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

| 5307 NW      35th Court,      Plantation, FL. | 33309           |
|----------------------------------------------------|-----------------|
| (address      of principal office)                 | (Zip      Code) |

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

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TABL

| PART      I        |                                                                                                         | Page      No                                                                                 |
|--------------------|--------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------|
|               |                                                                                                         |                                                                                         |
| ITEM      1.       | Our      Business                                                                                            | 3                                                                                            |
| ITEM      1A       | Risk      Factors                                                                                            | 14                                                                                           |
| ITEM      1B       | Unresolved      Staff Comments                                                                               | 26                                                                                           |
| ITEM      2.       | Description      of Our Property                                                                             | 26                                                                                           |
| ITEM      3.       | Legal      Proceedings                                                                                       | 26                                                                                           |
| ITEM      4.       | Submission      of Matters to a Vote of Securities Holders                                                   | 26                                                                                           |
|               |                                                                                                         |                                                                                         |
|               |                                                                                                         |                                                                                         |
| PART      II       |                                                                                                         |                                                                                         |
|               |                                                                                                         |                                                                                         |
| ITEM      5.       | Market      for Registrant’s Common Equity, Related Stockholder Matters      and                       | 27                                                                                           |
|               | Issuer      Purchasers of Equity Securities                                                                  |                                                                                         |
| ITEM      6.       | Selected      Financial Data                                                                                 | 33                                                                                           |
| ITEM      7.       | Management’s      Discussion and Analysis of Financial Conditions and Results of      Operations  |                    34  |
| ITEM      7A.      | Quantitative      and Qualitative Disclosures About Market Risk                                              | 41                                                                                           |
| ITEM      8.       | Financial      Statements and Supplementary Data                                                             | 42                                                                                           |
| ITEM      9.  | Changes      In and Disagreements with Accountants on Accounting and Financial      Disclosure     |                   101            |
| ITEM      9A       | Controls      and Procedures                                                                                 | 101                                                                                          |
| ITEM      9B       | Other      Information                                                                                       | 104                                                                                          |
|               |                                                                                                         |                                                                                         |
|               |                                                                                                         |                                                                                         |
| PART      III      |                                                                                                         |                                                                                         |
|               |                                                                                                         |                                                                                         |
| ITEM      10.      | Directors,      Executive Officers and Corporate Governance                                                  | 105                                                                                          |
| ITEM      11.      | Executive      Compensation                                                                                  | 109                                                                                          |
| ITEM      12.      | Security Ownership of Certain Beneficial Owners and      Management and                                      | 118                                                                                          |
|               | Related Stockholder Matters                                                                                  |                                                                                         |
| ITEM      13.      | Certain Relationships and Related Transactions, and      Director Independence                               | 118                                                                                          |
| ITEM      14.      | Principal Accounting Fees and Services                                                                       | 119                                                                                          |
|               |                                                                                                         |                                                                                         |
|               |                                                                                                         |                                                                                         |
| PART      IV       |                                                                                                         |                                                                                         |
|               |                                                                                                         |                                                                                         |
| ITEM      15.      | Exhibits and Financial Statement    Schedules                                                                | 120                                                                                          |
|               |                                                                                                         |                                                                                         |
| SIGNATURES         |                                                                                                         | 122                                                                                          |

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Item 1.  
Our 

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| 1) | Humboldt      University of Berlin, Charité Hospital, Berlin, Germany                 |
|----|--------------------------------------------------------------------------------------------|
| 2) | The      Comprehensive Cancer Centre, Gliwice, Poland (Two  Systems)                       |
| 3) | Catholic      University Hospital, Rome, Italy                                             |
| 4) | Friendship      Hospital, Beijing,  China                                        |
| 5) | Tianjin      Medical University’s Cancer Institute and Hospital, Tianjin,      China |

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| 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%         |

Item 1A

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| · | demonstrator      sites |
|--------|-------------------------|

| · | clinical      collaboration sites |
|--------|-----------------------------------|

| · | pre-market      approval process, |
|--------|-----------------------------------|

| · | anticipated      commercialization of the CTLM®, and |
|--------|-----------------------------------------------------------|

| · | other      research and development programs |
|--------|----------------------------------------------|

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| · | research,      engineering and developmentprograms, |
|--------|-----------------------------------------------------|

| · | pre-clinical      and clinical testing of the family ofproducts, |
|--------|------------------------------------------------------------------|

| · | regulatory      processes, |
|--------|----------------------------|

| · | inventory, |
|--------|------------|

| · | marketing      programs, and |
|--------|------------------------------|

| · | operating      expenses (including general and administrative  expenses). |
|--------|---------------------------------------------------------------------------|

| · | the      progress of our research and development  projects, |
|--------|--------------------------------------------------------------|

| · | the      progress of pre-clinical and clinical testing on other proposed      products, |
|--------|-----------------------------------------------------------------------------------------|

| · | the      time and cost involved in obtaining regulatory  approvals, |
|--------|---------------------------------------------------------------------|

| · | the      cost of filing, prosecuting, defending and enforcing any patent claims and      other intellectual property rights; competing technological and market      developments; changes and developments in our existing collaborative,      licensing and other relationships and the terms of any new collaborative,      licensing and other arrangements that we may establish,  and |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | the      development of commercialization activities and    arrangements. |
|--------|---------------------------------------------------------------------------|

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| · | the      number of common shares authorized and outstanding,                                                                |
|--------|-----------------------------------------------------------------------------------------------------------------------------|
| · | the      market price of the common stock at the time of each preferred stock or      debenture sale, and                   |
| · | number      of common shares the preferred stock or debentures would have been      convertible into at the time of thesale |

|   | · | draw      on our Sixth Private Equity Agreement pursuant to a prior registration      statement which has been declaredeffective |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------|

|   | · | seek      capital through debt or equity financing which may include the issuance of      convertible debentures or convertible preferred stock whose rights and      preferences are superior to those of the common stockholders,      and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | attempt      to negotiate the best transactions possible taking into account the impact      on our shareholders, dilution, loss of voting power and the possibility of      a change-in-control. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the      percentage of shares outstanding that will be held by these holders upon      conversion will increaseaccordingly, |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------|

|   | · | the      lower the market price the greater the number of shares to be issued to      these holders upon conversion, thus increasing the potential profits to      the holder when the price per share later increases and the holder sells      the common shares, |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the      preferred stockholders' and debenture holders’ potential for increased      share issuance and profit, including profits derived from short sales of      our common stock, in addition to a stock overhang of an indeterminable      amount, may depress the price of our common  stock, |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the      sale of a substantial amount of preferred stock or debentures to      relatively few holders could effectuate a possible change-in-control,      and |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | in      the event of our voluntary or involuntary liquidation while the preferred      stock or debentures are outstanding, the holders of those securities will      be entitled to a preference in distribution of our    property. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| · | the      timing and results of our clinical trials or those of our      competitors, |
|--------|--------------------------------------------------------------------------------------|

| · | governmental      regulation, |
|--------|-------------------------------|

| · | healthcare      legislation, |
|--------|------------------------------|

| · | geopolitical      events, |
|--------|---------------------------|

| · | equity      or debt financing, and |
|--------|------------------------------------|

| · | developments      in patent or other proprietary rights pertaining to our competitors or us,      including litigation, fluctuations in our operating results, and market      conditions for medical device company stocks and life science stocks in      general. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | 508,960,573      shares for complete utilization of the Sixth Private Equity Credit      Agreement |
|--------|--------|----------------------------------------------------------------------------------------------------|

|   | · | 23,726,561      shares required for the exercise of all outstanding  options |
|--------|--------|------------------------------------------------------------------------------|

|   | · | 45,473,686      shares required for the full conversion of the $800,000 Whalehaven      debentures |
|--------|--------|----------------------------------------------------------------------------------------------------|

|   | · | 44,444,444      shares required for the full exercise of the Whalehaven      warrants |
|--------|--------|---------------------------------------------------------------------------------------|

|   | · | 5,333,332      shares required for the full exercise of the warrants issued to the      placement agent |
|--------|--------|---------------------------------------------------------------------------------------------------------|

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| · | 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 regulatoryrequirements. |
|--------|-----------------------------------------------------------------|

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

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

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

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

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| · | 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 timelybasis. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

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Item 1B

Item 2

Item 3.

Item 4.

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Item 5.

| QUARTER      ENDING                             | High      Bid | Low      Bid |
|-------------------------------------------------|---------------|--------------|
|                                            |          |         |
| 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                              | $0.088        | $0.035       |
| Second      Quarter                             | $0.074        | $0.045       |
| Third      Quarter                              | $0.055        | $0.046       |
| Fourth      Quarter                             | $0.049        | $0.02        |
|                                            |          |         |
| FISCAL      YEAR 2009                           |          |         |
| First      Quarter (through September 11, 2008) | $0.055        | $0.012       |

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| First      Installment  |   8/02/2007 | $1,100,000.00                            |
|-------------------------|-----------------------|------------------------------------------|
| Second      Installment |   9/21/2007 | $1,100,000.00                            |
| Third      Installment  | 12/14/2007            |    $550,000.00            |
| Fourth      Installment |   1/04/2008 |    $550,000.00            |
| Fifth      Installment  |   1/18/2008 | $1,056,000.00                            |
| Final      Payment      |   3/26/2008 |      $44,027.00 |

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| 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, 2008 |         |   | June      30, 2007 |   |        | June      30, 2006 |   |   | June      30, 2005 |   |   | June      30, 2004 |   |
|                                                                                                                             |   |               |         |   |               |   |        |               |   |   |               |   |   | (Restated) |   |
| Sales                                                                                                                            |   | $                  | 39,647       |   |               | $      | 65,136      |               |   | $      | 675,844            |   |   | $ | 374,952 |   |   | $ | 733,211 |   |
|                                                                                                                             |   |               |         |   |               |   |        |               |   |   |               |   |   |   |   |   |   |   |   |   |
| Cost      of Sales                                                                                                               |   |               | 20,944       |   |               |   | 17,870      |               |   |   | 316,189            |   |   |   | 166,685 |   |   |   | 284,682 |   |
|                                                                                                                             |   |               |         |   |               |   |        |               |   |   |               |   |   |   |   |   |   |   |   |   |
| Gross      Profit                                                                                                                |   |               | 18,703       |   |               |   | 47,266      |               |   |   | 359,655            |   |   |   | 208,267 |   |   |   | 448,529 |   |
|                                                                                                                             |   |               |         |   |               |   |        |               |   |   |               |   |   |   |   |   |   |   |   |   |
| Operating      Expenses                                                                                                          |   |               | 6,232,663    |   |               |   | 7,123,347   |               |   |   | 6,984,057          |   |   |   | 7,338,806 |   |   |   | 8,160,982 |   |
|                                                                                                                             |   |               |         |   |               |   |        |               |   |   |               |   |   |   |   |   |   |   |   |   |
| Operating      Loss                                                                                                              |   |               | (6,213,960   | )      |               |   | (7,076,081  | )                  |   |   | (6,624,402         | )      |   |   | (7,130,539 | ) |   |   | (7,712,453 | ) |
|                                                                                                                             |   |               |         |   |               |   |        |               |   |   |               |   |   |   |   |   |   |   |   |   |
| Gain      (Loss) on sale of fixed assets                                                                                         |   |               | 1,609,525    |   |               |   | -           |               |   |   | (2,439             | )      |   |   | - |   |   |   | (5,669 | ) |
| Interest      income                                                                                                             |   |               | 13,377       |   |               |   | 11,455      |               |   |   | 8,416              |   |   |   | 5,680 |   |   |   | 9,305 |   |
| Other      income                                                                                                                |   |               | 7,827        |   |               |   | 250,001     |               |   |   | 21,500             |   |   |   | 409,962 |   |   |   | - |   |
| Interest      expense                                                                                                            |   |               | (40,447      | )      |               |   | (387,697    | )                  |   |   | (565,797           | )      |   |   | (598,021 | ) |   |   | (694,142 | ) |
|                                                                                                                             |   |               |         |   |               |   |        |               |   |   |               |   |   |   |   |   |   |   |   |   |
| Net      Loss                                                                                                                    |   |               | (4,623,678   | )      |               |   | (7,202,322  | )                  |   |   | (7,162,722         | )      |   |   | (7,312,918 | ) |   |   | (8,402,959 | ) |
|                                                                                                                             |   |               |         |   |               |   |        |               |   |   |               |   |   |   |   |   |   |   |   |   |
| Dividends      on cumulative Pfd. stock:                                                                                         |   |               |         |   |               |   |        |               |   |   |               |   |   |   |   |   |   |   |   |   |
| From      discount at issuance                                                                                                   |   |               | -            |   |               |   | -           |               |   |   | -                  |   |   |   | - |   |   |   | - |   |
| Earned                                                                                                                           |   |               | -            |   |               |   | -           |               |   |   | -                  |   |   |   | - |   |   |   | - |   |
|                                                                                                                             |   |               |         |   |               |   |        |               |   |   |               |   |   |   |   |   |   |   |   |   |
| Net      loss applicable to                                                                                                      |   |               |         |   |               |   |        |               |   |   |               |   |   |   |   |   |   |   |   |   |
|      common      shareholders                                                                           |   | $                  | (4,623,678   | )      |               | $      | (7,202,322  | )                  |   | $      | (7,162,722         | )      |   | $ | (7,312,918 | ) |   | $ | (8,402,959 | ) |
|                                                                                                                             |   |               |         |   |               |   |        |               |   |   |               |   |   |   |   |   |   |   |   |   |
|                                                                                                                             |   |               |         |   |               |   |        |               |   |   |               |   |   |   |   |   |   |   |   |   |
| Net      Loss per common share                                                                                                   |   | $                  | (0.01        | )      |               | $      | (0.03       | )                  |   | $      | (0.03              | )      |   | $ | (0.04 | ) |   | $ | (0.05 | ) |
| Weighted      avg. no. of common shares,                                                                                         |   |               |         |   |               |   |        |               |   |   |               |   |   |   |   |   |   |   |   |   |
|     Basic      & Diluted                                                                                 |   |               | 318,673,749  |   |               |   | 271,667,256 |               |   |   | 218,846,738        |   |   |   | 185,636,553 |   |   |   | 167,982,750 |   |
|                                                                                                                             |   |               |         |   |               |   |        |               |   |   |               |   |   |   |   |   |   |   |   |   |
|                                                                                                                             |   |               |         |   |               |   |        |               |   |   |               |   |   |   |   |   |   |   |   |   |
| Cash      and Cash Equivalents                                                                                                   |   | $                  | 49,433       |   |               | $      | 477,812     |               |   | $      | 1,467,687          |   |   | $ | 765,523 |   |   | $ | 554,354 |   |
| Total      Assets                                                                                                                |   |               | 1,583,356    |   |               |   | 4,365,427   |               |   |   | 6,250,909          |   |   |   | 5,608,004 |   |   |   | 5,683,328 |   |
| Deficit      accumulated during                                                                                                  |   |               |         |   |               |   |        |               |   |   |               |   |   |   |   |   |   |   |   |   |
|     the      development stage                                                                               |   |               | (102,964,738 | )      |               |   | (98,341,059 | )                  |   |   | (91,138,737        | )      |   |   | (83,976,015 | ) |   |   | (76,663,097 | ) |
| Stockholders'      Equity                                                                                                        |   |               | (468,761     | )      |               |   | 3,441,322   |               |   |   | 5,651,916          |   |   |   | 4,772,538 |   |   |   | 4,170,395 |   |

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

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Item 7A

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Item 8
Finan

| Index      to Financial Statements                           |                                    |
|--------------------------------------------------------------|-----------------------------------------|
|                                                         |                                    |   |
|                                                         |                                    | Page |
|                                                         |                                    |   |
| Report of Independent Registered Public Accounting      Firm | 43                                      |
|                                                         |                                    |   |
| Financial      Statements                                    |                                    |   |
|                                                         |                                    |   |
|                                                         | Balance Sheets                          | 44 |
|                                                         |                                    |   |
|                                                         | Statements of Operations                | 45 |
|                                                         |                                    |   |
|                                                         | Statements of Stockholders’Equity | 46 |
|                                                         |                                    |   |
|                                                         | Statements of Cash Flows                | 57 |
|                                                         |                                    |   |
|                                                         | Notes to Financial Statements           | 59 |

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| IMAGING      DIAGNOSTIC SYSTEMS, INC.                                   |   |
|-------------------------------------------------------------------------|--------|
| (a      Development Stage Company)                                      |   |
|                                                                    |   |   |   |   |   |   |
| Balance Sheets                                                          |   |
|                                                                    |   |   |   |   |   |   |
| June      30, 2008 and 2007                                             |   |
|                                                                    |   |   |   |   |   |   |
|                                                                    |   |   |   |   |   |   |
| ASSETS                                                                  |   |
|                                                                    |   | 2008 |   |   | 2007 |   |
| Current      assets:                                                    |   |   |   |   |   |   |
| Cash      and cash equivalents                                          |   | $ | 49,433 |   |   | $ | 477,812 |   |
| Accounts      receivable, net of allowances for doubtful accounts       |   |   |   |   |   |   |   |   |
|     of      $67,000 and $29,967, respectively       |   |   | 39,718 |   |   |   | 119,866 |   |
| Loans      receivable                                                   |   |   | 57,357 |   |   |   | 63,602 |   |
| Inventories,      net of reserve of $408,000 and $408,000, respectively |   |   | 647,169 |   |   |   | 1,363,156 |   |
| Prepaid      expenses                                                   |   |   | 55,368 |   |   |   | 36,784 |   |
|                                                                    |   |   |   |   |   |   |   |   |
| Total      current assets                                               |   |   | 849,045 |   |   |   | 2,061,220 |   |
|                                                                    |   |   |   |   |   |   |   |   |
| Property      and equipment, net                                        |   |   | 495,076 |   |   |   | 2,030,795 |   |
| Intangible      assets, net                                             |   |   | 239,235 |   |   |   | 273,412 |   |
|                                                                    |   |   |   |   |   |   |   |   |
| Total      assets                                                       |   | $ | 1,583,356 |   |   | $ | 4,365,427 |   |
|                                                                    |   |   |   |   |   |   |   |   |
|                                                                    |   |   |   |   |   |   |   |   |
| LIABILITIES      AND STOCKHOLDERS' EQUITY (Deficit)                     |   |
|                                                                    |   |   |   |   |   |   |   |   |
| Current      liabilities:                                               |   |   |   |   |   |   |   |   |
| Accounts      payable and accrued expenses                              |   | $ | 800,068 |   |   | $ | 585,991 |   |
| Customer      deposits                                                  |   |   | 126,114 |   |   |   | 88,114 |   |
| Short      term debt                                                    |   |   | - |   |   |   | 250,000 |   |
|                                                                    |   |   |   |   |   |   |   |   |
| Total      current liabilities                                          |   |   | 926,182 |   |   |   | 924,105 |   |
|                                                                    |   |   |   |   |   |   |   |   |
| Long-Term      Liabilities:                                             |   |   |   |   |   |   |   |   |
| Commitments      and contingencies                                      |   |   | - |   |   |   | - |   |
| Deferred      Rent Liability                                            |   |   | 85,935 |   |   |   | - |   |
| Deferred      Gain - Sale of Building                                   |   |   | 1,040,000 |   |   |   | - |   |
|                                                                    |   |   |   |   |   |   |   |   |
| Total      Long-Term liabilities                                        |   |   | 1,125,935 |   |   |   | - |   |
|                                                                    |   |   |   |   |   |   |   |   |
| Total      liabilities                                                  |   |   | 2,052,117 |   |   |   | 924,105 |   |
|                                                                    |   |   |   |   |   |   |   |   |
| Stockholders      equity (Deficit):                                     |   |   |   |   |   |   |   |   |
| Common      stock, no par value; authorized 450,000,000 shares,         |   |   |   |   |   |   |   |   |
|  issued      325,517,468 and 311,538,038 shares, respectively      |   |   | 99,651,145 |   |   |   | 99,120,731 |   |
| Additional      paid-in capital                                         |   |   | 2,844,832 |   |   |   | 2,661,650 |   |
| Deficit      accumulated during the development stage                   |   |   | (102,964,738 | ) |   |   | (98,341,059 | ) |
|                                                                    |   |   |   |   |   |   |   |   |
| Total      stockholders' equity (Deficit)                               |   |   | (468,761 | ) |   |   | 3,441,322 |   |
|                                                                    |   |   |   |   |   |   |   |   |
| Total      assets & stockholders' equity (Deficit)                  |   | $ | 1,583,356 |   |   | $ | 4,365,427 |   |
|                                                                    |   |   |   |   |   |   |   |   |
|                                                                    |   |   |   |   |   |   |   |   |
|                                                                    |   |   |   |   |   |   |   |   |
| See      accompanying notes to the financial statements.                |   |

----

FinancialTable 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, 2008 |   |   | June      30, 2007 |   |   | June      30, 2006 |   |   | June      30, 2008 |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      Sales                                               |   | $ | 39,647 |   |   | $ | 65,136 |   |   | $ | 675,844 |   |   | $ | 2,072,875 |   |
| Cost      of Sales                                           |   |   | 20,944 |   |   |   | 17,870 |   |   |   | 316,189 |   |   |   | 885,559 |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross      Profit                                            |   |   | 18,703 |   |   |   | 47,266 |   |   |   | 359,655 |   |   |   | 1,187,316 |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      Expenses:                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    General      and administrative            |   |   | 2,644,556 |   |   |   | 3,012,575 |   |   |   | 3,366,426 |   |   |   | 52,610,301 |   |
|    Research      and development              |   |   | 2,080,265 |   |   |   | 2,089,497 |   |   |   | 2,046,688 |   |   |   | 20,467,297 |   |
|    Sales      and marketing                   |   |   | 1,067,655 |   |   |   | 1,351,521 |   |   |   | 1,210,917 |   |   |   | 8,157,373 |   |
|    Inventory      valuation adjustments       |   |   | 258,375 |   |   |   | 493,596 |   |   |   | 184,219 |   |   |   | 4,670,385 |   |
|    Depreciation      and amortization         |   |   | 181,812 |   |   |   | 176,158 |   |   |   | 175,807 |   |   |   | 2,954,885 |   |
|    Amortization      of deferred compensation |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 4,064,250 |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      Operating Expenses                                |   |   | 6,232,663 |   |   |   | 7,123,347 |   |   |   | 6,984,057 |   |   |   | 92,924,491 |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      Loss                                          |   |   | (6,213,960 | ) |   |   | (7,076,081 | ) |   |   | (6,624,402 | ) |   |   | (91,737,175 | ) |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gain      (Loss) on sale of fixed assets                     |   |   | 1,609,525 |   |   |   | - |   |   |   | (2,439 | ) |   |   | 1,612,671 |   |
| Interest      income                                         |   |   | 13,377 |   |   |   | 11,455 |   |   |   | 8,416 |   |   |   | 307,765 |   |
| Other      income                                            |   |   | 76,954 |   |   |   | 250,001 |   |   |   | 21,500 |   |   |   | 758,417 |   |
| Other      income - LILA Inventory                           |   |   | (69,127 | ) |   |   | - |   |   |   | - |   |   |   | (69,127 | ) |
| Interest      expense                                        |   |   | (40,447 | ) |   |   | (387,697 | ) |   |   | (565,797 | ) |   |   | (6,989,528 | ) |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      Loss                                                |   |   | (4,623,678 | ) |   |   | (7,202,322 | ) |   |   | (7,162,722 | ) |   |   | (96,116,977 | ) |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividends      on cumulative preferred stock:                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    From      discount at issuance             |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (5,402,713 | ) |
|    Earned                                     |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (1,445,047 | ) |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss applicable to                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      common      shareholders       |   | $ | (4,623,678 | ) |   | $ | (7,202,322 | ) |   | $ | (7,162,722 | ) |   | $ | (102,964,737 | ) |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      Loss per common share:                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Basic      and diluted                     |   | $ | (0.01 | ) |   | $ | (0.03 | ) |   | $ | (0.03 | ) |   | $ | (0.97 | ) |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average number of                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   common      shares outstanding:                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Basic      and diluted                     |   |   | 318,673,749 |   |   |   | 271,667,256 |   |   |   | 218,846,738 |   |   |   | 106,483,084 |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See      accompanying notes to the financial statements.     |   |

----

FinancialTable of Contents

| IMAGING DIAGNOSTIC SYSTEMS,      INC.                            |   |
|------------------------------------------------------------------|--------|
| (a Development Stage      Company)                               |   |
|                                                             |   |
| Statements of Stockhoders'    Equity                             |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| From December 10, 1993 (date of      inception) to June 30, 2008 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   | 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 |   |

----

FinancialTable 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, 2008 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   | 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 financialstatements.          |

----

FinancialTable 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, 2008 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   | 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 financialstatements.          |

----

FinancialTable 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, 2008 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   | 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 financialstatements.          |

----

FinancialTable 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, 2008 |   |                      |   |
|                                                             |   |                      |   |   |   |   |   |   |   |   |   | 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.         |   |                      |   |

----

FinancialTable 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, 2008 |   |                      |   |
|                                                             |   |                      |   |   |   |   |   |   |   |   |   | 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.         |   |                      |   |

----

FinancialTable 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, 2008 |   |                      |   |
|                                                             |   |                      |   |   |   |   |   |   |   |   |   | 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.         |   |                      |   |

----

FinancialTable 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, 2008 |   |                      |   |
|                                                             |   |                      |   |   |   |   |   |   |   |   |   | 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.         |   |                      |   |

----

FinancialTable 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, 2008 |   |                      |   |
|                                                             |   |                      |   |   |   |   |   |   |   |   |   | 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.         |   |                      |   |

----

FinancialTable 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, 2008                   |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   | 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 financialstatements.                            |

----

FinancialTable of Contents

| IMAGING DIAGNOSTIC SYSTEMS,      INC.                            |   |
|------------------------------------------------------------------|--------|
| (a Development Stage      Company)                               |   |
|                                                             |   |
| Statements of Stockhoders'      Equity (Deficit) (Continued)     |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| From December 10, 1993 (date of      inception) to June 30, 2008 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   | 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, 2007                                    |   |   | - |   |   | - |   |   | 311,538,038 |   |   | 99,120,731 |   |   | 2,661,650 |   |   | (98,341,059 | ) |   | - |   |   | - |   |   | 3,441,322 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common      stock issued - line of equity transactions           |   |   | - |   |   | - |   |   | 13,979,430 |   |   | 530,414 |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 7,409,543 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fair      Value of Stock Option Expenses                         |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 183,182 |   |   | - |   |   | - |   |   | - |   |   | 183,182 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss                                                    |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (4,623,679 | ) |   | - |   |   | - |   |   | (4,623,679 | ) |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at June 30, 2008                                    |   |   | - |   |   | - |   |   | 325,517,468 |   |   | 99,651,145 |   |   | 2,844,832 |   |   | (102,964,738 | ) |   | - |   |   | - |   |   | (468,761 | ) |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **      See Note 16 for a detailed breakdown by Series.          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See      accompanying notes to the financialstatements.          |

----

FinancialTable 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, 2008 |   |   | June      30, 2007 |   |   | June      30, 2006 |   |   | June      30, 2008 |   |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss                                                                               |   | $ | (4,623,679 | ) |   | $ | (7,202,322 | ) |   | $ | (7,162,722 | ) |   | $ | (96,116,978 | ) |
| Adjustments      to reconcile net loss to net cash                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   used      for operating activities:                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Depreciation      and amortization                             |   |   | 181,812 |   |   |   | 176,158 |   |   |   | 183,450 |   |   |   | 2,962,528 |   |
|     (Gain)      Loss on sale of fixed assets                            |   |   | (1,609,525 | ) |   |   | - |   |   |   | 2,439 |   |   |   | (1,612,671 | ) |
|     Extinguishment      of debt                                         |   |   | - |   |   |   | - |   |   |   | (21,500 | ) |   |   | (431,462 | ) |
|     Inventory      valuation adjustment                                 |   |   | 258,375 |   |   |   | 493,596 |   |   |   | 184,219 |   |   |   | 4,670,385 |   |
|     Amoritization      of deferred compensation                         |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 4,064,250 |   |
|     Noncash      interest, compensation and consulting services         |   |   | 40,414 |   |   |   | 367,698 |   |   |   | 565,373 |   |   |   | 18,979,983 |   |
|     Fair      Value of Stock Option Expenses                            |   |   | 183,182 |   |   |   | 431,313 |   |   |   | 632,557 |   |   |   | 1,247,052 |   |
|     (Increase)      decrease in accounts and                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         loans      receivable - employees, net      |   |   | 49,360 |   |   |   | 332,267 |   |   |   | (266,590 | ) |   |   | (202,760 | ) |
|      Increase      (decrease) in allowance for                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         doubful      account                        |   |   | 37,033 |   |   |   | (10,033 | ) |   |   | 40,000 |   |   |   | 67,000 |   |
|     (Increase)      decrease in inventories, net                        |   |   | 457,612 |   |   |   | (85,942 | ) |   |   | (55,625 | ) |   |   | (2,380,385 | ) |
|     (Increase)      decrease in prepaid expenses                        |   |   | (18,584 | ) |   |   | 6,062 |   |   |   | (8,659 | ) |   |   | (55,368 | ) |
|     (Increase)      decrease in other assets                            |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (306,618 | ) |
|     Increase      (decrease) in accounts payable and                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         accrued      expenses                       |   |   | 214,077 |   |   |   | 26,997 |   |   |   | (224,974 | ) |   |   | 965,502 |   |
|     Increase      (decrease) in other current liabilities               |   |   | 38,000 |   |   |   | 48,114 |   |   |   | 10,000 |   |   |   | 126,114 |   |
|     Increase      in deferred rent liability                            |   |   | 85,935 |   |   |   | - |   |   |   | - |   |   |   | 85,935 |   |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Total      adjustments                      |   |   | (82,309 | ) |   |   | 1,786,230 |   |   |   | 1,040,690 |   |   |   | 28,179,485 |   |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Net      cash used for operating activities |   |   | (4,705,988 | ) |   |   | (5,416,092 | ) |   |   | (6,122,032 | ) |   |   | (67,937,493 | ) |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      flows from investing activities:                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Proceeds      from sale of property & equipment           |   |   | 4,357,654 |   |   |   | - |   |   |   | 104 |   |   |   | 4,387,615 |   |
|      Prototype      equipment                                      |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (2,799,031 | ) |
|      Capital      expenditures                                     |   |   | (320,045 | ) |   |   | (16,500 | ) |   |   | (20,079 | ) |   |   | (4,786,765 | ) |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Net      cash used for investing activities |   |   | 4,037,609 |   |   |   | (16,500 | ) |   |   | (19,975 | ) |   |   | (3,198,181 | ) |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 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 | ) |   |   | 250,000 |   |   |   | - |   |   |   | 2,595,029 |   |
|      Proceeds      from issuance of preferred stock                |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 18,039,500 |   |
|      Proceeds      from exercise of stock options                  |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 903,989 |   |
|      Net      proceeds from issuance of common stock               |   |   | 490,000 |   |   |   | 4,192,717 |   |   |   | 6,844,171 |   |   |   | 46,456,878 |   |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        Net      cash provided by financing activities    |   |   | 240,000 |   |   |   | 4,442,717 |   |   |   | 6,844,171 |   |   |   | 71,185,107 |   |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      increase (decrease) in cash and cash equivalents                                   |   |   | (428,379 | ) |   |   | (989,875 | ) |   |   | 702,164 |   |   |   | 49,433 |   |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents at beginning of period                                       |   |   | 477,812 |   |   |   | 1,467,687 |   |   |   | 765,523 |   |   |   | - |   |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents at end of period                                             |   | $ | 49,433 |   |   | $ | 477,812 |   |   | $ | 1,467,687 |   |   | $ | 49,433 |   |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See      accompanying notes to the financial statements.                                    |   |

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| 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, 2008 |   |   | June      30, 2007 |   |   | June      30, 2006 |   |   | June      30, 2008 |   |
| Supplemental      disclosures of cash                        |   |   |   |   |   |   |   |   |   |   |   |   |
|   flow      information:                           |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      paid for interest                                  |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 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                                     |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 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.     |   |

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Notes

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|   | 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. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|                         | Year      Ended    | Year      Ended    | Year      Ended    |
|------------------------------|--------------------|--------------------|--------------------|
|                         | June      30, 2008 | June      30, 2007 | June      30, 2006 |
| Volatility                   | 63.32%             | 72.34%             | 71.11%             |
| Risk      Free Interest Rate | 5%                 | 5%                 | 4%                 |
| Expected      Term           | 8      yrs         | 8      yrs         | 8      yrs         |

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| · | 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. |

|   | (n)      Warranty Reserve |
|--------|---------------------------|

|   | 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, 2008 | June      30, 2007 | June      30, 2006 |
|   | Warranty      Reserve | $8,502             | $14,952            | $24,799            |

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|   | (s)      Reclassifications |
|--------|----------------------------|

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|                                                                              |   | June 30, |      |
|-----------------------------------------------------------------------------------|--------|----------|-----------|
|                                                                              |   | 2008     |      |   | 2007 |   |
| Raw      materials consisting of purchased parts, components and      supplies    |   | $        | 578,144   |   |   | $ | 848,254 |   |
| Work-in      process including units undergoing final inspection and      testing |   |     | 28,939    |   |   |   | 44,058 |   |
| Finished      goods                                                               |   |     | 448,086   |   |   |   | 878,844 |   |
|                                                                              |   |     |      |   |   |   |   |   |
| Sub-Total      Inventories                                                        |   | $        | 1,055,169 |   |   | $ | 1,771,156 |   |
|                                                                              |   |     |      |   |   |   |   |   |
|      Less      Inventory Reserve                         |   |     | (408,000  | ) |   |   | (408,000 | ) |
|                                                                              |   |     |      |   |   |   |   |   |
| Total      Inventory - Net                                                        |   | $        | 647,169   |   |   | $ | 1,363,156 |   |

|                                                  |   | June 30, |       |
|-------------------------------------------------------|--------|----------|------------|
|                                                  |   | 2008     |       |   | 2007 |   |
| Furniture      and fixtures                           |   | $        | 262,264    |   |   | $ | 262,264 |   |
| Building      and land (See Note 8)                   |   |     | -          |   |   |   | 2,092,529 |   |
| Computers,      equipment and software                |   |     | 425,642    |   |   |   | 416,849 |   |
| CTLM®      software costs                        |   |     | 352,932    |   |   |   | 352,932 |   |
| Trade      show equipment                             |   |     | 298,400    |   |   |   | 298,400 |   |
| Clinical      equipment                               |   |     | 432,346    |   |   |   | 121,094 |   |
| Laboratory      equipment                             |   |     | 212,560    |   |   |   | 212,560 |   |
|                                                  |   |     |       |   |   |   |   |   |
| Total      Property & Equipment                   |   |     | 1,984,144  |   |   |   | 3,756,628 |   |
|    Less:      accumulated depreciation |   |     | (1,489,068 | ) |   |   | (1,725,833 | ) |
|                                                  |   |     |       |   |   |   |   |   |
| Total      Property & Equipment - Net             |   | $        | 495,076    |   |   | $ | 2,030,795 |   |

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

|                                                                                       |   | June 30, |    |
|--------------------------------------------------------------------------------------------|--------|----------|---------|
|                                                                                       |   | 2008     |    |   | 2007 |   |
|                                                                                       |   |     |    |   |   |   |
| Patent      license agreement, net of accumulated                                          |   |     |    |   |   |   |
|    amortization      of $341,765 and $307,588 respectively                  |   | $        | 239,235 |   |   | $ | 273,412 |   |
|    UL      & CE approvals, net of accumulated amortization of    $8,225 |   |     |    |   |   |   |   |   |
|         and      $8,225 respectively               |   |     | -       |   |   |   | - |   |
|                                                                                       |   |     |    |   |   |   |   |   |
| Totals                                                                                     |   | $        | 239,235 |   |   | $ | 273,412 |   |

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|                                |   | June 30, |    |
|-------------------------------------|--------|----------|---------|
|                                |   | 2008     |    |   | 2007 |   |
|                                |   |     |    |   |   |   |
| Accounts      payable - trade       |   | $        | 658,524 |   |   | $ | 329,391 |   |
| Accrued      property taxes payable |   |     | 30,819  |   |   |   | 30,819 |   |
| Accrued      compensated absences   |   |     | 47,409  |   |   |   | 138,868 |   |
| Accrued      wages payable          |   |     | 21,855  |   |   |   | - |   |
| Other      accrued expenses         |   |     | 41,461  |   |   |   | 86,913 |   |
|                                |   |     |    |   |   |   |   |   |
| Totals                              |   | $        | 800,068 |   |   | $ | 585,991 |   |

|                   |   | June 30, |    |
|------------------------|--------|----------|---------|
|                   |   | 2008     |    |   | 2007 |   |
|                   |   |     |    |   |   |   |
| Customer      deposits |   | $        | 126,114 |   |   | $ | 88,114 |   |
|                   |   |     |    |   |   |   |   |   |
| Total                  |   | $        | 126,114 |   |   | $ | 88,114 |   |

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|              |   | June 30, |   |
|-------------------|--------|----------|--------|
|              |   | 2008     |   |   | 2007 |   |
|              |   |     |   |   |   |   |
| Loan      payable |   | $        | -      |   |   | $ | 250,000 |   |
|              |   |     |   |   |   |   |   |   |
| Total             |   | $        | -      |   |   | $ | 250,000 |   |

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|                           |   | Payments      Due by Fiscal Year |    |
|--------------------------------|--------|----------------------------------|---------|
|                           |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                           |   | Total                            |    |   | 2009 |   |   | 2010 |   |   | 2011 |   |   | 2012 |   |   | 2013 |   |
| Capital      Lease Obligations |   | $                                | 14,485  |   |   | $ | 3,888 |   |   | $ | 3,888 |   |   | $ | 3,888 |   |   | $ | 2,821 |   |   | $ | - |   |
|                           |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      Lease -         |   | $                                | 38,160  |   |   | $ | 38,160 |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Bright      Investments, LLC   |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                           |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      Lease –   |   | $                                | 643,392 |   |   | $ | 102,442 |   |   | $ | 127,414 |   |   | $ | 132,489 |   |   | $ | 137,773 |   |   | $ | 143,273 |   |
| Fort      Lauderdale Business  |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Plaza      Associates          |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

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|   | 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. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| IMAGING DIAGNOSTIC SYSTEMS,      INC.            |   |
|--------------------------------------------------|--------|
| (a Development Stage      Company)               |   |
|                                             |   |
| Notes to Financial Statements      (Continued)   |   |
|                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (17) 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 |   |   |   |   |   |   |   |

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|                              | 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      |                             |             -       |   |

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| 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        |
|                              |                                                                      |                          |   |                                                                |                         |

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| IMAGING      DIAGNOSTIC SYSTEMS, INC. |
|---------------------------------------|

| Outstanding      at June 30, 2007 |   8,408,597                  |   .96 |   |   8,590,415 |    .22 |
|-----------------------------------|----------------------------------------|-----------------|--------|-----------------------|-----------------------|
|    Granted         |                                   |            |   |   2,336,526 |    .05 |
|    Exercised       |                                   |            |   |                  |                  |
|    Canceled        |      (29,750) |            |   |  (2,707,852)     |    .14 |
|                              |                                   |            |   |                  |                  |
| Outstanding      at June 30, 2008 |   8,378,847                  |   .90 |   |   8,219,089 |    .20 |

| **      On June 25, 1999, the exercise price of 502,225 outstanding incentive      stock options was restated to $.60 per share.  The Company has      recorded compensation of $330,569 during the fiscal year ended June 30,      1999 as a result of this re-pricing, in accordance with the guidelines      discussed in the FASB Interpretation No. 44, of APB Opinion No.      25. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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        |            - |                  |                             |              - |   |
|                              |                                                                |                  |                             |   |   |

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| IMAGING      DIAGNOSTIC SYSTEMS, INC. |
|---------------------------------------|

| Director      Plan (Continued) |
|--------------------------------|

| 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 |
|    Granted         |            - |                  |   |        600,000                               |    .05 |
|    Exercised       |            - |                  |   |              - |                  |
|    Canceled        |            - |                  |   |              - |                  |
|                              |                                                                |                  |   |                                                                            |                  |
| Outstanding      at June 30, 2008 |      500,000                               |    .39 |   |     3,700,000                                               |    .27 |

|                        |   | June 30, 2008 |       |   | June 30, 2007 |   |       | June 30, 2006 |   |
|-----------------------------|--------|---------------|------------|--------|---------------|--------|------------|---------------|--------|
| Employee      ISO           |   |          | 8,367,819  |   |          |   | 8,377,119  |          |   |   | 8,023,860 |   |
| Director      ISO           |   |          | 500,000    |   |          |   | 500,000    |          |   |   | 500,000 |   |
| Employee      Non-Statutory |   |          | 5,723,630  |   |          |   | 3,748,584  |          |   |   | 2,261,800 |   |
| Director      Non-Statutory |   |          | 3,600,000  |   |          |   | 2,550,000  |          |   |   | 1,750,000 |   |
|                        |   |          |       |   |          |   |       |          |   |   |   |   |
| Total                       |   |          | 18,191,449 |   |          |   | 15,175,703 |          |   |   | 12,535,660 |   |

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| (19) | STOCK      OPTIONS (Continued) |
|------|--------------------------------|

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| (19) | STOCK      OPTIONS (Continued) |
|------|--------------------------------|

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FinancialTable of Contents

| (19) | STOCK      OPTIONS (Continued) |
|------|--------------------------------|

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| (19) | STOCK      OPTIONS (Continued) |
|------|--------------------------------|

|                 |             |   | Outstanding      options |   |       | Exercisable      options |   |
|----------------------|------------------|--------|--------------------------|--------|------------|--------------------------|--------|
|                 |             |   |                     |   |       | Weighted                 |   |   |   |   |   |   |   |   |   |   |
|                 |             |   |                     |   |       | average                  |   |   |   |   |   |   |   |   |   |   |
| Range      of        |             |   |                     |   |       | remaining                |   |   | Weighted |   |   |   |   |   | Weighted |   |
| exercise      prices |             |   | Shares                   |   |       | life      (years)        |   |   | avg.      price |   |   | Shares |   |   | avg.      price |   |
| $                    | .035      - 1.25 |   |                     |   | 22,690,386 |                     |   |   | 3.83 |   |   | $ | .36 |   |   |   | 17,083,899 |   |   | $ | .47 |   |
|                 | 1.26      - 2.49 |   |                     |   | 107,550    |                     |   |   | 1.63 |   |   |   | .56 |   |   |   | 107,550 |   |   |   | .56 |   |
|                 | 2.50 - 2.85      |   |                     |   | 1,000,000  |                     |   |   | 2.00 |   |   |   | 2.85 |   |   |   | 1,000,000 |   |   |   | 2.85 |   |
|                 |             |   |                     |   |       |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| $                    | .035 - 2.85      |   |                     |   | 23,797,936 |                     |   |   | 3.74 |   |   | $ | .46 |   |   |   | 18,191,449 |   |   | $ | .60 |   |

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| IMAGING      DIAGNOSTIC SYSTEMS, INC.                        |   |
|--------------------------------------------------------------|--------|
| (a      Development Stage Company)                           |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Notes      to Financial Statements (Continued)               |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| (24) Selected      Quarterly Financial Data (Unaudited) |   |   |   |   |   |   |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Fiscal      2008                                             |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                         |   | Quarter      Ended |   |   | Quarter      Ended |   |   | Quarter      Ended |   |   | Quarter      Ended |   |
|                                                         |   | June      30, 2008 |   |   | March      31, 2008 |   |   | December      31, 2007 |   |   | September      30, 2007 |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      Sales                                               |   | $ | - |   |   | $ | 2,695 |   |   | $ | 9,409 |   |   | $ | 27,543 |   |
| Gross      Profit                                            |   | $ | - |   |   | $ | - |   |   | $ | 4,876 |   |   | $ | 13,827 |   |
| Operating      Loss                                          |   | $ | (1,464,692 | ) |   | $ | (1,584,063 | ) |   | $ | (1,683,645 | ) |   | $ | (1,481,560 | ) |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss applicable to                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      common      shareholders       |   | $ | (1,479,191 | ) |   | $ | 37,762 |   |   | $ | (1,683,975 | ) |   | $ | (1,498,274 | ) |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      Loss per common share                               |   | $ | (0.00 | ) |   | $ | 0.00 |   |   | $ | (0.01 | ) |   | $ | (0.00 | ) |
| Weighted      avg. no. of common shares,                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Basic      & Diluted             |   |   | 318,673,749 |   |   |   | 319,185,450 |   |   |   | 318,303,887 |   |   |   | 316,602,013 |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      and Cash Equivalents                               |   | $ | 49,433 |   |   | $ | 771,633 |   |   | $ | 428,643 |   |   | $ | 1,304,040 |   |
| Total      Assets                                            |   | $ | 1,583,356 |   |   | $ | 2,622,194 |   |   | $ | 4,128,400 |   |   | $ | 5,135,678 |   |
| Deficit      accumulated during                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     the      development stage           |   | $ | (102,964,738 | ) |   | $ | (101,485,828 | ) |   | $ | (101,523,588 | ) |   | $ | (99,839,333 | ) |
| Stockholders'      Equity                                    |   | $ | (468,761 | ) |   | $ | 722,018 |   |   | $ | 660,376 |   |   | $ | 2,242,352 |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 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 |   |

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Item 9.

Item 9A

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MANAGEMENT’S REPORT ON INTERNALCONTROL 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. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Item 9B

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Item 10

|   | · | 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 stockoptions.                        |

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|   | · | 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.  |

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| Name(1)                    | Age    | Position                             | Year Elected or      Appointed |
|----------------------------|--------|--------------------------------------|--------------------------------|
| Linda      B. Grable       | 71     | Chief      Executive Officer and     | 2008                           |
|                       |   | Chairman      of the Board           |                           |
|                       |   |                                 |                           |
| Allan      L. Schwartz     | 66     | Executive      Vice-President, Chief | 1994                           |
|                       |   | Financial      Officer and Director  |                           |
|                       |   |                                 |                           |
| Deborah      O’Brien | 44     | Senior      Vice-President           | 2003                           |

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Item 11

|                                   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |                |    |   | 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   |   | ($)    |    |   | ($)    |   |   | ($)    |   |   | ($)(6) |   |   | ($)                 |    |   | ($)                |   |   | ($)            |   |   | ($)    |   |
| Linda      B. Grable                   | 2008   |   |   | 30,000  |   |   |   | -      |   |   |   | -      |   |   |                | 1,667   |   |               |   | -      |           |   |   | -      |   |   |   | - |   |   |   | 31,667 |   |
| CEO      and COB(1)(2)                 | 2007   |   |   | -       |   |   |   | -      |   |   |   | -      |   |   |                | -       |   |               |   | -      |           |   |   | -      |   |   |   | - |   |   |   | - |   |
|                                   | 2006   |   |   | 128,333 |   |   |   | -      |   |   |   | -      |   |   |                | -       |   |               |   | -      |           |   |   | -      |   |   |   | - |   |   |   | 128,333 |   |
|                                   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |                |    |   |               |   |   |           |   |   |   |   |   |   |   |   |   |   |   |   |
|                                   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |                |    |   |               |   |   |           |   |   |   |   |   |   |   |   |   |   |   |   |
| Timothy      B. Hansen                 | 2008   |   |   | 150,000 |   |   |   | -      |   |   |   | -      |   |   |                | 66,311  |   |               |   | -      |           |   |   | -      |   |   |   | - |   |   |   | 216,311 |   |
| CEO      and Director(1),(3)           | 2007   |   |   | 240,810 |   |   |   | -      |   |   |   | -      |   |   |                | 241,960 |   |               |   | -      |           |   |   | -      |   |   |   | - |   |   |   | 482,770 |   |
|                                   | 2006   |   |   | 210,000 |   |   |   | -      |   |   |   | -      |   |   |                | 194,965 |   |               |   | -      |           |   |   | -      |   |   |   | - |   |   |   | 404,965 |   |
|                                   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |                |    |   |               |   |   |           |   |   |   |   |   |   |   |   |   |   |   |   |
|                                   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |                |    |   |               |   |   |           |   |   |   |   |   |   |   |   |   |   |   |   |
| Allan      L. Schwartz                 | 2008   |   |   | 185,802 |   |   |   | -      |   |   |   | -      |   |   |                | 12,500  |   |               |   | -      |           |   |   | -      |   |   |   | - |   |   |   | 198,302 |   |
| Exec      V.P.,CFO and Director(1),(4) | 2007   |   |   | 191,048 |   |   |   | -      |   |   |   | -      |   |   |                | 18,500  |   |               |   | -      |           |   |   | -      |   |   |   | - |   |   |   | 209,548 |   |
|                                   | 2006   |   |   | 185,000 |   |   |   | -      |   |   |   | -      |   |   |                | 20,000  |   |               |   | -      |           |   |   | -      |   |   |   | - |   |   |   | 205,000 |   |
|                                   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |                |    |   |               |   |   |           |   |   |   |   |   |   |   |   |   |   |   |   |
|                                   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |                |    |   |               |   |   |           |   |   |   |   |   |   |   |   |   |   |   |   |
| Deborah      O'Brien                   | 2008   |   |   | 139,588 |   |   |   | -      |   |   |   | -      |   |   |                | 16,018  |   |               |   | -      |           |   |   | -      |   |   |   | - |   |   |   | 155,606 |   |
| Senior      Vice- President(1),(5)     | 2007   |   |   | 130,769 |   |   |   | -      |   |   |   | -      |   |   |                | 35,609  |   |               |   | -      |           |   |   | -      |   |   |   | - |   |   |   | 166,378 |   |
|                                   | 2006   |   |   | 112,169 |   |   |   | -      |   |   |   | -      |   |   |                | 76,800  |   |               |   | -      |           |   |   | -      |   |   |   | - |   |   |   | 188,969 |   |

| (1) | All      Named Executive Officers receive reimbursement for auto expense in the      amount of $500 per month.                                                                                                                                                                                                                                                                                                                                                                                               |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | On      April 16, 2008, Ms. Grable came out of retirement and rejoined the company      as Chairman of the Board and CEO.  Previously, on April 15,      2004 Ms Grable retired.  Under her retirement agreement Ms      Grable was entitled to receive her $280,000 annual salary through December      15, 2005.  Salary recorded for f/y 2006 was      $128,333.                                                                                                       |
| (3) | On      December 27, 2007, Mr. Hansen retired from the Company effective January      1, 2008.  Salary recorded for f/y 2008 includes base salary of      $130,000 plus $19,500 vacation pay.  On January 17, 2007, Mr.      Hansen signed a new employment agreement that increased his salary to      $260,000.  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. |
| (4) | Salary      recorded for f/y 2008 includes base salary of $179,142 plus $6,660      vacation pay.  From April 1, 2008 through June 30, 2008, Mr.      Schwartz deferred $12,025 (25%) of his salary until a time where the      Company secures additional financing.  Salary recorded for f/y      2007 includes base salary of $185,000 plus $6,048 vacation      pay.                                                                                                                 |
| (5) | Salary      recorded for f/y 2008 includes base salary of $135,342 plus $4,246      vacation pay.  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.  Salary recorded for      f/y 2006 includes base salary of $95,000 and $17,169 as additional pay for      duties previously performed by our former COO, Mr.  Horton.                                  |
| (6) | 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.                                                                                                                                                                |

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|                         |   |               |                        |            |          |   |            |            |   |    |                |   |   |    |          |   |                                                |          |   |   |                  |   |   |               |   |
|------------------------------|--------|--------------------|-----------------------------|-----------------|---------------|--------|-----------------|-----------------|--------|---------|---------------------|--------|--------|---------|---------------|--------|-----------------------------------------------------|---------------|--------|--------|-----------------------|--------|--------|--------------------|--------|
|                         |   | Option      Awards |                        | Stock    Awards |          |
|                         |   |               |                        |            |          |   |            |            |   |    |                |   |   |    |          |   |                                                |          |   |   |                  |   |   | Equity             |   |
|                         |   |               |                        |            |          |   |            |            |   |    |                |   |   |    |          |   |                                                |          |   |   |                  |   |   | Incentive          |   |
|                         |   |               |                        |            |          |   |            | Equity          |   |    |                |   |   |    |          |   |                                                |          |   |   | Equity      Incentive |   |   | Plan    Awards:    |   |
|                         |   |               |                        |            |          |   |            | Incentive       |   |    |                |   |   |    |          |   |                                                |          |   |   | Plan    Awards:       |   |   | Marketor           |   |
|                         |   |               |                        |            |          |   |            | Plan    Awards: |   |    |                |   |   |    |          |   |                                                | Market        |   |   | Numberof              |   |   | Payout    Value    |   |
|                         |   | Numberof           |                        |            | Numberof      |   |            | Numberof        |   |    |                |   |   |    | Numberof      |   |                                                | Value of      |   |   | Unearned              |   |   | of    Unearned     |   |
|                         |   | Securities         |                        |            | Securities    |   |            | Securities      |   |    |                |   |   |    | Sharesor      |   |                                                | Sharesor      |   |   | 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 |   |            |            | (#)    |    |                | ($)    |   | Date    |          |   | (#)                                                 |          |   | ($)    |                  |   |   | (#)                |   |   | ($) |   |
| Linda      B. Grable    |   |               | 500,000                |            |          |   | -          |            |   |    | -              |   |   | $       | 2.85     |   | 8/30/2010                                           |          |   |   |                  |   |   |               |   |   |   |   |   |   |   |   |   |
| CEO      and Chairman   |   |               | 500,000                |            |          |   | -          |            |   |    |        -  |   |   | $  | 0.77     |   |             8/30/2011 |          |   |   |                  |   |   |               |   |   |   |   |   |   |   |   |   |
| of      the Board(1)    |   |               |        2,250,000  |            |          |   | -          |            |   |    | -                   |   |   | $  | 0.60     |   |             12/1/2011 |          |   |   |                  |   |   |               |   |   |   |   |   |   |   |   |   |
|                         |   |               | -                      |            |          |   | 1,000,000  |            |   |    | -              |   |   | $  | 0.045    |   |       4/16/2018       |          |   |   |                  |   |   |               |   |   |   |   |   |   |   |   |   |
|                         |   |               |                        |            |          |   |            |            |   |    |                |   |   |    |          |   |                                                |          |   |   |                  |   |   |               |   |   |   |   |   |   |   |   |   |
|                         |   |               |                        |            |          |   |            |            |   |    |                |   |   |    |          |   |                                                |          |   |   |                  |   |   |               |   |   |   |   |   |   |   |   |   |
| Timothy      B. Hansen       |   |               | 1,250,000                   |            |          |   | -               |            |   |    | -                   |   |   | $       | 0.38          |   | 1/1/2011                                            |          |   | -      |                  |   |   | -                  |   |   |   | - |   |   |   | - |   |
| CEO      and Director(2)     |   |               | 1,000,000                   |            |          |   | -               |            |   |    | -                   |   |   | $       | 0.32          |   | 1/1/2011                                            |          |   |   |                  |   |   |               |   |   |   |   |   |   |   |   |   |
|                         |   |               | 1,000,000                   |            |          |   | -               |            |   |    | -                   |   |   | $       | 0.09          |   | 1/1/2011                                            |          |   |   |                  |   |   |               |   |   |   |   |   |   |   |   |   |
|                         |   |               |                        |            |          |   |            |            |   |    |                |   |   |    |          |   |                                                |          |   |   |                  |   |   |               |   |   |   |   |   |   |   |   |   |
|                         |   |               |                        |            |          |   |            |            |   |    |                |   |   |    |          |   |                                                |          |   |   |                  |   |   |               |   |   |   |   |   |   |   |   |   |
| Allan      L. Schwartz  |   |               | 500,000                     |            |          |   | -               |            |   |    | -                   |   |   | $       | 2.85          |   |  8/30/2010                                     |          |   | -      |                  |   |   | -                  |   |   |   | - |   |   |   | - |   |
| Exec      V.P., CFO and      |   |               | 500,000                     |            |          |   | -               |            |   |    | -                   |   |   | $       | 0.77          |   |  8/30/2011                                     |          |   |   |                  |   |   |               |   |   |   |   |   |   |   |   |   |
| Director(3)                  |   |               | 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                                           |          |   |   |                  |   |   |               |   |   |   |   |   |   |   |   |   |
|                         |   |               |                        |            |          |   | 250,000    |            |   |    |                |   |   | $  | 0.058    |   |       8/30/2017       |          |   |   |                  |   |   |               |   |   |   |   |   |   |   |   |   |
|                         |   |               |                        |            |          |   |            |            |   |    |                |   |   |    |          |   |                                                |          |   |   |                  |   |   |               |   |   |   |   |   |   |   |   |   |
|                         |   |               |                        |            |          |   |            |            |   |    |                |   |   |    |          |   |                                                |          |   |   |                  |   |   |               |   |   |   |   |   |   |   |   |   |
| Deborah      O'Brien         |   |               | 200,000                     |            |          |   | -               |            |   |    | -                   |   |   | $       | 0.56          |   |  10/25/2011                                    |          |   | -      |                  |   |   | -                  |   |   |   | - |   |   |   | - |   |
| Senior      Vice-            |   |               | 25,000                      |            |          |   | -               |            |   |    | -                   |   |   | $       | 0.50          |   |  2/02/2012                                     |          |   |   |                  |   |   |               |   |   |   |   |   |   |   |   |   |
| President(4)            |   |               | 301,000                     |            |          |   | 1,000           |            |   |    | -                   |   |   | $       | 1.13          |   | 9/15/2013                                           |          |   |   |                  |   |   |               |   |   |   |   |   |   |   |   |   |
|                         |   |               | 250,000                     |            |          |   | -               |            |   |    | -                   |   |   | $       | 0.11          |   | 9/12/2016                                           |          |   |   |                  |   |   |               |   |   |   |   |   |   |   |   |   |
|                         |   |               |                        |            |          |   | 250,000    |            |   |    |                |   |   | $  | 0.084    |   |            9/15/2017       |          |   |   |                  |   |   |               |   |   |   |   |   |   |   |   |   |

| (1) | Ms.      Grable had 4,250,000 stock options outstanding as of June 30, 2008 of      which 3,250,000 are fully vested.      |
|-----|----------------------------------------------------------------------------------------------------------------------------|
| (2) | Mr.      Hansen had 3,750,000 stock options outstanding as of June 30, 2008 of      which 3,750,000 are fully vested.      |
| (3) | Mr.      Schwartz had 3,100,000 stock options outstanding as of June 30, 2008 of      which 2,850,000 are fully vested.    |
| (4) | Ms.      O’Brien had 1,027,000 stock options outstanding as of June 30, 2008 of      which 776,000 are fully vested. |

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|                       | 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                       | (#)                  | ($)                 |              | (#) | ($) |
| Linda      B. Grable       |                 |                |              |   |   |
| CEO      and               |                 |                |              |   |   |
| Chairman      of the       |                 |                |              |   |   |
| Board                      |                 |                |              |   |   |
|                       |                 |                |              |   |   |
| Timothy      B. Hansen     |                 |                |              |   |   |
| Former      CEO and        | -                    | -                   |              | - | - |
| Director                   |                 |                |              |   |   |
|                       |                 |                |              |   |   |
| Allan      L. Schwartz     |                 |                |              |   |   |
| Exec      V.P., CFO        |                 |                |              |   |   |
| and      Director          | -                    | -                   |              | - | - |
|                       |                 |                |              |   |   |
| Deborah      O'Brien       |                 |                |              |   |   |
| Senior      Vice-President | -                    | -                   |              | - | - |

| 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                   |

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| 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                   |

| 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                   |

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|                    |   |             |   |   |   |   |   |   |   |   |                |   |   | 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)      |   |             | 36,079 |   |   |   | -      |   |   |   | 15,467              |   |   |               | -      |   |           |   | -      |   |   |   | - |   |   |   | 51,546 |   |
|                    |   |             |   |   |   |   |   |   |   |   |                |   |   |               |   |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Patrick      Gorman(2)  |   |             | 34,479 |   |   |   | -      |   |   |   | 13,333              |   |   |               | -      |   |           |   | -      |   |   |   | - |   |   |   | 47,812 |   |
|                    |   |             |   |   |   |   |   |   |   |   |                |   |   |               |   |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Sherman      Lazrus(3)  |   |             | 20,527 |   |   |   | -      |   |   |   | 12,400              |   |   |               | -      |   |           |   | -      |   |   |   | - |   |   |   | 32,927 |   |
|                    |   |             |   |   |   |   |   |   |   |   |                |   |   |               |   |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Edward      Rolquin(4)  |   |             | 17,333 |   |   |   | -      |   |   |   | 7,467               |   |   |               | -      |   |           |   | -      |   |   |   | - |   |   |   | 24,800 |   |

| (1) | Mr.      Bendis had 1,100,000 stock options outstanding as of June 30, 2008 of      which 750,000 are fully vested.  |
|-----|----------------------------------------------------------------------------------------------------------------------|
| (2) | Mr.      Gorman had 1,100,000 stock options outstanding as of June 30, 2008 of      which 750,000 are fully vested.  |
| (3) | Mr.      Lazrus had 1,100,000 stock options outstanding as of June 30, 2008 of      which 800,000 are fully vested.  |
| (4) | Mr.      Rolquin had 1,100,000 stock options outstanding as of June 30, 2008 of      which 900,000 are fully vested. |

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Item 12

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

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

|   | · | all      executive officers and directors as agroup. |
|--------|--------|------------------------------------------------------|

| 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)      |     5.5%        |
| 5307      NW 35th      Terrace  |                           |                                |
| Fort      Lauderdale, FL 33309  |                           |                                |
|                            |                           |                                |
| Allan      L. Schwartz          |    7,155,520(4) |     2.0%        |
| 5307      NW 35th      Terrace  |                           |                                |
| Fort      Lauderdale, FL 33309  |                           |                                |
|                            |                           |                                |
| Deborah      O’Brien      |    1,537,000(5) |      0.43% |
| 5307      NW 35th      Terrace  |                           |                                |
| Fort      Lauderdale, FL 33309  |                           |                                |
|                            |                           |                                |
|                            |                           |                                |
| All      officers and directors |  28,352,794(6)            |      7.93% |
| as      a group (3 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 357,606,849 shares of common stock outstanding as      of September 11, 2008 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 11, 2008 are deemed      outstanding for computing the percentage of that person and the      group. |
| (3) | Includes      3,250,000 shares subject to options and 16,410,274 shares owned by Linda      B. Grable.                                                                                                                                                                                                                                                                                                                    |
| (4) | Includes      3,100,000 shares subject to options and 9,000 shares owned by the wife of      Allan L. Schwartz, Carolyn Schwartz, of which he disclaims beneficial      ownership.                                                                                                                                                                                                                                        |
| (5) | Includes      1,027,000 shares subject to options.                                                                                                                                                                                                                                                                                                                                                                        |
| (6) | Includes      7,377,000 shares subject to options held by Linda Grable, Allan Schwartz      and Deborah O’Brien.  Also includes 9,000 shares owned by the      wife of Allan L. Schwartz, Carolyn Schwartz, of which he disclaims      beneficial ownership.                                                                                                                                              |

Item 13

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Item 14

|              |   | June 30, |   |
|-------------------|--------|----------|--------|
|              |   | 2008     |   |   | 2007 |   |
| Audit      Fees   |   | $        | 52,020 |   |   | $ | 46,152 |   |
| Tax      Services |   | $        | 2,500  |   |   | $ | 2,000 |   |
|              |   |     |   |   |   |   |   |   |
| Totals            |   | $        | 54,520 |   |   | $ | 48,152 |   |

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| 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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| 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.                                                                                                            |
| 10.79 | Lease      Agreement by and between Bright Investments, LLC (“Landlord”) and Imaging      Diagnostic Systems, Inc. (“Tenant”) dated March 14,      2008.  Incorporated by reference to our Form 8-K filed on April      3, 2008.                                                                                                           |
| 10.80 | Consulting      Agreement between Imaging Diagnostic Systems, Inc. and Tim Hansen dated as      of January 1, 2008.  Incorporated by reference to our Form 8-K      filed on December 28, 2008.                                                                                                                                                                    |
| 10.81 | Sixth      Private Equity Credit Agreement between IDSI and Charlton Avenue LLC dated      April 21, 2008 without exhibits.  Incorporated by reference to      our Form 8-K filed on April 22, 2008.                                                                                                                                                               |
| 10.82 | Two-Year      Employment Agreement dated as of April 16, 2008 between Imaging Diagnostic      Systems, Inc. and Linda B. Grable, Interim CEO.  Incorporated by      reference to our Form 8-K filed on May 5, 2008.                                                                                                                                                |
| 10.83 | Stock      Option Agreement dated as of April 16, 2008 between Imaging Diagnostic      Systems, Inc. and Linda B. Grable, Interim CEO.  Incorporated by      reference to our Form 8-K filed on May 5, 2008.                                                                                                                                                       |
| 10.84 | Business      Lease Agreement by and between Ft. Lauderdale Business Plaza Associates      (“Lessor”) and Imaging Diagnostic Systems, Inc. (“Lessee”) dated June 2,      2008.  Incorporated by reference to our Form 8-K filed on June      5, 2008.                                                                                      |
| 10.85 | Financial      Services Agreement by and between Imaging Diagnostic Systems, Inc. (the      “Company” or “IDSI”) and R.H. Barsom Company, Inc. (the “Consultant”)      dated July 15, 2008.  Incorporated by reference to our Form 8-K      filed on July 18, 2008.                                                            |
| 10.86 | Securities      Purchase Agreement by and between Imaging Diagnostic Systems, Inc. (the      “Company” or “IDSI”) and Whalehaven Capital Fund Limited (the “Purchaser”      and collectively, the “Purchasers”) dated July 31,      2008.  Incorporated by reference to our Form 8-K filed on August      5, 2008. |
| 10.87 | Form      of 8% Senior Secured Convertible Debenture, Exhibit      A.  Incorporated by reference to our Form 8-K filed on August 5,      2008.                                                                                                                                                                                                                     |
| 10.88 | Registration      Rights Agreement, Exhibit B.  Incorporated by reference to our      Form 8-K filed on August 5, 2008.                                                                                                                                                                                                                                            |
| 10.89 | Common      Stock Purchase Warrant, Exhibit C.  Incorporated by reference to      our Form 8-K filed on August 5, 2008.                                                                                                                                                                                                                                            |
| 10.90 | Form      of Legal Opinion, Exhibit D.  Incorporated by reference to our      Form 8-K filed on August 5, 2008.                                                                                                                                                                                                                                                    |
| 10.91 | Security      Agreement, Exhibit E.  Incorporated by reference to our Form 8-K      filed on August 5, 2008.                                                                                                                                                                                                                                                       |
| 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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SIG

|   | By:    | /s/      Linda B. Grable                                                                  |
|--------|--------|-------------------------------------------------------------------------------------------|
|   |   | Linda      B. Grable, Chief Executive Officer and Chairman of the Board of      Directors |

| Signatures                | Title                                       | Date                    |
|---------------------------|---------------------------------------------|-------------------------|
|                      |                                        |                    |
|                      |                                        |                    |
| /s/Linda      B. Grable   | Chief      Executive Officer                | September      12, 2008 |
| Linda      B. Grable      | and      Chairman of the Board of Directors |                    |
|                      |                                        |                    |
|                      |                                        |                    |
| /s/Allan      L. Schwartz | Director,      Executive Vice-President,    | September      12, 2008 |
| Allan      L. Schwartz    | and      Chief Financial Officer            |                    |
|                      | (Principal      Accounting and Financial    |                    |
|                      | Officer)                                    |                    |

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