SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended: September 30, 1997
[ ] 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
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IMAGING DIAGNOSTIC SYSTEMS, INC.
(Name of small business issuer in its charter)
Florida 22-2671269
------- ----------
(State of incorporation) (IRS employer Ident. No.)
6531 N.W. 18th Court, Plantation, FL 33313
- - ------------------------------------ -----
(address of principal office) (Zip Code)
Registrant's telephone number: (954) 581-9800
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_____
The number of shares outstanding of each of the issuer's classes of equity
as of September 30, 1997: 25,282,584 shares of Common Stock, no par value; and,
450 shares of Series B and 210 shares of Series C Preferred Convertible Stock,
no par value.
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Developmental Stage Company)
Part I - Financial Information Page
Condensed Balance Sheet -
September 30, 1997 and June 30, 1997.....................................3
Condensed Statement of Operations -
Three months ended September 30, 1997
and 1996,and December 10,
1993(date of inception)to September 30, 1997.............................4
Condensed Statement of Cash Flows -
Three months ended September 30, 1997
and 1996, and December 10, 1993
(date of inception)to September 30,1997..................................5
Notes to Condensed Financial Statements .......................................6
Management's Discussion and Analysis of
Financial Condition and Results................................................7
Part II - Other Information
Item 1, Legal Proceedings...................................................8
Item 2, Changes in Securities...............................................8
Item 3, Defaults Upon Senior Securities.....................................8
Item 4, Submission of Matters To a Vote of
Security Holders ..............................................9
Item 5, Other Information...................................................9
Item 6, Exhibits and Reports on Form 8-K...................................11
<PAGE>
Imaging Diagnostic Systems, Inc.
(A Developmental Stage Company)
Condensed Balance Sheet
<TABLE>
<CAPTION>
Assets
September 30, 1997 June 30, 1997
(Unaudited) *
<S> <C> <C>
Current Assets
Cash 1,910,887 383,223
Restricted Certificate of Deposit 103,500 103,500
Prepaid expenses 44,223 56,792
Loan Receivable 8,073 10,073
---------- ----------
Total Current Assets 2,066,683 553,588
---------- ----------
Property and Equipment, net 3,272,018 3,320,979
---------- ----------
Prototype Equipment 1,348,456 1,216,585
Other Assets 9,635 9,635
---------- ----------
1,358,091 1,226,220
---------- ----------
Total Assets $6,696,792 $5,100,787
---------- ----------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable
and Accrued Expenses 669,916 519,546
Current maturity of capital
lease obligation 12,210 8,928
Accrued Dividends Payable 247,685 --
Shareholder Loans 520,407 --
------------ ------------
Total Current Liabilities 1,450,218 528,474
------------ ------------
Long-term capital lease
obligation 30,380 35,849
------------ ------------
Stockholders' Equity
Convertible Preferred
(Series B) 7% cum. Div 4,500,000 4,500,000
Convertible Preferred
(Series C) 2,100,000 --
Common Stock 14,696,913 14,662,966
Additional Paid-In-Capital 2,861,611 1,815,496
Deficit Accumulated during
development stage (18,828,021) (16,288,314)
------------ ------------
5,330,503 4,690,148
Less subscription receivable (35,559) (35,559)
Less deferred compensation (78,750) (118,125)
------------ ------------
Total Stockholders' Equity 5,216,194 4,536,464
------------ ------------
Total Liabilities and
Stockholders' Equity $ 6,696,792 $ 5,100,787
------------ ------------
</TABLE>
* Condensed from audited financial statements
The accompanying notes are an integral part
of these condensed financial statements
<PAGE>
Imaging Diagnostic Systems, Inc.
(A Developmental Stage Company)
(Unaudited)
Condensed Statement of Operations
<TABLE>
<CAPTION>
3 Months Ended Since Inception
September 30, (12/10/93) to
1997 1996 September 30, 1997
-------------------- ------------------
<S> <C> <C> <C>
Operating Expenses:
Compensation and related
benefits:
Administrative/Engineering 421,814 312,870 5,669,286
Research and development 94,037 -- 1,062,548
Research/Development expenses 155,837 49,714 2,820,009
Advertising/Promotion 25,083 27,924 569,478
General/Administrative 329,403 84,001 1,234,788
Clinical expenses 627 1,828 351,443
Consulting expenses 5,146 8,300 1,721,054
Insurance costs 48,117 -- 214,359
Professional fees 116,990 22,415 1,014,095
Stockholder expenses 52,833 -- 73,735
Trade show expenses 39,730 39,209 329,006
Travel and subsistence costs 16,758 35,602 362,358
Rent expense -- 13,498 221,248
Interest expense -- -- 27,053
Depreciation and amortization 69,373 55,995 433,587
Amortization of
deferred compensation 39,375 -- 543,750
Interest Income (928) (36,430) (176,208)
----------- ----------- -----------
1,414,195 614,926 16,471,689
----------- ----------- -----------
Net Loss ($1,414,195) ($614,926) (16,471,589)
Dividends on cumulative
preferred stock:
From discount at issuance (1,046,115) (8,802)
Earned (79,397 -- (311,917)
Amortization of preferred stock -- -- 714,155
----------- ----------- -----------
discount
Net loss applicable to common
shareholders (2,539,707) (623,728) (18,828,021)
=========== =========== ===========
Net loss per common share ($ .10) ($ .03) ($ .86)
----------- ----------- -----------
Weighted avg. 25,198,562 24,192,124 21,868,663
no. of common shares
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements
<PAGE>
Imaging Diagnostic Systems, Inc.
(A Developmental Stage Company)
<TABLE>
<CAPTION>
Condensed Statement of Cash Flows
(Unaudited)
Three Months Since inception
Ended September 30, (12/10/93) to
1997 __ 1996 September 30, 1997
------------------------- ------------------
<S> <C> <C> <C>
Cash provided by (used for) Operations:
Net loss ($1,414,195) ($614,926) (16,471,589)
Changes in assets and liabilities 870,534 (249,595) 8,220,897
---------- ---------- -----------
Net cash provided by operations (543,661) (864,521) (8,250,692)
---------- ---------- -----------
Investments
Capital expenditures (65,512) (1,587,417) (4,827,353)
---------- ----------- ----------
Cash used for investments (65,512) 1,587,417) (4,827,353)
---------- ----------- ----------
Cash flows from financing activities:
Repayment of capital lease obligation (2,188) - (7,700)
Other financing activities 1,046,115 -
Proceeds from issuance of preferred stock 2,100,000 (1,350,000) 10,200,000
Net proceeds from issuance of common stock 33,947 1,350,000 4,791,554
---------- ---------- -----------
Net cash provided by financing activities 3,177,874 0 14,983,854
---------- ---------- ----------
Net increase(decrease) in cash 1,527,664 (2,451,938) 1,910,887
Cash, beginning of period 383,223 3,975,354 0
---------- --------- ----------
Cash, end of period $1,910,887 $1,523,416 $1,910,887
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The financial information included herein has been condensed from financial
statements prepared September 30, 1997. The results of operations for the three
month period ended September 30, 1997 is not necessarily indicative of the
results to be expected for the full year.
NOTE 2 - 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 debt and equity funding.
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. Management has been able to raise the
capital necessary to reach this stage of product development and has been able
to obtain funding for capital requirements to date. There is no assurance that
once development of the CTLMTM prototype is completed and Drug Administration
marketing clearance is obtained, that the CTLM(TM) will achieve market
acceptance or that the Company will achieve a profitable level of operations.
Note 3 - Series C Preferred
Effective September 30, 1997, the Board of Directors amended the Articles of
Incorporation of the Company in order to designate a class of shares as Series C
Convertible Preferred. The Series C Preferred is non-voting, can be converted
into common stock of the Company and has rights and preferences that materially
limit or qualify the rights of the holders of registered common stock, including
a liquidation preference of $10,000 per share.
Note 4 - The September 30, 1996 Form 10-QSB condensed statement of operations
has not been restated to reflect certain adjustments that were made effective
December 31, 1996
<PAGE>
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 IN THE COMPANY'S FORM 10 -
KSB FOR FISCAL YEAR ENDED 1997.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
----------------------------------
Imaging Diagnostic Systems, Inc. (the "Company") is a developmental stage
company which, since inception, has been engaged in research and development of
its Computed Tomography Laser Mammography ("CTLM(TM)"). The CTLM(TM) is a
breast-imaging device for the detection of cancer, utilizes laser technology and
proprietary computer algorithms to produce three dimensional cross section slice
images of the breast. Due to the fact that the Company is in the last stages of
the development of its cancer detection technology and its CTLM(TM), it has not
yet engaged in any marketing or distribution of it products and therefore has
had no revenue from its operations.
The Company has incurred net losses since inception through September 30, 1997
of approximately $18,828,021. The Company anticipates that loss from operations
will continue for at least the next year, primarily due to an anticipated
increase in marketing and manufacturing expenses associated with the
commercialization of the CTLMtm and other research and development activities.
There can be no assurances that the CTLMtm will achieve market acceptance or
that sufficient revenues will be generated from sales of the CTLMtm to allow the
Company to operate profitably.
RESULTS OF OPERATIONS
General and administrative expenses during the three months ended September 30,
1997, were $329,403 representing an increase of $245,402 for the corresponding
period for 1996. The increase during the three month period ending September 30,
1997, was primarily due to an expansion of the general operations of the Company
associated with hiring additional employees and relocating the Company's
operations to a new facility.
Compensation and related benefits during the three months ended September 30,
1997, was $515,851 representing an increase of $202,981 for the corresponding
period for 1996. This increase was primarily due to an increase in compensation
expense as a result of the hiring of an additional 12 employees.
BALANCE SHEET DATA
The Company's combined cash and cash equivalents totaled $2,014,387 as of
September 30, 1997. This is an increase of $1,527,664 from $486,723 for the year
ended June 30, 1997. On September 30, 1997, Imaging Diagnostic Systems, Inc.
finalized a private placement transaction resulting in $2,100,000 in equity
financing. See Item 5, Other Information.
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 its initial
product, the CTLM(TM) device.
Property and Equipment was valued at $3,272,018 as of September 30, 1997, this
is a decrease of $48,961 from $3,320,979 for the year ended June 30, 1997. This
decrease is due primarily to the depreciation of property and equipment
Prototype Equipment was valued as of September 30, 1997, at $1,348,456. This
represents an increase of $131,871 from $1,216,585 for the year ended June 30,
1997. This increase is due primarily to an increase in developmental activities
leading to the commercialization of the CTLM(TM) device.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
Effective September 30, 1997, the Board of Directors amended the
Articles of Incorporation of the Company in order to designate a class of shares
as Series C Convertible Preferred. The Series C Preferred is non-voting, can be
converted into common stock of the Company and has rights and preferences that
materially limit or qualify the rights of the holders of registered common
stock, including a liquidation preference of $10,000 per share
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security-
Holders.
None.
Item 5. Other Information.
NASDAQ LISTING
--------------
On March 24, 1996, the Company filed its application with NASDAQ to be listed on
the Small Cap Market. The Company's request for listing was subsequently denied
after a hearing before the Listing Qualifications Panel (the "Panel"). The
denial was based upon the fact that one of the Company's outside shareholders
(the "Shareholder"), who had no influence over the Company, had a questionable
background and owned a 5% interest in the Company.
As a result, the Company appealed the denial decision to the NASDAQ Listing and
Hearing Review Committee (the "Committee") which on February 5, 1997, reversed
the decision of the Panel and stated in part the following:
"Accordingly, we recommend that the Panel's decision denying initial
inclusion be reversed and the case be remanded to the Staff with instructions to
implement the Company's proposal..."
The Company in fact, did implement its proposal and on March 12th, provided
NASDAQ with copies of all things necessary to satisfy any concerns that the
Panel had regarding the Shareholder. Prior to the time NASDAQ acted on the
proposal, Barrons published an inaccurate article stating that a NASDAQ
spokesman indicated that the listing would be denied. At all times up until the
date of this article the Company's stock traded at $3.00 and above. The article
had a predictable negative impact on the Company's stock and the price dropped
below $3.00, where it has stayed ever since the Barrons article, despite a
retraction from Barrons. Based upon this decline the NASDAQ staff has refused to
approve the Company for listing on the NASDAQ Small Cap Market.
The Company has engaged a new law firm and General Counsel to deal directly with
NASDAQ and rectify this problem. An oral hearing before the Committee has been
set for November 20, 1997 in Washington D.C.
Patents
-------
On November 13, 1997, the Company received an Issue Notification from the United
States Department of Commerce Patent and Trademark Office for the Company's
CTLM(TM). The Patent will issue on December 2, 1997 under Patent Number 5692311.
The Company has twelve additional patents pending with regard to Optical
Tomography.
Private Placement
-----------------
On October 6, 1997, Imaging Diagnostic Systems, Inc. (the "Company") finalized
the private placement to foreign investors of 210 shares of its Series C
Convertible Preferred Stock ("the "Preferred Shares") at a purchase price of
$10,000 per share and Warrants to purchase up to 105,000 shares of the Company's
common stock at an exercise price of $1.63 per share. The offering was conducted
pursuant to Regulation S as promulgated under the Securities Act of 1933, as
amended (the "Regulation S Sale");
The Preferred Shares are convertible, at any time, commencing 45 days from the
date of issuance and for a period of three years thereafter, in whole or in
part, without the payment of any additional consideration. The number of fully
paid and nonassessable shares of common stock, no par value, of the Company to
be issued upon conversion will be determined by dividing (i) the sum of $10,000
by (ii) the Conversion Price (determined as hereinafter provided) in effect at
the time of conversion. The "Conversion Price" is equal to seventy five percent
(75%) of the Average Closing Price of the Corporation's Common Stock for the
five-day trading period ending on the day prior to the date of conversion
provided, however, in no event will the Conversion Price be greater than $1.222
per share.
Pursuant to the Regulation S Sale documents, the Company was also required to
escrow an aggregate of 3,435,583 shares of its common stock (200% of the number
of shares the Purchasers would have received if the Preferred Shares were
exercised on the closing date of the Regulation S Sale).
The shares underlying the Preferred Shares and Warrants are entitle to demand
registration rights under certain conditions.
In connection with the Regulation S Sale, the Company paid an unaffiliated
Investment Banker an aggregate of $220,500 for placement and legal fees.
Net proceeds to the Company of $1,879,500 will be used for working capital and
the continuous research, development and testing of the Company's Computed
Tomography Laser Mammography (CTLM (TM)) device.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibits Description
- - -------- -----------
Reports on Form 8-K
Form 8-K Filed with the Securities and Exchange
Commission on October 14, 1997, Incorporated by
reference.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned who is duly
authorized to sign as an officer and as the principal financial officer of the
registrant.
Imaging Diagnostic Systems, Inc.
By: /s/Allan L. Schwartz
--------------------
Allan L. Schwartz
Executive Vice-President
Chief Financial Officer
Dated: November 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,014,387
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,066,683
<PP&E> 3,667,200
<DEPRECIATION> 395,182
<TOTAL-ASSETS> 6,696,792
<CURRENT-LIABILITIES> 1,450,218
<BONDS> 0
0
6,600,000
<COMMON> 14,696,913
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,696,792
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,414,195
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<NET-INCOME> (2,539,707)
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</TABLE>
