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: MARCH 31, 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 March 31, 1997: 24,462,584 shares of Common Stock, no par value; and, 450
shares of Series B and 250 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 -
March 31, 1997 and June 30, 1996.......................... 3
Condensed Statement of Operations -
Three months and nine months ended March 31,
1997 and 1996,and December 10,
1993(date of inception) to March 31, 1997............... 4
Condensed Statement of Cash Flows -
Nine months ended March 31, 1997 and 1996, and
December 10, 1993(date of inception)
to March 31, 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...................... 9
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..................... 10
Signature ..................................................... 11
2
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Developmental Stage Company)
CONDENSED BALANCE SHEET
ASSETS
MARCH 31, 1997 JUNE 30, 1996
------------ ------------
(Unaudited) *
Current Assets
Cash $ 4,850,982 $ 3,975,354
Prepaid expenses 10,053 15,900
Loan Receivable 17,040 -_
------------ ------------
Total Current Assets 4,878,075 3,991,254
------------ ------------
Property and Equipment, net 4,198,363 1,050,194
------------ ------------
Prototype Equipment 1,105,301 575,338
Other Assets 9,635 53,010
------------ ------------
1,114,936 626,348
------------ ------------
Total Assets $ 10,191,374 $ 5,669,796
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable
and Accrued Expenses 368,509 205,750
Current maturity of capital
lease obligation 7,692 --
Accrued Dividends Payable 90,832 --
Shareholder Loans -- 77,833
------------ ------------
Total Current Liabilities 467,033 283,583
------------ ------------
Long-term capital lease
obligation 40,032 --
------------ ------------
Stockholders' Equity
Convertible Preferred
(Series A) 5% cum. Div -- 2,160,000
Convertible Preferred
(Series B) 7% cum. Div 4,500,000 --
Convertible Preferred
(Series C) 7% cum. Div 2,500,000 --
Common Stock 12,962,338 9,941,066
Additional Paid-In-Capital 1,069,874 1,372,540
Deficit Accumulated during
development stage (11,166,094) (7,793,084)
------------ ------------
9,866,118 5,680,522
Less subscription receivable (24,309) (18,684)
Less deferred compensation (157,500) (275,625)
------------ ------------
Total Stockholders' Equity 9,684,309 5,386,213
------------ ------------
Total Liabilities and
Stockholders' Equity $ 10,191,374 $ 5,669,796
------------ ------------
* Condensed from audited financial statements
The accompanying notes are an integral part
of these condensed financial statements
3
<PAGE>
<TABLE>
<CAPTION>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Developmental Stage Company)
(Unaudited)
CONDENSED STATEMENT OF OPERATIONS
9 MONTHS ENDED 3 MONTHS ENDED SINCE INCEPTION
MARCH 31, MARCH 31, (12/10/93) TO
1997 1996 1997 1996 MARCH 31,1997
------------------- ----------------------- --------------
<S> <C> <C> <C> <C> <C>
Operating Expenses:
Compensation and related
benefits:
Administrative/Engineering 923,313 402,202 341,075 146,062 2,393,991
Research and development 378,953 139,626 81,173 45,166 730,578
Research/Development expenses 211,701 26,085 31,976 24,916 1,373,959
Advertising/Promotion 128,291 103,310 26,062 26,164 506,166
General/Administrative 405,208 106,537 129,736 91,193 781,840
Clinical expenses 13,950 -- 2,098 -- 331,260
Consulting expenses 67,170 95,946 29,750 23,612 1,018,714
Insurance costs 91,483 -- 32,339 -- 136,438
Professional fees 114,635 56,423 48,963 34,217 833,338
Stockholder expenses 23,373 -- -0- -- 23,373
Trade show expenses 149,330 66,014 34,534 38,625 283,824
Travel and subsistence costs 133,417 66,864 46,469 20,898 283,432
Rent expense 44,634 36,978 8,128 13,128 216,985
Interest expense 391 46 -0- -0- 24,700
Depreciation and amortization 261,374 147,301 83,788 41,261 466,897
Amortization of
deferred compensation 118,125 -- 39,375 -- 465,000
Interest Income (95,932) -- (44,515) -- (154,240)
----------- ----------- ----------- ----------- -----------
2,964,416 1,247,332 890,951 505,242 9,716,255
----------- ----------- ----------- ----------- -----------
Net Loss (2,969,416) (1,247,332) (890,951) (505,242) (9,716,255)
Dividends on cumulative
preferred stock:
From discount at issuance (714,155) -- -- -- (1,712,555)
Earned -- -- (78,750) -- (155,064)
Amortization of preferred stock
discount 417,780 -- 357,077 -- 417,780
----------- ----------- ----------- ----------- -----------
Net loss applicable to common
shareholders (3,265,791) (1,247,332) (612,624) (505,242) (11,166,094)
=========== =========== =========== =========== ===========
Net loss per common share $ (.14) $ (.07) $ (.03) $ (.03) $ (.57)
=========== =========== =========== =========== ===========
Weighted avg
no. of common shares 23,969,535 19,008,102 24,273,520 19,542,049 19,712,163
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements
4
<PAGE>
<TABLE>
<CAPTION>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Developmental Stage Company)
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
NINE MONTHS SINCE INCEPTION
ENDED MARCH 31, (12/10/93) TO
1997 1996 MARCH 31, 1997
---------------------------- ---------------
<S> <C> <C> <C>
Cash provided by (used for)
Operations:
Net loss $ (2,959,416) $ (1,247,332) $ (9,716,255)
Changes in assets and liabilities 963,242 691,292 4,977,281
------------ ------------ ------------
Net cash provided by operations (2,016,174) (556,040) (4,738,974)
------------ ------------ ------------
Investments
Capital expenditures (3,927,623) (1,216,184) (5,669,030)
------------ ------------ ------------
Cash used for investments (3,927,623) (1,216,184) (5,669,030)
------------ ------------ ------------
Cash flows from financing activities:
Repayment of capital lease obligation (2,514) -- (2,514)
Other financing activities (127,436) -- (64,232)
Proceeds from issuance of preferred stock 7,000,000 3,599,950 10,600,000
Net proceeds from issuance of common stock (50,625) 3,114,678 4,725,732
------------ ------------ ------------
Net cash provided by financing activities 6,819,425 6,714,628 15,258,986
------------ ------------ ------------
Net increase(decrease) in cash 875,628 4,942,404 4,850,982
Cash, beginning of period 3,975,354 16,059 --
------------ ------------ ------------
Cash, end of period $ 4,850,982 $ 4,958,463 $ 4,850,982
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements
5
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The financial information included herein has been condensed from financial
statements prepared March 31, 1997. The results of operations for the three
month and nine month period ended March 31, 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 the 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. 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 requirement to date. There is no assurance
that once development of the CTLMTM prototype is completed and finally gains
Federal Drug Administration marketing clearance, that the Company will achieve a
profitable level of operations.
NOTE 3 - RECISION OF SERIES C PREFERRED
On April 17, 1997, the Company and the Series C Holder agreed to rescind the
Series C Preferred transaction. The Company returned $2,500,000 to the Series C
Holder and the Series C Preferred Shares were returned to the Company.
6
<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 1996.
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
Imaging Diagnostic Systems, Inc. (the "Company")is a developmental stage
business which has been engaged since inception in research and development
associated with its cancer detection technology. Because the Company is still in
the development stage of its business, the Company has not yet distributed any
device based on its cancer detection technology. Therefore, the Company has had
no revenue from its operations.
The Company has incurred net losses since inception through March 31, 1997 of
approximately $11,166,094. 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
(CTLMtm) device, development of, and clinical trials for, the proposed CTLM
device and other research and development activities. There can be no assurance
that the Company will complete a device incorporating its technologies, or that
sufficient revenues will be generated from sales of such product to allow the
Company to operate profitably.
RESULTS OF OPERATIONS
General and administrative expenses during the three months and nine months
ended March 31, 1997, were $129,736 and $405,208, respectively, representing an
increase of $38,543 and $298,671 for the corresponding periods for 1996. The
increase during the three month period ending March 31, 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 and nine months ended
March 31, 1996, were $422,248 and $1,302,266, respectively, representing an
increase of $231,020 and $760,438 for the corresponding periods for 1996. This
increase was primarily due to an increase in compensation expense as a result of
the hiring of an additional 12 employees during the nine month period ending
March 31, 1997.
7
<PAGE>
BALANCE SHEET DATA
The Company's combined cash and cash equivalents totaled $4,850,982 as of March
31, 1997. This is an increase of $875,628 from $3,975,354 for the year ended
June 30, 1996. On March 6, 1997, Imaging Diagnostic Systems, Inc. finalized
a private placement transaction resulting in $2,500,000 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 it initial
product, the CTLM device.
Property and Equipment was valued at $4,198,363 as of March 31, 1997, this is an
increase of $3,148,169 from $1,050,194 for the year ended June 30, 1996. This
increase is due primarily to the purchase of a building for $1,250,000 and
attendant improvements. The Company has moved its entire operations to the new
facility.
Prototype Equipment was valued as of March 31, 1997, at $1,105,301. This
represents an increase of $529,963 from $575,338 for the year ended June 30,
1996. This increase is due primarily to an increase in developmental activities
leading to the commercialization of the CTLM device.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
Effective March 6, 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 has rights and
preferences that materially limit or qualify the rights of the registered common
stock. The Series C holders have a liquidation preference of $10,000 per share
and have a right to a 7% quarterly dividend payable in cash or common stock at
the option of the holder.
8
<PAGE>
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security-
Holders.
None.
Item 5. Other Information.
Series C Convertible Preferred
On March 6, 1997, the Company issued 250 shares of Series C Convertible
Preferred Stock ("Preferred") for consideration of $2,500,000. The holder of the
Preferred was obligated to purchase an additional 250 shares of Preferred for
$2,500,000 within thirty (30) days after the registration statement covering the
common shares is declared effective by the Securities and Exchange Commission.
The Preferred were issued in reliance upon the exemption from registration
afforded by Regulation D and Section 4(2) of the Securities Act of 1933, as
amended, to institutional money managers. A registration statement regarding the
common stock associated with the transaction has been filed with the Securities
and Exchange Commission. File No. 333-21243. The Company did not pay any
investment banking fees in connection with this transaction.
9
<PAGE>
On April 15, 1997, the Company issued the following press release:
Imaging Diagnostic Systems, Inc. (OTC Bulletin Board: IMDS)
announced today that due to the unusual trading activity of
the company's common stock, the company will withhold the
conversion rights of the Series B and C convertible preferred
shares until the company can ascertain whether such activity
is related to the recent filing of an amended S-1 registration
statement.
On April 17, 1997, the Company and the Series C Holder mutually agreed to
rescind the private placement transaction. The Company returned the proceeds to
the Series C Holder and the Series C Preferred was returned to the Company. The
return of the proceeds will not impair the Company's ability to continue with
the development and clinical trials of its Computed Tomography Laser Mammography
("CTLMTM") device.
NASDAQ
On February 5, 1997, the Nasdaq Listing and Hearing Review Committee met
to consider the Company's application. A decision was issued on February 5th; IN
THE MATTER OF: IMAGING DIAGNOSTIC SYSTEMS, INC. Docket no. NQ 130I-96. The
decision of the Nasdaq Qualification's Panel denying initial inclusion was
reversed. The decision of the Nasdaq Listing and Hearing Review Committee has
been filed with the Securities and Exchange Commission as required by Rule 19d-1
of the Securities Exchange Act and is part of the public record.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
EXHIBITS DESCRIPTION
- - -------- -----------
3.(i).9 Amendment to Articles of Incorporation
(Designation of Series C Preferred Stock)
Incorporated by reference to Exhibit 3.(i).8 of
the Company's filing on Registration Statement
S-1/A file no. 333-21243.
10
<PAGE>
10.10 Subscription Agreement by and between
Imaging Diagnostic Systems, Inc. and Arcadia Importers &
Exporters, SA dated March 7, 1996 - Incorporated by reference to
Exhibit 10.8 of the Company's filing on Registration Statement
S-1/A file no. 333-21243.
(b) Reports on Form 8-K
Form 8-K dated April 17, 1997 - Incorporated by
reference to Exhibit 99.3 of the Company's
filing on Registration Statement S-1/A file no.
333-21243.
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: May 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 4,850,902
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,850,902
<PP&E> 4,459,737
<DEPRECIATION> 261,374
<TOTAL-ASSETS> 10,191,374
<CURRENT-LIABILITIES> 467,033
<BONDS> 0
0
7,000,000
<COMMON> 12,962,338
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,191,374
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
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<EPS-PRIMARY> (.14)
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</TABLE>
