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 (net of approximately $180,000), 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.
Products
WarpSpeed is a “Radiology Information System / Picture
Archiving and Communications System”, known 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. ITL StudyNotes may be attached to a patient’s study by the radiologist, staff physician or department
administrators via an ITL WebViewer, Administrative Workstation, Modality Workstation or Radiologist Display Workstation, and
subsequently viewed by these system components.
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 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. The ITL WarpSpeed system
may also be configured with the DVD-stack ITL FileArchiver, allowing local or remote multiple DVD archive copies of DICOM files,
reports and databases.
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 Lossless, JPEG-2000 Lossless or JPEG-LS 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 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 Lossless, JPEG-2000 Lossless or JPEG-LS 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.
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, comprised of
the ITL WebServer and ITL WebViewer 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. The ITL WebViewer is fully integrated
into the WarpSpeed workflow, allowing a radiologist to logon to one or more sites, view study images and reports, edit or sign
reports and add or review ITL StudyNotes.
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. Global Industry Analysts, another market research firm, is predicting that the global market for PACS and teleradiology
systems will reach $4.4 billion by 2010.
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.
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 continues to be 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 within the RIS/PACS space and possibly beyond as other opportunities become evident to deploy our technology and
expertise in medical information systems. In May 2007, ITL announced its participation in the Southern Tier Health Link Web Portal
in association with Park Avenue Radiology. This Web Portal is part of the New York State Health Care Efficiency and Affordability
Law for New Yorkers Capital Grant Program, often referred to as the HEAL NY Program. HEAL NY includes identification and support
for development and investment in Health Information Technology initiatives at the regional level.
http://www.health.state.ny.us/technology
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.
The Company believes that most available RIS/PACS systems have
significant drawbacks such as:
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Inadequate
workflow tools
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Prohibitive
entry point purchase prices.
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Significant
management oversight to maintain disparate databases
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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 its 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
an ITL Backup Server, a fully-redundant hot-standby server.
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 2008, ITL added a
WebServer to InMed’s Columbia, South Carolina site.
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, 2008.
In April 2007 ITL and Park Ave Radiology amended their contract
for the purchase and installation of the ITL WebServer and WebViewer technologies.
In June 2007, ITL closed a contract with Bon Secours Community
Hospital in Port Jervis, NY.
Bon Secours Community Hospital is a member of Bon Secours Charity
Health System, which owns and operates 32 health care facilities. Our installation at Bon Secours Community Hospital also includes
an ITL Backup Server, a fully-redundant hot-standby server.
In September 2007 ITL and St. Anthony Community Hospital amended
their contract for the installation of the ITL WebServer and WebViewer technologies.
In December 2007, Park Ave Radiology purchased an ITL Primary
Server upgrade along with an ITL Backup Server.
In August of 2008, Bon Secours Community Hospital expanded
off-site to the Bon Secours Care Center of Milford, PA. This included digital mammography, digital x-ray, ultrasound, and bone
mineral densitometry.
In September 2008, InMed Diagnostic Services of South Carolina
added a WebServer to their Columbia, South Carolina site.
In December 2008, ITL closed a contract with Orthopedic Associates,
P.C. of Binghamton, NY. The installation includes the ITL WebServer and WebViewers.
In February 2004, the Company
borrowed $125,000 from Valley Commercial Capital, LLC ("Valley"). This loan was evidenced by a promissory note and provided
for interest at 8% per annum. 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. The remaining balance of these loans was repaid in August 2006 as described
below.
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. These amounts, along with other previous
loans to the Company by the largest stockholder totaling $374,548 were converted into 1,000 shares of Cumulative Convertible Preferred
Series B stock in late September 2006, and all accrued interest was forgiven. Cumulative Convertible Preferred Stock Series B
can be converted to common stock of Image Technology Laboratories at a ratio of one share of Cumulative Convertible Preferred
Stock Series B to 2,700 shares of common stock. Either the stockholder or the Company may elect to force conversion after two
years in units of 100 shares of Cumulative Convertible Preferred Stock Series B. The Company may also elect to repurchase the
Cumulative Convertible Preferred Stock Series B in units of 100 shares of Cumulative Convertible Preferred Stock Series B at any
time for $432 per share of Cumulative Convertible Preferred Stock Series B. Fixed dividends on the stock accumulate as 12.5 additional
shares of Cumulative 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 Cumulative Convertible Preferred Stock Series
B.
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 borrowed $50,000 from a member
of the Company’s Board of Directors as part of a Bridge Loan Agreement that included the issuance of warrants to purchase
50,000 shares of Common Stock of the Company. The five-year warrants have an exercise price of $0.33 per share. The Bridge Loan
had an annual interest rate of 14%. The principal of $50,000 was repaid in July 2007; $5,000 of the accrued interest was paid
in September 2007 and a final accrued interest payment of $5,000 was made in March 2008.
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.
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 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, the proceeds of which were used to satisfy the settlement with Dr. Phelps. This amount, along with
other previous loans to the Company by the largest stockholder totaling $374,548 was converted to 1,000 shares of Cumulative Convertible
Preferred Series B stock in late September 2006, and all accrued interest was forgiven.
In May 2007, our largest shareholder provided $3,684 to the
Company as an interest-free loan in order to retain RIS/PACS market consultants. There are no repayment terms to this loan.
In June 2007, the Company entered into a five-year Accounts
Receivable loan agreement with PowerLease Solutions, LLC and NetBank to borrow $650,000 at a 9.5% annual interest rate. Monthly
payments are $13,651 and the loan is co-signed by the Company's principal stockholder. As of December 31, 2008, there was $486,153
outstanding under this agreement. Fixed fees paid to PowerLease were $10,402
.