SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999
Commission file number 000-23955
COMPUTERIZED THERMAL IMAGING, INC.
________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Nevada 87-0458721
____________________________ ________________________________
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
476 HERITAGE PARK BOULEVARD, SUITE 210
LAYTON, UTAH 84041
______________________________________
(Address of principal executive offices)
(801) 776-4700
________________________________________________
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports) Yes [ X ] No [ ], and (2) has been subject to such filing
requirements for the past 90 days. Yes [X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
As of September 30, 1999, the issuer had outstanding 65,032,837 shares of
its Common Stock, $0.001 par value.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The unaudited financial statements of Computerized Thermal Imaging, Inc.,
a Nevada corporation (the "Company"), as of September 30, 1999, were prepared
by Management and commence on the following page. In the opinion of Management
the financial statements fairly present the financial condition of the
Company.
COMPUTERIZED THERMAL IMAGING, INC.
(A Development Stage Company)
Consolidated Financial Statements
September 30, 1999
(Unaudited)
<PAGE> 2
COMPUTERIZED THERMAL IMAGING, INC.
(A Development Stage Company)
Consolidated Balance Sheet
September 30, June 30,
1999 1999
------------- ---------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 270,938 $ 137,162
------------- ----------------
Total Current Assets 270,938 137,162
PROPERTY AND EQUIPMENT:
Office equipment and furnishings 285,206 219,998
Computer equipment 165,908 159,615
Accumulated depreciation (157,275) (140,970)
------------- ----------------
Total Property and Equipment 293,839 238,643
TOTAL ASSETS $ 564,777 $ 375,805
============= ================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 210,609 $ 470,870
Advances from affiliates 25,641 -
Accrued liabilities 82,668 64,644
------------- ----------------
Total Current Liabilities 318,918 535,514
STOCKHOLDERS' EQUITY (DEFICIT):
Convertible preferred stock, $5.00 par
value, 100,000 shares authorized - -
Common stock, $.001 par value; authorized
100,000,000 shares, issued and outstanding
65,032,837 on September 30, 1999,
62,275,560 on June 30, 1999 65,033 62,276
Additional paid-in capital 26,994,399 25,486,825
Accumulated deficit during the development
stage (26,813,573) (25,708,810)
-------------- ----------------
Total Stockholders' Equity (Deficit) 245,859 (159,709)
-------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 564,777 $ 375,805
============== ================
The accompanying selected notes are an integral part of these
consolidated financial statements.
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COMPUTERIZED THERMAL IMAGING, INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
From
Inception on
Three Months Three Months June 10, 1987
Ended Ended through
September 30, September 30, September 30,
1999 1998 1999
------------- ------------- -------------
REVENUES
Interest income $ 1,493 $ 733 $ 27,500
Income from sale of prototype - - 180,815
------------- ------------- -------------
Total Revenues 1,493 733 208,315
------------- ------------- -------------
COSTS AND EXPENSES
Operating, general and
administrative expenses 410,579 400,540 16,704,889
Research and development costs 695,677 636,967 7,727,923
Interest expense - 168,489 2,140,333
Litigation settlement - - 514,380
------------- ------------- -------------
Total Costs and Expenses 1,106,256 1,205,996 27,087,525
------------- ------------- -------------
LOSS BEFORE EXTRAORDINARY ITEM (1,104,763) (1,205,263) (26,879,210)
EXTRAORDINARY GAIN ON
EXTINGUISHMENT OF DEBT - - 65,637
------------- ------------- -------------
NET LOSS $ (1,104,763) $ (1,205,263) $(26,813,573)
============= ============= =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 64,473,681 48,336,957
============= =============
LOSS PER COMMON SHARE $ (0.02) $ (0.02)
============= =============
The accompanying selected notes are an integral
part of these consolidated financial statements
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COMPUTERIZED THERMAL IMAGING, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months From Inception
Ended Ended on June 10, 1987
September 30, September 30, through September
1999 1998 30, 1999
------------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,104,763) $(1,205,263) $(26,813,573)
Adjustments to reconcile net loss
to net cash used in operating activities:
Extraordinary gain on debt
extinguishment - - (65,637)
Depreciation expense 16,305 11,522 148,619
Amortization of debt issuance costs
and discounts - 150,000 937,969
Common stock issued as compensation
for services 31,873 - 8,943,469
Common stock issued for interest expense - - 423,596
Common stock issued in settlement of
litigation - - 514,380
Common stock issued for failure to
complete timely registration - - 82,216
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable
and accrued liabilities (242,237) (22,173) 293,277
------------- ------------ -------------
Net Cash Used in Operating Activities (1,298,822) (1,065,914) (15,535,684)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Sale of assets - - 4,790
Fixed asset capital expenditures (71,501) (619) (447,248)
------------- ------------ -------------
Cash Used in Investing Activities (71,501) (619) (442,458)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued for cash 1,478,458 - 11,503,760
Advances from stockholders 25,641 596,548 2,346,379
Proceeds from notes payable and accrued
interest - 392,614 3,213,132
Legal fees and interest added to note - 82,482 496,599
Payment of debt issuance costs - - (133,600)
Payment of notes and convertible debentures - (60,000) (1,177,190)
------------- ------------ -------------
Cash Provided by Financing Activities 1,504,099 1,011,644 16,249,080
NET (DECREASE) INCREASE IN CASH 133,776 (54,889) 270,938
CASH AT BEGINNING OF PERIOD 137,162 230,064 -
------------- ------------ -------------
CASH AT END OF PERIOD $ 270,938 $ 175,175 $ 270,938
============= ============= =============
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING
AND INVESTING ACTIVITIES:
Common Stock (711,200 shares) returned to
equity, rescission offer declined - 306,873 -
============= ============ =============
Cash paid for interest (no income tax paid) $ - $ - $ 65,600
============= ============= =============
The accompanying selected notes are an integral part of these consolidated financial statements.
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</TABLE>
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COMPUTERIZED THERMAL IMAGING, INC.
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
For the Three Months Ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Total
Common Common Additional Stock-
Stock Stock Paid-in Accumulated Holders'
Shares Amount Capital Deficit Equity
---------- --------- ------------- ------------- ------------
<S> <S> <C> <C> <C> <C>
Balance at July 1,1999 62,275,560 $ 62,276 $ 25,486,825 $(25,708,810) $ (159,709)
Common stock issued for
cash, at $.55 per share 913,916 914 499,086 - 500,000
Common stock issued for cash,
net of offering expenses of
$25,000 at $.54 per share 933,707 934 474,066 - 475,000
Common stock issued for cash,
net of offering expenses of
$25,000 at $.60 per share 875,657 875 502,583 - 503,458
Common stock issued to a
corporation for services 33,997 34 31,839 - 31,873
Net loss for three months
Ended September 30, 1999 - - - (1,104,763) (1,104,763)
---------- --------- ------------- ------------- ------------
Balance at September 30, 1999 65,032,837 $ 65,033 $26,994,399 $ (26,813,573) $ 245,859
========== ========= ============= ============= ============
The accompanying selected notes are an integral part of these interim financial statements.
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COMPUTERIZED THERMAL IMAGING, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. UNAUDITED FINANCIAL STATEMENTS:
The unaudited consolidated financial statements for the three months ended
September 30, 1999, 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 three-month periods ended
September 30, 1999 and 1998 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 financial statements
for its first quarter ended September 30, 1999, is presented in the Company's
audited financial statements for the years ended June 30, 1999 and 1998.
Accordingly, the Company's audited financial statements, as contained in the
Company's Form 10KSB for its year ended June 30, 1999 should be read in
connection with these financial statements.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
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"). Computerized
Thermal Imaging Company, Inc. ("CTICO")(formerly known as Thermal Medical
Imaging, Inc.) is an 80 percent owned subsidiary of the Company that 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 "CTICO System"). TRW, Inc. ("TRW") is the
Company's primary systems development vendor.
FIRST QUARTER ENDED SEPTEMBER 30, 1999 AND 1998. The Company's general
and administrative activities focused on fund raising and support of research
activities which included, primarily, clinical testing of the CTI Breast
Imaging System in the first quarter of this fiscal year, and development
expenses with TRW in the in the first quarter of the 98-99 fiscal year. The
Company incurred a loss of $1,104,763 for the first quarter ended September
30, 1999, as compared to a loss of $1,205,263 for the first quarter ended
September 30, 1998. The Company had nominal revenues in each period. General
and administrative expenses increased slightly to $410,579 during the first
quarter of the Company's fiscal year from $400,540 during the first quarter of
the Company's last fiscal year. Legal fees between the two comparable first
quarters, reduced this year by $88,000, and accounting fees reduced by
approximately $10,000. The reduction in legal and accounting fees was mainly
due to the completion of legal and accounting expenses related to the filing
of the Company's Form SB-2 Registration Statement and the related Prospectus
declared effective on January 8, 1999. Travel related expenses also reduced by
more than $16,000 between the two first quarters and office expenses reduced
by approximately $10,000 mostly due to the fact that the Company did not
renew its lease on its Michigan office space. Consulting and special/
stockholder service fees were up during this year's first fiscal quarter over
the first quarter of last year by over $129,000. This increase is attributable
to expenses related to financial consulting and capital fund raising services.
Research and development costs increased by approximately $60,000 for
the quarter ended September 30, 1999 over the quarter ended September 30,
1998: from $636,967 to $695,677. A breakdown of actual research and
development expenses demonstrates a shift from research to FDA testing with an
$75,000 increase on FDA testing and consulting over last year's first fiscal
quarter. The Company has expensed all costs associated with its processes and
systems, including software code writings, computer system hardware and
software purchases from third party vendors, material expenses in the
development of the examination table and all payroll related development
expenses throughout the periods presented.
There were no interest expense in 1999's first quarter due to the
elimination of two notes during the Company's fourth quarter of its last
fiscal year; interest expenses during the first quarter of 1998 were $168,489.
Depreciation expenses during this year's first quarter were $16,304 as opposed
to the first fiscal quarter of the 1998-99 fiscal year when such depreciation
expenses were $11,523.
The Company funded its losses during the three months ended September
30, 1999 mostly through cash provided by Beach Boulevard LLC as part of the
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Investment Agreement. Beach provided approximately $1,478,500 during the
quarter through the purchase of 2,723,280 shares of the Company's common
stock. Stockholders also provided a minor amount of funding in the amount of
$25,641 in the 1st quarter and the Company issued 33,997 common shares for
services valued at $31,873 to Sitrik & Company. The Company purchased
upgrades for existing thermal imaging systems along with a new imaging system
for its CTI system in the amount of $71,501; otherwise most of the common
stock purchases went to fund continuing research and development expenditures
and the paydown of accounts payable and accrued liabilities in the amount of
$242,237. The company ended the 1st quarter with a negative working capital
of $47,980; however, it is current in meeting its payment schedule for
research and development with TRW, Battelle and the various hospitals
conducting clinical studies.
During the first three months of last years fiscal year, the Company
satisfied a large part of its cash flow requirement through advances from
stockholders and/or affiliates and notes. Shareholders advanced approximately
$596,500 during that quarter. The Company also entered into a note with an
affiliate for $347,750 in early September of 1998 as well as satisfying
approximately $82,400 in legal fees with its former counsel through a note.
Both of the foregoing notes were paid in full prior to the end of the
Company's June 30, 1999 fiscal year, the affiliate note through the issuance
of shares, and the note to the Company's legal counsel with cash. All
shareholder advances during the first quarter of 1998, were satisfied with
common stock prior to the Company's fiscal year end.
LIQUIDITY AND CAPITAL RESOURCES
* No Revenues from Operations*
The Company has had no significant revenues from operations from
inception. The Company's cash requirements consist of: office salaries and
expenses including lease payments on its office space, legal and accounting
fees to comply with securities registration (including updating its Prospectus
currently in effect) and reporting requirements, cost of clinical trials, TRW
and Battelle technical support, and FDA consulting. The Company intends to
raise additional equity funds from the sale of the common stock through
private offerings to new investors and pursuant to its agreement in effect
with Beach Boulevard LLC as discussed below, to meet cash requirements through
September 30, 2000.
* Prospectus in Effect *
The Company's prospectus (the "Prospectus") filed as part of its
Registration Statement on Form SB2 was declared effective by the Securities
and Exchange Commission on January 8, 1999. The Prospectus was filed on
behalf of certain selling shareholders as well as to register the common stock
underlying certain warrants and options. The Prospectus was amended as part
of a Post Effective Amendment to its SB-2 on April 1, 1999 as a result of the
Company entering into a securities purchase agreement with Beach Boulevard LLC
(the "Investment Agreement"). (The Investment Agreement has been filed as
Exhibit 10eee as part of the Company's Post Effective Amendment.) The Company
expects to raise up to $7,000,000 as a result of the Investment Agreement and
has, to date, received a little less than $3,000,000 including a $475,000
investment made by Beach subsequent to the end of the quarter covered by this
report. (See below). The Company's Prospectus was amended a second time on
July 16, 1999.
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*Investment Agreement with Beach Boulevard LLC*
On March 4, 1999, the Company entered into a Securities Purchase
Agreement (as amended in May, the "Investment Agreement") with Beach Boulevard
L.L.C. ("Beach"). Subject to certain conditions provided in the Investment
Agreement, the Company may require Beach to purchase up to $7,000,000 of
Common Stock of the Company in a series of tranches of $500,000 each. The
first two tranches were completed prior to the Company's fiscal year ended
June 30, 1999. At the closing of the first of these tranches on May 13, 1999
(the "Initial Closing Date"), the Company issued 757,576 shares to Beach. At
the closing of the second of these tranches on June 15, 1999 (an "Additional
Closing Date") the Company issued 862,069 shares to Beach with gross proceeds
from the two tranches of $1,000,000. During the Company's first quarter ended
September 30, 1999, the third of these tranches closed on July 15, 1999 with
843,170 shares issued to Beach for additional gross proceeds of $500,000.
Closings for subsequent tranches (each, an "Additional Closing Date") are held
after the Company gives a notice (each, a "Tranche Notice") to Beach. Without
the consent of Beach, there can not be more than one Additional Closing Date
in any one calendar month. Beach elected to participate in a fourth and fifth
tranche which occurred on August 1, 1999 with the issuance of 856,164 shares
and on September 13, 1999 with the issuance of 875,657 shares and net proceeds
to the Company of $978,458. Subsequent to the end of the Company's first
fiscal quarter, Beach participated in a sixth tranche with net proceeds to the
Company of $475,000. Beach was not required under the Agreement to
participate in the fourth and fifth tranches because the Company's price of
its common shares in the market was below the required $.75 per share.
Beach's obligation to purchase additional tranches over the initial $1,500,000
in funding, is conditioned on several factors discussed below.
The purchase price for each share of Common Stock being bought by
Beach on each Additional Closing Date is based on the lowest sale price of the
stock during the period from the date of the relevant Tranche Notice to and
including the trading day immediately before that Additional Closing Date
multiplied by (i) for the first two Additional Closing Dates, 82.5%, and (ii)
for each Additional Closing Date thereafter, 85%. Beach's obligations to
purchase additional tranches are subject to certain requirements relating to
the effectiveness of the Company's Registration Statement covering the shares
issued or to be issued to Beach, the number of shares authorized and reserved
for issuance to Beach, the continued accuracy of representations and
warranties made by the Company in the Investment Agreement, the absence of
material adverse changes in the business, operations or conditions of the
Company, and the absence of any suspension of the trading of the Company's
Common Stock by the SEC or the NASD.
In addition, once Beach purchased $1,500,000 (completed as of July
15, 1999) of the Company's Common Stock, Beach's obligation to fund subsequent
tranches is subject to the following conditions: (1) the lowest sale price of
the Common Stock during the period from the date of the Tranche Notice to and
including the trading day before the relevant Additional Closing Date (the
"Current Price") must be seventy-five cents ($0.75) or more and (2) the
average daily trading volume for the twenty consecutive trading days ending
the day before the relevant Additional Closing Date must be 200,000 or more
shares.
The Company also agreed to issue certain additional shares
("Supplemental Shares") to Beach based on the average of the lowest sale price
of a share of Common Stock for any five trading days selected by Beach during
the period beginning on the first trading day after each closing date (whether
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the Initial Closing Date or an Additional Closing Date) and continuing through
and including the twentieth trading day after that closing date. If that
average (the "Market Price of the Common Stock") is less than 95% of the
Current Price applicable to the relevant closing date (the "Base Price"), the
Company will issue the number of Supplemental Shares equal to (1) the product
of (x) the number of shares purchased on the relevant closing date, multiplied
by (y) the excess of the Base Price over the Market Price of the Common Stock,
divided by (2) the Market Price of the Common Stock. The Company is obligated
to issue the Supplemental Shares, if any, within 30 days after the relevant
closing date. In connection with the shares issued on the initial Closing
Date, the Company issued 57,945 Supplemental Shares to Beach; supplemental
shares were also issued on the third tranche equal to 70,746 and on the forth
tranche equal to 69,080 shares taking into account a reduction due to an
8,463 share overage in the second tranche. No supplemental shares were issued
in the fifth tranche and the Company has not calculated the number of
supplemental shares, if any, to be issued in the 6th tranche. Because Beach
is not required to purchase additional shares unless certain provisions are
met as set forth in the preceding paragraph, there is no assurance that Beach
will ultimately provide the Company with the full $7 Million. The Company has
amended its Prospectus twice as a result of the Investment Agreement. The
first amendment was filed with the Securities and Exchange Commission as part
of a Post effective Amendment to its Form SB-2 on April 1, 1999; the second
was filed on July 16, 1999 under rule 424(b)(3). Because the Company is
registering the Beach shares for resale, it is required to maintain its
Prospectus in effect.
* Agreement with Manhattan Financial Group *
Since January 1, 1997, the Company has been a party to a Consulting
Agreement with MFG covering financial services. MFG provides regular financial
advising services to the Company, such as strategic consulting to arrange
financing of projects including the Beach Investment Agreement discussed
above, and the Sutro Agreement discussed below. 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. The Consulting Agreement with MFG
remains in effect and MFG's fees are negotiated on a case by case basis
depending on the service provided and the extent of its involvement with a
specific financing project. During this fiscal quarter the Company has
compensated MFG approximately $ 120,000.
* Agreement with Sutro *
The Company signed an agreement with Sutro & Co Incorporated ("Sutro") on
October 8, 1999 to provide investment banking services, including but not
limited to a private stock placement of the Company's common stock. The
agreement provides for a non-refundable retainer of $50,000, placement fees of
1 1/2% to 6 1/2% depending on the debt or equity sources and a 3% of equity
ownership for warrants at current market exercise prices should an equity
placement occur. The agreement with Sutro is attached hereto and incorporated
by reference as Exhibit 10(lll).
CAPITAL REQUIREMENTS/PLAN OF OPERATION
The Company will require an estimated $6,000,000 - $7,000,000 for the
next 12 months for its research and development programs, preclinical and
clinical testing, development of its sales and distribution efforts, operating
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expenses, and regulatory processes. The Company's capital requirements,
however, may vary from its estimates and depends 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; licensing and other
relationships; and the terms of any new collaborative, licensing and other
arrangements that the Company may establish. The Company estimates that it
will need approximately $4.5 Million to complete CTICO's clinical trials; $1.5
Million for day-to-day operating expenses including its lease payments on two
facilities of $60,000 per year; $600,000 -$700,000 to cover salaries; and
$400,000 for legal and accounting to maintain its Prospectus in effect as well
as for SEC compliance with reporting obligations. The Company currently has
eight employees and will likely hire an additional employee during its second
fiscal quarter to assist in engineering support.
The following constitute the various aspects of the Company's Plan of
Operation over the next twelve months in order of priority: (1) the completion
of PMA on the CTI Breast Imaging System through clinical trials as well as
continued system integration development and algorithm development by the
Company associated therewith; and (2) additional efforts for CTI Systems
development for other applications, such lower back imaging, especially
regarding insurance coding.
The Company anticipates that the existing agreement with Beach Boulevard
LLC will fund its operations thru the majority of fiscal year 1999-2000; any
additional funding from Sutro will allow the Company to accelerate its FDA
testing and research and development expenditures to bring its system to
market. There is no guarantee that Beach will provide such the remainder of
the funding especially if the price of the Company's common stock falls below
$.75 in the market. If anticipated funding falls short, the Company will rely
on affiliates to continue to support the Company either through loans or
contributions to capital in exchange for the restricted common stock of the
Company. In the recent quarter ended such contributions have been minimal
because the Beach funding has provided sufficient cash for the Company's
needs.
COMPLETION OF PMA/FDA APPROVAL/CLINICAL TRIALS -The efficacy of the
CTI Breast Imaging System is currently subject to confirmation in FDA clinical
trials as a tool complementary to mammography. The FDA clinical trials
requirement for CTICO to receive its PMA approval requires medical facilities
to conduct examinations and conduct and produce clinical statistical data from
use of the CTI Breast Imaging System. The rate of conducting examinations
determines the monthly cash flow requirements and the time for qualifying for
PMA. CTICO also incurs costs for FDA legal counsel and for consulting services
from a firm recognized by the FDA for overseeing clinical trial data
collection and adherence to FDA requirements. The Company has advanced CTICO
approximately $7 Million through September 30, 1999. The current estimated
requirements to fund CTICO's research and clinical testing are approximately
$500,000 per quarter. Management has set a goal of completing the clinical
testing for the PMA portion of FDA approval process during the next 12 months
and anticipates additional related costs of $4.5 Million. Module One of the
FDA data set was submitted to the FDA in September of 1999. The Company must
submit four additional data set modules to the FDA before final review by the
FDA can be completed.
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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 CTICO for the completion of the
ongoing FDA Clinical Trials. Although the Company is prioritizing its funding
of CTICO, it also 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 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.
SOURCE OF POTENTIAL LONG-TERM LIQUIDITY: EQUIPMENT FINANCING/ USE AGREEMENTS
The Company expects that both Use Agreements and equipment financing will
be sources of long term liquidity although it is premature to anticipate the
results of either. Although the Company has investigated both options and has
in fact entered into preliminary discussions with equipment financing
companies, it is awaiting PMA on its CTI Breast Imaging System, before
entering into any additional planning regarding either. Much of what the
Company anticipates as being its sources of long-term liquidity will be a
result of (1) whether or not it achieves PMA on its CTI Breast Imaging System,
(2) if PMA is achieved, the development of a more definitive marketing
strategy, (3) how successful such marketing strategy proves to be, (4) whether
it is able to develop its CTI System for other applications in the United
States, and (5) the results of marketing efforts of the CTI System in the PRC
Thailand and elsewhere.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. The Company
believes that its internal systems are Year 2000 compliant or will be upgraded
or replaced in connection with previously planned changes to information
systems prior to the need to comply with Year 2000 requirements. However, the
Company is uncertain as to the extent its customers and vendors may be
affected by Year 2000 issues that require commitment of significant resources
and may cause disruptions in the customers' and vendors' businesses.
UNCERTAINTIES AFFECTING LIQUIDITY
The Company is largely dependent on Beach to provide for liquidity over
the next year; it is possible that Beach will fail to provide the required
funding or that the price and volume of the Company's common stock in the
market place will be insufficient to enable the Company to require the
purchase of additional shares by Beach. The Company, since inception, has
continually sought funding for both its day to day operations and its business
purpose and has often sought substantial loans from affiliates and
shareholders which were often repaid in stock. Until such time as the Company
13
<PAGE>
begins receiving revenues from operations (not likely until and unless PMA
approval is received), the Company will be faced with the difficulties and
expenses associated with meeting its financing needs.
COMMITMENTS OF CAPITAL EXPENDITURES/SOURCES OF FUNDING
See Plan of Operation/Cash Requirements above.
TRENDS/UNCERTAINTIES AFFECTING CONTINUING OPERATIONS
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.
ANY FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-QSB REFLECT
MANAGEMENT'S BEST JUDGMENT BASED ON FACTORS CURRENTLY KNOWN AND INVOLVE RISKS
AND UNCERTAINTIES. ACTUAL RESULTS MAY VARY MATERIALLY.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
No instruments defining the rights of securities holders have been
materially modified, limited or qualified. The following securities were
issued since the Company's Annual Report on Form 10KSB for the year ended June
30, 1999 which have not been registered under the Securities Act of 1933.
During the Company first fiscal quarter ended September 30, 1999, it
issued an aggregate of 33,997 shares of its unregistered common stock and
101,988 warrants to purchase shares of common stock to Sitrik & Company for
services rendered in connection with investor relations. The warrants are
exercisable immediately and expire at various dates beginning on September 30,
2003 through September 30, 2004, at an exercise price of $0.9375. The
foregoing securities were issued for a deemed value of $31,873 and were issued
in accordance with the exemption from registration requirements of Section 5
of the Securities Act of 1933, as amended, provided under Section 4(2), as a
"transaction not involving a public offering."
In addition, during the Company's first quarter it received $1,478,558
for the purchase of 2,273,280 of its commons shares from Beach in accordance
with the Investment Agreement; the Beach shares purchased under the Investment
Agreement are considered "registered" under the 1933 Act through the Company's
Prospectus in effect.
Item 3. Defaults Upon Senior Securities
Not applicable.
14
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits are filed as part of this Form 10-QSB for the Company's
quarter ended September 30, 1999:
(i)
EXHIBIT NO. EXHIBIT DESCRIPTION(1) WHERE INCORPORATED IN THIS REPORT
- ---------- ------------------- -------------------------------
Registration Statement Part I
On Form SB-2, as amended
Declared effective on Jan.
8, 1999. (2)
Post Effective Amendment to Part I
Registration Statement on
Form SB-2, filed April 1,
1999(2)
Amended Prospectus under Part I
424(b)(3) as filed on
July 16, 1999(2)
Form 10KSB for the period Part I and Part II
Ended June 30, 1999 (2)
(ii)
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
- ----------- --------------------------
10 eee Beach Boulevard Security Purchase Agreement(3)
10 lll Sutro Agreement (4)
27 Financial Data Schedule. (4))
(1) Summaries of all Exhibits contained within this Report are modified in
their entirety by reference to these exhibits
(2) These documents and related exhibits have been previously filed with the
Securities and Exchange Commission.
(3) Previously filed as part of the Company's Post-Effective Amendment to its
Registration Statement on Form SB-2, filed on April 1, 1999.
(4) Filed herewith
(b) Reports on Form 8-K -- None
15
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMPUTERIZED THERMAL IMAGING, INC.
(Registrant)
Date: November 12, 1999 By: /s/ David A. Packer
------------------------
David A. Packer
President/Treasurer
Chief Financial Officer
Exhibit 10(lll)
SUTRO & CO
11150 Santa Monica Boulevard 13th Floor *
Los Angeles California 90025
*310-914-0779
JOSEPH BOYSTAK CONFIDENTIAL
Managing Director
October 8, 1999
Mr. David Johnston
Chairman and Chief Executive Officer
Computer Thermal Imaging, Inc.
476 Heritage Park Blvd,
Suite 210
Layton, Utah 84041
Dear Mr. Johnston:
This letter agreement sets forth the terms and conditions under which
Computerized Thermal Imaging, Inc. or any successor, assign, or affiliate,
(the "Company") has retained Sutro & Co. Incorporated ("Sutro") to act as its
(i) exclusive financial advisor for any sale transaction and all acquisitions
during the Term as defined in paragraph 5 (the "Acquisition(s)" or "Sale
Transaction") and (ii) exclusive placement agent with respect to the private
placement of debt or equity-related securities or bank financing (the
"Transaction").
1. Acquisition Advisory Services- Sutro will act as financial advisor and
assist the Company in effecting the Acquisition(s) or Sale Transaction. In
this regard, we propose to undertake certain activities including, if
appropriate, the following:
(a) Review and analyze certain audited financial statements and other
information relating to the Acquisition(s);
(b) Review and analyze certain internal financial statements and other
financial and operating data concerning the Acquisition(s) prepared by
management;
(c) Review and analyze certain internal financial forecasts and projections
prepared by the management of the Acquisition(s);
(d) Discuss the past and current operations and financial condition, and the
future prospects of the Acquisition(s) with management;
(e) Compare certain financial data of the Acquisition with that of various
other comparable companies whose securities are publicly traded;
(f) Review the financial terms to the extent publicly available, of certain
comparable transactions;
(g) Assist in negotiating and structuring the transactions for the
Acquisition(s); and
(h) Assist in preparation of definitive documentation for the Acquisition(s).
<PAGE>
<PAGE>
2. Placement Agent Services- Sutro will act as financial advisor and assist
the Company in effecting the Financing. In this regard, we propose to
undertake certain activities including, if appropriate, the following:
(a) Advising the Company as to die form arid structure of the Financing;
(b) Assisting in the preparation of a Private Placement Memorandum (the
"Memorandum") describing the Company, the transaction and the securities
offered in connection therewith (the "Securities"). Responsibility for the
contents of such Memorandum shall be solely that of the Company, and the
Memorandum shall not be made available to or used in discussions with
prospective investors (the "Party" or "Parties") by Sutro until both the
Memorandum and its use for that purpose have been approved by the Company;
(c) Identifying, introducing to, and consulting as to strategy for initiating
discussions with, potential investors;
(d) Negotiating the sale of the Securities to investors; and
(e) Assisting in the preparation of definitive documentation for the
Financing.
3. Compensation - - Sutro's compensation for its role as acquisition advisor
and placement agent shall be determined as follows:
(a) A non-refundable retainer of $50,000 payable in two installments. The
first installment of $25,000 shall be payable upon execution of this
Agreement, and the balance due in 60 days from the date of execution of the
Agreement. The paid retainer shall be credited against any fees pursuant to
paragraphs 3(b) and 3(c) in the event the Acquisition(s) or a Financing
occurs.
(b) An acquisition advisory fee (the "Acquisition Advisory Fee") equal to
three percent (3%) of the "Aggregate Consideration", defined to include cash,
equity securities, the fair market value of revolving credit facilities,
straight and convertible debt instruments or other obligations, and any other
form of payment or assumption of obligations made to an acquisition target or
its shareholders in connection with the Acquisition(s). The Acquisition
Advisory Fee will be payable in cash upon the closing of the Acquisition(s).
(c) A placement fee (the " Placement Fee") equal to the sum of (i) one and
one-half percent (1.5 %) of the principal amount of any secured revolving
credit facility or other senior secured debt, (ii) four and one-half percent
(4.5 %) of the principal amount of senior notes, subordinated notes and/or
convertible notes and (iii) six and one-half percent (6.5 %,) of the principal
amount of any preferred stock or common stock. The Placement Fee will be
payable regardless of the size of the Financing and whether or not the
Financing occurs in one transaction or a series of transactions. The Placement
Fee shall be payable with cash upon consummation of, and out of the proceeds
of, the proposed Financing.
(d) Warrants to purchase three percent (3%) of the equity ownership of the
Company on a fully diluted basis (including without limitation the equity
underlying the warrants issued to Sutro hereunder) pro forma for the issuance
of equity and/or warrants issued in connection with the Financing. The warrant
shall vest on the following basis: (i) 50% (1.5%) upon the execution of the
Agreement and (ii) the balance, 50% (1.5%) shall vest upon the closing of the
Transaction. The percentage of equity to be purchased shall be subject to
customary anti-dilution provisions. The warrants shall be granted and fully
vested upon either the closing of the Financing, Sale Transaction, or
Acquisition, which ever occurs first, and shall be exercisable for a five year
period.
<PAGE>
commencing one year from their date of issuance with 'cashless' exercise
provisions. The exercise price per share of the warrants will be based upon
the closing price of the Company's stock at the date of execution of this
Agreement. The holders of the warrants shall be entitled to one demand,
unlimited "piggy-back", tag along, and preemptive registration rights. The
Company shall bear all costs and -xpenses in connection with such
registrations.
4. Sutro's Expenses- In addition to the foregoing fees, and regardless of
whether the Acquisitions, Sale Transaction, or the Financing contemplated by
this letter agreement are consummated, the Company agrees, upon request from
time to time, to promptly reimburse Sutro for all reasonable out-of-pocket
expenses, including, but not limited to, such costs as printing, telephone,
fax, courier service, copying, accommodations, travel, and direct computer
expenses, secretarial overtime and fees and disbursements of legal counsel.
Any incurrance of legal fees shall be mutually agreed upon in advance.
Additionally, the Company agrees that Sutro is not responsible for the fees
3nd disbursements of special counsel for the investors, whether or not any
transactions are completed.
5. Term and Termination Rights - It is understood that the Company hereby
engages Sutro on an exclusive basis for investment banking services for a term
(the "Term") commencing on the date hereof and ending on September 30, 2000.
The Term shall be automatically renewed for successive 30 day periods unless
either party gives written notice to the other within 30 days of the
expiration of the Term of its desire that this engagement expire.
Notwithstanding the foregoing, Sutro may at its sole option, terminate its
obligation hereunder without liability if, in the reasonable opinion of Sutro,
a change has occurred in the Company's financial condition, results of
operations, properties, business prospects, or the composition of the
Company's management or Board of Directors, which, in Sutro's sole
determination has adversely effected the marketability of the Company. The
remaining provisions of this letter relating to the payment of fees earned and
expenses incurred prior to the end of the Term and the Indemnification
Agreement shall survive any termination or expiration of the engagement or the
completion of Sutro's services.
If during the Term, or within the twelve months following the expiration
thereof, (a) a financing transaction or transactions occur for the benefit of
the Company which involves a Party (i) identified to the Company by Sutro or
(ii) with whom the Company or Sutro had a discussion regarding the Financing
during the engagement and whether or not such discussions were initiated by
Sutro, or (b) the Company enters into a definitive agreement with any such
Party specified in (i) or (ii) above which subsequently results in a financing
transaction or transactions, then the Company will be obligated to pay Sutro
the fees and expenses of Sections 3 and 4.
6. Sale Transaction- If during the Term, and in lieu of the Financing, the
Company consummates a Sale Transaction (as defined below) or reaches a
definitive agreement which subsequently results in a Sale Transaction, the
Company agrees to pay or cause to be paid to Sutro, a sale transaction fee
(the "Sale Transaction Fee") equal to three percent (3%) of the Aggregate
Consideration (as defined below). The Sale Transaction Fee will be payable in
cash upon the closing of the Sale Transaction.
The term "Sale Transaction" shall be defined to include any merger,
consolidation, sale of assets, tender or exchange offer, leveraged buy-out,
formation of a joint venture or partnership, reorganization (except for the
currently contemplated recapitalization which shall not be deemed a Sale
Transaction) or other business combination, pursuant to which the business of
the Company is combined with that of an acquiring entity or any entity
affiliated with one or more acquirers (the "Party" or "Parties"), where the
Party has at least 50% of the capital stock of the surviving company.
The term "Aggregate Consideration" shall be defined to include cash, equity
securities, the fair market value of revolving credit facilities, straight and
convertible debt instruments or other obligations, and
<PAGE>
any other form of payment or assumption of obligations made to the Company or
its shareholders in connection with the Sale Transaction. If any of the
consideration to be received by the Company is contingent upon future
performance of the Company's operations (e.g. revenues or income), the portion
of the fee attributable to such consideration shall be paid to Sutro at such
time or times as the Company receives such consideration.
7. Notwithstanding sections 1 through 9 of this agreement, the following
contractual relationship are already in place and transactions deriving from
these relationships will be considered outside the scope of this Agreement.
However, the Company may elect to invite Sutro to assist on these matters
pursuant to the terms and conditions contained in this Agreement.
(a). TSET, one of the Company's equipment brokers, is currently seeking
customers as well as capital for the Company.
(b). Alex Saenz, a finder for the Company, is actively seeking customer and
equity financing for the Company limited to Rick Green for a period ending
October 1, 1999.
(c). Southridge Capital Management is currently funding the Company through
the purchase of shares via the current SB/2 registration statement.
(d). Thermal Medical Imaging, Inc. is an affiliated company that will be
merging with Computerized Thermal Imaging sometime in the near future.
8. Right of First Refusal - The Company will provide Sutro with the right of
first refusal for two years to serve as a managing underwriter on any public
offering or act as advisor on any private financing (debt or equity) merger,
business combination, recapitalization or sale of some or all of the equity or
assets of the Company (collectively, "Future Services"). In the event the
Company notifies Sutro of its intention to pursue an activity that would
enable Sutro to exercise its right of first refusal to provide Future
Services, Sutro shall notify the Company of its election to provide such
Future Services, including notification of the compensation and other terms to
which Sutro claims to be entitled, within 14 days of written notice by the
Company. In the event Sutro is engaged by the Company to provide such future
services, Sutro will be compensated as is reasonable and customary within the
industry provided however, that the terms of the Indemnification Agreement
shall apply to any additional engagement.
9. In connection with Sutro's engagement, the Company and its advisors will
furnish Sutro with all data, material, and information concerning the Company
(the "Information") which Sutro reasonably requests, all of which will be
accurate and complete in all material respects, except with respect to the
Company's financial statements which shall present fairly the financial
position of the Company, to the best of the Company's knowledge, at the time
furnished. The Company recognizes and confirms that in advising it and in
undertaking the assignment, Sutro will be using and relying on the Information
and financial and other information furnished to Sutro by potential interested
Parties, without independent verification. Moreover, Sutro will not perform
any appraisal of the assets or businesses of the Company or any Party. Sutro
is hereby authorized to use and deliver the Information, and any other data
obtained by Sutro from reliable published sources, to prospective interested
Parties. In connection with the engagement of Sutro hereunder, the Company has
entered into a separate letter agreement, dated as of the date hereof,
providing for the indemnification of Sutro and certain related parties by the
Company (the "Indemnification Agreement").
10. This letter agreement and the related indemnification agreement referred
to above shall be deemed made in California. Such agreements shall be governed
by the laws of the State of California, without regard to such state's rules
concerning conflicts of laws. Should suit be brought to enforce this letter
agreement or the Indemnification Agreement, the prevailing party shall be
entitled to recover from the other reimbursement for reasonable attorneys'
fees. Any dispute arising from the interpretation,
<PAGE>
validity or performance of this letter agreement or any of its terms and
provisions shall be submitted to binding arbitration with the National
Association of Securities Dealers.
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to us the enclosed duplicate copy of this letter
agreement. We look forward to working with you and to the successful
conclusion of this assignment
Very truly yours,
SUTRO & CO INCORPORATED
/s/ Joseph A. Boystak
----------------------------
Joseph A. Boystak
Managing Director
Accepted and Agreed to
as of-the date written above:
COMPUTERIZED THEMAL IMAGING, INC.
By: /s/ David Johnston
- -------------------------
David Johnston
Chairman and Chief Executive Officer
<PAGE>
CONFIDENTIAL
September 28,1999
Sutro & Co. Incorporated
11150 Santa Monica Blvd.
Suite 1500 Los Angeles, CA 90025
In consideration of Sutro's agreement to act on behalf of Computerized Thermal
Imaging, Inc. (the "Company"), in connection with the private placement,
pursuant to the engagement letter of even date herewith (the "Engagement
Letter"), we hereby agree to indemnify and hold harmless Sutro, its
affiliates, the respective partners, directors, officers, agents and employees
of Sutro and its affiliates and each person, if any, controlling Sutro or any
of its affiliates within the meaning of either Section 15 of the Securities
Act of 1933 or Section 20 of the Securities Exchange Act of 1934, (Sutro and
each such other person are hereinafter referred to as an "Indemnified
Person"), from and against any such losses, claims, damages, expenses and
liabilities (or actions in respect thereof), joint or several, as they may be
incurred (including all legal fees and other expenses incurred in connection
with investigating, preparing, defending, paying, settling or compromising any
claim, action, suit, proceeding, loss, damage, expense or liability, whether
or not in connection with an action in which any Indemnified Person is a named
party) to which any of them may become subject (including in settlement of any
action, suit or proceeding, if such settlement is effected with the Company's
consent, which consent shall not be unreasonably withheld), and which are
related to or arise out of Sutro's engagement, the transaction contemplated by
such engagement or any Indemnified Person's role in connection therewith,
including, but not limited to, any losses, claims, damages, expenses and
liabilities (or actions in respect thereof) arising out of, based upon or
caused by any untrue statement or alleged untrue statement of a material fact
contained in the offering memorandum, or any amendment or supplement thereto,
or in any other document of the Company furnished to any party or to Sutro in
connection with the Financing Transaction, or arising out of, based upon or
caused by any omission or alleged omission to state in any of them a material
fact required to be stated therein or necessary to make the statements in any
of them not misleading. The Company will not, however, be responsible under
the foregoing provisions with respect to any loss, claim, damage, expense or
liability to the extent that a court having jurisdiction shall have determined
by a final judgment (not subject to further appeal) that such loss, claim,
damage, expense or liability resulted from actions taken or omitted to be
taken by Sutro due to its gross negligence or willful misconduct. All
capitalized terms not otherwise defined herein have the same meaning as
ascribed to them in the Engagement Letter, unless the context indicates or
requires otherwise. Promptly after receipt by an Indemnified Person of notice
of the commencement of any action, such Indemnified Person will, if a claim in
respect thereof is to be made against the Company, notify the Company of the
commencement thereof; but the omission to notify the Company will not relieve
it from any liability which it may have to any Indemnified Person otherwise
than stated in this Indemnification Agreement. In case any such action is
brought against any Indemnified Person, and it notifies the Company of the
commencement thereof, the Company will be entitled to participate therein and,
to the extent that it may wish, to assume the defense thereof, with counsel
reasonably satisfactory to such Indemnified Person; provided, however, that if
the defendants in any such action include both the Indemnified Person and the
Company and counsel for the Indemnified Person reasonably determines there is
a conflict of interest that cannot or should not be waived, the Company shall
not have the right to direct the defense of such action on behalf of such
Indemnified Person and such Indemnified Person shall have the right to select
separate counsel to defend such action on behalf of such Indemnified Person.
After notice from the Company to such Indemnified Person of its election to
assume the defense thereof and approval by such Indemnified Person of counsel
appointed to defend such action, the
<PAGE
<PAGE>
Company will not be liable to such Indemnified Person for any legal or other
expenses, other than reasonable costs of investigation, incurred by such
Indemnified Person in connection with the defense thereof, unless: (i) the
Indemnified Person shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that in
connection with such action the Company shall not be liable for the expenses
of more than one separate counsel (in addition to local counsel) in any one
action or separate but substantially similar actions in the same jurisdiction
arising out of the same general allegations or circumstances); or (ii) the
Company has authorized the employment of counsel for the Indemnified Person at
the expense of the Company. After any notice from the Company to such
Indemnified Person, the Company will not be liable for the costs and expenses
of any settlement of such action effected by such Indemnified Person without
the consent of the Company.
If the indemnity referred to above should be, for any reason whatsoever,
unenforceable, unavailable to or otherwise insufficient to hold harmless Sutro
and each Indemnified Person in connection with the transaction, each
Indemnified Person shall be entitled to receive from the Company, and the
Company shall pay, contributions for such losses, claims, damages, liabilities
and expenses (or actions in respect thereof) so that each Indemnified Person
ultimately bears only a portion of such losses, claims, damages, liabilities,
expenses and actions as is appropriate (i) to reflect the relative benefits
received by Sutro on the one hand and the Company on the other hand in
connection with the transaction or (ii) if the allocation on that basis is not
permitted by applicable law, to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of Sutro and the
Company in connection with the actions or omissions to act which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations; provided, however, that in no event shall
the aggregate contribution of all Indemnified Persons to all losses, claims,
damages, liabilities, expenses and actions exceed the amount of the fee
actually received by Sutro pursuant to the engagement letter. The respective
relative benefits received by Sutro and the Company in connection with the
transaction shall be deemed to be in the same proportion as the aggregate fee
paid to Sutro in connection with the transaction bears to the total
consideration of the transaction. The relative fault of Sutro and the Company
shall be determined by reference to, among other things, whether the actions
or omissions to act were by Sutro or the Company and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action or omission to act.
The indemnity, contribution and expense payment obligations of the Company
referred to above shall be in addition to any liability which the Company may
otherwise have and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of any Indemnified
Person and the Company. The Company also agrees that the Indemnified Persons
shall have no liability to the Company or any person asserting claims on
behalf of or in right of the Company for or in connection with any matter
referred to in this letter except to the extent that any such liability
results from the gross negligence or willful misconduct of Sutro in performing
the services that are the subject of this letter and in no event shall such
liability exceed the amount of fees actually received by Sutro hereunder.
Very truly yours,
COMPUTERIZED THERMAL IMAGING, INC.
By: /s/ David Johnston
------------------------
David Johnston
Accepted and Agreed to as of the date written above
<PAGE>
SUTRO & CO. INCORPORATED
By: /s/ Joseph A. Boystak
------------------------
Joseph A. Boystak
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<PERIOD-END> SEP-30-1999
<CASH> 270,938
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