FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[MARK ONE]
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________TO_____________
COMMISSION FILE NUMBER: 0-26028
IMAGING DIAGNOSTIC SYSTEMS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
FLORIDA 22-2671269
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(STATE OF INCORPORATION) (IRS EMPLOYER IDENT. NO.)
10281 NW 46TH STREET, SUNRISE, FL. 33351
---------------------------------- -----
(ADDRESS OF PRINCIPAL OFFICE) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER: (954)746-0500
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
COMMON STOCK, NO PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant:(1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2)has been subject to such filing requirements for the past 90
days. Yes [X] No [ ].
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or
amendment to this Form 10-KSB. [x]
State issuer's revenues for its most recent fiscal year. -0-
Based on the average closing bid and asked prices of the common stock on July
25, 1996, the aggregate market value of the voting stock held by non-affiliates
of the registrant was $19,708,081.
The number of shares outstanding of each of the issuer's classes of common
equity, as of July 25, 1996: 23,021,789. The number of shares outstanding of the
issuer's class of preferred equity (Series A Convertible Preferred), as of July
25, 1996: 1,000.
<PAGE>
2
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANINGS OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. ACTUAL RESULTS AND EVENTS COULD DIFFER MATERIALLY FROM
THOSE PROJECTED AS A RESULT OF THE "KNOWN UNCERTAINTIES" AS SET FORTH HEREIN.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
OVERVIEW
Imaging Diagnostic Systems, Inc. is a medical technology company that has
developed a system for detecting breast cancer through the skin in a
non-invasive and objective procedure. Imaging's system employs a high-speed
femto-second pulsed titanium sapphire laser and proprietary scanning geometry
and reconstruction algorithms to detect and analyze masses in the breast for
indicia of malignancy or benignancy. The Company believes that its proposed
breast cancer diagnostic product, the Computed Tomography Laser
Mammography(CTLM\trademark\) device, will improve early diagnosis, reduce
diagnostic uncertainty and decrease the number of biopsies performed on benign
lesions.
The CTLM device will require Food and Drug Administration (FDA) approval
prior to commercial distribution in the United States. There can be no assurance
that any such approval will be received on a timely basis, or at all, or that
any products developed by the Company will be accepted commercially.
Furthermore, there can be no assurance that the Company's technology can be
adapted for breast screening or for the detection of cancer.
THE COMPUTED TOMOGRAPHY LASER MAMMOGRAPHY DEVICE
The CTLM device is being developed to provide physicians and patients with
immediate information concerning the probability that an identified lesion is
malignant or benign. A breast exam utilizing the CTLM device is non-invasive and
can be performed by a medical technician in less than 15 minutes. A patient lies
face down on the scanning table with a breast hanging pendulously in the
scanning chamber. Once the entire breast is scanned the other breast is placed
in the chamber for scanning. Each scan takes approximately 3-4 minutes. The
procedure is designed to provide the physician and patient with objective,
on-site, immediate diagnostic decisions, including whether or not to proceed to
surgical biopsy. Further, the device is designed to archive and compare scans
and provide the patient with a computer disc (CD) of her scan.
<PAGE>
3
BREAST CANCER
BACKGROUND
Breast cancer is one of the most common cancers among women and,
notwithstanding the currently available detection modalities, is the leading
cause of death among women aged 35 to 45. According to the American Cancer
Society ("ACS"),approximately one in nine women in the United States will
develop breast cancer during her lifetime. In the United States in 1994,
approximately 180,000 women were diagnosed with, and approximately 46,000 women
died as a result of, breast cancer. In Europe in 1990, approximately 170,000
cases of cancer were discovered, with an estimated 73,000 deaths. The annual
cost of cancer management in the United States alone is approximately $25
billion.
There is widespread agreement that screening for breast cancer, when
combined with appropriate follow-up, will reduce mortality from the disease.
According to the NCI, the five-year survival rate decreases from more than 90%
to 72% 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.
Breast cancer screening is generally recommend as a routine part of
preventive healthcare for women over the age of 20 (approximately 90 million in
the United States). For these women, ACS has published guidelines for breast
cancer screening including:(i)monthly breast self-examinations for all women
over the age of 20;(ii)a baseline mammogram for women by the age of 40;(iii)a
mammogram every one to two years for women between the ages of 40 and 49;(iv)an
annual mammogram for women age 50 or older. As a result of family medical
histories and other factors, certain women are at "high risk" of developing
breast cancer during their lifetimes. For these women, physicians often
recommend close monitoring, particularly if a potentially pre-cancerous
condition has been detected.
Each year approximately eight million women in the United States require
diagnostic testing for breast cancer because of a physical symptom, such as a
palpable lesion, pain or nipple discharge, discovered through self or physical
examination (approximately seven million) or a nonpalpable 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 diagnostic mammography, ultrasound or
fine needle aspiration. 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. Each of the
currently available non-surgical modalities for breast cancer detection has
various clinical limitations.
<PAGE>
4
SCREENING AND DIAGNOSTIC MODALITIES
Physical examinations may be conducted by a physician as part of a medical
examination, or by a woman performing a breast self-examination; however, a
physical examination of the breast can only detect relatively large lesions,
which may be advanced cancers. Furthermore, physical examination of the breast
does not reliably distinguish between malignant and benign tissue. More than
half the women who menstruate will have a lump in a breast at some point, but
fewer than 10% of such lumps will be malignant.
Mammography is an x-ray modality commonly used for both routine breast
cancer screening and as a diagnostic tool. A mammogram produces and image of the
internal structure of the breast which is intended to display lesions as blurry
white spots against normal tissue. In a screening mammogram, radiologist seek to
detect suspicious lesions, while in a diagnostic mammogram radiologist seek to
characterize suspicious lesions. Mammograms require subjective interpretation by
a radiologist and are often uncomfortable for the patient. Because x-ray
mammography exposes the patient to radiation, ACS recommends mammograms be
limited to once per year. In addition, x-ray mammography is considered to be
less effective for women under the age of 50 who generally have radiographically
dense breast tissue. The average cost of a diagnostic mammogram is approximately
$120 to $180 per procedure, and requires the use of capital equipment ranging in
cost from approximately $75,00 to $225,000. Due the high capital costs
associated with mammography equipment and the specialized training necessary to
operate the equipment and to read x-ray images, mammography is usually available
only at specialty clinics or hospitals.
Ultrasound uses high frequency sound waves to create an image of soft
tissues in the body. Like mammography, this image requires interpretation by a
physician. Ultrasound's principal role in breast cancer diagnosis has been to
assist the physician in determining whether a palpable lesion is likely to be a
cyst (usually benign) or a solid mass (potentially cancerous). The average cost
for an ultrasound of the breast is approximately $75 to $300 per procedure and
requires the use of capital equipment ranging in cost from approximately $60,000
to $200,000. Like mammography, ultrasound is generally performed at specialty
clinics or hospitals.
Other currently available non-surgical diagnostic techniques include fine
needle aspirations, core needle biopsy and stereotactic needle biopsy. In each
of these procedures a physician seeks to obtain cell samples from suspicious
lesions through a needle for analysis by a cytopathologist. Inadequate sampling
often renders these tests invalid. These procedures are invasive, require
follow-up and range in cost from approximately $370 to $1,000 per procedure.
Due in part to the limitations of the currently available modalities to
identify malignant lesions, a large number of
<PAGE>
5
patients with suspicious lesions proceed to surgical biopsy, an invasive and
expensive procedure. Approximately 800,000 surgical biopsies are performed each
year in the United States, of which approximately 700,000 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 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 several days to receive their
biopsy results.
The Company believes that the shortcomings of current breast cancer
management which include discomfort and exposure to radiation represent a
significant market opportunity for non-invasive and objective technology. The
use of the CTLM device to detect breast cancer is believed to be especially
promising for women between the ages of 20 to 50 (over 50 million women in the
United States) for whom x-ray mammography has lower efficacy. These women often
present diffuse palpable benign breast conditions which can mask malignancies or
pre-malignant conditions.
REGULATORY AND CLINICAL STATUS
In order to sell the CTLM device commercially in the United States the
Company must obtain marketing clearance from the FDA. The Company plans to file
a Pre-Market Approval Application (PMA) with the FDA to obtain marketing
clearance.
A PMA application must be supported by extensive data, including preclinical
and clinical trial data, as well as extensive literature to prove the safety and
effectiveness of the device. Following receipt of a PMA application, if the FDA
determines that the application is sufficiently complete to permit substantive
review, the agency will "file" the application. Under the Food, Drug and
Cosmetic Act, the FDA has 180 days to review a PMA application.
The FDA has adopted a policy of expedited review which is available to
medical devices satisfying one or more of the following criteria:
\bullet\ The device addresses a condition which is serious or
life-threatening or presents a risk of serious injury for which
no alternative legally marketed diagnostic/therapeutic modality
exists.
\bullet\ The device addresses a condition which is
life-threatening or irreversibly debilitating, and provides for
clinically important earlier diagnosis or significant advances
in safety and/or effectiveness over existing alternatives.
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6
\bullet\ The device represents a clear clinically meaningful
advantage over existing technology, defined as having major
(not incremental) increased effectiveness or reduced risk
compared to existing technology.
\bullet\ The availability of the device is otherwise in the best
interest of the public health.
On February 9, 1996, the Company's Phase I Investigational Device Exemption
(IDE) application was approved by the FDA. An approved IDE application permits a
device, that would otherwise be subject to marketing clearance, to be shipped
lawfully for the purpose of conducting a clinical study.
The Phase I study will be conducted at the Strax Breast Diagnostic Institute
located in Lauderhill, Florida. The study will involve 50 patients. Immediately
after the 50 patient study is completed, the Company will submit its Phase II
application to the FDA. The Phase II study will encompass the establishment of
4-6 clinical sites at major hospitals in the United States. These clinical sites
will be used to accumulate the approximately 400-500 clinical studies to be
submitted with the PMA application. At present, the Company anticipates
submitting its PMA application at the beginning of the second calendar quarter
for 1997.
On April 29, 1996, the Company was given approval by the FDA to conduct a
discrete number of (5-7) calibration studies at its facilities in Sunrise,
Florida. The Company has started this phase of the clinical testing.
SALES AND MARKETING
The laws of certain European and Asian countries may permit the Company to
begin marketing the CTLM device in Europe and Asia before marketing would be
permitted in the United States. The Company is considering potential
distribution agreements with strategic marketing partners in Europe and Asia and
has entered into a distribution agreement with Euro Trading & Finance S.r.l. to
market and service the device in Italy.
ITEM 2. DESCRIPTION OF PROPERTY
The Company is renting 7,630 sq. feet for $5,755 per month at 10281 NW 46th
Street, Sunrise, Florida ("Spectrum West").
On July 24, 1996, the Company entered into a purchase and sale agreement to
purchase a 24,000 square foot building located in Plantation, Florida. The
Company is expecting to close the transaction prior to September 15, 1996, at
which time it will relocate all of its operations.
<PAGE>
7
ITEM 3. LEGAL PROCEEDINGS
On April 29, 1996, a complaint was filed against the Company by Stealth
Random Corporation ("Stealth") in the Circuit Court of the 17th Judicial Circuit
in and for Broward County, case no. 96-05761. The complaint alleges that Stealth
is entitled to additional compensation in the form of stock options for services
rendered pursuant to a consulting agreement entered into August of 1995. The
complaint was dismissed without prejudice by the Court. Stealth filed an amended
complaint. The Company filed a motion to dismiss the amended complaint by and
through its counsel Steel, Hector and Davis of Miami, Florida. Two of the three
counts of the amended complaint were dismissed with prejudice and the third
count was dismissed with leave to amend. The Company denies all of the
allegations and will continue to vigorously defend the suit.
The Company is not aware of any other material legal proceedings, pending or
contemplated, to which the Company is, or would be, a party or of which any of
its property is, or would be, the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock, no par value, is traded on the over-the-counter
bulletin board market. The Company's preferred stock is not traded. There has
been trading in the Company's common stock since September 20, 1994. The symbol
for the Company's common stock is IMDS.
QUARTER ENDING HIGH BID LOW BID
FISCAL YEAR 1995
September/1994 $1 38 $1.00
December/1994 $1.44 $ .75
March/1995 $2.19 $ .50
June/ 1995 $2.12 $1.46
FISCAL YEAR 1996
September/1995 $.78 $.71
December/1995 $3.15 $3.06
March/1996 $8.25 $8.00
June/ 1996 $3.90 $3.87
The bid price which states over-the-counter market quotations reflect
inter-dealer prices without real mark-up, markdown or
<PAGE>
8
commissions and may not necessarily represent actual transactions.
The Company has approximately 512 shareholders of record of its common stock
as of July 25, 1996.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since its inception (December 10, 1993), Imaging Diagnostic Systems, Inc.
(the "Company") has been engaged in research and development associated with its
cancer detection technology. As a developmental stage company, the Company has
incurred net losses since inception through June 30, 1996 of approximately
$4,756,824. The Company expects operating losses will continue for at least the
next few years as total costs and expenses increase due principally to increased
marketing and manufacturing expenses associated with the anticipated
commercialization of the Computed Tomography Laser Mammography (CTLM\trademark\)
device, development of, and clinical trials for, the proposed CTLM device and
other research and development activities.
To date, the Company has not marketed, or generated revenues from the
commercialization of, any products. The Company's results may vary significantly
from period to period depending on several factors, such as the timing of
certain expenses and the progress of the Company's research and development and
commercialization programs, all of which may be affected by the availability of
funds.
RESULTS OF OPERATIONS
TWELVE MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
General and administrative expenses during the twelve months ended June 30,
1996, were $331,326 representing an increase of $261,018 from $70,308 during the
twelve months ended June 30, 1995. This increase was primarily due to an
expansion of the general operations of the Company associated with hiring
additional personnel and an increase in the size of the facilities.
Compensation and related benefits during the twelve months ended June 30,
1996, were $1,356,733 representing an increase of $1,042,163 from $314,570
during the twelve months ended June 30, 1995. This increase was primarily due to
an increase in compensation expense as a result of the vesting of options by
executives pursuant to the Company's compensatory non-qualified stock option
plan and the hiring of nine employees.
<PAGE>
9
Research and development expenses during the twelve months ended June 30,
1996 were $829,771, representing an increase of $797,155 from $32,616 during the
twelve months ended June 30, 1995. This increase is due to the reclassification
of a number of items as a result of a technological change in the development of
the Computed Tomography Laser Mammography (CTLM\trademark\) device occurring the
fourth quarter of the Company's fiscal year.(see below, Material Fourth Quarter
Adjustments)
MATERIAL FOURTH QUARTER ADJUSTMENTS
On June 17, 1996, it was decided by the Company's Director of Research and
Development and the Director of Engineering to discontinue with the development
of the then, current proprietary scanner and data collection system, components
of the prototype CTLM device, and to begin development of a 3rd generation
scanner and data collection system. As a consequence, certain items amounting to
$677,395 were reclassified as follows: $512,453 as research and development
expense and $164,941 as lab equipment.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception by the issuance of
equity securities with aggregate net proceeds of approximately $8,376,357. In
March, 1996 the Company received net proceeds of approximately $3,600,000 from
the private placement of its Series A Convertible Preferred Stock offering and
approximately $1,600,000 from the private placement of its common stock pursuant
to Regulation S of the Securities Act of 1933, as amended.
The Company's combined cash and cash equivalents totaled $3,975,354 at June
30, 1996, representing an increase of $3,959,295 from $16,059 at June 30, 1995.
This increase was primarily due to receipt of approximately $5,200,000 in net
proceeds from the private placement of equity securities, Series A Convertible
Preferred Shares and Common Shares. The Company does not expect to generate a
positive internal cash flow for at least the next twelve (12) months due to the
expected increase in spending for research and development and the expected
costs of commercializing it initial product, the CTLM device.
On July 24, 1996, the Company entered into an agreement to purchase for
$1,250,000 a 24,000 sq./ft. office building situated on a five acre tract in
Plantation, Florida. The Company plans to close on the transaction on or before
September 15, 1996, and will move its entire operations to the building shortly
thereafter.
The Company will require additional funds for its research and development,
preclinical and clinical testing, operating expenses, Food and Drug
Administration regulatory processes, and manufacturing and marketing programs.
Accordingly, the Company
<PAGE>
10
will be required to raise additional funds prior to the end of the first quarter
of calendar year 1997 in order to continue operations. The Company plans to
raise additional funds by either: entering into a transaction(s) to privately
place equity, either common or preferred stock, or debt securities, or
combinations of both; or, placing equity into the public market through an
underwritten secondary offering. At the present time there are no written
commitments by individuals or entities for the additional funds necessary to
continue operations after March, 1997.
KNOWN UNCERTAINTIES
DEVELOPMENTAL STAGE COMPANY
The Company is in the developmental stage, and its proposed operations are
subject to the risks inherent in the establishment of a new business enterprise,
including the absence of operating history. The likelihood of the success of the
Company must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered in connection with the formation
of a new business, the development of new technology, and the competitive and
regulatory environment in which the Company will operate. The Company has made
no sales to date and has accumulated a net deficit from inception through June
30, 1996. Further, it is likely that additional losses will be incurred in the
future.
GOING CONCERN QUALIFICATION
The report of the Company's independent auditor contains an explanatory
paragraph as to the Company's ability to continue as a going concern. Among the
factors cited by the auditors as raising substantial doubt as to the Company's
ability to continue as a going concern is that the Company has incurred losses
since inception and is expected to continue to incur losses and is in need of
substantial funds. There can be no assurance that the Company will ever achieve
significant revenues or profitable operations.
POTENTIAL ADVERSE IMPACT OF FDA AND OTHER GOVERNMENT REGULATIONS
The manufacturing and marketing of the Company's product is subject to extensive
and rigorous government regulation in the United States, in various states and
in foreign countries. In the United States and certain other countries, the
process of obtaining and maintaining required regulatory approvals is lengthy,
expensive, and uncertain. In the United States, the FDA enforces, where
applicable, development, testing, labeling, manufacturing, registration,
notification, clearance or approval, marketing, distribution, record keeping,
and reporting requirements for medical devices. There can be no assurance that
the Company's product will obtain the regulatory clearance or
<PAGE>
11
approval required for marketing, or that the Company will be able to comply with
any additional FDA, State or Foreign regulatory requirements.
PRODUCTS IN DEVELOPMENT
The key product upon which the Company's plans depend is still in the
developmental stage. While the Company is pleased about the progress made to
date on these products, the fact remains that products in development may never
be completed or, if completed, may not be commercially salable.
COMPETITION
Although the Company is unaware of any other company that is at a stage of
development similar to that of the Company, it is aware of other companies
involved in the development of similar technology. These companies have far
greater capital, marketing and other resources than does the Company. There can
be no assurance that these companies will not succeed in developing a similar
device and bring it to market prior to the Company.
FINANCING REQUIREMENTS
The Company expects that it may be required to seek additional financing in the
future. There can be no assurance that such financing will be available or
available on attractive terms, or such financing would not result in a
substantial dilution of shareholder's interest.
MARKET ACCEPTANCE
There can be no assurance that physicians or the medical community in general
will accept and utilize the CTLM device. The extent that, and rate at which, the
CTLM device achieves market acceptance and penetration will depend on may
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 device. Failure of the Company's products to gain market acceptance
would have a material adverse effect on the Company's business, financial
condition and results of operations.
PROPRIETARY TECHNOLOGY
The Company considers patent protection of its technologies to be critical to
its business prospects. There can be no assurance that the Company's pending
patent application will issue as patents, that any issued patents will provide
the Company with significant competitive advantages or that challenges will not
be instituted against the validity or enforceability of any patent owned by the
Company. The cost of litigation to uphold the validity and prevent infringement
of patents can be substantial.
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12
In addition, the Company intends to rely to a significant extent on proprietary
know how. There can be no assurance that others will not independently develop
superior know-how or obtain access to know-how used by the Company which the
Company now considers proprietary.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
PAGE
Independent Auditor's Report F-1
Financial Statements
Balance Sheet F-3
Statement of Operations F-4
Statement of Stockholders' Equity F-5
Statement of Cash Flows F-7
Notes to Financial Statement F-9
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Effective August 1, 1994, the accounting firm of Chandross & Margolies, P.A.
was dissolved. Mr. Margolies formed a new accounting firm under the name of
Margolies and Fink, Certified Public Accountants. There were no disagreements as
to the accounting practices or principles between the Company and the
predecessor accounting firm that would need to be disclosed.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Imaging Diagnostic Systems, Inc.
We have audited the accompanying balance sheet of Imaging Diagnostic
Systems, Inc. (a Development Stage Company) as of June 30, 1996 and 1995,
and the related statements of operations, stockholders' equity and cash
flows for the years ended June 30, 1996 and 1995 and for the period December
10, 1993 (date of inception) to June 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly,
in all material respects, the financial position of Imaging Diagnostic
Systems, Inc. (a Development Stage Company), as of June 30, 1996 and 1995
and the results of its operations and its cash flows for the years ended
June 30, 1996 and 1995 and for the period December 10, 1993 (date of
inception) to June 30, 1996 in conformity with generally accepted accounting
principles.
The Company is in the development stage as of June 30, 1996 and to date has
had no significant operations. Recovery of the Company's assets is dependent
on future events, the outcome of which is indeterminable. In addition,
successful completion of the Company's development program and its
transition, ultimately, to attaining profitable operations is dependent upon
obtaining adequate financing to fulfill its development activities and
achieving a level of sales adequate to support the Company's cost structure.
F-1
<PAGE>
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company has suffered losses
and has yet to generate an internal cash flow that raises substantial doubt
about its ability to continue as a going concern. Management's plans in
regard to these matters are described in Note 4. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
MARGOLIES AND FINK
Pompano Beach, Florida
July 24, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JUNE 30, 1996 AND 1995
ASSETS
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 3,975,354 $ 16,059
Loans receivable-stockholders -- 48,600
Prepaid rent 15,900 --
----------- -----------
Total current assets 3,991,254 64,659
----------- -----------
Property and equipment, net 1,050,194 285,976
Prototype equipment 575,338 270,375
Other assets 53,010 2,664
----------- -----------
$ 5,669,796 $ 623,674
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 205,750 $ 84,460
Stockholder loans 77,833 48,773
----------- -----------
Total current liabilities 283,583 133,233
----------- -----------
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, 5% cumulative annual
dividend, no par value; authorized 2,000,000 shares,
issued 2,400 and 0 shares, respectively 2,160,000 --
Common stock, no par value; authorized 48,000,000 shares,
issued 23,021,789 and 18,614,713, respectively 8,001,721 1,940,855
Deficit accumulated during the development stage (4,756,824) (927,296)
----------- -----------
5,404,897 1,013,559
Less subscriptions receivable (18,684) (523,118)
----------- -----------
Total stockholders' equity 5,386,213 490,441
----------- -----------
$ 5,669,796 $ 623,674
============ ===========
</TABLE>
F-3
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FROM
INCEPTION
(DECEMBER 10,
YEAR ENDED YEAR ENDED 1993) TO
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Research and development expenses $ 829,771 $ 32,616 $ 885,505
Compensation and related benefits 1,356,733 314,570 1,671,303
Advertising and promotion expenses 234,765 105,177 342,029
Selling, general and
administrative expenses 331,326 70,308 414,147
Clinical expenses 170,754 -- 170,754
Consulting expenses 303,080 88,219 401,449
Professional fees 181,644 48,136 235,133
Trade show expenses 85,623 48,871 134,494
Travel and subsistence costs 99,826 50,189 150,015
Rent expense 91,123 33,853 132,626
Interest expense -- 21,774 24,309
Depreciation and amortization 155,346 46,632 205,523
Interest income (58,308) -- (58,308)
------------ ------------ ------------
3,781,683 860,345 4,708,979
------------ ------------ ------------
Net loss (3,781,683) (860,345) (4,708,979)
Dividends on cumulative preferred stock 47,845 -- 47,845
------------ ------------
Net loss applicable to common shareholders $ (3,829,528) $ (860,345) $ (4,756,824)
============ ============ ============
Net loss per common share:
Weighted average number of common shares 21,781,068 16,881,230 18,614,941
============ ============ ============
Primary net loss per common share $ (.176) $ (.051) $ (.256)
============ ============ ============
</TABLE>
F-4
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD DECEMBER 10, 1993 (DATE OF INCEPTION) TO JUNE 30, 1996
DEFICIT
PREFERRED STOCK COMMON STOCK ACCUMULATED
--------------- ------------ DURING THE
NUMBER OF NUMBER OF DEVELOPMENT SUBSCRIPTIONS
SHARES AMOUNT SHARES AMOUNT STAGE RECEIVABLE TOTAL
--------- ------ --------- ------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 10,
1993(date of inception) -0- $ -0- -0- $ -0- $ -0- $ -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) -0- 36,000
Common stock sold - - 1,978,791 1,566,595 - (523,118) 1,043,477
Common stock issued in
exchange for services - - 115,650 41,559 - - 41,559
Common stock issued with
employment agreement - - 75,000 78,750 - - 78,750
Common stock issued for
compensation - - 377,500 151,000 - - 151,000
Net loss - - - - (860,345) - (860,345)
-------- ------- --------- -------- ------- ------- ----------
Balance at June 30, 1995 - - 18,614,713 1,940,855 (927,296) (523,118) 490,441
-------- ------- ---------- --------- ------- ------- ----------
</TABLE>
(CONTINUED)
See accompanying notes to the financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
PERIOD DECEMBER 10, 1993 (DATE OF INCEPTION) TO JUNE 30, 1996
DEFICIT
PREFERRED STOCK COMMON STOCK ACCUMULATED
--------------- ------------ DURING THE
NUMBER OF NUMBER OF DEVELOPMENT SUBSCRIPTIONS
SHARES AMOUNT SHARES AMOUNT STAGE RECEIVABLE TOTAL
------ ------ ------- ------ ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 - $ - 18,614,713 $1,940,855 $ (927,296) $ (523,118) $ 490,441
Preferred stock sold 4,000 3,600,000 - - - - 3,600,000
Common stock sold - - 700,471 1,561,110 - - 1,561,110
Cancellation of
stock subscription - - (410,500) (405,130) - 405,130 -
Common stock issued in
exchange for services - - 2,503,789 2,778,718 - - 2,778,718
Common stock issued with
exercise of stock options - - 191,500 104,375 - (4,375) 100,000
Common stock issued with
exercise of options for
compensation - - 996,400 567,164 - - 567,164
Conversion of preferred
stock to common s (1,600) (1,440,000) 420,662 1,440,000 - - -
Common stock issued as
payment of preferred stock
dividends - - 4,754 14,629 (14,629) - -
Dividends accrued on preferred
stock not yet converted - - - - (33,216) - (33,216)
Collection of stock
subscriptions - - - - - 103,679 103,679
Net loss - - - - (3,781,683) (3,781,683)
----- --------- ---------- --------- --------- --------- ---------
Balance at June 30, 1996 2,400 $2,160,000 23,021,789 $8,001,721 $(4,756,824) $ (18,684) $ 5,386,213
===== ========= ========== ========= ========== ========== ==========
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
FROM
INCEPTION
(DECEMBER 10,
YEAR ENDED YEAR ENDED 1993) TO
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net loss $(3,781,683) $ (860,345) $(4,708,979)
----------- ----------- -----------
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 155,346 46,632 205,523
Noncash compensation and consulting expenses 1,453,944 192,559 1,646,503
Dividends payable charged to accumulated deficit (33,216) -- (33,216)
(Increase) decrease in loans
receivable - shareholders 48,600 (48,600) --
Increase in prototype equipment (304,963) (210,675) (575,338)
Increase in other assets (50,346) (1,249)
(53,010)
Increase in accounts payable
and accrued expenses 121,290 76,491 205,750
----------- ----------- -----------
Total adjustments 1,390,655 55,158 1,396,212
----------- ----------- -----------
Net cash used for operating activities (2,391,028) (805,187) (3,312,767)
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (908,666) (169,717) (1,166,069)
----------- ----------- -----------
Net cash used for investing activities (908,666) (169,717) (1,166,069)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from stockholder loans, net 29,060 (61,412) 77,833
Proceeds from issuance of preferred stock 3,600,000 -- 3,600,000
Proceeds from issuance of common stock 3,629,929 1,043,477 4,776,357
Net cash provided by financing activities 7,258,989 982,065 8,454,190
----------- ----------- -----------
Net increase in cash 3,959,295 7,161 3,975,354
Cash and cash equivalents at beginning of period 16,059 8,898 -0-
----------- ----------- -----------
Cash and cash equivalents at end of period $ 3,975,354 $ 16,059 $ 3,975,354
=========== =========== ===========
</TABLE>
(CONTINUED)
See accompanying notes to the financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS (CONTINUED)
FROM
INCEPTION
(DECEMBER 10,
YEAR ENDED YEAR ENDED 1993) TO
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Supplemental disclosures of cash
flow information:
Cash paid for interest $ -- $ 21,774 $ 24,309
========== ========== ========
Supplemental disclosures of noncash
investing and financing activities:
Issuance of common stock in
exchange for services $ 886,780 $ 41,559 $928,339
========== ========== ========
Issuance of common stock in
exchange for property and equipment $ 10,900 $ 78,750 $89,650
========== ========== ========
Issuance of common stock for
compensation $ 567,164 $ 151,000 $718,164
========== ========== ========
Issuance of common stock as
payment for preferred stock dividends $ 14,629 $ -- $ 14,629
========== ========== ========
</TABLE>
See accompanying notes to the financial statements.
F-8
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(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 3) Effective July 1, 1995 the Company changed its
corporate status to a Florida corporation.
The Company is in the business of developing medical imaging devices based upon
the combination of the advances made in ultrafast electro-optic technology and
the unique knowledge of medical imaging devices held by the founders of the
Company. Previously, the technology for these imaging devices had not been
available. The initial CTLM\trademark\ prototype has been developed with the use
of "Ultrafast Laser Imaging Technology"\trademark\, and this technology was
first introduced at the "RSNA" scientific assembly and conference during late
November 1994. The completed CTLM\trademark\ device was exhibited at the "RSNA"
conference November 26-30, 1995. The Company has registered to exhibit the pilot
production run CTLM\trademark\ device at the upcoming "RSNA" conference to be
held in Chicago on December 1-6, 1996. The Company filed its initial patent
application for the CTLM\trademark\ device on June 7, 1995 and has subsequently
filed for foreign patent protection.
The initial CTLM\trademark\ prototype produced live images of an augmented
breast on February 23, 1995. From the experience gained with this initial
prototype, the Company continued its research and development resulting in new
hardware and software enhancements. Food and Drug Administration (FDA) approved
calibration Investigational Device Exemption ("IDE") clinical testing in the
Company's laboratory. This phase of clinical testing was approved for a small
number of calibration scans on volunteers. At the conclusion of the calibration
studies, the Company will commence its first clinical trial at the Strax
Diagnostic Breast Institute under a Phase I - IDE application, which was
approved by the FDA on February 9, 1996. Five additional clinical sites are
planned by calendar 1996.
The Company is currently in a development stage and is in the process of raising
additional capital. There is no assurance that once the development of the
CTLM\trademark\ prototype is completed and finally gains Federal Drug
Administration marketing clearance, that the Company will achieve a profitable
level of operations.
(CONTINUED)
F-9
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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) Cash and cash equivalents
Holdings of highly liquid investments with original maturities of three
months of less and investment in money market funds are considered to be
cash equivalents by the Company.
(c) Prototype equipment
The direct costs associated with the final prototypes have been capitalized.
All costs associated with the development of the original prototype, and no
longer in use, have been expensed as research and development expenses.
Those capitalized costs associated with components for the prototypes which
are no longer required, but have a useful life as laboratory equipment, have
been reclassified from prototype equipment to laboratory equipment. The
prototype costs will be amortized over a period of two years upon placement
of the equipment at the clinical testing locations.
(d) Property and equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed using straight-line methods over the estimated
depreciable lives of the related assets.
(e) Research and Development
Research and development expenses consist of expenditures for equipment
which are used in testing and the development of the Company's prototypes.
All research and development costs are expensed as incurred.
(CONTINUED)
F-10
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f) Net loss per share
Net loss per share of common stock is computed by dividing the net loss
applicable to common shareholders by the weighted average number of common
shares outstanding and common stock equivalents. Stock options and the
convertible preferred stock are considered common stock equivalents unless
their inclusion would be anti-dilutive.
(g) Income taxes
Effective December 10, 1993, the Company adopted the method of accounting
for income taxes pursuant to the Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes" (SFAS 109). SFAS 109 requires an asset
and liability approach for financial accounting and reporting for income
taxes. Under SFAS 109, the effect on deferred taxes of a change in tax rates
is recognized in income in the year that includes the enactment date.
(3) 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 #16, wherein the
shareholders of IDSI-Fl. retained the majority of the outstanding stock of Alkan
Corp. after the merger.(see Note 12) As part of the transaction, the certificate
of incorporation of Alkan was amended to change its name to Imaging Diagnostic
Systems, Inc.
(4) GOING CONCERN
The Company is currently a development stage company and its continued existence
is dependent upon the Company's ability to resolve its liquidity problems,
principally by obtaining additional debt financing and/or equity capital. The
Company has yet to generate an internal cash flow, and until the sales of its
product begins, the Company is totally dependent upon the debt and equity
funding.
(CONTINUED)
F-11
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) GOING CONCERN (CONTINUED)
As a result of these factors, there exists substantial doubt about the Company's
ability to continue as a going concern. However, management of the Company is
continually negotiating with various outside entities for additional funding
necessary to complete the clinical testing phase of development, required before
they can receive FDA marketing clearance. In addition, management has been able
to raise the necessary capital to reach this stage of product development and
has been able to fund any capital requirements to date. There is no assurance
that once the development of the CTLM\trademark\ prototype is completed and
finally gains Federal Drug Administration marketing clearance, that the Company
will achieve a profitable level of operations.
(5) STOCKHOLDERS' LOANS - RECEIVABLES AND PAYABLES
The loans receivable as of June 30, 1995 from certain officers represent payroll
advances. The officers repaid these loans as a payroll deductions during the
fiscal year ended June 30, 1996.
Certain of the major shareholders have advanced funds to the Company in 1995 and
1996. These loans are unsecured and non-interest bearing. These loans have been
repaid in full subsequent to June 30, 1996.
(6) PROPERTY AND EQUIPMENT
The following is a summary of property and equipment, less accumulated
depreciation:
JUNE 30,
--------------------------
1996 1995
----------- ----------
Furniture and fixtures $ 28,199 $ 13,555
Computers and equipment 164,270 85,194
Computer software 789,668 190,523
Trade show equipment 81,416 23,490
Laboratory equipment 153,758 -
Leasehold improvements 38,407 23,391
----------- ----------
1,255,718 336,153
Less: accumulated depreciation (205,524) (50,177)
----------- ----------
Total $ 1,050,194 $ 285,976
=========== ==========
(CONTINUED)
F-12
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) PROPERTY AND EQUIPMENT (CONTINUED)
The estimated useful lives of property and equipment for purposes of computing
depreciation are:
Furniture, fixtures, computers, laboratory
equipment and trade show equipment 5-7 years
Computer software 5 years
Leasehold improvements Length of lease (1 year)
(7) OTHER ASSETS
Other assets as of June 30, 1996 and 1995 consist of the following:
1996 1995
-------- -------
Deposit on purchase of new building $ 50,000 $ -
Security deposits 3,010 2,664
-------- -------
Totals $ 53,010 $ 2,664
======== =======
The Company paid a $50,000 deposit on the acquisition of a building, with a
purchase price of $1,250,000, as of June 30, 1996. During July 1996 an
additional $25,000 was paid upon the signing of the purchase contract. Of the
total $75,000 in deposits, $40,000 is non-refundable. The closing date has been
scheduled for early September 1996.
(8) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses as of June 30, 1996 and 1995 consist of
the following:
1996 1995
-------- --------
Accounts payable - trade $165,047 $ 83,743
Preferred stock dividends payable 33,216 -
Payroll taxes payable 7,487 717
-------- --------
Totals $205,750 $ 84,460
======== ========
(CONTINUED)
F-13
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(9) LEASES
The Company leases certain office equipment and office space under operating
leases expiring in various years through June 1998. The Company's lease for its
office space expires during the fiscal year ended June 30, 1997. The Company is
currently negotiating for the purchase of a building for its office and
manufacturing operations. A deposit of $50,000 towards that purchase has been
made as of June 30, 1996. (See Note 7)
Minimum future lease payments under non-cancelable operating leases having
remaining terms in excess of one year as of June 30, 1996 for each of the next
two years and in the aggregate are:
FISCAL YEAR ENDED
JUNE 30, AMOUNT
----------------- ------
1997 $3,396
1998 3,396
------
Total minimum future lease payments $6,792
======
(10) INCOME TAXES
No provision for income taxes has been recorded in the accompanying financial
statements as a result of the Company's net operating losses. The company has
unused tax loss carryforwards of approximately $4,525,000 to offset future
taxable income. Such carryforwards expire in years beginning 2009. The deferred
tax asset recorded by the Company as a result of these tax loss carryforwards is
approximately $1,538,500 and $315,000 at June 30, 1996 and 1995, 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, 1995 to June 30, 1996 was an increase of
approximately $1,223,500.
(11) 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.
(CONTINUED)
F-14
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(11) CONVERTIBLE PREFERRED STOCK (CONTINUED)
The Company issued 4,000 shares of "Series A Convertible Preferred Stock"
("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 Preferred Stock may convert 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.
The agreement provides that no fractional shares shall be issued. In addition,
provisions are made for any stock dividends or stock splits that the Company may
issue with respect to their no par value common stock. The Company is also
required to reserve and keep available out of its authorized but unissued common
stock such number of shares of common stock as shall be available to effect the
conversion of all of the outstanding shares of Convertible Preferred Stock. The
holders of the Preferred Stock are also entitled to receive a five percent (5%)
per share, per annum dividend out of legally available funds and to the extent
permitted by law. These dividends are payable quarterly on the last business day
of each quarter commencing with the calendar quarter next succeeding the date of
issuance of the Preferred Stock. Such dividends shall be fully cumulative and
shall accrue, whether or not declared by the Board of Directors of the Company,
and may be payable in cash or in freely tradeable shares of common stock.
The Preferred Stockholders shall have voting rights similar to those of the
regular common stockholders, with the number of votes equal to the number of
shares of common stock that would be issued upon conversion thereof. The
Preferred Stock shall rank senior to any other class of capital stock of the
Company now or hereafter issued as to the payment of dividends and the
distribution of assets on redemption, liquidation, dissolution or winding up of
the Company.
(CONTINUED)
F-15
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(11) CONVERTIBLE PREFERRED STOCK (CONTINUED)
As of June 30, 1996, 1,600 shares of the Preferred Stock had been converted into
a total 425,416 shares (including accumulated dividends) of the Company's common
stock. There were 2,400 shares of Preferred Stock remaining to be converted with
accumulated dividends in the amount of $33,216 as of June 30, 1996. Subsequent
to June 30, 1996, an additional 1,500 shares of Preferred Stock were converted
into 582,471 shares of common stock.
(12) 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.
The Company has sold 1,288,069 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. The Company has
an escrow agent as custodian for these unpaid shares. 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 of
$14,309 as of June 30, 1996 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 $41,559, approximately $.36
per share, which approximated fair market value at the date of issuance.
(CONTINUED)
F-16
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(12) COMMON STOCK (CONTINUED)
During the year ended June 30, 1995, wages accrued to the officers of the
Company in the amount of $151,000, pursuant to employment agreements with the
officers, were satisfied with the issuance of 377,500 shares of restricted
common stock. In addition, during the year ended June 30, 1995, 75,000 shares of
restricted common stock were issued to a company executive pursuant to the
employment agreement with this executive.
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 ($2,778,718) 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 $918,656
reflected as noncash compensation.
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 11)
Common stock issued to employees as a result of the exercise of their incentive
stock options and their non-qualified stock options amounted to 1,187,900, of
which 996,400 shares were issued pursuant to the provisions of the non-qualified
stock options and were exercised in a "cash-less" transaction, resulting in
compensation to the officers of $567,164.
(13) STOCK OPTIONS
During July 1994, the Company adopted a Stock Option Plan (the "Plan"), whereby
employees of the Company may be granted incentive or nonqualified options to
purchase up to 2,451,089 shares of the Company's common stock. The Board of
Directors has direct responsibility for the administration of the plan. The
exercise price of the incentive options to employees must be equal to at least
100% of the fair market value of the common stock as of the date of grant. The
exercise price of incentive options to officers, or affiliated persons, must be
at least 110% of the fair market value as of the date of grant. Under the plan,
an officer may 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 exercise. 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.
(CONTINUED)
F17
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(13) STOCK OPTIONS (CONTINUED)
The Board of Directors also has the right to grant additional options on a
discretionary basis. Under this provision, the Board granted to an advisor, who
is now presently vice-president and general counsel of the Company, a
non-qualified option to purchase 150,000 shares of common stock per year, during
the period June 8, 1994 and ending December 31, 1997. The exercise price shall
be $0.50 per share or thirty-five percent of the fair market value of the common
stock at the date of exercise, whichever is greater. The options do not "vest"
until one year from the anniversary date.
The Company will accrue compensation expense, where applicable, in the
appropriate accounting periods as required by Accounting Principles Board
Opinion #25.
Stock option activity under the Plan was as follows:
<TABLE>
<CAPTION>
INCENTIVE STOCK OPTIONS NONQUALIFIED OPTIONS
----------------------- -----------------------
SHARES OPTION PRICE SHARES OPTION PRICE
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Outstanding at June 30, 1994 -0- -0-
Granted 71,429 $ 1.40 1,050,000 (1)
Exercised - -
-------- ---------
Outstanding at June 30, 1995 71,429 $ 1.40 1,050,000
Granted 782,563 $.81 - 8.16 1,050,000 (1)
Exercised (164,956) $ 1.25 (1,550,831) $.35 - 1.18
-------- ----------
Outstanding at June 30, 1996 689,036 $.81 - 8.16 549,169 (1)
======== ==========
</TABLE>
At June 30, 1996, 2,953,992 options under the Plan had been granted, of which
571,036 incentive stock options were vested but not exercised and none of the
remaining non-qualified stock options were vested. The stock options vest at
various rates over periods up to five years. Shares of authorized common stock
have been reserved for the exercise of all options outstanding.
(1) The option price of the non-qualified options for shares issued to officers
of the Company is thirty-five percent of the fair market value at the date of
exercise. The option price of the remaining shares ranged from $.35 per share
for one individual, and the greater of $.50 per share or thirty-five percent of
the fair market value at the date of exercise for the other individual. When the
non-qualified shares were exercised, the fair market value of the common stock
ranged from $.94 to $1.18 per share.
(CONTINUED)
F-18
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(14) CONCENTRATION OF CREDIT RISK
During the year, the Company has maintained cash balances in excess of the
Federally insured limits. The funds are with a major money center bank.
Consequently, the Company does not believe that there is a significant risk in
having these balances in one financial institution. The cash balance at June 30,
1996 was $3,972,000.
(15) COMMITMENTS AND CONTINGENCIES
On July 5, 1994 the Company entered into five-year employment agreements with
its chief executive officer, president and executive vice-president. The
agreements provide for compensation to these individuals, during the Company's
development stage, at the annual rate of $250,000 (amended by Board of Directors
effective January 1, 1996), $78,000, and $104,000, respectively. Additional
provisions have been made in these agreements for salary adjustments to all of
the individuals including bonus arrangements, once the Company is operational.
During the fourth quarter of the fiscal year ended June 30, 1995, the officers
of the Company agreed to forgive any compensation provided in their employment
contracts until the Company establishes an adequate cash flow. The Company
reinstated the compensation to these officers beginning November 1, 1995. On
April 1, 1995, the Company entered into a two year agreement with its
vice-president and general counsel, and provides for annual compensation of
$85,000.
As additional consideration for his development efforts in the CTLM\trademark\
prototype, the chief executive officer has been granted a "development royalty"
which will be paid based upon the net foreign and domestic sales, after direct
costs and commissions, of the CTLM\trademark\ device. The royalty percent ranges
from 2.5% to a maximum of 5%, based upon varying levels of gross sales.
On April 9, 1995, the Company entered into a three-year employment agreement
with its Director of Engineering at an annual salary of $100,000. The contract
also provided for the issuance of 75,000 restricted shares of the Company's
common stock.
During the year ended June 30, 1996, employment agreements were initiated with
individuals in management positions within the Company. Annual payments for
compensation under these agreements amount to $ 357,000, in the aggregate.
(CONTINUED)
F-19
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(16) SUBSEQUENT EVENTS
On July 1, 1996, the Company entered into a "Re-Seller Agreement" with an
organization located in Italy, for the sole purpose of providing the
organization with exclusive distribution rights within the three countries
defined by the agreement. The term of this agreement shall be for twenty-nine
months, and the Company and Distributor agree to renew the agreement for an
additional two years if the Distributor makes purchases of the CTLM\trademark\
device in an aggregate amount of at least four million U.S. dollars ($4,000,000)
during the Initial Term of this agreement.
F-20
<PAGE>
13
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; AND COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT.
BUSINESS EXPERIENCE
RICHARD J. GRABLE, 53
Chief Executive Officer and Director. Mr. Grable was a director of the
Company for 1994/1995 and was elected for 1995/1996.
From March, 1994, to the Present: Mr. Grable is Chief Executive Officer
and a Director of Imaging Diagnostic Systems, Inc., Sunrise, Fla., a
manufacturer of diagnostic imaging systems. Mr. Grable is primarily responsible
for the development of the CTLM\trademark\ device.
From January, 1994, to February, 1994: Mr. Grable was vice-president,
research and development, for Lintronics Technologies, Inc., Tampa, Fla., a
manufacturer of breast imaging systems.
From March, 1992, to December, 1993: Mr. Grable was a an engineering
consultant for Lintronics Technologies, Inc., Tampa, Fla., a manufacturer of
breast imaging systems.
From August, 1991 to February, 1992: Mr. Grable was an engineering
consultant for Audio Intelligence Devices, Inc., Ft. Lauderdale, Fla., a
manufacturer of surveillance devices.
From May, 1990, to July, 1991: Mr. Grable was an engineering consultant
for Telmed, Inc., Ft. Lauderdale, Fla., a software and electronic design
company.
LINDA B. GRABLE, 58
President and Chairman of the Board of Directors. M rs. Grable was a
director of the Company for 1994/1995 and was elected for 1995/1996.
From March, 1994, to Present: Mrs. Grable is President and a Director
of Imaging Diagnostic Systems, Inc., Sunrise, Fla., a manufacturer of diagnostic
imaging systems.
From September, 1991, to February, 1994: Mrs. Grable was President and
Director of VCC Communications, Inc., Tampa, Fla., a manufacturer of voltage
controlled oscillators (VCO).
From August, 1988, to April, 1991: Mrs. Grable was President of
Lintronics International Ltd., Inc., Plantation, Fla., a manufacturer of breast
imaging systems.
<PAGE>
14
ALLAN L. SCHWARTZ, 53
Executive Vice-President, Chief Financial Officer and Director. Mr.
Schwartz was a director of the Company for 1994/1995 and was elected for
1995/1996.
From March, 1994, to Present: Mr. Schwartz is Executive Vice-President
and Chief Financial Officer of Imaging Diagnostic Systems, Inc., Sunrise, Fla.,
a manufacturer of diagnostic imaging systems.
From April, 1993, to February, 1994: Mr. Schwartz was President and
Director of DynaMed Technologies, Inc., Coral Springs, Florida, a company that
developed neural network software for use with laser imaging systems.
From August, 1991, to April, 1993: Mr. Schwartz was President and
Director of Tron Industries, Inc., North Lauderdale, Florida, a developer of low
voltage neon novelty products.
From April, 1991, to July, 1991: Mr. Schwartz worked as a manufacturing
consultant for SE Enterprises, Miami, Fla., a manufacturer of prototype homes.
PETER S. KNEZEVICH, 40
From April, 1995, to Present: Mr. Knezevich is General Counsel and Vice
President for Imaging Diagnostic Systems, Inc., Sunrise, Fla., a manufacturer of
diagnostic imaging systems.
From May, 1994, to April 1995: Mr. Knezevich was in the private
practice of law.
From April, 1991, to May, 1994: Mr. Knezevich practiced law with the
law firm of Ferrell & Fertel located in Miami, Florida.
ROBERT H. WAKE, 48
From April, 1995, to Present: Mr. Wake is Director of Engineering for
Imaging Diagnostic Systems, Inc., Sunrise, Fla., a manufacturer of diagnostic
imaging systems.
From January, 1994, to March, 1995: Mr. Wake was a consultant to
various companies in 3-D computer imaging.
From October, 1986, to December, 1993: Mr. Wake founded and was
President of Reality Imaging Corporation, Solon, Ohio, a manufacturer of 3-D
computer imaging systems. Mr. Wake invented the Voxel Flinger 3-D imaging
technology.
FAMILY RELATIONSHIPS
Mr. Richard J. Grable and Mrs. Linda B. Grable are husband and wife.
Further, Richard J. Grable and Linda B. Grable are each "Control Persons" as a
result of their control of a majority voting power of the Company's outstanding
stock. Both parties
<PAGE>
15
disclaim, however, any beneficial interest or ownership in the shares owned by
the other party.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid or accrued by
the Company to all of the Company's executive officers for the fiscal year ended
June 30, 1996.
SUMMARY COMPENSATION TABLE
--------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
SECURITIES
NAME AND RESTRICTED UNDERLYING
PRINCIPAL STOCK OPTIONS/
POSITION YEAR SALARY($) AWARDS($) SAR'S(#)
- -------------------------------------------------------------------------
Richard J. Grable 1995 $100,000 357,527
CEO and Director 1996 $183,333(1)
Linda B. Grable 1995 $65,000 357,527
President and 1996 $91,000(1)
Director
Allan L. Schwartz 1995 $84,000 357,527
CFO and Director 1996 $124,000(1)
Peter S. Knezevich 1995 $12,500 315,447
General Counsel 1996 $56,000
Vice President
(1) Salary includes the following amounts which had accrued as of fiscal year
end 1995 and which were paid in fiscal year 1996: $20,000, Richard J. Grable;
$20,000, Allan L. Schwartz; and, $13,000, Linda B. Grable.
OPTION GRANTS. The following table sets forth certain information
concerning grants of options to purchase Common Stock to the Named Executive
Officers during the fiscal year ended June 30, 1996.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
-------------------------------------
INDIVIDUAL GRANTS
-----------------
POTENTIAL REALIZABLE
VALUE AT ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM(1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 0% 5% 10%
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard J. Grable 250,000(2) 23% 35% of FMV 7/4/99 $265,000 $330,200 $399,882
107,527(2) $.93 9/1/99 - $4,560 $20,219
Linda B. Grable 250,000(3) 23% 35% of FMV 7/4/99 $265,000 $330,200 $433,002
107,527(3) $.93 9/1/99 - $4,560 $20,219
Allan L. Schwartz 250,000(4) 23% 35% of FMV 7/4/99 $265,000 $330,200 $9,882
107,527(4) $.93 9/1/99 - $4,560 $20,219
Peter S.
Knezevich 199,640(5) 21% 35% of FMV 7/4/00 $211,618 $283,209 $362,642
119,047(5) $.84 9/1/00 - $21,550 $46,409
<FN>
(1) Potential realizable values are based n the fair market value per share as
determined by the Company for financial statement purposes and represents
hypothetical gains that could be achieved for the respective options if
exercised at the date of the grant. The dollar amounts set forth in these
columns are the result of calculations at the zero percent, five percent
and ten percent rates set by the Securities and Exchange Commission and are
not intended to
<PAGE>
16
forecast possible future appreciation, if any, of the Common Stock price.
There can be no assurance that such potential realizable values will not be
more or less than indicated in the table above.
(2) Pursuant to an employment agreement dated July 4, 1994, Mr. Grable was
granted an option to purchase 250,000 Common Shares pursuant to the
Company's non-qualified stock option plan vesting one year from the grant
date. Additionally, on September 1, 1996, Mr. Grable was granted an option
to purchase 107,527 shares of Common Stock pursuant to the Company's
incentive stock option plan.
(3) Pursuant to an employment agreement dated July 4, 1994, Mrs. Grable was
granted an option to purchase 250,000 Common Shares pursuant to the
Company's non-qualified stock option plan vesting one year from the grant
date. Additionally, on September 1, 1996, Mrs. Grable was granted an option
to purchase 107,527 shares of Common Stock pursuant to the Company's
incentive stock option plan.
(4) Pursuant to an employment agreement dated July 4, 1994, Mr. Schwartz was
granted an option to purchase 250,000 Common Shares pursuant to the
Company's non-qualified stock option plan vesting one year from the grant
date. Additionally, on September 1, 1996, Mr. Schwartz was granted an
option to purchase 107,527 shares of Common Stock pursuant to the Company's
incentive stock option plan.
(5) Pursuant to an option agreement dated June 8, 1994, Mr. Knezevich was
granted an option to purchase 150,000 Common Shares pursuant to the
Company's non-qualified stock option plan vesting one year from the grant
date. Additionally, on September 1, 1996, Mr. Knezevich was granted an
option to purchase 119,047 shares of Common Stock pursuant to the Company's
incentive stock option plan.
</FN>
</TABLE>
FISCAL YEAR-END OPTION VALUES. The following table sets forth certain
information concerning the number and value of securities underlying exercisable
and unexercisable stock options as of the fiscal year ended June 30, 1996 by the
Name Executive Officers.
<TABLE>
<CAPTION>
FISCAL YEAR END OPTION VALUES
-----------------------------
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS
NUMBER OF OPTIONS AT AT FISCAL
SECURITIES FISCAL YEAR END(#) YEAR END($)
UNDERLYING
OPTIONS/SARS VALUE
EXERCISED REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard J. Grable 250,000 $243,750 357,527/- $971,694/-
Linda B. Grable 250,000 $243,750 357,527/- $971,694/-
Allan L. Schwartz 250,000 $243,750 357,527/- $971,694/-
Peter S. Knezevich 199,600 $333,132 245,447/82,225 $698,729/$180,600
</TABLE>
EMPLOYMENT AGREEMENTS
The Company entered into five year employment agreements with each of
Messrs. Richard J. Grable and Allan L. Schwartz and Mrs. Linda B. Grable
beginning July 6, 1994. Pursuant to the terms of the employment agreements, the
annual salaries during the Company's development stage are as follows: Richard
J. Grable: $250,000; Linda B. Grable: $78,000; and, Allan L. Schwartz: $104,000.
During the Company's operational stage the salaries will be: Richard J. Grable:
$250,000; Linda B. Grable: $78,000, plus 3% of gross sales; and, Allan L.
Schwartz: $156,000. In addition, each employment agreement provides for bonuses,
health insurance, car allowance, and related benefits. The bonuses are 5% of the
adjusted consolidated net earnings of the Company; no bonuses have been paid.
Richard J. Grable receives a royalty bonus based on sales of the CTLM device.
The Company entered into a two year employment agreement with Peter S. Knezevich
on April
<PAGE>
17
1, 1995, who was made a Vice President of the Company on September 18, 1995.
The agreement currently provides for a salary of $85,000 per year plus the right
to participate in the Company's incentive stock option plan and non-qualified
stock option plan.
STOCK OPTION PLANS
The Company has established a non-qualified stock option plan for
executives to receive shares of common stock of the Company. The exercise price
for the shares is 35% of the fair market value of the shares on the date
exercised. Each executive may exercise at least 250,000 shares per year during
the term of their employment. At the sole discretion of the Board, the total
number of shares subject to the option may be increased. During the fiscal year
ended June 30, 1996, each of the three executive officers exercised options and
received 250,000 shares.
The Company has also established an incentive stock option plan, as
defined by Section 422, Internal Revenue Code of 1986. For the fiscal year ended
June 30, 1996, all of the executive officers are participants in this plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table provides information regarding beneficial ownership
of the Company's common stock as of July 25, 1996, with respect to the number of
shares and respective percentage of shares of common stock of the Company owned
by each officer and director of the Company, each beneficial owner of more than
five percent (5%) of the Company's common stock and by all directors and
officers as a group. Unless otherwise indicated, such stockholders have sole
voting and investment power with respect to shares beneficially owned:
NAME AND ADDRESS NUMBER OF SHARES OWNED % OF OUTSTANDING
OF BENEFICIAL OWNER BENEFICIALLY (1)(2) SHARES OF COMMON STOCK
- ------------------- ---------------------- ----------------------
Richard J. Grable 9,529,567(3) 41%
Chief Executive Officer
and Director
c/o 10281 NW 46th Street
Sunrise, FL 33351
Linda B. Grable 9,529,567(4) 41%
President and Director
c/o 10281 NW 46th Street
Sunrise, FL 33351
Allan L. Schwartz 3,767,507(5) 16%
Chief Financial Officer
and Director
c/o 10281 NW 46th Street
Sunrise, FL 33351
Peter S. Knezevich 220,447(6) 1%
Vice President and
General Counsel
c/o 10281 NW 46th Street
Sunrise, FL 33351
Malcolm Kanan 1,211,000 5.2%
153 Harvest Lane
Lincoln Park, New Jersey
<PAGE>
18
All officers and directors 13,517,521 59%
as a group (4 persons)
(1)Except as indicate in the footnotes to this table, based on information
provided by such persons, the persons named in the table above have sole voting
power and investment power with respect to all shares of Common Stock shown
beneficially owned by them.
(2) Percentage of ownership is based on 23,021,789 shares of Common Stock
outstanding as of July 25, 1996. Shares of Common Stock subject to stock options
that are exercisable within 60 days as of July 25, 1996 are deemed outstanding
for computing the percentage of any other person or group.
(3)Includes 107,527 shares subject to options and 4,422,000 shares owned by the
wife of Richard J. Grable, Linda B. Grable, of which he disclaims beneficial
ownership.
(4)Includes 107,527 shares subject to options and 5,000,040 shares owned by the
husband of Linda B. Grable, Richard J. Grable, of which she disclaims beneficial
ownership.
(5)Includes 107,527 shares subject to options and 5,000 shares owned by the wife
of Allan L. Schwartz, Carolyn Schwartz, of which he disclaims beneficial
ownership.
(6)Includes 119,047 shares subject to options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Richard J. Grable and Mrs. Linda B. Grable are husband and wife.
Further, Richard J. Grable and Linda B. Grable are each "Control Persons" as a
result of their control of majority voting power of the Company's outstanding
common stock.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS INCLUDED HEREIN:
EXHIBIT
NO. DESCRIPTION
-- -----------
(3)(i).1 Certificate and Plan of Merger - is incorporated by
reference to Exhibit 3(i) of the Form 10-SB.
(3)(i).2 Certificate of Amendment - is incorporated by
reference to Exhibit 3(i) of the Form 10-SB.
(3)(i).3 Articles of Incorporation and By-Laws (New
Jersey) -are incorporated by reference to Exhibit 3
(i) of the Company's Form 10-SB, as amended, file
number 0-26028, filed on May 6, 1995 ("Form
10-SB").
(3)(i).4 Certificate of Dissolution - is incorporated by
reference to Exhibit (3)(a) of the Company's Form
10-KSB for the year ending June 30, 1996.
(3)(i).5 Articles of Incorporation (Florida)- are
incorporated by reference to Exhibit (3)(a) of the
Company's Form 10-KSB for the year ending June 30,
1996.
<PAGE>
19
(3)(i).6 Amendment to Article of Incorporation -
Designation of Series A Convertible Preferred
Shares.
(3)(ii).1 By-Laws(Florida)- are incorporated by
reference to Exhibit (3)(a) of the Company's Form
10-KSB for the year ending June 30, 1996.
(4).1 Instruments Defining the Rights of Security
Holders - Designation of Series A Convertible
Preferred Shares.(See Exhibit (3), above).
(10).1 Facilities Lease(s) - are incorporated by reference
to Exhibit 10(a) of the Form 10-SB.
(10).2 Incentive Stock Option Plan - is incorporated by
reference to Exhibit 10(b) of the Form 10-SB.
(10).3 Non-Qualified Stock Option Plan - is incorporated
by reference to Exhibit 10(b) of the Form 10-SB.
(10).4 Employment Agreement(s) - are incorporated by
reference to Exhibit 10(c) of the Form 10-SB.
(10).5 Lock Up Agreement by and between The Company
and Richard J. Grable, Linda B. Grable, and
Allan L. Schwartz.
27 Financial Data Schedule (for SEC use only)
B) REPORTS ON FORM 8-K
99.1 Report dated May 22, 1996.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Imaging Diagnostic Systems, Inc. has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized,
IMAGING DIAGNOSTIC SYSTEMS, INC.
By: /s/LINDA B. GRABLE
-------------------
Linda B. Grable
Chairman of the Board,
Director, and President.
August 20, 1996
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
By: /s/LINDA B. GRABLE
-------------------
Linda B. Grable
Chairman of the Board and President
Date: August 20, 1996
By: /s/RICHARD J. GRABLE
--------------------
Richard J. Grable
Director and Chief Executive Officer
Date: August 20, 1996
By: /s/ALLAN L. SCHWARTZ
---------------------
Allan L. Schwartz
Director and Executive Vice-President
Dated: August 20, 1996
EXHIBIT 3(i).6
ARTICLES 0F AMENDMENT
IMAGING DIAGNOSTIC SYSTEMS, INC.
1. DESIGNATION. The designation of the series of Preferred Stock fixed by
this resolution shall be "Series A Convertible Preferred Stock" (hereinafter,
referred to as the "Convertible Preferred Stock").
2. CONVERSION RIGHTS.
(a) RIGHT TO CONVERT. The holder of any shares of Convertible Preferred
Stock may, (i) at any time during the period commencing on and including May 2,
1996 and expiring on and including June 15, 1996, convert up to fifty percent
(50%) and (ii) at any time from and after June 16, 1996, convert up to fifty
percent (50%), without the payment of any additional consideration therefor,
into that number of fully paid and nonassessable shares of common stock, no par
value, of the Corporation (the "Common Stock") as is determined by dividing
(i)the sum of (a) $1,000 plus (b) the amount of all accrued but unpaid dividends
on the shares of Convertible Preferred Stock being so converted by (ii) the
Conversion Price (determined as hereinafter provided) in effect at the time of
conversion. The "Conversion Price" shall be equal to seventy five percent
(75%) of the Market Price of the Corporation's Common Stock; provided, however,
that in no event will the Conversion price be greater than the Closing Date
closing bid price per share of Common Stock. For purposes of this Section 2, the
Market Price shall be the average of the closing bid prices of the Common Stock
over the five consecutive trading days ending on the trading day immediately
preceding the date of the Conversion Notice (as defined in Section 2(b) hereof),
as reported by the National Association of Securities Automated Quotation System
("NASDAQ"), or the average of the closing bid prices of the Common Stock in the
over-the-counter market over the five consecutive trading days ending on the
trading day immediately preceding the date of the Conversion Notice, or, in the
event the Common Stock is listed on a national stock exchange, the Market Price
shall be the average of the closing prices of the Common Stock on such exchange,
as reported in THE WALL STREET JOURNAL over the five consecutive trading days
immediately preceding the date of the Conversion Notice.
<PAGE>
(b) MECHANICS OF CONVERSION. No fractional shares of Common Stock
shall be issued upon conversion of Convertible Preferred Stock. If upon
conversion of shares of Convertible Preferred Stock held by a registered holder
which are being converted, such register holder would, but for the provisions of
this Section 2(b), receive a fraction of a share of Common Stock thereon, then
in lieu of any such fractional share to which such holder would otherwise be
entitled, the Corporation shall pay cash equal to such fraction multiplied by
the then effective Conversion Price. Before any holder of Convertible Preferred
Stock shall be entitled to convert the same into full shares of Common Stock,
such holder shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or any transfer agent for the
Convertible Preferred Stock, and shall give written notice (the "Conversion
Notice") to the Corporation at such office that such holder elects to convert
the same and shall state therein such holder's name or the name of its nominees
in which such holder wishes the certificate or certificates for shares of Common
Stock to be issued. The Corporation shall, as soon as practicable thereafter,
but in any event within three business days of the date of its receipt of the
Conversion Notice, issue and deliver or cause to be issued and delivered to such
holder of Convertible Preferred Stock, or to its nominee or nominees, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled, together with cash in lieu of any fraction of a
share. Such conversion shall be deemed to have been made on the date that the
Corporation receives the Conversion Notice, and the person or persons entitled
to receive the share of Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such shares of Common Stock
on such date. Upon the conversion of any shares of Convertible Preferred Stock,
such shares shall be restored to the status of authorized but unissued shares
and may be reissued by the Corporation at any time.
(c) NOTICES OF RECORD DATE. In the event of (i) any declaration by the
Corporation of a record date of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution or (ii) any capital reorganization of the
Corporation, any classification or recapitalization of the capital stock of the
Corporation any merger or consolidation of the Corporation, and any transfer of
all or substantially all of the assets of the Corporation to any other
Corporation, or any other entity or
2
<PAGE>
person, or any voluntary or involuntary dissolution, liquidation or winding up
of the Corporation, the Corporation shall mail to each holder of Convertible
Preferred Stock at least twenty (20) days prior to the record date, specified
therein, a notice specifying (A) the date on which any such record is to be
declared for the purpose of such dividend or distribution and a description of
such dividend or distribution, (B) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective and (C) the time, if any, that is to
be fixed, as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such reorganization, transfer,
consolidation, merger, dissolution or winding up.
(d) STOCK DIVIDENDS; STOCK SPLITS; ETC. In the event that the
Corporation shall (i) take a record of holders of shares of the Common Stock for
the purpose of determining the holders entitled to receive dividends payable in
shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock,
(iii) combine the outstanding shares of Common Stock into smaller number of
shares or (iv) issue, by reclassification of the Common Stock, any other
securities of the Corporation, then, in each such case, the Conversion Price
then in effect shall be adjusted so that upon conversion of each share of
Convertible Preferred Stock then outstanding the number of shares of Common
Stock into which such shares of Convertible Preferred Stock are convertible
after the happening of any of the events described in clauses (i) through (iv)
above shall be the number of such shares of Common Stock into which such shares
of Convertible Preferred Stock would have been converted if so converted
immediately prior to the happening of such event or any record date with respect
thereto.
(e) COMON STOCK RESERVED. The Corporation shall reserve and keep
available out of its authorized but unissued Common Stock such numbers of shares
of Common Stock as shall from time to time be sufficient to effect conversion of
all of the then outstanding shares of Convertible Preferred Stock.
3. DIVIDEND RIGHTS. The holders of record of Convertible Preferred Stock
shall be entitled to receive cumulative dividends thereon, out of funds
legally available therefor and to the extent permitted by law, at the rate of
3
<PAGE>
five percent (5%) per share, per annum, computed an the basis of the actual
number of days elapsed in a 365-day year, commencing on the date of issuance of
such shares of Convertible Preferred Stock and payable quarterly on the last
business day of each calendar quarter commencing with the calendar quarter next
succeeding the date of issuance of the Convertible Preferred Stock. Such
dividends shall be fully cumulative and shall accrue, whether or not declared by
the Board of Directors of the Corporation, from the date of issuance of the
shares of Convertible Preferred Stock until the date of payment thereof as set
forth in the immediately preceding sentence. No dividends or other distributions
shall be paid on or declared and set aside for payment on the Common Stock until
full cumulative dividends on all outstanding shares of Convertible Preferred
Stock shall have been paid or declared and set aside for payment. Such dividends
shall be payable in cash or in freely tradable shares of Common Stock, with such
shares of Common Stock valued at the average closing bid price of such shares
over the five consecutive trading days immediately preceding the date of payment
thereof, as such average closing bid price is determined pursuant to Section 2
above.
4. VOTING RIGHTS OF CONVERTIBLE PREFERRED STOCK. Except as otherwise
required by law, the holders of outstanding shares of Convertible Preferred
Stock shall be entitled to vote on any matters submitted to the stockholders of
the Corporation, together with the holders of the Common Stock, as a single
class. Each share of Convertible Preferred Stock shall be entitled to cast the
number of votes equal to the number of shares of Stock then issuable upon the
conversion thereof.
5. RANKING. Except as expressly set forth herein, the Convertible Preferred
Stock shall rank senior to any other class of capital stock of the Corporation
now or hereafter issued as to the payment of dividends and the distribution of
assets on redemption, liquidation, dissolution or winding up of the Corporation.
6. LIQUIDATION RIGHTS. If the Corporation shall be voluntarily or
involuntarily liquidated, dissolved or wound up, at any time when any shares of
Convertible Preferred Stock shall be outstanding, the holders of the then
outstanding shares of Convertible Preferred Stock shall have a preference in
distribution of the Corporation's property available for the distribution to the
holders of any other class of capital stock of the Corporation, including but
not limited to, the Common Stock, equal to $1,000.00
4
<PAGE>
consideration per share, together with an amount equal to all accrued but unpaid
dividends thereon, if any, to the date of payment of such distribution, whether
or not declared by the Board.
7. ADJUSTMENTS DUE TO MERGER OR CONSOLIDATION, ETC. In the case of any
consolidation with or merger of the Corporation with or into another
corporation, or in the case of any sale, lease or conveyance to another
corporation of the assets of the Corporation as an entirety or substantially as
an entirety, each share of Convertible Preferred Stock shall after the date of
such consolidation, merger, sale, lease or conveyance be convertible into the
number of shares of stock or other securities or property (including cash) to
which the Common Stock issuable (at the time of such consolidation, merger,
sale, lease or conveyance) upon conversion of such share of Convertible
Preferred Stock would have been entitled upon such consolidation, merger, sale,
lease or conveyance; and in any such case, if necessary, the provisions set
forth herein with respect to the rights and interests thereafter of the holders
of the shares of Convertible Preferred Stock shall be appropriately adjusted so
as to be applicable, as nearly as may reasonably be, to any shares of stock or
other securities or property thereafter deliverable on the conversion of the
shares of Convertible Preferred Stock.
5
<PAGE>
RESOLUTION ADOPTED BY UNANIMOUS WRITTEN CONSENT
OF THE DIRECTORS OF IMAGING DIAGNOSTIC SYSTEMS, INC.
We, the undersigned, being all the directors or Imaging Diagnostic Systems,
Inc., a corporation organized under the laws of the State of Florida (the
"Corporation"), pursuant to Florida Statute 607.0821, do by this writing consent
to take the following action pursuant to Florida Statute 607.0602 and adopt the
following resolution(s):
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation by Article III of the Corporation's Certificate of
Incorporation a series of preferred stock of the Corporation be, and hereby is,
created out of the authorized but unissued shares of the capital stock of the
Corporation, such series to be designated Series A Convertible Preferred Stock
(the "Preferred Stock"), to consist of 8,000 shares, no par value per share, of
which the preferences and relative and other rights, and the qualifications,
limitations or restrictions thereof, are set forth in the Certificate of
Designation attached hereto and made a part hereof as if fully incorporated
herein.
Dated effective as of March 21, 1996
THE AMENDMENTS WERE ADOPTED ON MARCH 20, 1996
BY ALL THE DIRECTORS.
/s/ LINDA B. GRABLE
------------------------------
Linda B. Grable, Director
(Chairperson of the Board)
/s/ ALLAN L. SCHWARTZ
------------------------------
Allan L. Schwartz, Director
/s/ RICHARD J. GRABLE
------------------------------
Richard J. Grable, Director
EXHIBIT 10.5
AGREEMENT
THIS LOCK-UP AGREEMENT ("Agreement") is made this 21st day of May,
1996, by and among Richard J. Grable, Linda B. Grable, and Allan L. Schwartz
(collectively "Shareholders" or individually "Shareholder") and Imaging
Diagnostic Systems, Inc. ("Company").
RECITALS:
WHEREAS, the Shareholders collectively own, as of March 31, 1996,
approximately 13,502,520 shares of common stock of the Company which are subject
to the two (2) year holding period imposed by Rule 144(d)(1) of the Securities
Act of 1933, as amended (the "Act");
WHEREAS, on or about June 8, 1996, the two (2) year holding period
imposed by Rule 144 of the Act, will terminate and the shares of common stock
may be sold in accordance with Rule 144 of the Act;
WHEREAS, the Shareholders and the Company acknowledge that it is in
their respective best interests to enter into an agreement to restrict the
transferability of the shares; and,
WHEREAS, the parties desire to establish an orderly method for selling
the Shareholders' Shares.
NOW, THEREFORE, the parties hereto agree as follows:
1. INCORPORATION OF RECITALS. The recitals set forth above are
incorporated as if fully set forth herein.
2. RESTRICTION OF SHARES. The Shareholders are collectively the
beneficial owners of 13,502,520 shares of common stock of the Company which are
subject to a two (2) year holding period pursuant to Rule 144(d)(1)of the Act
(the "Shares" or "Share"). Each Shareholder beneficially owns the number of
Shares as represented by various certificate(s) as set forth on Schedule A
attached hereto.
3. CONSIDERATION. In consideration for executing the Agreement each
Shareholder shall receive $1000.
4. RESTRICTION ON TRANSFER. Commencing on the date when the two (2)
year holding period pursuant to Rule 144 lapses and continuing for each calendar
quarter thereafter (July 1, October 1, January 1, and April 1), each Shareholder
shall have the right but not the obligation to sell or otherwise
<PAGE>
hypothecate no more than 100,000 Shares during each quarter. Notwithstanding
the foregoing, in the event the average weekly reported volume of trading in the
Shares on all national securities exchanges and/or reported through the
automated quotation system of a registered securities association during the
four (4) calendar weeks preceding the quarter is less than 200,000 shares of
common stock, the Shareholder(s) may not sell Shares during the calendar
quarter. Notwithstanding the foregoing, the restrictions contained herein shall
terminate in the event the Shareholder is no longer an officer and director of
the Company.
5. NOTICE OF REMOVAL. The Company shall be notified in writing within
the last five (5) business days of the preceding calendar quarter as to the
number of Shares the Shareholder will sell during the up-coming quarter. Upon
receipt of such notification by the Shareholder the Company will submit to the
transfer agent instructions to remove the restrictions for the Shares to be
sold. In the event notice is not given within the above time-frame, the Company
may, at its option and in its sole discretion, agree to notify the transfer
agent.
6. UNDERWRITING. If at any time or from time to time during the term of
this Agreement the Company shall determine in its sole discretion to register
any of its securities for its own account, other than a registration relating
solely to employee benefit plans or a registration relating solely to a
Commission Rule transaction, the Company may include in such registration (and
any related qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all or a portion of the Shares specified in a
written request or requests, made within 20 days after receipt of such written
notice from the Company, by any Shareholder. The Shareholders desiring to
distribute their securities through such underwriting shall (together with the
Company and any other shareholders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding the foregoing, in the event the managing underwriter determines
that marketing factors require a limitation of the number of shares to be
included in the registration, the managing underwriter shall have the discretion
to allocate the number of shares that a Shareholder may include in such an
offering including not registering any of the Shares. The Company may include
2
<PAGE>
shares of Common Stock held by shareholders other than Shares held by
Shareholders in a registration statement.
7. CHANGE IN CONTROL. Notwithstanding any other provision hereof, this
Agreement shall terminate so that the Shareholder(s) shall have the right to
sell or otherwise hypothecate the Shares from and after a Change in Control that
occurs while the Shareholder's Shares are subject to the restrictions of this
Agreement. For purposes of this paragraph a "Change in Control" means: (a) the
direct or indirect beneficial ownership (within the meaning of Section 13(d) of
the Securities Exchange Act of 1934 and Regulation 13D-G thereunder) of ten
percent 10% or more of the class of securities then subject to this Agreement is
acquired or becomes held by any person or group of persons (within the meaning
of Section 13 (d)(3) of the Securities Exchange Act of 1934; (b) a bona-fide
written offer to purchase all or substantially all of the assets is made to the
Company; or, (c) a tender offer is initiated pursuant to Section 14(d)(1) of the
Securities Exchange Act of 1934, as amended.
8. TERM. The term of this Agreement shall be from May 21, 1996, to May
21, 1997. The Shareholders and the Company may extend the term of this Agreement
for an additional one (1) year term if, within thirty (30) days of April May 21,
1997, the Company and all of the Shareholders provide written notice to each
other requesting that the term of the Agreement be extended for an additional
one (1) year term.
9. AMENDMENT TO SECTION 4. In the event the parties agree to extend the
Agreement for an additional one (1) year term, the parties may negotiate in good
faith to amend the Agreement to change the number of Shares to be sold and the
volume limitation set forth in Section 4, above. In the event the parties can
not agree on the terms of the amendment to Section 4, the terms as set forth in
this Agreement shall remain in place for the additional one (1) year term.
10. VOTING OF SHARES. Nothing contained herein shall restrict the
right or ability of a Shareholder to vote the Shares that are subject to the
Agreement and beneficially owned by the Shareholder.
3
<PAGE>
11. COMPLIANCE WITH SECURITIES LAWS. Nothing contained herein shall
relieve a Shareholder from complying with applicable federal and state laws
including, but not limited to, the Securities Act of 1933 and the Securities
Exchange Act of 1934, and rule and regulations promulgated thereunder.
12. MISCELLANEOUS.
(A) INVALIDITY OF PROVISIONS. In the event that any provision
or portion of a provision of this Agreement shall be held to be unenforceable,
such unenforceability shall attach to such provision or portion thereof only to
the extent of the specific finding of unenforceability, and in all other
respects such provision or portion thereof shall be deemed enforceable, it being
the intention of the parties that this Agreement be construed in all respects as
if such invalid or unenforceable provision were omitted.
(B) APPLICABLE LAW. This Agreement and the rights of the
parties hereunder shall be governed, construed, and enforced in all respects
pursuant to the laws of the State of Florida.
(C) WAIVER OF BREACH. The waiver by Company of a breach of any
provision of this Agreement by Shareholder shall not operate or be construed as
a waiver of any subsequent breach by Shareholder.
(D) NOTICE. Any notice, election or other communication
required or permitted to be given to a party pursuant to this Agreement shall be
in writing and shall be determined to have been duly given when delivered by
hand or sent by United States certified mail, return receipt requested, postage
prepaid, as follows:
As to Shareholders: See Exhibit A
As to Company: 10281 NW 46th Street
Sunrise, FL. 33351
Either party may change his or its address for the purpose of this paragraph by
written notice given in the manner herein provided.
(E) ENTIRE UNDERSTANDING. This Agreement shall constitute the
entire understanding between the parties with
4
<PAGE>
reference to the subject matter hereof, shall supersede all prior understandings
or agreements, whether oral or written and shall not be altered, modified, or
discharged except in a writing signed by the parties.
(F) BENEFIT OF PARTIES. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of Shareholder and
his personal representatives and the Company, its successors and permitted
assigns.
(G) RIGHT TO CONTRACT. The parties represent and warrant that
each has the right to enter into this Agreement and to assume all obligations
and grant all rights herein and that Shareholder has neither made nor will make
any contractual or other commitments which are in conflict with this Agreement.
(H) LITIGATION. In the event of any cause of action,
arbitration or litigation arising hereunder, all costs and reasonable attorney's
fees of the prevailing party, including, without limitation, attorney's fees and
costs at all administrative and appellate levels and in all bankruptcy
proceedings, shall be paid by the other party.
(I) COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which shall be deemed to be an original, but all
of which shall be deemed to constitute but one instrument.
[SIGNATURE PAGE FOLLOWS]
5
<PAGE>
The foregoing Agreement is hereby executed as of the date first above
written.
IMAGING DIAGNOSTIC SYSTEMS, INC.
By: /s/ RICHARD J. GRABLE
----------------------
Printed Name: Richard J. Grable
Capacity: Chief Executive Officer
SHAREHOLDERS
/s/ RICHARD J. GRABLE
- ------------------------------------
RICHARD J. GRABLE, INDIVIDUALLY
/s/ LINDA B. GRABLE
- ------------------------------------
LINDA B. GRABLE, INDIVIDUALLY
/s/ ALLAN L. SCHWARTZ
- ------------------------------------
ALLAN L. SCHWARTZ, INDIVIDUALLY
6
<PAGE>
SCHEDULE A
SHARES CERTIFICATE NO.
------ ---------------
Richard J. Grable:
Linda B. Grable:
Allan L. Schwartz:
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,975
<SECURITIES> 0
<RECEIVABLES> 15
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,991
<PP&E> 1,678
<DEPRECIATION> (155)
<TOTAL-ASSETS> 5,669
<CURRENT-LIABILITIES> 283
<BONDS> 0
0
2,160
<COMMON> 8,001
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,386
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,829)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (.176)
<EPS-DILUTED> (.176)
</TABLE>
EXHIBIT 99.1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 205449
-----------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: MAY 22, 1996
IMAGING DIAGNOSTIC SYSTEMS, INC.
--------------------------------
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
FLORIDA 0-26028 22-2671269
------- ------- ----------
(STATE OR OTHER JURISDICTION OF (COMMISSION IRS EMPLOYER INDET. NO.)
INCORPORATION OR ORGANIZATION)
10281 NW 46TH STREET, SUNRISE, FLORIDA 33351
--------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER: (954) 746-0500
<PAGE>
ITEM 5. OTHER EVENTS.
On May 21, 1996, the Registrant entered into a "lock-up" agreement with the
three (3) principal shareholders ("Shareholders") of the Registrant who,
collectively, beneficially own approximately 13,502,520 shares of common
stock (the "Shares") which represents approximately sixty-one percent (61%) of
the issued and outstanding common shares of the Registrant. The Shares are
"restricted securities" pursuant to Rule 144(a)(3)(i) and the two (2) year
holding period will lapse on or about June 8, 1996.
The shareholders have agreed to restrict the Shares for an additional one
(1) year beginning May 21, 1996, so that each Shareholder may sell no more
than 100,000 Shares for each calendar quarter beginning July 1, 1996, until the
termination of the agreement, May 21, 1997.
In the event the average weekly reported volume of trading in the Shares on
all national securities exchanges and/or reported through the automated
quotation system of a registered securities association during the four (4)
calendar weeks preceding the quarter is less than 200,000 shares of common
stock, the Shareholder(s) may not sell Shares during the calendar quarter.
Further, in the event there is a change in control of the Registrant, the
Shares are no longer subject to the restriction imposed by the Agreement. A
"change in control" means either: (a) the direct or indirect beneficial
ownership (within the meaning of Section 13(d) of the Securities Exchange Act of
1934 and Regulation 13D-G thereunder) of ten percent 10% or more of the class of
securities then subject to this Agreement is acquired or becomes held by any
person or group of persons (within the meaning of Section 13 (d)(3) of the
Securities Exchange Act of 1934; (b) a bona-fida written offer to purchase all
or substantially all of the assets is made to the Company; or, (c) a tender
offer is initiated pursuant to Section 14(d)(1) of the Securities Exchange Act
of 1934, as amended.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
Date: May 22, 1996 IMAGING DIAGNOSTIC SYSTEMS, INC.
-----------------------------------
(Registrant)
/s/Peter S. Knezevich
Peter S. Knezevich
(Vice President-General Counsel)
2
