AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 2009January 12, 2010
COMMISSION FILE NO.: 333-159641333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_____________________
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
_____________________
IMAGING DIAGNOSTIC SYSTEMS, INC.
(Exact Name of Registrant As Specified In Its Charter)
Florida | 3845 | 22-2671269 |
| (State of Incorporation) | (Primary Standard Industrial | (IRS Employer I.D. Number) |
| Classification Code Number) |
5307 NW 35TH TERRACE
FORT LAUDERDALE, FLORIDA 33309
(954) 581-9800
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
Linda B. Grable, Chief Executive Officer
IMAGING DIAGNOSTIC SYSTEMS, INC.
5307 NW 35TH TERRACE
FORT LAUDERDALE, FLORIDA 33309
(954) 581-9800
(Name, address, including zip code, and telephone number, including area code, of Agent for Service)Service)
Copy to:
Robert B. Macaulay, Esquire
CARLTON FIELDS, P.A.
4000 INTERNATIONAL PLACE
100 S.E. SECOND STREET
MIAMI, FLORIDA 33131
Tel: (305) 530-0050
Fax: (305) 530-0055
Approximate date of commencement of proposed sale to the public: From time to time, at the discretion of the selling shareholder after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non- accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
¨ Large accelerated filer | |
¨ Smaller reporting company |
(Do not check if a smaller reporting company)
Calculation Of Registration Fee
| Title OF Each Class Of Securities To Be Registered | Amount to be registered | Proposed Maximum Offering Price per Share (2) | Proposed Maximum Aggregate Offering Price (2) | Amount of Registration Fee (2)(5) | Amount to be registered | Proposed Maximum Offering Price per Share (2) | Proposed Maximum Aggregate Offering Price (2) | Amount of Registration Fee (2) |
| Common Stock, no par value (1) | 62,000,000 | $0.0067 | $415,400.00 | $23.18 | 120,000,000 | $0.025 | $3,000,000.00 | $213.90 |
| TOTAL | 62,000,000 | $0.0067 | $415,400.00 | $23.18 | 120,000,000 | $0.025 | $3,000,000.00 | $213.90 |
(1) This registration statement covers the shares that become due and payable to the selling security holder as settlement for put notices and the related imputed interest as a result of the discount of 93% of the three lowest bid prices in the ten day window following the date of each put notice. In the event that adjustment provisions of the equity line agreement require us to issue more shares than are being registered in this registration statement, for reasons other than those stated in Rule 416 of the Securities Act, we will file a new registration statement to register those additional shares.
(2) Estimated solely for purposes of calculating the registration fee according to Rule 457(c) of the Securities Act of 1933, as amended, on the basis of the average bid and ask price of our common stock on the NASDAQ Electronic Bulletin Board on June 23, 2009 .January 8, 2010.
(3) In the event that the shares registered in this prospectus are insufficient to meet the delivery requirement at the actual time of the put date settlement, we will file a new registration statement to register the additional shares.
(4) All of the shares of common stock registered in this registration statement will be sold by the selling security holder.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not seeking an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED June__, 2009January__, 2010
PROSPECTUS
IMAGING DIAGNOSTIC SYSTEMS, INC.
This prospectus is part of the registration statement we filed with the Securities and Exchange Commission using a “shelf” registration process. This means:
| · | We may issue up to |
| · | Proceeds from our exercise of the put options would be used for general corporate purposes. |
| · | Our common stock is traded on the OTC Bulletin Board under the symbol "IMDS". |
| · | On |
THE SECURITIES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE FACTORS DESCRIBED UNDER THE HEADING "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is June__, 2009January __, 2010
Table Of Contents
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Information With Respect to the Registrant | |
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10-K Financial Statements | |
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Financial Information | |
Part II | |
| II-1 | |
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| II-8 |
FORWARD-LOOKING STATEMENTS
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains “forward-looking statements” within the meaning of the federal securities laws and use terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “projects”, “potential,” or “continue,” or the negative or other comparable terminology regarding beliefs, plans, expectations, or intentions regarding the future. These forward-looking statements involve substantial risks and uncertainties, and actual results could differ materially from those discussed and anticipated in such statements. These forward-looking statements include, among others, statements relating to our business strategy, which is based upon our interpretation and analysis of trends in the healthcare treatment industry, especially those related to the diagnosis and treatment of breast cancer, and upon management’s ability to successfully develop and commercialize its principal product, the CTLM®. This strategy assumes that the CTLM® will provide benefits, from both a medical and an economic perspective, to alternative techniques for diagnosing and managing breast cancer. Factors that could cause actual results to materially differ include, without limitation, the timely and successful completion of our U.S. Food and Drug Administration (“FDA”) pre-market approval (“PMA”) clinical trials; the timely and successful submission of our PMA application to the FDA; manufacturing risks relating to the CTLM®, including our reliance on a single or limited source or sources of supply for some key components of our products as well as the need to comply with especially high standards for those components and in the manufacture of optical imaging products in general; uncertainties inherent in the development of new products and the enhancement of our existing CTLM® product, including technical and regulatory risks, cost overruns and delays; our ability to accurately predict the demand for our CTLM® product as well as future products and to develop strategies to address our markets successfully; the early stage of market development for medical optical imaging products and our ability to gain market acceptance of our CTLM® product by the medical community; our ability to expand our international distributor network for both the near and longer-term to effectively implement our globalization strategy; our dependence on senior management and key personnel and our ability to attract and retain additional qualified personnel; risks relating to financing utilizing our Private Equity Credit Agreement or other working capital financing arrangements; technical innovations that could render the CTLM® or other products marketed or under development by us obsolete; competition; risks and uncertainties relating to intellectual property, including claims of infringement and patent litigation; risks relating to future acquisitions and strategic investments and alliances; and reimbursement policies for the use of our CTLM® product and any products we may introduce in the future. There are also many known and unknown risks, uncertainties and other factors, including, but not limited to, technological changes and competition from new diagnostic equipment and techniques, changes in general economic conditions, healthcare reform initiatives, legal claims, regulatory changes and risk factors detailed from time to time in our Securities and Exchange Commission filings that may cause these assumptions to prove incorrect and may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, those described above or elsewhere in this Prospectus. All forward-looking statements and risk factors included in this document are made as of the date of this report based on information available to us as of the date of this Prospectus, and we assume no obligation to update any forward-looking statements or risk factors. You are cautioned not to place undue reliance on these forward-looking statements.
PROSPECTUS SUMMARY
This summary highlights information in this document. You should carefully review the more detailed information and financial statements included in this document and other material that may be available. The summary is not complete and may not contain all of the information you may need to consider before investing in our common stock. We urge you to carefully read this document and other material that may be available, including the "Risk Factors" and the financial statements and their accompanying notes.
The Company
Imaging Diagnostic Systems, Inc. (“IDSI”) is a development stage medical technology company. Since its inception in December 1993, we have been engaged in the development and testing of a Computed Tomography Laser Breast Imaging System for detecting breast cancer (CT Laser Mammography or, "CTLM®"). We are currently in the process of commercializing the CTLM® in certain international markets where approvals to market have been secured although CTLM® is not yet approved for sale in the US. CTLM® is a Class III medical device and we are continuing efforts to secure the Food and Drug Administration’s PreMarket Approval based upon clinical studies. CTLM® studies have been declared a Non-Significant risk (NSR) study when used for our intended use.
The CTLM® system is a CT-like scanner, but its energy source is a laser beam and not ionizing x-radiation such as is used in conventional x-ray mammography or CT scanners. The advantages of imaging without ionizing radiation may be significant in our markets. CTLM® is an emerging new imaging modality offering the potential of molecular functional imaging, which can visualize the process of angiogenesis which may be used to distinguish between benign and malignant tissue. X-ray mammography is a well-established method of imaging the breast but has limitations especially in dense breast cases. Ultrasound is often used as an adjunct to mammography to help differentiate tumors from cysts or to localize a biopsy site. The CTLM® is being marketed as an adjunct to mammography not a replacement for it, to provide the radiologist with additional information to manage the clinical case. We believe that the adjunctive use of CT Laser Mammography may help diagnose breast cancer earlier, reduce diagnostic uncertainty especially in mammographically dense breast cases, and may help decrease the number of biopsies performed on benign lesions. The CTLM® technology is unique and patented. We intend to develop our technology into a family of related products. We believe these technologies and clinical benefits constitute substantial markets for our products well into the future.
As of the date of this prospectus, we have had no substantial revenues from our operations and have incurred net losses applicable to common shareholders since inception through March 31,September 30, 2009 of $105,812,791$107,469,613 after discounts and dividends on preferred stock. We anticipate that losses from operations will continue for at least the next 12 months, primarily due to an anticipated increase in marketing and manufacturing expenses associated with the international commercialization of the CTLM®, expenses associated with our FDA Pre-Market Approval (“PMA”) process, and the costs associated with advanced product development activities. We had originally planned on submitting our PMA application to the FDA in December 2008; however, while we anticipate that the remaining PMA process consisting of the reading phase, the statistical tabulation phase and submission of the application to the FDA should be completed in 2009,by April 2010, these milestones cannot be met unless we obtain sufficient financing through the sale of equity or debt securities. There can be no assurance that we will obtain this financing. Since we rely on outside experts in data management, monitoring, biostatistics and FDA matters, there can be no assurance that we will be able to timely submit the application even if we obtain the necessary financing. Further, there can be no assurance that we will obtain the PMA; that the CTLM® will achieve market acceptance or that sufficient revenues will be generated from sales of the CTLM® to allow us to operate profitably.
RISK FACTORS 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 March 31,September 30, 2009, we had an accumulated deficit of $105,812,791$107,469,613 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 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 1314 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 March 31,September 30, 2009 we have spent approximately $73$74 million. Our currently estimated annual expenses are approximately $4 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 SixthSouthridge Private Equity Credit Agreement and additional financings to develop and market this product family, including funds for:
· research, engineering and development programs, |
| · | pre-clinical and clinical testing of 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 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/Debentures.”
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. On July 15, 2008, we entered into a Financial Services Consulting Agreement with R.H. Barsom Company, Inc. (“Barsom”) of New York, NY, an unaffiliated third-party, to provide us with investor relations services and guidance and assistance in available alternatives to maximize shareholder value. The aggregate fair market value of the 5,000,000 restricted shares when issued to Barsom pursuant to the Agreement was $55,000. (See Item 5 Market for Registrant's Common Equity and Related Stockholder Matters - Private Placement of Common Stock - Issuance of Stock for Services).
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 164,601,526206,827,591 shares of common stock which were converted from privately placed preferred stock and debentures. This number of shares of common stock represents approximately 27%28% of the currently outstanding number of shares of common stock.
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 |
| · | 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. |
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.
Since January 2001 we have raised $42,417,431$42,714,650 and issued 363,676,012 425,676,012 common shares through a series of six Private Equity Credit Agreements with Charlton Avenue LLC (“Charlton”).
On April 21, 2008November 23, 2009 we executed a new Sixth Private Equity Credit Agreement with Charlton, which replaced our Fifth Private Equity Credit Agreement that expired on March 21, 2008.Southridge. Pursuant to our SixthSouthridge Private Equity Credit Agreement, when we deem it necessary, we may raise capital through the private sale of our common stock to CharltonSouthridge at a price equal to 93% of the market price, based on the formula set forth in our agreement with Charlton.Southridge. We may need capital in excess of the amounts available under the SixthSouthridge 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 SixthSouthridge 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/Debentures.”
We increased our authorized shares of common stock to 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 611,378,787800,205,828 shares of common stock out of 950,000,000 authorized shares. In addition, we have reserved 46,428,000 shares to cover potential issuances pursuant to Secured Senior Convertible Debentures (the "Debentures") issued to Whalehaven Capital Fund Limited ("Whalehaven"), and Alpha Capital Anstalt (“Alpha”), 17,888,888 shares to cover outstanding warrants issued in connection with the Debentures, and 30,132,14929,482,044 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 SixthSouthridge Private Equity Credit Agreement with CharltonSouthridge and to fulfill our obligation to register shares underlying the Debentures and related interestwarrants and to have the ability to engage in strategic initiatives, such issuances may cause the value of our common stock to decline and dilute the holdings of our shareholders.
Our currently authorized common stock may not be sufficient to satisfy our financing needs.
In December 2008, our shareholders approved an increase of our authorized common stock to 950,000,000 shares. With this increase we believed that we would have sufficient shares available to raise the funds needed to complete the PMA process and reach a point where we could generate internal revenues from operations. Due to delays in the completion of our clinical trials and preparation of our PMA application (due in large part to our lack of financing) as well as the depressed level of our stock price, we may not have authorized shares sufficient to satisfy our near-term financing needs. We have 611,378,787800,205,828 shares outstanding, and after reservation of 62,000,000120,000,000 shares to be issued pursuant to this registration statement for our Equity Credit Line with Charlton, 46,428,000Southridge, and 29,482,044 shares to cover outstanding convertible debentures, options, and warrants, we would have available only 244,172,176312,128 authorized shares. Given our substantial financing needs, low stock price and the likelihood that any new debt financing or the private placement sale of convertible preferred shares would involve convertibility into common stock, we may needplan to seek shareholder approval to amend our Articles of Incorporation to increase our authorized common stock later in 2009 or inat our Annual Meeting tentatively planned for April 2010. Such an increase would cause substantial additional dilution to our shareholders, and further downward pressure on our stock price, and there can be no assurance that our shareholders would approve any such increase if it were proposed.
The SixthSouthridge Private Equity Credit Line may not be available when we need it, thus limiting our ability to bring our CTLM® to market.
The SixthSouthridge 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. Further, CharltonSouthridge is an offshore investment companya limited partnership registered in the state of Delaware 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 SixthSouthridge 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. InPrior to the last six years,effective date of the Southridge Private Equity Credit Line, we have been almost exclusively dependent on Charlton for working capital.capital over the last nine years. Since April 1999, we have issued to Charlton a total of 407,304,895469,676,012 shares of common stock through conversion of $13,410,000 face amount of our preferred stock and debentures purchased by Charlton and through $42,417,431$42,714,650 in purchases under all of our private equity lines. See “Financing/Equity Line of Credit/Debentures.”
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. We have also induced lenders holding warrants to exercise those warrants by reducing the exercise price 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.
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. As of the date of this Prospectus, we have $219,000 ofno Debentures outstanding and no convertible preferred stock outstanding. In the event that we issue convertible preferred stock or additional 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 exceeds the warrant exercise price, exercise of the warrants may pose a risk to investors because these issuances may drive down the market price of our common stock. Most of our warrants outstanding at January 7, 2009, have an exercise price below 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.
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.
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.
Several states and the United States government are investigating a variety of alternatives to reform the health care delivery system. As of the date of this prospectus, the United States Congress is considering legislation containing sweeping health care reforms. 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 their use of 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 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, Hungary, Malaysia and the United Arab Emirates. Over 14,000 breast exams have been completed on CTLM® systems. 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
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.
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, 2008,2009, the bid price ranged from a low of $0.0053 in the fourth quarter$0.004 to a high of $0.055$0.029 in the second quarter, and in our last fiscal year which ended June 30, 2008,2009, the bid price ranged from a low of $0.02$0.005 in the fourth quarter to a high of $0.088$0.055 in the first 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. |
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 June 23, 2009January 8, 2010 of $0.0065$0.025 per share, hypothetically 2,209,137,833643,776,824 shares would be required to be issued to draw the entire $13,254,827$15 million available under the SixthSouthridge Private Equity Credit Agreement; however, our ability to use the equity credit line at any particular time will be limited by the number of shares currently authorized and based on our stock price at the time, unless our shareholders approve an increase in our authorized shares.
As of June 23, 2009 ,January 8, 2010, we would be required to issue hypothetically 2.3 billion673 million authorized shares apportioned as follows:
| · |
| · |
We now have issued and outstanding 611,378,787800,205,828 shares of common stock out of 950,000,000 authorized shares. In addition, we have reserved 30,132,14929,482,044 shares to cover outstanding options.
There is potential exposure to us in that certain shares of common stock have been issued by us pursuant to conversion of our convertible debentures and exercise of related warrants, which were resold by the debenture holders relying on the effectiveness of the relevant registration statement.
From November 12, 2008 through December 5, 2008, the debentureDebenture holders Whalehaven Capital Fund Ltd. (“Whalehaven”) and Alpha Capital Anstalt (“Alpha”) converted $175,000 principal amount of the first $400,000 debenture, sold on August 1, 2008, for which the relevant registration statement became effective on November 12, 2008. On November 20, 2008, in connection with the sale of the second $400,000 debenture, the text of the first debenture was amended to add conforming language implementing the $.013 floor price for conversion of the debentures as agreed to by the parties on October 23, 2008. On December 10, 2008, we entered into an Amendment Agreement with Whalehaven and Alpha (the “Purchasers”) specifically relating to the warrants which accompanied the initial debenture (the “Warrants”). Under this Amendment Agreement, we agreed to reduce the exercise price of the Warrants to $.015 per share in exchange for the Purchasers' agreement to immediately exercise the Warrants as to 7,000,000 shares (5,000,000 covered by the Whalehaven Warrant and 2,000,000 covered by the Alpha Warrant). On December 12, 2008, we filed a prospectus supplement reflecting this repricing of the warrants.
As of December 31, 2008, we entered into a second Amendment Agreement with Whalehaven and Alpha specifically relating to the Warrants. On January 5, 2009, we filed a prospectus supplement. Under the second Amendment Agreement, we agreed to reduce the exercise price of the Warrants to $.005 per share in exchange for the Purchasers' agreement to immediately exercise the Warrants as to 14,755,555 shares (11,200,000 by Whalehaven and 3,555,555 by Alpha). We further agreed to issue new Warrants to purchase at $.005 per share up to a number of shares of Common Stock equal to the number of shares underlying the existing Warrants being exercised by Whalehaven and Alpha under the second amendment agreement. On January 7, 2009, we filed a prospectus supplement reflecting this repricing of the Warrants.
The repricing of the Warrants and amendment of the initial debentures after the effectiveness of the subject registration statement, together with the sale of shares underlying the debentures and warrants after the effectiveness, may have resulted in the unlawful sale of unregistered securities, based on the SEC’s interpretive guidance which permits the registration for resale of securities issued pursuant to a private placement provided that the terms of the private placement are not changed following effectiveness of the registration statement. The repricing of the Warrants may have been inconsistent with this guidance. Consequently, third parties who purchased the subject shares after November 12, 2008 could sue us and/or Whalehaven or Alpha for rescission. The measure of damages would be the purchase price paid plus interest. We are unable to assess the amount of damages in the event that there is any liability. As of the date of this prospectus, neither we nor Whalehaven nor Alpha has been contacted by any third parties seeking rescission. See Sale of Unregistered Securities -"Debenture Private Placement".
We currently are controlled by our executive officers and directors; however, a change-in-control may occur.
Our management beneficially owns 35,652,79436,402,794 shares of our common stock or 5.83%4.55% (assuming exercise of their currently exercisable options) of our common stock. Although management owns a minority of the outstanding common stock, since we do not have cumulative voting, and since, in all likelihood the officers and directors will be voting as a block and will be able to obtain proxies of other shareholders, management may remain in a position to elect all of our directors and control our policies and 2,209,137,833issue up to 643,776,824 shares to draw the balance of $13,254,827
$15 million available under the SixthSouthridge Private Equity Credit Agreement. The amounts of shares issuable under the SixthSouthridge 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 SixthSouthridge Private Equity Credit Agreement and subsequent financings could cause a change in control.
We have not paid and do not currently intend to pay dividends, which may limit the current return you may receive on your investment in our common stock.
Since inception, we have not paid a dividend on our common stock and do not intend to pay dividends on our common stock in the foreseeable future.
Risks associated with our technology
We depend on third-party licensing agreements for patents and software without which our operations may be curtailed.
We hold the rights, through an exclusive patent licensing agreement, for the use of the patent for the CTLM® technology. In addition, we own 20 patents and have 4 additional United States patents pending with regard to optical tomography. We also have patent rights through a non-exclusive licensing agreement from a third-party as well as three non-exclusive licensing agreements for software from third-parties. If any of these agreements were terminated, our operations may be curtailed until alternative solutions were found.
Our business would lose its primary competitive advantage if we are unable to protect our proprietary technology, or if substantially the same technology is developed by others.
We rely primarily on a combination of trade secrets, patents, copyright and trademark laws, and confidentiality procedures to protect our technology. Our ability to compete effectively in the medical imaging products industry will depend on our success in protecting our proprietary technology, both in the United States and abroad. There can be no assurances that any patent that we apply for will be issued, or that any patents issued will not be challenged, invalidated, or circumvented, that we will have the financial resources to enforce them, or that the rights granted will provide any competitive advantage. We hold 16 foreign patents; however, we have applied for 6 patents in various foreign countries. We could incur substantial costs in defending any patent infringement suits or in asserting any patent rights, including those granted by third parties, the expenditure of which we might not be able to afford. Although we have entered into confidentiality and invention agreements with our employees and consultants, there can be no assurance that these agreements will be honored or that we will be able to protect our rights to our non-patented trade secrets and know-how effectively. There can be no assurance that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how. In addition, we may be required to obtain licenses to patents or other proprietary rights from third parties. If we do not obtain required licenses, we could encounter delays in product development or find that the development, manufacture, or sale of products requiring these licenses could be foreclosed.
Additionally, we may, from time to time, support and collaborate in research conducted by universities and governmental research organizations. There can be no assurance that we will have or be able to acquire exclusive rights to the inventions or technical information derived from such collaborations or that disputes will not arise with respect to rights in derivative or related research programs that we conducted in conjunction with these organizations.
It may be necessary to enter into unfavorable agreements or defend lawsuits which would be costly if we infringe upon the intellectual property rights of others.
There has been substantial litigation regarding patent and other intellectual property rights in the medical device and related industries. We have been, and may be in the future, notified that we may be infringing on intellectual property rights possessed by other third parties. If any claims are asserted against our intellectual property rights, we may seek to enter into royalty or licensing arrangements. There is a risk in situations that no license will be available or that a license will not be available on reasonable terms. Alternatively, we may decide to litigate these claims or design around the patented technology. These actions could be costly and would divert the efforts and
attention of our management and technical personnel. Consequently, any infringement claims by third parties or other claims for indemnification by customers resulting from infringement claims, whether or not proven to be true, may be costly to defend and may further limit the use of our technology.
We may not be able to keep up with the rapid technological change in the medical imaging industry which could make the CTLM® obsolete.
Methods for the detection of cancer are subject to rapid technological innovation and there can be no assurance that technical changes will not render our proposed products obsolete. Although we believe that the CTLM® can be upgraded to maintain its state-of-the-art character, the development of new technologies or refinements of existing ones might make our existing system technologically or economically obsolete, or cause a reduction in the value of, or reduce the need for, our CTLM®. There can be no assurance that the development and commercial availability of new types of diagnostic medical equipment or technology will not have a material adverse effect on our business, financial condition, and results of operations. Although we are aware of no substantial technological changes pending, should a change occur, there can be no assurance that we will be able to acquire the new or improved technology which may be required to update the CTLM®.
Risks associated with our business
We must comply with extensive governmental regulations and have no assurance of regulatory approvals or clearances which could cause us to cut back or cease operations.
A delay or inability to obtain any necessary United States, state or foreign regulatory clearances or approvals for our products would prevent us from selling the CTLM® system in the U.S. and other countries.
In the United States, the CTLM® is regulated as a medical device and is subject to the FDA's pre-market clearance or approval requirements. To obtain FDA approval of an application for pre-market approval of a diagnostic tool such as the CTLM®, the pre-market approval application must demonstrate based on statistically significant results from extensive clinical studies, that the subject device is safe and has clinical utility, meaning that as a diagnostic tool it provides information that measurably contributes to a diagnosis or management of a disease or condition. We rely on outside FDA consultants to assist us in obtaining the PMA from the FDA.
In addition, sales of medical devices outside the United States may be subject to international regulatory requirements that vary from country to country. The time required to gain approval for international sales may be longer or shorter than required for FDA approval and the requirements may differ.
Regulatory approvals, if granted, may include significant limitations on the indicated uses for which the CTLM® may be marketed. In addition, to obtain these approvals, the FDA and certain foreign regulatory authorities may impose numerous other requirements which medical device manufacturers must comply with. Product approvals could be withdrawn for failure to comply with regulatory standards or the occurrence of unforeseen problems following initial marketing.
The third-party manufacturers upon which we will depend to manufacture our products are required to adhere to applicable FDA regulations regarding quality systems regulations commonly referred to as QSRs, which include testing, control and documentation requirements. Failure to comply with applicable regulatory requirements, including marketing and promoting products for unapproved use, could result in warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal of the government to grant pre-market clearance or approval for devices, withdrawal of approvals and criminal prosecution. Changes in existing regulations or adoption of new government regulations or polices could prevent or delay regulatory approval of our products. Material changes to medical devices also are subject to FDA review and clearance or approval.
There can be no assurance that we will be able to obtain or maintain the following:
| · | FDA approval of a pre-market approval application for the CTLM®, |
| · | foreign marketing clearances for the CTLM® or regulatory approvals or clearances for other products that we may develop, on a timely basis, or at all, |
| · | timely receipt of approvals or clearances, |
| · | continued approval or clearance of previously obtained approvals and clearances, and |
| · | compliance with existing or future regulatory requirements. |
If we do not obtain or maintain any of the above-mentioned standards, there may be material adverse effects on our business, financial condition and results of operations.
We may not be able to develop 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 depend on market acceptance to sell our products, which have not been proven, and a lack of acceptance of the CTLM® could cause our business to fail.
There can be no assurance that physicians or the medical community in general will accept and utilize the CTLM® or any other products that we develop. The extent and rate the CTLM® achieves market acceptance and penetration will depend on many variables, including, but not limited to the establishment and demonstration in the medical community of the clinical safety, efficacy and cost-effectiveness of the CTLM® and the advantages of the CTLM® over existing technology and cancer detection methods.
There can be no assurance that the medical community and third-party payers will accept our unique technology. Similar risks will confront any other products we develop in the future. Failure of our products to gain market acceptance would hinder our sales efforts resulting in a loss of revenues and potential profit and, ultimately, could cause our business to fail. It would further prevent us from developing new products.
We depend upon suppliers with whom we have no contracts, which suppliers could cause production disruption if they terminated or changed their relationships with us.
We believe that there are a number of suppliers for most of the components and subassemblies required for the CTLM®; however, components for our laser system are provided by one supplier. Although these components are provided by a limited number of other suppliers, we believe our laser supplier and their products are the most reliable. We have no agreement with our laser supplier and purchase the laser components on an as-needed basis.
For certain services and components, we currently rely on single suppliers. If we encounter delays or difficulties with our third-party suppliers in producing, packaging, or distributing components of the CTLM® device, market introduction and subsequent sales would be adversely affected.
We have limited experience in sales, marketing and distribution, which could negatively impact our ability to enter into collaborative arrangements or other third party relationships which are important to the successful development and commercialization of our products and potential profitability.
We have limited internal marketing and sales resources and personnel. There can be no assurance that we will be able to establish sales and distribution capabilities or that we will be successful in gaining market acceptance for any products we may develop. There can be no assurance that we will be able to recruit and retain skilled sales, marketing, service or support personnel, that agreements with distributors will be available on terms commercially reasonable to us, or at all, or that our marketing and sales efforts will be successful.
There can be no assurance that we will be able to further develop our distribution network on acceptable terms, if at all, or that any of our proposed marketing schedules or plans can or will be met.
We depend on qualified personnel to run and develop our specialized business who we may be unable to retain or hire.
Due to the specialized scientific nature of our business, we are highly dependent upon our ability to attract and retain qualified scientific, technical and managerial personnel. We have entered into employment agreements with some of our executive officers. The loss of the services of existing personnel, as well as the failure to recruit key scientific, technical and managerial personnel in a timely manner would be detrimental to our research and development programs and could have an adverse impact upon our business affairs and finances. Our anticipated growth and expansion into areas and activities requiring additional expertise, such as marketing, will require the addition of new management personnel. Competition for qualified personnel is intense and there can be no assurance that we will be able to continue to attract and retain qualified personnel necessary for the development of our business.
We have a limited manufacturing history that could cause delays in the production and shipment of our product.
We will have to expand our CTLM® manufacturing and assembly capabilities and contract for the manufacture of the CTLM® components in volumes that will be necessary for us to achieve significant commercial sales in the event we begin foreign sales and/or obtain regulatory approval to market our products in the United States. We have limited experience in the manufacture of medical products for clinical trials or commercial purposes. Should we continue to manufacture our products at our facility, our manufacturing facilities would continue to be subject to the full range of the FDA's current quality system regulations. In addition, there can be no assurance that our manufacturing efforts will be successful or cost-effective.
We depend on third parties who may not be in compliance with the FDA's quality system regulations which may delay the approval or decrease the sales of the CTLM®.
We have used and do use third parties to manufacture and deliver the components of the CTLM® and intend to continue to use third parties to manufacture and deliver these components and other products we may develop. There can be no assurance that the third-party manufacturers we depend on for the manufacturing of CTLM® components will be in compliance with the quality system regulations (QSR) at the time of the pre-approval inspection or will maintain compliance afterwards. This failure could significantly delay FDA approval of the pre-market approval application for the CTLM® device.
We will rely on international sales and may be subject to risks associated with international commerce.
We have commenced international sales efforts for the CTLM® in Europe, China, South America, and the Middle East. Our marketing plans for the Middle East are subject to the following: that (i) Iran and certain other Middle Eastern countries are subject to economic sanctions, (ii) IDSI is not marketing and will not market the CTLM® in countries that are subject to economic sanctions, and (iii) IDSI has and will have no agreements, commercial arrangements, or other contacts with the government or entities controlled by the government in any such country for so long as the sanctions remain in place. 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 carried product liability insurance in the amount of $3,000,000 during the U.S. Clinical trials. While we plan to obtain insurance against product liability and defense costs in the future, 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.
USE OF 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. We will receive proceeds from any sales of common stock under the SixthSouthridge Private Equity Credit Agreement to Charlton.Agreement. We intend to use the net proceeds received under the SixthSouthridge 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 $.0065$0.025 market price of our common stock on June 23, 2009,January 8, 2010, we estimate that we will require the shelf registration of 62120 million shares of our common stock in order to receive net proceeds of approximately $403,000$3 million from sales to CharltonSouthridge of the shares covered by this prospectus. We expect to use these net proceeds over the next threenine months in the following approximate amounts: $191,500$1,755,000 for general and administrative expenses, $187,000$700,000 for clinical and regulatory expenses; $4,500$285,000 to repay short-term indebtedness; $100,000 for research and development expenses and $20,000$160,000 for sales and marketing 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 prior private equity agreements with Charlton to provide working capital, primarily for general and administrative, engineering, research and development, clinical and regulatory expenses.
Securities Offered by Selling Security Holders
| Common Stock |
Equity Securities Outstanding(1)
Common Stock(1),(2),(3) | |
Options | |
| (1) | The total number of equity shares outstanding as of |
| (2) | The total number of shares of common stock does not include |
| (3) | Includes 50,136,364 shares issued as collateral for short-term financing. See “Sale of Unregistered Securities—Issuance of Common Stock in Connection with Short-Term Loans.” |
| (4) | The options were issued in connection with our stock option plans and/or in connection with some of our employment agreements and the sale of our commercial property in Plantation, Florida. The exercise prices of the options range from $.01 to $2.77 per share. |
The selling security holder, Charlton Avenue LLC,Southridge Partners II, LP (“Southridge”), is the potential purchaser of stock under the SixthSouthridge Private Equity Credit Agreement. The shares offered in this prospectus are based on the SixthSouthridge Private Equity Credit 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 |
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.
Neither CharltonSouthridge 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 407,304,895469,676,012 shares of common stock through conversion of $13,410,000 of our preferred stock and debentures that it purchased and through $42,417,431$42,714,650 in purchases under the Private Equity Agreements. Southridge’s affiliate Southridge Capital Management, LLC acted as a financial advisor to Charlton throughout the term of the six private equity agreements. See “Financing/Equity Line of Credit/Debentures.Credit.”
The following table identifies the selling security holder based upon information provided to us by CharltonSouthridge as of June 23, 2009 ,January 8, 2010, 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- | 62,000,000 | -0- | ||||||
Southridge Partners II, LP* 90 Grove Street Ridgefield CT 06877 | Investor | -0- | 120,000,000 | -0- | ||||||
* Navigator Management, Ltd.Stephen Hicks is the directorManager of General Partner and has sole voting and investment control over Charlton Avenue LLC. Arlene DeCastro and Gayle Lettsome are Directors of Navigator and control Navigator’s voting and investment decisions on behalf of Charlton.Southridge Partners II, LP.
PLAN OF DISTRIBUTION
The selling security holder may, from time to time, sell any or all of its shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling security holder may use any one or more of the following methods when selling shares:
| · | Ordinary brokerage transactions and transactions in which the broker-dealer solicits investors; |
| · | Block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
| · | Purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| · | An exchange distribution in accordance with the rules of the applicable exchange; |
| · | Privately negotiated transactions; |
| · | Broker-dealers may agree with the selling security holder to sell a specified number of such shares at a stipulated price per share; |
| · | A combination of any such methods of sale; and |
| · | Any other method permitted pursuant to applicable law. |
Broker-dealers engaged by the selling security holder may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling security holder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling security holder does not expect these commissions and discounts to exceed what is customary in the types of transactions involved.
The selling security holder may from time to time pledge or grant a security interest in some or all of the shares owned by it and, if it defaults in the performance of its secured obligations, the pledgees or secured parties may offer and sell shares of common stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling security holders to include the pledgee, transferee or other successors in interest as selling security holders under this prospectus. Upon our being notified in writing by a selling security holder that any material arrangement has been entered into with a broker-dealer for the sale of common stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker-dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such selling security holder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such shares of common stock were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction. In addition, upon our being notified in writing by a selling security holder that a donee or pledgee intends to sell more than 500 shares of common stock, a supplement to this prospectus will be filed if then required in accordance with applicable securities law.
The selling security holder also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
The selling security holder and any broker-dealers or agents that are involved in selling the shares will be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them will be deemed to be underwriting commissions or discounts under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of shares will be paid by the
selling security holder and/or the purchasers. The selling security holder has represented and warranted to us that it acquired the securities subject to this registration statement in the ordinary course of such selling security holder's business and, at the time of its purchase of such securities such selling security holder had no agreements or understandings, directly or indirectly, with any person to distribute any such securities.
We have advised the selling security holder that it may not use shares registered on this registration statement to cover short sales of common stock made prior to the date on which this registration statement shall have been declared effective by the Commission. If the selling security holder uses this prospectus for any sale of the common stock, it will be subject to the prospectus delivery requirements of the Securities Act. The selling security holder will be responsible to comply with the applicable provisions of the Securities Act and Exchange Act, and the rules and regulations thereunder promulgated, including, without limitation, Regulation M, as applicable to the selling security holder in connection with the resales of its shares under this registration statement.
We are required to pay all fees and expenses incident to the registration of the shares, but we will not receive any proceeds from the sale of the common stock. We have agreed to indemnify the selling security holder against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 952,000,000 shares of capital stock of which 950,000,000 shares are common stock, no par value, and 2,000,000 shares are preferred stock, no par value. As of June 23, 2009 ,January 8, 2010, there were issued and outstanding 611,378,787 shares of common stock, warrants to purchase 17,888,888800,205,828 shares of common stock and options to purchase 30,132,14929,482,044 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.
Our audited financial statements have been examined by Sherb & Co., LLP, Boca Raton, FL, independent registered public accounting firm, for the periods and to the extent set forth in their report and are used in reliance upon their authority as experts in accounting and auditing.
The validity of the common stock offered in this prospectus will be passed upon for the Company by Carlton Fields, P.A., Miami, Florida.
INFORMATION WITH RESPECT TO THE REGISTRANT
DESCRIPTION OF BUSINESS
Imaging Diagnostic Systems, Inc. is a development stage medical technology company. Since its inception in December 1993, we have been engaged in the development and testing of a Computed Tomography Laser Breast Imaging System for detecting breast cancer (CT Laser Mammography or, "CTLM®"). We are currently in the process of commercializing the CTLM® in certain international markets where approvals to market have been secured although CTLM® is not yet approved for sale in the US. CTLM® is a Class III medical device and we are continuing efforts to secure the Food and Drug Administration’s PreMarket Approval based upon clinical studies. CTLM® studies have been declared a Non-Significant risk (NSR) study when used for our intended use.
The CTLM® laser breast imaging system is being marketed as an adjunct to mammography and will not compete directly with X-ray mammography. CTLM® is, however, an emerging new modality offering the potential of molecular functional imaging, which can visualize the process of angiogenesis which may be used to distinguish between benign and malignant tissue.
We believe that the adjunctive use of CT laser breast imaging will improve early diagnosis, reduce diagnostic uncertainty, decrease the number of biopsies performed on benign lesions, and improve breast cancer case management, especially in dense breasts.
A CTLM® breast exam is non-invasive and can be performed by a medical technician. A patient lies face down on a scanning table with one breast hanging naturally into a specially designed scanning chamber. The scanner images the breast in contiguous slices from chest wall to nipple in minutes. One breast is scanned at a time. The CTLM® is a sophisticated electro-mechanical scanner under microprocessor and computer control. Results are available immediately in digital format for comparison to mammography results, consultation, transmission to multi-modality reading stations, or archiving.
Images and study results present as multiple-slice data sets which can be viewed slice-by-slice or as a 3D volume with image manipulation tools. Images are usually viewed in gray and green color shades, since color displays are common with other molecular imaging modalities such as nuclear medicine, PET, fMRI, and in radiation therapy imaging.
Breast Cancer
The AmericanNational Cancer Society (ACS)Institute (NCI) estimated that approximately 182,460192,370 new cases of invasive breast cancer and 67,77062,280 cases of carcinoma in situ (CIS) non-invasive (localized) breast cancer will be diagnosed in the United States during 2008.2009. Breast cancer ranks as the second leading cause of cancer-related death among women, causing an estimated 40,48040,170 deaths in 2008.2009. Based on rates from 2004-2006, 1 in 8 women will be diagnosed with breast cancer during their lifetime.
There is widespread agreement that screening for breast cancer, when combined with appropriate follow-up, will reduce mortality from the disease. According to the National Cancer Institute (NCI), the five-year survival rate decreases from 96% to 78% after the cancer has spread to the lymph nodes, and to 18% after it has spread to other organs such as the lung, liver or brain. A major problem with current detection methods is that studies have shown that mammography does not detect 15%-20% of breast cancers detected by physical exam alone.
Breast cancer screening is generally recommended as a routine part of preventive healthcare for women over the age of 20 (approximately 90 million in the United States). For these women, the American Cancer Society (ACS) has published guidelines for breast cancer screening including: (i) monthly breast self-examinations for all women over the age of 20; (ii) a clinical breast exam (CBE) every three years for women in their 20s and 30s; (iii) a baseline mammogram for women by the age of 40; and (iv) an annual mammogram for women age 40 or older.
Each year, approximately eight million women in the United States require diagnostic testing for breast cancer due to a physical symptom, such as a palpable lesion, pain or nipple discharge, discovered through self or physical examination (approximately seven million) or a non-palpable lesion detected by screening x-ray mammography (approximately one million). Once a physician has identified a suspicious lesion in a woman’s breast, the physician may recommend further diagnostic procedures, including a diagnostic x-ray mammography, an ultrasound study, a magnetic resonance imaging procedure, or a minimally invasive procedure such as fine needle aspiration or large
core needle biopsy. In each case, the potential benefits of additional diagnostic testing must be balanced against the costs, risks and discomfort to the patient associated with undergoing the additional procedures.
Due in part to the limitations in the ability of the currently available modalities to identify malignant lesions, a large number of patients with suspicious lesions proceed to surgical biopsy, an invasive and expensive procedure. Approximately 1.3 million surgical biopsies are performed each year in the United States, of which approximately 70-80% result in the surgical removal of benign breast tissue. The average cost of a surgical biopsy ranges from approximately $1,000 to $5,000 per procedure. Thus, biopsies of benign breast tissue may cost the U.S. health care system approximately $2.45 billion annually. In addition, biopsies result in pain, scarring, and anxiety to patients. Patients who are referred to biopsy usually are required to schedule the procedure in advance and generally must wait up to 48 hours for their biopsy results.
Screening and Diagnostic Modalities
Mammography
Mammography is an x-ray imaging modality commonly used for both routine breast cancer screening and as a diagnostic tool. A mammogram produces either films or electronic images of the internal structure of the breast and surrounding tissues. In a screening mammogram, radiologists seek to detect suspicious lesions, while a diagnostic mammogram seeks to characterize suspicious lesions.
In the U.S., a certified technologist performs the x-ray procedure under the Congressional Mammography Quality Standards Act (MQSA). MQSA was enacted to improve x-ray breast cancer detection studies by regulating machine
specifications, quality control procedures, technologist training and certification, and other variables. Still, mammography is viewed as an ‘imperfect’ breast cancer detection tool and is often supplemented with follow-up studies including more x-rays at later dates, closer physical examination of the patient, adjunctive ultrasound exams, and, when available, breast MRI or scintimammography, and biopsy.
Because x-ray mammography exposes the patient to radiation, the American Cancer Society recommends that mammograms be limited to once per year. X-ray mammography is documented to be less effective for women with dense breasts. X-ray mammography machines use mechanical means to squeeze or compress the breast and flatten the volume so that x-rays may penetrate more uniform tissue. These techniques are technically necessary but are often painful and uncomfortable to patients. Most mammography exams include 2 views of each breast which equates to 4 compressions per session.
According to the CDC, 62.8%66.6% of women over age 40 received a mammogram in 2004.2006. Estimates are that in 2004 there were more than 49 million screening mammograms alone in the U.S. and 117 million world wide (TriMark, Jan. 2005 estimates).
The Medicare billing of a diagnostic mammogram is approximately $120 to $160 per procedure and requires the use of x-ray equipment ranging in cost from $75,000 to $225,000 and perhaps ultrasound equipment ranging from $60,000 to $200,000.
Digital Mammography
Digital mammography, also referred to as “full-field digital” mammography, is the latest form of breast x-ray examination. These systems eliminate the use of x-ray film and record images directly on electronic panels. The digital images can then be manipulated and examined on an electronic viewing station. However, the limitations of conventional mammography still exist in digital mammography. Digital mammography units sell for $300,000 to $430,000 and Medicare billing for the procedures ranges from $170 to $200.
Magnetic Resonance Imaging
Magnetic resonance imaging (“MRI”) produces images using a magnetic field and radiofrequency (RF) gradients under computer control to produce proton density images. MRI has proven effective in imaging breasts with prosthetic implants, detecting recurrent cancer, evaluating the response to chemotherapy and serving as an additional imaging option when mammography or ultrasound fails to provide sufficient imaging information.
MRI offers the advantage over x-ray that not only visualizes fine-details in breast tissue but also detects blood flow and angiogenesis associated with malignancies. The disadvantages are that MRI systems are not widely available in the global market and the costs of using conventional MRI scanners for breast exams are sometimes prohibitive. Dedicated breast MRI systems sell for approximately $1,200,000 and Medicare billing is approximately $1,500.
Ultrasound
Ultrasound imaging is routinely used in breast imaging practices. Ultrasound systems can image breast tissue by ‘sonar’ techniques. Sound transducers are placed directly on breast tissue coupled with an acoustic gel substance. Trained sonographers locate suspicious areas by moving the transducer over the area of interest. In some countries physicians perform the study and interpret the results.
Ultrasound images are localized to areas of suspicion usually detected by a previous mammogram. If mammographic results suggest the presence of a lesion, ultrasound may help differentiate a solid from a cystic mass and locate a biopsy site. The Medicare billing rate is approximately $240 per procedure and requires the use of capital equipment ranging in cost from approximately $60,000 to $200,000.
Fluorescence Imaging
Fluorescence and molecular imaging techniques are of growing importance to the drug development industry and for disease detection. Certain molecules exhibit the phenomenon of emitting light after being illuminated by light of an appropriate wavelength, e.g., from a laser. The light that is emitted is referred to as “fluorescent” light. The compounds that produce fluorescence are commonly referred to as fluorescent dyes. At least one company to our knowledge is developing a fluorescent compound for possible use in breast cancer detection.
The CTLM® system laser diodes can stimulate fluorescent light emissions when used in conjunction with such compounds. When an appropriate fluorescent compound has been introduced into the blood, areas with an abundance of blood vessels, i.e., the angiogenesis associated with a tumor, may retain a higher concentration of the fluorescent compound. As the CTLM® scanner illuminates these areas; fluorescent light is emitted and detected. Reconstructed CTLM® images then locate and quantify the fluorescent area within the area of interest.
Several CTLM®’s were retrofitted with laser diodes tuned to specific wavelengths of light which matched the compounds. Optical filters limited the spectral responses to selected wavelengths. Experiments were conducted by placing fluorescent compounds inside a breast equivalent phantom and scanning it with CTLM®. To our knowledge we were the first with the ability to excite a fluorescent compound, detect its location within the simulated breast, and create an image. On September 14, 1999, a patent was issued to IDSI titled “Laser Imaging Apparatus Using Biomedical Markers that Bind to Cancer Cells” as Patent No 5,952,664.
In March 2002, we signed an agreement with Schering AG to evaluate the advantages of new fluorescence compounds for the potential use of detecting breast cancer. We installed three CTLM® systems for Schering AG’s clinical trials: one at Charite’s Robert-Rössle Clinic in Berlin, one at the University of Muenster, and the third at Charite Hospital in Berlin, Germany as part of their Phase 1 clinical studies of fluorescent imaging compounds. In November 2005, we announced that Schering AG had completed the evaluation of fluorescent imaging compound SF64 with three modified CT Laser Mammography systems. The loaned systems, which had been modified to Schering AG's specifications were subsequently returned to IDSI and have been re-manufactured. IDSI is continuing to research and develop fluorescence imaging techniques.
In July 2009, we announced the commencement of a breast cancer imaging study at the Charité, Medical University in Berlin, Germany. The study will examine the potential role of the CTLM® as an enhanced breast cancer screening tool when used in combination with the fluorescent dye, Indocyanine Green (ICG). The study will be conducted at the Campus Virchow-Klinikum and the principal investigator is radiologist Dr. Alexander Poellinger. IDSI is continuing to research and develop fluorescence imaging techniques.
Laser Imager for Lab Animals
Our Laser Imager for Lab Animals “LILA™” program is an optical helical micro-CT scanner in a third-generation configuration. The system was designed to image numerous compounds, especially green fluorescent protein, derived from the DNA of jellyfish. The LILA scanner is targeted at pharmaceutical developers and researchers who monitor cancer growth and who use multimodality small animal imaging in their clinical research.
IDSI’s strategic thrust for the LILA project changed, as we decided to focus on women’s health business markets with a family of CTLM® systems and related devices and services. The animal imager did not fit our business model although the fundamental technology is related to the human breast imager. Consequently, we sought to align the project with a company already in the animal imaging market that might complete the LILA and commercialize it.
On August 30, 2006 we announced an exclusive license agreement under which Bioscan, Inc. would integrate LILA technology into their animal imaging portfolio. Under the agreement we would transfer technology to Bioscan by
December 2006 upon receipt of the technology transfer fee. We have received full payment of $250,000 for the technology transfer fee.fee and $69,000 for the parts associated with the agreement. The agreement also provides for royalties on future sales. Bioscan has commenced its work on the LILA project; however, thereproject and placed one of their engineers at our facility so that he can confer with our engineers if necessary. Bioscan pays us for use of the space and consulting fees if they require our engineering assistance. There can be no assurance that it will be successful or that we will receive any royalties from Bioscan.
Government Regulation
United States Regulation
The CTLM® is a medical device and it is subject to the relevant provisions of the United States Food, Drug and Cosmetic Act (FD&C Act”) and its implementing regulations. Pursuant to the FD&C Act, the FDA regulates, among other things, the manufacturing, labeling, distribution, and promotion of the CTLM® in the United States. The Act requires that a medical device must (unless exempted by regulation) be cleared or approved by the FDA before being commercially distributed in the United States. The FD&C Act also requires that manufacturers of medical devices, among other things, comply with specific labeling requirements and manufacture devices in accordance with Current Good Manufacturing Practices, which require that companies manufacture their products and maintain related documentation in a conformed manner with respect to manufacturing, testing, and quality control activities. The FDA inspects medical device manufacturers and distributors, and has broad authority to order recalls of medical devices, to seize non-complying medical devices, to enjoin and/or impose civil penalties, and to criminally prosecute violators.
The FDA classifies medical devices intended for human use into three classes: Class I; Class II; and Class III. The CTLM is a Class III device. Class III devices are devices for which the FDA has insufficient information to conclude that either general controls or special controls would be sufficient to assure safety and effectiveness, and which are life-supporting, life-sustaining, of substantial importance in preventing impairment of human health (e.g., a diagnostic device to detect a life-threatening illness), or present a potentially unreasonable risk of illness or injury. Manufacturers of Class III devices must apply to the FDA for pre-marketing approval (“PMA”) before marketing can begin. PMA applications must demonstrate, among other matters, that the medical device is safe and effective. A PMA application is typically a complex submission, usually including the results of clinical studies and statistical analyses.
Once a PMA application has been filed, the FDA has 180 days to review it; however, the review time may be extended by the FDA asking for additional information or clarification of information already provided in the submission. The FDA will inspect the manufacturing facility to ensure compliance with the FDA’s quality system regulations commonly referred to as QSRs prior to approval of a PMA. The PMA process is lengthy and expensive and there can be no assurance that a PMA application will be approved within 180 days.
We have engaged the services of U.S. regulatory consultants who specialize in FDA matters to assist us in the final preparation and submission of our PMA application. If we are unable to obtain prompt FDA approval, it will have a material adverse effect on our business and financial condition and would result in postponement of the commercialization of the CTLM®. See “CTLM® Development History, Regulatory and Clinical Status
Any products manufactured or distributed by us pursuant to a PMA are or will be subject to pervasive and continuing regulation by the FDA. Labeling, advertising and promotional activities are subject to scrutiny by the FDA and, in certain instances, by the Federal Trade Commission. In addition, the marketing and use of our products may be regulated by various state agencies. The export of medical devices is also subject to regulation in certain instances. Both the FDA and the individual states may inspect the manufacturers of our products on a routine basis for compliance with current QSR regulations and other requirements.
In addition to the foregoing, we are subject to numerous federal, state, and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, and fire hazard control. There can be no assurance that we will not be required to incur significant costs to comply with such laws and regulations and that such compliance will not have a material adverse effect upon our ability to conduct business.
Foreign Regulation
Sales of CTLM® systems outside of the United States are subject to foreign regulatory requirements that vary widely from country to country. The time required to obtain approval for sale in foreign countries may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ. The laws of certain European and Asian countries have permitted us to begin marketing the CTLM® in Europe and Asia before marketing would be permitted in the United States. In order to sell our products within the European Economic
Area (“EEA”), we were required to achieve compliance with requirements of the Medical Devices Directive (“MDD”) and affix a “CE” marking on our products to attest such compliance. In Europe, we have obtained the certifications necessary to enable the CE mark to be affixed to our products. In obtaining these certifications, we utilized the services of a notified body (“NB”). A NB is a private sector regulatory body responsible for the review and approval of the documentation submitted by us to gain CE approval. In November 2000, we were recommended
for CE marking, subject to review by UL’s Notified Body. In January 2001, we received regulatory approval from UL to apply the CE marking to our CTLM® system. CE marking provides us the opportunity to market the CTLM® within the European Union, one of the largest markets in the world and permits medical device product sales in many other markets worldwide.
In October 2000, we contracted Underwriters Laboratories Inc. (“UL”) to perform safety testing and assist us in achieving the regulatory certifications necessary to begin selling the CTLM® system outside the United States. We also chose our Notified Body to certify our compliance with EN29000/46001/ISO9000 quality assurance standards. In January 2001 we received notice from UL of completion for worldwide safety classification of our CTLM® system. We replaced our European authorized representative with Emergo Europe effective August 1, 2005 in the normal course of business.
In May 2001, we received ISO 9002 certification demonstrating our commitment for quality and our ability to provide consistency, reliability, value and exceptional customer service. ISO 9002 certification is significant in facilitating the global marketing of our CTLM® system by conforming to an effective quality management system recognized around the world.
On September 25, 2001, we received a Certificate of Exportability from the FDA for the CTLM®. The FDA requires unapproved Class III products that are subject to PMA requirements to have FDA Certificate of Exportability in order to be exported outside of the United States. We received a renewal of our Certificate of Exportability dated May 30, 2007,June 22, 2009, which is valid for two years.
In October 2003, we announced that we received a Certificate of Approval that our Quality Management System has been inspected and upgraded to the following quality assurance standards: ISO 9001:2000, ISO, 13485:2003, and Annex II have been granted. As of the date of this report, almost 100 countries, including the United States, the United Kingdom, Germany, Australia, Canada, Japan and France have adopted ISO Standards as the primary means for evaluating the quality of manufacturing products. We have been re-inspected by UL and our Certificates of Approval have been renewed through May 29, 2009.2012.
Corporate Information
Our executive offices are located at 5307 NW 35th Terrace, Fort Lauderdale, Florida 33309, and our telephone number is (954) 581-9800. Our website is www.imds.com; however, information on our website is not, and should not be considered, part of this prospectus. Our SEC filings are available on www.sec.gov.www.sec.gov.
CTLM® DEVELOPMENT HISTORY, REGULATORY AND CLINICAL STATUS
Since inception, the entire mission of IDSI was to further develop and refine the CT Laser Mammography system which was invented in 1989 by our late co-founder, Richard J. Grable. The 1994 prototype was built on a platform using then state-of-the-art computer processors which were slow and lasers which were very sensitive to temperature changes and required frequent calibration and servicing.
In order to market and sell the CTLM® in the United States, we must obtain marketing clearance from the Food and Drug Administration. A Pre-Market Approval (PMA) application must be supported by extensive data, including pre-clinical and clinical trial data, as well as evidence to prove the safety and effectiveness of the device. Under the Food, Drug, and Cosmetic Act, the FDA has 180 days to review a submitted PMA application, although in certain cases the FDA may increase that time period through requests for additional information or clarification of existing information.
We received FDA approval to begin our non-pivotal clinical study in February 1999. The first CTLM® was installed at Nassau County (NY) Medical Center in July 1999 and a second CTLM® was installed at the University of Virginia Health System. We submitted the non-pivotal clinical data to the FDA in May 2001. In spite of our efforts to control operating temperatures with thermal cooling cabinets for the lasers and voltage stabilizers to control power, our engineering team led by Mr. Grable decided that they would re-design the CTLM® system into a
compact, robust system using surface-mount technology for the electronics and a solid state diode laser that did not require a separate chiller to control its operating temperature. It was a case where technology had to catch up with the invention. Unfortunately, Mr. Grable passed away unexpectedly in 2001. It took several years to re-design and test but our efforts were successful and we began to collect the clinical data necessary to file the PMA application. The application was filed in April 2003.
In August 2003, we received a letter from the FDA citing some deficiencies in the PMA application. Initially we planned on submitting an amendment to make the PMA approvable and received an extension of time in March 2004 to respond with the amendment. In October 2004, we made a decision to withdraw our current PMA application and resubmit the entire package in a simpler and more clinically and technically robust filing. The new PMA application would contain a rephrased intended use statement better supported by our data, the inclusion of new clinical cases to improve the biometrics, and with a new clinical protocol to fully support the adjunctive use of CTLM® in clinical mammography settings.
In November 2004, we received a letter from the FDA stating that it had determined that the CTLM® proposed clinical investigation was a non-significant risk (NSR) device study. We believed this new classification would be helpful in securing new research and development collaborative agreements.
In January 2005 we determined that the clinical study we intended to submit to the FDA did not, in our opinion, adequately reflect the capabilities of CTLM® as an adjunctive mammography tool. The clinical cases were collected on CTLM® systems dating back to 2001. Since that time we had developed significant improvements in the scanning subsystems, image reconstruction and image display software. We had also improved quality assurance routines to ensure better operator and physician training, and improved image quality control. We therefore announced our intention to collect data using our latest systems because we believed the results would yield a stronger study to support our PMA application. Consequently, we decided to install updated CTLM® systems in the U.S. which extended the time to actual PMA submission from what we were earlier anticipating, but we believed this approach would better support the application.
We reported in our Prospectus dated December 27, 2005 that we experienced further delays because of difficulties in designing a revised clinical protocol and in enlisting hospitals and imaging centers to participate in acquiring new clinical cases. In spite of the delays we experienced in obtaining the necessary approvals from the hospitals and their respective Institutional Review Boards (“IRB”), we made good progress in advancing PMA activities. We further reported on March 23, 2006 that changes would be incorporated to bring the CTLM® system to its most current design level. Those changes were made and do, we believe, improve the device’s image quality and reliability. Upgraded CTLM® systems were installed at our U.S. clinical sites and data collection proceeded in accordance with our clinical protocol. We are continuing to research and develop CTLM® technologies to advance the state-of-art of this new imaging modality. As of May 2009, 10 clinical sites have participated in the clinical trials and we believe we have sufficient clinical data to support our PMA application. While we anticipate that the remaining PMA process consisting of the reading phase, the statistical tabulation phase and submission of the application to the FDA should be completed in 2009, these milestones cannot be met unless we obtain sufficient financing through the sale of equity or debt securities.
We announced in March 2009, that our research and development team achieved a technical breakthrough with a new reconstruction algorithm that improves visualization of angiogenesis (cancer) in the CTLM® images. The improved algorithm enhances the images by reducing the number of artifacts occasionally produced during an examination, thereby making diagnosis easier. We also incorporated streamlined numerical methods into the software so that the new algorithm does not require additional computing resources, allowing us to provide the improved functionality to existing customers as a software upgrade.
The development chronology stated above details how complicated the process is to develop a brand new medical imaging technology. We believe that we have a strong patent portfolio and are the world leader in optical tomography. We have received marketing approval in China and Canada, the CE Mark for the European Union, ISO 9001:2000 registration, ISO 13485:2003 registration, UL Electrical Test Certificate, and Product registrations in Brazil and Argentina. Worldwide, our end users have completed more than 14,000 patient scans, and we have sold 1314 CTLM® systems as of the date of this report. Our decision to fund the Company through the sale of equity has enabled us to reach this important milestone. In fiscal 2009 we have used the proceeds from the sale of convertible debentures for working capital. Going forward we intend to use the proceeds of draws from our SixthSouthridge Private Equity Credit Agreement and any successor private equity agreements with Charlton and/or alternative financing facilities, which may include issuance of convertible preferred stock, as our sources of working capital. Substantial additional financing will be required before and after the filing of the PMA application.
Clinical Collaboration Sites Update
CTLM® Systems have been installed and patients are being scanned under clinical collaboration agreements as follows:
| 1) | Humboldt University of Berlin, Charité Hospital, Berlin, Germany |
| 2) | The Comprehensive Cancer Centre, Gliwice, Poland (Two Systems) |
| 3) | Catholic University Hospital, Rome, Italy |
| 4) | |
| 5) | Tianjin Medical University’s Cancer Institute and Hospital, Tianjin, China |
We are in discussions with other hospitals and clinics wishing to participate in our clinical collaboration program. We have been commercializing the CTLM® in many global markets and we previously announced our plans to set up this network to foster research and to promote the technology in local markets. We will continue to support similar programs outside of the United States. These investments may accelerate CTLM® market acceptance while providing valuable clinical experiences.
Our Laser Imager for Lab Animals “LILA™” program is an optical helical micro-CT scanner in a third-generation configuration. The system was designed to image numerous compounds, especially green fluorescent protein, derived from the DNA of jellyfish. The LILA scanner is targeted at pharmaceutical developers and researchers who monitor cancer growth and who use multimodality small animal imaging in their clinical research.
On August 30, 2006 we announced that we had redefined our marketing strategy and launched a new campaign focusing on the international market. Because of our disappointment with the performance of many of our previous distributors, we have terminated their distribution agreements for non-performance or allowed their agreements to expire. In April 2009, we were pleased to announce that we renewed our distribution agreement with EDO MED Sp. Z.o.o. as our exclusive distributor in Poland. EDO MED will continue to market and provide technical service support for the CTLM® throughout Poland, as well as to assist with and promote the ongoing research efforts utilizing CTLM® technology at the Comprehensive Cancer Centre in Gliwice, Poland and other institutes and research centers. Currently, the CTLM® system is in use at the Comprehensive Cancer Centre, Maria Sklodowska-Curie Memorial Institute, and the Military Institute of Health Services in Gliwice and Warsaw.
Government Regulation
United States Regulation
The CTLM® is a medical device and Syria. In April 2009, we signed a non-exclusive agreement with Neomedica d.o.o. Beograd to market the CTLM® systemit is subject to the privaterelevant provisions of the United States Food, Drug and public sectorsCosmetic Act (FD&C Act”) and its implementing regulations. Pursuant to the FD&C Act, the FDA regulates, among other things, the manufacturing, labeling, distribution, and promotion of Slovenia, Croatia, Serbia, Montenegro, and Macedonia. In October 2008, we announced that our distributor, Laszlo Meszaros of Kardia Hungary Kft. purchased the first CTLM® system for Budapest, Hungary. The CTLM® system has been installed at the new MeDoc HealthCare Center (“MDHC”) located in Budapest, in collaboration with Dr. Maria Gergely, Chief Radiologist of Uzsoki Hospital. Also in April 2009 we announced that Socrate Medical SRL located in Milan, Italy, has been selected as a distributor for the CTLM® system in Northern and Central Italy.
The FDA classifies medical devices intended for human use into three classes: Class I; Class II; and Class III. The CTLM is a Class III device. Class III devices are devices for which the FDA has insufficient information to conclude that either general controls or special controls would be sufficient to assure safety and effectiveness, and which are life-supporting, life-sustaining, of substantial importance in preventing impairment of human health (e.g., a diagnostic device to detect a life-threatening illness), or present a potentially unreasonable risk of illness or injury. Manufacturers of Class III devices must apply to the FDA for pre-marketing approval (“PMA”) before marketing can begin. PMA applications must demonstrate, among other matters, that the medical device is safe and effective. A PMA application is typically a complex submission, usually including the results of clinical studies and statistical analyses.
We previously announcedhave engaged the services of U.S. regulatory consultants who specialize in October 2008 thatFDA matters to assist us in the final preparation and submission of our distributor,PMA application. If we are unable to obtain prompt FDA approval, it will have a material adverse effect on our business and financial condition and would result in postponement of the commercialization of the CTLM®. See “CTLM® Development History, Regulatory and Clinical Status
Any products manufactured or distributed by us pursuant to a PMA are or will be subject to pervasive and continuing regulation by the FDA. Labeling, advertising and promotional activities are subject to scrutiny by the FDA and, in certain instances, by the Federal Trade Commission. In addition, the marketing and use of our products may be regulated by various state agencies. The Oyamo Group (“Oyamo”) placed an orderexport of medical devices is also subject to regulation in certain instances. Both the FDA and the individual states may inspect the manufacturers of our products on a routine basis for the first CTLM® system for Jerusalem, Israel. Oyamo obtained the import license from The Israeli Ministry of Health for the CTLM® systemcompliance with current QSR regulations and has recently advised us that they plan to install the system at Sheba Medical Center at Tel Hashomer, which is outside of Tel Aviv, in July 2009 .other requirements.
In December 2008,addition to the foregoing, we announcedare subject to numerous federal, state, and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, and fire hazard control. There can be no assurance that we will not be required to incur significant costs to comply with such laws and regulations and that such compliance will not have a recent studymaterial adverse effect upon our ability to conduct business.
Foreign Regulation
Sales of CTLM® systems outside of the CTLM® was oneUnited States are subject to foreign regulatory requirements that vary widely from country to country. The time required to obtain approval for sale in foreign countries may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ. The laws of the featured scientific abstracts at the Radiological Society of North America (“RSNA”) from November 30thcertain European and Asian countries have permitted us to December 5th. Dr. Jin Qi, a radiologist at the Tianjin Medical University Cancer Institute and Hospital, Tianjin, China was selected for her clinical paper, “CTLM as an Adjunct to Mammography in the Diagnosis of Patients with Dense Breasts.” Dr. Qi attended RSNA with IDSI and was present at our exhibit. Dr. Qi’s clinical paper was accepted as one of the European Congress of Radiology’s conference presentations in March 2009. The study demonstrated that: “whenbegin marketing the CTLM® system was used as an adjunct to mammography in heterogeneously and extremely dense breasts, the sensitivity (detecting cancer) increased significantly.”
In October 2000, we contracted Underwriters Laboratories Inc. (“UL”) to perform safety testing and assist us in achieving the regulatory certifications necessary to begin selling the CTLM® system outside the United States. We also chose our Notified Body to certify our compliance with EN29000/46001/ISO9000 quality assurance standards. In January 2001 we received notice from UL of completion for worldwide safety classification of our CTLM® system. We replaced our European authorized representative with Emergo Europe effective August 1, 2005 in the normal course of business.
In May 2001, we received ISO 9002 certification demonstrating our commitment for quality and our ability to provide consistency, reliability, value and exceptional customer service. ISO 9002 certification is significant in facilitating the global marketing of our CTLM® system by conforming to an effective quality management system recognized around the world.
On September 25, 2001, we received a Certificate of Exportability from the FDA for the CTLM®. The FDA requires unapproved Class III products that are subject to PMA requirements to have FDA Certificate of Exportability in order to be exported outside of the 1,000,000 options granted in that agreement remain in effect and vested on April 16,United States. We received a renewal of our Certificate of Exportability dated June 22, 2009, provides an annual base salary of $144,000 and the Schwartz Agreement provides an annual base salary of $192,000.which is valid for two years.
In June 2009,October 2003, we announced that we retainedreceived a Certificate of Approval that our Quality Management System has been inspected and upgraded to the servicesfollowing quality assurance standards: ISO 9001:2000, ISO, 13485:2003, and Annex II have been granted. As of Karsten Damgaard-Iversenthe date of this report, almost 100 countries, including the United States, the United Kingdom, Germany, Australia, Canada, Japan and France have adopted ISO Standards as Senior Business Management Consultant. Mr. Damgaard-Iversen will work withthe primary means for evaluating the quality of manufacturing products. We have been re-inspected by UL and our CEO, Linda Grable,Certificates of Approval have been renewed through May 29, 2012.
Corporate Information
Our executive offices are located at 5307 NW 35th Terrace, Fort Lauderdale, Florida 33309, and our telephone number is (954) 581-9800. Our website is www.imds.com; however, information on our website is not, and should not be considered, part of this prospectus. Our SEC filings are available on www.sec.gov.
CTLM® DEVELOPMENT HISTORY, REGULATORY AND CLINICAL STATUS
Since inception, the entire mission of IDSI was to acceleratefurther develop and strategically focusrefine the CT Laser Mammography system which was invented in 1989 by our business development efforts throughlate co-founder, Richard J. Grable. The 1994 prototype was built on a platform using then state-of-the-art computer processors which were slow and lasers which were very sensitive to temperature changes and required frequent calibration and servicing.
In order to market and sell the preparation and execution of a U.S. and European business development plan; launch new technology initiativesCTLM® in the field of fluorescence imaging;United States, we must obtain marketing clearance from the Food and complete our imminentDrug Administration. A Pre-Market Approval (PMA) submissionapplication must be supported by extensive data, including pre-clinical and clinical trial data, as well as evidence to prove the safety and effectiveness of the device. Under the Food, Drug, and Cosmetic Act, the FDA has 180 days to review a submitted PMA application, although in certain cases the FDA may increase that time period through requests for additional information or clarification of existing information.
We received FDA approval to begin our non-pivotal clinical study in February 1999. The first CTLM® was installed at Nassau County (NY) Medical Center in July 1999 and a second CTLM® was installed at the University of Virginia Health System. We submitted the non-pivotal clinical data to the FDA. He has 30FDA in May 2001. In spite of our efforts to control operating temperatures with thermal cooling cabinets for the lasers and voltage stabilizers to control power, our engineering team led by Mr. Grable decided that they would re-design the CTLM® system into a
compact, robust system using surface-mount technology for the electronics and a solid state diode laser that did not require a separate chiller to control its operating temperature. It was a case where technology had to catch up with the invention. Unfortunately, Mr. Grable passed away unexpectedly in 2001. It took several years experienceto re-design and test but our efforts were successful and we began to collect the clinical data necessary to file the PMA application. The application was filed in April 2003.
In August 2003, we received a letter from the FDA citing some deficiencies in the PMA application. Initially we planned on submitting an amendment to make the PMA approvable and received an extension of time in March 2004 to respond with the amendment. In October 2004, we made a decision to withdraw our current PMA application and resubmit the entire package in a simpler and more clinically and technically robust filing. The new PMA application would contain a rephrased intended use statement better supported by our data, the inclusion of new clinical cases to improve the biometrics, and with a new clinical protocol to fully support the adjunctive use of CTLM® in clinical mammography settings.
In November 2004, we received a letter from the FDA stating that it had determined that the CTLM® proposed clinical investigation was a non-significant risk (NSR) device study. We believed this new classification would be helpful in securing new research and development collaborative agreements.
In January 2005 we determined that the clinical study we intended to submit to the FDA did not, in our opinion, adequately reflect the capabilities of CTLM® as an adjunctive mammography tool. The clinical cases were collected on CTLM® systems dating back to 2001. Since that time we had developed significant improvements in the scanning subsystems, image reconstruction and image display software. We had also improved quality assurance routines to ensure better operator and physician training, and improved image quality control. We therefore announced our intention to collect data using our latest systems because we believed the results would yield a stronger study to support our PMA application. Consequently, we decided to install updated CTLM® systems in the U.S. which extended the time to actual PMA submission from what we were earlier anticipating, but we believed this approach would better support the application.
We reported in our Prospectus dated December 27, 2005 that we experienced further delays because of difficulties in designing a revised clinical protocol and in enlisting hospitals and imaging centers to participate in acquiring new clinical cases. In spite of the delays we experienced in obtaining the necessary approvals from the hospitals and their respective Institutional Review Boards (“IRB”), we made good progress in advancing PMA activities. We further reported on March 23, 2006 that changes would be incorporated to bring the CTLM® system to its most current design level. Those changes were made and do, we believe, improve the device’s image quality and reliability. Upgraded CTLM® systems were installed at our U.S. clinical sites and data collection proceeded in accordance with our clinical protocol. We are continuing to research and develop CTLM® technologies to advance the state-of-art of this new imaging modality. As of May 2009, 10 clinical sites have participated in the clinical trials and we believe we have sufficient clinical data to support our PMA application. While we anticipate that the remaining PMA process consisting of the reading phase, the statistical tabulation phase and submission of the application to the FDA should be completed in 2009, these milestones cannot be met unless we obtain sufficient financing through the sale of equity or debt securities.
We announced in March 2009, that our research and development team achieved a technical breakthrough with a new reconstruction algorithm that improves visualization of angiogenesis (cancer) in the CTLM® images. The improved algorithm enhances the images by reducing the number of artifacts occasionally produced during an examination, thereby making diagnosis easier. We also incorporated streamlined numerical methods into the software so that the new algorithm does not require additional computing resources, allowing us to provide the improved functionality to existing customers as a software upgrade.
The development chronology stated above details how complicated the process is to develop a brand new medical imaging industrytechnology. We believe that we have a strong patent portfolio and servedare the world leader in optical tomography. We have received marketing approval in China and Canada, the CE Mark for the European Union, ISO 9001:2000 registration, ISO 13485:2003 registration, UL Electrical Test Certificate, and Product registrations in Brazil and Argentina. Worldwide, our end users have completed more than 14,000 patient scans, and we have sold 14 CTLM® systems as Managing Directorof the date of this report. Our decision to fund the Company through the sale of equity has enabled us to reach this important milestone. In fiscal 2009 we used the proceeds from the sale of convertible debentures for working capital. Going forward we intend to use the proceeds of draws from our Southridge Private Equity Credit Agreement and Chief Group Executiveany successor private equity agreements or alternative financing facilities, which may include issuance of Toshiba Medical Systems Europe BV from July 2006 to December 2008.convertible preferred stock, as our sources of working capital. Substantial additional financing will be required before and after the filing of the PMA application.
Clinical Collaboration Sites Update
CTLM® Systems have been installed and patients are being scanned under clinical collaboration agreements as follows:
| 1) | Humboldt University of Berlin, Charité Hospital, Berlin, Germany |
| 2) | The Comprehensive Cancer Centre, Gliwice, Poland (Two Systems) |
| 3) | Catholic University Hospital, Rome, Italy |
| 4) | MeDoc HealthCare Center, Budapest, Hungary |
| 5) | Tianjin Medical University’s Cancer Institute and Hospital, Tianjin, China |
We are in discussions with other hospitals and clinics wishing to participate in our clinical collaboration program. We have been commercializing the CTLM® in many global markets and we previously announced our plans to set up this network to foster research and to promote the technology in local markets. We will continue to support similar programs outside of the United States. These investments may accelerate CTLM® market acceptance while providing valuable clinical experiences.
Laser Imager for Lab Animals
Our Laser Imager for Lab Animals “LILA™” program is an optical helical micro-CT scanner in a third-generation configuration. The system was designed to image numerous compounds, especially green fluorescent protein, derived from the DNA of jellyfish. The LILA scanner is targeted at pharmaceutical developers and researchers who monitor cancer growth and who use multimodality small animal imaging in their clinical research.
IDSI’s strategic thrust for the LILA project changed, as we decided to focus on women’s health business markets with a family of CTLM® systems and related devices and services. The animal imager did not fit our business model although the fundamental technology is related to the human breast imager. Consequently, we sought to align the project with a company already in the animal imaging market that might complete the LILA and commercialize it.
On August 30, 2006 we announced an exclusive license agreement under which Bioscan, Inc. would integrate LILA technology into their animal imaging portfolio. Under the agreement we would transfer technology to Bioscan by
December 2006 upon receipt of the technology transfer fee. We have received full payment of $250,000 for the technology transfer fee and $69,000 for the parts associated with the agreement. The agreement also provides for royalties on future sales. Bioscan has commenced its work on the LILA project and placed one of their engineers at our facility so that he can confer with our engineers if necessary. Bioscan pays us for use of the space and consulting fees if they require our engineering assistance. There can be no assurance that it will be successful or that we will receive any royalties from Bioscan.
Government Regulation
United States Regulation
The CTLM® is a medical device and it is subject to the relevant provisions of the United States Food, Drug and Cosmetic Act (FD&C Act”) and its implementing regulations. Pursuant to the FD&C Act, the FDA regulates, among other things, the manufacturing, labeling, distribution, and promotion of the CTLM® in the United States. The Act requires that a medical device must (unless exempted by regulation) be cleared or approved by the FDA before being commercially distributed in the United States. The FD&C Act also requires that manufacturers of medical devices, among other things, comply with specific labeling requirements and manufacture devices in accordance with Current Good Manufacturing Practices, which require that companies manufacture their products and maintain related documentation in a conformed manner with respect to manufacturing, testing, and quality control activities. The FDA inspects medical device manufacturers and distributors, and has broad authority to order recalls of medical devices, to seize non-complying medical devices, to enjoin and/or impose civil penalties, and to criminally prosecute violators.
The FDA classifies medical devices intended for human use into three classes: Class I; Class II; and Class III. The CTLM is a Class III device. Class III devices are devices for which the FDA has insufficient information to conclude that either general controls or special controls would be sufficient to assure safety and effectiveness, and which are life-supporting, life-sustaining, of substantial importance in preventing impairment of human health (e.g., a diagnostic device to detect a life-threatening illness), or present a potentially unreasonable risk of illness or injury. Manufacturers of Class III devices must apply to the FDA for pre-marketing approval (“PMA”) before marketing can begin. PMA applications must demonstrate, among other matters, that the medical device is safe and effective. A PMA application is typically a complex submission, usually including the results of clinical studies and statistical analyses.
Once a PMA application has been filed, the FDA has 180 days to review it; however, the review time may be extended by the FDA asking for additional information or clarification of information already provided in the submission. The FDA will inspect the manufacturing facility to ensure compliance with the FDA’s quality system regulations commonly referred to as QSRs prior to approval of a PMA. The PMA process is lengthy and expensive and there can be no assurance that a PMA application will be approved within 180 days.
We have engaged the services of U.S. regulatory consultants who specialize in FDA matters to assist us in the final preparation and submission of our PMA application. If we are unable to obtain prompt FDA approval, it will have a material adverse effect on our business and financial condition and would result in postponement of the commercialization of the CTLM®. See “CTLM® Development History, Regulatory and Clinical Status
Any products manufactured or distributed by us pursuant to a PMA are or will be subject to pervasive and continuing regulation by the FDA. Labeling, advertising and promotional activities are subject to scrutiny by the FDA and, in certain instances, by the Federal Trade Commission. In addition, the marketing and use of our products may be regulated by various state agencies. The export of medical devices is also subject to regulation in certain instances. Both the FDA and the individual states may inspect the manufacturers of our products on a routine basis for compliance with current QSR regulations and other requirements.
In addition to the foregoing, we are subject to numerous federal, state, and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, and fire hazard control. There can be no assurance that we will not be required to incur significant costs to comply with such laws and regulations and that such compliance will not have a material adverse effect upon our ability to conduct business.
Foreign Regulation
Sales of CTLM® systems outside of the United States are subject to foreign regulatory requirements that vary widely from country to country. The time required to obtain approval for sale in foreign countries may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ. The laws of certain European and Asian countries have permitted us to begin marketing the CTLM® in Europe and Asia before marketing would be permitted in the United States. In order to sell our products within the European Economic
Area (“EEA”), we were required to achieve compliance with requirements of the Medical Devices Directive (“MDD”) and affix a “CE” marking on our products to attest such compliance. In Europe, we have obtained the certifications necessary to enable the CE mark to be affixed to our products. In obtaining these certifications, we utilized the services of a notified body (“NB”). A NB is a private sector regulatory body responsible for the review and approval of the documentation submitted by us to gain CE approval. In November 2000, we were recommended for CE marking, subject to review by UL’s Notified Body. In January 2001, we received regulatory approval from UL to apply the CE marking to our CTLM® system. CE marking provides us the opportunity to market the CTLM® within the European Union, one of the largest markets in the world and permits medical device product sales in many other markets worldwide.
In October 2000, we contracted Underwriters Laboratories Inc. (“UL”) to perform safety testing and assist us in achieving the regulatory certifications necessary to begin selling the CTLM® system outside the United States. We also chose our Notified Body to certify our compliance with EN29000/46001/ISO9000 quality assurance standards. In January 2001 we received notice from UL of completion for worldwide safety classification of our CTLM® system. We replaced our European authorized representative with Emergo Europe effective August 1, 2005 in the normal course of business.
In May 2001, we received ISO 9002 certification demonstrating our commitment for quality and our ability to provide consistency, reliability, value and exceptional customer service. ISO 9002 certification is significant in facilitating the global marketing of our CTLM® system by conforming to an effective quality management system recognized around the world.
On September 25, 2001, we received a Certificate of Exportability from the FDA for the CTLM®. The FDA requires unapproved Class III products that are subject to PMA requirements to have FDA Certificate of Exportability in order to be exported outside of the United States. We received a renewal of our Certificate of Exportability dated June 22, 2009, which is valid for two years.
In October 2003, we announced that we received a Certificate of Approval that our Quality Management System has been inspected and upgraded to the following quality assurance standards: ISO 9001:2000, ISO, 13485:2003, and Annex II have been granted. As of the date of this report, almost 100 countries, including the United States, the United Kingdom, Germany, Australia, Canada, Japan and France have adopted ISO Standards as the primary means for evaluating the quality of manufacturing products. We have been re-inspected by UL and our Certificates of Approval have been renewed through May 29, 2012.
Corporate Information
Our executive offices are located at 5307 NW 35th Terrace, Fort Lauderdale, Florida 33309, and our telephone number is (954) 581-9800. Our website is www.imds.com; however, information on our website is not, and should not be considered, part of this prospectus. Our SEC filings are available on www.sec.gov.
CTLM® DEVELOPMENT HISTORY, REGULATORY AND CLINICAL STATUS
Since inception, the entire mission of IDSI was to further develop and refine the CT Laser Mammography system which was invented in 1989 by our late co-founder, Richard J. Grable. The 1994 prototype was built on a platform using then state-of-the-art computer processors which were slow and lasers which were very sensitive to temperature changes and required frequent calibration and servicing.
In order to market and sell the CTLM® in the United States, we must obtain marketing clearance from the Food and Drug Administration. A Pre-Market Approval (PMA) application must be supported by extensive data, including pre-clinical and clinical trial data, as well as evidence to prove the safety and effectiveness of the device. Under the Food, Drug, and Cosmetic Act, the FDA has 180 days to review a submitted PMA application, although in certain cases the FDA may increase that time period through requests for additional information or clarification of existing information.
We received FDA approval to begin our non-pivotal clinical study in February 1999. The first CTLM® was installed at Nassau County (NY) Medical Center in July 1999 and a second CTLM® was installed at the University of Virginia Health System. We submitted the non-pivotal clinical data to the FDA in May 2001. In spite of our efforts to control operating temperatures with thermal cooling cabinets for the lasers and voltage stabilizers to control power, our engineering team led by Mr. Grable decided that they would re-design the CTLM® system into a
compact, robust system using surface-mount technology for the electronics and a solid state diode laser that did not require a separate chiller to control its operating temperature. It was a case where technology had to catch up with the invention. Unfortunately, Mr. Grable passed away unexpectedly in 2001. It took several years to re-design and test but our efforts were successful and we began to collect the clinical data necessary to file the PMA application. The application was filed in April 2003.
In August 2003, we received a letter from the FDA citing some deficiencies in the PMA application. Initially we planned on submitting an amendment to make the PMA approvable and received an extension of time in March 2004 to respond with the amendment. In October 2004, we made a decision to withdraw our current PMA application and resubmit the entire package in a simpler and more clinically and technically robust filing. The new PMA application would contain a rephrased intended use statement better supported by our data, the inclusion of new clinical cases to improve the biometrics, and with a new clinical protocol to fully support the adjunctive use of CTLM® in clinical mammography settings.
In November 2004, we received a letter from the FDA stating that it had determined that the CTLM® proposed clinical investigation was a non-significant risk (NSR) device study. We believed this new classification would be helpful in securing new research and development collaborative agreements.
In January 2005 we determined that the clinical study we intended to submit to the FDA did not, in our opinion, adequately reflect the capabilities of CTLM® as an adjunctive mammography tool. The clinical cases were collected on CTLM® systems dating back to 2001. Since that time we had developed significant improvements in the scanning subsystems, image reconstruction and image display software. We had also improved quality assurance routines to ensure better operator and physician training, and improved image quality control. We therefore announced our intention to collect data using our latest systems because we believed the results would yield a stronger study to support our PMA application. Consequently, we decided to install updated CTLM® systems in the U.S. which extended the time to actual PMA submission from what we were earlier anticipating, but we believed this approach would better support the application.
We reported in our Prospectus dated December 27, 2005 that we experienced further delays because of difficulties in designing a revised clinical protocol and in enlisting hospitals and imaging centers to participate in acquiring new clinical cases. In spite of the delays we experienced in obtaining the necessary approvals from the hospitals and their respective Institutional Review Boards (“IRB”), we made good progress in advancing PMA activities. We further reported on March 23, 2006 that changes would be incorporated to bring the CTLM® system to its most current design level. Those changes were made and do, we believe, improve the device’s image quality and reliability. Upgraded CTLM® systems were installed at our U.S. clinical sites and data collection proceeded in accordance with our clinical protocol. We are continuing to research and develop CTLM® technologies to advance the state-of-art of this new imaging modality. As of May 2009, 10 clinical sites have participated in the clinical trials and we believe we have sufficient clinical data to support our PMA application. While we anticipate that the remaining PMA process consisting of the reading phase, the statistical tabulation phase and submission of the application to the FDA should be completed in 2009, these milestones cannot be met unless we obtain sufficient financing through the sale of equity or debt securities.
We announced in March 2009, that our research and development team achieved a technical breakthrough with a new reconstruction algorithm that improves visualization of angiogenesis (cancer) in the CTLM® images. The improved algorithm enhances the images by reducing the number of artifacts occasionally produced during an examination, thereby making diagnosis easier. We also incorporated streamlined numerical methods into the software so that the new algorithm does not require additional computing resources, allowing us to provide the improved functionality to existing customers as a software upgrade.
The development chronology stated above details how complicated the process is to develop a brand new medical imaging technology. We believe that we have a strong patent portfolio and are the world leader in optical tomography. We have received marketing approval in China and Canada, the CE Mark for the European Union, ISO 9001:2000 registration, ISO 13485:2003 registration, UL Electrical Test Certificate, and Product registrations in Brazil and Argentina. Worldwide, our end users have completed more than 14,000 patient scans, and we have sold 14 CTLM® systems as of the date of this report. Our decision to fund the Company through the sale of equity has enabled us to reach this important milestone. In fiscal 2009 we used the proceeds from the sale of convertible debentures for working capital. Going forward we intend to use the proceeds of draws from our Southridge Private Equity Credit Agreement and any successor private equity agreements or alternative financing facilities, which may include issuance of convertible preferred stock, as our sources of working capital. Substantial additional financing will be required before and after the filing of the PMA application.
Clinical Collaboration Sites Update
CTLM® Systems have been installed and patients are being scanned under clinical collaboration agreements as follows:
| 1) | Humboldt University of Berlin, Charité Hospital, Berlin, Germany |
| 2) | The Comprehensive Cancer Centre, Gliwice, Poland (Two Systems) |
| 3) | Catholic University Hospital, Rome, Italy |
| 4) | MeDoc HealthCare Center, Budapest, Hungary |
| 5) | Tianjin Medical University’s Cancer Institute and Hospital, Tianjin, China |
We are in discussions with other hospitals and clinics wishing to participate in our clinical collaboration program. We have been commercializing the CTLM® in many global markets and we previously announced our plans to set up this network to foster research and to promote the technology in local markets. We will continue to support similar programs outside of the United States. These investments may accelerate CTLM® market acceptance while providing valuable clinical experiences.
Global Commercialization Update
In March 2009, we announced that we had redefined our marketing strategy and launched a new campaign focusing on the international market. Because of our disappointment with the performance of many of our previous distributors, we have terminated their distribution agreements for non-performance or allowed their agreements to expire. In April 2009, we were pleased to announce that we renewed our distribution agreement with EDO MED Sp. Z.o.o. as our exclusive distributor in Poland. EDO MED will continue to market and provide technical service support for the CTLM® throughout Poland, as well as to assist with and promote the ongoing research efforts utilizing CTLM® technology at the Comprehensive Cancer Centre in Gliwice, Poland and other institutes and research centers. Currently, the CTLM® system is in use at the Comprehensive Cancer Centre, Maria Sklodowska-Curie Memorial Institute, and the Military Institute of Health Services in Gliwice and Warsaw.
In the Asia-Pacific Region, we previously announced that we contracted with BAC, Inc. to manage our representative office in Beijing, existing distributors and develop new areas. As part of our continuing cost cutting initiatives, we closed our representative office in January 2009, and in December 2008, we terminated our contract with BAC, Inc. for non-performance. In March 2009, we announced the appointment of Jainsons Pty Ltd Company as our new distributor for Australia and New Zealand. In April 2009, we announced that we hired Dr. Rajesh Suresh Sheth as our Managing Director for India. Dr. Sheth, a radiologist with more than 18 years of experience, will be responsible for marketing and promoting the CTLM® system to hospitals and imaging centers throughout Mumbai and New Delhi. We are currently negotiating with a new distributor for China based in Shanghai.
In September 2007, we announced the installation of a CTLM® system at the Tianjin Medical University’s Cancer Institute and Hospital (“Tianjin”), the largest breast disease center in China. The hospital evaluated the CTLM® under three research protocols designed to improve current methods of addressing breast cancer imaging and treatment follow-up. We previously announced that we installed a CTLM® system at Beijing’s Friendship Hospital, which enabled CTLM® clinical procedures to become listed on the Regional and subsequently the National Schedule for patient payments.
In December 2008, we announced that a recent study of the CTLM® was one of the featured scientific abstracts at the Radiological Society of North America (“RSNA”) from November 30th to December 5th. Dr. Jin Qi, a radiologist at the Tianjin Medical University Cancer Institute and Hospital, Tianjin, China was selected for her clinical paper, “CTLM as an Adjunct to Mammography in the Diagnosis of Patients with Dense Breasts.” Dr. Qi attended RSNA with IDSI and was present at our exhibit. Dr. Qi’s clinical paper was accepted as one of the European Congress of Radiology’s conference presentations in March 2009. The study demonstrated that: “when the CTLM® system was used as an adjunct to mammography in heterogeneously and extremely dense breasts, the sensitivity (detecting cancer) increased significantly.”
We previously signed an exclusive distributor in Malaysia, where interest in breast cancer detection and treatment was surging due to publicity surrounding their First Lady, who succumbed to the disease. In September 2007, we announced the installation of a CTLM® system at the Univeriti Putra Malaysia (“UPM”) in Kuala Lumpur, Malaysia. The CTLM® was installed at UPM’s academic facility within the jurisdiction of the Ministry of Education and was evaluated by specialists from UPM in conjunction with specialists from Serdang Hospital in
Kuala Lumpur. Following the evaluation at UPM, we appointed a new distributor, Daichi Holding Berhad (“Daichi”) of Penasng, Malaysia. The CTLM® was removed from UPM academic facility at the conclusion of the evaluation period. Daichi issued a purchase order for this system and it was installed in August 2009 at Catherine Women’s Medical Center in Petaling Jaya, Malaysia. On September 22, 2009, we announced that Daichi completed the purchase of the system with full payment.
Activities in Europe and the Middle East are top marketing priorities for IDSI. As a result of our participation as an exhibitor at the Arab Health Medical Conference in January 2009 in Dubai, UAE, and at the European Congress of Radiology (“ECR”) in March 2009 in Vienna, Austria, we were able to meet with qualified distributors to discuss their interest in representing us in their respective territories. While attending Arab Health, we hired a Managing Director to market the CTLM® in the UAE and parts of the Middle East. We are not marketing or seeking distributors and will not market the CTLM® directly or indirectly in Iran, Sudan and/or Syria because of U.S. economic sanctions and export controls.
In March 2009, we announced the appointment of Shihab Muscat United LLC (“SMU”) as our exclusive distributor for the country of Oman. Additionally, we are negotiating with distributors in Egypt, Jordan, Saudi Arabia, India, and Belgrade. In April 2009, we signed a non-exclusive agreement with Neomedica d.o.o. Beograd to market the CTLM® system to the private and public sectors of Slovenia, Croatia, Serbia, Montenegro, and Macedonia. In October 2008, we announced that our distributor, Laszlo Meszaros of Kardia Hungary Kft. purchased the first CTLM® system for Budapest, Hungary. The CTLM® system has been installed at the new MeDoc HealthCare Center (“MDHC”) located in Budapest, in collaboration with Dr. Maria Gergely, Chief Radiologist of Uzsoki Hospital. Also in April 2009 we announced that Socrate Medical SRL located in Milan, Italy, has been selected as a distributor for the CTLM® system in Northern and Central Italy.
We previously announced in October 2008 that our distributor, The Oyamo Group (“Oyamo”) placed an order for the first CTLM® system for Jerusalem, Israel. Oyamo obtained the import license from The Israeli Ministry of Health for the CTLM® system and has recently advised us that they now plan to install the system at Sheba Medical Center at Tel Hashomer, which is outside of Tel Aviv, in February 2010.
In December 2008, we announced that a new study evaluating the CTLM system as an adjunct to mammography was featured in the December 2008 issue of Academic Radiology. Alexander Poellinger, M.D., a radiologist at Charite Hospital in Berlin. Germany, authored “Near-infrared Laser Computed Tomography of the Breast: A Clinical Experience” along with colleagues at Charite and IDSI’s Director of Advanced Development as co-author. Their work demonstrated an increase in accuracy of diagnosing malignant and benign breast lesions in patients who were examined with mammography and CTLM adjunctively compared to mammography alone. Dr. Poellinger’s clinical paper was distributed to doctors and distributors visiting our booth at the European Congress of Radiology in March 2009.
In January 2009, we exhibited the CTLM® at the Arab Health 2009 medical conference held from January 26 – 29, in Dubai, United Arab Emirates (UAE). We demonstrated the CTLM system, identified potential distributors for the Middle East region and obtained prospective sales leads. The Arab Health Exhibition and Congress is one of the most prestigious healthcare events in the Middle East, with over 3,000 exhibitors from over 65 countries and more than 60,000 medical professionals.
In March 2009, we exhibited our CTLM® clinical results at the annual European Congress of Radiology (ECR 2009) held from March 6 -9, in Vienna, Austria. ECR 2009 attracted approximately 18,000 participants worldwide. ECR is one of the largest medical meetings in Europe and the second largest radiology meeting in the world. The clinical study conducted at Tianjin Medical University Cancer Institute and Hospital was accepted as one of the conferences’ presentations.
Among our global users, we have three systems in Poland, four in Italy, two in the Czech Republic, two systems in the United Arab Emirates, and two systems in China as well as one system each in Germany, Hungary and Malaysia. As of the date of this report IDSI’s users have performed over 14,000 CT Laser Mammography (CTLM®) patient scans worldwide.
Other Recent Events
In September 2009, we announced the sale of a CTLM® system to and installed at the Katherine Women’s Health Center in Malaysia. The CTLM® was sold through Daichi Holding Berhad who plans to also use the Women’s Health Center as a training and demonstration site for future customers.
In November 2009, we announced that we received a deposit for a second system in Malaysia and a purchase order for a system to be installed in Indonesia. The systems will be delivered in January 2010. The orders were placed through Jainsons Pty Ltd Company.
We exhibited our CTLM® system and clinical case studies at the 95th annual meeting of the Radiological Society of North America (RSNA) in Chicago, IL from November 29 to December 3, 2009. According to the RSNA Daily Bulletin, attendance for the 95th annual scientific assembly, meeting, and technical exhibition was estimated at approximately 57,000.
Laser Imager for Lab Animals
Our Laser Imager for Lab Animals “LILA™” program is an optical helical micro-CT scanner in a third-generation configuration. The system was designed to image numerous compounds, especially green fluorescent protein, derived from the DNA of jellyfish. The LILA scanner is targeted at pharmaceutical developers and researchers who monitor cancer growth and who use multimodality small animal imaging in their clinical research.
IDSI’s strategic thrust for the LILA project s changed, as we decided to focus on women’s health business markets with a family of CTLM® systems and related devices and services. The animal imager did not fit our business model although the fundamental technology is related to the human breast imager. Consequently, we sought to align the project with a company already in the animal imaging market that might complete the LILA and commercialize it.
On August 30, 2006 we announced an exclusive license agreement under which Bioscan, Inc. would integrate LILA technology into their animal imaging portfolio. Under the agreement we would transfer technology to Bioscan by December 2006 upon receipt of the technology transfer fee. We have received full payment of $250,000 for the technology transfer fee and $69,000 for the parts associated with the agreement. The agreement also provides for royalties on future sales. Bioscan has commenced its work on the LILA project and placed one of their engineers at our facility so that he can confer with our engineers if necessary. Bioscan pays us for use of the space and consulting fees if they require our engineering assistance. There can be no assurance that it will be successful or that we will receive any royalties from Bioscan.
DESCRIPTION OF OUR PROPERTY
On June 2, 2008, we executed a Business Lease Agreement with Ft. Lauderdale Business Plaza Associates, an unaffiliated third-party, for 9,870 square feet of commercial office and manufacturing space at 5307 NW 35th Terrace, Ft. Lauderdale, Florida. The term of the lease is five years and one month with the first monthly rent payment due September 1, 2008 with an option to renew for one additional period of three years. The monthly base rent for the initial year is $6,580.00 plus applicable sales tax. During the term and any renewal term of the lease, the base annual rent shall be increased each year. Commencing with the first day of August 2009 and each year thereafter, the base annual rent shall be cumulatively increased by 3.5% each lease year plus applicable sales tax. IDSI will also be obligated to pay as additional rent its pro-rata share of all common area maintenance expenses which is estimated to be $3,084.37 per month for the first 12 months of the lease. The total monthly rent including Florida sales tax for the first 12 months is $10,244.23. Upon the execution of the lease, we paid the first month’s rent of $10,244.23 and a security deposit of $13,160.00. In August 2008, we moved into our new headquarters facility. We believe that our new facility is adequate for our current and reasonably foreseeable future needs and provides us with a monthly cost savings of $23,196 per month. We intend to assemble the CTLM® at our facility from hardware components that will be made by vendors to our specifications.
On September 13, 2007, we entered into an agreement with an unaffiliated third-party for the sale and lease-back of our prior facility at 6531 N.W. 18th Court, Plantation, Florida. On March 31, 2008, pursuant to the sale/lease-back transaction, we closed the sale of our commercial building for $4.4 million to Bright Investments LLC (“Bright”), an unaffiliated third-party and a sister company to Superfun B.V. On April 29, 2008, we gave six months prior written notice of termination of our lease of the Plantation facility as part of our cost cutting initiatives.
LEGAL PROCEEDINGS
In April 2008, we were served with a lawsuit filed against us in Venice, Italy, by Gio Marco S.p.A. and Gio IDH S.p.A., related Italian companies which, between them, had purchased three CTLM® systems in 2005. One system was purchased directly from us, and the other two were purchased from our former Italian distributor and an affiliate of the distributor.
The plaintiffs allegealleged that they purchased the CTLM® systems for experimental purposes based on alleged oral assurances by our sales representative to the effect that we would promptly receive PMA approval for the CTLM® and that we would give them exclusive distribution rights in Italy. The plaintiffs are seeking to recover a total of €628,595, representing the aggregate purchase price of the systems plus related expenses.
Based on our preliminary investigation of this matter, we believe that this claim is without merit, and we intend to vigorously defend the case. Our Italian counsel responded to the lawsuit in November 2008 and requested and was granted an extension to May 27, 2009 to respond. Our counsel filed our defenses in the Court of Venice at a hearing held onin June 17, 2009. The judge set the next hearing for March 3, 2010 in order to allow the parties to clarify their claims and defenses.
In December 2008, we were served with a lawsuit against us in Cuyahoga County, Ohio, by Plexar Associates, Inc. (“Plexar”), a company that provides software and algorithm development for medical imaging companies. On January 23, 2008, we engaged the services of Plexar to provide work over a three-month period relating to artifact reduction. The initial purchase order was limited to an amount not to exceed $48,700. A second purchase order for a three-month period was signed on July 8, 2008 with a limit not to exceed $61,000. Thus, the total commitment was $109,700. As of the date of this quarterly report,June 30, 2009, we have paid Plexar the sum of $93,910.66 and have not received any useful work product that would help us reduce artifacts in our images. In their complaint, Plexar is seeking the sum of $65,076.25. Our counsel reviewed this complaint and on January 8, 2009 requested a 30 day extension which was granted. We intend to vigorously dispute this case and have filed a counter-claim for non-performance. Our counsel filed a responsenon-performance and answered the complaint on February 6, 2009. A telephonic status conferencePrior to mediation, we reached an agreement with Plexar on August 6, 2009 to settle this case and agreed to allow Plexar’s counsel to prepare a Settlement Agreement and Mutual Release in this matter, which was conductedsigned on February 27,August 24, 2009. We believe it was in our best interest to settle this case to avoid incurring substantial litigation costs and the risks of a trial that would have been held in Cleveland, Ohio. We also would have incurred significant travel and lodging expenses for our employees and expert witnesses.
The Settlement Agreement and Mutual Release stipulated that we would pay Plexar $52,000 with payments as follows: $5,000 no later than August 25, 2009, which was paid; $15,000 no later than October 15, 2009; eight additional payments of $4,000, with the Court’s staff attorney whereby it was agreed that both partiesfirst of these monthly payments due on November 15, 2009 and continuing on the 15th day of each successive month through June 15, 2010. If any of the above payments remain unpaid for more than five day calendar days after each is due, then an additional payment of $9,000 would be due. However, if the above payments were made timely, then IDSI’s obligation to exchange paper discovery, which shouldpay this additional payment would be completed withinwaived and become null and void. The October 15th payment and subsequent payments were not made timely, and we are in default of the next 60 days, at which pointSettlement Agreement. On November 2, 2009, Plexar obtained a final judgment against us for $56,053.69 in the Court would hold another telephonic pretrial conferenceOhio court. Plexar has stated its intention to see whetherseek to domesticate the case is ready for mediation. A telephone status conference was held with the court on Mayjudgment in Florida. On December 21, 2009, we paid the sum of $32,036 to Plexar of which $30,000 was applied to the Judgment and $2,036 was applied to attorney’s fees pursuant to an agreement for settlement of the court referred this mattersame date. We intend to mediation. On June 16, 2009 we receivedmake a notice that a mediation conference has been scheduledfinal payment to Plexar for August 7, 2009.approximately $27,652.12 which includes accrued interest, filing fees and estimated attorney’s fees for the month of December on January 21, 2010.
MARKET PRICE OF THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Our Common Stock is traded on the NASDAQ’s OTC Bulletin Board market under the symbol IMDS. There has been trading in our common stock since September 20, 1994. The following table sets forth, for each of the fiscal periods indicated, the high and low bid prices for the common stock, as reported on the OTC Bulletin Board. These per share quotations reflect inter-dealer prices in the over-the-counter market without real mark-up, markdown, or commissions and may not necessarily represent actual transactions.
| QUARTER ENDING | High Bid | Low Bid | High Bid | Low Bid |
| FISCAL YEAR 2007 | ||||
| First Quarter | $0.15 | $0.09 | ||
| Second Quarter | $0.107 | $0.065 | ||
| Third Quarter | $0.155 | $0.068 | ||
| Fourth Quarter | $0.073 | $0.038 | ||
| FISCAL YEAR 2008 | ||||
| First Quarter | $0.088 | $0.035 | $0.088 | $0.035 |
| Second Quarter | $0.074 | $0.045 | $0.074 | $0.045 |
| Third Quarter | $0.055 | $0.046 | $0.055 | $0.046 |
| Fourth Quarter | $0.049 | $0.02 | $0.049 | $0.02 |
| FISCAL YEAR 2009 | ||||
| First Quarter | $0.055 | $0.012 | $0.055 | $0.012 |
| Second Quarter | $0.048 | $0.02 | $0.048 | $0.02 |
| Third Quarter | $0.023 | $0.008 | $0.023 | $0.007 |
| Fourth Quarter (through June 1, 2009) | $0.0085 | $0.005 | ||
| Fourth Quarter | $0.009 | $0.005 | ||
| FISCAL YEAR 2010 | ||||
| First Quarter | $0.011 | $0.004 | ||
| Second Quarter | $0.032 | $0.007 | ||
| Third Quarter (through January 8, 2010) | $0.025 | $0.022 | ||
On June 23, 2009,January 8, 2010, the closing trade price of the common stock as reported on the OTC Bulletin Board was $0.0065.$0.025.
ANNUAL MEETING
On December 29, 2008, we held our annual meeting of stockholders at the Sheraton Suites Cypress Creek, 555 NW 62nd Street, Fort Lauderdale, Florida for the following purposes:
| 1. | To elect two directors until the next annual meeting; |
| 2. | To approve a proposal to amend the Company's Articles of Incorporation to increase the number of authorized shares of the Company's common stock, no par value, from 450,000,000 to 950,000,000; |
3. To consider and act upon a proposal to adopt the Company's 2007 Non-Statutory Stock Option Plan;
| 4. | To ratify the appointment by the Board of Directors of Sherb & Co., LLP as independent auditors of the Company for the fiscal year ending June 30, 2009; |
As to proposal no. 1, the stockholders elected two incumbent directors with the following votes:
| Linda B. Grable | FOR 297,598,494 | WITHHELD 19,404,926 |
| Allan L. Schwartz | FOR 299,345,051 | WITHHELD 17,658,369 |
As to proposal no. 2, the stockholders voted in favor of the proposal. The affirmative vote of a majority of the outstanding shares of the Common Stock present in person or by proxy at the Annual Meeting and entitled to vote was required to approve the proposal to amend the Company’s Articles of Incorporation to increase the number of authorized shares from 450,000,000 to 950,000,000. The vote was as follows:
| FOR 248,069,095 | AGAINST 65,441,285 | ABSTAIN 3,493,040 |
As to proposal no. 3, the stockholders voted to adopt the Company's 2007 Non-Statutory Stock Option Plan. The affirmative vote of a majority of the outstanding shares of the Common Stock present in person or by proxy at the Annual Meeting and entitled to vote was required to approve the proposal. The vote was as follows:
| FOR 43,439,030 | AGAINST 12,139,683 | ABSTAIN 1,588,350 |
As to proposal no. 4, the stockholders voted to ratify the Board of Directors’ appointment of Sherb & Co., LLP as independent auditors of the Company for the fiscal year ending June 30, 2007. The affirmative vote of a majority of the outstanding shares of the Common Stock present in person or by proxy at the Annual Meeting and entitled to vote was required to ratify the proposal.
| FOR 304,754,785 | AGAINST 8,503,228 | ABSTAIN 3,745,406 |
Sale of Unregistered Securities
Debenture Private Placement
On August 1, 2008, we entered into a Securities Purchase Agreement (the “Initial Purchase Agreement”) with an unaffiliated third party, Whalehaven Capital Fund Limited (“Whalehaven”), relating to a private placement (the “Initial Private Placement”) of a total of up to $800,000 in principal amount of one-year 8% Senior Secured Convertible Debentures (the “Initial Debentures”). We were required to file within 30 days an S-1 Registration Statement (the “Registration Statement”) covering the shares of common stock underlying the Initial Debentures and related Warrants pursuant to the terms of a Registration Rights Agreement dated August 1, 2008, between IDSI and Whalehaven; however, with Whalehaven’s consent, we were permitted to file the Registration Statement promptly after the filing of our Annual Report on Form 10-K.
The Initial Purchase Agreement provided for the sale of the Initial Debentures in two closings. The first closing, which occurred on August 4, 2008, was for a principal amount of $400,000. The second closing would be for up to $400,000 and would occur within the earlier of five business days following the effective date of the Registration Statement and December 1, 2008, provided that the closing conditions in the Initial Purchase Agreement have been met. We retained the option to use our existing equity credit line until the Registration Statement is declared effective. Sales under the Initial Purchase Agreement were subject to an 8% placement agent fee. Thus, the first closing generated proceeds to IDSI of $368,000, before normal transaction costs.
Prior to maturity, the Initial Debentures bear interest at the rate of 8% per annum, payable quarterly in cash or, at our option, in shares of common stock based on the then-existing market price provided that we are in compliance with the Initial Purchase Agreement.
The Initial Debentures may be converted in whole or in part at the option of the holder any time after the closing date into our Common Stock at the lesser of (i) a set price, initially $.019 per share, which was the closing price of our shares on the closing date (“fixed conversion price”) or (ii) 80% of the 3 lowest bid prices during the 10 consecutive trading days immediately preceding a conversion date; however, the terms of each Initial Debenture prevent the holder from converting the Debenture to the extent that the conversion would result in the holder and its affiliates beneficially owning more than 4.99% of the outstanding shares of our common stock; however, the limit may be increased to 9.99% on 61 days prior written notice from the holder.
At any time after closing, we may redeem for cash, upon written notice, any and all of the outstanding Initial Debentures at a 25% premium of the principal amount plus accrued and unpaid interest on the Initial Debentures to be redeemed.
The Initial Debentures are secured by a pledge of substantially all of our assets pursuant to a Security Agreement dated August 1, 2008, between IDSI and Whalehaven.
Pursuant to the first closing of the Initial Private Placement, we issued to Whalehaven five-year Warrants to purchase 22,222,222 shares of our common stock. The exercise price of these Warrants was $0.0228, i.e., 120% of the market price on the closing date. The Warrants are subject to cashless exercise at Whalehaven’s option.
The placement agent was entitled to receive a Warrant to purchase common stock equal to 12% of Whalehaven’s Warrants with an exercise price equal to Whalehaven’s exercise price. Consequently, a Warrant to purchase 2,666,666 shares was issued to the placement agent based on the first closing.
On October 23, 2008, we entered into an Amendment Agreement (the “Amendment”) with Whalehaven relating to the Initial Purchase Agreement, and the Initial Debenture due August 1, 2009, in the principal amount of $400,000 issued by us to Whalehaven pursuant to the Initial Purchase Agreement. The Amendment provided that the minimum conversion price would be $.013 per share and that the contemplated second closing for another $400,000 debenture would be abandoned. Consequently, no debenture or warrants would be issued beyond the securities issued in connection with the first closing, as the total facility amount was limited to $400,000.
On November 12, 2008, our Registration Statement relating to the Initial Debenture was declared effective. On November 20, 2008, we entered into a Securities Purchase Agreement with two unaffiliated third parties, Whalehaven and Alpha Capital Anstalt (“Alpha”), relating to a private placement (the “New Private Placement”) of $400,000 in principal amount of one-year 8% Senior Secured Convertible Debentures (the “New Debentures”). We were required to file a Registration Statement covering the shares of common stock underlying the New Debentures, including any shares payable as interest, pursuant to the terms of a Registration Rights Agreement dated November 20, 2008, between IDSI and Whalehaven and Alpha promptly following our annual meeting of shareholders, which was held on December 29, 2008. At the meeting the shareholders voted to approve an amendment to our articles of incorporation to increase the authorized shares from 450,000,000 to 950,000,000 (the “Share Amendment”). We were required to use commercially reasonable efforts to cause a Registration Statement to be declared effective as promptly as practicable and no later than 75 days after filing. In the case of a review by the Securities and Exchange Commission the effectiveness date deadline extended to 120 days. In the absence of timely filing or effectiveness, we would be subject to customary liquidated damages.
The New Private Placement generated gross proceeds of $368,000 after payment of an 8% placement agent fee but before other expenses associated with the transaction.
Prior to maturity, the New Debentures bear interest at the rate of 8% per annum, payable quarterly in cash or, at the Company’s option, in shares of common stock based on the then-existing market price.
The New Debentures may be converted in whole or in part at the option of the holder any time after the shareholders have voted to approve the Share Amendment at the lesser of (i) a set price, initially $.033 (the closing price of the shares on the closing date) or (ii) 80% of the 3 lowest bid prices during the 10 consecutive trading days immediately preceding a conversion date; provided, however, that the Conversion Price is subject to a floor price, initially $0.013, and provided further however, that the terms of each Initial Debenture prevent the holder from converting the Debenture to the extent that the conversion would result in the holder and its affiliates beneficially owning more than 4.99% of the outstanding shares of our common stock; however, the limit may be increased to 9.99% on 61 days prior written notice from the holder.
After the effectiveness of the Registration Statement, we may redeem for cash, upon written notice, any and all of the outstanding Debentures at a 25% premium of the principal amount plus accrued and unpaid interest on the Debentures to be redeemed.
The New Debentures are secured by a pledge of substantially all of our assets pursuant to a Security Agreement dated November 20, 2008 between IDSI and Whalehaven and Alpha. This security interest is pari passu with the security interest granted to Whalehaven on August 1, 2008, in connection with the Company’s sale of the $400,000 Initial Debenture to Whalehaven..
In November 2008, Whalehaven converted $160,000 principal amount of the Initial Debenture and received 9,206,065 shares of our common stock as a result. On November 26, 2008, Whalehaven sold to Alpha $50,000 principal amount of the Initial Debenture and the right to purchase 5,555,555 shares underlying the Warrant. As a result of this transaction, the Warrant for 22,222,222 shares was replaced by a warrant held by Whalehaven covering 16,666,667 shares (the "Whalehaven Warrant") and a warrant held by Alpha covering 5,555,555 shares (the "Alpha Warrant") (collectively, the "Warrants").
On December 10, 2008, we entered into an Amendment Agreement with Whalehaven and Alpha relating to the Warrants. Under this Amendment Agreement, we agreed to reduce the exercise price of the Warrants to $.015 per share in exchange for the Purchasers' agreement to immediately exercise the Warrants as to 7,000,000 shares
(5,000,000 covered by the Whalehaven Warrant and 2,000,000 covered by the Alpha Warrant). We used the $105,000 proceeds from the warrant exercise for working capital.
On December 15, 2008, Alpha converted $15,000 principal amount of its Initial Debenture and received 1,052,628 shares of our common stock as a result.
We entered into a second Amendment Agreement dated as of December 31, 2008, with Whalehaven and Alpha relating to the Warrants. Under this Amendment Agreement, we agreed to reduce the exercise price of the Warrants to $.005 per share in exchange for the Purchasers' agreement to immediately exercise the Warrants as to 14,755,555 shares (11,200,000 by Whalehaven and 3,555,555 by Alpha). We further agreed to issue new Warrants to purchase at $.005 per share up to a number of shares of Common Stock equal to the number of shares underlying the existing Warrants being exercised by Whalehaven and Alpha under the second Amendment Agreement.
In December 2008 we received $56,000, and in January 2009 we received $17,778 in proceeds from these Warrant exercises, we used the proceeds for working capital.
After the issuance of shares pursuant to Whalehaven’s Notice of Exercise of its Warrant and subsequent issuance of new Warrants, they have a balance of 11,666,667 shares available for exercise. After the issuance of shares pursuant to Alpha’s Notice of Exercise of its Warrant and subsequent issuance of new Warrants, they havehad a balance of 3,555,555 shares available for exercise.
We entered into a third Amendment Agreement dated as of March 20, 2009, with Whalehaven and Alpha. This Amendment Agreement pertains to a request by the Company to the Holders that they agree to a suspension of the Company’s obligations under the Registration Rights Agreements for both the Initial and New Debentures. In consideration for such suspensions, the Company agreed to an adjustment in the conversion price for both debentures whereby the floor price was reduced from $0.013 to $0.005 and the set price was reduced from $0.019 to $0.01. The new formula for determining the conversion price on any Conversion Date shall be equal to the lesser of (a) $0.01, subject to certain standard adjustments (the “Set Price”) and (b) 80% of the average of the 3 lowest Closing Prices during the 10 Trading Days immediately prior to the applicable Conversion Date (subject to adjustments) (the “Conversion Price”); provided, however, that the Conversion Price shall in no event be less than $0.005 (subject to certain standard adjustments).
As of the date of this report,prospectus, Whalehaven has sold to Alpha a total of $100,000 principal amount of the August Debenture and received from Alpha a total of $50,000 principal amount of the November Debenture, which it had acquired from Alpha on March 17, 2009 in connection with the sale of $50,000 of the August Debenture to Alpha.
As of the date of this prospectus, Whalehaven has converted the $300,000 of the August Debenture which it did not sell to Alpha and has received 36,841,918 shares as a result. Whalehaven has converted $181,000$250,000 of the November Debenture and has received 37,803,36451,600,363 shares as a result. Thus, Whalehaven holdshas converted all of its August and November Debentures into 88,442,281 shares of common stock.
As of September 30, 2009, Whalehaven held Warrants to purchase 11,666,667 shares of common stock at an exercise price of $0.005. On October 14, 2009, Whalehaven exercised Warrants to purchase 6,000,000 shares and received 4,648,649 shares of common stock using the cashless conversion feature with a principal amountVolume Weighted Average Price (“VWAP”) conversion price of $69,000 in the November Debenture.$0.022. The shares were issued pursuant to Rule 144. Whalehaven held Warrants to purchase 5,666,667 shares of common stock at an exercise price of $0.005.
As of the date of this report,prospectus, Alpha has converted $100,000 of the August Debenture and received 17,313,265 shares as a result. Alpha holds a principal amounthas converted $150,000 of $150,000 in the November Debenture.Debenture and has received 28,429,066 shares as a result. Thus, Alpha also holdshas converted all of its August and November Debentures into 45,742,331 shares of common stock which does not include interest. In October 2009, we issued Alpha 2,166,263 shares as a result of the 8% interest on their portion of the debentures.
As of September 30, 2009, Alpha held Warrants to purchase 3,555,555 shares of common stock at an exercise price of $0.005. On October 13, 2009, Alpha exercised its remaining Warrants to purchase 3,555,555 shares and received 2,942,528 shares of common stock using the cashless conversion feature with a VWAP conversion price of $0.029. The shares were issued pursuant to Rule 144.
In October 2009, the Placement Agents exercised its Warrants to purchase 2,666,666 shares and received 1,989,845 shares of common stock using the cashless conversion feature with a VWAP conversion price of $0.0197. The shares were issued pursuant to Rule 144.
In December 2009, Whalehaven exercised its remaining Warrants to purchase 5,666,667 shares and received 4,542,328 shares of common stock using the cashless conversion feature with a VWAP conversion price of $0.0252. The shares were issued pursuant to Rule 144.
There can be no assurance that adequate financing will be available to us when needed, or if available, will be available on acceptable terms. Insufficient funds may prevent us from implementing our business plan or may require us to delay, scale back, or eliminate certain of our research and product development programs or to license to third parties rights to commercialize products or technologies that we would otherwise seek to develop ourselves. To the extent that we utilize our Private Equity Credit Agreements, or additional funds are raised by issuing equity securities, especially convertible preferred stock and convertible debentures, dilution to existing shareholders will result and future investors may be granted rights superior to those of existing shareholders. Moreover, substantial dilution may result in a change in our control.
Private Placement of Preferred Stock
We have had to rely on the private placement of preferred and common stock to obtain working capital. In deciding to issue preferred stock pursuant to the private placements, we took into account the number of common shares authorized and outstanding, the market price of the common stock at the time of each preferred sale and the number of common shares the preferred stock would have been convertible into at the time of the sale. At the time of each private placement of preferred stock there were enough shares, based on the price of our common stock at the time of the sale of the preferred to satisfy the preferred conversion requirements. Although our board of directors tried to negotiate a floor on the conversion price of each series of preferred stock prior to sale, it was unable to do so. In order to obtain working capital we will continue to seek capital through debt or equity financing which may include the issuance of convertible preferred stock whose rights and preferences are superior to those of the common stock holders. We have endeavored to negotiate the best transaction possible taking into account the impact on our shareholders, dilution, loss of voting power and the possibility of a change-in-control; however, in order to satisfy our working capital needs, we have been and may continue to be forced to issue convertible securities and debentures with no limitations on conversion. In addition, the dividends on the preferred stock affect the net losses applicable to shareholders. There are also applicable adjustments as a result of the calculation of the deemed preferred stock dividends because we have entered into contracts providing for discounts on the preferred stock when it is converted.
In the event that we issue preferred stock, without a limit on the number of shares that can be issued upon conversion and the price of our common stock decreases, the percentage of shares outstanding that will be held by preferred holders upon conversion will increase accordingly. The lower the market price the greater the number of shares to be issued to the preferred holders, upon conversion, thus increasing the potential profits to the holders when the price per share increases and the holders sell the common shares. In addition, the sale of a substantial amount of preferred stock to relatively few holders could cause a possible change-in-control. In the event of a voluntary or involuntary liquidation while the preferred stock is outstanding, the holders will be entitled to a specified preference in distribution of our property available for distribution. As of the date of this report there are no outstanding shares of preferred stock.
Series K Preferred
See “Financing/Equity Line of Credit”.
Private Placement of Common Stock
Issuance of Stock for Services
We, from time to time, have issued and may continue to issue stock for services rendered by consultants, all of whom have been unaffiliated.
Since we have generated no significant revenues to date, our ability to obtain and retain consultants may be dependent on our ability to issue stock for services. Since July 1, 1996, we have issued an aggregate of 2,306,500 shares of common stock according to registration statements on Form S-8. The aggregate fair market value of the shares registered on Form S-8 when issued was $2,437,151. On July 15, 2008, we entered into a Financial Services Consulting Agreement (the “Agreement”) with R.H. Barsom Company, Inc. of New York, NY, an unaffiliated third-party, to provide us with investor relations services and guidance and assistance in available alternatives to
maximize shareholder value. The term of the Agreement is six months, with payment for services being made with shares of IDSI’s common stock with a restricted legend to Richard E. Barsom. The total payment will be 5,000,000 restricted shares, with the first payment of 2,500,000 restricted shares paid on July 16, 2008, and the second
payment of 2,500,000 restricted shares due three months after July 15, 2008. The aggregate fair market value of the 5,000,000 restricted shares when issued was $55,000. The Company agreed to register as soon as practicable the aggregate of 5,000,000 shares in an S-1 Registration Statement.
The issuance of large amounts of our common stock, sometimes at prices well below market price, for services rendered or to be rendered and the subsequent sale of these shares may further depress the price of our common stock and dilute the holdings of our shareholders. In addition, because of the possible dilution to existing shareholders, the issuance of substantial additional shares may cause a change-in-control.
Stock in Connection with Short-Term Loans
In November 2009, we borrowed a total of $237,500 from four private investors pursuant to short-term promissory notes. These notes are due and payable in the amount of principal and 20% premium, so that the total amount due will be $285,000. The original due date of December 21, 2009, has been extended to January 29, 2010. In addition, we issued to the investors 70 shares of restricted common stock for each $1 lent so that a total of 16,625,000 shares of stock were issued to the investors. The aggregate fair market value of the 16,625,000 shares of stock when issued was $465,500. As of the date of this Prospectus, we have paid on these notes the aggregate principal amount of $68,750 to three of the four private investors.
In December 2009, we borrowed a total of $400,000 from a private investor pursuant to three short-term promissory notes. These notes are payable from March 10 through March 15, 2010 in the amount of principal plus 15% premium, so that the total amount due will be $460,000. In addition, we issued to the investor 24,000,000 shares of restricted common stock as collateral. These shares are to be returned upon payment of the notes.
On January 8, 2010, we borrowed $500,000 from a private investor pursuant to a short-term promissory note. This note is payable April 6, 2010 in the amount of principal plus 15% premium, so that the total amount due will be $575,000. In addition, we issued to the investor 26,136,364 shares of restricted common stock as collateral. These shares are to be returned upon payment of the notes.
There can be no assurances that we will be able to pay these notes when due. If we default on the notes due to the lack of new funding, we could be materially adversely affected.
Issuance of Stock for Settlements In Lieu of Cash
On March 28, 2002, we issued 350,000 restricted shares of common stock to Anthony Giambrone in settlement of a lawsuit for alleged breach of a consulting agreement. The shares were issued in an exempt transaction pursuant to section 4(2) of the Securities Act of 1933, as amended. The suit was dismissed by stipulation on April 23, 2002. In addition we agreed that, if the market price of our common stock on March 28, 2003, was less than $.75 per share, then we would issue to him additional shares of common stock equal to the quotient of (a) 262,500 minus the product of (i) 350,000 and (ii) the market price, divided by (b) the market price. On March 28, 2003, the market price of our stock was $.17, so we issued to him 1,194,118 additional shares bearing a restricted legend. Under the settlement agreement, we were obligated to register the shares issued to Mr. Giambrone, subject to certain conditions. The shares were subsequently registered on July 23, 2003.
On or about September 18, 2003, we entered into a settlement agreement to settle a lawsuit filed by Ladenburg Thalmann & Co. Inc. for alleged breach of an investment-banking contract. Under this settlement we agreed to issue 401,785 shares of our common stock to Ladenburg in exchange for Ladenburg’s dismissal with prejudice of its claims against us. As of the date of the Settlement Agreement the value of the stock was approximately $450,000. We and Ladenburg jointly moved for Court approval of the settlement as fair to Ladenburg so that the delivery of the shares to and the resale of the shares in the United States by Ladenburg may be exempt from registration under Section 3(a)(10) of the Securities Act of 1933. In an order dated October 24, 2003, the Judge ordered and adjudged that the settlement was approved as fair to the party to whom the shares would be issued within the meaning of Section 3(a)(10) and the case was closed. The shares were issued on November 12, 2003.
Issuance of Stock in Isolated Private Sales
During fiscal 2009, we issued 4,000,000 restricted shares of common stock to private investors in two transactions in which we received a total of $80,000. The fair market value of these shares on their date of issuance was $80,000.
We will require substantial additional funds for working capital, including operating expenses, clinical testing, regulatory processes and manufacturing and marketing programs and our continuing product development programs. Our capital requirements will depend on numerous factors, including the progress of our product development programs, results of pre-clinical and clinical testing, the time and cost involved in obtaining regulatory approvals, the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, competing technological and market developments and changes in our existing research, licensing and other relationships and the terms of any new collaborative, licensing and other arrangements that we may establish. Moreover, our fixed commitments, including salaries and fees for current employees and consultants, and other contractual agreements are likely to increase as additional agreements are entered into and additional personnel are retained.
From July 2000 until August 2007, when we entered into an agreement for the sale/lease-back of our headquarters facility, Charlton Avenue LLC (“Charlton”) provided all of our necessary funding through the private placement sale of convertible preferred stock with a 9% dividend and common stock through various private equity credit agreements. See “Item 2, Results of Operations, Liquidity and Capital Resources, Sale/Lease-Back” We initially sold Charlton 400 shares of our Series K convertible preferred stock for $4 million and subsequently issued an additional 95 Series K shares to Charlton for $950,000 on November 7, 2000. We paid Spinneret Financial Systems Ltd. (“Spinneret”), an independent financial consulting firm unaffiliated with the Company and, according to Spinneret and Charlton, unaffiliated with Charlton, $200,000 as a consulting fee for the first tranche of Series K shares and five Series K shares as a consulting fee for the second tranche. The total of $4,950,000 was designed to serve as bridge financing pending draws on the Charlton private equity line provided through the various private equity credit agreements described in the following paragraphs.
From November 2000 to April 2001, Charlton converted 445 shares of Series K convertible preferred stock into 5,600,071 common shares and we redeemed 50 Series K shares for $550,000 using proceeds from the Charlton private equity line. Spinneret converted 5 Series K shares for $63,996. All Series K convertible preferred stock has been converted or redeemed and there are no convertible preferred shares outstanding.
Prior Equity Agreements
From August 2000 to February 2004, we obtained funding through three Private Equity Agreements with Charlton. Each equity agreement provided that the timing and amounts of the purchase by the investor were at our sole discretion. The purchase price of the shares of common stock was set at 91% of the market price. The market price, as defined in each agreement, was the average of the three lowest closing bid prices of the common stock over the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche. The only fee associated with the private equity financing was a 5% consulting fee payable to Spinneret. In September 2001 Spinneret proposed to lower the consulting fee to 4% provided that we pay their consulting fees in advance. We reached an agreement to pay Spinneret in advance as requested and paid them $250,000 out of proceeds from a put.
From the date of our first put notice, January 25, 2001 to our last put notice, February 11, 2004, under our Third Private Equity Credit Agreement, we drew a total of $20,506,000 and issued 49,311,898 shares to Charlton. As each of the obligations under these prior agreements was satisfied, the agreements were terminated. The Third Private
Equity Agreement was terminated on March 4, 2004 upon the effectiveness of our first Registration Statement for the Fourth Private Equity Credit Agreement.
On January 9, 2004, we and Charlton entered into a new “Fourth Private Equity Credit Agreement” which replaced our prior private equity agreements. The terms of the Fourth Private Equity Credit Agreement were more favorable to us than the terms of the prior Third Private Equity Credit Agreement. The new, more favorable terms were: (i) The put option price was 93% of the three lowest closing bid prices in the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche, while the prior Third Private Equity Credit Agreement provided for 91%, (ii) the commitment period was two years from the effective date of a registration statement covering the Fourth Private Equity Credit Agreement shares, while the prior Third Private Equity Credit Agreement was for three years, (iii) the maximum commitment was $15,000,000, (iv) the minimum amount we were required to draw through the end of the commitment period was $1,000,000, while the prior Third Private Equity Credit Agreement minimum amount was $2,500,000, (v) the minimum stock price requirement was controlled by us as we had the option of setting a floor price for each put transaction (the previous minimum stock price in the Third Private Equity Credit Agreement was fixed at $.10), (vi) there were no fees
associated with the Fourth Private Equity Credit Agreement; the prior private equity agreements required the payment of a 5% consulting fee to Spinneret, which was subsequently lowered to 4% by mutual agreement in September 2001, and (vii) the elimination of the requirement of a minimum average daily trading volume in dollars. The previous requirement in the Third Private Equity Credit Agreement was $20,000.
We made sales under the Fourth Private Equity Credit Agreement from time to time in order to raise working capital on an “as needed” basis. Under the Fourth Private Equity Credit Agreement we drew down $14,198,541 and issued 66,658,342 shares of common stock. We terminated use of the Fourth Private Equity Credit Agreement and instead began to rely on the Fifth Private Equity Credit Agreement (described below) upon the April 26, 2006, effectiveness of our S-1 Registration Statement filed March 23, 2006.
On March 21, 2006, we and Charlton entered into a new “Fifth Private Equity Credit Agreement” which has replaced our prior Fourth Private Equity Credit Agreement. The terms of the Fifth Private Equity Credit Agreement were similar to the terms of the prior Fourth Private Equity Credit Agreement. The new credit line’s terms were (i) The put option price is 93% of the three lowest closing bid prices in the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche (the “Valuation Period”), (ii) the commitment period was two years from the effective date of a registration statement covering the Fifth Private Equity Credit Agreement shares, (iii) the maximum commitment was $15,000,000, (iv) the minimum amount we were required to draw through the end of the commitment period was $1,000,000, (v) the minimum stock price, also known as the floor price was computed as follows: In the event that, during a Valuation Period, the Bid Price on any Trading Day fell more than 18% below the closing trade price on the trading day immediately prior to the date of the Company’s Put Notice (a “Low Bid Price”), for each such Trading Day the parties had no right and were under no obligation to purchase and sell one tenth of the Investment Amount specified in the Put Notice, and the
Investment Amount accordingly would be deemed reduced by such amount. In the event that during a Valuation Period there existed a Low Bid Price for any three Trading Days—not necessarily consecutive—then the balance of each party’s right and obligation to purchase and sell the Investment Amount under such Put Notice would terminate on such third Trading Day (“Termination Day”), and the Investment Amount would be adjusted to include only one-tenth of the initial Investment Amount for each Trading Day during the Valuation Period prior to the Termination Day that the Bid Price equaled or exceeded the Low Bid Price and (vi) there were no fees associated with the Fifth Private Equity Credit Agreement.
We made sales under the Fifth Private Equity Credit Agreement from time to time in order to raise working capital on an “as needed” basis. Prior to the expiration of the Fifth Private Equity Credit Agreement on March 21, 2008, we drew down $5,967,717 and issued 82,705,772 shares of common stock.
The Sixth Private Equity Credit Agreement
On April 21, 2008, we and Charlton entered into a new “Sixth Private Equity Credit Agreement” which has replaced our prior Fifth Private Equity Credit Agreement. The terms of the Sixth Private Equity Credit Agreement are similar to the terms of the prior Fifth Private Equity Credit Agreement. This new credit line’s terms are (i) The put option price is 93% of the three lowest closing bid prices in the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche (the “Valuation Period”), (ii) the commitment period is three years from the effective date of a registration statement covering the Sixth Private Equity Credit Agreement shares, (iii) the maximum commitment is $15,000,000, (iv) There is no minimum commitment amount, (v) the minimum stock price, also known as the floor price is computed as follows: In the event that, during a Valuation Period, the Bid Price on any Trading Day falls more than 20% below the closing trade price on the trading day immediately prior to the date of the Company’s Put Notice (a “Low Bid Price”), for each such Trading Day the parties shall have no right and shall be under no obligation to purchase and sell one tenth of the Investment Amount specified in the Put Notice, and the Investment Amount shall accordingly be deemed reduced by such amount. In the event that during a Valuation Period there exists a Low Bid Price for any three Trading Days—not necessarily consecutive—then the balance of each party’s right and obligation to purchase and sell the Investment Amount under such Put Notice shall terminate on such third Trading Day (“Termination Day”), and the Investment Amount shall be adjusted to include only one-tenth of the initial Investment Amount for each Trading Day during the Valuation Period prior to the Termination Day that the Bid Price equals or exceeds the Low Bid Price and (vi) there are no fees associated with the Sixth Private Equity Credit Agreement. The conditions to our ability to draw under this private equity line, as described above, may materially limit the draws available to us.
As of the date of this report,prospectus, since January 2001, we have drawn an aggregate of $42,417,431$42,714,650 in gross proceeds from our equity credit lines with Charlton and have issued 363,676,012425,676,012 shares as a result of those draws.
The Southridge Private Equity Credit Agreement
On November 23, 2009, we and Southridge entered into a new “Southridge Private Equity Credit Agreement” which has replaced our prior Sixth Private Equity Credit Agreement with Charlton. On January 7, 2010, we and Southridge amended the terms of the “Southridge Private Equity Credit Agreement” and revised the language to clarify that Southridge is irrevocably bound to accept our put notices subject to compliance with the explicit conditions of the Agreement.
The terms of the Southridge Private Equity Credit Agreement are similar to the terms of the prior Sixth Private Equity Credit Agreement with Charlton. This new credit line’s terms are (i) The put option price is 93% of the three lowest closing bid prices in the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche (the “Valuation Period”), (ii) the commitment period is three years from the effective date of a registration statement covering the Southridge Private Equity Credit Agreement shares, (iii) the maximum commitment is $15,000,000, (iv) There is no minimum commitment amount, and (v) there are no fees associated with the Southridge Private Equity Credit Agreement. The conditions to our ability to draw under this private equity line, as described above, may materially limit the draws available to us.
We are obligated to prepare promptly, and file with the SEC within sixty (60) days of the Subscription Date, a Registration Statement with respect to not less than 100,000,000 of Registrable Securities, and, thereafter, use all diligent efforts to cause the Registration Statement relating to the Registrable Securities to become effective the earlier of (a) five (5) business days after notice from the Securities and Exchange Commission that the Registration Statement may be declared effective, or (b) one hundred eighty (180) days after the Subscription Date, and keep the Registration Statement effective at all times until the earliest of (i) the date that is one year after the completion of the last Closing Date under the Purchase Agreement, (ii) the date when the Investor may sell all Registrable Securities under Rule 144 without volume limitations, or (iii) the date the Investor no longer owns any of the Registrable Securities (collectively, the "Registration Period"), which Registration Statement (including any amendments or supplements, thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
We are further obligated to prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to keep the Registration Statement effective at all times during the Registration Period, and, during the Registration Period, and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement until the expiration of the Registration Period.
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.Agreement, which was then in effect.
Item 6. Selected financial data
| IMAGING DIAGNOSTIC SYSTEMS, INC. | ||||||||||||||||
| (a Development Stage Company) | ||||||||||||||||
Selected Quarterly Financial Data | ||||||||||||||||
| Fiscal 2008 | ||||||||||||||||
| Quarter Ended | Quarter Ended | Quarter Ended | Quarter Ended | |||||||||||||
| June 30, 2008 | March 31, 2008 | December 31, 2007 | September 30, 2007 | |||||||||||||
| Net Sales | $ | - | $ | 2,695 | $ | 9,409 | $ | 27,543 | ||||||||
| Gross Profit | $ | - | $ | - | $ | 4,876 | $ | 13,827 | ||||||||
| Operating Loss | $ | (1,464,692 | ) | $ | (1,584,063 | ) | $ | (1,683,645 | ) | $ | (1,481,560 | ) | ||||
| Net loss applicable to | ||||||||||||||||
| common shareholders | $ | (1,479,191 | ) | $ | 37,762 | $ | (1,683,975 | ) | $ | (1,498,274 | ) | |||||
| Net Loss per common share | $ | (0.00 | ) | $ | 0.00 | $ | (0.01 | ) | $ | (0.00 | ) | |||||
| Weighted avg. no. of common shares, | ||||||||||||||||
| Basic & Diluted | 318,673,749 | 319,185,450 | 318,303,887 | 316,602,013 | ||||||||||||
| Cash and Cash Equivalents | $ | 49,433 | $ | 771,633 | $ | 428,643 | $ | 1,304,040 | ||||||||
| Total Assets | $ | 1,583,356 | $ | 2,622,194 | $ | 4,128,400 | $ | 5,135,678 | ||||||||
| Deficit accumulated during | ||||||||||||||||
| the development stage | $ | (102,964,738 | ) | $ | (101,485,828 | ) | $ | (101,523,588 | ) | $ | (99,839,333 | ) | ||||
| Stockholders' Equity | $ | (468,761 | ) | $ | 722,018 | $ | 660,376 | $ | 2,242,352 | |||||||
| 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 | ||||||||
| The following selected financial data should be read in conjunction with "Item 7. Management's Discussion and Analysis | ||||||||||||||||||||
| of Financial Condition and Results of Operations" and "Item 8. Financial Statements" | ||||||||||||||||||||
| Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
| June 30, 2009 | June 30, 2008 | June 30, 2007 | June 30, 2006 | June 30, 2005 | ||||||||||||||||
| Sales | $ | 70,617 | $ | 39,647 | $ | 65,136 | $ | 675,844 | $ | 374,952 | ||||||||||
| Cost of Sales | 20,546 | 20,944 | 17,870 | 316,189 | 166,685 | |||||||||||||||
| Gross Profit | 50,071 | 18,703 | 47,266 | 359,655 | 208,267 | |||||||||||||||
| Operating Expenses | 4,505,908 | 6,232,663 | 7,123,347 | 6,984,057 | 7,338,806 | |||||||||||||||
| Operating Loss | (4,455,837 | ) | (6,213,960 | ) | (7,076,081 | ) | (6,624,402 | ) | (7,130,539 | ) | ||||||||||
| Gain (Loss) on sale of fixed assets | 1,181,894 | 1,609,525 | - | (2,439 | ) | - | ||||||||||||||
| Interest income | 636 | 13,377 | 11,455 | 8,416 | 5,680 | |||||||||||||||
| Other income | 5,909 | 7,827 | 250,001 | 21,500 | 409,962 | |||||||||||||||
| Interest expense | (677,031 | ) | (40,447 | ) | (387,697 | ) | (565,797 | ) | (598,021 | ) | ||||||||||
| Net Loss | (3,944,429 | ) | (4,623,678 | ) | (7,202,322 | ) | (7,162,722 | ) | (7,312,918 | ) | ||||||||||
| Dividends on cumulative Pfd. stock: | ||||||||||||||||||||
| From discount at issuance | - | - | - | - | - | |||||||||||||||
| Earned | - | - | - | - | - | |||||||||||||||
| Net loss applicable to | ||||||||||||||||||||
| common shareholders | $ | (3,944,429 | ) | $ | (4,623,678 | ) | $ | (7,202,322 | ) | $ | (7,162,722 | ) | $ | (7,312,918 | ) | |||||
| Net Loss per common share | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.04 | ) | |||||
| Weighted avg. no. of common shares, | ||||||||||||||||||||
| Basic & Diluted | 424,330,162 | 318,673,749 | 271,667,256 | 218,846,738 | 185,636,553 | |||||||||||||||
| Cash and Cash Equivalents | $ | 12,535 | $ | 49,433 | $ | 477,812 | $ | 1,467,687 | $ | 765,523 | ||||||||||
| Total Assets | 1,134,580 | 1,583,356 | 4,365,427 | 6,250,909 | 5,608,004 | |||||||||||||||
| Deficit accumulated during | ||||||||||||||||||||
| the development stage | (106,909,167 | ) | (102,964,738 | ) | (98,341,059 | ) | (91,138,737 | ) | (83,976,015 | ) | ||||||||||
| Stockholders' Equity | (1,129,222 | ) | (468,761 | ) | 3,441,322 | 5,651,916 | 4,772,538 | |||||||||||||
Supplementary Financial Information
On September 13, 2007, we entered into an agreement with an unaffiliated third-party for the sale and lease-back of our prior facility at 6531 N.W. 18th Court, Plantation, Florida. On March 31, 2008, pursuant to the sale/lease-back transaction, we closed the sale of our commercial building for $4.4 million to Bright Investments LLC (“Bright”), an unaffiliated third-party and a sister company to Superfun B.V. On April 29, 2008, we gave six months prior written notice of termination of our lease of the Plantation facility as part of our cost cutting initiatives.
The following discussion and analysis should be read in conjunction with the “Selected Financial Data” and the Condensed Financial Statements included elsewhere in this report and the information described under the caption “Risk Factors” below.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to inventories, and intangible assets. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that may not be readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Inventory
Our inventories consist of raw materials, work-in-process and finished goods, and are stated at the lower of cost (first-in, first-out) or market. As a designer and manufacturer of high technology medical imaging equipment, we may be exposed to a number of economic and industry factors that could result in portions of our inventory becoming either obsolete or in excess of anticipated usage. These factors include, but are not limited to, technological changes in our markets, our ability to meet changing customer requirements, competitive pressures in products and prices and reliability, replacement and availability of key components from our suppliers. We evaluate on a quarterly basis, using ARB guidance in the guidanceBusiness Combinations Topic of ARB 43, Chapter 4, Statement 5,the Codification, our ability to realize the value of our inventory based on a combination of factors including the following: how long a system has been used for demonstration or clinical collaboration purpose; the utility of the goods as compared to their cost; physical obsolescence; historical usage rates; forecasted sales or usage; product end of life dates; estimated current and future market values; and new product introductions. Assumptions used in determining our estimates of future product demand may prove to be incorrect, in which case excess and obsolete inventory would have to be adjusted in the future. If we determined that inventory was overvalued, we would be required to make an inventory valuation adjustment at the time of such determination. Although every effort is made to ensure the accuracy of our forecasts of future product demand, significant unanticipated changes in demand could have a significant negative impact on the value of our inventory and our reported operating results. Additionally, purchasing requirements and alternative usage avenues are explored within these processes to mitigate inventory exposure.
Stock-Based Compensation
The computation of the expense associated with stock-based compensation requires the use of a valuation model. SFAS 123(R)The FASB issued guidance in the Consolidated Topic of the Codification is a very complex accounting standard, the application of which requires significant judgment and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility, expected option lives, and expected option forfeiture rates, to value equity-based compensation. The Company currently uses a Black-Scholes option pricing model to calculate the fair value of its stock options. The Company primarily uses historical data to determine the assumptions to be used in the Black-Scholes model and has no reason to believe that future data is likely to differ materially from historical data. However, changes in the assumptions to reflect future stock price volatility and future stock award exercise experience could result in a change in the assumptions used to value awards in the future and may result in a material change to the fair value calculation of stock-based awards. SFAS 123(R)The FASB guidance requires the recognition of the fair value of stock compensation in net income. Although every effort is made to ensure the accuracy of our estimates and assumptions, significant unanticipated changes in those estimates, interpretations and assumptions may result in recording stock option expense that may materially impact our financial statements for each respective reporting period.
Results of Operations
In the continuing process of commercializing our operations and as part of our transition plan to exit from SFAS 7 reporting as a development stage enterprise, we continue to use the format established for the fiscal year ending June 30, 2005 of our management discussion and analysis of financial condition and results of operations (MD&A) to better disclose and discuss the three most significant categories of expenses, i.e., general and administrative, research and development, and sales and marketing.
Twelve Months Ended June 30, 2009 and June 30, 2008
SALES AND COST OF SALES
Revenues during the year ended June 30, 2009, were $70,617 representing an increase of $30,970 or 78% from $39,647 during the year ended June 30, 2008. The increase in revenues is a result of recording revenue from payment plans at the time when the customers paid. We also recognized certain non-refundable customer deposits as revenue when one of our customers failed to make payments according to the sales agreements.
The Cost of Sales during the year ended June 30, 2009, was $20,546 representing a decrease of $398 or 2% from $20,944 during the year ended June 30, 2008. The decrease in Cost of Sales is a result of inventory write-downs from prior periods and has been adjusted accordingly to what the customer paid compared to the year ended June 30, 2008.
GENERAL AND ADMINISTRATIVE
Our general and administrative expenses include compensation and related benefits for employees in administration, finance, human resources and information technology. Also included are travel/subsistence related to general and administrative activities; property and casualty insurance; directors’ and officers’ liability insurance; professional fees associated with our corporate and securities attorneys and independent auditors; patent maintenance; corporate governance expenses; stockholder expenses; consulting; utilities; maintenance; telephones; office supplies and sales and property taxes.
General and administrative expenses during the year ended June 30, 2009, were $2,379,113 representing a decrease of $265,443 or 10% from $2,644,556 during the year ended June 30, 2008. Of the $2,379,113 and $2,644,556, compensation and related benefits comprised $1,465,548 (63%) and $1,661,477 (63%), respectively, representing a decrease of $195,929 or 12%. Of the $1,465,548 and $1,661,477 compensation and related benefits, $116,319 (9%) and $155,133 (9%), respectively, were due to non-cash compensation associated with expensing stock options.
The general and administrative decrease of $265,443 is due primarily to decreases of $195,929 in compensation and related benefits as a result of a reduction in staff; $114,867 in Board Meeting expense as a result of not having any outside independent directors; and $133,966 as a result of reducing or canceling several of our insurance policies; $52,974 in real estate taxes, $38,122 in maintenance and repairs and $4,228 in utilities as a result of moving into a smaller facility in August 2008 that we rent rather than own; $9,637 in office supplies and $21,160 in telephone and cell phone expenses as a result of a reduction in staff; and $28,500 in investor relations expenses as a result of canceling our agreement in March 2008 with LC Group, an investor relations consulting firm. These reductions were a result of our cost saving initiatives.
The total decrease is partially offset by increases of $122,187 in office rent expense; $80,788 in legal expenses associated with general corporate and securities matters; $69,428 in proxy service expenses due to having our annual meeting during the fiscal year and not having an annual meeting in fiscal year 2008; and $64,000 in placement fees in connection with the convertible debenture financing of $800,000.
We do not expect a material increase in our general and administrative expenses until we realize a significant increase in revenue from the sale of our product.
RESEARCH AND DEVELOPMENT
We incur research and development expenses to develop significant enhancements to our sole product, the CTLM®. These expenses consist primarily of compensation and related benefits; clinical, legal and consulting fees associated with our PMA application; costs of materials and components we use to make product enhancements; new product research; professional fees associated with the research and applications for new patents; and the costs associated with the travel/subsistence, shipping, training, installing and servicing clinical collaboration sites.
Research and development expenses during the year ended June 30, 2009, were $1,226,718 representing a decrease of $853,547 or 41% from $2,080,265 during the year ended June 30, 2008. Of the $1,226,718 and $2,080,265, compensation and related benefits comprised $755,348 (62%) and $1,024,852 (49%), respectively, representing a decrease of $269,504 or 26%. Of the $755,348 and $1,024,852 compensation and related benefits, $12,939 (2%) and $13,067 (1%), respectively, were due to non-cash compensation associated with expensing stock options.
The research and development decrease of $853,547 is due primarily to a decrease of $269,504 in compensation and related benefits as a result of a reduction in staff; $218,068 in consulting expenses due to our decreased use of consultants in the field of scientific and clinical disciplines, in consulting expenses primarily associated with the monitoring and data management of our PMA and various consultants involved with design engineering, software engineering and research by our consulting radiologist; $138,594 in research and development projects; $112,940 in clinical expenses; $71,071 in travel related expenses due to decreased travel to our U.S. clinical sites and to our International clinical collaboration sites; and $56,318 in FDA legal expenses.
Clinical expenses during the year ended June 30, 2009, were $141,713 representing a decrease of $112,940 or 44% from $254,653 as a result of the variable costs associated with our PMA clinical trials.
We expect a significant increase in our research and development expenses during the fiscal year ending June 30, 2010 due to increased costs associated with preparing our PMA application and submitting it to the FDA. We also expect our consulting expenses and professional fees to increase due to the costs associated with our PMA application. See Item 1. Our Business - “Clinical Collaboration Sites Update”.
SALES AND MARKETING
Our sales and marketing expenses consist primarily of compensation and related benefits for employees in the areas of sales, marketing, sales support and sales administration. Also included are the expenses associated with advertising and promotion; representative office expense; trade shows; conferences; promotional and training costs related to marketing the CTLM®; commissions; travel/subsistence; consulting; certification expenses; and product liability insurance.
Sales and marketing expenses during the year ended June 30, 2009, were $615,448 representing a decrease of $452,207 or 42% from $1,067,655 during the year ended June 30, 2008. Of the $615,448 and $1,067,655, compensation and related benefits comprised $111,743 (18%) and $176,005 (16%), respectively, representing a decrease of $64,262 or 37%. Of the $111,743 and $176,005 compensation and related benefits, $2,069 (2%) and $1,919 (1%), respectively, were due to non-cash compensation associated with expensing stock options.
The sales and marketing decrease of $452,207 was due primarily to a decrease in compensation and related benefits of $64,262 as a result of the reduction in staff; $90,479 in freight charges as a result of transportation charges, customs fees, duties and taxes associated with CTLM® systems we shipped internationally in fiscal year 2008; $67,174 in representative office expense as a result of our new strategic marketing plan to appoint a distributor and dealers and closed our representative office in Beijing, China as part of our cost savings initiative; $203,405 in travel expenses associated with sales and marketing related activities; $33,210 in advertising and promotion; and $49,800 in marketing related consulting expenses.
The total decrease is partially offset by increases of $30,742 in regulatory expenses and $14,048 in trade show expenses.
After we file our PMA application, we expect commissions, trade show expenses, advertising and promotion and travel and subsistence costs to increase as we continue to implement our global commercialization program.
AGGREGATED OPERATING EXPENSES
Total operating expenses (general and administrative, research and development, sales and marketing, inventory valuation adjustments and depreciation and amortization) during the year ended June 30, 2009, were $4,505,908 representing a decrease of $1,726,755 or 28% from $6,232,663 when compared to the operating expenses during the year ended June 30, 2008. The overall reduction in expenses was a result of the implementation of cost saving initiatives.
Compensation and related benefits during the year ended June 30, 2009, were $2,332,639 representing a decrease of $529,695 or 19% from $2,862,334 during the year ended June 30, 2008 due to a reduction in staff. Of the $2,332,639 and $2,862,334 compensation and related benefits, $131,327 (6%) and $170,119 (6%), respectively, were due to non-cash compensation associated with expensing stock options. The net decrease of $529,695 was due to a decrease of cash compensation of $490,904 combined with a $38,792 decrease in the recording of non-cash compensation related to the expensing of stock options.
Inventory valuation adjustments during the year ended June 30, 2009, were $82,286 representing a decrease of $176,089 or 68% from $258,375 during the year ended June 30, 2008. The decrease is due to a reduction in the write-down of systems that have lost value due to usage as demonstrators on consignment. See “Critical Accounting Policy – Inventory”.
Depreciation and amortization during the year ended June 30, 2009, were $202,344 representing an increase of $20,532 or 11% from $181,812 during the year ended June 30, 2008.
Interest expense during the fiscal year ended June 30, 2009, was $677,031 representing an increase of $636,584 or 1,574% from $40,447 during the year ended June 30, 2008. The interest expense is primarily comprised of the amortization of the debt discount on our convertible debentures and the imputed interest associated with our equity credit line with Charlton Avenue, LLC (“Charlton”) as per the terms and conditions of our private equity credit agreement. Our utilization of the equity credit line increased significantly during fiscal 2009 as we previously used in fiscal 2008 the proceeds from the sale/lease-back of our building for current operations. This resulted in the substantial year-over-year increase in interest expense. See Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters – “Financing/Equity Line of Credit”
Other income during the year ended June 30, 2009, was $5,909 representing a decrease of $1,918 or 25% from $7,827 during the year ended June 30, 2008. The $5,909 represents the sale of the LILA Inventory, use of our facilities and consulting with our engineers pursuant to the Bioscan Agreement. (See Item 1 Our Business -“Laser Imager for Lab Animals”).
Twelve Months Ended June 30, 2008 and June 30, 2007
SALES AND COST OF SALES
Revenues during the year ended June 30, 2008, were $39,647 representing a decrease of $25,489 or 39% from $65,136 during the year ended June 30, 2007. The decrease in revenues is a result of recording revenue from a payment plan at the time when the customer paid compared to the year ended June 30, 2007 when in addition to recording revenue from payment plans at the time when the customers’ paid, we also recognized certain non-refundable customer deposits as revenue when our customer’s failed to make payments according to the sales agreements.
The Cost of Sales during the year ended June 30, 2008, was $20,944 representing an increase of $3,074 or 17% from $17,870 during the year ended June 30, 2007. The increase in Cost of Sales is a result of incremental increases in such costs being recorded in proportion to what the customer paid compared to the year ended June 30, 2007.
GENERAL AND ADMINISTRATIVE
Our general and administrative expenses include compensation and related benefits for employees in administration, finance, human resources and information technology. Also included are travel/subsistence related to general and administrative activities; property and casualty insurance; directors’ and officers’ liability insurance; professional fees associated with our corporate and securities attorneys and independent auditors; patent maintenance; corporate governance expenses; stockholder expenses; consulting; utilities; maintenance; telephones; office supplies and sales and property taxes.
General and administrative expenses during the year ended June 30, 2008, were $2,644,556 representing a decrease of $368,019 or 12% from $3,012,575 during the year ended June 30, 2007. Of the $2,644,556 and $3,012,575, compensation and related benefits comprised $1,661,477 (63%) and $2,090,560 (69%), respectively, representing a decrease of $429,083 or 21%. Of the $1,661,477 and $2,090,560 compensation and related benefits, $155,133 (9%) and $360,695 (17%), respectively, were due to non-cash compensation associated with expensing stock options.
The general and administrative decrease of $368,019 is due primarily to decreases of $429,083 in compensation and related benefits as a result of a reduction in staff; $75,230 in proxy service expenses due to not having an annual meeting during the fiscal year; $14,227 in office supplies; $10,153 associated with the maintenance of existing patents; $17,366 in telephone and cell phone expenses as a result of a reduction in staff; $10,802 in postage and shipping expenses; and $7,500 in investor relations expenses as a result of canceling our agreement in March 2008 with LC Group, an investor relation consulting firm. These reductions were a result of our cost saving initiatives.
The total decrease is partially offset by increases of $85,935 in office rent expense and the corresponding entry to record the rent holiday as a deferred rent liability for the period of March 14, 2008 through June 30, 2008 (See Note 8 – Sale/Lease-Back of Building); $62,851 in consulting expenses during the period due primarily to the consulting agreement with our former CEO, Tim Hansen; $36,171 for our Director and Officer Insurance policy, which increased because we increased the coverage from $5 million to $10 million; and $22,132 in legal expenses associated with general corporate and securities matters.
We do not expect a material increase in our general and administrative expenses until we realize a significant increase in revenue from the sale of our product.
RESEARCH AND DEVELOPMENT
We incur research and development expenses to develop significant enhancements to our sole product, the CTLM®. These expenses consist primarily of compensation and related benefits; clinical, legal and consulting fees associated with our PMA application; costs of materials and components we use to make product enhancements; new product research; professional fees associated with the research and applications for new patents; and the costs associated with the travel/subsistence, shipping, training, installing and servicing clinical collaboration sites.
Research and development expenses during the year ended June 30, 2008, were $2,080,265 representing a decrease of $9,232 or less than 1% from $2,089,497 during the year ended June 30, 2007. Of the $2,080,265 and $2,089,497, compensation and related benefits comprised $1,024,852 (49%) and $1,475,076 (71%), respectively, representing a decrease of $450,224 or 31%. Of the $1,024,852 and $1,475,076 compensation and related benefits, $13,067 (1%) and $40,672 (3%), respectively, were due to non-cash compensation associated with expensing stock options.
The research and development decrease of $9,232 is due primarily to a decrease of $450,224 in compensation and related benefits as a result of a reduction in staff and $63,705 in legal expenses as a result of less patent applications. The total decrease is partially offset by increases of $399,752 in consulting expenses due to our requirements for consultants in the field of scientific and clinical disciplines; $90,867 primarily as a result of transferring parts that were in inventory to research and development; $7,876 in software expenses related to our advanced development of the CTLM®; and $3,490 in travel expenses due to increased travel to our U.S. clinical sites and to our International clinical collaboration sites.
Clinical expenses during the year ended June 30, 2008, were $254,653 representing a decrease of $3,142 or 1% from $257,795 as a result of continuing PMA process.
We expect a significant increase in our research and development expenses during the fiscal year ending June 30, 2009 due to increased costs associated with conducting clinical trials in the United States required for our PMA application. We also expect our consulting expenses and professional fees to increase due to the costs associated with our PMA application. See Item 1. Our Business - “Clinical Collaboration Sites Update”.
SALES AND MARKETING
Our sales and marketing expenses consist primarily of compensation and related benefits for employees in the areas of sales, marketing, sales support and sales administration. Also included are the expenses associated with advertising and promotion; representative office expense; trade shows; conferences; promotional and training costs related to marketing the CTLM®; commissions; travel/subsistence; consulting; certification expenses; and product liability insurance.
Sales and marketing expenses during the year ended June 30, 2008, were $1,067,655 representing a decrease of $283,866 or 21% from $1,351,521 during the year ended June 30, 2007. Of the $1,067,655 and $1,351,521, compensation and related benefits comprised $176,005 (16%) and $412,283 (31%), respectively, representing a decrease of $236,278 or 57%. Of the $176,005 and $412,283 compensation and related benefits, $1,919 (1%) and $29,946 (7%), respectively, were due to non-cash compensation associated with expensing stock options.
The sales and marketing decrease of $283,866 was due primarily to a decrease in compensation and related benefits of $236,278 as a result of the reduction in staff; $17,592 in representative office expense as a result of one-time costs during the prior period for our representative office in Beijing, China; $43,669 in travel expenses associated with sales and marketing related activities; $54,463 in trade show expenses due to a reduction in booth size at RSNA; $16,780 in advertising and promotion; $23,281 in regulatory expenses due to an adjustment with a former distributor who has ceased operations; $13,826 in public relations expense; and $4,107 in translation expenses as we completed the necessary translations in selected countries. These reductions were a result of our cost saving initiatives.
The total decrease is partially offset by increases of $89,359 in freight expenses as a result of paying the Duty and VAT associated with two systems we shipped to China; and $26,425 in consulting expenses due to an increased reliance on outside sales consultants.
After we file our PMA application, we expect commissions, trade show expenses, advertising and promotion and travel and subsistence costs to increase as we continue to implement our global commercialization program. We plan to expand our sales and marketing department and will continue to maintain our representative office in Beijing, China to support sales and service for our distribution network in that country.
AGGREGATED OPERATING EXPENSES
Total operating expenses (general and administrative, research and development, sales and marketing, inventory valuation adjustments and depreciation and amortization) during the year ended June 30, 2008, were $6,232,663 representing a decrease of $890,684 or 13% from $7,123,347 when compared to the operating expenses during the year ended June 30, 2007. The overall reduction in expenses werewas a result of the implementation of cost saving initiatives.
Compensation and related benefits during the year ended June 30, 2008, were $2,862,334 representing a decrease of $1,115,586 or 28% from $3,977,920 during the year ended June 30, 2007 due to a reduction in staff. Of the $2,862,334 and $3,977,920 compensation and related benefits, $170,119 (6%) and $431,313 (11%), respectively, were due to non-cash compensation associated with expensing stock options. The net decrease of $1,115,586 was due to a decrease of cash compensation of $854,392 combined with a $261,194 decrease in the recording of non-cash compensation related to the expensing of stock options.
Inventory valuation adjustments during the year ended June 30, 2008, were $258,375 representing a decrease of $235,221 or 48% from $493,596 during the year ended June 30, 2007. The decrease is due primarily to the recording of a one-time Inventory Reserve of $300,000 in fiscal year 2007. See “Critical Accounting Policy – Inventory”.
Depreciation and amortization during the year ended June 30, 2008, were $181,812 representing an increase of $5,654 or 3% from $176,158 during the year ended June 30, 2007.
Interest expense during the fiscal year ended June 30, 2008, was $40,447 representing a decrease of $347,250 or 90% from $387,697 during the year ended June 30, 2007. Because of the decreased use of our equity credit lines, we recorded less interest associated with the discount on our equity credit lines with Charlton Avenue, LLC (“Charlton”). See Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters – “Financing/Equity Line of Credit”
Other income during the year ended June 30, 2008, was $7,827 representing a decrease of $242,174 or 97% from $250,001 during the year ended June 30, 2007. The $7,827 represents the monthly rent expense and fees we charge Bioscan and the $250,001 represents payments for the technology transfer fee pursuant to the Bioscan Agreement (See Item 1 Our Business -“Laser Imager for Lab Animals”).
Balance Sheet Data
We have financed our operations since inception by the issuance of equity securities with aggregate net proceeds of approximately $65,400,367$67,139,029 and through loan transactions in the aggregate net amount of $2,595,029. Furthermore, we issued equity securities for the conversion of all outstanding convertible debentures in the aggregate net amount of $3,240,000.$4,040,000.
Our combined cash and cash equivalents totaled $49,433$12,535 at June 30, 2008.2009. We do not expect to generate a positive internal cash flow for at least the next 12 months due to our efforts to obtain the PMA, the expected costs of commercializing our initial product, the CTLM®, and the time required for homologations from certain countries.
Our inventory, which consists of raw materials, work in process (including completed units under testing), finished goods less Inventory Reserve, totaled $527,467 at June 30, 2009 and $647,169 at June 30, 2008 and $1,363,156 at June 30, 2007.2008. Raw materials used for research and development or other purposes are expensed and not included in inventory. This decrease is primarily due to inventory valuation adjustments of $82,286; $20,546 to Cost of Goods Sold; and the reclassification of the net realizable value of $8,591 of CTLM® systems in Inventory to Clinical Equipment recorded during the year. During the year ended June 30, 2008, we re-classed the net realizable value of $311,252 of CTLM® systems in Inventory to Clinical Equipment, re-classification of parts totaling $90,818 to research and development and inventory valuation adjustments of $258,375 recorded during the year. During the year ended June 30, 2007, we re-classed $121,094 from Inventory to Clinical Equipment to reflect systems on consignment for international demonstration, clinical collaboration, training and research. We expect to recover our investment because the CTLM® represents a new technology for imaging the breast using a laser beam instead of ionizing x-ray to produce three dimensional images. During fiscal year 2008,2009, we have receivedcontinued to receive encouraging results and scientific clinical papers from our various clinical collaboration sites worldwide. We expectcontinue to believe that over time that the CTLM® will gain worldwide acceptance in the medical community because itscomputed tomography has a strong basis in science is Computed Tomography.science. See Note 6 “Inventories”.
Our property and equipment, net, totaled $495,076$332,031 at June 30, 20082009 and $2,030,795495,076 at June 30, 2007.2008. The overall decrease of $1,535,719$163,045 is due primarily to the sale of our buildingdepreciation during fiscal year 20082009 (See Note 8 – Sale/Lease-Back of Building).
Our Intangible assets (formerly “Other assets”) totaled $205,059 at June 30, 2009 compared to $239,235 at June 30, 2008 compared to $273,412 at June 30, 2007.2008. This decrease is due to the amortization of a patent licensing agreement.
Liquidity and Capital Resources
We are currently a development stage company and our continued existence is dependent upon our ability to resolve our liquidity problems, principally by obtaining additional debt and/or equity financing. We have yet to generate a positive internal cash flow, and until significant sales of our product occur, we are mostly dependent upon debt and equity funding from outside investors. In the event that we are unable to obtain debt or equity financing or are unable to obtain such financing on terms and conditions acceptable to us, we may have to cease or severely curtail our operations. This would materially impact our ability to continue as a going concern.
We have financed our operating and research and development activities through several private placement transactions. Net cash used for operating and product development expenses, which include our purchase of additional materials to continue the manufacture of CTLM® Systems in anticipation of receiving orders from our distributors in certain countries where permitted by law was $4,705,988$2,635,609 during fiscal 2008,2009, compared to net cash used by operating activities and product development of the CTLM® and related software development of $5,416,092$4,705,988 during fiscal 2007.2008. At June 30, 2008,2009, we had working capital of ($77,137)1,666,312) compared to working capital of $1,137,115($77,137) at June 30, 2007. On June 27, 2007, we borrowed the sum of $250,000 from Charlton Avenue LLC, and we repaid the loan plus a $20,000 premium on August 2, 2007.2008.
If and when we receive a PMA from the FDA, which cannot be assured, we believe that, based on our current business plan approximately $5 million will be required above and beyond normal operating expenses over the next year to complete all necessary stages in order for us to market the CTLM® in the United States and foreign countries. The $5 million will be used to purchase inventory, sub-contracted components, tooling and manufacturing templates and pay non-recurring engineering costs associated with preparation for full capacity manufacturing and assembly and marketing, advertising and promotion, training, ongoing regulatory expenses, and other costs associated with product launch. We used the proceeds of $4.4 million from the sale/lease-back of our property to finance our current operations from August 2007 through May 2008. See “Item 9B. Other Information”. On April 21, 2008, we replaced our Fifth Private Equity Credit Agreement, which expired on March 21, 2008, with a new Sixth Private Equity Credit Agreement with Charlton. On May 7, 2008, we filed an S-1 Registration Statement to provide a shelf registration for 50,000,000 common shares for use with the Sixth Private Equity Credit Agreement, which became effective on May 28, 2008. See “Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters/Financing/Equity Line of Credit”.
During fiscal 2008,2009, we raised a total of $490,000$1,788,951 less expenses through private placement transactions pursuant to our Sixth and Fifth Private Equity Credit Agreements.Agreement. We do not expect to generate a positive internal cash flow for at least the next 12 months due to our need to obtain the PMA, the expected costs of commercializing our initial product, the CTLM®, and the expense of our continuing product development program. We will require additional funds for operating expenses, FDA regulatory processes, manufacturing and marketing programs and to continue our product development program. We plan to raise additional capital through our new Sixth Private Equity Credit Agreement dated April 21, 2008 or other sources of financing. In the event we are unable to draw from this new private equity line, alternative financing will be required to continue operations, and there is no assurance that we will be able to obtain alternative financing on commercially reasonable terms. There is no assurance that, if and when Food and Drug Administration (“FDA”) marketing clearance is obtained, the CTLM® will achieve market acceptance or that we will achieve a profitable level of operations.
As of the date of this report, we have issued and outstanding 357,606,849704,175,785 shares of common stock out of 450,000,000950,000,000 authorized shares. In addition, we have reserved approximately 23,726,56129,330,694 shares to cover outstanding options. We had anticipated that revenues would have been a significant source of cash by the date of this report, but commercialization has been slower than expected largely due to the delay in obtaining the PMA from the FDA, which we believe has depressed our stock price. We were able to obtain relief from further dilution through the sale of common stock in connection with the use of our private equity credit agreement because we were able to usepreviously used the proceeds received fromof the sale of our building from August 2007 through May 2008 to finance current operations.and the proceeds of the sale of convertible debentures for working capital. In May 2008, we returned to equity funding through the use of our Sixth Private Equity Credit Agreement.
Capital expenditures for fiscal 20082009 were $320,045$7,360 as compared to $16,500$320,045 for the prior year. During fiscal 2009, we reclassified the net realizable value of $8,591 of CTLM® systems in Inventory to Clinical equipment. During fiscal 2008, we reclassified the net realizable value of $311,252 of CTLM® systems in Inventory to Clinical equipment as these CTLM® systems continue to be used as clinical systems associated with the data collection for our PMA application, with the FDA, which we plan to submit to the FDA in December 2008.the first quarter of 2010. The expenditures relating to the purchases of computer and other equipment, office, warehouse and manufacturing fixtures and computer software totaled $8,793.$1,231. We anticipate that our capital expenditures for fiscal 20092010 will be approximately $25,000.
During the year ending June 30, 2008,2009, there were no changes in our existing debt agreements and we had no outstanding bank loans as of June 30, 2008.2009. Our annual fixed commitments, including salaries and fees for current employees and consultants, rent, payments under license agreements and other contractual commitments are approximately $7.2$4.8 million, as of the date of this report, and are likely to increase as additional agreements are
entered into and additional personnel are retained. We will require substantial additional funds for our product development programs, operating expenses, regulatory processes, and manufacturing and marketing programs, which are presently estimated at an aggregate of approximately $600,000$400,000 per month. The foregoing projections are subject to many conditions, most of which are beyond our control. Our future capital requirements will depend on many factors, including the following: the progress of our product development projects, the time and cost involved in obtaining regulatory approvals; the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; competing technological and market developments; changes and developments in our existing collaborative, licensing and other relationships and the terms of any new collaborative, licensing and other arrangements that we may establish; and the development of commercialization activities and arrangements.
We do not expect to generate a positive internal cash flow for at least 12 months as substantial costs and expenses continue due principally to the international commercialization of the CTLM®, activities related to our FDA PMA process, and advanced product development activities. We plan to raise additional capital through our new Sixth Private Equity Credit Agreement dated April 21, 2008 or other sources of financing. In the event we are unable to draw from this new private equity line, alternative financing will be required to continue operations, and there is no assurance that we will be able to obtain alternative financing on commercially reasonable terms. There is no assurance that, if and when Food and Drug Administration (“FDA”) marketing clearance is obtained, the CTLM® will achieve market acceptance or that we will achieve a profitable level of operations. No assurances, however, can be given that this financing or any necessary future financing will be available or, if available, that it will be obtained on terms satisfactory to us. Our ability to effectuate our business plan and continue operations is dependent on our ability to raise capital, structure a profitable business, and generate revenues. If our working capital were insufficient to fund our operations, we would have to explore additional sources of financing. In the absence of adequate funding, we will have to cease operations. We plan to continue our policy of investing excess funds, if any, in a High Performance Money Market savings account at Wachovia Bank N.A.
Updating of Prospectus
We have undertaken to update the registration statement by post-effective amendment:
| · | To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; |
| · | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and |
| · | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
10-K Financial Statements
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| Financial Statements | ||
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| 71 | ||
To the Board of Directors and
Stockholders of Imaging Diagnostic Systems, Inc.
We have audited the accompanying balance sheets of Imaging Diagnostic Systems, Inc. (A Development Stage Enterprise) as of June 30, 20082009 and 2007,2008, and the related statements of operations, stockholders’ equity (deficit), and cash flows for each of the years ended June 30, 2009, 2008, 2007 2006 and for the period December 10, 1993 (date of inception) to June 30, 2008.2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements for the period December 10, 1993 (date of inception) to June 30, 20082005 reflect total revenues and a net loss $2,072,875$1,292,248 and $96,116,977,$77,128,255 respectively of the cumulative totals. The other auditors’ report has been furnished to us and our opinion, insofar as it relates to amounts included for such period, is based solely on the report of such other auditors.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 20082009 and 2007,2008, and the results of its operations and cash flows for each of the years then ended June 30, 2009, 2008 2007 and 20062007 and for the period December 10, 1993 (date of inception) to June 30, 20082009 in conformity with generally accepted accounting principles in the United States of America.
The accompanying financial statements have been prepared assuming that Imaging Diagnostic Systems, Inc. will continue as a going concern. As more fully described in Note 5, the Company has incurred recurring operating losses and will have to obtain additional capital to sustain operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 5. The accompanying financial statements do not include any adjustments to reflect the possible effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Imaging Diagnostic Systems, Inc.’s internal control over financial reporting as of June 30, 20082009 and 2007,2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated September 11, 2008October 9, 2009 expressed an unqualified opinion on management’s assessment of internal control over financial reporting and an unqualified opinion on the effectiveness of internal control over financial reporting.
/s/ SHERB & CO, LLP
Certified Public Accountants
Boca Raton, Florida
| IMAGING DIAGNOSTIC SYSTEMS, INC. | ||||||||||||||||
IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | |||||||||||||||
| (a Development Stage Company) | (a Development Stage Company) | (a Development Stage Company) | ||||||||||||||
| Balance Sheets | Balance Sheets | |||||||||||||||
| June 30, 2008 and 2007 | ||||||||||||||||
| June 30, 2009 and 2008 | June 30, 2009 and 2008 | |||||||||||||||
| ASSETS | ASSETS | ASSETS | ||||||||||||||
| 2008 | 2007 | 2009 | 2008 | |||||||||||||
| Current assets: | ||||||||||||||||
| Cash and cash equivalents | $ | 49,433 | $ | 477,812 | $ | 12,535 | $ | 49,433 | ||||||||
| Accounts receivable, net of allowances for doubtful accounts | ||||||||||||||||
| of $67,000 and $29,967, respectively | 39,718 | 119,866 | ||||||||||||||
| of $114,982 and $67,000, respectively | (35,486 | ) | 39,718 | |||||||||||||
| Loans receivable | 57,357 | 63,602 | 57,357 | 57,357 | ||||||||||||
| Inventories, net of reserve of $408,000 and $408,000, respectively | 647,169 | 1,363,156 | 527,467 | 647,169 | ||||||||||||
| Prepaid expenses | 55,368 | 36,784 | 35,617 | 55,368 | ||||||||||||
| Total current assets | 849,045 | 2,061,220 | 597,490 | 849,045 | ||||||||||||
| Property and equipment, net | 495,076 | 2,030,795 | 332,031 | 495,076 | ||||||||||||
| Intangible assets, net | 239,235 | 273,412 | 205,059 | 239,235 | ||||||||||||
| Total assets | $ | 1,583,356 | $ | 4,365,427 | $ | 1,134,580 | $ | 1,583,356 | ||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (Deficit) | LIABILITIES AND STOCKHOLDERS' EQUITY (Deficit) | LIABILITIES AND STOCKHOLDERS' EQUITY (Deficit) | ||||||||||||||
| Current liabilities: | ||||||||||||||||
| Accounts payable and accrued expenses | $ | 800,068 | $ | 585,991 | $ | 1,994,220 | $ | 800,068 | ||||||||
| Customer deposits | 126,114 | 88,114 | 96,114 | 126,114 | ||||||||||||
| Short term debt | - | 250,000 | ||||||||||||||
| Convertible Debenture, net of debt discount of $35,532 | 173,468 | - | ||||||||||||||
| Total current liabilities | 926,182 | 924,105 | 2,263,802 | 926,182 | ||||||||||||
| Long-Term Liabilities: | ||||||||||||||||
| Commitments and contingencies | - | - | ||||||||||||||
| Deferred Rent Liability | 85,935 | - | - | 85,935 | ||||||||||||
| Deferred Gain - Sale of Building | 1,040,000 | - | - | 1,040,000 | ||||||||||||
| Total Long-Term liabilities | 1,125,935 | - | - | 1,125,935 | ||||||||||||
| Total liabilities | 2,052,117 | 924,105 | 2,263,802 | 2,052,117 | ||||||||||||
| Stockholders equity (Deficit): | ||||||||||||||||
| Common stock, no par value; authorized 450,000,000 shares, | ||||||||||||||||
| issued 325,517,468 and 311,538,038 shares, respectively | 99,651,145 | 99,120,731 | ||||||||||||||
| Stockholders equity (Defecit): | ||||||||||||||||
| Common stock, no par value; authorized 950,000,000 shares, | ||||||||||||||||
| issued 611,378,787 and 325,517,468 shares, respectively | 102,280,228 | 99,651,145 | ||||||||||||||
| Additional paid-in capital | 2,844,832 | 2,661,650 | 3,499,717 | 2,844,832 | ||||||||||||
| Deficit accumulated during the development stage | (102,964,738 | ) | (98,341,059 | ) | (106,909,167 | ) | (102,964,738 | ) | ||||||||
| Total stockholders' equity (Deficit) | (468,761 | ) | 3,441,322 | (1,129,222 | ) | (468,761 | ) | |||||||||
| Total assets & stockholders' equity (Deficit) | $ | 1,583,356 | $ | 4,365,427 | $ | 1,134,580 | $ | 1,583,356 | ||||||||
| See accompanying notes to the financial statements. | See accompanying notes to the financial statements. | See accompanying notes to the financial statements. | ||||||||||||||
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, 2009 | June 30, 2008 | June 30, 2007 | June 30, 2009 | |||||||||||||
| Net Sales | $ | 70,617 | $ | 39,647 | $ | 65,136 | $ | 2,143,492 | ||||||||
| Cost of Sales | 20,546 | 20,944 | 17,870 | 906,105 | ||||||||||||
| Gross Profit | 50,071 | 18,703 | 47,266 | 1,237,387 | ||||||||||||
| Operating Expenses: | ||||||||||||||||
| General and administrative | 2,379,112 | 2,644,556 | 3,012,575 | 54,989,414 | ||||||||||||
| Research and development | 1,226,718 | 2,080,265 | 2,089,497 | 21,694,015 | ||||||||||||
| Sales and marketing | 615,448 | 1,067,655 | 1,351,521 | 8,772,821 | ||||||||||||
| Inventory valuation adjustments | 82,286 | 258,375 | 493,596 | 4,752,671 | ||||||||||||
| Depreciation and amortization | 202,344 | 181,812 | 176,158 | 3,157,229 | ||||||||||||
| Amortization of deferred compensation | - | - | - | 4,064,250 | ||||||||||||
| Total Operating Expenses | 4,505,908 | 6,232,663 | 7,123,347 | 97,430,400 | ||||||||||||
| Operating Loss | (4,455,837 | ) | (6,213,960 | ) | (7,076,081 | ) | (96,193,013 | ) | ||||||||
| Gain (Loss) on sale of fixed assets | 1,181,894 | 1,609,525 | - | 2,794,565 | ||||||||||||
| Interest income | 636 | 13,377 | 11,455 | 308,401 | ||||||||||||
| Other income | 5,975 | 76,954 | 250,001 | 764,392 | ||||||||||||
| Other income - LILA Inventory | (66 | ) | (69,127 | ) | - | (69,193 | ) | |||||||||
| Interest expense | (677,031 | ) | (40,447 | ) | (387,697 | ) | (7,666,559 | ) | ||||||||
| Net Loss | (3,944,429 | ) | (4,623,678 | ) | (7,202,322 | ) | (100,061,407 | ) | ||||||||
| Dividends on cumulative preferred stock: | ||||||||||||||||
| From discount at issuance | - | - | - | (5,402,713 | ) | |||||||||||
| Earned | - | - | - | (1,445,047 | ) | |||||||||||
| Net loss applicable to | ||||||||||||||||
| common shareholders | $ | (3,944,429 | ) | $ | (4,623,678 | ) | $ | (7,202,322 | ) | $ | (106,909,167 | ) | ||||
| Net Loss per common share: | ||||||||||||||||
| Basic and diluted | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.54 | ) | ||||
| Weighted average number of | ||||||||||||||||
| common shares outstanding: | ||||||||||||||||
| Basic and diluted | 424,330,162 | 318,673,749 | 271,667,256 | 197,647,227 | ||||||||||||
| See accompanying notes to the financial statements. | ||||||||||||||||
| IMAGING DIAGNOSTIC SYSTEMS, INC. | ||||||||||||||||
| (a Development Stage Company) | ||||||||||||||||
| From Inception | ||||||||||||||||
| (December 10, | ||||||||||||||||
| Year Ended | Year Ended | Year Ended | 1993) to | |||||||||||||
| June 30, 2008 | June 30, 2007 | June 30, 2006 | June 30, 2008 | |||||||||||||
| Net Sales | $ | 39,647 | $ | 65,136 | $ | 675,844 | $ | 2,072,875 | ||||||||
| Cost of Sales | 20,944 | 17,870 | 316,189 | 885,559 | ||||||||||||
| Gross Profit | 18,703 | 47,266 | 359,655 | 1,187,316 | ||||||||||||
| Operating Expenses: | ||||||||||||||||
| General and administrative | 2,644,556 | 3,012,575 | 3,366,426 | 52,610,301 | ||||||||||||
| Research and development | 2,080,265 | 2,089,497 | 2,046,688 | 20,467,297 | ||||||||||||
| Sales and marketing | 1,067,655 | 1,351,521 | 1,210,917 | 8,157,373 | ||||||||||||
| Inventory valuation adjustments | 258,375 | 493,596 | 184,219 | 4,670,385 | ||||||||||||
| Depreciation and amortization | 181,812 | 176,158 | 175,807 | 2,954,885 | ||||||||||||
| Amortization of deferred compensation | - | - | - | 4,064,250 | ||||||||||||
| Total Operating Expenses | 6,232,663 | 7,123,347 | 6,984,057 | 92,924,491 | ||||||||||||
| Operating Loss | (6,213,960 | ) | (7,076,081 | ) | (6,624,402 | ) | (91,737,175 | ) | ||||||||
| Gain (Loss) on sale of fixed assets | 1,609,525 | - | (2,439 | ) | 1,612,671 | |||||||||||
| Interest income | 13,377 | 11,455 | 8,416 | 307,765 | ||||||||||||
| Other income | 76,954 | 250,001 | 21,500 | 758,417 | ||||||||||||
| Other income - LILA Inventory | (69,127 | ) | - | - | (69,127 | ) | ||||||||||
| Interest expense | (40,447 | ) | (387,697 | ) | (565,797 | ) | (6,989,528 | ) | ||||||||
| Net Loss | (4,623,678 | ) | (7,202,322 | ) | (7,162,722 | ) | (96,116,977 | ) | ||||||||
| Dividends on cumulative preferred stock: | ||||||||||||||||
| From discount at issuance | - | - | - | (5,402,713 | ) | |||||||||||
| Earned | - | - | - | (1,445,047 | ) | |||||||||||
| Net loss applicable to | ||||||||||||||||
| common shareholders | $ | (4,623,678 | ) | $ | (7,202,322 | ) | $ | (7,162,722 | ) | $ | (102,964,737 | ) | ||||
| Net Loss per common share: | ||||||||||||||||
| Basic and diluted | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.97 | ) | ||||
| Weighted average number of | ||||||||||||||||
| common shares outstanding: | ||||||||||||||||
| Basic and diluted | 318,673,749 | 271,667,256 | 218,846,738 | 106,483,084 | ||||||||||||
| See accompanying notes to the financial statements. | ||||||||||||||||
| IMAGING DIAGNOSTIC SYSTEMS, INC. | ||||||||||||||||||||||||||||
| (a Development Stage Company) | ||||||||||||||||||||||||||||
Statements of Stockhoders' Equity | ||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2008 | ||||||||||||||||||||||||||||
| Deficit | ||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||
| Preferred Stock (**) | Common Stock | Additional | During the | |||||||||||||||||||||||||
| Number of | Number of | Paid-in | Development | Subscriptions | Deferred | |||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stage | Receivable | Compensation | Total | ||||||||||||||||||||
| Balance at December 10, 1993 (date of inception) | 0 | $ | - | 0 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
| Issuance of common stock, restated for reverse | ||||||||||||||||||||||||||||
| stock split | - | - | 510,000 | 50,000 | - | - | - | - | 50,000 | |||||||||||||||||||
| Acquisition of public shell | - | - | 178,752 | - | - | - | - | - | ||||||||||||||||||||
| Net issuance of additional shares of stock | - | - | 15,342,520 | 16,451 | - | - | - | 16,451 | ||||||||||||||||||||
| Common stock sold | - | - | 36,500 | 36,500 | - | - | - | 36,500 | ||||||||||||||||||||
| Net loss | - | - | - | - | (66,951 | ) | - | (66,951 | ) | |||||||||||||||||||
| Balance at June 30, 1994 | - | - | 16,067,772 | 102,951 | - | (66,951 | ) | - | - | 36,000 | ||||||||||||||||||
| Common stock sold | - | - | 1,980,791 | 1,566,595 | - | - | (523,118 | ) | - | 1,043,477 | ||||||||||||||||||
| Common stock issued in exchange for services | - | - | 115,650 | 102,942 | - | - | - | - | 102,942 | |||||||||||||||||||
| Common stock issued with employment agreements | - | - | 75,000 | 78,750 | - | - | - | - | 78,750 | |||||||||||||||||||
| Common stock issued for compensation | - | - | 377,500 | 151,000 | - | - | - | - | 151,000 | |||||||||||||||||||
| Stock options granted | - | - | - | - | 622,500 | - | - | (622,500 | ) | - | ||||||||||||||||||
| Amortization of deferred compentsation | - | - | - | - | - | - | - | 114,375 | 114,375 | |||||||||||||||||||
| Forgiveness of officers' compensation | - | - | - | - | 50,333 | - | - | - | 50,333 | |||||||||||||||||||
| Net loss | - | - | - | - | - | (1,086,436 | ) | - | - | (1,086,436 | ) | |||||||||||||||||
| Balance at June 30, 1995 | - | - | 18,616,713 | 2,002,238 | 672,833 | (1,153,387 | ) | (523,118 | ) | (508,125 | ) | 490,441 | ||||||||||||||||
IMAGING DIAGNOSTIC SYSTEMS, INC. | ||||||||||||||||||||||||||||
| (a Development Stage Company) | ||||||||||||||||||||||||||||
| Statements of Stockholders' Equity (Deficit) | ||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2009 | ||||||||||||||||||||||||||||
| Deficit | ||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||
| Preferred Stock (**) | Common Stock | Additional | During the | |||||||||||||||||||||||||
| Number of | Number of | Paid-in | Development | Subscriptions | Deferred | |||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stage | Receivable | Compensation | Total | ||||||||||||||||||||
| Balance at December 10, 1993 (date of inception) | - | $ | - | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
| Issuance of common stock, restated for reverse | ||||||||||||||||||||||||||||
| stock split | - | - | 510,000 | 50,000 | - | - | - | - | 50,000 | |||||||||||||||||||
| Acquisition of public shell | - | - | 178,752 | - | - | - | - | - | ||||||||||||||||||||
| Net issuance of additional shares of stock | - | - | 15,342,520 | 16,451 | - | - | - | 16,451 | ||||||||||||||||||||
| Common stock sold | - | - | 36,500 | 36,500 | - | - | - | 36,500 | ||||||||||||||||||||
| Net loss | - | - | - | - | (66,951 | ) | - | (66,951 | ) | |||||||||||||||||||
| Balance at June 30, 1994 | - | - | 16,067,772 | 102,951 | - | (66,951 | ) | - | - | 36,000 | ||||||||||||||||||
| Common stock sold | - | - | 1,980,791 | 1,566,595 | - | - | (523,118 | ) | - | 1,043,477 | ||||||||||||||||||
| Common stock issued in exchange for services | - | - | 115,650 | 102,942 | - | - | - | - | 102,942 | |||||||||||||||||||
| Common stock issued with employment agreements | - | - | 75,000 | 78,750 | - | - | - | - | 78,750 | |||||||||||||||||||
| Common stock issued for compensation | - | - | 377,500 | 151,000 | - | - | - | - | 151,000 | |||||||||||||||||||
| Stock options granted | - | - | - | - | 622,500 | - | - | (622,500 | ) | - | ||||||||||||||||||
| Amortization of deferred compentsation | - | - | - | - | - | - | - | 114,375 | 114,375 | |||||||||||||||||||
| Forgiveness of officers' compensation | - | - | - | - | 50,333 | - | - | - | 50,333 | |||||||||||||||||||
| Net loss | - | - | - | - | - | (1,086,436 | ) | - | - | (1,086,436 | ) | |||||||||||||||||
| Balance at June 30, 1995 | - | - | 18,616,713 | 2,002,238 | 672,833 | (1,153,387 | ) | (523,118 | ) | (508,125 | ) | 490,441 | ||||||||||||||||
| See accompanying notes to the financial statements. | ||||||||||||||||||||||||||||
| IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (a Development Stage Company) | (a Development Stage Company) | (a Development Stage Company) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Statements of Stockhoders' Equity (Continued) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Statements of Stockholders' Equity (Deficit) (Continued) | Statements of Stockholders' Equity (Deficit) (Continued) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2009 | From December 10, 1993 (date of inception) to June 30, 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deficit | Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock (**) | Common Stock | Additional | During the | Preferred Stock (**) | Common Stock | Additional | During the | |||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Paid-in | Development | Subscriptions | Deferred | Number of | Number of | Paid-in | Development | Subscriptions | Deferred | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stage | Receivable | Compensation | Total | 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 | - | - | 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 | 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 | - | - | 700,471 | 1,561,110 | - | - | - | - | 1,561,110 | ||||||||||||||||||||||||||||||||||||||
| Cancellation of stock subscription | - | - | (410,500 | ) | (405,130 | ) | - | - | 405,130 | - | - | - | - | (410,500 | ) | (405,130 | ) | - | - | 405,130 | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued in exchange for services | - | - | 2,503,789 | 4,257,320 | - | - | - | - | 4,257,320 | - | - | 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 | - | - | 191,500 | 104,375 | - | - | (4,375 | ) | - | 100,000 | ||||||||||||||||||||||||||||||||||||
| Common stock issued with exercise of options | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| for compensation | - | - | 996,400 | 567,164 | - | - | - | - | 567,164 | - | - | 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 | ) | - | - | - | - | (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 | ) | - | - | - | - | - | 4,754 | 14,629 | - | (14,629 | ) | - | - | - | ||||||||||||||||||||||||||||||||||||
| Dividends accrued on preferred stock not | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| yet converted | - | - | - | - | - | (33,216 | ) | - | - | (33,216 | ) | - | - | - | - | - | (33,216 | ) | - | - | (33,216 | ) | ||||||||||||||||||||||||||||||||||
| Collection of stock subscriptions | - | - | - | - | - | - | 103,679 | - | 103,679 | - | - | - | - | - | - | 103,679 | - | 103,679 | ||||||||||||||||||||||||||||||||||||||
| Amortization of deferred compentsation | - | - | - | - | - | - | - | 232,500 | 232,500 | - | - | - | - | - | - | - | 232,500 | 232,500 | ||||||||||||||||||||||||||||||||||||||
| Forgiveness of officers' compensation | - | - | - | - | 100,667 | - | - | - | 100,667 | - | - | - | - | 100,667 | - | - | - | 100,667 | ||||||||||||||||||||||||||||||||||||||
| Net loss (restated) | - | - | - | - | - | (6,933,310 | ) | - | - | (6,933,310 | ) | - | - | - | - | - | (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 | 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. | See accompanying notes to the financial statements. | See accompanying notes to the financial statements. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (a Development Stage Company) | (a Development Stage Company) | (a Development Stage Company) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Statements of Stockhoders' Equity (Continued) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statements of Stockholders' Equity (Deficit) (Continued) | Statements of Stockholders' Equity (Deficit) (Continued) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2009 | From December 10, 1993 (date of inception) to June 30, 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deficit | Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock (**) | Common Stock | Additional | During the | Preferred Stock (**) | Common Stock | Additional | During the | |||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Paid-in | Development | Subscriptions | Deferred | Number of | Number of | Paid-in | Development | Subscriptions | Deferred | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stage | Receivable | Compensation | Total | 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 | 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 | 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 | ) | - | - | - | - | (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 | - | - | 234,200 | 650,129 | - | - | - | - | 650,129 | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for compensation | - | - | 353,200 | 918,364 | - | - | - | - | 918,364 | - | - | 353,200 | 918,364 | - | - | - | - | 918,364 | ||||||||||||||||||||||||||||||||||||||
| Common stock issued with exercise of stock options | - | - | 361,933 | 1,136,953 | - | - | (33,750 | ) | - | 1,103,203 | - | - | 361,933 | 1,136,953 | - | - | (33,750 | ) | - | 1,103,203 | ||||||||||||||||||||||||||||||||||||
| Common stock issued to employee | - | - | (150,000 | ) | (52,500 | ) | - | - | - | - | (52,500 | ) | - | - | (150,000 | ) | (52,500 | ) | - | - | - | - | (52,500 | ) | ||||||||||||||||||||||||||||||||
| Common stock issued as payment of preferred | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| stock dividends | - | - | 20,760 | 49,603 | - | (16,387 | ) | - | - | 33,216 | - | - | 20,760 | 49,603 | - | (16,387 | ) | - | - | 33,216 | ||||||||||||||||||||||||||||||||||||
| Dividends accrued on preferred stock not | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| yet converted | - | - | - | - | - | (168,288 | ) | - | - | (168,288 | ) | - | - | - | - | - | (168,288 | ) | - | - | (168,288 | ) | ||||||||||||||||||||||||||||||||||
| Stock options granted | - | - | - | - | 1,891,500 | - | - | (1,891,500 | ) | - | - | - | - | - | 1,891,500 | - | - | (1,891,500 | ) | - | ||||||||||||||||||||||||||||||||||||
| Collection of stock subscriptions | - | - | - | - | - | - | 16,875 | - | 16,875 | - | - | - | - | - | - | 16,875 | - | 16,875 | ||||||||||||||||||||||||||||||||||||||
| Amortization of deferred compentsation | - | - | - | - | - | - | - | 788,000 | 788,000 | - | - | - | - | - | - | - | 788,000 | 788,000 | ||||||||||||||||||||||||||||||||||||||
| Net loss (restated) | - | - | - | - | - | (7,646,119 | ) | - | - | (7,646,119 | ) | - | - | - | - | - | (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 | 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. | IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (a Development Stage Company) | (a Development Stage Company) | (a Development Stage Company) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Statements of Stockhoders' Equity (Continued) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statements of Stockholders' Equity (Deficit) (Continued) | Statements of Stockholders' Equity (Deficit) (Continued) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2009 | From December 10, 1993 (date of inception) to June 30, 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deficit | Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock (**) | Common Stock | Additional | During the | Preferred Stock (**) | Common Stock | Additional | During the | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Paid-in | Development | Subscriptions | Deferred | Number of | Number of | Paid-in | Development | Subscriptions | Deferred | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stage | Receivable | Compensation | Total | 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 | 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 | 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 | (340 | ) | (3,400,000 | ) | 6,502,448 | 4,644,307 | (1,210,414 | ) | - | - | - | 33,893 | ||||||||||||||||||||||||||||||||||||||
| Common stock sold | - | - | 500,000 | 200,000 | - | - | - | - | 200,000 | - | - | 500,000 | 200,000 | - | - | - | - | 200,000 | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued in exchange for services | - | - | 956,000 | 1,419,130 | - | - | - | - | 1,419,130 | - | - | 956,000 | 1,419,130 | - | - | - | - | 1,419,130 | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for compensation | - | - | 64,300 | 54,408 | - | - | - | - | 54,408 | - | - | 64,300 | 54,408 | - | - | - | - | 54,408 | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued with exercise of stock options | - | - | 65,712 | 22,999 | - | - | - | - | 22,999 | - | - | 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 | ) | - | - | 3,500,000 | 1,890,000 | (3,199,000 | ) | - | - | - | (1,309,000 | ) | ||||||||||||||||||||||||||||||||||||||||
| Dividends accrued on preferred stock not | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| yet converted | - | - | - | - | - | (315,000 | ) | - | - | (315,000 | ) | - | - | - | - | - | (315,000 | ) | - | - | (315,000 | ) | ||||||||||||||||||||||||||||||||||||||||
| Stock options granted | - | - | - | - | 1,340,625 | - | - | (1,340,625 | ) | - | - | - | - | - | 1,340,625 | - | - | (1,340,625 | ) | - | ||||||||||||||||||||||||||||||||||||||||||
| Collection of stock subscriptions | - | - | - | 12,500 | - | - | 21,250 | - | 33,750 | - | - | - | 12,500 | - | - | 21,250 | - | 33,750 | ||||||||||||||||||||||||||||||||||||||||||||
| Amortization of deferred compentsation | - | - | - | - | - | - | - | 1,418,938 | 1,418,938 | - | - | - | - | - | - | - | 1,418,938 | 1,418,938 | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss (restated) | - | - | - | - | - | (6,715,732 | ) | - | - | (6,715,732 | ) | - | - | - | - | - | (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 | 611 | 6,110,000 | 36,493,544 | 23,983,073 | 1,884,846 | (27,070,677 | ) | (14,309 | ) | (1,300,812 | ) | 3,592,121 | ||||||||||||||||||||||||||||||||||||||
| See accompanying notes to the financial statements. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (a Development Stage Company) | (a Development Stage Company) | (a Development Stage Company) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Statements of Stockhoders' Equity (Continued) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statements of Stockholders' Equity (Deficit) (Continued) | Statements of Stockholders' Equity (Deficit) (Continued) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2009 | From December 10, 1993 (date of inception) to June 30, 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deficit | Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock (**) | Common Stock | Additional | During the | Preferred Stock (**) | Common Stock | Additional | During the | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Paid-in | Development | Subscriptions | Deferred | Number of | Number of | Paid-in | Development | Subscriptions | Deferred | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stage | Receivable | Compensation | Total | 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 | * | 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 | 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 | ) | - | - | - | - | (153 | ) | (1,530,000 | ) | 4,865,034 | 1,972,296 | (442,296 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock sold | - | - | 200,000 | 60,000 | - | - | - | - | 60,000 | - | - | 200,000 | 60,000 | - | - | - | - | 60,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued - exchange for services | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| and compensation | - | - | 719,442 | 301,210 | - | - | - | - | 301,210 | - | - | 719,442 | 301,210 | - | - | - | - | 301,210 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued - repayment of debt | - | - | 2,974,043 | 1,196,992 | - | - | - | - | 1,196,992 | - | - | 2,974,043 | 1,196,992 | - | - | - | - | 1,196,992 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued in exchange for loan fees | - | - | 480,000 | 292,694 | - | - | - | - | 292,694 | - | - | 480,000 | 292,694 | - | - | - | - | 292,694 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued with exercise of stock options | - | - | 65,612 | 124,464 | - | - | - | - | 124,464 | - | - | 65,612 | 124,464 | - | - | - | - | 124,464 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| �� | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued in satisfaction of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| licensing agreement payable | - | - | 3,500,000 | 1,890,000 | - | - | - | - | 1,890,000 | - | - | 3,500,000 | 1,890,000 | - | - | - | - | 1,890,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable preferred stock sold, deemed dividend | - | - | - | - | - | (127,117 | ) | - | - | (127,117 | ) | - | - | - | - | - | (127,117 | ) | - | - | (127,117 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Dividends accrued-preferred stock not yet converted | - | - | - | - | - | (329,176 | ) | - | - | (329,176 | ) | - | - | - | - | - | (329,176 | ) | - | - | (329,176 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock options granted | - | - | - | - | 209,625 | - | - | (209,625 | ) | - | - | - | - | - | 209,625 | - | - | (209,625 | ) | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of deferred compentsation | - | - | - | - | - | - | - | 1,510,437 | 1,510,437 | - | - | - | - | - | - | - | 1,510,437 | 1,510,437 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss (restated) | - | - | - | - | - | (6,543,292 | ) | - | - | (6,543,292 | ) | - | - | - | - | - | (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 | 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. | See accompanying notes to the financial statements. | See accompanying notes to the financial statements. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (a Development Stage Company) | (a Development Stage Company) | (a Development Stage Company) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Statements of Stockhoders' Equity (Continued) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statements of Stockholders' Equity (Deficit) (Continued) | Statements of Stockholders' Equity (Deficit) (Continued) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2009 | From December 10, 1993 (date of inception) to June 30, 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deficit | Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock (**) | Common Stock | Additional | During the | Preferred Stock (**) | Common Stock | Additional | During the | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Paid-in | Development | Subscriptions | Deferred | Number of | Number of | Paid-in | Development | Subscriptions | Deferred | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stage | Receivable | Compensation | Total | 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 | 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 | - | - | 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 | (596 | ) | (5,960,000 | ) | 45,415,734 | 7,313,334 | (648,885 | ) | - | - | - | 704,449 | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock sold | - | - | 100,000 | 157,000 | - | - | - | - | 157,000 | - | - | 100,000 | 157,000 | - | - | - | - | 157,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued - exchange for services | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| and compensation, net of cancelled shares | - | - | 137,000 | (18,675 | ) | - | - | - | - | (18,675 | ) | - | - | 137,000 | (18,675 | ) | - | - | - | - | (18,675 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued - repayment of debt | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| and accrued interest | - | - | 5,061,294 | 1,067,665 | - | - | - | - | 1,067,665 | - | - | 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 | - | - | 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 | - | - | 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 | - | - | 150,652 | 121,563 | 97,850 | - | - | - | 219,413 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of note payable with warrants at a discount | - | - | - | - | 500,000 | - | - | - | 500,000 | - | - | - | - | 500,000 | - | - | - | 500,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends accrued-preferred stock not yet converted | - | - | - | - | - | (145,950 | ) | - | - | (145,950 | ) | - | - | - | - | - | (145,950 | ) | - | - | (145,950 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss (restated) | - | - | - | - | - | (6,531,662 | ) | - | - | (6,531,662 | ) | - | - | - | - | - | (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 | - | - | 105,511,678 | 42,818,057 | 1,597,780 | (41,240,731 | ) | (27,908 | ) | - | 3,147,198 | ||||||||||||||||||||||||||||||||||||||||||||||
| See accompanying notes to the financial statements. | See accompanying notes to the financial statements. | See accompanying notes to the financial statements. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (a Development Stage Company) | (a Development Stage Company) | (a Development Stage Company) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Statements of Stockhoders' Equity (Continued) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statements of Stockholders' Equity (Deficit) (Continued) | Statements of Stockholders' Equity (Deficit) (Continued) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2009 | From December 10, 1993 (date of inception) to June 30, 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deficit | Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock (**) | Common Stock | Additional | During the | Preferred Stock (**) | Common Stock | Additional | During the | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Paid-in | Development | Subscriptions | Deferred | Number of | Number of | Paid-in | Development | Subscriptions | Deferred | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stage | Receivable | Compensation | Total | 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 | - | - | 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 | 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 | ) | �� | (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 | - | - | 3,407,613 | 3,143,666 | - | - | - | - | 3,143,666 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued - exchange for services | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| and compensation | - | - | 153,500 | 227,855 | - | - | - | - | 227,855 | - | - | 153,500 | 227,855 | - | - | - | - | 227,855 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued - repayment of debt | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| and accrued interest | - | - | 810,000 | 1,393,200 | - | - | - | - | 1,393,200 | - | - | 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 | - | - | 3,781,614 | 1,868,585 | - | - | 13,599 | - | 1,882,184 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued with exercise of warrants | - | - | 99,375 | 119,887 | - | - | - | - | 119,887 | - | - | 99,375 | 119,887 | - | - | - | - | 119,887 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends accrued-preferred stock | - | - | - | - | - | (422,401 | ) | - | - | (422,401 | ) | - | - | - | - | - | (422,401 | ) | - | - | (422,401 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss (restated) | - | - | - | - | - | (9,532,450 | ) | - | - | (9,532,450 | ) | - | - | - | - | - | (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 | - | - | 119,427,847 | 55,151,781 | 1,597,780 | (51,903,712 | ) | (14,309 | ) | - | 4,831,540 | ||||||||||||||||||||||||||||||||||||||||||||||
| See accompanying notes to the financial statements. | See accompanying notes to the financial statements. | See accompanying notes to the financial statements. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (a Development Stage Company) | (a Development Stage Company) | (a Development Stage Company) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Statements of Stockhoders' Equity (Continued) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statements of Stockholders' Equity (Deficit) (Continued) | Statements of Stockholders' Equity (Deficit) (Continued) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2009 | From December 10, 1993 (date of inception) to June 30, 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deficit | Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock (**) | Common Stock | Additional | During the | Preferred Stock (**) | Common Stock | Additional | During the | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Paid-in | Development | Subscriptions | Deferred | Number of | Number of | Paid-in | Development | Subscriptions | Deferred | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stage | Receivable | Compensation | Total | 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 | - | - | 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 | - | - | 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 | - | - | 560,000 | 294,350 | - | - | - | (117,600 | ) | 176,750 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss (restated) | - | - | - | - | - | (7,997,652 | ) | - | - | (7,997,652 | ) | - | - | - | - | - | (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 | - | - | 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 | - | - | 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 | - | - | 2,007,618 | 970,653 | - | - | - | 117,600 | 1,088,253 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Payment of subscriptions receivable | - | - | - | - | - | - | 14,309 | - | 14,309 | - | - | - | - | - | - | 14,309 | - | 14,309 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss (restated) | - | - | - | - | - | (8,358,774 | ) | - | - | (8,358,774 | ) | - | - | - | - | - | (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 | - | - | 162,994,039 | 71,368,361 | 1,597,780 | (68,260,138 | ) | - | - | 4,706,003 | ||||||||||||||||||||||||||||||||||||||||||||||||
| See accompanying notes to the financial statements. | See accompanying notes to the financial statements. | See accompanying notes to the financial statements. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (a Development Stage Company) | (a Development Stage Company) | (a Development Stage Company) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Statements of Stockhoders' Equity (Continued) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statements of Stockholders' Equity (Deficit) (Continued) | Statements of Stockholders' Equity (Deficit) (Continued) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2009 | From December 10, 1993 (date of inception) to June 30, 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deficit | Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock (**) | Common Stock | Additional | During the | Preferred Stock (**) | Common Stock | Additional | During the | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Paid-in | Development | Subscriptions | Deferred | Number of | Number of | Paid-in | Development | Subscriptions | Deferred | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stage | Receivable | Compensation | Total | 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 | - | - | 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 | - | - | 8,630,819 | 6,541,700 | - | - | - | - | 6,541,700 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued - exchange for services | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| and compensation | - | - | 734,785 | 832,950 | - | - | - | - | 832,950 | - | - | 734,785 | 832,950 | - | - | - | - | 832,950 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued - exercise of stock options | - | - | 967,769 | 492,701 | - | - | - | - | 492,701 | - | - | 967,769 | 492,701 | - | - | - | - | 492,701 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (8,402,959 | ) | - | - | (8,402,959 | ) | - | - | - | - | - | (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 | - | - | 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 | - | - | 26,274,893 | 7,797,807 | - | - | - | - | 7,797,807 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued - exchange for services | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| and compensation | - | - | 285,000 | 113,850 | - | - | - | - | 113,850 | - | - | 285,000 | 113,850 | - | - | - | - | 113,850 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued - exercise of stock options | - | - | 13,264 | 3,404 | - | - | - | - | 3,404 | - | - | 13,264 | 3,404 | - | - | - | - | 3,404 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (7,312,918 | ) | - | - | (7,312,918 | ) | - | - | - | - | - | (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 | - | $ | - | 199,900,569 | $ | 87,150,773 | $ | 1,597,780 | $ | (83,976,015 | ) | $ | - | $ | - | 4,772,538 | ||||||||||||||||||||||||||||||||||||
| See accompanying notes to the financial statements. | See accompanying notes to the financial statements. | See accompanying notes to the financial statements. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (a Development Stage Company) | (a Development Stage Company) | (a Development Stage Company) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Statements of Stockhoders' Equity (Continued) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statements of Stockholders' Equity (Deficit) (Continued) | Statements of Stockholders' Equity (Deficit) (Continued) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2009 | From December 10, 1993 (date of inception) to June 30, 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deficit | Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock (**) | Common Stock | Additional | During the | Preferred Stock (**) | Common Stock | Additional | During the | |||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Paid-in | Development | Subscriptions | Deferred | Number of | Number of | Paid-in | Development | Subscriptions | Deferred | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stage | Receivable | Compensation | Total | 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 | - | - | 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 | - | - | 47,776,064 | 7,409,543 | - | - | - | - | 7,409,543 | ||||||||||||||||||||||||||||||||||||||
| Fair Value of Stock Option Expenses | - | - | - | - | 632,557 | - | - | - | 632,557 | - | - | - | - | 632,557 | - | - | - | 632,557 | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (7,162,722 | ) | - | - | (7,162,722 | ) | - | - | - | - | - | (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 | - | - | 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 | - | - | 63,861,405 | 4,560,415 | - | - | - | - | 4,560,415 | ||||||||||||||||||||||||||||||||||||||
| Fair Value of Stock Option Expenses | - | - | - | - | 431,313 | - | - | - | 431,313 | - | - | - | - | 431,313 | - | - | - | 431,313 | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (7,202,322 | ) | - | - | (7,202,322 | ) | - | - | - | - | - | (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 | - | - | 311,538,038 | 99,120,731 | 2,661,650 | (98,341,059) | - | - | 3,441,322 | ||||||||||||||||||||||||||||||||||||||
| ** See Note 16 for a detailed breakdown by Series. | See accompanying notes to the financial statements. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (a Development Stage Company) | (a Development Stage Company) | (a Development Stage Company) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Statements of Stockhoders' Equity (Deficit) (Continued) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statements of Stockholders' Equity (Deficit) (Continued) | Statements of Stockholders' Equity (Deficit) (Continued) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From December 10, 1993 (date of inception) to June 30, 2009 | From December 10, 1993 (date of inception) to June 30, 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deficit | Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock (**) | Common Stock | Additional | During the | Preferred Stock (**) | Common Stock | Additional | During the | |||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Paid-in | Development | Subscriptions | Deferred | Number of | Number of | Paid-in | Development | Subscriptions | Deferred | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stage | Receivable | Compensation | Total | Shares | Amount | Shares | Amount | Capital | Stage | Receivable | Compensation | Total | |||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2007 | - | - | 311,538,038 | 99,120,731 | 2,661,650 | (98,341,059 | ) | - | - | 3,441,322 | - | - | 311,538,038 | 99,120,731 | 2,661,650 | (98,341,059 | ) | - | - | 3,441,322 | ||||||||||||||||||||||||||||||||||||
| Common stock issued - line of equity transactions | - | - | 13,979,430 | 530,414 | - | - | - | - | 7,409,543 | - | - | 13,979,430 | 530,414 | - | - | - | - | 7,409,543 | ||||||||||||||||||||||||||||||||||||||
| Fair Value of Stock Option Expenses | - | - | - | - | 183,182 | - | - | - | 183,182 | - | - | - | - | 183,182 | - | - | - | 183,182 | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (4,623,679 | ) | - | - | (4,623,679 | ) | - | - | - | - | - | (4,623,679 | ) | - | - | (4,623,679 | ) | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2008 | - | - | 325,517,468 | 99,651,145 | 2,844,832 | (102,964,738 | ) | - | - | (468,761 | ) | - | - | 325,517,468 | 99,651,145 | 2,844,832 | (102,964,738 | ) | - | - | (468,761 | ) | ||||||||||||||||||||||||||||||||||
| Common stock issued - line of equity transactions | - | - | 158,747,217 | 1,674,885 | - | - | - | - | 1,674,885 | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued - Conversion of Cv Debenture | - | - | 93,958,547 | 621,220 | - | - | - | - | 621,220 | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued - Exercise of Warrants | - | - | 21,755,555 | 178,778 | - | - | - | - | 178,778 | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued - Consulting | - | - | 5,000,000 | 55,000 | - | - | - | - | 55,000 | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued - Employees | - | - | 2,400,000 | 19,200 | - | - | - | - | 19,200 | |||||||||||||||||||||||||||||||||||||||||||||||
| Sale of Common Stock - Restricted Shares Issued | - | - | 4,000,000 | 80,000 | - | - | - | - | 80,000 | |||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value of Stock Option Expenses | - | - | - | - | 145,577 | - | - | - | 145,577 | |||||||||||||||||||||||||||||||||||||||||||||||
| Discount - FV and BCF for $400,000 Cv Deb. | - | - | - | - | 400,000 | - | - | 400,000 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Discount - FV and BCF for $400,000 Cv Deb. # 2 | - | - | - | - | 92,308 | - | - | - | 92,308 | |||||||||||||||||||||||||||||||||||||||||||||||
| Repricing of Warrants | - | - | - | - | 17,000 | - | - | - | 17,000 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (3,944,429 | ) | - | - | (3,944,429 | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Balance of June 30, 2009 | - | - | 611,378,787 | 102,280,228 | 3,499,717 | (106,909,167 | ) | - | - | (1,129,222 | ) | |||||||||||||||||||||||||||||||||||||||||||||
| ** See Note 16 for a detailed breakdown by Series. | See accompanying notes to the financial statements. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| IMAGING DIAGNOSTIC SYSTEMS, INC. | ||||||||||||||||
| (A Development Stage Company) | ||||||||||||||||
| From Inception | ||||||||||||||||
| (December 10, | ||||||||||||||||
| Year Ended | Year Ended | Year Ended | 1993) to | |||||||||||||
| June 30, 2008 | June 30, 2007 | June 30, 2006 | June 30, 2008 | |||||||||||||
| Net loss | $ | (4,623,679 | ) | $ | (7,202,322 | ) | $ | (7,162,722 | ) | $ | (96,116,978 | ) | ||||
| Adjustments to reconcile net loss to net cash | ||||||||||||||||
| used for operating activities: | ||||||||||||||||
Depreciation and amortization | 181,812 | 176,158 | 183,450 | 2,962,528 | ||||||||||||
| (Gain) Loss on sale of fixed assets | (1,609,525 | ) | - | 2,439 | (1,612,671 | ) | ||||||||||
| Extinguishment of debt | - | - | (21,500 | ) | (431,462 | ) | ||||||||||
| Inventory valuation adjustment | 258,375 | 493,596 | 184,219 | 4,670,385 | ||||||||||||
| Amoritization of deferred compensation | - | - | - | 4,064,250 | ||||||||||||
| Noncash interest, compensation and consulting services | 40,414 | 367,698 | 565,373 | 18,979,983 | ||||||||||||
| Fair Value of Stock Option Expenses | 183,182 | 431,313 | 632,557 | 1,247,052 | ||||||||||||
| (Increase) decrease in accounts and | ||||||||||||||||
| loans receivable - employees, net | 49,360 | 332,267 | (266,590 | ) | (202,760 | ) | ||||||||||
| Increase (decrease) in allowance for | ||||||||||||||||
| doubful account | 37,033 | (10,033 | ) | 40,000 | 67,000 | |||||||||||
| (Increase) decrease in inventories, net | 457,612 | (85,942 | ) | (55,625 | ) | (2,380,385 | ) | |||||||||
| (Increase) decrease in prepaid expenses | (18,584 | ) | 6,062 | (8,659 | ) | (55,368 | ) | |||||||||
| (Increase) decrease in other assets | - | - | - | (306,618 | ) | |||||||||||
| Increase (decrease) in accounts payable and | ||||||||||||||||
| accrued expenses | 214,077 | 26,997 | (224,974 | ) | 965,502 | |||||||||||
| Increase (decrease) in other current liabilities | 38,000 | 48,114 | 10,000 | 126,114 | ||||||||||||
| Increase in deferred rent liability | 85,935 | - | - | 85,935 | ||||||||||||
| Total adjustments | (82,309 | ) | 1,786,230 | 1,040,690 | 28,179,485 | |||||||||||
| Net cash used for operating activities | (4,705,988 | ) | (5,416,092 | ) | (6,122,032 | ) | (67,937,493 | ) | ||||||||
| Cash flows from investing activities: | ||||||||||||||||
| Proceeds from sale of property & equipment | 4,357,654 | - | 104 | 4,387,615 | ||||||||||||
| Prototype equipment | - | - | - | (2,799,031 | ) | |||||||||||
| Capital expenditures | (320,045 | ) | (16,500 | ) | (20,079 | ) | (4,786,765 | ) | ||||||||
| Net cash used for investing activities | 4,037,609 | (16,500 | ) | (19,975 | ) | (3,198,181 | ) | |||||||||
| Cash flows from financing activities: | ||||||||||||||||
| Repayment of capital lease obligation | - | - | - | (50,289 | ) | |||||||||||
| Proceeds from convertible debenture | - | - | - | 3,240,000 | ||||||||||||
| Proceeds from (repayments) loan payable, net | (250,000 | ) | 250,000 | - | 2,595,029 | |||||||||||
| Proceeds from issuance of preferred stock | - | - | - | 18,039,500 | ||||||||||||
| Proceeds from exercise of stock options | - | - | - | 903,989 | ||||||||||||
| Net proceeds from issuance of common stock | 490,000 | 4,192,717 | 6,844,171 | 46,456,878 | ||||||||||||
| Net cash provided by financing activities | 240,000 | 4,442,717 | 6,844,171 | 71,185,107 | ||||||||||||
| Net increase (decrease) in cash and cash equivalents | (428,379 | ) | (989,875 | ) | 702,164 | 49,433 | ||||||||||
| Cash and cash equivalents at beginning of period | 477,812 | 1,467,687 | 765,523 | - | ||||||||||||
| Cash and cash equivalents at end of period | $ | 49,433 | $ | 477,812 | $ | 1,467,687 | $ | 49,433 | ||||||||
| See accompanying notes to the financial statements. | ||||||||||||||||
IMAGING DIAGNOSTIC SYSTEMS, INC. | ||||||||||||||||
| (A Development Stage Company) | ||||||||||||||||
| Statement of Cash Flows | ||||||||||||||||
| From Inception | ||||||||||||||||
| (December 10, | ||||||||||||||||
| Year Ended | Year Ended | Year Ended | 1993) to | |||||||||||||
| June 30, 2009 | June 30, 2008 | June 30, 2007 | June 30, 2009 | |||||||||||||
| Net loss | $ | (3,944,429 | ) | $ | (4,623,678 | ) | $ | (7,202,322 | ) | $ | (100,061,407 | ) | ||||
| Adjustments to reconcile net loss to net cash | ||||||||||||||||
| used for operating activities: | ||||||||||||||||
Depreciation and amortization | 202,344 | 181,812 | 176,158 | 3,164,872 | ||||||||||||
| (Gain) Loss on sale of fixed assets | (1,181,894 | ) | (1,609,525 | ) | - | (2,794,565 | ) | |||||||||
| Extinguishment of debt | - | - | - | (431,462 | ) | |||||||||||
| Inventory valuation adjustment | 82,286 | 258,375 | 493,596 | 4,752,671 | ||||||||||||
| Amoritization of deferred compensation | - | - | - | 4,064,250 | ||||||||||||
| Noncash interest, compensation and consulting services | 858,510 | 40,414 | 367,698 | 19,838,493 | ||||||||||||
| Fair Value of Stock Option Expenses | 145,577 | 183,182 | 431,313 | 1,392,629 | ||||||||||||
| (Increase) decrease in accounts and | ||||||||||||||||
| loans receivable - employees, net | 27,222 | 49,360 | 332,267 | (175,538 | ) | |||||||||||
| Increase (decrease) in allowance for | ||||||||||||||||
| doubful account | 47,982 | 37,033 | (10,033 | ) | 114,982 | |||||||||||
| (Increase) decrease in inventories, net | 28,825 | 457,612 | (85,942 | ) | (2,351,560 | ) | ||||||||||
| (Increase) decrease in prepaid expenses | 19,751 | (18,584 | ) | 6,062 | (35,617 | ) | ||||||||||
| (Increase) decrease in other assets | - | - | - | (306,618 | ) | |||||||||||
| Increase (decrease) in accounts payable and | ||||||||||||||||
| accrued expenses | 1,194,152 | 214,077 | 26,997 | 2,159,654 | ||||||||||||
| Increase (decrease) in other current liabilities | (30,000 | ) | 38,000 | 48,114 | 96,114 | |||||||||||
| Increase in deferred rent liability | (85,935 | ) | 85,935 | - | - | |||||||||||
| Total adjustments | 1,308,820 | (82,309 | ) | 1,786,230 | 29,488,305 | |||||||||||
| Net cash used for operating activities | (2,635,609 | ) | (4,705,988 | ) | (5,416,092 | ) | (70,573,102 | ) | ||||||||
| Cash flows from investing activities: | ||||||||||||||||
| Proceeds from sale of property & equipment | 2,400 | 4,357,654 | - | 4,390,015 | ||||||||||||
| Prototype equipment | - | - | - | (2,799,031 | ) | |||||||||||
| Capital expenditures | 7,360 | (320,045 | ) | (16,500 | ) | (4,779,405 | ) | |||||||||
| Net cash used for investing activities | 9,760 | 4,037,609 | (16,500 | ) | (3,188,421 | ) | ||||||||||
| Cash flows from financing activities: | ||||||||||||||||
| Repayment of capital lease obligation | - | - | - | (50,289 | ) | |||||||||||
| Proceeds from convertible debenture | 800,000 | - | - | 4,040,000 | ||||||||||||
| Proceeds from (repayments) loan payable, net | - | (250,000 | ) | 250,000 | 2,595,029 | |||||||||||
| Proceeds from issuance of preferred stock | - | - | - | 18,039,500 | ||||||||||||
| Proceeds from exercise of stock options | - | - | - | 903,989 | ||||||||||||
| Net proceeds from issuance of common stock | 1,788,951 | 490,000 | 4,192,717 | 48,245,829 | ||||||||||||
| Net cash provided by financing activities | 2,588,951 | 240,000 | 4,442,717 | 73,774,058 | ||||||||||||
| Net increase (decrease) in cash and cash equivalents | (36,898 | ) | (428,379 | ) | (989,875 | ) | 12,535 | |||||||||
| Cash and cash equivalents at beginning of period | 49,433 | 477,812 | 1,467,687 | - | ||||||||||||
| Cash and cash equivalents at end of period | $ | 12,535 | $ | 49,433 | $ | 477,812 | $ | 12,535 | ||||||||
| See accompanying notes to the financial statements. | ||||||||||||||||
| IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | IMAGING DIAGNOSTIC SYSTEMS, INC. | ||||||||||||||||||||||||||||||
| (A Development Stage Company) | (A Development Stage Company) | (A Development Stage Company) | ||||||||||||||||||||||||||||||
| Statement of Cash Flows (Continued) | Statement of Cash Flows (Continued) | Statement of Cash Flows (Continued) | ||||||||||||||||||||||||||||||
| From Inception | From Inception | |||||||||||||||||||||||||||||||
| (December 10, | (December 10, | |||||||||||||||||||||||||||||||
| Year Ended | Year Ended | Year Ended | 1993) to | Year Ended | Year Ended | Year Ended | 1993) to | |||||||||||||||||||||||||
| June 30, 2008 | June 30, 2007 | June 30, 2006 | June 30, 2008 | June 30, 2009 | June 30, 2008 | June 30, 2007 | June 30, 2009 | |||||||||||||||||||||||||
| Supplemental disclosures of cash | ||||||||||||||||||||||||||||||||
| flow information: | ||||||||||||||||||||||||||||||||
| Cash paid for interest | $ | - | $ | - | $ | - | $ | 215,962 | $ | - | $ | - | $ | - | $ | 215,962 | ||||||||||||||||
| Supplemental disclosures of noncash | ||||||||||||||||||||||||||||||||
| investing and financing activities: | ||||||||||||||||||||||||||||||||
| Issuance of common stock and options | ||||||||||||||||||||||||||||||||
| in exchange for services | $ | - | $ | - | $ | - | $ | 6,306,350 | $ | - | $ | - | $ | - | $ | 6,306,350 | ||||||||||||||||
| Issuance of common stock as loan fees in | ||||||||||||||||||||||||||||||||
| connection with loans to the Company | $ | - | $ | - | $ | - | $ | 293,694 | $ | - | $ | - | $ | - | $ | 293,694 | ||||||||||||||||
| Issuance of common stock as satisfaction of | ||||||||||||||||||||||||||||||||
| loans payable and accrued interest | $ | - | $ | - | $ | - | $ | 3,398,965 | $ | - | $ | - | $ | - | $ | 3,398,965 | ||||||||||||||||
| Issuance of common stock as satisfaction of | ||||||||||||||||||||||||||||||||
| certain accounts payable | $ | - | $ | - | $ | - | $ | 257,892 | $ | - | $ | - | $ | - | $ | 257,892 | ||||||||||||||||
| Issuance of common stock in | ||||||||||||||||||||||||||||||||
| exchange for property and equipment | $ | - | $ | - | $ | - | $ | 89,650 | $ | - | $ | - | $ | - | $ | 89,650 | ||||||||||||||||
| Issuance of common stock and other current liability | ||||||||||||||||||||||||||||||||
| in exchange for patent liceensing agreement | $ | - | $ | - | $ | - | $ | 581,000 | $ | - | $ | - | $ | - | $ | 581,000 | ||||||||||||||||
| Issuance of common stock for | ||||||||||||||||||||||||||||||||
| compensation | $ | - | $ | - | $ | - | $ | 2,691,788 | $ | - | $ | - | $ | - | $ | 2,691,788 | ||||||||||||||||
| Issuance of common stock through | ||||||||||||||||||||||||||||||||
| exercise of incentive stock options | $ | - | $ | - | $ | - | $ | 3,117,702 | $ | - | $ | - | $ | - | $ | 3,117,702 | ||||||||||||||||
| Issuance of common stock as | ||||||||||||||||||||||||||||||||
| payment for preferred stock dividends | $ | - | $ | - | $ | - | $ | 507,645 | $ | - | $ | - | $ | - | $ | 507,645 | ||||||||||||||||
| Acquisition of property and equipment | ||||||||||||||||||||||||||||||||
| through the issuance of a capital | ||||||||||||||||||||||||||||||||
| lease payable | $ | - | $ | - | $ | - | $ | 50,289 | $ | - | $ | - | $ | - | $ | 50,289 | ||||||||||||||||
| See accompanying notes to the financial statements. | See accompanying notes to the financial statements. | See accompanying notes to the financial statements. | ||||||||||||||||||||||||||||||
(a Development Stage Company)
Notes to Financial Statements
(1) BACKGROUND
The Company, ("Imaging Diagnostic Systems, Inc.") was organized in the state of New Jersey on November 8, 1985, under its original name of Alkan Corp. On April 14, 1994, a reverse merger was effected between Alkan Corp. and the Florida corporation of Imaging Diagnostic Systems, Inc. ("IDSI-Fl."). IDSI-Fl. was formed on December 10, 1993. (See Note 4) Effective July 1, 1995 the Company changed its corporate status to a Florida corporation.
The Company is a development stage enterprise and during fiscal year ending June 30, 2008,2009, utilized the proceeds of $4.4 million from the sale and lease-back of it’s property in Plantation, FL (See Note 22). and the sale of $800,000 of Senior Secured Convertible Debentures. As additional working capital will be required, the Company will obtain such capital through the use of its Sixth Private Equity Credit Agreement and other sources of financing. Since January 2003, the Company has had revenues of $2,072,875$2,143,492 from the sale of its CTLM® Breast Imaging System. There is no assurance that once the development of the CTLM® device is completed and finally receives Federal Drug Administration marketing clearance, that the Company will achieve a profitable level of operations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(b) Revenue Recognition
We recognize revenue in accordance with the guidance presented in the SEC’s Staff Accounting Bulletin No. 104. We sell our medical imaging products, parts, and services to independent distributors and in certain unrepresented territories directly to end-users. Revenue is recognized when persuasive evidence of a sales arrangement exists, delivery has occurred such that title and risk of loss have passed to the buyer or services have been rendered, the selling price is fixed or determinable, and collectibility is reasonable assured. Unless agreed otherwise, our terms with international distributors provide that title and risk of loss passes F.O.B. origin.
To be reasonably assured of collectibility, our policy is to minimize the risk of doing business with distributors in countries which are having difficult financial times by requesting payment via an irrevocable letter of credit (“L/C”) drawn on a United States bank prior to shipment of the CTLM®. It is not always possible to obtain an L/C from our distributors so in these cases we must seek alternative payment arrangements which include third-party financing, leasing or extending payment terms to our distributors.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Allowance for Doubtful Accounts
In the event that management determines that a receivable becomes uncollectible, or events or circumstances change, which result in a temporary cessation of payments from the distributor, we will make our best estimate of probable or potential losses in our accounts receivable balance using the allowance method for each quarterly period. Management will periodically review the receivables at the end of each quarterly reporting period and the appropriate accrual will be made based on current available evidence and historical experience.
Our allowance for doubtful accounts increased to $67,000$114,982 as of June 30, 20082009 from $29,967$67,000 in the prior fiscal year.
(d) Cash and cash equivalents
Holdings of highly liquid investments with original maturities of three months or less and investment in money market funds are considered to be cash equivalents by the Company.
(e) Inventory
Inventories, consisting principally of raw materials, work-in-process (including completed units under testing), finished goods and units placed on consignment, are carried at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Raw materials consist of purchased parts, components and supplies. Work-in-process includes completed units undergoing final inspection and testing.
We have used and will continue to use CTLM® systems from finished goods as demonstrators or for clinical collaboration. At the conclusion of the demonstration or clinical collaboration period, the CTLM® may be sold at reduced prices. On a quarterly basis, using ARB guidance in the guidanceBusiness Combinations Topic of ARB 43, Chapter 4, Statement 5,the Codification, our ability to realize the value of our inventory is based on a combination of factors including the following: how long a consigned system has been used for demonstration or clinical collaboration purpose; the utility of the goods as compared to their cost; physical obsolescence; historical usage rates; forecasted sales or usage; product end of life dates; estimated current and future market values; and new product introductions.
Due to recent technological advances resulting in overall lower costs for certain inventory components; the Company has reduced these components of its inventory to their net realizable value. The inventory valuation adjustments are reflected in the statement of operations and amounted to $82,286, $258,375, $493,596, $184,219, and $4,670,385,$4,752,671, for the years ended June 30, 2009, 2008 2007 and 2006,2007, and for the period December 10, 1993 (date of inception) to June 30, 2008,2009, respectively.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Property, equipment and software development costs
Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using straight-line methods over the estimated useful lives of the related assets. Expenditures for renewals and betterments which increase the estimated useful life or capacity of the asset are capitalized; expenditures for repairs and maintenance are expensed when incurred.
Under the criteria set forth in Statement of Financial Accounting Standards No. 86,FASB issued guidance, capitalization of software development costs begins upon the establishment of technological feasibility for the product. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs require considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future gross product revenues, estimated economic life and changes in software and hardware technology. After considering the above factors, the Company has determined that software development costs, incurred subsequent to the initial acquisition of the basic software technology, should be properly expensed. Such costs are included in research and development expense in the accompanying statements of operations.
(g) Research and development
Research and development expenses consist principally of expenditures for equipment and outside third-party consultants, raw materials which are used in testing and the development of the Company's CTLM® device or other products, product software and compensation to specific company personnel. The non-payroll related expenses include testing at outside laboratories, parts associated with the design of initial components and tooling costs, and other costs which do not remain with the developed CTLM® device. The software development costs are with outside third-party consultants involved with the implementation of final changes to the developed software. All research and development costs are expensed as incurred.
(h) Net loss per share
The Company has excluded vested options and warrants in the amount of 44,457,539, 18,191,449 and 15,175,703 during the years June 30, 2009, 2008 and 2007 as the inclusion of such options and warrants would be anti-dilutive. |
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(i) Patent license agreement
The patent license agreement will be amortized over the seventeen-year life of the patent, the term of the agreement. See Note 2(m) Intangible Assets for disclosure on impairment policy.
(j) Stock-based compensation
The Company adopted SFAS No. 123R, “Share Based Payments.” SFAS No. 123RFASB Guidance that requires companies to expense the value of employee stock options and similar awards and applies to all outstanding and vested stock-based awards.
In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period. The impact of applying SFAS No. 123RFASB guidance approximated $145,577 $183,182 $431,313 and $632,558,$431,313, respectively, in additional compensation expense for the twelve months ended June 30, 2009, 2008, 2007, and 2006.2007.
The fair value concepts were not changed significantly in SFAS 123(R);applying FASB guidance; however, in adopting this Standard, companies were given the option to choose among alternative valuation models and amortization assumptions. We elected to continue to use the Black-Scholes option pricing model and expense the options as compensation over the requisite service period of the grant. We will reconsider use of the Black-Scholes model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
| Year Ended | Year Ended | Year Ended | |
| June 30, 2009 | June 30, 2008 | June 30, 2007 | |
| Volatility | 131.31% | 63.32% | 72.34% |
| Risk Free Interest Rate | 5% | 5% | 5% |
| Expected Term | 8 yrs | 8 yrs | 8 yrs |
| Year Ended | Year Ended | Year Ended | |
| June 30, 2008 | June 30, 2007 | June 30, 2006 | |
| Volatility | 63.32% | 72.34% | 71.11% |
| Risk Free Interest Rate | 5% | 5% | 4% |
| Expected Term | 8 yrs | 8 yrs | 8 yrs |
Our expected term assumption of eight years for the year ended June 30, 2008,2009, was based upon the guidance provided by SEC Staff Accounting Bulletin 107 enabling us to use the simplified method for “plain vanilla” options for this calculation. This provision was allowed to be used for grants made on or before December 31, 2007. On December 21, 2007, the SEC issued Staff Accounting Bulletin 110 which extended the timeframe we will have to use the simplified method on an interim basis. The SEC will suspend use of this method once detailed information on exercise terms become readily available. We then will be required to estimate the expected term of an option using historical data.
See Note 19 – Stock Options
(k) Long-lived assets
Effective July 1, 1996, the Company adopted the provisions of Statement of FinancialFASB guidance regarding the Accounting Standards No. 121. “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of” (“SFAS 121”).Of. This statement requires companies to write down to estimated fair value long-lived assets that are impaired. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In performing the review of recoverability the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the assets, an impairment loss is recognized.
The Company has determined that no impairment losses need to be recognized through the fiscal year ended June 30, 2008.
(l) Income taxes
The Company provides for income taxes using the asset and liability method as required by Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes” (“SFAS 109”).FASB guidance. This method recognizes the amount of federal and state taxes payable or refundable for the current year as well as deferred tax assets and liabilities for the future tax consequence of events recognized in the financial statements and income tax returns. Deferred income tax assets and liabilities are adjusted to recognize the change in tax laws or tax rates. These changes are recognized in income in the year that includes the enactment date.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(m) Intangible assets
Intangible assets, consisting of the patent license agreement and certain initial UL and CE costs are reflected in “Intangible Assets” on the balance sheet, net of accumulated amortization (Note 8)9). The patent license agreement has a fixed life of seventeen years and will continue to be amortized over its remaining useful life. During the fiscal year ending June 30, 1999, we incurred costs of $8,225 related to the process of obtaining UL and CE approvals and determined that these costs should be amortized based on their useful life of three years on a straight-line basis.
Long-lived assets, including patents, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
The impairment analysis for patents can be very subjective as we rely upon signed distribution, dealer or license agreements with variable cash flows to substantiate the recoverability of these long-lived assets. In our analysis we also take into account our position as a world-wide market leader in CT optical tomography; net sales of CTLM® systems of $2,072,875$2,143,492 since January 2003; the growing acceptance of our technology with over 14,000 scans performed world-wide; approvals or product registration in the following countries: CE Mark for the European Union, Canada, Peoples Republic of China, Argentina, Brazil and Colombia. We believe the fair value of our patent license clearly exceeds the carrying amount of $239,235.$205,059.
We have recorded accumulated amortization of $341,765$375,941 with a balance remaining of $239,235,$205,059, which will be amortized over the next seven years at $8,544 per quarter. We will continue to test for impairment on an annual basis or more frequently if events and circumstances change using the guidance provided in FAS-142.by FASB. Examples of such events and circumstances are:
| · | A significant adverse change in legal factors or in the business climate |
| · | An adverse action or assessment by a regulator |
| · | Unanticipated competition |
| · | Loss of key personnel |
| · | An expectation that all or a significant portion of a |
Based on our analysis, we determined that there was no impairment as of June 30, 2008.2009.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
| (n) Warranty Reserve |
| The Company established a warranty reserve effective for the fiscal year ending June 30, 2005. The table below reflects the Warranty Reserve established for the last three fiscal years. Although the Company tests its product in accordance with its quality programs and processes, its warranty obligation is affected by product failure rates and service delivery costs incurred in correcting a product failure. Should actual product failure rates or service costs differ from the Company’s estimates, which are based on limited historical data, where applicable, revisions to the estimated warranty liability would be required. |
| Year Ended | Year Ended | Year Ended | ||
| June 30, 2008 | June 30, 2007 | June 30, 2006 | ||
| Warranty Reserve | $8,502 | $14,952 | $24,799 |
| Year Ended | Year Ended | Year Ended | |
| June 30, 2009 | June 30, 2008 | June 30, 2007 | |
| Warranty Reserve | $4,065 | $8,502 | $14,952 |
(o) Deemed preferred stock dividend
The accretion resulting from the incremental yield embedded in the conversion terms of the convertible preferred stock is computed based upon the discount from market of the common stock at the date the preferred stock was issued. The resulting deemed preferred stock dividend subsequently increases the value of the common shares upon conversion.
(p) Discount on convertible debt
The discount which arises as a result of the allocation of proceeds to the beneficial conversion feature upon the issuance of the convertible debt increases the effective interest rate of the convertible debt and will be reflected as a charge to interest expense. The amortization period will be from the date of the convertible debt to the date the debt first becomes convertible.
(q) Comprehensive income
(r) Impact of recently issued accounting standards
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
for the Accounting for Collaborative Arrangements which defines collaborative arrangements and establishes reporting and disclosure requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties. The provisions of the FASB guidance are effective for the Company’s 2010 fiscal year, beginning on July 1, 2009. The Company is currently evaluating this guidance and the resulting impact of adoption on its financial statements.
In October 2008, FASB provided guidance for Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active to clarify the application of the provisions of the FASB guidance in an inactive market and how an entity would determine fair value in an inactive market. The FASB guidance is effective immediately, and applies to the Company’s September 30, 2008 financial statements. The application of the provisions of the FASB guidance did not materially affect the Company’s results of operations or financial condition as of and for the periods ended December 31, 2008.
In April 2008, the Financial Accounting Standards Board (FASB) Staff Position (FSP) No. 142-3, FASB provided guidance for Determination of the Useful Life of Intangible Assets,, was finalized. FSP No. 142-3FASB guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, FASB guidance, Goodwill and Other Intangible Assets.Assets. The Position applies to intangible assets that are acquired individually or with a group of other assets and both intangible assets acquired in business combinations and asset acquisitions. The Company is currently evaluating the provisions of FSP No. 142-3FASB guidance and the resulting impact of adoption on its financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations, which replaces SFAS No. 141, Business Combinations. SFAS No. 141Rguidance establishes the principles and requirements for how an acquirer recognizes and measures the identifiable assets acquired, the liabilities assumed, the goodwill acquired and any noncontrolling interest in the acquiree. SFAS No. 141RFASB guidance also establishes the disclosure requirements for a business combination. The provisions of SFAS No. 141Rthe FASB guidance are effective for the Company’s 2010 fiscal year, beginning on July 1, 2009. The Company is currently evaluating the provisions of SFAS No.141RFASB guidances and the resulting impact of adoption on its financial statements.
Also in December 2007, the FASB ratified the consensus reached by the Emerging Issues Task Force (EITF) on Issue No. 07-1, Accounting for Collaborative Arrangements. EITF 07-1 definesguidance defined collaborative arrangements and establishesestablished reporting and disclosure requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties. The provisions of EITF 07-1this guidance are effective for the Company’s 2010 fiscal year, beginning on July 1, 2009. The Company is currently evaluating the provisions of EITF 07-1this guidance and the resulting impact of adoption on its financial statements.
In December 2007, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 110 (“SAB 110”) which provides guidance to allow eligible public companies to continue to use a simplified method for estimating the expense of stock options if their own historical experience isn’t sufficient to provide a reasonable basis. Since we have limited experience in determining expected term of “plain vanilla” share options, we will continue to use the simplified method as discussed in SAB No. 107.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In February 2007,May 2008, the FASB issued Statementguidance identified the sources of Financial Accounting Standards No. 159, The Fair Value Optionaccounting principles and the framework for Financial Assets and Financial Liabilities—Including an Amendmentselecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. FASB Statement No. 115 (“SFAS 159”). This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. Mostguidance will become effective 60 days following the SEC’s approval of the provisionsPublic Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Statement 159 are elective; however, the amendment toConformity With Generally Accepted Accounting Principles. FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with available-for-sale and trading securities. SFAS 159guidance is effective for fiscal years beginning after November 15, 2007.2008. We are currently evaluatingassessing the impact, this adoptionif any, FASB guidance will have on our financial statements.
In September 2006,May 2009, the FASB issued SFAS No. 157 “Fair Value Measurements.” SFAS No. 157 defines fair value, establishesFASB guidance, "Subsequent Events", to establish general standards of accounting for and disclosure of events which occur after the balance sheet date but before the date the financial statements are issued or available to be issued. FASB guidance requires an entity to reflect in their financial statements the effects of subsequent events which provide additional evidence about conditions at the balance sheet date including the estimates inherent in the process of preparing financial statements. Subsequent events which provide evidence about conditions that arose after the balance sheet date should be disclosed. Disclosures should include the nature of the event and either an estimate of its financial effect or a frameworkstatement that an estimate cannot be made. FASB guidance also requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, rather it applies under existing accounting pronouncements that require or permit fair value measurements. SFAS No. 157such date. FASB guidance is effective for fiscal years beginninginterim and annual financial periods ending after NovemberJune 15, 2007, which will be our fiscal year 2009. We are currently evaluating the impact of SFAS No. 157 on our financial statements.
We have reviewed recent FASB guidance, regarding the fair value option for financial assets and financial liabilities; FASB guidance, regarding business combinations; FASB guidance, regarding non-controlling interests in Consolidated Financial Statements; FASB guidance, regarding disclosures about derivative instruments and hedging activities; and FASB guidance, regarding determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active, to clarify the application of the provisions of FASB guidance in an inactive market and how an entity would determine fair value in an inactive market and have determined that they are not applicable.
All other issued but not yet effective accounting pronouncements have been deemed to be not applicable hence when adopted these new accounting pronouncements are not expected to have any impact on the financial position of the company.
| (s) Reclassifications |
Certain amounts in the prior period financial statements have been reclassified to conform with the current period presentation.
(3) OTHER INCOME
During the fiscal yearyears ending June 30, 2009 and 2008, the Company recorded a net total of $5,909 and $7,827, respectively, as Other Incomeincome which represents the monthly rent expense and fees we charged Bioscan Inc. During the fiscal year ending June 30, 2007, the Company sold its LILA technology to Bioscan Inc. for the sum of $250,001 which we received and recorded as Other Income.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(4) MERGER
On April 14, 1994, IDSI-Fl. acquired substantially all of the issued and outstanding shares of Alkan Corp. The transaction was accounted for as a reverse merger in accordance with Accounting Principles Board Opinion No. 16, wherein the shareholders of IDSI-Fl. retained the majority of the outstanding stock of Alkan Corp. after the merger. (see Note 17)
As reflected in the Statement of Stockholders’ Equity, the Company recorded the merger with the public shell at its cost, which was zero, since at that time the public shell did not have any assets or equity. There was no basis adjustment necessary for any portion of the merger transaction as the assets of IDSI-Fl. were recorded at their net book value at the date of merger. The 178,752 shares represent the exchange of shares between the companies at the time of merger.
As part of the transaction, the certificate of incorporation of Alkan was amended to change its name to Imaging Diagnostic Systems, Inc.
(5) GOING CONCERN
The Company is currently a development stage enterprise and our continued existence is dependent upon our ability to resolve our liquidity problems, principally by obtaining additional debt and/or equity financing. We have yet to generate a positive internal cash flow, and until significant sales of our product occur, we are mostly dependent upon debt and equity funding. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
In the event that we are unable to obtain debt or equity financing or we are unable to obtain such financing on terms and conditions acceptable to us, we may have to cease or severely curtail our operations. This would materially impact our ability to continue as a going concern. In the event that we are unable to draw on our private equity line, alternative financing would be required to continue operations. Management has been able to raise the capital necessary to reach this stage of product development and has been able to obtain funding for capital requirements to date. There is no assurance that, if and when Food and Drug Administration (“FDA”) marketing clearance is obtained, the CTLM® will achieve market acceptance or that we will achieve a profitable level of operations.
We have commenced our planned principal operations of the manufacture and sale of our sole product, the CTLM®, CT Laser Mammography System. We are continuing to appoint distributors and are installing systems under our clinical collaboration program as part of our global commercialization program. We have sold a total of 1314 systems as of June 30, 2008;2009; however, we continue to operate as a development stage enterprise because we have yet to produce significant revenues. Should additional working capital be required, the Company will obtain such capital through the use of its Sixth Private Equity Credit Agreement and other sources of financing (See Note 22). We have to create product awareness as a foundation to developing our markets through our existing distributor network and through the appointment of additional distributors and the training of their field service engineers. We would be able to exit SFAS 7 Development Stage Enterprise reporting upon having sufficient revenues for two successive quarters such that we would not have to utilize our Sixth Private Equity Credit Agreement or alternative funding sources for capital to cover our quarterly operating expenses.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(6) INVENTORIES
Inventories consisted of the following:
| June 30, | June 30, | |||||||||||||||
| 2008 | 2007 | 2009 | 2008 | |||||||||||||
| Raw materials consisting of purchased parts, components and supplies | $ | 578,144 | $ | 848,254 | $ | 529,410 | $ | 578,144 | ||||||||
| Work-in process including units undergoing final inspection and testing | 28,939 | 44,058 | 28,943 | 28,939 | ||||||||||||
| Finished goods | 448,086 | 878,844 | 377,114 | 448,086 | ||||||||||||
| Sub-Total Inventories | $ | 1,055,169 | $ | 1,771,156 | $ | 935,467 | $ | 1,055,169 | ||||||||
| Less Inventory Reserve | (408,000 | ) | (408,000 | ) | (408,000 | ) | (408,000 | ) | ||||||||
| Total Inventory - Net | $ | 647,169 | $ | 1,363,156 | $ | 527,467 | $ | 647,169 | ||||||||
We review our Inventory for parts that have become obsolete or in excess of our manufacturing requirements and our Finished Goods for valuation pursuant to our Critical Accounting Policy for Inventory. For the fiscal year ending June 30, 2009, we reclassified the net realizable value of $8,591 as this CTLM® system is being used as a clinical system at the University of Florida. For the fiscal year ending June 30, 2008 since such finished goods are being utilized for collecting data for the PMA, we reclassified the net realizable value of $311,252 of CTLM® systems in Inventory to Clinical equipment. For the fiscal year ending June 30, 20072009 we had identified $408,000 of Inventory that we deem impaired due to the lack of inventory turnover.
(7) PROPERTY AND EQUIPMENT
The following is a summary of property and equipment, less accumulated depreciation:
| June 30, | June 30, | |||||||||||||||
| 2008 | 2007 | 2009 | 2008 | |||||||||||||
| Furniture and fixtures | $ | 262,264 | $ | 262,264 | $ | 257,565 | $ | 262,264 | ||||||||
| Building and land (See Note 8) | - | 2,092,529 | - | - | ||||||||||||
| Computers, equipment and software | 425,642 | 416,849 | 426,873 | 425,642 | ||||||||||||
| CTLM® software costs | 352,932 | 352,932 | 352,932 | 352,932 | ||||||||||||
| Trade show equipment | 298,400 | 298,400 | 298,400 | 298,400 | ||||||||||||
| Clinical equipment | 432,346 | 121,094 | 440,937 | 432,346 | ||||||||||||
| Laboratory equipment | 212,560 | 212,560 | 212,560 | 212,560 | ||||||||||||
| Total Property & Equipment | 1,984,144 | 3,756,628 | 1,989,267 | 1,984,144 | ||||||||||||
| Less: accumulated depreciation | (1,489,068 | ) | (1,725,833 | ) | (1,657,236 | ) | (1,489,068 | ) | ||||||||
| Total Property & Equipment - Net | $ | 495,076 | $ | 2,030,795 | $ | 332,031 | $ | 495,076 | ||||||||
For the fiscal year ending June 30, 2009, we reclassified the net realizable value of $8,591 of CTLM® systems in Inventory to Clinical equipment as this CTLM® system is being used as a clinical system at the University of Florida.
For the fiscal year ending June 30, 2008, we reclassified the net realizable value of $311,252 of CTLM® systems in Inventory to Clinical equipment as these CTLM® systems continue to be used as clinical systems associated with the data collection for our PMA application with the FDA which we plan to submit to the FDA in December 2008.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
The estimated useful lives of property and equipment for purposes of computing depreciation and amortization are:
(7) PROPERTY AND EQUIPMENT (Continued)
| Furniture, fixtures, clinical, computers, laboratory | ||
| equipment and trade show equipment | 5-7 years | |
| Building | 40 years | |
| CTLM® software costs | 5 years |
Telephone equipment, acquired under a long-term capital lease at a cost of $50,289, is included in furniture and fixtures. The CTLM® software is fully amortized.
(8) SALE/LEASE-BACK OF BUILDING
On March 31, 2008, we closed the sale of our commercial building at 6531 NW 18th Court, Plantation, Florida for $4.4 million to Bright Investments LLC (“Bright”), an unaffiliated third-party and a sister company to Superfun B.V. Pursuant to FAS-98,FASB guidance, we recorded the sale, removed the sold property and its related liabilities from the Balance Sheet and deferred the gain over the five year term of the operating lease in accordance with the provisions of FAS-13 amended by FAS-28.the FASB guidance. We computed the amount of gain on the sale portion of the sale/lease-back in accordance with the provisions of FAS-66.the FASB guidance. In this regard, we recorded a gain of $1,609,525 and recorded a deferred gain of $1,040,000, which is the present value of the lease payments over the five year term of the lease. We will amortize the deferred gain in proportion to the gross rental charged to expense over the lease term. The lease provided a six-month rent holiday with rent payments commencing on September 14, 2008. To account for the rent holiday, we recorded $13,935 for Rent Expense and accrued that amount as a deferred rent liability. From April 1st to September 14th, we will continue to record rent expense of $24,000 per month and accrue that amount as a deferred rent liability. The $144,000 deferred rent liability will be amortized on a straight-line basis over the lease term.
On April 29, 2008, as part of our cost saving initiatives, we gave six months prior written notice of termination of our lease of our Plantation, Florida facility. On June 2, 2008, we executed a Business Lease Agreement with Ft. Lauderdale Business Plaza Associates, an unaffiliated third-party, for 9,870 square feet of commercial office and manufacturing space at 5307 NW 35th Terrace, Ft. Lauderdale, Florida. (See Note 14 - Leases)
(9) INTANGIBLE ASSETS
Intangible assets consist of the following:
| June 30, | ||||||||
| 2008 | 2007 | |||||||
| Patent license agreement, net of accumulated | ||||||||
| amortization of $341,765 and $307,588 respectively | $ | 239,235 | $ | 273,412 | ||||
| UL & CE approvals, net of accumulated amortization of $8,225 | ||||||||
| and $8,225 respectively | - | - | ||||||
| Totals | $ | 239,235 | $ | 273,412 | ||||
| June 30, | ||||||||
| 2009 | 2008 | |||||||
| Patent license agreement, net of accumulated | ||||||||
| amortization of $375,941 and $341,765 respectively | $ | 205,059 | $ | 239,235 | ||||
| Totals | $ | 205,059 | $ | 239,235 | ||||
During June 1998, the Company signed an exclusive Patent License Agreement with its former chief executive officer. (See Note 22) The officer was the originator of patents issued on December 2, 1997 which covers some of the technology of the CTLM®. Pursuant to the terms of the agreement, the Company was granted the exclusive right to modify, customize, maintain, incorporate, manufacture, sell, and otherwise utilize and practice the Patent, all improvements thereto and all technology related to the process, throughout the world. The license shall apply to any extension or re-issue of the Patent. The term of license is for the life of the Patent and any renewal thereof, subject
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(9) INTANGIBLE ASSETS (Continued)
to termination, under certain conditions. As consideration for the License, the Company issued to the officer 7,000,000 shares of common stock (See Note 18). The License agreement has been recorded at the historical cost basis of the chief executive officer, who owned the patent. The amortization expense for the year ended June 30, 2008 for the patent license agreement is $34,176, with a balance to be amortized over the remaining life of the patent which is seven (7) years. We will review the value of this patent and test it for impairment on an annual basis. No impairment of this intangible asset was identified for the fiscal year ending June 30, 2008.
The core costs of obtaining the initial UL and CE approvals have an indefinite life, and intangible assets having an indefinite life are not amortized at the point of acquisition or subsequent to point of acquisition in accordance with the guidance of SFAS 142.provided by FASB. We recorded the initial costs of these systems and protocols as an intangible asset with an indefinite life because we believed that the costs of obtaining them applied to our Company’s entire functional process including manufacturing, labeling and compliance. We followed the guidance provided in a paradigm, Figure 23-1: Summary of Accounting for Intangible Assets by SFAS 142,the guidance provided by FASB, in which questions are asked relative to indefinite life, asset impairment and whether assumption of indefinite life is still valid.
(10) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
| June 30, | June 30, | |||||||||||||||
| 2008 | 2007 | 2009 | 2008 | |||||||||||||
| Accounts payable - trade | $ | 658,524 | $ | 329,391 | $ | 1,194,964 | $ | 658,524 | ||||||||
| Accrued property taxes payable | 30,819 | 30,819 | 30,819 | 30,819 | ||||||||||||
| Accrued compensated absences | 47,409 | 138,868 | 46,368 | 47,409 | ||||||||||||
| Accrued wages payable | 21,855 | - | 583,896 | 21,855 | ||||||||||||
| Other accrued expenses | 41,461 | 86,913 | 138,173 | 41,461 | ||||||||||||
| Totals | $ | 800,068 | $ | 585,991 | $ | 1,994,220 | $ | 800,068 | ||||||||
(11) CUSTOMER DEPOSITS
Customer deposits consisted of the following:
| June 30, | June 30, | |||||||||||||||
| 2008 | 2007 | 2009 | 2008 | |||||||||||||
| Customer deposits | $ | 126,114 | $ | 88,114 | $ | 96,114 | $ | 126,114 | ||||||||
| Total | $ | 126,114 | $ | 88,114 | $ | 96,114 | $ | 126,114 | ||||||||
Deposits received from customers are identified and accounted for as customer deposits and are presented as both a current asset and an offsetting current liability on our balance sheet. In the event of a cancellation or termination of a customers’ order, the deposit is refunded less any fees previously agreed to.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(12) SHORT-TERM DEBT
| June 30, | ||||||||
| 2008 | 2007 | |||||||
| Loan payable | $ | - | $ | 250,000 | ||||
| Total | $ | - | $ | 250,000 | ||||
On August 17, 2000 the Company finalized a financing agreement with a private institutional equity investor, which contained two component parts, a $25 million Private Equity Agreement and a private placement of 500 shares of Series K convertible preferred stock as bridge financing in the amount of $5,000,000 (See Note 15). The Private Equity Agreement committed the investor to purchase up to $25 million of common stock subject to certain conditions pursuant to Regulation D over the course of 12 months after an effective registration of the shares. The timing and amounts of the purchase by the investor were at the sole discretion of the Company. However, they were required to draw down a minimum of $10 million from the credit line over the twelve-month period. The purchase price of the shares of common stock was set at 91% of the market price. The market price, as defined in the agreement, was the average of the three lowest closing bid prices of the common stock over the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche.
On May 15, 2002, the Company entered into a second private equity agreement, which replaced the original Private Equity Agreement. The terms of the second Private Equity Agreement were substantially equivalent to the terms of the original agreement, except that (i) the commitment period was three years from the effective date of a registration statement covering the second Private Equity Agreement shares, (ii) the minimum amount required to be drawn through the end of the commitment period was $2,500,000, (iii) the minimum stock price requirement was reduced to $.20, and (iv) the minimum average trading volume was reduced to $40,000.
On October 29, 2002, the Company entered into a new “Third Private Equity Credit Agreement” which the Company intended to supplement the second Private Equity Agreement. The terms of the Third Private Equity Credit Agreement were substantially equivalent to the terms of the prior agreement, in that (i) the commitment period was three years from the effective date of a registration statement covering the Third Private Equity Credit Agreement shares, (ii) the maximum commitment was $15,000,000, (iii) the minimum amount required to be drawn through the end of the commitment period was $2,500,000, (iv) the minimum stock price requirement was reduced to $.10, and (v) the minimum average trading volume in dollars was reduced to $20,000.
On January 9, 2004, the Company entered into a new “Fourth Private Equity Credit Agreement” which replaced the prior private equity agreements. The terms of the Fourth Private Equity Credit Agreement were more favorable to the Company than the terms of the prior Third Private Equity Credit Agreement. The new, more favorable terms were: (i) The put option price was 93% of the three lowest closing bid prices in the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche, while the prior Third Private Equity Credit Agreement provided for 91%, ii) the commitment period was two years from the effective date of a registration statement covering the Fourth Private Equity Credit Agreement shares, while the prior Third Private Equity Credit Agreement was for three years, (iii) the maximum commitment was $15,000,000, (iv) the minimum amount the Company was required to draw through the end of the commitment period was $1,000,000, while the prior Third Private Equity Credit Agreement minimum amount was $2,500,000, (v) the minimum stock price requirement was controlled by the Company as it had the option of setting a floor price for
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
each put transaction (the previous minimum stock price in the Third Private Equity Credit Agreement was fixed at $.10), (vi) there were no fees associated with the Fourth Private Equity Credit Agreement; the prior private equity agreements required the payment of a 5% consulting fee, which was subsequently lowered to 4% by mutual agreement in September 2001, and (vii) the elimination of the requirement of a minimum average daily trading volume in dollars. The previous trading volume requirement in the Third Private Equity Credit Agreement was $20,000.
On March 21, 2006, the Company and Charlton entered into a new “Fifth Private Equity Credit Agreement,” which replaced the Company’s prior Fourth Private Equity Credit Agreement upon the April 25, 2006, effectiveness of our S-1 Registration Statement filed on March 23, 2006 to register shares underlying the Fifth Private Equity Credit Agreement. The terms of the Fifth Private Equity Credit Agreement are similar to the terms of the prior Fourth Private Equity Credit Agreement. The new credit line’s material terms are (i) The put option price is 93% of the three lowest closing bid prices in the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche (the “Valuation Period”), (ii) the commitment period is two years from the effective date of a registration statement covering the Fifth Private Equity Credit Agreement shares, (iii) the maximum commitment is $15,000,000, (iv) the minimum amount the Company must draw through the end of the commitment period is $1,000,000, (v) the minimum stock price, also known as the floor price is computed as follows: In the event that, during a Valuation Period, the Bid Price on any Trading Day falls more than 18% below the closing trade price on the trading day immediately prior to the date of the Company’s Put Notice (a “Low Bid Price”), for each such Trading Day the parties shall have no right and shall be under no obligation to purchase and sell one tenth of the Investment Amount specified in the Put Notice, and the Investment Amount shall accordingly be deemed reduced by such amount. In the event that during a Valuation Period there exists a Low Bid Price for any three Trading Days—not necessarily consecutive—then the balance of each party’s right and obligation to purchase and sell the Investment Amount under such Put Notice shall terminate on such third Trading Day (“Termination Day”), and the Investment Amount shall be adjusted to include only one-tenth of the initial Investment Amount for each Trading Day during the Valuation Period prior to the Termination Day that the Bid Price equals or exceeds the Low Bid Price and (vi) there are no fees associated with the Fifth Private Equity Credit Agreement. The conditions to the Company’s ability to draw under this private equity line, as described above, may materially limit the draws available to the Company.
These financing agreements have had no warrants attached to either the bridge financing or the private equity line. Furthermore, the Company was not required to pay the investor’s legal fees, but the Company previously paid a 5% consulting fee for the money funded in all prior transactions up until the approval of the Fourth Private Equity Credit Agreement. The Company sold $2,840,000 of common stock under the terms of the initial private equity agreement during the year ended June 30, 2001. The total shares issued by the Company amounted to 3,407,613. The Company incurred $139,985 of consulting fees and recorded $303,666 of deemed interest expense as a result of the 9% discount off of the market price. During the year ended June 30, 2002, an additional $5,585,000 of common stock was sold under the terms of the applicable equity credit line agreement, and the Company issued a total of 11,607,866 shares of common stock. The Company incurred $296,250 of consulting fees and recorded $628,805 of deemed interest expense as a result of the 9% discount off of the market price. During the year ended June 30, 2003, an additional $7,881,000 of common stock was sold under the terms of the applicable equity credit line agreement, and the Company issued a total of 29,390,708 shares of common stock. The Company incurred $211,800 of consulting fees and recorded $856,772 of deemed interest expense as a result of the 9% discount off of the market price. During the year ended June 30, 2004, an additional $5,850,000 of common stock was sold under the terms of the equity credit line agreements, and the Company issued a total of 8,630,819 shares of common stock. The Company incurred $188,000 of consulting fees which was solely from the Third Private Equity Credit Agreement and recorded a total of $691,701 of deemed interest expense of which $555,897 is a result of the 9% discount off the market price under the Third Private Equity Credit Agreement and $135,804 is a result of the 7% discount off the market price under the Fourth Private Equity Credit Agreement. During the year ended June 30, 2005, an additional $7,204,370 of common stock was sold under the terms of the Fourth Private Equity Credit Agreement and the Company issued a total of 26,274,893 shares of common stock. The Company recorded a total of $593,437 of deemed interest expense as a result of the 7% discount off the market price under the Fourth Private Equity Credit Agreement.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
During the year ended June 30, 2006, an additional $6,844,171 of common stock was sold under the terms of the equity credit line agreements, and the Company issued a total of 47,776,064 shares of common stock. The Company recorded a total of $565,372 of deemed interest expense as a result of the 7% discount off the market price under the Fourth Private Equity Credit Agreement and Fifth Private Equity Credit Agreement.
During the year ended June 30, 2007, an additional $4,192,717 of common stock was sold under the terms of the Fifth Private Equity Credit Agreement and the Company issued a total of 63,861,405 shares of common stock. The Company recorded a total of $367,698 of deemed interest expense as a result of the 7% discount off the market price under the Fifth Private Equity Credit Agreement.
On April 21, 2008, we and Charlton entered into a new “Sixth Private Equity Credit Agreement” which has replaced our prior Fifth Private Equity Credit Agreement. The terms of the Sixth Private Equity Credit Agreement are similar to the terms of the prior Fifth Private Equity Credit Agreement. This new credit line’s terms are (i) The put option price is 93% of the three lowest closing bid prices in the ten day trading period beginning on the put date and ending on the trading day prior to the relevant closing date of the particular tranche (the “Valuation Period”), (ii) the commitment period is three years from the effective date of a registration statement covering the Sixth Private Equity Credit Agreement shares, (iii) the maximum commitment is $15,000,000, (iv) There is no minimum commitment amount, (v) the minimum stock price, also known as the floor price is computed as follows: In the event that, during a Valuation Period, the Bid Price on any Trading Day falls more than 20% below the closing trade price on the trading day immediately prior to the date of the Company’s Put Notice (a “Low Bid Price”), for each such Trading Day the parties shall have no right and shall be under no obligation to purchase and sell one tenth of the Investment Amount specified in the Put Notice, and the Investment Amount shall accordingly be deemed reduced by such amount. In the event that during a Valuation Period there exists a Low Bid Price for any three Trading Days—not necessarily consecutive—then the balance of each party’s right and obligation to purchase and sell the Investment Amount under such Put Notice shall terminate on such third Trading Day (“Termination Day”), and the Investment Amount shall be adjusted to include only one-tenth of the initial Investment Amount for each Trading Day during the Valuation Period prior to the Termination Day that the Bid Price equals or exceeds the Low Bid Price and (vi) there are no fees associated with the Sixth Private Equity Credit Agreement. The conditions to our ability to draw under this private equity line, as described above, may materially limit the draws available to us.
During the year ended June 30, 2008, an additional $275,000 of common stock was sold under the terms of the Fifth Private Equity Credit Agreement and the Company issued a total of 7,726,647 shares of common stock. The Company recorded a total of $23,782 of deemed interest expense as a result of the 7% discount off the market price under the Fifth Private Equity Credit Agreement.
During the year ended June 30, 2008, an additional $215,000 of common stock was sold under the terms of the Sixth Private Equity Credit Agreement and the Company issued a total of 6,252,783 shares of common stock. The Company recorded a total of $16,665 of deemed interest expense as a result of the 7% discount off the market price under the FifthSixth Private Equity Credit Agreement.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(13) LEASES (Continued)
The Company leases certain office equipment under capital leases expiring in future years. Minimum future lease payments under the non-cancelable operating lease having a remaining term in excess of one year as of June 30, 2009 are as follows:
Total rent expense for capital leases amounted to $6,144, $5,239, and $7,749 for the years ended June 30, 2009, 2008 and 2007, respectively, and $377,870 from inception (December 10, 1993) to June 30, 2009.
Total rent expense for operating leases amounted to $208,122, $85,935, and $0 for the years ended June 30, 2009, 2008 and 2007, respectively, and $294,057 from inception (December 10, 1993) to June 30, 2008.
| Payments Due by Fiscal Year | Payments Due by Fiscal Year | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | 2009 | 2010 | 2011 | 2012 | 2013 | Total | 2010 | 2011 | 2012 | 2013 | 2014 | |||||||||||||||||||||||||||||||||||||
| Capital Lease Obligations | $ | 14,485 | $ | 3,888 | $ | 3,888 | $ | 3,888 | $ | 2,821 | $ | - | $ | 10,597 | $ | 3,888 | $ | 3,888 | $ | 2,821 | $ | - | $ | - | ||||||||||||||||||||||||
| Operating Lease - | $ | 38,160 | $ | 38,160 | $ | - | $ | - | $ | - | $ | - | $ | 35,507 | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||||||||
| Bright Investments, LLC | ||||||||||||||||||||||||||||||||||||||||||||||||
| Operating Lease – | $ | 643,392 | $ | 102,442 | $ | 127,414 | $ | 132,489 | $ | 137,773 | $ | 143,273 | $ | 552,467 | $ | 127,414 | $ | 132,489 | $ | 137,773 | $ | 143,273 | $ | 11,518 | ||||||||||||||||||||||||
| Fort Lauderdale Business | ||||||||||||||||||||||||||||||||||||||||||||||||
| Plaza Associates | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating Lease – Bright Investments, LLC
On September 13, 2007, we entered into an agreement with an unaffiliated third-party for the sale and lease-back of our property at 6531 N.W. 18th Court, Plantation, Florida. On March 31, 2008, we closed the sale of our commercial building for $4.4 million to Bright Investments LLC, an unaffiliated third-party and a sister company to Superfun B.V. Terms of the triple net lease were five years with the first monthly rent payment due six months from the commencement date of the lease. The monthly rent for the base year is $24,000 plus applicable sales tax. During the term and any renewal term of the lease, the minimum annual rent shall be increased each year. Commencing with the first day of the second lease year and on each lease year anniversary thereafter, the minimum annual rent shall be cumulatively increased by $24,000 per each lease year or $2,000 per month plus applicable sales tax. Either party may cancel the lease without penalty or fault upon 180 days prior notice given to the other party. On April 29, 2008, we gave six months prior written notice of termination of our lease of our Plantation, Florida facility as part of our cost cutting initiatives.
The lease provided a six-month rent holiday with rent payments commencing on September 14, 2008. To account for the rent holiday, we recorded $13,935 for Rent Expense and accrued that amount as a deferred rent liability. From April 1st to September 14th, we will continue to record rent expense of $24,000 per month and accrue that amount as a deferred rent liability. The $144,000 deferred rent liability will be amortized on a straight-line basis over the lease term. We vacated the Plantation premises in August and on September 30, 2008 we accelerated the $1,040,000 gain on the sale of the building and we accelerated the amortization of the deferred rent liability of $144,193.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(13) LEASES (Continued)
Operating Lease – Fort Lauderdale Business Plaza Associates
On June 2, 2008, the Company executed a Business Lease Agreement with Ft. Lauderdale Business Plaza Associates, an unaffiliated third-party, for 9,870 square feet of commercial office and manufacturing space at 5307 NW 35th Terrace, Ft. Lauderdale, Florida. The term of the lease is five years and one month with the first monthly rent payment due September 1, 2008 with an option to renew for one additional period of three years. The monthly base rent for the initial year is $6,580.00$6,580 plus applicable sales tax. During the term and any renewal term of the lease, the base annual rent shall be increased each year. Commencing with the first day of August 2009 and each year thereafter, the base annual rent shall be cumulatively increased by 3.5% each lease year plus applicable sales tax. IDSI will also be obligated to pay as additional rent its pro-rata share of all common area maintenance expenses which is estimated to be $3,084.37$3,084 per month for the first 12 months of the lease. The total monthly rent including Florida sales tax for the first 12 months is $10,244.23.$10,244. Upon the execution of the lease, we paid the first month’s rent of $10,244.23$10,244 and a security deposit of $13,160.00.$13,160. The Lease Agreement is attached as Exhibit 10.84.
No provision for income taxes has been recorded in the accompanying financial statements as a result of the Company's net operating losses. The Company has unused tax loss carryforwards of approximately $80,000,000 to offset future taxable income. Such carryforwards expire in years beginning 2014 through 2028.2029. There would be no limitation as to the utilization of the net operating losses in future years resulting from the issuance of additional common stock during the fiscal year ended June 30, 2009 and 2008. The deferred tax asset recorded by the Company as a result of these tax loss carryforwards is approximately $30,400,000$29,200,000 and $28,724,000$27,700,000 at June 30, 20082009 and 2007,2008, respectively. The Company has reduced the deferred tax asset resulting from its tax loss carryforwards by a valuation allowance of an equal amount as the realization of the deferred tax asset is uncertain. The net change in the deferred tax asset and valuation allowance from July 1, 2007 to June 30, 2008 was an increase of approximately $1,676,000.$2,360,000 and increase of $1,500,000 for the year ended June 30, 2009. The reconciliation of income tax computed at the U.S. federal statutory rate of 35% and the state rate net of federal benefit of 3%, has been offset by permanent differences relating to stock option expense and the discount recorded on the equity lines of creditdebt in the amount of 15% per annum6%, 3% and 3% for fiscal 2009, 2008, 2007 and by a full valuation allowance against the related net operating loss for each of the respective years then ended.
(15) CONVERTIBLE DEBENTURES
On August 1, 2008, we entered into a Securities Purchase Agreement (the “Initial Purchase Agreement”) with an unaffiliated third party, Whalehaven Capital Fund Limited (“Whalehaven”), relating to a private placement (the “Initial Private Placement”) of a total of up to $800,000 in principal amount of one-year 8% Senior Secured Convertible Debentures (the “Initial Debentures”). We were required to file within 30 days an S-1 Registration Statement (the “Registration Statement”) covering the shares of common stock underlying the Initial Debentures and related Warrants pursuant to the terms of a Registration Rights Agreement dated August 1, 2008, between IDSI and Whalehaven; however, with Whalehaven’s consent, we were permitted to file the Registration Statement promptly after the filing of our Annual Report on Form 10-K.
The Initial Purchase Agreement provided for the sale of the Initial Debentures in two closings. The first closing, which occurred on August 4, 2008, was for a principal amount of $400,000. The second closing would be for up to $400,000 and would occur within the earlier of five business days following the effective date of the Registration Statement and December 1, 2008, provided that the closing conditions in the Initial Purchase Agreement have been met. We retained the option to use our existing equity credit line until the Registration Statement is declared effective. Sales under the Initial Purchase Agreement were subject to an 8% placement agent fee. Thus, the first closing generated proceeds to IDSI of $368,000, before normal transaction costs.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(15) CONVERTIBLE DEBENTURES (Continued)
Prior to maturity, the Initial Debentures bear interest at the rate of 8% per annum, payable quarterly in cash or, at our option, in shares of common stock based on the then-existing market price provided that we are in compliance with the Initial Purchase Agreement.
The Initial Debentures may be converted in whole or in part at the option of the holder any time after the closing date into our Common Stock at the lesser of (i) a set price, initially $.019 per share, which was the closing price of our shares on the closing date (“fixed conversion price”) or (ii) 80% of the 3 lowest bid prices during the 10 consecutive trading days immediately preceding a conversion date; however, the terms of each Initial Debenture prevent the holder from converting the Debenture to the extent that the conversion would result in the holder and its affiliates beneficially owning more than 4.99% of the outstanding shares of our common stock; however, the limit may be increased to 9.99% on 61 days prior written notice from the holder.
At any time after closing, we may redeem for cash, upon written notice, any and all of the outstanding Initial Debentures at a 25% premium of the principal amount plus accrued and unpaid interest on the Initial Debentures to be redeemed.
The Initial Debentures are secured by a pledge of substantially all of our assets pursuant to a Security Agreement dated August 1, 2008, between IDSI and Whalehaven.
Pursuant to the first closing of the Initial Private Placement, we issued to Whalehaven five-year Warrants to purchase 22,222,222 shares of our common stock. The exercise price of these Warrants was $0.0228, i.e., 120% of the market price on the closing date. The Warrants are subject to cashless exercise at Whalehaven’s option.
The placement agent was entitled to receive a Warrant to purchase common stock equal to 12% of Whalehaven’s Warrants with an exercise price equal to Whalehaven’s exercise price. Consequently, a Warrant to purchase 2,666,666 shares was issued to the placement agent based on the first closing.
On October 23, 2008, we entered into an Amendment Agreement (the “Amendment”) with Whalehaven relating to the Initial Purchase Agreement, and the Initial Debenture due August 1, 2009, in the principal amount of $400,000 issued by us to Whalehaven pursuant to the Initial Purchase Agreement. The Amendment provided that the minimum conversion price would be $.013 per share and that the contemplated second closing for another $400,000 debenture would be abandoned. Consequently, no debenture or warrants would be issued beyond the securities issued in connection with the first closing, as the total facility amount was limited to $400,000.
On November 12, 2008, our Registration Statement relating to the Initial Debenture was declared effective. On November 20, 2008, we entered into a Securities Purchase Agreement with two unaffiliated third parties, Whalehaven and Alpha Capital Anstalt (“Alpha”), relating to a private placement (the “New Private Placement”) of $400,000 in principal amount of one-year 8% Senior Secured Convertible Debentures (the “New Debentures”). We were required to file a Registration Statement covering the shares of common stock underlying the New Debentures, including any shares payable as interest, pursuant to the terms of a Registration Rights Agreement dated November 20, 2008, between IDSI and Whalehaven and Alpha promptly following our annual meeting of shareholders, which was held on December 29, 2008. At the meeting the shareholders voted to approve an amendment to our articles of incorporation to increase the authorized shares from 450,000,000 to 950,000,000 (the “Share Amendment”). We were required to use commercially reasonable efforts to cause a Registration Statement to be declared effective as promptly as practicable and no later than 75 days after filing. In the case of a review by the Securities and Exchange Commission the effectiveness date deadline extended to 120 days. In the absence of timely filing or effectiveness, we would be subject to customary liquidated damages.
The New Private Placement generated gross proceeds of $368,000 after payment of an 8% placement agent fee but before other expenses associated with the transaction.
Prior to maturity, the New Debentures bear interest at the rate of 8% per annum, payable quarterly in cash or, at the Company’s option, in shares of common stock based on the then-existing market price.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
| (15) | CONVERTIBLE DEBENTURES (Continued) |
The New Debentures may be converted in whole or in part at the option of the holder any time after the shareholders have voted to approve the Share Amendment at the lesser of (i) a set price, initially $.033 (the closing price of the shares on the closing date) or (ii) 80% of the 3 lowest bid prices during the 10 consecutive trading days immediately preceding a conversion date; provided, however, that the Conversion Price is subject to a floor price, initially $0.013, and provided further however, that the terms of each Initial Debenture prevent the holder from converting the Debenture to the extent that the conversion would result in the holder and its affiliates beneficially owning more than 4.99% of the outstanding shares of our common stock; however, the limit may be increased to 9.99% on 61 days prior written notice from the holder.
After the effectiveness of the Registration Statement, we may redeem for cash, upon written notice, any and all of the outstanding Debentures at a 25% premium of the principal amount plus accrued and unpaid interest on the Debentures to be redeemed.
The New Debentures are secured by a pledge of substantially all of our assets pursuant to a Security Agreement dated November 20, 2008 between IDSI and Whalehaven and Alpha. This security interest is pari passu with the security interest granted to Whalehaven on August 1, 2008, in connection with the Company’s sale of the $400,000 Initial Debenture to Whalehaven..
In November 2008, Whalehaven converted $160,000 principal amount of the Initial Debenture and received 9,206,065 shares of our common stock as a result. On November 26, 2008, Whalehaven sold to Alpha $50,000 principal amount of the Initial Debenture and the right to purchase 5,555,555 shares underlying the Warrant. As a result of this transaction, the Warrant for 22,222,222 shares was replaced by a warrant held by Whalehaven covering 16,666,667 shares (the "Whalehaven Warrant") and a warrant held by Alpha covering 5,555,555 shares (the "Alpha Warrant") (collectively, the "Warrants").
On December 10, 2008, we entered into an Amendment Agreement with Whalehaven and Alpha relating to the Warrants. Under this Amendment Agreement, we agreed to reduce the exercise price of the Warrants to $.015 per share in exchange for the Purchasers' agreement to immediately exercise the Warrants as to 7,000,000 shares (5,000,000 covered by the Whalehaven Warrant and 2,000,000 covered by the Alpha Warrant). We used the $105,000 proceeds from the warrant exercise for working capital.
On December 15, 2008, Alpha converted $15,000 principal amount of its Initial Debenture and received 1,052,628 shares of our common stock as a result.
We entered into a second Amendment Agreement dated as of December 31, 2008, with Whalehaven and Alpha relating to the Warrants. Under this Amendment Agreement, we agreed to reduce the exercise price of the Warrants to $.005 per share in exchange for the Purchasers' agreement to immediately exercise the Warrants as to 14,755,555 shares (11,200,000 by Whalehaven and 3,555,555 by Alpha). We further agreed to issue new Warrants to purchase at $.005 per share up to a number of shares of Common Stock equal to the number of shares underlying the existing Warrants being exercised by Whalehaven and Alpha under the second Amendment Agreement.
In December 2008 we received $56,000, and in January 2009 we received $17,778 in proceeds from these Warrant exercises, we used the proceeds for working capital.
After the issuance of shares pursuant to Whalehaven’s Notice of Exercise of its Warrant and subsequent issuance of new Warrants, they have a balance of 11,666,667 shares available for exercise. After the issuance of shares pursuant to Alpha’s Notice of Exercise of its Warrant and subsequent issuance of new Warrants, they have a balance of 3,555,555 shares available for exercise.
We entered into a third Amendment Agreement dated as of March 20, 2009, with Whalehaven and Alpha. This Amendment Agreement pertains to a request by the Company to the Holders that they agree to a suspension of the Company’s obligations under the Registration Rights Agreements for both the Initial and New Debentures. In consideration for such suspensions, the Company agreed to an adjustment in the conversion price for both debentures whereby the floor price was reduced from $0.013 to $0.005 and the set price was reduced from $0.019 to
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(15) CONVERTIBLE DEBENTURES (Continued)
$0.01. The new formula for determining the conversion price on any Conversion Date shall be equal to the lesser of (a) $0.01, subject to certain standard adjustments (the “Set Price”) and (b) 80% of the average of the 3 lowest Closing Prices during the 10 Trading Days immediately prior to the applicable Conversion Date (subject to adjustments) (the “Conversion Price”); provided, however, that the Conversion Price shall in no event be less than $0.005 (subject to certain standard adjustments).
As of the June 30, 2009, Whalehaven has sold to Alpha a total of $100,000 principal amount of the August Debenture and received from Alpha a total of $50,000 principal amount of the November Debenture, which it had acquired from Alpha on March 17, 2009 in connection with the sale of $50,000 of the August Debenture to Alpha. Whalehaven now holds a principal amount of $250,000 in the November Debenture. Whalehaven also holds Warrants to purchase 11,666,667 shares of common stock at an exercise price of $0.005.
As of the June 30, 2009, Whalehaven has converted the $300,000 of the August Debenture which it did not sell to Alpha and has received 36,841,918 shares as a result. Whalehaven has converted $181,000 of the November Debenture and has received 37,803,364 shares as a result. Whalehaven holds a principal amount of $69,000 in the November Debenture.
As of the June 30, 2009, Alpha has converted $100,000 of the August Debenture and received 17,313,265 shares as a result. Alpha holds a principal amount of $150,000 in the November Debenture. Alpha also holds Warrants to purchase 3,555,555 shares of common stock at an exercise price of $0.005.
(16) REDEEMABLE CONVERTIBLE PREFERRED STOCK
On March 17, 1999, the Company finalized the private placement to foreign investors of 35 shares of its Series G Redeemable Convertible Preferred Stock at a purchase price of $10,000 per share and two year warrants to purchase 65,625 shares of the Company’s common stock at an exercise price of $.50 per share. The agreement was executed pursuant to Regulation D as promulgated by the Securities Act of 1933, as amended. A total of 43,125 warrants were exercised during the year ended June 30, 2000, and an additional 9,375 warrants were exercised during the year ended June 30, 2001.
The Series G Preferred Stock had no dividend provisions. The preferred stock was convertible, at any time, for a period of two years thereafter, in whole or in part, without the payment of any additional consideration, into fully paid and nonassessable shares of the Company’s no par value common stock based upon the “conversion formula”. The conversion formula stated that the holder of the Series G Preferred Stock would receive shares determined by dividing (i) the sum of $10,000 by the (ii) “Conversion Price” in effect at the time of conversion. The “Conversion Price” shall be equal to the lesser of $.54 or seventy-five percent (75%) of the Average Closing Price of the Company’s common stock for the ten-day trading period ending on the day prior to the date of conversion.
In connection with the sale, the Company issued three preferred shares to an unaffiliated investment banker for placement and legal fees, providing net proceeds to the Company of $350,000. The shares underlying the preferred shares and warrant are entitled to demand registration rights under certain conditions.
Pursuant to the Registration Rights Agreement (“RRA”) the Company was required to register 100% of the number of shares that would be required to be issued if the Preferred Stock were converted on the day before the filing of the S-2 Registration Statement. In the event the Registration Statement was not declared effective within 120 days, the Series G Holders had the right to force the Company to redeem the Series G Preferred Stock at a redemption price of 120% of the face value of the preferred stock. The Registration Statement was declared effective on July 29, 2000. During the year ended June 30, 2000, the Series G Preferred Stock was converted into 3,834,492 shares of the Company’s common stock.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(17) CONVERTIBLE PREFERRED STOCK
On April 27, 1995, the Company amended the Articles of Incorporation to provide for the authorization of 2,000,000 shares of no par value preferred stock. The shares were divided out of the original 50,000,000 shares of no par value common stock. All Series of the convertible preferred stock are not redeemable and automatically convert into shares of common stock at the conversion rates three years after issuance.
The Company issued 4,000 shares of “Series A Convertible Preferred Stock” (“Series A Preferred Stock”) on March 21, 1996 under a Regulation S Securities Subscription Agreement. The agreement called for a purchase price of $1,000 per share, with net proceeds to the Company, after commissions and issuance costs, amounting to $3,600,000.
The holders of the Series A Preferred Stock could have converted up to 50% prior to May 28, 1996, and may convert their remaining shares subsequent to May 28, 1996 without the payment of any additional consideration, into fully paid and nonassessable shares of the Company’s no par value common stock based upon the “conversion formula”. The conversion formula states that the holder of the Preferred Stock will receive shares determined by dividing (i) the sum of $1,000 plus the amount of all accrued but unpaid dividends on the shares of Convertible Preferred Stock being so converted by the (ii) “Conversion Price”. The “Conversion Price” shall be equal to seventy-five percent (75%) of the Market Price of the Company’s common stock; provided, however, that in no event will the “Conversion Price” be greater than the closing bid price per share of common stock on the date of conversion.
As of June 30, 1996, 1,600 shares of the Series A Preferred Stock had been converted into a total 425,416 shares (including accumulated dividends) of the Company’s common stock. The remaining 2,400 shares of Series A Preferred Stock were converted into 1,061,202 shares (including accumulated dividends) of the Company’s common stock during the fiscal year ended June 30, 1997.
The Company issued 450 shares of “Series B Convertible Preferred Stock” (“Series B Preferred Stock”) and warrants to purchase up to an additional 112,500 shares of common stock on December 17, 1996 pursuant to Regulation D and Section 4(2) of the Securities Act of 1933. The agreement called for a purchase price of $10,000 per share, with proceeds to the Company amounting to $4,500,000.
The holders of the Series B Preferred Stock could have converted up to 34% of the Series B Preferred Stock 80 days from issuance (March 7, 1997), up to 67% of the Series B Preferred Stock 100 days from issuance (March 27, 1997), and may convert their remaining shares 120 days from issuance (April 19, 1997) without the payment of any additional consideration, into fully paid and nonassessable shares of the Company’s no par value common stock based upon the “conversion formula”. The conversion formula states that the holder of the Series B Preferred Stock will receive shares determined by dividing (i) the sum of $10,000 by the (ii) “Conversion Price” in effect at the time of conversion. The “Conversion Price” shall be equal to eighty-two percent (82%) of the Market Price of the Company’s common stock; provided, however, that in no event will the “Conversion Price” be greater than $3.85. The warrants are exercisable at any time for an exercise price of $5.00 and will expire five years from the date of issue.
On September 4, 1998, the Company received a notice of conversion from the Series B Holders. The Series B Holders filed a lawsuit against the Company on October 7, 1998. The Company was served on October 19, 1998. The lawsuit alleged that the Company has breached its contract of sale to the Series B Holders by failing to convert the Series B Holders and failure to register the common stock underlying the Preferred Stock. The Series B Holders demanded damages in excess of $75,000, to be determined at trial, together with interest costs and legal fees. On April 6, 1999, the Series B Holders sold their preferred stock to an unaffiliated third party (“the Purchaser”) with no prior relationship to the Company, or the Series B Holders. As part of the purchase agreement, the Series B Holders were required to dismiss the lawsuit with prejudice and the Company and the Series B Holders exchanged mutual general releases (see Series I).
As of June 30, 2000, the Series B Preferred Stock has been converted into 30,463,164 shares of the Company’s common stock, and 60 shares were canceled at the request of the holder.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(17) CONVERTIBLE PREFERRED STOCK (Continued)
During the years ended June 30, 1999 and 1998 the Company issued a total of six Private Placements of convertible preferred stock (see schedule incorporated into Note 16). The Private Placements are summarized as follows:
Series C Preferred Stock
On October 6, 1997, the Company finalized the private placement to foreign investors of 210 shares of its Series C Convertible Preferred Stock at a purchase price of $10,000 per share and warrants to purchase up to 160,000 shares of the Company’s common stock at an exercise price of $1.63 per share, and warrants to purchase up to 50,000 shares of the Company’s common stock at an exercise price of $1.562 per share. The agreement was executed pursuant to Regulation S as promulgated by the Securities Act of 1933, as amended. As of June 30, 2001, 40,000 warrants at the $1.63 exercise price were exercised, and the remaining 140,000 warrants had expired. The remaining 50,000 warrants ($1.562 exercise price) are outstanding as of June 30, 2001.
In connection with the sale, the Company paid an unaffiliated investment banker $220,500 for placement and legal fees, providing net proceeds to the Company of $1,879,500.
Series D Preferred Stock
On January 9, 1998, the Company finalized the private placement to foreign investors of 50 shares of its Series D Convertible Preferred Stock at a purchase price of $10,000 per share and warrants to purchase up to 25,000 shares of the Company’s common stock at an exercise price of $1.22 per share. The agreement was executed pursuant to Regulation S as promulgated by the Securities Act of 1933, as amended. As of June 30, 2001 the warrants had expired.
In connection with the sale, the Company issued four preferred shares to an unaffiliated investment banker for placement fees and paid legal fees of $5,000, providing net proceeds to the Company of $495,000. The shares underlying the preferred shares and warrant are entitled to demand registration rights under certain conditions.
Series E Preferred Stock
On February 5, 1998, the Company finalized the private placement to foreign investors of 50 shares of its Series E Convertible Preferred Stock at a purchase price of $10,000 per share and warrants to purchase up to 25,000 shares of the Company’s common stock at an exercise price of $1.093 per share. The agreement was executed pursuant to Regulation S as promulgated by the Securities Act of 1933, as amended. As of June 30, 2001 the warrants had expired.
In connection with the sale, the Company issued four preferred shares to an unaffiliated investment banker for placement fees and paid legal fees of $5,000, providing net proceeds to the Company of $495,000. The shares underlying the preferred shares and warrant are entitled to demand registration rights under certain conditions.
Series F Preferred Stock
On February 20, 1998, the Company finalized the private placement to foreign investors of 75 shares of its Series F Convertible Preferred Stock at a purchase price of $10,000 per share. The agreement was executed pursuant to Regulation S as promulgated by the Securities Act of 1933, as amended.
In connection with the sale, the Company paid an unaffiliated investment banker $50,000 for placement and legal fees, providing net proceeds to the Company of $700,000. The shares underlying the preferred shares and warrant are entitled to demand registration rights under certain conditions.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(17) CONVERTIBLE PREFERRED STOCK (Continued)
Series H Preferred Stock
On June 2, 1998, the Company finalized the private placement to foreign investors of 100 shares of its Series H Convertible Preferred Stock at a purchase price of $10,000 per share and Series H-“A” warrants to purchase up to 75,000 shares of the Company’s common stock at an exercise price of $1.00 per share, and Series H-“B” warrants to purchase up to 50,000 shares of the Company’s common stock at an exercise price of $1.50 per share. The agreement was executed pursuant to Regulation D as promulgated by the Securities Act of 1933, as amended. As of June 30, 2001 none of the warrants had been exercised.
In connection with the sale, the Company issued eight preferred shares and paid $10,000 to an unaffiliated investment banker for placement and legal fees, providing net proceeds to the Company of $990,000. The shares underlying the preferred shares and warrant are entitled to demand registration rights under certain conditions.
The Company was in technical default of the Registration Rights Agreement (“RRA”), which required the S-2 Registration Statement to be declared effective by October 2, 1998. Pursuant to the RRA, the Company was required to pay the Series H holders, as liquidated damages for failure to have the Registration Statement declared effective, and not as a penalty, 2% of the principal amount of the Securities for the first thirty days, and 3% of the principal amount of the Securities for each thirty day period thereafter until the Company procures registration of the Securities. On March 25, 1999, the Company issued 424,242 shares of common stock as partial payment of the liquidated damages. The cumulative liquidated damages expense for the years ended June 30, 2001 amounted to $140,000.
Series I Preferred Stock
On April 6, 1999, the Company entered into a Subscription Agreement with the Purchaser of the Series B Preferred Stock whereby the Company agreed to issue 138 shares of its Series I, 7% Convertible Preferred Stock ($1,380,000). The consideration for the subscription agreement was paid as follows:
| 1. Forgiveness of approximately $725,795 of accrued interest (dividends) in connection with the Series B Convertible Preferred stock. The Company recorded the forgiveness of the accrued interest (dividends) by reducing the accrual along with a reduction in the accumulated deficit. |
| 2. Settlement of all litigation concerning the Series B Convertible Preferred stock. |
| 3. Cancellation of 112,500 warrants that were issued with the Series B Convertible Preferred stock. |
| 4. A limitation on the owner(s) of the Series B Convertible Preferred stock to ownership of not more than 4.99% of the Company’s outstanding common stock at any one time. |
The Series I Preferred stock pays a 7% premium, to be paid in cash or freely trading common stock at the Company’s sole discretion, upon conversion.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(17) CONVERTIBLE PREFERRED STOCK (Continued)
Series K Preferred Stock
On July 17, 2000, the Company finalized the private placement to foreign investors of 500 shares of its Series K Convertible Preferred Stock at a purchase price of $10,000 per share. The agreement was executed in accordance with and in reliance upon the exemption from securities registration by Rule 506 under Regulation D as promulgated by the Securities Act of 1933, as amended.
The entire amount of the Series K Convertible Preferred Stock was converted or redeemed by the Company during the year ended June 30, 2001 into 5,664,067 shares of common stock, including 219,225 shares as payment of the 9% accrued dividend.
The following schedule reflects the number of shares of preferred stock that have been issued, converted and are outstanding as of June 30, 2008,2009, including certain additional information with respect to the deemed preferred stock dividends that were calculated as a result of the discount from market for the conversion price per share:
| IMAGING DIAGNOSTIC SYSTEMS, INC. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (a Development Stage Company) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements (Continued) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (17) COVERTIBLE PREFERRED STOCK (Continued) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Series C | Series D | Series E | Series F | Series H | Series I | Series K | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 1995 | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||
| Sale of Series A | 4,000 | 3,600,000 | 4,000 | 3,600,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A conversion | (1,600 | ) | (1,440,000 | ) | (1,600 | ) | (1,440,000 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 1996 | 2,400 | 2,160,000 | 2,400 | 2,160,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sale of Series B | 450 | 4,500,000 | 450 | 4,500,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A conversion | (2,400 | ) | (2,160,000 | ) | (2,400 | ) | (2,160,000 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 1997 | - | - | 450 | 4,500,000 | 450 | 4,500,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sale of preferred stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Series C - H) | 210 | 2,100,000 | 54 | 540,000 | 54 | 540,000 | 75 | 750,000 | 108 | 1,080,000 | 501 | 5,010,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of preferred stock | (210 | ) | (2,100,000 | ) | (25 | ) | (250,000 | ) | (30 | ) | (300,000 | ) | (75 | ) | (750,000 | ) | (340 | ) | (3,400,000 | ) | |||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 1998 | - | - | 450 | 4,500,000 | - | - | 29 | 290,000 | 24 | 240,000 | - | - | 108 | 1,080,000 | 611 | 6,110,000 | |||||||||||||||||||||||||||||||||||||||||||||
| Sale of Series I | 138 | 1,380,000 | 138 | 1,380,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of preferred stock | (60 | ) | (600,000 | ) | (29 | ) | (290,000 | ) | (24 | ) | (240,000 | ) | (40 | ) | (400,000 | ) | (153 | ) | (1,530,000 | ) | |||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 1999 | - | - | 390 | 3,900,000 | - | - | - | - | - | - | - | - | 68 | 680,000 | 138 | 1,380,000 | - | - | 596 | 5,960,000 | |||||||||||||||||||||||||||||||||||||||||
| Conversion of preferred stock, net | (390 | ) | (3,900,000 | ) | (68 | ) | (680,000 | ) | (138 | ) | (1,380,000 | ) | (596 | ) | (5,960,000 | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2000 | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Sale of Series K | 50 | 5,000,000 | 50 | 5,000,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| �� | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of preferred stock | (50 | ) | (5,000,000 | ) | (50 | ) | (5,000,000 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2001 | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||
| Additional information: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discount off market price | 25 | % | 18 | % | 25 | % | 25 | % | 25 | % | 30 | % | 25 | % | 25 | % | 12.5 | % | |||||||||||||||||||||||||||||||||||||||||||
| Fair market value-issue rate | $ | 8.31 | $ | 3.25 | $ | 1.63 | $ | 0.99 | $ | 1.07 | $ | 1.24 | $ | 0.57 | $ | 0.38 | $ | 1.13 | |||||||||||||||||||||||||||||||||||||||||||
| Deemed preferred stock dividend | $ | 1,335,474 | $ | 998,120 | $ | 705,738 | $ | 182,433 | $ | 182,250 | $ | 318,966 | $ | 351,628 | $ | 492,857 | $ | 708,130 | |||||||||||||||||||||||||||||||||||||||||||
| IMAGING DIAGNOSTIC SYSTEMS, INC. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (a Development Stage Company) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements (Continued) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (17) COVERTIBLE PREFERRED STOCK (Continued) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Series C | Series D | Series E | Series F | Series H | Series I | Series K | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 1995 | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||
| Sale of Series A | 4,000 | 3,600,000 | 4,000 | 3,600,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A conversion | (1,600 | ) | (1,440,000 | ) | (1,600 | ) | (1,440,000 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 1996 | 2,400 | 2,160,000 | 2,400 | 2,160,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sale of Series B | 450 | 4,500,000 | 450 | 4,500,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A conversion | (2,400 | ) | (2,160,000 | ) | (2,400 | ) | (2,160,000 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 1997 | - | - | 450 | 4,500,000 | 450 | 4,500,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sale of preferred stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Series C - H) | 210 | 2,100,000 | 54 | 540,000 | 54 | 540,000 | 75 | 750,000 | 108 | 1,080,000 | 501 | 5,010,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of preferred stock | (210 | ) | (2,100,000 | ) | (25 | ) | (250,000 | ) | (30 | ) | (300,000 | ) | (75 | ) | (750,000 | ) | (340 | ) | (3,400,000 | ) | |||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 1998 | - | - | 450 | 4,500,000 | - | - | 29 | 290,000 | 24 | 240,000 | - | - | 108 | 1,080,000 | 611 | 6,110,000 | |||||||||||||||||||||||||||||||||||||||||||||
| Sale of Series I | 138 | 1,380,000 | 138 | 1,380,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of preferred stock | (60 | ) | (600,000 | ) | (29 | ) | (290,000 | ) | (24 | ) | (240,000 | ) | (40 | ) | (400,000 | ) | (153 | ) | (1,530,000 | ) | |||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 1999 | - | - | 390 | 3,900,000 | - | - | - | - | - | - | - | - | 68 | 680,000 | 138 | 1,380,000 | - | - | 596 | 5,960,000 | |||||||||||||||||||||||||||||||||||||||||
| Conversion of preferred stock, net | (390 | ) | (3,900,000 | ) | (68 | ) | (680,000 | ) | (138 | ) | (1,380,000 | ) | (596 | ) | (5,960,000 | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2000 | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Sale of Series K | 50 | 5,000,000 | 50 | 5,000,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of preferred stock | (50 | ) | (5,000,000 | ) | (50 | ) | (5,000,000 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2001 | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||
| Additional information: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discount off market price | 25 | % | 18 | % | 25 | % | 25 | % | 25 | % | 30 | % | 25 | % | 25 | % | 12.5 | % | |||||||||||||||||||||||||||||||||||||||||||
| Fair market value-issue rate | $ | 8.31 | $ | 3.25 | $ | 1.63 | $ | 0.99 | $ | 1.07 | $ | 1.24 | $ | 0.57 | $ | 0.38 | $ | 1.13 | |||||||||||||||||||||||||||||||||||||||||||
| Deemed preferred stock dividend | $ | 1,335,474 | $ | 998,120 | $ | 705,738 | $ | 182,433 | $ | 182,250 | $ | 318,966 | $ | 351,628 | $ | 492,857 | $ | 708,130 | |||||||||||||||||||||||||||||||||||||||||||
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(18) COMMON STOCK
On June 8, 1994, at a special meeting of shareholders of the Company, a one for one hundred reverse stock split was approved reducing the number of issued and outstanding shares of common stock from 68,875,200 shares to 688,752 shares (510,000 shares of original stock, for $50,000, and the 178,752 shares acquired in the merger). In addition, the board of directors approved the issuance of an additional 27,490,000 shares of common stock that had been provided for in the original merger documents. However, during April, 1995 the four major shareholders agreed to permanently return 12,147,480 of these additional shares. Therefore, the net additional shares of common stock issued amounts to 15,342,520 shares, and the net additional shares issued as a result of this transaction have been reflected in the financial statements of the Company (See Statement of Stockholders’ Equity).
The Company has sold 1,290,069 shares of its common stock through Private Placement Memorandums dated April 20, 1994 and December 7, 1994, as subsequently amended. The net proceeds to the Company under these Private Placement Memorandums were approximately $1,000,000. In addition, the Company has sold 690,722 shares of "restricted common stock" during the year ended June 30, 1995. These shares are restricted in terms of a required holding period before they become eligible for free trading status. As of June 30, 1995, receivables from the sale of common stock during the year amounted to $523,118. During the year ended June 30, 1996, 410,500 shares of the common stock related to these receivables were canceled and $103,679 was collected on the receivable. The unpaid balance on these original sales and other subsequent sales of common stock, in the amount of $35,559, as of June 30, 1997, is reflected as a reduction to stockholder’s equity on the Company’s balance sheet.
During the year ended June 30, 1995, 115,650 shares of common stock were issued to satisfy obligations of the Company amounting to $102,942, approximately $.89 per share. The stock was recorded at the fair market value at the date of issuance.
In addition, during the year ended June 30, 1995, wages accrued to the officers of the Company in the amount of $151,000, were satisfied with the issuance of 377,500 shares of restricted common stock. Compensation expense has been recorded during the fiscal year pursuant to the employment agreements with the officers. In addition, during the year ended June 30, 1995, 75,000 shares of restricted common stock were issued to a company executive pursuant to an employment agreement. Compensation expense of $78,750 was recorded in conjunction with this transaction.
During the year ended June 30, 1996, the Company sold, under the provisions of Regulation S, a total of 700,471 shares of common stock. The proceeds from the sale of these shares of common stock amounted to $1,561,110. The Company issued an additional 2,503,789 shares ($4,257,320) of its common stock as a result of the exercise of stock options issued in exchange for services rendered during the year. Cash proceeds associated with the exercise of these options and the issuance of these shares amounted to $1,860,062, with the remaining $2,397,258 reflected as noncash compensation. These 2,503,789 shares were issued at various times throughout the fiscal year. The stock has been recorded at the fair market value at the various grant dates for the transactions. Compensation, aggregating $2,298,907, has been recorded at the excess of the fair market value of the transaction over the exercise price for each of the transactions.
As of June 30, 1996, there were a total of 425,416 shares of common stock issued as a result of the conversion of the Series A Convertible Preferred Stock and the related accumulated dividends (See Note 16).
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(18) COMMON STOCK (Continued)
Common stock issued to employees as a result of the exercise of their incentive stock options and their non-qualified stock options during the fiscal year ended June 30, 1996 amounted to 1,187,900, of which 996,400 shares were issued pursuant to the provisions of the non-qualified stock option plan and were exercised in a “cash-less” transaction, resulting in compensation to the officers of $567,164. Compensation cost was measured as the excess of fair market value of the shares received over the value of the stock options tendered in the transaction. The excess of fair market value at July 15, 1995 approximated $.57 per share on the 996,400 shares issued.
During the year ended June 30, 1997, the Company issued a total of 1,881,295 shares ($5,461,589) of its common stock. The conversion of Series A Convertible Preferred Stock, including accrued dividends (See Note 16), accounted for the issuance of 1,081,962 shares ($2,808,643). The remaining 799,333 shares were issued as follows:
1. Services rendered by independent consultants in exchange for 31,200 shares. Research and development expenses of $90,480 were charged as the fair market value at November 20, 1996 was $2.90 per share.
2. On December 20, 1996, bonus stock was issued to Company employees, 3,200 shares. Compensation expense of $10,463 was charged as the fair market value at that date was $3.27 per share.
3. On January 3, 1997 bonus stock was issued to the officers of the Company, 350,000 shares. Compensation expense of $907,900 was charged, as the fair market value at that date was $2.59 per share.
4. On February 13, 1997, 4,000 shares were issued to an outside consultant in exchange for services performed. Consulting services of $11,500 were recorded, representing the fair market value ($2.88 per share) on that date.
5. Services rendered by an independent consultant during June 1997 in exchange for 199,000 shares. Consulting expenses of $548,149 were charged, as the fair market value on the date of the transaction was approximately $2.75 per share.
6. Exercise of incentive stock options comprised of 27,000 shares ($33,750) exercised and paid for at $1.25 per share, and 334,933 shares ($1,103,203) acquired in the exchange for options tendered in a cash-less transaction.
7. The Company repurchased 150,000 shares ($52,500), which had been previously acquired by one of its employees.
During the year ended June 30, 1998, the Company issued a total of 11,588,460 shares ($8,583,721) of its common stock. The conversion of Convertible Preferred Stock (see Note 16) accounted for the issuance of 6,502,448 shares ($4,984,684). The remaining 5,056,012 shares were issued as follows:
1. Services rendered by independent consultants in exchange for 100,000 shares. Consulting expenses of $221,900 were charged as the fair market value at July 10, 1997 was $2.22 per share.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(18) COMMON STOCK (Continued)
2. Services rendered by an independent consultant in exchange for 200,000 shares. Consulting expenses of $400,000 were charged as the fair market value at August 20, 1997 was $2.00 per share.
3. Services rendered by an independent consultant in exchange for 40,000 shares. Consulting expenses of $67,480 were charged as the fair market value at September 4, 1997 was $1.69 per share.
4. Services rendered by a public relations company in exchange for 166,000 shares. Public relations expenses of $269,750 were charged as the fair market value at October 24, 1997 was $1.63 per share.
5. On December 15, 1997, bonus stock was issued to Company employees, for 39,300 shares. Compensation expense of $41,658 was charged as the fair market value at that date was $1.06 per share.
6. Services rendered by an independent consultant in exchange for 250,000 shares. Consulting expenses of $320,000 were charged as the fair market value at January 7, 1998 was $1.28 per share.
7. Services rendered by an independent consultant during May 1998 in exchange for 200,000 shares. Consulting expenses of $140,000 were charged, as the fair market value on that date was $.70 per share.
8. The Company sold 500,000 shares on May 15, 1998 in a Regulation D offering at $.40 per share, and received cash proceeds of $200,000.
9. On June 5, 1998, the Company issued to its chief executive officer 3,500,000 shares ($1,890,000) as consideration for an exclusive Patent License Agreement (see Note 8). The market value of the stock on this date was $.54 per share. The excess of the fair market value of the common stock over the historical cost basis of the patent license was recorded as a distribution to the shareholder; recorded as a reduction to additional paid-in capital of $3,199,000.
10. On June 11, 1998, the Company issued 25,000 shares to its corporate counsel as additional bonus compensation. Legal expenses of $12,750 were recorded as the market value of the stock on that date was $.51 per share.
11. A total of 65,712 non-qualified stock options were exercised and proceeds of $22,999 ($.35 per share) was received by the Company.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(18) COMMON STOCK (Continued)
On July 10, 1998, the majority shareholders of the Company authorized, by written action, the Company’s adoption of an Amendment to the Company’s Articles of Incorporation increasing the Company’s authorized shares of common stock from 48,000,000 shares to 100,000,000 shares. The Florida Statutes provide that any action to be taken at an annual or special meeting of shareholders may be taken without a meeting, without prior notice and without a vote, if the action is taken by a majority of outstanding stockholders of each voting group entitled to vote. On August 5, 1998, the Company filed an Information Statement with the Securities and Exchange Commission with regard to the Written Action. The Majority Shareholders consent with respect to the Amendment was effective on February 18, 1999. The number of authorized shares was further increased to 150,000,000 shares during the shareholders annual meeting held on May 10, 2000, and increased again during the 2002 annual meeting to 200,000,000 shares, effective January 3, 2003.
During the year ended June 30, 1999, the Company issued a total of 12,804,131 shares ($5,837,656) of its common stock. The conversion of Convertible Preferred Stock (see Note 16) accounted for the issuance of 4,865,034 shares ($1,972,296). The remaining 7,939,097 shares were issued as follows:
1. The Company sold 200,000 shares on August 5, 1998 in a Regulation D offering at $.30 per share, and received cash proceeds of $60,000.
2. In June 1999, the Company issued to its chief executive officer 3,500,000 shares ($1,890,000), representing the balance of shares to be issued as consideration for the exclusive Patent License Agreement (see Note 8).
3. On November 9, 1998, the Company issued 15,000 shares to its corporate counsel as additional bonus compensation. Legal expenses of $10,800 were recorded as the market value of the stock on that date was $.72 per share.
4. A total of 65,612 non-qualified stock options were exercised and proceeds of $22,964 ($.35 per share) was received by the Company. An additional $101,500 was received this year for stock sold in the prior year.
5. A total of 480,000 shares were issued in connection with loans that were received by the Company. The total loan fee expenses (based on the market value of the stock at the date of issuance) charged to the statement of operations for the year was $292,694, or an average of $.61 per share.
6. A total of 2,974,043 shares were issued as repayment of various accounts payable and loans payable during the year. A total of $1,196,992 (average of $.40 per share) of debts were satisfied through the issuance of the stock.
7. On December 11, 1998, bonus stock was issued to Company employees, for 130,200 shares. Compensation expense of $79,422 was charged as the fair market value at that date was $.61 per share.
8. On March 26, 1999, the Company issued 424,242 shares of stock as partial-payment ($140,000) on the liquidated damages in connection with Series H Preferred Stock. The fair market value at that date was $.33 per share.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(18) COMMON STOCK (Continued)
9. During the year a total of 150,000 shares were issued for to various independent parties for services rendered to the Company. Expenses of $81,788 were charged, or an average price of $.50 per share.
During the year ended June 30, 2000, the Company issued a total of 56,214,003 shares ($12,997,328) of its common stock. The conversion of Convertible Debentures accounted for the issuance of 4,060,398 shares ($3,958,223), the conversion of Redeemable Convertible Preferred Stock (see Note 15) accounted for the issuance of 3,834,492 shares ($507,115), and the conversion of Convertible Preferred Stock (see Note 16) accounted for the issuance of 41,581,242 shares ($6,806,219). The remaining 6,737,871 shares were issued as follows:
1. The Company sold 100,000 shares on April 27, 2000 in a Regulation D offering at $1.57 per share, and received cash proceeds of $157,000.
2. A total of 5,061,294 shares were issued as repayment of various loans payable during the year. A total of $1,067,665 (average of $.21 per share) of debts were satisfied through the issuance of the stock.
3. On November 12, 1999, bonus stock was issued to Company employees, for 145,000 shares. Compensation expense of $12,325 was charged as the fair market value at that date was $.09 per share. The company also canceled 8,000 shares, which had been previously issued to an independent contractor for consulting services. A reduction of $31,000 was recorded to consulting expenses for the year.
4. A total of 7,297 shares were issued in connection with a loan that was received by the Company. The total loan fee expense and interest charged to income amounted to $2,408 during the year.
5. During the year at total of 150,652 shares were issued for the exercise of warrants. On March 21, 2000, the Company received $100,000 for the exercise of 107,527 warrants at an exercise price of $.93 per share. The Company recorded a charge to consulting expense, as the fair market value at the date the warrants were issued was $1.84. The Company also received $21,563 from the exercise of 43,125 of Series G Preferred Stock warrants during the last quarter of the fiscal year.
6. Exercise of 1,281,628 incentive stock options, ($395,810) exercised and paid for at prices ranging from $.13 per share to $1.13 per share.
During the year ended June 30, 2001, the Company issued a total of 13,916,169 shares ($12,333,724) of its common stock. The conversion of Convertible Preferred Stock (see Note 16) accounted for the issuance of 5,664,067 shares ($5,580,531), and the common stock issued through the equity line of credit (See Note 12) accounted for the issuance of 3,407,613 shares ($3,143,666). The remaining 4,844,489 shares were issued as follows:
1. A total of 810,000 shares were issued as repayment of a loan payable during the year. A total of $530,000 of debt was satisfied through the issuance of the stock, and an additional $863,200 was charged as interest expense as the fair market value of the stock at the date of issuance was $1.72 per share.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(18) COMMON STOCK (Continued)
2. On December 7, 2000, 143,500 shares of bonus stock were issued to Company employees. Compensation expense of $219,555 was charged as, the fair market value of the common stock at that date was $1.53 per share. The Company also issued 10,000 shares on May 17, 2001. Consulting services of $8,300 was charged, as the fair market value of the stock was $.83 per share.
3. During the year a total of 99,375 shares of common stock were issued for the exercise of warrants. The Company received $4,687 from the exercise of 99,375 Series G Preferred Stock warrants. On August 10, 2000, the Company received $65,200 for the exercise of 40,000 Series C Preferred Stock warrants at an exercise price of $1.63 per share.
4. Common stock issued to officers as a result of the exercise of their incentive stock options and their non-qualified stock options amounted to 3,755,414 shares. The options were exercised in a “cash-less” transaction, resulting in compensation to the officers of $1,848,566. An additional 26,200 shares were issued to employees upon the exercise of their incentive stock options during the year, at exercise prices ranging from $.35 per share to $.60 per share.
During the year ended June 30, 2002, the Company issued a total of 12,167,866 shares ($6,508,155) of its common stock. The common stock issued through the equity line of credit (See Note 12) accounted for the issuance of 11,607,866 shares ($6,213,805). The remaining 560,000 shares were issued as follows:
1. On November 21, 2001, 210,000 shares of bonus stock were issued to Company employees. Deferred compensation of $117,600 was charged as, the fair market value of the common stock at that date was $.56 per share, and the stock will not be physically delivered to the employees until January 2003.
2. A total of 350,000 shares were issued in conjunction with the settlement on March 22, 2002 of a lawsuit. Settlement expense of $176,750 has been charged on the statement of operations, as the fair market value of the stock at the date of issuance was $.51 per share.
During the year ended June 30, 2003, the Company issued a total of 31,398,326 shares ($9,708,425) of its common stock. The common stock issued through the equity line of credit (See Note 12) accounted for the issuance of 29,390,708 shares ($8,737,772). The remaining 2,007,618 shares were issued as follows:
1. During December 2002, 258,500 shares of bonus stock were issued to Company employees. Compensation of $62,425 was charged as, the fair market value of the common stock on the dates of issuance averaged $.24 per share. In addition, the Company recorded an adjustment for deferred compensation, which resulted in a reduction to common stock for $73,500.
2. A total of 1,194,118 shares were issued in conjunction with the settlement on June 5, 2003 of a lawsuit. Settlement expense of $841,853 has been charged on the statement of operations, as the fair market value of the stock at the date of issuance was $.70 per share.
3. During the year a total of 555,000 shares were issued to various parties for services rendered to the Company. Expenses of $139,875 were charged, or an average price of $.25 per share.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(18) COMMON STOCK (Continued)
During the year ended June 30, 2004, the Company issued a total of 10,333,373 shares ($7,867,351) of its common stock. The common stock issued through the equity line of credit (See Note 12) accounted for the issuance of 8,630,819 shares ($6,541,700). The remaining 1,702,554 shares were issued as follows:
1. During November 2003, 401,785 shares were issued in conjunction with the settlement on September 18, 2003 of a lawsuit. Settlement expense of $450,000 has been charged on the statement of operations as the fair market value of the stock at the date of the settlement agreement was $1.12 per share.
2. During January 2004, 333,000 shares of bonus stock were issued to Company employees. Compensation of $382,950 was charged as the fair market value of the common stock on the date of issuance was $1.15 per share.
3. Common stock issued to directors as a result of the exercise of their incentive stock options amounted to 450,000 shares during the year. The Company received $262,500 from the exercise of 450,000 option shares. The exercise prices range from $.55 per share to $.65 per share.
4. Common stock issued to employees as a result of the exercise of their incentive stock options amounted to 517,769 shares during the year. The Company received $230,201 from the exercise of 517,769 option shares. The exercise prices range from $.19 per share to $.65 per share.
During the year ended June 30, 2005, the Company issued a total of 26,573,157 shares ($7,915,061) of its common stock. The common stock issued through the equity line of credit (See Note 12) accounted for the issuance of 26,274,893 shares ($7,797,807). The remaining 298,264 shares were issued as follows:
1. During September 2004, 100,000 restricted shares were issued to our CEO in conjunction with his employment agreement. Compensation of $38,000 was charged as the fair market value of the common stock on the date of issuance was $.38 per share.
2. During January 2005, 185,000 shares of bonus stock were issued to Company employees. Compensation of $75,850 was charged as the fair market value of the common stock on the date of issuance was $.41 per share.
3. Common stock issued to employees as a result of the exercise of their incentive stock options amounted to 13,264 shares during the year. The Company received $3,404 from the exercise of 13,264 option shares. The exercise prices range from $.20 per share to $.27 per share.
During the year ended June 30, 2006, the Company issued a total of 47,776,064 shares ($7,409,543) of its common stock. The common stock issued through the equity line of credit (See Note 12) accounted for the issuance of 47,776,064 shares ($7,409,543).
During the year ended June 30, 2007, the Company issued a total of 63,861,405 shares ($4,560,415) of its common stock. The common stock issued through the equity line of credit (See Note 12) accounted for the issuance of 63,861,405 shares ($4,560,415).
During the year ended June 30, 2008, the Company issued a total of 13,979,430 shares ($490,000) of its common stock. The common stock issued through the equity line of credit (See Note 13) accounted for the issuance of 13,979,430 shares ($490,000).
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(18) COMMON STOCK (Continued)
During the year ended June 30, 2009, the Company issued a total of 285,861,319 shares ($2,646,083) of its common stock. The common stock issued through the equity line of credit (See Note 12) accounted for the issuance of 158,747,217 shares ($1,674,885). The conversion of Convertible Debentures accounted for the issuance of 93,958,547 shares ($621,220). The exercise of warrants accounted for the issuance of 21,755,555 shares ($195,778).
The remaining 11,400,000 shares were issued as follows:
1. During July 2008, 5,000,000 restricted shares were issued to a consultant. Compensation expense of $55,000 was recorded as the fair market value of the common stock on the date of issuance was $.011 per share.
2. During November 2008, 3,000,000 shares of restricted stock were issued to a shareholder in a private placement pursuant to Rule 144. The shareholder paid the Company $75,000 as the fair market value of the shares on the date of issuance was $.025.
3. During March 2009, 2,400,000 shares of restricted stock were issued to Company employees. Compensation expense of $19,200 was charged as the fair market value of the common stock on the date of issuance was $.008 per share.
4. During March 2009, 1,000,000 shares of restricted stock were issued to a shareholder in a private placement pursuant to Rule 144. The shareholder paid the Company $5,000 as the fair market value of the shares on the date of issuance was $.005.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(19) STOCK OPTIONS
The Company adopted SFAS No. 123R, “Share Based Payments.” SFAS No. 123RFASB guidance which requires companies to expense the value of employee stock options and similar awards and applies to all outstanding and vested stock-based awards.
In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. The Company cannot assess its forfeiture rate at this time.
The Company continues to use an expected term of eight years as provided by Staff Accounting Bulletin 110. Our expected term assumption of eight years for the year ended June 30, 2008, was based upon the guidance provided by SEC Staff Accounting Bulletin 107 enabling us to use the simplified method for “plain vanilla” options for this calculation. This provision was allowed to be used for grants made on or before December 31, 2007. On December 21, 2007, the SEC issued Staff Accounting Bulletin 110 which extended the timeframe we will have to use the simplified method on an interim basis. The SEC will suspend use of this method once detailed information on exercise terms become readily available. We then will be required to estimate the expected term of an option using historical data by analyzing its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period. The impact of applying SFAS No. 123RFASB guidance approximated $183,182, $431,313 and $632,558, respectively, in additional compensation expense for the twelve months ended June 30, 2008, 2007, and 2006.
During July 1994, the Company adopted a non-qualified Stock Option Plan (the "Plan"), whereby officers and employees of the Company could be granted options to purchase shares of the Company’s common stock. Under the plan and pursuant to their employment contracts, an officer could be granted non-qualified options to purchase shares of common stock over the next five calendar years, at a minimum of 250,000 shares per calendar year. The exercise price shall be thirty-five percent of the fair market value at the date of grant. On July 5, 1995 the Board of Directors authorized an amendment to the Plan to provide that upon exercise of the option, the payment for the shares exercised under the option may be made in whole or in part with shares of the same class of stock. The shares to be delivered for payment would be valued at the fair market value of the stock on the day preceding the date of exercise. The plan was terminated effective July 1, 1996, however the officers will be issued the options originally provided under the terms of their employment contracts.
On March 29, 1995, the incentive stock option plan was approved by the Board of Directors and adopted by the shareholders at the annual meeting. This original plan was revised and on January 3, 2000 the Board of Directors adopted the Company’s “2000 Non-Statutory Plan”, and the plan was subsequently approved by the shareholders on May 10, 2000 at the annual meeting. This plan provided for the granting, exercising and issuing of incentive stock options pursuant to Internal Revenue Code Section 422. The Company was entitled to grant incentive stock options to purchase up to 4,850,000 shares of common stock. This Plan also allowed the Company to provide long-term incentives in the form of stock options to the Company's non-employee directors, consultants and advisors, who were not eligible to receive incentive stock options. In January 2002, the Board replaced the 1995 Plan and 2000 Plan with a new combined stock option plan, the 2002 Incentive and Non-Statutory Stock Option Plan (the "2002 Plan"), which provided for the grant of incentive and non-statutory options to purchase an aggregate of 6,340,123 shares of Common Stock. Upon approval of the 2002 Plan, all options outstanding under the 1995 and 2000 Plans remained outstanding; however, no new options could be granted under those plans. The Board of Directors or a company established compensation committee had direct responsibility for the administration of these plans.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(19) STOCK OPTIONS (Continued)
The exercise price of the non-statutory stock options was required to be equal to no less than 50% of the fair market value of the common stock on the date such option is granted.
On February 4, 2004, the Board of Directors adopted the Company’s 2004 Non-Statutory Stock Option Plan (the “2004 Plan”), which was adopted by the shareholders on March 24, 2004 at the annual meeting, to provide a long-term incentive for employees, non-employee directors, consultants, attorneys and advisors of the Company. The maximum number of options that may be granted under the 2004 Plan shall be options to purchase 8,432,392 shares of Common Stock (5% of our issued and outstanding common stock as of February 4, 2004). Options may be granted under the 2004 Plan for up to 10 years after the date of the 2004 Plan. The 2004 Non-Statutory Stock Plan replaced the 2002 Incentive and Non-Statutory Stock Option Plan.
On August 24, 2005, the Board Of Directors resolved that the Company’s 1995, 2000, 2002 and 2004 Stock Option Plans and Stock Options Agreements that were entered into pursuant to these plans, be amended to increase the post-termination exercise period following the termination of the Optionee’s employment/directorship or in the event of change of control of the Company, to be three (3) years from the date of termination or change of control, subject to those options that were vested as of the date of termination or change of control and subject to the original term of the option, which ever time is less.
On July 26, 2007, the Board of Directors adopted the Company’s 2007 Non-Statutory Stock Option Plan (the “2007 Plan”), which must be adopted by the shareholders at the annual meeting which must occur within one year of the Board’s adoption of the 2007 Plan. The 2007 Plan will provide a long-term incentive for employees, non-employee directors, consultants, attorneys and advisors of the Company. The maximum number of options that may be granted under the 2007 Plan shall be options to purchase 15,693,358 shares of Common Stock (5% of our issued and outstanding common stock as of July 26, 2007). Options may be granted under the 2007 Plan for up to 10 years after the date of the 2007 Plan. The 2007 Non-Statutory Stock Plan replaced the 2004 Non-Statutory Stock Option Plan.
Transactions and other information relating to the plans are summarized as follows:
Employee Plan:
| Incentive Stock Options | Non Statutory Stock Options | ||||
| Shares | Wtd. Avg. Price | Shares | Wtd. Avg. Price | ||
| Outstanding at June 30, 1994 | -0- | -0- | |||
| Granted | 75,000 | $ 1.40 | 1,500,000 | $ 1.12 | |
| Exercised | - | - | |||
| Outstanding at June 30, 1995 | 75,000 | 1.40 | 1,500,000 | 1.12 | |
| Granted | 770,309 | 1.66 | 750,000 | 1.44 | |
| Exercised | (164,956) | .92 | (1,800,000) | 1.50 | |
| Outstanding at June 30, 1996 | 680,353 | 1.81 | 450,000 | .13 | |
| Granted | 371,377 | 3.27 | 750,000 | 3.88 | |
| Exercised | (395,384) | 1.10 | - | ||
| Outstanding at June 30, 1997 | 656,346 | 3.07 | 1,200,000 | 2.47 | |
Granted | 220,755 | 1.95 | 750,000 | 2.75 | |
| Exercised | - | (65,712) | .35 | ||
| Canceled | (175,205) | 4.25 | - | ||
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Development Stage Company)
Notes to Financial Statements (Continued)
(19) STOCK OPTIONS (Continued)
Employee Plan (Continued)
| Outstanding at June 30, 1998 | 701,896 | 2.42 | 1,884,288 | 2.66 | |
| Granted | 786,635 | .48 | 750,000 | .43 | |
| Exercised | - | (65,612) | .35 | ||
| Canceled | (82,500) | 3.37 | - | ||
| Outstanding at June 30, 1999 | 1,406,031 | .53 ** | 2,568,676 | 2.24 | |
| Granted | 3,139,459 | .34 | - | ||
| Exercised | (770,702) | .37 | (318,676) | .35 | |
| Canceled | (64,334) | .47 | - | ||
| Outstanding at June 30, 2000 | 3,710,454 | .42 | 2,250,000 | 2.35 | |
| Granted | 1,915,700 | 2.59 | - | ||
| Exercised | (3,030,964) | .32 | (750,000) | .31 | |
| Canceled | (279,982) | .60 | (1,500,000) | 2.75 | |
| Outstanding at June 30, 2001 | 2,315,208 | 2.38 | - | ||
| Granted | 6,839,864 | .68 | - | ||
| Exercised | - | - | |||
| Canceled | (2,695,482) | 1.17 | - | ||
| Outstanding at June 30, 2002 | 6,459,590 | .85 | - | ||
| Granted | 1,459,705 | .38 | - | ||
| Exercised | - | - | |||
| Canceled | (56,788) | .74 | - | ||
| Outstanding at June 30, 2003 | 7,862,507 | .76 | - | ||
| Granted | 1,576,620 | 1.12 | 31,748 | .69 | |
| Exercised | (517,769) | .44 | - | ||
| Canceled | (97,525) | .78 | - | ||
| Outstanding at June 30, 2004 | 8,823,833 | .84 | 31,748 | .69 | |
| Granted | - | 4,253,159 | .34 | ||
| Exercised | (13,264) | .26 | - | ||
| Canceled | (142,891) | .68 | - | ||
| Outstanding at June 30, 2005 | 8,667,678 | .98 | 4,284,907 | .34 | |
| Granted | - | 532,855 | .18 | ||
| Exercised | - | - | |||
| Canceled | (254,277) | .74 | (23,100) | .26 | |
| Outstanding at June 30, 2006 | 8,413,401 | .96 | 4,794,662 | .32 | |
| Granted | - | 3,927,437 | .10 | ||
| Exercised | - | - | |||
| Canceled | (4,804) | .70 | (131,684) | .16 | |
| IMAGING DIAGNOSTIC SYSTEMS, INC. |
(a Development Stage Company)
Notes to Financial Statements (Continued)
(19) STOCK OPTIONS (Continued)
Employee Plan (Continued)
| Outstanding at June 30, 2007 | 8,408,597 | .96 | 8,590,415 | .22 | 8,408,597 | .96 | 8,590,415 | .22 | ||
| Granted | 2,336,526 | .05 | 2,336,526 | .05 | ||||||
| Exercised | ||||||||||
| Canceled | (29,750) | (2,707,852) | .14 | (29,750) | (2,707,852) | .14 | ||||
| Outstanding at June 30, 2008 | 8,378,847 | .90 | 8,219,089 | .20 | 8,378,847 | .90 | 8,219,089 | .20 | ||
| Granted | - | 7,123,300 | .01 | |||||||
| Exercised | - | - | ||||||||
| Canceled | (1,094,655) | .60 | (495,846) | .18 | ||||||
| Outstanding at June 30, 2009 | 7,284,152 | .95 | 14,846,543 | .20 | ||||||
| ** On June 25, 1999, the exercise price of 502,225 outstanding incentive stock options was restated to $.60 per share. The Company has recorded compensation of $330,569 during the fiscal year ended June 30, 1999 as a result of this re-pricing, in accordance with the guidelines discussed in the FASB Interpretation No. 44, of APB Opinion No. 25. |
| Director Plan: |
| Incentive Stock Options | Non Statutory Stock Options | ||||
| Shares | Wtd. Avg. Price | Shares | Wtd. Avg. Price | ||
| Outstanding at June 30, 2000 | -0- | ||||
| Granted | 150,000 | $.65 | |||
| Exercised | - | ||||
| Canceled | - | ||||
| Outstanding at June 30, 2001 | 150,000 | .65 | |||
| Granted | 300,000 | .55 | |||
| Exercised | - | ||||
| Canceled | - | ||||
| Outstanding at June 30, 2002 | 450,000 | .58 | |||
| Granted | 400,000 | .18 | |||
| Exercised | - | ||||
| Canceled | - | ||||
| Outstanding at June 30, 2003 | 850,000 | .40 | - | ||
| Granted | 100,000 | 1.07 | 700,000 | .76 | |
| Exercised | (450,000) | .58 | - | ||
| Canceled | - | - | |||
| Outstanding at June 30, 2004 | 500,000 | .39 | 700,000 | .76 | |
| Granted | - | 800,000 | .35 | ||
| Exercised | - | - | |||
| Canceled | - | - | |||
| Outstanding at June 30, 2005 | 500,000 | .39 | 1,500,000 | .54 | |
| Granted | - | 800,000 | .14 | ||
| Exercised | - | - | |||
| Canceled | - | - | |||
| IMAGING DIAGNOSTIC SYSTEMS, INC. |
(a Development Stage Company)
Notes to Financial Statements (Continued)
(19) STOCK OPTIONS (Continued)
| Director Plan (Continued) |
| Outstanding at June 30, 2006 | 500,000 | .39 | 2,300,000 | .40 | 500,000 | .39 | 2,300,000 | .40 | ||
| Granted | - | 800,000 | .08 | - | 800,000 | .08 | ||||
| Exercised | - | - | - | - | ||||||
| Canceled | - | - | - | - | ||||||
| Outstanding at June 30, 2007 | 500,000 | .39 | 3,100,000 | .32 | 500,000 | .39 | 3,100,000 | .32 | ||
| Granted | - | 600,000 | .05 | - | 600,000 | .05 | ||||
| Exercised | - | - | - | - | ||||||
| Canceled | - | - | - | - | ||||||
| Outstanding at June 30, 2008 | 500,000 | .39 | 3,700,000 | .27 | 500,000 | .39 | 3,700,000 | .27 | ||
| Granted | - | - | ||||||||
| Exercised | - | - | ||||||||
| Canceled | - | - | ||||||||
| Outstanding at June 30, 2009 | 500,000 | .39 | 3,700,000 | .27 | ||||||