----

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**UNITED      STATES**

**SECURITIES        AND EXCHANGE COMMISSION**

**Washington,        D.C. 20549**

**FORM        10-K**

**x**

**ANNUAL        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF        1934**

**¨**

**TRANSITION        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF        1934**

**IMAGING        DIAGNOSTIC SYSTEMS, INC.**

| **Florida**                               | ** 22-2671269**                       |
|-------------------------------------------|--------------------------------------------|
| (State                  of incorporation) | (IRS                  employer Ident. No.) |

| **6531                  NW 18th Court, Plantation, FL.** | **33313**                   |
|----------------------------------------------------------|-----------------------------|
| (address                  of principal office)           | (Zip                  Code) |

**None**

**Common        Stock, no par value**

| ¨  Large                  accelerated filer | x  Accelerated                  filer | ¨  Non                  Accelerated filer |
|------------------------------------------------------------|-------------------------------------------------|----------------------------------------------------------|

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*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**FORM      10-K**

**ANNUAL      REPORT**

TAB

| **PART                I**   |                                                                                                      | **Page                No** |
|-----------------------------|-----------------------------------------------------------------------------------------------------------|----------------------------|
|                        |                                                                                                      |                       |
| ITEM                1.      | Our                Business                                                                               | 3                          |
| ITEM                2.      | Description                of Our Property                                                                | 14                         |
| ITEM                3.      | Legal                Proceedings                                                                          | 14                         |
| ITEM                4.      | Submission                of Matters to a Vote of Securities                Holders                       | 15                         |
|                        |                                                                                                      |                       |
|                        |                                                                                                      |                       |
| **PART                II**  |                                                                                                      |                       |
|                        |                                                                                                      |                       |
| ITEM                5.      | Market                for Registrant’s Common Equity and Related                Stockholder Matters | 16                         |
| ITEM                6.      | Selected                Financial Data                                                                    | 20                         |
| ITEM                7.      | Management’s                Discussion and Analysis of Financial Conditions                and      |                       |
|                        | Results                of Operations                                                                      | 21                         |
| ITEM                7A.     | Quantitative                and Qualitative Disclosures About Market                Risk                  | 32                         |
| ITEM                8.      | Financial                Statements                                                                       | 33                         |
| ITEM                9.      | Changes                In and Disagreements with Accountants on Accounting                and             |                       |
|                        | Financial                Disclosure                                                                       | 88                         |
| ITEM                9A      | Controls                and Procedures                                                                    | 88                         |
| ITEM                9B      | Other                Information                                                                          | 92                         |
|                        |                                                                                                      |                       |
|                        |                                                                                                      |                       |
| **PART                III** |                                                                                                      |                       |
|                        |                                                                                                      |                       |
| ITEM                10.     | Directors                and Executive Officers of the                Registrant                          | 92                         |
| ITEM                11.     | Executive                Compensation                                                                     | 97                         |
| ITEM                12.     | Security                Ownership of Certain Beneficial Owners and                Management              | 106                        |
| ITEM                13.     | Certain                Relationships and Related                Transactions                              | 107                        |
| ITEM                14.     | Principal                Accounting Fees and Services                                                     | 107                        |
|                        |                                                                                                      |                       |
|                        |                                                                                                      |                       |
| **PART                IV**  |                                                                                                      |                       |
|                        |                                                                                                      |                       |
| ITEM                15.     | Exhibits,                Financial Statement Schedules, and Reports on                Form 8-K            | 108                        |
|                        |                                                                                                      |                       |
| SIGNATURES                  |                                                                                                      | 110                        |

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*Table            of Contents*

**THIS      REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANINGS OF SECTION 27A      OF      THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF      1934.  ACTUAL RESULTS AND EVENTS COULD DIFFER MATERIALLY FROM THOSE      PROJECTED AS A RESULT OF THE “KNOWN UNCERTAINTIES” AS SET FORTH IN ITEM 7“MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      OPERATIONS-CAUTIONARY STATEMENTS.”**

**PART      I**

**Item      1.  Our      Business**

**Overview**

**Breast      Cancer**

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*Table            of Contents*

**Screening      and Diagnostic Modalities**

**Mammography**

**Digital      Mammography**

**Magnetic      Resonance Imaging**

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*Table            of Contents*

**Ultrasound**

**CTLM®**

**Fluorescence      Imaging**

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*Table            of Contents*

**Laser      Imager for Lab Animals**

**Government      Regulation**

**United      States Regulation**

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*Table            of Contents*

**Foreign      Regulation**

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*Table            of Contents*

**Regulatory      and Clinical Status**

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*Table            of Contents*

**Clinical      Collaboration Sites Update**

| 1. | Humboldt                University of Berlin, Charite Hospital, Berlin, Germany              |
|----|----------------------------------------------------------------------------------------------|
| 2. | The                Comprehensive Cancer Centre, Gliwice, Poland (Two                Systems) |
| 3. | Catholic                University Hospital, Rome, Italy                                     |
| 4. | Charles                University Hospital, Prague, Czech Republic                           |
| 5. | Friendship                Hospital, Beijing, Peoples Republic of                China        |

**Domestic        Sales and Marketing**

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*Table            of Contents*

**International        Sales**

**International      Distributors**

**Third-Party      Reimbursement; Health Care Reform**

**Product      Liability**

**Competition**

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*Table            of Contents*

**Patents**

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*Table            of Contents*

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*Table            of Contents*

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*Table            of Contents*

**Patent      Licensing Agreement**

| **ANNUAL                ADJUSTED SALES** | **PERCENTAGE** |
|------------------------------------------|----------------|
| $0                to $1,999,999          | 10%            |
| $2,000,000                to $3,999,999  | 9%             |
| $4,000,000                to $6,999,999  | 8%             |
| $7,000,000                to $9,999,99   | 7%             |
| Greater                than $10,000,000  | 6%             |

**Employees**

**Item      2.  Description of Our      Property**

**Item      3.  Legal Proceedings**

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*Table            of Contents*

**Item      4.  Submission of Matters to a Vote of Security      Holders**

|   | 1. | To                elect six directors; |
|--------|----|----------------------------------------|

|   | 2. | To                consider and act upon a proposal to amend the Company’s Articles of                Incorporation to increase the number of authorized shares of the                Company’s                common stock, no par value, from 300,000,000 to                450,000,000. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | To                ratify the appointment by the Board of Directors of Sherb and Co.,                LLP as                independent auditors of the Company for the fiscal year ending June                30,                2007. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Timothy                B, Hansen | FOR                      230,891,751 | WITHHELD                      7,535,887 |
|----------------------------------|--------------------------------------------------------------------|-----------------------------------------------------------------------|
| Allan                L. Schwartz | FOR                      230,989,034 | WITHHELD                      7,438,604 |
| Sherman                Lazrus    | FOR                      230,828,963 | WITHHELD                      7,598,675 |
| Patrick                J. Gorman | FOR                      230,888,718 | WITHHELD                      7,538,920 |
| Edward                Rolquin    | FOR                      230,798,132 | WITHHELD                      7,629,506 |
| Jay                S. Bendis     | FOR                      230,966,137 | WITHHELD                      7,461,501 |

| FOR   219,825,663 | AGAINST                   17,382,939 | ABSTAIN     1,219,037 |
|----------------------------------|-----------------------------------------------------|------------------------------------------------|

| FOR   233,901,149 | AGAINST                    2,259,973 | ABSTAIN   2,266,516 |
|----------------------------------|----------------------------------------------------------|------------------------------------|

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*Table            of Contents*

**PART      II**

**Item      5.  Market for Registrant's Common Equity and      Related Stockholder Matters**

| **QUARTER                ENDING**                         | **High                Bid** | **Low                Bid** |
|-----------------------------------------------------------|-----------------------------|----------------------------|
|                                                      |                        |                       |
| **FISCAL                YEAR 2006**                       |                        |                       |
| First                Quarter                              | $0.31                       | $0.17                      |
| Second                Quarter                             | $0.20                       | $0.121                     |
| Third                Quarter                              | $0.19                       | $0.125                     |
| Fourth                Quarter                             | $0.19                       | $0.129                     |
|                                                      |                        |                       |
| **FISCAL                YEAR 2007**                       |                        |                       |
| First                Quarter                              | $0.15                       | $0.09                      |
| Second                Quarter                             | $0.107                      | $0.065                     |
| Third                Quarter                              | $0.155                      | $0.068                     |
| Fourth                Quarter                             | $0.073                      | $0.038                     |
|                                                      |                        |                       |
| **FISCAL                YEAR 2008**                       |                        |                       |
| First                Quarter (through September 12, 2007) | $0.078                      | $0.035                     |

**Sale      of Unregistered Securities**

**Private      Placement of Preferred Stock**

**.  **

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*Table            of Contents*

**Series      K Preferred**

**Private      Placement of Common Stock**

**Issuance      of Stock for Services**

**Issuance      of Stock for Settlements In Lieu of Cash**

**FINANCING/EQUITY      LINE OF CREDIT**

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*Table            of Contents*

**Prior      Equity Agreements**

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*Table            of Contents*

**The      Fifth Private Equity Credit Agreement**

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*Table            of Contents*

| **ITEM                      6. SELECTED FINANCIAL                      DATA**                                                                                                    |       |                                   |        |       |                                   |       |        |                                   |       |       |                                   |       |       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|-------------|------------|----------------------------------------|------------|-------------|----------------------------------------|------------|------------|----------------------------------------|------------|------------|
|                                                                                                                                                                                  |       |                                   |        |       |                                   |       |        |                                   |       |       |                                   |       |       |   |   |
| The                      following selected financial data should be read in conjunction                      with "Item                      7. Management's Discussion and Analysis |       |
| of                      Financial Condition and Results of Operations" and "Item 8.                      Financial                      Statements"                                   |       |                                   |        |       |                                   |       |        |
|                                                                                                                                                                                  |       |                                   |        |       |                                   |       |        |                                   |       |       |                                   |       |       |   |   |
|                                                                                                                                                                                  |       | **Year                      Ended**    | ** **  | ** ** | **Year                      Ended**    | ** ** | ** **  | **Year                      Ended**    | ** ** | ** ** | **Year                      Ended**    | ** ** | ** ** | **Year                      Ended** | ** ** |
| ** **                                                                                                                                                                            | ** ** | **June                      30, 2007** | ** **  | ** ** | **June                      30, 2006** | ** ** | ** **  | **June                      30, 2005** | ** ** | ** ** | **June                      30, 2004** | ** ** | ** ** | **June                      30, 2003** |   |
|                                                                                                                                                                                  |       |                                   |        |       |                                   |       |        |                                   |       |       | (Restated)                             |       |       | (Restated) |   |
|                                                                                                                                                                                  |       |                                   |        |       |                                   |       |        |                                   |       |       |                                   |       |       |   |   |
| Sales                                                                                                                                                                                 |       | $                                      | 65,136      |       |                                   | $          | 675,844     |                                   |       | $          | 374,952                                |       |       | $ | 733,211 |   |   | $ | 184,085 |   |
|                                                                                                                                                                                  |       |                                   |        |       |                                   |       |        |                                   |       |       |                                   |       |       |   |   |   |   |   |   |   |
| Cost                      of Sales                                                                                                                                                    |       |                                   | 17,870      |       |                                   |       | 316,189     |                                   |       |       | 166,685                                |       |       |   | 284,682 |   |   |   | 79,189 |   |
|                                                                                                                                                                                  |       |                                   |        |       |                                   |       |        |                                   |       |       |                                   |       |       |   |   |   |   |   |   |   |
| Gross                      Profit                                                                                                                                                     |       |                                   | 47,266      |       |                                   |       | 359,655     |                                   |       |       | 208,267                                |       |       |   | 448,529 |   |   |   | 104,896 |   |
|                                                                                                                                                                                  |       |                                   |        |       |                                   |       |        |                                   |       |       |                                   |       |       |   |   |   |   |   |   |   |
| Operating                      Expenses                                                                                                                                               |       |                                   | 7,123,347   |       |                                   |       | 6,984,057   |                                   |       |       | 7,338,806                              |       |       |   | 8,160,982 |   |   |   | 7,487,696 |   |
|                                                                                                                                                                                  |       |                                   |        |       |                                   |       |        |                                   |       |       |                                   |       |       |   |   |   |   |   |   |   |
| Operating                      Loss                                                                                                                                                   |       |                                   | (7,076,081  | )          |                                   |       | (6,624,402  | )                                      |       |       | (7,130,539                             | )          |       |   | (7,712,453 | ) |   |   | (7,382,800 | ) |
|                                                                                                                                                                                  |       |                                   |        |       |                                   |       |        |                                   |       |       |                                   |       |       |   |   |   |   |   |   |   |
| Gain                      (Loss) on sale of fixed assets                                                                                                                              |       |                                   | -           |       |                                   |       | (2,439      | )                                      |       |       | -                                      |       |       |   | (5,669 | ) |   |   | 11,254 |   |
| Interest                      income                                                                                                                                                  |       |                                   | 11,455      |       |                                   |       | 8,416       |                                   |       |       | 5,680                                  |       |       |   | 9,305 |   |   |   | 689 |   |
| Other                      income                                                                                                                                                     |       |                                   | 250,001     |       |                                   |       | 21,500      |                                   |       |       | 409,962                                |       |       |   | - |   |   |   | - |   |
| Interest                      expense                                                                                                                                                 |       |                                   | (387,697    | )          |                                   |       | (565,797    | )                                      |       |       | (598,021                               | )          |       |   | (694,142 | ) |   |   | (987,917 | ) |
|                                                                                                                                                                                  |       |                                   |        |       |                                   |       |        |                                   |       |       |                                   |       |       |   |   |   |   |   |   |   |
| Net                      Loss                                                                                                                                                         |       |                                   | (7,202,322  | )          |                                   |       | (7,162,722  | )                                      |       |       | (7,312,918                             | )          |       |   | (8,402,959 | ) |   |   | (8,358,774 | ) |
|                                                                                                                                                                                  |       |                                   |        |       |                                   |       |        |                                   |       |       |                                   |       |       |   |   |   |   |   |   |   |
| Dividends                      on cumulative Pfd. stock:                                                                                                                              |       |                                   |        |       |                                   |       |        |                                   |       |       |                                   |       |       |   |   |   |   |   |   |   |
| From                      discount at issuance                                                                                                                                        |       |                                   | -           |       |                                   |       | -           |                                   |       |       | -                                      |       |       |   | - |   |   |   | - |   |
| Earned                                                                                                                                                                                |       |                                   | -           |       |                                   |       | -           |                                   |       |       | -                                      |       |       |   | - |   |   |   | - |   |
|                                                                                                                                                                                  |       |                                   |        |       |                                   |       |        |                                   |       |       |                                   |       |       |   |   |   |   |   |   |   |
| Net                      loss applicable to                                                                                                                                           |       |                                   |        |       |                                   |       |        |                                   |       |       |                                   |       |       |   |   |   |   |   |   |   |
|      common                      shareholders                                                                                                                |       | $                                      | (7,202,322  | )          |                                   | $          | (7,162,722  | )                                      |       | $          | (7,312,918                             | )          |       | $ | (8,402,959 | ) |   | $ | (8,358,774 | ) |
|                                                                                                                                                                                  |       |                                   |        |       |                                   |       |        |                                   |       |       |                                   |       |       |   |   |   |   |   |   |   |
|                                                                                                                                                                                  |       |                                   |        |       |                                   |       |        |                                   |       |       |                                   |       |       |   |   |   |   |   |   |   |
| Net                      Loss per common share                                                                                                                                        |       | $                                      | (0.03       | )          |                                   | $          | (0.03       | )                                      |       | $          | (0.04                                  | )          |       | $ | (0.05 | ) |   | $ | (0.06 | ) |
| Weighted                      avg. no. of common shares,                                                                                                                              |       |                                   |        |       |                                   |       |        |                                   |       |       |                                   |       |       |   |   |   |   |   |   |   |
|     Basic                      & Diluted                                                                                                                      |       |                                   | 271,667,256 |       |                                   |       | 218,846,738 |                                   |       |       | 185,636,553                            |       |       |   | 167,982,750 |   |   |   | 145,150,783 |   |
|                                                                                                                                                                                  |       |                                   |        |       |                                   |       |        |                                   |       |       |                                   |       |       |   |   |   |   |   |   |   |
|                                                                                                                                                                                  |       |                                   |        |       |                                   |       |        |                                   |       |       |                                   |       |       |   |   |   |   |   |   |   |
| Cash                      and Cash Equivalents                                                                                                                                        |       | $                                      | 477,812     |       |                                   | $          | 1,467,687   |                                   |       | $          | 765,523                                |       |       | $ | 554,354 |   |   | $ | 1,361,507 |   |
| Total                      Assets                                                                                                                                                     |       |                                   | 4,365,427   |       |                                   |       | 6,250,909   |                                   |       |       | 5,608,004                              |       |       |   | 5,683,328 |   |   |   | 5,943,415 |   |
| Deficit                      accumulated during                                                                                                                                       |       |                                   |        |       |                                   |       |        |                                   |       |       |                                   |       |       |   |   |   |   |   |   |   |
|     the                      development stage                                                                                                                    |       |                                   | (98,341,059 | )          |                                   |       | (91,138,737 | )                                      |       |       | (83,976,015                            | )          |       |   | (76,663,097 | ) |   |   | (68,260,138 | ) |
| Stockholders'                      Equity                                                                                                                                             |       |                                   | 3,441,322   |       |                                   |       | 5,651,916   |                                   |       |       | 4,772,538                              |       |       |   | 4,170,395 |   |   |   | 4,706,003 |   |

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*Table            of Contents*

| **Item                7.** | **Management’s                Discussion and Analysis of Financial Condition and Results of                Operations** |
|----------------------------|-------------------------------------------------------------------------------------------------------------------------------|

**CRITICAL      ACCOUNTING POLICIES**

**Inventory**

**Stock-Based      Compensation**

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*Table            of Contents*

**Results      of Operations**

**Twelve      Months Ended June 30, 2007 and June 30, 2006**

**SALES      AND COST OF SALES**

**GENERAL      AND ADMINISTRATIVE**

**RESEARCH      AND DEVELOPMENT**

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*Table            of Contents*

**SALES      AND MARKETING**

**AGGREGATED      OPERATING EXPENSES**

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*Table            of Contents*

**Twelve      Months Ended June 30, 2006 and June 30, 2005**

**SALES      AND COST OF SALES**

**GENERAL      AND ADMINISTRATIVE**

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*Table            of Contents*

**RESEARCH      AND DEVELOPMENT**

**SALES      AND MARKETING**

**AGGREGATED      OPERATING EXPENSES**

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*Table            of Contents*

**Balance      Sheet Data**

**Liquidity      and Capital Resources**

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*Table            of Contents*

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*Table            of Contents*

**CAUTIONARY      STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS**

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*Table            of Contents*

**CERTAIN      FACTORS THAT MAY AFFECT FUTURE RESULTS**

**Risks      associated with our business**

***We      must comply with extensive government regulation and have no assurance of      regulatory approvals or clearances, which could cause us to cut back or cease      operations.***

| · | FDA                approval of a pre-market approval application for the                CTLM®, |
|--------|-----------------------------------------------------------------------------------------------------|

| · | foreign                marketing clearances for the CTLM® or regulatory approvals or clearances                for other products that we may develop, on a timely basis, or at                all, |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | timely                receipt of approvals or clearances, |
|--------|-----------------------------------------------------------|

| · | continued                approval or clearance of previously obtained approvals and clearances,                and |
|--------|--------------------------------------------------------------------------------------------------------------------|

| · | compliance                with existing or future regulatory                requirements. |
|--------|-------------------------------------------------------------------------------------------|

***We      may not be able to develop other products that are currently in the early stages      of development due to our need for additional      capital.***

| · | be                found to be safe and effective, |
|--------|---------------------------------------------------|

| · | meet                applicable regulatory standards or receive necessary regulatory                clearance, |
|--------|---------------------------------------------------------------------------------------------------------------|

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*Table            of Contents*

| · | be                safe and effective, developed into commercial products, manufactured                on a                large scale or be economical to market,                or |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | achieve                or sustain market acceptance. |
|--------|------------------------------------------------------|

***We      depend on market acceptance to sell our products, which have not been proven,      and a lack of acceptance of the CTLM® could cause our business to      fail.***

***We      depend upon suppliers with whom we have no contracts, which suppliers could      cause production disruption if they terminated or changed their relationships      with us.***

***We      have limited experience in sales, marketing and distribution, which could      negatively impact our ability to enter into collaborative arrangements or other      third party relationships which are important to the successful development      and      commercialization of our products and potential      profitability.***

***We      depend on qualified personnel to run and develop our specialized business who      we      may be unable to retain or hire.***

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*Table            of Contents*

***We      have a limited manufacturing history that could cause delays in the production      and shipment of our product.***

***We      depend on third parties who may not be in compliance with the FDA's quality      system regulations which may delay the approval or decrease the sales of the      CTLM®.***

***We      will rely on international sales and may be subject to risks associated with      international commerce.***

| · | economical                and political instability, |
|--------|------------------------------------------------------|

| · | shipping                delays, |
|--------|---------------------------------|

| · | fluctuation                of foreign currency exchange rates, |
|--------|----------------------------------------------------------------|

| · | foreign                regulatory requirements, and |
|--------|-----------------------------------------------------|

| · | various                trade restrictions, all of which could have a significant impact                on our                ability to deliver products on a timely                basis. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Our      business has the risk of product liability claims, and preferred insurance      coverage may be expensive or unavailable, which may expose us to material      liabilities.***

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*Table            of Contents*

**Risks      associated with our industry**

***Lack      of third-party reimbursement may have a negative impact on the sales of our      products, which would negatively impact our revenues.***

***There      are uncertainties regarding healthcare reform including possible legislation,      whereby our customers may not receive medical reimbursement for the use of      our      product on their patients, which may cause our customers to use other services      and products.***

***Competition      in the medical imaging industry may result in competing products, superior      marketing and lower revenues and profits for us.***

**Item      7A.  Quantitative and Qualitative Disclosures      About Market Risk**

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*Table            of Contents*

**Item      8.  Financial      Statements**

| Index                to Financial Statements                                          |                                                                   |
|---------------------------------------------------------------------------------------|------------------------------------------------------------------------|
|                                                                                  |                                                                   |   |
|                                                                                  |                                                                   | **Page** |
|                                                                                  |                                                                   |   |
| Report                of Independent Registered Public Accounting                Firm | 34                                                                     |
|                                                                                  |                                                                   |   |
| Financial                Statements                                                   |                                                                   |   |
|                                                                                  |                                                                   |   |
|                                                                                  | Balance                Sheets                                          | 36 |
|                                                                                  |                                                                   |   |
|                                                                                  | Statements                of Operations                                | 37 |
|                                                                                  |                                                                   |   |
|                                                                                  | Statements                of Stockholders’                Equity | 38 |
|                                                                                  |                                                                   |   |
|                                                                                  | Statements                of Cash Flows                                | 48 |
|                                                                                  |                                                                   |   |
|                                                                                  | Notes                to Financial                Statements            | 50 |

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*Table            of Contents*

**REPORTS        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING        FIRMS**

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*Table            of Contents*

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

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*Table            of Contents*

| **IMAGING                    DIAGNOSTIC SYSTEMS, INC.**                                                   | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|
| **(a                    Development Stage Company)**                                                      | ** ** |
| ** **                                                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Balance                    Sheets**                                                                     | ** ** |
| ** **                                                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **June                    30, 2007 and 2006**                                                             | ** ** |
| ** **                                                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **ASSETS**                                                                                                |       |
|                                                                                                      |       | **                     2007** | ** ** | ** ** | **                     2006** |   |
|                                                                                                      |       |   |   |   |   |   |
| Current                    assets:                                                                        |       |   |   |   |   |   |
|                      Cash and cash equivalents                                                       |       | $ | 477,812 |   |   | $ | 1,467,687 |   |
|                      Accounts receivable, net of allowances for doubtful                    accounts |       |   |   |   |   |   |   |   |
|                           of $29,967 and $40,000, respectively                   |       |   | 119,866 |   |   |   | 432,084 |   |
| Loans                    receivable                                                                       |       |   | 63,602 |   |   |   | 73,617 |   |
|   Inventories,                    net of reserve of $408,000 and $108,000, respectively         |       |   | 1,363,156 |   |   |   | 1,891,904 |   |
| Prepaid                    expenses                                                                       |       |   | 36,784 |   |   |   | 42,846 |   |
|                                                                                                      |       |   |   |   |   |   |   |   |
| Total                    current assets                                                                   |       |   | 2,061,220 |   |   |   | 3,908,138 |   |
|                                                                                                      |       |   |   |   |   |   |   |   |
| Property                    and equipment, net                                                            |       |   | 2,030,795 |   |   |   | 2,035,183 |   |
| Intangible                    assets, net                                                                 |       |   | 273,412 |   |   |   | 307,588 |   |
|                                                                                                      |       |   |   |   |   |   |   |   |
| Total                    assets                                                                           |       | $ | 4,365,427 |   |   | $ | 6,250,909 |   |
|                                                                                                      |       |   |   |   |   |   |   |   |
|                                                                                                      |       |   |   |   |   |   |   |   |
| **LIABILITIES                    AND STOCKHOLDERS' EQUITY**                                               |       |
|                                                                                                      |       |   |   |   |   |   |   |   |
| Current                    liabilities:                                                                   |       |   |   |   |   |   |   |   |
|                      Accounts payable and accrued expenses                                           |       | $ | 585,991 |   |   | $ | 558,993 |   |
| Customer                    deposits                                                                      |       |   | 88,114 |   |   |   | 40,000 |   |
| Short                    term debt                                                                        |       |   | 250,000 |   |   |   | - |   |
|                                                                                                      |       |   |   |   |   |   |   |   |
|                      Total current liabilities                                                       |       |   | 924,105 |   |   |   | 598,993 |   |
|                                                                                                      |       |   |   |   |   |   |   |   |
| Commitments                    and contingencies                                                          |       |   | - |   |   |   | - |   |
|                                                                                                      |       |   |   |   |   |   |   |   |
| Stockholders                    equity:                                                                   |       |   |   |   |   |   |   |   |
|  Common                    stock, no par value; authorized 450,000,000 shares,                       |       |   |   |   |   |   |   |   |
|                         issued 311,538,038 and 247,676,633 shares, respectively       |       |   | 99,120,731 |   |   |   | 94,560,316 |   |
|  Additional                    paid-in capital                                                       |       |   | 2,661,650 |   |   |   | 2,230,337 |   |
|  Deficit                    accumulated during the development stage                                 |       |   | (98,341,059 | ) |   |   | (91,138,737 | ) |
|                                                                                                      |       |   |   |   |   |   |   |   |
|  Total                    stockholders' equity                                                       |       |   | 3,441,322 |   |   |   | 5,651,916 |   |
|                                                                                                      |       |   |   |   |   |   |   |   |
|  Total                    assets & stockholders' equity                                          |       | $ | 4,365,427 |   |   | $ | 6,250,909 |   |
|                                                                                                      |       |   |   |   |   |   |   |   |
|                                                                                                      |       |   |   |   |   |   |   |   |
|                                                                                                      |       |   |   |   |   |   |   |   |
| See                    accompanying notes to the financial statements.                                    |       |

----

*Table              of Contents*

| **IMAGING                    DIAGNOSTIC SYSTEMS, INC.**                        | ** ** |
|--------------------------------------------------------------------------------|------------|
| **(a                    Development Stage Company)**                           | ** ** |
| ** **                                                                     | ** ** | ** ** |
| **Statements                    of Operations**                                | ** ** |
|                                                                           |       |   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **From                    Inception** | ** ** |
| ** **                                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **(December                    10,** | ** ** |
| ** **                                                                     | ** ** | **Year                    Ended** | ** ** | ** ** | **Year                    Ended** | ** ** | ** ** | **Year                    Ended** | ** ** | ** ** | **1993)                    to** | ** ** |
| ** **                                                                     | ** ** | **June                    30, 2007** | ** ** | ** ** | **June                    30, 2006** | ** ** | ** ** | **June                    30, 2005** | ** ** | ** ** | **June                    30, 2007** | ** ** |
| ** **                                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |   |
|                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |
| Net                    Sales                                                   |       | $ | 65,136 |   |   | $ | 675,844 |   |   | $ | 374,952 |   |   | $ | 2,033,228 |   |
| Cost                    of Sales                                               |       |   | 17,870 |   |   |   | 316,189 |   |   |   | 166,685 |   |   |   | 864,615 |   |
|                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross                    Profit                                                |       |   | 47,266 |   |   |   | 359,655 |   |   |   | 208,267 |   |   |   | 1,168,613 |   |
|                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                    Expenses:                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                        General and administrative               |       |   | 3,012,575 |   |   |   | 3,366,426 |   |   |   | 3,014,800 |   |   |   | 49,965,745 |   |
|                        Research and development                 |       |   | 2,089,497 |   |   |   | 2,046,688 |   |   |   | 2,553,567 |   |   |   | 18,387,032 |   |
|                        Sales and marketing                      |       |   | 1,351,521 |   |   |   | 1,210,917 |   |   |   | 1,083,706 |   |   |   | 7,089,718 |   |
|                        Inventory valuation adjustments          |       |   | 493,596 |   |   |   | 184,219 |   |   |   | 499,194 |   |   |   | 4,412,010 |   |
|                        Depreciation and amortization            |       |   | 176,158 |   |   |   | 175,807 |   |   |   | 187,539 |   |   |   | 2,773,073 |   |
|                        Amortization of deferred compensation    |       |   | - |   |   |   | - |   |   |   | - |   |   |   | 4,064,250 |   |
|                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                    Operating Expenses                                    |       |   | 7,123,347 |   |   |   | 6,984,057 |   |   |   | 7,338,806 |   |   |   | 86,691,828 |   |
|                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                    Loss                                              |       |   | (7,076,081 | ) |   |   | (6,624,402 | ) |   |   | (7,130,539 | ) |   |   | (85,523,215 | ) |
|                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gain                    (Loss) on sale of fixed assets                         |       |   | - |   |   |   | (2,439 | ) |   |   | - |   |   |   | 3,146 |   |
| Interest                    income                                             |       |   | 11,455 |   |   |   | 8,416 |   |   |   | 5,680 |   |   |   | 294,388 |   |
| Other                    income                                                |       |   | 250,001 |   |   |   | 21,500 |   |   |   | 409,962 |   |   |   | 681,463 |   |
| Interest                    expense                                            |       |   | (387,697 | ) |   |   | (565,797 | ) |   |   | (598,021 | ) |   |   | (6,949,081 | ) |
|                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                    Loss                                                    |       |   | (7,202,322 | ) |   |   | (7,162,722 | ) |   |   | (7,312,918 | ) |   |   | (91,493,299 | ) |
|                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividends                    on cumulative                    preferred stock: |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                        From discount at issuance                |       |   | - |   |   |   | - |   |   |   | - |   |   |   | (5,402,713 | ) |
|                        Earned                                   |       |   | - |   |   |   | - |   |   |   | - |   |   |   | (1,445,047 | ) |
|                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                    loss applicable to                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      common                    shareholders           |       | $ | (7,202,322 | ) |   | $ | (7,162,722 | ) |   | $ | (7,312,918 | ) |   | $ | (98,341,059 | ) |
|                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                    Loss per common share:                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                        Basic and diluted                        |       | $ | (0.03 | ) |   | $ | (0.03 | ) |   | $ | (0.04 | ) |   | $ | (0.92 | ) |
|                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted                    average number of                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                       common shares outstanding:                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                        Basic and diluted                        |       |   | 271,667,256 |   |   |   | 218,846,738 |   |   |   | 185,636,553 |   |   |   | 106,483,084 |   |
|                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See                    accompanying notes to the financial statements.         |       |

----

*Table              of Contents*

| **IMAGING                    DIAGNOSTIC SYSTEMS, INC.**                                               |   |
|-------------------------------------------------------------------------------------------------------|--------|
| **(a                    Development Stage Company)**                                                  |   |
|                                                                                                  |   |
| **Statements                    of Stockhoders'                    Equity**                           |   |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **From                    December 10, 1993 (date of inception) to June 30,                    2007** |   |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   | Deficit |   |   |   |   |   |   |   |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   | Accumulated |   |   |   |   |   |   |   |
|                                                                                                  |   | Preferred                    Stock (**) |   | Common                    Stock |   | Additional |   | During                    the |   |   |   |   |   |   |   |
|                                                                                                  |   | Number                    of |   | Number                    of |   | Paid-in |   | Development |   | Subscriptions |   | Deferred |   |   |   |
|                                                                                                  |   | Shares |   | Amount |   | Shares |   | Amount |   | Capital |   | Stage |   | Receivable |   | Compensation |   | Total |   |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                    at December 10, 1993 (date of inception)                                   |   |   | 0 |   | $ | - |   |   | 0 |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                    of common stock, restated for reverse                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| stock                    split                                                                        |   |   | - |   |   | - |   |   | 510,000 |   |   | 50,000 |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 50,000 |   |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Acquisition                    of public shell                                                        |   |   | - |   |   | - |   |   | 178,752 |   |   | - |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                    issuance of additional shares of stock                                         |   |   | - |   |   | - |   |   | 15,342,520 |   |   | 16,451 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | 16,451 |   |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                    stock sold                                                                  |   |   | - |   |   | - |   |   | 36,500 |   |   | 36,500 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | 36,500 |   |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                    loss                                                                           |   |   | - |   |   |  |   |   | - |   |   | - |   |   | - |   |   | (66,951 | ) |   |  |   |   | - |   |   | (66,951 | ) |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                    at June 30, 1994                                                           |   |   | - |   |   | - |   |   | 16,067,772 |   |   | 102,951 |   |   | - |   |   | (66,951 | ) |   | - |   |   | - |   |   | 36,000 |   |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                    stock sold                                                                  |   |   | - |   |   | - |   |   | 1,980,791 |   |   | 1,566,595 |   |   | - |   |   | - |   |   | (523,118 | ) |   | - |   |   | 1,043,477 |   |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                    stock issued in exchange for services                                       |   |   | - |   |   | - |   |   | 115,650 |   |   | 102,942 |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 102,942 |   |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                    stock issued with employment agreements                                     |   |   | - |   |   | - |   |   | 75,000 |   |   | 78,750 |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 78,750 |   |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                    stock issued for compensation                                               |   |   | - |   |   | - |   |   | 377,500 |   |   | 151,000 |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 151,000 |   |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock                    options granted                                                              |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 622,500 |   |   | - |   |   | - |   |   | (622,500 | ) |   | - |   |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Amortization                    of deferred compentsation                                             |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 114,375 |   |   | 114,375 |   |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Forgiveness                    of officers' compensation                                              |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 50,333 |   |   | - |   |   | - |   |   | - |   |   | 50,333 |   |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                    loss                                                                           |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (1,086,436 | ) |   | - |   |   | - |   |   | (1,086,436 | ) |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                    at June 30, 1995                                                           |   |   | - |   |   | - |   |   | 18,616,713 |   |   | 2,002,238 |   |   | 672,833 |   |   | (1,153,387 | ) |   | (523,118 | ) |   | (508,125 | ) |   | 490,441 |   |

----

*Table              of Contents*

| **IMAGING                      DIAGNOSTIC SYSTEMS, INC.**                                                 |   |
|-----------------------------------------------------------------------------------------------------------|--------|
| **(a                      Development Stage Company)**                                                    |   |
|                                                                                                      |   |
| **Statements                      of Stockhoders' Equity (Continued)**                                    |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **From                      December 10, 1993 (date of inception) to June 30,                      2007** |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   | Deficit |   |   |   |   |   |   |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   | Accumulated |   |   |   |   |   |   |   |
|                                                                                                      |   | Preferred                      Stock (**) |   | Common                      Stock |   | Additional |   | During                      the |   |   |   |   |   |   |   |
|                                                                                                      |   | Number                      of |   | Number                      of |   | Paid-in |   | Development |   | Subscriptions |   | Deferred |   |   |   |
|                                                                                                      |   | Shares |   | Amount |   | Shares |   | Amount |   | Capital |   | Stage |   | Receivable |   | Compensation |   | Total |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                      at June 30, 1995                                                             |   |   | - |   |   | - |   |   | 18,616,713 |   |   | 2,002,238 |   |   | 672,833 |   |   | (1,153,387 | ) |   | (523,118 | ) |   | (508,125 | ) |   | 490,441 |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred                      stock sold, including dividends                                            |   |   | 4,000 |   |   | 3,600,000 |   |   | - |   |   | - |   |   | 1,335,474 |   |   | (1,335,474 | ) |   | - |   |   | - |   |   | 3,600,000 |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                      stock sold                                                                    |   |   | - |   |   | - |   |   | 700,471 |   |   | 1,561,110 |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 1,561,110 |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cancellation                      of stock subscription                                                   |   |   | - |   |   | - |   |   | (410,500 | ) |   | (405,130 | ) |   | - |   |   | - |   |   | 405,130 |   |   | - |   |   | - |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                      stock issued in exchange for services                                         |   |   | - |   |   | - |   |   | 2,503,789 |   |   | 4,257,320 |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 4,257,320 |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                      stock issued with exercise of stock options                                   |   |   | - |   |   | - |   |   | 191,500 |   |   | 104,375 |   |   | - |   |   | - |   |   | (4,375 | ) |   | - |   |   | 100,000 |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                      stock issued with exercise of options                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| for                      compensation                                                                     |   |   | - |   |   | - |   |   | 996,400 |   |   | 567,164 |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 567,164 |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion                      of preferred stock to common stock                                        |   |   | (1,600 | ) |   | (1,440,000 | ) |   | 420,662 |   |   | 1,974,190 |   |   | (534,190 | ) |   | - |   |   | - |   |   | - |   |   | - |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                      stock issued as payment of preferred                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| stock                      dividends                                                                      |   |   | - |   |   | - |   |   | 4,754 |   |   | 14,629 |   |   | - |   |   | (14,629 | ) |   | - |   |   | - |   |   | - |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividends                      accrued on preferred stock not                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| yet                      converted                                                                        |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (33,216 | ) |   | - |   |   | - |   |   | (33,216 | ) |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Collection                      of stock subscriptions                                                    |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 103,679 |   |   | - |   |   | 103,679 |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Amortization                      of deferred compentsation                                               |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 232,500 |   |   | 232,500 |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Forgiveness                      of officers' compensation                                                |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 100,667 |   |   | - |   |   | - |   |   | - |   |   | 100,667 |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                      loss (restated)                                                                  |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (6,933,310 | ) |   | - |   |   | - |   |   | (6,933,310 | ) |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                      at June 30, 1996 (restated)                                                  |   |   | 2,400 |   |   | 2,160,000 |   |   | 23,023,789 |   |   | 10,075,896 |   |   | 1,574,784 |   |   | (9,470,016 | ) |   | (18,684 | ) |   | (275,625 | ) |   | 4,046,355 |   |
| See                      accompanying notes to the financial                      statements.             |

----

*Table              of Contents*

| **IMAGING                      DIAGNOSTIC SYSTEMS, INC.**                                                 |   |
|-----------------------------------------------------------------------------------------------------------|--------|
| **(a                      Development Stage Company)**                                                    |   |
|                                                                                                      |   |
| **Statements                      of Stockhoders' Equity (Continued)**                                    |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **From                      December 10, 1993 (date of inception) to June 30,                      2007** |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   | Deficit |   |   |   |   |   |   |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   | Accumulated |   |   |   |   |   |   |   |
|                                                                                                      |   | Preferred                      Stock (**) |   | Common                      Stock |   | Additional |   | During                      the |   |   |   |   |   |   |   |
|                                                                                                      |   | Number                      of |   | Number                      of |   | Paid-in |   | Development |   | Subscriptions |   | Deferred |   |   |   |
|                                                                                                      |   | Shares |   | Amount |   | Shares |   | Amount |   | Capital |   | Stage |   | Receivable |   | Compensation |   | Total |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                      at June 30, 1996 (restated)                                                  |   |   | 2,400 |   |   | 2,160,000 |   |   | 23,023,789 |   |   | 10,075,896 |   |   | 1,574,784 |   |   | (9,470,016 | ) |   | (18,684 | ) |   | (275,625 | ) |   | 4,046,355 |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred                      stock sold, including dividends                                            |   |   | 450 |   |   | 4,500,000 |   |   | - |   |   | - |   |   | 998,120 |   |   | (998,120 | ) |   | - |   |   | - |   |   | 4,500,000 |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion                      of preferred stock to common stock                                        |   |   | (2,400 | ) |   | (2,160,000 | ) |   | 1,061,202 |   |   | 2,961,284 |   |   | (801,284 | ) |   | - |   |   | - |   |   | - |   |   | - |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                      stock issued in exchange for services                                         |   |   | - |   |   | - |   |   | 234,200 |   |   | 650,129 |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 650,129 |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                      stock issued for compensation                                                 |   |   | - |   |   | - |   |   | 353,200 |   |   | 918,364 |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 918,364 |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                      stock issued with exercise of stock options                                   |   |   | - |   |   | - |   |   | 361,933 |   |   | 1,136,953 |   |   | - |   |   | - |   |   | (33,750 | ) |   | - |   |   | 1,103,203 |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                      stock issued to employee                                                      |   |   | - |   |   | - |   |   | (150,000 | ) |   | (52,500 | ) |   | - |   |   | - |   |   | - |   |   | - |   |   | (52,500 | ) |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                      stock issued as payment of preferred                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| stock                      dividends                                                                      |   |   | - |   |   | - |   |   | 20,760 |   |   | 49,603 |   |   | - |   |   | (16,387 | ) |   | - |   |   | - |   |   | 33,216 |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividends                      accrued on preferred stock not                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| yet                      converted                                                                        |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (168,288 | ) |   | - |   |   | - |   |   | (168,288 | ) |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock                      options granted                                                                |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 1,891,500 |   |   | - |   |   | - |   |   | (1,891,500 | ) |   | - |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Collection                      of stock subscriptions                                                    |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 16,875 |   |   | - |   |   | 16,875 |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Amortization                      of deferred compentsation                                               |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 788,000 |   |   | 788,000 |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                      loss (restated)                                                                  |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (7,646,119 | ) |   | - |   |   | - |   |   | (7,646,119 | ) |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                      at June 30, 1997 (restated)                                                  |   |   | 450 |   |   | 4,500,000 |   |   | 24,905,084 |   |   | 15,739,729 |   |   | 3,663,120 |   |   | (18,298,930 | ) |   | (35,559 | ) |   | (1,379,125 | ) |   | 4,189,235 |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See                      accompanying notes to the financial                      statements.             |

----

*Table                of Contents*

| **IMAGING                        DIAGNOSTIC SYSTEMS, INC.**                                                   |   |
|---------------------------------------------------------------------------------------------------------------|--------|
| **(a                        Development Stage Company)**                                                      |   |
|                                                                                                          |   |
| **Statements                        of Stockhoders' Equity (Continued)**                                      |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **From                        December 10, 1993 (date of inception) to June 30,                        2007** |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   | Deficit |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   | Accumulated |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   | Preferred                        Stock (**) |   | Common                        Stock |   | Additional |   | During                        the |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   | Number                        of |   | Number                        of |   | Paid-in |   | Development |   |   |   | Subscriptions |   | Deferred |   |   |   |
|                                                                                                          |   | Shares |   | Amount |   | Shares |   | Amount |   | Capital |   | Stage |   |   |   | Receivable |   | Compensation |   | Total |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                        at June 30, 1997 (restated)                                                    |   |   | 450 |   |   | 4,500,000 |   |   | 24,905,084 |   |   | 15,739,729 |   |   | 3,663,120 |   |   | (18,298,930 | ) |   |   |   |   | (35,559 | ) |   | (1,379,125 | ) |   | 4,189,235 |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred                        stock sold, including dividends                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and                        placement fees                                                                     |   |   | 501 |   |   | 5,010,000 |   |   | - |   |   | - |   |   | 1,290,515 |   |   | (1,741,015 | ) |   |   |   |   | - |   |   | - |   |   | 4,559,500 |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion                        of preferred stock to common stock                                          |   |   | (340 | ) |   | (3,400,000 | ) |   | 6,502,448 |   |   | 4,644,307 |   |   | (1,210,414 | ) |   | - |   |   |   |   |   | - |   |   | - |   |   | 33,893 |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock sold                                                                      |   |   | - |   |   | - |   |   | 500,000 |   |   | 200,000 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 200,000 |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued in exchange for services                                           |   |   | - |   |   | - |   |   | 956,000 |   |   | 1,419,130 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 1,419,130 |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued for compensation                                                   |   |   | - |   |   | - |   |   | 64,300 |   |   | 54,408 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 54,408 |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued with exercise of stock options                                     |   |   | - |   |   | - |   |   | 65,712 |   |   | 22,999 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 22,999 |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued in exchange for                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| licensing                        agreement                                                                    |   |   | - |   |   | - |   |   | 3,500,000 |   |   | 1,890,000 |   |   | (3,199,000 | ) |   | - |   |   |   |   |   | - |   |   | - |   |   | (1,309,000 | ) |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividends                        accrued on preferred stock not                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| yet                        converted                                                                          |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (315,000 | ) |   |   |   |   | - |   |   | - |   |   | (315,000 | ) |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock                        options granted                                                                  |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 1,340,625 |   |   | - |   |   |   |   |   | - |   |   | (1,340,625 | ) |   | - |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Collection                        of stock subscriptions                                                      |   |   | - |   |   | - |   |   | - |   |   | 12,500 |   |   | - |   |   | - |   |   |   |   |   | 21,250 |   |   | - |   |   | 33,750 |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Amortization                        of deferred compentsation                                                 |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   |   |   |   | - |   |   | 1,418,938 |   |   | 1,418,938 |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                        loss (restated)                                                                    |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (6,715,732 | ) |   |   |   |   | - |   |   | - |   |   | (6,715,732 | ) |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                        at June 30, 1998 (restated)                                                    |   |   | 611 |   |   | 6,110,000 |   |   | 36,493,544 |   |   | 23,983,073 |   |   | 1,884,846 |   |   | (27,070,677 | ) |   |   |   |   | (14,309 | ) |   | (1,300,812 | ) |   | 3,592,121 |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See                        accompanying notes to the financial                        statements.             |

----

*Table                of Contents*

| **IMAGING                        DIAGNOSTIC SYSTEMS, INC.**                                                   |   |                                        |   |
|---------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|
| **(a                        Development Stage Company)**                                                      |   |                                        |   |
|                                                                                                          |   |                                        |   |
| **Statements                        of Stockhoders' Equity (Continued)**                                      |   |                                        |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **From                        December 10, 1993 (date of inception) to June 30,                        2007** |   |                                        |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   | Deficit |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   | Accumulated |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   | Preferred                        Stock (**) |   | Common                        Stock |   | Additional |   | During                        the |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   | Number                        of            |   | Number                        of |   | Paid-in |   | Development |   |   |   | Subscriptions |   | Deferred |   |   |   |   |   |
|                                                                                                          |   | Shares                                      |   | Amount |   | Shares |   | Amount |   | Capital |   | Stage |   |   |   | Receivable |   | Compensation |   | Total |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                        at June 30, 1998 (restated)                                                    |   |                                        | 611    |   |   | 6,110,000 |   |   | 36,493,544 |   |   | 23,983,073 |   |   | 1,884,846 |   |   | (27,070,677 | ) |   |   |   |   | (14,309 | ) |   | (1,300,812 | ) |   | 3,592,121 |   |   | * |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred                        stock issued - satisfaction of debt                                          |   |                                        | 138    |   |   | 1,380,000 |   |   | - |   |   | - |   |   | (161,348 | ) |   | (492,857 | ) |   |   |   |   | - |   |   | - |   |   | 725,795 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion                        of preferred stock to common stock                                          |   |                                        | (153   | ) |   | (1,530,000 | ) |   | 4,865,034 |   |   | 1,972,296 |   |   | (442,296 | ) |   | - |   |   |   |   |   | - |   |   | - |   |   | - |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock sold                                                                      |   |                                        | -      |   |   | - |   |   | 200,000 |   |   | 60,000 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 60,000 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued - exchange for services                                            |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and                        compensation                                                                       |   |                                        | -      |   |   | - |   |   | 719,442 |   |   | 301,210 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 301,210 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued - repayment of debt                                                |   |                                        | -      |   |   | - |   |   | 2,974,043 |   |   | 1,196,992 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 1,196,992 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued in exchange for loan fees                                          |   |                                        | -      |   |   | - |   |   | 480,000 |   |   | 292,694 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 292,694 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued with exercise of stock options                                     |   |                                        | -      |   |   | - |   |   | 65,612 |   |   | 124,464 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 124,464 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued in satisfaction of                                                 |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| licensing                        agreement payable                                                            |   |                                        | -      |   |   | - |   |   | 3,500,000 |   |   | 1,890,000 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 1,890,000 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Redeemable                        preferred stock sold, deemed dividend                                       |   |                                        | -      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (127,117 | ) |   |   |   |   | - |   |   | - |   |   | (127,117 | ) |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividends                        accrued-preferred stock not yet converted                                    |   |                                        | -      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (329,176 | ) |   |   |   |   | - |   |   | - |   |   | (329,176 | ) |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock                        options granted                                                                  |   |                                        | -      |   |   | - |   |   | - |   |   | - |   |   | 209,625 |   |   | - |   |   |   |   |   | - |   |   | (209,625 | ) |   | - |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Amortization                        of deferred compentsation                                                 |   |                                        | -      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   |   |   |   | - |   |   | 1,510,437 |   |   | 1,510,437 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                        loss (restated)                                                                    |   |                                        | -      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (6,543,292 | ) |   |   |   |   | - |   |   | - |   |   | (6,543,292 | ) |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                        at June 30, 1999 (restated)                                                    |   |                                        | 596    |   |   | 5,960,000 |   |   | 49,297,675 |   |   | 29,820,729 |   |   | 1,490,827 |   |   | (34,563,119 | ) |   |   |   |   | (14,309 | ) |   | - |   |   | 2,694,128 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See                        accompanying notes to the financial statements.                                    |   |                                        |   |

----

*Table                  of Contents*

| **IMAGING                        DIAGNOSTIC SYSTEMS, INC.**                                                   |   |                                        |   |
|---------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|
| **(a                        Development Stage Company)**                                                      |   |                                        |   |
|                                                                                                          |   |                                        |   |
| **Statements                        of Stockhoders' Equity (Continued)**                                      |   |                                        |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **From                        December 10, 1993 (date of inception) to June 30,                        2007** |   |                                        |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   | Deficit |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   | Accumulated |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   | Preferred                        Stock (**) |   | Common                        Stock |   | Additional |   | During                        the |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   | Number                        of            |   | Number                        of |   | Paid-in |   | Development |   |   |   | Subscriptions |   | Deferred |   |   |   |   |   |
|                                                                                                          |   | Shares                                      |   | Amount |   | Shares |   | Amount |   | Capital |   | Stage |   |   |   | Receivable |   | Compensation |   | Total |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                        at June 30, 1999 (restated)                                                    |   |                                        | 596    |   |   | 5,960,000 |   |   | 49,297,675 |   |   | 29,820,729 |   |   | 1,490,827 |   |   | (34,563,119 | ) |   |   |   |   | (14,309 | ) |   | - |   |   | 2,694,128 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion                        of convertible debentures                                                   |   |                                        | -      |   |   | - |   |   | 4,060,398 |   |   | 3,958,223 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 3,958,223 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion                        of preferred stock to common, net                                           |   |                                        | (596   | ) |   | (5,960,000 | ) |   | 45,415,734 |   |   | 7,313,334 |   |   | (648,885 | ) |   | - |   |   |   |   |   | - |   |   | - |   |   | 704,449 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock sold                                                                      |   |                                        | -      |   |   | - |   |   | 100,000 |   |   | 157,000 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 157,000 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued - exchange for services                                            |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and                        compensation, net of cancelled shares                                              |   |                                        | -      |   |   | - |   |   | 137,000 |   |   | (18,675 | ) |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | (18,675 | ) |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued - repayment of debt                                                |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and                        accrued interest                                                                   |   |                                        | -      |   |   | - |   |   | 5,061,294 |   |   | 1,067,665 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 1,067,665 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued in exchange for                                                    |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| interest                        and loan fees                                                                 |   |                                        | -      |   |   | - |   |   | 7,297 |   |   | 2,408 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 2,408 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued with exercise of stock options                                     |   |                                        | -      |   |   | - |   |   | 1,281,628 |   |   | 395,810 |   |   | 157,988 |   |   | - |   |   |   |   |   | (13,599 | ) |   | - |   |   | 540,199 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued with exercise of warrants                                          |   |                                        | -      |   |   | - |   |   | 150,652 |   |   | 121,563 |   |   | 97,850 |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 219,413 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                        of note payable with warrants at a discount                                   |   |                                        | -      |   |   | - |   |   | - |   |   | - |   |   | 500,000 |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 500,000 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividends                        accrued-preferred stock not yet converted                                    |   |                                        | -      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (145,950 | ) |   |   |   |   | - |   |   | - |   |   | (145,950 | ) |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                        loss (restated)                                                                    |   |                                        | -      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (6,531,662 | ) |   |   |   |   | - |   |   | - |   |   | (6,531,662 | ) |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                        at June 30, 2000 (restated)                                                    |   |                                        | -      |   |   | - |   |   | 105,511,678 |   |   | 42,818,057 |   |   | 1,597,780 |   |   | (41,240,731 | ) |   |   |   |   | (27,908 | ) |   | - |   |   | 3,147,198 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See                        accompanying notes to the financial statements.                                    |   |                                        |   |

----

*Table                of Contents*

| **IMAGING                        DIAGNOSTIC SYSTEMS, INC.**                                                   |   |                                        |   |
|---------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|
| **(a                        Development Stage Company)**                                                      |   |                                        |   |
|                                                                                                          |   |                                        |   |
| **Statements                        of Stockhoders' Equity (Continued)**                                      |   |                                        |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **From                        December 10, 1993 (date of inception) to June 30,                        2007** |   |                                        |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   | Deficit |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   | Accumulated |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   | Preferred                        Stock (**) |   | Common                        Stock |   | Additional |   | During                        the |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   | Number                        of            |   | Number                        of |   | Paid-in |   | Development |   |   |   | Subscriptions |   | Deferred |   |   |   |   |   |
|                                                                                                          |   | Shares                                      |   | Amount |   | Shares |   | Amount |   | Capital |   | Stage |   |   |   | Receivable |   | Compensation |   | Total |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                        at June 30, 2000 (restated)                                                    |   |                                        | -      |   |   | - |   |   | 105,511,678 |   |   | 42,818,057 |   |   | 1,597,780 |   |   | (41,240,731 | ) |   |   |   |   | (27,908 | ) |   | - |   |   | 3,147,198 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred                        stock sold, including dividends                                              |   |                                        | 500    |   |   | 5,000,000 |   |   | - |   |   | - |   |   | 708,130 |   |   | (708,130 | ) |   |   |   |   | - |   |   | - |   |   | 5,000,000 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion                        of preferred stock to common, net                                           |   |                                        | (500   | ) |   | (5,000,000 | ) |   | 5,664,067 |   |   | 5,580,531 |   |   | (708,130 | ) |   | - |   |   |   |   |   | - |   |   | - |   |   | (127,599 | ) |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued - line of equity transactions                                      |   |                                        | -      |   |   | - |   |   | 3,407,613 |   |   | 3,143,666 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 3,143,666 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued - exchange for services                                            |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and                        compensation                                                                       |   |                                        | -      |   |   | - |   |   | 153,500 |   |   | 227,855 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 227,855 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued - repayment of debt                                                |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and                        accrued interest                                                                   |   |                                        | -      |   |   | - |   |   | 810,000 |   |   | 1,393,200 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 1,393,200 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued with exercise of stock options                                     |   |                                        | -      |   |   | - |   |   | 3,781,614 |   |   | 1,868,585 |   |   | - |   |   | - |   |   |   |   |   | 13,599 |   |   | - |   |   | 1,882,184 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued with exercise of warrants                                          |   |                                        | -      |   |   | - |   |   | 99,375 |   |   | 119,887 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 119,887 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividends                        accrued-preferred stock                                                      |   |                                        | -      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (422,401 | ) |   |   |   |   | - |   |   | - |   |   | (422,401 | ) |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                        loss (restated)                                                                    |   |                                        | -      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (9,532,450 | ) |   |   |   |   | - |   |   | - |   |   | (9,532,450 | ) |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                        at June 30, 2001 (restated)                                                    |   |                                        | -      |   |   | - |   |   | 119,427,847 |   |   | 55,151,781 |   |   | 1,597,780 |   |   | (51,903,712 | ) |   |   |   |   | (14,309 | ) |   | - |   |   | 4,831,540 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See                        accompanying notes to the financial statements.                                    |   |                                        |   |

----

*Table                  of Contents*

| **IMAGING                        DIAGNOSTIC SYSTEMS, INC.**                                                   |   |                                        |   |
|---------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|
| **(a                        Development Stage Company)**                                                      |   |                                        |   |
|                                                                                                          |   |                                        |   |
| **Statements                        of Stockhoders' Equity (Continued)**                                      |   |                                        |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **From                        December 10, 1993 (date of inception) to June 30,                        2007** |   |                                        |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   | Deficit |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   | Accumulated |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   | Preferred                        Stock (**) |   | Common                        Stock |   | Additional |   | During                        the |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   | Number                        of            |   | Number                        of |   | Paid-in |   | Development |   |   |   | Subscriptions |   | Deferred |   |   |   |   |   |
|                                                                                                          |   | Shares                                      |   | Amount |   | Shares |   | Amount |   | Capital |   | Stage |   |   |   | Receivable |   | Compensation |   | Total |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                        at June 30, 2001 (restated)                                                    |   |                                        | -      |   |   | - |   |   | 119,427,847 |   |   | 55,151,781 |   |   | 1,597,780 |   |   | (51,903,712 | ) |   |   |   |   | (14,309 | ) |   | - |   |   | 4,831,540 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued - line of equity transactions                                      |   |                                        | -      |   |   | - |   |   | 11,607,866 |   |   | 6,213,805 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 6,213,805 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued - exchange for services                                            |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and                        compensation                                                                       |   |                                        | -      |   |   | - |   |   | 560,000 |   |   | 294,350 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | (117,600 | ) |   | 176,750 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                        loss (restated)                                                                    |   |                                        | -      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (7,997,652 | ) |   |   |   |   | - |   |   | - |   |   | (7,997,652 | ) |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                        at June 30, 2002 (restated)                                                    |   |                                        | -      |   |   | - |   |   | 131,595,713 |   |   | 61,659,936 |   |   | 1,597,780 |   |   | (59,901,364 | ) |   |   |   |   | (14,309 | ) |   | (117,600 | ) |   | 3,224,443 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued - line of equity transactions                                      |   |                                        | -      |   |   | - |   |   | 29,390,708 |   |   | 8,737,772 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 8,737,772 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued - exchange for services                                            |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and                        compensation                                                                       |   |                                        | -      |   |   | - |   |   | 2,007,618 |   |   | 970,653 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | 117,600 |   |   | 1,088,253 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Payment                        of subscriptions receivable                                                    |   |                                        | -      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   |   |   |   | 14,309 |   |   | - |   |   | 14,309 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                        loss (restated)                                                                    |   |                                        | -      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (8,358,774 | ) |   |   |   |   | - |   |   | - |   |   | (8,358,774 | ) |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                        at June 30, 2003 (restated)                                                    |   |                                        | -      |   |   | - |   |   | 162,994,039 |   |   | 71,368,361 |   |   | 1,597,780 |   |   | (68,260,138 | ) |   |   |   |   | - |   |   | - |   |   | 4,706,003 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See                        accompanying notes to the financial statements.                                    |   |                                        |   |

----

*Table                  of Contents*

| **IMAGING                        DIAGNOSTIC SYSTEMS, INC.**                                                   |   |                                        |   |
|---------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|
| **(a                        Development Stage Company)**                                                      |   |                                        |   |
|                                                                                                          |   |                                        |   |
| **Statements                        of Stockhoders' Equity (Continued)**                                      |   |                                        |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **From                        December 10, 1993 (date of inception) to June 30,                        2007** |   |                                        |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   | Deficit |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   | Accumulated |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   | Preferred                        Stock (**) |   | Common                        Stock |   | Additional |   | During                        the |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   | Number                        of            |   | Number                        of |   | Paid-in |   | Development |   |   |   | Subscriptions |   | Deferred |   |   |   |   |   |
|                                                                                                          |   | Shares                                      |   | Amount |   | Shares |   | Amount |   | Capital |   | Stage |   |   |   | Receivable |   | Compensation |   | Total |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                        at June 30, 2003 (restated)                                                    |   |                                        | -      |   |   | - |   |   | 162,994,039 |   |   | 71,368,361 |   |   | 1,597,780 |   |   | (68,260,138 | ) |   |   |   |   | - |   |   | - |   |   | 4,706,003 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued - line of equity transactions                                      |   |                                        | -      |   |   | - |   |   | 8,630,819 |   |   | 6,541,700 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 6,541,700 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued - exchange for services                                            |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and                        compensation                                                                       |   |                                        | -      |   |   | - |   |   | 734,785 |   |   | 832,950 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 832,950 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued - exercise of stock options                                        |   |                                        | -      |   |   | - |   |   | 967,769 |   |   | 492,701 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 492,701 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                        loss                                                                               |   |                                        | -      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (8,402,959 | ) |   |   |   |   | - |   |   | - |   |   | (8,402,959 | ) |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                        at June 30, 2004 (Restated)                                                    |   |                                        | -      |   |   | - |   |   | 173,327,412 |   |   | 79,235,712 |   |   | 1,597,780 |   |   | (76,663,097 | ) |   |   |   |   | - |   |   | - |   |   | 4,170,395 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued - line of equity transactions                                      |   |                                        | -      |   |   | - |   |   | 26,274,893 |   |   | 7,797,807 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 7,797,807 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued - exchange for services                                            |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and                        compensation                                                                       |   |                                        | -      |   |   | - |   |   | 285,000 |   |   | 113,850 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 113,850 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued - exercise of stock options                                        |   |                                        | -      |   |   | - |   |   | 13,264 |   |   | 3,404 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 3,404 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                        loss                                                                               |   |                                        | -      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (7,312,918 | ) |   |   |   |   | - |   |   | - |   |   | (7,312,918 | ) |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                        at June 30, 2005                                                               |   |                                        | -      |   | $ | - |   |   | 199,900,569 |   | $ | 87,150,773 |   | $ | 1,597,780 |   | $ | (83,976,015 | ) |   |   |   | $ | - |   | $ | - |   |   | 4,772,538 |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                               |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See                        accompanying notes to the financial statements.                                    |   |                                        |   |

----

*Table                  of Contents*

| **IMAGING                        DIAGNOSTIC SYSTEMS, INC.**                                                   |   |
|---------------------------------------------------------------------------------------------------------------|--------|
| **(a                        Development Stage Company)**                                                      |   |
|                                                                                                          |   |
| **Statements                        of Stockhoders' Equity (Continued)**                                      |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **From                        December 10, 1993 (date of inception) to June 30,                        2007** |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   | Deficit |   |   |   |   |   |   |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   | Accumulated |   |   |   |   |   |   |   |
|                                                                                                          |   | Preferred                        Stock (**) |   | Common                        Stock |   | Additional |   | During                        the |   |   |   |   |   |   |   |
|                                                                                                          |   | Number                        of |   | Number                        of |   | Paid-in |   | Development |   | Subscriptions |   | Deferred |   |   |   |
|                                                                                                          |   | Shares |   | Amount |   | Shares |   | Amount |   | Capital |   | Stage |   | Receivable |   | Compensation |   | Total |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                        at June 30, 2005                                                               |   |   | - |   |   | - |   |   | 199,900,569 |   |   | 87,150,773 |   |   | 1,597,780 |   |   | (83,976,015 | ) |   | - |   |   | - |   |   | 4,772,538 |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                        stock issued - line of equity transactions                                      |   |   | - |   |   | - |   |   | 47,776,064 |   |   | 7,409,543 |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 7,409,543 |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fair                        Value of Stock Option Expenses                                                    |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 632,557 |   |   | - |   |   | - |   |   | - |   |   | 632,557 |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                        loss                                                                               |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (7,162,722 | ) |   | - |   |   | - |   |   | (7,162,722 | ) |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                        at June 30, 2006                                                               |   |   | - |   |   | - |   |   | 247,676,633 |   |   | 94,560,316 |   |   | 2,230,337 |   |   | (91,138,737 | ) |   | - |   |   | - |   |   | 5,651,916 |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                        Common                        stock issued - line of equity transactions          |   |   | - |   |   |  - |   |   | 63,861,405 |   |   | 4,560,415 |   |   |   - |   |   |  - |   |   |    - |   |   |  - |   |   | 4,560,415 |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                        Fair                        Value of Stock Option Expenses                        |   |   |  - |   |   |  - |   |   | - |   |   | - |   |   | 431,313 |   |   |  - |   |   |  - |   |   |  - |   |   | 431,313  |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                        Net                        loss                                                   |   |   |  - |   |   |  - |   |   | - |   |   | - |   |   |  - |   |   | (7,202,322 | ) |   | - |   |   |  - |   |   | (7,202,322 | )  |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                        Balance                        at June 30, 2007                                   |   |   | -  |   |   |  - |   |   | 311,538,038  |   |   | 99,120,731  |   |   | 2,661,650  |   |   | (98,341,059)  |   |   | - |   |   |  - |   |   | 3,441,322  |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **                        See Note 16 for a detailed breakdown by Series.                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See                        accompanying notes to the financial                        statements.             |

----

*Table                    of Contents*

| **IMAGING                          DIAGNOSTIC SYSTEMS, INC.**                                                    | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|
| **(A                          Development Stage Company)**                                                       | ** ** |
| ** **                                                                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Statement                          of Cash Flows**                                                             | ** ** |
| ** **                                                                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **From                          Inception** | ** ** |
| ** **                                                                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **(December                          10,** | ** ** |
| ** **                                                                                                       | ** ** | **Year                          Ended** | ** ** | ** ** | **Year                          Ended** | ** ** | ** ** | **Year                          Ended** | ** ** | ** ** | **1993)                          to** | ** ** |
| ** **                                                                                                       | ** ** | **June                          30, 2007** | ** ** | ** ** | **June                          30, 2006** | ** ** | ** ** | **June                          30, 2005** | ** ** | ** ** | **June                          30, 2007** |   |
|                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |
| Net                          loss                                                                                |       | $ | (7,202,322 | ) |   | $ | (7,162,722 | ) |   | $ | (7,312,918 | ) |   | $ | (91,493,299 | ) |
| Adjustments                          to reconcile net loss to net cash                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   used                          for operating activities:                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Depreciation                          and** **amortization                          |       |   | 176,158 |   |   |   | 183,450 |   |   |   | 187,539 |   |   |   | 2,780,716 |   |
|     (Gain)                          Loss on sale of fixed assets                             |       |   | - |   |   |   | 2,439 |   |   |   | - |   |   |   | (3,146 | ) |
|     Extinguishment                          of debt                                          |       |   | - |   |   |   | (21,500 | ) |   |   | (409,962 | ) |   |   | (431,462 | ) |
|     Inventory                          valuation adjustment                                  |       |   | 493,596 |   |   |   | 184,219 |   |   |   | 499,194 |   |   |   | 4,412,010 |   |
|     Amoritization                          of deferred compensation                          |       |   | - |   |   |   | - |   |   |   | - |   |   |   | 4,064,250 |   |
|     Noncash                          interest, compensation and consulting services          |       |   | 367,698 |   |   |   | 565,373 |   |   |   | 711,740 |   |   |   | 18,939,569 |   |
|     Fair                          Value of Stock Option Expenses                             |       |   | 431,313 |   |   |   | 632,557 |   |   |   | - |   |   |   | 1,063,870 |   |
|     (Increase)                          decrease in accounts and                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         loans                          receivable - employees, net       |       |   | 332,267 |   |   |   | (266,590 | ) |   |   | (249,616 | ) |   |   | (252,120 | ) |
|      Increase                          (decrease) in allowance for                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         doubful                          account                         |       |   | (10,033 | ) |   |   | 40,000 |   |   |   | - |   |   |   | 29,967 |   |
|     (Increase)                          decrease in inventories, net                         |       |   | (85,942 | ) |   |   | (55,625 | ) |   |   | (161,828 | ) |   |   | (2,837,997 | ) |
|     (Increase)                          decrease in prepaid expenses                         |       |   | 6,062 |   |   |   | (8,659 | ) |   |   | 30,392 |   |   |   | (36,784 | ) |
|     (Increase)                          decrease in other assets                             |       |   | - |   |   |   | - |   |   |   | - |   |   |   | (306,618 | ) |
|     Increase                          (decrease) in accounts payable and                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         accrued                          expenses                        |       |   | 26,997 |   |   |   | (224,974 | ) |   |   | (257,505 | ) |   |   | 751,425 |   |
|     Increase                          (decrease) in other current liabilities                |       |   | 48,114 |   |   |   | 10,000 |   |   |   | (10,000 | ) |   |   | 88,114 |   |
|                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                   Total adjustments                      |       |   | 1,786,230 |   |   |   | 1,040,690 |   |   |   | 339,954 |   |   |   | 28,261,794 |   |
|                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                   Net cash used for operating activities |       |   | (5,416,092 | ) |   |   | (6,122,032 | ) |   |   | (6,972,964 | ) |   |   | (63,231,505 | ) |
|                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                          flows from investing activities:                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Proceeds                          from sale of property & equipment            |       |   | - |   |   |   | 104 |   |   |   | - |   |   |   | 29,961 |   |
|      Prototype                          equipment                                       |       |   | - |   |   |   | - |   |   |   | - |   |   |   | (2,799,031 | ) |
|      Capital                          expenditures                                      |       |   | (16,500 | ) |   |   | (20,079 | ) |   |   | (23,641 | ) |   |   | (4,466,720 | ) |
|                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                   Net cash used for investing activities |       |   | (16,500 | ) |   |   | (19,975 | ) |   |   | (23,641 | ) |   |   | (7,235,790 | ) |
|                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                          flows from financing activities:                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Repayment                          of capital lease obligation                     |       |   | - |   |   |   | - |   |   |   | - |   |   |   | (50,289 | ) |
|      Proceeds                          from convertible debenture                       |       |   | - |   |   |   | - |   |   |   | - |   |   |   | 3,240,000 |   |
|      Proceeds                          from (repayments) loan payable, net              |       |   | 250,000 |   |   |   | - |   |   |   | - |   |   |   | 2,845,029 |   |
|      Proceeds                          from issuance of preferred stock                 |       |   | - |   |   |   | - |   |   |   | - |   |   |   | 18,039,500 |   |
|      Proceeds                          from exercise of stock options                   |       |   | - |   |   |   | - |   |   |   | 3,404 |   |   |   | 903,989 |   |
|      Net                          proceeds from issuance of common stock                |       |   | 4,192,717 |   |   |   | 6,844,171 |   |   |   | 7,204,370 |   |   |   | 45,966,878 |   |
|                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                  Net cash provided by financing activities    |       |   | 4,442,717 |   |   |   | 6,844,171 |   |   |   | 7,207,774 |   |   |   | 70,945,107 |   |
|                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                          increase (decrease) in cash and cash equivalents                                    |       |   | (989,875 | ) |   |   | 702,164 |   |   |   | 211,169 |   |   |   | 477,812 |   |
|                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                          and cash equivalents at beginning of period                                        |       |   | 1,467,687 |   |   |   | 765,523 |   |   |   | 554,354 |   |   |   | - |   |
|                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                          and cash equivalents at end of period                                              |       | $ | 477,812 |   |   | $ | 1,467,687 |   |   | $ | 765,523 |   |   | $ | 477,812 |   |
|                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See                          accompanying notes to the financial statements.                                     |       |
|                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

*Table                    of Contents*

| **IMAGING                          DIAGNOSTIC SYSTEMS, INC.**                                                                  | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|
| **(A                          Development Stage Company)**                                                                     | ** ** |
| ** **                                                                                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Statement                          of Cash Flows (Continued)**                                                               | ** ** |
| ** **                                                                                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **From                          Inception** | ** ** |
| ** **                                                                                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **(December                          10,** | ** ** |
| ** **                                                                                                                     | ** ** | **Year                          Ended** | ** ** | ** ** | **Year                          Ended** | ** ** | ** ** | **Year                          Ended** | ** ** | ** ** | **1993)                          to** | ** ** |
| ** **                                                                                                                     | ** ** | **June                          30, 2007** | ** ** | ** ** | **June                          30, 2006** | ** ** | ** ** | **June                          30, 2005** | ** ** | ** ** | **June                          30, 2007** |   |
| Supplemental                          disclosures of cash                                                                      |       |   |   |   |   |   |   |   |   |   |   |   |
|   flow                          information:                                                                         |       |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |
|     Cash                          paid for interest                                                        |       | $ | - |   |   | $ | - |   |   | $ | 78 |   |   | $ | 215,962 |   |
|                                                                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Supplemental                          disclosures of noncash                                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   investing                          and financing activities:                                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Issuance                          of                          common stock and options                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|       in                          exchange for services                                          |       | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 6,306,350 |   |
|                                                                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Issuance                          of                          common stock as loan fees in             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|       connection                          with                          loans to the Company     |       | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 293,694 |   |
|                                                                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Issuance                          of                          common stock as satisfaction of          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|       loans                          payable and accrued interest                                |       | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 3,398,965 |   |
|                                                                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Issuance                          of                          common stock as satisfaction of          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|       certain                          accounts payable                                          |       | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 257,892 |   |
|                                                                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Issuance                          of                          common stock in                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|       exchange                          for                          property and equipment      |       | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 89,650 |   |
|                                                                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Issuance                          of                          common stock and other current liability |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|       in                          exchange for patent liceensing agreement                       |       | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 581,000 |   |
|                                                                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Issuance                          of                          common stock for                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|       compensation                                                                               |       | $ | - |   |   | $ | - |   |   | $ | 113,850 |   |   | $ | 2,691,788 |   |
|                                                                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Issuance                          of                          common stock through                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|       exercise                          of incentive stock options                               |       | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 3,117,702 |   |
|                                                                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Issuance                          of                          common stock as                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|       payment                          for preferred stock dividends                             |       | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 507,645 |   |
|                                                                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Acquisition                          of                          property and equipment                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|       through                          the issuance of a capital                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|       lease                          payable                                                     |       | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 50,289 |   |
|                                                                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See                          accompanying notes to the financial statements.                                                   |       |

----

*Table                    of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements**

**(1)           BACKGROUND**

**(2)           SUMMARY      OF SIGNIFICANT ACCOUNTING POLICIES**

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(2)           SUMMARY      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(2)           SUMMARY      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

|   | Property                and equipment are stated at cost, less accumulated depreciation and                amortization.  Depreciation and amortization are computed using                straight-line methods over the estimated useful lives of the related                assets.  Expenditures for renewals and betterments which                increase the estimated useful life or capacity of the asset are                capitalized; expenditures for repairs and maintenance are expensed                when                incurred. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In                1998, the Company adopted SFAS No. 128, (“Earnings Per Share”), which                requires the reporting of both basic and diluted earnings per                share.  Basic net loss per share is determined by dividing loss                available to common shareholders by the weighted average number of                common                shares outstanding for the period.  Diluted loss per share                reflects the potential dilution that could occur if options or other                contracts to issue common stock were exercised or converted into                common                stock, as long as the effect of their inclusion is not                anti-dilutive. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(2)           SUMMARY      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(2)           SUMMARY      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

|                                                                     |       |                             |       | ** ** | **From                Inception** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------------|------------|------------|-----------------------------------|------------|
| ** **                                                               | ** ** | ** **                       | ** ** | ** ** | **(December                10,**  | ** ** |
| ** **                                                               | ** ** | **Year                Ended**    | ** ** | ** ** | **1993)                to**       | ** ** |
| ** **                                                               | ** ** | **June                30, 2005** | ** ** | ** ** | **June                30, 2005**  |       |
|                                                                     |       |                             |       |       | (Restated)                        |       |
| Net                loss to common shareholders,                          |       |                             |       |       |                              |       |
|    as                reported                             |       | $                                | (7,312,918 | )          |                              | $          | (83,976,015 | ) |
|                                                                     |       |                             |       |       |                              |       |   |   |
| Less:                stock-based employee compensation                   |       |                             |       |       |                              |       |   |   |
|    determined                under the fair value method, |       |                             |       |       |                              |       |   |   |
|    net                of income tax effect                |       |                             | 620,907    |       |                              |       | 5,537,149 |   |
|                                                                     |       |                             |       |       |                              |       |   |   |
| Net                loss to common shareholders,                          |       |                             |       |       |                              |       |   |   |
|    pro                forma                               |       | $                                | (7,933,825 | )          |                              | $          | (89,513,164 | ) |
|                                                                     |       |                             |       |       |                              |       |   |   |
| Basic                and diluted loss per share -                        |       |                             |       |       |                              |       |   |   |
|    As                reported                             |       | $                                | (.04       | )          |                              | $          | (1.02 | ) |
|                                                                     |       |                             |       |       |                              |       |   |   |
|    Pro                forma                               |       | $                                | (.04       | )          |                              | $          | (1.09 | ) |

|                                   | **Year                Ended**    | **Year                Ended**    | **Year                Ended**    |
|----------------------------------------|----------------------------------|----------------------------------|----------------------------------|
| ** **                             | **June                30, 2007** | **June                30, 2006** | **June                30, 2005** |
| Volatility                             | 72.34%                           | 71.11%                           | 66.16%                           |
| Risk                Free Interest Rate | 5%                               | 4%                               | 4%                               |
| Expected                Term           | 8                yrs             | 8                yrs             | 10                yrs            |

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(2)           SUMMARY      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(2)           SUMMARY      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

|   | · | A                significant adverse change in legal factors or in the business                climate                                                   |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | · | An                adverse action or assessment by a regulator                                                                                            |
|   | · | Unanticipated                competition                                                                                                                 |
|   | · | Loss                of key personnel                                                                                                                     |
|   | · | An                expectation that all or a significant portion of a reporting unit                will be                sold or otherwise disposed of. |

|   | The                Company established a warranty reserve effective for the fiscal year                ending June 30, 2005.  The table below reflects the Warranty                Reserve established for the last three fiscal years.  Although                the Company tests its product in accordance with its quality programs                and                processes, its warranty obligation is affected by product failure                rates                and service delivery costs incurred in correcting a product failure.                Should actual product failure rates or service costs differ from                the                Company’s estimates, which are based on limited historical data, where                applicable, revisions to the estimated warranty liability would be                required. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                            | **Year                Ended**    | **Year                Ended**    | **Year                Ended**    |
|---------------------------------|----------------------------------|----------------------------------|----------------------------------|
| ** **                      | **June                30, 2007** | **June                30, 2006** | **June                30, 2005** |
| Warranty                Reserve | $14,952                          | $24,799                          | $14,400                          |

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(2)           SUMMARY      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

*Accounting for        Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109*
*Accounting for Income Taxes*

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(2)           SUMMARY      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

**(3)           OTHER      INCOME**

**(4)           MERGER**

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(5)           GOING      CONCERN**

**(6)           INVENTORIES**

|                                                                                                  |   | **June                30,** |      |
|-------------------------------------------------------------------------------------------------------|--------|-----------------------------|-----------|
|                                                                                                  |   | **2007**                    |      |   | **2006** |   |
| Raw                materials consisting of purchased parts, components and                supplies    |   | $                           | 848,254   |   |   | $ | 845,516 |   |
| Work-in                process including units undergoing final inspection and                testing |   |                        | 44,058    |   |   |   | 139,462 |   |
| Finished                goods                                                                         |   |                        | 878,844   |   |   |   | 1,014,926 |   |
|                                                                                                  |   |                        |      |   |   |   |   |   |
| Sub-Total                Inventories                                                                  |   | $                           | 1,771,156 |   |   | $ | 1,999,904 |   |
|                                                                                                  |   |                        |      |   |   |   |   |   |
|      Less                Inventory Reserve                                   |   |                        | (408,000  | ) |   |   | (108,000 | ) |
|                                                                                                  |   |                        |      |   |   |   |   |   |
| Total                Inventory - Net                                                                  |   | $                           | 1,363,156 |   |   | $ | 1,891,904 |   |

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(7)           PROPERTY      AND EQUIPMENT**

|                                                            |   | **June                30,** |       |
|-----------------------------------------------------------------|--------|-----------------------------|------------|
|                                                            |   | **2007**                    |       |   | **2006** |   |
| Furniture                and fixtures                           |   | $                           | 262,264    |   |   | $ | 262,264 |   |
| Building                and land                                |   |                        | 2,092,529  |   |   |   | 2,092,529 |   |
| Computers,                equipment and software                |   |                        | 416,849    |   |   |   | 400,349 |   |
| CTLM®                software costs                        |   |                        | 352,932    |   |   |   | 352,932 |   |
| Trade                show equipment                             |   |                        | 298,400    |   |   |   | 298,400 |   |
| Clinical                equipment                               |   |                        | 121,094    |   |   |   | - |   |
| Laboratory                equipment                             |   |                        | 212,560    |   |   |   | 212,560 |   |
|                                                            |   |                        |       |   |   |   |   |   |
| Total                Property & Equipment                   |   |                        | 3,756,628  |   |   |   | 3,619,034 |   |
|    Less:                accumulated depreciation |   |                        | (1,725,833 | ) |   |   | (1,583,851 | ) |
|                                                            |   |                        |       |   |   |   |   |   |
| Total                Property & Equipment - Net             |   | $                           | 2,030,795  |   |   | $ | 2,035,183 |   |

|   | Furniture,                fixtures, clinical, computers, laboratory |                               |
|--------|---------------------------------------------------------------------|------------------------------------|
|   |   equipment                and trade show equipment       | 5-7                years           |
|   | Building                                                            |  40                years      |
|   | CTLM®                software costs                            |   5                years |

**(8)           INTANGIBLE      ASSETS**

|                                                                                                             |   | **June                30,** |    |
|------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|
|                                                                                                             |   | **2007**                    |    |   | **2006** |   |
|                                                                                                             |   |                        |    |   |   |   |
| Patent                license agreement, net of accumulated                                                      |   |                        |    |   |   |   |
|    amortization                of $307,588 and $273,412 respectively                              |   | $                           | 273,412 |   |   | $ | 307,588 |   |
|    UL                & CE approvals, net of accumulated amortization of                $8,225 |   |                        |    |   |   |   |   |   |
|         and                $8,225 respectively                           |   |                        | -       |   |   |   | - |   |
|                                                                                                             |   |                        |    |   |   |   |   |   |
| Totals                                                                                                           |   | $                           | 273,412 |   |   | $ | 307,588 |   |

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(8)           INTANGIBLE      ASSETS (Continued)**

**(9)           ACCOUNTS      PAYABLE AND ACCRUED EXPENSES**

|                                          |   | **June                30,** |    |
|-----------------------------------------------|--------|-----------------------------|---------|
|                                          |   | **2007**                    |    |   | **2006** |   |
|                                          |   |                        |    |   |   |   |
| Accounts                payable - trade       |   | $                           | 329,391 |   |   | $ | 313,153 |   |
| Accrued                property taxes payable |   |                        | 30,819  |   |   |   | 30,819 |   |
| Accrued                compensated absences   |   |                        | 138,868 |   |   |   | 155,535 |   |
| Other                accrued expenses         |   |                        | 86,913  |   |   |   | 59,486 |   |
|                                          |   |                        |    |   |   |   |   |   |
| Totals                                        |   | $                           | 585,991 |   |   | $ | 558,993 |   |

**(10)           CUSTOMER      DEPOSITS**

|                             |   | **June                30,** |   |
|----------------------------------|--------|-----------------------------|--------|
|                             |   | **2007**                    |   |   | **2006** |   |
|                             |   |                        |   |   |   |   |
| Customer                deposits |   | $                           | 88,114 |   |   | $ | 40,000 |   |
|                             |   |                        |   |   |   |   |   |   |
| Total                            |   | $                           | 88,114 |   |   | $ | 40,000 |   |

**(11)           SHORT-TERM      DEBT**

|                        |   | **June                30,** |    |
|-----------------------------|--------|-----------------------------|---------|
|                        |   | **2007**                    |    |   | **2006** |   |
|                        |   |                        |    |   |   |   |
| Loan                payable |   | $                           | 250,000 |   |   | $ | - |   |
|                        |   |                        |    |   |   |   |   |   |
| Total                       |   | $                           | 250,000 |   |   | $ | - |   |

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(12)           EQUITY      LINE OF CREDIT**

** **

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(12)           EQUITY      LINE OF CREDIT (Continued)**

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(13)           LEASES**

| **Year                ending June 30,**                          |   | **Amount** |   |
|------------------------------------------------------------------|--------|------------|--------|
|                                                             |   |       |   |
|           2008 |   | $          | 3,888  |   |
|           2009 |   |       | 3,888  |   |
|           2010 |   |       | 3,888  |   |
|       Thereafter                   |   |       | 6,709  |   |
|                                                             |   |       |   |   |
| Total                minimum future lease payments               |   | $          | 18,373 |   |

**(14)           INCOME      TAXES**

**(15)           REDEEMABLE      CONVERTIBLE PREFERRED STOCK**

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(15)           REDEEMABLE      CONVERTIBLE PREFERRED STOCK (Continued)**

**(16)           CONVERTIBLE      PREFERRED STOCK**

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(16)           CONVERTIBLE      PREFERRED STOCK (Continued)**

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(16)           CONVERTIBLE      PREFERRED STOCK (Continued)**

|   | 1.  Forgiveness                of approximately $725,795 of accrued interest (dividends) in connection                with the Series B Convertible Preferred stock.  The Company                recorded the forgiveness of the accrued interest (dividends) by reducing                the accrual along with a reduction in the accumulated                deficit. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2.  Settlement                of all litigation concerning the Series B Convertible Preferred                stock. |
|--------|-------------------------------------------------------------------------------------------------------------------------------|

|   | 3.  Cancellation                of 112,500 warrants that were issued with the Series B Convertible                Preferred stock. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4.  A                limitation on the owner(s) of the Series B Convertible Preferred                stock to                ownership of not more than 4.99% of the Company’s outstanding common stock                at any one time. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(16)           CONVERTIBLE      PREFERRED STOCK (Continued)**

----

*Table            of Contents*

| **IMAGING                  DIAGNOSTIC SYSTEMS, INC.**            |   |
|------------------------------------------------------------------|--------|
| **(a                  Development Stage Company)**               |   |
|                                                             |   |
| **Notes                  to Financial Statements (Continued)**   |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **(16)                  COVERTIBLE PREFERRED STOCK (Continued)** |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                             |   | Series                  A |   | Series                  B |   | Series                  C |   | Series                  D |   | Series                  E |   | Series                  F |   | Series                  H |   | Series                  I |   | Series                  K |   | Total |   |
|                                                             |   | Shares |   | Amount |   | Shares |   | Amount |   | Shares |   | Amount |   | Shares |   | Amount |   | Shares |   | Amount |   | Shares |   | Amount |   | Shares |   | Amount |   | Shares |   | Amount |   | Shares |   | Amount |   | Shares |   | Amount |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                  at June 30, 1995                        |   |   | - |   | $ | - |   |   | - |   | $ | - |   |   | - |   | $ | - |   |   | - |   | $ | - |   |   | - |   | $ | - |   |   | - |   | $ | - |   |   | - |   | $ | - |   |   | - |   | $ | - |   |   | - |   | $ | - |   |   | - |   | $ | - |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sale                  of Series A                                |   |   | 4,000 |   |   | 3,600,000 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 4,000 |   |   | 3,600,000 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Series                  A conversion                             |   |   | (1,600 | ) |   | (1,440,000 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (1,600 | ) |   | (1,440,000 | ) |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                  at June 30, 1996                        |   |   | 2,400 |   |   | 2,160,000 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 2,400 |   |   | 2,160,000 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sale                  of Series B                                |   |   |   |   |   |   |   |   | 450 |   |   | 4,500,000 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 450 |   |   | 4,500,000 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Series                  A conversion                             |   |   | (2,400 | ) |   | (2,160,000 | ) |   |  |   |   |  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (2,400 | ) |   | (2,160,000 | ) |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                  at June 30, 1997                        |   |   | - |   |   | - |   |   | 450 |   |   | 4,500,000 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 450 |   |   | 4,500,000 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sale                  of preferred stock                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (Series                  C - H)                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 210 |   |   | 2,100,000 |   |   | 54 |   |   | 540,000 |   |   | 54 |   |   | 540,000 |   |   | 75 |   |   | 750,000 |   |   | 108 |   |   | 1,080,000 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 501 |   |   | 5,010,000 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion                  of preferred stock                   |   |   |  |   |   |  |   |   |  |   |   |  |   |   | (210 | ) |   | (2,100,000 | ) |   | (25 | ) |   | (250,000 | ) |   | (30 | ) |   | (300,000 | ) |   | (75 | ) |   | (750,000 | ) |   |  |   |   |  |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (340 | ) |   | (3,400,000 | ) |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                  at June 30, 1998                        |   |   | - |   |   | - |   |   | 450 |   |   | 4,500,000 |   |   | - |   |   | - |   |   | 29 |   |   | 290,000 |   |   | 24 |   |   | 240,000 |   |   | - |   |   | - |   |   | 108 |   |   | 1,080,000 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 611 |   |   | 6,110,000 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sale                  of Series I                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 138 |   |   | 1,380,000 |   |   |   |   |   |   |   |   | 138 |   |   | 1,380,000 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion                  of preferred stock                   |   |   |  |   |   |  |   |   | (60 | ) |   | (600,000 | ) |   |  |   |   |  |   |   | (29 | ) |   | (290,000 | ) |   | (24 | ) |   | (240,000 | ) |   |  |   |   |  |   |   | (40 | ) |   | (400,000 | ) |   |  |   |   |  |   |   |  |   |   |  |   |   | (153 | ) |   | (1,530,000 | ) |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                  at June 30, 1999                        |   |   | - |   |   | - |   |   | 390 |   |   | 3,900,000 |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 68 |   |   | 680,000 |   |   | 138 |   |   | 1,380,000 |   |   | - |   |   | - |   |   | 596 |   |   | 5,960,000 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion                  of preferred stock, net              |   |   |  |   |   |  |   |   | (390 | ) |   | (3,900,000 | ) |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   | (68 | ) |   | (680,000 | ) |   | (138 | ) |   | (1,380,000 | ) |   |  |   |   |  |   |   | (596 | ) |   | (5,960,000 | ) |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                  at June 30, 2000                        |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sale                  of Series K                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 50 |   |   | 5,000,000 |   |   | 50 |   |   | 5,000,000 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion                  of preferred stock                   |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   | (50 | ) |   | (5,000,000 | ) |   | (50 | ) |   | (5,000,000 | ) |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                  at June 30, 2001                        |   |   | - |   | $ | - |   |   | - |   | $ | - |   |   | - |   | $ | - |   |   | - |   | $ | - |   |   | - |   | $ | - |   |   | - |   | $ | - |   |   | - |   | $ | - |   |   | - |   | $ | - |   |   | - |   | $ | - |   |   | - |   | $ | - |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Additional                  information:                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Discount                  off market price                       |   |   |   |   |   | 25 | % |   |   |   |   | 18 | % |   |   |   |   | 25 | % |   |   |   |   | 25 | % |   |   |   |   | 25 | % |   |   |   |   | 30 | % |   |   |   |   | 25 | % |   |   |   |   | 25 | % |   |   |   |   | 12.5 | % |   |   |   |   |   |   |
| Fair                  market value-issue rate                    |   |   |   |   | $ | 8.31 |   |   |   |   | $ | 3.25 |   |   |   |   | $ | 1.63 |   |   |   |   | $ | 0.99 |   |   |   |   | $ | 1.07 |   |   |   |   | $ | 1.24 |   |   |   |   | $ | 0.57 |   |   |   |   | $ | 0.38 |   |   |   |   | $ | 1.13 |   |   |   |   |   |   |   |
| Deemed                  preferred stock dividend                 |   |   |   |   | $ | 1,335,474 |   |   |   |   | $ | 998,120 |   |   |   |   | $ | 705,738 |   |   |   |   | $ | 182,433 |   |   |   |   | $ | 182,250 |   |   |   |   | $ | 318,966 |   |   |   |   | $ | 351,628 |   |   |   |   | $ | 492,857 |   |   |   |   | $ | 708,130 |   |   |   |   |   |   |   |

----

*Table                of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(17)           COMMON      STOCK**

** **

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(17)           COMMON      STOCK (Continued)**

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(17)           COMMON      STOCK (Continued)**

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(17)           COMMON      STOCK (Continued)**

** **

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(17)           COMMON      STOCK (Continued)**

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(17)           COMMON      STOCK (Continued)**

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(17)           COMMON      STOCK (Continued)**

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(18)           STOCK      OPTIONS**

** **

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(18)           STOCK      OPTIONS (Continued)**

**Employee        Plan:**

|                                          |   | Incentive                  Stock Options |     | Non                  Statutory Stock Options |   |
|-----------------------------------------------|--------|------------------------------------------|----------|----------------------------------------------|--------|
|                                          |   | Shares                                   |     | Wtd.                  Avg. Price             |   | Shares |   | Wtd.                  Avg. Price |   |
|                                          |   |                                     |     |                                         |   |   |   |   |   |
| Outstanding                  at June 30, 1994 |   |                                     | -0-      |                                         |   |   |   |   | -0- |   |   |   |   |
| Granted                                       |   |                                     | 75,000   |                                         | $      | 1.40 |   |   | 1,500,000 |   | $ | 1.12 |   |
| Exercised                                     |   |                                     | -        |                                         |   |   |   |   | - |   |   |   |   |
|                                          |   |                                     |     |                                         |   |   |   |   |   |   |   |   |   |
| Outstanding                  at June 30, 1995 |   |                                     | 75,000   |                                         |   | 1.40 |   |   | 1,500,000 |   |   | 1.12 |   |
| Granted                                       |   |                                     | 770,309  |                                         |   | 1.66 |   |   | 750,000 |   |   | 1.44 |   |
| Exercised                                     |   |                                     | (164,956 | )                                            |   | .92 |   |   | (1,800,000 | ) |   | 1.50 |   |
|                                          |   |                                     |     |                                         |   |   |   |   |   |   |   |   |   |
| Outstanding                  at June 30, 1996 |   |                                     | 680,353  |                                         |   | 1.81 |   |   | 450,000 |   |   | .13 |   |
| Granted                                       |   |                                     | 371,377  |                                         |   | 3.27 |   |   | 750,000 |   |   | 3.88 |   |
| Exercised                                     |   |                                     | (395,384 | )                                            |   | 1.10 |   |   | - |   |   |   |   |
|                                          |   |                                     |     |                                         |   |   |   |   |   |   |   |   |   |
| Outstanding                  at June 30, 1997 |   |                                     | 656,346  |                                         |   | 3.07 |   |   | 1,200,000 |   |   | 2.47 |   |
| ** **Granted                             |   |                                     | 220,755  |                                         |   | 1.95 |   |   | 750,000 |   |   | 2.75 |   |
| Exercised                                     |   |                                     | -        |                                         |   |   |   |   | (65,712 | ) |   | .35 |   |
| Canceled                                      |   |                                     | (175,205 | )                                            |   | 4.25 |   |   | - |   |   |   |   |

----

*Table            of Contents*

**IMAGING        DIAGNOSTIC SYSTEMS, INC.**

**(a        Development Stage Company)**

**Notes        to Financial Statements (Continued)**

**(18)**
**STOCK        OPTIONS (Continued)**

| Outstanding                  at June 30, 1998     |   |   | 701,896         |    |   | 2.42                    |   |   | 1,884,288       |    |   | 2.66                      |   |
|---------------------------------------------------|--------|--------|-----------------|---------|--------|-------------------------|--------|--------|-----------------|---------|--------|---------------------------|--------|
| Granted                                           |   |   | 786,635         |    |   | .48                     |   |   | 750,000         |    |   | .43                       |   |
| Exercised                                         |   |   | -               |    |   |                    |   |   | (65,612         | )       |   | .35                       |   |
| Canceled                                          |   |   | (82,500         | )       |   | 3.37                    |   |   | -               |    |   |                      |   |
|                                              |   |   |            |    |   |                    |   |   |            |    |   |                      |   |
| Outstanding                  at June 30, 1999     |   |   | 1,406,031       |    |   | .53                  ** |   |   | 2,568,676       |    |   | 2.24                      |   |
| Granted                                           |   |   | 3,139,459       |    |   | .34                     |   |   | -               |    |   |                      |   |
| Exercised                                         |   |   | (770,702        | )       |   | .37                     |   |   | (318,676        | )       |   | .35                       |   |
| Canceled                                          |   |   | (64,334         | )       |   | .47                     |   |   | -               |    |   |                      |   |
|                                              |   |   |            |    |   |                    |   |   |            |    |   |                      |   |
| Outstanding                  at June 30, 2000     |   |   | 3,710,454       |    |   | .42                     |   |   | 2,250,000       |    |   | 2.35                      |   |
| Granted                                           |   |   | 1,915,700       |    |   | 2.59                    |   |   | -               |    |   |                      |   |
| Exercised                                         |   |   | (3,030,964      | )       |   | .32                     |   |   | (750,000        | )       |   | .31                       |   |
| Canceled                                          |   |   | (279,982        | )       |   | .60                     |   |   | (1,500,000      | )       |   | 2.75                      |   |
|                                              |   |   |            |    |   |                    |   |   |            |    |   |                      |   |
| Outstanding                  at June 30, 2001     |   |   | 2,315,208       |    |   | 2.38                    |   |   | -               |    |   |                      |   |
| Granted                                           |   |   | 6,839,864       |    |   | .68                     |   |   | -               |    |   |                      |   |
| Exercised                                         |   |   | -               |    |   |                         |   |   | -               |    |   |                      |   |
| Canceled                                          |   |   | (2,695,482      | )       |   | 1.17                    |   |   | -               |    |   |                      |   |
|                                              |   |   |            |    |   |                    |   |   |            |    |   |                      |   |
| Outstanding                  at June 30, 2002     |   |   | 6,459,590       |    |   | .85                     |   |   | -               |    |   |                      |   |
| Granted                                           |   |   | 1,459,705       |    |   | .38                     |   |   | -               |    |   |                      |   |
| Exercised                                         |   |   | -               |    |   |                         |   |   | -               |    |   |                      |   |
| Canceled                                          |   |   | (56,788         | )       |   | .74                     |   |   | -               |    |   |                      |   |
|                                              |   |   |            |    |   |                    |   |   |            |    |   |                      |   |
| Outstanding                  at June 30, 2003     |   |   | 7,862,507       |    |   | .76                     |   |   | -               |    |   |                      |   |
| Granted                                           |   |   | 1,576,620       |    |   | 1.12                    |   |   | 31,748          |    |   | .69                       |   |
| Exercised                                         |   |   | (517,769        | )       |   | .44                     |   |   | -               |    |   |                      |   |
| Canceled                                          |   |   | (97,525         | )       |   | .78                     |   |   | -               |    |   |                      |   |
|                                              |   |   |            |    |   |                    |   |   |            |    |   |                      |   |
| Outstanding                  at June 30, 2004     |   |   | 8,823,833       |    |   | .84                     |   |   | 31,748          |    |   | .69                       |   |
| Granted                                           |   |   | -               |    |   |                         |   |   | 4,253,159       |    |   | .34                       |   |
| Exercised                                         |   |   | (13,264         | )       |   | .26                     |   |   | -               |    |   |                      |   |
| Canceled                                          |   |   | (142,891        | )       |   | .68                     |   |   | -               |    |   |                      |   |
|                                              |   |   |            |    |   |                    |   |   |            |    |   |                      |   |
| Outstanding                  at June 30, 2005     |   |   | 8,667,678       |    |   | .98                     |   |   | 4,284,907       |    |   | .34                       |   |
| Granted                                           |   |   | -               |    |   |                         |   |   | 532,855         |    |   | .18                       |   |
| Exercised                                         |   |   | -               |    |   |                         |   |   | -               |    |   |                           |   |
| Canceled                                          |   |   | (254,277        | )       |   | .74                     |   |   | (23,100         | )       |   | .26                       |   |
|                                              |   |   |            |    |   |                    |   |   |            |    |   |                      |   |
| Outstanding                  at June 30, 2006     |   |   | 8,413,401       |    |   | .96                     |   |   | 4,794,662       |    |   | .32                       |   |
| Granted                                           |   |   | -          |    |   |                    |   |   | 3,927,437       |    |   |                  .10 |   |
| Exercised                                    |   |   | -          |    |   |                    |   |   | -          |    |   |                      |   |
| Canceled                                     |   |   | (4,804     | )  |   |  .70               |   |   | (131,684        | )  |   |  .16                 |   |
|                                              |   |   |            |    |   |                    |   |   |            |    |   |                      |   |
| Outstanding                at June 30, 2007  |   |   |  8,408,597 |    |   |  .96               |   |   |  8,590,415 |    |   |  .22                 |   |

----

*Table            of Contents*

**IMAGING        DIAGNOSTIC SYSTEMS, INC.**

**(a        Development Stage Company)**

**Notes        to Financial Statements (Continued)**

**(18)**
**STOCK        OPTIONS (Continued)**

**Director        Plan:**

|                                          |   | Incentive                  Stock Options |     | Non                  Statutory Stock Options |   |
|-----------------------------------------------|--------|------------------------------------------|----------|----------------------------------------------|--------|
|                                          |   | Shares                                   |     | Wtd.                  Avg. Price             |   | Shares |   | Wtd.                  Avg. Price |   |
| Outstanding                  at June 30, 2000 |   |                                     | -0-      |                                         |   |   |   |   |   |   |   |   |   |
| Granted                                       |   |                                     | 150,000  |                                         | $      | .65 |   |   |   |   |   |   |   |
| Exercised                                     |   |                                     | -        |                                         |   |   |   |   |   |   |   |   |   |
| Canceled                                      |   |                                     | -        |                                         |   |   |   |   |   |   |   |   |   |
|                                          |   |                                     |     |                                         |   |   |   |   |   |   |   |   |   |
| Outstanding                  at June 30, 2001 |   |                                     | 150,000  |                                         |   | .65 |   |   |   |   |   |   |   |
| Granted                                       |   |                                     | 300,000  |                                         |   | .55 |   |   |   |   |   |   |   |
| Exercised                                     |   |                                     | -        |                                         |   |   |   |   |   |   |   |   |   |
| Canceled                                      |   |                                     | -        |                                         |   |   |   |   |   |   |   |   |   |
|                                          |   |                                     |     |                                         |   |   |   |   |   |   |   |   |   |
| Outstanding                  at June 30, 2002 |   |                                     | 450,000  |                                         |   | .58 |   |   |   |   |   |   |   |
| Granted                                       |   |                                     | 400,000  |                                         |   | .18 |   |   |   |   |   |   |   |
| Exercised                                     |   |                                     | -        |                                         |   |   |   |   |   |   |   |   |   |
| Canceled                                      |   |                                     | -        |                                         |   |   |   |   |   |   |   |   |   |
|                                          |   |                                     |     |                                         |   |   |   |   |   |   |   |   |   |
| Outstanding                  at June 30, 2003 |   |                                     | 850,000  |                                         |   | .40 |   |   | - |   |   |   |   |
| Granted                                       |   |                                     | 100,000  |                                         |   | 1.07 |   |   | 700,000 |   |   | .76 |   |
| Exercised                                     |   |                                     | (450,000 | )                                            |   | .58 |   |   | - |   |   |   |   |
| Canceled                                      |   |                                     | -        |                                         |   |   |   |   | - |   |   |   |   |
|                                          |   |                                     |     |                                         |   |   |   |   |   |   |   |   |   |
| Outstanding                  at June 30, 2004 |   |                                     | 500,000  |                                         |   | .39 |   |   | 700,000 |   |   | .76 |   |
| Granted                                       |   |                                     | -        |                                         |   |   |   |   | 800,000 |   |   | .35 |   |
| Exercised                                     |   |                                     | -        |                                         |   |   |   |   | - |   |   |   |   |
| Canceled                                      |   |                                     | -        |                                         |   |   |   |   | - |   |   |   |   |
|                                          |   |                                     |     |                                         |   |   |   |   |   |   |   |   |   |
| Outstanding                  at June 30, 2005 |   |                                     | 500,000  |                                         |   | .39 |   |   | 1,500,000 |   |   | .54 |   |
| Granted                                       |   |                                     | -        |                                         |   |   |   |   | 800,000 |   |   | .14 |   |
| Exercised                                     |   |                                     | -        |                                         |   |   |   |   | - |   |   |   |   |
| Canceled                                      |   |                                     | -        |                                         |   |   |   |   | - |   |   |   |   |
|                                          |   |                                     |     |                                         |   |   |   |   |   |   |   |   |   |
| Outstanding                  at June 30, 2006 |   |                                     | 500,000  |                                         |   | .39 |   |   | 2,300,000 |   |   | .40 |   |
| Granted                                  |   |                                     |  -  |                                         |   |   |   |   |  800,000 |   |   | .08 |   |
| Exercised                                |   |                                     |  -  |                                         |   |   |   |   |  - |   |   |   |   |
| Canceled                                 |   |                                     |  -  |                                         |   |   |   |   |  - |   |   |   |   |
|                                          |   |                                     |     |                                         |   |   |   |   |   |   |   |   |   |
| Outstanding                  at June 30, 2007 |   |                                     | 500,000  |                                         |   |  .39 |   |   | 3,100,000 |   |   |  .32 |   |

|                                  |   | **June                30, 2007** |       |   | **June                30, 2006** |   |       | **June                30, 2005** |   |
|---------------------------------------|--------|----------------------------------|------------|--------|----------------------------------|--------|------------|----------------------------------|--------|
| Employee                ISO           |   |                             | 8,377,119  |   |                             |   | 8,023,860  |                             |   |   | 7,699,103 |   |
| Director                ISO           |   |                             | 500,000    |   |                             |   | 500,000    |                             |   |   | 500,000 |   |
| Employee                Non-Statutory |   |                             | 3,748,584  |   |                             |   | 2,261,800  |                             |   |   | 88,486 |   |
| Director                Non-Statutory |   |                             | 2,550,000  |   |                             |   | 1,750,000  |                             |   |   | 950,000 |   |
|                                  |   |                             |       |   |                             |   |       |                             |   |   |   |   |
| Total                                 |   |                             | 15,175,703 |   |                             |   | 12,535,660 |                             |   |   | 9,237,589 |   |

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

| **(18)** | **STOCK                OPTIONS (Continued)** |
|----------|----------------------------------------------|

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

| **(18)** | **STOCK                OPTIONS (Continued)** |
|----------|----------------------------------------------|

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

| **(18)** | **STOCK                OPTIONS (Continued)** |
|----------|----------------------------------------------|

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

| **(18)** | **STOCK                OPTIONS (Continued)** |
|----------|----------------------------------------------|

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(18)           STOCK      OPTIONS (Continued)**

|                               | ** **                 | ** ** | **Outstanding                options** | ** ** | ** ** | **Exercisable                options** | ** ** |
|------------------------------------|----------------------------|------------|----------------------------------------|------------|------------|----------------------------------------|------------|
| ** **                         | ** **                 | ** ** | ** **                             | ** ** | ** ** | **Weighted**                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                         | ** **                 | ** ** | ** **                             | ** ** | ** ** | **average**                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Range                of**        | ** **                 | ** ** | ** **                             | ** ** | ** ** | **remaining**                          | ** ** | ** ** | **Weighted** | ** ** | ** ** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| **exercise                prices** | ** **                 | ** ** | **Shares**                             | ** ** | ** ** | **life                (years)**        | ** ** | ** ** | **avg.                price** | ** ** | ** ** | **Shares** | ** ** | ** ** | **avg.                price** |   |
| $                                  | .069                - 1.25 |       |                                   |       | 19,491,462 |                                   |       |   | 6.45 |   |   | $ | .42 |   |   |   | 14,068,153 |   |   | $ | .54 |   |
|                               | 1.26                - 2.49 |       |                                   |       | 107,550    |                                   |       |   | 2.63 |   |   |   | .56 |   |   |   | 107,550 |   |   |   | .56 |   |
|                               | 2.50                - 2.85 |       |                                   |       | 1,000,000  |                                   |       |   | 3.00 |   |   |   | 2.85 |   |   |   | 1,000,000 |   |   |   | 2.85 |   |
|                               |                       |       |                                   |       |       |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| $                                  | .19                - 2.85  |       |                                   |       | 20,599,012 |                                   |       |   | 6.27 |   |   | $ | .54 |   |   |   | 15,175,703 |   |   | $ | .70 |   |

**(19)           CONCENTRATION      OF CREDIT RISK**

**(20)    **FAIR        VALUE OF FINANCIAL INSTRUMENTS****

----

*Table            of Contents*

**IMAGING      DIAGNOSTIC SYSTEMS, INC.**

**(a      Development Stage Company)**

**Notes      to Financial Statements (Continued)**

**(21)           COMMITMENTS      AND CONTINGENCIES**

**(22)           SUBSEQUENT      EVENTS - UNAUDITED**

----

*Table            of Contents*

**(23)           SELECTED      QUARTERLY FINANCIAL DATA (UNAUDITED)**

| **Fiscal                    2007**                                   |       |                                 |        |       |                                  |       |        |                                     |       |       |                                      |       |
|----------------------------------------------------------------------|------------|--------------------------------------|-------------|------------|---------------------------------------|------------|-------------|------------------------------------------|------------|------------|-------------------------------------------|------------|
|                                                                 |       | **Quarter                    Ended** | ** **  | ** ** | **Quarter                    Ended**  | ** ** | ** **  | **Quarter                    Ended**     | ** ** | ** ** | **Quarter                    Ended**      | ** ** |
| ** **                                                           | ** ** | **June                    30, 2007** | ** **  | ** ** | **March                    31, 2007** | ** ** | ** **  | **December                    31, 2006** | ** ** | ** ** | **September                    30, 2006** |       |
|                                                                 |       |                                 |        |       |                                  |       |        |                                     |       |       |                                      |       |
| Net                    Sales                                         |       | $                                    | 16,365      |       |                                  | $          | 25,236      |                                     |       | $          | 3,673                                     |       |   | $ | 19,862 |   |
| Gross                    Profit                                      |       | $                                    | 12,115      |       |                                  | $          | 18,710      |                                     |       | $          | 1,763                                     |       |   | $ | 14,678 |   |
| Operating                    Loss                                    |       | $                                    | (1,940,854  | )          |                                  | $          | (1,612,451  | )                                        |       | $          | (1,902,461                                | )          |   | $ | (1,620,315 | ) |
|                                                                 |       |                                 |        |       |                                  |       |        |                                     |       |       |                                      |       |   |   |   |   |
| Net                    loss applicable to                            |       |                                 |        |       |                                  |       |        |                                     |       |       |                                      |       |   |   |   |   |
|      common                    shareholders |       | $                                    | (2,047,351  | )          |                                  | $          | (1,556,376  | )                                        |       | $          | (1,944,629                                | )          |   | $ | (1,653,966 | ) |
|                                                                 |       |                                 |        |       |                                  |       |        |                                     |       |       |                                      |       |   |   |   |   |
| Net                    Loss per common share                         |       | $                                    | (0.01       | )          |                                  | $          | (0.01       | )                                        |       | $          | (0.01                                     | )          |   | $ | (0.01 | ) |
| Weighted                    avg. no. of common shares,               |       |                                 |        |       |                                  |       |        |                                     |       |       |                                      |       |   |   |   |   |
|     Basic                    & Diluted       |       |                                 | 271,667,256 |       |                                  |       | 279,782,438 |                                     |       |       | 258,612,545                               |       |   |   | 248,208,822 |   |
|                                                                 |       |                                 |        |       |                                  |       |        |                                     |       |       |                                      |       |   |   |   |   |
| Cash                    and Cash Equivalents                         |       | $                                    | 477,812     |       |                                  | $          | 598,923     |                                     |       | $          | 476,252                                   |       |   | $ | 542,322 |   |
| Total                    Assets                                      |       | $                                    | 4,365,427   |       |                                  | $          | 4,999,963   |                                     |       | $          | 5,008,679                                 |       |   | $ | 5,242,328 |   |
| Deficit                    accumulated during                        |       |                                 |        |       |                                  |       |        |                                     |       |       |                                      |       |   |   |   |   |
|     the                    development stage     |       | $                                    | (98,341,059 | )          |                                  | $          | (96,293,708 | )                                        |       | $          | (94,737,332                               | )          |   | $ | (92,792,703 | ) |
| Stockholders'                    Equity                              |       | $                                    | 3,441,322   |       |                                  | $          | 4,269,812   |                                     |       | $          | 4,157,688                                 |       |   | $ | 4,587,701 |   |
|                                                                 |       |                                 |        |       |                                  |       |        |                                     |       |       |                                      |       |   |   |   |   |
|                                                                 |       |                                 |        |       |                                  |       |        |                                     |       |       |                                      |       |   |   |   |   |
|                                                                 |       |                                 |        |       |                                  |       |        |                                     |       |       |                                      |       |   |   |   |   |
|                                                                 |       |                                 |        |       |                                  |       |        |                                     |       |       |                                      |       |   |   |   |   |
| **Fiscal                    2006**                                   |       |                                 |        |       |                                  |       |        |                                     |       |       |                                      |       |   |   |   |   |
|                                                                 |       | **Quarter                    Ended** | ** **  | ** ** | **Quarter                    Ended**  | ** ** | ** **  | **Quarter                    Ended**     | ** ** | ** ** | **Quarter                    Ended**      | ** ** |
| ** **                                                           | ** ** | **June                    30, 2006** | ** **  | ** ** | **March                    31, 2006** | ** ** | ** **  | **December                    31, 2005** | ** ** | ** ** | **September                    30, 2005** |       |
|                                                                 |       |                                 |        |       |                                  |       |        |                                     |       |       |                                      |       |   |   |   |   |
| Net                    Sales                                         |       | $                                    | 4,094       |       |                                  | $          | -           |                                     |       | $          | -                                         |       |   | $ | 671,750 |   |
| Gross                    Profit                                      |       | $                                    | (34,831     | )          |                                  | $          | -           |                                     |       | $          | -                                         |       |   | $ | 394,486 |   |
| Operating                    Loss                                    |       | $                                    | (1,404,524  | )          |                                  | $          | (1,875,653  | )                                        |       | $          | (2,021,665                                | )          |   | $ | (1,322,560 | ) |
|                                                                 |       |                                 |        |       |                                  |       |        |                                     |       |       |                                      |       |   |   |   |   |
| Net                    loss applicable to                            |       |                                 |        |       |                                  |       |        |                                     |       |       |                                      |       |   |   |   |   |
|      common                    shareholders |       | $                                    | (1,548,544  | )          |                                  | $          | (2,074,702  | )                                        |       | $          | (2,128,811                                | )          |   | $ | (1,410,665 | ) |
|                                                                 |       |                                 |        |       |                                  |       |        |                                     |       |       |                                      |       |   |   |   |   |
| Net                    Loss per common share                         |       | $                                    | (0.01       | )          |                                  | $          | (0.01       | )                                        |       | $          | (0.01                                     | )          |   | $ | (0.01 | ) |
| Weighted                    avg. no. of common shares,               |       |                                 |        |       |                                  |       |        |                                     |       |       |                                      |       |   |   |   |   |
|     Basic                    & Diluted       |       |                                 | 218,846,738 |       |                                  |       | 223,718,450 |                                     |       |       | 210,243,309                               |       |   |   | 201,835,198 |   |
|                                                                 |       |                                 |        |       |                                  |       |        |                                     |       |       |                                      |       |   |   |   |   |
| Cash                    and Cash Equivalents                         |       | $                                    | 1,467,687   |       |                                  | $          | 930,956     |                                     |       | $          | 132,331                                   |       |   | $ | 348,565 |   |
| Total                    Assets                                      |       | $                                    | 6,250,909   |       |                                  | $          | 5,885,950   |                                     |       | $          | 5,386,944                                 |       |   | $ | 5,700,738 |   |
| Deficit                    accumulated during                        |       |                                 |        |       |                                  |       |        |                                     |       |       |                                      |       |   |   |   |   |
|     the                    development stage     |       | $                                    | (91,138,737 | )          |                                  | $          | (89,590,193 | )                                        |       | $          | (87,515,491                               | )          |   | $ | (85,386,680 | ) |
| Stockholders'                    Equity                              |       | $                                    | 5,651,916   |       |                                  | $          | 5,229,430   |                                     |       | $          | 4,507,579                                 |       |   | $ | 4,859,022 |   |

----

*Table            of Contents*

**Item      9.  Changes in and Disagreements with      Accountants on Accounting and Financial Disclosure**

**Item      9A.  Controls and      Procedures**

----

*Table            of Contents*

**MANAGEMENT’S      REPORT ON INTERNAL      CONTROL OVER FINANCIAL REPORTING**

|   | · | Pertain                to the maintenance of records that in reasonable detail accurately                and                fairly reflect the transactions and dispositions of the assets of                the                Company; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Provide                reasonable assurance that transactions are recorded as necessary                to permit                preparation of financial statements in accordance with generally                accepted                accounting principles, and that receipts and expenditures of the                Company                are being made only in accordance with authorizations of management                and                directors of the Company; and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Provide                reasonable assurance regarding prevention or timely detection of                unauthorized acquisition, use or disposition of the Company’s assets that                could have a material effect on the financial                statements. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Table            of Contents*

----

*Table            of Contents*

**Item      9B.  Other Information -      Sale/Lease-Back**

----

*Table            of Contents*

**Part      III**

**Item      10.  Directors, Executive Officers and      Corporate Governance**

**Compensation      Discussion and Analysis**

***Executive      Compensation Program Objectives and Overview.***

|   | · | the                program is designed to achieve our goals of promoting financial and                operational success by attracting, motivating and facilitating the                retention of key employees with outstanding talent and ability;                and              |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | · | the                program adequately rewards performance which is tied to creating                stockholder value.                                                                                                                                                                   |
|   | · | Our                current executive compensation program is based on two components,                which                are designed to be consistent with our compensation philosophy: (1)                base                salary and (2) grants of stock                options. |

***Current      Executive Compensation Program Elements.***

*Base      Salaries*

----

*Table            of Contents*

*Annual      Incentive Bonuses*

*Stock      Option Grants*

|   | · | the                executive’s position with us and total compensation                package;           |
|--------|--------|----------------------------------------------------------------------------------------------------------------|
|   | · | the                executive’s performance of his or her individual responsibilities;                and |
|   | · | the                executive’s contribution to the success of our financial                performance.  |

**Compensation      Committee Report**

| **COMPENSATION                COMMITTEE** |
|-------------------------------------------|
| Jay                Bendis, Chairman       |
| Sherman                Lazrus             |
| Edward                Rolquin             |

**Compensation      Committee Interlocks and Insider Participation**

----

*Table            of Contents*

| **Name**                             | **Age** | **Position**                                        | **Year                Elected or Appointed** |
|--------------------------------------|---------|-----------------------------------------------------|----------------------------------------------|
|                                 |    |                                                |                                         |
| Tim                Hansen            | 63      | Chief                Executive Officer and Director | 2004                                         |
|                                 |    |                                                |                                         |
| Allan                L. Schwartz     | 65      | Executive                Vice-President, Chief      | 1994                                         |
|                                 |    | Financial                Officer and Director       |                                         |
|                                 |    |                                                |                                         |
| Deborah                O’Brien | 43      | Senior                Vice-President                | 2003                                         |
|                                 |    |                                                |                                         |
| Sherman                Lazrus        | 74      | Director                                            | 2002                                         |
|                                 |    |                                                |                                         |
| Patrick                J. Gorman     | 53      | Director                                            | 2003                                         |
|                                 |    |                                                |                                         |
| Edward                Rolquin        | 78      | Director                                            | 2003                                         |
|                                 |    |                                                |                                         |
| Jay                S. Bendis         | 60      | Director                                            | 2003                                         |

**Tim      Hansen**

**Allan      L. Schwartz**

----

*Table            of Contents*

**Deborah      O’Brien**

**Sherman      Lazrus**

**Patrick      J. Gorman**

----

*Table            of Contents*

**Edward      Rolquin**

**Jay      S. Bendis**

**Audit      Committee**

**Compensation      Committee**

**Nominating      and Corporate Governance Committee**

**Compliance        with Section 16(a) of the Securities Exchange Act of 1934**

----

*Table            of Contents*

**Item      11.  Executive      Compensation**

**SUMMARY      COMPENSATION TABLE – FISCAL 2007**

|                                               | ** ** | ** **                                  | ** **                                        | ** **                                        | ** **                     | ** **                                                                                                    | **Change                  in**                                                                                | ** **                                                                                                          | ** **                                                          |
|----------------------------------------------------|------------|---------------------------------------------|---------------------------------------------------|---------------------------------------------------|--------------------------------|---------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------|
| ** **                                         | ** ** | ** **                                  | ** **                                        | ** **                                        | ** **                     | ** **                                                                                                    | **Pension                  Value**                                                                            | ** **                                                                                                          | ** **                                                          |
| ** **                                         | ** ** | ** **                                  | ** **                                        | ** **                                        | ** **                     | ** **                                                                                                    | **and**                                                                                                       | ** **                                                                                                          | ** **                                                          |
| ** **                                         | ** ** | ** **                                  | ** **                                        | ** **                                        | ** **                     | ** **                                                                                                    | **Nonqualified**                                                                                              | ** **                                                                                                          | ** **                                                          |
| ** **                                         | ** ** | ** **                                  | ** **                                        | ** **                                        | ** **                     | **Non-Equity**                                                                                                | **Deferred**                                                                                                  | ** **                                                                                                          | ** **                                                          |
| ** **                                         | ** ** | ** **                                  | ** **                                        | **Stock**                                         | **Option**                     | **Incentive                  Plan**                                                                           | **Compensation**                                                                                              | **All                  other**                                                                                      | ** **                                                          |
| **Name                  and**                      | ** ** | **Salary**                                  | **Bonus**                                         | **Awards**                                        | **Awards**                     | **Compensation**                                                                                              | **Earnings**                                                                                                  | **Compensation**                                                                                                    | **Total**                                                           |
| **Principal                  Position**            | **Year**   | **($)**                                     | **($)**                                           | **($)**                                           | **($)(5)**                     | **($)**                                                                                                       | **($)**                                                                                                       | **($)**                                                                                                             | **($)**                                                             |
| Timothy                  B. Hansen                 |       |                                        |                                              |                                              |                           |                                                                                                          |                                                                                                          |                                                                                                                |                                                                |
| CEO                  and Director(1),(2)           | 2007       |       240,810 |         - |         - |   241,960            |                   - |                   - |                    - |           482,770 |
|                                               |       |                                        |                                              |                                              |                           |                                                                                                          |                                                                                                          |                                                                                                                |                                                                |
| Allan                  L. Schwartz                 |       |                                        |                                              |                                              |                           |                                                                                                          |                                                                                                          |                                                                                                                |                                                                |
| Exec                  V.P.,CFO and Director(1),(3) | 2007       |       191,048 |         - |         - |     18,500 |                   - |                   - |                    - |           209,548 |
|                                               |       |                                        |                                              |                                              |                           |                                                                                                          |                                                                                                          |                                                                                                                |                                                                |
| Deborah                  O'Brien                   |       |                                        |                                              |                                              |                           |                                                                                                          |                                                                                                          |                                                                                                                |                                                                |
| Senior                  Vice- President(1),(4)     | 2007       |       130,769 |         - |         - |     35,609 |                   - |                   - |                    - |           166,378 |

| (1) | All                Named Executive Officers receive reimbursement for auto expense in                the                amount of $500 per month.                                                                                                                                                                                                                                               |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | On                July 26, 2006, Mr. Hansen received a 7% cost of living increase based                on                the prior two years' inflation, raising his salary to                $226,000.  On January 17, 2007, Mr. Hansen signed a new                employment agreement that increased his salary to                $260,000.                                       |
| (3) | Salary                recorded for f/y 2007 includes base salary of $185,000 plus $6,048                vacation pay.                                                                                                                                                                                                                                                                           |
| (4) | Salary                recorded for f/y 2007 includes base salary of $125,000 plus $5,769                vacation pay.  Ms. O’Brien began receiving auto expense in                September 2006.                                                                                                                                                                               |
| (5) | Amount                listed represents the dollar amount we recognized for financial reporting                purposes under FASB No. 123R, “Share Based                Payment”.  Assumptions made for the purpose of computing this                amount are discussed in Note 2(j) to the Notes to our Financial Statements                contained in this report. |

----

*Table            of Contents*

**OUTSTANDING      EQUITY AWARDS AT FISCAL 2007 YEAR-END**

|                                     | ** ** | ** **                           | ** ** | ** **                          | ** **                       | ** ** | ** ** | ** **                          | ** ** | ** **  | ** **   | ** ** | ** ** | ** ** | ** **                        | ** ** | ** **       | ** **                        | ** ** | ** ** | ** **                              | ** ** | ** ** | ** **                           | ** ** |
|------------------------------------------|------------|--------------------------------------|------------|-------------------------------------|----------------------------------|------------|------------|-------------------------------------|------------|-------------|--------------|------------|------------|------------|-----------------------------------|------------|------------------|-----------------------------------|------------|------------|-----------------------------------------|------------|------------|--------------------------------------|------------|
| ** **                               | ** ** | **Option                    Awards** | ** ** | **Stock                    Awards** | ** **                       |
| ** **                               | ** ** | ** **                           | ** ** | ** **                          | ** **                       | ** ** | ** ** | ** **                          | ** ** | ** **  | ** **   | ** ** | ** ** | ** ** | ** **                        | ** ** | ** **       | ** **                        | ** ** | ** ** | ** **                              | ** ** | ** ** | **Equity**                           | ** ** |
| ** **                               | ** ** | ** **                           | ** ** | ** **                          | ** **                       | ** ** | ** ** | ** **                          | ** ** | ** **  | ** **   | ** ** | ** ** | ** ** | ** **                        | ** ** | ** **       | ** **                        | ** ** | ** ** | ** **                              | ** ** | ** ** | **Incentive**                        | ** ** |
| ** **                               | ** ** | ** **                           | ** ** | ** **                          | ** **                       | ** ** | ** ** | **Equity**                          | ** ** | ** **  | ** **   | ** ** | ** ** | ** ** | ** **                        | ** ** | ** **       | ** **                        | ** ** | ** ** | **Equity                    Incentive** | ** ** | ** ** | **Plan                    Awards:**  | ** ** |
| ** **                               | ** ** | ** **                           | ** ** | ** **                          | ** **                       | ** ** | ** ** | **Incentive**                       | ** ** | ** **  | ** **   | ** ** | ** ** | ** ** | ** **                        | ** ** | ** **       | ** **                        | ** ** | ** ** | **Plan                    Awards:**     | ** ** | ** ** | **Market                    or**     | ** ** |
| ** **                               | ** ** | ** **                           | ** ** | ** **                          | ** **                       | ** ** | ** ** | **Plan                    Awards:** | ** ** | ** **  | ** **   | ** ** | ** ** | ** ** | ** **                        | ** ** | ** **       | **Market**                        | ** ** | ** ** | **Number                    of**        | ** ** | ** ** | **Payout                    Value**  | ** ** |
| ** **                               | ** ** | **Number                    of**     | ** ** | ** **                          | **Number                    of** | ** ** | ** ** | **Number                    of**    | ** ** | ** **  | ** **   | ** ** | ** ** | ** ** | **Number                    of**  | ** ** | ** **       | **Value                    of**   | ** ** | ** ** | **Unearned**                            | ** ** | ** ** | **of                    Unearned**   | ** ** |
| ** **                               | ** ** | **Securities**                       | ** ** | ** **                          | **Securities**                   | ** ** | ** ** | **Securities**                      | ** ** | ** **  | ** **   | ** ** | ** ** | ** ** | **Shares                    or**  | ** ** | ** **       | **Shares                    or**  | ** ** | ** ** | **Shares,                    Units**    | ** ** | ** ** | **Shares,                    Units** | ** ** |
| ** **                               | ** ** | **Underlying**                       | ** ** | ** **                          | **Underlying**                   | ** ** | ** ** | **Underlying**                      | ** ** | ** **  | ** **   | ** ** | ** ** | ** ** | **Units                    of**   | ** ** | ** **       | **Units                    of**   | ** ** | ** ** | **or                    Other**         | ** ** | ** ** | **or                    Other**      | ** ** |
| ** **                               | ** ** | **Unexercised**                      | ** ** | ** **                          | **Unexercised**                  | ** ** | ** ** | **Unexercised**                     | ** ** | ** **  | **Option**   | ** ** | ** ** | ** ** | **Stock                    That** | ** ** | ** **       | **Stock                    That** | ** ** | ** ** | **Rights                    That**      | ** ** | ** ** | **Rights                    That**   | ** ** |
| ** **                               | ** ** | **Options**                          | ** ** | ** **                          | **Options**                      | ** ** | ** ** | **Unearned**                        | ** ** | ** **  | **Exercise** | ** ** | **Option** | ** ** | **Have                    Not**   | ** ** | ** **       | **Have                    Not**   | ** ** | ** ** | **Have                    Not**         | ** ** | ** ** | **Have                    Not**      | ** ** |
| ** **                               | ** ** | ** **                           | **(#)**    | ** **                          | ** **                       | ** ** | **(#)**    | ** **                          | ** ** | **Options** | ** **   | ** ** | **Price**  | ** ** | **Expiration**                    | ** ** | **Vested**       | ** **                        | ** ** | **Vested** | ** **                              | ** ** | **Vested** | ** **                           | ** ** | **Vested** | ** ** |
| **Name**                                 | ** ** | **Exercisable**                      | ** ** | ** **                          | **Unexercisable**                | ** ** | ** ** | ** **                          | **(#)**    | ** **  | ** **   | **($)**    | ** ** | **Date**   | ** **                        | ** ** | **(#)**          | ** **                        | ** ** | **($)**    | ** **                              | ** ** | ** ** | **(#)**                              | ** ** | ** ** | **($)** |   |
| Timothy                    B. Hansen     |       |                                 | 1,250,000  |                                |                             |       | 250,000    |                                |       |        | -            |       |       | $          | 0.38                              |       | 7/8/2014         |                              |       | -          |                                    |       |       | -                                    |       |   |   | - |   |   |   | - |   |
| CEO                    and Director(1)   |       |                                 | 1,000,000  |                                |                             |       | 500,000    |                                |       |        | -            |       |       | $          | 0.32                              |       | 2/23/2015        |                              |       |       |                                    |       |       |                                 |       |   |   |   |   |   |   |   |   |
|                                     |       |                                 | -          |                                |                             |       | 3,000,000  |                                |       |        | -            |       |       | $          | 0.09                              |       | 1/18/2017        |                              |       |       |                                    |       |       |                                 |       |   |   |   |   |   |   |   |   |
|                                     |       |                                 |       |                                |                             |       |       |                                |       |        |         |       |       |       |                              |       |             |                              |       |       |                                    |       |       |                                 |       |   |   |   |   |   |   |   |   |
|                                     |       |                                 |       |                                |                             |       |       |                                |       |        |         |       |       |       |                              |       |             |                              |       |       |                                    |       |       |                                 |       |   |   |   |   |   |   |   |   |
| Allan                  L. Schwartz  |       |                                 | 500,000    |                                |                             |       | -          |                                |       |        | -            |       |       | $          | 2.85                              |       |  8/30/2010  |                              |       | -          |                                    |       |       | -                                    |       |   |   | - |   |   |   | - |   |
| Exec                  V.P., CFO and      |       |                                 | 500,000    |                                |                             |       | -          |                                |       |        | -            |       |       | $          | 0.77                              |       |  8/30/2011  |                              |       |       |                                    |       |       |                                 |       |   |   |   |   |   |   |   |   |
| Director(2)                              |       |                                 | 500,000    |                                |                             |       | -          |                                |       |        | -            |       |       | $          | 0.30                              |       | 8/30/2012        |                              |       |       |                                    |       |       |                                 |       |   |   |   |   |   |   |   |   |
|                                          |       |                                 | 500,000    |                                |                             |       | -          |                                |       |        | -            |       |       | $          | 1.21                              |       | 8/30/2013        |                              |       |       |                                    |       |       |                                 |       |   |   |   |   |   |   |   |   |
|                                     |       |                                 | 500,000    |                                |                             |       | -          |                                |       |        | -            |       |       | $          | 0.30                              |       | 8/30/2014        |                              |       |       |                                    |       |       |                                 |       |   |   |   |   |   |   |   |   |
|                                     |       |                                 | 100,000    |                                |                             |       | -          |                                |       |        | -            |       |       | $          | 0.20                              |       | 9/12/2015        |                              |       |       |                                    |       |       |                                 |       |   |   |   |   |   |   |   |   |
|                                     |       |                                 | -          |                                |                             |       | 250,000    |                                |       |        | -            |       |       | $          | 0.11                              |       | 9/12/2016        |                              |       |       |                                    |       |       |                                 |       |   |   |   |   |   |   |   |   |
|                                     |       |                                 |       |                                |                             |       |       |                                |       |        |         |       |       |       |                              |       |             |                              |       |       |                                    |       |       |                                 |       |   |   |   |   |   |   |   |   |
|                                     |       |                                 |       |                                |                             |       |       |                                |       |        |         |       |       |       |                              |       |             |                              |       |       |                                    |       |       |                                 |       |   |   |   |   |   |   |   |   |
| Deborah                    O'Brien       |       |                                 | 200,000    |                                |                             |       | -          |                                |       |        | -            |       |       | $          | 0.56                              |       |  10/25/2011 |                              |       | -          |                                    |       |       | -                                    |       |   |   | - |   |   |   | - |   |
| Senior                    Vice-          |       |                                 | 25,000     |                                |                             |       | -          |                                |       |        | -            |       |       | $          | 0.50                              |       |  2/02/2012  |                              |       |       |                                    |       |       |                                 |       |   |   |   |   |   |   |   |   |
| President(3)                        |       |                                 | 300,000    |                                |                             |       | 2,000      |                                |       |        | -            |       |       | $          | 1.13                              |       | 9/15/2013        |                              |       |       |                                    |       |       |                                 |       |   |   |   |   |   |   |   |   |
|                                     |       |                                 | -          |                                |                             |       | 250,000    |                                |       |        | -            |       |       | $          | 0.11                              |       | 9/12/2016        |                              |       |       |                                    |       |       |                                 |       |   |   |   |   |   |   |   |   |

| (1) | Mr.                Hansen had 6,000,000 stock options outstanding as of June 30, 2007                of                which 2,250,000 are fully vested.    |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Mr.                Schwartz had 2,850,000 stock options outstanding as of June 30, 2007                of                which 2,600,000 are fully vested.  |
| (3) | Ms.                O’Brien had 777,000 stock options outstanding as of June 30, 2007 of                which                525,000 are fully vested. |

----

*Table            of Contents*

**OPTION      EXERCISES AND STOCK VESTED - FISCAL 2007**

|                                 | **Option                Awards**   | ** **                        | **Stock                Awards** |
|--------------------------------------|------------------------------------|-----------------------------------|---------------------------------|
| ** **                           | **Number                of**       | ** **                        | ** **                      | **Number                of** | ** ** |
| ** **                           | **Shares                Acquired** | **Value                Realized** | ** **                      | **Shares                Acquired** | **Value                Realized** |
| ** **                           | **on                Exercise**     | **on                Exercise**    | ** **                      | **on                Vesting** | **on                Vesting** |
| **Name**                             | **(#)**                            | **($)**                           | ** **                      | **(#)** | **($)** |
| Timothy                B. Hansen     |                               |                              |                            |   |   |
| CEO                and Director      | -                                  | -                                 |                            | - | - |
|                                 |                               |                              |                            |   |   |
| Allan                L. Schwartz     |                               |                              |                            |   |   |
| Exec                V.P., CFO        |                               |                              |                            |   |   |
| and                Director          | -                                  | -                                 |                            | - | - |
|                                 |                               |                              |                            |   |   |
| Deborah                O'Brien       |                               |                              |                            |   |   |
| Senior                Vice-President | -                                  | -                                 |                            | - | - |

**Employment      Agreements**

***Timothy      B. Hansen***

| **Date                of Vesting** | **No.                of Option Shares** |
|------------------------------------|-----------------------------------------|
| July                8, 2005        | 500,000                                 |
| January                8, 2006     | 250,000                                 |
| July                8, 2006        | 250,000                                 |
| January                8, 2007     | 250,000                                 |
| July                8, 2007        | 250,000                                 |

| **Date                of Vesting** | **No.                of Option Shares** |
|------------------------------------|-----------------------------------------|
| February                23, 2006   | 500,000                                 |
| August                23, 2006     | 250,000                                 |
| February                23, 2007   | 250,000                                 |
| August                23, 2007     | 250,000                                 |
| February                23, 2008   | 250,000                                 |

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*Table            of Contents*

| **Date                of Vesting** | **No.                of Option Shares** |
|------------------------------------|-----------------------------------------|
| July                18, 2007       | 500,000                                 |
| January                18, 2008    | 500,000                                 |
| July                18, 2008       | 500,000                                 |
| January                18, 2009    | 500,000                                 |
| July                18, 2009       | 500,000                                 |
| January                18, 2010    | 500,000                                 |

***Allan      L. Schwartz***

***Deborah      O’Brien***

**Potential      Payments Upon Termination or Change in Control**

***Timothy      B. Hansen***

**.**

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*Table            of Contents*

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*Table            of Contents*

***Allan      L. Schwartz***

----

*Table            of Contents*

***Deborah      O’Brien***

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*Table            of Contents*

**Director      Compensation – Fiscal 2007**

|                                    | ** **                                                         | ** **                                        | ** **                     | ** **                                                                                                    | **Change                  in**                                                                                | ** **                                                                                                          | ** **                                                                     |
|-----------------------------------------|--------------------------------------------------------------------|---------------------------------------------------|--------------------------------|---------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------|
| ** **                              | ** **                                                         | ** **                                        | ** **                     | ** **                                                                                                    | **Pension                  Value**                                                                            | ** **                                                                                                          | ** **                                                                     |
| ** **                              | ** **                                                         | ** **                                        | ** **                     | ** **                                                                                                    | **and**                                                                                                       | ** **                                                                                                          | ** **                                                                     |
| ** **                              | ** **                                                         | ** **                                        | ** **                     | ** **                                                                                                    | **Nonqualified**                                                                                              | ** **                                                                                                          | ** **                                                                     |
| ** **                              | **Fees                  Earned**                                   | ** **                                        | ** **                     | **Non-Equity**                                                                                                | **Deferred**                                                                                                  | ** **                                                                                                          | ** **                                                                     |
| ** **                              | **or                  Paid**                                       | **Stock**                                         | **Option**                     | **Incentive                  Plan**                                                                           | **Compensation**                                                                                              | **All                  other**                                                                                      | ** **                                                                     |
| **Name                  and**           | **in                  Cash**                                       | **Awards**                                        | **Awards**                     | **Compensation**                                                                                              | **Earnings**                                                                                                  | **Compensation**                                                                                                    | **Total**                                                                      |
| **Principal                  Position** | **($)**                                                            | **($)**                                           | **($)**                        | **($)**                                                                                                       | **($)**                                                                                                       | **($)**                                                                                                             | **($)**                                                                        |
| Jay                  Bendis(1)          |           27,200 |         - |     13,600 |                   - |                   - |                    - |             40,800 |
|                                    |                                                               |                                              |                           |                                                                                                          |                                                                                                          |                                                                                                                |                                                                           |
| Patrick                  Gorman(2)      |           26,800 |         - |     12,467 |                   - |                   - |                    - |             39,267 |
|                                    |                                                               |                                              |                           |                                                                                                          |                                                                                                          |                                                                                                                |                                                                           |
| Sherman                  Lazrus(3)      |           18,400 |         - |     11,967 |                   - |                   - |                    - |             30,367 |
|                                    |                                                               |                                              |                           |                                                                                                          |                                                                                                          |                                                                                                                |                                                                           |
| Edward                  Rolquin(4)      |           18,400 |         - |     13,600 |                   - |                   - |                    - |             32,000 |

| (1) | Mr.                Bendis had 900,000 stock options outstanding as of June 30, 2007                of which                750,000 are fully vested.  |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Mr.                Gorman had 900,000 stock options outstanding as of June 30, 2007                of which                750,000 are fully vested.  |
| (3) | Mr.                Lazrus had 900,000 stock options outstanding as of June 30, 2007                of which                800,000 are fully vested.  |
| (4) | Mr.                Rolquin had 900,000 stock options outstanding as of June 30, 2007                of which                750,000 are fully vested. |

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*Table            of Contents*

**Stock      Option Plans**

** **

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*Table            of Contents*

**Item      12.  Security Ownership of Certain Beneficial      Owners and Management.**

|   | · | each                person that we know of who beneficially owns more than 5% of the                outstanding shares of our common                stock, |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | each                current director and executive officer,                and |
|--------|--------|--------------------------------------------------------------------------------|

|   | · | all                executive officers and directors as a                group. |
|--------|--------|--------------------------------------------------------------------------------|

| **Name                and Address**              | **Number                of Shares Owned** | **%                of Outstanding**       |
|--------------------------------------------------|-------------------------------------------|-------------------------------------------|
| **of                Beneficial Owner**           | **Beneficially                (1)(2)**    | **Shares                of Common Stock** |
|                                             |                                      |                                      |
| Linda                B. Grable                   |   19,660,274(3)                 |     6.2%              |
|                                             |                                      |                                      |
| Timothy                B. Hansen                 |    3,350,000(4)            |     1.1%              |
| 6531                NW 18th                Court |                                      |                                      |
| Plantation,                FL 33313              |                                      |                                      |
|                                             |                                      |                                      |
| Allan                L. Schwartz                 |    6,905,520(5)            |     2.2%              |
| 6531                NW 18th                Court |                                      |                                      |
| Plantation,                FL 33313              |                                      |                                      |
|                                             |                                      |                                      |
| Deborah                O’Brien             |    1,286,000(6)            |      0.4%        |
| 6531                NW 18th                Court |                                      |                                      |
| Plantation,                FL 33313              |                                      |                                      |
|                                             |                                      |                                      |
| Sherman                Lazrus                    |      950,000(7)  |      0.3%        |
|                                             |                                      |                                      |
| Patrick                J. Gorman                 |   1,626,160(8)                  |      0.5%        |
|                                             |                                      |                                      |
| Edward                Rolquin                    |      820,000(7)  |      0.3%        |
|                                             |                                      |                                      |
| Jay                S. Bendis                     |      865,000(7)  |      0.3%        |
|                                             |                                      |                                      |
| All                officers and directors        |  15,802,680(9)                       |      5.1%        |
| as                a group (7 persons)            |                                      |                                      |
|                                             |                                      |                                      |
| All                beneficial owners             |  35,462,954(10)                      |    11.3%                   |
| Listed                above (8 persons)          |                                      |                                      |

| (1)    | Except                as indicated in the footnotes to this table, based on information                provided                by such persons, the persons named in the table above have sole voting                power and investment power with respect to all shares of common stock                shown beneficially owned by them.                                                                                                                                                                         |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)    | Percentage                of ownership is based on 318,205,363 shares of common stock outstanding                as                of September 12, 2007 plus each person’s options that are exercisable                within 60 days.  Shares of common stock subject to stock options                that are exercisable within 60 days as of September 12, 2007 are                deemed                outstanding for computing the percentage of that person and the                group. |
| (3)    | Based                on the last filing of record includes 3,250,000 shares subject to                options                and 16,410,274 shares owned by Linda B. Grable.  Ms. Grable                retired on April 15, 2004.                                                                                                                                                                                                                                                                        |
| (4)    | Mr.                Hansen was issued 100,000 restricted shares pursuant to his employment                agreement dated July 8, 2004.  Includes 3,250,000 shares subject                to options.                                                                                                                                                                                                                                                                                                      |
| (5)    | Includes                2,850,000 shares subject to options and 9,000 shares owned by the                wife of                Allan L. Schwartz, Carolyn Schwartz, of which he disclaims beneficial                ownership.                                                                                                                                                                                                                                                                                     |
| (6)    | Includes                776,000 shares subject to options.                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (7)    | Includes                850,000 shares of options owned by Sherman Lazrus, 800,000 shares                of                options owned by Edward Rolquin and 800,000 shares of options owned                by Jay                S. Bendis.                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (8)    | Includes                850,000 shares subject to options and 183,356 shares owned by the                wife of                Patrick J. Gorman, Diana Gorman, of which he disclaims beneficial                ownership.                                                                                                                                                                                                                                                                                         |

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*Table            of Contents*

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (9)    | Includes                10,176,000 shares subject to options held by, Timothy Hansen, Allan                Schwartz, Deborah O’Brien, Sherman Lazrus, Patrick J. Gorman, Edward                Rolquin and Jay S. Bendis.  Also includes 9,000 shares owned by                the wife of Allan L. Schwartz, Carolyn Schwartz, of which he disclaims                beneficial ownership and 183,356 shares owned by the wife of Patrick                J.                Gorman, Diana Gorman, of which he disclaims beneficial                ownership. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (10)   | Includes                all of the shares in footnote 9 plus 3,250,000 shares subject to                options                held by Linda B. Grable.                                                                                                                                                                                                                                                                                                                                                                                                                    |

**Dividend      Policy**

**Item      13.  Certain Relationships and Related      Transactions**

**Item      14.  Principal Accounting Fees and      Services**

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*Table            of Contents*

**Item        15.  Exhibits, Financial Statement Schedules,        and Reports on Form 8-K**

| **EXHIBIT** | **DESCRIPTION** |
|-------------|-----------------|

| 3.1   | Articles                of Incorporation (Florida)- Incorporated by reference to Exhibit                3(a) of                our Form 10-KSB for the fiscal year ending June 30,                1995.                                                                                                                   |
|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2   | Amendment                to Articles of Incorporation (Designation of Series A Convertible                Preferred Shares) - Incorporated by reference to Exhibit                3.  (i). 6 of our Form 10-KSB for the fiscal year ending June                30, 1996.  File number 033-04008.      |
| 3.3   | Amendment                to Articles of Incorporation (Designation of Series B Convertible                Preferred Shares).  Incorporated by reference to our                Registration Statement on Form S-1 dated July 1, 1997.                                                                            |
| 3.4   | Amendment                to Articles of Incorporation (Designation of Series C Convertible                Preferred Shares).  Incorporated by reference to our Form 8-K                dated October 15, 1997.                                                                                                  |
| 3.5   | Amendment                to Articles of Incorporation (Designation of Series D Convertible                Preferred Shares).  Incorporated by reference to our Form 8-K                dated January 12, 1998.                                                                                                  |
| 3.6   | Amendment                to Articles of Incorporation (Designation of Series E Convertible                Preferred Shares).  Incorporated by reference to our Form 8-K                dated February 19,1998.                                                                                                  |
| 3.7   | Amendment                to Articles of Incorporation (Designation of Series F Convertible                Preferred Shares).  Incorporated by reference to our Form 8-K                dated March 6, 1998.                                                                                                     |
| 3.8   | Amendment                to Articles of Incorporation (Designation of Series H Convertible                Preferred Shares).  Incorporated by reference to our                Registration Statement on Form S-2 File Number                333-59539.                                                          |
| 3.9   | Certificate                of Dissolution - is incorporated by reference to Exhibit (3)(a) of                our                Form 10-KSB for the fiscal year ending June 30, 1995.                                                                                                                                     |
| 3.10  | Articles                of Incorporation and By- Laws (New Jersey) -are incorporated by reference                to Exhibit 3 (i) of our Form 10-SB, as amended, file number 0-26028,                filed                on May 6, 1995 ("Form 10-SB").                                                                  |
| 3.11  | Certificate                and Plan of Merger - is incorporated by reference to Exhibit 3(i)                of the                Form 10-SB.                                                                                                                                                                             |
| 3.12  | Certificate                of Amendment - is incorporated by reference to Exhibit 3(i) of the                Form                10-SB.                                                                                                                                                                                   |
| 3.13  | Amended                Certificate of Amendment-Series G Designation.                                                                                                                                                                                                                                                     |
| 3.14  | Certificate                of Amendment-Series I Designation                                                                                                                                                                                                                                                              |
| 3.15  | Amended                Certificate of Amendment-Series B Designation                                                                                                                                                                                                                                                      |
| 3.16  | Certificate                of Amendment-Series K Designation.  Incorporated by reference to                our Form 10-KSB for the fiscal year ending June 30, 2000 filed on                September 14, 2000.                                                                                                 |
| 10.2  | Patent                Licensing Agreement.  Incorporated by reference to our                Registration Statement on Form S-2, File Number                333-59539.                                                                                                                                           |
| 10.3  | Incentive                Stock Option Plan - is incorporated by reference to Exhibit 10(b)                of the                Form 10-SB.                                                                                                                                                                               |
| 10.60 | Employment                Agreement with Deborah O’Brien, Senior Vice President dated September 15,                2003.                                                                                                                                                                                            |
| 10.61 | Fourth                Private Equity Credit Agreement between IDSI and Charlton Avenue                LLC dated                as of January 9, 2004, with exhibits.  Incorporated by reference                to our Form S-2, File Number 333-112377 filed on January 30,                2004.                |
| 10.62 | Registration                Rights Agreement between IDSI and Charlton Avenue, LLC dated as of                January                9, 2004.  Incorporated by reference to our Form S-2, File Number                333-112377 filed on January 30, 2004.                                                      |
| 10.63 | Retirement                Agreement between IDSI and Linda B. Grable dated April 15,                2004.  Incorporated by reference to our Form S-2, File Number                333-116694 filed on June 21, 2004.                                                                                             |
| 10.64 | Employment                Agreement with Timothy B. Hansen, Chief Executive Officer dated July                8,                2004.  Incorporated by reference to our Form 10-K filed on                September 17, 2004.                                                                                   |
| 10.65 | Employment                Agreement with Edward Horton, Chief Operating Officer dated August                15,                2004.  Incorporated by reference to our Form 10-K filed on                September 17, 2004.                                                                                    |
| 10.66 | One-Year                Employment Extension Agreement with Allan L. Schwartz, Executive                Vice                President and Chief Financial Officer dated August 30,                2004.  Incorporated by reference to our Form 10-K filed on                September 17, 2004.                 |
| 10.67 | Stock                Option Agreement with Timothy B. Hansen, Chief Executive Officer,                dated                February 23, 2005.  Incorporated by reference to our                Registration Statement on Form S-2, File Number 333-123197 filed                on March                8, 2005. |
| 10.68 | One-Year                Employment Agreement with Allan L. Schwartz, Executive Vice President                and                Chief Financial Officer dated September 12, 2005.  Incorporated                by reference to our Form 10-K filed on September 13,                2005.                        |
| 10.69 | Fifth                Private Equity Credit Agreement between IDSI and Charlton Avenue                LLC dated                March 21, 2006 with all exhibits.  Incorporated by reference to                our Form S-1, File Number 333-132664 filed on March 23,                2006.                       |

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*Table            of Contents*

| 10.70 | License                Agreement dated as of June 16, 2006, as amended as of August 30,                2006,                between Bioscan, Inc. and Imaging Diagnostic Systems,                Inc.  Incorporated by reference to our Form 8-K, filed on                September 5, 2006.                                                                      |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.71 | One-Year                Employment Agreement with Allan L. Schwartz, Executive Vice President                and                Chief Financial Officer dated September 12, 2006.  Incorporated                by reference to our Form 10-K filed on September 13,                2006.                                                                          |
| 10.72 | One-Year                Employment Agreement with Deborah O’Brien, Senior Vice President dated                September 12, 2006.  Incorporated by reference to our Form 10-K                filed on September 13, 2006.                                                                                                                                   |
| 10.73 | Employment                Agreement dated as of January 18, 2007, between Imaging Diagnostic                Systems, Inc. and Timothy B. Hansen.  Incorporated by reference                to our Form 8-K filed on January 23, 2007.                                                                                                                             |
| 10.74 | Stock                Option Agreement dated as of January 18, 2007, between Imaging Diagnostic                Systems, Inc. and Timothy B. Hansen.  Incorporated by reference                to our Form 8-K filed on January 23, 2007.                                                                                                                           |
| 10.75 | One-Year                Employment and Stock Option Agreement dated as of August 30, 2007                between                Imaging Diagnostic Systems, Inc. and Allan L. Schwartz, Executive                Vice                President and Chief Financial Officer.  Incorporated by                reference to our Form 8-K filed on September 6, 2007. |
| 10.76 | One-Year                Employment and Stock Option Agreement dated as of August 30, 2007                between                Imaging Diagnostic Systems, Inc. and Deborah O’Brien, Senior Vice                President.  Incorporated by reference to our Form 8-K filed on                September 6, 2007.                                           |
| 10.77 | 2007                Non-Statutory Stock Option Plan                                                                                                                                                                                                                                                                                                                         |
| 10.78 | Agreement                of Sale by and between Imaging Diagnostic Systems, Inc. and Superfun                B.V.                dated September 13, 2007 including Form of Lease Agreement (Exhibit                D).  Incorporated by reference to our Form 8-K filed on                September 13, 2007.                                                    |
| 14.1  | Code                of Ethics.                                                                                                                                                                                                                                                                                                                                              |
| 31.1  | Certification                by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as                Adopted                Pursuant to Section 302 of the Sarbanes-Oxley Act of                2002.                                                                                                                                                              |
| 31.2  | Certification                by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as                Adopted                Pursuant to Section 302 of the Sarbanes-Oxley Act of                2002.                                                                                                                                                              |
| 32.1  | Certification                by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as                Adopted                Pursuant to Section 906 of the Sarbanes-Oxley Act of                2002.                                                                                                                                                              |
| 32.2  | Certification                by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as                Adopted                Pursuant to Section 906 of the Sarbanes-Oxley Act of                2002.                                                                                                                                                              |

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*Table            of Contents*

**SIGNATURES**

|   | By:    | /s/                  Timothy B. Hansen                                                    |
|--------|--------|-------------------------------------------------------------------------------------------|
|   |   | Timothy                  B. Hansen, Chief Executive Officer and                  Director |

| **Signatures**                         | **Title**                                            | **Date**                            |
|----------------------------------------|------------------------------------------------------|-------------------------------------|
|                                   |                                                 |                                |
|                                   |                                                 |                                |
| /s/Timothy                  B. Hansen  | Chief                  Executive Officer             | September                  13, 2007 |
| Timothy                  B. Hansen     | and                  Director                        |                                |
|                                   |                                                 |                                |
|                                   |                                                 |                                |
| /s/Allan                  L. Schwartz  | Director,                  Executive Vice-President, | September                  13, 2007 |
| Allan                  L. Schwartz     | and                  Chief Financial Officer         |                                |
|                                   | (Principal                  Accounting and Financial |                                |
|                                   | Officer)                                             |                                |
|                                   |                                                 |                                |
|                                   |                                                 |                                |
| /s/                  Jay S. Bendis     | Co-Chairman                  of the Board            | September                  13, 2007 |
| Jay                  S. Bendis         | and                  Director                        |                                |
|                                   |                                                 |                                |
|                                   |                                                 |                                |
| /s/                  Patrick J. Gorman | Co-Chairman                  of the Board            | September                  13, 2007 |
| Patrick                  J. Gorman     | and                  Director                        |                                |
|                                   |                                                 |                                |
|                                   |                                                 |                                |
| /s/                  Sherman Lazrus    | Director                                             | September                  13, 2007 |
| Sherman                  Lazrus        |                                                 |                                |
|                                   |                                                 |                                |
|                                   |                                                 |                                |
| /s/                  Edward Rolquin    | Director                                             | September                  13, 2007 |
| Edward                  Rolquin        |                                                 |                                |

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