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 JUNE 30, 2002
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)
167 SCHWENK DRIVE, 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 JUNE 30, 2002 WAS
12,157,462
Item 1. Financial Statements
Image Technology Laboratories, Inc.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
PAGE
Condensed Balance Sheets
June 30, 2002 (Unaudited) and December 31, 2001 F-2
Condensed Statements of Operations
Six and Three Months Ended June 30, 2002 and 2001 (Unaudited) F-3
Condensed Statement of Changes in Stockholders' Deficiency
Six Months Ended June 31, 2002 (Unaudited) F-4
Condensed Statements of Cash Flows
Six Months Ended June 30, 2002 and 2001 (Unaudited) F-5
Notes to Condensed Financial Statements (Unaudited) F-6/8
* * *
Image Technology Laboratories, Inc.
Condensed Balance Sheets
June 30, 2002 and December 31, 2001
June December
ASSETS 30, 2002 31, 2001
------ -------- --------
(Unaudited)
Current assets - cash and cash equivalents $ 34,922 $ 151,730
Equipment, net 38,350 42,948
----------- -----------
Totals $ 73,272 $ 194,678
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses $ 41,415 $ 37,911
Notes payable to stockholders 5,200 5,200
----------- -----------
Total current liabilities 46,615 43,111
Accrued compensation payable to stockholders 491,695 420,541
----------- -----------
Total liabilities 538,310 463,652
----------- -----------
Commitment
Stockholders' deficiency:
Preferred stock, par value $.01 per share; 5,000,000 shares
authorized; 1,500,000 shares issued and outstanding 15,000 15,000
Common stock, par value $.01 per share; 50,000,000 shares
authorized; 12,157,462 and 11,272,712 shares issued and
outstanding 121,575 112,727
Additional paid-in capital 1,807,145 1,587,118
Unearned compensation (50,000) (150,000)
Unearned marketing expense (112,500)
Accumulated deficit (2,246,258) (1,833,819)
----------- -----------
Total stockholders' deficiency (465,038) (268,974)
----------- -----------
Totals $ 73,272 $ 194,678
=========== ===========
See Notes to Condensed Financial Statements.
Image Technology Laboratories, Inc.
Condensed Statements of Operations
Six and Three Months Ended June 30, 2002 and 2001
(Unaudited)
Six Months Three Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
Revenues $ 76,550 $ -- $ 69,250 $ --
------------ ------------ ------------ ------------
Research and development expenses 278,750 319,908 100,000 168,144
Selling expenses 12,761 12,761
General and administrative expenses 197,478 94,051 113,140 72,752
------------ ------------ ------------ ------------
Totals 488,989 413,959 225,901 240,896
------------ ------------ ------------ ------------
Net loss $ (412,439) $ (413,959) $ (156,651) $ (240,896)
============ ============ ============ ============
Basic net loss per share $ (.03) $ (.03) $ (.01) $ (.02)
============ ============ ============ ============
Basic weighted average shares
outstanding 13,161,588 12,450,823 13,207,266 12,471,774
============ ============ ============ ============
See Notes to Condensed Financial Statements.
Image Technology Laboratories, Inc.
Condensed Statement of Changes in Stockholders' Deficiency
Six Months Ended June 30, 2002
(Unaudited)
Preferred Stock Common Stock
--------------- ------------ Additional
Number of Number of Paid-In Unearned
Shares Amount Shares Amount Capital Compensation
------ ------ ------ ------ ------- ------------
Balance, January 1, 2002 1,500,000 $ 15,000 11,272,712 $ 112,727 $ 1,587,118 $ (150,000)
Sales of shares of common stock
through private placement 400,000 4,000 96,000
Issuance of common stock upon
exercise of warrants 34,750 348 16,027
Issuance of common stock for
services to be rendered 450,000 4,500 108,000
Amortization of unearned com-
pensation 100,000
Net loss
--------- ----------- ---------- ----------- ---------- -----------
Balance, June 30, 2002 1,500,000 $ 15,000 12,157,462 $ 121,575 $ 1,807,145 $ (50,000)
========= =========== ========== =========== =========== ===========
Unearned Total
Maketing Accumulated Stockholders'
Expense Deficit Deficiency
------------ ------------- -----------
Balance, January 1, 2002 $(1,833,819) $ (268,974)
Sales of shares of common stock
through private placement 100,000
Issuance of common stock upon
exercise of warrants 16,375
Issuance of common stock for
services to be rendered $(112,500)
Amortization of unearned com-
pensation 100,000
Net loss
(412,439) (412,439)
---------- ----------- ----------
Balance, June 30, 2002 $ (112,500) $(2,246,258) $ (465,038)
========== =========== ==========
See Notes to Condensed Financial Statements.
Image Technology Laboratories, Inc.
Condensed Statements of Cash Flows
Six Months Ended June 30, 2002 and 2001
(Unaudited)
2002 2001
---- ----
Operating activities:
Net loss $(412,439) $(413,959)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of unearned compensation 100,000 75,000
Depreciation 4,598
Changes in operating assets and liabilities:
Accrued compensation payable to stockholders 71,154 43,173
Accounts payable and accrued expenses 3,504 (13,752)
--------- ---------
Net cash used in operating activities (233,183) (309,538)
--------- ---------
Financing activities:
Proceeds from exercise of stock options 16,375 50,976
Proceeds from private placement of common stock 100,000
--------- ---------
Net cash provided by financing activities 116,375 50,976
--------- ---------
Net decrease in cash (116,808) (258,562)
Cash, beginning of period 151,730 725,105
--------- ---------
Cash, end of period $ 34,922 $ 466,543
========= =========
See Notes to Condensed Financial Statements.
Image Technology Laboratories, Inc.
Notes to Condensed Financial Statements
(Unaudited)
NOTE 1 - UNAUDITED INTERIM FINANCIAL STATEMENTS:
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 June 30, 2002, its results of
operations for the six and three months ended June 30, 2002 and 2001, changes in
stockholders' deficiency for the six months ended June 30, 2002 and cash flows
for the six months ended June 30, 2002 and 2001. Certain terms used herein are
defined in the audited financial statements of the Company as of December 31,
2001 and for the years ended December 31, 2001 and 2000 and period from January
1, 1998 (date of inception) to December 31, 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 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 six and three months ended June 30, 2002 are
not necessarily indicative of the results of operations for the full year ending
December 31, 2002.
The Company was a development stage company from January 1, 1998 (date of
inception) through April 2002, at which time its software was available for
sale. During the six and three months ended June 30, 2002, the Company derived
service revenue of $20,300 and $7,300, respectively, from a company owned by its
principal stockholder.
As of June 30, 2002, the Company has cash and cash equivalents of approximately
$35,000 and a working capital deficiency of approximately $12,000. However,
since inception, the Company has incurred losses resulting in an accumulated
deficit of approximately $2,246,000 at June 30, 2002. The Company currently
expects to incur additional losses for the foreseeable future. In addition, the
Company has only recently introduced its product to market and has just begun to
generate revenues. Further, as of June 30, 2002, the stockholders have deferred
approximately $492,000 of compensation due them under their employment
agreements until 2003.
On April 4, 2002, the Company entered into a letter of intent with a company for
the purchase of one of the Company's systems at fair market value and a service
agreement. The Company is anticipating generating approximately $700,000 in
annual fees under this agreement. The agreements are currently at the contract
stage and closing is anticipated to occur as soon as administratively feasible.
In addition, the Company is currently negotiating similar agreements with other
companies.
Image Technology Laboratories, Inc.
Notes to Condensed Financial Statements
(Unaudited)
NOTE 1 - UNAUDITED INTERIM FINANCIAL STATEMENTS (CONCLUDED):
If the aforementioned contract does not close as anticipated, the Company
estimates that it will need additional financing of $200,000, either by debt or
equity, to fund its planned operations beyond its current level over the next 12
months. At the present time, except for the commitment of the Company's
principal stockholder to fund the $200,000, the Company has no commitments for
additional financing and there can be no assurance that such financing will be
available on satisfactory terms, if at all. Management believes that even if the
aforementioned contract does not close, the funding by the principal stockholder
of $200,000 will enable the Company to meet its obligations and fund its
operations through at least June 30, 2003.
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").
The rights of the Company's preferred and common stockholders are substantially
equivalent. The Company has included the 1,500,000 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 six and three months ended June
30, 2002 and 2001 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 six and three months ended June 30,
2002, the assumed effects of the exercise of 3,000,000 options and 3,429,512 and
3,561,362 warrants outstanding at June 30, 2002 and 2001, respectively, would
have been anti-dilutive.
NOTE 3 - EXERCISE OF WARRANTS:
During the six months ended June 30, 2002, warrantholders redeemed 24,750
warrants and received 24,750 shares of common stock at a redemption price of
$.50 per share or $12,375 and also exercised 10,000 warrants and received 10,000
shares of common stock at a price of $.40 per share or $4,000. As of June 30,
2002, 3,329,512 warrants are outstanding.
NOTE 4 - PRIVATE PLACEMENT OF SHARES:
During January 2002, the Company completed a private placement of 400,000 shares
of common stock to its principal stockholder at $.25 per share, the approximate
fair value, and received proceeds of $100,000.
Image Technology Laboratories, Inc.
Notes to Condensed Financial Statements
(Unaudited)
NOTE 5 - ISSUANCE OF COMMON STOCK FOR SERVICES:
During January 2002, the Company entered into an agreement with an investor
relations firm. In exchange for marketing services, the Company granted 450,000
shares of common stock and 100,000 two-year warrants with a $3.00 exercise
price.
The services which are to be provided over a six month period were valued at
approximately $112,500 based on the fair value of the shares of common stock on
the date the agreement was entered into. The services will commence upon
issuance of the shares of common stock.
During June 2002, the Company issued these shares to the investor relation firm,
which will commence its marketing services during July 2002. The aforementioned
transaction is a noncash activity and, as such, is not reflected in the
Company's condensed statement of cash flows for the six months ended June 30,
2002.
* * *
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
OVERVIEW
The following is a discussion of certain factors affecting Image Technology
Laboratories, Inc.'s results of operations, liquidity, and capital resources.
You should read the following discussion and analysis in conjunction with Image
Technology Laboratories, Inc's unaudited condensed financial statements and
related notes which are included elsewhere in this filing.
Image Technology Laboratories, Inc. has entered the medical image management
segment of the healthcare information systems market. We were incorporated in
Delaware on December 5, 1997. Image Technology has 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 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.
As of June 30, 2002, the Company has cash and cash equivalents of approximately
$35,000 and working capital of approximately $12,000. However, since inception,
the Company has incurred losses resulting in an accumulated deficit of
approximately $2,246,000 at June 30, 2002. The company currently expects to
incur additional losses for the foreseeable future. In addition, the Company has
only recently introduced its product to market and has just begun to generate
revenues. Further, as of June 30, 2002, the founding stockholders have deferred
until 2003 approximately $492,000 of compensation due them under their
employment agreements.
On April 4, 2002, the Company entered into a letter of intent with a company for
the purchase of one of the Company's systems at fair market value and a service
agreement. The Company is anticipating to generate approximately $700,000 in
annual fees under this agreement. The agreements are currently at the contract
stage and closing is anticipated to occur as soon as administratively feasible.
In addition, the Company is currently negotiating similar agreements with other
companies. If the aforementioned contract does not close, as anticipated, the
Company estimates that it will need additional financing of $200,000, either by
debt or equity financing to fund its planned operations beyond its current level
over the next 12 months. At the present time, except for the commitment of the
Company's principal stockholder to fund the $200,000, the Company has no
commitments for additional financing and there can be no assurance that such
financing will be available on satisfactory terms, if at all. Management
believes that if the principal stockholder funds the additional working
capital of $200,000 it will enable the Company to meet its obligations and fund
its operations through at least June 30, 2003.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED June 30, 2002 COMPARED TO
THE SIX MONTHS ENDED June 30, 2001
REVENUES:
The Company was a development stage company from January 1, 1998 (date of
inception) through April 2002, at which time its software was available for
sale. During the six and three moths ended June 30,2002, the Company derived
service revenue of $76,550 and $69,250, respectfully, of which $20,300 and
$7,300 was derived from a company owned by its principal stockholder.
As of March 31, 2002, we had not generated any significant revenues from
operations and, accordingly, we were still in the development stage. We do not
expect to generate any significant revenue from our planned operations prior to
the second quarter of 2002.
RESEARCH AND DEVELOPMENT EXPENSES:
During the six months ended June 30, 2002, the Company incurred research and
development expenses of $278,750 and $100,000, respectively, as compared with
$319,908 and $168,144 in the comparable prior periods. These expenses consisted
primarily of compensation to the Company's three founders under their employment
contracts. In addition, $100,000, $25,000, $75,000 and $37,500 of these expenses
during the six months period ended June 30, 2002 and 2001, respectfully, were
attributable to compensation associated with the issuance of the shares of
preferred stock to the founders, a non-cash charge. During the first quarter
2002, one of our founders was terminated for cause for breach of his employment
agreement; therefore, we accelerated the remaining unamortized compensation
($37,500) associated with the issuance of the Preferred Stock to that founder.
Also, as a result of this, our research and development costs should be reduced
in the future.
GENERAL AND ADMINISTRATIVE EXPENSES:
During the six and three months ended June 30, 2002, the Company incurred
general and administrative expenses of $197,478 and $$113,140, respectfully, as
compared to $94,051 and $72,752 in the comparable prior periods. The increase
was primarily attributable to an increase in payroll and other overhead items as
well as incurring additional costs as it built up its infrastructure.
SELLING EXPENSE:
During the second quarter of 2002, the Company began to incur marketing expenses
($12,761) as it introduced its product for sale.
NET LOSS:
As a result of the aforementioned, the Company incurred a loss of approximately
$412,000 ($.03 per share) and $157,000 ($.01 per share) for the six and three
months ended June 30,2002, as compared to the approximately$414,000 ($.03 per
share) and $241,000 ($.02 per share) for the six and three months ended June
30,2002.
LIQUIDITY AND CAPITAL RESOURCES:
As of June 30, 2002, we had cash and a working capital deficiency of
approximately $35,000 and $12,000, respectively. To date, the principal sources
of capital resources have been proceeds from issuance of shares of common stock
to our founders of $21,250, the net proceeds from private placements of units of
common stock and warrants during 2000 of approximately $180,000. Then on October
15, 2002, we completed an initial public offering whereby we sold 2,591,050
units at $.40 per unit and received net proceeds of approximately $840,000. Each
unit consisted of one share of common stock and one warrant. The proceeds from
this offering were used for working capital and general corporate purposes. To
date, we received approximately $166,000 upon the exercise of warrants and the
issuance of shares of common stock. In addition, in January 2002, we sold
400,000 shares of our common stock to one of our principal stockholders for
$100,000 or $.25 per share, which approximates fair value.
During January 2002, the Company entered into an agreement with an investor
relations firm. In exchange for marketing services, the Company granted 450,000
shares of common stock and 100,000 two-year warrants with a $3.00 exercise
price. The services which are to be provided over a six month period were valued
at approximately $112,500 based on the fair market value of the shares of common
stock on the date the agreement was entered into. The services will commence
upon issuance of shares of common stock. During June 2002 the Company issued
these shares to the investor relations firm, who will commence its marketing
services during July 2002.
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.
PART II
Item 1. Legal Proceedings. None
Item 2. Changes in Securities.
During January 2002, Image Technology issued 400,000 shares of common stock to
Kingston Diagnostic Radiology, P.C. pension fund, the sole beneficiary of which
is Dr. Ryon, our President, Chief Executive Officer and Principal Accounting and
Financial Officer.
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) Not applicable.
(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: June 6, 2002
/S/ DAVID RYON
--------------
David Ryon, CEO, President and
Principal Financial and
Accounting Officer