COII is a scam....just read this!
Utah Biotech Firm Raises Cash at Discount
DAVID EVANS
06/30/2000
The Salt Lake Tribune
Page B2
(Copyright 2000)
LAYTON -- Computerized Thermal Imaging Inc., which makes what it describes as a "revolutionary breast cancer detection system," sold 11.1 million shares of its stock at a 72 percent discount to its market price, according to a filing it made with regulators last week.
The company sold the stock in a private placement that raised a net $39.5 million, increasing its shares outstanding by about 16 percent. It was completed on Feb. 29, when the shares closed at 9 7/ 8. Computerized Thermal sold 11.1 million shares at $2.81 a piece and 11.1 million warrants, priced at $1, giving investors the right to buy half shares at $5 each.
"This is the price where funds were available for the company," said Kevin Packard, Computerized Thermal's chief financial officer. "It would have been nice for us to go out at 7 or 8 bucks," he said. "That's not what happened."
Raising capital from investors at such a large discount to the price of shares trading in the secondary market is a red flag, said John Coffee, professor of securities law at Columbia Law School. "The market price is well above what more informed parties think it should be."
Computerized Thermal needs the money to fund money-losing operations. The developer of technology intended to help doctors determine if a breast lesion is benign or malignant has racked up losses of $31 million since it was founded in 1987. Its outside auditor warned in the 1999 annual report of "substantial doubt about the company's ability to continue as a going concern."
The company's shares fell 37 percent, or 4 1/32, to 6 13/16 in early afternoon trading of 3.9 million shares. That gave the company, which has 30 employees, a market capitalization of $545 million.
The Layton, Utah-based company also raised $5 million in a sale of shares to Informix Inc, which received a $4.5 million contract to provide the database used in Computerized Thermal's system in December. Informix paid $9.80 a share, a 25 percent discount to that day's closing price of 13 1/16.
Annual Meeting: The company's shares are popular with retail investors. More than 25,000 messages have been posted about it on Ragingbull.com, an Internet chat site, in the past year. More than 200 investors attended Wednesday's annual meeting in San Francisco, with dozens sporting badges displaying their Ragingbull monikers - names such as "kstill" and "cultivator."
Wild cheering broke out when David Johnston, founder, chairman and chief executive, announced the company's shares were approved to move from the OTC Bulletin Board to the Nasdaq national market.
Last night, Computerized Thermal issued a statement saying it received word from Nasdaq that its listing application was placed on hold. It said the exchange "asked for information about a 10-year- old legal proceeding concerning one of the directors of the company." Neither the name of the director nor the nature of the proceeding was included in the statement.
In 1990, the Ninth Circuit Court of Appeals upheld a $25 million default judgment against Johnston in a racketeering and fraud lawsuit filed by investors who lost money in a rabbit-breeding tax shelter investment called Promorex that he sold in the mid-1980s.
"It was a huge bloody nose for me," he said in an interview after the annual meeting. Johnston said he lost nearly $4 million of his own cash in the Promorex fiasco. "I'm tired of hearing the issue."
Upbeat Prospects: Johnston was upbeat about Computerized Thermal's imaging system. "My opinion is that it's going to give mammography a run for its money," said Johnston. The 57-year-old executive said it's cheaper, faster and more comfortable than mammography, which he described as the "gold standard" of breast cancer detection.
Yet his company has struggled to sell its $500,000 breast imaging systems. Until last week, it had sold only one of the scanners, to Orchard Hospital in Thailand in 1996. That sale was arranged by then- president Richard Secord, best known for his conviction for lying to Congress about his conduct with Oliver North in the Iran-Contra scandal.
Secord said his connections in Thailand were crucial to making the sale. He said he was awarded the Most Exalted Order of the White Elephant from that nation's government for his assistance during the Vietnam War.
In 1994, Computerized Thermal announced a $3 billion sale to China. "It was not fulfilled," said Secord, blaming changes in that nation's economic and political climate. Secord, now vice chairman of the board, also attended the annual meeting.
Touting Concern: Yuri Parisky, an associate professor of radiology at the USC/Norris Cancer Center in Los Angeles, is directing a company-sponsored clinical test of the breast cancer scanning system at USC. He is concerned some investors are over-hyping the scanning system. Parisky said he began reading messages about the company on Ragingbull.com after fielding numerous investor calls.
"People are touting this as a replacement for mammography, which it's not," he said. Parisky is paid $1,000 a day by the company for periodic consulting services. He said the system may spare patients the need to undergo a biopsy for breast cancer by analyzing heat patterns in the body.
Preliminary tests show a 96 percent cancer detection rate for its system, according to an article he published in 1998.
That is not good enough, according to Edward Sickles, professor of radiology at the University of California at San Francisco. Biopsies are 99 percent accurate, he said.
"It's an experimental technology," said Sickles, referring to Computerized Thermal's system. "It probably doesn't work."
Doctors won't substitute a new technique unless they are confident about its accuracy, according to Sickles. Using a less reliable, although less invasive technique -- like a thermal scan -- could be fatal if it fails to detect a cancer.
Johnston is confident about the market for his system.
"Most women don't want to go through a biopsy, to begin with, and they're willing to take the chance," he said.
Scientific Evidence: Persuading doctors to accept the usefulness of Computerized Thermal's technology will be an uphill battle, said Michael Bernstein, a spokesman for the American College of Radiology, the principal organization of radiologists in the U.S. "The ACR doesn't believe there's enough scientific evidence to show if the new technology is effective," said Bernstein.
In 1997, the company decided to conduct clinical tests needed to win approval for its system as a tool "complementary to mammography" from the U.S. Food and Drug Administration. The company says FDA approval, which isn't required, would help "to gain market acceptance." As part of that trial, the company has installed units at five teaching hospitals, including USC, where the study is run by Parisky.
Last week, the company announced a sale of 10 machines for a total of $5 million to a Mexican company called CTII de Mexico.
In the SEC filing three days later, Computerized Thermal said the buyer was given options as an inducement. For each $500,000 system sold, the buyer got two-year options to buy 50,000 shares at $1.67 a share. On the day the sale was announced, Computer Thermal shares closed at 10 3/4. That meant that for each $500,000 system, the buyer was awarded options worth more than $454,000. |
