SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended: December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the transition period from _____to______
Commission file number: 0-26028
IMAGING DIAGNOSTIC SYSTEMS, INC.
(Name of small business issuer in its charter)
Florida 22-2671269
(State of incorporation) (IRS Employer Ident. No.)
6531 N.W. 18th Court, Plantation, FL 33313
(address of principal office) (Zip Code)
Registrant's telephone number: (954) 581-9800
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes _X__ No_____
The number of shares outstanding of each of the issuer's classes of equity
as of December 31, 1999: 96,074,927 shares of common stock, no par value; and,
60 shares of Series B and 138 shares of Series I preferred convertible stock, no
par value.
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Developmental Stage Company)
Part I - Financial Information Page
Item 1. Financial Statements
Condensed Balance Sheet -
December 31, 1999 and June 30, 1999........................3
Condensed Statement of Operations
Six months and three months ended December 31,
1999 and 1998, and December 10,
1993(date of inception) to December 31, 1999...............4
Condensed Statement of Cash Flows -
Six months ended December 31, 1999 and 1998,
and December 10, 1993(date of inception)
to December 31, 1999.......................................5
Notes to Condensed Financial Statements..........................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results.......................7
Part II - Other Information
Item 1. Legal Proceedings....................................12
Item 2. Changes in Securities................................12
Item 3. Defaults Upon Senior Securities......................12
Item 4. Submission of Matters to a Vote of
Security Holders ....................................12
Item 5. Other Information....................................12
Item 6. Exhibits and Reports on Form 8-K.....................21
Signature ......................................................22
2
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Developmental Stage Company)
Condensed Balance Sheet
Assets
Dec. 31, 1999 Jun. 30, 1999
Current Assets Unaudited
Cash $ 17,060 $ 70,037
Inventory 3,813,838 3,698,343
Prepaid expenses - 58,250
Other current assets 13,360 30,950
------ ------
Total Current Assets 3,844,258 3,857,580
--------- ---------
Property and Equipment, net 2,596,572 2,707,994
Other Assets 544,070 561,158
------- -------
$ 6,984,900 $ 7,126,732
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable, Accrued Exp.
and Accrued Dividends Payable $ 1,897,722 $ 1,597,083
Loans Payable 444,077 1,232,271
Current maturity of capital
lease obligation 11,500 10,572
Other current liabilities 529,880 529,880
------- -------
Total Current Liabilities 2,883,179 3,369,806
--------- ---------
Convertible Debenture 2,889,000 1,100,000
Long-Term capital lease obligation 8,188 15,561
----- ------
Total Liabilities 5,780,367 4,485,367
--------- ---------
Commitments and contingencies:
Redeemable convertible
preferred stock Series G 117,117 477,117
Stockholders Equity:
Convertible Preferred
(Series B) 7% cum. Div. 600,000 3,900,000
Convertible Preferred (Series H) - 680,000
Convertible Preferred (Series I 1,380,000 1,380,000
Common Stock 36,414,246 29,820,729
Additional paid-in capital 417,040 1,490,827
Deficit accumulated during
development stage (37,709,561) (35,092,999)
----------- -----------
1,101,725 2,178,557
Less: subscriptions receivable (14,309) (14,309)
------- -------
Total stockholders' equity 1,087,416 2,164,248
$ 6,984,900 $ 7,126,732
=========== ===========
3
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IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Developmental Stage Company)
(Unaudited)
Condensed Statement of Operations
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended Since Inception
December 31 December 31, (12/10/93) to
1999 1998 1999 1998 Dec. 31, 1999
<S> <C> <C> <C> <C> <C>
Compensation and related benefits:
Administrative and engineering $ 677,071 $ 642,422 $ 362,183 $ 350,358 $ 8,629,605
Research and development 425,002 410,730 223,680 224,000 3,114,591
Research and development expenses 893 73,971 (200) 27,196 2,991,295
Advertising and promotion expenses 19,105 31,578 13,776 24,829 920,219
Selling, general and administrative 263,258 350,863 181,219 255,407 1,951,219
Clinical expenses 53,445 13,793 31,527 9,917 430,884
Consulting expenses 13,276 75,687 8,040 45,691 3,039,497
Insurance costs 86,930 82,788 38,229 37,773 588,137
Professional fees 76,543 306,197 52,489 266,167 1,721,206
Stockholder expenses - - - - 161,675
Trade show expenses 82,401 82,850 79,249 41,207 739,262
Travel and subsistence costs 88,955 61,190 50,261 28,858 657,475
Rent expense 7,473 19,264 3,791 10,487 283,742
Interest expense 392,973 147,765 51,695 147,022 1,164,213
Loan placement expenses and fees 158,000 - 76,500 - 359,494
Depreciation and amortization 155,793 113,746 77,897 56,873 1,144,611
Amortization of deferred compensation - 755,219 - 377,609 4,064,250
Liquidated damages costs 31,000 - 31,000 - 291,000
Interest income (469) (696) (411) (22) (199,006)
2,531,649 3,167,367 1,280,925 1,903,372 32,053,369
--------- --------- --------- --------- ----------
Net Loss $ (2,531,649) $ (3,167,367) $ (1,280,925) $ (1,903,372) $ (32,053,369)
Dividends on cumulative Pfd. stock:
From discount at issuance - - - - (4,694,583)
Earned (84,913) (56,953) (8,460) - (961,609)
------- ------- ------ --------
Net loss applicable to
common shareholders $ (2,616,562) $ (3,224,320) $ (1,289,385) $ (1,903,372) $ (37,709,561)
------------ ------------ ------------ ------------ -------------
Net Loss per common share:
Basic:
Net loss per common share $ (0.04) $ (0.08) $ (0.02) $ (0.05) $ (1.36)
======= ======= ======= ======= =======
Weighted avg. no. of common shares 59,984,862 38,102,301 68,905,472 38,436,155 27,777,174
========== ========== ========== ========== ==========
Diluted:
Net loss per common share $ (0.04) $ (0.08) $ (0.02) $ (0.05) $ (1.36)
======= ======= ======= ======= =======
Weighted avg. no. of common shares 59,984,862 38,102,301 68,905,472 38,436,155 27,777,174
========== ========== ========== ========== ==========
</TABLE>
4
<PAGE>
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Developmental Stage Company)
Condensed Statement of Cash Flows
<TABLE>
<CAPTION>
Six Months Since Inception
Ended December 31, (12/10/93) to
1999 1998 Dec. 31, 1999
<S> <C> <C> <C>
Cash provided by (used for)
Operations:
Net loss $(2,531,649) $ (3,167,367) $ (32,053,369)
Changes in assets and liabilities 731,944 1,780,786 15,306,904
------- --------- ----------
Net cash used by operations (1,799,705) (1,386,581) (16,746,465)
---------- ---------- -----------
Investments
Capital expenditures (35,827) (59,748) (6,560,275)
------- ------- ----------
Cash used for investments (35,827) (59,748) (6,560,275)
------- ------- ----------
Cash flows from financing activities:
Repayment of capital lease obligation (6,445) (6,564) (30,601)
Other financing activities - NET 1,789,000 1,086,417 5,043,731
Proceeds from issuance of preferred stock - - 13,039,500
Net proceeds from issuance of common stock - 82,964 5,271,170
---------- ------ ---------
Net cash provided by financing activities 1,782,555 1,162,817 23,323,800
--------- --------- ----------
Net increase (decrease) in cash (52,977) (283,512) 17,060
Cash, beginning of period 70,037 310,116 -
------ -------
Cash, end of period $ 17,060 $ 26,604 $ 17,060
======== ======== ========
</TABLE>
5
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The financial information included has been condensed from financial statements
prepared December 31, 1999. The results of operations for the six month period
ended December 31, 1999, are not necessarily indicative of the results to be
expected for the full year.
NOTE 2 - GOING CONCERN
Imaging Diagnostic Systems, Inc. (IDSI) is currently a developmental stage
company and our continued existence is dependent upon our ability to resolve our
liquidity problems, principally by obtaining additional debt and/or equity
financing. IDSI has yet to generate an internal cash flow, and until the sales
of our product begin, we are totally dependent upon debt and equity funding. See
Item 2 "Management's Discussion and Analysis of Financial Condition and Results
of Operations".
In the event that we are unable to obtain debt or equity financing or we are
unable to obtain such financing on terms and conditions acceptable to us, we may
have to cease or severely curtail our operations. This would materially impact
our ability to continue as a going concern. However, our management is
continually negotiating with various outside entities for additional funding
necessary to complete the clinical testing phase of development required before
we can receive FDA marketing clearance. Management has been able to raise the
capital necessary to reach this stage of product development and has been able
to obtain funding for capital requirements to date. There is no assurance that
once development of the CTLMTM prototype is completed, and if and when FDA
marketing clearance is obtained, that the CTLM(TM) will achieve market
acceptance or that we will achieve a profitable level of operations.
NOTE 3 - INVENTORY
Inventory consisted of the following:
December 31, 1999 June 30, 1999
Inventory $3,813,838 $3,698,343
6
<PAGE>
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS AND EVENTS COULD
DIFFER MATERIALLY FROM THOSE PROJECTED AS A RESULT OF THE RISKS AND
UNCERTAINTIES SET FORTH UNDER THE CAPTION "CAUTIONARY STATEMENTS REGARDING
FORWARD-LOOKING STATEMENTS", IN OUR FORM 10-KSB FOR THE YEAR ENDED JUNE 30,
1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Imaging Diagnostic Systems, Inc. is a developmental stage company, which, since
inception, has been engaged in research and development of its Computed
Tomography Laser Mammography (CTLM(TM)). The CTLM(TM) is a breast-imaging device
for the detection of cancer which utilizes laser technology and proprietary
computer algorithms to produce three dimensional cross section slice images of
the breast. Due to the fact that IDSI is in the last stages of the development
of its breast cancer detection technology and its CTLM(TM), it has not yet
engaged in any marketing or distribution of its products in the United States
and therefore has had no revenue from its operations.
We have incurred net losses applicable to common shareholders since inception
through December 31, 1999, of approximately $37,709,561 after discounts and
dividends on preferred stock. We anticipate that losses from operations will
continue for at least the next year, primarily due to an anticipated increase in
marketing and manufacturing expenses associated with the commercialization of
the CTLM(TM), the costs associated with the clinical trials and other research
and development activities. There can be no assurances that the CTLM(TM) will
achieve market acceptance or that sufficient revenues will be generated from
sales of the CTLM(TM) to allow us to operate profitably.
RESULTS OF OPERATIONS
General and administrative expenses during the three months and six months ended
December 31, 1999, were $181,219 and $263,258 representing a decrease of $74,188
and $87,605 when compared with the corresponding periods for 1998. The decrease
was primarily due to a decrease in administrative costs associated with the
development of the CTLM(TM) breast-imaging device.
Compensation and related benefits during the three months and six months ended
December 31, 1999, were $585,863 and $1,102,073 representing an increase of
$11,505 and $48,921 when compared with the corresponding periods for 1998. The
increase was primarily due to the hiring of additional employees to administer
our clinical sites.
Research and development expenses during the three months and six months ended
December 31, 1999, were $(200) and $893 representing a decrease of $27,369 and
$73,078 when compared with the corresponding periods for 1998. The decrease is
due primarily to finalizing certain components of the CTLM(TM) device.
Advertising and promotion expenses during the three months and six months ended
December 31, 1999, were $13,776 and $19,105 representing a decrease of $11,053
and $12,473 when compared with the corresponding periods for 1998. The decrease
is due primarily to the reduction of advertising in domestic and foreign medical
imaging and medical device publications, and the elimination of public relations
and investor public relations expenses.
Clinical expenses during the three months and six months ended December 31,
1999, were $31,527 and $53,445 representing an increase of $21,610 and $39,652
when compared with the corresponding periods for 1998. The increase is due
primarily to the cost of operating our Nassau County Medical Center clinical
site and the startup of our University of Virginia Health System clinical site.
7
<PAGE>
Consulting expenses during the three months and six months ended December 31,
1999, were $8,040 and $13,276 representing a decrease of $37,651 and $62,411
when compared with the corresponding periods for 1998. The decrease is due
primarily to the reduced use of outside consultants needed for special
non-recurring projects required prior to placing CTLM(TM) units into clinical
trials.
Insurance costs during the three months and six months ended December 31, 1999,
were $38,229 and $86,930 representing an increase of $456 and $4,142 when
compared with the corresponding periods for 1998. The increase is due primarily
to additional premiums for Workers' Comp., Health Insurance, and Property and
Casualty Insurance.
Professional expenses during the three months and six months ended December 31,
1999, were $52,489 and $76,543 representing a decrease of $213,678 and $229,654
when compared with the corresponding periods for 1998. The decrease in
professional fees is a result of reduced use of outside counsel.
Stockholder expenses during the three months and six months ended December 31,
1999, were $0 and they were $0 for the corresponding periods for 1998. The
reason for no stockholder expenses is due to the fact that we did not have any
stockholder mailings in those quarters.
Trade show expenses during the three months and six months ended December 31,
1999, were $79,249 and $82,401 representing an increase of $38,042 and a
decrease of $449 when compared with the corresponding periods for 1998. The
increase is due to additional trade shows we attended during the quarter along
with our 1999 Radiological Society of North America's Scientific Assembly and
Annual Meeting in Chicago, IL. The decrease is due to the fact that no changes
or modifications were required for our 1999 RSNA exhibit.
Travel and subsistence costs during the three months and six months ended
December 31, 1999, were $50,261 and $88,955 representing an increase of $21,403
and $27,765 when compared with the corresponding periods for 1998. The increase
is primarily due to travel and housing expenses for our clinical application
specialists at Nassau County Medical Center and University of Virginia Health
System.
Rent expense during the three months and six months ended December 31, 1999, was
$3,791 and $7,473 representing a decrease of $6,696 and $11,791 when compared
with the corresponding periods for 1998. This decrease is primarily due to the
not having to as many rentals of outside test equipment.
Interest expense during the three months and six months ended December 31, 1999,
was $51,695 and $392,973 representing a decrease of $95,327 and an increase of
$245,208 when compared with the corresponding periods for 1998. The variances
are due primarily to recording the interest on the loans that we entered into in
previous quarters.
Amortization of deferred compensation during the three months and six months
ended December 31, 1999, was $0 and $0 representing a decrease of $377,609 and
$755,219 when compared with the corresponding periods in 1998. The decrease is a
result of having no deferred compensation for the quarters.
Liquidated damage costs during the three months and six months ended December
31, 1999, were $0 and $31,000 representing no change and an increase of $31,000
when compared with the corresponding periods in 1998. The increase is a result
of having to pay liquidated damages to the Series H holders because our
registration statement for their common shares were not declared effective by
the date required in our subscription and registration rights agreement.
Interest income during the three months and six months ended December 31, 1999,
was $411 and $469 representing a increase of $389 and a decrease of $227 when
compared with the corresponding periods for 1998. The increases and decreases in
interest income are a result of the fluctuation in our cash balance in our
interest bearing sweep account.
8
<PAGE>
Dividends earned on the cumulative preferred stock for the three months and six
months ended December 31, 1999, was $8,460 and $84,913 representing an increase
of $8,460 and $27,960 when compared with the corresponding periods for 1998, due
to the fact that the Series B convertible preferred and a new Series I
convertible preferred was finalized April 6, 1999, and accrued dividends payable
from that date.
BALANCE SHEET DATA
Our combined cash and cash equivalents totaled $17,060 as of December 31, 1999.
This is a decrease of $52,977 from $70,037 for the year ended June 30, 1999.
During the quarter ending December 31, 1999, the aggregate gross proceeds from
draws on the convertible debenture were $841,500. In connection with the draws
on the convertible debenture we paid $76,500 in placement fees. During the
quarter ending December 31, 1999, we received a $50,000 short-term loan from an
unaffiliated party.
We do not expect to generate a positive internal cash flow for at least the next
twelve (12) months due to the expected increase in spending for research and
development, the costs associated with the clinical trials and the expected
costs of commercializing our initial product, the CTLM(TM) device.
Property and Equipment is valued at $2,596,572 net as of December 31, 1999. The
overall decrease of $111,422 from the year ended June 30, 1999 is due primarily
to depreciation recorded for the second quarter.
LIQUIDITY AND CAPITAL RESOURCES
We are currently a developmental stage company and our continued existence is
dependent upon our ability to resolve our liquidity problems, principally by
obtaining additional debt and/or equity financing. We have yet to generate an
internal cash flow, and until the sale of our product begins, we are totally
dependent upon debt and equity funding. In the event that we are unable to
obtain debt or equity financing or we are unable to obtain such financing on
terms and conditions acceptable to us, we may have to cease or severely curtail
our operations. This would materially impact our ability to continue as a going
concern.
We have financed our operating and research and development activities through
several Regulation S and Regulation D private placement transactions. Net cash
used for operating and research and development expenses during the second
quarter ended December 31, 1999, is $1,180,947. This is primarily due to our
continued research and development of the CTLM(TM) device and preparations for
FDA clinical investigational trials including the manufacture of five (5)
CTLM(TM) Breast Imaging Systems, compared to net cash used by operating
activities of research and development of the CTLM(TM) device and related
software development of $532,315 in the same quarter ending December 31, 1998.
At December 31, 1999, we had a working capital of $961,079 compared to a working
capital of $(1,802,653) at December 31, 1998. On May 27, 1998, we entered into
an irrevocable commitment with a consortium of prominent banking institutions to
invest up to $15 million in IDSI over the next three years. A formal Equity Line
of Credit Agreement was to be drafted, reviewed, and executed at a later date.
On May 28, 1998, we issued a press release announcing the $15 million
commitment. In this press release we also stated that this financing would
eliminate our financial concerns and allow us to focus strictly on bringing the
world's first laser based mammography system to market. The foregoing
statements, which were made in the May 28th announcement, are no longer accurate
because we were unable to draw on the equity credit line. Due to the
unavailability of the principals of the investors' groups, the workload of the
investors' attorney and the time and effort spent by us in filing the
Information Statement and Registration Statement, the formal Equity Line of
Credit Agreement was delayed. During this time the price of our stock declined
from $.54 on May 27, 1998 to $.26 on August 27, 1998. As a result of the stock
price decline, we could not utilize the Equity Line because the stock price was
below the minimum price at which the banking institutions are required to
purchase our equity securities.
9
<PAGE>
Moreover, due to the stock price decline, we had to increase our number of
authorized shares in order to have shares available for the conversion of the
Series B and other preferred shares. The increase in shares required an
information statement filing with the SEC. Since we already had a commitment for
the equity line of credit and could not utilize the equity line due to the stock
price decline and the need for additional shares, we centered our time, efforts
and resources on the Information Statement and Registration Statement and the
Equity Agreement was not finalized until November 20, 1998. Although the equity
line of credit is in place, we choose not to utilize it at the present time due
to;
(1) IDSI and our investors will have to amend the agreement to provide for a
draw down and issuance of the common stock according to Regulation D and
then registration of the shares; or
(2) We will have to file a shelf registration, if it is available to us at the
time that we intend to use the equity line of credit. See "Sale of
Unregistered Securities-Financing/Equity Line of Credit".
During the quarter ending December 31, 1999, we were able to raise a total of
$765,000 less expenses through Regulation D private placements. On April 6,
1999, we finalized a Convertible Debenture in the initial amount of $1,100,000.
Subsequent debentures totaling $841,500 were finalized during the quarter ending
December 31, 1999. See Section 5, Private Placements, Convertible Debentures. We
may continue to receive working capital from the exercise of stock options,
private placements and long-term debt and operations. If our working capital
were insufficient to fund our operations, we would have to explore additional
sources of financing. No assurances can be given that future financing would be
available or if available, that it could be obtained at terms satisfactory to
us. We have already granted a mortgage on our corporate property as security for
the convertible debenture and therefore, in all likelihood, would be unable to
use such property to collateralize any additional financing. Our ability to
effectuate our plan and continue operations is dependent on our ability to
raise capital, structure a profitable business, and generate revenues.
Capital expenditures for the second quarter ending December 31, 1999, were
approximately $(4,780) as compared to approximately $38,465 for the second
quarter ending December 31, 1998. These expenditures were a direct result of
purchases of computer and other equipment, office, warehouse and manufacturing
fixtures, computer software, laboratory equipment, and other fixed assets. We
anticipate that the balance of our capital needs for the fiscal year ending June
30, 2000, will be approximately $40,000.
In September 1998, we sold one unit, consisting of a $250,000 promissory note
and 200,000 shares of common stock, to Settondown Capital International, Ltd.,
an unaffiliated third party, pursuant to Regulation D, for an aggregate purchase
price of $250,000. These shares are included in the registration statement. At
the time the sale occurred, the average bid and ask price of our common stock
was $.595. The note bore interest at the rate of 12% per annum. In connection
with this sale, we paid the sum of $23,000 to Manchester Asset Management, Ltd.,
an unaffiliated third party, as a placement fee. Net proceeds of $227,000 were
used as follows: (i) salaries, $21,849 to executive officers and $62,447 to
employees; (ii) machinery and equipment, $5,959; (iii) operating expenses,
$55,240 for inventory parts and assemblies, employee health insurance, workers
compensation and property insurance; and (iv) working capital, $82,000. On
November 23, 1999 the Board of Directors voted unanimously to repay the
promissory note in full from Settondown Capital International, Ltd. with
restricted stock. The subscription agreement was finalized on December 30, 1999.
The total principal and interest accrued was $359,203.33. For the note, we
issued a total of 2,112,961 shares of restricted stock.
In October 1998, we sold one unit, consisting of a $100,000 promissory note and
80,000 shares of common stock, to Avalon Capital, Inc., an unaffiliated third
party, according to Regulation D, for an aggregate purchase price of $100,000.
These shares are included in the registration statement. No placement fee was
paid in connection with this offering, however, we did issue 5,000 shares of
common stock to Goldstein, Goldstein and Reis LLC, an unaffiliated third party,
as payment for the attorney's fees incurred by the purchaser pursuant to the
sale. At the time the placement was concluded, the average bid and ask price of
our common stock was approximately $.50 per share. The note bore interest at the
rate of 12% per annum. Net proceeds of $100,000 were used as follows: (i)
salaries, $21,849-executive officers and $62,448-employees; and (ii) working
capital, $15,703. On November 23, 1999 the Board of Directors voted unanimously
to repay the promissory note in full from Avalon Capital, Inc. with restricted
stock. The subscription agreement was finalized on December 30, 1999. The total
principal and interest accrued was $119,041.67. For the note, we issued a total
of 700,245 shares of restricted stock.
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<PAGE>
During the three months ending December 31, 1999, we entered into loans with
Balmore Funds S.A. for the sum of $50,000 and during the three months ending
September 30, 1999 signed promissory notes with an interest rate of 15% per
annum. These notes were guaranteed by Richard J. Grable and by Linda B. Grable.
On November 23, 1999 the Board of Directors voted unanimously to repay the
promissory notes in full from Balmore funds S.A. with restricted stock. The
subscription agreement was finalized on December 30, 1999. The total principal
and interest accrued was $104,802.08. For the notes, we will issue a total of
616,483 shares of restricted stock. We also entered into loans with Austost
Anstalt Schaan for the aggregate sum of $50,000 and signed promissory notes with
an interest rate of 15% per annum. These notes were also guaranteed by Richard
J. Grable and by Linda B. Grable. On November 23, 1999 the Board of Directors
voted unanimously to repay the promissory notes in full from Austost Anstalt
Schaan with restricted stock. The subscription agreement was finalized on
December 30, 1999. The total principal and interest accrued was $53,822.92. For
the notes, we will issue a total of 316,605 shares of restricted stock.
There were no other changes in our existing debt agreements other than
extensions and we had no outstanding bank loans as of December 31, 1999. Our
fixed commitments, including salaries and fees for current employees and
consultants, rent, payments under license agreements and other contractual
commitments are substantial and are likely to increase as additional agreements
are entered into and additional personnel are retained. We will need substantial
additional funds for our research and development programs, pre-clinical and
clinical testing, operating expenses, regulatory processes, and manufacturing
and marketing programs. Our future capital requirements will depend on many
factors, including the following:
1) The progress of our research and development projects;
2) The progress of pre-clinical and clinical testing;
3) The time and cost involved in obtaining regulatory approvals;
4) The cost of filing, prosecuting, defending and enforcing any patent claims
and other intellectual property rights;
5) Competing technological and market developments;
6) Changes and developments in our existing collaborative, licensing and other
relationships and the terms of any new collaborative, licensing and other
arrangements that we may establish; and
7) The development of commercialization activities and arrangements.
We do not expect to generate a positive internal cash flow for at least several
years due to expected increases in capital expenditures, working capital and
ongoing losses, including the expected cost of commercializing the CTLM(TM)
device. We do not have sufficient cash to fund our operations until the end of
the fiscal year ending June 30, 2000, requiring us to secure additional funding
through the private placement sale of debt or equity securities.
ISSUANCE OF STOCK FOR SERVICES/DILUTIVE IMPACT TO SHAREHOLDERS
We have and may continue to issue stock for services performed and to be
performed by consultants. Since we have generated no revenues to date, our
ability to obtain and retain consultants may be dependent on our ability to
issue stock for services. Since July 1, 1996, to the filing date of this Report,
we have issued an aggregate of 1,806,500 shares of common stock according to
Registration Statements on Form S-8. The aggregate fair market value of the
shares was $2,327,151. The issuance of large amounts of common stock for
services rendered or to be rendered and the subsequent sale of such shares may
depress the price of the common stock. In addition, since each new issuance of
common stock dilutes existing shareholders, the issuance of substantial
additional shares may effectuate a change in our control.
We are currently seeking additional capital to fund our future operations
through private debt or equity financing, or collaborative licensing or other
arrangements with strategic partners. There can be no assurance that this
financing can be obtained or, if it is obtained, that the terms will be
acceptable. We plan to continue our policy of investing excess funds, if any, in
a daily cash management account at First Union National Bank.
11
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On August 25, 1999, we were served with a civil suit by Andrew Abraham Skolnick,
which we believe to be without merit. We are in the process of scheduling
depositions and beginning discovery. We are contemplating a counter-claim.
We are not aware of any other material legal proceedings, pending or
contemplated, to which we are, or would be a party to or of, which any of our
property is, or would be, the subject.
ITEM 2. CHANGES IN SECURITIES.
On January 19, 2000 we filed a registration statement on Form S-8 to register
500,000 shares for employee stock options in accordance with our 1995 Incentive
Stock Option Plan.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
ITEM 5. OTHER INFORMATION
BACKGOUND
We are a medical technology company that has developed and is testing a Computed
Tomography Laser Mammography (CTLM(TM)) for detecting breast cancer through the
skin in a non-invasive procedure. The CTLM(TM) employs a laser and proprietary
scanning technology to produce visual images of the breast, which may be used to
detect and analyze tissue for indicia of malignancy or benignancy. The
components of the laser system are purchased from two unrelated parties and
assembled and installed into the CTLM(TM) by us. The CTLM(TM) will be used as an
adjunct to traditional breast imaging devices, such as mammography and
ultrasound machines, to assist in the detection of breast cancer. Medical
personnel will use the CTLM(TM) at medical facilities to do breast examinations
during routine check-ups and during more specific investigations in connection
with breast cancer.
Computed Tomography has had a basis in the science of medical imaging since the
early 1970's. Our chief executive officer Richard Grable, had experience with
Computed Tomography that inspired him to invent CT Laser Mammography in 1989.
The issues of evolving laser technology and software occupied the first several
years of our existence. After several limited clinical trials in our facilities
and the Strax Diagnostic Breast Clinic we learned what changes were required to
improve performance and stability of CTLM(TM). These changes included the
technological advances made with the lasers and other components. On July 8,
1999 we began a clinical investigational trial at Nassau County Medical Center,
East Meadow, NY. The clinical trials were then expanded to University of
Virginia Health System, Charlottesville, VA on November 15, 1999.
In connection with CTLM(TM) clinical trials, we are developing a clinical atlas
of the optical properties of benign and malignant tissues. The CTLM(TM) is
designed to provide the physician with objective visual data for interpretation
and further clinical analysis. Accordingly, we believe that the CTLM(TM) will
improve early diagnosis, reduce diagnostic uncertainty and decrease the number
of biopsies performed on benign breast lesions. Due to the delays in obtaining
the new laser system, the delays in the modification and redesign of the
CTLM(TM) and delays beyond our control regarding hospital-based clinical trials,
we are unable to determine when we will receive FDA marketing clearance. In
addition, due to these delays, we are unable to determine when we will begin to
generate revenue.
12
<PAGE>
Our executive offices are located at 6531 NW 18th Court, Plantation, Florida
33313. Our telephone number is (954) 581-9800.
Recent Developments
On October 14th to 16th we exhibited our most recent clinical studies from
ongoing clinical trials at Nassau County Medical Center at the 19th Annual
Breast Imaging Conference in Anaheim, CA.
In December 1999 at the 1999 Radiological Society of North America Meeting we
presented for the first time for review to radiologists and other medical
professionals from around the world clinical images produced by the CTLM(TM). We
compared our images of various breast abnormalities acquired through our ongoing
clinical trials at Nassau County Medical Center with those images produced by
mammography equipment and ultrasound machines. We also demonstrated the
potential of fluorescence through a simulation with our CTLM(TM) device.
Furthermore, in December 1999, we entered into a distribution agreement with
Cycle of Life Technologies Inc., a division of INTRACOR Inc., an international
trading company of medical products based in Canada, which we believe will help
us generate up to $500,000 in revenues in the first quarter of 2000 and up to a
total of $12 million in revenues over the life of the agreement.
In January 1997, we applied for a patent for a fluorescence imaging scanner. We
have received Issue Notification indicating that the Patent was issued on
September 14, 1999, as Patent No. 5,952,664. A fluorescent marker is a chemical
compound that allows light to be absorbed at specific locations to locate
cancerous tissues.
On December 17, 1999, January 27, 2000 and February 4, 2000 we posted
comparative clinical studies on our web site at www.imds.com.
On February 1, 2000 we received a loan from Cycle of Life Technologies, Inc. in
the aggregate amount of $500,000 secured by a promissory note. The term of the
note is six months and the interest rate is 12% per annum.
We received notice from the U.S. Patent Office on February 8, 2000 that our
patent application for our reconstruction algorithm had been granted. This
patent assigned to IDSI protects the proprietary algorithms developed for the
CTLM(TM) breast imaging device.
Our website has been updated with the latest White Paper on The Potential of
Fluorescent Markers in Medical Optical Imaging: Part Two. In our ongoing
research in this area we plan to attempt fluorescence imaging in vivo with ICG
injections. We have been granted FDA approval to conduct this study in a
clinical site.
<PAGE>
Clinical Update
On November 16, 1999, we announced our agreement with the University of Virginia
Medical Center as the second approved testing site. The FDA approved protocol
under the IDE provides for 275 subjects, similar to the IDE protocol approved
for Nassau County Medical Center. The clinical investigational trials began on
Monday, November 15, 1999.
PRIVATE PLACEMENTS
We have had to rely on the private placement of preferred and common stock to
obtain working capital. In deciding to issue preferred shares according to the
private placements, we took into account the number of common shares authorized
and outstanding, the market price of the common stock at the time of each
preferred sale and the number of common shares the preferred shares would have
been convertible into at the time of the sale. At the time of each private
placement of preferred stock there were enough shares, based on the price of our
common stock at the time of the sale of the preferred to satisfy the preferred
conversion requirements. Although our Board of Directors tried to negotiate a
floor on the conversion price of each series of preferred stock prior to sale,
it was unable to do so.
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<PAGE>
In order to obtain working capital we will continue to seek capital through debt
or equity financing which may include the issuance of convertible preferred
stock whose rights and preferences are superior than those of the common stock
holders. We will try to negotiate the best transaction possible taking into
account the impact on our shareholders, dilution, loss of voting power and the
possibility of a change of control. However, in order to satisfy our working
capital needs, we may be forced to issue convertible securities with no
limitations on conversion. In addition, the dividends on the preferred stock
affect the net losses applicable to shareholders. There are also adjustments as
a result of the calculation of the deemed preferred stock dividends applicable
because we have entered into contracts providing for discounts on the preferred
stock when it is converted. As a result of the dividends on cumulative preferred
stock, the net loss per common shareholder from the dividend portion is $.0001
per share for the quarter ending December 31, 1999, as compared to the
corresponding period for 1998. The cumulative total of the dividend portion is
$.20 per share.
In the event that we issue preferred stock without a limit on the number of
shares that can be issued upon conversion and the price of our common stock
decreases, the percentage of shares outstanding that will be held by preferred
holders upon conversion will increase accordingly. The lower the market price
the greater the number of shares to be issued to the preferred holders, upon
conversion, thus increasing the potential profits to the holders when the price
per share increases and the holders sell the common shares. In addition, the
sale of a substantial amount of preferred stock to relatively few holders could
cause a possible change-in-control. In the event of a voluntary or involuntary
liquidation while the preferred stock is outstanding, the holders will be
entitled to a preference in distribution of our property available for
distribution equal to $10,000 per share. The following table summarizes certain
information with regard to the Series B, G, H, and I preferred stock as of
February 18, 2000.
<TABLE>
<CAPTION>
Series B Series G Series H Series I
<S> <C> <C> <C> <C>
Regulation D or S Reg D. Reg. D Reg. D Reg. D
No. of Pfd. Shares 450 35 100 138
Price per Pfd. share $ 10,000 $ 10,000 $ 10,000 $ 10,000
Total Offering $ 4,500,000 $ 350,000 $1,000,000 $1,380,000
Placement Fee-Cash None None $ 10,000 None
Placement Fee-Stock None 3 Pfd. Sh. 8 Pfd. Sh. None
Avg. Bid & Ask Price
at Time of Issuance:
Common Stock $ 4.70 $ 0.34 $ 0.56 $ 0.38
Conversion Price $ 3.85 $ 0.2550 $ 0.42 $ 0.2850
# of Conversion Shares
at Time of Issuance 1,168,831 1,490,196 2,571,429 4,842,105
Option to Repay
Dividends in Cash
or Stock Yes No No Yes
4.99% Ownership Limit Yes Yes Yes Yes
# of Outstanding
Preferred Shares 60 -0- -0- 138
Total # of Shares Issued
Upon Conversion to Date 30,444,719 3,834,492 11,161,725 None
</TABLE>
14
<PAGE>
Series B Preferred Stock
In December 1996, Weyburn Overseas Limited and Goodland International Investment
Ltd. purchased the Series B preferred stock offering pursuant to Regulation D.
Net proceeds were used for working capital and the continuous research,
development and testing of our CTLM(TM). The conversion rate is 82% of the
average closing price over a five-day period prior to conversion.
On April 6, 1999, the Series B preferred stock was sold by the Series B
preferred holders to Charlton Avenue, LLC, an unaffiliated third party with no
prior relationship to us or the Series B preferred holders. On April 6, 1999, we
also entered into a subscription agreement with Charlton whereby we agreed to
issue to Charlton 138 shares of our Series I, 7% convertible preferred stock as
discussed below.
Series G Preferred Stock
On March 17, 1999, we finalized a private placement to Amro International, S.A.,
Nesher Inc., Hewlett Fund, and Guaranty & Finance Ltd., of our Series G
convertible preferred stock and two year warrants to purchase 65,625 shares of
our common stock at an exercise price of $.50 per share. Net proceeds of
$350,000 were used for working capital and the continuous research, development
and testing of the CTLM(TM).
The Series G convertible preferred stock has no dividend provisions. The number
of fully paid and non-assessable shares of common stock to be issued upon
conversion will be determined by dividing (i) the sum of $10,000 by (ii) the
conversion price in effect at the time of conversion. The conversion price is
equal to the lesser of (i) 75% discount to the two lowest bids in a ten-day
period immediately preceding the conversion date or (ii) $.54. There is no floor
on the conversion price and no time limits on conversion. The shares can be
converted at any time without additional consideration According to the terms of
the registration rights agreement we were required to register 100% of the
number of shares that would be required to be issued if the preferred stock were
converted on the day before the filing of the registration statement. In the
event that the registration statement was not filed within 14 days from the
closing or that it was not declared effective within 60 days, we are required to
pay the Series G preferred holders, as liquidated damages, for failure to have
the registration statement declared effective, not as a penalty, 3% of the
principal amount of the securities sold for each 30-day period thereafter until
we procure registration of the securities. In the event that the registration
statement is not declared effective within 120 days, the Series G preferred
holders have the right to force us to redeem the Series G preferred at a
redemption price of 120% of the face value of the preferred. According to the
registration rights agreement, 100% of that number of shares that would be
required to be issued if the Series G preferred were converted on the day before
the filing of the registration statement, 1,801,803 are being registered on
behalf of the holders.
Series H Preferred Stock
On June 2, 1998, we finalized a private placement to Austost Anstalt Schaan and
Balmore Funds S.A. of our Series H convertible preferred stock and 75,000 A
warrants and 50,000 B warrants. The A and B warrants are exercisable at $1.00
and $1.50 per share, respectively. Net proceeds of $990,000 were used for
working capital and the continuous research, development and testing of the
CTLM(TM).
The number of fully paid and non-assessable shares of common stock to be issued
upon conversion will be determined by dividing the (i) the sum of $10,000 by
(ii) the conversion price in effect at the time of conversion. The conversion
price is equal to the lesser of $.53 and 75% of the lowest closing bid price of
our common stock for the ten-day trading period ending on the day prior to the
date of conversion. There is no floor on the conversion price and no time limits
on conversion. The shares can be converted at any time without additional
consideration. According to the terms of the registration rights agreement, as
amended, we have registered herein 100% of that number of shares that would be
required to be issued if the preferred stock were converted on the day before
the filing of the registration statement, 3,038,020 shares.
15
<PAGE>
We are in technical default of the registration rights agreement, which required
the registration statement to be declared effective by October 2, 1998.
According to the registration rights agreement, we are required to pay the
Series H preferred holders in cash or in stock, as liquidated damages for
failure to have the registration statement declared effective, not as a penalty,
2% of the principal amount of the securities sold for first 30-day period, and
3% of the principal amount of the securities for each 30-day period thereafter
until we procure registration of the securities. According to the registration
rights agreement, liquidated damages of $169,000 have accrued as of March 31,
1999. We are presently unable to comply with the liquidated damage provision
payment and no assurances can be given that we will be able to do so in the
future. On March 25, 1999, we issued 424,242 shares of restricted common stock
with registration rights to the Series H preferred shareholders in lieu of cash
for liquidated damages through March 2, 1999. The value of these shares was
$140,000, leaving a balance of $29,000 due for liquidated damages through March
31, 1999. We have the option of paying the accrued dividends and liquidated
damages in common stock.
Series I Preferred
On April 6, 1999, we also entered into a subscription agreement with Charlton
where we agreed to issue Charlton 138 shares of our Series I, 7% convertible
preferred stock. Our board of directors established the value of the Series I
preferred at $10,000 per share. Consideration for the subscription was paid as
follows:
(i) payments of all of the accumulated dividends (approximately
$725,795) in connection with the Series B preferred stock;
(ii) settlement and dismissal, with prejudice, of all litigation
concerning the Series B preferred stock and the exchange of
mutual releases;
(iii) cancellation of 112,500 warrants that were issued with the
Series B preferred stock; and
(iv) amendment of the Series B designation to impose a limitation
on the owner(s) of the Series B preferred stock to ownership
of not more than 4.99% of our outstanding common stock at any
one time.
The Series I preferred pay a 7% premium, to be paid in cash or freely trading
common stock in our sole discretion, at the time of each conversion. The number
of fully paid and non-assessable shares of common stock to be issued upon
conversion will be determined by dividing (i) the sum of $10,000 by (ii) the
conversion price in effect at the time of conversion. The conversion price is
equal to 75% of the average closing price of our common stock for the five-day
trading period ending on the day prior to the date of the conversion.
According to the registration rights agreement, 100% of that number of shares
that would be required to be issued if the I preferred stock were converted on
the day before the filing of the registration statement, 5,947,763 are being
registered on behalf of the holders.
Private Placement of Convertible Debentures
We have also had to rely on the private placement of convertible debentures to
obtain working capital. In deciding to issue convertible debentures, the board
of directors took into account many of the same considerations it did when it
decided to issue preferred stock. The following table summarizes certain
information with regard to our outstanding convertible debentures as of February
18, 2000.
16
<PAGE>
Charlton Debentures Spinneret Debentures
Regulation D or S Reg. D Reg. D
Annual Dividend % 7 7
# Tranches (up to) 3 3
Maximum Proceeds $ 3,080,000 $ 51,000
Placement Fee-Cash None None
Placement Fee-Stock None None
Avg. Bid & Ask Price
at Time of Issuance:
Common Stock $ .39 $ .0875
Conversion Price $ .29 $ .0656
# of Conversion Shares
at Time of Registration 4,731,183
Option to Repay
Interest in Cash
or Stock Yes Yes
4.99% Ownership Limit Yes Yes
% of Outstanding
Debentures 100 100
Total # of Shares Issued
Upon Conversion to Date 0 0
Automatic Conversion 2 years from issuance 2 years from issuance
Convertible Debentures - Charlton
We also entered into a subscription agreement with Charlton, where Charlton
purchased a convertible debenture for $1,100,000. In addition, we may draw down
a second tranche in the amount of $825,000 anytime 30 days after the effective
date of the registration statement as long as we maintain an average closing bid
price of $.45 for the 10 trading days immediately prior to the date we request
the second tranche funding. We may draw down a third tranche in the amount of
$825,000 anytime 60 days after the effective date of the registration statement
as long as we maintain an average closing bid price of $.45 for the 10 trading
days immediately prior to the date we request the third tranche funding. When
concluded, assuming all the conditions set forth above are met, the proceeds
from the original debenture offering will be $2,750,000. We entered into an
additional subscription agreement with Charlton for tranches totaling $330,000.
The debentures are secured by a mortgage on our corporate office building. The
mortgage will be released after the registration statement covering the common
stock underlying the debentures has been declared effective and upon the earlier
of (a) the day we qualify for listing on AMEX or NASDAQ, as long as said listing
requirements are not being met through a reverse split of our common stock, and
(b) 180 days from the date we receive the third tranche funding, as described
above.
The number of fully paid and non-assessable shares of common stock, no par
value, to be issued upon conversion will be determined by dividing (i) the sum
of $10,000 by (ii) the conversion price in effect at the time of conversion. The
conversion price is equal to 75% of the average closing price of our common
stock for the five-day trading period ending on the day prior to the date of the
conversion. The debentures can be converted at any time without additional
consideration.
In the event of a voluntary or involuntary liquidation while any of the
debentures are outstanding the holders are entitled to a preference in
distribution of our property available for distribution equal to the debentures
then outstanding principal and interest and will be able to foreclose against
the mortgage.
The proceeds from the sale of the Charlton convertible debenture $(1,100,000)
and any subsequent tranches of $1,980,000 totaling $3,080,000 will be used for
clinical trials expenses and working capital. As of the date of this report, no
portion of the convertible debentures have been converted.
17
<PAGE>
Convertible Debenture - Spinneret
We entered into a subscription agreement with Spinneret, LTD., where Spinneret
purchased a convertible debenture for $51,000. The sum of $1,000 was paid upon
issuance of the debenture for legal fees. The sum of $50,000 was advanced as a
loan on July 12, 1999, and the debenture was issued in the principal amount of
$51,000 on August 11, 1999. The debenture is due on August 11, 2001.
The number of fully paid and non-assessable shares of common stock, no par
value, to be issued upon conversion will be determined by dividing (i) the sum
of $10,000 by (ii) the conversion price in effect at the time of conversion. The
conversion price is equal to 75% of the average closing price of our common
stock for the five-day trading period ending on the day prior to the date of the
conversion. The debenture can be converted at any time without additional
consideration.
The proceeds from the sale of the debenture will be used for working capital. As
of the date of this report no portion of the convertible debenture has been
converted.
The issuance of large amounts of common stock upon conversion of the preferred
and the subsequent sale of such shares may further depress the price of the
common stock. In addition, since each new issuance of common stock dilutes
existing shareholders, the issuance of substantial additional shares may
effectuate a change of control. As of the date of this Report, there are
96,612,446 shares outstanding. Based on the average bid and ask closing price of
our common stock as of February 17, 2000 ($4.75) approximately 139,703 shares
would be required to convert the Series B shares, approximately 164,197 would be
required to convert the Series I shares, approximately 797,057 shares would be
required to convert the Debenture and, although we are contractually prohibited
from doing so approximately 3,947,368 shares would be required to draw down the
entire Equity Line of Credit. In addition, approximately 4,999,393 would be
required for the exercise of options and warrants. Based upon the foregoing, as
of February 17, 2000 we would need in excess of five million authorized shares
to effectuate all conversion, utilize the total Equity Line of Credit and
fulfill our remaining stock related obligations including the current issued and
outstanding shares.
Certain Transactions
Richard J. Grable and Linda B. Grable are husband and wife. They are each
"Control Persons" as a result of their control of a majority voting power of our
outstanding stock. Both parties disclaim, however, any beneficial interest or
ownership in the shares owned by the other party.
In September and October 1998, Linda Grable, our President, personally
guaranteed three promissory notes we issued to third parties. Ms. Grable
received no compensation for these guarantees. As of the date of this Report,
all three Notes has been repaid.
In June 1998, we finalized an exclusive Patent License Agreement with Richard
Grable, our Chief Executive Officer. Mr. Grable is the owner of the Patent,
which encompasses the technology for the CTLM(TM). IDSI and Mr. Grable had
previously entered into an oral agreement for the exclusive license for the
patent that was never memorialized in written form. The term of the license is
for the life of the Patent (17 years) and any renewals, subject to termination,
under certain conditions. As consideration for the License, we issued to Mr.
Grable 3,500,000 shares of common stock in June 1998 and we issued an additional
3,500,000 shares in June 1999. In addition, we have agreed to pay Mr. Grable a
royalty based upon the net selling price (the dollar amount earned from our
sale, both international and domestic, before taxes minus the cost of the goods
sold and commissions or discounts paid) of all products and goods in which the
Patent is used, before taxes and after deducting the direct cost of the product
and commissions or discounts paid. During the second year of the Agreement there
is a minimum cash royalty provision of $250,000 payable at the end of the second
year which Mr. Grable has deferred until we commence sales and delivery of
CTLM(TM) Systems.
Since October 1998, we have accrued $109,243 in salaries payable to our
executive officers and directors, Richard J. Grable, Allan Schwartz and Linda B.
Grable, due to our lack of working capital. These salaries remain unpaid to date
and will be paid as soon as we determine that the funds are available. During
the quarter ended December 31, 1999 the sum of $21,804 was paid to the officers
leaving an accrued salary payable balance of $87,440.
18
<PAGE>
In January 1999 and February 1999, Richard Grable, our Chief Executive Officer,
director and founder sold an aggregate of 831,743 shares of our common stock
owned by him in excess of four years, according to Rule 144 and lent the
aggregate proceeds of approximately $347,775 directly to IDSI.
In January 1999, February 1999 and March 1999, Linda Grable, our President,
director and founder sold an aggregate of 520,000 shares of our common stock
owned by her in excess of four years, according to Rule 144 and lent the
aggregate proceeds of approximately $166,618 directly to IDSI.
In December 1998, January 1999 and February 1999, Allan Schwartz, our Executive
Vice President, director and founder sold an aggregate of 820,000 shares owned
by him in excess of four years, according to Rule 144 and lent the aggregate
proceeds of approximately $359,707 directly to IDSI.
The loans to IDSI by Messers. Grable, Schwartz and Ms. Grable were interest free
and were evidenced by promissory notes. The December, January, February and
March promissory notes were due on January 30, 1999, February 28,1999, March 31,
1999 and April 30, 1999, respectively. The net proceeds were recorded as a loan
payable to each respective founder. A meeting of the Board of Directors was held
on May 12, 1999, to review and act upon the previously adopted schedule of
repayment of the loans, interest and potential tax liability. Based on an
opinion of the Founders personal outside counsel and upon advice of a tax
advisor, the Board voted to rescind the previously adopted resolution. The new
resolution authorized the repayment of the December, January, February, and
March promissory notes in full by the issuance of shares equal to the number of
shares sold. The restricted shares issued as repayment for the loan bear
registration rights. Since the loans were repaid on a share for share basis with
no other consideration, the Founders have been advised that there is no capital
gain and therefore no tax liability.
Messrs. Grable, Schwartz and Ms. Grable received 831,743, 820,000, and 520,000
shares of our restricted common stock, respectively as payment in full for the
loans from December 1998 to March 1999.
In May 1999, Messrs. Grable and Schwartz each sold 110,000 shares, respectively,
of our common stock owned by them in excess of four years, according to Rule 144
and lent the aggregate proceeds of approximately $91,759 directly to us. The
loans are evidenced by interest free promissory notes, which are due, and
payable on June 30, 1999.
In June 1999, Messrs. Grable and Schwartz each sold 280,000 and 315,020 shares,
respectively, of our common stock owned by them in excess of four years,
according to Rule 144 and lent the aggregate proceeds of approximately $201,795
directly to us. The loans are evidenced by interest free promissory notes, which
are due, and payable on July 31, 1999.
In July 1999, Mr. Schwartz sold 500,000 shares of our common stock owned by him
in excess of four years, according to Rule 144 and lent the aggregate proceeds
of approximately $137,241 directly to us. The loan is evidenced by an interest
free promissory note, which is due, and payable on August 31, 1999.
The loans to us by Messers. Grable and Schwartz were interest free and were
evidenced by promissory notes. The May, June, July promissory notes were due on
June 30, 1999, July 31, 1999 and August 31, 1999, respectively. The net proceeds
were recorded as a loan payable to each respective founder.
Messrs. Grable and Schwartz received 390,000 and 925,500 shares of our
restricted common stock, respectively as payment in full for the loans from May
1999 to July 1999.
19
<PAGE>
YEAR 2000
We have successfully implemented the systems and programming changes to our
existing computer systems and our CTLM(TM) software and hardware products to
ensure these systems and products are adequately able to address the issues
expected to arise in the Year 2000 and thereafter. We have invested, and will
continue to invest, in improving our information technology infrastructure to
ensure that such infrastructure is Y2K compliant. The CTLM(TM) and its
proprietary software comprise its non-information technology that is not date
dependent.
We have not fully determined the extent to which we may be impacted by third
parties' systems, which may not be Y2K compliant. While we have begun efforts to
seek reassurance from our suppliers, there can be no assurance that the systems
of other companies, whom we deal with, will be Y2K compliant. Third parties'
non-compliance could have an adverse effect on us. Failure of third party
vendors to deliver parts and components timely could materially affect our
ability to manufacture and deliver CTLM(TM) systems. Because of this potential
risk, a checklist of Y2K compliant vendors and sub-contractors has been compiled
and we have begun to expand our vendor and sub-contractor base to safeguard us
against this uncertainty. As of the date of this filing, we have experienced no
delays or adverse effects relating to Y2K issues.
20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibits Description
(a)
3.13 Amended Certificate of Amendment-Series G Designation.*
3.14 Certificate of Amendment-Series I Designation*
3.15 Amended Certificate of Amendment-Series B Designation*
4.7 Instruments Defining the Rights of Security Holders - Amended
Designation of Series G Convertible Preferred Shares.
(See Exhibit 3.13, above).*
4.8 Instruments Defining the Rights of Security Holders - Designation of
Series I Convertible Preferred Shares. (See Exhibit 3.14, above).*
4.9 Instruments Defining the Rights of Security Holders - Amended
Designation of Series B Convertible Preferred Shares. (See
Exhibit 3.15, above).*
4.10 Convertible Debenture*
10.3 Incentive Stock Option Plan - is incorporated by reference to
Exhibit 10(b)of the Form 10-SB
10.16 Form of Series I Preferred Stock Subscription Documents.*
10.17 Form of Debenture Subscription Documents.* 10.18 Form of Mortgage.*
10.19 Form of Series G Subscription Documents.*
*Incorporated by reference to our Amendment number 2 to Registration on Form
S-2, File Number 333-60405.
(b) Reports on Form 8-K
NONE
21
<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: February 18, 2000 Imaging Diagnostic Systems, Inc.
By: /s/Allan L. Schwartz
Allan L. Schwartz,
Executive Vice-President
Chief Financial Officer
22
<PAGE>
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