U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission file number: 000-23955
COMPUTERIZED THERMAL IMAGING, INC.
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
NEVADA 87-0458721
------------------------------------------------ ----------------------
(State or other jurisdiction of incorporation or (IRS Employer
organization) Identification No.)
Two Centerpointe Drive, Suite 450 Lake Oswego, Oregon 97035
---------------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
(503) 594-1210
------------------------
(Registrant's telephone number, including area code)
1
Check whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS: State the number of shares
outstanding of each of the issuer's classes of common equity, as of the latest
practicable date: Common stock, par value $0.001, of which 83,004,313 shares
were issued and outstanding as of April 30, 2002.
2
COMPUTERIZED THERMAL IMAGING, INC.
FORM 10-Q
QUARTERLY REPORT
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements..................................................4
Condensed Consolidated Balance Sheets as of March 31, 2002 and
June 30, 2001 (Unaudited).............................................4
Condensed Consolidated Statements of Operations for the three
and nine months ended March 31, 2002 and 2001 and for the
period from inception on June 10, 1987 to March 31, 2002
(Unaudited)...........................................................5
Condensed Consolidated Statements of Stockholders' Equity
(Deficit) for the nine months ended March 31, 2002
(Unaudited)...........................................................6
Condensed Consolidated Statements of Cash Flows for the nine
months ended March 31, 2002 and 2001 and for the period from
inception on June 10, 1987 to March 31, 2002
(Unaudited)...........................................................7
Notes to Condensed Consolidated Financial Statements
(Unaudited)...........................................................9
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................13
ITEM 3. Quantitative and Qualitative Disclosure of Market Risk...............20
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings....................................................21
ITEM 2. Changes in Securities................................................22
ITEM 3. Defaults upon Senior Securities......................................22
ITEM 4. Submission of Matters to a Vote of Security Holders..................22
ITEM 5. Other Information....................................................22
ITEM 6. Exhibits and Reports on Form 8-K.....................................23
SIGNATURES....................................................................23
3
PART I - FINANCIAL INFORMATION
ITEM 1.
COMPUTERIZED THERMAL IMAGING, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, June 30,
ASSETS 2002 2001
CURRENT ASSETS:
Cash and cash equivalents $ 3,124,870 $ 7,810,285
Investments available for sale 9,006,992 11,070,065
Accounts receivable-trade, net 587,559 383,331
Accounts receivable-other, net 94,120 559,080
Inventories 1,036,687 643,098
Prepaid expenses 225,185 269,708
------------- -------------
Total current assets 14,075,413 20,735,567
------------- -------------
PROPERTY AND EQUIPMENT, Net 1,463,576 1,228,609
------------- -------------
INTANGIBLE ASSETS:
Goodwill, net 8,995,792 9,834,830
Deferred finance costs 283,888 -
Intellectual property rights, net 40,252 44,003
------------- -------------
Total intangible assets 9,319,932 9,878,833
------------- -------------
TOTAL ASSETS $ 24,858,921 $ 31,843,009
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 698,100 $ 1,802,866
Accrued liabilities 968,964 844,203
Deferred revenues 507,476 11,260
------------- -------------
Total current liabilities 2,174,540 2,658,329
------------- -------------
NOTES PAYABLE
Debenture 2,359,895 -
------------- -------------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $5.00 par value, 3,000,000
shares authorized; issued-none - -
Common stock, $.001 par value, 200,000,000 shares authorized,
82,804,187 and 81,076,546 issued and outstanding on
March 31, 2002 and June 30, 2001, respectively 82,805 81,077
Additional paid-in capital 88,247,412 89,910,457
Other comprehensive income (loss) (41,391) 106,375
Deficit accumulated during the development stage (67,964,340) (60,913,229)
------------- -------------
Total stockholders' equity 20,324,486 29,184,680
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,858,921 $ 31,843,009
============= =============
The accompanying condensed notes are an integral part of
these consolidated financial statements.
4
COMPUTERIZED THERMAL IMAGING, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FROM
INCEPTION
THREE MONTH PERIOD ENDED NINE MONTH PERIOD ENDED THROUGH
MARCH 31, MARCH 31, MARCH 31,
2002 2001 2002 2001 2002
--------------------------------------------------------------------------------
INCOME:
Revenues $ 314,213 $ 106,712 $ 757,152 $ 302,419 $ 1,760,217
Cost of goods sold (219,317) (41,759) (485,706) (133,558) (1,081,799)
------------- ------------- ------------- ------------- -------------
GROSS MARGIN 94,896 64,953 271,446 168,861 678,418
------------- ------------- ------------- ------------- -------------
OPERATING EXPENSES:
General and administrative 1,085,703 1,760,502 232,649 6,558,906 31,261,380
Research and development 1,511,365 2,492,103 4,386,346 6,575,686 24,524,268
Marketing 751,120 511,768 2,031,050 1,477,440 5,849,284
Depreciation and amortization 391,123 544,038 1,165,775 1,691,062 4,181,395
Litigation settlement - - - - 1,097,434
Impairment loss - - - - 2,893,849
------------- ------------- ------------- ------------- -------------
Total operating expenses 3,739,311 5,308,411 7,815,820 16,303,094 69,807,610
------------- ------------- ------------- ------------- -------------
OPERATING LOSS (3,644,415) (5,243,458) (7,544,374) (16,134,233) (69,129,192)
------------- ------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest income 102,199 424,720 611,315 1,588,928 3,396,070
Interest expense (104,055) - (118,052) (35,705) (2,291,864)
Other - 4,000 - 6,552 193,711
------------- ------------- ------------- ------------- -------------
Total other income (loss), net (1,856) 428,720 493,263 1,559,775 1,297,917
------------- ------------- ------------- ------------- -------------
LOSS BEFORE EXTRAORDINARY ITEM (3,646,271) (4,814,738) (7,051,111) (14,574,458) (67,831,275)
EXTRAORDINARY GAIN ON
EXTINGUISHMENT OF DEBT - - - - 65,637
------------- ------------- ------------- ------------- -------------
NET LOSS (3,646,271) (4,814,738) (7,051,111) (14,574,458) (67,765,638)
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain (loss) on investments
available for sale (107,370) 31,108 (147,766) 172,447 (41,391)
------------- ------------- ------------- ------------- -------------
TOTAL COMPREHENSIVE LOSS $ (3,753,641) $ (4,783,630) $ (7,198,877) $(14,402,011) $(67,807,029)
============= ============= ============= ============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING 82,804,002 80,486,460 82,375,746 80,456,637 -
============= ============= ============= ============= =============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.04) $ (0.06) $ (0.09) $ (0.18) -
============= ============= ============= ============= =============
The accompanying condensed notes are an integral part
of these consolidated financial statements.
5
COMPUTERIZED THERMAL IMAGING, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL ACCUMULATED DURING THE
------------------------- PAID-IN COMPREHENSIVE DEVELOPMENT
SHARES AMOUNT CAPITAL INCOME(LOSS) STAGE TOTAL
------ ------ ------- ------------ ----- -----
Balance at June 30, 2001 81,076,546 $ 81,077 $ 89,910,457 $ 106,375 $(60,913,229) $ 29,184,680
Options issued for services:
$1.55 per share - - 2,309 - - 2,309
$1.88 per share - - 3,230 - - 3,230
$1.95 per share - - 5,604 - - 5,604
Options exercised for cash:
$0.75 per share 1,000,000 1,000 749,000 - - 750,000
$0.97 per share 500,000 500 484,500 - - 485,000
$1.50 per share 54,002 54 83,590 - - 83,644
Stock Issued for Services 50,000 50 (50) - -
Warrants exercised for cash -
$2.50 per share 122,715 123 306,665 - - 306,788
Warrants issued for financing -
$1.87 to $2.03 per share - - 2,281 - - 2,281
Warrants exercised on a cashless basis
$1.19 per share 924 1 (1) - - -
Stock-based compensation on options
marked to market - - (3,508,506) - - (3,508,506)
Other comprehensive loss - - - (147,766) - (147,766)
Beneficial conversion feature - - 208,333 - - 208,333
Net loss - - - - (7,051,111) (7,051,111)
------------- ------------- ------------- ------------- ------------- -------------
Balance at March 31, 2002 82,804,187 $ 82,805 $ 88,247,412 $ (41,391) $(67,964,340) $ 20,324,486
============= ============= ============= ============= ============= =============
The accompanying condensed notes are an integral part
of these consolidated financial statements.
6
COMPUTERIZED THERMAL IMAGING, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FROM
INCEPTION
NINE MONTHS ENDED MARCH 31, THROUGH
--------------------------- MARCH 31,
2002 2001 2002
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,051,111) $(14,574,458) $(67,765,638)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 1,165,775 1,691,062 4,181,395
Impairment loss - - 2,893,849
Bond Discount (Premium) Amortization 68,159 17,624 (6,526)
Amortization of deferred finance costs and discounts
on notes payable 104,143 - 1,033,456
Common stock, warrants, and options issued - - -
as compensation for services 13,424 137,000 9,628,210
Options extended beyond their expiration date - 1,687,250 1,687,250
Common stock issued for interest expense - - 423,596
Stock-based compensation on options marked to market (3,508,506) 196,103 332,436
Common stock issued to settle litigation - - 514,380
Options issued at discount to market to settle litigation - - 475,000
Options issued at discount to market as
compensation expense - 231,250 226,586
Common stock issued for failure to complete - - -
timely registration - - 82,216
Common stock issued to 401(k) plan - 52,751 95,977
Extraordinary gain on extinguishment of debt - - (65,637)
Bad debt expense 94,649 130,537 441,523
Changes in operating assets and liabilities:
Accounts receivable - trade (298,877) 76,923 (588,916)
Accounts receivable - other 464,960 96,096 171,792
Inventories (393,589) (607,350) (859,929)
Prepaid expenses 44,523 440,436 16,589
Accounts payable (1,104,766) (261,280) 545,550
Accrued liabilities 124,761 39,029 854,464
Deferred revenues 496,216 (1,750,000) 507,476
------------- ------------- -------------
Net cash used in operating activities (9,780,239) (12,397,027) (45,174,901)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets - - 4,790
Capital expenditures (557,964) (985,066) (2,577,786)
Acquisition of Thermal Imaging, Inc. common stock - (40,000) (100,000)
Purchase of software license - (2,410) (3,850,000)
Purchase of investments available for sale (14,774,083) (1,332,277) (43,177,353)
Proceeds on redemption of investments available for sale 16,625,549 6,575,872 33,809,107
Acquisition of Bales Scientific common stock, - -
net of cash acquired - - (5,604,058)
------------- ------------- -------------
Net cash provided by (used in) investing activities 1,293,502 4,216,119 (21,495,300)
------------- ------------- -------------
The accompanying condensed notes are an integral part
of these consolidated financial statements.
(Continued)
7
COMPUTERIZED THERMAL IMAGING, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
FROM
INCEPTION
NINE MONTHS ENDED MARCH 31, THROUGH
--------------------------- MARCH 31,
2002 2001 2002
---- ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and warrants,
net of offering costs $ 1,621,114 $ 288,935 $ 63,003,048
Advances to affiliate (107,864)
Advances from stockholders - - 2,320,738
Proceeds from issuances of covertible debentures,
net of finance costs 2,180,208 - 2,180,208
Proceeds from borrowing 2,500,000 - 6,076,131
Payments on debt - - (1,177,190)
------------- ------------- -------------
Net cash provided by financing activities 3,801,322 288,935 69,795,071
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (4,685,415) (7,891,973) 3,124,870
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 7,810,285 8,997,767 -
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,124,870 $ 1,105,794 $ 3,124,870
============= ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest expense $ 8,770
Income taxes -
SUPPLEMENTAL SCHEDULE OF NON-CASH
FINANCING AND INVESTING ACTIVITIES
Common stock issued to individuals to acquire
minority interest of subsidiary $ 165,500
Common stock issued in consideration of Bales Scientific 5,500,000
Options issued at discount to market in connection
with offering 744,282
Stock offering costs capitalized (744,282)
Common stock issued for advances from shareholders 2,320,738
Common stock issued for notes payable, accrued
discount and interest 2,224,953
Common stock issued for convertible subordinated
debentures 640,660
Common stock issued for liabilities 50,000
The accompanying notes are an integral part of these
consolidated financial statements.
8
COMPUTERIZED THERMAL IMAGING, INC.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
(UNAUDITED)
NOTE A. UNAUDITED FINANCIAL STATEMENTS AND BASIS OF PRESENTATION
The condensed consolidated financial statements as of March 31 2002 and
2001 and for the three and nine months are unaudited. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation for the periods presented have been included.
These interim statements should be read in conjunction with the audited
consolidated financial statements and footnotes thereto contained in the
Computerized Thermal Imaging, Inc. and Subsidiaries' (the "Company") most recent
Form 10-K/A. The consolidated results of operations for the three and nine
months ended March 31, 2002 are not necessarily indicative of the results to be
expected for the full year.
Certain amounts from the prior period financial statements have been
reclassified to conform to current period presentation.
NOTE B. RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, BUSINESS
COMBINATIONS. SFAS 141 requires the purchase method of accounting for business
combinations initiated after June 31, 2001 and eliminates the
pooling-of-interests method. The Company does not believe that the adoption of
SFAS 141 will have a significant impact on its financial position and results of
operations.
In July 2001, the FASB issued SFAS No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS, which is effective July 1, 2002 for the Company. SFAS 142
requires, among other things, the discontinuance of goodwill amortization. In
addition, SFAS 142 addresses the reclassification of certain existing
intangibles, reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles out of previously reported
goodwill and the identification of reporting units for purposes of assessing
potential future impairments of goodwill. SFAS 142 also requires the Company to
complete a transitional goodwill impairment test. The Company's principle
intangible asset is goodwill recorded in connection with the acquisition of
Bales Scientific, Inc. during April, 2000. The goodwill relates to technology
used in the Photonic Stimulator, Thermal Image Processor, and Breast Cancer
System 2100. The Company capitalized $10,871,863 of goodwill, which is being
amortized ratably over 10 years. Our ability to recover the carrying value of
goodwill is dependent upon FDA regulatory approval and market acceptance of our
Breast Cancer System 2100. The Company is currently assessing the impact of SFAS
No. 142.
In August of 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-lived Assets, which addresses accounting and
financial reporting for the impairment or disposal of long-lived assets. This
statement is effective for the Company beginning July 1, 2002. The Company does
not believe that the adoption of SFAS 144 will have a significant impact on its
financial position and results of operations.
9
NOTE C. REVENUE RECOGNITION
The Company derives revenue from the sale of industrial and medical
equipment, and industrial non-destructive inspection services. The Company
recognizes revenue only when its customer has assumed the risks and rewards of
ownership or upon service completion. The Company records deferred revenue when
the sale is subject to a contingency or when payment arrangements differ from
the Company's normal domestic or international terms. Deferred revenue is
thereafter recognized upon expiration of the contingency or collection of the
balance due.
NOTE D. INVENTORIES
Inventories are stated at the lower-of-cost or market with cost
determined using the first-in first-out accounting treatment for inventories.
Inventories consist of the following:
MARCH 31, JUNE 30,
2002 2001
Raw Materials $ 552,729 $ 153,854
Work-in process 121,498 188,044
Finished goods 362,460 301,200
----------- -----------
Total $1,036,687 $ 643,098
=========== ===========
The ending inventory at March 31, 2002 consists of $63,000 of finished goods
ready for sale, and $299,000 consisting of deferred costs in connection with
deferred revenue of $507,000. The deferred cost consist of $148,000 of medical
finished goods shipped to customers on deferred payment terms in connection with
deferred revenues of $189,000, and $151,000 of industrial finished goods shipped
to customers on continuing performance obligations in connection with deferred
revenues of $318,000.
NOTE E. INCOME TAXES
The Company accounts for income taxes using the liability method. Under
this method, the Company records deferred income taxes to reflect future year
tax consequences of temporary differences between the tax basis of assets and
liabilities and their financial statement amounts. The Company has reviewed its
net deferred tax assets, together with net operating loss carryforwards, and has
provided a 100% valuation allowance to reduce its deferred tax assets to their
net realizable value.
10
At March 31, 2002, the Company had approximately $64 million of unused
net operating losses available to carry forward to future years. The benefit
from carrying forward such losses will expire in various years between 2002 and
2021 and could be subject to limitation if significant ownership changes occur
in the Company.
NOTE F. STOCK WARRANTS, OPTIONS, AND RESTRICTED STOCK
During the nine months ended March 31, 2002, the Company issued 123,639
common shares pursuant to the exercise of warrants and 1,554,002 common shares
pursuant to the exercise of employee stock options. During the nine months ended
March 31, 2002, outstanding warrants to purchase 1,939,110 shares of our common
stock for $2.50 per share expired unexercised. During the nine months ended
March 31, 2002, the Company issued warrants to purchase 1,001,443 shares of
common stock for prices ranging from $1.87 to $2.03 per share, options to
consultants to purchase 75,000 shares of common stock for prices ranging from
$1.55 to $1.95 per share, and options to employees to purchase 598,299 shares of
common stock for prices ranging from $1.55 to $1.81 per share.
In accordance with Accounting Principles Board Opinion (APB) No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES FOR STOCK-BASED COMPENSATION, and FASB
Interpretation No. 44, ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK
COMPENSATION (AN INTERPRETATION OF APB 25), we reversed previously recognized
expenses of $3,508,505 for the nine months, this non-cash adjustment represents
changes in the difference between the exercise price of certain stock options
and the fair market value of the Company's common stock. Because the value of a
share of the Company's stock at March 31, 2002 was less than the value of a
share at June 30, 2001, we recorded a decrease in previously recognized expense
during the nine months ended March 31, 2002.
NOTE G. CONTINGENCIES
Except as disclosed in our Form 10-K/A and in Part II, Item 1 of this
report, the Company is unaware of any material contingencies.
11
NOTE H. SEGMENTS
During the current fiscal year, management began evaluating the Company
as two distinct lines of business: medical and industrial products and services.
The table describes operations for each product segment for the three and nine
months ended March 31, 2002 and 2001.
THREE MONTH PERIOD ENDED THREE MONTH PERIOD ENDED
MARCH 31, MARCH 31,
2002 2001
---- ----
Medical Industrial Total Medical Industrial Total
------- ---------- ----- ------- ---------- -----
Revenue $ 287,812 $ 26,401 $ 314,213 $ 87,682 $ 19,030 $ 106,712
Cost of Revenues (210,317) (9,000) (219,317) (37,953) (3,806) (41,759)
------------ ------------ ------------ ------------ ------------ ------------
Gross Margin 77,495 17,401 94,896 49,729 15,224 64,953
General & Administration 879,419 206,284 1,085,703 1,426,007 334,495 1,760,502
Research & Development 1,278,170 233,195 1,511,365 2,308,898 183,205 2,492,103
Marketing 608,407 142,713 751,120 414,532 97,236 511,768
Depreciation and amortization 354,363 36,760 391,123 626,535 82,702 544,038
------------ ------------ ------------ ------------ ------------ ------------
Operating Expense 3,120,360 618,951 3,739,311 4,775,971 697,638 5,308,411
Operating Loss $(3,042,865) $ (601,550) $(3,644,415) $(4,726,242) $ (682,414) $(5,243,458)
NINE MONTH PERIOD ENDED NINE MONTH PERIOD ENDED
MARCH 31, MARCH 31,
2002 2001
---- ----
Medical Industrial Total Medical Industrial Total
------- ---------- ----- ------- ---------- -----
Revenue $ 656,391 $ 100,761 $ 757,152 $ 248,312 $ 54,107 $ 302,419
Cost of Revenues (462,221) (23,485) (485,706) (123,337) (10,221) (133,558)
------------- ------------- ------------- ------------- ------------- -------------
Gross Margin 194,170 77,276 271,446 124,975 43,886 168,861
General & Administration 188,446 44,203 232,649 5,312,714 1,246,192 6,558,906
Research & Development 3,588,514 797,832 4,386,346 6,266,101 309,585 6,575,686
Marketing 1,645,150 385,900 2,031,050 1,196,726 280,714 1,477,440
Depreciation and amortization 1,019,236 146,539 1,165,775 1,517,421 173,641 1,691,062
------------- ------------- ------------- ------------- ------------- -------------
Operating Expense 6,441,346 1,374,474 7,815,820 14,292,962 2,010,132 16,303,094
Operating Loss $ (6,247,176) $ (1,297,198) $ (7,544,374) $(14,167,987) $ (1,966,246) $(16,134,233)
12
NOTE I. FINANCING
Agreement with Beach Boulevard, LLC
-----------------------------------
On December 31, 2001, the Company reached a financing agreement with
Beach Boulevard, LLC, pursuant to which the Company issued a convertible
debenture in the amount of $2.5 million (the "Debenture Offering") and secured
an equity line of credit (the "Equity Line") for $20 million. The debenture
holder may convert any outstanding balance and accrued interest into 2,100,694
shares of common stock at a conversion price of $1.44 per share at any time.
This conversion price may decrease, and require issuing more shares in
repayment, if certain future events, including a decrease in the Company's stock
price within specified periods, trigger a repricing event. If a repricing event
occurs, then at the investor's request, the Company could be required to repay
111% of the remaining balance including interest using funds generated through
the Equity Line, or the Company could be required to pay 125% of the remaining
balance and interest in cash. The Company also issued two warrants to the
debenture holder to purchase 260,417 shares of common stock at $2.03 a share and
641,026 shares of common stock at %1.95 a share, and a separate warrant to the
broker to purchase 100,000 shares of common stock at $1.87 a share. These
warrants to the debenture holder expire December 31, 2004 and December 31, 2007
respectively and the warrants to the broker expire January 2, 2007. The
Debenture Offering was funded on January 2, 2002.
The Equity Line allows for the sale of up to $20 million of common
stock subject to certain conditions during a 24-month period, at 94% of the then
current market price. In connection with the Equity Line, the Company issued a
callable warrant to purchase 641,026 shares of common stock. These warrants are
exercisable at $1.95 a share, between April 1, 2002 and April 1, 2007. The
Company did not utilize the equity line during the quarter ended March 31, 2001.
NOTE J. FDA DEVELOPMENTS
The Company's medical imaging and treatment products are subject to
regulation by the US Food and Drug Administration ("FDA"). The Company is
seeking approval for its Breast Cancer System through the FDA's Pre-Market
Approval process ("PMA"), which requires significant and rigorous clinical
efficacy testing, manufacturing and other data. The Company has submitted all
five modules of the PMA to the FDA for review. In connection with the FDA's
review, the Company has provided supplemental information and analysis, is
preparing additional statistical information in response to questions recently
posed by the FDA, and may receive further information requests before
progressing to an advisory panel review, which is the next step in the review
process. The Company believes it can provide the information required to satisfy
the FDA with existing clinical data and cases; however, in the event the FDA
requires additional statistical substantiation, the approval could be delayed.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This document contains forward-looking statements within the meaning of
the Securities Act of 1933 and Securities Exchange Act of 1934. Forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied. When used in this document, the words "expects", "anticipates",
"intends", "plans", "may", "believes", "seeks", "estimates" and similar
13
expressions generally identify forward-looking statements. All forward-looking
statements included in this document are based on information available to the
Company on the date of this document, and, except as otherwise required under
federal and state securities laws, we assume no obligation to update any
forward-looking statements.
The following discussion and analysis of our consolidated financial
condition and results of operations should be read in conjunction with our
Audited Consolidated Financial Statements and Notes thereto contained in our
Form 10-K/A for the fiscal year ended June 30, 2001.
TRENDS/UNCERTAINTIES AFFECTING CONTINUING OPERATIONS
We have shifted our primary focus from research and development to
commercialization of the products we have developed. We believe our products are
marketable and unique, and provide a collection of new and cost effective
diagnostic, pain management and product testing solutions for medical and
industrial customers.
In connection with evolving toward an operating company, we become
exposed to the opportunities and risks usually associated with marketing and
manufacturing novel products, including staff recruiting and retention, market
acceptance, product warranty, bad debts, and inventory obsolesce. We expect to
earn revenues from the sale of our products, but there is no guarantee that
these revenues will recover all the costs of marketing, selling and
manufacturing our products.
Our marketing efforts rely upon building productive relationships with
manufacturers, medical equipment dealers, physicians and clinical investigators.
We reach our target markets by attending trade shows and conferences, making
direct sales calls on industrial customers and by sponsoring clinics, where we
introduce and demonstrate our breast imaging, pain management and
non-destructive testing products. We believe marketing our medical products
through the dealer channel, augmented with trade shows, conference
presentations, direct mail and inside sales, provides a low cost, high leverage
approach to diagnostic imaging and pain management practitioners and that their
knowledge of local market conditions will facilitate rapid expansion of our
revenues. We plan to continue investing resources in these programs, although
there can be no assurance they will lead to market acceptance of our products.
We organize clinical studies with institutions and practitioners to
obtain user feedback and to secure technical papers for training and marketing
purposes. These strategies represent a significant investment of time and
resources and have provided useful information; however, there can be no
guarantee that these strategies will lead to market acceptance of our products.
Although our primary focus is now product manufacturing and marketing,
the Company continues to expend significant financial and technical resources
improving and developing new applications for its products and we expect this
trend to continue. While we cannot assure the success of any new product or
regulatory approval of any proposed indication for use, we believe that
improving product features and functions will expand the market for our products
and increase revenues.
14
To date, we have had limited operating revenues from the sale of our products
and services. We cannot assure you that we will achieve profitability in the
future.
GENERAL
The Company designs, manufactures and markets thermal imaging devices
and services for use in clinical diagnosis, pain management and industrial
non-destructive testing. The Company markets its products worldwide through an
internal sales force and a network of independent distributors.
To date, the Company has focused its research activities on the
application of thermal imaging technology and the development of equipment and
methods utilizing those applications. Our efforts led to the development of our
non-invasive and non-destructive infrared imaging systems. We believe our
thermal imaging systems generate data, difficult to obtain or not available
using other imaging methods, that are useful to health care providers in the
detection of certain diseases and disorders and useful to the industry for
product quality testing. While we are changing our primary focus from research
and development to commercializing our proprietary technology, we expect to
continue to conduct research as in the past.
Our research indicates that our equipment and technology is useful in
studying and diagnosing breast cancer, which is the most common cancer in women
after skin cancers. Our research and development efforts have led to the
creation of our Breast Cancer System 2100(TM) ("Breast Cancer System"). We are
seeking FDA pre-market approval ("PMA") for this system, as an adjunct to
mammography and clinical examinations, for use as a painless and non-invasive
technique for acquiring clinical information. To receive PMA approval, we must
establish the Breast Cancer System's ability to consistently distinguish between
malignant and benign tissue and thereby reduce the number of unnecessary breast
biopsies performed. We have received acceptance on four of five modules required
for PMA approval. We submitted the fifth module, which includes clinical trial
results and efficacy claims, during June 2001. We are responding to FDA
inquiries and comments. After the FDA staff completes its work, the PMA, if
accepted by the FDA staff, will be subjected to an advisory panel for review and
recommendation. After the FDA receives the advisory panel recommendation, it
will issue a decision.
In addition to breast cancer screening, we believe our technologies
have applications in pain treatment and non-destructive testing of industrial
and structural components. We design, manufacture and sell our Thermal Image
Processor as a device to assist in the diagnosis of pain, and Photonic
Stimulator for the treatment of pain. We have developed industrial applications
for our technology that provide non-destructive testing and inspection of
turbine blades, aging aircraft, electronics, composites, metals and other
advanced materials.
We are publicly traded on the American Stock Exchange under the symbol
"CIO". On March 31, 2002, we had 82,804,187 million shares of common stock
outstanding held by approximately 29,000 shareholders, primarily individuals. In
addition to common stock outstanding, we have approximately 16.4 million shares
of common stock underlying warrants and options that remain unexercised. On a
fully diluted basis, we have approximately 99.2 million common shares
outstanding, 22.7% of which are beneficially owned by insiders and affiliates.
Other than our wholly-owned subsidiary, Bales Scientific, Inc., we have no other
interest in any other entity.
15
The Company uses capital to pay general corporate expenses, including
salaries, manufacturing costs, professional fees, clinical trials and technical
support costs, and general and administrative expenses. To date, the Company has
funded its business activities with funds raised through the private placement
of common stock, debt and warrants and the exercise of warrants and options.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001.
REVENUES
Revenues for the three months ended March 31, 2002, increased
approximately $207,000, or 193%, from the same period last year to $314,000.
Medical segment revenues increased $200,000, or 227%, from the same period last
year to $288,000. During the three months ended March 31, 2001, medical segment
revenues were $88,000.
During the three months ended March 31, 2002, the Company's industrial
segment revenues increased $7,000 or 37%, from the same period last year to
$26,000. During the three months ended March 31, 2001, industrial segment
revenues were $19,000.
COSTS AND EXPENSES
General and administrative expenses for the three months ended March
31, 2002, were $1,086,000 compared to $1,761,000 for the same period last year.
Excluding a non-cash compensation expense of $7,000 during the three months
ended March 31, 2002, and non-cash compensation expense of $333,000 during the
three months ended March 31, 2001, general and administrative expenses decreased
$349,000, or 24%, from the same period last year. The decrease is primarily a
result of: 1) $101,000 decrease in salaries; 2) $35,000 decrease in overhead
expenses; 3) $25,000 decrease in legal services expense; and 4) $113,000
decrease in travel costs. These expense reductions were partially offset by a
$35,000 increase in professional services in consulting, audit fees, tax
compliance, and regulatory compliance.
Research and development expenses for the three months ended March 31,
2002, were $1,511,000 compared to $2,492,000, a decrease of $981,000, or 39%,
from the same period last year. The decrease is primarily a result of: 1)
$707,000 decrease in consulting services associated with the development of our
Breast Imaging System; 2) $226,549 decrease in clinical trial expense for our
Breast Imaging System and Pain Management Products; 3) $123,000 decrease in
software license fees; and 4) $126,000 decrease in salaries. This reduction in
expenses was partially offset by: 5) $90,000 increase in equipment and supplies
expenses for prototypes and nonrecurring engineering; 6) $117,000 increase in
overhead expenses, principally rent, insurance, utilities, supplies, postage and
miscellaneous expenses; and 7) $33,000 increase in temporary services.
16
Marketing expenses for the three months ended March 31, 2002, were
$751,000 compared to $512,000, an increase of $239,000, or 47%, from the same
period last year. The increase was mainly attributable to: 1) $175,000 increase
in salaries from a material increase in sales and marketing employees; 2)
$62,000 increase in overhead principally rent, insurance, utilities, supplies,
postage and miscellaneous expenses; and 3) $32,000 increase in travel expenses.
This increase was partially offset by a decrease of $63,000 in professional
services for public relations, tradeshows and marketing expenses.
Depreciation and amortization expense for the three months ended March
31, 2002, decreased $153,000, or 28%, from the same period last year to
$391,000. The decrease in depreciation and amortization expense resulted from
asset impairments and write offs recorded in the three months ended March 31,
2001.
Excluding depreciation, amortization, and non-cash stock-based
compensation, during the three months ended March 31, 2002, we decreased our
monthly average operating expense level $363,000 or 25%, to $1,114,000 from
$1,477,000 during the same period last year.
NET INTEREST INCOME
Interest income for the three months ended March 31, 2002 decreased
$323,000, or 76% from the same period last year to $102,000. This decrease
results from lower interest rates and decreased cash balances available for
investment.
Interest expense, related to long-term debentures was $68,000 for the
three months ended March 31, 2002, and amortization of deferred finance costs
was $36,000 for the three months ended March 31, 2002.
NET LOSS
For the three months ended March 31, 2002, the loss attributable to
common shareholders was $3,646,000, or $(0.04) per share, compared to a loss
attributable to common shareholders of $4,815,000, or $(0.06) per share, for the
three months ended March 31, 2001.
NINE MONTHS ENDED MARCH 31, 2002 COMPARED TO NINE MONTHS ENDED MARCH 31, 2001.
REVENUES
Revenues for the nine months ended March 31, 2002, increased
approximately $455,000 or 151%, from the same period last year to $757,000.
During the nine months ended March 31, 2002, medical segment revenues increased
$408,000, or 165%, from the same period last year to $656,000. During the nine
months ended March 31, 2001, medical segment revenues were $248,000.
17
During the nine months ended March 31, 2002, the Company's industrial
segment revenues, excluding revenue related to the sale of a non-destructive
test system to Alstom, increased $47,000, or 87%, from the same period last year
to $101,000. During the nine months ended March 31, 2001, industrial segment
revenues were $54,000.
COSTS AND EXPENSES
General and administrative expenses for the nine months ended March 31,
2002, were $233,000 compared to $6,559,000 for the same period last year.
Excluding a non-cash compensation benefit of $2,905,000 during the nine months
ended March 31, 2002 and non-cash compensation expense of $2,252,000 for the
nine months ended March 31, 2001, general and administrative expenses decreased
by $1,170,000, or 27%. This decrease is primarily a result of: 1) $559,000
decrease in legal services expense; 2) $96,000 decrease in professional services
expense; 3) $226,000 decrease in stockholder service expense; 4) $69,000
decrease in salaries; and 5) $249,000 decrease in travel expense. These expense
reductions were partially offset by a $62,000 increase in overhead expenses,
principally rent, insurance, utilities, supplies, postage and miscellaneous
expenses.
Research and development expenses for the nine months ended March 31,
2002, were $4,386,000 compared to $6,576,000 for the same period last year.
Excluding a non-cash compensation benefit of $168,000, research and development
expenses for the nine months ended March 31, 2002, decreased $2,022,000, or 31%,
from the same period last year, to $4,554,000. The decrease is primarily a
result of: 1) $2,187,000 decrease in consulting services associated with the
development of our breast imaging system, and FDA Pre-Market Approval
application; 2) $310,000 decrease in software license fees; and 3) $442,000
decrease in clinical trial expense. This reduction in expenses was partially
offset by: 4) $380,000 increase in salaries as a result of an increase in the
number of research and development, manufacturing, and supporting employees; 5)
$136,000 increase in temporary labor; 6) $88,000 increase in patent related
expense; and 7) $281,000 increase in overhead expenses, principally rent,
insurance, utilities, supplies, postage and miscellaneous expenses.
Marketing expenses for the nine months ended March 31, 2002, were
$2,031,000 compared to $1,477,000 for the same period last year. Excluding a
non-cash compensation benefit of $378,000, marketing expenses for the nine
months ended March 31, 2002, increased $932,000, or 63%, from the same period
last year to $2,409,000. The increase was primarily a result of: 1) $512,000
increase in wages from an increase in the number of employees; 2) $558,000
increase in marketing and tradeshows to develop a market for our products; and
3) $105,000 increase in overhead expenses, principally rent, insurance,
utilities, supplies, postage and miscellaneous expenses. The increase in expense
was partially offset by a $384,000 decrease in professional services for public
relations, tradeshows and marketing expenses.
Depreciation and amortization expense for the nine months ended March
31, 2002, decreased $525,000, or 31%, from the same period last year to
$1,166,000. The decrease in depreciation and amortization expense resulted from
asset impairments and write offs recorded in the three months ended June 30,
2001.
18
Excluding depreciation, amortization, and stock-based compensation,
during the nine months ended March 31, 2002, we decreased our monthly average
operating expense level $251,000 or 18%, to $1,122,000 from $1,373,000 during
the same period last year.
NET INTEREST INCOME
Interest income for the nine months ended March 31, 2002 decreased
$978,000, or 62% from the same period last year to $611,000. This decrease
results from lower interest rates and decreased cash balances available for
investment.
Interest expense, related to long-term debentures was $68,000 for the
nine months ended March 31, 2002 and amortization of deferred finance costs was
$36,000 for the nine months ended March 31, 2002.
NET LOSS
For the nine months ended March 31, 2002, the loss attributable to
common shareholders was $7,051,000, or $(0.09) per share, compared to a loss
attributable to common shareholders of $14,574,000, or $(0.18) per share, for
the nine months ended March 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES OF LIQUIDITY
Our net working capital at March 31, 2002, was $11,900,873 compared to
$18,077,238 at June 30, 2001. The ratio of current assets to current liabilities
was 6.47 to 1.0 at March 31, 2002, compared to 7.80 to 1.0 at June 30, 2001.
Our cash requirements consist of, but are not limited to, general
corporate expenses including office salaries and expenses, lease payments on our
office space, acquisition of technology, legal and accounting fees, costs of
clinical trials and technical support, and FDA consulting expenses.
Net cash used in operating activities for the nine months ended March
31, 2002 was $9,780,000 compared to $12,397,000, for the nine months ended March
31, 2001, an improvement of $2,617,000 or 21%. Net cash provided by investing
activities in the nine months ended March 31, 2002 was $1,294,000 compared to
net cash provided by investing activities of $4,216,000 in the prior year's
comparable period. Net cash provided by financing activities was $3,801,000 in
the nine months ended March 31, 2002 compared to $289,000 during the same period
last year.
As a result of the foregoing, cash and cash equivalents decreased by
$4,685,000 in the nine months ended March 31, 2002, compared to a $6,783,000
decrease in the nine months ended March 31, 2001, an improvement of $2,098,000,
or 31%.
19
CAPITAL REQUIREMENTS/PLAN OF OPERATION
Since inception, we have generated significant losses from operations.
Although our acquired subsidiary, Bales Scientific, has generated limited
revenues during the past several years, it is also a development stage
enterprise. We expect to continue to incur losses for the foreseeable future.
Our cash requirements consist of, but are not limited to: general corporate
expenses including salaries and benefits, lease payments for office space,
technology acquisition, legal and accounting fees, clinical trial and technical
support, FDA consulting, marketing, and expenses associated with the private
placement of our equity securities. Capital resources needed to meet our past
and planned expenditures have been financed primarily from the sale of equity
and debt securities. As of March 31, 2002, we had approximately $11.9 million in
working capital.
During the nine months ended March 31, 2002, our current assets
decreased in excess of $6.67 million, including approximately $4.69 million in
cash and cash equivalents. We expect to continue to incur negative net cash
flows through 2003, although we expect the size of such negative cash flows will
continue to decrease as we increase our revenues.
Our capital requirements may vary from our estimates and depend upon
numerous factors including, but not limited to: a) progress in our research and
development programs; b) results of pre-clinical and clinical testing; c) costs
of technology; d) time and costs involved in obtaining regulatory approvals; e)
costs of filing, defending and enforcing any patent claims and other
intellectual property rights; f) the economic impact of competing technological
and market developments; and g) the terms of any new collaborative, licensing
and other arrangements that we may establish.
We believe we will have sufficient capital in the form of cash,
negotiable securities and the proceeds from the Debenture Offering and Equity
Line agreements finalized during January 2002, to fund our business plan over
the next year. If additional capital is required, we will rely on private
investors to support us either through loans or contributions to capital in
exchange for common stock and warrants. If additional capital is not available
through the equity or debt markets, the Company will have to restrict marketing
and product development efforts and may be forced to sell portions of its
operations to secure funding.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At March 31, 2002, we had approximately $9.0 million in
available-for-sale marketable securities including investments in United States
government securities and corporate bonds. Although we believe the issuers of
these marketable securities are solvent and are favorably rated by recognized
rating agencies, there is the risk that such issuers may not have sufficient
liquid assets to satisfy their obligations at the time such obligations become
due. If such were to occur, we may not be able to recover the full amount of our
investment.
Each of our marketable securities has a fixed rate of interest.
Accordingly, a change in market interest rates may result in an increase or
decrease in the market value of our marketable securities. If we liquidate any
of our marketable securities prior to the time of their maturity, we could
receive less than the face value of the security.
20
PART II-- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
BLOOMBERG/EVANS DEFAMATION ACTION
---------------------------------
On August 28, 2000, we filed a complaint for libel in the United States
District Court for the District of Utah against Bloomberg, L.P. ("Bloomberg").
The lawsuit alleges that on June 29 and July 18, 2000, Bloomberg published
certain defamatory articles about the Company through its news service. We
allege damages in excess of One Hundred Million Dollars ($100,000,000). On March
26, 2001, the Court dismissed our complaint against Bloomberg, with prejudice.
We have appealed the District Judge's decision to the United States 10th Circuit
Court of Appeals in Denver, Colorado.
SALAH AL-HASAWI ADVISORY SERVICES CLAIM
---------------------------------------
On March 29, 2000, Salah Al-Hasawi ("Plaintiff'), a citizen and
resident of Kuwait, filed an action in the United States District Court for the
Southern District of New York, against us and our former Chief Executive
Officer, alleging violations under Section 10(b) of the Securities Exchange Act
of 1934 and Rule 10b-5 promulgated thereunder, for commissions allegedly due to
Plaintiff in connection with the private placement of our securities. Shortly
thereafter, the Plaintiffs lawsuit was dismissed without prejudice and on April
12, 2000, the Plaintiff filed a similar complaint in the United States District
Court for the District of Utah. Plaintiff seeks specified damages, attorney fees
and unspecified damages pursuant to five separate causes of action including
breach of contract, fraud and unjust enrichment.
We have denied all of Plaintiffs claims and have affirmatively alleged
that all amounts due have been paid in full. We are currently engaged in
discovery and no trial date has yet been set.
DAVID PACKER VS. COMPUTERIZED THERMAL IMAGING. INC.
---------------------------------------------------
On March 19, 2001, we entered into a Separation Agreement with David A.
Packer. Under that agreement, Mr. Packer's employment with the Company was to
terminate on March 31, 2001.
On June 11, 2001, the Company communicated its intent to terminate the
agreement based upon information discovered subsequent to the signing of that
agreement regarding alleged misrepresentations made by Mr. Packer to the Board
of Directors in regard to his employment duties. The Company also cancelled
1,000,000 options granted to Mr. Packer under the agreement.
Mr. Packer filed suit against the Company in Davis County, Utah on June
19, 2001 in an attempt to recover the benefits and compensation, including the
1,000,000 options that were contemplated under the agreement. The Company has
filed a counterclaim against Mr. Packer for breach of contract,
misrepresentation, and a declaration that the Separation Agreement is void. We
are currently engaged in discovery and no trial date has yet been set.
21
ITEM 2. CHANGES IN SECURITIES
Agreement with Beach Boulevard, LLC
-----------------------------------
On December 31, 2001, we reached a financing agreement with Beach
Boulevard, LLC, pursuant to which we issued a convertible debenture in the
amount of $2.5 million (the "Debenture Offering") and secured an equity line of
credit (the "Equity Line") for $20 million. The investor may convert any
outstanding balance and accrued interest into 2,100,694 shares of common stock
at a conversion price of $1.44 per share at any time. This conversion price may
decrease, and require issuing more shares in repayment, if certain future
events, including a decrease in our stock price or a delay in registering
underlying securities, trigger a repricing event. If a repricing event occurs,
then at the investor's request, the Company could be required to repay 111% of
the remaining balance including interest using funds generated through the
Equity Line, or the Company could repay 125% of the remaining balance and
interest in cash. We also issued a warrant to purchase 260,417 shares of common
stock. These warrants are exercisable at $2.03 a share and expire March 31,
2004. The Debenture Offering was funded on January 2, 2002.
The Equity Line allows for the sale of up to $20 million of common
stock subject to certain conditions during a 24-month period, at 94% of the then
current market price. In connection with the Equity Line, we issued a callable
warrant to purchase 641,026 shares of common stock. These warrants are
exercisable at $1.95 a share, and expire December 1, 2007. The Company did not
utilize the equity line during the quarter ended March 31, 2002. The Company did
sell 200,126 shares of common stock and received $190,000 in April 2002.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
2002 Annual Meeting and Shareholder Proposals
The Company currently anticipates that it will hold is annual meeting
of shareholders on October 8th or the 15th. Shareholders desiring to submit
proposals to be included in the proxy statement to be distributed in connection
with the 2002 annual meeting must submit such proposals to the company not later
than June 30, 2002. Proposals should be submitted and addressed to:
Corporate Secretary
Computerized Thermal Imaging, Inc.
Two Centerpointe Dr., Suite 450
Lake Oswego, OR 97035
FDA Approval Status
Our Breast Cancer System, Thermal Imaging Process and Photonic
Stimulator qualify as medical devices under federal law because they are
intended for use in the diagnosis, cure, mitigation, treatment or prevention of
disease but do not interact chemically with the body. Typically, low risk
devices which are substantially similar to approved products already on the
market, generally described as Class I or Class II devices, obtain U.S. Food and
Drug Administration ("FDA") clearance by the agency's pre-market notification,
known as a 510(k) filing. Our Thermal Image Processor and Photonic Stimulator
each have 501(k) clearance.
22
We are seeking FDA approval for our Breast Cancer System through the
PMA process, which requires significant clinical testing, manufacturing and
other data, all of which are scrutinized by the FDA to demonstrate the product's
safety, reliability and effectiveness. While we cannot assure whether or when
the FDA might approve our PMA, an approved PMA will allow us to reference
medical efficacy claims in connection with marketing our Breast Cancer System.
We also believe that FDA approval will improve physician acceptance of our
systems and help us obtain designation of insurance reimbursement codes.
We submitted our PMA in five modules. We submitted the fifth module, an
evaluation of our clinical studies, on June 15, 2001. The FDA is performing the
in-depth scientific, regulatory and manufacturing reviews and inquiries required
by its procedures. If, at the completion of its review, the FDA staff finds our
PMA meets its standards, the PMA will be subjected to an advisory panel for
review and recommendation. After the FDA receives the advisory panel
recommendation, it will issue a decision.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following reports on Form 8-K were filed during the three months
ended March 31, 2002:
Form 8-K dated January 14, 2002 providing information on our financing
agreement with Beach Boulevard, LLC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPUTERIZED THERMAL IMAGING, INC.
(Registrant)
/s/Richard V. Secord
Dated May 8, 2002 ----------------------------------------------
Richard V. Secord
Chairman & Chief Executive Officer
/s/Bernard J. Brady
Dated May 8, 2002 ----------------------------------------------
Bernard J. Brady
Chief Financial Officer, Secretary & Treasurer
23