IMAGE TECHNOLOGY LABORATORIES, INC.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2007 or
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to ____________________
Commission File Number: 34-00031307
IMAGE TECHNOLOGY LABORATORIES, INC.
--------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-3531373
--------------------------------- ------------------
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
602 Enterprise Drive
Kingston, New York 12401
---------------------------------
(Address of Principal Executive Offices)
(845) 338-3366
----------------
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
As of March 31, 2007, there were 15,238,778 shares of the registrant's common
stock outstanding.
IMAGE TECHNOLOGY LABORATORIES, INC.
INDEX
PAGE NO.
PART I - FINANCIAL INFORMATION 2
Item 1 - Financial Statements 2
Condensed Balance Sheets 3
Condensed Statements of Operations 4
Condensed Statement of Changes in Stockholders' Deficiency 5
Condensed Statements of Cash Flows 6
Notes to Condensed Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3 - Controls and Procedures 15
PART II - OTHER INFORMATION 16
Item 1 - Legal Proceedings 16
Item 2 - Changes in Securities 16
Item 3 - Defaults Upon Senior Securities 16
Item 4 - Submission of Matters to a Vote of Security Holders 16
Item 5 - Other Information 16
Item 6 - Exhibits and Reports on Form 8-K 16
SIGNATURES 18
EXHIBIT 31.1 - CERTIFICATION 19
EXHIBIT 32.1 - ADDITIONAL CERTIFICATION 20
2
IMAGE TECHNOLOGY LABORATORIES, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
MARCH 31, 2007 DECEMBER 31, 2006
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 21,386 $ 3,264
Accounts receivable 129,441 194,839
Prepaid expenses and other current assets 20,953 10,602
----------------- -----------------
TOTAL CURRENT ASSETS 171,780 208,705
Equipment and improvements, net 104,757 118,267
Rent - deposit 1,496 1,496
----------------- -----------------
TOTAL ASSETS $ 278,033 $ 328,468
================= =================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Loan payable to stockholder $ 50,000 $ 50,000
Loan: Bank line of credit 72,069 66,895
Accounts payable and accrued expenses 204,070 217,402
Accrued compensation payable to stockholders 130,211 121,723
----------------- -----------------
TOTAL LIABILITIES, ALL CURRENT 456,350 456,020
----------------- -----------------
STOCKHOLDERS' DEFICIENCY:
Preferred stock, par value $.01 per share; 5,000,000 shares authorized;
1,500,000 shares issued and outstanding, Series A 15,000 15,000
1,012 and 1,000 shares issued and outstanding, Cumulative Convertible
Series B 5,194 10
Common stock, par value $.01 per share; 50,000,000 shares authorized;
15,238,778 shares issued and outstanding 152,388 152,388
Additional paid-in capital 3,654,498 3,630,015
Accumulated deficit (4,005,397) (3,924,965)
----------------- -----------------
TOTAL STOCKHOLDERS' DEFICIENCY (178,317) (127,552)
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 278,033 $ 328,468
================= =================
The accompanying notes are an integral part of the financial statements.
3
IMAGE TECHNOLOGY LABORATORIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
---------------
2007 2006
---- ----
REVENUE:
Systems / software: license fees and sales $ 104,700 $ 154,480
Service Income 256 7,500
------------ ------------
TOTAL REVENUE 104,956 161,980
COST OF REVENUE: 56 0
------------ ------------
GROSS PROFIT 104,900 161,980
------------ ------------
COSTS AND EXPENSES:
Research and development 80,750 86,531
Sales and marketing 3,283 6,375
General and administrative (includes interest
expense of $1,777 and $8,125 for the three
months ending March 31, 2007 and 2006) 71,632 110,781
Stock based compensation 24,483 24,483
------------ ------------
TOTAL COSTS AND EXPENSES 180,148 228,170
------------ ------------
NET LOSS $ (75,248) $ (66,190)
============ ============
NET LOSS PER COMMON SHARE:
Basic and diluted $ (0.00) $ (0.00)
AVERAGE NUMBER OF SHARES USED IN COMPUTATION:
Basic and diluted 16,739,790 16,738,778
============ ============
The accompanying notes are an integral part of the financial statements.
4
IMAGE TECHNOLOGY LABORATORIES, INC.
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
THREE MONTHS ENDED MARCH 31, 2007
(UNAUDITED)
PREFERRED STOCK
SERIES A AND B COMMON STOCK
-------------------- ----------------------
ADDI- TOTAL
NUMBER NUMBER TIONAL ACCUMU- STOCK-
OF OF PAID-IN LATED HOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY
------ ------ ------ ------ ------- ------- ----------
Balance, January 1, 2007 1,501,000 $15,010 15,238,778 $152,388 $3,630,015 $(3,924,965) $(127,552)
Stock based compensation 24,483 24,483
Cumulative Convertible
Preferred Series B, dividend
accumulation 12 5,184 (5,184)
Net loss (75,248) (75,248)
--------------------------------------------------------------------------------------
Balance, March 31, 2007 1,501,012 $20,194 15,238,778 $ 152,388 $3,654,498 $ (4,005,397) $(178,317)
======================================================================================
The accompanying notes are an integral part of the financial statements.
5
IMAGE TECHNOLOGY LABORATORIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31
--------------
2007 2006
OPERATING ACTIVITIES:
Net loss $ (75,248) $ (66,190)
Adjustments to reconcile net loss to net cash provided
(used) in operating activities:
Depreciation and amortization of equipment
and improvements 13,510 14,877
Stock based compensation 24,483 24,483
Changes in operating assets and liabilities:
Accounts receivable 65,398 (43,133)
Prepaid expenses and other current assets (10,351) (9,335)
Accounts payable and accrued expenses (13,332) (3,304)
Accrued compensation payable to stockholders 8,488 34,361
------------ ------------
NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES 12,948 (48,241)
------------ ------------
INVESTING ACTIVITIES - purchase of equipment and improvements 0 (1,890)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from bank line of credit 5,174 12,064
Proceeds from loans from stockholders 0 22,500
Repayments of notes payable and long-term debt 0 (22,672)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,174 11,892
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 18,122 (38,239)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,264 40,698
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 21,386 $ 2,459
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 8,125 $ 2,857
============ ============
The accompanying notes are an integral part of the financial statements.
6
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 March 31, 2007, its results of
operations for the three months ended March 31, 2007 and 2006, changes in
stockholders' deficiency for the three months ended March 31, 2007 and cash
flows for the three months ended March 31, 2007 and 2006. Certain terms used
herein are defined in the audited financial statements of the Company as of
December 31, 2006 and for the years ended December 31, 2006 and 2005 (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 three months ended March 31, 2007 are not
necessarily indicative of the results of operations to be expected for the full
year ending December 31, 2007.
These unaudited financial statements have been prepared assuming that the
Company will continue as a going concern and, accordingly, do not include any
adjustments that might result from the outcome of this uncertainty. The
Company's independent registered public accounting firm's report on the
financial statements included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 2006, contained an explanatory paragraph regarding
the Company's ability to continue as a going concern.
NOTE 2 - EARNINGS (LOSS) PER SHARE:
The Company presents "basic" earnings (loss) per common share and, if
applicable, "diluted" earnings (loss) per common share pursuant to the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"). Basic earnings (loss) per common share is calculated by
dividing net income or loss applicable to common stock by the weighted average
number of common shares outstanding during each period. The calculation of
diluted earnings (loss) per common share is similar to that of basic earnings
(loss) per common share, except that the denominator is increased to include the
number of additional common shares that would have been outstanding if all
potentially dilutive common shares, such as those issuable upon the exercise of
stock options and warrants, were issued during the period. The rights of the
Company's preferred and common stockholders are substantially equivalent. The
Company has included the 1,500,000 Preferred Series A shares and the 1,012
Cumulative Convertible Preferred Series B shares outstanding in the weighted
average number of common shares outstanding in the computation of basic loss per
share for the year ended December 31, 2006 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 three months ended March 31, 2007 and
2006, the assumed effects of the exercise of outstanding options, warrants or
the conversion of preferred stock into common shares at March 31, 2007 and 2006,
respectively, were not considered in the computation of loss per share as they
would have been anti-dilutive. However, these common stock equivalents could
have potentially dilutive effects in the future. As of March 31, 2007 and 2006,
potentially full dilutive shares totaled 6,062,400 and 3,355,000 respectively.
7
IMAGE TECHNOLOGY LABORATORIES, INC.
NOTE 3 - WORKING CAPITAL LOAN AGREEMENT:
During September 2002, the Company entered into a one-year working capital loan
agreement with a financial institution for borrowings of up to $75,000. The
agreement automatically renews annually unless one of the parties gives
appropriate notice for cancellation. Outstanding borrowings bear interest
payable monthly at 1% above the prime rate, and are guaranteed by the Estate of
the Company's principal stockholder, Dr. David Ryon. At March 31, 2007, there
was $72,069 outstanding under this agreement.
NOTE 4 - NOTES PAYABLE TO STOCKHOLDERS:
During November and December 2004, Dr. David Ryon, the Company's principal
stockholder, President, and Chief Executive Officer, until his death in December
2004, loaned the Company an aggregate of $105,000. In December 2004, to
memorialize this loan, he executed, as President and Chief Executive Officer, on
behalf of the Company, a demand promissory note payable to himself and bearing
interest at 10% per annum. He also executed a security agreement, for himself on
behalf of the Company, granting to himself a security interest in all of the
Company's assets not previously encumbered as security for full payment under
the note. Prior to April 12, 2005, the Company negotiated with the Estate of Dr.
David Ryon a 24-month payment schedule, beginning in January 2006. The Company's
Board of Directors approved the revised terms of the promissory note on April
12, 2005. In December 2005, the Estate of Dr. Ryon loaned the Company an
additional $36,000 under an amendment to the December 2004 promissory note and
the payment schedule was renegotiated to begin in January 2007. Additional
amounts were loaned to the Company in March 2006 for $22,500, in August 2006 for
$57,672 and in September 2006 for $153,375. These amounts, along with other
previous loans to the Company by the largest stockholder totaling $374,548 were
converted to 1000 shares of Cumulative Convertible Preferred Stock Series B in
late September 2006, and all accrued interest was forgiven. Cumulative
Convertible Preferred Stock Series B can be converted to common stock of Image
Technology Laboratories at a ratio of one share of Cumulative Convertible
Preferred Stock Series B to 2,700 shares of common stock. Either the stockholder
or the Company may elect to force conversion after two years in units of 100
shares of Cumulative Convertible Preferred Stock Series B. The Company may also
elect to repurchase the Cumulative Convertible Preferred Stock Series B in units
of 100 shares of Cumulative Convertible Preferred Stock Series B at any time for
$432 per share of Cumulative Convertible Preferred Stock Series B. Fixed
dividend is accumulated as 12.5 additional shares of Cumulative Convertible
Preferred Stock Series B per quarter. The underlying common stock, should the
Company or shareholder elect to convert, is unregistered. The voting rights are
set at one vote per share of Cumulative Convertible Preferred Stock Series B.
In September 2005, the Company received a total of $50,000 in cash as part of a
Bridge Loan Agreement that included the issuance of warrants to purchase 50,000
shares of Common Stock of the Company. All $50,000 of these funds came from a
member of the Company's Board of Directors. The five-year warrants have an
exercise price of $0.33 per share. The Bridge Loan has an annual interest rate
of 14%, a maturity of 12 months and can be prepaid upon certain events such as
receipt of a certain level of funds from the InMed Services agreement and gross
proceeds of equity financing above $500,000. The principal and accrued interest
associated with this loan is still outstanding, and the maturity date has been
extended to September 2007.
8
IMAGE TECHNOLOGY LABORATORIES, INC.
NOTE 5 - STOCK OPTIONS
The Company did not grant any options under the Company's option plan during the
quarter ended March 31, 2007.
Prior to January 1, 2006 the Company measured 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 provisions of
Statement of Financial Accounting Standards No. 123R ("SFAS 123R"), "Accounting
For Stock-Based Compensation." As a result of SFAS 123R, the Company began
expensing the fair value of employee stock options over the vesting period
beginning with its fiscal quarter ending March 31, 2006. For the quarter ending
March 31, 2007, the Company expensed $24,483 due to stock options.
NOTE 6 - WARRANTS
As of March 31, 2007, the Company had 230,000 warrants outstanding at an
exercise price of $0.33 per share. The warrants expire in 2010.
NOTE 7 - FIXED DIVIDENDS
The Company's largest stockholder accumulated 12 additional shares of Cumulative
Convertible Preferred Stock Series B on January 1, 2007 as Fixed Dividends.
9
IMAGE TECHNOLOGY LABORATORIES, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following is a discussion of certain factors affecting Image Technology
Laboratories, Inc.'s results of operations, assets, 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. ("we", "our" or the "Company") is a medical
image and information management company in the healthcare information systems
market. We were incorporated in Delaware on December 5, 1997. The Company has
developed a single database "Radiology Information System and Picture Archiving
and Communications System" known as RIS/PACS for use in the secure management of
patient information and diagnostic images. Our lead product is the WarpSpeed
system. Through its unique, modular architecture the Company has created a total
radiology business solution that is readily scaled and easily upgraded. These
features will allow the Company to provide products tailored to the size of its
customers and to keep its customers at the forefront of future technological
advances by enabling the Company to easily update existing systems.
We expect that we will derive our future revenues primarily from sales of our
WarpSpeed system and associated maintenance charges along with Application
Service Provider (ASP) usage fees. We obtained our first contract for the sale
of WarpSpeed and related hardware and maintenance services in August 2002.
Accordingly, we are no longer in the development stage for accounting purposes,
but we continue to refine and enhance the capabilities of our WarpSpeed system.
We have had recurring losses and negative cash flows from our operating
activities since inception. We have cash of $21,386 and a working capital
deficiency of $284,570 as of March 31, 2007.
10
IMAGE TECHNOLOGY LABORATORIES, INC.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2007
COMPARED WITH THE THREE MONTHS ENDED MARCH 31, 2006
REVENUE:
For the three months ended March 31, 2007, our total revenue was $104,956, a
decrease of $57,024 from the $161,980 in the year's comparable period, largely
attributed to variations in the billed usage fees.
COST OF REVENUE:
For the three months ended March 31, 2007 direct cost of revenue for $56 was
incurred. For the three months ending March 31, 2006, our cost of revenue was
$0, largely attributable to a lack of systems hardware purchases during this
period.
SALES AND MARKETING EXPENSES:
During the three months ended March 31, 2007, we incurred sales and marketing
expenses of $3,283, as compared with sales and marketing expenses of $6,375
during the same period of 2006, a decrease of $3,092. The Company has focused
its efforts on controlling costs while identifying appropriate sales personnel
and resources. These costs are expected to grow as the company executes its
business plan.
NET LOSS:
We incurred a net loss of $75,248 (less than $.01 per share) for the three
months ended March 31, 2007 as compared with a loss of $66,190 for the three
months ended March 31, 2006. The Company continues to aggressively manage costs
while it focuses on increasing revenues from sales of systems / software
11
IMAGE TECHNOLOGY LABORATORIES, INC.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2007, our total assets were $278,033, a decrease of $50,435 from
total assets of $328,468 on December 31, 2006.
As of March 31, 2007, we had cash and cash equivalents and a working capital
deficiency of $21,386 and $284,570, respectively.
Net cash provided in our operating activities for the three months ending March
31, 2007 of $12,948 was substantially attributable to our net loss of $75,248
offset by $8,488 in accrued compensation payable to stockholders. Of the net
loss of $75,248, $24,483 was stock based compensation expense. The net cash
provided by our financing activities was a net of $5,174 from our bank line of
credit. Investing activities (purchase of equipment and improvements) for the
three months ending March 31, 2007 totaled $ 0.
The foregoing activities, i.e., operating, investing and financing, resulted in
our net cash increase of $18,122 for the three months ended March 31, 2007.
In September 2002, we applied for, and received, a line of credit from M & T
Bank, renewable annually, in the amount of $75,000. As of March 31, 2007, we
have $72,069 outstanding under that loan.
In February and March 2004, we borrowed an aggregate of $264,000 from Valley
Commercial Capital, LLC ("Valley"). These loans required aggregate monthly
payments of principal and interest of $8,273 through February 2007 and $4,682 in
March 2007. In late August 2006, the remaining balance of these loans, $57,672,
was paid. This payoff was funded by a loan from our largest stockholder and was
converted to Cumulative Convertible Preferred Series B stock issued to our
largest stockholder in late September 2006.
In December 2004, we borrowed $105,000 from our former Chief Executive Officer,
and was to be repaid over 24 months, beginning in January 2007. This amount was
converted to Cumulative Convertible Preferred Series B stock issued to our
largest stockholder in late September 2006.
In September 2005, the Company received a total of $50,000 in cash as part of a
Bridge Loan Agreement that included the issuance of warrants to purchase 50,000
shares of Common Stock of the Company. All $50,000 of these funds came from a
member of the Company's Board of Directors. The five-year warrants have an
exercise price of $0.33 per share. The Bridge Loan has an annual interest rate
of 14%, a maturity of 12 months and can be prepaid upon certain events such as
receipt of a certain level of funds from the InMed Services agreement and gross
proceeds of equity financing above $500,000. The principal and accrued interest
associated with this loan is still outstanding, and the maturity date has been
extended to September 2007.
In December 2005, our largest stockholder loaned the Company an additional
$36,000 under an amendment to the December 2004 promissory note. An additional
$22,500 was borrowed from our largest stockholder in March 2006. These amounts
were converted to Cumulative Convertible Preferred Series B stock issued to our
largest stockholder in late September 2006.
In September 2006, the Company entered into a settlement agreement with Dr.
Carlton Phelps, our former vice president of finance and administration, chief
financial officer, secretary and treasurer. Pursuant to the Settlement
Agreement, the Company paid Dr. Phelps a total of $153,375 consisting of
attorneys' fees awarded by the arbitrator and confirmed by the court plus
interest calculated at a rate of nine percent per annum from September 4, 2004
until September 1, 2006. The Company filed an 8-K detailing this event with the
Securities and Exchange Commission on October 4, 2006. In September 2006, the
Company's largest stockholder loaned the Company $153,375, the proceeds of which
were used to satisfy the $153,375 settlement with Dr. Phelps. This amount was
converted to Cumulative Convertible Preferred Series B stock issued to our
largest stockholder in late September 2006.
12
IMAGE TECHNOLOGY LABORATORIES, INC.
We require cash to fund our working capital needs and capital expenditures, as
well as to meet existing commitments. Such commitments include payments of
existing loans of our line of credit, and $900 per month pursuant to a five-year
lease commitment ending in October 2007 for our operations center in Kingston,
New York. At times, in order to help in maximizing our working capital, our
directors, officers and employees have contributed to capital or deferred
compensation due under their agreements. It is anticipated, but not assured,
that, should the need arise; such contributions or deferrals might be available
to us in the future. Additionally, we are considering outside sources of equity
funds and other types of financing in order to help support our anticipated
growth. There can be no assurance that such efforts will be successful.
Management believes that as a result of the proceeds from financing activities,
as well as anticipated cash flow generated by sales of its RIS/PACS solution (in
addition to the current cash flow resulting from our installed ASP base), the
Company will be able to continue to meet its obligations as they become due
through at least December 31, 2007. Management also believes 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 and private placements. However, there can be no
assurance that the Company will become profitable or that financing will be
available. Accordingly, the accompanying financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amount and classification of liabilities that
may result from the outcome of this uncertainty.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 2005, the Company received a total of $50,000 in cash as part of a
Bridge Loan Agreement that included the issuance of warrants to purchase 50,000
shares of Common Stock of the Company. All $50,000 of these funds came from a
member of the Company's Board of Directors. The five-year warrants have an
exercise price of $0.33 per share. The Bridge Loan has an annual interest rate
of 14%, a maturity of 12 months and can be prepaid upon certain events such as
receipt of a certain level of funds from the InMed Services agreement and gross
proceeds of equity financing above $500,000. The principal and accrued interest
associated with this loan is still outstanding, and the maturity date has been
extended to September 2007.
In December 2005, the Estate of Dr. Ryon loaned the Company an additional
$36,000 under an amendment to the December 2004 promissory note. Additional
amounts were loaned to the Company in March 2006 for $22,500, in August 2006 for
$57,672 and in September 2006 for $153,375.26. These amounts, along with other
previous loans to the Company by the largest stockholder totaling $374,548 were
converted to 1000 shares of Cumulative Convertible Preferred Series B stock in
late September 2006, and all accrued interest was forgiven. Cumulative
Convertible Preferred Stock Series B can be converted to common stock of Image
Technology Laboratories at a ratio of one share of Cumulative Convertible
Preferred Stock Series B to 2,700 shares of common stock. Either the stockholder
or the Company may elect to force conversion after two years in units of 100
shares of Cumulative Convertible Preferred Stock Series B. The Company may also
elect to repurchase the Cumulative Convertible Preferred Stock Series B in units
of 100 shares of Cumulative Convertible Preferred Stock Series B at any time for
$432 per share of Cumulative Convertible Preferred Stock Series B. Fixed
dividend is accumulated as 12.5 additional shares of Cumulative Convertible
Preferred Stock Series B per quarter. The underlying common stock, should the
Company or shareholder elect to convert, is unregistered. The voting rights are
set at one vote per share of Cumulative Convertible Preferred Stock Series B.
13
IMAGE TECHNOLOGY LABORATORIES, INC.
On January 17 2006, Barry C. Muradian informed the Company of his resignation as
President, Chief Executive Officer and Principal Accounting Officer, effective
January 20 2006. An 8-K was filed with the Securities and Exchange Commission on
January 20 2006. In May 2006, the Company and Mr. Muradian signed a
"Confidential Separation Agreement, Waiver and General Release". As part of this
agreement, Mr. Muradian was paid a total of approximately $22,500, which
represents all guaranteed payments due and owing to Mr. Muradian for salary and
expenses.
In September 2006, the Company entered into a settlement agreement with Dr.
Carlton Phelps, our former vice president of finance and administration, chief
financial officer, secretary and treasurer. Pursuant to the Settlement
Agreement, the Company paid Dr. Phelps a total of $153,375 consisting of
attorneys' fees awarded by the arbitrator and confirmed by the court plus
interest calculated at a rate of nine percent per annum from September 4, 2004
until September 1, 2006. The Company filed an 8-K detailing this event with the
Securities and Exchange Commission on October 4, 2006.
In September of 2006, the Company sold 2,309,583 shares of common stock at a
price of $0.10 to a group of seven accredited investors in a private placement
under Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of
Regulation D there under. These unregistered shares of common stock were issued
with registration rights. The proceeds of this sale of common stock were used to
repurchase 2,309,583 shares of common stock at a price of $0.10 from Dr. Carlton
Phelps, our former vice president of finance, chief financial officer, secretary
and treasurer. The 2,309,583 shares of stock repurchased from Dr. Phelps by the
Company were cancelled upon their tender. An 8-K was filed with the Securities
and Exchange Commission on October 4, 2006. The net effect of the repurchase and
subsequent cancellation of 2,309,583 shares of common stock as described above
in combination with the sale of 2,309,583 shares of common stock as described
above resulted in no change to the number of shares of common stock outstanding
due to this transaction.
FORWARD-LOOKING STATEMENTS
When used in the Quarterly Report on Form 10-QSB, the words "may", "will",
"should", "expect", "believe", "anticipate", "continue", "estimate", "project",
"intend" and similar expressions are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act regarding events, conditions and financial trends that
may affect our future plans of operations, business strategy, results of
operations and financial condition. We wish to ensure that such statements are
accompanied by meaningful cautionary statements pursuant to the safe harbor
established in the Private Securities Litigation Reform Act of 1995. Prospective
investors are cautioned that any forward-looking statements are not guarantees
of future performance and are subject to risks and uncertainties and that actual
results may differ materially from those included within the forward-looking
statements as a result of various factors including our ability to consummate,
and the terms of, acquisitions, if any. Such forward-looking statements should,
therefore, be considered in light of various important factors, including those
set forth herein and others set forth from time to time in our reports and
registration statements filed with the Securities and Exchange Commission (the
"Commission"). We disclaim any intent or obligation to update such
forward-looking statements.
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IMAGE TECHNOLOGY LABORATORIES, INC.
ITEM 3 - CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our Chief Technology Officer who is our Principal Accounting Officer, after
evaluating the effectiveness of the Company's disclosure controls and procedures
(as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)
as of the end of the period covered by this report (the "Evaluation Date")),
have concluded that as of the Evaluation Date, our disclosure controls and
procedures were adequate and effective to ensure that material information
relating to the Company would be made known to them by others within the
Company, particularly during the period in which this quarterly report on Form
10-QSB was being prepared.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in our internal controls or in other factors
that could significantly affect our disclosure controls and procedures
subsequent to the Evaluation Date, nor any significant deficiencies or material
weaknesses in such disclosure controls and procedures requiring corrective
actions. As a result, no corrective actions were taken.
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IMAGE TECHNOLOGY LABORATORIES, INC.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES
The Company converted a total of $374,548 of debt owed to our largest
shareholder to 1000 shares of Image Technology Laboratories Cumulative
Convertible Preferred Stock Series B issued to same stockholder in late
September 2006. Cumulative Convertible Preferred Stock Series B can be converted
to common stock of Image Technology Laboratories at a ratio of one share of
Cumulative Convertible Preferred Stock Series B to 2,700 shares of common stock.
Either the stockholder or the Company may elect to force conversion after two
years in units of 100 shares of Cumulative Convertible Preferred Stock Series B.
The Company may also elect to repurchase the Cumulative Convertible Preferred
Stock Series B in units of 100 shares of Cumulative Convertible Preferred Stock
Series B at any time for $432 per share of Cumulative Convertible Preferred
Stock Series B. Fixed dividend is accumulated as 12.5 additional shares of
Cumulative Convertible Preferred Stock Series B per quarter. The underlying
common stock, should the Company or stockholder elect to convert, is
unregistered. The voting rights are set at one vote per share of Cumulative
Convertible Preferred Stock Series B.
Our largest stockholder accumulated 12 additional shares of Cumulative
Convertible Preferred Stock Series B on January 1, 2007 under the terms
described above as Fixed Dividends.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
In April 2007, the Company executed an amendment to its contract with Park
Avenue Associates in Radiology PC, Binghamton NY to extend the term of the
original RIS/PACS contract through December 31, 2008 and for the purchase of
additional equipment to provide internet / web access to their images and
reports by referring physicians.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
31.1 Certification of Chief Technology Officer and Principal
Accounting Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Technology Officer and Principal
Accounting Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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IMAGE TECHNOLOGY LABORATORIES, INC.
(b) REPORTS ON FORM 8-K.
None.
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IMAGE TECHNOLOGY LABORATORIES, INC.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
/S/ LEWIS M. EDWARDS
--------------------
LEWIS M. EDWARDS,
CHAIRMAN, EXECUTIVE VICE-PRESIDENT,
CHIEF TECHNOLOGY OFFICER, AND PRINCIPAL
ACCOUNTING OFFICER
MAY 15, 2007
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