UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[Mark One]

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2021~~2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____to______

Commission file number: 000-26028

IMAGING DIAGNOSTIC SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Florida		22-2671269
(State of Incorporation)		(IRS Employer Ident. No.)

618 E South St, Suite 500, Orlando, FL		32801
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number: (954) 581-9800

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non- accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐	Smaller reporting company ☒
Non-accelerated filer ☐		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes ☐ No ☒

The number of shares outstanding of the issuer’s common stock as of May ~~17, 2021:~~20, 2022: 123,156,941 shares of common stock, no par value.

IMAGING DIAGNOSTIC SYSTEMS, INC.

	Part I - Financial Information

			Page

~~PART I - FINANCIAL INFORMATION~~

Item 1.	Financial Statements		1

	Balance Sheets – March 31, ~~2021~~2022 (Unaudited) and June 30, ~~2020~~2021	1
		1

	Statements of Operations – (Unaudited) Three and nine months ended March 31, ~~2021~~2022 and ~~2020~~2021	2
		2

	Statements of Changes in Stockholders’ Deficit – (Unaudited) Three and nine months ended March 31, ~~2021~~2022 and ~~2020~~2021	3
		3

	Statements of Cash Flows - (Unaudited) Nine months ended March 31, ~~2021~~2022 and ~~2020~~2021	4
		4

	Notes to (Unaudited) Financial Statements	5
		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
		23

	Financial Condition and Results
		23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
		30

Item 4.	Controls and Procedures	31
		30
~~PART II - OTHER INFORMATION~~

~~Item 1.~~	~~Legal Proceedings~~Part II - Other Information	32

~~Item 1A.~~	~~Risk Factors~~	32

Item 1.	Legal Proceedings		31

Item 1A.	Risk Factors		31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
		31

Item 3.	Defaults Upon Senior Securities	32
		31
~~Item 4.~~	~~(Removed and Reserved)~~	32

Item 5.4.	~~Other Information~~Mine Safety Disclosures	32
		31
~~Item 6.~~	~~Exhibits~~	32

Item 5.	~~Signatures~~Other Information		3331

Item 6.	Exhibits		31

Signatures			32

Item 1. Financial Statements

IMAGING DIAGNOSTIC SYSTEMS, INC.

Balance Sheets

(unaudited)

(unaudited)
March 31,
2021 June 30,
2020
Assets
Current assets:
Cash $ - $ 45,960
Royalty receivable - 10,875
Consultant advances 5,000 5,000
Prepaid expenses 12,417 9,479

Total current assets 17,417 71,314

Property and equipment, net - 1,902

Operating lease right-of-use assets - 62,266

Total assets $ 17,417 $ 135,482

Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable and accrued expenses $ 482,017 $ 300,936
Accrued payroll taxes and penalties 314,019 314,019
Promissory notes, related party 574,375 520,000
Current portion of PPP loan payable 68,613 -
Current portion of operating lease liabilities - 54,461

Total current liabilities 1,439,024 1,189,416

Long-term liabilities
PPP Loan Payable, less current portion 10,987 79,600
Operating lease liabilities, less current portion - 8,021

Total long-term liabilities 10,987 87,621

Total liabilities 1,450,011 1,277,037

Commitment and Contingencies (Note 17)

Temporary equity
Convertible Preferred Series L 411,427 397,939

Total temporary equity 411,427 397,939

Stockholders’ Deficit:

Preferred stock, no par , 2,000,000 authorized Convertible preferred stock, Series M, 600 designated 0 shares issued and outstanding at March 31, 2021 and June 30, 2020 - -
Common stock, no par value, 500,000,000 authorized , 123,013,804 and 122,876,549 shares issued and outstanding March 31, 2021 and June 30, 2020, respectively 132,821,433 132,570,255
Accumulated Deficit (134,665,454 ) (134,109,749 )

Total stockholders’ deficit (1,844,021 ) (1,539,494 )

Total liabilities and stockholders’ deficit $ 17,417 $ 135,482

	March 31, 2022			June 30, 2021
Assets
Current assets:
Cash	$	560		$	2,473
Consultant advances		5,000			5,000
Prepaid expenses and deposits		12,423			12,951

Total current assets		17,983			20,424

Property and equipment, net		-			-

Total assets	$	17,983		$	20,424


Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable and accrued expenses	$	685,289		$	472,571
Accrued payroll taxes and penalties		314,019			314,019
Promissory notes, related party		661,276			581,276
Current portion of PPP loan payable		72,930			10,595

Total current liabilities		1,733,514			1,378,461

Long-term liabilities
PPP Loan Payable, less current portion		-			69,005

Total long-term liabilities		-			69,005

Total liabilities		1,733,514			1,447,466

Commitment and Contingencies (Note 17)

Temporary equity
Convertible Preferred Series L		429,451			415,939

Total temporary equity		429,451			415,939

Stockholders’ Deficit:

Preferred stock, no par, 2,000,000 authorized Convertible preferred stock, Series M, 600 designated 0 shares issued and outstanding at March 31, 2022 and June 30, 2021		-			-
Common stock, no par value, 500,000,000 authorized, 123,156,941 and 123,156,941 shares issued and outstanding March 31, 2022 and June 30, 2021, respectively		133,155,864			132,974,686
Accumulated Deficit		(135,300,846	)		(134,817,667	)

Total stockholders’ deficit		(2,144,982	)		(1,842,981	)

Total liabilities and stockholders’ deficit	$	17,983		$	20,424

See accompanying notes to the unaudited financial statements

IMAGING DIAGNOSTIC SYSTEMS, INC.

Statements of Operations

(unaudited)

	Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended
	March 31, 2022			March 31, 2021			March 31, 2022			March 31, 2021

Total Revenue	$	-		$	-		$	-		$	-

Cost of Sales		-			-			-			-

Gross Profit		-			-			-			-

Operating Expenses:
General and administrative		13,873			21,860			73,547			129,183
Research and development		-			-			-			8,308
Sales and marketing		314			111			551			711
Depreciation and amortization		-			-			-			622
Consulting expenses (including share-based compensation)		171,479			171,479			334,178			353,586
Total Operating Expenses		185,666			193,450			408,276			492,410

Operating Loss		(185,666	)		(193,450	)		(408,276	)		(492,410	)

Other Income (expense)

Interest income		-			-			-			1
Gain on termination of lease		-			-			-			10,863
Loss on disposal of fixed assets		-			-			-			(1,180	)
Other Income		-			-			-			1,000
Interest expense		(20,215	)		(20,169	)		(61,391	)		(60,491	)
Total Other Expense		(20,215	)		(20,169	)		(61,391	)		(49,807	)
Net Loss		(205,881	)		(213,619	)		(469,667	)		(542,217	)

Preferred Stock Dividends		(4,438	)		(4,438	)		(13,512	)		(13,488	)
Net Loss Available to Common Stockholders		(210,319	)		(218,057	)	$	(483,179	)	$	(555,705	)

Net Loss per common share:
Basic and diluted	$	-		$	-		$	-		$	-
Weighted average number of common shares outstanding:
Basic and diluted		123,156,941			122,933,978			123,156,941			122,915,121

See accompanying notes to the unaudited financial statements

IMAGING DIAGNOSTIC SYSTEMS, INC.

~~Statements of Operations~~

~~(unaudited)~~

Three Months
Ended Three Months
Ended Nine Months
Ended Nine Months
Ended
March 31,
2021 March 31,
2020 March 31,
2021 March 31,
2020

Total Revenue $ - $ - $ - $ -

Cost of Sales - - - -

Gross Profit - - - -

Operating Expenses:
General and administrative 21,860 46,395 137,491 214,739
Salaries and wages - 68,779 - 210,781
Research and development - 6,709 - 23,849
Sales and marketing 111 111 711 416
Depreciation and amortization - 621 622 4,515
Consulting expenses (including share-based compensation) 171,479 175,979 353,586 351,678
Bad debt expense - 19,665 - 19,665
Total Operating Expenses 193,450 318,259 492,410 825,643

Operating Loss (193,450 ) (318,259 ) (492,410 ) (825,643 )

Other Income (expense)
Interest income - 4 1 17
Gain on termination of lease - - 10,863 -
Loss on disposal of fixed assets - - (1,180 ) -
Other Income - - 1,000 -
Interest expense (20,169 ) (17,112 ) (60,491 ) (42,189 )
Total Other Expense (20,169 ) (17,108 ) (49,807 ) (42,172 )
Net Loss (213,619 ) (335,367 ) (542,217 ) (867,815 )

Preferred Stock Dividends (4,438 ) (4,475 ) (13,488 ) (13,549 )
Net Loss Available to Common Stockholders (218,057 ) (339,842 ) $ (555,705 ) $ (881,364 )

Net Loss per common share:
Basic and diluted $ - $ - $ - $ (0.01 )
Weighted average number of common shares outstanding:
Basic and diluted 122,993,978 122,870,085 122,915,121 122,732,306

~~See accompanying notes to the unaudited financial statements~~

~~IMAGING DIAGNOSTIC SYSTEMS, INC.~~

Statements of Changes in Stockholders’ Deficit

For the three and nine months ended March 31, ~~2021~~2022 and ~~2020~~2021

(unaudited)

Common Stock
Number of Shares to be Accumulated
Shares Amount Issued Deficit Total

Balance at June 30, 2020 122,876,549 $ 132,570,255 $ - $ (134,109,749 ) $ (1,539,494 )

Cummulative Dividend on Series L CV Preferred - - - (4,525 ) (4,525 )

Net loss - - - (158,027 ) (158,027 )

Balance at September 30, 2020 122,876,549 $ 132,570,255 $ - $ (134,272,301 ) $ (1,702,046 )

Cummulative Dividend on Series L CV Preferred - - - (4,525 ) (4,525 )

Related party payables converted to Equity - - 70,000 - 70,000

Stock options expense - 60,699 - - 60,699

Net loss - - - (170,571 ) (170,571 )

Balance at December 31, 2020 122,876,549 $ 132,630,954 $ 70,000 $ (134,447,397 ) $ (1,746,443 )

Cummulative Dividend on Series L CV Preferred - - - (4,438 ) (4,438 )

Related party payables converted to Equity 137,255 70,000 (70,000 ) - -

Stock option expense - 120,479 - - 120,479

Net loss - - - (213,619 ) (213,619 )

Balance at March 31, 2021 123,013,804 $ 132,821,433 $ - $ (134,665,454 ) $ (1,844,021 )

Balance at June 30, 2019 122,621,646 $ 132,228,967 $ - $ (133,062,606 ) $ (833,639 )

Cummulative Dividend on Series L CV Preferred - - - (4,537 ) (4,537 )

Net loss - - - (255,040 ) (255,040 )

Balance at September 30, 2019 122,621,646 $ 132,228,967 $ - $ (133,322,183 ) $ (1,093,216 )

Cummulative Dividend on Series L CV Preferred - - - (4,537 ) (4,537 )

Adjustment to correct number of common shares - - - - -

Shares Issued for Cash 137,255 70,000 - - 70,000

Stock options expense - 60,699 - - 60,699

Net loss - - - (277,408 ) (277,408 )

Balance at December 31, 2019 122,758,901 $ 132,359,666 $ - $ (133,604,128 ) $ (1,244,462 )

Cummulative Dividend on Series L CV Preferred - - - (4,475 ) (4,475 )

Shares Issued for Cash 117,648 60,000 - - 60,000

Stock options expense - 120,479 - - 120,479

Net loss - - - (335,367 ) (335,367 )

Balance at March 31, 2020 122,876,549 $ 132,540,145 $ - $ (133,943,970 ) $ (1,403,825 )

	Common Stock										Total
	Number of				Shares to be			Accumulated			Stockholders’
	Shares		Amount		Issued			Deficit			Deficit

Balance at June 30, 2021		123,156,941	$	132,974,686	$	-		$	(134,817,667	)	$	(1,842,981	)

Cummulative Dividend on Series L CV Preferred		-		-		-			(4,537	)		(4,537	)

Net loss		-		-		-			(111,984	)		(111,984	)

Balance at September 30, 2021		123,156,941	$	132,974,686	$	-		$	(134,934,188	)	$	(1,959,502	)

Cummulative Dividend on Series L CV Preferred		-		-		-			(4,537	)		(4,537	)

Stock options expense		-		60,699		-			-			60,699

Net loss		-		-		-			(151,802	)		(151,802	)

Balance at December 31, 2021		123,156,941	$	133,035,385	$	-		$	(135,090,527	)	$	(2,055,142	)

Cummulative Dividend on Series L CV Preferred		-		-		-			(4,438	)		(4,438	)

Stock option expense		-		120,479		-			-			120,479

Net loss		-		-		-			(205,881	)		(205,881	)

Balance at March 31, 2022		123,156,941	$	133,155,864	$	-		$	(135,300,846	)	$	(2,144,982	)

Balance at June 30, 2020		122,876,549	$	132,570,255	$	-		$	(134,109,749	)	$	(1,539,494	)

Cummulative Dividend on Series L CV Preferred		-		-		-			(4,525	)		(4,525	)

Net loss		-		-		-			(158,027	)		(158,027	)

Balance at September 30, 2020		122,876,549	$	132,570,255	$	-		$	(134,272,301	)	$	(1,702,046	)

Cummulative Dividend on Series L CV Preferred		-		-		-			(4,525	)		(4,525	)

Related party payables converted to Equity		-		-		70,000			-			70,000

Stock options expense		-		60,699		-			-			60,699

Net loss		-		-		-			(170,571	)		(170,571	)

Balance at December 31, 2020		122,876,549	$	132,630,954	$	70,000		$	(134,447,397	)	$	(1,746,443	)

Cummulative Dividend on Series L CV Preferred		-		-		-			(4,438	)		(4,438	)

Related party payables converted to Equity		137,255		70,000		(70,000	)		-			-

Stock options expense		-		120,479		-			-			120,479

Net loss		-		-		-			(213,619	)		(213,619	)

Balance at March 31, 2021		123,013,804	$	132,821,433	$	-		$	(134,665,454	)	$	(1,844,021	)

~~See accommpanying notes to the unaudited financial statements~~

~~IMAGING DIAGNOSTIC SYSTEMS, INC.~~

~~Statements of Cash Flows~~

~~(unaudited)~~

Nine months ended Nine months ended
March 31, 2021 March 31, 2020

Net loss $ (542,217 ) $ (867,815 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 622 4,515
Loss on disposal of fixed assets 1,180 -
Gain on termination of lease (10,863 ) -
Stock option expense 181,178 181,178
Bad debt expense - 19,665

Changes in assets and liabilities:
(Increase) decrease in employee advances - (5,000 )
(Increase) decrease in royalty receivable 10,875 -
(Increase) decrease in prepaid expenses (8,938 ) 340
Increase (decrease) in accounts payable and accrued expenses 276,762 206,923
Change in right of use asset/lease obligation, net (108 ) 322
Total adjustments 450,708 407,943

Net cash used in operating activities (91,509 ) (459,872 )

Cash flows from financing activities:
Change in bank overdrafts (8,826 ) -
Proceeds from promissory notes, related party 54,375 320,000
Proceeds issuance of common stock - 130,000

Net cash provided by financing activities 45,549 450,000

Net increase (decrease) in cash and cash equivalents (45,960 ) (9,872 )

Cash and cash equivalents at beginning of period 45,960 44,615

Cash and cash equivalents at end of period $ - $ 34,743

Supplemental Disclosure of cash flow information:
Cash paid for interest $ - $ 40,068
Cash paid for taxes $ - $ -

Non-cash investing and financing activities:
ROU assets and liabilities at inception $ - $ 147,291
Common Stock issued on conversion of accounts payable $ 70,000 $ -

See accompanying notes to the unaudited financial statements

IMAGING DIAGNOSTIC SYSTEMS, INC.

Statements of Cash Flows

(unaudited)

	Nine months ended			Nine months ended
	March 31, 2022			March 31, 2021

Net loss	$	(469,667	)	$	(542,217	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		-			622
Loss on abandonment of fixed assets		-			1,180
Gain on termination of lease		-			(10,863	)
Stock option expense		181,178			181,178

Changes in assets and liabilities:
(Increase) decrease in royalty receivable		-			10,875
(Increase) decrease in prepaid expenses		528			(8,938	)
Increase (decrease) in accounts payable and accrued expenses		212,718			276,762
Change in right of use asset/lease obligation, net		-			(108	)
Total adjustments		394,424			450,708

Net cash used in operating activities		(75,243	)		(91,509	)

Cash flows from financing activities:
Change in bank overdrafts		-			(8,826	)
Proceeds from promissory notes, related party		80,000			54,375
(Repayment) of Paycheck Protection Program Loan		(6,670	)		-
Net cash provided by financing activities		73,330			45,549

Net increase (decrease) in cash and cash equivalents		(1,913	)		(45,960	)

Cash at the beginning of year		2,473			45,960

Cash at end of the period	$	560		$	-

Supplemental Disclosure of cash flow information:
Cash paid for interest	$	1,497		$	-
Cash paid for taxes	$	-		$	-

Non-cash investing and financing activities:
Related party payables converted to Equity	$	-		$	70,000

See accompanying notes to the unaudited financial statements

IMAGING DIAGNOSTIC SYSTEMS, INC

Notes to Unaudited Financial Statements

March 31, ~~2021~~2022

(1) ORGANIZATION AND NATURE OF BUSINESS

Imaging Diagnostic Systems, Inc. (the “Company” or “IDSI”) is a medical technology company that has developed a new, non-invasive CT scanner called CTLM® that uses a laser beam in place of ionizing X-ray for breast imaging. This technology is called Diffuse Optical Tomography. The CTLM® will provide an adjunctive imaging modality to other methods of imaging the breast such as X-ray mammography, MRI and ultrasound.

Since inception in December 1993 as a Florida corporation and subsequently its reverse merger with Alkan Corp., a New Jersey Corporation on April 14, 1994, we continued operations and changed our state of incorporation from New Jersey to Florida, effective July 1, 1995. On July 14, 1995, we filed with the United States Securities and Exchange Commission (“SEC”) a Form 10 SB for registration of our securities as a small business issuer. The Form 10 SB was declared effective in September 1995 and our stock began trading on the OTC Bulletin Board (OTC:BB) on September 20, 1995 under the symbol IMDS. We became a fully reporting company under Commission File Number 0-26028 and traded on the OTC:BB and then on the OTC:QB and ultimately on the OTC PINK until September 25, 2014, at which time our registration was revoked by the SEC for failure to timely file our required periodic reports. Our latest quarterly report on Form 10-Q that was filed prior to our filing of our Form 10 registration statement on August 28, 2018, was filed on May 15, 2013, for the quarter ended March 31, 2013. Our latest annual report on Form 10-K that was filed prior to the filing of our Form 10 registration statement on August 28, 2018, was filed on October 15, 2012, for the year ended June 30, 2012. Copies of our SEC reports through the date of revocation (the “Prior Reports”) are available at www.sec.gov.

(2) GOING CONCERN AND MANAGEMENT’S PLANS

The accompanying financial statements are prepared assuming the Company will continue as a going concern. As of March 31, ~~2021,~~2022, the Company had an accumulated deficit of ~~$134,665,454,~~$135,300,846, a stockholders’ deficit of ~~$1,844,021~~$2,144,982 and a working capital deficiency of ~~$1,421,607.~~$1,715,531. For the nine months ended March 31, ~~2021,~~2022, net loss totaled ~~$542,217.~~$469,667. The net cash used in operating activities for the nine months ended March 31, ~~2021~~2022 totaled ~~$91,509.~~$75,243. These matters raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the date these financial statements are issued. The ability of the Company to continue as a going concern is dependent upon generating sales and obtaining additional capital and financing. While the Company believes in the viability of its strategy to generate material sales volume and in its ability to raise additional funds, there can be no assurances to that effect. The Company received from the Chinese FDA (“CFDA”) marketing clearance for the CTLM® effective November 16, 2018 to November 15, 2023. However, there can be no assurance that we will obtain U.S. Food and Drug Administration (“FDA”) marketing or other new international marketing clearances, that the CTLM® will achieve market acceptance or that sufficient revenues will be generated from sales of the CTLM® in China or elsewhere to allow us to operate profitably. If our majority shareholder Viable International Investments, LLC (“Viable”) fails to continue funding, the Company would be materially adversely affected and may have to cease operations due to a lack of funding. These matters affect the Company’s liquidity profile, and management’s plans in those regards are discussed in the paragraphs that follow.

During fiscal year ~~2021 and~~ 2022, we anticipate that losses from operations will continue until we begin to generate revenues through the sales of CTLM® systems in China. These losses will be primarily due to an anticipated increase in marketing, manufacturing and operational expenses associated with the international commercialization of the CTLM®, expenses associated with FDA approval processes, and the costs associated with advanced product development activities.

~~IMAGING DIAGNOSTIC SYSTEMS, INC~~

~~Notes to Unaudited Financial Statements~~

~~March 31, 2021~~

~~(2) GOING CONCERN AND MANAGEMENT’S PLANS (Continued)~~

The Company’s next focus, after having obtained CFDA approval in China, is on obtaining marketing clearance of its CTLM® Breast Imaging System through the FDA. The premarket approval (“PMA”) process for U.S. marketing clearance is expected to take longer than the Chinese process, and we intend to resume this effort after achieving successful marketing and sales of CTLM® systems in China. Our sales and marketing efforts in China have been significantly hindered by the ongoing COVID-19 pandemic, and therefore we do not expect revenue from China ~~until~~in the ~~first or second quarter of fiscal 2022.~~foreseeable future. No sales in other countries are expected in the ~~near~~foreseeable future, as we do not intend to pursue sales in other countries until after obtaining FDA marketing clearance, as to which there can be no assurance.

In analyzing the regulatory path forward, timeline, and costs associated with the level of effort required to upgrade the Company’s Quality Management System (QMS), we have decided not to renew our CE mark (required for sales in the European Union) for this year and to consider reapplying in 2 to 3 years to avoid these regulatory fees. Similarly, we will maintain our Quality Management System to be compliant to ISO 13485:2016 but not certify to ISO 13485:2016 by Underwriters Laboratories (UL) which will allow us to avoid fees associated with certification, travel, and hosting audits. Maintaining our QMS to be ISO 13485:2016 compliant will allow us to quickly schedule an audit with UL and become ISO 13485 certified when necessary.

IMAGING DIAGNOSTIC SYSTEMS, INC

Notes to Unaudited Financial Statements

March 31, 2022

(2) GOING CONCERN AND MANAGEMENT’S PLANS (Continued)

Xi’an IDI has been working with Yiling Hospital Management Group based in Beijing, China (“Yiling”) to evaluate CTLM®’s potential use and application. As of the date of this report, Xi’an IDI has loaned three CTLM® systems to Yiling and Yiling is at the stage of testing and data validation.

It is important that the effectiveness of the image quality ~~and once effectiveness of the~~ improvements ~~has been~~be established ~~then~~before Xi’an IDI ~~will~~can resume their sales and marketing efforts ~~in China. The improvement of the image quality is a critical milestone as it will allow the Company to begin generating revenues from the sale of CTLM® systems~~ in China. Once the Company has substantial revenues and cash flow, it believes it will be able to raise the necessary funding to allow the Company to move forward with its various R&D and regulatory initiatives that have been put on hold due to the COVID-19 pandemic.

The Company’s ability to continue as a going concern and its future success are dependent upon its ability to raise additional capital in the near term to: (1) satisfy its current obligations, (2) continue its research and development efforts, and (3) successfully develop, market, and sell its products. Due to the difficulty of raising additional capital during the current COVID-19 crisis, the Company has been taking aggressive measures to reduce its operating costs in order to preserve cash. The Company has applied for and received funding of $79,600 from the Paycheck Protection Program (“PPP”). The Company also applied for the Economic Injury Disaster Loan (“EIDL”) and was denied the loan, but received a grant of $4,000. Both the PPP and EIDL were both made available under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The Company’s ability to meet its cash flow requirements through fiscal ~~2021~~2022 and continue its development and commercialization efforts will be dependent on the length and severity of the COVID-19 crisis and the Company’s ability to secure additional funding. There can be no assurance that IDSI will generate sufficient revenue to provide positive cash flows from operations or that sufficient capital will be available, when required, to permit the Company to execute its plan of operations. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of presentation and use of estimates

The financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”). The unaudited interim financial information furnished herein reflects all adjustments, consisting only of normal recurring items, which in the opinion of management are necessary to fairly state the Company’s financial position, results of operations and cash flows for the dates and periods presented and to make such information not misleading. The preparation of financial statements in conformity with Generally Accepted Accounting Principles in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions also include the valuations of certain financial instruments, stock-based compensation, deferred tax assets, the outcome of litigation and tax matters, and other matters that affect the statements of financial condition and related disclosures. Actual results could differ materially from these estimates.

~~IMAGING DIAGNOSTIC SYSTEMS, INC~~

~~Notes to Unaudited Financial Statements~~

~~March 31, 2021~~

~~(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)~~

These unaudited financial statements should be read in conjunction with the Company’s audited financial statements for the year ended June 30, ~~2020,~~2021, contained in our General Form for Registration of Securities of Form 10-K as filed with the Securities and Exchange Commission (the “Commission”) on ~~September 28, 2020.~~October 12, 2021. The results of operations for the nine months ended March 31, ~~2021,~~2022, are not necessarily indicative of results to be expected for any other interim period or the fiscal year ending June 30, ~~2021.~~2022.

IMAGING DIAGNOSTIC SYSTEMS, INC

Notes to Unaudited Financial Statements

March 31, 2022

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(b) Revenue recognition

As of July 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The Company sells medical imaging products, parts, and services where permitted to independent distributors and in certain unrepresented territories directly to end-users. The Company recognizes revenue when obligations under the terms of a contract with the customer are satisfied. Product sales occur once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. The amount of consideration the Company receives and revenue the Company recognizes varies with changes in customer incentives the Company offers to its customers and their customers. Any discounts, sales incentives or similar arrangements with the customer are estimated at time of sale and deducted from revenue. Sales taxes and other similar taxes are excluded from revenue.

The Company also receives royalties pursuant to a licensing relationship with Trifoil Imaging. Revenue is recognized in the reporting periods in which royalties are due to the Company.

In the event that management determines that a receivable becomes uncollectible, or events or circumstances change, which result in a temporary cessation of payments from the distributor, we will make our best estimate of probable or potential losses in our accounts receivable balance using the allowance method for each quarterly period. Management will review the receivables at the end of each fiscal year and the appropriate allowance will be made based on current available evidence and historical experience.

Our allowance for doubtful accounts was $0$850 as of March 31, ~~2021~~2022 and June 30, ~~2020.~~2021. These amounts consist of other receivables that have been fully reserved.

(d) Cash and cash equivalents

Holdings of highly liquid investments with original maturities of three months or less and investment in money market funds are considered to be cash equivalents by the Company. There were no cash equivalents at March 31, ~~2021~~2022 and June 30, ~~2020.~~2021.

(e) Concentration of Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.

The Company places its cash and cash equivalents with high-quality financial institutions. At times, balances in the Company’s cash accounts may exceed the Federal Deposit Insurance Corporation limit of $250,000. At March 31, ~~2021~~2022 and June 30, ~~2020,~~2021, the Company had $0 in excess of the federally insured limit.

~~IMAGING DIAGNOSTIC SYSTEMS, INC~~

~~Notes to Unaudited Financial Statements~~

~~March 31, 2021~~

~~(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)~~

The Company did not have any revenue for the nine months ended March 31, ~~2021~~2022 and ~~2020.~~2021.

(f) Inventory

Inventories, consisting principally of raw materials, work-in-process (including completed units under testing), finished goods and units placed on consignment, are carried at the lower of cost and net realizable value. Cost is determined using the first-in, first-out (FIFO) method. Raw materials consist of purchased parts, components and supplies. Work-in-process includes completed units undergoing final inspection and testing. The Company periodically reviews the value of items in inventory and records write-downs or write-offs based on its assessment of slow moving or obsolete inventory. The Company maintains a reserve for obsolete inventory and generally makes inventory value adjustments against the reserve.

IMAGING DIAGNOSTIC SYSTEMS, INC

Notes to Unaudited Financial Statements

March 31, 2022

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(g) Property and equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using straight-line methods over the estimated useful lives of the related assets. Expenditures for renewals and betterments which increase the estimated useful life or capacity of the asset are capitalized; expenditures for repairs and maintenance are expensed when incurred.

(h) Research and development

Research and development expenses consist principally of expenditures for equipment and outside third-party consultants, raw materials which are used in testing and the development of the Company’s CTLM® device or other products and product software. The non-payroll related expenses include testing at outside laboratories, parts associated with the design of initial components and tooling costs, and other costs which do not remain with the developed CTLM® device.

(i) Net loss per share

The Company relies on the guidance provided by ASC 260, (“Earnings per Share”), which requires the reporting of both basic and diluted earnings per share. Basic net loss per share is determined by dividing loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if options or other contracts to issue common stock were exercised or converted into common stock, as long as the effect of their inclusion is not anti-dilutive.

The Company had ~~13,082,657~~9,235,012 and ~~10,972,662~~13,922,657 options vested as of March 31, ~~2021~~2022 and June 30, ~~2020,~~2021, respectively and ~~2,170,290~~1,970,290 and ~~4,123,184~~2,830,290 options not yet vested as of March 31, ~~2021~~2022 and June 30, ~~2020,~~2021, respectively.

(j) Stock-based compensation

In July 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, an accounting standard update to improve non-employee share-based payment accounting. The accounting standard update more closely aligns the accounting for employee and non-employee share-based payments. The accounting standards update is effective as of the beginning of 2019 with early adoption permitted. We have elected to adopt this standard.

The Company has elected to use the Black-Scholes-Merton, or BSM, option-pricing model to estimate the fair value of its options and similar awards, which incorporates various subjective assumptions including volatility, risk-free interest rate, expected life, and dividend yield to calculate the fair value of outstanding and vested stock option awards. Compensation expense recognized in the statements of operations is based on awards ultimately expected to vest and reflects estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

IMAGING DIAGNOSTIC SYSTEMS, INC

Notes to Unaudited Financial Statements

March 31, ~~2021~~2022

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period. No stock options were granted during the nine months ended March 31, 2022. During the nine months ended March 31, 2021 the Board granted options to purchase 157,102 shares with an exercise price of $.51 per share to an employee. During the nine months ended March 31, 2020, the Board granted options to purchase 2,000,000 shares with an exercise price of $.51 per share to a consultant and options to purchase 98,188 shares with an exercise price of $.51 per share to an employee. Stock options are being expensed pursuant to ASC 718.

The fair value concepts were not changed significantly in ASC 718; however, in adopting this Standard, companies were given the option to choose among alternative valuation models and amortization assumptions. We elected to continue to use the Black-Scholes option pricing model and expense the options as compensation over the requisite vesting period of the grant. We will reconsider use of the Black-Scholes model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model. See Note (16) Stock Options.

(k) Long-lived assets

The Company relies on the guidance provided by ASC 360 (“Property, Plant & Equipment”). ASC 360 requires companies to write down to estimated fair value long-lived assets that are impaired. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In performing the review of recoverability, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the assets, an impairment loss is recognized.

The Company has determined that no impairment losses need to be recognized through the nine months ended March 31, ~~2021~~2022 and ~~2020.~~2021.

(l) Income taxes

The Company accounts for income taxes pursuant to the provisions of ASC 740-10, “Accounting for Income Taxes,” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.

~~IMAGING DIAGNOSTIC SYSTEMS, INC~~

~~Notes to Unaudited Financial Statements~~

~~March 31, 2021~~

~~(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)~~

The Company follows the provisions of the ASC 740 -10 related to, Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.

Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax positions.

IMAGING DIAGNOSTIC SYSTEMS, INC

Notes to Unaudited Financial Statements

March 31, 2022

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The Company has adopted ASC 740-10-25 Definition of Settlement, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. As of the date these financials were available to be issued, tax years ended June 30, ~~2017~~2019 to ~~2020~~2021 are still potentially subject to audit by the taxing authorities.

(m) Warranty reserve

The Company warrants all products and parts supplied for a period of 12 months from the date of installation or 15 months from the date the products was/were shipped from IDSI, whichever occurs first. Although the Company tests its product in accordance with its quality programs and processes, its warranty obligation is affected by product failure rates and service delivery costs incurred in correcting a product failure. Based on the Company’s experience, the warranty reserve was estimated based on the replacement cost of the laser and certain electronic parts. Should actual product failure rates or service costs differ from the Company’s estimates, which are based on limited historical data, where applicable, revisions to the estimated warranty liability would be required. The Company had no warranty reserve balance as of March 31, ~~2021~~2022 or June 30, ~~2020.~~2021.

(n) Impact of recently issued accounting pronouncements

In June 2016, the FASB issued ASU No. 2016-13 and updated in Nov 2018 ASU 2018-19, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”), which requires the immediate recognition of management’s estimates of current and expected credit losses. ASU 2016-13 is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2019. The Company adopted this ASU on July 1, 2020 and the adoption had no material impact on the Company’s financial position or result of operations.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820. The ASU is effective for the Registrants for fiscal years beginning after December 15, 2019, and interim periods therein. The Company adopted this ASU on July 1, 2020 and the adoption had no material impact on the Company’s financial position or result of operations.

~~IMAGING DIAGNOSTIC SYSTEMS, INC~~

~~Notes to Unaudited Financial Statements~~

~~March 31, 2021~~

~~(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)~~

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.

(o) Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, receivables, accounts payable, short-term debt and accrued liabilities approximated their fair values due to the short maturity of these instruments. After a review of our accounts receivable, the Company has not recorded an allowance for doubtful accounts. The fair value of the Company’s debt obligations is estimated based on the quoted market prices for the same or similar issues or on current rates offered to the Company for debt of the same remaining maturities. At March 31, ~~2021~~2022 and June 30, ~~2020,~~2021, the aggregate fair value of the Company’s debt obligations approximated its carrying value. The Company relies upon the guidance of ASC 820 (“Fair Value Measurements and Disclosures”). ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly, transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance. ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value:

IMAGING DIAGNOSTIC SYSTEMS, INC

Notes to Unaudited Financial Statements

March 31, 2022

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Level 1 - Quoted prices in active markets for identical assets or liabilities

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.

~~(p) Reclassification~~

In the current year, the Company separately classified bad debt expense in the statements of operations. For comparative purposes, amounts in the prior years have been reclassified to conform to current year presentations. These reclassifications had no effect on previously reported results of operations or retained earnings.

(4) REVENUE

The Company recognizes revenue when obligations under the terms of a contract with the customer are satisfied. Product sales occur once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. The amount of consideration the Company receives and revenue the Company recognizes varies with changes in customer incentives the Company offers to its customers and their customers. Sales taxes and other similar taxes are excluded from revenue.

~~IMAGING DIAGNOSTIC SYSTEMS, INC~~

~~Notes to Unaudited Financial Statements~~

~~March 31, 2021~~

~~(4) REVENUE (Continued)~~

As of July 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. The Company adopted the standard using the modified retrospective method and the adoption did not have a material impact on its financial statements. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

The Company had no ~~sales~~revenues during the nine months ended March 31, ~~2021~~2022 and ~~2020.~~2021.

(5) RELATED PARTY TRANSACTIONS

Related party revenues

~~Due from related parties~~

On March 22, 2018, the Board of Directors approved the execution of ~~two~~2 agreements with Xi’an of China, an affiliated Company of IDSI. The agreements are a Know How Transfer Contract and a ~~CTLM~~CTLM® Know How Confidentiality Agreement. The contract, having a term of 20 years, stipulates that Xi’an will pay IDSI a know how transfer fee of 25% of revenue for ~~CTLM~~CTLM® product sales in their territory. ~~The Company also sells inventory parts or acquires parts from third parties on behalf of Xi’an. During~~There were no such sales during the nine months ended March 31, ~~2021~~2022 and ~~2020, there were no such sales. As of~~ 2021.

IMAGING DIAGNOSTIC SYSTEMS, INC

Notes to Unaudited Financial Statements

March 31, 2021 and June 30, 2020, the Company has receivables from related parties, net of allowance, of $0 as a result of sales of inventory parts or acquisition of parts from third parties on behalf of Xi’an. Xi’an and Viable have common ownership hence these transactions are considered related party transactions. The original balance of the receivables was $7,700, but the Company decided to reserve the full amount in fiscal 2020 due to its age as well as the ongoing COVID-19 crisis.2022

Additionally, as of March 31, 2021 and June 30, 2020, the Company has amounts due from related parties, net of allowance, of $0. The original balance due from related parties was $11,965. Most of this balance was due to product that was purchased by Xi’an that was paid for by IDSI. Xi’an intends to reimburse IDSI for the amounts paid on their behalf. During fiscal 2020, the Company decided to reserve the full amount of $11,965 due from related parties due to its age as well as the ongoing COVID-19 crisis.(5) RELATED PARTY TRANSACTIONS (Continued)

Related party fees

Erhfort, LLC ~~was paid~~earned a consulting fee of $76,500 ~~and $90,000~~ for each of the ~~nine months~~nine-month periods ended March 31, ~~2021~~2022 and ~~2020, respectively.~~2021. Erhfort, LLC regularly reviews the Company’s operations and reports to IDSI’s CEO, Chunming Zhang, who lives in China. Erhfort, LLC is a related party because it owns Company common stock directly and indirectly.

David Fong, serving as the Company’s CFO, ~~was paid~~earned consulting fees of $76,500 for each of the ~~nine month~~nine-month periods ended March 31, ~~2021~~2022 and ~~2020.~~2021. These fees were ~~paid~~assigned to his affiliated business, Fong & Associates, LLC.

~~IMAGING DIAGNOSTIC SYSTEMS, INC~~

~~Notes to Unaudited Financial Statements~~

~~March 31, 2021~~

~~(5) RELATED PARTY TRANSACTIONS (Continued)~~

Related party payables and accrued expenses

As of March 31, ~~2021~~2022 and June 30, 2020, the amount of consulting fees due to Erhfort, LLC, which is included in accounts payable, is $98,500 and $92,000, respectively. On December 31, 2020, the Company converted $70,000 of unpaid fees to Erhfort, LLC to common stock at a rate of $0.51 per share.

~~As of March 31,~~ 2021, ~~and June 30, 2020,~~ the amount of interest on related party notes due to Erhfort, LLC, which is included in accounts payable, is ~~$63,813.67~~$141,814 and ~~$6,164.40,~~$83,260, respectively.

As of March 31, ~~2021~~2022 and June 30, ~~2020,~~2021, the amount of consulting fees due to Ehrfort, LLC, which is included in accounts payable, is $127,500 and $51,000, respectively.

As of March 31, 2022 and June 30, 2021, the amount of consulting fees due to Fong & Associates, LLC, which is included in accounts payable, is ~~$168,500~~$260,500 and ~~$92,000,~~$184,000, respectively.

As of March 31, ~~2021~~2022 and June 30, ~~2020,~~2021, the amount of interest on related party notes due to JM One Holdings, LLC, which is included in accrued expenses, is ~~$5,112.31~~$8,112 and ~~$2,868.49,~~$5,860, respectively. JM One Holdings, LLC is an entity affiliated with the Company’s CFO.

Related party debt

As of March 31, 2022 and June 30, 2021, the amount in promissory notes due to related parties are $661,276 and $581,276, respectively (See Note 12).

(6) ROYALTY RECEIVABLE

On June 16, 2006, the Company entered into a Royalty Agreement with Bioscan Inc. whereby the Company established a licensing relationship with Bioscan which granted Bioscan an exclusive sublicensable, royalty-bearing license to make, use, offer for sale, import and otherwise develop and commercialize products in its territory. Bioscan Inc. was subsequently purchased by TriFoil Imaging. During the nine months ended March 31, ~~2021~~2022 and ~~2020,~~2021, there was no royalty income. As of March 31, ~~2021~~2022 and June 30, ~~2020,~~2021, the Company had royalty receivable balances of ~~$0 and $10,875, respectively.~~

~~(7) INVENTORIES~~

~~Inventories consisted of the following:~~

March 31,
2021 June 30,
2020

Raw materials consisting of purchased parts, components and supplies $ 92,587 $ 369,452
Work-in process including units undergoing final inspection and testing - 52,500
Finished goods 7,500 15,000
Total Inventory $ 100,087 $ 436,952
Allowance for Obsolete Inventory (100,087 ) (436,952 )
Net Inventory $ - $ -

$0.

IMAGING DIAGNOSTIC SYSTEMS, INC

Notes to Unaudited Financial Statements

March 31, ~~2021~~2022

(7) INVENTORIES ~~(Continued)~~

Inventories consisted of the following:

	March 31, 2022			June 30, 2021

Raw materials consisting of purchased parts, components and supplies	$	92,587		$	92,587
Finished goods		7,500			7,500
Total Inventory	$	100,087		$	100,087
Allowance for Obsolete Inventory		(100,087	)		(100,087	)
Net Inventory	$	-		$	-

Due to the age of the inventory, lack of demand for parts and lack of sales the Company ~~wrote off~~reserved for all inventory during the year ended June 30, 2017. The Company is not carrying any inventory purchased after June 30, 2017 and has booked an allowance for the entire value of its ~~inventory as~~inventory.

(8) PREPAID EXPENSES AND DEPOSITS

The following is a summary of prepaid expenses:

	March 31, 2022		June 30, 2021

Prepaid Software	$	581	$	206
Prepaid Rent		59		962
Rent Deposits		1,783		1,783
Consulting Retainers		10,000		10,000
Total Prepaid expenses	$	12,423	$	12,951

IMAGING DIAGNOSTIC SYSTEMS, INC

Notes to Unaudited Financial Statements

March 31, 2021 and June 30, 2020. During the nine months ended March 31, 2021, the Company made an adjustment to write-off the obsolete inventory against the inventory allowance in the amount of $336,865. This was done because the Company relocated its main office and disposed of much of its obsolete inventory at that time.2022

~~(8)~~(9) PROPERTY AND EQUIPMENT

The following is a summary of property and equipment, less accumulated depreciation:

March 31,
2021 June 30,
2020 Useful life

Furniture and Fixtures $ - $ 261,011 5 years
Computers and Equipment 12,612 370,704 5 years
Third Party Software 10,291 10,291 5 years
Clinical Equipment 15,000 15,000 5 years
Total Property & Equipment $ 37,903 $ 657,006
Less: accumulated depreciation (37,903 ) (655,104 )
Total Property & Equipment - Net $ - $ 1,902

	March 31, 2022			June 30, 2021			Useful life

Computers and Equipment	$	12,612		$	12,612		5 years
Third Party Software		10,291			10,291		5 years
Clinical Equipment		15,000			15,000		5 years
Total Property & Equipment	$	37,903		$	37,903
Less: accumulated depreciation		(37,903	)		(37,903	)
Total Property & Equipment - Net	$	-		$	-

Depreciation expense for the nine months ended March 31, 2022 and 2021 was $0 and ~~2020 was~~ $622 ~~and $4,515~~ respectively. During the nine months ended March 31, 2021, the Company disposed of much of its nonessential furniture and equipment pursuant to the relocation to a much smaller office and storage space. Most of the fixed assets were fully depreciated so that there was only a net loss of $1,180 on the disposal of fixed assets.

~~(9)~~(10) ACCOUNTS PAYABLE AND ACCRUED EXPENSES

As of March 31, ~~2021~~2022 and June 30, ~~2020,~~2021, accounts payable and accrued expenses totaled ~~$482,017~~$685,289 and ~~$300,936,~~$472,571, respectively, which consists of accounts payable of ~~$467,366~~$677,177 and ~~$296,917~~$465,799 and other accrued expenses of ~~$14,651~~$8,112 and ~~$4,019,~~$6,772, respectively.

On October 1, 2020, the Company’s office and warehouse lease was terminated by its landlord due to nonpayment of rent. Pursuant to a settlement agreement, the Company reduced its accounts payable by $16,756 (See Note 13).

On December 31, 2020, the Company converted $70,000 in accounts payable due to a related party to 137,255 shares of common stock. The conversion agreement was effective December 31, 2020 and share issuance occurred on January 13, 2021 (See Note 5).

~~(10)~~(11) ACCRUED PAYROLL TAXES AND PENALTIES

As of March 31, ~~2021~~2022 and June 30, ~~2020,~~2021, the Company owed the IRS $314,019 and $314,019, respectively. Accrued payroll taxes represent outstanding interest and penalties based on prior management’s failure to pay payroll taxes commencing with the quarter ending ~~March 31,~~September 30, 2010. As part of new management’s restructuring plan, the Company received funds from an accredited investor to be able to make a payment to pay off the payroll tax portion of the amount owed to the IRS. The Company engaged tax counsel to manage the settlement and payment. On June 27, 2018, the IRS provided counsel with a payoff calculation table indicating that the balance of taxes due was $381,224. On June 29, 2018, Viable International Investments LLC provided a bank check in that amount to counsel and they sent the check to the IRS with a letter requesting penalty and interest abatement. The amount due at March 31, ~~2021~~2022 of $314,019 represents the interest and penalties. The Company has formally asked the IRS to abate all remaining interest and penalties of $314,019. The Company had a telephone conference on April 18, 2019 with the office of appeals and is waiting for further communications from the appeals officer. As of March 31, ~~2021,~~2022, the Company’s tax counsel is in the process of reviewing recent IRS correspondence to determine appeals status and will work towards final resolutions with the IRS on all outstanding liabilities. The Company has decided to wait until all resolutions are final before making any adjustments to the balance of $314,019 owed to the IRS.

IMAGING DIAGNOSTIC SYSTEMS, INC

Notes to Unaudited Financial Statements

March 31, ~~2021~~2022

~~(11)~~(12) PROMISSORY NOTES – RELATED PARTY

The following table is a summary of the outstanding note balances as of March 31, ~~2021~~2022 and June 30, ~~2020.~~2021.

Noteholder Interest
Rate Maturity
Date March 31,
2021 June 30,
2020
Related Party Notes:
Erhfort, LLC 15% 6/30/21 $ 100,000 $ 100,000
Erhfort, LLC 15% 6/30/21 100,000 100,000
JM One Holdings, LLC 15% 6/30/21 20,000 20,000
Erhfort, LLC 15% 6/30/21 100,000 100,000
Erhfort, LLC 15% 6/30/21 100,000 100,000
Erhfort, LLC 15% 6/30/21 100,000 100,000
Erhfort, LLC 15% 6/30/21 10,000 -
Erhfort, LLC 15% 6/30/21 10,000 -
Viable International Investments, LLC 0% On Demand 7,865 -
Viable International Investments, LLC 0% On Demand 5,000 -
Viable International Investments, LLC 0% On Demand 5,000 -
Viable International Investments, LLC 0% On Demand 5,000 -
Viable International Investments, LLC 0% On Demand 5,000 -
Viable International Investments, LLC 0% On Demand 3,000 -
Xi’an IDI 0% On Demand 3,510 -
Total Related Party Notes $ 574,375 $ 520,000

Noteholder	Interest Rate	Maturity Date	March 31, 2022		June 30, 2021
Related Party Notes:
Erhfort, LLC	15%	6/30/22	$	100,000	$	100,000
Erhfort, LLC	15%	6/30/22		100,000		100,000
JM One Holdings, LLC	15%	6/30/22		20,000		20,000
Erhfort, LLC	15%	6/30/22		100,000		100,000
Erhfort, LLC	15%	6/30/22		100,000		100,000
Erhfort, LLC	15%	6/30/22		100,000		100,000
Erhfort, LLC	15%	6/30/22		10,000		10,000
Erhfort, LLC	15%	6/30/22		10,000		10,000
Viable International Investments, LLC	0%	On Demand		7,865		7,865
Viable International Investments, LLC	0%	On Demand		5,000		5,000
Viable International Investments, LLC	0%	On Demand		5,000		5,000
Viable International Investments, LLC	0%	On Demand		5,000		5,000
Viable International Investments, LLC	0%	On Demand		5,000		5,000
Viable International Investments, LLC	0%	On Demand		3,000		3,000
Viable International Investments, LLC	0%	On Demand		15,000		-
Viable International Investments, LLC	0%	On Demand		30,000		-
Viable International Investments, LLC	0%	On Demand		10,000		-
Viable International Investments, LLC	0%	On Demand		10,000		-
Viable International Investments, LLC	0%	On Demand		10,000		-
Viable International Investments, LLC	0%	On Demand		5,000		-
Xi’an IDI	0%	On Demand		10,411		10,411
Total Related Party Notes			$	661,276	$	581,276

Erhfort, LLC and Viable International Investments, LLC own Company common stock directly and indirectly. JM One Holdings, LLC is an entity affiliated with the Company’s CFO. Hence, these debts are considered related party debt. Xi’an IDI is an affiliated with IDSI due to a licensing agreement.

During the nine months ended March 31, ~~2021,~~2022, the Company received loan proceeds of ~~$20,000 from Erhfort, LLC, $30,865~~$80,000 from Viable International Investments, LLC ~~and $3,510 from Xi’an IDI. The loans from Erhfort, LLC have~~with an annual interest rate of ~~15% while~~0%. On December 31, 2021, the maturity dates of the loans ~~from Viable International Investments, LLC~~that were due to mature on December 31, 2021 were extended to June 30, 2022. The extension of the maturity dates is a modification of the loans, and ~~Xi’an IDI have zero interest.~~not accounted for as gain or loss extinguishments.

IMAGING DIAGNOSTIC SYSTEMS, INC

Notes to Unaudited Financial Statements

March 31, ~~2021~~2022

~~(11) PROMISSORY NOTES – RELATED PARTY (Continued)~~

During the nine months ended March 31, 2020, the Company received loan proceeds of $300,000 from Erhfort, LLC and $20,000 from JM One Holdings, LLC, both of which are related parties. The loans from Erhfort and JM One Holdings, LLC will both have annual interest rates of 15%. The maturity dates for all related party loans were extended to June 30, 2021 on August 24, 2020.

~~(12)~~(13) LONG-TERM DEBT

The following table is a summary of the outstanding loan balances as of March 31, ~~2021~~2022 and June 30, ~~2020.~~2021.

Noteholder Interest
Rate Maturity
Date March 31,
2021 June 30,
2020
Truist Bank 1% 5/9/22 $ 79,600 $ 79,600
Total Debt 79,600 79,600
Current Portion of Debt (68,613 ) -
Total Long-term Debt $ 10,987 $ 79,600

Noteholder	Interest Rate	Maturity Date	March 31, 2022			June 30, 2021
Truist Bank	1%	In Default	$	72,930		$	79,600
Total Debt				72,930			79,600
Current Portion of Debt				(72,930	)		(10,595	)
Total Long-term Debt			$	-		$	69,005

On May 9, 2020, the Company entered into a loan with Truist Bank, a lender pursuant to the Paycheck Protection Program of the CARES Act as administered by the SBA in the amount of $79,600. The loan, in the form of a promissory note, ~~matures on~~had an original maturity date of May ~~9, 2022.~~1, 2025. No additional collateral or guarantees were provided by the Company for the loan. The PPP loan provides for customary events of default. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, rent payments, mortgage interest and covered utilities during the 24-week period beginning on the date of loan disbursement. The Company ~~may be~~is required to repay ~~any portion~~the entire amount of ~~the~~ outstanding principal, ~~that is not forgiven,~~ along with accrued interest, ~~and it cannot provide any assurance that it will be~~as the Company is not eligible for loan forgiveness, or that any amount of the PPP Loan will ultimately be forgiven by the SBA. All aspects of the PPP loan are subject to review by the SBA, including without limitation, the Company’s eligibility for and the size of the loan. The review procedures have not been made public.forgiveness. The Company cannot predict the outcome of that review nor be assured that all or any part of the loan will be forgiven. To the extent that all or part of the PPP loan is not forgiven, the Company will be requiredbegan to make payments, beginning ~~August~~October 2021, including interest accruing at an annual interest rate of 1.0% beginning on the date of disbursement. On May 17, 2022, the Company received a default and demand letter from Truist Bank in regards to the PPP loan due to non-payment. As such the remaining balance of the PPP loan became due immediately (See Note 18). As of March 31, ~~2021~~2022 and June 30, ~~2020,~~2021, the Company reported an accrued interest balance related to the PPP Loan of ~~$713~~$0 and ~~$116,~~$912, respectively. The accrued interest is included in accounts payable and accrued expenses on our balance sheets.

~~(13) LEASES~~

In February 2016, the FASB issued Accounting Standards Update 2016-02 (ASU 2016-02), Leases (Topic 842). ASU 2016-02 requires lessees to recognize a right-of-use (ROU) asset and lease liability in the balance sheet for all leases, including operating leases, with terms of more than twelve months. Recognition, measurement, and presentation of expenses and cash flows from a lease by a lessee have not significantly changed from previous guidance. The amendments also require qualitative disclosures along with specific quantitative disclosures. We adopted this guidance using the cumulative-effect adjustment method on July 1, 2019, meaning we did not restate prior periods. Current year financial information is presented under the guidance in topic 842, while prior year information will continue to be presented under Topic 840. Adoption of the standard resulted in the recognition of an operating ROU asset and lease liability of $147,291.

IMAGING DIAGNOSTIC SYSTEMS, INC

Notes to Unaudited Financial Statements

March 31, ~~2021~~2022

~~(13) LEASES (Continued)~~

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in our balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

~~As of March 31, 2021, the Company no longer had any leases with terms of more than twelve months.~~

~~On October 1, 2020, the Company’s office and warehouse lease was terminated due to nonpayment of rent. The following summarizes the lease termination:~~

Operating lease asset (office and warehouse lease) – termination date – October 1, 2020 $ 21,403
Operating lease liability (office and warehouse lease) – termination date – October 1, 2020 21,511
Operating lease asset and (liability) (office and warehouse lease) – net – termination date – October 1, 2020 (108 )
Gain on lease termination 10,863
Operating lease asset and (liability) (office and warehouse lease) – net – March 31, 2021 $ -

The landlord also agreed in its termination agreement with the Company to settle the $31,755 outstanding balance of the rent due for $15,000, resulting in a gain in the reduction of $16,754 of rent payable that is part of accounts payable, and the loss on the forfeiture of the rent deposit of $6,000. The total amount of gain for the termination of this lease resulted in a total net gain on lease termination of $10,863.

~~On March 10, 2021, the auto lease was terminated and the vehicle was returned to the dealership.~~

Operating lease asset (auto) – termination date – March 10, 2021 $ 14,362
Operating lease liability (office and warehouse lease) – termination date – March 10, 2021 14,362
Operating lease asset and (liability) (office and warehouse lease) – net – termination date – March 10, 2021 -
Gain on lease termination -
Operating lease asset and (liability) (office and warehouse lease) – net – March 31, 2021 $ -

~~IMAGING DIAGNOSTIC SYSTEMS, INC~~

~~Notes to Unaudited Financial Statements~~

~~March 31, 2021~~

(14) CONVERTIBLE PREFERRED STOCK

The following schedule reflects the number of shares of preferred stock that have been issued, converted and are outstanding as of March 31, ~~2021:~~2022:

Security Date
Issued No. of
Shares Amount Date of
Conversion No. of Shares
Converted Amount
Converted
Balance
12/31/2020

Total Series M Cv Pfd Various 600 $ 6,000,000 Various 600 $ 6,000,000 $ -0-
Dividends -0-
Total redemption value $ -0-

Series L Cv Pfd 2/10/2010 35 $ 350,000 1/6/2011 15 $ 150,000 $ 200,000
Dividends 211,427
Total redemption value $ 411,427

Security	Date Issued	No. of Shares		Amount		Date of Conversion	No. of Shares Converted		Amount Converted		Balance 3/31/2022
Series L Cv Pfd	2/10/2010		35	$	350,000	1/6/2011		15	$	150,000	$	200,000
Dividends												229,451
						Total redemption value					$	429,451

Total Series M Cv Pfd	Various		600	$	6,000,000	1/6/2011		15	$	6,000,000	$	-0-
Dividends												-0-
						Total redemption value					$	-0-

Series L Convertible Preferred Stock

On March 31, 2010, a private investor converted a $350,000 short-term promissory note into 35 shares of Series L Convertible Preferred Stock. The original purchase price/stated value is $10,000 per share and dividends accrue at an annual rate of 9%. The preferred stock is convertible into 474 shares of common stock for each share of preferred stock. On January 6, 2011, the private investor converted 15 shares of Series L Convertible Preferred Stock representing a principal value of $150,000. After the conversion, the private investor held 20 shares representing a principal value of $200,000. The remaining principal value of $200,000 is presented on the balance sheet as temporary equity, as the holder has the option to redeem for cash at any time. At March 31, ~~2021~~2022 and June 30, ~~2020,~~2021, the balance of cumulative dividends owed to the investor which is included in redemption value was ~~$211,427~~$229,451 and ~~$197,939,~~$215,939, respectively. The total presented on the balance sheet as temporary equity is ~~$411,427~~$429,451 as of March 31, ~~2021~~2022 and ~~$397,939~~$415,939 as of June 30, ~~2020.~~2021.

Series M Convertible Preferred Stock

The Company had previously sold 600 Series M Convertible Preferred Stock to Viable International Investments, LLC, a Florida limited liability company, (“Viable”). Each share of the Series M Preferred Stock was convertible into 147,283 shares of Common Stock. In the event of a liquidation, the holders of the Series M Preferred Stock would have been entitled to receive, prior to any distribution of assets to holders of Common Stock or other class of capital stock or other equity securities of the Corporation, $10,000 per share of Series M Preferred Stock held plus accrued but unpaid dividends. The holders of the Series M Preferred Stock would have had identical voting rights as any holder of Common Stock and would have voted together, not as separate classes. The original purchase price/stated value of each share of Series M Preferred Stock was $10,000 and Viable was be entitled to receive

IMAGING DIAGNOSTIC SYSTEMS, INC

Notes to Unaudited Financial Statements

March 31, 2022

(14) CONVERTIBLE PREFERRED STOCK (Continued)

cumulative dividends at the fixed rate of 9% of the stated value per share per annum. As of March 31, ~~2021~~2022 and June 30, ~~2020,~~2021, the balance of Series M Preferred stock was $0.

~~IMAGING DIAGNOSTIC SYSTEMS, INC~~

~~Notes to Unaudited Financial Statements~~

~~March 31, 2021~~

(15) COMMON STOCK

The Company has 500,000,000 of common shares no par value authorized and 2,000,000 of no par preferred shares authorized.

The Company did not issue any shares of common or preferred stock during the nine months ended March 31, 2022.

During the nine months ended March 31, 2021, the Company issued 137,255 shares of common stock pursuant to a debt conversion agreement for $70,000 of accounts payable with Erhfort, LLC. The amount of debt converted per share was $.51.

During the nine months ended March 31, 2020, the Company issued 254,903 shares of its common stock to non-affiliated accredited investors pursuant to subscription agreements for $130,000. The price per share was $.51.

(16) STOCK OPTIONS

On December 4, 2016, the Board of Directors adopted the Company’s 2016 Equity Incentive Plan (the “2016 Plan”) which was subsequently approved and adopted by majority written consent in lieu of an annual meeting. The purpose of the 2016 Plan is to encourage and enable the officers, employees, directors and other key persons (including consultants) of the Company, upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business, to acquire a proprietary interest in the Company. It is anticipated that providing such persons with a direct stake in the Company’s welfare will assure a closer identification of their interests with those of the Company and its stockholders, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain with the Company.

On November 1, 2019, the Board granted an option to purchase 2,000,000 shares with an exercise price of $.51 and fair value of $.51 per share to a consultant. These options will vest over a three-year period. The options will be expensed as they vest. On March 1, 2020, the Board granted an option to purchase 98,188 shares with an exercise price of $.51 and fair value of $.51 to an employee. These options will vest when CTLM® 3.0 is ready for Alpha testing and will be expensed at that time. On August 1, 2020, the Board granted an option to purchase 157,102 shares with an exercise price of $.51 and a fair value of $.51 to an employee. These options will vest when CTLM® 3.0 is ready for Alpha testing and will be expensed at that time. On May 1, 2021, the Board granted an option to purchase 1,500,000 shares with an exercise price of $.51 and fair value of $.13 per share to a consultant. These options will vest over a three-year period. These options will be expensed as they vest.

In computing the impact of stock option grants, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk-free interest rate; volatility of a comparable company; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future.

~~IMAGING DIAGNOSTIC SYSTEMS, INC~~

~~Notes to Unaudited Financial Statements~~

~~March 31, 2021~~

~~(16) STOCK OPTIONS (Continued)~~

In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. The Company cannot assess its forfeiture rate at this time due to the lack of historical data.

As of
March 31,
2021 As of
June 30,
2020
Expected volatility 23% to 44 % 20% to 24 %
Expected term .17 to 3.33 Years .67 to 4.3 Years
Risk-Free interest rate .13% to 3.09 % .89% to 2.49 %
Forfeiture rate 0.00 % 0.00 %
Expected dividend rate 0.00 % 0.00 %

~~As of~~

IMAGING DIAGNOSTIC SYSTEMS, INC

Notes to Unaudited Financial Statements

March 31, ~~2021,~~2022

(16) STOCK OPTIONS (Continued)

	As of March 31, 2022			As of June 30, 2021
Expected volatility		23% to 44	%		23% to 44	%
Expected term		.76 to 4.08 Years			.5 to 4.83 Years
Risk-Free interest rate		.05% to 3.09	%		.05% to 3.09	%
Forfeiture rate		0.00	%		0.00	%
Expected dividend rate		0.00	%		0.00	%

At March 31, 2022, the Company has unvested and vested options under the 2016 Plan with exercise prices that range from a low of $.20 per share to a high of $.51 per share. The following table summarizes information about all of the stock options granted, exercised, expired and cancelled under the 2016 Plan at March 31, ~~2021~~2022 and June 30, ~~2020:~~2021:

Employees/Consultants Options Wtd. Avg.
Exercise
Price Wtd. Avg.
Remaining
Term Aggregate
Intrinsic
Value
Outstanding at June 30, 2019 13,447,645 $ 0.20 3.29 Years $ -
Granted 2,098,188 $ 0.51
Exercised - $ -
Cancelled (450,000 ) $ 0.20
Outstanding at June 30, 2020 15,095,833 $ 0.24 2.43 Years $ -
Granted 157,102 $ 0.51
Exercised - $ -
Cancelled - $ -
Outstanding at March 31, 2021 15,252,935 $ 0.25 1.71 Years $ -

~~IMAGING DIAGNOSTIC SYSTEMS, INC~~

Employees/Consultants	Options			Wtd. Avg. Exercise Price		Wtd. Avg. Remaining Term		Aggregate Intrinsic Value
Outstanding at June 30, 2020		15,095,833		$	0.24		2.43 Years	$	-
Granted		1,657,102		$	0.51
Expired		-		$	-
Exercised		-		$	-
Cancelled		-		$	-
Outstanding at June 30, 2021		16,752,935		$	0.25		1.76 Years	$	-
Granted		-		$	-
Expired		(5,547,645	)	$	0.20
Exercised		-		$	-
Cancelled		-		$	-
Outstanding at March 31, 2022		11,205,290		$	0.30		1.64 Years	$	-

~~Notes to Unaudited Financial Statements~~

~~March 31, 2021~~

~~(16) STOCK OPTIONS (Continued)~~

The following table summarizes information about vested and unvested options under the 2016 Plan at March 31, ~~2021~~2022 and June 30, ~~2020.~~2021. The Company recognized an expense of $181,178 for the options vested during the nine months ended March 31, ~~2021:~~2022.

Employees/Consultants Unvested Vested and
Exercisable Total
Outstanding at June 30, 2019 5,730,522 7,717,123 13,447,645
Granted 1,598,188 500,000 2,400,000
Vested and Exercisable (2,755,526 ) 2,755,526 -
Cancelled (450,000 ) - (450,000 )
Outstanding at June 30, 2020 4,123,184 10,972,649 15,095,833
Granted 157,102 - 157,102
Vested and Exercisable (2,110,000 ) 2,110,000 -
Cancelled - - -
Adjustment - (4 ) -
Outstanding at March 31, 2021 2,170,286 13,082,645 15,252,935

IMAGING DIAGNOSTIC SYSTEMS, INC

Notes to Unaudited Financial Statements

March 31, 2022

(16) STOCK OPTIONS (Continued)

Employees/Consultants	Unvested			Vested and Exercisable			Total
Outstanding at June 30, 2020		4,123,184			10,972,649			15,095,833
Granted		1,657,102			-			1,657,102
Vested and Exercisable		(2,950,000	)		2,950,000			-
Cancelled		-			-			-
Expired		-			-			-
Rounding Adjustment		4			(4	)		-
Outstanding at June 30, 2021		2,830,290			13,922,645			16,752,935
Granted		-			-			-
Vested and Exercisable		(860,000	)		860,000			-
Cancelled		-			-			-
Expired		-			(5,547,645	)		-
Adjustment		-			-			-
Outstanding at March 31, 2022		1,970,290			9,235,000			11,205,290

Unvested options will be expensed under the Black-Scholes options-pricing model when they vest. As of March 31, ~~2021,~~2022, remaining options to be expensed when vested are estimated to be ~~$440,619.~~$259,281.

At March 31, ~~2021,~~2022, the Company has issued options pursuant to six different stock option plans, the most recent being the 2016 Plan. The previous five plans through and including the 2012 Non-Statutory Plan have a remaining total of options vested and exercisable to purchase 12 shares at exercise price of $350 per share.

The tables below summarize information about these five plans:

Employees/Consultants Options Wtd. Avg.
Exercise
Price Wtd. Avg.
Remaining
Term Aggregate
Intrinsic Value
Outstanding at June 30, 2019 13 $ 976 3.02 Years $ -
Granted - $ -
Exercised - $ -
Cancelled - $ -
Outstanding at June 30, 2020 13 $ 976 2.01 Years $ -

Granted - $ -
Exercised - $ -
Cancelled (1 ) $ 13,500
Outstanding at March 31, 2021 12 $ 350 1.36 Years $ -

Employees/Consultants	Options			Wtd. Avg. Exercise Price		Wtd. Avg. Remaining Term		Aggregate Intrinsic Value
Outstanding at June 30, 2020		13		$	976		2.01 Years	$	-
Granted		-		$	-
Exercised		-		$	-
Cancelled		(1	)	$	13,500
Outstanding at June 30, 2021		12		$	350		1.11 Years	$	-
Granted		-		$	-
Exercised		-		$	-
Cancelled		-		$	-
Outstanding at March 31, 2022		12		$	350		.36 Years	$	-

IMAGING DIAGNOSTIC SYSTEMS, INC

Notes to Unaudited Financial Statements

March 31, ~~2021~~2022

(16) STOCK OPTIONS (Continued)

Vested & Exercisable Stock Options March 31,
2021 June 30,
2020
Employee 2016 Equity Plan - -
Director 2016 Equity Plan - -
Employee Other Plans 12 13
Directors and Consultants Other Plans - -
Total 12 13

Vested & Exercisable Stock Options	March 31, 2022		June 30, 2021
Employee 2016 Equity Plan		-		-
Director 2016 Equity Plan		-		-
Employee Other Plans		12		12
Directors and Consultants Other Plans		-		-
Total		12		12

The table below summarizes information about all stock options outstanding as of March 31, 2022:

	Outstanding Options						Vested Options
Range of Exercise price	Number Outstanding at March 31, 2022		Weighted Averaged Exercise Price		Weighted Averaged Remaining Life		Number Exercisable at March 31, 2022		Weighted Averaged Exercise Price		Weighted Averaged Remaining Life
$0.20 - $0.51		11,205,290	$	0.30		1.64		9,235,000	$	0.26		1.28
$350		12	$	350		.36		12	$	350		.36
Outstanding options		11,205,302	$	0.30		1.64		9,235,012	$	0.26		1.28

The Company’s common stock, symbol IMDS, was quoted on OTCmarkets.com Pink until September 25, 2014 at which time IDSI’s registration was revoked by the Securities and Exchange Commission (SEC) for failure to timely file its Quarterly and Annual Reports. The last quoted price was $0.1. Because the Company was de-registered and OTC markets did not provide a quote for IMDS, there is no public market for the Company’s shares. Given the exercise prices adjusted for the reverse split, it is highly unlikely that any employee holding pre-2016 Plan options will exercise them. The Company has sufficient authorized shares available for all outstanding option; however, if exercised, the shares will be issued with a restrictive legend because the Company was not an SEC reporting company until October 2018. Further, given its recent return to SEC reporting status, the Company is unable to file an S-8 Registration Statement to register shares issued because of option exercise pursuant to various stock option agreements.

(17) COMMITMENTS AND CONTINGENCIES

The Company previously carried $3,000,000 in product liability insurance to cover both clinical sites and sales. As part of its cost savings initiatives, the Company cancelled the policy as it had not had any adverse experiences after conducting more than 25,000 patient scans worldwide. The Company is now self-insuring the risk of product liability.

From May 2010 to June 2012, claims were made by the IRS for payment of the Company’s accrued payroll taxes, interest and penalties, which as of June 30, 2012 was $1,489,640. The Company engaged tax counsel to handle this matter and intends to fully satisfy its payroll tax obligations. On August 4, 2014, Viable purchased 250 shares of convertible preferred stock for $2,500,000, which gave them a 78.9% voting and economic interest in the Company’s capital stock representing a change in control of the Company. New management’s tax counsel negotiated a new Installment Agreement which stipulated a lump sum payment of $250,000, which was paid on

IMAGING DIAGNOSTIC SYSTEMS, INC

Notes to Unaudited Financial Statements

March 31, 2022

(17) COMMITMENTS AND CONTINGENCIES (Continued)

September 4, 2014 and monthly installment payments of $20,000 beginning in September 2014 due on the 18^th of each month until the balance of payroll taxes, interest and penalties are paid in full (Note ~~10)~~11).

During fiscal 2018, as part of new management’s restructuring plan, the Company received funds from an accredited investor to pay off the payroll tax portion of the amount owed to the IRS. The Company engaged tax counsel to manage the settlement and payment. On June 27, 2018, the IRS provided counsel with a payoff calculation table indicating that the balance of taxes due was $381,224. On June 29, 2018, Viable International Investments LLC provided a bank check in that amount to counsel and they sent the check to the IRS with a letter requesting abatement of penalties and interest totaling $314,019. As of March 31, ~~2021,~~2022, the Company’s tax counsel is in the process of reviewing recent IRS correspondence to determine appeals status and will work towards final resolutions with the IRS on all outstanding liabilities. The Company has decided to wait until all resolutions are final before making any adjustments to the balance of $314,019 owed to the IRS.

The Company leased a commercial building from Isco Properties, LLC for its offices and warehouse in Fort Lauderdale, FL. The term of the lease was five years beginning February 2014 with a monthly base rent beginning at $6,360 and increasing at a rate of 3% per year. The total rent commitment for the five years was $405,031, which has been fully satisfied as of the date of this report. On October 31, 2018, the Company extended the lease for two years from February 1, 2019 to January 31, 2021. The monthly base rent was $7,150 for the 1^st ~~year and $7,350 for the 2~~^nd year. The lease agreement was amended on August 1, 2019 which changed the total base rent for year 1 to $76,102 and year 2 to $98,452. This was the result of an agreement to reduce the base rent from August through October of 2019 by $6,650 per month and increasing the base rent from November 2019 through April 2020 by $3,417.38 (which includes imputed interest of $92.38 per month) to make up the deficit. The rent commitment before sales tax for the two years was $174,554. As of October 1, 2020, the Company’s office and warehouse lease was terminated by its landlord due to nonpayment of rent. The Company had an ROU asset related to the lease of $21,403 and a lease liability of $21,511 at termination, resulting in a gain on lease termination of $108. The landlord also agreed to settle the outstanding balance of the rent due for $15,000, pursuant to a settlement agreement, resulting in an additional net gain on lease termination of $10,756 (See Note 13).

~~IMAGING DIAGNOSTIC SYSTEMS, INC~~

~~Notes to Unaudited Financial Statements~~

~~March 31, 2021~~

~~(17) COMMITMENTS AND CONTINGENCIES (Continued)~~

On January 8, 2019, the Company entered into an auto lease agreement. The term of the lease is 3 years beginning January 8, 2019 with a monthly lease payment of $1,204 due on the 7th day of each month. The total lease commitment including sales tax for the 3 years is $43,338. This lease was terminated on March 10, 2021 and the vehicle was returned to the dealership. No gain or loss resulted from the termination of the lease.

On October 23, 2019, the Company entered into a consulting agreement (“the Agreement”) effective as of November 1, 2019, with Dr. Huabei Jiang to serve as IDSI’s Chief Scientific Consultant. Pursuant to the Agreement, Dr. Jiang is focused on improving the technical performance and image quality of IDSI’s CTLM® breast imaging device. Per the Agreement, the goal of the initial project was to complete image quality improvement by November 1, 2020. A payment of $500,000 will be due upon satisfactory completion of the project. As of March 31, ~~2021, we believe that~~2022, Dr. ~~Huabei~~ Jiang has ~~made substantial progress on~~completed the first phase of image quality ~~but we~~improvement and is currently collecting image data for evaluation and further technical improvement. We have yet to establish the effectiveness of the improvements, as completion of the project has been delayed due to the COVID-19 crisis.

(18) SUBSEQUENT EVENTS

On ~~April 8, 2021,~~May 17, 2022, the Company received loan proceeds of ~~$15,305~~$10,000 from ~~Xi’an IDI.~~Viable International Investments, LLC. Interest is 0% and the principal is payable on demand.

On ~~April 30, 2021,~~May 17, 2022, the Company ~~issued 143,137 shares of common stock pursuant~~received a default and demand letter from Truist Bank in regards to ~~a debt conversion agreement for $73,000 of accounts payable with Erhfort, LLC. The amount of debt converted per share was approximately $.51.~~the PPP loan due to non-payment.

On May 1, 2021, the Board granted options to purchase 1,500,000 shares with an exercise price of $.51 per share to a consultant in China who has a critical role in overseeing the development and manufacturing of the CTLM® in China. The option will vest over a three-year period.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q for the period ended March 31, ~~2021,~~2022, contains “forward-looking statements” within the meaning of the federal securities laws and use terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “projects”, “potential,” or “continue,” or the negative or other comparable terminology regarding beliefs, plans, expectations, or intentions regarding the future. These forward-looking statements involve substantial risks and uncertainties, and actual results could differ materially from those discussed and anticipated in such statements. These forward-looking statements include, among others, statements relating to our business strategy, which is based upon our interpretation and analysis of trends in the healthcare treatment industry, especially those related to the diagnosis and treatment of breast cancer, and upon management’s ability to successfully develop and commercialize its principal product, the CTLM®. This strategy assumes that the CTLM® will provide benefits, from both a medical and an economic perspective, to current alternative techniques for diagnosing and managing breast cancer. Factors that could cause actual results to materially differ include, without limitation, the ongoing global COVID-19 pandemic/economic crisis, the timely and successful completion of our clinical trials required by the U.S. Food and Drug Administration (“FDA”) and compliance with the regulations of the FDA and the China Food and Drug Administration (“CFDA”); the timely and successful submission of our FDA application for pre-market approval and our ability to obtain U.S. marketing clearance; manufacturing risks relating to the CTLM®, including our reliance on a single or limited source or sources of supply for some key components of our products as well as the need to comply with especially high standards for those components and in the manufacture of optical imaging products in general; uncertainties inherent in the development of new products and the enhancement of our existing CTLM® product, including technical and regulatory risks, cost overruns and delays; our ability to accurately predict the demand for our CTLM® product as well as future products and to develop strategies to address our markets successfully; the early stage of market development for medical optical imaging products and our ability to gain market acceptance of our CTLM® product by the medical community; our ability to expand our international distributor network for both the near and longer-term to effectively implement our globalization strategy; our dependence on senior management and key personnel and our ability to attract and retain additional qualified personnel; risks relating to financing through private placements or other working capital financing arrangements; technical innovations that could render the CTLM® or other products marketed or under development by us obsolete; competition; risks and uncertainties relating to intellectual property, including claims of infringement and patent litigation; risks relating to future acquisitions and strategic investments and alliances; and reimbursement policies for the use of our CTLM® product and any products we may introduce in the future. There are also many known and unknown risks, uncertainties and other factors, including, but not limited to, technological changes and competition from new diagnostic equipment and techniques, changes in general economic conditions, healthcare reform initiatives, legal claims, regulatory changes and risk factors detailed from time to time in our Securities and Exchange Commission filings that may cause these assumptions to prove incorrect and may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, those described above and in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2020,~~2021, filed on ~~September 28, 2020.~~October 12, 2021. All forward-looking statements and risk factors included in this Form 10-Q report and in the Form 10-K report are made as of the date of the relevant disclosure document based on information available to us as of the date thereof, and we assume no obligation to update any forward-looking statements or risk factors. The occurrence of any of the events described as risk factors or other future events could have a material adverse effect on our business, results of operations and financial position. Since our common stock is considered a “penny stock,” we are ineligible to rely on the safe harbor for forward-looking statements provided in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). You are cautioned not to place undue reliance on these forward-looking statements.

OVERVIEW

Our business address is 618 E South St, Suite 500, Orlando, FL 32801. Our Internet website address is www.imds.com. The information contained in, or that can be accessed through, our website is not part of this Form 10-Q quarterly report.

Imaging Diagnostic Systems, Inc. (“IDSI” or the “Company”) is a late development stage medical technology company that has developed a new, non-invasive CT scanner (“CTLM®”) that uses a laser beam in place of ionizing X-ray for breast imaging. This technology is called Diffuse Optical Tomography. The CTLM® will provide an adjunctive imaging modality to other methods of imaging the breast such as X-ray mammography, MRI and ultrasound.

On August 28, 2018, we filed a Form 10 registration statement to register issued and outstanding shares held by our shareholders and to become a fully reporting company under the Securities Exchange Act of 1934 (the “Exchange Act”). The Form 10 was amended in response to SEC comments on October 5, 2018 and November 14, 2018. On February 7, 2019, the SEC confirmed that it had no further comments on the Form 10. Under the Exchange Act, our registration became effective on October 29, 2018, i.e. 60 days after filing the Form 10. The Form 10 was further amended on September 26, 2019 to correct the classification of the Series L Convertible Preferred Stock from a current liability to temporary equity.

As of the date of this quarterly report on Form 10-Q for the nine months ended March 31, ~~2021,~~2022, we have had no substantial revenues from our operations and have incurred net losses applicable to common shareholders since inception through March 31, ~~2021~~2022 of ~~$134,665,454~~$135,300,846 after discounts and dividends on preferred stock. We incurred net losses applicable to common shareholders of $483,179 for the nine months ended March 31, 2022 and $555,705 for the nine months ended March 31, ~~2021 and $881,364 for the nine months ended March 31, 2020.~~2021.

The Company received marking clearance for the CTLM® from the Chinese FDA (“CFDA”) effective November 16, 2018 to November 15, 2023 as disclosed in the Company’s 8-K report filed December 11, 2018; however, we anticipate that substantial losses from operations will continue until we begin to generate revenues through the sales of CTLM® systems in China. We believe that we face substantial delays before receiving marketing clearance through the U.S. Food and Drug Administration (“FDA”). These losses will be primarily due to an anticipated increase in marketing, manufacturing and operational expenses associated with the international commercialization of the CTLM®, expenses associated with international commercialization of the CTLM®, expenses associated with FDA approval processes, and the costs associated with advanced product development activities. We have implemented a new business strategy which includes a licensing agreement on June 20, 2017 with Xi’an IDI Laser Imaging Co. Ltd (Xi’an IDI), a related party, to shift manufacturing of the CTLM® for the China and Asian markets to China.

The Company’s next regulatory focus, after having obtained CFDA approval in China, is on obtaining marketing clearance of its CTLM® Breast Imaging System through the FDA. The premarket approval (“PMA”) process for U.S. marketing clearance is expected to take longer than the Chinese process, and we intend to resume this effort after successful marketing and sales of CTLM® systems in China. Our sales and marketing efforts in China have been significantly hindered by the ongoing COVID-19 pandemic, and therefore we do not expect revenue from China ~~until~~in the ~~first or second quarter of fiscal 2022.~~foreseeable future. No sales in other countries are expected in the near future, as we do not intend to pursue sales in other countries until after obtaining FDA marketing clearance.

On October 23, 2019, we entered into a consulting agreement effective as of November 1, 2019, with Dr. Huabei Jiang to serve as IDSI’s Chief Scientific Consultant (the “Consulting Agreement”). Pursuant to the Consulting Agreement, Dr. Jiang is focused on improving the technical performance and image quality of IDSI’s Computed Tomography Laser Mammography (CTLM^®) breast imaging device. The details of this Agreement were disclosed on our Form 8-K report filed with the SEC on October 29, 2019. As of the date of this report, ~~we believe that~~ Dr. Jiang has ~~made substantial progress on~~completed the first phase of image quality improvement and is currently collecting image data for evaluation and further technical improvement.

Xi’an IDI has been working with Yiling Hospital Management Group based in Beijing, China (“Yiling”) to evaluate CTLM’s potential use and application. As of the date of this report, Xi’an IDI has loaned three CTLM® systems to Yiling and Yiling is at the stage of testing and data validation.

Once IDSI has substantial revenues and cash flow, we believe we will be able to raise from operations and/or private investors the necessary funding to allow us to move forward with our CTLM® 3.0 ~~project.~~project, as discussed in detail in the “CTLM®” section below. The CTLM® 3.0 project and some regulatory initiatives have been put on hold due to the COVID-19 pandemic and its consequences.

CRITICAL ACCOUNTING POLICIES

The financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions also include the valuations of certain financial instruments, stock-based compensation, deferred tax assets, the outcome of litigation and tax matters, and other matters that affect the statements of financial condition and related disclosures. Actual results could differ materially from these estimates.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements:

Inventory

Inventories, consisting principally of raw materials, work-in-process (including completed units under testing), finished goods and units placed on consignment, are carried at the lower of cost and net realizable value. Cost is determined using the first-in, first-out (FIFO) method. Raw materials consist of purchased parts, components and supplies. Work-in-process includes completed units undergoing final inspection and testing. We periodically review the value of items in inventory and record write-downs or write-offs based on its assessment of slow moving or obsolete inventory. We maintain an allowance for obsolete inventory and generally makes inventory value adjustments against the allowance

Stock-Based Compensation

We rely on the guidance provided by ASC 718, (“Share Based Payments”). ASC 718 requires companies to expense the value of employee stock options and similar awards and applies to all outstanding and vested stock-based awards.

In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk-free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, we analyzed its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If our actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period. During the nine months ended March 31, 2022, no stock options were granted to employees or consultants. During the nine months ended March 31, 2021, the Board granted options to purchase 157,102 shares with an exercise price of $.51 per share to an employee. During the nine months ended March 31, 2020, the Board granted options to purchase 2,000,000 shares with an exercise price of $.51 per share to a consultant and options to purchase 98,188 shares with an exercise price of $.51 per share to an employee. Those options are being expensed pursuant to ASC 718.

The fair value concepts were not changed significantly in ASC 718; however, in adopting this Standard, companies were given the option to choose among alternative valuation models and amortization assumptions. We elected to continue to use the Black-Scholes option pricing model and expense the options as compensation over the requisite service period of the grant. We will reconsider use of the Black-Scholes model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model.

RESULTS OF OPERATIONS

Sales and Cost of Sales

Revenues during the three months ended March 31, ~~2021~~2022 and ~~2020~~2021 were $0.

The Cost of Sales during the three months ended March 31, 2022 and 2021 ~~and 2020 were~~was $0.

Revenues during the nine months ended March 31, ~~2021~~2022 and ~~2020~~2021 were $0.

The Cost of Sales during the nine months ended March 31, 2022 and 2021 ~~and 2020 were~~was $0.

Our sales and marketing efforts been significantly hindered by the ongoing COVID-19 pandemic, and therefore we do not expect revenue in the foreseeable future.

GENERAL AND ADMINISTRATIVE

Our general and administrative expenses include travel/subsistence related to general and administrative activities, property and casualty insurance, professional fees associated with our corporate and securities attorneys and independent auditors, corporate governance expenses, stockholder expenses, utilities, maintenance, telephones, office supplies and sales and property taxes.

General and administrative expenses during the three months ended March 31, ~~2021,~~2022, were ~~$21,860~~$13,873 representing a decrease of ~~$24,535~~$7,987 or ~~53%~~37% from ~~$46,395~~$21,860 during the three months ended March 31, ~~2020.~~2021.

The general and administrative decrease of ~~$24,535~~$7,987 is due primarily to ~~a decrease in rent and auto payments as lease agreements were terminated during fiscal 2021. There were also reductions in other expenses due to~~ the reduction ~~in business activity~~of legal fees during the three months ended March 31, ~~2021 because of the ongoing COVID-19 crisis.~~2022.

General and administrative expenses during the nine months ended March 31, ~~2021,~~2022, were ~~$137,491~~$73,547 representing a decrease of ~~$77,248~~$55,636 or ~~36%~~43% from ~~$214,739~~$129,183 during the nine months ended March 31, ~~2020.~~2021.

The general and administrative decrease of ~~$77,248~~$55,636 is due primarily to the Company termination of leases and the company transitioning to a ~~decrease in rent and auto payments as lease agreements were terminated during fiscal 2021. There were also reductions in other expenses due to the reduction in business activity~~virtual office environment during the nine months ended March 31, ~~2021 because of~~2021. The larger expenses that were eliminated due to the ~~ongoing COVID-19 crisis.~~transition are office and warehouse rent, auto expenses, utilities, and insurance. In addition, legal fees were greatly reduced during the nine months ended March 31, 2022.

SALARIES AND WAGES

Our salaries and wages expenses include compensation, related benefits, payroll taxes and other payroll fees for all employees.

Salaries and wages expense during the three months ended March 31, 2022 and 2021 ~~were $0 representing a decrease of $68,779 or 100% from $68,779 during the three months ended March 31, 2020.~~was $0.

The ~~decrease~~lack of ~~$68,779~~salaries and wages is due to the ~~furloughing of all employees on May 1, 2020 in response~~Company’s decision to ~~the COVID-19 crisis. Some of these employees have been working as independent contractors on an as-needed basis.~~

~~Salaries and wages expense during the nine months ended March 31, 2021, were $0 representing a decrease of $210,781 or 100% from $210,781 during the nine months ended March 31, 2020.~~

~~The decrease of $210,781 is due to the furloughing of~~furlough all employees on May 1, 2020 in response to the COVID-19 crisis. Some of these individuals have ~~been working~~worked as independent contractors on an as-needed basis.

Salaries and wages expense during the nine months ended March 31, 2022 and 2021 was $0.

The lack of salaries and wages is due to the Company’s decision to furlough all employees on May 1, 2020 in response to the COVID-19 crisis. Some of these individuals have worked as independent contractors on an as-needed basis.

RESEARCH AND DEVELOPMENT

We incur research and development expenses to develop significant enhancements to our sole product, the CTLM®. These expenses consist primarily of clinical costs, costs of materials and components to make product enhancements, new product research costs, and costs associated with servicing clinical collaboration sites.

Research and development ~~expenses~~were $0 for the three months ended March 31, 2022 and 2021.

Research and development costs of $0 was due to the lack of business activity during the three months ended March 31, ~~2021 were $0 representing a decrease $6,709 or 100% from $6,709 during the three months ended March 31, 2020.~~2022 and 2021.

~~The research and development decrease of $6,709 is due primarily to the lack of regulatory expenses during the period ended March 31, 2021 and 2020.~~

Research and development expenses during the nine months ended March 31, ~~2021~~2022 were $0 representing a decrease ~~$23,849~~of $8,308 or 100% from ~~$23,849 during the nine months ended March 31, 2020.~~

~~The research and development decrease of $23,849 is due primarily to the lack of regulatory and clinical expenses~~$8,308 during the nine months ended March 31, 2021.

The research and development decrease of $8,308 is due to the lack of business activity during the period ended March 31, 2022.

SALES AND MARKETING

Our sales and marketing expenses consist primarily of expenses associated with advertising and promotion, representative office expense, trade shows, conferences, promotional and training costs related to marketing the CTLM®, commissions, travel/subsistence, patent maintenance fees, consulting, certification expenses, and product liability insurance.

Sales and marketing expenses during the three months ended March 31, ~~2021,~~2022, were ~~$111~~$314 representing ~~no change~~an increase of $203 or 183% from $111 during the three months ended March 31, ~~2020.~~2021.

All sales and marketing expenses during both the three months ended March 31, ~~2021~~2022 and ~~2020 were related to fees for maintaining our website.~~

~~Sales and marketing expenses during the nine months ended March 31,~~ 2021 ~~were $711 representing an increase of $295 or 71% from $416 during the nine months ended March 31, 2020.~~

~~All sales and marketing expenses during both the nine months ended March 31, 2021 and 2020~~ were related to fees for maintaining our website. The difference relates to variations in website related fees ~~during~~between the two periods.

Sales and marketing expenses during the nine months ended March 31, 2022, were $551 representing a decrease of $160 or 23% from $711 during the nine months ended March 31, 2021.

All sales and marketing expenses during both the nine months ended March 31, 2022 and 2021 were related to fees for maintaining our website. The difference relates to variations in website related fees between the two periods.

CONSULTING EXPENSES

Our consulting expenses consists of all consulting fees paid as well as share-based compensation issued to our consultants. Our share-based compensation expense consists of vested stock options expensed under the Black-Scholes options pricing model.

Consulting expenses for the three months ended March 31, ~~2021,~~2022, were $171,479 representing ~~a decrease of $4,500 or 3%~~no change from ~~$175,979~~$171,479 during the three months ended March 31, ~~2020.~~2021.

~~The decrease of $4,500 is due to minor adjustments to consulting fees paid to related parties.~~

Consulting expenses for the nine months ended March 31, ~~2021,~~2022, were ~~$353,586~~$334,178 representing ~~an increase~~a decrease of ~~$1,908~~$19,408 or 1%5% from ~~$351,678~~$353,586 during the nine months ended March 31, ~~2020.~~2021.

The ~~increase of $1,908 is due primarily to the hiring of some of our previously furloughed employees as consultants on an as needed basis.~~

~~BAD DEBT EXPENSE~~

~~Bad debt expenses represent accounts receivable and amounts due from related parties that have been reserved.~~

~~Bad debt expenses for the three months ended March 31, 2021, were $0 representing a~~consulting expense decrease of ~~$19,665 or 100% from $19,665 during the three months ended March 31, 2020.~~

~~The decrease~~$19,408 is primarily due to ~~the Company writing off $7,700 of accounts receivable and $11,965 of amounts due from related parties due to their age in fiscal 2020.~~

~~Bad debt expenses for the nine months ended March 31, 2021, were $0 representing a decrease of $19,665 or 100% from $19,665~~former employees being retained as consultants during the nine months ended March 31, ~~2020.~~2021. There were no such expenses during the nine months ended March 31, 2022.

~~The decrease is due to the Company writing off $7,700 of accounts receivable and $11,965 of amounts due from related parties due to their age in fiscal 2020.~~

AGGREGATE OPERATING EXPENSES

Total operating expenses (general and administrative, salaries and wages, research and development, sales and marketing, depreciation and amortization, and stock options) and cost of sales during the three months ended March 31, ~~2021,~~2022, were ~~$193,450,~~$185,666, representing a decrease of ~~$124,809~~$7,784 or ~~39%~~4% from ~~$318,259~~$193,450 when compared to the operating expenses and cost of sales during the three months ended March 31, ~~2020.~~2021. The overall decrease in expenses is due to minor reductions of our general and administrative expenses.

Depreciation and amortization during the three months ended March 31, 2022 and 2021, was $0. All fixed assets are fully depreciated.

Interest expense during the three months ended March 31, 2022, was $20,215 representing an increase of $46 or less than 1% from $20,169 during the three months ended March 31, 2021. Although the amount of outstanding debt at March 31, 2022 was higher, the more recent debt were 0% interest loans, which is why the amount of interest expense did not change significantly.

Total operating expenses (general and administrative, salaries and wages, research and development, sales and marketing, depreciation and amortization, and stock options) and cost of sales during the nine months ended March 31, 2022, were $408,276, representing a decrease of $84,134 or 17% from $492,410 when compared to the operating expenses and cost of sales during the nine months ended March 31, 2021. The overall decrease in expenses is due primarily to the ongoing COVID-19 pandemic which required us to ~~further streamline operations and~~ reduce ~~costs.~~as much of our costs as possible.

~~Depreciation and amortization during the three months ended March 31, 2021, was $0 representing a decrease of $621 or 100% from $621 during the three months ended March 31, 2020.~~

Interest expense during the three months ended March 31, 2021, was $20,169 representing an increase of $6,020 or 18% from $17,112 during the three months ended March 31, 2020. The increase is due to a higher balance of outstanding debt during the three months ended March 31, 2021.

Total operating and cost of sales during the nine months ended March 31, 2021, were $492,410, representing a decrease of $333,233 or 40% from $825,643 when compared to the operating expenses and cost of sales during the six months ended March 31, 2020. The overall decrease in expenses is due primarily to the ongoing COVID-19 pandemic which required us to further streamline operations and reduce costs.

Depreciation and amortization during the nine months ended March 31, ~~2021,~~2022, was ~~$622~~$0 representing a decrease of ~~$3,893~~$622 or ~~86%~~100% from ~~$4,515~~$622 during the nine months ended March 31, 2021. Assets had become fully depreciated as of the quarter ended September 30, 2020.

Interest expense during the nine months ended March 31, ~~2021,~~2022, was ~~$60,491~~$61,391 representing an increase of ~~$18,302~~$900 or ~~43%~~1% from ~~$42,189~~$60,491 during the nine months ended March 31, ~~2020. The increase is due to a higher balance~~2021. Although the amount of outstanding debt ~~during the nine months ended~~at March 31, ~~2021.~~2022 was higher, the more recent debt were 0% interest loans, which is why the amount of interest expense did not change significantly.

BALANCE SHEET DATA

Our combined cash and cash equivalents totaled $0$560 at March 31, ~~2021~~2022 and ~~$45,960~~$2,473 at June 30, ~~2020.~~2021. We do not expect to generate a positive internal cash flow for at least the next 12 months due to our efforts to generate sales in China and obtain FDA marketing clearance, the expected costs of commercializing our initial product, the CTLM®, and the time required for homologations from certain countries.

Our inventory, which consists of raw materials, work in process (including completed units under testing), and finished goods totaled $100,087 at March 31, ~~2021~~2022 and ~~$436,952~~$100,087 at June 30, ~~2020.~~2021. Raw materials used for research and development or other purposes are expensed and not included in inventory. The net inventory is $0 at March 31, ~~2021~~2022 and June 30, ~~2020~~2021 because the Company has recorded an allowance for slow moving and obsolete inventory for the entire value of the inventory due to lack of demand for parts and lack of sales.

Our property and equipment, net, totaled $0 at March 31, ~~2021~~2022 and ~~$1,902~~$0 at June 30, ~~2020. The overall decrease of $1,902 is due to depreciation as well as the abandonment of fixed assets during the nine months ended March 31,~~ 2021.

Our operating lease right-of-use assets totaled $0 at December, 2020 and $62,266 at June 30, 2020. The decrease in operating lease right-of-use assets is due to the amortization of the asset under ASC 842 as well as the termination of our office and warehouse lease as well as our auto lease.

Our current liabilities, which consist of accounts payable, accrued payroll taxes and penalties, short term debt, ~~current portion of lease liabilities,~~ and current portion of long-term debt, totaled ~~$1,439,024~~$1,733,514 at March 31, ~~2021~~2022 and ~~$1,189,416~~$1,378,461 at June 30, ~~2020.~~2021. Accounts payable and accrued expenses totaled ~~$482,017~~$685,289 at March 31, ~~2021~~2022 and ~~$300,936~~$472,571 at June 30, ~~2020.~~2021. Accrued payroll taxes and penalties totaled $314,019 at March 31, ~~2021~~2022 and $314,019 at June 30, ~~2020.~~2021. Promissory notes totaled ~~$574,375~~$661,276 at March 31, ~~2021~~2022 and ~~$520,000~~$581,276 at June 30, ~~2020. The current portion of lease liabilities totaled $0 at March 31, 2021 and $54,461 at June 30, 2020.~~2021. The current portion of long-term debt was ~~$68,613~~$72,930 at March 31, ~~2021~~2022 and $0$10,595 at June 30, ~~2020.~~2021. Current liabilities increased primarily due to accounts payable and accrued expenses increasing by ~~$181,081, increase in~~$212,718 and related party promissory notes ~~of $54,375,~~increasing by $80,000. On May 17, 2022, we received a default and ~~more~~demand letter from Truist Bank in regards to the PPP loan due to non-payment which caused the entire amount of the PPP loan ~~becoming a current liability during the nine months ended March 31, 2021.~~to be due immediately.

Our long-term liabilities, which consists of ~~the noncurrent operating lease liabilities as well as~~ long-term loans payable totaled ~~10,987~~$0 at March 31, ~~2021~~2022 and ~~$87,621~~$69,005 at June 30, ~~2020.~~2021. The decrease in long-term liabilities was due to ~~a portion~~the PPP loan going into default and becoming due immediately as of ~~the loan payable becoming a current liability during the nine months ended March 31, 2021.~~May 17, 2022.

Our temporary equity, which consists of Convertible Preferred Series L (including accrued dividends), totaled ~~$411,427~~$429,451 at March 31, ~~2021~~2022 and ~~$397,939~~$415,939 at June 30, ~~2020.~~2021. The increase of ~~$13,488~~$13,512 is due to dividends for the nine months ended March 31, ~~2021~~2022 that are being included in the total redemption value.

LIQUIDITY AND CAPITAL RESOURCES

We are currently a development stage company and our continued existence is dependent upon our ability to resolve our liquidity problems, principally by obtaining additional debt and/or equity financing. We have yet to generate a positive internal cash flow, and until significant sales of our product occur, we are mostly dependent upon debt and equity funding from Viable and its affiliates and/or outside investors. While Viable has stated its intention to provide, directly or through private investors it procures, the working capital that we need for the next 12 months, there can be no assurance that this funding will be provided. In the event that we are unable to obtain adequate debt or equity financing or are unable to obtain such financing on terms and conditions acceptable to us, we may have to cease or severely curtail our operations. This would materially impact our ability to continue as a going concern.

We have financed our operating and research and development activities through multiple private placements of common stock as well as short term loans from related parties. During the nine months ended March 31, ~~2021,~~2022, we received ~~$54,375~~$80,000 through short-term related party loans. During the nine months ended March 31, ~~2020,~~2021, we received ~~proceeds of $320,000~~$54,375 through short-term related party ~~loans and raised $130,000 of capital through private placement transactions.~~loans.

Net cash used for operating and product development expenses, which may include our purchase of additional materials to continue the manufacture of CTLM® Systems in anticipation of receiving orders from our distributors in certain countries where permitted by law was ~~$91,509~~$75,243 for the nine months ended March 31, ~~2021,~~2022, compared to net cash used by operating activities and product development of the CTLM® and related software development of ~~$459,872~~$91,509 during the nine months ended March 31, ~~2020.~~2021. At March 31, ~~2021,~~2022, we had negative working capital of ~~$1,421,607~~$1,715,531 compared to negative working capital of ~~$1,118,102~~$1,358,037 at June 30, ~~2020.~~2021. We do not expect to generate a positive internal cash flow for at least the next 12 months due to the time needed to ramp up our sales and marketing plan in China. Implementation of our plan has been severely impeded by the ongoing COVID-19 crisis, and abatement of the crisis is needed in order for our plan to succeed.

If and when we receive marketing clearance from the FDA, which cannot be assured, we believe that we will need funding in excess of $5 million above and beyond normal operating expenses over the following year to fully complete all necessary stages in order for us to market the CTLM® in the United States and foreign countries other than China. In China Xi’an IDI will be responsible for all expenses relating to the manufacture, marketing and sale of the CTLM®. The $5 million will be used to purchase inventory, sub-contracted components, tooling and manufacturing templates and pay non-recurring engineering costs associated with preparation for full capacity manufacturing and assembly and marketing, advertising and promotion, training, ongoing regulatory expenses, and other costs associated with product launch. We expect to use the proceeds of the sale of restricted common stock through private placements as our preferred choice to raise the additional funds required to continue operations. In the event that we are unable to raise funds through private placements, of common or preferred stock, or debt securities, or combinations thereof; we will be materially adversely affected and may have to cease operations. If additional funds are raised by issuing equity securities, dilution to existing stockholders will result, and future investors may be granted rights superior to those of existing stockholders.

Through the date of this report, IDSI has been taking drastic measures as a response to the global COVID-19 crisis to preserve working capital. These measures include the conversion of our full-time employees to contractors working on an as-needed basis, deferral of payments to vendors, and transition of our facilities to a smaller, more cost-efficient space.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures

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.

Under the supervision and participation of our Chief Executive Officer and Chief Financial Officer, our management has evaluated the effectiveness of our disclosure controls and procedures as of March 31, ~~2021.~~2022. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer, or the persons performing similar functions, concluded that our disclosure controls and procedures were effective as of March 31, ~~2021.~~2022.

There have been no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal year that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II

OTHER INFORMATION

~~Item 1.~~

~~Legal Proceedings.~~

Item 1. Legal Proceedings.

At this time, there are no material pending legal proceedings to which the Company is a party or as to which any of its property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.

~~Item 1~~A.

~~Risk Factors.~~

Item 1A. Risk Factors.

Our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2020,~~2021, filed on ~~September 28, 2020,~~October 12, 2021, includes a detailed discussion of our risk factors. The risks described in our Form 10-K Report 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. For the nine months ended March 31, ~~2021,~~2022, there were no material changes in risk factors as previously disclosed in our Form 10-K.

~~Item 2.~~

~~Unregistered Sales of Equity Securities and Use of Proceeds.~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None

~~Item 3.~~

~~Defaults Upon Senior Securities.~~

Item 3. Defaults Upon Senior Securities.

None

~~None~~Item 4. (Mine Safety Disclosures)

~~Item 4.~~

~~(Mine Safety Disclosures)~~

Not Applicable

~~Item 5.~~

~~Other Information~~

Item 5. Other Information

None

Item 6. Exhibits

~~Item 6.~~

~~Exhibits~~

3~~1.1~~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.
101.INS		Inline XBRL Instance Document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

~~SIGNATURES~~

SIGNATURES

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

Dated: May ~~17, 2021~~20, 2022		Imaging Diagnostic Systems, Inc.

	By:	/s/ David Fong
		David Fong
		Chief Financial Officer
		(PRINCIPAL ACCOUNTING OFFICER)
		/s/ Chunming Zhang
		Chunming Zhang
		Chief Executive Officer

3332

iso4217:USD xbrli:shares

	(unaudited)
	March 31, 2021			June 30, 2020
Assets
Current assets:
Cash	$	-		$	45,960
Royalty receivable		-			10,875
Consultant advances		5,000			5,000
Prepaid expenses		12,417			9,479

Total current assets		17,417			71,314

Property and equipment, net		-			1,902

Operating lease right-of-use assets		-			62,266

Total assets	$	17,417		$	135,482

Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable and accrued expenses	$	482,017		$	300,936
Accrued payroll taxes and penalties		314,019			314,019
Promissory notes, related party		574,375			520,000
Current portion of PPP loan payable		68,613			-
Current portion of operating lease liabilities		-			54,461

Total current liabilities		1,439,024			1,189,416

Long-term liabilities
PPP Loan Payable, less current portion		10,987			79,600
Operating lease liabilities, less current portion		-			8,021

Total long-term liabilities		10,987			87,621

Total liabilities		1,450,011			1,277,037

Commitment and Contingencies (Note 17)

Temporary equity
Convertible Preferred Series L		411,427			397,939

Total temporary equity		411,427			397,939

Stockholders’ Deficit:

Preferred stock, no par , 2,000,000 authorized Convertible preferred stock, Series M, 600 designated 0 shares issued and outstanding at March 31, 2021 and June 30, 2020		-			-
Common stock, no par value, 500,000,000 authorized , 123,013,804 and 122,876,549 shares issued and outstanding March 31, 2021 and June 30, 2020, respectively		132,821,433			132,570,255
Accumulated Deficit		(134,665,454	)		(134,109,749	)

Total stockholders’ deficit		(1,844,021	)		(1,539,494	)

Total liabilities and stockholders’ deficit	$	17,417		$	135,482

	Nine months ended			Nine months ended
	March 31, 2021			March 31, 2020

Net loss	$	(542,217	)	$	(867,815	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		622			4,515
Loss on disposal of fixed assets		1,180			-
Gain on termination of lease		(10,863	)		-
Stock option expense		181,178			181,178
Bad debt expense		-			19,665

Changes in assets and liabilities:
(Increase) decrease in employee advances		-			(5,000	)
(Increase) decrease in royalty receivable		10,875			-
(Increase) decrease in prepaid expenses		(8,938	)		340
Increase (decrease) in accounts payable and accrued expenses		276,762			206,923
Change in right of use asset/lease obligation, net		(108	)		322
Total adjustments		450,708			407,943

Net cash used in operating activities		(91,509	)		(459,872	)

Cash flows from financing activities:
Change in bank overdrafts		(8,826	)		-
Proceeds from promissory notes, related party		54,375			320,000
Proceeds issuance of common stock		-			130,000

Net cash provided by financing activities		45,549			450,000

Net increase (decrease) in cash and cash equivalents		(45,960	)		(9,872	)

Cash and cash equivalents at beginning of period		45,960			44,615

Cash and cash equivalents at end of period	$	-		$	34,743

Supplemental Disclosure of cash flow information:
Cash paid for interest	$	-		$	40,068
Cash paid for taxes	$	-		$	-

Non-cash investing and financing activities:
ROU assets and liabilities at inception	$	-		$	147,291
Common Stock issued on conversion of accounts payable	$	70,000		$	-

Noteholder	Interest Rate	Maturity Date	March 31, 2021		June 30, 2020
Related Party Notes:
Erhfort, LLC	15%	6/30/21	$	100,000	$	100,000
Erhfort, LLC	15%	6/30/21		100,000		100,000
JM One Holdings, LLC	15%	6/30/21		20,000		20,000
Erhfort, LLC	15%	6/30/21		100,000		100,000
Erhfort, LLC	15%	6/30/21		100,000		100,000
Erhfort, LLC	15%	6/30/21		100,000		100,000
Erhfort, LLC	15%	6/30/21		10,000		-
Erhfort, LLC	15%	6/30/21		10,000		-
Viable International Investments, LLC	0%	On Demand		7,865		-
Viable International Investments, LLC	0%	On Demand		5,000		-
Viable International Investments, LLC	0%	On Demand		5,000		-
Viable International Investments, LLC	0%	On Demand		5,000		-
Viable International Investments, LLC	0%	On Demand		5,000		-
Viable International Investments, LLC	0%	On Demand		3,000		-
Xi’an IDI	0%	On Demand		3,510		-
Total Related Party Notes			$	574,375	$	520,000

Operating lease asset (office and warehouse lease) – termination date – October 1, 2020	$	21,403
Operating lease liability (office and warehouse lease) – termination date – October 1, 2020		21,511
Operating lease asset and (liability) (office and warehouse lease) – net – termination date – October 1, 2020		(108	)
Gain on lease termination		10,863
Operating lease asset and (liability) (office and warehouse lease) – net – March 31, 2021	$	-

Operating lease asset (auto) – termination date – March 10, 2021	$	14,362
Operating lease liability (office and warehouse lease) – termination date – March 10, 2021		14,362
Operating lease asset and (liability) (office and warehouse lease) – net – termination date – March 10, 2021		-
Gain on lease termination		-
Operating lease asset and (liability) (office and warehouse lease) – net – March 31, 2021	$	-

Security	Date Issued	No. of Shares	Amount		Date of Conversion	No. of Shares Converted	Amount Converted		Balance 12/31/2020
Total Series M Cv Pfd	Various	600	$	6,000,000	Various	600	$	6,000,000	$	-0-
Dividends										-0-
					Total redemption value				$	-0-

Series L Cv Pfd	2/10/2010	35	$	350,000	1/6/2011	15	$	150,000	$	200,000
Dividends										211,427
					Total redemption value				$	411,427

	As of March 31, 2021			As of June 30, 2020
Expected volatility		23% to 44	%		20% to 24	%
Expected term		.17 to 3.33 Years			.67 to 4.3 Years
Risk-Free interest rate		.13% to 3.09	%		.89% to 2.49	%
Forfeiture rate		0.00	%		0.00	%
Expected dividend rate		0.00	%		0.00	%

Employees/Consultants	Unvested			Vested and Exercisable			Total
Outstanding at June 30, 2019		5,730,522			7,717,123			13,447,645
Granted		1,598,188			500,000			2,400,000
Vested and Exercisable		(2,755,526	)		2,755,526			-
Cancelled		(450,000	)		-			(450,000	)
Outstanding at June 30, 2020		4,123,184			10,972,649			15,095,833
Granted		157,102			-			157,102
Vested and Exercisable		(2,110,000	)		2,110,000			-
Cancelled		-			-			-
Adjustment		-			(4	)		-
Outstanding at March 31, 2021		2,170,286			13,082,645			15,252,935