SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[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, 2004
or
[ ] 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.
(Exact name of registrant as specified 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 Securities Exchange Act of
1934 during the preceding 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ X ] No [ ]
The number of shares outstanding of each of the issuer's classes of equity
as of December 31, 2004: 184,687,532 shares of common stock, no par value. As of
December 31, 2004, the issuer had no shares of preferred stock outstanding.
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Development Stage Company)
Part I - Financial Information
------------------------------
Item 1. Financial Statements
Page
Condensed Balance Sheet -
December 31, 2004 and June 30, 2004............................... 3
Condensed Statement of Operations -
Six months and three months ended December
31, 2004 and 2003, and December 10,
1993(date of inception) to December 31, 2004...................... 4
Condensed Statement of Cash Flows -
Six months ended December 31, 2004 and 2003,
and December 10, 1993 (date of inception)
to December 31, 2004.............................................. 5
Notes to Condensed Financial Statements................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Condition and Results................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 12
Item 4. Controls and Procedures 12
Part II - Other Information
----------------------------
Item 1. Legal Proceedings............................................ 13
Item 2. Changes in Securities........................................ 13
Item 3. Defaults Upon Senior Securities.............................. 13
Item 4. Submission of Matters to a Vote of
Security Holders ............................................ 13
Item 5. Other Information............................................ 13
Item 6. Exhibits and Reports on Form 8-K............................. 21
Signatures ............................................................. 22
2
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Development Stage Company)
Condensed Balance Sheet
Assets
Dec. 31, 2004 Jun. 30, 2004
------------ ------------
Current Assets: Unaudited *
Cash $ 538,097 $ 554,354
Accounts Receivable 14,011 28,925
Inventory 2,309,930 2,357,864
Prepaid expenses 55,437 64,579
Other current assets 4,291 570
------------ ------------
Total Current Assets 2,921,766 3,006,292
------------ ------------
Property and Equipment, net 2,226,943 2,301,095
Other Assets 789,155 806,244
------------ ------------
$ 5,937,864 $ 6,113,631
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable and
Accrued Expenses $ 1,027,657 $ 1,172,527
Customer Deposits 40,000 40,000
Short term debt 300,407 300,407
Other current liabilities 1,014,486 1,014,486
------------ ------------
Total Current Liabilities 2,382,550 2,527,420
------------ ------------
Stockholders Equity:
Common Stock 83,299,091 79,235,712
Additional paid-in capital 1,597,780 1,597,780
Deficit accumulated during
development stage (81,341,557) (77,247,281)
------------ ------------
Total stockholders' equity 3,555,314 3,586,211
------------ ------------
$ 5,937,864 $ 6,113,631
============ ============
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed financial
statements.
3
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Development Stage Company)
(Unaudited)
Condensed Statement of Operations
Six Months Ended Three Months Ended Since Inception
December 31, December 31, (12/10/93) to
2004 2003 2004 2003 Dec. 31, 2004
---- ---- ---- ---- -------------
Net Sales $ - $ - $ - $ - $ 917,296
Cost of Sales - - - - 363,871
----------- ---------- ----------- ----------- ------------
Gross Profit - - - - 553,425
----------- ---------- ----------- ----------- ------------
Operating Expenses:
General and administrative 1,493,595 3,106,812 776,583 1,908,368 43,080,024
Research and development 1,439,608 196,307 906,517 111,300 13,136,888
Sales and marketing 586,959 250,203 345,324 191,922 3,600,231
Inventory valuation adjustments 167,368 - 45,132 - 3,402,369
Depreciation and amortization 95,663 83,914 47,831 45,749 2,329,232
Amortization of deferred compensation - - - - 4,064,250
------------ ------------ ------------ ------------ ------------
3,783,193 3,637,236 2,121,387 2,257,339 69,612,994
------------ ------------ ------------ ------------ ------------
Operating Loss (3,783,193) (3,637,236) (2,121,387) (2,257,339) (69,059,569)
Gain/Loss on sale of fixed assets - (5,302) - (5,302) 5,585
Interest income 2,937 7,619 1,916 2,513 271,774
Interest expense (314,021) (443,061) (137,463) (130,938) (5,711,587)
------------ ------------ ------------ ------------ ------------
Net Loss (4,094,277) (4,077,980) (2,256,934) (2,391,066) (74,493,797)
Dividends on cumulative Pfd. stock:
From discount at issuance - - - - (5,402,713)
Earned - - - - (1,445,047)
------------ ------------ ------------ ------------ ------------
Net loss applicable to
common shareholders $ (4,094,277) $ (4,077,980) $ (2,256,934) $ (2,391,066) $(81,341,557)
============ ============ ============ ============ ============
Net Loss per common share:
Basic and Diluted:
Net loss per common share $ (0.02) $ (0.02) $ (0.01) $ (0.01) $ (1.05)
=========== ============ ============ ============ ==========
Weighted avg. no. of common shares 179,994,895 166,116,649 183,133,979 166,943,524 77,615,143
============ ============ ============ ============ ==========
The accompanying notes are an intergral part of these condensed financial
statements.
4
IMAGING DIAGNOSTIC SYSTEMS, INC.
(A Development Stage Company)
Condensed Statement of Cash Flows
Six Months Since Inception
Ended December 31, (12/10/93) to
2004 2003 Dec. 31, 2004
------------- ------------- ----------------
Cash provided by (used for)
Operations:
Net loss $ (4,094,277) $ (4,077,980) $(74,493,797)
Changes in assets and liabilities 366,539 376,961 26,045,692
------------ ------------ ------------
Net cash used by operations (3,727,738) (3,701,019) (48,448,105)
------------ ------------ ------------
Investments
Proceeds from the sale of property & equipment - - 29,857
Capital expenditures (4,423) (315,545) (7,210,004)
------------ ------------ ------------
Cash used for investments (4,423) (315,545) (7,180,147)
------------ ------------ ------------
Cash flows from financing activities:
Repayment of capital lease obligation - - (50,289)
Other financing activities - NET - - 5,835,029
Proceeds from issuance of preferred stock - - 18,039,500
Net proceeds from issuance of common stock 3,715,904 3,667,150 32,342,109
------------ ------------ ------------
Net cash provided by financing activities 3,715,904 3,667,150 56,166,349
------------ ------------ ------------
Net increase (decrease) in cash (16,257) (349,414) 538,097
Cash, beginning of period 554,354 1,361,507 -
------------ ------------ ------------
Cash, end of period $ 538,097 $ 1,012,093 $ 538,097
============ ============ ============
The accompanying notes are an intergral part of these condensed financial
statements.
5
IMAGING DIAGNOSTIC SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The financial information included has been condensed from financial statements
prepared as of December 31, 2004. The results of operations for the three and
six-month period ended December 31, 2004, are not necessarily indicative of the
results to be expected for the full year.
NOTE 2 - GOING CONCERN
Imaging Diagnostic Systems, Inc. (IDSI) is currently a development stage company
and our continued existence is dependent upon our ability to resolve our
liquidity problems, principally by obtaining additional debt and/or equity
financing. IDSI has yet to generate a positive internal cash flow, and until
significant sales of our product occur, we are mostly 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. In the event that we are unable to
draw on our private equity line, alternative financing would be required to
continue operations. 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, if and when FDA
marketing clearance is obtained, the CTLM(R) will achieve market acceptance or
that we will achieve a profitable level of operations.
NOTE 3 - INVENTORY
Inventory consists primarily of raw materials and work-in-process and amounted
to $2,309,930 as of December 31, 2004, compared to $2,357,864 as of June 30,
2004.
NOTE 4 - REVENUE RECOGNITION
Revenue from sales of medical imaging products is recorded for international
sales upon the passing of title and risks of ownership, which occurs upon the
shipment of goods. In the U.S. market, if and when FDA marketing clearance is
obtained, we plan on recording revenue upon installation of the CTLM(R) System
and acceptance by the customer.
NOTE 5 - NEW ACCOUNTING PRONOUNCEMENTS
In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure--an amendment of FASB Statement No. 123"
("SFAS 148"). SFAS 148 amends FASB Statement No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), to provide alternative methods of
transition for an entity that voluntarily changes to the fair value based method
of accounting for stock-based employee compensation. It also amends the
disclosure provisions of SFAS 123 to require prominent disclosures about the
effects on reported net income of an entity's accounting policy decisions with
respect to stock-based employee compensation. SFAS 148 also amends Accounting
Principles Board Opinion No. 28, "Interim Financial Reporting," to require
disclosures about those effects in interim financial information. The amendments
to SFAS 123 in paragraphs 2(a)-2(e) of the statement are effective for financial
statements for fiscal years ending after December 15, 2002. The amendment to
SFAS 123 in paragraph 2(f) of the statement and the amendment to Opinion 28 in
paragraph 3 are effective for financial reports containing condensed financial
statements for interim periods beginning after December 15, 2002. The Company
currently accounts for its stock-based compensation awards to employees and
directors under the accounting prescribed by Accounting Principles Board Opinion
6
No. 25 and provides the disclosures required by SFAS 123. The Company adopted
the additional disclosure provisions of SFAS 148 during the quarter ended
September 30, 2003.
On December 16, 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123 (revised 2004), Share-Based Payments ("SFAS 123(R)"). SFAS 123(R)
replaces FASB Statement No. 123, Accounting for Stock-Based Compensation, and
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.
Instead, companies will be required to account for such transactions using a
fair-value method and to recognize the expense over the service period. The FASB
has concluded that companies could adopt the new standard in one of two ways:
the modified prospective transition method and the modified retrospective
transition method.
Using the modified prospective transition method, a company would recognize
share-based employee compensation cost from the beginning of the fiscal period
in which the recognition provisions are first applied as if the fair-value-based
accounting method had been used to account for all employee awards granted,
modified, or settled after the effective date and to any awards that were not
fully vested as of the effective date.
Using the modified retrospective method, a company would recognize employee
compensation cost for periods presented prior to the adoption of the proposed
standard in accordance with the original provisions of SFAS No. 123; that is, an
entity would recognize employee compensation cost in the amounts reported in the
pro forma disclosures provided in accordance with SFAS No. 123. A company would
not be permitted to make any changes to those amounts upon adoption of the
standard unless those changes represent a correction of an error (and are
disclosed accordingly).
For periods after the date of adoption of the standard, the modified prospective
transition method described above would be applied. The Company will adopt SFAS
No. 123(R) effective July 1, 2005, which will result in an increase in general
and administrative expense. The Company is still evaluating the impact of the
adoption of this standard.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs" ("SFAS 151"),
an amendment of ARB No. 43, Chapter 4. SFAS 151 clarifies the accounting for
abnormal amounts of idle facility expense, freight, handling costs and wasted
material. SFAS 151 is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. The Company does not believe adoption of SFAS
will have a material effect on its financial position, results of operations or
cash flows.
NOTE 6 - STOCK BASED COMPENSATION
The Company accounts for stock-based compensation issued to its employees using
the intrinsic value method. Accordingly, compensation cost for stock options
issued is measured as the excess, if any, of the fair value of the Company's
common stock at the date of grant over the exercise price of the options. The
pro forma net earnings per share amounts as if the fair value method had been
used are presented below.
For purposes of the following pro forma disclosures, the weighted-average fair
value of options has been estimated on the date of grant using the Black-Scholes
options-pricing model with the following weighted-average assumptions used for
grants for the three and six months ended December 31, 2004, and 2003: no
dividend yield; expected volatility of 119%; risk-free interest rate of 4%; and
an expected five-year term for options granted. Had the compensation cost been
determined based on the fair value at the grant, the Company's net income (loss)
and basic and diluted earnings (loss) per share would have been reduced to the
pro forma amounts indicated below:
Three Months Ended Six Months Ended
------------------ ----------------
December 31 December 31
----------- -----------
2004 2003 2004 2003
---- ---- ---- ----
Net income (loss) - as reported (2,256,394) (2,391,066) (4,094,277) (4,077,980)
Less: stock-based employee
7
compensation determined under the
Fair value method, net of income tax effect (110,000) 195,232 (268,511) 385,089
----------- ----------- ----------- ----------
Net income (loss) - pro forma (2,366,394) (2,195,834) (4,362,788) (3,692,891)
=========== =========== =========== ===========
Basic and Diluted earnings (loss)
per share-as reported $ (0.01) $ (0.01) $ (0.02) $ (0.02)
Basic and Diluted earnings (loss)
per share-pro forma $ (0.01) $ (0.01) $ (0.02) $ (0.02)
8
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-K FOR THE FISCAL YEAR ENDED JUNE 30,
2004.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Imaging Diagnostic Systems, Inc. is a development stage company, which, since
inception, has been engaged in research and development of its Computed
Tomography Laser Mammography System (CTLM(R)). The CTLM(R) is a breast-imaging
device for the detection of cancer which utilizes laser technology and
proprietary computer algorithms to produce three dimensional tomograhpic images
of the breast. As of the date of this report we have had no substantial revenues
from our operations.
We have incurred net losses applicable to common shareholders since inception
through December 31, 2004 of approximately $81,341,557 after discounts and
dividends on preferred stock. We anticipate that losses from operations will
continue for at least the next 12 months, primarily due to an anticipated
increase in marketing and manufacturing expenses associated with the
international commercialization of the CTLM(R), expenses associated with our FDA
PMA process, and the costs associated with advanced product development
activities. There can be no assurances that we will obtain the PMA, that the
CTLM(R) will achieve market acceptance or that sufficient revenues will be
generated from sales of the CTLM(R) to allow us to operate profitably.
RESULTS OF OPERATIONS
There were no revenues for the three and six months ended December 31, 2004.
As we transition from a development stage company to an operating company we are
now reporting expenses under three categories; general and administrative,
research and development, and sales and marketing. This new format of reporting
will better reflect the focus of our expenses as we commercialize the Company.
General and administrative expenses during the three and six months ended
December 31, 2004, were $776,583 and $1,493,595 representing decreases of
$1,131,758 or 59% and $1,613,217 or 52%, respectively, for the corresponding
periods for 2003. Of the $776,583 and $1,493,595, compensation and related
benefits comprised $460,382 (59%) and $922,283 (62%), respectively.
Research and development expenses during the three and six months ended December
31, 2004, were $906,517 and $1,439,608 representing increases of $795,217 or
714% and $1,243,301 or 633%, respectively, for the corresponding periods for
2003. Of the $906,517 and $1,439,608, compensation and related benefits
comprised $382,059 (42%) and $739,577 (51%), respectively.
Sales and marketing expenses during the three and six months ended December 31,
2004, were $345,324 and $586,959 representing increases of $153,402 or 80% and
$336,756 or 135%, respectively, for the corresponding periods for 2003. Of the
$345,324 and $586,959, compensation and related benefits comprised $95,320 (28%)
and $157,666 (27%), respectively.
Interest expense during the three and six months ended December 31, 2004, was
$137,463 and $314,021 representing an increase of $6,525 or 5% and a decrease of
$129,040 or 29% for the corresponding period for 2003. The fluctuations are due
primarily to the amount of the draws and the recording of the 7% and 9%
discounts on our equity credit line as interest with Charlton Avenue, LLC
("Charlton"). See Item 5. Other Information - "Financing/Equity Line of Credit"
9
BALANCE SHEET DATA
Our combined cash and cash equivalents totaled $538,097 as of December 31, 2004.
This is a decrease of $16,257 from $554,354 as of June 30, 2004. During the
quarter ending December 31, 2004, we received a net of $1,765,396 from the sale
of common stock through our private equity agreement with Charlton and the
exercise of employee stock options. See - "Financing/Equity Line of Credit"
We do not expect to generate a positive internal cash flow for at least the next
12 months due to an anticipated increase in marketing and manufacturing expenses
associated with the international commercialization of the CTLM(R), expenses
associated with our FDA PMA process, the costs associated with product
development activities and the time required for homologations from certain
countries.
Property and Equipment was valued at $2,226,943 net as of December 31, 2004. The
overall decrease of $74,152 from June 30, 2004 is due primarily to depreciation
recorded for the first and second quarters.
LIQUIDITY AND CAPITAL RESOURCES
We are currently a development stage company and our continued existence is
dependent upon our ability to resolve our liquidity problems, principally by
obtaining additional debt and/or equity financing. We have yet to generate a
positive internal cash flow, and until significant sales of our product occur,
we are mostly dependent upon debt and equity funding from outside investors. In
the event that we are unable to obtain debt or equity financing or 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.
Since inception we have financed our operating and research and product
development activities through several Regulation S and Regulation D private
placement transactions and with loans from unaffiliated third parties. Net cash
used for operating and product development expenses during the six months ending
December 31, 2004, was $3,727,738 primarily due to the costs of wages and
related benefits, legal and consulting expenses, research and development
expenses, clinical expenses, and travel expenses associated with clinical and
sales and marketing activities, compared to $3,701,019 in the same six months
ending December 31, 2003. At December 31, 2004, we had working capital of
$539,216 compared to working capital of $1,414,085 at December 31, 2003, and
$478,872 at June 30, 2004.
During the second quarter ending December 31, 2004, we were able to raise a
total of $1,762,500 after expenses through the sale of common stock to Charlton.
We do not expect to generate an internal cash flow for at least the next 12
months due to the expected costs of commercializing our initial product, the
CTLM(R) in the international market and for the expense of continuing our
ongoing product development program. We will require additional funds for
operating expenses, FDA regulatory processes, manufacturing and marketing
programs and to continue our product development program. Accordingly, we plan
to utilize the Fourth Private Equity Credit Agreement to raise the funds
required prior to the end of fiscal year 2005 in order to continue operations.
In the event that we are unable to utilize the Fourth Private Equity Credit
Agreement, we would have to raise the additional funds required by either equity
or debt financing, including entering into a transaction(s) to privately place
equity, either common or preferred stock, or debt securities, or combinations of
both; or by placing equity into the public market through an underwritten
secondary offering. If additional funds are raised by issuing equity securities,
dilution to existing stockholders will result, and future investors may be
granted rights superior to those of existing stockholders.
Capital expenditures for the six months ending December 31, 2004, were $4,423 as
compared to approximately $315,545 for the six months ending December 31, 2003.
These expenditures were a direct result of purchases of computer and
miscellaneous equipment. We anticipate that the balance of our capital needs for
the fiscal year ending June 30, 2005, will be approximately $50,000.
There were no other changes in our existing debt agreements other than
extensions, and we had no outstanding bank loans as of December 31, 2004. Our
fixed commitments, including salaries and fees for current employees and
10
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 require
substantial additional funds for our product development programs, 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 ongoing product development projects;
2) The time and cost involved in obtaining regulatory approvals;
3) The cost of filing, prosecuting, defending and enforcing any patent
claims and other intellectual property rights;
4) Competing technological and market developments;
5) 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;
6) The development of commercialization activities and arrangements; and
7) The costs associated with compliance to SEC regulations.
We now have issued and outstanding 184,687,532 shares of common stock out of
200,000,000 authorized shares. In addition, we have reserved 8,779,017 shares to
cover outstanding options (after waivers by some of our executive officers and
directors of the reserve requirement for options to purchase 3,800,000 shares
held by them which are unvested, unexercisable and/or out of the money).
Therefore, given our ongoing need to issue substantial amounts of new shares to
raise capital to continue operations under our Fourth Private Equity Credit
Agreement with Charlton, we filed a Notice of Special Meeting of Stockholders to
be held on February 23, 2005. The Proxy Statement, which was filed on January 4,
2005, seeks to obtain shareholder approval of an amendment to our articles of
incorporation approving an increase in our authorized common stock from 200
million to 300 million shares. There can be no assurance that our shareholders
will approve such an increase. If they do not, then we will have to seek
alternative sources of funding, which may not be available on commercially
reasonable terms. Consequently, a failure to obtain such shareholder approval
could have a material adverse impact on IDSI.
We do not expect to generate a positive internal cash flow for at least 12
months as substantial costs and expenses continue due principally to the
international commercialization of the CTLM(R), activities related to our FDA
PMA process, and advanced product development activities. We intend to use the
Fourth Private Equity Credit Agreement as our principal source of additional
capital. There can be no assurance that this financing will continue to be
available on acceptable terms. We plan to continue our policy of investing
excess funds, if any, in a High Performance Money Market account at Wachovia
Bank N.A.
ISSUANCE OF STOCK FOR SERVICES/DILUTIVE IMPACT TO SHAREHOLDERS
We have issued 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. From July 1, 1996, to the filing date of this report,
we have issued an aggregate of 2,306,500 shares of common stock to consultants,
which have been registered on Registration Statements on Form S-8. The aggregate
fair market value of the shares was $2,437,151. 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.
11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
As of the date of this report, we believe that we do not have any material
quantitative and qualitative market risks.
ITEM 4. CONTROLS AND PROCEDURES
-----------------------
The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"). These
rules refer to the controls and other procedures of a company that are designed
to ensure that the information required to be disclosed by a company in the
reports that it files under the Exchange Act is recorded, processed, summarized
and reported within required time periods. Our Chief Executive Officer and our
Principal Financial Officer have evaluated the effectiveness of our disclosure
controls and procedures as of the end of the period covered by the report (the
"Evaluation Date"), and have concluded that, as of the Evaluation Date, our
disclosure controls and procedures are effective in providing them with material
information relating to the Corporation known to others within the Corporation
which is required to be included in our periodic reports filed under the
Exchange Act.
There have been no changes in the Corporation's internal controls over financial
reporting that occurred during the period this Form 10-Q was being prepared that
has materially affected, or is reasonably likely to materially affect, the
Corporation's internal control over financial reporting.
12
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
See Item 5. "Other Information" - FINANCING/EQUITY LINE OF CREDIT.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
Recent Developments
Regulatory Matters
In order to sell the CTLM(R) commercially in the United States, we must obtain
marketing clearance from the Food and Drug Administration. A PreMarket Approval
(PMA) application must be supported by extensive data, including pre-clinical
and clinical trial data, as well as extensive literature to prove the safety and
effectiveness of the device. Under the Food, Drug, and Cosmetic Act, the FDA has
180 days to review a PMA application, although in certain cases the FDA may
increase that time period through requests for additional information or
clarification of existing information.
In our initial PMA application we followed the guidelines of the "Standardized
Shell for Modular Submission" for the FDA approval process. We filed four
modules from September 2000 to May 2001, which were accepted, and then filed our
PMA application in April 2003. In June 2003 we received notification from FDA
that an initial review of our PMA had been conducted and was sufficiently
complete to permit a substantive review and was, therefore, suitable for filing.
An in-depth evaluation of the safety and effectiveness of the device would be
conducted to determine the final approval of the PMA application.
We filed a new application with Health Canada in June 2003 because of new
clinical data. On June 18, 2003 we received notification from the Medical Device
Bureau of Health Canada that our application had been accepted for review. On
November 14, 2003 we announced that we received notification from the Medical
Device Bureau of Health Canada that our application for a "New Medical Device"
license was approved. The license was issued in accordance with the Medical
Device Regulations, Section 36. Furthermore, we possess the CAN/CSA ISO
13485-1998 certification, which is an additional regulatory requirement that is
evidence of compliance to the quality system of the medical device.
In August 2003, we received a letter from the FDA stating that it had completed
its review of our PMA. The FDA, in its letter, outlined deficiencies in the PMA
application, which must be resolved before the FDA's review could be completed.
The FDA stated that until these deficiencies are resolved, the PMA application
is not approvable in its current form. The FDA identified measures to make the
PMA approvable, and we worked with our FDA counsel and consultants to prepare an
13
amendment to our PMA application to address the deficiencies noted in the
letter.
In February 2004, we received a warning letter from the FDA specifically
regarding the biomonitoring section of an inspection conducted August 13th
through August 18th, 2003 at our facility. We submitted our response to this
letter to the FDA on February 9, 2004. On March 29, 2004, we announced in an 8-K
filing that our responses to the FDA's warning letter regarding the
bio-monitoring inspection addressed each of the issues and no further response
to the FDA was required at that time.
In March 2004, we received an extension of time to respond to the FDA's August
22, 2003 letter regarding our pre-market approval application. In the
application we were seeking PreMarket approval from the FDA for this intended
use: "The Imaging Diagnostic's Computed Tomography Laser Mammography (CTLM(R))
scanner is intended for use as an adjunct to mammography in patients who have
equivocal mammographic findings within ACR BI-RADS categories 3 or 4. In
particular, it is not intended for use in cases with clear mammographic or
non-mammographic indications for biopsy. This device provides the radiologist
with additional information to guide a biopsy recommendation".
In September 2004, we announced that our CT Laser Mammography System, CTLM(R),
had received Chinese State Food and Drug Administration (SFDA) marketing
approval. The People's Republic of China SFDA issued the registration
"Certificate for Medical Device". The medical device registration number is
20043241646.
On October 15, 2004, we issued a press release of a shareholder letter written
by our new CEO, Tim Hansen, detailing the steps he had taken in FDA and other
corporate development matters during his first three months as CEO of the
Company. In the letter he stated among other things, the following: "the PMA
involves a process which has, unfortunately, taken far longer than expected. We
have been working on amending the PMA application at the request of the FDA. Our
team recommended rephrasing the Computed Tomography Laser Mammography System
(CTLM(R)) intended use statement and modifying the patient study protocols. They
also recommended adding more clinical cases. Meanwhile the PMA clock was ticking
and these well advised changes would have taken more time to complete. Also, as
we earlier reported, our PMA amendment and processes were briefly interrupted by
a biomonitoring inspection audit of our clinical trials and subsequent warning
letter and, although that matter was resolved, the sum of these influences
caused serious delays in our filings.
These are complex matters, but after conferring with the FDA and our outside
consultants, I recently made the decision to simply withdraw our current PMA
application and resubmit the entire package in a simpler and more clinically and
technically robust filing. Consequently, IDSI will submit a new PMA application
with a rephrased intended use statement better supported by our data, the
inclusion of new clinical cases to improve the biometrics, and with a new
clinical protocol to fully support the adjunctive use of CTLM(R) in clinical
mammography settings.
The key factor in my decision was the belief that re-filing should not
additionally delay our previous schedule. The schedule should remain unchanged
because the FDA indicated that Modules 1 through 4 would be `grandfathered' so
to speak, and because our clinical case read program will continue in its
current form. We are not starting over in any sense of the word. We will,
however, submit a fresh and concise PMA application without amendments or
extensions. Of course, this approach requires another filing fee but we believe
it yields a higher confidence scenario. So, to be very clear, we will submit a
new PMA application and there should be no additional delays in our overall
schedule. You have all waited patiently for CTLM(R) to become a US market
reality, and I would appreciate your continuing support through this next
important phase. I am very satisfied with this new approach."
In January 2005 we issued a press release of a shareholder letter entitled,
"Imaging Diagnostic Systems, Inc. Releases Letter to Shareholders" written by
Tim Hansen, CEO. The letter contained a brief status update of the three top
priorities stated in Mr. Hansen's initial letter to shareholders released in
October 2004. Specific to our PMA activities, the letter stated, "...we are
altering course. The clinical study we had analyzed and which we intended to
submit to the FDA did not, in our opinion, adequately reflect the capabilities
of CTLM(R) as an adjunctive mammography tool. Our clinical cases were collected
on CTLM(R) systems dating back to 2001. Since that time IDSI has developed
significant improvements in the scanning subsystems, image reconstruction and
image display software. We have also improved quality assurance routines to
14
ensure better operator and physician training, and improved image quality
control. These enhancements were routinely implemented as they became validated
on our international CTLM(R) shipments, but the same changes were not made to
the 2001 units in order to maintain our PMA modules in their original forms. We
now intend to collect data using our latest systems because we believe the
results will yield a stronger study to support our PMA application.
Consequently, we will install updated CTLM(R) systems in the US and upgrade
several international units to collect data under a new protocol. Our plan will
extend the time to actual PMA submission from what we were anticipating in
October, but we believe this approach will better support the application."
Clinical Collaboration Sites Update
CTLM(R) Systems have been installed and patients are being scanned under
clinical collaboration agreements with the following hospitals:
1. Schering AG (Three Units)
o Robert-Rossle Clinic, University of Muenster and Charite Hospital
2. The University of Vienna, Allgemeines Hospital
3. Humboldt University of Berlin, Charite Hospital
4. The Comprehensive Cancer Centre, Gliwice, Poland
5. Catholic University Hospital, Rome, Italy
In September 2004, we announced that we have installed a third CT Laser
Mammography System, CTLM(R), as part of Schering AG's Phase 1 clinical study of
the fluorescent imaging compound SF64. The third system was installed in the
prestigious Charite Hospital in Berlin. We had previously announced that CTLM(R)
Systems were installed at the Robert-Rossle Clinic and at the University of
Muenster.
In November 2004, we announced that the Comprehensive Cancer Centre in Gliwice,
Poland signed a clinical collaborative agreement to gather data to expand
diagnostic and therapeutic applications of the CT Laser Mammography (CTLM(R))
system.
In December 2004, we announced that a CT laser Mammography (CTLM(R)) system was
shipped to the Comprehensive Cancer Centre in Gliwice, Poland. A clinical
collaboration agreement was previously announced on November 10, 2004.
In December 2004, we announced that the Catholic University in Rome, Italy
signed a clinical collaboration agreement and that a CT Laser Mammography
(CTLM(R)) system had been shipped to their Department of Radiology. This
agreement marked the sixth out of eight targeted European sites for our clinical
collaboration program.
On February 3, 2005, we announced that Charles University Hospital in Prague,
Czech Republic has signed a clinical collaborative agreement to gather data and
expand the proprietary applications of the CTLM(R). This agreement marked the
seventh out of eight targeted European sites for our clinical collaboration
program.
We are in discussions with other European hospitals and clinics wishing to
participate in our clinical collaboration program. The additional collaboration
sites will be announced upon the signing of our clinical collaboration
agreements.
15
Other Recent Events
In September 2004, we announced that Janusz Ostrowski has joined IDSI as Vice
President, International Sales. He will be responsible for implementing and
managing the distribution network outside of the U.S. Mr. Ostrowski has over 20
years of experience as an imaging equipment industry executive who has spent his
career introducing new products and services to global markets.
In September 2004, we announced that we signed a multi-year agreement with China
Far East International Trading Corporation (CFETC) for the exclusive sale of our
CTLM(R) in the People's Republic of China. The new agreement also includes
clinical research and collaboration programs and supersedes our previous
distribution contract with CFETC. On September 29, 2004 we filed an 8-K report
announcing this press release and attached it as an exhibit.
In October 2004, we issued a press release entitled "Shareholder Letter from
Imaging Diagnostic Systems, Inc." written by our new CEO, Tim Hansen. The letter
stated Mr. Hansen's three top priorities: first, get the U.S. FDA Pre Market
Approval (PMA) completed; second, launch a global commercialization program; and
third, lay out a roadmap to enhance the long-term growth of the Company. On
October 18, 2004 we filed an 8-K report announcing this press release and
attached it as an exhibit.
In November 2004, we announced that we would be an exhibitor at the 36th annual
MEDICA 2004 in Dusseldorf, Germany. This internationally renowned medical device
conference attracts exhibitors from 67 nations and visitors representing over
100 nations, and we expect to generate leads for future potential sales from the
attendees.
In December 2004, we announced that EDOMED AS was appointed the exclusive
Distributor in the Czech Republic for the CTLM(R).
In December 2004, we announced that EDO-MED Sp. Z.o.o. was appointed the
exclusive Distributor in Poland for the CTLM(R).
In January 2005, we announced that Kurt & Kurt, Inc. was appointed the exclusive
Distributor in Turkey for the CTLM(R).
In January 2005, we announced the receipt of six international orders for
CTLM(R) systems. The orders reflect our new emphasis on global commercialization
and recent efforts to strengthen our international distribution network
supported by our clinical luminary partnerships.
In January 2005, we issued a press release entitled "Imaging Diagnostic Systems,
Inc. Releases Letter to Shareholders" written by our CEO, Tim Hansen. The letter
gave a brief status update of the three top priorities stated in Mr. Hansen's
initial letter to shareholders released in October 2004. On January 27, 2005 we
filed an 8-K report announcing this press release and attached it as an exhibit.
In January 2005, we announced that we sold a CT Laser Mammography (CTLM(R))
system to our distributor, Biomedical International, Snc. of Rome Italy for
installation at the Hospital Civile di Teramo, Teramo, Italy. The CTLM(R) system
will be used in the hospital's oncology department. Revenue for the sale will be
reported in our third quarter ending March 31, 2005.
On February 1, 2005, we announced that we sold a CT Laser Mammography (CTLM(R))
system to our distributor, Abu Dhabi International Medical Services of Abu
Dhabi, United Arab Emirates for installation at Al Salama Hospital, Abu Dhabi,
U.A.E. Revenue for the sale will be reported in our third quarter ending March
31, 2005.
On February 7, 2005, we announced that we sold a CT Laser Mammography (CTLM(R))
system to our distributor, Biomedical International, Snc. of Rome Italy for
installation at the Biomedical Mammography Center, Alba Adriatica, Teramo,
Italy. Revenue for the sale will be reported in our third quarter ending March
31, 2005.
16
FINANCING/EQUITY LINE OF CREDIT
- -------------------------------
We will require substantial additional funds for working capital, including
operating expenses, clinical testing, regulatory processes and manufacturing and
marketing programs and our continuing product development programs. Our capital
requirements will depend on numerous factors, including the progress of our
product development programs, results 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 and changes in
our existing research, licensing and other relationships and the terms of any
new collaborative, licensing and other arrangements that we may establish.
Moreover, our fixed commitments, including salaries and fees for current
employees and consultants, and other contractual agreements are likely to
increase as additional agreements are entered into and additional personnel are
retained.
On July 17, 2000 we sold to Charlton in a private placement 400 shares of our
Series K convertible preferred stock for $4 million. We issued an additional 95
Series K shares to Charlton for $950,000 on November 7, 2000. The total of
$4,950,000 was designed to serve as bridge financing pending draws on the
Charlton private equity line (described below). We paid Spinneret Financial
Systems Ltd. ("Spinneret"), an independent financial consulting firm
unaffiliated with the Company and, according to Spinneret and Charlton,
unaffiliated with Charlton, $200,000 as a consulting fee for the first tranche
of Series K shares and five Series K shares as a consulting fee for the second
tranche. We were obligated to pay a 9% dividend on the Series K convertible
preferred in cash or common stock at our option semi-annually on June 30 and
December 31 of each calendar year or upon the conversion date. Under the Series
K Certificate of Designations, we had the option of redeeming the remaining
convertible preferred (except for the Spinneret shares) solely through the use
of the private equity line by paying cash with the following redemption
premiums.
Days from closing 0-120 121-180 180
Redemption price
As a % of Principal 105% 107.5% 110%
In the event that, for whatever reason, we did not redeem the convertible
preferred according to the above schedule, the holder had the right to convert
the convertible preferred into common stock at a per share price equal to the
lower of $1.29 (115% of the closing bid price on the day prior to the initial
issuance) or 87.5% of the average of the three lowest closing bid prices (which
need not be consecutive) of the 20 consecutive trading days prior to the
conversion date. In November 2000, Charlton converted 25 Series K shares plus
accrued dividends into 197,349 restricted shares of common stock. In January
2001, Charlton converted $3,950,000 (395 shares) of Series K convertible
preferred stock into an aggregate of 4,935,412 common shares and Spinneret
converted $50,000 (5 shares) of Series K convertible preferred stock into an
aggregate of 63,996 common shares. On December 12, 2000, we registered 5,720,605
common shares underlying the 500 shares of Series K convertible preferred stock.
The shares registered included only 58,140 shares underlying the Spinneret
Series K preferred so we had to issue 5,856 common shares with a restrictive
legend. Those shares were registered in February 2001. Of the remaining 100
shares of Series K preferred stock, 50 shares were converted into 664,659 shares
of common stock in April 2001 and 50 shares were redeemed for $550,000 using
proceeds from the Charlton private equity line in April 2001.
On August 17, 2000, we entered into a $25 million private equity credit
agreement with Charlton. On November 29, 2000, prior to any draws under the
initial private equity agreement, we terminated that agreement and the initial
agreement was replaced by an Amended Private Equity Credit Agreement dated
November 30, 2000 (the "Private Equity Agreement"). The Private Equity Agreement
committed Charlton to purchase up to $25 million of common stock subject to
certain conditions pursuant to Regulation D over the course of a commitment
period extending 12 months after the effective date of a registration statement
covering the Private Equity Agreement common shares. The timing and amounts of
the purchase by the investor were at our sole discretion. We were required to
draw down a minimum of $10 million from the credit line over the initial
12-month period. If the minimum amount was not sold, Charlton was entitled to
17
receive a payment equal to 9% of the difference between the $10,000,000 and the
amount drawn by us (the "Shortfall Payment"). The purchase price of the shares
of common stock was set at 91% of the market price. The market price, as defined
in the agreement, was the average of the three lowest closing bid prices of the
common stock over the ten day trading period beginning on the put date and
ending on the trading day prior to the relevant closing date of the particular
tranche. If, subsequent to effectiveness, the registration statement was
suspended at any time, we would be obligated to pay liquidated damages of 1.5%
of the cost of all common stock then held by the investor for each 15-day period
or portion thereof, beginning on the date of the suspension. If such suspension
was cured within the first 15 days, the damages would not apply. The only fee
associated with the private equity financing was a 5% consulting fee payable to
Spinneret. In September 2001 Spinneret proposed to lower the consulting fee to
4% provided that we pay their consulting fee in advance. We reached an agreement
and paid them $250,000 out of proceeds from a put. On December 13, 2000 we
registered 7,089,685 shares of common stock underlying $10 million out of the
$25 million available in the Private Equity Agreement. Because of the decline in
our stock price, we did not have sufficient common shares registered to fulfill
our obligation under the Private Equity Agreement. To satisfy our obligation to
provide registered common shares to cover the $10 million minimum, we registered
9,875,000 additional shares on October 23, 2001. We paid Spinneret an additional
$186,235 in consulting fees relating to the Private Equity Agreement from
January to September 2001.
The principal conditions to our ability to draw under the private equity line
were that (i) during the 15 trading days immediately preceding each of the put
notice date and the corresponding closing date (11 trading days after the put
notice date) the average bid price of our common stock must be at least $.50 and
the average daily trading volume must be at least $100,000, (ii) no more than
19.9% of our outstanding common stock (30,598,173 shares as of the date of this
report) may be issued under the agreement without shareholder approval if such
approval is required by our principal trading market (it is not required by our
current market, the OTC Bulletin Board), (iii) the purchase cannot cause
Charlton to beneficially own more than 9.9% of our outstanding common stock
(according to the information available to us it beneficially owns less than 5%
of the common stock as of the date of this report), and (iv) there be no
material adverse change in our business or financial condition since our most
recent filing with the SEC.
The New Private Equity Agreement
- --------------------------------
Because the average bid price of our common stock fell below the contractually
required $.50 during the 15-day period prior to puts and/or put closings from
time to time in the period beginning November 15, 2001, Charlton orally agreed
to waive the minimum price requirement. Further, because we drew only $5,825,000
of the $10,000,000 minimum by December 13, 2001, Charlton orally agreed to
extend the commitment period and thereby waived its right to receive a Shortfall
Payment based on our failure to timely draw the $10,000,000 minimum. On May 7,
2002, we and Charlton entered into a written amendment to the Private Equity
Agreement as of November 15, 2001, which (i) reduced the minimum stock price
requirement from $.50 to $.25, (ii) reduced the minimum average daily trading
volume to $50,000, and (iii) extended the commitment period to December 13,
2003. Between November 15, 2001, and April 24, 2002, Charlton accepted two puts
totaling $625,000 and 1,410,240 shares despite the relevant average bid price
having fallen below $.50. From December 14, 2001, to April 24, 2002, Charlton
accepted eight puts totaling $2,600,000 and 5,897,827 shares. Charlton did not
accept any puts under the prior Private Equity Agreement after April 24, 2002.
Charlton agreed to the waivers sought by us in connection with the prior Private
Equity Agreement because of our good working relationship and the mutually
beneficial nature of the relationship. During the initial one-year commitment
period, we drew only $5,825,000 of the $10,000,000 minimum because we did not
require all of the funds and wanted to avoid unnecessary dilution of our
shareholders and unnecessary sales of our stock, which could have depressed its
market price. Charlton never rejected any of our puts. From January 25, 2001 to
April 9, 2002 we drew $8,425,000 and issued 15,015,479 shares to Charlton under
the prior Private Equity Agreement.
On May 15, 2002, we and Charlton entered into a new private equity agreement
which replaced the prior Private Equity Agreement (the "New Private Equity
Agreement"). The terms of the New Private Equity Agreement were substantially
equivalent to the terms of the prior agreement, except that (i) the commitment
period was three years from the effective date of a registration statement
18
covering the New Private Equity Agreement shares, (ii) the minimum amount we had
to draw through the end of the commitment period was $2,500,000, (iii) the
minimum stock price requirement was reduced to $.20, and (iv) the minimum
average trading volume was reduced to $40,000.
Since we did not yet have an effective registration statement covering shares to
be sold pursuant to the New Private Equity Agreement, in May 2002, Charlton
loaned us $350,000 in order to partially cover our short-term working capital
needs. This loan was evidenced by a promissory note dated May 29, 2002, due
August 1, 2002, and bearing interest at a rate of 2% per month. The loan was
secured by a pledge of 1,000,000 shares of our common stock, 500,000 each by our
Chief Executive Officer, Linda Grable, and by our Executive Vice President and
Chief Financial Officer, Allan Schwartz, and was personally guaranteed by Ms.
Grable and Mr. Schwartz. Charlton orally agreed to extend the due date of the
note, and we paid it back in full with proceeds of puts under the New Private
Equity Agreement between July and December 2002.
On May 17, 2002 we filed a registration statement on Form S-2 to register
10,000,000 shares underlying the New Private Equity Agreement, which was
declared effective by the SEC on July 24, 2002. We made sales under the New
Private Equity Agreement from time to time in order to raise working capital on
an "as needed" basis. In total, under the New Private Equity Agreement we drew
down $2,076,000 and issued 9,989,319 shares of common stock.
The Third Private Equity Credit Agreement
- -----------------------------------------
On October 29, 2002, we and Charlton entered into a "Third Private Equity Credit
Agreement" designed to supplement the prior New Private Equity Agreement. The
terms of the Third Private Equity Credit Agreement were substantially equivalent
to the terms of the prior agreement, except that (i) the commitment period was
three years from the effective date of a registration statement covering the
Third Private Equity Credit Agreement shares, (ii) the maximum commitment was
$15,000,000, (iii) the minimum amount we had to draw through the end of the
commitment period was $2,500,000, (iv) the minimum stock price requirement was
reduced to $.10, and (v) the minimum average trading volume in dollars was
reduced to $20,000.
We made sales under the Third Private Equity Credit Agreement from time to time
in order to raise working capital on an "as needed" basis until effectiveness of
our registration statement for shares issued under our new Fourth Private Equity
Credit Agreement (detailed below). In total, under the Third Private Equity
Credit Agreement we drew down $9,705,000 and issued 23,816,276 shares of common
stock.
The Fourth Private Equity Credit Agreement
- ------------------------------------------
On January 9, 2004, we and Charlton entered into a new "Fourth Private Equity
Credit Agreement" which replaced our prior private equity agreements. The terms
of the Fourth Private Equity Credit Agreement are more favorable to us than the
terms of the prior Third Private Equity Credit Agreement. The new, more
favorable terms are: (i) The put option price is 93% of the three lowest closing
bid prices in the ten day trading period beginning on the put date and ending on
the trading day prior to the relevant closing date of the particular tranche,
while the prior Third Private Equity Credit Agreement provided for 91%, ii) the
commitment period is two years from the effective date of a registration
statement covering the Fourth Private Equity Credit Agreement shares, while the
prior Third Private Equity Credit Agreement was for three years, (iii) the
maximum commitment is $15,000,000, (iv) the minimum amount we must draw through
the end of the commitment period is $1,000,000, while the prior Third Private
Equity Credit Agreement minimum amount was $2,500,000, (v) the minimum stock
price requirement is now controlled by us as we have the option of setting a
floor price for each put transaction (the previous minimum stock price in the
Third Private Equity Credit Agreement was fixed at $.10), (vi) there are no fees
associated with the Fourth Private Equity Credit Agreement; the prior private
equity agreements required the payment of a 5% consulting fee to Spinneret,
which was subsequently lowered to 4% by mutual agreement in September 2001, and
(vii) the elimination of the requirement of a minimum average daily trading
volume in dollars. The previous requirement in the Third Private Equity Credit
Agreement was $20,000. The conditions to our ability to draw under this private
equity line, as described above, may materially limit the draws available to us.
19
On January 30, 2004, we filed a registration statement with respect to 5,000,000
shares of our common stock to be issued pursuant to the Fourth Private Equity
Credit Agreement. This registration statement became effective March 4, 2004, at
which time the Third Private Equity Credit Agreement was terminated and we began
drawing under the Fourth Private Equity Credit Agreement. On June 21, 2004 we
filed a registration statement with respect to 9,800,000 shares of our common
stock to be issued pursuant to the Fourth Private Equity Credit Agreement. This
registration statement became effective June 29, 2004. On November 10, 2004 we
filed a registration statement with respect to 7,000,000 shares of our common
stock to be issued pursuant to the Fourth Private Equity Credit Agreement. This
registration statement became effective December 9, 2004. We intend to make
sales under the Fourth Private Equity Credit Agreement from time to time in
order to raise working capital on an "as needed" basis. We have already drawn in
excess of the $1,000,000 minimum but, based on our current assessment of our
financing needs, we expect to draw substantially less than the $15,000,000
maximum under the Fourth Private Equity Credit Agreement; however, if those
needs change we may draw up to the $15,000,000 maximum. As of the date of this
report, under the Fourth Private Equity Credit Agreement we have drawn down
$5,922,774 and issued 17,589,813 shares of common stock.
As of the date of this report, since January 2001, we have drawn an aggregate of
$26,928,774 in gross proceeds from our equity credit lines with Charlton and
have issued 66,901,081 shares as a result of those draws.
There can be no assurance that adequate financing will be available when needed,
or if available, will be available on acceptable terms. Insufficient funds may
prevent us from implementing our business plan or may require us to delay, scale
back, or eliminate certain of our research and product development programs or
to license to third parties rights to commercialize products or technologies
that we would otherwise seek to develop ourselves. To the extent that we utilize
our Private Equity Credit Agreements, or additional funds are raised by issuing
equity securities, especially convertible preferred stock and convertible
debentures, dilution to existing shareholders will result and future investors
may be granted rights superior to those of existing shareholders. Moreover,
substantial dilution may result in a change in our control.
20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
31.1 Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
32.1 Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
(b) Reports on Form 8-K
A Form 8-K was filed on September 28, 2004, announcing that our CT
Laser Mammography System (CTLM(R)) had received Chinese State Food and
Drug Administration (SFDA) marketing approval. The Peoples Republic of
China SFDA issued the registration "Certificate for Medical Device".
The medical device registration number is 20043241646.
A Form 8-K was filed on September 29, 2004, announcing that we signed a
multi-year agreement with China Far East International Trading
Corporation (CFETC) for the exclusive sale of our CT Laser Mammography
System (CTLM(R)) in the People's Republic of China. The new agreement
also includes clinical research and collaboration programs and
supersedes our previous distribution contract with CFETC.
A Form 8-K was filed on October 18, 2004 announcing the issuance of a
press release entitled, "Shareholder Letter From Imaging Diagnostic
Systems, Inc." written by Tim Hansen, CEO. The letter detailed the
three top priorities chosen by Mr. Hansen and the Board of Directors.
First, get the U.S. FDA Pre Market Approval (PMA) completed; second,
launch a global commercialization program; and third, lay out a roadmap
to enhance the long-term growth of the Company.
A Form 8-K was filed on January 27, 2005 announcing the issuance of a
press release entitled, "Imaging Diagnostic Systems, Inc. Releases
Letter to Shareholders" written by Tim Hansen, CEO. The letter is a
brief status update of the three top priorities stated in Mr. Hansen's
initial letter to shareholders released in October 2004.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 9, 2005 Imaging Diagnostic Systems, Inc.
By: /s/ Timothy B. Hansen
---------------------
Timothy B. Hansen
Chief Executive Officer
By: /s/ Allan L. Schwartz
---------------------
Allan L. Schwartz,
Executive Vice-President and
Chief Financial Officer
(PRINCIPAL ACCOUNTING OFFICER)
22