FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER
IMAGE TECHNOLOGY LABORATORIES, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-53531373
------------------------------- -----------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER I.D. NO.)
INCORPORATION OR ORGANIZATION)
602 ENTERPRISE DR., KINGSTON, NEW YORK 12401
--------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(845) 338-3366
------------------------------------------------
(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 |_|
APPLICABLE ONLY TO CORPORATE ISSUERS
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF NOVEMBER 10, 2003 WAS
13,251,278
Image Technology Laboratories, Inc.
INDEX TO FINANCIAL STATEMENTS
PAGE
Condensed Balance Sheet
September 30, 2003 (Unaudited) F-2
Condensed Statements of Operations
Nine and Three Months Ended September 30, 2003 and 2002 (Unaudited) F-3
Condensed Statement of Changes in Stockholders' Deficiency
Nine Months Ended September 30, 2003 (Unaudited) F-4
Condensed Statements of Cash Flows
Nine Months Ended September 30, 2003 and 2002 (Unaudited) F-5
Notes to Condensed Financial Statements (Unaudited) F-6/10
* * *
F-1
Image Technology Laboratories, Inc.
Condensed Balance Sheet
September 30, 2003
ASSETS
Current assets:
Cash and cash equivalents $ 147,738
Prepaid expenses and other current assets 2,676
-----------
Total current assets 150,414
Equipment and improvements, net 181,781
-----------
Total $ 332,195
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses $ 41,344
Notes payable to stockholders 5,200
Note payable - bank 70,833
-----------
Total current liabilities 117,377
Deferred revenues 128,333
Accrued compensation payable to stockholders 130,693
-----------
Total liabilities 376,403
-----------
Stockholders' deficiency:
Preferred stock, par value $.01 per share; 5,000,000 shares
authorized; 1,500,000 shares issued and outstanding 15,000
Common stock, par value $.01 per share; 50,000,000 shares
authorized; 13,251,278 shares issued and outstanding 132,513
Additional paid-in capital 2,473,305
Accumulated deficit (2,665,026)
-----------
Total stockholders' deficiency (44,208)
-----------
Total $ 332,195
===========
See Notes to Condensed Financial Statements.
F-2
Image Technology Laboratories, Inc.
Condensed Statements of Operations
Nine and Three Months Ended September 30, 2003 and 2002
(Unaudited)
NINE MONTHS THREE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues:
Service income $ 432,308 $ 207,800 $ 137,239 $ 131,250
Software license fees 105,000 11,667 35,000 11,667
------------ ------------ ------------ ------------
Totals 537,308 219,467 172,239 142,917
------------ ------------ ------------ ------------
Costs and expenses:
Research and development 225,000 378,750 75,000 100,000
Sales and marketing 213,858 65,626 89,172 52,865
General and administrative 296,715 316,310 112,422 118,832
------------ ------------ ------------ ------------
Totals 735,573 760,686 276,594 271,697
------------ ------------ ------------ ------------
Net loss $ (198,265) $ (541,219) $ (104,355) $ (128,780)
============ ============ ============ ============
Basic net loss per share $ (.01) $ (.04) $ (.01) $ (.01)
============ ============ ============ ============
Basic weighted average shares
outstanding 14,056,046 13,287,998 14,663,025 13,669,962
============ ============ ============ ============
See Notes to Condensed Financial Statements.
F-3
Image Technology Laboratories, Inc.
Condensed Statement of Changes in Stockholders' Deficiency
Nine Months Ended September 30, 2003
(Unaudited)
PREFERRED STOCK COMMON STOCK
------------------------- ------------------------- TOTAL
NUMBER NUMBER ADDITIONAL STOCKHOLDERS'
OF OF PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (DEFICIENCY)
------ ------ ------ ------ ------- ------- ------------
Balance, January 1, 2003 1,500,000 $ 15,000 12,232,462 $ 122,325 $ 1,827,395 $(2,466,761) $ (502,041)
Return of common stock in
settlement of dispute (200,000) (2,000) 2,000
Issuance of common stock upon
exercise of warrants 1,188,816 11,888 209,206 221,094
Accrued compensation
contributed to capital 426,004 426,004
Issuance of common
stock to directors 30,000 300 8,700 9,000
Net loss (198,265) (198,265)
----------- ----------- ----------- ----------- ------------ ----------- -----------
Balance, September 30, 2003 1,500,000 $ 15,000 13,251,278 $ 132,513 $ 2,473,305 $(2,665,026) $ (44,208)
=========== =========== =========== =========== =========== =========== ===========
See Notes to Condensed Financial Statements.
F-4
Image Technology Laboratories, Inc.
Condensed Statements of Cash Flows
Nine Months Ended September 30, 2003 and 2002
(Unaudited)
2003 2002
--------- ---------
Operating activities:
Net loss $(198,265) $(541,219)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization of equipment
and improvements 7,892 6,896
Amortization of unearned compensation 125,000
Amortization of unearned marketing expenses 56,250
Issuance of common stock to directors 9,000
Changes in operating assets and liabilities:
Prepaid expenses and other current assets 7,320
Accounts payable and accrued expenses 6,097 17,776
Deferred revenues 35,000 128,333
Accrued compensation payable to stockholders 6,655 109,539
--------- ---------
Net cash used in operating activities (126,301) (97,425)
--------- ---------
Investing activities - purchases of equipment (150,342)
---------
Financing activities:
Proceeds from note payable - bank 70,833
Proceeds from exercise of warrants 221,094 16,375
Proceeds from private placement of common stock 121,000
--------- ---------
Net cash provided by financing activities 291,927 137,375
--------- ---------
Net increase in cash 15,284 39,950
Cash, beginning of period 132,454 151,730
--------- ---------
Cash, end of period $ 147,738 $ 191,680
========= =========
Supplemental disclosure of
cash flow information
Interest paid $ 772
=========
Supplemental disclosure of noncash
investing and financing activities:
Contribution of accrued compensation
payable to stockholders to capital $ 426,004
=========
See Notes to Condensed Financial Statements.
F-5
Image Technology Laboratories, Inc.
Notes to Condensed Financial Statements
(Unaudited)
Note 1 - Basis of presentation:
In the opinion of management, the accompanying unaudited
condensed financial statements reflect all adjustments,
consisting of normal recurring accruals, necessary to present
fairly the financial position of Image Technology
Laboratories, Inc. (the "Company") as of September 30, 2003,
its results of operations for the nine and three months ended
September 30, 2003 and 2002, changes in stockholders'
deficiency for the nine months ended September 30, 2003 and
cash flows for the nine months ended September 30, 2003 and
2002. Certain terms used herein are defined in the audited
financial statements of the Company as of December 31, 2002
and for the years ended December 31, 2002 and 2001 (the
"Audited Financial Statements") included in the Company's
Annual Report on Form 10-KSB previously filed with the
Securities and Exchange Commission (the "SEC"). Pursuant to
rules and regulations of the SEC, certain information and
disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in
the United States of America have been condensed in or omitted
from these financial statements unless significant changes
have taken place since the end of the most recent fiscal year.
Accordingly, the accompanying unaudited condensed financial
statements should be read in conjunction with the Audited
Financial Statements and the other information included in the
Form 10-KSB.
The results of operations for the nine and three months ended
September 30, 2003 are not necessarily indicative of the
results of operations to be expected for the full year ending
December 31, 2003.
The Company was a development stage company for accounting
purposes, and was required to make certain related disclosures
from January 1, 1998 (date of inception) through April 2002,
at which time its "PACS" software product became available for
sale (see Notes 1 and 2 to the financial statements in the
Form 10-KSB). From time to time, the Company has and will
continue to derive revenues from the provision of radiology
and imaging services to affiliated and nonaffiliated
companies. However, management expects that the Company will
derive its revenues in the future primarily from sales of its
software products. The Company obtained its first contract for
the sale of its software product and related hardware and
maintenance services in August 2002. Accordingly, the Company
is no longer in the development stage.
F-6
Image Technology Laboratories, Inc.
Notes to Condensed Financial Statements
(Unaudited)
Note 1 - Basis of presentation (concluded):
Although the Company has incurred recurring losses and
negative cash flows from operating activities since its
inception, the Company had cash and cash equivalents of
approximately $148,000 and working capital of approximately
$33,000 as of September 30, 2003. Management expects a
reduction in the level of such losses now that sales of the
Company's software products have commenced. A substantial
portion of the Company's losses, historically, have been
attributable to noncash charges. As of September 30, 2003,
certain stockholders of the Company had agreed to defer
approximately $131,000 of compensation due them under their
employment agreements as of that date until October 1, 2004
and to defer certain additional amounts that will accrue after
September 30, 2003 which has and will continue to preserve the
Company's liquidity. Management believes that as a result of
the additional cash flows from the software product sales and
the Company's ability to defer payments to certain
stockholders, the Company will be able to continue to meet its
obligations as they become due through at least September 30,
2004. Management also believes, but cannot assure, that if
needed, the Company will be able to obtain additional capital
resources from financing through financial institutions and
other unrelated sources and/or through additional related
party loans.
Note 2 - Earnings (loss) per share:
The Company presents basic earnings (loss) per share and, if
appropriate, diluted earnings per share in accordance with the
provisions of Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128") as explained in Note 1
to the financial statements in the Form 10-KSB.
The rights of the Company's preferred and common stockholders
are substantially equivalent. The Company has included the
1,500,000 outstanding preferred shares from the date of their
issuance in the weighted average number of shares outstanding
in the computation of basic loss per share for the nine and
three months ended September 30, 2003 and 2002, in accordance
with the "two class" method of computing earnings (loss) per
share set forth in SFAS 128.
Since the Company had net losses for the nine and three months
ended September 30, 2003 and 2002, the assumed effects of the
exercise of options to purchase 2,000,000 and 3,000,000 common
shares outstanding at September 30, 2003 and 2002,
respectively, and warrants to purchase 1,999,029 and 3,429,512
common shares outstanding at September 30, 2003 and 2002,
respectively, therefore, diluted per share amounts have not
been presented in the accompanying condensed statements of
operations for those periods as the results would be
anti-dilutive.
F-7
Image Technology Laboratories, Inc.
Notes to Condensed Financial Statements
(Unaudited)
Note 3 - Warrants:
On February 11, 2003, the Company reduced the exercise price
for its outstanding Class A and Class B warrants from $.40 and
$.50 per share, respectively, to $.20 per share during the
period from February 18, 2003 through July 1, 2003. The
original exercise prices will remain in effect for the period
from July 2, 2003 until the Class A and Class B warrants
expire on October 15, 2003.
During the nine months ended September 30, 2003, the Company
received $221,094 upon the exercise of Class A and Class B
warrants for the purchase of 1,105,483 shares of common stock
at $.20 per share. As of September 30, 2003, Class A and Class
B warrants for the purchase of a total of 1,999,029 remained
outstanding (see Note 5 in the Form 10-KSB) and expired
unexercised on October 15, 2003. In addition, the Company
issued 83,333 shares of common stock as compensation to the
investment banker in accordance with the terms of the sale of
units in the initial public offering.
Note 4 - Stock options:
During the nine months ended September 30, 2003, the Company
cancelled options it had previously granted to one of its
founders for the purchase of 1,000,000 shares of its common
stock at $.33 per share in connection with the termination of
his employment contract. In addition, the Company granted
options to a newly-hired sales director for the purchase of
100,000 shares of its common stock at $.18 per share (the fair
value at the date of grant) that are exercisable through
January 2013.
The Company continues to measure compensation cost related to
stock options issued to employees using the intrinsic value
method of accounting prescribed by Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting For Stock Issued To
Employees". The Company has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No.
123 ("SFAS 123"), "Accounting For Stock-Based Compensation."
Accordingly, no earned or unearned compensation cost was
recognized in the accompanying condensed consolidated
financial statements for the stock options granted by the
Company to its employees since all of those options have been
granted at exercise prices that equaled or exceeded the market
value at the date of grant. The Company's historical net loss
and loss per share and pro forma net loss and loss per share
assuming compensation cost had been determined in 2003 and
2002 based on the fair value at the grant date for all awards
by the Company consistent with the provisions of SFAS 123 are
set forth below:
F-8
Image Technology Laboratories, Inc.
Notes to Condensed Financial Statements
(Unaudited)
Note 4 - Stock options (concluded):
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
2003 2002 2003 2002
--------- --------- ---------- ---------
Net loss - as reported $(198,265) $(541,219) $ (104,355) $(128,780)
Deduct total stock-based employee
compensation expense determined
under a fair value based method
for all awards (2,000) (120,000) -- (40,000)
--------- --------- ---------- ---------
Net loss - pro forma $(200,265) $(661,219) $ (104,355) $(168,780)
========= ========= ========== =========
Net loss per share:
Basic - as reported $ (.01) $ (.04) $ (.01) $ (.01)
========= ========= ========== =========
Basic - pro forma $ (.01) $ (.05) $ (.01) $ (.01)
========= ========= ========== =========
Note 5 - Shares for services:
During January 2002, the Company agreed to issue 450,000
shares of common stock and warrants to purchase 100,000 shares
of common stock in exchange for the provision of marketing
services by an investor relations firm. The Company recorded
the fair value of the shares of $112,500 on the date of the
agreement as unearned marketing expense. The shares and
warrants became issuable and were issued in June 2002.
Under the agreement, the investor relations firm was required
to provide the marketing services over the six month period
that commenced in July 2002, and the Company amortized the
unearned marketing expense over that period. However, during
that period, disputes arose related to those services. On
December 31, 2002, the disputes were resolved and the investor
relations firm agreed to return 200,000 shares of common stock
and allow the Company to cancel the warrants it had issued for
the purchase of 100,000 shares. During the nine months ended
September 30, 2003, the investor relations firm returned the
200,000 shares of common stock and the Company cancelled them.
Note 6 - Directors fees:
During September 2003, the Company agreed to issue to its
Board of Directors 30,000 shares of common stock as directors'
fees. The Company recorded the fair value of the shares of
$9,000 on the date they agreed to issue them as directors'
fees.
F-9
Image Technology Laboratories, Inc.
Notes to Condensed Financial Statements
(Unaudited)
Note 7 - Accrued compensation payable to stockholders:
During the nine months ended September 30, 2003, the Company's
principal stockholder contributed $426,004 of compensation
owed to him to capital.
* * *
F-10
OPERATIONS
OVERVIEW
THE FOLLOWING IS A DISCUSSION OF CERTAIN FACTORS AFFECTING OUR RESULTS OF
OPERATIONS, LIQUIDITY, AND CAPITAL RESOURCES. YOU SHOULD READ THE FOLLOWING
DISCUSSION AND ANALYSIS IN CONJUNCTION WITH OUR UNAUDITED CONDENSED FINANCIAL
STATEMENTS AND RELATED NOTES, WHICH ARE INCLUDED ELSEWHERE IN THIS FILING. WE
HAVE ENTERED THE MEDICAL IMAGE MANAGEMENT SEGMENT OF THE HEALTHCARE INFORMATION
SYSTEMS MARKET.
WE WERE INCORPORATED IN DELAWARE ON DECEMBER 5, 1997. WE HAVE DEVELOPED A FULLY
INTEGRATED "RADIOLOGY INFORMATION SYSTEM/PICTURE ARCHIVING AND COMMUNICATIONS",
KNOWN AS RIS/PACS FOR USE IN THE MANAGEMENT OF MEDICAL DIAGNOSTIC IMAGES AND
PATIENT INFORMATION BY HOSPITALS. THE PACS PORTION OF THE SYSTEM INPUTS AND
STORES DIAGNOSTIC IMAGES IN DIGITAL FORMAT FROM ORIGINAL IMAGING SOURCES SUCH
AS: COMPUTERIZED TOMOGRAPHY, OR CT SCANS MAGNETIC RESONANCE IMAGING, OR MRIS,
ULTRASOUND, NUCLEAR IMAGING AND DIGITAL FLUOROSCOPY. THE RIS PORTION OF THE
SYSTEM INPUTS AND STORES PATIENT DEMOGRAPHICS, ALONG WITH THE APPROPRIATE
INSURANCE, BILLING AND SCHEDULING INFORMATION REQUIRED TO COMPLETE THE PATIENT
VISIT. ALL OF THE DATA IS RETAINED IN STANDARD FORMATS, INCLUDING DICOM AND HL-7
STANDARDS.
-2-
WE WERE A DEVELOPMENT STAGE COMPANY FOR ACCOUNTING PURPOSES, AND WERE REQUIRED
TO MAKE CERTAIN RELATED DISCLOSURES FROM JANUARY 1, 1998 (DATE OF INCEPTION)
THROUGH APRIL 2002, AT WHICH TIME OUR WARPSPEED PACS/RIS SYSTEM BECAME AVAILABLE
FOR SALE. FROM TIME TO TIME, WE HAVE AND WILL CONTINUE TO DERIVE REVENUES FROM
THE PROVISION OF RADIOLOGY AND IMAGING SERVICES TO AFFILIATED AND NONAFFILIATED
COMPANIES. HOWEVER, MANAGEMENT EXPECTS THAT WE WILL DERIVE OUR REVENUES IN THE
FUTURE PRIMARILY FROM SALES OF OUR SYSTEMS. WE OBTAINED OUR FIRST CONTRACT FOR
THE SALE OF OUR SOFTWARE PRODUCT AND RELATED HARDWARE AND MAINTENANCE SERVICES
IN AUGUST 2002. ACCORDINGLY, WE ARE NO LONGER IN THE DEVELOPMENT STAGE.
ALTHOUGH WE HAVE INCURRED RECURRING LOSSES AND NEGATIVE CASH FLOWS FROM OUR
OPERATING ACTIVITIES SINCE INCEPTION, WE HAVE CASH AND CASH EQUIVALENTS OF
APPROXIMATELY $148,000 AND WORKING CAPITAL OF APPROXIMATELY $33,000 AS OF
SEPTEMBER 30, 2003. WE EXPECT A REDUCTION IN THE LEVEL OF OUR OPERATING LOSSES
NOW THAT SALES OF OUR SOFTWARE PRODUCTS HAVE COMMENCED. A SUBSTANTIAL PORTION OF
OUR HISTORIC OPERATING LOSSES HAVE BEEN ATTRIBUTABLE TO NON-CASH CHARGES. AS OF
SEPTEMBER 30, 2003, CERTAIN OF OUR STOCKHOLDERS HAD AGREED TO DEFER
APPROXIMATELY $131,000 OF COMPENSATION DUE THEM UNDER THEIR EMPLOYMENT AGREEMENT
AS OF THAT DATE UNTIL OCTOBER 1, 2004 AND TO DEFER CERTAIN ADDITIONAL AMOUNTS
THAT WILL ACCRUE AFTER SEPTEMBER 30, 2003, IF NECESSARY. DURING SEPTEMBER 2002,
WE OBTAINED A $75,000 WORKING CAPITAL LINE OF CREDIT FROM M AND T BANK. THE
PROCEEDS OF THIS LOAN WERE UTILIZED FOR THE PURCHASE OF CAPITAL EQUIPMENT FOR
THE PARK AVENUE INSTALLATION, WHICH WAS COMPLETED IN THE THIRD QUARTER.
MANAGEMENT BELIEVES THAT AS A RESULT OF THE ADDITIONAL CASH FLOWS FROM THE
SOFTWARE PRODUCT SALES AND OUR ABILITY TO DEFER PAYMENTS TO CERTAIN
STOCKHOLDERS, WE WILL BE ABLE TO CONTINUE TO MEET OUR OBLIGATIONS AS THEY BECOME
DUE THROUGH AT LEAST SEPTEMBER 30, 2004. WE ALSO BELIEVE, BUT CANNOT ASSURE,
THAT IF NEEDED, WE WILL BE ABLE TO OBTAIN ADDITIONAL CAPITAL RESOURCES FROM
FINANCING THROUGH FINANCIAL INSTITUTIONS AND OTHER UNRELATED SOURCES AND/OR
THROUGH ADDITIONAL RELATED PARTY LOANS.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
OUR DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ARE BASED UPON OUR CONDENSED FINANCIAL STATEMENTS, WHICH HAVE BEEN PREPARED IN
ACCORDANCE WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF
AMERICA. THE PREPARATION OF THESE FINANCIAL STATEMENTS REQUIRES US TO MAKE
ESTIMATES AND JUDGEMENTS THAT AFFECT THE REPORTED AMOUNTS OF ASSETS,
LIABILITIES, REVENUES AND EXPENSES, AND RELATED DISCLOSURE OF CONTINGENT ASSETS
AND LIABILITIES. ON AN ON-GOING BASIS, WE EVALUATE OUR ESTIMATES, INCLUDING
THOSE RELATED TO DEPRECIATION AND DEFERRAL OF REVENUE. WE BASE OUR ESTIMATES ON
HISTORICAL EXPERIENCE AND ON VARIOUS OTHER ASSUMPTIONS THAT ARE BELIEVED TO BE
REASONABLE UNDER THE CIRCUMSTANCES, THE RESULTS OF WHICH FORM THE BASIS FOR
MAKING JUDGMENTS ABOUT THE CARRYING VALUES OF ASSETS AND LIABILITIES THAT ARE
NOT READILY APPARENT FROM OTHER SOURCES. ACTUAL RESULTS MAY DIFFER FROM THOSE
ESTIMATES UNDER DIFFERENT ASSUMPTIONS OR CONDITIONS.
-3-
RESULTS OF OPERATIONS FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30,
2003 COMPARED TO THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 2002.
REVENUES:
WE WERE A DEVELOPMENT STAGE COMPANY FROM JANUARY 1, 1998 (DATE OF INCEPTION)
THROUGH APRIL 2002, AT WHICH TIME OUR SOFTWARE WAS AVAILABLE FOR SALE. DURING
THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2003, WE DERIVED SERVICE REVENUE
OF APPROXIMATELY $432,000 AND $137,000 RESPECTIVELY AS COMPARED TO APPROXIMATELY
$208,000 AND $131,000 FOR THE COMPARABLE PRIOR PERIODS. IN ADDITION, DURING THE
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2003, WE EARNED APPROXIMATELY $105,000
AND $35,000 RESPECTIVELY, FROM THE SALE OF OUR INITIAL UNIT, AS WELL AS
DEFERRING APPROXIMATELY $35,000 OF ADDITIONAL REVENUE ( OR $128,000 IN TOTAL)
RELATING TO THE SALE OF OUR INITIAL UNIT WHICH WILL BE RECOGNIZED RATABLY OVER
THE PERIOD IN WHICH WE ARE REQUIRED TO PROVIDE MAINTENANCE AND OTHER SERVICES.
RESEARCH AND DEVELOPMENT EXPENSES:
DURING THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 2003, WE INCURRED
RESEARCH AND DEVELOPMENT EXPENSES OF APPROXIMATELY $225,000 AND $75,000,
RESPECTIVELY, AS COMPARED WITH APPROXIMATELY $379,000 AND $100,000 IN THE
COMPARABLE PRIOR PERIODS. THESE EXPENSES CONSISTED PRIMARILY OF COMPENSATION TO
OUR FOUNDERS UNDER THEIR EMPLOYMENT CONTRACTS. IN ADDITION, $75,000 OF THESE
EXPENSES IN THE FIRST QUARTER OF 2002 WAS ATTRIBUTABLE TO COMPENSATION
ASSOCIATED WITH THE ISSUANCE OF THE SHARES OF PREFERRED STOCK TO THE FOUNDERS, A
NON-CASH CHARGE. DURING THE FIRST QUARTER OF 2002, ONE OF OUR FOUNDERS WAS
TERMINATED FOR CAUSE FOR BREACH OF HIS EMPLOYMENT AGREEMENT. AS A RESULT, OUR
RESEARCH AND DEVELOPMENT EXPENSES WERE REDUCED AND SHOULD REMAIN AT THIS REDUCED
LEVEL FOR THE FORESEEABLE FUTURE.
GENERAL AND ADMINISTRATIVE EXPENSES:
DURING THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2003, WE INCURRED GENERAL
AND ADMINISTRATIVE EXPENSES OF APPROXIMATELY $297,000 AND $112,000,
RESPECTIVELY, AS COMPARED TO APPROXIMATELY $316,000 AND $119,000 IN THE
COMPARABLE PRIOR PERIODS. THE DECREASE IN THESE PERIODS IS PRIMARILY
ATTRIBUTABLE TO US INITIALLY BUILDING OUR INFRASTRUCTURE DURING 2002 AND THEN
IDENTIFYING AND ELIMINATING CERTAIN NON-CRITICAL POSITIONS OR EXPENDITURES AT
OUR CURRENT STAGE. IN THE FUTURE, CERTAIN OF THESE COSTS WILL BE INCURRED OR
INCREASED.
-4-
SALES AND MARKETING EXPENSES:
DURING THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2003, WE BEGAN TO INCUR
MARKETING EXPENSES AS WE INTRODUCED OUR PRODUCT FOR SALE. DURING THIS PERIOD, WE
INCURRED APPROXIMATELY $214,000 AND $89,000, RESPECTIVELY, AS COMPARED TO
APPROXIMATELY $66,000 AND $53,000 IN THE COMPARABLE PRIOR PERIODS.
NET LOSS:
AS A RESULT OF THE AFOREMENTIONED, WE INCURRED A LOSS OF APPROXIMATELY $198,000
($.01 PER SHARE) AND $104,000 ($.01 PER SHARE) FOR THE NINE AND THREE MONTHS
ENDED SEPTEMBER 30, 2003, RESPECTIVELY, AS COMPARED TO A LOSS OF APPROXIMATELY
$541,000 ($.04 PER SHARE) AND $129,000 ($.01 PER SHARE) FOR THE NINE AND THREE
MONTHS ENDED SEPTEMBER 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES:
AS OF SEPTEMBER 30, 2003, WE HAD CASH AND CASH EQUIVALENTS OF $148,000 AND
WORKING CAPITAL SURPLUS OF $33,000. TO DATE, THE PRINCIPAL SOURCES OF OUR
CAPITAL RESOURCES INCLUDE PROCEEDS FROM ISSUANCE OF SHARES OF COMMON STOCK TO
OUR FOUNDERS OF $21,250 AND THE NET PROCEEDS FROM THE PRIVATE PLACEMENT OF UNITS
OF COMMON STOCK AND WARRANTS DURING 2000 OF APPROXIMATELY $180,000. ON OCTOBER
15, 2000, WE COMPLETED AN INITIAL PUBLIC OFFERING, WHEREBY WE SOLD UNITS
CONSISTING OF ONE SHARE OF COMMON STOCK AND ONE WARRANT TO PURCHASE ONE SHARE OF
COMMON STOCK AND RECEIVED AGGREGATE PROCEEDS OF APPROXIMATELY $840,000. IN
ADDITION, IN JANUARY 2002, WE SOLD 400,000 SHARES OF OUR COMMON STOCK TO THE
PENSION FUND OF OUR PRINCIPAL STOCKHOLDER AT $.25 PER SHARE (THE APPROXIMATE
FAIR VALUE OF THE SHARES AT THE TIME OF SALE) AND RECEIVED PROCEEDS OF $100,000.
THEN, DURING SEPTEMBER 2002, WE SOLD AN ADDITIONAL 75,000 SHARES OF OUR COMMON
STOCK TO THE SAME PENSION FUND FOR $.28 PER SHARE (THE APPROXIMATE FAIR VALUE OF
THE SHARES AT THE TIME OF SALE) AND RECEIVED PROCEEDS OF $21,000. IN THE FIRST
NINE MONTHS OF 2003, WE RAISED APPROXIMATELY $221,000 FROM THE EXERCISE OF OUR
WARRANTS. WE ALSO RECEIVED NET PROCEEDS OF $71,000 DRAWN UNDER A $75,000 BANK
LOAN FROM M & T BANK. THE AFOREMENTIONED PROCEEDS HAVE BEEN USED FOR WORKING
CAPITAL, CAPITAL EQUIPMENT, AND GENERAL CORPORATE PURPOSES. IN ADDITION TO THE
AFOREMENTIONED EQUITY TRANSACTIONS, WE HAVE FUNDED A PART OF OUR ACCUMULATED
LOSS OF APPROXIMATELY $2,665,000 BY HAVING OUR FOUNDERS DEFER APPROXIMATELY
$557,000 OF COMPENSATION DUE THEM UNDER THEIR EMPLOYMENT AGREEMENTS. OF THAT
AMOUNT, THE PRINCIPAL SHAREHOLDER HAS AGREED TO CONTRIBUTE APPROXIMATELY
$426,000 TO OUR CAPITAL. WE HAVE EXECUTED A FIVE-YEAR LEASE (AT $700 PER MONTH)
FOR OFFICE SPACE AT "TECH CITY", FORMALLY THE IBM FACILITY IN KINGSTON, NY. TECH
CITY HAS BECOME THE HOME OF MANY HIGH TECHNOLOGY FIRMS IN THE HUDSON VALLEY. THE
SPACE IS SUFFICIENT FOR BOTH OUR GROWING RESEARCH AND DEVELOPMENT TEAM AND A
SALES/MARKETING FORCE.
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IN MAY 2003, WE SIGNED A FIVE YEAR CONTRACT WITH PARK AVENUE ASSOCIATES
IN RADIOLOGY, P.C. TO INSTALL AND MAINTAIN OUR WARPSPEED PACS/RIS SYSTEM IN ONE
OF THEIR OUTPATIENT IMAGING CENTERS. THIS INSTALLATION WAS COMPLETED AND WE
SHOULD COMMENCE EARNING REVENUE UNDER THE AFOREMENTIONED CONTRACT DURING THE
FORTH QUARTER OF 2003. WE HAVE ENTERED INTO LETTER OF INTENT WITH ST. ANTHONY'S
HOSPITAL, WARWICK, NY. MANAGEMENT EXPECTS THE FINAL CONTRACT TO CLOSE BY THE END
OF THE FORTH QUARTER. WE EXPECT TO COMMENCE EARNING REVENUES UNDER THIS
AGREEMENT DURING THE FIRST QUARTER OF 2004.
ITEM 3.
CONTROLS AND PROCEDURES
UNDER THE SUPERVISION AND WITH THE PARTICIPATION OF OUR MANAGEMENT, INCLUDING
OUR PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER, WE HAVE
EVALUATED THE EFFECTIVENESS OF THE DESIGN AND OPERATION OF OUR DISCLOSURE
CONTROLS AND PROCEDURES PURSUANT TO EXCHANGE ACT RULE13A-15 AS OF THE END OF THE
PERIOD COVRED BY THIS QUARTERLY REPORT. BASED UPON THEIR EVALUATION, OUR
PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER HAVE CONCLUDED THAT
OUR DISCLOSURE CONTROLS AND PROCEDURES ARE EFFECTIVE IN TIMELY ALERTING THEM TO
MATERIAL INFORMATION RELATING TO US REQUIRED TO BE INCLUDED IN OUR PERIODIC SEC
FILINGS. THERE WERE NO SIGNIFICANT CHANGES IN OUR INTERNAL CONTROLS OR IN
FACTORS THAT COULD SIGNIFICANTLY AFFECT THESE CONTROLS SUBSEQUENT TO THE DATE
OF THE EVALUATION. CAUTIONARY STATEMENT FOR THE PURPOSES OF THE SAFE HARBOR
PROVISIONS OF THE PRIVATE SECURITIES ACT OF 1935.
THE STATEMENTS CONTAINED IN THE SECTION CAPTIONED MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS WHICH ARE NOT
HISTORICAL ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD-LOOKING STATEMENTS REPRESENT THE
COMPANY'S PRESENT EXPECTATIONS OR BELIEFS CONCERNING FUTURE EVENTS. THE COMPANY
CAUTIONS THAT SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, PERFORMANCE, OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHER THINGS, THE
UNCERTAINTY AS TO THE COMPANY'S FUTURE PROFITABILITY, THE UNCERTAINTY AS TO THE
DEMAND FOR THE INTERNET VIRTUAL COMMUNITIES; INCREASING COMPETITION; THE ABILITY
TO HIRE, TRAIN, AND RETRAIN SUFFICIENT QUALIFIED PERSONNEL; THE ABILITY TO
OBTAIN FINANCING ON ACCEPTABLE TERMS TO FINANCE THE COMPANY'S GROWTH.
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PART II
ITEM 1.
LEGAL PROCEEDINGS.
DURING THE THIRD QUARTER, THE COMPANY ENTERED INTO, AND HAS SINCE CONCLUDED,
BINDING ARBITRATION WITH CARLTON PHELPS PERTAINING TO CERTAIN PROVISIONS OF HIS
EMPLOYMENT AGREEMENT EXECUTED DECEMBER 1999. A DECISION IS PENDING AND IS
SCHEDULED FOR RELEASE BY THE ARBITRATOR ON JANUARY 14, 2004. IT IS THE OPINION
OF MANAGEMENT THAT THE COMPANY WILL PREVAIL IN THESE MATTERS, AND THERE WILL BE
NO MATERIAL EFFECT ON THE COMPANY, OR ITS OPERATIONS.
ITEM 2.
CHANGES IN SECURITIES.
DURING THE NINE MONTHS ENDED SEPTEMBER 30, 2003, WE RECEIVED APPROXIMATELY
$221,000 UPON THE EXERCISE OF CLASS A AND B WARRANTS FOR THE PURCHASE OF
APPROXIMATELY 1,189,000 SHARES OF COMMON STOCK AT $.20 PER SHARE. ALL OF WHICH
WERE ISSUED AND OUTSTANDING AS OF SEPTEMBER 30, 2003.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES.
NONE.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. THERE ARE NO REPORTABLE
EVENTS RELATING TO THIS ITEM.
ITEM 5.
OTHER INFORMATION. THERE ARE NO REPORTABLE EVENTS RELATING TO THIS ITEM.
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K.
(A) 31.1 AND 31.2. (B) NONE
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 HEREUNTO DULY AUTHORIZED.
IMAGE TECHNOLOGY LABORATORIES, INC.
DATE: NOVEMBER 14, 2003
/S/ DAVID RYON
------------------------------
DAVID RYON, CEO, PRESIDENT AND
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER
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