Imaging Diagnostic Systems (fka IMDS)

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Mar 2013

http://www.sec.gov/Archives/edgar/data/790652/000079065213000007/form10q_033113.htm

As of March 31, 2013, we owe $725,639 in accrued wages and $1,324,453 in accrued payroll taxes. The $1,324,453 in accrued payroll taxes represents unfunded payroll taxes, interest and penalties commencing with the quarter ending March 31, 2010. The reason we incurred the penalties and interest was due to the difficulty in raising capital to have sufficient funds to pay the taxes.

From May 2010 to June 2012, claims were made by the IRS for payment of our accrued payroll taxes, interest and penalties, which as of June 30, 2012 was $1,489,640. We engaged tax counsel to handle this matter and intend to fully satisfy our tax obligations. In order to qualify for an IRS Installment Agreement, we must be current in our payment of payroll taxes in the period they are due. We have paid all of our payroll taxes payable for the calendar year 2012.

The IRS sent formal collection demands for each quarter we were delinquent in payment of payroll taxes beginning with the quarter ending March 31, 2010. On November 22, 2011, the IRS filed a lien with the Secretary of State of Florida in Tallahassee, Florida totaling $779,996. Subsequently, on February 2, 2012, the IRS filed a lien with the Secretary of State of Florida in Tallahassee, Florida totaling $140,439; and on June 28, 2012, the IRS filed a lien with the Secretary of State of Florida in Tallahassee, Florida totaling $1,479. Our tax counsel negotiated an Installment Agreement to make installment payments to satisfy outstanding taxes, penalties and interest due. The Installment Agreement states that we must pay $15,000 a month for 12 months with the first payment due by November 28, 2012; $20,000 a month for 12 months beginning November 28, 2013; and $25,000 a month for 12 months beginning November 28, 2014 until such time as the balance owed is paid in full. In the event that we are able to pay off the balance due to the IRS, our tax counsel would attempt to negotiate a waiver on the penalties.

From July 1, 2012 through March 31, 2013, we have made payments to the IRS totaling $230,490. We have paid all of our payroll taxes payable for the calendar year 2012 and 2013. Of the $230,490, we made two $15,000 payments totaling $30,000 during the quarter ending December 31, 2012 and three $15,000 payments totaling $45,000 during the quarter ending March 31, 2013 as per our Installment Agreement. We paid accrued payroll taxes totaling $67,359 for the quarter ending March 31, 2012 and $21,134 for the quarter ending June 30, 2012. We paid a total of $33,091 in payroll taxes for the quarter ending September 30, 2012; $14,368 for the quarter ending December 31, 2012; and $18,927 for the quarter ending March 31, 2013.

If we ultimately are unable to pay the outstanding payroll tax, penalties and interest on a timetable pursuant to the terms of the Installment Agreement, we may have to cease operations.