SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2004 or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to ____________________
Commission File Number: 34-00031307
IMAGE TECHNOLOGY LABORATORIES, INC.
--------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-53531373
--------------------------------- ------------------
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
602 Enterprise Drive
Kingston, New York 12401
---------------------------------
(Address of Principal Executive Offices)
(845)338-3366
----------------
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant as
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
As of August 12, 2004, there were 13,863,778 shares of the registrant's common
stock outstanding.
Image Technology Laboratories, Inc.
INDEX
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PAGE NO.
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements................................................ 3
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Condensed Balance Sheets.................................................... 3
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Condensed Statements of Operations.......................................... 4
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Condensed Statement of Stockholders' Equity (Deficiency).................... 5
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Condensed Statements of Cash Flows.......................................... 6
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Notes to Condensed Financial Statements..................................... 7
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................... 11
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Item 3. Controls and Procedures............................................. 15
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PART II. OTHER INFORMATION
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Item 1. Legal Proceedings................................................... 16
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Item 2. Changes in Securities............................................... 16
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Item 3. Defaults Upon Senior Securities..................................... 16
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Item 4. Submission of Matters to a Vote of Security Holders................. 16
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Item 5. Other Information................................................... 16
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Item 6. Exhibits and Reports on Form 8-K.................................... 16
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Signatures.................................................................. 18
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMAGE TECHNOLOGY LABORATORIES, INC.
CONDENSED BALANCE SHEETS
JUNE 30, 2004 DECEMBER 31,
(Unaudited) 2003
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 163,659 $ 195,257
Accounts receivable 69,391 66,380
Prepaid expenses and other current assets 26,659 1,555
----------- -----------
TOTAL CURRENT ASSETS 259,709 263,192
Equipment and improvements, net of accumulated
depreciation and amortization of $61,749 and
$38,866 214,872 157,452
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TOTAL ASSETS $ 474,581 $ 420,644
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 120,203 $ 125,429
Current portion of long-term debt 82,728 --
Notes payable 55,827 66,952
Notes due to stockholders 3,400 3,400
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TOTAL CURRENT LIABILITIES 262,158 195,781
Long-term debt, less current maturities 158,540 --
Deferred revenues 23,333 93,333
Accrued compensation payable to stockholders 7,885 142,000
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TOTAL LIABILITIES 451,916 431,114
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STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock, par value $.01 per share;
5,000,000 shares authorized;
1,500,000 shares issued and
outstanding 15,000 15,000
Common stock, par value $.01 per share;
50,000,000 shares authorized; 13,863,778
and 13,751,278 shares issued and outstanding 138,638 137,513
Additional paid-in capital 2,866,297 2,638,305
Accumulated deficit (2,997,270) (2,801,288)
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TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 22,665 (10,470)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 474,581 $ 420,644
=========== ===========
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
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IMAGE TECHNOLOGY LABORATORIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 2004 AND 2003
(UNAUDITED)
SIX MONTHS THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2004 2003 2004 2003
---- ---- ---- ----
REVENUES:
Service income $ 448,872 $ 295,069 $ 207,720 $ 143,961
Software license fees 70,000 70,000 35,000 35,000
------------ ------------ ------------ ------------
TOTAL REVENUE 518,872 365,069 242,720 178,961
COST OF REVENUES 64,629 55,000 37,129 27,500
------------ ------------ ------------ ------------
Net revenue 454,243 310,069 205,591 151,461
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Research and development 41,200 150,000 22,200 75,000
Sales and marketing 157,855 124,686 81,425 84,855
General and administrative 451,170 120,293 293,195 39,770
------------ ------------ ------------ ------------
TOTAL COSTS AND EXPENSES 650,225 394,979 396,820 199,625
------------ ------------ ------------ ------------
NET LOSS $ (195,982) $ (84,910) $ (191,229) $ (48,164)
============ ============ ============ ============
NET LOSS PER COMMON SHARE:
Basic $ (0.01) $ (0.01) $ (0.01) $ (0.00)
Diluted $ (0.01) $ (0.01) $ (0.01) $ (0.00)
============ ============ ============ ============
AVERAGE NUMBER OF SHARES USED IN COMPUTATION:
Basic 15,313,229 13,747,366 15,360,893 13,761,691
Diluted 15,313,229 13,747,366 15,360,893 13,761,691
============ ============ ============ ============
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
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IMAGE TECHNOLOGY LABORATORIES, INC.
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
TOTAL
PREFERRED STOCK COMMON STOCK ADDI- STOCK-
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NUMBER NUMBER TIONAL ACCUMU- HOLDERS'
OF OF PAID-IN LATED EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (DEFICIENCY)
Balance, January 1, 2004 1,500,000 $ 15,000 13,751,278 $ 137,513 $ 2,638,305 $(2,801,288) $ (10,470)
Issuance of common stock
in private placement 100,000 1,000 49,000 50,000
Issuance of common stock and
options for compensation 12,500 125 19,300 19,425
Accrued compensation
contributed to capital 159,692 159,692
Net loss (195,982) (195,982)
----------- ----------- ---------- ----------- ----------- ----------- -----------
Balance, June 30, 2004 1,500,000 $ 15,000 13,863,778 $ 138,638 $ 2,866,297 $(2,997,270) $ 22,665
=========== =========== ========== =========== =========== =========== ===========
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
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IMAGE TECHNOLOGY LABORATORIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(UNAUDITED)
2004 2003
OPERATING ACTIVITIES:
Net loss $(195,982) $ (84,910)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization of equipment
and improvements 22,883 5,836
Common stock and options issued for services 19,425 --
Changes in operating assets and liabilities:
Accounts receivable (3,011) --
Prepaid expenses and other current assets (25,104) 8,381
Accounts payable and accrued expenses (5,226) 6,635
Deferred revenues (70,000) (70,000)
Accrued compensation payable to stockholders 25,577 (14,422)
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NET CASH USED IN OPERATING ACTIVITIES (231,438) (148,480)
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INVESTING ACTIVITIES - purchase of
equipment and improvements (80,303) (14,036)
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FINANCING ACTIVITIES:
Proceeds from exercise of warrants -- 174,346
Proceeds from private placement of common stock 50,000 --
Proceeds from notes payable and long-term debt 252,872 --
Repayments of notes payable and long-term debt (22,729) --
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NET CASH PROVIDED BY FINANCING ACTIVITIES 280,143 174,346
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (31,598) 11,830
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 195,257 132,454
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 163,659 $ 144,284
========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Contribution of accrued compensation
payable to stockholders to capital $ 159,692 $ 426,004
========= =========
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
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IMAGE TECHNOLOGY LABORATORIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited
condensed financial statements reflect all adjustments,
consisting of normal recurring accruals, necessary to present
fairly the financial position of Image Technology Laboratories,
Inc. (the "Company") as of June 30, 2004, its results of
operations for the six and three months ended June 30, 2004 and
2003, changes in stockholders' equity (deficiency) for the six
months ended June 30, 2004 and cash flows for the six months
ended June 30, 2004 and 2003. Certain terms used herein are
defined in the audited financial statements of the Company as of
December 31, 2003 and for the years ended December 31, 2003 and
2002 (the "Audited Financial Statements") included in the
Company's Annual Report on Form 10-KSB previously filed with the
Securities and Exchange Commission (the "SEC"). Pursuant to rules
and regulations of the SEC, certain information and disclosures
normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United
States of America have been condensed in or omitted from these
financial statements unless significant changes have taken place
since the end of the most recent fiscal year. Accordingly, the
accompanying unaudited condensed financial statements should be
read in conjunction with the Audited Financial Statements and the
other information included in the Form 10-KSB.
Although the Company has had recurring losses and negative cash
flows from its operating activities since inception, at June 30,
2004 its cash and cash equivalents were approximately $164,000
and it had a working capital deficiency of approximately $2,500.
A substantial portion of the Company's historical losses were
attributable to non-cash charges. Management expects a reduction
in the level of such losses now that sales of the Company's
software products have commenced. As of June 30, 2004, the
Company's principal stockholders had deferred approximately
$168,000 of compensation due them pursuant to their employment
agreements, of which approximately $160,000 was contributed to
capital on April 9, 2004. These deferrals and capital
contributions have helped and will continue to help preserve the
Company's liquidity. Additionally, management expects to be
raising capital through a proposed private placement of the
Company's common stock, which will fund its future growth and
provide working capital. There can be no assurance, however, that
the Company will be successful in obtaining such additional
capital.
Management believes that the Company's costs and expenses
increases are related, in large part, to anticipated future
growth and that the Company has the ability to control the pace
of its expenditures relative to available resources. Included in
such resources is the expectation of management that, if needed,
the Company's principal stockholders will provide additional
capital contributions and/or will purchase additional common
stock. There can be no assurance, however, that, if needed, such
contributions or purchases will be available.
The results of operations for the six and three months ended June
30, 2004 are not necessarily indicative of the results of
operations to be expected for the full year ending December 31,
2004.
NOTE 2 - EARNINGS (LOSS) PER SHARE:
The Company presents basic earnings (loss) per share and, if
appropriate, diluted earnings per share in accordance with the
provisions of Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128") as explained in Note 1 to
the financial statements in the Form 10-KSB.
The rights of the Company's preferred and common stockholders are
substantially equivalent. The Company has included the 1,500,000
outstanding 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 six and three months
ended June 30, 2004 and 2003, in accordance with the "two class"
method of computing earnings (loss) per share set forth in SFAS
128.
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IMAGE TECHNOLOGY LABORATORIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Since the Company had net losses for the six and three months
ended June 30, 2004 and 2003, the assumed effects of the exercise
of options to purchase 2,112,500 and 2,000,000 common shares
outstanding at June 30, 2004 and 2003, respectively, and warrants
to purchase 2,868,512 common shares outstanding at June 30, 2003
would be anti-dilutive and, therefore, they have not been
considered in the calculations of diluted per share amounts in
the accompanying condensed statements of operations for those
periods.
NOTE 3 - NOTES PAYABLE TO VALLEY COMMERCIAL CAPITAL LLC:
In February 2004, the Company borrowed $125,000 from Valley
Commercial Capital, LLC ("Valley"). This loan is evidenced by a
promissory note, which provides for interest at 8% per annum and
calls for monthly payments of principal and interest of $3,917
through February 2, 2007. In March 2004, the Company borrowed an
additional $138,997 from Valley, also evidenced by a promissory
note, which provides for interest at 8% per annum and calls for
monthly payments of principal and interest of $4,356 through
March 29, 2007. As of June 30, 2004, the outstanding balances on
these loans aggregated $241,268. These loans are secured by the
personal guarantee of the Company's principal stockholder.
NOTE 4 - COMMON STOCK:
In March 2004, in a private transaction, the Company issued to
Robert Carpenter, a member of its Board of Directors, 100,000
shares of its common stock. The purchase price was $.50 per share
(which approximates market value), resulting in aggregate
proceeds to the Company of $50,000.
In April 2004, the Company agreed to issue to Richard L.
Feinstein, a consultant, as its Chief Financial Officer, 50,000
shares of its common stock as compensation. Pursuant to an
employment agreement with Mr. Feinstein, such shares vest and are
to be issued 25% as of April 20, 2004, (the "Effective Date") and
25% on each of the first, second and third anniversaries of the
Effective Date. Accordingly, the Company recorded a compensation
charge of $10,625 in the second quarter of 2004 for the vested
12,500 shares at $.85 per share, the closing price of the
Company's common stock on the Effective Date.
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IMAGE TECHNOLOGY LABORATORIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - STOCK OPTIONS:
Also, in connection with his employment, the Company has agreed
to issue Mr. Feinstein options to purchase 50,000 shares of its
common stock. The options are to be issued and vest 25% as of the
Effective Date and 25% on each of the first, second and third
anniversaries of the Effective Date. The exercise price of the
options is $.85 per share, the closing price of the Company's
common stock on the Effective Date. In this connection the
Company has recorded a compensation charge of $8,800 in the
second quarter of 2004 for the fair value of such vested options.
Effective May 5, 2004 (the "Start Date"), the Company engaged
Barry Muradian as its Chief Operating Officer as evidenced by an
employment agreement. Pursuant to the terms of such agreement,
the duration of which is four years from the Start Date, Mr.
Muradian will be paid an annual base salary, initially, of
$125,000, increasing to $150,000 by August 1, 2004 and subject to
subsequent periodic reviews. Mr. Muradian is eligible to
participate in all of the Company's incentive plans.
Additionally, the Company is issuing to Mr. Muradian options to
purchase 100,000 shares of its common stock. The options vest 25%
on the first anniversary of the Start Date and 25% on each of the
succeeding three anniversaries of the Start Date. The exercise
price of the options is $.75 per share, the opening price of the
Company's common stock on the Start Date.
The Company continues to measure compensation cost related to
stock options issued to employees using the intrinsic value
method of accounting prescribed by Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting For Stock Issued To
Employees". The Company has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting For Stock-Based Compensation."
Accordingly, no earned or unearned compensation cost was
recognized in the accompanying condensed financial statements for
the stock options granted by the Company to Mr. Muradian, since
all of those options have been granted at exercise prices that
equaled or exceeded the market value at the date of grant. The
Company's historical net loss and loss per share and pro forma
net loss and loss per share, assuming compensation cost had been
determined in 2003 and 2002 based on the fair value at the grant
date for all awards by the Company consistent with the provisions
of SFAS 123, are set forth below:
-9-
IMAGE TECHNOLOGY LABORATORIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
SIX MONTHS THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2004 2003 2004 2003
---- ---- ---- ----
Net loss, as reported $(195,982) $ (84,910) $(191,229) $ (48,164)
Deduct total stock-based employee
compensation expense determined
under a fair value based method
for all awards (30,000) (2,000) (30,000) --
--------- ---------- --------- ----------
Net loss - pro forma $(225,982) $ (86,910) $(221,229) $ (48,164)
========= ========= ========= ==========
Net loss per share
Basic - as reported $ (0.01) $ (0.01) $ (0.01) $ (0.00)
========= ========= ========= ==========
Basic - pro forma $ (0.01) $ (0.01) $ (0.01) $ (0.00)
========= ========= ========= ==========
The fair value of options granted were determined using a
Black-Scholes pricing model in accordance with SFAS 123, with the
following assumptions used during the six and three months ended
June 30, 2004 and 2003:
Risk-free interest rate 3.5%
Volatility 99.9%
Dividend yield 0.0%
NOTE 6 - CONTRIBUTIONS TO CAPITAL:
Effective April 9, 2004, the two principal stockholders of the
Company contributed to capital the balance of the amounts of
compensation owing to them at March 31, 2004, an aggregate of
$159,692. Such aggregate amount has been included in additional
paid-in capital on the Company's balance sheet at June 30, 2004.
-10-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following is a discussion of certain factors affecting Image Technology
Laboratories, Inc.'s results of operations, assets, liquidity and capital
resources. You should read the following discussion and analysis in conjunction
with Image Technology Laboratories, Inc.'s unaudited condensed financial
statements and related notes, which are included elsewhere in this filing.
Image Technology Laboratories, Inc. ("we", "our" or the "Company"), has entered
the medical image management segment of the healthcare information systems
market. We were incorporated in Delaware on December 5, 1997. We have developed
a fully integrated "radiology information system/picture archiving and
communications system," known as RIS/PACS for use in the management of medical
diagnostic images and patient information by hospitals and diagnostic centers.
The PACS portion of the system inputs and stores diagnostic images in digital
format from original imaging sources such as: computerized tomography, or CT
scans, magnetic resonance imaging, or MRIs, ultrasound, nuclear imaging and
digital fluoroscopy. The RIS portion of the system inputs and stores patient
demographics, along with the appropriate insurance, billing and scheduling
information required to complete the patient visit. All of the data is retained
in standard formats, including DICOM and HL-7 standards.
Although we have had recurring losses and negative cash flows from our operating
activities since inception, we have cash and cash equivalents of approximately
$164,000 and a working capital deficiency of approximately $2,500 as of June 30,
2004. A substantial portion of our historical losses has been attributable to
non-cash charges. We expect a reduction in the level of such losses now that
sales of the Company's software products have commenced. As of June 30, 2004,
our principal stockholders had deferred approximately $168,000 of compensation
due them pursuant to their employment agreements, of which approximately
$160,000 was contributed to capital on April 9, 2004. These deferrals and
capital contributions have helped and will continue to help preserve our
liquidity. Additionally, we expect to be raising capital through a proposed
private placement of our common stock, which will fund our future growth and
provide working capital. There can be no assurance, however, that we will be
successful in obtaining such additional capital.
Our costs and expenses increases are related, in large part, to our anticipated
future growth. We believe, however, that we have the ability to control the pace
of our expenditures relative to our available resources. Included in such
resources is the expectation of additional capital contributions and/or
purchases of additional common stock by our principal stockholders. There can be
no assurance, however, that, if needed, such contributions or purchases will be
available.
-11-
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2004 COMPARED WITH THE
SIX MONTHS ENDED JUNE 30, 2003 AND FOR THE THREE MONTHS ENDED JUNE 30, 2004
COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 2003
REVENUES:
During the six months ended June 30, 2004, our total revenue increased
approximately $154,000, or 42.2% to approximately $519,000 from approximately
$365,000 in the prior year's comparable period. For the three months ended June
30, 2004, our total revenue was approximately $243,000, an increase of $64,000,
or 35.8%, from approximately $179,000 in the prior year's comparable period.
These increases are attributable to our service revenue, which grew to $449,000
in the 2004 six-month period, an increase of 52.2% from $295,000 in the first
half of 2003. In the second quarter of 2004, our service revenue was
approximately $208,000 compared with $144,000 of service revenues in the 2003
second quarter, an increase of $64,000, or 44.4%. We intend to sell and install
additional units that will generate increased service revenues in future
periods.
In addition, during each of the six months and three months ended June 30, 2004
and 2003, we earned $70,000 and $35,000, respectively, from the sale of our
initial unit as we are recognizing such ratably over the period in which we are
required to provide maintenance and other services. It is our intention to
continue to grow our service revenue.
COST OF REVENUES:
Our cost of revenues is comprised of the direct expense we incur in providing
service in connection with the products we sell and the services we provide.
RESEARCH AND DEVELOPMENT EXPENSES:
During the six months ended June 30, 2004, we incurred research and development
expenses (primarily attributable to our founders compensation pursuant to their
employment contracts) of $41,000 as compared with research and development
expenses of $150,000 during the first half of 2003, a decrease of $109,000, or
72.7%. The amounts for the second quarter of 2004 and 2003 were $22,000 and
$75,000, respectively, a decrease of $53,000, or 70.7%. These decreases are
reflective of our shift in focus from our development activities, after having
developed a successful product, towards the sales, marketing and servicing of
such product.
GENERAL AND ADMINISTRATIVE EXPENSES:
During the six months ended June 30, 2004, our general and administrative
expenses increased approximately $331,000, or 275.8%, to $451,000 from general
and administrative expenses of approximately $120,000 during the first half of
2003. The increase in general and administrative expenses in the second quarter
of 2004 from the prior year's comparable period was approximately $253,000, or
632.5% to $293,000 in 2004 from $40,000 in 2003. These increases are
substantially attributable to costs incurred, primarily compensation, travel and
infrastructure-related, as we continue our transition from a development
orientation to a product and sales driven organization and included the addition
of two executive officers during the second quarter of 2004. We expect that
these costs will continue to grow as we position ourselves to promote and
administer our anticipated growth. We believe, however, that such expenditures
are largely scalable and controllable based on current and anticipated revenue
streams and cash availability.
-12-
SALES AND MARKETING EXPENSES:
Sales and marketing expense increased approximately $33,000, or 26.4%, to
approximately $158,000 during the six months ended June 30, 2004 from
approximately $125,000 of such costs in the comparable prior period. For the
second quarter of 2004 such expenses aggregated approximately $81,000, a
decrease of $4,000, or 4.7%, from sales and marketing expenses incurred during
the comparable period in 2003. These expenses are also expected to increase as
we make the investments in infrastructure, personnel and other marketing
expenditures that we believe are necessary for us to achieve our revenue goals.
NET LOSS:
As described above, although our revenues increased in the first half and second
quarter of 2004 from the comparable periods in 2003, such increases were more
than offset by increases in expenses in such periods. As a result, we incurred a
loss of approximately $196,000 ($.01 per share) for the six months ended June
30, 2004 as compared with a loss of $85,000 (less than $.01 per share) for the
six months ended June 30, 2003 and a loss of $191,000 ($.01 per share) in the
second quarter of 2004 as compared with a loss of $48,000 (less than $.01 per
share) in the prior year's comparable period.
LIQUIDITY AND CAPITAL RESOURCES:
At June 30, 2004, our total assets were approximately $475,000, an increase of
approximately $54,000 from total assets of $421,000 at December 31, 2003. This
aggregate increase is primarily related to an increase in net fixed assets of
approximately $57,000 and an increase of $25,000 in prepaid expenses and other
current assets, as partially offset by a decrease in cash of $32,000.
As of June 30, 2004, we had cash and cash equivalents and a working capital
deficiency of $164,000 and $2,500, respectively. Historically, the principal
sources of our capital resources include proceeds from issuance of shares of
common stock to our founders and in private placements. These proceeds have been
used for working capital and general corporate purposes.
The net decrease in cash and cash equivalents of $32,000 in the first half of
2004 was primarily attributable to the net cash used in our operating activities
of approximately $232,000. Of this amount, approximately $196,000 is related to
our net loss.
Our investing activities, i.e. the purchase of fixed assets, used an additional
$80,000 of cash.
These uses of cash, aggregating $312,000, were partially offset by the cash
generated through our financing activities of $280,000, primarily from the
proceeds of long-term debt.
The foregoing activities, i.e., operating, investing and financing, resulted in
our net cash decrease of $32,000 for the six months ended June 30, 2004.
During September 2002, we obtained a $75,000 working capital loan from a
financial institution. As of June 30, 2004, we have approximately $56,000
outstanding under that loan. Additionally, in February and March 2004, we
obtained two loans from a different financial institution that provided us with
an aggregate principal amount of approximately $264,000. As of June 30, 2004, we
had approximately $241,000 outstanding under these arrangements.
-13-
In the first quarter of 2004, we sold 100,000 shares of our common stock, in a
private transaction, to a member of our Board of Directors. The sales price was
$.50 per share, resulting in gross proceeds to the Company of $50,000.
During the six months ended June 30, 2004, our principal stockholders
contributed an aggregate of approximately $160,000 of previously deferred
compensation to the Company's capital. Since that time through June 30, 2004,
the Company's principal stockholder has deferred receipt of an additional $8,000
of compensation owed to him.
In April 2004, we entered into an engagement agreement with an investment
advisory firm to assist us in raising capital by acting as a financial advisor
and placement agent for a proposed private placement of our common stock.
We require cash to fund our working capital needs and capital expenditures, as
well as to meet existing commitments. Such commitments include payments to our
officers who have employment contracts, payments of existing loans including our
line of credit and two notes payable, which call for aggregate monthly payments
of approximately $8,300 through March 2007 and $700 per month pursuant to a
five-year lease commitment ending in October 2007 for our operations center in
Kingston, New York. At times, in order to help in maximizing our working
capital, our officers have contributed to capital or deferred compensation due
under their agreements. It is anticipated, but not assured, that, should the
need arise, such contributions or deferrals might be available to us in the
future. Additionally, we are going to the marketplace with an offer to sell
additional shares of our common stock to raise funds to help support our
anticipated growth. There can be no assurance that such efforts will be
successful.
We believe that the cash generated from existing operations, together with cash
on hand, available credit from our current lenders, including banks and, if the
need arises, our principal stockholder, will be sufficient to finance our debt
and lease obligations, employment commitments, current operations and internal
growth for at least the next twelve months.
FORWARD-LOOKING STATEMENTS
When used in the Quarterly Report on Form 10-QSB, the words "may", "will",
"should", "expect", "believe", "anticipate", "continue", "estimate", "project",
"intend" and similar expressions are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act regarding events, conditions and financial trends that
may affect our future plans of operations, business strategy, results of
operations and financial condition. We wish to ensure that such statements are
accompanied by meaningful cautionary statements pursuant to the safe harbor
established in the Private Securities Litigation Reform Act of 1995. Prospective
investors are cautioned that any forward-looking statements are not guarantees
of future performance and are subject to risks and uncertainties and that actual
results may differ materially from those included within the forward-looking
statements as a result of various factors including our ability to consummate,
and the terms of, acquisitions, if any. Such forward-looking statements should,
therefore, be considered in light of various important factors, including those
set forth herein and others set forth from time to time in our reports and
registration statements filed with the Securities and Exchange Commission (the
"Commission"). We disclaim any intent or obligation to update such
forward-looking statements.
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ITEM 3. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer, after evaluating the
effectiveness of the Company's disclosure controls and procedures (as defined in
the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c) as of the end
of the period covered by this report (the "Evaluation Date")), have concluded
that as of the Evaluation Date, our disclosure controls and procedures were
adequate and effective to ensure that material information relating to the
Company would be made known to them by others within the Company, particularly
during the period in which this quarterly report on Form 10-QSB was being
prepared.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in our internal controls or in other factors
that could significantly affect our disclosure controls and procedures
subsequent to the Evaluation Date, nor any significant deficiencies or material
weaknesses in such disclosure controls and procedures requiring corrective
actions. As a result, no corrective actions were taken.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
During the quarter, there were no significant developments in our legal
proceedings. For a detailed discussion of our legal proceedings, please refer to
our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003.
ITEM 2. CHANGES IN SECURITIES.
During the quarter, we issued 12,500 shares of our common stock as compensation,
in a private placement exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, as amended, representing the vested portion of a 50,000
share stock grant, for $.85 per share, to Richard L. Feinstein, our Chief
Financial Officer.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) REPORTS ON FORM 8-K.
None.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
IMAGE TECHNOLOGY LABORATORIES, INC.
Date: August 12, 2004 /s/ DAVID RYON
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David Ryon
Chief Executive Officer
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