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, 1999
[ ] 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 September 30, 1999: 57,247,380 shares of common stock, no par value; and,
356 shares of Series B, 14 shares of Series G, 44 shares of Series H preferred
convertible stock, no par value and 138 shares of Series I 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, 1999 and June 30, 1999.................... 4
Condensed Statement of Operations -
Three months ended
September 30, 1999 and 1998, and December 10,
1993(date of inception) to September 30, 1999........... 5
Condensed Statement of Cash Flows -
Three months ended September 30, 1999 and 1998,
and December 10, 1993(date of inception)
to September 30, 1999................................... 6
Notes to Condensed Financial Statements....................... 7
Financial Condition and Results............................... 8
Part II - Other Information
Item 1. Legal Proceedings.................................. 12
Item 2. Changes in Securities.............................. 12
Item 3. Defaults Upon Senior Securities.................... 12
Item 4. Submission of Matters to a Vote of
Security Holders ............................. 12
Item 5. Other Information.................................. 12
Item 6. Exhibits and Reports on Form 8-K................... 27
Signature .................................................... 28
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The financial information included has been condensed from financial statements
prepared September 30, 1999. The results of operations for the three-month
period ended September 30, 1999, are not necessarily indicative of the results
to be expected for the full year.
NOTE 2 - GOING CONCERN
Imaging Diagnostic Systems, Inc. (IDSI) is currently a development stage company
and our continued existence is dependent upon our ability to resolve our
liquidity problems, principally by obtaining additional debt and/or equity
financing. IDSI has yet to generate an internal cash flow, and until the sales
of our product begin, we are 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 we are unable to obtain debt or equity financing or we are
unable to obtain such financing on terms and conditions acceptable to us, we may
have to cease or severely curtail our operations. This would materially impact
our ability to continue as a going concern. However, our management is
continually negotiating with various outside entities for additional funding
necessary to complete the clinical testing phase of development, required before
we 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 CTLM(TM) prototype is completed and if and when FDA
marketing clearance is obtained, that the CTLM(TM) will achieve market
acceptance or that we will achieve a profitable level of operations.
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Developmental Stage Company)
Condensed Balance Sheet
Assets
Sept. 30, 1999 Jun. 30, 1999
Current Assets Unaudited
Cash $ 70,417 $ 70,037
Inventory 3,748,042 3,698,343
Prepaid expenses 58,250 58,250
Other current assets 46,310 30,950
------ ------
Total Current Assets 3,923,019 3,857,580
--------- ---------
Property and Equipment, net 2,670,705 2,707,994
Other Assets 544,388 561,158
------- -------
$ 7,138,112 $ 7,126,732
============ ============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable, Accrued Exp
and Accrued Dividends Payable $ 2,356,111 $ 1,597,083
Loans Payable 947,076 1,232,271
Current maturity of capital
lease obligation 10,798 10,572
Other current liabilities -- 529,880
--------- ---------
Total Current Liabilities 3,313,985 3,369,806
--------- ---------
Convertible Debenture 2,047,500 1,100,000
Long-Term capital lease obligation 12,775 15,561
------ ------
Total Liabilities 5,374,260 4,485,367
--------- ---------
Commitments and contingencies:
Redeemable convertible
preferred stock Series G 237,117 477,117
Stockholders Equity:
Convertible Preferred
(Series B) 7% cum. Div 3,560,000 3,900,000
Convertible Preferred (Series H) 440,000 680,000
Convertible Preferred (Series I) 1,380,000 1,380,000
Common Stock 31,355,235 29,820,729
Additional paid-in capital 1,256,985 1,490,827
Deficit accumulated during (36,451,176) (35,092,999)
development stage ----------- -----------
1,541,044 2,178,557
Less: subscriptions receivable (14,309) (14,309)
------- -------
Total stockholders' equity 1,526,735 2,164,248
--------- ---------
$ 7,138,112 $ 7,126,732
============ ============
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
1999 1998 Sept. 30, 1999
<S> <C> <C> <C>
Compensation and related benefits:
Administrative and engineering $ 314,888 $ 292,064 $ 8,267,422
Research and development 201,322 186,730 2,890,911
Research and development expenses 1,093 46,775 2,991,495
Advertising and promotion expenses 5,329 6,749 906,443
Selling, general and administrative 82,039 95,456 1,770,000
Clinical expenses 21,918 3,876 399,357
Consulting expenses 5,236 29,996 3,031,457
Insurance costs 48,701 45,015 549,908
Professional fees 24,054 40,030 1,668,717
Stockholder expenses -- -- 161,675
Trade show expenses 3,152 41,643 660,013
Travel and subsistence costs 38,694 32,332 607,214
Rent expense 3,682 8,777 279,951
Interest expense 341,278 743 1,112,518
Loan placement expenses and fees 81,500 -- 282,994
Depreciation and amortization 77,896 56,873 1,066,714
Amortization of deferred compensation -- 377,609 4,064,250
Liquidated damages costs 31,000 -- 291,000
Interest income (58) (674) (198,595)
1,281,724 1,263,994 30,803,444
--------- --------- ----------
Net Loss $ (1,281,724) $ (1,263,994) $(30,803,444)
Dividends on cumulative Pfd. stock:
From discount at issuance -- -- (4,694,583)
Earned (76,453) (56,953) (953,149)
------- ------- --------
Net loss applicable to
common shareholders $ (1,358,177) $ (1,320,947) $(36,451,176)
------------ ------------ ------------
Net Loss per common share:
Basic:
Net loss per common share $ (0.03) $ (0.04) $ (1.40)
========== ========== ==========
Weighted avg. no. of common shares 51,064,251 37,459,191 25,995,799
========== ========== ==========
Diluted:
Net loss per common share $ (0.03) $ (0.04) $ (1.40)
========== ========== ==========
Weighted avg. no. of common shares 51,064,251 37,459,191 25,995,799
========== ========== ==========
</TABLE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Developmental Stage Company)
Condensed Statement of Cash Flows
<TABLE>
<CAPTION>
Three Months Since Inception
Ended September 30, (12/10/93) to
1999 1998 Sept. 30, 1999
<S> <C> <C> <C>
Cash provided by (used for)
Operations:
Net loss $ (1,281,724) $ (1,263,994) $(30,803,444)
Changes in assets and liabilities 662,966 409,728 15,237,926
------- ------- ----------
Net cash used by operations (618,758) (854,266) (15,565,518)
-------- -------- -----------
Investments
Capital expenditures (40,607) (21,283) (6,565,055)
------- ------- ----------
Cash used for investments (40,607) (21,283) (6,565,055)
------- ------- ----------
Cash flows from financing activities:
Repayment of capital lease obligation (2,560) (3,282) (26,716)
Other financing activities - NET 662,305 585,000 3,917,036
Proceeds from issuance of preferred stock -- -- 13,039,500
Net proceeds from issuance of common stock -- 82,964 5,271,170
--------- ------ ---------
Net cash provided by financing activities 659,745 664,682 22,200,990
------- ------- ----------
Net increase (decrease) in cash 380 (210,867) 70,417
Cash, beginning of period 70,037 310,116 --
------ ------- ---------
Cash, end of period $ 70,417 $ 99,249 $ 70,417
============ ============ ============
</TABLE>
<PAGE>
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS AND EVENTS COULD
DIFFER MATERIALLY FROM THOSE PROJECTED AS A RESULT OF THE RISKS AND
UNCERTAINTIES SET FORTH UNDER THE CAPTION "CAUTIONARY STATEMENTS REGARDING
FORWARD-LOOKING STATEMENTS", IN OUR FORM 10-KSB FOR THE YEAR ENDED JUNE 30,
1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Imaging Diagnostic Systems, Inc. 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 IDSI 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.
We have incurred net losses applicable to common shareholders since inception
through September 30, 1999, of approximately $36,451,176 after discounts and
dividends on preferred stock. We anticipate that losses 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 CTLM(TM), the costs associated with the clinical trials and other research
and development activities. There can be no assurances that the CTLM(TM) will
achieve market acceptance or that sufficient revenues will be generated from
sales of the CTLM(TM) to allow us to operate profitably.
RESULTS OF OPERATIONS
General and administrative expenses during the three months ended September 30,
1999, were $82,039 representing a decrease of $13,417 for the corresponding
period for 1998. The decrease was primarily due to a decrease in administrative
costs associated with the development of the CTLM(TM) breast-imaging device.
Compensation and related benefits during the three months ended September 30,
1999, were $516,210 representing an increase of $37,416 for the corresponding
period for 1998. The increase was primarily due to the hiring of additional
employees to administer our clinical site.
Research and development expenses during the three months ended September 30,
1999, were $1,093 representing a decrease of $45,682 for the corresponding
period for 1998. The decrease is due primarily to finalizing certain components
of the CTLM(TM) device.
Advertising and promotion expenses during the three months ended September 30,
1999, were $5,329 representing a decrease of $1,420 for the corresponding period
for 1998. The decrease is due primarily to the reduction of advertising in
domestic and foreign medical imaging and medical device publications, and the
elimination of public relations and investor public relations expenses.
Consulting expenses during the three months ended September 30, 1999, were
$5,236 representing a decrease of $24,760 for the corresponding period for 1998.
The decrease is due primarily to the reduced use of outside consultants needed
for special non-recurring projects required prior to placing CTLM(TM) units into
clinical trials.
Clinical expenses during the three months ended September 30, 1999, were $21,918
representing an increase of $18,042 for the corresponding period for 1998. The
increase is due primarily to the cost of operating our Nassau County Medical
Center clinical site.
Insurance costs during the three months ended September 30, 1999, were $48,701
representing an increase of $3,686 for the corresponding period for 1998. The
increase is due primarily to additional premiums for Workers' Comp., Health
Insurance, and Property and Casualty Insurance.
Professional expenses during the three months ended September 30, 1999, were
$24,054 representing a decrease of $15,976 for the corresponding period for
1998. The decrease in professional fees is a result of reduced use of outside
counsel.
Stockholder expenses during the three months ended September 30, 1999, were $0
and they were $0 for the corresponding period for 1998. The reason for no
stockholder expenses is due to the fact that we did not do any stockholder
mailings in those quarters.
Tradeshow expenses during the three months ended September 30, 1999, were $3,152
representing a decrease of $38,491 for the corresponding period for 1998. The
decrease is due to no changes or modifications were required for our exhibit for
the 1998 Radiological Society of North America's Scientific Assembly and Annual
Meeting in Chicago, IL.
Travel and subsistence costs during the three months ended September 30, 1999,
were $38,694 representing an increase of $6,362 for the corresponding period for
1998. The increase was primarily due to travel and housing expenses for our
clinical application specialists at Nassau County Medical Center.
Rent expense during the three months ended September 30, 1999, was $3,682
representing a decrease of $5,095 for the corresponding period for 1998. This
decrease was primarily due to the payment in full on a lease purchase agreement
in a previous quarter.
Interest expense during the three months ended September 30, 1999, was $341,278
representing an increase of $340,535 for the corresponding period for 1998. The
increase is due primarily to recording the interest on the loans that we entered
into in previous quarters.
Amortization of deferred compensation during the three months ended September
30, 1999, was $0 representing a decrease of $377,609 for the corresponding
period in 1998. The decrease was a result of having no deferred compensation for
the quarter.
Liquidated damage costs during the three months ended September 30, 1999, were
$31,000 representing an increase of $31,000 for the corresponding period in
1998. The increase was a result of having to pay liquidated damages to the
Series H holders because our registration statement for their common shares was
not declared effective by the date required in our subscription and registration
rights agreement.
Interest income during the three months ended September 30, 1999, was $58
representing a decrease of $616 for the corresponding period for 1998. The
decrease was a result of the overall decrease in cash that we invested on a
daily basis.
Dividends earned on the cumulative preferred stock for the three months ended
September 30, 1999, increased $19,500 when compared with the corresponding
period for 1998, due to the fact that a new Series I convertible preferred was
finalized April 6, 1999, and accrued dividends payable from that date.
BALANCE SHEET DATA
Our combined cash and cash equivalents totaled $70,417 as of September 30, 1999.
This is an increase of $380 from $70,037 for the year ended June 30, 1999.
During the quarter ending September 30, 1999, the aggregate gross proceeds from
draws on the convertible debenture were $947,500. In connection with the draws
on the convertible debenture we paid $82,500 in placement fees. During the
quarter ending September 30, 1999, we received $50,000 in short-term financing
from unaffiliated parties.
We do 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 our initial product, the CTLM(TM) device.
Property and Equipment was valued at $2,670,705 net as of September 30, 1999.
The overall decrease of $37,289 is due primarily to depreciation recorded for
the first quarter.
LIQUIDITY AND CAPITAL RESOURCES
We are currently a development stage company and our continued existence is
dependent upon our ability to resolve our liquidity problems, principally by
obtaining additional debt and/or equity financing. We have yet to generate an
internal cash flow, and until the sale of our product begins, we are totally
dependent upon debt and equity funding. In the event that we are unable to
obtain debt or equity financing or we are unable to obtain such financing on
terms and conditions acceptable to us, we may have to cease or severely curtail
our operations. This would materially impact our ability to continue as a going
concern.
We have financed our 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 first
quarter ending September 30, 1999, was $618,758 primarily due to our continued
research and development of the CTLM(TM) device and preparations for FDA
clinicAL investigational 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 $854,266 in the same quarter endiNG September 30, 1998. At September 30,
1999, we had a working capital of $609,034 compared to a working capital of
$487,774 at September 30, 1998. On May 27, 1998, we entered into an irrevocable
commitment with a consortium of prominent banking institutions to invest up to
$15 million in IDSI over the next three years. A formal Equity Line of Credit
Agreement was to be drafted, reviewed, and executed at a later date. On May 28,
1998, we issued a press release announcing the $15 million commitment. In this
press release we also stated that this financing would eliminate our financial
concerns and allow us to focus strictly on bringing the world's first laser
based mammography system to market. The foregoing statements, which were made in
the May 28th announcement, are no longer accurate because we were unable to draw
on the equity credit line. Due to the unavailability of the principals of the
investors' groups, the workload of the investors' attorney and the time and
effort spent by us in filing the Information Statement and Registration
Statement, the formal Equity Line of Credit Agreement was delayed. During this
time the price of our stock declined from $.54 on May 27, 1998 to $.26 on August
27, 1998. As a result of the stock price decline, we could not utilize the
Equity Line because the stock price was below the minimum price at which the
banking institutions are required to purchase our equity securities. Moreover,
due to the stock price decline, we had to increase our number of authorized
shares in order to have shares available for the conversion of the Series B and
other preferred shares. The increase in shares required an information statement
filing with the SEC. Since we already had a commitment for the equity line of
credit and could not utilize the equity line due to the stock price decline and
the need for additional shares, we centered our time, efforts and resources on
the Information Statement and Registration Statement and the Equity Agreement
was not finalized until November 20, 1998. Although the equity line of credit is
in place, we are unable to utilize it at the present time due to;
(1) The price of our common stock is now trading below the $.50 required closing
price;
(2) IDSI and our investors will have to amend the agreement to provide
for a draw down and issuance of the common stock according to Regulation D and
then registration of the shares; or
(3) We will have to file a shelf registration, if it is available to
us at the time that we intend to use the equity line of credit.
See "Sale of Unregistered Securities-Financing/Equity Line of Credit".
During the first quarter ending September 30, 1999, we were able to raise a
total of $865,000 less expenses through Regulation D private placements. On
April 6, 1999, we finalized a Convertible Debenture in the initial amount of
$1,100,000. Subsequent debentures totaling 947,500 were finalized during the
quarter ending September 30, 1999. See Section 5, Private Placements,
Convertible Debentures. We may continue to receive working capital from the
exercise of stock options, private placements and long-term debt and operations.
If our working capital were insufficient to fund our operations, we would have
to explore additional sources of financing. No assurances can be given that
future financing would be available or if available, that it could be obtained
at terms satisfactory to us. We have already granted a mortgage on our corporate
property as security for the convertible debenture and therefore, in all
likelihood, would be unable to use such property to collateralize any additional
financing. Our ability to effectuate our plan of and continue operations is
dependent on our ability to raise capital, structure a profitable business, and
generate revenues.
Capital expenditures for the first quarter ending September 30, 1999, were
approximately $40,607 as compared to approximately $21,283 for the first quarter
ending September 30, 1998. These expenditures were a direct result of purchases
of computer and other equipment, office, warehouse and manufacturing fixtures,
computer software, laboratory equipment, and other fixed assets. We anticipate
that the balance of our capital needs for the fiscal year ending June 30, 2000,
will be approximately $75,000.
In September 1998, we sold one unit, consisting of a $250,000 promissory note
and 200,000 shares of common stock, to Settondown Capital International, Ltd.,
an unaffiliated third party, according to Regulation D, for an aggregate
purchase price of $250,000. These shares were included in the Registration
Statement which became effective July 30, 1999. At the time the sale occurred,
the average bid and ask price of our common stock was $.595. The Note bears
interest at the rate of 12% per annum. The Note is personally guaranteed by
Linda B. Grable, our President. The repayment of the Note, which was originally
due on October 2, 1998, was extended four times and now due November 30, 1999.
We are in the process of extending the due date into the year 2000 to avoid
default. We have not received a notice of default in connection with this Note.
In connection with the sale, we paid the sum of $23,000 to Manchester Asset
Management, Ltd., an unaffiliated third party, as a placement fee. Net proceeds
of $227,000 were used as follows: (i) salaries ($21,849-executive officers and
$62,447-employees) (ii) machinery and equipment $5,959; (iii) operating expenses
($55,240-inventory parts and assemblies, employee health insurance, workers
comp. and property insurance) and (iv) working capital $82,000. According to the
terms of the Note the principal and interest is payable in cash, however we are
negotiating to repay the note in common stock. We intend to repay the note
either from the debenture or other equity and/or debt financing or by the
issuance of additional securities. As of the date of this filing, this loan
remains unpaid.
In October 1998, we sold one unit, consisting of a $100,000 promissory note and
80,000 shares of common stock, to Avalon Capital, Inc., an unaffiliated third
party, according to Regulation D for an aggregate purchase price of $100,000.
These shares are included in the Registration Statement. No placement fee was
paid in connection with this offering, however we did issue 5,000 shares of
common stock to Goldstein, Goldstein and Reis LLC, an unaffiliated third party,
as payment for the attorneys fees incurred by the Purchaser according to the
offering. At the time the placement was concluded, the average bid and ask price
of our common stock was approximately $.50 per share. The Note bears interest at
the rate of 12% per annum. The note, which was originally due November 2, 1998,
was extended four times and is now due November 30, 1999. We are in the process
of extending the due date into the year 2000 to avoid default. We have not
received a notice of default in connection with the Note. The Note is personally
guaranteed by Linda B. Grable, our President. Net proceeds of $100,000 were used
as follows: (i) salaries ($21,849-executive officers and $62,448-employees) and
(ii) working capital $15,703. According to the terms of the Note the principal
and interest is payable in cash, however we may try to negotiate repayment in
common stock. We intend to repay the note either from the debenture or other
equity and/or debt financing or by the issuance of additional securities. As of
the date of this filing, this loan remains unpaid.
During the three months ending September 30, 1999, we entered into loans with
Balmore S.A. for the aggregate of sum of $50,000 and signed promissory notes
with an interest rate of 15% annum. The note was guaranteed by Richard J.
Grable, our Chief Executive Officer and by Linda B. Grable, our President. We
also entered into loans with Austost Anstalt Schaan for the aggregate of sum of
$50,000 and signed promissory notes with an interest rate of 15% annum. The note
was guaranteed by Richard J. Grable, our Chief Executive Officer and by Linda B.
Grable, our President. There were no other changes in our existing debt
agreements other than extensions and we had no outstanding bank loans as of
September 30, 1999. Our fixed commitments, including salaries and fees for
current employees and consultants, rent, payments under license agreements and
other contractual commitments are substantial and are likely to increase as
additional agreements are entered into and additional personnel are retained. We
will need substantial additional funds for our research and development
programs, pre-clinical and clinical testing, operating expenses, regulatory
processes, and manufacturing and marketing programs. Our future capital
requirements will depend on many factors, including the following:
1) The progress of our research and development projects;
2) The progress of pre-clinical and clinical testing;
3) The time and cost involved in obtaining regulatory approvals;
4) The cost of filing, prosecuting, defending and enforcing any patent claims
and other intellectual property rights;
5) Competing technological and market developments;
6) Changes and developments in our existing collaborative, licensing and
other relationships and the terms of any new collaborative, licensing and other
arrangements that we may establish; and
7) The development of commercialization activities and arrangements.
We do not expect to generate a positive internal cash flow for at least several
years due to expected increases in capital expenditures, working capital and
ongoing losses, including the expected cost of commercializing the CTLM(TM)
device. We do not have sufficient cash to fund our operations until the end of
the fiscal year ending June 30, 2000, requiring us to draw upon the second and
third tranche of the convertible debenture and, if necessary, to secure
additional funding through the private placement sale of debt or equity
securities.
ISSUANCE OF STOCK FOR SERVICES/DILUTIVE IMPACT TO SHAREHOLDERS
We have and may continue to issue stock for services performed and to be
performed by consultants. Since we have generated no revenues to date, our
ability to obtain and retain consultants may be dependent on our ability to
issue stock for services. Since July 1, 1996, to the filing date of this Report,
we have issued an aggregate of 1,806,500 shares of common stock according to
Registration Statements on Form S-8. The aggregate fair market value of the
shares was $2,327,151. The issuance of large amounts of common stock for
services rendered or to be rendered and the subsequent sale of such shares may
depress the price of the common stock. In addition, since each new issuance of
common stock dilutes existing shareholders, the issuance of substantial
additional shares may effectuate a change in our control.
We are currently seeking additional capital to fund our future operations
through private debt or equity financing, or collaborative licensing or other
arrangements with strategic partners. There can be no assurance that this
financing can be obtained or, if it is obtained, that the terms will be
acceptable. We plan to continue our policy of investing excess funds, if any, in
a daily cash management account at First Union National Bank.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On August 25, 1999, we were served with a civil suit by Andrew Abraham Skolnick,
which we believe to be without merit. Our attorneys have filed a motion for
dismissal.
We are not aware of any other material legal proceedings, pending or
contemplated, to which we are, or would be a party to or of which any of our
property is, or would be, the subject.
ITEM 2. CHANGES IN SECURITIES.
In March 1999, the Board of Directors amended our Articles of Incorporation in
order to designate a class of shares as Series G convertible preferred. The
Series G preferred is non-voting, can be converted into our common stock 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".
In April 1999, the Board of Directors amended our Articles of Incorporation in
order to designate a class of shares as Series I convertible preferred. The
Series I preferred is non-voting, can be converted into our common stock 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".
In April 1999, the Board of Directors and the Series B preferred shareholders
amended the Certificate of Designation of the Series B preferred to provide for
a conversion limitation of 4.99% or less. See Item 5 "Other Information -
Private Placements".
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
ITEM 5. OTHER INFORMATION
BACKGOUND
During the first year of operations, we researched the interaction between high
speed, rapid pulsed (Ti-Sapphire) laser technology and various detection
technologies associated with standard computed tomographic (CT) schemes. This
research was based upon a prototype that was developed by Richard Grable, our
Chief Executive Officer, prior to his association with us. During June of 1995,
Mr. Grable filed a patent for his prototype, which was able to create images of
a breast. We refined various software and hardware configurations and components
of the device based on these first images and filed a total of twelve ancillary
United States patents since 1996.
In November 1995, we began discussions with Strax Breast Diagnostic Institute to
conduct clinical trials at their facility. The original CTLM(TM) prototype used
an Argon pump laser, which required a 6-ton water chiller. The landlord of the
Strax office building was unwilling to allow us to install this chiller on the
roof because of its weight and its potential to leak water. In December 1995, we
learned of a new type of pump laser using diodes being developed by Spectra
Physics Lasers. This new laser was powered by a standard 110 volt outlet and
only required a small portable chiller to cool the crystal. Rather than
continuing to develop the CTLM(TM) with a laser that required massive cooling we
decided to wait for delivery of the first Solid State Diode Pump laser package
from Spectra-Physics. The lasers were delivered on January 24, 1996. Because it
was the first of its kind, many modifications had to be made by Spectra-Physics
field engineers to the lasers before it would operate to specification. We
immediately began re-engineering the CTLM(TM) to integrate this new laser into
our system.
After extensive testing of the laser system, we designed and built two
pre-production CTLM(TM) scanners, one of which would be installED at Strax. In
addition to the change in lasers, modifications were made in both the detection
scheme and software.
On December 12, 1995, we had a preliminary meeting with the Food and Drug
Administration to generally discuss the approach we would take to obtain
marketing clearance for our CTLM(TM). We were advised that we would need to
submit and have approved a pre-market approval application (PMA) in order to
obtain marketing clearance for the device. We were also advised that we would
need to submit an investigational device exemption (IDE) application to the FDA
in order to commence human clinical trials of the device. An IDE allows a
company to conduct human clinical trials without filing an application for
marketing clearance.
We submitted our IDE application on January 8, 1996, and it was approved
February 9, 1996. During calendar year 1996, among other matters, we further
refined the detection scheme and laser power configuration in order to obtain
substantially better image quality. In order to incorporate the changes, we were
required to submit to the FDA an amendment to our IDE application. According to
the IDE, as amended, we were authorized to scan 50 patients at the Strax Breast
Diagnostic Center in Lauderhill, Florida, and 20 additional patients at our
in-house facility. The CTLM(TM) was installed at Strax in November 1996, and
three patients were scanneD. After scanning the three patients at Strax, we
learned of a different type of laser, which could be used in conjunction with
the new Solid State Diode Pump laser package from Spectra-Physics. We believed
that this additional laser component would greatly increase the performance and
image quality of the CTLM(TM). We halted the clinical investigational trials at
Strax in December 1996 and plannED to resume the study after the second system
modification.
Strax, a not-for-profit corporation, requested a donation of $5,000 to be used
to purchase needed medical equipment for the institute, which we paid on
December 31, 1996. Because of the extensive re-engineering and design and the
delay in receiving the new laser components to be integrated into the system, we
were unable to complete and test the new system in a timely manner. In fact, the
first of these new components was not received until October 1997. Strax was
unwilling to wait until the engineering modifications were completed unless it
received compensation for the CTLM(TM) remaining on its premises. In light of
the fact that tHE owners of Strax were in the process of selling the center and
one of the proposed purchasers was a potential competitor, we declined to pay
any additional compensation. In November 1997, Strax requested that the CTLM(TM)
be removed from its premises. The CTLM(TM) Was removed from Strax in November
1997. On May 20, 1998, our termination of the IDE protocol and our final report
was accepted by the FDA.
In February 1996, we entered into a letter of intent with an independent
distributor to place a CTLM(TM) at the Moscow ResearCH Institute for
Diagnostics. The letter of intent is still in place however, due to the further
advances in laser technology the purchase of the new laser system, the
modification and redesign of the CTLM(TM) hardware and software, the actual
placement has beEN delayed.
In February 1997, we announced that the Institutional Review Board of Columbia
JFK Medical Center located in Atlantis, Florida, approved its request to
participate in the first phase of the clinical trials. Our liaison person and
proposed principal investigator was Dr. Donna M. Gallagher. After Dr. Gallagher
relocated, we did not pursue further involvement at the hospital.
In June 1998, our second IDE was granted. We were authorized to scan 20 patients
at our in-house facilities in Plantation, Florida and upon FDA approval, at
three additional clinical sites. On September 1 and September 10, 1998, we
formally submitted the first and second series of the 20 patient in-vivo (human)
images and corresponding interpretation data to the FDA.
The FDA responded to the submission on October 1998, asking that we limit future
submissions to significant findings, milestones, annual reports, or changes that
may affect the safety of the CTLM(TM). We scanned 20 women at our in-house
facility. These scans produced no significant findings, milestones or changes
that would effect the safety of the CTLM(TM) so there were no additional
submissions except for the request to expand the study to Nassau County Medical
Center.
We requested that we be permitted to expand the scope of the study to include a
medical facility where access to women with breast cancer was more practical.
Nassau County Medical Center was chosen because of the unusually high incidence
of breast cancer in the population they serve. It is reported that 1 woman in 7
will experience breast cancer if they live in this geographic area. Also Nassau
County represented that they performed a significant number of breast surgeries
each week, which we expected to provide a relatively constant supply of
histologically confirmed cases.
On January 14, 1999, we received notice that the IDE application to extend the
in-vivo study to Nassau County Medical Center was conditionally approved. We
immediately supplied the additional documentation required by the FDA, and the
conditions were complied with. The IDE application was limited to one
institution (Nassau County Medical Center) and 275 subjects. We had originally
intended to have the CTLM(TM) positioned at Nassau County Medical Center no
later than mid February 1999, however due to renovations AT Nassau County
Medical Center, the delivery of the CTLM(TM) was postponed until the renovations
were complete. On March 3, 1999, the CTLM(TM) system was shipped to Nassau
County Medical Center. After several administrative problems, on June 21, 1999,
we receivED written representation from Nassau County that we could begin the
clinical investigational trials according to the original IDE and the payment of
reasonable and customary charges for a three-month study. On July 8, 1999,
Nassau County began scanning patients for the clinical investigational trials.
On June 12, 1997, we were advised by patent counsel that Mr. Grable's patent,
filed June 5, 1995, "Diagnostic Tomographic Laser Imaging Apparatus" was granted
with 4 independent and 24 subordinate claims. The independent claims serve to
provide an overall outline of the disclosure of the invention. The subordinate
claims provide additional information to identify pertinent details of the
invention as they relate to the respective specific independent claim.
In May 1998, realizing that we had no formal written agreement in place with Mr.
Grable, we immediately began negotiating with Mr. Grable for the exclusive use
of the patent. In June 1998, a written agreement was entered into. See
"Cautionary Statements-Dependence on Patent Licensed by Founder; Dependence on
Patents and other Proprietary Information", "Business-Patent" and
"Business-Patent License Agreement".
In January 1997, we applied for a patent for a fluorescence imaging scanner. We
have received Issue Notification indicating that the Patent was issued on
September 14, 1999, as Patent No. 5,952,664.
CLINICAL UPDATE
On November 16, 1999, we announced our agreement with the University of Virginia
Medical Center as the second approved testing site. The FDA approved protocol
under the IDE provides for 275 subjects, similar to the IDE protocol approved
for Nassau County Medical Center. The clinical investigational trials began on
Monday, November 15, 1999.
PRIVATE PLACEMENTS
We have had to rely on the private placement of preferred and common stock to
obtain working capital. In deciding to issue preferred shares according to the
private placements, we took into account the number of common shares authorized
and outstanding, the market price of the common stock at the time of each
preferred sale and the number of common shares the preferred shares would have
been convertible into at the time of the sale. At the time of each private
placement of preferred stock there were enough shares, based on the price of our
common stock at the time of the sale of the preferred to satisfy the preferred
conversion requirements. Although our Board of Directors tried to negotiate a
floor on the conversion price of each series of preferred stock prior to sale,
it was unable to do so. In order to obtain working capital we will continue to
seek capital through debt or equity financing which may include the issuance of
convertible preferred stock whose rights and preferences are superior than those
of the common stock holders. We will try to negotiate the best transaction
possible taking into account the impact on our shareholders, dilution, loss of
voting power and the possibility of a change of control. However, in order to
satisfy our working capital needs, we may be forced to issue convertible
securities with no limitations on conversion. In addition, the dividends on the
preferred stock affect the net losses applicable to shareholders. There are also
adjustments as a result of the calculation of the deemed preferred stock
dividends applicable because we have entered into contracts providing for
discounts on the preferred stock when it is converted. As a result of the
dividends on cumulative preferred stock, the net loss per common shareholder
from the dividend portion has remained the same at $.002 per share for the
quarter ending September 30, 1999, as compared to the corresponding period for
1998. The cumulative total of the dividend portion is $.22 per share.
In the event that we issue preferred stock without a limit on the number of
shares that can be issued upon conversion and the price of our common stock
decreases, the percentage of shares outstanding that will be held by preferred
holders upon conversion will increase accordingly. The lower the market price
the greater the number of shares to be issued to the preferred holders, upon
conversion, thus increasing the potential profits to the holder when the price
per share increases and the holder sells the common shares. The preferred
stockholders potential for increased share issuance and profit, including
profits derived from shorting our common stock, in addition to a stock overhang
of an undeterminable amount, may depress the price of our common stock. In
addition, the sale of a substantial amount of preferred stock to relatively few
holders could cause a possible change of control. In the event of a voluntary or
involuntary liquidation while the preferred stock is outstanding, the holders
will be entitled to a preference in distribution of our property available for
distribution equal to $10,000 per share. The following table summarizes
information with regard to the outstanding Series B, G, H, and I convertible
preferred shares as of November 17, 1999.
<TABLE>
<CAPTION>
SERIES/# OF COMMON CONVERSION # OF COMMON SHARES APPROX. PRICE OR # OF COMMON SHARES
PREFERRED SHARES STOCK PRICE AT CONVERTIBLE INTO AT PRICE RANGE OF ISSUED UPON
UNCONVERTED PRICE AT TIME OF TIME OF ISSUANCE (1) COMMON STOCK CONVERSIONS
TIME OF ISSUANCE AT TIME OF
ISSUANCE CONVERSIONS
<S> <C> <C> <C> <C> <C>
B/325.5 $4.70 $3.85 1,168,831 $.379 to $.0861 8,269,001
G/14 $.34 $.255 1,490,196 $.1519 to $.10875 1,862,953 (2)
H/44 $.56 $.42 2,571,429 $5025 to $.0885 3,825,392
I/138 $.38 $.285 4,842,105 N/A N/A
</TABLE>
(1) Approximate number estimated for the purpose of this table only.
(2) Of the 1,862,953, 513,879 we issued with a restrictive legend since their
were an insufficient number of shares available under the registration
statement.
SERIES B PREFERRED STOCK
In December 1996, we sold an aggregate of 450 shares of our Series B convertible
preferred stock, for an aggregate of $4,500,000, to Weyburn Overseas Limited
(Weyburn) and Goodland International Investment Ltd. (Goodland) according to
Regulation D. At the time the placement was concluded, the average bid and ask
price of our common stock was approximately $4.70 per share. Net proceeds to us
of $4,500,000 were used for working capital and the continuous research,
development and testing of our CTLM(TM). No fees were paid IN connection with
this offering.
We filed a Registration Statement on Form S-1 registering the shares underlying
the Series B preferred. The shares were never converted and the registration
statement is no longer current. On September 4, 1998, we received a notice of
conversion from Weyburn and Goodland requesting the issuance of 4,559,846 and
10,639,642 shares of common stock, respectively. The conversion rate was 82% of
the average market price over a five-day period prior to conversion or
approximately $.35014 per share. At the time the B preferred shares were issued,
the conversion rate would have been $3.85 per share and the preferred shares
would have been convertible into 1,168,831 shares. The increase in the number of
shares to be issued upon conversion was due to the decline in the market price
of our common stock. We have the option to pay the accrued dividends in common
stock.
On October 7, 1998, a lawsuit was filed against us in the United States District
Court, Southern District of New York, by the Series B holders (Case No. 98 Civ.
086). On April 6, 1999, the Series B preferred stock was sold by the Series B
holders to Charlton Avenue, LLC (Charlton), an unaffiliated third party with no
prior relationship to us or the Series B holders. On April 6, 1999, we also
entered into a Subscription Agreement with Charlton whereby we agreed to issue
to Charlton 138 shares of our Series I, 7% convertible preferred stock. Our
Board of Directors established the value of the Series I preferred at $10,000
per share.
Consideration for the subscription was paid as follows:
(1) Forgiveness of all of the accrued interest due and payable (approximately
$725,795) in connection with the Series B convertible preferred stock.
(2) Settlement and dismissal, with prejudice, of all litigation concerning
the Series B convertible preferred stock and the exchange of mutual
releases.
(3) Cancellation OF 112,500 warrants that were issued with the Series B
convertible preferred stock; and
(4) The amendment of the Series B preferred designation to impose a
limitation on the owner(s) of the Series B convertible preferred stock
to ownership of not more than 4.99% of our outstanding common stock at
any one time.
The Series B preferred is convertible at 82% of the average bid price for the
five trading days immediately preceding conversion and pays a premium of 7% per
annum.
As of the date of this Report, the following number of Series B preferred stock
has been converted into common shares:
SERIES B
PFD SHARES COMMON SHARES
CONVERTED CONVERTED INTO CONVERSION PRICE
60 1,931,123 $.379
10 620,155 $.16125
3 547,409 $.127875
17 1,552,964 $.1131
18 2,107,358 $.088724
12.5 1,509,992 $.0861
As of November 17, 1999, we have a balance of 325.5 Series B preferred shares
not yet converted.
SERIES C PREFERRED STOCK
On October 6, 1997, we finalized the private placement to Austost Anstalt
Schaan, UFH Endowment, Inc., Chris Baum, Avalon Capital Limited, Dominion
Capital, Ltd. and The Cuttyhunk Fund Limited an aggregate of 210 shares of our
Series C convertible preferred stock at a purchase price of $10,000 per share
and warrants to purchase up to 105,000 shares of our common stock at an exercise
price of $1.63 per share and to purchase up to 50,000 warrants at an exercise
price of $1.56. The offering was conducted according to Regulation S under the
Securities Act of 1933, as amended. At the time the placement was concluded, the
average bid and ask price of our common stock was approximately $1.63 per share.
The preferred shares were convertible, at any time, commencing 45 days from the
date of issuance and for a period of three years thereafter, without additional
consideration. According to the Subscription Agreement, the Series C holder, or
any subsequent holder of the preferred shares, was prohibited from converting
any portion of the preferred stock which would result in the holder being deemed
the beneficial owner, in accordance with the provisions of Rule 13d-3 of the
Securities Act of 1934, as amended, of 4.99% or more of the then issued and
outstanding common stock. Due to this contractual ownership limitation, the
Series C preferred shares were converted, in increments that, together with all
shares of our common stock held by the holder, would not exceed 4.99% of our
outstanding common stock. The number of fully paid and non-assessable shares of
our common stock, no par value, issued upon conversion was determined by
dividing (i) the sum of $10,000 by (ii) the conversion price in effect at the
time of conversion. The conversion price was equal to seventy five percent (75%)
of the average closing price of our common stock for the five-day trading period
ending on the day prior to the date of conversion provided, however, in no event
was the conversion price to be greater than $1.222 per share.
According to the Regulation S Sale documents, we were also required to escrow an
aggregate of 3,435,583 shares of our 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 were entitled to demand registration rights in the event
that Regulation S was amended prior the conversion of the preferred stock. This
right expired upon conversion.
In connection with this sale, we paid Settondown Capital International, Ltd., an
unaffiliated investment banker an aggregate of $220,500 for placement and legal
fees. Net proceeds to us of $1,879,500 were used for working capital and the
continuous research, development and testing of the CTLM(TM).
The Series C preferred stock was subsequently converted, in increments of less
than 4.99% of our outstanding shares, into an aggregate of 2,646,527 common
shares.
SERIES D PREFERRED STOCK
On January 9, 1998, we finalized the private placement to Avalon Capital Ltd. of
50 shares of our Series D convertible preferred stock, at a purchase price of
$10,000 per share and warrants to purchase up to 25,000 shares of our common
stock at an exercise price of $1.22 per share. The offering was conducted
according to Regulation S under the Securities Act of 1933, as amended. At the
time the placement was concluded, the average bid and ask price of our common
stock was approximately $1.22 per share.
The preferred shares were convertible, at any time, commencing 45 days from the
date of issuance and for a period of three years thereafter, without additional
consideration. According to the Subscription Agreement, the Series D holder, or
any subsequent holder of the preferred shares, was prohibited from converting
any portion of the preferred stock which would result in the holder being deemed
the beneficial owner, in accordance with the provisions of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended, of 4.99% or more of the then issued
and outstanding common stock. Due to this contractual ownership limitation, the
Series D preferred shares were converted in increments that, together with all
shares of our common stock held by the holder, would not exceed 4.99% of our
outstanding common stock. The number of fully paid and non-assessable shares of
our common stock, no par value, issued upon conversion was determined by
dividing (i) the sum of $10,000 by (ii) the conversion price in effect at the
time of conversion. The conversion price was equal to seventy five percent (75%)
of the average closing price of our common stock for the five-day trading period
ending on the day prior to the date of conversion. The shares underlying the
preferred shares and warrants were entitled to demand registration rights in the
event that Regulation S was amended prior the conversion of the preferred stock.
This right expired upon conversion.
In connection with the Regulation S Sale, we issued 4 preferred shares to
Settondown Capital International, Ltd., an unaffiliated Investment Banker for
placement fees and paid legal fees of $5,000. Net proceeds to us of $495,000
were used for working capital and the continuous research, development and
testing of the CTLM(TM). The Series D preferred stock was subsequently
converted, in incremenTS of less than 4.99% of our outstanding shares, into an
aggregate of 1,717,134 common shares.
SERIES E PREFERRED STOCK
On February 5, 1998, we finalized the private placement to Austost Anstalt
Schaan and Balmore Funds S.A. of 50 shares of our Series E convertible preferred
stock, at a purchase price of $10,000 per share and warrants to purchase up to
25,000 shares of our common stock at an exercise price of $1.093 per share. The
offering was conducted according to Regulation S under the Securities Act of
1933, as amended. At the time the placement was concluded, the average bid and
ask price of our common stock was approximately $1.093 per share.
The preferred shares were convertible, at any time, commencing 45 days from the
date of issuance and for a period of three years thereafter without additional
consideration. According to the Subscription Agreement, the Series E holder, or
any subsequent holder of the preferred shares, was prohibited from converting
any portion of the preferred stock which would result in the holder being deemed
the beneficial owner, in accordance with the provisions of Rule 13d-3 of the
Securities Act of 1934, as amended, of 4.99% or more of the then issued and
outstanding common stock. Due to this contractual ownership limitation, the
Series E preferred shares were converted, in increments that, together with all
shares of our common stock held by the holder, would not exceed 4.99%. The
number of fully paid and non-assessable shares of our common stock, no par
value, issued upon conversion was determined by dividing (i) the sum of $10,000
by (ii) the conversion price in effect at the time of conversion. The conversion
price is equal to seventy five percent (75%) of the average closing price of the
our common stock for the five-day trading period ending on the day prior to the
date of conversion.
The shares underlying the preferred shares and warrants were entitled to demand
registration rights in the event that Regulation S was amended prior the
conversion of the preferred stock. This right expired upon conversion. In
connection with the Regulation S Sale, we issued 4 preferred shares to
Settondown Capital International, Ltd., an unaffiliated Investment Banker for
placement fees and paid legal fees of $5,000. Net proceeds to us of $495,000
were used for working capital and the continuous research, development and
testing of the CTLM(TM).
The Series E preferred stock was subsequently converted, in increments of less
than 4.99% of our outstanding shares, into an aggregate of 1,282,826 common
shares.
SERIES F PREFERRED STOCK
On February 20, 1998, we finalized a private placement to Dominion Capital Fund,
LTD and Canadian Advantage, LTD of 75 shares of our Series F convertible
preferred stock at a purchase price of $10,000 per share. The offering was
conducted according to Regulation S under the Securities Act of 1933, as
amended. At the time the placement was concluded, the average bid and ask price
of our common stock was approximately $1.31 per share.
The F preferred shares pay a dividend of 6% per annum, payable in common stock
at the time of each conversion and were convertible, at any time, commencing May
15, 1998, and for a period of two years thereafter without additional
consideration. According to the Subscription Agreement, the Series F holder, or
any subsequent holder of the F preferred shares, was prohibited from converting
any portion of the preferred stock which would result in the holder being deemed
the beneficial owner, in accordance with the provisions of Rule 13d-3 of the
Securities Act of 1934, as amended, of 4.99% or more of the then issued and
outstanding common stock. Due to this contractual ownership limitation, the
Series F preferred shares were converted, in increments that, together with all
shares of our common stock held by the holder, would not exceed 4.99% of our
outstanding common stock. The number of fully paid and non-assessable shares of
our common stock, issued upon conversion was determined by dividing (i) the sum
of $10,000 plus any earned dividends by (ii) the conversion price in effect at
the time of conversion. The conversion price is equal to seventy percent (70%)
of the average closing price of our common stock for the five-day trading period
ending on the day prior to the date of conversion. The shares underlying the
preferred shares are entitled to demand registration rights in the event that
Regulation S was amended prior the conversion of the preferred stock. According
to these demand rights the 1,971,375 shares of common stock issued upon the
conversion of the Series F preferred are being registered on behalf of the
holders according to a Registration Statement on Form S-2.
In connection with the Regulation S Sale, we paid, Rolcan Finance, Ltd. an
aggregate of $50,000 for placement and legal fees. Net proceeds to us of
$700,000 were used for working capital and the continuous research, development
and testing of the CTLM(TM).
SERIES G PREFERRED STOCK
On March 17, 1999, we finalized a private placement to Amro International, S.A.,
Nesher Inc., Hewlett Fund, and Guaranty & Finance Ltd. of 35 shares of our
Series G convertible preferred stock at a purchase price of $10,000 per share
and two year warrants to purchase 65,625 shares of our common stock at an
exercise price of $.50 per share. The offering was conducted according to
Regulation D under the Securities Act of 1933, as amended. At the time the
placement was concluded, the average bid and ask price of our common stock was
approximately $.34 per share. In connection with the Regulation D Sale, we paid
Settondown Capital International, Ltd., and Libra Finance S.A., unaffiliated
Investment Bankers an aggregate of 3 shares of the Series G preferred stock for
placement and legal fees. Net proceeds of $350,000 will be used for working
capital and the continuous research, development and testing of the CTLM(TM).
The Series G preferred has no dividend provisions. The number of fully paid and
non-assessable shares of common stock to be issued upon conversion will be
determined by dividing (i) the sum of $10,000 (ii) the conversion price in
effect at the time of conversion. The conversion price is equal to lesser of (i)
seventy-five percent (75%) discount to the two lowest bids in a ten day period
immediately preceding the conversion date; or (ii) $.54. There is no floor on
the conversion price and no time limits on conversion. The shares can be
converted at any time without additional consideration. According to the
Subscription Agreement, and Series G Designation, the Series G holder, or any
subsequent holder of the preferred shares, is prohibited from converting any
portion of the preferred stock which would result in the holder being deemed the
beneficial owner, in accordance with the provisions of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended, of 4.99% or more of the then issued
and outstanding common stock. Due to this ownership limitation, the Series G
preferred shares can only be converted in increments that, together with all
shares of our common stock held by the holder, would not exceed 4.99%. According
to the terms of the Registration Rights Agreement we were required to register
100% of the number of shares that would be required to be issued if the
preferred stock were converted on the day before the filing of the Registration
Statement. In the event that the Registration Statement was not filed within 14
days from the closing or that it is not declared effective within 60 days, we
will be required to pay the Series G holders, as liquidated damages, for failure
to have the Registration Statement declared effective; and not as a penalty of
three (3%) percent of the principal amount of the Securities for each thirty
(30) day period thereafter until we procure registration of the Securities. In
the event that the Registration Statement is not declared effective within 120
days, the Series G holders have the right to force us to redeem the Series G
preferred at a redemption price of 120% of the face value of the preferred.
According to the Registration Rights Agreement, 100% of that number of shares
that would be required to be issued if the G preferred stock were converted on
the day before the filing of the Registration Statement (1,634,409) are being
registered on behalf of the holders.
In the event that the price of our common stock decreases, the percentage of
shares that will be held by the Series G holders upon conversion will increase
since the conversion price of the Series G preferred is based on 75% of the
average price, without a limit on the number of shares that can be issued upon
conversion. This would increase the potential profits to the holder when the
price per share increases and the holder sells the common shares. The preferred
stocks potential for increased share issuance and profit, in addition to a stock
overhang of an undeterminable amount, may depress the price of our common stock.
In the event of a voluntary or involuntary liquidation while the Series G
preferred is outstanding, the holders are entitled to a preference in
distribution of our property available for distribution equal to $10,000 per
share.
As of the date of this Report, 24 shares of Series G preferred stock have been
converted into 1,862,953 shares of common stock at a conversion price range of
$.10875 to $.1519 per share.
SERIES H PREFERRED STOCK
On June 2, 1998, we finalized a private placement to Austost Anstalt Schaan and
Balmore Funds S.A. of 100 shares of our Series H convertible preferred stock at
a purchase price of $10,000 per share and 75,000 A warrants and 50,000 B
warrants. The A and B warrants are exercisable at $1.00 and $1.50 per share,
respectively. The offering was conducted according to Regulation D under the
Securities Act of 1933, as amended. At the time the placement was concluded, the
average bid and ask price of our common stock was approximately $.56 per share.
In connection with the Regulation D Sale, we paid Settondown Capital
International, Ltd., an unaffiliated Investment Banker an aggregate of $10,000
and 8 shares of the Series H preferred stock for placement and legal fees. Net
proceeds of $990,000 were used for working capital and the continuous research,
development and testing of the CTLM(TM).
The number of fully paid and non-assessable shares of common stock to be issued
upon conversion will be determined by dividing (i) the sum of $10,000 (ii) the
conversion price in effect at the time of conversion. The conversion price is
equal to the lesser of $.53 or seventy-five percent (75%) of the average price
(the lowest closing bid price of our common stock for the ten-day trading period
ending on the day prior to the date of conversion). There is no floor on the
conversion price and no time limits on conversion. The shares can be converted
at any time without additional consideration. According to the Subscription
Agreement, the Series H holder, or any subsequent holder of the preferred
shares, is prohibited from converting any portion of the preferred stock which
would result in the holder being deemed the beneficial owner, in accordance with
the provisions of Rule 13d-3 of the Securities Act of 1934, as amended, of 4.99%
or more of the then issued and outstanding common stock. Due to this contractual
ownership limitation, the Series H preferred shares can only be converted in
increments that, together with all shares of our common stock held by the
holder, would not exceed 4.99%. According to the terms of the Registration
Rights Agreement, as amended, we have registered herein 100% of that number of
shares that would be required to be issued if the preferred stock were converted
on the day before the filing of the Registration Statement (2,924,731 shares).
We are in technical default of the Registration Rights Agreement, which required
the Registration Statement to be declared effective by October 2, 1998.
According to the Registration Rights Agreement, we are required to pay the
Series H holders in cash or in stock, as liquidated damages for failure to have
the Registration Statement declared effective, and not as a penalty, two (2%)
percent of the principal amount of the Securities for the first thirty (30)
days, and three (3%) percent of the principal amount of the Securities for each
thirty (30) day period thereafter until we procure registration of the
Securities. According to the Registration Rights Agreement, liquidated damages
of $169,000 have accrued as of March 31, 1999. We are presently unable to comply
with the liquidated damage provision payment and no assurances can be given that
it will be able to do so in the future. On March 25, 1999, we issued 424,242
shares of restricted common stock with registration rights to the Series H
shareholders in lieu of cash for liquidated damages through March 2, 1999. The
value of these shares was $140,000, leaving a balance of $29,000 due for
liquidated damages through March 31, 1999. We have the option of paying the
accrued dividends and liquidated damages in common stock.
In the event that the price of our common stock decreases, the percentage of
shares that will be held by the Series H holders upon conversion will increase
since the conversion price of the Series H preferred is based on 75% of the
average price, without a limit on the number of shares that can be issued upon
conversion. This would increase the potential profits to the holder when the
price per share increases and the holder sells the common shares. The preferred
stocks potential for increased share issuance and profit in addition to a stock
overhang of an undeterminable amount may depress the price of our common stock.
In the event of a voluntarily or involuntarily liquidation while the Series H
preferred is outstanding, the holders are entitled to a preference in
distribution of our property available for distribution equal to $10,000 per
share.
As of the date of this Report, the following number of Series H preferred stock
has been converted into common shares:
SERIES H
PFD SHARES COMMON SHARES
CONVERTED CONVERTED INTO CONVERSION PRICE
5 99,502 $.5025
35 1,666,666 $.21
5 333,333 $.15
5 333,333 $.15
5 459,770 $.10875
4 367,816 $.10875
5 564,972 $.0885
As of November 17, 1999, we have a balance of 44 Series H preferred shares not
yet converted.
SERIES I PREFERRED
On April 6, 1999, we also entered into a Subscription Agreement with Charlton
where we agreed to issue Charlton 138 shares of our Series I, 7% convertible
preferred stock. Our Board of Directors established the value of the Series I
preferred at $10,000 per share. Consideration for the subscription was paid as
follows:
(1) Forgiveness of all of the interest due and payable (approximately
$725,795) in connection with the Series B convertible preferred stock.
(2) Settlement and dismissal, with prejudice, of all litigation concerning
the Series B convertible preferred stock and the exchange of mutual
releases.
(3) Cancellation of 112,500 warrants that were issued with the Series B
convertible preferred stock; and
(4) The amendment of the Series B preferred designation to impose a
limitation on the owner(s) of the Series B convertible preferred stock
to ownership of not more than 4.99% of our outstanding common stock at
any one time.
The Series I preferred pay a 7% premium, to be paid in cash or freely trading
common stock in our sole discretion, at the time of each conversion. The number
of fully paid and non-assessable shares of common stock to be issued upon
conversion will be determined by dividing (i) the sum of $10,000 (ii) the
conversion price in effect at the time of conversion. The conversion price is
equal to seventy five percent (75%) of the average closing price of our common
stock for the five-day trading period ending on the day prior to the date of the
conversion. The shares can be converted at any time without additional
consideration. According to the Series I Designation and the Subscription
Agreement, the Series I holder, or any subsequent holder of the preferred
shares, is prohibited from converting any portion of the preferred stock which
would result in the holder being deemed the beneficial owner, in accordance with
the provisions of Rule 13d-3 of the Securities Act of 1934, as amended, of 4.99%
or more of the then issued and outstanding common stock. Due to this contractual
ownership limitation, the Series I preferred shares can only be converted in
increments that, together with all shares of our common stock held by the
holder, would not exceed 4.99%.
According to the Registration Rights Agreement, 100% of that number of shares
that would be required to be issued if the I preferred stock were converted on
the day before the filing of the Registration Statement (5,935,484) are being
registered on behalf of the holders.
In the event that the price of our common stock decreases, the percentage of
shares that will be held by the Series I holders upon conversion will increase
since the conversion price of the Series I preferred is based on 75% of the
average price, without a limit on the number of shares that can be issued upon
conversion. This would increase the potential profits to the holder when the
price per share increases and the holder sells the common shares. The preferred
stocks potential for increased share issuance and profit in addition to a stock
overhang of an undeterminable amount may depress the price of our common stock.
In the event of a voluntarily or involuntarily liquidation while the Series I
preferred is outstanding, the holders are entitled to a preference in
distribution of our property available for distribution equal to $10,000 per
share.
The offering was conducted according to Regulation D under the Securities Act of
1933, as amended. At the time the placement was concluded, the average bid and
ask price of our common stock was approximately $.39 per share.
As of the date of this Report, no shares of the Series I preferred stock have
been converted.
CONVERTIBLE DEBENTURE-CHARLTON
We also entered into a Subscription Agreement with Charlton, where Charlton
purchased a convertible debenture for $1,100,000. In addition, we may draw down
a second tranche in the amount of $825,000 anytime thirty (30) days after the
effective date of the Registration Statement as long as we maintain an average
closing bid price of $.45 for the ten (10) trading days immediately prior to the
date we request the second funding tranche. We may draw down a third tranche in
the amount of $825,000 anytime sixty (60) days after the effective date of the
Registration Statement as long as we maintain an average closing bid price of
$.45 for the ten (10) trading days immediately prior to the date we request the
third funding tranche. When concluded, assuming all the conditions set forth
above are met, the proceeds from the debenture offering will be $2,750,000.
The debentures pay a 7% premium, to be paid at our sole discretion, in cash or
freely trading common stock at the time of each conversion and is secured by
mortgage on our corporate office building. The debentures are subject to
automatic conversion at the end of two years from the date of issuance. The
Mortgage will be released after the Registration Statement covering the common
stock underlying the debentures has been declared effective and upon the earlier
of (a) the day we qualify for listing on AMEX or NASDAQ, as long as said listing
requirements are not being met through a reverse split of our common stock or
(b) 180 days from the date we receive the third tranche, as described above.
According to the Registration Rights Agreement, 100% of that number of shares
that would be required to be issued if the debenture were converted on the day
before the filing of the Registration Statement (4,731,183 shares) are being
registered on behalf of the holders.
The number of fully paid and non-assessable shares of common stock, no par
value, to be issued upon conversion will be determined by dividing (i) the sum
of $10,000 (ii) the conversion price in effect at the time of conversion. The
conversion price is equal to seventy five percent (75%) of the average closing
price of our common stock for the five-day trading period ending on the day
prior to the date of the conversion. The debenture can be converted at any time
without additional consideration. According to the Subscription Agreement, the
debenture holder, or any subsequent holder of the debenture, is prohibited from
converting any portion of the debenture which would result in the holder being
deemed the beneficial owner, in accordance with the provisions of Rule 13d-3 of
the Securities Act of 1934, as amended, of 4.99% or more of the then issued and
outstanding of our common stock. Due to this contractual ownership limitation,
the debentures can only be converted in increments that, together with all
shares of our common stock held by the holder, would not exceed 4.99%. Since the
conversion price of the Series I preferred is based on 75% of the average price,
without a limit on the number of shares that can be issued upon conversion, in
the event that the price of our common stock decreases, the percentage of shares
outstanding that will be held by the debenture holders upon conversion will
increase accordingly. The lower the average price, the greater the number of
shares to be issued to the holders upon conversion, thus increasing the
potential profits to the holder when the price per share increases and the
holder sells the common shares. The preferred stocks potential for increased
share issuance and profit in addition to a stock overhang of an undeterminable
amount may depress the price of our common stock.
In the event of a voluntary or involuntary liquidation while the debenture is
outstanding the holders are entitled to a preference in distribution of our
property available for distribution equal to the debentures then outstanding
principal and interest and will be able to foreclose against the Mortgage.
The offering was conducted according to Regulation D under the Securities Act of
1933, as amended. At the time the placement was concluded, the average bid and
ask price of our common stock was approximately $.39 per share.
The proceeds from the sale of the Charlton convertible debenture ($1,100,000)
and subsequent tranches of $1,226,500 totaling $2,326,500 will be used for
clinical investigational trial expenses and working capital. As of the date of
this Report, no portion of the convertible debenture has been converted.
CONVERTIBLE DEBENTURE-SPINNERET
We entered into a subscription agreement with Spinneret, LTD., where Spinneret
purchased the convertible debenture for $51,000. The sum of $1,000 was paid in
upon issuance of the debenture for legal fees. The sum of $50,000 was advanced
as a loan on July 12, 1999, and the debenture was issued in the principal amount
of $51,000 on August 11, 1999. The debenture due date is August 11, 2001.
The debentures pay a 7% premium, to be paid at our sole discretion, in cash or
freely trading common stock at the time of each conversion or at the date of
maturity. The debentures are subject to automatic conversion on August 11, 2001.
The number of fully paid and non-assessable shares of common stock, no par
value, to be issued upon conversion will be determined by dividing (i) the sum
of $10,000 (ii) the conversion price in effect at the time of conversion. The
conversion price is equal to seventy five percent (75%) of the average closing
price of our common stock for the five-day trading period ending on the day
prior to the date of the conversion. The debenture can be converted at any time
without additional consideration. According to the Subscription Agreement, the
debenture holder, or any subsequent holder of the debenture, is prohibited from
converting any portion of the debenture which would result in the holder being
deemed the beneficial owner, in accordance with the provisions of Rule 13d-3 of
the Securities Act of 1934, as amended, of 4.99% or more of the then issued and
outstanding of our common stock. Due to this contractual ownership limitation,
the debentures can only be converted in increments that, together with all
shares of our common stock held by the holder, would not exceed 4.99%. Since the
conversion price of the Series I preferred is based on 75% of the average price,
without a limit on the number of shares that can be issued upon conversion, in
the event that the price of our common stock decreases, the percentage of shares
outstanding that will be held by the debenture holders upon conversion will
increase accordingly. The lower the average price, the greater the number of
shares to be issued to the holders upon conversion, thus increasing the
potential profits to the holder when the price per share increases and the
holder sells the common shares. The preferred stocks potential for increased
share issuance and profit in addition to a stock overhang of an undeterminable
amount may depress the price of our common stock.
The offering was conducted according to Regulation D under the Securities Act of
1933, as amended. At the time the placement was concluded, the average bid and
ask price of our common stock was approximately $.0875 per share.
The proceeds from the sale of the debenture will be used for working capital. As
of the date of this report no portion of the convertible debenture has been
converted.
The issuance of large amounts of common stock upon conversion of the preferred
and the subsequent sale of such shares may further depress the price of the
common stock. In addition, since each new issuance of common stock dilutes
existing shareholders, the issuance of substantial additional shares may
effectuate a change of control. As of the date of this Report, there are
60,864,730 shares outstanding. Based on the average bid and ask closing price of
our common stock as of November 17, 1999 ($0.21) approximately 41,872,492
shares would be required to convert the Series B shares, approximately 2,333,333
shares would be required to convert the Series G shares, approximately 7,333,333
shares would be required to convert the Series H shares, approximately
15,156,507 would be required to convert the Series I shares, approximately
20,698,147 shares would be required to convert the debentures and, although we
are contractually prohibited from doing so approximately 89,285,714 shares
would be required to draw down the entire Equity Line of Credit. In addition,
approximately 4,890,921 shares would be required for the exercise of options and
Warrants. Based upon the foregoing, as of November 17, 1999, we would need in
excess of 181 million authorized shares to effectuate all conversion, utilize
the total Equity Line of Credit and fulfill our remaining stock related
obligations including the current issued and outstanding shares.
CERTAIN TRANSACTIONS
Richard J. Grable and Linda B. Grable are husband and wife. They are each
"Control Persons" as a result of their control of a majority voting power of our
outstanding stock. Both parties disclaim, however, any beneficial interest or
ownership in the shares owned by the other party.
In September and October 1998, Linda Grable, our President, personally
guaranteed three promissory notes we issued to third parties. Ms. Grable
received no compensation for these guarantees. As of the date of this Report,
one of the three Notes has been repaid.
In June 1998, we finalized an exclusive Patent License Agreement with Richard
Grable, our Chief Executive Officer. Mr. Grable is the owner of the Patent,
which encompasses the technology for the CTLM(TM). IDSI and Mr. Grable had
previously entered into an oral agreement for the exclusive license for the
patent that was never memorialized in written form. The term of the license is
for the life of the Patent (17 years) and any renewals, subject to termination,
under certain conditions. As consideration for the License, we issued to Mr.
Grable 3,500,000 shares of common stock in June 1998 and we issued an additional
3,500,000 shares in June 1999. In addition, we have agreed to pay Mr. Grable a
royalty based upon the net selling price (the dollar amount earned from our
sale, both international and domestic, before taxes minus the cost of the goods
sold and commissions or discounts paid) of all products and goods in which the
Patent is used, before taxes and after deducting the direct cost of the product
and commissions or discounts paid. During the second year of the Agreement there
is a minimum cash royalty provision of $250,000 payable at the end of the second
year which Mr. Grable has deferred until we commence sales and delivery of
CTLM(TM) Systems. See Item 1. "Business-Patent LicensiNG Agreement".
Since October 1998, we have accrued $109,243 in salaries payable to our
executive officers and directors, Richard J. Grable, Allan Schwartz and Linda B.
Grable, due to our lack of working capital. These salaries remain unpaid to date
and will be paid as soon as we determine that the funds are available.
In January 1999 and February 1999, Richard Grable, our Chief Executive Officer,
director and founder sold an aggregate of 831,743 shares of our common stock
owned by him in excess of four years, according to Rule 144 and lent the
aggregate proceeds of approximately $347,775 directly to IDSI.
In January 1999, February 1999 and March 1999, Linda Grable, our President,
director and founder sold an aggregate of 520,000 shares of our common stock
owned by her in excess of four years, according to Rule 144 and lent the
aggregate proceeds of approximately $166,618 directly to IDSI.
In December 1998, January 1999 and February 1999, Allan Schwartz, our Executive
Vice President, director and founder sold an aggregate of 820,000 shares owned
by him in excess of four years, according to Rule 144 and lent the aggregate
proceeds of approximately $359,707 directly to IDSI.
The loans to IDSI by Messers. Grable, Schwartz and Ms. Grable were interest free
and were evidenced by promissory notes. The December, January, February and
March promissory notes were due on January 30, 1999, February 28,1999, March 31,
1999 and April 30, 1999, respectively. The net proceeds were recorded as a loan
payable to each respective founder.A meeting of the Board of Directors was held
on May 12, 1999, to review and act upon the previously adopted schedule of
repayment of the loans, interest and potential tax liability. Based on an
opinion of the Founders personal outside counsel and upon advice of a tax
advisor, the Board voted to rescind the previously adopted resolution. The new
resolution authorized the repayment of the December, January, February, and
March promissory notes in full by the issuance of shares equal to the number of
shares sold. The restricted shares issued as repayment for the loan bear
registration rights. Since the loans were repaid on a share for share basis with
no other consideration, the Founders have been advised that there is no capital
gain and therefore no tax liability.
Messrs. Grable, Schwartz and Ms. Grable received 831,743, 820,000, and 520,000
shares of our restricted common stock, respectively as payment in full for the
loans from December 1998 to March 1999.
In May 1999, Messrs. Grable and Schwartz each sold 110,000 shares, respectively,
of our common stock owned by them in excess of four years, according to Rule 144
and lent the aggregate proceeds of approximately $91,759 directly to us. The
loans are evidenced by interest free promissory notes, which are due, and
payable on June 30, 1999.
In June 1999, Messrs. Grable and Schwartz each sold 280,000 and 315,020 shares,
respectively, of our common stock owned by them in excess of four years,
according to Rule 144 and lent the aggregate proceeds of approximately $201,795
directly to us. The loans are evidenced by interest free promissory notes, which
are due, and payable on July 31, 1999.
In July 1999, Mr. Schwartz sold 500,000 shares of our common stock owned by him
in excess of four years, according to Rule 144 and lent the aggregate proceeds
of approximately $137,241 directly to us. The loan is evidenced by an interest
free promissory note, which is due, and payable on August 31, 1999.
The loans to us by Messers. Grable and Schwartz were interest free and were
evidenced by promissory notes. The May, June, July promissory notes were due on
June 30, 1999, July 31, 1999 and August 31, 1999, respectively. The net proceeds
were recorded as a loan payable to each respective founder.
Messrs. Grable and Schwartz received 390,000 and 925,500 shares of our
restricted common stock, respectively as payment in full for the loans from May
1999 to July 1999.
YEAR 2000
We have reviewed and tested our existing computer systems and our CTLM(TM)
software and hardware products to ensure these systems and products are
adequately able to address the issues expected to arise in the Year 2000 and
thereafter. We have invested, and will continue to invest, in improving our
information technology infrastructure to ensure that such infrastructure is Y2K
compliant. Our information technology system employs Microsoft Windows NT 4.0
Network on three file servers and fifty workstations. The CTLM(TM) aND its
proprietary software comprise its non-information technology that is not date
dependent.
We have successfully implemented the systems and programming changes necessary
to address Y2K issues and have spent approximately $2,500 for third party
software upgrades and Microsoft Developers Network software ("MSDN"). The MSDN
software allows our computer programmers to update our software to Y2K
compliance by recompiling the source code. We renewed and will continue to renew
our subscription to MSDN annually. We do not track the internal costs of our Y2K
Compliance Plan. These costs are principally related payroll costs for our
computer-engineering group.
We have received the latest MSDN update from Microsoft and our software
engineers have recompiled all of the proprietary software used in the CTLM(TM).
Our proprietary software is now Y2K compliant.
We are dependent on the following software programs to conduct our business
operations:
Accounting: Peachtree Complete, release 6.0
Manufacturing: Alliance Manufacturing Software, Ver. 2.4a
Operating Systems: Windows NT 4.0 and Windows 95
Word Processor: Microsoft Office Professional 97
Database: Oracle7
The Peachtree Complete, Alliance Mfg., and the Oracle7 are Y2K compliant. The
Microsoft Windows NT 4.0 and Windows 95 are compliant with minor issues. Office
Professional 97 is compliant. We believe that these software programs are Y2K
compliant, however, there is a risk that some or all of these programs will have
minor Y2K issues. We have in place a disaster recovery plan to deal with any
software or hardware failure.
We have tested our servers and workstations for Y2K compliance. All of our
computers have Intel Pentium processors. During stand-alone tests, the computers
with Intel Pentium processors were Y2K compliant. Software has been purchased to
test and repair non-compliant systems. The testing and re-mediation by our
Computer System Support Engineer has been completed and we are, as of the date
of this report, Y2K compliant.
We have not fully determined the extent to which we may be impacted by third
parties' systems, which may not be Y2K compliant. While we have begun efforts to
seek reassurance from our suppliers, there can be no assurance that the systems
of other companies, whom we deal with, will be Y2K compliant. Third parties'
non-compliance could have an adverse effect on us. Failure of third party
vendors to deliver parts and components timely could materially affect our
ability to manufacture and deliver CTLM(TM) systems. Because of thIS potential
risk, a checklist of Y2K compliant vendors and sub-contractors has been compiled
and we have begun to expand our vendor and sub-contractor base to safeguard us
against this uncertainty. Our Y2K Compliance Committee has prepared a worst case
Y2K scenario which estimates that Internet access will be severely impaired,
including the ability to send and receive e-mail, possible difficulty in
connecting our computer to remote clinical sites, and delays in shipment and
delivery of parts, components and finished goods. Overall fear and confusion of
the Y2K problem may temporarily impair many companies, even those who are Y2K
compliant.
We can fully function without the use of the Internet and e-mail. Clinical data
will be sent via overnight delivery from the clinical sites to us. Fear and
confusion will diminish in a few weeks as companies and individuals learn that
most companies are compliant and operating without any major problems. Delays in
shipping will be a minor inconvenience as we will have stockpiled critical parts
and components in anticipation of Y2K. We have a Disaster Recovery Plan in place
to deal with software and hardware failures. This plan provides that all
computer workstations are backed up on tape every night and a spare server is
ready to be installed upon failure of any server in service. All of our clinical
data is stored separately on a RAID-5 system. RAID (redundant array of
independent disks) is a way of storing the same data in different places (thus,
redundantly) on multiple hard disks.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
EXHIBITS DESCRIPTION
(a)
3.13 Amended Certificate of Amendment-Series G Designation.*
3.14 Certificate of Amendment-Series I Designation*
3.15 Amended Certificate of Amendment-Series B Designation*
4.7 Instruments Defining the Rights of Security Holders - Amended
Designation of Series G Convertible Preferred Shares. (See Exhibit
3.13, above).*
4.8 Instruments Defining the Rights of Security Holders - Designation of
Series I Convertible Preferred Shares. (See Exhibit 3.14, above).*
4.9 Instruments Defining the Rights of Security Holders - Amended
Designation of Series B Convertible Preferred Shares. (See Exhibit
3.15, above).*
4.10 Convertible Debenture*
10.16 Form of Series I Preferred Stock Subscription Documents.*
10.17 Form of Debenture Subscription Documents.*
10.18 Form of Mortgage.*
10.19 Form of Series G Subscription Documents.*
*Incorporated by reference to our Amendment number 2 to Registration on Form
S-2, File Number 333-60405.
(b) Reports on Form 8-K
NONE
<PAGE>
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.
Dated: November 17, 1999 Imaging Diagnostic Systems, Inc.
BY: /S/ALLAN L. SCHWARTZ
Allan L. Schwartz,
Executive Vice-President
Chief Financial Officer
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<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
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5,617,117
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