In December 2009, we borrowed a total of $400,000 from a private investor pursuant to three short-term promissory notes. These notes were payable from March 10 through March 15, 2010 in the amount of principal plus 15% premium, so that the total amount due was $460,000. In addition, we issued to the investor 24,000,000 shares of restricted common stock as collateral. These shares are to be returned and cancelled upon payment of the notes. The original due date of March 15, 2010 was first extended to June 15, 2010, with a second extension to September 30, 2010 and a third extension to October 31, 2010. Further extensions of the notes were made through May 31,November 30, 2011 for 3% additional premium per month on each note. In connection with these extensions a total of $119,800$164,800 of additional premium was accrued for the December 2009 notes as of the date of this report. In April 2011, Southridge Partners II LP purchased a total of $200,000 in principal value of promissory notes from the private investor. Southridge converted $100,000 principal and $55,600 premium into 20,746,666 shares of our common stock that was previously issued as collateral.
On January 8, 2010, we borrowed a total of $600,000 from a private investor pursuant to two short-term promissory notes. These notes were payable April 6, 2010 in the amount of
principal plus 15% premium, so that the total amount due was $690,000. In addition, we issued to the investor 31,363,637 shares of restricted common stock as collateral. These shares are to be returned and cancelled upon payment of the notes. The original due date of April 6, 2010 was first extended to June 15, 2010, with a second extension to September 30, 2010 and a third extension to October 31, 2010. Further extensions of the notes were made through MarchJuly 31, 2011 for 3% additional premium per month on each note. In January 2011, Southridge Partners II LP purchased a total of $600,000 in principal value of promissory notes from the private investor. As of the date of this report, Southridge has converted $425,000 principal and $200,051 premium into 32,397,016 shares of our common stock of which 31,056,108 shares were collateral shares and 1,340,908 new shares were issued pursuant to Rule 144. Although we are in technical default of these two notes, the holder, Southridge has elected to convert these notes into common shares. In connection with these prior extensions and the accrual of the April & May additional premiums through November 30, 2011, a total of $216,750$243,000 of additional premium was accrued for the January 2010 notes as of the date of this report.
On February 25, 2010, we borrowed $350,000 from a private investor pursuant to a short-term promissory note. We issued to the investor 35 shares of Series L Convertible Preferred Stock as collateral. This note had a maturity date of April 30, 2010; however, the investor gave us notice of conversion to the collateral shares on March 31, 2010. The Note was cancelled upon this conversion. The 35 shares of Series L Convertible Preferred Stock accrue dividends at an annual rate of 9% and are convertible into an aggregate of 16,587,690 shares of common stock (473,934 shares of common stock for each share of preferred stock). Pursuant to the Certificate of Designations,Designation, Rights and Preferences for the Series L Convertible Preferred Stock, we are obligated to reduce the conversion price and reserve additional shares for conversion if we sold or issued common shares below the price of $.0211 per share (the market price on the date of issuance of the Preferred Stock). In October 2010, we obtained a waiver from the private investor holding the 35 shares of Series L Convertible Preferred Stock in which the investor agreed to convert no more than the 16,587,690 common shares currently reserved as we do not have sufficient authorized common shares to reserve for further conversions pursuant to the Certificate of Designations,Designation, Rights and Preferences. The investor agreed to a conversion floor price of $.015, which required us to reserve an additional 6,745,643 common shares.
On January 6, 2011, the investor converted 15 shares of the Series L Convertible Preferred Stock into 10,000,000 shares of common stock. On May 11, 2011, we obtained a waiver fromAs of the private investor wheredate of this report, the investor agreed to convert no additional Series L Convertible Preferred Stock into common shares until the approval by our shareholders of an increase in authorized common stock at our next annual meeting to be held on July 12, 2011. This waiver encompasses a total of 13,333,333 shares issuable upon full conversion of theholds 20 shares of the Series L Convertible Preferred Stock held by the investor as of the date of this report.Stock.
On December 13, 2010, we borrowed a total of $60,000 from a private investor pursuant to a short-term promissory note. The note is payable on or before January 31, 2011. As consideration for this loan, we arewere obligated to pay back his principal, $10,800 in premium and will issue 3,000,000 restricted shares of common stock upon the approval by our
In November and December 2010, we received a total of $145,000 from Southridge Partners II LP pursuant to three short-term promissory notes. All three notes provide for a redemption premium of 15% of the principal amount on or before March 31, 2011. We received an extension of maturity date to November 30, 2011 for these notes. Interest will accrue at 8% per annum until maturity. Southridge may elect at an Event of Default to convert any part or all of the $145,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) ninety percent (90%)90% of the average of the three (3) lowest closing bid prices during the ten (10)10 trading days immediately prior to the date of the conversion notice.
In January 2011, we received a total of $157,000 from Southridge Partners II LP pursuant to three short-term promissory notes. All three notes provide for a redemption premium of 15% of the principal amount on or before May 31, 2011. We received an extension of maturity date to November 30, 2011 for these notes. Interest will accrue at 8% per annum until maturity. Southridge may elect at an Event of Default to convert any part or all of the $157,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) ninety percent (90%)90% of the average of the three (3) lowest closing bid prices during the ten (10)10 trading days immediately prior to the date of the conversion notice.
In February 2011, we received a total of $115,000 from Southridge Partners II LP pursuant to two short-term promissory notes. Both notes provide for a redemption premium of 15% of the principal amount on or before May 31, 2011. We received an extension of maturity date to November 30, 2011 for these notes. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $115,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) ninety percent (90%)90% of the average of the three (3) lowest closing bid prices during the ten (10)10 trading days immediately prior to the date of the conversion notice.
In March 2011, we received $60,000 from Southridge Partners II LP pursuant to a short-term promissory note. The note provides for a redemption premium of 15% of the principal amount on or before May 31, 2011. We received an extension of maturity date to November 30, 2011 for these notes. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $60,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) ninety percent (90%)90% of the average of the three (3) lowest closing bid prices during the ten (10)10 trading days immediately prior to the date of the conversion notice.
In April 2011, we received $165,000 from Southridge Partners II LP pursuant to two short-term promissory notes. The note providesnotes provide for a redemption premium of 15% of the principal amount on or before July 31, 2011. We received an extension of maturity date to November 30, 2011 for these notes. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $165,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) ninety percent (90%)90% of the average of the three (3) lowest closing bid prices during the ten (10)10 trading days immediately prior to the date of the conversion notice.
In May 2011, we received $80,000 from Southridge Partners II LP pursuant to two short-term promissory notes. The notes provide for a redemption premium of 15% of the principal amount on or before July 31, 2011. We received an extension of maturity date to November 30, 2011 for these notes. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an
Event of Default to convert any part or all of the $80,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) 90% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
In July 2011, we received $150,000 from Southridge pursuant to a short-term promissory note. The note provided for a redemption premium of 15% of the principal amount on or before December 31, 2011. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the
$150,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) 70% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
In August 2011, we received $82,500 from Southridge pursuant to two short-term promissory notes of which the principal on these notes was $100,000 and $7,500, respectively. The $100,000 note provided for a $25,000 original issue discount and both notes provided for a redemption premium of 15% of the principal amount on or before December 31, 2011. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $107,500 principal amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) 70% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
In August 2011, we received $50,000 from OTC Global Partners, LLC pursuant to a short-term promissory note. The note provided for a redemption premium of 15% of the principal amount on or before March 1, 2012. Interest will accrue at 8% per annum until maturity above and beyond the premium. OTC Global Partners, LLC may elect at an Event of Default to convert any part or all of the $50,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.014 or (b) 65% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
In September 2011, we received $133,000 from Southridge pursuant to two short-term promissory notes of which the principal on these notes were $100,000 and $100,000, respectively. One of the $100,000 notes provided for a $33,000 original issue discount and the other $100,000 note provided a $34,000 original issue discount. The notes provided for a redemption premium of 15% of the principal amount on or before December 31, 2011. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $200,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.0075 or (b) 70% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
In October 2011, we received $67,000 from Southridge pursuant to a short-term promissory note of which the principal on the note was $100,000. The note provides for a $33,000 original issue discount. The note provided for a redemption premium of 15% of the principal amount on or before January 12, 2012. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $100,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.0075 or (b) 70% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
In October 2011, we received $67,000 from Southridge pursuant to a short-term promissory note of which the principal on the note was $100,000. The note provides for a $33,000 original issue discount. The note provided for a redemption premium of 15% of the principal amount on or before January 26, 2012. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $100,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.005 or (b) 70% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
In October 2011, we received $78,500 from Asher Enterprises pursuant to a short-term promissory note due on or before July 26, 2012. Interest will accrue at 8% per annum until maturity above and beyond the premium. Asher Enterprises may elect at an Event of Default to convert any part or all of the $78,500 Principal Amount of the Note plus accrued interest into shares of our common stock at a conversion price equal to 58% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
On May 11, 2011, Southridge executed a debt to equity conversion of a $80,000 short-term promissory note dated November 11, 2010 plus accrued interest of $3,174. We issued
Southridge 11,089,826 common shares pursuant to Rule 144 based on an agreed exchange price of $0.0075 per share. We still owe Southridge $12,000 in premium associated with this note.
On July 13, 2011, Southridge executed a debt to equity conversion of a $14,000 short-term promissory note dated December 16, 2010 plus accrued interest of $641. We issued Southridge 1,464,132 common shares pursuant to Rule 144 based on an agreed exchange price of $0.01 per share. We still owe Southridge $2,100 in premium associated with this note.
On July 13, 2011, Southridge executed a debt to equity conversion of a $51,000 short-term promissory note dated December 22, 2010 plus accrued interest of $2,269. We issued Southridge 5,326,915 common shares pursuant to Rule 144 based on an agreed exchange price of $0.01 per share. We still owe Southridge $7,650 in premium associated with this note.
On July 21, 2011, Southridge executed a debt to equity conversion of a $55,000 short-term promissory note dated January 13, 2011 plus accrued interest of $2,278. We issued Southridge 5,727,836 common shares pursuant to Rule 144 based on an agreed exchange price of $0.01 per share. We still owe Southridge $8,250 in premium associated with this note.
On July 21, 2011, Southridge executed a debt to equity conversion of a $22,000 short-term promissory note dated January 19, 2011 plus accrued interest of $882. We issued Southridge 2,288,241 common shares pursuant to Rule 144 based on an agreed exchange price of $0.01 per share. We still owe Southridge $3,300 in premium associated with this note.
On August 24, 2011, Southridge executed a debt to equity conversion of a $80,000 short-term promissory note dated January 28, 2011 plus accrued interest of $3,647. We issued Southridge 8,364,712 common shares pursuant to Rule 144 based on an agreed exchange price of $0.01 per share. We still owe Southridge $12,000 in premium associated with this note.
On August 24, 2011, Southridge executed a partial debt to equity conversion of a $80,000 short-term promissory note dated February 7, 2011 in which they converted $20,000 principal plus accrued interest of $868. We issued Southridge 2,086,795 common shares pursuant to Rule 144 based on an agreed exchange price of $0.01 per share. We still owe Southridge $60,000 principal, $12,000 in premium and $2,683 in interest associated with this note.
On September 27, 2011, Southridge executed a final debt to equity conversion of a $80,000 short-term promissory note dated February 7, 2011 in which they converted the remaining $60,000 principal plus accrued interest of $868. We issued Southridge 8,399,781 common shares pursuant to Rule 144 based on an agreed conversion price of $0.0075 per share. We still owe Southridge $12,000 in premium associated with this note.
On September 27, 2011, Southridge executed a debt to equity conversion of a $35,000 short-term promissory note dated February 15, 2011 plus accrued interest of $1,688. We issued Southridge 4,891,689 common shares pursuant to Rule 144 based on an agreed conversion price of $0.0075 per share. We still owe Southridge $5,250 in premium associated with this note.
On September 27, 2011, Southridge executed a debt to equity conversion of a $60,000 short-term promissory note dated March 31, 2011 plus accrued interest of $2,315. We issued Southridge 8,308,603 common shares pursuant to Rule 144 based on an agreed conversion price of $0.0075 per share. We still owe Southridge $9,000 in premium associated with this note.
On September 28, 2011, we amended the terms of all debt agreements with Southridge Partners II, LP and agreed to amend the conversion terms of the Notes such that the principal portion of the Notes, plus accrued interest, shall be convertible into shares of our common stock at a conversion price per share equal to the lesser of (a) $0.0075 or (b) ninety percent (90%) of the average of the three (3) lowest closing bid prices during the ten (10) trading days immediately prior to the date of the conversion notice.
On May 11,October 13, 2011, weSouthridge executed a debt to equity exchange with Southridge Partners II LP pursuant to an $80,000conversion of a $100,000 short-term promissory note dated November 11, 2010April 14, 2011 plus accrued interest of $3,174.$3,989. We issued Southridge 11,089,82620,797,808 common shares pursuant to Rule 144 based on an agreed exchangeconversion price of $00.75$0.005 per share. We still owe Southridge $12,000$15,000 in premium associated with this note.
31On November 3, 2011, Southridge executed a debt to equity conversion of a $65,000 short-term promissory note dated April 26, 2011 plus accrued interest of $2,721. We issued Southridge 13,544,219 common shares pursuant to Rule 144 based on an agreed conversion price of $0.005 per share. We still owe Southridge $15,000 in premium associated with this note.
From January 2011 to April 2011, Southridge Partners II LP acquired promissory notes from a private investor totaling $800,000 in principal and 55,363,907 shares of common stock which were issued as collateral. Southridge proposed that we amend the conversion terms of the notes permitting the holder to convert the notes and we agreed to the amendment. From January 12, 2011 to May 16,November 14, 2011, Southridge issued notices of conversion to settle $525,000 in principal plus accrued premiums totaling $255,651 into 53,143,682 shares of our common stock, of which 51,802,774 shares were collateral shares and 1,340,908 new shares were issued pursuant to Rule 144.
As of the date of this report, we owe a total of $1,779,332$2,203,201 of short term debt of which $1,296,171$1,501,500 is principal, $472,899$688,724 is accrued premium and $10,262$13,477 is accrued interest. AThirteen promissory notes totaling $80,000 in principal have been extended to November 30, 2011; five promissory notes totaling $457,500 in principal have a maturity date of December 31, 2011; one promissory note totaling $60,000with $100,000 in principal has been extended to May 31, 2011;a maturity date of January 12, 2012; one promissory note with $100,000 in principal has a maturity date of January 26, 2012; five promissory notes totaling $575,000 in principal have a maturity date that had been extended to March 31,of November 30, 2011; twoone promissory notes totaling $65,000note with $60,000 in principal havefrom a private investor has a maturity date of November 30, 2011; one promissory note with $50,000 in principal has a maturity date of March 31, 2011; six1, 2012; one promissory notes totaling $332,000note with $78,500 in principal have a maturity date of May 31, 2011 as the new maturity date, four promissory notes totaling $245,000 in principal havehas a maturity date of July 31, 2011; and one promissory note totaling $19,171 has a maturity date of May 26, 2011.2012. We have repaid aggregate principal and premium in the amount of $152,438$173,376 on these short-term notes and a total of $525,000$1,167,000 principal, and $255,651 in premium, and $27,471 in interest has been converted into 53,143,682145,434,239 shares of our common stock of which 51,802,774 shares were collateral shares and 1,340,90893,631,465 new shares were issued pursuant to Rule 144. Out of the original 55,363,637 shares of common stock held as collateral, a balance of 3,561,133 shares remains on the $475,500$475,000 principal of the remaining notes.
There can be no assurances that we will be able to pay our short-term loans when due. If we default on any or all of the notes due to the lack of new funding, the holders could exercise their right to sell the remaining 3,561,133 collateral shares and could take legal action to collect the amount due which could materially adversely affect IDSI and the value of our stock.
Issuance of Stock in Connection with Long-Term Loans
On February 23, 2011, we entered into a Convertible Promissory Note Agreement with an unaffiliated third party, JMJ Financial (the “Lender” or “JMJ”), relating to a private placement of a total of up to $1,800,000 in principal amount of a Convertible Promissory Note (the “Note”) providing for advances of a gross amount of $1,600,000 in seven tranches. WePursuant to the terms of a Registration Rights Agreement (the “Rights Agreement”) dated February 23, 2011, between the Company and JMJ, we are required to file within 10 days from the effective date of an increase of authorized shares to be voted onapproved by our shareholders, at the next annual meeting, an S-1 Registration Statement (the “Registration Statement”) covering 130,000,000 shares of ourCompany common stock to be reserved for conversion of the Note pursuantNote.
Although our shareholders on July 12, 2011, voted to the terms of a Registration Rights Agreement (the “Rights Agreement”) dated February 23, 2011, between the IDSI and JMJ. In a letter addendum to the Note dated February 22, 2011, JMJ acknowledged that the we do not have sufficientincrease our authorized shares available to reserve and register pursuant to2,000,000,000, we have not filed the terms ofregistration statement as required by the Rights Agreement and agreed not to enforce the required registration of shares until such time as the increase in authorized shares has been approved by our shareholders.Agreement.
The Note provides for funding in seven tranches as stipulated in the Funding Schedule attached. The first tranche of $300,000 was closed on February 24, 2011, and we received $258,000
$258,000 after deductions of $30,000 for a 10% Finder’s Fee and $12,000 for an Origination Fee. The second tranche of $100,000 closed on May 20, 2011, and we received $93,000 after deduction of $7,000 for a 7% Finder’s Fee. A partial closing on the third tranche of $35,000 closed on October 7, 2011 and we received $32,250 after deduction of $2,750 for a 7% Finder’s Fee. The remaining sixfive tranches are to be funded based on achievement of milestones relating to the Registration Statement, with the final tranche of $300,000 being available 150 days after effectiveness of the Registration Statement, which must be effective 120 days after the date of the Agreement. For the remaining sixfive tranches, we are obligated to pay a Finder’s Fee equal to 7% in cash at each closing date. We may cancel the unfunded portion of the Agreement at a fee of 20% of the unfunded amount. As of the date of this report, $1,500,000$1,400,000 in principal amount remains unfunded and if we choose to cancel we will have to pay JMJ $300,000$280,000 to terminate the agreement.
The Note, after the seven tranches are drawn, would generate net proceeds of $1,467,000 after payment of the Origination Fee and a 7% Finder’s Fee. JMJ has the option to provide an
additional $1,600,000 of funding on substantially the same terms as the first Agreement; however, we have the right to cancel, without penalty, the Note Agreement within five days of JMJ’s execution. Once executed and accepted by both parties and five days has passed, cancellation of unfunded payments is permitted at a fee of 20% of the unfunded amount. Cancellation of funded portions is not permitted.
The funding schedule of the seven tranches is as follows:
| § | $300,000 paid to Borrower within 2 business days of execution and closing of the agreement. |
| § | $100,000 paid to Borrower within 5 business days of filing of Definitive Proxy to increase authorized shares to 2,000,000,000 or more. |
| § | $100,000 paid to Borrower within 5 business days of effective increase in authorized shares to 2,000,000,000 or more. |
| § | $100,000 paid to Borrower within 5 business days of filing of registration statement, and that registration statement must be filed no later than 10 days from the effective increase of authorized shares. |
| § | $400,000 paid to Borrower within 5 business days of notice of effective registration statement, and that registration statement must be effective no later than 120 days from the execution of the agreement. |
| § | $300,000 paid to Borrower within 90 business days of notice of effective registration statement, and that registration statement must be effective no later than 120 days from the execution of the agreement. |
| § | $300,000 paid to Borrower within 150 business days of notice of effective registration statement, and that registration statement must be effective no later than 120 days from the execution of the agreement. |
The conditions to funding each payment are as follows:
| § | At the time of each payment interval, the Conversion Price calculation on Borrower’s common stock must yield a Conversion Price equal to or greater than $0.015 per share (based on the Conversion Price calculation, regardless of whether a conversion is actually completed or not). |
| § | At the time of each payment interval, the total dollar trading volume of Borrower’s common stock for the previous 23 trading days must be equal to or greater than $1,000,000 (one million).$1,000,000. The total dollar volume will be calculated by removing the three highest dollar volume days and summing the dollar volume for the remaining 20 trading days. |
| § | At the time of each payment interval, there shall not exist an event of default as described within any of the agreements between Borrower and Holder. |
Prior to the maturity date of February 2, 2014, JMJ may convert both principal and interest into our common stock at 75% of the average of the three lowest closing prices in the 20 days previous to the conversion. We have the right to enforce a conversion floor of $0.015 per share; however, if we receive a conversion notice in which the Conversion Price is less than $0.015 per share, JMJ will incur a conversion loss [(Conversion Loss = $0.015 – Conversion Price) x number of shares being converted] which we must make whole by either of the following options: pay the conversion loss in cash or add the conversion loss to the balance of principal due. Prepayment of the Note is not permitted.
The Note has a 9% one-time interest charge on the principal sum. No interest or principal payments are required until the Maturity Date, but both principal and interest may be included in conversions prior to the maturity date.
On August 24, 2011, JMJ executed a debt to equity conversion of $36,015 in principal of the first tranche of $300,000 which we closed on February 24, 2011. We issued JMJ 3,500,000 common shares pursuant to Rule 144 based on a conversion price of $0.0103 per share.
On August 31, 2011, JMJ executed a debt to equity conversion of $41,160 in principal of the first tranche of $300,000 which we closed on February 24, 2011. We issued JMJ 4,000,000 common shares pursuant to Rule 144 based on a conversion price of $0.01029 per share.
On September 15, 2011, JMJ executed a debt to equity conversion of $37,597 in principal of the first tranche of $300,000 which we closed on February 24, 2011. We issued JMJ 4,100,000 common shares pursuant to Rule 144 based on a conversion price of $0.00917 per share.
On September 28, 2011, JMJ executed a debt to equity conversion of $40,950 in principal of the first tranche of $300,000 which we closed on February 24, 2011. We issued JMJ 5,000,000 common shares pursuant to Rule 144 based on a conversion price of $0.00819 per share.
On October 12, 2011, JMJ executed a debt to equity conversion of $36,750 in principal of the first tranche of $300,000 which we closed on February 24, 2011. We issued JMJ 5,000,000 common shares pursuant to Rule 144 based on a conversion price of $0.00735 per share. As of the date of this report, we now owe JMJ a total of $172,028 of which $107,528 is principal, $37,500 is consideration and $27,000 is interest associated with this first tranche.
As of the date of this report, we owe JMJ a total of $336,053 in long-term debt of which $242,528 is principal, $54,375 is consideration on the principal and $39,150 is interest.
As of the date of this report, we believe that we do not have any material quantitative and qualitative market risks.
We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed in the reports that we file under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
As of June 30, 2011 we had a material weakness in our internal controls over financial reporting and have made the following change to correct this material weakness. We have amended our internal controls over financial reporting whereby we will internally review newly implemented accounting principles and if necessary, seek an outside opinion from a qualified consultant on newly implemented accounting principles and complex accounting transactions. There hashave been no changeother changes in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
OTHER INFORMATION
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 alleged 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 believed that this claim was without merit, and we vigorously defended the case. Our Italian counsel responded to the lawsuit in November 2008 and requested and was granted an extension to May 2009 to respond. Our counsel filed our defenses in the Court of Venice at a hearing held in June 2009. The judge set the next hearing for March 3, 2010 in order to allow the parties to clarify their claims and defenses. At the hearing, the plaintiffs did not prove all of the facts underlying their claims. The Judge set a hearing for November 10, 2010 for the “clarification of conclusions”. At that time, our counsel planned to present our demand for damages from “vexatious litigation” by the plaintiffs. The November 10, 2010 hearing was postponed until November 17, 2010. At the hearing, the plaintiffs failed to present their statements to the court in a timely manner and therefore, we believe that the plaintiffs should no longer be able to pursue any legal remedy in this matter. The last hearing of the case was held on November 17, 2010. We believeA hearing was held on September 28, 2011 and the Judge declared that it will take several months before we receivethe case was closed. Our counsel requested a final dismissal in this matter.copy of the order of the court to be sent to the Plaintiffs notifying them that the case was closed. Because the court is sending notice to the plaintiffs, the time for appeal is reduced from one year to one month. If the plaintiffs do not appeal, the court’s decision becomes final.
On March 1, 2011, a lawsuit was filed against us in the United States District Court, Southern District of New York, by Shraga Levin (“Levin”), an individual who provided services as a placement agent in connection with arranging financing for us. In July 2008, Mr. Levin arranged financing for up to $800,000 through 8% Senior Secured Convertible Debentures to be purchased by Whalehaven Capital Fund Limited (“Whalehaven”) or its registered assigns. A first closing occurred on August 1, 2008 for a gross amount of $400,000 and a second closing occurred on November 20, 2008, for a gross amount of $400,000. Subsequent to the first closing Whalehaven assigned a portion of its Debenture to Alpha Capital Anstalt (“Alpha”). Mr. Levin was paid a total of $44,000 cash and received a Common Stock Purchase Warrant (“Warrant”) for 1,866,666 shares at an exercise price of $0.0228 for his services as a placement agent. The Warrant provided a feature for cashless exercise and a re-pricing provision for the exercise price in the event that any shares were sold or granted at a price less than $0.0228 while Mr. Levin’s warrant was outstanding. There was a re-pricing of the Whalehaven and Alpha warrants based on those investors’ agreement to immediately exercise their warrants and on October 16, 2009, Mr. Levin exercised his warrant at $0.005 per share as a result of the re-pricing he exercised as to the entire 1,866,666 shares, electing the cashless exercise feature, and received a net of 1,392,891 shares. The Warrant was cancelled upon delivery of the shares.
In his complaint dated March 1, 2011, Mr. Levin was seeking an additional 5,814,665 shares based on his belated contention that the Warrant language required an increase in the number of shares covered by the Warrant as a result of the re-pricing. He was also seeking liquidated damages for the late issuance of the shares claimed equal to 2% of the value of the stock per trading day.
On April 15, 2011, we entered into a settlement with Mr. Levin. While we believe that we have substantial defenses to Mr. Levin’s claim because we believe he was paid in full for his services and received all of the shares due from the exercise in full of the Warrant at $0.005 per share, we settled the matter to avoid costly litigation. Pursuant to the settlement, we
agreed to issue to Mr. Levin, based on a cashless exercise as to 50% of the disputed shares, 2,907,333 shares of common stock upon the receipt of shareholder approval of the increase in authorized shares. The cashless exercise is based on the market price of IDSI stock on December 28, 2010 ($.04), when Mr. Levin tendered his warrant exercise as to the disputed shares. In the event that we are not able to obtain shareholder approval to increase our authorized shares by July 31, 2011, a penalty of 2% per month payable in additional warrants will accrue from August 1, 2011. The settlement stipulation was filed with the court on May 18, 2011, and the 2,907,333 shares were issued on July 18, 2011. This case is now closed.
Our Annual Report on Form 10-K for the year ended June 30, 2010, includes a detailed discussion of our risk factors. The risks described in our Form 10-K are not the only risks facing IDSI. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. During the thirdfirst quarter ended March 31,September 30, 2011, there were no material changes in risk factors as previously disclosed in our Form 10-K filed on October 13,September 22, 2010.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
See Item 5. Other Information –“Financing/Equity Line of Credit”.
Item 3. 3. Defaults Upon Senior Securities.
None
Item 4.Submission of Matters to a Vote of Security-Holders.
NoneOn July 12, 2011, 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 to serve 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 950,000,000 to 2,000,000,000; |
| 3. | To consider and act upon a proposal to adopt the Company's 2010 Non-Statutory Stock Option Plan; |
| 4. | To ratify the appointment by the Board of Directors of Sherb & Co., LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2011; |
| 5. | To hold an advisory vote on the compensation of our named executive officers as described in the accompanying proxy statement; |
| 6. | To hold an advisory vote on how frequently (every one, two or three years) you prefer we conduct an advisory vote of stockholders on the compensation of our named executive officers; and |
| 7. | To conduct any other business properly brought before the meeting. |
As to proposal no. 1, the stockholders elected two incumbent directors with the following votes:
| Linda B. Grable | FOR 93,997,847 | WITHHELD 12,912,365 |
| Allan L. Schwartz | FOR 92,811,350 | WITHHELD 14,098,862 |
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 950,000,000 to 2,000,000,000. The vote was as follows:
| FOR 598,801,481 | AGAINST 115,527,185 | ABSTAIN 2,097,143 |
As to proposal no. 3, the stockholders voted to adopt the Company's 2010 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 80,416,167 | AGAINST 24,548,748 | ABSTAIN 1,945,297 |
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, 2011. 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 687,596,229 | AGAINST 22,485,887 | ABSTAIN 6,343,693 |
As to proposal no. 5, the stockholders voted to hold an advisory vote on the compensation of our named executive officers as described in our proxy statement. To be approved the advisory vote on the compensation of our named executive officers, must receive a "For" vote from the majority of shares present and entitled to vote either in person or by proxy. If you "Abstain" from voting, it will have the same effect as an "Against" vote. Broker non-votes will have no effect.
| FOR 91,350,893 | AGAINST 13,161,967 | ABSTAIN 2,397,352 |
As to proposal no. 6, the stockholders voted to hold an advisory vote on how frequently (every one, two or three years) they prefer the Company conducts an advisory vote of stockholders on the compensation of our executive officers as described in our proxy statement. The stockholders voted to hold the advisory vote on executive compensation each year.
| 1 YEAR 94,587,673 | 2 YEARS 4,998,424 | 3 YEARS 5,582,930 | ABSTAIN 1,741,185 |
CTLM® DEVELOPMENT HISTORY, REGULATORY AND CLINICAL STATUS
Since inception, the entire mission of IDSI was to further develop and refine the CT Laser Mammography system which was invented in 1989 by our late co-founder, Richard J. Grable. The 1994 prototype was built on a platform using then state-of-the-art computer processors which were slow and lasers which were very sensitive to temperature changes and required frequent calibration and servicing.
In order to market and sell the CTLM® in the United States, we must obtain marketing clearance from the Food and Drug Administration. Initially, we were seeking marketing clearance through an application through Pre-Market Approval (PMA) which must be supported by extensive data, including pre-clinical and clinical trial data, as well as evidence to prove the safety and effectiveness of the device.
A PMA is the FDA process of scientific and regulatory review to evaluate the safety and effectiveness of Class III medical devices. Class III devices are those that support or sustain human life, are of substantial importance in preventing impairment of human health, or which present a potentially unreasonable risk of illness or injury. Due to the level of risk associated with Class III devices, the FDA has determined that general and special controls alone are insufficient to assure the safety and effectiveness of Class III devices. Therefore, these devices require a PMA application in order to obtain marketing clearance.
The FDA automatically classifies new technologies in Class III when limited safety information is available and no predicate device is available. It allows for multiple clinical studies to be pursued to gather the necessary data to obtain safety and clinical information to be used for future FDA submissions. At the time that we were developing the CTLM® system and considering marketing clearance there was not enough data on laser based technologies nor were there approved other new medical devices dedicated to breast imaging other than the traditional x-ray technology. As a result, the FDA recommended that we seek a PMA application.
We received FDA approval to begin our non-pivotal clinical study in February 1999. The first CTLM® was installed at Nassau County (NY) Medical Center in July 1999 and a second CTLM® was installed at the University of Virginia Health System. We submitted the non-pivotal clinical data to the FDA in May 2001. In spite of our efforts to control operating temperatures with thermal cooling cabinets for the lasers and voltage stabilizers to control power, our engineering team led by Mr. Grable decided that they would re-design the CTLM® system into a compact, robust system using surface-mount technology for the electronics and a solid state diode laser that did not require a separate chiller to control its operating temperature. It was a case where technology had to catch up with the invention. Unfortunately, Mr. Grable passed away unexpectedly in 2001. It took several years to re-design and test but our efforts were successful and we began to collect the clinical data necessary to file the PMA application.
In May 2003, we filed a PMA application for the CTLM® to the FDA. In August 2003, we received a letter from the FDA citing deficiencies in our PMA application requiring a response to the deficiencies. We initially planned on submitting an amendment to the PMA application to resolve the deficiencies and requested an extension. In March 2004 we received an extension to respond with the amendment however, in October 2004, we made a decision to voluntarily withdraw the original PMA application and resubmit a modified PMA in a simpler and more clinically and technically robust filing.
In November 2004, we received a letter from the FDA stating that the CTLM® study had been declared a Non-Significant Risk (NSR) study when used for our intended use.
In 2005, we initiated the PMA process by designing a new clinical study protocol and a modified intended use, which limited the participants in the study to patients with dense breast tissue. The inclusion criteria was modified because we believed that we would be more successful in proving our hypothesis of the CTLM® system’s intended use and have the
most success at obtaining marketing clearance from the FDA. Concurrently, we identified qualified clinical sites and retained them to proceed with our clinical study.
One of the regulatory requirements for a company (sponsor) to conduct a clinical study within a hospital or imaging center is the regulatory body’s Institutional Review Board (“IRB”) within each hospital or imaging center, which must approve the clinical research the sponsor is requesting. We understood the IRB approval process based on prior experience encountered with the first clinical trial. The IRBs of hospital or imaging centers do not necessarily have a set time frame for reviewing and approving proposed clinical research for a sponsor. Therefore, there is no way a sponsor can anticipate the length of time it will take each IRB to approve the clinical study. We were delayed in this process due to the time it took to obtain the necessary approvals from the IRBs since certain IRBs took longer than others to approve the clinical research.
In 2006, we made changes to bring the CTLM® system to its most current design level. We believe these changes improved the CTLM®’s image quality and reliability. Upgraded CTLM® systems were installed at our U.S. clinical sites and data collection proceeded in accordance with our clinical protocol. The objective was to demonstrate the safety and efficacy of the CTLM® system when used per the "Intended Use" statement. The data collection continued from 2006 to 2010, progressing slowly due to low patient volume pursuant to the inclusion criteria of our clinical protocol.
In our clinical trial, the physician at each hospital or imaging center who oversees the clinical study is responsible for ensuring that each patient meets the requirements of the study. However, there is no way to determine if the patient that is having her standard x-ray mammogram qualifies for the clinical study of the CTLM® system. For example, each hospital or imaging center has a variable amount of patients scheduled for their mammogram, but it is impossible to determine whether or not a particular patient would meet the inclusion criteria (requirement) of the clinical study. So if there are 13 patients scheduled for a mammogram, we may get only one, or even none that qualify for the clinical study because it is based on the specific inclusion and exclusion criteria determined in the protocol.
The inclusion and exclusion criteria can outline as little or as much as necessary to prove a study, whether it takes five criteria or 15 criteria to prove the study. In order for a patient to qualify, she must meet all the criteria. Otherwise, she cannot be examined and cannot participate as a patient. Therefore, it is impossible to determine how many patients getting their mammogram will qualify each day for the CTLM clinical study because they must meet all the inclusion and exclusion criteria of the study protocol. As a result, it has been impossible for us to anticipate how many cancer cases we will collect as the study proceeded.
In September 2008, we were advised that we did not have sufficient cancer cases to finish the clinical study required for the PMA statistical analysis to be processed by our independent bio-statistician. The clinical study participants were not from a pre-selected patient population. Therefore, we did not know whether the patients had cancer or did not have cancer before they participated in the clinical study.
We announced in March 2009 that our research and development team achieved a technical breakthrough with a new reconstruction algorithm that improved the visualization of angiogenesis in the CTLM® images. Angiogenesis is the process byin which new blood vessels are formed in response to a chemical signal sent out by cancerous tumors. The CTLM visualizes the blood distribution in the breast, to detect the new blood vessels (angiogenesis) required for cancerous lesions to grow. The improved algorithm enhances the images by reducing the number of artifacts occasionally produced during an examination, thereby making diagnosis easier. We also incorporated streamlined numerical methods into the software so that the new algorithm does not require additional computing resources, allowing us to provide the improved functionality to existing customers as a software upgrade.
As of May 2009, 10 clinical sites had participated in the clinical trials and at the time we believed we had sufficient clinical data to support our PMA application.application but only our independent biostatistician could make that determination. However, at the time we did not have sufficient financing to perform the statistical analysis study, support the clinical sites, initiate the reading phase the statistical analysis study and complete the submission of the PMA application to the FDA.
Through the years, new MRI and other dedicated breast imaging systems gained FDA marketing clearance pursuant to applications under the FDA’s traditionalSection 510(k) process.premarket notification. In the last several years, the De Novo 510(k) de novo process became an alternate pathway for new technologies with low to moderate risk an opportunity to seek FDA marketing clearance
through this simpler process. In addition, laser safety data and clinical safety and efficacy data were obtained through our series ofprevious clinical trials to support an FDA application through the traditional 510(k) process. We believe our CTLM® system is of low to moderate risk due to the series of technical studies conducted as well as the series of clinical studies we were engaged in which led the FDA to determine in 2004 that our clinical studies were a Non Significant Risk (NSR) device study.
A traditionalSection 510(k) applicationpremarket notification is a premarket submission made to the FDA to demonstrate that the device to be marketed is at least as safe and effective as, that is, substantially equivalent to, a legally marketed device that is not subject to PMA. Submitters must compare their device to one or more similar legally marketed devices and make and support their substantial equivalency claims. A legally marketed device is a device that was legally marketed prior to May 28, 1976 for which a PMA is not required, or a device which has been reclassified from Class III to Class II or I, or a device which has been found to be substantially equivalent through the 510(k) process. The legally marketed device(s) to which equivalence is drawn is commonly known as the "predicate" device.
To submit a traditionalSection 510(k) premarket notification application, a company must meet the following guidelines:
To demonstrate substantial equivalence to another legally U.S. marketed device, the 510(k) applicant must demonstrate that the new device, in comparison to the predicate:
| | · | has the same intended use as the predicate; and |
| | · | has the same technological characteristics as the predicate; or |
| | · | has the same intended use as the predicate; and |
| | · | has different technological characteristics when compared to the predicate, and |
| | · | does not raise new questions of safety and effectiveness; and |
| | · | demonstrates that the device is at least as safe and effective as the legally marketed device. |
One possible outcome resulting from applying for a Section 510(k) premarket notification of intent to market that we believed would have been an option, was the evaluation of automatic class III designation, commonly referred to “De Novo process”. The 510(k) “de novo” applicationDe Novo process is an alternate pathway provided by the FDA to classify certain new devices that had automatically been placed in Class III due to lack of a predicate. The de novoDe Novo classification process was created to provide a mechanism for the classification of certain lower-risk devices for which there is no predicate, but whichwould otherwise would fall into Class III. The de novoDe Novo process is most applicable when the risks of a device are well-understood and appropriate special controls can be established to mitigate those risks.
The de novo process appliescannot be requested until a Section 510(k) premarket notification has been submitted and the FDA responds with a determination that the device is “not substantially equivalent” (NSE) to low and moderate riskthe predicate device. The FDA then classifies the applicant devices that have been classified asinto Class III because they were found not substantially equivalent (NSE) to existing devices.designation. Applicants who receive thisa class III determination from the FDA may request a risk-basedan evaluation for reclassification into Class I or II. Devices that receive this reclassification are considered to be approved through the de novo process.
InAlthough we did not have a final determination on whether the clinical collection allotment for the PMA study was complete, in March 2010, we decided to focus on the possibility of obtaining FDA marketing clearance through a Section 510(k) premarket notification application for our CTLM® system instead of a PMA application based on our own research of other medical imaging devices receivingthat received a Section 510(k) marketing clearancepremarket notification, such as the Aurora MRI Breast Imaging System (the “breast MRI”),. Other sources of our research were obtained through reading medical imaging industry publications, the FDA’s website, along withand discussions with attendees at medical imaging trade shows,shows; specifically the Radiological Society of North America in Chicago, IL in November 2009; Arab Health Show in Dubai, U.A..E.UAE in January 2010;2010, and European Congress of Radiology in Vienna, Austria in March 2010. We began
the process of examining the various potential predicate devices that could be credible to support our traditionalSection 510(k) premarket notification application.
In July 2010, we made our decision to select as our predicate device the breast MRI. This decision was made as a result of our examination of comparative clinical images between CTLM® and breast MRI, which are both functional molecular imaging devices having the ability to visualize angiogenesis in the breast. We began preparing the Section 510(k) premarket notification submission and
engaged the services of a FDA regulatory consultant to review our preliminary draft and then reengagedre-engaged the services of our FDA regulatory counsel to complete the Section 510(k) premarket notification application and to submit it to the FDA.
On November 22, 2010, we submitted a Section 510(k) premarket notification application to the FDA for its review. We believebelieved that the Section 510(k) applicationpremarket notification submission iswas the best process to enable us to move forward to obtain U.S. marketing clearance forin the U.S. in aleast burdensome and most timely manner. IfFDA marketing clearance is obtained from the FDA, we can beginwould enable us to market and sell the CTLM® system throughout the United States. Also, we believebelieved that receipt of U.S. marketing clearance will substantially enhance our ability to sell the CTLM® in the international market.
WeOn January 21, 2011, we received a request for additional information from the FDA regarding our Section 510(k) application on January 21, 2011.premarket notification application. A request for additional information is quite common during the FDA review process. We have begun preparing our response withDue to the assistanceextensive amount of our FDA regulatory consultants. We expect to submit ouradditional information requested, we filed the response to the FDA by mid-Junerequest on July 8, 2011. Shortly after submissionUpon receipt of our response at the FDA offices, the FDA 90-day response time clock was re-activated. Consequently, we expected to get either an FDA determination on our Section 510(k) application or another request for additional information within the next 90-day time frame.
On August 2, 2011, we received official notification from the FDA that the review of our Section 510(k) premarket notification application had been completed and that the FDA determined that the device, (CTLM®), is not substantially equivalent to devices marketed in interstate commerce prior to May 28, 1976, the enactment date of the Medical Device Amendments, or to any device which has been reclassified into Class I (General Controls) or Class II (Special Controls), or to another device found to be substantially equivalent through the Section 510(k) process. This decision was based on the fact that the FDA was not aware of a legally marketed preamendments device labeled or promoted for using “Diffuse Optical Tomography” (DOT) to image the optical attenuation properties of breast tissue in order to aid the diagnosis of cancer, other conditions, diseases, or abnormalities. Although the FDA did not use the term “rejected” in the NSE letter, the effect of this letter is that our Section 510(k) premarket notification of intent to market the device (CTLM®) has been rejected. Therefore, this device was classified by statute into class III (Premarket Approval), under Section 513(t) of the Federal Food, Drug, and Cosmetic Act (the “Act”). All FDA determined Class III devices must fall under Section 515(a)(2) of the Act (which) requires a class III device to have an approved application (PMA) before it can be legally marketed.
The determination by the FDA that our CTLM® imaging technology will now be recognized as a DOT device and that there are no other DOT devices known to the FDA, presents us with a unique technological opportunity. Essentially, IDSI could be the first medical imaging company to file a PMA application for a Diffuse Optical Tomography breast imaging device. Since the FDA has identified CTLM® as a class III device, a formal clinical study will be required to obtain PMA approval. We have begun the PMA process and plan to use clinical studies previously collected from 2006 to 2010, if permitted to do so by the FDA, in addition to new studies we plan to requestcollect over the next several months.
Essentially, the FDA has stated that the CTLM® technology will require a full PMA application based on a DOT clinical imaging format. Previously collected patient data from 2006 to 2010 was based on a protocol identifying CTLM® as an in-person“adjunct to mammography”. We believe that our technology has always been based on a DOT scientific principle, that our patient collection technique will not change with a future DOT protocol, and that the patient inclusion/exclusion criteria for the new study will not change. Consequently, it isour belief that previously collected and non-analyzed patient data may be allowed by the FDA to be included in a future DOT protocol. This belief will either be accepted or rejected during the official pre- IDE meeting, which is a pre-clinical meeting, to be held at the FDA.
Although we have collected substantial clinical data from 2006 to 2010, it is very likely that additional cases will be needed to support the statistical analysis protocol devised to demonstrate safety and efficacy of the CTLM® system. Ultimately, the FDA must decide as to how many patient cases will need to be bio-statistically analyzed to support the CTLM® “intended use” claims. We would rely on our independent bio-statistician regarding the actual number of case studies required; however, the FDA has the ultimate authority to determine the number of clinical cases needed for the PMA application. Like other governmental institutions, the FDA prefers to reserve the right to make bio-statistical determinations on an individual case-by-case basis. Therefore, it is very likely that a clinical trial will need to begin again, which will require approval by an IRB (Institutional Review Board - an organization required to review and approve clinical protocols outlining the study to be conducted at the hospital or imaging sites). In addition, after the collection of clinical data is completed, a “radiologist reading study” of the clinical cases will be required and a statistical analysis of the results of the “reading study” will have to be performed in order to support the "Intended Use" and demonstrate safety and efficacy of the CTLM® system prior to PMA submission.
We need to secure funding to continue with the FDA. Consequently,PMA process. If funding is obtained, then we believecan begin to: contract with the FDA regulatory consultants, contract with the identified clinical sites (hospitals and imaging centers) to collect the clinical data, seek an IRB approval of the clinical protocol, which could take up to 30 to 120 days, place the CTLM® system at the selected sites, train the clinical staff on the CTLM® system and the clinical protocol at the selected sites, and recruit patients to volunteer for the clinical study.
Our main hurdle for completion of the PMA application is our lack of financial resources. Historically, we have contracted with outside FDA consultants both for guidance and to ensure that within or shortly afterour FDA related submissions meet FDA requirements, as we did not have sufficient resources to hire qualified full-time FDA clinical staff. Further, this approach is more cost effective than employing full time FDA experienced staff that will not be required once FDA marketing clearance has been obtained. Our management has identified FDA regulatory consultants who have proven ability in achieving FDA marketing clearance for diagnostic imaging devices. We cannot move forward until such time as we secure sufficient financing to engage these FDA regulatory consultants.
In previous filings, management had disclosed the new 90-day period followingpotential to have our CTLM® device approved through the submission,FDA “De Novo” process. This process would only become an option to us if the viabilityFDA did not approve our 510(k) premarket notification of intent to market the device. While waiting for a ruling from the FDA on our 510(k) premarket notification of intent to market the CTLM®, management continued to research the advantages and disadvantages regarding the potential option to initiate a De Novo application if the FDA determined our traditional 510(k) application willto be determined“Not Substantially Equivalent”. Our research identified several articles illustrating the potential pitfalls of going down the De Novo pathway. One such article from Medical Device Consultants (MDCI), a full service contract research organization and consulting firm that either (i)helps emerging and established firms commercialize novel and innovative medical devices, dated March 21, 2011(included below) best summarizes the FDA will approve the application or indicate that, with relatively minor amendments, approval can be promptly achieved or (ii) the FDA will issue a non-substantial equivalence (NSE) determination to the effect that the breast MRI system does not qualify as a predicate device for our CTLM® soissues that we would then file a 510(k) de novo application within 30 days afterface if we choose the NSE decision.De Novo pathway.
A 510(k) de novo application, if necessary, would be based on our belief that“The De Novo process has been around since the CTLM® is a low to moderate risk device (sinceimplementation of the FDA determined the CTLM® study is a NSR study in November 2004)Modernization Act of 1997 (FDAMA). The de novo process enables applicants with new technologies with lowFDAMA was intended to moderate risk an opportunityhelp improve the efficiency of bringing low-risk medical devices to seek FDA marketing clearance through this alternative pathway. Under the FDA regulations, a de novo 510(k) application may be filed only if a traditional 510(k) application is denied, and the de novo filing must be made within 30 days after the denial. Based on the foregoing, we believemarket, allowing for simpler reclassification of devices that the traditional 510(k) process will be completed in 2011 and, if necessary, the 510(k) de novo process will be completed by mid-2012.
While the FDA provides standard guidelines regarding their review time for either a PMA (180 FDA days, i.e. days when the FDA is open for business,) or 510(k) application (90 FDA days), these may not represent a typical amount of time for the review process to be completed because the FDA may request additional information during the review process. The time for review can extend beyond the 180 or 90 days if the FDA requests additional information. The total review periods for FDA marketing clearance applications vary widely depending on the facts and circumstances relating to each device and the subject application. The statistics presented in the FDA’s Office of Device Evaluation’s Annual Performance Report for Fiscal Year 2009 state that the average total elapsed time from the filing to the final decision was 284 calendar days for a PMA application and 98 calendar days for a 510(k) application. The Office of Device Evaluation did not provide statistics on the time frame for a de novo 510(k) application.
As noted above, in the event that our traditional 510(k) application is not approved, we may qualify for marketing clearance under the 510(k) de novo process; however, there can be no assurance that either 510(k) process will result in marketing clearance. If we are ultimately unsuccessful in our pursuit of 510(k) marketing clearance through either the traditional or de novo pathway, then we would have to return to the PMA process, which would take substantial additional time and funding, with no assurance of success. Our numerous prior projectionswere classified as to when we would be able to file our PMA application and complete the PMA process proved inaccurate. Our inability to meet our PMA projections was due primarily to the low patient volume following the inclusion criteria of our clinical protocol, further delayClass III due to the lack of cancer cases requireda suitable predicate. The section of the FDAMA that handled this aspect of medical device classification (Section 513(f)(2)) became known as the De Novo process.
De Novo is a two-step process that requires a company to submit a 510(k) and complete a standard review, including an analysis of the risk to the patient and operator associate with the use of the device and the substantial equivalence rationale. Once that has been accomplished, and the medical device in question has been determined to be Not Substantially Equivalent (NSE) by the FDA, the product is automatically classified as a Class III device. The manufacturer can then submit a request for evaluation of Automatic Class III designation to have the product reclassified from Class III into Class I or Class II. The FDA will review the device classification proposal and either recommend special controls to create a new Class I or II device classification or determine that the product is a Class III device. If FDA determines that the level
of risk associated with the use of the device is appropriate for a Class II or Class I designation, then the product can be cleared as a 510(k) and FDA will issue a new classification regulation and product code. This also adds the device in question to the predicate pool, which in turn broadens the market for other medical device companies considering products in a similar therapeutic area. If the device is not approved through De Novo, then it must go through the standard premarket approval (PMA) process for Class III devices.
The number of FDA NSE determinations due to the lack of a suitable predicate is very low for those low risk medical devices that have the potential for reaching the market via the De Novo process. Medical device manufacturers are attracted to the cost efficiencies associated with the De Novo process when compared against the investment and post-market FDA oversight associated with a PMA. Unfortunately, the time to market for devices eligible for the PMA statistical analysis,De Novo process can be very long.
FDAMA calls for the FDA to review and our ongoing lackreturn a decision on a De Novo reclassification submission within 60 days of financial resources, which was exacerbatedreceipt (the initial submission must be sent by the depressed levelmanufacturer within 30 days of our stock pricereceiving NSE notification). In practice, however, the amount of time taken to review De Novo requests by the FDA and issue the special controls guidance has risen from 62 days in recent years. Thus, while we are providing our best estimates as2006 to 241 days since 2007. Tacked on to the current 510(k) review times, devices traveling the De Novo pathway average 482 days of review time from beginning to end.
Further compounding the delays associated with De Novo is the fact that the entire process these projections involveresembles a substantialprocedural “black hole.” The FDA is not required to provide any updates concerning the status of a De Novo application, nor is there any simple way for medical device manufacturers to track a De Novo submission on their own.
De Novo is rare in the realm of low-risk medical devices – a mere 54 products took this particular route between 1998 and 2009. Given the extensive delays associated with the process, MDCI advises medical device companies to consider all other market approval pathways before deciding on to pursue a De Novo reclassification.”
Prepared by Benjamin Hunting, Cindy Nolte, and Helen Mayfield
MDCI Blogging Team”
Understanding that the above statements were a fair representation of the regulatory industry's general feelings towards the FDA De Novo process, management decided to accept and heed the FDA's letter (received on August 2, 2011) detailing their decision of CTLM® being “not substantially equivalent” and furthermore, accepting their recommendation that CTLM® is a class III device that would require a PMA submission. Other considerations such as comparing time frames between De Novo and the PMA process were taken into account. The average De Novo application took 482 days to be reviewed compared to the average PMA review of 284 days. In addition, upon further review, both the De Novo and PMA process require virtually identical clinical safety and efficacy data; therefore, the PMA path was chosen. Management has identified potential FDA regulatory consultants who can guide us through the complete PMA application process and is presently in contract negotiations with several prospective consulting firms.
In summary, our management team believes that the more structured and proven PMA application approach with its semi-rigid timetable for mandatory responses would provide us with the best route to achieve marketing clearance for our innovative new imaging modality that in the future will be classified as Diffuse Optical Tomography.
The CTLM® system is a Diffuse Optical Tomography (DOT) CT-like scanner. Its energy source is a laser beam and not ionizing radiation such as is used in conventional x-ray mammography or CT scanners. The advantages of imaging without ionizing radiation may be significant in our markets. CTLM® is an emerging new imaging modality offering the potential of functional molecular imaging, which can visualize the process of angiogenesis which may be used by the radiologist to distinguish between benign and malignant tissue. X-ray mammography is a well-established method of imaging the breast but has limitations especially in dense breast cases. While x-ray mammography and ultrasound produce
two dimensional images (2D) of the breast, the CTLM® produces 3D images. Ultrasound is often used as an adjunct to mammography to help differentiate tumors from cysts or to localize a biopsy site. We believe the CTLM® will be used to provide the radiologist with additional information to manage the clinical case; help diagnose breast cancer earlier; reduce diagnostic uncertainty especially in mammographically dense breast cases; and may help decrease the number of biopsies performed on benign lesions. Because breast cancers nearly always develop in the dense tissue of the breast (not in the fatty tissue), older women who have mostly dense tissue on a mammogram are at an increased risk of inaccuracy, as provedbreast cancer. Abnormalities in dense breasts can be more difficult to bedetect on a mammogram. The CTLM® technology is unique and patented. We intend to develop our technology into a family of related products. We believe these technologies and clinical benefits constitute substantial markets for our products well into the case with our prior PMA process projections.future.
We believe thatWhile we believed the net benefits of submitting a 510(k) application far outweighoutweighed those of a PMA application for the shareholders, patients and customers.customers, the FDA determined that we must file a PMA application to obtain marketing clearance. The high costs and lengthened review period associated with a PMA application are much greater than with a 510(k) submission, with no extra benefits.submission.
The procedural and substantive differences in the FDA approvalmarketing clearance process between a 510(k) application and a PMA application are in the costs associated with the applications and the duration of the review process. The 510(k) filing fee for small business is $2,174, and the fees of the FDA regulatory consultant assisting with the submission and pre-submission review process were approximately $55,000. The PMA filing fee for a small business is $59,075, and we$59,075. We estimate that the fees of the FDA regulatory consultantconsultants assisting with the PMA submission wouldand the completion of the data collection phase will be approximately $500,000. There is no FDA panel review required for a 510(k).$1,000,000.
In our prior SEC filings, we included disclosure regarding the estimated dates by which we believed that we would be able to file our PMA application including December 2008, March 2009, June 2009, March 2010, April 2010 and July 2010. All of these projections proved incorrect. There were many factors contributing to why we were not able to achieve our projected timelines. After each delay, we disclosed in subsequent SEC filings a new projected date based on what we believed at that point in time would be a reasonable estimate of when we would be able to file our application for FDA marketing clearance. The factors contributing to these delays include, but are not limited to, the following:
| | · | Designing a new clinical study protocol and a modified intended use, |
| | · | Identifying qualified clinical sites and retaining them to proceed with our clinical study, |
| | · | Obtaining the necessary approvals from the Institutional Review Boards (“IRB”), |
| | · | Updating the CTLM® system to its most current design level, |
| | · | Our research and development team finalizing the improvements regarding the reconstruction algorithm by enhancing the CTLM® images by reducing the number of artifacts which would enable the physician to interpret the images more easily, |
| | · | Low patient volume following the inclusion criteria of our clinical protocol, |
| | · | Lack of cancer cases required for the PMA statistical analysis, and |
| | · | Lack of sufficient financing to support the clinical sites, initiate the reading phase, the statistical analysis study and the preparation and submission of the PMA application to the FDA. |
We believed that our Private Equity Credit Agreements would provide substantially all of the financing needed by IDSI for its operations and the costs associated with the filing of our FDA application for marketing clearance. Unfortunately, the continued sale of stock through our Private Equity Credit Agreements caused dilution, a decline in the stock price, and the depletion of our available authorized shares.
We believe that the 510(k) application submission is the best process to enable us to move forward to obtain marketing clearance for the U.S in a timely manner. If marketing clearance is obtained from the FDA, we can begin to market and sell the CTLM® system throughout the country. Also, we believe that receipt of U.S. marketing clearance will substantially enhance our ability to sell the CTLM® in the international market.
While the FDA provides standard guidelines regarding their review time for either a PMA (180 FDA days) or 510(k) application (90 FDA days), these may not represent a typical amount of time for the review process to be completed because the FDA may request additional information during the review process. The time for review can extend beyond the 180 or 90 days if the FDA requests additional information.
In the event that our traditional 510(k) application is not approved, we may qualify for marketing clearance under the 510(k) de novo process. Under the FDA regulations, a de novo 510(k) application may be filed only if a traditional 510(k) application is denied, and the de novo filing must be made within 30 days after the denial.
There can bewas no assurance that eitherthe Section 510(k) process willpremarket notification would result in marketing clearance. IfSince we are ultimatelywere unsuccessful in our pursuit of Section 510(k) marketing clearance, through either the traditional or de novo pathway, then we would have to return to the PMA process, which would take substantial additional time and funding, with no assurance of success.
We have engagedare engaging the services of FDA regulatory consultants who specialize in FDA matters and who assisted us in the final preparation and submission of our FDA application.matters. If we are unable to obtain prompt FDA approval,marketing clearance, it will have a material adverse effect on our business and financial condition and would result in postponement of the commercialization of the CTLM®.
In addition, sales of medical devices outside the U.S. 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 marketing clearance and the requirements may differ. Also, we believe that receipt of U.S. marketing clearance will substantially enhance our ability to sell the CTLM® in the international market.
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.
Any products manufactured or distributed by us pursuant to FDA marketing clearance will be subject to pervasive and continuing regulation by the FDA. Labeling, advertising and promotional activities are subject to scrutiny by the FDA and, in certain instances, by the Federal Trade Commission. In addition, the marketing and use of our products may be regulated by various state agencies. The export of medical devices is also subject to regulation in certain instances. Both the FDA and the individual states may inspect the manufacturers of our products on a routine basis for compliance with current QSR regulations and other requirements.
In addition to the foregoing, we are subject to numerous federal, state, and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, and fire hazard control. There can be no assurance that we will not be required to incur significant costs to comply with such laws and regulations and that such compliance will not have a material adverse effect upon our ability to conduct business. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Cautionary Statements – Extensive Government Regulation, No Assurance of Regulatory Approvals”.
The development chronology stated above details how complicated the process is to develop a brand new medical imaging technology. We believe that we have a strong patent portfolio and are the world leader in optical tomography. We have received marketing approval in China and Canada; the CE Mark for the European Union; ISO 13485:2003 registration; UL Electrical Test Certificate; and Product registrations in Brazil and Argentina. The registrations for Brazil and Argentina were not renewed in 2009 because of the costs associated with new testing requirements by UL. We have now completed the Electromagnetic Compatibility (“EMC”) testing required by UL and plan to submit our renewal application for these product registrations in 2011. Worldwide, our end users have completed more than 15,00017,000 patient scans, and we have sold 1516 CTLM® systems as of the date of this report. Our decision to fund the Company primarily through the sale of equity has enabled us to reach this important milestone.
In fiscal 2010, fiscal 2011 and thus far in fiscal 2011,2012, we have used the proceeds from short-term loans, long-term loans and proceeds from our Southridge Private Equity Credit Agreement for working capital. Going forward we intend to use the proceeds of draws from our Southridge Private Equity Credit Agreement and any successor private equity agreements with Southridge and/or alternative financing facilities, which may include additional short term and long term loans and issuance of convertible preferred stock, as our sources of working capital. Substantial additional financing will be required before and after receipt of FDA marketing clearance, assuming it is received, as to which there can be no assurance. See Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters – “Financing/Equity Line of Credit.”
Clinical Collaboration Sites Update
CTLM® Systems have been installed and patients are being scanned under clinical collaboration agreements as follows:
| 1) | Humboldt University of Berlin, Charité Hospital, Berlin, Germany |
| 2) | The Comprehensive Cancer Centre, Gliwice, Poland |
| 3) | Catholic University Hospital, Rome, Italy |
| 4) | MeDoc HealthCare Center, Budapest, Hungary |
| 5) | Tianjin Medical University’s Cancer Institute and Hospital, Tianjin, China |
We are in discussions with other hospitals and clinics wishing to participate in our clinical collaboration program. We have been commercializing the CTLM® in many global markets and we previously announced our plans to set
up this network to foster research and to promote the technology in local markets. We will continue to support similar programs outside of the United States. These investments may accelerate CTLM® market acceptance while providing valuable clinical experiences.
Global Commercialization Update
The following table details the regulatory requirement and status of each country in which we have sold or marketed the CTLM®.
| Country | Sold | Marketed | Regulatory Requirement | Regulatory Status |
| United States | No | No | Food & Drug Administration | 510(k) Pending |
| Argentina | Yes | Yes | ANVISA | Expired(1) |
| Australia | No | Yes | TGA Approval | Pending(8) |
| Austria | No | Yes | CE Mark | Approved |
| Brazil | No | Yes | ANVISA | Expired(2) |
| Canada | No | Yes | Health Canada Approval | Approved |
| China | Yes | Yes | SFDA Approval | Approved |
| Croatia | No | Yes | CIHI(4) | Not Submitted Yet |
| Colombia | No | Yes | Register with MOH(3) | Not Submitted Yet |
| Curacao | No | Yes | MOH | Submitted by distributor |
| Czech Republic | Yes | Yes | CE Mark | Approved |
| Egypt | No | Yes | CE Mark & Egypt MOH | Not Submitted Yet |
| Germany | No | Yes | CE Mark | Approved |
| Hong Kong | No | Yes | CE/SFDA | Not Submitted Yet |
| Hungary | Yes | Yes | CE Mark | Approved |
| India | Yes | Yes | CE Mark & BIS Certification | Not Required(9) |
| Indonesia | Yes | Yes | DirJen POM | Pending(12) |
| Israel | No | Yes | Import License | Approved |
| Italy | Yes | Yes | CE Mark | Approved |
| Jordan | No | Yes | JFDA(6) | Not Submitted Yet |
| Kazakhstan | No | Yes | Registration Cert. & GOSTR Cert. | Not Submitted Yet |
| Macedonia | No | Yes | CE Mark | Not Submitted Yet |
| Malaysia | Yes | Yes | BPFK | Not Required(10) |
| Mexico | No | Yes | MOH - COFERPRIS | Pending(11) |
| Montenegro | No | Yes | MOH | Not Submitted Yet |
| New Zealand | No | Yes | CE Mark | Not Submitted Yet |
| Oman | No | Yes | MOH | Not Submitted Yet |
| Philippines | No | Yes | BHDT(7) | Not Submitted Yet |
| Poland | Yes | Yes | CE Mark | Approved |
| Romania | No | Yes | CE Mark | Approved |
| Russia | No | Yes | ROSZDRAVNADZOR | Pending(13) |
| Saudi Arabia | No | Yes | CE Mark & MOH | Not Submitted Yet |
| Serbia | No | Yes | CE Mark | Approved |
| Slovenia | No | Yes | CE Mark | Approved |
| South Africa | No | Yes | CE Mark & DOH(4) | Not Submitted Yet |
| Turkey | Yes | Yes | CE Mark | Approved |
| Ukraine | No | Yes | CE Mark | Not Submitted Yet |
| United Arab Emirates | Yes | Yes | UAE/MOH | Approved |
| Vietnam | No | Yes | MOH | Not Submitted Yet |
| (1) |
(1) Will be renewed upon appointment of new distributor. |
| | (2) | Distributor will renew ANVISA. |
| | (3) | MOH - Ministry of Health |
| | (4) | DOH - Department of Health |
| | (5) | CICI - The Croatian Institute for Health Insurance |
| | (6) | JFDA – Jordan Food and Drug Administration |
| | (7) | BHDT - Bureau of Health Devices and Technology |
| | (8) | TGA has requested additional documentation which we are providing. |
(9) CDSCO – Medical Device Division, Not required as this time but will be required for some classes of medical devices in 2011 or 2012.
| (10) | BPFK – Malaysia National Pharmaceutical Control Bureau, Registration is voluntary |
| (11) | COFEPRIS – Mexico Ministry of Health |
(12) DirJenPOM – We received a deposit from our distributor Jainsons Pty Ltd. and the system was installed in Jakarta, Indonesia. Our distributor is responsible for registering the CTLM® with the Indonesia Director General of Food and Drugs (“DirJen POM”) who controls the registration of medical devices. Product registrations for medical devices issued from certain designated countries such as Canada can be used to support the registration in Indonesia with the DirJen POM. The CTLM® system has received international certifications and licenses from the European Union, CE mark; Canada, CMDCAS Canadian Health screening; China, SFDA; and ISO 13485 issued by UL.
(13) Our distributor, National Diagnostic Service and Management LLC of Novi, Michigan, through its affiliate Phoenix Med of Moscow, Russia, has submitted an application to the Ministry of Health which is currently pending.
We market our CTLM® system in the countries listed in the table above, where permitted. Product registration is not necessarily required to market our CTLM® in a particular country. Prior to processing a Purchase Order, we would contact either a regulatory service or the distributor in that particular country to determine what, if any, product registration is required.
We have never shipped nor would we ever ship a CTLM® system to any country without first obtaining the necessary regulatory approvals or product registration, if required. Any medical device that is shipped into a country without approval or registration would be quarantined in customs and the shipper would be advised that the device would be sent back to them. However, we are permitted to ship CTLM® systems for product demonstration or exhibition at trade shows without registering the product in that country.
In March 2009, we announced that we had redefined our marketing strategy and launched a new campaign focusing on the international market. Because of our disappointment with the performance of many of our previous distributors, we have terminated their distribution agreements for non-performance or allowed their agreements to expire. In April 2009, we were pleased to announce that we renewed our distribution agreement with EDO MED Sp. Z.o.o. as our exclusive distributor in Poland. EDO MED will continue to market and provide
technical service support for the CTLM® throughout Poland, as well as to assist with and promote the ongoing research efforts utilizing CTLM® technology at the Comprehensive Cancer Centre in Gliwice, Poland and other institutes and research centers. Currently, the CTLM® system is in use at the Comprehensive Cancer Centre, Maria Sklodowska-Curie Memorial Institute, and the Military Institute of Health Services in Gliwice and Warsaw.
In the Asia-Pacific Region, we previously announced that we contracted with BAC, Inc. to manage our representative office in Beijing, existing distributors and develop new areas. As part of our continuing cost cutting initiatives, we closed our representative office in January 2009, and in December 2008, we terminated our contract with BAC, Inc. for non-performance. In March 2009, we announced the appointment of Jainsons Pty Ltd Company as our new distributor for Australia and New Zealand. In July 2010, we announced that we installed a CTLM® system at Tata Memorial Hospital, the national cancer comprehensive cancer center in Mumbai, India. The system was placed by Anto Puthiry, Managing Director of High-Tech Healthcare Equipments Pvt. Ltd. We continue to seek qualified distribution channels in China but as of the date of this report we have not secured such channels.
In September 2007, we announced the installation of a CTLM® system at the Tianjin Medical University’s Cancer Institute and Hospital (“Tianjin”), the largest breast disease center in
China. The hospital evaluated the CTLM® under three research protocols designed to improve current methods of addressing breast cancer imaging and treatment follow-up. We previously announced that we installed a CTLM® system at Beijing’s Friendship Hospital, which enabled CTLM® clinical procedures to become listed on the Regional and subsequently the National Schedule for patient payments.
In December 2008, we announced that a recent study of the CTLM® was one of the featured scientific abstracts at the Radiological Society of North America (“RSNA”) from November 30th to December 5th. Dr. Jin Qi, a radiologist at the Tianjin Medical University Cancer Institute and Hospital, Tianjin, China was selected for her clinical paper, “CTLM as an Adjunct to Mammography in the Diagnosis of Patients with Dense Breasts.” Dr. Qi attended RSNA with IDSI and was present at our exhibit. Dr. Qi’s clinical paper was accepted as one of the European Congress of Radiology’s conference presentations in March 2009. The study demonstrated that: “when the CTLM® system was used as an adjunct to mammography in heterogeneously and extremely dense breasts, the sensitivity (detecting cancer) increased significantly.”
We previously signed an exclusive distributor in Malaysia, where interest in breast cancer detection and treatment was surging due to publicity surrounding their former First Lady, who succumbed to the disease. In September 2007, we announced the installation of a CTLM® system at the Univeriti Putra Malaysia (“UPM”) in Kuala Lumpur, Malaysia. The CTLM® was installed at UPM’s academic facility within the jurisdiction of the Ministry of Education and was evaluated by specialists from UPM in conjunction with specialists from Serdang Hospital in Kuala Lumpur. Following the evaluation at UPM, we appointed a new distributor, Daichi Holding Berhad (“Daichi”) of Penasng, Malaysia. The CTLM® was removed from UPM academic facility at the conclusion of the evaluation period. Daichi issued a purchase order for this system and it was initially installed in August 2009 at Catherine Women’s Medical Center in Petaling Jaya, Malaysia. On September 22, 2009, we announced that Daichi completed the purchase of the system with full payment. In June 2010, Daichi notified us that they were relocating the system and is now installed at the Breast Wellness (M) SDN. BHD (a public limited liability company) in Petaling Jaya, Malaysia.
Activities in Europe and the Middle East are top marketing priorities for IDSI. As a result of our participation as an exhibitor at the Arab Health Medical Conference in January 2010 in Dubai, UAE, and at the European Congress of Radiology (“ECR”) in March 2010 in Vienna, Austria, we were able to meet with qualified distributors to discuss their interest in representing us in their respective territories. While attending Arab Health, we hired a Managing Director to market the CTLM® in the UAE and parts of the Middle East. We are not marketing or seeking distributors and will not market the CTLM® directly or indirectly in Iran, Sudan and/or Syria and other Middle Eastern countries that are subject to U.S. economic sanctions and export controls.
Additionally, we are negotiating with distributors in Egypt, Jordan, Saudi Arabia, India, and Belgrade. In April 2009, we signed a non-exclusive agreement with Neomedica d.o.o. Beograd to market the CTLM® system to the private and public sectors of Slovenia, Croatia, Serbia, Montenegro, and Macedonia. In October 2008, we announced that our
distributor, Laszlo Meszaros of Kardia Hungary Kft. purchased the first CTLM® system for Budapest, Hungary. The CTLM® system has been installed at the new MeDoc HealthCare Center (“MDHC”) located in Budapest, in collaboration with Dr. Maria Gergely, Chief Radiologist of Uzsoki Hospital.
Our distributor, The Oyamo Group (“Oyamo”) placed an order for the first CTLM® system for Israel in October 2008. Oyamo obtained the import license from The Israeli Ministry of Health for the CTLM® system and the system was installed in November 2010 at Sheba Medical Center at Tel Hashomer, which is outside of Tel Aviv.
In December 2008, we announced that a new study evaluating the CTLM system as an adjunct to mammography was featured in the December 2008 issue of Academic Radiology. Alexander Poellinger, M.D., a radiologist at Charite Hospital in Berlin. Germany, authored “Near-infrared Laser Computed Tomography of the Breast: A Clinical Experience” along with colleagues at Charite and IDSI’s Director of Advanced Development as co-author. Their work demonstrated an increase in accuracy of diagnosing malignant and benign breast lesions in patients who were examined with mammography and CTLM adjunctively compared to mammography alone. Dr. Poellinger’s clinical paper was distributed to doctors and distributors visiting our booth at the European Congress of Radiology in March 2009.
In March 2010, we exhibited our CTLM® system and clinical results at the annual European Congress of Radiology (ECR 2010) held from March 4 -8, in Vienna, Austria. ECR 2010 attracted approximately 19,000 participants worldwide. ECR is one of the largest medical meetings in Europe and the second largest radiology meeting in the world and currently has 45,000 members.
In November 2010, we exhibited our CTLM® system with our Canadian distributor, Arc Diagnostic at the Health Achieve 2010 in Toronto, Canada. This exposition provided IDSI the opportunity to introduce and showcase the CTLM® system for the first time in Canada to prestigious hospitals, decision makers and Ministry of Health and business leaders in the area.
In November 2010, we exhibited our CTLM® system at the 96th RSNA show in Chicago, IL from November 28th to December 2nd.
In December 2010, we announced that we received a deposit for two CTLM® systems from our distributor, Jainsons Pty Ltd for India and Indonesia. The first CTLM® system was installed at a private imaging center in Ahmedabad, India on December 11, 2010.
In January 2011, we exhibited the CTLM® at the Arab Health 2011 medical conference held from January 24 – 27 at the Dubai International Convention and Exhibition Centre in Dubai, United Arab Emirates (UAE). We presented clinical images obtained from the CTLM® system, identified potential distributors for the Middle East region and obtained prospective sales leads. The Arab Health Exhibition and Congress is one of the largest and most prestigious healthcare events in the Middle East, with over 2,700 exhibitors from 141 countries and more than 65,000 medical professionals.
In February 2011, we announced that we completed installation and applications training of a CTLM® system at the Hang Lekiu Medical Center in Jakarta, Indonesia. This was the second CTLM® system installed to complete the order from our distributor, Jainsons Pty Ltd, received in December 2010.
On April 26, 2011, we announced that we have signed an exclusive distribution agreement with Kepter Internacional (“Kepter”) of Monterrey, Mexico to promote our CTLM® systems throughout Mexico. Kepter is headquartered in Monterrey, Mexico with operations in Central and South America. The company represents innovative technologies nationally and internationally providing solutions for various aspects of the healthcare industry and infectious control. Kepter's strategy is to offer environmental friendly and cost effective alternatives to conventional operations in the healthcare and commercial construction industry. Currently, Kepter’s representatives are working closely with the Mexican Health Ministry to gain national acceptance for the CTLM® system; however, there can be no assurance that this acceptance will be obtained.
In July 2011, we announced that we signed an exclusive distribution agreement with National Diagnostic Service and Management LLC (“NDSM”) of Novi, Michigan and its affiliate Phoenix Med of Moscow, Russia to promote our CTLM® systems throughout Russia. NDSM and its partners distribute medical diagnostic and medical laser equipment and service support throughout Russia. As an independent distributor with over 15 years of experience within the Russian medical market and employing only product certified engineers, NDSM and Phoenix Med have a long established reputation within the women’s health medical community. NDSM has initiated the medical device registration process required to import medical equipment into Russia.
On August 2011, we announced that we would be exhibiting our CTLM® at the FIME 2011 medical trade fair conference to be held on August 10th to 12th in Miami Beach, FL. Dr. Jose Cisneros, our Director of Clinical Research was invited to present, “New Imaging Modalities for Breast Cancer” featuring our CTLM® system at the FIME conference.
In October 2011, we announced that the CTLM® purchase was confirmed after a successful rigorous evaluation of our CTLM® system at the Hang Lekiu Medical Center in Jakarta,
Indonesia. This positive outcome reinforces DOT as a valuable new breast imaging modality. Hang Lekiu Medical Center is a leading provider of advanced multi-disciplined medical care in a modern patient friendly environment. The evaluation was initiated February 2011 by introducing the unique clinical benefits of CTLM® to Indonesia’s Health Minister Endang Rahayu Sedyaningsih, local officials and key news organizations.
Among our global users, we have three systems in Poland, two in Italy, two in the Czech Republic, two systems in the United Arab Emirates, two systems in India, and two systems in China as well as one system each in Germany, Hungary, Malaysia, Israel, Indonesia and Indonesia.Brazil. As of the date of this report, IDSI’s users have performed over 15,00017,000 CT Laser Mammography (CTLM®) patient scans worldwide.
Other Recent Events
NoneIn July 2011, we were granted U.S. Patent 7,977,619, entitled “Detector Array for Use in a Laser Imaging Apparatus”. This patent protects the use of a number of different types of photo-detectors and several detector geometries for our Diffuse Optical Tomography (“DOT”) application.
In July 2011, we announced that we established a scientific advisory panel to assist with product development, future clinical studies and additional applications of our CTLM®. The advisory panel will consist of leading physicians and scientists. The initial members are Huabei Jiang, PH.D., Professor in the J. Crayton Pruitt Family Department of Biomedical Engineering at the University of Florida; Alexander Poellinger, MD, head of the Outpatient’s Care Center of Charite Hospital, (Radiology) in Berlin, Germany; and Eric Milne, MD, FFR, FRCP, FRCP&S, our former Director of Clinical Research and former Chairman of Radiology and Chief of Chest Radiology at UC Irvine.
In September 2011, we were granted U.S. Patent 8,027,711, entitled “Laser imaging apparatus with variable patient positioning.” This invention is designed to simplify patient positioning thus providing better image quality and simplified operator setup.
Laser Imager for Lab Animals
Our Laser Imager for Lab Animals “LILA™” program is an optical helical micro-CT scanner in a third-generation configuration. The system was designed to image numerous compounds, especially green fluorescent protein, derived from the DNA of jellyfish. The LILA scanner is targeted at pharmaceutical developers and researchers who monitor cancer growth and who use multimodality small animal imaging in their clinical research.
IDSI’s strategic thrust for the LILA project has changed, as we decided to focus on women’s health business markets with a family of CTLM® systems and related devices and services. The animal imager did not fit our business model although the fundamental technology is related to the human breast imager. Consequently, we sought to align the project with a company already in the animal imaging market that might complete the LILA and commercialize it.
On August 30, 2006 we announced an exclusive license agreement under which Bioscan, Inc. would integrate LILA technology into their animal imaging portfolio. Under the agreement we would transfer technology to Bioscan by December 2006 upon receipt of the technology transfer fee. We have received full payment of $250,000 for the technology transfer fee and $69,000 for the parts associated with the agreement. The agreement also provides for royalties on future sales. Bioscan has commenced its work on the LILA project and placed one of their engineers at our facility so that he can confer with our engineers if necessary. Bioscan pays us for use of the space and consulting fees if they require our engineering assistance. There can be no assurance that it will be successful or that we will receive any royalties from Bioscan.
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 2, Results of Operations, Liquidity and Capital Resources, Sale/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.
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.
Under the Sixth Private Equity Credit Agreement we have drawn down $2,042,392 and issued 227,000,000 shares of common stock. On November 23, 2009, we terminated our Sixth Private Equity Credit Agreement in connection with the execution of our Private Equity Credit Agreement with Southridge, which was amended on January 7, 2010.
As of the date of this report, since January 2001, we have drawn an aggregate of $42,714,650 in gross proceeds from our equity credit lines with Charlton and have issued 425,676,012 shares as a result of those draws.
The Southridge Private Equity Credit Agreement
On November 23, 2009, we and Southridge entered into a new “Southridge Private Equity Credit Agreement” which has replaced our prior Sixth Private Equity Credit Agreement with Charlton. On January 7, 2010, we and Southridge amended the terms of the “Southridge Private Equity Credit Agreement” and revised the language to clarify that Southridge is irrevocably bound to accept our put notices subject to compliance with the explicit conditions of the Agreement.
The terms of the Southridge Private Equity Credit Agreement are similar to the terms of the prior Sixth Private Equity Credit Agreement with Charlton. 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 Southridge Private Equity Credit Agreement shares, (iii) the maximum commitment is $15,000,000, (iv) There is no minimum commitment amount, and (v) there are no fees associated with the Southridge 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 are obligated to prepare promptly, and file with the SEC within sixty (60) days of the execution of the Southridge Private Equity Credit Agreement, a Registration Statement with respect to not less than 100,000,000 of Registrable Securities, and, thereafter, use all diligent efforts to cause the Registration Statement relating to the Registrable Securities to become effective the earlier of (a) five (5) business days after notice from the Securities and Exchange Commission that the Registration Statement may be declared effective, or (b) one hundred eighty (180) days after the Subscription Date, and keep the Registration Statement effective at all times until the earliest of (i) the date that is one year after the completion of the last Closing Date under the Purchase Agreement, (ii) the date when the Investor may sell all Registrable Securities under Rule 144 without volume limitations, or (iii) the date the Investor no longer owns any of the Registrable Securities (collectively, the "Registration Period"), which Registration Statement (including any amendments or supplements, thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
We are further obligated to prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to keep the Registration Statement effective at all times during the Registration Period, and, during the Registration Period, and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement until the expiration of the Registration Period.
On January 12, 2010, we filed a Registration Statement for 120,000,000 shares pursuant to the requirements of the Southridge Private Equity Credit Agreement. This Registration Statement was declared effective on February 25, 2010. On May 24, 2010 we filed a Post-Effective Amendment No. 1 to our Registration Statement to update our financial statements and related notes to the financial statements and business information for the quarter ending March 31, 2010. We reduced the amount of shares registered to 85,744,007 shares. This amended Registration Statement was declared effective on May 27, 2010.
As of the date of this report, we have drawn down $2,000,000 and issued 71,244,381 shares of common stock under the Private Equity Credit Agreement with Southridge, all pursuant to the Registration Statement declared effective in May 2010.
On December 21, 2010, we filed a new Registration Statement on Form S-1 covering 35,487,756 shares to be issued pursuant to the Southridge Private Equity Agreement. This Registration Statement, as amended, has not yet been declared effective. As of the date of this report, since January 2001, we have drawn an aggregate of $44,714,650 in gross proceeds from our equity credit lines with Charlton and Southridge and have issued 496,920,393 shares as a result of those draws.
Southridge Partners II, LP - Short-Term Loans
In November and December 2010, we received a total of $145,000 from Southridge Partners II LP pursuant to three short-term promissory notes. All three notes provide for a redemption premium of 15% of the principal amount on or before March 31, 2011. We received an extension of maturity date to July 31, 2011 for these notes. Interest will accrue at 8% per annum until maturity. Southridge may elect at an Event of Default to convert any part or all of the $145,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) ninety percent (90%)90% of the average of the three (3) lowest closing bid prices during the ten (10)10 trading days immediately prior to the date of the conversion notice.
In January 2011, we received a total of $157,000 from Southridge Partners II LP pursuant to three short-term promissory notes. All three notes provide for a redemption premium of 15% of the principal amount on or before May 31, 2011. We received an extension of maturity date to November 30, 2011 for these notes. Interest will accrue at 8% per annum until maturity. Southridge may elect at an Event of Default to convert any part or all of the $157,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) ninety percent (90%)90% of the average of the three (3) lowest closing bid prices during the ten (10)10 trading days immediately prior to the date of the conversion notice.
In February 2011, we received a total of $115,000 from Southridge Partners II LP pursuant to two short-term promissory notes. Both notes provide for a redemption premium of 15% of the principal amount on or before May 31, 2011. We received an extension of maturity date to November 30, 2011 for these notes. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $115,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) ninety percent (90%)90% of the average of the three (3) lowest closing bid prices during the ten (10)10 trading days immediately prior to the date of the conversion notice.
In March 2011, we received $60,000 from Southridge Partners II LP pursuant to a short-term promissory note. The note provides for a redemption premium of 15% of the principal amount on or before May 31, 2011. We received an extension of maturity date to November 30, 2011 for these notes. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $60,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) ninety percent (90%)90% of the average of the three (3) lowest closing bid prices during the ten (10)10 trading days immediately prior to the date of the conversion notice.
In April 2011, we received $165,000 from Southridge Partners II LP pursuant to two short-term promissory notes. The note providesnotes provide for a redemption premium of 15% of the principal amount on or
before July 31, 2011. We received an extension of maturity date to November 30, 2011 for these notes. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an
Event of Default to convert any part or all of the $165,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) ninety percent (90%)90% of the average of the three (3) lowest closing bid prices during the ten (10)10 trading days immediately prior to the date of the conversion notice.
In May 2011, we received $80,000 from Southridge Partners II LP pursuant to two short-term promissory notes. The note providesnotes provide for a redemption premium of 15% of the principal amount on or before July 31, 2011. We received an extension of maturity date to November 30, 2011 for these notes. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an
Event of Default to convert any part or all of the $80,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) 90% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
In July 2011, we received $150,000 from Southridge pursuant to a short-term promissory note. The note provided for a redemption premium of 15% of the principal amount on or before December 31, 2011. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $150,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) 70% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
In August 2011, we received $82,500 from Southridge pursuant to two short-term promissory notes of which the principal on these notes was $100,000 and $7,500, respectively. The $100,000 note provided for a $25,000 original issue discount and both notes provided for a redemption premium of 15% of the principal amount on or before December 31, 2011. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $107,500 principal amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) 70% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
In September 2011, we received $133,000 from Southridge pursuant to two short-term promissory notes of which the principal on these notes were $100,000 and $100,000, respectively. One of the $100,000 notes provided for a $33,000 original issue discount and the other $100,000 note provided a $34,000 original issue discount. The notes provided for a redemption premium of 15% of the principal amount on or before December 31, 2011. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $200,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.0075 or (b) 70% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
In October 2011, we received $67,000 from Southridge pursuant to a short-term promissory note of which the principal on the note was $100,000. The note provides for a $33,000 original issue discount. The note provided for a redemption premium of 15% of the principal amount on or before January 12, 2012. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $100,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.0075 or (b) 70% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
In October 2011, we received $67,000 from Southridge pursuant to a short-term promissory note of which the principal on the note was $100,000. The note provides for a $33,000 original issue discount. The note provided for a redemption premium of 15% of the principal amount on or before January 26, 2012. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $100,000 Principal Amount of the Notes plus accrued interest into shares of our
common stock at a conversion price equal to the lesser of (a) $0.005 or (b) 70% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
On May 11, 2011, Southridge executed a debt to equity conversion of a $80,000 short-term promissory note dated November 11, 2010 plus accrued interest of $3,174. We issued Southridge 11,089,826 common shares pursuant to Rule 144 based on an agreed exchange price of $0.0075 per share. We still owe Southridge $12,000 in premium associated with this note.
On July 13, 2011, Southridge executed a debt to equity conversion of a $14,000 short-term promissory note dated December 16, 2010 plus accrued interest of $641. We issued Southridge 1,464,132 common shares pursuant to Rule 144 based on an agreed exchange price of $0.01 per share. We still owe Southridge $2,100 in premium associated with this note.
On July 13, 2011, Southridge executed a debt to equity conversion of a $51,000 short-term promissory note dated December 22, 2010 plus accrued interest of $2,269. We issued Southridge 5,326,915 common shares pursuant to Rule 144 based on an agreed exchange price of $0.01 per share. We still owe Southridge $7,650 in premium associated with this note.
On July 21, 2011, Southridge executed a debt to equity conversion of a $55,000 short-term promissory note dated January 13, 2011 plus accrued interest of $2,278. We issued Southridge 5,727,836 common shares pursuant to Rule 144 based on an agreed exchange price of $0.01 per share. We still owe Southridge $8,250 in premium associated with this note.
On July 21, 2011, Southridge executed a debt to equity conversion of a $22,000 short-term promissory note dated January 19, 2011 plus accrued interest of $882. We issued Southridge 2,288,241 common shares pursuant to Rule 144 based on an agreed exchange price of $0.01 per share. We still owe Southridge $3,300 in premium associated with this note.
On August 24, 2011, Southridge executed a debt to equity conversion of a $80,000 short-term promissory note dated January 28, 2011 plus accrued interest of $3,647. We issued Southridge 8,364,712 common shares pursuant to Rule 144 based on an agreed exchange price of $0.01 per share. We still owe Southridge $12,000 in premium associated with this note.
On August 24, 2011, Southridge executed a partial debt to equity conversion of a $80,000 short-term promissory note dated February 7, 2011 in which they converted $20,000 principal plus accrued interest of $868. We issued Southridge 2,086,795 common shares pursuant to Rule 144 based on an agreed exchange price of $0.01 per share. We still owe Southridge $60,000 principal, $12,000 in premium and $2,906 in interest associated with this note.
On September 27, 2011, Southridge executed a final debt to equity conversion of a $80,000 short-term promissory note dated February 7, 2011 in which they converted the remaining $60,000 principal plus accrued interest of $868. We issued Southridge 8,399,781 common shares pursuant to Rule 144 based on an agreed conversion price of $0.0075 per share. We still owe Southridge $12,000 in premium associated with this note.
On September 27, 2011, Southridge executed a debt to equity conversion of a $35,000 short-term promissory note dated February 15, 2011 plus accrued interest of $1,688. We issued Southridge 4,891,689 common shares pursuant to Rule 144 based on an agreed conversion price of $0.0075 per share. We still owe Southridge $5,250 in premium associated with this note.
On September 27, 2011, Southridge executed a debt to equity conversion of a $60,000 short-term promissory note dated March 31, 2011 plus accrued interest of $2,315. We issued Southridge 8,308,603 common shares pursuant to Rule 144 based on an agreed conversion price of $0.0075 per share. We still owe Southridge $9,000 in premium associated with this note.
On September 28, 2011, we amended the terms of all debt agreements with Southridge Partners II, LP and agreed to amend the conversion terms of the Notes such that the principal portion of the Notes, plus accrued interest, shall be convertible into shares of our common stock at a conversion price per share equal to the lesser of (a) $0.0075 or (b) ninety percent (90%) of the average of the three (3) lowest closing bid prices during the ten (10) trading days immediately prior to the date of the conversion notice.
On May 11,October 13, 2011, weSouthridge executed a debt to equity exchange with Southridge Partners II LP pursuant to an $80,000conversion of a $100,000 short-term promissory note dated November 11, 2010April 14, 2011 plus accrued interest of $3,174.$3,989. We issued Southridge 11,089,82620,797,808 common shares pursuant to Rule 144.144 based on an agreed conversion price of $0.005 per share. We still owe Southridge $12,000$15,000 in premium associated with this note.
On November 3, 2011, Southridge executed a debt to equity conversion of a $65,000 short-term promissory note dated April 26, 2011 plus accrued interest of $2,721. We issued Southridge 13,544,219 common shares pursuant to Rule 144 based on an agreed conversion price of $0.005 per share. We still owe Southridge $15,000 in premium associated with this note.
From January 2011 to April 2011, Southridge Partners II LP acquired promissory notes from a private investor totaling $800,000 in principal and 55,363,907 shares of common stock which were issued as collateral. Southridge proposed that we amend the conversion terms of the notes permitting the holder to convert the notes and we agreed to the amendment. From January 12, 2011 to May 16,October 24, 2011, Southridge issued notices of conversion to settle the $525,000 in principal plus accrued premiums totaling $255,651 into 53,143,682 shares of our common stock, of which 51,802,774 shares were collateral shares and 1,340,908 new shares were issued pursuant to Rule 144.
From November 2010 through MayNovember 2011, we received a total of $722,000$1,379,500 from Southridge Partners II LP pursuant to short-term promissory notes. As of the date of this report, we may be obligated to issue Southridge Partners II LP a total of 76,056,194136,919,195 shares to redeem short-term notes totaling $760,562$956,800 of which $642,000$737,500 is principal, $108,300$206,925 is premium and $10,262$12,375 is interest.
Sale of Building
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, which was then in effect.
Debenture Private Placement
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.
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.
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 had 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 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 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 sale of $50,000 of the August Debenture to Alpha.
As of the date of this report, 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 $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.
On October 14, 2009, Whalehaven exercised Warrants to purchase 6,000,000 shares and received 4,648,649 shares of common stock using the cashless conversion feature with a Volume Weighted Average Price (“VWAP”) conversion price of $0.022. The shares were issued pursuant to Rule 144. Whalehaven held Warrants to purchase 5,666,667 shares of common stock at an exercise price of $0.005.
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 $150,000 of the November Debenture and has received 28,429,066 shares as a result. Thus, Alpha has converted all of its August and November Debentures into 45,742,331 shares of common stock which does not include interest. In October 2009, we issued Alpha 2,166,263 shares as a result of the 8% interest on their portion of the debentures.
On October 13, 2009, Alpha exercised its remaining Warrants to purchase 3,555,555 shares and received 2,942,528 shares of common stock using the cashless conversion feature with a VWAP conversion price of $0.029. The shares were issued pursuant to Rule 144.
In October 2009, the Placement Agents exercised their Warrants to purchase 2,666,666 shares and received 1,989,845 shares of common stock using the cashless conversion feature with a VWAP conversion price of $0.0197. The shares were issued pursuant to Rule 144.
In December 2009, Whalehaven exercised its remaining Warrants to purchase 5,666,667 shares and received 4,542,328 shares of common stock using the cashless conversion feature with a VWAP conversion price of $0.0252. The shares were issued pursuant to Rule 144.
Short-Term Loans
In November 2009, we borrowed a total of $237,500 from four private investors pursuant to short-term promissory notes. These notes were due and payable in the amount of principal plus 20% premium, so that the total amount due was $285,000. In addition, we issued to the investors 70 shares of restricted common stock for each $1 lent so that a total of 16,625,000 shares of stock were issued to the investors. The aggregate fair market value of the 16,625,000 shares of stock when issued was $465,500. As of the date of this report, we have repaid an aggregate principal and premium in the amount of $147,500$148,500 on these short-term notes and owe a balance of $137,500$180,100 of which $100,000 is the principal remaining from one note and $37,500$80,100 is the balance of premium due from three notes. The original due date of December 21, 2009, was first extended to February 28, 2010, with a second extension to June 15, 2010, a third extension to September 30, 2010 and a fourth extension to October 31, 2010. Further extensions of the $100,000 note were made through May 31,November 30, 2011 for 3% additional premium per month. In connection with all of the extensions, a total of $34,600$46,600 of additional premium was accrued as of the date of this report.
In December 2009, we borrowed a total of $400,000 from a private investor pursuant to three short-term promissory notes. These notes were payable from March 10 through March 15, 2010 in the amount of principal plus 15% premium, so that the total amount due was $460,000. In addition, we issued to the investor 24,000,000 shares of restricted common stock as collateral. These shares are to be returned and cancelled upon payment of the notes. The original due date of March 15, 2010 was first extended to June 15, 2010, with a second extension to September 30, 2010 and a third extension to October 31, 2010. Further extensions of the notes were made through May 31,November 30, 2011 for 3% additional premium per month on each note. In connection with these extensions a total of $119,800$164,800 of additional premium was accrued for the December 2009 notes as of the date of this report. In April 2011, Southridge Partners II LP purchased a total of $200,000 in principal value of promissory notes from the private investor.
Southridge converted $100,000 principal and $55,600 premium into 20,746,666 shares of our common stock that was previously issued as collateral.
On January 8, 2010, we borrowed a total of $600,000 from a private investor pursuant to two short-term promissory notes. These notes were payable April 6, 2010 in the amount of principal plus 15% premium, so that the total amount due was $690,000. In addition, we issued to the investor 31,363,637 shares of restricted common stock as collateral. These shares are to be returned and cancelled upon payment of the notes. The original due date of April 6, 2010 was first extended to June 15, 2010, with a second extension to September 30, 2010 and a third extension to October 31, 2010. Further extensions of the notes were made through MarchJuly 31, 2011 for 3% additional premium per month on each note. In January 2011, Southridge Partners II LP purchased a total of $600,000 in principal value of promissory notes from the private investor. As of the date of this report, Southridge has converted $425,000 principal and $200,051 premium into 32,397,016 shares of our common stock of which 31,056,108 shares were collateral shares and 1,340,908 new shares were issued pursuant to Rule 144. Although we are in technical default of these two notes, the holder, Southridge has elected to convert these notes into common shares. In connection with these prior extensions and the accrual of the April & May additional premiums through November 30, 2011, a total of $216,750$243,000 of additional premium was accrued for the January 2010 notes as of the date of this report.
On February 25, 2010, we borrowed $350,000 from a private investor pursuant to a short-term promissory note. We issued to the investor 35 shares of Series L Convertible Preferred Stock as collateral. This note had a maturity date of April 30, 2010; however, the investor gave us notice of conversion to the collateral shares on March 31, 2010. The Note was cancelled upon this conversion. The 35 shares of Series L Convertible Preferred Stock accrue dividends at an annual rate of 9% and are convertible into an aggregate of 16,587,690 shares of common stock (473,934 shares of common stock for each share of preferred stock). Pursuant to the Certificate of Designation, Rights and Preferences for the Series L Convertible Preferred Stock, we are obligated to reduce the conversion price and reserve additional shares for conversion if we sold or issued common shares below the price of $.0211
per share (the market price on the date of issuance of the Preferred Stock). In October 2010, we obtained a waiver from the private investor holding the 35 shares of Series L Convertible Preferred Stock in which the investor agreed to convert no more than the 16,587,690 common shares currently reserved as we do not have sufficient authorized common shares to reserve for further conversions pursuant to the Certificate of Designation, Rights and Preferences. The investor agreed to a conversion floor price of $.015, which required us to reserve an additional 6,745,643 common shares.
On January 6, 2011, the investor converted 15 shares of the Series L Convertible Preferred Stock into 10,000,000 shares of common stock. On May 11, 2011, we obtained a waiver fromAs of the private investor wheredate of this report, the investor agreed to convert no additional Series L Convertible Preferred Stock into common shares until the approval by our shareholders of an increase in authorized common stock at our next annual meeting to be held on July 12, 2011. This waiver encompasses a total of 13,333,333 shares issuable upon full conversion of theholds 20 shares of the Series L Convertible Preferred Stock held by the investor as of the date of this report.Stock.
On December 13, 2010, we borrowed a total of $60,000 from a private investor pursuant to a short-term promissory note. The note is payable on or before January 31, 2011. As consideration for this loan, we arewere obligated to pay back his principal, $10,800 in premium and will issue 3,000,000 restricted shares of common stock upon the approval by our shareholders of an increase in authorized common stock at our next annual meeting to be held on July 12, 2011.2012. On January 31,September 9, 2011, we issued the 3,000,000 common shares pursuant to Rule 144. We received an extension of maturity date to March 31,November 30, 2011 for this note.
In November and December 2010, we received a total of $145,000 from Southridge Partners II LP pursuant to three short-term promissory notes. All three notes provide for a redemption premium of 15% of the principal amount on or before March 31, 2011. We received an extension of maturity date to November 30, 2011 for these notes. Interest will accrue at 8% per annum until maturity. Southridge may elect at an Event of Default to convert any part or all of the $145,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) ninety percent (90%)90% of the average of the three (3) lowest closing bid prices during the ten (10)10 trading days immediately prior to the date of the conversion notice.
In January 2011, we received a total of $157,000 from Southridge Partners II LP pursuant to three short-term promissory notes. All three notes provide for a redemption premium of 15% of the principal amount on or before May 31, 2011. We received an extension of maturity date to November 30, 2011 for these notes. Interest will accrue at 8% per annum until maturity.
Southridge may elect at an Event of Default to convert any part or all of the $157,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) ninety percent (90%)90% of the average of the three (3) lowest closing bid prices during the ten (10)10 trading days immediately prior to the date of the conversion notice.
In February 2011, we received a total of $115,000 from Southridge Partners II LP pursuant to two short-term promissory notes. Both notes provide for a redemption premium of 15% of the principal amount on or before May 31, 2011. We received an extension of maturity date to November 30, 2011 for these notes. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $115,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) ninety percent (90%)90% of the average of the three (3) lowest closing bid prices during the ten (10)10 trading days immediately prior to the date of the conversion notice.
In March 2011, we received $60,000 from Southridge Partners II LP pursuant to a short-term promissory note. The note provides for a redemption premium of 15% of the principal amount on or before May 31, 2011. We received an extension of maturity date to November 30, 2011 for these notes. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $60,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) ninety percent (90%)90% of the average of the three (3) lowest closing bid prices during the ten (10)10 trading days immediately prior to the date of the conversion notice.
In April 2011, we received $165,000 from Southridge Partners II LP pursuant to two short-term promissory notes. The note providesnotes provide for a redemption premium of 15% of the principal amount on or before July 31, 2011. We received an extension of maturity date to November 30, 2011 for these notes. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $165,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) ninety percent (90%)90% of the average of the three (3) lowest closing bid prices during the ten (10)10 trading days immediately prior to the date of the conversion notice.
In April 2011, we borrowed a total of $19,171 from a private investor pursuant to a short-term promissory note. The note iswas payable on or before May 26, 2011 and was extended to June 30, 2011 with additional premium equal to 2% per month. The note was paid in full on June 27, 2011.
In May 2011, we received $80,000 from Southridge Partners II LP pursuant to two short-term promissory notes. The notes provide for a redemption premium of 15% of the principal amount on or before July 31, 2011. We received an extension of maturity date to November 30, 2011 for these notes. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an
Event of Default to convert any part or all of the $80,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) 90% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
In July 2011, we received $150,000 from Southridge pursuant to a short-term promissory note. The note provided for a redemption premium of 15% of the principal amount on or before December 31, 2011. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $150,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) 70% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
In August 2011, we received $82,500 from Southridge pursuant to two short-term promissory notes of which the principal on these notes was $100,000 and $7,500, respectively. The $100,000 note provided for a $25,000 original issue discount and both notes provided for a redemption premium of 15% of the principal amount on or before December 31, 2011. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $107,500 principal amount of the
Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.01 or (b) 70% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
In August 2011, we received $50,000 from OTC Global Partners, LLC pursuant to a short-term promissory note. The note provided for a redemption premium of 15% of the principal amount on or before March 1, 2012. Interest will accrue at 8% per annum until maturity above and beyond the premium. OTC Global Partners, LLC may elect at an Event of Default to convert any part or all of the $50,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.014 or (b) 65% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
In September 2011, we received $133,000 from Southridge pursuant to two short-term promissory notes of which the principal on these notes were $100,000 and $100,000, respectively. One of the $100,000 notes provided for a $33,000 original issue discount and the other $100,000 note provided a $34,000 original issue discount. The notes provided for a redemption premium of 15% of the principal amount on or before December 31, 2011. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $200,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.0075 or (b) 70% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
In October 2011, we received $67,000 from Southridge pursuant to a short-term promissory note of which the principal on the note was $100,000. The note provides for a $33,000 original issue discount. The note provided for a redemption premium of 15% of the principal amount on or before January 12, 2012. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $100,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.0075 or (b) 70% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
In October 2011, we received $67,000 from Southridge pursuant to a short-term promissory note of which the principal on the note was $100,000. The note provides for a $33,000 original issue discount. The note provided for a redemption premium of 15% of the principal amount on or before January 26, 2012. Interest will accrue at 8% per annum until maturity above and beyond the premium. Southridge may elect at an Event of Default to convert any part or all of the $100,000 Principal Amount of the Notes plus accrued interest into shares of our common stock at a conversion price equal to the lesser of (a) $0.005 or (b) 70% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
In October 2011, we received $78,500 from Asher Enterprises pursuant to a short-term promissory note due on or before July 26, 2012. Interest will accrue at 8% per annum until maturity above and beyond the premium. Asher Enterprises may elect at an Event of Default to convert any part or all of the $78,500 Principal Amount of the Note plus accrued interest into shares of our common stock at a conversion price equal to 58% of the average of the three lowest closing bid prices during the 10 trading days immediately prior to the date of the conversion notice.
On May 11, 2011, Southridge executed a debt to equity conversion of a $80,000 short-term promissory note dated November 11, 2010 plus accrued interest of $3,174. We issued Southridge 11,089,826 common shares pursuant to Rule 144 based on an agreed exchange price of $0.0075 per share. We still owe Southridge $12,000 in premium associated with this note.
On July 13, 2011, Southridge executed a debt to equity conversion of a $14,000 short-term promissory note dated December 16, 2010 plus accrued interest of $641. We issued Southridge 1,464,132 common shares pursuant to Rule 144 based on an agreed exchange price of $0.01 per share. We still owe Southridge $2,100 in premium associated with this note.
On July 13, 2011, Southridge executed a debt to equity conversion of a $51,000 short-term promissory note dated December 22, 2010 plus accrued interest of $2,269. We issued
Southridge 5,326,915 common shares pursuant to Rule 144 based on an agreed exchange price of $0.01 per share. We still owe Southridge $7,650 in premium associated with this note.
On July 21, 2011, Southridge executed a debt to equity conversion of a $55,000 short-term promissory note dated January 13, 2011 plus accrued interest of $2,278. We issued Southridge 5,727,836 common shares pursuant to Rule 144 based on an agreed exchange price of $0.01 per share. We still owe Southridge $8,250 in premium associated with this note.
On July 21, 2011, Southridge executed a debt to equity conversion of a $22,000 short-term promissory note dated January 19, 2011 plus accrued interest of $882. We issued Southridge 2,288,241 common shares pursuant to Rule 144 based on an agreed exchange price of $0.01 per share. We still owe Southridge $3,300 in premium associated with this note.
On August 24, 2011, Southridge executed a debt to equity conversion of a $80,000 short-term promissory note dated January 28, 2011 plus accrued interest of $3,647. We issued Southridge 8,364,712 common shares pursuant to Rule 144 based on an agreed exchange price of $0.01 per share. We still owe Southridge $12,000 in premium associated with this note.
On August 24, 2011, Southridge executed a partial debt to equity conversion of a $80,000 short-term promissory note dated February 7, 2011 in which they converted $20,000 principal plus accrued interest of $868. We issued Southridge 2,086,795 common shares pursuant to Rule 144 based on an agreed exchange price of $0.01 per share. We still owe Southridge $60,000 principal, $12,000 in premium and $2,683 in interest associated with this note.
On September 27, 2011, Southridge executed a final debt to equity conversion of a $80,000 short-term promissory note dated February 7, 2011 in which they converted the remaining $60,000 principal plus accrued interest of $868. We issued Southridge 8,399,781 common shares pursuant to Rule 144 based on an agreed conversion price of $0.0075 per share. We still owe Southridge $12,000 in premium associated with this note.
On September 27, 2011, Southridge executed a debt to equity conversion of a $35,000 short-term promissory note dated February 15, 2011 plus accrued interest of $1,688. We issued Southridge 4,891,689 common shares pursuant to Rule 144 based on an agreed conversion price of $0.0075 per share. We still owe Southridge $5,250 in premium associated with this note.
On September 27, 2011, Southridge executed a debt to equity conversion of a $60,000 short-term promissory note dated March 31, 2011 plus accrued interest of $2,315. We issued Southridge 8,308,603 common shares pursuant to Rule 144 based on an agreed conversion price of $0.0075 per share. We still owe Southridge $9,000 in premium associated with this note.
On September 28, 2011, we amended the terms of all debt agreements with Southridge Partners II, LP and agreed to amend the conversion terms of the Notes such that the principal portion of the Notes, plus accrued interest, shall be convertible into shares of our common stock at a conversion price per share equal to the lesser of (a) $0.0075 or (b) ninety percent (90%) of the average of the three (3) lowest closing bid prices during the ten (10) trading days immediately prior to the date of the conversion notice.
On May 11,October 13, 2011, weSouthridge executed a debt to equity exchange with Southridge Partners II LP pursuant to an $80,000conversion of a $100,000 short-term promissory note dated November 11, 2010April 14, 2011 plus accrued interest of $3,174.$3,989. We issued Southridge 11,089,82620,797,808 common shares pursuant to Rule 144 based on an agreed exchangeconversion price of $.0075$0.005 per share. We still owe Southridge $12,000$15,000 in premium associated with this note.
On November 3, 2011, Southridge executed a debt to equity conversion of a $65,000 short-term promissory note dated April 26, 2011 plus accrued interest of $2,721. We issued Southridge 13,544,219 common shares pursuant to Rule 144 based on an agreed conversion price of $0.005 per share. We still owe Southridge $15,000 in premium associated with this note.
From January 2011 to April 2011, Southridge Partners II LP acquired promissory notes from a private investor totaling $800,000 in principal and 55,363,907 shares of common stock which were issued as collateral. Southridge proposed that we amend the conversion terms of the notes permitting the holder to convert the notes and we agreed to the amendment. From January 12, 2011 to May 16,November 14, 2011, Southridge issued notices of conversion to settle $525,000 in principal plus accrued premiums totaling $255,651 into 53,143,682 shares of our common stock, of which 51,802,774 shares were collateral shares and 1,340,908 new shares were issued pursuant to Rule 144.
As of the date of this report, we owe a total of $1,779,332$2,203,201 of short term debt of which $1,296,171$1,501,500 is principal, $472,899$688,724 is accrued premium and $10,262$13,477 is accrued interest. AThirteen promissory notes totaling $80,000 in principal have been extended to November 30, 2011; five promissory notes totaling $457,500 in principal have a maturity date of December 31, 2011; one promissory note totaling $60,000with $100,000 in principal has been extended to May 31, 2011;a maturity date of January 12, 2012; one promissory note with $100,000 in principal has a maturity date of January 26, 2012; five promissory notes totaling $575,000 in principal have a maturity date that had been extended to March 31,of November 30, 2011; twoone promissory notes totaling $65,000note with $60,000 in principal havefrom a private investor has a maturity date of November 30, 2011; one promissory note with $50,000 in principal has a maturity date of March 31, 2011; six1, 2012; one promissory notes totaling $332,000note with $78,500 in principal have a maturity date of May 31, 2011 as the new maturity date, four promissory notes totaling $245,000 in principal havehas a maturity date of July 31, 2011; and one promissory note totaling $19,171 has a maturity date of May 26, 2011.2012. We have repaid aggregate principal and premium in the amount of $152,438$173,376 on these short-term notes and a total of $525,000$1,167,000 principal, and $255,651 in premium, and $27,471 in interest has been converted into 53,143,682145,434,239 shares of our common stock of which 51,802,774 shares were collateral shares and 1,340,90893,631,465 new shares were issued pursuant to Rule 144. Out of the original 55,363,637 shares of common stock held as collateral, a balance of 3,561,133 shares remains on the $475,500$475,000 principal of the remaining notes.
There can be no assurances that we will be able to pay our short-term loans when due. If we default on any or all of the notes due to the lack of new funding, the holders could exercise their right to sell the remaining 3,561,133 collateral shares and could take legal action to collect the amount due which could materially adversely affect IDSI and the value of our stock.
Issuance of Stock in Connection with Long-Term Loans
On February 23, 2011, we entered into a Convertible Promissory Note Agreement with an unaffiliated third party, JMJ Financial (the “Lender” or “JMJ”), relating to a private placement of a total of up to $1,800,000 in principal amount of a Convertible Promissory Note (the “Note”) providing for advances of a gross amount of $1,600,000 in seven tranches. WePursuant to the terms of a Registration Rights Agreement (the “Rights Agreement”) dated February 23, 2011, between the Company and JMJ, we are required to file within 10 days from the effective date of an increase of authorized shares to be voted onapproved by our shareholders, at the next annual meeting, an S-1 Registration Statement (the “Registration Statement”) covering 130,000,000 shares of ourCompany common stock to be reserved for conversion of the Note pursuantNote.
Although our shareholders on July 12, 2011, voted to the terms of a Registration Rights Agreement (the “Rights Agreement”) dated February 23, 2011, between the IDSI and JMJ. In a letter addendum to the Note dated February 22, 2011, JMJ acknowledged that the we do not have sufficientincrease our authorized shares available to reserve and register pursuant to2,000,000,000, we have not filed the terms ofregistration statement as required by the Rights Agreement and agreed not to enforce the required registration of shares until such time as the increase in authorized shares has been approved by our shareholders.Agreement.
The Note provides for funding in seven tranches as stipulated in the Funding Schedule attached. The first tranche of $300,000 was closed on February 24, 2011, and we received $258,000 after deductions of $30,000 for a 10% Finder’s Fee and $12,000 for an Origination Fee. The second tranche of $100,000 closed on May 20, 2011, and we received $93,000 after deduction of $7,000 for a 7% Finder’s Fee. A partial closing on the third tranche of $35,000 closed on October 7, 2011 and we received $32,250 after deduction of $2,750 for a 7% Finder’s Fee. The remaining sixfive tranches are to be funded based on achievement of milestones relating to the Registration Statement, with the final tranche of $300,000 being available 150 days after effectiveness of the Registration Statement, which must be effective 120 days after the date of the Agreement. For the remaining sixfive tranches, we are obligated to pay a Finder’s Fee equal to 7% in cash at each closing date. We may cancel the unfunded portion of the Agreement at a fee of 20% of the unfunded amount. As of the date of this report, $1,500,000$1,400,000 in principal amount remains unfunded and if we choose to cancel we will have to pay JMJ $300,000$280,000 to terminate the agreement.
The Note, after the seven tranches are drawn, would generate net proceeds of $1,467,000 after payment of the Origination Fee and a 7% Finder’s Fee. JMJ has the option to provide an additional $1,600,000 of funding on substantially the same terms as the first Agreement; however, we have the right to cancel, without penalty, the Note Agreement within five days of JMJ’s execution. Once executed and accepted by both parties and five days has passed, cancellation of unfunded payments is permitted at a fee of 20% of the unfunded amount. Cancellation of funded portions is not permitted.
The funding schedule of the seven tranches is as follows:
| § | $300,000 paid to Borrower within 2 business days of execution and closing of the agreement. |
| § | $100,000 paid to Borrower within 5 business days of filing of Definitive Proxy to increase authorized shares to 2,000,000,000 or more. |
| § | $100,000 paid to Borrower within 5 business days of effective increase in authorized shares to 2,000,000,000 or more. |
| § | $100,000 paid to Borrower within 5 business days of filing of registration statement, and that registration statement must be filed no later than 10 days from the effective increase of authorized shares. |
| § | $400,000 paid to Borrower within 5 business days of notice of effective registration statement, and that registration statement must be effective no later than 120 days from the execution of the agreement. |
| § | $300,000 paid to Borrower within 90 business days of notice of effective registration statement, and that registration statement must be effective no later than 120 days from the execution of the agreement. |
| § | $300,000 paid to Borrower within 150 business days of notice of effective registration statement, and that registration statement must be effective no later than 120 days from the execution of the agreement. |
The conditions to funding each payment are as follows:
| § | At the time of each payment interval, the Conversion Price calculation on Borrower’s common stock must yield a Conversion Price equal to or greater than $0.015 per share (based on the Conversion Price calculation, regardless of whether a conversion is actually completed or not). |
| § | At the time of each payment interval, the total dollar trading volume of Borrower’s common stock for the previous 23 trading days must be equal to or greater than $1,000,000 (one million).$1,000,000. The total dollar volume will be calculated by removing the three highest dollar volume days and summing the dollar volume for the remaining 20 trading days. |
| § | At the time of each payment interval, there shall not exist an event of default as described within any of the agreements between Borrower and Holder. |
Prior to the maturity date of February 2, 2014, JMJ may convert both principal and interest into our common stock at 75% of the average of the three lowest closing prices in the 20 days previous to the conversion. We have the right to enforce a conversion floor of $0.015 per share; however, if we receive a conversion notice in which the Conversion Price is less than $0.015 per share, JMJ will incur a conversion loss [(Conversion Loss = $0.015 – Conversion Price) x number of shares being converted] which we must make whole by either of the following options: pay the conversion loss in cash or add the conversion loss to the balance of principal due. Prepayment of the Note is not permitted.
The Note has a 9% one-time interest charge on the principal sum. No interest or principal payments are required until the Maturity Date, but both principal and interest may be included in conversions prior to the maturity date.
On August 24, 2011, JMJ executed a debt to equity conversion of $36,015 in principal of the first tranche of $300,000 which we closed on February 24, 2011. We issued JMJ 3,500,000 common shares pursuant to Rule 144 based on a conversion price of $0.0103 per share.
On August 31, 2011, JMJ executed a debt to equity conversion of $41,160 in principal of the first tranche of $300,000 which we closed on February 24, 2011. We issued JMJ 4,000,000 common shares pursuant to Rule 144 based on a conversion price of $0.01029 per share.
On September 15, 2011, JMJ executed a debt to equity conversion of $37,597 in principal of the first tranche of $300,000 which we closed on February 24, 2011. We issued JMJ 4,100,000 common shares pursuant to Rule 144 based on a conversion price of $0.00917 per share.
On September 28, 2011, JMJ executed a debt to equity conversion of $40,950 in principal of the first tranche of $300,000 which we closed on February 24, 2011. We issued JMJ 5,000,000 common shares pursuant to Rule 144 based on a conversion price of $0.00819 per share.
On October 12, 2011, JMJ executed a debt to equity conversion of $36,750 in principal of the first tranche of $300,000 which we closed on February 24, 2011. We issued JMJ 5,000,000 common shares pursuant to Rule 144 based on a conversion price of $0.00735 per share. As of the date of this report, we now owe JMJ a total of $172,028 of which $107,528 is principal, $37,500 is consideration and $27,000 is interest associated with this first tranche.
As of the date of this report, we owe JMJ a total of $336,053 in long-term debt of which $242,528 is principal, $54,375 is consideration on the principal and $39,150 is interest.
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.
| 10.78 | Agreement of Sale by and between Imaging Diagnostic Systems, Inc. and Superfun B.V. dated September 13, 2007 including Form of Lease Agreement (Exhibit D). Incorporated by reference to our Form 8-K filed on September 13, 2007. |
| 10.79 | Lease Agreement by and between Bright Investments, LLC (“Landlord”) and Imaging Diagnostic Systems, Inc. (“Tenant”) dated March 14, 2008. Incorporated by reference to our Form 8-K filed on April 3, 2008. |
| 10.80 | Consulting Agreement between Imaging Diagnostic Systems, Inc. and Tim Hansen dated as of January 1, 2008. Incorporated by reference to our Form 8-K filed on December 27, 2007. |
| 10.81 | Sixth Private Equity Credit Agreement between IDSI and Charlton Avenue LLC dated April 21, 2008 without exhibits. Incorporated by reference to our Form 8-K filed on April 21, 2008. |
| 10.82 | Two-Year Employment Agreement dated as of April 16, 2008 between Imaging Diagnostic Systems, Inc. and Linda B. Grable, Chairman of the Board and Interim Chief Executive Officer. Incorporated by reference to our Form 8-K filed on May 5, 2008. |
| 10.83 | Stock Option Agreement dated as of August 30, 2007 between Imaging Diagnostic Systems, Inc. and Linda B. Grable, Chairman of the Board and Interim Chief Executive Officer. Incorporated by reference to our Form 8-K filed on May 5, 2008. |
| 10.84 | Business Lease Agreement by and between Ft. Lauderdale Business Plaza Associates (“Lessor”) and Imaging Diagnostic Systems, Inc. (“Lessee”) dated June 2, 2008. Incorporated by reference to our Form 8-K filed on June 5, 2008. |
| 10.85 | Financial Services Agreement by and between Imaging Diagnostic Systems, Inc. (the “Company” or “IDSI”) and R.H. Barsom Company, Inc. (the “Consultant”) dated July 15, 2008. Incorporated by reference to our Form 8-K filed on July 18, 2008. |
| 10.86 | Securities Purchase Agreement by and between Imaging Diagnostic Systems, Inc. (the “Company” or “IDSI”) and Whalehaven Capital Fund Limited (the “Purchaser” and collectively, the “Purchasers”) dated July 31, 2008. Incorporated by reference to our Form 8-K filed on August 5, 2008. |
| 10.87 | Form of 8% Senior Secured Convertible Debenture, Exhibit A. Incorporated by reference to our Form 8-K filed on August 5, 2008. |
| 10.88 | Registration Rights Agreement, Exhibit B. Incorporated by reference to our Form 8-K filed on August 5, 2008. |
| 10.89 | Common Stock Purchase Warrant, Exhibit C. Incorporated by reference to our Form 8-K filed on August 5, 2008. |
| 10.90 | Form of Legal Opinion, Exhibit D. Incorporated by reference to our Form 8-K filed on August 5, 2008. |
| 10.91 | Security Agreement, Exhibit E. Incorporated by reference to our Form 8-K filed on August 5, 2008. |
| 10.92 | Amendment Agreement by and between Imaging Diagnostic Systems, Inc. (the “Company” or “IDSI”) and Whalehaven Capital Fund Limited (the “Purchaser” and collectively, the “Purchasers”) dated October 23, 2008. Incorporated by reference to our Form 8-K filed on October 23, 2008. |
| 10.93 | Securities Purchase Agreement by and between Imaging Diagnostic Systems, Inc. (the “Company” or “IDSI”) and Whalehaven Capital Fund Limited (the “Purchasers”) dated November 20, 2008. Incorporated by reference to our Form 8-K filed on November 26, 2008. |
| 10.94 | Form of 8% Senior Secured Convertible Debenture, Exhibit A. Incorporated by reference to our Form 8-K filed on November 26, 2008. |
| 10.95 | Registration Rights Agreement, Exhibit B. Incorporated by reference to our Form 8-K filed on November 26, 2008. |
| 10.96 | Form of Legal Opinion, Exhibit D. Incorporated by reference to our Form 8-K filed on November 26, 2008. |
| 10.97 | Security Agreement, Exhibit E. Incorporated by reference to our Form 8-K filed on November 26, 2008. |
| 10.98 | Amendment Agreement by and among Imaging Diagnostic Systems, Inc., Whalehaven Capital Fund Limited, and Alpha Capital Anstalt dated as of December 10, 2008. Incorporated by reference to our Form 8-K filed on December 12, 2008. |
| 10.99 | Amendment Agreement by and among Imaging Diagnostic Systems, Inc., Whalehaven Capital Fund Limited, and Alpha Capital Anstalt dated as of December 31, 2008. Incorporated by reference to our Form 8-K filed on January 5, 2009. |
| 10.100 | Amendment Agreement (Revised) by and among Imaging Diagnostic Systems, Inc., Whalehaven Capital Fund Limited, and Alpha Capital Anstalt dated as of December 31, 2008. Incorporated by reference to our Form 8-K/A filed on January 7, 2009. |
| 10.101 | Amendment Agreement by and among Imaging Diagnostic Systems, Inc., Whalehaven Capital Fund Limited, and Alpha Capital Anstalt dated as of March 20, 2009. Incorporated by reference to our Form 8-K filed on March 26, 2009. |
| 10.102 | One-Year Employment and Stock Option Agreement dated March 23, 2009 between Imaging Diagnostic Systems, Inc. and Linda B. Grable, Chief Executive Officer. Incorporated by reference to our Form 8-K filed on March 27, 2009. |
| 10.103 | One-Year Employment and Stock Option Agreement dated March 23, 2009 between Imaging Diagnostic Systems, Inc. and Allan L. Schwartz, Executive Vice President and Chief Financial Officer. Incorporated by reference to our Form 8-K filed on March 27, 2009. |
| 10.104 | Private Equity Credit Agreement between Imaging Diagnostic Systems, Inc. and Southridge Partners II LP dated November 23, 2009. Incorporated by reference to our Form 8-K filed on November 25, 2009. |
| 10.105 | Registration Rights Agreement between Imaging Diagnostic Systems, Inc. and Southridge Partners II LP dated November 23, 2009. Incorporated by reference to our Form 8-K filed on November 25, 2009. |
| 10.106 | Private Equity Credit Agreement (Amended) between Imaging Diagnostic Systems, Inc. and Southridge Partners II LP dated January 7, 2010. Incorporated by reference to our Form S-1 filed on January 12, 2010. |
| 10.107 | Registration Rights Agreement (Amended) between Imaging Diagnostic Systems, Inc. and Southridge Partners II LP dated January 7, 2010. Incorporated by reference to our Form S-1 filed on January 12, 2010. |
| 10.108 | Employment Agreement and Stock Option Agreement dated March 22, 2010, between Imaging Diagnostic Systems, Inc. and Linda B. Grable, Chief Executive Officer. Incorporated by reference to our Form 8-K filed on March 25, 2010. |
| 10.109 | Employment Agreement and Stock Option Agreement dated March 22, 2010, between Imaging Diagnostic Systems, Inc. and Allan L. Schwartz, Executive Vice President and Chief Financial Officer. Incorporated by reference to our Form 8-K filed on March 25, 2010. |
| 10.110 | Employment Agreement and Stock Option Agreement dated March 22, 2010, between Imaging Diagnostic Systems, Inc. and Deborah O’Brien, Senior Vice-President. Incorporated by reference to our Form 8-K filed on March 25, 2010. |
| 10.111 | 2010 Non-Statutory Stock Option Plan dated March 11, 2010. Incorporated by reference to our Form S-1 Amendment No. 1 filed on May 24, 2010. |
| 10.112 | Convertible Promissory Note by and between Imaging Diagnostic Systems, Inc. (the “Company” or “Borrower”) and JMJ Financial (the “Lender or “JMJ’’) dated February 23, 2011, Exhibit A. Incorporated by reference to our Form 8-K/A filed on March 2, 2011. |
| 10.113 | Letter Addendum to Promissory Note dated February 23, 2011, Exhibit B. Incorporated by reference to our Form 8-K/A filed on March 2, 2011. |
| 10.114 | Registration Rights Agreement dated February 23, 2011, Exhibit C. Incorporated by reference to our Form 8-K/A filed on March 2, 2011. |
| 10.115 | Patent Licensing Agreement, originally filed as Exhibit 10.2 to Form S-2 on July 21, 1998 as a text document. Incorporated by reference to our Form S-1 Amendment No. 2 filed on March 15, 2011. |
| 10.116 | U.S. Patent 5.692,511 issued Dec. 2, 1997, Exhibit A to Patent Licensing Agreement filed as Exhibit 10.115. Incorporated by reference to our Form S-1 Amendment No. 3 filed on April 26, 2011. |
| 31.1 | Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2 | Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 | Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2 | Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: May 18,November 14, 2011 | | Imaging Diagnostic Systems, Inc. |
| | | |
| | By: | /s/ Linda B. Grable |
| | | Linda B. Grable |
| | | Chief Executive Officer |
| | | |
| | | |
| | By: | /s/ Allan L. Schwartz |
| | | Allan L. Schwartz, Executive Vice-President and Chief Financial Officer |
| | | (PRINCIPAL ACCOUNTING OFFICER) |
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