Date: 7/14/2003 10:42:38 -0400 From: ENFORCEMENT <ENFORCEMENT@SEC.GOV> To: "'info@our-street.com'" <info@our-street.com> Subject: SEC Division of Enforcement Confirmation Reply Dear Sir or Madam: Thank you for your recent e-mail to the group electronic mailbox of the Division of Enforcement at the United States Securities and Exchange Commission in Washington, D.C. We appreciate your taking the time to write to us. This automated response confirms that the Division of Enforcement has received your e-mail. COMPLAINT Complainant reports as follows: We believe Imaging Diagnostic Systems, Inc. has shown a pattern of issuing materially false and/or misleading statements in an overt effort to unreasonably raise the price of the company’s stock and to generate unnaturally higher levels of buying in the stock. Additionally, certain insiders appear to have used the additional activity created by these false and/or misleading statements as an opportunity to sell their stock into the market and to personally profit from said promotions. SUMMARY 1. This complaint arises out of what we believe are materially false or misleading public statements and omissions made by Imagine Diagnostic Systems, Inc. (IDSI). The false or misleading statements and omissions were made from at least 1995 through 2002 and related to the capabilities and sales of their CT Laser Mammography System (CTLM). Linda Grable with the assistance of Allan Schwartz, Deborah Obrien and others engaged in an extensive media campaign during this period making materially false and/or misleading statements and omissions about IDSI and the CTLM. 2. In 1997 IDSI management undertook a scheme to alter CTLM images and to use images from other sources and represent them as CTLM images in order to promote the technology and the stock. 3. From 1999 through 2001, executives of IDSI frequently used internet message boards in an attempt to promote their stock and to discredit a whistleblower who had revealed the company’s efforts to deceive the medical and investment community with doctored and misrepresented images. 4. Throughout the entire reporting period from 1996 until now, no officers or directors have filed any Form 4’s or Form 5’s disclosing their purchase and sales of their stock, with the exception of a single Form 4 in July 1998. 5. By engaging in the conduct alleged herein, we believe the accused violated the antifraud, periodic reporting, and registration requirements of the federal securities laws. Unless enjoined, the accused are likely to do so in the future. JURISDICTION AND VENUE 6. The Commission brings this action pursuant to Section 20(b) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. § 77t(b)], and Sections 21(d) and 21(e) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §§ 78u(d) and 78u(e)] to permanently restrain and enjoin Grable, Wake, Schwartz and Obrien from engaging in the acts, practices, and transactions stated herein. 7. This Court has jurisdiction over this action pursuant to Section 22(a) of the Securities Act [15 U.S.C. § 77v(a)], and Sections 21(d), 21(e), and 27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78aa]. Venue lies in this Court pursuant to Section 20(a) of the Securities Act [15 U.S.C. § 77t], and Section 27 of the Exchange Act [15 U.S.C. § 78aa]. 8. We believe Grable, Wake, Schwartz and Obrien, directly or indirectly, have made use of the means and instrumentalities of interstate commerce or the mails, or of the means or instrumentalities of transportation or communication in interstate commerce, or of the facilities of a national securities exchange, in connection with the acts, practices, and transactions alleged herein, certain of which occurred within many if not most of the 50 states including Florida. ACCUSED 9. Imaging Diagnostic Systems, Inc. was organized in the state of New Jersey on November 8, 1985, under its original name of Alkan Corp. On April 14, 1994, a reverse merger was effected between Alkan Corp. and the Florida corporation of Imaging Diagnostic Systems, Inc. ("IDSI-Fl."). IDSI-Fl. Was formed on December 10, 1993. (See Note 3) Effective July 1, 1995 the Company changed its corporate status to a Florida corporation. The Company is in the business of developing medical imaging devices based upon the combination of the advances made in ultra-fast electro-optic technology and the unique knowledge of medical imaging devices held by the founders of the Company. IDSI maintains its offices at 6531 Northwest 18 Court, Plantation, Florida 33313. 10. Linda Grable - Ms. Grable has been IDSI’s Chief Executive Officer since August 2001, and, since its inception in 1993, has served as Chairman of the Board and Director of the Company. 11. Allan L. Schwartz - Mr. Schwartz is Executive Vice-President and Chief Financial Officer of the Company and is responsible for its financial affairs. 12. Robert Wake – Mr. Wake is the Vice President of Engineering but also apparently acts in the capacity of undisclosed stock promoter and also appears to be in charge of retribution against whistleblowers against the company as well. 13. Deborah Obrien – is the Vice President Corporate Communications and the daughter of Linda Grable. FACTS A. Background 14. IDSI was formed on December 10, 1993 and merged with Alkan Corp. a public shell on April 14, 1994 with IDSI as the surviving entity. The corporation subsequently changed its domicile to Florida. The company was formed with the intent of developing medical imaging devices based upon the combination of the advances made in ultra-fast electro-optic technology and the unique knowledge of medical imaging devices held by the founders of the Company. 15. Since 1995 as the company has worked on developing its technology it has undertaken what we believe is a scheme to disseminate false and/or misleading information about their progress with the technology, and their successes in developing markets for their technology. This scheme incorporated a funding strategy with utilizing floorless convertible securities more commonly known as “toxic fundings” or “death spirals”. Since securities issued pursuant to these types of fundings are almost always sold into the open market, the company has used these statements to generate significant amounts of activity in its stock by encouraging investors to purchase these shares on the basis of these false and/or misleading statements. B. False or Misleading Statements and Omissions in 1995 through 2002 16a. On August 23, 1995 in Medical Industry Today IDSI and Schwartz announced that “An initial order valued in excess of $1 million has been received by IMAGING DIAGNOSTIC SYSTEMS for its CT Laser Mammography breast-imaging laser system. ”We've been issued a PO for five systems, and we anticipate delivery in the first quarter of 1996," IDSI Executive Vice President Allen Schwartz told Medical Industry Today. Schwartz said the initial order was from Asia and that the order is in line with foreign demand for the system which detects breast abnormalities in the early stages. "We have so much demand for the machine in Europe and Asia, we are going to continue our sales efforts there." The firm began scanning patients with the system in February in the U.S. The laser system employs a cross-sectional imaging technique which does not use ionizing X-rays. Schwartz said clinical testing is now underway, but doesn't expect U.S. marketing to get underway in the immediate future. "We have six beta test sites right now, and it will take quite some time to collect all the clinical data, evaluate it and then initiate pre-marketing with the FDA," Schwartz said. The firm, in a press release, said it names Business Asia Consultants as its distributor for the Asia Pacific Rim. It is an export management company based in Miami. CONTACT: Allan Schwartz (305/746-0500) 16b. We believe this statement was materially false and/or misleading based upon the following facts: 16c. IDSI did not even receive a Certificate of Exportability for the CTLM(R )from the FDA until September 25, 2001 and in sworn testimony Allan Schwartz disclosed that no such sale was ever consummated. 16d. On August 27, 1996 IDSI and Grable filed a Form 10K with the SEC and disclosed that Food and Drug Administration (FDA) approved calibration Investigational Device Exemption ("IDE") clinical testing in the Company's laboratory. This phase of clinical testing was approved for a small number of calibration scans on volunteers. At the conclusion of the calibration studies, the Company will commence its first clinical trial at the Strax Diagnostic Breast Institute under a Phase I - IDE application, which was approved by the FDA on February 9, 1996. Five additional clinical sites are planned by calendar 1996. 16e. We believe that Schwartz knew or was reckless in not knowing that the statement was materially false and/or misleading and that the company did not make a sale and did not have six beta test sites, was not scanning patients and was not collecting clinical data. 17a. On July 23, 1996, IDSI and Grable published a statement claiming that “Imaging Diagnostic Systems today reported that it has signed an exclusive marketing agreement with EuroTrade and Finance Co., one of the largest distributors of medical equipment in Italy. The contract represents an estimated $4 million in revenue for IDSI when executed. ETF represents other major medical companies such as Instrumentation Shiminadze, and XITEC. Additionally, a contract was signed to deliver 3 systems to Syria. In making the announcement, Linda Grable, President of IDSI, stated “IDSI is receiving serious inquiries from all over the world and that the contract with ETF is in addition to existing orders previously received from Russia, Asia and the Middle East.” Ms Grable noted that with the recent technological breakthroughs of the company’s state-of-the-art imaging system, delivery of overseas orders will begin in the first quarter of 1997.” 17b. We believe this statement is materially false and/or misleading because of the following facts: 17c. On February 6, 1997, Grable and IDSI filed a form S1 with the SEC and disclosed that “The Company has made no sales to date and has accumulated a net deficit from inception through December 31, 1996.” 17d. On June 2, 1997 Grable and IDSI filed a form S1 with the SEC and disclosed that “At the conclusion of the calibration studies, the Company will commence its first clinical trial at the Strax Diagnostic Breast Institute under a Phase I – IDE application, which was approved by the FDA on February 9, 1996.” Based upon this statement, a reasonable person would conclude that IDSI had not even completed development of the product as of the date of this statement. 17e On December 4, 1995 Grable and IDSI published a statement that announced that “a letter of intent with one of Europe's largest distributors, Medical Development East (17 offices in Russia, 3 offices in Switzerland and 2 offices in Austria) to place a CT Laser Mammography TM Device at the Moscow Research Institute for Diagnostics in July of 1996. The Company met with August Steiner (of MDE) and Vladimir P. Khartchenko (honored scientist of the Russian Federation Corresponding, Member of the Russian Academy of Medical Sciences and Professor and Director of all the hospitals in Moscow), at the Radiological Society of North America Convention in Chicago. The first machine to be distributed to the Moscow Institute will be used as a demo machine for Eastern Europe as well as a clinical device to determine breast cancer.” A reasonable person reading this announcement would not consider an agreement to allow a system to be “placed” in a facility (if it actually existed in the first place which we have seen no documentation of whatsoever) to be considered an “order” as declared within the context of the July 1996 statement. 17f. On or about March 11, 2001, Robert Wake, Vice President of Engineering for IDSI, testified under oath that CTLM systems by IDSI were never delivered to either Moscow, Syria or Canada. 17g. We believe that IDSI and Grable knew or were reckless in not knowing that their statement was materially false and/or misleading. 18a. On November 27, 1996 Grable and IDSI had been interviewed by the Bloomberg Forum who wrote that “Plantation, Florida-based Imaging Diagnostics has developed a device called the Computed Tomography Laser Mammography, or CTLM, to examine women's breasts for lumps or lesions. The device used infrared light, or lasers to scan the breast. Grable said it does a better job than x-rays, magnetic fields or ultrasounds. The machine began clinical trials on Monday, and has already produced its first images, a milestone, Grable said, that "everyone has been waiting for." He said he expects to have marketing clearance from the U.S. Food and Drug Administration by this time next year. Once the machine is approved, Grable said the company can begin recording sales. We're going to have to be able to find the capital to grow and produce the product," he said.” 18b. We believe this statement is materially false and/or misleading based upon the following facts: 18c. On February 6, 1997 Grable and IDSI filed a form S1 registration and disclosed that “At the conclusion of the calibration studies, the Company will commence its first clinical trial at the Strax Diagnostic Breast Institute under a Phase I - IDE application, which was approved by the FDA on February 9, 1996” 18d.We believe Grable and IDSI knew or were reckless in not knowing that their statements to Bloomberg were materially false and or misleading. 19a. On April 10, 1997 IDSI’s web site declared that “Imaging Diagnostic Systems, Inc (IDSI) is a medical optical imaging (MOI) technology company based in Plantation, Florida. IDSI is recognized as an industry leader in MOI.” 19b. We believe this statement was materially false and/or misleading due to the following facts: 19c. May 12, 1997, IDSI and Grable filed a form S1 registration statement with the SEC and disclosed that “The Company's proposed products and future product development efforts are at an early stage. Accordingly, there can be no assurance that any of the Company's proposed products will be found to be safe and effective, can be developed into commercially viable products, can be manufactured on a large scale or will be economical to market, or will achieve or sustain market acceptance.” It further disclosed that, “Many of the companies in the cancer diagnostic and screening markets have substantially greater technological, financial, research and development, manufacturing, human and marketing resources and experience than the Company. Such companies may succeed in developing products that are more effective or less costly than the company's products or such companies may be successful in manufacturing and marketing their products than the Company. Physicians using imaging equipment such as x-ray mammography equipment, ultrasound or high frequency ultrasound systems, Magnetic Resonance Imaging (MRI) systems, and thermography, diaphonography and transilluminational devices may not use the company's products. Currently mammography is employed widely and the Company's ability to demonstrate the Company's ability to sell the CTLM/trademark/ device to medical facilities will, in part, be dependent on the Company's ability to demonstrate the clinical utility of the CTLM/ trademark/device as an adjunct to mammography and physical examination and its advantages over other available diagnostic tests.” 19d. On April 7, 2003 IDSI had displayed on its website an article by Richard Grable titled “Medical Optical Imaging (MOI): A Status Review”. The article contained a bibliography of 36 references by published authorities on subjects relating to the article. No mention was made of any published articles by Richard of Linda Grable. 19e. We believe that IDSI and Grable knew or were reckless in not knowing that the claim that IDSI was considered an industry leader in MOI was materially false and/or misleading. 20a. On February 6, 1997, IDSI published a statement claiming that “Imaging Diagnostic Systems Inc. (Nasdaq: IMDS), developer of the first high-speed CT Laser Mammography for early detection of breast cancer, announced today that its common stock will trade on NASDAQ under the symbol IMDS. “We are pleased that our company's stock is now more widely available and more easily assessable to the investor community," said Linda Grable, President. ”This is another sign of our growth from a bulletin-board-listed company to a world leader in Medical Optical Imaging." 20b. We believe this statement was materially false and/or misleading based upon the following facts: 20c. Research indicates that IDSI stock never has traded on the NASDAQ Small Cap or National Market System markets. 20d. We believe Grable and IDSI knew or were reckless in not knowing that the claim of a NASDAQ listing and actually showing the stock as a NASDAQ listed stock when they described it as (NASDAQ: IMDS) was materially false and/or misleading. 21a. On February 7, 1997, Grable and IDSI published a statement claiming that “Columbia JFK Medical Center teams up with Imaging Diagnostic Systems. Imaging Diagnostic Systems (OTC BB: IMDS) announced today that the Institutional Review Board of Columbia JFK Medical Center located in Atlantis, Florida, has recently approved Imaging Diagnostics request to participate in the first phase of the clinical trials.” 21b. We believe this statement is materially false and misleading based upon the following facts. 21c. on November 16, 1998 IDSI and Grable filed a Form S2 with the SEC and disclosed that, “In 1997, the Company received its first IDE, which authorized it to scan 50 patients at the Strax Breast Diagnostic Center in Lauderhill, Florida and twenty additional patients at its in-house facility. The CTLM(TM) device was installed at Strax and patients were scanned.” There is no mention in this or any other disclosure documents that we could find that mention the Columbia JFK Medical Center or their alleged participation in the first phase of clinical trials. 21d. We believe IDSI and Grable knew or were reckless in not knowing that the statement was materially false and/or misleading. 22a. On May 28, 1997 IDSI and Grable issued a statement declaring that “In recent studies the CTLM has effectively demonstrated that not only can it image the florescent dyes to locate the cancer, but the CTLM can be used with a specific wavelength to activate the PhotoDynamic drug to kill the cancer.” 22b. We believe the statement is materially false and/or misleading based upon the following facts: 22c. On September 15, 2000 IDSI and Grable filed a form 10K with the SEC and disclosed that “The CTLM(TM) in combination with the fluorescent feature has the potential to be used with photodynamic therapy (PDT) to aid in the treatment of breast cancer.” This same disclosure follows through to the current 10K filed on September 10, 2002. A reasonable person would conclude from these distinctions that the statement on May 28, 1997 was a significant exaggeration of the facts as those facts are not carried forward as usually occurs with truthful statements. Additionally, there is no mention whatsoever of Photodynamic Therapy in the Form 10K filed on October 12, 1999 or October 18, 1998 as a reasonable person would expect to find if such a development had actually occurred. 22d. We believe IDSI and Grable knew or were reckless in not knowing that the statement made on May 28, 1997 was materially false and misleading. 23a. On December 1, 1999 IDSI and Grable published a statement announcing that “Imaging Diagnostic Systems Inc. (OTC Bulletin Board: IMDS) announced today that it has received the first signed and funded orders for its CT Laser Mammography system. The corporation Cycle of Life Technologies, based in Toronto, Canada, has signed an agreement for two systems totaling $500,000 in revenues with the delivery of two additional systems immediately following. The Cycle of Life Technologies has signed a three-year distribution agreement with a commitment of fifty systems to be delivered within two years. Their distribution channel encompasses an extensive network of international hospitals and physician practices. They are the primary suppliers for various medical services and equipment throughout Canada, Europe, South Africa and the Middle East. Cycle of Life Technologies is also involved in the development of DNA diagnostics and gene therapy with ACGT Corporation of Canada and Harvard Medical School. Imaging Diagnostic Systems has committed to commence delivery of the first CTLM systems in the first quarter of the millennium. This will be the first revenues generated for Imaging Diagnostic Systems since the inception of the company.” 23b. We believe this statement is materially false and/or misleading based upon the following facts. 23c. On September 15, 2000 IDSI and Grable filed a Form 10K with the SEC and disclosed that “On January 27, 2000, we executed a promissory note with Cycle of Life Technologies, Inc. The note was for a principal sum of $500,000, together with interest of twelve percent (12%) per annum on the on the unpaid balance.” 23d. On February 18, 2000 IDSI and Grable filed a form 10Q with the SEC and disclosed that “Furthermore, in December 1999, we entered into a distribution agreement with Cycle of Life Technologies Inc., a division of INTRACOR Inc., an international trading company of medical products based in Canada, which we believe will help us generate up to $500,000 in revenues in the first quarter of 2000 and up to a total of $12 million in revenues over the life of the agreement.” 23e. In litigation against IDSI and Cycle of Life, Inc., the settlement which was filed as an attachment to the S2 that IDSI and Grable filed on Feb 16, 2001 the agreement disclosed that Cycle of Life Technologies was actually a “DBA” (fictitious name) for a numbered Ontario Corporation called simply 1384141 Ontario, Inc. The president of Cycle of Life was Lee Anne Gibbs. 23f. Shortly after the settlement the Cycle of Life Technologies web site went dark and the company seemed to simply disappear. 23g. On September 27, 2001 IDSI and Grable filed a Form 10K with the SEC and disclosed that, “In April 2001, after the mutual termination of our initial Canadian distributor, Cycle of Life Technologies, Inc., we entered into a distribution agreement with Medical Imaging Systems, Inc. ("MIS"), a distributor of medical products based in Ontario, Canada” IDSI and Grable failed to disclose that Lee Anne Gibbs was affiliated with Medical Imaging Systems. However this time a new web site was launched in June 2003 under the name Odyssey Import Export Inc. which claims the same address as Medical Imaging Systems and where the receptionist admits Lee Anne Gibbs works. 23h. The address for Cycle of Life Technologies, Inc as indicated on the company’s business card (20 Queen St West Ste 3208, Toronto) was occupied by an attorney named David Sloan during the time in question. 23i. On or about March 11, 2001, Robert Wake, Vice President of Engineering for IDSI, testified under oath that CTLM systems by IDSI were never delivered to either Moscow, Syria or Canada. 23j. We believe that IDSI and Grable knew or were reckless in not knowing that the statements made on December 1, 1999 was materially false and/or misleading. 24a. On July 13, 2001, Richard Grable, then an executive with IDSI confirmed in sworn testimony that a corporate video which was used by IDSI for promotional purposes contained a statement by Deborah O'Brien that, "we are successfully examining other soft tissue areas in the body with CT laser techniques, including neonatal imaging and colorectal scanning"? 24b. This statement is materially false and/or misleading based upon the following facts: 24c. On July 13, 2001, Richard Grable, in the same sworn testimony, admitted that IDSI had not conducted any scans with their CT Laser techniques including either neonatal imaging or colorectal scanning. 24d. We believe Deborah O’Brien and IDSI and Grable knew or were reckless in not knowing that the statements made on the video were materially false and/or misleading. 25a. On January 28, 1998 Grable and IDSI published a statement announcing that “it has signed an OEM purchase agreement with Imation Corporation (NYSE: IMN), a $2.3 billion worldwide leader in the imaging and information industry. Imation is borne of 3M's imaging businesses and has a market presence in more than 60 countries. Imation operates 17 manufacturing, research and distribution facilities. This OEM agreement positions Imaging Diagnostic Systems to market and partner its revolutionary CT Laser Mammography device with Imation's DRY FILM technology described as "the most rapidly adopted system in the history of Medical Laser Imaging." The DRY FILM technology produce by Imation will provide IDSI's end users with the most efficient, economical, and ecological product line in the medical industry. In addition, Imaging Diagnostic systems will immediately begin to market this DRY FILM technology through its existing distributor network internationally and domestically, through its own marketing efforts. "This relationship can provide immediate revenues as well as generate additional revenues when packaged with the CTLM," stated Linda B. Grable.” 25b. This claim is repeated 11 months later on November 16, 1998 when Grable and IDSI filed a form S2 with the SEC and claimed that, “In addition, the marketing of the Dry View Technology can provide immediate revenues to the Company as well as generate additional revenues when packaged with the CTLM(TM). No Dry View Technology has been marketed by the Company to date.” 25c. We believe these statements were materially false and/or misleading based upon the following facts: 25d. On July 23, 1999 Grable and IDSI filed a Form 10K with the SEC and finally admitted that “It was originally believed that the OEM agreement could provide the Company with immediate revenues from direct sale of the Dry View Technology. As a result of local marketing efforts in the immediate market of South Florida, it was quickly determined that the marketing of this product would not be cost effective since the Company would be competing with Imation's (Now Kodak's own sales force) and others who have vaster resources and personal than the Company. Due to this competition factor, the Company has not marketed any DryView to date and will use the technology as a Value-added option to the CTLM(TM) device when sold.” 25e. On November 8, 2002, Grable and IDSI filed a Form 10K with the SEC and disclosed that “Mrs. Grable has been our Chief Executive Officer since August 2001, and, since its inception in 1993, has served as Chairman of the Board and Director of the Company. She was our President from the Company's inception to August 2001. She was has played a major role in raising over $42 million in capital in order to fund the research and development of the CTLM(R) device. She has over 35 years experience in negotiating funding with banking institutions for both medical and real estate development businesses. Mrs. Grable has over 20 years of executive experience in the medical device industry, for both sales and marketing in the U.S. and foreign countries. She is a graduate of Ohio State University and holds a BA in Journalism and Marketing.” A reasonable person would conclude that an executive with Linda Grable’s resume would know that the difficulties encountered in the market existed when executing the agreement. Additionally, a reasonable person would conclude that the phrase “it was quickly determined” to mean considerably less time than 1 ½ years. 25f. We believe Grable knew or was reckless in not knowing that the statements about immediate income potential that were made on January 28, 1998 and July 23, 1999 and the statement on November 8, 2002 that she originally believed OEM marketing could provide immediate income were materially false and/or misleading. 26a. On November 20, 2002 the IBC Network, independent news source for micro-cap stocks was paid to interview Deborah Obrien and published that interview on their website for potential investors to hear. In that interview, Ms Obrien claimed that “Once we submit the PMA, that Pre Market Approval application, the FDA has about a 90 to 180 day time frame that they need to make a decision and they will come back to us and say whether or not we are approved to commercialize our system.” She later again claimed that “Once we submit that (the PMA), it is a 90 to 180 day process.” http://www.otcbbnn.com/radio-broadcasts.htm 26b. We believe this statement is materially false and misleading based upon the following facts: 26c. The FDA provides information regarding the PMA process on their web site and they discuss quite clearly the subject of time frames for PMA applications. On their web site they disclose that “FDA regulations provide 180 days to review the PMA and make a determination. In reality, the review time is normally longer.” 26d. On September 10, 2002, Grable and IDSI filed a Form 10K with the SEC and disclosed that “Under the Food, Drug, and Cosmetic Act, the FDA has 180 days to review a PMA application, although in certain cases the FDA substantially expands that time period through requests for additional information or clarification of existing information.” 26e. Obrien knew or was reckless in not knowing that her statement on November 20, 2002 was materially false and/or misleading. C. Undisclosed postings on internet message boards to promote stock and attack whistleblowers. 27a. From March 1999 through April 2001, Robert Wake posted 627 posts on the Raging Bull message board. He posted on both IDSI’s message board as well as on other boards in an attempt to both promote IDSI’s stock and to attack and discredit Diane Strait, a known whistleblower who claims to have alerted the authorities to the fact that IDSI management had filed misleading press releases and altered graphic displays of CTLM scans in an attempt to promote the product and the stock. These posts were done without any disclosure on the posts as to his identity or his relationship with the company. 27b. From January 2000 through May 2000, Richard Grable, one of the founders (The Widow Grable’s late husband) posted 67 posts on the IDSI and other message boards promoting himself, IDSI and attacking whistleblower, Diane Strait. He published all of these posts without disclosing his identity or his relationship with the company. He even referred to himself in the third party when promoting himself and IDSI. 27c. We believe that Wake and Grable knew or were reckless in not knowing that omitting disclosure violated Section 17 of the Securities Act. E. Undisclosed modifications to CTLM images and misrepresented images. 29a. In sworn testimony Richard Grable disclosed that he caused CTLM images to be altered for presentation at the 1997 RSNA (Radiological Society of North America) convention. He also disclosed that he caused certain graphics to be scanned from a book and presented them as images from the CTLM. We believe these graphics were used to promote the technology to both the medical community as well as to investors. 29b. We believe Grable and IDSI knew or were reckless in not knowing that by not disclosing such alterations and depictions that the images were providing false and/or misleading information. F. Failure to disclose other business interests 30a. On March 26, 2002, Strax Institute, Inc. was formed as a Florida Corporation. Strax Institute is also a subsidiary of Caprius, Inc. a publicly traded company. The Strax Institute provides breast screening among other services and operates at 4300 North University Drive Suite E-200, Ft Lauderdale, FL. The Strax Institute, Inc. as established on March 26, 2002 also claims the same address. The listed Officers/Directors are Linda Grable and Allan Schwartz. 30b. Message board postings indicate that Linda Grable has been President of Strax Institute since May 2002 at least yet no mention is made in any disclosure documents filed by IDSI disclosing this fact. Since Strax is in a related business to IDSI, her position represents an undisclosed material conflict of interest as well as a possible diversion of her time and talents away from IDSI. As such disclosure becomes essential as well as required. It is further believed that Alan Schwartz is also affiliated with the Strax Institute and has failed to disclose this fact as well. http://moneycentral.communities.msn.com/IMDSMoneyCentral/general.msnw?action=get_message&mview=0&ID_Message=118&LastModified=4675394969863042867 30c. We feel Grable and Schwartz knew, should have known or were reckless in not knowing that they are required to disclose all positions as either an Officer or Director in corporate disclosure documents as well as all potential conflict of interests. FIRST CLAIM We believe that Grable, Schwartz, Obrien and IDSI violated Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5 (Materially False and Misleading Statements and Failure to Disclose Material Facts in Connection with the Purchase or Sale of Securities) 30. Paragraphs 1 through 29 above are re-alleged and incorporated herein by reference. 31. IDSI and Grable, from 1995 through 2002, scheme to disseminate false and/or misleading information about their progress with the technology including false and/or misleading statements about clinical trials, and their successes in developing markets for their CTLM technology including misleading or false statements about sales and income. Grable and IDSI knew, or were reckless in not knowing, that the statements were materially false or misleading, and that the omissions were material. 32. In 1995 Schwartz made false statements about sales which never materialized and about progress with the technology including false statements about beta test sites for the technology which did not in fact exist. Schwartz knew or was reckless in not knowing that his statements were materially false and misleading. 33. In 2002, Obrien made materially false and misleading statements, and omitted to state material facts, in a promotional interview by claiming that the approval process for PMA applications required the FDA to respond within 90 to 180 days when the company’s own filings and FDA publications clearly state that the process is scheduled to take 180 days and usually takes longer than that. Obrien knew, or was reckless in not knowing, that the statements were materially false or misleading and that the omissions were material. 34. In 2001 Richard Grable, then an officer and director for IDSI disclosed under oath that he had ordered certain CTLM images to be altered and that images from other sources be copied and that these images then were represented as unaltered and authentic CTLM images in an attempt to deceive both the medical industry and investors. We believe Linda Grable, his wife knew, or was reckless in not knowing, that the alterations and fabrications took place and were materially false or misleading, and that the omitting the proper disclosures was material. 35. We believe IDSI Grable, Schwartz and Obrien, directly or indirectly, singly or in concert with others, in connection with the purchase or sale of securities, and by use of the means or instrumentalities of interstate commerce or by use of the mails, or by use of any facility of any national securities exchange: (a) employed devices, schemes or artifices to defraud; (b) made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and/or (c) engaged in acts, practices or courses of business which operated or would operate as a fraud or deceit upon any person. 36. We believe by reason of the foregoing, IDSI, Grable, Schwartz and Obrien have, directly or indirectly, singly or in concert, violated Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5]. SECOND CLAIM We believe that IDSI, Grable, Schwartz and Obrien Violated Section 17(a) of the Securities Act (Making Materially False and Misleading Statements and Failing to Disclose Material Facts in the Offer or Sale of Securities) 37. Paragraphs 1 through 29 above are re-alleged and incorporated herein by reference. 38. IDSI and Grable, from 1995 through 2002, scheme to disseminate false and/or misleading information about their progress with the technology including false and/or misleading statements about clinical trials, and their successes in developing markets for their CTLM technology including misleading or false statements about sales and income. Grable and IDSI knew, or were reckless in not knowing, that the statements were materially false or misleading, and that the omissions were material. 39. In 1995 Schwartz made false statements about sales which never materialized and about progress with the technology including false statements about beta test sites for the technology which did not in fact exist. Schwartz knew or was reckless in not knowing that his statements were materially false and misleading. 40. In 2002, Obrien made materially false and misleading statements, and omitted to state material facts, in a promotional interview by claiming that the approval process for PMA applications required the FDA to respond within 90 to 180 days when the company’s own filings and FDA publications clearly state that the process is scheduled to take 180 days and usually takes longer than that. Obrien knew, or was reckless in not knowing, that the statements were materially false or misleading and that the omissions were material. 41. We believe IDSI, Grable, Schwartz and Obrien directly or indirectly, singly or in concert with others, in the offer or sale of securities, by the use of the means or instrumentalities of transportation or communication in interstate commerce or by use of the mails: (a) employed devices, schemes or artifices to defraud; (b) obtained money or property by means of untrue statements of material fact or by omitting to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and/or (c) engaged in acts, practices or courses of business which operated or would operate as a fraud or deceit upon the purchaser of such securities. 42. By reason of the foregoing, We believe IDSI, Grable, Schwartz and Obrien violated Section 17(a) of the Securities Act [15 U.S.C. §78q(a)]. THIRD CLAIM We believe IDSI Violated Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1, 13a-13, and 12b-20 (Materially False and Misleading Statements, and Omissions of Material Fact, in Filings with the Commission) 43. Paragraphs 25 above are re-alleged and incorporated herein by reference. 44. IDSI filed a S2 registration statement with the SEC in November 1998 and claimed that the OEM agreement signed in January 1998 could produce short term revenues when a few months later they disclosed in subsequent filings that they quickly found out that they could not generate revenues. 45. Section 13(a) of the Exchange Act [15 U.S.C. §78m(a)] and Exchange Act Rules 13a-1, 13a-13, and 12b-20, [17 C.F.R. §§ 240.13a-1, 240.13a-13, and 240.12b-20] require that quarterly, annual and other reports and statements filed by issuers with the Commission not contain untrue statements of material facts or omissions of material facts. 46. By reason of the foregoing, we believe IDSI violated Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] and Exchange Act Rules 13a-1, 13a-13, and 12b-20 [17 C.F.R. §§ 240.13a-1, 240.13a-13, and 240.12b-20]. FOURTH CLAIM We believe Grable and Schwartz Aided and Abetted IDSI’s Violations of Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1, 13a-13, and 12b-20 (Aiding and Abetting Materially False and Misleading Statements, and Omissions of Material Fact, in Filings with the Commission) 47. Paragraphs 25 above are re-alleged and incorporated herein by reference. 48. Grable, as President and Chairman of the Board of IDSI, and Schwartz as Director caused IDSI to file with the Commission on November 16, 1998 a Form S2 for the proposed registration and sale of shares. Grable and Schwartz signed the filing, which contained materially false or misleading statements, or omissions of material fact. Grable and Schwartz knew, should have known, or was reckless in not knowing that the statements were materially false or misleading, and that the omissions were material. 49. By reason of the foregoing, and pursuant to Section 20(e) of the Exchange Act [15 U.S.C. § 78t(e)], we believe Grable and Schwartz are liable as aiders and abettors of IDSI's violations of Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] and Exchange Act Rules 13a-1, 13a-13, and 12b-20 [17 C.F.R. §§ 240.13a-1, 240.13a-13, and 240.12b-20]. PRAYER FOR RELIEF WHEREFORE, we respectfully request that the Commission respectfully requests that this Court: I. Issue a Final Judgment of Permanent Injunction and Other Relief restraining and enjoining IDSI from, directly or indirectly, violating Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5]; Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)]; and Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] and Exchange Act Rules 12b-20, 13a-1, and 13a-13 [17 C.F.R. §§ 240.12b-20, 240.13a-1, and 240.13a-13]. II. Issue an Order of Permanent Injunction restraining and enjoining Grable from, directly or indirectly, violating Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5]; Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)]; and from aiding and abetting violations of Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] and Exchange Act Rules 12b-20, 13a-1, and 13a-13 [17 C.F.R. §§ 240.12b-20, 240.13a-1, and 240.13a-13]. III. Issue an Order of Permanent Injunction restraining and enjoining Schwartz and Obrien from, directly or indirectly, violating Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5]. IV. Issue an Order pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and Section 21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)] permanently barring Grable from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act [15 U.S.C. § 78l] or that is required to file reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d)]. V. Issue an Order pursuant to the Court's equitable powers permanently barring Grable from acting as an officer or director of any issuer that is required to file reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d). VI. Issue an Order, pursuant to Section 603 of the Sarbanes-Oxley Act of 2002 [Public Law No. 107 - 204, 116 Stat. 745 (July 30, 2002)], Section 21(d)(6) of the Exchange Act [15 U.S.C. § 78u(d)(6)] and Section 20(g) of the Securities Act [15 U.S.C. § 77t(g)], and pursuant to the Court's equitable powers, permanently barring Grable from participating in an offering of penny stock. VII. Issue an Order requiring Grable, Schwartz, Obrien and Wake to prepare an accurate accounting of all stock sales and trading profits from the sale of IDSI stock by them in accounts that they controlled or exercised influence over during the period April 14, 1994, through July 15, 2003. VIII. Issue an Order requiring Grable to disgorge (i) all ill-gotten gains from sales of IDSI securities in accounts that they controlled or exercised influence over between April 14, 1994 and July 15, 2003, plus prejudgment interest; and (ii) all ill-gotten gains from violations of the federal securities laws, plus prejudgment interest. IX. Issue an Order requiring Schwartz, Obrien and Wake to disgorge (i) all ill-gotten gains from sales of IDSI securities in accounts that each controlled or exercised influence over between April 14, 1994 and July 15, 2003, plus prejudgment interest; and (ii) all ill-gotten gains from violations of the federal securities laws, plus prejudgment interest. X. Issue an Order requiring IDSI to pay civil money penalties pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and an Order requiring Grable, Schwartz, Obrien and Wake to pay civil money penalties pursuant to Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)]. XI. Retain jurisdiction of this action in accordance with the principles of equity and the Federal Rules of Civil Procedure in order to implement and carry out the terms of all Orders and Decrees that may be entered, or to entertain any suitable application or motion for additional relief; and XII. Grant such other and further relief as this Court may deem necessary and appropriate under the circumstances.