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: DECEMBER 31, 1996
[ ] 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
------- ----------
(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 December 31, 1996: 24,273,520 shares of Common Stock, no par value; and,
450 shares of Series B Preferred Convertible Stock, no par value.
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(a Developmental Stage Company)
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
Report of independent certified
public accountants...................................................3
Condensed Balance Sheet -
December 31, 1996 and June 30, 1996..................................5
Condensed Statement of Operations -
Three months and six months ended December 31,
1996 and 1995,and December 10,
1993 (date of inception) to December 31, 1996........................6
Condensed Statement of Cash Flows -
Six months ended December 31, 1996 and 1995,
and December 10, 1993(date of inception) to December 31,
1996.................................................................7
Notes to Condensed Financial Statements ..................................8
Management's Discussion and Analysis of
Financial Condition and Results...........................................9
PART II - OTHER INFORMATION
- ---------------------------
Item 1, Legal Proceedings................................................10
Item 2, Changes in Securities............................................10
Item 3, Defaults Upon Senior Securities..................................11
Item 4, Submission of Matters To a Vote of
Security Holders ............................................11
Item 5, Other Information................................................11
Item 6, Exhibits and Reports on Form 8-K..................................12
Signatures ...............................................................13
2
<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 December 31, 1996 and June 30, 1996,
and the related statements of operations and cash flows for the three and six
months ended December 31, 1996 and 1995, and for the Period December 10, 1993
(date of inception) to December 31, 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 December 31, 1996 and June 30, 1996,
and the results of its operations and its cash flows for the three and six
months ended December 31, 1996 and 1995, and for the period December 10, 1993
(date of inception) to December 31, 1996 in conformity with generally accepted
accounting principles.
The Company is in the development stage as of December 31, 1996 and to date has
had no significant operations. Recovery of the Company's assets is dependent on
future events, the
3
<PAGE>
outcome of which is indeterminable. In addition, successful completion of the
Company's development program and its transition, ultimately, to attaining
profitable operations is dependent upon obtaining adequate financing to fulfill
its development activities and achieving a level of sales adequate to support
the Company's cost structure.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company has suffered 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 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
MARGOLIES AND FINK
January 20, 1997
4
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Developmental Stage Company)
CONDENSED BALANCE SHEET
ASSETS
DECEMBER 31, 1996 JUNE 30, 1996
----------------- -------------
Current Assets
Cash $ 3,886,509 $ 3,975,354
Prepaid expenses 10,053 15,900
------------ ------------
Total Current Assets 3,896,562 3,991,254
------------ ------------
Property and Equipment, net 3,868,698 1,050,194
------------ ------------
Prototype Equipment 937,562 575,338
Other Assets 9,635 53,010
------------ ------------
947,197 626,348
------------ ------------
Total Assets $ 8,712,457 $ 5,669,796
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable
and Accrued Expenses 497,549 205,750
Current maturity of capital
lease obligation 8,499 --
Shareholder Loans -- 77,833
------------ ------------
Total Current Liabilities 506,048 283,583
------------ ------------
Long-Term capital lease
obligation 41,149 --
------------ ------------
Stockholders' Equity
Convertible Preferred
(Series A) 5% cum. Div -- 2,160,000
Convertible Preferred
(Series B) 7% cum. Div 4,500,000 --
Common Stock 10,474,577 8,001,721
Deficit Accumulated during
development stage (6,785,008) (4,756,824)
------------ ------------
8,189,569 5,404,897
Less subscription receivable (24,309) (18,684)
------------ ------------
Total Stockholders' Equity 8,165,260 5,386,213
------------ ------------
Total Liabilities and
Stockholders' Equity $ 8,712,457 $ 5,669,796
------------ ------------
The accompanying notes are an integral part
of these condensed financial statements
5
<PAGE>
<TABLE>
<CAPTION>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Developmental Stage Company)
CONDENSED STATEMENT OF OPERATIONS
6 MONTHS ENDED 3 MONTHS ENDED SINCE INCEPTION
DECEMBER 31, DECEMBER 31, (12/31/93) TO
1996 1995 1996 1995 DECEMBER 31, 1996
------------------------- ------------------------ -----------------
<S> <C> <C> <C> <C> <C>
Operating Expenses:
Research/Development $ 179,725 $ 1,167 $ 130,011 $ 76 $ 1,065,230
Compensation/Benefits 880,018 350,598 567,148 295,122 2,551,321
Advertising/Promotion 102,229 77,437 74,305 50,703 442,171
General/Administrative 275,472 55,108 207,149 12,999 652,104
Clinical expenses 11,852 -- 10,024 -- 182,606
Consulting expenses 37,420 72,333 29,120 25,045 438,869
Insurance costs 59,144 11,016 43,466 -- 104,099
Professional fees 65,672 22,205 43,257 5,290 295,452
Stockholder expenses 23,373 -- 23,373 -- 23,373
Travel/Subsistence 86,948 45,078 51,346 28,020 236,963
Trade show expenses 114,796 27,389 75,587 15,103 249,290
Rent expense 36,506 23,850 23,008 7,950 169,132
Depreciation/Amm 177,586 55,863 121,591 31,202 383,109
Interest expense 391 46 391 1 24,700
Interest Income (51,417) -- (14,987) -- (109,725)
1,999,715 742,090 1,384,789 471,511 6,708,694
---------- ---------- ---------- ---------- ----------
Net Loss (1,999,715) (742,090) (1,384,789) (471,511) (6,785,008)
Dividends on cumulative
preferred stock 28,469 -- 19,667 -- 76,314
---------- ---------- ---------- ---------- ----------
Net loss applicable to
common shareholders $(2,028,184) $(742,090) $(1,404,456) $(471,511) $(6,785,008)
=========== ========= =========== ========= ===========
Primary net loss
per common share $(.079) $(.039) $(.054) $(.02) $(.345)
Weighted avg
no. of common shares 25,676,846 18,870,569 25,926,254 19,126,424 19,648,846
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements
6
<PAGE>
<TABLE>
<CAPTION>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Developmental Stage Company)
CONDENSED STATEMENT OF CASH FLOWS
SIX MONTHS SINCE INCEPTION
ENDED DECEMBER 31, (12/10/93) TO
1996 1995 DECEMBER 31, 1996
---------------------------- -----------------
<S> <C> <C> <C>
Cash provided by (used for) Operations:
Net income $ (1,995,715) (742,090) $(6,708,694)
Changes in assets and liabilities 435,145 (189,491) 1,831,357
------------ ---------- ----------
Net cash provided by operations (1,564,570) (931,581) 4,877,337
------------ ---------- ----------
Investments
Capital expenditures 2,945,801 311,554 4,111,870
------------ ---------- ----------
Cash used for investments 2,945,801 311,554 4,111,870
------------ ---------- ----------
Cash flows from financing activities:
Repayment of capital lease obligation (641) -- (641)
Proceeds from stockholder loans, net (77,833) (14,000)
Proceeds from issuance of preferred stock 4,500,000 -- 8,100,000
Proceeds from issuance of common stock -- 1,398,723 4,776,357
------------ ---------- ----------
Net cash provided by financing activities 4,421,526 1,384,723 12,875,716
------------ ---------- ----------
Net increase(decrease) in cash (88,845) 141,588 3,886,509
Cash, beginning of period 3,975,354 16,059 --
------------ ---------- ----------
Cash, end of period $ 3,886,509 $ 157,647 $ 3,886,509
------------ ---------- ----------
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements
7
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The financial information included herein has been condensed from audited
financial statements prepared as of December 31, 1996. The results of operations
for the three month and six month period ended December 31, 1996 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.
8
<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 December 31,
1996 of approximately $6,785,008. 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 six
months ended December 31, 1996, were $207,149 and $275,472, respectively,
representing an increase of $194,150 AND $220,364 FOR THE CORRESPONDING PERIODS
FOR 1995. The increase during the three month period ending December 31, 1996,
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 six months
ended December 31, 1996, were $567,148 and $880,018, respectively, representing
an increase of $272,026 and $529,420 for the corresponding periods for
9
<PAGE>
1995. This increase was primarily due to an increase in compensation expense as
a result of the hiring of an additional 8 employees during six month period
ending December 31, 1996.
BALANCE SHEET DATE
The Company's combined cash and cash equivalents totaled $3,886,509 for
the period ending December 31, 1996. This is an decrease of $88,845 from
$3,975,354 for the period ending June 30, 1996. On December 17, 1996, Imaging
Diagnostic Systems, Inc. finalized a private placement transaction resulting in
$4,500,000 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 $3,868,698 for the period ending
December 31, 1996, this is an increase of $2,818,504 from $1,050,194 for the
period ending 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 for the period ended December 31, 1996,
at $937,562. This represents an increase of $362,224 from $575,338 for the
period 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 December 13, 1996, the Board of Directors amended the
articles of incorporation of the Company in order to designate a class of shares
as Series B Convertible Preferred. The Series B Preferred has rights and
Preferences
10
<PAGE>
that materially limit or qualify the rights of the registered common stock. The
series B 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.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security-Holders.
(a) On October 23, 1996 the Company held its annual meeting of
Shareholders.
(b) The following individuals were elected directors of the Company:
Richard J. Grable, Linda B. Grable, and Allan L. Schwartz.
(c) The following is a brief description of each matter voted upon at
the meeting; and, the number of votes cast for, against, or withheld, as well as
the number of abstentions and broker non-votes, including a separate tabulation
with respect to each nominee for office:
(1) To elect three (3) directors to serve a one
year term expiring upon the 1997 Annual Meeting of Stockholders or until his
successor is duly elected and qualified:
For Withheld Non-Votes
Richard J. Grable: 22,121,767 7,800 1,347,852
Linda B. Grable: 22,120,565 9,000 1,347,852
Allan L. Schwartz: 21,921,762 207,800 1,347,852
(2) To ratify the selection of Margolies and Fink as independent
auditors for the Company for the fiscal year ending June 30, 1997: For -
22,096,647; Against - 14,350; Withheld - 18,570; Non-Votes - 1,347,852.
Item 5. Other Information.
On December 17, 1996, the Company issued 450 shares of Series B
Convertible Preferred Stock ("Preferred")and 112,500 Warrants ("Warrants") in
reliance upon the exemption
11
<PAGE>
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 will be
made to the Securities and Exchange Commission. The Company did not pay any
investment banking fees in connection with this transaction.
The holder of the Preferred may convert 34% of the Preferred 80 days
after issuance; 67% of the Preferred 100 days after issuance; and, 100% in
aggregate 120 days after issuance. The Preferred are to be converted based on
the lower of 82% of the average closing bid price 5 trading days preceding
notice of conversion by the holder or $3.85 per Preferred share. The Warrants
are exercisable at any time for an exercise price of $5.00 and will expire five
(5) years from date of issue.
The Company anticipates using the proceeds from the private placement
for general corporate purposes and for continued clinical trials of the Computed
Tomography Laser Mammography (CTLMTM) device which includes the establishment of
an 4-6 clinical sites. The Company expects to collect significant clinical data
from the sites which will be incorporated into a PMA filing with the Food and
Drug Administration and hopes to receive expedited review based on the clinical
data.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
EXHIBITS DESCRIPTION
- -------- -----------
3.(i).8 Amendment to Articles of Incorporation (Designation of Series B
Preferred Stock) Incorporated by reference to Exhibit 3.(I).7 of
the Company's filing on Registration Statement S-1 file no.
333-21243.
12
<PAGE>
10.8 Subscription Agreement by and between Imaging Diagnostic Systems,
Inc. and Goodland International Investment Ltd. dated December
13, 1996 - Incorporated by reference to Exhibit 10.6 of the
Company's filing on Registration Statement S-1 file no.
333-21243.
10.9 Subscription Agreement by and Between Imaging Diagnostic Systems,
Inc. and Weyburn Overseas Limited dated December 13, 1996 -
Incorporated by reference to Exhibit 10.7 of the Company's filing
on Registration Statement S-1 file no. 333-21243.
27 Financial Data Schedule
(b) Reports On Form 8-K
99.3 Report dated January 6, 1997 - Incorporated by reference to
Exhibit 99.2 of the Company's filing on Registration Statement
S-1 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: February 11, 1997
13
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,886,509
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,896,562
<PP&E> 4,213,400
<DEPRECIATION> 344,702
<TOTAL-ASSETS> 8,712,457
<CURRENT-LIABILITIES> 506,048
<BONDS> 0
0
4,500,000
<COMMON> 10,474,577
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,712,457
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,999,715
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,999,715)
<EPS-PRIMARY> (.079)
<EPS-DILUTED> (.079)
</TABLE>
