SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended: March 31, 1998
--------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from _____to______
Commission file number:0-26028
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IMAGING DIAGNOSTIC SYSTEMS, INC.
(Name of small business issuer in its charter)
Florida 22-2671269
------- ----------
(State of incorporation) (IRS employer Ident. No.)
6531 N.W. 18th Court, Plantation, FL 33313
------------------------------------ -----
(address of principal office) (Zip Code)
Registrant's telephone number: (954) 581-9800
Indicate by check mark whether the Registrant:(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes __X__ No_____
The number of shares outstanding of each of the issuer's classes of equity
as of March 31, 1998: 29,639,201 shares of Common Stock, no par value; and, 450
shares of Series B, 49 shares of Series D, 44 shares of Series E, and 75 shares
of Series F Preferred Convertible Stock, no par value.
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Developmental Stage Company)
<TABLE>
<CAPTION>
Part I - Financial Information Page
- ------------------------------ ----
<S> <C>
Condensed Balance Sheet -
March 31, 1998 and June 30, 1997.......................................... 3
Condensed Statement of Operations Three months and nine months ended March 31,
1998 and 1997, and December 10,
1993(date of inception) to March 31, 1998............................... 4
Condensed Statement of Cash Flows Nine months ended March 31, 1998 and 1997, and
December 10, 1993(date of inception) to March 31,
1998...................................................................... 5
Notes to Condensed Financial Statements......................................... 6
Management's Discussion and Analysis of
Financial Condition and Results................................................. 7
Part II - Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities................................................ 18
Item 3. Defaults Upon Senior Securities...................................... 19
Item 4. Submission of Matters to a Vote of
Security Holders ............................................... 19
Item 5. Other Information.................................................... 19
Item 6. Exhibits and Reports on Form 8-K..................................... 22
Signature ...................................................................... 24
</TABLE>
2
<PAGE>
Imaging Diagnostic Systems, Inc.
(A Developmental Stage Company)
Condensed Balance Sheet
<TABLE>
<CAPTION>
Assets
March 31, 1998 June 30, 1997
-------------- -------------
(Unaudited) Restated *Restated
<S> <C> <C>
Current Assets
Cash $ 426,890 $ 383,223
Restricted Certificate of Deposit -- 103,500
Prepaid expenses 12,653 56,792
Loan Receivable 1,573 10,073
Other current assets 120,489 --
------------ ------------
Total Current Assets 561,605 553,588
------------ ------------
Property and Equipment, net 3,333,862 3,293,297
------------ ------------
Prototype Equipment 2,246,290 1,216,585
Other Assets 9,635 9,635
------------ ------------
2,255,925 1,226,220
------------ ------------
Total Assets $ 6,151,392 $ 5,073,105
============ ============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable
and Accrued Expenses $ 1,415,387 $ 839,093
Current maturity of capital
lease obligation 9,572 8,928
Shareholder Loans 360,407 --
------------ ------------
Total Current Liabilities 1,785,366 848,021
------------ ------------
Long-term capital lease
obligation 28,580 35,849
------------ ------------
Stockholders' Equity
Convertible Preferred
(Series B) 7% cum. Div 4,500,000 4,500,000
Convertible Preferred (Series D) 490,000 --
Convertible Preferred (Series E) 440,000 --
Convertible Preferred (Series F) 750,000 --
Common Stock 21,431,855 15,739,729
Additional Paid-In-Capital 4,113,877 3,663,120
Deficit Accumulated during
development stage (25,726,711) (18,298,930)
------------ ------------
5,999,021 5,603,919
Less subscription receivable (35,559) (35,559)
Less deferred compensation (1,626,016) (1,379,125)
------------ ------------
Total Stockholders' Equity 4,337,446 4,189,235
------------ ------------
Total Liabilities and
Stockholders' Equity $ 6,151,392 $ 5,073,105
============ ============
</TABLE>
* Condensed from audited financial statements
The accompanying notes are an integral part
of these condensed financial statements
3
<PAGE>
Imaging Diagnostic Systems, Inc.
(A Developmental Stage Company)
(Unaudited)
<TABLE>
<CAPTION>
Condensed Statement of Operations
9 Months Ended 3 Months Ended Since Inception
March 31, March 31, (12/10/93) to
1998 1997 1998 1997 March 31,1998
---- ---- ---- ---- -------------
Restated Restated Restated Restated
<S> <C> <C> <C> <C> <C>
Operating Expenses:
Compensation and related
benefits:
Administrative/Engineering $ 1,220,987 $2,395,633 $410,792 $ 1,575,417 $ 6,485,699
Research and development 288,177 378,953 124,822 81,173 1,256,688
Research/Development expenses 367,581 866,973 57,181 254,292 3,031,753
Advertising/Promotion 319,280 128,291 24,811 26,062 863,675
General/Administrative 653,109 405,208 159,413 129,736 1,558,494
Clinical expenses 7,096 13,950 2,444 2,098 357,912
Consulting expenses 808,091 67,170 323,294 29,750 2,523,999
Insurance costs 129,790 91,483 37,678 32,339 296,032
Professional fees 423,499 114,635 83,524 48,963 1,320,604
Stockholder expenses 74,348 23,373 861 -- 95,250
Trade show expenses 134,802 149,330 35,799 34,534 424,078
Travel and subsistence costs 74,146 133,417 18,740 46,469 419,746
Rent expense 16,320 44,634 (5,303) 8,128 237,568
Interest expense 2,126 391 2,126 -- 29,179
Depreciation and amortization 208,120 184,155 69,373 58,048 600,016
Amortization of
deferred compensation 1,093,734 591,000 364,578 197,000 2,228,609
Interest Income (19,245) (95,932) (5,494) (44,515) (194,525)
------------ ------------ ------------ ------------ ------------
5,801,961 5,492,664 1,704,639 2,479,494 21,534,777
------------ ------------ ------------ ------------ ------------
Net Loss ($5,801,961) ($5,492,664) ($1,704,639) ($2,479,494) ($21,534,777)
Dividends on cumulative
preferred stock:
From discount at issuance (1,389,387) (998,120) (501,216) -- (3,722,981)
Earned (236,433) (90,832) (77,639) (78,750) (468,953)
Net loss
applicable to common
shareholders ($7,427,781) ($6,581,616) ($2,283,494) ($2,558,244) ($25,726,711)
============ ============ ============ ============ ============
Net loss per common share:
Basic:
Net loss per common share ($ .28) ($ .28) ($ .08) ($ .11) ($ 1.22)
============ ============ ============ ============ ============
Weighted avg.no. of common shares 26,447,340 24,066,132 28,764,621 24,566,531 21,223,268
============ ============ ============ ============ ============
Diluted:
Net loss per common share ($ .28) ($ .28) ($ .08) ($ .11) ($ 1.22)
============ ============ ============ ============ ============
Weighted avg.no. of common shares 26,447,340 24,066,132 28,764,621 24,566,531 21,223,268
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements
4
<PAGE>
Imaging Diagnostic Systems, Inc.
(A Developmental Stage Company)
<TABLE>
<CAPTION>
Condensed Statement of Cash Flows
(Unaudited)
Nine Months Since inception
Ended March 31, (12/10/93) to
1998 1997 March 31, 1998
----------------------- ---------------
Restated Restated
<S> <C> <C> <C>
Cash provided by (used for) Operations:
Net loss $ (5,801,961) $ (5,492,664) $(21,534,777)
Changes in assets and liabilities 2,792,652 2,734,492 10,818,437
------------ ------------ ------------
Net cash provided by operations (3,009,309) (2,758,172) (10,716,340)
------------ ------------ ------------
Investments
Capital expenditures (1,278,388) (3,233,944) (6,040,229)
------------ ------------ ------------
Cash used for investments (1,278,388) (3,233,944) (6,040,229)
------------ ------------ ------------
Cash flows from financing activities:
Repayment of capital lease obligation (6,625) (1,923) (12,137)
Other financing activities 360,407 (77,833) 360,407
Proceeds from issuance of preferred stock 3,850,000 7,000,000 11,950,000
Net proceeds from issuance of common stock 127,582 (52,500) 4,885,189
Net cash provided by financing activities 4,331,364 6,867,744 17,183,459
------------ ------------ ------------
Net increase in cash 43,667 875,628 426,890
Cash, beginning of period 383,223 3,975,354 --
------------ ------------ ------------
Cash, end of period $ 426,890 $ 4,850,982 $ 426,890
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements
5
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The financial information included herein has been condensed from financial
statements prepared March 31, 1998. The results of operations for the nine-month
period ended March 31, 1998 is not necessarily indicative of the results to be
expected for the full year.
NOTE 2 - GOING CONCERN
The Company is currently a development stage company and its continued existence
is dependent upon the Company's ability to resolve its liquidity problems,
principally by obtaining additional debt and/or equity financing. The Company
has yet to generate an internal cash flow, and until the sales of its product
begins, the Company is totally dependent upon debt and equity funding. See Item
2 "Management's Discussion and Analysis of Financial Condition and Results of
Operations".
In the event that the Company is unable to obtain debt or equity financing or is
unable to obtain such financing on terms and conditions acceptable to the
Company, the Company may have to cease or severely curtail its operations. This
would materially impact the Company's ability to continue as a going concern.
However, management of the Company is continually negotiating with various
outside entities for additional funding necessary to complete the clinical
testing phase of development, required before they can receive FDA marketing
clearance. Management has been able to raise the capital necessary to reach this
stage of product development and has been able to obtain funding for capital
requirements to date. There is no assurance that once development of the CTLMTM
prototype is completed and if and when Federal Drug Administration marketing
clearance is obtained, that the CTLM(TM) will achieve market acceptance or that
the Company will achieve a profitable level of operations.
Note 3 - Series E & F Preferred
Effective February 3, 1998 and February 26, 1998, the Board of Directors amended
the Articles of Incorporation of the Company in order to designate classes of
shares as Series E and F Convertible Preferred. The Series E and F Preferred are
non-voting, can be converted into common stock of the Company and have rights
and preferences that materially limit or qualify the rights of the holders of
registered common stock, including a liquidation preference of $10,000 per
share.
6
<PAGE>
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANINGS OF SECTION
27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934. ACTUAL RESULTS AND EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED
AS A RESULT OF THE "KNOWN UNCERTAINTIES" AS SET FORTH IN THE COMPANY'S FORM
10-KSB FOR FISCAL YEAR ENDED 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
- -------------
Imaging Diagnostic Systems, Inc. (the "Company") is a developmental stage
company which, since inception, has been engaged in research and development of
its Computed Tomography Laser Mammography ("CTLM(TM)"). The CTLM(TM) is a
breast-imaging device for the detection of cancer, utilizes laser technology and
proprietary computer algorithms to produce three dimensional cross section slice
images of the breast. Due to the fact that the Company is in the last stages of
the development of its cancer detection technology and its CTLM(TM), it has not
yet engaged in any marketing or distribution of it products and therefore has
had no revenue from its operations.
The Company has incurred net losses since inception through March 31, 1998 of
approximately $21,534,777. The Company anticipates that loss from operations
will continue for at least the next year, primarily due to an anticipated
increase in marketing and manufacturing expenses associated with the
commercialization of the CTLMtm , the costs associated with the clinical trials
and other research and development activities. There can be no assurances that
the CTLMtm will achieve market acceptance or that sufficient revenues will be
generated from sales of the CTLMtm to allow the Company to operate profitably.
RESULTS OF OPERATIONS
General and administrative expenses during the three months and nine months
ended March 31, 1998, were $159,413 And $653,109, respectively, representing an
increase of $29,677 and an increase of $247,901 for the corresponding periods
for 1997. The increase during the three-month period ending March 31, 1998 was
primarily due to certain administrative costs associated with the further
development of the CTLM(TM) breast-imaging device.
Compensation and related benefits during the three months and nine months ended
March 31, 1998, were $535,614 and $1,509,164 respectively, representing a
decrease of $1,120,976 and a decrease of $1,265,422 for the corresponding
periods for 1997. These decreases were primarily due to the recording of
one-time expenses in March 1997 for compensation related to deferred Stock
Appreciation Rights (SAR's) for stock options and the recording of the one-time
expenses related to the issuance of bonus stock to the officers.
Research and development expenses during the three months and nine months ended
March 31, 1998, were $57,181and $367,581, respectively, representing a decrease
of $197,111 and a decrease of $499,392 for the corresponding periods for 1997.
These decreases are due primarily to finalizing certain components of the
CTLM(TM) device.
Advertising and promotion expenses during the three months and nine months ended
March 31, 1998, were $24,811and $319,280 representing an decrease of $1,251 and
an increase of $190,989 for the corresponding periods for 1997. The nine month
increase is due primarily to the additional costs of advertising in domestic and
foreign medical imaging and medical device publications, and an increase in
public relations and investor public relations expenses.
Consulting expenses during the three months and nine months ended March 31,
1998, were $323,294 and $808,091 representing an increase of $293,544 and
$740,921 for the corresponding periods for 1997. The increase is due primarily
to the expanded use of outside consultants needed for special non-recurring
projects required prior to placing CTLM(TM) units into clinical trials.
7
<PAGE>
Insurance costs during the three months and nine months ended March 31, 1998,
were $37,678 and $129,790 representing an increase of $5,339 and $38,307 for the
corresponding periods for 1997. The increase is due primarily to additional
premiums for Workers' Comp., Health Insurance, and Property and Casualty
Insurance.
Professional expenses during the three months and nine months ended March 31,
1998, were $83,524 and $423,499 representing an increase of $34,561 and $308,864
for the corresponding periods for 1997. The increase is due primarily to an
increase in legal fees on legal matters described in Item 1. Legal Proceedings.
Stockholder expenses during the three months and nine months ended March 31,
1998, were $861 and $74,348 representing an increase of $861 and an increase of
$50,975 for the corresponding periods for 1997. The increase for the nine month
ended March 31, 1998 is due to the costs associated with preparing, printing and
mailing the Company's 1997 Annual Report and Proxy Statement.
Tradeshow expenses during the three months and nine months ended March 31, 1998
were $35,799 and $134,802 representing an increase of $1,265 and a decrease of
$14,528 for the corresponding periods for 1997. The nine month decrease is due
to no changes or modifications were required to the Company's exhibit for the
1997 Radiological Society of North America's Scientific Assembly and Annual
Meeting in Chicago, IL.
Travel and subsistence costs during the three months and nine months ended March
31, 1998 were $18,740 and $74,146 representing a decrease of $27,729 and $59,271
for the corresponding periods for 1997. The decrease was primarily due to
reduced travel and housing expenses for consultants.
Rent expense during the three months and nine months ended March 31, 1998, were
$(5,303) and $16,320 representing a decrease of $13,431 and $28,314 for the
corresponding periods for 1997. This decrease was primarily due to the
expiration of certain rental agreements.
Interest expense during the three months and nine months ended March 31, 1998
was $2,126 and $2,126 representing an increase of $2,126 and $1,735 for the
corresponding periods for 1997. The increase is due primarily to recording the
interest portion of the Company's telephone lease with Inter-Tel.
Dividend expense on cumulative preferred stock, from discount at issuance and
earned during the three months and nine months ended March 31, 1998 was $578,855
and $1,625,820 representing an increase of $500,105 and $536,868 for the
corresponding periods for 1997. The net loss per common share allocated to the
dividends during the three months and nine months ended March 31, 1998 was $.02
and $.06 respectively. The Company has the option to pay the dividends in common
stock.
BALANCE SHEET DATA
The Company's combined cash and cash equivalents totaled $426,890 as of March
31, 1998. This is a decrease of $59,833 from $486,723 for the year ended June
30, 1997. On February 4, 1998 and February 20, 1998, Imaging Diagnostic Systems,
Inc. finalized private placement transactions resulting in $500,000 and $750,000
in equity financing respectively. See Item 5, Other Information.
The Company does not expect to generate a positive internal cash flow for at
least the next twelve (12) months due to the expected increase in spending for
research and development, the costs associated with the clinical trials and the
expected costs of commercializing its initial product, the CTLM(TM) device.
Property and Equipment was valued at $3,333,862 as of March 31, 1998. The
overall gross increase of $40,565 is due primarily to the purchase of additional
laboratory equipment.
8
<PAGE>
Prototype Equipment was valued as of March 31, 1998, at $2,246,290. This
represents an increase of $1,029,705 from $1,216,585 for the year ended June 30,
1997. This increase is due primarily to an increase in developmental activities
leading to the commercialization of the CTLM(TM) device.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operating and research and development activities
through several Regulation S and Regulation D private placement transactions.
Net cash used for operating and research and development expenses during the
third quarter of 1998 was $1,072,828 primarily due to the Company's continued
research and development of the CTLM(TM) device and preparations for FDA
Clinical Trials including the manufacture of five (5) CTLM(TM) Breast Imaging
Systems, compared to net cash used by operating activities of research and
development of the CTLM(TM) device and related software development of
$2,195,959 in the same quarter of 1997. At March 31, 1998, the Company had a
working capital of $1,301,900 compared to a working capital of $3,016,343 at
March 31, 1997. During the third quarter of 1998, the Company was able to raise
a total of $1,690,000 less expenses through Regulation S transactions. The
Company may continue to receive working capital from the exercise of stock
options, private placements and long term debt and operations. If the Company's
working capital is insufficient to fund its operations, it would have to explore
additional sources of financing. No assurances, however, can be given that
future financing would be available or if available, that it could be obtained
at terms satisfactory to the Company. The Company's ability to effectuate its
plan of and continue operations is dependent on its ability to raise capital,
structure a profitable business, and generate revenues.
Capital expenditures for the third quarter of 1998 were approximately $92,615 as
compared to approximately $191,137 for the third quarter of fiscal 1997. These
expenditures were a direct result of purchases of computer and other equipment,
office, warehouse and manufacturing fixtures, tradeshow equipment, computer
software, laboratory equipment and other fixed assets. The Company anticipates
that the balance of its capital needs for fiscal 1998 will be approximately
$53,000.
During the nine months ending March 31, 1998 there were no changes in the
Company's existing debt agreements, and the Company had no outstanding bank
loans as of March 31, 1998. The Company's 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. The Company will require substantial additional funds for its research
and development programs, pre-clinical and clinical testing, operating expenses,
regulatory processes, and manufacturing and marketing programs. The Company's
future capital requirements will depend on many factors, including the
following: the progress of its research and development projects; the progress
of pre-clinical and clinical testing; the time and cost involved in obtaining
regulatory approvals; obtaining regulatory approvals; the cost of filing,
prosecuting, defending and enforcing any patent claims and other intellectual
property rights; competing technological and market developments; changes and
developments in the Company's existing collaborative, licensing and other
relationships and the terms of any new collaborative, licensing and other
arrangements that the Company may establish; and the development of
commercialization activities and arrangements. The Company does 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. The Company
does not have sufficient cash to fund the Company's operations until the end of
the fiscal year ending June 30, 1998 requiring it to secure additional funding
through the private placement sale of debt or equity securities.
ISSUANCE OF STOCK FOR SERVICES/DILUTIVE IMPACT TO SHAREHOLDERS
The Company has and may continue to issue stock for services performed and to be
performed by consultants. Since the Company has generated no revenues to date,
its ability to obtain and retain consultants may be dependant on it ability to
issue stock for services. Since July 1, 1996, the Company has issued an
aggregate of 990,200 shares of common stock pursuant to Registration Statements
9
<PAGE>
on Form S-8. The aggregate fair market value of the shares was $1,929,259. 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 of control of the Company. See `Issuance of Stock for
Services" and "Note 16 to Financial Statements".
The Company is currently seeking additional capital to fund its future
operations through private debt or equity financings, or collaborative licensing
or other arrangements with strategic partners. There can be no assurance that
such financing can be obtained or, if it is obtained, that the terms thereof
will be acceptable. The Company plans to continue its policy of investing excess
funds, if any, in a daily cash management account at First Union National Bank.
See "Cautionary Statements Regarding Forward-Looking Statements Uncertainties as
to Future Profitability."
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-QSB under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as in the Company's press releases or oral statements that
may be made by the Company or by officers, directors or employees of the Company
acting on the Company's behalf, that are not historical fact constitute
"forward-looking statements". Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that could cause the actual
results of the Company to be materially different from the historical results or
from any results expressed or implied by such forward-looking statements.
Factors that might cause such a difference include, without limitation, the
information set forth below. In addition to statements which explicitly describe
such risks and uncertainties, statements labeled with the terms "believes",
"belief', "expects", "plans" or "anticipates" should be considered uncertain and
forward-looking. All cautionary statements made in this Report should be read as
being applicable to all related forward-looking statements wherever they appear.
Uncertain Ability to Meet Capital Needs. The Company will require substantial
additional funds for clinical testing of the CTLM(TM) Device, research and
development programs, pre-clinical and clinical testing of other proposed
products, regulatory processes, manufacturing and marketing programs and
operating expenses (including general and administrative expenses). The
Company's future capital requirements will depend on many factors, including the
following: the progress of its research and development projects; the progress
of pre-clinical and clinical testing; the time and cost involved in obtaining
regulatory approvals; the cost of filing, prosecuting, defending and enforcing
any patent claims and other intellectual property rights; competing
technological and market developments; changes and developments in the Company's
existing collaborative, licensing and other relationships and the terms of any
new collaborative, licensing and other arrangements that the Company may
establish; and the development of commercialization activities and arrangements.
Moreover, the Company's fixed commitments, including salaries and fees for
current employees and consultants, equipment rent, payments under license
agreements and other contractual commitments, are substantial and would increase
if additional agreements are entered into and additional personnel are retained.
The Company does not expect to generate a positive internal cash flow for at
least several years due to expected increases in capital expenditures, working
capital needs and ongoing losses, including the expected cost of commercializing
the CTLM(TM) Device . However, the Company's cash requirements may vary
materially from those now planned due to the progress of research and
development programs, results of clinical testing, relationships with strategic
partners, if any, changes in the focus and direction of the Company's research
and development programs, competitive and technological advances, the FDA and
foreign regulatory processes and other factors.
The Company needs additional capital to fund its operations, and is seeking to
obtain additional capital through debt or equity financings, or collaborative
licensing or other arrangements with strategic partners. If additional funds are
raised by issuing equity securities, further dilution to existing stockholders
will result and future investors may be granted rights superior to those of
existing stockholders. There can be no assurance, however, that additional
financing will be available when needed, or if available, will be available on
acceptable terms. Insufficient funds may prevent the Company from implementing
10
<PAGE>
its business strategy and will require the Company to further delay, scale back
or eliminate certain of its research, product development-and marketing programs
and may require the Company to license to third parties rights to commercialize
products or technologies that the Company would otherwise seek to develop
itself, or to scale back or eliminate its other operations.
Uncertainty of FDA Marketing Clearance for the CTLM(TM) Device. In November
1997, the Company's clinical site at Strax Breast Diagnostic Institute in
Lauderhill, Florida was closed. In December 1997, the FDA granted approval to
include specific studies on augmented breasts as part of the Company's extensive
in-house study of the CTLM(TM). The Company was granted, in June 1998, its
second investigational device exemption ("IDE") to conduct clinical trials. An
IDE allows a company to conduct human clinical trials without filing an
application for marketing clearance. The Company is authorized to scan 20
patients at the Company's in-house facilities in Plantation, Florida and upon
FDA approval, at three additional clinical sites. On September 1 and September
10, 1998, the Company formally submitted the first and second series of the 20
patient in-vivo (human) images and corresponding interpretation data to the FDA.
On January 14, 1999, the Company received notice that the IDE application to
extend the in-vivo investigational device study to Nassau County Medical Center
was conditionally approved. This IDE application is limited to one institution
(Nassau County Medical Center) and 275 subjects. The Company had originally
intended to have the CTLM(TM) positioned at Nassau County Medical Center not
later than mid February, however due to renovations at Nassau County Medical
Center, the delivery of the CTLM(TM) was postponed until such time as the
renovations were complete. On March 3, 1999 the CTLM(TM) System was shipped to
Nassau County Medical Center and is currently being installed. The testing is
designed to develop diagnostic criteria for CTLM(TM) images. In order to acquire
data that will be part of the final pre-market application (PMA), the Company
intends to expand the clinical trials to hospitals in Miami, Chicago, Los
Angeles, Boston and New York.
At the conclusion of the clinical trials the Company will submit the PMA, if and
when accepted for filing by the FDA, it will be designated for review under the
FDA's Expedited Review policy. There can be no assurance, however, that such
Expedited Review status will be maintained or result in a more expeditious
approval, or approval at all. See "Government Regulation; No Assurance of
Regulatory Approval."
Conducting clinical trials will require the expenditure of substantial
additional funds, which the Company does not currently have available.
Furthermore, there can be no assurance (i) that results obtained in any
additional trials will be consistent with the results obtained in trials
conducted by the Company to date, (ii) that results obtained in any clinical
trial or series of clinical trials will be consistent among all study sites,
(iii) that results obtained in clinical trials conducted with U.S. study
populations will be consistent with results obtained in studies conducted in
Europe or other locations outside of the U.S., or (iv) that any such results, or
the filing of the PMA will be accepted by the FDA. There can be no assurance
that the FDA or other regulatory approvals for the CTLM(TM) Device will be
granted on a timely basis, or at all. Failure to obtain FDA clearance to market
the CTLM(TM) Device would have a material adverse effect on the Company's
business, financial condition, cash flows and results of operations.
Limited Operating History; Continuing Operating Losses. The Company has a
limited history of operations. Since its inception in December 1993, the Company
has engaged principally in the development of the CTLM(TM) Device, which has not
been approved for sale in the United States. Consequently, the Company has
little experience in manufacturing, marketing and selling its products. The
Company currently has no source of operating revenue and has incurred net
operating losses since its inception. At March 31, 1998, the Company had an
accumulated deficit of approximately $21,534,777 before discounts and dividends
on convertible preferred stock issuances since inception. Such losses have
resulted principally from costs incurred in research and development and
clinical trials and from general and administrative costs associated with the
Company's operations. The Company expects operating losses to increase for at
least the next several years due principally to the anticipated expenses
associated with the pre-market approval process for the CTLM(TM) Device, the
proposed commercialization of the CTLM(TM) Device, development of, and clinical
trials for, other medical imaging devices and other research and development
activities.
Uncertainties as to Future Profitability. The Company's ability to achieve
profitability will depend in part on its ability to obtain regulatory approvals
for the CTLM(TM) Device and any other proposed products, and to develop the
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capacity to manufacture and market any products either by itself or in
collaboration with others. There can be no assurance if or when the Company will
receive required regulatory approvals for the development and commercial
manufacturing and marketing of the CTLM(TM) Device or any other proposed
products, or achieve profitability. Accordingly, the extent of future losses and
the time required to achieve profitability are highly uncertain.
Early Stage of Product Development. The Company's proposed products, other than
the CTLM(TM) Device, are at an early stage of development and the CTLM(TM)
Device must receive marketing clearance from the FDA before it can be
commercially marketed in the United States. There can be no assurance that any
of the Company's proposed products will be found to be safe and effective, meet
applicable regulatory standards or receive necessary regulatory clearance, or if
safe and effective, can be developed into commercial products, manufactured on a
large scale or be economical to market. Nor can there be any assurance that the
Company's proposed products will achieve or sustain market acceptance. In the
event necessary regulatory approvals are obtained for the CTLM(TM) Device, there
can be no assurance that the Company will be successful in establishing
commercial operations, including gaining market acceptance of the CTLM(TM)
Device and implementing commercial-scale manufacturing and sales and marketing
programs. There is, therefore, substantial risk that the Company's product
development and commercialization efforts will not prove to be successful.
Dependence on a Single Product. Although the Company is in the process of
developing additional products based on its core technology, including an
enhancement of the CTLM(TM) Device for use with fluorescence and PhotoDynamic
Therapy (PDT), none of such applications is expected to result in a commercial
product for at least several years, if at all. Consequently, pending its
approval for commercial distribution in the United States, the CTLM(TM) Device
would account for substantially all of the Company's revenues for the
foreseeable future. Failure to gain regulatory approvals or market acceptance
for the CTLM(TM) Device would have a material adverse effect on the Company's
business, financial condition, cash flows and results of operations.
Dependence on Market Acceptance. There can be no assurance that physicians or
the medical community in general will accept and utilize the CTLM(TM) Device or
any other products developed by the Company. The extent that, and the rate at
which, the CTLM(TM) Device achieves market acceptance and penetration will
depend on many variables including, but not limited to, the establishment and
demonstration in the medical community of the clinical safety, efficacy and
cost-effectiveness of the CTLM(TM) Device, the advantages of the CTLM(TM) Device
over existing technology and cancer detection methods (including x-ray
mammography, ultrasound or high frequency ultrasound, MRI, thermography,
diaphonography, electrical impedance and transillumination devices), third-party
reimbursement practices and the Company's manufacturing, quality control,
marketing and sales efforts. There can be no assurance that the medical
community and third-party payers will accept the Company's unique technology.
Similar risks will confront any other products developed by the Company in the
future. Failure of the Company's products to gain market acceptance would have a
material adverse effect on the Company's business, financial condition, cash
flows and results of operations.
Limited Marketing and Sales Experience. The Company has limited internal
marketing and sales resources and personnel. In order to market the CTLM(TM)
Device or any other products it may develop, the Company will have to develop a
marketing and sales force with technical expertise and distribution
capabilities. There can be no assurance that the Company will be able to
establish sales and distribution capabilities or that the Company will be
successful in gaining market acceptance for any products it may develop. There
can be no assurance that the Company will be able to recruit and retain skilled
sales, marketing, service or support personnel, that agreements with
distributors will be available on terms commercially reasonable to the Company,
or at all, or that the Company's marketing and sales efforts will be successful.
Failure to successfully establish a marketing and sales organization, whether
directly or through third parties, would have a material adverse effect on the
Company's business, financial condition, cash flows and results of operations.
The Company intends to pursue distribution arrangements in Europe and Asia with
strategic marketing partners who have established marketing and service
capabilities. There can be no assurance that the Company, either on its own or
through arrangements with others, will be able to enter into such arrangements
on acceptable terms, if at all. To the extent that the Company arranges with
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third parties to market its products, the success of such products may depend on
the efforts of such third parties. There can be no assurance that any of the
Company's proposed marketing schedules or plans can or will be met.
Limited Manufacturing History. The Company will have to ramp up its CTLM(TM)
manufacturing and assembly capabilities and contract for the manufacture of the
CTLM(TM) components in the volumes that will be necessary for the Company to
achieve significant commercial sales in the event it begins foreign sales and/or
obtains regulatory approval to market its products in the United States. The
Company has limited experience in the manufacture of medical products for
clinical trials or commercial purposes. Should the Company manufacture its
products, the Company's manufacturing facilities would be subject to the full
range of the current Quality System Regulation ("QSR") (formerly the Good
Manufacturing Practices (GMP) regulation) and similar risks of delay or
difficulty in manufacturing, and the Company would require substantial
additional capital to establish such manufacturing facilities. In addition,
there can be no assurance that the Company would be able to manufacture any such
products successfully or cost-effectively.
Dependence on Third Parties. The Company has used certain third parties to
manufacture and deliver the components of the CTLM(TM) Device and intends to
continue to use third parties to manufacture and deliver such components and any
other products, which the Company may seek to develop. Such third parties must
adhere to the QSR enforced by the FDA through its facilities inspection program
and such third-parties' facilities must pass a plant inspection before the FDA
will grant pre-market approval of the Company's products. There can be no
assurance that the third-party manufacturers on which the Company depends for
the manufacture of CTLM(TM) components will be in compliance with the QSR at the
time of the pre-approval inspection or will maintain such compliance. Such
failure could significantly delay FDA approval of the PMA application for the
CTLM(TM) Device, and such delay would have a material adverse effect on the
Company's business, financial condition, cash flows and results of operations.
The qualification of additional or replacement suppliers for certain components
of the CTLM(TM) Device or services is a lengthy process. For certain services
and components the Company currently relies on single suppliers. If the Company
encounters delays or difficulties with its third-party suppliers in producing,
packaging or distributing components of the CTLM(TM) Device, market introduction
and subsequent sales would be adversely affected. The Company also may have to
rely on alternative sources of supply. In such case, there can be no assurance
that the Company will be able to enter into alternative supply arrangements at
commercially acceptable rates, if at all. If the Company is unable to obtain or
retain qualified third-party manufacturers on commercially acceptable terms, it
may not be able to commercialize its products as planned. The Company's
dependence upon third parties for the manufacture of its products may adversely
affect the Company's profit margins and its ability to develop and deliver its
products on a timely and competitive basis.
Competition. The medical device industry generally, and the cancer diagnostic
imaging segments in particular, are characterized by rapidly evolving
technology-and intense competition. Other companies in the medical device
industry may be developing, or could in the future attempt to develop,
additional products that are competitive with the CTLM(TM) Device. Many of the
Company's potential competitors have substantially greater capital resources and
name recognition than the Company. Many of these companies also have
substantially greater expertise than the Company in research and development,
manufacturing and marketing and obtaining regulatory approvals. There can be no
assurance that the Company's competitors will not succeed in developing or
marketing technologies and products that are more effective than those developed
or marketed by the Company or that would render the Company's technology and
products obsolete or noncompetitive. Additionally, there can be no assurance
that the Company will be able to compete against such competitors and potential
competitors in terms of manufacturing, marketing and sales. Although the Company
believes that its products may offer certain technological advantages over its
competitors' currently-marketed products, earlier entrants in the market for a
diagnostic application often obtain and maintain significant market share
relative to later entrants. Physicians using imaging equipment such as x-ray
mammography equipment, ultrasound or high frequency ultrasound systems, MRI
systems, thermography, diaphonography, electrical impedance and
transillumination devices may not use the CTLM(TM) Device or any other products
that the Company may develop. Currently, mammography is employed widely and the
Company's ability to sell the CTLM(TM) Device to medical facilities will, in
part, be dependent on the Company's ability to demonstrate the clinical utility
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of the CTLM(TM) Device as a diagnostic adjunct to mammography or physical
examination and its advantages over other available diagnostic tests.
Risk of Technological Obsolescence. Methods for the detection of cancer are
subject to rapid technological innovation and there can be no assurance that
technological changes will not render the Company's proposed products obsolete.
There can be no assurance that the development of new types of diagnostic
medical equipment or technology will not have a material adverse effect on the
marketability of the CTLM(TM) Device or any other products developed by the
Company. Commercial availability of such products could render the Company's
products obsolete, which would have a material adverse effect on the Company's
business, financial condition, cash flows and results of operations.
Potential Reliance on International Sales. The Company intends to commence
commercial sales of the CTLM(TM) Device in Europe and Asia, where permitted,
prior to commencing commercial sales in the United States, where sales cannot
occur unless and until the Company receives pre-market approval from the FDA.
Thus, until the Company receives marketing clearance from the FDA for the
CTLM(TM) Device, as to which there can be no assurance, the Company's revenues,
if any, will be derived from international sales. A significant portion of the
Company's revenues, therefore, may be subject to the risks associated with
international sales, including economic or political instability, shipping
delays, fluctuations in foreign currency exchange rates, foreign regulatory
requirements and various trade restrictions, all of which could have a
significant impact on the Company's ability to deliver products on a competitive
and timely basis. Future imposition of, or significant increases in the level
of, customs duties, export quotas or other trade restrictions could have a
material adverse effect on the Company's business, financial condition, cash
flows and results of operations. The regulation of medical devices, particularly
in Europe, continues to develop and there can be no assurance that new laws or
regulations will not have an adverse effect on the Company.
Government Regulation; No Assurance of Regulatory Approvals. The manufacture and
sale of medical devices, including the CTLM(TM) Device, and any other products
that may be developed by the Company are subject to extensive regulation by
numerous governmental authorities in the United States, principally the FDA and
corresponding state agencies, and in other countries. In the United States, the
Company's products are regulated as medical devices and are subject to the FDA's
pre-market clearance or approval requirements. Securing FDA clearances and
approvals may require the submission of extensive clinical data and supporting
information to the FDA. To obtain FDA approval of an application for pre-market
approval, the pre-market approval application must demonstrate that the subject
device has clinical utility, meaning that the device has a beneficial
therapeutic effect, or that as a diagnostic tool, it provides information that
measurably contributes to a diagnosis of a disease or condition.
The process of obtaining FDA and other required regulatory approvals may be
lengthy, expensive and uncertain and frequently requires from six months to
several years from the date of the FDA submission, if pre-market approval is
obtained at all. Following the filing of a submission of the PMA for the
CTLM(TM) Device, the FDA may require more information or clarification of
information already provided as part of the PMA. During the review period, an
advisory panel will likely be convened by the FDA to review and evaluate the PMA
and provide recommendations to the FDA as to whether the PMA should be approved.
Although the FDA may grant Expedited Review status to the CTLM(TM) Device, there
can be no assurance that such status will be maintained or result in timely
approval of the CTLM(TM) Device, if approval is obtained at all. Failure to
obtain FDA marketing clearance of the CTLM(TM) Device would have a material
adverse effect on the Company's business, financial condition, cash flows and
results of operations. See "Uncertainty of FDA Approval for the CTLM(TM)
Device."
Sales of medical devices outside of the United States are subject to
international regulatory requirements that vary from country to country. The
time required to obtain approval for sale internationally may be longer or
shorter than that required for FDA approval and the requirements may differ. In
addition, in order to sell its products within the European Economic Area,
companies are required to achieve compliance with the requirements of the
Medical Devices Directive and affix a "CE" marking on their products to attest
such compliance. The Company will be required to obtain CE Mark Certification
for the CTLM(TM) Device.
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In addition, unapproved products subject to the PMA requirements must receive
prior FDA export approval in order to be marketed outside of the United States
unless they are approved for use by any member country of the European Union or
certain other countries, including Australia, Canada, Israel, Japan, New
Zealand, Switzerland and South Africa, in which case they can be exported to any
country provided that certain limited notification requirements are met. There
can be no assurance that the Company will meet the FDA's export requirements or
receive FDA export approval when such approval is necessary, or that countries
to which the devices are to be exported will approve the devices for import.
Failure of the Company to meet the FDA's export requirements or obtain FDA
export approval when required to do so, or to obtain approval for import, could
have a material adverse effect on the Company's business, financial condition,
cash flows and results of operations.
Regulatory approvals, if granted, may include significant limitations on the
indicated uses for which the product may be marketed. In addition, to obtain
such approvals, the FDA and certain foreign regulatory authorities may impose
numerous other requirements with which medical device manufacturers must comply.
FDA enforcement policy strictly prohibits the marketing of approved medical
devices for unapproved uses. Product approvals could be withdrawn for failure to
comply with regulatory standards or the occurrence of unforeseen problems
following initial marketing. The third-party manufacturers upon which the
Company depends to manufacture its products are required to adhere to applicable
FDA regulations regarding the QSR and similar regulations in other countries,
which include testing, control and documentation requirements. Ongoing
compliance with the QSR and other applicable regulatory requirements will be
monitored by periodic inspection by the FDA and by comparable agencies in other
countries. Failure to comply with applicable regulatory requirements, including
marketing or promoting products for unapproved use, could result in, among other
things, warning letters, fines, injunctions, civil penalties, recall or seizure
of products, total or partial suspension of production, refusal of the
government to grant pre-market clearance or approval for devices, withdrawal of
approvals and criminal prosecution. Changes in existing regulations or adoption
of new governmental regulations or policies could prevent or delay regulatory
approval of the Company's products. Certain material changes to medical devices
also are subject to FDA review and clearance or approval.
There can be no assurance that the Company will be able to obtain, on a timely
basis, or at all, FDA approval of the PMA for the CTLM(TM) Device, foreign
marketing clearances for the CTLM(TM) Device or regulatory approvals or
clearances for other products that the Company may develop, and delays in
receipt of or failure to obtain such approvals or clearances, the loss of
previously obtained approvals, or failure to comply with existing or future
regulatory requirements would have a material adverse effect on the Company's
business, financial condition, cash flows and results of operations.
Limitations on Third-Party Reimbursement. In the United States, suppliers of
health care products and services are greatly affected by Medicare, Medicaid and
other government insurance programs, as well as by private insurance
reimbursement programs. Third-party payers (Medicare, Medicaid, private health
insurance companies and other organizations) may affect the pricing or relative
attractiveness of the Company's products by regulating the level of
reimbursement provided by such payers to the physicians, hospitals, clinics and
imaging centers utilizing the CTLM(TM) Device or any other products that the
Company may develop or by refusing reimbursement. If examinations utilizing the
Company's products are not reimbursed under these programs, the Company's
ability to sell its products may be materially adversely affected.
There can be no assurance that third-party payers will provide reimbursement for
use of the CTLM(TM) Device or any other products that the Company may develop.
Moreover, the level of reimbursement, if any, may impact the market acceptance
and pricing of the Company's products, including the CTLM(TM) Device. Failure to
obtain favorable rates of third party reimbursement could have a material
adverse effect on the Company's business, financial condition, cash flows and
results of operations.
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In international markets, reimbursement by third-party medical insurance
providers, including governmental insurers and independent providers, varies
from country to country. In addition, such third-party medical insurance
providers may require additional information or clinical data prior to providing
reimbursement for a product. In certain countries, the Company's ability to
achieve significant market penetration may depend upon the availability of
third-party and governmental reimbursement. Revenues and profitability of
medical device companies may be affected by the continuing efforts of
governmental and third-party payors to contain or reduce the costs of health
care through various means.
Uncertainties Regarding Health Care Reform. Several states and the U.S.
government are investigating a variety of alternatives to reform the health care
delivery system and further reduce and control health care spending. These
reform efforts include proposals to limit spending on health care items and
services, limit coverage for new technology and limit or control the prices
health care providers and drug and device manufacturers may charge for their
services and products, respectively. If adopted and implemented, such reforms
could have material adverse effect on the Company's business, financial,
condition, cash flows and results of operations.
Uncertain Ability to Protect Patents and Proprietary Technology and Information.
The Company's ability to compete effectively in the medical products industry
will depend on its success in protecting its proprietary technology, both in the
United States and abroad. The patent positions of medical products companies
generally involve complex legal and factual questions. The Company's proprietary
products and technology are the subject of one U.S. patent licensed to the
Company, and eleven additional applications owned by the Company pending with
the United States Patent and Trademark Office ("PTO") and certain foreign
patents. The Company has filed, and intends to continue to file, patent
applications in certain foreign jurisdictions covering the patent claims that
are the subject of U.S. patents and patent applications. There can be no
assurance that the PTO or foreign jurisdictions will grant the Company's pending
patent applications or that the Company will obtain any additional patents or
other protection for which it has applied. There can be no assurance that
patents issued to or licensed by or to the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
any competitive advantage. The Company could incur substantial costs in
defending any patent infringement suits or in asserting any patent rights,
including those granted by third parties.
Although the Company has entered into confidentiality and invention agreements
with its employees and consultants, there can be no assurance that such
agreements will be honored or that the Company will be able to protect its
rights to its non patented trade secrets and know-how effectively. Moreover,
there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets and know-how. In addition, the
Company may be required to obtain licenses to patents or other proprietary
rights from third parties. There can be no assurance that any licenses required
under any patents or proprietary rights would be made available on acceptable
terms, if at all. If the Company does not obtain required licenses, it could
encounter delays in product development or find that the development,
manufacture or sale of products requiring such licenses could be foreclosed.
Additionally, the Company may, from time to time, support and collaborate in
research conducted by universities and governmental research organizations.
There can be no assurance that the Company will have or be able to acquire
exclusive rights to the inventions or technical information derived from such
collaborations or that disputes will not arise with respect to rights in
derivative or related research programs conducted by the Company or such
collaborators.
Dependence on Qualified Personnel. Due to the specialized scientific nature of
the Company's business, the Company is highly dependent upon its ability to
attract and retain qualified scientific, technical and managerial personnel. The
loss of the services of existing personnel as well as the failure to recruit key
scientific, technical and managerial personnel in a timely manner would be
detrimental to the Company's research and development programs and to its
business. The Company's anticipated growth and expansion into areas and
activities requiring additional expertise, such as engineering, manufacturing
and marketing, will require the addition of new personnel. Competition for
qualified personnel is intense and there can be no assurance that the Company
will be able to continue to attract and retain qualified personnel necessary for
the development of its business.
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Potential Product Liability. The Company's business exposes it to potential
product liability risks, which are inherent in the testing, manufacturing and
marketing of cancer detection products. Significant litigation, not involving
the Company, has occurred in the past based on allegations of false negative
diagnoses of cancer. While the CTLM(TM) Device does not purport to diagnose any
patient, there can be no assurance that the Company will not be subjected to
future claims and potential liability. While the Company plans to maintain
insurance against product and professional liability and defense costs, there
can be no assurance that claims against the Company arising with respect to its
products will be successfully defended or that the insurance to be carried by
the Company will be sufficient to cover liabilities arising from such claims. A
successful claim against the Company in excess of the Company's insurance
coverage could have a material adverse effect on the Company. Furthermore, there
can be no assurance that the Company will be able to continue to obtain or
maintain product liability insurance on acceptable terms.
Potential for Environmental Liability. Although the Company's manufacturing
processes do not currently involve the use of potentially hazardous materials,
it may use such materials in the future. The Company may, in the future, become
subject to stringent federal, state and local laws, rules, regulations and
policies governing the use, generation, manufacture, storage, air emission,
effluent discharge, handling and disposal of such materials. There can be no
assurance that the Company will not incur significant future costs to comply
with environmental laws, rules, regulations and policies, or that the business,
financial position, cash flows or results of operations of the Company will not
be materially and adversely affected by current or future environmental laws,
rules, regulations and policies or by any releases or discharges of hazardous
materials.
Authorization and Discretionary Issuance of Preferred Stock/Barriers to
Takeover. The Company's Articles of Incorporation authorize the issuance of up
to 2,000,000 shares of "blank check" preferred stock with such designations,
rights, and preferences as may be determined from time to time by the board of
directors. Accordingly, the board of directors is empowered, without stockholder
approval, to designate and issue additional series of preferred stock with
dividend, liquidation, conversion, voting or other rights, including the right
to issue convertible securities with no limitations on conversion, which could
adversely affect the voting power or other rights of the holders of the
Company's Common Stock, substantially dilute the common shareholder's interest
and depress the price of the Company's common stock. In addition, the event of
issuance, the preferred stock could be utilized, under certain circumstances, as
a method of discouraging, delaying or preventing a change in control of the
Company. The Company has, in the past, issued Convertible Preferred Stock
without a limit on the number of shares that can be issued upon conversion and
may continue to do so in the future. See "Sale of Unregistered Securities" and
"Description of Securities"
The Series H Preferred Shares are the Company's only Series of Preferred Stock
that has not been converted or noticed for conversion. 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, in the event
that the price of the Company's common stock decreases, the percentage of shares
outstanding that will be held by the Series H Holders upon conversion will
increase accordingly. See "Sale of Unregistered Securities-Series H Preferred"
and "Sale of Unregistered Securities-Equity Line of Credit".
Due to the fact that, when converting Convertible securities issued without
limitations on conversion, including the Series H Preferred Shares, the lower
the market price the greater the number of shares to be issued to the holders,
holders of such preferred 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 the Company's common stock. See "Sale of Unregistered Securities-Series
H Preferred" and "Sale of Unregistered Securities-Equity Line of Credit".
No Dividends. The Company has never declared or paid any cash dividends on its
capital stock and does not intend to pay any cash dividends in the foreseeable
future. The Company currently anticipates that it will retain all its earnings
for use in the operation and expansion of its business and, therefore, does not
anticipate that it will pay any cash dividends in the foreseeable future
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Possible Volatility of Stock Price. The price of the Company's Common Stock has
fluctuated substantially since it began trading on the OTC Bulletin Board in
September 1994. The market price of the shares of the Common Stock, like that of
the common stock of many other medical device companies, is likely to continue
to be highly volatile. Factors such as the timing and results of clinical trials
by the Company or its competitors, governmental regulation, healthcare
legislation, equity or debt fundings, developments in patent or other
proprietary rights of the Company or its competitors, including litigation,
fluctuations in the Company's operating results, and market conditions for
medical device company stocks and life science stocks in general, could have a
significant impact on the future price of the Common Stock. The Company's stock
is currently traded on the OTC Bulletin Board. The Company is seeking to be in
compliance with NASDAQ SmallCap Market Listing Requirements. The trading of the
Company's Common Stock on the NASDAQ SmallCap Market is conditioned upon the
Company's meeting certain quantitative criteria related to the market price of
the Company's Common Stock, net tangible assets, market capitalization and
certain other quantitative and non-quantitative requirements established by such
stock market. To maintain eligibility for trading on the NASDAQ Small-Cap
Market, among other requirements, the Company is required to have net tangible
assets in excess of $4,000,000 and have a minimum bid price of $3 per share for
initial inclusion and then maintain a bid price of $ 1 per share. The Company's
failure to meet such requirements could result in the delisting of the Common
Stock from trading on the NASDAQ SmallCap Market. If, however, the Company did
not meet the requirements of the NASDAQ SmallCap Market, trading of the Common
Stock would be conducted on an electronic bulletin board (OTC BB) established
for securities that do not meet the NASDAQ listing requirements or in what is
commonly referred to as the "pink sheets." Delisting may restrict investors'
interest in the Common Stock and materially adversely affect the trading market
and prices for the Common Stock and the Company's ability to issue additional
securities or to secure additional financing.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On July 10, 1997, the Company filed an action in the Circuit Court of the 17th
Judicial Circuit in and for Broward County, case no. 97-10533, against Dr. Valey
Kamalov ("Kamalov"). The complaint alleges that Kamalov, an ex-employee of the
Company, violated his employment agreement with the Company while employed and
after terminating his employment with the Company by violating non-compete,
confidentiality, and invention covenants of the agreement. Upon filing the
complaint, the Company sought and was granted injunctive relief against Kamalov
during the pendency of the proceedings. On November 19, 1997, after a hearing,
the Court granted Kamalov's motion to dissolve the injunction. On December 17,
1997, the Company filed a timely notice of appeal in the District Court of
Appeal of Florida, Fourth District, Appeal No. 98-58. Briefs have been filed by
both parties and the appeal is pending. Oral Argument has not been set as of the
date of this Report.
ITEM 2. CHANGES IN SECURITIES.
Effective February 3, 1998, the Board of Directors amended the
Articles of Incorporation of the Company in order to designate a class of shares
as Series E Convertible Preferred. The Series E Preferred is non-voting, can be
converted into common stock of the Company and has rights and preferences that
materially limit or qualify the rights of the holders of registered common
stock, including a liquidation preference of $10,000 per share. See Item 5
"Other Information - Private Placements".
Effective February 26, 1998, the Board of Directors amended the
Articles of Incorporation of the Company in order to designate a class of shares
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as Series F Convertible Preferred. The Series F Preferred is non-voting, can be
converted into common stock of the Company and has rights and preferences that
materially limit or qualify the rights of the holders of registered common
stock, including a liquidation preference of $10,000 per share. See Item 5
"Other Information - Private Placements".
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
NASDAQ LISTING
On March 24, 1996, the Company filed its application with NASDAQ to be listed on
the Small Cap Market. The Company's request for listing was subsequently denied
after a hearing before the Listing Qualifications Panel (the "Panel"). The
denial was based upon the fact that one of the Company's outside shareholders
(the "Shareholder"), who had no control or relationship with the Company, had a
questionable background and owned a 5% interest in the Company.
As a result, the Company appealed the denial decision to the NASDAQ Listing and
Hearing Review Committee (the "Committee") which on February 5, 1997, reversed
the decision of the Panel and stated in part the following:
"Accordingly, we recommend that the Panel's decision denying initial
inclusion be reversed and the case be remanded to the Staff with
instructions to implement the Company's proposal..."
The Company in fact, did implement its proposal and on March 12th, provided
NASDAQ with copies of all things necessary to satisfy any concerns that the
Panel had regarding the Shareholder. On March 31, 1997, prior to the time NASDAQ
acted on the proposal, Barrons published an inaccurate article stating that a
NASDAQ spokesman indicated that the listing would be denied. .For the 36 trading
day period prior to the date of this article the Company's stock traded at $3.00
and above. The article had a predictable negative impact on the Company's stock
and the price dropped below $3.00, and did not recover , despite a retraction
from Barron's on April 7, 1997. since the Barrons article, despite a retraction
from Barrons. Based upon this decline the NASDAQ staff has refused to approve
the Company for listing on the NASDAQ Small Cap Market.
The Company appealed the denial of the listing at an oral hearing before the
Nasdaq Qualification Hearing Panel (the "Panel") in Washington D.C. on January
22, 1998. On February 10, 1998, the Panel issued its decision which stated, in
part that despite the Company's argument, the Panel was of the opinion that the
Company must satisfy the $4.00 per share bid price requirement as well as all
other requirements for initial listing. The Panel noted that there were in
excess of 25,000,000 total shares outstanding which it stated, would allow the
Company to effect a reverse split sufficient to raise the bid price above the
$4.00 minimum. The Panel was of the opinion that the Company was in compliance
with the net tangible assets requirement, however the Panel expressed concern
relating to the Company's ability to maintain compliance with the $2,000,000 net
tangible assets requirement over the long term. The Panel granted the Company's
request for initial inclusion on the Nasdaq Small Cap Market, subject to the
following conditions:
1. On or before May 11, 1998, the Company must effect a reverse stock
split sufficient to raise its bid price to, or above $4.00 per share for the
opening of one trading day or in the alternative, on or before May 11, 1998, the
Company must have and retain for 10 consecutive trading days a $4.00 bid price
through natural forces.
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2. On or before May 11, 1998, the Company must make a public filing with
the SEC and NASDAQ evidencing a minimum of $5,000,000 in net tangible assets.
Due to the substantial amount of preferred shares outstanding at the time, The
Board of Directors determined that a reverse split at this time would be
detrimental to the interests of its shareholders and vetoed the proposal for the
reverse split. The conditional listing expires on May 11, 1998. To date the
Company has been unable to comply with the above conditions.
The Company immediately appealed this decision to the Nasdaq Listing and Hearing
Review Council (the "Council"). On May 19, 1998, the Company received the
Decision of the Council which affirmed the decision of the Panel. The Council
stated that:
"In making this decision, we find unpersuasive the Company's argument that
on remand, it was not required to satisfy the initial inclusion bid
requirement, or by implication, any of the other listing requirements. In
fact the purpose of a remand and the continuing role of the staff in the
process is to provide assurance that the Company satisfied Nasdaq listing
requirement at the time it was listed, a fact that the Company likely
understood when it went through the re-application process following
remand."
The Company contends that this determination is incorrect in that the Company
never went through a re-application process following remand. The Council went
on to state, in part, that:
"The Company could have no reasonable expectation that it received a
waiver of Nasdaq listing standard. The decision merely determines that the
ownership of the shareholder at issue would not prevent listing, given the
Company's plan to insulate itself. We believe that the Panel's exception,
which appears to be within the Company's control to achieve, was
appropriate. While the incorrect Barron's article was unfortunate, we note
that a retraction was later printed and sufficient time has passed to
allow the Company's stock to be fairly priced in the market. We note that
at the time of our consideration, the bid price for the Company's was 1
1/16. This is well below Nasdaq's initial inclusion standards.
The Council also agreed with the Panel's determination to require a heightened
net tangible assets requirement based upon the Company's history of losses which
have increased on a quarterly basis.
The Company has thirty (30) days to file an appeal with the Securities and
Exchange Commission. The Company intends to file an appeal in this matter.
PATENTS
In December 1997, the patent for the CTLM(TM) was issued by the United States
Department of Commerce Patent and Trademark Office under Patent Number 5692311.
The Company has twelve patents pending with regard to Optical Tomography.
PRIVATE PLACEMENTS
The Company has had to rely on the private placement of Preferred and common
stock to obtain working capital. In deciding to issue Preferred Shares pursuant
to the private placements, the Company 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 share
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 the Company's common stock at the time of the sale of the Preferred to
satisfy the Preferred conversion requirements. Although the Company's 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.
20
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On February 4, 1998, the Company finalized a $500,000 private placement to
Austost Anstalt Schaan and Balmore Funds S.A. of 50 shares of its Series E
Convertible Preferred Stock ("the "Preferred Shares") and Warrants to purchase
up to 25,000 shares of the Company's common stock at an exercise price of $1.093
per share. The offering was conducted pursuant to Regulation S as promulgated
under the Securities Act of 1933, as amended (the "Regulation S Sale"). At the
time the placement was concluded, the average bid and ask price of the Company's
common stock was approximately $1.093 per share.
The Preferred Shares are convertible, at any time, commencing 45 days from the
date of issuance and for a period of three years thereafter, in whole or in
part, without the payment of any additional consideration. Pursuant to the
Subscription Agreement, the Series E 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 of the Company. The number of fully paid and non-assessable shares of
common stock, no par value, of the Company to be issued upon conversion will be
determined by dividing (i) the sum of $10,000 by (ii) the Conversion Price
(determined as hereinafter provided) in effect at the time of conversion. The
"Conversion Price" is equal to seventy five percent (75%) of the Average Closing
Price of the Corporation's Common Stock for the five-day trading period ending
on the day prior to the date of conversion but in no event greater than $.82 per
share.
The shares underlying the Preferred Shares and Warrants were entitled to demand
registration rights in the event that Regulation S is amended prior the
conversion of the Preferred Stock.
In connection with the Regulation S Sale, the Company 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 the Company of $495,000 will be used for working capital and the
continuous research, development and testing of the Company's Computed
Tomography Laser Mammography (CTLM (TM)) device.
On February 20, 1998, the Company finalized a $750,000 private placement to
Dominion Capital Fund, LTD and Canadian Advantage, LTD of 75 shares of its
Series F Convertible Preferred Stock ("the "Preferred Shares") at a purchase
price of $10,000 per share. The Preferred Stock pays a dividend of 6% per annum
payable in Common Stock at the time of each conversion. The offering was
conducted pursuant to Regulation S as promulgated under the Securities Act of
1933, as amended (the "Regulation S Sale"). . At the time the placement was
concluded, the average bid and ask price of the Company's common stock was
approximately $1.31 per share
The Preferred Shares are convertible, at any time, commencing 45 days from the
date of issuance and for a period of three years thereafter, in whole or in
part, without the payment of any additional consideration. Pursuant 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 Exchange Act of
1934, as amended, of 4.99% or more of the then issued and outstanding Common
Stock of the Company. The number of fully paid and non-assessable shares of
common stock, no par value, of the Company to be issued upon conversion will be
determined by dividing (i) the sum of $10,000 by (ii) the Conversion Price
(determined as hereinafter provided) in effect at the time of conversion. The
"Conversion Price" is equal to seventy percent (70%) of the Average Closing
Price of the Corporation's Common Stock for the five-day trading period ending
on the day prior to the date of conversion.
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The shares underlying the Preferred Shares are entitled to demand registration
rights in the event that Regulation S is amended prior the conversion of the
Preferred Stock.
In connection with the Regulation S Sale, the Company paid, Rolcan Finance, Ltd.
an aggregate of $50,000 for placement and legal fees.
Net proceeds to the Company of $700,000 will be used for working capital and the
continuous research, development and testing of the Company's Computed
Tomography Laser Mammography (CTLM (TM)) device.
The Company is currently negotiating with investors for additional funding
through private placement. The proceeds from this funding will be used to
continue the development of and the continuation of clinical trials for the
Company's Computed Tomography Laser Mammography (CTLM (TM)) device.
INTERNATIONAL DISTRIBUTION
In April 1998, the Company entered into an exclusive International Distribution
with Focus Surgical LTD, to distribute the CTLM(TM) device to hospitals and
clinics throughout the United Kingdom and Ireland. The term of the Agreement is
three years, with a minimum purchase requirement of 10, 12 and 15 CTLM(TM)
devices in the first, second and third year(s) of the Agreement, respectively.
Focus Surgical currently distributes noncompetitive laser products for companies
such as Sunrise Medical Technologies and Baltec, among many others.
The Company has already secured exclusive distributors for the following
territories: Italy, France, South Korea, the Pacific Rim including China,
Switzerland, Moscow, Germany, Austria, the Republic of Turkey and Ecuador.
Based on its present research and development and supplier production schedules,
the Company anticipates that the CTLM(TM) device will be ready for distribution
this Summer.
FDA UPDATE
On March 19, 1998 the Company submitted the final Report for the Company's IDE.
Also on March 19, 1998 the Company met with representatives of the FDA. The
purpose of the meeting was to describe several options to the Company's IDE and
to get the FDA's perspective on these approaches. It was decided that the
Company will complete the first phase with 20 patient studies performed in-house
and monitored by an Institutional Review Board ("IRB") established by the
Company. The information obtained from the study will be submitted to the FDA to
enable the Company to commence the second phase at three unaffiliated clinical
sites.
In April 1998 the Company appointed eight specialists in the fields of
Gynecology and Obstetrics, Mammography, breast surgery, Neurology and optics and
laser engineering to serve on the IRB.
On May 15, 1998 the Company submitted a supplemental safety report to the FDA
which encompasses all of the modifications and upgrades since the initial safety
report was filed.
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibits Description
- -------- -----------
(a)
<S> <C>
3. Amendment to Articles of Incorporation (Designation of Series E Preferred Stock)*
3.1 Amendment to Articles of Incorporation (Designation of Series F Preferred Stock)*
10.10 Focus Distribution Agreement
</TABLE>
22
<PAGE>
*Filed as an Exhibit to Form 10-QSB for the quarter ended March 31, 1998.
(b) Reports on Form 8-K
Form 8-K dated February 19, 1998. Form 8-K dated March 16, 1998.
23
<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: April 1, 1999 Imaging Diagnostic Systems, Inc.
By: /s/Allan L. Schwartz
-----------------------
Allan L. Schwartz,
Executive Vice-President
Chief Financial Officer
24
FOCUS DISTRIBUTION AGREEMENT
IMAGING DIAGNOSTIC SYSTEMS, INC.
DISTRIBUTION AGREEMENT
This Distribution Agreement ("Agreement") is made and entered into as of
March 30, 1998, by and between FOCUS Surgical Ltd., a corporation organized and
existing under the laws of the United Kingdom (the "Distributor"), and Imaging
Diagnostic Systems, Inc., a corporation organized and existing under the laws of
the State of Florida ("IDSI").
WITNESSETH:
RECITALS
WHEREAS, IDSI is the owner, and manufacturer of a state of the art laser
imaging system for detection and analysis of masses in the breast, and ancillary
equipment as more fully described on Exhibit A hereto and incorporated herein
(the "Equipment").
WHEREAS, IDSI is the owner of a certain Patent, Patent pending and Patent
applications, trade secrets and other proprietary information in connection with
the Equipment and represents that it has the legal right to manufacture, sell
and distribute the Equipment, either individually or through others;
WHEREAS, IDSI wishes to grant to Distributor and Distributor wishes to
obtain the exclusive right to be supplied with, sell, distribute and market the
Equipment, individually or through others, in the United Kingdom and Ireland
(the "Territory").
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and for other good and valuable consideration, the parties
hereto agree as follows:
1. DEFINITIONS. For purposes of this Agreement the following terms shall have
the definition set forth below.
(a) Equipment. The term "Equipment" shall mean and include only those
products listed on Exhibit A, as amended from time to time. IDSI may add to,
upgrade or change the Equipment from time to time by providing written notice
not less than thirty (30) days prior to any such change.
(b) Territory. The term "Territory" shall mean the United Kingdom and
Ireland.
2. TERM. This Agreement shall be for a term of three years from the date of its
execution by Distributor. This Agreement will automatically renew for an
additional one year term provided that Distributor meets the Performance
Standards set forth in Section 5. and, provided that Distributor satisfactorily
fulfills all other terms and conditions of this Agreement.
3. RIGHT TO SELL, DISTRIBUTE AND MARKET. During the term of this Agreement and
any renewal hereof, IDSI hereby grants to Distributor, as its exclusive agent,
the right to sell, distribute, individually or through outside distributors, and
market the Equipment in the Territory. Distributor shall also have the right to
use the trade names, and trademarks associated with the Equipment in connection
with the promotion, sale, marketing and distribution of the Equipment.
Distributor hereby acknowledges and agrees that all trade names and trademarks
associated with the Equipment are the property of and proprietary to IDSI.
4. DISTRIBUTOR'S DUTIES, REPRESENTATIONS AND WARRANTIES. Distributor agrees to
use its best efforts to sell, market and/or distribute the Equipment in the
Territory. Distributor agrees that it will perform at its expense the following
duties to IDSI's reasonable satisfaction
(a) Promotion and Marketing.
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<PAGE>
(i) Distributor will maintain a qualified sales and distribution
organization which will provide sales personnel, advertisement, marketing and
distribution support for the solicitation of customers and potential customers
in the Territory for the sale of the Equipment.
(ii) Any sales promotion, promotional activities, marketing or
advertising strategies, pamphlets, advertisements, brochures or other
promotional materials, other than those provided by IDSI, must have the prior
written approval of IDSI. At least one copy of all Distributor's advertising and
sales promotion materials in which the Equipment of IDSI is mentioned, must be
provided for IDSI's review and approval prior to the time of first use. All
advertisements, pamphlets, brochures or other promotional materials, other than
those provided by IDSI shall be at the sole cost of the Distributor. The
Distributor shall have the continuing right to use any promotional materials
produced by IDSI while this Agreement is in effect.
(iii) Distributor, at its sole cost, will attend the RSNA and be
present in the IDSI booth for at least 4 hours per day.
(iv) Distributor will exhibit the CTLM(TM) in at least one major
exhibit in the Territory or in the countries surrounding the Territory.
(b) Quarterly Reports. Distributor shall promptly prepare and deliver to
IDSI, within 15 days of the end of each quarter, reports identifying each
purchaser of Equipment by name, address and designation of type of business and
the date of sale, model and serial number for each unit of Equipment sold during
the preceding three months and a forecast of requirements for Equipment for the
following six months, as well as a description of all training, support, and
advertising and sales promotional activities undertaken during such period. In
addition, such Report shall contain a statement of the Distributor' then current
inventory of spare parts and technical literature available for customer
service, maintenance and support of the Equipment. The Report shall be certified
by an officer of the Distributor.
(c) General Conduct. Distributor shall at all times conduct its business
in a manner that reflects favorably on IDSI and its Equipment and will not
engage in any deceptive, misleading, illegal or unethical business practices.
(d) Service and Support. Distributor's personnel will be required to be
trained at IDSI headquarter facilities in sales and support techniques for all
of the Equipment and services. IDSI will not charge for such training, however
Distributor shall be responsible for all travel, accommodation and other
expenses. Distributor will provide adequate installation, customer service, and
maintenance and support for the Equipment in the Territory. Distributor will
establish and maintain a staff of trained technicians and purchase and maintain
stock of spare parts and technical literature necessary in order to provide
adequate installation, customer service, maintenance and support of the
Equipment in the Territory. Distributor hereby agrees to provide such service
and support in a prompt and workmanlike manner to any user of the Equipment in
the Territory.
(e) Competitive Products. Distributor will do everything within its power
to feature, promote, and advertise, as part of its merchandising and sales
policy, the Equipment and use its best efforts to stimulate and increase
interest in IDSI's Equipment. IDSI understands that some existing and some new
customers may request competitors' products. Distributor will use its best
efforts to sell, market and distribute the IDSI Equipment to such customers.
Distributor will give IDSI the opportunity to assist with these accounts.
(f) Customer Requirements. With a view to maximizing the potential market
for the Equipment within the Territory, Distributor will report to IDSI on a
quarterly basis, and assist IDSI in the assessment of the needs and requirements
of the potential customer base in the Territory with respect to the Equipment,
including, but not limited to: (i) a rolling twelve-month quantity forecast,
(ii) quality of the Equipment, (iii) design, functional capability and
additional features of the Equipment and related modifications, improvements and
enhancements, and (iv) general market conditions of the Territory.
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<PAGE>
(g) Co-marketing Protection. Distributor will maintain confidentiality of
IDSI supplied prospective customers and not conduct any direct efforts to
persuade such clients toward competitive equipment or services.
(h) Purchase Orders. Distributor shall forward all orders promptly to
IDSI. The orders shall state clearly the name of the purchaser, the quantity
purchased, and the time and place of delivery.
(i) Delivery. Distributor shall give IDSI at least 180 days prior written
notice before each shipment is required.
(j) Expenses and Taxes. Distributor is an independent contractor, and as
such shall pay all expenses, including compensation of salesmen, rentals,
travel, and all taxes, including assessments, which may be made against the
salary or wages of those directly employed by Distributor.
(k) Relationship of Parties. Except as set forth herein, Distributor shall
have no right or authority to create any obligation on the part of IDSI or bind
IDSI to any agreement.
(1) Offices. Distributor shall maintain a suitable office in the United
Kingdom with a telephone and facsimile line suitable for use for the sale of the
Equipment. The office shall contain a suitable display area where the Equipment
shall be prominently displayed at all times. This display area or another area
shall be suitable for and used for the demonstration of and training in the use
of, the Equipment. The office shall be staffed from 9:00 a.m. to 5:00 p.m.,
Monday through Friday, subject to recognized national holidays.
5. PERFORMANCE STANDARDS. Prior to the PMA, Distributor will purchase one
clinical CTLM(TM), at IDSI's cost, for sale to a major medical facility to be
used for clinical study comparisons. The sale to the medical facility shall be
approved by IDSI and shall be conditioned upon and provide Distributor with the
unlimited right, subject to scheduling, to use the Equipment for sale
demonstrations. Demonstrations of the equipment must be complete and must show
all features and functions of the Equipment.If the following performance
standards (the "Minimum Performance Standards") are not met, IDSI will notify
Distributor, in writing, that it is in default of this Agreement. If Distributor
does not cure the deficiency within 30 days from receipt of the notice, IDSI, at
its sole option, may: (i) continue this Agreement on a nonexclusive basis; (ii)
continue this Agreement on a nonexclusive basis and limit the Territory; or
(iii) terminate this Agreement. Any such action taken by IDSI shall be without
prejudice to the rights of the parties with respect to Equipment already
ordered, sold or delivered. For the purpose of this Agreement Year 1 shall begin
upon PMA acceptance.
YEAR. NUMBER OF CTLM(TM) UNITS
1 10
2 12
3 15
6. PURCHASE OF EQUIPMENT.
(a) Orders. Orders from Distributor for equipment shall be made by
delivery of a purchase order to IDSI. As soon as practicable after receipt of
such purchase order, IDSI will: (i) if such order is accepted, return to
Distributor IDSI's standard form of Sales Acknowledgment (the "Acknowledgment")
setting forth dates on which delivery will be made, or (ii) notify Distributor
in writing that such order is rejected. IDSI will use its best efforts to make
prompt delivery of the Equipment accepted by IDSI on the delivery dates
specified in the Acknowledgment, F.O.B. Fort Lauderdale, at the time and to the
entities and destinations listed in the purchase orders. IDSI shall not be
liable for any failure to deliver, if such failure has been occasioned by fire,
embargo, strike, failure to secure materials from a usual source of supply, or
any circumstance beyond IDSI's control, which shall prevent IDSI from making
deliveries in the normal course of its business. IDSI shall not, however, be
3
<PAGE>
relieved from making delivery when the causes interfering with deliveries shall
have been removed. In particular, the Parties acknowledge that IDSI is reliant
on outside suppliers, which supply the components for its Equipment. Should
these suppliers fail to produce the required components in a timely manner, than
IDSI shall be excused from the delivery obligations under this Agreement until
such time as the components can be manufactured, delivered and installed in the
Equipment. In no event shall IDSI be responsible for any loss or liability
suffered by Distributor as a result of delay in delivery of any order.
(b) Cancellation of Orders. Distributor may cancel any order (or any part
thereof) for Equipment by giving IDSI written notice of such cancellation at
least 15 days prior to the shipping date. If Distributor cancels an order for
Equipment (or any part thereof), Distributor will be subject to a charge based
upon the purchase price relating to the Equipment so affected as set forth on
Exhibit B attached hereto. In the event of such cancellation, Distributor will
have no rights in partially completed goods.
(c) Rescheduling Orders. Distributor may at any time, upon not less than
thirty (30) days written notice to IDSI, reschedule and/or postpone the delivery
date relating to an order (or any part thereof) for up to thirty (30) days. The
postponement of delivery to a date more than thirty (30) days from the delivery
date specified in the initial order shall be deemed a cancellation of such
order. DISTRIBUTOR MAY NOT POSTPONE THE DELIVERY DATE MORE THAN ONCE WITH
RESPECT TO ANY ORDER. If Distributor cancels a previously rescheduled delivery
of Equipment, the applicable cancellation charges shall be based on the delivery
date specified in the initial order submitted by Distributor for such delivery.
7. PRICE.
(a) Purchase Price. The purchase price for the Equipment to be sold
hereunder shall initially be as set forth on IDSI's Price List attached hereto
as Exhibit A, which may be discounted based on the cumulative quantities of such
Equipment purchased by Distributor during the term hereof or any Additional
Term. Discounts shall not apply retroactively to prior purchases of Equipment.
IDSI shall have the sole right to set the price and other terms of the sales of
the Equipment. IDSI, at its sole discretion, reserves the right to change
prices, materials used, Equipment line and the components of the Equipment. IDSI
will provide reasonable notice of any price or other changes to Distributor as
to not disrupt the sales and distribution of the Equipment. IDSI reserves the
right to amend Exhibit A with respect to any Additional Term.
(b) Price Changes. IDSI may change the prices to be charged for Equipment
sold hereunder by amending its published Price List and giving Distributor
thirty (30) days prior notice. All orders received and accepted by IDSI prior to
the effective date of the price increase for shipment within thirty (30) days of
such effective date will be billed at the prices in effect at the time of
acceptance of the order; provided, however, that if Distributor notifies IDSI in
writing prior to the effective date of such price increase that it quoted the
original price in an outstanding bid submitted prior to receipt of IDSI's
amended Price Lists, any order relating to such bid accepted by IDSI prior to
the effective date of such price increase for shipment within ninety (90) days
of such effective date will be billed at the prices in effect at the time of
acceptance. All other shipments after thirty (30) days (or ninety days, if
applicable) of such effective date shall be billed at the prices set forth in
the amended Price List.
(c) Payment. All payments hereunder shall be in United States dollars and
shall be effected by means of confirmed, irrevocable letters of credit on a
United States bank established, upon execution of this Agreement, to IDSI's
satisfaction. All exchange, interest, banking, collection and other charges
shall be the sole expense of the Distributor. Distributor shall have the option
to wire transfer funds in advance of shipment to IDSI as follows:
First Union National Bank of Florida, Jacksonville, Florida
Account of Imaging Diagnostic Systems, Inc. Account Number 2090000
ABA Number 063000021
4
<PAGE>
Shipment will be made upon either receipt of the letter of credit approved by
IDSI or confirmation that a wire transfer has been received.
8. TERMS AND CONDITIONS OF SALE. This Agreement and all sales of Equipment
hereunder by IDSI to Distributor shall be subject to IDSI's standard terms and
conditions of sale as set forth on the applicable Acknowledgment. A copy of
IDSI's current Standard Terms and Conditions of Sale is attached hereto as
Exhibit D and incorporated herein. To the extent that IDSI's standard terms and
conditions are inconsistent with express provisions of this Agreement, the
provisions of this Agreement shall prevail. Distributor agrees that although it
may use its standard forms for others or other notices hereunder, said standard
forms will be governed by the terms and conditions of this Agreement and any
applicable Acknowledgment shall have no force and effect. Distributor agrees to
place the following legend on its standard forms submitted to IDSI hereunder:
"NOTWITHSTANDING ANY OTHER TERMS AND CONDITIONS APPEARING HEREON, THIS PURCHASE
SHALL BE GOVERNED BY THE TERMS AND CONDITIONS OF SALE SET FORTH IN THE IDSI
DISTRIBUTION AGREEMENT."
9. PRODUCT WARRANTY.
(a) Distributor Warranty. The sole warranties provided by IDSI to
Distributor with respect to the Equipment are those contained in IDSI's Standard
Terms and Conditions. Notwithstanding the foregoing, with respect to Equipment
for which IDSI is not the original manufacturer, the sole warranties provided by
IDSI to Distributor shall be equivalent to the sole warranties provided by the
original manufacturer to IDSI (current original manufacturer warranties and the
Equipment to which they pertain are set forth on Exhibit A).
IDSI DISCLAIMS ALL OTHER WARRANTIES, WARRANTS OF TITLE, MERCHANTABILITY, AND
FITNESS FOR A PARTICULAR PURPOSE AND AGAINST INFRINGEMENT UPON THE RIGHTFUL
CLAIM OF ANY THIRD PERSON. IDSI DISCLAIMS LIABILITY FOR ALL CONSEQUENTIAL
DAMAGES IN ANY FORM, EVEN THOUGH IDSI MAY HAVE BEEN ADVISED OR MAY OTHERWISE
KNOW OF THE POSSIBILITY OF SUCH DAMAGES.
Nothing contained in this warranty shall make IDSI liable beyond the express
limitations of this warranty for loss or damage to the business of Distributor,
including any claims as to breach of contract, lost receipts or profits,
business interruptions or other tangible business loss.
(b) End-User Warranty. Distributor is hereby authorized, subject to the
succeeding sentence, to offer the warranties set forth in Section 9 (a) to
customers to whom it sells the Equipment, and IDSI agrees to honor such
warranties. Distributor acknowledges and agrees that the warranty period set
forth in the Acknowledgment commences, with respect to both Distributor and its
customers, on the date of delivery to Customer provided however, in no event
shall the warranty period exceed fifteen months. In the event that the
Distributor extends or otherwise represents to a customer that the warranties
are more extensive or encompassing than those set forth herein, the Distributor
shall indemnify IDSI for any warranty claims made by a customer based on
Distributor's representations.
10. SUBLICENSES.
(a) Programs Sublicense. Distributor is authorized to grant restrictive,
nonexclusive, nontransferable sublicenses to customers to use the Programs (as
defined in the Acknowledgment) or any portion thereof, provided that each such
Customer (sublicensee) enters into an agreement with Distributor pursuant to
which the sublicensee expressly accepts and agrees to the terms and conditions
of the license set forth in the Acknowledgment. In addition to any other remedy
IDSI may have, IDSI reserves the right to terminate any sublicensee's sublicense
if said sublicensee fails to comply with any term or condition of any such
sublicense. Any sublicense granted by Distributor to a sublicense hereunder
shall also terminate and such sublicense shall cease to use and return the
Programs.
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(b) Proprietary Technical Materials Sublicense. Distributor is authorized
to grant restrictive, nonexclusive, nontransferable sublicenses to customers to
use the Proprietary Technical Materials or any portion thereof, provided that
each such customer (sublicensee) enters into an agreement with Distributor
pursuant to which the sublicensee expressly accepts and agrees to the terms and
conditions of the license set forth in the Acknowledgment. In addition to any
other remedy IDSI may have, IDSI reserves the right to terminate any
sublicensee's sublicense if said sublicensee fails to comply with any term or
condition of any such sublicense. Any sublicense granted by Distributor to a
sublicense hereunder shall also terminate and such sublicense shall cease to use
and return the Proprietary Technical Materials.
11. MAINTENANCE.
(a) Distributor's Obligation to Provide Service. Distributor agrees that
IDSI shall have no obligation to maintain the Equipment except for the warranty
obligations specified in Section 9. Distributor acknowledges and agrees that it
will perform, at no expense to IDSI, maintenance and repair of Equipment sold or
leased to the Distributors customers
(b) Consignment of Spares Parts. IDSI may, at its sole discretion, consign
to Distributor, from time to time, as it may deem necessary, spare parts to
support warranty repair service in Distributor's Territory. The title to such
parts shall at all times remain with IDSI and Distributor shall have no right,
title or interest therein until such time as payment is made to IDSI as set
forth below. In the event that such parts used for non-warranty repair service,
Distributor will purchase the part used or to be used for non-warranty repair
services at prices listed in Exhibit A, as may be amended from time to time.
Distributor will provide IDSI with a monthly report, not later than 15 days
after the first day of each month, which will indicate the Customers name,
address and phone number, the work performed, the parts used and whether the
repair was under warranty. The report shall also include a total dollar amount
for parts used for non-warranty repair and be accompanied by a check for full
payment therefor.
12. TERMINATION.
(a) Either party may, by written notice to the other party, terminate this
Agreement upon the occurrence of any one or more of the following events:
(i) Upon the failure of the other party to pay any monies when due
hereunder, if such default continues for five (5) business days or more after
written notice to the defaulting party;
(ii) Upon material failure of a party to observe, keep or perform any
of the covenants, terms or conditions herein, if such default continues for
thirty (30) business days or more after written notice to the defaulting party;
(iii) In the event: (A) a party makes a general assignment for the
benefit of creditors or transfers all or a substantial portion of its assets;
(B) a receiver is appointed and not discharged within 30 days of appointment, or
(C) the other party has become insolvent.
(b) IDSI may, by written notice to Distributor, terminate this Agreement
upon occurrence of any one more of the following events:
(i) In the event that Distributor solicits orders for Equipment
outside its Territory;
(ii) In the event of any dispute, disagreement or controversy between
or among the owners, partners, managers, officers or stockholders of Distributor
which in the opinion of IDSI adversely affects the ownership, operation,
management, business or interests of Distributor, or in the event of a change in
control or majority ownership of Distributor;
6
<PAGE>
(iii) If Distributor ceases to function as a going concern or to
conduct its operations in the normal course of business, or
(c) If Distributor fails to meet the Minimum Performance Standards set
forth in Section 5, IDSI shall have the right, upon 30 days written notice to
the Distributor, to terminate this Agreement. Distributor shall have the right
to cure the deficiency within such 30-day period. If Distributor does not cure
the Deficiency within such 30-day period, IDSI may terminate this Agreement on
the 30th day.
(d) Upon termination or expiration of this Agreement, for any reason
Distributor shall discontinue the use of IDSI's name, trademarks, trade names,
labels, copyrights, and other advertising media and shall remove all signs and
displays relating thereto: and will no longer identify itself as a distributor
of IDSI or indicate, in any way, that it is associated with IDSI. Distributor
shall promptly return to IDSI all marketing and selling materials, all manuals,
all technical data, all other documents and copies thereof previously supplied
by IDSI and all spare parts consigned to Distributor by IDSI.
(e) Upon termination or expiration of this Agreement, for any reason, IDSI
shall have the option to repurchase its Equipment and spare parts then in
possession of the Distributor, at prices originally billed to the Distributor if
the Equipment and spare parts are new and at an adjusted price if the Equipment
is used, and with deductions for money due or to become due to IDSI under this
Agreement. As to any of the IDSI's Equipment or spare parts not repurchased by
IDSI, Distributor shall have the right to dispose of them in the regular course
of its business and for this purpose only, the restrictions of preceding sub
paragraph shall be deferred until three months after the termination of this
Agreement.
(f) It is expressly understood and agreed that the rights of termination
as provided in this Agreement are absolute and that both parties hereto have
considered the costs and expenditures associated with the preparation and
performance of this Agreement and the possible losses and damages which may be
incurred by both parties in the event of its termination. The parties hereto
acknowledge and agree, by execution hereof that they have entered into this
Agreement with full knowledge of such possibilities, and except as provided
herein neither party hereto shall be responsible to the other for compensation,
damages, losses, or otherwise, for termination of this Agreement as set forth
above.
13. TRADEMARKS: MARKINGS.
(a) Trademarks and Names. Distributor is hereby granted permission to use
during the term of this Agreement, and any renewal hereof, the trademarks and
trade names used by IDSI in connection with the Equipment. Such permission is
expressly limited to uses by Distributor necessary to performance of
Distributor's obligations under this Agreement, and Distributor hereby admits
and recognizes IDSI's exclusive ownership of such marks and names and the renown
of IDSI's marks and names, both worldwide and specifically in the Territory.
Distributor agrees not to take any action, inconsistent with such ownership and
further agrees to take any action, including without limitation the conduct of
legal proceedings, which IDSI deems necessary to establish and preserve IDSI's
exclusive rights in and to its trademarks and trade names. Reproductions of
IDSI'S trademarks, logos, symbols, etc. shall be true reproductions and shall be
done photographically, in a manner which enhances the reputation and status of
IDSI.
(b) Markings. Distributor will not remove or make or permit any
alterations in any labels or other identifying markings placed by IDSI on any of
the Equipment without written consent by IDSI.
(c) No Additional Rights. No rights to manufacture, alter, or use the
Equipment for purposes other than those contained herein are granted by this
Agreement. Moreover, no licenses are granted or implied by this Agreement under
any patents owned or controlled by IDSI or under which IDSI has a right, except
the right to sell, market and distribute IDSI's Equipment, as contemplated
herein, during the term of this Agreement.
7
<PAGE>
14. INDEMNIFICATION. Distributor shall indemnify and hold harmless IDSI, its
officers, directors, employees, or agents (collectively referred to in this
Section 14 as "IDSI") for damages or expenses resulting from any claim, suit or
proceeding brought against IDSI, with regard to any untrue statement or alleged
untrue statement, misrepresentation or alleged misrepresentations, promise or
agreements made or allegedly made by Distributor or its subdistributors or
arising from the marketing, sale or distribution of the Product by Distributor
or its sub-distributors. This provision shall not apply to Distributor or any
person controlling Distributor in respect of any losses, claims, damages,
liabilities or actions arising out of or based upon any untrue statement or
alleged untrue statement, misrepresentation or alleged misrepresentations,
promise or agreement made or allegedly made by Distributor or arising from the
marketing, sale or distribution of the Product by Distributor, if such untrue
statement or alleged untrue statement, misrepresentation or alleged
misrepresentations, promise or agreement was made in reliance upon information
furnished in writing to Distributor by IDSI specifically for use in connection
with the sale, marketing or distribution of the Equipment. IDSI agrees that
Distributor has the right to defend, or at its option to settle, and Distributor
agrees, at its own expense, to defend or at its option to settle, any claim,
suit or proceeding brought against IDSI. Distributor agrees to pay any costs of
litigation, investigation or defense incurred by IDSI, including reasonable
attorney fees, and final judgement, entered against IDSI on such issue in any
such suit or proceeding. Distributor shall be relieved of the foregoing
obligations unless IDSI notifies Distributor in writing, within fifteen days of
receipt of notification of such suit, claim or proceeding, and gives Distributor
authority to proceed as contemplated herein.
15. RISK OF LOSS. Title to the Equipment shipped shall pass upon shipping,
subject to full payment. Distributor assumes the risk of loss and damage of the
Equipment in transit from IDSI's shipping point to the point of destination.
16. COMPLIANCE WITH LAWS. Distributor shall comply with all material applicable
present and future federal, state, county, local and foreign laws, ordinances
and regulations relating to the importation and sale of the Equipment.
Distributor will take all steps necessary to obtain the proper import licenses,
if applicable and Distributor shall be solely responsible for any excise tax,
duties or other costs for the importation of the Equipment. 17.
NON-CIRCUMVENTION AGREEMENT. The respective Parties involved in this Agreement,
agree not to circumvent each other. The Parties agree that they will not make
any contact, directly or indirectly, written, oral, electronic or by any medium
of contact whatsoever, with any Sources without the express written consent of
the other introducing Party. Each of the listed Parties hereto, accepts and
understands that any overt or covert action of circumvention, or unauthorized
disclosure shall constitute a breach of trust and shall be considered a breach
of the terms and conditions of this agreement. Such action shall be subject to
judicial action, and recompense.
If either Party shall bring an action to recover payment or other compensation
pursuant to the terms of this Agreement, the prevailing Party shall be entitled
to reasonable attorney's fees and expenses as may be awarded, including legal
fees and costs, and recovery for liquidated damages and punitive damages as may
be awarded by and through any legal process or jurisdiction.
For the purposes of this Section 17, the term "Party" or "Parties" shall be
considered to include and be binding upon the parties to this Agreement, any
individual, entity or entities, including but not limited to, associates,
partners, assigns, spouses, employees, agents, principals, clients,
corporations, companies, subsidiaries, divisions, affiliated, associations,
collateral providers or the like, which the Parties hereto may now or in the
future be associated with during the term of this Agreement and any renewal
thereof.
For the purposes of this Section 17, the term "Sources" shall be considered to
include any business opportunity, principal, individual, entity or entities,
including but not limited to, customers and distributors, their associates,
partners, assigns, spouses, employees, agents, principals, clients,
corporations, companies, subsidiaries, divisions, affiliated partnerships,
associations or the like, introduced to or brought to the attention of a Party
to the other Party during the term of this Agreement or any renewal thereof.
8
<PAGE>
Distributor acknowledges and agrees that no separate or additional payment will
be required to be made to it in consideration of its undertakings in this
Section 17.
18. NO COPYING. Without the prior written consent of IDSI, Distributor shall
refrain from copying, reverse engineering, disassembling, translating or
modifying the Equipment for its benefit, or granting any other person or entity
the right to do so.
19. NOTICES. Any notice required or permitted by this Agreement shall be in
writing and shall be delivered by U.S. Certified Mail, return receipt requested,
or by special messenger service with receipt (such as Federal Express), by
facsimile delivery or by hand, to the parties at the following addresses or such
substitute person or address of which notice is given in like manner:
Imaging Diagnostics Systems, Inc.
6531 NW 18 Court
Plantation, Florida 33313
Phone (954). 581-9800
Fax (954). 581-0555
Distributor
Focus
8 Buckland Crescent
London NW3 5DX
Phone +44 0 171 722 1758
Fax +44 0 171 722 0499
or to such other address as either of them, by notice to the other may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
20. GOVERNING LAW. VENUE AND ARBITRATION. This Agreement shall be deemed to be
executed in the State of Florida and governed by the laws of the State of
Florida. Any controversy or claim arising out of or relating to this Agreement
or to the interpretation, breach or enforcement thereof, except a claim for
injunctive relief, shall be submitted to an arbitrator and settled by
arbitration in Broward County, Florida, in accordance with the rules then
obtaining of the American Arbitration Association. Any award made by the
arbitrator shall be final, binding and conclusive on all parties hereto for all
purposes, and judgement may be entered thereon in any court having jurisdiction
thereof. Nothing contained herein shall serve to prohibit the parties from
seeking injunctive relief in a court of competent jurisdiction.
21. GENERAL.
(a) Independent Contractor. Distributor will act as an independent
contractor under the terms of this Agreement and not an agent or legal
representative of IDSI for any purpose, whatsoever, and, except for the
extension of the warranty set forth in Section 9, Distributor has no right or
authority to assume or create any obligation of any kind, express or implied, on
behalf of IDSI to Distributor's customers or to any other person.
(b) Product Changes. IDSI reserves the right to make design and other
modifications in the Equipment at any time but shall not be obligated to
implement such modifications in Equipment that has previously been delivered.
9
<PAGE>
(c) Confidential Information. Distributor agrees not to disclose to any
person outside of its employ, and not to use for any purpose other than to
fulfill its obligations under this Agreement, any information which is disclosed
to Distributor by IDSI and which is not otherwise publicly available.
Distributor agrees to take all preventative measures and precautions to guard
against and prevent any use or disclosure of such confidential information by
its partners, employees, agents, or other persons consistent with the intent of
this paragraph. Distributor further agrees not to disclose to IDSI any
information, which Distributor deems to be confidential, and it is understood
that any information received by IDSI will not be of a confidential nature.
(d) Waiver and Amendment. Any party shall not construe the waiver by any
party to this Agreement of a breach of any provision hereof by any other party
as a waiver of any subsequent breach. The failure by either party at any time to
enforce the provisions of this Agreement, or to exercise any election or option
provided herein, shall in no way be construed as a waiver of such provisions or
options, nor in any way to affect the validity of this Agreement or any part
thereof, or the right of either party thereafter to enforce each and every such
provision. No provision of this Agreement may be terminated, amended,
supplemented, waived or modified other than by an instrument in writing signed
by the party against whom the enforcement of the termination, amendment,
supplement, waiver or modification is sought.
(e) No Other Warranty or Representation. Distributor hereby acknowledges
that it has not entered into this Agreement in reliance upon any warranty or
representation by any person or entity except for the warranties or
representations specifically set forth herein.
(f) Language. This Agreement is in the English language only, which
language shall be controlling in all respects, and all versions hereof in any
other language shall be for accommodation only and shall not be binding upon the
parties hereto. All communications and materials made or given pursuant to this
Agreement, including without limitation any operations and maintenance manuals,
shall be in the English language. IDSI shall have no obligations or liabilities
to Distributor or any other person for loss of profits, loss of use or
incidental, special or consequential damages, even if IDSI has been advised of
the possibility thereof, arising out of or in connection with the translation
from English into any other language of any materials made or given pursuant to
this Agreement, including without limitation any operations and maintenance
manuals.
(g) Licenses and Permits. IDSI will use its best efforts to secure all
export licenses and permits required by the United States government, and
Distributor will secure all import licenses and permits required in connection
with the importation, marketing, sale and distribution of the Equipment. Each
party will furnish any information and assistance reasonably required by the
other party in connection with securing any such licenses and permits.
(h) Import/Export Controls. IDSI's obligations hereunder shall be at all
times subject to the export administration and control laws and regulations of
the United States Government, and any amendments thereof and the import
administration and control laws and regulations of the Territory, and any
amendments thereof. Distributor shall provide IDSI with any written assurances
it may reasonably request with respect to Distributor's compliance with such
laws or regulations. Distributor agrees that, with respect to the import, resale
or any other disposition of Equipment and any printed commercial and technical
data and information supplied by IDSI, Distributor will comply fully with the
import/export administration and control laws and regulations of the United
States of America and the Territory, and any amendments of such laws and
regulations.
(i) Compliance with Laws. IDSI represents that, with respect to the
production of Equipment to be furnished hereunder, IDSI will fully comply with
all applicable laws of the United States and the State of Florida. Distributor
represents that, with respect to the purchase, marketing, sale and distribution
of the Equipment furnished hereunder, Distributor will comply with all
applicable laws of the Territory.
(j) Entire Agreement. This Agreement constitutes the entire agreement and
understanding between the parties concerning the subject matter hereof and
supersedes all prior agreements, negotiations and understandings of the parties
with respect thereto. No representation, promise, modification or amendments
shall be binding upon either party as a warranty or otherwise, unless in writing
10
<PAGE>
and signed on behalf of each party by a duly authorized representative. Although
Distributor may use its standard purchase order form to give any order or other
notice provided for hereunder, said order or notice will be governed by the
terms and conditions of this Agreement any applicable Acknowledgment, and any
term or condition set forth in any such standard form which is inconsistent with
or in addition to the terms and conditions of this Agreement and any applicable
Acknowledgment shall have no force or effort.
(k) Attorney's Fees. In the event any action is commenced with regard to
this Agreement, the prevailing party shall be entitled to reasonable attorney's
fees, costs and expenses.
(l) Severability Clause. In the event any parts of this Agreement are
found to be void, the remaining provisions of this Agreement shall nevertheless
be binding with the same effect as though the void parts were deleted.
(m) Successors. Subject to the provisions of this Agreement, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
(n) Section and Paragraph Headings. The section and paragraph headings in
this Agreement are for reference purposes only and shall not affect the meaning
or interpretation of this Agreement.
(o) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature, provided however that
original signatures must be provided within ten days from the date of signing.
(p) Further Assurances. The Parties hereto agree to execute and deliver
from time to time at the other Party's request, without further consideration,
such additional documents and to take such other action necessary to consummate
the transactions contemplated herein.
(q) Assignment. This Agreement may be assigned by IDSI. Distributor will
not be permitted to assign this Agreement with out the prior written consent of
IDSI.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year set forth below.
Dated: March 30, 1998
In the presence of: Imaging Diagnostic Systems, Inc.
______________________________ BY: /s/Linda Grable
Linda Grable, President
Dated: March 30, 1998In the presence of:
______________________________ BY: /s/ Walter Solomon
Walter Solomon, Managing Director
11
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<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
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0
6,180,000
<COMMON> 21,431,855
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