As filed with the Securities and Exchange Commission on October 20, 1998
Registration No. 333-60187
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________________
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________________________________________
INTELLIGENT MEDICAL IMAGING, INC.
(Exact name of registrant as specified in its charter)
______________________________________________________
Delaware 3841 65-0136178
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
John G. Igoe, Esq.
Edwards & Angell
4360 Northlake Boulevard, Suite 214 250 Royal Palm Way
Palm Beach Gardens, Florida 33410 Palm Beach, Florida 33480
(561)627-0344 (561)833-7700
(Address, including zip code, and telephone number, (Name, address, including
including area code, of registrant's zip code, and telephone
principal executive offices) number, including area
code, of agent for services)
______________________________________________________
Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _________
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]. _____________________
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
4,596,315 Shares
INTELLIGENT MEDICAL IMAGING, INC.
Common Stock
$.01 Par Value
This prospectus relates to (a) 4,596,315 shares (the "Shares") of common stock,
par value $.01 per share (the "Common Stock"), of Intelligent Medical Imaging,
Inc. ("IMI" or the "Company") which may be offered hereby from time to time by
any or all of the selling stockholders of the Company named herein
(collectively, the "Selling Stockholders") of which (i) 3,647,860 are shares
which may in the future be issued to certain of the Selling Stockholders upon
the conversion of an aggregate of $3,000,000 principal amount of Convertible
Debentures (the "Debentures"), (ii) 656,614 are Shares which may be issued to
certain of the Selling Stockholders as accrued interest for three years on the
Debentures, (iii) 180,000 are Shares which may in the future be issued to
certain of the Selling Stockholders upon the exercise of outstanding warrants
held by such Selling Stockholders (the "Warrants"), and (iv) 111,841 are
outstanding Shares which may be offered for resale from time to time by certain
of the Selling Stockholders and (b) such presently indeterminate number of
additional Shares as may be issuable in connection with the Shares registered
for sale hereby (i) by reason of any stock dividend, stock split,
recapitalization or other similar transaction effected without the receipt of
consideration which results in an increase in the Company's number of
outstanding shares of Common Stock or (ii) as payment of interest thereon,
pursuant to fluctuations in the price of the Common Stock thereof in accordance
with Rule 416 under the Securities Act of 1933, as amended (the "Securities
Act"). The amount of Shares referenced above as issuable upon the conversion of
the Debentures and as payment of interest on the Debentures was calculated in
accordance with the terms of a registration rights agreement between the Company
and the recipient of the Debentures which provides that, for purposes of
determining the number of shares to be included in any registration statement,
the amount of shares issuable upon the conversion of the Debentures shall
include (but not be limited to) a number of shares of Common Stock equal to no
less than 200% of the number of shares of Common Stock into which the Debentures
(together with the payment of interest thereon) are convertible, assuming such
conversion occurred on June 30, 1998 or the filing date for such registration
statement, whichever yields a lower conversion price. In accordance with this
formula, the applicable conversion price for determining the amount of shares
issuable upon conversion of the Debentures and as payment of interest thereon
for purposes of this Prospectus is $1.6448 per share. The Selling Stockholders
may sell the Shares from time to time at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. See "Selling Stockholders" and "Plan of Distribution".
The Company will not receive any of the proceeds from the sale of the Shares by
the Selling Stockholders, but the Company will receive the proceeds from any
exercise of Warrants by the Selling Stockholders except to the extent such
Selling Stockholders elect to pay the applicable excercise price by means of a
cashless excercise, as permitted under the terms of the Warrants. See "Use of
Proceeds".
The Debentures and Warrants were issued to certain of the Selling Stockholders
in a private placement transaction (the "Private Placement") consummated on June
30, 1998 ("Original Issue Date"). Subject to adjustment in certain events,
twenty-five percent (25%) of the aggregate principal amount of the Debentures is
convertible into the Common Stock of the Company beginning on September 28, 1998
("Initial Conversion Date") and on the first, second and third month
anniversaries of the Initial Conversion Date up to 50%, 75% and 100%,
respectively, of the aggregate principal amount of the Debentures originally
issued on the Original Issue Date is convertible. The Debentures are convertible
at a conversion price ("Conversion Price") equal to the lesser of (a) 120% of
the average of the closing bid price for the Common Stock of the Company for the
five (5) trading days immediately preceding the Original Issue Date or (b) 86%
multiplied by the average of the five (5) lowest closing bid prices of the
Common Stock of the Company during the twenty-five (25) trading days immediately
preceding the date of the applicable conversion notice. Subject to certain
notification requirements, the Company has the right to prepay all or any
portion of the outstanding principal amount of the Debentures which has not
previously been repaid or converted. The principal amount of the Debentures for
which conversion notices have not previously been received or for which
prepayment has not been made will be automatically converted on June 30, 2001 at
the Conversion Price on such date. The Shares issuable in connection with the
conversion of Debentures and in satisfaction of interest obligations on the
Debentures are subject to adjustment and could be more or less than the
estimated amount listed herein depending on, among other things, the future
market price of the Common Stock. The Warrants are exercisable between June 30,
1998 and June 30, 2003 at an exercise price equal to $3.923 per share (120,000
shares) or $3.63 per share (60,000 shares), as the case may be, subject to
adjustment in certain events.
The Company has agreed to bear all of the expenses in connection with the
registration and sale of the Shares, including certain fees and disbursements of
counsel to certain of the Selling Stockholders but excluding any underwriter
fees, disbursements, commissions or discounts.
The Common Stock of the Company is quoted on the Nasdaq National Market under
the symbol "IMII". On October 16, 1998, the closing price for the Common Stock
on the Nasdaq National Market was $.75 per share.
Certain Selling Stockholders who are affiliates of the Company and anyone
effecting sales on behalf of such Selling Stockholders may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended
("Securities Act"), and commissions or discounts given may be regarded as
underwriting commissions or discounts under the Securities Act.
SEE "RISK FACTORS," BEGINNING ON PAGE 4, FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is October 20, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR ANY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and information statements and other
information with the Securities and Exchange Commission (the "Commission").
Proxy statements, reports, information statements, and other information
concerning the Company can be inspected and copied at the Commission's office at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549 and the
Commission's Regional Offices located at Suite 1300, Seven World Center, Suite
1300, New York, New York 10048; and Northwestern Atrium Center, 500 Madison
Street, Suite 1400, Chicago, Illinois 60661. The Commission also maintains a web
site that contains reports, proxy and information statements and information
statements and other information filed electronically with the Commission, the
address of which is http://www.sec.gov. The Common Stock of the Company is
quoted on the Nasdaq National Market. Reports, proxy statements and information
statements and other information concerning the Company may be inspected at the
offices of the National Association of Securities Dealers, Inc. located at 1735
K Street, N.W., Washington D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 (including all amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information regarding the Company and the Common Stock offered hereby,
reference is hereby made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus regarding the
contents of any agreement or other document filed as an exhibit to the
Registration Statement are necessarily summaries of such documents, and in each
instance reference is made to the copy of such document filed as an exhibit to
the Registration Statement for a more complete description of the matters
involved. The Registration Statement, including the exhibits and schedules
thereto, may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, DC 20549 or
through its web site (http://www.sec.gov).
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission by the Company are
incorporated in this Prospectus by reference (File No. 1-14190):
1. Current Report on Form 8-K, dated October 16, 1998.
2. Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1998.
3. Quarterly Report on Form 10-Q for the quarterly period ended March 31,
1998.
4. Annual Report on Form 10-K for the fiscal year ended December 31,
1997.
5. The description of the Common Stock contained in a Registration
Statement on Form 8-A dated February 1, 1996, and any amendment or
report filed for the purpose of updating such description.
All reports and other documents filed by the Company with the Commission
after the date of this Prospectus and prior to the termination of the offering
of the Shares pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
shall be deemed to be incorporated by reference herein and to be a part hereof
from the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated in this Prospectus by reference shall
be deemed to be modified or superseded for the purpose of this Prospectus to the
extent that a statement contained in this Prospectus or in any other
subsequently filed document which also is or is deemed to be incorporated in
this Prospectus by reference modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Such incorporation by reference shall not be deemed to specifically
incorporate by reference the information referred to in Item 402(a)(8) of
Regulation S-K.
All reports and other documents filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and all
documents incorporated by reference herein (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference into
the information that the prospectus incorporates) are available, without charge,
upon written or oral request from any person to whom this Prospectus is
delivered, to Intelligent Medical Imaging, Inc., 4360 Northlake Boulevard, Suite
214, Palm Beach Gardens, Florida 33410, Attention: Corporate Secretary
(telephone: (561) 627-0344.)
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere or incorporated by reference in this Prospectus.
This Prospectus may contain certain "forward-looking" information, as that term
is defined by (i) the Private Securities Litigation Reform Act of 1995 (the
"Act") and (ii) releases made by the Securities and Exchange Commission. Such
information involves risks and uncertainties. The Company's actual results may
differ materially from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors."
THE COMPANY
IMI has developed and is marketing the Micro21 System(TM), an intelligent,
automated microscope system, for diagnostic use in hospital, commercial
reference and physician group practice laboratories. The Micro21 System is
designed to automate a broad range of manual microscopic procedures, potentially
enabling the laboratory to reduce costs and exposure to liabilities, enhance
analytical accuracy and consistency, increase the productivity of medical
technologists and improve patient care. The Company has also developed two
automated slide makers, a Hematology Slide Maker and a Urine Slide Maker, for
use in the two most commonly performed microscopic review procedures, the White
Blood Cell Differential and Urine Analysis. These two products allow for
automation of the White Blood Cell Differential and Urine Analysis which, in
turn, may allow customers to reduce costs and contamination risks.
IMI was incorporated in the State of Florida in June 1989 and
reincorporated in the State of Delaware in January 1996. Its principal executive
offices are located at 4360 Northlake Boulevard, Suite 214, Palm Beach Gardens,
Florida 33410, and its telephone number is (561) 627-0344.
Recent Developments
On June 30, 1998, the Company consummated the Private Placement, pursuant
to which the Company issued the Debentures in an aggregate principal amount of
$3,000,000 to JNC Opportunity Fund, Ltd. ("JNC"). The Debentures mature on June
30, 2001 and are convertible into Common Stock of the Company at a floating
conversion rate which is determined in part by the future market price of the
Common Stock. A more detailed description of the conversion price and other
features of the Debentures is provided on page 1 of this Prospectus. In
connection with the Private Placement, the Company issued the Warrants to JNC
(120,000 shares), the financial consultant, Wharton Capital Partners, Ltd.
("Wharton") (42,000 shares), and Elizabeth D'Angelis (18,000 shares). The
Warrants entitle JNC, Wharton and Ms. D'Angelis to purchase Common Stock of the
Company between June 30, 1998 and June 30, 2003 at an exercise price of $3.923,
$3.63 and $3.63 per share, respectively, subject to adjustment in certain
events.
On July 24, 1998, the Company's Board of Directors authorized the Company
to enter into separate Extension Agreements with the Company's President and
Chief Executive Officer, Mr. Tyce Fitzmorris, and with a former Company Director
and current Company shareholder, R. Wayne Fritzsche, pursuant to which the due
dates for repayment of Company advances to Mr. Fitzmorris and Mr. Fritzsche in
the amounts of $196,000 and $424,000, respectively, were extended until August
28, 1998, subject to certain conditions. The Company entered into separate
Extension Agreements with Mr. Fitzmorris and Mr. Fritzsche (the "Extension
Agreements"). The Extension Agreements required Mr. Fitzmorris and Mr. Fritzsche
to make payments to the Company in partial satisfaction of the advances in the
amounts of $10,000 and $25,000, respectively, prior to July 28, 1998 and to
repay the advances in full, plus accrued but unpaid interest, no later than
August 28, 1998. On August 14, 1998 the Company received full payment of all
amounts due with respect to the advance to Mr. Fitzmorris. On July 29, 1998,
August 31, 1998 and September 30, 1998 the Company received $25,000, $100,000
and $100,000, respectively, in partial satisfaction of the amounts due with
respect to the advance to Mr. Fritzsche. The advance to Mr. Fritzsche is secured
by shares of the Company's Common Stock beneficially owned by Mr. Fritzsche.
THE OFFERING
This Prospectus relates to the sale of (a) 4,596,315 shares of Common Stock by
the Selling Stockholders of which (i) 3,647,860 are shares which may in the
future be issued to certain of the Selling Stockholders upon the conversion of
the Debentures, (ii) 656,614 are Shares which may be issued to certain of the
Selling Stockholders as accrued interest for three years on the Debentures,
(iii) 180,000 are Shares which may in the future be issued to certain of the
Selling Stockholders upon the exercise of the Warrants, and (iv) 111,841 are
outstanding Shares which may be offered for resale from time to time by certain
of the Selling Stockholders and (b) such presently indeterminate number of
additional Shares as may be issuable (i) by reason of any stock dividend, stock
split, recapitalization or other similar transaction effected without the
receipt of consideration which results in an increase in the Company's number of
outstanding shares of Common Stock or (ii) as payment of interest thereon,
pursuant to fluctuations in the price of the Common Stock. The Company will not
receive any of the proceeds from the sale of the Shares of Common Stock by the
Selling Stockholders, but the Company will receive the proceeds from any
exercise of Warrants by the Selling Stockholders, except to the extent that such
Selling Stockholders elect to pay the applicable exercise price by means of a
cashless exercise, as permitted under the terms of the Warrants. See "Use of
Proceeds".
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In evaluating the Company and its business, prospective
investors should carefully consider the following risk factors in addition to
the other information included herein.
History of Operating Losses; Uncertainty of Profitability
The Company is in an early stage of product commercialization. The Company
has generated limited revenue to date, has experienced operating losses since
its inception in 1989 and has not yet achieved profitability. Operating losses
for the years ended December 31, 1995, December 31, 1996 and December 31, 1997
were approximately $4.0 million, $7.9 million and $12.8 million, respectively,
and at December 31, 1997, the Company had an accumulated deficit of
approximately $27.1 million. There can be no assurance that the Company's
products will achieve meaningful market acceptance or that the Company will ever
produce significant levels of product revenue or achieve or sustain
profitability. The Company may encounter substantial delays and expenses
relating to regulatory clearance, research, development and testing for new
procedures. In addition, delays or expenses associated with the defense of
potential patent infringement claims or other unforeseen difficulties may limit
the Company's ability to achieve profitability. The likelihood of the Company's
success must be considered in light of these and other problems, expenses,
difficulties, complications and delays frequently encountered in connection with
the formation of a new business and the development and commercialization of new
products.
Reliance on the Micro21 System; Uncertain Market Acceptance
The Company has concentrated its efforts primarily on the development of
the Micro21 System and is dependent on the successful commercialization of this
product to generate revenues. The success of the Micro21 System is dependent
upon many variables, including its acceptance as a reliable, accurate and
cost-effective tool for microscopic analysis as well as the Company's
manufacturing capacity and marketing efforts. Currently, the medical industry
relies primarily on medical technologists for the performance of microscopic
cellular analysis procedures. There can be no assurance that the Micro21 System
will perform as expected or that the Micro21 System will achieve meaningful
market acceptance. The current model of the Micro21 System may not be cost
effective for lower volume laboratories. There can be no assurance that lower
priced models of the Micro21 System, which the Company plans to develop, will be
successfully developed by the Company or accepted by lower volume laboratories.
In addition to the development of the Micro21 System, the Company has also
developed automated slide makers for the White Blood Cell Differential and Urine
Analysis, the two most commonly performed microscopic review procedures.
Although the Company is hopeful that these two products, a Hematology Slide
Maker ("HSM") and a Urine Slide Maker ("USM"), will allow customers to achieve
reductions in labor costs and contamination risks, there can be no assurance
that the HSM and the USM will perform as expected or achieve meaningful market
acceptance since neither product has been released. Furthermore, there can be no
assurance that customers will find the HSM and the USM to be cost effective for
their particular needs.
The FDA clearances obtained by the Company for the Micro21 System require
that a medical technologist analyze the images shown on the Micro21 System. The
need to continue to employ a medical technologist to perform a review may limit
market acceptance of the Micro21 System. While the Company intends to submit
applications to the FDA for additional procedures, there can be no assurance
that the Company will obtain FDA clearance for additional procedures, or that
the Company will successfully complete development of its NeuralVision software
for the performance of such additional procedures. Specifically, the Company has
recently submitted a urine analysis procedure for the Micro21 System for FDA
clearance and the uncertainty regarding FDA clearance for this procedure must be
considered. The cost effectiveness of the Micro21 System to an end user, and
consequently meaningful market acceptance of the Micro21 System, may depend on
the Company's ability to develop and obtain regulatory clearance for
applications in addition to the currently cleared procedures, and there can be
no assurance that the Company will successfully develop such procedures or
obtain such clearances. The inability of the Company to develop the Micro21
System to perform additional procedures, or the failure by the Company to obtain
regulatory approval with respect to such additional procedures, could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Future Capital Needs and Uncertainty of Additional Financing
The implementation of the Company's business strategy will require
significant expenditures of capital, and the Company will require additional
financing in the future. Additional funds may be sought through equity or debt
financings. There can be no assurance that commitments for such financings will
be obtained on favorable terms, if at all. Equity financing could result in
dilution to holders of Common Stock, and debt financing could result in the
imposition of significant financial and operational restrictions on the Company.
Lack of access to adequate capital on acceptable terms could have a material
adverse effect on the Company's business, results of operations and financial
condition, especially in the event of future delays in widespread market
acceptance of the Micro21 System. While the Company recently entered into a
Customer Financing Agreement with Prime Capital Corporation (the "Prime
Agreement") which the Company hopes will provide an attractive financing
alternative for the Company's customers, there can be no assurance that this
financing arrangement will favorably impact sales. The risks and uncertainties
associated with the Prime Agreement include the possibility that customers will
not qualify for financing from Prime and the possibility that Prime may at some
later date discontinue its financing operations. Another risk associated with
the Prime Agreement is that the Company may have to devote sales and marketing
efforts toward the resale of customer-returned products, for which Prime would
receive all sales proceeds, in the event customer returns of products initially
financed by Prime exceed certain levels.
Uncertainty of Pricing of the Micro21 System and New Products
The Company has sold or leased only a limited number of Micro21 Systems to
end users. As a result, there can be no assurance whether the prices for such
sales and leases will be indicative of the prices at which the Company will be
able to sell or lease the current model of the Micro21 System to end users in
the future. In addition, the Company anticipates that the price of the Micro21
System will vary depending on a variety of factors including the level of
acceptance in the marketplace, the number of microscopic procedures implemented
and the number of peripheral devices sold or leased with the Micro21 System. The
uncertainties discussed above regarding the pricing of the Micro21 System are
equally applicable to the HSM and the USM since these products have not yet been
released. Consequently, there are a number of uncertainties regarding the
pricing of HSM and USM, including the possibility that customers will perceive
these products as too expensive and not cost-effective for their particular
needs. The Company may discount asking prices to facilitate early market
penetration or in response to market conditions, which may reduce the Company's
gross profit margins which could have a material adverse effect on the Company's
business, results of operations and financial condition.
Limited Sales, Marketing and Service Capability; Risks Arising from
Termination of Coulter Agreement, Coulter Settlement Agreement and DiaSys
Arbitration
In August 1995, the Company entered into an exclusive distribution
agreement (the "Coulter Agreement") with Coulter Corporation ("Coulter") for
worldwide sales, marketing and service of the Micro21 System. Prior to the
Company's termination of the Coulter Agreement (as described below), the Company
was dependent on its relationship with Coulter for sales, marketing and service
of its products. The Company terminated the Coulter Agreement in the fourth
quarter of 1996 because of Coulter's revocation of its commitment to purchase
$5,500,000 of Micro21 Systems during the third and fourth quarters of 1996 and
other actions by Coulter deemed by the Company to be in breach of the Coulter
Agreement. The parties settled this dispute as of March 27, 1997 pursuant to the
terms of a settlement agreement (the "Coulter Settlement Agreement"). The
dispute between the Company and Coulter has had and may continue to have an
adverse effect on sales and marketing and has been a factor in the return of
some Micro21 Systems placed with customers by Coulter for evaluation. The
Company anticipates that its business, results of operations and financial
condition will be adversely affected in 1998 as a result of the dispute with
Coulter and negative industry and market perception of such dispute and delays
in building the Company's sales and marketing organization and implementing its
sales and marketing program following termination of the Coulter Agreement. In
addition, as a result of certain rights granted by the Company to Coulter in
connection with the Coulter Settlement Agreement, the Company may be unable to
enter into an alternative exclusive distribution agreement, the lack of which
may adversely affect sales. Although the Company is currently engaged in
negotiations with Bayer Corporation for a definitive non-exclusive manufacturing
and distribution agreement and is also negotiating with Coulter for a definitive
distribution agreement relating to the HSM, there can be no assurance that the
Company will be able to negotiate mutually acceptable terms for these
agreements. Furthermore, the Company's inability to consummate these or other
agreements with strategic partners may have a material adverse effect on the
Company's operations, sales and costs.
The Company has limited sales, marketing and service capability and
experience. There can be no assurance that the Company will be able to build and
maintain a suitable sales force or that its direct sales and marketing efforts
will be successful. The expense, delay and potential setbacks in developing, or
the Company's ultimate failure to develop, an effective sales and marketing
organization for penetration and support of the market for the Micro21 System,
including but not limited to the pharmaceutical and veterinary lab market, could
have a material adverse effect on the Company's business, results of operations
and financial condition. There can be no assurance that the Company's sales team
and the Company's distributors such as Coulter will be able to sell the Micro21
System in sufficient quantities so as to allow the Company to achieve its sales
goals. In addition, while the Company intends to focus its marketing and sales
efforts on direct sales, the Company may continue to sell Micro21 Systems to
Coulter pursuant to the Coulter Settlement Agreement and to other distributors
for resale to customers, and substantial sales to distributors may be possible
only at transfer prices substantially lower than projected prices for direct
sales. During the fourth quarter of 1997, the Company began to offer a
short-term rental program which provides for monthly or annual rentals of the
MICRO21 system. The Company believes that this program will augment its sales
and long-term lease programs by giving potential customers the ability to fund a
MICRO21 with operating funds, thereby overcoming potential cost barriers
associated with limited or non-existent capital expenditure funds. However,
there can be no assurance that this short-term rental program will have a
positive impact on the Company's sales and any expansion of the short-term
rental program may require that the Company secure additional financing.
In November 1996, the Company entered into a Product Integration Agreement
(the "DiaSys Agreement") pursuant to which the Company committed to purchase
certain equipment from DiaSys Corporation ("DiaSys") to be integrated into the
MICRO21 system workstation. In June 1997, the Company notified DiaSys that it
was terminating the DiaSys Agreement due to DiaSys' material breaches of the
DiaSys Agreement. The Company also rejected all goods delivered by DiaSys to the
Company as non-conforming. DiaSys expressed its disagreement with the Company's
position regarding conformity of DiaSys's products and the Company's termination
of the DiaSys Agreement, and in January 1998 DiaSys filed for arbitration
against the Company (the "DiaSys Arbitration"). In its demand, DiaSys alleges
that the Company breached the DiaSys Agreement and defamed DiaSys and seeks
damages in excess of $1 million. As of March 31, 1998, the Company has not
accrued any loss contingencies or related expenses in connection with this
lawsuit. Management is unable to make a meaningful estimate of the likelihood or
amount or range of loss that could result from an unfavorable outcome of the
pending arbitration. Although the Company believes that it has meritorious
defenses which it will pursue vigorously and that the Company has valid
counterclaims against DiaSys, there can be no assurance that the ultimate
resolution of this dispute will not have a material adverse effect on the
Company's liquidity, financial condition and results of operations. In
particular, negative industry and market perception of the DiaSys Arbitration
and the ultimate settlement or conclusion of this matter may have an adverse
effect on the Company's sales and marketing.
Limited Manufacturing Experience; Risk of Manufacturing Scale-up
The Company's manufacturing experience to date has been limited. In order
to achieve significant revenue, the Company will have to produce the Micro21
System on a commercial scale. There can be no assurance that the Company will be
able to manufacture the Micro21 System in commercial-scale quantities at
commercially viable costs. The Company may encounter unexpected delays or costs
in scaling-up its manufacturing operations or in hiring and training additional
personnel to manufacture its products. The failure to scale-up manufacturing
successfully in a timely or cost-effective manner, future production problems or
interruptions in supply could have a material adverse effect on the Company's
business, results of operations and financial condition. Manufacturing cost
increases could have a material adverse effect on the Company's business,
results of operations and financial condition. Furthermore, the Company will be
required to adhere to applicable regulatory requirements, including regulations
as prescribed by the FDA from time to time, in the manufacture of the Micro21
System. Any failure to meet such requirements could delay or prohibit the
manufacturing of the Company's products, which could have a material adverse
effect on the Company's business, results of operations and financial condition.
Since the Company currently has an adequate inventory of Micro21 Systems,
the Company anticipates that its manufacturing efforts in the near future will
be primarily directed towards the manufacture of the HSM and the USM. While the
Company has limited experience in manufacturing Micro21 Systems, the Company has
virtually no experience in manufacturing the HSM and the USM. As is the case
with the Micro21 System, the Company will need to manufacture the HSM and the
USM on a commercial scale in order to achieve significant revenue. Due to the
Company's lack of experience in manufacturing the HSM and the USM, there can be
no assurance that the Company will be able to manufacture these products in
commercial-scale quantities at commercially viable costs. The above-referenced
risk factors relating to the Micro21 System regarding delays in or failure to
scale-up manufacturing operations in a timely or cost-effective manner and the
possibility of future production problems or interruptions in supply are even
more relevant with respect to the manufacture of the HSM and the USM since these
products have not yet been released and the Company has no experience in
manufacturing these products.
Reliance on Single Source Suppliers
Certain key components of the Micro21 System are currently obtained from
single sources, are available only in limited quantities and require substantial
production lead times. The Company has in the past experienced delays in the
delivery of such components. Certain other components of the Micro21 System are
manufactured to the Company's specifications by single suppliers. There can be
no assurance that custom-made components from alternative vendors would be
available on terms satisfactory to the Company, if at all. If the Company were
to change suppliers of these components, it would likely experience an
interruption in supply, which could have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
the purchase of certain key components by the Company is based on internal
forecasts of future product sales. The preparation of such forecasts is based on
inexact methods and may vary considerably from actual results. The Company may
be required to maintain significant inventory and there can be no assurance that
purchases based on forecasting will be adequate to meet the Company's needs.
Fluctuations in Operating Results
The Company's results of operations have in the past and may in the future
be subject to significant fluctuation. Factors contributing to fluctuations in
operating results include the rate of acceptance of the Micro21 System by the
market, the timing of purchase orders, the timing of the introduction of new
procedures and products, if any, and the success and timing of obtaining
regulatory clearance. Such fluctuations could result in significant volatility
in, and could have a material adverse effect on, the market price for the Common
Stock.
Dependence on Trade Secrets and Proprietary Technology
The Company's commercial success will depend in part on its ability to
protect and maintain its proprietary technology. The Company does not believe an
automated microscope system is patentable, and therefore does not intend to seek
patent protection for the Micro21 System, as a system. The Company does not hold
any patents and currently does not intend to seek patent protection for its
NeuralVision software as a whole. The Company relies principally on a
combination of trade secrets, proprietary knowledge, technological advances and
disclosure, confidentiality and non-competition agreements entered into with its
employees and certain consultants to protect its proprietary rights. No
assurance can be given that the Company's efforts will provide meaningful
protection for its unpatented proprietary technology against others who
independently develop or otherwise acquire substantially equivalent techniques
or gain access to, misappropriate or disclose the Company's proprietary
technology. In addition, there can be no assurance that any patent applications
filed by the Company will result in the issuance of patents or that any patents
issued to the Company will afford protection against competitors that develop
similar technology, or that a competitor will not reverse-engineer the Company's
software codes.
There can be no assurance that the Company's technology does not infringe
the proprietary rights of others. The Company has received, and may in the
future receive, notices claiming that the Company is infringing patents or other
proprietary rights. In 1991, the Company received a letter stating that the
Micro21 System may infringe a patent of Neuromedical Systems, Inc.
("Neuromedical"). The Company has investigated this matter and believes that the
Micro21 System does not infringe the specified patent. The Company has received
an opinion of its patent counsel that the Micro21 System does not infringe any
valid claims of such patent.
The Company settled its litigation with International Remote Imaging
Systems, Inc. ("IRIS") as of March 1, 1997 by entering into a settlement
agreement and related license agreement with IRIS (collectively, the "IRIS
Settlement Agreement"). Under the IRIS Settlement Agreement, IRIS granted the
Company a fully-paid, royalty-free license for worldwide direct sales of the
Micro21 System by the Company. The Company agreed to pay a 4% royalty on future
sales of the Micro21 System through third-party distributors in the United
States. This 4% royalty obligation expires in September 2000. The Company has
the right, but not the obligation, to request a license from IRIS for sales
through third-party distributors outside of the United States; however, the
Company does not believe that the Micro21 System infringes any foreign patents
held by IRIS and the Company has no current plans to request such a license.
Notwithstanding the Company's belief, there can be no assurance that IRIS or
other parties will not threaten to take legal action against the Company
alleging infringement of patents by the Micro21 System.
Patent litigation can be costly and time consuming, and there can be no
assurance that the Company's litigation expenses will not increase in the
future. If the Company were determined to be infringing any patent, the Company
could be required to pay damages, alter its products or processes, obtain
licenses and/or cease certain activities. In addition, if patents are issued to
others which contain claims that cover subject matter made, used or sold by the
Company, the Company may be required to obtain licenses to these patents, to
develop or obtain alternative technology or to cease using such technology. If
the Company is required to obtain any licenses, there can be no assurance that
the Company will be able to do so on commercially favorable terms, if at all. A
finding of infringement against the Company or the Company's failure to obtain a
license to any technology that it may require to commercialize its products
could have a material adverse effect on the Company's operations and financial
condition.
Competition and Technological Change
The markets in which the Company competes are highly competitive.
Competition exists and potential competition may arise from several sources,
including skilled medical technologists and manufacturers of clinical laboratory
equipment (including flow cytometer manufacturers such as Coulter), older
image-based systems and machine vision software.
The Company is aware of one other intelligent optical system utilizing
neural network software which is manufactured and developed by Neuromedical.
Neuromedical has received FDA clearance and commenced market launch of its
system. Neuromedical has notified the Company of its belief that the Micro21
System may infringe certain patents held by Neuromedical. The Company believes
that Neuromedical's product has been developed primarily for the Pap smear
procedure, a procedure for which the Company may, in the future, develop a
Micro21 System application. There can be no assurance that Neuromedical will not
adapt its system for other applications competing directly with the Company's
Micro21 System. The Company is aware that at least one other company, IRIS, has
developed and is marketing an optical system for performing the white blood cell
("WBC") differential (the "WBC Diff") and an automated system for urinalysis. In
addition, other companies, including NeoPath, Inc. and ChromaVision, Inc., are
marketing or may market intelligent optical systems applicable to microscopic
testing procedures that compete or may compete with the Micro21 System. The
Company's competition in the HSM market consists primarily of four companies,
Coulter, Abbott Laboratories, Sysmex Corporation of America ("Sysmex") and Omron
Corporation, with Sysmex and Omron being Japanese entities. The Company is aware
of two companies, IRIS and DiaSys, which have products competitive with the USM.
The clinical laboratory testing industry has undergone rapid and
significant technological change, and the Company expects that such change will
continue. Many current and potential competitors have substantially greater
financial resources than the Company, as well as extensive experience in
research and development, obtaining regulatory approvals and manufacturing and
marketing. There can be no assurance that existing technologies or technologies
under development by the Company's competitors will not be more effective,
easier to use or less expensive than those which have been or are being
developed by the Company or that any such technologies will not render the
Company's technology and products obsolete or otherwise non-competitive.
The Company's ability to react quickly to changing technology and other
competitive trends will be critical to the Company's success. The Company
intends to seek to develop, either internally or through licensing arrangements
with third parties with specialized slide preparation technology or related
microscopy expertise, products that can meet potential demand for a variety of
automated microscopic procedures. There can be no assurance that the Company's
competitors will not develop such products before the Company can, or that any
products developed by the Company, even if timely, will receive sufficient FDA
clearance or approval or will meet with greater market acceptance than those
manufactured by the Company's competitors.
In 1993, the Company established arrangements with XL Vision, Inc. ("XL
Vision") providing for XL Vision to provide design, engineering and
manufacturing services with respect to the Micro21 System. Under these
arrangements, XL Vision manufactured two Micro21 System prototype units for the
Company. In July 1994, the Company and XL Vision terminated these arrangements.
Pursuant to such termination, the Company granted to XL Vision a nonexclusive,
transferable license in the hardware, electrical, mechanical, structural and
circuit board portions of the June 1994 version of the Micro21 System and the
related machine control software. Such license did not include any rights
relating to the Company's neural network or image processing software programs.
In addition, the Company and XL Vision entered into a non-competition agreement
pursuant to which the Company agreed not to develop, market or sell products or
services related to certain immunocytochemical and nucleic acid probes, and XL
Vision agreed not to develop, market or sell products or services related to
certain microscopic and manual testing procedures. The non-competition agreement
expired in July 1996. There can be no assurance that XL Vision (or a sublicensee
thereof) will not attempt to utilize information it obtained in providing
services to the Company and the license granted to it by the Company to develop
products competitive with the Micro21 System. The Company believes that
ChromaVision, Inc. acquired its rights relating to the Micro21 System from XL
Vision.
Product Liability and Uncertainty of Adequate Insurance; Potential Exposure
to Claims
The Company's product is used to gather information for medical decisions
and diagnoses. Accordingly, the manufacture and sale of Micro21 Systems, the HSM
and the USM entails an inherent risk of product liability arising from an
inaccurate, or allegedly inaccurate, test or diagnosis. There can be no
assurance that product liability insurance maintained by the Company would be
sufficient to protect the Company in the event of a product liability claim.
Furthermore, there can be no assurance that the Company will be able to obtain
product liability insurance in the future with adequate coverages or at
acceptable costs. Any product liability claim against the Company could have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, under the terms of the Coulter Settlement
Agreement, the Company is required to indemnify Coulter for injuries to person
or property resulting from the design or manufacture of Micro21 Systems sold to
Coulter for distribution to end users. The failure to comply with FDA
regulations could have a material adverse effect on the ability of the Company
to defend against product liability lawsuits.
Uncertainty of Third Party Reimbursement and Health Care Reform Policies
and Cost Containment Measures
The willingness of hospitals, laboratories and other health care providers
to purchase or lease the Micro21 System, the HSM or the USM may depend on the
extent to which such providers limit capital expenditures due to cost
reimbursement regulations, including regulations promulgated by the Health Care
Financing Administration ("HCFA") and other regulatory agencies, and general
uncertainty about government health care policy. In addition, sales volumes and
prices of the Company's products will depend in part upon the level of
reimbursement available to hospitals, laboratories and other health care
providers for automated microscopic blood tests from third-party payors, such as
government and private insurance plans, health maintenance organizations and
preferred provider organizations. There can be no assurance that existing
reimbursement levels will not be decreased in the future and that any such
decrease will not reduce the demand for, or the price of, the Company's
products. Health care reform measures adopted by the federal government or state
governments could adversely affect the price of medical devices in the United
States or the amount of reimbursement available, and, consequently, could have a
material adverse effect on the Company's business, results of operations and
financial condition. Further, the Company believes that pressure in the health
care industry to control and contain patient care costs has increased and will
continue to increase. Such pressure may result in a reduction in the number and
type of clinical laboratory microscopic procedures performed (i.e., a reduction
in precautionary testing), thus decreasing the cost savings and other benefits
of the Micro21 System and, accordingly, demand for the Micro21 System. A
reduction in the number of precautionary tests and other clinical laboratory
microscopic procedures may also trigger a reduction in the need and demand for
automation of these procedures, which would adversely affect the Company's sales
of the HSM and the USM. No prediction can be made as to the outcome of any
reform initiatives or health care cost containment measures, or their respective
impacts on the Company.
Government Regulation; No Assurance of Future Regulatory Approval
The Company's products are subject to stringent government regulation in
the United States and other countries. In the United States, the Federal Food,
Drug, and Cosmetic Act, as amended (the "FDC Act"), and other statutes and
regulations govern the testing, manufacture, labeling, storage, record keeping,
distribution, sale, marketing, advertising and promotion of such products.
Failure to comply with applicable requirements can result in fines, recall or
seizure of products, total or partial suspension of production, withdrawal of
existing product approvals or clearances, refusal to approve or clear new
applications or notices and criminal prosecution.
Prior to commercial distribution in the United States, most medical
devices, including the Company's products, must be cleared or approved by the
FDA. The regulatory process is lengthy, expensive and uncertain. The Company's
Micro21 System has been cleared by the FDA through the 510(k) pre-market
notification process as a Class II automated cell locating device for the
automated location and display of nucleated blood cells to assist medical
technologists in performing WBC Diffs and WBC morphological analysis and for the
display of up to 20 full screen images of fields of a blood sample on a slide to
assist a medical technologist in assessing red blood cell ("RBC") morphologies
and in estimating platelets. The Company also has received FDA clearances for
three additional commonly performed microscopic procedures, the reticulocyte
count, anti-nuclear antibodies ("ANA") and DNA procedures, each of which also
requires review by a medical technologist, as well as 510(k) clearance for the
cerebrospinal fluid white blood cell differential, which is the examination of
white blood cells in spinal fluid and is used to diagnose inflammation and
infection of the central nervous system, including meningitis. The Company's
business strategy includes the development of additional applications for the
Micro21 System to perform additional cell location and classification functions.
No assurance can be given that the necessary permission from the FDA to market
the Micro21 System for such additional applications will not require the
submission and approval of additional 510(k) applications and/or pre-market
approval ("PMA") applications. The PMA approval process entails considerably
greater time (i.e., several years) and expense than does the 510(k) process,
including the performance of clinical trials to determine the safety and
efficacy of the device. No assurance can be given that the Company will obtain
clearance or approval with respect to any additional applications of the
Company's technology. Furthermore, FDA clearance of a 510(k) application or
approval of a PMA application is subject to continual review, and later
discovery of previously unknown problems may result in restrictions on a
product's marketing or withdrawal of the product from the market.
The FDA regulates computer software, such as the Company's NeuralVision
software, that performs the function of a regulated device or that is intimately
associated with a given device, such as control software for imaging or other
diagnostic devices. The FDA is in the process of reevaluating its regulation of
such software, and the Company cannot predict the extent to which the FDA will
regulate such software in the future. Should the FDA increase regulation of such
software, the Company's NeuralVision software platform may become subject to
more extensive regulatory processes and clearance requirements. No assurance can
be given that compliance with more extensive regulatory processes will be
achieved or that the necessary clearances for such software will be obtained by
the Company on a timely basis, if at all. The Company may, as a result, be
required to expend additional time, resources and effort in the areas of
software design, production and quality control to ensure compliance. Delay in
any FDA clearance with respect to such software could have a material adverse
effect on the Company's business, results of operations and financial condition.
The Company must also comply with regulations promulgated by the FDA from
time to time. The Company will be required to expend time, resources and effort
in product manufacturing and quality control to ensure compliance. If violations
of the applicable regulations are noted during FDA inspections of the Company's
manufacturing facilities and related software development facilities, the
continued marketing of the Company's products may be materially adversely
affected.
In addition, the Company has begun to market the Micro21 System in certain
foreign markets. Requirements for the sale of the Micro21 System vary widely
from country to country, ranging from simple product registrations to detailed
submissions such as those required by the FDA. To date, the Company has obtained
regulatory clearances or approvals to market the Micro21 System in the United
States, Canada and Japan; no regulatory clearances or approvals have yet been
applied for in any countries other than the United States, Canada and Japan, and
there is no assurance that any such approvals or clearances will be issued. The
ability to export into other countries may require obtaining ISO 9001
certification, which is analogous to compliance with FDA requirements, and CE
Mark certification. The Company has received CE Mark certification and ISO 9001
certification. The market for the Micro21 System also could be affected by the
Clinical Laboratory Improvement Amendments of 1988 ("CLIA"). This law is
intended to assure the quality and reliability of all medical testing in the
United States.
Any change in existing federal, state or foreign laws or regulations, or in
the interpretation or enforcement thereof, or the promulgation of any additional
laws or regulations could have a material adverse effect on the Company's
business, results of operations and financial condition.
Dependence on Key Personnel; Ability to Manage Growth; Reductions in
Workforce
The Company depends to a substantial degree on the services of Tyce M.
Fitzmorris, Eric Espenhahn and Jaime Pereira, all of whom were instrumental in
founding the Company and in developing the Micro21 System. Mr. Fitzmorris serves
as the Company's Chairman, Chief Executive Officer and President. Mr. Espenhahn,
who serves as the Company's Vice President-Product Development, is primarily
responsible for the technical development of the Micro21 System and its
NeuralVision software. Mr. Pereira is a significant contributor to the
development of the NeuralVision software utilized in the Micro21 System and
serves as Vice President-Engineering. The Company has key man life insurance
policies on Messrs. Fitzmorris, Espenhahn and Pereira in the amounts of
$2,500,000, $1,250,000 and $1,250,000, respectively. In addition, as a result of
the dispute with Coulter, the Company believes that it is vital for the Company
to develop an effective sales and marketing organization. The loss of the
services of any of Messrs. Fitzmorris, Espenhahn or Pereira, or other key
personnel, including the Vice President of Sales, could have a material adverse
effect on the Company's business, results of operations and financial condition.
The Company does not have employment agreements, other than disclosure,
confidentiality and non-competition agreements, with any of its personnel.
The Company is highly dependent on the principal members of its management
and engineering staff, the loss of whose services might impede the achievement
of the Company's business objectives. As the Company grows, recruiting and
retaining additional qualified personnel to supervise and manage the Company's
research and development and manufacturing operations will be important to the
Company's success. Competition exists for qualified personnel, and there can be
no assurance that the Company will be able to retain and attract skilled and
experienced management, manufacturing, engineering and research and development
personnel on acceptable terms.
In order to reduce costs, the Company has recently implemented a cost
reduction program, including reduction of personnel. While the Company believes
it can operate and succeed with the current level of personnel, the reductions
could have an adverse effect on the Company's business, results of operations
and financial condition.
Control by Directors and Executive Officers
As of the date of this Prospectus, Mr. Fitzmorris, the Company's Chairman,
Chief Executive Officer and President, beneficially owned approximately 16.4% of
the outstanding shares of Common Stock, and the directors and executive officers
of the Company as a group beneficially owned approximately 29.2% of the
outstanding shares of Common Stock. Accordingly, directors and executive
officers will have significant influence over the policies and operations of the
Company, including the ability to replace Company's management or to alter the
conduct of the Company's business.
Anti-Takeover Effect of Certain Charter, By-law and Delaware Law Provisions
Certain provisions of the Company's Certificate of Incorporation, By-laws
and Delaware law could, together or separately, discourage potential acquisition
proposals, delay or prevent a chance in control of the Company and limit the
price that certain investors might be willing to pay in the future for shares of
the Common Stock. These provisions provide, among other things, for the
issuance, without further stockholder approval, of preferred stock with rights
and privileges which could be senior to the Common Stock and advance notice
provisions and other limitations on the right of stockholders to call a special
meeting of stockholders, to nominate directors and to submit proposals to be
considered at stockholders' meetings. The Company also is subject to Section 203
of the Delaware General Corporation Law which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any of a broad range of
business combinations with any "interested stockholder" for a period of three
years following the date that such stockholder became an interested stockholder.
Possible Volatility of Stock Price
Factors such as market acceptance of the Company's products, the timing of
purchase orders, announcements of technological innovations, the attainment of
(or failure to attain) milestones in the commercialization of the Company's
technology, the introduction of new products, or establishment of new
collaborative arrangements by the Company, its competitors or other third
parties, as well as claims of patent infringement or other material litigation,
government regulations, investor perception of the Company, fluctuations in the
Company's operating results and general market conditions in the industry may
cause the market price of the Common Stock to fluctuate significantly. In
addition, the stock market in general has recently experienced extreme price and
volume fluctuations, which have particularly affected the market prices of
technology companies for reasons frequently unrelated to the operating
performance of such companies. These broad market fluctuations may have a
material adverse effect on the market price of the Common Stock.
Risk of Losing Nasdaq National Market Listing
Companies with securities listed on the Nasdaq National Market must satisfy
certain maintenance criteria, including minimum net tangible asset and stock
price requirements, in order to remain so listed. During the six-week period
immediately preceding the date of this Prospectus, the Company's Common Stock
price has closed below the Nasdaq National Market minimum requirement of $1.00
per share on a consistent basis. There can be no assurance that the Company will
be able to comply with the maintenance criteria of the Nasdaq National Market,
the failure of which could result in the delisting of the Common Stock from such
market. If the Company's Common Stock is delisted by Nasdaq, trading in the
Common Stock would threafter be conducted on an electronic bulletin board
established for securities that do not meet the Nasdaq, trading in the Common
Stock could thereafter be conducted on an electronic bulletin board established
for securities that do not meet the Nasdaq listing requirements and, as such,
the Company's Common Stcok would be subject to the so-called penny stock rule
that imposes restrictive sales practice requirements on broker-dealers who sell
such securities. Consequently, termination of listing of the Company's Common
Stock on Nasdaq could have a material adverse effect on the market price and
liquidity of the Common Stock, and on the Company's ability to raise additional
capital. Delisting could also jeopardize certain secondary trading exemptions
from state "blue sky" laws, further affecting liquidity of the Common Stock. In
addition to a possible adverse effect on the market price and liquidity of the
Common Stock, termination of the Company's Nasdaq listing would constitute an
event of default under the Debentures issued in connection with the Private
Placement, in which event the full principal amount of the Debentures, together
with all accrued interest thereon, would become immediately due and payable in
cash and the Company's access to additional funds from JNC could be further
limited.
Dilution; Effect of Outstanding Options and Warrants
Investors in this offering will experience immediate and substantial
dilution in net tangible book value per share of the Common Stock of $.92. To
the extent that the Debentures are converted or the Warrants or outstanding
options are exercised, there will be further dilution to new investors. See
"Dilution."
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by
the Selling Stockholders hereunder. However, if and when all or any portion of
the Warrants are exercised and up to 180,000 Shares are issued to the Selling
Stockholders, the Company will receive the proceeds from the sale of such Shares
to the Selling Stockholders, except to the extent that such Selling Stockholders
elect to pay the applicable exercise price by means of a cashless exercise, as
permitted under the terms of the Warrants. If the Warrants are exercised in full
and no cashless exercises are effected, the Company will receive $688,560 in
connection with such Warrant exercises. The Company intends to use any such
proceeds for working capital and other general corporate purposes. See "Selling
Stockholders" and "Plan of Distribution."
DILUTION
Dilution is the amount by which the price paid by the purchasers of the
shares of Common Stock will exceed the net tangible book value per share of
Common Stock. The net tangible book value per share of Common Stock is
determined by subtracting the total liabilities of the Company from the total
book value of the tangible assets of the Company and dividing the difference by
the number of shares of Common Stock outstanding on the date as of which such
book value is determined. Since the Selling Stockholders may sell the shares of
Common Stock from time to time at market prices prevailing at the time of sale,
at the prices related to such prevailing market prices or at negotiated prices,
and such prices cannot be determined at this time, the price paid by the
purchasers used in calculating the dilution to new investors in the following
table has been deemed to be $2.00, the closing price of the Common Stock on July
24, 1998. At March 31, 1998, the Company had a net tangible book value of
approximately $11,918,400 or $1.08 per share. The price of $2.00 represents an
immediate dilution to new investors of $.92 per share. The following table
illustrates this per share dilution:
Deemed price per share.............................................. $2.00
Net tangible book value per share at March 31, 1998..... ........... $1.08
Dilution per share to new investors............................... $ .92
The foregoing table does not take into account the possible conversion of
the Debentures or the exercise of outstanding stock options or Warrants after
March 31, 1998. There were 1,871,508 shares of Common Stock issuable upon
exercise of options outstanding at March 31, 1998 at a weighted average exercise
price of $2.63 per share, 568,977 shares of Common Stock issuable upon exercise
of warrants outstanding at March 31, 1998 (excluding the Warrants issued in
connection with the Private Placement) at a weighted average exercise price of
$1.12 per share, and 814,992 additional shares of Common Stock reserved for
issuance upon exercise of options that may be granted subsequent to March 31,
1998 under the Company's stock option plans. To the extent that these options or
warrants are exercised or the Debentures are converted, there will be further
dilution to new investors. The closing price of the Common Stock on October 16,
1998 was $.75 per share. If this October 16, 1998 closing price of $.75 per
share is deemed to be the price paid by the purchasers for purposes of
calculating the dilution to new investors in the above table, there would be no
dilution to new investors.
<PAGE>
SELLING STOCKHOLDERS
Set forth below is information as to the Selling Stockholders, the number
of shares of Common Stock of the Company beneficially owned, the number of
shares which may be offered as set forth on the cover of this Prospectus
(assuming that certain debentures, options and warrants are exercised) and the
number of shares to be beneficially owned assuming all offered shares are sold.
<TABLE>
Number of Shares Number of
Name and Position of Beneficially Owned Shares Being Shares to be Beneficially
Selling Stockholder Prior to the Offering Offered Owned After the Offering5
Number Percent
<S> <C> <C> <C> <C>
Robert Edward Baldini* 6,000 6,000 -0- -0-
Elizabeth D'Angelis 1 18,000 18,000 -0- -0-
Jerry Heymann* 4,000 4,000 -0- -0-
JNC Opportunity Fund Ltd. 2 1,031,965 4,424,474 -0- -0-
Gary Jones* 1,500 1,500 -0- -0-
Thomas J. Kumbatovic 3* 2,295 2,295 -0- -0-
LBI Group* 25,000 25,000 -0- -0-
James L. Melcher* 6,000 6,000 -0- -0-
Edmond P. Rochat, Jr.* 25,000 25,000 -0- -0-
George F. Rochat* 37,501 37,501 -0- -0-
WBM Investors Limited Partnership* 4,545 4,545 -0- -0-
Wharton Capital Partners, Ltd. 4 42,000 42,000 -0- -0-
</TABLE>
_________________________
* The Selling Stockholder has elected to register these Shares pursuant to
registration rights previously granted to the Selling Stockholder by the
Company. The Selling Stockholders who have elected to register Shares pursuant
to such registration rights shall hereinafter be collectively referred to as the
Electing Selling Stockholders.
1 Includes 18,000 shares issuable upon the exercise of warrants issued to Ms.
D'Angelis on June 30, 1998.
2 Includes the number of shares of Common Stock issuable upon (a) conversion of
the Debentures (3,647,860 Shares), (b) payment in lieu of cash, at the Company's
option, as interest on the Debentures (656,614 Shares) and (c) exercise of
warrants issued to JNC on June 30, 1998 (120,000 Shares). The amount of shares
of Common Stock referenced above as issuable upon conversion of the Debentures
and as payment of interest thereon was calculated in accordance with the terms
of a registration rights agreement between the Company and JNC which provides
that, for purposes of determining the number of Shares to be included on the
Registration Statement, the amount of such shares issuable upon conversion of
the Debentures shall include (but not be limited to) a number of shares of
Common Stock equal to no less than 200% of the number of shares of Common Stock
into which the Debentures (together with the payment of interest thereon) are
convertible, assuming such conversion occurred on June 30, 1998 or the filing
date for the Registration Statement, whichever yields a lower Conversion Price.
In accordance with this formula, the applicable Conversion Price for determining
the amount of shares issuable upon conversion of the Debentures and as payment
of interest thereon, as reflected in (a) and (b) above, is $1.6448 per share.
Since $2,250,000 principal amount of the Debentures is not convertible into
Common Stock within 60 days of the date of this Prospectus, 2,735,895 of the
3,647,860 Shares underlying the Debentures are not reflected as beneficially
owned by JNC prior to the Offering. Likewise, since the issuance of any Shares
issuable as payment, in lieu of cash, of interest on the Debentures is at the
Company's option, the 656,614 Shares referenced in (b) above as issuable as
interest on the Debentures are not reflected as beneficially owned by JNC prior
to the Offering The terms of the Debentures limit JNC's conversion rights
relating to the Debentures to the extent that (a) the number of shares of Common
Stock beneficially owned by JNC and its affiliates after such conversion would
exceed 4.999% of the Company's then issued and outstanding shares of Common
Stock or (b) the aggregate number of shares of Common Stock issued by the
Company in such conversion and as payment of interest thereon, together with the
shares issued in all prior conversions of the Debentures, would equal or exceed
20% of the number of shares of the Company's Common Stock outstanding on June
30, 1998.
3 Includes 2,295 shares of Common Stock issuable upon exercise of warrants
issued to Mr. Kumbatovic on December 4, 1995.
4 Includes 42,000 shares issuable upon the exercise of warrants issued to
Wharton on June 30, 1998.
5 Assumes the Selling Stockholder sells all of the Shares being offered.
Except as noted in this Prospectus and the Registration Statement, none of
the Selling Stockholders has any position, office or other material relationship
with the Company or any of its affiliates within the past three years.
Each of the Electing Selling Stockholders represented that he or she was
purchasing the Shares from the Company without any present intention of
effecting a distribution of those Shares other than in compliance with the
Securities Act. In recognition of the fact, however, that investors may want to
be able to resell their shares when they consider appropriate, and in
fulfillment of certain contractual commitments to the Electing Selling
Stockholders pursuant to registration rights agreements between the Company and
the Electing Selling Stockholders described herein under "Registration Rights",
the Company has provided the Electing Selling Stockholders with an opportunity
to include Shares owned by them in the Registration Statement (of which this
Prospectus is a part). The Company will prepare and file such amendments and
supplements to the Registration Statement as may be necessary to keep it
effective until the earlier of the sale of all Shares pursuant to the
Registration Statement or that date which is three years from the effective date
of the Registration Statement.
The registration rights agreements entered into by the Company and certain
of the Selling Stockholders provide that, in general, the Company will indemnify
the Selling Stockholders for any losses incurred by them in connection with
actions arising from any untrue statement of material fact in the Registration
Statement or from any omission of a material fact required to be stated therein,
unless such statement or omission was made in reliance upon written information
furnished to the Company by the Selling Stockholders. Similarly, the
registration rights agreements provide that, in general, each Selling
Stockholder will indemnify the Company and its officers and directors for any
losses incurred by them in connection with any action arising from any untrue
statement of material fact in the Registration Statement or an omission of a
material fact required to be stated therein, if such statement or omission was
made in reliance on written information furnished to the Company by such Selling
Stockholders.
REGISTRATION RIGHTS
On June 21, 1991, the Board of Directors adopted the following policy
("Registration Rights Policy") relating to any proposed registration of the
Company's shares of Common Stock for sale pursuant to the Securities Act. In the
event of such registration, if the Board of Directors approves inclusion of any
shares held by stockholders, subject to any limitations imposed by the
underwriter, all of the Company's stockholders may participate on a pro rata
basis in proportion to the number of shares held of record on a fully diluted
basis (assuming the exercise of any warrants or options then exercisable) by
such stockholders who desire to participate as selling stockholders in such
registration.
Pursuant to an Amended and Restated Registration Rights Agreement
("Registration Rights Agreement") dated as of January 3, 1995 between the
Company and R. Wayne Fritzsche, Mr. Fritzsche, certain transferees of Mr.
Fritzsche and certain stockholders of the Company hold: (a) piggyback
registration rights to include their shares in a Company registration under the
Securities Act (other than on Form S-4 or Form S-8, unless such stockholders are
eligible to participate on a filed Form S-8), subject to pro rata underwriter
cutbacks; and (b) demand registration rights to include their shares in a shelf
registration on Form S-3 (or equivalent) upon the written request of holders of
at least 25% of the shares subject to options, warrants and convertible notes
(the "Initial Shares"). The Company agreed it will not grant new piggyback,
demand or other registration rights to any stockholders unless the holders of
existing piggyback and demand registration rights can participate in any
registration involving such new rights. Also, the Company agreed it would not
grant more favorable registration rights to any person unless it also conferred
comparable rights upon holders of shares then covered by the Registration Rights
Agreement and holders of Initial Shares. The Company also agreed that any new
grant of registration rights inconsistent with the rights of holders of shares
covered by the Registration Rights Agreement would be subject to the prior
written consent of the holders of a majority of shares covered by the
Registration Rights Agreement and the holders of a majority of the Initial
Shares.
Pursuant to a separate registration rights agreement, the Company granted
to investors ("Convertible Note Investors") who purchased the September
Convertible Notes, registration rights covering the shares underlying such
notes, comparable to the rights granted to purchasers of the Initial Shares.
Pursuant to separate registration rights agreements, the Company granted to
purchasers of Common Stock in the 1994/1995 Offering registration rights
comparable to the registration rights granted to the Convertible Note Investors.
In addition, the Company agreed to use its best efforts to include in any Form
S-1 registration statement for the Company's initial public offering all of the
3,000,000 shares sold in the 1994/1995 Offering for resale on a delayed basis.
The Company's obligation to use its best efforts to register such shares was
waived in connection with the Company's initial public offering by the holders
of such registrable shares. In consideration of such waiver, the Company agreed
to register such registrable shares on Form S-3 twelve months from the date of
consummation of the Company's initial public offering. In accordance with this
agreement, the Company filed a registration statement on Form S-3 registering
5,880,724 shares, effective May 14, 1997 (the "May 1997 Registration
Statement"). Holders of all other shares of Common Stock outstanding prior to
the Company's initial public offering or issuable upon the exercise of warrants
or stock options granted or issuable under the Company's stock option plans were
eligible to include such shares in the May 1997 Registration Statement. On May
22, 1998 the Company terminated the May 1997 Registration Statement by filing a
post-effective amendment to the May 1997 Registration Statement, which became
effective on May 29, 1998.
In connection with the Private Placement, the Company entered into a
registration rights agreement with JNC (the "JNC Rights Agreement") pursuant to
which the Company agreed to prepare and file a registration statement on Form
S-3 covering the sale of the shares underlying the Debentures and Warrants (the
"Underlying Shares") by JNC, Wharton and Elizabeth D'Angelis (collectively, the
"Rights Holders") and to use its best efforts to keep such registration
statement in effect until the date which is three years after the date that such
registration statement is declared effective. Pursuant to the JNC Rights
Agreement, the Company also (a) granted to the Rights Holders piggyback
registration rights to include the Underlying Shares in a Company registration
statement under the Securities Act (other than on Form S-4 or Form S-8) and (b)
agreed that it would not, without the written consent of a majority of the
holders of the Underlying Shares, on or after the date of the JNC Rights
Agreement, grant any registration rights covering the Company's securities
unless such rights are subject to the rights of the Rights Holders under the JNC
Rights Agreement or are not otherwise inconsistent with the terms of such
agreement. Also in connection with the Private Placement, the Company's
Chairman, Chief Executive Officer and President, Mr. Fitzmorris, the Company's
Vice President - Product Development, Mr. Espenhahn, and a Company shareholder,
Mr. R. Wayne Fritzsche, agreed to waive their rights under the above-described
registration rights agreements to include shares owned by them in the JNC Rights
Agreement.
This registration statement complies with the Company's obligations to
register securities pursuant to the above-described registration rights
agreements.
PLAN OF DISTRIBUTION
The Selling Stockholders, their pledgees, donees, transferees or other
successors-in-interest, may, from time to time, sell all or a portion of the
Shares in privately negotiated transactions or otherwise, at fixed prices that
may be changed, at market prices prevailing at the time of sale, at prices
related to such market prices or at negotiated prices. The Shares may be sold by
the Selling Stockholders by one or more of the following methods, without
limitation: (a) block trades in which the broker or dealer so engaged will
attempt to sell the Shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction, (b) purchases by a broker or
dealer as principal and resale by such broker or dealer for its account pursuant
to this Prospectus, (c) an exchange distribution in accordance with the rules of
the applicable exchange, (d) ordinary brokerage transactions and transactions in
which the broker solicits purchasers, (e) privately negotiated transactions, (f)
short sales, (g) a combination of any such methods of sale and (h) any other
method permitted pursuant to applicable law.
From time to time the Selling Stockholders may engage in short sales, short
sales against the box, puts and calls and other transactions in securities of
the Company or derivatives thereof, and may sell and deliver the Shares in
connection therewith or in settlement of securities loans. If the Selling
Stockholders engage in such transactions, the applicable conversion price may be
affected. From time to time the Selling Stockholders may pledge their Shares
pursuant to the margin provisions of its customer agreements with its brokers.
Upon a default by the Selling Stockholders, the broker may offer and sell the
pledged Shares from time to time.
In effecting sales, brokers and dealers engaged by the Selling Stockholders
may arrange for other brokers or dealers to participate in such sales. Brokers
or dealers may receive commissions or discounts from the Selling Stockholders
(or, if any such broker-dealer acts as agent for the purchaser of such shares,
from such purchaser) in amounts to be negotiated which are not expected to
exceed those customary in the types of transactions involved. Broker-dealers may
agree with the Selling Stockholders to sell a specified number of such Shares at
a stipulated price per share, and, to the extent such broker-dealer is unable to
do so acting as agent for a Selling Stockholder, to purchase as principal any
unsold Shares at the price required to fulfill the broker-dealer commitment to
the Selling Stockholders. Broker-dealers who acquire Shares as principal may
thereafter resell such Shares from time to time in transactions (which may
involve block transactions and sales to and through other broker-dealers,
including transactions of the nature described above) in the over-the-counter
market or otherwise at prices and on terms then prevailing at the time of sale,
at prices then related to the then-current market price or in negotiated
transactions and, in connection with such resales, may pay to or receive from
the purchasers of such Shares commissions as described above. The Selling
Stockholders may also sell the Shares in accordance with Rule 144 under the
Securities Act, rather than pursuant to this Prospectus.
The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in sales of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In such event, any commissions received by such broker-dealers or agents
and any profit on the resale of the Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the Shares, including certain fees and disbursements of counsel
to the Selling Stockholders, but excluding any underwriter fees, disbursements,
commissions or discounts. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
The Common Stock is quoted on the Nasdaq National Market under the symbol
"IMII".
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby has been passed
upon for the Company by Edwards & Angell, Palm Beach, Florida.
EXPERTS
The financial statements of Intelligent Medical Imaging, Inc. appearing in
Intelligent Medical Imaging, Inc.'s Current Report on Form 8-K dated October 16,
1998 , have been audited by Ernst & Young LLP, independent certified public
accountants, as set forth in their report thereon included therein and
incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The statement in this Prospectus under the caption "Risk Factors -
Dependence on Trade Secrets and Proprietary Technology" set forth in the fifth
sentence of the second paragraph under the caption "Risk Factors - Dependence on
Trade Secrets and Proprietary Technology" has been reviewed and approved by
Malin, Haley, DiMaggio & Crosby, P.A., Fort Lauderdale, Florida, serving as
patent counsel for the Company, and as an expert on such matters, and is
included herein in reliance upon that review and approval.
<PAGE>
________________________________________________________________________________
No dealer, sales representative or
any other person has been authorized to
give any information or to make any
representations in
connection with this offering other than
those contained in this Prospectus, and,
if given or made, such information or 4,596,315 Shares
representations must not be relied upon
as having been authorized by the Company
or any of the Selling Stockholders. This INTELLIGENT MEDICAL IMAGING, INC.
Prospectus does not constitute an offer
to sell, or a solicitation of an offer
to buy, any securities other than the
registered securities to which it
relates or an offer to, or a Common Stock
solicitation of, any person in any
jurisdiction where such offer or
solicitation would be unlawful. Neither _________________________________
the delivery of this prospectus nor any
sale made hereunder shall, under any
circumstances, create any implication Prospectus
that there has been no change in the
affairs of the Company since the date
hereof or that the information contained
herein is correct as of any time October 20, 1998
subsequent to the date hereof.
TABLE OF CONTENTS
PAGE
Available Information.................2
Incorporation of Certain Information
by Reference.........................3
Prospectus Summary....................4
Risk Factors..........................5
Use of Proceeds......................12
Dilution.............................12
Selling Stockholders.................13
Registration Rights..................14
Plan of Distribution.................15
Legal Matters........................16
Experts..............................16
________________________________________________________________________________
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses (other than sales commissions)
expected to be incurred in connection with the offerings described in this
Registration Statement. All amounts except the registration fee are estimated.
Registration Fee..........................................$ 2,691
Printing..................................................$ 2,000
Accounting Fees and Expenses..............................$ 10,000
Legal Fees and Expenses...................................$ 50,000
Miscellaneous.............................................$ 8,000
TOTAL............................................$72,691
The Registrant will bear all of the expenses of the registration of the
securities being offered.
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law, as amended, provides
in regard to indemnification of directors and officers as follows:
"145. Indemnification of Officers, Directors, Employees and Agents;
Insurance.
(a) A corporation shall have the power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
(b) A corporation shall have the power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
the person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee, or agent is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made with
respect to a person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that such person is not entitled to be indemnified by the
corporation as authorized in this section. Such expenses (including attorneys'
fees) incurred by former directors and officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the corporation deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plans; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested and has exclusive jurisdiction
to hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees)."
The Company's By-laws contain the foregoing provisions with regard to
indemnification of officers, directors, employees and agents.
The Company's Certificate of Incorporation provides that the Company's
directors shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent that
exculpation from liability is not permitted under the Delaware General
Corporation Law as in effect at the time such liability is determined.
The Company maintains an indemnification insurance policy covering all
directors and officers of the Company.
Reference is made to Section 5 of the JNC Rights Agreement and Section 4 of
the Registration Rights Agreement filed as Exhibits 1.2 and 1.3, respectively,
to the Registration Statement for the Company's and Selling Stockholders'
respective agreements to indemnify each other and to provide contribution in
circumstances where indemnification is unavailable.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
Exhibit
Number Description of Document
1.1** Convertible Debenture Purchase Agreement dated June 30, 1998
between Intelligent Medical Imaging, Inc. and JNC Opportunity
Fund Ltd.
1.2** Registration Rights Agreement dated June 30, 1998 between
Intelligent Medical Imaging, Inc. and JNC Opportunity Fund Ltd.
1.3 Form of Registration Rights Agreement (incorporated by reference
to Exhibit 10.17 to Registration Statement No. 333-636).
4.1** Form of Debenture dated June 30, 1998
4.2** Form of Warrant dated June 30,1998
4.3 Form of Stock Certificate (incorporated by reference to Exhibit
4.1 to Registration Statement No. 333-636).
5.1* Opinion of Edwards & Angell regarding legality of the Common
Stock.
23.1* Consent of Ernst & Young LLP.
23.2* Consent of Edwards & Angell (included in Exhibit 5.1).
23.3** Consent of Malin, Haley, DiMaggio & Crosby, P.A.
* Filed herewith
** Incorporated by reference to the same exhibit number in Registrant's
Registration Statement on Form S-3 (File No. 333-60187)
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in the volume
of securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement; provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 and are incorporated by reference in this Registration
Statement.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 15 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Intelligent
Medical Imaging, Inc. has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palm Beach Gardens, State of Florida, on this 20th
day of October, 1998.
INTELLIGENT MEDICAL IMAGING, INC.
By: /s/TYCE M. FITZMORRIS
---------------------------------
Tyce M. Fitzmorris
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on October 20, 1998.
Signature Title Date
/s/ TYCE M. FITZMORRIS President and Chief Executive October 20, 1998
- -------------------------- Officer, Chairman of the Board of
Tyce M. Fitzmorris Directors
/s/ GENE COCHRAN Chief Financial Officer and October 20, 1998
- -------------------------- Principal Accounting Officer, Director
Gene Cochran
/s/ WILLIAM D. WHITTAKER*Director October 20, 1998
- --------------------------
William D. Whittaker
/s/ GEORGE MASTERS* Director October 20, 1998
- --------------------------
George Masters
/s/ JAMES E. DAVIS* Director October 20, 1998
- --------------------------
James E. Davis
*By: /s/ TYCE C. FITZMORRIS October 20, 1998
- ---------------------------
Tyce M. Fitzmorris
Attorney-In-Fact
EXHIBIT 5.1
October 20, 1998
Intelligent Medical Imaging, Inc.
4360 Northlake Boulevard
Suite 214
Palm Beach Gardens, FL 33410
Ladies and Gentlemen:
We have acted as counsel for Intelligent Medical Imaging, Inc., a Delaware
corporation (the "Company") in connection with the registration of 4,596,315
shares (the "Shares") of Common Stock, $.01 par value (the "Common Stock") for
sale by certain selling shareholders of the Company.
In connection with this opinion, we have examined the Registration
Statement on Form S-3 (No. 333-60187) filed with the Securities and Exchange
Commission ("SEC") pursuant to the rules and regulations promulgated under the
Securities Act of 1933 on July 30, 1998, as amended by Amendment No. 1 thereto,
which will be filed on or about October 20, 1998, (the "Registration
Statement"), relating to the above-mentioned registration. In addition, we have
examined such corporate records, certificates and other documents, and reviewed
such questions of law, as we have deemed necessary or advisable in order to
enable us to render the opinion contained herein. All capitalized terms used
herein, unless otherwise specified, shall have the meanings assigned to them in
the Registration Statement.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures and the authenticity of all documents submitted to
us as originals, the conformity to unsigned documents of all documents submitted
to us as certified or photostatic copies, and the authenticity of the originals
of such latter documents.
We assume that the appropriate action will be taken, prior to the offer and
sale of the Shares, to register and qualify the Shares for sale under all
appropriate State "Blue Sky" and securities laws.
Based upon the foregoing, we are of the opinion that the Shares of Common
Stock (i) when issued and delivered upon the conversion of, and in accordance
with the terms of, the Debentures, (ii) when issued and delivered upon the
exercise of, and in accordance with the terms of, the Warrants, including full
payment to the Company of the applicable exercise price of the Warrants, and
(iii) when sold by the selling shareholders in the manner and for the
consideration stated in the Prospectus constituting a part of the Registration
Statement, as the case may be, will be legally issued, fully paid and
non-assessable.
We consent to the filing of this opinion as an Exhibit to the Registration
Statement and to the use of our name under the caption "Legal Matters" in the
Prospectus constituting a part of the Registration Statement. In giving such
consent, we do not admit that we come within the category of persons whose
consent is required by Section 7 of the Act or the rules and regulations
promulgated thereunder.
Very truly yours,
/s/ Edwards & Angell, LLP
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EDWARDS & ANGELL, LLP
Exhibit 23.1
Consent of Independent Certified Public Accountants
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (Form S-3 No. 333-60187) and related
Prospectus of Intelligent Medical Imaging, Inc. for the registration of
4,596,315 shares of its common stock and to the incorporation by reference
therein of our report dated February 9, 1998 (except Note 16, as to which the
date is October 9, 1998), with respect to the financial statements of
Intelligent Medical Imaging, Inc. included in its Current Report on Form 8-K
dated October 16, 1998, filed with the Securities and Exchange Commission.
West Palm Beach, Florida
October 14, 1998 /s/ Ernst & Young LLP
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Ernst & Young LLP
