Image Technology Laboratories, Inc.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
PAGE
Condensed Balance Sheets
September 30, 2001 (Unaudited) and December 31, 2000 F-2
Condensed Statements of Operations
Nine and Three Months Ended September 30, 2001 and 2000 and Period from
January 1, 1998 (Date of Inception) to September 30, 2001 (Unaudited) F-3
Condensed Statement of Changes in Stockholders' Equity (Deficiency)
Nine Months Ended September 30, 2001 and Period from January
1, 1998 (Date of Inception) to September 30, 2001 (Unaudited) F-4
Condensed Statements of Cash Flows
Nine Months Ended September 30, 2001 and 2000 and Period from
January 1, 1998 (Date of Inception) to September 30, 2001 (Unaudited) F-5
Notes to Condensed Financial Statements (Unaudited) F-6/7
* * *
Image Technology Laboratories, Inc.
(A Development Stage Company)
Condensed Balance Sheets
September 30, 2001 and December 31, 2000
September December
ASSETS 30, 2001 31, 2000
------ ------------ ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 338,759 $ 725,105
Other current assets 6,250
----------- -----------
Totals $ 345,009 $ 725,105
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
-------------------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 280 $ 20,663
Accrued compensation payable to stockholders 297,945
Notes payable to stockholders 5,200 5,200
----------- -----------
Totals 5,480 323,808
----------- -----------
Accrued compensation payable to stockholders 375,734
----------- -----------
Total liabilities 381,214 323,808
----------- -----------
Stockholders' equity (deficiency):
Preferred stock, par value $.01 per share; 5,000,000 shares
authorized; 1,500,000 shares issued and outstanding 15,000 15,000
Common stock, par value $.01 per share; 50,000,000 shares
authorized; 11,202,112 and 10,962,862 shares issued and
outstanding 112,021 109,628
Additional paid-in capital 1,553,524 1,451,404
Common stock subscription receivable (10,000) (10,000)
Unearned compensation (187,500) (300,000)
Deficit accumulated in the development stage (1,519,250) (864,735)
----------- -----------
Total stockholders' equity (deficiency) (36,205) 401,297
----------- -----------
Totals $ 345,009 $ 725,105
=========== ===========
See Notes to Condensed Financial Statements.
F-2
Image Technology Laboratories, Inc.
(A Development Stage Company)
Condensed Statements of Operations
Nine and Three Months Ended September 30, 2001 and 2000
and Period From January 1, 1998
(Date of Inception) to September 30, 2001
(Unaudited)
NINE MONTHS THREE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
2001 2000 2001 2000 CUMULATIVE
----------- ------------ ------------ ------------ ----------
Revenues $ -- $ -- $ -- $ -- $ --
Research and development
expenses 484,335 493,663 164,427 193,663 1,118,133
General and administrative
expenses 170,180 129,538 76,129 32,743 401,117
------------ ------------ ------------ ------------ ------------
Net loss $ (654,515) $ (623,201) $ (240,556) $ (226,406) $ (1,519,250)
============ ============ ============ ============ ============
Basic net loss per share $ (.05) $ (.06) $ (.02) $ (.02)
============ ============ ============ ============
Basic weighted average shares
outstanding 12,539,975 9,654,246 12,648,688 9,914,249
============ ============ ============ ============
See Notes to Condensed Financial Statements.
F-3
Image Technology Laboratories, Inc.
(A Development Stage Company)
Condensed Statement of Changes in Stockholders' Equity (Deficiency)
Nine Months Ended September 30, 2001
and Period from January 1, 1998
(Date of Inception) to September 30, 2001
(Unaudited)
Preferred Stock Common Stock
--------------- ------------- Additional
Number Number Paid-in
of of Capital
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
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
Issuance of common stock upon exercise
of warrants 239,250 2,393 102,120
Amortization of unearned compensation
Net loss
---------- ------------ ----------- ------------ ------------
Balance, September 30, 2001 1,500,000 $ 15,000 11,202,112 $ 112,021 $ 1,553,524
========== ============ =========== ============ ============
Deficit
Accumulated
Common in the Total
Stock Unearned Development Stockholders'
Subscription Compensation Stage Equity
Receivable (Deficiency)
--------------------------------------------------------------------
Issuance of shares effective as of January
1, 1998 to founders $ 21,250
Net loss $ (18,407) (18,407)
------------ ------------
(18,407) 2,843
Balance, December 31, 1998 (733) (733)
Net loss ------------ ------------
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 $ (10,000)
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 (10,000) (300,000) (864,735) 401,297
Issuance of common stock upon exercise 104,513
of warrants 112,500 112,500
Amortization of unearned compensation (654,515) (654,515)
------------ ------------ ----------- ------------
Balance, September 30, 2001 $ (10,000) $ (187,500) $ (1,519,250) $ (36,205)
============ ============ ============ ============
See Notes to Condensed Financial Statements.
F-4
Image Technology Laboratories, Inc.
(A Development Stage Company)
Condensed Statements of Cash Flows
Nine Months Ended September 30, 2001 and 2000
and Period from January 1, 1998
(Date of Inception) to September 30, 2001
(Unaudited)
NINE MONTHS
ENDED SEPTEMBER 30,
2001 2000 CUMULATIVE
------------- ----------- ----------
Operating activities:
Net loss $ (654,515) $ (623,201) $(1,519,250)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization of unearned compensation 112,500 112,500 262,500
Common stock issued for services 75,000 75,000
Amortization of capitalized software costs 2,186
Changes in operating assets and liabilities:
Other current assets (6,250) (6,250)
Accounts payable and accrued expenses (20,383) 280
Accrued compensation payable to stockholders 77,789 264,974 375,734
----------- ----------- -----------
Net cash used in operating activities (490,859) (170,727) (809,800)
----------- ----------- -----------
Investing activities - software costs capitalized (6,193) (2,186)
----------- -----------
Financing activities:
Proceeds from issuance of notes payable to
stockholders 100 5,200
Proceeds from issuance of common stock 104,513 125,763
Net proceeds from private placement of units
of common stock and warrants 808,824 1,024,782
Payments of deferred private placement costs (5,000)
----------- ----------- -----------
Net cash provided by financing activities 104,513 808,924 1,150,745
----------- ----------- -----------
Net increase (decrease) in cash (386,346) 632,004 338,759
Cash, beginning of period 725,105 24 --
----------- ----------- -----------
Cash, end of period $ 338,759 $ 632,028 $ 338,759
=========== =========== ===========
See Notes to Condensed Financial Statements.
F-5
Image Technology Laboratories, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
Note 1 - Unaudited interim financial statements:
In the opinion of management, the accompanying unaudited
condensed financial statements reflect all adjustments,
consisting of normal recurring accruals, necessary to present
fairly the financial position of Image Technology Laboratories,
Inc. (the "Company") as of September 30, 2001, its results of
operations for the nine and three months ended September 30,
2001 and 2000, changes in stockholders' equity (deficiency) for
the nine months ended September 30, 2001 and cash flows for the
nine months ended September 30, 2001 and 2000 and the related
cumulative amounts for the period from January 1, 1998 (date of
inception) to September 30, 2001. Certain terms used herein are
defined in the audited financial statements of the Company as
of December 31, 2000 and for the years ended December 31, 2000
and 1999 and period from January 1, 1998 (date of inception) to
December 31, 2000 (the "Audited Financial Statements") included
in the Company's Annual Report on Form 10-KSB previously filed
with the Securities and Exchange Commission (the "SEC").
Pursuant to rules and regulations of the SEC, certain
information and disclosures normally included in financial
statements prepared in accordance with accounting principles
generally accepted in the United States of America have been
condensed or omitted from these financial statements unless
significant changes have taken place since the end of the most
recent fiscal year. Accordingly, the accompanying unaudited
condensed financial statements should be read in conjunction
with the Audited Financial Statements and the other information
included in the Form 10-KSB.
The results of operations for the nine and three months ended
September 30, 2001 are not necessarily indicative of the
results of operations for the full year ending December 31,
2001.
Note 2 - Earnings (loss) per share:
The Company presents basic earnings (loss) per share and, if
appropriate, diluted earnings per share in accordance with the
provisions of Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128").
The rights of the Company's preferred and common stockholders
are substantially equivalent. The Company has included the
1,500,000 preferred shares from the date of their issuance in
the weighted average number of shares outstanding in the
computation of basic loss per share for the nine and three
months ended September 30, 2001 and 2000 in accordance with the
"two class" method of computing earnings (loss) per share set
forth in SFAS 128.
Since the Company had net losses for the nine and three months
ended September 30, 2001, the assumed effects of the exercise
of 3,000,000 options and 3,434,862 and 2,819,537 warrants
outstanding at September 30, 2001 and 2000, respectively, would
have been anti-dilutive.
F-6
Image Technology Laboratories, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
Note 3 - Exercise of warrants:
During the nine months ended September 30, 2001,
warrantholders exercised 88,250 warrants and received 88,250
shares of common stock at a price of $.50 per share or $44,125
and also exercised 151,000 warrants and received 151,000
shares of common stock at a price of $.40 per share or
$60,400. As of September 30, 2001, 3,434,862 warrants are
outstanding.
* * *
F-7
Item 2. Management's discussion and Analysis of Financial Condition and Results
of operations
OVERVIEW
The following is a discussion of certain factors affecting Image
Technology Laboratories, Inc.'s results of operations, liquidity, and capital
resources. You should read the following discussion and analysis in conjunction
with Image Technology Laboratories, Inc.'s unaudited condensed financial
statements and related notes which are included elsewhere in this filing.
Image Technology Laboratories, Inc. was incorporated on December 5,
1997 and commenced operations on January 1, 1998. We are in the process of
developing 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.
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 controller. The combination of the backoffice 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.
In July of 2001, ITL registered with the FDA as a device
manufacturer. The ITL software has been classified under classifications LMB and
LMD. Both of these classifications have been deemed exempt by the FDA from the
510-K pre-market approval process. The ITL product can now be sold without
restriction.
In October of 2001 ITL entered into a letter of intent with Kingston
Hospital, Kingston, NY, to provide ITL's system to link three out patient
imaging centers, if their acquisition is completed. The proposed project will
should be finalized by the second quarter of 2002.
RESULTS OF OPERATIONS FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2001
COMPARED TO THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2000
REVENUES:
As of September 30, 2001, we had not generated any revenues from
operations and, accordingly, we were still in the development stage. We do not
expect to generate any revenues from our planned operations before the end of
the fourth quarter of 2001.
RESEARCH AND DEVELOPMENT EXPENSES;
During the nine and three months ended September 30, 2001, the
Company incurred research and development expenses of $484,335 and $164,427,
respectively, as compared to $493,663 and $193,663 in the comparable prior
periods. These expenses consisted primarily of compensation to the Company's
three founders under their employment contracts. In addition, $112,500 and
$37,500 of these expenses in both the nine and three month period ending
September 30, 2001 and 2000, were attributable to compensation associated with
the issuance of the shares of preferred stock to the founders, a non-cash
charge.
GENERAL AND ADMINISTRATIVE EXPENSES:
During the Nine months ended September 30, 2001, General and
Administrative Expenses was approximately $170,000 as compared to $130,000
during the nine months ended September 30, 2000. General and Administrative
expenses have increased primarily attributable to costs associated with the
Company building its infrastructure. In addition, during the first quarter of
2000, the Company incurred a $75,000 charge for legal services, which was
associated with the issuance of common stock for services, a non-cash charge.
During the Three months ended September 30, 2001, General and
Administrative Expenses increased by approximately $41,000 to approximately
$76,000 from approximately $33,000 for the three months ended September 30,
2000. The increase was primarily associated with added corporate payroll.
NET LOSS:
As a result of the aforementioned, the Company incurred a loss of
approximately $655,000 ($.05 per share) and approximately $241,000 ($.02 per
share) for the nine and three months ended September 30, 2001, respectively, as
compared to approximately $623,000 ($.06 per share) and approximately
$226,000($.02 per share) for the nine and three months ended September 30, 2000.
The loss was based on the basic weighted average shares outstanding of
12,539,975 and 12,648,688 for the nine and three months ended September 30,
2001, respectively, as compared to 9,654,246 and 9,914,249 for the comparable
prior period.
LIQUIDITY AND CAPITAL RESOURCES:
As of September 30, 2001, we had cash and working capital of
approximately $339,000 and $340,000, 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,the net proceeds from private placements
of approximately $180,000, the net proceeds from a public offering of
approximately $840,000 and proceeds of approximately $105,000 upon the exercise
of warrants and the issuance of shares of common stock.
We do not have any pending material commitments regarding capital
expenditures except for amounts owed to our founders under their employment
contracts. As long as the founders, continue to defer payment of a significant
portion of the compensation owing to them($375,734 at September 30, 2001), the
our sources of liquidity are sufficient to satisfy our needs for the next twelve
months.
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE SAFE HARBOR PROVISIONSOF THE
PRIVATE SECURITIES REFORM ACT OF 1995
The statements contained in the section captioned Management's
Discussion and Analysis of Financial Condition and Results of Operations which
are not historical are "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
represent the Company's present expectations or beliefs concerning future
events. The Company cautions that such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
uncertainty as to the Company's future profitability, the uncertainty as to the
demand for the Internet virtual communities; increasing competition; the ability
to hire, train, and retain sufficient qualified personnel; the ability to obtain
financing on acceptable terms to finance the Company's growth.