Grapefruit USA, Inc - Annual Report: 2013 (Form 10-K)

imaging3-10k123113.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2013

Commission file number 000-50099

IMAGING3, INC.

(Exact name of registrant as specified in its charter)

California	95-4451059
(State of Incorporation)	(I.R.S. Employer Identification No.)

3022 North Hollywood Way, Burbank, California 91505

(Address of principal executive offices) (Zip Code)

(818) 260-0930

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(g) of the Act:

Title of Each Class	Name of Each Exchange On Which Registered

COMMON STOCK	OTC

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes o No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o		Accelerated filer	o
Non-accelerated filer (Do not check if a smaller reporting company)	o		Smaller reporting company	x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The aggregate market value of voting stock held by non-affiliates of the registrant was approximately $0 as of June 30, 2013 (computed by reference to the fact that no last sale price of a share of the registrant’s Common Stock on that date was reported by any securities exchange or public securities trading market.)

There were 214,492,393 shares outstanding of the registrant’s Common Stock as of October 30, 2015.

Table of Contents

TABLE OF CONTENTS

PART I
ITEM 1	Business	2
ITEM 1A	Risk Factors	14
ITEM 2	Properties	19
ITEM 3	Legal Proceedings	19
ITEM 4	Mine Safety Disclosures	19
PART II
ITEM 5	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	20
ITEM 6	Selected Financial Data	21
ITEM 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
ITEM 8	Financial Statements and Supplementary Data	26
ITEM 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	48
ITEM 9A	Controls and Procedures	48
ITEM 9B	Other Information	49
PART III
ITEM 10	Directors, Executive Officers, and Corporate Governance	50
ITEM 11	Executive Compensation	53
ITEM 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	56
ITEM 13	Certain Relationships and Related Transactions, and Director Independence	56
ITEM 14	Principal Accounting Fees and Services	56
PART IV
ITEM 15	Exhibits, Financial Statement Schedules	57
SIGNATURES		60

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PART I

ITEM 1. BUSINESS

General

Imaging3, Inc. has developed a proprietary medical technology designed to produce 3D medical diagnostic images in real time. In the future, healthcare workers using Imaging3 devices will potentially be able to instantly view 3D, high-resolution images of virtually any part of the human body.

History

We were founded as Imaging Services, Inc. on October 29, 1993 by Dean Janes. We initially served as a low cost, third party service alternative for equipment made by Orthopedic Equipment Company Medical Systems (“OEC”). OEC is the largest manufacturer of mobile surgical C-arms with over a 60% market share in the United States. A C-arm is an integral component of a fluoroscopic imaging system used for various types of surgery. Management believes that prior to our inception, no company existed solely focused on providing third party service for OEC equipment.

In early 1994, Imaging3 began offering upgrades for OEC C-arms. Our most successful upgrade was a CCD (Charged Coupled Device) camera, which improved the image quality of older systems to be comparable with that of brand new products. This offering became so successful that we integrated this upgrade with used OEC C-arms and built custom units for NASA, Harvard, University of California at Irvine, University of California at Davis, Baylor University, Baxter Healthcare, and other prestigious healthcare organizations. Later that year, Imaging3 applied for and received United States Food and Drug Administration approval for this device, described as the NASA II CCD C-arm.

In mid-1995, Imaging3 purchased the assets of ProMedCo. ProMedCo had an exclusive agreement with OEC to remanufacture OEC C-arms for OEC Medical Systems. Though the purchase did not transfer the agreement, it eliminated one of our competitors and provided a substantial inventory of replacement parts. Access to these replacement parts allowed us to increase immediately our production levels and created the opportunity to remanufacture OEC’s complete product line, thereby increasing the models we could offer our customers. Also, this purchase allowed us to enter the lucrative parts sales business.

In 2000, we continued our expansion by purchasing a sales company in San Diego, California. This asset purchase brought an extensive database with the contact information for over 43,000 physicians, hospitals, medical centers and surgery centers as well as a streamlined automated sales force. Also, as part of this expansion, several key employees, most of whom were former employees of OEC, were hired to increase our service presence in Arizona, Washington, Nevada, Florida, and Hawaii with a national service presence as the ultimate goal. In 2002, we closed our San Diego office and consolidated our operations in Burbank, California.

On February 19, 2002, a fire gutted our principal operating facility, causing an estimated $4.3 million in damage. The 10,800-square-foot structure was subsequently rebuilt and we reoccupied it until 2015, when we moved to our new address. In the interim, we leased temporary facilities. The damage to the building and the loss of our equipment were partially covered by liability insurance. Nevertheless, the fire disrupted our operations.

In order to better position us for our future direction away from service and toward providing proprietary medical imaging products, we changed our name from Imaging Services, Inc. to Imaging3, Inc. on August 20, 2002.

In April 2007, we completed building our first prototype medical diagnostic imaging device. On November 25, 2009, we filed with the FDA a 510(k) application for approval of our medical diagnostic imaging device for sale in the United States. On October 28, 2010, we received a letter from the FDA responding to our application by rejecting our position that our medical device is substantially equivalent to prior devices and therefore rejecting our 510(k) application to have our device approved for commercial sale and use as a Class II device. We disagree with the FDA’s position and plan to re-file our application with additional information supporting our application for clearance. Assuming that the FDA grants approval of our revised application, we intend to follow up and apply to sell the product in the European and then worldwide markets.

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Vuksich Litigation

In May of 2012, John M. Vuksich (“Vuksich”), a shareholder who alleges to hold shares or proxies totaling more than 30,000,000 shares in the Company (approximately 5.95 % of the outstanding stock in the Company at the time of the filing prior to the Company’s bankruptcy filing), filed a shareholder derivative action in the Los Angeles County Superior Court against the Company (the “Vuksich Litigation”). In that litigation, Vuksich challenged certain corporate actions taken by the Company beginning in 2010, including the Company’s amendments to its articles of incorporation authorizing the Company to increase the authorized number of shares of common stock and to authorize the issuance of preferred stock. Among other things, Vuksich sought an order voiding certain other financing agreements and sought an order compelling the Company to fill vacancies on its Board of Directors. The Vuksich Litigation, which sought to alter the equity structure and management of the Company, required the Company to expend its already-limited resources both in terms of management time and attorney’s fees. Although the Company believed that the Vuksich Litigation could and would be defeated, it decided that the resources of the Company were better directed towards its business objectives in an effort to create value for the Company’s stakeholders.

There are currently four appeals pending in the “Vuksich Litigation.” If the Ninth Circuit Court of Appeals reverses the Bankruptcy Court and the District Court in any of these appeals, it could have a negative effect on the confirmed Plan:

• Order Denying Motion to Dismiss Chapter 11 Case, Case No.: 13-56695 (9th Cir.), appeal filed September 30, 2013, appealing the District Court’s dismissal of the initial appeal of the order.

• Order Disallowing Claims Nos. 23 and 24, Case No.: 14-55499 (9th Cir.), appeal filed March 31, 2014, appealing the District Court’s order affirming the order of the Bankruptcy Court.

• Order Denying Motion for Abandonment of Potential Claims Against Officers and Directors, Case No.: 14-55521 (9th Cir.), appeal filed April 2, 2014, appealing the District Court’s order affirming the order of the Bankruptcy Court.

• Order Confirming Debtor’s First Amended Plan, Case No.: 14-55466 (9th Cir.), appeal filed March 24, 2014, appealing the District Court’s order affirming in part and reversing in part the order of the Bankruptcy Court.

Bankruptcy Reorganization Plan

As a result in part of the Vuksich Litigation, on September 13, 2012, the Company filed a voluntary Chapter 11 petition with the federal bankruptcy court in Los Angeles, California. On or about July 9, 2013, our Plan of Reorganization (“Plan” or “Chapter 11 Reorganization Plan”) was approved by the United States Bankruptcy Court. On July 30, 2013, the order confirming the Company’s Plan became effective. The Plan adopted by Imaging3, Inc. is a reorganizing plan. Payments under the Plan were made by utilizing existing cash on hand, borrowings on a secured and unsecured basis, future cash flow, if any, capital raised through the sale of our common stock in private placements, and by conversion of debt to equity. For accounting purposes and convenience, the Effective Date was deemed to be July 1, 2013. There was very little activity between July 1, 2013 and July 30, 2013. The following is a brief summary of the Plan as adopted on the Effective Date:

Administrative expenses are claims for costs or expenses of administering the Company’s Chapter 11 case, and for other expenses incurred during the Chapter 11. The Bankruptcy Code requires that all administrative claims be paid on the Effective Date of the Plan, unless a particular claimant agrees to a different treatment. The Company paid approximately $463,146 on the Effective Date for administrative expenses. Priority tax claims are certain unsecured income, employment and other taxes. The Company is paying approximately $71,974 of priority tax claims to the IRS, Los Angeles County, California State Board of Equalization and City of Los Angeles in monthly installments, plus interest, through September 2017. Secured claims are claims secured by liens on the Company’s property. The Company has agreed to pay approximately $105,525 in cash installments, $60,247 of which are over 36 months and $45,278 of which is a one-time payment due in September 2015, for certain secured claims. The Company issued approximately 38,290,480 shares of new common stock to pay approximately $1,073,033 of outstanding debt owed to the Class 3 Creditors (Gemini Master Fund, Ltd, Alpha Capital Anstalt, and Brio Capital, L.P.), whereupon their liens on Company assets were released. In addition, the Company issued approximately 18,148,696 new warrants to purchase common stock to Gemini and Alpha, exercisable for a period of ten years from the Effective Date at $0.000001 per share. The Company issued approximately 15,994,749 shares of new common stock to creditors represented by Jeffrey K. Lee as their collateral agent to pay approximately $298,142 of additional secured claims. An additional 58,823,965 shares of new common stock are authorized to be issued by the Company to creditors represented by Dane Medley as their collateral agent to raise up to $1,000,000 of financing for the Company before and after the Effective Date, which may be in the form of collateralized debt. After the Effective Date, the Company issued 40,057,289 for $744,577 of notes and accrued interest, which represented a portion of the $1,000,000 it was authorized to raise.

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General unsecured claims are unsecured claims not entitled to priority. The Company paid approximately $1,936,402 of unsecured claims by issuing 21,513,051 shares of its new common stock pro rata among the holders of such debt. An unsecured claim for $359,938 owed to Dean Janes, the former Chief Executive Officer of the Company, was paid in full by issuance of 3,986,949 shares of new common stock to him on the Effective Date. In addition, Dean Janes received 10,200,000 shares of new common stock, which was given to him by the Class 3 Creditors out of shares they would have received pursuant to the Chapter 11 Reorganization Plan. The Company’s common stockholders were issued 8,500,000 shares of new common stock in the Company, and all of their old common stock was cancelled. All old outstanding preferred stock was also cancelled. All options to acquire old common stock and warrants to purchase securities of the Company outstanding immediately prior to the Effective Date were cancelled and extinguished on the Effective Date.

On the Effective Date, the Plan provided for the Company to adopt a new equity incentive plan authorizing the award of up to 15% of the shares of new common stock outstanding from time to time, to the Company’s employees, officers, directors and consultants in the form of stock option grants, restricted stock grants or stock awards, as determined by the Company’s board of directors. The Company has not yet adopted such an equity incentive plan, but intends to do so in the future.

As of October 30, 2015, the Company is in default on certain of its covenants under the Plan. See “Item 8. Financial Statements and Supplementary Data – Notes to Financial Statements – Footnote 13, Commitments and Contingencies – Litigation” for a description of the status of the Company’s implementation of and compliance with the Chapter 11 Reorganization Plan, and its delinquencies under the Plan as of October 30, 2015.

Business Operations

Imaging3 technology has the potential to contribute to the improvement of healthcare. Our technology is designed to cause 3D images to be instantly constructed using high-resolution fluoroscopy. These images can be used as real time references for any current or new medical procedures in which multiple frames of reference are required to perform medical procedures on or in the human body. Management believes that Imaging3 technology has extraordinary market potential in an almost unlimited number of medical applications, including:

Trauma Center. Imaging3 technology would allow a surgeon to immediately view exactly where a bullet is lodged in a gunshot victim. At any point during the procedure, the surgeon could continue to view 3D images in real-time.

Cardiology. Imaging3 technology could provide a 3D view of a heart and allow a cardiologist to record the heartbeat in real-time. The entire heart would be visible, including veins that are wrapped around the “back” side.

Pain Management. Imaging3 technology could provide a 3D view of the spine, nerve endings, and injection points and help guide the needle for spinal procedures. 3D images in real-time could also be used to view disk compression.

Neuro-vascular. Imaging3 technology could provide a 3D view of the skull and brain to diagnose neuro-vascular diseases. 3D images in real-time could be used to view the rupture of vessels or arterial blockages diminishing blood flow to the brain.

Orthopedic. Imaging3 technology could provide a 3D view of bones and joints to help diagnose orthopedic conditions. An orthopedic surgeon could view a 3D image in real-time to line up a screw with the hole in a hip pinning.

Vascular. Imaging3 technology could provide a 3D view of veins throughout the body. After injecting dye, a 3D image in real-time could pinpoint clots and occlusions and help diagnose vascular diseases.

Multi-function Device

A diagnostic medical imaging device built with Imaging3 technology can perform several functions and can potentially replace or supplement a number of existing devices, resulting in considerable cost savings for hospitals and healthcare centers. These functions include:

Perform real-time, 3D medical imaging;

Emulate a computerized tomography scanner (at a fraction of the capital cost); and

Perform standard fluoroscopy.

Our management believes that this multi-function capability will be especially attractive in foreign markets, where the cost of a computed tomography (“CT”) scanner is beyond the means of most hospitals and healthcare centers.

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Existing Base of Business to Launch a Proprietary Product

Imaging3 is an established company with revenues and an industry reputation. While we began as a service provider, we quickly expanded to include equipment and parts sales, both new and renewed. Management believes that Imaging3 was one of the largest remanufacturer of C-arms in the world, prior to its bankruptcy in September 2012. We offered new, demonstration, remanufactured, refurbished, and pre-owned systems in all price ranges from every major manufacturer including OEC, General Electric, Philips, Siemens, FluoroScan, XiScan and Ziehm. We currently supply full-size, compact and mini C-arms.

Management believes that Imaging3 was also one of the largest distributor of C-arm tables in the United States. We currently offer new, demonstration, remanufactured, refurbished, and pre-owned C-arm tables. We also supply pain management tables, surgery tables, urology tables, and vascular tables, primarily on a fulfillment basis. We generally do not stock inventory. Imaging3’s management intends to use our base of operations and distribution channels to launch our new medical imaging devices business, based on our breakthrough Imaging3 technology.

Business and Revenue Models

Our business strategy is straight-forward: (1) maintain our base of C-arm remanufacturing and service business, and, assuming we achieve the FDA approval we are seeking: (2) develop medical diagnostic imaging devices based on our breakthrough Imaging3 technology for the $5 billion medical imaging market, (3) sell our new medical diagnostic imaging devices directly to healthcare providers, as well as through channel partners and distributors, and (4) license our breakthrough Imaging3 technology to other medical diagnostic imaging device manufacturers.

Our management believes that most of our future revenues will come from the sale of medical imaging devices, based on our Imaging3 technology. Other revenues are expected to be derived from the licensing of our proprietary technology to other medical diagnostic imaging device manufacturers. The smallest portion of our future revenue is projected to come from the sale and service of C-arms and tables.

Proprietary Technology

Patent

On June 23, 2004, U.S. Patent No. 6,754,297 was granted in the name of Dean Janes, entitled Apparatus and Method for Three-Dimensional Real-Time Imaging System. The rights to this patent have been assigned to us.

Abstract of the Patent Disclosure

A computing device in a three-dimensional imaging system utilizes a plurality of distance readings and reference readings from at least one subject sensor to determine a subject location and a subject volume and establish a base three-dimensional map of a subject. A plurality of two-dimensional image exposures along with a plurality of associated reference locations are created by rotating an image source and an image receptor around an inner circumference of an imaging gantry. The plurality of two-dimensional image exposures is digitized to create a plurality of digital two-dimensional image exposures. The computing device receives the plurality of digital two-dimensional image exposures and the plurality of associated reference locations. The overlaying, interpolating and pasting of the plurality of digital two-dimensional image exposures on the base three-dimensional map creates a base three-dimensional image exposure, which is displayed on a display device.

General Description

Real-time 3D medical diagnostic imaging will be accomplished by scanning the patient, either partially or completely in a 360-degree circumference under fluoroscopy (or other type of image exposure), utilizing a single or multiple x-ray source and image receptor. The information acquired under fluoroscopy (or other type of image exposure) will be digitized at a frame rate of between 30 to 60 frames per second. This information will be sent to a computer system to be incorporated into a three-dimensional image to be displayed on a computer monitor. The image created can then be manipulated and/or rotated to view the scanned image of the patient’s anatomy in any direction or orientation desired by the user. The user could then choose a specific area of the image to update. Once an area is selected, the computer displaying the image would then “gang” or align the x-ray source(s) and image receptor(s) to begin updating scans of new images to be overlaid upon the existing three-dimensional model. This process would then be updated and/or repeated as many times as necessary for the specific procedure to be completed. At any time, a new reference area or scan could be selected or initiated.

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The “O” Device

Part of our invention is based on an “O” device to create a circular gantry similar to that used with CT to scan a patient a full 360 degrees with fluoroscopic radiation. This approach is expected to allow imaging of the patient from any frame of reference or angulation (current medical imaging devices are limited to 150 degrees to 360 degrees with mechanical orientation or manipulation). 3D imaging requires an “O” device to scan the patient in increments of 360 degrees to allow construction of a three-dimensional image. By scanning the patient in 360 degrees and acquiring images at 30 to 60 frames per second, management believes a three-dimensional image can be constructed.

Imaging3 Technology Differs from Other Approaches

The “O” device approach is similar to that used in a CT scan. The difference is CT is used to image a “slice” of the anatomy and not intended for real-time fluoroscopic imaging. The slice is obtained by using a fulcrum reference point and rotating the X-ray source and image receptor in reference to that point. This basic geometry creates a 2D image in any depth desired, in any region of the body. The “O” device would use a similar fulcrum point to reference depth, but the scan would not create a slice but instead a real-time image captured at 30 to 60 frames per second in 360 degrees. Further, management believes that the “O” device would be used for conventional fluoroscopic imaging with the advantage of positioning the X-ray source and receptor at any angulation desired.

Currently, 3D imaging is used only for reconstructive post processing reference images. Magnetic resonance imaging (“MRI”), CT and ultrasound currently have this capability. The 3D images are created by multiple scans of 2D images that require a long period of time to process into a three-dimensional image. The image created is then used only for reference, not real-time manipulation in the body. We anticipate that our 3D images will be constructed almost instantly and will be available to be used as real-time references whenever multiple frames of reference are required to perform medical procedures on or in the human body.

The Market

We compete in the medical diagnostic imaging market and this market has never been healthier than it is today. This vitality is due primarily to continual technological improvements that lead to faster and better resolution imaging, greater patient safety, and the provision of these capabilities to a growing and aging population. The result has been a vigorous competition to create the most cost-effective diagnostic imaging systems.

Diagnostic imaging is an evolving part of modern medicine and is now entering a new era of digital imaging. The field has evolved from the early X-rays by Roentgen over 100 years ago to imaging of organs by CT and MRI that are 20 years old. Medical imaging is used for diagnosis in the leading causes of death, heart attacks, strokes, and cancer. What was once called the radiology department is now called the diagnostic imaging department because of the wealth of new technologies available beyond x-rays. A trauma victim’s internal injuries are imaged with a CT scanner. Breast cancer, a leading cause of death in women, is detected with mammography and ultrasound.

According to a Freedonia Group study, the medical imaging equipment market in the U.S. will register gains faster than the projected growth in national health expenditures. Growth is stimulated by an increasing incidence of patient procedures involving diagnostic imaging, partly the result of an aging population and partly reflecting advances in noninvasive imaging technology.

Our management believes that opportunities exist not only for new companies in imaging products but also for software companies for image processing and Picture Archiving and Communication Systems networks. Technological developments continue, which consistently result in new products.

Diagnostic imaging is an important part of medical diagnosis. It ranges from a dentist’s X-ray to find tooth decay to angiograms done to aid a cardiologist in performing an angioplasty. The aging baby boomer population will need the new imaging capabilities for cancer and heart disease detection. The revolution in medical imaging is being fueled not only by new medical imaging technology, but also by advances in computer hardware and software. New systems such as spiral CT or multi-slice CT would not be possible without today’s faster processors. Better software algorithms for image analysis and compression make the process more accurate and efficient. The growth of diagnostic imaging could be an important source of revenue for computer manufacturers and software companies specializing in diagnostic imaging.

Industry Overview

Diagnostic imaging services are noninvasive procedures that generate representations of the internal anatomy and convert them to film or digital media. Diagnostic imaging systems facilitate the early diagnosis of diseases and disorders, often minimizing the cost and amount of care required and reducing the need for costly and invasive diagnostic procedures.

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Magnetic Resonance Imaging

MRI involves the use of high-strength magnetic fields to produce computer-processed cross-sectional images of the body. Due to its superior image quality, MRI is the preferred imaging technology for evaluating soft tissue and organs, including the brain, spinal cord and other internal anatomy. With advances in MRI technology, MRI is increasingly being used for new applications such as imaging of the heart, chest and abdomen. Conditions that can be detected by MRI include multiple sclerosis, tumors, strokes, infections, and injuries to the spine, joints, ligaments, and tendons. Unlike x-rays and computed tomography, which are other diagnostic imaging technologies, MRI does not expose patients to potentially harmful radiation.

MRI technology was first patented in 1974, and MRI systems first became commercially available in 1983. Since then, manufacturers have offered increasingly sophisticated MRI systems and related software to increase the speed of each scan and improve image quality. Magnet strengths are measured in tesla, and MRI systems typically use magnets with strengths ranging from 0.2 to 1.5 tesla. The 1.0 and 1.5 tesla strengths are generally considered optimal because they are strong enough to produce relatively fast scans but are not so strong as to create discomfort for most patients. Manufacturers have worked to gradually enhance other components of the machines to make them more versatile. Many of the hardware and software systems in recently manufactured machines are modular and can be upgraded for much lower costs than purchasing new systems.

The MRI industry has experienced growth as a result of:

Recognition of MRI as a cost-effective, noninvasive diagnostic tool.

Superior soft-tissue image quality of MRI versus that of other diagnostic imaging technologies.

Wider physician acceptance and availability of MRI technology.

Growth in the number of MRI applications.

MRI’s safety when compared to other diagnostic imaging technologies, because it does not use potentially harmful radiation.

Increased overall demand for healthcare services, including diagnostic services, for the aging population.

Positron Emission Tomography (“PET”)

PET is a nuclear medicine procedure that produces pictures of the body’s metabolic and biologic functions. PET can provide earlier detection of certain cancers, coronary diseases or neurologic problems than other diagnostic imaging systems. It is also useful for the monitoring of these conditions.

Computed Tomography

In CT imaging, a computer analyzes the information received from an x-ray beam to produce multiple cross-sectional images of a particular organ or area of the body. CT imaging is used to detect tumors and other conditions affecting bones and internal organs.

Other Services

Other diagnostic imaging technologies include x-ray, single photon emission computed tomography, and ultrasound.

Digital Imaging Technologies

New techniques for the digital capture, display, storage, and transmission of x-ray images are poised to revolutionize the diagnostic imaging market. Although digital technologies and techniques have been in use in other diagnostic imaging areas (such as CT scans, MRI scans, and ultrasound), technical problems have kept x-ray technologies in the era of film. However, new methods of digitally capturing x-ray images are under development and promise to revolutionize x-ray imaging.

The need to cut costs and improve services in healthcare delivery is driving the move to digital systems. The requirement for hospitals to implement electronic access to medical images and other types of information is now widely accepted and regarded as inevitable. The trend toward storing, distributing and viewing medical images in digital form is being fueled by both changes in the economic structure of the healthcare system and by rapidly evolving technologies. In particular, the new economics of health care will mandate a shift from film-based radiology to the electronic delivery of digital images, while new technology promises the additional benefit of vastly improved diagnostic power.

Users of Diagnostic Imaging

MRI and other imaging services are typically provided in one of the following settings:

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Hospitals and Clinics

Imaging systems are located in and owned and operated by a hospital or clinic. These systems are primarily used for the patients of the hospital or clinic, and the hospital or clinic bills third-party payors, such as health insurers, Medicare or Medicaid.

Independent Imaging Centers

Imaging systems are located in permanent facilities not generally owned by hospitals or clinics. These centers depend upon physician referrals for their patients and generally do not maintain dedicated, contractual relationships with hospitals or clinics. In fact, these centers may compete with hospitals or clinics that have their own systems to provide Imaging3 to these patients. Like hospitals and clinics, these centers bill third-party payors for their services.

Outsourced

Imaging systems, largely located in mobile trailers but also provided in fixed facilities, provide services to a hospital or clinic on a shared-service or full-time basis. Generally, the hospital or clinic contracts with the imaging service provider to perform scans of its patients, and the imaging service provider is paid directly by that hospital or clinic instead of by a third-party payor.

Industry Challenges

In a recent report, U.S. Medical Imaging Industry Outlook, Frost & Sullivan identified several challenges facing the diagnostic imaging industry. Low reimbursement rates have become a major challenge, not only for end users, but for manufacturers as well. Imaging reimbursements for many procedures may be inadequate given the expense of the equipment and the expertise required to create and interpret results.

Lack of adequate compensation is a concern for all industry participants, as many healthcare centers are delaying or canceling purchases of high-priced items. Until the financial rewards for imaging are increased substantially, and definitively, low reimbursement will be the foremost hurdle for manufacturers.

Competition

Competitive Landscape

The healthcare industry in general and the market for imaging products in particular is highly competitive. We compete with a number of companies, many of which have substantially greater financial, marketing, and other resources than we have. Our competitors include large companies such as General Electric, Philips, Siemens, Toshiba and Hitachi, which compete in most medical diagnostic imaging modalities, including x-ray imaging.

A study by Theta Reports, Diagnostic Imaging Equipment and Systems World Market, identifies the following 17 key players in the medical diagnostic imaging market:

ADAC Laboratories

Eastman Kodak Co.

Fonar Corp.

Fuji Medical Systems U.S.A., Inc.

General Electric Medical Systems

Hitachi Medical Systems America, Inc.

Hologic, Inc.

Imaging Diagnostic Systems, Inc.

Imatron, Inc.

Lumisys, Inc.

Marconi Medical Systems

Philips Medical Systems Nederland BV

PhorMax Corp.

Siemens Medical Engineering Group

Sterling Diagnostic Imaging, Inc.

Trex Medical Corp.

Varian Medical Systems, Inc.

Direct Competitors

At this time, we are not aware of any existing devices in the marketplace that provide 3D, real-time diagnostic medical imaging, with the exception of ultrasound.

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Ultrasound is a real-time tomographic imaging modality. Not only does it produce real-time tomograms of the position of reflecting surfaces (internal organs and structures), but it can also be used to produce real-time images of tissue and blood motion. However, ultrasound is a low-resolution imaging modality that does not produce an image as precise and clear as fluoroscopy. Our devices will rely instead on the use of fluoroscopy, a high-resolution imaging modality, to produce “live” x-ray images of living patients in 3D.

Marketing and Sales Plan

Marketing Strategy

Our marketing strategy is to create a favorable environment to sell our medical diagnostic imaging devices. We intend to enhance, promote and support the fact that Imaging3 technology is the most complete and comprehensive medical diagnostic imaging solution available in the marketplace.

Product and Service Differentiation

According to our management, the differentiating attributes of Imaging3 technology will include:

The only 3D, real-time medical diagnostic imaging device in the market that will produce high resolution images;

Reasonably priced;

Easy-to-install;

Vast array of features; and

Highly reliable.

The Imaging3 medical device will be reasonably priced because it will cost considerably less than comparable MRI and CT Scan machines. It will be easy to install because it is lighter and will be more mobile than the MRI and CT Scan machines. It will have more features than MRI and CT Scan machines because it will provide 3D instant real time images and real time CT emulation, which the other machines currently do not provide. Management believes that the Imaging3 medical device will be more reliable than competing MRI and CT Scan machines because it needs less radiation to provide its 3D images, and its assembled components are simpler, more efficient, and standard (i.e. “off-the-shelf”), rather than customized.

Value Proposition

Our value proposition is simple: diagnostic imaging devices with Imaging3 technology allow healthcare providers to easily produce 3D, real-time, high resolution images at a reasonable cost.

Positioning

Management believes that Imaging3 can be positioned as offering the superior solution for producing medical diagnostic images. Management believes that our unique advantage is that we can offer a diagnostic imaging solution that will allow healthcare providers to view real-time references for virtually any procedure. We plan to reposition our competitors by demonstrating that their offerings are inadequate compared to our device because they:

Do not provide 3D images;

Do not provide images in real-time;

Do not provide comparable high resolution images; and

Are too costly.

Sales Strategy

After undertaking a marketing campaign, we intend to aggressively sell our medical diagnostic imaging devices in the United States. International sales efforts will follow after achieving market penetration in the domestic marketplace.

Sales Margin Structure

Our management believes that the majority of our sales will be derived from direct sales to customers, with the balance of sales derived from dealers and manufacturer’s representatives. As a result, the sales margin structure must be attractive to these independent organizations.

Direct Sales - Full suggested list price;

Dealers - 30% off suggested list price; and

Manufacturer’s Representatives - 10% commission.

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Target Market Segment

Our management has identified general medical and surgical hospitals in the United States as our primary target market segment for Imaging3 technology. According to D&B/ iMarket, there are 12,041 general medical and surgical hospitals in the United States.

Distribution Channels

We plan to sell our Imaging3 medical diagnostic imaging devices through several channels of distribution, including:

Direct Sales to End Users

Our policy is to sell directly to end-users whenever possible. Our management expects that direct sales will occur most often with larger customers.

Dealers and Manufacturers’ Representatives

We plan to supplement our own field sales force by entering into agreements with dealers and manufacturers’ representatives. Because dealers and manufacturers’ representatives carry several product/service lines that are compatible with our products and services, Imaging3 plans to select dealers and manufacturers’ representatives carrying complementary and compatible products and services, as well as dealers and manufacturers’ representatives that sell dissimilar products and services yet are appropriate for their customers’ customer.

We have working relationships with a number of independent organizations that help distribute our current product line. We expect to work with these independent organizations to help distribute diagnostic medical imaging devices built with Imaging3 technology. These organizations have well-established relationships with mid-size to large size customers. Many also provide specific vertical market applications.

Executive Sales

Because many of Imaging3’s large customers will tend to be top healthcare managers, it is important that our president and senior managers present our products to our large customers.

Field Sales Force

Management anticipates that the majority of our selling efforts to large accounts will be handled internally through our field sales force. We have chosen to use a direct sales force because our large accounts require considerable customer education and post-sales support directly from us. Management believes that our price points, pricing structure and profits are such that our cost of sales warrants a “person-to-person” selling strategy.

Employees

We currently employ 6 full-time individuals, all of whom are working at our leased offices at 3022 North Hollywood Way, Burbank, California 91505. Two of those 6 full-time employees are executive officers and directors of the Company, and the rest are employed in administrative, marketing, and sales positions.

To support our need for technical staffing, we have established relationships with technical staffing organizations that continuously offer highly qualified personnel to meet our needs, both locally and from out of the area.

Intellectual Property Matters

Our policy is to have all of our employees execute agreements that impose nondisclosure obligations on the employee and in which the employee has assigned to us (to the extent permitted by California law) all copyrights and other inventions created by the employee during employment with us. The rights underlying the application for the patent of the Imaging3 technology have been assigned to us. We have in place a trade secret protection policy that our management believes to be adequate to protect our intellectual property and trade secrets.

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Government Regulatory Approval Process

All of our products are classified as Class II (Medium Risk) devices by the FDA and clinical studies with our products will be considered to be Non-Significant Risk Studies, except that our 510(k) application with the FDA for our proprietary medical imaging device has not yet been approved as a Class II device. Imaging3’s business is governed by the FDA and all products typically require 510(k) market clearance before they can be put in commercial distribution. We are also regulated by the FDA’s Quality Systems Regulation, which is similar to the ISO9000 and the European EN46000 quality control regulations. All of our products currently in production or manufactured by other vendors are approved for marketing in the United States under the FDA’s 510(k) regulations.

A 510(k) is a pre-marketing submission made to the FDA to demonstrate that the device to be marketed is as safe and effective, that is, substantially equivalent, to a legally marketed device that is not subject to pre-market approval. Applicants must compare their 510(k) device to one or more similar devices currently on the U.S. market and make and support their substantial equivalency claims. A legally marketed device is a device that was legally marketed prior to May 28, 1976 (pre-amendments device), or a device which has been reclassified from Class III to Class II or I, a device which has been found to be substantially equivalent to such a device through the 510(k) process, or one established through Evaluation of Automatic Class III Definition. The legally marketed device(s) to which equivalence is drawn is known as the “predicate” device(s).

Applicants must submit descriptive data and when necessary, performance data to establish that their device is substantially equivalent to a predicate device. The data in a 510(k) is to show comparability, that is, substantially equivalent of a new device to a predicate device.

The FDA does not offer an opinion or determination of what submission is required. The FDA does provide a database of devices, classifications and Regulation numbers. In our research of this database we determined several Class II devices meet our criteria for submission. These devices are listed in the table below.

Product Code	Class	Description	Regulation
IZG	II	System, X-ray, Photofluorographic		892.1730
JAB	II	System, X-ray, Fluoroscopic, Non-Image-I		892.1660
JAK	II	System, X-ray, Tomography, Computed		892.175

This is a broad range of devices with which to compare our device functionality. The FDA requires the manufacturer to submit an application, whether it is a 510(k) or pre-market approval submission. Upon receipt of the submission, the FDA will respond within 30 to 45 days with their determination of acceptance of the submission, questions and/or comments to the submission or requests for more information.

All of our current used rebuilt products are Class II devices, FDA approved through OEM for marketing. Once approved, the FDA will not require the manufacturer to resubmit an application or change the classification. They may, however, request further information about the product(s), manufacturer and GMP requirements. The devices currently sold by us are not manufactured by us. OEC Medical Systems is the original device manufacturer and responsible for the FDA submission of their original device(s). Imaging3 remanufactures OEC Medical Systems devices, thus we are not required to submit any FDA submission for these devices. In some instances, we have performed modifications to these devices to improve the devices functionality, and in these instances Imaging3 has submitted 510(k) applications. These modifications are to existing devices with existing classifications listed in the FDA database and cannot be reclassified. The FDA database listing for current products is listed below:

Product Code		Class		Description		Regulation
IZL		II		System, X-ray, Mobile			892.1720

As to our new product and its potential for classification, the FDA requires us, as the manufacturer, to submit an application in whichever classification we choose in the submission form we choose, meaning 510(k) or pre-market approval application. The FDA reviews the submission and determines whether the application is appropriately filed and in the correct submission format. The criteria they use for determination on a 510(k) is substantially equivalent, which is a comparative analysis of the manufacturer’s device in the submission with existing devices already approved by the FDA. This is the purpose of the FDA’s Device Classification Database, giving manufacturer’s products with approved submissions and categories of devices to compare new device submissions. A new type of device may not be found in the product classification database. If the device is a high risk device (supports or sustains human life, is of substantial importance in preventing impairment of human health, or presents a potential, unreasonable risk of illness or injury) and has been found to be not substantially equivalent to a Class I, II, or III (Class III requiring 510(k)), then a pre-market approval application will be required.

If the FDA determines the new device must be classified as a Class III device, the FDA may still allow the device submission to be a 510(k) submission. Class III devices, which are equivalent to devices legally marketed before May 28, 1976 may be marketed through the pre-market notification (510(k)) process until the FDA has published a requirement for manufacturers of that generic type of device to submit pre-market approval data.

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Class III devices are usually those that support or sustain human life, are of substantial importance in preventing impairment of human health, or which present a potential, unreasonable risk of illness or injury. Examples of Class III devices which require a pre-market approval include replacement heart valves, silicone gel-filled breast implants, and implanted cerebella stimulators.

Our new product, the “Real-time 3D Imaging Device” is expected to be submitted as Product Code “IZG,” Device Class II, “System, X-ray, Photofluorographic,” Regulation Number 892.1730, since this is the closest device description. The FDA may at its own choosing and determination wish to reclassify this device as a Class III, which we believe is unlikely, since the majority of our device functions are similar to existing products currently being marketed and as classified above.

If the FDA determines to classify this device as a Class III device, then a pre-market approval application must be filed. The pre-market approval application is the most stringent type of device marketing application required by the FDA. The applicant must receive FDA approval of its pre-market approval application prior to marketing the device. Pre-market approval is based on a determination by the FDA that the pre-market approval contains sufficient valid scientific evidence to assure that the device is safe and effective for its intended use(s). An approved pre-market approval application is, in effect, a private license granting the applicant (or owner) permission to market the device. The pre-market approval owner, however, can authorize use of its data by another.

The pre-market approval applicant is usually the person who owns the rights, or otherwise has authorized access, to the data and other information to be submitted in support of FDA approval. This person may be an individual, partnership, corporation, association, scientific or academic establishment, government agency or organizational unit, or other legal entity. The applicant is often the inventor/developer and ultimately the manufacturer.

FDA regulations provide 180 days to review the pre-market approval application and make a determination. In reality, the review time is normally longer. Before approving or denying a pre-market approval application, the appropriate FDA advisory committee may review the pre-market approval application at a public meeting and provide the FDA with the committee’s recommendation on whether or not the FDA should approve the submission. After the FDA notifies the applicant that the pre-market approval application has been approved or denied, a notice is published on the Internet (1) announcing the data on which the decision is based, and (2) providing interested persons an opportunity to petition the FDA within 30 days for reconsideration of the decision.

A pre-market approval application is a scientific, regulatory documentation to the FDA to demonstrate the safety and effectiveness of the Class III device. There are administrative elements of a pre-market approval application, but good science and scientific writing is a key to the approval of a pre-market approval application. If a pre-market approval application lacks elements listed in the administrative checklist, the FDA will refuse to accept a pre-market approval application and will not proceed with the in-depth review of scientific and clinical data. If a pre-market approval application lacks valid clinical information and scientific analysis based on sound scientific reasoning, it will delay the FDA’s review and approval. Pre-market approval applications that are incomplete, inaccurate, inconsistent, omit critical information, and are poorly organized have resulted in delays in consideration.

Three categories of the pre-market approval application are very important:

Technical Sections. The technical sections containing data and information should allow the FDA to determine whether to approve or disapprove the application. These sections are usually divided into non-clinical laboratory studies and clinical investigations.

Non-clinical Laboratory Studies’ Section. The non-clinical laboratory studies’ section includes information on microbiology, toxicology, immunology, biocompatibility, stress, wear, shelf life, and other laboratory or animal tests. Non-clinical studies for safety evaluation must be conducted in compliance with 21CFR Part 58 (Good Laboratory Practice for Nonclinical Laboratory Studies).

Clinical Investigations Section. The clinical investigations section includes study protocols, safety and effectiveness data, adverse reactions and complications, device failures and replacements, patient information, patient complaints, tabulations of data from all individual subjects, results of statistical analyses, and any other information from the clinical investigations. Any investigation conducted under an Investigational Device Exemption must be identified as such.

We are listed with the FDA as a new device manufacturer, our Registration Number is 20300565, and our Owner Operator Number is 9023393. Though we do not currently manufacture new devices, the FDA requires our registration as a remanufacturer. Imaging3 is subject to the FDA’s Radiological Health Program, under the Center for Devices Radiological Health division of the FDA.

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We must be in compliance with Good Manufactures Practices (“GMP”), Quality Control, and Medical Device Reporting (“MDR”). The FDA may from time to time, usually every two to three years, audit us for compliance. In these audits the FDA reviews documents, interviews management and reviews all procedures.

The current GMP requirements set forth in the Quality System (“QS”) regulation are promulgated under Section 520 of the Federal Food, Drug and Cosmetic (“FFD&C”) Act. They require that domestic or foreign manufacturers have a quality system for the design, manufacture, packaging, labeling, storage, installation, and servicing of finished medical devices intended for commercial distribution in the United States. The regulation requires that various specifications and controls be established for devices; that devices be designed under a quality system to meet these specifications; that devices be manufactured under a quality system; that finished devices meet these specifications; that devices be correctly installed, checked and serviced; that quality data be analyzed to identify and correct quality problems; and that complaints be processed. Thus, the QS regulation helps assure that medical devices are safe and effective for their intended use. The FDA monitors device problem data and inspects the operations and records of device developers and manufacturers to determine compliance with the GMP requirements in the QS regulation.

The MDR regulation provides a mechanism for the FDA and manufacturers to identify and monitor significant adverse events involving medical devices. The goals of the regulation are to detect and correct problems in a timely manner. Although the requirements of the regulation can be enforced through legal sanctions authorized by the FFD&C Act, the FDA relies on the goodwill and cooperation of all affected groups to accomplish the objectives of the regulation.

The statutory authority for the MDR regulation is Section 519(a) of the FFD&C Act as amended by the Safe Medical Devices Act of 1990. The Safe Medical Devices Act of 1990 requires user facilities to report:

Device-related deaths to the FDA and the device manufacturer;

Device-related serious injuries to the manufacturer, or to the FDA if the manufacturer is not known; and

Submit to the FDA on an annual basis a summary of all reports submitted during that period.

When a problem arises with a product regulated by the FDA, the agency can take a number of actions to protect the public health. Initially, the agency works with the manufacturer to correct the problem voluntarily. If that fails, legal remedies include asking the manufacturer to recall a product, having federal marshals seize products if a voluntary recall is not done, and detaining imports at the port of entry until problems are corrected. If warranted, the FDA can ask the courts to issue injunctions or prosecute those that deliberately violate the law. When warranted, criminal penalties including prison sentences are sought.

Once on the market, there are post-market surveillance controls with which a manufacturer must comply. These requirements include the Quality Systems (also known as Good Manufacturing Practices), and Medical Device Reporting regulations. The QS regulation is a quality assurance requirement that covers the design, packaging, labeling and manufacturing of a medical device. The MDR regulation is an adverse event reporting program.

We are also required to report under the MDR requirements, which are for injuries and deaths, of which we have had none since our registration.

For all devices manufactured or remanufactured by us, the FDA may request updated information regarding any device with a previously approved 510(k) or pre-market approval submission. If any substantial changes are made to existing approved devices, the FDA may require a 510(k) supplement submission, which, in most cases, does not require the manufacturer to delay production or marketing of the modified device. As with all applications, this determination lies entirely with the FDA.

Our last audit with the FDA was in 2010 and we expect a new audit to take place shortly after our new device is resubmitted to the FDA in a 510(k) application.

In an audit performed by the FDA, our records for service and repair, quality control, device labeling and serial number tracking are reviewed. If the FDA finds issues of non-compliance they issue a letter requesting correction, giving us 30 days to correct the non-compliance. Extensions can be requested to reply, but most issues, if any, can be handled in a 30-day period.

Since our registration with the FDA in 1995, we have had two audits. We did not receive any notice or correspondence of non-compliance due to those audits. We received only one suggestion regarding our record keeping process, which addressed preventive maintenance forms being included in all customer files for which we provide service.

We have had no instances of non-compliance with either the FDA or the State of California. The consequences of non-compliance range from a letter stating non-compliance and a period to cure, suspension of manufacturing and distribution, to fines and suspension of operations.

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We intend to seek to obtain FDA approval of our proprietary medical imaging device in 2016, although we cannot assure that this approval will be granted when expected. All of our marketing efforts for the new device must start from the date the FDA approves the device to be marketed. Since we are already registered with the FDA as a new device manufacturer and have been through an audit performed by the FDA, the FDA is already familiar with us and our processes. The FDA may wish to obtain updated information about us and may require more time to process our planned 510(k) resubmission than estimated.

To enter the European market, our products as well as our quality assurance systems will have to be approved and certified by an authorized certifying body such as Technischer Uberwachungsverein; English translation: Technical Inspection Association (“TUV”), Underwriters Laboratories (“UL”) or British Standards Institute (“BSI”). In the future, we may plan to go through this process as a part of our overall enhancement of the quality systems.

TUV, UL and BSI are all standards testing companies assisting manufactures to comply with published standards, regulatory standards and laws necessary for marketing devices throughout the world and the United States. These three companies provide the UL and CE (the European equivalent of the UL mark in the United States) marks, demonstrating compliance with the standards and laws.

TUV is a Nationally Recognized Testing Laboratory and Safety Checklist Contractors certified, providing a full suite of services, including CE Marking assistance, electromagnetic compatibility, electrical & mechanical testing, and many additional global conformity assessment services that help companies gain product compliance to enter individual country markets.

UL is an independent, not-for-profit product-safety testing and certification organization. They have tested products for public safety for more than a century. Since their founding in 1894, they have held the undisputed reputation as a leader in product- safety testing and certification within the United States. Management believes that by building on their household name in the United States, UL is becoming one of the most recognized, reputable conformity assessment providers in the world. Today, their services extend to helping companies achieve global acceptance, whether for an electrical device, a programmable system, or an organization’s quality process.

BSI exists to help industry develop new and better products and to make sure that products meet current and future laws and regulations. It tests products from medical devices to fire extinguishers to lamps for football stadiums against published standards.

Far East, Middle East, Eastern European, and Latin American markets have different regulatory requirements. We intend to comply with applicable requirements if and when we decide to enter those markets.

Other Government Regulations

The delivery of health care services has become one of the most highly regulated of professional and business endeavors in the United States. Both the federal government and individual state governments are responsible for overseeing the activities of individuals and businesses engaged in the delivery of health care services. Federal law and regulations are based primarily upon the Medicare and Medicaid programs. Each of these programs is financed, at least in part, with federal funds. State jurisdiction is based upon the state’s interest in regulating the quality of health care in the state, regardless of the source of payment. We believe that we are materially complying with applicable laws, however, we have not received or applied for a legal opinion from counsel or from any federal or state judicial or regulatory authority. Additionally, many aspects of our business have not been the subject of state or federal regulatory interpretation. The laws applicable to us are subject to evolving interpretations. If our operations are reviewed by a government authority, we may receive a determination that could be adverse to us. Furthermore, laws that are applicable to us may be amended in a manner that could adversely affect us.

Only a small portion of our revenues come through a government system. Virtually all of our revenues are obtained from sales and service to vendees who pay us directly. We have not been subject to Medicare, Medicaid, or any other federally funded health care program.

ITEM 1A. RISK FACTORS

Purchasing shares of common stock in Imaging3 entails substantial risk. You should be able to bear a complete loss of your investment. You should carefully consider the following factors, among others.

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Forward-Looking Statements

The discussions and information in our public reports with the Securities and Exchange Commission (collectively, the “Reports”), including the documents incorporated by reference may contain both historical and forward-looking statements. To the extent that the Reports contain forward-looking statements regarding the financial condition, operating results, our business prospects or any other aspect of our business, please be advised that our actual financial condition, operating results and business performance may differ materially from that projected or estimated by management in forward-looking statements. We have attempted to identify, in context, certain of the factors that management currently believes may cause actual future experience and results to differ from our current expectations. The differences may be caused by a variety of factors, including but not limited to adverse economic conditions, decrease in demand for medical imaging and other equipment, intense competition, including entry of new competitors, increased or adverse federal, state and local government regulation, failure by us to obtain the approval of the FDA for our proprietary 3D medical imaging device currently in the prototype phase, inadequate capital, unexpected costs, lower revenues and net income than forecast, failure to comply with our Chapter 11 Reorganization Plan, potentially causing the Company to re-enter bankruptcy, terminate and liquidate, failure to complete the development of our proprietary products currently under development, technological obsolescence of our products, failure to commercialize or sell any new or existing products developed by us, price increases for supplies, inability to raise prices, failure to obtain customers, the risk of litigation and administrative proceedings involving us and our employees, higher than anticipated labor costs, the possible fluctuation and volatility of operating results and financial condition, failure to make planned business acquisitions, failure of new businesses, if acquired, to be economically successful, decline in our stock price, dilution of ownership in us due to the issuance of additional securities by us or the conversion or exercise of outstanding convertible and other securities, adverse publicity and news coverage, inability to carry out marketing and sales plans, loss of key executives, changes in interest rates, inflationary factors, and other specific risks that may be alluded to in Reports filed by us.

We have incurred substantial operating deficits since inception and may continue to incur losses in the future. To date, our revenue from component and equipment sales has not been adequate to cover research and development costs for proprietary products under development, marketing costs, operating and overhead costs, and substantial costs incurred in ongoing litigation. Revenue from our old business model of selling nonproprietary medical equipment and components has declined in recent fiscal quarters, and no sales of our proprietary 3D medical imaging product currently under development have yet been made, since it is still in the prototype phase and has not been approved by the FDA for sale or use. We do not have sufficient cash flow from our current operations to enable us to maintain or grow our business. We must raise additional capital in the future to continue to operate our businesses. Failure to secure adequate capital will hinder our growth and may jeopardize us as a going concern.

If we do not generate significant additional revenue we will continue to receive a going concern qualification in our audit. Our financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The financial statements do not reflect any adjustments that might result if we are unable to continue as a going concern. We do not generate sufficient revenue and have negative cash flow from operations, which raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, an additional cash infusion. We are actively seeking new investors.

We have not completed the development of our proprietary 3D medical imaging technology. Research and development projects are inherently speculative and subject to cost overruns. We cannot assure that we will be able to complete the development of our real time 3D diagnostic medical imaging technology, that it will be approved by the FDA for sale and use, or that, once developed, our diagnostic medical imaging devices can be sold profitably. We may not develop any new products or services for sale from our research and development efforts.

If we are required by the Food and Drug Administration to conduct clinical trials for our 3D medical imaging technology and device, the additional cost and time incurred before we receive approval from the Food and Drug Administration for the commercial sale and use of our device could be substantial and adversely affect our business, financial condition and operating results. On October 28, 2010, we received a letter from the Food and Drug Administration responding to our 510(k) application for clearance of our 3D medical imaging technology and device. In our application to the Food and Drug Administration we stated that our medical device is substantially equivalent to devices marketed in interstate commerce prior to May 28, 1976 and therefore should be approved for commercial sale and use as a Class II device, without the necessity for clinical trials. The Food and Drug Administration responded by rejecting our position that our medical device is substantially equivalent to such prior devices, citing several deficiencies in our submission. We plan to re-file our application to the Food and Drug Administration in the near future to again seek Class II approval, in which we will endeavor to address the deficiencies. We have engaged special outside professional counsel to assist us with the preparation and submission of our next filing with the Food and Drug Administration. While we disagree with the Food and Drug Administration’s position and we plan to re-file our application with additional information supporting our application for clearance, we cannot assure that such approval will be obtained or that we may not ultimately be required to file our application under Class III where clinical trials would be required, significantly delaying or preventing our device from being approved for commercial sale and use.

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We emerged from Chapter 11 bankruptcy proceedings in July 2013 subject to a reorganization bankruptcy plan containing numerous covenants with which we must comply. Our Chapter 11 Reorganization Plan granted us some relief from creditor and related liabilities and responsibilities, but imposed certain payment obligations and milestone responsibilities on the Company that it must satisfy in order to retain its reorganization plan and avoid a Chapter 7 liquidation proceeding. See a copy of the Company’s Reorganization Plan filed with the Company’s Report on Form 8-K, dated July 30, 2013. The Company is currently delinquent in the payment of certain of the obligations it must satisfy under the Chapter 11 Reorganization Plan. This gives those parties the right to request that the bankrtupcy case be converted to a Chapter 7. There is no assurance that the Company will have adequate funding to (a) satisfy the payment and other requirements of its Chapter 11 Reorganization Plan, (b) otherwise comply with the Chapter 11 Reorganization Plan, and (c) operate successfully and profitably outside of bankruptcy to avoid a forced Chapter 7 termination and liquidation.

We have a deferred prosecution agreement with the Securities and Exchange Commission (“SEC”) made in connection with a civil cease and desist order issued by the SEC against our former Chief Executive Officer. Under the agreement, the SEC has agreed to refrain from imposing an enforcement order against the Company as a result of actions of our prior Chief Executive Officer in 2011 that were asserted by the SEC to violate Rule 10b(5) and Regulation FD of the Securities Exchange Act of 1934, as amended (as misleading statements and selective disclosure of material nonpublic information regarding the Company), provided the Company complies with the deferred prosecution agreement and applicable federal securities laws, rules and regulations through 2017. There is no assurance that the Company may not inadvertently breach the deferred prosecution agreement and cause the SEC to file a civil action against us based on, among other things, the action filed against and settled with our prior Chief Executive Officer in 2013, addressing the events occurring in 2011.

Our business may be adversely affected by competition. The diagnostic medical imaging industry is characterized by intense competition. We are subject to competition from other firms, many of which have greater financial resources, more recognition, more management experience, and longer operating histories than we have. We cannot assure that we will be able to compete successfully or profitably in the diagnostic medical imaging business.

We may not achieve the revenue predicted by us in our business model. We plan to implement a business model that calls for us to sell medical diagnostic imaging devices, based on our proprietary technology. We will incur substantial operating losses until such time as we are able to generate revenues from the sale of these products. We cannot assure that businesses and customers will adopt our products and technology in the volume that we project, or that businesses and prospective customers will agree to pay the prices that we propose to charge. In the event our customers resist paying prices at the rate we propose, our financial conditions and results of operations will be materially and adversely affected.

If products utilizing our medical diagnostic imaging technology are determined to be unsafe, our business will be adversely affected. As medical diagnostic imaging has become an ever-more important and prominent part of everyday life, dramatic growth in the use of medical diagnostic imaging devices has given rise to occasional questions about safety. In the event that our products are deemed unsafe, we could face substantial liability and our financial conditions and results of operations will be materially and adversely affected.

Our failure to achieve brand recognition could have an adverse effect on our business. We believe that establishing and maintaining brand recognition for our medical diagnostic imaging technology will be a critical aspect of our efforts to attract and expand our customer base. Promotion and enhancement of the Imaging3 brand will depend largely on our success in providing high quality products and services. In order to attract and retain customers and to promote the Imaging3 brand in response to competitive pressures, we may find it necessary to increase substantially our financial commitment to creating and maintaining the Imaging3 brand. We cannot assure that we will obtain brand recognition for Imaging3. Our failure to provide high quality products and services or to obtain and maintain brand recognition could have a material adverse effect on our business, results of operations, and financial condition.

We must adapt quickly to changes in technology. Medical diagnostic imaging is a rapidly evolving technology. We must keep abreast of this technological evolution. To do so, we must continually improve the performance, features and reliability of our medical imaging equipment and related products. If we fail to maintain a competitive level of technological expertise, then we will not be able to compete in our market.

Our inability to respond timely to technological advances could have an adverse effect on our business. We must be able to respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. We can offer no assurance that we will be able to successfully use new technologies effectively or adapt our products in a timely manner to a competitive standard. If we are unable to adapt in a timely manner to changing technology, market conditions or customer requirements, then we may not be able to successfully compete in our market.

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We may not be able to repay our indebtedness. We have substantial indebtedness to related parties and to unaffiliated third parties, as disclosed in more detail in our reports, financial statements and notes to financial statements filed with the Securities and Exchange Commission, and in our Chapter 11 Reorganization Plan, a copy of which is attached to our Report on Form 8-K, dated July 30, 2013. We cannot assure that we will be able to repay all or any of our indebtedness, or that the indebtedness does not and will not continue to have a material adverse impact on our financial condition, operating results and business performance, including but not limited to our ability to continue as a going concern.

We cannot assure that we will achieve profitability. We cannot assure that we will be able operate profitability in the future. Profitability, if any, will depend in part upon our ability to successfully develop, obtain FDA approval, and market our proprietary medical diagnostic imaging technology, and other products and services. We may not be able to successfully transition from our current stage of business to a stabilized operation having sufficient revenues to cover expenses. While attempting to make this transition, we will be subject to all the risks inherent in a small business, including the needs to adequately service and expand our customer base and to maintain and enhance our current services. Our future profitability will be affected by all the risk factors described herein.

We are exposed to various possible claims relating to our business and our insurance may not fully protect us. We cannot assure that we will not incur uninsured liabilities and losses as a result of the conduct of our business. We generally do not maintain theft or casualty insurance and has modest liability and property insurance coverage, along with workmen’s compensation and related insurance. However, should uninsured losses occur, our shareholders could lose their invested capital.

We may face additional litigation in the future. We have had a substantial amount of litigation. The adverse resolution of such litigation to us could impair our ability to continue in business if judgment holders were to seek to liquidate our business through levy and execution. We have incurred and may continue to incur substantial legal fees and costs in connection with past and possibly future litigation. If we fail in our payment schedule, or fail in our defense to future pending actions, or become subject to a levy and execution on our assets and business, we could be forced to liquidate or to file for another bankruptcy and be unable to continue in our business. Investors who purchase shares of our common stock will be subject to the risk of total loss if the risks described herein are realized, because there may be insufficient assets with which to pay our debts, which would leave shareholders with no recovery.

Pending appeals of litigation rulings initially in the Company’s favor could have a material adverse effect on the Company.

• Order Denying Motion to Dismiss Chapter 11 Case, Case No.: 13-56695 (9th Cir.), appeal filed September 30, 2013, appealing the District Court’s dismissal of the initial appeal of the order.

• Order Disallowing Claims Nos. 23 and 24, Case No.: 14-55499 (9th Cir.), appeal filed March 31, 2014, appealing the District Court’s order affirming the order of the Bankruptcy Court.

The above appeals are scheduled for hearing at the Ninth Circuit Court of Appeals on December 9, 2015.

We have no independent directors. As of December 31, 2013, the only members of our board of directors are Dane Medley and Xavier Aguilera. None of these directors is considered an “independent director,” as defined under the rules and regulations of the Securities and Exchange Commission. Therefore, decisions of the board of directors are made by persons who are not considered independent directors, since all of our directors are not considered to be independent.

The loss of the services of any or our management or key executives could adversely affect our business. Our success is substantially dependent on the performance of our executive officers and key employees. The loss of an officer or director of Imaging3 could have a material adverse impact on us. We are generally dependent upon our executive officers, Dane Medley and Xavier Aguilera, for the direction, management and daily supervision of our operations.

Our ability to protect our intellectual property is uncertain. We have applied to the U.S. Patent and Trademark Office to register “Imaging3” as a service mark and as a trademark. There are no assurances that these applications will be approved and the registrations granted or that any other person will not challenge the registration or attempt to infringe upon our marks. If we are unable to protect our rights to our trademarks or if such marks infringe on the rights of others, our business would be materially adversely affected.

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We may not be able to withstand fluctuations in our industry because our business is not diverse. Because of the limited financial resources that we have, it is unlikely that we will be able to diversify our operations. Our probable inability to diversify our activities into more than one area will subject us to economic fluctuations within a particular business or industry and therefore increase the risks associated with our operations.

Our medical diagnostic imaging devices are subject to government regulation. Under the Medical Device Amendments of 1976 to the Federal Food, Drug and Cosmetic Act, all medical devices are classified by the Food and Drug Administration into one of three classes. A Class I device is subject only to certain controls, such as labeling requirements and manufacturing practices; a Class II device must comply with certain performance standards established by the FDA; and a Class III device must obtain pre-market approval from the FDA prior to commercial marketing. We must receive Class II approval to market our real time 3D medical diagnostic imaging devices. We cannot be certain when, if ever, we will receive this approval. In the absence of FDA approval, we will not be able to market or sell our proprietary diagnostic medical imaging device, resulting in a material adverse impact to our potential operating results and financial condition. Other laws and regulations may be adopted in the future that address the manufacture, sale and use of medical diagnostic imaging devices that could adversely affect our business.

Our business is generally subject to government regulation. We are subject to regulations applicable to businesses generally. The adoption of any additional laws or regulations may decrease the growth of our business, decrease the demand for services and increase our cost of doing business. Changes in tax laws also could have a significant adverse effect on our operating results and financial condition.

Our stock does not currently trade, but if trading resumes, our stock price could be volatile, as it was in the past, and could decline again. Trading in our stock was suspended in 2012 after we filed for bankruptcy, and has not yet resumed. We may still be delinquent in filing our reports currently with the Securities and Exchange Commission (“SEC”). We have asked the Office of the Chief Accountant of the SEC for an accommodation and waiver to relieve us of having to file our Annual Report on Form 10-K for our fiscal year ending on December 31, 2012. There is no assurance that our stock will resume trading on the OTC or any other public securities trading market, that the SEC will grant our waiver request, or that we will cure our reporting delinquencies. Our stock price has been volatile. The stock market in general has been extremely vulnerable and management cannot promise that the price of our common stock will not decline. Shares issued under the Chapter 11 Reorganization Plan are free trading. We may register more shares of our stock in the future, free trading shares of our common stock may be issued upon the conversion or exercise of outstanding securities or pursuant to court approved settlements, or restrictive transfer legends on outstanding securities may be removed pursuant to Rule 144 of the Securities Act of 1933, as amended, potentially increasing the supply of free trading shares and possibly exerting downward pressure on our stock price.

Shareholders will experience dilution in their ownership of us. Our board of directors has the authority to cause the Company to issue additional securities and convertible securities at such prices and on such terms as it determines in its discretion without the consent of the stockholders, including without limitation common stock, preferred stock, warrants and convertible notes. In the past, the Company issued securities to professional investment firms that have full ratchet anti-dilution provisions and other adjustments for certain potentially dilutive transactions. These provisions may be included in future securities issued by us, and may be triggered, causing adjustments resulting in lower exercise prices and more securities outstanding, thereby causing existing shareholders to experience more dilution than originally anticipated when those securities were first issued by the Company. Consequently, our shareholders are subject to the risk that their ownership in the Company will be substantially diluted in the future.

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ITEM 2. PROPERTIES

We currently maintain and lease our administrative offices and production facility at 3022 North Hollywood Way, Burbank, California 91505. This facility contains 1,800 square feet of space, and we currently pay rent at a rate of $1.15 per square foot gross.

ITEM 3. LEGAL PROCEEDINGS

Although it has emerged from bankruptcy proceedings with a reorganization plan enabling it to continue to operate, the Company is still subject to the jurisdiction of the United States Bankruptcy Court and the terms and conditions of its Chapter 11 Reorganization Plan approved by the Court. There are four pending appeals with the Ninth Circuit Court of Appeals challenging various orders in the bankruptcy case. See “Item 1A – Risk Factors – Pending appeals of litigation rulings initially in the Company’s favor could have a material adverse effect on the Company.” There is no assurance that the Company will be successful in defending against these appeals. If the appeals reverse the orders of the Bankruptcy Court and the District Court, it may result in a reversal of the Company’s Chapter 11 Reorganization Plan and force the Company to liquidate and dissolve, or impose detrimental judgments against the Company.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock

Our common stock traded on the OTC Bulletin Board Market under the symbol “IMGG,” until approximately December 15, 2012, when trading was suspended due to the Company’s bankruptcy and delinquency in filing its public reports with the Securities and Exchange Commission. The range of high and low bid quotations for each fiscal quarter within the last two fiscal years was as follows:

Year Ended December 31, 2013	High		Low

First Quarter ended March 31, 2013	$	0.00	$	0.00
Second Quarter ended June 30, 2013	$	0.00	$	0.00
Third Quarter ended September 30, 2013	$	0.00	$	0.00
Fourth Quarter ended December 31, 2013	$	0.00	$	0.00

Year Ended December 31, 2012	High		Low

First Quarter ended March 31, 2012	$	0.001	$	0.001
Second Quarter ended June 30, 2012	$	0.001	$	0.001
Third Quarter ended September 30, 2012	$	0.001	$	0.001
Fourth Quarter ended December 31, 2012	$	0.001	$	0.001

The above quotations reflect inter-dealer prices, without retail markup, mark-down, or commission and may not necessarily represent actual transactions. Imaging3, Inc. filed for voluntary bankruptcy in the third quarter of 2012 which adversely affected stock values. The Company’s common stock has not traded on any exchange or public securities trading market since December 2012.

As of December 31, 2013, there were approximately 263 record holders of our common stock, not including shares held in “street name” in brokerage accounts which is unknown. As of December 31, 2013, there were approximately 139,544,393 shares of our common stock outstanding on record.

Dividends

We have not declared or paid any cash dividends on our common stock and do not anticipate paying dividends for the foreseeable future.

Equity Compensation Plan Information

We have not established a management stock incentive plan pursuant to which stock options and other equity incentive securities may be authorized and granted to our executive officers, directors, employees and key consultants. In the event we establish the stock incentive plan, we expect to authorize a number of shares to be determined for future issuance. Our Chapter 11 Reorganization Plan authorizes us to adopt an equity incentive plan providing for the total issuance of up to 15% of our outstanding common stock on the date of adoption.

Warrants

As of December 31, 2013, we had a total of 18,148,696 warrants to purchase 18,148,696 shares of our common stock outstanding, issued on the Effective Date of the Company’s Chapter 11 Reorganization Plan, exercisable for a period of ten years at an exercise price of $0.000001 per share.

Preferred Stock

As of December 31, 2013, we had no Preferred Stock outstanding.

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ITEM 6. SELECTED FINANCIAL DATA

Not applicable because we are a smaller reporting company.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL AND CONDITION RESULTS OF OPERATIONS

Cautionary Statements

This Form 10-K contains financial projections and other “forward-looking statements,” as that term is used in federal securities laws, about Imaging3, Inc.’s financial condition, results of operations and business. These statements include, among others, statements concerning the potential for revenues and expenses and other matters that are not historical facts. These statements may be made expressly in this Form 10-K. You can find many of these statements by looking for words such as “believes,” “expects,” “anticipates,” “estimates,” or similar expressions used in this Form 10-K. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by us in those statements. The most important facts that could prevent us from achieving our stated goals include, but are not limited to, the following:

(a)

volatility or decline of our stock price;

(b)

potential fluctuation in quarterly results;

(c)

our failure to earn revenues or profits;

(d)

inadequate capital to continue the business and barriers to raising the additional capital or to obtaining the financing needed to implement our business plans;

(e)

failure to commercialize our technology or to make sales;

(f)

changes in demand for our products and services;

(g)

rapid and significant changes in markets;

(h)

litigation with or legal claims and allegations by outside parties, causing us to incur substantial losses and expenses;

(i)

insufficient revenues to cover operating costs;

(j)

dilution in the ownership of the Company through the issuance by us of additional securities and the conversion of outstanding warrants, notes and other securities;

(k)

failure to obtain FDA approval for our new medical imaging device, which is still in its prototype stage; and

(l)

failure to comply with our Chapter 11 Reorganization Plan, causing us to re-enter bankruptcy and possibly terminate and liquidate.

We cannot assure that we will be profitable. We may not be able to develop, manage or market our products and services successfully. We may not be able to attract or retain qualified executives and technology personnel. We may not be able to obtain customers for our products or services. Our products and services may become obsolete. Government regulation may hinder our business. Additional dilution in outstanding stock ownership will be incurred due to the issuance or exercise of more shares, warrants and other convertible securities.

Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. We caution you not to place undue reliance on the statements, which speak only as of the date of this Form 10-K. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may make. We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events.

The following discussion should be read in conjunction with our financial statements and notes to those statements. In addition to historical information, the following discussion and other parts of this annual report contain forward-looking information that involves risks and uncertainties.

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Current Overview

Our current focus is (a) on complying with our Chapter 11 Reorganization Plan by becoming current in our public report with the Securities and Exchange Commission and reactivating our trading symbol with FINRA to enable our common stock to trade on the OTC market or other public securities trading market, (b) to maintain our C-arm distribution business, (c) to continue to improve our 3D medical imaging technology, and (d) to prepare to re-file our application with the FDA for approval of our 3D medical imaging device.

Our efforts include marketing our refurbished equipment. The sales and revenues from service and parts are either from extended warranty purchases at the time of purchase of the refurbished equipment, or service contracts and time and material revenue realized upon warranty expiration, the majority of which is realized one year from equipment purchase as warranties expire. Equipment sales usually have a one year warranty of parts and service. After a one year period, we contact the buyer to initiate the sale of a new warranty contract for one year. These funds are accrued over a one year period and revenue is recognized quarterly.

Our sales effort through direct mail, broadcast facsimile and broadcast email to thousands of potential customers throughout the United States generates leads of potential customers desiring to purchase equipment either immediately or in the course of one year. This lead generation through direct mail and broadcast facsimile and email will continue on a quarterly basis with the goal of increasing the total number of our leads for our sales staff. Management expects that the marketing program will also eventually help stabilize the amount of refurbished equipment sold on a monthly basis, since the carry-over of leads not looking for immediate purchase will overlap with the immediate sales leads. The greater the number of leads generated, whether immediate or long term, the greater the opportunity to eventually create a consistent number of sales.

On October 28, 2010, we received a letter from the United States Food and Drug Administration (“FDA”) responding to our application for clearance by the FDA of our 3D medical imaging technology and device. In our application to the FDA under Section 510(k) of the applicable federal legislation, we stated that our medical device is substantially equivalent to devices marketed in interstate commerce prior to May 28, 1976 and therefore should be approved for commercial sale and use as a Class II device, without the necessity for clinical trials. The FDA responded by rejecting our position that our medical device is substantially equivalent to such prior devices. We disagree with the FDA’s position and plan to re-file our application with additional information supporting our application for clearance.

Upon receipt of the deficiency letter from the FDA denying our application to market our Dominion DViS product in the United States, we decided to hire a professional independent consulting firm with expertise in FDA filings and their successful resolution. Since the process has taken longer than management anticipated, management felt it prudent to engage outside consultants with sufficient experience to assist us in the process. The work on the application to the FDA was interrupted in September 2012 when we filed for Chapter 11 bankruptcy reorganization. We have not yet re-engaged consultants to prepare the next application to the FDA. We plan to re-engage them in early 2016 and to file with the FDA in 2016. While we remain confident of eventually achieving FDA approval of our medical device as a Class II device, we cannot assure that such approval will be obtained or that we may not ultimately be required to file it under Class III where clinical trials would be required.

In the absence of FDA approval for our medical device, we currently do not and cannot rely upon it as a future source of sales and revenue. We are subject to the uncertainty of not knowing whether or when our proprietary medical device will be approved and can be sold. Under those circumstances, management believes that we will continue our current trend of incurring operating losses, possibly requiring us to raise additional capital or financing from outside sources. We cannot assure that we will be able to raise sufficient capital or financing to maintain our business while we are incurring operating losses, and we cannot assure that we will become profitable if our proprietary medical device is approved by the FDA.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We monitor our estimates on an on-going basis for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate.

We have identified the policies below as critical to our business operations and the understanding of our results of operations.

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Revenue Recognition

Revenue is recognized upon shipment, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable and collection of the related receivable is reasonably assured. Revenue is recorded net of estimated product returns, which is based upon the Company’s return policy, sales agreements, management estimates of potential future product returns related to current period revenue, current economic trends, changes in customer composition and historical experience. The Company accrues for warranty costs, sales returns, and other allowances based on its experience. Generally, the Company extends credit to its customers and does not require collateral. The Company performs ongoing credit evaluations of its customers and historic credit losses have been within management’s expectations and has a revenue receivables policy for service and warranty contracts. Equipment sales usually have a one year warranty of parts and service. After a one year period, the Company contacts the buyer to initiate the sale of a new warranty contract for one year. Warranty revenues are deferred and recognized on a straight-line basis over the term of the contract or as services are performed.

Deferred Revenue

Deferred revenue consists substantially of amounts received from customers in advance of the Company's performance service period. Deferred revenue is recognized as revenue on a systematic basis that is proportionate to the period that the underlying services are rendered, which in certain arrangements is straight-line over the remaining contractual term or estimated customer life of an agreement.

Research and Development

Costs and expenses that can be clearly identified as research and development are charged to expense as incurred in accordance with FASB ASC 730-10. Included in research and development costs are operating costs, facilities, supplies, external services, clinical trial and manufacturing costs, and overhead directly related to the Company’s research and development operations, as well as costs to acquire technology licenses.

Other Accounting Factors

The effects of inflation have not had a material impact on our operation, nor are they expected to in the immediate future.

Although we are unaware of any major seasonal aspect that would have a material effect on the financial condition or results of operation, the first quarter of each fiscal year is always a financial concern due to slow collections after the holidays.

The deposits that are shown in the financials are for pending sales of existing products and not any new patented product. These are deposits received from our customers for sales of equipment and services and are only removed as deposits upon completion of the sale. If for any reason a customer order is cancelled, the deposit would be returned as stated in the terms of sale, minus a restocking fee.

No depositor is a related party of any officer or employee of Imaging3, Inc.

Our terms of deposit typically are 50% down with the balance of the sale price due upon delivery.

The following sets forth selected items from our statements of operations for the six months ended December 31, 2013, the six months ended June 30, 2013 and the year ended December 31, 2012.

	Successor Six Months Ended December 31, 2013			Predecessor Six Months Ended June 30, 2013			Predecessor Year Ended December 31, 2012
Net revenues	$	485,090		$	255,079		$	1,052,541
Cost of goods sold		250,858			111,508			585,794
Gross Profit		234,232			143,571			466,747
General and administrative expenses		668,762			755,779			1,862,073
Income (loss) from operations		(434,530	)		(612,208	)		(1,395,326	)
Total other income (expenses)		(5,028,052	)		(449,548	)		4,032,610
Provision for income taxes		(800	)		-			(800	)
Net income (loss)	$	(5,463,382	)	$	(1,061,756	)	$	2,636,484

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Results of Operations for the Year Ended December 31, 2012 as Compared to the Year Ended December 31, 2013.

We had revenues for the year ended December 31, 2012 of $1,052,541 as compared to $740,169 for the year ended December 31, 2013, which represented a 30% decrease. The decrease in sales was primarily attributed directly to a decrease in equipment and C-Arm sales for this period as a result of the Company’s bankruptcy reorganization and fresh start accounting.

Our cost of revenue was $585,794 for the year ended December 31, 2012 as compared to $362,366 for the year ended December 31, 2013, which represents a decrease of $223,428 or 38%. This decrease resulted directly from decreased sales and decreased costs for equipment, parts, sales and services again resulting from the Company’s reorganization. Our gross profit margin for the year ended December 31, 2012 was $466,747 as compared to $377,803 for the year ended December 31, 2013, an 19% decrease, which is due to the aforementioned factors regarding the decrease in revenue and cost of goods sold. General and administrative expenses decreased in 2013 from $1,862,073 in 2012 to $1,424,541 for the year ended December 31, 2013, a decrease of 23% due to cost-cutting efforts by management, reduction of personnel, and a slowing down of operations. Among some of the decreased expenses were compensation expense as well as debt discount and financing cost expense. Total other income (expenses) was income of $4,032,610 during 2012 as compared to expense of $5,477,600 during 2013. During 2012, the largest component of other income was $5.1 M of income associated with the change in value of derivative liability, offset by $976K of interest expense. During 2013, the reported amounts for interest and change in derivative value were insignificant. During 2013, the Company recognized an expense associated with the impairment of goodwill amounting to $4.8 M while no such charge was recognized during 2012. Our net earnings for the fiscal year ending December 31, 2012 was $2,636,484 as compared to a net loss of $6,525,138 for the fiscal year ended December 31, 2013. This increase in loss is attributed directly to the impairment charges associated with the Company’s impairment of goodwill, a reduction of sales volume, and the other factors mentioned above.

In 2012, we spent and recorded $126,174 for research and development of our technology, which includes software design, mechanical design and the manufacturing of the prototype. Costs for individuals employed by Imaging3 are absorbed in normal operating expenses and are not separated into different categories at this time for simplicity. In 2013, $3,346 was spent and recorded for research and development. Research and development expenses are recorded in general and administrative expenses on the statement of operations.

At December 31, 2012, we had a balance due to our chief executive officer amounting to $350,000 for the amount borrowed by us. This amount was due on demand, secured and interest free. During the reorganization, this amount was eliminated and settled within the parameters of the Chapter 11 Reorganization Plan.

We expect the trend of operating losses by us to continue into the future at the current or greater rate as we spend money on product development and marketing. We cannot assure that we can achieve profitability. We do not expect litigation against us to expand and believe litigation is on a decreasing trend, although we can give no assurances in relation to future litigation.

Liquidity and Capital Resources

Our total assets decreased from $33,548 as of December 31, 2012, to $31,076 as of December 31, 2013, a difference of $2,472 or 8%. The cash account as of December 31, 2012 was $6,869, compared to $8,014 as of December 31, 2013.

Our total current liabilities decreased to $1,374,458 as of December 31, 2013 from $3,767,021 as of December 31, 2012. This decrease is due in large part to the Company’s bankruptcy reorganization during 2013.

During the year ended December 31, 2012, we used $845,696 of net cash for operating activities, as compared to $671,070 used during the year ended December 31, 2013. Net cash provided by financing activities during the year ended December 31, 2012 was $402,832, as compared to $672,215 during the year ended December 31, 2013.

We expect our working capital requirements in the next twelve months to be met primarily by the proceeds of private placements of common stock, convertible instruments and other securities to our existing shareholders and other investors. We expect to need additional working capital from outside sources to cover our anticipated operating deficits and to finance the re-filing of our application to the FDA for our proprietary 3D medical imaging device. There is no assurance that the Company will be able to raise sufficient additional capital or financing to continue in business or to effectively execute its business plan.

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Going Concern Qualification

We have incurred significant losses from operations, and such losses are expected to continue. In their report on our financial statements as of and for the period ended December 31, 2013, our auditors have expressed substantial doubt about our ability to continue as a going concern. In addition, we have limited working capital. The foregoing raises substantial doubt about our ability to continue as a going concern. Management’s plans include seeking additional capital and/or debt financing. We cannot guarantee that additional capital and/or debt financing will be available when and to the extent required, or that if available it will be on terms acceptable to us. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The “Going Concern Qualification” may make it substantially more difficult for us to raise capital.

Off-Balance Sheet Arrangements

None.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

IMAGING3, INC.

FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2013 and 2012

CONTENTS

Report of Independent Registered Public Accounting Firms	27-28

Balance Sheets as of December 31, 2013 and 2012	29

Statements of Operations for the six months ended December 31, 2013, the six months ended June 30, 2013 and the year ended December 31, 2012	30

Statements of Cash Flows for the six months ended December 31, 2013, the six months ended June 30, 2013 and the year ended December 31, 2012	31

Statement of Changes in Stockholders’ Deficit for the years ended December 31, 2013 and 2012	32

Notes to Financial Statements	33

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Imaging3, Inc.

Burbank, California

We have audited the accompanying balance sheet of Imaging3, Inc. (Successor Company) as of December 31, 2013 and the related statements of operations, stockholders’ deficit, and cash flows for the six months ended December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audit in accordance with the standards established by the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Imaging3, Inc. as of December 31, 2013, and the results of its operations and its cash flows for the six months then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in Notes 2 and 4 to the financial statements, the Company filed a petition on September 13, 2012 with the United States Bankruptcy Court for the Central District of California for reorganization under the provisions of Chapter 11 of the Bankruptcy Code. The Company’s First Amended Chapter 11 Plan of Reorganization of Imaging3, Inc. (as revised, the “Plan”) was confirmed by the Court on July 9, 2013 and the Company emerged from bankruptcy on July 30, 2013. In connection with its emergence from bankruptcy, the Company adopted fresh start accounting.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 12 to the consolidated financial statements, the Company has incurred recurring net losses, used cash in operations and recently declared bankruptcy. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 12. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Rose, Snyder & Jacobs LLP

Encino, California

November 11, 2015

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Imaging3, Inc.

Burbank, California

We have audited the accompanying balance sheet of Imaging3, Inc. (Predecessor Company) as of December 31, 2012 and the statements of operations, stockholders deficit, and cash flows for the six months ended June 30, 2013 and the year ended December 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Imaging3, Inc. as of December 31, 2012, and the results of its operations and its cash flows for the six months ended June 30, 2013 and the year ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.

Rose, Snyder & Jacobs LLP

Encino, California

November 11, 2015

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IMAGING3, INC.

BALANCE SHEETS

	Successor			Predecessor
	December 31, 2013			December 31, 2012
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	8,014		$	6,869
Accounts receivable, net		21,211			19,518
Prepaid expenses		1,851			2,719
Total current assets		31,076			29,106

PROPERTY AND EQUIPMENT, net		-			4,442
Total assets	$	31,076		$	33,548

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES NOT SUBJECT TO COMPROMISE:
Accounts payable	$	1,180,728		$	158,853
Deferred revenue		151,230			114,096
Convertible notes payable, net of discount		42,500			-
Total current liabilities not subject to compromise		1,374,458			272,949

CURRENT LIABILITIES SUBJECT TO COMPROMISE:
Accounts payable and accrued expenses		-			2,078,182
Due to an officer		-			350,000
Convertible notes payable, net of discount		-			1,065,890
Total current liabilities subject to compromise		-			3,494,072

Total Current Liabilities		1,374,458			3,767,021

Total Liabilities		1,374,458			3,767,021

STOCKHOLDERS' DEFICIT:
Predecessor preferred stock, $0.001 par value		-			532,391
Predecessor common stock, no par value		-			27,824,156
Successor preferred stock, authorized 1,000,000, no par value		-			-
Successor common stock, authorized 1,000,000,000, no par value		4,120,000			-
Accumulated deficit		(5,463,382	)		(32,090,020	)
Total stockholders' deficit		(1,343,382	)		(3,733,473	)
Total liabilities and stockholders' deficit	$	31,076		$	33,548

The accompanying notes form an integral part of these financial statements.

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IMAGING3, INC.

STATEMENTS OF OPERATIONS

	Successor			Predecessor			Predecessor
	Six Months Ended December 31, 2013			Six Months Ended June 30, 2013			Year Ended December 31, 2012

Net revenues	$	485,090		$	255,079		$	1,052,541

Cost of goods sold		250,858			111,508			585,794
Gross profit		234,232			143,571			466,747
Operating expenses
General and administrative expenses		668,762			755,779			1,862,073
Total operating expenses		668,762			755,779			1,862,073

Loss from operations		(434,530	)		(612,208	)		(1,395,326	)

Other income (expense):
Reorganization items, net		(189,817	)		(350,018	)		(135,453	)
Interest expense		(1,291	)		(8,854	)		(975,988	)
Other income (expense), net		2,195			(90,676	)		1,288
Impairment of goodwill		(4,839,139	)		-			-
Change in value of derivative liabilities		-			-			5,142,763
Total other income (expense)		(5,028,052	)		(449,548	)		4,032,610

Income (Loss) before income tax		(5,462,582	)		(1,061,756	)		2,637,284
Provision for income taxes		800			-			800

Net income (loss)	$	(5,463,382	)	$	(1,061,756	)	$	2,636,484

Net income (loss) per share
Basic	$	(0.04	)	$	(0.00	)	$	0.01
Diluted	$	(0.04	)	$	(0.00	)	$	0.00

Weighted average shares outstanding
Basic		138,620,896			565,291,689			499,946,416
Diluted		138,620,896			565,291,689			750,000,000

The accompanying notes form an integral part of these financial statements.

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IMAGING3, INC.

STATEMENTS OF CASH FLOWS

	Successor			Predecessor			Predecessor
	Six Months Ended December 31, 2013			Six Months Ended June 30, 2013			Year Ended December 31, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(5,463,382	)	$	(1,061,756	)	$	2,636,484
Adjustments to reconcile net income (loss) to net cash used in operating activities
Impairment of Goodwill		4,839,139			-			-
Bad debts		-			-			10,142
Depreciation and amortization		-			4,442			7,571
Preferred stock issued to officer		-			-			244,377
Inventory write off		-			-			149,628
Amortization of note discount		-			69,927			920,547
Shares issued for services		-			-			123,401
Change in value of derivative liability		-			-			(5,142,763	)
(Increase) / decrease in current assets:
Accounts receivable		(8,092	)		6,399			20,112
Prepaid expenses and other assets		1,019			(151	)		38,388
Increase / (decrease) in current liabilities:
Accounts payable		281,421			109,976			576,565
Accrued expenses		90,131			422,723			(286,020	)
Deferred revenue		96,449			(59,315	)		(54,878	)
Equipment deposits		-			-			(89,250	)
Net cash used in operating activities		(163,315	)		(507,755	)		(845,696	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from officer advance		-			-			244,650
Repayments of officer advance		-			-			(373,918	)
Proceeds from notes payable		42,500			609,715			-
Proceeds from sale of common stock, net of offering costs		20,000			-			89,150
Proceeds from exercise of warrants		-			-			100,000
Proceeds from convertible notes		-			-			342,950
Net cash provided by financing activities		62,500			609,715			402,832

NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS		(100,815	)		101,960			(442,864	)

CASH & CASH EQUIVALENTS, BEGINNING BALANCE		108,829			6,869			449,733

CASH & CASH EQUIVALENTS, ENDING BALANCE	$	8,014		$	108,829		$	6,869

SUMMARY OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Conversion of notes payable to common stock	$	-	$	-	$	407,133
Disposal of fully depreciated property and equipment	$	-	$	-	$	237,807
Issuance of common and preferred shares to settle payables	$	-	$	-	$	563,014

The accompanying notes form an integral part of these financial statements.

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IMAGING3, INC.

STATEMENT OF STOCKHOLDERS' DEFICIT

																Total
	Common Stock						Preferred Stock						Accumulated			Stockholders’
	Shares			Amount			Shares			Amount			Deficit			Deficit

Balance on December 31, 2011 (Predecessor)		414,388,151		$	14,344,878			-			-		$	(34,726,504	)	$	(20,381,626	)

Common stock issued for cash		2,000,000			89,150			-			-			-			89,150

Exercise of warrants for cash		8,403,362			100,000			-			-			-			100,000

Common stock issued for cashless exercise of Warrants		50,668,466			-			-			-			-			-

Preferred stock grant to officer		-			-			3,000			532,391			-			532,391

Net settlement of derivative liability		-			12,484,594			-			-			-			12,484,594

Common stock issued for services		9,810,839			123,401			-			-			-			123,401

Shares issued for conversion of notes		73,655,130			407,133			-			-			-			407,133

Shares issued for settlement		6,365,741			275,000			-			-			-			275,000

Net income		-			-			-			-			2,636,484			2,636,484

Balance as of December 31, 2012		565,291,689			27,824,156			3,000			532,391			(32,090,020	)		(3,733,473	)

Net loss		-			-			-			-			(1,061,756	)		(1,061,756	)

Balance as of June 30, 2013 (Predecessor)		565,291,689			27,824,156			3,000			532,391			(33,151,776	)		(4,795,229	)

Cancellation of Predecessor Company Equity		(565,291,689	)		(27,824,156	)		(3,000	)		(532,391	)		33,151,776			4,795,229

Balance as of July 1, 2013 (Successor)		-			-			-			-			-			-

Issuance of Successor Company Common Stock		138,544,393			4,100,000			-			-			-			4,100,000

Shares issued for cash		1,000,000			20,000			-			-			-			20,000

Net loss		-			-			-			-			(5,463,382	)		(5,463,382	)

Balance as of December 31, 2013 (Successor)		139,544,393		$	4,120,000			-			-		$	(5,463,382	)	$	(1,343,382	)

The accompanying notes form an integral part of these financial statements.

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IMAGING3, INC.

Notes to Financial Statements

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Imaging3, Inc. (the “Company”, “us”, “we”, “Imaging3”) is a California corporation incorporated on October 29, 1993 as Imaging Services, Inc. The Company filed a certificate of amendment of articles of incorporation to change its name to Imaging3, Inc. on August 20, 2002.

The Company’s primary business is refurbishment and sale of medical equipment, parts and services to hospitals, surgery centers, research labs, physician offices and veterinarians. Equipment sales include new c-arms, c-arms tables, remanufactured c-arms, used c-arm and surgical tables. Part sales comprise new or renewed replacement parts for c-arms.

The Company has developed a proprietary medical technology designed to produce 3d medical diagnostic images in real time. We believe Imaging3 technology has the potential to contribute to the improvement of healthcare. Our technology is designed to cause 3D images to be instantly constructed using high-resolution fluoroscopy. These images can be used as real time references for any current or new medical procedures in which multiple frames of reference are required to perform medical procedures on or in the human body. Management believes that Imaging3 technology has extraordinary market potential in an almost unlimited number of medical applications. This technology is still in development and the Company intends to seek approval from the Food and Drug Administration (“FDA”), which will allow us to offer our product to healthcare providers.

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

On September 13, 2012 (the “Petition Date”), the Company filed a voluntary petition with the federal bankruptcy court in Los Angeles, California, to enter bankruptcy under Chapter 11 of the United States Bankruptcy Code. On or about July 15, 2013, our Plan of Reorganization was approved by the United States Bankruptcy Court. On July 30, 2013, we emerged from bankruptcy and continued operations under the terms and conditions of our Bankruptcy Reorganization Plan as it applies to post bankruptcy operations. For accounting purposes, management deemed the effective date of the Chapter 11 Plan (the “Plan”) to be June 30, 2013. The Company’s operations between July 1, 2013 and July 30, 2013 were not significant. The Plan adopted by Imaging3, Inc. is a reorganizing plan. Payments under the Plan were made by utilizing existing cash on hand, borrowings on a secured and unsecured basis, future cash flow, if any, capital raised through the sale of our common stock in private placements, and by conversion of debt to equity.

Upon emergence from bankruptcy, Imaging3 adopted fresh-start accounting which resulted in Imaging3 becoming a new entity for financial reporting purposes. Imaging3 applied fresh start accounting as of July 1, 2013. As a result of the application of fresh start accounting and the effects of the implementation of the plan of reorganization, the financial statements on or after July 1, 2013 are not comparable with the financial statements prior to that date. Refer to Note 4, “Petition for relief under Chapter 11 of the Bankruptcy Code”, for additional information.

Subsequent to the Petition Date, all expenses, gains and losses directly associated with the reorganization proceedings are reported as Reorganization items, net in the accompanying Consolidated Statement of Operations. In addition, Liabilities subject to compromise during the chapter 11 proceedings were distinguished from liabilities that were not expected to be compromised and from post-petition liabilities in the accompanying Balance Sheets.

References to “Successor” or “Successor Company” relate to Imaging3 on and subsequent to July 1, 2013. References to “Predecessor” or “Predecessor Company” refer to Imaging3 prior to July 1, 2013.

Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all liquid investments with a maturity of three months or less from the date of purchase that are readily convertible into cash to be cash equivalents. The Company maintains its cash in bank deposit accounts that may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company had no cash equivalents at December 31, 2013 or 2012.

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Revenue Recognition

Deferred Revenue

Goodwill

Goodwill reported in the Successor period represents the reorganizational value of assets in excess of amounts allocated to identified tangible and intangible assets. Goodwill is not amortized, but is required to be assessed for impairment at least annually or when events or circumstances change that would indicate that goodwill might be impaired. Events or circumstances that could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of the Company's use of the acquired assets or the strategy for the Company's overall business, significant negative industry or economic trends or significant under-performance relative to expected historical or projected future results of operations. The Company tests goodwill for impairment at the reporting unit level, which is one level below or the same as an operating segment. As of December 31, 2013 and 2012, the Company has one operating segment.

When testing goodwill for impairment, the Company first performs a qualitative assessment to determine whether it is necessary to perform step one of a two-step annual goodwill impairment test for each reporting unit. The Company is required to perform step one only if it concludes that it is more likely than not that a reporting unit's fair value is less than its carrying value. Should this be the case, the first step of the two-step process is to identify whether a potential impairment exists by comparing the estimated fair values of the Company's reporting units with their respective book values, including goodwill. If the estimated fair value of the reporting unit exceeds book value, goodwill is considered not to be impaired, and no additional steps are necessary. If, however, the fair value of the reporting unit is less than book value, then the second step is performed to determine if goodwill is impaired and to measure the amount of impairment loss, if any. The amount of the impairment loss is the excess of the carrying amount of the goodwill over its implied fair value. The estimate of implied fair value of goodwill is primarily based on an estimate of the discounted cash flows expected to result from that reporting unit, but may require valuations of certain internally generated and unrecognized intangible assets such as the Company's software, technology, patents and trademarks. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.

During the six months ended December 31, 2013 the Successor Company determined that the entire balance of the Goodwill recognized during the application of fresh-start reporting, which amounted to $4,839,139, was impaired. As such, the Successor Company recognized an impairment charge of $4,839,139 in its statement of operations during the six months ended December 31, 2013.

Following is a summary of goodwill activity during the periods ended December 31, 2013, June 30, 2013 and December 31, 2012:

January 1, 2012	$	-
Recognition of goodwill		-
December 31, 2012		-
Recognition of goodwill in fresh-start		4,839,139
July 1, 2013 (Successor Company)		4,839,139
Impairment of goodwill		(4,839,139	)
December 31, 2013 (Successor Company)	$	-

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Accounts Receivable

The Company’s customer base is geographically dispersed. The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.

Property & Equipment

Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to expenses as incurred and additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for all assets with estimated lives of three to eight years.

Due to Officer

At December 31, 2012, the Company had balances due to the Chief Executive Officer of the Company of $350,000. The amount was due on demand, interest free and was secured by the assets of the Company. Interest was not imputed since a portion of this amount represented unpaid salaries. This debt was converted to shares of common stock effective June 30, 2013 in accordance with the Company’s Chapter 11 Reorganization Plan.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.

The Company tests long-lived assets, including property, plant, equipment and intangible assets subject to periodic amortization, for recoverability at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the net carrying amount is greater than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment, and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows at the rate the Company utilizes to evaluate potential investments. The Company estimates fair value based on the information available in making whatever estimates, judgments and projections are considered necessary. Due to the Company’s 2013 bankruptcy reorganization, there was an impairment of long-lived assets in the year ended December 31, 2013 of $4,839,138.

Basic and Diluted Net Loss Per Share

Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. During the six months ended December 31, 2013 and June 30, 2013, potentially dilutive securities were excluded from the computation of weighted average shares outstanding-diluted because their effect was anti-dilutive.

The components of basic and diluted earnings per share for the year ended December 31, 2012 is as follows:

	(Predecessor) 2012
Numerator
Net income attributable to common shareholders	$	2,636,484

Denominator
Weighted-average shares outstanding - basic		499,946,416
Dilutive effect of warrants and convertible notes		250,053,584
Weighted average shares outstanding – diluted		750,000,000

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Derivative Financial Instruments

The Company generally does not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks that may affect the fair values of its financial instruments. The Company utilizes various types of financing to fund its business needs, including convertible notes and warrants and other instruments not indexed to our stock. The Company is required to record its derivative instruments at their fair value. Changes in the fair value of derivatives are recognized in earnings in accordance with ASC 815. The Company’s only asset or liability measured at fair value on a recurring basis is its derivative liability associated with warrants to purchase common stock and convertible notes.

Fair Value of Financial Instruments

The fair value accounting standard creates a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below with Level 1 having the highest priority and Level 3 having the lowest.

Level 1: Observable prices in active markets for identical assets or liabilities.

Level 2: Observable prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in the market.

Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models, and similar techniques.

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2012:

Level 1

Level 2

Level 3

Total

Derivative Liabilities (Predecessor)

Income Taxes

The Company accounts for income taxes in accordance with ASC 740-10, “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.

Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

Inventory

Inventory is stated at the lower of cost or market with cost determined using the first-in, first-out method. After filing the petition for Chapter 11 Bankruptcy, the Company maintained little or, at times, no inventory.

Research and Development

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Recent Pronouncements

In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The guidance in ASU 2011-08 is intended to reduce complexity and costs by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The amendments also improve previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Also, the amendments improve the examples of events and circumstances that an entity having a reporting unit with a zero or negative carrying amount should consider in determining whether to measure an impairment loss, if any, under the second step of the goodwill impairment test. The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The Company adopted this standard on January 1, 2012 and it did not have a material impact on the Company’s financial position or results of operations.

During July 2012, FASB issued ASU No. 2012-02, "Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment". Under the amendments in Update 2012-02, entities have the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Subtopic 350-30. The amendments in this update are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of this standard did not have a material impact on our financial statements.

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, (“ASU 2013-02”), which eliminates diversity in practice for the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward is available to reduce the taxable income or tax payable that would result from disallowance of a tax position. ASU 2013-11 affects only the presentation of such amounts in an entity’s balance sheet and is effective for fiscal years beginning after December 15, 2013 and interim periods within those years. Early adoption is permitted. The adoption of ASU 2013-11 is not expected to have a material effect on our consolidated financial position or results of operations.

3. ACCOUNTS RECEIVABLE

All accounts receivable are trade related. These receivables are current and management believes are collectible except for which a reserve has been provided. The balance of accounts receivable as of December 31, 2012 and 2013 were $36,761 and $25,713, respectively. The reserve amount for uncollectible accounts was $17,243 and $4,502 as of December 31, 2012 and 2013, respectively.

4. PETITION FOR RELIEF UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

On September 13, 2012, the Company filed a voluntary petition with the federal bankruptcy court in Los Angeles, California, to enter bankruptcy under Chapter 11 of the United States Bankruptcy Code. On or about July 15, 2013, our Plan of Reorganization was approved by the United States Bankruptcy Court. On July 30, 2013, we emerged from bankruptcy and continued operations under the terms and conditions of our Bankruptcy Reorganization Plan as it applies to post bankruptcy operations. The Chapter 11 Plan (the “Plan”) adopted by Imaging3, Inc. is a reorganizing plan. Payments under the Plan were made by utilizing existing cash on hand, borrowings on a secured and unsecured basis, future cash flow, if any, capital raised through the sale of our common stock in private placements, and by conversion of debt to equity. The effective date of the Plan was July 30, 2013 (the “Effective Date”). For accounting purposes and convenience, the Effective Date was deemed to be July 1, 2013. There was very little activity between July 1, 2013 and July 30, 2013. The following is a brief summary of the Plan as adopted on the Effective Date:

Administrative expenses are claims for costs or expenses of administering the Company’s Chapter 11 case. The Bankruptcy Code requires that all administrative claims be paid on the Effective Date of the Plan, unless a particular claimant agrees to a different treatment.

The Company paid approximately $463,146 on the Effective Date for administrative expenses. Priority tax claims are certain unsecured income, employment and other taxes.

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The Company is paying approximately $71,974 of priority tax claims to the IRS, Los Angeles County, California State Board of Equalization and City of Los Angeles in monthly installments, plus interest, through September 2017. Secured claims are claims secured by liens on the Company’s property. The Company has agreed to pay approximately $105,525 in cash installments, $60,247 of which are over 36 months and $45,278 of which is a one-time payment due in September 2015, for certain secured claims.

The Company issued approximately 38,290,480 shares of new common stock to pay approximately $1,073,033 of outstanding debt owed to the Class 3 Creditors (Gemini Master Fund, Ltd, Alpha Capital Anstalt, and Brio Capital, L.P.), whereupon their liens on Company assets were released. In addition, the Company issued approximately 18,148,696 new warrants to purchase common stock to Gemini and Alpha, exercisable for a period of ten years from the Effective Date at $0.00001 per share.

The Company issued approximately 15,994,749 additional shares of new common stock to pay approximately $298,142 of additional secured claims.

An additional 58,823,965 shares of new common stock are authorized to be issued by the Company to raise up to $1,000,000 of financing for the Company before and after the Effective Date, which may be in the form of collateralized debt. The Company issued 40,057,289 for $744,577 of notes and accrued interest, which represented a portion of the $1,000,000 it was authorized to raise.

An unsecured claim for $359,938 owed to Dean Janes, the former Chief Executive Officer of the Company, was paid in full by issuance of 3,986,949 shares of new common stock to him on the Effective Date. In addition, Dean Janes received 10,200,000 shares of new common stock, which was given to him by the Class 3 Creditors out of shares they would have received pursuant to the Chapter 11 Reorganization Plan.

The Company’s common stockholders were issued 8,500,000 shares of new common stock in the Company, and all of their old common stock was cancelled. All old outstanding preferred stock was also cancelled. All options to acquire old common stock and warrants to purchase securities of the Company outstanding immediately prior to the Effective Date were cancelled and extinguished on the Effective Date.

Under Chapter 11, certain claims against the Company (“Debtor”) in existence before the filing of the petition for relief under the federal bankruptcy laws are stayed while the Debtor continues business operations as Debtor-in-possession. These claims are reflected in the December 31, 2012 balance sheet as liabilities subject to compromise. Additional claims (liabilities subject to compromise) may arise after the filing date resulting from rejection of executory contracts, including leases, and from the determination by the Bankruptcy Court (or agreed to by parties in interest) of allowed claims for contingencies and other disputed amounts. Claims secured against the Debtor’s assets (secured claims) also are stayed, although the holders of such claims have the right to move the court for relief from the stay. Secured claims are secured primarily by liens on the Debtor’s property, plant, and equipment.

The Debtor received approval from the Bankruptcy Court to pay or otherwise honor certain of its prepetition obligations, including employee wages and product warranties.

The Company’s reorganization value computed immediately before the Effective Date was estimated to be $4,100,000, which consisted of the following:

Cash in excess of normal operating requirements generated by operations	$	-
Net realizable value of asset dispositions		-
Present value of discounted cash flows of the emerging entity		4,100,000
Reorganization value over liabilities	$	4,100,000

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The Company adopted fresh-start reporting because holders of existing voting shares immediately before filing and confirmation of the Plan received less than 50% of the voting shares of the emerging entity, and its reorganization value is less than the aggregate of all post-petition liabilities and allowed claims, as shown in the following table:

Post-petition current liabilities	$	919,397
Liabilities deferred pursuant to Chapter 11 proceeding		4,629,370
Total post-petition liabilities and allowed claims		5,548,767
Reorganization value		4,963,957
Excess of liabilities over reorganization value	$	584,810

The reorganization value of the Company was determined in consideration of several factors and by reliance on various valuation methods, including discounting cash flow and price/earnings and other applicable ratios. The factors considered by the Company included all of the following:

a.	Forecasted operating and cash flow results that gave effect to the estimated impact of both of the following:

1.	Corporate restructuring and other operating program changes

2.	Limitations on the use of available net operating loss carryovers and other tax attributes resulting from the plan of reorganization and other events.

b.	The probability of the Company obtaining FDA approval for its imaging platform

c.	Market share and position

d.	Competition and general economic considerations

e.	Projected sales growth and potential profitability

f.	Changes in technology

After consideration of the Company’s debt capacity and other capital structure considerations, such as industry norms, projected earnings to fixed charges, earnings before interest and taxes to interest, free cash flow to interest, and free cash flow to debt service and other applicable ratios, and after extensive negotiations among parties in interest, it was agreed that the Company’s reorganization capital structure should be as follows:

Postpetition current liabilities	$	863,957
Common stock		4,100,000
Reorganization capital structure	$	4,963,957

The following table summarizes the adjustments required to record the reorganization and the issuance of the various securities in connection with the implementation of the plan (Plan of Reorganization Recovery Analysis):

				Recovery							Common Stock					Total Recovery
				Elimination of Debt and Equity			Surviving Debt		Payables		%			Value		$		%
Postpetition liabilities	$	619,592		$	(55,440	)	$	564,152	$	-		-		$	-	$	564,152	91	%

Claims or Interest
Secured debt		1,745,532			-			-		-		68	%		2,791,954		2,791,954	160	%
Priority tax claims		71,975			-			-		71,975		-			-		71,975	100	%
Secured accounts payable		159,318			-			-		159,318		-			-		159,318	100	%
Secured tax claims		5,775			-			-		5,775		-			-		5,775	100	%
Trade and other miscellaneous items		1,833,117			-			-		-		16	%		636,653		636,653	35	%
Unsecured, non-priority tax claims		62,737			-			-		62,737		-			-		62,737	100	%
Insider secured (but unperfected) claim		422,001			-			-		-		10	%		419,846		419,846	99	%
		4,300,455

Preferred stockholders		532,391			(532,391	)		-		-		-			-		-
Common stockholders		27,824,156			(27,572,416	)		-		-		6	%		251,547		251,547
Accumulated deficit		(33,151,776	)		33,151,776			-		-		-			-		-
	$	124,818		$	4,991,529		$	564,152	$	299,805		100	%	$	4,100,000	$	4,963,957

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The effect of the plan of reorganization on the Company’s balance sheet, as of July 1, 2013 is as follows:

	Predecessor Company			Reorganization Adjustments			Fresh Start Adjustments			Successor Company
ASSETS

Cash	$	108,829		$	-		$	-		$	108,829
Accounts Receivable		13,119			-			-			13,119
Prepaid expenses and other current assets		2,870			-			-			2,870
Total current assets		124,818			-			-			124,818

Property and equipment, net		-			-			-			-
Goodwill (reorganization value in excess of amounts allocable to identifiable assets)		-			-			4,839,139			4,839,139

TOTAL ASSETS	$	124,818		$	-		$	4,839,139		$	4,963,957

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities Not Subject to Compromise
Accounts payable	$	755,895		$	-		$	-		$	755,895
Accrued expenses		108,721			(55,440	)		-			53,281
Deferred revenue		54,781			-			-			54,781
		919,397			(55,440	)		-			863,957
Liabilities Subject to Compromise
Current Liabilities
Accounts payable and accrued expenses		1,833,117			(1,833,117	)		-			-
Notes Payable		1,745,532			(1,745,532	)		-			-
Advance from officer		422,001			(422,001	)		-			-
Total current liabilities		4,000,650			(4,000,650	)		-			-

TOTAL LIABILITIES		4,920,047			(4,056,090	)		-			863,957

STOCKHOLDERS' EQUITY (DEFICIT)
Common stock (Successor)		-			4,056,090			43,910			4,100,000
Common stock (Predecessor)		27,824,156			-			(27,824,156	)		-
Preferred stock (Predecessor)		532,391			-			(532,391	)		-
Accumulated deficit		(33,151,776	)		-			33,151,776			-
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)		(4,795,229	)		4,056,090			4,839,139			4,100,000

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	124,818		$	-		$	4,839,139		$	4,963,957

The Company accounted for the reorganization using fresh-start reporting. Accordingly, all assets and liabilities are adjusted to fair value in accordance with accounting requirements for business combinations under ASC Topic 805. The excess of reorganization value over the fair value of tangible and intangible assets was recorded as “reorganization value in excess of amounts allocable to identifiable assets.”

5. PROPERTY AND EQUIPMENT

Net property and equipment were as follows:

	(Successor) December 31, 2013			(Predecessor) December 31, 2012
Furniture and office equipment	$	-		$	4,442
Less accumulated depreciation		(-	)		(-	)
Net Property and Equipment	$	-		$	4,442

Depreciation expenses were $7,571, $4,442 and $0 for the year ended December 31, 2012, the six months ended June 30, 2013 and the six months ended December 31, 2013, respectively.

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6. ACCRUED EXPENSES

During 2003, the Company paid payroll net of taxes and accrued said taxes without payment due to cash flow limitations resulting from a 2002 warehouse fire that incinerated our inventory. The Company subsequently received a tax lien in 2005 related to 2003 payroll taxes from the Internal Revenue Service and continued to accrue interest and penalty charges. The original amount was $104,052. In 2008, payments were made and the Internal Revenue Service issued a tax lien release for this amount and the liability carried on the Company’s books was relieved. In 2009, the Company was notified by the Internal Revenue Service that additional payroll taxes, interest, and penalty charges were still owed. After researching, it is believed that the Internal Revenue Service double booked the original payments made and released the lien in error. Settlement was reached and the Company is currently paying $2,000 per month on a total liability of $47,432 as of December 31, 2013, including interest and penalties, with a potential balloon payment in one year subject to re-negotiation after one year with the IRS.

7. INCOME TAXES

The Company’s book losses and other timing differences result in a net deferred income tax benefit which is offset by a valuation allowance for a net deferred asset of zero. The Company has concluded, in accordance with the applicable accounting standards, that it is more likely than not that the Company may not realize the benefit of all of its deferred tax assets. Accordingly, management has provided a 100% valuation allowance against its deferred tax assets until such time as management believes that its projections of future profits as well as expected future tax rates make the realization of these deferred tax assets more-likely-than-not. Significant judgment is required in the evaluation of deferred tax benefits and differences in future results from our estimates could result in material differences in the realization of these assets. The Company has recorded a full valuation allowance related to all of its deferred tax assets. The Company has performed an assessment of positive and negative evidence regarding the realization of the net deferred tax asset in accordance with FASB ASC 740-10, “Accounting for Income Taxes.” This assessment included the evaluation of scheduled reversals of deferred tax liabilities, the availability of carry forwards and estimates of projected future taxable income. The availability of the Company’s net operating loss carry forwards is subject to limitation if there is a 50% or more change in the ownership of the Company’s stock. The provision for income taxes consists of the state minimum tax imposed on corporations of $800. The Company has adopted guidance issued by the FASB that clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. The Company’s policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. The Company has not recognized any unrecognized tax benefits and does not have any interest or penalties related to uncertain tax positions as of December 31, 2013.

As of December 31, 2013, the Company estimated it had available gross net operating loss (NOL) carry forwards of $43.55 million, which expire at various dates through 2034.

The components of the net deferred income taxes at December 31, 2013 and 2012 are summarized below:

	December 31, 2013			December 31, 2012
Deferred income tax assets
Net operating loss carryforwards	$	17,419,000		$	16,783,000
Less: valuation allowance		(17,419,000	)		(16,783,000	)
Deferred income tax assets, net	$	-		$	-

The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Statement of Operations:

	December 31, 2013			December 31, 2012
Tax expense (benefit) at federal statutory rate		(34	)%		(34	)%
State tax expense, net of federal tax		(6	)		(6	)
Changes in valuation allowance		40			40
Effective income tax rate	$	-		$	-

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Income tax expense for the six months ended December 31, 2013 and the year ended December 31, 2012 is summarized below. There was no income tax expense during the six months ended June 30, 2013.

	2013		2012
Current tax expense:
Federal	$	-	$	-
State		800		800
Total current tax expense	$	800	$	800

Deferred tax expense:
Federal	$	-	$	-
State		-		-
Total deferred tax expense, net	$	-	$	-

Tax expense	$	800	$	800

8. NOTES PAYABLE

Convertible Notes - 2011

During the year ended December 31, 2011, the Company issued secured convertible promissory notes in the total principal amount of $1,200,000 from which the Company received $1,000,000 of cash. The notes had no stated rate of interest. The convertible promissory notes were convertible into shares of the Company’s common stock at a rate the lesser of (a) $0.10 per share, or (b) 80% of the average of the three (3) lowest daily VWAP’s (volume weighted average prices) during the 22 consecutive trading days immediately preceding the applicable conversion date, but not less than $0.05 per share, subject to full ratchet anti-dilution provisions. The notes included a total of 12,000,000 warrants that also had full ratchet anti-dilution provisions and other potential adjustments. On their face, they were exercisable at $0.10 per share for a period of five years from the date of issue. The notes were secured by all personal property of the Company, including inventory, equipment, contract rights including all intangible assets, etc. The Company incurred financing costs of $15,250 related to the issuance of the convertible note and warrants. These financing costs have been deferred and are being amortized on a straight line basis over the life of convertible promissory note. It was determined that the convertible notes and warrants included embedded derivatives.

A discount on the convertible promissory notes totaled $1,200,000. This discount is amortized using the effective interest method over the term of the note. The notes were due in October 2012 and the remaining note discount of $907,397 was amortized during the year ended December 31, 2012. During 2012, $407,133 of these convertible notes were converted into 73,655,130 shares of common stock at the option of the note holder. The remaining balance of convertible notes and accrued interest was settled by the issuance of common shares in connection with the Company’s Chapter 11 Reorganization Plan.

Convertible Notes – 2012 and 2013

During 2012 and the six months ended June 30, 2013, respectively, the Company issued convertible promissory notes in the aggregate amount of $342,950 and $652,215, for a total of $995,165. The notes are convertible into shares of common stock at 80% of the average 5 closing prices immediately preceding the applicable conversion date, but not less than $0.0119 per share. The conversion features were determined to be a derivative liability. In connection with these notes, the Company recognized a note discount of $71,545. Amortization of these note discounts amounted to $1,618 and $69,927 for the year ended December 31, 2012 and the six months ended June 30, 2013, respectively. The notes were settled by the issuance of common shares in connection with the Company’s Chapter 11 Reorganization Plan.

Notes Payable - 2013

During the six months ended December 31, 2013, the Company issued promissory notes in the aggregate amount of $42,500. These notes bear interest at 7% per annum and were due on June 30, 2014. The notes are secured by substantially all assets of the Company. As of December 31, 2013, the balance outstanding was $42,500.

9. STOCKHOLDERS’ EQUITY

Preferred Stock

Successor

Upon confirmation of the Company’s Chapter 11 Reorganization Plan, the Company is authorized to issue 1,000,000 shares of preferred stock, no par value. The rights, privileges, and preferences of the preferred stock are to be determined by the Company’s board of directors and may be issued in series. As of December 31, 2013, there were no shares of preferred stock outstanding.

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Predecessor

Prior to the Chapter 11 Reorganization Plan, the Company was authorized to issue up to 1,000,000 shares of preferred stock. During 2012, the Company issued 3,000 shares of Series A Preferred Stock to the Company’s prior Chief Executive Officer. These shares were valued at $532,391 and recognized as an expense between 2011 and 2012.

Predecessor Series A Preferred Stock

These shares had the right to receive dividends, when declared, on a ratable basis with the holders of the Company’s common stock based on the number of shares of Series A Preferred Stock then outstanding in relation to the total number of shares of Series A Preferred Stock and common stock then outstanding. These shares had voting rights that permitted the holders to vote 350,000 votes for each share of Series A Preferred Stock. The holders of Series A Preferred Stock would vote with the holders of common stock as one class. In the event of liquidation, dissolution, or winding up of the Company, the Series A Preferred Stock then outstanding would be entitled to be paid a preference of $0.001 per share of the then outstanding Series A Preferred Stock.

The holder of the preferred stock along with other common share holdings, represented a controlling voting interest in the Company. These shares of Series A Preferred Stock were pursuant to the Company’s Chapter 11 Reorganization Plan.

Common Stock

Successor

The Company is authorized to issue 1,000,000,000 shares of no par value common stock. Upon confirmation of the Chapter 11 Reorganization Plan, the Company reorganized by issuing 138,544,393 shares of common stock and 18,148,696 warrants to purchase common stock at an exercise price of $0.000001 per share.

During the six months ended December 31, 2013, the Company issued an additional 1,000,000 shares of common stock for cash proceeds of $20,000.

Predecessor

Prior to the Chapter 11 Reorganization Plan, the Company was authorized 750,000,000 shares of no par value common stock.

The following is a summary of select transactions involving common stock during the year ended December 31, 2012. There were no common stock transactions in the predecessor company during the six months ended June 30, 2013.

-	The Company issued 2,000,000 shares of common stock for net cash proceeds of $89,150.

-	The Company issued 50,668,446 shares of common stock for the cashless exercise of warrants.

-	The Company issued 8,403,362 shares of common stock for net cash proceeds of $100,000 relating to the exercise of warrants.

-	The Company issued 73,655,130 shares of common stock for the conversion of convertible notes and accrued interest totaling $407,133.

10. WARRANTS

In connection with previous financing transactions, the Company issued warrants to purchase common stock. These warrants included provisions that could result in a variable exercise price or a variable number of shares to be issued based on specified full-ratchet anti-dilution provisions. Upon confirmation of the Chapter 11 Reorganization Plan, all pre-petition warrants to purchase common stock were cancelled.

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Pursuant to the Chapter 11 Reorganization Plan, the Company issued 7,861,472 and 10,287,224 warrants to Gemini Master Fund, Ltd and Alpha Capital, respectively. These warrants are exercisable at an exercise price of $0.000001 per share and expire July 30, 2023.

Warrant Activity
12/31/2011	Balance	222,313,442

	Warrants issued	229,358

	Warrants exercised	(77,892,972	)

	Warrants issued due to reset provisions	88,840,336

12/31/2012	Balance	233,490,164

6/30/2013	Warrants cancelled pursuant to Chapter 11 Reorganization Plan	(233,490,164	)

	Balance	-

7/1/2013	Warrants issued pursuant to Chapter 11 Reorganization Plan	18,148,696

12/31/2013	Balance	18,148,696

11. DERIVATIVE LIABILITIES

The Company’s only asset or liability measured at fair value on a recurring basis was its derivative liability associated with warrants to purchase common stock and the conversion feature embedded in convertible promissory notes, all of which were cancelled or settled with successor company shares and/or warrants on the effective date of the Company’s Chapter 11 Reorganization Plan.

In connection with previous financing transactions, the Company issued warrants to purchase common stock and convertible promissory notes. These instruments included provisions that could result in a variable exercise price or a variable number of shares to be issued based on specified full-ratchet anti-dilution provisions. The “reset” provisions were triggered in the event the Company subsequently issued common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than contractually specified amounts. Upon triggering the “reset” provisions, the exercise / conversion price of the instrument would be reduce and/or the number of shares issuable upon exercise / conversion of the instrument would increase. In addition, the Company’s convertible notes were convertible at a price based on a discount of 80% of the volume weighted average price (VWAP) for a specified period prior to conversion. Accordingly, pursuant to ASC 815, these instruments were not considered to be solely indexed to the Company’s own stock and were not afforded equity treatment.

The following table summarizes activity in the Company’s derivative liability during the period from January 1, 2012 through June 30, 2013:

	Predecessor
Balance, January 1, 2012	$	17,555,812
Creation of Derivative Liability		71,545
Settlements to Equity		(12,484,594	)
Change in Value		(5,142,763	)
Balance, December 31, 2012	$	-
Settlements to Equity		-
Balance, June 30, 2013	$	-

The Company classifies the fair value of these derivative liabilities under level 3 of the fair value hierarchy of financial instruments. The fair value of the derivative liability was calculated using a Monte Carlo simulation model that values the embedded derivatives based on several inputs, assumptions and probabilities. This model is based on future projections of the various potential outcomes. The embedded derivatives that were analyzed and incorporated into the model included the exercise feature with the full ratchet reset and the conversion feature of the convertible promissory notes.

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The Company utilized a third party valuation expert in determining the fair value of its derivative liabilities. The assumptions used in the model include the following:

· The warrant term ranged from 9 months to 60 months.

· The estimated volatility was 120% - 122%

· The risk free rate was 0.83% to 0.87%

12. GOING CONCERN

The Company’s financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has historically incurred net losses and through the effective date of the Chapter 11 Reorganization Plan, had an accumulated deficit totaling $33 M. During the years ended December 31, 2013 and 2012, the Company utilized an aggregate $1.5 M cash in operating activities and incurred an aggregate net loss of $3.8 M. The continuing losses have adversely affected the liquidity of the Company.

In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to raise additional capital, obtain financing and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary as a result of the Company’s going concern uncertainty.

Management's plan regarding this matter is to, amongst other things, seek additional equity financing by selling our equity securities, increase our sales volume, and continue seeking approval from the FDA to bring to market our real-time imaging platform. We cannot assure you that funds from these sources will be available when needed or, if available, will be on terms favorable to us or to our stockholders. If we raise additional funds or settle liabilities by issuing equity securities, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution or such equity securities may provide for rights, preferences or privileges senior to those of the holders of our common stock. Our ability to execute our business plan and continue as a going concern may be adversely affected if we are unable to raise additional capital or operate profitably.

The Company anticipates that further equity/debt financings will be necessary to continue to fund operations in the future and there is no guarantee that such financings will be available or, if available, on acceptable terms.

13. COMMITMENTS AND CONTINGENCIES

Leases

During 2012 and 2013, the Company leased its facilities on a month-to-month lease, which was cancellable by the parties with 30-days written notice. The Company entered into a facility lease agreement effective June 1, 2015 for three years with an option to extend for a 36 month period, which the Company exercised to be effective on June 1, 2018.

Future annual minimum lease commitments, excluding property taxes and insurance, on this lease are as follows:

2015		16,890
2016		33,780
2017		33,780
	$	84,450

Litigation

On or about November 23, 2011, Cranshire Capital, LP, an Illinois limited partnership, filed an Application to Compel Arbitration Under the Illinois Uniform Arbitration Act (case number 11 CH 40508 in the Circuit Court of Cook County, Illinois), regarding a dispute concerning the issuance and pricing of warrants and shares issued by the Company. During March 2012, the Company issued 6,365,741 shares of common stock to settle this matter.

On or about October 27, 2011, Exhibit Source, Inc. filed an action (Civil Action No. 11-cv-7652) in the United States District Court for the Northern District of Illinois. The plaintiff claims that a display used by the Company at an Illinois trade show violated its copyright. The Company disputed the plaintiff’s claims of copyright infringement. It is believed that this matter was resolved in the Company’s bankruptcy proceeding.

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On May 16, 2012, the Company and its directors were named in a Complaint purporting to be a shareholder’s derivative action by John M. Vuksich, Plaintiff. The action was filed in the Glendale Superior Court (North Central District) as case number EC058516. This action was stayed by the Company’s bankruptcy filing, and is believed to have been disposed of in that bankruptcy case subject to appeals.

On September 13, 2012, the Company filed In re Imaging3, Inc., Case No. 2:12-bk-41206-NB (Bankr. C.D. Ca.) (the “Bankruptcy Case”), a voluntary petition under Chapter 11 of Title 11 of the United States Code. The Company’s plan of reorganization thereunder (the “Plan”) was confirmed on July 9, 2013 pursuant to the court’s Order Confirming Debtor's First Amended Chapter 11 Plan of Reorganization Dated March 5, 2013, as Modified (the “Order”). Pursuant to the Order, the Plan became effective on July 30, 2013 (“Effective Date”). The Plan requires that the Company pay certain obligations on the Effective Date of the Plan. Of the Company’s obligations under the Plan, the Company is delinquent with regard to the obligations described in the chart below:

Class of Claim(s)	Payment Recipient	Amount of Each Periodic Payment & Amount of Total Claim	Payment Due Date	Status of Payment
Administrative Expense Claim	Greenberg Glusker Fields Claman & Machtinger LLP	$50,000.00 (monthly) Total Claim: Approximately $900,000.00	*Greenberg Glusker agreed to be paid as follows: $50,000.00 on September 1, 2013 and thereafter no less than $50,000.00 per month on or before the 15th of each month, commencing on October 2013. Interest will be charged on the outstanding balance at the rate of 10% per annum from July 30, 2013	Not paid
Administrative Expense Claim	Mentor Group	Approx. $18,000	Effective Date	Not paid
Priority Tax Claims	IRS	$1,484.00 (monthly) Total Claim: $53,240.24	Monthly payment of $1,484 until 9/12/2017	Not Paid
Priority Tax Claims	State Board of Equalization	$341.00 (monthly) Total Claim: $14,917.94	Monthly payment of $341 until 9/12/2017 Modified by Stipulation Dated June 23, 2015 as follows: 1. Pay the balance of the Administrative Claim in the amount of $196.01 2. Pay all of the arrearages for Priority Tax Claims by payment of $6,240.70 3. Cure post-Stipulation Effective Date taxes in the aggregate amount of $31,367.12 together with monthly interest accruing after July 1, 2015 (“Post Stipulation Effective Date Taxes”), by payment of four installments, as follows: a. $8,000 on the Stipulation Effective Date; b. $8,000 sixty days from the Stipulation Effective Date; c. $8,000 ninety days from the Stipulation Effective Date; d. the balance of the Post Stipulation Effective Date Taxes one hundred twenty days from the Stipulation Effective Date.	Paid in accordance with the terms of the Stipulation with the State Board of Equalization
Class 1	North Surgery Center, L.P.	$1,673.00 (monthly) Total Claim: $53,792.83	Pay monthly with first payment due on first business day of the first calendar month following the Effective Date	Paid as scheduled until December 2013; Not Paid in and after January 2014.
Class 2	Precision Forging Dies	Total Claim: $45,278.06	Pay in full by the first business day of the thirteenth calendar month following the Effective Date (September 1, 2014)	Not Paid
Class 9	IRS (unsecured portion of tax claims)	Total Claim: $62,736.92	Cash equal to the value of pro rata shares of New Common Stock outstanding on the Effective Date	Not Paid

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Section IV, F of the Plan provides “A creditor or party in interest may bring a motion to convert or dismiss the case under § 1112(b), after the Plan is confirmed, if there is a default in performing the Plan. If the Court orders the case converted to Chapter 7 after the Plan is confirmed, then all property that had been property of the Chapter 11 estate, and that has not been disbursed pursuant to the Plan, will revest in the Chapter 7 estate, and the automatic stay will be reimposed upon the revested property only to the extent that relief from stay was not previously granted by the Court during this case.”

In addition, appeals of four of the Court’s orders in the Bankruptcy Case remain outstanding, specifically:

• Order Denying Motion to Dismiss Chapter 11 Case, Case No.: 13-56695 (9th Cir.), appeal filed September 30, 2013, appealing the District Court’s dismissal of the initial appeal of the order.

• Order Disallowing Claims Nos. 23 and 24, Case No.: 14-55499 (9th Cir.), appeal filed March 31, 2014, appealing the District Court’s order affirming the order of the Bankruptcy Court.

The above appeals are scheduled for hearing at the Ninth Circuit Court of Appeals on December 9, 2015.

The Company was involved in the following additional litigation: Securities and Exchange Commission v. Imaging3 & Dean Janes, Civil Action No. CV13-04616 GAF (AJWx) (U.S. Dist. Ct., C.D. Ca.), for which Fulbright & Jaworski LLP is counsel of record. The Company settled this action by entering into a Deferred Prosecution Agreement with the SEC in which the Company covenanted to comply with federal and state securities laws through December 31, 2017, among other covenants.

In 2009, the Company was notified by the Internal Revenue Service that additional payroll taxes, interest, and penalty charges were still owed. After researching, it is believed that the Internal Revenue Service double booked the original payments made and released the lien in error. Settlement was reached and the Company is currently paying $2,000 per month on a total liability of $42,824 as of December 31, 2014, including interest and penalties, with a potential balloon payment in one year subject to re-negotiation after one year with the IRS. The Company has hired tax counsel to re-negotiate the current tax debt with the IRS.

The Company may have unresolved payroll tax matters for various fiscal years through 2013. Additional amounts may be assessed by the taxing authorities upon final resolution. As of December 31, 2013, the Company is unable to estimate the range of additional amounts, if any, that may be assessed upon final resolution.

14. RELATED PARTY TRANSACTION

The Company had a consulting agreement with the prior Chief Executive Officer of the Company under which he received compensation of $12,000 per month. The prior Chief Executive Officer provided management, administrative, marketing, and financial services to the Company pursuant to the consulting agreement which was terminable on 30 days notice by either party. The consulting agreement commenced on January 1, 2002 and continued until the adoption of the Company’s Chapter 11 Reorganization Plan, when it was terminated. As of December 31, 2012, the Company owed the former CEO $350,000 pursuant to this consulting agreement and advances, all of which was settled by the issuance of common shares pursuant to the Company’s Chapter 11 Reorganization Plan.

15. SUBSEQUENT EVENTS

During the year ended December 31, 2014, the Company issued 23,250,000 shares of its common stock for net cash proceeds of $581,250 and 6,708,000 shares of its common stock for services, valued at $164,322.

During the period from January 1, 2015 through October 31, 2015, the Company issued a total of 18,380,000 shares of common stock. 12,005,000 of these shares were issued for cash proceeds of $188,875. The remaining 6,375,000 shares were issued for services rendered.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROL AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weaknesses:

1. As of December 31, 2013, we did not maintain effective controls over the control environment. Specifically, the board of directors did not have any independent members and no director qualified as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-B. Since these entity level conditions have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.

2. As of December 31, 2013, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness.

3. As of December 31, 2013 we did not maintain adequate segregation of duties. Accordingly, management has determined that this control deficiently constitutes a material weakness.

Because of these material weaknesses, management has concluded that we did not maintain effective internal control over financial reporting as of December 31, 2013, based on the criteria established in “Internal Control-Integrated Framework” issued by the COSO.

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Independent Registered Accountant’s Internal Control Attestation

This annual report does not include an attestation report of our public accounting firm regarding our internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting through the date of this report or during the quarter ended December 31, 2013, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The following table lists our executive officers and directors as of December 31, 2013:

Name	Age	Position

Dane Medley	56	Chairman of the Board of Directors and Chief Executive Officer

Xavier Aguilera	65	Executive Vice President, Chief Financial Officer, Corporate Secretary and Director

______________

Dane Medley has been the Chairman and Chief Executive Officer of the Company since October 2012. Prior to joining us, Mr. Medley was the Senior Vice President of Service and Operations at Xerox Corporation (2008-2012), the Regional Operations Specialist at Sharp Electronics Corporation (2002-2007), a Service Manager at Lewan & Associates, Inc. (1986 to 2001), and served in the United States Air Force from 1981 to 1985 as an Antenna and Radio Maintenance Specialist. His leadership responsibilities and experience at Xerox Corp. included the following:

Accountable for $75 million + of revenue, managing profit and loss.

Directed operational manpower needs, budget, and operating expenses.

Retained relationships with 60 + sales personnel, upper level management, and a customer base in excess of 40,000, generating $75 million in revenue.

Developed helpdesk dispatching procedures resulting in reduced response time and deliveries to customers, and increased field productivity of field engineers.

Budgeted staffing, recruiting, performance reviews, accounting, and facility management.

Extensive experience in operations, branch management, and administrative management with over 20 years’ experience.

Introduced and implemented internship program specifically for technicians, creating career paths and keeping turnover to under 3% over a 5-year period.

Employed philosophy of long-term customer satisfaction.

At Sharp Electronics Corporation, his experience and accomplishments included the following:

Maintained an 8 state region of 42 dealers, specializing in dealer operations.

Provided training for inventory control, technical solutions, service meetings, and overall health of the dealer.

Worked closely with senior management on budget analysis and benchmarking.

Principal point of contact for dealer with manufacturer for problem resolution.

Taught bi-monthly corporate courses to technicians and operations specialists.

Conveyed customer service and operational procedures.

Developed train the trainer program now instituted as training protocol at SHARP.

At Lewan & Associates, Inc., Mr. Medley was responsible for the following:

Responsible for $30 million of revenue, managing profit and loss.

Managed hiring and firing, inventory, budget, training, and customer satisfaction.

Managed over 50,000 service calls yearly with 74 technicians.

Developed technician benchmarking creating Presidents Club and bonus structure.

Developed leadership skills, using Lewan management and development courses.

Support services, sales satisfaction, territory management, customer equipment repair.

In the United States Air Force, Mr. Medley gained the following experience:

Trained in antenna maintenance and radio communications.

Responsible for coordinating projects with 1836 EIG operations.

Based in Wiesbaden, Germany, Rome and New York. Assistant Team Chief 1984-1985. Honorable Discharge-E3.

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Education

University of Maryland USAF, 1982-1984.

Arapahoe Community College, 1979-1980.

Casper College, 1978.

Global leadership training, 2007.

Global SMART training, 2007.

Xerox Leadership training, 2007.

Sharp Electronics leadership development certification.

Microsoft Certified Professional. COMPTIA certification, 2006.

Security + certified. Comptia certification, 2005.

Net + certified. Comptia certification, 2004.

A+ certified. Comptia certification, 2004.

Controller certified. Sharp Electronics, 2003.

Windows business suite, printer, 45 copier certifications. Sharp Electronics, 2003.

Train the Trainer certified. University of Wisconsin, 2003.

CPR certified

Mr. Medley’s biographical history and experience with us indicates his leadership qualifications, finance qualifications, industry experience and education.

Xavier Aguilera has been our Executive Vice President, Chief Financial Officer, and Corporate Secretary since June 1999 and a director since 2005. Mr. Aguilera’s responsibilities include managing our finances, accounting, taxes, credit facilities and interfacing and developing new relationships with banks and other financial institutions. Prior to working for Imaging3, Mr. Aguilera was self-employed as a consultant for Xavier Aguilera & Associates from 1997 to 1999. His responsibilities were to manage and open primary healthcare facilities throughout Southern California. He provided property management, estate planning, credit facility and Import/Export consulting for several businesses in Southern California. From 1995 to 1997, Mr. Aguilera was the chief administrative officer for East Los Angeles Doctors Hospital, where his responsibilities were to manage administrative personnel within the hospital, manage public relations, business development and JCAHO compliance. From 1992 to 1995, Mr. Aguilera was the chief executive officer for El Centro Human Services Corporation, where his responsibilities were to develop and implement a community based mental health facility consisting of eight satellite centers. He managed a $9.4 million budget and a full time staff of 240 employees. From 1990 to 1992, Mr. Aguilera was a deputy director/administrator for Northeast Community Clinic, where his responsibilities were to implement and administer the clinics health programs and oversee operations. From 1988 to 1990, Mr. Aguilera was self-employed as a consultant for finance, management and international finance. He provided these services to banks as well as businesses throughout Southern California. From 1987 to 1988, Mr. Aguilera was vice president of international banking marketing for California Commerce Bank, where his responsibilities were to manage and administer a $14 million portfolio, develop new business in the Southern California with Hispanic businesses and develop business relationships with Northern Mexico businesses and banks. From 1981 to 1987, Mr. Aguilera was an assistant general manager/deputy director for Banco Nacional de Mexico (BANAMEX). He was responsible for $60 million in new deposits as well as new business development and management of commercial and personal lending departments. He holds a bachelor degree in business from California State University at Northridge (1983) and a certificate of medical management from the University of California at Los Angeles (1995).

Mr. Aguilera’s qualifications:

Leadership experience – Executive vice president, chief financial officer and corporate secretary of Imaging3 since June 1999 and chairman of the audit committee since 2003.

Finance experience – Mr. Aguilera is currently our chief financial officer and had extensive experience in financial management with other companies prior to joining us in June 1999.

Industry experience - Mr. Aguilera has over 25 years of financial and management experience in the medical and banking industries.

Technology and education experience - Mr. Aguilera has a bachelor degree in business from California State University at Northridge and a certificate of medical management from the University of California at Los Angeles.

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Limitation of Liability and Indemnification of Officers and Directors

Under the California Corporation Code, our directors will have no personal liability to us or our stockholders for monetary damages incurred as the result of the breach or alleged breach by a director of his “duty of care.” This provision does not apply to the directors’ (i) acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) approval of any transaction from which a director derives an improper personal benefit, (iv) acts or omissions that show a reckless disregard for the director’s duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director’s duties, of a risk of serious injury to the corporation or its shareholders, (v) acts or omissions that constituted an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the corporation or its shareholders, or (vi) approval of an unlawful dividend, distribution, stock repurchase or redemption. This provision would generally absolve directors of personal liability for negligence in the performance of duties, including gross negligence.

The California Corporations Code grants corporations the right to indemnify their directors, officers, employees and agents in accordance with applicable law. Our bylaws provide for indemnification of such persons to the full extent allowable under applicable law. These provisions will not alter the liability of the directors under federal securities laws.

We intend to enter into agreements to indemnify our directors and officers, in addition to the indemnification provided for in our bylaws. These agreements, among other things, indemnify our directors and officers for certain expenses (including attorneys’ fees), judgments, fines, and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the right of Imaging3, arising out of such person’s services as a director or officer of Imgagin3, any subsidiary of Imaging3 or any other company or enterprise to which the person provides services at our request. We believe that these provisions and agreements are necessary to attract and retain qualified directors and officers.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Board Committees

Our board of directors has appointed an audit committee. Xavier Aguilera, our Chief Financial Officer, is the sole member of the audit committee. The board of directors has adopted a written charter of the audit committee. The audit committee is authorized by the board of directors to review our annual financial statements prior to publication, and to review the work of, and approve non-audit services performed by, our independent accountants. The audit committee will make annual recommendations to the board for the appointment of independent public accountants for the ensuing year. The audit committee will also review the effectiveness of the financial and accounting functions and our organization, operations and management. The audit committee was formed on August 31, 2003. The audit committee held two meetings during fiscal year ended December 31, 2013.

Our board of directors does not have a compensation committee so all decisions with respect to management compensation are made by the whole board. Our board of directors does not have a nominating committee. Therefore, the selection of persons or election to the board of directors was neither independently made nor negotiated at arm’s length.

Report of the Audit Committee

Our audit committee has reviewed and discussed our audited financial statements for the fiscal year ended December 31, 2013 with senior management. The audit committee has reviewed and discussed with management our audited financial statements. The audit committee has also discussed with Rose, Snyder and Jacobs LLP (“RSJ”), our independent auditors, the matters required to be discussed by the statement on Auditing Standards No. 16 (Communication with Audit Committees) and received the written disclosures and the letter from RSJ required by Independence Standards Board Standard No. 1 (Independence Discussion with Audit Committees). The audit committee has discussed with RSJ the independence of RSJ as our auditors. Finally, the audit committee has considered whether the independent auditor’s provision of non-audit services to us is compatible with the auditors’ independence. Based on the foregoing, our audit committee has recommended to the board of directors that our audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 for filing with the United States Securities and Exchange Commission. Our audit committee did not submit a formal report regarding its findings.

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AUDIT COMMITTEE

Xavier Aguilera

Notwithstanding anything to the contrary set forth in any of our previous or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate this report in future filings with the Securities and Exchange Commission, in whole or in part, the foregoing report shall not be deemed to be incorporated by reference into any such filing.

Code of Conduct

We have adopted a code of conduct that applies to all of its directors, officers and employees. The text of the code of conduct has been posted on our Internet website and can be viewed at www.imaging3.com. Any waiver of the provisions of the code of conduct for executive officers and directors may be made only by our audit committee or the full board of directors and, in the case of a waiver for members of the audit committee, by the board of directors. Any such waivers will be promptly disclosed to our shareholders.

Compliance with Section 16(A) of Exchange Act

Our affiliates who are members of our management voluntarily comply with Section 16 of the Securities Exchange Act of 1934, as amended, even though we do not have securities registered under Section 12 of Exchange Act. Section 16(a) of the Exchange Act requires a registrant’s officers and directors, and certain persons who own more than 10% of a registered class of a registrant’s equity securities (collectively, “Reporting Persons”), to file reports of ownership and changes in ownership (“Section 16 Reports”) with the Securities and Exchange Commission. Reporting Persons are required by the SEC to furnish the registrant with copies of all Section 16 Reports they file.

Based solely on our review of the copies of such Section 16 Reports received by us, or written representations received from certain Reporting Persons, all Section 16(a) filing requirements that would be applicable to our Reporting Persons (as our securities are registered under Section 12 of the Exchange Act) during and with respect to the fiscal year ended December 31, 2013 have been met on a timely basis, except for shares issued under our Chapter 11 Reorganization Plan.

ITEM 11. EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The following Compensation Discussion and Analysis describes the material elements of compensation for our executive officers identified in the Summary Compensation Table (“Named Executive Officers”), and executive officers that we may hire in the future. As more fully described below, our board of directors makes all decisions for the total compensation of our executive officers, including the Named Executive Officers. We do not have a compensation committee, so all decisions with respect to management compensation are made by the whole board.

Compensation Program Objectives and Rewards

Our compensation philosophy is based on the premise of attracting, retaining, and motivating exceptional leaders, setting high goals, working toward the common objectives of meeting the expectations of customers and stockholders, and rewarding outstanding performance. Following this philosophy, in determining executive compensation, we consider all relevant factors, such as the competition for talent, our desire to link pay with performance in the future, the use of equity to align executive interests with those of our stockholders, individual contributions, teamwork and performance, and each executive’s total compensation package. We strive to accomplish these objectives by compensating all executives with total compensation packages consisting of a combination of competitive base salary and, once we grow more and increase our staff, incentive compensation. Because of our small size and staff to date, we have not yet adopted a management equity incentive plan, nor have we yet used equity incentives as part of our management compensation policy.

While we have not hired at the executive level significantly since inception because our business has not grown sufficiently to justify increasing staff, we expect to grow and hire in the future. Our Named Executive Officers have been with us for many years and their compensation has basically been static, based primarily on levels at which we can afford to retain them, and their responsibilities and individual contributions. To date, we have not applied a formal compensation program to determine the compensation of the Named Executives. In the future, as we and our management team expand, our board of directors expects to add independent members, form a compensation committee comprised of independent directors, adopt a management equity incentive plan and apply the compensation philosophy and policies described in this section of the Form 10-K.

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The primary purpose of the compensation and benefits described below is to attract, retain and motivate highly talented individuals when we do hire, who will engage in the behaviors necessary to enable us to succeed in our mission while upholding our values in a highly competitive marketplace. Different elements are designed to engender different behaviors, and the actual incentive amounts which may be awarded to each Named Executive Officer are subject to the annual review of the board of directors. The following is a brief description of the key elements of our planned executive compensation structure.

Base salary and benefits are designed to attract and retain employees over time. Incentive compensation awards are designed to focus employees on the business objectives for a particular year. Equity incentive awards, such as stock options and non-vested stock, focus executives’ efforts on the behaviors within the recipients’ control that they believe are designed to ensure our long-term success as reflected in increases to our stock prices over a period of several years, growth in our profitability and other elements. Severance and change in control plans are designed to facilitate a company’s ability to attract and retain executives as it competes for talented employees in a marketplace where such protections are commonly offered. We currently have not given separation benefits to any of our Name Executive Officers.

Benchmarking

We have not yet adopted benchmarking but may do so in the future. When making compensation decisions, our board of directors may compare each element of compensation paid to our Named Executive Officers against a report showing comparable compensation metrics from a group that includes both publicly-traded and privately-held companies. Our board believes that while such peer group benchmarks are a point of reference for measurement, they are not necessarily a determining factor in setting executive compensation as each executive officer’s compensation relative to the benchmark varies based on scope of responsibility and time in the position. We have not yet formally established our peer group for this purpose.

The Elements of Imaging3’s Compensation Program

Base Salary

Executive officer base salaries are based on job responsibilities and individual contribution. The board reviews the base salaries of our executive officers, including our Named Executive Officers, considering factors such as corporate progress toward achieving objectives (without reference to any specific performance-related targets) and individual performance experience and expertise. None of our Named Executive Officers have employment agreements with us. Additional factors reviewed by the board of directors in determining appropriate base salary levels and raises include subjective factors related to corporate and individual performance. For the year ended December 31, 2013, all executive officer base salary decisions were approved by the board of directors.

Our board of directors determines base salaries for the Named Executive Officers at the beginning of each fiscal year, and the board proposes new base salary amounts, if appropriate, based on its evaluation of individual performance and expected future contributions. We do not have a 401(k) Plan, but if we adopt one in the future, base salary would be the only element of compensation that would be used in determining the amount of contributions permitted under the 401(k) Plan.

Incentive Compensation Awards

The Named Executives have not been paid bonuses and our board of directors has not yet established a formal compensation policy for the determination of bonuses. If our revenue grows and bonuses become affordable and justifiable, we expect to use the following parameters in justifying and quantifying bonuses for our Named Executive Officers and other officers of Imaging3: (1) the growth in our revenue, (2) the growth in our earnings before interest, taxes, depreciation and amortization, as adjusted (“EBITDA”), and (3) our stock price. The board has not adopted specific performance goals and target bonus amounts for any of its fiscal years, but may do so in the future. It is anticipated that such an incentive compensation awards program may commence during the year 2016.

Equity Incentive Awards

Our board has not yet adopted a management equity incentive plan and no stock options or other equity incentive awards have yet been made to any of our Named Executives or other officers or employees of Imaging3. As stated previously, in the future we plan to adopt a formal management equity incentive plan pursuant to which we plan to grant stock options and make restricted stock awards to members of management, which would not be assignable during the executive’s life, except for certain gifts to family members or trusts that benefit family members. These equity incentive awards, we believe, would motivate our employees to work to improve our business and stock price performance, thereby further linking the interests of our senior management and our stockholders. The board will consider several factors in determining whether awards are granted to an executive officer, including those previously described, as well as the executive’s position, his or her performance and responsibilities, and the amount of options or other awards, if any, currently held by the officer and their vesting schedule. Our policy will prohibit backdating options or granting them retroactively.

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Benefits and Prerequisites

At this stage of our business we have limited benefits and no prerequisites for our employees other than health insurance and vacation benefits that are generally comparable to those offered by other small private and public companies or as may be required by applicable state employment laws. We do not have a 401(k) Plan or any other retirement plan for our Named Executive Officers. We may adopt these plans and confer other fringe benefits for our executive officers in the future if our business grows sufficiently to enable us to afford them.

Executive Compensation

The following table summarizes compensation paid or accrued by us for the years ended December 31, 2012 and December 31, 2013 for services rendered in all capacities, by our chief executive officer and our other most highly compensated executive officers during the fiscal years ended December 31, 2012 and December 31, 2013.

Summary Compensation Table

Name and Principal Position (1)	Year	Salary		Bonus		Option Awards		Non-Equity Incentive Plan Compensation		Non-Qualified Deferred Compensation Earnings		All Other Compensation		Total

Dane Medley Chief Executive Officer	2012 2013	$ $	0 125,000		0 0		0 0		0 0		0 0		0 0	$ $	-0- 125,000

Xavier Aguilera, Chief Financial Officer/Treasurer, Executive Vice President, and Corporate Secretary	2012 2013	$ $	95,000 95,000		0 0		0 0		0 0		0 0		0 0	$ $	95,000 95,000

Officers as a Group	2012 2013	$ $	95,000 220,000		0 0		0 0		0 0		0 0		0 0	$ $	95,000 220,000

Employment Agreements

We have entered into five-year employment agreements with our chief executive officer and our chief financial officer, which commenced in June 2013. We may enter into new employment agreements with them in the future.

Outstanding Equity Awards at Fiscal Year End

None of our executive officers received any equity awards during the year ended December 31, 2013.

Employee Benefit Plans

We have not yet, but may in the future, establish a management stock option plan pursuant to which stock options may be authorized and granted to the executive officers, directors, employees and key consultants of Imaging3. In the event we establish the stock option plan, we expect to authorize approximately 20,000,000 shares or more for future issuance.

Director Compensation

None of our directors received any compensation for their respective services rendered to us as directors during the year ended December 31, 2013.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth the names of our executive officers and directors and all persons known by us to beneficially own 5% or more of the issued and outstanding common stock of Imaging3 at December 31, 2013. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage of ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or become exercisable within 60 days of December 31, 2013 are deemed outstanding even if they have not actually been exercised. Those shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person. The percentage ownership of each beneficial owner is based on 139,544,393 outstanding shares of common stock. Except as otherwise listed below, the address of each person is c/o Imaging3, Inc., 3022 North Hollywood Way, Burbank, California 91505. Except as indicated, each person listed below has sole voting and investment power with respect to the shares set forth opposite such person’s name.

Name, Title and Address	Number of Shares Beneficially Owned (1)		Percentage Ownership

Dane Medley, Chairman and Chief Executive Officer		895,000		*	%

Xavier Aguilera, Director, Chief Financial Officer/Treasurer, Executive Vice President, and Secretary		200,000		*	%

All current Executive Officers as a Group		1,095,000		*	%

*	Less than 1%.

(1)

Except as pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned. The total number of issued and outstanding shares and the total number of shares owned by each person does not include unexercised warrants and stock options, and is calculated as of December 31, 2013.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

None.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Presently and since June 20, 2015, Rose, Snyder and Jacobs LLP (“RSJ”) has been and is our principal auditing firm. The audit committee approved the engagement of RSJ before they rendered audit services to us. Prior to June 20, 2015, our principal auditing firm was M&K CPAS, PLLC.

Each year the retention of the independent auditor to audit our financial statements, including the associated fee, is approved by the board of directors before the filing of the previous year’s Annual Report on Form 10-K.

M&K Fees

	2013		2012
Audit Fees(1)	$	-	$	26,000
Audit Related Fees		5,000		5,000
All Other Fees(2)		-0-		-0-
	$	5,000	$	31,000

(1)

Audit Fees consist of fees for the audit of our financial statements and review of the financial statements included in our quarterly reports. Of these amounts, $31,000 was paid to M&K CPAS, PLLC (our prior principal auditing firm) during the year ending December 31, 2012 and an additional $5,000 was paid to that firm during the year 2013. No amounts were paid to RSJ during the years ending December 31, 2013 or 2012.

(2)	Tax fees consist of fees for the preparation of original federal and state income tax returns and fees for miscellaneous tax consulting services.

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Pre-Approval Policies and Procedures of Audit and Non-Audit Services of Independent Registered Public Accounting Firm

The audit committee’s policy is to pre-approve, typically at the beginning of our fiscal year, all audit and non-audit services, other than de minimis non-audit services, to be provided by an independent registered public accounting firm. These services may include, among others, audit services, audit-related services, tax services and other services and such services are generally subject to a specific budget. The independent registered public accounting firm and management are required to periodically report to the full board of directors regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. As part of the board’s review, the board will evaluate other known potential engagements of the independent auditor, including the scope of work proposed to be performed and the proposed fees, and approve or reject each service, taking into account whether the services are permissible under applicable law and the possible impact of each non-audit service on the independent auditor’s independence from management. At audit committee meetings throughout the year, the auditor and management may present subsequent services for approval. Typically, these would be services such as due diligence for an acquisition, that would not have been known at the beginning of the year.

The audit committee has considered the provision of non-audit services provided by our independent registered public accounting firm to be compatible with maintaining their independence. The audit committee will continue to approve all audit and permissible non-audit services provided by our independent registered public accounting firm.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Exhibits

Exhibit	Description
3.1	Articles of Incorporation (1)
3.2	Articles of Amendment dated October 25, 2001, June 24, 2002, and August 13, 2002(1)
3.3	Bylaws (1)
3.4	Certificate of Amendment dated September 30, 2003(2)
3.5	Certificate of Amendment dated October 25, 2001(3)
3.6	Certificate of Amendment June 24, 2002(3)
3.7	Certificate of Amendment August 13, 2002(3)
3.8	Certificate of Determination for Series A Preferred Stock(10)
3.9	Amendment to Certificate of Determination for Series A Preferred Stock(10)
10.1	Patent No. 6,754,297(3)
10.2	Consulting Agreement(3)
10.3	Assignment(3)
10.6	Commercial Promissory Note dated August 4, 2004(4)
10.7	Security Agreement(4)
10.8	Commercial Promissory Note dated April 24, 2005(5)
10.9	IR Commercial Real Estate Association Standard Industrial/Commercial Single-Tenant Lease - Net, dated June 21, 2004 by and between Four T’s, Bryan Tashjian, Ed Jr. Tashjan, Bruce Tashjan, Greg Tashjan and Dean Janes DBA Imaging Services, Inc.(6)
10.10	Promissory Note, dated November 1, 2008 in the amount of $140,039.35, payable by Imaging3, Inc. to Dean Janes(7).
10.11	Promissory Note, dated March 23, 2009 in the amount of $95,000, payable by Imaging3, Inc. to Dean Janes(7)
10.12	Promissory Note, dated April 2, 2009 in the amount of $375,000, payable by Imaging3, Inc. to Dean Janes(7)
10.13	Promissory Note, dated April 13, 2010 in the amount of $66,500, payable by Imaging3, Inc. to Dean Janes(7)
10.14	Promissory Note, dated June 28, 2010 in the amount of $100,000, payable by Imaging3, Inc. to Dean Janes(7)
10.15	Securities Purchase Agreement by and between Imaging3, Inc. and Cranshire Capital, L.P., dated October 4, 2010(8)
10.16	Series A Warrant, dated October 15, 2010 for Cranshire Capital, L.P.(9)
10.17	Series A Warrant dated October 15, 2010 for Freestone Advantage Partners, L.P.(9)
10.18	Series B Warrant, dated October 15, 2010 for Cranshire Capital, L.P.(9)
10.19	Series B Warrant, dated October 15, 2010 for Freestone Advantage Partners, L.P.(9)
10.20	Series C Warrant, dated October 15, 2010 for Cranshire Capital, L.P.(9)
10.21	Series C Warrant, dated October 15, 2010 for Freestone Advantage Partners, L.P.(9)
10.22	Registration Rights Agreement entered into by Imaging3, Inc., Cranshire Capital, L.P. and Freestone Advantage Partners, L.P., dated October 15, 2010(9)
10.23	Securities Purchase Agreement with Gemini Strategies, LLC, dated October 3, 2011(11)
10.24	Security Agreement with Gemini Strategies, LLC, dated October 3, 2011(11)
14.1	Code of Conduct

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31.1	Section 302 Certification of Chief Executive Officer
31.2	Section 302 Certification of Chief Financial Officer
32.1	Section 906 Certification of Chief Executive Officer
32.2	Section 906 Certification of Chief Financial Officer
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

(1)

Incorporated by reference to the Form 10SB/A Registration Statement filed with the Securities and Exchange Commissioner on December 9, 2002.

(2)

Incorporated by reference to Amendment No. 2 to Form SB-2 Registration Statement filed with the Securities and Exchange Commission on October 6, 2004.

(3)

Incorporated by reference to Amendment No. 3 to Form SB-2 Registration Statement filed with the Securities and Exchange Commission on October 21, 2004.

(4)

Incorporated by reference to Amendment No. 5 to Form SB-2 Registration Statement filed with the Securities and Exchange Commission on April 18, 2005.

(5)

Incorporated by reference to Amendment No. 6 to Form SB-2 Registration Statement filed with the Securities and Exchange Commission on July 7, 2005.

(6)

Incorporated by reference to Amendment No. 8 to Form SB-2 Registration Statement filed with the Securities and Exchange Commission on September 9, 2005.

(7)

Incorporated by reference to the Report on Form 8-K filed with the Securities and Exchange Commission on August 30, 2010.

(8)

Incorporated by reference to the Report on Form 8-K filed with the Securities and Exchange Commission on October 5, 2010.

(9)

Incorporated by reference to the Report on Form 8-K filed with the Securities and Exchange Commission on October 21, 2010.

(10)

Incorporated by reference to the Report on Form 8-K filed with the Securities and Exchange Commission, dated March 20, 2012.

(11)

Incorporated by reference to the Report on Form 8-K filed with the Securities and Exchange Commission, dated October 4, 2011.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	IMAGING3, INC.

Dated: November 9, 2015	By:	/s/ Dane Medley
		Dane Medley
		Chairman of the Board and Chief Executive Officer (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Dated: November 9, 2015

Dane Medley, Chairman of the Board and Chief

Executive Officer (Principal Executive Officer)

Dane Medley, Chairman of the Board

Dated: November 9, 2015

Xavier Aguilera, Chief Financial Officer/Treasurer,

Executive Vice President, Corporate Secretary, and

Director (Principal Financial/Accounting Officer)

Xavier Aguilera. Director