4) . . . . . . . . . . 500,000
Maxwell Rabb (4) . . . . . . . . . . . . 250,000
Robert Gray (4). . . . . . . . . . . . . 100,000
Bruce Huddleston (5) . . . . . . . . . . 700
Manhattan Financial Group (6). . . . . . 147,725
</TABLE>
- ---------------------
(1) Several stock issuances to Thermal Imaging, Inc., an affiliate of Mr.
Johnston, were canceled due to failure of consideration. The cancellations
included the following: (i) cancellation of 300,000 shares of the Common
Stock originally issued on February 22, 1995 as a finder's fee relating to
funding which never materialized; (ii) cancellation of 1,400,000 shares of
the Common Stock originally issued on September 22, 1995 in anticipation of
cash contributions to the Company which never materialized due to the
breach by its intended funding source; (iii) cancellation of 630,000 shares
of the Common Stock originally issued on April 18, 1996 due to the fact
that the shares had been directly issued to Dorex stockholders in
settlement of claims for which Thermal Imaging, Inc. had assumed liability
pursuant to the Assumption of Liability Agreement (the Company canceled
certificates totaling 700,000 shares of the Common Stock and re-issued a
certificate to Thermal Imaging, Inc. representing 70,000 shares of the
Common Stock); (iv) cancellation of 2,000,000 shares of the Common Stock
originally issued on February 27, 1997 in anticipation of cash
contributions to the Company which never materialized; and (v) cancellation
of 252,597 shares of the Common Stock originally issued on February 3, 1998
due to a mathematical error in calculating the purchase price these shares
are included as issued and outstanding shares of the Common Stock as of
June 30, 1998.
(2) The Company formally canceled 167,260 shares of the Common Stock originally
issued to PDH, Ltd. on November 18, 1996 due to the fact that the value of
the shares issued was in excess of the value of the services rendered to
the Company. In addition, the Company canceled and set-off 300,000 shares
of the Common Stock originally issued on April 4, 1996 against
approximately 300,000 shares of the Common Stock due to PDH, Ltd. for
services rendered and expenses incurred through June 30, 1997. The
cancellation was to due to the fact that the value of the shares issued
exceeded the value of the services rendered to the Company. Due to the
fact that the set-off was made against unissued shares of the Common Stock,
the transaction did not involve the formal cancellation of additional
certificates.
(3) Pursuant to an understanding reached between the Company and Dr. Ben Zhou,
a former director of the Company, Zhou was to receive 250,000 shares of the
Common Stock in the event that the widespread marketing and distribution of
CTI Systems in China had taken place by November 1997. The planned
distribution of CTI Systems was not implemented by November 1997. The
parties never executed a written document to memorialize the agreement.
While the minutes of the Company evidence that the 250,000 shares of the
Common Stock have been recorded as issued, delivery of the certificates
never took place, consistent with the Company's representation and
understanding that the shares would not be earned until first revenues were
generated from the delivery and installation of CTI Systems in China. The
Company's position was clarified in letters to Zhou dated June 1996 and
January 1997.
(4) The Company has taken action to cancel certain stock certificates that were
conditionally issued and delivered to Richard Thompson, a former director
of the Company, and Maxwell Rabb and Robert Gray, both consultants to the
Company. The Company conditionally issued shares of the Common Stock to
Thompson (1,000,000), Rabb (275,000) and Gray (100,000) based on Thompson's
representation that he had arranged large scale financing by SPRINT and
another proposed contributor. Relying on Thompson's representations that
such agreements had been reached, the shares were issued and delivered
directly to Thompson. When the Company discovered that no financing
agreements had been reached with SPRINT, the Company demanded return of the
certificates from Thompson. After numerous attempts to persuade Thompson
to return the certificates, the Board of Directors canceled the
certificates, along with other certificates issued to Rabb and Gray by
resolutions adopted on February 18, 1997 and April 21, 1997. As of the
date of this Prospectus, the certificates have not been returned.
Unfortunately, Mr. Thompson pledged one of the certificates, Certificate
No. 8313, to a lender in January 1997, who claimed to be a protected
purchaser under the Uniform Commercial Code. An agreement has been reached
to permit the lender to liquidate the number of shares required to satisfy
the outstanding indebtedness and recoverable costs secured by the shares,
which shares have been liquidated and the balance of the shares 48,000 have
been returned to the Company's Transfer Agent who intends to interplead
them to resolve the Company's right to cancel such shares.
(5) The Company canceled these shares of the Common Stock due to the failure of
consideration.
(6) The Company canceled these shares of the Common Stock originally issued on
March 24, 1998 due to a mathematical error in calculating the purchase
price.
In September 1997, the Board of Directors adopted a resolution instructing
its officers to work with the Company's auditor to develop internal control
procedures for the Company, including directives relating to the separation of
duties for account management, centralized record-keeping, document control, and
contract expense
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authorization limitations on executive officers. The Company expects the
preparation of such procedures to be completed by December 1998.
STOCK NOT PAID UP
On February 28, 1996 the Company accepted a "Personal Note - Secured" (the
"Note") in the principal amount of $525,000 from Daron Dillia doing business as
Manhattan Financial Group ("MFG") in exchange for the issuance of 525,000 units
(one unit = one share of the Common Stock and one warrant) offered by the
Company in conjunction with its Private Placement Memorandum dated November 13,
1995. The Note matured on February 28, 1997 and interest has been accruing on
the outstanding amount due since such date at a rate of nine percent per annum.
The terms of the Note also provide that the amount due will be secured by the
525,000 units issued to MFG which shall be held by the Company until the Note is
paid in full. Pursuant to an agreement between MFG and Benjamin W. and Nancy L.
Anderson which was incorporated into the terms of the Note (the "Collateral
Guarantee"), the Andersons' pledged 500,000 shares of the Common Stock and
200,000 units as additional security under the Note. As consideration under the
Collateral Guarantee, MFG agreed to transfer 200,000 shares of the Common Stock
from the 525,000 units acquired pursuant to the Note to the Andersons.
In accordance with N.R.S. 78.211, the Company may authorize the issuance
of shares in consideration of any tangible or intangible property or benefit
delivered to the Company, including promissory notes. Upon receipt of the
consideration for which the Board of Directors authorized the issuance of the
shares, the shares issued therefor are fully paid. An issuance of 325,000
shares to Daron C. Dillia and 200,000 shares to Benjamin or Nancy Anderson was
approved by the Board of Directors on February 29, 1996 in consideration for
"money received as a result of the Private Placement Memorandum dated November
13, 1995." According to management, the certificates representing all shares
and warrants issued in connection with the Note are held by the Company.
As of the date of this Prospectus no payments have been made by MFG towards
the outstanding indebtedness due under the Note, nor has the Company made any
effort to collect such amounts.
CERTAIN PROVISION OF THE ARTICLES OF INCORPORATION AND BYLAWS
GENERAL. A number of provisions of the Articles of Incorporation
("Articles") and Bylaws ("Bylaws") of the Company concern matters of corporate
governance and the rights of stockholders. Certain of these provisions, as well
as the ability of the Board of Directors to issue shares of the Preferred Stock
and to set the voting rights, preferences and other terms thereof, may be deemed
to have an anti-takeover effect and may discourage takeover attempts not first
approved by the Board of Directors (including takeovers which certain
stockholders may deem to be in their best interests). To the extent takeover
attempts are discouraged, temporary fluctuations in the market price of the
Common Stock, which may result from actual or rumored takeover attempts, may be
inhibited. These provisions, together with the ability of the Board of
Directors to issue the Preferred Stock without further stockholder action, also
could delay or frustrate the removal of incumbent directors or the assumption of
control by the stockholders, even if such removal or assumption would be
beneficial to the stockholders of the Company. These provisions also could
discourage or make more difficult a merger, tender offer or proxy contest, even
if they could be favorable to the interests of the stockholders, and could
potentially depress the market price of the Common Stock. The Board of
Directors believes that these provisions are appropriate to protect the
interests of the Company and all of its stockholders.
MEETINGS OF STOCKHOLDERS. The Bylaws provide that a special meeting of the
stockholders may be called by the Chairman of the Board, the President, the
Board of Directors, or the holders of not less than 10 percent of the
outstanding shares of the capital stock of the Company entitled to vote at such
a meeting unless otherwise required by law. The Company's Bylaws provide that
only those matters set forth in the notice of the special meeting may be
considered or acted upon at the special meeting.
INDEMNIFICATION AND LIMITATION OF LIABILITY. The Company's Articles
provide that a director of the Company will not be personally liable to the
Company or its stockholders for monetary damages for any act or omission in good
faith. By its terms, and in accordance with applicable state law, however, this
provision does not eliminate or limit the liability of a director of the Company
for any breach of duty based upon an act or omission (i) involving appropriation
in violation of duty of any business opportunity of the Company, (ii) involving
acts or omissions that are
65
<PAGE>
not in good faith or which involve intentional misconduct or a knowing violation
of the law, or (iii) involving unlawful distributions or transactions from which
the director derived an improper personal benefit. The Articles provide further
that the Company shall indemnify its directors, except in such matters as to
which the director shall be adjudged liable for his own negligence or
intentional misconduct in the performance of his duty. A similar
indemnification and limitation of liability provision in the Company's Bylaws
also extends such protection to officers of the Company. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers, or persons controlling the Company pursuant to
the foregoing provisions, or otherwise, the Company is aware that, in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
AMENDMENT OF BYLAWS. The Bylaws provide that the Bylaws may be altered,
amended or repealed by the Board of Directors or the stockholders of the
Company. Such action by the Board of Directors requires the affirmative vote of
a majority of the directors present at such meeting.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Until the issuance of all of the shares of the Common Stock covered by the
Warrants, the Resale Options, and the Debenture, the Company's authorized but
unissued capital stock will consist of approximately 55,431,025 shares of the
Common Stock. One of the effects of the authorized but unissued capital stock
may be to enable the Board of Directors to render more difficult or to
discourage an attempt to obtain control of the Company by means of a tender
offer, proxy contest or otherwise, and thereby to protect the continuity of the
Company's management. If in the due exercise of its fiduciary obligations, for
example, the Board of Directors were to determine that a takeover proposal was
not in the Company's best interests, such shares could be issued by the Board of
Directors without stockholder approval in one or more private or public
offerings or other transactions that might prevent or render more difficult or
costly the completion of the proposed takeover transaction by diluting the
voting or other rights of the proposed acquirer or insurgent stockholder or
stockholder group, by creating a substantial voting block of institutional or
other investors that might undertake to support the position of the incumbent
Board of Directors, by effecting an acquisition that might complicate or
preclude the takeover, or otherwise. In this regard, the Company's Articles
grant the Board of Directors broad power to establish the rights and preferences
of the authorized, but unissued Preferred Stock, one or more series of which
would be issued entitling holders to vote separately as a class on any proposed
merger or consolidation, to convert Preferred Stock into a larger number of
shares of the Common Stock or other securities, to demand redemption at a
specified price under prescribed circumstances related to a change in control,
or to exercise other rights designed to impede a takeover.
The issuance of shares of the Preferred Stock pursuant to the Board's
authority described above could decrease the amount of earnings and assets
available for distribution to holders of the Common Stock, and adversely affect
the rights and powers, including voting rights, of such holders and may have the
effect of delaying, deferring or preventing a change in control of the Company.
The Board of Directors does not currently intend to seek stockholder approval
prior to any issuance of authorized, but unissued stock, unless otherwise
required by law.
TRANSFER AGENT
The Company's transfer agent for the Common Stock is Merit Transfer
Company, 68 South Main Street, Suite 708, Salt Lake City, Utah 84101.
66
<PAGE>
PLAN OF DISTRIBUTION AND SELLING STOCKHOLDERS
This Prospectus relates to the aggregate resale of 33,761,916 shares of the
Common Stock which may be sold by the Selling Stockholders. The shares of the
Common Stock to be resold include (i) 18,229,167 shares to be purchased by an
unrelated third party investor (the "Newly Issued Shares");(ii) 2,552,083 shares
to be issued upon the exercise of warrants to be issued to such investor (the
"Compensation Warrants");(iii) 2,615,051 shares issued and outstanding; (iv)
3,840,615 shares underlying outstanding warrants (the "Resale Warrants"); and
(v) 6,525,000 shares underlying outstanding options (the "Resale Options").
The following tables set forth certain information with respect to the
resale of the Common Stock by the Selling Stockholders as described in this
Prospectus. The Company will not receive any proceeds from the resale of the
Common Stock by the Selling Stockholders. However, the Company will receive the
proceeds from the sale of the Newly Issued Shares, the exercise price per share
upon the exercise of the Resale Warrants, the Compensation Warrants and the
Resale Options.
RESALE BY SELLING STOCKHOLDERS OF SHARES CURRENTLY OUTSTANDING ("S");
SHARES TO BE ISSUED AS NEWLY ISSUED SHARES ("NS") AND SHARES UNDERLYING
RESALE WARRANTS ("W"), COMPENSATION WARRANTS ("CW"), AND RESALE OPTIONS ("O")
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED AMOUNT OWNED
STOCKHOLDER BEFORE RESALE (1) OFFERED (2) AFTER RESALE PERCENTAGE (3)
----------- ----------------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Fritz Abendroth (W) 61,875 61,875 -0- *
Ambient Capital Group, Inc. (S) 83,333 83,333 -0- *
Ambient Capital Group, Inc. (W) 416,665 416,665 -0- *
Benjamin or Nancy Anderson (S) 859,049 600,000 259,049 *
Benjamin Anderson (W) 568,750 568,750 -0- *
Jeremy Brent Andrus (W) 60,500 60,500 -0- *
Mary Ellen Ashby (W) 45,375 45,375 -0- *
Lynn Beckman (W) 41,250 41,250 -0- *
Randall S. Benson (W) 20,625 20,625 -0- *
Joanne L. Bingo (W) 94,875 94,875 -0- *
Charles W. Brinkman (W) 41,250 41,250 -0- *
Bristol Asset Management, L.L.C. (NS) 18,229,167 18,229,167 -0- *
Bristol Asset Management, L.L.C. (CW) 2,552,083 2,552,083 -0- *
Cameron Capital, Ltd. (W) 150,000 150,000 -0- *
Brent L. Cox (W) 41,250 41,250 -0- *
Crown Development, Inc. (W) 82,500 82,500 -0- *
Cheryl Demler (S) 140,000 10,000 130,000 *
Cheryl Demler (W) 7,150 7,150 -0- *
Daron C. Dillia (W) 700,000 700,000 -0- *
Kenneth M. Dodd (O) 500,000 500,000 -0- *
Misty Dorman (W) 25,410 25,410 -0- *
Donna L. Doxey (W) 82,500 82,500 -0- *
Robert A. Dresser (S) 138,000 138,000 -0- *
Douglas Emery (S) 32,000 12,000 20,000 *
Sylvia Epstein (S) 50,000 50,000 -0- *
Dennis W. Ferchland (W) 20,625 20,625 -0- *
David Finney (S) 96,000 96,000 -0- *
Merrill Fowler (S) 153,500 50,000 103,500 *
Jack Gately (S) 50,000 50,000 -0- *
Joseph K. Grote (W) 41,250 41,250 -0- *
Sandra Hale (S) 15,000 15,000 -0- *
Bruce B. Hall (W) 41,250 41,250 -0- *
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED AMOUNT OWNED
STOCKHOLDER BEFORE RESALE (1) OFFERED (2) AFTER RESALE PERCENTAGE (3)
----------- ----------------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Willard Harpster (O) 275,000 275,000 -0- *
Gerald Lynn Hayward (W) 41,250 41,250 -0- *
Darrell J. Horne (W) 82,500 82,500 -0- *
Soon-Yon Jin (W) 41,250 41,250 -0- *
Lance J. Larson (W) 41,250 41,250 -0- *
Manhattan Financial Group (S) 2,346,275 600,000 1,746,275 3.6
Manhattan Financial Group (O) 2,000,000 2,000,000 -0- *
Masahisa Masuda (W) 330,000 330,000 -0- *
Brad Mefford (W) 41,250 41,250 -0- *
Meto Miteff (S) 6,752 6,752 -0- *
Orlando Nickerson (W) 41,250 41,250 -0- *
Stephen A. Oliver Trust (W) 20,625 20,625 -0- *
David Packer (O) 500,000 500,000 -0- *
PDH, Ltd. (S) 1,220,056 806,466 413,590 *
Carol T. Racine (W) 33,750 33,750 -0- *
Max B. Reece (W) 41,415 41,415 -0- *
Steven M. Rhodes (W) 20,625 20,625 -0- *
James P. Roake (W) 123,750 123,750 -0- *
Susan D. Scott (W) 20,625 20,625 -0- *
Larry R. Sears (W) 41,250 41,250 -0- *
Richard V. Secord (O) 3,250,000 3,250,000 -0- *
Peter P. Smith (W) 41,250 41,250 -0- *
Gerald N. Stanley (W) 41,250 41,250 -0- *
Richard Stevens (S) 2,500 2,500 -0- *
Jack M. & Geraldean Stevens (JTWROS)(W) 82,500 82,500 -0- *
Richard M. & Carolyn Stevens (JTWROS)(W) 41,250 41,250 -0- *
David D. Stewart (W) 41,250 41,250 -0- *
Ross D. Stokes (W) 25,000 25,000 -0- *
Bee Bee Tan (W) 41,250 41,250 -0- *
Charles Howard Thomas (W) 28,600 28,600 -0- *
Daniel G. Thomas (W) 27,500 27,500 -0- *
Eric Wagner and Jeri Wagner (S) 10,600 4,000 6,600 *
Alice G. Watts (S) 1,000 1,000 -0- *
Harold Werth, Jr. (S) 140,00 40,000 100,000 *
Harold Werth, Jr. (W) 6,875 6,875 -0- *
Louis Woodworth (S) 70,000 50,000 20,000 *
</TABLE>
- ---------
* Less than one percent.
(1) Shares Beneficially Owned Before Resale include shares of the Common Stock
underlying outstanding Resale Warrants ("W"), Resale Options ("O"),
Compensation Warrants ("CW") and Newly Issued Shares ("NS"). For purposes
of this table, ownership of Shares Currently Outstanding ("S") is
calculated based on the record number of outstanding shares held by such
person as of June 30, 1998. For purposes of this table, ownership of
Resale Warrants ("W"), Resale Options ("O"), Compensation Warrants ("CW")
and Newly Issued Shares ("NS") is based on the actual or estimated number
of shares of the Common Stock underlying the referenced class of securities
owned by such person as of June 30, 1998.
(2) Shares offered include Shares Currently Outstanding ("S") subject to the
restrictions of the Securities Act and held by the Selling Stockholder less
than two years as of the date of this Prospectus, and shares of the Common
Stock underlying outstanding Resale Warrants ("W"), Resale Options ("O"),
Compensation Warrants ("CW") and Newly Issued Shares ("NS").
(3) Percentage based on the number of shares of the Common Stock outstanding as
of June 30, 1998, without regard to beneficial ownership as may be
calculated under Rule 13d-3 of the Exchange Act.
The 33,761,916 shares of the Common Stock offered by the Selling
Stockholders for resale may be sold by the Selling Stockholders from time to
time as market conditions permit in the market, or otherwise at prices and terms
then prevailing or at prices related to the current market price, or in
negotiated transactions. The Selling Shareholders
68
<PAGE>
may sell their shares in unsolicited ordinary brokerage transactions or
privately negotiated transactions between the Selling Stockholders and
purchasers without a broker.
A current prospectus must be in effect at the time of the sale of the
Common Stock to which this Prospectus relates. Any Selling Stockholder or
dealer effecting a transaction in the registered securities, whether or not
participating in a distribution, is required to deliver a Prospectus. Unless
otherwise exempted, the Selling Stockholders and their agents engaged in the
resale of the Common Stock may be deemed underwriters under the Securities Act.
LEGAL MATTERS
Certain legal matters relating to the issuance and resale of shares hereby
will be passed upon for the Company by Looper, Reed, Mark & McGraw,
Incorporated, Houston, Texas.
EXPERTS
The Consolidated Financial Statements and schedules for the years ended
June 30, 1997 and 1996, and for the period from inception, June 30, 1987, to
June 30, 1997 included in this Prospectus and in the Registration Statement to
which this Prospectus relates have been audited by Ham, Langston & Brezina, LLP,
independent certified public accountants, to the extent and for the periods set
forth in their reports appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such reports given upon the
authority of said firm as experts in auditing and accounting.
69
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
----------
CONSOLIDATED FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT ACCOUNTANTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 1997 AND 1996,
AND FOR THE PERIOD FROM INCEPTION, JUNE 10, 1987,
TO JUNE 30, 1997
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
TABLE OF CONTENTS
----------
<TABLE>
PAGE(S)
-------
<S> <C>
Report of Independent Accountants F-2
Consolidated Financial Statements:
Consolidated Balance Sheet as of June 30, 1997
and 1996 F-4
Consolidated Statement of Operations for the years
ended June 30, 1997 and 1996, and for the period
from inception, June 10, 1987, to June 30, 1997 F-5
Consolidated Statement of Stockholders' Deficit for
the years ended June 30, 1997 and 1996, and for the
period from inception, June 10, 1987, to June 30, 1997 F-6
Consolidated Statement of Cash Flows for the years
ended June 30, 1997 and 1996, and for the period
from inception, June 10, 1987, to June 30, 1997 F-10
Notes to Consolidated Financial Statements F-11
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Computerized Thermal Imaging, Inc.
We have audited the accompanying consolidated balance sheet of Computerized
Thermal Imaging, Inc. (a development stage enterprise) as of June 30, 1997 and
1996, and the related statements of operations, stockholders' equity and cash
flows for the years then ended, and for the period from inception, June 10,
1987, to June 30, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based upon our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform our audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Computerized Thermal
Imaging, Inc. as of June 30, 1997 and 1996, and the results of its operations
and its cash flows for the years then ended and for the period from inception,
June 10, 1987, to June 30, 1997, in conformity with generally accepted
accounting principles.
As described in Note 13, since its inception the Company has undertaken various
private placements and other offerings of its common stock without offering
existing stockholders preemptive rights to acquire common stock so offered.
Neither the likelihood of claims nor the range of loss that could arise from
this matter is presently determinable. Accordingly, the financial statements do
not include any adjustment that might result from the outcome of this
uncertainty.
Continued
F-2
<PAGE>
Computerized Thermal Imaging, Inc.
Page 2
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the consolidated
financial statements and discussed in Note 14, the Company has incurred
significant recurring losses from operations since inception, is in a negative
working capital and stockholders' deficit position at June 30, 1997, and is
dependent on outside sources of financing for continuation of its operations.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans with regard to this matter are also
discussed in Note 14. These financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Ham, Langston & Brezina, LLP
Houston, Texas
May 10, 1998
F-3
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997 AND 1996
----------
<TABLE>
1996
AS RESTATED
ASSETS 1997 (SEE NOTE 2)
------ ------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 193,852 $ 163,928
Deposits 2,204 -
------------ ------------
Total current assets 196,056 163,928
Property and equipment, net 115,535 114,755
Stock offering and debt issuance costs, net 217,084 -
------------ ------------
Total assets $ 528,675 $ 278,683
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 936,964 $ 127,066
Accrued liabilities 254,602 99,608
Current maturities of convertible debentures 479,882 -
------------ ------------
Total current liabilities 1,671,448 226,674
Convertible debentures, net of current maturities 675,000 -
------------ ------------
Total liabilities 2,346,448 226,674
------------ ------------
Commitment and contingencies (Notes 6, 11, 13 and 14)
Stockholders' equity (deficit):
Convertible preferred stock, $5.00
par value, 100,000 shares authorized - -
Common stock, $.001 par value, 100,000,000 shares
authorized, 35,737,649 and 32,906,563 shares
issued and outstanding at June 30, 1997 and
1996, respectively 35,738 32,907
Additional paid-in capital 13,410,573 11,933,572
Subscription receivable (525,000) (525,000)
Losses accumulated during the development stage (14,739,084) (11,389,470)
------------ ------------
Total stockholders' equity (deficit) (1,817,773) 52,009
------------ ------------
Total liabilities and stockholders'
equity (deficit) $ 528,675 $ 278,683
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-4
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
AND FOR THE PERIOD FROM INCEPTION, JUNE 10, 1987,
TO JUNE 30, 1997
----------
<TABLE>
YEAR ENDED
JUNE 30,
YEAR ENDED 1996 INCEPTION
JUNE 30, AS RESTATED TO JUNE 30,
1997 (SEE NOTE 2) 1997
----------- ------------ ------------
<S> <C> <C> <C>
Income:
Interest income $ 5,762 $ 9,869 $ 16,576
Income from sale of prototype 55,815 125,000 180,815
----------- ----------- ------------
Total income 61,577 134,869 197,391
Costs and expenses:
Operating, general and adminis-
trative expenses 1,571,157 2,415,093 10,500,058
Research and development costs 1,753,366 491,320 2,765,026
Interest expense 86,668 11,938 1,157,011
Litigation settlement - 508,280 514,380
----------- ----------- ------------
Total costs and expenses 3,411,191 3,426,631 14,936,475
----------- ----------- ------------
Net loss $(3,349,614) $(3,241,762) $(14,739,084)
----------- ----------- ------------
----------- ----------- ------------
Weighted average shares outstanding 33,803,045 30,875,600
----------- -----------
----------- -----------
Net loss per common share $ (0.10) $ (0.11)
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-5
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 1997 AND
1996, AND FOR THE PERIOD FROM INCEPTION, JUNE 10,
1987 TO JUNE 30, 1997
----------
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ --------- --------
<S> <C> <C> <C> <C>
Balance at inception, June 10,
1987 - $ - - $ -
Stock issued for cash to founding
stockholders in 1987 - - 5,000,000 5,000
Stock issued for cash in connec-
tion with a public offering of
common stock in 1988 - - 5,000,000 5,000
Stock issued for cash in connec-
tion with a Regulation D offer-
ing of common stock in 1989 - - 80,000 80
Stock issued for services in 1990 - - 500,000 500
Stock issued for cash in connec-
tion with a Regulation D offer-
ing of common stock in 1991 - - 180,000 180
Stock issued for services in 1991 - - 3,240,000 3,240
Stock issued for services in 1992 - - 4,860,000 4,860
Stock issued for services in 1993 - - 1,134,500 1,134
Stock issued for extension of
debt agreement in 1993 - - 9,000 9
Stock issued in connection with
claims by certain stockholders
in 1993 - - 1,000 1
Stock issued for cash in 1994 - - 387,000 387
<CAPTION>
LOSSES
ACCUMULATED
ADDITIONAL DURING THE
PAID-IN SUBSCRIPTION DEVELOPMENT
CAPITAL RECEIVABLE STAGE TOTAL
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Balance at inception, June 10,
1987 $ - $ - $ - $ -
Stock issued for cash to founding
stockholders in 1987 - - - 5,000
Stock issued for cash in connec-
tion with a public offering of
common stock in 1988 14,562 - - 19,562
Stock issued for cash in connec-
tion with a Regulation D offer-
ing of common stock in 1989 249,930 - - 250,010
Stock issued for services in 1990 254,500 - - 255,000
Stock issued for cash in connec-
tion with a Regulation D offer-
ing of common stock in 1991 89,820 - - 90,000
Stock issued for services in 1991 1,616,760 - - 1,620,000
Stock issued for services in 1992 578,340 - - 583,200
Stock issued for services in 1993 82,726 - - 83,860
Stock issued for extension of
debt agreement in 1993 691 - - 700
Stock issued in connection with
claims by certain stockholders
in 1993 59 - - 60
Stock issued for cash in 1994 25,613 - - 26,000
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
Continued
F-6
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, AND
FOR THE PERIOD FROM INCEPTION, JUNE 10, 1987 TO JUNE 30, 1997
----------
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Stock issued for services in
1994 - - 1,485,660 1,486
Stock issued for extension of
debt agreement in 1994 - - 9,000 9
Stock issued in connection with
claims by certain stockholders
in 1994 - - 51,000 51
Preferred stock issued in connec-
tion with certain loans made
to the Company in 1994 47,000 235,000 - -
Stock issued for cash in 1995 - - 679,202 680
Stock issued for services in
1995 - - 3,506,461 3,506
Stock issued to convert certain
notes payable in 1995 - - 702,400 702
Conversion of preferred stock to
common stock in 1995 (42,000) (210,000) 124,600 125
Losses accumulated during the
period from inception, June 10,
1987, to June 30, 1995 - - - -
------- -------- ---------- --------
Balance at June 30, 1995, as
restated (See Note 2) 5,000 25,000 26,949,823 26,950
------- -------- ---------- --------
<CAPTION>
LOSSES
ACCUMULATED
ADDITIONAL DURING THE
PAID-IN SUBSCRIPTION DEVELOPMENT
CAPITAL RECEIVABLE STAGE TOTAL
---------- ------------ ----------- -------
<S> <C> <C> <C> <C>
Stock issued for services in
1994 149,148 - - 150,634
Stock issued for extension of
debt agreement in 1994 591 - - 600
Stock issued in connection with
claims by certain stockholders
in 1994 5,989 - - 6,040
Preferred stock issued in connec-
tion with certain loans made
to the Company in 1994 - - - 235,000
Stock issued for cash in 1995 407,995 - - 408,675
Stock issued for services in
1995 3,049,200 - - 3,052,706
Stock issued to convert certain
notes payable in 1995 117,941 - - 118,643
Conversion of preferred stock to
common stock in 1995 209,875 - - -
Losses accumulated during the
period from inception, June 10,
1987, to June 30, 1995 - - (8,097,708) (8,097,708)
---------- ---------- ---------- ----------
Balance at June 30, 1995, as
restated (See Note 2) 6,853,740 - (8,097,708) (1,192,018)
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
Continued
F-7
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, AND
FOR THE PERIOD FROM INCEPTION, JUNE 10, 1987 TO JUNE 30, 1997
----------
<TABLE>
PREFERRED STOCK COMMON STOCK
------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ---------- --------
<S> <C> <C> <C> <C>
Balance at June 30, 1995, as
restated (See Note 2) 5,000 25,000 26,949,823 26,950
Stock issued for cash in con-
nection with a Regulation D
offering of common stock - - 1,462,600 1,463
Stock issued for a note receiv-
able in connection with a
Regulation D offering of
common stock - - 525,000 525
Stock issued for offering costs
in connection with a Regulation
D offering of common stock - - 53,650 53
Stock issued in connection with
the settlement of a note pay-
able to an individual - - 734,942 735
Stock issued in connection with
the settlement of claims by
certain stockholders - - 578,000 578
Conversion of preferred stock (5,000) (25,000) 14,700 14
Stock issued in repayment of
certain notes payable and
interest expense - - 146,590 147
Stock issued for cash - - 1,163,625 1,164
LOSSES
ACCUMULATED
ADDITIONAL DURING THE
PAID-IN SUBSCRIPTION DEVELOPMENT
CAPITAL RECEIVABLE STAGE TOTAL
---------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Balance at June 30, 1995, as
restated (See Note 2) 6,853,740 -
Stock issued for cash in con-
nection with a Regulation D
offering of common stock 1,461,137 - - 1,462,600
Stock issued for a note receiv-
able in connection with a
Regulation D offering of
common stock 524,475 (525,000) - -
Stock issued for offering costs
in connection with a Regulation
D offering of common stock (53) - - -
Stock issued in connection with
the settlement of a note pay-
able to an individual 721,345 - - 722,080
Stock issued in connection with
the settlement of claims by
certain stockholders 507,702 - - 508,280
Conversion of preferred stock 24,986 - - -
Stock issued in repayment of
certain notes payable and
interest expense 153,060 - - 153,207
Stock issued for cash 795,306 - - 796,470
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
Continued
F-8
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, AND
FOR THE PERIOD FROM INCEPTION, JUNE 10, 1987 TO JUNE 30, 1997
----------
<TABLE>
PREFERRED STOCK COMMON STOCK
------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ---------- ----------
<S> <C> <C> <C> <C>
Stock issued for services - - 1,277,633 1,278
Net loss accumulated in 1996 - - - -
------- ------- ---------- ----------
Balance at June 30, 1996, as
restated (See Note 2) - - 32,906,563 32,907
Stock issued as a bonus to inves-
tors in connection with the
Company's 1996 Regulation D
offering of common stock - - 211,900 212
Conversion of debentures to
common stock - - 98,768 99
Stock issued for cash - - 1,833,152 1,833
Stock issued for services - - 687,266 687
Net loss accumulated in 1997 - - - -
------- ------- ---------- ----------
Balance at June 30 ,1997 - - 35,737,649 $ 35,738
------- ------- ---------- ----------
------- ------- ---------- ----------
LOSSES
ACCUMULATED
ADDITIONAL DURING THE
PAID-IN SUBSCRIPTION DEVELOPMENT
CAPITAL RECEIVABLE STAGE TOTAL
---------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Stock issued for services 891,874 - - 893,152
Net loss accumulated in 1996 - - (3,291,762) (3,291,762)
----------- --------- ------------ -----------
Balance at June 30, 1996, as
restated (See Note 2) 11,933,572 (525,000) (11,389,470) 52,009
Stock issued as a bonus to inves-
tors in connection with the
Company's 1996 Regulation D
offering of common stock (212) - - -
Conversion of debentures to
common stock 64,026 - - 64,125
Stock issued for cash 1,008,376 - - 1,010,209
Stock issued for services 404,811 - - 405,498
Net loss accumulated in 1997 - - (3,349,614) (3,349,614)
----------- --------- ------------ -----------
Balance at June 30 ,1997 $13,410,573 $(525,000) $(14,739,084) $(1,817,773)
----------- --------- ------------ -----------
----------- --------- ------------ -----------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-9
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997 AND
1996, AND FOR THE PERIOD FROM INCEPTION, JUNE
10, 1987, TO JUNE 30, 1997
----------
<TABLE>
YEAR ENDED
JUNE 30,
YEAR ENDED 1996 INCEPTION
JUNE 30, AS RESTATED TO JUNE 30,
1997 (SEE NOTE 2) 1997
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(3,349,614) $(3,291,762) $(14,739,084)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Common stock issued as compensation
for services 405,498 893,152 7,044,050
Common stock issued for interest
expense 2,105 11,147 267,765
Common stock issued in settlement
of litigation - 508,280 514,380
Depreciation expense 29,552 11,627 49,577
Amortization of debt issuance costs 43,418 - 53,418
Changes in operating assets and
liabilities:
Increase in deposits (2,204) - (2,204)
Increase in accounts payable and
accrued liabilities 964,892 (75,111) 1,191,566
----------- ----------- ------------
Net cash used in operating
activities (1,906,353) (1,942,667) (5,620,532)
----------- ----------- ------------
Cash flows from investing activities:
Capital expenditures (30,332) (119,860) (165,112)
----------- ----------- ------------
Net cash used in investing
activities (30,332) (119,860) (165,112)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from sale of common stock 1,010,209 2,259,070 4,068,526
Payment of stock offering costs (125,000) - (125,000)
Proceeds from notes payable and
convertible debentures 1,205,000 8,000 2,510,869
Payment of debt issuance costs (123,600) - (133,600)
Repayment of notes payable - (60,750) (341,299)
----------- ----------- ------------
Net cash provided by financing
activities 1,966,609 2,206,320 5,979,496
----------- ----------- ------------
Net increase in cash and cash equivalents 29,924 143,793 193,852
Cash and cash equivalents at beginning
of period 163,928 20,135 -
----------- ----------- ------------
Cash and cash equivalents at end of
period $ 193,852 $ 163,928 $ 193,852
----------- ----------- ------------
----------- ----------- ------------
Supplemental disclosure of cash flow information:
Cash paid for interest expense $ - $ - $ 5,293
----------- ----------- ------------
----------- ----------- ------------
Cash paid for income taxes $ - $ - $ -
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-10
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Computerized Thermal Imaging, Inc. (the "Company") is a Nevada
Corporation, involved in the development of a thermal imaging system
for applications in the health care industry. The Company's system
is based upon computer interpretation of thermal photography using
proprietary software developed by the Company. The Company was
originally incorporated as Business Helpers, Inc. on June 10, 1987 and
subsequently adopted name changes to DTI Dorex, Ltd. and, finally, to
Computerized Thermal Imaging, Inc. The Company is considered a
development stage enterprise because it has not yet generated
significant revenue from sale of its products. Since its inception,
the Company has devoted substantially all of its efforts in three
areas: 1) the development of a system for commercial application of
thermal imaging technology in the medical industry; 2) the development
of markets for thermal imaging technology; and 3) the search for
sources of capital to fund its efforts. Following is a summary of the
Company's significant accounting policies:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiary, Thermal Medical Imaging, Inc. ("TMI").
All significant intercompany transactions and accounts have been
eliminated in consolidation. TMI was established by the Company during
1996 but was not a majority owned subsidiary at June 30, 1996 due to the
issuance of shares of stock to employees. However, majority ownership by
employees of TMI was only temporary and the Company exercised control
over TMI because 1) the Company developed and controlled the technology
on which TMI's thermal imaging systems would ultimately be based; 2) the
Company represented TMI's sole source of capital to fund its operations;
and 3) key directors and management of the Company also occupied key
management positions in TMI. Accordingly, the operations of TMI have been
consolidated with those of the Company during the years ended June 30,
1997 and 1996. The Company acquired actual majority ownership of TMI
during 1997 through continued cash investments.
SIGNIFICANT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses
during the periods. Actual results could differ from estimates making it
reasonably possible that a change in the estimates could occur in the
near term.
Continued
F-11
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short-term investments with an
original maturity of three months or less when purchased to be cash
equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided on
the straight-line method over the estimated useful lives of the assets,
which range from three to seven years. Expenditures for major renewals
and betterments that extend the original estimated economic useful lives
of the applicable assets are capitalized. Expenditures for normal repairs
and maintenance are charged to expense as incurred. The cost and related
accumulated depreciation of assets sold or otherwise disposed of are
removed from the accounts, and any gain or loss is included in
operations.
INVESTMENT IN JOINT VENTURE
The Company's investment in a joint venture is accounted for using the
equity method.
ISSUANCE COSTS
Debt issuance costs are deferred and recognized over the term of the
related debt.
Stock issuance costs are deferred and offset against proceeds from sale
of common stock upon closing.
Continued
F-12
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
INCOME TAXES
The Company uses the liability method of accounting for income taxes.
Under this method, deferred income taxes are recorded to reflect the tax
consequences on future years of temporary differences between the tax
basis of assets and liabilities and their financial amounts at year-end.
The Company provides a valuation allowance to reduce deferred tax assets
to their net realizable value.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred. These costs
consist of direct and indirect costs associated with specific projects.
STOCK-BASED COMPENSATION
Stock-based compensation is accounted for using the intrinsic value
method prescribed in Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees", rather than applying the fair
value method prescribed in SFAS No. 123, "Accounting for Stock-Based
Compensation".
LOSS PER SHARE
Loss per share is computed on the basis of the weighted average number of
shares of common stock outstanding during each period. Common equivalent
shares from common stock options and warrants are excluded from the
computation as their effect would dilute the loss per share for all
periods presented.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings per Share". SFAS No. 128, which is effective for
periods ending after December 15, 1997, requires changes in the
computation, presentation, and disclosure of earnings per share. All
prior period earnings per share data must be restated to conform with the
provisions of SFAS No. 128. The Company will adopt SFAS No. 128 during
the year ended June 30, 1998, but does not expect the new accounting
standard to have a material impact on the Company's reported financial
results.
Continued
F-13
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company includes fair value information in the notes to financial
statements when the fair value of its financial instruments is different
from the book value. When the book value approximates fair value, no
additional disclosure is made.
RECENTLY ISSUED PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. It
requires (a) classification of the components of other comprehensive
income by their nature in a financial statement and (b) the display of
the accumulated balance of the other comprehensive income separate from
retained earnings and additional paid-in capital in the equity section of
a statement of financial position. SFAS 130 is effective for years
beginning after December 15, 1997 and is not expected to have a material
impact on financial position or results of operations.
2: PRIOR PERIOD ADJUSTMENTS:
During the period from inception, June 10, 1987, to June 30, 1995, and
during the year ended June 30, 1997, the Company issued common stock to
repay certain notes payable, to compensate key employees and consultants,
to pay interest expense on debt, to pay syndication costs and to settle
various litigation and stockholder disputes. The issuance of such stock
was not afforded consistent accounting treatment but was generally
recorded at par or some other nominal value in the Company's financial
statements. Generally accepted accounting principles require that common
or preferred stock issuances be recorded at the estimated fair value of
the stock issued (or at the fair value of consideration received or
services provided if such value is more readily determinable). Accordingly,
estimated fair values that take into consideration the quoted market price
of the Company's common stock have been used for recognition of common
stock issuances in non-cash transactions in the accompanying financial
statements.
Continued
F-14
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
2. PRIOR PERIOD ADJUSTMENTS, CONTINUED:
During years prior to 1995, the Company incurred and capitalized a
significant amount of expense related to the development and protection
from claims of certain data that now forms the basis for software that
operates and analyzes information produced by the Company's thermal
imaging systems. Generally accepted accounting principles require that
research and development expenses be charged to expense as incurred.
Accordingly, these costs were written off to expense prior to June 30,
1995.
During the year ended June 30, 1995, the Company was involved in
litigation concerning a default under a $500,000 loan agreement. The
litigation was resolved in 1995; however, the $722,080 impact of the
settlement, which essentially covered interest that would have accrued
over the term of the loan agreement, was not recorded until shares of the
Company's common stock were issued to settle the debt in 1996. Generally
accepted accounting principles require that liabilities be recognized as
incurred and, accordingly, the impact of this settlement should have been
recorded in the Company's financial statements prior to 1996.
During years prior to 1996, the Company issued 47,000 shares of $5.00
preferred stock to certain individuals that provided debt financing to
the Company. These shares were recorded at $0.01 per share; however,
generally accepted accounting principles require that preferred shares
(which in this circumstance are convertible to $5.00 of common stock,
based upon the market value of the common shares at the date of
conversion or on a share per share basis, whichever method produces a
more favorable outcome for the preferred stockholder) be recorded at
$5.00 per share as a cost of the related financing. Such financing cost
should then be amortized as interest expense over the term of the related
debt.
During the year ended June 30, 1996, the Company improperly accounted for
its majority owned subsidiary, TMI and its investment in Trisun/CTI Asia,
Ltd. (See Note 5). These entities were accounted for using the cost
method; however, generally accepted accounting principles require that
TMI be consolidated and that Trisun/CTI Asia, Ltd. be accounted for using
the equity method. Accordingly, the impact of using proper methods of
accounting for these entities is reflected in the 1996 financial
statements.
The effect of correcting these errors in application of generally
accepted accounting principles on the Company's financial statements at
June 30, 1996 and 1995 is shown below.
Continued
F-15
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
2. PRIOR PERIOD ADJUSTMENTS, CONTINUED:
<TABLE>
JUNE 30, JUNE 30,
1996 1995
------------ ------------
<S> <C> <C>
Increase (decrease) in total assets $(4,391,077) $(1,483,184)
----------- -----------
----------- -----------
Increase (decrease) in total liabilities $(2,469,002) $ 434,975
----------- -----------
----------- -----------
Increase in common and preferred stock
and additional paid-in capital $ 5,658,673 $ 5,340,674
----------- -----------
----------- -----------
Increase in accumulated deficit $(7,580,748) $(7,258,833)
----------- -----------
----------- -----------
Decrease in net loss for the year ended
June 30, 1996 $ 555,108
-----------
-----------
Increase in net loss per common share
for the year ended June 30, 1996 $ (0.02)
-----------
-----------
</TABLE>
3: PROPERTY AND EQUIPMENT:
Property and equipment at June 30, 1997 and 1996 consists of the
following:
<TABLE>
1997 1996 LIFE
---------- ---------- ----------
<S> <C> <C> <C>
Office furniture, fixtures and
equipment $ 165,112 $ 134,780 5-7 years
---------- ----------
Less accumulated depreciation (49,577) (20,025)
---------- ----------
$ 115,535 $ 114,755
---------- ----------
---------- ----------
</TABLE>
Depreciation expense during the years ended June 30, 1997 and 1996 was
$29,552 and $11,627, respectively.
Continued
F-16
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
4. DEFERRED DEBT ISSUANCE AND STOCK OFFERING COSTS:
During the year ended June 30, 1997, the Company incurred significant
costs in connection with the issuance of convertible debentures and in
connection with a planned registration and offering of its common stock
under the Securities and Exchange Act of 1933. Deferred debt issuance and
stock offering costs at June 30, 1997 consist of the following:
<TABLE>
<S> <C>
Debt issuance costs $ 92,084
Stock offering costs 125,000
----------
$ 217,084
----------
----------
</TABLE>
5. INVESTMENT IN TRISUN/CTI ASIA, LTD.:
Effective May 24, 1995, the Company formed Trisun/CTI Asia, Ltd. (the
"Joint Venture"), a 50%-50% joint venture with Tri Sun Medical China,
Inc., a corporation established under the direction of the Chinese
Ministry of Health. The Joint Venture's primary purpose is to install a
telemedicine network and thermal imaging diagnostic equipment in medical
centers in China. The Joint Venture has obtained deployment contracts
with the Peoples Republic of China, however, the Ministry of Health has
to date been unable to obtain funding for the project. Management
believes that China represents a promising source of future business;
however, the Company does not intend to make capital contributions to the
Joint Venture until funding is obtained by the Chinese Ministry of Health
and development and testing of its thermal imaging diagnostic units are
completed. During the year ended June 30, 1996, the company incurred
expenses of approximately $200,000 related to its involvement in the
Joint Venture and such expenses are reflected as operating, general and
administrative expenses in the statement of operations, because
operations through the Joint Venture have been insignificant.
6. COMMITMENT FOR THERMAL IMAGING SYSTEM DEVELOPMENT:
In June 1996 and October 1996, the Company, through TMI, entered into two
significant contracts (the "Contracts") with TRW, Inc. ("TRW"). Under the
terms of the Contracts, TRW will provide the Company with software
enhancements and ultimately a fully integrated thermal imaging system.
TRW will also develop a plan for deployment of the Company's thermal
imaging systems in major health care markets including systems
installation, training, testing and logistic support. Following is an
analysis of amounts incurred and committed in connection with the
Contracts through June 30, 1997:
Continued
F-17
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
6. COMMITMENT FOR THERMAL IMAGING SYSTEM DEVELOPMENT, CONTINUED:
<TABLE>
<S> <C>
Total commitment $4,700,000
Amount incurred under the contracts
through June 30, 1997 1,490,922
----------
Remaining commitment $3,209,078
----------
----------
</TABLE>
The remaining commitment does not include amounts totaling $673,540 that
are included in accounts payable at June 30, 1997. Subsequent to June 30,
1997, the Company became delinquent on payments under the Contracts;
however, the Company has established a payment plan under which partial
payments are now being made. (See Note 13)
All amounts incurred under the Contracts have been charged to research
and development expense.
7. CONVERTIBLE DEBENTURES:
Convertible debentures at June 30, 1997 consist of the following:
<TABLE>
<S> <C>
Convertible debenture due to an investment company bearing interest at 6%
per year and maturing in August 1999. This debenture is payable in
semi-annual payments of interest only and includes a provision under
which a penalty of 1.5% of the principal is payable monthly until such
time as the Company completes a registration under the Securities and
Exchange Act of 1933 of the shares of common stock to be issued upon
conversion of the debenture. This debenture is convertible to shares of
the Company's common stock at a conversion price per share equal to the
lesser of the average closing bid price of the common stock for the
five consecutive trading days immediately preceding the date of this
debenture or 77% of the average closing bid price of the common stock
for the five consecutive trading days prior to conversion. In
connection with the issuance of this debenture, the Company also issued
the investment company a warrant to purchase 100,000 shares of the
Company's common stock at $2.00 per share.(See Note 10) $ 550,000
Continued
F-18
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
7. CONVERTIBLE DEBENTURES, CONTINUED:
<CAPTION>
<S> <C>
Senior Convertible Debenture due to an investment company bearing
interest at 8% per year and maturing in March 2000. This debenture is
payable in semi-annual payments of interest only and is convertible to
shares of the Company's common stock at a conversion price per share
equal to the lesser of the average closing bid price of the common
stock for the five consecutive trading days immediately preceding the
date of this debenture or 77% of the average closing bid price of the
common stock for the five consecutive trading days prior to conversion.
In connection with the issuance of this debenture, the Company also
issued the investment company a warrant to purchase 50,000 shares of
the Company's common stock at $1.50 per share. (See Note 10) 125,000
----------
Series A Senior Subordinated Convertible Redeemable Debentures bearing
interest at 12% per year based upon the face value of the debt (however
these debentures were issued at a 20% discount to face value and the
effective interest rate to maturity is approximately 40% per year).
These debentures mature in April 1998 and are convertible to shares of
the Company's common stock at a conversion price per share equal to the
lower of 90% of the average closing bid price of the common stock for
the five business days immediately preceding the notice of conversion
or 90% of the closing bid price of the common stock on the business day
immediately preceding the date of subscription by the holder. 479,882
----------
Total convertible debentures 1,154,882
Less current maturities (479,882)
----------
$ 675,000
----------
----------
</TABLE>
Continued
F-19
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
7. CONVERTIBLE DEBENTURES, CONTINUED:
Future annual maturities of convertible debentures at June 30, 1997 are
as follows:
<TABLE>
YEAR ENDED
JUNE 30, AMOUNT
<S> <C>
1998 $ 479,882
1999 -
2000 675,000
----------
$1,154,882
----------
----------
</TABLE>
Subsequent to June 30, 1997, certain of the convertible debentures were
converted to common stock.
8. INCOME TAX:
The composition of deferred tax assets and the related tax effects at
June 30, 1997 and 1996 are as follows:
<TABLE>
1997 1996
----------- -----------
<S> <C> <C>
Benefit from carryforward of net
operating losses $ 1,875,085 $ 1,081,680
Less valuation allowance (1,875,085) (1,081,680)
----------- -----------
Net deferred tax asset $ - $ -
----------- -----------
----------- -----------
</TABLE>
The difference between the income tax benefit in the accompanying
statement of operations and the amount that would result if the U.S.
Federal statutory rate of 34% were applied to pre-tax loss is as follows:
<TABLE>
1997 1996
------------------------ ---------------------------
PERCENTAGE PERCENTAGE
OF PRE-TAX OF PRE-TAX
AMOUNT LOSS AMOUNT LOSS
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Benefit for income tax at
federal statutory rate $1,138,868 34.0% $ 1,119,199 34.0%
Non-deductible expenses (187,869) (5.6) (303,671) (9.2)
Increase in valuation
allowance (950,999) (28.4) (815,528) (24.8)
---------- ----- ----------- ----
Total $ - - % $ - - %
---------- ----- ----------- ----
---------- ----- ----------- ----
</TABLE>
Continued
F-20
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
8. INCOME TAX, CONTINUED:
The non-deductible expenses shown above related primarily to the issuance
of common stock for services using different valuation methods for
financial and tax reporting purposes.
At June 30, 1997, for federal income tax and alternative minimum tax
reporting purposes, the Company has approximately $5,000,000 of unused
net operating losses available for carryforward to future years. The
benefit from carryforward of such net operating losses will expire in
various years between 2002 and 2012 and could be subject to limitations
if significant ownership changes occur in the Company.
9. STOCKHOLDERS' EQUITY:
Following is an analysis of activity in the Company's stockholder equity
accounts during the year ended June, 30, 1997:
<TABLE>
PRICE RANGE SHARES TOTAL
-------------- --------- ----------
<S> <C> <C> <C>
Common stock issued for services based upon
the estimated fair value of the shares at
the date of issue $0.50 to $0.73 687,266 $ 405,498
Common stock issued as compensation to investors
for failure to promptly issue shares in connection
with the a Regulation D offering of common stock and
common stock warrants completed during 1996. These
shares were not valued but were considered an offering
cost of the Regulation D Offering. - 211,900
Common stock issued upon conversion of
debentures $ 0.64 98,768 64,125
Common stock issued for cash $0.50 to $0.60 1,833,152 1,010,209
--------- ----------
Totals for 1997 2,831,086 $1,479,832
--------- ----------
--------- ----------
</TABLE>
Continued
F-21
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
9. STOCKHOLDERS' EQUITY, CONTINUED:
Following is an analysis of activity in the Company's stockholder equity
accounts during the year ended June, 30, 1996:
<TABLE>
PRICE RANGE SHARES TOTAL
-------------- --------- ----------
<S> <C> <C> <C>
Common stock issued for cash in connection
with a Regulation D offering of common stock
and common stock warrants $1.00 1,462,600 $1,462,600
Common stock issued for a note receivable in
connection with a Regulation D offering of
common stock and common stock warrants $1.00 525,000 525,000
Common stock issued for offering costs - 53,650 -
Common stock issued in connection with the
settlement of a note payable to an individual $0.98 734,942 722,080
Common stock issued to settle claims of
stockholders $0.81 to $0.91 578,000 508,280
Preferred stock converted to common stock based
upon a ratio equal to $5.00 over the quoted market
price of the common stock at the date of issue $1.67 to $1.70 14,700 25,000
Common stock issued upon conversion of notes
and in payment of related interest expenses $0.95 to $1.77 146,590 153,207
Common stock issued for cash $0.35 to $1.00 1,163,625 796,470
Common stock issued for services based upon
the estimated fair value of the shares at the
date of issue $0.53 to $1.50 1,277,633 893,152
--------- ----------
Totals for 1996 5,956,740 $5,085,789
--------- ----------
--------- ----------
</TABLE>
Following is an analysis of activity in the Company's stockholders'
equity accounts during the period from inception, June 10, 1987 to June
30, 1995:
Continued
F-22
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
9. STOCKHOLDERS' EQUITY, CONTINUED:
<TABLE>
PRICE RANGE SHARES TOTAL
-------------- ---------- ----------
<S> <C> <C> <C>
Common stock issued for cash to founding
stockholders in 1987 $0.001 5,000,000 $ 5,000
Common stock issued for cash in connection
with a public offering of common stock
in 1988 0.005 5,000,000 19,562
Common stock issued for cash in connection
with a Regulation D offering of common
stock in 1989 3.13 80,000 250,010
Common stock issued for services in 1990 0.51 500,000 255,000
Common stock issued for cash in connection
with a Regulation D offering of common
stock in 1991 0.50 180,000 90,000
Common stock issued for services in 1991 0.50 3,240,000 1,620,000
Common stock issued for services in 1992 0.12 4,860,000 583,200
Common stock issued for services in 1993 0.06 to 0.14 1,134,500 83,860
Common stock issued for extension of debt
agreement in 1993 0.06 to 0.10 9,000 700
Common stock issued in connection with
claims by certain stockholders in 1993 0.06 1,000 60
Common stock issued for cash in 1994 0.04 to 0.12 387,000 26,000
Common stock issued for services in 1994 0.04 to 0.16 1,485,660 150,634
Common stock issued for extension of debt
agreement in 1994 0.04 to 0.10 9,000 600
Common stock issued in connection with
claims by certain stockholders in 1994 0.04 to 0.12 51,000 6,040
Stock issued for cash in 1995 0.35 to 1.00 679,202 408,675
Stock issued for services in 1995 0.18 to 1.03 3,506,461 3,052,706
Common stock issued to convert certain
notes payable in 1995 0.10 to 1.76 702,400 118,643
Common stock issued in conversion of
preferred stock in 1995 1.67 to 1.69 124,600 210,000
---------- ----------
Totals from inception to June 30, 1995 26,949.823 $6,880,690
---------- ----------
---------- ----------
</TABLE>
Continued
F-23
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
10. STOCK WARRANTS AND OPTIONS:
During the year ended June 30, 1996, in connection with a Regulation D
offering under which the Company sold 1,987,600 shares of common stock at
$1.00 per share, the Company granted the participating investors warrants
to acquire an equal number of shares at $5.00 per share for a two-year
period. Additional warrants for 211,900 shares were issued to the
participating investors during 1997 due to a failure by the Company to
promptly issue shares sold in the Regulation D offering. Accordingly,
warrants for a total of 2,199,500 shares at $5.00 per share were issued
in connection with this offering.
The Company has recently made an offer to the investors that participated
in the Regulation D offering under which the number of shares covered by
the original warrants is increased by 50%, the exercise price is lowered
to $2.50 per share and the expiration date is extended to March 31, 1999.
During the year ended June 30, 1997, the Company issued a warrant for
50,000 shares of the Company's common stock at $1.50 per share in
connection with the funding of a $125,000 convertible debenture. (See
Note 7) The Company also issued a warrant for 100,000 shares at $2.00 per
share in connection with the funding of a $550,000 convertible debenture.
Each of the warrants issued with the convertible debentures expires five
years from the date of issuance. (See Note 7)
The Company periodically issues incentive stock options to key employees,
officers, and directors to provide additional incentives to promote the
success of the Company's business and to enhance the ability to attract
and retain the services of qualified persons. The issuance of such
options are approved by the Board of Directors. The exercise price of an
option granted is determined by the fair market value of the stock on the
date of grant.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation",
requires use of option valuation models that were not developed for use
in valuing employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options is greater than or equals
the market price of the underlying stock on the date of grant, no
compensation expense has been recognized.
Continued
F-24
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
10. STOCK WARRANTS AND OPTIONS, CONTINUED:
Proforma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of
that Statement. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for 1997 and 1996: risk-free
interest rate of 6%; no dividend yield; weighted average volatility
factor of the expected market price of the Company's common stock of
0.698; and a weighted-average expected life of the options of 3 years.
The Black-Scholes option valuation model was developed for use in
estimating fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
For purposes of proforma disclosures, the estimated fair value of the
options is included in expense at the date of issuance because the
options may be fully exercised at that date. The Company's proforma
information follows:
<TABLE>
1997 1996
----------- -----------
<S> <C> <C>
Proforma net loss $(3,349,614) $(3,291,762)
Proforma net loss available to
common stockholders $(4,014,614) $(3,291,762)
Proforma basic and dilutive
net loss per common share $ (0.12) $ (0.11)
</TABLE>
A summary of the Company's stock option activity and related information
for the years ended June 30, 1997 and 1996 follows:
Continued
F-25
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
10. STOCK WARRANTS AND OPTIONS, CONTINUED:
<TABLE>
WEIGHTED
NUMBER AVERAGE
OF SHARES EXERCISE PRICE EXERCISE PRICE
--------- -------------- --------------
<S> <C> <C> <C>
Options outstanding at
July 1, 1995 2,000,000 $1.25 $1.25
Options granted 500,000 1.25 $1.25
---------
Options outstanding at
June 30, 1996 2,500,000 $1.25
Options granted 1,750,000 $0.70 - $0.97 $0.77
---------
Options outstanding at
June 30, 1997 4,250,000
---------
--------- $1.06
</TABLE>
Following is a summary of outstanding options at June 30, 1997 (See Note
14):
<TABLE>
NUMBER OF SHARES VESTED EXPIRATION DATE EXERCISE PRICE
---------------- ------ --------------- --------------
<S> <C> <C> <C>
500,000 375,000 October, 2000 $1.25
1,250,000 312,500 August, 2001 0.70
500,000 - April, 2002 0.97
2,000,000 1,000,000 June, 2005 1.25
</TABLE>
11. LEASE COMMITMENTS:
The Company has entered into a lease agreement for office space which is
accounted for as an operating lease. Rent expense for each of the years
ended June 30, 1997 and 1996 was $30,300.
At June 30, 1997, the future minimum payments required under this
noncancelable operating lease are as follows:
<TABLE>
YEAR ENDED
JUNE 30, AMOUNT
---------- ------
<S> <C>
1998 $ 30,300
1999 30,300
2000 5,050
----------
Total $ 65,650
----------
----------
</TABLE>
Continued
F-26
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
12. RELATED PARTY TRANSACTIONS:
Since its inception, the Company has been dependent upon certain
individuals, officers/ stockholders and the related corporations under
their control (collectively referred to as the "Affiliates") to provide
capital, management services, assistance in finding new sources for debt
and equity financing and guidance in the development of the Company's
thermal imaging system. The Affiliates have generally provided services
and incurred expenses on behalf of the Company in exchange for shares of
the Company's common stock. However, in certain instances in years prior
to 1996, one such Affiliate deposited directly to its account, cash
collected on behalf of the Company. Such cash was raised through issuance
of notes payable and common stock of the Company for which a complete
accounting for the proceeds was not made by the Affiliate. In this
circumstance the difference has been charged to compensation expense and
reflected as operating, general and administrative expenses in the
accompanying financial statements. Following is an analysis of
transactions involving the Affiliates during the years ended June 30,
1997 and 1996:
<TABLE>
AFFILIATE 1 AFFILIATE 2
SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1997
Shares of the Company's Common Stock
issued as compensation and repayment
of expenses incurred on behalf of the
Company by the Affiliates at prices
ranging from $0.18 to $0.73 287,266 $ 152,498 400,000 $ 253,000
Investment in the Company 1,960,418 980,209 - -
--------- ---------- --------- ----------
Total - 1997 2,247,684 $1,132,707 400,000 $ 253,000
--------- ---------- --------- ----------
--------- ---------- --------- ----------
YEAR ENDED JUNE 30, 1996
Shares of the Company's Common Stock
issued as compensation and repayment
of expenses incurred on behalf of the
Company by the Affiliates at prices
ranging from $0.53 to $0.70 530,000 $ 474,500 194,383 $ 122,461
Investment in the Company 1,120,000 672,000 - -
--------- ---------- --------- ----------
Total - 1996 1,650,000 $1,146,500 194,383 $ 122,461
--------- ---------- --------- ----------
--------- ---------- --------- ----------
</TABLE>
Continued
F-27
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
12. RELATED PARTY TRANSACTIONS, CONTINUED:
The Company has been involved in certain stockholder disputes concerning
its technology and has generally been successful in settling such
disputes primarily through issuances of common stock. Affiliate 1 has
agreed to indemnify the Company should additional stockholder disputes
regarding the Company's technology arise.
13. LITIGATION AND CONTINGENCIES:
At June 30, 1997, the Company is involved in various matters of
litigation or dispute and other contingencies, as follows:
In April 1997, the Company entered into an agreement (the "Select
Agreement") with a financial services company that committed the
financial services company to initially raise $1,500,000 in capital for
the Company. Under the Select Agreement the financial services company
was also obligated to provide a loan of $2,000,000 to the Company
immediately upon completion of a due diligence period. After completing
the due diligence period, the financial services company began an
alternative interim fund raising effort that generated 530,000 of loans
through the issuance of convertible debentures and certain of the
debentures have been converted to common stock of the Company. Upon
conversion, the debenture holders received restricted common stock
subject to a statutory holding period although such debenture holders
assert that they were told by the financial services company that they
would receive free trading shares. Both the debenture holders and the
financial services company have threatened litigation against the
Company; however, the Company believes that it has no liability for
misrepresentations made by the financial services company and believes
that issuance of free trading shares would be in direct violation of
federal securities laws. Furthermore, the Company contends that it has
been damaged by the financial services company's failure to perform under
the Select Agreement. In March 1998 the Company offered recission to all
holders of debentures purchased under the Select Agreement. Substantially
all debenture holders settled for cash repayment or conversion to
restricted common stock based on a $0.45 per share conversion price.
Continued
F-28
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
13. LITIGATION AND CONTINGENCIES, CONTINUED:
In a second matter, during the year ended June 30, 1994, the Company
issued 1,000,000 shares of its common stock to a former director of the
Company based upon the directors representation that he would arrange
large-scale financing by certain proposed contributors. During the year
ended June 30, 1997, actions were taken to cancel the common stock
because the Company contends that the issuance was conditional upon the
former directors' ability to arrange large-scale financing. However, the
Company was recently contacted by a lender that asserts that he had
relied upon a pledge of 500,000 shares of the Company's common stock by
the former director as collateral for a loan. The 500,000 shares of
common stock issued to the director are included as issued and
outstanding shares in the accompanying financial statements at June 30,
1997, 1996, and 1995.
The Company is also involved in discussions with two of its primary
vendors regarding past due accounts. The first vendor is TRW, an Ohio
corporation performing contract software development, and strategic
planning and management services regarding the testing, development and
deployment of the Company's thermal imaging systems. The Company has
become delinquent in the payment of costs and fees under contracts with
TRW (See Note 6) and, accordingly, TRW, although not having filed formal
legal actions, has threatened the Company that it will be withholding
delivery of source codes of developed software until past due amounts are
paid. If TRW follows through with its threats and withholds delivery of
the source codes, the Company's operations will be shut down.
The Company has also accrued a payable to its primary legal counsel (the
"Attorneys") for legal services and at June 30, 1997 owed the Attorneys
$198,717. In order to provide security for the amounts owed, the Company
has executed pledge agreements granting the Attorneys a security interest
in the Company's common stock and in the common stock of TMI and in the
intellectual property of both the Company and TMI. The Company has made
partial payment on amounts due the Attorneys; however, if the Company
does not continue to make payments as agreed, the Attorneys could
foreclose on their security interests.
Continued
F-29
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
13. LITIGATION AND CONTINGENCIES, CONTINUED:
As a Nevada Corporation organized prior to October 1, 1991, the Company's
stockholders have generally had preemptive rights to acquire the
Company's common stock when such securities were offered for sale.
However, in various offerings of the Company's securities, the Company
failed to properly offer their existing stockholders the preemptive
rights to which they were entitled. Should any stockholder assert
preemptive rights for past offerings, the Company plans to make available
the shares of stock and at the price to which the stockholder was
originally entitled. Management is not aware of any stockholder who
intends to make any claim with respect to the failure by the Company to
offer preemptive rights. However, there can be no assurance that
litigation asserting such claims will not be initiated, or that the
Company would prevail in any such litigation. Subsequent to year end a
majority of the stockholders, by written consent, amended the Articles of
Incorporation of the Company to deny preemptive rights from and after
that date with respect to the issuance of shares of the common stock. The
amendment to the Articles of Incorporation with have no effect with
respect to preemptive rights which may have existed prior to such
amendment.
The Company is also involved various other legal disputes arising in the
normal course of business that, in the opinion of management, should not
result in significant liability, if any.
14. SUBSEQUENT EVENTS:
In February 1998, the Company adopted the 1997 Stock Option and
Restricted Stock Plan (the "Plan") that provides for the grant by the
Company to employees of up to 5,125,000 options for shares of the
Company's common stock or actual shares of restricted common stock. The
Plan will continue in effect for a term of ten years unless sooner
terminated pursuant to its terms. To date, no restricted stock or stock
options have been issued under the Plan.
In November 1997, the Company executed a consulting agreement with a
financial services firm (the "Consultant") under which the Company
compensated the Consultant for past services through issuance of 100,000
shares of common stock and by the granting of three year options to
acquire an additional 2,000,000 shares of the Company's common stock at
$0.60 per share (based upon the market value of the Company's common
stock at the date of issuance). In a related transaction, the Company
agreed to issue the Consultant up to 500,000 shares of common stock at
$0.30 per share in consideration for capital contributions of up to
$150,000. The difference in the value of the Company's common stock at
the date of the agreement and the price at which the shares will
ultimately be issued resulted in the Company recognizing compensation
expense of approximately $150,000.
Continued
F-30
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
14. SUBSEQUENT EVENTS, CONTINUED:
In November 1997, the Company also issued stock options for a total of
275,000 shares of common stock to an individual who performed services
for the Company. The stock options bear a four year term and were issued
with an exercise price of $0.75 per share, based upon the estimated fair
market value of the Company's common stock at the date of issue. The
Company recognized compensation expense of approximately $50,000 in
connection with the issuance of these stock options.
In January 1998, the Company entered into an investment agreement (the
"Investment Agreement") with a private investment firm under which the
investment firm will purchase up to $7,000,000 of the Company's common
stock under complex terms described in the Investment Agreement, but
generally equal to 74% of the lowest sales price during a twenty-day
trading period near the time of the investment. The resulting 26%
discount on the sale of the Company's common stock will be accreted at
the date of issue and will result in a charge against income for purposes
of calculating earnings per share. Prior to the private investment firm
being obligated to acquire any of the Company's common stock, the Company
must meet numerous organizational, financial and reporting criteria
including the effective registration of its common stock and the
unrestrained trading of its shares on a major U.S. stock exchange.
15. GOING CONCERN CONSIDERATIONS:
Since its inception, as a development stage enterprise, the Company has
generated insignificant revenue and has been dependent on debt and equity
raised from individual investors to sustain its operations. The Company
has been successful in conserving cash by issuing its common and
preferred stock to satisfy obligations, to compensate individuals and
vendors and to settle disputes that have arisen. However, during the
years ended June 30, 1997 and 1996, the Company incurred net losses of
$2,112,843 and $2,878,250, respectively, and negative cash flows from
operations of $512,860 and $1,372,727, respectively. These factors along
with a $1,475,392 negative working capital position at June 30, 1997 and
delinquencies in payments to major vendors (See Notes 6 and 13) raise
substantial doubt about the Company's ability to continue as a going
concern.
Continued
F-31
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
15. GOING CONCERN CONSIDERATIONS, CONTINUED:
Management plans to take specific steps to address its difficult financial
situation as follows:
- In the near term the Company plans additional private placements of
debt and common stock to fund its current operations.
- In the intermediate term, the Company plans a public offering of its
common stock under the Securities and Exchange Act of 1933 to provide
the funds necessary to bring its thermal imaging system to the
commercial market.
- In the long-term, the Company believes that cash flows from
commercialization of its thermal imaging systems will provide the
resources for continued operations.
There can be no assurance that the Company's planned private placements
of debt and equity securities or its planned public offering of common
stock will be successful or that the Company will have the ability to
commercialize its thermal imaging systems and ultimately attain
profitability. The Company's long-term viability as a going concern is
dependent upon three key factors, as follows:
- The Company's ability to obtain adequate sources of debt or equity
funding to meet current commitments and fund the commercialization of
its thermal imaging system.
- The ability of the Company to obtain positive test results of its
thermal imaging system in clinical trials currently in progress.
- The ability of the Company to ultimately achieve adequate
profitability and cash flows to sustain its operations.
Continued
F-32
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
16. NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the years ended June 30, 1997 and 1996, the Company engaged in
certain non-cash investing and financing activities as follows:
<TABLE>
1997 1996
-------- --------
<S> <C> <C>
Common stock issued in settlement of
notes payable $142,900
--------
--------
Common stock issued upon conversion
of debentures $ 62,020
--------
--------
</TABLE>
F-33
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC.
----------
CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
F-34
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONSOLIDATED INTERIM BALANCE SHEET
MARCH 31, 1998 AND 1997
----------
(UNAUDITED)
<TABLE>
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash $ 496,172 $ 195,386
Deposits 2,204 -
------------ ------------
Total current assets 498,376 195,386
Property and equipment, net 157,624 105,791
Stock offering and debt issuance
costs, net 215,788 221,499
------------ ------------
Total assets $ 871,788 $ 522,676
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,213,595 $ 444,566
Advances from affiliates 572,122 152,672
Accrued liabilities 212,994 98,920
Current maturities of convertible
debentures 455,000 -
------------ ------------
Total current liabilities 2,453,711 696,158
Convertible debentures, net of current
maturities 62,500 675,000
------------ ------------
Total liabilities 2,516,211 1,371,158
------------ ------------
------------ ------------
Commitments and contingencies
Stockholders' equity (deficit):
Convertible preferred stock, $5.00 par
value, 100,000 shares authorized - -
Common stock, $.001 par value; 100,000,000
shares authorized, 47,630,848 and
35,737,649 shares issued and outstanding
on March 31, 1998 and 1997, respectively 47,631 35,738
Additional paid-in capital 18,057,030 13,410,573
Subscription receivable (525,000) (525,000)
Losses accumulated during the development
stage (19,224,084) (13,769,793)
------------ ------------
Total stockholders' deficit (1,644,423) (848,482)
------------ ------------
Total liabilities and stockholders'
deficit $ 871,788 $ 522,676
------------ ------------
------------ ------------
</TABLE>
The accompanying selected notes are an
integral part of these interim financial statements.
F-35
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONSOLIDATED INTERIM STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND
1997, AND THE PERIOD FROM INCEPTION, JUNE 10,
1987, THROUGH MARCH 31, 1998
----------
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED INCEPTION TO
MARCH 31, MARCH 31, MARCH 31,
1998 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Interest income $ 2,688 $ 3,448 $ 19,264
Income from sale of prototype - 55,815 180,815
----------- ----------- ------------
Total income 2,688 59,263 200,079
----------- ----------- ------------
Operating, general and admin-
istrative expenses 2,944,594 963,800 13,444,652
Research and development costs 1,348,946 1,422,338 4,113,972
Interest expense 194,148 53,447 1,351,159
Litigation settlement - - 514,380
----------- ----------- ------------
Total expenses 4,487,688 2,439,585 19,424,163
----------- ----------- ------------
Net loss $(4,485,000) $(2,380,322) $(19,224,084)
----------- ----------- ------------
----------- ----------- ------------
Weighted average shares
outstanding 41,472,274 33,803,045
----------- -----------
----------- -----------
Loss per common share $ (0.11) $ (0.07)
----------- -----------
----------- -----------
</TABLE>
The accompanying selected notes are an integral
part of these interim financial statements
F-36
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONSOLIDATED CONDENSED INTERIM STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND
1997, AND THE PERIOD FROM INCEPTION, JUNE 10,
1987, THROUGH MARCH 31, 1998
----------
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED INCEPTION TO
MARCH 31, MARCH 31, MARCH 31,
1998 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(4,485,000) $(2,380,322) $(19,224,084)
Adjustments to reconcile net loss
to net cash used in operating
activities: 1,616,506 758,032 10,735,058
----------- ----------- ------------
Net cash used in operating
activities (2,868,494) (1,622,290) (8,489,026)
----------- ----------- ------------
Cash flows from investing activities:
Purchase of equipment and computers (65,656) - (231,012)
Proceeds from sale of equipment - 244 244
----------- ----------- ------------
Net cash provided by (used in)
investing activities (65,656) 244 (230,768)
----------- ----------- ------------
Cash flows from financing activities:
Net proceeds from sale of common
stock issued for cash 2,755,137 1,277,122 6,823,663
Payment of stock offering costs (90,789) (125,000) (215,789)
Advances from affiliates 572,122 - 572,122
Proceeds from notes payable and
convertible debentures - 675,000 2,510,869
Payment of debt issuance costs - (123,600) (133,600)
Repayment of notes payable - (50,018) (341,299)
----------- ----------- ------------
Net cash provided by financing
activities 3,236,470 1,653,504 9,215,966
----------- ----------- ------------
Net increase in cash 302,320 31,458 496,172
Cash and cash equivalents, beginning
of period 193,852 163,928 -
----------- ----------- ---------
Cash and cash equivalents, end of
period $ 496,172 $ 195,386 $ 496,172
----------- ----------- ------------
----------- ----------- ------------
Supplemental additional cash flow information:
Cash paid for interest $ 63,615 $ - $ 68,908
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
The accompanying selected notes are an
integral part of these interim financial statements.
F-37
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONSOLIDATED CONDENSED INTERIM STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED MARCH 31, 1998
----------
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------- PAID-IN
STOCK AMOUNT CAPITAL
---------- -------- -----------
<S> <C> <C> <C>
Balance at July 1, 1997 35,737,649 $ 35,738 $13,410,573
Common stock issued for cash 2,914,875 2,915 554,722
Common stock issued to individuals
and corporations for compen-
sation and payment of services 890,752 891 382,329
Common stock issued to affiliates
for advances and payment of
expenses of the Company 6,382,713 6,383 2,191,117
Conversion of debentures and
accrued interest to common
stock 1,621,526 1,621 639,039
Common stock issued to a corpor-
ation as a retainer for future
fund raising 83,333 83 29,083
Issuance of stock options for com-
pensation for services - - 850,167
Net loss accumulated during the six
months ended December 31, 1997 - - -
---------- -------- -----------
Balance at December 31, 1997 47,630,848 $ 47,631 $18,057,030
---------- -------- -----------
---------- -------- -----------
<CAPTION>
LOSSES
ACCUMULATED
DURING THE
SUBSCRIPTION DEVELOPMENT
RECEIVABLE STAGE TOTAL
------------ ------------ -----------
<S> <C> <C> <C>
Balance at July 1, 1997 $ (525,000) $(14,739,084) $(1,817,773)
Common stock issued for cash - - 557,637
Common stock issued to individuals
and corporations for compen-
sation and payment of services - - 383,220
Common stock issued to affiliates
for advances and payment of
expenses of the Company - - 2,197,500
Conversion of debentures and
accrued interest to common
stock - - 640,660
Common stock issued to a corpor-
ation as a retainer for future
fund raising - - 29,166
Issuance of stock options for com-
pensation for services - - 850,167
Net loss accumulated during the six
months ended December 31, 1997 - (4,485,000) (4,485,000)
---------- ------------ -----------
Balance at December 31, 1997 $ (525,000) $(19,224,084) $(1,644,423)
---------- ------------ -----------
---------- ------------ -----------
</TABLE>
The accompanying selected notes are an
integral part of these interim financial statements.
F-38
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
----------
1. INTERIM FINANCIAL STATEMENTS:
The unaudited consolidated condensed interim financial statements have
been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC). Certain information and note disclosures
normally included in annual financial statements prepared in accordance
with generally accepted accounting principles have been omitted
pursuant to those rules and regulations, although the Company believes
that the disclosures made are adequate to make the information
presented not misleading. In the opinion of management, all adjustments
necessary for a fair presentation of results of operations have been
made to the interim financial statements. Results of operations for the
six-month periods ended December 31, 1997 and 1996 are not necessarily
indicative of results of operations for the respective full years.
A summary of the Company's significant accounting policies and other
information necessary to understand these consolidated condensed
interim financial statements is presented in the Company's audited
financial statements for the years ended June 30, 1997 and 1996.
Accordingly, the Company's audited financial statements should be read
in connection with these financial statements.
2. INCOME TAXES:
The difference between the 34% federal statutory income tax rate shown
in the accompanying interim financial statements is primarily
attributable to an increase in the valuation allowance applied against
the tax benefit from utilization of net operating loss carryforwards.
3. STOCKHOLDERS' EQUITY:
In November 1997, the Company executed a consulting agreement with a
financial services firm (the "Consultant") under which the Company
compensated the Consultant for past services through issuance of
100,000 shares of common stock and by the granting of three year
options to acquire an additional 2,000,000 shares of the Company's
common stock at $0.60 per share (based upon the market value of the
Company's common stock at the date of issuance). In a related
transaction, the Company agreed to issue the Consultant up to 500,000
shares of common stock at $0.30 per share in consideration for capital
contributions of up to $150,000. The difference in the value of the
Company's common stock at the date of the agreement and the price at
which the shares will ultimately be issued resulted in the Company
recognizing compensation expense of approximately $150,000.
Continued
F-39
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS,
CONTINUED
----------
3. STOCKHOLDERS' EQUITY, CONTINUED:
In November 1997, the Company also issued stock options for a total of
275,000 shares of common stock to an individual who performed services
for the Company. The stock options bear a four year term and were
issued with an exercise price of $0.75 per share, based upon the
estimated fair market value of the Company's common stock at the date
of issue. The Company recognized compensation expense of approximately
$50,000 in connection with the issuance of these stock options.
4. SUBSEQUENT EVENTS:
INVESTMENT AGREEMENT
On January 20, 1998, the Company entered into an Investment Agreement
(the "Investment Agreement") with Bristol Asset Management, L.L.C.
("Bristol"), regarding the periodic purchase of shares of the Common
Stock. Under the provisions of the Investment Agreement, the Company
will issue and sell to Bristol, and Bristol shall be obligated to
purchase from the Company, up to $7,000,000 of the Common Stock during
the term of the Investment Agreement.
The determination of the timing and amount of the Common Stock to be
sold shall be made by the Company, in its sole discretion, to the
extent not limited by the terms of the Investment Agreement. The
Company is permitted to deliver written notices to Bristol (the "Put
Notice") stating a dollar amount of the common stock which the Company
intends to sell to Bristol five business days following the date on
which the Put Notice is given to Bristol. However, the Company nay not
deliver a Put Notice under certain circumstances as provided in the
Investment Agreement. The maximum amount to be purchased under a Put
Notice may not exceed the lesser of $7,000,000 (less all amounts
previously paid by Bristol) and the product of the number of shares of
the Common Stock of the Company traded on the principal exchange on
which the Company's common stock traded for the preceding calendar
month, multiplied by the average of the closing bid prices for the
Company's common stock during the prior calendar month, multiplied by
14 percent.
Continued
F-40
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS,
CONTINUED
----------
4. SUBSEQUENT EVENTS, CONTINUED:
INVESTMENT AGREEMENT, CONTINUED
Unless otherwise provided, Bristol shall be required to contribute the
amount of funds specified in the Put Notice. Simultaneously with the
receipt of the funds from Bristol in the amount specified in the Put
Notice, the Company shall issue and sell to Bristol the number of
shares of the Common stock equal to the draw down divided by 74 percent
of the lowest sales price for the Common stock on the principal
exchange (the "Lowest Sale Price") during the 10 trading days prior to
the Put Notice Date (the "Look Back Period"). In the event that the
Lowest Sale Price during the 20 trading days after a particular closing
is less than 95 percent of the Lowest Sale Price applicable to such
closing, then the Company shall promptly issue to Bristol an additional
number of shares of the common stock with respect to such closing such
that the number of shares of the common stock issued to Bristol at such
closing divided by 74 percent of the Lowest Sale Price during such 20
trading day period. Bristol shall also be issued additional warrants
equal to 12 percent of the number of additional shares so issued and
the exercise price of such additional warrants and the warrants issued
at such closing shall be adjusted to 100 percent of the Lowest Sale
Price during such 20 trading day period.
Generally, at each closing, the Company will deliver to Bristol
warrants to purchase shares of the Company's common stock (the "Warrant
Shares"). The warrants shall expire on the fifth anniversary of the
date of issuance. Generally, the warrants shall entitle the holder
thereof to purchase a number of Warrant Shares equal to 12 percent of
the number of shares of the common stock purchased at the closing in
question at an initial exercise price equal to 100 percent of the
average closing sales price for the common stock on the principal
exchange during the Look Back Period in question.
Continued
F-41
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS,
CONTINUED
----------
4. SUBSEQUENT EVENTS, CONTINUED:
INVESTMENT AGREEMENT, CONTINUED
The Company agrees that all shares of the common stock issued to
Bristol pursuant to the Investment Agreement shall, at the time of such
issuance and for so long thereafter as is required by the Investment
Agreement, be subject to an effective registration statement on Form
S-1 or an equivalent thereof, covering both the issuance of such shares
by the Company to Bristol thereunder and the resale or other
disposition thereof by Bristol at any time and fro time to time after
each such issuance, and with respect to the Warrant Shares, covering
both the issuance of the Warrant Shares and the resale or other
disposition by the holders thereof at any time and from time to time
after each such issuance.
As conditions precedent to the obligation of Bristol to purchase any
shares of the common stock, the Company must meet numerous
organizational, financial, and reporting criteria, including the
ability to engage in the contemplated transactions, unrestrained
trading of the common stock on the principal exchange, effectiveness of
the Company's registration statement, certification of corporate
authority to engage in the contemplated transactions, and the
elimination of preemptive rights for the stockholders.
In addition to conditions precedent which must be satisfied prior to
Bristol's obligation to purchase the common stock under the Investment
Agreement, the total amount of the common stock which the Company can
require Bristol to purchase may be limited to a percentage of the total
shares of the common stock outstanding. Under the Investment Agreement,
Bristol may refuse to purchase the common stock, as requested in a
properly delivered Put Notice, if the purchase of the common stock
would result in Bristol beneficially owning more than 4.9 percent of
the common stock outstanding, determined in accordance with Section
13(d) of the Exchange Act and including shares of the common stock
acquired pursuant to the Investment Agreement or through unrelated
transactions. As a result, it is possible that Bristol's total
investment under the Investment Agreement could be limited to an
aggregate dollar amount well below $7,000,000.
Continued
F-42
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS,
CONTINUED
----------
4. SUBSEQUENT EVENTS, CONTINUED:
INVESTMENT AGREEMENT, CONTINUED:
The Investment Agreement may be terminated at any time only with the
mutual consent of the Company and Bristol. The Investment Agreement
shall automatically terminate without any further action of either
party when Bristol has invested an aggregate of $7,000,000 in common
stock pursuant to the Investment Agreement. The resulting 26% discount
on sale of the common stock will be accreted at the date of issue and
result in a reduction of income for purposes of the calculation of
earnings per share. The value assigned to the Warrant Shares will also
be accreted as a reduction of income for purposes of the calculation of
earnings per share.
SALES AND OTHER ISSUANCES OF COMMON STOCK
In January 1998, the Company issued 100,000 shares of the common stock
to a related entity in consideration for services rendered under a
consulting agreement. The total estimated value of the stock at the
date of issuance was approximately $30,000.
In January 1998, the Company issued an aggregate of 3,482,786 of the
common stock to a related entity in consideration for cash
contributions of approximately $975,130.
In January 1998, the Company issued 112,752 shares of common stock in
payment for legal services rendered and value at approximately $64,220.
During January and February 1998, the Company issued an aggregate of
603,489 shares of the common stock in connection with the conversion of
$200,000 of the Company's 6% convertible debentures and payment of
penalties due for non-registration.
In March 1998, the Company issued 600,000 shares of the Common Stock to
an individual in consideration for cash contributions of approximately
$140,000.
In March 1998, the Company issued 2,246,275 shares to the Consultant in
consideration for cash contributions of approximately $539,106.
In April 1998, the Company issued an aggregate of 216,598 shares of
common stock to Cameron Capital, Ltd. in connection with the conversion
of $62,500 of convertible debentures and payment of penalties due for
non-registration.
Continued
F-43
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS,
CONTINUED
----------
5. NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the nine months ended March 31, 1998 and 1997, the Company
engaged in certain non-cash investing and financing activities as
follows:
<TABLE>
NINE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1998 1997
----------- ----------
<S> <C> <C>
Non-Cash Financing and Investing
Activities:
Exchange of Common Stock as a
retainer for fund raising $ 29,168 $ -
-------- --------
-------- --------
Common Stock (1,621,526 shares)
issued for conversion of
debentures and accrued interest $640,660 $ 64,026
-------- --------
-------- --------
</TABLE>
F-44
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation do not specifically address
indemnification of directors and officers, except to make a general reference
that the directors "may exercise all rights, powers, and privileges . . .
conferred upon similar corporations organized under and by virtue of the laws of
the State of Nevada." Sections 78.751 and 78.752 of the Nevada Revised Statutes
permit a corporation to indemnify, among others, any officer or director against
certain liabilities under specified circumstances, and to purchase and maintain
insurance on behalf of its officers and directors.
Consistent with the overall scope of Section 78.751 of the Nevada Revised
Statutes, Article VI of the Company's Bylaws, included in Exhibit 3.2 hereto and
incorporated herein by reference, provides, in general, that any director or
officer of the Company who is the subject of or a participant in a threatened,
pending or completed legal action by reason of the fact that such individual is
or was a director or officer shall be indemnified and held harmless by the
Company from and against the consequences of such action if it is determined
that he acted in good faith and reasonably believed (i) his conduct was in the
Company's best interest, (ii) in all other cases, that his conduct was not
opposed to the best interests of the Company, and (iii) with respect to criminal
proceedings, that he had no reasonable cause to believe his conduct was
unlawful; provided that if it is determined that such person is liable to the
Company or is found liable on the basis that personal benefit was improperly
received by such person, the indemnification is limited to reasonable expenses
actually incurred by such person in connection with the legal action and shall
not be made in respect of any legal action in which such person shall have been
found liable for willful or intentional misconduct in the performance of his
duty to the Company. Any indemnification (unless ordered by a court of
competent jurisdiction) shall be made by the Company only upon a determination
that indemnification of such person is proper in the circumstances by virtue of
the fact that it shall have been determined that such person has met the
applicable standard of conduct.
The Bylaws also provide that reasonable expenses, including court costs and
attorneys' fees, incurred by officers and directors in connection with a covered
legal action shall be paid by the Company at reasonable intervals in advance of
the final disposition of such action, upon receipt by the Company of a written
affirmation by such person of his good faith belief that he has met the standard
of conduct necessary for indemnification, and a written undertaking by or on
behalf of such person to repay the amount paid or reimbursed by the Company if
it is ultimately determined that he is not entitled to be indemnified.
The Board of Directors of the Company may also authorize the Company to
indemnify employees or agents of the Company, and to advance the reasonable
expenses of such persons, to the same extent, following the same determinations
and upon the same conditions as are required for the indemnification of and
advancement of expenses to directors and officers of the Company. As of the
date of this Registration Statement, the Board of Directors has not extended
indemnification rights to persons other than directors and officers.
The Bylaws also provide that the Company has the power and authority to
purchase and maintain insurance or another arrangements on behalf of any
director, officer, employee, or agent of the Company or any affiliate of the
Company on similar terms as those described in Section 78.752 of the Nevada
Revised Statutes. The Company's Articles of Incorporation relieve its directors
from liability for monetary damages to the full extent permitted by Nevada law.
Sections 78.751 and 78.752 of the General Corporation Law of the State of Nevada
authorize a corporation to indemnify, among others, any officer or director
against certain liabilities under specified circumstances, and to purchase and
maintain insurance on behalf of its officers and directors.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the securities being registered. The
expenses shall be paid by the Registrant. No expenses will be paid by the
security holders.
<TABLE>
<S> <C>
SEC Registration Fee. . . . . . . . . . . . . $
Printing and Engraving Expenses . . . . . . .
Legal Fees and Expenses . . . . . . . . . . .
Accounting Fees and Expenses. . . . . . . . .
Blue Sky Fees and Expenses. . . . . . . . . .
Transfer Agent Fees . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . 0000
----
Total . . . . . . . . . . . . . . . . . . . $0000
----
----
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is certain information regarding securities that the
Company has sold in the past three years to directors ("D"), officers ("O"),
employees ("E"), consultants ("C"), institutional investors ("I"), affiliates
("A"), and non-affiliates ("N").
In August 1995, the Company issued 1,600,000 shares of the Common Stock to
Thermal Imaging, Inc. (A) in consideration for a cash contribution of
approximately $672,000 and as compensation to David B. Johnston (D, O) with an
estimated value of $448,000.
In August 1995, the Company issued 14,700 shares of the Common Stock to
John Weidner (N) in connection with the conversion of 5,000 shares of the
Preferred Stock. The Preferred Stock had a value of $5.00 per share and was
converted to the Common Stock at a price of $1.00 per share. The shares of the
Common Stock issued by the Company in exchange for the securities surrendered
were exempt from registration pursuant to Section3(a)(9) of the Securities Act.
In September 1995, the Company issued an aggregate of 295,000 shares of the
Common Stock to The Elmo Group (N), Steve G. Ushijima (N), Douglas J. Emery (N),
Harold Werth, Jr. (N), Jennifer Forbes (N), Lori Forbes (N), Merrill Fowler (N),
and Gary Scrutton (N) in consideration for an aggregate cash contribution to the
Company of approximately $192,070.
In September 1995, the Company issued 10,000 shares of the Common Stock to
Dave Braman (N), a stockholder of Dorex, Inc., in settlement of threatened
litigation arising out of the Company's acquisition of certain research
contracts with the State University of New York - Buffalo and certain thermal
imaging technologies. The estimated value of the settlement equaled
approximately $8,400.
In September 1995, the Company issued 6,000 shares of the Common Stock to
Richard Haddad (C) as a finder's fee for bringing in certain equipment financing
investors. The Company valued the services rendered at $5,055.
In September 1995, the Company issued 1,000 shares of the Common Stock to
Philip Heyde (N) as an interest payment of approximately $840 on a corporate
note.
In September 1995, the Company issued an aggregate of 21,000 shares of the
Common Stock to Jack Gately (N), Christopher John Gately (N), and Ursula Gately
(N) in connection with the conversion of 7,000 shares of the Preferred Stock
held by Jack Gately. The Preferred Stock was valued at $5.00 per share and was
converted into the Common Stock at a price of $1.68 per share. The shares of
the Common Stock issued by the Company in exchange for the securities
surrendered were exempt from registration pursuant to Section3(a)(9) of the
Securities Act.
II-2
<PAGE>
In September 1995, the Company issued 20,000 shares of the Common Stock to
Benjamin Anderson (N) in consideration for a cash contribution of approximately
$20,000.
In October 1995, the Company issued an aggregate of 140,000 shares of the
Common Stock to William Carpenter (N), Donald B. Gartland (N), and Bob Ihle (N),
all stockholders in Dorex, Inc., in consideration for the settlement of
threatened litigation against the Company arising out of the Company's
acquisition of certain research contracts with the State University of New York
- - Buffalo and thermal imaging technologies. The estimated value of the
settlement equaled approximately $113,400.
In October 1995, the Company issued 6,500 shares of the Common Stock to
Jack Gately (N) in connection with the conversion of the outstanding principal
and interest of $3,870 due under a corporate note. An outstanding amount of
$10,803 was converted at a price of $1.68 per share.
In December 1995, the Company issued 20,000 shares of the Common Stock to
Keith Bessinger (C) for legal services rendered to the Company with an
approximate value of $10,600.
In December 1995, the Company issued 50,000 shares of the Common Stock to
Thermal Imaging, Inc. (A) as compensation due to David B. Johnston (O, D) for
services rendered to the Company. The value of the services rendered equaled
approximately $26,500.
In December 1995, the Company issued 10,000 shares of the Common Stock to
Douglas J. Emery (N) in consideration for a cash contribution of approximately
$5,300.
In December 1995, the Company issued 10,000 shares of the Common Stock to
Willard Harpster (C) in consideration for customer relations services rendered.
The Company has valued the services at approximately $9,500.
In December 1995, the Company issued 60,000 shares of the Common Stock to
Mark Lewis (N) in connection with the settlement of a threatened lawsuit against
the Company arising out of a transaction relating to the lease of certain
thermal imaging equipment and the donation of such equipment to the State
University of New York - Buffalo.
From November 1995 through February 1996, the Company issued an aggregate
of 2,000,000 shares of the Common Stock and 2,000,000 warrants, entitling
holders to purchase one share of the Common Stock at an exercise price of $5.00
per share, to various subscribers in conjunction with the Private Placement
Memorandum dated November 13, 1995 for an aggregate amount of approximately
$2,000,000.
In February 1996, in conjunction with the Private Placement Memorandum
dated November 13, 1995, the Company also issued an aggregate of 52,500 shares
of the Common Stock and 31,500 warrants at an exercise price of $5.00 per share
to various underwriters who provided services to the Company in connection
therewith. The shares of the Common Stock and warrants issued were valued at
approximately $49,500.
In February 1996, the Company issued 50,000 shares of the Common Stock to
Lewis Woodworth (N) in consideration for the settlement of a threatened lawsuit
arising out of the Company's acquisition of a certain research contracts with
the State University of New York - Buffalo and thermal imaging technologies.
The Common Stock issued was valued at approximately $42,500.
In March 1996, the Company issued 30,000 shares of the Common Stock to M&S
Acquisition (C) in consideration for valuation and financial consultant services
rendered to the Company and valued at approximately $45,000. These shares were
offered and sold pursuant to a written contract between the Company and M&S
Acquisition for compensation. As such, the Company believes that the
transaction is exempt from registration pursuant to Rule 701 of the Securities
Act.
In April 1996, the Company issued 494,383 shares of the Common Stock to
PDH, Ltd.(A, C), in consideration for administrative and stockholder relations
services rendered to the Company and valued at $214,160.
II-3
<PAGE>
In April 1996, the Company issued 112,250 shares of the Common Stock to
Thermal Imaging, Inc. (A) in connection with the Assumption of Liability
Agreement wherein Thermal Imaging agreed to assume responsibility for and
indemnify the Company from all claims asserted or to be asserted by Dorex, Inc.
stockholders in connection with the Company's acquisition of certain research
contracts with the State University of New York - Buffalo and thermal imaging
technologies. The stock issued to Thermal Imaging, Inc. was valued at
approximately $67,350.
In April 1996, the Company issued 4,000 shares of the Common Stock to Eric
Wagner (N) in connection with the conversion of principal and interest due under
a corporate note. An outstanding amount of approximately $7,000 was converted
at a price of $1.75 per share. The shares of the Common Stock issued by the
Company in exchange for the securities surrendered were exempt from registration
pursuant to Section3(a)(9) of the Securities Act.
In June 1996, the Company issued 5,000 shares of the Common Stock to M&S
Acquisition (C) as reimbursement for expenses totaling $7,500 incurred in the
performance of services.
In August 1996, the Company issued its 6% Convertible Debenture due August
15, 1999 in the principal amount of $550,000 (the "6% Convertible Debenture") to
Cameron Capital, Ltd. (N). The 6% Convertible Debenture is convertible into
shares of the Common Stock at a price per share equal to the lesser of the
average closing bid price of the Common Stock for the five consecutive trading
days immediately preceding the date of the 6% Convertible Debenture, or 77
percent of the average closing bid price of the Common Stock for the five
consecutive trading days prior to conversion. In connection with the issuance
of the 6% Convertible Debenture, the Company also issued to the holder a warrant
to purchase 100,000 shares of the Common Stock at $2.00 per share.
In September 1996, the Company issued an additional 203,150 warrants to
investors in the Private Placement Memorandum dated November 13, 1995, as a
penalty due as a result of the failure of the Company to timely file a
registration statement covering the shares of the Common Stock in the Offering.
In November 1996, the Company issued 100,000 shares of the Common Stock to
PDH, Ltd. (A, C) in consideration for services rendered and as reimbursement for
expenses incurred from March 1, 1996 through November 15, 1996. The estimated
value of the stock issued equaled $73,000.
In January 1997, the Company issued 250,000 shares of the Common Stock to
Thermal Imaging, Inc. (A), in consideration for a cash contribution of
approximately $70,000.
In January 1997, the Company issued 50,000 shares of the Common Stock to
Jack Gately (N) in connection with the settlement of obligations with Fred
Redolfy. The estimated value of the Common Stock issued equaled $30,000.
In February 1997, the Company issued 750,000 shares of the Common Stock to
Thermal Imaging, Inc. (A) in consideration for a cash contribution of
approximately $427,500.
In February 1997, the Company issued 87,816 shares of the Common Stock to
Thermal Imaging, Inc. (A) in consideration for a cash contribution of
approximately $50,055.
In March 1997, the Company issued an aggregate of 982,602 shares of the
Common Stock to Thermal Imaging, Inc. (A) in consideration for cash
contributions in the aggregate amount of $530,137.12.
In March 1997, the Company issued its 8% Convertible Debenture due March
13, 2000 in the principal amount of $125,000 (the "8% Convertible Debenture") to
Cameron Capital, Ltd. (N). The 8% Convertible Debenture is convertible into
shares of the Common Stock upon the effective date of this Registration
Statement at a price per share equal to the lesser of the average closing bid
price of the Common Stock for the five consecutive trading days immediately
preceding the date of the 8% Convertible Debenture, or 77 percent of the average
closing bid price of the Common Stock for the five consecutive trading days
prior to conversion. In connection with the issuance of the 8% Convertible
Debenture, the Company also issued to the holder a warrant to purchase 50,000
shares of the Common Stock at $1.50 per share.
II-4
<PAGE>
In April 1997, the Company issued 12 % Series A Senior Subordinated
Convertible Redeemable Debentures (aggregate face value of $662,500), through
Select Capital Advisors, Inc., to various investors for an aggregate cash
contribution of approximately $530,000.
From April through June 1997, the Company issued warrants covering
3,273,950 shares of the Common Stock to warrant holders (N, A) who were
subscribers to the Private Placement Memorandum dated November 13, 1995. The
Warrants were issued as a further settlement with investors in the private
placement regarding the Company's obligation to register the shares of the
Common Stock in the private placement. The terms of the settlement provided
that settling investors would turn in the warrants held in exchange for new
warrants entitling the holder to purchase 1 1/2 shares of the Common Stock at
$2.50 per share.
In July 1997, the Company issued 50,000 shares of the Common Stock to
Sylvia Epstein (C) in consideration for services rendered and valued at
approximately $50,000.
In July 1997, the Company issued 500,000 shares of the Common Stock to
Manhattan Financial Group (A, C) in consideration for contributions up to
$150,000 pursuant to the terms of the Restricted Stock Purchase Agreement.
In July 1997, the Company issued 322,545 shares of the Common Stock to
Cameron Capital, Ltd. in connection with the conversion of $150,000 of the
amount outstanding under the 6% Convertible Debenture ($550,000). The shares of
the Common Stock issued by the Company in exchange for the securities
surrendered are exempt from registration pursuant to Section3(a)(9) of the
Securities Act.
In July 1997, the Company issued 138,000 shares of the Common Stock to
Robert A. Dresser (C) in consideration for services rendered in connection with
the Company's marketing efforts. The services were valued at approximately
$42,780.
In July 1997, the Company issued an aggregate of 740,656 shares of the
Common Stock to Thermal Imaging, Inc. (A) in consideration for cash
contributions in the aggregate amount of $339,000.
In September 1997, the Company issued 666,666 shares of the Common Stock to
PDH, Ltd. (A, C), in consideration for a cash contribution of approximately
$250,000.
In September 1997, the Company issued 941,176 shares of the Common Stock to
Thermal Imaging, Inc. (A) in consideration for a cash contribution of
approximately $320,000.
In November 1997, the Company issued 551,429 shares of the Common Stock to
Thermal Imaging, Inc. (A), in consideration for a cash contribution of
approximately $193,000.
In November 1997, the Company issued 478,894 shares of the Common Stock to
Cameron Capital, Ltd. (N) in connection with the conversion of $200,000 of the
outstanding amount due under the 6% Convertible Debenture ($550,000). The
shares of the Common Stock issued by the Company in exchange for the securities
surrendered were exempt from registration pursuant to Section 3(a)(9) of the
Securities Act.
From October to November 1997, the Company issued 83,333 shares of the
Common Stock to Ambient Capital Group, Inc. (C), as a retainer fee for acting as
a financial advisor. The estimated value of the shares issued equaled
$29,166.55. In addition, the Company issued 83,333 warrants to Ambient Capital
Group, Inc., at an exercise price of $ 0.72 per share. The terms of the
warrants entitle the holder to purchase five shares of the Common Stock for each
warrant issued and such warrants are valid for a period of four years from the
date of issuance.
In January 1998, the Company issued 100,000 shares of the Common Stock to
Manhattan Financial Group (A, C) in partial consideration for services rendered
pursuant to the Consulting Agreement. The estimated value of the stock issued
is equal to $30,000.
II-5
<PAGE>
In January and February 1998, the Company issued an aggregate of 3,482,813
shares of the Common Stock to Thermal Imaging, Inc. (A), in consideration for
cash contributions of approximately $975,130 (252,597 shares were subsequently
canceled due to a mathematical error in calculating number of shares to be
issued).
In January 1998, the Company issued an aggregate of 102,752 shares of the
Common Stock to David Finney (C) and Meto Miteff (C) in consideration for legal
services rendered and valued at approximately $64,220.
During January and February 1998, the Company issued an aggregate of
603,489 shares of the Common Stock to Cameron Capital, Ltd. (N) in connection
with the conversion of $200,000 of the outstanding amount due under the 6%
Convertible Debenture and payment of penalties due for non-registration. The
shares of the Common Stock issued by the Company in exchange for the securities
surrendered were exempt from registration pursuant to Section3(a)(9) of the
Securities Act.
In March 1998, the Company issued 600,000 shares of the Common Stock to
Benjamin or Nancy Anderson (N) in consideration for cash contributions of
approximately $140,000.
In March 1998, the Company issued 2,246,275 shares to Manhattan Financial
Group in consideration for cash contributions of approximately $539,106 (147,725
shares were subsequently canceled due to a mathematical error in calculating
number of shares to be issued).
In April 1998, the Company issued an aggregate of 216,598 shares of the
Common Stock to Cameron Capital, Ltd. in connection with the conversion of
$62,500 of a $125,000 8% Convertible Debenture and payment of penalties due for
non-registration. The shares of the Common Stock issued by the Company in
exchange for the securities surrendered were exempt from registration pursuant
to Section 3(a)(9) of the Securities Act.
In June 1998, the Company issued 978,000 shares of the Common Stock to
Lynch, Rowin, Novack, Burnbaum & Crystal P.C. FBO Y. L. Hirsch and Lockwood
Resources. The shares were issued in conversion of 12% Convertible Debentures
and in settlement of all claims between the Company and Y. L. Hirsch and
Lockwood Resources relating to said debentures. The shares issued had an
estimated aggregate value of $415,000. The shares of the Common Stock issued by
the Company in exchange for the securities surrendered were exempt from
registration pursuant to Section 3(a)(9) of the Securities Act.
Unless otherwise indicated above, the issuance of securities was exempt
from registration under the Securities Act under Section 4(2) as a transaction
by an issuer not involving any public offering. In each instance, the purchaser
had a pre-existing relationship with the Company, was provided with, and/or had
access to, current information regarding the Company, and management reasonably
believed that each purchaser had sufficient investment knowledge and experience
to understand the risks and merits of investing in the securities of Company, or
was represented by a person with such knowledge and experience. Moreover, all
offers and sales of the securities were made without public solicitation, the
certificates bear restrictive legends, and appropriate stop-transfer orders have
been given to the transfer agent. No underwriter was involved in the
transactions and no commissions were paid.
II-6
<PAGE>
ITEM 27. EXHIBITS
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
----------- -------------------------
<C> <S>
3(a)* Articles of Incorporation filed June 10, 1987.
3(b)* Amendment to Articles of Incorporation filed July 31, 1987.
3(c)* Amendment to Articles of Incorporation filed September 12, 1989.
3(d)* Amendment to Articles of Incorporation filed November 6, 1989.
3(e)* Amendment to Articles of Incorporation filed April 22, 1992.
3(f)* Amendment to Articles of Incorporation dated February 17, 1998.
3(g)* Bylaws, as Amended January 15, 1998.
4* Common Stock Specimen.
5(a)** Opinion Regarding Legality.
10(a)* PR Expense Funds Administration Agreement dated July 9, 1997
between the Company, Liberty Capital Group, Inc. and Manhattan
Financial Group.
10(b)* Financial Advisory Agreement dated October 29, 1997 between the
Company and Ambient Capital Group, Inc.
10(c)* Assumption of Liability Agreement dated April 17, 1996 between the
Company and Thermal Imaging, Inc.
10(d)* Investment Agreement dated January 20, 1998 between the Company
and Bristol Asset Management, LLC.
10(e)* Consulting Agreement dated November 5, 1997 between the Company
and Daron Dillia doing business as Manhattan Financial Group.
10(f)* Consulting Agreement dated November 5, 1997 between the Company
and Willard Harpster.
10(g)* Subscription Agreement dated August 15, 1996 between the Company
and Cameron Capital Management Ltd. With respect to 6%
Convertible Debentures aggregating $550,000.
10(h)* Subscription Agreement dated March 13, 1997 between the Company
and Cameron Capital Management Ltd. With respect to 8%
Convertible Debentures aggregating $125,000.
10(i)* 12% Series A Senior Subordinated Convertible Redeemable Debenture
due April 30, 1998.
10(j)* Signatories to Dorex Release.
10(k)* Employment Agreement dated October 11, 1995 between the Company
and Kenneth M. Dodd.
10(l)* Letter Agreement dated June 12, 1995 between the Company and
Richard V. Secord Confirming terms for Personal Services
Agreement.
10(m)* Employment Agreement dated April 30, 1997 between the Company and
David A. Packer.
10(n)* Escrow Agreement dated November 20, 1997 between the Company,
Roger Sack and First Nebraska Trust Company.
10(o)* Golden Health Card Contract dated April 24, 1995 between TriSun
Medical Corporation and TriSun/CTI Asia, Ltd.
10(p)* Golden Health Plan Hospital Systems Integration Contract dated
April 24, 1995 between TriSun Medical Corporation and TriSun/CTI
Asia, Ltd.
10(q)* Computerized Thermal Imaging, Inc. Employee Stock Option Agreement
dated October 29, 1997 between the Company and David B. Johnston.
10(r)* Employment Agreement dated October 29, 1997 between the Company
and David B. Johnston.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
----------- -------------------------
<C> <S>
10(s)* Letter Agreement dated July 10, 1997 between the Company and
Liberty Capital Group, Inc.'s with respect to public relations.
10(t)* License Agreement dated June 8, 1996 between the Company and
Thermal Imaging, Inc.
10(u)* Participation Option Notices by various signatories to a Private
Placement Subscription Participation Option.
10(v)* Pledge Agreement dated September 11, 1997 between the Company and
Looper, Reed, Mark & McGraw Incorporated.
10(w)* Pledge Agreement dated September 11, 1997 between Thermal Medical
Imaging, Inc. and Looper, Reed, Mark & McGraw Incorporated.
10(x)* Employment Agreement dated November 13, 1997 between the Company
and Richard V. Secord.
10(y)* Computerized Thermal Imaging, Inc. Employee Stock Option Agreement
dated January 15, 1998 between the Company and Richard V. Secord.
10(z)* Computerized Thermal Imaging, Inc. Employee Stock Option Agreement
dated June 12, 1995 between the Company and Richard V. Secord.
10(aa)* Computerized Thermal Imaging, Inc. Employee Stock Option Agreement
dated June 12, 1995 between the Company and Richard V. Secord.
10(bb)* Commitment Letter Agreement dated March 6, 1997 between the
Company and Select Capital Advisors, Inc.
10(cc)* Services Agreement dated July 1997 between the Company and Liberty
Capital Group, Inc.
10(dd)* Stock Transfer Agreement dated January 28, 1997 between the
Company and Thermal Medical Imaging, Inc.
10(ee)* Amendment to Employee Stock Option Agreement dated January 26,
1998 between the Company and David Packer.
10(ff)* Amendment to Employee Stock Option Agreement dated January 22,
1998 between the Company and Kenneth M. Dodd.
10(gg)* Amendment to Employee Stock Option Agreement dated January 26,
1998 between the Company and Richard V. Secord.
10(hh)* Computerized Thermal Imaging, Inc. Consultant Stock Option
Agreement dated November 5, 1997 between the Company and Willard
Harpster.
10(ii)* Computerized Thermal Imaging, Inc. Consultant Stock Option
Agreement dated November 18, 1997 between the Company and Daron
Dillia D/b/a Manhattan Financial Group.
10(jj)* Computerized Thermal Imaging, Inc. Restricted Stock Purchase
Agreement dated July 9, 1997 between the Company and Manhattan
Financial Group.
10(kk)* Computerized Thermal Imaging, Inc. 1995 Stock Option Plan.
10(ll)* Computerized Thermal Imaging, Inc. 1997 Stock Option and
Restricted Stock Plan.
10(mm)* Offshore Securities Subscription Agreement relating to 12% Series
A Senior Subordinated Convertible Redeemable Debentures of the
Company.
10(nn)* 12% Series A Senior Subordinated Convertible Redeemable Debentures
of the Company.
10(oo)* Golden Health Telemedicine Contract dated April 24, 1995 between
TriSun Medical Corporation - China and TriSun/CTI Asia, Ltd.
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
----------- -------------------------
<C> <S>
10(pp)** Contract between TRW Systems Integration Group and Computerized
Thermal Imaging, Inc. dated October 29, 1996.
10(qq)** Clinical Trial Agreement dated September 16, 1997 between Thermal
Medical Imaging, Inc. and Health Research Association.
10(rr)** Contract between TRW Systems Integration Group and Thermal Medical
Imaging, Inc. dated June 19, 1997.
10(ss)** Clinical Trial Agreement dated November 7, 1997 between Thermal
Medical Imaging, Inc. and the University of Southern California.
10(tt)** Clinical Trial Agreement dated June 4, 1998 between Thermal
Medical Imaging, Inc. and Mt. Sinai Hospital.
10(uu)** Clinical Trial Agreement dated February 14, 1998 between Thermal
Medical Imaging, Inc. and Providence Hospital.
10(vv)** Clinical Study of Examination of Breast for Identification of
Suspicious Tissue Using Clinical Examination and Mammography With
and Without the TMI Thermal Imaging System (Protocol for all
clinical trial agreements).
10(ww)** Promissory Note dated May 1, 1998 between Computerized Thermal
Imaging, Inc. and Looper, Reed, Mark & McGraw Incorporated.
11** Computation of Per Share Earnings.
15** See Exhibit 23(b).
16(a)** Letter from King, Griffin & Adamson, P.C. consenting to the
disclosure statements contained in the registration statement.
16(b)** Letter from Randy Simpson, C.P.A. consenting to the disclosure
statements contained in the registration statement.
21* Subsidiaries of the Registrant.
23** Consent of Counsel (included in Exhibit 5.1).
23(a)** Consent of Ham, Langston & Brezina, LLP.
23(b)** Consent of Randy Simpson, CPA P.C.
24 (1)* Powers of Attorney.
27 (1)** Financial Data Schedule.
</TABLE>
- ---------
* Previously filed
** Filed herewith
ITEM 28. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required in Section 10(a)(3) of
the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
Registration Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
II-9
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) That for purposes of determining any liability under the
Securities Act, (i) the information omitted from the Prospectus
filed as part of this Registration Statement, as permitted by
Rule 430A of the Securities Act and to be contained in the form
of Prospectus to be filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act, shall
be deemed to be incorporated by reference into this Registration
Statement at the time it is declared effective, and (ii) each
post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the
securities offered therein and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on the Registration Statement on Form SB-2 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Layton, State of Utah, on the 26 day of August, 1998.
COMPUTERIZED THERMAL IMAGING, INC.
By /s/ David A. Packer
------------------------------------------
David A. Packer, President
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ David B. Johnston*
- ------------------------------ Chairman of the Board and August 26, 1998
DAVID B. JOHNSTON Chief Executive Officer
/s/ Richard V. Secord*
- ------------------------------ Chief Operating Officer, August 26, 1998
RICHARD V. SECORD Secretary and Director
/s/ Brent M. Pratley, M.D.*
- ------------------------------ Director August 26, 1998
BRENT M. PRATLEY, M.D.
/s/ Milton R. Geilmann*
- ------------------------------ Director August 26, 1998
MILTON R. GEILMANN
/s/ Henry C. Aderholt*
- ------------------------------ Director August 26, 1998
HENRY C. ADERHOLT
/s/ David A. Packer
- ------------------------------ President and Treasurer August 26, 1998
DAVID A. PACKER
*By /s/ David A. Packer
- ------------------------------ August 26, 1998
David A. Packer,
Attorney in Fact
II-11
<PAGE>
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT SEQUENTIALLY
- ----------- ------------------------- NUMBERED PAGES
--------------
<C> <S> <C>
3(a)* Articles of Incorporation filed June 10, 1987.
3(b)* Amendment to Articles of Incorporation filed
July 31, 1987.
3(c)* Amendment to Articles of Incorporation filed
September 12, 1989.
3(d)* Amendment to Articles of Incorporation filed
November 6, 1989.
3(e)* Amendment to Articles of Incorporation filed
April 22, 1992.
3(f)* Amendment to Articles of Incorporation dated
February 17, 1998.
3(g)* Bylaws, as Amended January 15, 1998.
4 * Common Stock Specimen.
5(a)** Opinion Regarding Legality.
10(a)* PR Expense Funds Administration Agreement dated
July 9, 1997 between the Company, Liberty Capital
Group, Inc. and Manhattan Financial Group.
10(b)* Financial Advisory Agreement dated October 29, 1997
between the Company and Ambient Capital Group, Inc.
10(c)* Assumption of Liability Agreement dated April 17, 1996
between the Company and Thermal Imaging, Inc.
10(d)* Investment Agreement dated January 20, 1998 between
the Company and Bristol Asset Management, LLC.
10(e)* Consulting Agreement dated November 5, 1997 between
the Company and Daron Dillia d/b/a Manhattan Financial
Group.
10(f)* Consulting Agreement dated November 5, 1997 between the
Company and Willard Harpster.
10(g)* Subscription Agreement dated August 15, 1996 between the
Company and Cameron Capital Management Ltd. With respect
to 6% Convertible Debentures aggregating $550,000.
10(h)* Subscription Agreement dated March 13, 1997 between the
Company and Cameron Capital Management Ltd. With respect
to 8% Convertible Debentures aggregating $125,000.
10(i)* 12% Series A Senior Subordinated Convertible Redeemable
Debenture due April 30, 1998.
10(j)* Signatories to Dorex Release.
10(k)* Employment Agreement dated October 11, 1995 between the
Company and Kenneth M. Dodd.
10(l)* Letter Agreement dated June 12, 1995 between the Company
and Richard V. Secord Confirming terms for Personal
Services Agreement.
10(m)* Employment Agreement dated April 30, 1997 between the
Company and David A. Packer.
10(n)* Escrow Agreement dated November 20, 1997 between the
Company, Roger Sack and First Nebraska Trust Company.
10(o)* Golden Health Card Contract dated April 24, 1995 between
TriSun Medical Corporation and TriSun/CTI Asia, Ltd.
10(p)* Golden Health Plan Hospital Systems Integration Contract
dated April 24, 1995 between TriSun Medical Corporation
and TriSun/CTI Asia, Ltd.
10(q)* Computerized Thermal Imaging, Inc. Employee Stock Option
Agreement dated October 29, 1997 between the Company and
David B. Johnston.
10(r)* Employment Agreement dated October 29, 1997 between the
Company and David B. Johnston.
10(s)* Letter Agreement dated July 10, 1997 between the Company
and Liberty Capital Group, Inc.'s with respect to public
relations.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT SEQUENTIALLY
- ----------- ------------------------- NUMBERED PAGES
--------------
<C> <S> <C>
10(t)* License Agreement dated June 8, 1996 between the
Company and Thermal Imaging, Inc.
10(u)* Participation Option Notices by various signatories
to a Private Placement Subscription Participation Option.
10(v)* Pledge Agreement dated September 11, 1997 between the
Company and Looper, Reed, Mark & McGraw Incorporated.
10(w)* Pledge Agreement dated September 18, 1997 between
Thermal Medical Imaging, Inc. and Looper, Reed, Mark
& McGraw Incorporated.
10(x)* Employment Agreement dated November 13, 1997 between
the Company and Richard V. Secord.
10(y)* Computerized Thermal Imaging, Inc. Employee Stock
Option Agreement dated January 15, 1998 between the
Company and Richard V. Secord.
10(z)* Computerized Thermal Imaging, Inc. Employee Stock
Option Agreement dated June 12, 1995 between the
Company and Richard V. Secord.
10(aa)* Computerized Thermal Imaging, Inc. Employee Stock
Option Agreement dated June 12, 1995 between the
Company and Richard V. Secord.
10(bb)* Commitment Letter Agreement dated March 6, 1997 between
the Company and Select Capital Advisors, Inc.
10(cc)* Services Agreement dated July 1997 between the Company
and Liberty Capital Group, Inc.
10(dd)* Stock Transfer Agreement dated January 28, 1997 between
the Company and Thermal Medical Imaging, Inc.
10(ee)* Amendment to Employee Stock Option Agreement dated
January 26, 1998 between the Company and David Packer.
10(ff)* Amendment to Employee Stock Option Agreement dated
January 22, 1998 between the Company and Kenneth M. Dodd.
10(gg)* Amendment to Employee Stock Option Agreement dated
January 26, 1998 between the Company and Richard V. Secord.
10(hh)* Computerized Thermal Imaging, Inc. Consultant Stock
Option Agreement dated November 5, 1997 between the
Company and Willard Harpster.
10(ii)* Computerized Thermal Imaging, Inc. Consultant Stock
Option Agreement dated November 18, 1997 between the
Company and Daron Dillia D/b/a Manhattan Financial
Group.
10(jj)* Computerized Thermal Imaging, Inc. Restricted Stock
Purchase Agreement dated July 9, 1997 between the
Company and Manhattan Financial Group.
10(kk)* Computerized Thermal Imaging, Inc. 1995 Stock Option Plan.
10(ll)* Computerized Thermal Imaging, Inc. 1997 Stock Option
and Restricted Stock Plan.
10(mm)* Offshore Securities Subscription Agreement relating
to 12% Series A Senior Subordinated Convertible
Redeemable Debentures of the Company.
10(nn)* 12% Series A Senior Subordinated Convertible
Redeemable Debentures of the Company.
10(oo)* Golden Health Telemedicine Contract dated
April 24, 1995 between TriSun Medical Corporation
- China and TriSun/CTI Asia, Ltd.
10(pp)** Contract between TRW Systems Integration Group and
Computerized Thermal Imaging, Inc. dated
October 29, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
- ----------- -------------------------
<C> <S>
10(qq)** Clinical Trial Agreement dated September 16, 1997
between Thermal Medical Imaging, Inc. and Health
Research Association.
10(rr)** Contract between TRW Systems Integration Group and
Thermal Medical Imaging, Inc. dated June 19, 1997.
10(ss)** Clinical Trial Agreement dated November 7, 1997
between Thermal Medical Imaging, Inc. and the
University of Southern California.
10(tt)** Clinical Trial Agreement dated June 4, 1998 between
Thermal Medical Imaging, Inc. and Mt. Sinai Hospital.
10(uu)** Clinical Trial Agreement dated February 14, 1998
between Thermal Medical Imaging, Inc. and Providence
Hospital.
10(vv)** Clinical Study of Examination of Breast for
Identification of Suspicious Tissue Using Clinical
Examination and Mammography With and Without the
TMI Thermal Imaging System (Protocol for all
clinical trial agreements).
10(ww)** Promissory Note dated May 1, 1998 between
Computerized Thermal Imaging, Inc. and Looper,
Reed, Mark & McGraw Incorporated.
11** Computation of Per Share Earnings.
15** See Exhibit 23(b).
16(a)** Letter from King, Griffin & Adamson, P.C. consenting
to the disclosure statements contained in the
registration statement.
16(b)** Letter from Randy Simpson, C.P.A. consenting to the
disclosure statements contained in the registration
statement.
21* Subsidiaries of the Registrant.
23** Consent of Counsel (included in Exhibit 5.1).
23(a)** Consent of Ham, Langston & Brezina, LLP.
23(b)** Consent of Randy Simpson, CPA P.C.
24* Powers of Attorney.
27** Financial Data Schedule.
</TABLE>
- -----
* Previously filed
** Filed herewith
<PAGE>
EXHIBIT 5(a)
LOOPER, REED, MARK & MCGRAW
INCORPORATED
1300 POST OAK BOULEVARD, SUITE 2000
HOUSTON, TEXAS 77056
TELEPHONE (713) 986-7000
TELECOPIER (713) 986-7100
August 21, 1998
Computerized Thermal Imaging, Inc.
476 Heritage Park Boulevard
Suite 210
Layton, Utah 84041
Re: Form SB-2 Registration Statement
Gentlemen:
As counsel for Computerized Thermal Imaging, Inc. (the "Company"), you
have requested our firm to render this opinion in connection with the
Registration Statement on Form SB-2 filed under the Securities Act of 1933,
as amended (the "Securities Act") with the Securities and Exchange Commission
relating to the resale of 33,761,916 shares of the common stock of the
Company, which may be sold by the holders thereof (the "Selling
Stockholders") from time to time as market conditions permit in the market,
or otherwise, at prices and terms then prevailing or at prices related to the
then current market price, or in negotiated transactions. The shares of the
common stock of the Company, $0.001 par value per share (the "Common Stock"),
to be resold include: (i) 18,229,167 shares to be purchased by an unrelated
investor (the "Newly Issued Shares"); (ii) 2,552,083 shares to be issued upon
the exercise of warrants to be issued to such investor (the "Compensation
Warrants") which become exercisable upon issuance at variable prices based on
the sales price of the shares of the Common Stock and expire on the fifth
anniversary of the date of issuance; (iii) 2,615,051 shares currently issued
and outstanding; (iv) 3,840,615 shares underlying outstanding warrants
exercisable at prices ranging from $0.72 to $5.00 per share which expire on
various dates ranging from March 31, 1999 to March 13, 2002 (the "Resale
Warrants"); and (v) 6,525,000 shares underlying outstanding options
exercisable at prices ranging from $0.60 per share to $1.25 per share which
expire automatically on various dates ranging from July 21, 2000 to June 12,
2005 (the "Resale Options").
We are familiar with the Registration Statement and the registration of the
shares of the Common Stock contemplated thereby. In giving this opinion, we have
reviewed the Registration Statement and such other documents and certificates of
public officials and officers of the Company with respect to the accuracy of the
factual matters contained therein as we have felt necessary or appropriate in
order to render the opinions expressed herein. In making our examination, we
have assumed the genuineness of all signatures, the authenticity of all
documents presented to us as originals, the conformity to original documents of
all documents presented to us as copies thereof, and the authenticity of the
original documents from which any such copies were made, which assumptions we
have not independently verified.
Based upon and subject to the foregoing, and upon such other matters as we
have determined to be relevant, we are of the opinion that:
<PAGE>
Computerized Thermal Imaging, Inc.
August 21, 1998
Page 2
1. The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Nevada.
2. The shares of the Common Stock to be issued upon the purchase of the
Newly Issued Shares are validly authorized and, when purchased, will be validly
issued, fully paid and nonassessable.
3. The shares of the Common Stock underlying the Compensation Warrants to
be issued upon the exercise thereof are validly authorized and, upon exercise,
will be validly issued, fully paid and nonassessable.
4. The shares of the Common Stock underlying the Resale Warrants, the
Options and the Debenture to be issued upon the exercise/and or the conversion
of such Resale Warrants, Options and Debenture are validly authorized and, upon
exercise or conversion, will be validly issued, fully paid and nonassessable.
We hereby consent to use in the Registration Statement of the reference to
Looper, Reed, Mark & McGraw, Incorporated under the heading "Legal Matters." We
also consent to the filing of this opinion letter as an exhibit to the
Registration Statement.
This opinion is conditioned upon the Registration Statement being declared
effective.
Very truly yours,
LOOPER, REED, MARK & MCGRAW
/s/ Looper, Reed, Mark & McGraw
<PAGE>
EXHIBIT 10(pp)
CONTRACT BETWEEN
TRW SYSTEMS INTEGRATION GROUP and COMPUTERIZED THERMAL IMAGING, INC.
STRATEGIC SYSTEMS DIVISION 141 NORTH STATE STREET
POST OFFICE BOX 1310 LAKE OSWEGO, OR 97034
SAN BERNARDINO, CALIFORNIA 92402-1310
CONTRACT NUMBER: TRW-96-002 TERMS: NET 30 DAYS
COST PLUS FEE CONTRACT
This Contract is entered into October 29, 1996 between TRW Inc., an Ohio
corporation, operating through its Systems Integration Group, Strategic Systems
Division, having an office at San Bernardino, California 92402 (hereinafter also
called "TRW" or "Seller") and Computerized Thermal Imaging, Inc. a Nevada
company (also called "CTI" or "Buyer").
WITNESSETH THAT:
In consideration of the mutual promises, covenants, and agreements herein set
forth, the Parties agree that the Seller shall furnish and deliver to the Buyer
all the goods, and perform all the services set forth for the consideration
stated herein. The rights and obligations of the Parties to this Contract shall
be subject to and governed by this Contract and other documents or
Specifications attached hereto or referenced herein. This Contract supersedes
any and all prior agreements of the parties, whether written or oral, concerning
the subject matter hereof.
This Contract shall not be varied in its terms or conditions by any oral
agreement or representation, or otherwise than by an instrument in writing of
even or subsequent date thereto, executed by both Seller and Buyer.
The article titles used herein are for convenience only and shall in no way be
construed as part of this Contract or as an indication of the meaning of the
particular section.
<TABLE>
<CAPTION>
INDEX OF ARTICLES
ARTICLE
NO. ARTICLE TITLE PAGE
- --- ------------- ----
<S> <C> <C>
I Definitions and Priority 2
II Limits of Agreement 3
III Scope of Work 3
IV Performance, Delivery Schedule and Termination 3
V Inspection and Acceptance 3
VI Estimated Cost and Fee * 4
VII Consideration and Payment 4
VIII Invoices and Remittance 4
IX Payment Terms 5
X Packaging and Delivery 5
XI Warranty 5
XII Limitation of Liability 6
XIII Indemnification 7
XIV Excused Performance 7
XV Insolvency of Buyer 7
XVI Default 7
XVII Assignment 8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDEX OF ARTICLES (Continued)
ARTICLE
NO. ARTICLE TITLE PAGE
- --- ------------- ----
<S> <C> <C>
XVIII Notices 8
XIX Governing Law - Arbitration 8
XX Taxes 9
XXI Contract Management 9
XXII Notice of Delay 9
XXIII Reports 9
XXIV Intellectual Property Rights & New Technology &
Data Rights * 10
XXV Patents Infringement 11
XXVI Changes 11
XXVII Modification and Waiver 12
XXVIII Severability 12
XXIX Counterparts 12
XXX Remedies 12
XXXI Proprietary Information and Non-Disclosure 12
XXXII System Integration Rights * 13
XXXIII Buyer Furnished Software and Property 13
*- These portions have been omitted under a request for confidential
treatment
</TABLE>
ARTICLE I - DEFINITIONS AND PRIORITY
A. The following words and phrases shall have the meanings set forth below:
1. Contract: This Contract between TRW and CTI includes Appendix A -
Statement of Work, attached hereto and made a part hereof, as may be modified or
supplemented from time to time by agreement by the parties, and similar
schedules, work plans, or documents if approved by both parties from time to
time for performing the projects.
2. Estimated Cost: The amount within which it is agreed that the
Statement of Work is likely to be accomplished.
3. Fee: A compensation method which might be approved by the parties
from time to time for a portion of the Statement of Work by which Seller would
be paid an agreed dollar amount for full satisfaction regardless of the Cost
incurred, or Seller may be reimbursed for any Costs incurred allocable to the
appropriate job and paid as agreed amount in addition to Costs for full
satisfaction, for any specific statement of work for which the parties agree in
advance to be compensated on this basis.
4. Delivery Dates: The dates agreed in the Statement of Work for the
services to be performed at the Site.
5. Services: The services described in the Statement of Work to be
provided by TRW.
6. Site: The facility or other location identified in the Statement of
Work as the destination to which transportation is to be arranged for
deliverable items, and at which services are to be performed.
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7. Costs: The actual cost incurred by Seller to perform the work under
this Contract, including the cost of equipment provided and expenses incurred
plus the same burden rates for such costs as TRW charges on government
contracts.
8. Fee: The amount calculated as a percentage of Cost shall be referred
to as the "Fee." The compensation Seller is expected to be paid for the work
under this Contract is Cost reimbursement plus the Fee.
B. In case of any ambiguous inconsistencies between this Contract and the
Statement of Work or similar work orders, the text of this Contract shall
prevail.
C. This Contract definitizes and applies to work performed pursuant to the
Advanced Authorization to Proceed contained in CTI telefax dated October 10,
1996.
ARTICLE II - LIMITS OF AGREEMENT
The terms and conditions set forth herein constitute the complete and
exclusive statement of all of the terms of the agreement between TRW and CTI
with respect to this Contract, unless different or additional terms and
conditions are hereafter agreed in writing and made a part hereof by Contract
amendment. All prior representations and agreements of the parties are merged
herein and no agent, employee or representative of Seller has the authority to
bind Seller to any other affirmation, representation, promise or warranty
concerning the software or services furnished by Seller, and such are not
enforceable by Buyer unless contained herein. This Contract shall not be
varied, supplemented, qualified, or interpreted by any prior course of dealing
between the parties or by any usage of trade.
ARTICLE III - SCOPE OF WORK
Seller, as an independent Contractor and not as an agent of Buyer, shall,
in conformance with the terms and conditions more particularly set forth herein,
provide the necessary personnel, and services and do all things necessary or
incidental to furnish and deliver to the Buyer all requirements as set forth in
Appendix A-STATEMENT OF WORK, dated October 22, 1996, as revised or amended from
time to time.
ARTICLE IV - PERFORMANCE, DELIVERY SCHEDULE AND TERMINATION
The period of performance shall be from the effective date hereof and
continue for 48 months. The Seller shall provide the services, complete the
installation of the Buyer furnished materials as required by ARTICLE III- SCOPE
OF WORK within the period of performance. Seller shall request clarifications
or instructions from Buyer if the Statement of Work or instructions from Buyer
are not clear or are ambiguous as the project progresses. Either party may
terminate this contract for convenience by giving thirty (30 days) written
notice.
ARTICLE V - INSPECTION AND ACCEPTANCE
A. Final inspection and acceptance of services shall be made at the sites
designated by Buyer. All services covered by this Contract will be subject to
inspection and test by Buyer to the extent practicable at reasonable times and
places prior to acceptance. Any such inspection and test shall be performed in
such manner as to not delay or otherwise interfere with Seller's performance
hereunder.
B. Buyer shall promptly inspect services within 5 days of being notified by
Seller of their being tendered for inspection, and shall, within ten (10) days
after such inspection, give written notice to Seller of any claim that the goods
or services do not conform with the terms of this Contract. If Buyer fails to
inspect services called for above, Buyer will be held to have accepted the goods
or services with all defects that inspection would have revealed, subject to
Seller's obligations under ARTICLE XI, and to have waived all rights Buyer may
have had to revoke
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acceptance after said ten (10) day period. Notwithstanding the foregoing, Buyer
may notify Seller of a reasonable delay and toll the inspection period.
C. Depot Operation. To be determined after approval of TRW's Logistics
Support Plan.
ARTICLE VI - ESTIMATED COST AND FEE
[REDACTED DUE TO CONFIDENTIALITY: THE MATERIAL IN THIS ARTICLE HAS
BEEN OMITTED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT. ACCORDINGLY,
THE MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.]
ARTICLE VII - CONSIDERATION AND PAYMENT
Seller shall submit invoices monthly identifying work performed, Costs
incurred and the applicable Fee, consisting of the total payable. At the end of
Seller's work required by the Contract, a final invoice containing all unpaid
Cost incurred and uninvoiced Fee, if any, shall be submitted and paid.
ARTICLE VIII - INVOICES AND REMITTANCE
A. Invoices for payments hereunder shall be submitted to the following
address:
Mr. Richard Secord, President
Computerized Thermal Imaging, Inc.
141 North State Street
Lake Oswego, OR 97034
B. Remittance shall be made by check to: (if by U. S. Mail)
TRW Inc.
Accounts Receivable
Lock Box File No. 41818
Los Angeles, CA 90074-1818
C. Remittance shall be made by check to: (if sent by Commercial Express
Carrier)
TRW Inc.
300 North Sepulveda
El Segundo, CA 90245
Attention: Glenn Campbell
(310) 814-7738
ARTICLE IX - PAYMENT TERMS
Payment terms are net thirty (30) days after date of Seller's invoice.
Seller preserves the right at any time to suspend credit or to change credit
terms provided herein, when the financial condition of Buyer reasonably so
warrants. In such case, in addition to any other remedies herein or by law
provided, cash payment or satisfactory security from Buyer may be required by
Seller before shipment, or the due date of payment by Buyer under any Contract
or order with Seller may be accelerated by Seller. Failure to pay invoices at
maturity date makes all subsequent invoices immediately due and payable,
irrespective of terms, and Seller may terminate work and/or withhold all
subsequent deliveries until the full account is settled.
ARTICLE X - PACKAGING AND DELIVERY
Packaging and packing of all items for delivery shall be in accordance with
good commercial practice and
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adequate to assure safe arrival at destination. The delivery point of all items
to be delivered by Seller hereunder shall be F. O. B. Origin.
ARTICLE XI - WARRANTY
A. Software
For six (6) months commencing upon the date software installation is
accepted by Buyer at the designated site, TRW warrants that the software
modified or developed by TRW, excluding defects existing at the time of
delivery to TRW in the coding of the software originating from any third
party, shall substantially conform to professional quality, standard industry
practices, the TRW Software Guidelines, and the purpose and requirements set
forth in Appendix A - STATEMENT OF WORK, or other document referencing the
software description. If any of the TRW modified or developed software fails
to comply with the warranty set forth in this paragraph, TRW shall make a
reasonable effort to correct the program errors either (a) without increase
to the Fee or Cost of the Contract or (b) without increase to the Fee but
with reimbursement of Costs, if Buyer's instructions were ambiguous and
unclear and Seller's action was reasonable. Any corrected software will be
warranted for the remainder of the original warranty period or thirty (30)
days, whichever is longer. Notwithstanding any other provision of this
ARTICLE XI, TRW does not warrant that software provided hereunder is free of
all errors or omissions. Further, TRW does not warrant that the functions
contained in the delivered software will meet Licensee's requirements or will
operate in combinations other than as specified by TRW, or that the operation
of the software will be uninterrupted or error free or that all program
defects can be corrected. Seller will transfer to Buyer the benefit of any
third party warranties to the extent allowable by the third parties.
B. Services
1. All services performed by TRW will be of professional quality and
conform to standard industry practices and be in accordance with the Statement
of Work, or other document specifying the particular purpose of the services
approved by the parties. Any services which are actually defective will be
re-performed with reasonable promptness, after written notification is received,
and if said notice is made promptly after discovery of such defect, and in no
event later than six (6) months from the date of acceptance thereof. In such
event, to perform any such re-work or transportation caused thereby, either (a)
no additional Fee or duplicated Cost shall be allowed, or (b) only Costs shall
be reimbursed if Buyer's instructions were ambiguous and Seller reasonably
provided the services. If services are to be performed pursuant to a software
warranty, the software warranty standard and conditions apply. Buyer shall
notify Seller in writing of any defect, furnish relevant information with
respect thereto.
2. In instances when re-performance of a defective service is
impractical, and at TRW's sole discretion, an equitable adjustment of the earned
Fee and Costs of the affected item may be offered in lieu of re-performing the
service.
C. ANY OTHER PROVISIONS OF THIS CONTRACT TO THE CONTRARY NOTWITHSTANDING, THIS
WARRANTY, EXCEPT AS TO TITLE, IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE,
WHETHER ARISING BY LAW, CUSTOM, CONDUCT OR USAGE OF TRADE. IN NO EVENT SHALL
EITHER PARTY BE LIABLE FOR INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL
(EXCEPT AS MAY BE ATTRIBUTABLE TO ARTICLES XIII, XXIV, XXV, OR XXXI), OR
PUNITIVE DAMAGES.
D. Deport Warranty - To be determined after approval of TRW's Logistics
Support Plan.
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ARTICLE XII - LIMITATION OF LIABILITY
Neither party in any event shall be liable for indirect, incidental,
special or consequential (except as may be attributable to ARTICLES XIII, XXIV,
XXV, OR XXXI) or punitive damages, including such liability for improper
disclosure or misuse by others of any data gathered or processed by the systems
delivered under this Contract. Seller shall not be liable for incorrect or
inappropriate responses or incorrect diagnosis resulting from the data gathering
or processing performed by the systems delivered under this contract. Seller's
liability for damages to Buyer on any claim, including negligence, for any loss
or damage resulting from the performance or breach thereof, or the design,
manufacture, sale, delivery, resale, installation, technical direction of
installation, inspection, repair, operation or use of any software, data, goods
or services covered by or furnished under this Contract, shall in no case exceed
the amount of fee paid to the Seller under this contract or $1,000,000,
whichever is less.
ARTICLE XIII - INDEMNIFICATION
To the extent that Seller's or Buyer's agents, employees or subcontractors
enter upon premises occupied by or under the control of the other party in the
course of the performance of this Contract, the parties shall take all necessary
precautions to prevent the occurrence of any injury (including death) to any
persons, or of any damage to any property arising out of acts or omissions of
such agents, employees or subcontractors, and except to the extent that any such
injury or damage is due solely and directly to the other party's gross
negligence or willful misconduct, shall indemnify the other party, its officers,
employees and agents, against any loss, claims, damages, liability, expense
(including reasonable attorney fees) and cause of action whatsoever arising out
of any act or omission of the party, its agents, or employees, and both parties
shall maintain such Public Liability, Property Damage and Employee's Liability
and Compensation Insurance as will protect the other party from any of said
risks and from any claims under any applicable Workmen's Compensation and
Occupation Disease Acts. Furthermore, each party agrees to hold harmless and
indemnify the other from any third-party claim against one party arising from
the other party's negligence or intentional misconduct.
ARTICLE XIV - EXCUSED PERFORMANCE
In addition to any excuse provided by applicable law, Seller shall be
excused from liability for non-delivery, delay in delivery, or delivery of non
conforming goods or services arising from any events beyond its control, whether
or not the events were foreseeable by either party when entering into the
Contract, specifically including, but not limited to, war, riot, strikes,
lockouts, labor disturbances, resignation or death of any of key personnel,
energy or material shortages, fire, flood, earthquake or other natural
catastrophe, Federal, State or Local government requirement or proscription,
breach of contract or other failure of a subcontractor to perform, or
impossibility, including practical impossibility, to perform the services called
for herein or to develop the software without going beyond the state of the art.
Unless expressly provided in writing herein to the contrary, Seller shall not be
deemed to have assumed the risk of any of the above circumstances. In such
event, Seller shall be entitled to compensation on an equitable basis for any
benefit received by Buyer in retaining non conforming software or utilizing non
conforming services.
ARTICLE XV - INSOLVENCY OF BUYER
If Buyer takes any action to make Seller believe Buyer may become bankrupt
or insolvent, ceases business, or to pay bills during the term of this Contract,
Seller may forthwith terminate this Contract upon written notice thereof to
Buyer. Such termination shall not prejudice Seller's rights to any amounts then
due under this Contract or effect any other rights Seller may have under
applicable provisions of controlling law.
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ARTICLE XVI - DEFAULT
A. An Event of Default on the part of either party shall exist if:
1. Such party fails to pay the other party any amount required to be paid
hereunder when due and payable;
2. Such party fails to perform any other material obligation required to
be performed by it under any provisions of this Contract, or fails to initiate
corrective action within thirty (30) days after receiving notice from the other
party that such performance has become due.
B. Subject to other provisions hereof which expressly limit the remedies
available hereunder, if an Event of Default, as defined in paragraph A above,
exists on the part of either party, then the other party may continue
performance and seek a resolution of any disputed performance according to
Article XIX, or the other party may terminate this Contract upon giving written
notice of termination and pursue any other remedies available at law or in
equity.
C. Failure by either party to insist upon strict performance of any provision
of this Contract by the other party shall not be deemed to be a waiver by such
party of its rights or remedies, or a waiver by it of any subsequent default by
the other party in the performance of or compliance with any of the terms of
this Contract.
ARTICLE XVII - ASSIGNMENT
A. Neither party shall, without the consent in writing of the other party
assign or transfer this Contract or the benefits or obligations thereof or any
part thereof to any other person other than a subsidiary wholly owned by the
party, provided that this shall not affect any right of TRW to assign, either
absolutely or by way of charge, any moneys due or to become due to it or which
may become payable to it under this Contract.
B. No assignment or transfer of any right or duty hereunder by either party
shall constitute a novation or otherwise release or relieve such party of its
obligations hereunder.
C. The provisions of this Agreement shall be binding upon and inure to the
benefits of Seller and Buyer and their respective successors and assigns. In
the event either party foresees a successor situation developing, the other
party shall be notified in writing. This provision shall not be deemed to
expand or otherwise affect the limitation on assignment and transfers set forth
above and no party is intended to or shall have any right or interest under this
Contract, except, as provided herein.
ARTICLE XVIII- NOTICES
Any notices required to be given hereunder shall be given in writing at the
address of each party herein set forth or to such other address as either party
may substitute by written notice to the other.
If to Buyer:
Mr. Richard Secord, President
Computerized Thermal Imaging, Inc.
141 North State Street
Lake Oswego, OR 97034
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If to Seller:
TRW Inc.
Post Office Box 1310
San Bernardino, CA 92402-1310
ATTENTION: Richard L. Nickell, SBCA/200
ARTICLE XIX - GOVERNING LAW - ARBITRATION
All questions concerning the validity and operation of this Agreement and
the performance of the obligations imposed upon the parties hereunder shall be
governed by the laws of the State of California, United States of America.
Any dispute between the parties arising out of or related to this Contract
(or any Statement of Work or other document executed related to this Contract)
shall be resolved by binding arbitration held in Ogden, Utah, in accordance with
the rules and procedures of the American Arbitration Association ("AAA").
Either party may deliver to the other a written dispute notice setting forth a
description of the issue(s). Appropriate representatives of both parties will
negotiate in good faith within ten (10) days to resolve the dispute. If the
parties are unable to resolve the dispute within ten days, either party may
notify the AAA and the other party of a statement of claim to initiate
arbitration. The purpose of arbitration is to promptly resolve all disputes,
including any cost or fee dispute or resolution of any equitable adjustments or
determination of reasonable charges which may arise during the course of
continued performance, because the parties have agreed to identify work to be
performed as the term of the contract progresses and that all costs and charges
shall be reasonable. The AAA shall be the appointing and administrative
authority applying its supplemental and procedural rules unless the parties
agree on other procedures. If the parties cannot mutually select an arbitrator
reasonably acceptable to both parties with five (5) days of such notice, AAA
shall identify three independent candidates for selection as the sole
arbitrator, allowing each party an opportunity to strike one. The arbitrator
shall adhere to deadlines for a prompt resolution.
ARTICLE XX - TAXES
Any direct taxes (including stamp, and turnover taxes but excluding income
taxes), duties, fees, charges, or assessments of any nature levied by any
governmental authority in connection with the work of this Contract, whether
levied against Buyer or TRW, shall be for Buyer's account and shall be paid
directly by Buyer to the governmental authority concerned.
ARTICLE XXI - CONTRACT MANAGEMENT
A. Each party's Contract Manager for this Contract shall be designated in
writing. Either party may, by written notice to the other, change such Contract
Manager at any time. At the commencement of this Contract, Richard Secord is the
Contract Manager for CTI, Richard Nickell is the Contract Manager for TRW.
B. No request, notice, authorization, direction or order received by the
Seller shall be binding upon Seller, or serve as a basis for adjusting the
price, or other provision of the Contract unless issued or confirmed in writing
by the Buyer's named Contract Manager. Buyer's Contract Manager shall codify
into the Contract out of scope or over and above activities required by the
Buyer's Program or Technical Representatives. The Seller shall immediately
notify, in writing, the Buyers Contract Manager whenever a change request has
been received from a representative of Buyer other than the Contract Manager
which would affect the terms and conditions, estimated cost, fee, Statement of
Work or Schedules of this Contract.
C. Only TRW's designated Contract Manager or a more senior contracting
individual within the Company is authorized to contractually obligate TRW.
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ARTICLE XXII - NOTICE OF DELAY
Whenever any actual or potential event is delaying or threatening to delay
delivery of the equipment or performance of the services under this Contract,
Seller shall give expeditious notice thereof.
ARTICLE XXIII - REPORTS
The Seller shall furnish reports of cost incurred and the progress of
performance monthly. Cost reports shall be submitted within seven (7) days
after the close of TRW's accounting month. Progress reports shall be submitted
as of the end of each calendar month so as to reach Buyer by the 7th day of the
following month.
ARTICLE XXIV - INTELLECTUAL PROPERTY RIGHTS AND NEW TECHNOLOGY AND DATA RIGHTS
[REDACTED DUE TO CONFIDENTIALITY: THE MATERIAL IN THIS ARTICLE HAS
BEEN OMITTED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT. ACCORDINGLY,
THE MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.]
ARTICLE XXV- PATENT INFRINGEMENT
A. TRW shall indemnify Buyer against all actions, claims, demands, costs,
legal fees, charges, and expenses arising from or incurred by reason of any
infringement or alleged infringement of United States letters patent, design, or
copyright, by the use of any Intellectual Property supplied by TRW but such
indemnity shall not cover any use of the products other than for the purpose
indicated by or reasonably to be inferred from this Contract or to any use which
constitute an infringement due to the use of any such products or software in
association or combination with any other products not supplied by TRW under
such combination is designed by services of TRW.
B. In the event of any claim being made or action brought against Buyer
arising out of the matters referred to in this Article, TRW shall be promptly
notified thereof and may at its own expense conduct all negotiations for the
settlement of the same, and any litigation that may arise therefrom. Buyer
shall not, unless and until TRW shall have failed to take over the conduct of
the negotiations or litigation, make any admission which might be prejudicial
thereto. The conduct by TRW of such negotiations or litigation shall be
conditional upon TRW having first given to Buyer such reasonable security as
shall from time to time be required by Buyer to cover the amount ascertained or
agreed or estimated, as the case may be, of any compensation, damages, expenses,
and costs for which Buyer may become liable. Buyer shall, at the request of
TRW, afford all available assistance for the purpose of contesting any such
claim or action, and shall be repaid all reasonable expenses incurred in so
doing.
C. The foregoing indemnity shall not apply to software products thereof made
to the specification or design of Buyer, or to any claim of patent infringement
which is based upon the combination of any part of the products with other
equipment, except equipment acquired from TRW.
D. The foregoing states the entire liability of TRW with respect to
infringement of patents by the products or any part thereof or by operation
thereof.
ARTICLE XXVI - CHANGES
A. Any changes to this Contract after the effective date hereof which relate
to (i) the deletion of work, (ii) adding additional services, (iii) changing or
modifying work, or (iv) making other changes which do not materially alter the
scope of this Contract shall be made in accordance with the procedures set forth
in this ARTICLE XXVI.
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B. Either party hereto may, from time to time, and at any time during the term
hereof request a change, as defined in this Contract. (The party requesting the
change is hereinafter referred to as the "Requesting Party.") Requests for
changes or deletion shall be in writing, and shall be addressed and delivered to
the Notified Party. Such writing shall be identified as a "Contract Change
Request" (CCR), shall carry a sequential number for ease of tracking, shall set
forth in detail the nature of the change requested, and shall identify the item
or service to be changed.
C. When TRW is the Requesting Party, TRW shall submit a proposal for equitable
adjustment to the Contract Estimated Cost, schedule, or other affected Contract
provision. When the Requesting Party is CTI, a proposal for equitable
adjustment to the Contract will be submitted promptly after receipt of copies of
the CCR. The parties shall, as necessary, negotiate the change and establish
any equitable adjustment to the Contract.
D. If the parties decide to implement a change request, a Contract Change
Notice ("CCN") shall be prepared, which shall describe the change, delineate the
Estimated Cost, schedule, and other impacts of the change. Execution of a CCN by
both parties, shall constitute a modification hereof and shall be binding on
both parties hereto. TRW shall not proceed on any change until a CCN has been
issued.
E. Substitutions of products which are purchased items not manufactured by TRW
may be made by TRW without the consent of Buyer if such substitutes are of like
function and quality and of lower delivered cost.
XXVII - MODIFICATION AND WAIVER
No cancellation, modification, amendment, deletion, addition, or other
change in the Contract or any provision hereof, or waiver of any right or remedy
herein provided, shall be effective for any purpose unless specifically set
forth in a writing signed by the party to be bound thereby. No waiver of any
right or remedy in respect of any occurrence or event on one occasion shall be
deemed a waiver of such right or remedy in respect of such occurrence or event
on any other occasion.
XXVIII - SEVERABILITY
Any provision hereof prohibited by or unlawful or unenforceable under any
applicable law of any jurisdiction shall as to such jurisdiction be ineffective
without affecting any other provision of the Contract. To the full extent,
however, that the provisions of such applicable law may be waived, they are
hereby waived, to the end that the Contract be deemed to be a valid and binding
agreement enforceable in accordance with its terms.
XXIX - COUNTERPARTS
This Contract has been executed in several counterparts, each of which shall be
deemed to be an original, and all such counterparts together shall constitute
but one and the same instrument.
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XXX - REMEDIES
Unless otherwise expressly provided herein, the rights and remedies
hereunder are in addition to, and not in limitation of, other rights and
remedies under the Agreement, at law or in equity, and exercise of one right or
remedy shall not be deemed a waiver of any other right or remedy.
XXXI - PROPRIETARY INFORMATION AND NON-DISCLOSURE
A. During the term of this Contract, TRW and CTI, to the extent of each
party's contractual and lawful right to do so, shall exchange such proprietary
technical and other information as is reasonably required for each to perform
its obligations hereunder. The disclosing party without consent shall be liable
for special or consequential damages. TRW and CTI each agree to keep in
confidence and prevent the disclosure to any person(s) outside their respective
organizations or any person(s) within their organizations not having a need to
know, all information received from the other which is in writing and designated
by appropriate stamp or legend to be of a proprietary nature and to use such
information only in connection with their obligations under this Agreement;
provided, however, that neither party shall be liable for actual special or
consequential damages for disclosure or use of such data if the same is:
1. In the public domain at the time of disclosure, or is subsequently
made available to the general public without restriction by the disclosing
party;
2. Known to the receiving party at the time of disclosure without
restrictions on its use or independently developed by the receiving party, and
there is adequate documentation to demonstrate either condition;
3. Used or disclosed inadvertently despite the exercise of the same
degree of care that each party takes to preserve or safeguard its own
proprietary information;
4. Used or disclosed with the prior written approval of the
non-disclosing party;
5. Disclosed without restriction to the receiving party from a source
other than the disclosing party;
6. Used or disclosed after a period of three (3) years after the date of
receipt.
B. No sheet or page of any written material will be so labeled which is not,
in good faith, believed to contain Proprietary information. A recipient of
information hereunder will have no obligation with respect to any portion of any
written material which is not so labeled, or any information received orally
unless a written summary of such oral communication, specifically identifying
the item s of Proprietary information, is furnished to the recipient within
fifteen (15) days.
C. If any portion of a party's Proprietary information falls within any one of
the above exceptions, the remainder shall continue to be subject to the
foregoing prohibitions and restrictions.
D. To be determined.
XXXII - SYSTEM INTEGRATION RIGHTS
[REDACTED DUE TO CONFIDENTIALITY: THE MATERIAL IN THIS ARTICLE HAS
BEEN OMITTED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT. ACCORDINGLY,
THE MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.]
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XXXIII - BUYER FURNISHED FACILITIES, SOFTWARE AND PROPERTY
A. Title to all facilities, software and property furnished to Seller by Buyer
(or Buyer's customer or Contractor) or paid for by Buyer shall remain with Buyer
(or Buyer's customer). Seller shall not alter or use such property for any
purpose other than that specified by Buyer without the prior written consent of
Buyer. Seller shall keep adequate records, which shall be made available to
Buyer upon request, and shall store protect, preserve, repair, and maintain such
property in accordance with sound industrial practice. In the event that
Buyer's property becomes lost or damaged through negligence or willful
misconduct by Seller, its employees, agents, or subcontractors, while in
Seller's possession, Seller agrees to replace (if lost or irreparable) or repair
such property, without increase to the Cost or Fee, at Seller's option. At the
completion of delivery of the goods and services ordered by Buyer in this
Contract for which Buyer's software or property were required, or the
termination of this Contract, Seller shall request disposition instructions for
all such Buyer's software and property, and for all source codes and tools and
documentation required to fully use the New Technologies, or the remainder
thereof. Seller agrees to make such software and property available to Buyer at
Buyer's request, in the manner requested by Buyer.
B. If the aforementioned Buyer-owned facilities, software or property are
increased or decreased, or do not remain available during the performance of
this Contract, or if any change is made in the terms and conditions under which
they are made available to the Seller, an equitable adjustment as may be
appropriate shall be made in the terms of this Contract.
C. CTI agrees to provide TRW with the items identified in the Statement of
Work.
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this Contract to be
effective as of the day and year first above written.
TRW Inc. Computerized Thermal Imaging, Inc.
Systems Integration Group
/s/ Joseph D. Mason /s/ Richard V. Secord
- ------------------- ---------------------
Joseph D. Mason Richard Secord
Vice President and General Manager President
Strategic Systems Division
Date: 10/25/96 Date:
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APPENDIX A
STATEMENT OF WORK
[REDACTED DUE TO CONFIDENTIALITY: THE MATERIAL IN THIS ARTICLE HAS
BEEN OMITTED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT. ACCORDINGLY,
THE MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.]
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CONTRACT CHANGE NOTICE
Issued by: CONTRACT NO. TRW-96-002
CHANGE NOTICE NO. 001
Computerized Thermal Imaging, Inc.
515 Pocahontas EFFECTIVE DATE THIS CHANGE:
Ft. Walton, FL 32547 16 December 1996
Issued to:
TRW Inc.
Strategic Systems Division
Post Office Box 1310
San Bernardino, CA 92402
In accordance with ARTICLE XXVI(D) Changes, TRW is hereby authorized under the
terms of this contract to begin the commercialization development and at least
one pilot installation, in accordance with the statement of work revision 1.0
dated 22 October 1996. The incremental funding of the contract is increased,
and ARTICLE VI(D) is modified as follows:
ARTICLE VI - ESTIMATED COST, AND FEE
D. Authorized funding to this Contract is $4,700,000, which is estimated to
cover the Cost and Fee for all work to be performed from 10 October 1996 (Letter
Contract) through 31 December 1997, subject to addition or deletion of services
of any magnitude or other changes according to Article XXVI Changes. In the
event the total funding available is insufficient to complete all work
authorized within the applicable period. Seller shall notify Buyer in writing
and shall not be obligated to perform any unfunded work until the authorized
funding is increased to the amount required to complete the work. In the event
the Contract is fully funded and the Estimated Cost in insufficient to complete
all work required by the Statement of Work, Seller shall notify Buyer in writing
and shall not be obligated to perform further work until the Estimated Cost and
authorized funding are increased to new values agreed by the parties.
All Terms, Conditions and Provisions of the original Subcontract, as amended,
remain unchanged, except as specifically noted herein.
Computerized Thermal Imaging, Inc.
BY: /s/ Richard V. Secord
----------------------
R.V. Secord
President & COO
DATE: 1/30/97
----------
<PAGE>
EXHIBIT 10(qq)
CLINICAL TRIAL AGREEMENT
This Clinical Trial Agreement ("Agreement") is entered into by and between
THERMAL MEDICAL IMAGING, INC. ("Sponsor") and the Health Research Association,
1640 Marengo Street, 7th Floor, ("Institution"), a California nonprofit
educational institution incorporated under the laws of the State of California.
RECITALS
WHEREAS, the clinical trial contemplated by this Agreement is of mutual
interest and benefit to Institution and to Sponsor, will further the
instructional, scholarship and study objectives of Institution in a manner
consistent with its status as a nonprofit, tax-exempt, educational institution,
and may derive benefits for both Sponsor and Institution through the discovery
of new knowledge;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree to the following:
DEFINITIONS
"Monitor" shall mean the individual or firm retained by Sponsor to provide
monitoring services for Study utilizing Sponsor's Protocol and Study Device,
initially being QBRI International, Inc.
"Principal Investigator" shall be William R. Dougherty, M.D. who is acting
as a representative for the Institution in activities associated with this
Study.
"Protocol" shall mean the Protocol and Statement of Work as attached hereto
as Exhibit "A".
"Study" shall mean the clinical studies, examinations and collection of
patient data using the Study Device as described in the Protocol, conducted and
collected at the Institution's premises from patients examined by the
Investigator.
"Study Device" shall mean integrated thermal imaging data acquisition
system for breast cancer screening, the interpretive algorithm analysis process
and the clinical evaluation and display device/software which are to be used or
administered during the Study in accordance with the provisions of the Protocol.
"Institution Intellectual Property" shall mean individually and
collectively all inventions, improvements and discoveries, whether or not
covered by intellectual property protection, which are conceived or made by one
or more employees of Institution in conducting the Study and which are not Joint
Intellectual Property or Sponsor's Intellectual property.
"Joint Intellectual Property" shall mean individually and collectively all
inventions, improvements and discoveries, whether or not covered by intellectual
property protection, which are conceived or made jointly by one or more
employees of Sponsor and Institution.
1. CONTENTS AND ORDER OF PRECEDENCE
This Agreement consists of this Agreement and the following documents which
shall be referred to collectively herein as the "Transaction Documents":
a. Exhibit "A" - Protocol and Statement of Work; and
b. Exhibit "B" - Confidentiality Agreement dated November 7, 1996.
In the event of any conflict between such Exhibits and this Agreement, the terms
of this Agreement shall control.
<PAGE>
2. PERFORMANCE OF THE STUDY
2.1 Institution shall perform the Study substantially in accordance with
the protocol and the terms and conditions of this Agreement. Sponsor and
Institution may at any time amend the Study and this Agreement by mutual written
consent.
2.2 In the event that the Principal Investigator becomes unable or
unwilling to continue the Study and a mutually acceptable substitute is not
available, both the Institution and the Sponsor shall have the option to
terminate this Agreement. The Principle Investigator and any and all other
person involved in the Study (collectively the "Investigator(s)" shall execute
the Confidentiality Agreement substantially in the form attached hereto or
Exhibit "B", (the "Confidentiality Agreement") prior to beginning any activities
associated with the Study.
2.3 Nothing in the Agreement shall be construed to limit the freedom of
Investigators, whether participants in this Agreement or not, from engaging in
similar studies made independently under other grants, contracts or agreements
with parties other than Sponsor, provided said investigations are not in
conflict or violate the terms and conditions of this Agreement and the
Confidentiality Agreement.
2.4 In performing the Study, Institution and Principal Investigator shall
at all times undertake, comply with, and complete the following:
1. The Protocol;
2. This Agreement;
3. Generally accepted standards of good clinical practice;
4. Instructions provided in writing by Sponsor or Monitor;
5. All applicable federal, state and local laws and regulations
applicable to the conduct of the Study and the performance of clinical
investigators generally including but not limited to the Federal Food,
Drug and Cosmetic Act and regulations of the Food and Drug
Administration;
6. Prepare an appropriate patient informed consent document sufficient to
comply with all local, state, and federal statutory and regulatory
requirements and in form acceptable to each of the parties, and
thereafter to obtain such written consent from each patient or
authorized representative prior to initiation of any procedures
required by the Study;
7. Obtain and forward to Sponsor and Monitor evidence of Institutional
Review Board ("IRB") approval of the Study and the informed consent
document prior to beginning the Study;
8. Obtain and forward to Sponsor and Monitor evidence of ongoing review
of the Study and informed consent document by the IRB at least
annually;
9. Obtain and forward to Sponsor and Monitor evidence of IRB approval of
any advertisement used for the Study prior to the publication or other
use of the advertisement;
10. Review the clinical investigators' brochure and all updates as
provided;
11. Maintain Study and related medical records according to local, state
and federal statutory and regulatory requirements;
12. Immediately notify Sponsor and Monitor, according to procedures
specified by Monitor, of any and all serious and/or unexpected adverse
events as defined by the Study and promptly record such events on an
appropriate case report form ("CRF") agreed to by the parties;
13. Promptly notify Sponsor and Monitor of any pregnancy of any subject
enrolled in the study; and
14. Enroll only qualified subjects in the Study as provided in the
Protocol, or as directed by Sponsor and Monitor.
3. MAINTENANCE OF RECORDS AND FORMS
3.1 Institution agrees to fulfill the obligations imposed by Sponsor for
maintenance of records and reports, and those obligations included in Subpart D
of 21 CFR Chapter 1, Responsibilities of Sponsor and Investigators, a copy of
which is provided by Monitor as a part of the site study manual.
3.2 Principal Investigator shall complete and return accurate CRFs to
Sponsor as described in the Study. Principal Investigator also agrees to ensure
the data captured on the CRFs are consistent with the patient medical
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records, to complete the case report forms in a timely and coherent, legible
fashion, and to have the CRFs completed in advance of any planned monitoring
visits.
3.3 Institution shall retain all records from the Study (including medical
records of enrolled patients) for the period of 5 years and will permit
inspection by Sponsor or its authorized representatives of all such records
during normal business hours. During the period of performance and for a
reasonable period thereafter, Sponsor may make copies of and/or extract
nonconfidential information from such records at Sponsor's expense. For purposes
of this paragraph, confidential information shall mean information which
identifies a specific patient.
4. LICENSES AND QUALIFICATIONS
4.1 Principal Investigator shall have and maintain in full force and
effect any and all professional and other licenses, certificates or documents
required to render the services described in this Agreement and agree to provide
a copy of these licenses, certificates or documents to Sponsor and Monitor upon
request. If any such license is suspended or revoked during the course of the
Principal Investigator's participation in the Study, Institution agrees to
notify Sponsor and Monitor promptly in writing.
4.2 Principal Investigator represents and warrants that he has not been
barred from conducting clinical studies by the US Food and Drug Administration
or any other applicable governmental regulatory agency. Institution agrees to
immediately notify Sponsor and Monitor in writing if the Principal Investigator
is barred during the course of the Study.
4.3 Principal Investigator agrees to provide a current curriculum vitae
which is true, complete and accurate up to the start date of this Agreement,
Investigator agrees that Sponsor may supply copies of the curriculum vitae to
Monitor, the FDA and any other government regulatory agency in connection with
the Study.
4.4 Institution represents and certifies that no investigation or study in
which Principal Investigator has been engaged has been terminated for Principal
Investigator's failure to adhere to protocol, guidelines, or Federal or State
regulations.
5. PERIOD OF PERFORMANCE
The estimated period of performance of this Agreement is 9/1/97 through 9/1/98.
This Agreement shall become effective upon the date of last signature hereto and
shall continue in effect for the full duration of the period of performance
unless sooner terminated in accordance with the provisions of Article 2 or 15.
6. REPORTS
Institution shall furnish Sponsor reports, in the form of case report forms and
logs, in such frequency and format as mutually agreed to by the parties, but in
no event less than every 30 days. A final report setting forth the
accomplishments and significant Study findings or lack thereof shall be prepared
by Institution and submitted to Sponsor within ninety (90) days of the
expiration of the Agreement.
7. COSTS, BILLINGS, AND OTHER SUPPORT
7.1 It is agreed and understood by the parties hereto that, subject to
Article 2, total costs to the Sponsor hereunder shall not exceed the amount of
$385,218.75. Payment shall be made by Sponsor according to the schedule set
forth in Exhibit "A".
7.2 Checks shall be made payable to the Health Research Association,
Federal ID No. 95-1683862, and sent to:
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Health Research Association
Attn. William Dougherty
1640 Marengo Street, 7th Floor
Los Angeles, CA 90033
7.3 In the event of termination of this Agreement pursuant to Article
15 hereof, Sponsor shall pay all costs directly attributable to the Study
accrued by Institution as of dare of termination, including noncancellable
obligations, and for all costs associated with patient follow-up as required
by the Protocol of those already enrolled in the Study.
8. PUBLICITY
Neither party shall use the name, trade name, trademark or other designation of
the other party in connection with any products, promotion or advertising
without the prior written permission of the other party.
9. PUBLICATIONS
The Study to be performed under this Agreement is part of a Multi-Center
Collaborative project. The Institution recognizes that the results generated by
this Study may have added scientific significance when combined and published
together with data generated by other centers involved in the project.
Accordingly, Institution expressly acknowledges that the right to publish the
combined results of the collaborative project belongs to the Sponsor. The
Institution shall have the right to publish the results of this Study but agrees
to refrain from publishing until the Collaborative project is complete, the data
analyzed and the combined results submitted for publication and until the
Sponsor has received final Food and Drug Administration Pre-Market approval or
disapproval. Sponsor shall notify, the Institution within 30 days of
notification from the FDA of their decision.
10. CONFIDENTIALITY
10.1 During the term of this Agreement, Sponsor expects to provide
Institution with the Study Device, Protocol, and other information, data, and
materials related thereto (collectively, the "Confidential Property") which
Sponsor considers confidential or proprietary in nature and which shall be
prominently marked or identified in writing as confidential or propriety.
Institution shall receive and hold such Confidential Property in confidence and
agrees to prevent disclosure of said Confidential Property to employees and
agents of Institution, other than those involved in conducting the Study, and to
all third parties, in the manner Institution treats its own similar information.
10.2 Institution shall not consider information disclosed to it by
Sponsor confidential which: (1) is now common knowledge or subsequently becomes
such through no breach of this Agreement; (2) is rightfully in Institution's
possession prior to Sponsor's disclosure as shown by written records; (3) is
disclosed to Institution by an independent third party that is not under a
separate confidentiality agreement relating thereto; or (4) is independently
developed by or for Institution without benefit of confidential information
received from Sponsor.
11. INTELLECTUAL PROPERTY
11.1 Notwithstanding anything to the contrary in this Agreement, all
right, title, and interest to any intellectual property, including without
limitation inventions, improvements, results, data, and discoveries, that arise
from, relate to or are the direct and specific result of performance of the
Protocol and is directly related to the Study Device, shall belong to the
Sponsor and shall not be considered Institution Intellectual Property.
11.2 All rights and title to any other intellectual property developed
or conceived under this Study (which excludes all other study sites of this
Multi-Center Collaborative project) shall be considered Institution Intellectual
Property, shall belong to Institution and shall be subject to the terms and
conditions of this Agreement.
11.3 Institution will promptly notify Sponsor of any and all Institution
Intellectual Property conceived or made in the performance of work under this
Agreement. Sponsor shall, upon reviewing such notification, determine whether to
request Institution to file, prosecute and maintain any patent application or
application for other intellectual property protection, domestic or foreign, in
Institution's name and whether such property constitutes Institution
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Intellectual Property. Sponsor shall bear all reasonable costs incurred in
connection with preparation, filing, prosecution and maintenance directed to
Institution Intellectual Property. Institution shall keep Sponsor advised as to
all developments with respect to such applications and Sponsor shall be given an
opportunity to review and comment thereon. If Institution and Sponsor are unable
to agree on whether intellectual property conceived or made by Institution under
11.2 constitutes Institution Intellectual Property, Institution may appeal to
arbitration under Section 14.
12. JOINT OWNERSHIP INTELLECTUAL PROPERTY
All rights and title to Joint Intellectual Property under the Study shall belong
jointly to Sponsor and Institution and shall be subject to the terms and
conditions of this Agreement. The parties hereto shall promptly notify each
other of any Joint Intellectual Property conceived or made in the performance of
work under this Agreement. The parties shall, upon reviewing such notification,
determine whether to and which party should file, prosecute and maintain any
patent application or application for other intellectual property protection,
domestic or foreign, jointly in Sponsor's and Institution' names. The parties
shall mutually determine the division of costs incurred in connection with such
preparation, filing, prosecution and maintenance directed to said Joint
Intellectual Property. The applying party shall keep the other party advised as
to all developments with respect to such applications and the non-applying party
shall be given an opportunity to review and comment thereon.
13. GRANT OF RIGHTS
Institution grants Sponsor a time-limited first right to negotiate a commercial
option or worldwide, royalty-bearing license, with the right to sublicense, to
Institution Intellectual Property and to Institution's interest in Joint
Intellectual Property. Such first right must be exercised within six (6) months
after disclosure of Institution Intellectual Property or disclosure of Joint
Intellectual Property in accordance with Articles 11 and 12 above. Institution
and Sponsor shall negotiate the terms of any such license in good faith.
14. ARBITRATION
ANY CONTROVERSY OR CLAIM BETWEEN THE PARTIES ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR A BREACH THEREOF, WHICH CANNOT BE RESOLVED BY MUTUAL AGREEMENT
SHALL BE SETTLED BY BINDING ARBITRATION CONDUCTED BY A SINGLE ARBITRATOR IN
ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION
ASSOCIATION. ANY JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR MAY BE
ENTERED IN ANY COURT HAVING JURISDICTION THEREOF. EACH SUCH ARBITRATION SHALL BE
HELD IN THE COUNTY OF LOS ANGELES, CALIFORNIA.
ALL FEDERAL AND STATE SUBSTANTIVE AND PROCEDURAL LAWS APPLICABLE TO THIS
AGREEMENT RELATING TO ARBITRATION OF CONFLICT SHALL BE FULLY COMPLIED WITH BY
THE PARTIES.
UNLESS THE PARTIES OTHERWISE AGREE, EACH PARTY MAY CONDUCT DISCOVERY PRIOR TO
ANY ARBITRATION HEARING IN ACCORDANCE WITH THE CALIFORNIA RULES OF CIVIL
PROCEDURE AND EVIDENCE. ADDITIONALLY, THERE SHALL BE NO EVIDENCE BY AFFIDAVIT
ALLOWED, AND EACH PARTY SHALL DISCLOSE A LIST OF ALL DOCUMENTARY EVIDENCE TO BE
USED, A LIST OF ALL WITNESSES AND EXPERTS TO BE CALLED BY THE PARTY AT LEAST
TWENTY (20) DAYS PRIOR TO THE ARBITRATION HEARING.
TO THE MAXIMUM EXTENT PERMITTED BY LAW, EACH PARTY KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY WAIVES ANY RIGHT TO CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES
REGARDLESS OF THE FORUM FOR THE PROCEEDINGS. THE PROVISIONS OF THIS SECTION
SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT FOR ANY REASON WHATSOEVER.
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15. EXPORT
Sponsor agrees that it will at all times be in compliance with the United States
government export regulations and laws and that any sub-Sponsor Agreement will
require that the sub-Sponsor is in compliance with these regulations and laws.
Sponsor asserts that it is not now doing business with any country to which the
United States government prohibits export of products under consideration in
this Study.
16. TERMINATION
16.1 If a party hereto breaches a material term, covenant or condition
of the Transaction Documents or this Agreement, the non-breaching party may,
terminate this Agreement. Prior to termination, the non-breaching party shall
provide written notice of default, which shall inform the breaching party of the
facts and circumstances upon which such default is based and which shall provide
the breaching party with thirty (30) days in which to cure such breach or such
longer period as the parties may agree or as applicable law may require. If such
breach is not cured within the specified time period, the non-breaching party
may terminate this Agreement by providing written notice of such termination to
the defaulting party.
16.2 This Agreement may be terminated immediately by Sponsor upon
written notice to Institution in the event of any adverse patient reaction. Upon
receipt of a termination notice from Sponsor, the Institution shall stop
enrolling and treating patients under the Study to the extent consistent with
generally accepted standards of good medical practice and patient safety.
16.3 Termination of this Agreement by either party for any reason shall
not effect the rights and obligations of the parties accrued prior to the
effective date of termination.
16.4 Principal Investigator's participation in the Study will
automatically terminate upon receipt of notice that:
1. Any license required to be held by Investigator is suspended or
revoked during the course of the Investigator's participation in the Study; or
2. Investigator has been debarred from conducting clinical studies by
the US Food and Drug Administration.
16.5 In addition to termination under 16.1 and 16.2, Sponsor may
terminate Institution's participation in the Study upon written notice to
Institution in the event that:
1. Sponsor terminates the Study; or
2. Overall study enrollment goals have not been met, even if
Investigator's individual enrollment has not been reached.
16.6 Institution may terminate participation in the Study if it becomes
unwilling or unable to continue to serve, provided Sponsor is provided at least
thirty (30) days advance written notice, in order to give Sponsor an opportunity
to identify and engage a replacement Investigator.
16.7 Upon termination of this Agreement: (i) the Investigator shall stop
enrolling patients into the Study; (ii) shall cease conducting procedures on
patients already enrolled in the Study, except to the extent such procedures are
medically necessary and permissible, and (iii) both Institution and Investigator
shall return to Sponsor any and all Confidential Property which is in
Institution's, Investigator's, or any of their employee's or agent's possession
or control.
17. WARRANTIES
17.1 Institution agrees to perform the Study in accordance with
prevailing professional standards.
17.2 INSTITUTION MAKES NO WARRANTIES FOR ANY PURPOSE WHATSOEVER, EXPRESS
OR IMPLIED, AS TO THE STUDY OR THE RESULTS OF THE STUDY, INCLUDING THE
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MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE STUDY OR THE RESULTS
OF THE STUDY UNDER THIS AGREEMENT. Neither the Principal Investigator, Sponsor,
nor any other person is authorized to give any such warranty in the name of or
on behalf of Institution.
17.3 Sponsor agrees that it will not rely solely upon technical
information provided by Institution or the Principal Investigator in developing
any invention or product, but will independently test, analyze and evaluate all
inventions and products prior to manufacture and distribution of such inventions
and products.
17.4 Neither Institution nor Investigator shall make any warranty or
representations, including but not limited to a warranty or representation of
the efficacy of the Study Device, without the express written permission of
Sponsor and Sponsor will not be liable for any unauthorized warranty or
representation made by Investigator.
18. INSURANCE AND INDEMNIFICATION
18.1 At all times during the conduct of the Study under this Agreement,
Institution agrees to maintain at its sole cost and expense appropriate and
adequate professional and general commercial liability insurance, such
protection being applicable to and covering negligent acts/omissions of
officers, employees and agents while acting within the scope of their employment
by Institution, on an occurrence made basis in single limit coverage of not less
than One Million Dollars ($1,000,000) per claim or incident and One Million
Dollars ($1,000,000) annual aggregate for death, bodily injury, illness or
property damage to support the indemnification obligations of Institution in
Section 18.4 hereof. A Certificate evidencing each such policy shall be
delivered to Sponsor upon request.
18.2 Sponsor agrees to hold harmless, indemnify and defend Los Angeles
County, Institution, it's trustees, officers and agents from demands, claims, or
costs of judgments that may be made or instituted against any of them by reason
of injury or death to any person, or damage to property arising out of and
related to performance of Study, provided however, Sponsor will have no
liability for loss or damage resulting from: (I) failure to adhere to the
protocol or Sponsor's written instructions concerning use of the study device
(II) Failure to comply with applicable FDA or other government requirements, or
(iii) negligence or willful malfeasance by Institution, it's trustees, officers,
agents or employees, but only to the extent that such demands, claims or
judgments are due to the negligence or will full malfeasance of Institution, its
trustees, officers, agents or employees.
18.3 At all times during this Study, Sponsor agrees to maintain at its
sole cost and expense a policy or program of comprehensive general liability
insurance or self-insurance on an occurrence made basis in single limit coverage
of not less than One Million Dollars ($1,000,000) per incident and One Million
Dollars ($l,000,000) annual aggregate for death, bodily injury, illness or
property damage to support the indemnification obligations assumed herein.
Sponsor shall maintain such comprehensive general liability insurance during the
period that the Study or any modification thereof is being administered,
manufactured, sold, or distributed to humans by the Sponsor and a reasonable
period thereafter which in no event shall be less than two (2) years. A
Certificate evidencing the comprehensive general liability policy shall be
delivered to Institution upon request.
18.4 Institution agrees to hold harmless, indemnify and defend Sponsor
from all liabilities, demands, damages, expenses, and losses arising out of and
related to Institution's or Principal Investigator's gross negligence or willful
misconduct.
19. INDEPENDENT CONTRACTOR
19.1 Institution is an independent contractor and not an agent, joint
venture or partner of Sponsor.
19.2 Investigator is an employee of Institution which is an independent
contractor of Sponsor for all purposes and not an employee, as that term is
understood for purposes of federal and state law. Nothing in this Agreement
shall be deemed to constitute a partnership or joint venture between Sponsor and
Institution, nor shall anything in this Agreement be deemed to constitute
Investigator or Sponsor as the agent of the other. Neither Investigator,
Institution nor Sponsor shall become liable or bound by any representation, act
or omission whatsoever of the other, except to the extent expressly provided in
this Agreement.
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20. GOVERNING LAW
This Agreement shall be governed and construed in accordance with the laws of
the State of California as adjudicated by a court of competent jurisdiction.
21. ATTORNEYS' FEES
In any action on or concerning this Agreement, the prevailing party shall
awarded its reasonable attorneys' fees, costs and necessary disbursements, to be
paid by the nonprevailing party.
22. ASSIGNMENT
Neither party shall assign its rights or duties under this Agreement to another
without the prior written consent of the other party, except to any party
succeeding to substantially all of the business interests of the assigning
party.
23. INSPECTION AND ACCESS
Sponsor's authorized representatives and regulatory authorities may examine and
inspect the Institution's facilities required for performance of the Study and
inspect and copy all data and work products relating to the Study. Inspections
will be conducted during regular business hours upon reasonable notice and to
the extent permitted by law and until the Sponsor has received final Food and
Drug Administration Pre-Market approval or disapproval.
24. RESEARCH MATERIALS
24.1 Institution acknowledges that the Study Device and all other
property and materials being provided to Investigator by Sponsor in connection
with the Study is to be used only for research purposes in connection with the
Study. Institution and Investigator shall have no license or authority to use
any such item in any other context or for any other purpose.
24.2 Institution also agrees to use the Study Device only in the space
approved by Monitor or Sponsor in accordance with documentation provided by
Monitor or Sponsor. Investigator agrees to maintain adequate records of the use
of the Study Device. In addition, Institution agrees to return Study Device all
other property and materials being provided to Investigator by Sponsor in
connection with the Study upon termination or completion of the Study.
25. WAIVER AND SEVERABILITY
25.1 No waiver by either party of any breach of any provision hereof
shall constitute a waiver of any other breach of that or of any other provision
hereof.
25.2 In the event a court or governmental agency of competent
jurisdiction holds any provision of this Agreement to be invalid, such holding
shall have no effect on the remaining provisions of this Agreement, and they
shall continue in full force and effect. Upon such holding, the parties shall,
within a reasonable period of time, determine whether the severed provision(s)
detrimentally and materially affect the obligations or performance of either or
both parties. If so affected, the parties shall, within a reasonable period of
time, negotiate in good faith to modify this Agreement to relieve such effects.
If such negotiations do not result in mutually agreeable modifications to this
Agreement, either effected party may terminate this Agreement upon providing the
other party with thirty (30) days written notice of such termination.
25.3 Sections 3.3, 6, 7.3, 9, 10, 11, 12, 13, 14, 17, 22, 24 and this
25.3 shall survive the termination of this Agreement for any and all reasons
whatsoever.
26. AGREEMENT MODIFICATION
This Agreement may be modified or amended, including extension of the term of
this Agreement, at any time only by the written concurrence of both parties.
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27. NOTICES
Any notices given under this Agreement shall be in writing and delivered to the
following addresses by return receipt mail, postage prepaid, or by overnight
courier service. Such notices shall be effective upon the third business day
following mailing, if by mail, or upon receipt, if by courier.
For Sponsor:
Thermal Medical Imaging, Inc.
1760 South Telegraph Road, Suite 202
Bloomfield Hills, MI 48302
Attention: Bill Black
For Institution:
Health Research Association
Attn: Chief Operating Officer
1640 Marengo Street, 7th Floor
Los Angeles, CA 90033
Copy to: Dr. William R. Dougherty
For Monitor:
QBRI International, Inc.
1300 North 17th Street
Arlington, VA 22209
703.276.0400
703.243.9746(facsimile)
28. THIRD PARTY RIGHTS
This Agreement shall not create any rights, including without limitation
third-party beneficiary rights, in any person or entity not a party to this
Agreement.
29. ENTIRE AGREEMENT
This Agreement constitutes the entire understanding between the parties hereto
and there are no collateral, oral or written Agreements or understandings. This
Agreement supersedes any prior oral or written Agreement or understanding
between the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement in two or more
counterparts, each as an original and all together as one instrument as of the
date of last signature below written.
THERMAL MEDICAL IMAGING, INC. HEALTH RESEARCH ASSOCIATION
By: /s/ William Black, Jr. By: /s/ Julie P. Thompson.
----------------------------------- -------------------------------
Name: William Black, Jr. Name: Julie P. Thompson
----------------------------- ------------------------------
Title: Vice President of Operations Title: President and CEO
------------------------------- ----------------------------
Date: 8/12/97 Date: 9-16-97
-------------------------- -----------------------------
9
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By /s/ William Dougherty
--------------------------------
Name: William Dougherty
------------------------------
Title: Principle Investigator
----------------------------
10
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EXHIBIT A
PROTOCOL AND STATEMENT OF WORK
[SEE EXHIBIT 10(WW]
1
<PAGE>
EXHIBIT A
PAYMENT SCHEDULE
In accordance to the budget detail sheet set forth herein, payments will be made
to:
Health Research Association
Attn. William Dougherty
1640 Marengo Street, 7th Floor
Los Angeles, CA 90033
Invoices for work performed shall be sent to:
Thermal Medical Imaging
Attn. Bill Black
1760 South Telegraph Road, Suite 202
Bloomfield Hills, MI 48302
Payments will commence within thirty (30) days from the receipt of a detailed
invoice following the installation of the first device at either Norris Cancer
Hospital or Los Angeles County General Hospital. Initial payment shall be in
the amount of $48,596.75.
Subsequent payments shall be made monthly following a detailed invoice in the
amount of $30,602.
1
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EXHIBIT B
EXCHANGE OF CONFIDENTIAL INFORMATION
1
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EXCHANGE OF CONFIDENTIAL INFORMATION
This Agreement, made and entered by and between Thermal Medical Imaging, Inc., a
Nevada Corporation, with a place of business at 1760 South Telegraph Road, Suite
202, Bloomfield Hills, MI 48302 (hereinafter referred to as TMI), and Heath
Research Association, a California, non-profit corporation with a place of
business at 1640 Marengo Street, 7th Floor, Los Angeles, CA 90033 (hereinafter
referred to as HRA), all or each of which shall also hereinafter be referred to
as "party" or "parties" respectively, and is effective on the date of last
signature hereto.
RECITALS
For the mutual benefit of both parties, each party wishes to disclose to and/or
to receive from the other certain technical data, information, ideas and
documents to be used in conjunction with the project as described in the letter
dated 31 October 1996 from TMI to Mr. Pablo Valencia and attached hereto as
Attachment 1 (hereinafter "Project"), and which may or may not have been
patented or constitute bases of patentable inventions, but which the disclosing
party nevertheless considers to be Confidential and so indicates by an
appropriate legend, marking, stamp or other positive identification. Such
information, data and ideas shall hereinafter be identified as "Confidential
Information."
AGREEMENTS
Now therefore, the parties do hereby mutually agree that:
1. Confidential Information as defined above includes information or documents
whether or not they qualify as "trade secrets" under applicable Federal or state
law.
2. Each party shall receive and hold such Confidential Information in
confidence and agrees to use its reasonable efforts to prevent unauthorized
disclosure to third parties of said Confidential Information in the same manner
the receiving party uses to protect its own similar information, provided,
however, that neither party shall be liable for use or disclosure of any
Confidential Information if the same:
a. was in the public domain at the time it was disclosed;
b. entered the public domain through no fault of the receiving party
subsequent to the time it was communicated by the disclosing party;
c. was in the receiving party's possession free of any obligation of
confidence at the time it was communicated by the disclosing party;
d. was rightfully communicated to the receiving party by a third party
free of any obligation of confidence subsequent to the time it was
communicated by the disclosing party;
e. was developed by employees or agents of the receiving party without
reference to any information that the disclosing party has communicated to
any third party.
3. If Confidential Information is disclosed, and such information has
importance with respect to intellectual property, such information shall be
reduced to writing promptly by the disclosing party and every page shall be
clearly identified with the legend described above. Such writing shall be
delivered to the receiving party within thirty (30) days after the
disclosure thereto of said Confidential Information.
4. No Confidential Information disclosed pursuant to this Agreement shall be
used, duplicated or disclosed for purposes other than contemplated by the
Project indicated above without the prior written approval of the
disclosing party.
5. No license under any patent or patent application is granted to either
party either directly or indirectly by this Agreement, nor are any rights
of ownership in the Confidential Information granted by this Agreement.
2
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6. This Agreement shall remain in force for a period of three (3) years. This
Agreement may be terminated by either party with a thirty (30) day prior
written notice to the other party.
7. Confidential Information shall be disclosed only on a need-to-know basis to
personnel of the receiving party.
8. If the Confidential Information is reproduced in whole or part, the
reproduction shall carry a Confidential notice or legend similar to that
which appears on the original.
9. Nothing in this Agreement shall grant to either party the right to make
commitments of any kind, for or on behalf of the other party.
10. This Agreement is not intended to be, nor shall it be considered as, a
"team" arrangement, joint venture, partnership, or other formal business
organization, and unless otherwise agreed, neither party shall have the
right or obligation to share any of the profits or bear any of the risks or
losses of the other party. At all times the parties shall remain
independent contractors with each responsible for its own employees and
representatives. Each party assumes no responsibility to the other for
costs, expenses, risks and liabilities associated with the research,
development, exchange and use of each other's Confidential Information.
11. No rights or obligations other than those expressly recited herein are to
be implied from this Agreement, including any requirement that either party
contract with the other for the procurement of any products, services or
data resulting from this Agreement.
12. Each employee who has had or is granted access to the other party's
Confidential Information shall be informed of the obligation to protect the
Confidential Information of such other party from unauthorized use or
disclosure as herein provided.
13. When this Agreement is terminated as herein provided, or if the
Confidential Information received hereunder is no longer required by the
receiving party, whichever occurs first, then unless otherwise agreed in
writing by the parties, and as directed by the disclosing party, all copies
of the disclosing party's Confidential Information in the possession of the
receiving party shall be returned or destroyed. The receiving party shall
notify the disclosing party in writing when such return or destruction has
been accomplished.
14. This Agreement is deemed to be made under and shall be construed in all
respects in accordance with the Law of the State of California.
15. Each party shall designate personnel for disclosure and receipt of any
Confidential Information hereunder, and all such Confidential Information
shall be addressed to such designated personnel when delivered to the other
party. Such designation of personnel may be amended by letter addressed to
the person who executed this Agreement on behalf of the other party.
The following personnel are initially designated for disclosure and/or
receipt of Confidential Information under this Agreement.
TMI: Health Research Association
William Black Lisa Pratt, COO
Kenneth Dodd ------------------------------------
Simona Gallagher ------------------------------------
Dr. William Dougherty
16. Neither party shall have any liability for any activity of the other party
in using Confidential Information provided under this Agreement. A
receiving party shall indemnify and hold the disclosing party harmless from
and against any loss, cost or liability arising out of any claims or cause
of action for loss, harm or damage to property or for injury to or death of
persons caused or resulting from any use by a receiving party of
Confidential Information.
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17. This Agreement supersedes all prior understandings and communications
between the parties on the subject matter of this Agreement and shall apply
in lieu of and notwithstanding any specific legend or statement associated
with any information or data exchanged between parties.
Executed for the parties by their respective representatives who are duly
authorized to execute this Agreement.
TMI, Inc. Heath Research Association
/s/ William Black /s/ Julie P. Thompson
- ------------------------------ ----------------------------------------
(Signature) (Signature)
William Black Julie P. Thomson
- ------------------------------ ----------------------------------------
(Name) (Name)
VP of operations President and CEO
- ------------------------------ ----------------------------------------
(Title) (Title)
8/12/97 9-16-97
- ------------------------------ ----------------------------------------
(Date) (Date)
4
<PAGE>
EXHIBIT 10(rr)
CONTRACT BETWEEN
TRW SYSTEMS INTEGRATION GROUP and THERMAL MEDICAL IMAGING, INC.
STRATEGIC SYSTEMS DIVISION 30150 TELEGRAPH RD.
POST OFFICE BOX 1310 BINGHAM FARMS, MICHIGAN
SAN BERNARDINO, CALIFORNIA
CONTRACT NUMBER: TRW-96-001 TERMS: NET 30 DAYS
COST PLUS FEE CONTRACT
This Contract is entered into June 19, 1996 between TRW Inc., an Ohio
corporation, operating through its Systems Integration Group, Strategic Systems
Division, having an office at San Bernardino, California 92402 (hereinafter also
called "TRW" or "Seller") and Thermal Medical Imaging, Inc. a Nevada company
(also called "TMI" or "Buyer").
WITNESSETH THAT:
In consideration of the mutual promises, covenants, and agreements herein set
forth, the Parties agree that the Seller shall furnish and deliver to the Buyer
all the goods, and perform all the services set forth for the consideration
stated herein. The rights and obligations of the Parties to this Contract shall
be subject to and governed by this Contract and other documents or
Specifications attached hereto or referenced herein. This Contract supersedes
any and all prior agreements of the parties, whether written or oral, concerning
the subject matter hereof.
This Contract shall not be varied in its terms or conditions by any oral
agreement or representation, or otherwise than by an instrument in writing of
even or subsequent date thereto, executed by both Seller and Buyer.
The article titles used herein are for convenience only and shall in no way be
construed as part of this Contract or as an indication of the meaning of the
particular section.
INDEX OF ARTICLES
<TABLE>
<CAPTION>
ARTICLE
NO. ARTICLE TITLE PAGE
- --- ------------- ----
<S> <C> <C>
I Definitions and Priority 2
II Limits of Agreement 3
III Scope of Work 3
IV Performance and Delivery Schedule 4
V Inspection and Acceptance 4
VI Estimated Cost and Fixed Fee * 4
VII Consideration and Payment 5
VIII Invoices and Remittance 5
IX Payment Terms 5 X
Packaging and Delivery 6
XI Warranty 6
XII Limitation of Liability 7
XIII Indemnification 7
XIV Excused Performance 8
XV Insolvency of Buyer 8
XVI Default 8
XVII Assignment 9
</TABLE>
2
<PAGE>
INDEX OF ARTICLES (Continued)
<TABLE>
<CAPTION>
ARTICLE
NO. ARTICLE TITLE PAGE
- --- ------------- ----
<S> <C> <C>
XVIII Notices 9
XIX Governing Law - Arbitration 10
XX Taxes 10
XXI Contract Management 10
XXII Notice of Delay 11
XXIII Reports 11
XXIV Intellectual Property Rights & New Technology & Data Rights * 11
XXV Patents Infringement 12
XXVI Changes 13
XXVII Modification and Waiver 14
XXVIII Severability 14
XXIX Counterparts 14
XXX Remedies 14
XXXI Proprietary Information and Non-Disclosure 14
XXXII System Integration Rights * 15
XXXIII Buyer Furnished Software and Property 16
</TABLE>
*- These portions have been omitted under a request for confidential treatment
ARTICLE I - DEFINITIONS AND PRIORITY
A. The following words and phrases shall have the meanings set forth below:
1. Contract: This Contract between TRW and TMI includes Appendix A -
Statement of Work, attached hereto and made a part hereof, as may be modified or
supplemented from time to time by agreement by the parties, any TMI Work
Priorities ("TWP"), and similar schedules, work plans, or documents if approved
by both parties from time to time for performing the projects.
2. Estimated Cost: The amount within which it is agreed that the
Statement of Work or any TWP is likely to be accomplished.
3. Fixed Fee: A compensation method which might be approved by the
parties from time to time for a portion of the Statement of Work by which Seller
would be paid an agreed dollar amount for full satisfaction regardless of the
Cost incurred, or Seller may be reimbursed for any Costs incurred allocable to
the appropriate job and paid as agreed amount in addition to Costs for full
satisfaction, for any specific statement of work or TWP for which the parties
agree in advance to be compensated on this basis.
4. Delivery Dates: The dates agreed in the Statement of Work for the
services to be performed at the Site.
5. Services: The services described in the Statement of Work or any TWP
to be provided by TRW.
6. Site: The facility or other location identified in the Statement of
Work as the destination to which transportation is to be arranged for
deliverable items, and at which services are to be performed.
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7. Costs: The actual cost incurred by Seller to perform the work under
this Contract, including the cost of equipment provided and expenses incurred
plus the same burden rates for such costs as TRW charges on government
contracts.
8. Fee: The amount calculated as a percentage of Cost shall be referred
to as the "Fee." The compensation Seller is expected to be paid for the work
under this Contract is Cost reimbursement plus the Fee, although a Fixed Fee may
be subsequently agreed for some work to be subsequently identified according to
a statement of work or TWP.
B. In case of any ambiguous inconsistencies between this Contract and the
Statement of Work or subsequent TWP's or similar work orders, the text of this
Contract shall prevail.
C. This Contract definitizes and applies to work performed pursuant to the
Advanced Authorization to Proceed contained in TMI telefax dated March 26, 1996.
ARTICLE II - LIMITS OF AGREEMENT
The terms and conditions set forth herein constitute the complete and
exclusive statement of all of the terms of the agreement between TRW and TMI
with respect to this Contract, unless different or additional terms and
conditions are hereafter agreed in writing and made a part hereof by Contract
amendment. All prior representations and agreements of the parties are merged
herein and no agent, employee or representative of Seller has the authority to
bind Seller to any other affirmation, representation, promise or warranty
concerning the software or services furnished by Seller, and such are not
enforceable by Buyer unless contained herein. This Contract shall not be
varied, supplemented, qualified, or interpreted by any prior course of dealing
between the parties or by any usage of trade.
ARTICLE III - SCOPE OF WORK
Seller, as an independent Contractor and not as an agent of Buyer, shall,
in conformance with the terms and conditions more particularly set forth herein,
provide the necessary personnel, equipment, and materials and do all things
necessary or incidental to furnish and deliver to the Buyer all requirements set
forth in Appendix A - STATEMENT OF WORK, dated 20 May 1996, as revised or
amended from time to time.
ARTICLE IV - PERFORMANCE AND DELIVERY SCHEDULE
The period of performance shall be from the effective date hereof until
approximate 10,000 cases have been collected and analyzed (estimated to be eight
(8) to fourteen (14) months), excluding the clinical implementation phase
referenced in the Statement of Work. The Seller shall provide the ARTICLE XXIV.
(A) materials, perform the services, and complete the data collection and
analyses required by ARTICLE III- SCOPE OF WORK within the period of
performance. Seller shall request clarifications or instructions from Buyer if
the Statement of Work or instructions from Buyer are not clear or are ambiguous
as the project progresses.
ARTICLE V - INSPECTION AND ACCEPTANCE
A. Final inspection and acceptance of services shall be made at the sites
designated by Buyer. All services covered by this Contract will be subject to
inspection and test by Buyer to the extent practicable at reasonable times and
places prior to acceptance. Any such inspection and test shall be performed in
such manner as to not delay or otherwise interfere with Seller's performance
hereunder.
B. Buyer shall promptly inspect and test the software or services within 5
days of being notified by Seller of their being tendered for test or inspection,
and shall, within ten (10) days after such test or inspection, give written
notice to Seller of any claim that the goods or services do not conform with the
terms of this Contract. If Buyer fails to inspect
4
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and test the goods or services called for above, Buyer will be held to have
accepted the goods or services with all defects that inspection and testing
would have revealed, subject to Seller's obligations under ARTICLE XI, and to
have waived all rights Buyer may have had to revoke acceptance after said ten
(10) day period. Notwithstanding the foregoing, Buyer may notify Seller of a
reasonable delay and toll the inspection period.
ARTICLE VI - ESTIMATED COST AND FIXED FEE
[REDACTED DUE TO CONFIDENTIALITY: THE MATERIAL IN THIS ARTICLE HAS
BEEN OMITTED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT. ACCORDINGLY,
THE MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.]
ARTICLE VII - CONSIDERATION AND PAYMENT
Seller shall submit invoices monthly identifying work performed, Costs
incurred and the applicable Fee, consisting of the total payable. At the end of
Seller's work required by the Contract, a final invoice containing all unpaid
Cost incurred and uninvoiced Fee, if any, shall be submitted and paid.
ARTICLE VIII - INVOICES AND REMITTANCE
A. Invoices for payments hereunder shall be submitted to the following
address:
Mr. Kenneth Dodd, President
Thermal Medical Imaging, Inc.
30150 Telegraph Road Suite 177
Bingham Farms, MI 48025
B. Remittance shall be made by check to:
TRW Inc.
Accounts Receivable
Lock Box File No. 41818
Los Angeles, CA 90074-1818
ARTICLE IX - PAYMENT TERMS
Payment terms are net thirty (30) days after date of Seller's invoice. The
first invoices, however, will not be submitted before June 30, 1996. Seller
preserves the right at any time to suspend credit or to change credit terms
provided herein, when the financial condition of Buyer reasonably so warrants.
In such case, in addition to any other remedies herein or by law provided, cash
payment or satisfactory security from Buyer may be required by Seller before
shipment, or the due date of payment by Buyer under any Contract or order with
Seller may be accelerated by Seller. Failure to pay invoices at maturity date
makes all subsequent invoices immediately due and payable, irrespective of
terms, and Seller may terminate work and/or withhold all subsequent deliveries
until the full account is settled.
ARTICLE X - PACKAGING AND DELIVERY
Packaging and packing of all items for delivery shall be in accordance with
good commercial practice and adequate to assure safe arrival at destination.
The delivery point of all items to be delivered by Seller hereunder shall be F.
O. B. Origin.
ARTICLE XI - WARRANTY
A. Software
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For six (6) months commencing upon the date software installation is
accepted by Buyer at the designated site, TRW warrants that the software
modified or developed by TRW, excluding defects existing at the time of delivery
to TRW in the coding of the software originating from any third party, shall
substantially conform to professional quality, standard industry practices, the
TRW Software Guidelines, and the purpose and requirements set forth in Appendix
A - STATEMENT OF WORK and any implementing TWP or other document referencing the
software description. If any of the TRW modified or developed software fails to
comply with the warranty set forth in this paragraph, TRW shall make a
reasonable effort to correct the program errors either (a) without increase to
the Fixed Fee or Cost of the Contract or (b) without increase to the Fee but
with reimbursement of Costs, if Buyer's instructions were ambiguous and unclear
and Seller's action was reasonable. Any corrected software will be warranted
for the remainder of the original warranty period or thirty (30) days, whichever
is longer. Notwithstanding any other provision of this ARTICLE XI, TRW does not
warrant that software provided hereunder is free of all errors or omissions.
Further, TRW does not warrant that the functions contained in the delivered
software will meet Licensee's requirements or will operate in combinations other
than as specified by TRW, or that the operation of the software will be
uninterrupted or error free or that all program defects can be corrected.
Seller will transfer to Buyer the benefit of any third party warranties to the
extent allowable by the third parties.
B. Services
1. All services performed by TRW will be of professional quality and
conform to standard industry practices and be in accordance with the Statement
of Work and any TWP or other document specifying the particular purpose of the
services approved by the parties. Any services which are actually defective
will be re-performed with reasonable promptness, after written notification is
received, and if said notice is made promptly after discovery of such defect,
and in no event later than six (6) months from the date of acceptance thereof.
In such event, to perform any such re-work or transportation caused thereby,
either (a) no additional Fee or duplicated Cost shall be allowed, or (b) only
Costs shall be reimbursed if Buyer's instructions were ambiguous and Seller
reasonably provided the services. If services are to be performed pursuant to a
software warranty, the software warranty standard and conditions apply. Buyer
shall notify Seller in writing of any defect, furnish relevant information with
respect thereto.
2. In instances when re-performance of a defective service is
impractical, and at TRW's sole discretion, an equitable adjustment of the earned
Fee and Costs of the affected item may be offered in lieu of re-performing the
service.
C. ANY OTHER PROVISIONS OF THIS CONTRACT TO THE CONTRARY NOTWITHSTANDING, THIS
WARRANTY, EXCEPT AS TO TITLE, IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE,
WHETHER ARISING BY LAW, CUSTOM, CONDUCT OR USAGE OF TRADE. IN NO EVENT SHALL
EITHER PARTY BE LIABLE FOR INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL
(EXCEPT AS MAY BE ATTRIBUTABLE TO ARTICLES XIII, XXIV, XXV, OR XXXI), OR
PUNITIVE DAMAGES.
ARTICLE XII - LIMITATION OF LIABILITY
Neither party in any event shall be liable for indirect, incidental,
special or consequential (except as may be attributable to ARTICLES XIII, XXIV,
XXV, OR XXXI) or punitive damages, including such liability for improper
disclosure or misuse by others (who are not its agents) of any data gathered or
processed by the systems delivered under this Contract. Any special or
consequential damages permitted under this Contract may not exceed One Million
Dollars. Seller shall not be liable for incorrect or inappropriate responses or
incorrect diagnosis resulting from the data gathering or processing performed by
the systems delivered under this contract. Seller's liability for damages to
Buyer on any claim, including negligence, for any loss or damage resulting from
the performance or breach thereof, or the design, manufacture, sale, delivery,
resale, installation, technical direction of installation, inspection, repair,
operation or use of any software, data, goods or services covered by or
furnished under this Contract, shall in no case exceed the estimated value cited
in ARTICLE VI B.
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ARTICLE XIII - INDEMNIFICATION
To the extent that Seller's or Buyer's agents, employees or subcontractors
enter upon premises occupied by or under the control of the other party in the
course of the performance of this Contract, the parties shall take all necessary
precautions to prevent the occurrence of any injury (including death) to any
persons, or of any damage to any property arising out of acts or omissions of
such agents, employees or subcontractors, and except to the extent that any such
injury or damage is due solely and directly to the other party's gross
negligence or willful misconduct, shall indemnify the other party, its officers,
employees and agents, against any loss, claims, damages, liability, expense
(including reasonable attorney fees) and cause of action whatsoever arising out
of any act or omission of the party, its agents, or employees, and both parties
shall maintain such Public Liability, Property Damage and Employee's Liability
and Compensation Insurance as will protect the other party from any of said
risks and from any claims under any applicable Workmen's Compensation and
Occupation Disease Acts. Furthermore, each party agrees to hold harmless and
indemnify the other from any third-party claim against one party arising from
the other party's negligence or intentional misconduct.
ARTICLE XIV - EXCUSED PERFORMANCE
In addition to any excuse provided by applicable law, Seller and Buyer
shall be excused from liability for non-delivery, delay in delivery, or delivery
of non conforming goods or services arising from any events beyond its control,
whether or not the events were foreseeable by either party when entering into
the Contract, specifically including, but not limited to, war, riot, strikes,
lockouts, labor disturbances, resignation or death of any of key personnel,
energy or material shortages, fire, flood, earthquake or other natural
catastrophe, Federal, State or Local government requirement or proscription,
breach of contract or other failure of a subcontractor to perform, or
impossibility, including practical impossibility, to perform the services called
for herein or to develop the software without going beyond the state of the art.
Unless expressly provided in writing herein to the contrary, Seller and Buyer
shall not be deemed to have assumed the risk of any of the above circumstances.
In such event, Seller shall be entitled to compensation on an equitable basis
for any benefit received by Buyer in retaining non conforming software or
utilizing non conforming services.
ARTICLE XV - INSOLVENCY OF BUYER
If Buyer takes any action to make Seller believe Buyer may become bankrupt
or insolvent, ceases business, or to pay bills during the term of this Contract,
Seller may forthwith terminate this Contract upon written notice thereof to
Buyer. Such termination shall not prejudice Seller's rights to any amounts then
due under this Contract or effect any other rights Seller may have under
applicable provisions of controlling law.
ARTICLE XVI - DEFAULT
A. An Event of Default on the part of either party shall exist if:
1. Such party fails to pay the other party any amount required to be paid
hereunder when due and payable;
2. Such party fails to perform any other material obligation required to
be performed by it under any provisions of this Contract, or fails to initiate
corrective action within thirty (30) days after receiving notice from the other
party that such performance has become due.
B. Subject to other provisions hereof which expressly limit the remedies
available hereunder, if an Event of Default, as defined in paragraph A above,
exists on the part of either party, then the other party may continue
performance and seek a resolution of any disputed performance according to
Article XIX, or the other party may terminate this Contract upon giving written
notice of termination and pursue any other remedies available at law or in
equity.
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C. Failure by either party to insist upon strict performance of any provision
of this Contract by the other party shall not be deemed to be a waiver by such
party of its rights or remedies, or a waiver by it of any subsequent default by
the other party in the performance of or compliance with any of the terms of
this Contract.
ARTICLE XVII - ASSIGNMENT
A. Neither party shall, without the consent in writing of the other party
assign or transfer this Contract or the benefits or obligations thereof or any
part thereof to any other person other than a subsidiary wholly owned by the
party, provided that this shall not affect any right of TRW to assign, either
absolutely or by way of charge, any moneys due or to become due to it or which
may become payable to it under this Contract.
B. No assignment or transfer of any right or duty hereunder by either party
shall constitute a novation or otherwise release or relieve such party of its
obligations hereunder.
C. The provisions of this Agreement shall be binding upon and inure to the
benefits of Seller and Buyer and their respective successors and assigns. In
the event either party foresees a successor situation developing, the other
party shall be notified in writing. This provision shall not be deemed to
expand or otherwise affect the limitation on assignment and transfers set forth
above and no party is intended to or shall have any right or interest under this
Contract, except, as provided herein.
ARTICLE XVIII- NOTICES
Any notices required to be given hereunder shall be given in writing at the
address of each party herein set forth or to such other address as either party
may substitute by written notice to the other.
If to Buyer:
Mr. Kenneth Dodd, President
Thermal Medical Imaging, Inc.
30150 Telegraph Road, Suite 177
Bingham Farms, MI 48025
If to Seller:
TRW Inc.
Post Office Box 1310
San Bernardino, CA 92402-1310
ATTENTION: R. R. Townley, SBCA
ARTICLE XIX - GOVERNING LAW - ARBITRATION
All questions concerning the validity and operation of this Agreement and
the performance of the obligations imposed upon the parties hereunder shall be
governed by the laws of the State of California, United States of America.
Any dispute between the parties arising out of or related to this Contract
(or any Statement of Work or TWP or other document executed related to this
Contract) shall be resolved by binding arbitration held in Ogden, Utah, in
accordance with the rules and procedures of the American Arbitration Association
("AAA"). Either party may deliver to the other a written dispute notice setting
forth a description of the issue(s). Appropriate representatives of both
parties will negotiate in good faith within ten (10) days to resolve the
dispute. If the parties are unable to resolve the dispute within ten days,
either party may notify the AAA and the other party of a statement of claim to
initiate arbitration. The purpose of arbitration is to promptly resolve all
disputes, including any cost or fee dispute or resolution
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of any equitable adjustments or determination of reasonable charges which may
arise during the course of continued performance, because the parties have
agreed to identify work to be performed as the term of the contract progresses
and that all costs and charges shall be reasonable. The AAA shall be the
appointing and administrative authority applying its supplemental and procedural
rules unless the parties agree on other procedures. If the parties cannot
mutually select an arbitrator reasonably acceptable to both parties with five
(5) days of such notice, AAA shall identify three independent candidates for
selection as the sole arbitrator, allowing each party an opportunity to strike
one. The arbitrator shall adhere to deadlines for a prompt resolution.
ARTICLE XX - TAXES
Any direct taxes (including stamp, and turnover taxes but excluding income
taxes), duties, fees, charges, or assessments of any nature levied by any
governmental authority in connection with the work of this Contract, whether
levied against Buyer or TRW, shall be for Buyer's account and shall be paid
directly by Buyer to the governmental authority concerned.
ARTICLE XXI - CONTRACT MANAGEMENT
A. Each party's Contract Manager for this Contract shall be designated in
writing. Either party may, by written notice to the other, change such Contract
Manager at any time. At the commencement of this Contract, Bill Black is the
Contract Manager for TMI, R.R. Townley is the Contract Manager for TRW, and Bob
Mantz is the Project Manager for TRW.
B. No request, notice, authorization, direction or order received by the
Seller shall be binding upon Seller, or serve as a basis for adjusting the
price, or other provision of the Contract unless issued or confirmed in writing
by the Buyer's named Contract Manager. Buyer's Contract Manager shall codify
into the Contract out of scope or over and above activities required by the
Buyer's Program or Technical Representatives. The Seller shall immediately
notify, in writing, the Buyers Contract Manager whenever a change request has
been received from a representative of Buyer other than the Contract Manager
which would affect the terms and conditions, estimated cost, fixed fee,
Statement of Work or Schedules of this Contract.
C. Only TRW's designated Contract Manager or a more senior contracting
individual within the Company is authorized to contractually obligate TRW.
TRW's Project Manager may coordinate and agree to TWP's which prioritize work
required by the statement of work.
ARTICLE XXII - NOTICE OF DELAY
Whenever any actual or potential event is delaying or threatening to delay
delivery of the software or performance of the services under this Contract,
Seller shall give expeditious notice thereof.
ARTICLE XXIII - REPORTS
The Seller shall furnish reports of cost incurred and the progress of
performance monthly. Cost reports shall be submitted within seven (7) days
after the close of TRW's accounting month. Progress reports shall be submitted
as of the end of each calendar month so as to reach Buyer by the 7th day of the
following month.
ARTICLE XXIV - INTELLECTUAL PROPERTY RIGHTS AND NEW TECHNOLOGY AND DATA RIGHTS
[REDACTED DUE TO CONFIDENTIALITY: THE MATERIAL IN THIS ARTICLE HAS
BEEN OMITTED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT. ACCORDINGLY,
THE MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.]
ARTICLE XXV- PATENT INFRINGEMENT
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A. TRW shall indemnify Buyer against all actions, claims, demands, costs,
legal fees, charges, and expenses arising from or incurred by reason of any
infringement or alleged infringement of United States letters patent, design, or
copyright, by the use of any Intellectual Property supplied by TRW but such
indemnity shall not cover any use of the products other than for the purpose
indicated by or reasonably to be inferred from this Contract or to any use which
constitute an infringement due to the use of any such products or software in
association or combination with any other products not supplied by TRW under
such combination is designed by services of TRW.
B. In the event of any claim being made or action brought against Buyer
arising out of the matters referred to in this Article, TRW shall be promptly
notified thereof and may at its own expense conduct all negotiations for the
settlement of the same, and any litigation that may arise therefrom. Buyer
shall not, unless and until TRW shall have failed to take over the conduct of
the negotiations or litigation, make any admission which might be prejudicial
thereto. The conduct by TRW of such negotiations or litigation shall be
conditional upon TRW having first given to Buyer such reasonable security as
shall from time to time be required by Buyer to cover the amount ascertained or
agreed or estimated, as the case may be, of any compensation, damages, expenses,
and costs for which Buyer may become liable. Buyer shall, at the request of
TRW, afford all available assistance for the purpose of contesting any such
claim or action, and shall be repaid all reasonable expenses incurred in so
doing.
C. The foregoing indemnity shall not apply to software products thereof made
to the specification or design of Buyer, or to any claim of patent infringement
which is based upon the combination of any part of the products with other
equipment, except equipment acquired from TRW.
D. The foregoing states the entire liability of TRW with respect to
infringement of patents by the products or any part thereof or by operation
thereof.
ARTICLE XXVI - CHANGES
A. Any changes to this Contract after the effective date hereof which relate
to (i) the deletion of work, (ii) adding additional services, (iii) changing or
modifying work, or (iv) making other changes which do not materially alter the
scope of this Contract shall be made in accordance with the procedures set forth
in this ARTICLE XXVI.
B. Either party hereto may, from time to time, and at any time during the term
hereof request a change, as defined in this Contract. (The party requesting the
change is hereinafter referred to as the ''Requesting Party.'') Requests for
changes or deletion shall be in writing, and shall be addressed and delivered to
the Notified Party. Such writing shall be identified as a "Contract Change
Request" (CCR), shall carry a sequential number for ease of tracking, shall set
forth in detail the nature of the change requested, and shall identify the item,
service, or TWP to be changed.
C. When TRW is the Requesting Party, TRW shall submit a proposal for equitable
adjustment to the Contract Estimated Cost (and Fixed Fee, if any), schedule, or
other affected Contract provision. When the Requesting Party is TMI, a proposal
for equitable adjustment to the Contract will be submitted promptly after
receipt of copies of the CCR. The parties shall, as necessary, negotiate the
change and establish any equitable adjustment to the Contract.
D. If the parties decide to implement a change request, a Contract Change
Notice ("CCN") shall be prepared, which shall describe the change, delineate the
Estimated Cost, Fixed Fee if any, schedule, and other impacts of the change.
Execution of a CCN by both parties, or a revised TWP, shall constitute a
modification hereof and shall be binding on both parties hereto. TRW shall not
proceed on any change until a CCN or revised TWP has been issued.
E. Substitutions of products which are purchased items not manufactured by TRW
may be made by TRW without the consent of Buyer if such substitutes are of like
function and quality and of lower delivered cost.
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XXVII - MODIFICATION AND WAIVER
No cancellation, modification, amendment, deletion, addition, or other
change in the Contract or any provision hereof, or waiver of any right or remedy
herein provided, shall be effective for any purpose unless specifically set
forth in a writing signed by the party to be bound thereby. No waiver of any
right or remedy in respect of any occurrence or event on one occasion shall be
deemed a waiver of such right or remedy in respect of such occurrence or event
on any other occasion.
XXVIII - SEVERABILITY
Any provision hereof prohibited by or unlawful or unenforceable under any
applicable law of any jurisdiction shall as to such jurisdiction be ineffective
without affecting any other provision of the Contract. To the full extent,
however, that the provisions of such applicable law may be waived, they are
hereby waived, to the end that the Contract be deemed to be a valid and binding
agreement enforceable in accordance with its terms.
XXIX - COUNTERPARTS
This Contract has been executed in several counterparts, each of which
shall be deemed to be an original, and all such counterparts together shall
constitute but one and the same instrument.
XXX - REMEDIES
Unless otherwise expressly provided herein, the rights and remedies
hereunder are in addition to, and not in limitation of, other rights and
remedies under the Agreement, at law or in equity, and exercise of one right or
remedy shall not be deemed a waiver of any other right or remedy.
XXXI - PROPRIETARY INFORMATION AND NON-DISCLOSURE
A. During the term of this Contract, TRW and TMI, to the extent of each
party's contractual and lawful right to do so, shall exchange such proprietary
technical and other information as is reasonably required for each to perform
its obligations hereunder. The disclosing party without consent shall be liable
for special or consequential damages. TRW and TMI each agree to keep in
confidence and prevent the disclosure to any person(s) outside their respective
organizations or any person(s) within their organizations not having a need to
know, all information received from the other which is in writing and designated
by appropriate stamp or legend to be of a proprietary nature and to use such
information only in connection with their obligations under this Agreement;
provided, however, that neither party shall be liable for actual special or
consequential damages for disclosure or use of such data if the same is:
1. In the public domain at the time of disclosure, or is subsequently
made available to the general public without restriction by the disclosing
party;
2. Known to the receiving party at the time of disclosure without
restrictions on its use or independently developed by the receiving party, and
there is adequate documentation to demonstrate either condition;
3. Used or disclosed inadvertently despite the exercise of the same
degree of care that each party takes to preserve or safeguard its own
proprietary information;
4. Used or disclosed with the prior written approval of the
non-disclosing party;
5. Disclosed without restriction to the receiving party from a source
other than the disclosing party;
6. Used or disclosed after a period of three (3) years after the date of
receipt.
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B. No sheet or page of any written material will be so labeled which is not,
in good faith, believed to contain Proprietary information. A recipient of
information hereunder will have no obligation with respect to any portion of any
written material which is not so labeled, or any information received orally
unless a written summary of such oral communication, specifically identifying
the item s of Proprietary information, is furnished to the recipient within
fifteen (15) days.
C. If any portion of a party's Proprietary information falls within any one of
the above exceptions, the remainder shall continue to be subject to the
foregoing prohibitions and restrictions.
D. The entire program and business plan for conducting confirmation studies at
Howard University Hospital, and the results from such work, are Proprietary
Information to TMI. Any public statement of such results or progress must be
approved in advance by TMI. Likewise, the contractual relationship between TMI
or CTI and Bales Scientific, Inc. ("BSI"), and the methods, inventions, ideas,
intellectual property, and technology of BSI shall be considered as Proprietary
information and technology or property of TMI. The results of thermal imaging
cases from BSI or from Bille Marie Hospital in Montreal, Canada, and the results
form use of CTI-TM- thermal imaging in China are Proprietary Information.
XXXII - SYSTEM INTEGRATION RIGHTS
[REDACTED DUE TO CONFIDENTIALITY: THE MATERIAL IN THIS ARTICLE HAS
BEEN OMITTED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT. ACCORDINGLY,
THE MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.]
XXXIII - BUYER FURNISHED FACILITIES, SOFTWARE AND PROPERTY
A. Title to all facilities, software and property furnished to Seller by Buyer
(or Buyer's customer or Contractor) or paid for by Buyer shall remain with Buyer
(or Buyer's customer). Seller shall not alter or use such property for any
purpose other than that specified by Buyer without the prior written consent of
Buyer. Seller shall keep adequate records, which shall be made available to
Buyer upon request, and shall store protect, preserve, repair, and maintain such
property in accordance with sound industrial practice. In the event that
Buyer's property becomes lost or damaged through negligence or willful
misconduct by Seller, its employees, agents, or subcontractors, while in
Seller's possession, Seller agrees to replace (if lost or irreparable) or repair
such property, without increase to the Cost or Fixed Fee, at Seller's option.
At the completion of delivery of the goods and services ordered by Buyer in this
Contract for which Buyer's software or property were required, or the
termination of this Contract, Seller shall request disposition instructions for
all such Buyer's software and property, and for all source codes and tools and
documentation required to fully use the New Technologies, or the remainder
thereof. Seller agrees to make such software and property available to Buyer at
Buyer's request, in the manner requested by Buyer.
B. If the aforementioned Buyer-owned facilities, software or property are
increased or decreased, or do not remain available during the performance of
this Contract, or if any change is made in the terms and conditions under which
they are made available to the Seller, an equitable adjustment as may be
appropriate shall be made in the terms of this Contract.
C. TMI agrees to provide TRW within 30 days with the items identified in
Appendix B.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this Contract to be
effective as of the day and year first above written.
TRW Inc. Thermal Medical Imaging, Inc.
Systems Integration Group
/s/ G.R. Sharp /s/ Kenneth M. Dodd
- --------------- -------------------
G. R. Sharp Kenneth Dodd
Manager of Contracting and Pricing President
Strategic Systems Division
Date: 6/19/96 Date: 06-21-96
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APPENDIX A
STATEMENT OF WORK
[REDACTED DUE TO CONFIDENTIALITY: THE MATERIAL IN THIS ARTICLE HAS
BEEN OMITTED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT. ACCORDINGLY,
THE MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.]
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EXHIBIT 10(ss)
CLINICAL TRIAL AGREEMENT
This Clinical Trial Agreement ("Agreement") is entered into by and between
THERMAL MEDICAL IMAGING, INC. ("Sponsor") and the UNIVERSITY OF SOUTHERN
CALIFORNIA ("University"), a California nonprofit educational institution
incorporated under the laws of the State of California.
RECITALS
WHEREAS, the clinical trial contemplated by this Agreement is of mutual
interest and benefit to University and to Sponsor, will further the
instructional, scholarship and Study objectives of University in a manner
consistent with its status as a nonprofit, tax-exempt, educational institution,
and may derive benefits for both Sponsor and University through the discovery of
new knowledge;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree to the following:
DEFINITIONS
"Monitor" shall mean the individual or firm retained by Sponsor to provide
monitoring services for Study utilizing Sponsor's Protocol and Study
Device, initially being QBRI International, Inc.
"Principal Investigator" shall be William R. Dougherty, M.D. who is acting
as a representative for the University in activities associated with this
Study.
(*) "Protocol" shall mean the Protocol and Statement of Work as attached hereto
as Exhibit "A".
"Study" shall mean the clinical studies, examinations and collection of
patient data using the Study Device as described in the Protocol, conducted
and collected at the University's premises from patients examined by the
Investigator.
"Study Device" shall mean integrated thermal imaging data acquisition
system for breast cancer screening, the interpretive algorithm analysis
process and the clinical evaluation and display device/software which are
to be used or administered during the Study in accordance with the
provisions of the Protocol.
"University Intellectual Property" shall mean individually and collectively
all inventions, improvements and discoveries, whether or not covered by
intellectual property protection, which are conceived or made by one or
more employees of University in conducting the Study and which are not
Joint Intellectual Property or Sponsor's Intellectual property.
"Joint Intellectual Property" shall mean individually and collectively all
inventions, improvements and discoveries, whether or not covered by
intellectual property protection, which are conceived or made jointly by
one or more employees of Sponsor and University.
1. CONTENTS AND ORDER OF PRECEDENCE
This Agreement consists of this Agreement and the following documents which
shall be referred to collectively herein as the "Transaction Documents":
a. Exhibit "A" - Protocol and Statement of Work; and
b. Exhibit "B" - Confidentiality Agreement dated November 7, 1996.
In the event of any conflict between such Exhibits and this Agreement, the terms
of this Agreement shall control.
<PAGE>
2. PERFORMANCE OF THE STUDY
2.1 University shall perform the Study substantially in accordance with
the terms and conditions of this Agreement. Sponsor and University may at any
time amend the Study and this Agreement by mutual written consent.
2.2 In the event that the Principal Investigator becomes unable or
unwilling to continue the Study and a mutually acceptable substitute is not
available, both the University and the Sponsor shall have the option to
terminate this Agreement. The Principle Investigator and any and all other
person involved in the Study (collectively the "Investigator(s)" shall execute
the Confidentiality Agreement substantially in the form attached hereto or
Exhibit "B", (the "Confidentiality Agreement") prior to beginning any activities
associated with the Study.
2.3 Nothing in the Agreement shall be construed to limit the freedom of
Investigators, whether participants in this Agreement or not, from engaging in
similar studies made independently under other grants, contracts or agreements
with parties other than Sponsor, provided said investigations are not in
conflict or violate the terms and conditions of this Agreement and the
Confidentiality Agreement.
2.4 In performing the Study, University and Principal Investigator shall
at all times undertake, comply with, and complete the following:
1. The Protocol;
2. This Agreement;
3. Generally accepted standards of good clinical practice;
4. Instructions provided in writing by Sponsor or Monitor;
5. All applicable federal, state and local laws and regulations
applicable to the conduct of the Study and the performance of
clinical investigators generally including but not limited to the
Federal Food, Drug and Cosmetic Act and regulations of the Food and
Drug Administration;
6. Prepare an appropriate patient informed consent document sufficient
to comply with all local, state, and federal statutory and
regulatory requirements and in form acceptable to each of the
parties, and thereafter to obtain such written consent from each
patient or authorized representative prior to initiation of any
procedures required by the Study;
7. Obtain and forward to Sponsor and Monitor evidence of Institutional
Review Board ("IRB") approval of the Study and the informed consent
document prior to beginning the Study;
8. Obtain and forward to Sponsor and Monitor evidence of ongoing review
of the Study and informed consent document by the IRB at least
annually;
9. Obtain and forward to Sponsor and Monitor evidence of IRB approval
of any advertisement used for the Study prior to the publication or
other use of the advertisement;
10. Review the clinical investigators' brochure and all updates as
provided;
11. Maintain Study and related medical records according to local, state
and federal statutory and regulatory requirements;
12. Immediately notify Sponsor and Monitor, according to procedures
specified by Monitor, of any and all serious and/or unexpected
adverse events as defined by the Study and promptly record such
events on an appropriate case report form ("CRF") agreed to by the
parties;
13. Immediately notify Sponsor and Monitor of any pregnancy of any,
subject enrolled in the study; and
14. Enroll only qualified subjects in the Study as provided in the
Protocol, or as directed by Sponsor and Monitor.
3. MAINTENANCE OF RECORDS AND FORMS
3.1 University agrees to fulfill the obligations imposed by Sponsor for
maintenance of records and reports, and those obligations included in Subpart D
of 21 CFR Chapter 1, Responsibilities of Sponsor and Investigators, a copy of
which is provided by Monitor as a part of the site study manual.
3.2 Principal Investigator shall complete and return accurate CRFs to
Sponsor as described in the Study. Principal Investigator also agrees to ensure
the data captured on the CRFs are consistent with the patient medical
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records, to complete the case report forms in a timely and coherent, legiable
fashion, and to have the CRFs completed in advance of any planned monitoring
visits
3.3 University shall retain all records from the Study (including
medical records of enrolled patients) for the period of time required by
applicable regulations ("Retention Period") and will permit inspection by
Sponsor or its authorized representatives of all such records. During the period
of performance and for a reasonable period thereafter, Sponsor may make copies
of and/or extract nonconfidential information from such records at Sponsor's
expense. For purposes of this paragraph, confidential information shall mean
information which identifies a specific patient.
4. LICENSES AND QUALIFICATIONS
4.1 Principal Investigator shall have and maintain in full force and
effect any and all professional and other licenses, certificates or documents
required to render the services described in this Agreement and agree to provide
a copy of these licenses, certificates or documents to Sponsor and Monitor upon
request. If any such license is suspended or revoked during the course of the
Principal Investigator's participation in the Study, University agrees to notify
Sponsor and Monitor promptly in writing.
4.2 Principal Investigator represents and warrants that he has not been
barred from conducting clinical studies by the US Food and Drug Administration
or any other applicable governmental regulatory agency. University agrees to
immediately notify Sponsor and Monitor in writing if the Principal Investigator
is barred during the course of the Study.
4.3 Principal Investigator agrees to provide a current curriculum vitae
which is true, complete and accurate up to the start date of this Agreement,
Investigator agrees that Sponsor may supply copies of the curriculum vitae to
Monitor, the FDA and any other government regulatory agency in connection with
the Study.
4.4 University represents and certifies that no investigation or study
in which Principal Investigator has been engaged has been terminated for
Principal Investigator's failure to adhere to protocol, guidelines, or Federal
or State regulations.
(*) 5. PERIOD OF PERFORMANCE
The period of performance of this Agreement is < START DATE > through < END DATE
>. This Agreement shall become effective upon the date of last signature hereto
and shall continue in effect for the full duration of the period of performance
unless sooner terminated in accordance with the provisions of Article 2 or 15.
6. REPORTS
University shall furnish Sponsor reports in such frequency and format as
mutually agreed to by the parties, but in no event less than every 30 days. A
final report setting forth the accomplishments and significant Study findings or
lack thereof shall be prepared by University and submitted to Sponsor within
ninety (90) days of the expiration of the Agreement.
7. COSTS, BILLINGS, AND OTHER SUPPORT
(*) 7.1 It is agreed and understood by the parties hereto that, subject to
Article 2, total costs to the Sponsor hereunder shall not exceed the amount of $
< AMOUNT >. Payment shall be made by Sponsor according to the schedule set forth
in Exhibit "A".
7.2 Checks shall be made payable to the University of Southern
California, Federal ID No. 95-1642394, and sent to:
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University of Southern California
Department of Contracts & Grants
2250 Alcazar St., CSC-219
Los Angeles, CA 90033
Attn: R. Mary Tierney
7.3 In the event of termination of this Agreement pursuant to Article 15
hereof, Sponsor shall pay all costs directly attributable to the Study accrued
by University as of dare of termination, including noncancellable obligations,
and for all costs associated with patient follow-up as required by the Protocol
of those already enrolled in the Study.
8. PUBLICITY
Neither party shall use the name, trade name, trademark or other designation of
the other party in connection with any products, promotion or advertising
without the prior written permission of the other party.
9. PUBLICATIONS
The Study to be performed under this Agreement is part of a Multi-Center
Collaborative project. The University recognizes that the results generated by
this Study may have added scientific significance when combined and published
together with data generated by other centers involved in the project.
Accordingly, University expressly acknowledges that the right to publish the
combined results of the collaborative project belongs to the Sponsor. The
University shall have the right to publish the results of this Study but agrees
to refrain from publishing until the Collaborative project is complete, the data
analyzed and the combined results submitted for publication and until the
Sponsor has received final Food and Drug Administration Pre-Market approval or
disapproval. Sponsor shall notify, the University within 30 days of notification
from the FDA of their decision.
10. CONFIDENTIALITY
10.1 During the term of this Agreement, Sponsor expects to provide
University with the Study Device, Protocol, and other information, data, and
materials related thereto (collectively, the "Confidential Property") which
Sponsor considers confidential or proprietary in nature and which shall be
prominently marked or identified in writing as confidential or propriety.
University shall receive and hold such Confidential Property in confidence and
agrees to prevent disclosure of said Confidential Property to employees and
agents of University, other than those involved in conducting the Study, and to
all third parties, in the manner University treats its own similar information.
10.2 University shall not consider information disclosed to it by Sponsor
confidential which: (1) is now common knowledge or subsequently becomes such
through no breach of this Agreement; (2) is rightfully in University's
possession prior to Sponsor's disclosure as shown by written records; (3) is
disclosed to University by an independent third party that is not under a
separate confidentiality agreement relating thereto; or (4) is independently
developed by or for University without benefit of confidential information
received from Sponsor.
11. INTELLECTUAL PROPERTY
11.1 Notwithstanding anything to the contrary in this Agreement, all
right, title, and interest to any intellectual property, including without
limitation inventions, improvements, results, data, and discoveries, that arise
from, relate to or are the direct and specific result of performance of the
Protocol and is directly related to the Study Device, shall belong to the
Sponsor and shall not be considered University Intellectual Property.
11.2 All rights and title to any other intellectual property developed or
conceived under this Study (which excludes all other study sites of this
Multi-Center Collaborative project) shall be considered University Intellectual
Property, shall belong to University and shall be subject to the terms and
conditions of this Agreement.
11.3 University will promptly notify Sponsor of any and all University
Intellectual Property conceived or made in the performance of work under this
Agreement. Sponsor shall, upon reviewing such notification, determine
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whether to request University to file, prosecute and maintain any patent
application or application for other intellectual property protection, domestic
or foreign, in University's name and whether such property constitutes
University Intellectual Property. Sponsor shall bear all reasonable costs
incurred in connection with preparation, filing, prosecution and maintenance
directed to University Intellectual Property. University shall keep Sponsor
advised as to all developments with respect to such applications and Sponsor
shall be given an opportunity to review and comment thereon. If University and
Sponsor are unable to agree on whether intellectual property conceived or made
by University under 11.2 constitutes University Intellectual Property,
University may appeal to arbitration under Section 14.
12. JOINT OWNERSHIP INTELLECTUAL PROPERTY
All rights and title to Joint Intellectual Property under the Study shall belong
jointly to Sponsor and University and shall be subject to the terms and
conditions of this Agreement. The parties hereto shall promptly notify each
other of any Joint Intellectual Property conceived or made in the performance of
work under this Agreement. The parties shall, upon reviewing such notification,
determine whether to and which party should file, prosecute and maintain any
patent application or application for other intellectual property protection,
domestic or foreign, jointly in Sponsor's and University' names. The parties
shall mutually determine the division of costs incurred in connection with such
preparation, filing, prosecution and maintenance directed to said Joint
Intellectual Property. The applying party shall keep the other party advised as
to all developments with respect to such applications and the non-applying party
shall be given an opportunity to review and comment thereon.
13. GRANT OF RIGHTS
University grants Sponsor a time-limited first right to negotiate a commercial
option or worldwide, royalty-bearing license, with the right to sublicense, to
University Intellectual Property and to University's interest in Joint
Intellectual Property. Such first right must be exercised within six (6) months
after disclosure of University Intellectual Property or disclosure of Joint
Intellectual Property in accordance with Articles 11 and 12 above. University
and Sponsor shall negotiate the terms of any such license in good faith.
14. ARBITRATION
ANY CONTROVERSY OR CLAIM BETWEEN THE PARTIES ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR A BREACH THEREOF, WHICH CANNOT BE RESOLVED BY MUTUAL AGREEMENT
SHALL BE SETTLED BY BINDING ARBITRATION CONDUCTED BY A SINGLE ARBITRATOR IN
ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION
ASSOCIATION. ANY JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR MAY BE
ENTERED IN ANY COURT HAVING JURISDICTION THEREOF. EACH SUCH ARBITRATION SHALL BE
HELD IN THE COUNTY OF LOS ANGELES, CALIFORNIA.
ALL FEDERAL AND STATE SUBSTANTIVE AND PROCEDURAL LAWS APPLICABLE TO THIS
AGREEMENT RELATING TO ARBITRATION OF CONFLICT SHALL BE FULLY COMPLIED WITH BY
THE PARTIES.
UNLESS THE PARTIES OTHERWISE AGREE, EACH PARTY MAY CONDUCT DISCOVERY PRIOR TO
ANY ARBITRATION HEARING IN ACCORDANCE WITH THE CALIFORNIA RULES OF CIVIL
PROCEDURE AND EVIDENCE. ADDITIONALLY, THERE SHALL BE NO EVIDENCE BY AFFIDAVIT
ALLOWED, AND EACH PARTY SHALL DISCLOSE A LIST OF ALL DOCUMENTARY EVIDENCE TO BE
USED, A LIST OF ALL WITNESSES AND EXPERTS TO BE CALLED BY THE PARTY AT LEAST
TWENTY (20) DAYS PRIOR TO THE ARBITRATION HEARING.
TO THE MAXIMUM EXTENT PERMITTED BY LAW, EACH PARTY KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY WAIVES ANY RIGHT TO CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES
REGARDLESS OF THE FORUM FOR THE PROCEEDINGS. THE PROVISIONS OF THIS SECTION
SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT FOR ANY REASON WHATSOEVER.
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15. EXPORT
Sponsor agrees that it will at all times be in compliance with the United States
government export regulations and laws and that any sub-Sponsor Agreement will
require that the sub-Sponsor is in compliance with these regulations and laws.
Sponsor asserts that it is not now doing business with any country to which the
United States government prohibits export of products under consideration in
this Study.
16. TERMINATION
16.1 If a party hereto breaches a material term, covenant or condition of
the Transaction Documents or this Agreement, the non-breaching party may,
terminate this Agreement. Prior to termination, the non-breaching party shall
provide written notice of default, which shall inform the breaching party of the
facts and circumstances upon which such default is based and which shall provide
the breaching party with thirty (30) days in which to cure such breach or such
longer period as the parties may agree or as applicable law may require. If such
breach is not cured within the specified time period, the non-breaching party
may terminate this Agreement by providing written notice of such termination to
the defaulting party.
16.2 This Agreement may be terminated immediately by Sponsor upon written
notice to University in the event of any adverse patient reaction. Upon receipt
of a termination notice from Sponsor, the University shall stop enrolling and
treating patients under the Study to the extent consistent with generally
accepted standards of good medical practice and patient safety.
16.3 Termination of this Agreement by either party for any reason shall
not effect the rights and obligations of the parties accrued prior to the
effective date of termination.
16.4 Principal Investigator's participation in the Study will
automatically terminate upon receipt of notice that:
1. Any license required to be held by Investigator is suspended or
revoked during the course of the Investigator's participation in the
Study; or
2. Investigator has been debarred from conducting clinical studies by
the US Food and Drug Administration.
16.5 In addition to termination under 16.1 and 16.2, Sponsor may
terminate University's participation in the Study upon written notice to
University in the event that:
1. Sponsor terminates the Study; or
2. Overall study enrollment goals have not been met, even if
Investigator's individual enrollment has not been reached.
16.6 University may terminate participation in the Study if it becomes
unwilling or unable to continue to serve, provided Sponsor is provided at least
thirty (30) days advance written notice, in order to give Sponsor an opportunity
to identify and engage a replacement Investigator.
16.7 Upon termination of this Agreement: (i) the Investigator shall stop
enrolling patients into the Study; (ii) shall cease conducting procedures on
patients already enrolled in the Study, except to the extent such procedures are
medically necessary and permissible, and (iii) both University and Investigator
shall return to Sponsor any and all Confidential Property which is in
University's, Investigator's, or any of their employee's or agent's possession
or control.
17. WARRANTIES
17.1 University agrees to perform the Study in accordance with prevailing
professional standards.
17.2 UNIVERSITY MAKES NO WARRANTIES FOR ANY PURPOSE WHATSOEVER, EXPRESS
OR IMPLIED, AS TO THE STUDY OR THE RESULTS OF THE STUDY, INCLUDING THE
6
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MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE STUDY OR THE RESULTS
OF THE STUDY UNDER THIS AGREEMENT. Neither the Principal Investigator, Sponsor,
nor any other person is authorized to give any such warranty in the name of or
on behalf of University.
17.3 Sponsor agrees that it will not rely solely upon technical
information provided by University or the Principal Investigator in developing
any invention or product, but will independently test, analyze and evaluate all
inventions and products prior to manufacture and distribution of such inventions
and products.
17.4 Neither University nor Investigator shall make any warranty or
representations, including but not limited to a warranty or representation of
the efficacy of the Study Device, without the express written permission of
Sponsor and Sponsor will not be liable for any unauthorized warranty or
representation made by Investigator.
18. INSURANCE AND INDEMNIFICATION
18.1 At all times during the conduct of the Study under this Agreement,
University agrees to maintain at its sole cost and expense appropriate and
adequate professional and general commercial liability insurance, such
protection being applicable to and covering negligent acts/omissions of
officers, employees and agents while acting within the scope of their employment
by University, on an occurrence made basis in single limit coverage of not less
than One Million Dollars ($1,000,000) per claim or incident and One Million
Dollars ($1,000,000) annual aggregate for death, bodily injury, illness or
property damage to support the indemnification obligations of University in
Section 18.4 hereof. A Certificate evidencing each such policy shall be
delivered to Sponsor upon request.
18.2 Sponsor agrees to hold harmless, indemnify and defend University
from all liabilities, demands, damages, expenses and losses arising out of and
related to the Protocol or the Study Device, including the results of the Study,
except to the extent of University's or Investigator's negligence or willful
misconduct with respect thereto.
18.3 At all times during this Study, Sponsor agrees to maintain at its
sole cost and expense a policy or program of comprehensive general liability
insurance or self-insurance on an occurrence made basis in single limit coverage
of not less than One Million Dollars ($1,000,000) per incident and One Million
Dollars ($l,000,000) annual aggregate for death, bodily injury, illness or
property damage to support the indemnification obligations assumed herein.
Sponsor shall maintain such comprehensive general liability insurance during the
period that the Study or any modification thereof is being administered,
manufactured, sold, or distributed to humans by the Sponsor and a reasonable
period thereafter which in no event shall be less than two (2) years. A
Certificate evidencing the comprehensive general liability policy shall be
delivered to University upon request.
18.4 University agrees to hold harmless, indemnify and defend Sponsor
from all liabilities, demands, damages, expenses, and losses arising out of and
related to University's or Principal Investigator's gross negligence or willful
misconduct.
19. INDEPENDENT CONTRACTOR
19.1 University is an independent contractor and not an agent, joint
venture or partner of Sponsor.
19.2 Investigator is an employee of University which is an independent
contractor of Sponsor for all purposes and not an employee, as that term is
understood for purposes of federal and state law. Nothing in this Agreement
shall be deemed to constitute a partnership or joint venture between Sponsor and
University, nor shall anything in this Agreement be deemed to constitute
Investigator or Sponsor as the agent of the other. Neither Investigator,
University nor Sponsor shall become liable or bound by any representation, act
or omission whatsoever of the other, except to the extent expressly provided in
this Agreement.
20. GOVERNING LAW
This Agreement shall be governed and construed in accordance with the laws of
the State of California as adjudicated by a court of competent jurisdiction.
7
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21. ATTORNEYS' FEES
In any action on or concerning this Agreement, the prevailing party shall
awarded its reasonable attorneys' fees, costs and necessary disbursements, to be
paid by the nonprevailing party.
22. ASSIGNMENT
Neither party shall assign its rights or duties under this Agreement to another
without the prior written consent of the other party, except to any party
succeeding to substantially all of the business interests of the assigning
party.
23. INSPECTION AND ACCESS
Sponsor's authorized representatives and regulatory authorities may examine and
inspect the University's facilities required for performance of the Study and
inspect and copy all data and work products relating to the Study. Inspections
will be conducted during regular business hours upon reasonable notice and to
the extent permitted by law and until the Sponsor has received final Food and
Drug Administration Pre-Market approval or disapproval.
24. RESEARCH MATERIALS
24.1 University acknowledges that the Study Device and all other property
and materials being provided to Investigator by Sponsor in connection with the
Study is to be used only for research purposes in connection with the Study.
University and Investigator shall have no license or authority to use any such
item in any other context or for any other purpose.
24.2 University also agrees to use the Study Device only in the space
approved by Monitor or Sponsor in accordance with documentation provided by
Monitor or Sponsor. Investigator agrees to maintain adequate records of the use
of the Study Device. In addition, University agrees to return Study Device all
other property and materials being provided to Investigator by Sponsor in
connection with the Study upon termination or completion of the Study.
25. WAIVER AND SEVERABILITY
25.1 No waiver by either party of any breach of any provision hereof
shall constitute a waiver of any other breach of that or of any other provision
hereof.
25.2 In the event a court or governmental agency of competent
jurisdiction holds any provision of this Agreement to be invalid, such holding
shall have no effect on the remaining provisions of this Agreement, and they
shall continue in full force and effect. Upon such holding, the parties shall,
within a reasonable period of time, determine whether the severed provision(s)
detrimentally and materially affect the obligations or performance of either or
both parties. If so affected, the parties shall, within a reasonable period of
time, negotiate in good faith to modify this Agreement to relieve such effects.
If such negotiations do not result in mutually agreeable modifications to this
Agreement, either effected party may terminate this Agreement upon providing the
other party with thirty (30) days written notice of such termination.
25.3 Sections 3.3, 6, 7.3, 9, 10, 11, 12, 13, 14, 17, 22, 24 and this
25.3 shall survive the termination of this Agreement for any and all reasons
whatsoever.
26. AGREEMENT MODIFICATION
This Agreement may be modified or amended, including extension of the term of
this Agreement, at any time only by the written concurrence of both parties.
8
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27. NOTICES
Any notices given under this Agreement shall be in writing and delivered to the
following addresses by return receipt mail, postage prepaid, or by overnight
courier service. Such notices shall be effective upon the third business day
following mailing, if by mail, or upon receipt, if by courier.
For Sponsor:
Thermal Medical Imaging, Inc.
30150 Telegraph Rd., Suite 177
Bingham Farms, MI 48025
Attention: Bill Black
For University:
University of Southern California
Department of Contracts and Grants
2250 Alcazar Street, CSC-219
Los Angeles, CA 90033
Attention: R. Mary Tierney
Tel# 213-342-2396
Fax# 213-342-2835
Copy to: Dr. William R. Dougherty
For Monitor:
QBRI International, Inc.
1300 North 17th Street
Arlington, VA 22209
703.276.0400
703.243.9746(facsimile)
28. THIRD PARTY RIGHTS
This Agreement shall not create any rights, including without limitation
third-party beneficiary rights, in any person or entity not a party to this
Agreement.
29. ENTIRE AGREEMENT
This Agreement constitutes the entire understanding between the parties hereto
and there are no collateral, oral or written Agreements or understandings. This
Agreement supersedes any prior oral or written Agreement or understanding
between the parties.
9
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IN WITNESS WHEREOF, the parties have executed this Agreement in two or more
counterparts, each as an original and all together as one instrument as of the
date of last signature below written.
THERMAL MEDICAL IMAGING, INC. UNIVERSITY OF SOUTHERN
CALIFORNIA
By: /s/ William Black, Jr. By: /s/ Lloyd Armstrong, Jr.
--------------------------------- ------------------------------
Name: William Black, Jr. Name: Lloyd Armstrong, Jr.
------------------------------- ------------------------------
Provost and Senior Vice
Title: Vice President of Operations Title: President - Academic Affairs
------------------------------ ----------------------------
Date: 5 May 97 Date: 30 Apr 97
------------------------------ ----------------------------
(*)THIS AGREEMENT IS SIGNED PROVISIONALLY WITH THE UNDERSTANDING THAT
PERFORMANCE IS SUBJECT TO THE MUTUALLY AGREEABLE NEGOTIATION OF THESE TERMS.
EVIDENCE OF THIS NEGOTIATION SHALL BE THE COMPLETION OF THESE TERMS AND THE
RESIGNING OF THE AGREEMENT.
10
<PAGE>
EXHIBIT A
PROTOCOL AND STATEMENT OF WORK
DATED: 1 APRIL 1997
[SEE EXHIBIT 10(WW)]
11
<PAGE>
EXHIBIT B
CONFIDENTIALITY AGREEMENT DATED NOVEMBER 7, 1996
12
<PAGE>
EXCHANGE OF CONFIDENTIAL INFORMATION AGREEMENT
This Agreement, made and entered by and between THERMAL MEDICAL IMAGING, INC., a
Nevada corporation, with a place of business at 30150 Telegraph Road, Suite 177,
Bingham Farms, MI 48025 (hereinafter referred to as "TMI"), and the UNIVERSITY
OF SOUTHERN CALIFORNIA, a California, non-profit corporation, with a place of
business at Health Sciences Campus, 2250 Alcazar St., CSC-219, Los Angeles, CA
90033 (hereinafter referred to as "USC"), all or each of which shall also
hereinafter be referred to as "party" or "parties" respectively, and is
effective on the date of last signature hereto.
RECITALS
For the mutual benefit of both parties, each party wishes to disclose to and/or
to receive from the other certain technical data, information, ideas and
documents to be used in conjunction with the project as described in the letter
dated 31 October 1996 from TMI to Mr. Pablo Valencia and attached hereto as
Attachment 1 (hereinafter "Project"), and which may or may not have been
patented or constitute bases of patentable inventions, but which the disclosing
party nevertheless considers to be Confidential and so indicates by an
appropriate legend, marking, stamp or other positive identification. Such
information, data and ideas shall hereinafter be identified as "Confidential
Information."
AGREEMENTS
Now therefore, the parties do hereby mutually agree that:
1. Confidential Information as defined above includes information or documents
whether or not they qualify as "trade secrets" under applicable Federal or
state law.
2. Each party shall receive and hold such Confidential Information in
confidence and agrees to use its reasonable efforts to prevent unauthorized
disclosure to third parties of said Confidential Information in the same
manner the receiving party uses to protect its own similar information,
provided, however, that neither party shall be liable for use or disclosure
of any Confidential Information if the same:
a. was in the public domain at the time it was disclosed;
b. entered the public domain through no fault of the receiving party
subsequent to the time it was communicated by the disclosing party;
c. was in the receiving party's possession free of any obligation of
confidence at the time it was communicated by the disclosing party;
d. was rightfully communicated to the receiving party by a third party
free of any obligation of confidence subsequent to the time it was
communicated by the disclosing party;
e. was developed by employees or agents of the receiving party without
reference to any information that the disclosing party has
communicated to any third party.
3. If Confidential Information is disclosed, and such information has
importance with respect to intellectual property, such information shall be
reduced to writing promptly by the disclosing party and every page shall be
clearly identified with the legend described above. Such writing shall be
delivered to the receiving party within thirty (30) days after the
disclosure thereto of said Confidential Information.
4. No Confidential Information disclosed pursuant to this Agreement shall be
used, duplicated or disclosed for purposes other than contemplated by the
Project indicated above without the prior written approval of the
disclosing party.
5. No license under any patent or patent application is granted to either
party either directly or indirectly by this Agreement, nor are any rights
of ownership in the Confidential Information granted by this Agreement.
1
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6. This Agreement shall remain in force for a period of three (3) years. This
Agreement may be terminated by either party with a thirty (30) day prior
written notice to the other party.
7. Confidential Information shall be disclosed only on a need-to-know basis to
personnel of the receiving party.
8. If the Confidential Information is reproduced in whole or part, the
reproduction shall carry a Confidential notice or legend similar to that
which appears on the original.
9. Nothing in this Agreement shall grant to either party the right to make
commitments of any kind, for or on behalf of the other party.
10. This Agreement is not intended to be, nor shall it be considered as, a
"team" arrangement, joint venture, partnership, or other formal business
organization, and unless otherwise agreed, neither party shall have the
right or obligation to share any of the profits or bear any of the risks or
losses of the other party. At all times the parties shall remain
independent contractors with each responsible for its own employees and
representatives. Each party assumes no responsibility to the other for
costs, expenses, risks and liabilities associated with the research,
development, exchange and use of each other's Confidential Information.
11. No rights or obligations other than those expressly recited herein are to
be implied from this Agreement, including any requirement that either party
contract with the other for the procurement of any products, services or
data resulting from this Agreement.
12. Each employee who has had or is granted access to the other party's
Confidential Information shall be informed of the obligation to protect the
Confidential Information of such other party from unauthorized use or
disclosure as herein provided.
13. When this Agreement is terminated as herein provided, or if the
Confidential Information received hereunder is no longer required by the
receiving party, whichever occurs first, then unless otherwise agreed in
writing by the parties, and as directed by the disclosing party, all copies
of the disclosing party's Confidential Information in the possession of the
receiving party shall be returned or destroyed. The receiving party shall
notify the disclosing party in writing when such return or destruction has
been accomplished.
14. This Agreement is deemed to be made under and shall be construed in all
respects in accordance with the Law of the State of California.
15. Each party shall designate personnel for disclosure and receipt of any
Confidential Information hereunder, and all such Confidential Information
shall be addressed to such designated personnel when delivered to the other
party. Such designation of personnel may be amended by letter addressed to
the person who executed this Agreement on behalf of the other party.
The following personnel are initially designated for disclosure and/or
receipt of Confidential Information under this Agreement.
TMI: USC
William M. Black Dr. William R. Dougherty
- --------------------- ----------------------------
Simona Gallagher
Kenneth Dodd Mr. Pablo Valencia
- --------------------- ----------------------------
16. Neither party shall have any liability for any activity of the other party
in using Confidential Information provided under this Agreement. A
receiving party shall indemnify and hold the disclosing party harmless from
and against any loss, cost or liability arising out of any claims or cause
of action for loss, harm or damage to property or for injury to or death of
persons caused or resulting from any use by a receiving party of
Confidential Information.
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17. This Agreement supersedes all prior understandings and communications
between the parties on the subject matter of this Agreement and shall apply
in lieu of and notwithstanding any specific legend or statement associated
with any information or data exchanged between parties.
Executed for the parties by their respective representatives who are duly
authorized to execute this Agreement.
TMI, INC. University of Southern California
/s/ William M. Black /s/ Pablo Valencia
- ------------------------- ------------------------------
(Signature) (Signature)
William M. Black Pablo Valencia
- ------------------------- ------------------------------
(Name - typed or printed) (Name - typed or printed)
Director of Operations Director Technology Transfer
- ------------------------- ------------------------------
(Title - typed or printed) (Title - typed or printed)
8 NOV 96 11/7/97
- ------------------------- ------------------------------
(Date) (Date)
3
<PAGE>
EXHIBIT 10(tt)
CLINICAL TRIAL AGREEMENT
This Clinical Trial Agreement ("Agreement") is entered into by and between
Thermal Medical Imaging, Inc. ("Sponsor") and Mt. Sinai Medical Center
("Institution"), a nonprofit institution incorporated under the laws of
Florida.
RECITALS
WHEREAS, the clinical trial contemplated by this Agreement is of mutual interest
and benefit to Institution and to Sponsor, will further the study objectives of
Institution in a manner consistent with it's non-profit, tax exempt health care
institution and may derive benefits for both Sponsor and Institution through the
discovery of new knowledge;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties hereto agree to the following:
DEFINITIONS
"Monitor" shall mean the individual or firm retained by Sponsor to provide
monitoring services for the Study utilizing Sponsor's Protocol and Study Device,
initially being QBRI International, Inc.
"Principal Investigator" shall be M.D. who is acting as a representative for the
Institution in activities associated with this study.
"Protocol" shall mean the Protocol and Statement of Work as attached hereto as
Exhibit "A".
"Study" shall mean the clinical studies, examinations and collection of patient
data using the Study Device as described in the Protocol, conducted and
collected at the Institution's premises from patients examined by the
Investigator.
"Study Device" shall mean integrated thermal imaging data acquisition system for
breast cancer detection, the interpretive algorithm analysis process and the
clinical evaluation and display device/software which are to be used or
administered during the Study in accordance with the provisions of the Protocol.
"Sponsor Intellectual Property" shall mean all inventions, improvements and
discoveries whether or not covered by intellectual property protection, which
are conceived or made by one or more employees of Sponsor's organization or
sub-contractor hired by Sponsor.
1. CONTENTS AND ORDER OF PRECIDENCE
This Agreement consists of this Agreement and the following documents which
shall be referred to collectively herein as the "Transaction Documents":
a. Exhibit "A"- Protocol; and
b. Exhibit "B" - Budget
In the event of any conflict between such Exhibits and this Agreement shall
control.
2. PERFORMANCE OF THE STUDY
2.1 Institution shall perform the Study substantially in accordance
with the protocol and the terms and conditions of this Agreement.
Sponsor and Institution may at any time amend the Study and this
Agreement by mutual written consent.
2.2 In the event that the Principal Investigator becomes unable or
unwilling to continue the Study and a mutually acceptable
substitute is not available, both the Institution and the Sponsor
shall have the option
<PAGE>
to terminate this Agreement. The Principal Investigator and any
and all other persons involved in the Study (collectively the
"Investigator(s) "shall execute the Investigator Agreement)
prior to beginning any activities associated with the Study.
2.3 Nothing in the Agreement shall be construed to limit the freedom
of the Investigators, whether participants in this Agreement or
not, from engaging in similar studies made independently under
other grants, contracts or agreements with parties other than
Sponsor, provided said investigations are not in conflict or
violate the terms and conditions of this Agreement.
2.4 In performing the Study, Institution and Principal Investigator
shall at times undertake, comply with, and complete the
following:
1. The Protocol;
2. This Agreement;
3. Generally accepted standards of good clinical practice;
4. Instructions provided in writing by Sponsor or Monitor;
5. All applicable federal, state and local laws and
regulations applicable to the conduct of the Study and
the performance of clinical investigators generally
including but not limited to the Federal Food, Drug and
Cosmetic Act and regulations of the Food and Drug
Administration;
6. Prepare an appropriate patient informed consent
document sufficient to comply with all local, state,
and federal statutory and regulatory requirements and
in form acceptable to each of the parties to initiation
of any procedures required by the Study;
7. Obtain and forward to Sponsor and Monitor evidence of
Institutional Review Board ("IRB") approval of the
Study and the informed consent document prior to
beginning the Study;
8. Obtain and forward to Sponsor and Monitor evidence of
ongoing review of the Study and Informed Consent
document by the IRB at least annually;
9. Obtain and forward to Sponsor and Monitor evidence of
IRB approval of any advertisement used for the Study
prior to the publication or other use of the
advertisement;
10. Review the clinical investigators' manual and all
updates provided;
11. Maintain Study and related medical records according to
local, state and federal statutory and regulatory
requirements;
12. Immediately notify Sponsor and Monitor, according to
procedures specified by Monitor, of any and all serious
and/or unexpected adverse events as defined by the
Study and promptly record such events on an appropriate
case report for ("CRF") provided by Sponsor;
13. Promptly notify Sponsor and Monitor of any pregnancy of
any subject enrolled in the Study;
14. Enroll only qualified subjects in the Study as provided
in the Protocol, or as directed by Sponsor and Monitor;
3. MAINTENANCE OF RECORDS AND FORMS
3.1 Institution agrees to fulfill the obligations imposed by Sponsor
for maintenance of records and reports, and those obligations
included in Subpart D of 21 CFR Chapter 1, Responsibilities of
Sponsor and Investigators, a copy of which is provided by Monitor
as part of the study manual.
3.2 Principal Investigator shall be responsible for the completion
and return of accurate CRF's to Sponsor as described in the
Study. Principal Investigator also agrees to ensure the data
captured on the CRF's is consistent with the patient medical
records, to complete the case report forms in a timely, coherent,
legible fashion, and to have the CRF's completed in advance of
any planned monitoring visits.
3.3 Institution shall retain all records from the Study (including
medical records of enrolled patients) for the period of five (5)
years and will permit inspection by Sponsor or its authorized
representatives of all such records during normal business hours.
During the period of performance and for a reasonable period
thereafter, Sponsor may make copies of and/or extract
non-confidential information from such records at Sponsor's
expense. For purposes of this paragraph, confidential information
shall mean information which identifies a specific patient.
<PAGE>
4. LICENSES AND QUALIFICATIONS
4.1 Principal Investigator shall have and maintain in full force and
effect any and all professional and other licenses, certificates
or documents required to render the services described in this
Agreement and agree to provide copy of these licenses,
certificates or documents to Sponsor or Monitor on request. If
any such license is suspended or revoked during the course of the
Principal Investigator's participation in the Study, Institution
agrees to notify Sponsor and Monitor promptly in writing.
4.2 Principal Investigator represents and warrants that he has not
been barred from conducting clinical studies by the US Food and
Drug Administration or any other applicable governmental
regulatory agency. Institution agrees to immediately notify
Sponsor and Monitor in writing if the Principal Investigator is
barred during the course of the Study.
4.3 Principal Investigator agrees to provide a current curriculum
vitae which is true, complete and accurate up to the start date
of this Agreement, Investigator agrees that Sponsor may supply
copies of the Curriculum Vitae to Monitor, the FDA and any other
government regulatory bodies in connection with the Study.
4.4 Institution represents and certifies that no investigation or
study in which Principal Investigator has been engaged has been
terminated for Principal Investigator's failure to adhere to
protocol, guidelines, or Federal or State regulations.
5. PERIOD OF PERFORMANCE
This estimated period of performance is from 8/01/98 to 12/31/98.
However, the patient enrollment goal for the trial may be reached before or
after this estimated date. The agreement will remain in effect until the accrual
for all clinical sites reaches the goal of 300 malignant patients. This
Agreement shall become effective upon the date of the last signature hereto and
shall continue in effect for the full duration of the period of performance
unless sooner terminated in accordance with the provisions of article 2 or 15.
6. REPORTS
Institution shall furnish Sponsor reports, in the form of case report
forms and logs, in such frequency and format as mutually agreed to by the
parties, but in no event less than every 30 days. A final report setting forth
the accomplishments and significant Study findings or lack thereof shall be
prepared by Institution and submitted to Sponsor within 90 days of the
expiration of the Agreement.
7. COSTS, BILLINGS AND OTHER SUPPORT
7.1 It is agreed and understood by the parties hereto that, subject
to Article 2, payments shall be made by Sponsor to Institution on
a monthly basis as set forth in Exhibit B. Sponsor shall make
payments based on completed case report forms for qualified
patients enrolled in the trial during the prior month in addition
to any other amounts mutually agreed to by parties in Exhibit A.
7.2 Completed cases for which Sponsor will reimburse Institution will
include (i)case report forms including (ii)pathology information
as well as (iii)properly captured and labeled images.
7.3 Checks shall be made payable to:
Mount Sinai Medical Center
Attn: Cost Center #7535
P.O. Box 40-3362
Miami Beach, FL 33140-1362
7.4 In the event of termination of this Agreement pursuant to Article
15 hereof, Sponsor shall pay all costs directly attributable to
the Study accrued by Institution as of the date of termination,
including all costs directly attributable to the Study accrued by
Institution as of date of termination, including all non-
<PAGE>
cancelable obligations, and for all costs associated with patient
follow-up as required by the Protocol of those already enrolled
in the Study.
8. PUBLICITY
Neither party shall use the name, trade name, trademark or other designation of
the other party in connection with any products, promotion or advertising
without the prior written permission of the other party.
9. PUBLICATIONS
The Study to be performed under this Agreement is part of a Multi-Center
Collaborative project. The Institution recognizes that the results generated by
this Study may have added scientific significance when combined and published
together with data generated by other centers involved in the project.
Accordingly, Institution expressly acknowledges that the right to publish the
combined results of the collaborative project belongs to Sponsor. The
Institution shall have the rights to publish the results of this Study but
agrees to refrain from publishing until the project is complete, the data
analyzed and the combined results submitted for publication, and until the
Sponsor has received final Food and Drug Administration Pre-Market approval or
disapproval. Sponsor shall notify the Institution within 30 days of notification
from FDA of their decision.
10. CONFIDENTIALITY
10.1 During the term of this Agreement, Sponsor expects to provide
Institution with the Study Device, Protocol, and other
information, data and materials related thereto (collectively,
the "Confidential Property") which Sponsor considers confidential
or proprietary in nature and which shall be prominently marked or
identified as confidential or proprietary. Institution shall
receive and hold such Confidential Property in confidence and
agrees to prevent disclosure of said Confidential Property to all
parties other than those involved in conducting the Study, in the
manner Institution treats its own similar information.
10.2 Institution shall not consider information disclosed to it by
Sponsor to be confidential which: (1)is now common knowledge or
subsequently becomes such through no breach of this Agreement (2)
is rightfully in Institution's possession prior to Sponsor's
disclosure as shown by written records (3) is disclosed to
Institution by an independent third party that is not under a
separate confidentiality agreement relating thereto; or (4) is
independently developed by or for Institution without benefit of
confidential information received from Sponsor.
11. INTELLECTUAL PROPERTY
Notwithstanding anything to the contrary in this Agreement, all right, title and
interest to any intellectual property, including without limitation inventions,
improvements, results, data and discoveries, that arise from, relate to or are
direct and specific result of performance of the Protocol and is directly
related to the Study Device, shall belong to the Sponsor.
12. ARBITRATION
Any controversy or claim between the parties arising out of or relating to this
agreement, or a breach thereof, which cannot be resolved relating to this
agreement, or a breach thereof, which cannot be resolved by mutual agreement
shall be settled by binding arbitration conducted by a single arbitrator in
accordance with the commercial arbitration rules of the American Arbitration
Association. Any judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof, each such arbitration shall be
held in the county of Dade.
All federal and state substantive and procedural laws applicable to this
agreement relating to arbitration of conflict shall be fully complied with by
the parties.
Unless the parties otherwise agree, each party may conduct discovery prior to
any arbitration hearing in accordance with the State of Florida rules of civil
procedure and evidence. Additionally, there shall be no evidence by affidavit
allowed, and each party shall disclose a list of all documentary evidence to be
used, a list of all witnesses and experts to be called by the party at least 20
(twenty) days prior to the arbitration hearing.
<PAGE>
13. EXPORT
Sponsor agrees that it will at all times be in compliance with the United States
government export regulations and laws and that Any sub-Sponsor agreement will
require that the sub-sponsor Agreement will require that the sub-Sponsor is in
compliance with these regulations and laws. Sponsor asserts that it is not now
doing business with any country to which the United States government prohibits
export of products under consideration in this Study.
14. TERMINATION
14.1 If a party hereto breaches a material term, covenant or
condition of the Transaction Documents or this Agreement, the
non-breaching party may terminate this Agreement. Prior to
termination, the non-breaching party shall provide written notice
of default, which shall inform the breaching party of the facts
and circumstances upon which such default is based and which
shall provide the breaching party with 30 (thirty) days in which
to cure such breach or such longer period as the parties may
agree or as applicable law may require. If such breach is not
cured within the specified time period, the non-breaching party
may terminate this Agreement by providing written notice of such
termination to the defaulting party.
14.2 This Agreement may be terminated immediately by Sponsor upon
written notice to Institution in the event of any adverse patient
reaction. Upon receipt of a termination notice from Sponsor, the
Institution shall stop enrolling and treating patients under the
Study to the extent consistent with generally accepted standards
of good medical practice and patient safety.
14.3 Termination of this Agreement by either party for any reason
shall not effect the rights and obligations of the parties
accrued prior to the effective date of termination
14.4 Principal Investigator's participation in the Study will
automatically terminate upon receipt of notice that:
1. Any license required to be held by Investigator is suspended
or revoked; or
2. Investigator has been debarred from conducting clinical
studies by the US Food and Drug Administration.
14.5 In addition to termination under 16.1 and 16.2, Sponsor may
terminate Institution's participation in the Study upon written
notice to Institution in the event that:
1. Sponsor terminates the Study; or
2. Overall study enrollment goals have been met, even if
Investigator's individual enrollment has not been reached.
14.6 Institution may terminate participation in the Study if
Investigator becomes unwilling or unable to serve, provided
Sponsor is provided at least thirty (30) days advance written
notice, in order to give Sponsor an opportunity to identify and
engage a replacement Investigator.
14.7 Upon termination of this Agreement: (I) the Investigator shall
stop enrolling patients in the Study; (ii) shall cease conducting
procedures on patients already enrolled in the Study, except to
the extent such procedures are medically necessary and
permissible, and (iii) both Institution and Investigator shall
return to Sponsor any and all Confidential Property which is in
Institution's, Investigator's, or any of their employee's or
agent's possession or control.
15. WARRANTIES
15.1 Institution agrees to perform the Study in accordance with the
prevailing professional standards.
15.2 INSTITUTION MAKES NO WARRANTIES FOR ANY PURPOSE WHATSOEVER,
EXPRESS OR IMPLIED, AS TO THE STUDY OR THE RESULTS OF THE STUDY,
INCLUDING THE MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OF THE STUDY OR THE RESULTS OF THE STUDY UNDER THIS AGREEMENT.
Neither the Principal Investigator, Sponsor, nor any other person
is authorized to give any such warranty in the name or on behalf
of the Institution.
<PAGE>
15.3 Sponsor agrees that it will not rely solely on technical
information provided by the Institution or the Principal
Investigator in developing any invention or product, but will
independently test, analyze and evaluate all inventions and
products prior to manufacture and distribution of such inventions
and products.
15.4 Neither Institution or Investigator shall make any warranty or
representation, including but not limited to a warranty or
representation of the efficacy of the Study Device, without the
express permission of the Sponsor, and Sponsor will not be liable
for any unauthorized warranty or representation made by
Investigator.
16. INSURANCE AND INDEMNIFICATION
16.1 At all times during the conduct of the Study under this
Agreement, Institution agrees to maintain at its sole cost and
expense appropriate and adequate professional and general
commercial liability insurance, such protection being applicable
to and covering negligent acts/omissions of officers, employees
and agents while acting within the scope of their employment by
Institution, on an occurrence made basis in single limit coverage
of not less than One Million Dollars ($1,000,000) per claim or
incident and One Million Dollars ($1,000,000) annual aggregate
for death, bodily injury, illness or property damage to support
indemnification obligations of Institution in Section 18.4
hereof. A Certificate evidencing such policy shall be delivered
to Sponsor upon written request.
16.2 Sponsor will hold harmless, indemnify and defend Institution
it's trustees, and agents from demands, claims or costs of
judgments that may be made or instituted against any of them by
reason of injury or death to any person, or damage to property
arising out of or related to performance of the study, provided
however, Sponsor will have no liability for loss or damage
resulting from: (I) failure to adhere to the protocol or
Sponsor's written instructions concerning use of the study
device, (ii) Failure to comply with applicable FDA or other
government requirements, or (iii) negligence or willful
malfeasance by Institution, it's trustees, officers, agents or
employees.
16.3 At all times during the study, Sponsor agrees to maintain at
it's sole cost and expense a policy or program of comprehensive
general liability insurance or self-insurance on an occurrence
made basis in single limit coverage of not less than one million
dollars ($1,000,000) per incident, and an annual aggregate of 1
million dollars ($1,000,000), for death, bodily injury, illness
or property damage to support the indemnification obligations
assumed herein. Sponsor shall maintain such comprehensive general
liability insurance during the period that the Study or any
modification thereof is being administered, manufactured, sold or
distributed to humans by Sponsor and a reasonable period
thereafter which in no event shall be less than two years. A
Certificate evidencing the comprehensive general liability policy
shall be delivered to Providence Hospital upon request.
16.4 Institution agrees to hold harmless, indemnify and defend
Sponsor from all liabilities, demands, expenses, and losses
arising out of and related to Institution's or Principal
Investigator's gross negligence or willful misconduct.
17. INDEPENDENT CONTRACTOR
17.1 Institution is an independent contractor and not an agent, joint
venture partner of Sponsor.
17.2 Investigator is a member of Institution which is an independent
contractor of Sponsor for all purposes and not an employee, as
that term is understood for purposes of federal and state law.
Nothing in this Agreement shall be deemed to constitute a
partnership or joint venture between Sponsor and Institution, nor
shall anything in this Agreement be deemed to constitute
Investigator or Sponsor as the agent of the other. Neither
Investigator, Institution nor Sponsor shall become liable or
bound by an representation, act or omission whatsoever of the
other, except to the extent expressly provided in this Agreement.
<PAGE>
18. GOVERNING LAW
This Agreement shall be governed and construed in accordance with the laws of
the State of as adjudicated by a court of competent jurisdiction.
19. ATTORNEY'S FEES
In any action on or concerning this Agreement, the prevailing party shall be
awarded its reasonable attorney's fees, costs and necessary disbursements, to be
paid by the non-prevailing party.
20. ASSIGNMENT
Neither party shall assign it's rights or duties under this Agreement to another
without the prior written consent of the other party, except to any party
succeeding to substantially all of the business interests of the assigning
party.
21. INSPECTION AND ACCESS
Sponsor's authorized representatives and regulatory authorities may examine and
inspect the Institution's facilities as required for performance of the Study
and inspect and copy all data and work products relating to the Study.
Inspections will be conducted during regular business hours upon reasonable
notice and to the extent permitted by law and until the Sponsor has received
final Food and Drug Administration Pre-Market approval or disapproval.
22. RESEARCH MATERIALS
22.1 Institution acknowledges that the Study Device and all other
property and materials provided to the Investigator by Sponsor in
connection with the Study is to be used only for research
purposes in connection with the Study. Institution and
Investigator shall have no license or authority to use any such
item in any other context or for any other purpose.
22.2 Institution also agrees to use the Study Device only in the
space approved by Monitor or Sponsor in accordance with
documentation provided by Monitor or Sponsor. Investigator agrees
to maintain adequate records of the use of the Study Device. In
addition, Institution agrees to return Study Device and all other
property and materials being provided to Investigator by Sponsor
in connection with the Study upon termination or completion of
the Study.
23. WAIVER AND SEVERABILITY
23.1 No waiver by either party of any breach of any provision hereof
shall constitute a waiver of any other breach of that or of any
other provision hereof.
23.2 In the event a court or governmental agency of competent
jurisdiction holds any provision of this Agreement to be invalid,
such holding shall have no effect on the remaining provisions of
this Agreement, and they shall continue in full force and effect.
Upon such holding, the parties shall, within a reasonable period
of time, determine whether the severed provision(s) detrimentally
and materially affect the obligations or performance of either or
both parties. If so affected, the parties shall, within a
reasonable period of time, negotiate in good faith to modify this
Agreement to relieve such effects. If such negotiations do not
result in mutually agreeable modifications to this Agreement,
wither effected party may terminate this Agreement upon providing
the other party with thirty (30) days written notice of such
termination.
23.3 Sections 3.3, 6, 7.3, 9,10, 11,12,15,20,22 and this 23.3 shall
survive the termination of this Agreement for any and all reasons
whatsoever.
24. AGREEMENT MODIFICATION
This Agreement may be modified or amended, including extension of the term of
this Agreement, at any time only by the written concurrence of both parties.
<PAGE>
25. NOTICES
Any notices given under this Agreement shall be in writing and delivered to the
following addresses by return receipt mail, postage prepaid, or by overnight
courier service. Such notices shall be effective upon the third business day
following mailing, if by mail, or upon receipt, if by courier.
For Sponsor:
Thermal Medical Imaging, Inc.
1760 South Telegraph Road, Suite 202
Bloomfield Hills, MI 48302
For Institution:
Mt. Sinai CCOP
4300 Alton Road
Miami Beach, Florida 33140
With a copy to Dr. Esserman
For Monitor:
QBRI International, Inc.
1300 North 17th Street
Arlington, VA 22209
Attention: Ann Andre
26. THIRD PARTY RIGHTS
This Agreement shall not create any rights, including without limitation third
party beneficiary rights, in any person or entity not a party to this Agreement.
27. ENTIRE AGREEMENT
This Agreement constitutes the entire understanding between the parties hereto
and there are no collateral, oral or written agreements or understandings. This
Agreement supersedes any prior oral or written agreements or understandings
between the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement in two or more
counterparts, each as an original and all together as one instrument as of the
date of last signature below written.
THERMAL MEDICAL IMAGING, INC. MT. SINAI MEDICAL CENTER
By: /s/ Simona Gallagher By: /s/ Carol T. Rosasco
------------------------------ ------------------------------
Name: Simona Gallagher Name: Carol Rosasco
Title: Director, Marketing & Title: Vice President
Regulatory Affairs
Date: 8 May 1998 Date: 6/4/98
By: /s/ Lisa Esserman, M.D.
------------------------------
Name: Lisa Esserman M.D.
Title: Principal Investigator
<PAGE>
EXHIBIT A
PROTOCOL
[SEE EXHIBIT 10(vv)]
<PAGE>
EXHIBIT B
BUDGET
<PAGE>
TMI CLINICAL TRIALS BUDGET TEMPLATE
<TABLE>
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
ONE TIME COSTS TOTAL
- ----------------------------------------------------------------------------------------------------------------
Facilities/Build Out $4,500.00 $ 4,500.00
- ----------------------------------------------------------------------------------------------------------------
RECURRING EXPENSES
- ----------------------------------------------------------------------------------------------------------------
Personnel Percent Effort Annual Cost Benefits @ 20% Monthly Cost 6 Month Total
- ----------------------------------------------------------------------------------------------------------------
Study Coordinator 100% $ 30,000.00 $6,000.00 $3,000.00 $18,000.00
- ----------------------------------------------------------------------------------------------------------------
Technologist 50% $ 24,000.00 $4,800.00 $2,400.00 $ 7,200.00
- ----------------------------------------------------------------------------------------------------------------
Investigator 10% $200,000.00 $ - $1,666.67 $10,000.00
- ----------------------------------------------------------------------------------------------------------------
Co-Investigator ?
- ----------------------------------------------------------------------------------------------------------------
PERSONNEL TOTAL $35,200.00
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Space & Admin. Costs
- ----------------------------------------------------------------------------------------------------------------
Space $25/sq.ft.(200 sq. ft.) $ 5,000.00 $ 416.66 $ 2,499.00
- ----------------------------------------------------------------------------------------------------------------
Housekeeping/Mnt. $5/sq. ft. (200 sq. ft.) $ 1,000.00 $ 83.00 $ 498.00
- ----------------------------------------------------------------------------------------------------------------
Office Supplies $100/mnth $ 100.00 $ 600.00
- ----------------------------------------------------------------------------------------------------------------
Mailing $200/mnth $ 200.00 $ 1,200.00
- ----------------------------------------------------------------------------------------------------------------
Phone/Fax $200/mnth $ 200.00 $ 1,200.00
- ----------------------------------------------------------------------------------------------------------------
SPACE & ADMIN. Total $ 5,997.00
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Variable Costs
- ----------------------------------------------------------------------------------------------------------------
Medical Records $ 15.00 $ 675.00 $ 4,050.00
- ----------------------------------------------------------------------------------------------------------------
Film Duplication $ 15.00 $ 675.00 $ 4,050.00
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
VARIABLE COSTS TOTAL $ 8,100.00
- ----------------------------------------------------------------------------------------------------------------
Total Cost $53,797.00
- ----------------------------------------------------------------------------------------------------------------
Overhead (20%) $10,759.40
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
TRIAL TOTAL $64,556.40
- ----------------------------------------------------------------------------------------------------------------
PER PATIENT TOTAL $ 239.10
- ----------------------------------------------------------------------------------------------------------------
Assumes 45 patients per
month
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10(uu)
CLINICAL TRIAL AGREEMENT
This Clinical Trial Agreement ("Agreement") is entered into by and between
Thermal Medical imaging, inc. ("Sponsor") and Providence Hospital of Washington
D.C., 1150 Varnum Street, NE, Washington D.C., 20017 ("Institution"), a DISTRICT
OF COLOMBIA NONPROFIT institution incorporated under the laws of District of
Columbia.
RECITALS
WHEREAS, the clinical trial contemplated by this Agreement is of mutual interest
and benefit to Institution and to Sponsor, will further the study objectives of
Institution in a manner consistent with it's non-profit, tax exempt health care
institution and may derive benefits for both Sponsor and Institution through the
discovery of new knowledge;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties hereto agree to the following:
DEFINITIONS
"Monitor" shall mean the individual or firm retained by Sponsor to provide
monitoring services for the Study utilizing Sponsor's Protocol and Study Device,
initially being QBRI International, Inc.
"Principal Investigator" shall be Robert Hamm M.D. who is acting as a
representative for the Institution in activities associated with this study.
"Protocol" shall mean the Protocol and Statement of Work as attached hereto as
Exhibit "A">
"Study" shall mean the clinical studies, examinations and collection of patient
data using the Study Device as described in the Protocol, conducted and
collected at the Institution's premises from patients examined by the
Investigator.
"Study Device" shall mean integrated thermal imaging data acquisition system for
breast cancer detection, the interpretive algorithm analysis process and the
clinical evaluation and display device/software which are to be used or
administered during the Study in accordance with the provisions of the Protocol.
"Sponsor Intellectual Property" shall mean all inventions, improvements and
discoveries whether or not covered by intellectual property protection, which
are conceived or made by one or more employees of Sponsor's organization or
sub-contractor hired by Sponsor.
1. CONTENTS AND ORDER OF PRECIDENCE
This Agreement consists of this Agreement and the following documents which
shall be referred to collectively herein as the "Transaction Documents":
a. Exhibit "A"- Protocol and Statement of Work; and
In the event of any conflict between such Exhibits and this Agreement shall
control.
2. PERFORMANCE OF THE STUDY
2.1 Institution shall perform the Study substantially in accordance
with the protocol and the terms and conditions of this Agreement.
Sponsor and Institution may at any time amend the Study and this
Agreement by mutual written consent.
2.2 In the event that the Principal Investigator becomes unable or
unwilling to continue the Study and a mutually acceptable
substitute is not available, both the Institution and the Sponsor
shall have the option to terminate this Agreement. The Principal
Investigator and any and all other persons involved in the
<PAGE>
Study (collectively the "Investigator(s) "shall execute the
Investigator Agreement) prior to beginning any activities
associated with the Study.
2.3 Nothing in the Agreement shall be construed to limit the freedom of
the Investigators, whether participants in this Agreement or not,
from engaging in similar studies made independently under other
grants, contracts or agreements with parties other than Sponsor,
provided said investigations are not in conflict or violate the
terms and conditions of this Agreement.
2.4 In performing the Study, Institution and Principal Investigator
shall at times undertake, comply with, and complete the following:
1. The Protocol;
2. This Agreement;
3. Generally accepted standards of good clinical practice;
4. Instructions provided in writing by Sponsor or Monitor;
5. All applicable federal, state and local laws and
regulations applicable to the conduct of the Study and the
performance of clinical investigators generally including
but not limited to the Federal Food, Drug and Cosmetic Act
and regulations of the Food and Drug Administration;
6. Prepare an appropriate patient informed consent document
sufficient to comply with all local, state, and federal
statutory and regulatory requirements and in form
acceptable to each of the parties to initiation of any
procedures required by the Study;
7. Obtain and forward to Sponsor and Monitor evidence of
Institutional Review Board ("IRB") approval of the Study
and the informed consent document prior to beginning the
Study;
8. Obtain and forward to Sponsor and Monitor evidence of
ongoing review of the Study and Informed Consent document
by the IRB at least annually;
9. Obtain and forward to Sponsor and Monitor evidence of IRB
approval of any advertisement used for the Study prior to
the publication or other use of the advertisement;
10. Review the clinical investigators' manual and all updates
provided;
11. Maintain Study and related medical records according to
local, state and federal statutory and regulatory
requirements;
12. Immediately notify Sponsor and Monitor, according to
procedures specified by Monitor, of any and all serious
and/or unexpected adverse events as defined by the Study
and promptly record such events on an appropriate case
report for ("CRF") provided by Sponsor;
13. Promptly notify Sponsor and Monitor of any pregnancy of
any subject enrolled in the Study;
14. Enroll only qualified subjects in the Study as provided in
the Protocol, or as directed by Sponsor and Monitor.
3. MAINTENANCE OF RECORDS AND FORMS
3.1 Institution agrees to fulfill the obligations imposed by Sponsor
for maintenance of records and reports, and those obligations
included in Subpart D of 21 CFR Chapter 1, Responsibilities of
Sponsor and Investigators, a copy of which is provided by Monitor
as part of the study manual.
3.2 Principal Investigator shall complete and return accurate CRF's to
Sponsor as described in the Study. Principal Investigator also
agrees to ensure the data captured on the CRF's is consistent with
the patient medical records, to complete the case report forms in a
timely, coherent, legible fashion, and to have the CRF's completed
in advance of any planned monitoring visits.
3.3 Institution shall retain all records from the Study (including
medical records of enrolled patients) for the period of five (5)
years and will permit inspection by Sponsor or its authorized
representatives of all such records during normal business hours.
During the period of performance and for a reasonable period
thereafter, Sponsor may make copies of and/or extract
non-confidential information from such records at Sponsor's
expense. For purposes of this paragraph, confidential information
shall mean information which identifies a specific patient.
2
<PAGE>
4. LICENSES AND QUALIFICATIONS
4.1 Principal Investigator shall have and maintain in full force and
effect any and all professional and other licenses, certificates or
documents required to render the services described in this
Agreement and agree to provide copy of these licenses, certificates
or documents to Sponsor or Monitor on request. If any such license
is suspended or revoked during the course of the Principal
Investigator's participation in the Study, Institution agrees to
notify Sponsor and Monitor promptly in writing.
4.2 Principal Investigator represents and warrants that he has not been
barred from conducting clinical studies by the US Food and Drug
Administration or any other applicable governmental regulatory
agency. Institution agrees to immediately notify Sponsor and
Monitor in writing if the Principal Investigator is barred during
the course of the Study.
4.3 Principal Investigator agrees to provide a current curriculum vitae
which is true, complete and accurate up to the start date of this
Agreement, Investigator agrees that Sponsor may supply copies of
the Curriculum Vitae to Monitor, the FDA and any other government
regulatory bodies in connection with the Study.
4.4 Institution represents and certifies that no investigation or study
in which Principal Investigator has been engaged has been
terminated for Principal Investigator's failure to adhere to
protocol, guidelines, or Federal or State regulations.
5. PERIOD OF PERFORMANCE
The estimated period of performance of the Agreement is 2/15/98 through 2/15/99.
This Agreement shall become effective upon the date of the last signature hereto
and shall continue in effect for the full duration of the period of performance
unless sooner terminated in accordance with the provisions of article 2 or 15.
6. REPORTS
Institution shall furnish Sponsor reports, in the form of case report
forms and logs, in such frequency and format as mutually agreed to by the
parties, but in no event less than every 30 days. A final report setting forth
the accomplishments and significant Study findings or lack thereof shall be
prepared by Institution and submitted to Sponsor within 90 days of the
expiration of the Agreement.
7. COSTS, BILLINGS AND OTHER SUPPORT
7.1 It is agreed and understood by the parties hereto that, subject to
Article 2, payments shall be made by Sponsor to Institution on a
monthly basis as set forth in Exhibit A. Sponsor shall make
payments based on completed case report forms for patients enrolled
during the prior month in addition to any other amounts mutually
agreed to by parties in Exhibit A.
7.2 Checks shall be made payable to:
7.3 In the event of termination of this Agreement pursuant to Article
15 hereof, Sponsor shall pay all costs directly attributable to the
Study accrued by Institution as of the date of termination,
including all costs directly attributable to the Study accrued by
Institution as of date of termination, including all non-cancelable
obligations, and for all costs associated with patient follow-up as
required by the Protocol of those already enrolled in the Study.
8. PUBLICITY
Neither party shall use the name, trade name, trademark or other designation of
the other party in connection with any products, promotion or advertising
without the prior written permission of the other party.
3
<PAGE>
9. PUBLICATIONS
The Study to be performed under this Agreement is part of a Multi-Center
Collaborative project. The Institution recognizes that the results generated by
this Study may have added scientific significance when combined and published
together with data generated by other centers involved in the project.
Accordingly, Institution expressly acknowledges that the right to publish the
combined results of the collaborative project belongs to Sponsor. The
Institution shall have the rights to publish the results of this Study but
agrees to refrain from publishing until the project is complete, the data
analyzed and the combined results submitted for publication, and until the
Sponsor has received final Food and Drug Administration Pre-Market approval or
disapproval. Sponsor shall notify the Institution within 30 days of notification
from FDA of their decision.
10. CONFIDENTIALITY
10.1 During the term of this Agreement, Sponsor expects to provide
Institution with the Study Device, Protocol, and other information,
data and materials related thereto (collectively, the "confidential
Property") which Sponsor considers confidential or proprietary in
nature and which shall be prominently marked or identified as
confidential or proprietary. Institution shall receive and hold
such Confidential Property in confidence and agrees to prevent
disclosure of said Confidential Property to all parties other than
those involved in conducting the Study, in the manner Institution
treats its own similar information.
10.2 Institution shall not consider information disclosed to it by
Sponsor to be confidential which: (1)is now common knowledge or
subsequently becomes such through no breach of this Agreement (2)
is rightfully in Institution's possession prior to Sponsor's
disclosure as shown by written records (3) is disclosed to
Institution by an independent third party that is not under a
separate confidentiality agreement relating thereto; or (4) is
independently developed by or for Institution without benefit of
confidential information received from Sponsor.
11. INTELLECTUAL PROPERTY
Notwithstanding anything to the contrary in this Agreement, all right, title and
interest to any intellectual property, including without limitation inventions,
improvements, results, data and discoveries, that arise from, relate to or are
direct and specific result of performance of the Protocol and is directly
related to the Study Device, shall belong to the Sponsor.
12. ARBITRATION
Any controversy or claim between the parties arising out of or relating to this
agreement, or a breach thereof, which cannot be resolved relating to this
agreement, or a breach thereof, which cannot be resolved by mutual agreement
shall be settled by binding arbitration conducted by a single arbitrator in
accordance with the commercial arbitration rules of the American Arbitration
Association. Any judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof, each such arbitration shall be
held in the county of -------------------.
All federal and state substantive and procedural laws applicable to this
agreement relating to arbitration of conflict shall be fully complied with by
the parties.
Unless the parties otherwise agree, each party may conduct discovery prior to
any arbitration hearing in accordance with the District of Columbia rules of
civil procedure and evidence. Additionally, there shall be no evidence by
affidavit allowed, and each party shall disclose a list of all documentary
evidence to be used, a list of all witnesses and experts to be called by the
party at least 20 (twenty) days prior to the arbitration hearing.
13. EXPORT
Sponsor agrees that it will at all times be in compliance with the United States
government export regulations and laws and that Any sub-Sponsor agreement will
require that the sub-sponsor Agreement will require that the sub-Sponsor
4
<PAGE>
is in compliance with these regulations and laws. Sponsor asserts that it is not
now doing business with any country to which the United States government
prohibits export of products under consideration in this Study.
14. TERMINATION
14.1 If a party hereto breaches a material term, covenant or condition
of the Transaction Documents or this Agreement, the non-breaching
party may terminate this Agreement. Prior to termination, the
non-breaching party shall provide written notice of default, which
shall inform the breaching party of the facts and circumstances
upon which such default is based and which shall provide the
breaching party with 30 (thirty) days in which to cure such breach
or such longer period as the parties may agree or as applicable law
may require. If such breach is not cured within the specified time
period, the non-breaching party may terminate this Agreement by
providing written notice of such termination to the defaulting
party.
14.2 This Agreement may be terminated immediately by Sponsor upon
written notice to Institution in the event of any adverse patient
reaction. Upon receipt of a termination notice from Sponsor, the
Institution shall stop enrolling and treating patients under the
Study to the extent consistent with generally accepted standards of
good medical practice and patient safety.
14.3 Termination of this Agreement by either party for any reason shall
not effect the rights and obligations of the parties accrued prior
to the effective date of termination
14.4 Principal Investigator's participation in the Study will
automatically terminate upon receipt of notice that:
1. Any license required to be held by Investigator is suspended or
revoked; or
2. Investigator has been debarred from conducting clinical studies
by the US Food and Drug Administration.
14.5 In addition to termination under 16.1 and 16.2, Sponsor may
terminate Institution's participation in the Study upon written
notice to Institution in the event that:
1. Sponsor terminates the Study; or
2. Overall study enrollment goals have not been met, even if
Investigator's individual enrollment has not been reached.
14.6 Institution may terminate participation in the Study if
Investigator becomes unwilling or unable to serve, provided
Sponsor is provided at least thirty (30) days advance written
notice, in order to give Sponsor an opportunity to identify and
engage a replacement Investigator.
14.7 Upon termination of this Agreement: (I) the Investigator shall
stop enrolling patients in the Study; (ii) shall cease conducting
procedures on patients already enrolled in the Study, except to the
extent such procedures are medically necessary and permissible, and
(iii) both Institution and Investigator shall return to Sponsor any
and all Confidential Property which is in Institution's,
Investigator's, or any of their employee's or agent's possession or
control.
15. WARRANTIES
15.1 Institution agrees ton perform the Study in accordance with the
prevailing professional standards.
15.2 INSTITUTION MAKES NO WARRANTIES FOR ANY PURPOSE WHATSOEVER,
EXPRESS OR IMPLIED, AS TO THE STUDY OR THE RESUTLS FO THE STUDY,
INCLUDING THE MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OF THE STUDY OR THE RESULTS OF THE STUDY UNDER THIS AGREEMENT.
Neither the Principal Investigator, Sponsor, nor any other person
is authorized to give any such warranty in the name or on behalf of
the Institution.
5
<PAGE>
15.3 Sponsor agrees that it will not rely solely on technical
information provided by the Institution or the Principal
Investigator in developing any invention or product, but will
independently test, analyze and evaluate all inventions and
products prior to manufacture and distribution of such inventions
and products.
15.4 Neither Institution or Investigator shall make any warranty or
representation, including but not limited to a warranty or
representation of the efficacy of the Study Device, without the
express permission of the Sponsor, and Sponsor will not be liable
for any unauthorized warranty or representation made by
Investigator.
16. INSURANCE AND INDEMNIFICATION
16.1 At all times during the conduct of the Study under this Agreement,
Institution agrees to maintain at its sole cost and expense
appropriate and adequate professional and general commercial
liability insurance, such protection being applicable to and
covering negligent acts/omissions of officers, employees and agents
while acting within the scope of their employment by Institution,
on an occurrence made basis in single limit coverage of not less
than One Million Dollars ($1,000,000) per claim or incident and One
Million Dollars ($1,000,000) annual aggregate for death, bodily
injury, illness or property damage to support indemnification
obligations of Institution in Section 18.4 hereof. A Certificate
evidencing such policy shall be delivered to Sponsor upon written
request.
16.2 Sponsor will hold harmless, indemnify and defend Institution it's
trustees, and agents from demands, claims or costs of judgments
that may be made or instituted against any of them by reason of
injury or death to any person, or damage to property arising out of
or related to performance of the study, provided however, Sponsor
will have no liability for loss or damage resulting from: (I)
failure to adhere to the protocol or Sponsor's written instructions
concerning use of the study device, (ii) Failure to comply with
applicable FDA or other government requirements, or (iii)
negligence or willful malfeasance by Providence, it's trustees,
officers, agents or employees.
16.3 At all times during the study, Sponsor agrees to maintain at it's
sole cost and expense a policy or program of comprehensive general
liability insurance or self-insurance on an occurrence made basis
in single limit coverage of not less than one million dollars
($1,000,000) per incident, and an annual aggregate of 1 million
dollars ($1,000,000), for death, bodily injury, illness or property
damage to support the indemnification obligations assumed herein.
Sponsor shall maintain such comprehensive general liability
insurance during the period that the Study or any modification
thereof is being administered, manufactured, sold or distributed to
humans by Sponsor and a reasonable period thereafter which in no
event shall be less than two years. A Certificate evidencing the
comprehensive general liability policy shall be delivered to
Providence Hospital upon request.
16.4 Institution agrees to hold harmless, indemnify and defend Sponsor
from all liabilities, demands, expenses, and losses arising out of
and related to Institution's or Principal Investigator's gross
negligence or willful misconduct.
17. INDEPENDENT CONTRACTOR
17.1 Institution is an independent contractor and not an agent, joint
venture partner of Sponsor.
17.2 Investigator is a member of Institution which is an independent
contractor of Sponsor for all purposes and not an employee, as that
term is understood for purposes of federal and state law. Nothing
in this Agreement shall be deemed to constitute a partnership or
joint venture between Sponsor and Institution, nor shall anything
in this Agreement be deemed to constitute Investigator or Sponsor
as the agent of the other. Neither Investigator, Institution nor
Sponsor shall become liable or bound by an representation, act or
omission whatsoever of the other, except to the extent expressly
provided in this Agreement.
18. GOVERNING LAW
6
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This Agreement shall be governed and construed in accordance with the laws of
the District of Colombia as adjudicated by a court of competent jurisdiction.
19. ATTORNEY'S FEES
In any action on or concerning this Agreement, the prevailing party shall be
awarded its reasonable attorney's fees, costs and necessary disbursements, to be
paid by the non-prevailing party.
20. ASSIGNMENT
Neither party shall assign it's rights or duties under this Agreement to another
without the prior written consent of the other party, except to any party
succeeding to substantially all of the business interests of the assigning
party.
21. INSPECTION AND ACCESS
Sponsor's authorized representatives and regulatory authorities may examine and
inspect the Institution's facilities as required for performance of the Study
and inspect and copy all data and work products relating to the Study.
Inspections will be conducted during regular business hours upon reasonable
notice and to the extent permitted by law and until the Sponsor has received
final Food and Drug Administration Pre-Market approval or disapproval.
22. RESEARCH MATERIALS
22.1 Institution acknowledges that the Study Device and all other
property and materials provided to the Investigator by Sponsor in
connection with the Study is to be used only for research purposes
in connection with the Study. Institution and Investigator shall
have no license or authority to use any such item in any other
context or for any other purpose.
22.2 Institution also agrees to use the Study Device only in the space
approved by Monitor or Sponsor in accordance with documentation
provided by Monitor or Sponsor. Investigator agrees to maintain
adequate records of the use of the Study Device. In addition,
Institution agrees to return Study Device and all other property
and materials being provided to Investigator by Sponsor in
connection with the Study upon termination or completion of the
Study.
23. WAIVER AND SEVERABILITY
23.1 No waiver by either party of any breach of any provision hereof
shall constitute a waiver of any other breach of that or of any
other provision hereof.
23.2 In the event a court or governmental agency of competent
jurisdiction holds any provision of this Agreement to be invalid,
such holding shall have no effect on the remaining provisions of
this Agreement, and they shall continue in full force and effect.
Upon such holding, the parties shall, within a reasonable period of
time, determine whether the severed provision(s) detrimentally and
materially affect the obligations or performance of either or both
parties. If so affected, the parties shall, within a reasonable
period of time, negotiate in good faith to modify this Agreement to
relieve such effects. If such negotiations do not result in
mutually agreeable modifications to this Agreement, wither effected
party may terminate this Agreement upon providing the other party
with thirty (30) days written notice of such termination.
23.3 Sections 3.3, 6, 7.3, 9,10, 11,12,15,20,22 and this 23.3 shall
survive the termination of this Agreement for any and all reasons
whatsoever.
24. AGREEMENT MODIFICATION
This Agreement may be modified or amended, including extension of the term of
this Agreement, at any time only by the written concurrence of both parties.
7
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25. NOTICES
Any notices given under this Agreement shall be in writing and delivered to the
following addresses by return receipt mail, postage prepaid, or by overnight
courier service. Such notices shall be effective upon the third business day
following mailing, if by mail, or upon receipt, if by courier.
For Sponsor:
Thermal Medical Imaging, Inc.
1760 South Telegraph Road, Suite 202
Bloomfield Hills, MI 48302
For Institution:
With a copy to Dr. Robert Hamm
For Monitor:
QBRI International, Inc.
1300 North 17th Street
Arlington, VA 22209
Attention: Ann Andre
26. THIRD PARTY RIGHTS
This Agreement shall not create any rights, including without limitation third
party beneficiary rights, in any person or entity not a party to this Agreement.
27. ENTIRE AGREEMENT
This Agreement constitutes the entire understanding between the parties hereto
and there are no collateral, oral or written agreements or understandings. This
Agreement supersedes any prior oral or written agreements or understandings
between the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement in two or more
counterparts, each as an original and all together as one instrument as of the
date of last signature below written.
<TABLE>
<CAPTION>
THERMAL MEDICAL IMAGING, INC. PROVIDENCE HOSPITAL
<S> <C>
By: /s/ Simona Gallagher By: /s/ Robert L. Simons, M.D.
----------------------------------------- --------------------------------------
Name: Simona Gallagher Name: Robert L. Simons, M.D.
--------------------------------------- ------------------------------------
Title: Director, Marketing & Reg. Affairs Title: Vice President, Medical Affairs
-------------------------------------- -----------------------------------
Date: 14 February 1998 Date: February 13, 1998
--------------------------------------- ------------------------------------
By: /s/ Robert L. Hamm, M.D.
--------------------------------------
Name: Robert L. Hamm, M.D.
------------------------------------
Title: Principal Investigator
</TABLE>
8
<PAGE>
EXHIBIT A
PROTOCOL AND STATEMENT OF WORK
[SEE EXHIBIT 10(vv)]
9
<PAGE>
EXHIBIT B
THERMAL MEDICAL IMAGING BUDGET
10
<PAGE>
THERMAL MEDICAL IMAGING BUDGET
<TABLE>
<CAPTION>
<S> <C> <C> <C>
One Time Expenses
Build Out $ 5,000.00
Principal Investigator $ 2,000.00
Co-Investigator $ 1,500.00
Co-Investigator $ 1,500.00
Total $ 10,000.00
Providence Hospital Cost
Calculation
Study Co-ordinator $ 48,000.00 annual
Benefits $ 9,600.00 annual
Phone $ 4,800.00 annual
Square footage costs
Capital $ 9.50 96 cost
Capital $ 2.85 96 cost
Maintenance $ 1.59 96 cost
Plant/Ops $ 14.58 96 cost
Housekeeping $ 8.39 96 cost
Sq. Foot Total $ 36.91
Total Sq. Feet $ 320.00
Annual Cost of Space $ 11,811.20
Total Direct Cost $ 74,211.20 annual
A&G $ 4,378.46 $0.06
Annual Direct & Indirect $ 78,590.00
Patients per month 20
Cost/patient before med. records $ 327.00
Medical Records $ 21.00
Total Costs/patient $ 348.00
Expected patients in 8 months $ 160.00
TOTAL BUDGET $ 55,728.00
</TABLE>
11
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EXHIBIT 10(vv)
CLINICAL STUDY OF THE EXAMINATION OF BREASTS FOR IDENTIFICATION OF
SUSPICIOUS TISSUE USING CLINICAL EXAMINATION AND MAMMOGRAPHY
WITH AND WITHOUT THE TMI THERMAL IMAGING SYSTEM
DATE: OCTOBER 10 1997
SPONSOR: THERMAL MEDICAL IMAGING, INC.
1760 SOUTH TELEGRAPH ROAD, #202
BLOOMFIELD HILLS, MI 48302
PHONE: (810) 745-4960
FAX: (810) 745-4965
MEDICAL MONITOR: CHRIS CHAPMAN M.D.
QUINTILES MTC
1300 N. 17TH STREET, STE. 300
ARLINGTON, VA 22209
PHONE: (703) 276-0400
FAX: (800) 246-3224
CLINICAL MONITOR: QUINTILES MTC
1300 N. 17TH STREET, STE. 300
ARLINGTON, VA 22209
PHONE: (703) 276-0400
FAX: (703) 276-1312
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1.0 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.0 Description of the TMI System. . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Data Acquisition Device Description . . . . . . . . . . . . . . . . . 4
2.2 Data Analysis Process . . . . . . . . . . . . . . . . . . . . . . . . 8
3.0 Protocol Rationale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.1 Study Objective . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.2 Study Design. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.3 Final Determination of Subject Status . . . . . . . . . . . . . . . .10
3.4 Study Population. . . . . . . . . . . . . . . . . . . . . . . . . . .10
3.4.1 Number of Subjects. . . . . . . . . . . . . . . . . . . . . . . . .10
3.4.2 Inclusion Criteria. . . . . . . . . . . . . . . . . . . . . . . . .10
3.4.3 Exclusion Criteria. . . . . . . . . . . . . . . . . . . . . . . . .10
3.5 Study Endpoints. . . . . . . . . . . . . . . . . . . . . . . . . . .11
4.0 Study Procedures And Evaluations . . . . . . . . . . . . . . . . . . . . .12
4.1 Subject Enrollment. . . . . . . . . . . . . . . . . . . . . . . . . .12
4.2 Informed Consent. . . . . . . . . . . . . . . . . . . . . . . . . . .12
4.3 TMI Imaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
4.4 Further Diagnostic Testing. . . . . . . . . . . . . . . . . . . . . .13
4.5 Data Collection . . . . . . . . . . . . . . . . . . . . . . . . . . .13
5.0 Evaluation Criteria. . . . . . . . . . . . . . . . . . . . . . . . . . . .15
5.1 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
5.2 Safety. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
6.0 Statistical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . .16
7.0 Unanticipated Adverse Device Effects . . . . . . . . . . . . . . . . . . .18
7.1 Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
7.2 Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
8.0 Investigator Responsibilities and Obligations. . . . . . . . . . . . . . .19
8.1 Investigator Responsibilities . . . . . . . . . . . . . . . . . . . .19
8.2 Investigator Records. . . . . . . . . . . . . . . . . . . . . . . . .19
8.3 Investigator Reports. . . . . . . . . . . . . . . . . . . . . . . . .20
9.0 Institutional Review Board (IRB) . . . . . . . . . . . . . . . . . . . . .23
9.1 IRB Responsibilities. . . . . . . . . . . . . . . . . . . . . . . . .23
9.2 IRB Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
10.0 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
</TABLE>
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Thermal Medical Imaging, Inc. CONFIDENTIAL
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APPENDICES
I. Procedures for the TMI Clinical Trial Protocol
II. ACR Breast Imaging Reporting and Data System
III. Case Report Forms
IV. Informed Consent Materials
V. Investigator Agreement
VI. Unanticipated Adverse Event Form
VII. Specification for the TMI System
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Thermal Medical Imaging, Inc. CONFIDENTIAL
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CLINICAL EVALUATION OF THE TMI THERMAL IMAGING SYSTEM FOR USE IN SUBJECT
EXAMINATION FOR IDENTIFICATION OF POTENTIALLY MALIGNANT BREAST TISSUE
SYNOPSIS
- --------------------------------------------------------------------------------
Title Clinical Study of the Examination of Breasts for
Identification of Suspicious Tissue Using Clinical
Examination and Diagnostic Mammography With and Without
the TMI Thermal Imaging System.
- --------------------------------------------------------------------------------
Study Objective The objective of the study is to determine if TMI when
used in conjunction with clinical examination and/or
diagnostic mammography increases the ability of
physicians to differentiate benign from malignant, or
suspicious, breast abnormalities.
- --------------------------------------------------------------------------------
Study Design ROC analysis, and performance parameters (sensitivity,
specificity) will be determined and compared between
clinical examination and/or diagnostic mammography with
and without the TMI System. For each subject in the
study results of levels of suspicion from both
examinations will be assessed against breast cancer
status determined independently by pathology.
- --------------------------------------------------------------------------------
Final Determination of -Pathology finding from surgical or core biopsy will be
Subject Status used as the gold standard
- --------------------------------------------------------------------------------
Study Population The study will include subjects recommended for
surgical or core biopsy, based on diagnostic
mammography and/or abnormal findings on clinical
examination. Sample size will be 600.
- --------------------------------------------------------------------------------
Evaluation of Results Statistical analysis will consist of the following:
- ROC analysis of the clinical examination and/or
diagnostic mammography with and without TMI
System.
- Comparison of the performance parameters for
clinical examination and/or diagnostic mammography
with and without the TMI System, using the final
determination as the "gold standard".
- Comparison of the agreement of the Investigator
determination (benign vs. malignant) between
clinical examination and diagnostic mammography
with and without the TMI System with the final
determination.
Additional sub-analyses will be conducted as
appropriate.
- --------------------------------------------------------------------------------
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Thermal Medical Imaging, Inc. CONFIDENTIAL
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1.0 INTRODUCTION
Breast cancer is currently the second leading cause of death among women in
North America. One in eight women will be diagnosed with breast cancer in her
lifetime, and one in thirty will die from it.
Currently, there is no clear method of preventing breast cancer, meaning that
early detection followed by appropriate treatment is the only effective means of
controlling the disease. In recent years, there has been a decrease in the
mortality rate from breast cancer due to the increased awareness among women of
the importance of routine examinations.
Survival rates after the detection of breast cancer vary depending on the stage
at which it is diagnosed. The rates of Stage I and in situ (non-invasive)
cancers being diagnosed has increased since 1980, nearly doubling in both
African-American and white women. Overall survival rates for breast cancer are
favorable, at 83.1% for 5 years. For cancers diagnosed in Stage I the five year
survival rate is 96.2%, thus survival rates are highest when breast cancer is
diagnosed early. Increased screening frequency means that masses are being
found at an earlier stage. In 1983, 51% of all localized masses detected were
below 2 cm in size, whereas in 1988, 62% of localized masses were below 2 cm.
Treatment for breast cancer depends on the type of cancer as well as the stage
at which it is diagnosed. Infiltrating ductal carcinoma is the most common type
of breast cancer, accounting for 70% of cases. Inflammatory breast cancers,
which are found in 1% to 4% of cases have the worst prognosis. Carcinoma in
situ, a non-invasive cancer which is rarely palpable but is detectable by
imaging has the best prognosis.
Currently, the medical community feels that palpation and mammograms are the
most effective techniques for the detection of breast masses. Only these two
modalities are used for large scale screening of women.
PALPATION
Palpation, in the form of breast self-exams, is recommended on a monthly basis
for women of all ages. The overwhelming majority of masses are discovered
during breast self-exams (BSE). The average size of a mass detected by women
practicing regular BSE is 1.3 cm. There is an 85% to 90% chance of survival if
tumors are treated between 1 cm and 2 cm. Palpation by a gynecologist is
recommended on an annual basis at the time of a pap smear, for women over the
age of 20. Experienced gynecologists are able to detect, via palpation, masses
less than one centimeter in diameter.
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Thermal Medical Imaging, Inc. CONFIDENTIAL
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BREAST IMAGING
Mammograms are recommended for women over 50 on an annual basis because most
breast cancer is found in this age group. The subject of mammogram
recommendations for women under 40 has been the topic of much recent
controversy. After an inital non-commital stance on the issue, NCI has
recommended women begin to have annual screening mammograms in their 40's.
Experts often advise women with family histories of breast cancer to have
mammograms at an even earlier age. The size of mass detected by regular
mammograms can be as small as 0.3 cm. The average size of tumor detected by a
first mammogram is 0.65 cm.
The use of mammography is rising rapidly. The National Center for Health
Statistics reports that between 1987 and 1992, the percentage of women 50 years
or older who have had a mammogram in the past two years had doubled from 28% to
56%. The number of women over 40 who had ever had mammorgrams increased by 50%
in 1990. This rapid increase is due to rising public awareness, increased
access as more machines are installed and low cost screening programs are
instituted, and the fact that MediCare and the vast majority of private insurers
are reimbursing subjects for the procedure.
Although mammograms and clinical examination are currently the most frequently
used method for the screening of breasts, they have significant limitations.
Ideally, any clinical test would generate results as close to the true state of
disease as possible. This means that all cases of true disease (true positive
rate) would be identified while no false states of disease would be reported
(false positive rate). A screening tool is a test designed for use on an
asymptomatic population. In screening, it is of utmost importance that no
possible cancer go undetected. In other words, the test should have a high
degree of sensitivity. A diagnostic tool is designed for use in a population
showing some symptoms of disease. In a diagnostic test it is most important that
there be few false positive results, or a high degree of specificity. Although
mammography and clinical examination are considered effective screening tools,
their lack of specificty causes many false alarms.
In the case of breast cancer, a surgical procedure, biopsy, is needed in order
to make an accurate diagnosis based on pathology. The vast majority of lesions
for which a biopsy is recommended, are benign. National statistics indicate that
between two-thirds and four-fifths of all biopsies have benign results. About
750,000 biopsies are performed each year. As the majority of these operations
have benign results, hundreds of thousands of women are undergoing uneeded pain,
stress and expense.
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Thermal Medical Imaging, Inc. CONFIDENTIAL
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Multiple improvements have been made in recent years to increase the specificity
of mammograms. Other imaging modalities have been tested for use in conjunction
with mammogram and physical examination, including Ultrasound, CAT and MRI.
Although promising, CAT and MRI are too costly to be used routinely. The most
significant of these is improvements is high-definition ultrasound. Ultrasound
facilitates the distinction of benign from malignant masses by imaging the mass
and structure of lesions. Ultrasound images are created through the use of
sound waves. Ultrasound is substatially more cost effective than CAT or MRI, but
still has some limitations. It has a high rate of false positive examinations at
41%, and like mammography, relies on the subjective interpretation of shadows
and borders.
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Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
2.0 DESCRIPTION OF THE TMI SYSTEM
The TMI Process is composed of two independent but interrelated functions; data
capture and data analysis.
The TMI System captures thermal data through the detection of infrared energy
emitting from the body. The TMI examination is a dynamic test, whereby the
subject is thermally challenged and the physiological response of the body is
recorded with the infrared camera. These images are then analyzed, or post
processed, with an algorithm specifically designed to highlight thermal patterns
during the thermal challenge.
The proposed advantage of the TMI System is to provide a safe, cost-effective
adjunctive examination to diagnostic mammography and/or clinical examination for
the early diagnosis of breast cancer. It is expected to allow consistent
detection of breast cancer in the earliest, most treatable stages while
maintaining a high deghree of sensitivity. The specification for the TMI System
is included as Protocol Appendix VIII.
2.1 DATA ACQUISITION DEVICE DESCRIPTION
Infrared cameras became available in the 1950's having originated in the
aerospace program. Physicians began to use them to measure temperature
distribution over the human body. These physicians found that distribution of
skin temperature is not uniform, even in well defined areas of the body.
Additionally, they found that in some people, the temperature variation over
certain organs of the body was spotty or asymmetrical, indicating that a
neurological or vascular problem existed in the area. At the time, these
diagnoses were not taken seriously because the malady could often not be
confirmed through other diagnostic methods. Significant advances have been made
in both the computer and medical technology fields since that time.
The parallel evolution of infrared imaging technology and the data processing
capability of computers have simultaneously reached an unprecedented point of
sophistication. The resolution of infrared imaging devices has increased rapidly
since the first clinical adaptation of the technology from the defense industry.
The Barnes Thermograph developed in the mid 1960's, was an analog machine with a
resolution of 13 data points per square millimeter, a temperature accuracy of
within .5 DEG.C and an acquisition rate of 4 minutes per frame. The TMI System
is a digital system with a resolution of 414.5 data points per square
millimeter, a temperature accuracy of within .02 DEG.C and a data
acquisition rate of .0015 seconds per frame.
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Thermal Medical Imaging, Inc. CONFIDENTIAL
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Computer technology has also experienced a dramatic evolution in the past 25
years. The first computer chip introduced by the founder of Intel in 1971 was
able to process data at a rate of .06 MIPS ( millions of instructions per
second). Since that time the continued technical evolution of computers has
continued and allowed businesses and individuals to access compute power
previously available only to the government. The technical configuration of the
computer being used in the analysis of data from the TMI clinical test has a
processing capacity of 8,000 MIPS and can be expanded to 72,000 MIPS.
These advances in technology have allowed TMI to combine the data capture and
data analysis functions necessary for the consistent and reproducible
acquisition and subsequent processing of patient data. Unlike prior versions of
infrared imaging devices, the system employed by TMI does not rely on the static
image generated by the infrared camera for diagnostic decision making. The data
analysis procedure post processes the data acquired by the infrared camera by
highlighting anomalies, or artifacts, in the mathematical temperature data.
A computerized thermal image system charts the infrared energy emanating from
the human body. Infrared energy allows non-contact measurement of surface
temperatures. The level of infrared energy is proportional to the temperature
of the subject, thus changes in the temperature stimulus alter the amount of
infrared energy radiated from the subject.
The TMI System captures the thermal patterns emanating from the human breast
using an Infrared Detection System (IDS System). The IDS System detects
temperature differentials with precision and images them dynamically so that
abnormalities are found through the minute deviations or patterns in the
temperature structure of the body. By capturing and digitizing the emitted
energy with a high degree of resolution and accuracy, the system produces
information in the form of mathematical temperature values at registerable pixel
locations, which allows the distinct heat signatures of malignant masses to be
detected.
The system is comprised of an Optics Unit (OU), the Central Processing Unit
(CPU), Input Devices (ID), Display Unit (DU) and Power Distribution Unit (PDU).
The Optics Unit consists of the scanning mirror optical system, the Infrared
Detector, temperature references, and necessary circuitry for frame
sychronization, signal preamplification, automatic focusing and communication
with the CPU. Infrared energy from the subject enters the TMI System through
the front panel viewport. A horizontal mirror produces one video line for each
mirror facet as it rotates through the optical axis.
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Thermal Medical Imaging, Inc. CONFIDENTIAL
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The CPU employs a Pentium-Registered Trademark- based computer with a
UNIX-Registered Trademark- operating system. The CPU contains proprietary
circuit boards to provide multitasking capabilities, high speed video display
and two way communication with the Optics Unit. The interactive
communication between the Optics Unit and the CPU and the ability of the CPU
to manipulate and display thermal images and their associated data in a
variety of forms is the core of the TMI System. The CPU must orchestrate all
input and output data, provide memory for temporary data storage, perform
mathematical calculations, communicate with peripherals and accept and
respond to user commands.
Two primary Input Devices are provided with the system, a specialized keyboard
and a mouse pointing device. The combination of these two devices and the
resident system software offer the user simple menu control of thermal imaging,
display selection and data management functions.
The Display Unit is a self-contained, high resolution color monitor. The unit
is capable of clearly displaying 1024 by 728 resolution points and up to 256
colors or shades of gray per image.
The Power Distribution Unit is the system interface to power sources. The unit
accepts local power input then conditions and distributes power for the rest of
the system.
The IDS System contains a variety of specialized application software. The
Optics Unit Control software controls image generation, image size, image
density, number of images, frame rate, field-of-view colors and temperature
range. The Image Analysis Software allows the user to define an area of
specific interest within an image and allows the system to calculate selected
temperature parameters within the area. The DataBase Management Software allows
for specific record identification and the subsequent sorting, maintenance,
storage and recall of data by key word, name, date or other attributes.
TMI employs a proprietary patient positioning and cooling table in the data
acquisition process. The positioning table was designed to:
- - maximize breast area viewed to include surrounding chest area and lymph
nodes
- - limit subject movement during exam
- - ensure consistent cooling
- - accommodate registration to rectify any residual subject breathing
movement
The positioning table consists of an examination table, cooling system and
mirror system. The table is similar to a stereo-tactic biopsy table, on which
the subject lies prone with breasts suspended through openings. The table is
constructed of extruded aluminum with a yield strength of at least
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Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
35,000 psi and strength to weight ratio of at least 16,000 psi. The TMI System
camera is positioned at a 90 DEG. angle to the breasts, within the table.
The mirror system is used to capture images of the breasts and surrounding
areas at a 360 DEG. view. The system consists of a bounce mirror and eight
circumferential mirrors with selenium oxide protected gold plating. The
mirror characteristics allow optimal reflection in the 8 to 12 micron range,
with approximately 45 degrees of incidence and 99% reflection efficiency.
A regulated flow of cold air is supplied by a variable flow rate, variable
cooling unit located beneath the foot of the examination table. The system
provides 150 cubic feet per minute of cooled air. The air is directed at the
breasts through a series of ducts and fans, ensuring measureable temperature and
air flow. The ducting is 6 inches in diameter to the manifold, and 3 inches in
diameter to the diffuser register. The temperature is adjustable via the heater
from 15 DEG. below ambient to ambient at the diffuser exit. The mechanism is
controlled by the technician to ensure rapid, consistent yet comfortable cooling
of the breast area.
2.2 DATA ANALYSIS PROCESS
The thermal image data captured at the clinical site consists of a time sequence
of digitized thermal images. This data is sent to TMI for post-processing data
analysis to generate images for clinical assessment. The following is a summary
of the proprietary TMI post processing methodology:
- - Digital image and subject data received and catalogued.
- - Subject motion correction is applied using spatial registration and
filtering algorithms.
- - A set of "feature plane" images are generated using thermal response
modeling algorithms to transform the time sequence image data.
- - Regions of Interest (ROIs) are selected, based on suspicious region as
indicated by mammogram or clinical examination, from the feature plane
and time sequence images using statistical pattern recognition
algorithms.
- - The ROIs are scored for level of suspicion using statistical
classification algorithms.
- - Feature plane images are rendered (video display unit or hard copy) with
the ROIs and corresponding level-of-suspicion scores for clinical
assessment (independent reading).
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Thermal Medical Imaging, Inc. CONFIDENTIAL
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3.0 PROTOCOL RATIONALE
3.1 STUDY OBJECTIVE
The objective of the study is to determine if the TMI System, when used in
conjunction with clinical examination and/or diagnostic mammography, increases
the ability of physicians to differentiate benign from malignant, or suspicious,
breast abnormalitites.
3.2 STUDY DESIGN
The study is designed to compare the results of clinical examination and/or
diagnostic mammography with and without the use of the TMI system. The study
will include subjects who have undergone diagnostic mammography or clinical
examination at one of three sites. All subjects who meet inclusion/exclusion
criteria and have been recommended for surgical or core biopsy based on
diagnostic mammography will be eligible to enroll in the study. In addition,
subjects having abnormal clinical findings who are recommended for surgical or
core biopsy will also be eligible. The second set of subjects may proceed
directly to TMI and biopsy if so advised by their physician. A level of
suspicion will be assigned to each breast lesion using a scoring of 1-5. The
level of suspicion (1-5) will be determined using the ACR classification
criteria. This level of suspicion will be determined based on clinical
examination and/or diagnostic mammogram first. Secondly, a level of suspicion
will be determined for the abnormality with the addition of the TMI images. The
same investigator will make the determination of the level of suspicion
following diagnostic mammography and/or clinical examination, and again
following the evaluation of the TMI images. The investigator will determine the
level of suspicion including the TMI images at a later date and will be blinded
to the subject's subsequent diagnostic evaluation and final determination. The
image collection for this set of subjects will take place prior to biopsy at one
of several clinical sites. The evaluation of the two data sets will be conducted
after the conclusion of image collection. The use of the TMI System will not be
a factor in determining the subject's course of evaluation or treatment.
Performance parameters (ROC analysis, sensitivity, specificity) will be
determined and compared between clinical examination and diagnostic mammography
with and without the use of the TMI System. In addition, a determination of
whether the breast tissue is benign or malignant will also be made following
clinical examination and diagnostic mammography and again following the
inclusion of the TMI images.
3.3 FINAL DETERMINATION OF SUBJECT STATUS
The pathology findings from core or surgical biopsy will be used as the final
determination of subject status.
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3.4 STUDY POPULATION
3.4.1 NUMBER OF SUBJECTS
The study will include subjects who have been recommended for surgical or core
biopsy based on clinical examination and/or diagnostic mammography. Sample size
will be 600 (see Section 6).
3.4.2 INCLUSION CRITERIA
The inclusion criteria for the study are as follows:
- - Subject has undergone a mammogram, results are interpretable and a
surgical or core biopsy has been recommended, or
- - Subject has undergone a clinical examination, results are available and a
surgical or core biopsy has been recommended, and
- - Subject has signed Informed Consent Form
3.4.3 EXCLUSION CRITERIA
- - Previous breast surgery in breast of interest within last 3 years
- - Breast implants
- - Breast reduction
- - Previous radiation therapy in breast of interest
- - Over 300 pounds (table weight limit)
- - Pregnant
- - Women with histologically proven cancers in breast of interest
3.5 STUDY ENDPOINTS
The study endpoints will be the following measures of performance of clinical
examination and/or diagnostic mammography with and without the use of the TMI
System.
- - Area under the ROC curve
- - Sensitivity
- - Specificity
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4.0 STUDY PROCEDURES AND EVALUATIONS
A flow diagram for subjects is presented below. The procedures for the TMI
Clinical Trial Protocol are included as Protocol Appendix I.
[GRAPHIC: The graphic is entitled "Clinical
Patient Flow" and sets forth a flow chart
detailing the steps involved in registering, testing,
and evaluating clinical trial participants.]
4.1 SUBJECT ENROLLMENT
All subjects who have a suspicious diagnostic mammogram and/or abnormal clinical
examination, are recommended for surgical or core biopsy, and meet entry
criteria will be eligible to participate. A Signed Informed Consent will be
obtained for each subject prior to entry into the study.
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4.2 INFORMED CONSENT
Informed Consent must be obtained from all study subjects prior to study
participation. The consent form must be signed by the subject or the subject's
legally authorized representative(s). Copies of the Informed Consent statement
for the subject are included as Protocol Appendix IV. The original signed
Informed Consent is retained in the study subject's study records, and a copy is
provided to the subject.
4.3 TMI IMAGING
All enrolled subjects will undergo imaging with the TMI System at the
investigational site. This should occur within 60 days of the initial
examination leading to inclusion, and prior to the surgical or core biopsy.
4.4 FURTHER DIAGNOSTIC TESTING
As indicated by the results of the diagnostic mammogram and/or clinical
examination, the subject will proceed to surgical or core biopsy or be
discontinued from the study. The results of the biopsy will be used to
determine the final subject status which will serve as the "gold standard"
against which results of both data sets will be compared. The comparison data
sets will be clinical examination and/or diagnostic mammography, and diagnostic
mammography and/or clinical examination PLUS the TMI System.
4.5 DATA COLLECTION
Data will be recorded for all study subjects for whom Informed Consent is
obtained, and TMI imaging will not be performed without Informed Consent.
The following data will be documented on the study case report forms (CRFs)
(included as Protocol Appendix IV):
SUBJECT BASELINE STATUS: date of birth; race; smoking history; current
medications taken; height; weight; presence of palpable lesions; breast
discomfort, swelling or itching; nipple discharge; previous breast
operations; number of pregnancies; age of oldest child; age of
menstruation onset; date of last menstrual period; medical history of
diabetes, kidney problems, hypertension, previous cancer; age at
menopause, if reached; history of hormone therapy; family history of
breast or other cancer, or diabetes.
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Thermal Medical Imaging, Inc. CONFIDENTIAL
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SUBJECT INFORMATION PRIOR TO TMI IMAGING: time since last meal; time
since last intake of alcohol; time since last intake of caffeine; time
since last use of nicotine (if smoker); body temperature; blood pressure.
RESULTS OF CLINICAL EXAMINATION: Results clearly documented, including
symptoms, number of lesions, lesion location, lesion characteristics.
RESULTS OF DIAGNOSTIC MAMMOGRAPHY: ACR category 1-5, number of lesions
found, location, size and type of lesions, lesion characteristics.
RESULTS OF TMI IMAGING: Results rated on a 1-5 scale similar to the ACR
rating (classification of TMI Images included as Appendix III), lesion
location.
RESULTS OF BIOPSY: results of pathologic review (stage, type of cancer,
presence of positive nodes), location of lesion.
Incoming data will be reviewed to identify inconsistent or missing data and
unanticipated adverse device effects. Data errors or incompleteness will be
addressed in correspondence to the investigational site and/or during site
visits. All hard copy forms and data files will be secured to ensure
confidentiality. Quality assurance procedures are designed to ensure that
complete, accurate and timely data are submitted, that protocol requirements are
followed, and that complications and unanticipated adverse device effects are
reported as required.
Study subjects who choose to terminate study participation will be documented
with a full explanation of the reasons for termination.
CRF samples are provided in Appendix IV of this Protocol.
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5.0 EVALUATION CRITERIA
5.1 EFFECTIVENESS
Effectiveness will be assessed by comparing the performance of the diagnostic
mammography and/or clinical examination with and without the use of the TMI
System in the identification of suspicious breast abnormalities as benign or
malignant. The assessment will be conducted using the pathology as the "gold
standard" (see Section 2.3 above). Analysis of performance will include
calculation of the standard performance parameters:
- - Area under the ROC curve (ROC analysis will be performed to compare
diagnostic mammography with and without the TMI System)
- - Sensitivity
- - Specificity
The TMI System will be considered effective if its performance in conjunction
with diagnostic mammography and/or clincal examination is clinically better than
mammography and/or clinical examination alone.
Additional analyses will be conducted on sub-population of the data set as
follows:
- - Mammographic characteristics considered positive: calcifications, mass,
distortions
- - Size of mammographically detected lesion: < .5cm, .5-1cm, > 1cm
- - Depth of lesion, as available
5.2 SAFETY
Safety will assessed by evaluating the occurrence of adverse effects.
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6.0 STATISTICAL ANALYSIS
The primary statistical technique to determine the effectiveness of this
device will be the receiver operating characteristic (ROC) analysis. This
approach facilitates the comparison of devices over a range of sensitivities
and specificities. The technique is explained by Metz (1) and Hanley (2).
The ROC curve for a given device, operator, or situation is generated by
plotting the TRUE POSITIVE FRACTION vs the FALSE POSITIVE FRACTION as the
threshold parameter (LOS in this case) is varied. The curves for two
devices can be easily compared. If the curve for one device is higher for
all threshold values, its performance is clearly superior regardless of the
threshold parameter the operator chooses. The curves clarify the trade-offs
if they cross. One parameter that is useful for quantifying the performance
of a device is the area under the ROC curve. An area of 1.0 represents ideal
performance: a 100% true positive can be reached with no false positive
calls. Operation along the 45 degree line (FALSE POSITIVE FRACTION equals
TRUE POSITIVE FRACTION) represents pure chance.
In this study the ROC analysis tables will compare LOS results of diagnostic
mammography and physical examination (pre-TMI) versus the results of post-TMI
assessment. The post-TMI assessment will use the cumulative information derived
from mammography, physical examination and TMI imaging. Indices for area under
the curve will be evaluated for differences in pre-TMI and post-TMI. The
objective will be to provide a 95% confidence interval of + 5%. Assuming that
50% of the cases will have a positive biopsy, 600 cases will result in 300
positive biopsies. If the sensitivities of the two techniques exceed 90% then
the 95% confidence interval will be less than + or - 5%.
Standard performance parameters for sensitivity and specificity will also be
calculated and compared for statistical significance. Performance parameters
will be determined by comparing a test method's accuracy to a gold standard.
The gold standard used will be the biopsy result.
- --------------
(1) Charles E. Metz, "Basic Principles of ROC Analysis", SEMINARS IN NUCLEAR
MEDICINE, Vol. VIII, No. 4. (Oct. 1978, pp. 283-298.
(2) James A. Hanley "Receiver Operating Characteristics (ROC) Methodology: The
State of the Art", CRITICAL REVIEWS IN DIAGNOSTIC IMAGING, Vol. 29, Issue 3
(1989), pp. 307-355.
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7.0 UNANTICIPATED ADVERSE DEVICE EFFECTS
7.1 DESCRIPTION
An unanticipated adverse device effect (UADE) is any serious adverse effect on
health or safety or any life threatening problem or death caused by, or
associated with the TMI imaging session if that effect, problem, or death is not
identified in nature, severity, or degree of incidence in the investigational
plan for this device; or any other unanticipated serious problem associated with
the device that relates to the rights, safety, or welfare of the subjects.
7.2 REPORTING
UADEs must be reported to the sponsor and to the approving IRB as soon as
possible, but in no event later than 10 working days after the Investigator
first learns of the effect.
Telephone or fax reports to QMTC are to be made within 24 hours to:
Chris Chapman M.D.
QMTC
Phone: (703) 276-0400
Fax: (800) 246-3224
The CRF regarding the UADE must be completed within 72 hours of learning of the
effect. Appendix VII of this protocol provides a sample UADE reporting form.
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8.0 INVESTIGATOR RESPONSIBILITIES AND OBLIGATIONS
8.1 INVESTIGATOR RESPONSIBILITIES
The Investigator is responsible for ensuring that the investigation is conducted
according to this protocol and that the Investigator follows the Investigator
Agreement, the Investigational Plan and applicable FDA regulations. The
Investigator is responsible for ensuring that Informed Consent is obtained from
each study subject and from each study donor.
The Investigator shall permit the device to be used only under his direction.
Upon completion or termination of this study, or at the sponsor's request, the
investigator shall return to the sponsor any remaining unused materials
associated with the device or otherwise dispose of the device as the sponsor
directs. The Investigator Agreement is provided in Protocol Appendix VI.
8.2 INVESTIGATOR RECORDS
The Investigator will maintain complete, accurate and current study records,
including the following materials:
1. Correspondence with the sponsor, the Clinical Monitor, the Medical
Monitor, the IRB, and the FDA;
2. Accountability of records of receipt and use of the investigational
device and other study materials, including the names of all persons
who received, used, or disposed of each device;
3. Study Subject Records, including informed consent forms, copies of all
completed subject CRFs and supporting documents (laboratory reports and
reports of diagnostic tests, medical records, etc.), and records of
exposure of each study subject to the device;
4. Instructions for use;
5. Current study protocol and protocol deviation log, with dates and details
of any reason for deviations from the protocol that could affect the
scientific quality of the study or the rights, safety, or welfare of the
subjects;
6. All relevant observations, including records concerning adverse device
effects (whether anticipated or unanticipated);
7. A copy of all approvals of the clinical investigation;
8. The approved blank Informed Consent form and blank subject CRFs;
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9. Certification that the Investigational Plan has been approved by all of
the necessary approving authorities; and
10. Signed Investigator's Agreements with CVs of the Principal Investigator
and all participating co-investigators attached.
These records shall be maintained for a period of two years after the latter of
the following two dates: the date on which the investigation is terminated or
completed, or the date that the records are no longer required for purposes of
supporting a pre-market approval application or notice of completion of a
product development protocol.
8.3 INVESTIGATOR REPORTS
The Investigator will be responsible for the following reports:
1. Unanticipated Adverse Device Effect
An unanticipated adverse device effect is any serious adverse effect on health
or safety, or any life threatening problem or death caused by, or associated
with the device, if that effect, problem, or death is not identified in nature,
severity, or degree of incidence in the Investigator's Brochure submitted for
this device; or any other unanticipated serious problem associated with the
device that relates to the rights, safety, or welfare of the subjects.
The Investigator shall report any unanticipated adverse device effect to the
sponsor and to the reviewing IRB as soon as possible, but in no event later than
10 working days after the Investigator first learns of the effect. As described
in section 5.2, QMTC requires that telephone reports of UADEs are made to QMTC
within 24 hours of learning of the event. The CRF regarding the UADE must be
completed within 72 hours.
2. Withdrawal of IRB Approval
The Investigator shall report to the sponsor within five working days if, for
any reason, the IRB withdraws approval to conduct the investigation. The report
will include a complete description of the reason(s) for which approval was
withdrawn.
3. Deviations from the Investigational Plan
The Investigator shall notify the sponsor and the reviewing IRB of any changes
in, or deviations from, the Investigational Plan to protect the life or physical
well being of the subject in an
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Thermal Medical Imaging, Inc. CONFIDENTIAL
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emergency. Such notice shall be given as soon as possible, but in no event
later than five working days after the emergency occurs. Except in such
emergency, prior approval by the sponsor is required for changes in or
deviations from a plan; and, if these changes or deviations may affect the
scientific soundness of the plan, or the rights, safety or welfare of the
subjects, FDA and/or IRB approval also is required.
4. Use of Device without Informed Consent
No subject may be treated with the device without PRIOR Informed Consent, such
treatment constituting violation of federal regulations. If the Investigator
treats a subject with the device without prior Informed Consent, the
Investigator must report this use to the sponsor and the reviewing IRB within
five working days after use occurs.
5. Progress Reports
The Investigator is required to submit annual progress reports to the sponsor,
to the Clinical Monitor and to the reviewing IRB. Reports must include the
number of study subjects entered into the study, the treatment and dosage
administered, a summary of all follow-up evaluations, a summary of all adverse
events and a general description of the progress of the study.
6. Final Report
The Investigator will submit a final report to the sponsor and to the IRB within
3 months of termination of the study or termination of that Investigator's
participation in the study.
7. Other Reports
Upon request of the sponsor, the FDA or the IRB, the Investigator shall provide
accurate, complete and current information.
Beyond these regulatory requirements, full protocol compliance is vital to the
success of the study, thus minimizing the number of cases later classified as
incomplete, unusable, or not evaluable.
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9.0 INSTITUTIONAL REVIEW BOARD (IRB)
9.1 IRB RESPONSIBILITIES
The IRB is responsible for:
1. Conducting the initial and continuing review of the clinical
investigation at the IRB's institution and reporting its findings and
actions to the Investigator and institution;
2. Determining which projects require review more often than annually and
which projects need verification from sources other than the Investigator
that no material changes have occurred since the previous IRB review;
3. Ensuring that changes in the clinical investigation may not occur without
IRB approval except to eliminate apparent immediate hazards to the
subjects; and
4. Following written procedures for ensuring prompt reporting to the IRB,
appropriate institutional officials and the FDA of; (a) unanticipated
problems involving risks to the subjects or others, (b) any serious or
continuing non-compliance or (c) any suspension or termination of IRB
approval.
IRBs must comply with FDA's IRB regulations (21 CFR part 56).
9.2 IRB RECORDS
The IRB must maintain the following records:
1. Copies of the research proposal and any associated scientific
evaluations, approved sample consent documents, progress reports
submitted by the clinical investigators, and reports of injuries to the
study subjects;
2. Detailed minutes of the IRB meetings;
3. Records of continuing review activities;
4. Copies of all correspondence with the Investigators;
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5. A list of all IRB members and relevant education, experience, profession,
affiliation and any employment or other relationship between each member
and the institution;
6. Written procedures for the IRB; and
7. Statements of significant new findings provided to subjects in the study.
These records must be retained for at least three years after completion of the
research and shall be accessible for inspection and copying by authorized
representatives of the FDA.
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10.0 REFERENCES
1. Agency for Health Care Policy and Research. A Proposal for a National
Mammography Database: Content, Purpose, and Value. AJR, 1995;
164:1331-1334.
2. Bird, RE et al. Analysis of Cancers Missed at Screening Mammography.
Radiology, 1992; 184:613-617.
3. Ciatto, S et al. Nonpalpable Lesions Detected with Mammography: Review
of 512 Consecutive Cases. Radiology, 1987; 165: 99-102.
4. Giger, ML et al. Computer-aided Methods Help Cancer Diagnoses.
Diagnostic Imaging, November 1996, pp 17-20.
5. Martin, JE et al. Breast Cancer Missed by Mammography. AJR 132:
737-739.
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PROTOCOL APPENDIX I
PROCEDURES FOR THE TMI CLINICAL TRIAL PROTOCOL
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Thermal Medical Imaging, Inc. CONFIDENTIAL
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PROCEDURES FOR THE TMI CLINICAL
TRIAL PROTOCOL
Prepared for Thermal Medical Imaging
1760 South Telegraph Road, Suite 202
Bloomfield Hills, MI 48302
November 1996
TRW Inc.
1104 Country Hills Drive
Ogden, Utah 84403
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Thermal Medical Imaging, Inc. CONFIDENTIAL
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1.0 INTRODUCTION AND SCOPE
1.1 INTRODUCTION
The purpose of this manual is to provide a step-by-step process to follow while
performing the procedure for the clinical trial for breast cancer detection
using thermal imaging. A detailed description of each step has been provided.
1.2 SCOPE
This procedure will be used in the TMI clinical trial to determine the efficacy
of the TMI Breast Imaging System for breast cancer identification.
1.3 PROBLEMS WITH THE PROCEDURE
Should you find any problem with this manual, please contact TMI, Inc. so that
the problem may be corrected for you.
TMI, Inc.
Phone: (248) 745-4960
Pager: (800) 800-9725/ Bill Black
FAX: (248) 745-4965
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Thermal Medical Imaging, Inc. CONFIDENTIAL
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2.0 GENERAL INFORMATION
2.1 PROCEDURE SUMMARY
The TMI functional thermal breast imaging procedure is an innovative test which
simulates a thermal response by the subject and collects temperature data from
the surface of the breast. The subject is positioned in the prone position with
one breast surrounded by a set of first surface thermal reflecting mirrors and
the other breast placed in a protective boot. Collection is started at a rate
of one frame every two seconds. After 30 seconds, refrigerated air is blown on
the breast and data is collected for approximately 130 more frames. This data
is then retrieved and analyzed, as a time series, to identify anomalies in the
subject's thermal responses. The procedure is then repeated for the other
breast.
2.2 INFRA-RED DETECTION SYSTEM
The system processor is comprised of a Central Processing Unit (CPU), optics
unit, color monitor, laser disk drive, keyboard, mouse, and power conditioning
unit. Other peripherals may be connected to your system, such as a printer or
card reader.
The TMI system runs on a UNIX Operating System named Lynx OS. With a UNIX
Operating System, you must NEVER turn off the power without shutting down the
system via mouse and keyboard commands. When the Lynx OS has been shutdown
properly, you will get a message that states: ***LYNX OS IS DOWN***.
2.3 MOUSE
The mouse is a standard three button mouse. Each button may have a separate
command assigned to it according to what area of the program you are in. An
example is when you are moving a window. The Left button will drag the window,
the Middle button will complete the move, and the Right button will cancel the
action. At the top of the screen, you will see your options displayed on a
status bar.
2.4 KEYBOARD
The keyboard is not the standard keyboard that you may be familiar with. It has
been shortened in length with three sets of function keys above the alphanumeric
keys. This allows for more efficient usage of desk space and less tracking when
using the function keys on the keyboard.
2.5 USING THE MOUSE AND KEYBOARD
With the TMI system software, the mouse can be used to bring up a menu screen
that duplicates the layout of the keyboard function keys. On this menu screen,
each keyboard function key is represented by a button. This button can be used
interchangeably with the keyboard. As you become more familiar with the
software, you may find shortcuts by using both the mouse and keyboard at the
same time.
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2.6 PATIENT POSITIONING AND COOLING TABLE (PPCT)
The PPCT is a subject positioning table designed to provide imaging of the
complete breast area with a set of first surface thermal reflecting mirrors. In
addition, a cooling system has to be integrated to provide a mechanism for
triggering the desired subject response. The table is designed to view one
breast at a time, storing separate files for each breast.
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3.0 EXAMINATION PROCEDURES
3.1 POWER UP THE SYSTEM
- Turn on the power strip.
- Turn PPCT system power on.
- Ensure that the airflow exits from the exhaust (lower duct) and
bypass (upper duct) at the rear of the PPCT.
3.2 PRE EXAMINATION PROCEDURES
- Ensure Informed Consent form has been completed.
- Ensure appropriate case report forms have been completed.
- Fill out the TMI EXAMINATION LOG BOOK listing:
* Subject's Initials
* Study Number
* Date
- Have the subject take a seat in the exam area.
3.3 SYSTEM BOOT UP AND LOGGING IN
- Wait until you see the USERNAME prompt.
- Type in bales
- Type TIP or TIP200 and press Enter on the keyboard.
3.4 INITIAL IMAGING SETUP
- Select MENU from the top left corner of the screen.
[GRAPHIC: Illustrated; representation
of Keyboard with the "Sys" key darkened.]
Figure 3.1 -- SYS key on Menu Window
- Select SYS (refer to Figure 3.1).
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Thermal Medical Imaging, Inc. CONFIDENTIAL
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[GRAPHIC: Illustrated representation
of Sys window screen with the
"Setup" box highlighted.]
Figure 3.2 -- Sys Window
- Verify that the SLOW scan speed button is selected.
- Select SETUP (refer to Figure 3.2).
WAIT 45 SECONDS FOR THE CAMERA TO POWER UP. YOU WILL HEAR THE CAMERA HUMMING AS
IT PREPARES ITSELF FOR SCANNING.
- Select DONE.
3.5 PREPARING FOR EXAMINATION
- Ask Subject to disrobe from the waist up.
- Position step ladder on the side of the table system, with the steps
of the ladder parallel to the table.
- Direct subject to utilize the ladder to sit on the table.
- Record time and room temperature.
- Select MENU from the top left corner of the screen
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[GRAPHIC: Illustrated representation
of keyboard with the "Scan" button darkened]
Figure 3.3 -- Scan key from Menu Window
- Select Scan (refer to Figure 3.3)
Note: A scanning window will appear in the lower right corner to the screen.
[GRAPHIC: Illustrated representation
of keyboard with the "Color Map"
button darkened.]
Figure 3.4 -- ColorMap key from Menu Window
- Select COLOR MAP(refer to Figure 3.4)
- Verify that grey is selected
- Verify midtemp is 30 (default)
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[GRAPHIC: Illustrated representation of
"Color Map Window" screen with "Repeat All"
and "Done" rectangles highlighted.]
Figure 3.5 -- ColorMap Window
- Set Sens (C/L) to 0.10 (refer to Figure 3.5).
- Set number of levels to 110 (default) or setting which yields clearest
picture
- Select REPEAT ALL.
- Select DONE.
- Color map window may be closed at this time, but is not necessary
3.6 RECALL THE IMAGE TEMPLATE
- Select MENU from the top left corner of the screen.
[GRAPHIC: Illustrated representation
of keyboard with "Recall" button darkened.]
Figure 3.6 -- Recall key from Menu Window
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Thermal Medical Imaging, Inc. CONFIDENTIAL
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- Select RECALL (refer to Figure 3.6).
[GRAPHIC: Illustrated representation of
"Recall Window" screen with "Hard Disk,"
"First 10," and "Recall" rectangles highlighted.]
Figure 3.7 -- Recall Window
- Select HARD DISK.
- Select FIRST 10.
- Click on image named TEMPLATE.
- Select RECALL.
- Select OK.
- Move TEMPLATE Window to bottom left corner of the screen.
- Move cursor into the Template Window.
- Click middle mouse button.
- Select CANCEL regarding setting the ColorMap for recalled image.
- Select DONE.
3.7 TABLE PREPARATION
- Cover head and body support, and breast boot with health guard tissue
or sheet.
- Alcohol swab the sternum support of the breast support.
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Thermal Medical Imaging, Inc. CONFIDENTIAL
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- Spray remainder of vinyl with disinfectant, ensuring that cover
remains over breast opening.
3.8 CREATE NEW EXAMINATION IMAGE WINDOW
- Select MENU from the top left corner of the screen.
[GRAPHIC: Illustrated representation
of Keyboard with "G2" button darkened.]
Figure 3.7 -- G2 key from Menu Window
- Select G2 (refer to Figure 3.7).
- Select DUP (refer to Figure 3.8).
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Thermal Medical Imaging, Inc. CONFIDENTIAL
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[GRAPHIC: Illustrated representation
of "G2 Window" screen with "DUP"
and "Done" rectangles highlighted.]
Figure 3.8 -- G2 Window
- Click on the TEMPLATE Image Window.
THIS WILL INITIATE THE CREATION OF AN ADDITIONAL IMAGE WINDOW REFERRED TO AS THE
EXAMINATION IMAGE WINDOW.
- Move the Examination Image Window to left side of the screen.
- Move Cursor into the New Exam Window.
- Click middle mouse button.
- Select DONE.
YOU ARE NOW READY TO POSITION THE SUBJECT AND FOCUS THE CAMERA. PROPER SUBJECT
POSITIONING AND CAMERA FOCUS ARE CRITICAL TO THE EXAMINATION PROCESS. TAKE
EXTRA TIME TO INSURE THAT YOU HAVE ACHIEVED THE OPTIMAL CHOICE OF BOTH.
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3.9 POSITIONING SUBJECT AND FOCUSING CAMERA
- Direct subject to lay in the prone position on the table and align
with the breast boot and breast support, and center of circumferential
mirror system.
- Verify alignment on the EXAMINITION Image Window and adjust the
subject positioning as required.
- Select MENU from the top left corner of the screen.
[GRAPHIC: Illustrated representation
of keyboard with "Focus" button darkened.]
Figure 3.9 -- Focus key on Menu Window
- Select FOCUS (refer to Figure 3.9).
[GRAPHIC: Illustrated representation
of "Focus Window" screen with "Done"
rectangle highlighted.]
Figure 3.10 -- Focus Window
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Thermal Medical Imaging, Inc. CONFIDENTIAL
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- If image is blurred, manually position the Distance bar so that the
image is as clear as possible. (Approximate cm160) (refer to Figure
3.10).
- Select DONE.
- Turn on temperature measuring device
- Verify values being recorded in Celcius, default is Farenheit.
- Press Temp 1, record value in source document as thermocouple 1
temperature.
- Press Temp 2, record value I source document as thermocouple 2
temperature
- Record time using 24 hour clock.
3.10 COLLECT THERMAL IMAGES
- Select MENU from the top left corner of the screen.
- Select G2 (refer to Figure 3.7).
[GRAPHIC: Illustrated representation
of "G2 Window" screen with "Collect"
and "Done" rectangles highlighted.]
Figure 3.11 --G2 Window
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
- Select COLLECT (refer to Figure 3.11).
- Click on the Examination Image Window.
[GRAPHIC: Illustrated representation
of "Set Frames and Delay Time Window".]
Figure 3.12 -- Set Frames and Delay Time Window
AT THIS POINT REMIND THE SUBJECT TO BE STILL.
- Set Frames in the box to equal the number on the left of the box (e.g.
103) (refer to Figure 3.12).
- Set Delay to 2000.
YOU ARE NOW READY TO COLLECT THE TMI IMAGE. IF IT HAS BEEN FIVE MINUTES SINCE
THE SUBJECT HAS DISROBED, CONTINUE WITH THE EXAMINATION. OTHERWISE, WAIT UNTIL
THE FIVE MINUTES IS REACHED BEFORE CONTINUING WITH THE EXAMINATION.
INFORM THE SUBJECT THAT THE TEST IS ABOUT TO BEGIN AND BEGIN COLLECTING IMAGES.
- Click on OK.
THIS BEGINS THE TEST AND IT WILL RUN FOR THREE TO FIVE MINUTES.
AFTER 30 SECONDS OF ELAPSED TIME LET THE SUBJECT KNOW THAT YOU WILL BE TURNING
ON THE FANS AND THEY WILL HEAR A CLICK.
- Shift the diverter so that the air flow is directed to the diffuser
manifold.
THE G2 WINDOW APPEARS WHEN THE TEST IS FINISHED GATHERING IMAGES. LET THE
SUBJECT KNOW THAT THE TEST IS COMPLETED WHEN THIS WINDOW APPEARS.
- Close the deverter.
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
- Inform the subject they may sit up.
REVIEW THE COLLECTION OF IMAGES FOR QUALITY. IF SUBJECT MOVEMENT OR "JUMPY"
BEHAVIOR IS PRESENT, YOU WILL NEED TO COLLECT ANOTHER SET OF IMAGES FOR THE
BREAST THAT WAS JUST SCANNED.
- To review all of the images, first select the Fast Scan Image Window
that contains the images just collected.
- At the top right of that window, click on the green box that contains
the current image number and the total number of images (example: 1 /
### ).
- Move the mouse point outside of the image and the rate of change for
the images will increase. Look for subject movement and any "jumpy"
behavior while the images are scrolling. Note that the images will
wrap around to the start and you will see a change from the last frame
to the first frame.
- When you are finished reviewing the images, click inside the image to
stop the scrolling.
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
YOU ARE NOW READY TO SAVE THE IMAGES.
IF THE COLLECTION OF IMAGES ARE OF GOOD QUALITY, PROCEED TO STEP 3.11.
OTHERWISE, IF THE SET OF IMAGES WAS FOR THE RIGHT BREAST AND YOU STILL NEED TO
COLLECT IMAGES FOR THE LEFT BREAST , ACCOMPLISH STEPS 3.8-3.11 FOR THE LEFT
BREAST AND THEN REPEAT RIGHT BREAST IMAGING.
IF NO OTHER SET OF IMAGES NEEDS TO BE COLLECTED, ALLOW THE SUBJECTS BODY TO
NORMALIZE BEFORE THE PROCEED IS RAN AGAIN. ONCE THE SUBJECT IS NORMALIZED,
PROCEED TO STEP 3.8.
3.11 SAVING THERMAL IMAGES
- Select DONE from the G2 Window (refer to Figure 3.11).
- Select MENU from the top left corner of the screen.
[GRAPHIC: Illustrated representation
of Keyboard with "Save" button darkened.]
Figure 3.13 -- Save key from the Menu Window
- Select SAVE (refer to Figure 3.13).
[GRAPHIC: Illustrated representation
of "Save Window" screen with "One Image,"
"Laser," and "Done" rectangles highlighted.]
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
Figure 3.14 -- Save Window
- Select HARD DISK
- Enter the TMI Subject Number and breast imaged in the image Text
Window (e.g. T0001-R).
- Select ONE IMAGE.
- Click on the Fast Examination Image Window.
- Select OK.
- Select OK.
- Select OK.
- elect DONE.
SAVING THE IMAGE WILL TAKE APPROXIMATELY 3 MINUTES.
WHILE THE IMAGE IS BEING SAVED YOU MAY POSITION THE SUBJECT FOR THE LEFT BREAST.
YOU HAVE NOW SAVED THE IMAGE TO THE TMI HARD DRIVE.
- Close the Fast Examination Image Window.
- Select YES to confirm.
3.12 POSITION AND IMAGE THE LEFT BREAST
- Repeat step 3.8 - 3.11 for the left side.
- Inform the subject she may get dressed.
DO YOU HAVE ANOTHER SUBJECT NOW? IF SO, GO BACK TO STEP #3.7.
TRANSFER IMAGES FROM HARD DRIVE TO LASER AT END OF EACH DAY.
- RECALL IMAGE FROM HARDISC
- SELECT MENU
- SELECT SAVE
- SELECT LASER
- INSERT LASER DISC INTO DRIVE
- TYPE IN SUBJECT ID AND LT FOR LEFT BREAST, RT FOR RIGHT BREAST
- SELECT 1 IMAGE
- CLICK ON FAST EXAMINATION IMAGE WINDOW
- SELECT OK
- SELECT OK
- SELECT OK
- SELECT DONE
- IMAGE HAS BEEN SAVED
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
- REPEAT FOR OTHER IMAGES.
- IMAGES MAY BE DELETED FROM HD AFTER COPYING TO DISC.
3.13 SHUTTING DOWN THE SYSTEM
- Close any windows remaining open
- Select QUIT from the upper right corner of the screen.
- Select QUIT to confirm exiting the program.
- Type SHUTDOWN
- ***LYNX OS IS DOWN***** will appear.
- Wait five minutes, turn off PPCT power.
- Turn off computer and the power strip.
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
PROTOCOL APPENDIX II
ACR BREAST IMAGING REPORTING AND DATA SYSTEM
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
ACR BREAST IMAGING REPORTING AND DATA SYSTEM
1.
Negative- Routine follow up, nothing to comment on. If clinical finding exist, a
statement is made to indicate this finding should be dealt with independently of
the mammogram.
2.
Benign finding- Negative, but a description of the benign finding is given
3.
Probably benign-Short interval follow up
4.
Suspicious abnormality- Biopsy recommended. Lesions without characteristic
morphology of breast cancer, but having definite probability of being malignant.
5.
Highly suggestive of malignancy-appropriate action should be taken.
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
PROTOCOL APPENDIX III
CASE REPORT FORMS
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
PROTOCOL APPENDIX IV
INFORMED CONSENT MATERIALS
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
SAMPLE INFORMED CONSENT
CONSENT TO ACT AS A SUBJECT IN AN INVESTIGATIONAL STUDY
CONSENT TO ACT AS A SUBJECT IN AN INVESTIGATIONAL STUDY
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
I am being asked to participate in a study to research the effectiveness of
computerized thermal imaging of the breasts as an addition to mammogram and
clinical breast examination. Thermal imaging of the breasts is a painless
technology for breast imaging which involves no squeezing of the breast, and has
been performed on thousands of patients. Thermal imaging of the breasts produces
a temperature picture of the breasts where slight variations in temperature are
recorded. The study in which I am being asked to participate involves the use of
advanced computer program applications not previously possible with
thermography. Using this new computerized thermal imaging system, we hope to be
able to provide an additional source of information for doctors to use in
examination of the breasts to help avoid unneeded breast surgery. The thermal
imaging system is intended to be used together with mammogram and clinical
examination.
Multiple clinical experiments have been done showing that skin above
cancerous tumors is 1-3 degrees F. warmer than other areas of the breast.
Thermal imaging is the process of obtaining a temperature map of the breasts
to detect the presence of abnormal thermal patterns. This is done using
infra-red scanning devices which can detect temperature differences of less
than .5 DEG. F. Thermal imaging does not use x-rays, such as those used by
mammogram machines. There are no known harmful effects of thermal imaging.
The primary benefit of this study would be that thermal imaging would allow a
doctor to better differentiate benign vs. malignant breast tumors than is
possible with mammography or clinical examination alone, with zero risk.
The total time to perform a computerized thermal imaging of the breasts is about
20 minutes. You will be positioned face down on the scanning table with one
breast being scanned at a time while the other rests in a protective sleeve.
Refrigerated air will be blown onto the breast for 3-5 minutes. You may feel a
chill during this part of the examination. The process will be repeated on the
other breast. The cooling of the breast tissue helps the specially developed
computer programs to identify abnormal temperature patterns.
COSTS AND PAYMENTS: There will be no cost to me or my insurance company for the
computerized thermal imaging studies of my breasts during this investigational
study. I will not be paid for my participation.
Date Version Pt Initials
CONFIDENTIALITY: I understand that any information about me or my diagnosis
will be treated in the same confidential manner as other hospital medical
records. I further understand that the FDA, the Institutional Review Board at
this hospital and the equipment manufacturer, Thermal Medical Imaging, will have
access to the records of the project. I consent to publication of any
information for scientific purposes so long as my identity will not be revealed.
RIGHT TO WITHDRAW: I understand that I may refuse to participate in this study
or withdraw at any time and that my decision will not adversely affect my care
at this hospital or cause a loss of benefits to which I might otherwise be
entitled. I also understand that I may be withdrawn from the study by
investigators.
VOLUNTARY CONSENT: Dr. has explained the thermal imaging study
to me and has answered all of my questions related to the study. I also
understand that should I have any additional questions about this research, they
will be answered by him/her, who can be reached on . If I
have any questions at any time that I would like to discuss with someone other
than the
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
investigator, I am free to call the Office of the Executive Secretary,
University Institutional Review Board on .
By signing this form, I agree to participate in this study.
- ------------------------------- --------------------------------
Patient's Printed or Typed Name Patient's Signature
- ------------------------------- --------------------------------
Witness Date and Time
Investigator's Certification
I declare that I have personally explained the above information to the patient.
- -------------------------------
Investigator's Signature
- ------------------------------- --------------------------------
Witness Date and Time
Date Version Pt Initials
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
PROTOCOL APPENDIX V
INVESTIGATOR AGREEMENT
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
PROTOCOL APPENDIX VI
UNANTICIPATED ADVERSE EVENT FORM
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
PROTOCOL APPENDIX VII
SPECIFICATION FOR THE TMI SYSTEM
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
SPECIFICATION FOR THE TMI SYSTEM
Prepared for Thermal Medical Imaging
South Telegraph Road, Suite 202
Bloomfield Hills, MI 40302
November 1996
TRW Inc.
P.O. Box 1310
San Bernardino, California 92402
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
1.0 Scope
This specification is for the fabrication of a Dual Sequential Patient
Positioning and Cooling Table System. The system consists of a cooling system,
table structure, and mirror system.
2.0 Application
This system is to be used for the purpose of thermal imaging breast cancer
detection.
3.0 Design Criteria
Table 1. Design Characteristics
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CRITERIA MINIMUM MAXIMUM OPTIMAL
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
COOLING SYSTEM
- --------------------------------------------------------------------------------
Temperature (F) 55 70
- --------------------------------------------------------------------------------
Air Flow (cfm) 150
- --------------------------------------------------------------------------------
MIRROR SYSTEM
- --------------------------------------------------------------------------------
Efficiency (%) 95 100
- --------------------------------------------------------------------------------
Size
Bounce (1) 8x10
Cicumferential (8) 4x8
- --------------------------------------------------------------------------------
Adjustable 6 degrees of
freedom
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE STRUCTURE
- --------------------------------------------------------------------------------
Dimensions
(LxWxH) 82"x36"x48"
Table 59"x36"x2.5"
Body Support 13"x36"x2.5"
Head Support 12"x36x2.5"
Breast Support
- --------------------------------------------------------------------------------
</TABLE>
4.0 Material Description
4.1 Table Structure
The table shall be made of extruded aluminum with a yield strength of at least
35,000 psi and strength to weight ratio of at least 16,000 psi. The table
structure is depicted in Figures 1,2, and 3, which detail the plan, end, and
side view of the structure respectively.
4.2 Table Padding Insert
The table padding shall consists of three inserts, as detailed below, and
outlined in Figure 1.
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
4.2.1 Body Support
The base of the body support shall be 0.75 inches of plywood, with a minimum of
2.5 inches of foam covered vinyl.
4.2.2 Head Support
The base of the head support shall be 0.75 inches of plywood. There shall be a
minimum of 2.5 inches of foam covered vinyl on the head support.
4.2.3 Double Breast Support
The base of the breast support shall be made of 6061-T6 aluminum, 0.25 inches
thick with 0.50 inches x 1.0 inches 6061-T6 aluminum bar reinforcement, with a
minimum of 1.0 inch of foam on the sternum support, and a minimum of 2.5 inches
of foam on the remaining surface area of the support. There shall be two
opening in the breast plate measuring 8.0 inches in diameter.
4.3 Cooling System
The cooling system provides 150 cubic feet per minute (cfm) of cooled air. The
temperature is adjustable via the heater to between 15 degrees below ambient to
ambient at the diffuser exit. The ducting affiliated with the system, is 6
inches in diameter to the manifold, and 3 inches in diameter to the diffuser
register. The return air ducting is also 3 inches in diameter. The structural
frame of the overall system is 1.5 inches square. The overall cooling system
layout is depicted in Figures 3 and 4.
4.4 Mirror System
The mirror system consists of a bounce mirror and eight circumferential
mirrors, with selenium oxide protected gold plating. The mirror characteristics
allows optimal reflection in the 8 to 12 micron range, with approximately 45
degrees of incidence and 99% reflection.
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
FIGURE 1
DUAL SEQUENTIAL TABLE
PLAN VIEW
[GRAPHIC: Overhead view of "Dual Sequential
Table" showing Head Support, Reversible Chest
Support, and Main Body Support.]
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
FIGURE 2
DUAL SEQUENTIAL TABLE
END VIEW
[GRAPHIC: Illustrated representation
of end view of Dual Sequential Table showing
Lateral Mirrors, Diffusers, Bounce Mirror,
and Equivalent Optical Focal Point.]
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
FIGURE 3
DUAL SEQUENTIAL TABLE
SIDE VIEW
[GRAPHIC: Illustrated representation
of side view of Dual Sequential Table
showing the Cooling system, Thermal Scanner,
Diffusers, and mirrors.]
<PAGE>
Thermal Medical Imaging, Inc. CONFIDENTIAL
Protocol
FIGURE 4
COOLING SYSTEM
(VARIABLE FLOWRATE, VARIABLE COOLING)
[GRAPHIC: Illustrated representation
of Cooling System showing functions
and processes regulated by Control panel.]
<PAGE>
EXHIBIT 10(ww)
PROMISSORY NOTE
$397,745.56 Houston, Texas May 1, 1998
For value received, Computerized Thermal Imaging, Inc. ("Maker")
promises to pay to the order of Looper, Reed, Mark & McGraw, Incorporated
("Payee") located in Houston, Harris County, Texas, or at such other place and
to such other party or parties as the owner and holder hereof may from time to
time designate, in writing, the principal sum of THREE HUNDRED NINETY-SEVEN
THOUSAND SEVEN HUNDRED FORTY-FIVE DOLLARS and 56/100 ($397,745.45), in lawful
money of the United States of America which shall be legal tender for the
payment of debts from time to time together with interest at the rate of one
percent (1%) per month prior to maturity on the principal amount that remains
outstanding and unpaid from the date hereof.
This principal of this promissory note ("Note") represents all sums
accrued, due, and owing to Payee related to legal fees and expenses incurred
pursuant to its engagement agreement dated February 28, 1995 through April 21,
1998. The Maker hereby waives all prior defaults under the engagement agreement
or any other agreement. The principal of this Note shall increase by the amount
of any additional legal fees or expenses incurred by Payee for and on behalf of
Maker pursuant to its engagement as legal counsel.
THIS NOTE IS PAYABLE AS FOLLOWS, TO-WIT:
The principal and interest of this Note shall be payable in monthly
payments of $50,000 each with the first such payment being due and payable on
May 1, 1998. An equal payment shall then be due and payable on the first day of
each month subsequent to May 1, 1998 until this Note is paid in full. In the
event any such date falls on a Saturday, Sunday, or legal holiday, then such
payment shall be due and payable the next business day thereafter. If Maker is
able to obtain additional working capital through sales of its common stock or
debt financing (other than equipment financing) after the date hereof of a
cumulative amount in excess of $800,000, or if any payments are made pursuant to
the Investment Agreement with Bristol Asset Management L.L.C. or similar
financing originated by Ambient Capital, then the monthly payments will increase
to $75,000. All payments shall first be applied to accrued interest, with the
balance reducing the unpaid principal hereof.
The undersigned maker shall have the right and privilege of prepaying
this Note at any time or times, in whole or in part, without notice or penalty.
However, any such prepayment hereunder shall be applied first to accrued unpaid
interest, if any, owing on this Note and the balance to the last maturing
installment of principal in inverse order of maturity.
It is agreed that time is of the essence of this Note and that in the
event the Maker hereof shall fail to (1) make a monthly payment, whether
principal or interest, within ten (10) days of the due date of such installment,
(2) perform any act of default under the Pledge Agreement between Payee and
Maker executed on September 11, 1997, or (3) perform any act of default under
the Pledge Agreement between Payee and Thermal Medical Imaging, Inc. executed on
September 18, 1997, all three of which shall constitute events of default, then
the holder hereof may, at its option, without demand, notice, or presentment,
accelerate the maturity of this Note by written notice in which event the entire
unpaid balance of the principal hereof, together with all accrued and unpaid
interest thereon, shall be at once due and payable. Failure to exercise this
right to accelerate at any time(s) shall not constitute a waiver of the right to
exercise the same in the event of any subsequent default. Any amount not paid
within the ten day grace period after it becomes due shall accrue interest at a
rate of one percent per month from the due date.
Payment of this Note is secured by the two Pledge Agreements
referenced in the paragraph above, and the terms of those Pledge Agreements are
incorporated by reference for all purposes. If any provision of such Pledge
Agreements is in conflict with this Note, the conflicting terms of this Note
shall apply. Unless holder must
Initial for Identification
Page 1 of 3 DAP
--------------------------
<PAGE>
pursue remedies pursuant to the Pledge Agreements, Payee or holder shall return
to Maker all pledged collateral and the Pledge Agreements shall terminate upon
due payment in full of all amounts due under this Note.
The Maker hereof, as well as any persons or entities to become liable
for the payment of this Note, hereby expressly (a) waive (i) demand or
presentment for payment of this Note, (ii) notice of non-payment, protest, suit,
acceleration, intention to accelerate, diligence and/or (iii) any notice of, or
defense on account of, the extension of time of payments or change in the method
of payments, and/or any modification of the terms hereof or any instrument
securing or guaranteeing the payment hereof, and (b) consent to any and all
renewals and extensions granted by Payee in the time of payment hereof, and/or
to the two Pledge Agreements and any other instrument securing or guaranteeing
the payment hereof, and (c) agree that (i) the acceptance of late payment(s)
hereunder by the holder hereof, (ii) waiver of any event(s) of default hereunder
and/or any instrument securing or guaranteeing the payment hereof or (iii) other
forgiveness of any other defaults by Maker, shall not constitute a waiver by the
holder hereof of any subsequent defaults, late payments or other violations of
the Maker's obligations hereunder and/or in the terms of any instrument securing
or guaranteeing the payment hereof. Payee acknowledges and agrees that a late
receipt of a payment in default prior to delivery by holder to Maker of a notice
of acceleration shall constitute a waiver and cure of that event of default.
If this Note or any installment hereof is not paid when due (whether
the same becomes due by acceleration or otherwise) and is placed in the hands of
an attorney for collection, or if suit is filed hereon, or if this Note shall be
collected by legal proceedings or through a probate or bankruptcy court, the
undersigned agrees to pay all costs of collection, including reasonable
attorneys' fees.
Payee agrees to release Maker from any and all liabilities, claims, or
causes of action, saving the debt secured by this Note or any debt or obligation
arising hereafter. Maker hereby releases Payee of any and all liabilities,
claims, or causes of action arising prior to the date of this Note, except as
may arise from the gross negligence or willful misconduct of the Payee.
All agreements between the undersigned and the holder hereof, whether
now existing or hereafter arising and whether written or oral, are hereby
limited so that in no contingency, whether by reason of acceleration of the
maturity hereof or otherwise, shall the interest paid or agreed to be paid to
the holder hereof exceed the maximum amount permissible under applicable law.
The Maker hereof agrees that during the full term hereof the maximum lawful
interest for this Note determined under Texas law shall be the Indicated Rate
Ceiling as specified in Article 5069-1.04 of V.A.T.S. Further, to the extent
that any other lawful rate, including, but not limited to, rates allowed under
the laws of the United States of America, exceeds the rate so determined, then
the higher ceiling rate shall apply. If, under any circumstance whatsoever,
interest would otherwise be payable to the holder hereof at a rate in excess of
that permitted under applicable law, then the interest payable to the holder
hereof shall be reduced to the maximum amount permitted under applicable law,
and if under any circumstance whatsoever the holder hereof shall ever receive
anything of value deemed interest by applicable law which would exceed interest
at the highest lawful rate, then an amount equal to any excessive interest shall
be applied to the reduction of the principal amount hereunder and not to the
payment of interest or if such excess of interest exceeds the unpaid principal
balance hereof, such excess shall be refunded to the maker hereof. All interest
paid or agreed to be paid to the holder hereof shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full period until payment in full of the principal of this Note (including the
period of any renewal or extension hereof) so that the rate of interest hereon
is uniform throughout the term hereof. This paragraph shall control all
agreements between the undersigned and the holder hereof.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS AND THE LAWS OF THE UNITED STATES APPLICABLE TO TRANSACTIONS IN TEXAS.
ANY DISPUTE RELATED TO OR ARISING OUT OF THIS PROMISSORY NOTE SHALL BE RESOLVED
BY BINDING ARBITRATION. Either party may notify the other of such dispute, and
the arbitration shall be conducted in accordance with the UNCITRAL Arbitration
Rules and, to the extent UNCITRAL does not apply, in accordance with the Texas
Arbitration Act. If the parties cannot mutually agree to an arbitrator within
10 days after delivery of notice of arbitration, J.A.M.S./Endispute (Judicial
and Administrative Mediation Services) shall be the appointing body
Initial for Identification
Page 2 of 3 DAP
--------------------------
<PAGE>
to select a sole arbitrator to resolve the dispute, which shall be held in Salt
Lake City, Utah. Both parties shall advance the costs of arbitration, and the
failure to do so timely may be treated as an act of default by the arbitrator.
The arbitrator shall render an award and assign costs and legal fees to the
prevailing party.
The Maker hereof represents and warrants that the extension of credit
represented by this Note is for business, commercial, investment or other
similar purpose.
Any check, draft, money order or other instruments given in payment of
all or any portion of this Note may be accepted by the holder hereof and handled
in collection in the customary manner, but the same shall not constitute payment
hereunder or diminish any rights of the holder hereof except to the extent that
actual cash proceeds of such instruments are unconditionally received by the
holder and applied to this Note in the manner elsewhere provided.
Maker warrants and represents that its independent counsel was sought
in the review and execution of this Note and that Maker did not rely on Payee as
counsel. Maker did not act under duress, nor did it consult Payee for advice
regarding the execution of this note.
COMPUTERIZED THERMAL IMAGING, INC.
By: /s/ David A. Packer
--------------------------
DAVID A. PACKER, President
Initial for Identification
Page 3 of 3 DAP
--------------------------
<PAGE>
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
The table below presents information necessary for the computation of loss
per share of Common Stock on a primary basis for the nine months ended March
31, 1998 and 1997 and the years ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
Nine Months Ended March 31, Years Ended June 30,
---------------------------- ----------------------------
1998 1997 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss applicable to shares of common stock ($4,485,000) ($2,380,322) ($3,349,614) ($3,241,762)
Average number of shares of Common Stock outstanding 41,472,274 34,793,954 33,803,045 30,875,600
COMMON STOCK EQUIVALENTS (SEE NOTE.) - - - -
--------------------------------------------------------------
Total shares of Common Stock and Common Stock equivalents. 41,472,274 34,793,954 33,803,045 30,875,600
--------------------------------------------------------------
--------------------------------------------------------------
NET LOSS PER COMMON SHARE $(.11) $(.07) $(.10) $(.11)
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>
Common Stock equivalents are considered anti-dilutive because of net losses
incurred by the Company and therefore only primary loss per share is shown.
<PAGE>
EXHIBIT 16(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Computerized Thermal Imaging, Inc.
We have read the section entitled "Change of Accountants" contained in Amendment
No. 3 to Form SB-2/A of Computerized Thermal Imaging, Inc. (the "Company"), and
are in agreement with the statements contained in said section as they related
to our firm. We have no basis to disagree with the other statements of the
Company contained in said section.
KING, GRIFFIN & ADAMSON P.C.
By: /s/ King Griffin & Adamson P.C.
-------------------------------------
Barry Adamson, CPA
Audit Director
Dallas, Texas
July 31, 1998
<PAGE>
EXHIBIT 16(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
To the Board of Directors
Computerized Thermal Imaging, Inc.
I have read the section entitled "Change of Accountants" contained in Amendment
No. 3 to Form SB-2/A of Computerized Thermal Imaging, Inc. (the "Company"), and
am in agreement with the statements contained in said section as they relate to
me. I have no basis to disagree with the other statements of the Company
contained in said section.
By: /s/ Randy Simpson
--------------------------------
Randy Simpson
Certified Public Accountant
Salt Lake City, Utah
August 7, 1998
<PAGE>
EXHIBIT 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2
of our report dated May 10, 1998, on our audits of the financial statements
of Computerized Thermal Imaging, Inc. for the years ended June 30, 1997 and
1996. We also consent to the reference to our firm under the caption "Experts".
/s/ Ham, Langston & Brezina, LLP
Houston, Texas
August 20, 1998
<PAGE>
EXHIBIT 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Prospectus constituting part of this
Registration Statement on Form SB-2 of our reports relating to the interim
unaudited financial statements of Computerized Thermal Imaging, Inc. which
appear in such Prospectus for the nine months ended March 31, 1998 and 1997 and
the period from inception (June 10, 1987) to March 31, 1998. We are aware of
the use in this Registration Statement of our report on such unaudited interim
financial information. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
Randy Simpson, CPA P.C.
Sandy, Utah
August 20, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1997 JUN-30-1997 JUN-30-1996
<PERIOD-START> JUL-01-1997 JUL-01-1996 JUL-01-1996 JUL-01-1995
<PERIOD-END> MAR-31-1998 MAR-31-1997 JUN-30-1997 JUN-30-1996
<CASH> 496,172 195,386 193,852 163,928
<SECURITIES> 0 0 0 0
<RECEIVABLES> 2,204 0 2,204 0
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 498,376 195,386 196,056 163,928
<PP&E> 230,770 147,061 165,113 134,780
<DEPRECIATION> (73,146) (41,270) (49,578) (20,025)
<TOTAL-ASSETS> 871,788 522,676 528,675 278,683
<CURRENT-LIABILITIES> 2,453,711 696,158 1,671,448 226,674
<BONDS> 62,500 675,000 675,000 0
0 0 0 0
0 0 0 0
<COMMON> 47,631 35,738 35,738 32,907
<OTHER-SE> (1,692,054) (884,220) (1,853,511) 19,102
<TOTAL-LIABILITY-AND-EQUITY> 871,788 522,676 528,675 278,683
<SALES> 0 55,815 55,815 125,000
<TOTAL-REVENUES> 2,688 59,263 61,577 134,869
<CGS> 0 56,145 56,845 110,000
<TOTAL-COSTS> 4,293,540 3,329,293 3,267,678 3,254,693
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 194,148 53,447 86,668 11,938
<INCOME-PRETAX> (4,485,000) (2,380,322) (3,349,614) (3,241,762)
<INCOME-TAX> 0 0 0 0
<INCOME-CONTINUING> (4,485,000) (2,380,322) (3,349,614) (3,241,762)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (4,485,000) (2,380,322) (3,349,614) (3,241,762)
<EPS-PRIMARY> (.11) (.07) (.10) (.11)
<EPS-DILUTED> (.11) (.07) (.10) (.11)
</TABLE>
