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~~CEO’s Letter to Shareholders~~

~~October 17, 2006~~

~~Dear Fellow Shareholder,~~

~~It is my pleasure to issue this shareholder letter in advance of our November 8~~^th ~~annual shareholder’s meeting. We want you to be well informed about progress on our key initiatives and to share our enthusiasm for the future.~~

Priority one, the CT Laser Mammography PMA, is moving forward with installations in a number of prestigious U.S. sites, although the process of securing sites in general has not progressed as quickly as we had anticipated. As I noted in an earlier letter, the FDA determined that CTLM® trials under our intended use would constitute a Non-Significant Risk device study; we assumed such a reclassification would have enabled us to more quickly engage U.S. clinical “partners.” We found, however, that the processes through Investigational Review Boards and legal departments had become much more complex and lengthy in recent years. We also experienced delays because many of our preferred sites were simply too busy to participate in our study due to serious understaffing and workload issues, a recurring theme in the larger departments we contacted. Consequently, we needed to approach many more prospective sites than originally intended. As we work towards finalizing the remaining sites, we are continuing to contact others as back-ups. Our practice is to limit public identification of the sites so that the study members may participate without publicity or distraction.

We previously stated our plans to update all CTLM’s shipped to PMA sites with the latest hardware and software developments to best reflect the system’s capabilities as an adjunctive breast imaging tool. Sites are using the latest CTLM configurations. Because the CTLM imaging technique is completely new to doctors and technologists and training could affect results, we improved our certified training programs and added computerized calibration and QA software to the systems. These improvements take full advantage of the experience we have gained through our 7,500 international breast exams and our service histories.

There remain uncertainties about the time it may take to accrue the total number of cases needed for final PMA submission because each site has a unique workload and patient volunteer recruitment process. Internally, we have an excellent team of staff radiologists, applications specialists, data managers, and service engineers on the PMA project. That excellence extends to the prestigious institutions and mammographers we have chosen; the outside PMA services of King & Spalding, a leading regulatory law firm; the independent biometric firm performing our statistical analyses; the study auditing and monitoring firm, M Squared Associates; and other associates. I believe the PMA process is well in hand and fully resourced.

Our Global Commercialization initiatives have been given additional resources to speed up the pace of target market penetration. We have dedicated additional marketing resources to Mexico, Central and South America, and we installed demonstration sites in Argentina and in a private clinic in Colombia. Recently, we added an exclusive distributor in Mexico and received regulatory approval to sell CTLM systems in Brazil, where we are in the final stage of distributor selection.

In the Asia-Pacific Region, we contracted with BAC, Inc. to manage our existing distributors and develop new areas. BAC is now managing our China distributor activities and has led IDSI in establishing a representative office in Beijing. We have a full-time manager (BAC contract), a marketing specialist, and we plan to add a lead service supervisor: three dedicated Chinese nationals in Beijing. Clinical studies at our Beijing hospital site are going well, and, although we have the Chinese clinical studies needed, the process to gain CTLM procedure reimbursement status has been particularly long. We expect reimbursement to be announced very soon, which will greatly enhance the attractiveness of CTLM to the market.

Elsewhere in the Asia-Pacific region, BAC is pursuing business connections in Australia, Singapore, Malaysia, New Zealand, Hong Kong, Macao, Taiwan, and the Philippines to enhance our existing representation in South Korea and China. We have signed an exclusive distributor in Malaysia, where interest in breast cancer detection and treatment is surging due to publicity surrounding their First Lady, who succumbed to the disease. We are pleased with BAC’s efforts, and we are gaining momentum through their experience and connections.

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Activities in Europe and the Middle East are top priorities for our International Sales VP, who highlighted progress by holding the first IDSI Users Meeting last April in Berlin. Our international users have been doing excellent clinical work and have contributed to our Image Interpretation Manual and User Training Program. Earlier this year, we received an order for six CTLM systems from our Polish distributor. The first of those systems shipped in June, giving us three systems in Poland, all serving major oncology centers. The remaining CTLM units on the order have not yet been scheduled for shipment. Among our global users, we have three systems operating in Poland, four in Italy, two each in the Czech Republic and the United Arab Emirates, as well as systems in Germany and Austria; all are adding to CTLM’s growing clinical presence in the regions. In September, we added an exclusive distributor responsible for Norway, Sweden and Denmark.

Our expanded approach involving the three regions described above has increased our Global Commercialization investment, which we believe will increase short-term sales and accelerate market acceptance.

We remain tightly focused on women’s health opportunities as we continue to explore optical molecular imaging and image fusion research projects involving fluorescent markers and methods to highlight and quantify the angiogenesis process. As a pioneer in laser breast imaging, it is gratifying to see others now recognize the technological and clinical potential. Late in 2005, we noted that Philips Medical Systems had entered the laser optical scanning arena with a joint Schering AG program. Notably, Philips stated in a recent publication that they will use continuous wave near-infrared (NIR) methodologies; this supports our technological approach over the ART alternatives. GE Medical is also stepping up activity and has installed several ART optical imaging systems in North America to collect PMA data. We also believe Siemens Medical has optical breast imaging devices under development. In the past 18 months, there has been a substantial increase in the number of MRI breast examinations and publications which validate the relationship of angiogenesis to breast cancer and the fundamental capability of imaging the angiogenesis process. We see these developments as very positive, as they validate our position that imaging angiogenesis in the breast is both clinically useful and commercially attractive. IDSI’s leadership is well demonstrated in the large number of clinical exams we have completed, in our patent position, and in the fact that only CTLM uses true CT continuous wave laser breast imaging techniques.

In August, we concluded a major licensing transaction concerning our Laser Imaging for Lab Animals (LILA) technology. As I noted in my first shareholders letter, LILA has great optical molecular imaging potential, but is not, strictly speaking, a women’s health technology. We, therefore, chose to license our animal imaging technologies to Bioscan, Inc., a company operating in that market and who possesses the capability to commercialize LILA technologies. IDSI will receive a front-end license fee and substantial royalties on future Bioscan sales. As a result, we will receive the economic benefits of this project much sooner with Bioscan than if we had pursued it on our own. Furthermore, licensing LILA permits IDSI to focus on our core business in women’s health markets and on the development of a family of laser breast imaging systems. We believe the license agreement enhances IDSI shareholder value economically and strategically.

Fellow shareholders, we have a great team behind these initiatives. Every IDSI associate is motivated to fulfill our mission and to improve breast cancer detection and case management methods. Our technology is unique and revolutionary, and has the potential to become a family of related systems. It serves us well to remember that other new imaging technologies such as CT and MRI started small, but over time, grew to become mainstream tools. We see that opportunity in laser breast imaging.

~~On behalf of all IDSI employees and our customers, we thank you for your support and patience. We look forward to seeing you at our annual meeting on November 8~~^th~~in Florida.~~

~~Sincerely,~~

~~/s/ Tim Hansen~~

~~Tim Hansen~~

~~Table of Contents~~Risk Factors

Th~~e Offering~~

~~Securities Offered by Selling Security Holder~~

~~Common Stock~~

~~28,000,000~~

~~Equity Securities Outstanding~~¹

	*~~Common Stock~~*^1,2	~~255,048,233~~
	*~~Warrants~~*	~~None~~
	*~~Options~~*^3,4	~~16,850,500~~

~~(1)The total number of equity shares outstanding as of October 18, 2006. Our authorized common stock is 300,000,000 shares.~~

~~(2)~~The total number of shares of common stock does not include (i) shares of common stock covered by this prospectus and issuable upon the exercise of our put options from our Fifth Private Equity Credit Agreement for which we would receive gross proceeds of approximately $2.8 million which, for the purpose of this prospectus, are estimated to represent 28,000,000 shares and (ii) 16,850,500 shares of common stock subject to outstanding options.

~~(3)The options were issued in connection with our stock option plans and/or in connection with some of our employment agreements. The exercise prices of the options range from $.11 to $2.77 per share.~~

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~~Risk Factors~~

An investment in the common stock offered is highly speculative and involves a high degree of risk. Accordingly, you should consider all of the risk factors discussed below, as well as the other information contained in this document. You should not invest in our common stock unless you can afford to lose your entire investment and you are not dependent on the funds you are investing.

Risks associated with our financial results

We have incurred and are incurring significant losses and we may not be able to continue our business in the future.

At ~~June 30, 2006,~~December 31, 2007, we had an accumulated deficit of ~~$91,138,737~~$101,523,588 after discounts and dividends on preferred stock. These losses have resulted principally from costs associated with research and development, clinical trials and from general and administrative costs associated with our operations. We expect operating losses will continue for at least the next 12 months due primarily to the anticipated expenses associated with:

·	demonstrator sites

·	clinical collaboration sites

·	pre-market approval process,

·	anticipated commercialization of the CTLM®, and

·	other research and development ~~activities that may arise.~~programs

We have a limited history of operations. Since our inception in December 1993, we have been engaged principally in the development of the CTLM®, which has not been approved for sale in the United States. While we have received FDA export approval for foreign sales, we have made only 13 foreign sales. Consequently, we have limited experience in manufacturing, marketing and selling our products. We currently have no source of material operating revenues and have incurred substantial net operating losses since inception.

Our auditors have raised substantial doubts as to our ability to continue as a going concern as we have not been and may not be able to be profitable.

We have received an opinion from our auditors stating that the fact that we have suffered substantial losses and have yet to generate an internal cash flow raises substantial doubt about our ability to continue as a going concern. Our ability to achieve profitability will depend on our ability to obtain regulatory approvals for the CTLM®, develop the capacity to manufacture and market the CTLM® and achieve market acceptance of the CTLM®. There can be no assurance we will achieve profitability if and when we receive regulatory approvals for the development, commercial manufacturing and marketing of the CTLM®.

Risks associated with our lack of capital

We require additional capital which we may be unable to raise which may cause us to stop or cut back our operations.

Through ~~June 30, 2006~~December 31, 2007 we have spent approximately ~~$79~~$90 million. Our currently estimated annual ~~fixed commitment is~~expenses are approximately $7$5.5 million. In the year following receipt of marketing clearance for our CTLM® from the FDA, we anticipate that we will need approximately $5 million to complete all necessary stages in order to manufacture and market the CTLM® in the United States and foreign countries. We plan on using the net proceeds raised from the sale of common stock through our ~~Fifth~~Sixth Private Equity Credit Agreement and ~~subsequent financing~~additional financings to develop and market this product family, including funds for:

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·	research, engineering and development programs,

·	pre-clinical and clinical testing of ~~other proposed~~the family of products,

·	regulatory processes,

·	inventory,

·	marketing programs, and

·	operating expenses (including general and administrative expenses).

Our future capital requirements depend on many factors, including the following:

·	the progress of our research and development projects,

·	the progress of pre-clinical and clinical testing on other proposed products,

·	the time and cost involved in obtaining regulatory approvals,

the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; competing technological and market developments; changes and developments in our existing collaborative, licensing and other relationships and the terms of any new collaborative, licensing and other arrangements that we may establish, and

·	the development of commercialization activities and arrangements.

In addition, our fixed commitments are substantial and would increase if additional agreements were entered into and additional personnel were retained. We do not expect to generate a positive internal cash flow for at least 12 months due to an anticipated increase in marketing and manufacturing expenses associated with the international commercialization of the CTLM®, expenses associated with our FDA PMA process, and the costs associated with advanced product development activities.

Although we have from time to time reviewed ~~and may continue to review term sheets~~opportunities provided to us by investment bankers or potential investors in regard to additional equity financings, there can be no assurance that additional financing will be available when needed, or if available, will be available on acceptable terms. Insufficient funds may prevent us from implementing our business strategy and will require us to further delay, scale back or eliminate our research, product development and marketing programs; and may require us to license to third parties rights to commercialize products or technologies that we would otherwise seek to develop ourselves, or to scale back or eliminate our other operations. See “Financing/Equity Line of Credit.”

We have had and may have to issue securities, sometimes at prices substantially below market price, for services which may further depress our stock price and dilute the holdings of our shareholders.

Since we have generated no material revenues to date, our ability to obtain and retain consultants may be dependent on our ability to issue stock for services. Since July 1, 1996, we have issued an aggregate of 2,306,500 shares of common stock covered by registration statements on Form S-8. The aggregate fair market value of those shares when issued was $2,437,151. The issuance of large amounts of our common stock, sometimes at prices well below market price, for services rendered or to be rendered and the subsequent sale of these shares may further depress the price of our common stock and dilute the holdings of our shareholders. In addition, because of the possible dilution to existing shareholders, the issuance of substantial additional shares may cause a change-in-control.

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We have in the past and may have to in the future sell additional unregistered convertible securities, possibly without limitations on the number of common shares the securities are convertible into, which could dilute the value of the holdings of current shareholders.

We have relied on the private placement of convertible preferred stock and convertible debentures to obtain working capital and may continue to do so in the future. As of the date of this registration statement, we have issued 72,642,979 shares of common stock which were converted from privately placed preferred stock and debentures. This number of shares of common stock represents approximately ~~28%~~23% of the currently outstanding number of shares of common stock.

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In deciding to issue preferred stock and debentures through private placements, we took into account:

	·	the number of common shares authorized and outstanding,
	·	the market price of the common stock at the time of each preferred stock or debenture sale, and
	·	number of common shares the preferred stock or debentures would have been convertible into at the time of the sale

At the time of each private placement there were enough shares, based on the price of our common stock at the time of the sale of the preferred stock or debentures, to satisfy the conversion requirements. Although our board of directors attempted to negotiate a floor on the conversion price of each series of preferred stock and debentures prior to their sale, it was unable to do so.

In order to obtain working capital we will continue to:

draw on our ~~Fifth~~Sixth Private Equity Agreement pursuant to a prior registration statement and this registration statement, once it is declared effective

seek capital through debt or equity financing which may include the issuance of convertible debentures or convertible preferred stock whose rights and preferences are superior to those of the common stockholders, and

attempt to negotiate the best transactions possible taking into account the impact on our shareholders, dilution, loss of voting power and the possibility of a change-in-control.

Nonetheless, in order to satisfy our working capital needs, it may become necessary to issue convertible securities without a floor on the conversion price.

In the event that we issue convertible preferred stock or convertible debentures without a limit on the number of shares that can be issued upon conversion and if the price of our common stock decreases:

the percentage of shares outstanding that will be held by these holders upon conversion will increase accordingly,

the lower the market price the greater the number of shares to be issued to these holders upon conversion, thus increasing the potential profits to the holder when the price per share later increases and the holder sells the common shares,

the preferred stockholders' and debenture holders’ potential for increased share issuance and profit, including profits derived from short sales of our common stock, in addition to a stock overhang of an indeterminable amount, may depress the price of our common stock,

the sale of a substantial amount of preferred stock or debentures to relatively few holders could effectuate a possible change-in-control, and

in the event of our voluntary or involuntary liquidation while the preferred stock or debentures are outstanding, the holders of those securities will be entitled to a preference in distribution of our property.

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We may draw on our equity credit line which may cause the value of our common stock to decline and dilute the holdings of our shareholders.

~~We had~~Since January 2001 we have raised $40,672,258 and issued 198,676,012 common shares through a ~~$25 million private equity line~~series of ~~credit from Charlton pursuant to our Amended Private Equity Agreement dated May 15, 2002, and replaced that agreement with a $15 million Third~~five Private Equity Credit ~~Agreement dated October 29, 2002.~~Agreements with Charlton Avenue LLC (“Charlton”). On ~~January 9, 2004,~~April 21, 2008 we executed a ~~Fourth~~new Sixth Private Equity Credit Agreement with Charlton, which replaced our ~~prior private equity agreements, with terms and conditions more favorable for us. On March 21, 2006 we executed a new~~ Fifth Private Equity Credit Agreement ~~with Charlton, which replaced our Fourth Private Equity Credit Agreement.~~that expired on March 21, 2008. Pursuant to our ~~Fifth~~Sixth Private Equity Credit Agreement, when we deem it necessary, we may raise capital through the private sale of our common stock to Charlton at a price equal to 93% of the ~~then~~ market price, based on the formula set forth in our agreement with Charlton. Under the Fourth Private Equity Credit Agreement, we filed an S-2 registration statement on January 30, 2004 to register 5,000,000 shares for resale by Charlton, which was declared effective on March 4, 2004; on June 21, 2004 we filed an S-2 registration

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statement to register an additional 9,000,000 shares for resale by Charlton, which was declared effective on June 29, 2004; on November 10, 2004 we filed an S-2 registration statement to register an additional 7,000,000 shares for resale by Charlton, which was declared effective on December 9, 2004; on March 8, 2005 we filed an S-2 registration statement to register an additional 9,000,000 shares for resale by Charlton, which was declared effective on March 18, 2005 and on June 16, 2005 we filed an S-2 registration statement to register an additional 18,000,000 shares for resale by Charlton which was declared effective on July 27, 2005. On December 14, 2005, we filed our final registration statement in connection with the Fourth Private Equity Credit Agreement, an S-1 registration statement to register an additional 19,000,000 shares for resale by Charlton which was declared effective on December 27, 2005. On March 23, 2006, we filed a registration statement in connection with the Fifth Private Equity Credit Agreement, an S-1 registration statement to register an additional 27,000,000 shares for resale by Charlton which was declared effective on April 26, 2006. We may need capital in excess of the amounts available under the ~~Fifth~~Sixth Private Equity Credit Agreement, and we may seek additional funding through public or private financing or collaborative, licensing and other arrangements with corporate partners. As we utilize the ~~Fifth~~Sixth Private Equity Credit Agreement, or additional funds are raised by issuing equity securities, especially convertible preferred stock, dilution to existing shareholders will result and future investors may be granted rights superior to those of existing shareholders. See “Financing/Equity Line of Credit.”

We may have to increase our authorized shares of common stockto have sufficient shares available to raise capital for continuing operations and strategic initiatives which may cause the value of our common stock to decline and dilute the holdings of our shareholders.

We now have issued and outstanding 319,264,685 shares of common stock out of 450,000,000 authorized shares. In addition, we have reserved approximately 23,576,561 shares to cover outstanding options. Therefore, given our ongoing need to issue substantial amounts of new shares to raise capital to continue operations under our Sixth Private Equity Credit Agreement with Charlton and to have the ability to engage in strategic initiatives, we may seek shareholder approval of an amendment to our articles of incorporation to increase our authorized common stock at our next Annual Meeting of Stockholders. There can be no assurance that our shareholders will approve such an increase. If they do not, then we will have to seek alternative sources of funding, which may not be available on commercially reasonable terms. Consequently, a failure to obtain such shareholder approval could have a material adverse impact on IDSI.

The ~~Fifth~~Sixth Private Equity Credit Line may not be available when we need it, thus limiting our ability to bring our CTLM® to market.

The ~~Fifth~~Sixth Private Equity Credit Line contains various conditions to our being able to use it, including effectiveness of the required registration statement and the absence of any material adverse change in our business or financial ~~condition, and a floor price, which is set at our option, and if violated during the valuation period may cause a termination of a particular put transaction unless waived by us.~~condition.. Further, Charlton is an offshore investment company and if it were unable or unwilling to fulfill its obligations, our legal remedies would be limited. Thus, we may be unable to draw down on the ~~Fifth~~Sixth Private Equity Credit Line when we need the funds, and that could severely harm our business and financial condition and our ability to bring the CTLM® to market. In the last six years, we have been almost exclusively dependent on Charlton for working capital. Since April 1999, we have issued to Charlton a total of ~~178,088,445~~205,959,839 shares of common stock through conversion of $13,410,000 face amount of our preferred stock and debentures purchased by Charlton and through ~~$36,904,541~~$40,672,258 in purchases under all of our private equity lines. See “Selling Security Holder” and “Financing/Equity Line of Credit.”

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We have had and may have to issue securities, sometimes at substantially below market price, in order to pay off our debts which may further depress our stock price and dilute the holdings of our shareholders.

Since we have generated no material revenues to date, we have had difficulty in paying off some of our debts which have become due. In order to pay these debts, we have issued shares and/or warrants to purchase shares of common stock. We have also entered into agreements whereby the lender, sometimes at its option, may be issued other equity securities, such as warrants, to pay off debt. On some occasions, we have converted debt into equity at prices that were well below the market price. In addition, as we have no material revenues, we may have to issue more shares of common stock or other equity securities, sometimes at prices well below market price, in order to pay off current or future debts that become due. These types of issuances of common stock and other equity securities to pay off debt may further depress the price of our common stock and would dilute the holdings of our shareholders, and if substantial dilution does occur, could also cause a change-in-control.

Conversions of our convertible preferred stock and exercise of our convertible debentures and warrants may cause a change of control and other detrimental effects to the value of our shareholders’ holdings.

If we issue substantial amounts of convertible securities and the market price of our common stock declines significantly, we could be required to issue a number of shares of common stock sufficient to result in our current stockholders not having an effective vote in the election of directors and other corporate matters. In the event of a

change-in-control, it is possible that the new majority stockholders may take actions that may not be consistent with the objectives or desires of our current stockholders.

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We would most likely be required to convert any convertible preferred stock and convertible debentures which we choose to issue based on a formula that varies with the market price of our common stock. As a result, if the market price of our common stock increases after the issuance of our convertible preferred stock and convertible debentures, it is possible that, upon conversion of the convertible preferred stock and convertible debentures, we will issue shares of common stock at a price that is far less than the then-current market price of the common stock.

If the market price of our common stock decreases after we issue the convertible preferred stock or convertible debentures, upon conversion, we will have to issue an increased number of shares to the preferred stock and convertible debenture holders. The sale of convertible preferred stock and debentures may result in a very large conversion at one time. At the present time we have no convertible preferred stock or convertible debentures outstanding. In the event that we issue convertible preferred stock or convertible debentures we do not have sufficient authorized shares to cover any conversion of these issuances and would have to increase the number of authorized shares.

In addition, if we issue warrants they will likely be exercisable at a fixed price. If the market price of our common stock increases above the warrant exercise price, we will be required to issue shares of common stock upon exercise of the warrants at a price that is less than the then-current market price. Issuances at less than market price pose a risk to investors because these issuances may drive down the market price of our common stock.

Risks associated with our industry

We depend on market acceptance to sell our products, which have not been proven, and a lack of acceptance would depress our sales.

There can be no assurance that physicians or the medical community in general will accept and utilize the CTLM® or any other products that we develop. The extent and rate the CTLM® achieves market acceptance and penetration will depend on many variables, including, but not limited to, the establishment and demonstration in the medical community of the clinical safety, efficacy and cost-effectiveness of the CTLM® and the advantages of the CTLM® over existing technology and cancer detection methods.

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There can be no assurance that the medical community and third-party payers will accept our unique technology. Similar risks will confront any other products we develop in the future. Failure of our products to gain market acceptance would hinder our sales efforts resulting in a loss of revenues and potential profit and, ultimately, could cause our business to fail.

Lack of third-party reimbursement may have a negative impact on the sales of our products, which would negatively impact our revenues.

In the United States, suppliers of health care products and services are greatly affected by Medicare, Medicaid and other government insurance programs, as well as by private insurance reimbursement programs. Third-party payers (Medicare, Medicaid, private health insurance companies, and other organizations) may affect the pricing or relative attractiveness of our products by regulating the level of reimbursement provided by these payers to the physicians, clinics and imaging centers utilizing the CTLM® or any other products that we may develop, by refusing reimbursement. The level of reimbursement, if any, may impact the market acceptance and pricing of our products, including the CTLM®. Failure to obtain favorable rates of third-party reimbursement could discourage the purchase and use of the CTLM® as a diagnostic device.

In international markets, reimbursement by private third-party medical insurance providers, including governmental insurers and independent providers, varies from country to country. In addition, such third-party medical insurance providers may require additional information or clinical data prior to providing reimbursement for a product. In some countries, our ability to achieve significant market penetration may depend upon the availability of third-party governmental reimbursement. Revenues and profitability of medical device companies may be affected by the

continuing efforts of governmental and third party payers to contain or reduce the cost of health care through various means.

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There are uncertainties regarding healthcare reform, including possible legislation, whereby our customers may not receive medical reimbursement for the use of our product on their patients, which may cause our customers to use other services and products.

Health care reform alternatives are constantly evolving at both the Federal and state level. These reform efforts include proposals to limit and further reduce and control health care spending on health care items and services, limit coverage for new technology and limit or control the price health care providers and drug and device manufacturers may charge for their services and products, respectively. If adopted and implemented, these reforms could cause our healthcare providers to limit or not use the CTLM® systems.

Competition in the medical imaging industry may result in competing products, superior marketing and lower revenues and profits for us.

The market in which we intend to participate is highly competitive. Many of the companies in the cancer diagnostic and screening markets have substantially greater technological, financial, research and development, manufacturing, human and marketing resources and experience than we do. These companies may succeed in developing, manufacturing and marketing products that are more effective or less costly than our products. The competition for developing a commercial device utilizing computed tomography techniques and laser technology is difficult to ascertain given the proprietary nature of the technology. To our knowledge, several companies are targeting the breast optical imaging market. Advanced Research Technologies, Inc. (ART) (TSX:ARA) is developing a non-3D imager which does not utilize our patented continuous wave technology and in which the breast must be immersed in a gel. ART has signed distribution agreements with GE Medical should a product become available. DOBI Medical International, Inc. (DBMI:~~OB)~~PK) is developing an optical imager based upon compression and transillumination of the breast, which produces a 2D “map” of relative oxygenation. IDSI views this adaptation of older technology as unlikely to become a threat to our CT laser 3D approach. Neither ART nor DOBI has FDA approval.

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In December 2005, Philips Medical Systems announced their intent to develop optical imaging equipment with an intention to “be on the market early after 2010.” IDSI also believes that Siemens Medical Systems is developing optical imaging equipment. To IDSI’s knowledge, no other company has a functioning optical imaging device designed for use as an adjunct to mammography. CTLM® Laser Mammography Systems are in clinical settings in Italy, Germany, Poland, the Czech Republic, Peoples Republic of China, and the United Arab Emirates. Over ~~7,500~~13,000 breast exams have been completed on ~~CTLM~~CTLM® systems. In vivo human studies of fluorescent compounds have been conducted at three Schering AG clinical locations in Germany. Methods for the detection of cancer are subject to rapid technological innovation and there can be no assurance that future technical changes will not render our CTLM® obsolete. There can be no assurance that the development of new types of diagnostic medical equipment or technology will not have a material adverse effect on our business, financial condition, and results of operations.

Risks associated with our securities

Our common stock is considered "a penny stock" and may be difficult to sell.

The SEC has adopted regulations which generally define "penny stock" to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. Presently, the market price of our common stock is substantially less than $5.00 per share and therefore may be designated as a "penny stock" according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect the ability of investors to sell their shares. In

addition, since our common stock is traded on the NASDAQ OTC Bulletin Board, investors may find it difficult to obtain accurate quotations of our common stock.

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The volatility of our stock price could adversely affect your investment in our common stock.

The price of our common stock has fluctuated substantially since it began trading on the OTC Bulletin Board in September 1994. For example, in the current fiscal year which began July 1, ~~2006,~~2007, the bid price ranged from a low of ~~$.091~~$.035 in the ~~second~~first quarter to a high of ~~$.15~~$.088 in the first quarter, and in our last fiscal year which ended June 30, ~~2006,~~2007, the bid price ranged from a low of ~~$.095~~$.038 in the fourth quarter to a high of ~~$.31~~$.155 in the ~~first~~third quarter. The market price of our shares, like that of the common stock of many other medical device companies, is likely to continue to be highly volatile. Factors that may have an impact on the price of our common stock include:

·	the timing and results of our clinical trials or those of our competitors,

·	governmental regulation,

·	healthcare legislation,

·	geopolitical events,

·	equity or debt financing, and

·	developments in patent or other proprietary rights pertaining to our competitors or us, including litigation, fluctuations in our operating results, and market conditions for medical device company stocks and life science stocks in general.

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We may issue preferred stock at any time to prevent a takeover or acquisition, any of which issuance could dilute the price of our common stock.

Our articles of incorporation authorize the issuance of preferred stock with designations, rights, and preferences that may be determined from time to time by the board of directors. Our board of directors is empowered, without stockholder approval, to designate and issue additional series of preferred stock with dividend, liquidation, conversion, voting and other rights, including the right to issue convertible securities with no limitations on conversion, which could adversely affect the voting power or other rights of the holders of our common stock. This could substantially dilute the common shareholders’ interest and depress the price of our common stock. In addition, the preferred stock could be utilized as a method of discouraging, delaying or preventing a change-in-control. The substantial number of issued and outstanding convertible preferred stock and the convertible debentures, and their terms of conversion may discourage or prevent an acquisition of our company.

Our dependence on our Equity Credit Line for financing our operations could dilute the price of our common stock.

Until the time when we are able to generate material revenues, we are dependent on equity or other financing to continue operations. We will require substantial additional funds for our operations and the costs associated with the resubmission of our PMA application. In the event that we are unable to utilize our Equity Credit Line, our common shares may be used for the conversion of new preferred stock or debentures or to accommodate other future issuances of equity securities.

Based on the closing bid price of our common stock on ~~October 20, 2006,~~May 6, 2008, of ~~$.10~~$.045 per share, approximately ~~137,634,409~~357,995,227 shares would be required to be issued to draw the ~~remaining $12,800,000~~entire $15,000,000 available under the ~~Fifth~~Sixth Private Equity Credit Agreement.

As of ~~October 20, 2006,~~May 6, 2008, we would be required to issue approximately ~~154~~382 million authorized shares apportioned as follows:

~~137,634,409~~357,995,227 shares for complete utilization of the ~~Fifth~~Sixth Private Equity Credit Agreement

~~16,850,500 shares~~23,576,561shares required for the exercise of all outstanding options.

We now have issued and outstanding ~~255,048,233~~319,264,685 shares of common stock out of ~~300,000,000~~450,000,000 authorized shares. In addition, we have reserved ~~16,850,500~~23,576,561 shares to cover outstanding options. ~~We have 8,510,678 shares offered pursuant to our current Form S-1 registration statement and prospectus, which was declared effective on April 26, 2006.~~

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We currently are controlled by our executive officers and directors; however, a change-in-control may occur.

Our management beneficially owns ~~13,365,012~~27,851,794 shares of our common stock or ~~5.24%~~8.72% (assuming exercise of their currently exercisable options) of our common stock. Separately, Linda Grable, a co-founder and our former Chairman and CEO who retired in April 2004, beneficially owns 19,660,274 shares of our common stock as of October 20, 2006, which represents 7.71% of our outstanding common stock (assuming exercise of her currently exercisable options). Although management owns a minority of the outstanding common stock, since we do not have cumulative voting, and since, in all likelihood the officers and directors will be voting as a block and will be able to obtain proxies of other shareholders, management may ~~with or without Ms. Grable’s support,~~ remain in a position to elect all of our directors and control our policies and operations. Based on the current market price of our common stock, we would have to issue approximately ~~137,634,409~~357,995,227 shares to draw the ~~remaining $12,800,000~~entire $15,000,000 million available under the ~~Fifth~~Sixth Private Equity Credit Agreement. The amounts of shares issuable under the ~~Fifth~~Sixth Private Equity Credit Agreement or any subsequent Private Equity Credit Agreement could increase substantially if our common stock price declines. Dilution to management's ownership percentage as a result of share issuances under the ~~Fifth~~Sixth Private Equity Credit Agreement and subsequent financings could cause a change in control.

We have not paid and do not currently intend to pay dividends, which may limit the current return you may receive on your investment in our common stock.

Since inception, we have not paid a dividend on our common stock and do not intend to pay dividends on our common stock in the foreseeable future.

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Risks associated with our technology

We depend on ~~a patent licensed to us by our late founder~~third-party licensing agreements for patents and software without which our operations ~~would cease.~~may be curtailed.

We ~~own~~hold the rights, through an exclusive patent licensing agreement, for the use of the patent for the CTLM® technology. ~~The estate of Richard Grable owns the patent.~~ In addition, we own 1719 patents and have 74 additional United States patents pending with regard to optical tomography. ~~In the event that we breach the~~We also have patent rights through a non-exclusive licensing agreement ~~we could lose the~~from a third-party as well as three non-exclusive licensing ~~rights to the CTLM® technology. The loss~~agreements for software from third-parties. If any of ~~the patent license would have a material adverse effect on us and~~these agreements were terminated, our ~~continued operations.~~operations may be curtailed until alternative solutions were found.

Our business would lose its primary competitive advantage if we are unable to protect our proprietary technology, or if substantially the same technology is developed by others.

We rely primarily on a combination of trade secrets, patents, copyright and trademark laws, and confidentiality procedures to protect our technology.

Our ability to compete effectively in the medical imaging products industry will depend on our success in protecting our proprietary technology, both in the United States and abroad. There can be no assurances that any patent that we apply for will be issued, or that any patents issued will not be challenged, invalidated, or circumvented, that we will have the financial resources to enforce them, or that the rights granted will provide any competitive advantage. We hold 1116 foreign patents; however, we have applied for 156 patents in various foreign countries. We could incur substantial costs in defending any patent infringement suits or in asserting any patent rights, including those granted by third parties, the expenditure of which we might not be able to afford.

Although we have entered into confidentiality and invention agreements with our employees and consultants, there can be no assurance that these agreements will be honored or that we will be able to protect our rights to our non-patented trade secrets and know-how effectively. There can be no assurance that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how. In addition, we may be required to obtain licenses to patents or other proprietary rights from third

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parties. If we do not obtain required licenses, we could encounter delays in product development or find that the development, manufacture, or sale of products requiring these licenses could be foreclosed. Additionally, we may, from time to time, support and collaborate in research conducted by universities and governmental research organizations. There can be no assurance that we will have or be able to acquire exclusive rights to the inventions or technical information derived from such collaborations or that disputes will not arise with respect to rights in derivative or related research programs that we conducted in conjunction with these organizations.

It may be necessary to enter into unfavorable agreements or defend lawsuits which would be costly if we infringe upon the intellectual property rights of others.

There has been substantial litigation regarding patent and other intellectual property rights in the medical device and related industries. We have been, and may be in the future, notified that we may be infringing on intellectual property rights possessed by other third parties. If any claims are asserted against our intellectual property rights, we may seek to enter into royalty or licensing arrangements. There is a risk in situations that no license will be available or that a license will not be available on reasonable terms. Alternatively, we may decide to litigate these claims or design around the patented technology. These actions could be costly and would divert the efforts and attention of our management and technical personnel. Consequently, any infringement claims by third parties or other claims for indemnification by customers resulting from infringement claims, whether or not proven to be true, may be costly to defend and may further limit the use of our technology.

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We may not be able to keep up with the rapid technological change in the medical imaging industry which could make the CTLM® obsolete.

Methods for the detection of cancer are subject to rapid technological innovation and there can be no assurance that technical changes will not render our proposed products obsolete. Although we believe that the CTLM® can be upgraded to maintain its state-of-the-art character, the development of new technologies or refinements of existing ones might make our existing system technologically or economically obsolete, or cause a reduction in the value of, or reduce the need for, our CTLM®. There can be no assurance that the development and commercial availability of new types of diagnostic medical equipment or technology will not have a material adverse effect on our business, financial condition, and results of operations. Although we are aware of no substantial technological changes pending, should a change occur, there can be no assurance that we will be able to acquire the new or improved systems which may be required to update the CTLM®.

Risks associated with our business

We must comply with extensive governmental regulations and have no assurance of regulatory approvals or clearances which could cause us to cut back or cease operations.

Our delay or inability to obtain any necessary United States, state or foreign regulatory clearances or approvals for our products would prevent us from selling the CTLM® system in the U.S. and other countries.

In the United States, the CTLM® is regulated as a medical device and is subject to the FDA's pre-market clearance or approval requirements. To obtain FDA approval of an application for pre-market approval of a diagnostic tool such as the CTLM®, the pre-market approval application must demonstrate based on statistically significant results from extensive clinical studies, that the subject device is safe and has clinical utility, meaning that as a diagnostic tool it provides information that measurably contributes to a diagnosis of a disease or condition.

In addition, sales of medical devices outside the United States may be subject to international regulatory requirements that vary from country to country. The time required to gain approval for international sales may be

longer or shorter than required for FDA approval and the requirements may differ. For example, in order to sell our products within the European Economic Area (“EEA”), companies are required to achieve compliance with the requirements of the medical devices directive and affix a "CE" marking on their products to attest compliance. In Europe, we have obtained the certifications in January 2001 necessary to enable the CE mark to be affixed to our

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products in order to conduct sales in member countries of the EEA, subject to compliance with additional regulations imposed by individual countries.

Regulatory approvals, if granted, may include significant limitations on the indicated uses for which the CTLM® may be marketed. In addition, to obtain these approvals, the FDA and certain foreign regulatory authorities may impose numerous other requirements which medical device manufacturers must comply with. FDA enforcement policy strictly prohibits the marketing of approved medical devices for unapproved uses. Product approvals could be withdrawn for failure to comply with regulatory standards or the occurrence of unforeseen problems following initial marketing.

The third-party manufacturers upon which we will depend to manufacture our products are required to adhere to applicable FDA regulations regarding quality systems regulations commonly referred to as QSRs, which include testing, control and documentation requirements. Failure to comply with applicable regulatory requirements, including marketing and promoting products for unapproved use, could result in warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal of the government to grant pre-market clearance or approval for devices, withdrawal of approvals and criminal prosecution. Changes in existing regulations or adoption of new government regulations or polices could prevent or delay regulatory approval of our products. Material changes to medical devices also are subject to FDA review and clearance or approval.

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There can be no assurance that we will be able to obtain or maintain the following:

·	FDA approval of a pre-market approval application for the CTLM®,

·	foreign marketing clearances for the CTLM® or regulatory approvals or clearances for other products that we may develop, on a timely basis, or at all,

·	timely receipt of approvals or clearances,

·	continued approval or clearance of previously obtained approvals and clearances, and

·	compliance with existing or future regulatory requirements.

IfWe currently are in compliance with applicable regulatory standards; however, if we do not obtain or maintain any of the above-mentioned standards, there may be material adverse effects on our business, financial condition and results of operations.

We may not be able to develop ~~other~~the family of products that are currently in the early stages of development due to our need for additional capital.

Due to our need for additional capital, our proposed products other than the CTLM® device are at early stages of development. There can be no assurance that any of our proposed products, including the CTLM®, will:

·	be found to be effective,

·	meet applicable regulatory standards or receive necessary regulatory clearance,

·	be developed into commercial products, manufactured on a large scale or be economical to market, or

·	achieve or sustain market acceptance.

Therefore, there is substantial risk that our product development and commercialization efforts will prove to be unsuccessful.

We will depend on a single product, the CTLM®, for our revenues in the next few years, any problems with which would cause material adverse effects to our business.

We are in the process of developing additional products based on our main technology, including an enhancement of the CTLM® device for use with fluorescence contrast agents and vasoactive compounds. The use of fluorescent

contrast agents is not expected to result in a commercial product for at least several years, if at all. Consequently, pending its approval for commercial distribution in the United States, the CTLM® device would account for substantially all of our revenues, if any, for at least the next two years. Failure to gain regulatory approvals or

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market acceptance for the CTLM® device would prevent the sale of the CTLM® device in the U.S. and other countries adhering to FDA approved guidelines.

We depend upon suppliers with whom we have no contracts, which suppliers could cause production disruption if they terminated or changed their relationships with us.

We believe that there are a number of suppliers for most of the components and subassemblies required for the CTLM®; however, components for our laser system are provided by one supplier. Although these components are provided by a limited number of other suppliers, we believe our laser supplier and their products are the most reliable. We have no agreement with our laser supplier and purchase the laser components on an as-needed basis. For certain services and components, we currently rely on single suppliers. If we encounter delays or difficulties with our third-party suppliers in producing, packaging, or distributing components of the CTLM® device, market introduction and subsequent sales would be adversely affected.

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We have limited experience in sales, marketing and distribution, which could negatively impact our ability to enter into collaborative arrangements or other third party relationships which are important to the successful development and commercialization of our products and potential profitability.

We have limited internal marketing and sales resources and personnel. There can be no assurance that we will be able to establish sales and distribution capabilities or that we will be successful in gaining market acceptance for any products we may develop. There can be no assurance that we will be able to recruit and retain skilled sales, marketing, service or support personnel, that agreements with distributors will be available on terms commercially reasonable to us, or at all, or that our marketing and sales efforts will be successful.

There can be no assurance that we will be able to further develop our distribution network on acceptable terms, if at all, or that any of our proposed marketing schedules or plans can or will be met.

We depend on qualified personnel to run and develop our specialized business who we may be unable to retain or hire.

Due to the specialized scientific nature of our business, we are highly dependent upon our ability to attract and retain qualified scientific, technical and managerial personnel. We have entered into employment agreements with some of our executive officers. The loss of the services of existing personnel, as well as the failure to recruit key scientific, technical and managerial personnel in a timely manner would be detrimental to our research and development programs and could have an adverse impact upon our business affairs and finances. Our anticipated growth and expansion into areas and activities requiring additional expertise, such as marketing, will require the addition of new management personnel. Competition for qualified personnel is intense and there can be no assurance that we will be able to continue to attract and retain qualified personnel necessary for the development of our business.

We have a limited manufacturing history that could cause delays in the production and shipment of our product.

We will have to expand our CTLM® manufacturing and assembly capabilities and contract for the manufacture of the CTLM® components in volumes that will be necessary for us to achieve significant commercial sales in the event we begin foreign sales and/or obtain regulatory approval to market our products in the United States. We have limited experience in the manufacture of medical products for clinical trials or commercial purposes. Should we continue to manufacture our products at our facility, our manufacturing facilities would continue to be subject to the full range of the FDA's current quality system regulations. In addition, there can be no assurance that our manufacturing efforts will be successful or cost-effective.

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We depend on third parties who may not be in compliance with the FDA's quality system regulations, which may delay the approval or decrease the sales of the CTLM®.

We have used and do use third parties to manufacture and deliver the components of the CTLM® and intend to continue to use third parties to manufacture and deliver these components and other products we may develop. There can be no assurance that the third-party manufacturers we depend on for the manufacturing of CTLM® components will be in compliance with the quality system regulations (QSR) at the time of the pre-approval inspection or will maintain compliance afterwards. This failure could significantly delay FDA approval of the pre-market approval application for the CTLM® device, and a post-approval failure could materially adversely affect our sales.

We will rely on international sales and may be subject to risks associated with international commerce.

We have commenced international sales efforts for the CTLM® in Europe, China, South America, and the Middle East. Until we receive pre-market approval from the FDA to market the CTLM® in the United States, our revenues, if any, will be derived from sales to international distributors. A significant portion of our revenues may be subject to the risks associated with international sales, including:

·	economic and political instability,

·	shipping delays,

·	fluctuation of foreign currency exchange rates,

·	foreign regulatory requirements,

·	various trade restrictions, all of which could have a significant impact on our ability to deliver products on a timely basis, and

·	inability to collect outstanding receivables to the extent that irrevocable letters of credit are not used.

Significant increases in the level of customs duties, export quotas or other trade restrictions could have a material adverse effect on our business, financial condition and results of operations. The regulation of medical devices in foreign countries continues to develop, and there can be no assurance that new laws or regulations will not have an adverse effect on us. In order to minimize the risk of doing business with distributors in countries which are having difficult financial times, our international distribution agreements all require payment via an irrevocable letter of credit drawn on a United States bank prior to shipment of the CTLM®.

Our business has the risk of product liability claims, and adequate insurance coverage may be too expensive or unavailable, which may expose us to material liabilities.

Our business exposes us to potential product liability risks, which are inherent in the testing, manufacturing, and marketing of cancer detection products. Significant litigation, not involving us, has occurred in the past based on the allegations of false negative diagnoses of cancer. There can be no assurance that we will not be subjected to claims and potential liability. Although the FDA does not require product liability insurance with regard to clinical investigations, we obtained and presently carry product liability insurance in the amount of $3,000,000. While we plan to maintain insurance against product liability and defense costs, there can be no assurance that claims against us arising with respect to our products will be successfully defended or that the insurance to be carried by us will be sufficient to cover liabilities arising from any claims. A successful claim against us in excess of our insurance coverage could have a material adverse effect on us. Furthermore, there can be no assurance that we will be able to continue to obtain or maintain product liability insurance on acceptable terms.

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WhWhere ~~ere~~ You Can Find More Information

We have filed with the SEC a Registration Statement on Form S-1 with all amendments and exhibits under the Securities Act of 1933, as amended, concerning the common stock offered in this prospectus. This prospectus does not contain all of the information contained in the registration statement. We have omitted parts of the registration statement in accordance with the rules and regulations of the SEC. For further information with respect to us and our securities, you should refer to the registration statement, including its schedules and exhibits. Statements contained in this prospectus as to the contents of any contract or other documents are not necessarily complete and, in each instance, you should refer to the copy of the filed contract or document which is qualified in all respects by such reference. You may obtain copies of the registration statement from the SEC’s principal office in Washington, D.C. upon payment of the fees prescribed by the SEC, or you may examine the registration statement without charge at the offices of the SEC described below.

We file annual, quarterly and special reports, proxy statements, and other information with the SEC. You may read and copy any document we file at the SEC’s public reference room at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further filing information and locations of public reference rooms. Our SEC filings and those of other issuers that file electronically are also available to the public on the SEC’s website at http://www.sec.gov.

~~Inco~~Incorp~~rporation~~oration Of Certain Documents By Reference

The SEC allows us to “incorporate by reference” the information that we file with it, meaning we can disclose important information to you by referring you to those documents already on file with the SEC. The information incorporated by reference is considered to be part of this prospectus, and information that we file later with the SEC will automatically update and supersede this information. We incorporate by reference the following documents:

Our annual report on Form 10-K for the year ended June 30, ~~2006,~~2007, filed on September 13, ~~2006.~~2007

2.	2.	Our ~~proxy statement~~interim report on Form ~~DEF14A~~10-Q for the quarter ended September 30, 2007, filed on ~~October~~November 9, 2007
	3.	Our interim report on Form 10-Q for the quarter ended December 31, 2007, filed on February 9, 2008
	4.	Our current report on Form 8-K filed on September 13, 2007
	5.	Our current report on Form 8-K filed on November 14, 2007
	6.	Our current report on Form 8-K filed on November 15, 2007
	7.	Our current report on Form 8-K filed on December 28, 2007
	8.	Our current report on Form 8-K filed on March 3, ~~2006.~~2008

3.	9.	Our current report on Form 8-K filed on April 3, 2008
	10.	Our current report on Form 8-K filed on April 22, 2008
	11.	Our current report on Form 8-K filed on ~~September~~May 5, ~~2006.~~

4.	~~Our current report on Form 8-K filed on October 17, 2006.~~2008

We will provide to you a copy of any of these filings, at no cost, upon your request made by writing, calling us, or emailing as follows:

Imaging Diagnostic Systems, Inc.

6531 NW 18th Court

Plantation, Florida 33313

Telephone number (954) 581-9800

Attn: Investor Relations

Email: info@imds.com~~info@imds.com~~

In addition, you may access these reports incorporated by reference through our website www.imds.com~~www.imds.com~~.

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Information With Respect To The Registrant

A substantial portion of the information required to be disclosed in the registration statement of which this prospectus is a part is incorporated by reference to our latest report on Form 10-K. See “Incorporation of Certain Documents by Reference”, “Prospectus Summary”, and “Risk Factors”.

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~~Financing/~~cing/Equity Line of Credit

We will require substantial additional funds for working capital, including operating expenses, clinical testing, regulatory processes and manufacturing and marketing programs and our continuing product development programs. Our capital requirements will depend on numerous factors, including the progress of our product development programs, results of pre-clinical and clinical testing, the time and cost involved in obtaining regulatory approvals, the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, competing technological and market developments and changes in our existing research, licensing and other relationships and the terms of any new collaborative, licensing and other arrangements that we may establish. Moreover, our fixed commitments, including salaries and fees for current employees and consultants, and other contractual agreements are likely to increase as additional agreements are entered into and additional personnel are retained.

~~Since~~From July ~~17,~~ 2000 until August 2007, when we entered into an agreement for the sale/lease-back of our headquarters facility, Charlton Avenue LLC (“Charlton”) ~~has~~ provided all of our necessary funding through the private placement sale of convertible preferred stock with a 9% dividend and common stock through various private equity credit agreements. See “Item 2, Results of Operations, Liquidity and Capital Resources, Sale/Lease-Back” We initially sold Charlton 400 shares of our Series K convertible preferred stock for $4 million and subsequently issued an additional 95 Series K shares to Charlton for $950,000 on November 7, 2000. We paid Spinneret Financial Systems Ltd. (“Spinneret”), an independent financial consulting firm unaffiliated with the Company and, according to Spinneret and Charlton, unaffiliated with Charlton, $200,000 as a consulting fee for the first tranche of Series K shares and five Series K shares as a consulting fee for the second tranche. The total of $4,950,000 was designed to serve as bridge financing pending draws on the Charlton private equity line provided through the various private equity credit agreements described in the following paragraphs.

From November 2000 to April 2001, Charlton converted 445 shares of Series K convertible preferred stock into 5,600,071 common shares and we redeemed 50 Series K shares for $550,000 using proceeds from the Charlton

private equity line. Spinneret converted 5 Series K shares for $63,996. All Series K convertible preferred stock has been converted or redeemed and there are no convertible preferred shares outstanding.

Prior Equity Agreements

From August 2000 to February 2004, we obtained funding through three Private Equity Agreements with Charlton. Each equity agreement provided that the timing and amounts of the purchase by the investor were at our sole discretion. The purchase price of the shares of common stock was set at 91% of the market price. The market price, as defined in each agreement, was the average of the three lowest closing bid prices of the common stock over the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche. The only fee associated with the private equity financing was a 5% consulting fee payable to Spinneret. In September 2001 Spinneret proposed to lower the consulting fee to 4% provided that we pay their consulting fees in advance. We reached an agreement to pay Spinneret in advance as requested and paid them $250,000 out of proceeds from a put.

From the date of our first put notice, January 25, 2001 to our last put notice, February 11, 2004, under our Third Private Equity Credit Agreement, we drew a total of $20,506,000 and issued 49,311,898 shares to Charlton. As each of the obligations under these prior agreements was satisfied, the agreements were terminated. The Third Private

Equity Agreement was terminated on March 4, 2004 upon the effectiveness of our first Registration Statement for the Fourth Private Equity Credit Agreement.

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On January 9, 2004, we and Charlton entered into a new “Fourth Private Equity Credit Agreement” which replaced our prior private equity agreements. The terms of the Fourth Private Equity Credit Agreement were more favorable to us than the terms of the prior Third Private Equity Credit Agreement. The new, more favorable terms were: (i) The put option price was 93% of the three lowest closing bid prices in the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche, while the prior Third Private Equity Credit Agreement provided for 91%, (ii) the commitment period was two years from the effective date of a registration statement covering the Fourth Private Equity Credit Agreement shares, while the prior

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Third Private Equity Credit Agreement was for three years, (iii) the maximum commitment was $15,000,000, (iv) the minimum amount we were required to draw through the end of the commitment period was $1,000,000, while the prior Third Private Equity Credit Agreement minimum amount was $2,500,000, (v) the minimum stock price requirement was controlled by us as we had the option of setting a floor price for each put transaction (the previous minimum stock price in the Third Private Equity Credit Agreement was fixed at $.10), (vi) there were no fees associated with the Fourth Private Equity Credit Agreement; the prior private equity agreements required the payment of a 5% consulting fee to Spinneret, which was subsequently lowered to 4% by mutual agreement in September 2001, and (vii) the elimination of the requirement of a minimum average daily trading volume in dollars. The previous requirement in the Third Private Equity Credit Agreement was $20,000.

We made sales under the Fourth Private Equity Credit Agreement from time to time in order to raise working capital on an “as needed” basis. Under the Fourth Private Equity Credit Agreement we drew down $14,198,541 and issued 66,658,342 shares of common stock. We terminated use of the Fourth Private Equity Credit Agreement and instead began to rely on the Fifth Private Equity Credit Agreement (described below) upon the April 26, 2006, effectiveness of our S-1 Registration Statement filed March 23, 2006.

The Fifth Private Equity Credit Agreement

On March 21, 2006, we and Charlton entered into a new “Fifth Private Equity Credit Agreement” which has replaced our prior Fourth Private Equity Credit Agreement. The terms of the Fifth Private Equity Credit Agreement ~~are~~were similar to the terms of the prior Fourth Private Equity Credit Agreement. The new credit line’s terms were (i) The put option price is 93% of the three lowest closing bid prices in the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche (the “Valuation Period”), (ii) the commitment period was two years from the effective date of a registration statement covering the Fifth Private Equity Credit Agreement shares, (iii) the maximum commitment was $15,000,000, (iv) the minimum amount we were required to draw through the end of the commitment period was $1,000,000, (v) the minimum stock price, also known as the floor price was computed as follows: In the event that, during a Valuation Period, the Bid Price on any Trading Day fell more than 18% below the closing trade price on the trading day immediately prior to the date of the Company’s Put Notice (a “Low Bid Price”), for each such Trading Day the parties had no right and were under no obligation to purchase and sell one tenth of the Investment Amount specified in the Put Notice, and the Investment Amount accordingly would be deemed reduced by such amount. In the event that during a Valuation Period there existed a Low Bid Price for any three Trading Days—not necessarily consecutive—then the balance of each party’s right and obligation to purchase and sell the Investment Amount under such Put Notice would terminate on such third Trading Day (“Termination Day”), and the Investment Amount would be adjusted to include only one-tenth of the initial Investment Amount for each Trading Day during the Valuation Period prior to the Termination Day that the Bid Price equaled or exceeded the Low Bid Price and (vi) there were no fees associated with the Fifth Private Equity Credit Agreement.

We made sales under the Fifth Private Equity Credit Agreement from time to time in order to raise working capital on an “as needed” basis. Prior to the expiration of the Fifth Private Equity Credit Agreement on March 21, 2008, we drew down $5,967,717 and issued 82,705,772 shares of common stock.

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The Sixth Private Equity Credit Agreement

On April 21, 2008, we and Charlton entered into a new “Sixth Private Equity Credit Agreement” which has replaced our prior Fifth Private Equity Credit Agreement. The terms of the Sixth Private Equity Credit Agreement are similar to the terms of the prior Fifth Private Equity Credit Agreement. This new credit line’s terms are (i) The put option price is 93% of the three lowest closing bid prices in the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche (the “Valuation Period”), (ii) the commitment period is ~~two~~three years from the effective date of a registration statement covering the ~~Fifth~~Sixth Private Equity Credit Agreement shares, (iii) the maximum commitment is $15,000,000, (iv) ~~the~~There is no minimum ~~amount we must draw through the end of the~~ commitment ~~period is $1,000,000,~~amount, (v) the minimum stock price, also known as the floor price is computed as follows: In the event that, during a Valuation Period, the Bid Price on any Trading Day falls more than ~~18%~~20% below the closing trade price on the trading day immediately prior to the date of the Company’s Put Notice (a “Low Bid Price”), for each such Trading Day the parties shall have no right and shall be under no obligation to purchase and sell one tenth of the Investment Amount specified in the Put Notice, and the Investment Amount shall accordingly be deemed reduced by such amount. In the event that during a Valuation Period there exists a Low Bid Price for any three Trading Days—not necessarily consecutive—then the balance of each party’s right and obligation to purchase and sell the Investment Amount under such Put Notice shall terminate on such third Trading Day (“Termination Day”), and the Investment Amount shall be adjusted to include only one-tenth of the initial Investment Amount for each Trading Day during the Valuation Period prior to the Termination Day that the Bid Price equals or exceeds the Low Bid Price and (vi) there are no fees associated with the ~~Fifth~~Sixth Private Equity Credit Agreement. The conditions to our ability to draw under this private equity line, as described above, may materially limit the draws available to us.

We have made sales under the Fifth Private Equity Credit Agreement from time to time in order to raise working capital on an “as needed” basis. As of the date of this report, under the Fifth Private Equity Credit Agreement we have drawn down $2,200,000 and issued 18,489,322 shares of common stock and have an available balance to draw of $12,800,000. We intend to continue raising funds through draws under the Fifth Private Equity Credit Agreement.

As of the date of this prospectus, since January 2001, we have drawn an aggregate of ~~$36,904,541~~$40,672,258 in gross proceeds from our equity credit lines with Charlton and have issued ~~134,459,562~~198,676,012 shares as a result of those draws.

In March 2008, we completed the sale of our Plantation, Florida building for $4.4 million, which was paid for in the following installments:

First Installment	8/02/2007	$1,100,000.00
Second Installment	9/21/2007	$1,100,000.00
Third Installment	12/14/2007	$550,000.00
Fourth Installment	1/04/2008	$550,000.00
Fifth Installment	1/18/2008	$1,056,000.00
Final Payment	3/26/2008	$44,027.00

These funds were used to finance our operations on terms more favorable than those which were available under the Fifth Private Equity Credit Agreement.

There can be no assurance that adequate financing will be available when needed, or if available, will be available on acceptable terms. Insufficient funds may prevent us from implementing our business plan or may require us to delay, scale back, or eliminate certain of our research and product development programs or to license to third parties rights to commercialize products or technologies that we would otherwise seek to develop ourselves. To the extent that we utilize our Private Equity Credit Agreements, or additional funds are raised by issuing equity securities, especially convertible preferred stock and convertible debentures, dilution to existing shareholders will result and future investors may be granted rights superior to those of existing shareholders. Moreover, substantial dilution may result in a change in our control.

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Table of Contents

~~Sel~~Selli~~ling~~ng Security Holder

The selling security holder, Charlton Avenue LLC, is the potential purchaser of stock under the ~~Fifth~~Sixth Private Equity Credit Agreement. The shares offered in this prospectus are based on the ~~Fifth~~Sixth Private Equity Credit Agreement and the registration rights agreement between the selling security holder and us. We are unable to determine the exact number of shares that will actually be sold according to this prospectus due to:

·	the ability of the selling security holder to determine when and whether it will sell any shares under this prospectus; and

·	the uncertainty as to the number of shares of common stock, which will be issued upon exercise of our put options under the ~~Fifth~~Sixth Private Equity Credit Agreement.

The put option price is 93% of the three lowest closing bid prices in the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche.

Since the purchase price under the ~~Fifth~~Sixth Private Equity Credit Agreement is based on the market price of our common stock after exercise of our put option, the number of shares subject to registration rights will increase if the market price of our common stock decreases, and will decrease if the market price increases. See “Financing/Equity Line of Credit”.

Neither Charlton nor any of its affiliates has held any position, office, or other material relationship with us in the past five years except that, since April 1999, Charlton has acquired a total of ~~178,088,445~~242,304,895 shares of common stock through conversion of $13,410,000 of our preferred stock and debentures that it purchased and through ~~$36,904,541~~$40,672,258 in purchases under the Private Equity Agreements. See “Financing/Equity Line of Credit.”

The following table identifies the selling security holder based upon information provided to us by Charlton as of ~~October 20, 2006,~~May 6, 2008, with respect to the shares beneficially held by or acquirable by, the selling security holder, and the shares of common stock beneficially owned by the selling security holder which are not covered by this prospectus.

Selling Security Holders' Table

Name and Address Of Security Holder	Registrant’s Relationship With Selling Security Holder Within The Past Three Years	Common Shares Owned Prior To Offering	Total Number Of Shares To Be Registered	Total Number Of Shares Owned by Security Holder After Offering	Percentage Owned (if more than 1%) by Security Holder After Offering	Registrant’s Relationship With Selling Security Holder Within The Past Three Years	Common Shares Owned Prior To Offering	Total Number Of Shares To Be Registered	Total Number Of Shares Owned by Security Holder After Offering	Percentage Owned (if more than 1%) by Security Holder After Offering
Charlton Avenue LLC* c/o Citco Trustees (Cayman Limited) P.O. Box 31106 SMB Grand Cayman Cayman Island, British West Indies	Investor	-0-	28,000,000	-0-		Investor	-0-	50,000,000	-0-

* Navigator Management, Ltd. is the director of and has sole voting and investment control over Charlton Avenue LLC. ~~David Sims is the President~~Arlene DeCastro and ~~Director~~Gayle Lettsome are Directors of Navigator and ~~controls~~control Navigator’s voting and investment decisions on behalf of Charlton.

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Table of Contents

Useof Proceeds

The selling security holder is selling all of the shares covered by this prospectus for its own account. Accordingly, we will not receive any proceeds from the resale of the shares. ~~Each time we sell our common stock, we will provide a prospectus supplement.~~ We will receive proceeds from any sales of common stock under the ~~Fourth~~Sixth Private Equity Credit Agreement to Charlton. We intend to use the net proceeds ~~from sales~~received under the ~~Fourth~~Sixth Private Equity Credit Agreement as working capital to cover our general corporate needs until such time, if ever, as we are able to generate a positive cash flow from operations. Based on the ~~$.10~~$.045 market price of our common stock on ~~October 20, 2006,~~May 6, 2008, we estimate that we will require the shelf registration of 50 million shares of our common stock in order to receive net proceeds of approximately ~~$2.8~~$2.25 million from sales to Charlton of the shares covered by this prospectus. We expect to use these net proceeds over the next ~~five~~six months in the following approximate amounts: ~~$970,000~~$750,000 for general and administrative expenses, ~~$1,200,000~~$1,275,000 for research and development expenses, ~~$280,000~~and $225,000 for sales and marketing ~~expenses, and $350,000 for inventory build-up.~~expenses. We will bear all expenses relating to the registration statement of which this prospectus is a part.

We have used the funds previously raised from Charlton to provide working capital, primarily for general and administrative, engineering, research and development, clinical and regulatory ~~expenses. Also, in April 2001, we used $550,000 raised from Charlton under our Amended Private Equity Agreement to redeem 50 shares of Series K preferred stock.~~expenses

~~Rec~~Recen~~ent~~t Sales of Unregistered Securities

During the past three years, we have not sold any securities which were not registered under the Securities Act of 1933, except for the shares of common stock sold to Charlton under our Private Equity Credit Agreements described in “Financing/Equity Line of Credit” above, which were resold by Charlton pursuant to registration statements under the Securities Act of 1933. See “Use of Proceeds” above for a description of our use of the proceeds of these sales to Charlton. These sales to Charlton were private placements exempt from registration under Section 4(2) of the Securities Act of 1933 as transactions by an issuer not involving any public offering.

~~Pla~~Plann of Distribution

Charlton is offering the shares of common stock purchased by it under the ~~Fifth~~Sixth Private Equity Credit Agreement for its account as statutory underwriter, and not for our account. We will not receive any proceeds from the sale of common stock by Charlton. Charlton has agreed to be named as a statutory underwriter within the meaning of the Securities Act of 1933 in connection with such sales of common stock and will be acting as an underwriter in its resales of the common stock under this prospectus. Charlton has, prior to any sales, agreed not to effect any offers or sales of the common stock in any manner other than as specified in the prospectus and not to purchase or induce others to purchase common stock in violation of any applicable state and federal securities laws, rules and regulations and the rules and regulations of the principal trading market of our common stock.

To permit Charlton to resell the shares of common stock issued to it under the ~~Fifth~~Sixth Private Equity Credit Agreement, we agreed to register those shares and to maintain that registration. To that end, we agreed with Charlton that we will prepare and file such amendments and supplements to the registration statement and the prospectus as may be necessary in accordance with the Securities Act and the related rules and regulations, in order to keep it effective until the earliest of any of the following dates:

The date that is one year after the completion of the last closing under the ~~Fifth~~Sixth Private Equity Credit Agreement.

the date after which all of the common stock held by Charlton or its transferees that are covered by the registration statement have been transferred to persons who may trade such shares without restriction under the Securities Act of 1933 or without volume limitations under SEC rule 144;

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Table of Contents

the date after which all of the shares of common stock held by Charlton or its transferees that are covered by the registration statement have been sold by Charlton or its transferees pursuant to the registration statement;

The shares offered by this prospectus may be sold or distributed from time to time by the selling security holder or by pledgees, donees or transferees of, or successors in interest to, the selling security holder, directly to one or more purchasers (including pledgees) or through brokers, dealers or underwriters who may act solely as agents or may acquire shares as principals, at market prices prevailing at the time of sale, at prices related to such prevailing market prices, at negotiated prices or at fixed prices, which may be changed. The distribution of the shares may be effected in one or more of the following methods:

ordinary brokers transactions, which may include long or short sales,

transactions involving cross or block trades or otherwise on the OTC Bulletin Board,

purchases by brokers, dealers or underwriters as principal and resale by such purchasers for their own accounts pursuant to this prospectus,

"at the market" to or through market makers or into an existing market for the common stock,

in other ways not involving market makers or established trading markets, including direct sales to purchasers or sales effected through agents,

through transactions in options, swaps or other derivatives (whether exchange listed or otherwise), or

any combination of the foregoing, or by any other legally available means.

In addition, the selling security holder may enter into hedging transactions with broker-dealers who may engage in short sales of shares in the course of hedging the positions they assume with the selling security holder. The selling security holder may also enter into option or other transactions with broker-dealers that require the delivery by such broker-dealers of the shares, which shares may be resold thereafter pursuant to this prospectus.

Brokers, dealers, underwriters or agents participating in the distribution of the shares may receive compensation in the form of discounts, concessions or commissions from the selling security holder and/or the purchasers of shares for whom such broker-dealers may act as agent or to whom they may sell as principal, or both (which compensation as to a particular broker-dealer may be in excess of customary commissions). The selling security holder and any broker-dealers acting in connection with the sale of the shares hereunder may be deemed to be underwriters within the meaning of Section 2(11) of the Securities Act of 1933, and any commissions received by them and any profit realized by them on the resale of shares as principals may be deemed underwriting compensation under the Securities Act of 1933, as amended. Neither we, nor the selling security holder can presently estimate the amount of such compensation. We know of no existing arrangements between the selling security holder and any other security holder, broker, dealer, underwriter or agent relating to the sale or distribution of the shares.

We will not receive any proceeds from the sale of the common shares pursuant to this prospectus. We have agreed to bear the expenses of the registration of the shares, including legal, accounting and registration fees, and such expenses are estimated to be $6,500.

We have informed the selling stockholder that certain anti-manipulative rules contained in Regulation M under the Securities Exchange Act of 1934, as amended, may apply to their sales in the and have informed them of the need for delivery of copies of this prospectus.

The selling security holder may also use Rule 144 under the Securities Act, to sell the shares if they meet the criteria and conform to the requirements of such rule.

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Table of Contents

~~Des~~Descr~~cription~~iption of Securities

Our authorized capital stock consists of ~~302,000,000~~452,000,000 shares of capital stock of which ~~300,000,000~~450,000,000 shares are common stock, no par value, and 2,000,000 shares are preferred stock, no par value. As of ~~October 20, 2006,~~May 6, 2008, there were issued and outstanding ~~255,048,233~~319,264,685 shares of common stock, and options to purchase ~~16,850,500~~23,576,561 shares of common stock.

Common Stock

Holders of the common stock are entitled to one vote for each share held in the election of directors and in all other matters to be voted on by shareholders. There is no cumulative voting in the election of directors. Holders of common stock are entitled to receive dividends as may be declared from time to time by our board of directors out of funds legally available. In the event of liquidation, dissolution or winding up, holders of common stock are to share in all assets remaining after the payment of liabilities and any preferential distributions payable to preferred stockholders. The holders of common stock have no preemptive or conversion rights and are not subject to further calls or assessments. There are no redemption or sinking fund provisions applicable to the common stock. The rights of the holders of the common stock are subject to any rights that may be fixed for holders of preferred stock. All of the outstanding shares of common stock are fully paid and non-assessable.

Preferred Stock

Our articles of incorporation authorize the issuance of preferred stock with designations, rights, and preferences as may be determined from time to time by the board of directors. The board of directors is empowered, without stockholder approval, to designate and issue additional series of preferred stock with dividend, liquidation, conversion, voting or other rights, including the right to issue convertible securities with no limitations on conversion, which could adversely affect the voting power or other rights of the holders of our common stock, substantially dilute a common shareholder’s interest and depress the price of our common stock.

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Table of Contents

~~Dis~~Discl~~closure~~osure of Commission Position on Indemnification for

Securities and Liabilities

Section 607.0850 of the Florida General Corporation Act allows companies to indemnify their directors, officers and agent against expenses, judgments, fines and amounts paid in settlement under that conditions and limitations described in that law.

Article VII of our Articles of Incorporation authorizes us to indemnify our directors and officers in the following manner:

To the extent permitted by law, none of our directors or officers will be personally liable to us or our shareholders for damages for breach of any duty owed by the directors and officers to us or our shareholders; provided, that, to the extent required by law, the directors and officers will not be relieved from liability for any breach of duty based upon an act or omission (i) in breach of such person's duty of loyalty to us or our shareholders, (ii) not in good faith or involving a knowing violation of law or (iii) resulting in receipt by a director or an officer of an improper personal benefit. No amendment to or repeal of this Article and no amendment, repeal or termination of effectiveness of any law authorizing this Article shall apply to or effect adversely any right or protection of any of our directors or officers for or with respect to any acts or omissions of the directors or officers occurring prior to amendment, repeal or termination of effectiveness.

To the extent that any of our directors, officers or other corporate agents have been successful on the merits or otherwise in defense of any civil or criminal action, suit, or proceeding referred to above, or in defense of any claim, issue, or matter therein, any director, officer or corporate agent will be indemnified against any expenses (including attorneys' fees) actually and reasonably incurred by the director, officer or corporate agent in connection therewith.

Expenses incurred by a director, officer, or other corporate agent in connection with a civil or criminal action, suit, or proceeding may be paid by the Company in advance of the final disposition of the action, suit, or proceeding as authorized by our board of directors upon receipt of an undertaking by or on behalf of the corporate agent to repay the amount if it shall ultimately be determined that the director, officer or corporate agent is not entitled to be indemnified. The officers and directors have indemnification agreements and are covered by Directors and Officers Liability Insurance in the amount of two million dollars.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to ~~our~~ directors, officers ~~and~~or persons controlling ~~persons~~us pursuant to ~~these~~the foregoing provisions, ~~or otherwise,~~ we have been ~~advised~~informed that in the opinion of the ~~SEC, this type of~~Securities and Exchange Commission such indemnification is against public policy as expressed in the ~~Securities Act~~act and is therefore unenforceable.

Experts

Our audited financial statements incorporated by reference have been examined by Sherb & Co., LLP, ~~and by Margolies, Fink and Wichrowski,~~ independent certified public accountants, for the periods and to the extent set forth in their ~~respective reports~~report and are used in reliance upon their authority as experts in accounting and auditing.

Legal Matters

In April 2008, we were served with a lawsuit filed against us in Venice, Italy, by Gio Marco S.p.A. and Gio IDH S.p.A., related Italian companies which, between them, had purchased three CTLM® systems in 2005. One system was purchased directly from us, and the other two were purchased from our former Italian distributor and an affiliate of the distributor.

~~Leg~~Table of Contents~~al Matters~~

The plaintiffs allege that they purchased the CTLM® systems for experimental purposes based on alleged oral assurances by our sales representative to the effect that we would promptly receive PMA approval for the CTLM® and that we would give them exclusive distribution rights in Italy. The plaintiffs are seeking to recover a total of €628,595, representing the aggregate purchase price of the systems plus related expenses.

Based on our preliminary investigation of this matter, we believe that this claim is completely without merit, and we intend to vigorously defend the case. Our response to the lawsuit is due in November 2008.

The validity of the common stock offered in this prospectus will be passed upon for the Company by ~~Adorno & Yoss LLP, Coral Gables,~~Carlton Fields, P.A., Miami, Florida.

~~Table of Contents~~

~~Fin~~Fina~~ancial~~ncial Information

The following financial statements should be read in conjunction with the financial statement information contained in and incorporated by reference from our most recent annual report on Form ~~10-K.~~10-K on Form 10-Q for the quarter ending December 31, 2007.

~~These~~The financial statements, which are incorporated from our Form 10-K filed on September 13, ~~2006,~~2007, begin with page 3933 and end with page ~~97.~~87. The financial statements, which are incorporated from our Form 10-Q filed on February 9, 2008, begin with page 3 and end with page 9.

3231

Item 8.~~Financial~~Financial Statements

Index to Financial Statements

		Page

Report of Independent Registered Public Accounting Firm		3934

Financial Statements

	Balance Sheets	4136

	Statements of Operations	4237

	Statements of Stockholders’ Equity	4338

	Statements of Cash Flows	5348

	Notes to Financial Statements	5550

3833

10-K Financial Table of Contents

~~REPORTS~~REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS

To the Board of Directors and

Stockholders of Imaging Diagnostic Systems, Inc.

We have audited the accompanying balance ~~sheet~~sheets of Imaging Diagnostic Systems, Inc. (A Development Stage Enterprise) as of June 30, 2007 and 2006, and the related statements of operations, stockholders’ equity, and cash flows for the ~~year~~years ended June 30, 2007and 2006 and for the period December 10, 1993 (date of inception) to June 30, ~~2006.~~2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our ~~audit.~~audits. The financial statements for the period December 10, 1993 (date of inception) to June 30, ~~2006~~2005 reflect total revenues and a net loss ~~$1,968,092~~of $1,292,248 and ~~$84,290,978,~~$77,128,255 respectively, of the cumulative totals. The other auditors’ report has been furnished to us and our opinion, insofar as it relates to amounts included for such period, is based solely on the report of such other auditors.

We conducted our ~~audit~~audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our ~~audit provides~~audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2007 and 2006, and the results of its operations and cash flows for the ~~year~~years then ended ~~June 30, 2006~~ and for the period December 10, 1993 (date of inception) to June 30, ~~2006~~2007 in conformity with generally accepted accounting principles in the United States of America.

The accompanying financial statements have been prepared assuming that Imaging Diagnostic Systems, Inc. will continue as a going concern. As more fully described in Note 5, the Company has incurred recurring operating losses and will have to obtain additional capital to sustain operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 5. The accompanying financial statements do not include any adjustments to reflect the possible effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Imaging Diagnostic Systems, Inc.’s internal control over financial reporting as of June 30, ~~2006,~~2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated August ~~21, 2006~~28, 2007 expressed an unqualified opinion on management’s assessment of internal control over financial reporting and an unqualified opinion on the effectiveness of internal control over financial reporting.

~~/s/~~ /s/ SHERB & CO, LLP

Certified Public Accountants

Boca Raton, Florida

August 28, 2007

10-K Financial Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Imaging Diagnostic Systems, Inc.

We have audited the accompanying statements of operations, stockholders' equity and cash flows of Imaging Diagnostic Systems, Inc. (a Development Stage Company) for the year ended June 30, 2005 and for the period December 10, 1993 (date of inception) to June 30, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Imaging Diagnostic Systems, Inc. (a Development Stage Company), for the year ended June 30, 2005 and for the period December 10, 1993 (date of inception) to June 30, 2005 in conformity with United States generally accepted accounting principles.

The Company is in the development stage as of June 30, 2005 and to date has had no significant operations. Recovery of the Company's assets is dependent on future events, the outcome of which is indeterminable. In addition, successful completion of the Company's development program and its transition, ultimately, to attaining profitable operations is dependent upon obtaining adequate financing to fulfill its development activities and achieving a level of sales adequate to support the Company's cost structure.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has suffered recurring losses and has yet to generate an internal cash flow that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are described in Note 5. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Margolies, Fink and Wichrowski

~~Certified Public Accountants~~

~~Boca Raton, Florida~~

~~August 21, 2006~~

~~Financial Table of Contents~~

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

~~The Board of Directors and Stockholders~~

~~Imaging Diagnostic Systems, Inc.~~

We have audited the accompanying balance sheet of Imaging Diagnostic Systems, Inc. (a Development Stage Company) as of June 30, 2005, and the related statements of operations, stockholders' equity and cash flows for the years ended June 30, 2005 and 2004 and for the period December 10, 1993 (date of inception) to June 30, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Imaging Diagnostic Systems, Inc. (a Development Stage Company), as of June 30, 2005 and the results of its operations and its cash flows for the years ended June 30, 2005 and 2004 and for the period December 10, 1993 (date of inception) to June 30, 2005 in conformity with United States generally accepted accounting principles.

As discussed in Note 3 to the financial statements, the Company has restated its financial statements to reflect the changes in accounting for the treatment of certain costs previously capitalized as intangible assets, and for compensation previously accrued and recorded to other current liabilities, on options granted to officers of the Company.

~~/s/ Margolies, Fink and Wichrowski~~

Certified Public Accountants

Pompano Beach, Florida

August 22, 2005

10-K Financial Table of Contents

IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)

Balance Sheets

June 30, 2007 and 2006


ASSETS
	2007			2006

Current assets:
Cash and cash equivalents	$	477,812		$	1,467,687
Accounts receivable, net of allowances for doubtful accounts
of $29,967 and $40,000, respectively		119,866			432,084
Loans receivable		63,602			73,617
Inventories, net of reserve of $408,000 and $108,000, respectively		1,363,156			1,891,904
Prepaid expenses		36,784			42,846

Total current assets		2,061,220			3,908,138

Property and equipment, net		2,030,795			2,035,183
Intangible assets, net		273,412			307,588

Total assets	$	4,365,427		$	6,250,909


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses	$	585,991		$	558,993
Customer deposits		88,114			40,000
Short term debt		250,000			-

Total current liabilities		924,105			598,993

Commitments and contingencies		-			-

Stockholders equity:
Common stock, no par value; authorized 450,000,000 shares,
issued 311,538,038 and 247,676,633 shares, respectively		99,120,731			94,560,316
Additional paid-in capital		2,661,650			2,230,337
Deficit accumulated during the development stage		(98,341,059	)		(91,138,737	)

Total stockholders' equity		3,441,322			5,651,916

Total assets & stockholders' equity	$	4,365,427		$	6,250,909



See accompanying notes to the financial statements.

10-K Financial Table of Contents

IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)

Statements of Operations
										From Inception
										(December 10,
	Year Ended			Year Ended			Year Ended			1993) to
	June 30, 2007			June 30, 2006			June 30, 2005			June 30, 2007


Net Sales	$	65,136		$	675,844		$	374,952		$	2,033,228
Cost of Sales		17,870			316,189			166,685			864,615

Gross Profit		47,266			359,655			208,267			1,168,613

Operating Expenses:
General and administrative		3,012,575			3,366,426			3,014,800			49,965,745
Research and development		2,089,497			2,046,688			2,553,567			18,387,032
Sales and marketing		1,351,521			1,210,917			1,083,706			7,089,718
Inventory valuation adjustments		493,596			184,219			499,194			4,412,010
Depreciation and amortization		176,158			175,807			187,539			2,773,073
Amortization of deferred compensation		-			-			-			4,064,250

Total Operating Expenses		7,123,347			6,984,057			7,338,806			86,691,828

Operating Loss		(7,076,081	)		(6,624,402	)		(7,130,539	)		(85,523,215	)

Gain (Loss) on sale of fixed assets		-			(2,439	)		-			3,146
Interest income		11,455			8,416			5,680			294,388
Other income		250,001			21,500			409,962			681,463
Interest expense		(387,697	)		(565,797	)		(598,021	)		(6,949,081	)

Net Loss		(7,202,322	)		(7,162,722	)		(7,312,918	)		(91,493,299	)

Dividends on cumulative preferred stock:
From discount at issuance		-			-			-			(5,402,713	)
Earned		-			-			-			(1,445,047	)

Net loss applicable to
common shareholders	$	(7,202,322	)	$	(7,162,722	)	$	(7,312,918	)	$	(98,341,059	)

Net Loss per common share:
Basic and diluted	$	(0.03	)	$	(0.03	)	$	(0.04	)	$	(0.92	)

Weighted average number of
common shares outstanding:
Basic and diluted		271,667,256			218,846,738			185,636,553			106,483,084




See accompanying notes to the financial statements.

10-K Financial Table of Contents

IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)

Statements of Stockhoders' Equity

From December 10, 1993 (date of inception) to June 30, 2007
											Deficit
											Accumulated
	Preferred Stock (**)				Common Stock				Additional		During the
	Number of				Number of				Paid-in		Development			Subscriptions			Deferred
	Shares		Amount		Shares		Amount		Capital		Stage			Receivable			Compensation			Total

Balance at December 10, 1993 (date of inception)		0	$	-		0	$	-	$	-	$	-		$	-		$	-		$	-

Issuance of common stock, restated for reverse
stock split		-		-		510,000		50,000		-		-			-			-			50,000

Acquisition of public shell		-		-		178,752		-		-		-						-			-

Net issuance of additional shares of stock		-		-		15,342,520		16,451		-		-						-			16,451

Common stock sold		-		-		36,500		36,500		-		-						-			36,500

Net loss		-				-		-		-		(66,951	)					-			(66,951	)

Balance at June 30, 1994		-		-		16,067,772		102,951		-		(66,951	)		-			-			36,000

Common stock sold		-		-		1,980,791		1,566,595		-		-			(523,118	)		-			1,043,477

Common stock issued in exchange for services		-		-		115,650		102,942		-		-			-			-			102,942

Common stock issued with employment agreements		-		-		75,000		78,750		-		-			-			-			78,750

Common stock issued for compensation		-		-		377,500		151,000		-		-			-			-			151,000

Stock options granted		-		-		-		-		622,500		-			-			(622,500	)		-

Amortization of deferred compentsation		-		-		-		-		-		-			-			114,375			114,375

Forgiveness of officers' compensation		-		-		-		-		50,333		-			-			-			50,333

Net loss		-		-		-		-		-		(1,086,436	)		-			-			(1,086,436	)

Balance at June 30, 1995		-		-		18,616,713		2,002,238		672,833		(1,153,387	)		(523,118	)		(508,125	)		490,441

10-K Financial Table of Contents

IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)

Statements of Stockhoders' Equity (Continued)

From December 10, 1993 (date of inception) to June 30, 2007
																Deficit
																Accumulated
	Preferred Stock (**)						Common Stock						Additional			During the
	Number of						Number of						Paid-in			Development			Subscriptions			Deferred
	Shares			Amount			Shares			Amount			Capital			Stage			Receivable			Compensation			Total

Balance at June 30, 1995		-			-			18,616,713			2,002,238			672,833			(1,153,387	)		(523,118	)		(508,125	)		490,441

Preferred stock sold, including dividends		4,000			3,600,000			-			-			1,335,474			(1,335,474	)		-			-			3,600,000

Common stock sold		-			-			700,471			1,561,110			-			-			-			-			1,561,110

Cancellation of stock subscription		-			-			(410,500	)		(405,130	)		-			-			405,130			-			-

Common stock issued in exchange for services		-			-			2,503,789			4,257,320			-			-			-			-			4,257,320

Common stock issued with exercise of stock options		-			-			191,500			104,375			-			-			(4,375	)		-			100,000

Common stock issued with exercise of options
for compensation		-			-			996,400			567,164			-			-			-			-			567,164

Conversion of preferred stock to common stock		(1,600	)		(1,440,000	)		420,662			1,974,190			(534,190	)		-			-			-			-

Common stock issued as payment of preferred
stock dividends		-			-			4,754			14,629			-			(14,629	)		-			-			-

Dividends accrued on preferred stock not
yet converted		-			-			-			-			-			(33,216	)		-			-			(33,216	)

Collection of stock subscriptions		-			-			-			-			-			-			103,679			-			103,679

Amortization of deferred compentsation		-			-			-			-			-			-			-			232,500			232,500

Forgiveness of officers' compensation		-			-			-			-			100,667			-			-			-			100,667

Net loss (restated)		-			-			-			-			-			(6,933,310	)		-			-			(6,933,310	)

Balance at June 30, 1996 (restated)		2,400			2,160,000			23,023,789			10,075,896			1,574,784			(9,470,016	)		(18,684	)		(275,625	)		4,046,355
See accompanying notes to the financial statements.

10-K Financial Table of Contents

IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)

Statements of Stockhoders' Equity (Continued)

From December 10, 1993 (date of inception) to June 30, 2007
																Deficit
																Accumulated
	Preferred Stock (**)						Common Stock						Additional			During the
	Number of						Number of						Paid-in			Development			Subscriptions			Deferred
	Shares			Amount			Shares			Amount			Capital			Stage			Receivable			Compensation			Total

Balance at June 30, 1996 (restated)		2,400			2,160,000			23,023,789			10,075,896			1,574,784			(9,470,016	)		(18,684	)		(275,625	)		4,046,355

Preferred stock sold, including dividends		450			4,500,000			-			-			998,120			(998,120	)		-			-			4,500,000

Conversion of preferred stock to common stock		(2,400	)		(2,160,000	)		1,061,202			2,961,284			(801,284	)		-			-			-			-

Common stock issued in exchange for services		-			-			234,200			650,129			-			-			-			-			650,129

Common stock issued for compensation		-			-			353,200			918,364			-			-			-			-			918,364

Common stock issued with exercise of stock options		-			-			361,933			1,136,953			-			-			(33,750	)		-			1,103,203

Common stock issued to employee		-			-			(150,000	)		(52,500	)		-			-			-			-			(52,500	)

Common stock issued as payment of preferred
stock dividends		-			-			20,760			49,603			-			(16,387	)		-			-			33,216

Dividends accrued on preferred stock not
yet converted		-			-			-			-			-			(168,288	)		-			-			(168,288	)

Stock options granted		-			-			-			-			1,891,500			-			-			(1,891,500	)		-

Collection of stock subscriptions		-			-			-			-			-			-			16,875			-			16,875

Amortization of deferred compentsation		-			-			-			-			-			-			-			788,000			788,000

Net loss (restated)		-			-			-			-			-			(7,646,119	)		-			-			(7,646,119	)

Balance at June 30, 1997 (restated)		450			4,500,000			24,905,084			15,739,729			3,663,120			(18,298,930	)		(35,559	)		(1,379,125	)		4,189,235
													��


See accompanying notes to the financial statements.

10-K Financial Table of Contents

IMAGING DIAGNOSTIC SYSTEMS, INC.

(a Development Stage Company)

Balance Sheets

June 30, 2006 and 2005

ASSETS

2006

2005

Current assets:
Cash and cash equivalents $ 1,467,687 $ 765,523
Accounts receivable, net of allowances for doubtful accounts
of $40,000 and $0, respectively 432,084 264,535
Loans receivable 73,617 14,576
Inventories, net of reserve of $108,000 and $0, respectively 1,891,904 2,020,498
Prepaid expenses 42,846 34,187

Total current assets 3,908,138 3,099,319

Property and equipment, net 2,035,183 2,166,920
Intangible assets, net 307,588 341,765

Total assets $ 6,250,909 $ 5,608,004

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses $ 558,993 $ 783,966
Customer deposits 40,000 30,000
Short term debt - 21,500

Total current liabilities 598,993 835,466

Commitments and contingencies - -

Stockholders equity:
Common stock, no par value; authorized 300,000,000 shares,
issued 247,676,633 and 199,900,569 shares, respectively 94,560,316 87,150,773
Additional paid-in capital 2,230,337 1,597,780
Deficit accumulated during the development stage (91,138,737 ) (83,976,015 )

Total stockholders' equity 5,651,916 4,772,538

Total liabilities and stockholders' equity $ 6,250,909 $ 5,608,004

See accompanying notes to the financial statements.

IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)

Statements of Stockhoders' Equity (Continued)

From December 10, 1993 (date of inception) to June 30, 2007
														Deficit
														Accumulated
	Preferred Stock (**)						Common Stock				Additional			During the
	Number of						Number of				Paid-in			Development			Subscriptions			Deferred
	Shares			Amount			Shares		Amount		Capital			Stage			Receivable			Compensation			Total

Balance at June 30, 1997 (restated)		450			4,500,000			24,905,084		15,739,729		3,663,120			(18,298,930	)		(35,559	)		(1,379,125	)		4,189,235

Preferred stock sold, including dividends
and placement fees		501			5,010,000			-		-		1,290,515			(1,741,015	)		-			-			4,559,500

Conversion of preferred stock to common stock		(340	)		(3,400,000	)		6,502,448		4,644,307		(1,210,414	)		-			-			-			33,893

Common stock sold		-			-			500,000		200,000		-			-			-			-			200,000

Common stock issued in exchange for services		-			-			956,000		1,419,130		-			-			-			-			1,419,130

Common stock issued for compensation		-			-			64,300		54,408		-			-			-			-			54,408

Common stock issued with exercise of stock options		-			-			65,712		22,999		-			-			-			-			22,999

Common stock issued in exchange for
licensing agreement		-			-			3,500,000		1,890,000		(3,199,000	)		-			-			-			(1,309,000	)

Dividends accrued on preferred stock not
yet converted		-			-			-		-		-			(315,000	)		-			-			(315,000	)

Stock options granted		-			-			-		-		1,340,625			-			-			(1,340,625	)		-

Collection of stock subscriptions		-			-			-		12,500		-			-			21,250			-			33,750

Amortization of deferred compentsation		-			-			-		-		-			-			-			1,418,938			1,418,938

Net loss (restated)		-			-			-		-		-			(6,715,732	)		-			-			(6,715,732	)

Balance at June 30, 1998 (restated)		611			6,110,000			36,493,544		23,983,073		1,884,846			(27,070,677	)		(14,309	)		(1,300,812	)		3,592,121


See accompanying notes to the financial statements.

10-K Financial Table of Contents

IMAGING DIAGNOSTIC SYSTEMS, INC.

(a Development Stage Company)

Statements of Operations
   From Inception
   (December 10,
Year Ended Year Ended Year Ended 1993) to
June 30, 2006 June 30, 2005 June 30, 2004 June 30, 2006
   (Restated)* (Restated)*

Net Sales $ 675,844 $ 374,952 $ 733,211 $ 1,968,092
Cost of Sales 316,189 166,685 284,682 846,745

Gross Profit 359,655 208,267 448,529 1,121,347

Operating Expenses:
   General and administrative 3,366,426 3,014,800 6,449,759 46,953,170
   Research and development 2,046,688 2,553,567 537,719 16,297,535
   Sales and marketing 1,210,917 1,083,706 411,279 5,738,197
   Inventory valuation adjustments 184,219 499,194 586,510 3,918,414
   Depreciation and amortization 175,807 187,539 175,715 2,596,915
   Amortization of deferred compensation -

-

-

4,064,250

Total Operating Expenses 6,984,057 7,338,806 8,160,982 79,568,481

Operating Loss (6,624,402 ) (7,130,539 ) (7,712,453 ) (78,447,134 )

Gain (Loss) on sale of fixed assets (2,439 ) - (5,669 ) 3,146
Interest income 8,416 5,680 9,305 282,933
Other income 21,500 409,962 - 431,462
Interest expense (565,797 ) (598,021 ) (694,142 ) (6,561,384 )

Net Loss (7,162,722 ) (7,312,918 ) (8,402,959 ) (84,290,977 )

Dividends on cumulative preferred stock:
From discount at issuance -

-

- (5,402,713 )
Earned -

-

-

(1,445,047
)

Net loss applicable to
common shareholders $ (7,162,722 ) $ (7,312,918 ) $ (8,402,959 ) $ (91,138,737 )

Net loss per common share:
Basic and diluted $ (0.03 ) $ (0.04 ) $ (0.05 ) $ (0.96 )

Weighted average number of
common shares outstanding:
Basic and diluted 218,846,738 185,636,553 167,982,750 94,913,927

* See Notes 2(n) and 8
See accompanying notes to the financial statements.

IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)

Statements of Stockhoders' Equity (Continued)

From December 10, 1993 (date of inception) to June 30, 2007
														Deficit
														Accumulated
	Preferred Stock (**)						Common Stock				Additional			During the
	Number of						Number of				Paid-in			Development			Subscriptions			Deferred
	Shares			Amount			Shares		Amount		Capital			Stage			Receivable			Compensation			Total

Balance at June 30, 1998 (restated)		611			6,110,000			36,493,544		23,983,073		1,884,846			(27,070,677	)		(14,309	)		(1,300,812	)		3,592,121		*
			��
Preferred stock issued - satisfaction of debt		138			1,380,000			-		-		(161,348	)		(492,857	)		-			-			725,795

Conversion of preferred stock to common stock		(153	)		(1,530,000	)		4,865,034		1,972,296		(442,296	)		-			-			-			-

Common stock sold		-			-			200,000		60,000		-			-			-			-			60,000

Common stock issued - exchange for services
and compensation		-			-			719,442		301,210		-			-			-			-			301,210

Common stock issued - repayment of debt		-			-			2,974,043		1,196,992		-			-			-			-			1,196,992

Common stock issued in exchange for loan fees		-			-			480,000		292,694		-			-			-			-			292,694

Common stock issued with exercise of stock options		-			-			65,612		124,464		-			-			-			-			124,464

Common stock issued in satisfaction of
licensing agreement payable		-			-			3,500,000		1,890,000		-			-			-			-			1,890,000

Redeemable preferred stock sold, deemed dividend		-			-			-		-		-			(127,117	)		-			-			(127,117	)

Dividends accrued-preferred stock not yet converted		-			-			-		-		-			(329,176	)		-			-			(329,176	)

Stock options granted		-			-			-		-		209,625			-			-			(209,625	)		-

Amortization of deferred compentsation		-			-			-		-		-			-			-			1,510,437			1,510,437

Net loss (restated)		-			-			-		-		-			(6,543,292	)		-			-			(6,543,292	)

Balance at June 30, 1999 (restated)		596			5,960,000			49,297,675		29,820,729		1,490,827			(34,563,119	)		(14,309	)		-			2,694,128

See accompanying notes to the financial statements.

10-K Financial Table of Contents

IMAGING DIAGNOSTIC SYSTEMS, INC.

(a Development Stage Company)

Statements of Stockhoders' Equity

From December 10, 1993 (date of inception) to June 30, 2006

Deficit
Accumulated
Preferred Stock (**) Common Stock Additional During the
Number of Number of Paid-in Development Subscriptions Deferred
Shares Amount Shares Amount Capital Stage Receivable Compensation Total

Balance at December 10, 1993 (date of inception) 0 $ - 0 $ - $ - $ - $ - $ - $ -

Issuance of common stock, restated for reverse
stock split - - 510,000 50,000 - - - - 50,000

Acquisition of public shell - - 178,752 - - - - -

Net issuance of additional shares of stock - - 15,342,520 16,451 - - - 16,451

Common stock sold - - 36,500 36,500 - - - 36,500

Net loss - - - - (66,951 ) - (66,951 )

Balance at June 30, 1994 - - 16,067,772 102,951 - (66,951 ) - - 36,000

Common stock sold - - 1,980,791 1,566,595 - - (523,118 ) - 1,043,477

Common stock issued in exchange for services - - 115,650 102,942 - - - - 102,942

Common stock issued with employment agreements - - 75,000 78,750 - - - - 78,750

Common stock issued for compensation - - 377,500 151,000 - - - - 151,000

Stock options granted - - - - 622,500 - - (622,500 ) -

Amortization of deferred compentsation - - - - - - - 114,375 114,375

Forgiveness of officers' compensation - - - - 50,333 - - - 50,333

Net loss - - - - - (1,086,436 ) - - (1,086,436 )

Balance at June 30, 1995 - - 18,616,713 2,002,238 672,833 (1,153,387 ) (523,118 ) (508,125 ) 490,441

IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)

Statements of Stockhoders' Equity (Continued)

From December 10, 1993 (date of inception) to June 30, 2007
															Deficit
															Accumulated
	Preferred Stock (**)						Common Stock					Additional			During the
	Number of						Number of					Paid-in			Development			Subscriptions			Deferred
	Shares			Amount			Shares		Amount			Capital			Stage			Receivable			Compensation		Total

Balance at June 30, 1999 (restated)		596			5,960,000			49,297,675		29,820,729			1,490,827			(34,563,119	)		(14,309	)		-		2,694,128

Conversion of convertible debentures		-			-			4,060,398		3,958,223			-			-			-			-		3,958,223

Conversion of preferred stock to common, net		(596	)		(5,960,000	)		45,415,734		7,313,334			(648,885	)		-			-			-		704,449

Common stock sold		-			-			100,000		157,000			-			-			-			-		157,000

Common stock issued - exchange for services
and compensation, net of cancelled shares		-			-			137,000		(18,675	)		-			-			-			-		(18,675	)

Common stock issued - repayment of debt
and accrued interest		-			-			5,061,294		1,067,665			-			-			-			-		1,067,665

Common stock issued in exchange for
interest and loan fees		-			-			7,297		2,408			-			-			-			-		2,408

Common stock issued with exercise of stock options		-			-			1,281,628		395,810			157,988			-			(13,599	)		-		540,199

Common stock issued with exercise of warrants		-			-			150,652		121,563			97,850			-			-			-		219,413

Issuance of note payable with warrants at a discount		-			-			-		-			500,000			-			-			-		500,000

Dividends accrued-preferred stock not yet converted		-			-			-		-			-			(145,950	)		-			-		(145,950	)

Net loss (restated)		-			-			-		-			-			(6,531,662	)		-			-		(6,531,662	)

Balance at June 30, 2000 (restated)		-			-			105,511,678		42,818,057			1,597,780			(41,240,731	)		(27,908	)		-		3,147,198



See accompanying notes to the financial statements.

10-K Financial Table of Contents

IMAGING DIAGNOSTIC SYSTEMS, INC.

(a Development Stage Company)

Statements of Stockhoders' Equity (Continued)

From December 10, 1993 (date of inception) to June 30, 2006

Deficit
Accumulated
Preferred Stock (**) Common Stock Additional During the
Number of Number of Paid-in Development Subscriptions Deferred
Shares Amount Shares Amount Capital Stage Receivable Compensation Total

Balance at June 30, 1995 - - 18,616,713 2,002,238 672,833 (1,153,387 ) (523,118 ) (508,125 ) 490,441

Preferred stock sold, including dividends 4,000 3,600,000 - - 1,335,474 (1,335,474 ) - - 3,600,000

Common stock sold - - 700,471 1,561,110 - - - - 1,561,110

Cancellation of stock subscription - - (410,500 ) (405,130 ) - - 405,130 - -

Common stock issued in exchange for services - - 2,503,789 4,257,320 - - - - 4,257,320

Common stock issued with exercise of stock options - - 191,500 104,375 - - (4,375 ) - 100,000

Common stock issued with exercise of options
for compensation - - 996,400 567,164 - - - - 567,164

Conversion of preferred stock to common stock (1,600 ) (1,440,000 ) 420,662 1,974,190 (534,190 ) - - - -

Common stock issued as payment of preferred
stock dividends - - 4,754 14,629 - (14,629 ) - - -

Dividends accrued on preferred stock not
yet converted - - - - - (33,216 ) - - (33,216 )

Collection of stock subscriptions - - - - - - 103,679 - 103,679

Amortization of deferred compentsation - - - - - - - 232,500 232,500

Forgiveness of officers' compensation - - - - 100,667 - - - 100,667

Net loss (restated) - - - - - (6,933,310 ) - - (6,933,310 )

Balance at June 30, 1996 (restated) 2,400 2,160,000 23,023,789 10,075,896 1,574,784 (9,470,016 ) (18,684 ) (275,625 ) 4,046,355
See accompanying notes to the financial statements.

IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)

Statements of Stockhoders' Equity (Continued)

From December 10, 1993 (date of inception) to June 30, 2007
														Deficit
														Accumulated
	Preferred Stock (**)						Common Stock				Additional			During the
	Number of						Number of				Paid-in			Development			Subscriptions			Deferred
	Shares			Amount			Shares		Amount		Capital			Stage			Receivable			Compensation		Total

Balance at June 30, 2000 (restated)		-			-			105,511,678		42,818,057		1,597,780			(41,240,731	)		(27,908	)		-		3,147,198

Preferred stock sold, including dividends		500			5,000,000			-		-		708,130			(708,130	)		-			-		5,000,000

Conversion of preferred stock to common, net		(500	)		(5,000,000	)		5,664,067		5,580,531		(708,130	)		-			-			-		(127,599	)

Common stock issued - line of equity transactions		-			-			3,407,613		3,143,666		-			-			-			-		3,143,666

Common stock issued - exchange for services
and compensation		-			-			153,500		227,855		-			-			-			-		227,855

Common stock issued - repayment of debt
and accrued interest		-			-			810,000		1,393,200		-			-			-			-		1,393,200

Common stock issued with exercise of stock options		-			-			3,781,614		1,868,585		-			-			13,599			-		1,882,184

Common stock issued with exercise of warrants		-			-			99,375		119,887		-			-			-			-		119,887

Dividends accrued-preferred stock		-			-			-		-		-			(422,401	)		-			-		(422,401	)

Net loss (restated)		-			-			-		-		-			(9,532,450	)		-			-		(9,532,450	)

Balance at June 30, 2001 (restated)		-			-			119,427,847		55,151,781		1,597,780			(51,903,712	)		(14,309	)		-		4,831,540


See accompanying notes to the financial statements.

10-K Financial Table of Contents

IMAGING DIAGNOSTIC SYSTEMS, INC.

(a Development Stage Company)

Statements of Stockhoders' Equity (Continued)

From December 10, 1993 (date of inception) to June 30, 2006

Deficit
Accumulated
Preferred Stock (**) Common Stock Additional During the
Number of Number of Paid-in Development Subscriptions Deferred
Shares Amount Shares Amount Capital Stage Receivable Compensation Total

Balance at June 30, 1996 (restated) 2,400 2,160,000 23,023,789 10,075,896 1,574,784 (9,470,016 ) (18,684 ) (275,625 ) 4,046,355

Preferred stock sold, including dividends 450 4,500,000 - - 998,120 (998,120 ) - - 4,500,000

Conversion of preferred stock to common stock (2,400 ) (2,160,000 ) 1,061,202 2,961,284 (801,284 ) - - - -

Common stock issued in exchange for services - - 234,200 650,129 - - - - 650,129

Common stock issued for compensation - - 353,200 918,364 - - - - 918,364

Common stock issued with exercise of stock options - - 361,933 1,136,953 - - (33,750 ) - 1,103,203

Common stock issued to employee - - (150,000 ) (52,500 ) - - - - (52,500 )

Common stock issued as payment of preferred
stock dividends - - 20,760 49,603 - (16,387 ) - - 33,216

Dividends accrued on preferred stock not
yet converted - - - - - (168,288 ) - - (168,288 )

Stock options granted - - - - 1,891,500 - - (1,891,500 ) -

Collection of stock subscriptions - - - - - - 16,875 - 16,875

Amortization of deferred compentsation - - - - - - - 788,000 788,000

Net loss (restated) - - - - - (7,646,119 ) - - (7,646,119 )

Balance at June 30, 1997 (restated) 450 4,500,000 24,905,084 15,739,729 3,663,120 (18,298,930 ) (35,559 ) (1,379,125 ) 4,189,235

See accompanying notes to the financial statements.

IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)

Statements of Stockhoders' Equity (Continued)

From December 10, 1993 (date of inception) to June 30, 2007
											Deficit
											Accumulated
	Preferred Stock (**)				Common Stock				Additional		During the
	Number of				Number of				Paid-in		Development			Subscriptions			Deferred
	Shares		Amount		Shares		Amount		Capital		Stage			Receivable			Compensation			Total

Balance at June 30, 2001 (restated)		-		-		119,427,847		55,151,781		1,597,780		(51,903,712	)		(14,309	)		-			4,831,540

Common stock issued - line of equity transactions		-		-		11,607,866		6,213,805		-		-			-			-			6,213,805

Common stock issued - exchange for services
and compensation		-		-		560,000		294,350		-		-			-			(117,600	)		176,750

Net loss (restated)		-		-		-		-		-		(7,997,652	)		-			-			(7,997,652	)

Balance at June 30, 2002 (restated)		-		-		131,595,713		61,659,936		1,597,780		(59,901,364	)		(14,309	)		(117,600	)		3,224,443

Common stock issued - line of equity transactions		-		-		29,390,708		8,737,772		-		-			-			-			8,737,772

Common stock issued - exchange for services
and compensation		-		-		2,007,618		970,653		-		-			-			117,600			1,088,253

Payment of subscriptions receivable		-		-		-		-		-		-			14,309			-			14,309

Net loss (restated)		-		-		-		-		-		(8,358,774	)		-			-			(8,358,774	)

Balance at June 30, 2003 (restated)		-		-		162,994,039		71,368,361		1,597,780		(68,260,138	)		-			-			4,706,003





See accompanying notes to the financial statements.

10-K Financial Table of Contents

IMAGING DIAGNOSTIC SYSTEMS, INC.

(a Development Stage Company)

Statements of Stockhoders' Equity (Continued)

From December 10, 1993 (date of inception) to June 30, 2006

Deficit
Accumulated
Preferred Stock (**) Common Stock Additional During the
Number of Number of Paid-in Development Subscriptions Deferred
Shares Amount Shares Amount Capital Stage Receivable Compensation Total

Balance at June 30, 1997 (restated) 450 4,500,000 24,905,084 15,739,729 3,663,120 (18,298,930 ) (35,559 ) (1,379,125 ) 4,189,235

Preferred stock sold, including dividends
and placement fees 501 5,010,000 - - 1,290,515 (1,741,015 ) - - 4,559,500

Conversion of preferred stock to common stock (340 ) (3,400,000 ) 6,502,448 4,644,307 (1,210,414 ) - - - 33,893

Common stock sold - - 500,000 200,000 - - - - 200,000

Common stock issued in exchange for services - - 956,000 1,419,130 - - - - 1,419,130

Common stock issued for compensation - - 64,300 54,408 - - - - 54,408

Common stock issued with exercise of stock options - - 65,712 22,999 - - - - 22,999

Common stock issued in exchange for
licensing agreement - - 3,500,000 1,890,000 (3,199,000 ) - - - (1,309,000 )

Dividends accrued on preferred stock not
yet converted - - - - - (315,000 ) - - (315,000 )

Stock options granted - - - - 1,340,625 - - (1,340,625 ) -

Collection of stock subscriptions - - - 12,500 - - 21,250 - 33,750

Amortization of deferred compentsation - - - - - - - 1,418,938 1,418,938

Net loss (restated)* - - - - - (6,715,732 ) * - - (6,715,732 )

Balance at June 30, 1998 (restated)* 611 6,110,000 36,493,544 23,983,073 1,884,846 (27,070,677 ) * (14,309 ) (1,300,812 ) 3,592,121

* See Notes 2(n) and 8
See accompanying notes to the financial statements.

IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)

Statements of Stockhoders' Equity (Continued)

From December 10, 1993 (date of inception) to June 30, 2007
											Deficit
											Accumulated
	Preferred Stock (**)				Common Stock				Additional		During the
	Number of				Number of				Paid-in		Development			Subscriptions		Deferred
	Shares		Amount		Shares		Amount		Capital		Stage			Receivable		Compensation		Total

Balance at June 30, 2003 (restated)		-		-		162,994,039		71,368,361		1,597,780		(68,260,138	)		-		-		4,706,003

Common stock issued - line of equity transactions		-		-		8,630,819		6,541,700		-		-			-		-		6,541,700

Common stock issued - exchange for services
and compensation		-		-		734,785		832,950		-		-			-		-		832,950

Common stock issued - exercise of stock options		-		-		967,769		492,701		-		-			-		-		492,701

Net loss		-		-		-		-		-		(8,402,959	)		-		-		(8,402,959	)

Balance at June 30, 2004 (Restated)		-		-		173,327,412		79,235,712		1,597,780		(76,663,097	)		-		-		4,170,395

Common stock issued - line of equity transactions		-		-		26,274,893		7,797,807		-		-			-		-		7,797,807

Common stock issued - exchange for services
and compensation		-		-		285,000		113,850		-		-			-		-		113,850

Common stock issued - exercise of stock options		-		-		13,264		3,404		-		-			-		-		3,404

Net loss		-		-		-		-		-		(7,312,918	)		-		-		(7,312,918	)

Balance at June 30, 2005		-	$	-		199,900,569	$	87,150,773	$	1,597,780	$	(83,976,015	)	$	-	$	-		4,772,538






See accompanying notes to the financial statements.

10-K Financial Table of Contents

IMAGING DIAGNOSTIC SYSTEMS, INC.

(a Development Stage Company)

Statements of Stockhoders' Equity (Continued)

From December 10, 1993 (date of inception) to June 30, 2006

Deficit
Accumulated
Preferred Stock (**) Common Stock Additional During the
Number of Number of Paid-in Development Subscriptions Deferred
Shares Amount Shares Amount Capital Stage Receivable Compensation Total

Balance at June 30, 1998 (restated)* 611 6,110,000 36,493,544 23,983,073 1,884,846 (27,070,677 ) * (14,309 ) (1,300,812 ) 3,592,121 *

Preferred stock issued - satisfaction of debt 138 1,380,000 - - (161,348 ) (492,857 ) - - 725,795

Conversion of preferred stock to common stock (153 ) (1,530,000 ) 4,865,034 1,972,296 (442,296 ) - - - -

Common stock sold - - 200,000 60,000 - - - - 60,000

Common stock issued - exchange for services
and compensation - - 719,442 301,210 - - - - 301,210

Common stock issued - repayment of debt - - 2,974,043 1,196,992 - - - - 1,196,992

Common stock issued in exchange for loan fees - - 480,000 292,694 - - - - 292,694

Common stock issued with exercise of stock options - - 65,612 124,464 - - - - 124,464

Common stock issued in satisfaction of
licensing agreement payable - - 3,500,000 1,890,000 - - - - 1,890,000

Redeemable preferred stock sold, deemed dividend - - - - - (127,117 ) - - (127,117 )

Dividends accrued-preferred stock not yet converted - - - - - (329,176 ) - - (329,176 )

Stock options granted - - - - 209,625 - - (209,625 ) -

Amortization of deferred compentsation - - - - - - - 1,510,437 1,510,437

Net loss (restated)* - - - - - (6,543,292 ) * - - (6,543,292 ) *

Balance at June 30, 1999 (restated)* 596 5,960,000 49,297,675 29,820,729 1,490,827 (34,563,119 ) * (14,309 ) - 2,694,128 *
* See Notes 2(n) and 8
See accompanying notes to the financial statements.

IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)

Statements of Stockhoders' Equity (Continued)

From December 10, 1993 (date of inception) to June 30, 2007
											Deficit
											Accumulated
	Preferred Stock (**)				Common Stock				Additional		During the
	Number of				Number of				Paid-in		Development			Subscriptions		Deferred
	Shares		Amount		Shares		Amount		Capital		Stage			Receivable		Compensation		Total

Balance at June 30, 2005		-		-		199,900,569		87,150,773		1,597,780		(83,976,015	)		-		-		4,772,538

Common stock issued - line of equity transactions		-		-		47,776,064		7,409,543		-		-			-		-		7,409,543

Fair Value of Stock Option Expenses		-		-		-		-		632,557		-			-		-		632,557

Net loss		-		-		-		-		-		(7,162,722	)		-		-		(7,162,722	)

Balance at June 30, 2006		-		-		247,676,633		94,560,316		2,230,337		(91,138,737	)		-		-		5,651,916

Common stock issued - line of equity transactions		-		-		63,861,405		4,560,415		-		-			-		-		4,560,415

Fair Value of Stock Option Expenses		-		-		-		-		431,313		-			-		-		431,313

Net loss		-		-		-		-		-		(7,202,322	)		-		-		(7,202,322	)

Balance at June 30, 2007		-		-		311,538,038		99,120,731		2,661,650		(98,341,059)			-		-		3,441,322




** See Note 16 for a detailed breakdown by Series.
See accompanying notes to the financial statements.

10-K Financial Table of Contents

IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Development Stage Company)

Statement of Cash Flows

										From Inception
										(December 10,
	Year Ended			Year Ended			Year Ended			1993) to
	June 30, 2007			June 30, 2006			June 30, 2005			June 30, 2007


Net loss	$	(7,202,322	)	$	(7,162,722	)	$	(7,312,918	)	$	(91,493,299	)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization		176,158			183,450			187,539			2,780,716
(Gain) Loss on sale of fixed assets		-			2,439			-			(3,146	)
Extinguishment of debt		-			(21,500	)		(409,962	)		(431,462	)
Inventory valuation adjustment		493,596			184,219			499,194			4,412,010
Amoritization of deferred compensation		-			-			-			4,064,250
Noncash interest, compensation and consulting services		367,698			565,373			711,740			18,939,569
Fair Value of Stock Option Expenses		431,313			632,557			-			1,063,870
(Increase) decrease in accounts and
loans receivable - employees, net		332,267			(266,590	)		(249,616	)		(252,120	)
Increase (decrease) in allowance for
doubful account		(10,033	)		40,000			-			29,967
(Increase) decrease in inventories, net		(85,942	)		(55,625	)		(161,828	)		(2,837,997	)
(Increase) decrease in prepaid expenses		6,062			(8,659	)		30,392			(36,784	)
(Increase) decrease in other assets		-			-			-			(306,618	)
Increase (decrease) in accounts payable and
accrued expenses		26,997			(224,974	)		(257,505	)		751,425
Increase (decrease) in other current liabilities		48,114			10,000			(10,000	)		88,114

Total adjustments		1,786,230			1,040,690			339,954			28,261,794

Net cash used for operating activities		(5,416,092	)		(6,122,032	)		(6,972,964	)		(63,231,505	)


Cash flows from investing activities:
Proceeds from sale of property & equipment		-			104			-			29,961
Prototype equipment		-			-			-			(2,799,031	)
Capital expenditures		(16,500	)		(20,079	)		(23,641	)		(4,466,720	)

Net cash used for investing activities		(16,500	)		(19,975	)		(23,641	)		(7,235,790	)


Cash flows from financing activities:
Repayment of capital lease obligation		-			-			-			(50,289	)
Proceeds from convertible debenture		-			-			-			3,240,000
Proceeds from (repayments) loan payable, net		250,000			-			-			2,845,029
Proceeds from issuance of preferred stock		-			-			-			18,039,500
Proceeds from exercise of stock options		-			-			3,404			903,989
Net proceeds from issuance of common stock		4,192,717			6,844,171			7,204,370			45,966,878

Net cash provided by financing activities		4,442,717			6,844,171			7,207,774			70,945,107

Net increase (decrease) in cash and cash equivalents		(989,875	)		702,164			211,169			477,812

Cash and cash equivalents at beginning of period		1,467,687			765,523			554,354			-

Cash and cash equivalents at end of period	$	477,812		$	1,467,687		$	765,523		$	477,812



See accompanying notes to the financial statements.

IMAGING DIAGNOSTIC SYSTEMS, INC.

(a Development Stage Company)

Statements of Stockhoders' Equity (Continued)

From December 10, 1993 (date of inception) to June 30, 2006

Deficit
Accumulated
Preferred Stock (**) Common Stock Additional During the
Number of Number of Paid-in Development Subscriptions Deferred
Shares Amount Shares Amount Capital Stage Receivable Compensation Total

Balance at June 30, 1999 (restated)* 596 5,960,000 49,297,675 29,820,729 1,490,827 (34,563,119 ) * (14,309 ) - 2,694,128 *

Conversion of convertible debentures - - 4,060,398 3,958,223 - - - - 3,958,223

Conversion of preferred stock to common, net (596 ) (5,960,000 ) 45,415,734 7,313,334 (648,885 ) - - - 704,449

Common stock sold - - 100,000 157,000 - - - - 157,000

Common stock issued - exchange for services
and compensation, net of cancelled shares - - 137,000 (18,675 ) - - - - (18,675 )

Common stock issued - repayment of debt
and accrued interest - - 5,061,294 1,067,665 - - - - 1,067,665

Common stock issued in exchange for
interest and loan fees - - 7,297 2,408 - - - - 2,408

Common stock issued with exercise of stock options - - 1,281,628 395,810 157,988 - (13,599 ) - 540,199

Common stock issued with exercise of warrants - - 150,652 121,563 97,850 - - - 219,413

Issuance of note payable with warrants at a discount - - - - 500,000 - - - 500,000

Dividends accrued-preferred stock not yet converted - - - - - (145,950 ) - - (145,950 )

Net loss (restated)* - - - - - (6,531,662 ) * - - (6,531,662 ) *

Balance at June 30, 2000 (restated)* - - 105,511,678 42,818,057 1,597,780 (41,240,731 ) * (27,908 ) - 3,147,198 *

* See Notes 2(n) and 8

See accompanying notes to the financial statements.

10-K Financial Table of Contents

IMAGING DIAGNOSTIC SYSTEMS, INC.

(a Development Stage Company)

Statements of Stockhoders' Equity (Continued)

From December 10, 1993 (date of inception) to June 30, 2006

Deficit
Accumulated
Preferred Stock (**) Common Stock Additional During the
Number of Number of Paid-in Development Subscriptions Deferred
Shares Amount Shares Amount Capital Stage Receivable Compensation Total

Balance at June 30, 2000 (restated)* - - 105,511,678 42,818,057 1,597,780 (41,240,731 ) * (27,908 ) - 3,147,198 *

Preferred stock sold, including dividends 500 5,000,000 - - 708,130 (708,130 ) - - 5,000,000

Conversion of preferred stock to common, net (500 ) (5,000,000 ) 5,664,067 5,580,531 (708,130 ) - - - (127,599 )

Common stock issued - line of equity transactions - - 3,407,613 3,143,666 - - - - 3,143,666

Common stock issued - exchange for services
and compensation - - 153,500 227,855 - - - - 227,855

Common stock issued - repayment of debt
and accrued interest - - 810,000 1,393,200 - - - - 1,393,200

Common stock issued with exercise of stock options - - 3,781,614 1,868,585 - - 13,599 - 1,882,184

Common stock issued with exercise of warrants - - 99,375 119,887 - - - - 119,887

Dividends accrued-preferred stock - - - - - (422,401 ) - - (422,401 )

Net loss (restated)* - - - - - (9,532,450 ) * - - (9,532,450 ) *

Balance at June 30, 2001 (restated)* - - 119,427,847 55,151,781 1,597,780 (51,903,712 ) * (14,309 ) - 4,831,540 *

* See Notes 2(n) and 8
See accompanying notes to the financial statements.

IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Development Stage Company)

Statement of Cash Flows (Continued)

							From Inception
							(December 10,
	Year Ended		Year Ended		Year Ended		1993) to
	June 30, 2007		June 30, 2006		June 30, 2005		June 30, 2007
Supplemental disclosures of cash
flow information:

Cash paid for interest	$	-	$	-	$	78	$	215,962

Supplemental disclosures of noncash
investing and financing activities:

Issuance of common stock and options
in exchange for services	$	-	$	-	$	-	$	6,306,350

Issuance of common stock as loan fees in
connection with loans to the Company	$	-	$	-	$	-	$	293,694

Issuance of common stock as satisfaction of
loans payable and accrued interest	$	-	$	-	$	-	$	3,398,965

Issuance of common stock as satisfaction of
certain accounts payable	$	-	$	-	$	-	$	257,892

Issuance of common stock in
exchange for property and equipment	$	-	$	-	$	-	$	89,650

Issuance of common stock and other current liability
in exchange for patent liceensing agreement	$	-	$	-	$	-	$	581,000

Issuance of common stock for
compensation	$	-	$	-	$	113,850	$	2,691,788

Issuance of common stock through
exercise of incentive stock options	$	-	$	-	$	-	$	3,117,702

Issuance of common stock as
payment for preferred stock dividends	$	-	$	-	$	-	$	507,645

Acquisition of property and equipment
through the issuance of a capital
lease payable	$	-	$	-	$	-	$	50,289


See accompanying notes to the financial statements.

10-K Financial Table of Contents

IMAGING DIAGNOSTIC SYSTEMS, INC.

IMAGING DIAGNOSTIC SYSTEMS, INC.

(a Development Stage Company)

Statements of Stockhoders' Equity (Continued)

From December 10, 1993 (date of inception) to June 30, 2006

Deficit
Accumulated
Preferred Stock (**) Common Stock Additional During the
Number of Number of Paid-in Development Subscriptions Deferred
Shares Amount Shares Amount Capital Stage Receivable Compensation Total

Balance at June 30, 2001 (restated)* - - 119,427,847 55,151,781 1,597,780 (51,903,712 ) * (14,309 ) - 4,831,540 *

Common stock issued - line of equity transactions - - 11,607,866 6,213,805 - - - - 6,213,805

Common stock issued - exchange for services
and compensation - - 560,000 294,350 - - - (117,600 ) 176,750

Net loss (restated)* - - - - - (7,997,652 ) * - - (7,997,652 ) *

Balance at June 30, 2002 (restated)* - - 131,595,713 61,659,936 1,597,780 (59,901,364 ) * (14,309 ) (117,600 ) 3,224,443 *

Common stock issued - line of equity transactions - - 29,390,708 8,737,772 - - - - 8,737,772

Common stock issued - exchange for services
and compensation - - 2,007,618 970,653 - - - 117,600 1,088,253

Payment of subscriptions receivable - - - - - - 14,309 - 14,309

Net loss (restated)* - - - - - (8,358,774 ) * - - (8,358,774 ) *

Balance at June 30, 2003 (restated)* - - 162,994,039 71,368,361 1,597,780 (68,260,138 ) * - - 4,706,003 *

* See Notes 2(n) and 8

See accompanying notes to the financial statements.

~~Financial Table of Contents~~

IMAGING DIAGNOSTIC SYSTEMS, INC.

(a Development Stage Company)

Statements of Stockhoders' Equity (Continued)

From December 10, 1993 (date of inception) to June 30, 2006

Deficit
Accumulated
Preferred Stock (**) Common Stock Additional During the
Number of Number of Paid-in Development Subscriptions Deferred
Shares Amount Shares Amount Capital Stage Receivable Compensation Total

Balance at June 30, 2003 (restated)* - - 162,994,039 71,368,361 1,597,780 (68,260,138 ) * - - 4,706,003 *

Common stock issued - line of equity transactions - - 8,630,819 6,541,700 - - - - 6,541,700

Common stock issued - exchange for services
and compensation - - 734,785 832,950 - - - - 832,950

Common stock issued - exercise of stock options - - 967,769 492,701 - - - - 492,701

Net loss - - - - - (8,402,959 ) - - (8,402,959 )

Balance at June 30, 2004 (Restated) - - 173,327,412 79,235,712 1,597,780 (76,663,097 ) * - - 4,170,395 *

Common stock issued - line of equity transactions - - 26,274,893 7,797,807 - - - - 7,797,807

Common stock issued - exchange for services
and compensation - - 285,000 113,850 - - - - 113,850

Common stock issued - exercise of stock options - - 13,264 3,404 - - - - 3,404

Net loss - - - - - (7,312,918 ) - - (7,312,918 )

Balance at June 30, 2005 - $ - 199,900,569 $ 87,150,773 $ 1,597,780 $ (83,976,015 ) $ - $ - 4,772,538

* See Notes 2(n) and 8

See accompanying notes to the financial statements.
(a Development Stage Company)

Notes to Financial ~~Table of Contents~~

~~Financial Table of Contents~~

IMAGING DIAGNOSTIC SYSTEMS, INC.

(A Development Stage Company)

Statement of Cash Flows
   From Inception
   (December 10,
Year Ended Year Ended Year Ended 1993) to
June 30, 2006 June 30, 2005 June 30, 2004 June 30, 2006
   (Restated)* (Restated)*
Net loss $ (7,162,722 ) $ (7,312,918 ) $ (8,402,959 ) $ (84,290,977 )
Adjustments to reconcile net loss to net cash
   used for operating activities:
    Depreciation and amortization
183,450 187,539 175,715 2,604,558
    (Gain) Loss on sale of fixed assets
2,439 - 5,669 (3,146 )
    Extinguishment of debt
(21,500 ) (409,962 ) (431,462 )
    Inventory valuation adjustment
184,219 499,194 586,510 3,918,414
    Amoritization of deferred compensation
- - - 4,064,250
    Noncash interest, compensation and consulting services
565,373 711,740 1,521,346 18,571,871
    Fair Value of Stock Option Expenses
632,557 - - 632,557
    (Increase) decrease in accounts and

        loans receivable - employees, net
(266,590 ) (249,616 ) (28,040 ) (584,387 )
    Increase (decrease) in allowance for

        doubful account
40,000 -

- 40,000
    (Increase) decrease in inventories, net
(55,625 ) (161,828 ) (932,099 ) (2,752,055 )
    (Increase) decrease in prepaid expenses
(8,659 ) 30,392 (35,857 ) (42,846 )
    (Increase) decrease in other assets
-

-

-

(306,618 )
    Increase (decrease) in accounts payable and

        accrued expenses
(224,973 ) (257,506 ) 235,522 724,428
    Increase (decrease) in other current liabilities
10,000 (10,000 ) 40,000 40,000

Total adjustments 1,040,691 339,953 1,568,766 26,475,564

Net cash used for operating activities (6,122,031 ) (6,972,965 ) (6,834,193 ) (57,815,413 )

Cash flows from investing activities:
   Proceeds from sale of property & equipment 104 - 18,603 29,961
   Prototype equipment -

-

- (2,799,031 )
   Capital expenditures (20,079 ) (23,641 ) (334,264 ) (4,450,220 )

Net cash used for investing activities (19,975 ) (23,641 ) (315,661 ) (7,219,290 )

Cash flows from financing activities:
   Repayment of capital lease obligation -

-

- (50,289 )
   Proceeds from convertible debenture -

-

- 3,240,000
   Proceeds from (repayments) loan payable, net -

-

- 2,595,029
   Proceeds from issuance of preferred stock -

-

- 18,039,500
   Proceeds from exercise of stock options - 3,404 492,701 903,989
   Net proceeds from issuance of common stock 6,844,171 7,204,370 5,850,000 41,774,161

Net cash provided by financing activities 6,844,171 7,207,774 6,342,701 66,502,390

Net increase (decrease) in cash and cash equivalents 702,164 211,169 (807,153 ) 1,467,687

Cash and cash equivalents at beginning of period 765,523 554,354 1,361,507 -

Cash and cash equivalents at end of period $ 1,467,687 $ 765,523 $ 554,354 $ 1,467,687
See Notes 2(n) and 8
See accompanying notes to the financial statements.

Florida	3845	22-2671269
(State of Incorporation)	(Primary Standard Industrial	(IRS Employer I.D. Number)
	Classification Code Number)

~~Title OF Each Class Of Securities To Be Registered~~¨ Large accelerated filer	~~Amount to be registered~~x	~~Proposed Maximum Offering Price per Share (1)~~	~~Proposed Maximum Aggregate Offering Price(1)~~	~~Amount of Registration Fee (1)~~ Accelerated filer
~~Common Stock, no par value (2)~~¨ Non Accelerated filer	~~28,000,000~~¨	~~$0.10~~	~~$2,800,000.00~~	~~$299.60~~
~~TOTAL~~	~~28,000,000~~	~~$0.10~~	~~$2,800,000.00~~	~~$299.60~~ Smaller reporting company

Title OF Each Class Of Securities To Be Registered	Amount to be registered	Proposed Maximum Offering Price per Share (1)	Proposed Maximum Aggregate Offering Price(1)	Amount of Registration Fee (1)
Common Stock, no par value (2)	50,000,000	$0.045	$2,250,000.00	$88.43
TOTAL	50,000,000	$0.045	$2,250,000.00	$88.43

1.	1)	Humboldt University of Berlin, ~~Charite~~Charité Hospital, Berlin, Germany
2.	2)	The Comprehensive Cancer Centre, Gliwice, Poland (Two Systems)
3.	3)	Catholic University Hospital, Rome, Italy
4.	~~Charles University Hospital, Prague, Czech Republic~~
5.4)	Friendship Hospital, Beijing, Peoples Republic of China
	5)	Tianjin Medical University’s Cancer Institute and Hospital, Tianjin, China

							From Inception						From Inception
							(December 10,						(December 10,
	Year Ended			Year Ended			1993) to			Year Ended			1993) to
	June 30, 2005			June 30, 2004			June 30, 2005			June 30, 2005			June 30, 2005
				(Restated)*			(Restated)*						(Restated)
Net loss to common shareholders,
as reported	$	(7,312,918	)	$	(8,402,959	)	$	(83,976,015	)	$	(7,312,918	)	$	(83,976,015	)

Less: stock-based employee compensation
determined under the fair value method,
net of income tax effect		620,907			985,166			5,537,149			620,907			5,537,149

Net loss to common shareholders,
pro forma	$	(7,933,825	)	$	(9,388,125	)	$	(89,513,164	)	$	(7,933,825	)	$	(89,513,164	)

Basic and diluted loss per share -
As reported	$	(.04	)	$	(.05	)	$	(1.02	)	$	(.04	)	$	(1.02	)

Pro forma	$	(.04	)	$	(.06	)	$	(1.09	)	$	(.04	)	$	(1.09	)

Forward-Looking Statements	3

Prospectus Summary	3

~~Recent Developments~~CTLM® Development History, Regulatory and Clinical Status	54

The Offering	118

Risk Factors	129

Where You Can Find More Information	2422

Incorporation of Certain Documents by Reference	2422

Information With Respect to the Registrant	2423

Financing/Equity Line of Credit	2523

Selling Security Holder	2726

Use of Proceeds	2827

Recent Sales of Unregistered Securities	2827

Plan of Distribution	2827

Description of Securities	3029

Disclosure of Commission Position on Indemnification for Securities and Liabilities	3130

Experts	3130

Legal Matters	3130

Financial Information	3231

IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)

Statements of Stockhoders' Equity

From December 10, 1993 (date of inception) to June 30, 2006
											Deficit
											Accumulated
	Preferred Stock (**)				Common Stock				Additional		During the
	Number of				Number of				Paid-in		Development			Subscriptions			Deferred
	Shares		Amount		Shares		Amount		Capital		Stage			Receivable			Compensation			Total

Balance at December 10, 1993 (date of inception)		0	$	-		0	$	-	$	-	$	-		$	-		$	-		$	-

Issuance of common stock, restated for reverse
stock split		-		-		510,000		50,000		-		-			-			-			50,000

Acquisition of public shell		-		-		178,752		-		-		-						-			-

Net issuance of additional shares of stock		-		-		15,342,520		16,451		-		-						-			16,451

Common stock sold		-		-		36,500		36,500		-		-						-			36,500

Net loss		-				-		-		-		(66,951	)					-			(66,951	)

Balance at June 30, 1994		-		-		16,067,772		102,951		-		(66,951	)		-			-			36,000

Common stock sold		-		-		1,980,791		1,566,595		-		-			(523,118	)		-			1,043,477

Common stock issued in exchange for services		-		-		115,650		102,942		-		-			-			-			102,942

Common stock issued with employment agreements		-		-		75,000		78,750		-		-			-			-			78,750

Common stock issued for compensation		-		-		377,500		151,000		-		-			-			-			151,000

Stock options granted		-		-		-		-		622,500		-			-			(622,500	)		-

Amortization of deferred compentsation		-		-		-		-		-		-			-			114,375			114,375

Forgiveness of officers' compensation		-		-		-		-		50,333		-			-			-			50,333

Net loss		-		-		-		-		-		(1,086,436	)		-			-			(1,086,436	)

Balance at June 30, 1995		-		-		18,616,713		2,002,238		672,833		(1,153,387	)		(523,118	)		(508,125	)		490,441

IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)

Statements of Stockhoders' Equity (Continued)

From December 10, 1993 (date of inception) to June 30, 2006
																Deficit
																Accumulated
	Preferred Stock (**)						Common Stock						Additional			During the
	Number of						Number of						Paid-in			Development			Subscriptions			Deferred
	Shares			Amount			Shares			Amount			Capital			Stage			Receivable			Compensation			Total

Balance at June 30, 1995		-			-			18,616,713			2,002,238			672,833			(1,153,387	)		(523,118	)		(508,125	)		490,441

Preferred stock sold, including dividends		4,000			3,600,000			-			-			1,335,474			(1,335,474	)		-			-			3,600,000

Common stock sold		-			-			700,471			1,561,110			-			-			-			-			1,561,110

Cancellation of stock subscription		-			-			(410,500	)		(405,130	)		-			-			405,130			-			-

Common stock issued in exchange for services		-			-			2,503,789			4,257,320			-			-			-			-			4,257,320

Common stock issued with exercise of stock options		-			-			191,500			104,375			-			-			(4,375	)		-			100,000

Common stock issued with exercise of options
for compensation		-			-			996,400			567,164			-			-			-			-			567,164

Conversion of preferred stock to common stock		(1,600	)		(1,440,000	)		420,662			1,974,190			(534,190	)		-			-			-			-

Common stock issued as payment of preferred
stock dividends		-			-			4,754			14,629			-			(14,629	)		-			-			-

Dividends accrued on preferred stock not
yet converted		-			-			-			-			-			(33,216	)		-			-			(33,216	)

Collection of stock subscriptions		-			-			-			-			-			-			103,679			-			103,679

Amortization of deferred compentsation		-			-			-			-			-			-			-			232,500			232,500

Forgiveness of officers' compensation		-			-			-			-			100,667			-			-			-			100,667

Net loss (restated)		-			-			-			-			-			(6,933,310	)		-			-			(6,933,310	)

Balance at June 30, 1996 (restated)		2,400			2,160,000			23,023,789			10,075,896			1,574,784			(9,470,016	)		(18,684	)		(275,625	)		4,046,355
See accompanying notes to the financial statements.

	·	A significant adverse change in legal factors or in the business climate
	·	An adverse action or assessment by a regulator
	·	Unanticipated competition
	·	Loss of key personnel
	·	An expectation that all or a significant portion of a reporting unit will be sold or otherwise disposed of.

Fiscal year
ended June 30,	Intangible asset			Compensation			Total
1998	$	-		$	265,978		$	265,978
1999		-			263,902			263,902
2000		-			1,491,267			1,491,267
2001		(372,410	)		(566,211	)		(938,621	)
2002		(57,892	)		(262,200	)		(320,092	)
2003		-			(178,250	)		(178,250	)

Totals	$	(430,302	)	$	1,014,486		$	584,184

	June 30,					June 30,
	2006			2005		2007			2006
Raw materials consisting of purchased parts, components and supplies	$	845,516		$	577,211	$	848,254		$	845,516
Work-in process including units undergoing final inspection and testing		139,462			105,902		44,058			139,462
Finished goods		1,014,926			1,337,385		878,844			1,014,926

Sub-Total Inventories	$	1,999,904		$	2,020,498	$	1,771,156		$	1,999,904

Less Inventory Reserve		(108,000	)		-		(408,000	)		(108,000	)

Total Inventory - Net	$	1,891,904		$	2,020,498	$	1,363,156		$	1,891,904

	Furniture, fixtures, clinical, computers, laboratory
	equipment and trade show equipment	5-7 years
	Building	40 years
	CTLM® software costs	5 years

Period ended	Amount
6/30/01	$	16,241
6/30/00		51,425
6/30/99		70,514
6/30/98		70,587
Prior		144,165

Total	$	352,932

Year ending June 30,	Amount		Amount

2007	$	4,159
2008		356	$	3,888
2009				3,888
2010				3,888
Thereafter				6,709

Total minimum future lease payments	$	4,515	$	18,373

	Days from closing	0-120	121-180	180
	Redemption price as a % of Principal	105%	107.5%	110%

Common Stock1,2	319,264,685
Warrants	None
Options3,4	23,576,561

IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)

Notes to Financial Statements (Continued)

(16) COVERTIBLE PREFERRED STOCK (Continued)

	Series A						Series B						Series C						Series D						Series E						Series F						Series H						Series I						Series K						Total
	Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount

Balance at June 30, 1995		-		$	-			-		$	-			-		$	-			-		$	-			-		$	-			-		$	-			-		$	-			-		$	-			-		$	-			-		$	-

Sale of Series A		4,000			3,600,000																																																			4,000			3,600,000

Series A conversion		(1,600	)		(1,440,000	)																																																		(1,600	)		(1,440,000	)

Balance at June 30, 1996		2,400			2,160,000																																																			2,400			2,160,000

Sale of Series B								450			4,500,000																																													450			4,500,000

Series A conversion		(2,400	)		(2,160,000	)																																																		(2,400	)		(2,160,000	)

Balance at June 30, 1997		-			-			450			4,500,000																																													450			4,500,000

Sale of preferred stock																																																	��
(Series C - H)														210			2,100,000			54			540,000			54			540,000			75			750,000			108			1,080,000															501			5,010,000

Conversion of preferred stock														(210	)		(2,100,000	)		(25	)		(250,000	)		(30	)		(300,000	)		(75	)		(750,000	)																				(340	)		(3,400,000	)

Balance at June 30, 1998		-			-			450			4,500,000			-			-			29			290,000			24			240,000			-			-			108			1,080,000															611			6,110,000

Sale of Series I																																												138			1,380,000									138			1,380,000

Conversion of preferred stock								(60	)		(600,000	)								(29	)		(290,000	)		(24	)		(240,000	)								(40	)		(400,000	)														(153	)		(1,530,000	)

Balance at June 30, 1999		-			-			390			3,900,000			-			-			-			-			-			-			-			-			68			680,000			138			1,380,000			-			-			596			5,960,000

Conversion of preferred stock, net								(390	)		(3,900,000	)																										(68	)		(680,000	)		(138	)		(1,380,000	)								(596	)		(5,960,000	)

Balance at June 30, 2000		-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-

Sale of Series K																																																		50			5,000,000			50			5,000,000

Conversion of preferred stock																																																		(50	)		(5,000,000	)		(50	)		(5,000,000	)

Balance at June 30, 2001		-		$	-			-		$	-			-		$	-			-		$	-			-		$	-			-		$	-			-		$	-			-		$	-			-		$	-			-		$	-

Additional information:
Discount off market price					25	%					18	%					25	%					25	%					25	%					30	%					25	%					25	%					12.5	%
Fair market value-issue rate				$	8.31					$	3.25					$	1.63					$	0.99					$	1.07					$	1.24					$	0.57					$	0.38					$	1.13
Deemed preferred stock dividend				$	1,335,474					$	998,120					$	705,738					$	182,433					$	182,250					$	318,966					$	351,628					$	492,857					$	708,130

	Incentive Stock Options					Non Statutory Stock Options
	Shares			Wtd. Avg. Price		Shares			Wtd. Avg. Price

Outstanding at June 30, 1994		-0-					-0-
Granted		75,000		$	1.40		1,500,000		$	1.12
Exercised		-					-

Outstanding at June 30, 1995		75,000			1.40		1,500,000			1.12
Granted		770,309			1.66		750,000			1.44
Exercised		(164,956	)		.92		(1,800,000	)		1.50

Outstanding at June 30, 1996		680,353			1.81		450,000			.13
Granted		371,377			3.27		750,000			3.88
Exercised		(395,384	)		1.10		-

Outstanding at June 30, 1997		656,346			3.07		1,200,000			2.47
Granted		220,755			1.95		750,000			2.75
Exercised		-					(65,712	)		.35
Canceled		(175,205	)		4.25		-

Outstanding at June 30, 1998	701,896		2.42	1,884,288		2.66
Granted	786,635		.48	750,000		.43
Exercised	-			(65,612	)	.35
Canceled	(82,500	)	3.37	-

Outstanding at June 30, 1999	1,406,031		.53 **	2,568,676		2.24
Granted	3,139,459		.34	-
Exercised	(770,702	)	.37	(318,676	)	.35
Canceled	(64,334	)	.47	-

Outstanding at June 30, 2000	3,710,454		.42	2,250,000		2.35
Granted	1,915,700		2.59	-
Exercised	(3,030,964	)	.32	(750,000	)	.31
Canceled	(279,982	)	.60	(1,500,000	)	2.75

Outstanding at June 30, 2001	2,315,208		2.38	-
Granted	6,839,864		.68	-
Exercised	-			-
Canceled	(2,695,482	)	1.17	-

Outstanding at June 30, 2002	6,459,590		.85	-
Granted	1,459,705		.38	-
Exercised	-			-
Canceled	(56,788	)	.74	-

Outstanding at June 30, 2003	7,862,507		.76	-
Granted	1,576,620		1.12	31,748		.69
Exercised	(517,769	)	.44	-
Canceled	(97,525	)	.78	-

Outstanding at June 30, 2004	8,823,833		.84	31,748		.69
Granted	-			4,253,159		.34
Exercised	(13,264	)	.26	-
Canceled	(142,891	)	.68	-

Outstanding at June 30, 2005	8,667,678		.98	4,284,907		.34
Granted	-			532,855		.18
Exercised	-			-
Canceled	(254,277	)	.74	(23,100	)	.26

Outstanding at June 30, 2006	8,413,401		.96	4,794,662		.32
Granted	-			3,927,437		.10
Exercised	-			-
Canceled	(4,804	)	.70	(131,684	)	.16

Outstanding at June 30, 2007	8,408,597		.96	8,590,415		.22

	June 30, 2006		June 30, 2005		June 30, 2004		June 30, 2007		June 30, 2006		June 30, 2005
Employee ISO		8,023,860		7,699,103		7,053,586		8,377,119		8,023,860		7,699,103
Director ISO		500,000		500,000		650,000		500,000		500,000		500,000
Employee Non-Statutory		2,261,800		88,486		-		3,748,584		2,261,800		88,486
Director Non-Statutory		1,750,000		950,000		-		2,550,000		1,750,000		950,000

Total		12,535,660		9,237,589		7,703,586		15,175,703		12,535,660		9,237,589

	Outstanding options			Exercisable options
		Weighted
		average
Range of		remaining	Weighted		Weighted
exercise prices	Shares	life (years)	avg. price	Shares	avg. price
$ .13 - 1.25	14,900,513	7.05	$ .52	11,428,110	$ .59
1.26 - 2.49	107,550	4.00	.56	107,550	.56
2.50 - 2.85	1,000,000	4.00	2.85	1,000,000	2.85

$ .19 - 2.85	16,008,063	6.83	$ .67	12,535,660	$ .77

IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)

Notes to Financial Statements (Continued)

(22) Selected Quarterly Financial Data (Unaudited)

Fiscal 2006
	Quarter Ended			Quarter Ended			Quarter Ended			Quarter Ended
	June 30, 2006			March 31, 2006			December 31, 2005			September 30, 2005

Net Sales	$	4,094		$	-		$	-		$	671,750
Gross Profit	$	(34,831	)	$	-		$	-		$	394,486
Operating Loss	$	(1,404,524	)	$	(1,875,653	)	$	(2,021,665	)	$	(1,322,560	)
Net loss applicable to
common shareholders	$	(1,548,544	)	$	(2,074,702	)	$	(2,128,811	)	$	(1,410,665	)

Net Loss per common share	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.01	)
Weighted avg. no. of common shares,
Basic & Diluted		218,846,738			223,718,450			210,243,309			201,835,198

Cash and Cash Equivalents	$	1,467,687		$	930,956		$	132,331		$	348,565
Total Assets	$	6,250,909		$	5,885,950		$	5,386,944		$	5,700,738
Deficit accumulated during
the development stage	$	(91,138,737	)	$	(89,590,193	)	$	(87,515,491	)	$	(85,386,680	)
Stockholders' Equity	$	5,651,916		$	5,229,430		$	4,507,579		$	4,859,022




Fiscal 2005
		Quarter Ended			Quarter Ended			Quarter Ended			Quarter Ended
		June 30, 2005			March 31, 2005			December 31, 2004			September 30, 2004

Net Sales	$	-		$	374,952		$	-		$	-
Gross Profit	$	-		$	208,267		$	-		$	-
Operating Loss	$	(1,832,777	)	$	(1,514,569	)	$	(2,121,387	)	$	(1,661,806	)
Net loss applicable to
common shareholders	$	(1,579,466	)	$	(1,639,175	)	$	(2,256,934	)	$	(1,837,343	)

Net Loss per common share	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.01	)
Weighted avg. no. of common shares,
Basic & Diluted		185,636,553			187,800,485			183,133,979			176,855,811

Cash and Cash Equivalents	$	765,523		$	364,434		$	538,097		$	766,614
Total Assets	$	5,608,004		$	5,528,833		$	5,507,562		$	5,888,629
Deficit accumulated during
the development stage	$	(83,976,015	)	$	(82,396,549	)	$	(80,757,374	)	$	(78,500,439	)
Stockholders' Equity	$	4,772,538		$	4,262,030		$	4,139,497		$	4,493,573

Fiscal 2007
	Quarter Ended			Quarter Ended			Quarter Ended			Quarter Ended
	June 30, 2007			March 31, 2007			December 31, 2006			September 30, 2006

Net Sales	$	16,365		$	25,236		$	3,673		$	19,862
Gross Profit	$	12,115		$	18,710		$	1,763		$	14,678
Operating Loss	$	(1,940,854	)	$	(1,612,451	)	$	(1,902,461	)	$	(1,620,315	)

Net loss applicable to
common shareholders	$	(2,047,351	)	$	(1,556,376	)	$	(1,944,629	)	$	(1,653,966	)

Net Loss per common share	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.01	)
Weighted avg. no. of common shares,
Basic & Diluted		271,667,256			279,782,438			258,612,545			248,208,822

Cash and Cash Equivalents	$	477,812		$	598,923		$	476,252		$	542,322
Total Assets	$	4,365,427		$	4,999,963		$	5,008,679		$	5,242,328
Deficit accumulated during
the development stage	$	(98,341,059	)	$	(96,293,708	)	$	(94,737,332	)	$	(92,792,703	)
Stockholders' Equity	$	3,441,322		$	4,269,812		$	4,157,688		$	4,587,701




Fiscal 2006
	Quarter Ended			Quarter Ended			Quarter Ended			Quarter Ended
	June 30, 2006			March 31, 2006			December 31, 2005			September 30, 2005

Net Sales	$	4,094		$	-		$	-		$	671,750
Gross Profit	$	(34,831	)	$	-		$	-		$	394,486
Operating Loss	$	(1,404,524	)	$	(1,875,653	)	$	(2,021,665	)	$	(1,322,560	)

Net loss applicable to
common shareholders	$	(1,548,544	)	$	(2,074,702	)	$	(2,128,811	)	$	(1,410,665	)

Net Loss per common share	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.01	)
Weighted avg. no. of common shares,
Basic & Diluted		218,846,738			223,718,450			210,243,309			201,835,198

Cash and Cash Equivalents	$	1,467,687		$	930,956		$	132,331		$	348,565
Total Assets	$	6,250,909		$	5,885,950		$	5,386,944		$	5,700,738
Deficit accumulated during
the development stage	$	(91,138,737	)	$	(89,590,193	)	$	(87,515,491	)	$	(85,386,680	)
Stockholders' Equity	$	5,651,916		$	5,229,430		$	4,507,579		$	4,859,022

Balance Sheet	3

Statement of Operations	4

Statement of Cash Flows	5

Notes to Condensed Financial Statements	6

IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Development Stage Company)
Condensed Balance Sheet

Assets

	Dec. 31, 2007			Jun. 30, 2007
Current assets:	Unaudited				*
Cash	$	428,643		$	477,812
Accounts receivable, net of allowances for doubtful accounts
of $29,967 and $40,000, respectively		114,965			119,866
Loans receivable		57,357			63,602
Inventories, net of reserve of $408,000 and $108,000, respectively		1,293,174			1,363,156
Prepaid expenses		19,183			36,784

Total current assets		1,913,322			2,061,220

Property and equipment, net		1,958,755			2,030,795
Intangible assets, net		256,323			273,412

Total assets	$	4,128,400		$	4,365,427

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses	$	611,910		$	585,991
Advance on Sale of Building		2,750,000			-
Customer deposits		106,114			88,114
Short term debt		-			250,000

Total current liabilities		3,468,024			924,105


Stockholders equity:
Common Stock		99,419,479			99,120,731
Additional paid-in capital		2,764,485			2,661,650
Deficit accumulated during development stage		(101,523,588	)		(98,341,059	)

Total stockholders' equity		660,376			3,441,322

Total liabilities and stockholders' equity	$	4,128,400		$	4,365,427


* Condensed from audited financial statements.


The accompanying notes are an integral part of these condensed financial statements.

IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Development Stage Company)
(Unaudited)
Condensed Statement of Operations


	Six Months Ended						Three Months Ended						Since Inception
	December 31,						December 31,						Dec. 10, 2003 to
	2007			2006			2007			2006			Dec. 31, 2007

Net Sales	$	36,952		$	23,535		$	9,409		$	3,673		$	2,070,180
Cost of Sales		18,249			7,094			4,533			1,910			882,864

Gross Profit		18,703			16,441			4,876			1,763			1,187,316

Operating Expenses:
General and administrative		1,473,480			1,586,507			759,930			883,089			51,439,225
Research and development		926,872			1,054,523			458,658			497,800			19,313,904
Sales and marketing		645,493			761,007			393,697			461,020			7,735,211
Inventory valuation adjustments		43,524			49,572			28,750			18,371			4,455,534
Depreciation and amortization		94,819			87,607			47,486			43,944			2,867,892
Amortization of deferred compensation		-			-			-			-			4,064,250

		3,184,188			3,539,216			1,688,521			1,904,224			89,876,016

Operating Loss		(3,165,485	)		(3,522,775	)		(1,683,645	)		(1,902,461	)		(88,688,700	)

Gain/Loss on sale of fixed assets		-			-			-			-			3,146
Interest income		6,704			6,687			3,971			1,081			301,092
Other income		-			70,000			-			70,000			681,463
Interest expense		(23,748	)		(152,507	)		(4,301	)		(113,249	)		(6,972,829	)

Net Loss		(3,182,529	)		(3,598,595	)		(1,683,975	)		(1,944,629	)		(94,675,828	)

Dividends on cumulative Pfd. stock:
From discount at issuance		-			-			-			-			(5,402,713	)
Earned		-			-			-			-			(1,445,047	)

Net loss applicable to
common shareholders	$	(3,182,529	)	$	(3,598,595	)	$	(1,683,975	)	$	(1,944,629	)	$	(101,523,588	)

Net Loss per common share:
Basic and Diluted:
Net loss per common share	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.89	)

Weighted average number
of common shares		317,452,950			253,410,684			318,303,887			258,612,545			114,044,139


The accompanying notes are an intergral part of these condensed financial statements.

This prospectus is part of a registration statement we filed with the SEC. You should rely on the information or representations provided in this prospectus. We have authorized no one to provide you with different information. The selling security holders described in this prospectus are not making an offer in any jurisdiction where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date of this prospectus.		50,000,000 SHARES ~~28,000,000 SHARES~~

		IMAGING DIAGNOSTIC SYSTEMS, INC.
~~TABLE OF CONTENTS~~
TABLE OF CONTENTS		COMMON STOCK

Forward-Looking Statements	3
Prospectus Summary	3
~~Recent Developments~~CTLM® Development History, Regulatory and Clinical Status	54
The Offering	118
Risk Factors	129
Where You Can Find More Information	2422
Incorporation of Certain Documents by Reference	2422
Information With Respect to the Registrant	2423
Financing/Equity Line of Credit	2523
Selling Security Holder	2726	PROSPECTUS
Use of Proceeds	2827
Recent Sales of Unregistered Securities	2827
Plan of Distribution	2827
Description of Securities	3029
Disclosure of Commission Position on
Indemnification for Securities and Liabilities	3130
Experts	3130
Legal Matters	3130
Financial Information	3231
		IMAGING DIAGNOSTIC SYSTEMS, INC. 6531 NW 18TH COURT PLANTATION, FLORIDA 33313 (954) 581-9800




		~~November__~~~~, 2006~~ May__, 2008

SEC registration fees	$ ~~300~~88
Legal fees and expenses	$4,000
Accounting fees and expenses	$2,000
Miscellaneous	$ ~~200~~492

TOTAL	$6,500

~~10.71~~10.75	One-Year Employment and Stock Option Agreement ~~with~~dated as of August 30, 2007 between Imaging Diagnostic Systems, Inc. and Allan L. Schwartz, Executive Vice President and Chief Financial ~~Officer~~Officer. Incorporated by reference to our Form 8-K filed on September 6, 2007.
10.76	One-Year Employment and Stock Option Agreement dated as of August 30, 2007 between Imaging Diagnostic Systems, Inc. and Deborah O’Brien, Senior Vice President. Incorporated by reference to our Form 8-K filed on September ~~12, 2006.~~6, 2007.
10.77	2007 Non-Statutory Stock Option Plan. Incorporated by reference to our Form 10-K filed on September 13, ~~2006.~~2007.

10.83	Stock Option Agreement dated as of August 30, 2007 between Imaging Diagnostic Systems, Inc. and Linda B. Grable, Chairman of the Board and Interim Chief Executive Officer. Incorporated by reference to our Form 8-K filed on May 5, 2008
14.1	Code of Ethics.

Dated: ~~October 23, 2006~~May 7, 2008	By: /s/ Allan L. Schwartz
	Executive Vice-President
	Chief Financial Officer and Director
	(PRINCIPAL ACCOUNTING AND
	FINANCIAL OFFICER)


~~Dated: October 23, 2006~~	~~By:~~ ~~/s/ Jay Bendis~~
	~~Jay Bendis, Co-Chairman of the Board~~
	~~and Director~~


~~Dated: October 23, 2006~~	~~By:~~ ~~/s/ Patrick Gorman~~
	~~Patrick Gorman, Co-Chairman of the Board~~
	~~and Director~~


~~Dated: October 23, 2006~~	~~By:~~ ~~/s/ Sherman Lazrus~~
	~~Sherman Lazrus, Director~~


~~Dated: October 23, 2006~~	~~By:~~ ~~/s/ Edward Rolquin~~
	~~Edward Rolquin, Director~~