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, 1998
--------------
[ ] 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 March 31, 1998: 29,639,201 shares of Common Stock, no par value; and, 450
shares of Series B, 49 shares of Series D, 44 shares of Series E, and 75 shares
of Series F Preferred Convertible Stock, no par value.
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Developmental Stage Company)
<TABLE>
<CAPTION>
Part I - Financial Information Page
- ------------------------------ ----
<S> <C>
Condensed Balance Sheet -
March 31, 1998 and June 30, 1997.......................................... 3
Condensed Statement of Operations Three months and nine months ended March 31,
1998 and 1997, and December 10,
1993(date of inception) to March 31, 1998................................ 4
Condensed Statement of Cash Flows Nine months ended March 31, 1998 and 1997, and
December 10, 1993(date of inception)
to March 31, 1998......................................................... 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.................................................... 9
Item 2, Changes in Securities................................................ 9
Item 3, Defaults Upon Senior Securities...................................... 9
Item 4, Submission of Matters to a Vote of
Security Holders .................................................... 10
Item 5, Other Information.................................................... 10
Item 6, Exhibits and Reports on Form 8-K..................................... 14
Signature ...................................................................... 14
</TABLE>
2
<PAGE>
Imaging Diagnostic Systems, Inc.
(A Developmental Stage Company)
Condensed Balance Sheet
<TABLE>
<CAPTION>
Assets
March 31, 1998 June 30, 1997
-------------- -------------
Unaudited) *
<S> <C> <C>
Current Assets
Cash $ 426,890 $ 486,723
Prepaid expenses 12,653 56,792
Loan Receivable 1,573 10,073
Other current assets 120,489 -
--------------- ---------------
Total Current Assets 561,605 553,588
--------------- ---------------
Property and Equipment, net 3,361,544 3,320,979
--------------- ---------------
Prototype Equipment 2,246,290 1,216,585
Other Assets 9,635 9,635
--------------- ---------------
2,255,925 1,226,220
--------------- ---------------
Total Assets $ 6,179,074 $ 5,100,787
=============== ===============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable
and Accrued Expenses $ 731,295 $ 519,546
Accrued Dividends Payable 404,721 -
Current maturity of capital
lease obligation 9,572 8,928
Shareholder Loans 360,407 -
--------------- ---------------
Total Current Liabilities 1,505,995 528,474
--------------- ---------------
Long-term capital lease
obligation 28,580 35,849
--------------- ---------------
Stockholders' Equity
Convertible Preferred
(Series B) 7% cum. Div. 4,500,000 4,500,000
Convertible Preferred (Series D) 490,000 -
Convertible Preferred (Series E) 440,000 -
Convertible Preferred (Series F) 750,000 -
Common Stock 19,172,593 14,662,966
Additional Paid-In-Capital 2,448,503 1,815,496
Deficit Accumulated during
development stage (23,121,038) (16,288,314)
--------------- ---------------
4,680,058 4,690,148
Less subscription receivable (35,559) (35,559)
Less deferred compensation - (118,125)
--------------- ---------------
Total Stockholders' Equity 4,644,499 4,536,464
--------------- ---------------
Total Liabilities and
Stockholders' Equity $ 6,179,074 $ 5,100,787
=============== ===============
</TABLE>
* Condensed from audited financial statements
The accompanying notes are an integral part
of these condensed financial statements
3
<PAGE>
Imaging Diagnostic Systems, Inc.
(A Developmental Stage Company)
(Unaudited)
Condensed Statement of Operations
<TABLE>
<CAPTION>
9 Months Ended 3 Months Ended Since Inception
March 31, March 31, (12/10/93) to
1998 1997 1998 1997 March 31, 1998
---------------------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Operating Expenses:
Compensation and related
benefits:
Administrative/Engineering $1,261,163 $2,038,666 $424,184 $1,456,428 $6,508,635
Research and development 288,177 378,953 124,822 81,173 1,256,688
Research/Development expenses 367,581 866,973 57,181 254,292 3,031,753
Advertising/Promotion 319,280 128,291 24,811 26,062 863,675
General/Administrative 653,109 405,208 159,413 129,736 1,558,494
Clinical expenses 7,096 13,950 2,444 2,098 357,912
Consulting expenses 808,091 67,170 323,294 29,750 2,523,999
Insurance costs 129,790 91,483 37,678 32,339 296,032
Professional fees 423,499 114,635 83,524 48,963 1,320,604
Stockholder expenses 74,348 23,373 861 - 95,250
Trade show expenses 134,802 149,330 35,799 34,534 422,813
Travel and subsistence costs 74,146 133,417 18,740 46,469 419,746
Rent expense 16,320 44,634 (5,303) 8,128 237,568
Interest expense 2,126 391 2,126 - 29,175
Depreciation and amortization 208,120 163,392 69,373 51,127 554,088
Amortization of
deferred compensation 118,125 118,125 39,375 39,375 622,500
Interest Income (19,245) (95,932) (5,494) (44,515) (194,525)
------------ ------------ ----------- ----------- ------------
4,866,528 4,642,059 1,392,828 2,195,959 19,904,407
------------ ------------ ----------- ----------- ------------
Net Loss ($4,866,528) ($4,624,059) ($1,392,828) ($2,195,959) ($19,904,407)
Dividends on cumulative preferred stock:
From discount at issuance (1,729,763) (714,155) (514,729) - (3,461,833)
Earned (236,433) (107,218) (77,639) (78,750) (468,953)
Amortization of preferred stock
discount - 417,780 - 357,077 714,155
------------ ------------ ----------- ----------- ------------
Net loss applicable to common
shareholders ($6,832,724) ($5,045,652) ($1,985,196) ($1,836,703) ($23,121,038)
============ ============ =========== =========== ============
Net loss per common share ($.26) ($.21) ($.07) ($.08) ($1.09)
============ ============ =========== =========== ============
Weighted avg.
no. of common shares 26,447,340 24,066,132 28,764,621 24,566,531 21,223,268
============ ============ =========== =========== ============
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements
4
<PAGE>
Imaging Diagnostic Systems, Inc.
(A Developmental Stage Company)
Condensed Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Since inception
Ended March 31, (12/10/93) to
1998 1997 March 31, 1998
------------------------- --------------
<S> <C> <C> <C>
Cash provided by (used for) Operations:
Net loss $(4,866,528) $(4,642,059) $(19,904,407)
Changes in assets and liabilities 1,753,179 1,883,887 9,118,067
----------- --------- ------------
Net cash provided by operations (3,112,809) (2,758,172) (10,716,340)
----------- ---------- ------------
Investments
Capital expenditures (1,278,388) (3,233,944) (5,140,200)
----------- ----------- -----------
Cash used for investments (1,278,388) (3,233,944) (5,140,200)
----------- ----------- -----------
Cash flows from financing activities:
Repayment of capital lease obligation (6,625) (1,923) (12,137)
Other financing activities 360,407 (77,833) 360,407
Proceeds from issuance of preferred stock 3,850,000 7,000,000 11,950,000
Net proceeds from issuance of common stock 127,582 (52,500) 4,885,189
Net cash provided by financing activities 4,331,364 6,867,744 17,183,459
----------- ----------- -----------
Net increase(decrease) in cash (59,833) 875,628 426,890
Cash, beginning of period 486,723 3,975,354 -
----------- ----------- -----------
Cash, end of period $426,890 $4,850,982 $426,890
----------- ----------- -----------
</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, 1998. The results of operations for the nine-month
period ended March 31, 1998 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 and/or equity financing. 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. See Item
2 "Management's Discussion and Analysis of Financial Condition and Results of
Operations".
In the event that the Company is unable to obtain debt or equity financing or is
unable to obtain such financing on terms and conditions acceptable to the
Company, the Company may have to cease or severely curtail its operations. This
would materially impact 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 if and when Federal 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 E & F Preferred
Effective February 3, 1998 and February 26, 1998, the Board of Directors amended
the Articles of Incorporation of the Company in order to designate classes of
shares as Series E and F Convertible Preferred. The Series E and F Preferred are
non-voting, can be converted into common stock of the Company and have 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.
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 1997.
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
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 March 31, 1998 of
approximately $19,904,407. 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 , the costs associated with the clinical trials
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 and nine months
ended March 31, 1998, were $159,413 And $653,109, respectively, representing an
increase of $29,677 and an increase of $247,901 for the corresponding periods
for 1997. The increase during the three-month period ending March 31, 1998 was
primarily due to certain administrative costs associated with the further
development of the CTLM(TM) breast-imaging device.
Compensation and related benefits during the three months and nine months ended
March 31, 1998, were $549,006 and $1,549,340 respectively, representing a
decrease of $988,595 and a decrease of $868,279 for the corresponding periods
for 1997. This decrease was primarily due to the elimination of additional
compensation expenses.
7
<PAGE>
BALANCE SHEET DATA
The Company's combined cash and cash equivalents totaled $426,890 as of March
31, 1998. This is a decrease of $$59,833 from $486,723 for the year ended June
30, 1997. On February 4, 1998 and February 20, 1998, Imaging Diagnostic Systems,
Inc. finalized private placement transactions resulting in $500,000 and $750,000
in equity financing respectively. 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, the costs associated with the clinical trials and the
expected costs of commercializing its initial product, the CTLM(TM) device.
Property and Equipment was valued at $3,361,544 as of March 31, 1998. The
overall gross increase of $40,565 is due primarily to the purchase of additional
laboratory equipment.
Prototype Equipment was valued as of March 31, 1998, at $2,246,290. This
represents an increase of $1,029,705 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operating and research and development activities
through several Regulation S and Regulation D private placement transactions.
Net cash used for operating and research and development expenses during the
third quarter of 1998 was $1,072,828 primarily due to the Company's continued
research and development of the CTLM(TM) device and preparations for FDA
Clinical Trials including the manufacture of five (5) CTLM(TM) Breast Imaging
Systems, compared to net cash used by operating activities of research and
development of the CTLM(TM) device and related software development of
$2,195,959 in the same quarter of 1997. At March 31, 1998, the Company had a
working capital of $1,301,900 compared to a working capital of $3,016,343 at
March 31, 1997.
During the third quarter of 1998, the Company was able to raise a total of
$1,690,000 less expenses through Regulation S transactions. The Company may
continue to receive working capital from the exercise of stock options, private
placements and long term debt and operations. If the Company's working capital
is insufficient to fund its operations, it would have to explore additional
sources of financing. No assurances, however, can be
8
<PAGE>
given that future financing would be available or if available, that it could be
obtained at terms satisfactory to the Company. The Company's ability to
effectuate its plan of and continue operations is dependent on its ability to
raise capital, structure a profitable business, and generate revenues.
Capital expenditures for the third quarter of 1998 were approximately $92,615 as
compared to approximately $191,137 for the third quarter of fiscal 1997. These
expenditures were a direct result of purchases of computer and other equipment,
office, warehouse and manufacturing fixtures, tradeshow equipment, computer
software, laboratory equipment and other fixed assets. The Company anticipates
that the balance of its capital needs for fiscal 1998 will be approximately
$53,000. The Company will continue to seek equity or debt financing in order to
meet its working capital needs.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
Effective February 3, 1998, the Board of Directors amended the
Articles of Incorporation of the Company in order to designate a class of shares
as Series E Convertible Preferred. The Series E 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. See Item 5
"Other Information - Private Placements".
Effective February 26, 1998, the Board of Directors amended the
Articles of Incorporation of the Company in order to designate a class of shares
as Series F Convertible Preferred. The Series F 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. See Item 5
"Other Information - Private Placements".
Item 3. Defaults Upon Senior Securities.
None.
9
<PAGE>
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 appealed the denial of the listing at an oral hearing before the
Committee in Washington D.C. on January 22, 1998. Pursuant to this meeting the
Panel determined to approve the Company for listing on the NASDAQ Small Cap
Market, subject to the following conditions:
1. On or before May 11, 1998, the Company must effect a reverse stock
split sufficient to raise its bid price to, or above $4.00 per share for the
opening of one trading day or in
10
<PAGE>
the alternative, on or before May 11, 1998, the Company must have and retain for
10 consecutive trading days a $4.00 bid price through natural forces.
2. On or before May 11, 1998, the Company must make a public filing with
the SEC and NASDAQ evidencing a minimum of $5,000,000 in net tangible assets.
The Board of Directors determined that a reverse split at this time would be
detrimental to the interests of its shareholders and vetoed the proposal for the
reverse split. The conditional listing expires on May 11, 1998. To date the
Company has been unable to comply with the above conditions.
The Company immediately appealed this decision. The Company's Securities Counsel
was notified on May 19, 1998 that its appeal was denied. The Company has thirty
(30) days to file an appeal with the Securities and Exchange Commission. The
Company intends to file an appeal in this matter.
PATENTS
-------
In December 1997, the patent for the CTLM(TM) was issued by the United States
Department of Commerce Patent and Trademark Office under Patent Number 5692311.
The Company has twelve patents pending with regard to Optical Tomography.
PRIVATE PLACEMENTS
------------------
On February 4, 1998, the Company finalized a $500,000 private placement to
foreign investors of 50 shares of its Series E Convertible Preferred Stock ("the
"Preferred Shares") and Warrants to purchase up to 25,000 shares of the
Company's common stock. 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 non-assessable 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
11
<PAGE>
five-day trading period ending on the day prior to the date of conversion but in
no event greater than $.82 per share.
In connection with the Regulation S Sale, the Company paid an unaffiliated
Investment Banker a total of 4 shares of the Preferred Stock and $5,000 for
placement and legal fees.
Net proceeds to the Company of $495,000 will be used for working capital and the
continuous research, development and testing of the Company's Computed
Tomography Laser Mammography (CTLM (TM)) device.
On February 20, 1998, the Company finalized a $750,000 private placement to
foreign investors of 75 shares of its Series F Convertible Preferred Stock ("the
"Preferred Shares"). The Preferred Stock pays a dividend of 6% per annum. 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 non-assessable 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 percent (70%)
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.
In connection with the Regulation S Sale, the Company paid an unaffiliated
Investment Banker a total of $50,000 for expenses and legal fees.
Net proceeds to the Company of $700,000 will be used for working capital and the
continuous research, development and testing of the Company's Computed
Tomography Laser Mammography (CTLM (TM)) device.
The Company is currently negotiating with investors for additional funding
through private placement. The proceeds from
12
<PAGE>
this funding will be used to continue the development of and the continuation of
clinical trials for the Company's Computed Tomography Laser Mammography (CTLM
(TM)) device.
INTERNATIONAL DISTRIBUTION
--------------------------
In April 1998, the Company entered into an exclusive International Distribution
with Focus Surgical LTD, to distribute the CTLM(TM) device to hospitals and
clinics throughout the United Kingdom and Ireland. The term of the Agreement is
three years, with a minimum purchase requirement of 10, 12 and 15 CTLM(TM)
devices in the first, second and third year(s) of the Agreement, respectively.
Focus Surgical currently distributes noncompetitive laser products for companies
such as Sunrise Medical Technologies and Baltec, among many others.
The Company has already secured exclusive distributors for the following
territories: Italy, France, South Korea, the Pacific Rim including China,
Switzerland, Moscow, Germany, Austria, the Republic of Turkey and Ecuador.
Based on its present research and development and supplier production schedules,
the Company anticipates that the CTLM(TM) device will be ready for distribution
this Summer.
FDA UPDATE
----------
On March 19, 1998 the Company submitted the final Report for the Company's IDE.
Also on March 19, 1998 the Company met with representatives of the FDA. The
purpose of the meeting was to describe several options to the Company's IDE and
to get the FDA's perspective on these approaches. It was decided that the
Company will complete the first phase with 20 patient studies performed in-house
and monitored by an Institutional Review Board ("IRB") established by the
Company. The information obtained from the study will be submitted to the FDA to
enable the Company to commence the second phase at three unaffiliated clinical
sites.
In April 1998 the Company appointed eight specialists in the fields of
Gynecology and Obstetrics, Mammography, breast surgery, Neurology and optics and
laser engineering to serve on the IRB.
13
<PAGE>
On May 15, 1998 the Company submitted a supplemental safety report to the FDA
which encompasses all of the modifications and upgrades since the initial safety
report was filed.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibits Description
- -------- -----------
(a)
3. Amendment to Articles of Incorporation (Designation of
Series E Preferred Stock)
3.1 Amendment to Articles of Incorporation (Designation of
Series F Preferred Stock)
(b) Reports on Form 8-K
Form 8-K dated February 19, 1998.
Form 8-K dated March 16, 1998.
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 20, 1998
14
EXHIBIT 3
ARTICLES OF AMENDMENT
CERTIFICATE OF DESIGNATION
IMAGING DIAGNOSTIC SYSTEMS, INC.
1. Designation. The designation of the series of Preferred Stock fixed by
this resolution shall be "Series E Convertible Preferred Stock" (hereinafter
referred to as the "Convertible Preferred Stock").
2. Conversion Rights.
(a) Right to Convert. The holder of any shares of Series D
Convertible Preferred Stock (the "Preferred Stock") may, at any time,
commencing 45 days from the date of issuance and for a period of three
years thereafter, convert all or a portion of the Preferred Stock,
without the payment of any additional consideration therefor, into that
number of fully paid and non-assessable shares of common stock, no par
value, of the Corporation as is 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"
shall be 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,
that in no event will the Conversion Price be greater than 75% of the
Average Price on the Closing Date. 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 (i) quoted by Bloomberg, L.P. or if
not quoted by Bloomberg, L. P., then (ii) as reported by the National
Association of Securities Automated Quotation System ("NASDAQ"), or if
not quoted by NASDAQ then; (iii) 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 (iv) 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.
15
<PAGE>
(b) Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of the Preferred Stock. If upon
conversion of shares of 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 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 Preferred Stock, and shall give written notice by facsimile or
otherwise (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 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 by facsimile or otherwise, 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
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 person, or any voluntary or
involuntary dissolution,
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liquidation or winding up of the Corporation, the Corporation shall
mail to each holder of Preferred Stock at least twenty (20) days prior
to the record date specified therein, a notice specifying (i) 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; (ii) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up is expected to become effective; and (iii)
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 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) Common Stock Reserved. The Corporation shall issue into
escrow or 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 Preferred Stock. In the event there are
insufficient shares to effect a conversion, the Corporation shall
increase the number of authorized shares to effect conversion. In the
event shareholder approval is required to increase the authorized
shares, the holder shall be entitled to vote with the holders of the
Common Stock, as a single class, where each share of Preferred Stock
shall be entitled to that number of votes to which it would be entitled
had all of its
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shares of Preferred Stock been converted into shares of Common Stock
were notice of conversion given on the date of such vote. No sale or
disposition of all or substantially all of the Corporation's assets
shall take place without the approval of the holders of the Convertible
Preferred Stock, voting as a single class.
(f) Voting Rights of Convertible Preferred Stock. Except as
otherwise required by law and as provided for in Section 2(e), the
holders of outstanding shares of Preferred Stock shall not be entitled
to vote on any matters submitted to the stockholders of the
Corporation.
3. Liquidation Rights. If the Corporation shall be voluntarily or
involuntarily liquidated, dissolved or wound up, at any time when any shares of
Preferred Stock shall be outstanding, the holders of the then outstanding shares
of 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 $10,000.00 consideration per share.
4. 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 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 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 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.
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EXHIBIT 3.1
AMENDED ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
IMAGING DIAGNOSTIC SYSTEMS, INC.
The undersigned do hereby certify that, pursuant to the authority
conferred upon the Board of Directors of IMAGING DIAGNOSTIC SYSTEMS, INC. (the
"Corporation") a corporation organized and existing under the Florida Business
Corporation Act, by Florida Statute 607.0821 and Florida Statute 607.0602 and
pursuant to the written consent dated February 19, 1998, duly executed by all of
the members of the Corporation's Board of Directors, adopting the resolutions
providing for the issuance of up to 75 shares of the Corporation's authorized
but unissued preferred stock, no par value, to be designated the Series F
Convertible Preferred Stock (the "Preferred Stock"), and the Amendment of the
Corporation's Articles of Incorporation to provide for the Preferred Stock, and
there being no shareholder action required, the Corporation Articles of
Incorporation are hereby Amended as follows:
ARTICLE III CAPITAL STOCK
- -------------------------
CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS AND LIMITATIONS OF SERIES F
CONVERTIBLE PREFERRED STOCK
1. Designation and Rank. The number and designation of the series of Preferred
Stock fixed by this amendment shall be 75 Shares of "Series F Convertible
Preferred Stock" (hereinafter referred to as the "Convertible Preferred Stock"),
all of which shall rank equally and be identical in all respects.
2. Conversion Rights.
(a) Right to Convert. The holder of any shares of Series F Convertible Preferred
Stock (the "Preferred Stock") may, at any time, commencing May 15, 1998 and for
a period of two years thereafter, convert all or a portion of the Preferred
Stock, without the payment of any additional consideration therefor, into that
number of fully paid and non-assessable shares of common stock, no par value, of
the Corporation as is 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" shall be equal to seventy percent (70%) 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 the conversion. 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 (i) quoted by Bloomberg, L.P. or if not
quoted by Bloomberg, L.P., then (ii) as
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reported by the National Association of Securities Automated Quotation System
("NASDAQ"), or if not quoted by NASDAQ then; (iii) 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 (iv) 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.
(b) Mechanics of Conversion. No fractional shares of Common Stock shall be
issued upon conversion of the Preferred Stock. If upon conversion of shares of
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
round up or down, as the case may be, to the nearest share. Before any holder of
the 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 Preferred Stock, and shall give written notice by facsimile or otherwise
(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 five business days of the date
of its receipt of the Conversion Notice and original Preferred Stock
Certificate, issue and deliver or cause to be issued and delivered to such
holder of 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. Such conversion shall be deemed to have been made on the date that
the Corporation receives the Conversion Notice by facsimile or otherwise, 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 Preferred Stock, such shares shall be restored to the status of
authorized but unissued shares and may be reissued as a new series 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 person, or any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the Corporation shall
mail to each holder of Preferred Stock at least twenty (20) days prior to the
record date specified therein, a notice specifying (i) 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; (ii) the date on which any
such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective; and
(iii) 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
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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 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) Common 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 Preferred Stock. In the event there are
insufficient shares to effect a conversion, the Corporation shall increase the
number of authorized shares to effect conversion , the holder shall be entitled
to vote with the holders of the Common Stock, as a single class, where each
share of Preferred Stock shall be entitled to that number of votes to which it
would be entitled had all of its shares of Preferred Stock been converted into
shares of Common Stock were notice of conversion given on the date of such vote.
No sale or disposition of all or substantially all of the Corporation's assets
shall take place without approval of the holders of the Convertible Preferred
Stock, voting as a single class.
(f) Voting Rights of Convertible Preferred Stock. Except as otherwise required
by law and as provided for in Section 2(e), the holders of outstanding shares of
Preferred Stock shall not be entitled to vote on any matters submitted to the
stockholders of the Corporation.
3. Liquidation Rights. If the Corporation shall be voluntarily or involuntarily
liquidated, dissolved or wound up, at any time when any shares of Preferred
Stock shall be outstanding, the holders of the then outstanding shares of
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 $10,000.00 consideration per share.
4. 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 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
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<PAGE>
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 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 Preferred Stock shall be appropriately adjusted
so as to be applicable, as nearly as may reasonable be, to any shares of stock
or other securities or property thereafter deliverable on the conversion of the
shares of Convertible Preferred Stock.
IN WITNESS WHEREOF, this Amendment to the Articles of Incorporation has
been executed and attested by the undersigned duly authorized officers of the
Corporation as of the 25th day of February 1998.
/s/ Linda B. Grable, President and Director
/s/ Allan L. Schwartz, Executive Vice President and Director
/s/Richard J. Grable, Chief Executive Officer and Director
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