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As filed with the Securities and Exchange Commission on March 30, 2000
Registration No. 333-
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U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
IMAGE TECHNOLOGY LABORATORIES, INC.
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Delaware 8011 22-3531373
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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167 SCHWENK DRIVE, KINGSTON, NEW YORK 12401 (914) 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
(914) 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
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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. / /
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 Commission, acting pursuant to said
Section 8(a), may determine.
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CALCULATION OF REGISTRATION FEE
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Title of each Amount Proposed maximum Proposed maximum Amount of
class of securities to be offering price aggregate offering registration
to be registered registered per unit Price Fee
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<S> <C> <C> <C> <C>
UNITS 3,000,000 $0.40 $1,200,000
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Common Stock, $0.01
par value per share 3,000,000(1) $0.40 $1,200,000 $316.80
Shares
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Investor Warrants 1,500,000 $0.00
3,000,000 $0.00
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Common Stock
Underlying Investor 3,000,000 $0.50 $1,500,000 $396.00(3)
Warrants
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Warrants 250,000(2) $0.40 $100,000 $ 26.40(1)
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Total Common Stock
3,000,000/Max $1,200,000 $316.80(1)
Total Warrants
Total Common Stock 1,500,000/
underlying Investor 3,000,000/ $1,500,000 $396.00(1)
Warrants 250,000 $100,000 $ 26.40(1)
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Total $739.20(1)
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(1) Estimated pursuant to Rule 457 (g) for the purpose of calculating the
registration fee.
(2) Warrants totaling 250,000 issued to Robert Oakes with a cashless exercise
provision in whole or in part at $0.40 per share for a total value of $100,000
(3) This has been calculated using the exercise price of the Investor Warrants
at $0.50 per share.
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TABLE OF CONTENTS
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PROSPECTUS SUMMARY ...............................................................................................5
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OVERVIEW OF
IMAGE TECHNOLOGY LABORATORIES, INC.......................................................................6
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THE OFFERING......................................................................................................7
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SUMMARY OF CONFIDENTIAL
FINANCIAL DATA...........................................................................................8
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OPERATIONS........................................................................................................9
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RISK FACTORS.....................................................................................................10
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RISK FACTORS RELATED TO THE OFFERING.............................................................................17
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USE OF PROCEEDS..................................................................................................19
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DIVIDEND POLICY..................................................................................................20
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DILUTION ........................................................................................................21
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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION......................................................................22
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DESCRIPTION OF BUSINESS..........................................................................................23
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DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITY...............................................................................................32
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DESCRIPTION OF PROPERTY..........................................................................................33
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SELLING SHAREHOLDERS.............................................................................................34
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DETERMINATION OF OFFERING PRICE..................................................................................35
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DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.....................................................36
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................................39
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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.........................................................40
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EXECUTIVE COMPENSATION...........................................................................................41
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................................44
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DESCRIPTION OF SECURITIES........................................................................................46
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LEGAL MATTERS....................................................................................................48
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EXPERTS ........................................................................................................49
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ADDITIONAL INFORMATION...........................................................................................50
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CHANGES IN AND DISAGREEMENT WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURE....................................................................................51
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PART II ........................................................................................................52
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INDEMNIFICATION OF DIRECTORS AND OFFICERS........................................................................53
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OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION......................................................................54
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RECENT SALE OF UNREGISTERED SECURITIES...........................................................................55
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EXHIBITS ........................................................................................................56
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UNDERTAKINGS.....................................................................................................57
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SIGNATURES.......................................................................................................58
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Subject to Completion, Dated March 30, 2000
PROSPECTUS SUMMARY
Minimum 1,500,000 Units
Maximum 3,000,000 Units
Image Technology Laboratories, Inc. a Delaware Corporation, ("ITL" or
the Company") is offering for sale a minimum of 1,500,000 Units and a maximum of
3,000,000 Units (the "Units"), each Unit at $.40 per Unit consisting of 1 share
of Common Stock and a Investor Warrant entitling the holder to purchase 1 share
of Common Stock at $0.50 per share. The Units are being offered by the officers
and directors of the Company on a "best efforts," 1,500,000 Unit or more basis.
The minimum investment for each investor is 5000 Units.
These securities have not been approved or disapproved by the
Securities and Exchange Commission, (the "Commission") or any State Securities
Commission nor has the Commission or any State Securities Commission passed upon
the accuracy or adequacy of this prospectus. Any representation to the contrary
is a Criminal Offense.
The securities offered hereby involve a high degree of risk. See "Risk Factors"
beginning at page 11 for information that should be considered by prospective
investors.
This summary highlights important information about ITL's business and
about this offering. Because it is a summary, it does not contain all of the
information you should consider before investing in the Units. Each prospective
purchaser of the securities offered by this Prospectus is encouraged to read
this Prospectus in its entirety, including the consolidation of financial
statements and notes appearing elsewhere in the Prospectus and to carefully
consider, among other things, the information under the heading "Risk Factors."
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OVERVIEW OF
IMAGE TECHNOLOGY LABORATORIES, INC.
ITL is a software developmental stage company that has entered the
medical image management segment of the healthcare information systems market.
The Founders of ITL have developed through two years of research and design a
unique Picture Archival and Communications System ("PACS"), code name ITLPACS.
The ITLPACS routes, archives and displays digital images linked to patient
demographics from either the Radiology Information System ("RIS") or the
Hospital Information System ("HIS").
The solution includes no-cost remote access to the imaging database via
the Internet for on-call remote diagnosis, referring physicians or expert
consultations. The ITLPACS solution offers image capture, viewing, server and
administrative complexes with ODBC/SQL relational database technology, COM/DCOM
object software architecture and DICOM/HL7 compatibility. ITL provides all
support services, including remote system, network and database administration
and management. ITL is also developing a unique display station that allows
radiologists to view multiple digitized images simultaneously. ITL plans to
initiate marketing the ITLPACS, a fourth generation medical information
management system that is more open, usable and scalable than any currently
available product, to hospitals beginning in the northeastern United States. ITL
will distribute its PACS through three channels OEM relationships, partnerships
and direct distribution through its own sales representatives. The Company
intends to sustain growth through constant innovation.
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THE OFFERING
Securities Offered
Units A Minimum 1,500,000 Units up to a Maximum of 3,000,000
Units at $0.40 per Unit, each Unit consisting of 1 share of
Common Stock and an Investor Warrant to purchase an
additional 1 share of Common Stock at anytime during the one
year period following the date of this Prospectus, 1 share of
Common Stock at $0.50 per Share subject to adjustment for
split-ups or combinations of Common Stock, dividends payable
in Common Stock and the issuance of rights to purchase
additional shares of Common Stock. Investor Warrants are
callable upon sixty (60) days prior written notice when the
closing sale price of the Common Stock equals or exceeds
$2.00 for ten (10) consecutive trading days.
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SUMMARY OF CONFIDENTIAL
FINANCIAL DATA
The following table sets forth our summary financial data. This table
does not represent all of our financial information. You should read this
information together with our Audited financial statements and the notes to the
Financial statements beginning on page F-1 of this Prospectus and the
information under "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
BALANCE SHEETS
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Dec 31, 1999 Dec 31, 1998
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ASSETS
Current Assets - Cash $24 $657
Capitalized Software Development 2,186 2,186
Deferred Private Placement Costs 5,000
TOTAL ASSETS $7,210 $2,843
======== ========
LIABILITY & EQUITY
Current Liabilities-Notes Payable
to Stockholders $5,100
Equity
Common Stock $187 $187
Additional Paid-in-Capital 21,063 21,063
Accumulated Deficit (19,140) (18,407)
Total Equity $2,110 $2,843
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TOTAL LIABILITIES & EQUITY $7,210 $2,843
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8
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OPERATIONS
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1999 Jan-Dec 1998
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Ordinary Income
Expense
Bank Service Charges $108 $ -
Depreciation Expense $4,077 $3,077
Office Supplies $0.00 $61.70
Taxes
Franchise $ - $100.00
Sales Tax (Other) $9.00 $ -
----- ------
Total Taxes $9.00 $100.00
Total Expenses $4,194 $3,238
------ ------
Net Ordinary Income ($4,194) ($3,238)
-------- --------
Net Income ($4,194) ($3,238)
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RISK FACTORS
An investment in the Units involves a high degree of risk and
should not be made by persons who cannot afford the loss of their entire
investment. You should carefully consider the risks described below in addition
to the other information presented in the prospectus before deciding to invest.
If any of the following risks actually occur, ITL's business, financial
condition, or results of operations could be materially adversely affected. In
such case, the trading price of ITL's Common Stock could decline and you may
lose all or part of your investment. (See also "Description of Business")
Forward Looking Statements
The words "may," "will," "expect," "anticipate," "believe," "continue,"
"estimate," "project," "intend," and similar expressions used in this Prospectus
are intended to identify forward- looking statements. You should not place undue
reliance on these forward-looking statements, which speak only as of the date
made. We undertake no obligation to publicly revise any forward-looking
statements as a result of future events or developments. You should also know
that such statements are not guarantees of future performance and are subject to
risks, uncertainties and assumptions. Should any of these risks or uncertainties
materialize, or should any of our assumptions prove incorrect, actual results
may differ materially from those included within the forward-looking statements.
Risk Factors Relating to the Company
Limited Operating History
We incorporated on December 5, 1997, and commenced operations
effectively 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, as a developer of Picture Archival Information and Communications
Systems ("PACS"), 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. Our survival in the Medical Image Management market
industry will depend upon our ability to enhance our current product and to
develop or obtain from third-party suppliers, new products that keep pace with
technological developments, respond to evolving end-user requirements and
achieve market acceptance. Any failure by us to anticipate or respond adequately
to technological developments or end-user requirements or any delays in product
development, acquisition or introduction, would materially adversely affect our
business and financial condition. We may be unable to adjust our spending in a
timely manner to compensate for any unexpected revenue shortfalls. 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. There can be no assurance that we will be able to
successfully remain in the Medical Image Management market as currently planned.
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Lack of Profitability; Cumulative Deficit; Revenue Projections
ITL is a developmental stage company that has generated no revenues
from product sales. ITL does not expect to generate revenue from product sales
until at least the first quarter of 2001. ITL has incurred losses of
approximately Nineteen Thousand Dollars ($19,000) since its inception primarily
as a result of legal and accounting expenses incurred in connection with
business formation. There is no guarantee that ITL will be able to generate
revenue or achieve or sustain profitability in the future. ITL has no historical
data on which to rely in estimating future revenue or expenses, and, as such,
ITL's revenue assumptions may be inaccurate.
Government Regulation; No Assurances of Regulatory Approval
The Company's products are regulated in the United States and abroad.
In the United States, the ITLPACS is considered a medical device under the
Federal Food, Drug and Cosmetic Act (the "Food and Drug Act") and is subject to
regulation by the U.S. Food and Drug Administration ( the "FDA"). Before ITLPACS
may be marketed in the United States, ITL must apply for and receive FDA
authorization to market the product by submitting to the FDA a Pre-Market
Notification pursuant to Section 510(k) of the Food and Drug Act and by filing a
Pre-Market Approval application (a "PMA"). The PMA process can take up to six
(6) months or more and requires the expenditure of substantial resources. The
510(k) notification process is available for products substantially equivalent
to previously approved products and may result in market clearance in as few as
ninety (90) days. PACS products produced by other companies have been approved
under the notification process. ITL is hopeful that the ITLPACS will also be
deemed substantially equivalent in intended use and technical characteristics to
similar devices previously approved by the FDA, but there can be no guarantee
that the FDA will not require the ITL to submit a PMA under its usual approval
process for new devices.
See "Business - Product Approval Process"
ITL and its employees have limited experience in filing and pursuing
the application necessary to gain regulatory approval. Regulatory authorities
have substantial discretion to approve or deny ITL's applications to market
medical devices such as the ITLPACS. In addition, regulatory bodies may change
their standards or other regulations for approving new medical devices, which
may result in additional delays or prevent approval. ITL currently has no
product approved for marketing in the United States of elsewhere. There can be
no assurance that ITL will be able to obtain the necessary approvals for the
marketing of any products that it develops. An inability to gain FDA marketing
approval for the ITLPACS or a substantial delay in obtaining such approval would
adversely affect ITL's finances and its future prospects. Approval in one
jurisdiction does not assure approval in another because the various U.S. and
foreign, federal, state and local regulatory authorities are independent of each
other. ITL will have to comply with the laws of, and meet the applicable
regulatory procedures and standards in each jurisdiction in which it seeks to
market its products.
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 unknown problems may result in restrictions on the
product and the manufacturer. The restrictions could include withdrawal of the
product from the market. ITL is subject to numerous environmental, health, and
workplace safety laws and regulations
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that might adversely affect ITL's financial condition or ability to carry on its
business.
No Assurance of Third-Party Purchase or Reimbursement Approval
A significant portion of the potential purchasers of the ITLPACS are
hospitals and other health care organizations that provide services to Medicare
recipients. Their decision to purchase ITLPACS may be adversely influenced by
regulatory restrictions on their ability to be reimbursed for the use of the
teleradiology services that PACS support. Federal regulations implemented by the
Health Care Financing Administration (the "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 ITLPACS to distribute
diagnostic images to remote locations for consultations or second reading by
specialists may not be reimbursable. The impact of HCFA restrictions on
reimbursement for the use of PACS may adversely influence the medical device
purchase decisions made by hospitals and other potential customers which in turn
could have an adverse impact on the market for ITL's product and consequently on
its financial condition and financial performance. Due to the prevalence of cost
containment measures imposed by managed care organizations, many private group
practices that might otherwise consider purchasing ITLPACS may face similar
financial disincentives to invest in newer PACS technology.
Competition and Technological Change
At present, 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 PACS to date. Although ITL believes its ITLPACS offers unique features that
will distinguish it in the market, larger or more established PACS suppliers
have substantially greater financial and other resources than ITL, and there can
be no assurance ITL will be able to compete successfully against them in the
market for PACS. In addition, a number of large hospital radiology centers are
presently developing their own proprietary PACS for internal use. This trend may
reduce the market for the ITLPACS 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. See "Business-Competition and
Competitive Advantage." The ITLPACS will also continue to compete with other
older diagnostic imaging systems such as film-based x ray equipment, which are
still the predominant medical imaging modalities. Although PACS offer
significant advantages over such older imaging modalities and the market for
PACS is expected to grow quickly, there can be no assurance that hospitals, HMOs
and others will continue to invest in the newer PACS technology at the same
rates as has been the case over the past few years.
In the future, the ITLPACS may face competition from newer technologies
based on different imaging techniques. The ITLPACS have been intentionally
designed with modular architecture on the Windows NT operating system to permit
easy upgrading of component technology for the purpose of permitting ITL to
avoid product obsolescence by maintaining state of the art systems. There can be
no assurance, however, that the basic technology of all PACS, and therefore the
market for such systems,
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will not be superceded buy an altogether new form of imaging technology or that
the hardware and operating system components of the ITLPACS will not become
obsolescent in a manner or to a degree that cannot be overcome by the modular
structure of ITL's system. Although ITL is not aware of any new technologies
currently under development that might replace PACS technology, new technologies
may be developed, or existing technologies refined, which could render ITLPACS
technologically or economically obsolete. Due to cost factors, competitive
considerations or other constraints, there can be no assurance that ITL will be
able to develop or acquire any new or improved hardware or software that it may
need in order to remain competitive. See "Business Competition and Competitive
Advantage."
Protection of Proprietary Technology
ITL's ability to market a competitive PACS product depends in part on
its success in protecting its proprietary interests in ITLPACS unique software
so that competitors cannot duplicate its innovations and design. The principal
forms of protection for software are copyright and trade secret protection. ITL
has secured from its founders an assignment of all their rights and titles to
the ITLPACS software developed prior to ITL's incorporation and therefore,
believes it owns the copyright to the 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 that continue for
a period of two (2) years from the termination of employment. ITL plans to
require substantially similar obligations from all key employees hired in the
future. By licensing rather than selling its software ITL expects to retain
maximum trade secret protection for its product technology. However, there can
be no assurance that all elements of ITL's software are sufficiently original to
qualify for copyright protection or that ITL will be successful in preventing
the unauthorized disclosure of its trade secrets. In either event, ITL may face
competition from sales of products that are substantially similar to its own
from which ITL will not benefit or be entirely able to prevent notwithstanding
any right it may have to sue a person who makes unauthorized disclosure of its
trade secrets. ITL currently plans to pursue patent protection to the limited
extent that patent protection is available for any aspect of ITL's product. See
Business- Protection of Proprietary Technology."
Manufacturing Uncertainties; Dependence on Third Party Licenses and Contracts
In order to complete development of the ITLPACS system, ITL needs
access to a sophisticated state-of-the-art computer hardware system containing
the full complement of the equipment on which ITL's products is intended to run.
For this purpose, ITL has entered into (2) agreements: (i) a Facility Usage
Agreement with Rockland Radiology Group, P.L.L.C. ("Rockland") doing business as
the Kingston Diagnostic Center (the "Center"), a privately-owned radiology
facility operated by Kingston Diagnostic Radiology, P.C. ("Kingston"), and (ii)
an Equipment Lease Agreement with Kingston. Kingston is a professional
corporation owned by Dr. David Ryon the Company's Chairman and Chief Executive
Officer that, pursuant to an agreement with Rockland ( the "Rockland
Agreement"), employs radiologists to provide radiology services to the Center's
clients using diagnostic imaging equipment and software owned by Kingston. The
Equipment Lease Agreement gives ITL access to Kingston's state-of- the-art
computer system for a two (2) year period. The Facility Usage Agreement gives
ITL the right to use certain office space in the Center for access to Kingston's
computer system and other purposes for so long as the Rockland Agreement and the
Equipment Lease Agreement continue in effect. The termination of the Rockland
Agreement, which ITL cannot control, would automatically terminate the Facility
Usage Agreement. If this occurred, neither Kingston nor ITL would have access to
the Center, although Kingston would be entitled to remove its equipment from the
premises and ITL would have the
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right to continue to lease or to purchase Kingston's equipment. If ITL were
unable to access Kingston's equipment, ITL estimates that it would have to
purchase or otherwise acquire access to approximately $400,000 of comparable
equipment in order to complete product development. Termination of the Facility
Usage Agreement would most likely prevent ITL from using the Center as its
principal product demonstration site as it presently intends to do. ITL has no
agreement with any other facility to serve as a product demonstration site and
may not be able to obtain one in the future. However, ITL is not aware of any
circumstances that would jeopardize continuation of the Rockland Agreement.
Furthermore ITL believes its need for office space will remain very modest, even
when it is fully staffed for 2000, due to the fact that most employees are
expected to telecommute, therefore enabling it to replace its existing office
space in the Center quickly and inexpensively with no material impact on ITL or
its finances.
ITL intends to market ITLPACS itself. However, if this is not
economically feasible, ITL may enter into marketing distribution or other
arrangements with third parties. These arrangements may grant exclusivity rights
to market certain products in return for royalties on sales. ITL's business may
be adversely affected if any such marketing partner does not market a product
successfully. See "Business-Operations" and "Business-Leases."
Limited Marketing Experience
ITL intends to market ITLPACS to hospitals, HMOs, individual
radiologists and group practices, subject to FDA approval. Although ITL intends
to add management members who have experience in marketing medical devices, ITL
has no experience marketing its proposed products. ITL has only very limited
sales, marketing and distribution capabilities at this time. To market any of
its products directly, ITL must develop a marketing and sales force with
technical expertise and supporting product distribution capability. Significant
additional expenditures will be required for ITL to develop a sales force or
penetrate the markets for its products even if it makes those expenditures. ITL
may not be able to obtain enough capital to establish an adequate in-house
marketing and distribution capability in which case it would have to establish
marketing arrangements with third parties. ITL's failure to establish in-house
sales and distribution capabilities or an inability to enter into marketing
arrangements with third parties on favorable terms, or a delay in developing
such capabilities or arrangements, could have a material adverse effect on ITL's
business, financial condition, and results of operations. See "Business-Markets
and Marketing Plan."
Reliance on Key Employees; Ability to Obtain Qualified Employees
ITL is dependent in substantial part on the personal efforts and
abilities of David Ryon, M.D., its President, Chief Executive Officer, Chairman
of the Board of Directors; Carlton T. Phelps, M.D., its Vice President - Finance
and Administration, Chief Financial Officer, Secretary and Treasurer; and Mr.
Lewis M. Edwards, its Vice President for Research and development and Chief
technical Officer. Each is a founder, director and principal stockholder of ITL
and a co-developer of the ITLPACS product. Dr. Ryon, Dr. Phelps, and Mr. Edwards
are each employed as executive officers under employment agreements with ITL.
Drs. Ryon and Phelps are permitted to continue the part-time practice of
radiology, subject to approval of the Board of Directors, but are otherwise
required to devote their full business time to the affairs ITL. Mr. Edwards is
required to join ITL as a full-time employee upon completion of this Offering
and is prohibited by the terms of his employment agreement from engaging in any
other business activities which are directly competitive with the business of
ITL, or which
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materially interfere with the performance of his duties and responsibilities to
ITL. The loss or unavailability of any of these executives or future key
employees for any significant period could have a material adverse effect on
ITL's business, financial condition and results of operation. In addition, in
order to complete product development and implement the marketing and business
strategy described in this Prospectus, ITL must attract and retain highly
qualified marketing, scientific, technical, and business personnel experienced
in the medical device industry. There is no guarantee, particularly in the
current competitive market for such skilled employees, that ITL will be able to
secure or retain the personnel necessary to implement its business plan. See
"Use of Proceeds" and "Management."
Potential Product Liability; Availability of Insurance
ITL risks exposure to product liability claims if the use of its
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 ITL's products. There
can be no assurance that such claims, if made, would not result in monetary
liability for damages or a recall of ITL's products or a change in the
diagnostic purposes for which it may be used. Prior to product launch, ITL
intends to obtain product liability insurance coverage for claims arising from
the use of its ITLPACS 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 and no assurance
can be given that ITL will be able to maintain such insurance, obtain additional
insurance, or obtain insurance at a reasonable cost or in sufficient amounts to
protect ITL against losses due to liabilities that individually or in the
aggregate could have a material adverse effect on ITL. See "Business-Insurance."
Uncertainty of Future Products
ITL plans to complete development of ITLPACS as discussed in this
Prospectus and to continuously develop enhancements to ITLPACS so that it
remains a state-of-the-art system. There can be no assurance, however, that ITL
will develop additional products that will be commercially viable. ITL has not
yet completed development of ITLPACS and has no other product or service on
which it may rely for future revenue. See "Business - Business Strategy."
Need for Additional Financing
ITL believes that the proceeds from this Offering will be insufficient
to conduct its planned operations for the next twelve (12) months. ITL intends
to fund its operations by raising significant additional funds through equity or
debt financing. At present, ITL has no commitments for additional or alternative
financing, and there is no assurance that ITL will be able to obtain such
financing on satisfactory terms, if at all. Any subsequent offering of
securities would, in all liklihood dilute existing stockholders' percentage of
ownership in ITL. ITL's inability to secure additional funds from such financing
within six (6) months could adversely affect ITL's ability to implement its
business plan as described in this Prospectus. See "Use of Proceeds."
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Control By Existing Stockholders
Following completion of the maximum Offering, ITL's executives, Dr.
Ryon, Dr. Phelps and Mr. Edwards, will own and control an aggregate of 7,288,750
shares of the outstanding Common Stock of ITL representing approximately ninety
percent (90%) of its outstanding Common Stock and ninety two percent (92%) of
its outstanding voting stock (giving effect to the 1,500,000 shares of Preferred
Stock (as defined hereinafter)). All shares owned by the executives are also
subject to certain restrictions on transfer, rights of first refusal and
repurchase rights contained in a Stockholder's Agreement that is intended to
preserve ownership of these shares by the founders of ITL. 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 ITL. See "Principal
Shareholders" and "Description of Securities-Preferred Stock."
Substantial Shares of Common Stock Reserved
ITL has reserved five million (5,000,000) shares of Common Stock for
issuance upon exercise of options that may be granted to key employees,
officers, directors, and non-employee consultants under the terms of the 1998
Stock Option Plan. See "Management-Option Plan."
Anti-Takeover Effect of Certain Charter, By-laws and Delaware Law Provisions
Certain provisions of ITL's Certificate of Incorporation and By-laws
and Delaware law, could together or separately, discourage potential acquisition
proposals, delay or prevent a change in control of the Company and limit the
price that certain investors might be willing to pay in the future for shares of
the Common Stock. These provisions provide, among other things, for the
issuance, without further stockholder approval, of preferred stock with rights
and privileges that could be senior to the holders of Common Stock and advance
notice provisions and other limitations on the right of stockholders to call a
special meeting of stockholders, to nominate directors and to submit proposals
to be considered at stockholder's meetings. The Company is also subject to
Section 203 of the Delaware General Corporation Law, which, subject to certain
exceptions, prohibits a Delaware Corporation from engaging in any of a broad
range of business combinations with any "interested stockholder" for a period of
three (3) years following the date that such stockholder became an interested
stockholder.
Dependence on Attracting. Motivating and Retaining Staff
The success of ITL's business depends in part upon its ability to
attract, motivate and retain sales marketing staff who possess the skills,
knowledge and attributes necessary to service the needs of its clients and grow
the business. ITL 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 ITL has been in operation for only a short
time, it has not had sufficient time to establish its reputation in the
industry. Also, ITL's inability to offer substantial compensation packages
and/or comparable infrastructure support for its staff could impair its ability
to attract and retain staff. Any such inability to attract and retain staff
could have a material adverse effect on ITL's business, results of operations
and financial condition.
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Possible Issuance of "Blank Check" Preferred Stock
ITL is authorized to issue up to 5,000,000 shares of Preferred Stock,
$0.01 par value ( the "Preferred Stock"). Immediately prior to this Offering,
the Company will have outstanding 1,500,000 shares of Preferred Stock. The
holders of Preferred Stock are entitled to one vote per share on all matters
submitted to a vote of the Stockholders of the Company. The Board of Directors
of ITL has the authority, without further action by the holders of the
outstanding Common Stock, to issue additional Preferred Stock or other preferred
stock from time to time in one or more classes or series, to modify or fix the
number of shares constituting any class or series and the stated value thereof,
if different from the par value, and to 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. ITL
presently has no other class or series of preferred stock outstanding, and has
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 or other 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. See Description of Securities -
Preferred Stock."
Forward Looking Statements
Certain statements in this Prospectus, including, without limitation,
those described under the sections entitled "Risk Factors," "Use of Proceeds And
Future Financing Requirements, " and "The Business" constitute "forward looking
statements" within the meaning of the Private Securities Litigation Act of 1995.
These statements can be identified by forward-looking words such as "expert,"
"believe," "goal," "plan," "intend," "estimate," "may" and "will" or similar
words. 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 or events, or timing of events, relating to the
Company to differ materially from any future results, performance or
achievements of the Company expressed or implied by such-forward looking
statements. These include statements concerning the immediate need for the
Company to raise significant additional capital to finance operations in the
near-term and the inability to provide assurances that such capital will be
available on favorable terms to the Company, if at all; the delay in the
Company's achievement of substantial market penetration and widespread
acceptance of the ITLPACS; the potential failure of the Company's sales team to
sell ITLPACS in amounts sufficient to help the Company achieve its sales goals;
the expense of product development and the related delay and uncertainty as to
receipt of any requisite FDA clearance or other government clearance or
approval; and the uncertainty of profitability and sustainability of revenues
and profitability.
RISK FACTORS RELATED TO THE OFFERING
Immediate and Substantial Dilution
Purchasers of the Units sold in this Offering will experience an
immediate and substantial dilution of approximately ninety three percent (93%)
of their investment in pro forma net tangible book value per share. In the
future, these investors may also experience dilution upon exercise of options
that may be granted at ITL's discretion under the 1998 Stock Option Plan, the
exercise of the warrants
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issued in connection with the Company's private placement and warrants ITL may
be required to grant under its agreement with two (2) business consultants. See
"Business-Certain Related Party Transactions" and "Dilution."
Possible Volatility of Stock Price
Factors such as market acceptance of ITL's product, the timing of
purchase orders, announcements of technological innovations, the attainment of
(or failure to attain) milestones in the commercialization of ITL's technology,
the introduction of new products, or establishment of new collaborative
arrangements by ITL, its competitors or other third parties, as well as claims
of patent infringement or other material litigation, government regulations,
investor perception of ITL, fluctuations in ITL's operating results and general
market conditions in the industry may cause the market price of the Common Stock
to fluctuate significantly. In addition, the stock market in general has
recently experienced extreme price and volume fluctuations, which have
particularly affected the market prices of technology companies for reasons
frequently unrelated to the operating performance of such companies. These broad
market fluctuations may have a material adverse effect on the market price of
the Common Stock.
No Anticipated Dividends
ITL previously has not paid any dividends on its Common Stock and for
the foreseeable future intends to continue its policy of retaining any earnings
to finance the development and expansion of its business. See "Dividend Policy."
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USE OF PROCEEDS
The net proceeds to the Company from this Offering are estimated to be
a maximum of $1,200,000 if all 3,000,000 Units are sold or $600,000 if only
1,500,000 Units are sold. The proceeds will be used for working capital and will
be available for general corporate purposes. Specifically, the Company
anticipates that the proceeds will be used to continue development of ITLPACS,
pay the salaries of the Company's officers and directors, and expand the
Company's sales and marketing activities. Accordingly, management of the Company
will retain broad discretion in the allocation of the net proceeds of this
registration.
Application of Proceeds Maximum Percentage
- ----------------------- ------- ----------
Costs of Offering $125,000 10.40%
Development of ITLPACS $658,000 55.00%
Sales and Marketing $278,000 23.10%
Administrative Costs $139,000 11.50%
Totals $1,200,000 100.00%
- --------------------------------------------------------------------------------
Although we estimate that the proceeds of this Offering will be used
over the next 12 months, due to the uncertainty of the Company's future sales
revenue, it is not possible to predict with certainty the date by which the
proceeds will be fully utilized.
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DIVIDEND POLICY
The Company has never paid cash dividends and does not intend to pay
any cash dividends with respect to its Common Stock in the foreseeable future.
The Company intends to retain any earnings for use in the operation of its
business. The Company's Board of Directors will determine dividend policy in the
future based upon, among other things, the Company's results of operations,
financial condition, contractual restrictions and other factors deemed relevant
at the time. The Company intends to retain appropriate levels of its earnings,
if any, to support the Company's business activities.
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DILUTION
For purposes of this section the Company is assuming that there is no
net tangible book value for the Company's 7,288,750 shares of Common Stock
outstanding prior to the offering. "Net tangible book value" is defined as the
net worth of the Company less deferred charges and other tangible assets. After
giving effect to the sale of its 3,000,000 Units offered hereby (assuming the
maximum number of Units is sold) (and assuming no allocation of the offering
price of the Units to the Investor Warrants), and without giving effect to the
exercise of any Investor Warrants, the approximate pro forma net tangible book
value of the Company as of the date hereof would have been $190,000 [this number
will be adjusted] or approximately $0.02 per share of Common Stock, representing
an immediate increase in net tangible book value of approximately $0.02 per
share to the existing shareholders and an immediate dilution of approximately
$0.38 per share (93%) to new investors. "Dilution" means the difference between
the offering price per share and the net tangible book value per share as
adjusted for the Offering. See Risk Factors-Dilution."
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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Overview
The following is a discussion of certain factors affecting ITL's
results of operations, liquidity and capital resources. You should read the
following discussion and analysis in conjunction with the Company's consolidated
financial statements and related notes that are included herein.
The following discussion regarding ITL and its business and operations
contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements consist of any
statement other than a recitation of historical fact and can be identified by
the use of forward-looking terminology such as "may," "expect," "anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon or
comparable terminology. The reader is cautioned that all forward-looking
statements are necessarily speculative and there are certain risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward- looking statements.
ITL is a software developmental stage company that has entered the
medical image management segment of the healthcare information systems market.
The Founders of ITL have developed, through two years of research and design, a
unique Picture Archival and Communications System ("PACS"), code name ITLPACS.
The ITLPACS routes, archives and displays digital images linked to patient
demographics from either the Radiology Information System ("RIS") or the
Hospital Information System ("HIS").
Results of Operations
Fiscal year ended December 31,1999 compared to fiscal year ended December 31,
1998
As of December 31, 1999, the Company has not generated any revenues
from operations and accordingly, it was still in the "Developmental Stage."
Management does not expect the Company to generate any revenue from its ongoing
operations prior to the first quarter of the year ended December 31, 200.1
General and Administrative. The Company's General and Administrative Expenses
decreased 74% to $733 for the fiscal year ended December 31, 1999 as compared to
$18,407 for the fiscal year ended December 31, 1988 The decrease was due to the
Company expense of $18,245 of start-up costs in 1998.
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DESCRIPTION OF BUSINESS
Image Technologies Laboratories, Inc., (ITL), a Delaware Corporation is
a developmental stage company that has entered the medical image management
segment of the healthcare information systems market. ITL intends to develop
picture archiving and communications software known as PACS for use in the
management of medical diagnostic images by hospitals. PACS input and store
diagnostic images in digital format from original imaging sources such as
computerized tomography (CT), magnetic resonance imaging (MRI), ultrasound,
nuclear imaging and digital fluoroscopy. Dr. Ryon initially conceived Image
Technologies Laboratories picture archiving and communications ("ITLPACS") in
1995 for the purpose of electronically integrating all the diagnostic images and
imaging modalities used at the Kingston Diagnostic Center. His goal was to
implement the PACS 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 that could
provide a solution that met all of the Center's needs, Dr. Ryon assembled a team
to design a better 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 PACS. By late
1997, after more than a year of intensive research, the development team had
completed the specifications for the prototype ITLPACS system and had assembled
the hardware and software needed to develop the prototype at the Center. Drs.
Ryon, Phelps, and Mr. Edwards with over 50 years combined experience in the
medical imaging and software industries decided to form a company to
commercialize their novel PACS design based on market research that indicated a
growing demand for PACS in general and an unmet need for modular multi-modality
scalable PACS such as the prototype the founders had designed. ITL installed a
beta-version of the ITLPACS in 1998 at the Kingston Diagnostic Center, in
Kingston New York. ITL plans to initiate marketing the ITLPACS to hospitals
beginning in the Northeast United States. The ITLPACS will be manufactured,
installed and serviced by ITL.
ITLPACS and ITL
The ITLPACS features a unique and proprietary modular architecture that
permits the system to be readily scaled and easily upgraded. This will allow the
Company to provide products tailored to the size of its customers and to keep
its customers at the forefront of future technological advances by enabling ITL
to easily update existing systems. Other special features of the ITLPACS include
automation of the total work flow, integration of patient data with digital
images, quality review programs that analyze productivity and diagnostic
accuracy of individual radiologists or entire radiology centers, and use of
Windows NT as the network operating system. In addition, ITL is developing a
unique display station that allows a radiologist to view multiple digitized
images simultaneously. This interface is designed to replicate the traditional
view box method by which radiologists typically examine multiple images such as
x-rays on the single light screen. This method of simultaneously viewing and
comparing multiple images has been shown to improve the accuracy and speed of
image interpretation.
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Business Strategy
ITL's strategy is aggressively to pursue completing product development
of ITLPACS in order to begin local marketing of the product in the second
quarter of 2000 with the goal of becoming revenue producing at the earliest
opportunity after FDA approval. To accomplish this goal, ITL is focusing its
management efforts on completing this Offering and then raising significant
additional funds through a subsequent offering, the proceeds of which will be
used largely to hire engineers to finish the programming and to hire marketing
staff to prepare for the nationwide product launch in late 2000. National
marketing will culminate at the Radiological Society of North America ("RSNA")
meeting in November of 2000. ITL plans to commence sales in the northeastern
United States where its founders' reputations and its demonstration site are
expected to produce sales leads. Product sales will be made in the form of
software licenses agreements, installation services and continuing services and
support. For the next two (2) years, ITL expects to remain focused on developing
and enhancing ITLPACS, maximizing sales of this product in the United States,
and providing continuing customer service and product upgrades.
Products Under Development
ITL's lead product is ITLPACS, a unique and proprietary version of
software known in the industry as Picture Archiving and Communication Systems
("PACS"). ITLPACS 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, computed
tomography (CT), and magnetic resonance imaging (MRI). Using ITLPACS,
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 hospitals 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
ITLPACS permanently to replace more costly and cumbersome image storage mediums
such as film. ITLPACS 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. ITLPACS features integrated program modules that interface with
pictures generated by a variety of original imaging modalities that can flexibly
be configured. This feature will better permit ITL to tailor its product to the
needs of individual customers and rapidly to develop enhancements to accommodate
new technologies, imaging modalities, and teleradiology services. ITLPACS has
been designed to run under the Windows NT operating system utilizing a DICOM 3.0
complaint database for maximum scalability. ITL estimates that eighty (80%) of
the product development has been completed with approximately two-thirds (2/3)
of the actual hard coding and the bench testing yet to be performed.
ITL has also designed a proprietary display terminal interface that
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 terminal interface consists of
software integrated into ITLPACS that may be used with any terminal hardware.
ITL is considering developing proprietary terminal hardware
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based on modifications to currently marketed products on a customer order basis.
This product would maximize the capabilities of ITL's software terminal
interface by allowing simultaneous viewing of up to 200 images through the
integration of the screen output of eight (8) or more monitors.
ITL plans to sell third-party hardware components to customers who wish
to purchase system hardware from ITL in conjunction with their purchase of an
ITLPACS. ITL contemplates selling such hardware at a profit. However, ITL, has
no plan to institute hardware-only sales in conjunction with the ITLPACS product
launch and does not believe that supplying the hardware needs of it software
customer is necessary to the competitive success of its ITLPACS.
Protection of Proprietary Technology
ITL's ability to market a competitive PACS product depends in part on
its success in protecting its proprietary interest in the ITLPACS software so
that competitors cannot duplicate its innovative design. The principal forms of
protection available for software such as ITLPACS are copyright laws and common
law trade secret protection. ITL has secured from its founders an assignment of
all their rights and titles to the ITLPACS software developed prior to ITL's
incorporation and therefore, believes it owns the full copyright to the ITLPACS
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-compliance that
continue for a period of two (2) years from termination of his employment. ITL
plans to require substantially similar obligations from all key employees hired
in the future. By licensing rather than selling its software, ITL expects to
retain maximum trade secret protection for its product technology. However,
there can be no assurance that all elements of ITL's software are sufficiently
original to qualify for copyright protection or that ITL will be successful in
preventing the unauthorized disclosure of its trade secrets. In either event,
ITL may face competition from sales of products that are substantially similar
to its own from which it will not benefit or be entirely able to prevent
notwithstanding any right it may have to sue a person who makes unauthorized
disclosure of its trade secrets.
ITL plans to pursue patent protection to the limited extent that patent
protection is available and advisable for any element of ITL's product. Patent
protection may be available for certain aspects of ITL's terminal interface
technology and for certain limited components of its software, including certain
proprietary algorithms developed for use in ITLPACS. ITL has not yet retained
any intellectual property attorneys or filed any application for the protection
of its intellectual property.
Product Approval Process
ITLPACS is regulated as a medical device under the Food and Drug Act
administered by the FDA. ITL must apply for and receive FDA authorization to
market ITLPACS before it can be sold in the United States. Marketing
authorization is obtained by filing a PMA or by filing a pre-market notification
under ss.510(k) of the Food and Drug Act. The PMA process can take up to six (6)
months or more and require the expenditure of substantial resources. The 510(k)
notification process is available for products substantially equivalent to
previously approved products and typically takes considerably less time than the
PMA process. ITL hopes the FDA will deem its products substantially equivalent
in intended use and technical characteristics to similar devices ITL knows have
been previously approved by the FDA so that marketing clearance can be obtained
for the ITLPACS on an expedited basis under ss.510(k). There can be no
guarantee, however, that the FDA will not require ITL
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to submit a PMA for ITLPACS.
Obtaining FDA marketing authorization for ITLPACS under either
procedure will depend upon ITL's ability to satisfy the software validation,
quality assurance and good manufacturing practices the FDA requires. These
requirements impose extensive record keeping and limited testing obligations on
ITL. To assure compliance with these requirements, ITL intends to hire a person
experienced in FDA product approval audits, documentation management and
regulatory compliance requirements for software. Assuming successful completion
and installation of ITLPACS at the Kingston Diagnostic Center, ITL intends to
file for FDA marketing authorization during the second quarter of 2000. To the
extent permitted by law, ITL intends to demonstrate ITLPACS at trade shows prior
to obtaining marketing approval.
Although ITL is aware that there is an international market for
products such as ITLPACS, it has no present plans to market ITLPACS in other
countries, largely due to limited resources. However, should ITL decide to
market ITLPACS in other countries, it would have to comply with the laws of, and
meet the applicable regulatory procedures and standards in each jurisdiction in
which it sought to market its products. Approval in one jurisdiction does not
assure approval in another as the various U.S. and foreign, federal, state, and
local regulatory authorities are independent of each other.
ITL and its employees have limited experience in filing and pursuing
the applications necessary to gain regulatory approvals. Regulatory authorities
have substantial discretion to approve or deny ITL's applications to market
medical devices such as ITLPACS. In addition, the regulatory bodies may change
their standards or other regulations for approving new medical devices, which
may result in additional delays or prevent approval. ITL currently has no
product approved for marketing in the United States or elsewhere. There can be
no assurance that ITL will be able to obtain the authorizations or approvals
necessary for the marketing of any products that it develops.
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. See "Risk Factors-Government Regulation; No Assurances
of Regulatory Approval."
Markets and Marketing Plan
Recent market research by Frost & Sullivan suggests that the market for
PACS is growing rapidly and that the worldwide sales are increasing from 155 to
30% per year. Original estimates put the worldwide market at $1.1 billion
annually by 2001, but concerns over Year 2000 ("Y2K") related problems have
blunted market growth. The United States presently accounts for sixty percent
(60%) of such sales. It is estimated that PACS have been installed in less than
twelve percent (12%) of radiology centers although that number is expected to
grow to 28% - 40% by 2002.
ITL plans to launch its ITLPACS 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. ITL will market a fourth generation medical information
management system that is more open, usable and scalable than any currently
available product. ITL plans to market ITLPACS through an in-house sales force
supported by product
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advertising and promotion at industry trade shows, including the meeting of the
Radiological Society of North America. The Company will offer the product at a
price point that is well within the reach of even the smallest hospital or
imaging facility. ITL can offer systems with superior price/performance
characteristics because of their unique, proprietary architecture. Assuming
profitable regional sales, ITL intends to expand its sales force to market
ITLPACS throughout the United States. ITL will distribute its PACS products via
three channels: OEM relationships, partnerships and direct distribution through
its sales representatives
OEM Relationships: There are several large multi-national companies such as
General Electric and IBM who have committed to entering the PACS market but have
failed to either develop or acquire the technology needed to gain market share.
ITL will pursue relationships with a large company whose in- house marketing,
sales and support resources can be leveraged to propel ITL's products into
national and international markets.
Partnerships: ITL has identified several companies whose interests are
complementary. ITL will pursue mutually advantageous partnerships with firms
that can provide access to markets, technology or service and support. ITL has
begun discussions with a large firm that sells and services diagnostic imaging
equipment across the United States. This company is offering to sell and
maintain ITLPACS through their network of sales and maintenance representatives
in exchange for non-exclusive rights to sell ITL's products. The Founders feel
that such an arrangement will give ITL immediate access to a large and
geographically dispersed customer base.
Direct Distribution: ITL 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 their site on the World
Wide Web. ITL will sell primarily to two target buyer groups; those who already
have a 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 PACS arena gradually.
Once ITL has secured a significant share of the PACS market, the
Founders intend to apply the same tools to the capture of other vertical
markets. The Founders intend to sustain growth through constant innovation.
Competition and Competitive Advantage
ITL will compete with a variety of companies in the United States and
abroad that are marketing or developing 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 PACS to their product line. To date no single company has
captured a predominate share of the current market for PACS. In addition, a
number of large hospital radiology centers are presently developing their own
PACS for internal use. This trend may reduce the market for the ITLPACS 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.
ITL, together with all other 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.
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In the last two years, consolidation has characterized the PACS
industry. GE Medical Systems purchased Lockheed Martin Medical Imaging Systems
in 1997 and Applicare in 1999. Imation acquired Cemax-Icon in 1997, and was then
acquired by Kodak in 1998. Compurad, a small teleradiology and miniPACS
provider, was purchased by Lumisys in 1998.
IBM has also entered the PACS market as a pure systems integrator
(selling and installing other vendor's products). Already, they have captured a
significant portion of the military Defense Information Network PACS (DIN-PACS)
contracts, with awards totaling approximately $32.3 million.
Competitor companies currently produce PACS in two (2) types of
configurations: "hyperPACS" and "miniPACS." HyperPACS are built around a large
central enterprise server. These servers offer superior data protection,
internet services, and reduced system downtime through redundancy and fail-over
protection. The entry level cost, however, is much higher than for miniPACS.
HyperPACS typically costs $800,000 to $2,000,000, of which the software
component is forty percent (40%). While the view and capture stations of
hyperPACS support a variety of hardware/operating system combinations, the
servers are invariably UNIX based, requiring the additional expense of an in-
house systems administrator typically earning $60,000 to $80,000 annually.
Finally, since hyperPACS servers are "off-the-shelf" enterprise servers not
designed specifically for PACS, many of the services hyperPACS 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.
MiniPACS systems consists of individual computer view stations that can
be aggregated as needed into a networked system by adding view stations and
mini-servers with network management software. Each view station contains its
own database management software allowing it to hold images and intercommunicate
with other networked view stations without a large central server. As a result,
an inexpensive entry-level solution can be assembled for $100,000 to $500,000.
Such systems, however, are also inherently more expensive to expand because each
"node" that is added must support more functionality, and thus the hardware and
software for each node is more expensive than it would be if a large central
database server supported it. Communication between miniPACS view stations is
inherently point-to-point, and these systems lack features of a true
client-server database management system such as protection of database
integrity through record locking.
Sales of hyperPACS accounted for approximately sixty percent (60%) of
all U.S. PACS sales in 1997. 1 The leading suppliers of hyperPACS in the U.S.
during 1997 were Agfa, GE, and Siemens. Agfa accounted for approximately 25% of
the total U.S. sales of hyperPACS in 1997. Sales of miniPACS accounted for
approximately forty percent (40%) of all U.S. PACS sales in 1997. Olicon,
Cemax-Icon, and DR Systems were the leading suppliers of miniPACS in the U.S.
during 1997.
ITL believes that most available PACS systems have significant
drawbacks such as poor user interfaces, limited capabilities, and lack of
scalability and prohibitive entry point purchase prices that have frustrated
potential users. Such drawbacks are believed to account in part for the fact
that no such competitor company captured more than thirty (30%) of the market in
recent years.
ITLPACS represents an alternative configuration model that has been
designed to provide a
- --------
(1) The statistical information included in this section represents the
most current and reliable information available.
28
<PAGE>
unique solution to many of the disadvantages of both hyperPACS and miniPACS
configurations. The architecture used in their ITLPACS is built on a foundation
of innovative intelligent algorithms. These algorithms reduce the network
bandwidth and on-line storage requirements of the ITL system; the two most
important factors in the cost associated with building Consequently, ITL hopes
its ITLPACS will acquire a significant share of the U.S. market for PACS. By
making full use of the networking database management infrastructure of Windows
NT, ITL has leveraged recent advances in operating system design, software
development, and networking tools to produce a product that offers greater
functional capability at lower costs through scalable system architecture. Its
truly modular architecture permits capability to be disturbed incrementally, so
a client can start with one piece of hardware that 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 ITL to offer the lowest possible entry point purchase price for a
PACS system. In addition, ITLPACS offers capabilities not found on even the most
expensive PACS, including a unique graphical interface.
Although ITL believes ITLPACS offers unique features that will
distinguish it in the market, larger or more established PACS suppliers have
substantially greater financial and other resources than ITL, and there can be
no assurance that ITL will be able to compete successfully against them in the
market for PACS. Although PACS offer significant advantages over such other
imaging modalities and the market for PACS is expected to grow quickly, there
can be no assurance that hospitals, HMOs and others will continue to invest in
the newer PACS technology at the same rate they have for the past few years.
Although ITL is not aware of any new technologies currently under
development that might replace PACS technology, new technologies may be
developed, or existing technologies refined, which could render ITL's existing
equipment technologically or economically obsolete. Due to costs factors,
competitive considerations or other constraints, there can be no assurance that
ITL will be able to develop or acquire any new or improved hardware or software
that ITL may need in order to stay competitive. See "Risk Factors- Competition
and Technological Change."
Place of Business
For the foreseeable future, the Company intends to conduct its business
from offices located in the Kingston Diagnostic Center which will house the
Company's executive offices and an engineering laboratory containing the
Company's inventory of hardware components used for product development and
access to the Kingston Radiology Center's computer system. See "Business
Leases."
Equipment
In order to complete development of the ITLPACS while minimizing
capital outlays, the Company has leased access to a sophisticated
state-of-the-art computer hardware system containing the full complement of the
equipment that the Company's product is intended to run on. The Company has
access to this system under the terms of two related agreements: (i) a Facility
Usage Agreement with Rockland, doing business as the Center, a privately-owned
radiology facility operated by Kingston, and (ii) an Equipment Lease Agreement
with Kingston. The Equipment Lease Agreement gives the Company access to
Kingston's state-of-the art computer system for a two-year period and the
Facility Usage Agreement gives the Company the right to use certain office space
in the Center for access to Kingston's computer system and for general business
purposes for so long as the Rockland Agreement
29
<PAGE>
remains in effect. SEE "Business-Leases and "Risk Factors-Manufacturing
uncertainties; Dependence on Third Party Licenses and Contracts"
Manufacturing
The Company does not expect to have any manufacturing operations for
hardware or software. The Company expects to be able to produce sufficient
copies of ITLPACS software for licenses using the software duplication
capabilities of its beta site equipment. In the unlikely event that demand for
copies of the ITLPACS exceeds the capacity of the Company to produce them, the
Company believes that it could quickly and inexpensively obtain copies from a
computer service bureau in its area. Any hardware sold by the Company will be
purchased fully assembled from the original equipment manufacturer. The Company
intends to contract with third parties for any required customization of
hardware supplied to its customers.
Leases
The Company is a party to a Facility Usage Agreement among the Company,
Rockland, and Kingston which, pursuant to the Rockland Agreement, employs
radiologists to provide radiology services to the Center's clients using
diagnostic imaging equipment and software owned by Kingston. The Facility Usage
Agreement give the Company 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 Rockland Agreement and
the Equipment Lease Agreement between the Company and Kingston described below
continue in effect. Kingston, Rockland and the Company expect to enter into a
mutually beneficial agreement to permit the Company to use the Center as a beta
test-site and product demonstration site in the first quarter of 2000. The
termination of the Rockland Agreement, which the Company cannot control, would
automatically terminate the Facility Usage Agreement. If this occurred, neither
Kingston nor the Company would have access to the Center although Kingston would
be entitled to remove its equipment from the premises and the Company would have
the right to continue to lease or to purchase Kingston's equipment under the
terms of the Equipment Lease Agreement. The Company is not aware of any
circumstances that would jeopardize continuation of the Rockland Agreement for
the next two years.
Furthermore, the Company believes its need for office space will remain
modest, even when it is fully staffed for 2000, due to the fact that most
employees are expected to telecommute. Therefore the Company believes that it
could replace its existing space in the Center quickly and inexpensively with no
material impact on the Company or its finances in the unlikely event of early
termination of the Facility Usage Agreement. The Facility Usage Agreement has
been approved by all the disinterested directors of the Company due to its
potential for conflict of interests in relation to Dr. Ryon's ownership of
Kingston and his obligations under the Rockland Agreement. The Board of
Directors considers the Facility Usage Agreement to be on favorable terms and in
the best interests of the Company.
The Company has leased access to Kingston's state-of-the-art computer
system for a two-year period under the terms of an Equipment Lease Agreement
with Kingston. In exchange, Kingston has received a license to use the ITLPACS
software in its practice. The Equipment Lease Agreement has been approved by all
the disinterested directors of the Company 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 to perform the Rockland Agreement. The Board of
Directors considers the Equipment Lease
30
<PAGE>
Agreement to be on favorable terms and in the best interests of the Company. If
the Company were unable to access Kingston's equipment, the Company estimates
that it would have to purchase or otherwise acquire access to approximately
$400,000 of comparable equipment in order to complete product development.
Insurance
Under the terms of its executive employment agreements the Company is
obligated to maintain term life insurance for the benefit of Dr. Ryon, Dr.
Phelps and Mr. Edwards each in the amount of $300,000 commencing after the
completion of this Offering if this can be obtained on commercially reasonable
terms.
Prior to product launch, the Company intends to obtain product
liability insurance coverage for claims arising from the use of its ITLPACS if
this is available on reasonable terms. The Company risks exposure to product
liability claims if the use of its 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 the Company's products. There can be no assurance
that the coverage obtained will be adequate to cover claims. Product liability
insurance is becoming increasingly expensive and no assurance can be given that
the Company will be able to maintain such insurance, obtain additional
insurance, or obtain additional insurance at a reasonable cost or in sufficient
amounts to protect the Company against losses due to liabilities that
individually or in the aggregate could have a material adverse effect on the
Company. See "Risk Factors-Potential Product Liability: Availability of
Insurance"
31
<PAGE>
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITY
Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL") provides that a corporation shall have the power to indemnify any
person who was or is a party or is threatened to be a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interest of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with the defense or settlement of such
actions, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's bylaws, disinterested
director vote, stockholder vote, agreement or otherwise.
The Certificate of Incorporation of the Company, as amended, (the
"Certificate") provides that the Company shall indemnify any and all persons
whom it shall have the power to indemnify under section 145 of the DGCL from and
against any and all expenses, liabilities or other matters referred to in or
covered by Section 145, and the indemnification provided for herein shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any By-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
32
<PAGE>
DESCRIPTION OF PROPERTY
Currently ITL's is headquartered in the basement of the Kingston
Diagnostic Center in Kingston, New York. The address is 167 Schwenk Dive,
Kingston, New York. At this location ITL also maintains its primary laboratory.
The Facility Usage Agreement gives the Company 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 the foreseeable future, the Company
intends to conduct its business from offices located in the Kingston Diagnostic
Center, housing the Company's executive offices and engineering laboratory
containing the Company's inventory of hardware components used for product
development and access to the Kingston Radiology Center's computer system.
33
<PAGE>
SELLING SHAREHOLDERS
The selling shareholders may sell the common shares offered
hereby in one or more transactions (which may include "block" transactions in
the over-the-counter market, in negotiated transactions or in a combination of
such methods of sales, at fixed prices which may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The selling shareholders may effect such
transactions by selling the shares directly to purchasers, or may sell to or
through agents, dealers or underwriters designated from time to time, and such
agents, dealers or underwriters may receive compensation in the form of
discounts, concessions or commissions from the selling security holders and/or
purchaser(s) of the common shares from whom they may act as agent or to whom
they may sell as principals, or both. The selling shareholders and any agents,
dealers or underwriters that act in connection with the sale of common shares
might be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any discount or commission received by them and any profit
on the resale of common shares as principal might be deemed to be underwriting
discounts or commissions under the Securities Act.
We will receive no portion of the proceeds from the sale of the common
shares by the selling shareholders and will pay all of the costs relating to the
registration of this offering (other than any fees and expenses of counsel for
the selling shareholders). Any commissions, discounts or other fees payable to a
broker, dealer, underwriter, agent or market maker in connection with the sale
of any of the common shares will be paid by the selling shareholders.
The following information pertains to the Common Shares issuable to
selling shareholder
Selling Shareholders Number of Shares of Common
- -------------------- Stock Beneficially Owned
------------------------
34
<PAGE>
DETERMINATION OF OFFERING PRICE
The offering price of the Common Stock offered in this
offering has been arbitrarily determined by the Company and bears no
relationship to any recognized criterion of value. The price does not bear any
relationship to the assets, book value, earnings or net worth of ITL. In
determining the offering price, we considered such factors as prospects, if any,
for our product within the industry, the previous experience of management, lack
of technological development with respect to our project to date, our historical
and anticipated results of operations, the present financial resources of the
Company and the likelihood of acceptance of the proposed offering in the current
securities markets. The shares of common shock covered by this Prospectus may be
sold by the Selling Shareholders from time to time at prices and on terms not
yet determined and solely within the discretion of the Selling Shareholder.
35
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following Table sets forth certain information regarding the
executive officers and directors of Q Comm as of November 30, 1999.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name Age Title
- ---- --- -----
<S> <C> <C>
David Ryon, MD, MS 54 Director and Chairman of the Board of
Directors, President and Chief Executive Officer
Carlton T. Phelps, MD, MBA 45 Director, Vice President of Finance and
Administration, Chief Financial Officer,
Secretary and Treasurer
Lewis M. Edwards, BSEE, MBA 43 Director, Vice President of Research and
Development, Chief Technical Officer
</TABLE>
A brief description of the backgrounds of the current Executive
Officers and Directors are set forth below:
EXECUTIVE OFFICERS AND DIRECTORS
DAVID RYON, M.D., M.S., is a founder and principal stockholder of ITL
and a co-developer of ITLPACS. He was appointed to the Board of Directors and
appointed to serve as ITL's President and Chief Executive Officer in December
1997. Dr. Ryon is the founder of the Kingston Diagnostic Center in Kingston, New
York, a large and profitable outpatient-imaging center with annual revenues in
excess of $5,000,000. Dr. Ryon operated the Kingston Diagnostic Center as a sole
proprietor from its inception in 1992 until his sale of the business to Rockland
Radiological Group, P.C. in 1997. He currently operates the Kingston Diagnostic
Center under a professional services agreement between Rockland and Kingston
Diagnostic Radiology, P.C., his wholly owned professional corporation, pursuant
to which he provides the Center with state-of-the-art imaging equipment and
hires radiologists to service the Center's clients. At the discretion of the
Board of Directors, Dr. Ryon may continue to devote some of his business time to
management of the Center. It is the Board's opinion that Dr, Ryon's continued
affiliation with the Center is highly beneficial to ITL at this time. Dr. Ryon's
professional corporation has leased use of its equipment to ITL on a
non-exclusive basis in exchange for a limited license to use ITLPACS at the
Center and, together with the new owners of the Center has agreed to permit ITL
to use certain office space in the Center. ITL expects to enter into an
agreement with Rockland and Dr. Ryon's professional corporation to use the
Center as a demonstration site for ITLPACS. Dr. Ryon worked as a radiologist at
the Kingston Hospital for five (5) 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 specialities, 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 after graduation where he gained experience
36
<PAGE>
in the patent process.
CARLTON T. PHELPS, M.D. M.B.A., is a founder and principal stockholder
of ITL and a co- developer of ITLPACS. He was appointed to the Board of
Directors and appointed by the Board to serve as ITL's Vice-President - Finance
and Administration, Chief Financial Officer, Secretary, and Treasurer in
December 1997. Dr. Phelps will be devoting substantially all his business time
to his management responsibilities at ITL upon completion of this Offering. He
earned an executive MBA degree at Rensselear Polytechnic Institute. Dr. Phelps
has extensive experience teaching and practicing radiology and implementing PACS
systems at radiology centers. He has published more than twelve (12) articles on
the topic of sports medicine imaging and MRI. He headed the PACS committee at
the Saratoga Hospital and spearheaded the effort to build the first PACS system
at the Albany Medical College Hospital. He served as a radiologist and director
of the Information Management department of East Hudson Community Care
Physicians, a multi-specialty group practice with two hundred fifty (250)
employees. He is currently Chief of Radiology at the Kingston Hospital. From
1995 to 1996, Dr. Phelps served as Director of Radiology at Child's Hospital in
Albany, New York. Prior to this time he served as assistant professor and
section chief of musculoskeletal and emergency department radiology at Albany
Medical College for thirteen (13) years. Dr. Phelps graduated with an M.D. from
the University of Vermont in 19080 and received his B.A. from Harvard University
in 1976. Dr. Phelps is skilled in a variety of programming languages including
Basic, C, C++, Fortran, MUMPS, and SQL. His dual interests, aptitude and
experience in the fields of radiology and software development as well as his
business education are an important component of ITL's competitive advantage.
LEWIS M. EDWARDS, B.S.E.E., M.S.C.A., is a founder and principal
stockholder of ITL and a co-developer of ITLPACS. He was appointed to the Board
of Directors and elected by the Board to serve as ITL's Vice President of
Research and Development and Chief technical Officer in December 1997. Mr.
Edwards has committed to joining ITL full-time upon completion of this Offering.
Mr. Edwards is a senior technical staff member at IBM and an industry-recognized
expert software architect and engineer. He is currently 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 that grew from a $5
million investment to a $750 million business. He has published numerous
technical disclosures, papers, and patents in the area of networked image
management and served as IBM's technical representative to the American National
Standards Committee that defined FDDI, a high-speed fibre-optic local area
network. 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 some of the largest American corporations including 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 MSCA from Syracuse
University. Mr. Edward's expert level computer engineering and programming
experience and his industry contacts as well as his extensive experience
managing large and complex systems development projects are a tremendous asset
to ITL.
Limitation on Liability of Directors
As permitted by Delaware law, ITL's Certificate of Incorporation
includes a provision which provides that a director of ITL shall not be
personally liable to ITL or its stockholders for monetary damages for a for a
breach of fiduciary duty as a director, except (i) for any breach of the
director's duty of loyalty to ITL or its stockholders, (ii) under Section 174 of
the General Corporation Law of the
37
<PAGE>
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. His 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 ITL will
be unable to recover monetary damages against directors for action taken by them
that 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 ITL or
any stockholder to obtain an injunction or any other type of non-monetary relief
in the event of a breach of fiduciary duty. ITL believes this provision will
assist in securing and retaining qualified persons to serve as directors.
38
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr. Ryon's professional corporation, Kingston Diagnostic Radiology,
P.C. leases the use of its equipment to ITL on a non-exclusive basis in exchange
for a limited license to use ITLPACS at the Center and, together with the new
owners of the Center has agreed to permit ITL to use certain office space at the
Center. ITL anticipates entering into an agreement with Rockland and Dr. Ryon's
professional corporation to use the Center as a demonstration site for ITLPACS.
39
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There presently is no trading market for the shares of Common Stock of
the Company and no assurances can be given that a trading market for the shares
will develop, or, if developed, will be sustained.
40
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Name of Position Salaries Fees & Bonuses Deferred
- ----------- -------- -------- ---------------- ------- --------
Individual Commissions Compensation
---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1998 David Ryon CEO
MD, MS Pres., Dir
1998 Carlton T. Vice Pres
Phelps CFO, Sect
MD, MBA & Treas, Dir
1998 Lewis M. Vice Pres
Edwards CTO, Dir
BSEE, MSCA
1999 David Ryon CEO
MD, MS Pres., Dir
1999 Carlton T. Vice Pres
Phelps CFO, Sect
MD, MBA & Treas, Dir
1999 Lewis M. Vice Pres
Edwards CTO, Dir
BSEE, MSCA
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
EMPLOYMENT AGREEMENTS
On December 6, 1999, ITL entered into three-year employment agreements
with David Ryon, Carlton T. Phelps and Lewis M. Edwards in an effort to ensure
the Company of the continued employment of each officer in his current executive
position with the Company.
David Ryon was hired as President and Chief Executive Officer of the Company and
provided a three year contract which expires two years from the date of the
employment agreement.
o Dr. Ryon will receive a minimum annual base salary of $150,000
payable in regular equal installments in accordance with the
Company's general payroll practices.
41
<PAGE>
o Dr. Ryon shall be entitled to earn an annual performance bonus
at the end of each calendar year as determined in good faith
by the Board or the Committee based upon its annually
established goals.
o Under this Agreement Dr. Ryon will be entitled to the extent
he is otherwise eligible, to participate in all retirement
plans, health and other group insurance programs, stock option
plans and other fringe benefit plans which the Company may now
or hereafter in its sole discretion make available generally
to its executives or employees, but the Company shall not be
required to establish any such program or plan.
o The Company shall provide Dr. Ryon with 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 Dr. Ryon's
base salary, unless such insurance is not available at
commercially reasonable rates.
o The Company shall provide and maintain a suitable automobile
for Dr. Ryon's business use in accordance with the Company's
standard policy for senior executive officers.
Carlton T. Phelps, M.D. was hired as Vice President, Chief Financial
Officer, Secretary, Treasurer and Director of the Company and provided a three
year contract which expires three years from the date of the employment
agreement.
o Dr. Phelps will receive a minimum annual base salary of
$150,000 payable in regular equal installments in accordance
with the Company's general payroll practices.
o Dr. Phelps shall be entitled to earn an annual performance
bonus at the end of each calendar year as determined in good
faith by the Board or the Committee based upon its annually
established goals.
o Under this Agreement Dr. Phelps will be entitled to the extent
he is otherwise eligible, to participate in all retirement
plans, health and other group insurance programs, stock option
plans and other fringe benefit plans which the Company may now
or hereafter in its sole discretion make available generally
to its executives or employees, but the Company shall not be
required to establish any such program or plan.
o The Company shall provide Dr. Phelps with 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 Dr. Phelps
base salary, unless such insurance is not available at
commercially reasonable rates.
o The Company shall provide and maintain a suitable automobile
for Dr. Phelps business use in accordance with the Company's
standard policy for senior executive officers.
Lewis M. Edwards was hired as a Vice President, Chief Technical Officer
and Director of the Company and provided a two year contract which expires three
years from the date of the employment agreement.
42
<PAGE>
o Mr. Edwards will receive a minimum annual base salary of
$150,000 payable in regular equal installments in accordance
with the Company's general payroll practices.
o Mr. Edwards shall be entitled to earn an annual performance
bonus at the end of each calendar year as determined in good
faith by the Board or the Committee based upon its annually
established goals.
o Under this Agreement Mr. Edwards will be entitled to the
extent he is otherwise eligible, to participate in all
retirement plans, health and other group insurance programs,
stock option plans and other fringe benefit plans which the
Company may now or hereafter in its sole discretion make
available generally to its executives or employees, but the
Company shall not be required to establish any such program or
plan.
o The Company shall provide Mr. Edwards with 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 Mr. Edward's
base salary, unless such insurance is not available at
commercially reasonable rates.
o The Company shall provide and maintain a suitable automobile
for Mr. Edwards business use in accordance with the Company's
standard policy for senior executive officers.
43
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth, as of March ___, 2000, the number of
shares of Common Stock of the Company beneficially owned by all persons known to
be holders of more than five percent of the Company's Common Stock and by the
executive officers and directors of the Company individually and as a group.
<TABLE>
<CAPTION>
(a) Security Ownership of Certain Beneficial Owners
----------------------------------------------------------------------------------------------------------------------
Title of Name and Address Amount and Nature Percentage of
Class of beneficial ownership of beneficial ownership class
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Not Applicable
---------------------------------------------------------------------------------------------------------------------
<CAPTION>
(b) Security Ownership of Management
---------------------------------------------------------------------------------------------------------------------
Title of Name and Address Amount and Nature Percentage of
--------- ---------------- ----------------- -------------
Class of beneficial ownership of beneficial ownership shares
----- ----------------------- ------------------------ ------
Outstanding
-----------
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common David Ryon. M.D.,M.S. Blank shares of %
Stock 1122 Barnegat Lane Common Stock
Mantoloking, New Jersey
08738
Preferred %
Stock
---------------------------------------------------------------------------------------------------------------------
Common Carlton T. Phelps, M.D. Blank Shares of %
Stock 284 Indian Lodge Road Common Stock
Voorheesville, New York
12186
Preferred %
Stock
---------------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Common Lewis M. Edward Blank Shares of %
Stock 42 Ringer Street Common Stock
Saugerties New York
12477
Preferred %
Stock
----------------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
DESCRIPTION OF SECURITIES
<TABLE>
<CAPTION>
<S> <C>
Units The Company is selling a minimum of 600,000 Units to a maximum of
1,200,000 Units at an offering price of $0.40 per Unit, each Unit
consisting of 1 share of Common Stock and an Investor Warrant to
purchase an additional 1 share of Common Stock. Each Investor
Warrant is immediately exercisable and entitles the holder to purchase at
anytime during the one year period following the date of this
Prospectus, 1 share of Common Stock at $0.50 per Share.
Common Stock The Company is authorized to issue 50,000,000 shares of Common
Stock, $0.01 par value. The holders of the Common Stock are entitled
to one vote per share on all matters submitted to a vote of the
stockholders of the Company. In addition, such holders are entitled to
receive ratably such dividends, if any, as may be declared from time to
time by the Board of Directors out of funds legally available therefor.
SEE "Dividend Policy." In the event of the dissolution, liquidation or
winding-up of the Company, the holders of Common Stock are entitled
to share ratably in all assets remaining after payment of all liabilities of
the Company. The holders of Common Stock do not have cumulative
voting rights or preemptive or other rights to acquire or subscribe for
additional, unissued or treasury shares. All outstanding shares of
Common Stock are, and when issued, the share of Common Stock
offered hereby will be fully paid and non-assessable.
Preferred Stock The Company is authorized to issue 5,000,000 shares of Preferred
Stock. The holders of Preferred Stock are entitled to one vote per share
on all matters submitted to a vote of the stockholders of the Company.
The Board of Directors of the Company has the authority, without
further action by the holders of the outstanding Common Stock, to issue
additional Preferred Stock or other preferred stock from time to time in
one or more classes or series, to modify or fix the number of shares
constituting any class or series and the stated value thereof, if different
from the par value, and to modify or fix the terms of any such series or
class, including dividend rights, divided 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. The Company presently has no other class or series of
preferred stock outstanding, and has 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 or other 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.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Investor Warrants Each Investor Warrant evidences the right to purchase one share of
Common Stock at the initial exercise price of $0.50 per share for one
year. The exercise price of the Investor Warrants and the number of
shares of Common Stock , purchasable upon exercise of the Investor
Warrants are subject to adjustment upon the occurrence of certain
events, including split-ups or combinations of Common Stock, dividends
payable in Common Stock, and the issuance of rights to purchase
additional shares of Common Stock or to receive other securities or
rights convertible into or entitling the holder to receive additional shares
of Common Stock with or without payment of consideration. The
Investor Warrants are also callable by the Company upon sixty (60) days
prior written notice when the closing sale price of the Common Stock
equals or exceeds $2.50 for ten (10) consecutive trading days. In such
case, the Company's purchase price for the Investor Warrant shall be
equal to the product of (x) $.05 and (y) the number of shares of
Common Stock for which the Investor Warrant is then exercisable.
Each Investor Warrant will expire at the close of business on the first
anniversary after their issuance.
Warrants Each Warrant evidences the right to Robert
Oakes with a cashless exercise provision to
purchase shares of the Company's Common
Stock at $0.40 per share in whole or in part
up to $250,000.
</TABLE>
47
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the issuance of the securities
offered hereby will be passed upon by Bondy & Schloss LLP, New York, New York
10017
48
<PAGE>
EXPERTS
The financial statements of the Company included in this Prospectus
have been audited by J.H. Cohn LLP, independent auditors, as stated in their
report appearing herein, and have been so included in reliance upon the report
of such firm given their authority as experts in accounting and auditing.
49
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on
Form SB-2 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act, with respect to the shares being offered
in this offering. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain items of which are omitted in
accordance with the rules and regulations of the Commission. The omitted
information may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Seven World Trade Center, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Chicago, Illinois 60661. Such material can also be obtained at
the Commission's Web site at http://www.sec.gov. Copies of such material can be
obtained from the public reference section of the Commission at prescribed
rates. Statements contained in this Prospectus as to the contents of any
contract or other document filed as an exhibit to the Registration Statement are
not necessarily complete and in each instance reference is made to the copy of
the document filed as an exhibit to the Registration Statement, each statement
made in this Prospectus relating to such documents being qualified in all
respect by such reference. For further information with respect to the Company
and the securities being offered hereby, reference is hereby made to such
Registration Statement, including the exhibits thereto and the financial
statements, notes, and schedules filed as a part thereof.
50
<PAGE>
CHANGES IN AND DISAGREEMENT WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
51
<PAGE>
PART II
52
<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL") provides that a corporation shall have the power to indemnify any
person who was or is a party or is threatened to be a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interest of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with the defense or settlement of such
actions, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's bylaws, disinterested
director vote, stockholder vote, agreement or otherwise.
The Certificate of Incorporation of the Company, as amended, (the
"Certificate") provides that the Company shall indemnify any and all persons
whom it shall have the power to indemnify under section 145 of the DGCL from and
against any and all expenses, liabilities or other matters referred to in or
covered by Section 145, and the indemnification provided for herein shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any By-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
53
<PAGE>
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Other expenses in connection with this offering which will be
paid by ITL (hereinafter in this Part II referred to as the Company") are
estimated to be substantially as follows:
Expense Amount Payable By
Item Company
SEC Registration Fees $729
Printing and Engraving Fees $11,771
Legal Fees $80,000
Accounting Fees and Expenses $25,000
Transfer Agent's Fees $5,000
Miscellaneous $2,500
Total $125,000
54
<PAGE>
RECENT SALE OF UNREGISTERED SECURITIES
The Company recently completed a Private Placement under Regulation D,
Rule 506. The terms of the offering included the sale of 800,000 Units
consisting of 1 share of Common Stock and an Investor Warrant to purchase 1
additional share of Common Stock on a best efforts basis. The purchase price was
$0.30 per Unit. The minimum investment for each investor was 5,000 units or
$1,500. The aggregate offering amount ranged from a minimum of $105,000 to a
maximum offering amount of $240,000. The proceeds to ITL from the Regulation D
offering will be used exclusively for working capital. There was no underwriter
used in connection with this offering.
55
<PAGE>
UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represents
fundamental change in the formation set forth in the Registration Statement.
(iii) To include any additional or changed material information on the
"Plan of Distribution."
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) Delivery of Certificates. The undersigned registrant hereby
undertakes to 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.
(c) Indemnification. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the provisions set forth in
Image Technology Laboratories, Inc.'s Articles of Incorporation or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant 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 registrant 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 Act and will
be governed by the final adjudication of such issue.
57
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, 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
______________________________, State of ______________________________ on
_____________, 2000
IMAGE TECHNOLOGY LABORATORIES, INC.
Dated___________________, 2000
By /s/ David Ryon
------------------------------
David Ryon, MD, MS
CEO, President, Chairman of the Board
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
IMAGE TECHNOLOGY LABORATORIES, INC.
Dated______________________, 2000
By /s/ David Ryon
-------------------------
David Ryon
CEO, President, Chairman of
the Board
58
<PAGE>
IMAGE TECHNOLOGY LABORATORIES, INC.
CIK#
CCC#
PASSWORD
59
<PAGE>
IMAGE TECHNOLOGY LABORATORIES, INC.
(A Development Stage Company)
REPORT ON FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
AND PERIOD FROM JANUARY 1, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1999
<PAGE>
Image Technology Laboratories, Inc.
(A Development Stage Company)
Index to Financial Statements PAGE
----------------------------- ----
Report of Independent Public Accountants F-2
Balance Sheets
December 31, 1999 and 1998 F-3
Statements of Operations
Years Ended December 31, 1999 and 1998 and Period From
January 1, 1998 (Date of Inception) to December 31, 1999 F-4
Statements of Stockholders' Equity
Years Ended December 31, 1999 and 1998 and Period From
January 1, 1998 (Date of Inception) to December 31, 1999 F-5
Statements of Cash Flows
Years Ended December 31, 1999 and 1998 and Period From
January 1, 1998 (Date of Inception) to December 31, 1999 F-6
Notes to Financial Statements F-7/12
* * *
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Board of Directors and Stockholders
Image Technology Laboratories, Inc.
We have audited the accompanying balance sheets of Image Technology
Laboratories, Inc. (A Development Stage Company) as of December 31, 1999 and
1998, and the related statements of operations, stockholders' equity and cash
flows for the years then ended and for the period from January 1, 1998 (date of
inception) to December 31, 1999. 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 generally accepted auditing
standards. 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, 1999 and 1998, and its results of operations and cash
flows for the years then ended and for the period from January 1, 1998 (date of
inception) to December 31, 1999, in conformity with generally accepted
accounting principles.
J.H. COHN LLP
Roseland, New Jersey
March 3, 2000
F-2
<PAGE>
Image Technology Laboratories, Inc.
(A Development Stage Company)
Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
------ --------- ---------
<S> <C> <C>
Current assets - cash $ 24 $ 657
Capitalized software development costs 2,186 2,186
Deferred private placement costs 5,000
--------- ---------
Totals $ 7,210 $ 2,843
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities - notes payable to stockholders $ 5,100 $ -
--------- ---------
Commitments
Stockholders' equity:
Preferred stock, par value $.01 per share; 5,000,000 shares
authorized; none issued - -
Common stock, par value $.01 per share; 20,000,000 shares
authorized; 18,750 shares issued and outstanding 187 187
Additional paid-in capital 21,063 21,063
Accumulated deficit (19,140) (18,407)
--------- ---------
Total stockholders' equity 2,110 2,843
--------- ---------
Totals $ 7,210 $ 2,843
========= =========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
Image Technology Laboratories, Inc.
(A Development Stage Company)
Statements of Operations
Years Ended December 31, 1999 and 1998
and Period From January 1, 1998
(Date of Inception) to December 31, 1999
<TABLE>
<CAPTION>
1999 1998 Cumulative
--------- --------- ----------
<S> <C> <C> <C>
Revenues $ - $ - $ -
General and administrative expenses 733 18,407 19,140
------------- ------------- -----------
Net loss $ (733) $ (18,407) $ (19,140)
============= ============= ===========
Basic net loss per common share $ - $ - $ -
============= ============= ===========
======
Basic weighted average common shares outstanding
(as adjusted for 389 for 1 stock split affected in
January 2000) 7,288,750 7,288,750 7,288,750
============= ============= ===========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
Image Technology Laboratories, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity
Years Ended December 31, 1999 and 1998
and Period From January 1, 1998
(Date of Inception) to December 31, 1999
<TABLE>
<CAPTION>
Common Stock
---------------------- Addi- Total
Number tional Accum- Stock-
of Paid-in ulated holders'
Shares Amount Capital Deficit Equity
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Issuance of shares effective as of
January 1,1998 to founders 18,750 $187 $21,063 $21,250
Net loss $ (18,407) (18,407)
--------- --------- --------- --------- ---------
Balance, December 31, 1998 18,750 187 21,063 (18,407) 2,843
Net loss (733) (733)
--------- --------- --------- --------- ---------
Balance, December 31, 1999 18,750 $187 $21,063 $(19,140) $ 2,110
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
Image Technology Laboratories, Inc.
(A Development Stage Company)
Statements of Cash Flows
Years Ended December 31, 1999 and 1998
and Period From January 1, 1998
(Date of Inception) to December 31, 1999
<TABLE>
<CAPTION>
1999 1998 Cumulative
--------- --------- ----------
<S> <C> <C> <C>
Operating activities - net loss $ (733) $(18,407) $(19,140)
-------- -------- --------
Investing activities - software development costs
capitalized (2,186) (2,186)
-------- --------
Financing activities:
Proceeds for issuance of common stock 21,250 21,250
Proceeds from issuance of notes payable to
stockholders 5,100 5,100
Payments of deferred private placement costs (5,000) (5,000)
-------- -------- --------
Net cash provided by financing activities 100 21,250 21,350
-------- -------- --------
Net increase (decrease) in cash (633) 657 24
Cash, beginning of period 657 - -
-------- -------- --------
Cash, end of period $ 24 $ 657 $ 24
-------- -------- --------
-------- -------- --------
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
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
December 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.
As of December 31, 1999, the Company had not generated any
revenues from operations and, accordingly, it was still in the
"development stage." Management does not expect the Company to
generate any revenues from its planned operations prior to the
first quarter of the year ending December 31, 2001.
Note 2 - Summary of significant accounting policies:
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could
differ from those estimates.
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 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-7
<PAGE>
Image Technology Laboratories, Inc.
(A Development Stage Company)
Notes to Financial Statements
Note 2 - Summary of significant accounting policies (continued):
Software development costs (concluded):
Charges to research and development expenses for software
development costs incurred prior to the establishment of
technological feasibility were not material in 1999 and 1998.
Start-up and organization costs:
The Company accounts for start-up and organization costs
pursuant to the provisions of Statement of Position No. 98-5,
"Reporting on the Costs of Start-up Activities" ("SOP 98-5"),
issued by the American Institute of Certified Public
Accountants. SOP 98-5 requires such costs to be expensed as
incurred. The Company charged start-up costs of $18,245 to
general and administrative expenses during 1998.
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 annually 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, were issued
during the period. The Company did not have any potentially
dilutive common shares outstanding during 1999 and 1998.
F-8
<PAGE>
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):
The 7,288,750 weighted average common shares outstanding for
1999, 1998 and the period from January 1, 1998 to December 31,
1999 shown in the accompanying statements of operations have
been retroactively adjusted for a 389 for 1 stock split that
was affected on January 7, 2000 (see Notes 5 and 10).
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 instead if such amounts differ
materially from the historical amounts.
Recent accounting pronouncements:
The Financial Accounting Standards Board and the Accounting
Standards Executive Committee of the American Institute of
Certified Public Accountants had issued certain accounting
pronouncements as of December 31, 1999 that will become
effective in subsequent periods; however, management of the
Company does not believe that any of those pronouncements
would have significantly affected the Company's financial
accounting measurements or disclosures had they been in effect
during 1999 and 1998.
Note 3 - Deferred private placement costs:
As of December 31, 1999, the Company had deferred costs of $5,000
related to sales of units of common stock and warrants through a
private placement exempt from registration under the Securities
Act of 1933. The deferred costs will be charged to additional
paid-in capital in connection with the consummation of the sale
on February 4, 2000 (see Note 10).
F-9
<PAGE>
Image Technology Laboratories, Inc.
(A Development Stage Company)
Notes to Financial Statements
Note 4 - Note payable to stockholder:
Note payable stockholders with a principal balance of $5,100 at
December 31, 1999 were noninterest bearing and due on demand.
Note 5 - Stockholders' equity:
As of December 31, 1999, the Company was authorized to issue up
to 10,000,000 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 (see Note
10).
As of December 31, 1999, the Company was also authorized to issue
up to 20,000,000 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, or the equivalent of 7,288,750 shares as adjusted for the
389 for 1 stock split that was affected on January 7, 2000 (see
Note 10), to its founding stockholders for total cash
consideration of $21,250 in January 1998.
Note 6 - Income taxes:
As of December 31, 1999, the Company had net operating loss
carryforwards of approximately $19,000 available to reduce future
Federal taxable income which will expire at various dates through
2019. The Company had no other material temporary differences as
of that date. 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 $7,600 from the
utilization of those net operating loss carryforwards by an
equivalent valuation allowance as of December 31, 1999.
The Company had also offset the potential benefits from net
operating loss carryforwards of approximately $7,200 by an
equivalent valuation allowance as of December 31, 1998. Although
the Company had pre-tax losses in each period, no credits for
income taxes are included in the accompanying statements of
operations as a result of the increases in the valuation
allowance of $400 and $7,200 in 1999 and 1998, respectively.
F-10
<PAGE>
Image Technology Laboratories, Inc.
(A Development Stage Company)
Notes to Financial Statements
Note 7 - Fair value of financial statements:
The Company's financial instruments at December 31, 1999 for
which disclosure of estimated fair value is required by certain
accounting standards consisted of cash and notes payable to
stockholders. In the opinion of management, cash was carried at
fair value because of its liquidity. 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.
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 nonstatutory 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 generally vest over three years.
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 will make the
pro forma disclosures required by SFAS 123 of net income of loss
as if a fair value based method of accounting for stock options
had been applied if such pro forma amounts differ materially from
the historical amounts.
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 annual aggregate
payments of $450,000 in the years ending December 31, 2000, 2001
and 2002.
F-11
<PAGE>
Image Technology Laboratories, Inc.
(A Development Stage Company)
Notes to Financial Statements
Note 10- Subsequent events:
Stock split:
On January 7, 2000, the Company affected a 389 to 1 split of
its outstanding common stock that had been approved by its
Board of Directors on December 23, 1999.
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 contracts 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
except that holders of preferred shares will have two votes
for each share held on all matters to be voted on by the
Company's stockholders. The preferred shares were valued at
$.30 per share based on the price of units that the Company
was offering for sale through the private placement that was
completed on February 4, 2000 described below. The aggregate
fair value of the preferred shares of $450,000 will be charged
to the Company's results of operations over the terms of the
respective employment contracts.
Issuance of stock options:
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.
Private placement of units:
On February 4, 2000, the Company completed a private placement
of 800,000 units, at $.30 per unit, that was exempt from
registration under the Securities Act of 1933 and received
proceeds of $240,000 before related estimated costs of
$50,000. 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 one year from the date of
issuance.
* * *
F-12
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Image Technology Laboratories, Inc.
We consent to the inclusion in the Prospectus of this Registration Statement on
Form SB-2 of our report, dated March 3, 2000, on the financial statements of
Image Technology Laboratories, Inc. as of December 31, 1999 and 1998, and for
the years then ended and for the period from January 1, 1998 (date of inception)
to December 31, 1999, which are also included in the Prospectus. We also consent
to the reference to our firm under the caption "Experts" in the Prospectus.
J.H. COHN LLP
Roseland, New Jersey
March 30, 2000
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