<PAGE>
As filed with the Securities and Exchange Commission on June 6, 2000
Registration No. 333-336787
----------------------------------------------------------------------------
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 1
To
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
IMAGE TECHNOLOGY LABORATORIES, INC.
<TABLE>
<S> <C> <C>
Delaware 8011 22-3531373
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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. / /
Cover continued on next page
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Maximum
Title of Each Class of Proposed Aggregate Amount of
Securities to be Amount to be Maximum Offering Registration
Registered Registered Offering Price (1) Price (1) Fee
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units consisting of one 3,000,000 $0.40 per Unit $1,200,000
share of Common Stock Units
and one Investor
Warrant
Common Stock, par value 3,000,000
$.01 per share, Shares -- --
included in the units
Investor Warrants 3,000,000
included in the units Warrants --
--
Common Stock issuable 3,000,000 $0.50 per share $1,500,000
on exercise of Investor Shares
Warrants included in
the units
Common Stock registered 1,050,000 $0.40 per share $420,000
on behalf of certain
shareholders
Warrants registered on 1,050,000
behalf of certain -- --
shareholders
Common Stock issuable 1,050,000 $0.40 per share $420,000
on exercise of selling
shareholder warrants
Total $3,540,000 $935
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8 (a), may determine.
<PAGE>
Prospectus
Subject to Completion, Dated , 2000
IMAGE TECHNOLOGY LABORATORIES, INC.
Minimum of 1,500,000 Units and maximum 3,000,000 Units offered by
Image Technology
Each Unit = one share of common stock + one investor warrant
Plus shares and warrants to be sold separately by selling shareholders
<TABLE>
<S> <C>
Estimated Price of Units: .................................... $0.40 per Unit or $1,200,000
Expenses ..................................................... $0.042 per Unit or $125,000
Net Proceeds to Image Technology ............................. $0.358 per Unit or $1,075,000
Price of shares and warrants
offered by selling shareholders ............................. Prevailing market price at time of sale.
</TABLE>
Image Technology Laboratories, Inc., or Image Technology, is distributing
this prospectus to offer a minimum of 1,500,000 units, on a best-efforts,
all-or-none basis and an additional 1,500,000 units on a best efforts basis.
Each unit consists of one share of our common stock and one warrant to purchase
one share of common stock for $0.50. We will not be able to use any of the
proceeds of the offering until we have sold 1,500,000 units. If we are unable to
sell at least 1,500,000 units investors will be returned the entire amount of
their investment.
This is our initial public offering of common stock and warrants, and no
public market currently exists for our common stock or warrants. After the
offering, we expect the shares to trade on the OTC Bulletin Board under the
symbol "ITLI" and the warrants to trade on the OTC Bulletin Board under the
symbol "ITLIW". The warrants will be detachable from the shares upon issuance.
The minimum investment for each investor is 1,000 Units or $400.
Look carefully at the risk factors beginning on page 7 of this prospectus.
Image Technology will receive all of the proceeds from the sale of the
units but will receive none of the proceeds of shares or warrants sold by
selling shareholders.
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
Neither the SEC nor any other regulatory body has approved these shares or
determined that this prospectus is accurate or complete. It is illegal for
anyone to tell you otherwise.
THE DATE OF THIS PROSPECTUS IS June , 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary .................................................. 3
Overview of Image Technology Laboratories, Inc. ..................... 3
The Offering ........................................................ 4
Summary of Historical Financial Data ................................ 6
Risk Factors ........................................................ 7
Use of Proceeds ..................................................... 16
Determination of Offering Price ..................................... 17
Dividend Policy ..................................................... 17
Capitalization ...................................................... 18
Dilution ............................................................ 19
Selected Financial Data ............................................. 21
Management Discussion and Analysis of Financial
Condition and Results of Operation ............................ 22
Description of Business ............................................. 23
Management .......................................................... 32
Executive Compensation .............................................. 34
Principal and Selling Security holders .............................. 36
Description of Securities ........................................... 38
Certain Relationships and Related Transactions ...................... 38
Transfer Agent and Registrar ........................................ 41
Plan of Distribution ................................................ 42
Shares Eligible for Future Sale ..................................... 44
Legal Matters ....................................................... 45
Experts ............................................................. 45
Where You Can Find More Information ................................. 45
Index to Financial Statements ....................................... F-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights information which we present more fully
elsewhere in this prospectus. You should read this entire prospectus carefully.
Image Technology Laboratories, Inc.
Image Technology is a software developmental stage company which has
entered the medical image management segment of the healthcare information
systems market. Our founders, Drs. David Ryon, Carlton Phelps and Mr. Lewis
Edwards own 7,288,750 shares, representing 87% of our outstanding common stock.
Through our three founders, we have designed and are developing a
proprietary picture archiving and communications software system, or PACS, which
we call ITLPACS, for use in the management of medical diagnostic images by
hospitals and medical centers. A PACS inputs and stores diagnostic images in
digital format from original imaging sources such as CT scans, MRIs, ultrasound,
nuclear imaging and digital fluoroscopy.
ITLPACS routes, archives and displays digital images linked to patient
information from either radiology information systems or hospital information
systems. ITLPACS has been designed to interface with hospital departments and
radiology information systems so that patient data can be integrated with
diagnostic images for improved record retrieval and increased accuracy of image
interpretation. 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
hospital departments, such as from radiology to emergency
room,
- rapid off-site consultations by specialists at remote
locations, or
- convenient home viewing by individual radiologists.
Hospitals and other health organizations can use ITLPACS permanently to
replace more costly and cumbersome image storage mediums such as film. Image
Technology provides all support services, including:
- remote system,
- network, and
- database administration and management.
We are also developing a unique display station which allows radiologists to
simultaneously view multiple digitized images. ITLPACS has been designed to run
under the Windows NT operating system and includes no-cost remote access to the
imaging database via the Internet for on-call remote diagnosis or referring
physician consultations.
We expect to complete the initial phase of product development of ITLPACS
in the third quarter of 2000. Our goal is to be revenue producing at the
earliest opportunity after FDA approval. We do not expect to generate any
revenues from planned operations prior to the first fiscal quarter of 2001. Our
customers will include hospitals, medical centers and imaging centers in the
northeastern United States. Image Technology will distribute ITLPACS through
three channels:
- original equipment manufacturer relationships,
3
<PAGE>
- partnerships, and
- direct distribution through its own sales representatives.
We were incorporated in Delaware on December 5, 1997. Our principal
executive offices are located at 167 Schwenk Drive, Kingston, New York 12401.
Our phone number is (914) 338-3366.
Since inception, we have incurred minimal losses, resulting in an
accumulated deficit of approximately $250,000 at March 31, 2000. We currently
have no sources of revenue and expect to incur additional losses for the
foreseeable future. Market acceptance of ITLPACS, which we expect to introduce
in the fiscal third quarter of 2000, is critical to our future success. For a
discussion of these and other risks relating to an investment in our common
stock, see "Risk Factors" beginning on page 7.
The Offering
Units being offered by Image
Technology A minimum of 1,500,000 units (each
consisting of one share of common stock and
one Investor Warrant) and a maximum of
3,000,000 units at a price of $0.40 per
unit. The minimum investment for each
investor is 1,000 Units or $400.
Description of shares Common stock par value $.01 per share.
Description of warrants Investor Warrants, each to purchase one
share of common stock for $0.50 during a one
year period from the date of this
prospectus.
Detachable and separately traded from the
shares in each unit.
Redeemable by Image Technology at $.05 per
warrant if the common stock closing bid
price exceeds $2.00 for 10 consecutive
trading days.
Shares being offered by Image
Technology shareholders 1,050,000 shares of common stock
1,050,000 warrants to purchase shares of
common stock
1,050,000 shares of common stock underlying
warrants
Shares outstanding after this
offering (assuming the
Maximum amount of units
is sold) 11,338,750 shares of common stock
4
<PAGE>
Use of Proceeds We expect that the net proceeds from this
offering, assuming all of the units offered
by Image Technology are sold, will be
approximately $1,075,000 if all 3,000,000
Units are sold or $475,000 if only 1,500,000
Units are sold. We will not receive any of
the proceeds from shares or warrants sold by
the selling shareholders. We expect to use
the proceeds for working capital and general
corporate purposes. Specifically, we
anticipate that the proceeds will be used to
continue development of ITLPACS, pay the
salaries of our officers and directors, and
expand sales and marketing activities.
Proposed OTC Bulletin Board
Symbols: Common Stock: "ITLI"; Warrants: "ITLIW"
Risk Factors An investment in these units involves a high
degree of risk to the public investors and,
therefore, anyone who cannot afford a loss
of his or her entire investment should not
purchase them. You should carefully review
and consider the factors set forth under
"Risk Factors" as well as other information
in this prospectus before purchasing any of
the Units. See "Risk Factors" on page 7.
5
<PAGE>
SUMMARY OF HISTORICAL
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 and unaudited 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
<TABLE>
<CAPTION>
Dec 31, 1999 Dec 31, 1998 March 31, 2000
------------ ------------ --------------
Current Assets:
<S> <C> <C> <C>
ASSETS
Cash $24 $657 $119,396
Prepaid Professional Fees - - 60,000
--------- --------- ---------
Total Current Assets 24 657 179,396
Capitalized Software Development 2,186 2,186 2,186
Deferred Private Placement Costs 5,000 - -
--------- --------- ---------
TOTAL ASSETS $7,210 $2,843 $181,582
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued compensation payable to stockholders $112,500
Notes payable to stockholders $ 5,100 5,200
--------- ---------
Trial current liabilities 5,100 117,700
Stockholders' equity:
Preferred Stock 15,000
Common Stock $72,887 $187 83,387
Additional Paid-in-Capital (51,637) 21,063 627,863
Unearned Compensation (412,500)
Deficit Accumulated during
the development stage (19,140) (18,407) (249,868)
--------- --------- ---------
Total Equity 2,110 $2,843 $63,882
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,210 $2,843 $181,582
========= ========= =========
</TABLE>
OPERATIONS
<TABLE>
<CAPTION>
Three Months ended March 31,
----------------------------
1999 1998 2000 1999 Cumulative
---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Revenues $-- $-- $-- $-- $--
Research and Development Expenses - 150,000 - $150,000
General and Administrative Expenses 733 18,407 80,728 112 99,868
--------- --------- --------- --------- --------
NET Loss $(733) $(18,407) $(230,728) (112) (249,868)
========= ========= ========= ========= =========
Basic Net Loss per share $ -- $ -- $ (.03) $ -- $ (.03)
========= ========= ========= ========= =========
</TABLE>
6
<PAGE>
RISK FACTORS
Please consider the following risk facts together with the other
information presented in this Prospectus including the financial statements and
the notes thereto before investing in the units. The trading price of our common
stock and warrants could decline due to any of the following risks, and you
might lose all or part of your investment.
Our limited operating history makes it difficult to evaluate our prospects. We
incorporated on December 5, 1997, and commenced operations January 1, 1998.
Accordingly, we have only a limited operating history on which to evaluate our
business. As a result of our limited operating history we may be unable to
accurately forecast our revenues. Our relative lack of experience means that our
business will have numerous personnel, operational, financial, regulatory and
other risks not faced by more experienced competitors. We are still in our
formative and development stage. As an investor, you should be aware of the
difficulties, delays and expenses normally encountered by an enterprise in its
development stage, many of which are beyond our control, including:
- unanticipated developmental expenses,
- inventory costs,
- employment costs, and
- advertising and marketing expenses.
We cannot assure our investors that our proposed business plans as described in
this prospectus will materialize or prove successful, or that we will ever be
able to operate profitably. If we cannot operate profitably, you could lose your
entire investment.
As a result of the start-up nature of our business we expect to sustain
substantial operating expenses without generating significant revenues.
Accordingly, a failure to meet our revenue projections will have an immediate
and negative impact on profitability. In addition, we cannot be certain that our
evolving business model will be successful, particularly in light of our limited
operating history. There can be no assurance that we will be able to
successfully remain in the medical image management market as currently planned.
Our survival in the medical image management industry will depend upon our
ability to:
- successfully develop and enhance our current product
- to develop or obtain from third-party suppliers new products which
keep pace with technological developments,
- respond to evolving end-user requirements, and
- achieve market acceptance.
7
<PAGE>
If we are unable to anticipate or respond adequately to technological
developments or end-user requirements or any delays in product development,
acquisition or introduction, we will be unable to become or remain profitable
which could cause our stock price to decline and cause you to lose your
investment.
We have a history of losses and an accumulated deficit and we expect future
losses. Image Technology is a developmental stage company which has generated no
revenues from product sales. We do not expect to generate revenue from product
sales until at least the first fiscal quarter of 2001. Image Technology has
incurred losses of approximately $250,000 from its inception through March 31,
2000 primarily as a result of legal and accounting expenses incurred in
connection with business formation, and after January 1, 2000, the compensation
of our founders. We may not be able to generate revenue or achieve or sustain
profitability in the future. Our revenue assumptions may be inaccurate since we
have no historical data on which to rely in estimating future revenue or
expenses. We expect to lose more money as we spend additional capital to develop
our systems, market our products and establish our infrastructure and
organization to support anticipated operations. We cannot be certain whether
Image Technology will ever earn a significant amount of revenues or profit, or,
if it does, that it will be able to continue earning such revenues or profit.
We are subject to regulation by federal and state government. Our 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 and is
subject to regulation by the U.S. Food and Drug Administration, or FDA. Before
ITLPACS may be marketed in the United States, Image Technology must apply for
and receive FDA authorization to market the product. This process can take up to
six months or more and requires the expenditure of substantial resources. There
can be no guarantee that the FDA will not require Image Technology to submit a
Pre-Market Approval application under its usual approval process for new devices
which could result in delays in the release of ITLPACS as well as the
expenditure of additional funds. See "Business - Product Approval Process" on
page 8.
Image Technology 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 Image Technology'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.
Image Technology currently has no product approved for marketing in the United
States or elsewhere. There can be no assurance that Image Technology will be
able to obtain the necessary approvals for the marketing of any products which
it develops. If we are unable to gain FDA marketing approval for the ITLPACS, or
a substantial delay in obtaining such approval occurs, it would adversely affect
Image Technology's ability to generate revenues. Approval in one jurisdiction
does not assure approval in another because the various federal, state and local
regulatory authorities act independently of each other. Image Technology 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.
8
<PAGE>
Even if ITLPACS is approved for marketing we will be subject to continuing
regulatory review. Later discovery of previously unknown problems with a product
or manufacturer, or an increase in the incidence of previously unknown problems
may result in restrictions on the product and the manufacturer. The restrictions
could include withdrawal of the product from the market. Image Technology is
subject to numerous environmental, health, and workplace safety laws and
regulations which might adversely affect our financial condition or ability to
carry on our business.
Even if we raise the maximum amount of the offering, we will need additional
financing to continue our planned operations beyond the next twelve months. If
we sell the minimum amount, and receive net proceeds of $475,000, we will be
able to continue operations for 12 months and afford a modest booth at the
Radiological Society of North America meeting in November 2000. If we sell
2,250,000 units and receive net proceeds of $775,000, we will be able to hire
more staff and afford a more impressive booth at the November meeting. If we
sell the maximum amount and receive net proceeds of $1,075,000 we will be able
to extend operations well into 2001 and begin marketing and advertising beyond
the November meeting. Image Technology intends to fund its operations by raising
significant additional funds through equity or debt financing. At present, we
have no commitments for additional or alternative financing, and there is no
assurance that we will be able to obtain such financing on satisfactory terms,
if at all. Image Technology's inability to secure additional funds from such
financing within twelve to eighteen months could adversely affect Image
Technology's ability to implement its business plan. In addition, any subsequent
offering of securities would, in all likelihood dilute existing stockholders'
percentage of ownership in Image Technology. See "Use of Proceeds" on page 16.
We face intense competition in the medical imaging market on several different
fronts. 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 we believe ITLPACS offers unique features which will
distinguish it in the market, larger or more established PACS suppliers have
substantially greater resources than we do. There can be no assurance Image
Technology will be able to compete successfully against them in the market for
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. ITLPACS will continue to compete with other
older film-based diagnostic imaging systems. Although PACS offer significant
advantages over such older imaging systems 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 forecasted rates.
9
<PAGE>
We may face competition from newer technologies based on different imaging
techniques. ITLPACS has been designed to work with the Windows NT operating
system to permit easy upgrading and avoid product obsolescence. There can be no
assurance, however, that the basic technology of all PACS, and therefore the
market for such systems, will not be superceded by an altogether new form of
imaging technology or that the hardware and operating system components of the
ITLPACS will not become obsolete in some other manner. Although we are not aware
of any new technologies currently under development which might replace PACS
technology, new technologies may be developed, or existing technologies refined,
which could render ITLPACS technologically or economically obsolete. We may not
have the funds or the ability to develop or acquire any new or improved hardware
or software which we may need in order to remain competitive.
We are solely relying on one product to generate all of our initial revenue. We
have not yet completed development of ITLPACS and have no other product or
service on which we may rely for future revenue. There can be no assurance we
will develop additional products which will be commercially viable.
We are dependent on third parties for the equipment needed to develop and run
ITLPACS. In order to complete development of the ITLPACS system, we have entered
into an agreement to lease facilities and equipment from third parties
affiliated with our Chairman and Chief Executive Officer, Dr. David Ryon for a
three year period. The termination of Dr. Ryon's personal services agreement
with one of these third parties, which Image Technology cannot control, would
automatically terminate the facility usage and equipment lease agreement. If
this occurred, we would not have access to the facilities, office space or
equipment we need. If Image Technology were unable to access the equipment, we
estimate that we 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 and equipment lease agreement
would most likely prevent us from using the facilities as our principal product
demonstration site as presently intended. We have no agreement with any other
facility to serve as a product demonstration site and may not be able to obtain
one in the future. See "Business - Material Contracts" on page 30.
We have limited marketing experience. Image Technology intends to market ITLPACS
to hospitals, HMOs, individual radiologists and group practices, subject to FDA
approval. Although we intend to add management members who have experience in
marketing medical devices, Image Technology has no experience marketing its
proposed products. We have only very limited sales, marketing and distribution
capabilities at this time. To market any of our products directly, we must
develop a marketing and sales force with technical expertise and supporting
product distribution capability. Significant additional expenditures will be
required for us to develop a sales force or penetrate the markets for our
products, assuming we are able to make those expenditures. We may not be able to
obtain enough capital to establish an adequate in-house marketing and
distribution capability in which case we would have to establish marketing
arrangements with third parties. We will not be able to operate profitably if
either:
- we fail to establish in-house sales and distribution capabilities,
or
10
<PAGE>
- we are unable to enter into marketing arrangements with third
parties on favorable terms, or
- we experience a delay in developing such capabilities or
arrangements.
Even if we enter into marketing distribution or other arrangements with third
parties, our business may be adversely affected if any such marketing partner
does not market a product successfully.
The impact of federal restrictions on reimbursement for the use of PACS may
adversely influence the medical device purchase decisions made by hospitals and
other potential customers. Federal regulations implemented by the Health Care
Financing Administration, or HCFA currently permit only limited reimbursement
for telepathology and teleradiology services under the Medicare program.
Medicare payments for emergency room x-rays are limited to the first physician
who interprets them. HCFA has refused to pay for other telemedicine
consultations because the health care provider and the patient are not, by
definition, face-to-face. Consequently, the use of ITLPACS to distribute
diagnostic images to remote locations for consultations or second reading by
specialists may not be reimbursable. A significant portion of the potential
purchasers of the ITLPACS are hospitals and other health care organizations
which provide services to Medicare recipients. They may decide not to purchase
ITLPACS if they are unable to be reimbursed for the use of the teleradiology
services which PACS support. Many private group practices which might otherwise
consider purchasing ITLPACS may face similar financial disincentives to invest
in newer PACS technology. Any such adverse impact on our intended market would
severely limit our ability to earn revenues or profits, and in turn cause the
price of our common stock to decline.
Our ability to compete successfully may depend on our ability to protect our
intellectual property and proprietary technology. Image Technology's ability to
market a competitive 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. We have secured from our three founders an
assignment of all their rights to and interest in the ITLPACS software developed
prior to Image Technology's incorporation. By licensing rather than selling our
software we hope to retain maximum trade secret protection for our product
technology. However, there can be no assurance that all elements of Image
Technology's software are sufficiently original to qualify for copyright
protection or that Image Technology will be successful in preventing the
unauthorized disclosure of its trade secrets. Image Technology currently plans
to pursue patent protection to the limited extent that patent protection is
available for any aspect of Image Technology's product. Others may independently
develop or acquire substantially equivalent proprietary technology or we may not
be able to protect our non-patented technology and trade secrets from
misappropriation. Such development, acquisition or misappropriation by others of
technology similar to ours could increase competition in our industry, subject
us to pricing pressure, and cause our revenues to decline significantly. This,
in turn, would cause the price of our common stock to decline.
The continued services and leadership of our three founders are critical to our
success and any loss of key personnel could adversely affect our business. We
are heavily dependent on
11
<PAGE>
the personal efforts and abilities of David Ryon, M.D., our President, Chief
Executive Officer, and Chairman of the Board of Directors; Carlton T. Phelps,
M.D., our Vice President - Finance and Administration, Chief Financial Officer,
Secretary and Treasurer; and Mr. Lewis M. Edwards, our Vice President for
Research and development and Chief Technical Officer. Each is a founder,
director and principal stockholder of Image Technology and a co-developer of the
ITLPACS product. If we were to lose the services of one or more of them before a
qualified replacement could be obtained, our business, financial condition or
results of operations could suffer significantly.
We must attract and retain highly qualified marketing, scientific, technical,
and business personnel experienced in the medical device industry to complete
product development and implement the marketing and business strategy we have
planned. The success of our business depends in part upon our ability to
attract, motivate and retain sales marketing staff who possess the skills,
knowledge and attributes necessary to service the needs of our clients and grow
the business. Image Technology competes with other companies who are able to
attract and retain staff as a result of reputation, performance based
compensation systems and infrastructure support. Because we have been in
operation for only a short time, we have not had sufficient time to establish
our reputation in the industry. Also, our inability to offer substantial
compensation packages and/or comparable infrastructure support for our staff
could impair our ability to attract and retain staff. There is no guarantee,
particularly in the current competitive market for such skilled employees, that
we will be able to secure or retain the personnel necessary to implement our
business plan. Any such inability to attract and retain staff could have a
material adverse effect on our business, results of operations and financial
condition, and in turn, the value of your investment.
Our software products may contain undetected defects. Software developed by us
or developed by others and incorporated by us into our products may contain
significant undetected errors when first released or as new versions are
released. Although we test our software products before commercial release, we
cannot be certain that errors in the products will not be found after customers
begin to use the software. Any defects in ITLPACS, or any future products, may
result in significant decreases in revenue or increases in expenses because of:
- adverse publicity,
- reduced orders,
- product returns,
- uncollectible accounts receivable,
- delays in collecting accounts receivable, and
- additional and unexpected costs of further product development to
correct the defects.
We face exposure to product liability claims if the use of our products is
alleged to have caused harm to a patient. The claims might be made directly by
patients or by medical organizations and medical personnel who face liability
for care rendered in conjunction with the use of Image Technology's products.
There can be no assurance that such claims, if made, would not result in
monetary liability for damages or a recall of Image Technology's products or a
change in the diagnostic purposes for which they may be used. Prior to product
launch, Image
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Technology 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. We
might not be able to maintain such insurance, obtain additional insurance, or
obtain insurance at a reasonable cost or in sufficient amounts to protect us
against losses due to liabilities which individually or in the aggregate could
have a material adverse effect on our business or financial prospects.
Our three founders will continue to control Image Technology after the offering.
Following completion of the maximum offering, Image Technology's executives, Dr.
Ryon, Dr. Phelps and Mr. Edwards, will own and control an aggregate of 7,288,750
shares of our outstanding common stock representing approximately 64% of our
outstanding common stock and 68% of our outstanding voting stock which includes
1,500,000 shares of preferred stock owned by them. 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 which is
intended to preserve ownership of these shares by the founders of Image
Technology. This concentration of stock ownership in a few persons together with
the existence of the restrictions on transfers makes it unlikely that any other
holder of voting Common Stock will be able to affect the management or direction
of Image Technology.
Delaware law and our charter documents contain anti-takeover and indemnification
provisions which may adversely affect the market price of our stock. Section 203
of the Delaware General Corporation Laws and our charter and by-laws contain
provisions which might enable our management to resist a takeover of our
company. These provisions might discourage, delay or prevent a change in the
control of our company or a change in our management. These provisions could
also discourage proxy contests and make it more difficult for you and other
stockholders to elect directors and take other corporate actions. The existence
of these provisions could limit the price which investors might be willing to
pay in the future for shares of our common stock.
Our directors have the authority to designate one or more classes of preferred
stock having rights greater than our common stock. Our Certificate of
Incorporation authorizes us to issue up to 5,000,000 shares of preferred stock
in one or more classes or series. Immediately prior to this offering, we will
have outstanding 1,500,000 shares of preferred stock, all of which is owned by
our three founders. Our board of directors has the authority, without further
action by the holders of the outstanding common stock, to:
- issue additional preferred stock from time to time in one or more
classes or series,
- modify or fix the number of shares constituting any class or
series as well as their stated value, if different from the par
value, and
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- modify or fix the terms of any such series or class, including:
- dividend rates,
- conversion or exchange rights,
- voting rights and terms of redemption, including sinking
fund provisions,
- the redemption price and the liquidation preference of such
class or series.
We have no present plans to issue any additional preferred stock or other
series or class of preferred stock. The designations, rights and preferences of
any additional preferred stock which may be issued would be set forth in a
certificate of designation which would be filed with the Secretary of State of
the State of Delaware.
As a new investor, you will experience immediate, substantial dilution of the
net tangible book value of the shares you purchase. Assuming the sale of all of
the units offered by us (excluding shares offered by selling shareholders),
purchasers of our common stock in this offering:
- will pay a price per share which substantially exceeds the value
on a per share basis of our assets after we subtract from those
assets our intangible assets and our liabilities, if any;
- will incur immediate dilution in net tangible book value of $.31
per share;
- will contribute a majority of the funds we will need to commence
operations but will own only 23% of the outstanding shares of our
voting stock;
- may experience further dilution in the net tangible value of
their common stock as a result of future issuances of common
stock upon exercise of 5,000,000 options which may be granted at
Image Technology's discretion under our 1998 stock option plan,
the exercise of the warrants for 1,050,000 shares of common stock
issued in connection with Image Technology's private placement
and warrants Image Technology may be required to grant under its
agreement with business consultants.
Broad market fluctuations may have a material adverse effect on the market price
of our common stock The following factors may cause the market price of our
common stock to fluctuate significantly:
- market acceptance of Image Technology's product,
- the timing of purchase orders,
- announcements of technological innovations,
14
<PAGE>
- the attainment of or failure to attain milestones in the
commercialization of our technology
- the introduction of new products,
- establishment of new collaborative arrangements by Image
Technology, its competitors or other third parties,
- claims of patent infringement or other material litigation
- government regulations,
- investor perception of Image Technology,
- fluctuations in Image Technology's operating results, and
- general market conditions in the industry.
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. Furthermore, if selling stockholders in this
offering sell substantial amounts of common stock in the public market, the
market price of our common stock could fall.
We don't plan to pay dividends. We have never declared or paid any cash
dividends on our common stock, and we don't expect to pay dividends anytime
soon. We expect to retain our earnings, if any, and use them to finance the
growth and development of our business. A failure to pay dividends means you
will receive no income on your investment and such lack of dividends could have
an adverse impact on the price of our stock.
The so called "Penny Stock Rule" could make it cumbersome for brokers and
dealers to trade in the common stock, making the market for the common stock
less liquid which could cause the price of our stock to decline. Trading in our
securities will initially be conducted on the OTC Bulletin Board and/or the
"pink sheets." As long as the common stock is not quoted on Nasdaq or at any
time that we have less than $2,000,000 in net tangible assets, trading in the
common stock is covered by Rule 15g-9 under the Securities Exchange Act of 1934
for non-Nasdaq and non-exchange listed securities. Under that rule,
broker-dealers who recommend covered securities to persons other than
established customers and accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale. Securities are exempt from this rule
if the market price is at least $5.00 per share.
The SEC has adopted regulations which generally define a penny stock to be
any equity security which has a market price of less than $5.00 per share,
subject to certain exemptions. Such exemptions include an equity security listed
on Nasdaq and an equity security issued by an issuer
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<PAGE>
which has (i) net tangible assets of at least $2,000,000, if such issuer has
been in continuous operation for three (3) years; (ii) net tangible assets of at
least $5,000,000, if such issuer has been in continuous operation for less than
three (3) years; or (iii) average revenue of at least $6,000,000 for the
proceeding three (3) years. Unless such an exemption is available, the
regulations require the delivery of a disclosure schedule explaining the penny
stock market and the risks associated therewith prior to any transaction
involving a penny stock. If our common stock becomes subject to the regulations
on penny stocks, that factor could have a severe adverse effect on the market
liquidity for the common stock due to these limitations on the ability of
broker-dealers to sell the common stock in the public market which could cause
the price of our stock to decline.
Management of Image Technology will retain broad discretion in the
allocation of the net proceeds of this offering. We anticipate that the proceeds
will be used to continue development of ITLPACS, pay the salaries of our
officers and directors, and expand our sales and marketing activities.
Management will have the authority to use the proceeds in ways in which you
might not agree or which may not maximize the value of your investment.
Forward Looking Statements. This Prospectus and the information
incorporated into it by reference contains various "forward-looking statements"
within the meaning of federal and state securities laws, including those
identified or predicated by the words "believes," "anticipates," "expects,"
"plan" or similar expressions. Such statements are subject to a number of
uncertainties which could cause the actual results to differ materially from
those projected. Such factors include, but are not limited to, those described
under "Risk Factors." Given these uncertainties, prospective purchasers are
cautioned not to place undue reliance upon such statements.
USE OF PROCEEDS
The net proceeds to Image Technology from this offering less
offering expenses, are estimated to be a maximum of $1,075,000 if all 3,000,000
Units are sold or $475,000 if only 1,500,000 Units are sold. The proceeds will
be used for working capital and will be available for general corporate
purposes.
<TABLE>
Application of Proceeds Maximum Percentage Minimum Percentage
----------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Costs of Offering $125,000 10.40% $125,000 20.81%
Development of ITLPACS $658,000 55.00% $299,000 49.83%
Sales and Marketing $278,000 23.10% $109,000 18.19%
Administrative Costs $139,000 11.50% $67,000 11.17%
Totals $1,200,000 100.00% $600,000 100%
</TABLE>
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<PAGE>
If we sell the minimum amount, and receive net proceeds of $475,000, we
will be able to continue operations for 12 months and afford a modest booth at
the Radiological Society of North America meeting in November 2000. If we sell
2,250,000 units and receive net proceeds of $775,000, we will be able to hire
more staff and afford a more impressive booth at the November meeting. If we
sell the maximum amount and receive net proceeds of $1,075,000 we will be able
to extend operations well into 2001 and begin marketing and advertising beyond
the November meeting.
The allocation set forth in the above table is subject to change based
upon actual rather than estimated expenses and changes in business conditions.
Pending use of the proceeds as described above, we plan to invest the net
proceeds in bank deposits and short-term, investment grade securities, including
government obligations and money market instruments. Although we estimate that
the proceeds of this offering will be used over the next 12 months, due to the
uncertainty of our future sales revenue, it is not possible to predict with
certainty the date by which the proceeds will be fully utilized.
DETERMINATION OF OFFERING PRICE
The price of the shares and the exercise price of the warrants we are
offering was arbitrarily determined in order for us to raise up to a total of
$1,200,000 in this offering. The offering price bears no relationship whatsoever
to our assets, earnings, book value or other criteria of value. Among the
factors considered were:
- our lack of operating history
- the proceeds to be raised by the offering
- the amount of capital to be contributed by purchasers in this
offering in proportion to the amount of stock to be retained by
our existing stockholders, and
- our relative cash requirements.
DIVIDEND POLICY
We have never paid cash dividends and do not intend to pay any cash
dividends with respect to our common stock in the foreseeable future. We intend
to retain any earnings for use in the operation of our business. Our board of
directors will determine dividend policy in the future based upon, among other
things, our results of operations, financial condition, contractual restrictions
and other factors deemed relevant at the time. We intend to retain appropriate
levels of our earnings, if any, to support our business activities.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31,
2000 and as adjusted for the assumed sale of 1,500,000 units, and 3,000,000
units. The following table should be read in conjunction with our financial
statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 2000 Pro forma
1,500,000 3,000,000
Units Units
Sold Sold
<S> <C> <C> <C>
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares
authorized; 1,500,000 shares issued and outstanding $15,000 $15,000 $15,000
Common stock, $0.01 par value; 50,000,000 shares
authorized; 8,338,750 shares issued and outstanding $83,387 98,387 113,387
Additional paid-in capital.................................... 627,863 1,087,863 1,672,863
Unearned Compensation.......................................... (412,500) (412,500) (412,500)
Deficit accumulated during the development stage.............. (249,868) (249,868) (249,868)
--------- --------- --------
Total stockholders' equity................................ $63,882 $538,882 $1,138,882
======= ======== ==========
</TABLE>
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DILUTION
For purposes of this section we are assuming that the net tangible book value
for the 8,338,750 shares of our common stock and 1,500,000 shares of preferred
stock outstanding as of March 31, 2000 is $63,882, or less than $.01 per share.
After giving effect to the sale of the 3,000,000 units offered, assuming the
maximum number of units are 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 Image Technology as of the date of this prospectus would have been
$1,138,882 or approximately $0.09 per share of common and preferred stock,
representing an immediate increase in net tangible book value of approximately
$0.08 per share to the existing stockholders and an immediate dilution of
approximately $0.31 per share (78%) 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.
The following table presents certain information concerning the net tangible
book value of our common stock as of March 31, 2000, as adjusted to reflect the
completion of the maximum number of units in the offering.
<TABLE>
<S> <C> <C>
Offering price per unit $.40
Net tangible book value per share before
offering (1) $.01
Increase in net tangible book value
attributable to cash payments
made by unit purchasers (2) $.08
Net tangible book value per share
after offering $.09
Dilution to new stockholders $.31
</TABLE>
(1) "Net tangible book value" is defined as the stockholders' equity of Image
Technology less intangible assets, if any.
(2) Net of estimated expenses of this offering.
The following table summarizes as of March 31, 2000, the difference between the
existing stockholders who purchased their shares of preferred and common stock
since inception and new investors in this offering with respect to the number of
shares of common stock purchased from us which are currently outstanding, the
total consideration paid and the average price per share paid at an assumed
initial public offering price of $0.40 per share
19
<PAGE>
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
---------------- -------------------
Average
Price Per
Number Percent Amount Percent Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders:
Preferred stock 1,500,000 12% $450,000 25% $.30
Common stock 8,338,750 65% $276,250 15% $.03
--------- --- ------------ --- ----
Total 9,838,750 77% $726,250 40% $.07
New investors 3,000,000 23% 1,075,000(2) 60% $.36
--------- --- ------------ --- ----
Total 12,838,750 100% $1,801,250 100%
</TABLE>
(1) Net of offering expenses of $60,000 or less than $.01 per share
(2) Net of offering expenses $125,000 or approximately $.04 per share
The foregoing analysis includes only shares of common stock issued since
inception and does not include any shares which are issuable pursuant to various
options and warrants of Image Technology, including the warrants offered in this
offering.
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<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data has been derived from the
financial statements of Image Technology. The following selected financial data
should be read in conjunction with, and are qualified in their entirety by,
Image Technology's audited and unaudited Financial Statements and the notes
thereto, as well as Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended For the Year Ended For the Year Ended
March 31, 2000 March 31, 1999 December 31, 1999 December 31, 1998
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Operating Data
Revenue - - $ -- -
Research and development expenses 150,000 -- -- --
General and administrative expenses 80,728 112 733 18,407
Total costs and expenses 230,728 112 733 18,407
Net loss (230,728) (112) (733) (18,407)
Net loss per common share
outstanding ($.03) -- $ -- $ --
Weighted average number of shares
of common stock outstanding 9,207,340 7,288,750 7,288,750 7,288,750
Balance Sheet Data
Current assets 179,396 24 657
Total assets 181,582 7,210 2,843
Current liabilities 117,700 5,100 --
Long term liabilities -- - --
Stockholders' equity 63,882 2,110 2,843
Working Capital 61,696 (5,076) 657
</TABLE>
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<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Overview
The following is a discussion of certain factors affecting Image Technology's
results of operations, liquidity and capital resources. You should read the
following discussion and analysis in conjunction with Image Technology's
consolidated audited and unaudited financial statements and related notes which
are included elsewhere in this prospectus.
Image Technology was incorporated on December 5, 1997 and commenced operations
on January 1, 1998. We are in the process of developing picture archiving and
communications software 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.
Results of Operations
Fiscal year ended December 31,1999 compared to fiscal year ended December 31,
1998 and three months ended March 31, 2000 compared to three months ended March
31, 1999
As of March 31, 2000, we had not generated any revenues from operations and,
accordingly, we were still in the development stage. We do not expect to
generate any revenues from our planned operations prior to the first quarter of
2001.
General and Administrative. Our general and administrative expenses decreased
96% to $733 for the fiscal year ended December 31, 1999 as compared to $18,407
for the fiscal year ended December 31, 1998 The decrease was due to the
expensing of $18,245 of start-up costs in 1998. Our general and administrative
expenses increased from $112 for the three months ended March 31, 1999 to
$80,728 during the comparable three month period ended March 31, 2000, $75,000
of which was associated with the issuance of common stock, a non-cash charge.
The increase was primarily attributable to an increase in professional fees
incurred during the three months ended March 31, 2000. In addition, during the
three months ended March 31, 2000 Image Technology incurred $150,000 of research
and development expenses which were paid in the form of compensation to our
three founders of which $112,500 was accrued under their employment contracts
and $37,500 was attributed to the compensation associated with the issuance to
them of the preferred stock, a non-cash charge.
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Liquidity and Capital Resources
As of March 31, 2000, we had cash and working capital of approximately $119,000
and $62,000, respectively. To date, the principal sources of capital resources
have been proceeds from the issuance of shares of common stock to our founders
of $21,250 and the net proceeds from the recently completed private placement of
units of common stock and warrants of $180,000. In addition, we received
proceeds from the issuance of notes payable to our founders in the amount of
$5,200.
We do not have any pending material commitments regarding capital expenditures.
However, our current sources of liquidity and cash are insufficient to satisfy
our cash needs beyond the next twelve months. We will require additional capital
to fund our operations and pursue our business strategies. We expect to raise or
obtain additional capital through the sale of securities and through the
exercise of outstanding stock warrants. There can be no assurance that
additional funds will be available. If adequate funds are not available, there
will be a material adverse effect on our business, financial conditions and
development strategies.
DESCRIPTION OF BUSINESS
Image Technology Laboratories is a developmental stage company which has
entered the medical image management segment of the healthcare information
systems market. We were incorporated in Delaware on December 5, 1997. Image
Technology is developing 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, or CT scans,
- magnetic resonance imaging, or MRIs,
- ultrasound, nuclear imaging,
- and digital fluoroscopy.
Dr. Ryon initially conceived Image Technology's picture archiving and
communications , which we call ITLPACS, in 1995 for the purpose of
electronically integrating all the diagnostic images and imaging modalities used
at the Kingston Diagnostic Center in Kingston, New York. His goal was to
implement a PACS system at the Center and then to create a wide area network to
provide over-reading services in the five hospital locations in the region. When
he discovered that no commercial vendor at the time had a product which could
provide a solution which met all of the Center's needs, Dr. Ryon assembled a
team to design a better 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 decided to form a company to commercialize their
novel PACS design based on market research which indicated a growing demand for
PACS in general and an unmet need for a PACS such as the prototype the founders
had designed. Image Technology is installing a beta-version of the ITLPACS at
the Center. Image Technology plans to initiate marketing the ITLPACS to
hospitals beginning in the Northeast United States in the fiscal fourth quarter
of 2000 after rollout at the Radiological Society of North America meeting in
November 2000. The ITLPACS will be manufactured, installed and serviced by Image
Technology. We estimate that 80% of the product development has been
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<PAGE>
completed. The specification and system design are finished leaving
approximately two-thirds of the actual hard coding and the bench testing yet to
be performed, which represents less than 20% of overall product development.
Products
Image Technology's lead product is ITLPACS, a unique and proprietary
version of a PACS software system. The ITLPACS features a unique and proprietary
modular architecture which permits the system to be readily scaled and easily
upgraded. We believe that this will allow us to provide products tailored to the
size of our customers and to keep our customers at the forefront of future
technological advances by enabling us to easily update existing systems. Other
special features of the ITLPACS include:
- automation of the total work flow,
- integration of patient data with digital images,
- a unique, radiologist designed user interface,
- quality review programs which analyze productivity and diagnostic
accuracy of individual radiologists or entire radiology centers,
and
- use of Windows NT as the network operating system.
Image Technology has also designed a proprietary display terminal
interface which permits the simultaneous viewing of multiple diagnostic images
together with relevant patient data for the purpose of replicating the viewing
technique used by radiologists using traditional view boxes for the display of
multiple images. Research has shown that simultaneous image display improves the
speed and accuracy of diagnostic interpretation. This terminal interface
consists of software integrated into ITLPACS which may be used with any terminal
hardware. Image Technology is considering developing proprietary terminal
hardware based on modifications to currently marketed products on a custom order
basis. This product would maximize the capabilities of Image Technology's
software terminal interface by allowing simultaneous viewing of up to 200 images
through the integration of the screen output of eight or more monitors.
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, CT scans,
and MRIs. 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.
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<PAGE>
ITLPACS represents an alternative configuration model which has been
designed to provide a unique solution to many of the disadvantages of both
hyperPACS and miniPACS configurations of other companies. The architecture used
in ITLPACS is built on a foundation of innovative intelligent algorithms. These
algorithms reduce the network bandwidth and on-line storage requirements of the
Image Technology system; the two most important factors in the cost associated
with building the system. Consequently, we hope that through ITLPACS we can
acquire a significant share of the U.S. market for PACS. By making full use of
the networking database management infrastructure of Windows NT, Image
Technology has leveraged recent advances in operating system design, software
development, and networking tools to produce a product which offers greater
functional capability at lower costs through scalable system architecture. Its
truly modular architecture permits capability to be distributed incrementally,
so a client can start with one piece of hardware which operates as a server,
viewer and capture station, then expand the system by distributing those
capabilities among multiple PC's. Hardware and software can be sized exactly to
client needs. This enables Image Technology to offer the lowest possible entry
point purchase price for a PACS system. In addition, ITLPACS offers capabilities
not found on even the most expensive PACS, including a unique graphical
interface.
Business Strategy
We hope to complete product development of ITLPACS by the fiscal third
quarter of 2000 in order to begin northeast marketing after introduction of the
product at the November Radiological Society of North America meeting. Our goal
is to become revenue producing at the earliest opportunity after FDA approval
which we expect shortly after product introduction in November. At present, we
are focusing our 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
meeting in November of 2000. Product sales will be made in the form of:
- software licenses agreements,
- installation service agreements,
- and continuing services and support agreements.
For the next two years, Image Technology expects to remain focused on
developing additional capabilities and enhancing ITLPACS, maximizing sales of
this product in the United States, and providing continuing customer service and
product upgrades.
Markets and Marketing Plan
February 1998 market research by Frost & Sullivan shows that the market
for PACS is growing rapidly and that the worldwide sales are increasing from 30%
to 155% per year. Frost & Sullivan estimates put the worldwide market at $1.1
billion annually by 2001, although concerns over Year 2000 related problems have
blunted market growth. According to Frost & Sullivan data, the United States
presently
25
<PAGE>
accounts for 60% of such sales. They further estimate that PACS have been
installed in less than 12% of radiology centers in the U.S. although that number
is expected to grow to between 28% and 40% by 2002.
Image Technology 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. Image Technology plans to market a fourth
generation medical information management system which we believe is more open,
usable and scalable than any currently available product. We plan to market
ITLPACS through an in-house sales force supported by product advertising and
promotion at industry trade shows, including the November 2000 meeting of the
Radiological Society of North America. We will offer the product at a price
point which is well within the reach of even the smallest hospital or imaging
facility. We believe that we can offer systems with superior price/performance
characteristics because of their unique, proprietary architecture. Assuming
profitable regional sales, we intend to expand our sales force to market ITLPACS
throughout the United States. We plan to distribute our PACS products via three
channels:
- OEM relationships,
- partnerships, and
- direct distribution through our 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.
We plan to pursue relationships with a large company whose in-house marketing,
sales and support resources can be leveraged to propel Image Technology's
products into national and international markets.
Partnerships: We have identified several companies whose interests are
complementary with our goals. Image Technology will pursue mutually advantageous
partnerships with firms which can provide access to markets, technology or
service and support. We have begun discussions with a large firm which 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 Image
Technology's products. We feel that such an arrangement will give Image
Technology immediate access to a large and geographically dispersed customer
base.
Direct Distribution: We will maintain an in-house sales and marketing staff to
provide direct sales locally and nationally. They will advertise the product
through trade shows, print advertisements and through our site on the Web. Image
Technology will sell primarily to two target buyer groups; those who already
have a 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 we have secured a significant share of the PACS market, we intend to
apply the same tools to capture other vertical markets. We intend to sustain
growth through constant innovation.
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Image Technology will sell to customers a license to use the ITLPACS
software along with third party hardware preloaded with our proprietary
software, as a package, in order to eliminate the possibility of
incompatibilities. Image Technology eventually plans to sell third-party
hardware components, at a profit, to customers who wish to purchase system
hardware from Image Technology in conjunction with their purchase of an ITLPACS.
However, we, have no plan to institute hardware-only sales in conjunction with
the ITLPACS product launch and do not believe that supplying the hardware needs
of our software customers is necessary to the competitive success of ITLPACS.
Competition and Competitive Advantage
Image Technology will compete with a variety of companies in the United
States and abroad which 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 predominant 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. Image Technology, 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.
In the last two years, the PACS industry has experienced a significant
degree of consolidation. 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 vendors' products. Already, they have captured a
significant portion of the military defense information network PACS contracts,
with awards totaling approximately $32.3 million.
We believe 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
We believe that such drawbacks account in part for the fact that none of
our competitors have been able to capture more than 30% of the market in recent
years.
Protection of Proprietary Technology
Our ability to market a competitive PACS product depends in part on our
success in protecting our proprietary interest in the ITLPACS software so that
competitors cannot duplicate its innovative design. The
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<PAGE>
principal forms of protection available for software such as ITLPACS are
copyright laws and common law trade secret protection. Image Technology has
secured from its founders an assignment of all their rights and titles to the
ITLPACS software developed prior to Image Technology's incorporation and
therefore, believes it owns the full rights to copyright 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-competition which continue for
a period of two years from termination of his employment. Image Technology plans
to require substantially similar obligations from all key employees hired in the
future. By licensing rather than selling our software, we expect to retain
maximum trade secret protection for our product technology. However, there can
be no assurance that all elements of our software are sufficiently original to
qualify for copyright protection or that we will be successful in preventing the
unauthorized disclosure of our trade secrets. As a result, we may face
competition from sales of products which are substantially similar to our own
from which we will not benefit or we may not be entirely able to prevent such
sales even though we may have the right to sue a person who makes unauthorized
disclosure of our trade secrets.
We plan to pursue patent protection to the limited extent that patent
protection is available and advisable for any element of our products. Patent
protection may be available for certain aspects of our terminal interface
technology and for certain limited components of our software, including certain
proprietary algorithms developed for use in ITLPACS. We have not yet retained
any intellectual property counsel or filed any application for the protection of
our intellectual property.
Product Approval Process
ITLPACS is regulated as a medical device under the Food and Drug Act
administered by the FDA. Image Technology 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 Pre-Market Approval, or PMA,
application or by filing a pre-market notification under the Food and Drug Act.
The PMA process can take up to six months or more and require the expenditure of
substantial resources. The pre-market notification process is available for
products substantially equivalent to previously approved products and typically
takes considerably less time than the PMA process. If the FDA deems our products
substantially equivalent in intended use and technical characteristics to
similar devices which have been previously approved by the FDA, marketing
clearance can be obtained for the ITLPACS on an expedited basis. There can be no
guarantee, however, that the FDA will not require us to submit a PMA for
ITLPACS.
Obtaining FDA marketing authorization for ITLPACS under either procedure
will depend upon our 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 Image
Technology. To assure compliance with these requirements, we intend to hire a
person experienced in FDA product approval audits, documentation management and
regulatory compliance requirements for software. FDA approval will not be needed
for operation at the Kingston Diagnostic Center as a beta site since it will
operate in parallel with existing standard radiology procedures. Assuming
successful completion and installation of ITLPACS at Kingston, Image Technology
intends to file for FDA marketing authorization during the fiscal fourth quarter
of 2000. To the extent permitted by law, we intend to demonstrate ITLPACS at
trade shows prior to obtaining marketing approval.
Although Image Technology is aware that there is an international market
for products such as ITLPACS, we have no present plans to market ITLPACS in
other countries, largely due to limited resources.
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<PAGE>
However, should we decide to market ITLPACS in other countries, we would have to
comply with the laws of, and meet the applicable regulatory procedures and
standards in each jurisdiction in which we sought to market our products.
Approval in one jurisdiction does not assure approval in another as the various
federal, state, and local regulatory authorities are independent of each other.
Image Technology 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 our 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. Image Technology
currently has no product approved for marketing in the United States or
elsewhere.
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" on page 10.
Manufacturing
We do not expect to have any manufacturing operations for hardware or
software. We expect to be able to produce sufficient copies of ITLPACS software
for licenses using the software duplication capabilities of our beta site
equipment. In the unlikely event that demand for copies of ITLPACS exceeds our
capacity to produce them, we believe that we could quickly and inexpensively
obtain copies from a computer service bureau in our area. Any hardware we sell
will be purchased fully assembled from the original equipment manufacturer. We
intend to contract with third parties for any required customization of hardware
supplied to our customers.
Insurance
Prior to product launch, we intend to obtain product liability insurance
coverage for claims arising from the use of ITLPACS if this is available on
reasonable terms. We risk exposure to product liability claims if the use of our
products is alleged to have caused harm to a patient. The claims might be made
directly by patients or by medical organizations and medical personnel who face
liability for care rendered in conjunction with the use of our products. There
can be no assurance that the coverage obtained will be adequate to cover claims.
Product liability insurance is becoming increasingly expensive. We may have
problems:
- maintaining such insurance,
- obtaining additional insurance,
- obtaining additional insurance at a reasonable cost, or
- obtaining additional insurance in sufficient amounts to protect
against losses which individually or in the aggregate could have a
material adverse effect on our business.
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Under the terms of our executive employment agreements we are obligated to
maintain term life insurance for the benefit of Drs. Ryon, and 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.
Material Contracts
In order to complete development of the ITLPACS while minimizing capital
outlays, we have leased access to a sophisticated state-of-the-art computer
hardware system containing the full complement of the equipment which the
ITLPACS is intended to run on. We have access to this system under the terms of
a facility usage and equipment lease agreement with Rockland Radiology Group,
P.C., or Rockland, a privately-owned radiology facility operated by Kingston
Diagnostic Radiology, P.C., which is wholly owned by Dr. Ryon.
The agreement gives us the right to use approximately 450 square feet of
office space in the Center for access to Kingston's computer system and other
purposes during normal business hours for so long as the agreement remains in
effect. The new owners of the Center have agreed to permit Image Technology to
use the Center as a beta test-site and product demonstration site in the fiscal
third quarter of 2000. We believe our need for office space will remain modest,
even when we are fully staffed for 2000, due to the fact that most employees are
expected to telecommute. Therefore we believe that we could replace our existing
space in the Center quickly and inexpensively with no material impact on our
business in the unlikely event of early termination of the agreement. The
agreement has been approved by all the disinterested directors of Image
Technology due to the potential for conflict of interest in relation to Dr.
Ryon's ownership of Kingston and his obligations to use the leased equipment
pursuant to the agreement.
Through Dr. Ryon, Image Technology has access to Kingston's state-of-the
art computer system in return for a license to use the ITLPACS software in
Kingston's practice. If Image Technology were unable to access Kingston's
equipment, Image Technology estimates that it would have to purchase or
otherwise acquire access to approximately $400,000 of comparable equipment in
order to complete product development.
The Board of Directors considers the facility usage and equipment lease
agreement to be on terms at least as favorable as could be obtained through
arm's length bargaining with a disinterested third party.
Employees
We presently have one full time employee, Dr. Phelps. Mr. Edwards has
committed to devoting substantially all of his time to Image Technology upon
completion of this offering.
Facilities
Image Technology's principal executive office currently occupies
approximately 450 square feet of leased space located at 167 Schwenk Drive,
Kingston, NY 12401. Image Technology's telephone number is (914) 338-3366 and
its facsimile number is (914)338-8880 .
Image Technology believes that its current facilities will meet Image
Technology's office needs until the closing of this offering, and that suitable
facilities will be available when, and if needed, to accommodate Image
Technology's future operations.
Legal Proceedings
We are aware of no legal proceedings against Image Technology.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of May 15, 2000 are as
follows:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
David Ryon 55 Director and Chairman of the Board of Directors,
President and Chief Executive Officer
Carlton T. Phelps 45 Director, Vice President of Finance and
Administration, Chief Financial Officer, Secretary
and Treasurer
Lewis M. Edwards 44 Director, Vice President of Research and
Development, Chief Technical Officer
</TABLE>
All directors of Image Technology hold office until the next annual meeting
of shareholders or until their successors are elected and qualified. At present,
Image Technology's Bylaws provide for not less than one director nor more than
fifteen. Currently, there are three directors of Image Technology. The Bylaws
permit the Board of Directors to fill any vacancy and such director may serve
until the next annual meting of shareholders or until his successor is elected
and qualified. Officers serve at the discretion of the Board of Directors. There
are no family relationships among any officers or directors of Image Technology.
DAVID RYON, MD, is a founder and principal stockholder of Image Technology
and a co-developer of ITLPACS. He was appointed to the Board of Directors and
appointed to serve as Image Technology's President and Chief Executive Officer
in December 1997. Dr. Ryon is the founder of the Kingston Diagnostic Center in
Kingston, New York. Dr. Ryon operated the Kingston Diagnostic Center as a sole
proprietor from its inception in 1992 until the sale of the business to Rockland
Radiological Group, P.C. in 1997. Dr. Ryon worked as a radiologist at the
Kingston Hospital for five years before founding the Center. Dr. Ryon graduated
as an M.D. cum laude from Albany Medical College in 1975 and served residencies
in surgery and radiology at Albany Center Hospital. Among other post-graduate
specialties, Dr. Ryon also trained as an Emergency Physician. Prior to becoming
a physician, Dr. Ryon earned a B.S. in physics with high honors and an M.S. in
engineering at the University of Rochester. He worked as an engineer in the
medical systems division at General Electric after graduation where he gained
experience in the patent process.
CARLTON T. PHELPS, M.D. is a founder and principal stockholder of Image
Technology and a co-developer of ITLPACS. He was appointed to the Board of
Directors and appointed by the Board to serve as Image Technology's
Vice-President of Finance and Administration, Chief Financial Officer,
Secretary, and
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Treasurer in December 1997. Dr. Phelps was Chief of Radiology at the Kingston
Hospital where he served since May 1999. He is now employed full time by Image
Technology. From 1996 to 1999 Dr. Phelps was employed by Kingston Diagnostic
Radiology, P.C. 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 years. Dr. Phelps graduated
with an M.D. from the University of Vermont in 1980 and received his B.A. from
Harvard University in 1976. He earned an executive MBA degree at Rensselear
Polytechnic Institute in 1999.
LEWIS M. EDWARDS is a founder and principal stockholder of Image Technology
and a co-developer of ITLPACS. He was appointed to the Board of Directors and
elected by the Board to serve as Image Technology's Vice President of Research
and Development and Chief Technical Officer in December 1997. Mr. Edwards has
served as a senior technical staff member at IBM since 1993. 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.
He is a member of the IEEE and ACM professional societies and a charter member
of the Microsoft Developer Network. He has provided computer-consulting services
to Boeing, General Motors, Chrysler, Ford and the Federal government's FAA and
ATC teams. He holds a BSEE magna cum laude from Princeton University and an MSCE
from Syracuse University.
Conflicts of Interest
Management of Image Technology has other financial and business interest to
which a significant amount of time is devoted that may pose certain inherent
conflicts of interest. Image Technology has entered into employment agreement
with Drs. Ryon and Phelps and Mr. Edwards. Dr. Phelps has joined, and Mr.
Edwards has committed to joining, Image Technology on a full time basis upon
completion of this offering. There can be no assurance that management will
resolve all conflicts of interest in favor of Image Technology. Failure of
management to conduct Image Technology's business in its best interest may
result in liability of the management to Image Technology.
Limitation on Liability of Directors
As permitted by Delaware law, Image Technology's Certificate of Incorporation
includes a provision which provides that a director of Image Technology shall
not be personally liable to Image Technology or its stockholders for monetary
damages for a breach of fiduciary duty as a director, except (i) for any breach
of the director's duty of loyalty to Image Technology or its stockholders, (ii)
under Section 174 of the General Corporation Law of the State of Delaware, which
prohibits the unlawful payment of dividends or the unlawful repurchase or
redemption of stock, or (iii) for any transaction from which the director
derives an improper personal benefit. This provision is intended to afford
directors protection against and to limit their potential liability for monetary
damages resulting from suits alleging a breach of duty of care by a director. As
a consequence of this provision, stockholders of Image Technology will be unable
to recover monetary damages
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<PAGE>
against directors for action taken by them which may constitute negligence or
gross negligence in performance of their duties unless such conduct falls within
one of the foregoing exceptions . The provision, however, does not alter the
applicable standards governing a director's fiduciary duty and does not
eliminate or limit the right of Image Technology or any stockholder to obtain an
injunction or any other type of non-monetary relief in the event of a breach of
fiduciary duty. Image Technology believes this provision will assist in securing
and retaining qualified persons to serve as directors.
EXECUTIVE COMPENSATION
Image Technology has not paid any compensation to its executive officers from
its inception through December 31, 1999.
EMPLOYMENT AGREEMENTS
On December 21, 1999, Image Technology entered into three-year employment
agreements which became effective on January 1, 2000, with each of our three
founders, David Ryon, Carlton T. Phelps and Lewis M. Edwards in an effort to
ensure Image Technology of the continued employment of each officer in his
current executive position with Image Technology.
David Ryon was engaged as President and Chief Executive Officer of Image
Technology, Carlton T. Phelps was engaged as Vice President, Chief Financial
Officer, Secretary and Treasurer and Lewis M. Edwards was engaged as Vice
President and Chief Technical Officer. Each has been signed to a three year
contract which provides them with the following:
o a minimum annual base salary of $150,000 payable in regular equal
installments in accordance with our general payroll practices.
o an annual performance bonus at the end of each calendar year as determined
in good faith by the Board based upon its annually established goals.
o participation in all retirement plans, health and other group insurance
programs, stock option plans and other fringe benefit plans which we may
now or hereafter in the Board of Directors' discretion make available
generally to its executives or employees.
o term life insurance in the amount of $300,000, short-term and long-term
disability insurance in the amount of not less than 60% of base salary,
unless such insurance is not available at commercially reasonable rates.
o an automobile for business use in accordance with Image Technology's
standard policy for senior executive officers.
STOCK OPTION PLAN
In January 1998, Image Technology's stockholders ratified Image Technology's
Stock Option Plan (the "Plan") whereby options for the purchase of up to
5,000,000 shares of Image Technology's common stock
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<PAGE>
may be granted to key personnel in the form of incentive stock options and
nonstatutory stock options, as defined under the Internal Revenue Code. Key
personnel eligible for these awards include our employees, consultants and
nonemployee directors. Under the Plan, the exercise price of all options must be
at least 100% of the fair market value of our common shares on the date of
grant. The exercise price of an incentive stock option granted to an optionee
that holds more than ten percent of the combined voting power of all classes of
stock of Image Technology must be at least 110% of the fair market value on the
date of grant. The maximum term of any stock option granted may not exceed ten
years from the date of grant and generally vest over three years.
On January 1, 2000, we granted options under the plan to David Ryon, Carlton
T. Phelps and Lewis M. Edwards, our three founders, for the purchase of a total
of 3,000,000 shares of its common stock at $.33 per share, approximately 110% of
the fair market value on the date of grant, which are exercisable through
December 31, 2009.
No options were granted or exercised prior to January 1, 2000.
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<PAGE>
PRINCIPAL AND SELLING SECURITY HOLDERS
The shares of common stock may be offered and sold from time to time by the
shareholders or by their transferees, pledgees, donees or their successors
pursuant to this prospectus. The following table sets forth certain information
about the selling shareholders. Except as otherwise provided, none of the
selling shareholders has, or within the past three years has had, any position,
office or other material relationship with Image Technology or any of its
predecessors or affiliates. Because some of the selling shareholders may offer
all or some portion of the shares pursuant to this Prospectus, no estimate can
be given as to the number of shares of common stock which will be held by the
selling shareholders upon termination of any such sales.
In addition, the table sets forth certain information concerning the
beneficial ownership of our common stock as of the date of this prospectus, by
(i) each person known by us to be the beneficial owner of more than 5% of our
common stock, (ii) each of our named executive officers, (iii) each of our
directors, and (iv) all directors and executive officers as a group. Unless
otherwise indicated, each of the stockholders has sole voting and investment
power with respect to the shares beneficially owned.
Security Ownership of Management
<TABLE>
<CAPTION>
Name, Title and Address Title of Class Shares Beneficially Shares Beneficially
----------------------- --------------
of beneficial owners Owned Prior to Offering Owned After Offering
-------------------- ----------------------- --------------------
Number Percent Number Percent
<S> <C> <C> <C> <C> <C>
David Ryon, M.D. Common Stock 2,429,584 29 % 2,429,584 21.33 %
CEO, President
and Director Preferred Stock 500,000 33.33 % 500,000 33.33 %
167 Schwenk Drive
Kingston, New York
12401
Carlton T. Phelps, M.D. Common Stock 2,429,583 29% 2,429,583 21.33 %
CFO, Secretary, Treasurer
and Director Preferred Stock 500,000 33.33% 500,000 33.33 %
167 Schwenk Drive
Kingston, New York
12401
Lewis M. Edward Common Stock 2,429,583 29% 2,429,583 21.33 %
Chief Technical Officer
and Director Preferred Stock 500,000 33.33% 500,000 33.33 %
167 Schwenk Drive
Kingston, New York
12401
All officers and directors Common Stock 7,288,750 87% 7,288,750 64%
as a group Preferred Stock 1,500,000 100% 1,500,000 100%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SELLING STOCKHOLDERS
Name and Address Common Shares Number Common Shares
---------------- Beneficially of Beneficially
Owned Prior to shares Owned After Offering
Offering (1) offered --------------------
-------------- -------
Number Percent Number Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Gary Povill 20,000 * 20,000 0 0
Jose Sotolongo 20,000 * 20,000 0 0
Lewis E. Whitten 14,000 * 14,000 0 0
Allen McDowell 50,000 * 50,000 0 0
Kimberly Bruno 50,000 * 50,000 0 0
Thomas & Deborah Stellato 30,000 * 30,000 0 0
Stephen Hermele 33,333 * 33,333 0 0
Mary Whitten 14,000 * 14,000 0 0
Ruth Smith 10,000 * 10,000 0 0
Calhoun Smith 10,000 * 10,000 0 0
Todd Richard Norell 30,000 * 30,000 0 0
John Norell 30,000 * 30,000 0 0
David Norell 30,000 * 30,000 0 0
Richard V. Norell 30,000 * 30,000 0 0
Helga Christiansen 10,000 * 10,000 0 0
Brian Flynn 20,000 * 20,000 0 0
Patricia Fahey 20,000 * 20,000 0 0
Whitten Family Trust 20,000 * 20,000 0 0
Charles Segal 66,666 * 66,666 0 0
Alexander Varga 50,000 * 50,000 0 0
Rose Whitten 20,000 * 20,000 0 0
Stanley Whitten 20,000 * 20,000 0 0
William Poppe 20,000 * 20,000 0 0
Balallan Limited 66,666 * 66,666 0 0
RNR 1999 Trust 66,666 * 66,666 0 0
First York Partners, Inc. 66,666 * 66,666 0 0
Patricia A. Meding 66,666 * 66,666 0 0
Forte Communications, Inc. 66,666 * 66,666 0 0
Marketview Financial Group, 66,666 * 66,666 0 0
Inc.
Clara Chudow 20,000 * 20,000 0 0
Joseph Popolo 34,000 * 34,000 0 0
Jacquelyn and Charles Measure 106,000 1.3% 106,000 0 0
Alfred Frontera 33,333 * 33,333 0 0
Leslie & Phyllis Whitten 20,000 * 20,000 0 0
Cosmas Skaife 14,000 * 14,000 0 0
Robert Ricken 10,000 * 10,000 0 0
Richard J. Goldman 10,000 * 10,000 0 0
Blue Creek Ventures, LLC 233,333 2.8% 233,333 0 0
Barry & Kathleen Herbert 10,000 * 10,000 0 0
Bonnie St. John 20,000 * 20,000 0 0
Amy Pappa 34,000 * 34,000 0 0
Lauren Suzanne Measure 13,400 * 13,400 0 0
Jill Measure 13,400 * 13,400 0 0
Michael Lang 10,000 * 10,000 0 0
Robert Oakes 250,000 2.9% 250,000 0 0
Bondy & Schloss LLP 250,000 3.0% 250,000 0 0
* Indicates less than 1%.
</TABLE>
(1) Fifty percent of each reported number represents warrants to purchase shares
of common stock exercisable within sixty days of the date of this
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<PAGE>
prospectus, except with respect to Robert Oakes as to whom the entire 250,000
reported represents warrants to purchase shares of common stock exercisable
within sixty days of the date of this prospectus and Bondy & Schloss LLP as to
which the entire 250,000 reported represents shares of common stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Kingston Diagnostic Radiology, P.C., or Kingston, which is wholly owned by
Dr. Ryon, leases the use of its equipment to Image Technology on a non-exclusive
basis in exchange for a limited license to use ITLPACS at the Center. We are
party to a facility usage and equipment lease agreement with Rockland Radiology
Group, P.C., or Rockland, a privately-owned radiology facility operated by
Kingston. Mid-Rockland Imaging, the new owners of the Center have agreed to
allow the use of the Center as a demonstration site. Through Dr. Ryon, Image
Technology has access to Kingston's state-of-the art computer system in return
for a license to use the ITLPACS software in Kingston's practice. If Image
Technology were unable to access Kingston's equipment, Image Technology
estimates that it would have to purchase or otherwise acquire access to
approximately $400,000 of comparable equipment in order to complete product
development. We believe that the terms of these agreements are at least as
favorable to us as any terms we could have obtained from arms-length
negotiations with unrelated third parties.
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 50,000,000 shares of common stock
and 5,000,000 shares of preferred stock. As of May 15, 2000, there were
outstanding 8,338,750 shares of common stock and 1,500,000 shares of preferred
stock.
Common Stock
Holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Holders of the common
stock do not have cumulative voting rights, and therefore the holders of a
majority of the shares of common stock voting for the election of directors may
elect all of our directors standing for election. Subject to preferences which
may be applicable to the holders of any outstanding shares of preferred stock,
the holders of common stock are entitled to receive such lawful dividends as may
be declared by the Board of Directors. In the event of a liquidation,
dissolution or winding up of the affairs of Image Technology, whether voluntary
or involuntary, and subject to the rights of the holders of any outstanding
shares of preferred stock, the holders of shares of common stock shall be
entitled to receive pro rata all of our remaining assets available for
distribution to our stockholders. The common stock has no preemptive,
redemption, conversion or subscription rights. All outstanding shares of common
stock are, and the shares of common stock to be issued pursuant to this offering
will be, fully paid and non-assessable. The issuance of common stock or of
rights to purchase common stock could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, a majority of our outstanding voting stock.
Preferred Stock
The Board of Directors is authorized, subject to limitations prescribed by
Delaware law, to provide for the issuance of preferred stock in one or more
series, to establish from time to time the number of shares to be included in
each such series, to fix the voting powers, designations, preferences and
rights, and the restrictions
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<PAGE>
of those preferences and rights, of the shares of each such series and to
increase, but not above the total number of authorized shares of preferred
stock, or decrease, but not below the number of shares of such series then
outstanding, the number of shares of any such series without further vote or
action by the stockholders. The board is authorized to issue preferred stock
with voting, conversion, and other rights and preferences which could adversely
affect the voting power or other rights of the holders of common stock. On
January 7, 2000 we issued 1,500,000 shares of preferred stock to our three
founders in connection with the commencement of their employment contracts on
January 1, 2000. The preferred shares have rights to dividends, rights with
respect to liquidation and other rights equivalent to those of holders of our
common stock.
Warrants
Each Investor Warrant entitles the holder to purchase one share of common
stock at an exercise price of $0.50 per share. Unless previously redeemed, the
Investor Warrants are exercisable at any time commencing on the date of this
prospectus for a period of one year. The Investor Warrants included in the units
offered hereby are transferable separately from the common stock. The Investor
Warrants are subject to redemption by Image Technology at $.05 per warrant if
the common stock closing bid price exceeds $2.00 for 10 consecutive trading days
ending within 15 days of the date as of which the notice of redemption is given.
Holders of the Investor Warrants will automatically forfeit their rights to
purchase the shares of common stock issuable under such warrants unless the
warrants are exercised before the close of business on the business day
immediately prior to the date set for redemption. All of the outstanding
warrants of a class must be redeemed if any of that class are redeemed. A notice
of redemption shall be mailed to each registered holder of Investor Warrants by
first class mail, postage prepaid, upon 30 days' notice before the date fixed
for redemption. The notice of redemption shall specify the redemption price, the
date fixed for redemption, the place where the Warrant certificates shall be
delivered and the redemption price to be paid, and that the right to exercise
the Investor Warrants shall terminate at 5:00 p.m., New York City time, on the
business day immediately preceding the date fixed for redemption.
The Investor Warrants may be exercised upon surrender of the certificate(s)
therefor on or prior to the expiration or the redemption date at the offices of
Image Technology's warrant agent with the subscription form on the reverse side
of the certificate(s) completed and executed as indicated, accomplished by
payment, in the form of a certified check payable to the order of Image
Technology Laboratories, Inc., of the full exercise price for the number of
Warrants being exercised.
The Investor Warrants contain provisions which protect the holders against
dilution by adjustment of the exercise price per share and the number of shares
issuable upon exercise upon the occurrence of certain events, including
issuances of common stock, or securities convertible, exchangeable or
exercisable into common stock, at less than market value, stock dividends, stock
splits, mergers, sale of substantially all of Image Technology's assets, and for
other extraordinary events; provided, however, that no such adjustment shall be
made upon, among other things (i) the issuance or exercise of options or other
securities under any stock option or other benefit plan offered to employee,
officers or directors of Image Technology, (ii) the sale or exercise of
outstanding options or warrants or the Investor Warrants offered by this
prospectus, or (iii) the conversion of shares of Image Technology's preferred
stock to common stock.
Image Technology is not required to issue fractional shares of common stock,
and instead will make a cash payment based upon the current market value of such
fractional shares. The holders of the Investor Warrants will not possess any
rights as shareholders of Image Technology unless and until such warrants have
been exercised for shares of common stock.
39
<PAGE>
Anti-takeover Effects of Provisions of Our Charter, Our By-laws and Delaware Law
Our charter and by-laws contain provisions which could discourage potential
takeover attempts and make more difficult the acquisition of a substantial block
of the common stock. Our charter authorizes the directors to issue, without
stockholder approval, shares of preferred stock in one or more series and to fix
the voting powers, designations, preferences and rights, and the restrictions of
those preferences and rights, of the shares of each such series. Our charter
provides that stockholders may act only at meetings of stockholders and not by
written consent in lieu of a stockholders' meeting. Our by-laws provide that
nominations for directors may not be made by stockholders at any annual or
special meeting thereof unless the stockholder intending to make a nomination
notifies us of its intentions a specified number of days in advance of the
meeting and furnishes to us information regarding itself and the intended
nominee. Our by-laws also provide that special meetings of our stockholders may
be called only by the President and must be called by the President or the
Secretary at the written request of a majority of the directors. Our by-laws
also require a stockholder to provide to our Secretary advance notice of
business to be brought by such stockholder before any stockholder meeting as
well as information regarding the stockholder and others known to support the
proposal and any material interest they may have in the proposed business. These
provisions could delay stockholder actions which are favored by the holders of a
majority of the outstanding stock until the next stockholders' meeting. These
provisions may also discourage another person or entity from making a tender
offer for our common stock, because the person or entity, even after acquiring a
majority of the outstanding stock, could only take action at a duly called
stockholders' meeting and not by written consent.
We are subject to Section 203 of the Delaware General Corporation Law which,
subject to certain exceptions, prohibits a Delaware corporation from engaging in
any business combination with any interested stockholder for a period of three
years following the date that such stockholder became an interested stockholder,
unless;
-prior to such date, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
-upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (a) by persons who are directors and
also officers and (b) by employee stock plans in which employee participants
do not have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer; or
-on or subsequent to such date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock which is not owned by the
interested stockholder. The application of Section 203 may limit the ability
of stockholders to approve a transaction which they may deem to be in their
best interests.
40
<PAGE>
Section 203 defines "business combination" to include (a) any merger or
consolidation involving the corporation and the interested stockholder; (b) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation to or with the interested stockholder; (c) subject to certain
exceptions, any transaction which results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (d)
any transaction involving the corporation which has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (e) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an "interested stockholder" as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person associated with, affiliated with,
controlling or controlled by such entity or person.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our charter provides that no director shall be personally liable to us or to
any stockholder for monetary damages arising out of such director's breach of
fiduciary duty, except to the extent that the elimination or limitation of
liability is not permitted by Delaware law. The Delaware law, as currently in
effect, permits charter provisions eliminating the liability of directors for
breach of fiduciary duty, except that such provisions do not eliminate or limit
the liability of directors for (a) any breach of the director's duty of loyalty
to a corporation or its stockholders, (b) any acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, (c)
any payment of a dividend or approval of a stock purchase which is illegal under
Section 174 of the Delaware General Corporation Law or (d) any transaction from
which the director derived an improper personal benefit. A principal effect of
this provision of our charter is to limit or eliminate the potential liability
of our directors for monetary damages arising from any breach of their duty of
care, unless the breach involves one of the four exceptions described in (a)
through (d) above.
Our charter and by-laws further provide for the indemnification of our
directors and officers to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law, including circumstances in which
indemnification is otherwise discretionary. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to our directors,
officers and controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the SEC that
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Continental Stock
Transfer & Trust Company.
PLAN OF DISTRIBUTION
Offering Will Be Sold By Our Founders
We are offering a minimum of 1,500,000 units, each unit consisting of one
share of our common stock and one warrant to purchase one share of our common
stock at an exercise price of $0.50 per share, on a "best efforts, all or none"
basis and a maximum of 3,000,000 units on a "best efforts" basis. The offering
price is $0.40 per unit. The offering shall terminate on the earlier of the sale
of all of the units offered or October 15, 2000, unless extended for an
additional ninety days in our sole discretion or unless earlier terminated by us
after the minimum amount has been sold.
41
<PAGE>
The minimum investment for each investor is 1,000 Units, or $400 . The
payment by each prospective investor of $0.40 per unit will be placed, together
with the payments of other prospective investors, in a non-interest bearing,
segregated escrow account with Bondy & Schloss LLP, as escrow agent, until the
subscription of such investor is accepted by Image Technology. Image Technology
reserves the right to reject any subscription in whole or in part. Subscriptions
for securities will be accepted or rejected within 48 hours after we receive
them. If at least 1,500,000 units have not been sold by October 15, 2000, which
date may be extended for up to an additional ninety days by Image Technology,
Bondy & Schloss LLP will return to each prospective investor the full amount of
his or her cash payment, without interest or deduction.
We will sell the shares we are offering through our founders, Drs. Ryon and
Phelps and Mr. Edwards, who are our officers and directors. The founders will
receive no commission from the sale of any shares. They will not register as a
broker-dealer pursuant to Section 15 of the Securities Exchange Act of 1934 in
reliance upon Rule 3a4-1. Rule 3a4-1 sets forth those conditions under which a
person associated with an issuer may participate in the offering of the issuer's
securities and not be deemed to be a broker-dealer. The conditions are that:
1. The person is not subject to a statutory disqualification, as that term
is defined in Section 3(a)(39) of the Act, at the time of his participation; and
2. The person is not compensated in connection with his participation by the
payment of commissions or other remuneration based either directly or indirectly
on transactions in securities; and
3. The person is not at the time of their participation, an associated
person of a broker-dealer; and
4. The person meets the conditions of Paragraph (a)(4)(ii) of Rule 3a4-1 of
the Exchange Act, in that he (A) primarily performs, or is intended primarily to
perform at the end of the offering, substantial duties for or on behalf of the
Issuer otherwise than in connection with transactions in securities; and (B) is
not a broker or dealer, or an associated person of a broker or dealer, within
the preceding twelve (12) months; and (C) does not participate in selling and
offering of securities for any Issuer more than once every twelve (12) months
other than in reliance on Paragraphs (a)(4)(i) or (a)(4)(iii).
Drs. Ryon and Phelps and Mr. Edwards are not subject to disqualification,
are not being compensated, and are not associated with a broker-dealer. They are
and will continue to be our officers and directors at the end of the offering
and, have not been during the last twelve months and are not currently, a
broker/dealer or associated with a broker/dealer. They have not during the last
twelve months, and will not in the next twelve months, offer or sell securities
for another corporation.
Only after our registration statement is declared effective by the SEC, do
we intend to advertise, through tombstones, and hold investment meetings in
various states where the offering will be registered. We will not utilize the
Internet to advertise our offering. We will also distribute the prospectus to
potential investors at the meetings and to our friends and relatives who are
interested in us and in a possible investment in the offering.
42
<PAGE>
Procedures for Subscribing
If you decide to subscribe for any shares in this offering, you must:
1. execute and deliver a subscription agreement
2. deliver a check or certified funds to us for acceptance or
rejection.
All checks for subscriptions must be made payable to "Bondy & Schloss LLP,
as Escrow Agent."
The shares offered by this prospectus on behalf of the selling
stockholders, who consist of the persons identified as offering shares under
"Principal and Selling Stockholders" above and those persons' pledgees, donees,
transferees or other successors in interest, may be sold from time to time by
the selling stockholders. The selling stockholders may sell the shares in the
over-the-counter markets or otherwise, at market prices or at negotiated prices.
They may sell shares by one or a combination of the following:
- a block trade in which a broker or dealer so engaged will attempt
to sell the shares as agent, but may position and resell a portion
of the block as principal to facilitate the transaction;
- purchases by a broker or dealer as principal and resale by the
broker or dealer for its account pursuant to this prospectus; and
- ordinary brokerage transactions and transactions in which a broker
solicits purchasers.
In effecting sales, brokers or dealers engaged by the selling stockholders
may arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from selling stockholders in amounts to be
negotiated prior to the sale. The selling stockholders and any broker-dealers
which participate in the distribution may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, and any proceeds or
commissions received by them, and any profits on the resale of shares sold by
broker-dealers, may be deemed to be underwriting discounts and commissions.
If any selling stockholder notifies us that a material arrangement has
been entered into with a broker-dealer for the sale of shares through a block
trade, special offering, exchange distribution or secondary distribution or a
purchase by a broker or dealer, we will file, a prospectus supplement, if
required pursuant to the Securities Act, setting forth:
- the name of each of the participating broker-dealers,
- the number of shares involved,
- the price at which the shares were sold,
43
<PAGE>
- the commissions paid or discounts or concessions allowed to the
broker-dealers, where applicable,
- a statement to the effect that the broker-dealers did not conduct
any investigation to verify the information set out or
incorporated by reference in this prospectus, and
- any other facts material to the transaction.
Image Technology will not receive any of the proceeds of shares sold by
the selling stockholders.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, assuming all of the shares are
purchased, Image Technology will have outstanding 11,338,750 shares of Common
Stock, assuming no exercise or conversion of any convertible debt, warrants or
options outstanding or offered in the units. Of these shares, only the 4,050,000
shares offered in this offering will be freely tradable without restriction,
except for restrictions imposed by certain state regulatory authorities, or
registration under the Securities Act, except that any shares purchased by an
"affiliate" of Image Technology, as defined in the rules and regulations
promulgated under the Securities Act, will be subject to the resale limitations
under Rule 144 under the Securities Act. The remaining 7,288,750 shares of
outstanding Common Stock were issued and sold by Image Technology in private
transactions in reliance upon exemptions from registration under the Act. Such
shares may be sold only pursuant to an effective registration statement filed by
Image Technology or an applicable exemption, including the exemption contained
in Rule 144 promulgated under the Act.
In general, under Rule 144 as currently in effect, a shareholder,
including an affiliate of Image Technology may sell shares of Common Stock after
at least one year has elapsed since such shares were acquired from Image
Technology or an affiliate of Image Technology. The number of shares of Common
Stock which may be sold within any three-month period is limited to the greater
of: (i) one percent of the then outstanding Common Stock or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144.
Certain other requirements of Rule 144 concerning availability of public
information, manner of sale and notice of sale must also be satisfied. In
addition, a shareholder who is not an affiliate of Image Technology (and who has
not been an affiliate of Image Technology for 90 days prior to the sale) and who
has beneficially owned shares acquired from Image Technology or an affiliate of
Image Technology for over two years may resell the shares of Common Stock
without compliance with the foregoing requirements under Rule 144.
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock, or the perception that such sales may
occur, could have a material adverse effect on prevailing market prices.
44
<PAGE>
LEGAL MATTERS
Bondy & Schloss LLP, New York, New York, has advised us with respect
to the validity of the securities offered by this prospectus. Bondy & Schloss
LLP owns 250,000 shares of common stock of the Company.
EXPERTS
The financial statements of Image Technology 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 included in this Prospectus have been
audited by J.H. Cohn LLP, independent public accountants, as stated in their
report appearing elsewhere herein, and have been so included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form SB-2 with the SEC for
our common stock offered hereby. This prospectus does not contain all of the
information set forth in the registration statement. You should refer to the
registration statement and its exhibits for additional information. Whenever we
make reference in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you should refer to
the exhibits attached to the registration statement or incorporated herein by
reference for the copies of the actual contract, agreement or other document.
Following this offering we will be required to file annual, quarterly and
special reports, proxy statements and other information with the SEC.
You can read our SEC filings, including the registration statement,
over the Internet at the SEC's Web site at HTTP://WWW.SEC.GOV. You may also read
and copy any document we file with the SEC at its public reference facilities at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and 7 World Trade
Center, Thirteenth Floor, New York, New York 10048. You may also obtain copies
of the documents at prescribed rates by writing to the Public Reference Section
of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference facilities.
45
<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
Condensed Balance Sheet
March 31, 2000 (Unaudited) F-13
Condensed Statements of Operations
Three Months Ended March 31, 2000 and 1999 and Period From
January 1, 1998 (Date of Inception) to March 31, 2000 (Unaudited) F-14
Condensed Statement of Stockholders' Equity
Three Months Ended March 31, 2000 (Unaudited) F-15
Condensed Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999 and Period From
January 1, 1998 (Date of Inception) to March 31, 2000 (Unaudited) F-16
Notes to Condensed Financial Statements (Unaudited) F-17/19
* * *
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 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; 50,000,000
shares authorized; 7,288,750 shares (as adjusted
for 389 for 1 stock split affected in January
2000) and 18,750 shares issued and outstanding 72,887 187
Additional paid-in capital (51,637) 21,063
Deficit accumulated in the development stage (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 share $ - $ - $ -
====== ======== =========
Basic weighted average 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>
Addi- Total
Common Stock tional Accum- Stock-
Number Paid-in ulated holders'
of 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
Adjustments for 389 for 1 stock
split affected in January 2000 7,270,000 72,700 (72,700)
--------- ------- --------- --------- ---------
Balance, December 31, 1999 as
adjusted 7,288,750 $72,887 $(51,637) $ (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 costs capitalized (2,186) (2,186)
-------- --------
Financing activities:
Proceeds from issuance of notes payable to
stockholders 5,100 5,100
Proceeds from issuance of common stock 21,250 21,250
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 January 1, 1998. The
Company is in the process of developing picture archiving and
communications software, known in the medical industry as "PACS,"
which will be used to input diagnostic images in digital format from
original imaging sources and to store, print and display those images.
Such software is used in the management of medical diagnostic images
by hospitals, health maintenance organizations, group medical
practices and individual radiologists to increase accuracy, reduce
costs and boost productivity.
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 and software development costs:
The costs of purchased software that is ready for use is
capitalized.
Pursuant to Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," and Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal
Use," 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"), which 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 share:
The Company presents "basic" earnings (loss) per share and, if
applicable, "diluted" earnings per share pursuant to the provisions
of Statement of Financial Accounting Standards No. 128, "Earnings
per Share" ("SFAS 128"). Basic earnings (loss) per share is
calculated by dividing net income or loss by the weighted average
number of shares outstanding during each period. The calculation of
diluted earnings per share is similar to that of basic earnings per
share, except that the denominator is increased to include the
number of additional shares that would have been outstanding if all
potentially dilutive shares, such as those issuable upon the
exercise of stock options, were issued during the period. The
Company did not have any potentially dilutive 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 share (concluded):
The 7,288,750 weighted average 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; 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 or will significantly affect the Company's financial accounting
measurements or disclosures at the time they become effective.
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 of units 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 stockholders:
The Company had notes payable to stockholders with a principal balance
of $5,100 at December 31, 1999 that were noninterest bearing and due
on demand.
Note 5 - Stockholders' equity:
As of December 31, 1999, the Company was authorized to issue up to
5,000,000 shares of preferred stock with a par value of $.01 per
share. No shares of preferred stock had been issued as of December 31,
1999. Under the Company's Articles of Incorporation, the Board of
Directors, within certain limitations and restrictions, can fix or
alter preferred stock dividend rights, dividend rates, conversion
rights, voting rights and terms of redemption including price and
liquidation preferences (see Note 10).
As of December 31, 1999, the Company was also authorized to issue up
to 50,000,000 shares of common stock with a par value of $.01 per
share. As of that date, it had issued 18,750 shares of common stock,
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, if not used, 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 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. The founders
provided significant services to the Company from its inception on
January 1, 1998 through December 31, 1999 for which they were not
compensated.
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. The numbers of shares and prices per
share in the accompanying financial statements and these notes have
been retroactively restated for the effects of the split.
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, including one vote 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 $60,000. 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>
Image Technology Laboratories, Inc.
(A Development Stage Company)
Condensed Balance Sheet
March 31, 2000
(Unaudited)
ASSETS
Current assets:
Cash $ 119,396
Prepaid professional fees 60,000
---------
Total current assets 179,396
Capitalized software costs 2,186
---------
Total $ 181,582
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued compensation payable to stockholders $ 112,500
Notes payable to stockholders 5,200
---------
Total liabilities 117,700
---------
Commitments
Stockholders' equity:
Preferred stock, par value $.01 per share; 5,000,000 shares
authorized; 1,500,000 shares issued 15,000
Common stock, par value $.01 per share; 50,000,000 shares
authorized; 8,338,750 shares issued and outstanding 83,387
Additional paid-in capital 627,863
Unearned compensation (412,500)
Deficit accumulated during the development stage (249,868)
---------
Total stockholders' equity 63,882
---------
Total $ 181,582
=========
See Notes to Condensed Financial Statements.
F-13
<PAGE>
Image Technology Laboratories, Inc.
(A Development Stage Company)
Condensed Statements of Operations
Three Months Ended March 31, 2000 and 1999
and Period From January 1, 1998
(Date of Inception) to March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
2000 1999 Cumulative
---- ---- ----------
<S> <C> <C> <C>
Revenues $ - $ - $ -
Research and development expenses 150,000 150,000
General and administrative expenses 80,728 112 99,868
--------- ------ ---------
Net loss $(230,728) $ (112) $(249,868)
========= ====== =========
Basic net loss per share $(.03) $ - $(.03)
===== ====== =====
Basic weighted average shares outstanding 9,207,340 7,288,750 7,348,550
========= ========= =========
</TABLE>
See Notes to Condensed Financial Statements.
F-14
<PAGE>
Image Technology Laboratories, Inc.
(A Development Stage Company)
Condensed Statement of Stockholders' Equity
Three Months Ended March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------------- -------------------- Addi- Total
Number Number tional Unearned Accumu- Stock-
of of Paid-in Compen- lated holders'
Shares Amount Shares Amount Capital sation Deficit Equity
--------- -------- ---------- ------ ----------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000 7,288,750 $72,887 $(51,637) $ (19,140) $ 2,110
Effects of issuance of pre-
ferred stock in exchange
for services 1,500,000 $15,000 435,000 $(450,000)
Effects of issuance of com-
mon stock in exchange
for services 250,000 2,500 72,500 75,000
Sales of units of common
stock and warrants
through private place-
ment, net of expenses
of $60,000 800,000 8,000 172,000 180,000
Amortization of unearned
compensation 37,500 37,500
Net loss (230,728) (230,728)
--------- ------- --------- ------- -------- --------- --------- --------
Balance, March 31, 2000 1,500,000 $15,000 8,338,750 $83,387 $627,863 $(412,500) $(249,868) $ 63,882
========= ======= ========= ======= ======== ========= ========= ========
</TABLE>
See Notes to Condensed Financial Statements.
F-15
<PAGE>
Image Technology Laboratories, Inc.
(A Development Stage Company)
Condensed Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999
and Period From January 1, 1998
(Date of Inception) to March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
2000 1999 Cumulative
----------- -------- ----------
<S> <C> <C> <C>
Operating activities:
Net loss $(230,728) $ (112) $(249,868)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization of unearned compensation 37,500 37,500
Common stock issued for services 75,000 75,000
Changes in operating assets and liabilities:
Prepaid professional fees (60,000) (60,000)
Accrued compensation payable to stockholders 112,500 112,500
---------- -------- ---------
Net cash used in operating activities (65,728) (112) (84,868)
---------- -------- ---------
Investing activities - software costs capitalized (2,186)
---------
Financing activities:
Proceeds from issuance of notes payable to
stockholders 100 5,200
Proceeds from issuance of common stock 21,250 21,250
Net proceeds from private placement of units
of common stock and warrants 185,000 185,000
Payments of deferred private placement costs (5,000)
---------- -------- ---------
Net cash provided by financing activities 185,100 21,250 206,450
---------- -------- ---------
Net increase in cash 119,372 21,138 119,396
Cash, beginning of period 24 - -
---------- -------- ---------
Cash, end of period $ 119,396 $ 21,138 $ 119,396
========= ======== =========
</TABLE>
See Notes to Condensed Financial Statements.
F-16
<PAGE>
Image Technology Laboratories, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
Note 1 - Unaudited interim financial statements:
In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial position
of Image Technology Laboratories, Inc. (the "Company") as of March 31,
2000, its results of operations and cash flows for the three months
ended March 31, 2000 and 1999 and the period from January 1, 1998
(date of inception) through March 31, 2000 and its changes in
stockholders' equity for the three months ended March 31, 2000.
Certain terms used herein are defined in the audited financial
statements of the Company as of December 31, 1999 and for the years
ended December 31, 1999 and 1998 (the "Audited Financial Statements")
included elsewhere herein. Pursuant to rules and regulations of the
Securities and Exchange Commission (the "SEC"), certain information
and disclosures normally included in the financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted from these financial statements unless
significant changes have taken place since the end of the most recent
fiscal year. Accordingly, the accompanying unaudited condensed
financial statements should be read in conjunction with the Audited
Financial Statements and the other information included elsewhere
herein.
The results of operations for the three months ended March 31, 2000
are not necessarily indicative of the results of operations for the
full year ending December 31, 2000.
Note 2 - Stock split:
On January 7, 2000, the Company affected a 389 for 1 split of its
outstanding common stock that had been approved by its Board of
Directors on December 23, 1999. The numbers of shares and prices per
share in the accompanying condensed financial statements and these
notes have been adjusted for the effects of the split.
Note 3 - Issuance of preferred and common stock:
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 Notes 9 and 10 in the
Audited Financial Statements). The preferred shares have rights to
dividends, rights with respect to liquidation and other rights
equivalent to those of holders of the Company's common stock,
including one vote for each share held on all matters to be voted on
by the Company's stockholders.
F-17
<PAGE>
Image Technology Laboratories, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
Note 3 - Issuance of preferred and common stock (concluded):
Since the rights of the Company's preferred and common stockholders
are substantially equivalent, the preferred shares were valued at $.30
per share based on the price of units of common stock and warrants
that the Company sold through the private placement that was completed
on February 4, 2000 (see Note 6 herein). The aggregate fair value of
the preferred shares of $450,000 has been recorded as unearned
compensation and reflected as a reduction of stockholders' equity, net
of accumulated amortization, in the accompanying unaudited condensed
balance sheet as of March 31, 2000. The unearned compensation is being
charged to the Company's results of operations over the terms of the
respective employment contracts.
During March 2000, the Company issued 250,000 shares of common stock
for the payment of legal services. The common shares and legal
services were valued at a total of $75,000, or $.30 per share based on
the price of units sold through the private placement that was
completed on February 4, 2000.
Note 4 - Earnings (loss) per share:
As further explained in Note 2 of the notes to the Audited Financial
Statements, the Company presents basic earnings (loss) per share and,
if appropriate, diluted earnings per share in accordance with the
provisions of Statement of Financial Accounting Standards No. 128,
"Earnings per Share."
As explained in Note 3 herein, the rights of the Company's preferred
and common stockholders are substantially equivalent. Accordingly the
Company has included the 1,500,000 preferred shares from the date of
their issuance in the weighted average number of shares outstanding in
the computation of basic loss per share for the three months ended
March 31, 2000.
Since the Company had a loss for the three months ended March 31,
2000, the assumed effects of the exercise of options and warrants
outstanding at March 31, 2000 would have been anti-dilutive. The
Company did not have any potentially dilutive shares outstanding
during the three months ended March 31, 1999. Therefore, no diluted
per share amounts have been presented in the accompanying condensed
statements of operations.
Note 5 - Income taxes:
As of March 31, 2000, the Company had net operating loss carryforwards
of approximately $250,000 available to reduce future Federal taxable
income which, if not used, will expire at various dates through 2020.
The Company had no other material temporary differences as of that
date. Due to the uncertainties related to, among other things, the
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 $100,000 from the utilization of those net operating
loss carryforwards by an equivalent valuation allowance as of March
31, 2000.
F-18
<PAGE>
Image Technology Laboratories, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
Note 5 - Income taxes (concluded):
The Company had also offset the potential benefits from net operating
loss carryforwards by equivalent valuation allowances during 1999.
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 a $92,400 increase in the valuation allowance for the
three months ended March 31, 2000 and an immaterial increase for the
three months ended March 31, 1999.
Note 6 - Private placement of units:
On February 4, 2000, the Company sold 800,000 units, at $.30 per unit,
pursuant to a private placement that was exempt from registration
under the Securities Act of 1933 and received proceeds of $240,000
before related estimated costs of $60,000. Each unit was comprised of
one share of common stock and one warrant. The Company also issued
250,000 warrants for the payment of fees for services received in
connection with the sale of the units. Each of the 1,050,000 warrants
issued in connection with the private placement 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. All of the warrants remained outstanding as of March 31,
2000.
Note 7 - Issuance of stock options:
On January 1, 2000, the Company granted options under its stock option
plan (see Note 8 in the Audited Financial Statements) 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. All of
the options remained outstanding as of March 31, 2000.
Note 8 - Proposed initial public offering:
The Company has filed a registration statement with the SEC related to
a proposed initial public offering of a minimum of 1,500,000 units, on
a best-efforts, all-or-none basis and an additional 1,500,000 units on
a best efforts basis. As proposed, each unit offered will consist of
one share of common stock and one warrant. Each warrant will give the
holder the right to purchase one share of common stock at the initial
exercise price of $.50 per share, expire one year from the date of
issuance and be redeemable by the Company at $.05 per warrant if the
closing bid price of the common stock exceeds $2.00 for ten
consecutive trading days. If the offering is consummated on the
proposed terms, management estimates that the Company will receive
proceeds net of related offering expenses of $475,000 if only
1,500,000 units are sold and $1,075,000 if all 3,000,000 units are
sold. Management expects that the proceeds will be used for working
capital and general corporate purposes.
* * *
F-19
<PAGE>
PART II
Item 24. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law affords a
Delaware corporation the power to indemnify its present and former directors and
officers under certain conditions. Article SEVENTH of the charter of Image
Technology provides that Image Technology shall indemnify each person who at any
time is, or shall have been, a director or officer of Image Technology, and is
threatened to be or is made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is, or was, a director or
officer of Image Technology, or is or was serving at the request of Image
Technology as a director, officer, employee, trustee, or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement incurred in connection with any such action, suit or proceeding to
the maximum extent permitted by the Delaware General Corporation Law.
Section 102(b)(7) of the Delaware General Corporation Law gives a
Delaware corporation the power to adopt a charter provision eliminating or
limiting the personal liability of directors to the corporation or its
stockholders for breach of fiduciary duty as directors, provided that such
provision may not eliminate or limit the liability of directors for (a) any
breach of the director's duty of loyalty to the corporation or its stockholders,
(b) any acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (c) any payment of a dividend or
approval of a stock purchase that is illegal under Section 174 of the Delaware
Corporation Law or (d) any transaction from which the director derived an
improper personal benefit. Article NINTH of Image Technology's charter provides
that to the maximum extent permitted by the Delaware General Corporation Law, no
director of Image Technology shall be personally liable to Image Technology or
to any of its stockholders for monetary damages arising out of such director's
breach of fiduciary duty as a director of Image Technology. No amendment to or
repeal of the provisions of Article NINTH shall apply to or have any effect of
the liability or the alleged liability of any director of Image Technology with
respect to any act or failure to act of such director occurring prior to such
amendment or repeal. A principal effect of such Article NINTH is to limit or
eliminate the potential liability of our directors for monetary damages arising
from breaches of their duty of care, unless the breach involves one of the four
exceptions described in (a) through (d) above.
Section 145 of the Delaware General Corporation Law also affords a
Delaware corporation the power to obtain insurance on behalf of its directors
and officers against liabilities incurred by them in those capacities. Image
Technology has procured a directors' and officers' liability and company
reimbursement liability insurance policy that (a) insures directors and officers
of Image Technology against losses (above a deductible amount) arising from
certain claims made against them by reason of certain acts done or attempted by
such directors or officers and (b) insures Image Technology against losses
(above a deductible amount) arising from any such claims, but only if Image
Technology is required or permitted to indemnify such directors or officers for
such losses under statutory or common law or under provisions of Image
Technology's charter or by-laws.
II-1
<PAGE>
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses to be paid by
Image Technology in connection with the issuance and distribution of the
securities being registered, other than sales commissions. All amounts shown are
estimates except for amounts of filing and listing fees.
Filing fee of SEC........................................ $ 935*
Accounting fees and expenses............................. 25,000
Legal fees and expenses.................................. 80,000
Printing and engraving expenses.......................... 12,000
Transfer Agent's fees.................................... 5,000
Miscellaneous............................................ 2,065
--------
Total.................................................... $125,000
========
* $729 of which has been paid previously upon initial filing.
Item 26. Recent Sales of Unregistered Securities
During the past three years, the Registrant has sold the securities
listed below pursuant to exemptions from registration under the Securities Act.
The information below is presented on a post-stock split basis.
In January 2000, Image Technology issued 500,000 shares of preferred stock
to each of its three founders in conjunction with the commencement of their
employment agreements.
During February 2000, Image Technology completed an offering of units,
each unit consisting of one share of common stock and one, one-year warrant to
purchase one share of common stock at an exercise price of $0.40 per share, for
an aggregate of 800,000 shares of common stock, to a limited number of
accredited investors. The sales were made in reliance upon exemptions from
registration provided under Section 4(2) of the 1933 Act and Rule 506 of
Regulation D. The purchasers of these units acquired these securities for their
own account and not with a view to any distribution thereof to the public.
During February 2000, Image Technology issued one-year warrants to
purchase 250,000 shares of common stock at an exercise price of $0.40 per share
to Robert Oakes in consideration for services rendered in reliance upon the
exemptions from registration provided under Section 4(2) of the 1933 Act.
During March 2000, Image Technology issued 250,000 shares of common stock
to Bondy & Schloss LLP in consideration for services rendered in reliance upon
the exemptions from registration provided under Section 4(2) of the 1933 Act.
II-2
<PAGE>
The issuances described above were made in reliance upon the exemptions
from registration set forth in Section 4(2) of the Securities Act relating to
sales by an issuer not involving any public offering. None of the foregoing
transactions involved a distribution or public offering. No underwriters were
engaged in connection with the foregoing issuances of securities, and no
underwriting commissions or discounts were paid.
Item 27. Exhibits
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------
<S> <C>
3.1 Certificate of Incorporation of Image Technology
3.2 Certificate of Amendment to Certificate of Incorporation
of Image Technology dated December 23, 1999
3.3 By-Laws of Image Technology
4.1 Specimen certificate for common stock of Image Technology
4.2 Specimen certificate for preferred stock of Image Technology
4.3 Form of Private Placement Warrant
4.4 Form of Investor Warrant
4.5 Form of Oakes Warrant
5.1* Opinion of Bondy & Schloss LLP
10.1 Image Technology 1998 Stock Option Plan
10.2 Stockholders Agreement dated January 16, 1998 among certain investors
and Image Technology
10.3 Form of Registration Rights Agreement dated February 2000
among certain stockholders of Image Technology and Image Technology
10.4 Assignment of Intellectual Property Agreement dated as of December 18,
1997 between Image Technology and David Ryon, M. D., Carlton T. Phelps, M. D.
and Lewis M. Edwards.
10.5 Form of Facility Usage and Equipment Lease Agreement by and between
Rockland Radiological Group, P.L.C. and Image Technology
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
dated January 12, 1998
10.6 Form of Employment Agreement dated December 21, 1999 between Image
Technology and David Ryon, M. D.
10.7 Form of Employment Agreement dated December 21, 1999 between Image
Technology and Carlton T. Phelps, M. D.
10.8 Form of Employment Agreement dated December 21, 1999 between Image
Technology and Lewis M. Edwards
23.1 Consent of J.H. Cohn LLP
23.2 Consent of Bondy & Schloss LLP (included in Exhibit 5.1)
24.1 Power of Attorney (contained on page II-5 of the
registration statement)
27.1 Financial Data Schedule for period ended March 31, 2000
</TABLE>
* To be filed by amendment
(b) FINANCIAL STATEMENT SCHEDULES
Report of Independent Accountants
All schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or the
related notes.
ITEM 28. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities,
a post-effective amendment to this Registration Statement to;
(i) Include any prospectus required by Section 10(a)(3) for
the Securities Act of 1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information set forth in the Registration Statement; and
(iii) Include any additional changed material information on
the plan of distribution.
II-4
<PAGE>
(2) For determining liability under the Securities Act, treat each
such post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be the initial BONA FIDE offering thereof.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(4) Provide to the transfer agent at the closing, certificates in
such denominations and registered in such names as are required by
the transfer agent to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
small business issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
as amended, the registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements of filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, in the
City of Kingston, State of New York on June , 2000.
IMAGE TECHNOLOGY LABORATORIES, INC.
By /s/David Ryon
--------------------------------------
David Ryon, MD,
CEO, President, Chairman of
the Board
By /s/Carlton T. Phelps
--------------------------------------
Carlton T. Phelps, M.D.
Chief Financial Officer,
Secretary, Treasurer and Director
By/s/ Lewis M. Edwards
--------------------------------------
Lewis M. Edwards
Chief Technical Officer and Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below constitutes and appoints David Ryon, as such person's
true and lawful attorneys-in-fact and agents, will full powers of substitution
and re-substitution, for such person in name, place and stead, to sign in any
and all amendments (including post-effective amendments) to this Registration
Statement on Form SB-2, in any and all capacities, and to file the same, with
all exhibits thereto and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto such attorneys-in-fact and
agents, and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on June ___, 2000.
Signature Title
--------- -----
/s/ David Ryon President, Chief Executive Officer, Director
-------------------------
David Ryon, M. D.
/s/ Carlton T. Phelps Chief Financial Officer, Secretary, Treasurer and
------------------------- Director
Carlton T. Phelps
/s/ Lewis M. Edwards Chief Technical Officer and Director
-------------------------
Lewis M. Edwards
