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 September 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)336-4910
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(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 November 18, 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' 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 ..................................................... 13
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Item 3. Controls and Procedures ........................................... 16
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PART II. OTHER INFORMATION
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Item 1. Legal Proceedings ................................................. 17
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Item 2. Changes in Securities ............................................. 17
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Item 3. Defaults Upon Senior Securities ................................... 17
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Item 4. Submission of Matters to a Vote of Security Holders ............... 17
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Item 5. Other Information ................................................. 17
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Item 6. Exhibits .......................................................... 17
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Signatures ................................................................ 18
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2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMAGE TECHNOLOGY LABORATORIES, INC.
CONDENSED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2004 2003
(UNAUDITED)
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 29,634 $ 195,257
Accounts receivable 68,175 66,380
Prepaid expenses and other current assets 30,276 1,555
------------ ------------
TOTAL CURRENT ASSETS 128,085 263,192
Equipment and improvements, net of accumulated
depreciation and amortization of $73,847 and $38,866 207,791 157,452
------------ ------------
TOTAL ASSETS $ 335,876 $ 420,644
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 114,023 $ 125,429
Current portion of long-term debt 88,295 --
Notes payable 47,228 66,952
Notes due to stockholders 3,400 3,400
------------ ------------
TOTAL CURRENT LIABILITIES 252,946 195,781
Long-term debt, less current portion 132,950 --
Deferred revenues -- 93,333
Accrued compensation payable to stockholders 24,231 142,000
------------ ------------
TOTAL LIABILITIES 410,127 431,114
------------ ------------
STOCKHOLDERS' DEFICIENCY:
Preferred stock, par value $.01 per share; 5,000,000 shares
authorized; 1,500,000 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 (3,094,186) (2,801,288)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIENCY (74,251) (10,470)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 335,876 $ 420,644
============ ============
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
3
IMAGE TECHNOLOGY LABORATORIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
NINE MONTHS THREE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
2004 2003 2004 2003
---- ---- ---- ----
REVENUES:
Service income $ 665,136 $ 432,308 $ 216,264 $ 137,239
Software license fees 93,333 105,000 23,333 35,000
------------ ------------ ------------ ------------
TOTAL REVENUE 758,469 537,308 239,597 172,239
COST OF REVENUES 99,129 82,500 34,500 27,500
------------ ------------ ------------ ------------
Gross profit 659,340 454,808 205,097 144,739
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Research and development 64,100 225,000 22,900 75,000
Sales and marketing 276,185 213,858 118,330 89,172
General and administrative 611,953 214,215 160,783 84,922
------------ ------------ ------------ ------------
TOTAL COSTS AND EXPENSES 952,238 653,073 302,013 249,094
------------ ------------ ------------ ------------
NET LOSS $ (292,898) $ (198,265) $ (96,916) $ (104,355)
============ ============ ============ ============
NET LOSS PER COMMON SHARE:
Basic $ (0.02) $ (0.01) $ (0.01) $ (0.01)
Diluted $ (0.02) $ (0.01) $ (0.01) $ (0.01)
============ ============ ============ ============
AVERAGE NUMBER OF SHARES USED IN COMPUTATION:
Basic 15,330,202 14,056,046 15,363,778 14,663,025
Diluted 15,330,202 14,056,046 15,363,778 14,663,025
============ ============ ============ ============
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
4
IMAGE TECHNOLOGY LABORATORIES, INC.
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
NINE MONTHS ENDED SEPTEMBER 30, 2004
(UNAUDITED)
PREFERRED STOCK COMMON STOCK
------------------------ ------------------------- ADDI- TOTAL
NUMBER NUMBER TIONAL ACCUMU- STOCK-
OF OF PAID-IN LATED HOLDERS'
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 (292,898) (292,898)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 2004 1,500,000 $ 15,000 13,863,778 $ 138,638 $ 2,866,297 $(3,094,186) $ (74,251)
=========== =========== =========== =========== =========== =========== ===========
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
5
IMAGE TECHNOLOGY LABORATORIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
2004 2003
---- ----
OPERATING ACTIVITIES:
Net loss $ (292,898) $ (198,265)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization of equipment
and improvements 34,981 7,892
Common stock and options issued for services 19,425 9,000
Changes in operating assets and liabilities:
Accounts receivable (1,795) --
Prepaid expenses and other current assets (28,721) 7,320
Accounts payable and accrued expenses (11,406) 6,097
Deferred revenues (93,333) 35,000
Accrued compensation payable to stockholders 41,923 6,655
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NET CASH USED IN OPERATING ACTIVITIES (331,824) (126,301)
---------- ----------
INVESTING ACTIVITIES - purchase of equipment and improvements (85,320) (150,342)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from exercise of warrants -- 221,094
Proceeds from private placement of common stock 50,000 --
Proceeds from notes payable and long-term debt 244,273 70,833
Repayments of notes payable and long-term debt (42,752) --
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 251,521 291,927
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (165,623) 15,284
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 195,257 132,454
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 29,634 $ 147,738
========== ==========
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.
6
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 September 30,
2004, its results of operations for the nine and three month periods ended
September 30, 2004 and 2003, changes in stockholders' deficiency for the
nine months ended September 30, 2004 and cash flows for the nine months
ended September 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.
The Company has had recurring losses and negative cash flows from its
operating activities since inception, at September 30, 2004 its cash and
cash equivalents were approximately $30,000 and it had a working capital
deficiency of approximately $125,000. A substantial portion of the
Company's historical losses were attributable to non-cash charges. As of
September 30, 2004, the Company's principal stockholders had deferred
approximately $184,000 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 convertible preferred stock, which, if
successful, will help fund its future growth and provide working capital.
(See Note 7 - Subsequent event.) There can be no assurance, however, that
the Company will be successful in obtaining such additional capital or
that the principal stockholder will be able to fund the Company to the
extent necessary, if the outside financing is not obtained.
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, short-term loans and/or will
purchase additional common stock up to the amount of funds anticipated to
be required. The Company believes that its maximum need for additional
cash for the next twelve months will be approximately $500,000. The
Company's principal stockholder has agreed to fund up to this amount, if
needed. There can be no assurance, however, that, if needed, such
contributions, loans and/or purchases will be available. If necessary, the
Company, also, has the ability to reduce or curtail its planned level of
activity.
The results of operations for the nine and three month-periods ended
September 30, 2004 are not necessarily indicative of the results of
operations to be expected for the full year ending December 31, 2004.
7
IMAGE TECHNOLOGY LABORATORIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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 nine and three months ended September 30, 2004 and
2003, in accordance with the "two class" method of computing earnings
(loss) per share set forth in SFAS 128.
Since the Company had net losses for the nine and three months ended
September 30, 2004 and 2003, the assumed effects of the exercise of
options to purchase 2,112,500 and 2,000,000 common shares outstanding at
September 30, 2004 and 2003, respectively, and warrants to purchase
1,999,029 common shares outstanding at September 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 September 30, 2004, the outstanding balances
on these loans aggregated $221,245. 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.
8
IMAGE TECHNOLOGY LABORATORIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - STOCK OPTIONS:
Also, in connection with his consulting agreement, 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,
increased to $150,000 on 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)
NINE MONTHS THREE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
2004 2003 2004 2003
---- ---- ---- ----
Net loss, as reported $ (292,898) $ (198,265) $ (96,916) $ (104,355)
Deduct total stock-based employee
compensation expense determined under a
fair value based method for all awards (30,000) (2,000) -- --
---------- ---------- ---------- ----------
Net loss - pro forma $ (322,898) $ (200,265) $ (96,916) $ (104,355)
========== ========== ========== ==========
Net loss per share
Basic - as reported $ (0.02) $ (0.01) $ (0.01) $ (0.01)
========== ========== ========== ==========
Basic - pro forma $ (0.02) $ (0.01) $ (0.01) $ (0.01)
========== ========== ========== ==========
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 nine and three months ended September 30:
2004 2003
---- ----
Risk-free interest rate 3.5% 6.0%
Volatility 99.9% 29.0%
Dividend yield 0.0% 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 September 30, 2004.
10
IMAGE TECHNOLOGY LABORATORIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7 - SUBSEQUENT EVENT:
On November 17, 2004, the Company accepted an offer from vFinance
Investments, Inc. to raise between $750,000 and $1,500,000 through the
sale, pursuant to a Regulation D offering, of shares of convertible
preferred stock of the Company. The terms of the offer include a
conversion price equal to a maximum of $.225 per share or a 25% discount
to the closing bid price of the Company's stock on the day preceding
funding. In addition, the preferred shares will have a coupon interest
rate of 5% per year, payable in cash or common stock. Furthermore, the
Company will issue warrants to purchase shares of common stock in an
amount equal to 50% of the preferred shares issued in the transaction.
Such warrants will have a cash exercise price equal to 120% of the closing
bid price of the Company's common stock on the day of the initial closing.
As part of this transaction, the Company will be required to file a
registration statement to register the underlying securities and to pay,
up to $25,000, the legal fees incurred by the placement agent.
11
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.
We have had recurring losses and negative cash flows from our operating
activities since inception, we have cash and cash equivalents of approximately
$30,000 and a working capital deficiency of approximately $125,000 as of
September 30, 2004. A substantial portion of our historical losses has been
attributable to non-cash charges. As of September 30, 2004, our principal
stockholders had deferred approximately $184,000 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 convertible preferred stock, which will fund our future growth
and provide working capital. (See Note 7 - Subsequent event, to the condensed
financial statements, included elsewhere herein.) 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. We believes
that our maximum need for additional cash for the next twelve months will be
approximately $500,000. Our principal stockholder has agreed to fund up to this
amount, if needed. There can be no assurance, however, that, if needed, such
contributions or purchases will be available. If necessary, we, also, have the
ability to reduce or curtail our planned level of activity.
12
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
COMPARED WITH THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 2004 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 2003
REVENUES:
During the nine months ended September 30, 2004, our total revenue increased
approximately $221,000, or 41.2% to approximately $758,000 from approximately
$537,000 in the prior year's comparable period. For the three months ended
September 30, 2004, our total revenue was approximately $240,000, an increase of
$68,000, or 39.5%, from approximately $172,000 in the prior year's comparable
period. These increases are attributable to our service revenue, which grew to
$665,000 in the 2004 nine-month period, an increase of 53.9% from $432,000 in
the first nine months of 2003. In the third quarter of 2004, our service revenue
was approximately $216,000 compared with $137,000 of service revenues in the
2003 comparable quarter, an increase of $79,000, or 57.7 %. We intend to sell
and install additional software units that will generate increased service
revenues in future periods.
In addition, during the nine months ended September 30, 2004, we earned $93,333
from the sale of our initial unit compared with $105,000 in the comparable prior
period and in the third quarter of 2004 we earned $23,333 compared with $35,000
in the third quarter of 2003. The decrease of $11,667 in each period is because
we recognized such revenues from an advance deposit ratably over the period in
which we were required to provide maintenance and other services. This agreement
expired during the third quarter of 2004 and was replaced by one requiring
monthly service fees, rather than license fees. It is our intention to continue
to grow our service revenue.
COST OF REVENUES:
Our cost of revenues is comprised of the direct expense, primarily payroll, we
incur in providing service in connection with the products we sell and the
services we provide.
RESEARCH AND DEVELOPMENT EXPENSES:
During the nine months ended September 30, 2004, we incurred research and
development expenses (primarily attributable to our founders' compensation
pursuant to their employment contracts) of $64,000 as compared with research and
development expenses of $225,000 during the first nine months of 2003, a
decrease of $161,000, or 71.6 %. The amounts for the third quarters of 2004 and
2003 were $23,000 and $75,000, respectively, a decrease of $52,000, or 69.3%.
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 nine months ended September 30, 2004, our general and administrative
expenses increased approximately $398,000, or 186.0%, to $612,000 from general
and administrative expenses of approximately $214,000 during the first nine
months of 2003. The increase in general and administrative expenses in the third
quarter of 2004 from the prior year's comparable period was approximately
$76,000, or 89.4% to $161,000 in 2004 from $85,000 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.
13
SALES AND MARKETING EXPENSES:
Sales and marketing expense increased approximately $62,000, or 29.0%, to
approximately $276,000 during the nine months ended September 30, 2004 from
approximately $214,000 of such costs in the comparable prior period. For the
third quarter of 2004 such expenses aggregated approximately $118,000, an
increase of $29,000, or 32.6%, from sales and marketing expenses incurred during
the comparable period in 2003. These expenses are also expected to continue
their 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 nine months and third
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 $293,000 ($.02 per share) for the nine months ended
September 30, 2004 as compared with a loss of $198,000 ($.01 per share) for the
nine months ended September 30, 2003 and a loss of $96,000 ($.01 per share) in
the third quarter of 2004 as compared with a loss of $104,000 ($.01 per share)
in the prior year's comparable period.
LIQUIDITY AND CAPITAL RESOURCES:
As of September 30, 2004, we had cash and cash equivalents and a working capital
deficiency of $30,000 and $125,000, 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 $166,000 in the first nine
months of 2004 was primarily attributable to the net cash used in our operating
activities of approximately $332,000. Of this amount, approximately $293,000 is
related to our net loss.
Our investing activities, i.e. the purchase of fixed assets, used an additional
$85,000 of cash.
These uses of cash, aggregating $417,000, were partially offset by the cash
generated through our financing activities of $252,000, primarily from the
proceeds of long-term debt and a private placement of common stock.
The foregoing activities, i.e., operating, investing and financing, resulted in
our net cash decrease of $166,000 for the nine months ended September 30, 2004.
During September 2002, we obtained a $75,000 working capital loan from a
financial institution. As of September 30, 2004, we have approximately $47,000
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 September 30,
2004, we had approximately $221,000 outstanding under these arrangements.
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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 nine months ended September 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 September 30,
2004, the Company's principal stockholder has deferred receipt of an additional
$24,000 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 through, at least, September 30, 2005.
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.
The Company's management evaluated, with the participation of the Chief
Executive Officer and Chief Financial Officer, the effectiveness of the
Company's disclosure controls and procedures as of the end of the period covered
by this report. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that the Company's disclosure controls and
procedures were effective as of the end of the period covered by this report.
There has been no change in the Company's internal control over financial
reporting that occurred during the quarter covered by this report that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
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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.
None.
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
(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.
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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: November 19, 2004 /s/ David Ryon
-----------------------------------
David Ryon
Chief Executive Officer
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