U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ___________________
Commission file number: 000-23955
COMPUTERIZED THERMAL IMAGING, INC.
--------------------------------------------------------------
(Exact name of small business issuer as specified on its charter)
Nevada 87-0458721
- ------------------------------- ------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
476 HERITAGE PARK BOULEVARD, SUITE 210
LAYTON, UTAH 84041
--------------------------------------------------
(Address of principal executive offices)
(801) 776-4700
------------------------
(Registrant'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 Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days. Yes [ X ]
No [ ]
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: Common stock, par value
$0.001, of which 67,709,001 shares were issued and outstanding as of March 31,
2000.
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC.
INDEX Page No.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2000 and June 30, 1999 3
Consolidated Statements of Operations
Three Months Ended March 31, 2000 and 1999
Nine Months Ended March 31, 2000 and 1999
From Inception Through March 31, 2000 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999
Nine Months Ended March 31, 2000 and 1999
From Inception Through March 31, 2000 5
Consolidated Statement of Stockholders' Equity (Deficit)
Nine Months Ended March 31, 2000 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote
of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
(a) Exhibits required by Item 601
(b) Details pertaining to any reports filed on Form 8-K
during the quarter.
SIGNATURES
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CONSOLIDATED BALANCE SHEETS
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
(Unaudited)
March 31, June 30,
2000 1999
-------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 47,287,836 $ 137,162
Prepaids 30,782 -
Software maintenance contract 471,918 -
-------------- --------------
Total current assets 47,790,536 137,162
PROPERTY AND EQUIPMENT:
Property and equipment 4,454,381 379,613
Accumulated depreciation (392,377) (140,970)
-------------- --------------
4,062,004 238,643
Goodwill - minority interest in subsidiary 225,500 -
-------------- --------------
$ 52,078,040 $ 375,805
============== ==============
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 229,872 $ 470,870
Commissions payable 2,646,976 -
Accrued employee costs 117,030 -
Accrued liabilities 436,971 64,644
Software license contract 2,888,000 -
-------------- --------------
Total current liabilities 6,318,849 535,514
Building lease 45,793 -
STOCKHOLDERS' EQUITY (DEFICIT) (SEE NOTE E)
Convertible preferred stock, $5.00 par value;
100,000 shares authorized - -
Common stock, $.001 par value; 100,000,000
shares authorized, 67,709,001 and 62,275,560
issued on March 31, 2000 and June 30, 1999 67,709 62,276
Common stock, $.001 par value; 11,735,220
shares subscribed and unissued on
March 31, 2000 11,735 -
Additional paid in capital 31,960,163 25,486,825
Additional paid in capital, subscribed and
unissued, net of offering costs
of $2,933,793 44,721,992 -
Accumulated deficit during development stage (31,048,201) (25,708,810)
-------------- --------------
Total shareholders' equity (deficit) 45,713,398 (159,709)
-------------- --------------
$ 52,078,040 $ 375,805
============== ==============
See Notes to Consolidated Financial Statements
3
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CONSOLIDATED STATEMENTS OF OPERATIONS
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
(Unaudited)
<TABLE>
<CAPTION>
From
Inception
Three Months Ended Nine Months Ended through
March 31, March 31, March 31,
--------------------------- -------------------------- -------------
2000 1999 2000 1999 2000
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
INCOME
Interest income $ 259,365 $ 3,186 $ 268,833 $ 4,853 $ 294,840
Sale of prototype - - - - 180,815
------------- ------------- ------------- ------------ -------------
Total income 259,365 3,186 268,833 4,853 475,655
COSTS AND EXPENSES:
Operating, general and
administrative 858,840 667,055 2,097,676 1,450,770 18,238,677
Research and development 1,190,557 282,183 3,196,065 1,452,481 10,228,311
Interest 576 169,805 576 541,077 2,140,909
Depreciation 212,352 11,757 251,407 33,962 404,716
Litigation 62,500 - 62,500 - 576,880
------------- ------------- ------------- ------------ -------------
Total costs & expenses 2,324,825 1,130,800 5,608,224 3,478,290 31,589,493
NET LOSS BEFORE
EXTRAORDINARY ITEM (2,065,460) (1,127,614) (5,339,391) (3,473,437) (31,113,838)
Extraordinary gain on
extinguishment of debt - - - - 65,637
------------- ------------- ------------- ------------ -------------
NET LOSS $ (2,065,460) $ (1,127,614) $ (5,339,391) $(3,473,437) $(31,048,201)
============= ============= ============= ============ =============
Weighted average shares
outstanding 67,218,472 54,827,433 65,684,683 50,441,705
============= ============= ============= ============
Loss per common share $ (0.03) $ (0.02) $ (0.08) $ (0.07)
============= ============= ============= ============
See Notes to Consolidated Financial Statements
4
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
(Unaudited)
From
Inception
Three Months Ended Nine Months End through
March 31, March 31, March 31,
--------------------------- -------------------------- -------------
2000 1999 2000 1999 2000
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,065,460) $ (1,127,614) $ (5,339,391) $(3,473,437) $(31,048,201)
Add (deduct) noncash items:
Depreciation 212,352 11,757 251,407 33,962 404,716
Amortization of debt issuance costs - 145,535 - 475,368 937,969
Common stock, warrants, and options
issued as compensation for services 58,098 30,686 432,206 30,686 9,343,802
Common stock issued for interest
expense - - - - 423,596
Common stock issued to settle
litigation - - - - 514,380
Common stock issued for failure to
complete timely registration - - - - 82,216
Common stock issued to 401(k) plan 43,226 - 43,226 - 43,226
Extraordinary gain on debt
extinguishment - - - - (65,637)
Changes in operating assets and
liabilities:
Maintenance contract 178,082 - (471,918) - (471,918)
Receivables and prepaids (27,182) - (30,782) - (30,782)
Accounts payable and accrued
liabilities 1,334,198 (110,816) 5,783,335 62,273 6,318,849
------------- ------------- ------------- ------------ -------------
NET CASH USED IN OPERATING ACTIVITIES (266,686) (1,050,452) 668,083 (2,871,148) (13,547,784)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets - - - - 4,790
Purchases of property and equipment (139,561) (10,958) (236,768) (11,575) (633,510)
Purchase of software license 12,000 - (3,838,000) - (3,838,000)
Acquisition of minority interest
in subsidiary (30,000) - (225,500) - (225,500)
------------- ------------- ------------- ------------ -------------
NET CASH USED IN INVESTING ACTIVITIES (157,561) (10,958) (4,300,268) (11,575) (4,692,220)
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock and warrants issued
for cash 49,460,275 1,343,200 53,745,859 2,263,200 63,771,161
Stock offering costs (2,933,793) - (3,008,793) - (3,008,793)
5
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Advances from shareholders (7,042) 27,853 - 659,686 2,320,738
Proceeds from borrowings 45,793 85,307 45,793 462,525 3,258,925
Legal fees and interest added
to note - (30,381) - 189,521 496,599
Payment of debt issuance costs - - - - (133,600)
Retirement of long-term debt and
debentures - (150,000) - (450,000) (1,177,190)
------------- ------------- ------------- ------------ -------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 46,565,233 1,275,979 50,782,859 3,124,932 65,527,840
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 46,140,986 214,569 47,150,674 242,209 47,287,836
Cash and cash equivalents at
beginning of period 1,146,850 257,704 137,162 230,064 -
------------- ------------- ------------- ------------ -------------
Cash and cash equivalents at
end of period $ 47,287,836 $ 472,273 $ 47,287,836 $ 472,273 $ 47,287,836
============= ============= ============= ============ =============
SUPPLEMENTAL SCHEDULE OF NON-CASH
FINANCING AND INVESTING ACTIVITIES
Common stock issued to individuals
to acquire minority interest
in subsidiary goodwill $ 30,000 $ - $ 225,500 $ -
Common stock issued for advances
from shareholders - - - 1,968,085
Common stock returned to equity,
recission offer declined - - - 306,873
------------- ------------- ------------- ------------
Total supplemental non-cash
activities $ 30,000 $ - $ 225,500 $ 2,274,958
============= ============= ============= ============
See Notes to Consolidated Financial Statements
6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
(Unaudited)
For the Nine Months Ended March 31, 2000
----------------------------------------------------------------------
Additional Total
Common Stock Common Stock Paid-in Accumulated Stockholder's
Issued and Outstanding Shares Amount Capital Deficit Equity
- ----------------------------- -------------- ------------- ------------- ------------- --------------
<S> <C> <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 875,657 876 502,583 - 503,459
Common stock issued to corporation
for services at $.94 per share 33,997 34 31,839 - 31,873
Common stock issued for cash, net
of offering expenses of $25,000,
at $1.25 per share 400,641 401 474,569 - 474,970
Warrants exercised for cash at
$.46 per share 150,000 150 68,850 - 69,000
Warrants exercised for cash
at $.72 per share 108,957 109 78,340 - 78,449
Warrants exercised for cash at
$1.19 per share 254,155 254 302,203 - 302,457
Common stock issued to two
individuals for services at
$1.20 per share 200,000 200 239,800 - 240,000
Common stock issued to individual
for shares of CTICO (a subsidiary)
at $1.20 per share 15,000 15 17,985 - 18,000
Common stock issued to individual
for shares of CTICO (a subsidiary)
at $1.50 per share 5,000 5 7,495 - 7,500
Warrants exercised for cash at
$2.50 per share 656,700 657 1,641,093 - 1,641,750
Common stock issued to individual
for services at $2.80 per share 2,000 2 5,598 - 5,600
7
<PAGE>
Common stock issued to individual
for shares of CTICO (a subsidiary)
at $2.80 per share 50,000 50 139,950 - 140,000
Common stock issued to corporation
for services at $2.50 per share 18,521 18 46,284 - 46,302
Warrants exercised for services
at $3.63 per share 13,885 13 50,319 - 50,332
Warrants exercised for services at
$3.72 per share 15,623 16 58,083 - 58,099
Warrants exercised for cash at
$2.50 per share 600,125 600 1,499,714 - 1,500,314
Warrants exercised for cash at
$.72 per share 24,209 24 17,406 - 17,430
Warrants exercised for cash at
$1.50 per share 50,000 50 74,950 - 75,000
Warrants exercised for cash at
$2.00 per share 100,000 100 199,900 - 200,000
Common stock issued to Company's
401K plan at $3.81 per share 11,348 11 43,225 - 43,236
Net loss for nine months ended
March 31, 2000 - - - (5,339,391) (5,339,391)
-------------- ------------- ------------- ------------- --------------
Balance at March 31, 2000,
issued and outstanding 67,709,001 $ 67,709 $ 31,960,163 $(31,048,201) $ 979,671
Subscribed and Unissued
- -----------------------
Warrants subscribed for cash
at $2.50 per share 76,250 76 190,548 - 190,624
Common stock subscribed to
Informix Corporation for cash at
$9.80 per share 510,204 510 4,999,490 - 5,000,000
Common stock and warrants
subscribed for cash, net of
offering expenses of $2,933,793,
at $3.81 per share and warrant
in connection with the Company's
Private Placement Offering
dated December 31, 1999 11,148,766 11,149 39,531,954 - 39,543,103
-------------- ------------- ------------- ------------- --------------
Balance at March 31, 2000,
subscribed and unissued 11,735,220 11,735 44,721,992 - 44,733,727
Balance at March 31, 2000 79,444,221 $ 79,444 $ 76,682,155 $(31,048,201) $ 45,713,398
============== ============= ============= ============= ==============
See Notes to Consolidated Financial Statements
8
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMPUTERIZED THERMAL IMAGING, INC.
(A Development Stage Enterprise)
NOTE A. Unaudited Financial Statements
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with instructions for Form 10-QSB and
Item 310 of Regulation S-B. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation of results of operations have been included in the
financial statements. Results of operations for the three-month and
nine-month periods ended March 31, 2000 are not necessarily indicative of the
results that may be expected for the fiscal year ended June 30, 2000.
The balance sheet at June 30, 1999 has been derived from audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. A summary of the Company's significant
accounting policies and other information necessary to understand the
consolidated financial statements is included in the Company's audited
financial statements for the years ended June 30, 1999 and 1998 as contained
in the Company's Form 10-KSB for its year ended June 30, 1999. Such financial
statements should be read in connection with these financial statements.
NOTE B: Income Taxes
The Company has reviewed its net deferred tax asset for the nine-month
period ended March 31, 2000, together with net operating loss carryforwards,
and has decided to forego recognition of potential tax benefits arising
therefrom. In making this determination, the Company has considered the
Company's history of tax losses incurred since inception and the fact that the
Company is still within the development stage. As a result, the Company's net
deferred tax asset has been fully reserved.
NOTE C: New Accounting Standard
In June 1998, the Financial Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (SFAS 133) which establishes accounting and reporting
standards for derivative instruments and hedging activities. Effective for
all fiscal quarters in years beginning after June 15, 2000, SFAS 133 requires
the Company to recognize all derivative instruments as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value on an on-going basis. The Company is considering
the effect of adopting SFAS No. 133 on its financial statements and has
preliminarily determined that it will have no effect on the Company's
financial condition or results of operations. The Company plans to adopt the
statement on July 1, 2000.
NOTE D: Reclassification
Certain reclassifications of prior-year balances have been made to
conform to current year classifications.
NOTE E: Subscribed and Unissued Common Stock
Private Placements
------------------
During the quarter ended March 31, 2000, the Company concluded two
private placements (See Part II OTHER INFORMATION, Item 2 - Changes in
Securities, "45 Million Private Placement" and "$5 Million Private Placement",
below). Proceeds, net of
9
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placement costs of approximately $2,933,793, from the placements totaled
$44,543,103. In connection therewith, 11,658,970 shares of the Company's
common stock were subscribed and 11,148,766 warrants, granting holders the
right to acquire 5,574,450 shares of the Company's common stock at $5 per
share, were also subscribed to in the private placements. Common stock shares
and warrants of the Company subscribed to in the placements are restricted and
cannot be resold without registration under applicable federal and state laws.
Warrants Exercised
------------------
Just prior to March 31, 2000, various individuals exercised warrants
subscribing to 76,250 shares of the Company's common stock at an exercise
price of $2.50 per share. Certificates for such common shares were issued
shortly following March 31, 2000.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Trends/Uncertainties Affecting Continuing Operations
The Company is a development stage enterprise and has generated no
significant revenues since inception. 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 grand 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, but not limited to, the need to produce reliable
and effective products, develop marketing expertise and enlarge its sales
force.
This document contains numerous forward-looking statements relating to
the Company's business. The United States Private Securities Litigation
Reform Act of 1995 provides a "safe harbor" for certain forward-looking
statements. Operating data and other statements in this document are based on
information the company believes reasonable, but involve significant
uncertainties as to FDA approval and the risks and hazards inherent to a
development stage enterprise including, but not limited to, the progress of
its research and development programs; results of pre-clinical and clinical
testing, ability to acquire technology, the time and costs involved in
obtaining regulatory approvals; the filing, defending and enforcing any patent
claims and other intellectual property rights; the economic impact of
competing technological and market developments; and the terms of any new
collaborative, licensing and other arrangements that the Company may
establish. Actual results and timetables could vary significantly from the
estimates presented. Readers are cautioned not to put undue reliance on
forward-looking statements. The Company disclaims any intent or obligation to
update publicly these forward-looking statements, whether as a result of new
information, future events or otherwise.
General
The Company is a medical imaging systems integrator producing a
computerized clinical thermal imaging diagnostic and patient management system
(the "CTI System"). Computerized Thermal Imaging Company ("CTICO") (formerly
known as Thermal Medical Imaging, Inc.) is an 88% percent owned subsidiary of
the Company that utilizes the CTI System configured as a non-invasive breast
cancer detection system that precludes the use of breast compression or
exposure to radiation (the "CTICO System"). TRW, Inc. ("TRW") is the
Company's primary systems development vendor. Battelle Memorial Institute
("BATTELLE") is the Company's principal systems engineer.
Capital is required to satisfy general corporate expenses, software
license and maintenance contracts payments, professional fees to comply with
securities registration and reporting requirements, cost of clinical trials
and technical support, FDA consulting expenses, acquisition of technology and
expenses associated with the private placement
10
<PAGE>
and registration of its securities. (See CAPITAL REQUIREMENTS/PLAN OF
OPERATION below.) The Company's capital resources are principally derived
from the sale of the Company's common stock through a series of private
placements recently conducted, equity funding pursuant to its agreement in
effect with Beach Boulevard LLC, and the exercise of common stock warrants by
current shareholders.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
1999.
For the quarter ended March 31, 2000, the Company incurred a loss of
$2,065,460 compared to a loss of $1,127,614 for the three months ended March
31, 1999. The increase in loss was primarily attributable to increases in
general and administrative expenses and in research and development expenses
as the Company escalates its efforts to confirm FDA approval of its CTICO
Systems and fund its business plan. Partially offsetting the loss of each of
the respective periods is interest income derived from investment of the
Company's cash and marketable securities.
General and administrative expenses increased $191,785 for the
three-month period ended March 31, 2000 compared to the three-month period
ended March 31, 1999. This increase primarily resulted from an increase in
stockholder services and promotion costs of $489,900, an increase in office
expense and salaries of $210,800, partially offset by a $442,900 decrease in
professional and legal costs. Between the two periods ended, the Company
experienced an increase of $908,374 in research and development expenses; from
$282,183 for the quarter ended March 31, 1999 to $1,190,557 for the quarter
ended March 31, 2000 reflecting the Company's increased efforts to achieve
preliminary market approval of the CTICO System. This increase demonstrates a
modest reduction in FDA testing and consulting and a considerable increase of
$543,700 in TRW's contract and patent work and additional expenses of $110,400
related to BATTELLE's services.
During the quarter ended March 31, 2000, the Company incurred litigation
expenses of $62,500 in connection with the settlement of a previously
unresolved issue. Depreciation expense increased $109,595 for the quarter
ended March 31, 2000 compared to the quarter ended March 31, 1999. This
increase primarily resulted from depreciation of the Company's software
licenses beginning the quarter ended March 31, 2000.
The Company recorded $576 of interest expense for the quarter ended March
31, 2000 and $169,805 for the same quarter of the prior fiscal year, largely
due to the realization of a discount on two third-party notes that were
convertible into common stock at a rate of fifty percent of the market price
of the Company's common stock at maturity.
Nine Months Ended March 31, 2000 Compared to Nine Months Ended March 31, 1999
During the nine-month period ended March 31, 2000, the Company recorded a
net loss of $5,339,391, a $1,865,954 increase over the same nine-month period
loss in 1999 of $3,473,437. This increase was principally due to a $1,743,584
increase in research and development expenses, a $646,906 increase in general
and administrative expenses, a $217,445 increase in depreciation expense;
partially offset by a $540,501 decrease in interest expense.
The Company's increase in expenses for the nine months ended March 31,
2000 was primarily related to its escalated efforts during the second and
third quarters of the Company's fiscal year to accelerate its FDA approval
process and preliminary marketing efforts towards acceptance in the medical
community and markets. Additional funding derived from the exercise of
warrants and the sale of the Company's common stock provided the resources for
this increase in expenditures.
The increase in research and development expenses between the two
nine-month periods reflect large increases in TRW and patent work of $833,800
and of $593,000 in associated research and development expenses incurred
through BATTELLE. The increase in
11
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general and administrative expenses reflected above primarily resulted from an
increase in stockholder services costs of $826,400, an increase in salary
expense of $336,300, an overall increase in office expenses of $267,700 and an
increase in travel expenses of $69,200.
SOURCES OF LIQUIDITY - CAPITAL RESOURCES
No Revenues from Operations
- ---------------------------
The Company has generated no significant revenues from operations since
inception. The Company's cash requirements consist of: general corporate
expenses including office salaries and expenses, lease payments on its office
space, acquisition of technology, software license and maintenance contracts
payments, legal and accounting fees to comply with securities registration and
reporting requirements, cost of clinical trials, TRW and BATTELLE technical
support, FDA consulting expenses, and expenses associated with its recent
private placements. (See CAPITAL REQUIREMENTS/PLAN OF OPERATION, below.)
Capital resources needed to meet the Company's planned expenditures are
derived from equity funding on the private placement of its common stock,
equity funding pursuant to its agreement in effect with Beach Boulevard LLC,
and exercise of warrants by current shareholders.
The Company funded its loss during the nine-months ended March 31, 2000
through the issuance of its common stock aggregating $51,046,998 (net of
offering costs); $44,543,103 that came from the sale of common stock pursuant
to two private placements (See Part II - OTHER INFORMATION, Item 2 - Changes
in Securities, "45 Million Private Placement" and "$5 Million Private
Placement", below) conducted during the quarter ended March 31, 2000 and
$6,503,895 that came from Beach Boulevard and warrant holders exercising
warrants. The Company also issued restricted common stock aggregating
$417,343 to compensate various individuals and entities for services rendered.
During the nine-months ended March 31, 2000, the Company acquired a 10%
additional interest in its subsidiary, CTICO, for a combination of $60,000 in
cash and restricted common stock totaling $165,500. For the same period, the
Company incurred capital expenditures of $4,074,768 comprised of $236,768 in
upgrades of its computers and CTI Systems and a software license agreement to
establish its information database for $3,838,000. In conjunction with its
acquisition of the software license agreement, the Company entered into a
one-year maintenance agreement for $650,000. An initial payment of $1.6
million for the software license and maintenance agreement was made in
February 2000. The Company plans to satisfy the balance owed on the software
license and maintenance agreement of $2,888,000 in April 2000.
In comparison, the Company funded its losses during the nine-months ended
March 31, 1999 through issuances of common stock, notes, and through advances
from one or more of the parties that have consistently provided funding to the
Company. In connection therewith, the Company received funding of $2,263,200
from sales of common stock including a private placement with an
officer/director of the Company's common shares for $200,000, the exercise of
certain warrants for proceeds of $188,200, the completion of a private
placement deriving gross proceeds of $1 million, and $875,000 pursuant to a
stock purchase agreement with Manahattan Financial Group. The Company further
funded operations with common stock for services and non-interest bearing
advances from affiliates of the Company including the issuance of 3,936,150
common shares to certain affiliates of the Company as repayment of advances
made from July 31, 1997 through December 31, 1998, aggregating $1,968,085.
Registration Statement
- ----------------------
The Company is planning to file a registration statement on behalf of
certain selling shareholders as well as to register the common stock to be
issued in connection with recent private placements and common stock
underlying certain warrants and options. It is not known at this time when
this registration statement will be filed. However, the Company has agreed to
file such registration prior to July 1, 2000.
12
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Warrant Exercise
- ----------------
During the Company's fiscal quarter ended March 31, 1999, warrants were
exercised for the purchase of 789,957 common stock shares of the Company for
proceeds of $1,850,843. Subsequent to the quarter ended, an additional 76,250
shares were issued pursuant to exercise of warrants for $190,624 in proceeds.
The warrants were exercised at prices ranging from $0.72 to $3.72 per common
share. The Company expects the exercise of warrants to continue as long as
the price of its common stock in the over-the-counter market continues to be
higher than the exercise price of the warrants.
Private Placements
- ------------------
As referred to in Part II below, (See Part II - OTHER INFORMATION, Item 2
- - Changes in Securities, "45 Million Private Placement" and "$5 Million
Private Placement", below), the Company concluded two private placements
during the quarter ended March 31, 2000. Proceeds, net of placement costs of
approximately $2,933,793, from the placements totaled $44,543,103. In
connection therewith, 11,658,970 shares of the Company's common stock were
subscribed and 11,148,766 warrants, granting holders the right to acquire
5,574,450 shares of the Company's common stock at $5 per share, were also
subscribed to in the private placements.
Financial Advisory Services Agreements
- ---------------------------------------
Effective as of December, 1999, the Company entered into commission
agreements with various individuals and entities (jointly referred herein as
"Advisors") to assist in the private placement of the Company's common stock
and warrants in connection with the $45 Million Private Placement (the
"Offering") referred to below. (See Part II - OTHER INFORMATION, Item 2 -
Changes in Securities, "45 Million Private Placement", below). In connection
therewith, cash commissions of approximately $2,933,793 and options to acquire
approximately 418,658 shares of the Company's common stock will paid and
granted to the Advisors in connection with the Offering. As of March 31,
2000, $233,000 was paid to the Advisors. The Company plans to pay the
remaining $2,700,793 in April 2000. Common shares underlying the options to be
issued to the Advisors are restricted and cannot be resold without
registration under applicable federal and state laws. The Company plans to
apply for registration of such shares in a prospectus filed prior to July 1,
2000.
Bales Acquisition - Subsequent Event
- -------------------------------------
As referred to in Part II below, (See Part II, Item 5 - Other
Information, "Bales Acquisition - Subsequent Event", below), the Company
signed a Memorandum of Agreement (the "MOA") on April 4, 2000 to acquire up to
100 percent of the outstanding common shares of Bales Scientific Corporation,
("Bales"), for a total purchase price (subject to adjustment) of $11.1
million. Pursuant to the MOA, the purchase price consists of $5.6 million
cash (including a $500,000 nonrefundable commitment fee) and $5.5 million of
the Company's common stock as determined from the listed Bid Price of the
Company's common stock on the last day prior to the acquisition date. On
April 17, 2000, the Company consummated the acquisition for 100 percent of
Bales' outstanding common stock.
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 million of
common stock of the Company in a series of $500,000 tranches. 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
13
<PAGE>
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.
During the Company's quarter ended December 31, 1999, Beach participated in a
sixth tranche with net proceeds to the Company of $474,970. Since Beach's
participation in the 6th tranche, the Company has made no requirements of
funding by Beach, although Beach's obligation to provide funding, should the
Company elect to require participation, continues in effect and is conditioned
on various factors specified in the Investment Agreement.
Because Beach is not required to purchase additional shares unless
certain provisions are met as set forth in the Investment Agreement, there is
no assurance that Beach will ultimately provide the Company with the full $7
million.
Agreement with Manhattan Financial Group
- -----------------------------------------
Since January 1, 1997, the Company has been a party to a Consulting
Agreement with Manhattan Financial Group ("MFG") that provides financial
advisory services to the Company, such as strategic consulting to arrange for
financings including the Beach Investment and Sutro arrangements discussed
above. The term of the Consulting Agreement is for one year and automatically
renewable for additional periods of one year thereafter unless terminated upon
proper notification. Consideration given for the Consulting Agreement was
100,000 shares of the Company's common stock and an option to purchase an
additional 2 million shares. The Consulting Agreement remains in effect and
MFG's fees are negotiated on a case-by-case basis depending on the services to
be provided and the extent of its involvement with a specific project. During
the nine-months ended March 31, 2000, the Company compensated MFG
approximately $61,000 and granted options to acquire 3,038 shares of the
Company's common stock at a strike price of $1.70 per share, for services
rendered.
CAPITAL REQUIREMENTS/PLAN OF OPERATION
The Company is a development stage enterprise and, as such, is largely
dependent on the sale of its common stock to provide liquidity. The Company,
since inception, has continually sought funding for its day-to-day operations
and its business plan and has often sought substantial loans from affiliates
and shareholders to meet the Company's financial obligations. Such loans were
often repaid in stock. Although the Company's management believes that the
Company has sufficient resources to meet its current plan of operations for
the next 12 months, it is possible that, due to unforeseen events, the Company
will have insufficient resources and funding required to meet its plan of
operations. Until such time as the Company begins receiving revenues from
operations, which is not likely until and unless PMA approval is obtained, the
Company will be faced with the difficulties and expenses associated with its
financing needs and obligations.
The Company's capital requirements may vary from its estimates and
depends on numerous factors including, but not limited to: 1) progress in its
research and development programs; 2) results of pre-clinical and clinical
testing; 3) costs of technology; 4) time and costs involved in obtaining
regulatory approvals; 5) costs of filing, defending and enforcing any patent
claims and other intellectual property rights; 6) economic impact of competing
technological and market developments; and 7) the terms of any new
collaborative, licensing and other arrangements that the Company may
establish.
The Company estimates that it will require approximately $13 million to
meet it business plan and obligations for the next 12 months including
approximately $5.2 million in research and development to complete CTICO's
clinical trials and test the Company's systems in connection with other
applications, $2.9 million for its software license and
14
<PAGE>
contract, $2.9 million for payment of commissions earned in connection with
the Company's recent $45 million private placement (See PART II - OTHER
INFORMATION, ITEM 2 - CHANGES IN SECURITIES, "45 Million Private Placement",
below), $2.0 million for day-to-day operating expenses including lease
payments on facilities, $1.4 million to cover salaries, and $600,000 for legal
and accounting for SEC compliance with reporting obligations. The Company
currently has 13 employees and plans to hire additional employees as it moves
further into the FDA approval process and develops its marketing and
distribution plan. The $13 million noted above does not include approximately
$5.6 million cash and $5.5 million of the Company's common stock committed to
acquire Bales Scientific Corporation (See Part II, Item 5 - Other Information,
"Bales Acquisition - Subsequent Event", below) nor the operating and capital
expenditures to be incurred in connection with the newly acquired Bales
enterprise.
Certain aspects, listed in order of priority, of the Company's Plan of
Operation for the next twelve months include: 1) completion of PMA on the CTI
Breast Imaging System through clinical trials as well as associated system
integration development and algorithm development; 2) additional development
of CTI Systems applications including imaging of lower-back and
reflex-sympathetic dystrophy-related diseases; 3) development of its CTICO
Systems; 4) listing the Company's shares on the NASDAQ large cap market and
registration of the Company's shares; and 5) development of relationships with
potential marketing and/or support entities.
The Company recently completed two private placements of its common
stock. Proceeds, net of offering costs of approximately $2.94 million, from
the two private placements totaled $44,543,103 (See Part II - OTHER
INFORMATION, Item 2 - Changes in Securities, "45 Million Private Placement"
and "$5 Million Private Placement", below). Furthermore, the Company
anticipates that it will continue to receive funding from warrant holders upon
the exercise of warrants into common stock. There currently exists
approximately 7.9 million shares underlying warrants (including warrants
issued in connection with the $45 million private placement referred to above)
that can be purchased upon conversion at exercise prices ranging from $.72 to
$5.00. The likelihood of warrants being exercised remains high as long as the
Company's listing price of its common stock in the over-the-counter market
remains above the strike price of the respective warrants. The average price
of the Company's common stock in the over-the-counter market during first
quarter of 2000 was approximately $10.16 per share, substantially higher than
previous periods. Beach Boulevard LLC will also continue to be a limited
source of funding for the Company. (See SOURCES OF LIQUIDITY - CAPITAL
RESOURCES, "Investment Agreement with Beach Boulevard LLC", above).
Based on the foregoing, the Company believes it will have sufficient
capital to fund its business plan over the next year. If, due to unforeseen
events, funding falls short, the Company will rely on affiliates to support
the Company either through loans or contributions to capital in exchange for
restricted common stock of the Company.
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 $8.3 million through March 31, 2000. The
current estimated requirements to fund CTICO's research and clinical testing
are approximately $1.0 million per quarter. Research and clinical testing
expenditures will continue to grow and accelerate as the Company approaches
FDA approval of its systems. Management has set a goal of completing the
clinical testing for the PMA portion of FDA approval process during the next 9
months and anticipates related costs of $5.2 million. Module One of the PMA
was submitted to the FDA in September of 1999 and approved in December 1999.
15
<PAGE>
Module two was submitted in February 2000; the Company expects to receive the
FDA's initial comments therefrom in May 2000. In addition to the two modules
previously noted, the Company must submit three additional data set modules to
the FDA before final review by the FDA can be completed.
CTI System Development
- ----------------------
The Company has committed a major portion of its capital resources, in
excess of its fixed operating costs, to the operations of CTICO and 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
studies involving the CTICO System in the identification of soft tissue
maladies. Although formal clinical trials may not be necessary for physicians
to use the CTICO System, the benefit of specific-purpose clinical trials are
being considered to enable the Company to reference medical efficacy claims in
connection with marketing efforts, to enhance physician acceptance of the
CTICO System, and to obtain the designation of insurance payment codes for
particular CTICO System procedures. Management believes that the Unites
States' market for the CTICO System will be dramatically enhanced if clinical
trials substantiate the Company's assertion that the CTICO System can
distinguish and verify fraudulent (versus real) muscular lower back pains.
Representation Agreement with Computerized Thermal Imaging International, Inc.
- -----------------------------------------------------------------------------
In an effort to prepare for the future deployment of CTICO Systems, the
Company entered into two letter agreements (the "Agreements") on October 28,
1999 with Computerized Thermal Imaging International Inc. ("CTII"), whereby,
CTII received the exclusive right to represent the Company in expanding its
business into Central and South America, prepare and implement a marketing
strategy for deployment of CTICO Systems; procure specifically identified
equipment from the Company; have the right of first refusal on the Company's
Health Card manufacturing worldwide; and procure a minimum of 100 CTICO
Systems over a two-year period. The Company agreed to provide technology and
equipment as needed by CTII and provide training as required by CTII with CTII
responsible for the cost of such training when performed in Mexico. The
Agreements contemplate CTII's intention to create a consortium to deploy and
support CTICO Systems and acknowledge CTII as having entered into a Letter of
Intent with Pegaso PCS, S.A. de C.V. as a network service provider for the
CTICO System development in Mexico. The Agreements provide for compensation
to CTII in options to purchase up to 5,000,000 shares of the Company's common
stock based on CTII's deployment/placement of CTICO Systems. Options to
purchase 50,000 shares at a strike price equal to a 15 percent discount to the
bid price on the effective date will be issued for each CTICO System deployed.
Options granted expire two years from the date of grant. No options have been
granted under the agreement as of this date and no CTICO Systems have been
deployed by CTII.
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
entered into preliminary discussions with equipment financing companies, it is
awaiting PMA on its CTICO Breast Imaging System, before entering into any
additional planning regarding either. Much of what the Company anticipates as
being sources of long-term liquidity is contingent upon (1) whether or not it
achieves PMA on its CTICO System, (2) the development of a definitive and
successful marketing strategy, (3) whether it is able to develop its CTICO
System for other applications in the United States, and (4) the results of
marketing efforts of the CTICO System in domestic and foreign markets.
Year 2000 Compliance
- --------------------
To date, the Company has not experienced any Year 2000 problems and is
unaware of any such issues with respect to any of its customers and vendors.
16
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Financial Advisory Services Claim
- ---------------------------------
On March 29, 2000, Mr. Salah Al-Hasawi (the "Plaintiff"), a citizen and
resident of Kuwait, filed suit in the United States District Court for the
Southern District of New York, Docket No. 00CIV.2390, against the Company and
Mr. David Johnston, the Company's Chairman and Chief Executive Officer,
alleging violations of under Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 of the Code of Federal Regulations for commissions
allegedly due to Plaintiff in connection with the Company's $45 million
private placement (the "Offering") noted in Part II - OTHER INFORMATION, Item
2 - Changes in Securities, "45 Million Private Placement", below. The
Plaintiff is seeking specified damages of $33,232,000, attorney fees and
unspecified damages pursuant to five separate causes of action. On April 12,
2000, Mr. Al-Hasawi filed a similar complaint in the United States District
Court for the District of Utah under Case No. 2: 00CV-0317K.
In connection with its Offering, the Company reached an understanding with
Plaintiff and other individuals to assist in placement of the Company's common
stock and warrants. The Plaintiff, in concert with two other individuals (the
"Participants"), successfully raised approximately $10.7 million in the
Offering. By letter dated February 10, 2000, the Plaintiff informed the
Company that Plaintiff and Participants had reached an agreement to equally
share commissions attributable to the $10.7 million. Subsequently, Defendants
were notified that, during the time that Plaintiff was engaged to provide
services to Defendants, Plaintiff was an employee and/or agent of Financial
Services Group, an investment company doing business in Kuwait.
Notwithstanding, the Plaintiff claims entitlement to 100 percent of the
commissions attributable to the $10.7 million. The Company is awaiting a
resolution of the issues between Plaintiff and Financial Services Group.
The Company believes that the Plaintiff's claims are without merit and
will vigorously defend itself against any and all claims.
Bristol Asset Management (First Complaint)
- -----------------------------------------
On March 21, 2000, Bristol Asset Management, LLC (the "Plaintiff"), a
California Limited Liability Company, filed a complaint in the Superior Court
of the State of California for the County of Los Angeles, Case No. BC226822,
against the Company alleging breach of contract. The Plaintiff seeks specific
performance pursuant to a certain Investment Agreement dated January 20, 1998
(the "Agreement") between the Plaintiff and the Company wherein the Company
was entitled (subject to limitations), to sell up to $7 million worth of the
Company's common stock by the issuance of "Put Notices" to the Plaintiff. The
Agreement further provided that, absent the Company's delivery of Put Notices
to the Plaintiff on specified dates and in specified amounts, the Company was
(subject to limitations) obligated to issue warrants to Plaintiff equal to the
maximum dollar amount of Put Notices which would have been issued to Plaintiff
had such Put Notices been delivered. The Agreement provides that it may be
terminated at any time upon the mutual consent of the Company and Plaintiff.
Pursuant to discussions and correspondence between Plaintiff and
Defendants during late 1998 and early 1999, the Plaintiff advised the Company
that the Plaintiff could not, for various reasons, act under the Agreement.
In consequence thereof, the Plaintiff and Defendant mutually agreed to
terminate the Agreement.
Based on the foregoing, the Company believes that the Agreement was
terminated and that Plaintiff's claims are without merit. The Company will
vigorously defend itself against any and all claims.
17
<PAGE>
Bristol Asset Management (Second Complaint)
- --------------------------------------------
On March 27, 2000, Bristol Asset Management, LLC (the "Plaintiff"), a
California Limited Liability Company, filed a complaint in the Superior Court
of the State of California for the County of Los Angeles, Case No. BC227158,
against the Company and Manhattan Financial Group ("MFG") (jointly, the
"Defendants"), alleging breach of contract with respect to a certain
Acquisition Agreement dated September 2, 1998 (the "Agreement") between
Plaintiff and Defendants, whereby, the Plaintiff was to acquire 500,000 shares
(subject to adjustment) of the Company's common stock at a specified price and
the Company was, in turn, to issue warrants to Plaintiff to acquire 150,000
shares (subject to adjustment) of common stock at a specified exercise price
(jointly, the "Shares"). Pursuant to the Agreement, MFG covenanted to provide
a legal opinion to Plaintiff, in substance, that the Shares were transferable
by Plaintiff on or after November 6, 1998.
The Defendants timely provided the requested legal opinion to Plaintiff in
form and place specified by the Agreement. The Plaintiff subsequently
requested the Defendants to issue a second legal opinion incorporating
information different from what was originally stipulated in the Agreement.
The second legal opinion was provided to Plaintiff on December 14, 1998.
The Plaintiff alleges that the Defendants did not provide the agreed
legal opinion until the later date of December 14, 1998 and as a result of a
delay on the exercise of its warrants, the Plaintiff suffered damages
exceeding $6 million. The Plaintiff seeks unspecified damages to be
determined in a jury trial and warrants to acquire 101,204 shares of the
Company's common stock.
The Company believes that it satisfied its obligations under the
Agreement and believes the Plaintiff's claims are without merit. The Company
will vigorously defend itself against any and all claims.
Item 2. Changes in Securities
No instruments defining the rights of the holders of any class of
registered securities have been materially modified, limited or qualified.
The following securities, which are not registered under the Securities
Act of 1933, were issued since the Company's last report for the quarter ended
December 31, 1999. The following does not include shares issued to Beach
under the Beach Agreement or the issuance of shares upon conversion of
warrants.
$45,000,000 Private Placement
- -----------------------------
On December 12, 1999, the Company commenced a private placement (the
"Offering") of a minimum of $12,000,000 and a maximum of $30,000,000 of its
securities pursuant to Regulation D, Rule 506, of the Securities Act of 1933.
The close of the Offering, originally scheduled for December 31,1999, was
extended by the Company through February 29, 2000. Due to an
oversubscription, the maximum amount of the Offering was also increased to
$45,000,000.
The Offering was structured with a minimum investment of $50,000 for the
purchase of one unit consisting of 13,123 common shares and 13,123 warrants at
an offering price of $2.81 per share and $1.00 per warrant. Warrants
subscribed to pursuant to the Offering are convertible into common shares of
the Company at a rate of 50 percent of the initial number of shares purchased
at $5.00 per share (subject to specified anti-dilution provisions) and
terminate on the fifth year following the close of the Offering. The Company
retained the exclusive right to reject any and/or all subscriptions until the
Offering was formally accepted.
18
<PAGE>
On March 1, 2000, the Company announced the close of the Offering. On
March 31, 2000, the Company accepted all Subscriptions not rejected as of that
date. Proceeds of the Offering, net of placement costs of approximately
$2,933,793, totaled $39,543,103. Total shares of the Company's common stock
subscribed to as a result of subscriptions accepted equals 11,148,766 shares.
Warrants of equal quantity will be issued and give participating shareholders
the right to acquire an additional 5,574,450 shares of the Company's common
stock as specified above.
Common stock and warrants subscribed to in the Offering are restricted
and cannot be resold without registration under applicable federal and state
laws. The Company intends to commence the application for registration of such
shares prior to July 1, 2000.
In connection with the Offering, the Company entered into commission
agreements with various individuals and entities (jointly referred herein to
as "Advisors") to assist in the private placement of the Company's common
stock and warrants in connection with the Offering. Such agreements stipulate
that the Company will compensate Advisors cash consideration equal to seven
percent of the final gross proceeds derived by the Advisors in connection with
the Offering, plus additional consideration in the form of common stock
options of the Company, the number of which will be equal to ten percent of
the final gross proceeds derived by the Advisors in connection with the
Offering divided by the closing price of the Company's common shares on
February 29, 2000 as quoted on the OTC Bulletin Board of the NASD. Options
granted pursuant to the agreements are exercisable at any time during the
three-year period from February 29, 2000 through February 28, 2003 at a strike
price of $1.70 per share. In consequence of the foregoing, cash commissions of
approximately $2,933,793 and options to acquire approximately 418,658 shares
of the Company's common stock will paid and granted to the Advisors. As of
March 31, 2000, $233,000 was paid to the Advisors. The Company plans to pay
the remaining balance in April 2000. Common shares underlying the options to
be issued to the Advisors are restricted and cannot be resold without
registration under applicable federal and state laws. The Company plans to
apply for registration of such shares in a prospectus filed prior to July 1,
2000.
$5,000,000 Private Placement
- -----------------------------
On March 30, 2000, the Company signed an agreement with Informix
Corporation, providing for the sale of $5,000,000 of the Company's common
stock at a purchase price per share equal to 80 percent of the closing bid
price per share, as quoted on the OTC Bulletin Board of the NASD, on the day
previous to execution of the agreement. In connection therewith, Informix
Corporation subscribed to 510,204 shares of the Company's common stock. The
shares were issued in reliance upon the exemption available under Section 4(2)
of the Securities Act of 1933, as amended, as a "transaction not involving a
public offering." Gross proceeds for shares subscribed were received by the
Company on March 31, 2000.
Common stock shares of the Company subscribed to by Informix
Corporation are restricted and cannot be resold without registration under
applicable federal and state laws. The Company intends to commence the
application for registration of such shares prior to July 1, 2000.
Company's 401K Plan
- -------------------
On January 1, 1999, the Company implemented a 401(k) Retirement Plan
(the "Plan") that permits eligible employees to make elective contributions to
the Plan. Pursuant to the Plan, the Company may also make discretionary
contributions (the "Matching Contribution") to the Plan in the form cash or
qualifying employer securities. On January 31, 2000, the Company made a
Matching Contribution to the Plan for its 1999 plan year of 11,348 shares of
the Company's common stock, such number of shares determined in accordance
with the provisions of the Plan and based on the trading price of the
Company's common stock on each of the Plan's 1999 required funding dates.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information.
Bales Acquisition - Subsequent Event
- -------------------------------------
On April 4, 2000, the Company signed a Memorandum of Agreement (the
"MOA") to acquire 90 percent of the outstanding common shares of Bales
Scientific Corporation, ("Bales'), for a total purchase price of $10.05
million and to acquire, subject to consent of the minority shareholder of
Bales, the remaining 10-percent shares (the "Minority Shares") for a purchase
price of $1.05 million
Pursuant to the MOA, the purchase price for the 90-percent interest
consists of $5.1 million cash (including a $500,000 nonrefundable commitment
fee) and $4.95 million of the Company's common stock as determined from the
listed Bid Price of the Company's common stock on the last business day prior
to the acquisition date. The purchase price of the Minority Shares consists
of $500,000 cash and $550,000 worth of the Company's common stock as
determined above. In each case, the cash element of the purchase price is
adjusted, upward or downward, by the difference between Bales' current assets
(consisting solely of cash and accounts receivable) and total liabilities as
of the date of acquisition.
On April 17, 2000, the Company consummated the acquisition for 100
percent of Bales' common stock. In connection therewith, Maurice Bales,
previous owner of Bales and noted authority in thermal imaging technology,
entered into a three-year employment contract with the Company to provide
expertise and services to further develop the Company's thermal imaging
technology and integrate technology he developed into the Company's products.
In addition to his normal compensation, Mr. Bales will be granted options to
acquire 100,000 shares of the Company's common stock during each year of his
employment at the listed bid price of such shares on the business day
immediately preceding the granting of such options. The first 100,000 common
share options were granted upon execution of the acquisition agreement and
each additional 100,000 shares will be granted upon each subsequent
anniversary date of Mr. Bales' employment. The Company also entered into a
three-year office lease with Mr. Bales that provides for monthly lease
payments to Mr. Bales, subject to annual cost-of-living adjustments, of
$7,500.
NASDAQ Application
- ------------------
On March 30, 2000, the Company announced that it had filed its
application to move from the OTC Bulletin Board of the NASD to the NASDAQ
National Market, bypassing the NASDAQ Smallcap Market Listing. As of the
filing date of this report, it is not known how long the application process
will take.
Item 6. Exhibits and Reports on Form 8-K.
Reports of Form 8-K. Not Applicable.
Exhibits. The following exhibits are filed herewith:
(27) Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPUTERIZED THERMAL IMAGING, INC.
(Registrant)
/s/ David A. Packer
Dated April 20, 2000 _________________________________________
David A. Packer
President, Treasurer & Director
Chief Operating Officer
/s/ Kevin L. Packard
Dated April 20, 2000 _________________________________________
Kevin L. Packard
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME OF
COMPUTERIZED THERMAL IMAGING, INC. AND SUBSIDIARY FOR THE QUARTER ENDED MARCH
31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 47,287,836
<SECURITIES> 0
<RECEIVABLES> 0
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<CURRENT-ASSETS> 47,790,536
<PP&E> 4,454,381
<DEPRECIATION> 392,377
<TOTAL-ASSETS> 52,078,040
<CURRENT-LIABILITIES> 6,318,849
<BONDS> 0
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<COMMON> 76,761,599
<OTHER-SE> (31,048,201)
<TOTAL-LIABILITY-AND-EQUITY> 52,078,040
<SALES> 268,833
<TOTAL-REVENUES> 268,833
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,338,815
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 576
<INCOME-PRETAX> (5,339,391)
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