Edgar Filing: BIO IMAGING TECHNOLOGIES INC

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

---------------

FORM 10-QSB

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from October 1, 2001 to December 31, 2001
Commission File No. 1-11182

BIO-IMAGING TECHNOLOGIES, INC.
----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)

Delaware 11-2872047
-------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)

826 Newtown-Yardley Road, Newtown, Pennsylvania 18940-1721
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(Address of Principal Executive Offices)

(267) 757-1360
-------------------------------
(Issuer's Telephone Number,
Including Area Code)

Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.

Yes: X No:
----- -----

State the number of shares outstanding of each of the Issuer's classes of
common stock, as of January 31, 2002:

Class Number of Shares
----- ----------------

Common Stock, $0.00025 par value 8,283,141

Transitional Small Business Disclosure Format (check one):

Yes: No: X
----- -----

BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES
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TABLE OF CONTENTS
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Page
----
PART I. FINANCIAL INFORMATION.

Item 1. Financial Statements...................................... 1

CONSOLIDATED BALANCE SHEETS
as of December 31, 2001 and
September 30, 2001 (unaudited)................................. 2

CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended December 31, 2001 and 2000
(unaudited).................................................... 3

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31, 2001 and 2000
(unaudited).................................................... 4

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)......................................... 5

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 12

Results of Operations.......................................... 14

Liquidity and Capital Resources................................ 16

PART II. OTHER INFORMATION.

Item 2. Change in Securities and Use of Proceeds.................. 19

Item 5. Other Information......................................... 19

Item 6. Exhibits and Reports on Form 8-K.......................... 20

SIGNATURES............................................................... 21

- i -

PART I. FINANCIAL INFORMATION.
------------------------------

ITEM 1. FINANCIAL STATEMENTS.

Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted from the following
consolidated financial statements pursuant to the rules and regulations of the
Securities and Exchange Commission, although Bio-Imaging Technologies, Inc. (the
"Company") believes that such financial disclosures are adequate so that the
information presented is not misleading in any material respect. The following
consolidated financial statements should be read in conjunction with the
year-end consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended September 30,
2001.

On November 6, 2001, the Company's Board of Directors approved a change in
the Company's annual reporting period from a fiscal year ending September 30 to
December 31. Accordingly, the 2002 fiscal year commenced on January 1, 2002 and
will end on December 31, 2002, and the fiscal quarters will end on March 31,
2002, June 30, 2002, September 30, 2002 and December 31, 2002. This Form 10-QSB
reports the three month transition period from October 1, 2001 to December 31,
2001.

The results of operations for the interim periods presented herein are not
necessarily indicative of the results to be expected for the entire fiscal year.

-1-

BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES
-----------------------------------------------

CONSOLIDATED BALANCE SHEETS
---------------------------
(unaudited)

December 31, September 30,
2001 2001
------------ -------------

ASSETS

Current assets:
Cash and cash equivalents....................... $ 499,710 $ 545,345
Accounts receivable, net........................ 3,447,155 2,618,734
Prepaid expenses and other current assets....... 274,313 209,438
Deferred income taxes........................... 417,000 417,000
----------- -----------
Total current assets.......................... 4,638,178 3,790,517

Property and equipment, net....................... 2,111,360 1,206,957

Other assets ..................................... 225,524 224,219
----------- -----------

Total assets.................................. $ 6,975,062 $ 5,221,693
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable................................ $ 605,057 $ 326,577
Accrued expenses and other current liabilities.. 445,134 465,557
Deferred revenue................................ 1,711,972 1,818,706
Current maturities of long-term debt............ 343,201 197,357
----------- -----------
Total current liabilities..................... 3,105,364 2,808,197
Long-term debt and other liabilities.............. 1,508,705 127,307
----------- -----------
Total liabilities............................. 4,614,069 2,935,504
----------- -----------

Commitments and contingencies

Stockholders' equity:
Common stock - $.00025 par value; authorized
18,000,000 shares, issued and outstanding
8,278,141 shares at December 31, 2001 and
8,259,212 shares at September 30, 2001......... 2,070 2,065
Additional paid-in capital...................... 9,286,871 9,274,740
Accumulated deficit............................. (6,927,948) (6,990,616)
----------- -----------
Stockholders' equity.......................... 2,360,993 2,286,189
----------- -----------

Total liabilities and stockholders' equity.... $ 6,975,062 $ 5,221,693
=========== ===========

See Notes to Consolidated Financial Statements

-2-

BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES
-----------------------------------------------

CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(unaudited)

For the Three Months Ended
December 31,
------------------------------------
2001 2000
---- ----

Project revenues.................................... $ 3,322,244 $ 1,775,140
----------- -----------

Cost and expenses:

Cost of revenues................................ 2,275,002 983,233

General and administrative expenses............. 560,100 339,016

Sales and marketing expenses.................... 383,406 392,253
----------- -----------

Total cost and expenses................ 3,218,508 1,714,502
----------- -----------

Income from operations................. 103,736 60,638

Interest expense - net.............................. (21,068) (7,929)
----------- -----------

Income before income tax provision..... 82,668 52,709

Income tax provision................................ (20,000) --
----------- -----------

Net income............................. 62,668 52,709

Dividends on preferred stock........................ -- (10,000)
----------- -----------

Net income applicable to common stock.. $ 62,668 $ 42,709
=========== ===========

Basic earnings per common share..................... $ 0.01 $ 0.01
=========== ===========

Weighted average number of common shares............ 8,259,420 7,773,878
=========== ===========

Diluted earnings per common share................... $ 0.01 $ 0.01
=========== ===========

Weighted average number of common
shares and dilutive common equivalent shares...... 9,388,636 7,773,878
=========== ===========

See Notes to Consolidated Financial Statements

-3-

BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES
-----------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)

For the Three Months Ended
December 31,
----------------------------
2001 2000
---- ----

Cash flows from operating activities:
Net income................................................. $ 62,668 $ 52,709
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization............................ 182,311 131,261
Changes in operating assets and liabilities:
Decrease in accounts receivable........................ 349,156 349,148
Increase in prepaid expenses and other current assets.. (38,601) (76,954)
(Increase) decrease in other assets.................... (9,087) 1,397
Increase (decrease) in accounts payable................ 223,717 (43,920)
Decrease in accrued expenses and other
current liabilities................................. (150,093) (86,797)
Decrease in deferred revenue........................... (367,341) (58,817)
---------- ----------
Net cash provided by operating activities.............. 252,730 268,027
---------- ----------

Cash flows from investing activities:
Purchases of property and equipment........................ (191,516) (41,736)
---------- ----------
Net cash used in investing activities.................. (191,516) (41,736)
---------- ----------

Cash flows from financing activities:
Payments under equipment lease obligations................. (118,985) (36,184)
Proceeds from exercise of stock options.................... 12,136 --
Dividends paid to preferred stockholders................... -- (20,000)
---------- ----------
Net cash used in financing activities.................. (106,849) (56,184)
---------- ----------

Net (decrease) increase in cash and cash equivalents......... (45,635) 170,107
Cash and cash equivalents at beginning of period............. 545,345 491,048
---------- ----------

Cash and cash equivalents at end of period................... $ 499,710 $ 661,155
========== ==========

Supplemental disclosures of cash flow information:
Cash paid during the period for interest................... $ 8,314 $ 7,929
========== ==========
Cash paid during the period for income taxes............... $ 95,000 $ --
========== ==========

Supplemental schedule of noncash investing and financing
activities:
Convertible promissory note issued and contingent
liability incurred in connection with acquisition.......... $ 1,585,499 $ --
========== ==========
Equipment purchased under capital lease obligations........ $ 60,728 $ --
========== ==========

See Notes to Consolidated Financial Statements

-4-

BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)

Note 1 - Basis of Presentation:

The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB for the year ended
September 30, 2001.

In the opinion of the Company's management the accompanying unaudited
consolidated financial statements contain all adjustments, consisting solely of
those which are of a normal recurring nature, necessary to present fairly its
financial position as of December 31, 2001 and the results of its operations and
its cash flows for the three months ended December 31, 2001 and 2000.

Certain reclassifications have been made to the September 30, 2001
financial statements in order to conform to the current period financial
statements.

Interim results are not necessarily indicative of results for the full
fiscal year.

Basic earnings per common share for the three months ended December 31,
2001 and 2000 was calculated based upon the net earnings available to common
stockholders divided by the weighted average number of shares of common stock,
$0.00025 par value (the "Common Stock"), outstanding during the period. Diluted
earnings per share for the three months ended December 31, 2001 and 2000 was
calculated based upon net earnings available to common stockholders divided by
the weighted average number of shares of Common Stock outstanding during the
period, adjusted for dilutive securities using the treasury method.

-5-

BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES
-----------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)

The computation of basic earnings per common share and diluted earnings per
common share were as follows:

Three Months Ended
December 31,
-------------------------------
2001 2000
---------- ----------

Net income.............................. $ 62,668 $ 52,709

Dividends on preferred stock............ -- (10,000)
--------- ---------

Net income applicable
to common stock - basic............... $ 62,668 $ 42,709
--------- ---------

Interest expense on convertible note.... 13,000 --
--------- ---------

Net income applicable
to common stock - diluted............. $ 75,668 $ 42,709
--------- ---------

Denominator:

Weighted average number of common
shares................................ 8,259,420 7,773,878

Basic earnings per common share......... $ 0.01 $ 0.01
========= =========

Denominator:

Weighted average number of
common shares......................... 8,259,420 7,773,878
Common share equivalents of
outstanding stock options and
warrants.............................. 414,946 --
--------- ---------

Common share equivalents related to
the convertible promissory note........ 814,270 --
--------- ---------

Total shares............................ 9,388,636 7,773,878
--------- ---------

Diluted earnings per common share....... $ 0.01 $ 0.01
========= =========

As of December 31, 2001 and 2000, 1,600,014 and 1,700,127 stock options and
warrants, respectively, have been excluded from the calculation of diluted
earnings per common share as they are antidilutive.

-6-

BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES
-----------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)

Note 2 - Stockholders' Equity:

On January 2, 2001, the Company elected to convert the 416,667 shares of
its Series A Convertible Preferred Stock, $0.00025 par value per share (the
"Series A Stock"), held of record by Investment Partners of America, L.P.
("IPA") into 416,667 shares of its restricted common stock. The shares of Common
Stock issued upon conversion of the Series A Stock were issued to the designees
of IPA and have certain piggy-back registration rights. The Company has
satisfied any and all obligations with respect to cumulative dividends on the
Series A Stock. The Company did not receive any consideration for the conversion
of the Series A Stock. Subsequent to the conversion, the Company has no issued
and outstanding shares of Series A Stock.

During May and June of 2001, the Company issued an aggregate of 66,667
shares of its restricted Common Stock to IPA and its affiliate in connection
with the exercise of 66,667 Class C Warrants (the "Class C Warrants") to
purchase shares of Common Stock of the Company previously issued to IPA on June
26, 1996. The Class C Warrants had an exercise price equal to $.63 per share at
the time of exercise, and the Company received $42,000 as proceeds for the
exercise of such warrants by IPA and its affiliate.

The Company has neither paid nor declared dividends on its Common Stock
since its inception and does not plan to pay dividends on its Common Stock in
the foreseeable future.

Note 3 - Long-term Debt:

Note 4 - Recent Acquisition:

On October 25, 2001, the Company acquired the Intelligent Imaging(TM)
business unit ("Intelligent Imaging") of Quintiles, Inc., a North Carolina
corporation ("Quintiles"), and a wholly-owned subsidiary of Quintiles
Transnational Corporation (the "Intelligent Imaging Acquisition"). All
Intelligent Imaging personnel (approximately 47) have become employed by the
Company and all of the clinical projects, which were handled by Intelligent
Imaging, are now being managed by the combined Company.

-7-

Intelligent Imaging specializes in providing digital medical imaging
services for clinical trials and the health care industry, a line of business
the Company intends to continue. In the Intelligent Imaging Acquisition, the
Company acquired substantially all of the assets of Intelligent Imaging and
assumed certain liabilities of Intelligent Imaging.

The Note, which is payable in quarterly installments, beginning February 1,
2002, with respect to fifty percent (50%) of the aggregate principal amount
together with all outstanding interest, matures on November 1, 2004 and is
convertible, in whole or in part, by Quintiles any time prior to maturity into
shares of the Company's Common Stock. The Company has recorded $166,667 as a
current liability, representing the February 1, 2002, May 1, 2002, August 1,
2002 and November 1, 2002 quarterly installments of principal.

The number of shares of Common Stock into which the Note may be converted
is calculated by dividing the outstanding principal balance of the Note
($1,000,000 as of December 31, 2001), plus all accrued and unpaid interest
thereon, by the greater of: (i) 75% of the average closing price of the
Company's Common Stock over the ten consecutive trading days ending prior to the
date of conversion; or (ii) $0.906 per share. As of December 31, 2001, there was
$1,000,000 of principal and approximately $13,000 of accrued interest
outstanding under the Note (using a LIBOR Rate of 1.8813%), and 75% of the
average closing price of the Company's Common Stock over the ten consecutive
trading days ending prior to December 31, 2001 was below $0.906 per share.
Accordingly, on December 31, 2001, the Note would have been convertible into
approximately 1,118,102 shares of the Company's Common Stock (calculated by
dividing $1,013,000 by $0.906).

The Company may pay additional consideration if certain financial results
are achieved (the maximum number of shares that may be issued to Quintiles
pursuant to such provision is 646,247 shares of Common Stock which is to be paid
out no later than February 15, 2003). The Company has recorded a noncurrent
liability of $585,499 for the contingent consideration under the provisions of
Statement of Financial Accounting Standards No. 141, "Business Combinations."
SFAS No. 141 requires a liability to be recognized in an amount equal to the
lesser of the maximum amount of the contingent consideration or the excess of
net tangible assets acquired over the purchase price. When the contingency is
resolved and the consideration

-8-

BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)

is issued or becomes issuable, any excess of the fair value of the contingent
consideration issued or issuable over the amount that was recognized as if it
was a liability will be recognized as an additional cost of the Intelligent
Imaging Acquisition. If the amount initially recognized as a liability exceeds
the fair value of the consideration issued or issuable, that excess will be
allocated as a pro rata reduction of noncurrent assets or property, plant and
equipment. Any amount that remains after reducing noncurrent assets or property,
plant and equipment to zero will be recognized as an extraordinary gain.

The total purchase price of the Intelligent Imaging Acquisition has been
allocated to the assets and liabilities based on management's best estimates of
fair value. The excess of the net tangible assets acquired over the purchase
price resulted in the reduction of property, plant and equipment.

Net tangible assets acquired......................... $ 2,130,684
--------------------------------------------------------------------------------

Less - purchase price:
Convertible promissory note....................... (1,000,000)
Contingent liability.............................. (585,499)
Transaction costs................................. (98,000)

--------------------------------------------------------------------------------
Total purchase price............................ (1,683,499)
--------------------------------------------------------------------------------

Excess of net tangible assets over purchase price... 447,185
Less - write-down of property, plant and equipment.. (447,185)

--------------------------------------------------------------------------------
Remaining excess of net tangible assets over
purchase price.................................. $ --
--------------------------------------------------------------------------------

The consolidated financial statements of the Company include the results of
operations of Intelligent Imaging for the three month period ended December 31,
2001. As agreed to by the Company and Quintiles, transactions occurring
subsequent to October 1, 2001 related to the assets and liabilities of
Intelligent Imaging were assumed by the Company.

The following unaudited consolidated pro forma information has been
prepared assuming Intelligent Imaging was acquired as of October 1, 2000, with
pro forma adjustments for interest expense and income taxes. The pro forma
information is presented for informational purposes only and is not indicative
of what would have occurred if the Intelligent Imaging Acquisition had been made
on October 1, 2000. In addition, this pro forma information is not intended to
be a projection of future operating results.

-9-

BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)

Three Months Ended
December 31, 2000
------------------------

Revenues.............................. $ 3,109,645
----------

Net loss.............................. $ (5,119)
----------

Basic earnings per common share....... $ .00
----------

Diluted earnings per common share..... $ .00
----------

Note 5 - Recently Issued Accounting Standards:

In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets," which establishes accounting and reporting standards governing goodwill
and intangible assets. SFAS No. 142 states that goodwill is no longer subject to
amortization over its estimated useful life. Rather, goodwill will be subject to
at least an annual assessment for impairment by applying a fair-value based
test. Under the new rules, an acquired intangible asset should be separately
recognized and amortized over its useful life (unless an indefinite life) if the
benefit of the intangible asset is obtained through contractual or other legal
rights, or if the intangible asset can be sold, transferred, licensed, rented or
exchanged regardless of the acquirer's intent to do so. The Company adopted this
standard on January 1, 2002, until which time the Company continued to amortize
its existing goodwill and intangible assets. The adoption of SFAS No. 142 will
not have a material effect on the Company's consolidated results of operations
or financial position.

In August 2001, the Financial Accounting Standards Board issued SFAS No.
143, "Accounting for Asset Retirement Obligations". SFAS No. 143 addresses
financial accounting and reporting obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS No.
143 is effective for fiscal years beginning after June 14, 2002. The Company
does not expect that the adoption of SFAS No. 143, which is effective for the
Company as of January 1, 2003, will have a material effect on its consolidated
results of operations or financial position.

In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which is
effective for fiscal years beginning after December 15, 2001, and addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. This statement supersedes SFAS No. 121

-10-

BIO-IMAGING TECHNOLOGIES, INC. AND SUBSIDIARIES
-----------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)

"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions," for the disposal of
a segment of a business. The Company adopted this standard on January 1, 2002.
The adoption of SFAS No. 144 will not have a material effect on the Company's
consolidated results of operations or financial position.

The Emerging Issues Task Force has issued Topic Number D-103, which states
that reimbursements received for out-of-pocket expenses incurred should be
recorded as revenue. This will be effective for reporting periods beginning
after December 15, 2001, with comparative financial statements for prior periods
reclassified to conform to this presentation. Historically, the Company incurs
approximately $600,000 of out-of-pocket expenses that are reimbursed by the
customer, per quarter, and offsets such reimbursements against the related
expenses.

Note 6 - Income Tax Provision:

The Company's income tax provision of $20,000 relates to estimated state
income taxes. The Company has no remaining net operating loss carry forwards in
the Commonwealth of Pennsylvania. During the three months ended December 31,
2001, the federal income tax provision has been offset by a reduction in the
Company's valuation allowance. Management believes that it is more likely than
not that the net deferred income tax assets, recorded as of December 31, 2001,
will be realized in the future.

-11-

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

OVERVIEW

Bio-Imaging Technologies, Inc. (the "Company") is a pharmaceutical contract
service organization, providing services that support the product development
process of the pharmaceutical, biotechnology and medical device industries. The
Company specializes in assisting its clients in the design and management of the
medical-imaging component of clinical trials for all modalities which consist of
computerized tomography, magnetic resonance imaging, x-rays, dual energy x-ray
absorptiometry, position emission tomography single photon emission computerized
tomography and ultrasound. The Company provides services which include the
processing and analysis of medical images and the data-basing and regulatory
submission of medical images, quantitative data and text. In September 2000, the
Company offered a new service called, Bio-Imaging ETCSM. Bio-Imaging ETC focuses
on education, training and certification for medical imaging equipment,
facilities and staff.

The assets acquired included Intelligent Imaging's customer contracts,
equipment, permits, leases and proprietary rights. In consideration for the
assets purchased, the Company issued an unsecured, subordinated convertible
promissory note, dated as of October 25, 2001, in the principal amount of
$1,000,000 (the "Note"). The Note bears interest at the rate in effect on the
business day immediately prior to the date on which payments are due under the
Note equal to the Three-Month London Interbank Offering Rate (the "LIBOR Rate")
as published from time to time in the Wall Street Journal plus 3%, compounded
annually based on a 365-day year. The Note, which is payable in quarterly
installments with respect to fifty percent (50%) of the aggregate principal
amount together with all outstanding interest, matures on November 1, 2004 and
is convertible, in whole or in part, by Quintiles any time prior to maturity
into shares of the Company's common stock, $0.00025 par value (the "Common
Stock"). The number of shares of Common Stock into which the Note may be
converted is calculated by dividing the outstanding principal balance of the
Note ($1,000,000 as of December 31, 2001), plus all accrued and unpaid interest
thereon (approximately $13,000 as of December 31, 2001), by the greater of: (i)
75% of the average closing price of the Company's Common Stock over the ten
consecutive trading days

-12-

ending prior to the date of conversion; or (ii) $0.906 per share. As of December
31, 2001, the Note was convertible into approximately 1,118,102 shares of Common
Stock (using a conversion price of $0.906 per share and a LIBOR Rate of
1.8813%). The Company may pay additional consideration if certain financial
results are achieved (the maximum number of shares that may be issued to
Quintiles pursuant to such provision is 646,247 shares of Common Stock which is
to be paid out no later than February 15, 2003). The Company also assumed
certain liabilities of Intelligent Imaging, including all obligations of
Intelligent Imaging arising after the closing under certain contracts and
unearned income reflected on the closing balance sheet.

The Company's sales cycle (the period from the presentation by the Company
to a potential client to the engagement of the Company by such client) is
generally twelve months. In addition, the contracts under which the Company
performs services typically cover a period of 12 to 36 months and the volume and
type of services performed by the Company generally vary during the course of a
project. No assurance can be made that the Company's project revenues will
remain at levels sufficient to maintain profitability. Project revenues were
generated from 48 clients encompassing 98 distinct projects for the three months
ended December 31, 2001, of which 7 new clients encompassing 18 distinct
projects were from the Intelligent Imaging Acquisition. This compares to 36
clients encompassing 66 distinct projects for the three months ended December
31, 2000. This represents an increase of 33.3% in clients and 48.5% in projects
for the three months ended December 31, 2001 as compared to the three months
ended December 31, 2000. The Company's contracted/committed backlog was
approximately $28,722,000 as of December 31, 2001, of which approximately
$2,000,000 remains as contracted/committed backlog from the Intelligent Imaging
Acquisition. This compares to approximately $17,129,000 as of December 31, 2000,
an increase of 67.7%. Contracted/committed backlog is the amount of revenue that
remains to be earned and recognized on signed and agreed to contracts. Such
contracts are subject to termination by the Company's clients at any time.

The Company believes that demand for its services and technologies will
grow during the long-term as the use of digital technologies for data
acquisition and management increases in the radiology and drug development
communities. The Company also believes that there is a growing recognition
within the bio-pharmaceutical industry regarding the use of an independent
centralized core laboratory for analysis of medical-imaging data that is derived
from clinical trials and the regulatory requirements relating to the submission
of this data. In addition, the Food and Drug Administration ("FDA") is gaining
experience with electronic submissions and is continuing to develop guidelines
for computerized submission of data, including medical images. Furthermore, the
increased use of digital medical images in clinical trials, especially for
important drug classes such as anti-inflammatory, neurologic and oncologic
therapeutics and diagnostic image agents, generate large amounts of image data
that will require processing, analysis, data management and submission services.
Due to several factors, including, without limitation, an increase in
competition from commercial competitors and academic research centers, there can
be no assurance that demand for the Company's services and technologies will
grow, sustain growth, or that additional revenue generating opportunities will
be realized by the Company.

-13-

Certain matters discussed in this Transition Report on Form 10-QSB are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements may be identified by, among other things, the
use of forward-looking terminology such as "believes," "expects," "may," "will,"
"should," or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy that involve risks and
uncertainties. In particular, the Company's statements regarding the integration
of Intelligent Imaging into the Company, the demand for the Company's services
and technologies, growing recognition for the use of independent centralized
core laboratories, trends toward the outsourcing of imaging services in clinical
trials, realized return from the Company's marketing efforts and increased use
of digital medical images in clinical trials are examples of such
forward-looking statements. The forward-looking statements include risks and
uncertainties, including, but not limited to, the timing of revenues due to the
variability in size, scope and duration of projects, regulatory delays, clinical
study results which lead to reductions or cancellations of projects, and other
factors, including general economic conditions and regulatory developments, not
within the Company's control. The factors discussed herein and expressed from
time to time in the Company's filings with the Securities and Exchange
Commission could cause actual results and developments to be materially
different from those expressed in or implied by such statements. The
forward-looking statements are made only as of the date of this filing and the
Company undertakes no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances.

RESULTS OF OPERATIONS

On November 6, 2001, the Company changed its fiscal year from ending on
September 30 to December 31. The Company has included information for the
transition period from October 1, 2001 to December 31, 2001 in this Form 10-QSB.
The Company believes that the three months ended December 31, 2000 provides a
meaningful comparison to the three months ended December 31, 2001.

Three Months Ended December 31, 2001 and 2000
---------------------------------------------

Project revenues for the three months ended December 31, 2001 and 2000 were
approximately $3,322,000 and $1,775,000, respectively, an increase of
approximately $1,547,000 or 87.2%. The increase in project revenues is a result
of revenue from projects assumed in the Intelligent Imaging Acquisition of
approximately $953,000 and an increase in projects and clients from the
Company's increasing market share. The Company does not anticipate the amount of
revenue realized from contracts assumed in the Intelligent Imaging Acquisition
for the three months ended December 31, 2001 to continue. The
contracted/committed backlog from the Intelligent Imaging Acquisition as of
December 31, 2001 was approximately $2,000,000 of the Company's total
contracted/committed backlog as of December 31, 2001 of approximately
$28,722,000. Project revenues were generated from 48 clients encompassing 98
distinct projects for the three months ended December 31, 2001, of

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which 7 new clients encompassing 18 distinct projects were from the Intelligent
Imaging Acquisition. This compares to 36 clients encompassing 66 distinct
projects for the three months ended December 31, 2000. Project revenues
generated from the Company's client base continue to be highly concentrated. One
client encompassing 2 projects represented approximately 23.3% of the Company's
project revenues for the three months ended December 31, 2001, while for the
comparable period last year, two clients encompassing 5 projects represented
approximately 38.7% of the Company's project revenues. No other customers
accounted for more than 10% of project revenues in each of the three month
periods ended December 31, 2001 and 2000. The Company's scope of work in both
periods included primarily medical-imaging core laboratory services and
image-based information management services.

Cost of revenues for the three months ended December 31, 2001 and three
months ended December 31, 2000 were comprised of professional salaries and
benefits and allocated overhead. Cost of revenues for the three months ended
December 31, 2001 and three months ended December 31, 2000 were approximately
$2,275,000 and $983,000, respectively, an increase of approximately $1,292,000
or 131.4%. This increase is primarily attributable to personnel and facilities
assumed as part of the Intelligent Imaging Acquisition, along with an increase
in staffing levels required for project related tasks for the three months ended
December 31, 2001. The Company anticipates utilizing the excess Intelligent
Imaging resource capacity to fulfill current and anticipated projects.

The difference between project revenues and cost of revenues may fluctuate
as a percentage of project revenues based on the utilization of staff and the
mix of services provided by the Company to its clients during the comparable
periods. The decrease in this percentage difference in the three months ended
December 31, 2001 from the three months ended December 31, 2000 resulted from
greater additional costs associated with the integration of the Intelligent
Imaging Acquisition as compared to the additional revenue derived therefrom.

General and administrative expenses in each of the three months ended
December 31, 2001 and three months ended December 31, 2000 consisted primarily
of professional salaries and benefits, depreciation and amortization,
professional and consulting services, office rent and corporate insurance.
General and administrative expenses were approximately $560,000 in the three
months ended December 31, 2001 and approximately $339,000 in the three months
ended December 31, 2000. The increase during the three months ended December 31,
2001 of approximately $221,000, or 65.2%, from the three months ended December
31, 2000, is primarily attributable to an increase in corporate insurance and
professional services associated with general corporate matters resulting from
the Intelligent Imaging Acquisition.

Sales and marketing expenses in each of the three months ended December 31,
2001 and three months ended December 31, 2000 were comprised of direct sales and
marketing costs, professional salaries and benefits and allocated overhead.
Sales and marketing expenses were approximately $383,000 in the three months
ended December 31, 2001 and approximately $392,000 in the three months ended
December 31, 2000. The decrease during the three months

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ended December 31, 2001 of approximately $9,000, or 2.3%, from the three months
ended December 31, 2000, resulted primarily from decreased expenses associated
with marketing efforts, offset in part by additional personnel assumed in the
Intelligent Imaging Acquisition.

Total cost and expenses in each of the three months ended December 31, 2001
and three months ended December 31, 2000 consisted primarily of cost of
revenues, general and administrative expenses and sales and marketing expenses.
The Company's cost and expenses were approximately $3,219,000 in the three
months ended December 31, 2001 and approximately $1,715,000 in the three months
ended December 31, 2000. This increase of approximately $1,504,000, or 87.7%, is
due primarily to an increase in personnel resulting from the Intelligent Imaging
Acquisition, along with an increase in professional services associated with
general corporate matters.

Net interest expense of approximately $21,000 during the three months ended
December 31, 2001, resulted from interest expense incurred on both the
convertible promissory note and equipment lease obligations. Net interest
expense was approximately $8,000 in the three months ended December 31, 2000.

The Company's net income for the three months ended December 31, 2001 was
approximately $63,000, while the Company had net income of approximately $53,000
in the three months ended December 31, 2000. The Company's net income for the
three months ended December 31, 2001 was attributable primarily to increased
revenues associated with an increase in the number of clients and projects for
which the Company was engaged to perform services, offset, in part, by the costs
associated with the integration of the Intelligent Imaging Acquisition.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2001, the Company had cash and cash equivalents of
approximately $500,000. Working capital at December 31, 2001 was approximately
$1,533,000.

Net cash provided by operating activities was approximately $253,000 which
includes changes in certain of the Company's operating assets and liabilities.
The net income of approximately $63,000, the decrease in accounts receivable of
approximately $349,000 (excluding the accounts receivable assumed in the
Intelligent Imaging Acquisition) and the increase in accounts payable of
approximately $224,000 was offset by a decrease in accrued expenses and other
current liabilities of approximately $150,000 and a decrease in deferred revenue
of approximately $367,000. The statement of cash flows for the three months
ended

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December 31, 2001 reflects the issuance of the Note and the contingent liability
incurred in connection with the assets acquired in the Intelligent Imaging
Acquisition, as a non-cash transaction.

For the three months ended December 31, 2001, the Company invested
approximately $192,000 in capital and leasehold improvements. The Company
currently anticipates that capital expenditures for the fiscal year ending
December 31, 2002 will be approximately $800,000. These expenditures represent
additional upgrades in the Company's networking, data storage and core
laboratory capabilities for both the United States and European operations and
software investment in CFR 21 Part 11 compliance.

In December 1999, the Company entered into an accounts receivable financing
agreement with Silicon Valley Bank (the "Bank"), whereby the Company may assign
up to $500,000 of eligible accounts receivable to the Bank. In March 2000, the
Bank increased the eligible accounts receivable to $1,000,000. Under the
agreement, the Bank may advance the Company up to 80% of the assigned accounts
receivable amount. Upon collection by the Bank, the balance of the assigned
accounts receivable would be remitted to the Company net of the Bank's finance
charges and administration fees. A 1.00% administrative fee of the face amount
of the assigned receivable may be charged by the Bank along with a 1.75% finance
charge per month of the average daily account balance outstanding. Although the
agreement is contractually renewable each year, it is cancelable by the Bank at
any time. During the three months ended December 31, 2001, the Company did not
assign any accounts receivable to the Bank. At December 31, 2001, the Company
had repaid its borrowings and had a $0 balance with the Bank.

In connection with the Intelligent Imaging Acquisition, beginning February
1, 2002, the Company is obligated to pay quarterly payments of principal of
$41,667 under the Note, plus accrued interest thereon, and one payment of
$500,000 on November 1, 2004, unless the Note is converted into the Company's
Common Stock. The Note bears interest at the rate in effect on the business day
immediately prior to the date on which payments are due under the Note equal to
the LIBOR Rate as published from time to time in the Wall Street Journal plus
3%, compounded annually based on a 365-day year. Using the LIBOR Rate in effect
as of December 31, 2001, the quarterly interest due on the Note would be
approximately $13,000.

The Company anticipates that its cash and cash equivalents as of December
31, 2001, together with anticipated cash from operations, will be sufficient to
fund current working capital needs and capital requirements for at least the
next twelve months. There can be no assurance, however, that the Company's
operating results will continue to achieve profitability on an annual basis in
the near future. The Company's past history of operating losses, together with
the risks associated with the integration of Intelligent Imaging into the
Company, the Company's ability to gain new client contracts, the variability of
the timing of payments on existing client contracts and other changes in the
Company's operating assets and liabilities, may have a material adverse affect
on the Company's future liquidity. In connection therewith, the Company may need
to raise additional capital in the foreseeable future from equity or debt
sources in order to

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implement its business, sales or marketing plans, take advantage of
unanticipated opportunities (such as more rapid expansion, acquisitions of
complementary businesses or the development of new services), to react to
unforeseen difficulties (such as the decrease in the demand for the Company's
services or the timing of revenues due to a variety of factors previously
discussed) or to otherwise respond to unanticipated competitive pressures. There
can be no assurance that additional financing will be available, if at all, on
terms acceptable to the Company.

The Company's 2002 operating plan contains assumptions regarding revenue
and expenses. The achievement of the operating plan depends heavily on the
timing of work performed by the Company on existing projects and the ability of
the Company to gain and perform work on new projects. Project cancellation, or
delays in the timing of work performed by the Company on existing projects or
the inability of the Company to gain and perform work on new projects could have
an adverse impact on the Company's ability to execute its operating plan and
maintain adequate cash flow. In the event actual results do not meet the
operating plan, the Company's management believes it could execute contingency
plans to mitigate such effects. Such plans include additional financing, to the
extent available, through the accounts receivable financing agreement discussed
above. Considering the cash on hand and based on the achievement of the
operating plan and management's actions taken to date, management believes it
has the ability to continue to generate sufficient cash to satisfy its operating
requirements in the normal course of business. However, no assurance can be
given that sufficient cash will be generated from operations.

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PART II. OTHER INFORMATION.
---------------------------

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

In consideration for the assets purchased in connection with the
Intelligent Imaging Acquisition, the Company issued an unsecured, subordinated
convertible promissory note, dated as of October 25, 2001, in the principal
amount of $1,000,000 to Quintiles. The Note bears interest at the rate in effect
on the business day immediately prior to the date on which payments are due
under the Note equal to the LIBOR Rate as published from time to time in the
Wall Street Journal plus 3%, compounded annually based on a 365-day year. The
Note, which is payable in quarterly installments with respect to fifty percent
(50%) of the aggregate principal amount together with all outstanding interest,
matures on November 1, 2004 and is convertible, in whole or in part, by
Quintiles any time prior to maturity into shares of the Company's Common Stock.
The number of shares of Common Stock into which the Note may be converted is
calculated by dividing the outstanding principal balance of the Note ($1,000,000
as of December 31, 2001), plus all accrued and unpaid interest thereon ($13,000
as of December 31, 2001), by the greater of: (i) 75% of the average closing
price of the Company's Common Stock over the ten consecutive trading days ending
prior to the date of conversion; or (ii) $0.906 per share. As a result, as of
December 31, 2001, the Note was convertible into approximately 1,118,102 shares
of Common Stock (using a conversion rate of $0.906 per share and a LIBOR Rate of
1.8813%).

No underwriter was employed by the Company in connection with the issuance
of the Note. The Company believes that the issuance of the Note was exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"). Quintiles was an accredited investor (as defined in Rule 501
promulgated by the Securities and Exchange Commission pursuant to the Securities
Act), had adequate access to information about the Company and acquired the
securities for investment only and not with a view to distribution.

ITEM 5. OTHER INFORMATION.

On October 25, 2001, the Company consummated the Intelligent Imaging
Acquisition. All Intelligent Imaging personnel (approximately 47) have become
employed by the Company and all of the clinical projects, which were handled by
Intelligent Imaging, are now being managed by the combined Company.

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The assets acquired included Intelligent Imaging's customer contracts,
equipment, permits, leases and proprietary rights. In consideration for the
assets purchased, the Company issued the Note as more fully discussed in Item 2
above. The Company may pay additional consideration if certain financial results
are achieved (the maximum number of shares that may be issued to Quintiles
pursuant to such provision is 646,247 shares of Common Stock which is to be paid
out no later than February 15, 2003). The Company also assumed certain
liabilities of Intelligent Imaging, including all obligations of Intelligent
Imaging arising after the closing under certain contracts and unearned income
reflected on the closing balance sheet.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits.

2.1 Asset Purchase Agreement, dated October 25, 2001, by and
between the Company and Quintiles, Inc. (Incorporated by
reference to Exhibit 2.1 to the Company's Current Report
on Form 8-K dated October 25, 2001.)

4.1 Convertible Promissory Note, dated October 25, 2001, made
by the Company payable to Quintiles, Inc. (Incorporated by
reference to Exhibit 4.1 to the Company's Current Report
on Form 8-K dated October 25, 2001.)

4.2 Registration Rights Agreement, dated as of October 25,
2001, by and between the Company and Quintiles, Inc.
(Incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K/A dated October 25, 2001.)

10.1 Lease between the Plymouth Woods and the Company dated
December 8, 1997, as amended on February 25, 1999.
(Incorporated by reference to Exhibit 10.1 of the
Company's Annual Report on Form 10-KSB for the fiscal year
ended September 30, 2001.)

(b) Reports on Form 8-K.

Report on Form 8-K filed on November 9, 2001 (reporting the
Intelligent Imaging Acquisition on October 25, 2001).

Report on Form 8-K/A filed on January 8, 2002 (filing Audited
Financial Statements of the Intelligent Imaging division as of and for
the fiscal years ended September 30, 2001 and 2000, and Unaudited
Pro-Forma Combined Condensed Financial Statements of the Company).

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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

BIO-IMAGING TECHNOLOGIES, INC.

DATE: February 14, 2002 By:/s/ Mark L. Weinstein
--------------------------------------
Mark L. Weinstein, President, Chief
Executive Officer and Chief Financial
Officer
(Principal Executive Officer and
Principal Financial Officer)

DATE: February 14, 2002 By:/s/ Maria T. Kraus
--------------------------------------
Maria T. Kraus, Controller
(Principal Accounting Officer)

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