U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB/A
File No.: 000-50099
CIK: 0001205181
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
California 95-4451059
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State or other jurisdiction of IRS Employer ID Number
incorporation or organization
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Issuer's telephone number: (818) 260-0930
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
Not Applicable
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Securities to be registered under Section 12(g) of the Act:
Common Stock
(Title of class)
TABLE OF CONTENTS
PART I
Page
Item 1. Business.....................................................3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................3
Item 3. Properties..................................................14
Item 4. Security Ownership of Certain Beneficial Owners
and Management........................................14
Item 5. Directors and Executive Officers of the Registrant..........15
Item 6. Executive Compensation......................................18
Item 7. Certain Relationships and Related Transactions..............19
Item 8. Description of Securities...................................20
PART II
Item 1. Market for Registrant's Common Stock and
Security Holder Matters...............................22
Item 2. Legal Proceedings...........................................22
Item 3. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................23
Item 4. Recent Sales of Unregistered Securities.....................23
Item 5. Indemnification of Directors and Officers...................17
PART F/S
Financial Statements and Supplementary Data..................................F-1
Signature Page................................................................34
Exhibits, Financial Statement Schedule and Reports on Form 8-K................35
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PART I
Item 1. Description of Business.
General
Imaging3, Inc. ("Imaging3" or the "Company") has developed a proprietary medical technology (patent filed on August 27, 2002) that will produce 3D medical diagnostic images in real time. Imaging3 Technology has the potential to contribute to the improvement of healthcare. Healthcare workers using Imaging3 devices will be able to instantly view 3D, high-resolution images of virtually any part of the human body.
Company History
The Company was founded as Imaging Services, Inc. on October 29, 1993, by Dean Janes. The Company initially served as a low cost, third party service alternative for Orthopedic Equipment Company Medical Systems ("OEC") equipment. OEC is the largest manufacturer of mobile surgical C-arms with over 60% market share in the U.S. Prior to the Company's inception, there was not in existence a company that solely focused on providing third party service for OEC equipment.
In early 1994, Imaging3 began offering upgrades for OEC C-arms. The most successful upgrade was a CCD (Charged Coupled Device) camera, which improved image quality of older systems comparable with that of brand new products. This offering became so successful that the Company integrated this upgrade with used OEC C-arms and built custom units for NASA, Harvard, University of California at Irvine, University of California at Davis, Baylor University, Baxter Healthcare and other prestigious healthcare organizations. Later that year, Imaging3 applied for and received FDA approval for this device described as the NASA II CCD C-arm.
In mid 1995, Imaging3 purchased the assets of ProMedCo. ProMedCo had an exclusive agreement with OEC to remanufacture OEC C-arms for OEC Medical Systems. Though the purchase did not transfer the agreement it eliminated one of the Company's competitors and provided a substantial inventory of replacement parts. Access to these replacement parts allowed Imaging3 to immediately increase its production levels and created the opportunity to remanufacture OEC's complete product line, thereby increasing the models ISI could offer it's customers. Also, this purchase allowed the Company to enter the extremely lucrative parts sales business.
In 2000, the Company continued its expansion by acquiring certain assets and obtained services of a certain staff of a sales company in San Diego. This asset purchase brought an extensive database with over 43,000 physician names, hospitals, medical centers and surgery centers contact information as well as a streamlined automated sales force. Also as part of this expansion several key employees, most of whom were former employees of OEC, were hired to increase the Company's service presence in Arizona, Washington, Nevada, Florida, and Hawaii with a national service presence as the ultimate goal. In 2002, the Company closed the San Diego office and consolidated operations in Burbank, California.
Late in 2000, the Company began negotiations with several companies in Korea to manufacture "private labeled" equipment for the Company's exclusive sales in North and South America. These products include two new c-arms the ISI-2100 and 2500, as well as five pain management tables the ISI 8000, 8000(H), 8000(HL), 8000 (HT) and 8000 (HLT).
On February 19, 2002, a fire gutted the Company's principal operating facility, causing an estimated $4.3 million in damage. Fire officials believe the cause to be electrical. The 10,800-square-foot structure, located at 3200 W. Valhalla Drive, Burbank, California, is owned by Dean Janes and leased to the Company. Mr. Janes intends to rebuild and the Company intends to reoccupy the facility. In the interim, the Company has leased temporary facilities. The damage to the building and the loss of the Company's equipment are covered by liability insurance. However, the fire has disrupted the Company's operations. As a result the Company's management forecasts that revenues for the year ending December 31, 2002 will be significantly lower than the previous year.
In order to better position the Company for its future direction -- away from service and towards providing proprietary medical imaging products -- the Company changed its name from Imaging Services, Inc. to Imaging3, Inc. on August 20, 2002.
The Company's Business
Imaging3 Technology has potential to contribute to the improvement of healthcare. 3D images will be instantly constructed using high-resolution fluoroscopy and can be used as real time references for any current or new medical procedures in which multiple frames of reference are required to perform medical procedures on or in the human body. Imaging3 Technology has many medical applications, including:
o Trauma Center. Imaging3 Technology is designed to allow a surgeon to immediately view exactly where a bullet is lodged in a gunshot victim. At any point during the procedure, the surgeon could continue to view 3D images in real-time.
o Cardiology. Imaging3 Technology is designed to provide a 3D view of a heart and allow a cardiologist to record the heartbeat in real-time. The entire heart would be visible, including veins that are wrapped around the "back" side.
o Pain Management. Imaging3 Technology is designed to provide a 3D view of the spine, nerve endings, injection points and help guide the needle for spinal procedures. 3D images in real-time could also be used to view disk compression.
o Neuro-vascular. Imaging3 Technology is designed to provide a 3D view of the skull and brain to diagnose neuro-vascular diseases. 3D images in real-time could be used to view the rupture of vessels or arterial blockages diminish -ing blood flow to the brain.
o Orthopedic. Imaging3 Technology is designed to provide a 3D view of bones and joints to help diagnose orthopedic conditions. An orthopedic surgeon could view a 3D image in real-time to line up a screw with the hole in a hip pinning.
o Vascular. Imaging3 Technology is designed to provide a 3D view of veins throughout the body. After injecting dye, a 3D image in real-time could pin -point clots and occlusions and help diagnose vascular diseases.
Multi-function Device
A diagnostic medical imaging device built with Imaging3 Technology can perform several functions and can replace or supplement a number of exiting devices, resulting in considerable cost savings for hospitals and healthcare centers. These functions include:
o Perform real-time, 3D medical imaging
o Emulate a CT scanner (at a fraction of the capital cost)
o Perform standard fluoroscopy
The Company's management believes that this multi-function capability will be especially attractive in foreign markets, where the cost of a CT scanner is beyond the means of most hospitals and healthcare centers.
Existing Base of Business to Launch a Proprietary Product
Imaging3 is an established company with revenues. While the Company began as a service provider, it expanded to include equipment and parts sales, both new and renewed. Imaging3 is the largest remanufacturer of C-arms in the world. A C-arm is an integral component of a fluoroscopic imaging system used for various types of surgery. The Company offers new, demo, remanufactured, refurbished and pre- owned systems in all price ranges from every major manufacturer including OEC, GE, ISI, Philips, Siemens, FluoroScan, XiScan and Ziehm. The Company supplies full-size, compact and mini C-arms.
Imaging3 is also the largest distributor of C-arm tables in the U.S. The Company offers new, demo, remanufactured, refurbished and pre-owned c-arm tables in all price ranges from every major manufacturer. The Company also supplies pain management tables, surgery tables, urology tables and vascular tables. Imaging3's management intends to use the Company's base of operations and channels of distribution to launch its new medical imaging devices business, based on its breakthrough Imaging3 Technology.
Business and Revenue Models
The Company's business strategy is very straight-forward: (1) continue to build the Company's base of C-arm remanufacturing and service business, (2) develop medical diagnostic imaging devices, based on the Company's breakthrough Imaging3 Technology for the $5 billion medical imaging market, (3) sell the Company's new medical diagnostic imaging devices directly to healthcare providers, as well as through channel partners and distributors, and (4) license the Company's breakthrough Imaging3 Technology to other medical diagnostic imaging device manufacturers.
The Company's management believes that most of the Company's future revenues will come from the sale of medical imaging devices, based on the Company's Imaging 3 Technology. Other revenues will come from the licensing of its proprietary technology to other medical diagnostic imaging device manufacturers. The smallest portion of the Company's future revenue will come from the sale and service of C-arms.
Proprietary Technology
Patent Application
An application for a U.S. patent in the name of Dean Janes entitled Apparatus and Method for Three-Dimensional Real-Time Imaging System was filed on August 27, 2002, by Pillsbury Winthrop, LLC. The rights to this patent have been assigned to the Company. A Patent Application is not a guarantee of patent issuance. The application may take several years to be reviewed, may require amendments, and could possibly be rejected, if it was found to be unpatentable, or to infringe upon another patent.
Abstract of the Patent Disclosure
A computing device in a three-dimensional imaging system utilizes a plurality of distance readings and reference readings from at least one subject sensor to determine a subject location and a subject volume and establish a base-three dimensional map of a subject. A plurality of two-dimensional image exposures along with a plurality of associated reference locations are created by rotating an image source and an image receptor around an inner circumference of an imaging gantry. The plurality of two-dimensional image exposures is digitized to create a plurality of digital two-dimensional image exposures. The computing device receives the plurality of digital two-dimensional image exposures and the plurality of associated reference locations. The overlaying, interpolating and pasting of the plurality of digital two-dimensional image exposures on the base three-dimensional map creates a base three-dimensional image exposure, which is displayed on a display device.
General Description
Real-time 3D medical diagnostic imaging will be accomplished by scanning the patient, either partially or completely in a 360-degree circumference under fluoroscopy (or other type of image exposure), utilizing a single or multiple x-ray source and image receptor. The information acquired under fluoroscopy (or other type of image exposure) will be digitized at a frame rate of or between 30 to 60 frames per second. This information will be sent to a computer system to be incorporated into a three dimensional image to be displayed on a computer monitor. The image created can then be manipulated and/or rotated to view the scanned image of the patient's anatomy in any direction or orientation desired by the user. The user could then choose a specific area of the image to update. Once an area is selected, the computer displaying the image would then "gang" or align the x-ray source(s) and image receptor(s) to begin updating scans of new images to be overlaid upon the existing three dimensional model. This process would then be updated and/or repeated as many times necessary for the specific procedure to be completed. At any time, a new reference area or scan could be selected or initiated.
The "O"-arm
Part of the Company's invention is based on an "O"-arm to create a circular gantry similar to that used with CT to scan a patient a full 360 degrees with fluoroscopic radiation. This approach will allow imaging of the patient from any frame of reference or angulation. (Current medical imaging devices are limited to 150 degrees to 360 degrees with mechanical orientation or manipulation.) 3D imaging requires an O-arm to scan the patient in increments of 360 degrees to allow construction of a three dimensional image. By scanning the patient in 360 degrees and acquiring images at 30 to 60 frames per second, a three dimensional image can be constructed.
How Imaging3 Technology Differs from Other Approaches
The O-arm approach is similar to that used in a CT scan. The difference is CT is used to image a "slice" of the anatomy and not intended for real-time fluoroscopic imaging. The slice is obtained by using a fulcrum reference point and rotating the X-ray source and image receptor in reference to that point. This basic geometry creates a 2D image in any depth desired, in any region of
the body. The O-arm would use a similar fulcrum point to reference depth, but the scan would not create a slice but instead a real-time image captured at 30 to 60 frames per second in 360 degrees. Further, the O-arm would be used for conventional fluoroscopic imaging with the advantage of positioning the X-ray source and receptor at any angulation desired.
Currently, 3D imaging is used only for reconstructive post processing reference images. MRI, CT and ultrasound currently have this capability. The 3D images are created by multiple scans of 2D images that require a long period of time to process into a three dimensional image. The image created is then used only for reference, not real time manipulation in the body. The Company's 3D images will be constructed almost instantly and will be available to be used as a real time references whenever multiple frames of reference are required to perform medical procedures on or in the human body.
Proposed Construction of the O-arm
The Company intends to construct the O-arm using existing methods, similar to those being used to make C-arms. The Company may either join two C-arms together to create the "O" or construct a gantry system similar to that used by CT technology. The Company's final design will result in a smooth 360 degree scan of the patient, without jitter or bumps which might impede imaging. Also, placement of an X-ray source and image receptor will be key to the design, as well as the use of appropriate versions of these subsystems.
Real time 3D imaging will require a state-of-the-art computer system with customized software. The computer will be outfitted with customized image processing boards to capture and compute images at lK x lK resolution at 30 to 60 frames per second. The combination of software and hardware will process the image data to create a 3D image map. This map will then be displayed to the physician. The physician will be required to enter reference data to start real time imaging. Once the physician enters the data (most of which is choosing which direction and portion of the body he/she would like to work with), the O-arm will be positioned and the image will be updated with any new information, as added by the physician controlling the X-ray generation. Imaging3 Technology intends to create an image map with three dimensions and will update that map with new information, without having to create a new image.
The Market
The Company competes in the medical diagnostic imaging market and this market is growing due primarily to continual technological improvements that lead to faster and better-resolution imaging, greater patient safety, and the provision of these capabilities to a growing and aging population. The result has been a vigorous competition to create the most cost-effective diagnostic imaging systems.
Diagnostic imaging is an evolving part of modern medicine and is now entering a new era of digital imaging. The field has evolved from the early X-rays by Roentgen over 100 years ago to imaging of organs by computerized tomography (CT) and magnetic resonance imaging (MRI) that are 20 years old. Medical imaging is used for diagnosis in the leading causes of death, heart attacks, strokes, and cancer. What was once called the radiology department is now called the diagnostic imaging department because of the wealth of new technologies available beyond x-rays. A trauma victim's internal injuries are imaged with a CT scanner. Breast cancer, a leading cause of death in women, is detected with mammography and ultrasound.
Industry Overview
Diagnostic imaging services are noninvasive procedures that generate representations of the internal anatomy and convert them to film or digital media. Diagnostic imaging systems facilitate the early diagnosis of diseases and disorders, often minimizing the cost and amount of care required and reducing the need for costly and invasive diagnostic procedures.
MRI
MRI involves the use of high-strength magnetic fields to produce computer-processed cross-sectional images of the body. Due to its superior image quality, MRI is the preferred imaging technology for evaluating soft tissue and organs, including the brain, spinal cord and other internal anatomy. With advances in MRI technology, MRI is increasingly being used for new applications such as imaging of the heart, chest and abdomen. Conditions that can be detected by MRI include multiple sclerosis, tumors, strokes, infections, and injuries to the spine, joints, ligaments, and tendons. Unlike x-rays and computed tomography, which are other diagnostic imaging technologies, MRI does not expose patients to potentially harmful radiation.
MRI technology was first patented in 1974, and MRI systems first became commercially available in 1983. Since then, manufacturers have offered increasingly sophisticated MRI systems and related software to increase the speed of each scan and improve image quality. Magnet strengths are measured in tesla, and MRI systems typically use magnets with strengths ranging from 0.2 to 1.5 tesla. The 1.0 and 1.5 tesla strengths are generally considered optimal because they are strong enough to produce relatively fast scans but are not so strong as to create discomfort for most patients. Manufacturers have worked to gradually enhance other components of the machines to make them more versatile. Many of the hardware and software systems in recently manufactured machines are modular and can be upgraded for much lower costs than purchasing new systems.
Positron Emission Tomography (PET)
PET is a nuclear medicine procedure that produces pictures of the body's metabolic and biologic functions. PET can provide earlier detection of certain cancers, coronary diseases or neurologic problems than other diagnostic imaging systems. It is also useful for the monitoring of these conditions.
Computed Tomography (CT)
In CT imaging, a computer analyzes the information received from an x-ray beam to produce multiple cross-sectional images of a particular organ or area of the body. CT imaging is used to detect tumors and other conditions affecting bones and internal organs.
Other Services
Other diagnostic imaging technologies include x-ray, single photon emission computed tomography, and ultrasound.
Digital Imaging Technologies
New techniques for the digital capture, display, storage, and transmission of X-ray images are poised to revolutionize the diagnostic imaging market. Although digital technologies and techniques have been in use in other diagnostic imaging areas (such as CT scans, MRI scans, and ultrasound), technical problems have kept X-ray technologies in the era of film. However, new methods of digitally capturing X-ray images are under development, and promise to revolutionize X-ray imaging.
The need to cut costs and improve services in healthcare delivery is driving the move to digital systems. The requirement for hospitals to implement electronic access to medical images and other types of information is now widely accepted and regarded as inevitable. The trend toward storing, distributing and viewing medical images in digital form is being fueled by both changes in the economic structure of the healthcare system and by rapidly evolving technologies. In particular, the new economics of health care will mandate a shift from film-based radiology to the electronic delivery of digital images, while new technology promises the additional benefit of vastly improved diagnostic power.
Users of Diagnostic Imaging
MRI and other imaging services are typically provided in one of the following settings:
Hospitals and Clinics
Independent Imaging Centers
Outsourced
Industry Challenges
In a recent report, U.S. Medical Imaging Industry Outlook, Frost & Sullivan identified several challenges facing the diagnostic imaging industry. Low reimbursement rates have become a major challenge, not only for end users, but for manufacturers as well. Imaging reimbursements for many procedures may be inadequate given the expense of the equipment and the expertise required to create and interpret results.
Lack of adequate compensation is a concern for all industry participants, as many healthcare centers are delaying or canceling purchases of high-pieced items. Until the financial rewards for imaging are increased substantially, and definitively, low reimbursement will be the foremost hurdle for manufacturers.
Competition
Competitive Landscape
The healthcare industry in general, and the market for imaging products in particular, is highly competitive. The Company competes with a number of companies, many of which have substantially greater financial, marketing, and other resources than the Company. The Company's competitors include large companies such as GE, Philips, Siemens Toshiba and Hitachi, which compete in most medical diagnostic imaging modalities, including X-ray imaging.
A study by Theta Reports, Diagnostic Imaging Equipment and Systems World Market, identifies the following 17 key players in the medical diagnostic imaging market:
o ADAC Laboratories
o Eastman Kodak Co.
o Fonar Corp.
o Fuji Medical Systems U.S.A. Inc.
o General Electric Medical Systems
o Hitachi Medical Systems America Inc.
o Hologic Inc.
o Imaging Diagnostic Systems Inc.
o Imatron Inc.
o Lumisys Inc.
o Marconi Medical Systems
o Philips Medical Systems Nederland BV
o PhorMax Corp.
o Siemens Medical Engineering Group
o Sterling Diagnostic Imaging Inc.
o Trex Medical Corp.
o Varian Medical Systems Inc.
Direct Competitors
At this time, the Company is not aware of any existing devices in the marketplace that provide 3D, real-time diagnostic medical imaging, with the exception of ultrasound.
Ultrasound is a real-time tomgraphic imaging modality. Not only does it produce real-time tomograms of the position of reflecting surfaces (internal organs and structures), but also it can be used to produce real-time images of tissue and blood motion. However, ultrasound is a low-resolution imaging modality that does not produce an image as precise and clear as fluoroscopy. The Company's devices will rely instead on the use of fluoroscopy, a high-resolution imaging modality, to produce "live" X-ray images of a living patients in 3D.
Marketing and Sales Plan
Marketing Strategy
Imaging3's marketing strategy is to promote the image that Imaging3 Technology is designed to be a complete and comprehensive medical diagnostic imaging solution available in the marketplace.
Product and Service Differentiation
The differentiating attributes of Imaging3 Technology include:
o Real time medical diagnostic imaging that will produce high resolution
images
o Reasonably priced
o Easy-to-install
o Vast array of features
o Reliability
Value Proposition
The Company's value proposition is: Diagnostic imaging devices with Imaging3 technology allow healthcare providers to easily produce 3D, real time, high resolution images at a reasonable cost.
Sales Strategy
Concurrent with a marketing campaign, the Company intends to aggressively sell its medical diagnostic imaging devices in the U.S. International sales will follow after achieving initial success in the domestic marketplace.
Sales Margin Structure
The Company's management believes that the majority of its sales will be derived from direct sales to customers, with the balance of sales derived from dealers and manufacturer's representatives. As a result, the sales margin structure must be attractive to these independent organizations.
o Direct Sales - Full suggested list price
o Dealers - 30% off suggested list price
o Manufacturer's Representatives - 10% commission
Target Market Segment
The Company's management has identified general medical and surgical hospitals in the U.S. as its primary target market segment for Imaging3 Technology. According to D&B/iMarket, there are the 12,041 general medical and surgical hospitals in the U.S.
Distribution Channels
The Company plans to sell its Imaging3 medical diagnostic imaging devices through several channels of distribution, including:
Direct Sales to End Users
The Company's policy is to sell directly to end-users whenever possible. The Company's management expects that direct sales will occur most often with larger customers.
Dealers and Manufacturer's Representatives
The Company has working relationships with a number of independent organizations that help distribute the Company's current product line. The Company expects to work with these independent organizations to help distribute diagnostic medical imaging devices built with Imaging3 Technology. These organizations have well-established relationships with mid-size to large size customers. Many also provide specific vertical market applications.
Selling Methods
Executive Sales
Because many of Imaging3's large customers will tend to be top healthcare managers, it is important that its Company president and senior managers present its products to its customers.
Field Sales Force
The majority of the Company's selling efforts to large accounts will be handled internally through its field sales force. Imaging3 has chosen to use a direct sales force because its large accounts require considerable customer education and post-sales support -- directly from the Company. The Company's price points, pricing structure and profits are such that its cost of sales warrants a "person-to-person" selling strategy.
Dealers and Manufacturers' Representatives
The Company can supplement its own field sales force by entering into agreements with dealers and manufacturers' representatives. Because dealers and manufacturers' representatives carry several product/service lines that are compatible with the Company's products and services, Imaging3 plans to select dealers and manufacturers representatives carrying complementary and compatible products and services, as well as dealers and manufacturers' representatives that sell dissimilar products and services yet ones that are appropriate to their customers' customer.
Administrative Offices
The Company currently maintains an office at 303 N. Glenoaks Blvd., Burbank, CA 91505. This facility contains 1,798 square feet of space, and the Company currently pays rent at a rate of $1.80 per square foot, gross. The Company currently maintains its production facilities at 825 Western Avenue, #19 & #21, Glendale, CA 91205. This facility contains 3,000 square feet of space, and the Company pays rent at the rate of $.93 per square foot, gross
Employees
The Company currently employs 12 full-time individuals, all of whom are working at the Company's offices at 303 N. Glenoaks Blvd., #605, Burbank, California and 825 Western Avenue, #19 & #21, Glendale, California. Of those 12 full-time employees, 7 are employed in administrative, marketing, and sales positions, and the remaining 5 are technical employees employed in research, development, and technical product maintenance positions. The Company projects that during the next 12 months, the Company's workforce is likely to increase to 21, with 4 of the new positions being in the administrative, marketing, and sales areas and the remaining 5 of the new positions being in research, development, and production positions.
To support the Company's need for technical staffing, the Company has established relationships with technical staffing organizations that continuously offer highly qualified personnel to meet the Company's needs, both locally and from out of the area.
Reports to Stockholders
The Company plans to furnish its stockholders with an annual report for each fiscal year containing financial statements audited by its independent certified public accountants. In the event the Company enters into a business combination with another company, it is the present intention of management to continue furnishing annual reports to stockholders. The Company intends to comply with the periodic reporting requirements of the Securities Exchange Act of 1934 for so long as it is subject to those requirements, and to file unaudited quarterly reports and annual reports with audited financial statements as required by the Securities Exchange Act of 1934. The annual and quarterly reports may also be obtained online through Edgar at www.sec.gov/edgar/quickedgar.htm.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS OR PLAN OF OPERATIONS.
RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 2002 AND 2000
The Company had net revenue of $6,523,936 in 2001 compared to $4,510,442 in 2000. Cost of revenues were $3,757,111 in 2001 and $2,601,814 in 2000. Gross profit in 2001 was $2,766,825 compared to $1,908,628 in 2000. Operating expenses totaled $2,860,008 in 2001 and $1,997,259 in 2000. The Company had a net operating loss of ($93,183) in 2001 and ($88,631) in 2000. The Company incurred nonoperating net losses in 2001 of ($441,834) and ($54,870) in 2000. The net loss after tax provisions was ($535,817) in 2001 and ($144,301) in 2000. The net loss per share was ($.09) in 2001 and ($1.25) in 2000.
The Company expects the trend of losses will continue due to high expenses of marketing its products and technology in a highly competitive environment, and the need to continue research and development on new products.
PROJECTED RESEARCH & DEVELOPMENT COSTS
The Company expects to expend, in the next year, approximately $1 million to pay costs associated with completing development of the "O" arm Platform and technology.
RESULTS OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2002 AS COMPARED TO SAME NINE MONTH PERIOD ENDED SEPTEMBER 30, 2001
At September 30, 2002, the Company had $414,735 in cash, $114,202 in net receivables, and $662,140 in current inventory. Current assets total $1,456,223. At September 30, 2002, the Company had liabilities of accounts payable of $898,968, and equipment deposits of $383,422, and other current liabilities for a total of $1,574,110 in current liabilities. The deficit of current assets to current liabilities is approximately ($118,000).
The net revenue for the nine-month period ended September 30, 2002 was $1,656,378 as compared to net revenue of $4,838,546 for the nine-month period ended September 30, 2001. The cost of revenue in the nine-month period was $1,316,414 in 2002 and $2,703,077 in 2001. The gross profit was $339,964 and $2,135,469 in the period in 2002 and 2001, respectively, Operating expenses totaled $1,353,775 and $2,164,821 in the periods in 2002 and 2001, respectively. The loss on operations was ($1,013,311) in the period in 2002 and ($29,352) in 2001 in the period.
The Company incurred non-operating net losses of ($47,636) and ($240,052) in the period in 2002 and 2001, respectively. The net loss was ($48,436) or ($.004) per share in the period in 2002 compared to ($240,852) or ($.031) per share in the period in 2001. The Company operations were severely affected by a fire loss in 2002, and an extraordinary gain of $1,025,498 was experienced from insurance proceeds from the fire loss. The Company expects the trend of net operating losses to continue at present rate due to expenses of marketing and product development.
LIQUIDITY AND CAPITAL RESOURCES
Accounts receivable represent financial instruments with potential credit risk. The Company typically offers its customers' credit terms. The Company makes periodic evaluations of the credit worthiness of its enterprise customers and other than obtaining deposits pursuant to its policies, it generally does require collateral. In the event of nonpayment, the Company has the ability to take back equipment pledged as collateral.
Need for Additional Financing
The Company does not have capital sufficient to meet the Company's cash needs. The Company will have to seek loans or equity placements to cover such cash needs.
The Company is in the process of offering to sell 2,000,000 shares at $1 per share in a private placement to accredited investors to raise up to 2,000,000 shares of common stock at $1.00 per share to attempt to raise up to $2,000,000 in capital to continue business development and fund operations.
No commitments to provide additional funds have been made by management or other stockholders. Accordingly, there can be no assurance that any additional funds will be available to the Company to allow it to continue its business plan.
Item 3. Description of Property.
The Company currently maintains an office at 303 N. Glenoaks Blvd., Burbank, CA 91505. This facility contains 1,798 square feet of space, and the Company currently pays rent at a rate of $1.80 per square foot, gross. The Company currently maintains its production facilities at 825 Western Avenue, #19 & #21, Glendale, CA 91205. This facility contains 3,000 square feet of space, and the Company pays rent at the rate of $.93 per square foot, gross.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of October 31, 2002, the number of shares of Common Stock owned of record and beneficially by executive officers, directors and persons who hold 5.0% or more of the outstanding Common Stock of the Company. Also included are the shares held by all executive officers and directors as a group.
NUMBER OF SHARES OWNERSHIP
SHAREHOLDERS/BENEFICIAL OWNERS PERCENTAGE
-----------------------------------------------------------------------------------------------------------
Dean Janes (1) 8,625,000 69.55%
c/o Imaging 3, Inc.
303 N. Glenoaks, Blvd.
Burbank, CA 91505
Christopher Sohn 2,875,000 23.18%
c/o Imaging 3, Inc.
303 N. Glenoaks, Blvd.
Burbank, CA 91505
All directors and executive
officers as a group (2 persons) 11,500,000 92.73%
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(1) Dean Janes is Chairman and Chief Executive Officer of the Company.
(2) Christopher Sohn is a Director and Chief Operating Officer of the Company.
Each principal shareholder has sole investment power and sole voting power over the shares.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The directors and executive officers currently serving the Company are as follows:
Name Position Held Tenure
-----------------------------------------------------------------------------
Dean Janes Chairman and CEO Annual since 1993
Christopher Sohn Director, President & COO Annual since 1993
Xavier Aguilera Secretary/Treasurer Annual since 1993
Senior Vice President &
CFO
Michele Janes Vice President- Annual since 1993
Administration
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The Company has a five-person Board of Directors, which presently has four positions filled by the individuals shown above.
The directors named above will serve until the next annual meeting of the Company's stockholders. Thereafter, directors will be elected for one-year terms at the annual stockholders' meeting. Officers will hold their positions at the pleasure of the board of directors, absent any employment agreement. There is no arrangement or understanding between the directors and officers of the Company and any other person pursuant to which any director or officer was or is to be selected as a director or officer.
The directors of the Company will devote such time to the Company's affairs on an "as needed" basis. As a result, the actual amount of time which they will devote to the Company's affairs is unknown and is likely to vary substantially from month to month.
The following paragraphs outline the biographical information of the officers and directors of the Company.
Biographical Information Dean Janes. Mr. Janes, age 37, is the Chairman and Chief Executive Officer of the Company. Mr. Janes has over 17 years of experience as a biomedical |
electronic engineer. He served for 9 years in the U.S. Army as a biomedical technician. Mr. Janes' work experience includes serving as a National Tech Support Engineer for Toshiba and Senior Engineer for Kaiser, COHR and OEC. He was responsible for integrating a CCD camera with a mobile fluoroscopy into the C-arm, a system that is used throughout the medical diagnostic medical imaging industry today. Mr. Janes is the principal inventor of Imaging3 real time 3D medical diagnostic imaging technology. He majored in Bio-Medical Electronic Engineering at the University of Colorado Technical Institute (1984-1988). Mr. Janes is a member of MENSA and is listed in Who's Who of Executive Business.
Christopher Sohn. Mr. Sohn, age 42, is the President and Chief Operating Officer of the Company. Christopher Sohn has 20 of experience in international trade. He has worked with a number of biomedical equipment manufacturers from Asia Pacific, as well as distributors throughout Latin America. As CEO of DMI (1995-2000) and ISOL America (2000-2001), he was responsible for establishing dealer networks throughout Latin America for several Korean medical equipment manufacturers. Mr. Sohn majored in Biochemistry and Computer Science at the University of California at Los Angeles (1978-1982).
Xavier Aguilera. Mr. Aguilera, age 53, is the Senior Vice President/Chief Financial Officer of the Company. Mr. Aguilera has over 29 years experience in finance, marketing, international finance and administration. Having served as both a domestic and international banker, his experience in administration has enabled him to help companies achieve high levels of success. For approximately 10 years prior to his employment by the Company, Mr. Aguilera served as a consultant in the medical management field. He holds a Bachelors degree in Business from California State University at Northridge (1983) and a Certificate of Medical Management from the University of California at Los Angeles (1995).
Michele Janes. Mrs. Janes, age 36, is the Vice President-Administration of the Company. Mrs. Janes has over 15 years experience in business administration. She has worked for Arthur Young, Remedy Temp and Fortune Promo Seven, the largest marketing firm in the Middle East. Mrs. Janes holds a Bachelors degree in Marketing from Bennett College of London (1985).
The Company intends to fill the vacancies on the Board of Directors with addi- tional qualified personnel over the next twelve months.
Indemnification of Officers and Directors
As permitted by California Corporation Law, the Company may indemnify its directors and officers against expenses and liabilities they incur to defend, settle, or satisfy any civil or criminal action brought against them on account of their being or having been Company directors or officers unless, in any such action, they are adjudged to have acted with gross negligence or willful misconduct. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in that Act and is, therefore, unenforceable.
Exclusion of Liability
The California Corporation Law excludes personal liability for its directors for monetary damages based upon any violation of their fiduciary duties as directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, acts in violation of the California Corporation Act, or any transaction from which a director receives an improper personal benefit. This exclusion of liability does not limit any right which a director may have to be indemnified and does not affect any director's liability under federal or applicable state securities laws.
Conflicts of Interest
Some officers and directors of the Company will not devote more than a portion of their time to the affairs of the Company. There will be occasions when the time requirements of the Company's business conflict with the demands of their other business and investment activities. Such conflicts may require that the Company attempt to employ additional personnel. There is no assurance that the services of such persons will be available or that they can be obtained upon terms favorable to the Company.
Conflicts of Interest - General. Certain of the officers and directors of the Company may be directors and/or principal shareholders of other companies and, therefore, could face conflicts of interest with respect to potential acquisitions. In addition, officers and directors of the Company may in the future participate in business ventures which could be deemed to compete directly with the Company. Additional conflicts of interest and non-arms length transactions may also arise in the future in the event the Company's officers or directors are involved in the management of any firm with which the Company transacts business.
There are no current plans or proposals in place that would give rise to any conflict of interest. There are no acquisitions planned or sought at this time. In the event that an acquisition of any business or technology controlled or owned by a director or officer were proposed. The Company has adopted a policy that any such acquisition must be approved by a majority of the disinterested directors.
Item 6. Executive Compensation.
SUMMARY COMPENSATION TABLE OF EXECUTIVES
Annual Compensation Awards
------------------------ ------------ -------------- ------------ ----------------------- -------------------- ---------------------
Name and Principal Year Salary ($) Bonus ($) Other Annual Restricted Stock Securities
Position Compensation ($) Award(s) Underlying Options/
($) SARs (#)
------------------------ ------------ -------------- ------------ ----------------------- -------------------- ---------------------
Dean Janes, 2001 100,000 0 0 0 0
Chairman, CEO & 2000 100,000 0 0 0 0
Director 1999 100,000 0 0 0 0
------------------------ ------------ -------------- ------------ ----------------------- -------------------- ---------------------
Christopher Sohn 2001 110,000 0 0 0 0
President & COO, & 2000 110,000 0 0 0 0
Director 1999 110,000 0 0 0 0
------------------------ ------------ -------------- ------------ ----------------------- -------------------- ---------------------
|
Messrs. Janes and Sohn are employed by the Company on a full-time basis. The employment of each is "at will," and either the employee or the Company may terminate the employment relationship at any time, either with or without cause. Presently, the Company is paying salary to Mr. Janes at an annual rate of $100,000 and to Mr. Sohn at an annual rate of $110,000. Messrs. Janes and Sohn have each executed with the Company a Nondisclosure and Assignment of Inventions Agreement, under which each employee has assigned to the Company all rights to all inventions conceived by the co-founder in connection with his employment by the Company (to the extent permitted by California law).
Directors' Compensation
-----------------------
Name Annual Meeting Consulting Number Number of
Retainer Fees Fees/Other of Securities
Fee ($) ($) Fees ($) Shares Underlying
(#) Options
SARs (#)
A. Director 2001 0 0 0 0 0
Dean Janes
B. Director
Christopher Sohn 2001 0 0 0 0 0
C. Director
Xavier Aguilera 2001 0 0 0 0 0
D. Director
Michele Janes 2001 0 0 0 0 0
|
Option/SAR Grants Table (None)
Aggregated Option/SAR Exercises in Last Fiscal Year an FY-End Option/SAR value
(None)
Long Term Incentive Plans - Awards in Last Fiscal Year (None)
Item 7. Certain Relationships and Related Transactions.
Mr. Janes is also the owner of the principal operating facility that the Company occupied in the past. The Company intends to reoccupy the facility, once it has been rebuilt from damaged caused by fire.
Dean Janes and Michele Janes are husband and wife.
No officer, director, or affiliate of the Company has or proposes to have any direct or indirect material interest in any asset proposed to be acquired by the Company through security holdings, contracts, options, or otherwise.
The Company has adopted a policy under which any consulting or finder's fee that may be paid to a third party for consulting services to assist management in evaluating a prospective business opportunity would be paid in stock or in cash. Any such issuance of stock would be made on an ad hoc basis. Accordingly, the Company is unable to predict whether or in what amount such a stock issuance might be made.
Item 8. Description of Securities.
The Shares being registered are shares of the Common Stock of the Company, no par value. The holder of each Share is entitled to one vote per Share. The holders of the Shares do not have any preemptive rights, and there is no liquidating preference associated with the Shares.
There are no provisions of the Articles or Bylaws of the Company that may delay, defer, or prevent a takeover attempt. No "poison pill" provisions have been adopted by the Board.
RIGHTS OF CERTAIN SHAREHOLDERS
Shareholders
Each shareholder has sole investment power and sole voting power over the shares owned by such shareholder.
Transfer Agent
The Company has not engaged a transfer agent. The Company's corporate counsel maintains stock book and issues shares.
Reports to Stockholders
The Company plans to furnish its stockholders with an annual report for each fiscal year containing financial statements audited by its independent certified public accountants. In the event the Company enters into a business combination with another company, it is the present intention of management to continue furnishing annual reports to stockholders. The Company intends to comply with the periodic reporting requirements of the Securities Exchange Act of 1934 for so long as it is subject to those requirements, and to file unaudited quarterly reports and annual reports with audited financial statements as required by the Securities Exchange Act of 1934. The annual and quarterly reports may also be obtained online through Edgar at www.sec.gov/edgar/quickedgar.htm.
PART II
Item 1. Market Price and Dividends on the Registrant's Common Equity and Other Shareholder Matters
DIVIDENDS, DISTRIBUTIONS, AND REDEMPTIONS
The Company has not paid, and does not anticipate paying, any dividends or other distributions to investors purchasing Shares in the Offering. The Company is taxed as a "C" corporation for federal income tax purposes.
No public trading market exists for the Company's securities and all of its outstanding securities are restricted securities as defined in Rule 144. There were 7 unique holders of record of the Company's common stock as of October 31, 2002. No dividends have been paid to date and the Company's Board of Directors does not anticipate paying dividends in the foreseeable future.
Item 2. Legal Proceedings
In connection with a fire at the Company's facility on or about February 19, 2002, in which the Company's manufacturing, warehouse, and office facilities were substantially destroyed, the Company has become engaged in litigation in several courts, described herein.
On February 28, 2002, the Company (as Imaging Services, Inc.) initiated legal proceedings in the Los Angeles Superior Court against its construction contractor, Tower Engineering [Imaging Services, Inc. and Dean Janes v. Tower Engineering, Los Angeles Superior Court case number EC033979.] In connection with that action, Tower Engineering filed a cross-complaint against the Company, seeking payment of allegedly outstanding invoices related to the same construction. The Company has answered the cross-complaint, denying its allegations, and the litigation is in the discovery phase, with no trial date scheduled. Other disputes have arisen in connection with this litigation, involving subcontractors and insurers for the parties. These construction-related cases are Hayat Painting and Wallcovering, Inc. v. Imaging Services, Inc. and Tower Engineering; Los Angeles Superior Court Case Number 02CC03321, filed April 8, 2002, and Westside Wholesale Electric and Lighting, Inc. v. Mario Albert Osorio, dba Albert's Electric Service, and Dean Janes; Los Angeles Superior Court case number 02K02597. These cases may be deemed related or consolidated with the primary Imaging vs. Tower action.
On April 25, 2002, the Company initiated litigation against a former employee
and his subsequent employer for unfair business practices and related business
torts in connection with that employee's post-termination conduct. In that
action, Imaging Services, Inc. v. Dan Asbille, Imaging Technologies, and
Computron Inc.; Los Angeles Superior Court Case Number BC 272665, the Company
alleged causes of action for Intentional Interference with Prospective Business
Relations, (2) Breach of the Implied Covenant of Good Faith and Fair Dealing,
(3) Unfair Business Practices, (4) Fraud, (5) Conversion, (6) Constructive
Trust, (7) Declaratory Relief, (8) Implied Contractual Indemnity, (9) Total
Equitable Indemnity, (10) Partial Equitable Indemnity, and (11) Contribution and
Repayment. This action is pending in the Northwest District of the Los Angeles
Superior Court. One of the defendants, individual defendant Danny Asbille,
responded with a cross-complaint against the Company for breach of contract,
which is being defended in conjunction with the Company's prosecution of the
initial Complaint.
The Company and its president also has certain litigation and negotiations in progress resulting from activities arising from normal operations. These actions involve disputed amounts claimed in connection with purchase orders, and invoices, and are pending in several jurisdictions. The Company disputes the amounts claimed in these collection actions, and is defending each of these actions in the jurisdictions in which they were filed. These actions are The Center for Physical Medicine and Rehabilitation v. Imaging Service, Inc.; Alabama Court Case number 2001-242-GR, filed January 25, 2002, ISOL Tech America, Inc. v. Imaging Services, Inc., Dean Janes, and Chris Sohn; Los Angeles Superior Court Case No. EC 034969, filed on July 30, 2002, Medstone International, Inc. v. Imaging Services, Inc. and Dean Janes; Los Angeles Superior Court case number 02CC03321, filed February 27, 2002, Veterinary Management Services, Inc. v. Imaging Services, Inc.; Colorado case number 01-CV-001419; filed on May 25, 2002.
The Company believes, based on its review of these matters and consultation with outside legal counsel, that the ultimate resolution of such items will not have a material adverse effect on the Company's financial position or results of operations. Further, the Company is subject, from time to time, to various legal proceedings and claims, which arise in the normal course of business. In the opinion of management, the amount of ultimate liability with respect to these actions will not have a material adverse effect on the financial position or results of operations of the Company.
Item 3. Changes in and Disagreements with Accountants.
Not applicable.
Item 4. Recent Sales of Unregistered Securities.
In the last three years, the Company has sold its Common Stock to the persons listed in the table below in transactions summarized as follows:
Purchase Date of
Purchaser Per Share Amount Purchase Shares
---------- --------- ------ -------- ------
Christopher Sohn $0.035 $100,000 7/5/01 2,875,000
303 N. Glenoaks Blvd.
Burbank, CA 91505
Boo Za Cho
303 N. Glenoaks Blvd. $0.87 $ 12,500 10/1/01 14,375
Burbank, CA 91505
Richard Kim
303 N. Glenoaks Blvd. $0.87 $ 25,000 10/1/01 28,750
Burbank, CA 91505
James Lee
303 N. Glenoaks Blvd. $0.87 $ 50,000 2/5/02 57,500
Burbank, CA 91505
Corporate Strategies, Inc. $0.125 $100,000 6/12/02 800,000
5662 Calle Real
Santa Barbara, CA 93117
|
Each of the issuances listed above was made for cash, except Corporate Strategies, Inc., which was made for services. In June 2002, the Company entered into a service agreement with Corporate Strategies, Inc., for corporate development services in relation to assisting the Company in raising equity capital, in exchange of 800,000 shares of the Company's common shares valued at $100,000, based on valuation of the service to be provided and estimated valuation of the Company by the management, after the fire.
Item 5. Indemnification of Directors and Officers
The Delaware General Corporation Law provide that the Company may indemnify its officers and directors for costs and expenses incurred in connection with the defense of actions, suits, or proceedings where the officer or director acted in good faith and in a manner he reasonably believed to be in the Company's best interest and is a party by reason of his status as an officer or director, absent a finding of negligence or misconduct in the performance of duty.
SIGNATURES:
Pursuant to the requirements of Section 12 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: December 5, 2002
IMAGING 3, INC.
/s/ Christopher Sohn
by: ------------------------------
Christopher Sohn, President
|
Directors:
/s/ Dean Janes ---------------------------------- Dean Janes, Director /s/ Xavier Aguilera ---------------------------------- Xavier Aguilera, Director /s/ Michele Janes ---------------------------------- Michele Janes, Director |
To the Stockholders and Board of Directors Imaging3, Inc.
We have audited the accompanying balance sheet of Imaging3, Inc. (formerly, Imaging Services, Inc.), a California Corporation (the "Company") as of December 31, 2001 and 2000 and the related statements of operations, stockholders' equity (deficit) and cash flows for the years ended December 31, 2001 and 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Imaging3, Inc. as of December 31, 2001 and 2000 and the results of its operations and its cash flows for the years ended December 31, 2001 and 2000 in conformity with accounting principles generally accepted in the United States of America.
The Company's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. In the years ended December 31, 2001 and 2000, the Company had incurred losses of $535,817 and $144,301, respectively. The Company has a shareholders deficit of $335,976 at December 31, 2001. The Company had a fire at the Company's facility on February 19, 2002. The fire eventually burned and consumed the entire facility including the Company's manufacturing, warehouse and office facilities. Presently, the Company is operating out of a temporary facility. These factors as discussed in Note 17 to the financial statements, raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 17. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ KABANI & COMPANY, INC. KABANI & COMPANY, INC. CERTIFIED PUBLIC ACCOUNTANTS Fountain Valley, California July 15, 2002 |
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
ASSETS 2001 2000
------ ------ ------
CURRENT ASSETS:
Cash & cash equivalents $ 286,254 $ 78,087
Accounts receivable, net 452,026 389,791
Inventory 1,471,625 973,783
Prepaid expenses 31,730 22,064
Due from officer 107,091 -
Other receivables 19,000 2,670
----------------- -------------------
Total current assets 2,367,726 1,466,395
PROPERTY AND EQUIPMENT, net 70,924 74,898
OTHER ASSETS:
Deposits 6,477 10,950
Intangibles, net - 204,500
----------------- -------------------
$ 2,445,127 $ 1,756,743
================= ===================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 1,032,427 $ 723,468
Accrued expenses 6,878 2,800
Equipment deposits 446,419 93,694
Due to officer - 31,750
Due to former shareholder 50,000 -
Other loans 66,279 75,000
Notes payable-current 104,180 107,465
Line of credit 709,548 430,376
----------------- -------------------
Total current liabilities 2,415,731 1,464,553
Notes payable - long term 365,372 179,849
COMMITMENTS & CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; authorized shares 11,500,000;
issued and outstanding 11,500,000 shares at December 31, 2001
and 115,000 shares authorized; 115,000 shares
issued and outstanding at December 31, 2000 51,000 1,000
Shares to be issued 37,500 -
Retained earnings (accumulated deficit) (424,476) 111,341
Total stockholders' equity (deficit) (335,976) 112,341
----------------- -------------------
$ 2,445,127 $ 1,756,743
================= ===================
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The accompanying notes are an integral part of these financial statements.
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
------ ------
Net revenue $ 6,523,936 $ 4,510,442
Cost of revenue 3,757,111 2,601,814
------------------- ------------------
Gross profit 2,766,825 1,908,628
Operating expenses 2,860,008 1,997,259
------------------- ------------------
Loss from Operations (93,183) (88,631)
Non-Operating Income (expense):
Other income - 5,085
Interest income 5,165 991
Impairment of goodwill (note 7) (180,000) -
Interest expense (266,999) (60,946)
------------------- ------------------
Total non-operating income (expense) (441,834) (54,870)
------------------- ------------------
Loss before income tax (535,017) (143,501)
Provision for income taxes 800 800
Net loss (535,817) (144,301)
=================== ==================
------------------- ------------------
Basic and diluted weighted average shares outstanding 5,916,671 115,000
=================== ==================
Basic and diluted net loss per share $ (0.09) $ (1.25)
=================== ==================
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* The basic and diluted net loss per share has been restated to retroactively effect a 1:1.15 forward stock split in September 2002
The accompanying notes are an integral part of these financial statements.
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
Common Stock Retained earnings Total
Number of Shares to (accumulated stockholders'
shares Amount be issued deficit) equity (deficit)
--------- ------ --------- ------------- ----------------
Balance, December 31, 1999 115,000 $ 1,000 $ - $ 303,642 $ 304,642
Distributions - - - (48,000) (48,000)
Net loss for year ended December 31, 2000 - - - (144,301) (144,301)
------------ ---------- ---------- ------------- -------------
Balance, December 31, 2000 115,000 1,000 - 111,341 112,341
Purchase of stock on capital restructuring (28,750) (50,000) - - (50,000)
Issuance of stock on capital restructuring 11,413,750 100,000 - - 100,000
Cash received for 43,125 shares to be issued - - 37,500 - 37,500
Net loss for the year ended December 31, 2001 - - - (535,817) (535,817)
------------ ---------- ---------- ------------- -------------
Balance, December 31, 2001 11,500,000 $ 51,000 $ 37,500 $ (424,476) $ (335,976)
============ ========== ========== ============= =============
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* The number of share have been restated to retroactively effect a 1:1.15 forward stock split on September 2002.
The accompanying notes are an integral part of these financial statements.
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (535,817)$ (144,301)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 53,381 88,144
Impairment of goodwill 180,000 -
(Increase) / decrease in current assets:
Accounts receivable (62,235) (219,706)
Inventory (497,842) (153,300)
Prepaid expenses (9,666) (7,190)
Due from shareholders (107,091) 48,480
Deposits 4,473 (4,777)
Other receivables (16,330) (1,670)
Increase / (decrease) in current liabilities:
Accounts payable 308,959 325,516
Accrued expenses 4,104 (9,318)
Deferred tax - (4,490)
Equipment deposits 352,725 (104,651)
------------- ---------------
Net cash used in operating activities (325,339) (187,263)
------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property & equipment (24,933) (283,171)
------------- ---------------
Net cash used in investing activities (24,933) (283,171)
------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes and loans (32,856) (40,000)
Payments on loan from officer/shareholder (31,750) (173,714)
Payment of distribution - (48,000)
Proceeds from issuance of stock 100,000 -
Proceeds from shares to be issued 37,500 -
Proceeds from notes and loans 206,373 273,147
Proceeds from line of credit 279,172 430,376
------------- ---------------
Net cash provided by financing activities 558,439 441,809
------------- ---------------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 208,167 (28,625)
CASH & CASH EQUIVALENTS, BEGINNING BALANCE 78,087 106,712
------------- ---------------
CASH & CASH EQUIVALENTS, ENDING BALANCE $ 286,254 $ 78,087
============= ===============
|
The accompanying notes are an integral part of these financial statements.
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATIONS AND DESCRIPTION OF BUSINESS
Imaging3, Inc. (formerly, Imaging Services, Inc.) (the "Company") is a California corporation, incorporated on October 29, 1993. The Company filed a certificate of amendment of articles of incorporation to change its name to Imaging3, Inc. on August 20, 2002.
The Company's primary business is production and sale of medical equipment, parts and services to hospitals, surgery centers, research labs, physician offices and veterinarians. Equipment sales include the new c-arms, c-arms tables remanufactured c-arms and used c-arm and surgical tables. Part sales comprise of new or renewed replacement parts for c-arms.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows:
Cash and cash equivalents
The Company considers all liquid investments with a maturity of three months or less from the date of purchase that are readily convertible into cash to be cash equivalents.
Accounts Receivable:
The Company's customer base consists of a geographically dispersed customers base. The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.
Inventories
Inventories, comprising of finished goods and parts are stated at the lower of cost (first-in, first-out method) or market.
Property & Equipment
Property and equipment is carried at cost. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives of three to seven years.
Expenditures for maintenance and repairs are charged to expense as incurred.
Due to officer
In the year ended December 31, 2000, the Company had a balance due to the president of the Company amounting $31,750 for the payments made by him towards the Company's expenditures. This amount is interest free, due on demand and unsecured.
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
Due to former shareholder
As a part of restructuring in 2001, the Company entered into a purchase agreement with the former shareholder to buyout all his interest and the ownership for $50,000. This amount is interest free, due on demand and unsecured. The outstanding balance on December 31, 2001 was $50,000 (note 15).
Income taxes
The Company filed its tax return for 2000 as an S corporation and has not filed its tax returns for 2001. The Company changed to C-corporation effective August 1, 2001. The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109 (SFAS 109). Under SFAS 109, deferred income taxes are reported using the liability method. Deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Revenue Recognition
The Company recognizes its revenue in accordance with the Securities and Exchange Commissions ("SEC") Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). Revenue is recognized upon shipment, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable and collection of the related receivable is reasonably assured. Revenue is recorded net of estimated product returns, which is based upon the Company's return policy, sales agreements, management estimates of potential future product returns related to current period revenue, current economic trends, changes in customer composition and historical experience. . The Company accrues for warranty costs, sales returns, and other allowances based on its experience. Generally, the Company extends credit to its customers and does not require collateral. The Company performs ongoing credit evaluations of its customers and historic credit losses have been within management's expectations.
Using Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Statement of financial accounting standard No. 107, Disclosures about fair value of financial instruments, requires that the Company disclose estimated fair values of financial instruments. Unless otherwise indicated, the fair values of all reported assets and liabilities, which represent financial instruments, none of which are held for trading purposes, approximate carrying values of such amounts.
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
Stock-based compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123
requires compensation expense to be recorded (i) using the fair value method or
(ii) using the existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for stock issued to employees" (APB 25) and
related interpretations with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the fair value
method. The company uses the intrinsic value method prescribed by APB25 and has
opted for the disclosure provisions of SFAS No.123. Through December 31, 2001,
the Company has not granted any option for its stock.
Segment Reporting
Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure About Segments of an Enterprise and Related Information" requires use of the "management approach" model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. Currently, SFAS 131 has no effect on the Company's financial statements as substantially all of the Company's operations are conducted in one industry segment.
Recent Pronouncements
On July 20, 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." These statements make significant changes to the accounting for business combinations, goodwill, and intangible assets.
SFAS No. 141 establishes new standards for accounting and reporting requirements for business combinations and will require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited. This statement is effective for business combinations completed after June 30, 2001.
SFAS No. 142 establishes new standards for goodwill acquired in a business combination and eliminates amortization of goodwill and instead sets forth methods to periodically evaluate goodwill for impairment. Intangible assets with a determinable useful life will continue to be amortized over that period. This statement became effective from January 1, 2002.
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations". SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," was issued in August 2001. SFAS No. 144 is effective for fiscal years beginning
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
after December 15, 2001, and addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business.
The Company does not expect that the adoption of above pronouncements will have a material effect on its earnings or financial position.
In May 2002, the Board issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections ("SFAS 145"). SFAS 145 rescinds the automatic treatment of gains or losses from extinguishments of debt as extraordinary unless they meet the criteria for extraordinary items as outlined in APB Opinion No. 30, Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS 145 also requires sale-leaseback accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions and makes various technical corrections to existing pronouncements. The provisions of SFAS 145 related to the rescission of FASB Statement 4 are effective for fiscal years beginning after May 15, 2002, with early adoption encouraged. All other provisions of SFAS 145 are effective for transactions occurring after May 15, 2002, with early adoption encouraged. The Company does not anticipate that adoption of SFAS 145 will have a material effect on our earnings or financial position.
In June 2002, the FASB issued SFAS No. 146 " Accounting for Costs Associated with exit or Disposal Activities." This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3 a liability for an exit cost as defined, was recognized at the date of an entity's commitment to an exit plan. The Company does not anticipate that adoption of SFAS 146 will have a material effect on our earnings or financial position.
3. ACCOUNTS RECEIVABLE
All accounts receivable are trade related. These receivables are current and collection is mostly expected. The reserves for uncollectable accounts are $9,831 and $ 5,000 for the year ended December 31, 2001 and 2000, respectively.
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
4. INVENTORIES
Inventory comprised of following on December 31, 2001 and 2000:
2001 2000
Work in progress inventory $ 259,695 $ 185,017
Parts inventory 289,542 107,115
Finished goods 922,388 681,642
---------- --------
Total $ 1,471,625 $ 973,774
========== ========
5. DUE FROM OFFICER
|
This amount represent the amount the Company paid for officer's personal expenses. The amount is due on demand, unsecured. Interest is payable at 6% per annum. The interest for the year ended December 31, 2001 was $3,000.
6. PROPERTY AND EQUIPMENT
Property and Equipment consisted of the following at December 31, 2001 and 2000:
2001 2000
Office Equipment & Furniture $ 95,652 $ 78,645
Tools & Shop Equipment 43,626 38,926
Vehicles 105,871 102,671
------- -------
245,149 220,242
Less accumulated depreciation (174,225) (145,344)
--------- ----------
Balance $ 70,924 $ 74,898
========= ==========
|
Depreciation expense was $28,881 and $40,142 for the year ended December 31, 2001 and 2000, respectively.
7. ACQUISITION AND INTANGIBLES
Effective June 2000, the Company acquired the certain equipment and obtained services of a certain staff of Profit Improvement for the Healthcare Industry, Inc., located in San Diego, California, and Daniel Asbille, an individual. Per the agreement, the purchase price was $249,296, payable in a closing amount of $41,549 and 12 monthly installments of $17,312.3 each. The Company has accounted for the acquisition using the purchase method of accounting. The total purchase consideration of approximately $249,296 was allocated as follows based on the estimated fair value of the net assets acquired, considered to be of zero value, and on development of the staff acquired from the seller:
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
Goodwill $ 200,026
Staff training 49,000
$ 249,296
==================
|
The staff training cost was amortized in one year period beginning July 2000 and the goodwill was to be amortized in five years period beginning 2000. However, the staff acquired in the acquisition, left the Company in 2001. Therefore, the Company wrote off remaining amount of goodwill amounting $180,000 in 2001. The Company has initiated an action against the former employee and its employer (note 18). The intangibles at December 31, 2000 represented the net value of staff training of $24,500 and goodwill of $180,000 net of accumulated amortization of 24,500 and $20,026, respectively.
The net assets and the results of operations of the above acquisitions are not significant to the combined financial statements. Therefore, no pro forma disclosure is made.
8. EQUIPMENT DEPOSITS
The amounts represent deposits received in advance from the customers for the purchase of equipment. The balances for December 31, 2001 and 2000 were $446,419 and $93,694, respectively. These deposits are applied to the invoices when the equipment is shipped to the customers.
9. OTHER LOANS
The Company entered into an agreement with a leasing company whereby the leasing company will provide $75,000 in proceeds, for submission of more than $75,000 in contracts with attempt to submit a minimum of $150,000 a month, to be disbursed on the first day of every month subject to the Company's request. The leasing company will charge the interest on the difference between the $75,000 in proceeds disbursed and the amount of contracts that are completed by the end of the month. The interest rate on the unpaid proceeds is 12.5%. The Company had the unpaid balance of $66,279 and $75,000 as of December 31, 2001 and 2000, respectively.
10. NOTES PAYABLE
Notes payable consisted of the following at December 31, 2001 and 2000:
Note payable to Profit Improvement for
assets purchase, no interest, paid off
Jan. 2001 - 24,135
Note payable to bank, interest rate;
prime +2 1/2%, original note; $100,000
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
maturity date; 3/4/02, secured by assets of the Company 13,067 64,527
Note payable to bank, interest rate;
Prime +2 1/2%, original note; $200,000
maturity date; 5/7/05 , secured by assets of
the Company 166,782 188,652
Note payable to bank, interest rate;
Prime +2 1/2%, original note; $300,000
maturity date; 7/10/06, secured by assets of
the Company 289,703 -
---------- -------------
Total $ 469,552 $ 287,314
========== =========
Note payable -current 104,180 107,465
Note payable- Long Term 365,372 179,849
---------- ---------
Total $ 469,552 $ 287,314
========== =========
|
Future annual principal payments on notes payable at December 31 are as follows:
2002 $104,180
2003 99,278
2004 108,201
2005 87,065
2006 70,828
---------
$469,552
11. LINE OF CREDIT
|
The Company has a revolving line of credit of $750,000 originated on March 16, 2000. The interest rate on the balance is prime plus 2 1/2 %. The line is secured by the assets of the Company and personally guaranteed by the president of the Company. The line entitles the bank to purchase the receivables of the Company up to a limit of $600,000. The outstanding balances as of December 31, 2001 and 2000 were $709,548 and $430,376. The line expires in August 2002. The Company replaced this line with a line of credit from another institution in August 2002 (note 18).
12. COMMITMENTS
The Company has a leased facility under operating lease agreement expiring October 31, 2005. This lease was terminated in May 2002. The Company also entered into one-year lease agreements for the office space and the warehouse after the fire (note 18) expiring March 2003 and October 2003.
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
Future minimum lease commitments, excluding property taxes and insurance, are approximately as follows:
Year ending December 31,
------------------------
2002 $ 65,466
2003 49,694
------------
Total $ 115,160
============
|
Rent expenses for leased facility were $58,439 and $16,266 for the year ended December 31, 2001 and 2000, respectively.
13. RELATED PARTY TRANSACTION
On May 25, 2001, the Company entered into 25-year lease agreement for the office building with the officer of the Company. The building was owned by the officer. The rent was $7,000 per month commencing June 1, 2001. This building was destroyed by the fire in February 2002 and the lease was mutually terminated (note 18).
14. INCOME TAXES
For year ended December 31, 2000, the Company has elected for federal income tax purposes, under the Internal Revenue Code and the States of Texas and California, to be an S-corporation. In lieu of corporation income taxes, the stockholders of an S-corporation are taxed on their proportionate share of the Company's taxable income. Therefore, no provision or liability for federal or state income taxes other than state franchise tax for California and Texas have been included in these financial statements for the year ended December 31, 2000. The Company had incurred a net loss in the year 2000; therefore, there are no income tax consequences to the Company if such taxes were computed as if the Company was a C Corporation. Accordingly, no pro forma information is disclosed.
The Company changed to C-corporation in July 2001. No provision was made for Federal income tax for the year ended December 31, 2001, since the Company had significant net operating loss. In the year ended December 31, 2001, the Company incurred net operating losses for tax purposes of approximately $268,000. The net operating loss carryforwards may be used to reduce taxable income through the year 2016. Net operating loss for carryforwards for the State of California are generally available to reduce taxable income through the year 2006. The availability of the Company's net operating loss carryforwards are subject to limitation if there is a 50% or more positive change in the ownership of the Company's stock. The provision for income taxes consists of the state minimum tax imposed on corporations.
Temporary differences that give rise to deferred tax assets and liabilities at December 31, 2001 comprised of depreciation and amortization and net operating loss carry forward. The gross deferred tax asset balance as of December 31, 2001 was approximately $107,000. A 100% valuation allowance has been established against the deferred tax assets, as the utilization of the loss carrytforwards cannot reasonably be assured.
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Consolidated Statements of Operations:
December 31, 2001
---------------------
Tax expense (credit) at statutory rate-federal (34)%
State tax expense net of federal tax (6)
Changes in valuation allowance 40
-----------------
Tax expense at actual rate -
=================
|
The components of the net deferred tax asset are summarized below:
December 31, 2001
-----------------
Deferred tax asset
Net operating losses $ 107,000
Less: valuation allowance (107,000)
---------
$ -
=========
15. STOCKHOLDERS' EQUITY
|
Common Stock:
Through December 31, 2000, the Company has two stockholders owning the Company's outstanding share capital in the ratio of 75:25.
In the fiscal year 2001, the Company replaced its minor shareholder owning 25% of the outstanding shares, with another shareholder. As a part of restructuring, the Company entered into a purchase agreement with the former shareholder to buyout all his interest in 28,750 shares of common stock for $50,000. The new shareholder invested $100,000 into the Company for his share of ownership. The Company changed its Articles of incorporation in November 2001 to increase its authorized shares capital from 100,000 shares to 10,000,000 shares of common stock. As a part of this transaction, the Company issued 8,538,750 additional pos-split (note 18) shares to its major shareholders and 2,875,000 shares to its minor shareholders, thereby keeping the ratio of shares ownership at 75:25.
In 2001, the Company received $37,500 for 43,125 post-split shares of Common stock. As of December 31, 2001, the shares were yet to be issued.
16. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
The Company prepares its statements of cash flows using the indirect method as defined under the Financial Accounting Standard No. 95.
The Company paid income taxes of $-0- and interest of $77,870 during the year 2001. The Company paid income taxes of $-0- and interest of $58,915 during the year 2000.
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
17. GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company's assets and the satisfaction of its liabilities in the normal course of business. In the years ended December 31, 2001 and 2000, the Company had incurred losses of $538,817 and $144,301, respectively. The Company has a shareholders deficit of $335,976 on December 31, 2001. The continuing losses have adversely affected the liquidity of the Company. Also, as discussed in note 18, the Company had a fire at the Company's facility on February 19, 2002. The fire eventually burned and consumed the entire facility including the Company's manufacturing, warehouse and office facilities. Presently, the Company is operating out of a temporary facility. The continuation of the Company's future operation is dependent on the Company's ability to obtain a permanent and stable location for it's manufacturing and warehousing facilities.
In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to raise additional capital, obtain financing and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with the
ability to continue as a going concern. Management devoted considerable effort
during the period ended December 31, 2001, towards (i) obtaining additional
equity financing; in that regard, the Company is in process of offering to sell
2,000,000 shares at $1 per share in a private palcement to accredited investors
(ii) controlling of salaries and general and administrative expenses (iii)
management of accounts payable and (iv) evaluation of its distribution and
marketing methods. The management is planning to rebuild the facility for its
operations.
18. SUBSEQUENT EVENTS
Fire at the Company's facility:
On February 19, 2002, a fire gutted the Company's principal operating facility. The fire, which originated within the building, eventually burned and consumed the entire facility including the Company's manufacturing, warehouse and office facilities. The damage to the building and the loss of the Company's equipment were covered by liability insurance. However, the fire substantially disrupted the Company's operations. The Company's insurance company has settled the loss of finished goods inventory for $202,000, parts inventory for $1,289,000 and loss of revenue for $547,000. The cost of inventory burned in the fire was $1,013,000 resulting in a gain of $1,025,000 to the Company. The building was owned by the majority shareholder and President of the Company. Since then, the Company is renting two facilities at different locations for its office and manufacturing/warehouse, for a twelve-month period ending in 2003. The total monthly rental on the facilities is $9,460.
Litigations:
The Company filed a suit against its construction contractor, Tower Engineering for the cause of fire. In connection to this action, Tower engineering filed cross complaint against the Company, seeking payment of allegedly outstanding invoices for the same construction. The litigation is in the discovery phase,
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
with no trial date scheduled. Other disputes have arisen in connection with this litigation, involving subcontractors and insurers.
In April 2002, the Company initiated litigation against a former employee and his subsequent employer for unfair business practice and related business torts in connection with that employee's post termination conduct. This action is pending in the Northwest District of Los Angeles Superior Court.
The Company also has certain litigation and negotiations in progress resulting from activities arising from normal operations. These actions involve disputed amounts claimed in connection with purchase orders, invoices, and pending in several jurisdictions. The Company disputes the amounts claimed in these collection actions and defending each of these actions in the jurisdictions in which they were filed. The disputed amounts are included in accounts payable relating to three vendors totaling $404,608 and equipment deposit of $15,472. The Company believes, based on its review and consultation with outside legal counsel, that the ultimate resolution of such items will not have a material adverse effect on the Company's financial position or results of operations.
Agreements:
In June 2002, the Company entered into a service agreement with Corporate Strategies, Inc. (CSI), for corporate development services in relation to assisting the Company in raising equity capital, in exchange of 800,000 post stock-split shares of the Company's common shares valued at $100,000, based on valuation of the service to be provided and estimated valuation of the Company by the management, after the fire. The term of the agreement is twelve months from June 12, 2002. The stock was not issued as of September 30, 2002.
The Company received $500,000 line of credit from a funding company in August 2002. The term is three months with three-month renewals and the interest rate is 1.75% per each 30 day period and in addition prime rate plus 3% on the balance. The line is secured by the assets of the Company.
Equity:
In February 2002, the Company issued 57,500 post-split shares for $50,000 cash.
In September 2002, the board of directors of the Company authorized to split the Company's common stock at the ratio of 1.15 shares for 1 previously issued share.
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
BALANCE SHEETS
SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
ASSETS 2002 2001
------ ------ ------
CURRENT ASSETS:
Cash & cash equivalents $ 414,735 $ 186,892
Accounts receivable, net 114,202 477,794
Inventory 662,140 1,264,560
Prepaid expenses 60,740 53,610
Due from officer 189,606 -
Other receivables 14,800 3,826
----------------- -------------------
Total current assets 1,456,223 1,986,682
PROPERTY AND EQUIPMENT, net 33,032 63,272
OTHER ASSETS:
Deposits 12,172 11,977
Intangibles, net - 180,000
----------------- -------------------
$ 1,501,427 $ 2,241,931
================= ===================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 898,968 $ 826,523
Accrued expenses 44,413 8,480
Equipment deposits 383,422 122,040
Due to shareholder 40,000 50,000
Other loans - 66,279
Notes payable-current 165,269 138,224
Line of credit 42,038 750,000
----------------- -------------------
Total current liabilities 1,574,110 1,961,546
Notes payable - long term 261,729 358,896
COMMITMENTS & CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, no par value; authorized shares 100,000,000;
issued and outstanding 11,600,625 shares at September 30, 2002
and 11,500,000 shares authorized; 11,500,000 shares
issued and outstanding at September 30, 2001 138,500 51,000
Shares to be issued 25,000 -
Deferred stock issuance cost (25,000) -
Accumulated deficit (472,912) (129,511)
----------------- -------------------
Total stockholders' deficit (334,412) (78,511)
----------------- -------------------
$ 1,501,427 $ 2,241,931
================= ===================
|
The accompanying notes are an integral part of these financial statements.
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
2002 2001
------ ------
Net revenue $ 1,656,378 $ 4,838,546
Cost of revenue 1,316,414 2,703,077
------------------ ------------------
Gross profit 339,964 2,135,469
Operating expenses 1,353,275 2,164,821
------------------ ------------------
Loss from Operations (1,013,311) (29,352)
Non-Operating Income (expense):
Other income 3,989 -
Interest income 7,431 4,551
Gain on insurance claim on fire loss 1,025,498 -
Interest expense (71,243) (215,251)
------------------ ------------------
Total non-operating income (expense) 965,675 (210,700)
------------------ ------------------
Loss before income tax (47,636) (240,052)
Provision for income taxes 800 800
Net loss $ (48,436) $ (240,852)
================== ==================
------------------ ------------------
Basic and diluted weighted average shares outstanding 11,587,724 7,871,813
================== ==================
Basic and diluted net loss per share $ (0.004) $ (0.031)
================== ==================
|
* The basic and diluted net loss per share has been restated to retroactively effect a 1:1.15 forward stock split in September 2002
The accompanying notes are an integral part of these financial statements.
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
Common Stock Deferred stock Retained earnings Total
Number of Shares to issuance (accumulated stockholders'
shares Amount be issued cost deficit) equity (deficit)
------------- ---------- ----------- ----------- ------------ -------------
Balance, December 31, 2000 115,000 $ 1,000 $ - $ - $ 111,341 $ 112,341
Purchase of stock on capital restructuring (28,750) (50,000) - - - (50,000)
Issuance of stock on capital restructuring 11,413,750 100,000 - - - 100,000
Net loss for the nine month period ended
September 30, 2001 - - - - (240,852) (240,852)
------------- ---------- ----------- ----------- ------------ -------------
Balance, September 30, 2001 11,500,000 51,000 - - (129,511) (78,511)
Cash received for 43,125 shares to be issued - - 37,500 - - 37,500
Net loss for the period from Sep. 30, 2001
to Dec. 31, 2001 - - - - (294,965) (294,965)
------------- ---------- ----------- ----------- ------------ -------------
Balance, December 31, 2001 11,500,000 51,000 37,500 - (424,476) (335,976)
Shares issued for cash received in the prior
period 43,125 37,500 (37,500) - - -
Shares issued for cash received 57,500 50,000 - - - 50,000
Shares to be issued for the stock issuance
cost - 25,000 (25,000) - -
Net loss for the nine month period ended
September 30, 2002 - - - (48,436) (48,436)
------------- ---------- ----------- ----------- ------------ -------------
Balance, September 30, 2002 11,600,625 $ 138,500 $ 25,000 $ (25,000)$ (472,912)$ (334,412)
============= ========== =========== =========== ============ =============
|
* The number of share have been restated to retroactively effect a 1:1.15 forward stock split on September 2002.
The accompanying notes are an integral part of these financial statements.
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
2002 2001
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (48,436)$ (240,852)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 21,880 49,971
Gain on insurance claim on fire loss (1,025,498) -
(Increase) / decrease in current assets:
Accounts receivable 337,824 (88,003)
Inventory (150,177) (290,777)
Prepaid expenses (29,010) (31,546)
Due from shareholders (82,515) -
Deposits (5,695) (1,027)
Other receivables 4,200 (1,130)
Increase / (decrease) in current liabilities:
Accounts payable (133,459) 103,055
Accrued expenses 37,535 2,416
Other liabilities (66,279) 51,266
Equipment deposits (62,997) 28,346
---------------- ----------------
Net cash used in operating activities (1,202,627) (418,281)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received from insurance on fire loss 2,038,120 -
Acquisition of property & equipment (36,948) (13,873)
---------------- ----------------
Net cash provided by (used in) investing activities 2,001,172 (13,873)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes and loans (103,643) (8,721)
Payments on loan from officer/shareholder (10,000) (31,750)
Payment of distribution - (48,000)
Payment of line of credit (667,510) -
Proceeds from issuance of stock 50,000 100,000
Proceeds from notes and loans 61,089 209,806
Proceeds from line of credit - 319,624
---------------- ----------------
Net cash provided by financing activities (670,064) 540,959
---------------- ----------------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 128,481 108,805
CASH & CASH EQUIVALENTS, BEGINNING BALANCE 286,254 78,087
---------------- ----------------
CASH & CASH EQUIVALENTS, ENDING BALANCE $ 414,735 $ 186,892
================ ================
|
The accompanying notes are an integral part of these financial statements.
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATIONS AND DESCRIPTION OF BUSINESS
Imaging3, Inc. (formerly, Imaging Services, Inc.) (the "Company") is a California corporation, incorporated on October 29, 1993. The Company filed a certificate of amendment of articles of incorporation to change its name to Imaging3, Inc. on August 20, 2002.
The Company's primary business is production and sale of medical equipment, parts and services to hospitals, surgery centers, research labs, physician offices and veterinarians. Equipment sales include the new c-arms, c-arms tables remanufactured c-arms and used c-arm and surgical tables. Part sales comprise of new or renewed replacement parts for c-arms.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows:
Cash and cash equivalents
The Company considers all liquid investments with a maturity of three months or less from the date of purchase that are readily convertible into cash to be cash equivalents.
Accounts Receivable:
The Company's customer base consists of a geographically dispersed customers base. The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.
Inventories
Inventories, comprising of finished goods and parts are stated at the lower of cost (first-in, first-out method) or market.
Property & Equipment
Property and equipment is carried at cost. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives of three to seven years.
Expenditures for maintenance and repairs are charged to expense as incurred.
Due to former shareholder
As a part of restructuring in 2001, the Company entered into a purchase agreement with the former shareholder to buyout all his interest and the ownership for $50,000. This amount is interest free, due on demand and unsecured. The outstanding balance on September 30, 2002 and 2001 was $40,000 and $50,000, respectively (note 15).
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
Income taxes
The Company filed its tax return for 2000 as an S corporation and has not filed its tax returns for 2001. The Company changed to C-corporation effective August 1, 2001. The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109 (SFAS 109). Under SFAS 109, deferred income taxes are reported using the liability method. Deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Revenue Recognition
The Company recognizes its revenue in accordance with the Securities and Exchange Commissions ("SEC") Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). Revenue is recognized upon shipment, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable and collection of the related receivable is reasonably assured. Revenue is recorded net of estimated product returns, which is based upon the Company's return policy, sales agreements, management estimates of potential future product returns related to current period revenue, current economic trends, changes in customer composition and historical experience. The Company accrues for warranty costs, sales returns, and other allowances based on its experience. Generally, the Company extends credit to its customers and does not require collateral. The Company performs ongoing credit evaluations of its customers and historic credit losses have been within management's expectations.
Using Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Statement of financial accounting standard No. 107, Disclosures about fair value of financial instruments, requires that the Company disclose estimated fair values of financial instruments. Unless otherwise indicated, the fair values of all reported assets and liabilities, which represent financial instruments, none of which are held for trading purposes, approximate carrying values of such amounts.
Stock-based compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123 prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options, restricted
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123
requires compensation expense to be recorded (i) using the fair value method or
(ii) using the existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for stock issued to employees" (APB 25) and
related interpretations with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the fair value
method. The company uses the intrinsic value method prescribed by APB25 and has
opted for the disclosure provisions of SFAS No.123. Through September 30, 2002,
the Company has not granted any option for its stock.
Segment Reporting
Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure About Segments of an Enterprise and Related Information" requires use of the "management approach" model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. Currently, SFAS 131 has no effect on the Company's financial statements as substantially all of the Company's operations are conducted in one industry segment.
Recent Pronouncements
On July 20, 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." These statements make significant changes to the accounting for business combinations, goodwill, and intangible assets.
SFAS No. 141 establishes new standards for accounting and reporting requirements for business combinations and will require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited. This statement is effective for business combinations completed after June 30, 2001.
SFAS No. 142 establishes new standards for goodwill acquired in a business combination and eliminates amortization of goodwill and instead sets forth methods to periodically evaluate goodwill for impairment. Intangible assets with a determinable useful life will continue to be amortized over that period. This statement became effective from January 1, 2002.
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations". SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," was issued in August 2001. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001, and addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
Assets to Be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business.
The Company does not expect that the adoption of above pronouncements will have a material effect on its earnings or financial position.
In May 2002, the Board issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections ("SFAS 145"). SFAS 145 rescinds the automatic treatment of gains or losses from extinguishments of debt as extraordinary unless they meet the criteria for extraordinary items as outlined in APB Opinion No. 30, Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS 145 also requires sale-leaseback accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions and makes various technical corrections to existing pronouncements. The provisions of SFAS 145 related to the rescission of FASB Statement 4 are effective for fiscal years beginning after May 15, 2002, with early adoption encouraged. All other provisions of SFAS 145 are effective for transactions occurring after May 15, 2002, with early adoption encouraged. The Company does not anticipate that adoption of SFAS 145 will have a material effect on our earnings or financial position.
In June 2002, the FASB issued SFAS No. 146 " Accounting for Costs Associated with exit or Disposal Activities." This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3 a liability for an exit cost as defined, was recognized at the date of an entity's commitment to an exit plan. The Company does not anticipate that adoption of SFAS 146 will have a material effect on our earnings or financial position.
3. ACCOUNTS RECEIVABLE
All accounts receivable are trade related. These receivables are current and collection is mostly expected. The amount of accounts receivable collateralized for line of credit as of September 30, 2002 was $45,961 from total receivable of $124,032. The reserves for uncollectable accounts are $9,831 and $ 4,831 for the year ended September 30, 2002 and 2001, respectively.
4. INVENTORIES
Inventory comprised of following on September 30, 2002 and 2001:
2002 2001
------ ------
Work in progress inventory $ 160,458 $ 221,298
Parts inventory 33,519 252,912
Finished goods 468,163 790,350
---------- --------
Total $ 662,140 $ 1,264,560
========== =========
|
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
5. DUE FROM OFFICER
This amount represents the amount the Company paid for officer's personal expenses. The amount is due on demand, unsecured. Interest is payable at 6% per annum. The interest for the period ended September 30, 2002 was $6,300.
6. PROPERTY AND EQUIPMENT
Property and Equipment consisted of the following at September 30, 2002 and 2001:
2002 2001
------ ------
Office Equipment & Furniture $ 33,311 $ 89,152
Tools & Shop Equipment 3,038 45,113
Vehicles 105,871 105,871
---------- ---------
142,220 220,242
Less accumulated depreciation (109,188) (156,970)
---------- ----------
Balance $ 33,032 $ 63,272
========== ==========
|
Depreciation expense was $18,945 and $21,880 for the period ended September 30, 2002 and 2001, respectively.
7. ACQUISITION AND INTANGIBLES
Effective June 2000, the Company acquired the certain equipment and obtained services of a certain staff of Profit Improvement for the Healthcare Industry, Inc., located in San Diego, California, and Daniel Asbille, an individual. Per the agreement, the purchase price was $249,296, payable in a closing amount of $41,549 and 12 monthly installments of $17,312.3 each. The Company has accounted for the acquisition using the purchase method of accounting. The total purchase consideration of approximately $249,296 was allocated as follows based on the estimated fair value of the net assets acquired, considered to be of zero value, and on development of the staff acquired from the seller:
Goodwill $ 200,026
Staff training 49,000
$ 249,296
=======
|
The staff training cost was amortized in one-year period beginning July 2000 and the goodwill was to be amortized in five years period beginning 2000. However, the staff acquired in the acquisition, left the Company in 2001. Therefore, the Company wrote off remaining amount of goodwill amounting $180,000 in 2001. The Company has initiated an action against the former employee and its employer
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
(note 19). The intangibles at December 31, 2000 represented the goodwill balance of $180,000 net of accumulated amortization of $20,026.
The net assets and the results of operations of the above acquisitions are not significant to the combined financial statements. Therefore, no pro forma disclosure is made.
8. EQUIPMENT DEPOSITS
The amounts represent deposits received in advance from the customers for the purchase of equipment. The balances as of September 30, 2002 and 2001 were $383,422 and $122,040, respectively. These deposits are applied to the invoices when the equipment is shipped to the customers.
9. OTHER LOANS
The Company entered into an agreement with a leasing company whereby the leasing company will provide $75,000 in proceeds, for submission of more than $75,000 in contracts with attempt to submit a minimum of $150,000 a month, to be disbursed on the first day of every month subject to the Company's request. The leasing company will charge the interest on the difference between the $75,000 in proceeds disbursed and the amount of contracts that are completed by the end of the month. The interest rate on the unpaid proceeds is 12.5%. The Company had the unpaid balance of $66,279 as of September 30, 2001. The amount was paid off in the nine month period ended September 30, 2002.
10. NOTES PAYABLE
Notes payable consisted of the following at September 30, 2002 and 2001:
Note payable to bank, interest rate;
prime +2 1/2%, original note; $100,000
maturity date; 3/4/02, secured by assets of
the Company - 26,437
Note payable to bank, interest rate;
Prime +2 1/2%, original note; $200,000
maturity date; 5/7/05 , secured by assets of
the Company 154,321 172,814
Note payable to bank, interest rate;
Prime +2 1/2%, original note; $300,000
maturity date; 7/10/06, secured by assets of
the Company 272,677 297,869
---------- ---------
Total $ 426,998 $ 497,120
========== =========
Note payable -current 165,269 138,224
Note payable- Long Term 261,729 358,896
--------- ---------
Total $ 426,998 $ 497,120
========== =========
F-26
|
Future annual principal payments on notes payable at September 30 are as follows:
2003 $165,269
2004 105,894
2005 98,013
2006 57,822
---------
$426,998
=========
11. LINE OF CREDIT
|
The Company had a revolving line of credit of $750,000 originated on March 16, 2000. The interest rate on the balance is prime plus 2 1/2 %. The line was secured by the assets of the Company and personally guaranteed by the president of the Company. The line entitles the bank to purchase the receivables of the Company up to a limit of $600,000. The outstanding balance as of September 30, 2001 was $750,000. When this line expired in August 2002, the Company replaced it with a new $500,000 line of credit from another institution. The term is three months with three-month renewals and the interest rate is 1.75% per each 30 day period and in addition prime rate plus 3% on the balance. The line is secured by the assets of the Company. Included in accounts receivable as of September 30, 2002 is $45,961 collateralized amount on this line of credit. The outstanding balance as of September 30, 2002 was $42,038.
12. COMMITMENTS
The Company had a leased facility under operating lease agreement expiring October 31, 2005. This lease was terminated in May 2002. The Company entered into one-year lease agreements for the office space and the warehouse after the fire (note 18) expiring March 2003 and October 2003. Future minimum lease commitments, excluding property taxes and insurance, are approximately as follows:
2003 $ 46,994
Rent expenses for leased facilities were $78,585 and $117,759 for the periods ended September 30, 2002 and 2001, respectively.
13. RELATED PARTY TRANSACTION
On May 25, 2001, the Company entered into 25-year lease agreement for the office building with the officer of the Company. The building was owned by the officer. The rent was $7,000 per month commencing June 1, 2001. This building was destroyed by the fire in February 2002 and the lease was mutually terminated (note 18).
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
14. INCOME TAXES
For year ended December 31, 2000, the Company has elected for federal income tax purposes, under the Internal Revenue Code and the States of Texas and California, to be an S-corporation. In lieu of corporation income taxes, the stockholders of an S-corporation are taxed on their proportionate share of the Company's taxable income.
The Company changed to C-corporation in July 2001. No provision was made for Federal income tax for the period ended September 30, 2002 and 2001, since the Company had significant net operating loss. The Company had net operating losses for tax purposes of approximately $316,000 and $60,000 on September 30, 2002 and 2001, respectively. The net operating loss carryforwards may be used to reduce taxable income through the year 2018. Net operating loss for carryforwards for the State of California are generally available to reduce taxable income through the year 2008. The availability of the Company's net operating loss carryforwards are subject to limitation if there is a 50% or more positive change in the ownership of the Company's stock. The provision for income taxes consists of the state minimum tax imposed on corporations. The Company had incurred a net loss in the year 2000; therefore, there are no income tax consequences to the Company if such taxes were computed as if the Company was a C Corporation. Accordingly, no pro forma information is disclosed.
Temporary differences that give rise to deferred tax assets and liabilities at September 30, 2002 and 2001 comprised of depreciation and amortization and net operating loss carry forward. The gross deferred tax asset balance as of September 30, 2002 and 2001 was approximately $126,000 and $24,000, respectively. A 100% valuation allowance has been established against the deferred tax assets, as the utilization of the loss carrytforwards cannot reasonably be assured.
The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Statements of Operations:
September 30, 2002 September 30, 2001
------------------ ------------------
Tax expense (credit) at statutory rate-federal (34)% (34)%
State tax expense net of federal tax (6) (6)
Changes in valuation allowance 40 40
----------- -----------
Tax expense at actual rate - -
=========== ===========
|
The components of the net deferred tax asset are summarized below:
September 30, 2002 September 30, 2001
------------------ ------------------
Deferred tax asset
Net operating losses $ 126,000 $ 24,000
Less: valuation allowance (126,000) (24,000)
--------- --------
$ - $ -
========= ========
|
15. STOCKHOLDERS' EQUITY
Common Stock:
Through December 31, 2000, the Company has two stockholders owning the Company's outstanding share capital in the ratio of 75:25.
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
In the fiscal year 2001, the Company replaced its minor shareholder owning 25% of the outstanding shares, with another shareholder. The Company entered into a purchase agreement with the former shareholder to buyout all his interest and the ownership for $50,000. The new shareholder invested $100,000 into the Company for his share of ownership. The Company changed its Articles of incorporation in November 2001 to increase its authorized shares capital from 100,000 shares to 10,000,000 shares of common stock. As a part of this transaction, the Company issued 8,510,000 additional pos-split shares to its major shareholders and 2,882,500 shares to its minor shareholders, thereby keeping the ratio of shares ownership at 75:25.
In September 2002, the board of directors of the Company authorized to split the Company's common stock at the ratio of 1.15 shares for 1 previously issued share.
In the period ended September 30, 2002, the Company issued 43,125 post-split shares of Common stock.for $37,500 cash received in the prior year and issued 57,500 post-split shares for $50,000 cash received during this period.
In June 2002, the Company entered into a service agreement with Corporate Strategies, Inc. (CSI), for corporate development services in relation to assisting the Company in raising equity capital, in exchange of 800,000 post stock-split shares of the Company's common shares valued at $100,000, based on valuation of the service to be provided and estimated valuation of the Company by the management, after the fire. The term of the agreement is twelve months from June 12, 2002. The stock was not issued as of September 30, 2002. The Company has recorded compensation for the services from July 2002 through September 2002 amounting $25,000 as deferred stock issuance cost in the financial statements as the services were rendered primarily towards the efforts to raise equity capital.
16. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
The Company prepares its statements of cash flows using the indirect method as defined under the Financial Accounting Standard No. 95.
The Company paid income taxes of $-0- and interest of $65,980 during the period ended September 30, 2002 and income taxes of $-0- and interest of $61,951 during the period ended September 30, 2001.
SUPPLEMENTAL DISCLOSURE OF NON CASH FLOW ITEMS:
The Cash flow statement for the year ended September 30, 2002 does not include the effect of shares to be issued for deferred stock issuance cost of $25,000.
17. GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company's assets and the satisfaction of its liabilities in the normal course of business. In the periods ended September 30, 2002 and 2001, the Company had incurred losses of $48,436 and $240,852, respectively. The Company has a shareholders deficit of $472,912 on September 30, 2002. The continuing losses have adversely affected the liquidity of the Company. Also, as discussed in note 18, the Company had a fire at the Company's facility on
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
February 19, 2002. The fire eventually burned and consumed the entire facility including the Company's manufacturing, warehouse and office facilities. Presently, the Company is operating out of a temporary facility. The continuation of the Company's future operation is dependent on the Company's ability to obtain a permanent and stable location for it's manufacturing and warehousing facilities.
In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to raise additional capital, obtain financing and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with the
ability to continue as a going concern. Management devoted considerable effort
during the period ended September 30, 2002, towards (i) obtaining additional
equity financing; in that regard, the Company is in process of offering to sell
2,000,000 shares at $1 per share in a private placement to accredited investors
(ii) controlling of salaries and general and administrative expenses (iii)
management of accounts payable and (iv) evaluation of its distribution and
marketing methods. The management is planning to rebuild the facility for its
operations.
18. FIRE AT THE COMPANY'S FACILITY
On February 19, 2002, a fire gutted the Company's principal operating facility. The fire, which originated within the building, eventually burned and consumed the entire facility including the Company's manufacturing, warehouse and office facilities. The damage to the building and the loss of the Company's equipment were covered by liability insurance. However, the fire substantially disrupted the Company's operations. The Company's insurance company has settled the loss of finished goods inventory for $202,000, parts inventory for $1,289,000 and loss of revenue for $547,000. The cost of inventory burned in the fire was $1,013,000 resulting in a gain of $1,025,000 to the Company. The building was owned by the majority shareholder and President of the Company. Since then, the Company is renting two facilities at different locations for its office and manufacturing/warehouse, for a twelve-month period ending in 2003. The total monthly rental on the facilities is $9,460.
19. LITIGATION
The Company filed a suit against its construction contractor, Tower Engineering for the cause of fire. In connection to this action, Tower engineering filed cross complaint against the Company, seeking payment of allegedly outstanding invoices for the same construction. The litigation is in the discovery phase, with no trial date scheduled. Other disputes have arisen in connection with this litigation, involving subcontractors and insurers.
In April 2002, the Company initiated litigation against a former employee and his subsequent employer for unfair business practice and related business torts in connection with that employee's post termination conduct. This action is pending in the Northwest District of Los Angeles Superior Court.
The Company also has certain litigation and negotiations in progress resulting from activities arising from normal operations. These actions involve disputed amounts claimed in connection with purchase orders, invoices, and pending in several jurisdictions. The Company disputes the amounts claimed in these
IMAGING3, INC.
(FORMERLY, IMAGING SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
collection actions and defending each of these actions in the jurisdictions in which they were filed. The disputed amounts are included in accounts payable relating to three vendors totaling $404,608 and equipment deposit of $15,472. The Company believes, based on its review and consultation with outside legal counsel, that the ultimate resolution of such items will not have a material adverse effect on the Company's financial position or results of operations.
ARTICLES OF INCORPORATION
OF
IMAGING SERVICES, INC.
ARTICLE ONE. Name. The name of this corporation shall be IMAGING
SERVICES, INC.
ARTICLE TWO. Purpose. The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business, or the practice of a profession permitted to be incorporated by the California Corporation Code.
ARTICLE THREE. Initial Agent. The name of the corporation's initial agent for service of process is Dean N. Janes, who may be served at 1037 North Lima Street, Burbank, California 91505.
ARTICLE FOUR. Capital Stock. The corporation is authorized to issue 100,000 shares of capital stock. There shall be only one class of capital stock of the corporation.
IN WITNESS WHEREOF, the undersigned incorporator has executed these articles of incorporation on October 26, 1993.
/s/ Dean N. James -------------------------------- Dean N. James |
I declare that I am the person who executed the foregoing articles of incorporation which execution is my act and deed.
Dated: October 26, 1993
/s/ Dean N. James
--------------------------------
Dean N. James
|
BYLAWS
OF
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The board of directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside the State of California, and the corporation has one or more business offices in the State of California, the board of directors shall likewise fix and designate a principal business office in the State of California.
Section 2. OTHER OFFICES. The corporation may also establish offices at such other places, within and outside the State of California, as the board of directors may from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at any place within or outside the State of California designated by the board of directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETINGS. The annual meeting of shareholders shall be hold on the first Monday of February in each year at 10:00 o'clock, AM, or such other date or time as may be fixed by the board of directors; provided, however, that should said day fall upon a legal holiday, such annual meeting of shareholders shall be held at the same time an the next succeeding day which is a full business day. At such meeting, directors shall be elected and any other proper business may be transacted.
Section 3. SPECIAL MEETINGS. A special meeting of the shareholders may be called at any time by the board of directors, the chairman of the board, the president, or one or more shareholders holding in the aggregate shares entitled to cast not less than 10% of the votes at any such meeting.
If a special meeting is called by anyone other than the board of
directors, the request shall be in writing, specifying the time of the meeting,
and the general nature of the business proposed to be transacted, and shall be
delivered personally or sat by registered mail or by telegraphic or other
facsimile transmission to the chairman of the board, the president, any vice
president or the secretary of the corporation. The officer receiving such
request forthwith shall cause notice to be given to the shareholders entitled to
vote, in accordance with the provisions of Sections 4 and 5 of this Article II
that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, the person or persons requesting the
meeting may give the notice. Nothing contained in this paragraph of this Section
3 shall be construed as limiting, fixing or affecting the time when a meeting of
shareholders called by action of the board of directors nay be hold.
Section 4. NOTICE OF MEETINGS. All notices of meetings of shareholders shall he let or otherwise given in accordance with Section 5 of this Article II not less than ten (10) nor more than sixty (60) days before the date of the meeting being noticed. The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted, or (ii) in the case of the annual meeting. those matters which the board of directors, at the time of giving the notice, intends to present for action by the shareholders. The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees whom, at the time of the notice, management intends to present for election.
If action is proposed to betaken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the California Corporations Code (the
"Code"), (ii) an amendment of the articles of incorporation, pursuant, to
Section 902 of the Code, (iii) a reorganization of the corporation, pursuant to
Section 1201 of the Code, (iv) a voluntary dissolution of the corporation,
pursuant to Section 1900 of the Code, or (v) a distribution in dissolution other
than in accordance with the rights of outstanding preferred shares, pursuant to
Section 2007 of the Code, the notice shall also state the general nature of such
proposal.
Section 5. MANNER OF GIVING NOTICE. Notice of any meeting of shareholders shall be given personally or by first-class mail or telegraphic or other written communication, charges prepaid, addressed to the shareholder at the shareholder's address appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sat to that shareholder by first-class mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county in which the principal executive office is located, notice shall be deemed to have been given when delivered personally or deposited in the mail or sent by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of such shareholder appearing an the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the Service is unable to deliver the notice to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the shareholder upon written demand at the principal executive office of the corporation for a period of one year from the date of the giving of such notice or report to all other shareholders.
An affidavit of the mailing or other means of giving any notice of any shareholders' meeting shall be executed by the secretary, assistant secretary or any transfer agent of the corporation, and shall be filed and maintained in the minute book of the corporation.
Section 6. QUORUM. Unless otherwise provided in the articles of incorporation, the presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting of shareholders shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is preset my continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.
Section 7. ADJOURNMENT. Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares represented at such meeting, either in person or by proxy, but in the absence of a quorum, no other business may he transacted at such meeting, except as provided in Section 6 of this Article II.
When any meeting of shareholders, annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at a meeting at which the adjournment is taken, unless a new record date for the adjourned meeting is fixed, or unless the adjournment is for more than forty-five (45) days from the date set for the original meeting. in which case the board of directors shall set a new record date. Notice of any such adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 4 and 5 of this Article II. At any adjourned meeting, the corporation may transact any business which might have bow transacted at the original meeting.
Section 8. VOTING. The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section II of this Article II, subject to the provisions of Sections 702 to 704, inclusive, of the Code (relating to voting shares hold by a fiduciary, in the name of a corporation or in the names of two or more persons). The vote may be by voice vote or by ballot; provided, however, that any election for directors must be by ballot if demanded by a shareholder at the meeting and before the voting begins. Any shareholder entitled to vote an any matter ( other than elections of directors) may vow part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares such shareholder is entitled to vote. If a quorum is present, the cumulative vote of the majority of the shares represented at the meeting and entitled to Vote on any matter (other than the election of directors) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the Code or the articles of incorporation.
At a shareholders' meeting involving the election of directors, no shareholder shall, be entitled to cumulative votes on behalf of any candidate for director (i.e., each shareholder shall be entitled to cast for any one or more candidates no greater number of votes than the number of shares held by such shareholder) unless such candidate or candidates' names have been placed in nomination prior to the voting and the shareholder has given notice prior to the voting of the shareholder's intention to cumulative votes. If any shareholder has given such notice, every shareholder entitled to vote may cumulate votes for candidates in nomination and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such Shareholder's shares are entitled, or distribute the shareholder's votes on the same principle among as many candidates as the shareholder thinks fit. The candidates receiving the highest number of votes, up to the number of directors to be elected, shall be elected.
Section 9. WAIVER OF NOTICE: CONSENT. The transactions of any meeting of shareholders, annual or special, however called and noticed, and wherever held, shall be as valid as though had at it meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice, or a consent to a holding of the meeting, or an approval of the minutes thereof. The waiver of notice or consent need not specify either the business to be transacted or the purpose of any annual or special meeting of shareholders, except that if action is taken or proposed to be taken for approval of any matters specified in the second paragraph of Section 4 of this Article A the waiver of notice or consent shall state the general nature of the proposal. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.
Attendance of a person at a meeting shall also constitute a waiver of notice of such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not included in the notice of such meeting if such objection is expressly made at the meeting.
Section 10. ACTION WITHOUT MEETING. Unless otherwise provided in the articles of incorporation, any action which my be taken at any annual or special meeting of shareholders may be take without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes dig would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. In the case of election of directors, such consent shall, be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors; provided however, that a director my be elected at any time to fill a vacancy an the board of directors not filled by the directors, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. All such consents shall be filed with the secretary of the corporation and shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder's proxy holder, or a transferee of the shares or a personal representative of the shareholder or their respective proxy holders, may revoke the consent by a writing received by the secretary of the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary.
Unless the consents of all shareholders entitled to vow have been solicited in writing the secretary shall give prompt notice of any corporate action approved by the shareholders without a meeting by less than unanimous written consent to those shareholders entitled to vote who have not consented in writing. Such notice shall be given in the manner specified in Section 5 of this Article II. In the case of approval of (i) contracts or transactions in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Code, (ii) indemnification of agents of the corporation, pursuant to Section 3 1 7 of the Code, (in) a reorganization of the Corporation pursuant to Section 1201 of the Code, or (iv) a distribution in dissolution other than in accordance with to rights of outstanding preferred shares, pursuant to Section 2007 of the Code, such notice shall be given at least ten (10) days before the consummation of the action authorized by any such approval.
Section 11. RECORD DATE. For purposes of determining the shareholders entitled to notice of any meeting or to vote or entitled to give consent to corporate action without a meeting, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten ( 10) days prior to the date of the meeting nor more than sixty (60) days prior to the action without a meeting, and in such case only shareholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case my be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the California General Corporation Law.
If the board of directors does not so fix a record date:
(a) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business an the business day next preceding the day an which notice is given or. if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.
(b) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action of the board has been taken, shall be at the close of business on the day an which the board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later.
Section 12. PROXIES. Every person entitled to vote for directors or on
any other matter SW have the right to do so either in person or by one or more
agents authorized by a written Proxy signed by the person and filed with the
secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney in fact, A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it prior to the vote pursuant thereto, by a
writing delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy, or (ii) written notice of the death or
incapacity of the maker of the, proxy is received by the corporation Wore the
vote pursuant thereto is counted; provided, however, that no such proxy shall be
valid after the expiration of eleven (11) months from the date of the proxy;
unless otherwise provided in the proxy, The revocability of a proxy that states
on its face that it is irrevocable shall be governed by the provisions of
Section 705(e) and (f) of the Code.
Section 13. INSPECTORS OF ELECTION. Before any meeting of shareholders, the board of directors may appoint any persons (other than nominees for office) to act as inspectors of election at the meeting or any adjournments thereof If inspectors of election are not so appointed, the chairman of the meeting may, and an the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3), If inspectors are appointed at a meeting on the request of one or more shareholders or proxies. the majority of shares represented in person or by proxy shall determine whether one (1) or three (3) inspectors we to be appointed. If any person appointed as inspector fails to appear or refuses to act, the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to replace the one who so failed or refused. If there am three (3) inspectors of election, the decision, act or certificate of a majority of diem is effective in all respects as the decision, act or certificate of all. Any report or certificate made by do inspectors of election is prima facie evidence of the facts stated therein.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the California General Corporation Law and any limitations in the articles of incorporation and these bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors.
Section 2. NUMBER. The authorized number of directors shall be two (2) until changed by an amendment to the articles of incorporation or, if permitted by Section 212 of the Code, by an amendment to this bylaw, duly adopted by the vow or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the number of directors to a number lag than five (5) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of action by written consent, are equal to more than 16-2/3% of the outstanding shares entitled to vote.
Section 3. ELECTION AND TERM OF OFFICE. Directors shall be elected at each annual meeting of the shareholders to hold office until the next annual Meeting. Each director, including a director elected to fill a vacancy, shall hold office and the expiration of the term for which elected and until a successor has been elected and qualified.
Section 4. REMOVAL. Any or all of the directors may be removed by order of court pursuant to Section 304 of the Code, or by the shareholders pursuant to the provisions of Section 303 of the Code.
Section 5. VACANCIES. Vacancies in the board of directors may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, except that a vacancy created by the removal of a director may be filled only by the vote of a majority of the shares entitled to vote represented at a duly hold meeting at which a quorum is present, or by the written consent of holders of a majority of the outstanding shares entitled to vote. Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to exist in the case of the death, resignation or removal of any director, or if the board of directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or who has been convicted of a felony, or if the authorized number of directors is increased, or if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the number of directors to be voted for a that meeting.
The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election by written consent shall require the consent of a majority of the outstanding shares entitled to vow.
Any director may resign effective upon giving written notice to the chairman of the board, the president, the secretary or the board of directors, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective.
No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his or her term of office.
Section 6. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Regular meetings of the board of directors my be held at any place within or outside the State of California that has been designated from time to time by resolution of the board. In the absence of such designation, regular meetings shall! be held at the principal executive office of the corporation. Special meetings of the board shall be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or there is no notice, at the principal executive office of the corporation. Any meeting, regular or special, may be hold by conference telephone or similar communication equipment, so long as all directors participating can hear one another, and all such directors shall be deemed to be present in person at such nutting.
Section 7. REGULAR MEETINGS. Immediately following each annual meeting of shareholders, the board of directors shall hold a regular meeting for the purpose of organization, any desired election of officers and the transaction of other business. Other regular meetings of the board of directors shall be held without call at such time as shall from time to time be fixed by the board of directors. Notice of regular meeting shall not be required.
Section 8 SPECIAL MEETINGS. Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board or the president or any vice president or the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered to each director personally or by telephone or sea by first-class mail or telegram, charges prepaid, addressed to each director at his or her address as it is shown on the records of the corporation. In case the notice is mailed, it shall be deposited in the United States mail at least four (4) days prior to the time of the holding of the meeting. In case such notice is delivered personally or by telephone or telegraph, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours prior to the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communica- tion it to the director. The notice need not specify the purpose of the meeting nor the place if the meeting is to be held at the principal executive office of the corporation.
Section 9. QUORUM A majority of the authorized number of directors
shall constitute a quorum for the transaction of business, except to adjourn as
hereinafter provided. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 310 of the Code (approval of contracts or transactions in which a
director has a direct or indirect material financial interest), Section 311 of
the Code (appointment of committees), and Section 317(e) of the Code
(indemnification of directors). A meeting at which a quorum is initially present
may continue to transact business notwithstanding the withdrawal of directors,
if any action taken is approved by at least a majority of the required quorum
for such meeting.
Section 10. WAIVER OF NOTICE; CONSENT. The transactions of any meeting of the board of directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes thereof The waiver of notice or consent need not specify the purpose of the meeting. All such waivers, consents and approvals shall be filed with the corporate records or made a pan of the minutes of the meeting. Notice of a meeting shall also be deemed given to any director who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to that director.
Section 11. ADJOURNMENT. A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place. Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four (24) hours, in which case notice of such time and place shall be given prior to the time of the adjourned meeting, in On manner specified in Section 8 of this Article III, to the directors who were not present at the time of the adjournment.
Section 12. ACTION WITHOUT MEETING. Any action required or permitted to be taken by the board of directors may be taken without a meeting, if all members of the board shall individually or collectively consent in writing to such action. Such action by written consent shall have the same form and effect as a unanimous vote of the board of directors. The written consent or consents dull be filed with the minutes of the proceedings of the board.
Section 13. FEES AND CONDENSATION. Directors and members of committees may receive such compensation, if any, for their services, and such reimburse- ment of expenses, as may be fixed or determined by resolution of the board of directors. Nothing contained herein shall be construed to preclude any director from serving the corporation in any other capacity as in officer, agent, employee, or otherwise, and receiving compensation for such service.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF DIRECTORS. The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate me or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. Any such committee, to the extent provided, in the, resolution of the board, may have all the authority of the board, except with respect to:
(a) the approval of any action which, under the California General Corporation Law, also requires shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies an the board of directors or in any committee;
(c) the fixing of compensation of the directors for serving an the board or on any committee;
(d) the amendments or repeal of bylaws or the adoption of new bylaws;
(e) the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the board of directors; or
(g) the appointment of any other committees of the board of directors or the members thereof.
Section 2. MEETINGS AND ACTION. Meetings and action of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Sections 6 (place of meetings and meetings by telephone), 7
(regular meetings), (special meetings), 9 (quorum), 10 (waiver of notice), 11 (adjournment) and 12 (action without meeting ), with such changes in the content of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members, except that the time of regular meetings of committees may be determined by resolution of the board of directors as well as the committee; special meetings of committees may also be called by resolution of the board of directors, and notice of special meetings of committees dull also be given to all alternate members, who dug have the right to attend all meetings of the committee. The board of directors my adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a president, a secretary and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article V. Any number of officers may be held by the same person.
Section 2. ELECTION. The officers of the corporation, except such
officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article V, shall be chosen by the board of directors, and each
shall serve at the pleasure of the board, subject to the rights, if any, of an
officer under any contract of employment.
Section 3. OTHER OFFICERS. The board of directors may appoint, and may empower the p resident to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the bylaws or a& the board of directors may from time to time determine.
Section 4. REMOVAL AND RESIGNATION. Subject to the rights, if any, of any officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors or, except in case of an officer chosen by the board of directors, by any officer upon whom such power of removal my be conferred by the, board of directors.
Any officer may resign at any time by giving written notice to the corporation. Any such resignation, shall take effect at the date of the receipt, of such notice or at any law time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any such resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.
Section 5. VACANCIES. A vacancy in any office bemuse of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to such office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other Powers and duties as may be from time to time assigned to him or her by the board of directors or prescribed by the bylaws. if there is no president, the chairman of the board shall in addition be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 7 of the Article V.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as nay be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the did executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction and control of the business and the officers of the corporation. He or she shall preside at all meetings of the shareholders and, in the absence of the chairman of the board, or if there be none, at all meetings of the board of directors. He or she shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the board of directors or the bylaws.
Section 8. VICE PRESIDENTS. In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by, the board of directors, shall perform all the dudes of the president, and when so acting shall have. all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors or the bylaws and the president or the chairman of the board.
Section 9. SECRETARY. The secretary shall keep, or cause to be kept, at the principal executive office or such Other place as the board of directors may direct, a book a minutes of all meeting and actions of directors, committees of directors and shareholders, with the time and place of holding, whether regular
or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' and committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof
The secretary shall keep, or cause to be kept, at the principal executive office or at the office of the corporation's transfer agent of registrar, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of sham held by each. the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required by the bylaws or by law to be given, and he or she shall keep the seal of the corporation, if one be adopted, in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by the bylaws.
Section 10. CHIEF FINANCIAL OFFICER The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at an reasonable times be open to inspection by any director.
The chief financial officer shall deposit, or cause to be deposited, all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the board of directors. He or she shall disburse, or cause to be disbursed, the funds of the corporation as may be ordered by the board of directors, shall render to the president aid directors, whenever they request it, an account of all financial transactions and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or the bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES, AND OTHER AGENTS
Section 1. INDEMNIFICATION. The corporation may, to the minimum extent permitted by the California General Corporation Law, indemnify each of its agents against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact that any such person is or was an agent of the corporation. For purposes of this Article VI, an "agent" of the corporation includes any person who is or was a director, officer, employee or other agent of the corporation, or is or was saving at the request of the corporation as a director, officer, employee or agent of another corporation. partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.
Section 2. ADVANCE OF EXPENSES. Expenses incurred in defending any proceeding may be advanced by this corporation prior to the final disposition of such proceeding upon receipt of an undertaking by or an behalf of the agent to repay such amount unless it shall be determined ultimately that the agent is entitled to be indemnified as authorized in this Article.
Section 3. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article shall affect any right to indemnification to Much persons other than directors and officers of this corporation or any subsidiary hereof may be entitled by contract or otherwise.
Section 4. INSURANCE. Upon and in the event of a determination by the board of directors of this corporation to purchase such insurance, this corporation shall purchase and maintain insurance an behalf of any agent of the corporation against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such whether or not this corporation would have the power to indemnify the agent against such liability.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The corpora- tion shall keep at its principal executive office, or at the office of its trans -fer agent or registrar, if either be appointed, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of shareholders' names and
addresses and share holdings during usual business hours upon five (5) days'
prior written demand upon the corporation, or (ii) obtain from the transfer
agent of the corporation, upon written demand and upon the tender of the
transfer agent's usual charges for such list, a list of the shareholders' names
and addresses, who are entitled to vote for the election of directors, and their
share holdings, as of the most recent record date for which such list has been
compiled or as of a date specified by the shareholder subsequent to the date of
demand. The list shall be made available to that shareholder on or before the
law of five (5) days after the demand is received or the date specified therein
as the date as of which the list is to be compiled. The record of shareholders
shall also be open to inspection upon the written demand of any shareholder or
holder of a voting trust certificate, at any time during usual business how, for
a purpose reasonably related to such holder's interests as a shareholder or as
the holder of a voting trust certificate. Any inspection and copying under this
Section may be made in person or by an agent or attorney of the shareholder or
holder of a voting trust certificate making such demand.
Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation shall keep at its principal executive office, or if its principal executive office is not in the State of California, at its principal business office in that State, the original or a copy of the bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in that State, the Secretary shall, upon the written request of any shareholder furnish to such shareholder a copy of the bylaws as amended to date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. The accounting books and records and minutes of proceedings of the shareholders and the board of directors and any committee or committees of the board of directors shall be kept at such place or places designated by the board of directors, or, in the absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form.
Such minutes and accounting books and records shall be open. to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. The inspection my be made in person or by an agent or attorney, and shall include the right to copy and make extracts. The foregoing rights of inspection shall extend to the records of each subsidiary of the corporation.
Section 4. INSPECTION BY DIRECTORS. Every director shall have the absolute right at any reasonable time to inspect all books, records and documents of every kind and the physical properties of the corporation and each subsidiary corporation. Such inspection by a director nay be made in person or by agent or attorney and the right of inspection includes the right to copy and make extracts.
Section 5. ANNUAL REPORTS. The annual report to shareholder referred to in Section 1501 of the Code is expressly dispensed with, but nothing herein shall be interpreted as prohibiting the board of directors from issuing annual or other periodic reports to the shareholders of the corporate as they deem appropriate.
Section 6. FINANCIAL STATEMENTS. A copy of any annual financial state-
ment and any income statement of the corporation for each quarterly period of
each fiscal year, and any accompanying balance sheet of the corporation as of
the end of each such period, that has been prepared by the corporation shall be
kept on file in the principal executive office of the corporation for twelve
(12) months and each such statement shall be exhibited at all reasonable times
to any shareholder demanding examination of any such statement of a copy shall
be mailed to any such shareholder.
If a shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of stock of the corporation makes a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the then current fiscal year ended more than thirty (30) days prior to the date of the request and a balance shed of the corporation as of the and of such period, the chief financial officer shall cause such statement or statements to be prepared, if not already prepared, and shall deliver personally or mail such statement or statements, to the person making the request within thirty (30) days after the receipt of such request. If the corporation has not wit to the shareholders its annual report for the last fiscal year, this report shall likewise be delivered or mailed to such shareholder or shareholders within thirty (30) days after such request.
The corporation also shall, upon the written request of any shareholder, mail to the shareholder a copy of the last annual, semi-annual or quarterly income statement which it has prepared and a balance sheet as of the end of such period.
The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report thereon, if any, of any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation that such financial statements were prepared without audit from the books and records of the corporation.
ARTICLE VII
GENERAL MATTERS
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any other lawful action (other than action by shareholders by written consent without a meeting), the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days prior to any such action, and in such case only shareholders of record on the daft so fixed are entitled to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares an the books of the corporation after the record dam so fixed, except as otherwise provided in the California General Corporation Law.
If the board of directors does not so fix a record date, the record date for determining shareholders for any such purpose shall be at the close of business on the date on which the board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such action, whichever is later.
Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed of endorsed by such person of persons and in such manner as, from time to time, shall be determined by resolution of the board of directors.
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and such authority my be general or confined to specific instances; and, unless so authorized or ratified by. the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
Section 4. CERTIFICATES FOR SHARES. A certificate or certificates for shares of the capital stock of the corporation shall be issued to each shareholder when any such shares are fully paid, and the board of directors may authorize the issuance of certificates or shares as partly paid provided that such certificates shall state the amount of the consideration to be paid therefor and the amount paid thereon. All certificates shall be signed in the name of the corporation by the chairman of the board or vice chairman of the board or the president or vice president and by the chief financial officer or an assistant treasurer or the secretary or any assistant secretary, certifying; the number of shares and the class or series of sham owned by the shareholder. Any or all of the signatures an the certificate may be facsimile. In cm any officer, transfer agent or registrar who has signed or whose facsimile signature has bow placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.
Section 5. LOST CERTIFICATES. Except as hereinafter in this Section provided, no new certificates; for shares shall be issued in lieu of an old certificate unless the latter is surrendered to the corporation and canceled. The board of directors may, in case any awe certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of a new certificate in lieu thereof, upon such terms and conditions as the board may require, including provision for indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it Including any expense or liability, on account of the alleged loss, theft or destruction of such certificate or the issuance of a replacement certificate.
Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman of the board, the president, or any vice president, or any other person authorized by resolution of do board of directors or by any of the foregoing designated officers, as authorized to vote an behalf of the corporation any and all shares of any other corporation or corporations, foreign or domestic, standing in the name of the corporation. The authority granted to said officers to vote or represent on behalf of the corporation any and all shares held by the corporation in any other corporation or corporations may be exercised by any such officer in person or by any person authorized to do so by a proxy duty executed by said officer.
Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the California General Corporation Law shall govern the construction of these
bylaws. Without limiting the generality of the foregoing, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. All references in these bylaws to the California General Corporation Law or to sections of the Code shall be deemed to be to such Law or sections as they may be amended and in effect and, if renumbered., to such renumbered provisions at the time of any action taken, under the bylaws.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or these bylaws. may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shall entitled to vote, provided, however, that if the articles of incorporation of the corporation set forth the number of authorized directors; of the corporation, the authorized number of directors may be changed only by an amendment of the articles of incorporation.
Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the shareholders to adopt, amend or repeal bylaws as provided in Section I of this Article IX, bylaws, other than a bylaw amendment changing the authorized number of directors, may be adopted, amended, or repealed by the board of directors.
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORTION
OF
IMAGING SERVICES, INC.
The undersigned certify that:
1. They are the Chief Executive Officer and the Vice President/Secretary, respectively, of IMAGING SERVICES, INC., a California Corporation.
2. Article IV of the Articles of Incorporation of this corporation is amended to read as follows:
Capital Stock. The corporation is authorized to issue 10,000,000 shares of capital stock. There shall be only one class of capital stock of the corporation.
3. The foregoing amendment of Articles of Incorporation has been duly approved by the board of directors.
4. The foregoing amendment of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902. California Corporations Code. The total number of outstanding shares of the corporation is 15,000. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50%.
We further declare under the penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.
/s/ Dean Janes ---------------------------------------- DEAN JANES, President /s/ Xavier Aguilera ---------------------------------------- XAVIER AGUILERA, Vice President/Secretary |
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORTION
OF
IMAGING SERVICES, INC.
The undersigned certify that:
1. They are the Chief Executive Officer and the Vice President/Secretary, respectively, of IMAGING SERVICES, INC., a California Corporation.
2. Article IV of the Articles of Incorporation of this corporation is amended to read as follows:
Capital Stock. The corporation is authorized to issue 100,000,000 shares of capital stock. There shall be only one class of capital stock of the corporation.
3. The Board of Directors has duly approved the foregoing amendment of Articles of Incorporation.
4. The foregoing amendment of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902. California Corporations Code. The total number of outstanding shares of the corporation is 35,000. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50%.
We further declare under the penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.
/s/ Dean Janes ---------------------------------------- DEAN JANES, Chief Executive Officer /s/ Xavier Aguilera ---------------------------------------- XAVIER AGUILERA, Vice President/Secretary |
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION
OF IMAGING SERVICES, INC.
(CORPORATE NUMBER C1733583)
The undersigned certify that:
1. They are the president and the secretary, respectively, of Imaging Services, Inc., it California corporation.
2. Article One of the Articles of incorporation of this corporation is amended to read as follows.
"Article One. Name. The name of this corporation shall be IMAGING3, INC."
3. The foregoing amendment of Articles of Incorporation has been duly approved by the Board of Directors.
4. The foregoing amendment of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902, California Corporations Code. The total number of outstanding shares of the corp -oration is ten million. The number of shares voting in favor of the amendment equaled or exceeded the vote required, The percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.
DATE: August 13, 2002
/s/ Dean Janes
--------------------------------
Dean Janes, President
/s/ Michelle Janes
--------------------------------
Michelle Janes, Secretary
|