SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2005
| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-50155
DIAGNOSTIC CORPORATION OF AMERICA
(Name of Small Business Issuer in its Charter)
| Delaware | 02-0563302 | |
| (State or Other Jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
14375 Myer Lake Circle, Clearwater FL 33760
(Address of Principal Executive Offices)
(727) 533-8300
(Issuer’s Telephone Number)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 (the “Exchange Act”) 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 x NO ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨ No x
As of November 8, 2005, there were 15,797,871 shares of our Common Stock, $.001 par value issued and outstanding.
DIAGNOSTIC CORPORATION OF AMERICA
TABLE OF CONTENTS
| Page | ||||
| PART I. FINANCIAL INFORMATION | 1 | |||
| Item 1. |
1 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 | ||
| Item 3. |
19 | |||
| PART II. OTHER INFORMATION | 19 | |||
| Item 1. |
19 | |||
| Item 2. |
19 | |||
| Item 3. |
20 | |||
| Item 4. |
20 | |||
| Item 5. |
20 | |||
| Item 6. |
20 | |||
PAR T I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
DIAGNOSTIC CORPORATION OF AMERICA
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Clearwater, Florida
FINANCIAL REPORTS
AT
SEPTEMBER 30, 2005
1
DIAGNOSTIC CORPORATION OF AMERICA
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Clearwater, Florida
TABLE OF CONTENTS
| Consolidated Balance Sheets at September 30, 2005 (Unaudited) and December 31, 2004 |
3 | |
| 4-5 | ||
| 6-7 | ||
| 8-9 | ||
| 10-12 | ||
2
DIAGNOSTIC CORPORATION OF AMERICA
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Clearwater, Florida
CONSOLIDATED BALANCE SHEETS
| (Unaudited) September 30, |
December 31, |
|||||||
| ASSETS |
||||||||
| Current Assets |
||||||||
| Cash and Cash Equivalents |
$ | 8,873 | $ | 106,924 | ||||
| Prepaid Expenses and Deposits |
650 | 25,750 | ||||||
| Total Assets |
$ | 9,523 | $ | 132,674 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT |
||||||||
| Current Liabilities |
||||||||
| Accounts Payable |
$ | 54,467 | $ | 47,201 | ||||
| Accrued Interest Payable |
14,567 | 1,326 | ||||||
| Accrued Payroll |
41,473 | 41,529 | ||||||
| Convertible Notes Payable |
400,000 | 414,500 | ||||||
| Due to Stockholders |
102,774 | 37,774 | ||||||
| Total Liabilities |
613,281 | 542,330 | ||||||
| Stockholders’ Deficit |
||||||||
| Common Stock - $.001 Par Value; 50,000,000 Shares Authorized; 15,797,871 and 13,267,871 Shares Issued and Outstanding, Respectively |
15,798 | 13,268 | ||||||
| Additional Paid-in Capital |
974,143 | 841,597 | ||||||
| Deficit Accumulated During Development Stage |
(1,593,699 | ) | (1,264,521 | ) | ||||
| Total Stockholders’ Deficit |
(603,758 | ) | (409,656 | ) | ||||
| Total Liabilities and Stockholders’ Deficit |
$ | 9,523 | $ | 132,674 | ||||
The accompanying notes are an integral part of these financial statements.
3
DIAGNOSTIC CORPORATION OF AMERICA
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Clearwater, Florida
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
| Number of Shares |
Common Stock ($0.001 Par |
Additional Paid-In |
Deficit Accumulated During Development |
Total Stockholders’ |
|||||||||||||||
| Inception - October 31, 2000 |
— | $ | — | $ | — | $ | — | $ | — | ||||||||||
| Common Stock Issued in Exchange for Services and Expenses Paid by Shareholders (Galli) |
11,553,100 | 11,553 | 202 | — | 11,755 | ||||||||||||||
| Common Stock Issued in Exchange for Services and Expenses Paid by Shareholders (City View) |
3,425,000 | (1) | 3,425 | — | — | 3,425 | |||||||||||||
| Common Shares Issued for Cash - Private Placement (City View) |
928,500 | (1) | 929 | 308,571 | — | 309,500 | |||||||||||||
| Common Shares Issued for Cash - Private Placement (Global Broadcast) |
562,500 | 563 | 100,688 | — | 101,251 | ||||||||||||||
| Conversion of Notes Payable in Exchange for Stock |
450,000 | 450 | 153,550 | 154,000 | |||||||||||||||
| Shares Issued for Services Rendered |
715,000 | 715 | 30,285 | — | 31,000 | ||||||||||||||
| Shares Issued to Directors for Services Rendered |
100,000 | 100 | 3,900 | — | 4,000 | ||||||||||||||
| Shares Repurchased for Cancellation |
(5,416,229 | ) | (5,417 | ) | (144,583 | ) | — | (150,000 | ) | ||||||||||
| Capital Contribution - Shareholder |
— | — | 200,000 | — | 200,000 | ||||||||||||||
| Net Loss for the Period |
— | — | — | (920,164 | ) | (920,164 | ) | ||||||||||||
| Balance - December 31, 2003 |
12,317,871 | $ | 12,318 | $ | 652,613 | $ | (920,164 | ) | $ | (255,233 | ) | ||||||||
- continued -
| (1) | Shares issued and outstanding have been adjusted to reflect the Plan of Merger effected on March 1, 2002 |
The accompanying notes are an integral part of these financial statements.
4
DIAGNOSTIC CORPORATION OF AMERICA
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Clearwater, Florida
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT - continued
| Number of Shares |
Common Stock ($0.001 Par |
Additional Paid-In |
Deficit Accumulated During Stage |
Total Stockholders’ |
|||||||||||||
| Balance - December 31, 2003 |
12,317,871 | $ | 12,318 | $ | 652,613 | $ | (920,164 | ) | $ | (255,233 | ) | ||||||
| Common Shares Subscribed - Private Placement |
— | — | 10,000 | — | 10,000 | ||||||||||||
| Shares Issued for Services Rendered |
50,000 | 50 | 1,950 | — | 2,000 | ||||||||||||
| Shares Issued to Directors for Services Rendered |
200,000 | 200 | 7,800 | — | 8,000 | ||||||||||||
| Capital Contribution - Shareholder |
— | — | 350 | — | 350 | ||||||||||||
| Net Loss for the Period (Unaudited) |
— | — | — | (242,715 | ) | (242,715 | ) | ||||||||||
| Balance - September 30, 2004 (Unaudited) |
12,567,871 | 12,568 | 672,713 | (1,162,879 | ) | (477,598 | ) | ||||||||||
| Common Shares Issued for Cash - Private Placement |
100,000 | 100 | (100 | ) | — | — | |||||||||||
| Conversion of Notes Payable in Exchange for Stock |
600,000 | 600 | 168,984 | — | 169,584 | ||||||||||||
| Net Loss for the Period (Unaudited) |
— | — | — | (101,642 | ) | (101,642 | ) | ||||||||||
| Balance - December 31, 2004 |
13,267,871 | 13,268 | 841,597 | (1,264,521 | ) | (409,656 | ) | ||||||||||
| Conversion of Notes Payable in Exchange for Stock |
145,000 | 145 | 15,681 | — | 15,826 | ||||||||||||
| Shares Issued for Services Rendered |
1,385,000 | 1,385 | 67,865 | — | 69,250 | ||||||||||||
| Common Shares Issued for Cash - Private Placement |
1,000,000 | 1,000 | 49,000 | — | 50,000 | ||||||||||||
| Net Loss for the Period (Unaudited) |
— | — | — | (329,178 | ) | (329,178 | ) | ||||||||||
| Balance - September 30, 2005 (Unaudited) |
15,797,871 | $ | 15,798 | $ | 974,143 | $ | (1,593,699 | ) | $ | (603,758 | ) | ||||||
The accompanying notes are an integral part of these financial statements.
5
DIAGNOSTIC CORPORATION OF AMERICA
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Clearwater, Florida
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| Period From Date of Inception (October 31, 2000) September 30, 2005 |
Three Months Ended September 30, |
|||||||||||
| 2005 |
2004 |
|||||||||||
| Revenues | $ | 500 | $ | — | $ | — | ||||||
| Expenses |
||||||||||||
| Commissions |
11,250 | — | — | |||||||||
| General and Administrative |
46,947 | 1,767 | 3,932 | |||||||||
| Insurance |
87,241 | 4,267 | 5,366 | |||||||||
| Interest |
77,777 | 14,567 | 7,079 | |||||||||
| Investment Banker |
39,970 | — | — | |||||||||
| Management Fees |
433,392 | 30,000 | 30,000 | |||||||||
| Marketing |
136,165 | — | 30,000 | |||||||||
| Organizational Costs |
164,853 | — | — | |||||||||
| Payroll Taxes |
16,544 | 956 | 956 | |||||||||
| Production Equipment |
24,257 | — | — | |||||||||
| Professional Fees |
210,045 | 32,223 | 4,844 | |||||||||
| Rent |
22,807 | 1,960 | 1,757 | |||||||||
| Salaries |
250,601 | 50,001 | 12,501 | |||||||||
| Telephone |
24,778 | 1,079 | 1,126 | |||||||||
| Transfer Agent Fees |
14,250 | 496 | 2,136 | |||||||||
| Travel |
33,639 | — | 785 | |||||||||
| Total Expenses |
1,594,516 | 137,316 | 100,482 | |||||||||
| Loss Before Other Income and Provisions for Taxes |
(1,594,016 | ) | (137,316 | ) | (100,482 | ) | ||||||
| Other Income |
||||||||||||
| Interest Income |
317 | 22 | — | |||||||||
| Loss Before Provision for Taxes |
(1,593,699 | ) | (137,294 | ) | (100,482 | ) | ||||||
| Provision for Taxes |
— | — | — | |||||||||
| Net Loss for the Period |
$ | (1,593,699 | ) | $ | (137,294 | ) | $ | (100,482 | ) | |||
| Weighted Average Number of Common Shares Outstanding - Basic and Diluted |
12,955,080 | 15,242,599 | 12,636,349 | |||||||||
| Net Loss per Common Share - Basic and Diluted |
$ | (0.12 | ) | $ | (0.01 | ) | $ | (0.01 | ) | |||
The accompanying notes are an integral part of these financial statements.
6
DIAGNOSTIC CORPORATION OF AMERICA
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Clearwater, Florida
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| Nine Months Ended September 30, |
||||||||
| 2005 |
2004 |
|||||||
| Revenues |
$ | — | $ | — | ||||
| Expenses |
||||||||
| General and Administrative |
7,559 | 8,058 | ||||||
| Insurance |
12,931 | 11,823 | ||||||
| Interest |
38,567 | 16,535 | ||||||
| Management Fees |
90,000 | 78,000 | ||||||
| Marketing |
25,915 | 30,000 | ||||||
| Payroll Taxes |
2,954 | 3,058 | ||||||
| Professional Fees |
61,289 | 42,205 | ||||||
| Rent |
4,898 | 5,271 | ||||||
| Salaries |
75,003 | 39,503 | ||||||
| Telephone |
3,597 | 3,439 | ||||||
| Transfer Agent Fees |
6,025 | 3,360 | ||||||
| Travel |
603 | 1,463 | ||||||
| Total Expenses |
329,341 | 242,715 | ||||||
| Loss Before Other Income and Provisions for Taxes |
(329,341 | ) | (242,715 | ) | ||||
| Other Income |
||||||||
| Interest Income |
163 | — | ||||||
| Loss Before Provision for Taxes |
(329,178 | ) | (242,715 | ) | ||||
| Provision for Taxes |
— | — | ||||||
| Net Loss for the Period |
$ | (329,178 | ) | $ | (242,715 | ) | ||
| Weighted Average Number of Common Shares Outstanding - Basic and Diluted |
13,516,900 | 12,488,674 | ||||||
| Net Loss per Common Share - Basic and Diluted |
$ | (0.02 | ) | $ | (0.02 | ) | ||
The accompanying notes are an integral part of these financial statements.
7
DIAGNOSTIC CORPORATION OF AMERICA
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Clearwater, Florida
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Period From Date of Inception (October 31, 2000) September 30, 2005 |
Nine Months Ended September 30, |
|||||||||||
| 2005 |
2004 |
|||||||||||
| Cash Flows from Operating Activities |
||||||||||||
| Net Loss for the Period |
$ | (1,593,699 | ) | $ | (329,178 | ) | $ | (242,715 | ) | |||
| Non-Cash Adjustments: |
||||||||||||
| Organizational Costs Paid by Shareholders |
14,853 | — | — | |||||||||
| Franchise Taxes and Filing Fees Paid by Shareholders |
202 | — | — | |||||||||
| Contributed Services by Shareholders |
125 | — | — | |||||||||
| Common Stock Issued for Services Rendered |
114,250 | 69,250 | 10,000 | |||||||||
| Changes in Assets and Liabilities: |
||||||||||||
| Prepaid Expenses and Deposits |
(650 | ) | 25,100 | — | ||||||||
| Accounts Payable |
54,467 | 7,266 | 14,267 | |||||||||
| Accrued Interest Payable |
39,477 | 14,567 | 14,236 | |||||||||
| Accrued Payroll |
41,473 | (56 | ) | 10,070 | ||||||||
| Due to Stockholders |
102,774 | 65,000 | 11,497 | |||||||||
| Net Cash Flows from Operating Activities |
(1,226,728 | ) | (148,051 | ) | (182,645 | ) | ||||||
| Cash Flows from Investing Activities |
— | — | — | |||||||||
| Cash Flows from Financing Activities |
||||||||||||
| Contribution by Shareholder |
200,350 | — | 350 | |||||||||
| Proceeds from the Issuance of Convertible Notes Payable |
564,500 | — | 400,000 | |||||||||
| Proceeds from the Issuance of Notes Payable |
150,000 | — | — | |||||||||
| Proceeds from the Issuance of Common Stock |
470,751 | 50,000 | — | |||||||||
| Proceeds from Common Stock Subscription |
— | — | 10,000 | |||||||||
| Common Stock Repurchased |
(150,000 | ) | — | — | ||||||||
| Net Cash Flows from Financing Activities |
1,235,601 | 50,000 | 410,350 | |||||||||
| Net Change in Cash and Cash Equivalents |
8,873 | (98,051 | ) | 227,705 | ||||||||
| Cash and Cash Equivalents - Beginning of Period |
— | 106,924 | 60,120 | |||||||||
| Cash and Cash Equivalents - End of Period |
$ | 8,873 | $ | 8,873 | $ | 287,825 | ||||||
- continued -
The accompanying notes are an integral part of these financial statements.
8
DIAGNOSTIC CORPORATION OF AMERICA
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Clearwater, Florida
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - continued
| Period From Date of Inception (October 31, 2000) September 30, 2005 |
Nine Months Ended September 30, | ||||||||
| 2005 |
2004 | ||||||||
| Supplemental Disclosures |
|||||||||
| Interest Paid |
$ | 38,300 | $ | 24,000 | $ | 2,299 | |||
| Income Taxes Paid |
$ | — | $ | — | $ | — | |||
| NON-CASH INVESTING AND FINANCING ACTIVITIES |
|||||||||
| Conversion of Convertible Notes Payable and Accrued Interest Payable in Exchange for Stock |
$ | 185,410 | $ | 15,826 | $ | — | |||
| Conversion of Notes Payable and Accrued Interest Payable in Exchange for Stock |
$ | 154,000 | $ | — | $ | — | |||
The accompanying notes are an integral part of these financial statements.
9
DIAGNOSTIC CORPORATION OF AMERICA
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Clearwater, Florida
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Note A - | Basis of Presentation
The consolidated financial statements of Diagnostic Corporation of America and Subsidiary (the “Company”) included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in conjunction with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and the notes thereto included in the Company’s annual report on Form 10-KSB, and other reports filed with the SEC. | |
| The accompanying unaudited interim consolidated financial statements reflect all adjustments of a normal and recurring nature which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year taken as a whole. Factors that affect the comparability of financial data from year to year and for comparable interim periods include non-recurring expenses associated with the formation of the wholly-owned subsidiary, costs incurred to raise capital, and stock awards. | ||
| Note B - | Principles of Consolidation
The consolidated financial statements include the accounts of Diagnostic Corporation of America and its wholly owned subsidiary, Diagnostic Medical Partners, LLC. All significant intercompany balances and transactions have been eliminated in consolidation. | |
| Note C - | Recently Issued Accounting Standards
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle. These requirements apply to all voluntary changes and changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS 154 is effective for fiscal years beginning after December 15, 2005. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ended December 31, 2006. The Company is currently evaluating the impact of SFAS 154 on its consolidated financial statements. | |
| Note D - | Convertible Notes Payable
During August 2003 and October 2003, the Company entered into loan agreements with a stockholder of the Company in the amount of $7,000 and $7,500, respectively. The notes bore interest at 7% per annum and were due on demand. At the stockholder’s option, the notes were convertible into shares of the Company’s common stock equal in number to the amount determined by dividing each $1,000 of note principal to be converted by the Conversion Price. The Conversion Price was $0.10. | |
| On January 1, 2005, the total $14,500 of notes were converted into 145,000 restricted shares of common stock, along with accrued interest to date of $1,326. | ||
- continued -
10
DIAGNOSTIC CORPORATION OF AMERICA
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Clearwater, Florida
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Note D - | Convertible Notes Payable - continued
During August 2004, the Company entered into a loan agreement with an unrelated third party in the amount of $200,000. The note bears interest at 12% per annum and is secured by 800,000 restricted shares of the Company’s common stock. The note is due in full, together with accrued interest, on September 9, 2005. | |
| At the note holder’s option, the note is convertible into shares of the Company’s common stock equal in number to the amount determined by dividing each $1,000 of note principal to be converted by the Conversion Price at any time during the term of the note. The Conversion Price is $0.25. | ||
| During September 2004, the Company entered into a loan agreement with an unrelated third party in the amount of $200,000. The note bears interest at 12% per annum and is secured by 800,000 restricted shares of the Company’s common stock. The note is due in full, together with accrued interest, on October 6, 2005. | ||
| At the note holder’s option, the note is convertible into shares of the Company’s common stock equal in number to the amount determined by dividing each $1,000 of note principal to be converted by the Conversion Price at any time during the term of the note. The Conversion Price is $0.25. | ||
| In October 2005, the terms of the above two loan agreements were extended to September 30, 2006, the Conversion Price was adjusted to $0.10, and the number of shares pledged to secure the note were increased to 2,000,000. All other terms of the original loan agreements remained unchanged. | ||
| In October 2005, the Company entered into a Consulting Agreement with the note holder of the above two loan agreements. The agreement becomes effective if and when the above notes are converted into stock. The term of the agreement is indefinite, or until the Consultant abandons the services, and includes $60,000 annual compensation, of which $48,000 will be paid in cash and $12,000 will be paid in stock on a quarterly basis. Concurrent with this agreement, the note holder agreed to purchase 725,000 shares of common stock for $36,250. | ||
| Note E - | Common Stock
In May 2005, the Company issued 200,000 shares of its common stock to consultants for services rendered. The Company charged operations in 2005 for $10,000 for the fair value of services rendered and credited common stock and additional paid-in-capital for $200 and $9,800, respectively. | |
| In May 2005, the Company raised capital through a private placement of 1,000,000 shares of its common stock for $50,000 from an existing stockholder. The shares were subsequently issued in July 2005. | ||
| In July 2005, the Company issued 750,000 shares of its common stock to an employee for services rendered. The Company charged operations in 2005 for $37,500 for the fair value of services rendered and credited common stock and additional paid-in-capital for $750 and $36,750, respectively. | ||
| In August 2005, the Company issued 435,000 shares of its common stock to consultants for services rendered. The Company charged operations in 2005 for $21,750 for the fair value of services rendered and credited common stock and additional paid-in-capital for $435 and $21,315, respectively. | ||
11
DIAGNOSTIC CORPORATION OF AMERICA
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Clearwater, Florida
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Note F - | Lease Arrangements
During April 2005, the Company entered into a one-year operating lease for office space with an unrelated entity, with monthly rent of $653, beginning June 1, 2005. The lease requires the payment of property and business taxes, insurance, and maintenance costs in addition to rental payments. The future minimum lease payments are $5,224. | |
| Note G - | Going Concern
The Company’s financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has reported net losses of $1,593,699 through September 30, 2005. As a result, there is an accumulated deficit of $1,593,699 at September 30, 2005. | |
| The Company’s continued existence is dependent upon its ability to raise capital or to successfully market and sell its products. The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. | ||
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Statements made in this quarterly report that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. These forward-looking statements include the plans and objectives of management for future growth of the Company, including plans and objectives related to the consummation of acquisitions and future private and public issuances of the Company’s equity securities. The forward-looking statements included in this quarterly report are based on current expectations that involve numerous risks and uncertainties. Assumptions involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this quarterly report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
The words “we,” “us,” “our,” the “Company,” and “DCA” refer to Diagnostic Corporation of America. The term “DMP” refers to Diagnostic Medical Partners, LLC, our wholly owned subsidiary. The words or phrases “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate,” “continue,” “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions, or the negative thereof, are intended to identify “forward-looking statements.” Actual results could differ materially from those projected in the forward looking statements as a result of a number of risks and uncertainties, including but not limited to: (a) limited amount of resources devoted to achieving our business plan; (b) our failure to implement our business plan within the time period we originally planned to accomplish; (c) because we are seeking to acquire one or more operating businesses which have not yet been identified, you will be unable to determine whether we will ever become profitable; and (d) other risks that are discussed in this quarterly report or included in our previous filings with the Securities and Exchange Commission (“SEC”).
Background
We were incorporated under the laws of the State of Delaware on October 31, 2000 as Galli Process, Inc. On December 31, 2001, Galli Process, Inc. became a majority owned subsidiary of City View TV, Inc., a Florida corporation (“City View”). On February 7, 2002, Galli Process, Inc. changed its name to Global Broadcast Group, Inc. On March 1, 2002, City View merged into Global Broadcast Group, Inc., which was the surviving entity.
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In 2004, we redirected our marketing efforts to focus sales of our products and services to the medical diagnostic industry. In August 2004, we activated a wholly owned subsidiary, Diagnostic Medical Partners, LLC, a Florida limited liability company (“DMP”) for the purpose of marketing and leasing diagnostic medical equipment. On November 12, 2004, we changed the name of the Company to Diagnostic Corporation of America (“DCA”) to more accurately reflect our current and proposed business.
Our executive offices are located at 14375 Myer Lake Circle, Clearwater FL 33760. Our telephone number is (727) 533-8300. Our website is dgcponline.com.
Results of Operations
Quarter ended September 30, 2005 as compared to quarter ended September 30, 2004
Revenues
Revenues for the quarter ended September 30, 2005 were $0, no change from the $0 reported for the quarter ended September 30, 2004.
Selling Expenses
Selling expenses for the quarter ended September 30, 2005 were $0 as compared to $31,000 for the quarter ended September 30, 2004. The decrease was due to a restructuring of commissions during the current year period.
General and administrative expenses
General and administrative expenses for the quarter ended September 30, 2005 were $123,000, an increase of $60,000 or 95% as compared to $63,000 for the quarter ended September 30, 2004. General and administrative expenses primarily include salaries, investment banker fees, management fees, professional fees and general operating expenses. The increase is primarily due to an increase in professional fees paid to consultants for services performed in connection with due diligence work on potential acquisition targets and salaries. The increase was offset by a decrease in transfer agent fees and overall general and administrative expenses.
Interest expense
Interest expense for quarter ended September 30, 2005 was $14,600, an increase of $7,600 compared to $7,000 for the quarter ended September 30, 2004. The increase is due to interest on the convertible notes payable entered into during the third quarter of 2004.
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Nine months ended September 30, 2004 as compared to nine months ended September 30, 2003:
Revenues
Revenues for the nine months ended September 30, 2005 were $0, no change from the $0 reported for the nine months ended September 30, 2004.
Selling Expenses
Selling expenses for the nine months ended September 30, 2005 were $27,000 a decrease of $4,000 or 15%, from $31,000 for the nine months September 30, 2004. The decrease is due to less expenditures for marketing and travel as we focus our operational efforts on finding potential acquisition targets.
General and administrative expenses
General and administrative expenses for nine months ended September 30, 2005 were $264,000 an increase of $69,000 or 35%, from $195,000 for the nine months September 30, 2004. General and administrative expenses primarily include salaries, investment banker fees, management fees, professional fees and general operating expenses. The increase is due to an increase in professional fees, salaries and transfer agent printing fees.
Interest expense
Interest expense for nine months ended September 30, 2005 was $39,000, an increase of $22,000 or 129% compared to $17,000 for the nine months September 30, 2004. The increase is due to interest on the convertible notes payable entered into during the third quarter of 2004.
Liquidity and Capital Resources
As reflected in the Statement of Cash Flows for the nine months ended September 30, 2005 and 2004, net cash flows from operating activities for the nine months ended September 30, 2005 was ($148,000) as compared to ($183,000) for the nine months ended September 30, 2004. The decrease is primarily the result of a 50% decrease in accounts payable, a 100% decrease in accrued payroll offset by a 465% increase in amounts due to stockholders from $11,497 for the nine months ended September 30, 2004 to $65,000 for the nine months ended September 30, 2005.
Net cash flows from financing activities for the nine months ended September 30, 2005 was $50,000, a decrease of $360,000 or 88% from $410,000 for the nine months ended September 30, 2004. The decrease was due to less proceeds received from the issuance of convertible notes payable and sale of shares of common stock in the current year period, as compared to the prior year period.
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Due to the lack of revenue, we have relied upon proceeds realized from the private sale of our common stock, cash contributions from stockholders, advances from a stockholder and the issuance of notes payable to meet our funding requirements. Funds raised by us in the quarter ended September 30, 2005 have been expended primarily in connection with our efforts to identify potential acquisition targets.
As of September 30, 2005, we have reported net losses and show an accumulated deficit of $1,593,699. We had cash on hand of $8,873.
During the next 12 months, we expect to spend between $325,000 and $400,000 on operating expenses. Our significant expenses will be management fees, professional fees, marketing and insurance. To fund operations, we plan to use our existing financial resources, proceeds from the sale of additional common stock, as needed, and stockholder infusion of cash, as needed. We have not entered into any material capital commitments during this quarter other than a consulting agreement, dated October 2005 that is contingent upon the conversion of promissory notes, issued in the third quarter of 2004, into shares of our common stock. We also entered into addendums to two $200,000 convertible secured 12% promissory notes, issued in August and September 2004, respectively, to extend the maturity dates to September 30, 2006. The notes are convertible into our common stock at $.10 per share and are secured by 2,000,000 shares of our common stock.
Financing/Capital Commitments
Our contractual obligations and commitments at September 30, 2005 include our obligations under the terms of a lease agreement with Daktronics, Inc. to sublease approximately 560 sq. feet of new office space. Our total future obligation is approximately $5,224 until May 31, 2006 and we expect to finance this contractual commitment from cash on hand and cash generated from operations.
To fund operations, we plan to use our existing financial resources and proceeds from the sale of additional common stock, if needed. Although we have no formal agreement, our stockholders have committed to providing additional funds in the event funding is not available from other sources. We may also, if necessary, conduct a private placement or public offering of our stock.
Off-Balance Sheet Items
We have no material off-balance sheet arrangements.
Application of Critical Accounting Policies
Our consolidated financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles. Preparing consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Our critical accounting policies include revenue recognition, accounting for income taxes, accounting for earnings per share, and accounting and reporting for development stage companies.
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Revenue Recognition
We recognize revenue in accordance with Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements.” We will recognize revenue when realized or realizable and earned, which is when the following criteria are met: persuasive evidence of arrangement exists; delivery has occurred; the sales price is fixed and determinable; and the ability to collect is reasonably assured.
For sales related to services, we will recognize revenue upon the completion of the installation of all equipment necessary to provide the satellite transmission services. The fees that will be billed monthly to these customers will then be recognized on a monthly basis after the services have been provided. We will only recognize our portion of any such services that relate to a revenue sharing agreement.
For equipment sales, revenue will be recognized when the equipment is shipped to the customer. For equipment leases, rental revenue will be recognized as earned over the term of the operating lease.
Income Taxes
We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” using the asset and liability approach, which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of such assets and liabilities. This method utilizes enacted statutory tax rates in effect for the year in which the temporary differences are expected to reverse and gives immediate effect to changes in income tax rates upon enactment. Deferred tax assets are recognized, net of any valuation allowance, for temporary differences and net operating loss and tax credit carry forwards. Deferred income tax expense represents the change in net deferred assets and liability balances.
Earnings Per Share
Net income (loss) per common share is computed in accordance with SFAS No. 128, “Earnings Per Share”. Basic earnings per common share is calculated by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for each period. Diluted earnings per common share is calculated by adjusting the weighted-average shares outstanding assuming conversion of all potentially dilutive convertible securities. Diluted earnings per share is the same as basic earnings per share for all of the periods presented since the effect of the conversion of the convertible notes payable would have an anti-dilutive effect on earnings per share.
Development Stage
We have operated as a development stage company since inception by devoting substantially all of our efforts to financial planning, raising capital, research and development, and developing markets for our products. Our consolidated financial statements have been prepared in accordance with the accounting and reporting principles prescribed by SFAS No. 7, “Accounting and Reporting by Development Stage Enterprises.”
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Recently Issued Accounting Standards
Several Statements of Financial Accounting Standards were recently issued that apply to us and will likely be adopted by us in 2005. These statements are more fully described in Note C to our consolidated financial statements attached to our Form 10-KSB filed April 15, 2005 and apply to inventory costs, accounting for real estate time sharing transactions, exchanges of non-monetary assets and accounting for stock-based payments and services. We are currently evaluating the impact of these statements on our future consolidated financial statements and operations.
In addition, SFAS No. 154 “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”) issued in May 2005, changes the requirements for the accounting for and reporting of a change in accounting principle. These requirements apply to all voluntary changes and changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS 154 is effective for fiscal years beginning after December 15, 2005 and we are required to adopt these provisions at the beginning of the fiscal year ending December 31, 2006. We are currently evaluating the impact of SFAS 154 on our future consolidated financial statements and operations.
Plan of Operation
Through our wholly owned subsidiary, Diagnostic Medical Partners, a Florida limited liability company, (“DMP”) we continue our placement activities of teleradiology/medical testing equipment and digital motion x-ray (“DMX”) to physicians and medical diagnostic centers. We are convinced that DMX is a valuable diagnostic tool for ligamentous abnormalities, but to date, we have been unable to effectively promote the benefits and efficiencies of the equipment and find that the traditional medical community has yet to embrace the technology. We plan to continue marketing this equipment and will make staff additions in the first quarter of 2006 to further this goal.
We continue to pursue our goal of acquiring several facilities to that we believe will enhance our business and benefit from our management expertise and operating efficiencies. Our due diligence of acquisition candidates, which includes reviews of all financial data, is ongoing. Because the targeted companies are privately owned, the accounting procedures are not in compliance with public standards resulting in more extensive review and due diligence on our part. While we have identified several potential candidates for acquisition, we have been unable to bring them to the “letter of intent” stage and do not expect to do so until such time as we have secured a financial commitment. We continue to actively pursue this plan and anticipate completing due diligence on at least two candidates by the end of the year with a goal of acquiring at least three facilities by the second quarter of 2006.
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We believe that the Company is making progress on all fronts, but it has become increasingly necessary to focus on funding issues. We have focused our acquisition resources on locating centers that need to be upgraded, either to comply with governmental requirements or to increase the number of procedures by having a state-of-the-art piece of equipment. We feel that efforts in this direction will be beneficial to the centers and eventually to the Company.
Employees
We have two full-time employees. We do not anticipate hiring additional employees for the Company in the next 12 months, however, we plan to add staff to DMP, our wholly owned subsidiary in the first quarter of 2006 to assist with the marketing and leasing of teleradiology/medical testing equipment and DMX equipment.
Item 3. Controls and Procedures
There have been no changes in our internal control over financial reporting as defined in Rule 13a-15(f) of the Act that occurred during the quarter ended September 30, 2005, that has materially affected, or is reasonably likely to affect, our internal control over financial reporting. We intend to continually review and evaluate the design and effectiveness of our disclosure controls and procedures and to improve our controls and procedures over time and to correct any deficiencies that we may discover in the future.
As of the date of this report, we are not a party to any pending legal proceeding and are not aware of any threatened legal proceeding.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In July 2005, we issued 750,000 shares of restricted common stock with a fair value of $37,500 or $.05 per share to an employee for services rendered to the Company.
In July 2005, we issued 1,000,000 shares of restricted common stock at $.05 per share in exchange for $50,000 we raised through a private sale of stock to an existing shareholder in May 2005.
In August 2005, we issued 100,000 shares of restricted common stock with a fair value of $5,000 or $.05 per share to Adorno & Yoss, LLP for legal services rendered to the Company.
In August 2005, we issued 275,000 shares of restricted common stock with a fair value of $13,750 or $.05 per share to a consultant for services rendered to the Company.
In August 2005, we issued 60,000 shares of restricted common stock with a fair value of $3,000 or $.05 per share to a consultant for services rendered to DMP, our wholly owned subsidiary.
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The foregoing transactions were exempt from registration under Section 4(2) of the Securities Act. The securities were issued with legends restricting their transferability absent registration or applicable exemptions.
Item 3. Defaults Upon Senior Securities
There have been no material defaults in the payments of principal, interest, a sinking or purchase fund installment, or any other material default not cured within thirty days during the quarter covered by this report.
Item 4. Submission of Matters to a Vote of Security Holders
No matter has been submitted to a vote of security holders through solicitation or proxies during the quarter covered by this report.
None.
Item 6. Exhibits and Reports on Form 8-K
The exhibits required by Item 601 of Regulation S-B, as described in the following index of exhibits, are incorporated by reference or filed with this report as follows:
| EXHIBIT NO. |
DESCRIPTION OF EXHIBIT | |
| 31 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned authorized officers.
| Date: November 10, 2005 |
/s/ Sam Winer | |
| Chief Executive Officer, Chief Financial | ||
| Officer, Secretary and Chairman of the Board of Directors |
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