Edgar Filing: IMAGE TECHNOLOGY LABORATORIES INC

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
AND EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006

IMAGE TECHNOLOGY LABORATORIES, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 22-3531373
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

602 ENTERPRISE DRIVE, KINGSTON, NEW YORK 12401
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (845) 338-3366

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

COMMON STOCK

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 was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes No X .

The issuer's revenues for the most recent fiscal year were $672,606.

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the $.18 last sales price reported by OTC.BB on March 28,
2007 was $1,204,775.

As of December 31, 2006, the Registrant had issued, and outstanding, 15,238,778
shares of common stock.

Transitional Small Business Disclosure Format (Check one): Yes __ No X
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FORWARD-LOOKING STATEMENTS

This report and the documents incorporated in it by reference contain
forward-looking statements about our plans, objectives, expectations and
intentions. You can identify these statements by words such as "expect,"
"anticipate, " "intend, " "plan", "believe," "seek", "estimate," "may," "will"
and "continue" or similar words. You should read statements that contain these
words carefully. They discuss our future expectations, contain projections of
our future results of operations or our financial condition or state other
forward-looking information, and may involve known and unknown risks over which
we have no control. You should not place undue reliance on forward-looking
statements. We cannot guarantee any future results, levels of activity,
performance or achievements. Moreover, we assume no obligation to update forward
looking statements or update the reasons actual results could differ materially
from those anticipated in forward-looking statements, except as required by law.
Factors, that could cause actual results to differ materially from those
expressed or implied by such forward looking statements include that discussed
in the report in Part 1, Item 1, including the section captioned "Risk Factors
that May Affect Future Results" and "Management's Discussion and Analysis of
Financial Condition or Plan of Operation."

1. PART I

ITEM 1. DESCRIPTION OF BUSINESS

Image Technology Laboratories, Inc. ("ITL", "the Company", "Registrant" or "we")
is a medical image and information management company in the healthcare IT
market. The Company is a systems integrator that provides a total solution of
hardware, software and service to the customer for their product.

The Company was founded and incorporated in the state of Delaware in 1997 by Dr.
David Ryon, Chief Executive Officer and founder of The Kingston Diagnostic
Center; Dr. Carlton Phelps, Chief Financial Officer and former Chief of
Radiology at The Kingston Hospital; and Lewis M. Edwards, Chief Technical
Officer and formerly Senior Technical Staff Member and lead engineer of the 3D
Graphics Lab at IBM. In fiscal year 2000 ITL successfully completed a private
placement (of approximately $2 Million), followed by an SB2 registration and a
self-underwritten public offering raising net proceeds of $1.02 million to
partially fund its development efforts.

The Company is headquartered in Kingston, New York - about 100 miles north of
New York City. The Company's shares of common stock are publicly traded on the
OTC Bulletin Board under the symbol "IMTL". Of the three original co-founders,
only Mr. Edwards remains at the Company. In the first quarter of 2002, Dr.
Phelps departed the Company and resigned from the Board of Directors. Dr. Ryon
passed away suddenly in December of 2004. The Company has secured a roster of
active customers, and is seeking to expand their sales and marketing initiatives
by both organic and acquisitive growth strategies.

ITL's lead product is their "WarpSpeed" software system, which is built on a
unique modular architecture, with high throughput capabilities by a staff of
software engineers experienced in designing and writing enterprise level
programs. The result is a highly reliable, scalable radiology business solution,
which is easily upgraded to meet the demands of a growing customer environment.
These qualities allow ITL to deliver a radiology product specifically tailored
to a customer's requirements. Innovative development work will allow customers
to stay at the forefront of technological advances by allowing easy extensions
and upgrades to existing systems.

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PRODUCTS

WarpSpeed is a "Radiology Information System / Picture Archiving and
Communications System", know as RIS/PACS, for use in the management of patient
information and the processing/storage of medical images by hospitals and
diagnostic imaging centers. The RIS portion of the system inputs and stores
patient demographics, scheduling information, insurance data, and the billing
records required to service patients visit. The RIS system also manages the
analysis reports generated by the radiologist resulting from reviewing the
patient's image data. The PACS portion of the system acquires and stores
diagnostic images in standard DICOM (Digital Imaging and Communications in
Medicine) digital format from imaging equipment (called "modality" in the health
industry) such as Computerized Tomography (CAT scan), Magnetic Resonance Imaging
(MRI), Ultrasound, Nuclear Imaging, Digital Fluoroscopy, Computed Radiography,
Digital Mammography, Digital Radiography, Positron Emission Tomography (PET),
etc, called a "study".

The uniqueness of WarpSpeed is in it being a MONOLITHIC RIS/PACS system made
possible by the development of a single, central source of patient / study data
called a database. Through the single database, the components of the RIS system
and the components of the PACS system can easily share consistent data and
provide a single source of information about a patient anywhere in the study
process. This includes patient exam scheduling, patient demographics, insurance,
imaging, statistics, mammography (BIRADS) reporting, diagnostic reports and
billing records. Everything is available on a single application platform
(WarpSpeed). The unified data also allows the efficient deployment of another
key WarpSpeed component, the Workflow manager. The Workflow manager manages the
process flow from the beginning to the end of a patient study. The Workflow
manager eliminates multiple input of the same patient data into a non integrated
RIS/PACS systems, eliminates the passing of folders between departments, reduces
the number of confirming telephone calls, and removes the need to access
multiple computer applications to access the patient's data and status.

Further, unified data allows for images to be inserted into the radiologist's
report, a radiologist's dictation to be part of the workflow process (and stay
totally within the RIS/PACS system), and intelligent, automatic routing of work
and data to the next individual(s) in the process flow. The WarpSpeed system
also allows the sending of data via integrated e-mail or fax or storing it on a
patient CD without evoking assistance outside the WarpSpeed application.

The advantage of a monolithic database system is to improve the overall
performance, reliability and efficiency of the radiology environment while
reducing the operational cost to the hospital/radiology center. The design goal
is also to enable more complex radiology studies and allow the
hospital/radiology center to readily adjust to a fast changing technology world
without the need to reconcile data from disjoint PACS and RIS systems.

The WarpSpeed application package is enterprise level software developed by
knowledgeable and experienced enterprise level software/hardware engineers with
the subject matter expertise of Board-certified radiologists. This should be a
major factor in choosing a RIS/PACS system. The hospital/radiology application
environment needs robust system performance, security, reliability and recovery
capabilities. Engineers experienced in this enterprise environment can only
develop such a system. The WarpSpeed development team has extensive enterprise
level experience with graphics, database systems, operating systems, networking
and application software. They have years of experience in the radiology
environment. They understand performance and the requirements of data
protection, system reliability, and the need for multiple levels of recovery in
the critical places of both the hardware and software. These features are built
into WarpSpeed and it is these same engineers who continue to support, service
and expand the functionality of the product.

Another design objective of WarpSpeed is scalability. The WarpSpeed system
consists of ITL proprietary application software running on commercially
available computer hardware, operating systems and database. The modular design
of the software allows the customer to have a WarpSpeed solution consisting of
almost any size: from a single computer to a large, fully distributed system

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with separate computers handling the database, distributed file system storage,
server components such as the Workflow Manager, Report Distribution Manager,
Schedule Server and Background Transfer Service, and the client components such
as the Radiologist Display Workstation(s), the Modality Workstations(s), the
Stenography Workstation(s) and the Administrative Workstation(s). The
distributed system is tied together with local high speed networking to allow
the timely delivery of imaging and patient information to the radiologist.
Innovative intelligent algorithms have been developed to reduce the network
bandwidth and database storage requirements, which are two of the most
significant cost factors associated with building a PACS/RIS system. Secure,
remote access is available to radiologists and physicians via the internet. The
WarpSpeed system allows for flexibility in configuring a total system, building
the system to meet the hospital/radiology centers current needs while preserving
growth paths.

The ITL WarpSpeed system may be configured with a fully redundant hot-standby
secondary-server, generally located off-site, to enhance reliability and
availability of patient data and images particularly in response to physical
disasters. DICOM files, reports, database and transaction log backups are
replicated to the secondary-server in near-real time, and the database instance
running on the backup-server is kept in synchronization with the primary server
within 15 minute intervals. In the event of a disaster, the secondary-server
will assume a fully functional primary-server role in 30-45 minutes. ITL is not
aware of any other RIS/PACS vendor that provides this capability in our market
space.

At the heart of the system is a software module referred to as the ITL Workflow
Manager. This software module is an IHE compliant workflow solution, which
allows the entire process of patient scheduling, registration, image
acquisition, image display, and radiographic report generation to be totally
automated in WarpSpeed to a degree that is yet to be demonstrated in the
industry. The software determines what resources are available on the enterprise
and distributes the various pieces of work as applicable. For example, if
multiple radiologists are logged on to the system, unread studies are
distributed based upon their preference and sub-specialties. Once the study has
been read and analyzed, the radiologist dictates the report, which, in turn, is
distributed to an available stenographer. After transcription, the report
returns to the reporting radiologist, wherever he/she is logged on, for proof
reading and final signature. The workload manager makes sure that the data is
available to the right person, at the appropriate time and at the desired
location.

Following signoff, the ITL Report Distribution Manager prints, faxes and/or
encrypts / e-mails the final report, maintaining substitutable versions of the
diagnostic reports as .RTF files and generating archive versions as .PDF files
for distribution and web access.

The ITL Schedule Server manages a centralized multi-site, multi-equipment time
slot reservation system that includes a procedure-based scheduling methodology
which allows an imaging facility to codify scheduling rules and hints across
different types of imaging modalities, body parts and a virtually unlimited set
of clinical study types.

The ITL Background Transfer Service (BTS) supports the transfer of DICOM image
files from a remote location containing one or more imaging modalities connected
to a main site via a WAN. The transfers take place in the background using
algorithms that support recovery and restart in the event of network outages and
errors while preserving bandwidth for interactive use at the remote site and
freeing the technologist from waiting for transfer confirmation. Typically, the
DICOM image objects pushed to the Modality Workstation by the imaging modalities
are compressed using JPEG-2000 Lossless compression prior to transfer by the BTS
to the ITL RIS/PACS server site(s) where they are decompressed for faster access
by the Radiologist Display Workstation, described below. The BTS, upon
successful transfer of all of the images constituting an imaging study, injects
the study into the workflow for assignment by the Workflow Manager.

Another component of the system is the ITL Radiologist Display Workstation. The
Radiologist Display Workstation permits the simultaneous viewing of multiple
diagnostic images (usually on high resolution displays) together with relevant
patient data displayed on a supporting touch-screen display. The imaging
information can be displayed in either film mode or stacking mode depending on

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the imaging modality and radiologists' preferences. In film mode, the
workstation emulates the current film based paradigm that uses traditional X-Ray
view boxes to display multiple images. MRI and CT studies are typically viewed
in stack mode with automatic cross-referencing across images intersecting in 3D
space, as the radiologist scrolls up and down through the stacked series of
images. The control of the Radiologist Display Workstation is via a surface
acoustic wave (SAW) touch-screen workstation so as to not use valuable space on
the high-resolution diagnostic monitors typically configured with the
Workstation, improving the speed and accuracy of diagnostic interpretation.

The Radiologist Display Workstation consists of proprietary software developed
by ITL and commercially available hardware. The unique feature of the display
station is its ability to present a virtually unlimited number of diagnostic
images on multiple display surfaces. The software can blend together a number of
monitors, of arbitrary resolution, into one large virtual display, as required
by the radiologist. A radiologist can read and interpret digital images from any
imaging modality on a radiologist display workstation, which can be either
local, or at a remote location when connected via encrypted tunnels (VPNs) over
the Internet. This facilitates time-critical transfer of patient information
between hospital departments, as well as rapid consultations by specialists at
remote locations. The system also affords convenient home viewing by
radiologists using lower-cost, reduced resolution monitor(s). The user-interface
of the ITL Radiologist Display Workstation has been designed by radiologists for
ease of use, offering an un-cluttered touch-panel control screen that does not
intimidate new users while still making more sophisticated operations readily
available.

The ITL Administrative Workstations are PC-based and are normally used for the
RIS functions, such as patient demographic entry and maintenance, online report
viewing, scheduling (both basic and procedure-based), schedule queries, workflow
status monitoring and control, report log viewing, referring physician entry and
maintenance, radiologist preferences management, schedule procedure creation and
editing, study ICD-9 procedure code modifications, generalized RIS queries and
"super-administrator" functions such as patient / study merges.

The ITL Stenography Workstation is also PC-based and provides for automation of
much of the mundane and error-prone inclusion of patient, study and referring
physician demographic information into the report. The Stenography Workstation
application links to and controls Microsoft Word for the production of these
reports, thus offering the stenographer a comfortable and familiar
word-processing environment.

The ITL Modality Workstation is the WarpSpeed software component which is used
to create, store, reproduce and transmit digitized images generated by
DICOM-compatible diagnostic imaging equipment, including digital radiography,
computed radiography, ultrasound, nuclear medicine, digital fluoroscopy,
computed tomography, magnetic resonance imaging and digital mammography. The
Modality Workstation is normally connected to the diagnostic imaging equipment
via a high-speed local area connection. By acting as the DICOM gateway to the
ITL WarpSpeed RIS/PACS system, the Modality Workstation enforces the requisite
quality control to ensure that incoming studies are properly associated with the
correct patient in the RIS, and that the incoming studies are ICD-9 coded by the
individuals most closely associated with the actual performance of the study,
namely the technologists operating the imaging modality. The Modality
Workstation is capable of compressing / decompressing the DICOM images presented
to it by the imaging modality using JPEG-2000 Lossless compression.

ITL has leveraged the most recent advances in operating system design, software
development, and networking tools in WarpSpeed to produce a product, which
offers greater functional capability at lower costs through scalable system
architecture. Microsoft Windows 2003 is employed on the WarpSpeed servers for
its management, networking, distributed file system and message queuing, while
Microsoft SQL Server provides the database infrastructure. Microsoft Windows XP
is used for the Modality Workstation, Stenography Workstation and Administrative
Workstation. It is the truly modular and scalable architecture, which permits
function to be distributed incrementally across the hardware and give the
customer tremendous freedom in designing their current and future system
environment.

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ITL has developed sophisticated software sub-systems to monitor and update the
WarpSpeed system. These sub-systems allow the WarpSpeed system to be deployed in
diagnostic imaging centers and small to mid-sized hospitals where typically
local IT staff may not be available to monitor and administer the system, thus
offering a potential savings personnel cost.

ITL has also developed an extensive set of internal data migration tools that
enable us to quickly and efficiently import a customer's existing RIS data into
the WarpSpeed system, such as patient demographics, study history, schedules and
referring physician lists. Standard DICOM files can also be imported and
correlated with imported RIS data.

ITL began shipment of its WarpSpeed Web Portal in the second quarter of 2006,
allowing referring clinicians secure access to images and reports using standard
PCs running Microsoft Windows 2000 and XP using Microsoft's .NET technology.

In summary, the WarpSpeed system provides a total, turn-key monolithic solution
to the administrative (RIS) and imaging (PACS) aspects of radiology services
that does not force local IT to manage the integration, support and data
inconsistency issues of separate RIS and PACS products joined together by our
competitors. WarpSpeed has the capability to automate a hospital's radiology
department or be the primary patient and image management system for any
radiology diagnostic imaging center. In a hospital environment, WarpSpeed has
been designed to interface with hospital information systems so that a patient's
clinical data can be integrated with diagnostics images for increased accuracy
of image interpretation and diagnosis. ITL's WarpSpeed system offers
performance, enterprise level robustness, reliability and recovery, workflow
management, and scalability. Our value to our customers include consistent and
organized radiology process flow control, a completely electronic (vs. paper)
solution, supporting a more accurate and reliable diagnosis by the radiologists
with less opportunity for error, lower operating costs, overall better patient
care. The accuracy of information maintained within the ITL WarpSpeed monolithic
RIS/PACS system, along with the organized workflow, allows for more accurate
billing and the potential for an improvement in the reimbursement rate by the
imaging facility.

MARKETING

ITL is marketing its WarpSpeed system in hospitals with less than 400 beds and
freestanding radiology imaging centers. According to the American Medical
Information, Inc. there are 2,795 major diagnostic imaging centers and more than
5,000 smaller imaging centers in the U.S. According to the American Hospital
Association, there are 5,800 hospitals in the U.S. Approximately one-half have
less than 400 beds, the generally accepted metric defining a medium-sized
hospital.

According to market research by Frost & Sullivan, a leading industry research
firm, the worldwide market for PACS was $1.8 billion in 2003 and will grow to
$4.5 billion by 2010. Millennium Research Group reports that the U.S. market for
PACS grew by over 25% in 2004 and, by 2009, will generate nearly $3.0 billion in
revenue.

PACS technology, while widely appreciated, has yet to be widely adopted in the
medium to smaller (community) hospitals and single / multi-site imaging centers,
offering an excellent opportunity for ITL and WarpSpeed. We believe that the
lack of penetration of RIS/PAC systems into this market segment is a reflection
of the limitation of current solutions to deliver expected value; the high
purchase cost of solutions by the major vendors and the required IT staff and
expertise. According to Frost & Sullivan, approximately 17.7% of hospitals in
North America had PACS in 2003.

ITL markets a fourth generation medical information and image management system
that we believe is more flexible, usable and scalable than any currently
available product. The Company markets ITL's WarpSpeed system through an
in-house marketing presence and a contract sales force supported by product
advertising and promotion at industry trade shows. ITL offers the product at a
price point, which is well within the reach of even the smallest hospital or
imaging facility. The Company believes that it offers systems with superior
price/performance characteristics without requiring the overhead of local IT
staff at the imaging facility.

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ITL also expects a major sub-segment of the market over the next several years
will be PACS upgrades and migrations as early adopters begin to recognize the
deficiencies of the earlier generation of products. This emerging opportunity
will allow ITL to leverage its investment in migration tools and technologies to
capture these customers.

The penetration of Computed Radiography (CR) imaging equipment into specialized
clinics, such as orthopedic practices, presents an excellent opportunity for ITL
to take advantage of its modular software architecture and package the WarpSpeed
system into a family of offerings to such practices. Such a family will allow a
lower cost of entry yet provide a growth path in terms of capacity and reach
that should prove quite attractive in this space.

ITL believes that 3D viewing capability is rapidly becoming an important factor
in our diagnostic imaging market comprised of single / multi-site imaging
centers and small (community) to medium hospitals, offering an improvement in
certain diagnosis and a potentially higher reimbursement to the imaging
facility. We expect that ITL's expertise in 3D imaging will allow us to
vigorously pursue this emerging market segment.

With the aging baby boomers starting to place more of a burden on the health
care system in the U.S. , ITL expects the diagnostic imaging market to grow to
meet this demand. The increased awareness of the importance of Electronic
Medical Records (EMR) as a means of controlling medical costs while improving
patient care will, no doubt, impact the RIS/PACS market as the images and
reports produced from RIS/PACS are an important component in EMR. ITL intends to
pursue EMR at least within the RIS/PACS space and possibly beyond as other
opportunities become evident to deploy our technology and expertise in medical
information systems.

ITL is selling WarpSpeed with two (2) pricing models: The first is an outright
capital purchase and the second is a fee per-study-performed basis. The latter
plan is an attractive approach for our clients, as there is no capital outlay,
the cost is expensed, and the model does not penalize radiologists and clinical
staff for multiple consultative reviews of the image data.

COMPETITION AND COMPETITIVE ADVANTAGE

ITL is unique among the 50+ companies in the U.S. that are marketing or
developing RIS or PACS or RIS/PACS solutions for the radiology community. The
Company believes that it is the only company that has implemented a single
monolithic product that encompasses all aspects of the radiology business. To
date no one company has captured a predominant market share. Some of the larger
RIS/PACS vendors are GE Medical Systems, Agfa, Siemens Medical Solutions,
Philips Medical Systems and Kodak Health Imaging - all of which have expended
effort to integrate RIS and PACS. There are a number of vendors which now offer
`single vendor' (disparate database) RIS/PACS, and many vendors which offer
simply the RIS or PACS components separately.

The superiority of ITL's system has been demonstrated in many areas. Its user
interfaces are intuitive thereby minimizing training time and operator error.
The unique touch screen interface increases speed of operation and productivity
of the radiologist. Radiology report turn around is typically less than two
hours, which is far superior to any other system currently in production. The
underlying architecture and design characteristics have been shown to be highly
scalable and flexible. These features alone set ITL apart from all competition.

We believe that our ability to configure a cost-effective secondary-server as
part of the ITL WarpSpeed system offers our customers a disaster resilient
system that we believe is not currently offered by any of our competitors in our
market space. The ITL WarpSpeed system may be configured with a fully redundant
hot-standby secondary-server, generally located off-site, to enhance reliability
and availability of patient data and images particularly in response to physical
disasters. DICOM files, reports, database and transaction log backups are
replicated to the secondary-server in near-real time, and the database instance
running on the backup-server is kept in synchronization with the primary server
within 15 minute intervals. In the event of a disaster, the secondary-server
will assume a fully functional primary-server role in 30-45 minutes.

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The Company believes that most available RIS/PACS systems have significant
drawbacks such as:

o Poor user interfaces
o Inadequate workflow tools
o Lack of scalability
o Prohibitive entry point purchase prices.
o Significant management oversight to maintain disparate databases

ITL believes that such drawbacks account in part for the fact that none of its
competitors have been able to capture more than 20% of the market in recent
years. ITL intends to capitalize on these inherent weaknesses in the
competition.

PRODUCT APPROVAL PROCESS

ITL is a registered medical device manufacturer by the Food and Drug
Administration ("FDA"). The WarpSpeed solution is exempt from the pre-market
authorization process by the FDA. Our products have been declared substantially
equivalent to already approved products by the FDA.

Although ITL is aware that there is an international market for products such as
WarpSpeed, we have no present plans to market our products in other countries,
largely due to limited resources. However, should we decide to market WarpSpeed
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.

INSURANCE

ITL has obtained both corporate, product, and computer omissions and errors
liability insurance. We are at risk to product liability claims if the use of
our products is alleged to have caused harm to a patient. There is no direct
contact between the ITL product and the patient.

Under the terms of our executive employment agreements we are obligated to
maintain term life insurance for the benefit of Mr. Lewis M. Edwards, ITL's
Chief Technical Officer, in the amount of $300,000 if this can be obtained on
commercially reasonable terms. The Company, at this time, has not purchased life
insurance.

MATERIAL CONTRACTS

In May 2003, ITL signed a multi-year contract with Park Avenue Associates in
Radiology PC., Binghamton NY, for the installation of its solution in a
multi-site environment. This installation required the deployment of hardware
and software in four physically separate locations interconnected with microwave
links, fiber-optic cable, and a traditional LAN. The interconnections also
include the use of secure, encrypted tunnels via the internet (VPN's). Remote
review stations have been deployed in private physician's offices.

In January 2004, ITL closed a five-year contract for the WarpSpeed system with
St. Anthony Community Hospital, Warwick, NY. St. Anthony is a member of Bon
Secours Charity Health System, which owns and operates 32 health care
facilities. ITL expanded it's installation to an off-campus Women's Center in
May 2005, for digital mammography and ultrasound, and again in November 2005 at
the hospital with the installation of Computed Radiography (CR) modalities as
St. Anthony Community Hospital became essentially film-less. Our installation at
St. Anthony Community Hospital also includes a fully-redundant hot-standby
server.

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In March 2005, the Company signed a contract for the sale of two of its
WarpSpeed RIS/PACS systems to InMed Diagnostic Services of Massachusetts, LLC at
multi-modality imaging centers specializing in women's health care spread across
three sites, and one WarpSpeed system to InMed Diagnostics Services of South
Carolina, LLC in Columbia. The Columbia, South Carolina site is the largest
imaging center of the InMed affiliates.

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 December 31,
2006, the outstanding balances on these loans aggregated $0. The loans were
secured by equipment owned by the Company located at two customer sites, and an
assignment of a contract with one of these customers. In addition, the loans
were secured by a personal guarantee of the Estate of Dr. Ryon. The remaining
balance of these loans, $57,672, was paid in August 2006 as described below.

During November and December 2004, Dr. David Ryon, the Company's principal
stockholder, President, and Chief Executive Officer, until his death in December
2004, loaned the Company an aggregate of $105,000. In December 2004, to
memorialize this loan, he executed, as President and Chief Executive Officer, on
behalf of the Company, a demand promissory note payable to himself and bearing
interest at 10% per annum. He also executed a security agreement, for himself on
behalf of the Company, granting to himself a security interest in all of the
Company's assets not previously encumbered as security for full payment under
the note. Prior to April 12, 2005, the Company negotiated with the Estate of Dr.
David Ryon a 24-month payment schedule, beginning in January 2006. The Company's
Board of Directors approved the revised terms of the promissory note on April
12, 2005. In December 2005, the Estate of Dr. Ryon loaned the Company an
additional $36,000 under an amendment to the December 2004 promissory note and
the payment schedule was renegotiated to begin in January 2007. Additional
amounts were loaned to the Company in March 2006 for $22,500, in August 2006 for
$57,672 and in September 2006 for $153,375.26. These amounts, along with other
previous loans to the Company by the largest stockholder totaling $374,548 were
converted to 1000 shares of Cumulative Convertible Preferred Series B stock in
late September 2006, and all accrued interest was forgiven.

In September 2005, the Company received a total of $50,000 in cash as part of a
Bridge Loan Agreement that included the issuance of warrants to purchase 50,000
shares of Common Stock of the Company. All $50,000 of these funds came from a
member of the Company's Board of Directors. The five-year warrants have an
exercise price of $0.33 per share. The Bridge Loan has an annual interest rate
of 14%, a maturity of 12 months and can be prepaid upon certain events such as
receipt of a certain level of funds from the InMed Services agreement and gross
proceeds of equity financing above $500,000. The principal and accrued interest
associated with this loan is still outstanding, and the maturity date extended
to September 2007.

In March 2006, the Company executed an amendment to its contract with Park
Avenue Associates in Radiology PC, Binghamton NY to extend the term of the
original RIS/PACS contract through December 31, 2006.

Also in March 2006, largest stockholder loaned the Company an additional $22,500
under an amendment to the December 2004 promissory note.

In late August 2006 our largest stockholder loaned the Company $57,672, under an
amendment to the December 2004 promissory note, to payoff the remaining balance
of the Valley loans.

-9-

In September 2006, the Company's largest stockholder loaned the Company
$153,375.26, the proceeds of which were used to satisfy the $153,375.26
settlement with Dr. Phelps. This amount, along with other previous loans to the
Company by the largest stockholder totaling $374,548 was converted to 1000
shares of Cumulative Convertible Preferred Series B stock in late September
2006, and all accrued interest was forgiven.

ITEM 2. DESCRIPTION OF PROPERTY

Image Technology's principal executive office currently occupies leased space at
602 Enterprise Drive, Kingston, NY. Image Technology's telephone number is (845)
338-3366 and its facsimile number is (845) 336-4931.

In September 2002, we executed a five-year lease (at approximately $900 per
month) for office space at "Tech City", formerly the IBM facility in Kingston,
NY. Tech City has become the home of many high technology firms in the Hudson
Valley. The space is sufficient for our growing marketing/sales department, the
R&D team and the systems integration/test area.

The Company believes that while its current facilities will meet its needs for
the foreseeable future, it will need to either renegotiate a renewal of the
lease with TechCity prior to October 1, 2007 or locate and move to other
facilities.

ITEM 3. LEGAL PROCEEDINGS

The Company was party to an arbitration proceeding commenced by Dr. Carlton
Phelps before the American Arbitration Association in New York City. Dr. Phelps,
a former officer and director of the Company claimed that he had been
constructively discharged in violation of his employment agreement by virtue of
a significant diminution of his duties and responsibilities at the Company. He
also claimed that he had been defamed in the Company's public filings when it
was asserted that he had been discharged for cause. The Company denied the
allegations and affirmatively sought the return by Dr. Phelps of some or all of
his stock on the basis of his breach of fiduciary responsibilities. By Opinion
and Award dated February 25, 2004, the Arbitrator determined that Dr. Phelps had
not been constructively discharged, but had voluntarily resigned. As a
consequence, all of Dr. Phelps' claims for monetary awards were dismissed but,
as to the defamation claim, the Company was directed to amend prior filings to
reflect that he was not terminated for cause. The Company's claim for return of
Dr. Phelps's stock was denied. On September 15th, 2004, the Arbitrator awarded
attorneys' fees and arbitration expenses totaling $120,810 and $9,250,
respectively to Dr. Phelps. A total of $130,060 was added to the expenses in the
Company's 2004 and 2005 Statement of Operations and the liabilities have been
increased by the same amount in the Company's Balance Sheets of December 31,
2004 and December 31, 2005.

With respect to the Company's arbitration with Dr. Carlton Phelps (which was
discussed in detail in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2004), Dr. Phelps commenced a proceeding in New York State
Supreme Court, Albany County, to confirm the arbitrator's award. The Company had
opposed confirmation and, in the alternative, sought a modification of the
award. By decision and judgment dated June 4, 2006, Justice Teresi of the
Supreme Court, Albany County confirmed the award of the arbitrator issued on
September 4, 2004, and denied the Company's motion to vacate or modify that
award with respect to the award of attorneys' fees and expenses to Dr. Phelps. A
detailed discussion of the arbitration award was included in our Annual Report
on Form 10-KSB for the fiscal year ended December 31, 2005.

-10-

until September 1, 2006. Additionally, as part of the Settlement Agreement, Dr.
Phelps resold 2,309,583 shares of common stock of Image Technology Laboratories
to the Company at $0.10 per share. An 8-K was filed with the Securities and
Exchange Commission on October 4, 2006 detailing this event.

Image Technology Laboratories, Inc. makes the following statement in accordance
with the Settlement Agreement with Dr. Phelps:

In our previous SB-2 (Amendment No. 2), filed with the Securities and
Exchange Commission on June 7, 2002, the Company erroneously stated:
'We do not consider the recent termination for cause pursuant to the
terms of his employment agreement of Carlton T. Phelps, M.D., formerly
our vice president of finance and administration, chief financial
officer, secretary and treasurer, to be detrimental to our operations
going forward. Rather, it is our belief that Dr. Phelps's recent
performance had a negative impact on our operations and his absence
should provide an immediate ongoing benefit to Image Technology.' In
fact, Dr. Phelps was not fired for cause, he resigned. His resignation
was voluntary. There is no reason to believe that the Company will
receive any on-going benefit as the result of Dr. Phelps's resignation.

On January 17 2006, Barry C. Muradian informed the Company of his resignation as
President, Chief Executive Officer and Principal Accounting Officer, effective
January 20 2006. An 8-K was filed with the Securities and Exchange Commission on
January 20 2006. In May 2006, the Company and Mr. Muradian signed a
"Confidential Separation Agreement, Waiver and General Release". As part of this
agreement, Mr. Muradian was paid a total of approximately $22,500, which
represents all guaranteed payments due and owing to Mr. Muradian for salary and
expenses.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 2006.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Image Technology's Common Stock currently trades on the Over-the-Counter
Bulletin Board ("OTCBB") under the symbol "IMTL.OB". These securities commenced
trading on December 15, 2000. The following table lists the closing high and low
prices of the Company stock during 2005-2007:

----------------------------------------------------------------
2005 2006 2007
-------------------- ------------------ -----------------
HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- ---

1st Qtr. $ 0.45 $ 0.20 $ 0.35 $ 0.12 $ 0.23 $ 0.16

2nd Qtr 0.16 0.16 0.14 0.10

3rd Qtr. 0.25 0.25 0.13 0.08

4th Qtr. 0.29 0.25 0.45 0.10

As of April 16, 2007, the number of holders of record of Common Stock was 182.

-11-

DIVIDEND POLICY

The Company does not anticipate paying any cash dividends on its common stock in
the foreseeable future because it intends to retain its earnings to finance the
expansion of its business. Thereafter, the Board of Directors in light of
conditions then existing, including, without limitation, the Company's financial
condition, capital requirements and business condition will determine the
declaration of dividends.

ISSUANCE AND SALES OF SECURITIES

During 2005 and 2006, the Registrant issued and sold the securities listed below
in transactions exempt from registration pursuant to Section 4 (2) of the
Securities Act of 1933, as amended.

In February 2005, we issued 100,000 shares of our common stock to Mr. Robert G.
Carpenter, a member of our Board of Directors, for a purchase price of $0.20 per
share, or a total of $20,000.

In February 2005, we issued 100,000 shares of our common stock to Mr. Lewis M.
Edwards, the Chairman of our Board of Directors, for a purchase price of $0.20
per share, or a total of $20,000.

In February 2005, we issued 25,000 shares of our common stock to Mr. John
Naccarato, a member of our Board of Directors, for a purchase price of $0.20 per
share, or a total of $5,000.

In February 2005, we issued 100,000 shares of our common stock to Mr. Richard
Norell, a member of our Board of Directors, for a purchase price of $0.20 per
share, or a total of $20,000.

In February 2005, we issued 100,000 shares of our common stock to Mr. Gregory D.
Laib, a key employee, for a purchase price of $0.20 per share, or a total of
$20,000.

In February 2005, we issued 100,000 shares of our common stock to Mr. Jonathon
Kaufman, a key employee, for a purchase price of $0.20 per share, or a total of
$20,000.

In April 2005, we issued 250,000 shares of our common stock to Mr. Lewis M.
Edwards, the Chairman of its Board of Directors, for a purchase price of $.20
per share, or a total of $50,000.

In September of 2006, the Company sold 2,309,583 shares of common stock at a
price of $0.10 to a group of seven accredited investors in a private placement
under Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of
Regulation D thereunder. These unregistered shares of common stock were issued
with registration rights. The proceeds of this sale of common stock were used to
repurchase 2,309,583 shares of common stock at a price of $0.10 from Dr. Carlton
Phelps, our former vice president of finance, chief financial officer, secretary
and treasurer. The 2,309,583 shares of stock repurchased from Dr. Phelps by the
Company were cancelled upon their tender. An 8-K was filed with the Securities
and Exchange Commission on October 4, 2006. The net effect of the repurchase and
subsequent cancellation of 2,309,583 shares of common stock as described above
in combination with the sale of 2,309,583 shares of common stock as described
above resulted in no change to the number of shares of common stock outstanding
due to this transaction.

The Company converted a total of $374,548 of debt owed to our largest
shareholder to 1000 shares of Image Technology Laboratories Convertible
Preferred Stock Series B issued to same shareholder in late September 2006.
Convertible Preferred Stock Series B can be converted to common stock of Image
Technology Laboratories at a ratio of one share of Convertible Preferred Stock
Series B to 2,700 shares of common stock. Either the shareholder or the Company
may elect to force conversion after two years in units of 100 shares of
Convertible Preferred Stock Series B. The Company may also elect to repurchase
the Convertible Preferred Stock Series B in units of 100 shares of Convertible
Preferred Stock Series B at any time for $432 per share of Convertible Preferred
Stock Series B. Fixed interest is accumulated as 12.5 additional shares of
Convertible Preferred Stock Series B per quarter. The underlying common stock,
should the Company or shareholder elect to convert, is unregistered. The voting
rights are set at one vote per share of Convertible Preferred Stock Series B.

-12-

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 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

OVERVIEW

The following is a discussion of certain factors affecting the results of
operations, liquidity and capital resources of Image Technology Laboratories,
Inc. ("ITL"). You should read the following discussion and analysis in
conjunction with ITL's audited financial statements and related notes, which are
included elsewhere in this Annual Report on Form 10-KSB.

BUSINESS AND SUMMARY OF CRITICAL ACCOUNTING POLICIES:

ITL is a medical image management company in the healthcare information systems
market. We were incorporated in Delaware on December 5, 1997. ITL has developed
a single database "Radiology Information System and Picture Archiving and
Communications System" known as RIS/PACS for use in the secure management of
patient information and diagnostic images.

We expect that we will derive our future revenues primarily from sales of our
WarpSpeed system and associated maintenance charges along with Application
Service Provider (ASP) usage fees. We obtained our first contract for the sale
of WarpSpeed and related hardware and maintenance services in August 2002.
Accordingly, we are no longer in the development stage for accounting purposes,
but we continue to refine and enhance the capabilities of our WarpSpeed system.

For the twelve months ending December 31, 2006, we had a net loss $143,707, and
have had recurring losses and negative cash flows from our operating activities
since inception. On December 31 2006, we had a cash position of $3,264 and a
working capital deficiency of $247,315. In February and April 2005, in private
placements of the Company's common stock, all of the individual members of our
Board of Directors and certain key employees purchased an aggregate of 775,000
shares of our common stock at $0.20 per share, resulting in proceeds to the
Company of $155,000. In June 2005, we received net proceeds of $150,000 from the
exercise of stock options for 600,000 shares of our common stock at $0.25 per
share. In June 2005, the Company secured bridge loan funding of $180,000 from a
member of the Company's Board of Directors, from a related party to another
member of the Company's Board of Directors and from Alfus Financial Services for
use in its operations. The entire amount was repaid including $7,324 interest in
September 2005. Also in September 2005, the Company secured bridge loan funding
of $50,000 from a member of the Company's Board of Directors for use in its
operations.

As a result of our limited capital resources our independent registered public
accounting firm has indicated in their report on our financial statements for
the year ended December 31, 2006 that there is a substantial doubt about our
ability to continue as a going concern. We believe, however, that as a result of
the proceeds from our financing activities, as well as anticipated cash flow to
be generated by fees from, and sales of our RIS/PACS solution, we will be able
to continue to meet our obligations as they become due through at least December
31, 2007. We also believe, but cannot assure, that if needed we will be able to
obtain additional capital resources from financing through financial
institutions and other unrelated sources and/or through additional related party
loans or equity transactions.

Our cost and expense structures 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 as we have done in 2006.
Included in such resources are the expectation of additional short-term loans

-13-

and/or purchases of additional common stock by the members of our Board of
Directors, as well as additional private placements of securities to unrelated
third parties. There are no commitments of financing nor is there any assurance,
that, if needed, such loans or security purchases will be available. If
necessary, we also have the ability to reduce or curtail our planned level of
activity. As a result of the aforementioned, our financial statements have been
prepared assuming the Company will continue as a going concern and they do not
include any adjustments from the outcome of this uncertainty.

CRITICAL ACCOUNTING POLICIES

The Securities and Exchange Commission issued disclosure guidance for "critical
accounting policies." The Securities and Exchange Commission defines "critical
accounting policies" as those that require the application of management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain and may
change in subsequent periods.

Our significant accounting policies are described in Note 2 to our audited
financial statements, contained elsewhere in this report. We believe that the
following accounting policies or estimates require the application of
management's most difficult, subjective or complex judgments.

GOING CONCERN:

The accompanying audited financial statements have been prepared on the basis of
accounting principles applicable to a going concern. Accordingly, they do not
give effect to adjustments that would be necessary should we be unable to
continue as a going concern and, therefore, be required to realize our assets
and retire our liabilities in other than the normal course of business and at
amounts different from those in the accompanying audited financial statements.
Our ability to continue as a going concern is dependent upon achieving
profitable operations and/or obtaining additional financing. While our
management believes that both criteria will be achieved, there can be no
assurance as to either outcome.

REVENUE RECOGNITION:

Revenues from the provision of radiology and imaging services are recognized
over the estimated period during which the applicable services are performed
provided that the fees are fixed and determinable and collection is reasonably
assured.

Contracts for the sale of our imaging systems involve multiple elements
including the delivery and installation of software and hardware products,
training and system maintenance. However, we cannot allocate the revenues from
such contracts to each element based on the relative fair value of each element.
Accordingly, we will recognize the revenues from a system contract ratably over
the period during which we are required to provide maintenance or any other
service provided that the fees are fixed and determinable and collection is
reasonably assured.

VALUATION OF DEFERRED TAX ASSETS:

We regularly evaluate our ability to recover the reported amount of our deferred
tax assets considering several factors, including our estimate of the likelihood
that we will generate sufficient taxable income in future years in which
temporary differences reverse. Presently we believe that it is more likely than
not that we will not realize a substantial portion of the benefit of our
deferred tax assets based primarily on our projected operating results and,
accordingly, have recorded a valuation allowance of $1,120,000. In the event
that actual results differ from our estimates or we adjust these estimates in
future periods, we may need to adjust this valuation allowance, which could
materially impact our financial position and results of operations.

-14-

VALUATION OF LONG-LIVED ASSETS:

We assess the recoverability of long-lived assets, such as equipment and
improvements, whenever we determine that events or changes in circumstances
indicate that their carrying amount may not be recoverable. Our assessment is
primarily based upon our estimate of future cash flows associated with these
assets. We have determined that there has not been an impairment of any of our
long-lived assets at December 31, 2006. However, should our operating results
deteriorate; we may determine that some portion of our long-lived assets is
impaired. Such determination could result in non-cash charges to income that
could materially affect our financial position and results of operations for
that period.

-15-

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2006 COMPARED TO THE YEAR
ENDED DECEMBER 31, 2005

REVENUE:

During the year ended December 31, 2006, our total revenues decreased $26,950,
or 3.9% to $672,606 from $699,556 in the prior year.

REVENUE DISCUSSION:

ITL is reporting fiscal year revenues, ending December 31, 2006, of $672,606,
essentially flat from the previous year due to lack of new sales in 2006. These
revenues were derived solely from the Companies normal line-of-work: developing,
selling and servicing medical image and information management systems. During
the fiscal year ended December 31, 2005, ITL reported total revenue of $699,556
..

The Company is hopeful that additional sales will take place in 2007 as a result
of our continued investments in research and development, and additional focus
on marketing. We expect that we will derive our revenues in the future primarily
from sales of our WarpSpeed system and associated maintenance charges along with
ASP usage fees.

COST OF REVENUE:

The cost of revenue in 2006 of $3,105 represents additional equipment costs of
systems sold in 2005 and installed in 2006.

RESEARCH AND DEVELOPMENT EXPENSES:

During the year ended December 31, 2006, we incurred research and development
expenses of $381,314 as compared with $403,560 in the preceding year; a decrease
of $22,246. These expenses are consistent with ITL's efforts to enhance the
WarpSpeed system while controlling costs and are primarily compensation to our
Chief Technology Officer and engineering personnel.

SALES AND MARKETING EXPENSES:

During the years ended December 31, 2006 and 2005, we incurred sales and
marketing expenses of $17,485 and $145,460, respectively; a decrease of
$127,975. The reduction in this category of expenses was largely associated with
the departure of Mr. Muradian in January 2006. The Company has focused its
efforts on continuing to control costs while identifying appropriate sales
personnel and resources. These expenses are expected to increase in 2007
consistent with achieving our revenue goals.

GENERAL AND ADMINISTRATIVE EXPENSES:

During the year ended December 31, 2006, we incurred general and administrative
expenses of $414,409 as compared to $434,782 in the prior year, a decrease of
$20,373. This reduction was associated with the departure of Mr. Muradian in
January 2006. General and Administrative Expenses are attributable to
compensation, travel, customer support and infrastructure-related costs. The
Company is continuing to work diligently to control costs while focusing on
revenue generating activities.

NET LOSS:

The Company continues to improve its performance and reduce its losses. During
fiscal year ended December 31, 2006, we incurred a loss of $143,707 ($.01 per
share), as compared to a loss of $414,546 ($.03 per share) for the year ended
December 31, 2005. This is an improvement of approximately 65%. The Company is
aggressively managing costs while focusing on increasing revenues from sales of
our systems and software and ASP fees.

-16-

LIQUIDITY AND CAPITAL RESOURCES:

As of December 31, 2006, we had cash and cash equivalents of $3,264 and a
working capital deficiency of $247,315 as compared with a cash position of
$40,698 and working capital deficiency of $439,844 in 2005. In comparing FY 2006
with 2005, cash and cash equivalents decreased by $37,434 to $3,264; accounts
receivable increased by $82,638 to $194,839 and total current assets increased
by $48,346 to $208,705.

During 2006, our operating activities utilized $156,688 of cash. This arose
primarily from our net loss of $143,707 as adjusted for a non-cash depreciation
addition of $56,816, a non-cash addition of SFAS 123(R) stock based compensation
of $97,930, an increase in accounts receivables of $82,638 (taking away from
cash), and a decrease in accounts payable and accrued expenses of $81.947
(taking away from cash). In comparison, during 2005, our operating activities
utilized $231,009 of cash. This arose primarily from our net loss of $414,546 as
adjusted for a non-cash depreciation addition of $56,274 (netting to $358,272),
an increase in accounts receivables of $51,153 (taking away from cash), and an
increase in accounts payable and accrued expenses of $170,305 (adding to cash)

During 2006 our investing activities used $3,826 of cash, primarily to purchase
equipment placed in service to generate revenue. During 2005, $31,298 was used
for the same purpose.

The above net uses of cash in 2006 were partially offset by our financing
activities which totaled $123,080. This cash was generated by the proceeds from
loans from stockholders which netted $230,148 along with $7,545 from our bank
line of credit, and reduced by the repayment of notes and long term debt of
$114,613. In 2005, the net uses of cash were partially offset by our financing
activities which totaled $298,793. This cash was generated by the private
placement of common stock and the proceeds from loans from stockholders which
netted $581,000 and reduced by the repayment of notes on long term debt of
$92,207 and the repayment of loans to stockholders of $190,000.

In September 2002, we applied for, and received, a line of credit from M & T
Bank, renewable annually, in the amount of $75,000. On December 31, 2006, the
outstanding balance was $66,895.

In January 2004, we closed a five-year contract for the WarpSpeed system with
St. Anthony Community Hospital, Warwick, NY. St. Anthony Community Hospital is a
member of Bon Secours Charity Health System, which owns and operates 32 health
care facilities.

In February and March 2004, we borrowed an aggregate of $264,000 from Valley
Commercial Capital, LLC ("Valley"). These loans required aggregate monthly
payments of principal and interest of $8,273 through February 2007 and $4,682 in
March 2007. In late August 2006, the remaining balance of these loans, $57,672,
was paid. This payoff was funded by a loan from our largest stockholder and was
converted to Cumulative Convertible Preferred Series B stock issued to our
largest stockholder in late September 2006.

In December 2004, we borrowed $105,000 from our former Chief Executive Officer,
was to be repaid over 24 months, beginning in January 2007. This amount was
converted to Cumulative Convertible Preferred Series B stock issued to our
largest stockholder in late September 2006.

In February 2005, the Company concluded a private placement of its common stock
with each member of its Board of Directors and two key employees. Pursuant to
such transaction, the Company sold an aggregate of 525,000 shares at $.20 per
share, the approximate fair value on the date of closing, resulting in aggregate
proceeds to the Company of $105,000.

In March 2005, the Company signed a contract for the sale of two of its
WarpSpeed RIS/PACS systems to InMed Diagnostic Services of Massachusetts, LLC at
multi-modality imaging centers specializing in women's health care, and one
WarpSpeed system to InMed Diagnostics Services of South Carolina, LLC in
Columbia, South Carolina. The South Carolina site is the largest imaging center
of the InMed affiliates.

-17-

In April 2005, the Company concluded a private placement of its common stock
with the Chairman of its Board of Directors. Pursuant to such transaction, the
Company sold an aggregate of 250,000 shares at $.20 per share, the approximate
fair value on the date of closing, resulting in aggregate proceeds to the
Company of $50,000.

In June 2005, the company issued 600,000 shares of its common stock, pursuant to
the exercise of stock options at $.25 per share, resulting in aggregate proceeds
to the Company of $150,000.

In June 2005, the Company received a total of $180,000 in cash as part of a
Bridge Loan Agreement that included the issuance of warrants to purchase 180,000
shares of Common Stock of the Company. $85,000 of these funds came from a member
of the Company's Board of Directors, $85,000 from a related party to another
member of the Company's Board of Directors and $10,000 from Alfus Financial
Services. The five-year warrants have an exercise price of $0.33 per share. The
Bridge Loan has an annual interest rate of 14%, a maturity of 12 months and can
be prepaid upon certain events such as receipt of a certain level of funds from
the InMed Services agreement and gross proceeds of equity financing above
$500,000. This $180,000 Bridge Loan was repaid in it's entirety, including
interest, in September 2005.

In December 2005, our largest stockholder loaned the Company an additional
$36,000 under an amendment to the December 2004 promissory note. An additional
$22,500 was borrowed from our largest stockholder in March 2006. These amounts
were converted to Cumulative Convertible Preferred Series B stock issued to our
largest stockholder in late September 2006.

In September 2006, the Company entered into a settlement agreement with Dr.
Carlton Phelps, our former vice president of finance and administration, chief
financial officer, secretary and treasurer. Pursuant to the Settlement
Agreement, the Company paid Dr. Phelps a total of $153,375.26 consisting of
attorneys' fees awarded by the arbitrator and confirmed by the court plus
interest calculated at a rate of nine percent per annum from September 4, 2004
until September 1, 2006. The Company filed an 8-K detailing this event with the
Securities and Exchange Commission on October 4, 2006. In September 2006, the
Company's largest stockholder loaned the Company $153,375.26, the proceeds of
which were used to satisfy the $153,375.26 settlement with Dr. Phelps. This
amount was converted to Cumulative Convertible Preferred Series B stock issued
to our largest stockholder in late September 2006.

We require cash to fund our working capital needs and capital expenditures, as
well as to meet existing commitments. Such commitments include payments of
existing loans including our line of credit, and $900 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 directors, officers and employees 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 considering outside sources
of equity funds and other types of financing in order to help support our
anticipated growth. There can be no assurance that such efforts will be
successful.

Management believes that as a result of the proceeds from financing activities,
as well as anticipated cash flow generated by sales of its RIS/PACS solution (in
addition to the current cash flow resulting from our installed ASP base), the
Company will be able to continue to meet its obligations as they become due
through at least December 31, 2007. Management also believes, that if needed,
the Company will be able to obtain additional capital resources from financing
through financial institutions and other unrelated sources and/or through
additional related party loans and private placements. However, there can be no
assurance that the Company will become profitable or that financing will be
available. Accordingly, the accompanying financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amount and classification of liabilities that
may result from the outcome of this uncertainty.

-18-

ITEM 7. FINANCIAL STATEMENTS

Financial Statements

INDEX TO FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm 19

Balance Sheet
December 31, 2006 20

Statements of Operations
Years Ended December 31, 2006 and 2005 21

Statements of Changes in Stockholders' Deficiency
Years Ended December 31, 2006 and 2005 22

Statements of Cash Flows
Years Ended December 31, 2006 and 2005 23

Notes to Financial Statements 24-35

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders Image Technology Laboratories, Inc.

We have audited the accompanying balance sheet of Image Technology Laboratories,
Inc. as of December 31, 2006, and the related statements of operations, changes
in stockholders' deficiency and cash flows for the years ended December 31, 2006
and 2005. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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, 2006, and its results of operations and cash flows for
the year ended December 31, 2006 and 2005, in conformity with accounting
principles generally accepted in the United States of America.

The financial statements referred to above have been prepared assuming that the
Company will continue as a going concern. As further discussed in Notes 1 and 2
to the financial statements, among other things, the Company's operations have
generated recurring losses and negative cash flows from operating activities,
and it had working capital and stockholders' deficiencies at December 31, 2006.
Such matters raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans concerning these matters are described in
Note 1. The accompanying financial statements as of and for the year ended
December 31, 2006 do not include any adjustments that might result from the
outcome of this uncertainty.

/S/ BERENSON LLP
----------------

NEW YORK, NEW YORK
APRIL 13, 2007

-19-

IMAGE TECHNOLOGY LABORATORIES, INC.

BALANCE SHEET
DECEMBER 31, 2006

ASSETS

CURRENT ASSETS:

Cash $ 3,264
Accounts receivable 194,839
Prepaid expenses and other current assets 10,602
-----------

TOTAL CURRENT ASSETS 208,705

Equipment and improvements, net 118,267

Rent - Deposit 1,496
-----------

TOTAL ASSETS $ 328,468
===========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES:
Loan payable, stockholder $ 50,000
Loan, Bank line of credit 66,895
Accounts payable and accrued expenses 217,402
Accrued compensation payable to stockholders 121,723
-----------

TOTAL LIABILITIES, ALL CURRENT 456,020

COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Preferred stock, par value $.01 per share;
5,000,000 shares authorized;
1,500,000 shares issued and outstanding, Series A 15,000
1,000 shares issued and outstanding, Series B 10
Common stock, par value $.01 per share; 50,000,000 shares
authorized; 15,238,778 shares issued and outstanding 152,388
Additional paid-in capital 3,630,015
Accumulated deficit (3,924,965)
-----------

TOTAL STOCKHOLDERS' DEFICIENCY (127,552)
-----------

TOTAL LIABILITIES AND STOCKHOLDERS' $ 328,468
DEFICIENCY
===========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

-20-

IMAGE TECHNOLOGY LABORATORIES, INC.

STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2006 AND 2005

2006 2005
---- ----

REVENUE $ 672,606 $ 699,556

COST OF REVENUE 3,105 130,300
------------ ------------

GROSS PROFIT 669,501 569,256
------------ ------------

EXPENSES:
Research and development 381,314 403,560
Sales and marketing 17,485 145,460
General and administrative (includes interest 414,409 434,782
expense of $29,640 for 2006 and $38,859 for 2005)
------------ ------------

TOTAL COST AND EXPENSES 813,208 983,802
------------ ------------

NET LOSS $ (143,707) $ (414,546)
============ ============

NET LOSS PER COMMON SHARE:
Basic and diluted $ (0.01) $ (.03)
============ ============

WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTATION:
Basic and diluted 16,739,030 16,336,038
============ ============

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

-21-

IMAGE TECHNOLOGY LABORATORIES, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 2006 AND 2005

PREFERRED STOCK SERIES
A & B COMMON STOCK
-------------------------- ----------------------- TOTAL
NUMBER NUMBER ADDITIONAL ACCUMU- STOCK-
OF OF PAID-IN LATED HOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY
------ ------ ------ ------ ------- ------- ----------

Balance, January 1, 2005 1,500,000 15,000 13,863,778 138,638 2,866,297 (3,366,712) (346,777)

Issuance of common stock
in private placement 775,000 7,750 147,250 155,000
In exercise of options 600,000 6,000 144,000 150,000

Net loss (414,546) (414,546)
---------- ------------ ----------- ---------- ------------ ------------ ------------

Balance, December 31, 2005 1,500,000 $ 15,000 15,238,778 $ 152,388 $ 3,157,547 $ (3,781,258) $ (456,323)

Issuance of options for
Compensation 97,930 97,930

Issuance of common stock
in private placement 2,309,583 23,095 207,863 230,958
Redemption & Cancellation
of Common Stock (2,309,583) (23,095) (207,863) (230,958)

Preferred Stock Series B 1,000 10 374,538 374,548

Net loss (143,707) (143,707)
---------- ------------ ----------- ---------- ------------ ------------ ------------

Balance, December 31, 2006 1,501,000 $ 15,010 15,238,778 $ 152,388 $ 3,630,015 $ (3,924,965) $ (127,552)
========== ============ =========== ========== ============ ============ ============

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

-22-

IMAGE TECHNOLOGY LABORATORIES, INC.

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006 AND 2005

2006 2005(1)
--------- ---------
OPERATING ACTIVITIES:

Net loss $(143,707) $(414,546)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization of equipment
and improvements 56,816 56,274
Stock Based Compensation 97,930
Changes in operating assets and liabilities:
Accounts receivable (82,638) (51,113)
Prepaid expenses and other current assets (3,142) 8,111
Accounts payable and accrued expenses (123,187) 116,894
Accrued compensation payable to stockholders 41,240 53,411
--------- ---------

NET CASH USED IN OPERATING ACTIVITIES (156,688) (231,009)
--------- ---------

INVESTING ACTIVITIES - PURCHASE OF EQUIPMENT AND IMPROVEMENTS (3,826) (31,298)
--------- ---------

FINANCING ACTIVITIES:
Proceeds from bank line of credit 7,545
Proceeds from private placement of common stock 230,958 305,000
Redemption of common stock (230,958)
Proceeds from loans from stockholders 230,148 276,000
Repayments of loans from stockholders (190,000)
Repayments of notes payable and long term debt (114,613) (92,207)

--------- ---------

NET CASH PROVIDED BY FINANCING ACTIVITIES 123,080 298,793
--------- ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (37,434) 36,486

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 40,698 4,212
--------- ---------

CASH, END OF YEAR $ 3,264 $ 40,698
========= =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 33,877 $ 25,498
========= =========

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of notes payable to
Cumulative Convertible Preferred Series B stock $ 374,548 $ 0
========= =========

1. Certain items in the 2005 cash flow statement have been reclassified to
conform with the 2006 presentation.

The accompanying notes are an integral part of the financial statements.

-23-

IMAGE TECHNOLOGY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2006 AND 2005

NOTE 1 - BUSINESS:
Image Technology Laboratories, Inc. (the "Company") was incorporated on December
5, 1997 and commenced operations on January 1, 1998. The Company has developed
software for a single database "Radiology Information System/Picture Archiving
and Communication System", known as RIS/PACS for use in the management of
patient information and medical images by hospitals and diagnostic imaging
centers. The "PACS" portion of the system inputs and stores diagnostic images in
digital format from original imaging sources such as: Computerized Tomography
(CT), Magnetic Resonance Imaging (MRI), Ultrasound, Nuclear Imaging, Digital
Mammography, Digital Fluoroscopy and Radiography.

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's visit. All of the data is retained in standard formats,
including the DICOM and HL-7 standards.

The Company obtained its first contract for the sale of its WarpSpeed system and
maintenance services in August 2002. Accordingly, the Company is no longer in
the development stage for accounting purposes, but continues to refine and
enhance the capabilities of its WarpSpeed system.

The Company has incurred recurring losses and negative cash flows from operating
activities since its inception. The Company had cash of $3,264, a working
capital deficiency of $247,315 and a stockholders' deficiency of $127,552 as of
December 31, 2006. Management expects a reduction in the level of such losses
now that sales of the products have commenced. At times, in order to help in
maximizing our working capital, our directors, officers and employees 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.

Management believes that as a result of the proceeds from its financing
activities, as well as anticipated cash flow generated by sales of its RIS/PACS
solution, the Company should be able to continue to meet its obligations as they
become due through at least December 31, 2007 Management also believes that if
needed, the Company should be able to obtain additional capital resources from
financing through financial institutions and other unrelated sources and/or
through additional related party loans and private placements. However, there
can be no assurance that the Company's operations will become profitable or that
financing will be available. Accordingly, the accompanying financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amount and classification of
liabilities that may result from the outcome of this uncertainty.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GOING CONCERN UNCERTAINTY:
As discussed in Note 1, the Company has had continuing losses and negative cash
flow from operating activities since inception. The accompanying financial
statements have been prepared on the basis of accounting principles applicable
to a going concern. Accordingly, they do not give effect to adjustments that
would be necessary should the Company be unable to continue as a going concern
and, therefore, be required to realize its assets and retire its liabilities in
other than the normal course of business and at amounts different from those in
the accompanying financial statements. The Company's ability to continue as a
going concern is dependent upon achieving profitable operations and/or obtaining
additional financing. While management of the Company believes that both
criteria will be achieved, there can be no assurance as to either outcome.
Management's plans as to these matters are discussed further in Note 1.

-24-

IMAGE TECHNOLOGY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2006 AND 2005

USE OF ESTIMATES:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.

CASH EQUIVALENTS:
Cash equivalents include all highly liquid investments with an original maturity
of three months or less when acquired. At December 31, 2006, the Company has no
cash equivalents.

REVENUE RECOGNITION:
Revenue from the provision of radiology and imaging services are recognized over
the estimated period during which the applicable services are performed provided
that the fees are fixed and determinable and collection is reasonably assured.
There were no radiology and imaging services in 2005.

Contracts for the sale of the Company's imaging systems involve multiple
elements including the delivery and installation of software and hardware
products, training and system maintenance. However, the Company cannot allocate
the revenue from such contracts to each element based on the relative fair value
of each element. Accordingly, it recognizes the revenue from a systems contract
ratably over the period during which it is required to provide maintenance or
any other services provided that the fees are fixed and determinable and
collection is reasonably assured.

Any unearned revenue would be included in deferred revenue in the balance sheet.
At December 31, 2006, the Company had no unearned revenue.

The Company derived substantially all of its revenues in both 2006 and 2005 from
a limited number of customers, and all of its accounts receivable are also from
these same few customers. The Company closely monitors the extension of credit
to its customers while maintaining allowances, if necessary, for potential
credit losses. On a periodic basis, the Company evaluates its accounts
receivable and establishes an allowance for doubtful accounts, based on a
history of past write-offs, and collections and current credit conditions.
Management does not believe that significant credit risk exists with respect to
accounts receivable at December 31, 2006.

CONCENTRATIONS OF CREDIT RISK:
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company places its cash and cash equivalents with high-quality
financial institutions. At times, the Company's cash and cash equivalent
balances exceed the insured amount under the Federal Deposit Insurance
Corporation of $100,000.

ACCOUNTS RECEIVABLE:
Accounts receivable are stated at the amount management expects to collect from
the outstanding balances. Management provides for probable uncollectible amounts
through a charge to earnings and a credit to a valuation allowance based upon
its assessment of the current collection status of individual accounts.
Delinquent amounts that are outstanding after management has conducted

-25-

IMAGE TECHNOLOGY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2006 AND 2005

reasonable collection efforts are written off through a charge to the valuation
allowance and a credit to accounts receivable. Based on management's review,
there is no need for an allowance for doubtful accounts as of December 31, 2006.

RESEARCH AND DEVELOPMENT COSTS:
For financial reporting purposes, research and development costs are charged to
expense as incurred.

EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements are stated at cost. Depreciation of
equipment is provided using accelerated methods over the estimated useful lives
of the assets, which range from five to seven years. Leasehold improvements are
amortized over the lesser of the estimated useful life of the asset or the term
of the lease.

IMPAIRMENT OF LONG-LIVED ASSETS:
Impairment losses on long-lived assets, such as equipment and improvements, 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 for
temporary differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. The income tax provision or credit is the tax payable or
refundable for the period plus or minus the change during the period in deferred
tax assets and liabilities.

NET EARNINGS (LOSS) PER COMMON SHARE:
The Company presents "basic" earnings (loss) per common share and, if
applicable, "diluted" earnings per common share pursuant to the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"). Basic earnings (loss) per common share is calculated by dividing net
income or loss applicable to common stock by the weighted average number of
common shares outstanding during each period. The calculation of diluted
earnings per common share is similar to that of basic earnings per common share,
except that the denominator is increased to include the number of additional
common shares that would have been outstanding if all potentially dilutive
common shares, such as those issuable upon the exercise of stock options and
warrants, were issued during the period. The rights of the Company's preferred
and common stockholders are substantially equivalent. The Company has included
the 1,500,000 preferred shares Series A and the 1,000 preferred shares Series B
outstanding in the weighted average number of common shares outstanding in the
computation of basic loss per share for the years ended December 31, 2006 and
2005 in accordance with the "two class" method of computing earnings (loss) per
share set forth in SFAS 128.

-26-

IMAGE TECHNOLOGY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2006 AND 2005

Since the Company had net losses in 2006 and 2005, the assumed effects of the
exercise of outstanding options, warrants or the conversion of preferred stock
into common shares at December 31, 2006 and 2005, respectively, were not
considered in the computation of loss per share as they would have been
anti-dilutive. However, these common stock equivalents could have potentially
dilutive effects in the future.

ACCOUNTING FOR STOCK BASED COMPENSATION
In 2006, the Company adopted SFAS 123 (R) "Accounting for stock based
compensation" under the "modified prospective application". No stock-based
compensation awards were granted in 2006. Stock-based compensation expense
recognized in the year ended December 31, 2006 was $97,930.

Prior to January 1, 2006, the Company accounted for its stock based compensation
plans under the recognition and measurement principles of APB opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations. No
stock option based employee compensation cost is reflected in net income, as all
options granted under the plan had an exercise price equal to the market value
of the underlying common stock on the date of the grant. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation" and disclosure provisions of SFAS No. 148, "Accounting
for Stock-Based Compensations - Transition and Disclosure", to stock-based
employee compensation for the year ended December 31, 2005:

2005
----------

Net loss - as reported $(414,546)
Deduct total based employee based
compensation expense determined under
a fair value based method for all awards,
net of related taxes (148,911)

Net loss - pro forma $(563,457)

Loss Per Share:

Basic loss per share - as reported $ (.03)

Basic loss per share - pro forma $ (.03)

The fair value of each option granted was estimated as of the date of grant
using the Black-Scholes Option-Pricing-Model with the following weighted average
assumptions:

2005
Expected volatility 110.0%
Risk-free interest rate 4.22%
Expected years of option term 10
Expected dividends 0%

-27-

IMAGE TECHNOLOGY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2006 AND 2005

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

NEW ACCOUNTING PRONOUNCEMENTS:
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" ("SFAS 154") which replaces APB Opinion No. 20 Accounting Changes
and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements -
An Amendment of APB Opinion No. 28". SFAS 154 requires retrospective application
to prior period's financial statement of a voluntary change in accounting
principal unless it is not practical. SFAS 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning after December
15, 2005, and is required to be adopted by the Company in the first quarter of
fiscal 2007. Although the Company will continually evaluate its accounting
policies, management does not currently believe adoption will have a material
impact on the Company's results of operations, cash flows or financial position.

In September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Number 157 - Fair Value Measurements ("SFAS157").
SFAS 157 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles ("GAAP"), and expands disclosures about
fair value measurements.

Prior to SFAS 157, there were different definitions of fair value and limited
guidance for applying those definitions in GAAP. Moreover, that guidance was
dispersed among the many accounting pronouncements that require fair value
measurements. SFAS 157 clarifies that the exchange price is the price in an
orderly transaction between market participants to sell the asset or transfer
the liability in the market in which the reporting entity would transact for the
asset or liability, that is, the principal or most advantageous market for the
asset or liability.

SFAS 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. The
Company is currently evaluating the impact, if any, that SFAS 157 will have on
its financial position, results of operations and cash flows.

In June 2006, the Financial Accounting Standards Board ("FASB") issued Financial
Accounting Standards Board Interpretation ("FIN") No. 48, "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109." FIN
No. 48 provides a comprehensive model for the recognition, measurement and
disclosure in the financial statements of uncertain tax positions taken or
expected to be taken on a tax return. The Company will adopt FIN No. 48
effective beginning on January 1, 2007. The Company is currently evaluating the
impact this interpretation may have on its future financial position, results of
operations, earnings per share, or cash flows.

In September 2006, the Securities and Exchange Commission issued SAB No. 108,
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements." SAB No. 108 was issued to
address diversity in practice in quantifying financial statement misstatements.
Current practice allows for the evaluation of materiality on the basis of either
(1) the error quantified as the amount by which the current year income
statement was misstated ("rollover method") or (2) the cumulative error
quantified as the cumulative amount by which the current year balance sheet was
misstated ("iron curtain method"). The guidance provided in SAB 108 requires

-28-

IMAGE TECHNOLOGY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2006 AND 2005

both methods to be used in evaluating materiality ("dual approach"). SAB No. 108
permits companies to initially apply its provisions either by (1) restating
prior financial statements as if the dual approach had always been used or (2)
recording the cumulative effect of initially applying the "dual approach" as
adjustments to the carrying values of assets and liabilities as of January 1,
2006 with an offsetting adjustment recorded to the opening balance of retained
earnings. There were no matters warranting the Company's consideration under the
provisions of SAB No. 108 and, therefore, it did not have an impact on the
Company's financial position, results of operations, earnings per share or cash
flows.

NOTE 3 - EQUIPMENT AND IMPROVEMENTS:
Equipment and improvements consist of the following at December 31, 2006:

Equipment $ 304,674
Furniture 9,140
Leasehold improvements 3,505
--------------
Total 317,319
Less accumulated depreciation and amortization 199,052
--------------
Total $ 118,267
==============

Depreciation and amortization expense amounted to $56,816 and $56,274 in 2006
and 2005, respectively.

NOTE 4 - NOTES PAYABLE TO STOCKHOLDERS:
During November and December 2004, Dr. David Ryon, the Company's principal
stockholder, President, and Chief Executive Officer, until his death in December
2004, loaned the Company an aggregate of $105,000. In December 2004, to
memorialize this loan, he executed, as President and Chief Executive Officer, on
behalf of the Company, a demand promissory note payable to himself and bearing
interest at 10% per annum. He also executed a security agreement, for himself on
behalf of the Company, granting to himself a security interest in all of the
Company's assets not previously encumbered as security for full payment under
the note. Prior to April 12, 2005, the Company negotiated with the Estate of Dr.
David Ryon a 24-month payment schedule, beginning in January 2006. The Company's
Board of Directors approved the revised terms of the promissory note on April
12, 2005. In December 2005, the Estate of Dr. Ryon loaned the Company an
additional $36,000 under an amendment to the December 2004 promissory note and
the payment schedule was renegotiated to begin in January 2007. Additional
amounts were loaned to the Company in March 2006 for $22,500, in August 2006 for
$57,672 and in September 2006 for $153,375.26. These amounts, along with other
previous loans to the Company by the largest stockholder totaling $374,548 were
converted to 1000 shares of Cumulative Convertible Preferred Series B stock in
late September 2006, and all accrued interest was forgiven.

-29-

IMAGE TECHNOLOGY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2006 AND 2005

NOTE 5 - LONG-TERM DEBT:
In February 2004, the Company borrowed $125,000 from Valley Commercial Capital,
LLC ("Valley"). This loan was evidenced by a promissory note, which provided for
interest at 8% per annum and called 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
provided for interest at 8% per annum and called for monthly payments of
principal and interest of $4,356 through March 29, 2007. As of December 31,
2006, the outstanding balances on these loans aggregated $0. The loans were
secured by equipment owned by the Company located at two customer sites, and an
assignment of a contract with one of these customers. In addition, the loans
were secured by a personal guarantee of the Estate of Dr. Ryon. The remaining
balance of these loans, $57,672, was paid in August 2006 as described in Note 4.

NOTE 6 - ACCRUED COMPENSATION PAYABLE TO STOCKHOLDERS:
As of December 31, 2006, accrued compensation payable to stockholders was
$121,723, all of which is reflected as a current liability.

NOTE 7 - STOCKHOLDERS' DEFICIENCY:
PREFERRED STOCK:
As of December 31, 2006, the Company was authorized to issue up to 5,000,000
shares of preferred stock with a par value of $.01 per share. 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.

The issuance described above was 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.

PRIVATE PLACEMENT OF COMMON SHARES:
In February 2005, the Company concluded a private placement of its common stock
with each member of its Board of Directors and two key employees. Pursuant to
such transaction, the Company sold an aggregate of 525,000 shares at $.20 per
share, the approximate fair value on the date of closing, resulting in aggregate
proceeds to the Company of $105,000.

-30-

IMAGE TECHNOLOGY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2006 AND 2005

In April 2005, the Company concluded a private placement of its common stock
with Mr. Edwards, its Chairman of the Board of Directors. Pursuant to such
transaction, the Company sold an aggregate of 250,000 shares at $.20 per share,
the approximate fair valuation on the date of closing, resulting in aggregate
proceeds to the Company of $50,000.

In June 2005, the company issued 600,000 shares of its common stock, pursuant to
the exercise of stock options at $.25 per share, resulting in aggregate proceeds
to the Company of $150,000.

NOTE 8 - INCOME TAXES:
As of December 31, 2006, the Company had net operating loss carryforward of
approximately $2,800,000 available to reduce future Federal and state taxable
income that will expire at various dates through 2024. The Company's only other
material temporary difference as of that date was approximately $121,000
attributable to accrued compensation payable to shareholders. Due to the
uncertainties related to, among other things, the possible 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 potential benefits of its deferred tax assets of
approximately $1,120,000 (of which $1,071,000 was attributable to the net
operating loss carryforwards and $49,000 was attributable to the future
deductibility of the accrued compensation) by an equivalent valuation allowance
as of December 31, 2006.

NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company's financial instruments at December 31, 2006 for which disclosure of
estimated fair value is required by certain accounting standards consisted of
cash, accounts receivable, accounts payable and accrued expenses, notes payable,
notes payable to stockholders and accrued compensation payable to stockholders.
In the opinion of management, cash, accounts receivable, accounts payable and
accrued expenses, and notes payable were carried at fair value because of their
liquidity and short-term maturities. 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 and accrued compensation
payable to stockholders.

NOTE 10 - STOCK OPTION PLAN:
In January 1998, the Company's stockholders ratified Image Technology
Laboratories' Stock Option Plan (the "Plan") whereby options for the purchase of
up to 5,000,000 shares of Image Technology Laboratories' common stock may be
granted to key personnel in the form of incentive stock options and
non-statutory stock options, as defined under the Internal Revenue Code. Key
personnel eligible for these awards include our employees, consultants and
non-employee 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
who holds more than ten percent of the combined voting power of all classes of
stock of Image Technology Laboratories 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 24, 2005, the Company granted options under the plan to several key
employees, for the purchase of 550,000 shares of its common stock at $.20 per
share, its fair market value on the date of grant, which are exercisable through
January 24, 2015.

-31-

IMAGE TECHNOLOGY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2006 AND 2005

On April 1, 2005, the Company granted options under the plan to Mr. Muradian,
its Chief Executive Officer, for the purchase of 700,000 shares of its common
stock at $.20 per share, its fair market value on the date of grant, which are
exercisable through April 1, 2015. Mr. Muradian resigned from the Company on
January 20, 2006. Mr. Muradian's options were cancelled on April 20, 2006.

On April 14, 2005, the Company granted options under the plan to Mr. Edwards,
its Chairman and Chief Technology Officer, for the purchase of 800,000 shares of
its common stock at $.22 per share, 110% of its the fair market value on the
date of grant, which are exercisable through April 14, 2015.

On May 18, 2005, the Company granted options under the plan to several key
employees, for the purchase of 750,000 shares of its common stock at $0.26 per
share, its fair market value on the date of grant, which are exercisable through
May 18, 2015.

AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES

The Estate of Dr. Ryon exercised 600,000 options in June 2005 and his remaining
400,000 options were cancelled at that time. No other options were exercised by
any of the Named Executive Officers during the fiscal year ended December 31,
2006 or December 31, 2005. Mr. Muradian resigned from the Company on January 20,
2006 and his 800,000 options were cancelled on April 20, 2006. The value of
unexercised options held by any such persons as of December 31, 2006 was as
follows:

Total number of shares underlying unexercised options 3,100,000
Exercisable options 2,000,000
Un-exercisable Options 1,100,000
Value of in-the-money options
$ --

-32-

IMAGE TECHNOLOGY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2006 AND 2005

The following table summarizes information about stock options outstanding at
December 31, 2006

Options Outstanding Options Exercisable
------------------------------------------ ----------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
EXERCISE OUTSTANDING REMAINING AVERAGE OUTSTANDING AVERAGE
PRICE AT CONTRACTUAL EXERCISE AT EXERCISE
RANGE DEC 31, 2006 LIFE (YEARS) PRICE DEC 31, 2006 PRICE
----- ------------ ------------ ----- ------------ -----
$ 0.33 1,000,000 3.0 $ 0.33 1,000,000 $ 0.33
$ 0.20 550,000 8.1 $ 0.20 550,000 $ 0.20
$ 0.22 800,000 8.3 $ 0.22 200,000 $ 0.22
$ 0.26 750,000 8.4 $ 0.26 250,000 $ 0.26
------------ ------------ ------- ---------- ---------
3,100,000 6.6 $ 0.26 2,000,000 $ 0.27
============ ============ ======= ========== =========

Upon the resignation of the financial consultant in January 2005, his options
for 50,000 shares at $.85 per share were cancelled. Mr. Muradian's total of
800,000 options were cancelled on April 20, 2006.

A summary of stock option activity under the plan as of December 31, 2006, and
changes during the year then ended is as follows:

Shares Weighted Weighted Aggregate
average average Intrinsic
exercise remaining Value
price contractual
term

Options outstanding at
December 31, 2005 3,900,000 $ 0.26
Options granted 0 $ 0
Options exercised 0 $ 0
Options forfeited or expired 800,000 $ 0.27
------------ --------
Outstanding at December 31, 2006 3,100,000 $ 0.26 6.6 $ 0
============ ======== ============= ========
Exercisable at December 31, 2006 2,000,000 $ 0.27 5.6 $ 0
============ ======== ============= ========

As of December 31, 2006, there was $167,983 of total unrecognized compensation
cost related to non-vested share-based compensation arrangements granted under
the stock option plan.

NOTE 11 - WARRANTS

As of December 31, 2006, the Company had 230,000 warrants outstanding at an
exercise price of $0.33 per share. The warrants expire in 2010.

NOTE 12 - WORKING CAPITAL LOAN AGREEMENT:
During September 2002, the Company entered into a one-year working capital loan
agreement with a financial institution for borrowings of up to $75,000. The
agreement automatically renews annually unless one of the parties gives
appropriate notice for cancellation Outstanding borrowings bear interest payable

-33-

IMAGE TECHNOLOGY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2006 AND 2005

monthly at 1% above the prime rate, and are guaranteed by the Estate of the
Company's principal stockholder. At December 31, 2006, there was $66,895
outstanding under this agreement.

NOTE 13 - LEGAL PROCEEDINGS
The Company was party to an arbitration proceeding commenced by Dr. Carlton
Phelps before the American Arbitration Association in New York City. Dr. Phelps,
a former officer and director of the Company claimed that he had been
constructively discharged in violation of his employment agreement by virtue of
a significant diminution of his duties and responsibilities at the Company. He
also claimed that he had been defamed in the Company's public filings when it
was asserted that he had been discharged for cause. The Company denied the
allegations and affirmatively sought the return by Dr. Phelps of some or all of
his stock on the basis of his breach of fiduciary responsibilities. By Opinion
and Award dated February 25, 2004, the Arbitrator determined that Dr. Phelps had
not been constructively discharged, but had voluntarily resigned. As a
consequence, all of Dr. Phelps' claims for monetary awards were dismissed but,
as to the defamation claim, the Company was directed to amend prior filings to
reflect that he was not terminated for cause. The Company's claim for return of
Dr. Phelps's stock was denied. On September 15th, 2004, the Arbitrator awarded
attorneys' fees and arbitration expenses totaling $120,810 and $9,250,
respectively to Dr. Phelps. A total of $130,060 was added to the expenses in the
Company's 2004 and 2005 Statement of Operations and the liabilities have been
increased by the same amount in the Company's Balance Sheets of December 31,
2004 and December 31, 2005.

In September 2006, the Company entered into a Settlement Agreement with Dr.
Phelps whereby the Company paid Dr. Phelps a total of $153,375.26, consisting of
attorneys' fees awarded by the arbitrator and confirmed by the court plus
interest calculated at a rate of nine percent per annum from September 4, 2004
until September 1, 2006. Additionally, as part of the Settlement Agreement, Dr.
Phelps resold 2,309,583 shares of common stock of Image Technology Laboratories
to the Company at $0.10 per share. An 8-K was filed with the Securities and
Exchange Commission on October 4, 2006 detailing this event.

-34-

IMAGE TECHNOLOGY LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2006 AND 2005

NOTE 14 - COMMITMENTS
The Company is obligated for office space under an operating lease agreement
expiring in September 2007. The minimum annual lease payments are approximately:

Year ending December 31, 2007 $ 7,875

Annual rent expense for the years ended December 31, 2006 and 2005 was
approximately $10,700 and $11,900, respectively.

-35-

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On June 23, 2005, the Company's Board of Directors elected to discontinue its
engagement of J.H. Cohn as the Company's independent registered accounting firm
and auditors.

On March 3, 2006, the Company's Board of Directors elected to engage Berenson
LLP to act as the Company's new independent registered accounting firm and
auditors.

ITEM 8A. CONTROLS AND PROCEDURES.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

We carried out an evaluation under the supervision and with the participation of
our management, including our Chief Executive Officer who is our Principal
Accounting Officer, of the design and effectiveness of our disclosure controls
and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as of the end of the
period covered by this report. Based on the evaluation of our disclosure
controls and procedures, our Chief Executive Officer who is our Principal
Accounting Officer has concluded that, as of the end of the period covered by
this report, our disclosure controls and procedures were effective. It should be
noted that the design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and can therefore only
provide reasonable, not absolute, assurance that the design will succeed in
achieving its stated goals.

CHANGES IN INTERNAL CONTROLS

There were no significant changes in our internal controls over financial
reporting during the fourth quarter of the year ended December 31, 2006 that
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.

ITEM 8B, OTHER INFORMATION

None.

-36-

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

SECTION 16(A) REPORTING
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's Common Stock, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of the Common Stock of the Company. Officers, directors and
greater-than-ten-percent stockholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file. To the Company's
knowledge, based solely on review of the copies of such reports furnished to the
Company and written representations that no other reports were required, during
the fiscal year ended December 31, 2006, all Section 16(a) filing requirements
applicable to its officers and directors have been complied with.

CODE OF ETHICS
We have adopted a code of ethics that applies to our executive officers, a copy
of which has been filed with this report on Form 10-KSB as Exhibit 13. Persons
who would like a copy of such code of ethics may receive one without charge upon
request made to Investor Relations, Image Technology Laboratories, Inc., 602
Enterprise Drive, Kingston, New York 12401.

Image Technology Laboratories has not paid any compensation to its directors or
executive officers from its inception through December 31, 1999. Upon their
appointment to the Board in April 2002, the Company agreed to issue 10,000
shares of the Company's common stock to each of Messrs. Norell, Carpenter and
Naccarato in consideration for their serving as directors.

All directors of Image Technology Laboratories hold office until the next annual
meeting of shareholders or until their successors are elected and qualified. At
present, Image Technology Laboratories' Bylaws provide for not less than one
director nor more than fifteen. Currently, there are four directors of Image
Technology Laboratories. The Bylaws permit the Board of Directors to fill any
vacancy and such director may serve until the next annual meeting 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 Laboratories, Inc.

LEWIS M. EDWARDS, 52, is a founder and principal stockholder of Image Technology
Laboratories, Inc. and a co-developer of WarpSpeed. He was appointed to the
Board of Directors and elected by the Board to serve as the Company's Vice
President of Research and Development and Chief Technology Officer in December
1997. Mr. Edwards was promoted to Executive Vice-President of Research and
Development and Chairman of the Board of Directors in December 2004. Mr. Edwards
has served as a Senior Technical Staff Member at IBM since 1993, having joined
IBM as a junior engineer in 1976. He was 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. He has provided computer and network consulting services
to Boeing, General Motors, Chrysler, Ford and the Federal government's FAA and
ATC teams. He holds a Bachelor of Science in Electrical Engineering magna cum
laude from Princeton University and an Master of Science in Computer Engineering
from Syracuse University.

-37-

RICHARD V. NORELL, 61, was appointed to our Board of Directors in April 2002.
Since 1995 he has served as a consultant in securities law compliance matters,
after being employed 26 years with the U.S. Securities and Exchange Commission,
Washington, D.C. in the Division of Enforcement, from 1972 to 1995. Mr. Norell
acted as the Division's Chief of Market Surveillance overseeing the Division's
investigators and financial analysts. In addition to implementing programs for
detecting securities fraud and improper conduct, Mr. Norell advised the Director
of the Division concerning policy issues and emerging problems in the securities
industry. Mr. Norell graduated American University, Washington, D.C. with an MBA
in Investment Analysis, University of Rochester, Rochester, N.Y. Bachelor of
Arts, in Economics. Mr. Norell currently resides in Great Falls, VA.

ROBERT G. CARPENTER, 69, was appointed to our Board of Directors in April 2002.
Mr. Carpenter brings extensive business experience from a career spanning over
30 years in a succession of executive management positions overseeing
technology, engineering, marketing and business development at Bell Research
Labs in NJ, IBM Yorktown Heights Research Center, and IBM Development Labs in
Kingston and Poughkeepsie, NY. Retired from IBM in 1991, Mr. Carpenter currently
serves as Chief Engineering Liaison on a $6.7 million water facilities project
in the County of Ulster, NY. Mr. Carpenter resides in Saugerties, NY.

JOHN J. NACCARATO, 74, was appointed to our Board of Directors in April 2002. He
served for 26 years as District Representative to the late United States
Congressman Hamilton Fish, Jr., with oversight responsibility for three District
offices, under the direct supervision of Congressman Fish. From 1988 to the
present, Mr. Naccarato has held the office of Ulster County Legislator, serving
on Mental Health and Ways and Means committees, and chairing the Criminal
Justice / Public Safety Committee. A former President of the Central
Businessmen's Association, Mr. Naccarato serves on the Ulster County Community
Action Board, United Way Board, City of Kingston Board of Assessment, and the
board of the Catskill Regional OTB Corporation. Mr. Naccarato currently resides
in Kingston, NY.

NON-DIRECTOR EXECUTIVE OFFICERS

BARRY MURADIAN, 50, was President, Chief Executive Officer and Principal
Accounting Officer of Image Technology Laboratories, Inc. since December 2004
until his resignation in January 2006. Mr. Muradian was formerly Vice President
and Chief Operating Officer of Image Technology Laboratories since May 2004.

-38-

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth information for each of the Company's fiscal
years ended December 31, 2006 and 2005 concerning compensation of (i) all
individuals serving as the Company's Chief Executive Officer during the fiscal
year ended December 31, 2006 and (ii) each other executive officer of the
Company whose total annual salary and bonus equaled or exceeded $100,000 in the
fiscal year ended December 31, 2006:

ANNUAL COMPENSATION

OTHER ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) ANNUAL COMPENSATION (S)
----------------------------------- ------- ------------ ---------- ---------- --------------------

Lewis M. Edwards 2006 $150,000 $ 0 (1)
Chairman, Executive Vice-President, 2005 $150,000 $ 0
Chief Technical Officer

Barry C. Muradian (2) 2006 $150,000 $ 0 (1)
President and Chief 2005 $150,000 $ 0
Executive Officer

(1) See "Option Grants in Last Fiscal Year" below
(2) Mr. Muradian joined the Company in May 2004 as Chief Operating Officer
and was appointed President and Chief Executive Officer in December
2004 and Principal Accounting Officer in January 2005. Mr.
Muradian resigned from the Company in January 2006

EMPLOYMENT AGREEMENTS

Barry C. Muradian, pursuant to an employment agreement dated May 5 2004 for a
period of four years, was engaged as President, Chief Executive Officer and
Principal Accounting Officer of Image Technology Laboratories through December
31, 2005. Mr Muradian resigned from the Company in January 2006.

Lewis M. Edwards is engaged as Executive Vice President, Chief Technical
Officer, Principal Accounting Officer and Chairman. Mr. Edwards did not renew
his prior employment agreement in 2006 and to date, has not renewed his
employment agreement for 2007. He has been provided with the following:

- a minimum annual base salary of $150,000 payable in regular equal
installments in accordance with our general payroll practices.

- 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. Since
the beginning of his employment by the Company, Mr. Edwards has not
received any annual performance bonus.

-39-

- 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. Since the beginning of his
employment by the Company, Mr. Edwards has not participated in any
retirement plan, health or other group insurance program.

- 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.
Since the beginning of his employment by the Company, Mr. Edwards has not
been provided with term life or disability insurance.

OPTION GRANTS IN LAST FISCAL YEAR

There were no options granted to any Executive Officers during 2006.

-40-

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following table sets forth, as of April 10, 2007, the number of shares of
the Company's common stock (the "Common Stock") beneficially owned by all
persons known to be holders of more than five percent (5%) of the Common Stock
and by all executive officers and directors of the Company individually and as a
group.

----------------------------------------------------------------------------------------------------------------
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP PERCENT OF OUTSTANDING
BENEFICIAL OWNER TITLE OF CLASS AS OF APRIL 10, 2007(1) SHARES IN CLASS (2)
---------------------------------------------------------------------------------------------------------------

EXECUTIVE OFFICERS AND DIRECTORS
-------------------------------------- ------------------------------------------------------------------------

Lewis M. Edwards
TechCity
602 Enterprise Drive
Kingston, New York 12401 Common Stock 4,179,583 27.43%
-------------------------------------- ------------------------------------------------------------------------
Preferred Stock A 500,000 33.33%
------------------------------------- ------------------------------------------------------------------------
Richard V. Norell
TechCity
602 Enterprise Drive
Kingston, New York 12401 Common Stock 340,500 2.23%

------------------------------------- ------------------------------------------------------------------------
Robert G. Carpenter
TechCity
602 Enterprise Drive
Kingston, New York 12401 Common Stock 395,000 2.59%

------------------------------------- ------------------------------------------------------------------------
John J. Naccarato
TechCity
602 Enterprise Drive
Kingston, New York 12401 Common Stock 70,000 *

------------------------------------- ------------------------------------------------------------------------

ALL OFFICERS AND
DIRECTORS AS A GROUP
------------------------------------- ------------------------------------------------------------------------

Common Stock 4,985,083 32.71%
------------------------------------- ------------------------------------------------------------------------
Preferred Stock A 500,000 33.33%
---------------------------------------------------------------------------------------------------------------

GREATER THAN 5% SHAREHOLDERS
---------------------------------------------------------------------------------------------------------------
Valerie McDowell
1122 Barnegat Lane
Mantoloking, New Jersey 08738 Common Stock 3,961,667 26.00%
------------------------------------- ------------------------------------------------------------------------
Preferred Stock A 500,000 33.33%
------------------------------------- ------------------------------------------------------------------------
Preferred Stock B 1,000 100%
------------------------------------- ------------------------------------------------------------------------

Allen M. McDowell
7 Tall Timber Drive
Morristown, NJ 07960 Common Stock 1,133,833 7.44%
------------------------------------- ------------------------------------------------------------------------

-41-

(1) Includes for Mr. Edwards, options to purchase 1,400,000 shares of common
stock exercisable within 60 days, and warrants for Mr. Carpenter to
purchase 135,000 shares of common stock.

(2) Based upon 15,238,778 shares of common stock, 1,501,000 shares of preferred
stock Series A and 1,0000 shares of preferred stock Series B outstanding.

The Company is not aware of any arrangements, including any pledge by any person
of securities of the Company, the operation of which may, at a subsequent date,
result in a change in control of the Company.

ITEM 12, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In February 2005, we issued 100,000 shares of our common stock to Mr. Robert G.
Carpenter, a member of our Board of Directors, for a purchase price of $0.20 per
share, or a total of $20,000, in a transaction exempt from registration pursuant
to Section 4 (2) of the Securities Act of 1933, as amended.

In February 2005, we issued 100,000 shares of our common stock to Mr. Lewis M.
Edwards, the Chairman of our Board of Directors, for a purchase price of $0.20
per share, or a total of $20,000, in a transaction exempt from registration
pursuant to Section 4 (2) of the Securities Act of 1933, as amended.

In February 2005, we issued 25,000 shares of our common stock to Mr. John
Naccarato, a member of our Board of Directors, for a purchase price of $0.20 per
share, or a total of $5,000, in a transaction exempt from registration pursuant
to Section 4 (2) of the Securities Act of 1933, as amended.

In February 2005, we issued 100,000 shares of our common stock to Mr. Richard
Norrell, a member of our Board of Directors, for a purchase price of $0.20 per
share, or a total of $20,000, in a transaction exempt from registration pursuant
to Section 4 (2) of the Securities Act of 1933, as amended.

In February 2005, we issued 100,000 shares of our common stock to Mr. Gregory D.
Laib, a key employee, for a purchase price of $0.20 per share, or a total of
$20,000, in a transaction exempt from registration pursuant to Section 4 (2) of
the Securities Act of 1933, as amended.

In February 2005, we issued 100,000 shares of our common stock to Mr. Jonathon
Kaufman, a key employee, for a purchase price of $0.20 per share, or a total of
$20,000, in a transaction exempt from registration pursuant to Section 4 (2) of
the Securities Act of 1933, as amended.

In April 2005, the Company concluded a private placement of its common stock
with Mr. Lewis M. Edwards, the Chairman of its Board of Directors. Pursuant to
such transaction, the Company sold an aggregate of 250,000 shares at $.20 per
share, the approximate fair value on the date of closing, resulting in aggregate
proceeds to the company of $50,000.

-42-

During April 2005, a related party to a member of the Company's Board of
Directors loaned the Company an aggregate of $20,000. The entire amount was
repaid, including interest of $500, during the same month.

In June 2005, the company issued 600,000 shares of its common stock, pursuant to
the exercise of stock options at $.25 per share, resulting in aggregate proceeds
to the Company of $150,000.

In December 2005, the Estate of Dr. Ryon loaned the Company an additional
$36,000 under an amendment to the December 2004 promissory note. Additional
amounts were loaned to the Company in March 2006 for $22,500, in August 2006 for
$57,672 and in September 2006 for $153,375.26. These amounts, along with other
previous loans to the Company by the largest stockholder totaling $374,548 were
converted to 1000 shares of Cumulative Convertible Preferred Series B stock in
late September 2006, and all accrued interest was forgiven. Convertible
Preferred Stock Series B can be converted to common stock of Image Technology
Laboratories at a ratio of one share of Convertible Preferred Stock Series B to
2,700 shares of common stock. Either the shareholder or the Company may elect to
force conversion after two years in units of 100 shares of Convertible Preferred
Stock Series B. The Company may also elect to repurchase the Convertible
Preferred Stock Series B in units of 100 shares of Convertible Preferred Stock
Series B at any time for $432 per share of Convertible Preferred Stock Series B.
Fixed interest is accumulated as 12.5 additional shares of Convertible Preferred
Stock Series B per quarter. The underlying common stock, should the Company or
shareholder elect to convert, is unregistered. The voting rights are set at one
vote per share of Convertible Preferred Stock Series B.

-43-

-44-

ITEM 13. EXHIBITS

Refer to the list of Exhibits, which are being filed as a part of this report.

A. EXHIBITS

EXHIBIT NO. DESCRIPTION
---------- ---------------------------------------------------
3.1* Certificate of Incorporation of Image Technology Laboratories, Inc.
3.2* Certificate of Amendment to Certificate of Incorporation of Image
Technology Laboratories, Inc. dated December 23, 1999
3.3* By-Laws of Image Technology Laboratories, Inc.
4.1* Specimen certificate for common stock of Image Technology
Laboratories, Inc.
4.2* Specimen certificate for preferred stock of Image Technology
Laboratories, Inc.
4.3* Form of Private Placement Warrant
4.4* Form of Investor Warrant
4.5* Form of Oakes Warrant
4.6* Form of Subscription Agreement

10.1* Image Technology Laboratories, Inc. 1998 Stock Option Plan
10.2* Stockholders Agreement dated January 16, 1998 among certain
investors and Image Technology Laboratories, Inc.
10.3* Form of Registration Rights Agreement dated February 2000 among
certain stockholders of Image Technology Laboratories, Inc. and
Image Technology Laboratories, Inc.
10.4* Assignment of Intellectual Property Agreement dated as of
December 18, 1997 between Image Technology Laboratories, Inc. 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 Mid Rockland Imaging and Image Technology Laboratories,
Inc. dated January 12, 1998
10.6* Form of Employment Agreement dated December 21, 1999 between
Image Technology Laboratories, Inc. and David Ryon, M. D.
10.7* Form of Employment Agreement dated December 21, 1999 between
Image Technology Laboratories, Inc. and Carlton T. Phelps, M. D.
10.8* Form of Employment Agreement dated December 21, 1999 between
Image Technology Laboratories, Inc. and Lewis M. Edwards
10.9 Form of Employment Agreement dated May 5, 2004 between
Image Technology Laboratories, Inc. and Barry C. Muradian
13 Code of Ethics
31.1 Certification of Chief Executive Officer required by Rule
13a-14(a)/15d-14(a) under the Exchange Act
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
Sarbanes-Oxley Act of 2002

* Filed with amendment no. 1 to registration statement (No.333-336787) on
June 6, 2000.
** Filed with amendment no. 2 to registration statement (No. 333-336787) on
July 27, 2000.

-45-

ITEM 14. PRINCIPAL ACCOUNTANTS' FEES AND SERVICES

AUDIT FEES

For the fiscal year ended 2006, our Independent Registered Public Accounting
Firm, Berenson LLP, charged aggregate fees of $46,525 for the audit of our
annual financial statements and 10-KSB.

For the fiscal year ended 2005, our former Independent Registered Public
Accounting Firm, J. H. Cohn LLP, charged aggregate fees of $34,500 for the audit
of our annual financial statements and 10-KSB.

AUDIT RELATED FEES

For the fiscal year ended 2006, our Independent Registered Public Accounting
Firm, Berenson LLP, charged aggregate fees of $0 for work related to the audit
of our annual financial.

For the fiscal year ended 2005, our former Independent Registered Public
Accounting Firm, J. H. Cohn LLP charged aggregate fees of $1,557 for work
related to the audit of our annual financial.

TAX FEES:

For the fiscal year ended 2006, our Independent Registered Public Accounting
Firm, Berenson LLP, charged aggregate fees of $0 for tax services.

For the fiscal year ended 2005, our former Independent Registered Public
Accounting Firm, J.H. Cohn LLP, charged aggregate fees of $0 for tax services.

ALL OTHER FEES:

For the fiscal year ended 2006, our Independent Registered Public Accounting
Firm, Berenson LLP, charged $0 for other fees.

For the fiscal year ended 2005, our former Independent Registered Public
Accounting Firm, J.H. Cohn LLP, charged $1,016 for an 8-K Exhibit 16 Letter.

-46-

S I G N A T U R E S

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

IMAGE TECHNOLOGY LABORATORIES, INC.

BY: /S/ LEWIS M. EDWARDS
------------------------
LEWIS M. EDWARDS,
CHIEF TECHNOLOGY OFFICER AND
PRINCIPAL ACCOUNTING OFFICER

DATE: APRIL 15, 2007

Pursuant to the requirements of the securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

Signature Title Date
---------------------------- ------------------------------ --------------

/S/ LEWIS M. EDWARDS CHAIRMAN, BOARD OF DIRECTORS APRIL 15, 2007
----------------------------
LEWIS M. EDWARDS

/S/ ROBERT CARPENTER DIRECTOR APRIL 15, 2007
----------------------------
ROBERT CARPENTER

/S/ JOHN NACCARATO DIRECTOR APRIL 15, 2007
----------------------------
JOHN NACCARATO

/S/ RICHARD NORRELL DIRECTOR APRIL 15, 2007
----------------------------
RICHARD NORRELL

-47-