Our management beneficially owns 28,352,79435,652,794 shares of our common stock or 7.93%5.06% (assuming exercise of their currently exercisable options) of our common stock. Although management owns a minority of the outstanding common stock, since we do not have cumulative voting, and since, in all likelihood the officers and directors will be voting as a block and will be able to obtain proxies of other shareholders, management may remain in a position to elect all of our directors and control our policies and operations. Based on the current market price of our common stock, we would have to issue approximately 508,960,573479,911,407 shares to draw the balance of $14,200,000 million$12,957,608 available under the Sixth Private Equity Credit Agreement. The amounts of shares issuable under the Sixth Private Equity Credit Agreement or any subsequent Private Equity Credit Agreement could increase substantially if our common stock price declines. Dilution to management's ownership percentage as a result of share issuances under the Sixth Private Equity Credit Agreement and subsequent financings could cause a change in control.
We have not paid and do not currently intend to pay dividends, which may limit the current return you may receive on your investment in our common stock.
Since inception, we have not paid a dividend on our common stock and do not intend to pay dividends on our common stock in the foreseeable future.
Risks associated with our technology
We depend on third-party licensing agreements for patents and software without which our operations may be curtailed.
We hold the rights, through an exclusive patent licensing agreement, for the use of the patent for the CTLM® technology. In addition, we own 20 patents and have 43 additional United States patents pending with regard to optical tomography. We also have patent rights through a non-exclusive licensing agreement from a third-party as well as three non-exclusive licensing agreements for software from third-parties. If any of these agreements were terminated, our operations may be curtailed until alternative solutions were found.
Our business would lose its primary competitive advantage if we are unable to protect our proprietary technology, or if substantially the same technology is developed by others.
We rely primarily on a combination of trade secrets, patents, copyright and trademark laws, and confidentiality procedures to protect our technology. Our ability to compete effectively in the medical imaging products industry will depend on our success in protecting our proprietary technology, both in the United States and abroad. There can be no assurances that any patent that we apply for will be issued, or that any patents issued will not be challenged, invalidated, or circumvented, that we will have the financial resources to enforce them, or that the rights granted will provide any competitive advantage. We hold 2217 foreign patents; however, we have applied for 46 patents in various foreign countries. We could incur substantial costs in defending any patent infringement suits or in asserting any patent rights, including those granted by third parties, the expenditure of which we might not be able to afford. Although we have entered into confidentiality and invention agreements with our employees and consultants, there can be no assurance that these agreements will be honored or that we will be able to protect our rights to our non-patented trade secrets and know-how effectively. There can be no assurance that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how. In addition, we may be required to obtain licenses to patents or other proprietary rights from third parties. If we do not obtain required licenses, we could encounter delays in product development or find that the development, manufacture, or sale of products requiring these licenses could be foreclosed. Additionally, we may, from time to time, support and collaborate in research conducted by universities and governmental research organizations. There can be no assurance that we will have or be able to acquire exclusive rights to the inventions or technical information derived from such collaborations or that disputes will not arise with respect to rights in derivative or related research programs that we conducted in conjunction with these organizations.
It may be necessary to enter into unfavorable agreements or defend lawsuits which would be costly if we infringe upon the intellectual property rights of others.
There has been substantial litigation regarding patent and other intellectual property rights in the medical device and related industries. We have been, and may be in the future, notified that we may be infringing on intellectual property rights possessed by other third parties. If any claims are asserted against our intellectual property rights, we may seek to enter into royalty or licensing arrangements. There is a risk in situations that no license will be available or that a license will not be available on reasonable terms. Alternatively, we may decide to litigate these claims or design around the patented technology. These actions could be costly and would divert the efforts and attention of our management and technical personnel. Consequently, any infringement claims by third parties or other claims for indemnification by customers resulting from infringement claims, whether or not proven to be true, may be costly to defend and may further limit the use of our technology.
We may not be able to keep up with the rapid technological change in the medical imaging industry which could make the CTLM® obsolete.
Methods for the detection of cancer are subject to rapid technological innovation and there can be no assurance that technical changes will not render our proposed products obsolete. Although we believe that the CTLM® can be upgraded to maintain its state-of-the-art character, the development of new technologies or refinements of existing ones might make our existing system technologically or economically obsolete, or cause a reduction in the value of, or reduce the need for, our CTLM®. There can be no assurance that the development and commercial availability of new types of diagnostic medical equipment or technology will not have a material adverse effect on our business, financial condition, and results of operations. Although we are aware of no substantial technological changes pending, should a change occur, there can be no assurance that we will be able to acquire the new or improved technology which may be required to update the CTLM®.
Risks associated with our business
We must comply with extensive government regulation and have no assurance of regulatory approvals or clearances, which could cause us to cut back or cease operations.
A delay or inability to obtain any necessary United States, state or foreign regulatory clearances or approvals for our products would prevent us from selling the CTLM® system in the U.S. and other countries.
In the United States, the CTLM® is regulated as a medical device and is subject to the FDA's pre-market clearance or approval requirements. To obtain FDA approval of an application for pre-market approval of a diagnostic tool such as the CTLM®, the pre-market approval application must demonstrate based on statistically significant results from extensive clinical studies, that the subject device is safe and has clinical utility, meaning that as a diagnostic tool it provides information that measurably contributes to a diagnosis or management of a disease or condition. We rely on outside FDA consultants to assist us in obtaining the PMA from the FDA.
In addition, sales of medical devices outside the United States may be subject to international regulatory requirements that vary from country to country. The time required to gain approval for international sales may be longer or shorter than required for FDA approval and the requirements may differ.
Regulatory approvals, if granted, may include significant limitations on the indicated uses for which the CTLM® may be marketed. In addition, to obtain these approvals, the FDA and certain foreign regulatory authorities may impose numerous other requirements which medical device manufacturers must comply with. Product approvals could be withdrawn for failure to comply with regulatory standards or the occurrence of unforeseen problems following initial marketing.
The third-party manufacturers upon which we will depend to manufacture our products are required to adhere to applicable FDA regulations regarding quality systems regulations commonly referred to as QSRs, which include testing, control and documentation requirements. Failure to comply with applicable regulatory requirements, including marketing and promoting products for unapproved use, could result in warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal of the government to grant pre-market clearance or approval for devices, withdrawal of approvals and criminal prosecution. Changes in existing regulations or adoption of new government regulations or polices could prevent or delay regulatory approval of our products. Material changes to medical devices also are subject to FDA review and clearance or approval.
There can be no assurance that we will be able to obtain or maintain the following:
· | FDA approval of a pre-market approval application for the CTLM®, |
· | foreign marketing clearances for the CTLM® or regulatory approvals or clearances for other products that we may develop, on a timely basis, or at all, |
· | timely receipt of approvals or clearances, |
· | continued approval or clearance of previously obtained approvals and clearances, and |
· | compliance with existing or future regulatory requirements. |
If we do not obtain or maintain any of the above-mentioned standards, there may be material adverse effects on our business, financial condition and results of operations.
We may not be able to develop other products that are currently in the early stages of development due to our need for additional capital.
Due to our need for additional capital, products other than the CTLM® device are at early stages of development. There can be no assurance that any of our proposed products, including the CTLM®, will:
· | be found to be safe and effective, |
· | meet applicable regulatory standards or receive necessary regulatory clearance, |
· | be safe and effective, developed into commercial products, manufactured on a large scale or be economical to market, or |
· | achieve or sustain market acceptance. |
· | achieve or sustain market acceptance. |
Therefore, there is substantial risk that our product development and commercialization efforts will prove to be unsuccessful.
We depend on market acceptance to sell our products, which have not been proven, and a lack of acceptance of the CTLM® could cause our business to fail.
There can be no assurance that physicians or the medical community in general will accept and utilize the CTLM® or any other products that we develop. The extent and rate the CTLM® achieves market acceptance and penetration will depend on many variables, including, but not limited to the establishment and demonstration in the medical community of the clinical safety, efficacy and cost-effectiveness of the CTLM® and the advantages of the CTLM® over existing technology and cancer detection methods.
There can be no assurance that the medical community and third-party payers will accept our unique technology. Similar risks will confront any other products we develop in the future. Failure of our products to gain market acceptance would hinder our sales efforts resulting in a loss of revenues and potential profit and, ultimately, could cause our business to fail. It would further prevent us from developing new products.
We depend upon suppliers with whom we have no contracts, which suppliers could cause production disruption if they terminated or changed their relationships with us.
We believe that there are a number of suppliers for most of the components and subassemblies required for the CTLM®; however, components for our laser system are provided by one supplier. Although these components are provided by a limited number of other suppliers, we believe our laser supplier and their products are the most reliable. We have no agreement with our laser supplier and purchase the laser components on an as-needed basis. For certain services and components, we currently rely on single suppliers. If we encounter delays or difficulties with our third-party suppliers in producing, packaging, or distributing components of the CTLM® device, market introduction and subsequent sales would be adversely affected.
We have limited experience in sales, marketing and distribution, which could negatively impact our ability to enter into collaborative arrangements or other third party relationships which are important to the successful development and commercialization of our products and potential profitability.
We have limited internal marketing and sales resources and personnel. There can be no assurance that we will be able to establish sales and distribution capabilities or that we will be successful in gaining market acceptance for any products we may develop. There can be no assurance that we will be able to recruit and retain skilled sales, marketing, service or support personnel, that agreements with distributors will be available on terms commercially reasonable to us, or at all, or that our marketing and sales efforts will be successful.
There can be no assurance that we will be able to further develop our distribution network on acceptable terms, if at all, or that any of our proposed marketing schedules or plans can or will be met.
We depend on qualified personnel to run and develop our specialized business who we may be unable to retain or hire.
Due to the specialized scientific nature of our business, we are highly dependent upon our ability to attract and retain qualified scientific, technical and managerial personnel. We have entered into employment agreements with some of our executive officers. The loss of the services of existing personnel, as well as the failure to recruit key scientific, technical and managerial personnel in a timely manner would be detrimental to our research and development programs and could have an adverse impact upon our business affairs and finances. Our anticipated growth and expansion into areas and activities requiring additional expertise, such as marketing, will require the addition of new management personnel. Competition for qualified personnel is intense and there can be no assurance that we will be able to continue to attract and retain qualified personnel necessary for the development of our business.
We have a limited manufacturing history that could cause delays in the production and shipment of our product.
We will have to expand our CTLM® manufacturing and assembly capabilities and contract for the manufacture of the CTLM® components in volumes that will be necessary for us to achieve significant commercial sales in the event we begin substantial foreign sales and/or obtain regulatory approval to market our products in the United States. We have limited experience in the manufacture of medical products for clinical trials or commercial purposes. Should we continue to manufacture our products at our facility, our manufacturing facilities would continue to be subject to the full range of the FDA's current quality system regulations. In addition, there can be no assurance that our manufacturing efforts will be successful or cost-effective.
We depend on third parties who may not be in compliance with the FDA's quality system regulations which may delay the approval or decrease the sales of the CTLM®.
We have used and do use third parties to manufacture and deliver the components of the CTLM® and intend to continue to use third parties to manufacture and deliver these components and other products we may develop. There can be no assurance that the third-party manufacturers we depend on for the manufacturing of CTLM® components will be in compliance with the quality system regulations (QSR) at the time of the pre-approval inspection or will maintain compliance afterwards. This failure could significantly delay FDA approval of the pre-market approval application for the CTLM® device.
We will rely on international sales and may be subject to risks associated with international commerce.
We have commenced international sales efforts for the CTLM® in Europe, Asia, South America and the Middle East. Until we receive pre-market approval from the FDA to market the CTLM® in the United States, our revenues, if any, will be derived from sales to international distributors. A significant portion of our revenues may be subject to the risks associated with international sales, including:
· | economical and political instability, |
· | fluctuation of foreign currency exchange rates, |
· | foreign regulatory requirements, and |
· | various trade restrictions, all of which could have a significant impact on our ability to deliver products on a timely basis. |
Significant increases in the level of customs duties, export quotas or other trade restrictions could have a material adverse effect on our business, financial condition and results of operations. The regulation of medical devices in foreign countries continues to develop, and there can be no assurance that new laws or regulations will not have an adverse effect on us. While we attempt to minimize the risk of doing business with distributors in countries which are having difficult financial times by requesting payment via an irrevocable letter of credit (“L/C”) drawn on a United States bank prior to shipment of the CTLM®, it is not always possible to obtain an L/C from our distributor. In these cases we must seek alternative payment arrangements which include third-party financing, leasing or extending payment terms to our distributors.
Our business has the risk of product liability claims, and preferred insurance coverage may be expensive or unavailable, which may expose us to material liabilities.
Our business exposes us to potential product liability risks, which are inherent in the testing, manufacturing, and marketing of cancer detection products. Significant litigation, not involving us, has occurred in the past based on the allegations of false negative diagnoses of cancer. There can be no assurance that we will not be subjected to claims and potential liability. Although the FDA does not require product liability insurance with regard to clinical investigations, we obtained and presently carrypreviously carried $3,000,000 in product liability insurance in the amount of $3,000,000. While we plan to maintain insurance against product liability and defense costs, there can be no assurance that claims against us arising with respect to our products will be successfully defended or that the insurance to be carried by us will be sufficient to cover liabilities arising fromboth clinical sites and sales. As part of our cost savings initiatives, we cancelled the policy as we have not had any claims.adverse experiences after conducting more then 14,000 patient scans worldwide. We have assumed the risk of product liability. A successful claim against us in excess of our insurance coverage could have a material adverse effect on us.the Company. Furthermore, there can be no assurance that in the future, we will be able to continue to obtain or maintain product liability insurance on acceptable terms.
None
Item 2. Description of Our Property
On June 2, 2008, we executed a Business Lease Agreement with Ft. Lauderdale Business Plaza Associates, an unaffiliated third-party, for 9,870 square feet of commercial office and manufacturing space at 5307 NW 35th Terrace, Ft. Lauderdale, Florida. The term of the lease is five years and one month with the first monthly rent payment due September 1, 2008 with an option to renew for one additional period of three years. The monthly base rent for the initial year is $6,580.00 plus applicable sales tax. During the term and any renewal term of the lease, the base annual rent shall be increased each year. Commencing with the first day of August 2009 and each year thereafter, the base annual rent shall be cumulatively increased by 3.5% each lease year plus applicable sales tax. IDSI will also be obligated to pay as additional rent its pro-rata share of all common area maintenance expenses which is estimated to be $3,084.37 per month for the first 12 months of the lease. The total monthly rent including Florida sales tax for the first 12 months is $10,244.23. Upon the execution of the lease, we paid the first month’s rent of $10,244.23 and a security deposit of $13,160.00. In August 2008, we moved into our new headquarters facility. We believe that our new facility is adequate for our current and reasonably foreseeable future needs and provides us with a monthly cost savings of $23,196 per month. We intend to assemble the CTLM® at our facility from hardware components that will be made by vendors to our specifications.
On September 13, 2007, we entered into an agreement with an unaffiliated third-party for the sale and lease-back of our prior facility at 6531 N.W. 18th Court, Plantation, Florida. On March 31, 2008, pursuant to the sale/lease-back transaction, we closed the sale of our commercial building for $4.4 million to Bright Investments LLC (“Bright”), an unaffiliated third-party and a sister company to Superfun B.V. On April 29, 2008, we gave six months prior written notice of termination of our lease of the Plantation facility as part of our cost cutting initiatives.
In April 2008, we were served with a lawsuit filed against us in Venice, Italy, by Gio Marco S.p.A. and Gio IDH S.p.A., related Italian companies which, between them, had purchased three CTLM® systems in 2005. One system was purchased directly from us, and the other two were purchased from our former Italian distributor and an affiliate of the distributor.
The plaintiffs allegealleged that they purchased the CTLM® systems for experimental purposes based on alleged oral assurances by our sales representative to the effect that we would promptly receive PMA approval for the CTLM® and that we would give them exclusive distribution rights in Italy. The plaintiffs are seeking to recover a total of €628,595, representing the aggregate purchase price of the systems plus related expenses.
Based on our preliminary investigation of this matter, we believe that this claim is completely without merit, and we intend to vigorously defend the case. Our responseItalian counsel responded to the lawsuit is due in November 2008.2008 and requested and was granted an extension to May 27, 2009 to respond. Our counsel filed our defenses in the Court of Venice at a hearing held on June 17, 2009. The judge set the next hearing for March 3, 2010 in order to allow the parties to clarify their claims and defenses.
In December 2008, we were served with a lawsuit against us in Cuyahoga County, Ohio, by Plexar Associates, Inc. (“Plexar”), a company that provides software and algorithm development for medical imaging companies. On January 23, 2008, we engaged the services of Plexar to provide work over a three-month period relating to artifact reduction. The initial purchase order was limited to an amount not to exceed $48,700. A second purchase order for a three-month period was signed on July 8, 2008 with a limit not to exceed $61,000. Thus, the total commitment was $109,700. As of June 30, 2009, we have paid Plexar the sum of $93,910.66 and have not received any useful work product that would help us reduce artifacts in our images. In their complaint, Plexar is seeking the sum of $65,076.25. We filed a counter-claim for non-performance and answered the complaint on February 6, 2009.
Prior to mediation, we reached an agreement with Plexar on August 6, 2009 to settle this case and agreed to allow Plexar’s counsel to prepare a Settlement Agreement and Mutual Release in this matter, which was signed on August 24, 2009. We believe it was in our best interest to settle this case to avoid incurring substantial litigation costs and the risks of a trial that would have been held in Cleveland, Ohio. We also would have incurred significant travel and lodging expenses for our employees and expert witnesses. The Settlement Agreement and Mutual Release stipulated that we would pay Plexar $52,000 with payments as follows: $5,000 no later than August 25, 2009, which was paid; $15,000 no later than October 15, 2009; eight additional payments of $4,000, with the first of these monthly payments due on November 15, 2009 and continuing on the 15th day of each successive month through June 15, 2010. If any of the above payments remain unpaid for more than five day calendar days after each is due, then an additional payment of $9,000 would be due. However, if the above payments are made timely, then IDSI’s obligation to pay this additional payment is waived and becomes null and void. Each party is responsible for their own costs and fees in this matter.
Item 4. Submission of Matters to a Vote of Security Holders
NoneOn December 29, 2008, we held our annual meeting of stockholders at the Sheraton Suites Cypress Creek, 555 NW 62nd Street, Fort Lauderdale, Florida for the following purposes:
| 1. To elect two directors until the next annual meeting; |
| 2. | To approve a proposal to amend the Company's Articles of Incorporation to increase the number of authorized shares of the Company's common stock, no par value, from 450,000,000 to 950,000,000; |
| 3. | To consider and act upon a proposal to adopt the Company's 2007 Non-Statutory Stock Option Plan; |
| 4. | To ratify the appointment by the Board of Directors of Sherb & Co., LLP as independent auditors of the Company for the fiscal year ending June 30, 2009; |
As to proposal no. 1, the stockholders elected two incumbent directors with the following votes:
Linda B. Grable | FOR 297,598,494 | WITHHELD 19,404,926 |
Allan L. Schwartz | FOR 299,345,051 | WITHHELD 17,658,369 |
As to proposal no. 2, the stockholders voted in favor of the proposal. The affirmative vote of a majority of the outstanding shares of the Common Stock present in person or by proxy at the Annual Meeting and entitled to vote was required to approve the proposal to amend the Company’s Articles of Incorporation to increase the number of authorized shares from 450,000,000 to 950,000,000. The vote was as follows:
FOR 248,069,095 | AGAINST 65,441,285 | ABSTAIN 3,493,040 |
As to proposal no. 3, the stockholders voted to adopt the Company's 2007 Non-Statutory Stock Option Plan. The affirmative vote of a majority of the outstanding shares of the Common Stock present in person or by proxy at the Annual Meeting and entitled to vote was required to approve the proposal. The vote was as follows:
FOR 43,439,030 | AGAINST 12,139,683 | ABSTAIN 1,588,350 |
As to proposal no. 4, the stockholders voted to ratify the Board of Directors’ appointment of Sherb & Co., LLP as independent auditors of the Company for the fiscal year ending June 30, 2007. The affirmative vote of a majority of the outstanding shares of the Common Stock present in person or by proxy at the Annual Meeting and entitled to vote was required to ratify the proposal.
FOR 304,754,785 | AGAINST 8,503,228 | ABSTAIN 3,745,406 |
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our Common Stock is traded on the NASDAQ’s OTC Bulletin Board market under the symbol IMDS. There has been trading in our common stock since September 20, 1994. The following table sets forth, for each of the fiscal periods indicated, the high and low bid prices for the common stock, as reported on the OTC Bulletin Board. These per share quotations reflect inter-dealer prices in the over-the-counter market without real mark-up, markdown, or commissions and may not necessarily represent actual transactions.
QUARTER ENDING | High Bid | Low Bid | High Bid | Low Bid |
| | | |
FISCAL YEAR 2007 | | | |
First Quarter | $0.15 | $0.09 | $0.15 | $0.09 |
Second Quarter | $0.107 | $0.065 | $0.107 | $0.065 |
Third Quarter | $0.155 | $0.068 | $0.155 | $0.068 |
Fourth Quarter | $0.073 | $0.038 | $0.073 | $0.038 |
| | | |
FISCAL YEAR 2008 | | | |
First Quarter | $0.088 | $0.035 | $0.088 | $0.035 |
Second Quarter | $0.074 | $0.045 | $0.074 | $0.045 |
Third Quarter | $0.055 | $0.046 | $0.055 | $0.046 |
Fourth Quarter | $0.049 | $0.02 | $0.049 | $0.02 |
| | | |
FISCAL YEAR 2009 | | | |
First Quarter (through September 11, 2008) | $0.055 | $0.012 | |
First Quarter | | $0.055 | $0.012 |
Second Quarter | | $0.048 | $0.02 |
Third Quarter | | $0.023 | $0.007 |
Fourth Quarter | | $0.009 | $0.005 |
| | | |
FISCAL YEAR 2010 | | | |
First Quarter | | $0.011 | $0.004 |
Second Quarter (through October 12, 2009) | | $0.029 | $0.007 |
On September 11, 2008,October 12, 2009, the closing trade price of the common stock as reported on the OTC Bulletin Board was $0.03.$0.029. As of such date, there were approximately 2,7732,830 registered holders of record of our common stock.
Sale of Unregistered Securities
Debenture Private Placement of Convertible Debentures
On August 1, 2008, we entered into a Securities Purchase Agreement (the “Purchase“Initial Purchase Agreement”) with an unaffiliated third party, Whalehaven Capital Fund Limited (“Whalehaven”), relating to a private placement (the “Private“Initial Private Placement”) of a total of up to $800,000 in principal amount of one-year 8% Senior Secured Convertible Debentures (the “Debentures”“Initial Debentures”). We arewere required to file within 30 days an S-1 Registration Statement (the “Registration Statement”) covering the shares of common stock underlying the Initial Debentures and related Warrants pursuant to the terms of a Registration Rights Agreement dated August 1, 2008, between IDSI and Whalehaven;however, with Whalehaven’s consent, planwe were permitted to file the Registration Statement promptly after the filing of thisour Annual Report on Form 10-K.
The Initial Purchase Agreement providesprovided for the sale of the Initial Debentures in two closings. The first closing, which occurred on August 4, 2008, was for a principal amount of $400,000. The second closing would be for up to $400,000 and would occur within the earlier of five business days following the effective date of the Registration Statement and December 1, 2008, provided that the closing conditions in the Initial Purchase Agreement have been met. We haveretained the option to use our existing equity credit line until the Registration Statement is declared effective. The Private Placement, afterSales under the two closings, would generate gross proceeds of $736,000 afterInitial Purchase Agreement were subject to an 8% placement agent fees butfee. Thus, the first closing generated proceeds to IDSI of $368,000, before other expenses associated with the transaction. Whalehaven has the option to purchase an additional $1,200,000normal transaction costs.
Prior to maturity, the Initial Debentures will bear interest at the rate of 8% per annum, payable quarterly in cash or, at our option, in shares of common stock based on the then-existing market price.price provided that we are in compliance with the Initial Purchase Agreement.
The Initial Debentures may be converted in whole or in part at the option of the holder any time after the closing date into our Common Stock at the lesser of (i) a set price, initially $.019 per share, which was the closing price of theour shares on the closing date (“fixed conversion price”) or (ii) 80% of the 3 lowest bid prices during the 10 consecutive trading days immediately preceding a conversion date; however, the terms of each Initial Debenture prevent the holder from converting the Debenture to the extent that the conversion would result in the holder and its affiliates beneficially owning more than 4.99% of the outstanding shares of our common stock; however, the limit may be increased to 9.99% on 61 days prior written notice from the holder.
At any time after closing, we may redeem for cash, upon written notice, any and all of the outstanding Initial Debentures at a 25% premium of the principal amount plus accrued and unpaid interest on the Initial Debentures to be redeemed.
The Initial Debentures are secured by a pledge of substantially all of our assets pursuant to a Security Agreement dated August 1, 2008, between IDSI and Whalehaven.
Pursuant to the first closing of the Initial Private Placement, we issued to Whalehaven five-year Warrants to purchase 22,222,222 shares of our common stock. The exercise price of these Warrants was $0.0228, i.e., 120% of the market price on the closing date. The Warrants are subject to cashless exercise at Whalehaven’s option.
The placement agent was entitled to receive a Warrant to purchase common stock equal to 12% of Whalehaven’s Warrants with an exercise price equal to Whalehaven’s exercise price. Consequently, a Warrant to purchase 2,666,666 shares was issued to the placement agent based on the first closing.
On October 23, 2008, we entered into an Amendment Agreement (the “Amendment”) with Whalehaven relating to the Initial Purchase Agreement, and the Initial Debenture due August 1, 2009, in the principal amount of $400,000 issued by us to Whalehaven pursuant to the Initial Purchase Agreement. The Amendment provided that the minimum conversion price would be $.013 per share and that the contemplated second closing for another $400,000 debenture would be abandoned. Consequently, no debenture or warrants would be issued beyond the securities issued in connection with the first closing, as the total facility amount was limited to $400,000.
On November 12, 2008, our Registration Statement relating to the Initial Debenture was declared effective. On November 20, 2008, we entered into a Securities Purchase Agreement with two unaffiliated third parties, Whalehaven and Alpha Capital Anstalt (“Alpha”), relating to a private placement (the “New Private Placement”) of $400,000 in principal amount of one-year 8% Senior Secured Convertible Debentures (the “New Debentures”). We were required to file a Registration Statement covering the shares of common stock underlying the New Debentures, including any shares payable as interest, pursuant to the terms of a Registration Rights Agreement dated November 20, 2008, between IDSI and Whalehaven and Alpha promptly following our annual meeting of shareholders, which was held on December 29, 2008. At the meeting the shareholders voted to approve an amendment to our articles of incorporation to increase the authorized shares from 450,000,000 to 950,000,000 (the “Share Amendment”). We were required to use commercially reasonable efforts to cause a Registration Statement to be declared effective as promptly as practicable and no later than 75 days after filing. In the case of a review by the Securities and Exchange Commission the effectiveness date deadline extended to 120 days. In the absence of timely filing or effectiveness, we would be subject to customary liquidated damages.
The New Private Placement generated gross proceeds of $368,000 after payment of an 8% placement agent fee but before other expenses associated with the transaction.
Prior to maturity, the New Debentures bear interest at the rate of 8% per annum, payable quarterly in cash or, at the Company’s option, in shares of common stock based on the then-existing market price.
The New Debentures may be converted in whole or in part at the option of the holder any time after the shareholders have voted to approve the Share Amendment at the lesser of (i) a set price, initially $.033 (the closing price of the shares on the closing date) or (ii) 80% of the 3 lowest bid prices during the 10 consecutive trading days immediately preceding a conversion date; provided, however, that the Conversion Price is subject to a floor price, initially $0.013, and provided further however, that the terms of each Initial Debenture prevent the holder from converting the Debenture to the extent that the conversion would result in the holder and its affiliates beneficially owning more
than 4.99% of the outstanding shares of our common stock; however, the limit may be increased to 9.99% on 61 days prior written notice from the holder.
At any time after closing,After the effectiveness of the Registration Statement, we may redeem for cash, upon written notice, any and all of the outstanding Debentures at a 25% premium of the principal amount plus accrued and unpaid interest on the Debentures to be redeemed.
Our obligations under the Agreement provide that theThe New Debentures are secured by a pledge of substantially all of our assets pursuant to a Security Agreement dated August 1,November 20, 2008 between IDSI and Whalehaven.Whalehaven and Alpha. This security interest is pari passu with the security interest granted to Whalehaven on August 1, 2008, in connection with the Company’s sale of the $400,000 Initial Debenture to Whalehaven..
Pursuant to the first closingIn November 2008, Whalehaven converted $160,000 principal amount of the Private Placement, we issued to Whalehaven five-year Warrants to purchase 22,222,222 shares of the Company’s common stock, equal to 50% of the number ofInitial Debenture and received 9,206,065 shares of our common stock as a result. On November 26, 2008, Whalehaven sold to Alpha $50,000 principal amount of the Initial Debenture and the right to purchase 5,555,555 shares underlying the Debentures assumingWarrant. As a fixed conversion price. Theresult of this transaction, the Warrant for 22,222,222 shares was replaced by a warrant held by Whalehaven covering 16,666,667 shares (the "Whalehaven Warrant") and a warrant held by Alpha covering 5,555,555 shares (the "Alpha Warrant") (collectively, the "Warrants").
On December 10, 2008, we entered into an Amendment Agreement with Whalehaven and Alpha relating to the Warrants. Under this Amendment Agreement, we agreed to reduce the exercise price of thesethe Warrants is $0.0228, i.e.,120%to $.015 per share in exchange for the Purchasers' agreement to immediately exercise the Warrants as to 7,000,000 shares (5,000,000 covered by the Whalehaven Warrant and 2,000,000 covered by the Alpha Warrant). We used the $105,000 proceeds from the warrant exercise for working capital.
On December 15, 2008, Alpha converted $15,000 principal amount of its Initial Debenture and received 1,052,628 shares of our common stock as a result.
We entered into a second Amendment Agreement dated as of December 31, 2008, with Whalehaven and Alpha relating to the Warrants. Under this Amendment Agreement, we agreed to reduce the exercise price of the marketWarrants to $.005 per share in exchange for the Purchasers' agreement to immediately exercise the Warrants as to 14,755,555 shares (11,200,000 by Whalehaven and 3,555,555 by Alpha). We further agreed to issue new Warrants to purchase at $.005 per share up to a number of shares of Common Stock equal to the number of shares underlying the existing Warrants being exercised by Whalehaven and Alpha under the second Amendment Agreement.
In December 2008 we received $56,000, and in January 2009 we received $17,778 in proceeds from these Warrant exercises, we used the proceeds for working capital.
After the issuance of shares pursuant to Whalehaven’s Notice of Exercise of its Warrant and subsequent issuance of new Warrants, they have a balance of 11,666,667 shares available for exercise. After the issuance of shares pursuant to Alpha’s Notice of Exercise of its Warrant and subsequent issuance of new Warrants, they have a balance of 3,555,555 shares available for exercise.
We entered into a third Amendment Agreement dated as of March 20, 2009, with Whalehaven and Alpha. This Amendment Agreement pertains to a request by the Company to the Holders that they agree to a suspension of the Company’s obligations under the Registration Rights Agreements for both the Initial and New Debentures. In consideration for such suspensions, the Company agreed to an adjustment in the conversion price for both debentures whereby the floor price was reduced from $0.013 to $0.005 and the set price was reduced from $0.019 to $0.01. The new formula for determining the conversion price on any Conversion Date shall be equal to the closing date. The Warrants arelesser of (a) $0.01, subject to cashless exercise at Whalehaven’s option. Comparable Warrants are issuablecertain standard adjustments (the “Set Price”) and (b) 80% of the average of the 3 lowest Closing Prices during the 10 Trading Days immediately prior to the applicable Conversion Date (subject to adjustments) (the “Conversion Price”); provided, however, that the Conversion Price shall in no event be less than $0.005 (subject to certain standard adjustments).
As of the date of this report, Whalehaven has sold to Alpha a total of $100,000 principal amount of the August Debenture and received from Alpha a total of $50,000 principal amount of the November Debenture, which it had acquired from Alpha on March 17, 2009 in connection with the second closing.
We are obligatedsale of $50,000 of the August Debenture to pay a placement agent fee equal to 8% in cash at each closing date. The placement agent shallAlpha. Whalehaven also receive a Warrantholds Warrants to purchase 11,666,667 shares of common stock equal to 12% of Whalehaven’s Warrants withat an exercise price equalof $0.005.
As of the date of this report, Whalehaven has converted the $300,000 of the August Debenture which it did not sell to Whalehaven’sAlpha and has received 36,841,918 shares as a result. Whalehaven has converted $250,000 of the November Debenture and has received 51,600,363 shares as a result. Thus, Whalehaven has converted all of its August and November Debentures into 88,442,281 shares of common stock.
As of the date of this report, Alpha has converted $100,000 of the August Debenture and received 17,313,265 shares as a result. Alpha has converted $95,500 of the November Debenture and has received 19,000,000 shares as a result. Alpha holds a principal amount of $54,500 in the November Debenture. Alpha also holds Warrants to purchase 3,555,555 shares of common stock at an exercise price.price of $0.005.
There can be no assurance that adequate financing will be available to us when needed, or if available, will be available on acceptable terms. Insufficient funds may prevent us from implementing our business plan or may require us to delay, scale back, or eliminate certain of our research and product development programs or to license to third parties rights to commercialize products or technologies that we would otherwise seek to develop ourselves. To the extent that we utilize our Private Equity Credit Agreements, or additional funds are raised by issuing equity securities, especially convertible preferred stock and convertible debentures, dilution to existing shareholders will result and future investors may be granted rights superior to those of existing shareholders. Moreover, substantial dilution may result in a change in our control.
Private Placement of Preferred Stock
We have had to rely on the private placement of preferred and common stock to obtain working capital. In deciding to issue preferred stock pursuant to the private placements, we took into account the number of common shares authorized and outstanding, the market price of the common stock at the time of each preferred sale and the number of common shares the preferred stock would have been convertible into at the time of the sale. At the time of each private placement of preferred stock there were enough shares, based on the price of our common stock at the time of the sale of the preferred to satisfy the preferred conversion requirements. Although our board of directors tried to negotiate a floor on the conversion price of each series of preferred stock prior to sale, it was unable to do so. In order to obtain working capital we will continue to seek capital through debt or equity financing which may include the issuance of convertible preferred stock whose rights and preferences are superior to those of the common stock holders. We have endeavored to negotiate the best transaction possible taking into account the impact on our shareholders, dilution, loss of voting power and the possibility of a change-in-control; however, in order to satisfy our working capital needs, we have been and may continue to be forced to issue convertible securities and debentures with no limitations on conversion. conversion. In addition, the dividends on the preferred stock affect the net losses applicable to shareholders. There are also applicable adjustments as a result of the calculation of the deemed preferred stock dividends because we have entered into contracts providing for discounts on the preferred stock when it is converted.
In the event that we issue preferred stock without a limit on the number of shares that can be issued upon conversion and the price of our common stock decreases, the percentage of shares outstanding that will be held by preferred holders upon conversion will increase accordingly. The lower the market price the greater the number of shares to be issued to the preferred holders, upon conversion, thus increasing the potential profits to the holders when the price per share increases and the holders sell the common shares. In addition, the sale of a substantial amount of preferred stock to relatively few holders could cause a possible change-in-control. In the event of a voluntary or
involuntary liquidation while the preferred stock is outstanding, the holders will be entitled to a specified preference in distribution of our property available for distribution. As of the date of this report there are no outstanding shares of preferred stock.
Series K Preferred
See “Financing/Equity Line of Credit”.
Private Placement of Common Stock
Issuance of Stock for Services
We, from time to time, have issued and may continue to issue stock for services rendered by consultants, all of whom have been unaffiliated.
Since we have generated no significant revenues to date, our ability to obtain and retain consultants may be dependent on our ability to issue stock for services. Since July 1, 1996, we have issued an aggregate of 2,306,500 shares of common stock according to registration statements on Form S-8. The aggregate fair market value of the shares registered on Form S-8 when issued was $2,437,151. On July 15, 2008, we entered into a Financial Services Consulting Agreement (the “Agreement”) with R.H. Barsom Company, Inc. of New York, NY, an unaffiliated third-party, to provide us with investor relations services and guidance and assistance in available alternatives to maximize shareholder value. The term of the Agreement is six months, with payment for services being made with shares of IDSI’s common stock with a restricted legend to Richard E. Barsom. The total payment will be 5,000,000 restricted shares, with the first payment of 2,500,000 restricted shares paid on July 16, 2008, and the second payment of 2,500,000 restricted shares due three months after July 15, 2008. The aggregate fair market value of the 5,000,000 restricted shares when issued was $55,000. The Company agreed to register as soon as practicable the aggregate of 5,000,000 shares in an S-1 Registration Statement.
The issuance of large amounts of our common stock, sometimes at prices well below market price, for services rendered or to be rendered and the subsequent sale of these shares may further depress the price of our common stock and dilute the holdings of our shareholders. In addition, because of the possible dilution to existing shareholders, the issuance of substantial additional shares may cause a change-in-control.
Issuance of Stock for Settlements In Lieu of Cash
On March 28, 2002, we issued 350,000 restricted shares of common stock to Anthony Giambrone in settlement of a lawsuit for alleged breach of a consulting agreement. The shares were issued in an exempt transaction pursuant to section 4(2) of the Securities Act of 1933, as amended. The suit was dismissed by stipulation on April 23, 2002. In addition we agreed that, if the market price of our common stock on March 28, 2003, was less than $.75 per share, then we would issue to him additional shares of common stock equal to the quotient of (a) 262,500 minus the product of (i) 350,000 and (ii) the market price, divided by (b) the market price. On March 28, 2003, the market price of our stock was $.17, so we issued to him 1,194,118 additional shares bearing a restricted legend. Under the settlement agreement, we were obligated to register the shares issued to Mr. Giambrone, subject to certain conditions. The shares were subsequently registered on July 23, 2003.
On or about September 18, 2003, we entered into a settlement agreement to settle a lawsuit filed by Ladenburg Thalmann & Co. Inc. for alleged breach of an investment-banking contract. Under this settlement we agreed to issue 401,785 shares of our common stock to Ladenburg in exchange for Ladenburg’s dismissal with prejudice of its claims against us. As of the date of the Settlement Agreement the value of the stock was approximately $450,000. We and Ladenburg jointly moved for Court approval of the settlement as fair to Ladenburg so that the delivery of the shares to and the resale of the shares in the United States by Ladenburg may be exempt from registration under Section 3(a)(10) of the Securities Act of 1933. In an order dated October 24, 2003, the Judge ordered and adjudged that the settlement was approved as fair to the party to whom the shares would be issued within the meaning of Section 3(a)(10) and the case was closed. The shares were issued on November 12, 2003.
FINANCING/EQUITY LINE OF CREDIT
We will require substantial additional funds for working capital, including operating expenses, clinical testing, regulatory processes and manufacturing and marketing programs and our continuing product development programs. Our capital requirements will depend on numerous factors, including the progress of our product development programs, results of pre-clinical and clinical testing, the time and cost involved in obtaining regulatory approvals, the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, competing technological and market developments and changes in our existing research, licensing and other relationships and the terms of any new collaborative, licensing and other arrangements that we may establish. Moreover, our fixed commitments, including salaries and fees for current employees and consultants, and other contractual agreements are likely to increase as additional agreements are entered into and additional personnel are retained.
From July 2000 until August 2007, when we entered into an agreement for the sale/lease-back of our headquarters facility, Charlton Avenue LLC (“Charlton”) provided all of our necessary funding through the private placement sale of convertible preferred stock with a 9% dividend and common stock through various private equity credit agreements. See “Item 7,2, Results of Operations, Liquidity and Capital Resources, Sale/Lease-Back.”Lease-Back” We initially sold Charlton 400 shares of our Series K convertible preferred stock for $4 million and subsequently issued an additional 95 Series K shares to Charlton for $950,000 on November 7, 2000. We paid Spinneret Financial Systems Ltd. (“Spinneret”), an independent financial consulting firm unaffiliated with the Company and, according to
Spinneret and Charlton, unaffiliated with Charlton, $200,000 as a consulting fee for the first tranche of Series K shares and five Series K shares as a consulting fee for the second tranche. The total of $4,950,000 was designed to serve as bridge financing pending draws on the Charlton private equity line provided through the various private equity credit agreements described in the following paragraphs.
From November 2000 to April 2001, Charlton converted 445 shares of Series K convertible preferred stock into 5,600,071 common shares and we redeemed 50 Series K shares for $550,000 using proceeds from the Charlton private equity line. Spinneret converted 5 Series K shares for $63,996. All Series K convertible preferred stock has been converted or redeemed and there are no convertible preferred shares outstanding.
Prior Equity Agreements
From August 2000 to February 2004, we obtained funding through three Private Equity Agreements with Charlton. Each equity agreement provided that the timing and amounts of the purchase by the investor were at our sole discretion. The purchase price of the shares of common stock was set at 91% of the market price. The market price, as defined in each agreement, was the average of the three lowest closing bid prices of the common stock over the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche. The only fee associated with the private equity financing was a 5% consulting fee payable to Spinneret. In September 2001 Spinneret proposed to lower the consulting fee to 4% provided that we pay their consulting fees in advance. We reached an agreement to pay Spinneret in advance as requested and paid them $250,000 out of proceeds from a put.
From the date of our first put notice, January 25, 2001 to our last put notice, February 11, 2004, under our Third Private Equity Credit Agreement, we drew a total of $20,506,000 and issued 49,311,898 shares to Charlton. As each of the obligations under these prior agreements was satisfied, the agreements were terminated. The Third Private
Equity Agreement was terminated on March 4, 2004 upon the effectiveness of our first Registration Statement for the Fourth Private Equity Credit Agreement.
On January 9, 2004, we and Charlton entered into a new “Fourth Private Equity Credit Agreement” which replaced our prior private equity agreements. The terms of the Fourth Private Equity Credit Agreement were more favorable to us than the terms of the prior Third Private Equity Credit Agreement. The new, more favorable terms were: (i) The put option price was 93% of the three lowest closing bid prices in the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche, while the prior Third Private Equity Credit Agreement provided for 91%, (ii) the commitment period was two years from the effective date of a registration statement covering the Fourth Private Equity Credit Agreement shares, while the prior Third Private Equity Credit Agreement was for three years, (iii) the maximum commitment was $15,000,000, (iv) the minimum amount we were required to draw through the end of the commitment period was $1,000,000, while the prior Third Private Equity Credit Agreement minimum amount was $2,500,000, (v) the minimum stock price requirement was controlled by us as we had the option of setting a floor price for each put transaction (the previous minimum stock price in the Third Private Equity Credit Agreement was fixed at $.10), (vi) there were no fees associated with the Fourth Private Equity Credit Agreement; the prior private equity agreements required the payment of a 5% consulting fee to Spinneret, which was subsequently lowered to 4% by mutual agreement in September 2001, and (vii) the elimination of the requirement of a minimum average daily trading volume in dollars. The previous requirement in the Third Private Equity Credit Agreement was $20,000.
We made sales under the Fourth Private Equity Credit Agreement from time to time in order to raise working capital on an “as needed” basis. Under the Fourth Private Equity Credit Agreement we drew down $14,198,541 and issued 66,658,342 shares of common stock. We terminated use of the Fourth Private Equity Credit Agreement and instead began to rely on the Fifth Private Equity Credit Agreement (described below) upon the April 26, 2006, effectiveness of our S-1 Registration Statement filed March 23, 2006.
The Fifth Private Equity Credit Agreement
On March 21, 2006, we and Charlton entered into a new “Fifth Private Equity Credit Agreement” which has replaced our prior Fourth Private Equity Credit Agreement. The terms of the Fifth Private Equity Credit Agreement were similar to the terms of the prior Fourth Private Equity Credit Agreement. The new credit line’s terms were (i) The put option price is 93% of the three lowest closing bid prices in the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche (the “Valuation Period”), (ii) the commitment period was two years from the effective date of a registration statement covering the Fifth Private Equity Credit Agreement shares, (iii) the maximum commitment was $15,000,000, (iv) the minimum amount we were required to draw through the end of the commitment period was $1,000,000, (v) the minimum
stock price, also known as the floor price was computed as follows: In the event that, during a Valuation Period, the Bid Price on any Trading Day fell more than 18% below the closing trade price on the trading day immediately prior to the date of the Company’s Put Notice (a “Low Bid Price”), for each such Trading Day the parties had no right and were under no obligation to purchase and sell one tenth of the Investment Amount specified in the Put Notice, and the
Investment Amount accordingly would be deemed reduced by such amount. In the event that during a Valuation Period there existed a Low Bid Price for any three Trading Days—not necessarily consecutive—then the balance of each party’s right and obligation to purchase and sell the Investment Amount under such Put Notice would terminate on such third Trading Day (“Termination Day”), and the Investment Amount would be adjusted to include only one-tenth of the initial Investment Amount for each Trading Day during the Valuation Period prior to the Termination Day that the Bid Price equaled or exceeded the Low Bid Price and (vi) there were no fees associated with the Fifth Private Equity Credit Agreement.
We made sales under the Fifth Private Equity Credit Agreement from time to time in order to raise working capital on an “as needed” basis. Prior to the expiration of the Fifth Private Equity Credit Agreement on March 21, 2008, we drew down $5,967,717 and issued 82,705,772 shares of common stock.
The Sixth Private Equity Credit Agreement
On April 21, 2008, we and Charlton entered into a new “Sixth Private Equity Credit Agreement” which has replaced our prior Fifth Private Equity Credit Agreement. The terms of the Sixth Private Equity Credit Agreement are similar to the terms of the prior Fifth Private Equity Credit Agreement. This new credit line’s terms are (i) The put option price is 93% of the three lowest closing bid prices in the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche (the “Valuation Period”), (ii) the commitment period is three years from the effective date of a registration statement covering the Sixth Private Equity Credit Agreement shares, (iii) the maximum commitment is $15,000,000, (iv) There is no minimum commitment amount, (v) the minimum stock price, also known as the floor price is computed as follows: In the event that, during a Valuation Period, the Bid Price on any Trading Day falls more than 20% below the closing trade price on the trading day immediately prior to the date of the Company’s Put Notice (a “Low Bid Price”), for each such Trading Day the parties shall have no right and shall be under no obligation to purchase and sell one tenth of the Investment Amount specified in the Put Notice, and the Investment Amount shall accordingly be deemed reduced by such amount. In the event that during a Valuation Period there exists a Low Bid Price for any three Trading Days—not necessarily consecutive—then the balance of each party’s right and obligation to purchase and sell the Investment Amount under such Put Notice shall terminate on such third Trading Day (“Termination Day”), and the Investment Amount shall be adjusted to include only one-tenth of the initial Investment Amount for each Trading Day during the Valuation Period prior to the Termination Day that the Bid Price equals or exceeds the Low Bid Price and (vi) there are no fees associated with the Sixth Private Equity Credit Agreement. The conditions to our ability to draw under this private equity line, as described above, may materially limit the draws available to us.
We have made sales under the Sixth Private Equity Credit Agreement from time to time in order to raise working capital on an “as needed” basis. As of the date of this report, we have drawn down $800,000$2,042,392 and issued 29,447,039227,000,000 shares of common stock under the Sixth Private Equity Creditpursuant to this Agreement.
As of the date of this report, since January 2001, we have drawn an aggregate of $41,472,258$42,714,650 in gross proceeds from our equity credit lines with Charlton and have issued 232,018,176425,676,012 shares as a result of those draws.
In March 2008, we completed the sale of our Plantation, Florida building for $4.4 million, which was paid for in the following installments:
First Installment | 8/02/2007 | $1,100,000.00 |
Second Installment | 9/21/2007 | $1,100,000.00 |
Third Installment | 12/14/2007 | $550,000.00 |
Fourth Installment | 1/04/2008 | $550,000.00 |
Fifth Installment | 1/18/2008 | $1,056,000.00 |
Final Payment | 3/26/2008 | $44,027.00 |
These funds were used to finance our operations on terms more favorable than those which were available under the Fifth Private Equity Credit Agreement.
There can be no assurance that adequate financing will be available when needed, or if available, will be available on acceptable terms. Insufficient funds may prevent us from implementing our business plan or may require us to delay, scale back, or eliminate certain of our research and product development programs or to license to third parties rights to commercialize products or technologies that we would otherwise seek to develop ourselves. To the extent that we utilize our Private Equity Credit Agreements, or additional funds are raised by issuing equity securities, especially convertible preferred stock and convertible debentures, dilution to existing shareholders will result and future investors may be granted rights superior to those of existing shareholders. Moreover, substantial dilution may result in a change in our control.
ITEM 6. SELECTED FINANCIAL DATA | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
The following selected financial data should be read in conjunction with "Item 7. Management's Discussion and Analysis | |
of Financial Condition and Results of Operations" and "Item 8. Financial Statements" | | | | | | | |
| | | | | | | | | | | | |
| | Year Ended | | | Year Ended | | | Year Ended | | | Year Ended | | | Year Ended | |
| | June 30, 2008 | | | June 30, 2007 | | | June 30, 2006 | | | June 30, 2005 | | | June 30, 2004 | |
| | | | | | | | | | | | | | (Restated) | |
Sales | | $ | 39,647 | | | $ | 65,136 | | | $ | 675,844 | | | $ | 374,952 | | | $ | 733,211 | |
| | | | | | | | | | | | | | | | | | | | |
Cost of Sales | | | 20,944 | | | | 17,870 | | | | 316,189 | | | | 166,685 | | | | 284,682 | |
| | | | | | | | | | | | | | | | | | | | |
Gross Profit | | | 18,703 | | | | 47,266 | | | | 359,655 | | | | 208,267 | | | | 448,529 | |
| | | | | | | | | | | | | | | | | | | | |
Operating Expenses | | | 6,232,663 | | | | 7,123,347 | | | | 6,984,057 | | | | 7,338,806 | | | | 8,160,982 | |
| | | | | | | | | | | | | | | | | | | | |
Operating Loss | | | (6,213,960 | ) | | | (7,076,081 | ) | | | (6,624,402 | ) | | | (7,130,539 | ) | | | (7,712,453 | ) |
| | | | | | | | | | | | | | | | | | | | |
Gain (Loss) on sale of fixed assets | | | 1,609,525 | | | | - | | | | (2,439 | ) | | | - | | | | (5,669 | ) |
Interest income | | | 13,377 | | | | 11,455 | | | | 8,416 | | | | 5,680 | | | | 9,305 | |
Other income | | | 7,827 | | | | 250,001 | | | | 21,500 | | | | 409,962 | | | | - | |
Interest expense | | | (40,447 | ) | | | (387,697 | ) | | | (565,797 | ) | | | (598,021 | ) | | | (694,142 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net Loss | | | (4,623,678 | ) | | | (7,202,322 | ) | | | (7,162,722 | ) | | | (7,312,918 | ) | | | (8,402,959 | ) |
| | | | | | | | | | | | | | | | | | | | |
Dividends on cumulative Pfd. stock: | | | | | | | | | | | | | | | | | | | | |
From discount at issuance | | | - | | | | - | | | | - | | | | - | | | | - | |
Earned | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | |
Net loss applicable to | | | | | | | | | | | | | | | | | | | | |
common shareholders | | $ | (4,623,678 | ) | | $ | (7,202,322 | ) | | $ | (7,162,722 | ) | | $ | (7,312,918 | ) | | $ | (8,402,959 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Net Loss per common share | | $ | (0.01 | ) | | $ | (0.03 | ) | | $ | (0.03 | ) | | $ | (0.04 | ) | | $ | (0.05 | ) |
Weighted avg. no. of common shares, | | | | | | | | | | | | | | | | | | | | |
Basic & Diluted | | | 318,673,749 | | | | 271,667,256 | | | | 218,846,738 | | | | 185,636,553 | | | | 167,982,750 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Cash and Cash Equivalents | | $ | 49,433 | | | $ | 477,812 | | | $ | 1,467,687 | | | $ | 765,523 | | | $ | 554,354 | |
Total Assets | | | 1,583,356 | | | | 4,365,427 | | | | 6,250,909 | | | | 5,608,004 | | | | 5,683,328 | |
Deficit accumulated during | | | | | | | | | | | | | | | | | | | | |
the development stage | | | (102,964,738 | ) | | | (98,341,059 | ) | | | (91,138,737 | ) | | | (83,976,015 | ) | | | (76,663,097 | ) |
Stockholders' Equity | | | (468,761 | ) | | | 3,441,322 | | | | 5,651,916 | | | | 4,772,538 | | | | 4,170,395 | |
| | | | | | | | | | | | | | | |
The following selected financial data should be read in conjunction with "Item 7. Management's Discussion and Analysis | |
of Financial Condition and Results of Operations" and "Item 8. Financial Statements" | | | | | | | |
| | | | | | | | | | | | | | | |
| | Year Ended | | | Year Ended | | | Year Ended | | | Year Ended | | | Year Ended | |
| | June 30, 2009 | | | June 30, 2008 | | | June 30, 2007 | | | June 30, 2006 | | | June 30, 2005 | |
| | | | | | | | | | | | | | | |
Sales | | $ | 70,617 | | | $ | 39,647 | | | $ | 65,136 | | | $ | 675,844 | | | $ | 374,952 | |
| | | | | | | | | | | | | | | | | | | | |
Cost of Sales | | | 20,546 | | | | 20,944 | | | | 17,870 | | | | 316,189 | | | | 166,685 | |
| | | | | | | | | | | | | | | | | | | | |
Gross Profit | | | 50,071 | | | | 18,703 | | | | 47,266 | | | | 359,655 | | | | 208,267 | |
| | | | | | | | | | | | | | | | | | | | |
Operating Expenses | | | 4,505,908 | | | | 6,232,663 | | | | 7,123,347 | | | | 6,984,057 | | | | 7,338,806 | |
| | | | | | | | | | | | | | | | | | | | |
Operating Loss | | | (4,455,837 | ) | | | (6,213,960 | ) | | | (7,076,081 | ) | | | (6,624,402 | ) | | | (7,130,539 | ) |
| | | | | | | | | | | | | | | | | | | | |
Gain (Loss) on sale of fixed assets | | | 1,181,894 | | | | 1,609,525 | | | | - | | | | (2,439 | ) | | | - | |
Interest income | | | 636 | | | | 13,377 | | | | 11,455 | | | | 8,416 | | | | 5,680 | |
Other income | | | 5,909 | | | | 7,827 | | | | 250,001 | | | | 21,500 | | | | 409,962 | |
Interest expense | | | (677,031 | ) | | | (40,447 | ) | | | (387,697 | ) | | | (565,797 | ) | | | (598,021 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net Loss | | | (3,944,429 | ) | | | (4,623,678 | ) | | | (7,202,322 | ) | | | (7,162,722 | ) | | | (7,312,918 | ) |
| | | | | | | | | | | | | | | | | | | | |
Dividends on cumulative Pfd. stock: | | | | | | | | | | | | | | | | | | | | |
From discount at issuance | | | - | | | | - | | | | - | | | | - | | | | - | |
Earned | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | |
Net loss applicable to | | | | | | | | | | | | | | | | | | | | |
common shareholders | | $ | (3,944,429 | ) | | $ | (4,623,678 | ) | | $ | (7,202,322 | ) | | $ | (7,162,722 | ) | | $ | (7,312,918 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Net Loss per common share | | $ | (0.01 | ) | | $ | (0.01 | ) | | $ | (0.03 | ) | | $ | (0.03 | ) | | $ | (0.04 | ) |
Weighted avg. no. of common shares, | | | | | | | | | | | | | | | | | | | | |
Basic & Diluted | | | 424,330,162 | | | | 318,673,749 | | | | 271,667,256 | | | | 218,846,738 | | | | 185,636,553 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Cash and Cash Equivalents | | $ | 12,535 | | | $ | 49,433 | | | $ | 477,812 | | | $ | 1,467,687 | | | $ | 765,523 | |
Total Assets | | | 1,134,580 | | | | 1,583,356 | | | | 4,365,427 | | | | 6,250,909 | | | | 5,608,004 | |
Deficit accumulated during | | | | | | | | | | | | | | | | | | | | |
the development stage | | | (106,909,167 | ) | | | (102,964,738 | ) | | | (98,341,059 | ) | | | (91,138,737 | ) | | | (83,976,015 | ) |
Stockholders' Equity | | | (1,129,222 | ) | | | (468,761 | ) | | | 3,441,322 | | | | 5,651,916 | | | | 4,772,538 | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis should be read in conjunction with the “Selected Financial Data” and the Condensed Financial Statements included elsewhere in this report and the information described under the caption “Risk Factors” below.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to inventories, and intangible assets. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that may not be readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Inventory
Our inventories consist of raw materials, work-in-process and finished goods, and are stated at the lower of cost (first-in, first-out) or market. As a designer and manufacturer of high technology medical imaging equipment, we may be exposed to a number of economic and industry factors that could result in portions of our inventory becoming either obsolete or in excess of anticipated usage. These factors include, but are not limited to, technological changes in our markets, our ability to meet changing customer requirements, competitive pressures in products and prices and reliability, replacement and availability of key components from our suppliers. We evaluate on a quarterly basis, using the guidance of ARB 43, Chapter 4, Statement 5, our ability to realize the value of our inventory based on a combination of factors including the following: how long a system has been used for demonstration or clinical collaboration purpose; the utility of the goods as compared to their cost; physical obsolescence; historical usage rates; forecasted sales or usage; product end of life dates; estimated current and future market values; and new product introductions. Assumptions used in determining our estimates of future product demand may prove to be incorrect, in which case excess and obsolete inventory would have to be adjusted in the future. If we determined that inventory was overvalued, we would be required to make an inventory valuation adjustment at the time of such determination. Although every effort is made to ensure the accuracy of our forecasts of future product demand, significant unanticipated changes in demand could have a significant negative impact on the value of our inventory and our reported operating results. Additionally, purchasing requirements and alternative usage avenues are explored within these processes to mitigate inventory exposure.
Stock-Based Compensation
The computation of the expense associated with stock-based compensation requires the use of a valuation model. SFAS 123(R) is a very complex accounting standard, the application of which requires significant judgment and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility, expected option lives, and expected option forfeiture rates, to value equity-based compensation. The Company currently uses a Black-Scholes option pricing model to calculate the fair value of its stock options. The Company primarily uses historical data to determine the assumptions to be used in the Black-Scholes model and has no reason to believe that future data is likely to differ materially from historical data. However, changes in the assumptions to reflect future stock price volatility and future stock award exercise experience could result in a change in the assumptions used to value awards in the future and may result in a material change to the fair value calculation of stock-based awards. SFAS 123(R) requires the recognition of the fair value of stock compensation in net income. Although every effort is made to ensure the accuracy of our estimates and assumptions, significant unanticipated changes in those estimates, interpretations and assumptions may result in recording stock option expense that may materially impact our financial statements for each respective reporting period.
Results of Operations
In the continuing process of commercializing our operations and as part of our transition plan to exit from SFAS 7 reporting as a development stage enterprise, we continue to use the format established for the fiscal year ending June 30, 2005 of our management discussion and analysis of financial condition and results of operations (MD&A) to better disclose and discuss the three most significant categories of expenses, i.e., general and administrative, research and development, and sales and marketing.
Beginning with the fiscal year ending June 30, 2005 we also expanded our discussion of health insurance and worker’s compensation insurance so that they fell into compensation and related benefits for one of the three expense categories, where previously they were included under insurance costs. For the fiscal year ending June 30, 2006, we expanded our compensation and related benefits disclosure to include the non-cash compensation related to the expensing of stock options in the three expense categories.
Twelve Months Ended June 30, 2009 and June 30, 2008
SALES AND COST OF SALES
Revenues during the year ended June 30, 2009, were $70,617 representing an increase of $30,970 or 78% from $39,647 during the year ended June 30, 2008. The increase in revenues is a result of recording revenue from payment plans at the time when the customers paid. We also recognized certain non-refundable customer deposits as revenue when one of our customers failed to make payments according to the sales agreements.
The Cost of Sales during the year ended June 30, 2009, was $20,546 representing a decrease of $398 or 2% from $20,944 during the year ended June 30, 2008. The decrease in Cost of Sales is a result of inventory write-downs from prior periods and has been adjusted accordingly to what the customer paid compared to the year ended June 30, 2008.
GENERAL AND ADMINISTRATIVE
Our general and administrative expenses include compensation and related benefits for employees in administration, finance, human resources and information technology. Also included are travel/subsistence related to general and administrative activities; property and casualty insurance; directors’ and officers’ liability insurance; professional fees associated with our corporate and securities attorneys and independent auditors; patent maintenance; corporate governance expenses; stockholder expenses; consulting; utilities; maintenance; telephones; office supplies and sales and property taxes.
General and administrative expenses during the year ended June 30, 2009, were $2,379,113 representing a decrease of $265,443 or 10% from $2,644,556 during the year ended June 30, 2008. Of the $2,379,113 and $2,644,556, compensation and related benefits comprised $1,465,548 (63%) and $1,661,477 (63%), respectively, representing a decrease of $195,929 or 12%. Of the $1,465,548 and $1,661,477 compensation and related benefits, $116,319 (9%) and $155,133 (9%), respectively, were due to non-cash compensation associated with expensing stock options.
The general and administrative decrease of $265,443 is due primarily to decreases of $195,929 in compensation and related benefits as a result of a reduction in staff; $114,867 in Board Meeting expense as a result of not having any outside independent directors; and $133,966 as a result of reducing or canceling several of our insurance policies; $52,974 in real estate taxes, $38,122 in maintenance and repairs and $4,228 in utilities as a result of moving into a smaller facility in August 2008 that we rent rather than own; $9,637 in office supplies and $21,160 in telephone and cell phone expenses as a result of a reduction in staff; and $28,500 in investor relations expenses as a result of canceling our agreement in March 2008 with LC Group, an investor relations consulting firm. These reductions were a result of our cost saving initiatives.
The total decrease is partially offset by increases of $122,187 in office rent expense; $80,788 in legal expenses associated with general corporate and securities matters; $69,428 in proxy service expenses due to having our annual meeting during the fiscal year and not having an annual meeting in fiscal year 2008; and $64,000 in placement fees in connection with the convertible debenture financing of $800,000.
We do not expect a material increase in our general and administrative expenses until we realize a significant increase in revenue from the sale of our product.
RESEARCH AND DEVELOPMENT
We incur research and development expenses to develop significant enhancements to our sole product, the CTLM®. These expenses consist primarily of compensation and related benefits; clinical, legal and consulting fees associated with our PMA application; costs of materials and components we use to make product enhancements; new product research; professional fees associated with the research and applications for new patents; and the costs associated with the travel/subsistence, shipping, training, installing and servicing clinical collaboration sites.
Research and development expenses during the year ended June 30, 2009, were $1,226,718 representing a decrease of $853,547 or 41% from $2,080,265 during the year ended June 30, 2008. Of the $1,226,718 and $2,080,265, compensation and related benefits comprised $755,348 (62%) and $1,024,852 (49%), respectively, representing a decrease of $269,504 or 26%. Of the $755,348 and $1,024,852 compensation and related benefits, $12,939 (2%) and $13,067 (1%), respectively, were due to non-cash compensation associated with expensing stock options.
The research and development decrease of $853,547 is due primarily to a decrease of $269,504 in compensation and related benefits as a result of a reduction in staff; $218,068 in consulting expenses due to our decreased use of consultants in the field of scientific and clinical disciplines, in consulting expenses primarily associated with the monitoring and data management of our PMA and various consultants involved with design engineering, software engineering and research by our consulting radiologist; $138,594 in research and development projects; $112,940 in clinical expenses; $71,071 in travel related expenses due to decreased travel to our U.S. clinical sites and to our International clinical collaboration sites; and $56,318 in FDA legal expenses.
Clinical expenses during the year ended June 30, 2009, were $141,713 representing a decrease of $112,940 or 44% from $254,653 as a result of the variable costs associated with our PMA clinical trials.
We expect a significant increase in our research and development expenses during the fiscal year ending June 30, 2010 due to increased costs associated with preparing our PMA application and submitting it to the FDA. We also expect our consulting expenses and professional fees to increase due to the costs associated with our PMA application. See Item 1. Our Business - “Clinical Collaboration Sites Update”.
SALES AND MARKETING
Our sales and marketing expenses consist primarily of compensation and related benefits for employees in the areas of sales, marketing, sales support and sales administration. Also included are the expenses associated with advertising and promotion; representative office expense; trade shows; conferences; promotional and training costs related to marketing the CTLM®; commissions; travel/subsistence; consulting; certification expenses; and product liability insurance.
Sales and marketing expenses during the year ended June 30, 2009, were $615,448 representing a decrease of $452,207 or 42% from $1,067,655 during the year ended June 30, 2008. Of the $615,448 and $1,067,655, compensation and related benefits comprised $111,743 (18%) and $176,005 (16%), respectively, representing a decrease of $64,262 or 37%. Of the $111,743 and $176,005 compensation and related benefits, $2,069 (2%) and $1,919 (1%), respectively, were due to non-cash compensation associated with expensing stock options.
The sales and marketing decrease of $452,207 was due primarily to a decrease in compensation and related benefits of $64,262 as a result of the reduction in staff; $90,479 in freight charges as a result of transportation charges, customs fees, duties and taxes associated with CTLM® systems we shipped internationally in fiscal year 2008; $67,174 in representative office expense as a result of our new strategic marketing plan to appoint a distributor and dealers and closed our representative office in Beijing, China as part of our cost savings initiative; $203,405 in travel expenses associated with sales and marketing related activities; $33,210 in advertising and promotion; and $49,800 in marketing related consulting expenses.
The total decrease is partially offset by increases of $30,742 in regulatory expenses and $14,048 in trade show expenses.
After we file our PMA application, we expect commissions, trade show expenses, advertising and promotion and travel and subsistence costs to increase as we continue to implement our global commercialization program.
AGGREGATED OPERATING EXPENSES
Total operating expenses (general and administrative, research and development, sales and marketing, inventory valuation adjustments and depreciation and amortization) during the year ended June 30, 2009, were $4,505,908 representing a decrease of $1,726,755 or 28% from $6,232,663 when compared to the operating expenses during the year ended June 30, 2008. The overall reduction in expenses was a result of the implementation of cost saving initiatives.
Compensation and related benefits during the year ended June 30, 2009, were $2,332,639 representing a decrease of $529,695 or 19% from $2,862,334 during the year ended June 30, 2008 due to a reduction in staff. Of the $2,332,639 and $2,862,334 compensation and related benefits, $131,327 (6%) and $170,119 (6%), respectively, were due to non-cash compensation associated with expensing stock options. The net decrease of $529,695 was due to a decrease of cash compensation of $490,904 combined with a $38,792 decrease in the recording of non-cash compensation related to the expensing of stock options.
Inventory valuation adjustments during the year ended June 30, 2009, were $82,286 representing a decrease of $176,089 or 68% from $258,375 during the year ended June 30, 2008. The decrease is due to a reduction in the write-down of systems that have lost value due to usage as demonstrators on consignment. See “Critical Accounting Policy – Inventory”.
Depreciation and amortization during the year ended June 30, 2009, were $202,344 representing an increase of $20,532 or 11% from $181,812 during the year ended June 30, 2008.
Interest expense during the fiscal year ended June 30, 2009, was $677,031 representing an increase of $636,584 or 1,574% from $40,447 during the year ended June 30, 2008. The interest expense is primarily comprised of the amortization of the debt discount on our convertible debentures and the imputed interest associated with our equity credit line with Charlton Avenue, LLC (“Charlton”) as per the terms and conditions of our private equity credit agreement. Our utilization of the equity credit line increased significantly during fiscal 2009 as we previously used in fiscal 2008 the proceeds from the sale/lease-back of our building for current operations. This resulted in the substantial year-over-year increase in interest expense. See Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters – “Financing/Equity Line of Credit”
Other income during the year ended June 30, 2009, was $5,909 representing a decrease of $1,918 or 25% from $7,827 during the year ended June 30, 2008. The $5,909 represents the sale of the LILA Inventory, use of our facilities and consulting with our engineers pursuant to the Bioscan Agreement. (See Item 1 Our Business - -“Laser Imager for Lab Animals”).
Twelve Months Ended June 30, 2008 and June 30, 2007
SALES AND COST OF SALES
Revenues during the year ended June 30, 2008, were $39,647 representing a decrease of $25,489 or 39% from $65,136 during the year ended June 30, 2007. The decrease in revenues is a result of recording revenue from a payment plan at the time when the customer paid compared to the year ended June 30, 2007 when in addition to recording revenue from payment plans at the time when the customers’ paid, we also recognized certain non-refundable customer deposits as revenue when our customer’s failed to make payments according to the sales agreements.
The Cost of Sales during the year ended June 30, 2008, was $20,944 representing an increase of $3,074 or 17% from $17,870 during the year ended June 30, 2007. The increase in Cost of Sales is a result of incremental increases in such costs being recorded in proportion to what the customer paid compared to the year ended June 30, 2007.
GENERAL AND ADMINISTRATIVE
Our general and administrative expenses include compensation and related benefits for employees in administration, finance, human resources and information technology. Also included are travel/subsistence related to general and administrative activities; property and casualty insurance; directors’ and officers’ liability insurance; professional fees associated with our corporate and securities attorneys and independent auditors; patent maintenance; corporate governance expenses; stockholder expenses; consulting; utilities; maintenance; telephones; office supplies and sales and property taxes.
General and administrative expenses during the year ended June 30, 2008, were $2,644,556 representing a decrease of $368,019 or 12% from $3,012,575 during the year ended June 30, 2007. Of the $2,644,556 and $3,012,575, compensation and related benefits comprised $1,661,477 (63%) and $2,090,560 (69%), respectively, representing a decrease of $429,083 or 21%. Of the $1,661,477 and $2,090,560 compensation and related benefits, $155,133 (9%) and $360,695 (17%), respectively, were due to non-cash compensation associated with expensing stock options.
The general and administrative decrease of $368,019 is due primarily to decreases of $429,083 in compensation and related benefits as a result of a reduction in staff; $75,230 in proxy service expenses due to not having an annual meeting during the fiscal year; $14,227 in office supplies; $10,153 associated with the maintenance of existing patents; $17,366 in telephone and cell phone expenses as a result of a reduction in staff; $10,802 in postage and shipping expenses; and $7,500 in investor relations expenses as a result of canceling our agreement in March 2008 with LC Group, an investor relation consulting firm. These reductions were a result of our cost saving initiatives.
The total decrease is partially offset by increases of $85,935 in office rent expense and the corresponding entry to record the rent holiday as a deferred rent liability for the period of March 14, 2008 through June 30, 2008 (See Note 8 – Sale/Lease-Back of Building); $62,851 in consulting expenses during the period due primarily to the consulting agreement with our former CEO, Tim Hansen; $36,171 for our Director and Officer Insurance policy, which increased because we increased the coverage from $5 million to $10 million; and $22,132 in legal expenses associated with general corporate and securities matters.
We do not expect a material increase in our general and administrative expenses until we realize a significant increase in revenue from the sale of our product.
RESEARCH AND DEVELOPMENT
We incur research and development expenses to develop significant enhancements to our sole product, the CTLM®. These expenses consist primarily of compensation and related benefits; clinical, legal and consulting fees associated with our PMA application; costs of materials and components we use to make product enhancements; new product research; professional fees associated with the research and applications for new patents; and the costs associated with the travel/subsistence, shipping, training, installing and servicing clinical collaboration sites.
Research and development expenses during the year ended June 30, 2008, were $2,080,265 representing a decrease of $9,232 or less than 1% from $2,089,497 during the year ended June 30, 2007. Of the $2,080,265 and $2,089,497, compensation and related benefits comprised $1,024,852 (49%) and $1,475,076 (71%), respectively, representing a decrease of $450,224 or 31%. Of the $1,024,852 and $1,475,076 compensation and related benefits, $13,067 (1%) and $40,672 (3%), respectively, were due to non-cash compensation associated with expensing stock options.
The research and development decrease of $9,232 is due primarily to a decrease of $450,224 in compensation and related benefits as a result of a reduction in staff and $63,705 in legal expenses as a result of less patent applications. The total decrease is partially offset by increases of $399,752 in consulting expenses due to our requirements for consultants in the field of scientific and clinical disciplines; $90,867 primarily as a result of transferring parts that were in inventory to research and development; $7,876 in software expenses related to our advanced development of the CTLM®; and $3,490 in travel expenses due to increased travel to our U.S. clinical sites and to our International clinical collaboration sites.
Clinical expenses during the year ended June 30, 2008, were $254,653 representing a decrease of $3,142 or 1% from $257,795 as a result of continuing PMA process.
We expect a significant increase in our research and development expenses during the fiscal year ending June 30, 2009 due to increased costs associated with conducting clinical trials in the United States required for our PMA application. We also expect our consulting expenses and professional fees to increase due to the costs associated with our PMA application. See Item 1. Our Business - “Clinical Collaboration Sites Update”.
SALES AND MARKETING
Our sales and marketing expenses consist primarily of compensation and related benefits for employees in the areas of sales, marketing, sales support and sales administration. Also included are the expenses associated with advertising and promotion; representative office expense; trade shows; conferences; promotional and training costs related to marketing the CTLM®; commissions; travel/subsistence; consulting; certification expenses; and product liability insurance.
Sales and marketing expenses during the year ended June 30, 2008, were $1,067,655 representing a decrease of $283,866 or 21% from $1,351,521 during the year ended June 30, 2007. Of the $1,067,655 and $1,351,521, compensation and related benefits comprised $176,005 (16%) and $412,283 (31%), respectively, representing a decrease of $236,278 or 57%. Of the $176,005 and $412,283 compensation and related benefits, $1,919 (1%) and $29,946 (7%), respectively, were due to non-cash compensation associated with expensing stock options.
The sales and marketing decrease of $283,866 was due primarily to a decrease in compensation and related benefits of $236,278 as a result of the reduction in staff; $17,592 in representative office expense as a result of one-time costs during the prior period for our representative office in Beijing, China; $43,669 in travel expenses associated with sales and marketing related activities; $54,463 in trade show expenses due to a reduction in booth size at RSNA; $16,780 in advertising and promotion; $23,281 in regulatory expenses due to an adjustment with a former distributor who has ceased operations; $13,826 in public relations expense; and $4,107 in translation expenses as we completed the necessary translations in selected countries. These reductions were a result of our cost saving initiatives.
The total decrease is partially offset by increases of $89,359 in freight expenses as a result of paying the Duty and VAT associated with two systems we shipped to China; and $26,425 in consulting expenses due to an increased reliance on outside sales consultants.
After we file our PMA application, we expect commissions, trade show expenses, advertising and promotion and travel and subsistence costs to increase as we continue to implement our global commercialization program. We plan to expand our sales and marketing department and will continue to maintain our representative office in Beijing, China to support sales and service for our distribution network in that country.
AGGREGATED OPERATING EXPENSES
Total operating expenses (general and administrative, research and development, sales and marketing, inventory valuation adjustments and depreciation and amortization) during the year ended June 30, 2008, were $6,232,663 representing a decrease of $890,684 or 13% from $7,123,347 when compared to the operating expenses during the year ended June 30, 2007. The overall reduction in expenses werewas a result of the implementation of cost saving initiatives.
Compensation and related benefits during the year ended June 30, 2008, were $2,862,334 representing a decrease of $1,115,586 or 28% from $3,977,920 during the year ended June 30, 2007 due to a reduction in staff. Of the $2,862,334 and $3,977,920 compensation and related benefits, $170,119 (6%) and $431,313 (11%), respectively, were due to non-cash compensation associated with expensing stock options. The net decrease of $1,115,586 was due to a decrease of cash compensation of $854,392 combined with a $261,194 decrease in the recording of non-cash compensation related to the expensing of stock options.
Inventory valuation adjustments during the year ended June 30, 2008, were $258,375 representing a decrease of $235,221 or 48% from $493,596 during the year ended June 30, 2007. The decrease is due primarily to the recording of a one-time Inventory Reserve of $300,000 in fiscal year 2007. See “Critical Accounting Policy – Inventory”.
Depreciation and amortization during the year ended June 30, 2008, were $181,812 representing an increase of $5,654 or 3% from $176,158 during the year ended June 30, 2007.
Interest expense during the fiscal year ended June 30, 2008, was $40,447 representing a decrease of $347,250 or 90% from $387,697 during the year ended June 30, 2007. Because of the decreased use of our equity credit lines, we recorded less interest associated with the discount on our equity credit lines with Charlton Avenue, LLC (“Charlton”). See Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters – “Financing/Equity Line of Credit”
Other income during the year ended June 30, 2008, was $7,827 representing a decrease of $242,174 or 97% from $250,001 during the year ended June 30, 2007. The $7,827 represents the monthly rent expense and fees we charge Bioscan and the $250,001 represents payments for the technology transfer fee pursuant to the Bioscan Agreement (See Item 1 Our Business -“Laser Imager for Lab Animals”).
Twelve Months Ended June 30, 2007 and June 30, 2006
SALES AND COST OF SALES
Revenues during the year ended June 30, 2007, were $65,136 representing a decrease of $610,708 or 90% from $675,844 during the year ended June 30, 2006. The Cost of Sales during the year ended June 30, 2007, was $17,870 representing a decrease of $298,319 or 94% from $316,189 during the year ended June 30, 2006. The decrease in revenues and Cost of Sales is a result of no CTLM® sales being recorded compared to selling five CTLM® Systems during the year ended June 30, 2006.
GENERAL AND ADMINISTRATIVE
Our general and administrative expenses include compensation and related benefits for employees in administration, finance, human resources and information technology. Also included are travel/subsistence related to general and administrative activities; property and casualty insurance; directors’ and officers’ liability insurance; professional fees associated with our corporate and securities attorneys and independent auditors; patent maintenance; corporate governance expenses; stockholder expenses; consulting; utilities; maintenance; telephones; office supplies and sales and property taxes.
General and administrative expenses during the year ended June 30, 2007, were $3,012,575 representing a decrease of $353,851 or 11% from $3,366,426 during the year ended June 30, 2006. Of the $3,012,575 and $3,366,426, compensation and related benefits comprised $2,090,560 (69%) and $2,228,994 (66%), respectively, representing a decrease of $138,434 or 6%. Of the $2,090,560 and $2,228,994 compensation and related benefits, $360,695 (17%) and $481,556 (22%), respectively, were due to non-cash compensation associated with expensing stock options. The general and administrative decrease of $353,851 is due primarily to decreases of $138,434 in compensation and related benefits; $124,256 in consulting expenses as we did not incur any general and administrative consulting expenses during the period; $64,502 in proxy service expenses as a result of reduced printing charges due to the elimination of the color pages to the annual report and lower mailing costs due to online delivery of materials and shareholder voting during the period; and $18,027 in board meeting expenses as a result of fewer board of directors meetings and workshop days. These reductions were a result of our cost control measures.
We do not expect a material increase in our general and administrative expenses until we realize a significant increase in revenue from the sale of our product.
RESEARCH AND DEVELOPMENT
We incur research and development expenses to develop significant enhancements to our sole product, the CTLM®. These expenses consist primarily of compensation and related benefits; clinical, legal and consulting fees associated with our PMA application; costs of materials and components we use to make product enhancements; new product research; professional fees associated with the research and applications for new patents; and the costs associated with the travel/subsistence, shipping, training, installing and servicing clinical collaboration sites.
Research and development expenses during the year ended June 30, 2007, were $2,089,497 representing an increase of $42,809 or 2% from $2,046,688 during the year ended June 30, 2006. Of the $2,089,497 and $2,046,688, compensation and related benefits comprised $1,475,076 (71%) and $1,470,539 (72%), respectively, representing an increase of $4,538 or 0%. Of the $1,475,076 and $1,470,539 compensation and related benefits, $40,672 (3%) and $125,423 (9%), respectively, were due to non-cash compensation associated with expensing stock options.
The research and development increase of $42,809 is due primarily to increases of $142,092 in clinical expenses due to costs associated with our PMA clinical trials; and $4,538 in research and development compensation and related benefits. The total increase is partially offset by decreases of $71,105 in consulting expenses because of decreased use of consultants in the field of scientific and clinical disciplines; and $31,960 in travel expenses due to decreased travel to our international clinical collaboration sites.
Clinical expenses during the year ended June 30, 2007, were $257,795 representing an increase of $142,092 or 124% from $115,703 as a result of higher clinical activity in the current year.
We expect a significant increase in our research and development expenses during the fiscal year ending June 30, 2008 due to increased costs associated with conducting clinical trials in the United States required for our PMA application. We also expect our consulting expenses and professional fees to increase due to the costs associated with our PMA application. See Item 1. Our Business - “Clinical Collaboration Sites Update”.
SALES AND MARKETING
Our sales and marketing expenses consist primarily of compensation and related benefits for employees in the areas of sales, marketing, sales support and sales administration. Also included are the expenses associated with advertising and promotion; representative office expense; trade shows; conferences; promotional and training costs related to marketing the CTLM®; commissions; travel/subsistence; consulting; certification expenses; and product liability insurance.
Sales and marketing expenses during the year ended June 30, 2007, were $1,351,521 representing an increase of $140,604 or 12% from $1,210,917 during the year ended June 30, 2006. Of the $1,351,521 and $1,210,917, compensation and related benefits comprised $412,283 (31%) and $429,568 (35%), respectively, representing a decrease of $17,285 or 4%. Of the $412,283 and $429,568 compensation and related benefits, $29,946 (7%) and $25,578 (6%), respectively, were due to non-cash compensation associated with expensing stock options.
The sales and marketing increase of $140,604 was due primarily to increases of $222,550 in representative office
expense as a result of opening our representative office in Beijing, China; $24,681 in travel expenses associated with sales and marketing related activities; $20,146 in advertising and promotion; and $9,162 in translation expenses. The total increase is partially offset by decreases of $72,281 in regulatory expense due to the recording of the Chinese regulatory fee in the prior fiscal year; $26,974 in consulting expenses due to a reduced reliance on outside sales consultants; $17,285 in compensation and related benefits; and $17,915 in commission expense as a result of having no sales subject to commissions during the current fiscal year compared to five sales in the prior fiscal year.
We expect commissions, trade show expenses, advertising and promotion and travel and subsistence costs to increase as we continue to implement our global commercialization program. We are in the process of expanding our sales and marketing department and have opened a representative office in Beijing, China to support sales and service for our distribution network in that country.
AGGREGATED OPERATING EXPENSES
Total operating expenses (general and administrative, research and development, sales and marketing, inventory valuation adjustments and depreciation and amortization) during the year ended June 30, 2007, were $7,123,347 representing an increase of $139,290 or 2% from $6,984,057 when compared to the operating expenses during the year ended June 30, 2006.
Compensation and related benefits during the year ended June 30, 2007, were $3,977,920 representing a decrease of $151,180 or 4% from $4,129,100 during the year ended June 30, 2006. Of the $3,977,920 and $4,129,100 compensation and related benefits, $431,313 (11%) and $632,558 (15%), respectively, were due to non-cash compensation associated with expensing stock options. The net decrease of $151,180 was due to a $201,245 decrease in the recording of non-cash compensation related to the expensing of stock options combined with an increase of cash compensation of $50,065.
Inventory valuation adjustments during the year ended June 30, 2007, were $493,596 representing an increase of $309,377 or 168% from $184,219 during the year ended June 30, 2006. The increase is due primarily to the recording of a one-time Inventory Reserve of $300,000 at the end of the fiscal year. See “Critical Accounting Policy – Inventory”.
Depreciation and amortization during the year ended June 30, 2007, were $176,158 representing an increase of $351 or 0% from $175,807during the year ended June 30, 2006.
Interest expense during the fiscal year ended June 30, 2007, was $387,697 representing a decrease of $178,100 or 31% from $565,797 during the year ended June 30, 2006. The decrease is due primarily to the reduced dollar amount of the draws and the recording of the 7% discount on our equity credit line as interest with Charlton Avenue, LLC (“Charlton”). See Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters – “Financing/Equity Line of Credit”
Other income during the year ended June 30, 2007, was $250,001 representing an increase of $228,501 or 1,068% from $21,500 during the year ended June 30, 2006. The $250,001 represents payments for the technology transfer fee pursuant to the Bioscan Agreement (See Item 1 Our Business -“Laser Imager for Lab Animals”). The $21,500 was a result of the extinguishment of debt from a loan and related accrued interest payable as of June 30, 2006. See Notes to the Financial Statements, Note 10 “Short-Term Debt”.
Balance Sheet Data
We have financed our operations since inception by the issuance of equity securities with aggregate net proceeds of approximately $65,400,367$67,139,029 and through loan transactions in the aggregate net amount of $2,595,029. Furthermore, we issued equity securities for the conversion of all outstanding convertible debentures in the aggregate net amount of $3,240,000.$4,040,000.
Our combined cash and cash equivalents totaled $49,433$12,535 at June 30, 2008.2009. We do not expect to generate a positive internal cash flow for at least the next 12 months due to our efforts to obtain the PMA, the expected costs of commercializing our initial product, the CTLM®, and the time required for homologations from certain countries.
Our inventory, which consists of raw materials, work in process (including completed units under testing), finished goods less Inventory Reserve, totaled $527,467 at June 30, 2009 and $647,169 at June 30, 2008 and $1,363,156 at June 30, 2007.2008. Raw materials used for research and development or other purposes are expensed and not included in inventory. This decrease is
primarily due to inventory valuation adjustments of $82,286; $20,546 to Cost of Goods Sold; and the reclassification of the net realizable value of $8,591 of CTLM® systems in Inventory to Clinical Equipment recorded during the year. During the year ended June 30, 2008, we re-classed the net realizable value of $311,252 of CTLM® systems in Inventory to Clinical Equipment, re-classification of parts totaling $90,818 to research and development and inventory valuation adjustments of $258,375 recorded during the year. During the year ended June 30, 2007, we re-classed $121,094 from Inventory to Clinical Equipment to reflect systems on consignment for international demonstration, clinical collaboration, training and research. We expect to recover our investment because the CTLM® represents a new technology for imaging the breast using a laser beam instead of ionizing x-ray to produce three dimensional images. During fiscal year 2008,2009, we have receivedcontinued to receive encouraging results and scientific clinical papers from our various clinical collaboration sites worldwide. We expectcontinue to believe that over time that the CTLM® will gain worldwide acceptance in the medical community because itscomputed tomography has a strong basis in science is Computed Tomography.science. See Note 6 “Inventories”.
Our property and equipment, net, totaled $495,076$332,031 at June 30, 20082009 and $2,030,795495,076 at June 30, 2007.2008. The overall decrease of $1,535,719$163,045 is due primarily to the sale of our buildingdepreciation during fiscal year 20082009 (See Note 8 – Sale/Lease-Back of Building).
Our Intangible assets (formerly “Other assets”) totaled $205,059 at June 30, 2009 compared to $239,235 at June 30, 2008 compared to $273,412 at June 30, 2007.2008. This decrease is due to the amortization of a patent licensing agreement.
Liquidity and Capital Resources
We are currently a development stage company and our continued existence is dependent upon our ability to resolve our liquidity problems, principally by obtaining additional debt and/or equity financing. We have yet to generate a positive internal cash flow, and until significant sales of our product occur, we are mostly dependent upon debt and equity funding from outside investors. In the event that we are unable to obtain debt or equity financing or are unable to obtain such financing on terms and conditions acceptable to us, we may have to cease or severely curtail our operations. This would materially impact our ability to continue as a going concern.
We have financed our operating and research and development activities through several private placement transactions. Net cash used for operating and product development expenses, which include our purchase of additional materials to continue the manufacture of CTLM® Systems in anticipation of receiving orders from our distributors in certain countries where permitted by law was $4,705,988$2,635,609 during fiscal 2008,2009, compared to net cash used by operating activities and product development of the CTLM® and related software development of $5,416,092$4,705,988 during fiscal 2007.2008. At June 30, 2008,2009, we had working capital of ($77,137)1,666,312) compared to working capital of $1,137,115($77,137) at June 30, 2007. On June 27, 2007, we borrowed the sum of $250,000 from Charlton Avenue LLC, and we repaid the loan plus a $20,000 premium on August 2, 2007.2008.
If and when we receive a PMA from the FDA, which cannot be assured, we believe that, based on our current business plan approximately $5 million will be required above and beyond normal operating expenses over the next year to complete all necessary stages in order for us to market the CTLM® in the United States and foreign countries. The $5 million will be used to purchase inventory, sub-contracted components, tooling and manufacturing templates and pay non-recurring engineering costs associated with preparation for full capacity manufacturing and assembly and marketing, advertising and promotion, training, ongoing regulatory expenses, and other costs associated with product launch. We used the proceeds of $4.4 million from the sale/lease-back of our property to finance our current operations from August 2007 through May 2008. See “Item 9B. Other Information”. On April 21, 2008, we replaced our Fifth Private Equity Credit Agreement, which expired on March 21, 2008, with a new Sixth Private Equity Credit Agreement with Charlton. On May 7, 2008, we filed an S-1 Registration Statement to provide a shelf registration for 50,000,000 common shares for use with the Sixth Private Equity Credit Agreement, which became effective on May 28, 2008. See “Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters/Financing/Equity Line of Credit”.
During fiscal 2008,2009, we raised a total of $490,000$1,788,951 less expenses through private placement transactions pursuant to our Sixth and Fifth Private Equity Credit Agreements.Agreement. We do not expect to generate a positive internal cash flow for at least the next 12 months due to our need to obtain the PMA, the expected costs of commercializing our initial product, the CTLM®, and the expense of our continuing product development program. We will require additional funds for operating expenses, FDA regulatory processes, manufacturing and marketing programs and to continue our product development program. We plan to raise additional capital through our new Sixth Private Equity Credit Agreement dated April 21, 2008 or other sources of financing. In the event we are unable to draw from this new private equity line, alternative financing will be required to continue operations, and there is no assurance that we will be able to obtain alternative financing on commercially reasonable terms. There is no assurance that, if and when Food and Drug Administration (“FDA”) marketing clearance is obtained, the CTLM® will achieve market acceptance or that we will achieve a profitable level of operations.
As of the date of this report, we have issued and outstanding 357,606,849704,175,785 shares of common stock out of 450,000,000950,000,000 authorized shares. In addition, we have reserved approximately 23,726,56129,330,694 shares to cover outstanding options. We had anticipated that revenues would have been a significant source of cash by the date of this report, but commercialization has been slower than expected largely due to the delay in obtaining the PMA from the FDA, which we believe has depressed our stock price. We were able to obtain relief from further dilution through the sale of common stock in connection with the use of our private equity credit agreement because we were able to usepreviously used the proceeds received fromof the sale of our building from August 2007 through May 2008 to finance current operations.and the proceeds of the sale of convertible debentures for working capital. In May 2008, we returned to equity funding through the use of our Sixth Private Equity Credit Agreement.
Capital expenditures for fiscal 20082009 were $320,045$7,360 as compared to $16,500$320,045 for the prior year. During fiscal 2009, we reclassified the net realizable value of $8,591 of CTLM® systems in Inventory to Clinical equipment. During fiscal 2008, we reclassified the net realizable value of $311,252 of CTLM® systems in Inventory to Clinical equipment as these CTLM® systems continue to be used as clinical systems associated with the data collection for our PMA application, with the FDA, which we plan to submit to the FDA in December 2008.the first quarter of 2010. The expenditures relating to the purchases of computer and other equipment, office, warehouse and manufacturing fixtures and computer software totaled $8,793.$1,231. We anticipate that our capital expenditures for fiscal 20092010 will be approximately $25,000.
During the year ending June 30, 2008,2009, there were no changes in our existing debt agreements and we had no outstanding bank loans as of June 30, 2008.2009. Our annual fixed commitments, including salaries and fees for current employees and consultants, rent, payments under license agreements and other contractual commitments are approximately $7.2$4.8 million, as of the date of this report, and are likely to increase as additional agreements are entered into and additional personnel are retained. We will require substantial additional funds for our product development programs, operating expenses, regulatory processes, and manufacturing and marketing programs, which are presently estimated at an aggregate of approximately $600,000$400,000 per month. The foregoing projections are subject to many conditions, most of which are beyond our control. Our future capital requirements will depend on many factors, including the following: the progress of our product development projects, the time and cost involved in obtaining regulatory approvals; the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; competing technological and market developments; changes and developments in our existing collaborative, licensing and other relationships and the terms of any new collaborative, licensing and other arrangements that we may establish; and the development of commercialization activities and arrangements.
We do not expect to generate a positive internal cash flow for at least 12 months as substantial costs and expenses continue due principally to the international commercialization of the CTLM®, activities related to our FDA PMA process, and advanced product development activities. We plan to raise additional capital through our new Sixth Private Equity Credit Agreement dated April 21, 2008 or other sources of financing. In the event we are unable to draw from this new private equity line, alternative financing will be required to continue operations, and there is no assurance that we will be able to obtain alternative financing on commercially reasonable terms. There is no assurance that, if and when Food and Drug Administration (“FDA”) marketing clearance is obtained, the CTLM® will achieve market acceptance or that we will achieve a profitable level of operations. No assurances, however, can be given that this financing or any necessary future financing will be available or, if available, that it will be obtained on terms satisfactory to us. Our ability to effectuate our business plan and continue operations is dependent on our ability to raise capital, structure a profitable business, and generate revenues. If our working capital were insufficient to fund our operations, we would have to explore additional sources of financing. We plan to continue our policy of investing excess funds, if any, in a High Performance Money Market savings account at Wachovia Bank N.A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As of the date of this report, we believe that we do not have any material quantitative and qualitative market risks.
Index to Financial Statements | |
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| 4348 |
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Financial Statements | | |
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| | 4449 |
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| | 4550 |
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| | 4651 |
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| | 5762 |
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| | 5964 |
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMSFIRM
To the Board of Directors and
Stockholders of Imaging Diagnostic Systems, Inc.
We have audited the accompanying balance sheets of Imaging Diagnostic Systems, Inc. (A Development Stage Enterprise) as of June 30, 20082009 and 2007,2008, and the related statements of operations, stockholders’ equity (deficit), and cash flows for each of the years ended June 30, 2009, 2008, 2007 2006 and for the period December 10, 1993 (date of inception) to June 30, 2008.2009. 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 audit. The financial statements for the period December 10, 1993 (date of inception) to June 30, 20082005 reflect total revenues and a net loss $2,072,875$1,292,248 and $96,116,977,$77,128,255 respectively of the cumulative totals. The other auditors’ report has been furnished to us and our opinion, insofar as it relates to amounts included for such period, is based solely on the report of such other auditors.
We conducted our audit 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 principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 20082009 and 2007,2008, and the results of its operations and cash flows for each of the years then ended June 30, 2009, 2008 2007 and 20062007 and for the period December 10, 1993 (date of inception) to June 30, 20082009 in conformity with generally accepted accounting principles in the United States of America.
The accompanying financial statements have been prepared assuming that Imaging Diagnostic Systems, Inc. will continue as a going concern. As more fully described in Note 5, the Company has incurred recurring operating losses and will have to obtain additional capital to sustain operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 5. The accompanying financial statements do not include any adjustments to reflect the possible effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Imaging Diagnostic Systems, Inc.’s internal control over financial reporting as of June 30, 20082009 and 2007,2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated September 11, 2008October 9, 2009 expressed an unqualified opinion on management’s assessment of internal control over financial reporting and an unqualified opinion on the effectiveness of internal control over financial reporting.
/s/ SHERB & CO, LLP
Certified Public Accountants
Boca Raton, Florida
September 12, 2008October 9, 2009
IMAGING DIAGNOSTIC SYSTEMS, INC. | |
(a Development Stage Company) | |
| | | | | | |
| |
| | | | | | |
June 30, 2008 and 2007 | |
| | | | | | |
| | | | | | |
ASSETS | |
| | 2008 | | | 2007 | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 49,433 | | | $ | 477,812 | |
Accounts receivable, net of allowances for doubtful accounts | | | | | | | | |
of $67,000 and $29,967, respectively | | | 39,718 | | | | 119,866 | |
Loans receivable | | | 57,357 | | | | 63,602 | |
Inventories, net of reserve of $408,000 and $408,000, respectively | | | 647,169 | | | | 1,363,156 | |
Prepaid expenses | | | 55,368 | | | | 36,784 | |
| | | | | | | | |
Total current assets | | | 849,045 | | | | 2,061,220 | |
| | | | | | | | |
Property and equipment, net | | | 495,076 | | | | 2,030,795 | |
Intangible assets, net | | | 239,235 | | | | 273,412 | |
| | | | | | | | |
Total assets | | $ | 1,583,356 | | | $ | 4,365,427 | |
| | | | | | | | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY (Deficit) | |
| | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable and accrued expenses | | $ | 800,068 | | | $ | 585,991 | |
Customer deposits | | | 126,114 | | | | 88,114 | |
Short term debt | | | - | | | | 250,000 | |
| | | | | | | | |
Total current liabilities | | | 926,182 | | | | 924,105 | |
| | | | | | | | |
Long-Term Liabilities: | | | | | | | | |
Commitments and contingencies | | | - | | | | - | |
Deferred Rent Liability | | | 85,935 | | | | - | |
Deferred Gain - Sale of Building | | | 1,040,000 | | | | - | |
| | | | | | | | |
Total Long-Term liabilities | | | 1,125,935 | | | | - | |
| | | | | | | | |
Total liabilities | | | 2,052,117 | | | | 924,105 | |
| | | | | | | | |
Stockholders equity (Deficit): | | | | | | | | |
Common stock, no par value; authorized 450,000,000 shares, | | | | | | | | |
issued 325,517,468 and 311,538,038 shares, respectively | | | 99,651,145 | | | | 99,120,731 | |
Additional paid-in capital | | | 2,844,832 | | | | 2,661,650 | |
Deficit accumulated during the development stage | | | (102,964,738 | ) | | | (98,341,059 | ) |
| | | | | | | | |
Total stockholders' equity (Deficit) | | | (468,761 | ) | | | 3,441,322 | |
| | | | | | | | |
Total assets & stockholders' equity (Deficit) | | $ | 1,583,356 | | | $ | 4,365,427 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
See accompanying notes to the financial statements. | |
IMAGING DIAGNOSTIC SYSTEMS, INC. | |
(a Development Stage Company) | |
| | |
| |
| | | | | | | | | | | From Inception | |
| | | | | | | | (December 10, | |
| | Year Ended | | | Year Ended | | | Year Ended | | | 1993) to | |
| | June 30, 2008 | | | June 30, 2007 | | | June 30, 2006 | | | June 30, 2008 | |
| | | | | | | | | | | | |
Net Sales | | $ | 39,647 | | | $ | 65,136 | | | $ | 675,844 | | | $ | 2,072,875 | |
Cost of Sales | | | 20,944 | | | | 17,870 | | | | 316,189 | | | | 885,559 | |
| | | | | | | | | | | | | | | | |
Gross Profit | | | 18,703 | | | | 47,266 | | | | 359,655 | | | | 1,187,316 | |
| | | | | | | | | | | | | | | | |
Operating Expenses: | | | | | | | | | | | | | | | | |
General and administrative | | | 2,644,556 | | | | 3,012,575 | | | | 3,366,426 | | | | 52,610,301 | |
Research and development | | | 2,080,265 | | | | 2,089,497 | | | | 2,046,688 | | | | 20,467,297 | |
Sales and marketing | | | 1,067,655 | | | | 1,351,521 | | | | 1,210,917 | | | | 8,157,373 | |
Inventory valuation adjustments | | | 258,375 | | | | 493,596 | | | | 184,219 | | | | 4,670,385 | |
Depreciation and amortization | | | 181,812 | | | | 176,158 | | | | 175,807 | | | | 2,954,885 | |
Amortization of deferred compensation | | | - | | | | - | | | | - | | | | 4,064,250 | |
| | | | | | | | | | | | | | | | |
Total Operating Expenses | | | 6,232,663 | | | | 7,123,347 | | | | 6,984,057 | | | | 92,924,491 | |
| | | | | | | | | | | | | | | | |
Operating Loss | | | (6,213,960 | ) | | | (7,076,081 | ) | | | (6,624,402 | ) | | | (91,737,175 | ) |
| | | | | | | | | | | | | | | | |
Gain (Loss) on sale of fixed assets | | | 1,609,525 | | | | - | | | | (2,439 | ) | | | 1,612,671 | |
Interest income | | | 13,377 | | | | 11,455 | | | | 8,416 | | | | 307,765 | |
Other income | | | 76,954 | | | | 250,001 | | | | 21,500 | | | | 758,417 | |
Other income - LILA Inventory | | | (69,127 | ) | | | - | | | | - | | | | (69,127 | ) |
Interest expense | | | (40,447 | ) | | | (387,697 | ) | | | (565,797 | ) | | | (6,989,528 | ) |
| | | | | | | | | | | | | | | | |
Net Loss | | | (4,623,678 | ) | | | (7,202,322 | ) | | | (7,162,722 | ) | | | (96,116,977 | ) |
| | | | | | | | | | | | | | | | |
Dividends on cumulative preferred stock: | | | | | | | | | | | | | | | | |
From discount at issuance | | | - | | | | - | | | | - | | | | (5,402,713 | ) |
Earned | | | - | | | | - | | | | - | | | | (1,445,047 | ) |
| | | | | | | | | | | | | | | | |
Net loss applicable to | | | | | | | | | | | | | | | | |
common shareholders | | $ | (4,623,678 | ) | | $ | (7,202,322 | ) | | $ | (7,162,722 | ) | | $ | (102,964,737 | ) |
| | | | | | | | | | | | | | | | |
Net Loss per common share: | | | | | | | | | | | | | | | | |
Basic and diluted | | $ | (0.01 | ) | | $ | (0.03 | ) | | $ | (0.03 | ) | | $ | (0.97 | ) |
| | | | | | | | | | | | | | | | |
Weighted average number of | | | | | | | | | | | | | | | | |
common shares outstanding: | | | | | | | | | | | | | | | | |
Basic and diluted | | | 318,673,749 | | | | 271,667,256 | | | | 218,846,738 | | | | 106,483,084 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. | |
IMAGING DIAGNOSTIC SYSTEMS, INC. | |
(a Development Stage Company) | |
| |
Statements of Stockhoders' Equity | |
| | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2008 | |
| | | | | | | | | | | | Deficit | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | |
| | Number of | | Number of | | Paid-in | | Development | | Subscriptions | | Deferred | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | Receivable | | Compensation | | Total | |
| | | | | | | | | | | | | | | | | | | |
Balance at December 10, 1993 (date of inception) | | | 0 | | $ | - | | | 0 | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of common stock, restated for reverse | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
stock split | | | - | | | - | | | 510,000 | | | 50,000 | | | - | | | - | | | - | | | - | | | 50,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition of public shell | | | - | | | - | | | 178,752 | | | - | | | - | | | - | | | | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net issuance of additional shares of stock | | | - | | | - | | | 15,342,520 | | | 16,451 | | | - | | | - | | | | | | - | | | 16,451 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock sold | | | - | | | - | | | 36,500 | | | 36,500 | | | - | | | - | | | | | | - | | | 36,500 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | - | | | | | | - | | | - | | | - | | | (66,951 | ) | | | | | - | | | (66,951 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1994 | | | - | | | - | | | 16,067,772 | | | 102,951 | | | - | | | (66,951 | ) | | - | | | - | | | 36,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock sold | | | - | | | - | | | 1,980,791 | | | 1,566,595 | | | - | | | - | | | (523,118 | ) | | - | | | 1,043,477 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued in exchange for services | | | - | | | - | | | 115,650 | | | 102,942 | | | - | | | - | | | - | | | - | | | 102,942 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued with employment agreements | | | - | | | - | | | 75,000 | | | 78,750 | | | - | | | - | | | - | | | - | | | 78,750 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued for compensation | | | - | | | - | | | 377,500 | | | 151,000 | | | - | | | - | | | - | | | - | | | 151,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock options granted | | | - | | | - | | | - | | | - | | | 622,500 | | | - | | | - | | | (622,500 | ) | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of deferred compentsation | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 114,375 | | | 114,375 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Forgiveness of officers' compensation | | | - | | | - | | | - | | | - | | | 50,333 | | | - | | | - | | | - | | | 50,333 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | - | | | - | | | - | | | - | | | - | | | (1,086,436 | ) | | - | | | - | | | (1,086,436 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1995 | | | - | | | - | | | 18,616,713 | | | 2,002,238 | | | 672,833 | | | (1,153,387 | ) | | (523,118 | ) | | (508,125 | ) | | 490,441 | |
IMAGING DIAGNOSTIC SYSTEMS, INC. | |
(a Development Stage Company) | |
| |
Statements of Stockhoders' Equity (Continued) | |
| | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2008 | |
| | | | | | | | | | | | Deficit | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | |
| | Number of | | Number of | | Paid-in | | Development | | Subscriptions | | Deferred | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | Receivable | | Compensation | | Total | |
| | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1995 | | | - | | | - | | | 18,616,713 | | | 2,002,238 | | | 672,833 | | | (1,153,387 | ) | | (523,118 | ) | | (508,125 | ) | | 490,441 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Preferred stock sold, including dividends | | | 4,000 | | | 3,600,000 | | | - | | | - | | | 1,335,474 | | | (1,335,474 | ) | | - | | | - | | | 3,600,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock sold | | | - | | | - | | | 700,471 | | | 1,561,110 | | | - | | | - | | | - | | | - | | | 1,561,110 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cancellation of stock subscription | | | - | | | - | | | (410,500 | ) | | (405,130 | ) | | - | | | - | | | 405,130 | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued in exchange for services | | | - | | | - | | | 2,503,789 | | | 4,257,320 | | | - | | | - | | | - | | | - | | | 4,257,320 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued with exercise of stock options | | | - | | | - | | | 191,500 | | | 104,375 | | | - | | | - | | | (4,375 | ) | | - | | | 100,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued with exercise of options | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
for compensation | | | - | | | - | | | 996,400 | | | 567,164 | | | - | | | - | | | - | | | - | | | 567,164 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of preferred stock to common stock | | | (1,600 | ) | | (1,440,000 | ) | | 420,662 | | | 1,974,190 | | | (534,190 | ) | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued as payment of preferred | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
stock dividends | | | - | | | - | | | 4,754 | | | 14,629 | | | - | | | (14,629 | ) | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends accrued on preferred stock not | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
yet converted | | | - | | | - | | | - | | | - | | | - | | | (33,216 | ) | | - | | | - | | | (33,216 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Collection of stock subscriptions | | | - | | | - | | | - | | | - | | | - | | | - | | | 103,679 | | | - | | | 103,679 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of deferred compentsation | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 232,500 | | | 232,500 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Forgiveness of officers' compensation | | | - | | | - | | | - | | | - | | | 100,667 | | | - | | | - | | | - | | | 100,667 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss (restated) | | | - | | | - | | | - | | | - | | | - | | | (6,933,310 | ) | | - | | | - | | | (6,933,310 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1996 (restated) | | | 2,400 | | | 2,160,000 | | | 23,023,789 | | | 10,075,896 | | | 1,574,784 | | | (9,470,016 | ) | | (18,684 | ) | | (275,625 | ) | | 4,046,355 | |
See accompanying notes to the financial statements. |
IMAGING DIAGNOSTIC SYSTEMS, INC. | |
(a Development Stage Company) | |
| |
Statements of Stockhoders' Equity (Continued) | |
| | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2008 | |
| | | | | | | | | | | | Deficit | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | |
| | Number of | | Number of | | Paid-in | | Development | | Subscriptions | | Deferred | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | Receivable | | Compensation | | Total | |
| | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1996 (restated) | | | 2,400 | | | 2,160,000 | | | 23,023,789 | | | 10,075,896 | | | 1,574,784 | | | (9,470,016 | ) | | (18,684 | ) | | (275,625 | ) | | 4,046,355 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Preferred stock sold, including dividends | | | 450 | | | 4,500,000 | | | - | | | - | | | 998,120 | | | (998,120 | ) | | - | | | - | | | 4,500,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of preferred stock to common stock | | | (2,400 | ) | | (2,160,000 | ) | | 1,061,202 | | | 2,961,284 | | | (801,284 | ) | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued in exchange for services | | | - | | | - | | | 234,200 | | | 650,129 | | | - | | | - | | | - | | | - | | | 650,129 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued for compensation | | | - | | | - | | | 353,200 | | | 918,364 | | | - | | | - | | | - | | | - | | | 918,364 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued with exercise of stock options | | | - | | | - | | | 361,933 | | | 1,136,953 | | | - | | | - | | | (33,750 | ) | | - | | | 1,103,203 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued to employee | | | - | | | - | | | (150,000 | ) | | (52,500 | ) | | - | | | - | | | - | | | - | | | (52,500 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued as payment of preferred | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
stock dividends | | | - | | | - | | | 20,760 | | | 49,603 | | | - | | | (16,387 | ) | | - | | | - | | | 33,216 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends accrued on preferred stock not | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
yet converted | | | - | | | - | | | - | | | - | | | - | | | (168,288 | ) | | - | | | - | | | (168,288 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock options granted | | | - | | | - | | | - | | | - | | | 1,891,500 | | | - | | | - | | | (1,891,500 | ) | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Collection of stock subscriptions | | | - | | | - | | | - | | | - | | | - | | | - | | | 16,875 | | | - | | | 16,875 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of deferred compentsation | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 788,000 | | | 788,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss (restated) | | | - | | | - | | | - | | | - | | | - | | | (7,646,119 | ) | | - | | | - | | | (7,646,119 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1997 (restated) | | | 450 | | | 4,500,000 | | | 24,905,084 | | | 15,739,729 | | | 3,663,120 | | | (18,298,930 | ) | | (35,559 | ) | | (1,379,125 | ) | | 4,189,235 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. |
IMAGING DIAGNOSTIC SYSTEMS, INC. | |
(a Development Stage Company) | |
| |
Statements of Stockhoders' Equity (Continued) | |
| | | | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2008 | |
| | | | | | | | | | | | Deficit | | | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | | | |
| | Number of | | Number of | | Paid-in | | Development | | | | Subscriptions | | Deferred | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | | | Receivable | | Compensation | | Total | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1997 (restated) | | | 450 | | | 4,500,000 | | | 24,905,084 | | | 15,739,729 | | | 3,663,120 | | | (18,298,930 | ) | | | | | (35,559 | ) | | (1,379,125 | ) | | 4,189,235 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Preferred stock sold, including dividends | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
and placement fees | | | 501 | | | 5,010,000 | | | - | | | - | | | 1,290,515 | | | (1,741,015 | ) | | | | | - | | | - | | | 4,559,500 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of preferred stock to common stock | | | (340 | ) | | (3,400,000 | ) | | 6,502,448 | | | 4,644,307 | | | (1,210,414 | ) | | - | | | | | | - | | | - | | | 33,893 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock sold | | | - | | | - | | | 500,000 | | | 200,000 | | | - | | | - | | | | | | - | | | - | | | 200,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued in exchange for services | | | - | | | - | | | 956,000 | | | 1,419,130 | | | - | | | - | | | | | | - | | | - | | | 1,419,130 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued for compensation | | | - | | | - | | | 64,300 | | | 54,408 | | | - | | | - | | | | | | - | | | - | | | 54,408 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued with exercise of stock options | | | - | | | - | | | 65,712 | | | 22,999 | | | - | | | - | | | | | | - | | | - | | | 22,999 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued in exchange for | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
licensing agreement | | | - | | | - | | | 3,500,000 | | | 1,890,000 | | | (3,199,000 | ) | | - | | | | | | - | | | - | | | (1,309,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | �� | | | | | |
Dividends accrued on preferred stock not | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
yet converted | | | - | | | - | | | - | | | - | | | - | | | (315,000 | ) | | | | | - | | | - | | | (315,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock options granted | | | - | | | - | | | - | | | - | | | 1,340,625 | | | - | | | | | | - | | | (1,340,625 | ) | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Collection of stock subscriptions | | | - | | | - | | | - | | | 12,500 | | | - | | | - | | | | | | 21,250 | | | - | | | 33,750 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of deferred compentsation | | | - | | | - | | | - | | | - | | | - | | | - | | | | | | - | | | 1,418,938 | | | 1,418,938 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss (restated) | | | - | | | - | | | - | | | - | | | - | | | (6,715,732 | ) | | | | | - | | | - | | | (6,715,732 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1998 (restated) | | | 611 | | | 6,110,000 | | | 36,493,544 | | | 23,983,073 | | | 1,884,846 | | | (27,070,677 | ) | | | | | (14,309 | ) | | (1,300,812 | ) | | 3,592,121 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. |
IMAGING DIAGNOSTIC SYSTEMS, INC. | |
(a Development Stage Company) | |
| | | | | | |
| |
| | | | | | |
June 30, 2009 and 2008 | |
| | | | | | |
| | | | | | |
ASSETS | |
| | 2009 | | | 2008 | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 12,535 | | | $ | 49,433 | |
Accounts receivable, net of allowances for doubtful accounts | | | | | | | | |
of $114,982 and $67,000, respectively | | | (35,486 | ) | | | 39,718 | |
Loans receivable | | | 57,357 | | | | 57,357 | |
Inventories, net of reserve of $408,000 and $408,000, respectively | | | 527,467 | | | | 647,169 | |
Prepaid expenses | | | 35,617 | | | | 55,368 | |
| | | | | | | | |
Total current assets | | | 597,490 | | | | 849,045 | |
| | | | | | | | |
Property and equipment, net | | | 332,031 | | | | 495,076 | |
Intangible assets, net | | | 205,059 | | | | 239,235 | |
| | | | | | | | |
Total assets | | $ | 1,134,580 | | | $ | 1,583,356 | |
| | | | | | | | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY (Deficit) | |
| | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable and accrued expenses | | $ | 1,994,220 | | | $ | 800,068 | |
Customer deposits | | | 96,114 | | | | 126,114 | |
Convertible Debenture, net of debt discount of $35,532 | | | 173,468 | | | | - | |
| | | | | | | | |
Total current liabilities | | | 2,263,802 | | | | 926,182 | |
| | | | | | | | |
Long-Term Liabilities: | | | | | | | | |
Deferred Rent Liability | | | - | | | | 85,935 | |
Deferred Gain - Sale of Building | | | - | | | | 1,040,000 | |
| | | | | | | | |
Total Long-Term liabilities | | | - | | | | 1,125,935 | |
| | | | | | | | |
Total liabilities | | | 2,263,802 | | | | 2,052,117 | |
| | | | | | | | |
Stockholders equity (Defecit): | | | | | | | | |
Common stock, no par value; authorized 950,000,000 shares, | | | | | | | | |
issued 611,378,787 and 325,517,468 shares, respectively | | | 102,280,228 | | | | 99,651,145 | |
Additional paid-in capital | | | 3,499,717 | | | | 2,844,832 | |
Deficit accumulated during the development stage | | | (106,909,167 | ) | | | (102,964,738 | ) |
| | | | | | | | |
Total stockholders' equity (Deficit) | | | (1,129,222 | ) | | | (468,761 | ) |
| | | | | | | | |
Total assets & stockholders' equity (Deficit) | | $ | 1,134,580 | | | $ | 1,583,356 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
See accompanying notes to the financial statements. | |
IMAGING DIAGNOSTIC SYSTEMS, INC. | |
(a Development Stage Company) | |
| | |
| |
| | | | | | | | | | | From Inception | |
| | | | | | | | (December 10, | |
| | Year Ended | | | Year Ended | | | Year Ended | | | 1993) to | |
| | June 30, 2009 | | | June 30, 2008 | | | June 30, 2007 | | | June 30, 2009 | |
Net Sales | | $ | 70,617 | | | $ | 39,647 | | | $ | 65,136 | | | $ | 2,143,492 | |
Cost of Sales | | | 20,546 | | | | 20,944 | | | | 17,870 | | | | 906,105 | |
| | | | | | | | | | | | | | | | |
Gross Profit | | | 50,071 | | | | 18,703 | | | | 47,266 | | | | 1,237,387 | |
| | | | | | | | | | | | | | | | |
Operating Expenses: | | | | | | | | | | | | | | | | |
General and administrative | | | 2,379,112 | | | | 2,644,556 | | | | 3,012,575 | | | | 54,989,414 | |
Research and development | | | 1,226,718 | | | | 2,080,265 | | | | 2,089,497 | | | | 21,694,015 | |
Sales and marketing | | | 615,448 | | | | 1,067,655 | | | | 1,351,521 | | | | 8,772,821 | |
Inventory valuation adjustments | | | 82,286 | | | | 258,375 | | | | 493,596 | | | | 4,752,671 | |
Depreciation and amortization | | | 202,344 | | | | 181,812 | | | | 176,158 | | | | 3,157,229 | |
Amortization of deferred compensation | | | - | | | | - | | | | - | | | | 4,064,250 | |
| | | | | | | | | | | | | | | | |
Total Operating Expenses | | | 4,505,908 | | | | 6,232,663 | | | | 7,123,347 | | | | 97,430,400 | |
| | | | | | | | | | | | | | | | |
Operating Loss | | | (4,455,837 | ) | | | (6,213,960 | ) | | | (7,076,081 | ) | | | (96,193,013 | ) |
| | | | | | | | | | | | | | | | |
Gain (Loss) on sale of fixed assets | | | 1,181,894 | | | | 1,609,525 | | | | - | | | | 2,794,565 | |
Interest income | | | 636 | | | | 13,377 | | | | 11,455 | | | | 308,401 | |
Other income | | | 5,975 | | | | 76,954 | | | | 250,001 | | | | 764,392 | |
Other income - LILA Inventory | | | (66 | ) | | | (69,127 | ) | | | - | | | | (69,193 | ) |
Interest expense | | | (677,031 | ) | | | (40,447 | ) | | | (387,697 | ) | | | (7,666,559 | ) |
| | | | | | | | | | | | | | | | |
Net Loss | | | (3,944,429 | ) | | | (4,623,678 | ) | | | (7,202,322 | ) | | | (100,061,407 | ) |
| | | | | | | | | | | | | | | | |
Dividends on cumulative preferred stock: | | | | | | | | | | | | | | | | |
From discount at issuance | | | - | | | | - | | | | - | | | | (5,402,713 | ) |
Earned | | | - | | | | - | | | | - | | | | (1,445,047 | ) |
| | | | | | | | | | | | | | | | |
Net loss applicable to | | | | | | | | | | | | | | | | |
common shareholders | | $ | (3,944,429 | ) | | $ | (4,623,678 | ) | | $ | (7,202,322 | ) | | $ | (106,909,167 | ) |
| | | | | | | | | | | | | | | | |
Net Loss per common share: | | | | | | | | | | | | | | | | |
Basic and diluted | | $ | (0.01 | ) | | $ | (0.01 | ) | | $ | (0.03 | ) | | $ | (0.54 | ) |
| | | | | | | | | | | | | | | | |
Weighted average number of | | | | | | | | | | | | | | | | |
common shares outstanding: | | | | | | | | | | | | | | | | |
Basic and diluted | | | 424,330,162 | | | | 318,673,749 | | | | 271,667,256 | | | | 197,647,227 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. | |
IMAGING DIAGNOSTIC SYSTEMS, INC. | | | |
(a Development Stage Company) | | | |
| | | |
Statements of Stockhoders' Equity (Continued) | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2008 | | | |
| | | | | | | | | | | | Deficit | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | | | | | |
| | Number of | | Number of | | Paid-in | | Development | | | | Subscriptions | | Deferred | | | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | | | Receivable | | Compensation | | Total | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1998 (restated) | | | 611 | | | 6,110,000 | | | 36,493,544 | | | 23,983,073 | | | 1,884,846 | | | (27,070,677 | ) | | | | | (14,309 | ) | | (1,300,812 | ) | | 3,592,121 | | | * | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Preferred stock issued - satisfaction of debt | | | 138 | | | 1,380,000 | | | - | | | - | | | (161,348 | ) | | (492,857 | ) | | | | | - | | | - | | | 725,795 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of preferred stock to common stock | | | (153 | ) | | (1,530,000 | ) | | 4,865,034 | | | 1,972,296 | | | (442,296 | ) | | - | | | | | | - | | | - | | | - | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock sold | | | - | | | - | | | 200,000 | | | 60,000 | | | - | | | - | | | | | | - | | | - | | | 60,000 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - exchange for services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
and compensation | | | - | | | - | | | 719,442 | | | 301,210 | | | - | | | - | | | | | | - | | | - | | | 301,210 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - repayment of debt | | | - | | | - | | | 2,974,043 | | | 1,196,992 | | | - | | | - | | | | | | - | | | - | | | 1,196,992 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued in exchange for loan fees | | | - | | | - | | | 480,000 | | | 292,694 | | | - | | | - | | | | | | - | | | - | | | 292,694 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued with exercise of stock options | | | - | | | - | | | 65,612 | | | 124,464 | | | - | | | - | | | | | | - | | | - | | | 124,464 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued in satisfaction of | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
licensing agreement payable | | | - | | | - | | | 3,500,000 | | | 1,890,000 | | | - | | | - | | | | | | - | | | - | | | 1,890,000 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Redeemable preferred stock sold, deemed dividend | | | - | | | - | | | - | | | - | | | - | | | (127,117 | ) | | | | | - | | | - | | | (127,117 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends accrued-preferred stock not yet converted | | | - | | | - | | | - | | | - | | | - | | | (329,176 | ) | | | | | - | | | - | | | (329,176 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock options granted | | | - | | | - | | | - | | | - | | | 209,625 | | | - | | | | | | - | | | (209,625 | ) | | - | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of deferred compentsation | | | - | | | - | | | - | | | - | | | - | | | - | | | | | | - | | | 1,510,437 | | | 1,510,437 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss (restated) | | | - | | | - | | | - | | | - | | | - | | | (6,543,292 | ) | | | | | - | | | - | | | (6,543,292 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1999 (restated) | | | 596 | | | 5,960,000 | | | 49,297,675 | | | 29,820,729 | | | 1,490,827 | | | (34,563,119 | ) | | | | | (14,309 | ) | | - | | | 2,694,128 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. | | | |
IMAGING DIAGNOSTIC SYSTEMS, INC. | | | |
(a Development Stage Company) | | | |
| | | |
Statements of Stockhoders' Equity (Continued) | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2008 | | | |
| | | | | | | | | | | | Deficit | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | | | | | |
| | Number of | | Number of | | Paid-in | | Development | | | | Subscriptions | | Deferred | | | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | | | Receivable | | Compensation | | Total | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1999 (restated) | | | 596 | | | 5,960,000 | | | 49,297,675 | | | 29,820,729 | | | 1,490,827 | | | (34,563,119 | ) | | | | | (14,309 | ) | | - | | | 2,694,128 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of convertible debentures | | | - | | | - | | | 4,060,398 | | | 3,958,223 | | | - | | | - | | | | | | - | | | - | | | 3,958,223 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of preferred stock to common, net | | | (596 | ) | | (5,960,000 | ) | | 45,415,734 | | | 7,313,334 | | | (648,885 | ) | | - | | | | | | - | | | - | | | 704,449 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock sold | | | - | | | - | | | 100,000 | | | 157,000 | | | - | | | - | | | | | | - | | | - | | | 157,000 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - exchange for services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
and compensation, net of cancelled shares | | | - | | | - | | | 137,000 | | | (18,675 | ) | | - | | | - | | | | | | - | | | - | | | (18,675 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - repayment of debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
and accrued interest | | | - | | | - | | | 5,061,294 | | | 1,067,665 | | | - | | | - | | | | | | - | | | - | | | 1,067,665 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued in exchange for | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
interest and loan fees | | | - | | | - | | | 7,297 | | | 2,408 | | | - | | | - | | | | | | - | | | - | | | 2,408 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued with exercise of stock options | | | - | | | - | | | 1,281,628 | | | 395,810 | | | 157,988 | | | - | | | | | | (13,599 | ) | | - | | | 540,199 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued with exercise of warrants | | | - | | | - | | | 150,652 | | | 121,563 | | | 97,850 | | | - | | | | | | - | | | - | | | 219,413 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of note payable with warrants at a discount | | | - | | | - | | | - | | | - | | | 500,000 | | | - | | | | | | - | | | - | | | 500,000 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends accrued-preferred stock not yet converted | | | - | | | - | | | - | | | - | | | - | | | (145,950 | ) | | | | | - | | | - | | | (145,950 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss (restated) | | | - | | | - | | | - | | | - | | | - | | | (6,531,662 | ) | | | | | - | | | - | | | (6,531,662 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2000 (restated) | | | - | | | - | | | 105,511,678 | | | 42,818,057 | | | 1,597,780 | | | (41,240,731 | ) | | | | | (27,908 | ) | | - | | | 3,147,198 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. | | | |
IMAGING DIAGNOSTIC SYSTEMS, INC. | |
(a Development Stage Company) | |
| |
Statements of Stockholders' Equity (Deficit) | |
| | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2009 | |
| | | | | | | | | | | | Deficit | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | |
| | Number of | | Number of | | Paid-in | | Development | | Subscriptions | | Deferred | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | Receivable | | Compensation | | Total | |
| | | | | | | | | | | | | | | | | | | |
Balance at December 10, 1993 (date of inception) | | | - | | $ | - | | | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of common stock, restated for reverse | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
stock split | | | - | | | - | | | 510,000 | | | 50,000 | | | - | | | - | | | - | | | - | | | 50,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition of public shell | | | - | | | - | | | 178,752 | | | - | | | - | | | - | | | | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net issuance of additional shares of stock | | | - | | | - | | | 15,342,520 | | | 16,451 | | | - | | | - | | | | | | - | | | 16,451 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock sold | | | - | | | - | | | 36,500 | | | 36,500 | | | - | | | - | | | | | | - | | | 36,500 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | - | | | | | | - | | | - | | | - | | | (66,951 | ) | | | | | - | | | (66,951 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1994 | | | - | | | - | | | 16,067,772 | | | 102,951 | | | - | | | (66,951 | ) | | - | | | - | | | 36,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock sold | | | - | | | - | | | 1,980,791 | | | 1,566,595 | | | - | | | - | | | (523,118 | ) | | - | | | 1,043,477 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued in exchange for services | | | - | | | - | | | 115,650 | | | 102,942 | | | - | | | - | | | - | | | - | | | 102,942 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued with employment agreements | | | - | | | - | | | 75,000 | | | 78,750 | | | - | | | - | | | - | | | - | | | 78,750 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued for compensation | | | - | | | - | | | 377,500 | | | 151,000 | | | - | | | - | | | - | | | - | | | 151,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock options granted | | | - | | | - | | | - | | | - | | | 622,500 | | | - | | | - | | | (622,500 | ) | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of deferred compentsation | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 114,375 | | | 114,375 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Forgiveness of officers' compensation | | | - | | | - | | | - | | | - | | | 50,333 | | | - | | | - | | | - | | | 50,333 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | - | | | - | | | - | | | - | | | - | | | (1,086,436 | ) | | - | | | - | | | (1,086,436 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1995 | | | - | | | - | | | 18,616,713 | | | 2,002,238 | | | 672,833 | | | (1,153,387 | ) | | (523,118 | ) | | (508,125 | ) | | 490,441 | |
|
|
See accompanying notes to the financial statements. |
IMAGING DIAGNOSTIC SYSTEMS, INC. | | | |
(a Development Stage Company) | | | |
| | | |
Statements of Stockhoders' Equity (Continued) | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2008 | | | |
| | | | | | | | | | | | Deficit | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | | | | | |
| | Number of | | Number of | | Paid-in | | Development | | | | Subscriptions | | Deferred | | | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | | | Receivable | | Compensation | | Total | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2000 (restated) | | | - | | | - | | | 105,511,678 | | | 42,818,057 | | | 1,597,780 | | | (41,240,731 | ) | | | | | (27,908 | ) | | - | | | 3,147,198 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Preferred stock sold, including dividends | | | 500 | | | 5,000,000 | | | - | | | - | | | 708,130 | | | (708,130 | ) | | | | | - | | | - | | | 5,000,000 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of preferred stock to common, net | | | (500 | ) | | (5,000,000 | ) | | 5,664,067 | | | 5,580,531 | | | (708,130 | ) | | - | | | | | | - | | | - | | | (127,599 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - line of equity transactions | | | - | | | - | | | 3,407,613 | | | 3,143,666 | | | - | | | - | | | | | | - | | | - | | | 3,143,666 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - exchange for services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
and compensation | | | - | | | - | | | 153,500 | | | 227,855 | | | - | | | - | | | | | | - | | | - | | | 227,855 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - repayment of debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
and accrued interest | | | - | | | - | | | 810,000 | | | 1,393,200 | | | - | | | - | | | | | | - | | | - | | | 1,393,200 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued with exercise of stock options | | | - | | | - | | | 3,781,614 | | | 1,868,585 | | | - | | | - | | | | | | 13,599 | | | - | | | 1,882,184 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued with exercise of warrants | | | - | | | - | | | 99,375 | | | 119,887 | | | - | | | - | | | | | | - | | | - | | | 119,887 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends accrued-preferred stock | | | - | | | - | | | - | | | - | | | - | | | (422,401 | ) | | | | | - | | | - | | | (422,401 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss (restated) | | | - | | | - | | | - | | | - | | | - | | | (9,532,450 | ) | | | | | - | | | - | | | (9,532,450 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2001 (restated) | | | - | | | - | | | 119,427,847 | | | 55,151,781 | | | 1,597,780 | | | (51,903,712 | ) | | | | | (14,309 | ) | | - | | | 4,831,540 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. | | | |
IMAGING DIAGNOSTIC SYSTEMS, INC. | |
(a Development Stage Company) | |
| |
Statements of Stockholders' Equity (Deficit) (Continued) | |
| | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2009 | |
| | | | | | | | | | | | Deficit | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | |
| | Number of | | Number of | | Paid-in | | Development | | Subscriptions | | Deferred | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | Receivable | | Compensation | | Total | |
| | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1995 | | | - | | | - | | | 18,616,713 | | | 2,002,238 | | | 672,833 | | | (1,153,387 | ) | | (523,118 | ) | | (508,125 | ) | | 490,441 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Preferred stock sold, including dividends | | | 4,000 | | | 3,600,000 | | | - | | | - | | | 1,335,474 | | | (1,335,474 | ) | | - | | | - | | | 3,600,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock sold | | | - | | | - | | | 700,471 | | | 1,561,110 | | | - | | | - | | | - | | | - | | | 1,561,110 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cancellation of stock subscription | | | - | | | - | | | (410,500 | ) | | (405,130 | ) | | - | | | - | | | 405,130 | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued in exchange for services | | | - | | | - | | | 2,503,789 | | | 4,257,320 | | | - | | | - | | | - | | | - | | | 4,257,320 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued with exercise of stock options | | | - | | | - | | | 191,500 | | | 104,375 | | | - | | | - | | | (4,375 | ) | | - | | | 100,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued with exercise of options | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
for compensation | | | - | | | - | | | 996,400 | | | 567,164 | | | - | | | - | | | - | | | - | | | 567,164 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of preferred stock to common stock | | | (1,600 | ) | | (1,440,000 | ) | | 420,662 | | | 1,974,190 | | | (534,190 | ) | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued as payment of preferred | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
stock dividends | | | - | | | - | | | 4,754 | | | 14,629 | | | - | | | (14,629 | ) | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends accrued on preferred stock not | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
yet converted | | | - | | | - | | | - | | | - | | | - | | | (33,216 | ) | | - | | | - | | | (33,216 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Collection of stock subscriptions | | | - | | | - | | | - | | | - | | | - | | | - | | | 103,679 | | | - | | | 103,679 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of deferred compentsation | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 232,500 | | | 232,500 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Forgiveness of officers' compensation | | | - | | | - | | | - | | | - | | | 100,667 | | | - | | | - | | | - | | | 100,667 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss (restated) | | | - | | | - | | | - | | | - | | | - | | | (6,933,310 | ) | | - | | | - | | | (6,933,310 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1996 (restated) | | | 2,400 | | | 2,160,000 | | | 23,023,789 | | | 10,075,896 | | | 1,574,784 | | | (9,470,016 | ) | | (18,684 | ) | | (275,625 | ) | | 4,046,355 | |
|
|
See accompanying notes to the financial statements. |
IMAGING DIAGNOSTIC SYSTEMS, INC. | | | |
(a Development Stage Company) | | | |
| | | |
Statements of Stockhoders' Equity (Continued) | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2008 | | | |
| | | | | | | | | | | | Deficit | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | | | | | |
| | Number of | | Number of | | Paid-in | | Development | | | | Subscriptions | | Deferred | | | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | | | Receivable | | Compensation | | Total | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2001 (restated) | | | - | | | - | | | 119,427,847 | | | 55,151,781 | | | 1,597,780 | | | (51,903,712 | ) | | | | | (14,309 | ) | | - | | | 4,831,540 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - line of equity transactions | | | - | | | - | | | 11,607,866 | | | 6,213,805 | | | - | | | - | | | | | | - | | | - | | | 6,213,805 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - exchange for services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
and compensation | | | - | | | - | | | 560,000 | | | 294,350 | | | - | | | - | | | | | | - | | | (117,600 | ) | | 176,750 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss (restated) | | | - | | | - | | | - | | | - | | | - | | | (7,997,652 | ) | | | | | - | | | - | | | (7,997,652 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2002 (restated) | | | - | | | - | | | 131,595,713 | | | 61,659,936 | | | 1,597,780 | | | (59,901,364 | ) | | | | | (14,309 | ) | | (117,600 | ) | | 3,224,443 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - line of equity transactions | | | - | | | - | | | 29,390,708 | | | 8,737,772 | | | - | | | - | | | | | | - | | | - | | | 8,737,772 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - exchange for services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
and compensation | | | - | | | - | | | 2,007,618 | | | 970,653 | | | - | | | - | | | | | | - | | | 117,600 | | | 1,088,253 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Payment of subscriptions receivable | | | - | | | - | | | - | | | - | | | - | | | - | | | | | | 14,309 | | | - | | | 14,309 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss (restated) | | | - | | | - | | | - | | | - | | | - | | | (8,358,774 | ) | | | | | - | | | - | | | (8,358,774 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2003 (restated) | | | - | | | - | | | 162,994,039 | | | 71,368,361 | | | 1,597,780 | | | (68,260,138 | ) | | | | | - | | | - | | | 4,706,003 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. | | | |
IMAGING DIAGNOSTIC SYSTEMS, INC. | |
(a Development Stage Company) | |
| |
Statements of Stockholders' Equity (Deficit) (Continued) | |
| | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2009 | |
| | | | | | | | | | | | Deficit | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | |
| | Number of | | Number of | | Paid-in | | Development | | Subscriptions | | Deferred | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | Receivable | | Compensation | | Total | |
| | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1996 (restated) | | | 2,400 | | | 2,160,000 | | | 23,023,789 | | | 10,075,896 | | | 1,574,784 | | | (9,470,016 | ) | | (18,684 | ) | | (275,625 | ) | | 4,046,355 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Preferred stock sold, including dividends | | | 450 | | | 4,500,000 | | | - | | | - | | | 998,120 | | | (998,120 | ) | | - | | | - | | | 4,500,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of preferred stock to common stock | | | (2,400 | ) | | (2,160,000 | ) | | 1,061,202 | | | 2,961,284 | | | (801,284 | ) | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued in exchange for services | | | - | | | - | | | 234,200 | | | 650,129 | | | - | | | - | | | - | | | - | | | 650,129 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued for compensation | | | - | | | - | | | 353,200 | | | 918,364 | | | - | | | - | | | - | | | - | | | 918,364 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued with exercise of stock options | | | - | | | - | | | 361,933 | | | 1,136,953 | | | - | | | - | | | (33,750 | ) | | - | | | 1,103,203 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued to employee | | | - | | | - | | | (150,000 | ) | | (52,500 | ) | | - | | | - | | | - | | | - | | | (52,500 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued as payment of preferred | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
stock dividends | | | - | | | - | | | 20,760 | | | 49,603 | | | - | | | (16,387 | ) | | - | | | - | | | 33,216 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends accrued on preferred stock not | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
yet converted | | | - | | | - | | | - | | | - | | | - | | | (168,288 | ) | | - | | | - | | | (168,288 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock options granted | | | - | | | - | | | - | | | - | | | 1,891,500 | | | - | | | - | | | (1,891,500 | ) | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Collection of stock subscriptions | | | - | | | - | | | - | | | - | | | - | | | - | | | 16,875 | | | - | | | 16,875 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of deferred compentsation | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 788,000 | | | 788,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss (restated) | | | - | | | - | | | - | | | - | | | - | | | (7,646,119 | ) | | - | | | - | | | (7,646,119 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1997 (restated) | | | 450 | | | 4,500,000 | | | 24,905,084 | | | 15,739,729 | | | 3,663,120 | | | (18,298,930 | ) | | (35,559 | ) | | (1,379,125 | ) | | 4,189,235 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. |
IMAGING DIAGNOSTIC SYSTEMS, INC. | | | |
(a Development Stage Company) | | | |
| | | |
Statements of Stockhoders' Equity (Continued) | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2008 | | | |
| | | | | | | | | | | | Deficit | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | | | | | |
| | Number of | | Number of | | Paid-in | | Development | | | | Subscriptions | | Deferred | | | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | | | Receivable | | Compensation | | Total | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2003 (restated) | | | - | | | - | | | 162,994,039 | | | 71,368,361 | | | 1,597,780 | | | (68,260,138 | ) | | | | | - | | | - | | | 4,706,003 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - line of equity transactions | | | - | | | - | | | 8,630,819 | | | 6,541,700 | | | - | | | - | | | | | | - | | | - | | | 6,541,700 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - exchange for services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
and compensation | | | - | | | - | | | 734,785 | | | 832,950 | | | - | | | - | | | | | | - | | | - | | | 832,950 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - exercise of stock options | | | - | | | - | | | 967,769 | | | 492,701 | | | - | | | - | | | | | | - | | | - | | | 492,701 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | - | | | - | | | - | | | - | | | - | | | (8,402,959 | ) | | | | | - | | | - | | | (8,402,959 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2004 (Restated) | | | - | | | - | | | 173,327,412 | | | 79,235,712 | | | 1,597,780 | | | (76,663,097 | ) | | | | | - | | | - | | | 4,170,395 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - line of equity transactions | | | - | | | - | | | 26,274,893 | | | 7,797,807 | | | - | | | - | | | | | | - | | | - | | | 7,797,807 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - exchange for services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
and compensation | | | - | | | - | | | 285,000 | | | 113,850 | | | - | | | - | | | | | | - | | | - | | | 113,850 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - exercise of stock options | | | - | | | - | | | 13,264 | | | 3,404 | | | - | | | - | | | | | | - | | | - | | | 3,404 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | - | | | - | | | - | | | - | | | - | | | (7,312,918 | ) | | | | | - | | | - | | | (7,312,918 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2005 | | | - | | $ | - | | | 199,900,569 | | $ | 87,150,773 | | $ | 1,597,780 | | $ | (83,976,015 | ) | | | | $ | - | | $ | - | | | 4,772,538 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. | | | |
IMAGING DIAGNOSTIC SYSTEMS, INC. | |
(a Development Stage Company) | |
| |
Statements of Stockholders' Equity (Deficit) (Continued) | |
| | | | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2009 | |
| | | | | | | | | | | | Deficit | | | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | | | |
| | Number of | | Number of | | Paid-in | | Development | | | | Subscriptions | | Deferred | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | | | Receivable | | Compensation | | Total | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1997 (restated) | | | 450 | | | 4,500,000 | | | 24,905,084 | | | 15,739,729 | | | 3,663,120 | | | (18,298,930 | ) | | | | | (35,559 | ) | | (1,379,125 | ) | | 4,189,235 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Preferred stock sold, including dividends | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
and placement fees | | | 501 | | | 5,010,000 | | | - | | | - | | | 1,290,515 | | | (1,741,015 | ) | | | | | - | | | - | | | 4,559,500 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of preferred stock to common stock | | | (340 | ) | | (3,400,000 | ) | | 6,502,448 | | | 4,644,307 | | | (1,210,414 | ) | | - | | | | | | - | | | - | | | 33,893 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock sold | | | - | | | - | | | 500,000 | | | 200,000 | | | - | | | - | | | | | | - | | | - | | | 200,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued in exchange for services | | | - | | | - | | | 956,000 | | | 1,419,130 | | | - | | | - | | | | | | - | | | - | | | 1,419,130 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued for compensation | | | - | | | - | | | 64,300 | | | 54,408 | | | - | | | - | | | | | | - | | | - | | | 54,408 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued with exercise of stock options | | | - | | | - | | | 65,712 | | | 22,999 | | | - | | | - | | | | | | - | | | - | | | 22,999 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued in exchange for | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
licensing agreement | | | - | | | - | | | 3,500,000 | | | 1,890,000 | | | (3,199,000 | ) | | - | | | | | | - | | | - | | | (1,309,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends accrued on preferred stock not | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
yet converted | | | - | | | - | | | - | | | - | | | - | | | (315,000 | ) | | | | | - | | | - | | | (315,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock options granted | | | - | | | - | | | - | | | - | | | 1,340,625 | | | - | | | | | | - | | | (1,340,625 | ) | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Collection of stock subscriptions | | | - | | | - | | | - | | | 12,500 | | | - | | | - | | | | | | 21,250 | | | - | | | 33,750 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of deferred compentsation | | | - | | | - | | | - | | | - | | | - | | | - | | | | | | - | | | 1,418,938 | | | 1,418,938 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss (restated) | | | - | | | - | | | - | | | - | | | - | | | (6,715,732 | ) | | | | | - | | | - | | | (6,715,732 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1998 (restated) | | | 611 | | | 6,110,000 | | | 36,493,544 | | | 23,983,073 | | | 1,884,846 | | | (27,070,677 | ) | | | | | (14,309 | ) | | (1,300,812 | ) | | 3,592,121 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. |
IMAGING DIAGNOSTIC SYSTEMS, INC. | |
(a Development Stage Company) | |
| |
Statements of Stockhoders' Equity (Continued) | |
| | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2008 | |
| | | | | | | | | | | | Deficit | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | |
| | Number of | | Number of | | Paid-in | | Development | | Subscriptions | | Deferred | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | Receivable | | Compensation | | Total | |
| | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2005 | | | - | | | - | | | 199,900,569 | | | 87,150,773 | | | 1,597,780 | | | (83,976,015 | ) | | - | | | - | | | 4,772,538 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - line of equity transactions | | | - | | | - | | | 47,776,064 | | | 7,409,543 | | | - | | | - | | | - | | | - | | | 7,409,543 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value of Stock Option Expenses | | | - | | | - | | | - | | | - | | | 632,557 | | | - | | | - | | | - | | | 632,557 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | - | | | - | | | - | | | - | | | - | | | (7,162,722 | ) | | - | | | - | | | (7,162,722 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2006 | | | - | | | - | | | 247,676,633 | | | 94,560,316 | | | 2,230,337 | | | (91,138,737 | ) | | - | | | - | | | 5,651,916 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - line of equity transactions | | | - | | | - | | | 63,861,405 | | | 4,560,415 | | | - | | | - | | | - | | | - | | | 4,560,415 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value of Stock Option Expenses | | | - | | | - | | | - | | | - | | | 431,313 | | | - | | | - | | | - | | | 431,313 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | - | | | - | | | - | | | - | | | - | | | (7,202,322 | ) | | - | | | - | | | (7,202,322 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2007 | | | - | | | - | | | 311,538,038 | | | 99,120,731 | | | 2,661,650 | | | (98,341,059) | | | - | | | - | | | 3,441,322 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
** See Note 16 for a detailed breakdown by Series. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. |
IMAGING DIAGNOSTIC SYSTEMS, INC. | | | |
(a Development Stage Company) | | | |
| | | |
Statements of Stockholders' Equity (Deficit) (Continued) | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2009 | | | |
| | | | | | | | | | | | Deficit | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | | | | | |
| | Number of | | Number of | | Paid-in | | Development | | | | Subscriptions | | Deferred | | | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | | | Receivable | | Compensation | | Total | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1998 (restated) | | | 611 | | | 6,110,000 | | | 36,493,544 | | | 23,983,073 | | | 1,884,846 | | | (27,070,677 | ) | | | | | (14,309 | ) | | (1,300,812 | ) | | 3,592,121 | | | * | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Preferred stock issued - satisfaction of debt | | | 138 | | | 1,380,000 | | | - | | | - | | | (161,348 | ) | | (492,857 | ) | | | | | - | | | - | | | 725,795 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of preferred stock to common stock | | | (153 | ) | | (1,530,000 | ) | | 4,865,034 | | | 1,972,296 | | | (442,296 | ) | | - | | | | | | - | | | - | | | - | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock sold | | | - | | | - | | | 200,000 | | | 60,000 | | | - | | | - | | | | | | - | | | - | | | 60,000 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - exchange for services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
and compensation | | | - | | | - | | | 719,442 | | | 301,210 | | | - | | | - | | | | | | - | | | - | | | 301,210 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - repayment of debt | | | - | | | - | | | 2,974,043 | | | 1,196,992 | | | - | | | - | | | | | | - | | | - | | | 1,196,992 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued in exchange for loan fees | | | - | | | - | | | 480,000 | | | 292,694 | | | - | | | - | | | | | | - | | | - | | | 292,694 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued with exercise of stock options | | | - | | | - | | | 65,612 | | | 124,464 | | | - | | | - | | | | | | - | | | - | | | 124,464 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued in satisfaction of | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
licensing agreement payable | | | - | | | - | | | 3,500,000 | | | 1,890,000 | | | - | | | - | | | | | | - | | | - | | | 1,890,000 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Redeemable preferred stock sold, deemed dividend | | | - | | | - | | | - | | | - | | | - | | | (127,117 | ) | | | | | - | | | - | | | (127,117 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends accrued-preferred stock not yet converted | | | - | | | - | | | - | | | - | | | - | | | (329,176 | ) | | | | | - | | | - | | | (329,176 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock options granted | | | - | | | - | | | - | | | - | | | 209,625 | | | - | | | | | | - | | | (209,625 | ) | | - | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of deferred compentsation | | | - | | | - | | | - | | | - | | | - | | | - | | | | | | - | | | 1,510,437 | | | 1,510,437 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss (restated) | | | - | | | - | | | - | | | - | | | - | | | (6,543,292 | ) | | | | | - | | | - | | | (6,543,292 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1999 (restated) | | | 596 | | | 5,960,000 | | | 49,297,675 | | | 29,820,729 | | | 1,490,827 | | | (34,563,119 | ) | | | | | (14,309 | ) | | - | | | 2,694,128 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
See accompanying notes to the financial statements. |
IMAGING DIAGNOSTIC SYSTEMS, INC. | |
(a Development Stage Company) | |
| |
Statements of Stockhoders' Equity (Deficit) (Continued) | |
| | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2008 | |
| | | | | | | | | | | | Deficit | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | |
| | Number of | | Number of | | Paid-in | | Development | | Subscriptions | | Deferred | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | Receivable | | Compensation | | Total | |
| | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2007 | | | - | | | - | | | 311,538,038 | | | 99,120,731 | | | 2,661,650 | | | (98,341,059 | ) | | - | | | - | | | 3,441,322 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - line of equity transactions | | | - | | | - | | | 13,979,430 | | | 530,414 | | | - | | | - | | | - | | | - | | | 7,409,543 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value of Stock Option Expenses | | | - | | | - | | | - | | | - | | | 183,182 | | | - | | | - | | | - | | | 183,182 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | - | | | - | | | - | | | - | | | - | | | (4,623,679 | ) | | - | | | - | | | (4,623,679 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2008 | | | - | | | - | | | 325,517,468 | | | 99,651,145 | | | 2,844,832 | | | (102,964,738 | ) | | - | | | - | | | (468,761 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
** See Note 16 for a detailed breakdown by Series. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. |
IMAGING DIAGNOSTIC SYSTEMS, INC. | | | |
(a Development Stage Company) | | | |
| | | |
Statements of Stockholders' Equity (Deficit) (Continued) | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2009 | | | |
| | | | | | | | | | | | Deficit | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | | | | | |
| | Number of | | Number of | | Paid-in | | Development | | | | Subscriptions | | Deferred | | | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | | | Receivable | | Compensation | | Total | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1999 (restated) | | | 596 | | | 5,960,000 | | | 49,297,675 | | | 29,820,729 | | | 1,490,827 | | | (34,563,119 | ) | | | | | (14,309 | ) | | - | | | 2,694,128 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of convertible debentures | | | - | | | - | | | 4,060,398 | | | 3,958,223 | | | - | | | - | | | | | | - | | | - | | | 3,958,223 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of preferred stock to common, net | | | (596 | ) | | (5,960,000 | ) | | 45,415,734 | | | 7,313,334 | | | (648,885 | ) | | - | | | | | | - | | | - | | | 704,449 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock sold | | | - | | | - | | | 100,000 | | | 157,000 | | | - | | | - | | | | | | - | | | - | | | 157,000 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - exchange for services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
and compensation, net of cancelled shares | | | - | | | - | | | 137,000 | | | (18,675 | ) | | - | | | - | | | | | | - | | | - | | | (18,675 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - repayment of debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
and accrued interest | | | - | | | - | | | 5,061,294 | | | 1,067,665 | | | - | | | - | | | | | | - | | | - | | | 1,067,665 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued in exchange for | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
interest and loan fees | | | - | | | - | | | 7,297 | | | 2,408 | | | - | | | - | | | | | | - | | | - | | | 2,408 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued with exercise of stock options | | | - | | | - | | | 1,281,628 | | | 395,810 | | | 157,988 | | | - | | | | | | (13,599 | ) | | - | | | 540,199 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued with exercise of warrants | | | - | | | - | | | 150,652 | | | 121,563 | | | 97,850 | | | - | | | | | | - | | | - | | | 219,413 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of note payable with warrants at a discount | | | - | | | - | | | - | | | - | | | 500,000 | | | - | | | | | | - | | | - | | | 500,000 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends accrued-preferred stock not yet converted | | | - | | | - | | | - | | | - | | | - | | | (145,950 | ) | | | | | - | | | - | | | (145,950 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss (restated) | | | - | | | - | | | - | | | - | | | - | | | (6,531,662 | ) | | | | | - | | | - | | | (6,531,662 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2000 (restated) | | | - | | | - | | | 105,511,678 | | | 42,818,057 | | | 1,597,780 | | | (41,240,731 | ) | | | | | (27,908 | ) | | - | | | 3,147,198 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. | | | |
IMAGING DIAGNOSTIC SYSTEMS, INC. | |
(A Development Stage Company) | |
| | | | | | | | | | | | |
| |
| | | | | | | | | | | | |
| | | | | | | | | | | From Inception | |
| | | | | | | | | | | (December 10, | |
| | Year Ended | | | Year Ended | | | Year Ended | | | 1993) to | |
| | June 30, 2008 | | | June 30, 2007 | | | June 30, 2006 | | | June 30, 2008 | |
| | | | | | | | | | | | |
Net loss | | $ | (4,623,679 | ) | | $ | (7,202,322 | ) | | $ | (7,162,722 | ) | | $ | (96,116,978 | ) |
Adjustments to reconcile net loss to net cash | | | | | | | | | | | | | | | | |
used for operating activities: | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 181,812 | | | | 176,158 | | | | 183,450 | | | | 2,962,528 | |
(Gain) Loss on sale of fixed assets | | | (1,609,525 | ) | | | - | | | | 2,439 | | | | (1,612,671 | ) |
Extinguishment of debt | | | - | | | | - | | | | (21,500 | ) | | | (431,462 | ) |
Inventory valuation adjustment | | | 258,375 | | | | 493,596 | | | | 184,219 | | | | 4,670,385 | |
Amoritization of deferred compensation | | | - | | | | - | | | | - | | | | 4,064,250 | |
Noncash interest, compensation and consulting services | | | 40,414 | | | | 367,698 | | | | 565,373 | | | | 18,979,983 | |
Fair Value of Stock Option Expenses | | | 183,182 | | | | 431,313 | | | | 632,557 | | | | 1,247,052 | |
(Increase) decrease in accounts and | | | | | | | | | | | | | | | | |
loans receivable - employees, net | | | 49,360 | | | | 332,267 | | | | (266,590 | ) | | | (202,760 | ) |
Increase (decrease) in allowance for | | | | | | | | | | | | | | | | |
doubful account | | | 37,033 | | | | (10,033 | ) | | | 40,000 | | | | 67,000 | |
(Increase) decrease in inventories, net | | | 457,612 | | | | (85,942 | ) | | | (55,625 | ) | | | (2,380,385 | ) |
(Increase) decrease in prepaid expenses | | | (18,584 | ) | | | 6,062 | | | | (8,659 | ) | | | (55,368 | ) |
(Increase) decrease in other assets | | | - | | | | - | | | | - | | | | (306,618 | ) |
Increase (decrease) in accounts payable and | | | | | | | | | | | | | | | | |
accrued expenses | | | 214,077 | | | | 26,997 | | | | (224,974 | ) | | | 965,502 | |
Increase (decrease) in other current liabilities | | | 38,000 | | | | 48,114 | | | | 10,000 | | | | 126,114 | |
Increase in deferred rent liability | | | 85,935 | | | | - | | | | - | | | | 85,935 | |
| | | | | | | | | | | | | | | | |
Total adjustments | | | (82,309 | ) | | | 1,786,230 | | | | 1,040,690 | | | | 28,179,485 | |
| | | | | | | | | | | | | | | | |
Net cash used for operating activities | | | (4,705,988 | ) | | | (5,416,092 | ) | | | (6,122,032 | ) | | | (67,937,493 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | |
Proceeds from sale of property & equipment | | | 4,357,654 | | | | - | | | | 104 | | | | 4,387,615 | |
Prototype equipment | | | - | | | | - | | | | - | | | | (2,799,031 | ) |
Capital expenditures | | | (320,045 | ) | | | (16,500 | ) | | | (20,079 | ) | | | (4,786,765 | ) |
| | | | | | | | | | | | | | | | |
Net cash used for investing activities | | | 4,037,609 | | | | (16,500 | ) | | | (19,975 | ) | | | (3,198,181 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | |
Repayment of capital lease obligation | | | - | | | | - | | | | - | | | | (50,289 | ) |
Proceeds from convertible debenture | | | - | | | | - | | | | - | | | | 3,240,000 | |
Proceeds from (repayments) loan payable, net | | | (250,000 | ) | | | 250,000 | | | | - | | | | 2,595,029 | |
Proceeds from issuance of preferred stock | | | - | | | | - | | | | - | | | | 18,039,500 | |
Proceeds from exercise of stock options | | | - | | | | - | | | | - | | | | 903,989 | |
Net proceeds from issuance of common stock | | | 490,000 | | | | 4,192,717 | | | | 6,844,171 | | | | 46,456,878 | |
| | | | | | | | | | | | | | | | |
Net cash provided by financing activities | | | 240,000 | | | | 4,442,717 | | | | 6,844,171 | | | | 71,185,107 | |
| | | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | (428,379 | ) | | | (989,875 | ) | | | 702,164 | | | | 49,433 | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at beginning of period | | | 477,812 | | | | 1,467,687 | | | | 765,523 | | | | - | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 49,433 | | | $ | 477,812 | | | $ | 1,467,687 | | | $ | 49,433 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. | |
IMAGING DIAGNOSTIC SYSTEMS, INC. | | | |
(a Development Stage Company) | | | |
| | | |
Statements of Stockholders' Equity (Deficit) (Continued) | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2009 | | | |
| | | | | | | | | | | | Deficit | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | | | | | |
| | Number of | | Number of | | Paid-in | | Development | | | | Subscriptions | | Deferred | | | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | | | Receivable | | Compensation | | Total | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2000 (restated) | | | - | | | - | | | 105,511,678 | | | 42,818,057 | | | 1,597,780 | | | (41,240,731 | ) | | | | | (27,908 | ) | | - | | | 3,147,198 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Preferred stock sold, including dividends | | | 500 | | | 5,000,000 | | | - | | | - | | | 708,130 | | | (708,130 | ) | | | | | - | | | - | | | 5,000,000 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of preferred stock to common, net | | | (500 | ) | | (5,000,000 | ) | | 5,664,067 | | | 5,580,531 | | | (708,130 | ) | | - | | | | | | - | | | - | | | (127,599 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - line of equity transactions | | | - | | | - | | | 3,407,613 | | | 3,143,666 | | | - | | | - | | | | | | - | | | - | | | 3,143,666 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - exchange for services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
and compensation | | | - | | | - | | | 153,500 | | | 227,855 | | | - | | | - | | | | | | - | | | - | | | 227,855 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - repayment of debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
and accrued interest | | | - | | | - | | | 810,000 | | | 1,393,200 | | | - | | | - | | | | | | - | | | - | | | 1,393,200 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued with exercise of stock options | | | - | | | - | | | 3,781,614 | | | 1,868,585 | | | - | | | - | | | | | | 13,599 | | | - | | | 1,882,184 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued with exercise of warrants | | | - | | | - | | | 99,375 | | | 119,887 | | | - | | | - | | | | | | - | | | - | | | 119,887 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends accrued-preferred stock | | | - | | | - | | | - | | | - | | | - | | | (422,401 | ) | | | | | - | | | - | | | (422,401 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss (restated) | | | - | | | - | | | - | | | - | | | - | | | (9,532,450 | ) | | | | | - | | | - | | | (9,532,450 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2001 (restated) | | | - | | | - | | | 119,427,847 | | | 55,151,781 | | | 1,597,780 | | | (51,903,712 | ) | | | | | (14,309 | ) | | - | | | 4,831,540 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. | | | |
IMAGING DIAGNOSTIC SYSTEMS, INC. | |
(A Development Stage Company) | |
| | | | | | | | | | | | |
Statement of Cash Flows (Continued) | |
| | | | | | | | | | | | |
| | | | | | | | | | | From Inception | |
| | | | | | | | | | | (December 10, | |
| | Year Ended | | | Year Ended | | | Year Ended | | | 1993) to | |
| | June 30, 2008 | | | June 30, 2007 | | | June 30, 2006 | | | June 30, 2008 | |
Supplemental disclosures of cash | | | | | | | | | | | | |
flow information: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Cash paid for interest | | $ | - | | | $ | - | | | $ | - | | | $ | 215,962 | |
| | | | | | | | | | | | | | | | |
Supplemental disclosures of noncash | | | | | | | | | | | | | | | | |
investing and financing activities: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Issuance of common stock and options | | | | | | | | | | | | | | | | |
in exchange for services | | $ | - | | | $ | - | | | $ | - | | | $ | 6,306,350 | |
| | | | | | | | | | | | | | | | |
Issuance of common stock as loan fees in | | | | | | | | | | | | | | | | |
connection with loans to the Company | | $ | - | | | $ | - | | | $ | - | | | $ | 293,694 | |
| | | | | | | | | | | | | | | | |
Issuance of common stock as satisfaction of | | | | | | | | | | | | | | | | |
loans payable and accrued interest | | $ | - | | | $ | - | | | $ | - | | | $ | 3,398,965 | |
| | | | | | | | | | | | | | | | |
Issuance of common stock as satisfaction of | | | | | | | | | | | | | | | | |
certain accounts payable | | $ | - | | | $ | - | | | $ | - | | | $ | 257,892 | |
| | | | | | | | | | | | | | | | |
Issuance of common stock in | | | | | | | | | | | | | | | | |
exchange for property and equipment | | $ | - | | | $ | - | | | $ | - | | | $ | 89,650 | |
| | | | | | | | | | | | | | | | |
Issuance of common stock and other current liability | | | | | | | | | | | | | | | | |
in exchange for patent liceensing agreement | | $ | - | | | $ | - | | | $ | - | | | $ | 581,000 | |
| | | | | | | | | | | | | | | | |
Issuance of common stock for | | | | | | | | | | | | | | | | |
compensation | | $ | - | | | $ | - | | | $ | - | | | $ | 2,691,788 | |
| | | | | | | | | | | | | | | | |
Issuance of common stock through | | | | | | | | | | | | | | | | |
exercise of incentive stock options | | $ | - | | | $ | - | | | $ | - | | | $ | 3,117,702 | |
| | | | | | | | | | | | | | | | |
Issuance of common stock as | | | | | | | | | | | | | | | | |
payment for preferred stock dividends | | $ | - | | | $ | - | | | $ | - | | | $ | 507,645 | |
| | | | | | | | | | | | | | | | |
Acquisition of property and equipment | | | | | | | | | | | | | | | | |
through the issuance of a capital | | | | | | | | | | | | | | | | |
lease payable | | $ | - | | | $ | - | | | $ | - | | | $ | 50,289 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. | |
IMAGING DIAGNOSTIC SYSTEMS, INC. | | | |
(a Development Stage Company) | | | |
| | | |
Statements of Stockholders' Equity (Deficit) (Continued) | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2009 | | | |
| | | | | | | | | | | | Deficit | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | | | | | |
| | Number of | | Number of | | Paid-in | | Development | | | | Subscriptions | | Deferred | | | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | | | Receivable | | Compensation | | Total | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2001 (restated) | | | - | | | - | | | 119,427,847 | | | 55,151,781 | | | 1,597,780 | | | (51,903,712 | ) | | | | | (14,309 | ) | | - | | | 4,831,540 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - line of equity transactions | | | - | | | - | | | 11,607,866 | | | 6,213,805 | | | - | | | - | | | | | | - | | | - | | | 6,213,805 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - exchange for services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
and compensation | | | - | | | - | | | 560,000 | | | 294,350 | | | - | | | - | | | | | | - | | | (117,600 | ) | | 176,750 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss (restated) | | | - | | | - | | | - | | | - | | | - | | | (7,997,652 | ) | | | | | - | | | - | | | (7,997,652 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2002 (restated) | | | - | | | - | | | 131,595,713 | | | 61,659,936 | | | 1,597,780 | | | (59,901,364 | ) | | | | | (14,309 | ) | | (117,600 | ) | | 3,224,443 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - line of equity transactions | | | - | | | - | | | 29,390,708 | | | 8,737,772 | | | - | | | - | | | | | | - | | | - | | | 8,737,772 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - exchange for services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
and compensation | | | - | | | - | | | 2,007,618 | | | 970,653 | | | - | | | - | | | | | | - | | | 117,600 | | | 1,088,253 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Payment of subscriptions receivable | | | - | | | - | | | - | | | - | | | - | | | - | | | | | | 14,309 | | | - | | | 14,309 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss (restated) | | | - | | | - | | | - | | | - | | | - | | | (8,358,774 | ) | | | | | - | | | - | | | (8,358,774 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2003 (restated) | | | - | | | - | | | 162,994,039 | | | 71,368,361 | | | 1,597,780 | | | (68,260,138 | ) | | | | | - | | | - | | | 4,706,003 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. | | | |
IMAGING DIAGNOSTIC SYSTEMS, INC. | | | |
(a Development Stage Company) | | | |
| | | |
Statements of Stockholders' Equity (Deficit) (Continued) | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2009 | | | |
| | | | | | | | | | | | Deficit | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | | | | | |
| | Number of | | Number of | | Paid-in | | Development | | | | Subscriptions | | Deferred | | | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | | | Receivable | | Compensation | | Total | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2003 (restated) | | | - | | | - | | | 162,994,039 | | | 71,368,361 | | | 1,597,780 | | | (68,260,138 | ) | | | | | - | | | - | | | 4,706,003 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - line of equity transactions | | | - | | | - | | | 8,630,819 | | | 6,541,700 | | | - | | | - | | | | | | - | | | - | | | 6,541,700 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - exchange for services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
and compensation | | | - | | | - | | | 734,785 | | | 832,950 | | | - | | | - | | | | | | - | | | - | | | 832,950 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - exercise of stock options | | | - | | | - | | | 967,769 | | | 492,701 | | | - | | | - | | | | | | - | | | - | | | 492,701 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | - | | | - | | | - | | | - | | | - | | | (8,402,959 | ) | | | | | - | | | - | | | (8,402,959 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2004 (Restated) | | | - | | | - | | | 173,327,412 | | | 79,235,712 | | | 1,597,780 | | | (76,663,097 | ) | | | | | - | | | - | | | 4,170,395 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - line of equity transactions | | | - | | | - | | | 26,274,893 | | | 7,797,807 | | | - | | | - | | | | | | - | | | - | | | 7,797,807 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - exchange for services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
and compensation | | | - | | | - | | | 285,000 | | | 113,850 | | | - | | | - | | | | | | - | | | - | | | 113,850 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - exercise of stock options | | | - | | | - | | | 13,264 | | | 3,404 | | | - | | | - | | | | | | - | | | - | | | 3,404 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | - | | | - | | | - | | | - | | | - | | | (7,312,918 | ) | | | | | - | | | - | | | (7,312,918 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2005 | | | - | | $ | - | | | 199,900,569 | | $ | 87,150,773 | | $ | 1,597,780 | | $ | (83,976,015 | ) | | | | $ | - | | $ | - | | | 4,772,538 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. | | | |
IMAGING DIAGNOSTIC SYSTEMS, INC. | |
(a Development Stage Company) | |
| |
Statements of Stockholders' Equity (Deficit) (Continued) | |
| | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2009 | |
| | | | | | | | | | | | Deficit | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | |
| | Number of | | Number of | | Paid-in | | Development | | Subscriptions | | Deferred | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | Receivable | | Compensation | | Total | |
| | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2005 | | | - | | | - | | | 199,900,569 | | | 87,150,773 | | | 1,597,780 | | | (83,976,015 | ) | | - | | | - | | | 4,772,538 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - line of equity transactions | | | - | | | - | | | 47,776,064 | | | 7,409,543 | | | - | | | - | | | - | | | - | | | 7,409,543 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value of Stock Option Expenses | | | - | | | - | | | - | | | - | | | 632,557 | | | - | | | - | | | - | | | 632,557 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | - | | | - | | | - | | | - | | | - | | | (7,162,722 | ) | | - | | | - | | | (7,162,722 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2006 | | | - | | | - | | | 247,676,633 | | | 94,560,316 | | | 2,230,337 | | | (91,138,737 | ) | | - | | | - | | | 5,651,916 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - line of equity transactions | | | - | | | - | | | 63,861,405 | | | 4,560,415 | | | - | | | - | | | - | | | - | | | 4,560,415 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value of Stock Option Expenses | | | - | | | - | | | - | | | - | | | 431,313 | | | - | | | - | | | - | | | 431,313 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | - | | | - | | | - | | | - | | | - | | | (7,202,322 | ) | | - | | | - | | | (7,202,322 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2007 | | | - | | | - | | | 311,538,038 | | | 99,120,731 | | | 2,661,650 | | | (98,341,059) | | | - | | | - | | | 3,441,322 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
** See Note 16 for a detailed breakdown by Series. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. |
IMAGING DIAGNOSTIC SYSTEMS, INC. | |
(a Development Stage Company) | |
| |
Statements of Stockholders' Equity (Deficit) (Continued) | |
| | | | | | | | | | | | | | | | | | | |
From December 10, 1993 (date of inception) to June 30, 2009 | |
| | | | | | | | | | | | Deficit | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | |
| | Preferred Stock (**) | | Common Stock | | Additional | | During the | | | | | | | �� |
| | Number of | | Number of | | Paid-in | | Development | | Subscriptions | | Deferred | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | Receivable | | Compensation | | Total | |
| | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2007 | | | - | | | - | | | 311,538,038 | | | 99,120,731 | | | 2,661,650 | | | (98,341,059 | ) | | - | | | - | | | 3,441,322 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - line of equity transactions | | | - | | | - | | | 13,979,430 | | | 530,414 | | | - | | | - | | | - | | | - | | | 7,409,543 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value of Stock Option Expenses | | | - | | | - | | | - | | | - | | | 183,182 | | | - | | | - | | | - | | | 183,182 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | - | | | - | | | - | | | - | | | - | | | (4,623,679 | ) | | - | | | - | | | (4,623,679 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2008 | | | - | | | - | | | 325,517,468 | | | 99,651,145 | | | 2,844,832 | | | (102,964,738 | ) | | - | | | - | | | (468,761 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - line of equity transactions | | | - | | | - | | | 158,747,217 | | | 1,674,885 | | | - | | | - | | | - | | | - | | | 1,674,885 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - Conversion of Cv Debenture | | | - | | | - | | | 93,958,547 | | | 621,220 | | | - | | | - | | | - | | | - | | | 621,220 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - Exercise of Warrants | | | - | | | - | | | 21,755,555 | | | 178,778 | | | - | | | - | | | - | | | - | | | 178,778 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - Consulting | | | - | | | - | | | 5,000,000 | | | 55,000 | | | - | | | - | | | - | | | - | | | 55,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued - Employees | | | - | | | - | | | 2,400,000 | | | 19,200 | | | - | | | - | | | - | | | - | | | 19,200 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sale of Common Stock - Restricted Shares Issued | | | - | | | - | | | 4,000,000 | | | 80,000 | | | - | | | - | | | - | | | - | | | 80,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value of Stock Option Expenses | | | - | | | - | | | - | | | - | | | 145,577 | | | - | | | - | | | - | | | 145,577 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Discount - FV and BCF for $400,000 Cv Deb. | | | - | | | - | | | - | | | - | | | 400,000 | | | - | | | - | | | | | | 400,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Discount - FV and BCF for $400,000 Cv Deb. # 2 | | | - | | | - | | | - | | | - | | | 92,308 | | | - | | | - | | | - | | | 92,308 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Repricing of Warrants | | | - | | | - | | | - | | | - | | | 17,000 | | | - | | | - | | | - | | | 17,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | - | | | - | | | - | | | - | | | - | | | (3,944,429 | ) | | - | | | - | | | (3,944,429 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance of June 30, 2009 | | | - | | | - | | | 611,378,787 | | | 102,280,228 | | | 3,499,717 | | | (106,909,167 | ) | | - | | | - | | | (1,129,222 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
** See Note 16 for a detailed breakdown by Series. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. |
IMAGING DIAGNOSTIC SYSTEMS, INC. | |
(A Development Stage Company) | |
| | | | | | | | | | | | |
| |
| | | | | | | | | | | | |
| | | | | | | | | | | From Inception | |
| | | | | | | | | | | (December 10, | |
| | Year Ended | | | Year Ended | | | Year Ended | | | 1993) to | |
| | June 30, 2009 | | | June 30, 2008 | | | June 30, 2007 | | | June 30, 2009 | |
| | | | | | | | | | | | |
Net loss | | $ | (3,944,429 | ) | | $ | (4,623,678 | ) | | $ | (7,202,322 | ) | | $ | (100,061,407 | ) |
Adjustments to reconcile net loss to net cash | | | | | | | | | | | | | | | | |
used for operating activities: | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 202,344 | | | | 181,812 | | | | 176,158 | | | | 3,164,872 | |
(Gain) Loss on sale of fixed assets | | | (1,181,894 | ) | | | (1,609,525 | ) | | | - | | | | (2,794,565 | ) |
Extinguishment of debt | | | - | | | | - | | | | - | | | | (431,462 | ) |
Inventory valuation adjustment | | | 82,286 | | | | 258,375 | | | | 493,596 | | | | 4,752,671 | |
Amoritization of deferred compensation | | | - | | | | - | | | | - | | | | 4,064,250 | |
Noncash interest, compensation and consulting services | | | 858,510 | | | | 40,414 | | | | 367,698 | | | | 19,838,493 | |
Fair Value of Stock Option Expenses | | | 145,577 | | | | 183,182 | | | | 431,313 | | | | 1,392,629 | |
(Increase) decrease in accounts and | | | | | | | | | | | | | | | | |
loans receivable - employees, net | | | 27,222 | | | | 49,360 | | | | 332,267 | | | | (175,538 | ) |
Increase (decrease) in allowance for | | | | | | | | | | | | | | | | |
doubful account | | | 47,982 | | | | 37,033 | | | | (10,033 | ) | | | 114,982 | |
(Increase) decrease in inventories, net | | | 28,825 | | | | 457,612 | | | | (85,942 | ) | | | (2,351,560 | ) |
(Increase) decrease in prepaid expenses | | | 19,751 | | | | (18,584 | ) | | | 6,062 | | | | (35,617 | ) |
(Increase) decrease in other assets | | | - | | | | - | | | | - | | | | (306,618 | ) |
Increase (decrease) in accounts payable and | | | | | | | | | | | | | | | | |
accrued expenses | | | 1,194,152 | | | | 214,077 | | | | 26,997 | | | | 2,159,654 | |
Increase (decrease) in other current liabilities | | | (30,000 | ) | | | 38,000 | | | | 48,114 | | | | 96,114 | |
Increase in deferred rent liability | | | (85,935 | ) | | | 85,935 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | |
Total adjustments | | | 1,308,820 | | | | (82,309 | ) | | | 1,786,230 | | | | 29,488,305 | |
| | | | | | | | | | | | | | | | |
Net cash used for operating activities | | | (2,635,609 | ) | | | (4,705,988 | ) | | | (5,416,092 | ) | | | (70,573,102 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | |
Proceeds from sale of property & equipment | | | 2,400 | | | | 4,357,654 | | | | - | | | | 4,390,015 | |
Prototype equipment | | | - | | | | - | | | | - | | | | (2,799,031 | ) |
Capital expenditures | | | 7,360 | | | | (320,045 | ) | | | (16,500 | ) | | | (4,779,405 | ) |
| | | | | | | | | | | | | | | | |
Net cash used for investing activities | | | 9,760 | | | | 4,037,609 | | | | (16,500 | ) | | | (3,188,421 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | |
Repayment of capital lease obligation | | | - | | | | - | | | | - | | | | (50,289 | ) |
Proceeds from convertible debenture | | | 800,000 | | | | - | | | | - | | | | 4,040,000 | |
Proceeds from (repayments) loan payable, net | | | - | | | | (250,000 | ) | | | 250,000 | | | | 2,595,029 | |
Proceeds from issuance of preferred stock | | | - | | | | - | | | | - | | | | 18,039,500 | |
Proceeds from exercise of stock options | | | - | | | | - | | | | - | | | | 903,989 | |
Net proceeds from issuance of common stock | | | 1,788,951 | | | | 490,000 | | | | 4,192,717 | | | | 48,245,829 | |
| | | | | | | | | | | | | | | | |
Net cash provided by financing activities | | | 2,588,951 | | | | 240,000 | | | | 4,442,717 | | | | 73,774,058 | |
| | | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | (36,898 | ) | | | (428,379 | ) | | | (989,875 | ) | | | 12,535 | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at beginning of period | | | 49,433 | | | | 477,812 | | | | 1,467,687 | | | | - | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 12,535 | | | $ | 49,433 | | | $ | 477,812 | | | $ | 12,535 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. |
IMAGING DIAGNOSTIC SYSTEMS, INC. | |
(A Development Stage Company) | |
| | | | | | | | | | | | |
Statement of Cash Flows (Continued) | |
| | | | | | | | | | | | |
| | | | | | | | | | | From Inception | |
| | | | | | | | | | | (December 10, | |
| | Year Ended | | | Year Ended | | | Year Ended | | | 1993) to | |
| | June 30, 2009 | | | June 30, 2008 | | | June 30, 2007 | | | June 30, 2009 | |
Supplemental disclosures of cash | | | | | | | | | | | | |
flow information: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Cash paid for interest | | $ | - | | | $ | - | | | $ | - | | | $ | 215,962 | |
| | | | | | | | | | | | | | | | |
Supplemental disclosures of noncash | | | | | | | | | | | | | | | | |
investing and financing activities: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Issuance of common stock and options | | | | | | | | | | | | | | | | |
in exchange for services | | $ | - | | | $ | - | | | $ | - | | | $ | 6,306,350 | |
| | | | | | | | | | | | | | | | |
Issuance of common stock as loan fees in | | | | | | | | | | | | | | | | |
connection with loans to the Company | | $ | - | | | $ | - | | | $ | - | | | $ | 293,694 | |
| | | | | | | | | | | | | | | | |
Issuance of common stock as satisfaction of | | | | | | | | | | | | | | | | |
loans payable and accrued interest | | $ | - | | | $ | - | | | $ | - | | | $ | 3,398,965 | |
| | | | | | | | | | | | | | | | |
Issuance of common stock as satisfaction of | | | | | | | | | | | | | | | | |
certain accounts payable | | $ | - | | | $ | - | | | $ | - | | | $ | 257,892 | |
| | | | | | | | | | | | | | | | |
Issuance of common stock in | | | | | | | | | | | | | | | | |
exchange for property and equipment | | $ | - | | | $ | - | | | $ | - | | | $ | 89,650 | |
| | | | | | | | | | | | | | | | |
Issuance of common stock and other current liability | | | | | | | | | | | | | | | | |
in exchange for patent liceensing agreement | | $ | - | | | $ | - | | | $ | - | | | $ | 581,000 | |
| | | | | | | | | | | | | | | | |
Issuance of common stock for | | | | | | | | | | | | | | | | |
compensation | | $ | - | | | $ | - | | | $ | - | | | $ | 2,691,788 | |
| | | | | | | | | | | | | | | | |
Issuance of common stock through | | | | | | | | | | | | | | | | |
exercise of incentive stock options | | $ | - | | | $ | - | | | $ | - | | | $ | 3,117,702 | |
| | | | | | | | | | | | | | | | |
Issuance of common stock as | | | | | | | | | | | | | | | | |
payment for preferred stock dividends | | $ | - | | | $ | - | | | $ | - | | | $ | 507,645 | |
| | | | | | | | | | | | | | | | |
Acquisition of property and equipment | | | | | | | | | | | | | | | | |
through the issuance of a capital | | | | | | | | | | | | | | | | |
lease payable | | $ | - | | | $ | - | | | $ | - | | | $ | 50,289 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
See accompanying notes to the financial statements. | |
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notesto Financial Statements
(1) BACKGROUND
The Company, ("Imaging Diagnostic Systems, Inc.") was organized in the state of New Jersey on November 8, 1985, under its original name of Alkan Corp. On April 14, 1994, a reverse merger was effected between Alkan Corp. and the Florida corporation of Imaging Diagnostic Systems, Inc. ("IDSI-Fl."). IDSI-Fl. was formed on December 10, 1993. (See Note 4) Effective July 1, 1995 the Company changed its corporate status to a Florida corporation.
The Company is a development stage enterprise and during fiscal year ending June 30, 2008,2009, utilized the proceeds of $4.4 million from the sale and lease-back of it’s property in Plantation, FL (See Note 22) and the sale of $800,000 of Senior Secured Convertible Debentures . As additional working capital will be required, the Company will obtain such capital through the use of its Sixth Private Equity Credit Agreement and other sources of financing. Since January 2003, the Company has had revenues of $2,072,875$2,143,492 from the sale of its CTLM® Breast Imaging System. There is no assurance that once the development of the CTLM® device is completed and finally receives Federal Drug Administration marketing clearance, that the Company will achieve a profitable level of operations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(b) Revenue Recognition
We recognize revenue in accordance with the guidance presented in the SEC’s Staff Accounting Bulletin No. 104. We sell our medical imaging products, parts, and services to independent distributors and in certain unrepresented territories directly to end-users. Revenue is recognized when persuasive evidence of a sales arrangement exists, delivery has occurred such that title and risk of loss have passed to the buyer or services have been rendered, the selling price is fixed or determinable, and collectibility is reasonable assured. Unless agreed otherwise, our terms with international distributors provide that title and risk of loss passes F.O.B. origin.
To be reasonably assured of collectibility, our policy is to minimize the risk of doing business with distributors in countries which are having difficult financial times by requesting payment via an irrevocable letter of credit (“L/C”) drawn on a United States bank prior to shipment of the CTLM®. It is not always possible to obtain an L/C from our distributors so in these cases we must seek alternative payment arrangements which include third-party financing, leasing or extending payment terms to our distributors.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Allowance for Doubtful Accounts
In the event that management determines that a receivable becomes uncollectible, or events or circumstances change, which result in a temporary cessation of payments from the distributor, we will make our best estimate of probable or potential losses in our accounts receivable balance using the allowance method for each quarterly period. Management will periodically review the receivables at the end of each quarterly reporting period and the appropriate accrual will be made based on current available evidence and historical experience.
Our allowance for doubtful accounts increased to $67,000$114,982 as of June 30, 20082009 from $29,967$67,000 in the prior fiscal year.
(d) Cash and cash equivalents
Holdings of highly liquid investments with original maturities of three months or less and investment in money market funds are considered to be cash equivalents by the Company.
(e) Inventory
Inventories, consisting principally of raw materials, work-in-process (including completed units under testing), finished goods and units placed on consignment, are carried at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Raw materials consist of purchased parts, components and supplies. Work-in-process includes completed units undergoing final inspection and testing.
We have used and will continue to use CTLM® systems from finished goods as demonstrators or for clinical collaboration. At the conclusion of the demonstration or clinical collaboration period, the CTLM® may be sold at reduced prices. On a quarterly basis, using the guidance of ARB 43, Chapter 4, Statement 5, our ability to realize the value of our inventory is based on a combination of factors including the following: how long a consigned system has been used for demonstration or clinical collaboration purpose; the utility of the goods as compared to their cost; physical obsolescence; historical usage rates; forecasted sales or usage; product end of life dates; estimated current and future market values; and new product introductions.
Due to recent technological advances resulting in overall lower costs for certain inventory components; the Company has reduced these components of its inventory to their net realizable value. The inventory valuation adjustments are reflected in the statement of operations and amounted to $82,286, $258,375, $493,596, $184,219, and $4,670,385,$4,752,671, for the years ended June 30, 2009, 2008 2007 and 2006,2007, and for the period December 10, 1993 (date of inception) to June 30, 2008,2009, respectively.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Property, equipment and software development costs
Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using straight-line methods over the estimated useful lives of the related assets. Expenditures for renewals and betterments which increase the estimated useful life or capacity of the asset are capitalized; expenditures for repairs and maintenance are expensed when incurred.
Under the criteria set forth in Statement of Financial Accounting Standards No. 86, capitalization of software development costs begins upon the establishment of technological feasibility for the product. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs require considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future gross product revenues, estimated economic life and changes in software and hardware technology. After considering the above factors, the Company has determined that software development costs, incurred subsequent to the initial acquisition of the basic software technology, should be properly expensed. Such costs are included in research and development expense in the accompanying statements of operations.
(g) Research and development
Research and development expenses consist principally of expenditures for equipment and outside third-party consultants, raw materials which are used in testing and the development of the Company's CTLM® device or other products, product software and compensation to specific company personnel. The non-payroll related expenses include testing at outside laboratories, parts associated with the design of initial components and tooling costs, and other costs which do not remain with the developed CTLM® device. The software development costs are with outside third-party consultants involved with the implementation of final changes to the developed software. All research and development costs are expensed as incurred.
(h) Net loss per share
| In 1998, the Company adopted SFAS No. 128, (“Earnings Per Share”), which requires the reporting of both basic and diluted earnings per share. Basic net loss per share is determined by dividing loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if options or other contracts to issue common stock were exercised or converted into common stock, as long as the effect of their inclusion is not anti-dilutive. The Company has excluded vested options and warrants in the amount of 44,457,539, 18,191,449 and 15,175,703 during the years June 30, 2009, 2008 and 2007 as the inclusion of such options and warrants would be anti-dilutive. |
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(i) Patent license agreement
The patent license agreement will be amortized over the seventeen-year life of the patent, the term of the agreement. See Note 2(m) Intangible Assets for disclosure on impairment policy.
(j) Stock-based compensation
The Company adopted SFAS No. 123R, “Share Based Payments.” SFAS No. 123R requires companies to expense the value of employee stock options and similar awards and applies to all outstanding and vested stock-based awards.
In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period. The impact of applying SFAS No. 123R approximated $145,577, $183,182 $431,313 and $632,558,$431,313, respectively, in additional compensation expense for the twelve months ended June 30, 2009, 2008, 2007, and 2006.2007.
The fair value concepts were not changed significantly in SFAS 123(R); however, in adopting this Standard, companies were given the option to choose among alternative valuation models and amortization assumptions. We elected to continue to use the Black-Scholes option pricing model and expense the options as compensation over the requisite service period of the grant. We will reconsider use of the Black-Scholes model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
| From Inception |
| (December 10, |
| 1993) to |
| June 30, 2005 |
| (Restated) |
Net loss to common shareholders, | |
as reported | $ (83,976,015) |
| |
Less: stock-based employee compensation | |
determined under the fair value method, | |
net of income tax effect | 5,537,149 |
| |
Net loss to common shareholders, | |
pro forma | $ (89,513,164)
|
| |
Basic and diluted loss per share - | |
As reported | $ (1.02) |
| |
Pro forma | $ (1.09) |
For purposes of the preceding pro forma disclosures, the weighted average fair value of each option has been estimated on the date of grant using the Black-Scholes options-pricing model with the weighted average assumptions listed below used for grants in 2008, 2007 and 2006, respectively.
| Year Ended | Year Ended |
| June 30, 2008 | June 30, 2007 | June 30, 2006 | June 30, 2009 | June 30, 2008 | June 30, 2007 |
Volatility | 63.32% | 72.34% | 71.11% | 131.31% | 63.32% | 72.34% |
Risk Free Interest Rate | 5% | 4% | 5% |
Expected Term | 8 yrs | 8 yrs |
Our expected term assumption of eight years for the year ended June 30, 2008,2009, was based upon the guidance provided by SEC Staff Accounting Bulletin 107 enabling us to use the simplified method for “plain vanilla” options for this calculation. This provision was allowed to be used for grants made on or before December 31, 2007. On December 21, 2007, the SEC issued Staff Accounting Bulletin 110 which extended the timeframe we will have to use the simplified method on an interim basis. The SEC will suspend use of this method once detailed information on exercise terms become readily available. We then will be required to estimate the expected term of an option using historical data.
See Note 19 – Stock Options
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(k) Long-lived assets
Effective July 1, 1996, the Company adopted the provisions of Statement of Financial Accounting Standards No. 121. “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of” (“SFAS 121”). This statement requires companies to write down to estimated fair value long-lived assets that are impaired. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In performing the review of recoverability the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the assets, an impairment loss is recognized.
The Company has determined that no impairment losses need to be recognized through the fiscal year ended June 30, 2008.
In August of 2001, the Company adopted the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”), which addresses accounting and financial reporting for the impairment and disposal of long-lived assets. This statement is effective for the Company beginning July 1, 2002. The Company does not believe that the adoption of SFAS 144 will have a significant impact on its financial position and results of operations.2009.
(l) Income taxes
The Company provides for income taxes using the asset and liability method as required by Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes” (“SFAS 109”). This method recognizes the amount of federal and state taxes payable or refundable for the current year as well as deferred tax assets and liabilities for the future tax consequence of events recognized in the financial statements and income tax returns. Deferred income tax assets and liabilities are adjusted to recognize the change in tax laws or tax rates. These changes are recognized in income in the year that includes the enactment date.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(m) Intangible assets
Intangible assets, consisting of the patent license agreement and certain initial UL and CE costs are reflected in “Intangible Assets” on the balance sheet, net of accumulated amortization (Note 8)9). The patent license agreement has a fixed life of seventeen years and will continue to be amortized over its remaining useful life. During the fiscal year ending June 30, 1999, we incurred costs of $8,225 related to the process of obtaining UL and CE approvals and determined that these costs should be amortized based on their useful life of three years on a straight-line basis.
Long-lived assets, including patents, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The impairment analysis for patents can be very subjective as we rely upon signed distribution, dealer or license agreements with variable cash flows to substantiate the recoverability of these long-lived assets. In our analysis we also take into account our position as a world-wide market leader in CT optical tomography; net sales of CTLM® systems of $2,072,875$2,143,492 since January 2003; the growing acceptance of our technology with over 14,000 scans performed world-wide; approvals or product registration in the following countries: CE Mark for the European Union, Canada, Peoples Republic of China, Argentina, Brazil and Colombia. We believe the fair value of our patent license clearly exceeds the carrying amount of $239,235.$205,059.
We have recorded accumulated amortization of $341,765$375,941 with a balance remaining of $239,235,$205,059, which will be amortized over the next seven years at $8,544 per quarter. We will continue to test for impairment on an annual basis or more frequently if events and circumstances change using the guidance provided in FAS-142. Examples of such events and circumstances are:
· | A significant adverse change in legal factors or in the business climate |
· | An adverse action or assessment by a regulator |
· | Unanticipated competition |
· | Loss of key personnel |
· | An expectation that all or a significant portion of a reportingdeporting unit will be sold or otherwise disposed of. |
Based on our analysis, we determined that there was no impairment as of June 30, 2008.2009.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
| The Company established a warranty reserve effective for the fiscal year ending June 30, 2005. The table below reflects the Warranty Reserve established for the last three fiscal years. Although the Company tests its product in accordance with its quality programs and processes, its warranty obligation is affected by product failure rates and service delivery costs incurred in correcting a product failure. Should actual product failure rates or service costs differ from the Company’s estimates, which are based on limited historical data, where applicable, revisions to the estimated warranty liability would be required. |
| | Year Ended | Year Ended | Year Ended |
| | June 30, 2008 | June 30, 2007 | June 30, 2006 |
| Warranty Reserve | $8,502 | $14,952 | $24,799 |
| Year Ended | Year Ended | Year Ended |
| June 30, 2009 | June 30, 2008 | June 30, 2007 |
Warranty Reserve | $4,065 | $8,502 | $14,952 |
(o) Deemed preferred stock dividend
The accretion resulting from the incremental yield embedded in the conversion terms of the convertible preferred stock is computed based upon the discount from market of the common stock at the date the preferred stock was issued. The resulting deemed preferred stock dividend subsequently increases the value of the common shares upon conversion.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(p) Discount on convertible debt
The discount which arises as a result of the allocation of proceeds to the beneficial conversion feature upon the issuance of the convertible debt increases the effective interest rate of the convertible debt and will be reflected as a charge to interest expense. The amortization period will be from the date of the convertible debt to the date the debt first becomes convertible.
(q) Comprehensive income
SFAS 130, “Reporting Comprehensive Income”, requires a full set of general-purpose financial statements to be expanded to include the reporting of “comprehensive income”. Comprehensive income is comprised of two components, net income and other comprehensive income. For the period from December 10, 1993 (date of inception) to June 30, 2008,2009, the Company had no items qualifying as other comprehensive income.
(r) Impact of recently issued accounting standards
All other issued but not yet effective accounting pronouncements have been deemed to be not applicable hence when adopted these new accounting pronouncements are not expected to have any impact on the financial position of the company.
In April 2008, the Financial Accounting Standards Board (FASB) Staff Position (FSP) No. 142-3, Determination of the Useful Life of Intangible Assets, was finalized. FSP No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. The Position applies to intangible assets that are acquired individually or with a group of other assets and both intangible assets acquired in business combinations and asset acquisitions. The Company is currently evaluating the provisions of FSP No. 142-3 and the resulting impact of adoption on its financial statements.
In December 2007, the FASB issued SFAS No. 141No.141 (revised 2007), Business Combinations, which replaces SFAS No. 141, Business Combinations. SFAS No. 141R establishes the principles and requirements for how an acquirer recognizes and measures the identifiable assets acquired, the liabilities assumed, the goodwill acquired and any noncontrolling interest in the acquiree. SFAS No. 141R also establishes the disclosure requirements for a business combination. The provisions of SFAS No. 141R are effective for the Company’s 2010 fiscal year, beginning on July 1, 2009. The Company is currently evaluating the provisions of SFAS No.141R and the resulting impact of adoption on its financial statements.
Also in December 2007, the FASB ratified the consensus reached by the Emerging Issues Task Force (EITF) on Issue No. 07-1, Accounting for Collaborative Arrangements. EITF 07-1 defines collaborative arrangements and establishes
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
reporting and disclosure requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties. The provisions of EITF 07-1 are effective for the Company’s 2010 fiscal year, beginning on July 1, 2009. The Company is currently evaluating the provisions of EITF 07-1 and the resulting impact of adoption on its financial statements.
In October 2008, FASB issued FSP SFAS No. 157-3, Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active (“FSP 157-3”), to clarify the application of the provisions of SFAS 157 in an inactive market and how an entity would determine fair value in an inactive market. FSP 157-3 is effective immediately, and applies to the Company’s September 30, 2008 financial statements. The application of the provisions of FSP 157-3 did not materially affect the Company’s results of operations or financial condition as of and for the periods ended December 31, 2008.
In April 2008, the Financial Accounting Standards Board (FASB) Staff Position (FSP) No. 142-3, Determination of the Useful Life of Intangible Assets, was finalized. FSP No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. The Position applies to intangible assets that are acquired individually or with a group of other assets and both intangible assets acquired in business combinations and asset acquisitions. The Company is currently evaluating the provisions of FSP No. 142-3 and the resulting impact of adoption on its financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations, which replaces SFAS No. 141, Business Combinations. SFAS No. 141R establishes the principles and requirements for how an acquirer recognizes and measures the identifiable assets acquired, the liabilities assumed, the goodwill acquired and any noncontrolling interest in the acquiree. SFAS No. 141R also establishes the disclosure requirements for a business combination. The provisions of SFAS No. 141R are effective for the Company’s 2010 fiscal year, beginning on July 1, 2009. The Company is currently evaluating the provisions of SFAS No.141R and the resulting impact of adoption on its financial statements.
Also in December 2007, the FASB ratified the consensus reached by the Emerging Issues Task Force (EITF) on Issue No. 07-1, Accounting for Collaborative Arrangements. EITF 07-1 defines collaborative arrangements and establishes reporting and disclosure requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties. The provisions of EITF 07-1 are effective for the Company’s 2010 fiscal year, beginning on July 1, 2009. The Company is currently evaluating the provisions of EITF 07-1 and the resulting impact of adoption on its financial statements.
In December 2007, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 110 (“SAB 110”) which provides guidance to allow eligible public companies to continue to use a simplified method for estimating the expense of stock options if their own historical experience isn’t sufficient to provide a reasonable basis. Since we have limited experience in determining expected term of “plain vanilla” share options, we will continue to use the simplified method as discussed in SAB No. 107.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In February 2007,May 2008, the FASB issued StatementSFAS No.162, The Hierarchy of FinancialGenerally Accepted Accounting Standards No. 159, The Fair Value OptionPrinciples. SFAS 162 identifies the sources of accounting principles and the framework for Financial Assets and Financial Liabilities—Including an Amendmentselecting the principles to be used in the preparation of FASB Statement No. 115 (“financial statements of nongovernmental entities that are presented in conformity with GAAP. SFAS 159”). This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. Most162 will become effective 60 days following the SEC’s approval of the provisionsPublic Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Statement 159 are elective; however, the amendment to FASB StatementConformity With Generally Accepted Accounting Principles. SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with available-for-sale and trading securities. SFAS 159162 is effective for fiscal years beginning after November 15, 2007.2008. We are currently evaluatingassessing the impact, this adoptionif any, SFAS 162 will have on our financial statements.
In September 2006,May 2009, the FASB issued SFAS No. 157 “Fair Value Measurements.” No.165 ("SFAS No. 157 defines fair value, establishes165"), "Subsequent Events", to establish general standards of accounting for and disclosure of events which occur after the balance sheet date but before the date the financial statements are issued or available to be issued. SFAS 165 requires an entity to reflect in their financial statements the effects of subsequent events which provide additional evidence about conditions at the balance sheet date including the estimates inherent in the process of preparing financial statements. Subsequent events which provide evidence about conditions that arose after the balance sheet date should be disclosed. Disclosures should include the nature of the event and either an estimate of its financial effect or a frameworkstatement that an estimate cannot be made. SFAS 165 also requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.such date. SFAS No. 157 does not require any new fair value measurements, rather it applies under existing accounting pronouncements that require or permit fair value measurements. SFAS No. 157165 is effective for fiscal years beginninginterim and annual financial periods ending after NovemberJune 15, 2007, which will be our fiscal year 2009. We are currently evaluating the impactThe adoption of SFAS No. 157 on our financial statements.
In June 2006, the FASB issued Interpretation (FIN) No. 48 Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109 Accounting for Income Taxes. This Interpretation prescribes a recognition threshold and measurement attribute for financial statement recognition, measurement and disclosure of tax positions that a company has taken or expects to be taken on a tax return. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and transition. FIN 48 is effective for fiscal years beginning after December15, 2006, with early adoption permitted. The Company currently expects that adoption of FIN 48 will165 did not have a material effectimpact on the Company’sour consolidated financial position, and results of operations.operations and cash.
We have reviewed recent FASB pronouncements Statement No. 159, regarding the fair value option for financial assets and financial liabilities; Statement No. 141R, regarding business combinations; Statement No. 160, regarding non-controlling interests in Consolidated Financial Statements; Statement No. 161, regarding disclosures about derivative instruments and hedging activities; and FSP SFAS No. 157-3, regarding determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active (“FSP 157-3”), to clarify the application of the provisions of SFAS 157 in an inactive market and how an entity would determine fair value in an inactive market and have determined that they are not applicable.
All other issued but not yet effective accounting pronouncements have been deemed to be not applicable hence when adopted these new accounting pronouncements are not expected to have any impact on the financial position of the company.
Certain amounts in the prior period financial statements have been reclassified to conform with the current period presentation.
(3) OTHER INCOME
During the fiscal yearyears ending June 30, 2009 and 2008, the Company recorded a net total of $5,909 and $7,827, respectively, as Other Incomeincome which represents the monthly rent expense and fees we charged Bioscan Inc. During the fiscal year ending June 30, 2007, the Company sold its LILA technology to Bioscan Inc. for the sum of $250,001 which we received and recorded as Other Income.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(4) MERGER
On April 14, 1994, IDSI-Fl. acquired substantially all of the issued and outstanding shares of Alkan Corp. The transaction was accounted for as a reverse merger in accordance with Accounting Principles Board Opinion No. 16, wherein the shareholders of IDSI-Fl. retained the majority of the outstanding stock of Alkan Corp. after the merger. (see Note 17)
As reflected in the Statement of Stockholders’ Equity, the Company recorded the merger with the public shell at its cost, which was zero, since at that time the public shell did not have any assets or equity. There was no basis adjustment necessary for any portion of the merger transaction as the assets of IDSI-Fl. were recorded at their net book value at the date of merger. The 178,752 shares represent the exchange of shares between the companies at the time of merger.
As part of the transaction, the certificate of incorporation of Alkan was amended to change its name to Imaging Diagnostic Systems, Inc.
(5) GOING CONCERN
The Company is currently a development stage enterprise and our continued existence is dependent upon our ability to resolve our liquidity problems, principally by obtaining additional debt and/or equity financing. We have yet to generate a positive internal cash flow, and until significant sales of our product occur, we are mostly dependent upon debt and equity funding. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
In the event that we are unable to obtain debt or equity financing or we are unable to obtain such financing on terms and conditions acceptable to us, we may have to cease or severely curtail our operations. This would materially impact our ability to continue as a going concern. In the event that we are unable to draw on our private equity line, alternative financing would be required to continue operations. Management has been able to raise the capital necessary to reach this stage of product development and has been able to obtain funding for capital requirements to date. There is no assurance that, if and when Food and Drug Administration (“FDA”) marketing clearance is obtained, the CTLM® will achieve market acceptance or that we will achieve a profitable level of operations.
We have commenced our planned principal operations of the manufacture and sale of our sole product, the CTLM®, CT Laser Mammography System. We are continuing to appoint distributors and are installing systems under our clinical collaboration program as part of our global commercialization program. We have sold a total of 1314 systems as of June 30, 2008;2009; however, we continue to operate as a development stage enterprise because we have yet to produce significant revenues. Should additional working capital be required, the Company will obtain such capital through the use of its Sixth Private Equity Credit Agreement and other sources of financing (See Note 22). We have to create product awareness as a foundation to developing our markets through our existing distributor network and through the appointment of additional distributors and the training of their field service engineers. We would be able to exit SFAS 7 Development Stage Enterprise reporting upon having sufficient revenues for two successive quarters such that we would not have to utilize our Sixth Private Equity Credit Agreement or alternative funding sources for capital to cover our quarterly operating expenses.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(6) INVENTORIES
Inventories consisted of the following:
| | June 30, | | | June 30, | |
| | 2008 | | | 2007 | | | 2009 | | | 2008 | |
Raw materials consisting of purchased parts, components and supplies | | $ | 578,144 | | | $ | 848,254 | | | $ | 529,410 | | | $ | 578,144 | |
Work-in process including units undergoing final inspection and testing | | | 28,939 | | | | 44,058 | | | | 28,943 | | | | 28,939 | |
Finished goods | | | 448,086 | | | | 878,844 | | | | 377,114 | | | | 448,086 | |
| | | | | | | | | | | | | | | | |
Sub-Total Inventories | | $ | 1,055,169 | | | $ | 1,771,156 | | | $ | 935,467 | | | $ | 1,055,169 | |
| | | | | | | | | | | | | | | | |
Less Inventory Reserve | | | (408,000 | ) | | | (408,000 | ) | | | (408,000 | ) | | | (408,000 | ) |
| | | | | | | | | | | | | | | | |
Total Inventory - Net | | $ | 647,169 | | | $ | 1,363,156 | | | $ | 527,467 | | | $ | 647,169 | |
We review our Inventory for parts that have become obsolete or in excess of our manufacturing requirements and our Finished Goods for valuation pursuant to our Critical Accounting Policy for Inventory. For the fiscal year ending June 30, 2009, we reclassified the net realizable value of $8,591 as this CTLM® system is being used as a clinical system at the University of Florida. For the fiscal year ending June 30, 2008 since such finished goods are being utilized for collecting data for the PMA, we reclassified the net realizable value of $311,252 of CTLM® systems in Inventory to Clinical equipment. For the fiscal year ending June 30, 20072009 we had identified $408,000 of Inventory that we deem impaired due to the lack of inventory turnover.
(7) PROPERTY AND EQUIPMENT
The following is a summary of property and equipment, less accumulated depreciation:
| | June 30, | | | June 30, | |
| | 2008 | | | 2007 | | | 2009 | | | 2008 | |
Furniture and fixtures | | $ | 262,264 | | | $ | 262,264 | | | $ | 257,565 | | | $ | 262,264 | |
Building and land (See Note 8) | | - | | | | 2,092,529 | | | | - | | | | - | |
Computers, equipment and software | | 425,642 | | | | 416,849 | | | | 426,873 | | | | 425,642 | |
CTLM® software costs | | 352,932 | | | | 352,932 | | | | 352,932 | | | | 352,932 | |
Trade show equipment | | 298,400 | | | | 298,400 | | | | 298,400 | | | | 298,400 | |
Clinical equipment | | 432,346 | | | | 121,094 | | | | 440,937 | | | | 432,346 | |
Laboratory equipment | | | 212,560 | | | | 212,560 | | | | 212,560 | | | | 212,560 | |
| | | | | | | | | | | | | | | | |
Total Property & Equipment | | 1,984,144 | | | | 3,756,628 | | | | 1,989,267 | | | | 1,984,144 | |
Less: accumulated depreciation | | | (1,489,068 | ) | | | (1,725,833 | ) | | | (1,657,236 | ) | | | (1,489,068 | ) |
| | | | | | | | | | | | | | | | |
Total Property & Equipment - Net | | $ | 495,076 | | | $ | 2,030,795 | | | $ | 332,031 | | | $ | 495,076 | |
For the fiscal year ending June 30, 2009, we reclassified the net realizable value of $8,591 of CTLM® systems in Inventory to Clinical equipment as this CTLM® system is being used as a clinical system at the University of Florida.
For the fiscal year ending June 30, 2008, we reclassified the net realizable value of $311,252 of CTLM® systems in Inventory to Clinical equipment as these CTLM® systems continue to be used as clinical systems associated with the data collection for our PMA application with the FDA which we plan to submit to the FDA in December 2008.
For the fiscal year ending June 30, 2007, we reclassified the net realizable value of $121,094 of CTLM® systems in Inventory to Clinical equipment as these CTLM® systems continue to be used as product demonstrators and for international clinical collaboration.
The estimated useful lives of property and equipment for purposes of computing depreciation and amortization are:
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
The estimated useful lives of property and equipment for purposes of computing depreciation and amortization are:
(7) PROPERTY AND EQUIPMENT (Continued)
| Furniture, fixtures, clinical, computers, laboratory | |
| equipment and trade show equipment | 5-7 years |
| Building | 40 years |
| CTLM® software costs | 5 years |
Telephone equipment, acquired under a long-term capital lease at a cost of $50,289, is included in furniture and fixtures. The CTLM® software is fully amortized.
(8) SALE/LEASE-BACK OF BUILDING
On March 31, 2008, we closed the sale of our commercial building at 6531 NW 18th Court, Plantation, Florida for $4.4 million to Bright Investments LLC (“Bright”), an unaffiliated third-party and a sister company to Superfun B.V. Pursuant to FAS-98, we recorded the sale, removed the sold property and its related liabilities from the Balance Sheet and deferred the gain over the five year term of the operating lease in accordance with the provisions of FAS-13 amended by FAS-28. We computed the amount of gain on the sale portion of the sale/lease-back in accordance with the provisions of FAS-66. In this regard, we recorded a gain of $1,609,525 and recorded a deferred gain of $1,040,000, which is the present value of the lease payments over the five year term of the lease. We will amortize the deferred gain in proportion to the gross rental charged to expense over the lease term. The lease provided a six-month rent holiday with rent payments commencing on September 14, 2008. To account for the rent holiday, we recorded $13,935 for Rent Expense and accrued that amount as a deferred rent liability. From April 1st to September 14th, we will continue to record rent expense of $24,000 per month and accrue that amount as a deferred rent liability. The $144,000 deferred rent liability will be amortized on a straight-line basis over the lease term.
On April 29, 2008, as part of our cost saving initiatives, we gave six months prior written notice of termination of our lease of our Plantation, Florida facility. On June 2, 2008, we executed a Business Lease Agreement with Ft. Lauderdale Business Plaza Associates, an unaffiliated third-party, for 9,870 square feet of commercial office and manufacturing space at 5307 NW 35th Terrace, Ft. Lauderdale, Florida. (See Note 14 - Leases)
(9) INTANGIBLE ASSETS
Intangible assets consist of the following:
| | June 30, | |
| | 2008 | | | 2007 | |
| | | | | | |
Patent license agreement, net of accumulated | | | | | | |
amortization of $341,765 and $307,588 respectively | | $ | 239,235 | | | $ | 273,412 | |
UL & CE approvals, net of accumulated amortization of $8,225 | | | | | | | | |
and $8,225 respectively | | | - | | | | - | |
| | | | | | | | |
Totals | | $ | 239,235 | | | $ | 273,412 | |
| | June 30, | |
| | 2009 | | | 2008 | |
| | | | | | |
Patent license agreement, net of accumulated | | | | | | |
amortization of $375,941 and $341,765 respectively | | $ | 205,059 | | | $ | 239,235 | |
| | | | | | | | |
Totals | | $ | 205,059 | | | $ | 239,235 | |
During June 1998, the Company signed an exclusive Patent License Agreement with its former chief executive officer. (See Note 22) The officer was the originator of patents issued on December 2, 1997 which covers some of the technology of the CTLM®. Pursuant to the terms of the agreement, the Company was granted the exclusive right to modify, customize, maintain, incorporate, manufacture, sell, and otherwise utilize and practice the Patent, all improvements thereto and all technology related to the process, throughout the world. The license shall apply to any extension or re-issue of the Patent. The term of license is for the life of the Patent and any renewal thereof, subject
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(9) INTANGIBLE ASSETS (Continued)
to termination, under certain conditions. As consideration for the License, the Company issued to the officer 7,000,000 shares of common stock (See Note 18). The License agreement has been recorded at the historical cost basis of the chief executive officer, who owned the patent. The amortization expense for the year ended June 30, 2008 for the patent license agreement is $34,176, with a balance to be amortized over the remaining life of the patent which is seven (7) years. We will review the value of this patent and test it for impairment on an annual basis. No impairment of this intangible asset was identified for the fiscal year ending June 30, 2008.
The core costs of obtaining the initial UL and CE approvals have an indefinite life, and intangible assets having an indefinite life are not amortized at the point of acquisition or subsequent to point of acquisition in accordance with the guidance of SFAS 142. We recorded the initial costs of these systems and protocols as an intangible asset with an indefinite life because we believed that the costs of obtaining them applied to our Company’s entire functional process including manufacturing, labeling and compliance. We followed the guidance provided in a paradigm, Figure 23-1: Summary of Accounting for Intangible Assets by SFAS 142, in which questions are asked relative to indefinite life, asset impairment and whether assumption of indefinite life is still valid.
(10) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
| | June 30, | | | June 30, | |
| | 2008 | | | 2007 | | | 2009 | | | 2008 | |
| | | | | | | | | | | | |
Accounts payable - trade | | $ | 658,524 | | | $ | 329,391 | | | $ | 1,194,964 | | | $ | 658,524 | |
Accrued property taxes payable | | 30,819 | | | | 30,819 | | | | 30,819 | | | | 30,819 | |
Accrued compensated absences | | 47,409 | | | | 138,868 | | | | 46,368 | | | | 47,409 | |
Accrued wages payable | | 21,855 | | | | - | | | | 583,896 | | | | 21,855 | |
Other accrued expenses | | | 41,461 | | | | 86,913 | | | | 138,173 | | | | 41,461 | |
| | | | | | | | | | | | | | | | |
Totals | | $ | 800,068 | | | $ | 585,991 | | | $ | 1,994,220 | | | $ | 800,068 | |
(11) CUSTOMER DEPOSITS
Customer deposits consisted of the following:
| | June 30, | | | June 30, | |
| | 2008 | | | 2007 | | | 2009 | | | 2008 | |
| | | | | | | | | | | | |
Customer deposits | | $ | 126,114 | | | $ | 88,114 | | | $ | 96,114 | | | $ | 126,114 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 126,114 | | | $ | 88,114 | | | $ | 96,114 | | | $ | 126,114 | |
Deposits received from customers are identified and accounted for as customer deposits and are presented as both a current asset and an offsetting current liability on our balance sheet. In the event of a cancellation or termination of a customers’ order, the deposit is refunded less any fees previously agreed to.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(12) SHORT-TERM DEBT
Short-term debt consisted of the following:
| | June 30, | |
| | 2008 | | | 2007 | |
| | | | | | |
Loan payable | | $ | - | | | $ | 250,000 | |
| | | | | | | | |
Total | | $ | - | | | $ | 250,000 | |
The Company executed a promissory note dated June 27, 2007 for $250,000 from Charlton Avenue. LLC., which was repaid in full on August 2, 2007. The Company has no other short-term debt.
(13) EQUITY LINE OF CREDIT
On August 17, 2000 the Company finalized a financing agreement with a private institutional equity investor, which contained two component parts, a $25 million Private Equity Agreement and a private placement of 500 shares of Series K convertible preferred stock as bridge financing in the amount of $5,000,000 (See Note 15). The Private Equity Agreement committed the investor to purchase up to $25 million of common stock subject to certain conditions pursuant to Regulation D over the course of 12 months after an effective registration of the shares. The timing and amounts of the purchase by the investor were at the sole discretion of the Company. However, they were required to draw down a minimum of $10 million from the credit line over the twelve-month period. The purchase price of the shares of common stock was set at 91% of the market price. The market price, as defined in the agreement, was the average of the three lowest closing bid prices of the common stock over the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche.
On May 15, 2002, the Company entered into a second private equity agreement, which replaced the original Private Equity Agreement. The terms of the second Private Equity Agreement were substantially equivalent to the terms of the original agreement, except that (i) the commitment period was three years from the effective date of a registration statement covering the second Private Equity Agreement shares, (ii) the minimum amount required to be drawn through the end of the commitment period was $2,500,000, (iii) the minimum stock price requirement was reduced to $.20, and (iv) the minimum average trading volume was reduced to $40,000.
On October 29, 2002, the Company entered into a new “Third Private Equity Credit Agreement” which the Company intended to supplement the second Private Equity Agreement. The terms of the Third Private Equity Credit Agreement were substantially equivalent to the terms of the prior agreement, in that (i) the commitment period was three years from the effective date of a registration statement covering the Third Private Equity Credit Agreement shares, (ii) the maximum commitment was $15,000,000, (iii) the minimum amount required to be drawn through the end of the commitment period was $2,500,000, (iv) the minimum stock price requirement was reduced to $.10, and (v) the minimum average trading volume in dollars was reduced to $20,000.
On January 9, 2004, the Company entered into a new “Fourth Private Equity Credit Agreement” which replaced the prior private equity agreements. The terms of the Fourth Private Equity Credit Agreement were more favorable to the Company than the terms of the prior Third Private Equity Credit Agreement. The new, more favorable terms were: (i) The put option price was 93% of the three lowest closing bid prices in the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche, while the prior Third Private Equity Credit Agreement provided for 91%, ii) the commitment period was two years from the effective date of a registration statement covering the Fourth Private Equity Credit Agreement shares, while the prior Third Private Equity Credit Agreement was for three years, (iii) the maximum commitment was $15,000,000, (iv) the minimum amount the Company was required to draw through the end of the commitment period was $1,000,000, while the prior Third Private Equity Credit Agreement minimum amount was $2,500,000, (v) the minimum stock price requirement was controlled by the Company as it had the option of setting a floor price for
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(13)(12) EQUITY LINE OF CREDIT (Continued)
each put transaction (the previous minimum stock price in the Third Private Equity Credit Agreement was fixed at $.10), (vi) there were no fees associated with the Fourth Private Equity Credit Agreement; the prior private equity agreements required the payment of a 5% consulting fee, which was subsequently lowered to 4% by mutual agreement in September 2001, and (vii) the elimination of the requirement of a minimum average daily trading volume in dollars. The previous trading volume requirement in the Third Private Equity Credit Agreement was $20,000.
On March 21, 2006, the Company and Charlton entered into a new “Fifth Private Equity Credit Agreement,” which replaced the Company’s prior Fourth Private Equity Credit Agreement upon the April 25, 2006, effectiveness of our S-1 Registration Statement filed on March 23, 2006 to register shares underlying the Fifth Private Equity Credit Agreement. The terms of the Fifth Private Equity Credit Agreement are similar to the terms of the prior Fourth Private Equity Credit Agreement. The new credit line’s material terms are (i) The put option price is 93% of the three lowest closing bid prices in the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche (the “Valuation Period”), (ii) the commitment period is two years from the effective date of a registration statement covering the Fifth Private Equity Credit Agreement shares, (iii) the maximum commitment is $15,000,000, (iv) the minimum amount the Company must draw through the end of the commitment period is $1,000,000, (v) the minimum stock price, also known as the floor price is computed as follows: In the event that, during a Valuation Period, the Bid Price on any Trading Day falls more than 18% below the closing trade price on the trading day immediately prior to the date of the Company’s Put Notice (a “Low Bid Price”), for each such Trading Day the parties shall have no right and shall be under no obligation to purchase and sell one tenth of the Investment Amount specified in the Put Notice, and the Investment Amount shall accordingly be deemed reduced by such amount. In the event that during a Valuation Period there exists a Low Bid Price for any three Trading Days—not necessarily consecutive—then the balance of each party’s right and obligation to purchase and sell the Investment Amount under such Put Notice shall terminate on such third Trading Day (“Termination Day”), and the Investment Amount shall be adjusted to include only one-tenth of the initial Investment Amount for each Trading Day during the Valuation Period prior to the Termination Day that the Bid Price equals or exceeds the Low Bid Price and (vi) there are no fees associated with the Fifth Private Equity Credit Agreement. The conditions to the Company’s ability to draw under this private equity line, as described above, may materially limit the draws available to the Company.
These financing agreements have had no warrants attached to either the bridge financing or the private equity line. Furthermore, the Company was not required to pay the investor’s legal fees, but the Company previously paid a 5% consulting fee for the money funded in all prior transactions up until the approval of the Fourth Private Equity Credit Agreement. The Company sold $2,840,000 of common stock under the terms of the initial private equity agreement during the year ended June 30, 2001. The total shares issued by the Company amounted to 3,407,613. The Company incurred $139,985 of consulting fees and recorded $303,666 of deemed interest expense as a result of the 9% discount off of the market price. During the year ended June 30, 2002, an additional $5,585,000 of common stock was sold under the terms of the applicable equity credit line agreement, and the Company issued a total of 11,607,866 shares of common stock. The Company incurred $296,250 of consulting fees and recorded $628,805 of deemed interest expense as a result of the 9% discount off of the market price. During the year ended June 30, 2003, an additional $7,881,000 of common stock was sold under the terms of the applicable equity credit line agreement, and the Company issued a total of 29,390,708 shares of common stock. The Company incurred $211,800 of consulting fees and recorded $856,772 of deemed interest expense as a result of the 9% discount off of the market price. During the year ended June 30, 2004, an additional $5,850,000 of common stock was sold under the terms of the equity credit line agreements, and the Company issued a total of 8,630,819 shares of common stock. The Company incurred $188,000 of consulting fees which was solely from the Third Private Equity Credit Agreement and recorded a total of $691,701 of deemed interest expense of which $555,897 is a result of the 9% discount off the market price under the Third Private Equity Credit Agreement and $135,804 is a result of the 7% discount off the market price under the Fourth Private Equity Credit Agreement. During the year ended June 30, 2005, an additional $7,204,370 of common stock was sold under the terms of the Fourth Private Equity Credit Agreement and the Company issued a total of 26,274,893 shares of common stock. The Company recorded a total of $593,437 of deemed interest expense as a result of the 7% discount off the market price under the Fourth Private Equity Credit Agreement.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(13)(12) EQUITY LINE OF CREDIT (Continued)
During the year ended June 30, 2006, an additional $6,844,171 of common stock was sold under the terms of the equity credit line agreements, and the Company issued a total of 47,776,064 shares of common stock. The Company recorded a total of $565,372 of deemed interest expense as a result of the 7% discount off the market price under the Fourth Private Equity Credit Agreement and Fifth Private Equity Credit Agreement.
During the year ended June 30, 2007, an additional $4,192,717 of common stock was sold under the terms of the Fifth Private Equity Credit Agreement and the Company issued a total of 63,861,405 shares of common stock. The Company recorded a total of $367,698 of deemed interest expense as a result of the 7% discount off the market price under the Fifth Private Equity Credit Agreement.
On April 21, 2008, we and Charlton entered into a new “Sixth Private Equity Credit Agreement” which has replaced our prior Fifth Private Equity Credit Agreement. The terms of the Sixth Private Equity Credit Agreement are similar to the terms of the prior Fifth Private Equity Credit Agreement. This new credit line’s terms are (i) The put option price is 93% of the three lowest closing bid prices in the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche (the “Valuation Period”), (ii) the commitment period is three years from the effective date of a registration statement covering the Sixth Private Equity Credit Agreement shares, (iii) the maximum commitment is $15,000,000, (iv) There is no minimum commitment amount, (v) the minimum stock price, also known as the floor price is computed as follows: In the event that, during a Valuation Period, the Bid Price on any Trading Day falls more than 20% below the closing trade price on the trading day immediately prior to the date of the Company’s Put Notice (a “Low Bid Price”), for each such Trading Day the parties shall have no right and shall be under no obligation to purchase and sell one tenth of the Investment Amount specified in the Put Notice, and the Investment Amount shall accordingly be deemed reduced by such amount. In the event that during a Valuation Period there exists a Low Bid Price for any three Trading Days—not necessarily consecutive—then the balance of each party’s right and obligation to purchase and sell the Investment Amount under such Put Notice shall terminate on such third Trading Day (“Termination Day”), and the Investment Amount shall be adjusted to include only one-tenth of the initial Investment Amount for each Trading Day during the Valuation Period prior to the Termination Day that the Bid Price equals or exceeds the Low Bid Price and (vi) there are no fees associated with the Sixth Private Equity Credit Agreement. The conditions to our ability to draw under this private equity line, as described above, may materially limit the draws available to us.
During the year ended June 30, 2008, an additional $275,000 of common stock was sold under the terms of the Fifth Private Equity Credit Agreement and the Company issued a total of 7,726,647 shares of common stock. The Company recorded a total of $23,782 of deemed interest expense as a result of the 7% discount off the market price under the Fifth Private Equity Credit Agreement.
During the year ended June 30, 2008, an additional $215,000 of common stock was sold under the terms of the Sixth Private Equity Credit Agreement and the Company issued a total of 6,252,783 shares of common stock. The Company recorded a total of $16,665 of deemed interest expense as a result of the 7% discount off the market price under the FifthSixth Private Equity Credit Agreement.
During the year ended June 30, 2009, an additional $1,530,173 of common stock was sold under the terms of the Sixth Private Equity Credit Agreement and the Company issued a total of 158,747,217 shares of common stock. The Company recorded a total of $144,713 of deemed interest expense as a result of the 7% discount off the market price under the Sixth Private Equity Credit Agreement.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(13) LEASES
The Company leases certain office equipment under capital leases expiring in future years. Minimum future lease payments under the non-cancelable operating lease having a remaining term in excess of one year as of June 30, 20082009 are as follows:
Total rent expense for capital leases amounted to $6,144, $5,239, $7,749, and $9,090$7,749 for the years ended June 30, 2009, 2008 2007 and 2006,2007, respectively, and $371,726$377,870 from inception (December 10, 1993) to June 30, 2008.2009.
Total rent expense for operating leases amounted to $208,122, $85,935, $0 and $0 for the years ended June 30, 2009, 2008 2007 and 2006,2007, respectively, and $85,935$294,057 from inception (December 10, 1993) to June 30, 2008.
| | Payments Due by Fiscal Year | |
| | | | | | | | | | | | | | | | | | |
| | Total | | | 2010 | | | 2011 | | | 2012 | | | 2013 | | | 2014 | |
Capital Lease Obligations | | $ | 10,597 | | | $ | 3,888 | | | $ | 3,888 | | | $ | 2,821 | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating Lease - | | $ | 35,507 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
Bright Investments, LLC | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating Lease – | | $ | 552,467 | | | $ | 127,414 | | | $ | 132,489 | | | $ | 137,773 | | | $ | 143,273 | | | $ | 11,518 | |
Fort Lauderdale Business | | | | | | | | | | | | | | | | | | | | | | | | |
Plaza Associates | | | | | | | | | | | | | | | | | | | | | | | | |
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(14) LEASES (Continued)
| | Payments Due by Fiscal Year | |
| | | | | | | | | | | | | | | | | | |
| | Total | | | 2009 | | | 2010 | | | 2011 | | | 2012 | | | 2013 | |
Capital Lease Obligations | | $ | 14,485 | | | $ | 3,888 | | | $ | 3,888 | | | $ | 3,888 | | | $ | 2,821 | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating Lease - | | $ | 38,160 | | | $ | 38,160 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
Bright Investments, LLC | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating Lease – | | $ | 643,392 | | | $ | 102,442 | | | $ | 127,414 | | | $ | 132,489 | | | $ | 137,773 | | | $ | 143,273 | |
Fort Lauderdale Business | | | | | | | | | | | | | | | | | | | | | | | | |
Plaza Associates | | | | | | | | | | | | | | | | | | | | | | | | |
Operating Lease – Bright Investments, LLC
On September 13, 2007, we entered into an agreement with an unaffiliated third-party for the sale and lease-back of our property at 6531 N.W. 18th Court, Plantation, Florida. On March 31, 2008, we closed the sale of our commercial building for $4.4 million to Bright Investments LLC, an unaffiliated third-party and a sister company to Superfun B.V. Terms of the triple net lease were five years with the first monthly rent payment due six months from the commencement date of the lease. The monthly rent for the base year is $24,000 plus applicable sales tax. During the term and any renewal term of the lease, the minimum annual rent shall be increased each year. Commencing with the first day of the second lease year and on each lease year anniversary thereafter, the minimum annual rent shall be cumulatively increased by $24,000 per each lease year or $2,000 per month plus applicable sales tax. Either party may cancel the lease without penalty or fault upon 180 days prior notice given to the other party. On April 29, 2008, we gave six months prior written notice of termination of our lease of our Plantation, Florida facility as part of our cost cutting initiatives.
The lease provided a six-month rent holiday with rent payments commencing on September 14, 2008. To account for the rent holiday, we recorded $13,935 for Rent Expense and accrued that amount as a deferred rent liability. From April 1st to September 14th, we will continue to record rent expense of $24,000 per month and accrue that amount as a deferred rent liability. The $144,000 deferred rent liability will be amortized on a straight-line basis over the lease term. We vacated the Plantation premises in August and on September 30, 2008 we accelerated the $1,040,000 gain on the sale of the building and we accelerated the amortization of the deferred rent liability of $144,193.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(13) LEASES (Continued)
Operating Lease – Fort Lauderdale Business Plaza Associates
On June 2, 2008, the Company executed a Business Lease Agreement with Ft. Lauderdale Business Plaza Associates, an unaffiliated third-party, for 9,870 square feet of commercial office and manufacturing space at 5307 NW 35th Terrace, Ft. Lauderdale, Florida. The term of the lease is five years and one month with the first monthly rent payment due September 1, 2008 with an option to renew for one additional period of three years. The monthly base rent for the initial year is $6,580.00$6,580 plus applicable sales tax. During the term and any renewal term of the lease, the base annual rent shall be increased each year. Commencing with the first day of August 2009 and each year thereafter, the base annual rent shall be cumulatively increased by 3.5% each lease year plus applicable sales tax. IDSI will also be obligated to pay as additional rent its pro-rata share of all common area maintenance expenses which is estimated to be $3,084.37$3,084 per month for the first 12 months of the lease. The total monthly rent including Florida sales tax for the first 12 months is $10,244.23.$10,244. Upon the execution of the lease, we paid the first month’s rent of $10,244.23$10,244 and a security deposit of $13,160.00.$13,160. The Lease Agreement is attached as Exhibit 10.84.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(15)(14) INCOME TAXES
No provision for income taxes has been recorded in the accompanying financial statements as a result of the Company's net operating losses. The Company has unused tax loss carryforwards of approximately $80,000,000 to offset future taxable income. Such carryforwards expire in years beginning 2014 through 2028.2029. There would be no limitation as to the utilization of the net operating losses in future years resulting from the issuance of additional common stock during the fiscal year ended June 30, 2009 and 2008. The deferred tax asset recorded by the Company as a result of these tax loss carryforwards is approximately $30,400,000$29,200,000 and $28,724,000$27,700,000 at June 30, 20082009 and 2007,2008, respectively. The Company has reduced the deferred tax asset resulting from its tax loss carryforwards by a valuation allowance of an equal amount as the realization of the deferred tax asset is uncertain. The net change in the deferred tax asset and valuation allowance from July 1, 2007 to June 30, 2008 was an increase of approximately $1,676,000.$2,360,000 and increase of $1,500,000 for the year ended June 30, 2009. The reconciliation of income tax computed at the U.S. federal statutory rate of 35% and the state rate net of federal benefit of 3%, has been offset by permanent differences relating to stock option expense and the discount recorded on the equity lines of creditdebt in the amount of 15% per annum6%, 3% and 3% for fiscal 2009, 2008, 2007 and by a full valuation allowance against the related net operating loss for each of the respective years then ended.
(15) CONVERTIBLE DEBENTURES
On August 1, 2008, we entered into a Securities Purchase Agreement (the “Initial Purchase Agreement”) with an unaffiliated third party, Whalehaven Capital Fund Limited (“Whalehaven”), relating to a private placement (the “Initial Private Placement”) of a total of up to $800,000 in principal amount of one-year 8% Senior Secured Convertible Debentures (the “Initial Debentures”). We were required to file within 30 days an S-1 Registration Statement (the “Registration Statement”) covering the shares of common stock underlying the Initial Debentures and related Warrants pursuant to the terms of a Registration Rights Agreement dated August 1, 2008, between IDSI and Whalehaven; however, with Whalehaven’s consent, we were permitted to file the Registration Statement promptly after the filing of our Annual Report on Form 10-K.
The Initial Purchase Agreement provided for the sale of the Initial Debentures in two closings. The first closing, which occurred on August 4, 2008, was for a principal amount of $400,000. The second closing would be for up to $400,000 and would occur within the earlier of five business days following the effective date of the Registration Statement and December 1, 2008, provided that the closing conditions in the Initial Purchase Agreement have been met. We retained the option to use our existing equity credit line until the Registration Statement is declared effective. Sales under the Initial Purchase Agreement were subject to an 8% placement agent fee. Thus, the first closing generated proceeds to IDSI of $368,000, before normal transaction costs.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(15) CONVERTIBLE DEBENTURES (Continued)
Prior to maturity, the Initial Debentures bear interest at the rate of 8% per annum, payable quarterly in cash or, at our option, in shares of common stock based on the then-existing market price provided that we are in compliance with the Initial Purchase Agreement.
The Initial Debentures may be converted in whole or in part at the option of the holder any time after the closing date into our Common Stock at the lesser of (i) a set price, initially $.019 per share, which was the closing price of our shares on the closing date (“fixed conversion price”) or (ii) 80% of the 3 lowest bid prices during the 10 consecutive trading days immediately preceding a conversion date; however, the terms of each Initial Debenture prevent the holder from converting the Debenture to the extent that the conversion would result in the holder and its affiliates beneficially owning more than 4.99% of the outstanding shares of our common stock; however, the limit may be increased to 9.99% on 61 days prior written notice from the holder.
At any time after closing, we may redeem for cash, upon written notice, any and all of the outstanding Initial Debentures at a 25% premium of the principal amount plus accrued and unpaid interest on the Initial Debentures to be redeemed.
The Initial Debentures are secured by a pledge of substantially all of our assets pursuant to a Security Agreement dated August 1, 2008, between IDSI and Whalehaven.
Pursuant to the first closing of the Initial Private Placement, we issued to Whalehaven five-year Warrants to purchase 22,222,222 shares of our common stock. The exercise price of these Warrants was $0.0228, i.e., 120% of the market price on the closing date. The Warrants are subject to cashless exercise at Whalehaven’s option.
The placement agent was entitled to receive a Warrant to purchase common stock equal to 12% of Whalehaven’s Warrants with an exercise price equal to Whalehaven’s exercise price. Consequently, a Warrant to purchase 2,666,666 shares was issued to the placement agent based on the first closing.
On October 23, 2008, we entered into an Amendment Agreement (the “Amendment”) with Whalehaven relating to the Initial Purchase Agreement, and the Initial Debenture due August 1, 2009, in the principal amount of $400,000 issued by us to Whalehaven pursuant to the Initial Purchase Agreement. The Amendment provided that the minimum conversion price would be $.013 per share and that the contemplated second closing for another $400,000 debenture would be abandoned. Consequently, no debenture or warrants would be issued beyond the securities issued in connection with the first closing, as the total facility amount was limited to $400,000.
On November 12, 2008, our Registration Statement relating to the Initial Debenture was declared effective. On November 20, 2008, we entered into a Securities Purchase Agreement with two unaffiliated third parties, Whalehaven and Alpha Capital Anstalt (“Alpha”), relating to a private placement (the “New Private Placement”) of $400,000 in principal amount of one-year 8% Senior Secured Convertible Debentures (the “New Debentures”). We were required to file a Registration Statement covering the shares of common stock underlying the New Debentures, including any shares payable as interest, pursuant to the terms of a Registration Rights Agreement dated November 20, 2008, between IDSI and Whalehaven and Alpha promptly following our annual meeting of shareholders, which was held on December 29, 2008. At the meeting the shareholders voted to approve an amendment to our articles of incorporation to increase the authorized shares from 450,000,000 to 950,000,000 (the “Share Amendment”). We were required to use commercially reasonable efforts to cause a Registration Statement to be declared effective as promptly as practicable and no later than 75 days after filing. In the case of a review by the Securities and Exchange Commission the effectiveness date deadline extended to 120 days. In the absence of timely filing or effectiveness, we would be subject to customary liquidated damages.
The New Private Placement generated gross proceeds of $368,000 after payment of an 8% placement agent fee but before other expenses associated with the transaction.
Prior to maturity, the New Debentures bear interest at the rate of 8% per annum, payable quarterly in cash or, at the Company’s option, in shares of common stock based on the then-existing market price.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(15) CONVERTIBLE DEBENTURES (Continued)
The New Debentures may be converted in whole or in part at the option of the holder any time after the shareholders have voted to approve the Share Amendment at the lesser of (i) a set price, initially $.033 (the closing price of the shares on the closing date) or (ii) 80% of the 3 lowest bid prices during the 10 consecutive trading days immediately preceding a conversion date; provided, however, that the Conversion Price is subject to a floor price, initially $0.013, and provided further however, that the terms of each Initial Debenture prevent the holder from converting the Debenture to the extent that the conversion would result in the holder and its affiliates beneficially owning more than 4.99% of the outstanding shares of our common stock; however, the limit may be increased to 9.99% on 61 days prior written notice from the holder.
After the effectiveness of the Registration Statement, we may redeem for cash, upon written notice, any and all of the outstanding Debentures at a 25% premium of the principal amount plus accrued and unpaid interest on the Debentures to be redeemed.
The New Debentures are secured by a pledge of substantially all of our assets pursuant to a Security Agreement dated November 20, 2008 between IDSI and Whalehaven and Alpha. This security interest is pari passu with the security interest granted to Whalehaven on August 1, 2008, in connection with the Company’s sale of the $400,000 Initial Debenture to Whalehaven..
In November 2008, Whalehaven converted $160,000 principal amount of the Initial Debenture and received 9,206,065 shares of our common stock as a result. On November 26, 2008, Whalehaven sold to Alpha $50,000 principal amount of the Initial Debenture and the right to purchase 5,555,555 shares underlying the Warrant. As a result of this transaction, the Warrant for 22,222,222 shares was replaced by a warrant held by Whalehaven covering 16,666,667 shares (the "Whalehaven Warrant") and a warrant held by Alpha covering 5,555,555 shares (the "Alpha Warrant") (collectively, the "Warrants").
On December 10, 2008, we entered into an Amendment Agreement with Whalehaven and Alpha relating to the Warrants. Under this Amendment Agreement, we agreed to reduce the exercise price of the Warrants to $.015 per share in exchange for the Purchasers' agreement to immediately exercise the Warrants as to 7,000,000 shares (5,000,000 covered by the Whalehaven Warrant and 2,000,000 covered by the Alpha Warrant). We used the $105,000 proceeds from the warrant exercise for working capital.
On December 15, 2008, Alpha converted $15,000 principal amount of its Initial Debenture and received 1,052,628 shares of our common stock as a result.
We entered into a second Amendment Agreement dated as of December 31, 2008, with Whalehaven and Alpha relating to the Warrants. Under this Amendment Agreement, we agreed to reduce the exercise price of the Warrants to $.005 per share in exchange for the Purchasers' agreement to immediately exercise the Warrants as to 14,755,555 shares (11,200,000 by Whalehaven and 3,555,555 by Alpha). We further agreed to issue new Warrants to purchase at $.005 per share up to a number of shares of Common Stock equal to the number of shares underlying the existing Warrants being exercised by Whalehaven and Alpha under the second Amendment Agreement.
In December 2008 we received $56,000, and in January 2009 we received $17,778 in proceeds from these Warrant exercises, we used the proceeds for working capital.
After the issuance of shares pursuant to Whalehaven’s Notice of Exercise of its Warrant and subsequent issuance of new Warrants, they have a balance of 11,666,667 shares available for exercise. After the issuance of shares pursuant to Alpha’s Notice of Exercise of its Warrant and subsequent issuance of new Warrants, they have a balance of 3,555,555 shares available for exercise.
We entered into a third Amendment Agreement dated as of March 20, 2009, with Whalehaven and Alpha. This Amendment Agreement pertains to a request by the Company to the Holders that they agree to a suspension of the Company’s obligations under the Registration Rights Agreements for both the Initial and New Debentures. In consideration for such suspensions, the Company agreed to an adjustment in the conversion price for both debentures whereby the floor price was reduced from $0.013 to $0.005 and the set price was reduced from $0.019 to
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(15) CONVERTIBLE DEBENTURES (Continued)
$0.01. The new formula for determining the conversion price on any Conversion Date shall be equal to the lesser of (a) $0.01, subject to certain standard adjustments (the “Set Price”) and (b) 80% of the average of the 3 lowest Closing Prices during the 10 Trading Days immediately prior to the applicable Conversion Date (subject to adjustments) (the “Conversion Price”); provided, however, that the Conversion Price shall in no event be less than $0.005 (subject to certain standard adjustments).
As of the June 30, 2009, Whalehaven has sold to Alpha a total of $100,000 principal amount of the August Debenture and received from Alpha a total of $50,000 principal amount of the November Debenture, which it had acquired from Alpha on March 17, 2009 in connection with the sale of $50,000 of the August Debenture to Alpha. Whalehaven now holds a principal amount of $250,000 in the November Debenture. Whalehaven also holds Warrants to purchase 11,666,667 shares of common stock at an exercise price of $0.005.
As of the June 30, 2009, Whalehaven has converted the $300,000 of the August Debenture which it did not sell to Alpha and has received 36,841,918 shares as a result. Whalehaven has converted $181,000 of the November Debenture and has received 37,803,364 shares as a result. Whalehaven holds a principal amount of $69,000 in the November Debenture.
As of the June 30, 2009, Alpha has converted $100,000 of the August Debenture and received 17,313,265 shares as a result. Alpha holds a principal amount of $150,000 in the November Debenture. Alpha also holds Warrants to purchase 3,555,555 shares of common stock at an exercise price of $0.005.
(16) REDEEMABLE CONVERTIBLE PREFERRED STOCK
On March 17, 1999, the Company finalized the private placement to foreign investors of 35 shares of its Series G Redeemable Convertible Preferred Stock at a purchase price of $10,000 per share and two year warrants to purchase 65,625 shares of the Company’s common stock at an exercise price of $.50 per share. The agreement was executed pursuant to Regulation D as promulgated by the Securities Act of 1933, as amended. A total of 43,125 warrants were exercised during the year ended June 30, 2000, and an additional 9,375 warrants were exercised during the year ended June 30, 2001.
The Series G Preferred Stock had no dividend provisions. The preferred stock was convertible, at any time, for a period of two years thereafter, in whole or in part, without the payment of any additional consideration, into fully paid and nonassessable shares of the Company’s no par value common stock based upon the “conversion formula”. The conversion formula stated that the holder of the Series G Preferred Stock would receive shares determined by dividing (i) the sum of $10,000 by the (ii) “Conversion Price” in effect at the time of conversion. The “Conversion Price” shall be equal to the lesser of $.54 or seventy-five percent (75%) of the Average Closing Price of the Company’s common stock for the ten-day trading period ending on the day prior to the date of conversion.
In connection with the sale, the Company issued three preferred shares to an unaffiliated investment banker for placement and legal fees, providing net proceeds to the Company of $350,000. The shares underlying the preferred shares and warrant are entitled to demand registration rights under certain conditions.
Pursuant to the Registration Rights Agreement (“RRA”) the Company was required to register 100% of the number of shares that would be required to be issued if the Preferred Stock were converted on the day before the filing of the S-2 Registration Statement. In the event the Registration Statement was not declared effective within 120 days, the Series G Holders had the right to force the Company to redeem the Series G Preferred Stock at a redemption price of 120% of the face value of the preferred stock. The Registration Statement was declared effective on July 29, 2000. During the year ended June 30, 2000, the Series G Preferred Stock was converted into 3,834,492 shares of the Company’s common stock.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(17) CONVERTIBLE PREFERRED STOCK
On April 27, 1995, the Company amended the Articles of Incorporation to provide for the authorization of 2,000,000 shares of no par value preferred stock. The shares were divided out of the original 50,000,000 shares of no par value common stock. All Series of the convertible preferred stock are not redeemable and automatically convert into shares of common stock at the conversion rates three years after issuance.
The Company issued 4,000 shares of “Series A Convertible Preferred Stock” (“Series A Preferred Stock”) on March 21, 1996 under a Regulation S Securities Subscription Agreement. The agreement called for a purchase price of $1,000 per share, with net proceeds to the Company, after commissions and issuance costs, amounting to $3,600,000.
The holders of the Series A Preferred Stock could have converted up to 50% prior to May 28, 1996, and may convert their remaining shares subsequent to May 28, 1996 without the payment of any additional consideration, into fully paid and nonassessable shares of the Company’s no par value common stock based upon the “conversion formula”. The conversion formula states that the holder of the Preferred Stock will receive shares determined by dividing (i) the sum of $1,000 plus the amount of all accrued but unpaid dividends on the shares of Convertible Preferred Stock being so converted by the (ii) “Conversion Price”. The “Conversion Price” shall be equal to seventy-five percent (75%) of the Market Price of the Company’s common stock; provided, however, that in no event will the “Conversion Price” be greater than the closing bid price per share of common stock on the date of conversion.
As of June 30, 1996, 1,600 shares of the Series A Preferred Stock had been converted into a total 425,416 shares (including accumulated dividends) of the Company’s common stock. The remaining 2,400 shares of Series A Preferred Stock were converted into 1,061,202 shares (including accumulated dividends) of the Company’s common stock during the fiscal year ended June 30, 1997.
The Company issued 450 shares of “Series B Convertible Preferred Stock” (“Series B Preferred Stock”) and warrants to purchase up to an additional 112,500 shares of common stock on December 17, 1996 pursuant to Regulation D and Section 4(2) of the Securities Act of 1933. The agreement called for a purchase price of $10,000 per share, with proceeds to the Company amounting to $4,500,000.
The holders of the Series B Preferred Stock could have converted up to 34% of the Series B Preferred Stock 80 days from issuance (March 7, 1997), up to 67% of the Series B Preferred Stock 100 days from issuance (March 27, 1997), and may convert their remaining shares 120 days from issuance (April 19, 1997) without the payment of any additional consideration, into fully paid and nonassessable shares of the Company’s no par value common stock based upon the “conversion formula”. The conversion formula states that the holder of the Series B Preferred Stock will receive shares determined by dividing (i) the sum of $10,000 by the (ii) “Conversion Price” in effect at the time of conversion. The “Conversion Price” shall be equal to eighty-two percent (82%) of the Market Price of the Company’s common stock; provided, however, that in no event will the “Conversion Price” be greater than $3.85. The warrants are exercisable at any time for an exercise price of $5.00 and will expire five years from the date of issue.
On September 4, 1998, the Company received a notice of conversion from the Series B Holders. The Series B Holders filed a lawsuit against the Company on October 7, 1998. The Company was served on October 19, 1998. The lawsuit alleged that the Company has breached its contract of sale to the Series B Holders by failing to convert the Series B Holders and failure to register the common stock underlying the Preferred Stock. The Series B Holders demanded damages in excess of $75,000, to be determined at trial, together with interest costs and legal fees. On April 6, 1999, the Series B Holders sold their preferred stock to an unaffiliated third party (“the Purchaser”) with no prior relationship to the Company, or the Series B Holders. As part of the purchase agreement, the Series B Holders were required to dismiss the lawsuit with prejudice and the Company and the Series B Holders exchanged mutual general releases (see Series I).
As of June 30, 2000, the Series B Preferred Stock has been converted into 30,463,164 shares of the Company’s common stock, and 60 shares were canceled at the request of the holder.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(17) CONVERTIBLE PREFERRED STOCK (Continued)
During the years ended June 30, 1999 and 1998 the Company issued a total of six Private Placements of convertible preferred stock (see schedule incorporated into Note 16). The Private Placements are summarized as follows:
Series C Preferred Stock
On October 6, 1997, the Company finalized the private placement to foreign investors of 210 shares of its Series C Convertible Preferred Stock at a purchase price of $10,000 per share and warrants to purchase up to 160,000 shares of the Company’s common stock at an exercise price of $1.63 per share, and warrants to purchase up to 50,000 shares of the Company’s common stock at an exercise price of $1.562 per share. The agreement was executed pursuant to Regulation S as promulgated by the Securities Act of 1933, as amended. As of June 30, 2001, 40,000 warrants at the $1.63 exercise price were exercised, and the remaining 140,000 warrants had expired. The remaining 50,000 warrants ($1.562 exercise price) are outstanding as of June 30, 2001.
In connection with the sale, the Company paid an unaffiliated investment banker $220,500 for placement and legal fees, providing net proceeds to the Company of $1,879,500.
Series D Preferred Stock
On January 9, 1998, the Company finalized the private placement to foreign investors of 50 shares of its Series D Convertible Preferred Stock at a purchase price of $10,000 per share and warrants to purchase up to 25,000 shares of the Company’s common stock at an exercise price of $1.22 per share. The agreement was executed pursuant to Regulation S as promulgated by the Securities Act of 1933, as amended. As of June 30, 2001 the warrants had expired.
In connection with the sale, the Company issued four preferred shares to an unaffiliated investment banker for placement fees and paid legal fees of $5,000, providing net proceeds to the Company of $495,000. The shares underlying the preferred shares and warrant are entitled to demand registration rights under certain conditions.
Series E Preferred Stock
On February 5, 1998, the Company finalized the private placement to foreign investors of 50 shares of its Series E Convertible Preferred Stock at a purchase price of $10,000 per share and warrants to purchase up to 25,000 shares of the Company’s common stock at an exercise price of $1.093 per share. The agreement was executed pursuant to Regulation S as promulgated by the Securities Act of 1933, as amended. As of June 30, 2001 the warrants had expired.
In connection with the sale, the Company issued four preferred shares to an unaffiliated investment banker for placement fees and paid legal fees of $5,000, providing net proceeds to the Company of $495,000. The shares underlying the preferred shares and warrant are entitled to demand registration rights under certain conditions.
Series F Preferred Stock
On February 20, 1998, the Company finalized the private placement to foreign investors of 75 shares of its Series F Convertible Preferred Stock at a purchase price of $10,000 per share. The agreement was executed pursuant to Regulation S as promulgated by the Securities Act of 1933, as amended.
In connection with the sale, the Company paid an unaffiliated investment banker $50,000 for placement and legal fees, providing net proceeds to the Company of $700,000. The shares underlying the preferred shares and warrant are entitled to demand registration rights under certain conditions.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(17) CONVERTIBLE PREFERRED STOCK (Continued)
Series H Preferred Stock
On June 2, 1998, the Company finalized the private placement to foreign investors of 100 shares of its Series H Convertible Preferred Stock at a purchase price of $10,000 per share and Series H-“A” warrants to purchase up to 75,000 shares of the Company’s common stock at an exercise price of $1.00 per share, and Series H-“B” warrants to purchase up to 50,000 shares of the Company’s common stock at an exercise price of $1.50 per share. The agreement was executed pursuant to Regulation D as promulgated by the Securities Act of 1933, as amended. As of June 30, 2001 none of the warrants had been exercised.
In connection with the sale, the Company issued eight preferred shares and paid $10,000 to an unaffiliated investment banker for placement and legal fees, providing net proceeds to the Company of $990,000. The shares underlying the preferred shares and warrant are entitled to demand registration rights under certain conditions.
The Company was in technical default of the Registration Rights Agreement (“RRA”), which required the S-2 Registration Statement to be declared effective by October 2, 1998. Pursuant to the RRA, the Company was required to pay the Series H holders, as liquidated damages for failure to have the Registration Statement declared effective, and not as a penalty, 2% of the principal amount of the Securities for the first thirty days, and 3% of the principal amount of the Securities for each thirty day period thereafter until the Company procures registration of the Securities. On March 25, 1999, the Company issued 424,242 shares of common stock as partial payment of the liquidated damages. The cumulative liquidated damages expense for the years ended June 30, 2001 amounted to $140,000.
Series I Preferred Stock
On April 6, 1999, the Company entered into a Subscription Agreement with the Purchaser of the Series B Preferred Stock whereby the Company agreed to issue 138 shares of its Series I, 7% Convertible Preferred Stock ($1,380,000). The consideration for the subscription agreement was paid as follows:
| 1. Forgiveness of approximately $725,795 of accrued interest (dividends) in connection with the Series B Convertible Preferred stock. The Company recorded the forgiveness of the accrued interest (dividends) by reducing the accrual along with a reduction in the accumulated deficit. |
| 2. Settlement of all litigation concerning the Series B Convertible Preferred stock. |
| 3. Cancellation of 112,500 warrants that were issued with the Series B Convertible Preferred stock. |
| 4. A limitation on the owner(s) of the Series B Convertible Preferred stock to ownership of not more than 4.99% of the Company’s outstanding common stock at any one time. |
The Series I Preferred stock pays a 7% premium, to be paid in cash or freely trading common stock at the Company’s sole discretion, upon conversion.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(17) CONVERTIBLE PREFERRED STOCK (Continued)
Series K Preferred Stock
On July 17, 2000, the Company finalized the private placement to foreign investors of 500 shares of its Series K Convertible Preferred Stock at a purchase price of $10,000 per share. The agreement was executed in accordance with and in reliance upon the exemption from securities registration by Rule 506 under Regulation D as promulgated by the Securities Act of 1933, as amended.
The entire amount of the Series K Convertible Preferred Stock was converted or redeemed by the Company during the year ended June 30, 2001 into 5,664,067 shares of common stock, including 219,225 shares as payment of the 9% accrued dividend.
The following schedule reflects the number of shares of preferred stock that have been issued, converted and are outstanding as of June 30, 2008,2009, including certain additional information with respect to the deemed preferred stock dividends that were calculated as a result of the discount from market for the conversion price per share:
IMAGING DIAGNOSTIC SYSTEMS, INC. | |
(a Development Stage Company) | |
| |
Notes to Financial Statements (Continued) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(17) COVERTIBLE PREFERRED STOCK (Continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Series A | | Series B | | Series C | | Series D | | Series E | | Series F | | Series H | | Series I | | Series K | | Total | |
| | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1995 | | | - | | $ | - | | | - | | $ | - | | | - | | $ | - | | | - | | $ | - | | | - | | $ | - | | | - | | $ | - | | | - | | $ | - | | | - | | $ | - | | | - | | $ | - | | | - | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sale of Series A | | | 4,000 | | | 3,600,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4,000 | | | 3,600,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Series A conversion | | | (1,600 | ) | | (1,440,000 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (1,600 | ) | | (1,440,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1996 | | | 2,400 | | | 2,160,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,400 | | | 2,160,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sale of Series B | | | | | | | | | 450 | | | 4,500,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 450 | | | 4,500,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Series A conversion | | | (2,400 | ) | | (2,160,000 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (2,400 | ) | | (2,160,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1997 | | | - | | | - | | | 450 | | | 4,500,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 450 | | | 4,500,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sale of preferred stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Series C - H) | | | | | | | | | | | | | | | 210 | | | 2,100,000 | | | 54 | | | 540,000 | | | 54 | | | 540,000 | | | 75 | | | 750,000 | | | 108 | | | 1,080,000 | | | | | | | | | | | | | | | 501 | | | 5,010,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of preferred stock | | | | | | | | | | | | | | | (210 | ) | | (2,100,000 | ) | | (25 | ) | | (250,000 | ) | | (30 | ) | | (300,000 | ) | | (75 | ) | | (750,000 | ) | | | | | | | | | | | | | | | | | | | | (340 | ) | | (3,400,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1998 | | | - | | | - | | | 450 | | | 4,500,000 | | | - | | | - | | | 29 | | | 290,000 | | | 24 | | | 240,000 | | | - | | | - | | | 108 | | | 1,080,000 | | | | | | | | | | | | | | | 611 | | | 6,110,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sale of Series I | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 138 | | | 1,380,000 | | | | | | | | | 138 | | | 1,380,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of preferred stock | | | | | | | | | (60 | ) | | (600,000 | ) | | | | | | | | (29 | ) | | (290,000 | ) | | (24 | ) | | (240,000 | ) | | | | | | | | (40 | ) | | (400,000 | ) | | | | | | | | | | | | | | (153 | ) | | (1,530,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 1999 | | | - | | | - | | | 390 | | | 3,900,000 | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 68 | | | 680,000 | | | 138 | | | 1,380,000 | | | - | | | - | | | 596 | | | 5,960,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of preferred stock, net | | | | | | | | | (390 | ) | | (3,900,000 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | (68 | ) | | (680,000 | ) | | (138 | ) | | (1,380,000 | ) | | | | | | | | (596 | ) | | (5,960,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2000 | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sale of Series K | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 50 | | | 5,000,000 | | | 50 | | | 5,000,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of preferred stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (50 | ) | | (5,000,000 | ) | | (50 | ) | | (5,000,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2001 | | | - | | $ | - | | | - | | $ | - | | | - | | $ | - | | | - | | $ | - | | | - | | $ | - | | | - | | $ | - | | | - | | $ | - | | | - | | $ | - | | | - | | $ | - | | | - | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Additional information: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Discount off market price | | | | | | 25 | % | | | | | 18 | % | | | | | 25 | % | | | | | 25 | % | | | | | 25 | % | | | | | 30 | % | | | | | 25 | % | | | | | 25 | % | | | | | 12.5 | % | | | | | | |
Fair market value-issue rate | | | | | $ | 8.31 | | | | | $ | 3.25 | | | | | $ | 1.63 | | | | | $ | 0.99 | | | | | $ | 1.07 | | | | | $ | 1.24 | | | | | $ | 0.57 | | | | | $ | 0.38 | | | | | $ | 1.13 | | | | | | | |
Deemed preferred stock dividend | | | | | $ | 1,335,474 | | | | | $ | 998,120 | | | | | $ | 705,738 | | | | | $ | 182,433 | | | | | $ | 182,250 | | | | | $ | 318,966 | | | | | $ | 351,628 | | | | | $ | 492,857 | | | | | $ | 708,130 | | | | | | | |
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(18) COMMON STOCK
On June 8, 1994, at a special meeting of shareholders of the Company, a one for one hundred reverse stock split was approved reducing the number of issued and outstanding shares of common stock from 68,875,200 shares to 688,752 shares (510,000 shares of original stock, for $50,000, and the 178,752 shares acquired in the merger). In addition, the board of directors approved the issuance of an additional 27,490,000 shares of common stock that had been provided for in the original merger documents. However, during April, 1995 the four major shareholders agreed to permanently return 12,147,480 of these additional shares. Therefore, the net additional shares of common stock issued amounts to 15,342,520 shares, and the net additional shares issued as a result of this transaction have been reflected in the financial statements of the Company (See Statement of Stockholders’ Equity).
The Company has sold 1,290,069 shares of its common stock through Private Placement Memorandums dated April 20, 1994 and December 7, 1994, as subsequently amended. The net proceeds to the Company under these Private Placement Memorandums were approximately $1,000,000. In addition, the Company has sold 690,722 shares of "restricted common stock" during the year ended June 30, 1995. These shares are restricted in terms of a required holding period before they become eligible for free trading status. As of June 30, 1995, receivables from the sale of common stock during the year amounted to $523,118. During the year ended June 30, 1996, 410,500 shares of the common stock related to these receivables were canceled and $103,679 was collected on the receivable. The unpaid balance on these original sales and other subsequent sales of common stock, in the amount of $35,559, as of June 30, 1997, is reflected as a reduction to stockholder’s equity on the Company’s balance sheet.
During the year ended June 30, 1995, 115,650 shares of common stock were issued to satisfy obligations of the Company amounting to $102,942, approximately $.89 per share. The stock was recorded at the fair market value at the date of issuance.
In addition, during the year ended June 30, 1995, wages accrued to the officers of the Company in the amount of $151,000, were satisfied with the issuance of 377,500 shares of restricted common stock. Compensation expense has been recorded during the fiscal year pursuant to the employment agreements with the officers. In addition, during the year ended June 30, 1995, 75,000 shares of restricted common stock were issued to a company executive pursuant to an employment agreement. Compensation expense of $78,750 was recorded in conjunction with this transaction.
During the year ended June 30, 1996, the Company sold, under the provisions of Regulation S, a total of 700,471 shares of common stock. The proceeds from the sale of these shares of common stock amounted to $1,561,110. The Company issued an additional 2,503,789 shares ($4,257,320) of its common stock as a result of the exercise of stock options issued in exchange for services rendered during the year. Cash proceeds associated with the exercise of these options and the issuance of these shares amounted to $1,860,062, with the remaining $2,397,258 reflected as noncash compensation. These 2,503,789 shares were issued at various times throughout the fiscal year. The stock has been recorded at the fair market value at the various grant dates for the transactions. Compensation, aggregating $2,298,907, has been recorded at the excess of the fair market value of the transaction over the exercise price for each of the transactions.
As of June 30, 1996, there were a total of 425,416 shares of common stock issued as a result of the conversion of the Series A Convertible Preferred Stock and the related accumulated dividends (See Note 16).
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(18) COMMON STOCK (Continued)
Common stock issued to employees as a result of the exercise of their incentive stock options and their non-qualified stock options during the fiscal year ended June 30, 1996 amounted to 1,187,900, of which 996,400 shares were issued pursuant to the provisions of the non-qualified stock option plan and were exercised in a “cash-less” transaction, resulting in compensation to the officers of $567,164. Compensation cost was measured as the excess of fair market value of the shares received over the value of the stock options tendered in the transaction. The excess of fair market value at July 15, 1995 approximated $.57 per share on the 996,400 shares issued.
During the year ended June 30, 1997, the Company issued a total of 1,881,295 shares ($5,461,589) of its common stock. The conversion of Series A Convertible Preferred Stock, including accrued dividends (See Note 16), accounted for the issuance of 1,081,962 shares ($2,808,643). The remaining 799,333 shares were issued as follows:
1. Services rendered by independent consultants in exchange for 31,200 shares. Research and development expenses of $90,480 were charged as the fair market value at November 20, 1996 was $2.90 per share.
2. On December 20, 1996, bonus stock was issued to Company employees, 3,200 shares. Compensation expense of $10,463 was charged as the fair market value at that date was $3.27 per share.
3. On January 3, 1997 bonus stock was issued to the officers of the Company, 350,000 shares. Compensation expense of $907,900 was charged, as the fair market value at that date was $2.59 per share.
4. On February 13, 1997, 4,000 shares were issued to an outside consultant in exchange for services performed. Consulting services of $11,500 were recorded, representing the fair market value ($2.88 per share) on that date.
5. Services rendered by an independent consultant during June 1997 in exchange for 199,000 shares. Consulting expenses of $548,149 were charged, as the fair market value on the date of the transaction was approximately $2.75 per share.
6. Exercise of incentive stock options comprised of 27,000 shares ($33,750) exercised and paid for at $1.25 per share, and 334,933 shares ($1,103,203) acquired in the exchange for options tendered in a cash-less transaction.
7. The Company repurchased 150,000 shares ($52,500), which had been previously acquired by one of its employees.
During the year ended June 30, 1998, the Company issued a total of 11,588,460 shares ($8,583,721) of its common stock. The conversion of Convertible Preferred Stock (see Note 16) accounted for the issuance of 6,502,448 shares ($4,984,684). The remaining 5,056,012 shares were issued as follows:
1. Services rendered by independent consultants in exchange for 100,000 shares. Consulting expenses of $221,900 were charged as the fair market value at July 10, 1997 was $2.22 per share.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(18) COMMON STOCK (Continued)
2. Services rendered by an independent consultant in exchange for 200,000 shares. Consulting expenses of $400,000 were charged as the fair market value at August 20, 1997 was $2.00 per share.
3. Services rendered by an independent consultant in exchange for 40,000 shares. Consulting expenses of $67,480 were charged as the fair market value at September 4, 1997 was $1.69 per share.
4. Services rendered by a public relations company in exchange for 166,000 shares. Public relations expenses of $269,750 were charged as the fair market value at October 24, 1997 was $1.63 per share.
5. On December 15, 1997, bonus stock was issued to Company employees, for 39,300 shares. Compensation expense of $41,658 was charged as the fair market value at that date was $1.06 per share.
6. Services rendered by an independent consultant in exchange for 250,000 shares. Consulting expenses of $320,000 were charged as the fair market value at January 7, 1998 was $1.28 per share.
7. Services rendered by an independent consultant during May 1998 in exchange for 200,000 shares. Consulting expenses of $140,000 were charged, as the fair market value on that date was $.70 per share.
8. The Company sold 500,000 shares on May 15, 1998 in a Regulation D offering at $.40 per share, and received cash proceeds of $200,000.
9. On June 5, 1998, the Company issued to its chief executive officer 3,500,000 shares ($1,890,000) as consideration for an exclusive Patent License Agreement (see Note 8). The market value of the stock on this date was $.54 per share. The excess of the fair market value of the common stock over the historical cost basis of the patent license was recorded as a distribution to the shareholder; recorded as a reduction to additional paid-in capital of $3,199,000.
10. On June 11, 1998, the Company issued 25,000 shares to its corporate counsel as additional bonus compensation. Legal expenses of $12,750 were recorded as the market value of the stock on that date was $.51 per share.
11. A total of 65,712 non-qualified stock options were exercised and proceeds of $22,999 ($.35 per share) was received by the Company.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(18) COMMON STOCK (Continued)
On July 10, 1998, the majority shareholders of the Company authorized, by written action, the Company’s adoption of an Amendment to the Company’s Articles of Incorporation increasing the Company’s authorized shares of common stock from 48,000,000 shares to 100,000,000 shares. The Florida Statutes provide that any action to be taken at an annual or special meeting of shareholders may be taken without a meeting, without prior notice and without a vote, if the action is taken by a majority of outstanding stockholders of each voting group entitled to vote. On August 5, 1998, the Company filed an Information Statement with the Securities and Exchange Commission with regard to the Written Action. The Majority Shareholders consent with respect to the Amendment was effective on February 18, 1999. The number of authorized shares was further increased to 150,000,000 shares during the shareholders annual meeting held on May 10, 2000, and increased again during the 2002 annual meeting to 200,000,000 shares, effective January 3, 2003.
During the year ended June 30, 1999, the Company issued a total of 12,804,131 shares ($5,837,656) of its common stock. The conversion of Convertible Preferred Stock (see Note 16) accounted for the issuance of 4,865,034 shares ($1,972,296). The remaining 7,939,097 shares were issued as follows:
1. The Company sold 200,000 shares on August 5, 1998 in a Regulation D offering at $.30 per share, and received cash proceeds of $60,000.
2. In June 1999, the Company issued to its chief executive officer 3,500,000 shares ($1,890,000), representing the balance of shares to be issued as consideration for the exclusive Patent License Agreement (see Note 8).
3. On November 9, 1998, the Company issued 15,000 shares to its corporate counsel as additional bonus compensation. Legal expenses of $10,800 were recorded as the market value of the stock on that date was $.72 per share.
4. A total of 65,612 non-qualified stock options were exercised and proceeds of $22,964 ($.35 per share) was received by the Company. An additional $101,500 was received this year for stock sold in the prior year.
5. A total of 480,000 shares were issued in connection with loans that were received by the Company. The total loan fee expenses (based on the market value of the stock at the date of issuance) charged to the statement of operations for the year was $292,694, or an average of $.61 per share.
6. A total of 2,974,043 shares were issued as repayment of various accounts payable and loans payable during the year. A total of $1,196,992 (average of $.40 per share) of debts were satisfied through the issuance of the stock.
7. On December 11, 1998, bonus stock was issued to Company employees, for 130,200 shares. Compensation expense of $79,422 was charged as the fair market value at that date was $.61 per share.
8. On March 26, 1999, the Company issued 424,242 shares of stock as partial-payment ($140,000) on the liquidated damages in connection with Series H Preferred Stock. The fair market value at that date was $.33 per share.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(18) COMMON STOCK (Continued)
9. During the year a total of 150,000 shares were issued for to various independent parties for services rendered to the Company. Expenses of $81,788 were charged, or an average price of $.50 per share.
During the year ended June 30, 2000, the Company issued a total of 56,214,003 shares ($12,997,328) of its common stock. The conversion of Convertible Debentures accounted for the issuance of 4,060,398 shares ($3,958,223), the conversion of Redeemable Convertible Preferred Stock (see Note 15) accounted for the issuance of 3,834,492 shares ($507,115), and the conversion of Convertible Preferred Stock (see Note 16) accounted for the issuance of 41,581,242 shares ($6,806,219). The remaining 6,737,871 shares were issued as follows:
1. The Company sold 100,000 shares on April 27, 2000 in a Regulation D offering at $1.57 per share, and received cash proceeds of $157,000.
2. A total of 5,061,294 shares were issued as repayment of various loans payable during the year. A total of $1,067,665 (average of $.21 per share) of debts were satisfied through the issuance of the stock.
3. On November 12, 1999, bonus stock was issued to Company employees, for 145,000 shares. Compensation expense of $12,325 was charged as the fair market value at that date was $.09 per share. The company also canceled 8,000 shares, which had been previously issued to an independent contractor for consulting services. A reduction of $31,000 was recorded to consulting expenses for the year.
4. A total of 7,297 shares were issued in connection with a loan that was received by the Company. The total loan fee expense and interest charged to income amounted to $2,408 during the year.
5. During the year at total of 150,652 shares were issued for the exercise of warrants. On March 21, 2000, the Company received $100,000 for the exercise of 107,527 warrants at an exercise price of $.93 per share. The Company recorded a charge to consulting expense, as the fair market value at the date the warrants were issued was $1.84. The Company also received $21,563 from the exercise of 43,125 of Series G Preferred Stock warrants during the last quarter of the fiscal year.
6. Exercise of 1,281,628 incentive stock options, ($395,810) exercised and paid for at prices ranging from $.13 per share to $1.13 per share.
During the year ended June 30, 2001, the Company issued a total of 13,916,169 shares ($12,333,724) of its common stock. The conversion of Convertible Preferred Stock (see Note 16) accounted for the issuance of 5,664,067 shares ($5,580,531), and the common stock issued through the equity line of credit (See Note 12) accounted for the issuance of 3,407,613 shares ($3,143,666). The remaining 4,844,489 shares were issued as follows:
1. A total of 810,000 shares were issued as repayment of a loan payable during the year. A total of $530,000 of debt was satisfied through the issuance of the stock, and an additional $863,200 was charged as interest expense as the fair market value of the stock at the date of issuance was $1.72 per share.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(18) COMMON STOCK (Continued)
2. On December 7, 2000, 143,500 shares of bonus stock were issued to Company employees. Compensation expense of $219,555 was charged as, the fair market value of the common stock at that date was $1.53 per share. The Company also issued 10,000 shares on May 17, 2001. Consulting services of $8,300 was charged, as the fair market value of the stock was $.83 per share.
3. During the year a total of 99,375 shares of common stock were issued for the exercise of warrants. The Company received $4,687 from the exercise of 99,375 Series G Preferred Stock warrants. On August 10, 2000, the Company received $65,200 for the exercise of 40,000 Series C Preferred Stock warrants at an exercise price of $1.63 per share.
4. Common stock issued to officers as a result of the exercise of their incentive stock options and their non-qualified stock options amounted to 3,755,414 shares. The options were exercised in a “cash-less” transaction, resulting in compensation to the officers of $1,848,566. An additional 26,200 shares were issued to employees upon the exercise of their incentive stock options during the year, at exercise prices ranging from $.35 per share to $.60 per share.
During the year ended June 30, 2002, the Company issued a total of 12,167,866 shares ($6,508,155) of its common stock. The common stock issued through the equity line of credit (See Note 12) accounted for the issuance of 11,607,866 shares ($6,213,805). The remaining 560,000 shares were issued as follows:
1. On November 21, 2001, 210,000 shares of bonus stock were issued to Company employees. Deferred compensation of $117,600 was charged as, the fair market value of the common stock at that date was $.56 per share, and the stock will not be physically delivered to the employees until January 2003.
2. A total of 350,000 shares were issued in conjunction with the settlement on March 22, 2002 of a lawsuit. Settlement expense of $176,750 has been charged on the statement of operations, as the fair market value of the stock at the date of issuance was $.51 per share.
During the year ended June 30, 2003, the Company issued a total of 31,398,326 shares ($9,708,425) of its common stock. The common stock issued through the equity line of credit (See Note 12) accounted for the issuance of 29,390,708 shares ($8,737,772). The remaining 2,007,618 shares were issued as follows:
1. During December 2002, 258,500 shares of bonus stock were issued to Company employees. Compensation of $62,425 was charged as, the fair market value of the common stock on the dates of issuance averaged $.24 per share. In addition, the Company recorded an adjustment for deferred compensation, which resulted in a reduction to common stock for $73,500.
2. A total of 1,194,118 shares were issued in conjunction with the settlement on June 5, 2003 of a lawsuit. Settlement expense of $841,853 has been charged on the statement of operations, as the fair market value of the stock at the date of issuance was $.70 per share.
3. During the year a total of 555,000 shares were issued to various parties for services rendered to the Company. Expenses of $139,875 were charged, or an average price of $.25 per share.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(18) COMMON STOCK (Continued)
During the year ended June 30, 2004, the Company issued a total of 10,333,373 shares ($7,867,351) of its common stock. The common stock issued through the equity line of credit (See Note 12) accounted for the issuance of 8,630,819 shares ($6,541,700). The remaining 1,702,554 shares were issued as follows:
1. During November 2003, 401,785 shares were issued in conjunction with the settlement on September 18, 2003 of a lawsuit. Settlement expense of $450,000 has been charged on the statement of operations as the fair market value of the stock at the date of the settlement agreement was $1.12 per share.
2. During January 2004, 333,000 shares of bonus stock were issued to Company employees. Compensation of $382,950 was charged as the fair market value of the common stock on the date of issuance was $1.15 per share.
3. Common stock issued to directors as a result of the exercise of their incentive stock options amounted to 450,000 shares during the year. The Company received $262,500 from the exercise of 450,000 option shares. The exercise prices range from $.55 per share to $.65 per share.
4. Common stock issued to employees as a result of the exercise of their incentive stock options amounted to 517,769 shares during the year. The Company received $230,201 from the exercise of 517,769 option shares. The exercise prices range from $.19 per share to $.65 per share.
During the year ended June 30, 2005, the Company issued a total of 26,573,157 shares ($7,915,061) of its common stock. The common stock issued through the equity line of credit (See Note 12) accounted for the issuance of 26,274,893 shares ($7,797,807). The remaining 298,264 shares were issued as follows:
1. During September 2004, 100,000 restricted shares were issued to our CEO in conjunction with his employment agreement. Compensation of $38,000 was charged as the fair market value of the common stock on the date of issuance was $.38 per share.
2. During January 2005, 185,000 shares of bonus stock were issued to Company employees. Compensation of $75,850 was charged as the fair market value of the common stock on the date of issuance was $.41 per share.
3. Common stock issued to employees as a result of the exercise of their incentive stock options amounted to 13,264 shares during the year. The Company received $3,404 from the exercise of 13,264 option shares. The exercise prices range from $.20 per share to $.27 per share.
During the year ended June 30, 2006, the Company issued a total of 47,776,064 shares ($7,409,543) of its common stock. The common stock issued through the equity line of credit (See Note 12) accounted for the issuance of 47,776,064 shares ($7,409,543).
During the year ended June 30, 2007, the Company issued a total of 63,861,405 shares ($4,560,415) of its common stock. The common stock issued through the equity line of credit (See Note 12) accounted for the issuance of 63,861,405 shares ($4,560,415).
During the year ended June 30, 2008, the Company issued a total of 13,979,430 shares ($490,000) of its common stock. The common stock issued through the equity line of credit (See Note 13) accounted for the issuance of 13,979,430 shares ($490,000).
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(18) COMMON STOCK (Continued)
During the year ended June 30, 2009, the Company issued a total of 285,861,319 shares ($2,646,083) of its common stock. The common stock issued through the equity line of credit (See Note 12) accounted for the issuance of 158,747,217 shares ($1,674,885). The conversion of Convertible Debentures accounted for the issuance of 93,958,547 shares ($621,220). The exercise of warrants accounted for the issuance of 21,755,555 shares ($195,778).
The remaining 11,400,000 shares were issued as follows:
1. During July 2008, 5,000,000 restricted shares were issued to a consultant. Compensation expense of $55,000 was recorded as the fair market value of the common stock on the date of issuance was $.011 per share.
2. During November 2008, 3,000,000 shares of restricted stock were issued to a shareholder in a private placement pursuant to Rule 144. The shareholder paid the Company $75,000 as the fair market value of the shares on the date of issuance was $.025.
3. During March 2009, 2,400,000 shares of restricted stock were issued to Company employees. Compensation expense of $19,200 was charged as the fair market value of the common stock on the date of issuance was $.008 per share.
4. During March 2009, 1,000,000 shares of restricted stock were issued to a shareholder in a private placement pursuant to Rule 144. The shareholder paid the Company $5,000 as the fair market value of the shares on the date of issuance was $.005.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(19) STOCK OPTIONS
The Company adopted SFAS No. 123R, “Share Based Payments.” SFAS No. 123R requires companies to expense the value of employee stock options and similar awards and applies to all outstanding and vested stock-based awards.
In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. The Company cannot assess its forfeiture rate at this time.
The Company continues to use an expected term of eight years as provided by Staff Accounting Bulletin 110. Our expected term assumption of eight years for the year ended June 30, 2008, was based upon the guidance provided by SEC Staff Accounting Bulletin 107 enabling us to use the simplified method for “plain vanilla” options for this calculation. This provision was allowed to be used for grants made on or before December 31, 2007. On December 21, 2007, the SEC issued Staff Accounting Bulletin 110 which extended the timeframe we will have to use the simplified method on an interim basis. The SEC will suspend use of this method once detailed information on exercise terms become readily available. We then will be required to estimate the expected term of an option using historical data by analyzing its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period. The impact of applying SFAS No. 123R approximated $183,182, $431,313 and $632,558, respectively, in additional compensation expense for the twelve months ended June 30, 2008, 2007, and 2006.
During July 1994, the Company adopted a non-qualified Stock Option Plan (the "Plan"), whereby officers and employees of the Company could be granted options to purchase shares of the Company’s common stock. Under the plan and pursuant to their employment contracts, an officer could be granted non-qualified options to purchase shares of common stock over the next five calendar years, at a minimum of 250,000 shares per calendar year. The exercise price shall be thirty-five percent of the fair market value at the date of grant. On July 5, 1995 the Board of Directors authorized an amendment to the Plan to provide that upon exercise of the option, the payment for the shares exercised under the option may be made in whole or in part with shares of the same class of stock. The shares to be delivered for payment would be valued at the fair market value of the stock on the day preceding the date of exercise. The plan was terminated effective July 1, 1996, however the officers will be issued the options originally provided under the terms of their employment contracts.
On March 29, 1995, the incentive stock option plan was approved by the Board of Directors and adopted by the shareholders at the annual meeting. This original plan was revised and on January 3, 2000 the Board of Directors adopted the Company’s “2000 Non-Statutory Plan”, and the plan was subsequently approved by the shareholders on May 10, 2000 at the annual meeting. This plan provided for the granting, exercising and issuing of incentive stock options pursuant to Internal Revenue Code Section 422. The Company was entitled to grant incentive stock options to purchase up to 4,850,000 shares of common stock. This Plan also allowed the Company to provide long-term incentives in the form of stock options to the Company's non-employee directors, consultants and advisors, who were not eligible to receive incentive stock options. In January 2002, the Board replaced the 1995 Plan and 2000 Plan with a new combined stock option plan, the 2002 Incentive and Non-Statutory Stock Option Plan (the "2002 Plan"), which provided for the grant of incentive and non-statutory options to purchase an aggregate of 6,340,123 shares of Common Stock. Upon approval of the 2002 Plan, all options outstanding under the 1995 and 2000 Plans remained outstanding; however, no new options could be granted under those plans. The Board of Directors or a company established compensation committee had direct responsibility for the administration of these plans.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(19) STOCK OPTIONS (Continued)
The exercise price of the non-statutory stock options was required to be equal to no less than 50% of the fair market value of the common stock on the date such option is granted.
On February 4, 2004, the Board of Directors adopted the Company’s 2004 Non-Statutory Stock Option Plan (the “2004 Plan”), which was adopted by the shareholders on March 24, 2004 at the annual meeting, to provide a long-term incentive for employees, non-employee directors, consultants, attorneys and advisors of the Company. The maximum number of options that may be granted under the 2004 Plan shall be options to purchase 8,432,392 shares of Common Stock (5% of our issued and outstanding common stock as of February 4, 2004). Options may be granted under the 2004 Plan for up to 10 years after the date of the 2004 Plan. The 2004 Non-Statutory Stock Plan replaced the 2002 Incentive and Non-Statutory Stock Option Plan.
On August 24, 2005, the Board Of Directors resolved that the Company’s 1995, 2000, 2002 and 2004 Stock Option Plans and Stock Options Agreements that were entered into pursuant to these plans, be amended to increase the post-termination exercise period following the termination of the Optionee’s employment/directorship or in the event of change of control of the Company, to be three (3) years from the date of termination or change of control, subject to those options that were vested as of the date of termination or change of control and subject to the original term of the option, which ever time is less.
On July 26, 2007, the Board of Directors adopted the Company’s 2007 Non-Statutory Stock Option Plan (the “2007 Plan”), which must be adopted by the shareholders at the annual meeting which must occur within one year of the Board’s adoption of the 2007 Plan. The 2007 Plan will provide a long-term incentive for employees, non-employee directors, consultants, attorneys and advisors of the Company. The maximum number of options that may be granted under the 2007 Plan shall be options to purchase 15,693,358 shares of Common Stock (5% of our issued and outstanding common stock as of July 26, 2007). Options may be granted under the 2007 Plan for up to 10 years after the date of the 2007 Plan. The 2007 Non-Statutory Stock Plan replaced the 2004 Non-Statutory Stock Option Plan.
Transactions and other information relating to the plans are summarized as follows:
Employee Plan:
| Incentive Stock Options | | Non Statutory Stock Options |
| Shares | Wtd. Avg. Price | | Shares | Wtd. Avg. Price |
| | | | | |
Outstanding at June 30, 1994 | -0- | | | -0- | |
Granted | 75,000 | $ 1.40 | | 1,500,000 | $ 1.12 |
Exercised | - | | | - | |
| | | | | |
Outstanding at June 30, 1995 | 75,000 | 1.40 | | 1,500,000 | 1.12 |
Granted | 770,309 | 1.66 | | 750,000 | 1.44 |
Exercised | (164,956) | .92 | | (1,800,000) | 1.50 |
| | | | | |
Outstanding at June 30, 1996 | 680,353 | 1.81 | | 450,000 | .13 |
Granted | 371,377 | 3.27 | | 750,000 | 3.88 |
Exercised | (395,384) | 1.10 | | - | |
| | | | | |
Outstanding at June 30, 1997 | 656,346 | 3.07 | | 1,200,000 | 2.47 |
Granted | 220,755 | 1.95 | | 750,000 | 2.75 |
Exercised | - | | | (65,712) | .35 |
Canceled | (175,205) | 4.25 | | - | |
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(19) STOCK OPTIONS (Continued)
Employee Plan (Continued)
Outstanding at June 30, 1998 | 701,896 | 2.42 | | 1,884,288 | 2.66 |
Granted | 786,635 | .48 | | 750,000 | .43 |
Exercised | - | | | (65,612) | .35 |
Canceled | (82,500) | 3.37 | | - | |
| | | | | |
Outstanding at June 30, 1999 | 1,406,031 | .53 ** | | 2,568,676 | 2.24 |
Granted | 3,139,459 | .34 | | - | |
Exercised | (770,702) | .37 | | (318,676) | .35 |
Canceled | (64,334) | .47 | | - | |
| | | | | |
Outstanding at June 30, 2000 | 3,710,454 | .42 | | 2,250,000 | 2.35 |
Granted | 1,915,700 | 2.59 | | - | |
Exercised | (3,030,964) | .32 | | (750,000) | .31 |
Canceled | (279,982) | .60 | | (1,500,000) | 2.75 |
| | | | | |
Outstanding at June 30, 2001 | 2,315,208 | 2.38 | | - | |
Granted | 6,839,864 | .68 | | - | |
Exercised | - | | | - | |
Canceled | (2,695,482) | 1.17 | | - | |
| | | | | |
Outstanding at June 30, 2002 | 6,459,590 | .85 | | - | |
Granted | 1,459,705 | .38 | | - | |
Exercised | - | | | - | |
Canceled | (56,788) | .74 | | - | |
| | | | | |
Outstanding at June 30, 2003 | 7,862,507 | .76 | | - | |
Granted | 1,576,620 | 1.12 | | 31,748 | .69 |
Exercised | (517,769) | .44 | | - | |
Canceled | (97,525) | .78 | | - | |
| | | | | |
Outstanding at June 30, 2004 | 8,823,833 | .84 | | 31,748 | .69 |
Granted | - | | | 4,253,159 | .34 |
Exercised | (13,264) | .26 | | - | |
Canceled | (142,891) | .68 | | - | |
| | | | | |
Outstanding at June 30, 2005 | 8,667,678 | .98 | | 4,284,907 | .34 |
Granted | - | | | 532,855 | .18 |
Exercised | - | | | - | |
Canceled | (254,277) | .74 | | (23,100) | .26 |
| | | | | |
Outstanding at June 30, 2006 | 8,413,401 | .96 | | 4,794,662 | .32 |
Granted | - | | | 3,927,437 | .10 |
Exercised | - | | | - | |
Canceled | (4,804) | .70 | | (131,684) | .16 |
| | | | | |
IMAGING DIAGNOSTIC SYSTEMS, INC. |
(a Development Stage Company)
Notes to Financial Statements (Continued)
(19) STOCK OPTIONS (Continued)
Employee Plan (Continued)
Outstanding at June 30, 2007 | 8,408,597 | .96 | | 8,590,415 | .22 | 8,408,597 | .96 | | 8,590,415 | .22 |
Granted | | | | 2,336,526 | .05 | | | | 2,336,526 | .05 |
Exercised | | | | | | | | | | |
Canceled | (29,750) | | | (2,707,852) | .14 | (29,750) | | | (2,707,852) | .14 |
| | | | | | | | | | |
Outstanding at June 30, 2008 | 8,378,847 | .90 | | 8,219,089 | .20 | 8,378,847 | .90 | | 8,219,089 | .20 |
Granted | | - | | | 7,123,300 | .01 |
Exercised | | - | | | - | |
Canceled | | (1,094,655) | .60 | | (495,846) | .18 |
| | | | | | |
Outstanding at June 30, 2009 | | 7,284,152 | .95 | | 14,846,543 | .20 |
** On June 25, 1999, the exercise price of 502,225 outstanding incentive stock options was restated to $.60 per share. The Company has recorded compensation of $330,569 during the fiscal year ended June 30, 1999 as a result of this re-pricing, in accordance with the guidelines discussed in the FASB Interpretation No. 44, of APB Opinion No. 25. |
| Incentive Stock Options | | Non Statutory Stock Options |
| Shares | Wtd. Avg. Price | | Shares | Wtd. Avg. Price |
| | | | | |
Outstanding at June 30, 2000 | -0- | | | | |
Granted | 150,000 | $.65 | | | |
Exercised | - | | | | |
Canceled | - | | | | |
| | | | | |
Outstanding at June 30, 2001 | 150,000 | .65 | | | |
Granted | 300,000 | .55 | | | |
Exercised | - | | | | |
Canceled | - | | | | |
| | | | | |
Outstanding at June 30, 2002 | 450,000 | .58 | | | |
Granted | 400,000 | .18 | | | |
Exercised | - | | | | |
Canceled | - | | | | |
| | | | | |
Outstanding at June 30, 2003 | 850,000 | .40 | | - | |
Granted | 100,000 | 1.07 | | 700,000 | .76 |
Exercised | (450,000) | .58 | | - | |
Canceled | - | | | - | |
| | | | | |
Outstanding at June 30, 2004 | 500,000 | .39 | | 700,000 | .76 |
Granted | - | | | 800,000 | .35 |
Exercised | - | | | - | |
Canceled | - | | | - | |
| | | | | |
Outstanding at June 30, 2005 | 500,000 | .39 | | 1,500,000 | .54 |
Granted | - | | | 800,000 | .14 |
Exercised | - | | | - | |
Canceled | - | | | - | |
| | | | | |
IMAGING DIAGNOSTIC SYSTEMS, INC. |
(a Development Stage Company)
Notes to Financial Statements (Continued)
(19) STOCK OPTIONS (Continued)
Director Plan (Continued) |
Outstanding at June 30, 2006 | 500,000 | .39 | | 2,300,000 | .40 | 500,000 | .39 | | 2,300,000 | .40 |
Granted | - | | | 800,000 | .08 | - | | | 800,000 | .08 |
Exercised | - | | | - | | - | | | - | |
Canceled | - | | | - | | - | | | - | |
| | | | | | | | | | |
Outstanding at June 30, 2007 | 500,000 | .39 | | 3,100,000 | .32 | 500,000 | .39 | | 3,100,000 | .32 |
Granted | - | | | 600,000 | .05 | - | | | 600,000 | .05 |
Exercised | - | | | - | | - | | | - | |
Canceled | - | | | - | | - | | | - | |
| | | | | | | | | | |
Outstanding at June 30, 2008 | 500,000 | .39 | | 3,700,000 | .27 | 500,000 | .39 | | 3,700,000 | .27 |
Granted | | - | | | - | |
Exercised | | - | | | - | |
Canceled | | - | | | - | |
| | | | | | |
Outstanding at June 30, 2009 | | 500,000 | .39 | | 3,700,000 | .27 |
A summary of the vested and exercisable stock options of the Company is presented as follows:
| | June 30, 2008 | | | June 30, 2007 | | | June 30, 2006 | | June 30, 2009 | | June 30, 2008 | | June 30, 2007 |
Employee ISO | | 8,367,819 | | | | 8,377,119 | | | | 8,023,860 | | 7,284,152 | | 8,367,819 | | 8,377,119 |
Director ISO | | 500,000 | | | | 500,000 | | | | 500,000 | | 500,000 | | 500,000 | | 500,000 |
Employee Non-Statutory | | 5,723,630 | | | | 3,748,584 | | | | 2,261,800 | | 15,084,499 | | 5,723,630 | | 3,748,584 |
Director Non-Statutory | | | 3,600,000 | | | | 2,550,000 | | | | 1,750,000 | | 3,700,000 | | 3,600,000 | | 2,550,000 |
| | | | | | | | | | | | | | | | | |
Total | | | 18,191,449 | | | | 15,175,703 | | | | 12,535,660 | | 26,568,651 | | 18,191,449 | | 15,175,703 |
Shares of authorized common stock have been reserved for the exercise of all options outstanding. The following summarizes the option transactions that have occurred:
On July 5, 1994 the Company issued non-qualified options to its officers and directors to purchase an aggregate of 750,000 shares of common stock at 35% of the fair market value at the date of grant. Compensation expense of $567,164 was recorded during the year ended June 30, 1996 as a result of the discount from the market value.
On November 7, 1994, the Company granted 300,000 non-qualified options to its general counsel, then a vice-president of the Company, at an exercise price of $0.50 per share. Deferred compensation of $150,000 was recorded on the transaction and is being amortized over the vesting period. The options were all exercised as of June 30, 1997.
On March 30, 1995, the Company granted to the director of engineering, a non-qualified option to purchase up to 150,000 shares of common stock per year, or a total of 450,000 shares, during the period March 30, 1995 and ending March 31, 1999. The exercise price shall be $0.35 per share. The options did not “vest” until one year from the anniversary date. Deferred compensation of $472,500 was recorded on the transaction and is being amortized over the vesting period. The Company also granted the individual, incentive options to purchase 75,000 shares of common stock at an exercise price of $1.40 per share. The options originally expired on March 30, 1998, but were reissued on March 30, 1998 for two years.
On July 5, 1995 the Company issued non-qualified options to its officers and directors to purchase an aggregate of 750,000 shares of common stock at 35% of the fair market value at the date of grant. Compensation expense was recorded during the year ended June 30, 1996 as a result of the discount from the market value.
On September 1, 1995, the Company issued to its three officers and directors incentive options to purchase 107,527 shares, individually, at an exercise price of $0.93 per share (110% of the fair market value). The options expired on September 1, 1999.
On September 1, 1995, the Company issued to an employee incentive options to purchase 119,047 shares of common stock at an exercise price of $0.84 per share. The options expired on September 1, 1999
At various dates during the fiscal year ended June 30, 1996, the Company issued to various employees incentive options to purchase 328,681 shares of common stock at prices ranging from $0.81 to $8.18. In all instances, the exercise price was established as the fair market value of the common stock at the date of grant, therefore no compensation was recorded on the issuance of the options. In most cases, one-third of the options vested one year from the grant date, with one-third vesting each of the next two years. The options expire in ten years from the grant date.
On July 4, 1996, the Company issued to its three officers and directors incentive options to purchase 22,883 shares, individually, at an exercise price of $4.37 per share (110% of the fair market value). The options expired on July 4, 2001.
On July 5, 1996 the Company issued non-qualified options to its officers and directors to purchase an aggregate of 750,000 shares of common stock at 35% of the fair market value at the date of grant. Deferred compensation of $1,891,500 was recorded on the transaction and was being amortized over the remaining term of the employment contracts (three years).
At various dates during the year ended June 30, 1997, the Company issued to various employees incentive options to purchase 264,778 shares of common stock at prices ranging from $2.56 to $3.81. In all instances, the exercise price was established as the fair market value of the common stock at the date of grant, therefore no compensation was recorded on the issuance of the options. In most cases, one-third of the options vested one year from the grant date, with one-third vesting each of the next two years. The options expired in ten years from the grant date.
On July 4, 1997, the Company granted to its three officers and directors incentive options to purchase 34,000 shares, individually, at an exercise price of $2.94 per share (110% of the fair market value). The options expired on July 4, 2002.
On July 5, 1997, the Company issued non-qualified options to its officers and directors to purchase 750,000 shares of common stock at 35% of the fair market value at the date of grant. Deferred compensation of $1,340,625 was recorded on the transaction and was amortized over the remaining term of the employment contract (two years).
At various dates during the year ended June 30, 1998, the Company issued to various employees incentive options to purchase 204,905 shares of common stock at prices ranging from $.55 to $2.60. In all instances, the exercise price was established as the fair market value of the common stock at the date of grant, therefore no compensation was recorded on the issuance of the options. In most cases, one-third of the options vested one year from the grant date, with one-third vesting each of the next two years. The options expired in ten years from the grant date.
On July 5, 1998, the Company issued non-qualified options to its officers and directors to purchase 750,000 shares of common stock at 35% of the fair market value at the date of grant. Deferred compensation of $622,500 was recorded on the transaction and was amortized over the remaining term of the employment contract (one year).
At various dates during the year ended June 30, 1999, the Company issued to various employees incentive options to purchase 786,635 shares of common stock at prices ranging from $.46 to $.60. In all instances, the exercise price was established as the fair market value of the common stock at the date of grant, therefore no compensation was recorded on the issuance of the options. In most cases, one-third of the options vested one
year from the grant date, with one-third vesting each of the next two years. The options expired in ten years from the grant date.
At various dates during the year ended June 30, 2000, the Company issued to its officers and various employees incentive options to purchase 3,139,459 shares of common stock at prices ranging from $.23 to $4.38. The exercise price was established at the fair market value of the common stock at the date of grant for employees and 110% of the fair market value at the date of grant for officers, therefore no compensation was recorded on the issuance of the options. The officers’ options vested immediately, while the employees’ options vested one-third from the grant date, with one-third vesting each of the next two years. The options expireexpired in five years from the grant date.
At various dates during the year ended June 30, 2001, the Company issued to its officers and various employees incentive options to purchase 1,915,700 shares of common stock at prices ranging from $.65 to $2.85. The exercise price was established as the fair market value of the common stock at the date of grant for employees and 110% of the fair market value at the date of grant for officers, therefore no compensation was recorded on the issuance of the options. The officers’ options vested immediately, while the employees’ options vested one-third from the grant date, with one-third vesting each of the next two years. The options expired in five years from the grant date.
In addition, on November 20, 2000 the Company granted to each director a stock option to purchase 50,000 shares (an aggregate of 150,000 shares) of the Company’s common stock at an exercise price of $.65 per share. The option expires in ten years and became exercisable on a quarterly pro-rata basis (12,500 shares) from the date of grant. The option is not intended to be an incentive stock option pursuant to Section 422 of the Internal Revenue Code.
At various dates during the year ended June 30, 2002, the Company issued to its officers and various employees incentive options to purchase 6,839,864 shares of common stock at prices ranging from $.50 to $.93. The exercise price was established as the fair market value of the common stock at the date of grant for employees and 110% of the fair market value at the date of grant for officers, therefore no compensation was recorded on the issuance of the options.
Vesting for certain of the officers’ options was immediately, while the other officers’ options and the employees’ options vested over varying periods up to three years from the date of grant. The options expire from four to ten years from the grant date.
In addition, on November 20, 2001 the Company granted to each director a stock option to purchase 100,000 shares (an aggregate of 300,000 shares) of the Company’s common stock at an exercise price of $.55 per share. The option expired in ten years and became exercisable on a quarterly pro-rata basis (25,000 shares) from the date of grant. The option was not intended to be an incentive stock option pursuant to Section 422 of the Internal Revenue Code.
At various dates during the year ended June 30, 2003, the Company issued to its officers and various employees incentive options to purchase 1,459,705 shares of common stock at prices ranging from $.19 to $.79. The exercise price was established as the fair market value of the common stock at the date of grant for employees and 110% of the fair market value at the date of grant for officers, therefore no compensation was recorded on the issuance of the options. Vesting for certain of the officers’ options was immediate, while the other officers’ options and the employees’ options vested over varying periods up to three years from the date of grant. The options expire from four to ten years from the grant date.
In addition, at various dates during the year ended June 30, 2003 the Company granted to each new director a stock option to purchase 100,000 shares (an aggregate of 400,000 shares) of the Company’s common stock at exercise price ranging from $.20 to $.25 per share. The option expires in ten years and became exercisable on a
quarterly pro-rata basis (25,000 shares) from the date of grant. The option was not intended to be an incentive stock option pursuant to Section 422 of the Internal Revenue Code.
At various dates during the year ended June 30, 2004, the Company issued to its officers and various employees incentive options to purchase 1,576,620 shares of common stock at prices ranging from $.81 to $1.25. At various dates during the year ended June 30, 2004, the Company issued to various employees Non-Statutory options to purchase 31,748 shares of common stock at prices ranging from $.39 to $.78. The exercise price was established as the fair market value of the common stock at the date of grant for employees, and 110% of the fair market value at the date of grant for an officer, therefore no compensation was recorded on the issuance of the options. Vesting for certain of the officers’ options is immediate, while the other officers’ options and the employees’ options vested over varying periods up to five years from the date of grant. The options expire from four to ten years from the grant date.
In addition, at various dates during the year ended June 30, 2004, the Company issued to its Directors stock options to purchase 100,000 shares of the Company’s common stock at prices ranging from $1.03 to $1.11. At various dates during the year ended June 30, 2004, the Company issued to its Directors Non-Statutory options to purchase 700,000 shares of common stock at prices ranging from $.69 to $.88. The options expire in ten years and became exercisable on a quarterly pro-rata basis (50,000 shares) from the date of grant. Options issued to the Directors are not intended to be incentive stock options pursuant to Section 422 of the Internal Revenue Code.
At various dates during the year ended June 30, 2005, the Company issued to various employees and two consultants Non-Statutory options to purchase 4,253,159 shares of common stock at prices ranging from $.20 to $.44. The exercise price was established as the fair market value of the common stock at the date of grant for employees and 110% of the fair market value at the date of grant for an officer, therefore no compensation was recorded on the issuance of the options. Vesting for certain of the officers’ options was immediate, while the other officers’ options and the employees’ options vest over varying periods up to five years from the date of grant. The options expire from four to ten years from the grant date.
At various dates during the year ended June 30, 2005, the Company issued to its Directors Non-Statutory options to purchase 800,000 shares of common stock at prices ranging from $.31 to $.44. The options expire in ten years and shall become exercisable on a quarterly pro-rata basis (50,000 shares) from the date of grant. Options issued to the Directors are not intended to be incentive stock options pursuant to Section 422 of the Internal Revenue Code.
At various dates during the year ended June 30, 2006, the Company issued to various employees Non-Statutory options to purchase 532,855 shares of common stock at prices ranging from $.14 to $.30. The exercise price was established as the fair market value of the common stock on the date of grant for employees. Options granted during the fiscal year ended June 30, 2006 vest over varying periods from one year up to three years from the date of grant. The options expire ten years from the grant date.
At various dates during the year ended June 30, 2006, the Company issued to its Directors Non-Statutory options to purchase 800,000 shares of common stock at prices ranging from $.13 to $.14. The options expire in ten years and shall become exercisable on a quarterly pro-rata basis (50,000 shares) from the date of grant. Options issued to the Directors are not intended to be incentive stock options pursuant to Section 422 of the Internal Revenue Code.
For the fiscal year ending June 30, 2006, the total compensation for options recorded was $632,558. We have $479,717 of non-cash unvested stock option compensation remaining to be expensed over the next three years. These unvested options are being expensed each quarter over the remaining vesting periods.
At various dates during the year ended June 30, 2007, the Company issued to various employees Non-Statutory options to purchase 3,927,437 shares of common stock at prices ranging from $.085 to $.127. The exercise price was established as the fair market value of the common stock on the date of grant for employees. Options granted during the fiscal year ended June 30, 2007 vest over varying periods from six-months up to three years from the date of grant. The options expire ten years from the grant date.
At various dates during the year ended June 30, 2007, the Company issued to its Directors Non-Statutory options to purchase 800,000 shares of common stock at prices ranging from $.069 to $.089. The options expire in ten years and shall become exercisable on a quarterly pro-rata basis (50,000 shares) from the date of grant. Options issued to the Directors are not intended to be incentive stock options pursuant to Section 422 of the Internal Revenue Code.
For the fiscal year ending June 30, 2007, the total compensation for options recorded was $431,313. We have $299,911 of non-cash unvested stock option compensation remaining to be expensed over the next three years. These unvested options are being expensed each quarter over the remaining vesting periods.
At various dates during the year ended June 30, 2008, the Company issued to various employees Non-Statutory options to purchase 2,336,526 shares of common stock at prices ranging from $.042 to $.084. The exercise price was established as the fair market value of the common stock on the date of grant for employees. Options granted during the fiscal year ended June 30, 2008 vest over varying periods from one year up to three years from the date of grant. The options expire ten years from the grant date.
At various dates during the year ended June 30, 2008, the Company issued to its Directors Non-Statutory options to purchase 600,000 shares of common stock at prices ranging from $.05 to $.051. The options expire in ten years and shall become exercisable on a quarterly pro-rata basis (50,000 shares) from the date of grant. In connection with the resignations of the three outside directors, we agreed to vest their respective options for 200,000 shares each which we granted in late 2007 and early 2008. Options issued to the Directors are not intended to be incentive stock options pursuant to Section 422 of the Internal Revenue Code.
In connection with the sale of our commercial property to Bright Investments, LLC, we agreed to grant a two-year Non-Qualified option to purchase 3,000,000 shares of common stock at $.035 upon the receipt of the down payment which was August 2, 2007.
For the fiscal year ending June 30, 2008, the total compensation for options recorded was $183,182. We have $79,633 of non-cash unvested stock option compensation remaining to be expensed over the next three years. These unvested options are being expensed each quarter over the remaining vesting periods.