AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 2002
REGISTRATION NO. 333-82420
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
IMAGE TECHNOLOGY LABORATORIES, INC.
DELAWARE 8011 22-3531373
-------- ---- ----------
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
IDENTIFICATION OF INCORPORATION) CLASSIFICATION CODE NUMBER) OR ORGANIZATION
NUMBER)
167 SCHWENK DRIVE, KINGSTON, NEW YORK 12401 (845) 338-3366
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
DAVID RYON, MD, MS
CEO, PRESIDENT, CHAIRMAN OF THE BOARD
167 SCHWENK DRIVE, KINGSTON, NEW YORK 12401
(845) 338-3366
(NAME, ADDRESS AND TELEPHONE NUMBER FOR AGENT FOR SERVICE)
COPIES TO:
JEFFREY A. RINDE, ESQ.
BONDY & SCHLOSS, LLP
6 East 43rd Street, 25th Floor
New York, New York 10017
TELEPHONE (212) 661-3535
FACSIMILE (212) 972-1677
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
/ /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
/ /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
Cover continued on next page
CALCULATION OF REGISTRATION FEE
============================== ====================== ======================== =================== ==============
Proposed
Maximum
Aggregate Amount of
Title of Each Class of Amount to be Proposed Maximum Offering Registration
Securities to be Registered Registered Offering Price (1)(2) Price (1)(2) Fee
------------------------------ ---------------------- ------------------------ -------------------- ---------------
Common Stock, 350,000 shares (1) $.25 $87,500 $8.05
par value $.01 per share
------------------------------ ---------------------- ------------------------ -------------------- ----------------
Total 350,000 shares $87,500 $8.05
============================== ====================== ======================== ================--== ================
(1) Represents 350,000 shares of Common Stock to be issued to a consultant as
compensation for services rendered pursuant to his consulting agreement and to
be offered and sold by such consultant.
(2) Estimated solely for purposes of calculating the filing fees and calculated
pursuant to Rule 457(c) under the Securities Act of 1933, as amended (the
"Securities Act")
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8 (A), MAY DETERMINE.
Prospectus
IMAGE TECHNOLOGY LABORATORIES, INC.
350,000 shares of common stock to be issued pursuant to a consulting agreement
and thereafter offered and sold by such consultant.
Net Proceeds to Image Technology............................................None
On January 21, 2002, our Board of Directors authorized the issuance of
350,000 free trading shares, valued at $.25 per share, pursuant to a consulting
agreement with MacCaughern Trade Development (the "Consultant") as compensation
for services rendered pursuant to a consulting agreement (the "Consulting
Agreement").
We trade on the OTC Bulletin Board under the symbol "IMTL" with respect
to our common stock and under the symbol "IMTLW" and "IMTLZ" with respect to two
classes of warrants which are detachable from the shares.
Look carefully at the risk factors beginning on page 5 of this
prospectus.
This preliminary prospectus is not an offer to sell nor does it seek an
offer to buy these securities in any jurisdiction where the offer or sale is not
permitted.
Neither the SEC nor any other regulatory body has approved these shares
or determined that this prospectus is accurate or complete. It is illegal for
anyone to tell you otherwise.
THE DATE OF THIS PROSPECTUS IS , 2002
-1-
TABLE OF CONTENTS
Prospectus Summary........................................................... 3
Risk Factors................................................................. 5
Dividend Policy.............................................................. 12
Management's Discussion and Analysis or Plan of Operation.................... 12
Description of Business...................................................... 14
Management................................................................... 22
Executive Compensation....................................................... 24
Principal and Selling Security holders....................................... 27
Certain Relationships and Related Transactions............................... 27
Market for Our Securities.................................................... 28
Description of Securities.................................................... 29
Transfer Agent and Registrar................................................. 32
Plan of Distribution......................................................... 34
Shares Eligible for Future Sale.............................................. 34
Legal Matters................................................................ 34
Experts...................................................................... 34
Where You Can Find More Information.......................................... 35
Index to Financial Statements ...............................................F-1
-2-
PROSPECTUS SUMMARY
The following summary highlights information which we present more
fully elsewhere in this prospectus. You should read this entire prospectus
carefully.
Introduction
Image Technology is a hardware/software developmental stage company
which has entered the medical image management segment of the healthcare
information systems market. We were incorporated in Delaware on December 5,
1997. Our principal executive offices are located at 167 Schwenk Drive,
Kingston, New York 12401. Our phone number is (845) 338-3366.
Our Founders
Presently we have four employees including two of our founders, Dr.
David Ryon, and Mr. Lewis Edwards. They along with Dr. Carlton Phelps, the third
founder and a former officer and director of Image Technology, own 7,688,750
shares of common stock, representing 66% of our outstanding 11,672,712 shares
of common stock. In addition, they also own 1,500,000 shares of preferred stock,
or 100% of the outstanding shares.
Dr. Ryon is the founder of the Kingston Diagnostic Center in Kingston,
New York and operated the Kingston Diagnostic Center as a sole proprietor from
its inception in 1992 until the sale of the business to Rockland Radiological
Group, P.C., now known as Mid Rockland Imaging Partners or, Mid Rockland, in
1997. Mr. Edwards has served as a senior technical staff member at IBM since
1993. He was an architect and lead software designer for IBM's RS/6000 SP, a
massive parallel processor. From 1982 to 1993 he served as the head of
engineering for Graphic Systems Labs, a CAD/CAM Independent Business Unit
start-up company within IBM.
Our Company
Through our founders, we have designed a proprietary radiology
information system and picture archiving and communications software system, or
RIS/PACS, for use in the management of medical diagnostic images by hospitals
and medical centers. RIS/PACS inputs and stores diagnostic images in digital
format from original imaging sources such as CT scans, MRIs, ultrasound, nuclear
imaging and digital fluoroscopy.
We have developed software to manage the entire practice of radiology,
including the scheduling of patient examinations, display of images on
workstations, generation of worklists for all members of the enterprise,
production and distribution of illustrated radiologic reports, and billing for
the services provided.
-3-
At the heart of the system are software modules referred to as the
WorkLoadExecutive and WorkLoadRouter. This software equitably distributes the
work to be done, and ensures its timely completion. Images are displayed for the
radiologist on a proprietary, multimonitor workstation controlled with a unique
touchscreen interface. The combination of the back office software and the
versatile workstation increase the accuracy and efficiency of diagnosis. Such
software is applicable to any setting of a radiology practice, including
hospitals and free standing imaging centers.
This facilitates:
- time-critical transfer of patient information between
hospital departments, such as from radiology to emergency
room,
- rapid off-site consultations by specialists at remote
locations, or
- convenient home viewing by individual radiologists.
Hospitals and other health organizations can use ITL's RIS/PACS
permanently to replace more costly and cumbersome image storage mediums such as
film. Image Technology provides all support services, including:
- remote system,
- network, and
- database administration and management.
We are also developing a unique display station which allows
radiologists to simultaneously view multiple digitized images. ITL's RIS/PACS
has been designed to run under the Windows 2000 operating system and includes
no-cost remote access to the imaging database via the Internet for on-call
remote diagnosis or referring physician consultations.
Our customers will include hospitals, medical centers and imaging
centers in the northeastern United States. Image Technology will distribute
ITL's RIS/PACS through three channels:
- original equipment manufacturer relationships,
- partnerships, and
- direct distribution through its own sales
representatives.
Since inception, we have incurred losses, resulting in an accumulated
deficit of $1,833,819 at December 31, 2001. We currently have no sources of
revenue and expect to incur additional losses for the foreseeable future. Market
acceptance of ITL's RIS/PACS, which we introduced in the fiscal second quarter
of 2001, is critical to our future success. We do not expect to generate any
significant revenues from planned operations prior to the second fiscal quarter
of 2002. For a discussion of these and other risks relating to an investment in
our common stock, see "Risk Factors" beginning on page 5.
-4-
The Offering
On January 21, 2002, our Board of Directors authorized the issuance of
350,000 free trading shares, valued at $.25 per share, pursuant to a consulting
agreement with the Consultant as compensation for services rendered pursuant to
the Consulting Agreement.
RISK FACTORS
Please consider the following risk facts together with the other
information presented in this prospectus including the financial statements and
the notes thereto before investing in our common stock. The trading price of our
common stock and warrants could decline due to any of the following risks, and
you might lose all or part of your investment.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR
PROSPECTS. We incorporated on December 5, 1997, and commenced operations January
1, 1998. Accordingly, we have only a limited operating history on which to
evaluate our business. As a result of our limited operating history we may be
unable to accurately forecast our revenues. Our relative lack of experience
means that our business will have numerous personnel, operational, financial,
regulatory and other risks not faced by more experienced competitors. We are
still in the development stage. As an investor, you should be aware of the
difficulties, delays and expenses normally encountered by an enterprise in its
development stage, many of which are beyond our control, including:
- unanticipated developmental expenses,
- inventory costs,
- employment costs, and
- advertising and marketing expenses.
IF WE CANNOT OPERATE PROFITABLY, YOU COULD LOSE YOUR ENTIRE INVESTMENT.
We cannot assure our investors that our proposed business plans as described in
this prospectus will materialize or prove successful, or that we will ever be
able to operate profitably.
AS A RESULT OF THE START-UP NATURE OF OUR BUSINESS WE EXPECT TO SUSTAIN
SUBSTANTIAL OPERATING EXPENSES WITHOUT GENERATING SIGNIFICANT REVENUES.
Accordingly, a failure to meet our revenue projections will have an immediate
and negative impact on profitability. In addition, we cannot be certain that our
evolving business model will be successful, particularly in light of our limited
operating history. Initially, the business model will depend primarily on the
sales of software preinstalled on appropriate hardware. The sale will comprise
the complete, preconfigured system installation. In a small number of instances,
the complete system will be installed, and a per use fee will be collected by
ITL. Under this arrangement, the system will be the property of ITL, and the per
use fee will be an expense item to the contracting organization. This type of
arrangement will benefit the smaller user, not in a position for a large capital
outlay. The relative proportion of the two sales strategies will, in large, be
dependent on the economic climate and interest rates.
THERE CAN BE NO ASSURANCE THAT WE WILL BE ABLE TO SUCCESSFULLY REMAIN
IN THE MEDICAL IMAGE MANAGEMENT MARKET AS CURRENTLY PLANNED. Our survival in the
medical image management industry will depend upon our ability to:
- successfully develop and enhance our current product
- to develop or obtain from third-party suppliers new products
which keep pace with technological developments,
- respond to evolving end-user requirements, and
- achieve market acceptance.
-5-
IF WE ARE UNABLE TO ANTICIPATE OR RESPOND ADEQUATELY TO TECHNOLOGICAL
DEVELOPMENTS OR END-USER REQUIREMENTS OR ANY DELAYS IN PRODUCT DEVELOPMENT,
ACQUISITION OR INTRODUCTION, WE WILL BE UNABLE TO BECOME OR REMAIN PROFITABLE
WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE AND CAUSE YOU TO LOSE YOUR
INVESTMENT.
WE CANNOT BE CERTAIN WHETHER IMAGE TECHNOLOGY WILL EVER EARN A
SIGNIFICANT AMOUNT OF REVENUES OR PROFIT, OR, IF IT DOES, THAT IT WILL BE ABLE
TO CONTINUE EARNING SUCH REVENUES OR PROFIT. We have a history of losses and an
accumulated deficit and we expect future losses. Image Technology is a
developmental stage company which has not generated any significant revenues
from product sales. We do not expect to generate significant revenue from
product sales until at least the second fiscal quarter of 2002. Image Technology
has incurred losses of $1,833,819 from its inception through December 31, 2001
primarily as a result of legal and accounting expenses incurred in connection
with business formation, and after January 1, 2000, research and developmental
expenses consisting principally of cash and non cash compensation of our
founders. We may not be able to generate revenue or achieve or sustain
profitability in the future. Our revenue assumptions may be inaccurate since we
have no historical data on which to rely in estimating future revenue or
expenses. We expect to lose more money as we spend additional capital to develop
our systems, market our products and establish our infrastructure and
organization to support anticipated operations.
IMAGE TECHNOLOGY IS SUBJECT TO NUMEROUS ENVIRONMENTAL, HEALTH, AND
WORKPLACE SAFETY LAWS AND REGULATIONS WHICH MIGHT ADVERSELY AFFECT OUR FINANCIAL
CONDITION OR ABILITY TO CARRY ON OUR BUSINESS. Even though ITL's RIS/PACS is
approved for marketing we will be subject to continuing regulatory review. Later
discovery of previously unknown problems with a product or manufacturer, or an
increase in the incidence of previously unknown problems may result in
restrictions on the product and the manufacturer. The restrictions could include
withdrawal of the product from the market.
WE WILL NEED ADDITIONAL FINANCING TO FUND OUR PLANNED OPERATIONS BEYOND
THEIR CURRENT LEVEL OVER THE NEXT TWELVE MONTHS. Image Technology intends to
fund its operations by raising significant additional funds through equity or
debt financing. We estimate that we will need approximately $200,000 of such
financing over the next twelve months. At present, we have no commitments for
additional or alternative financing, except for the commitment of our principal
stockholder to fund the $200,000, and there is no assurance that we will be able
to obtain such financing on satisfactory terms, if at all. Image Technology's
inability to secure additional funds from such financing within twelve to
eighteen months could adversely affect Image Technology's ability to implement
its business plan. In addition, any subsequent offering of securities would, in
all likelihood dilute existing stockholders' percentage of ownership in Image
Technology.
ALTHOUGH WE BELIEVE ITL'S RIS/PACS OFFERS UNIQUE FEATURES WHICH WILL
DISTINGUISH IT IN THE MARKET, LARGER OR MORE ESTABLISHED RIS/PACS SUPPLIERS HAVE
SUBSTANTIALLY GREATER RESOURCES THAN WE DO. THERE CAN BE NO ASSURANCE IMAGE
TECHNOLOGY WILL BE ABLE TO COMPETE SUCCESSFULLY AGAINST THEM IN THE MARKET FOR
RIS/PACS. At present, RIS/PACS are produced by a number of highly competitive,
small companies specializing in image management software and equipment and a
smaller number of substantially larger medical equipment and imaging software
suppliers, each of which has captured only a relatively small share of the
current market for RIS/PACS to date. In addition, a number of large hospital
radiology centers are presently developing their own proprietary RIS/PACS for
internal use. This trend may reduce
-6-
the market for ITL's RIS/PACS among larger institutions. It may also result in
the introduction of additional competitive products in the market to the extent
that such proprietary systems are being developed in collaboration with computer
software and hardware vendors who may be given the opportunity to commercialize
these products upon completion. Although we believe that ITL's RIS/PACS offer
significant advantages over such older imaging systems and the market for
RIS/PACS is expected to grow quickly, there can be no assurance that hospitals,
HMOs and others will continue to invest in the newer RIS/PACS technology at
forecasted rates.
WE MAY FACE COMPETITION FROM NEWER TECHNOLOGIES BASED ON DIFFERENT
IMAGING TECHNIQUES. ITL's RIS/PACS has been designed to work with the Windows
2000 operating system to permit easy upgrading and avoid product obsolescence.
There can be no assurance, however, that the basic technology of all RIS/PACS,
and therefore the market for such systems, will not be superceded by an
altogether new form of imaging technology or that the hardware and operating
system components of ITL's RIS/PACS will not become obsolete in some other
manner. Although we are not aware of any new technologies currently under
development which might replace RIS/PACS technology, new technologies may be
developed, or existing technologies refined, which could render ITL's RIS/PACS
technologically or economically obsolete. We may not have the funds or the
ability to develop or acquire any new or improved hardware or software which we
may need in order to remain competitive.
THERE CAN BE NO ASSURANCE WE WILL DEVELOP ADDITIONAL PRODUCTS WHICH
WILL BE COMMERCIALLY VIABLE. We are solely relying on one product to generate
all of our initial revenue. We have no product or service other than ITL's
RIS/PACS on which we may rely for future revenue.
FAILURE TO MARKET OUR PRODUCTS PROPERLY COULD SEVERELY LIMIT OUR
ABILITY TO EARN REVENUES OR PROFITS, AND IN TURN CAUSE THE PRICE OF OUR COMMON
STOCK TO DECLINE. We have limited marketing experience. Image Technology intends
to market ITL's RIS/PACS to hospitals, HMOs, individual radiologists and group
practices. Although we intend to add management members who have experience in
marketing medical devices, Image Technology has no experience marketing its
proposed products. We have only very limited sales, marketing and distribution
capabilities at this time. To market any of our products directly, we must
develop a marketing and sales force with technical expertise and supporting
product distribution capability. Significant additional expenditures will be
required for us to develop a sales force or penetrate the markets for our
products, assuming we are able to make those expenditures. We may not be able to
obtain enough capital to establish an adequate in-house marketing and
distribution capability in which case we would have to establish marketing
arrangements with third parties. We will not be able to operate profitably if
either:
-7-
- we fail to establish in-house sales and distribution
capabilities, or
- we are unable to enter into marketing arrangements with
third parties on favorable terms, or
- we experience a delay in developing such capabilities or
arrangements.
Even if we enter into marketing distribution or other arrangements with
third parties, our business may be adversely affected if any such marketing
partner does not market a product successfully.
THE IMPACT OF FEDERAL RESTRICTIONS ON REIMBURSEMENT FOR THE USE OF
RIS/PACS MAY ADVERSELY INFLUENCE THE MEDICAL DEVICE PURCHASE DECISIONS MADE BY
HOSPITALS AND OTHER POTENTIAL CUSTOMERS. Federal regulations implemented by the
Health Care Financing Administration, or HCFA currently permit only limited
reimbursement for telepathology and teleradiology services under the Medicare
program. Medicare payments for emergency room x-rays are limited to the first
physician who interprets them. HCFA has refused to pay for other telemedicine
consultations because the health care provider and the patient are not, by
definition, face-to-face. Consequently, the use of ITL's RIS/PACS to distribute
diagnostic images to remote locations for consultations or second reading by
specialists may not be reimbursable. A significant portion of the potential
purchasers of ITL's RIS/PACS are hospitals and other health care organizations
which provide services to Medicare recipients. They may decide not to purchase
ITL's RIS/PACS if they are unable to be reimbursed for the use of the
teleradiology services which RIS/PACS support. Many private group practices
which might otherwise consider purchasing ITL's RIS/PACS may face similar
financial disincentives to invest in newer RIS/PACS technology. Any such adverse
impact on our intended market would severely limit our ability to earn revenues
or profits, and in turn cause the price of our common stock to decline.
OUR ABILITY TO COMPETE SUCCESSFULLY MAY DEPEND ON OUR ABILITY TO
PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY TECHNOLOGY. Image Technology's
ability to market a competitive RIS/PACS product depends in part on its success
in protecting its proprietary interests in ITL's RIS/PACS unique software so
that competitors cannot duplicate its innovations and design. We have secured
from our three founders an assignment of all their rights to and interest in
ITL's RIS/PACS software developed prior to Image Technology's incorporation. By
licensing rather than selling our software we hope to retain maximum trade
secret protection for our product technology. However, there can be no assurance
that all elements of Image Technology's software are sufficiently original to
qualify for copyright protection or that Image Technology will be successful in
preventing the unauthorized disclosure of its trade secrets. Image Technology
currently plans to pursue patent protection to the limited extent that patent
protection is available for any aspect of Image Technology's product. Others may
independently develop or acquire substantially equivalent proprietary technology
or we may not be able to protect our non-patented technology and trade secrets
from misappropriation. Such development, acquisition or misappropriation by
others of technology similar to ours could increase competition in our industry,
subject us to pricing pressure, and cause our revenues to decline significantly.
This, in turn, would cause the price of our common stock to decline.
-8-
THE CONTINUED SERVICES AND LEADERSHIP OF OUR FOUNDERS ARE CRITICAL TO
OUR SUCCESS AND ANY LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS.
We are heavily dependent on the personal efforts and abilities of David Ryon,
M.D., our President, Chief Executive Officer, Principal Accounting Officer and
Chairman of the Board of Directors and Mr. Lewis M. Edwards, our Vice President
for Research and Development and Chief Technical Officer. Each is a founder,
director and principal stockholder of Image Technology and a co-developer of
ITL's RIS/PACS product. If we were to lose the services of either of them before
a qualified replacement could be obtained, our business, financial condition or
results of operations could suffer significantly. We do not consider the recent
termination for cause pursuant to the terms of his employment agreement of
Carlton T. Phelps, M.D., formerly our vice president - finance and
administration, chief financial officer, secretary and treasurer, to be
detrimental to our operations going forward. Rather it is our belief that Dr.
Phelps' recent performance had a negative impact on our operations and his
absence should provide an immediate and ongoing benefit to Image Technology.
SINCE DR. PHELPS IS A PRINCIPAL STOCKHOLDER OF IMAGE TECHNOLOGY, WE RUN
THE RISK THAT HE MAY DISPOSE OF HIS HOLDINGS IN A MANNER WHICH COULD ADVERSELY
EFFECT THE PRICE OF OUR STOCK. We do not have any control over the timing or
amount of Dr. Phelps' stock dispositions. We do intend, however, to carefully
monitor the situation and take any legal action which is available to us and
which we deem appropriate to protect Image Technology and the interests of our
shareholders.
WE MUST ATTRACT AND RETAIN HIGHLY QUALIFIED MARKETING, SCIENTIFIC,
TECHNICAL, AND BUSINESS PERSONNEL EXPERIENCED IN THE MEDICAL DEVICE INDUSTRY TO
COMPLETE PRODUCT DEVELOPMENT AND IMPLEMENT THE MARKETING AND BUSINESS STRATEGY
WE HAVE PLANNED. The success of our business depends in part upon our ability to
attract, motivate and retain sales marketing staff who possess the skills,
knowledge and attributes necessary to service the needs of our clients and grow
the business. Image Technology competes with other companies who are able to
attract and retain staff as a result of reputation, performance based
compensation systems and infrastructure support. Because we have been in
operation for only a short time, we have not had sufficient time to establish
our reputation in the industry. Also, our inability to offer substantial
compensation packages and/or comparable infrastructure support for our staff
could impair our ability to attract and retain staff. There is no guarantee,
particularly in the current competitive market for such skilled employees, that
we will be able to secure or retain the personnel necessary to implement our
business plan. Any such inability to attract and retain staff could have a
material adverse effect on our business, results of operations and financial
condition, and in turn, the value of your investment.
OUR SOFTWARE PRODUCTS MAY CONTAIN UNDETECTED DEFECTS. SOFTWARE
DEVELOPED BY US OR DEVELOPED BY OTHERS AND INCORPORATED BY US INTO OUR PRODUCTS
MAY CONTAIN SIGNIFICANT UNDETECTED ERRORS WHEN FIRST RELEASED OR AS NEW VERSIONS
ARE RELEASED. Although we test our software products before commercial release,
we cannot be certain that errors in the products will not be found after
customers begin to use the software. Any defects in ITL's RIS/PACS, or any
future products, may result in significant decreases in revenue or increases in
expenses because of:
- adverse publicity,
- reduced orders,
- product returns,
- uncollectible accounts receivable,
- delays in collecting accounts receivable, and
- additional and unexpected costs of further product
development to correct the defects.
-9-
WE FACE EXPOSURE TO PRODUCT LIABILITY CLAIMS IF THE USE OF OUR PRODUCTS
IS ALLEGED TO HAVE CAUSED HARM TO A PATIENT. The claims might be made directly
by patients or by medical organizations and medical personnel who face liability
for care rendered in conjunction with the use of Image Technology's products.
There can be no assurance that such claims, if made, would not result in
monetary liability for damages or a recall of Image Technology's products or a
change in the diagnostic purposes for which they may be used. Prior to product
launch, Image Technology intends to obtain product liability insurance coverage
for claims arising from the use of its ITL's RIS/PACS if it is available on
reasonable terms. There can be no assurance that this coverage, if obtained,
will be adequate to cover claims. Product liability insurance is becoming
increasingly expensive. We might not be able to maintain such insurance, obtain
additional insurance, or obtain insurance at a reasonable cost or in sufficient
amounts to protect us against losses due to liabilities which individually or in
the aggregate could have a material adverse effect on our business or financial
prospects.
IMAGE TECHNOLOGY'S FOUNDERS, DR. RYON, DR. PHELPS AND MR. EDWARDS, OWN
AND CONTROL AN AGGREGATE OF 7,688,750 SHARES OF OUR OUTSTANDING COMMON STOCK
REPRESENTING APPROXIMATELY 66% OF OUR OUTSTANDING COMMON STOCK AND 70% OF OUR
OUTSTANDING VOTING STOCK WHICH INCLUDES 1,500,000 SHARES OF PREFERRED STOCK
OWNED BY THEM. This concentration of stock ownership in a few persons together
with the existence of the restrictions on transfers makes it unlikely that any
other holder of voting Common Stock will be able to affect the management or
direction of Image Technology.
DELAWARE LAW AND OUR CHARTER DOCUMENTS CONTAIN ANTI-TAKEOVER AND
INDEMNIFICATION PROVISIONS WHICH MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR
STOCK. Section 203 of the Delaware General Corporation Laws and our charter and
by-laws contain provisions which might enable our management to resist a
takeover of our company. These provisions might discourage, delay or prevent a
change in the control of our company or a change in our management. These
provisions could also discourage proxy contests and make it more difficult for
you and other stockholders to elect directors and take other corporate actions.
The existence of these provisions could limit the price which investors might be
willing to pay in the future for shares of our common stock.
OUR DIRECTORS HAVE THE AUTHORITY TO DESIGNATE ONE OR MORE CLASSES OF
PREFERRED STOCK HAVING RIGHTS GREATER THAN OUR COMMON STOCK. Our Certificate of
Incorporation authorizes us to issue up to 5,000,000 shares of preferred stock
in one or more classes or series. Immediately prior to this offering, we will
have outstanding 1,500,000 shares of preferred stock, all of which is owned by
our three founders. Our board of directors has the authority, without further
action by the holders of the outstanding common stock, to:
-10-
- issue additional preferred stock from time to time in one or
more classes or series,
- modify or fix the number of shares constituting any class or
series as well as their stated value, if different from the
par value, and
- modify or fix the terms of any such series or class,
including:
- dividend rates,
- conversion or exchange rights,
- voting rights and terms of redemption, including
sinking fund provisions,
- the redemption price and the liquidation
preference of such class or series.
We have no present plans to issue any additional preferred stock or
other series or class of preferred stock. The designations, rights and
preferences of any additional preferred stock which may be issued would be set
forth in a certificate of designation which would be filed with the Secretary of
State of the State of Delaware.
BROAD MARKET FLUCTUATIONS MAY HAVE A MATERIAL ADVERSE EFFECT ON THE
MARKET PRICE OF OUR COMMON STOCK. During the 52 week period ending April 19,
2002 our stock has traded at a low of $.27 per share and a high of $.94 per
share. The following factors may cause the market price of our common stock to
fluctuate significantly:
- market acceptance of Image Technology's product,
- the attainment of or failure to attain milestones in the
commercialization of our technology
- establishment of new collaborative arrangements by Image
Technology, its competitors or other third parties,
- claims of patent infringement or other material litigation
- government regulations,
- investor perception of Image Technology, and
- fluctuations in Image Technology's operating results.
A FAILURE TO PAY DIVIDENDS MEANS YOU WILL RECEIVE NO INCOME ON YOUR
INVESTMENT AND SUCH LACK OF DIVIDENDS COULD HAVE AN ADVERSE IMPACT ON THE PRICE
OF OUR STOCK. We have never declared or paid any cash dividends on our common
stock, and we don't expect to pay dividends anytime soon. We expect to retain
our earnings, if any, and use them to finance the growth and development of our
business.
-11-
THE SO CALLED "PENNY STOCK RULE" COULD MAKE IT CUMBERSOME FOR BROKERS
AND DEALERS TO TRADE IN THE COMMON STOCK, MAKING THE MARKET FOR THE COMMON STOCK
LESS LIQUID WHICH COULD CAUSE THE PRICE OF OUR STOCK TO DECLINE. Trading in our
securities will initially be conducted on the OTC Bulletin Board and/or the
"pink sheets." As long as the common stock is not quoted on Nasdaq or at any
time that we have less than $2,000,000 in net tangible assets, trading in the
common stock is covered by `Rule 15g-9 under the Securities Exchange Act of 1934
for non-Nasdaq and non-exchange listed securities. Under that rule,
broker-dealers who recommend covered securities to persons other than
established customers and accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale. Securities are exempt from this rule
if the market price is at least $5.00 per share.
The SEC has adopted regulations which generally define a penny stock to
be any equity security which has a market price of less than $5.00 per share,
subject to certain exemptions. Such exemptions include an equity security listed
on Nasdaq and an equity security issued by an issuer which has (i) net tangible
assets of at least $2,000,000, if such issuer has been in continuous operation
for three (3) years; (ii) net tangible assets of at least $5,000,000, if such
issuer has been in continuous operation for less than three (3) years; or (iii)
average revenue of at least $6,000,000 for the proceeding three (3) years.
Unless such an exemption is available, the regulations require the delivery of a
disclosure schedule explaining the penny stock market and the risks associated
therewith prior to any transaction involving a penny stock. So long as our
common stock is subject to the regulations on penny stocks, that factor could
have a severe adverse effect on the market liquidity for the common stock due to
these limitations on the ability of broker-dealers to sell the common stock in
the public market which could cause the price of our stock to decline.
FORWARD LOOKING STATEMENTS. This prospectus and the information
incorporated into it by reference contains various "forward-looking statements"
within the meaning of federal and state securities laws, including those
identified or predicated by the words "believes," "anticipates," "expects,"
"plan" or similar expressions. Such statements are subject to a number of
uncertainties which could cause the actual results to differ materially from
those projected. Such factors include, but are not limited to, those described
under "Risk Factors." Given these uncertainties, prospective purchasers are
cautioned not to place undue reliance upon such statements.
DIVIDEND POLICY
We have never paid cash dividends and do not intend to pay any cash
dividends with respect to our common stock in the foreseeable future. We intend
to retain any earnings for use in the operation of our business. Our board of
directors will determine dividend policy in the future based upon, among other
things, our results of operations, financial condition, contractual restrictions
and other factors deemed relevant at the time. We intend to retain appropriate
levels of our earnings, if any, to support our business activities.
-12-
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
The following is a discussion of certain factors affecting Image
Technology's results of operations, liquidity and capital resources. You should
read the following discussion and analysis in conjunction with Image
Technology's audited Financial Statements and related notes which are included
elsewhere in this Prospectus.
Business and Summary of Significant Accounting Policies:
Image Technology Laboratories, Inc. is a development stage company that
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 flouroscopy
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 the DICOM and HL-7 standards.
As of December 31, 2001, the Company's operations have been limited to
organizational activities and have not generated any significant revenues from
operations through that date. Accordingly, the Company is considered a
"development stage company" for financial reporting purposes.
As of December 31, 2001, the Company has cash and cash equivalents of
approximately $152,000 and working capital of approximately $109,000. However,
since inception, the Company has incurred losses resulting in an accumulated
deficit of approximately $1,834,000 at December 31, 2001. The Company currently
has no significant sources of revenues and expects to incur additional losses
for the foreseeable future. In addition, the Company has only recently
introduced its product to market and does not expect to generate any significant
revenues prior to the second quarter of the year ending December 31, 2002.
Further, as of December 31, 2001, the stockholders have deferred until 2003
approximately $421,000 of compensation due them under their employment
agreements.
-13-
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 agreement is anticipated to
close no later than May 1, 2002, unless mutually extended. 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 over and above the $100,000 it received in January 2002
from the sale of 400,000 shares of common stock in a private placement (see
Certain Relationships and Related Transactions). 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 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 December 31, 2002.
Use of estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates.
Revenue recognition:
Sales are recognized when revenue is realized or becomes realizable and
has been earned. In general, revenue is recognized when the earnings process is
complete and collectibility is assured, which is usually when the Company
delivers the diagnostic images in digital format to the customer. During the
year ended December 31, 2001 and the period from January 1, 1998 (date of
inception) to December 31, 2001, the Company earned revenue of $21,375 from
Kingston Diagnostic Radiology, P.C., a company wholly-owned by one of the
principal stockholders.
Equipment:
Equipment is stated at cost, net of accumulated depreciation.
Depreciation is provided using accelerated methods over the estimated useful
lives of the assets, which range from five to seven years.
Income taxes:
As of December 31, 2001, the Company had net operating loss
carryforwards of approximately $1,413,000 available to reduce future Federal and
state taxable income which will expire at various dates through 2021. The
Company's only other material temporary difference as of that date was
approximately $421,000 of accrued officers' compensation. Due to the
uncertainties related to, among other things, the future changes in the
ownership of the Company, which could subject those loss carryforwards to
substantial annual limitations, and the extent and timing of its future taxable
income, the Company offset the deferred tax assets attributable to the potential
benefits of approximately $734,000 related to the net operating loss
carryforwards ($566,000) and future deductibility of the officers' compensation
($168,000) by an equivalent valuation allowance as of December 31, 2001.
The Company had also offset the potential benefits from net operating
loss carryforwards of approximately $227,000, $7,600 and $7,200 by an equivalent
valuation allowance as of December 31, 2000, 1999 and 1998, respectively and
accrued officers' compensation of approximately $119,000 as of December 31,
2000. Although the Company had pre-tax losses in each period, income tax benefit
is included in the accompanying statements of operations as a result of the
increases in the valuation allowance of $388,000, $338,400, $400 and $7,200 in
2001, 2000, 1999 and 1998, respectively.
-14-
RESULTS OF OPERATIONS FOR YEAR ENDED DECEMBER 31, 2001 COMPARED TO
THE YEAR ENDED DECEMBER 31, 2000
REVENUES:
As of December 31, 2001, 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 revenues from our planned operations
prior to the second quarter of 2002.
RESEARCH AND DEVELOPMENT EXPENSES:
During the year ended December 31, 2001 and 2000, the Company incurred
research and development expenses of $635,694 and $633,798, respectively. These
expenses were primarily compensation to our three founders under their
employment contracts. The employment agreements require an annual compensation
to our founders which aggregates $450,000 through December 31, 2002. As of
December 31, 2001, the founders elected to defer approximately $421,000 of this
amount. In addition, research and development expenses in each of these periods
includes $150,000 of amortization of unearned compensation relative to the
issuance of preferred stock to the founders.
GENERAL AND ADMINISTRATION EXPENSES:
During the year ended December 31, 2001 , the Company incurred general
and administrative expenses of $354,765 as compared to $211,797 in 2000. The
increase in 2001 was primarily attributable to an increase in payroll and other
overhead items. During 2001, the company added personnel to its payroll, as well
as incurring additional costs as it built up its infrastructure. The increases
were offset by a non-cash charge of $75,000 that was incurred during 2000 as a
result of issuing shares of common stock for professional services.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2001, we had cash and cash equivalents and working
capital of approximately $152,000 and $109,000, respectively. To date, the
principal sources of capital resources have been proceeds from the issuance of
shares of common stock to our founders of $21,250 and the net proceeds from the
completed private placement of units of common stock and warrants during 2000 of
approximately $180,000. Then on October 15, 2000, 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. During 2001, we received approximately
$139,000 and $10,000, respectively, from the issuance of common stock upon the
exercise of warrants and the collection of a subscription receivable. In
addition, during 2002, we negotiated the sale of 400,000 shares of common stock
for $100,000.
DESCRIPTION OF BUSINESS
Image Technology Laboratories is a software development company which
has entered the medical image management segment of the healthcare information
systems market. We were incorporated in Delaware on December 5, 1997 and
commenced operations on January 1, 1998. Image Technology is developing picture
archiving and communications software known as RIS/PACS for use in the
management of medical diagnostic images by hospitals. RIS/PACS input and store
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.
Dr. Ryon initially conceived Image Technology's picture archiving and
communications system, which we call ITL RIS/PACS, in 1995 for the purpose of
electronically integrating all the diagnostic images and imaging modalities used
at the Kingston Diagnostic Center in Kingston, New York. His goal was to
implement a RIS/PACS system at the Center and then to create a wide area network
to provide over-reading services in the five hospital locations in the region.
When he discovered that no commercial vendor at the time had a product which
could provide a solution which met all of the Center's needs, Dr. Ryon assembled
a team to design a better RIS/PACS system. Dr. Ryon joined forces with Lewis
Edwards, an expert in networking and image management, and Carlton Phelps, M.D.,
a radiologist with several years experience implementing commercial RIS/PACS. By
late 1997, after more than a year of intensive research, the development team
had completed the specifications for the prototype ITL RIS/PACS system and had
assembled the hardware and software needed to develop the prototype at the
Center. Drs. Ryon, Phelps, and Mr. Edwards decided to form a company to
commercialize their novel RIS/PACS design based on market research which
indicated a growing demand for RIS/PACS in general and an unmet need for a
RIS/PACS such as the prototype the founders had designed. Image Technology has
installed a beta-version of ITL's RIS/PACS at the Center. Image Technology began
to initiate marketing ITL's RIS/PACS to hospitals beginning in the Northeast
United States in the fiscal fourth quarter of 2001. ITL's RIS/PACS will be
manufactured, installed and serviced by Image Technology. We estimate that the
basic product development has been completed. The specification and system
design are finished leaving approximately 5% of the actual hard coding and the
bench testing yet to be performed, which represents an insignificant amount of
overall product development.
-15-
Products
Image Technology's lead product is ITL's RIS/PACS, a unique and
proprietary version of a RIS/PACS software system. ITL's RIS/PACS features a
unique and proprietary modular architecture which permits the system to be
readily scaled and easily upgraded. We believe that this will allow us to
provide products tailored to the size of our customers and to keep our customers
at the forefront of future technological advances by enabling us to easily
update existing systems. Other special features of ITL's RIS/PACS include:
- automation of the total work flow,
- integration of patient data with digital images,
- a unique, radiologist designed user interface,
- quality review programs which analyze productivity and diagnostic
accuracy of individual radiologists or entire radiology centers,
and
- use of Windows 2000 as the network operating system.
Image Technology has also developed a proprietary workstation which
permits the simultaneous viewing of multiple diagnostic images together with
relevant patient data for the purpose of replicating the viewing technique used
by radiologists using traditional view boxes for the display of multiple images.
Research has shown that simultaneous image display improves the speed
and accuracy of diagnostic interpretation. This workstation consists of software
integrated into ITL's RIS/PACS which may be used with any terminal hardware.
ITL's RIS/PACS can be used to create, store, reproduce and transmit
digitized images generated by any of the currently utilized diagnostic imaging
modalities including x-rays, ultrasound, nuclear medicine, digital fluoroscopy,
CT scans, and MRIs. Using ITL's RIS/PACS, radiologists can read and interpret
the digitized versions of diagnostic images from any terminal or computer to
which they can be sent. This facilitates time-critical transfer of patient
information between hospital departments, such as from radiology to emergency
room, as well as rapid off-site consultations by specialists at remote locations
or convenient home viewing by individual radiologists. Hospitals and other
health organizations can use ITL's RIS/PACS permanently to replace more costly
and cumbersome image storage mediums such as film. ITL's RIS/PACS has been
designed to interface with hospital and radiology information systems so that
patient data can be integrated with diagnostic images for improved record
retrieval and increased accuracy of image interpretation.
-16-
ITL's RIS/PACS represents an alternative configuration model which has
been designed to provide a unique solution to many of the disadvantages of both
hyperPACS and miniPACS configurations of other companies. The architecture used
in ITL's RIS/PACS is built on a foundation of innovative intelligent algorithms.
These algorithms reduce the network bandwidth and on-line storage requirements
of the Image Technology system; the two most important factors in the cost
associated with building the system. Consequently, we hope that through ITL's
RIS/PACS we can acquire a significant share of the U.S. market for RIS/PACS. By
making full use of the networking database management infrastructure of Windows
2000, Image Technology has leveraged recent advances in operating system design,
software development, and networking tools to produce a product which offers
greater functional capability at lower costs through scalable system
architecture. Its truly modular architecture permits capability to be
distributed incrementally, so a client can start with one piece of hardware
which operates as a server, viewer and capture station, then expand the system
by distributing those capabilities among multiple PC's. Hardware and software
can be sized exactly to client needs. This enables Image Technology to offer the
lowest possible entry point purchase price for a RIS/PACS system. In addition,
ITL's RIS/PACS offers capabilities not found on even the most expensive
RIS/PACS, including a unique graphical interface.
Business Strategy
We have completed initial product development of ITL's RIS/PACS. Our
goal is to become revenue producing at the earliest opportunity. Product sales
will be made in the form of:
- software licenses agreements,
- installation service agreements,
- continuing services and support agreement
- and as an Application Service Provider (ASP).
For the next two years, Image Technology expects to remain focused on
developing additional capabilities and enhancing ITL's RIS/PACS, maximizing
sales of this product in the United States, and providing continuing customer
service and product upgrades.
Markets and Marketing Plan
The estimated market for PACS is $1.5 billion in 2001 and is expected
to reach $2.7 billion by 2010. (Concord Consulting Group PACS Opportunities:
2000-2010 - October 19, 2001). Market analysts have identified the PACS market
as an "emerging business opportunity with enormous growth potential". In August
2000, Technology Marketing Group released a PACS census study of more than 1,800
major hospitals and imaging centers. The study indicated expenditures for PACS
technology reached nearly $600 million in 1999, with 7 to 10% yearly growth
anticipated for the next 5 years. The study showed that few hospitals with PACS
technology are actually operating in a filmless mode, with 91% of the
respondents still using film for diagnosis.
A representative for Frost & Sullivan in an April 1998 article for the
magazine ADVANCE predicted a growth rate for PACS of 28% per year with the
market reaching $1.6 billion by 2004.
-17-
Image Technology plans to launch its ITL RIS/PACS in the northeastern
United States where the reputations of its founders and the product
demonstration site at the Kingston Diagnostic Center are expected to enhance
interests in the product and generate sales leads. Image Technology plans to
market a fourth generation medical information management system which we
believe is more open, usable and scalable than any currently available product.
We plan to market ITL's RIS/PACS through an in-house sales force supported by
product advertising and promotion at industry trade shows. We will offer the
product at a price point which is well within the reach of even the smallest
hospital or imaging facility. We believe that we can offer systems with superior
price/performance characteristics because of their unique, proprietary
architecture. Assuming profitable regional sales, we intend to expand our sales
force to market ITL's RIS/PACS throughout the United States. We plan to
distribute our RIS/PACS products via three channels:
- relationships with original equipment manufacturers,
- partnerships, and
- direct distribution through our sales representatives
Relationships with Original Equipment Manufacturers: There are several
large multi- national companies such as General Electric and IBM who have
committed to entering the RIS/PACS market but have failed to either develop or
acquire the technology needed to gain market share. We plan to pursue
relationships with a large company whose in-house marketing, sales and support
resources can be leveraged to propel Image Technology's products into national
and international markets.
Partnerships: We have identified several companies whose interests are
complementary with our goals. Image Technology will pursue mutually advantageous
partnerships with firms which can provide access to markets, technology or
service and support.
Direct Distribution: We will maintain an in-house sales and marketing
staff to provide direct sales locally and nationally. They will advertise the
product through trade shows, print advertisements and through our site on the
Web. Image Technology will sell primarily to two target buyer groups; those who
already have a RIS/PACS system in place and want a cost effective way of growing
their system and small hospitals and imaging centers who want to start small and
enter the RIS/PACS arena gradually.
Once we have secured a significant share of the RIS/PACS market, we
intend to apply the same tools to capture other vertical markets. We intend to
sustain growth through constant innovation.
Image Technology will sell to customers a license to use ITL's RIS/PACS
software along with third party hardware preloaded with our proprietary
software, as a package, in order to eliminate the possibility of
incompatibilities. Image Technology eventually plans to sell third- party
hardware components, at a profit, to customers who wish to purchase system
hardware from Image Technology in conjunction with their purchase of an ITL's
RIS/PACS.
However, we have no plan to institute hardware-only sales in
conjunction with ITL's RIS/PACS product launch and do not believe that supplying
the hardware needs of our software customers is necessary to the competitive
success of ITL's RIS/PACS.
-18-
An alternative approach to marketing and sales will be to provide the
system to the customer as an Application Service Provider. Under this type of
arrangement, the customer would be charged a per use fee to view and archive
image studies. The hardware would essentially be provided and owned by ITL. This
type of contract would immediately provide recurring revenues. Combinations of
both the ASP model and the capital equipment model may be employed, depending on
the customer requirements.
Competition and Competitive Advantage
Image Technology will compete with a variety of companies in the United
States and abroad which are marketing or developing RIS/PACS for the medical
community. A number of highly competitive, smaller companies specialize in image
management software and equipment and a smaller number of larger medical and
computer equipment vendors have added RIS/PACS to their product line. To date no
single company has captured a predominant share of the current market for
RIS/PACS. In addition, a number of large hospital radiology centers are
presently developing their own RIS/PACS for internal use. This trend may reduce
the market for ITL's RIS/PACS among larger institutions. It may also result in
the introduction of additional competitive products in the market to the extent
that such proprietary systems are being developed in collaboration with computer
software and hardware vendors who may be given the opportunity to commercialize
such products upon completion. Image Technology, together with all other
RIS/PACS manufacturers, will also continue to compete for sales to some extent
with producers of older diagnostic imaging technologies such as film-based x-
rays, which remain the predominant medical imaging modalities.
Currently available RIS/PACS systems can be divided into three basic
configurations:
- MiniPACS, which are small, modular systems comprising image
viewstations, image capture stations and occasionally one or
more small central servers.
- HyperPACS that cluster capture and view station around a large
central enterprise server.
- Web-based RIS/PACS.
- MiniPACS systems, such as Line Imaging, Brit Systems, E-med,
Sectra-Imtec AB and DR systems products, bundle some database
management features into their viewstations, allowing them to
hold images and intercommunicate without a large central server.
As a result, an inexpensive entry-level solution can be
assembled costing between $100,000-$500,000, and the system can
be "grown" by aggregating viewstations and miniservers into a
loose network. The communication is inherently point-to-point,
however, and the systems lack features of a true client- server
database management system such as protection of database
integrity through record locking. These systems are also
inherently more expensive to expand, since each "node" that is
added must support more functionality and thus the hardware for
each node is more expensive than it would be if it were
supported by a large centraldatabase server. These networks also
lack the advanced workflow management capabilities of
hyper-PACS.
-19-
By contrast, vendors of hyperPACS systems, including Data General, GE
Medical Systems, Agfa, Kodak, Siemens, Rogan, and MarkCare Systems, build their
RIS/PACS systems around a large central enterprise server. These servers offer
superior data protection, internet services, and increased up time through
redundancy and fail- over protection. The entry level cost, however, is much
higher than for miniPACS; typically $800,000 - $2 million. While the view and
capture stations sold by these vendors support a variety of hardware/operating
system combinations, the servers are invariably UNIX based, requiring an
in-house systems administrator earning $60,000 - $80,000 annually to keep them
running. Finally, since these servers are "off-the shelf" enterprise servers,
not designed specifically for RIS/PACS, many of the services they provide, such
as automated work flow management through image routing and pre-fetching, must
be "hard coded" by software engineers, making changes expensive and time-
consuming.
In the last few years, Web-based RIS/PACS have emerged and are growing
steadily in popularity. Several companies offer RIS/PACS based on a central
image server that can be accessed through intranet or internet based viewers,
including Fuji, Eastman Kodak, Stentor, and Emageon. In addition, several
mini-PACS and hyper-PACS vendors also offer add-on web- based image
distribution.
The primary advantage of web-based image management is scalability. It
is easy and inexpensive to offer image access via web browser to referring
physicians and on-call radiologists. The primary disadvantage is that most
web-based technologies are of the "pull" type, i.e. the user must request an
image before it can be sent to the client PC. Given the large size of diagnostic
images and the wide range of user web-access bandwidth, the response of a web
based system may be slower than a traditional mini or hyper-PACS which can
"push" the images onto the client machine BEFORE the user requests it - a
technique called "pre- fetching".
We believe that most available RIS/PACS systems have significant
drawbacks such as:
- poor user interfaces,
- limited capabilities,
- lack of scalability, and
- prohibitive entry point purchase prices.
We believe that such drawbacks account in part for the fact that none
of our competitors have been able to capture more than 30% of the market in
recent years.
-20-
Protection of Proprietary Technology
Our ability to market a competitive RIS/PACS product depends in part on
our success in protecting our proprietary interest in ITL's RIS/PACS software so
that competitors cannot duplicate its innovative design. The principal forms of
protection available for software such as ITL's RIS/PACS are copyright laws and
common law trade secret protection. Image Technology has secured from its
founders an assignment of all their rights and titles to ITL's RIS/PACS software
developed prior to Image Technology's incorporation and therefore, believes it
owns the full rights to copyright ITL's RIS/PACS software. In addition, each
founder is employed under an agreement containing continuing obligations of
confidentiality, non- disclosure, assignment of work- product and
right-to-inventions as well as obligations of non- competition which continue
for a period of two years from termination of his employment. Image Technology
plans to require substantially similar obligations from all key employees hired
in the future. By licensing rather than selling our software, we expect to
retain maximum trade secret protection for our product technology. However,
there can be no assurance that all elements of our software are sufficiently
original to qualify for copyright protection or that we will be successful in
preventing the unauthorized disclosure of our trade secrets. As a result, we may
face competition from sales of products which are substantially similar to our
own from which we will not benefit or we may not be entirely able to prevent
such sales even though we may have the right to sue a person who makes
unauthorized disclosure of our trade secrets.
We plan to pursue patent protection to the limited extent that patent
protection is available and advisable for any element of our products. Patent
protection may be available for certain aspects of our terminal interface
technology and for certain limited components of our software, including certain
proprietary algorithms developed for use in ITL's RIS/PACS. We have not yet
retained any intellectual property counsel or filed any application for the
protection of our intellectual property.
Product Approval Process
We registered with the FDA as a medical device manufacturer. Our
software products have been classified as exempt from the 510-K approval process
by the FDA. ITL's RIS/PACS is immediately available for sale without
restriction.
Although Image Technology is aware that there is an international
market for products such as ITL's RIS/PACS, we have no present plans to market
ITL's RIS/PACS in other countries, largely due to limited resources. However,
should we decide to market ITL's RIS/PACS in other countries, we would have to
comply with the laws of, and meet the applicable regulatory procedures and
standards in each jurisdiction in which we sought to market our products.
Approval in one jurisdiction does not assure approval in another as the various
federal, state, and local regulatory authorities are independent of each other.
A medical device and its manufacturer are subject to continuing
regulatory review even after a device is approved for marketing.
Later discovery of previously unknown problems with a product or
manufacturer, or an increase in the incidence of previously known problems, may
result in restrictions on the product and/or manufacturer. The restrictions
could include withdrawal of the product from the market.
-21-
Manufacturing
We do not expect to have any manufacturing operations for hardware or
software. We expect to be able to produce sufficient copies of ITL's RIS/PACS
software for licenses using the software duplication capabilities of our beta
site equipment. In the unlikely event that demand for copies of ITL's RIS/PACS
exceeds our capacity to produce them, we believe that we could quickly and
inexpensively obtain copies from a computer service bureau in our area. Any
hardware we sell will be purchased fully assembled from the original equipment
manufacturer. We intend to contract with third parties for any required
customization of hardware supplied to our customers.
Insurance
Prior to product launch, we intend to obtain product liability
insurance coverage for claims arising from the use of ITL's RIS/PACS if this is
available on reasonable terms. We risk exposure to product liability claims if
the use of our products is alleged to have caused harm to a patient. The claims
might be made directly by patients or by medical organizations and medical
personnel who face liability for care rendered in conjunction with the use of
our products. There can be no assurance that the coverage obtained will be
adequate to cover claims. Product liability insurance is becoming increasingly
expensive. We may have problems:
- maintaining such insurance,
- obtaining additional insurance,
- obtaining additional insurance at a reasonable cost, or
- obtaining additional insurance in sufficient amounts to protect
against losses which individually or in the aggregate could have a
material adverse effect on our business.
Under the terms of our executive employment agreements we are obligated
to maintain term life insurance for the benefit of Dr. Ryon, and Mr. Edwards
each in the amount of $300,000, if this can be obtained on commercially
reasonable terms.
Material Contracts
In order to complete development of ITL's RIS/PACS while minimizing
capital outlays, we have leased access to a sophisticated state-of- the-art
computer hardware system from Kingston Diagnostic Radiology, P.C. We have access
to this system under the terms of a facility usage agreement with Rockland
Radiology Group, P.C., now known as Mid Rockland Imaging Partners, or Mid
Rockland. The agreement gives us the right to use approximately 450 square feet
of office space in the Center for access to Kingston's computer system and other
purposes during normal business hours for so long as the agreement remains in
effect. We believe our need for office space will remain modest, even when we
are fully staffed for 2002, due to the fact that most employees are expected to
telecommute. Therefore we believe that we could replace our existing space in
the Center quickly and inexpensively with no material impact on our business in
the unlikely event of early termination of the agreement. The agreement has been
approved by all the disinterested directors of Image Technology due to the
potential for conflict of interest in relation to Dr. Ryon's ownership of
Kingston and his obligations to use the leased equipment pursuant to the
agreement.
On April 4, 2002, we entered into a letter of intent with a company for
the purchase of one of our systems at fair market value and a service agreement.
We anticipate we will generate approximately $700,000 in annual fees under this
agreement. The agreement is anticipated to close no later than May 1, 2002,
unless mutually extended. In addition, we are currently negotiating similar
agreements with other companies.
-22-
Employees
We presently have four employees who essentially provide 100% of their
professional time to the company.
Facilities
Image Technology's principal executive office currently occupies
approximately 450 square feet of leased space located at 167 Schwenk Drive,
Kingston, NY 12401. Image Technology's telephone number is (845) 338-3366 and
its facsimile number is (845)338-8880.
Image Technology believes that its current facilities will meet Image
Technology's office needs for the foreseeable future. Suitable facilities will
be available, if needed, to accommodate Image Technology's future operations at
reasonable commercial rates.
Legal Proceedings
We are aware of no legal proceedings against Image Technology.
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and their ages as of April 12, 2002
are as follows:
NAME AGE TITLE
David Ryon 57 Director and Chairman of the Board of
Directors, President, Chief Executive
Officer, and Principal Accounting
Officer
Lewis M. Edwards 46 Director, Vice President of Research and
Development, Chief Technical Officer
Richard V. Norell 57 Director
Robert G. Carpenter 65 Director
John J. Naccarato 70 Director
-23-
All directors of Image Technology hold office until the next annual
meeting of shareholders or until their successors are elected and qualified. At
present, Image Technology's Bylaws provide for not less than one director nor
more than fifteen. Currently, there are five directors of Image Technology. The
Bylaws permit the Board of Directors to fill any vacancy and such director may
serve until the next annual meting of shareholders or until his successor is
elected and qualified. Officers serve at the discretion of the Board of
Directors. In April, 2002, we appointed Richard V. Norell, Robert G. Carpenter
and John J. Naccarato to our Board of Directors to fill three vacancies. There
are no family relationships among any officers or directors of Image Technology.
DAVID RYON, MD, is a founder and principal stockholder of Image
Technology and a co- developer of ITL's RIS/PACS. He was appointed to the Board
of Directors and appointed to serve as Image Technology's President and Chief
Executive Officer in December 1997. Dr. Ryon is the founder of the Kingston
Diagnostic Center in Kingston, New York. Dr. Ryon operated the Kingston
Diagnostic Center as a sole proprietor from its inception in 1992 until the sale
of the business to Rockland Radiological Group, P.C. in 1997. Dr. Ryon worked as
a radiologist at the Kingston Hospital for five years before founding the
Center. Dr. Ryon graduated as an M.D. cum laude from Albany Medical College in
1975 and served residencies in surgery and radiology at Albany Center Hospital.
Among other post-graduate specialties, Dr. Ryon also trained as an Emergency
Physician. Prior to becoming a physician, Dr. Ryon earned a B.S. in physics with
high honors and an M.S. in engineering at the University of Rochester. He worked
as an engineer at General Electric in the medical systems division after
graduation where he gained experience in the patent process.
LEWIS M. EDWARDS is a founder and principal stockholder of Image
Technology and a co- developer of ITL's RIS/PACS. He was appointed to the Board
of Directors and elected by the Board to serve as Image Technology's Vice
President of Research and Development and Chief Technical Officer in December
1997 and is currently employed full time by Image Technology. Mr. Edwards has
served as a senior technical staff member at IBM since 1993. He was an architect
and lead software designer for IBM's RS/6000 SP, a massive parallel processor
until 2000. From 1982 to 1993 he served as the head of engineering for Graphic
Systems Labs, a CAD/CAM Independent Business Unit start-up company within IBM.
He is a member of the IEEE and ACM professional societies and a charter member
of the Microsoft Developer Network. He has provided computer-consulting services
to Boeing, General Motors, Chrysler, Ford and the Federal government's FAA and
ATC teams. He holds a BSEE magna cum laude from Princeton University and an MSCE
from Syracuse University.
RICHARD V. NORELL was appointed to our Board of Directors in April
2002. Since 1995 he has served as a consultant in securities law compliance
matters, after being employed 26 years with the U.S. Securities and Exchange
Commission, Washington, D.C. in the Division of Enforcement, from 1972 to 1995.
Mr. Norell acted as the Division's Chief of Market Surveillance overseeing the
Department's investigators and financial analysts. In addition to implementing
programs for detecting securities fraud and improper conduct, Mr. Norell advised
the Director of the Division concerning policy issues and emerging problems in
the securities industry. Mr. Norell graduated American University, Washington,
D.C. with an MBA in Investment Analysis, University of Rochester, Rochester,
N.Y. Bachelor of Arts, Economics. Mr. Norell currently resides in Great Falls,
VA.
ROBERT G. CARPENTER was appointed to our Board of Directors in April
2002. Mr. Carpenter brings extensive business experience from a career spanning
over 30 years in a succession of executive management positions overseeing
technology, engineering, marketing and business development at Bell Research
Labs in NJ, IBM Yorktown Heights Research Center, and IBM Development Labs in
Kingston and Poughkeepsie, NY. Retired from IBM in 1991, Mr. Carpenter currently
serves as Chief Engineering Liaison on a $6.7 million water facilities project
in the County of Ulster, NY. Mr. Carpenter resides in Saugerties, NY.
JOHN J. NACCARATO was appointed to our Board of Directors in April
2002. He served for 26 years as District Representative to the late United
States Congressman Hamilton Fish, Jr., with oversight responsibility for three
District offices, under the direct supervision of Congressman Fish. From 1988 to
the present, Mr. Naccarato has held the office of Ulster County Legislator,
serving on Mental Health and Ways and Means committees, and chairing the
Criminal Justice / Public Safety Committee. A former President of the Central
Businessmans Association, Mr. Naccarato serves on the Ulster County Community
Action Board, United Way Board, City of Kingston Board of Assessment, and the
board of the Catskill Regional OTB Corporation. Mr. Naccarato currently resides
in Kingston, NY.
In the first quarter of 2002, Dr. Carlton T. Phelps was terminated for
cause pursuant to the terms of his employment agreement, as Vice President of
Finance and Administration, Chief Financial Officer, Secretary and Treasurer of
Image Technology and resigned from the Board of Directors. The terms and
circumstances of Dr. Phelps' departure are currently in dispute. Dr. David Ryon
has been appointed our acting principal accounting officer as of March 5, 2002.
-24-
Limitation on Liability of Directors
As permitted by Delaware law, Image Technology's Certificate of
Incorporation includes a provision which provides that a director of Image
Technology shall not be personally liable to Image Technology or its
stockholders for monetary damages for a breach of fiduciary duty as a director,
except (i) for any breach of the director's duty of loyalty to Image Technology
or its stockholders, (ii) under Section 174 of the General Corporation Law of
the State of Delaware, which prohibits the unlawful payment of dividends or the
unlawful repurchase or redemption of stock, or (iii) for any transaction from
which the director derives an improper personal benefit. This provision is
intended to afford directors protection against and to limit their potential
liability for monetary damages resulting from suits alleging a breach of duty of
care by a director. As a consequence of this provision, stockholders of Image
Technology will be unable to recover monetary damages against directors for
action taken by them which may constitute negligence or gross negligence in
performance of their duties unless such conduct falls within one of the
foregoing exceptions . The provision, however, does not alter the applicable
standards governing a director's fiduciary duty and does not eliminate or limit
the right of Image Technology or any stockholder to obtain an injunction or any
other type of non- monetary relief in the event of a breach of fiduciary duty.
Image Technology believes this provision will assist in securing and retaining
qualified persons to serve as directors.
EXECUTIVE COMPENSATION
Image Technology has not paid any compensation to its executive
officers from its inception through December 31, 1999.
The following table sets forth information for each of the Company's
fiscal years ended December 31, 2001, 2000, and 1999 concerning compensation of
(i) all individuals serving as the Company's Chief Executive Officer during the
fiscal year ended December 31, 2000 and (ii) each other executive officer of the
Company whose total annual salary and bonus equaled or exceeded $100,000 in the
fiscal year ended December 31, 2000:
Annual Compensation
-------------------------
Other All Other
Name and Principal Position Year Salary($) Bonus($)(2) ($)Annual Compensation($)
-------------------------------- ---- --------- ----------- ------------ ----------------
David Ryon(1) 2001 $150,000 $150,000 0 0
Chairman, President and Chief 2000 150,000 150,000 0 (3)
Executive Officer 1999 0 0 0 0
Carlton Phelps(1) 2001 150,000 150,000 0 0
Vice President, Chief Financial 2000 150,000 150,000 0 (3)
Officer, Secretary, Treasurer 1999 0 0 0 0
and Director
Lewis Edwards(1) 2001 150,000 150,000 0 0
Vice President, Chief Technical 2000 150,000 150,000 0 (3)
Officer and Director 1999 0 0 0 0
(1) Messrs. Ryon, Phelps and Edwards waived their salaries from Image Technology
for the years ended December 31, 1999 and 1998. These salaries were not deemed
material during this period. During the year ended December 31, 2000, Messrs.
Ryon, Phelps and Edwards deferred $136,407, $51,923 and $109,615,
respectively.During the year ended December 31, 2001, Mr. Ryon deferred $122,596
of his salary.
(2) Messrs. Ryon, Phelps and Edwards were each issued 500,000 shares of
preferred stock in conjunction with the commencement of their employment
agreements. The preferred shares were valued at $.30 per share based on the
price of units that we were offering for sale through a private placement.
(3) See "Option Grants in Last Fiscal Year" below
-25-
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding stock
options granted to the Named Executive Officers during 2000. No options were
granted during 2001. We have never granted any stock appreciation rights.
INDIVIDUAL GRANTS (1)
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED IN EXERCISE
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION
NAME GRANTED 2000 (2) SHARE ($) DATE
------- ------------- ------------- ---------- -------------
David Ryon 1,000,000 33.33% $.33 December 31, 2009
Carlton Phelps 1,000,000 33.33% $.33 December 31, 2009
Lewis Edwards 1,000,000 33.33% $.33 December 31, 2009
(1). Each option represents the right to purchase one share of common stock. The
options shown in this table were all granted under our Stock Option Plan.
(2). In the year ended December 31, 2000, we granted options to employees to
purchase an aggregate of 3,000,000 shares of common stock.
-26-
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
No options were exercised by any of the Named Executive Officers during
the fiscal year ended December 31, 2001. The value of unexercised options held
by any such persons as of December 31, 2001 was as follows for each of Messrs.
Ryon, Phelps and Edwards (the only such option holders):
Total number of shares underlying unexercised options 1,000,000
Exercisable options 200,000
Unexercisable options 800,000
Value of in-the-money options $ 24,000
Compensation of Directors
Our directors were not compensated for their services in 2001. We
reimburse directors for their expenses of attending meetings of the Board of
Directors.
Employment Agreements
David Ryon is engaged as President, Chief Executive Officer and
Principal Accounting Officer of Image Technology and Lewis M. Edwards was
engaged as Vice President and Chief Technical Officer. Each has been signed to a
three year contract which provides them with the following:
- a minimum annual base salary of $150,000 payable in regular equal
installments in accordance with our general payroll practices.
- an annual performance bonus at the end of each calendar year as
determined in good faith by the Board based upon its annually
established goals.
- participation in all retirement plans, health and other group
insurance programs, stock option plans and other fringe benefit
plans which we may now or hereafter in the Board of Directors'
discretion make available generally to its executives or
employees.
- term life insurance in the amount of $300,000, short-term and
long-term disability insurance in the amount of not less than 60%
of base salary, unless such insurance is not available at
commercially reasonable rates.
- an automobile for business use in accordance with Image
Technology's standard policy for senior executive officers.
-27-
Stock Option Plan
In January 1998, Image Technology's stockholders ratified Image
Technology's Stock Option Plan (the "Plan") whereby options for the purchase of
up to 5,000,000 shares of Image Technology's common stock may be granted to key
personnel in the form of incentive stock options and nonstatutory stock options,
as defined under the Internal Revenue Code. Key personnel eligible for these
awards include our employees, consultants and nonemployee directors. Under the
Plan, the exercise price of all options must be at least 100% of the fair market
value of our common shares on the date of grant. The exercise price of an
incentive stock option granted to an optionee which holds more than ten percent
of the combined voting power of all classes of stock of Image Technology must be
at least 110% of the fair market value on the date of grant. The maximum term of
any stock option granted may not exceed ten years from the date of grant and
generally vest over three years.
On January 1, 2000, we granted options under the plan to David Ryon,
Carlton T. Phelps and Lewis M. Edwards, our three founders, for the purchase of
a total of 3,000,000 shares of its common stock at $.33 per share, approximately
110% of the fair market value on the date of grant, which are exercisable
through December 31, 2009.
No options were granted or exercised prior to January 1, 2000.
PRINCIPAL AND SELLING SECURITY HOLDER
The shares of common stock may be offered and sold from time to time by
the selling shareholder or by their transferees, pledgees, donees or their
successors pursuant to this prospectus. The following table sets forth certain
information about the selling shareholder. Except as otherwise provided, the
selling shareholder has not, nor within the past three years has had, any
position, office or other material relationship with Image Technology or any of
its predecessors or affiliates. Because the selling shareholders may offer all
or some portion of the shares pursuant to this prospectus, no estimate can be
given as to the number of shares of common stock which will be held by the
selling shareholders upon termination of any such sales.
In addition, the table sets forth certain information concerning the
beneficial ownership of our common stock as of the date of this prospectus, by
(i) each person known by us to be the beneficial owner of more than 5% of our
common stock, (ii) each of our named executive officers, (iii) each of our
directors, and (iv) all directors and executive officers as a group. Unless
otherwise indicated, each of the stockholders has sole voting and investment
power with respect to the shares beneficially owned.
Security Ownership of Management
Name, Title and Address Title of Class Shares Beneficially
----------------------- -------------- -------------------
of beneficial owners Owned
-------------------- -----------------------
Number Percent
--------------------------------------------------------------------------------
David Ryon, M.D. Common Stock 2,829,584 24.24%
CEO, President
and Director Preferred Stock 500,000 33.33%
167 Schwenk Drive
Kingston, New York 12401
--------------------------------------------------------------------------------
Carlton T. Phelps, M.D. Common Stock 2,429,583 20.81%
167 Schwenk Drive
Kingston, New York 12401 Preferred Stock 500,000 33.33%
--------------------------------------------------------------------------------
Lewis M. Edward Common Stock 2,429,583 20.81%
Chief Technical Officer
and Director Preferred Stock 500,000 33.33%
167 Schwenk Drive
Kingston, New York 12401
--------------------------------------------------------------------------------
All officers and directors Common Stock 7,688,750 66%
as a group Preferred Stock 1,500,000 100%
SELLING STOCKHOLDERS
NAME AND ADDRESS COMMON SHARES NUMBER OF SHARES COMMON SHARES
---------------- BENEFICIALLY OWNED OFFERED BENEFICIALLY
PRIOR TO OFFERING OWNED AFTER OFFERING
------------------ ----------------- --------------------
NUMBER PERCENT NUMBER PERCENT
MACCAUGHERN TRADE 350,000 3.1 350,000 0 0
DEVELOPMENT (1)
19401 WUNDER TRAIL
TRABUCO CANYON, CA 92679
(1) Scott MacCaughern, the sole principal of MacCaughern Trade Development, will
have voting control over the shares of Image Technology owned by MacCaughern
Trade Development. Neither Mr. MacCaughern nor MacCaughern Trade Development
have had any material relationship with Image Technology or its affiliates
within the past three years.
On January 16, 2002, Image Technology entered into a consulting
agreement with MacCaughern Trade Development pursuant to which Image Technology
agreed to issue 350,000 freely tradeable shares of its common stock, valued at
$87,500, to MacCaughern Trade Development in exchange for its consulting
services pursuant to an exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended. In addition, MacCaughern Trade Development
will receive 100,000 shares of restricted stock and 100,000 2-year warrants
exercisable at $3.00 per share, upon the effectiveness of this offering.
-28-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Kingston Diagnostic Radiology, P.C., or Kingston, which is wholly owned
by Dr. Ryon, leases the use of its equipment to Image Technology on a
non-exclusive basis in exchange for a limited license to use ITL's RIS/PACS at
the Center and paid Image Technology a $21,375 service fee during the year ended
December 31, 2001. We are party to a facility usage and equipment lease
agreement now held by Mid Rockland Imaging. Mid-Rockland Imaging, the new owners
of the Center have agreed to allow the use of the Center as a demonstration
site. Through Dr. Ryon, Image Technology has access to Kingston's state-of-the
art computer system in return for a license to use ITL's RIS/PACS software in
Kingston's practice. We believe that the terms of these agreements are at least
as favorable to us as any terms we could have obtained from arms-length
negotiations with unrelated third parties.
During January 2002, Image Technology received net proceeds of $100,000
from the sale of 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 Officer.
MARKET FOR OUR SECURITIES
Image Technology's Common Stock and Warrants currently trade on the
Over-the- Counter Bulletin Board ( "OTCBB") under the symbols "IMTL", "IMTLW"
and "IMTLZ", respectively. These securities commenced trading on December 15,
2000. As of December 31, 2001, the number of holders of record of Common Stock,
Warrant IMTLW and Warrant IMTLZ was 251, 44, and 220 respectively.
Between December 15, 2000 and April 11, 2002, Image Technology's common
stock closed highest on May 11, 2001, at $0.94 and closed lowest on November 5,
2001, at $0.27. Between December 15, 2000 and April 11, 2002, the IMTLW (.40
wt.) closed at the highest on October 1, 2001, at $0.25 and closed the lowest on
October 1, 2001, at $0.05. Between December 15, 2000 and April 11, 2002, the
IMTLZ (.50 wt.) closed at the highest on May 14, 2001, at $0.25 and closed the
lowest on September 17, 2001, at $0.05.
-29-
The following table sets forth the range of the high and low closing bid
prices per share of our common stock during each of the calendar quarters
identified below. These bid prices were obtained from the OTC Bulletin Board
Quarterly Quote Summary Report received from Bloomberg Trading Market Services
and the Standard & Poor's Comstock, and do not necessarily reflect actual
transactions, retail markups, markdowns or commissions.
THE HIGH AND LOW BID SALES PRICES FOR THE EQUITY FOR EACH FULL QUARTERLY
PERIOD SINCE TRADING COMMENCED WITHIN THE TWO MOST RECENT FISCAL YEARS AND ANY
SUBSEQUENT INTERIM PERIOD FOR WHICH FINANCIAL STATEMENTS ARE INCLUDED ARE AS
FOLLOWS:
--------------------------------------------------------------------------------
Year Quarter High Bid Low Bid
2001 1st 0.90 0.30
2001 2nd 0.94 0.40
2001 3rd 0.64 0.42
2001 4th 0.30 0.27
--------------------------------------------------------------------------------
We have not paid any cash dividends to date and do not anticipate or
contemplate paying dividends in the foreseeable future. It is the present
intention of management to utilize all available funds for the development of
our business.
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 50,000,000 shares of common
stock and 5,000,000 shares of preferred stock. As of December 31, 2001, there
were outstanding 11,272,712 shares of common stock and 1,500,000 shares of
preferred stock.
Common Stock
Holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Holders of the common
stock do not have cumulative voting rights, and therefore the holders of a
majority of the shares of common stock voting for the election of directors may
elect all of our directors standing for election. Subject to preferences which
may be applicable to the holders of any outstanding shares of preferred stock,
the holders of common stock are entitled to receive such lawful dividends as may
be declared by the Board of Directors. In the event of a liquidation,
dissolution or winding up of the affairs of Image Technology, whether voluntary
or involuntary, and subject to the rights of the holders of any outstanding
shares of preferred stock, the holders of shares of common stock shall be
entitled to receive pro rata all of our remaining assets available for
distribution to our stockholders. The common stock has no preemptive,
redemption, conversion or subscription rights. All outstanding shares of common
stock are, and the shares of common stock to be issued pursuant to this offering
will be, fully paid and non-assessable. The issuance of common stock or of
rights to purchase common stock could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, a majority of our outstanding voting stock.
-30-
Preferred Stock
The Board of Directors is authorized, subject to limitations prescribed
by Delaware law, to provide for the issuance of preferred stock in one or more
series, to establish from time to time the number of shares to be included in
each such series, to fix the voting powers, designations, preferences and
rights, and the restrictions of those preferences and rights, of the shares of
each such series and to increase, but not above the total number of authorized
shares of preferred stock, or decrease, but not below the number of shares of
such series then outstanding, the number of shares of any such series without
further vote or action by the stockholders.
The board is authorized to issue preferred stock with voting,
conversion, and other rights and preferences which could adversely affect the
voting power or other rights of the holders of common stock. On January 7, 2000
we issued 1,500,000 shares of preferred stock to our three founders in
connection with the commencement of their employment contracts on January 1,
2000. The preferred shares have rights to dividends, rights with respect to
liquidation and other rights equivalent to those of holders of our common stock.
Warrants
Each Class A $.40 Warrant entitles the holder to purchase one share of
common stock at an exercise price of $0.40 per share and each Class B $.50
Warrant entitles the holder to purchase one share of common stock at an exercise
price of $0.50 per share (collectively, the "Warrants"). Unless previously
redeemed, the Warrants are exercisable at any time up until April 15, 2003. The
Warrants are transferable separately from the common stock. The Warrants are
subject to redemption by Image Technology at $.05 per warrant if the common
stock closing bid price exceeds $1.00 for 10 consecutive trading days ending
within 15 days of the date as of which the notice of redemption is given.
Holders of the Warrants will automatically forfeit their rights to purchase the
shares of common stock issuable under such warrants unless the warrants are
exercised before the close of business on the business day immediately prior to
the date set for redemption. All of the outstanding warrants of a class must be
redeemed if any of that class are redeemed. A notice of redemption shall be
mailed to each registered holder of Warrants by first class mail, postage
prepaid, upon 30 days' notice before the date fixed for redemption. The notice
of redemption shall specify the redemption price, the date fixed for redemption,
the place where the Warrant certificates shall be delivered and the redemption
price to be paid, and that the right to exercise the Warrants shall terminate at
5:00 p.m., New York City time, on the business day immediately preceding the
date fixed for redemption.
The Warrants may be exercised upon surrender of the certificate(s)
therefor on or prior to the expiration or the redemption date at the offices of
Image Technology's warrant agent with the subscription form on the reverse side
of the certificate(s) completed and executed as indicated, accomplished by
payment, in the form of a certified check payable to the order of Image
Technology Laboratories, Inc., of the full exercise price for the number of
Warrants being exercised.
-31-
The Warrants contain provisions which protect the holders against
dilution by adjustment of the exercise price per share and the number of shares
issuable upon exercise upon the occurrence of certain events, including
issuances of common stock, or securities convertible, exchangeable or
exercisable into common stock, at less than market value, stock dividends, stock
splits, mergers, sale of substantially all of Image Technology's assets, and for
other extraordinary events; provided, however, that no such adjustment shall be
made upon, among other things (i) the issuance or exercise of options or other
securities under any stock option or other benefit plan offered to employee,
officers or directors of Image Technology, (ii) the sale or exercise of
outstanding options or warrants or (iii) the conversion of shares of Image
Technology's preferred stock to common stock.
Image Technology is not required to issue fractional shares of common
stock, and instead will make a cash payment based upon the current market value
of such fractional shares. The holders of the Warrants will not possess any
rights as shareholders of Image Technology unless and until such warrants have
been exercised for shares of common stock.
Anti-takeover Effects of Provisions of Our Charter, Our By-laws and Delaware Law
Our charter and by-laws contain provisions which could discourage
potential takeover attempts and make more difficult the acquisition of a
substantial block of the common stock. Our charter authorizes the directors to
issue, without stockholder approval, shares of preferred stock in one or more
series and to fix the voting powers, designations, preferences and rights, and
the restrictions of those preferences and rights, of the shares of each such
series. Our charter provides that stockholders may act only at meetings of
stockholders and not by written consent in lieu of a stockholders' meeting. Our
by-laws provide that nominations for directors may not be made by stockholders
at any annual or special meeting thereof unless the stockholder intending to
make a nomination notifies us of its intentions a specified number of days in
advance of the meeting and furnishes to us information regarding itself and the
intended nominee. Our by-laws also provide that special meetings of our
stockholders may be called only by the president and must be called by the
president or the secretary at the written request of a majority of the
directors. Our by-laws also require a stockholder to provide to our Secretary
advance notice of business to be brought by such stockholder before any
stockholder meeting as well as information regarding the stockholder and others
known to support the proposal and any material interest they may have in the
proposed business. These provisions could delay stockholder actions which are
favored by the holders of a majority of the outstanding stock until the next
stockholders' meeting. These provisions may also discourage another person or
entity from making a tender offer for our common stock, because the person or
entity, even after acquiring a majority of the outstanding stock, could only
take action at a duly called stockholders' meeting and not by written consent.
We are subject to Section 203 of the Delaware General Corporation Law
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder, unless;
-32-
- prior to such date, the board of directors of the corporation
approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder;
- upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares
owned (a) by persons who are directors and also officers and (b) by
employee stock plans in which employee participants do not have the
right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or
- on or subsequent to such date, the business combination is approved
by the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative
vote of at least two-thirds of the outstanding voting stock which is
not owned by the interested stockholder. The application of Section 203
may limit the ability of stockholders to approve a transaction which
they may deem to be in their best interests.
Section 203 defines "business combination" to include (a) any merger or
consolidation involving the corporation and the interested stockholder; (b) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation to or with the interested stockholder; (c) subject to certain
exceptions, any transaction which results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (d)
any transaction involving the corporation which has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (e) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an "interested stockholder" as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person associated with, affiliated with,
controlling or controlled by such entity or person.
-33-
Limitation of Liability and Indemnification
Our charter provides that no director shall be personally liable to us
or to any stockholder for monetary damages arising out of such director's breach
of fiduciary duty, except to the extent that the elimination or limitation of
liability is not permitted by Delaware law. The Delaware law, as currently in
effect, permits charter provisions eliminating the liability of directors for
breach of fiduciary duty, except that such provisions do not eliminate or limit
the liability of directors for (a) any breach of the director's duty of loyalty
to a corporation or its stockholders, (b) any acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, (c)
any payment of a dividend or approval of a stock purchase which is illegal under
Section 174 of the Delaware General Corporation Law or (d) any transaction from
which the director derived an improper personal benefit. A principal effect of
this provision of our charter is to limit or eliminate the potential liability
of our directors for monetary damages arising from any breach of their duty of
care, unless the breach involves one of the four exceptions described in (a)
through (d) above.
Our charter and by-laws further provide for the indemnification of our
directors and officers to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law, including circumstances in which
indemnification is otherwise discretionary. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to our directors,
officers and controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the SEC that
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Continental
Stock Transfer & Trust Company.
PLAN OF DISTRIBUTION
The shares offered by this prospectus may be sold from time to time by
the Consultant. The Consultant may sell the shares in the over-the-counter
markets or otherwise, at market prices or at negotiated prices. They may sell
shares by one or a combination of the following:
- a block trade in which a broker or dealer so engaged will
attempt to sell the shares as agent, but may position and
resell a portion of the block as principal to facilitate the
transaction;
- purchases by a broker or dealer as principal and resale by
the broker or dealer for its account pursuant to this
prospectus; and
- ordinary brokerage transactions and transactions in which a
broker solicits purchasers.
-34-
In effecting sales, brokers or dealers engaged by the Consultant may
arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from the Consultant in amounts to be
negotiated prior to the sale. The Consultant and any broker-dealers which
participate in the distribution may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, and any proceeds or commissions
received by them, and any profits on the resale of shares sold by
broker-dealers, may be deemed to be underwriting discounts and commissions.
If the consultant notifies us that a material arrangement has been
entered into with a broker-dealer for the sale of shares through a block trade,
special offering, exchange distribution or secondary distribution or a purchase
by a broker or dealer, we will file, a prospectus supplement, if required
pursuant to the Securities Act, setting forth:
- the name of each of the participating broker-dealers,
- the number of shares involved,
- the price at which the shares were sold,
- the commissions paid or discounts or concessions allowed to
the broker-dealers, where applicable,
- a statement to the effect that the broker-dealers did not
conduct any investigation to verify the information set out or
incorporated by reference in this prospectus, and
- any other facts material to the transaction.
Image Technology will not receive any of the proceeds of shares sold by
the Consultant.
SHARES ELIGIBLE FOR FUTURE SALE
Image Technology had outstanding 11,272,712 shares of common stock at
December 31, 2001. Of these shares, only approximately 3,551,500 are freely
tradable without restriction, except for restrictions imposed by certain state
regulatory authorities, or registration under the Securities Act, except that
any shares purchased by an "affiliate" of Image Technology, as defined in the
rules and regulations promulgated under the Securities Act, will be subject to
the resale limitations under Rule 144 under the Securities Act. The remaining
shares of outstanding common stock were issued and sold by Image Technology in
private transactions in reliance upon exemptions from registration under the
Act. Such shares may be sold only pursuant to an effective registration
statement filed by Image Technology or an applicable exemption, including the
exemption contained in Rule 144 promulgated under the Act.
-35-
In general, under Rule 144 as currently in effect, a shareholder,
including an affiliate of Image Technology may sell shares of common stock after
at least one year has elapsed since such shares were acquired from Image
Technology or an affiliate of Image Technology. The number of shares of common
stock which may be sold within any three-month period is limited to the greater
of: (i) one percent of the then outstanding common stock or (ii) the average
weekly trading volume in the common stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144.
Certain other requirements of Rule 144 concerning availability of
public information, manner of sale and notice of sale must also be satisfied. In
addition, a shareholder who is not an affiliate of Image Technology (and who has
not been an affiliate of Image Technology for 90 days prior to the sale) and who
has beneficially owned shares acquired from Image Technology or an affiliate of
Image Technology for over two years may resell the shares of common stock
without compliance with the foregoing requirements under Rule 144.
No predictions can be made as to the effect, if any, that future sales
of shares, or the availability of shares for future sale, will have on the
market price of the common stock prevailing from time to time. Nevertheless,
sales of substantial amounts of common stock, or the perception that such sales
may occur, could have a material adverse effect on prevailing market prices.
LEGAL MATTERS
Bondy & Schloss LLP, New York, New York, has advised us with respect to
the validity of the securities offered by this prospectus. Bondy & Schloss LLP
owns 235,500 shares of common stock of the Company.
EXPERTS
The financial statements of Image Technology Laboratories, Inc. as of
December 31, 2001 and for the years ended December 31, 2001 and 2000 and for the
period from January 1, 1998 (date of inception) to December 31, 2001 included in
this prospectus have been audited by J.H. Cohn LLP, independent public
accountants, as stated in their report appearing elsewhere in this prospectus,
and have been so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
-36-
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form SB-2 with the SEC for
our common stock offered hereby. This prospectus does not contain all of the
information set forth in the registration statement. You should refer to the
registration statement and its exhibits for additional information. Whenever we
make reference in this prospectus to any of our contracts, agreements or other
documents, you should refer to the exhibits attached to the registration
statement or incorporated herein by reference for the copies of the actual
contract, agreement or other document. Following this offering we will be
required to file annual, quarterly and special reports, proxy statements and
other information with the SEC.
You can read our SEC filings, including the registration statement,
over the Internet at the SEC's Web site at HTTP://WWW.SEC.GOV. You may also read
and copy any document we file with the SEC at its public reference facilities at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You
may also obtain copies of the documents at prescribed rates by writing to the
Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of the public reference facilities.
-37-
IMAGE TECHNOLOGY LABORATORIES, INC.
(A DEVELOPMENT STAGE COMPANY)
REPORT ON FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
AND PERIOD FROM JANUARY 1, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 2001
Image Technology Laboratories, Inc.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
PAGE
Report of Independent Public Accountants F-2
Balance Sheet
December 31, 2001 F-3
Statements of Operations
Years Ended December 31, 2001 and 2000 and Period From
January 1, 1998 (Date of Inception) to December 31, 2001 F-4
Statements of Changes in Stockholders' Equity (Deficiency)
Years Ended December 31, 2001 and 2000 and Period From
January 1, 1998 (Date of Inception) to December 31, 2001 F-5
Statements of Cash Flows
Years Ended December 31, 2001 and 2000 and Period From
January 1, 1998 (Date of Inception) to December 31, 2001 F-6
Notes to Financial Statements F-7/15
* * *
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Image Technology Laboratories, Inc.
We have audited the accompanying balance sheet of Image Technology Laboratories,
Inc. (A Development Stage Company) as of December 31, 2001, and the related
statements of operations, changes in stockholders' equity (deficiency) and cash
flows for the years ended December 31, 2001 and 2000 and for the period from
January 1, 1998 (date of inception) to December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Image Technology Laboratories,
Inc. as of December 31, 2001, and its results of operations and cash flows for
the years ended December 31, 2001 and 2000 and for the period from January 1,
1998 (date of inception) to December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.
J.H. COHN LLP
Roseland, New Jersey
February 6, 2002
F-2
Image Technology Laboratories, Inc.
(A Development Stage Company)
Balance Sheet
December 31, 2001
ASSETS
Current assets - cash and cash equivalents $ 151,730
Equipment, net of accumulated depreciation of $4,598 42,948
-----------
Totals $ 194,678
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses $ 37,911
Notes payable to stockholders 5,200
-----------
Total current liabilities 43,111
Accrued compensation payable to stockholders 420,541
-----------
Total liabilities 463,652
-----------
Commitments
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; 11,272,712 shares issued and outstanding 112,727
Additional paid-in capital 1,587,118
Unearned compensation (150,000)
Deficit accumulated in the development stage (1,833,819)
-----------
Total stockholders' deficiency (268,974)
-----------
Totals $ 194,678
===========
See Notes to Financial Statements.
F-3
Image Technology Laboratories, Inc.
(A Development Stage Company)
Statements of Operations
Years Ended December 31, 2001 and 2000
and Period From January 1, 1998
(Date of Inception) to December 31, 2001
2001 2000 CUMULATIVE
------------ ------------ ------------
Revenues - related party $ 21,375 $ -- $ 21,375
------------ ------------ ------------
Expenses:
Research and development 635,694 633,798 1,269,492
General and administrative 354,765 211,797 585,702
------------ ------------ ------------
Totals 990,459 845,595 1,855,194
------------ ------------ ------------
Net loss $ (969,084) $ (845,595) $ (1,833,819)
============ ============ ============
Basic net loss per share $ (.08) $ (.08)
============ ============
Basic weighted average shares outstanding 12,589,041 10,370,047
============ ============
See Notes to Financial Statements.
F-4
Image Technology Laboratories, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders' Equity (Deficiency)
Years Ended December 31, 2001 and 2000
and Period from January 1, 1998
(Date of Inception) to December 31, 2001
PREFERRED STOCK COMMON STOCK ADDITIONAL COMMON
NUMBER NUMBER PAID-IN STOCK
OF OF CAPITAL SUBSCRIPTION
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------------------
Issuance of shares effective
as of January 1, 1998 to
founders 7,288,750 $ 72,887 $ (51,637)
Net loss
------------------------------------------------------------------------------------------
Balance, December 31, 1998 7,288,750 72,887 (51,637)
Net loss
------------------------------------------------------------------------------------------
Balance, December 31, 1999 7,288,750 72,887 (51,637)
Issuance of preferred stock in
exchange for services 1,500,000 $ 15,000 435,000
Issuance of common stock in
exchange for services 250,000 2,500 72,500
Sales of units of common stock
and warrants through private
placement, net of expenses,
in February 2000 799,729 7,997 171,923
Subscription for units of
common stock and warrants through
private placement 33,333 333 9,667 $ (10,000)
Sales of units of common stock
and warrants through public
offering completed in October
2000, net of expenses 2,591,050 25,911 813,951
Amortization of unearned compensation
Net loss
------------------------------------------------------------------------------------------
Balance, December 31, 2000 1,500,000 15,000 10,962,862 109,628 1,451,404 (10,000)
Issuance of common stock upon
exercise of warrants 309,850 3,099 135,714
Amortization of unearned compensation
Receipt of subscription receivable 10,000
Net loss
------------------------------------------------------------------------------------------
Balance, December 31, 2001 1,500,000 $ 15,000 11,272,712 $ 112,727 $ 1,587,118 $ --
============ ============ ============ ============ ============ ============
DEFICIT
ACCUMULATED TOTAL
IN THE STOCKHOLDER'
UNEARNED DEVELOPMENT EQUITY
COMPENSATION STAGE (DEFICIENCY)
------------------------------------------------
Issuance of shares effective
as of January 1, 1998 to
founders $ 21,250
Net loss $ (18,407) (18,407)
--------------------------------------------
Balance, December 31, 1998 (18,407) 2,843
Net loss (733) (733)
--------------------------------------------
Balance, December 31, 1999 (19,140) 2,110
Issuance of preferred stock in
exchange for services $ (450,000)
Issuance of common stock in
exchange for services 75,000
Sales of units of common stock
and warrants through private
placement, net of expenses,
in February 2000 179,920
Subscription for units of
common stock and warrants through
private placement
Sales of units of common stock
and warrants through public
offering completed in October
2000, net of expenses 839,862
Amortization of unearned compensation 150,000 150,000
Net loss (845,595) (845,595)
--------------------------------------------
Balance, December 31, 2000 (300,000) (864,735) 401,297
Issuance of common stock upon
exercise of warrants 138,813
Amortization of unearned compensation 150,000 150,000
Receipt of subscription receivable 10,000
Net loss (969,084) (969,084)
--------------------------------------------
Balance, December 31, 2001 $ (150,000) $ (1,833,819) $ (268,974)
============ ============ ============
See Notes to Financial Statements.
F-5
Image Technology Laboratories, Inc.
(A Development Stage Company)
Statements of Cash Flows
Years Ended December 31, 2001 and 2000
and Period from January 1, 1998
(Date of Inception) to December 31, 2001
2001 2000 CUMULATIVE
----------- ----------- -------------
Operating activities:
Net loss $ (969,084) $ (845,595) $(1,833,819)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization of unearned compensation 150,000 150,000 300,000
Amortization of capitalized software 2,186 2,186
Depreciation 4,598 4,598
Common stock issued for services 75,000 75,000
Changes in operating assets and liabilities:
Accounts payable and accrued expenses 17,248 20,663 37,911
Accrued compensation payable to stockholders 122,596 297,945 420,541
----------- ----------- -----------
Net cash used in operating activities (674,642) (299,801) (993,583)
----------- ----------- -----------
Investing activities:
Software costs capitalized (2,186)
Purchase of equipment (47,546) (47,546)
----------- -----------
Net cash used in investing activities (47,546) (49,732)
----------- -----------
Financing activities:
Proceeds from issuance of notes payable to
stockholders 100 5,200
Proceeds from issuance of common stock 138,813 170,063
Receipt of subscription receivable 10,000
Net proceeds from private placement and public
offering of units of common stock and warrants 1,024,782 1,024,782
Payments of deferred private placement costs (5,000)
----------- ----------- -----------
Net cash provided by financing activities 148,813 1,024,882 1,195,045
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (573,375) 725,081 151,730
Cash and cash equivalents, beginning of period 725,105 24 --
----------- ----------- -----------
Cash and cash equivalents, end of period $ 151,730 $ 725,105 $ 151,730
=========== =========== ===========
See Notes to Financial Statements.
F-6
Image Technology Laboratories, Inc.
(A Development Stage Company)
Notes to Financial Statements
Note 1 - Business:
Image Technology Laboratories, Inc. (the "Company") was
incorporated on December 5, 1997 and commenced operations on
January 1, 1998. The Company is in the process of developing
picture archiving and communications software, known in the
medical industry as "PACS," which will be used to input
diagnostic images in digital format from original imaging sources
and to store, print and display those images. Such software is
used in the management of medical diagnostic images by hospitals,
health maintenance organizations, group medical practices and
individual radiologists to increase accuracy, reduce costs and
boost productivity.
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's visit.
All of the data is retained in standard formats, including the
DICOM and HL-7 standards.
As of December 31, 2001, the Company's operations have been
limited to organizational activities and have not generated any
significant revenues from operations through that date.
Accordingly, the Company is considered a "development stage
company" for financial reporting purposes.
As of December 31, 2001, the Company has cash and cash
equivalents of approximately $152,000 and working capital of
approximately $109,000. However, since inception, the Company has
incurred losses resulting in an accumulated deficit of
approximately $1,834,000 at December 31, 2001. The Company
currently has no significant sources of revenues and expects to
incur additional losses for the foreseeable future. In addition,
the Company has only recently introduced its product to market
and does not expect to generate any significant revenues prior to
the second quarter of the year ending December 31, 2002. Further,
as of December 31, 2001, the stockholders have deferred until
2003 approximately $421,000 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 agreement is anticipated to close no
later than May 1, 2002, unless mutually extended. 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 over
and above the $100,000 it received in January 2002 from the sale
of 400,000 shares of common stock in a private placement. 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 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 December 31, 2002.
F-7
Image Technology Laboratories, Inc.
(A Development Stage Company)
Notes to Financial Statements
Note 2 - Summary of significant accounting policies:
Use of estimates:
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from
those estimates.
Cash equivalents:
Cash equivalents include all highly-liquid investments with an
original maturity of three months or less when acquired.
Revenue recognition:
Sales are recognized when revenue is realized or becomes
realizable and has been earned. In general, revenue is
recognized when the earnings process is complete and
collectibility is assured, which is usually when the Company
delivers the diagnostic images in digital format to the
customer. During the year ended December 31, 2001 and the
period from January 1, 1998 (date of inception) to December
31, 2001, the Company earned revenue of $21,375 from Kingston
Diagnostic Radiology, P.C., a company wholly-owned by one of
the principal stockholders.
Concentrations of credit risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and
cash equivalents. The Company places its cash and cash
equivalents with high-quality financial institutions. At
times, the Company's cash and cash equivalent balances exceed
the insured amount under the Federal Deposit Insurance
Corporation of $100,000. At December 31, 2001, the Company was
not exposed to such risk.
Software development costs:
Pursuant to Statement of Financial Accounting Standards No.
86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," the Company is required to
charge the costs of creating a computer software product to
research and development expense as incurred until the
technological feasibility of the product has been established;
thereafter, all related software development and production
costs are required to be capitalized.
Commencing upon the initial release of a product, capitalized
software development costs and any costs of related purchased
software are generally required to be amortized over the
estimated economic life of the product or based on current and
estimated future revenues. Thereafter, capitalized software
development costs and costs of purchased software are reported
at the lower of unamortized cost or estimated net realizable
value. Due to the inherent technological changes in the
software development industry, estimated net realizable values
or economic lives may decline and, accordingly, the
amortization period may have to be accelerated.
F-8
Image Technology Laboratories, Inc.
(A Development Stage Company)
Notes to Financial Statements
Note 2 - Summary of significant accounting policies (continued):
Equipment:
Equipment is stated at cost, net of accumulated depreciation.
Depreciation is provided using accelerated methods over the
estimated useful lives of the assets, which range from five to
seven years.
Impairment of long-lived assets:
The Company has adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS 121"). Under SFAS 121, impairment
losses on long-lived assets, such as goodwill and capitalized
software costs, are recognized when events or changes in
circumstances indicate that the undiscounted cash flows
estimated to be generated by such assets are less than their
carrying value and, accordingly, all or a portion of such
carrying value may not be recoverable. Impairment losses are
then measured by comparing the fair value of assets to their
carrying amounts.
Income taxes:
The Company accounts for income taxes pursuant to the asset
and liability method which requires deferred income tax assets
and liabilities to be computed for temporary differences
between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts
in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected
to be realized. The income tax provision or credit is the tax
payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
Net earnings (loss) per common share:
The Company presents "basic" earnings (loss) per common share
and, if applicable, "diluted" earnings 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 per common
share is similar to that of basic earnings 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
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 years ended December 31, 2001 and 2000 in
accordance with the "two class" method of computing earnings
(loss) per share set forth in SFAS 128.
F-9
Image Technology Laboratories, Inc.
(A Development Stage Company)
Notes to Financial Statements
Note 2 - Summary of significant accounting policies (concluded):
Net earnings (loss) per common share (concluded):
Since the Company had net losses in 2001 and 2000, the assumed
effects of the exercise of 3,000,000 options outstanding at
December 31, 2001 and 2000 and 3,364,262 and 3,674,112
warrants outstanding at December 31, 2001 and 2000 would have
been anti-dilutive.
The weighted average common shares outstanding shown in the
accompanying statements of operations have been retroactively
adjusted for a 388.733 for 1 stock split that was effected on
January 7, 2000 (see Note 5).
Stock options:
In accordance with the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), the Company will recognize compensation
costs as a result of the issuance of stock options to
employees based on the excess, if any, of the fair value of
the underlying stock at the date of grant or award (or at an
appropriate subsequent measurement date) over the amount the
employee must pay to acquire the stock. Therefore, the Company
will not be required to recognize compensation expense as a
result of any grants of stock options at an exercise price
that is equivalent to or greater than fair value. The Company
will also make pro forma disclosures, as required by Statement
of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), of net income or loss
as if a fair value based method of accounting for stock
options had been applied.
Note 3 - Equipment:
Equipment consists of the following:
Equipment $42,046
Furniture 5,500
-------
Total 47,546
Less accumulated depreciation 4,598
-------
Total $42,948
=======
Depreciation expense amounted to $4,598 during the year ended
December 31, 2001 and the period from January 1, 1998 (date of
inception) to December 31, 2001.
F-10
Image Technology Laboratories, Inc.
(A Development Stage Company)
Notes to Financial Statements
Note 4 - Notes payable to stockholders:
Notes payable to stockholders with a principal balance of $5,200
at December 31, 2001 were noninterest bearing and due on demand.
Note 5 - Stockholders' equity (deficiency):
Preferred stock:
As of December 31, 2001, the Company was authorized to issue
up to 5,000,000 shares of preferred stock with a par value of
$.01 per share. No shares of preferred stock had been issued
as of December 31, 1999. Under the Company's Articles of
Incorporation, the Board of Directors, within certain
limitations and restrictions, can fix or alter preferred stock
dividend rights, dividend rates, conversion rights, voting
rights and terms of redemption including price and liquidation
preferences.
Issuance of preferred stock to founders:
On January 7, 2000, the Board of Directors authorized the
issuance of a total of 1,500,000 shares of preferred stock to
the three founders of the Company in conjunction with the
commencement of their employment agreements on January 1, 2000
(see Note 9). The preferred shares will have rights to
dividends, rights with respect to liquidation and other rights
equivalent to those of holders of the Company's common stock
including one vote for each share held on all matters to be
voted on by the Company's stockholders.
Since the rights of the Company's preferred and common
stockholders are substantially equivalent, the preferred
shares were valued at $.30 per share based on the price of
units of common stock and warrants that the Company sold
through the private placement that was completed on February
4, 2000. The aggregate fair value of the preferred shares of
$450,000 has been recorded as unearned compensation and
reflected as a reduction of stockholders' equity, net of
accumulated amortization, in the accompanying balance sheet as
of December 31, 2001. The unearned compensation is being
charged to the Company's operations over the terms of the
respective employment agreements.
Common stock:
As of December 31, 1999, the Company was also authorized to
issue up to 50,000,000 shares of common stock with a par value
of $.01 per share. As of that date, it had issued 18,750
shares of common stock to its founding stockholders for total
cash consideration of $21,250 in January 1998.
F-11
Image Technology Laboratories, Inc.
(A Development Stage Company)
Notes to Financial Statements
Note 5 - Stockholders' equity (deficiency) (concluded):
Private placement of units:
On February 4, 2000, the Company completed a private placement
of 799,729 units, at $.30 per unit, that was exempt from
registration under the Securities Act of 1933 and received
proceeds of $239,920 before related expenses of $60,000. Each
unit was comprised of one share of common stock and one
warrant. In addition, the Company issued 250,000 warrants to
the broker who arranged the private placement of units. Each
warrant gives the holder the right to purchase one share of
common stock at the initial exercise price of $.40 per share
and expires on April 15, 2003.
Stock subscription receivable:
An investor subscribed to purchase 33,333 units, at $.30 per
unit, for a total subscription price of $10,000. Each unit was
comprised of one share of common stock and one warrant. Each
warrant gives the holder the right to purchase one share of
common stock at the initial exercise price of $.40 per share
and expires on April 15, 2003. During 2001, the Company
received the proceeds of the subscription receivable.
Shares for services:
During March 2000, the Company issued 250,000 shares of common
stock for the payment of legal services. The common shares and
legal services were valued at a total of $75,000, or $.30 per
share based on the price of units sold through the private
placement that was completed on February 4, 2000.
Initial public offering:
During 2000, the Company filed a registration statement with
the Securities and Exchange Commission related to an initial
public offering of a minimum of 1,500,000 units, on a
best-efforts, all-or-none basis and an additional 1,500,000
units on a best-efforts basis. Each unit offered consists of
one share of common stock and one warrant. Each warrant will
give the holder the right to purchase one share of common
stock at the initial exercise price of $.50 per share, expire
on April 15, 2003 and be redeemable by the Company at $.05 per
warrant if the closing bid price of the common stock exceeds
$1.00 for ten consecutive trading days. Management intends to
use the proceeds for working capital and general corporate
purposes.
As of October 15, 2000, the date the offering closed, the
Company sold 2,591,050 units at $.40 per unit from which it
received proceeds of $839,862, net of related expenses of
$196,558.
F-12
Image Technology Laboratories, Inc.
(A Development Stage Company)
Notes to Financial Statements
Note 6 - Income taxes:
As of December 31, 2001, the Company had net operating loss
carryforwards of approximately $1,413,000 available to reduce
future Federal and state taxable income which will expire at
various dates through 2021. The Company's only other material
temporary difference as of that date was approximately $421,000
of accrued officers' compensation. Due to the uncertainties
related to, among other things, the future changes in the
ownership of the Company, which could subject those loss
carryforwards to substantial annual limitations, and the extent
and timing of its future taxable income, the Company offset the
deferred tax assets attributable to the potential benefits of
approximately $734,000 related to the net operating loss
carryforwards ($566,000) and future deductibility of the
officers' compensation ($168,000) by an equivalent valuation
allowance as of December 31, 2001.
The Company had also offset the potential benefits from net
operating loss carryforwards of approximately $227,000, $7,600
and $7,200 by an equivalent valuation allowance as of December
31, 2000, 1999 and 1998, respectively and accrued officers'
compensation of approximately $119,000 as of December 31, 2000.
Although the Company had pre-tax losses in each period, income
tax benefit is included in the accompanying statements of
operations as a result of the increases in the valuation
allowance of $388,000, $338,400, $400 and $7,200 in 2001, 2000,
1999 and 1998, respectively.
Note 7 - Fair value of financial statements:
The Company's financial instruments at December 31, 2001 for
which disclosure of estimated fair value is required by certain
accounting standards consisted of cash and cash equivalents,
accounts payable and accrued expenses, notes payable to
stockholders and accrued compensation payable to stockholders. In
the opinion of management, cash and cash equivalents and accounts
payable and accrued expenses were carried at fair value because
of its liquidity and short-term maturity. Because of the
relationship of the Company and its stockholders, there is no
practical method that can be used to determine the fair value of
the notes payable to stockholders and accrued compensation
payable to stockholders.
Note 8 - Stock option plan:
In January 1998, the Company's stockholders ratified the
Company's Stock Option Plan (the "Plan") whereby options for the
purchase of up to 5,000,000 shares of the Company's common stock
may be granted to key personnel in the form of incentive stock
options and nonqualified stock options, as defined under the
Internal Revenue Code. Key personnel eligible for these awards
include employees of the Company, consultants to the Company and
nonemployee directors of the Company. Under the Plan, the
exercise price of all options must be at least 100% of the fair
market value of the Company's common shares on the date of grant
(the exercise price of an incentive stock option granted to an
optionee that holds more than ten percent of the combined voting
power of all classes of stock of the Company must be at least
110% of the fair market value on the date of grant). The maximum
term of any stock option granted may not exceed ten years from
the date of grant and options generally vest over three years.
F-13
Image Technology Laboratories, Inc.
(A Development Stage Company)
Notes to Financial Statements
Note 8 - Stock option plan (concluded):
Since the Company has elected to use the provisions of APB 25 in
accounting for stock options, no earned or unearned compensation
cost will be recognized in the financial statements for stock
options granted to employees at exercise prices that are equal to
or greater than the fair market value of the Company's common
stock on the date of grant. Instead, the Company makes the pro
forma disclosures required by SFAS 123 of net loss as if a fair
value based method of accounting for stock options had been
applied.
On January 1, 2000, the Company granted options to its founders
for the purchase of a total of 3,000,000 shares of its common
stock at $.33 per share (approximately 110% of the fair market
value on the date of grant) that are exercisable through December
31, 2009.
The pro forma amounts computed as if the Company had elected to
recognize compensation cost for all stock options granted to
employees based on the fair value of the options at the date of
grant as prescribed by SFAS 123 and the related historical
amounts reported in the accompanying statements of operations are
set forth below:
2001 2000
---------------- ---------------
Net loss - as reported $ (969,084) $ (845,595)
Net loss - pro forma (1,129,084) (1,005,595)
Basic loss per share - as reported $(.08) $(.08)
Basic loss per share - pro forma $(.09) $(.10)
The fair value of each option granted was estimated as of the
date of grant using the Black-Scholes Option-Pricing-Model with
the following weighted average assumptions:
Expected volatility 29%
Risk-free interest rate 6%
Expected years of option term 10
Expected dividends 0%
Note 9 - Employment agreements:
During December 1999, the Company entered into employment
agreements with its three founders that became effective on
January 1, 2000 and obligate the Company to make an aggregate
payment of $150,000 in the year ending December 31, 2002.
On May 1, 2001, the Company entered into an employment agreement
with an employee that obligates the Company to make annual
payments in years subsequent to 2001 as follows: $115,000 in 2002
and $38,333 in 2003.
F-14
Image Technology Laboratories, Inc.
(A Development Stage Company)
Notes to Financial Statements
Note 10- Subsequent event:
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 will be valued at approximately $112,500 based on
the fair value of the shares of common stock on the date the
agreement was entered into.
During January 2002, the Company negotiated the sale of 400,000
shares of its common stock for $100,000.
* * *
F-15
PART II
Item 24. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law affords a Delaware
corporation the power to indemnify its present and former directors and officers
under certain conditions. Article SEVENTH of the charter of Image Technology
provides that Image Technology shall indemnify each person who at any time is,
or shall have been, a director or officer of Image Technology, and is threatened
to be or is made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she is, or was, a director or officer of Image
Technology, or is or was serving at the request of Image Technology as a
director, officer, employee, trustee, or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
incurred in connection with any such action, suit or proceeding to the maximum
extent permitted by the Delaware General Corporation Law.
Section 102(b)(7) of the Delaware General Corporation Law gives a
Delaware corporation the power to adopt a charter provision eliminating or
limiting the personal liability of directors to the corporation or its
stockholders for breach of fiduciary duty as directors, provided that such
provision may not eliminate or limit the liability of directors for (a) any
breach of the director's duty of loyalty to the corporation or its stockholders,
(b) any acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (c) any payment of a dividend or
approval of a stock purchase which is illegal under Section 174 of the Delaware
Corporation Law or (d) any transaction from which the director derived an
improper personal benefit. Article NINTH of Image Technology's charter provides
that to the maximum extent permitted by the Delaware General Corporation Law, no
director of Image Technology shall be personally liable to Image Technology or
to any of its stockholders for monetary damages arising out of such director's
breach of fiduciary duty as a director of Image Technology. No amendment to or
repeal of the provisions of Article NINTH shall apply to or have any effect of
the liability or the alleged liability of any director of Image Technology with
respect to any act or failure to act of such director occurring prior to such
amendment or repeal. A principal effect of such Article NINTH is to limit or
eliminate the potential liability of our directors for monetary damages arising
from breaches of their duty of care, unless the breach involves one of the four
exceptions described in (a) through (d) above.
Section 145 of the Delaware General Corporation Law also affords a
Delaware corporation the power to obtain insurance on behalf of its directors
and officers against liabilities incurred by them in those capacities. Image
Technology has procured a directors' and officers' liability and company
reimbursement liability insurance policy that (a) insures directors and officers
of Image Technology against losses (above a deductible amount) arising from
certain claims made against them by reason of certain acts done or attempted by
such directors or officers and (b) insures Image Technology against losses
(above a deductible amount) arising from any such claims, but only if Image
Technology is required or permitted to indemnify such directors or officers for
such losses under statutory or common law or under provisions of Image
Technology's charter or by-laws.
-38-
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses to be paid by Image
Technology in connection with the issuance and distribution of the securities
being registered, other than sales commissions. All amounts shown are estimates
except for amounts of filing and listing fees.
Filing fee of SEC............................................ $8.05
Accounting fees and expenses................................. 3,000
Legal fees and expenses...................................... 6,000
Printing and engraving expenses.............................. 2,000
Transfer Agent's fees ....................................... 1,000
Miscellaneous................................................ 91.95
-----
Total...................................................... $12,100
=======
Item 26. Recent Sales of Unregistered Securities
During the past three years, the Registrant has sold the securities
listed below pursuant to exemptions from registration under the Securities Act.
The information below is presented on a post-stock split basis.
In January 2000, Image Technology issued 500,000 shares of preferred
stock to each of its three founders in conjunction with the commencement of
their employment agreements. The preferred shares were valued at $.30 per share
based on the price of units that the Company was offering for sale through a
private placement. The aggregate fair value of the preferred shares of $450,000
is being charged to the Company's results of operations over the terms of the
respective employment contracts.
During March 2000, Image Technology completed an offering of units
for a total consideration of approximately $240,000. Each unit consisted of one
share of common stock and one, one-year warrant to purchase one share of common
stock at an exercise price of $0.40 per share, for an aggregate of 799,729
shares of common stock, to a limited number of accredited investors. The sales
were made in reliance upon exemptions from registration provided under Section
4(2) of the 1933 Act and Rule 506 of Regulation D. The purchasers of these units
acquired these securities for their own account and not with a view to any
distribution thereof to the public.
-39-
During February 2000, Image Technology issued one-year warrants to
purchase 250,000 shares of common stock at an exercise price of $0.40 per share
to Robert Oakes in consideration for services rendered, valued at $60,000, in
reliance upon the exemptions from registration provided under Section 4(2) of
the 1933 Act.
During March 2000, Image Technology issued 250,000 shares of common
stock to Bondy & Schloss LLP in consideration for services rendered, valued at
$75,000, in reliance upon the exemptions from registration provided under
Section 4(2) of the 1933 Act.
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 Officer upon receiving consideration of $.25 per share or a total of
$100,000.
The issuances described above were made in reliance upon the
exemptions from registration set forth in Section 4(2) of the Securities Act
relating to sales by an issuer not involving any public offering. None of the
foregoing transactions involved a distribution or public offering. No
underwriters were engaged in connection with the foregoing issuances of
securities, and no underwriting commissions or discounts were paid.
Item 27. Exhibits
(a) EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------
3.1* Certificate of Incorporation of Image Technology
3.2* Certificate of Amendment to Certificate of Incorporation of Image
Technology dated December 23, 1999
3.3* By-Laws of Image Technology
4.1* Specimen certificate for common stock of Image Technology
4.2* Specimen certificate for preferred stock of Image Technology
4.3* Form of Private Placement Warrant
4.4* Form of Investor Warrant
4.5* Form of Oakes Warrant
4.6** Form of Subscription Agreement
4.7**** Form of Amended Warrant
5.1 Opinion of Bondy & Schloss LLP
10.1* Image Technology 1998 Stock Option Plan
10.2* Stockholders Agreement dated January 16, 1998 among certain
investors and Image Technology
-40-
10.3* Form of Registration Rights Agreement dated February 2000 among
certain stockholders of Image Technology and Image Technology
10.4* Assignment of Intellectual Property Agreement dated as of December
18, 1997 between Image Technology and David Ryon, M. D., Carlton T.
Phelps, M. D. and Lewis M. Edwards.
10.5* Form of Facility Usage and Equipment Lease Agreement by and between
Rockland Radiological Group, P.L.C. and Image Technology dated
January 12, 1998 II-3
10.6* Form of Employment Agreement dated December 21, 1999 between Image
Technology and David Ryon, M. D.
10.7* Form of Employment Agreement dated December 21, 1999 between Image
Technology and Carlton T. Phelps, M. D.
10.8* Form of Employment Agreement dated December 21, 1999 between Image
Technology and Lewis M. Edwards
10.9***** Consulting Agreement dated January 16, 2002 between the Company
and MacCaughern Trade Development.
23.1 Consent of J.H. Cohn LLP
23.2 Consent of Bondy & Schloss LLP (included in Exhibit 5.1)
24.1 Power of Attorney (contained on page II-5 of the registration
statement)
*Filed with amendment no. 1 to registration statement on Form SB-2
(No.333-336787) filed on June 6, 2000.
** Filed with amendment no. 2 to registration statement on Form SB-2
(No.333-336787) filed (No. 333-336787) on July 27, 2000.
***Filed with amendment no. 3 to registration statement on Form SB-2
(No.333- 336787) filed (No. 333-336787) on August 6, 2000.
****Filed with post effective amendment no. 1 to registration statement
on Form SB-2 (No.333-336787) filed on October 16, 2001.
Filed with registration statement on Form SB-2 (No. 333-824201) filed
on February 8, 2002.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or
the required information is shown in the financial statements or the related
notes.
-41-
ITEM 28. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this Registration
Statement to;
(i) Include any prospectus required by Section
10(a)(3) for the Securities Act of 1933, as amended
(the "Securities Act");
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a
fundamental change in the information set forth in
the Registration Statement; and
(iii) Include any additional changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each such post-effective amendment as a new registration
statement of the securities offered, and the offering of the
securities at that time to be the initial BONA FIDE offering
thereof.
(3) File a post-effective amendment to remove from
registration any of the securities which remain unsold at the
end of the offering.
(4) Provide to the transfer agent at the closing, certificates
in such denominations and registered in such names as are
required by the transfer agent to permit prompt delivery to
each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
-42-
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, as amended, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements of filing on Form SB-2 and
authorized this registration statement to be signed on its behalf by the
undersigned, in the City of Kingston, State of New York on April 23, 2002.
IMAGE TECHNOLOGY LABORATORIES, INC.
By /s/David Ryon
----------------
David Ryon, MD,
CEO, President, Chairman of the Board
and Principal Accounting Officer
By /s/ Lewis M. Edwards
-----------------------
Lewis M. Edwards
Vice President of Research and Development,
Chief Technical Officer and Director
-44-
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below constitutes and appoints David Ryon, as such person's
true and lawful attorneys-in-fact and agents, will full powers of substitution
and re-substitution, for such person in name, place and stead, to sign in any
and all amendments (including post-effective amendments) to this Registration
Statement on Form SB-2, in any and all capacities, and to file the same, with
all exhibits thereto and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto such attorneys-in-fact and
agents, and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on April 23, 2002.
SIGNATURE TITLE
/S/ DAVID RYON President, Chief Executive Officer, Principal
-------------- Accounting Officer and Director
David Ryon, M.D.
/S/ LEWIS M. EDWARDS Vice President of Research and Development,
-------------------- Chief Technical Officer and Director
Lewis M. Edwards
-45-