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. The company has also entered into a Dealership Agreement with Envisiontec to promote and distribute 3-D
Printers. The company feels these units can and will eventually tie into their current 3-D technology.
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:
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:
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Perform real-time,
3D medical imaging;
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Emulate a computerized
tomography scanner (at a fraction of the capital cost); and
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Perform standard
fluoroscopy.
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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.
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.
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 Imaging3, Inc. As of December 31, 2015 Imaging3 Inc.
had one UCC filing against assets that were obtained by Gemini Capital in conjunction with secured notes.
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.
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.
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:
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 payers, 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 payers 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:
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ADAC
Laboratories
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Eastman
Kodak Co.
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Fonar
Corp.
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Fuji
Medical Systems U.S.A., Inc.
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General
Electric Medical Systems
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Hitachi
Medical Systems America, Inc.
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Hologic,
Inc.
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Imaging
Diagnostic Systems, Inc.
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Imatron,
Inc.
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Lumisys,
Inc.
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Marconi
Medical Systems
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Philips
Medical Systems Nederland BV
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PhorMax
Corp.
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Siemens
Medical Engineering Group
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Sterling
Diagnostic Imaging, Inc.
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Trex
Medical Corp.
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Varian
Medical Systems, Inc.
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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.
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:
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The only 3D, real-time medical diagnostic imaging
device in the market that will produce high resolution images;
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Reasonably priced;
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Easy-to-install;
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Vast array of features; and
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Highly reliable.
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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:
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Do not provide 3D images;
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Do not provide images in real-time;
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Do not provide comparable high resolution images;
and
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Are too costly.
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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.
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Direct Sales - Full suggested list price;
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Dealers - 30% off suggested list price; and
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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 2 full-time individuals, all of whom are working at our leased offices at 3022 North Hollywood Way, Burbank,
California 91505. Both 2 full-time employees are executive officers and directors of the Company.
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.
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
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Class
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Description
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Regulation
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IZG
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II
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System, X-ray, Photofluorographic
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892.1730
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JAB
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II
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System, X-ray, Fluoroscopic, Non-Image-I
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892.1660
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JAK
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II
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System, X-ray, Tomography, Computed
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892.175
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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
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Class
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Description
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Regulation
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IZL
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II
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System,
X-ray, Mobile
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892.1720
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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.
Our
new product, the “Real-time 3D Imaging Device” is expected to be submitted as Product Code “IZG,” Device
Class II, “System, X-ray, Photo fluorography,” Regulation Number 892.1730, since this is the closest device description.
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 II 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.
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:
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Device-related deaths
to the FDA and the device manufacturer;
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Device-related serious
injuries to the manufacturer, or to the FDA if the manufacturer is not known; and
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Submit to the FDA
on an annual basis a summary of all reports submitted during that period.
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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.
We
intend to seek to obtain FDA approval of our proprietary medical imaging device in 2017, 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.