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 June 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)
18495 U.S. Hwy. 19N, Clearwater, Florida 33764
(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 ¨
As of August 8, 2005, there were 15,362,871 shares of our Common Stock, $.001 par value issued and outstanding.
DIAGNOSTIC CORPORATION OF AMERICA
TABLE OF CONTENTS
| Page | ||||
| PART I. | FINANCIAL INFORMATION | |||
| Item 1. | Financial Statements | |||
| Consolidated Balance Sheets at June 30, 2005 (Unaudited) and December 31, 2004 |
1 | |||
| 2-3 | ||||
| 4-5 | ||||
| 6-7 | ||||
| 8-9 | ||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10 | ||
| Item 3. | Controls and Procedures | 16 | ||
| PART II. | OTHER INFORMATION | |||
| Item 1. | Legal Proceedings | 16 | ||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 16 | ||
| Item 3. | Defaults Upon Senior Securities | 17 | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | 17 | ||
| Item 5. | Other Information | 17 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 17 | ||
DIAGNOSTIC CORPORATION OF AMERICA
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Clearwater, Florida
CONSOLIDATED BALANCE SHEETS
| (Unaudited) | ||||||||
| June 30, 2005 |
December 31, 2004 |
|||||||
| ASSETS |
||||||||
| Current Assets |
||||||||
| Cash and Cash Equivalents |
$ | 32,612 | $ | 106,924 | ||||
| Prepaid Expenses and Deposits |
650 | 25,750 | ||||||
| Total Assets |
$ | 33,262 | $ | 132,674 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT |
||||||||
| Current Liabilities |
||||||||
| Accounts Payable |
$ | 49,729 | $ | 47,201 | ||||
| Accrued Interest Payable |
— | 1,326 | ||||||
| Accrued Payroll |
41,473 | 41,529 | ||||||
| Convertible Notes Payable |
400,000 | 414,500 | ||||||
| Due to Stockholders |
67,774 | 37,774 | ||||||
| Total Liabilities |
558,976 | 542,330 | ||||||
| Stockholders’ Deficit | ||||||||
| Common Stock - $.001 Par Value; 50,000,000 Shares Authorized; 13,612,871 and 13,267,871 Shares Issued and Outstanding, Respectively |
13,613 | 13,268 | ||||||
| Additional Paid-in Capital |
917,078 | 841,597 | ||||||
| Deficit Accumulated During Development Stage |
(1,456,405 | ) | (1,264,521 | ) | ||||
| Total Stockholders’ Deficit |
(525,714 | ) | (409,656 | ) | ||||
| Total Liabilities and Stockholders’ Deficit |
$ | 33,262 | $ | 132,674 | ||||
The accompanying notes are an integral part of these financial statements.
- 1 -
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 Value) |
Additional Paid-In Capital |
Deficit Accumulated During Development Stage |
Total Stockholders’ Deficit |
|||||||||||||||
| 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 | ) | ||||||||
| (1) Shares issued and outstanding have been adjusted to reflect the Plan of Merger effected on March 1, 2002 |
- continued - |
The accompanying notes are an integral part of these financial statements.
- 2 -
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 Value) |
Additional Paid-In Capital |
Deficit Accumulated During Development Stage |
Total Stockholders’ Deficit |
|||||||||||||
| Balance - December 31, 2003 |
12,317,871 | $ | 12,318 | $ | 652,613 | $ | (920,164 | ) | $ | (255,233 | ) | ||||||
| Shares Granted for Services Rendered |
— | — | 2,000 | — | 2,000 | ||||||||||||
| Shares Granted to Directors for Services Rendered |
— | — | 8,000 | — | 8,000 | ||||||||||||
| Net Loss for the Period (Unaudited) |
— | — | — | (142,233 | ) | (142,233 | ) | ||||||||||
| Balance - June 30, 2004 (Unaudited) |
12,317,871 | 12,318 | 662,613 | (1,062,397 | ) | (387,466 | ) | ||||||||||
| Common Shares Issued for Cash - Private Placement (Global Broadcast) |
100,000 | 100 | 9,900 | — | 10,000 | ||||||||||||
| Conversion of Notes Payable in Exchange for Stock |
600,000 | 600 | 168,984 | — | 169,584 | ||||||||||||
| Shares Issued for Services Rendered |
50,000 | 50 | (50 | ) | — | — | |||||||||||
| Shares Issued to Directors for Services Rendered |
200,000 | 200 | (200 | ) | — | — | |||||||||||
| Capital Contribution - Shareholder |
— | — | 350 | — | 350 | ||||||||||||
| Net Loss for the Period (Unaudited) |
— | — | — | (202,124 | ) | (202,124 | ) | ||||||||||
| 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 |
200,000 | 200 | 9,800 | — | 10,000 | ||||||||||||
| Common Stock Subscription - Private Placement (Diagnostic) |
— | — | 50,000 | — | 50,000 | ||||||||||||
| Net Loss for the Period (Unaudited) |
— | — | — | (191,884 | ) | (191,884 | ) | ||||||||||
| Balance - June 30, 2005 (Unaudited) |
13,612,871 | $ | 13,613 | $ | 917,078 | $ | (1,456,405 | ) | $ | (525,714 | ) | ||||||
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
CONSOLIDATES STATEMENTS OF OPERATIONS (UNAUDITED)
| Period
From June 30, 2005 |
Three Months Ended June 30, |
|||||||||||
| 2005 |
2004 |
|||||||||||
| Revenues |
$ | 500 | $ | — | $ | — | ||||||
| Expenses |
||||||||||||
| Commissions |
11,250 | — | — | |||||||||
| General and Administrative |
45,180 | 4,199 | 2,798 | |||||||||
| Insurance |
82,974 | 4,267 | 2,727 | |||||||||
| Interest |
63,210 | 12,000 | 4,728 | |||||||||
| Investment Banker |
39,970 | — | — | |||||||||
| Management Fees |
403,392 | 30,000 | 28,000 | |||||||||
| Marketing |
136,165 | 9,540 | — | |||||||||
| Organizational Costs |
164,853 | — | — | |||||||||
| Payroll Taxes |
15,588 | 1,042 | 957 | |||||||||
| Production Equipment |
24,257 | — | — | |||||||||
| Professional Fees |
177,822 | 15,046 | 26,153 | |||||||||
| Rent |
20,847 | 1,567 | 1,757 | |||||||||
| Salaries |
200,600 | 12,501 | 14,501 | |||||||||
| Telephone |
23,699 | 1,472 | 1,856 | |||||||||
| Transfer Agent Fees |
13,754 | 5,317 | 624 | |||||||||
| Travel |
33,639 | 272 | — | |||||||||
| Total Expenses |
1,457,200 | 97,223 | 84,101 | |||||||||
| Loss Before Other Income and Provisions for Taxes |
(1,456,700 | ) | (97,223 | ) | (84,101 | ) | ||||||
| Other Income |
||||||||||||
| Interest Income |
295 | 59 | — | |||||||||
| Loss Before Provision for Taxes |
(1,456,405 | ) | (97,164 | ) | (84,101 | ) | ||||||
| Provision for Taxes |
— | — | — | |||||||||
| Net Loss for the Period |
$ | (1,456,405 | ) | $ | (97,164 | ) | $ | (84,101 | ) | |||
| Weighted Average Number of Common Shares Outstanding - Basic and Diluted |
12,831,574 | 13,522,761 | 12,510,179 | |||||||||
| Net Loss per Common Share - Basic and Diluted |
$ | (0.11 | ) | $ | (0.01 | ) | $ | (0.01 | ) | |||
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 OPERATIONS (UNAUDITED)
| Six Months Ended June 30, |
||||||||
| 2005 |
2004 |
|||||||
| Revenues |
$ | — | $ | — | ||||
| Expenses |
||||||||
| General and Administrative |
5,792 | 4,126 | ||||||
| Insurance |
8,664 | 6,457 | ||||||
| Interest |
24,000 | 9,456 | ||||||
| Management Fees |
60,000 | 48,000 | ||||||
| Marketing |
25,915 | — | ||||||
| Payroll Taxes |
1,998 | 2,102 | ||||||
| Professional Fees |
29,066 | 37,361 | ||||||
| Rent |
2,938 | 3,514 | ||||||
| Salaries |
25,002 | 27,002 | ||||||
| Telephone |
2,518 | 2,313 | ||||||
| Transfer Agent Fees |
5,529 | 1,224 | ||||||
| Travel |
603 | 678 | ||||||
| Total Expenses |
192,025 | 142,233 | ||||||
| Loss Before Other Income and Provisions for Taxes |
(192,025 | ) | (142,233 | ) | ||||
| Other Income |
||||||||
| Interest Income |
141 | — | ||||||
| Loss Before Provision for Taxes |
(191,884 | ) | (142,233 | ) | ||||
| Provision for Taxes |
— | — | ||||||
| Net Loss for the Period |
$ | (191,884 | ) | $ | (142,233 | ) | ||
| Weighted Average Number of Common Shares Outstanding - Basic and Diluted |
13,468,120 | 12,414,025 | ||||||
| Net Loss per Common Share - Basic and Diluted |
$ | (0.01 | ) | $ | (0.01 | ) | ||
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 CASH FLOWS (UNAUDITED)
| Period
From June 30, 2005 |
Six Months Ended June 30, |
|||||||||||
| 2005 |
2004 |
|||||||||||
| Cash Flows from Operating Activities |
||||||||||||
| Net Loss for the Period |
$ | (1,456,405 | ) | $ | (191,884 | ) | $ | (142,233 | ) | |||
| 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 |
55,000 | 10,000 | — | |||||||||
| Common Stock Granted for Services Rendered |
— | — | 10,000 | |||||||||
| Changes in Assets and Liabilities: |
||||||||||||
| Prepaid Expenses and Deposits |
(650 | ) | 25,100 | — | ||||||||
| Accounts Payable |
49,729 | 2,528 | 33,023 | |||||||||
| Accrued Interest Payable |
24,910 | — | 9,456 | |||||||||
| Accrued Payroll |
41,473 | (56 | ) | 13,457 | ||||||||
| Due to Stockholders |
67,774 | 30,000 | 16,240 | |||||||||
| Net Cash Flows from Operating Activities |
(1,202,989 | ) | (124,312 | ) | (60,057 | ) | ||||||
| Cash Flows from Investing Activities |
— | — | — | |||||||||
| Cash Flows from Financing Activities |
||||||||||||
| Contribution by Shareholder |
200,350 | |||||||||||
| Proceeds from the Issuance of Convertible |
— | — | ||||||||||
| Notes Payable |
564,500 | — | — | |||||||||
| Proceeds from the Issuance of Notes Payable |
150,000 | — | — | |||||||||
| Proceeds from the Issuance of Common Stock |
420,751 | — | — | |||||||||
| Proceeds from Common Stock Subscription |
50,000 | 50,000 | — | |||||||||
| Common Stock Repurchased |
(150,000 | ) | — | — | ||||||||
| Net Cash Flows from Financing Activities |
1,235,601 | 50,000 | — | |||||||||
| Net Change in Cash and Cash Equivalents |
32,612 | (74,312 | ) | (60,057 | ) | |||||||
| Cash and Cash Equivalents - Beginning of Period |
— | 106,924 | 60,120 | |||||||||
| Cash and Cash Equivalents - End of Period |
$ | 32,612 | $ | 32,612 | $ | 63 | ||||||
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 CASH FLOWS (UNAUDITED) – continued
| Period From June 30, 2005 |
Six Months Ended June 30, | ||||||||
| 2005 |
2004 | ||||||||
| Supplemental Disclosures | |||||||||
| Interest Paid |
$ | 38,300 | $ | 24,000 | $ | — | |||
| 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.
- 7 -
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. | ||
- 8 -
DIAGNOSTIC CORPORATION OF AMERICA
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
(A DELAWARE CORPORATION)
Clearwater, Florida
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 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. | ||
| The Company’s Securities are not registered under the Securities Act of 1933 and, therefore, no offering may be made which would constitute a “Public Offering” within the meaning of the United States Securities Act of 1933, unless the shares are registered pursuant to an effective registration statement under the Act. | ||
| The stockholders may not sell, transfer, pledge or otherwise dispose of the common shares of the company in the absence of either an effective registration statement covering said shares under the 1933 Act and relevant state securities laws, or an opinion of counsel that registration is not required under the Act or under the securities laws of any such state. | ||
| 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 $7,187. | ||
| 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 $1,456,405 through June 30, 2005. As a result, there is an accumulated deficit of $1,456,405 at June 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. | ||
- 9 -
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 words or phrases “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate,” or “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”).
Summary and Recent Developments
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.
- 10 -
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.
In April 2005, we relocated our executive offices from 18495 U.S. Hwy. 19N, Clearwater, Florida 33764 to 14375 Myer Lake Circle, Clearwater FL 33760. Our telephone number did not change and remains (727) 533-8300. Our website is dgcponline.com.
We have continued our due diligence of acquisition candidates in Florida. Our inquiries are still preliminary at this stage and we have not entered into formal negotiations with any potential target.
Results of Operations
The following discussion is based upon, and should be read in conjunction with our consolidated financial statements for the periods ended June 30, 2005 (unaudited) and December 31, 2004 (audited) and the related statements of operations and statements of cash flows, for the three months and six months ended June 30, 2005 and 2004 and the period from inception (October 31, 2000) through June 30, 2005, together with the notes to the consolidated financial statements. The accompanying consolidated financial statements include the accounts of DCA and DMP, our wholly owned subsidiary.
Quarter ended June 30, 2005 as compared to quarter ended June 30, 2004
Revenues
Revenues for the quarter ended June 30, 2005 were $0, no change from the $0 reported for the quarter ended June 30, 2004.
Selling Expenses
Selling expenses (marketing, commissions and travel) for the quarter ended June 30, 2005 were $9,812 as compared to $0 for the quarter ended June 30, 2004. The increase is due to a redirection of our marketing efforts to focus sales of our products and services to the medical diagnostic industry.
General and administrative expenses
General and administrative expenses for quarter ended June 30, 2005 were $75,411, a decrease of ($3,962) or (5%) as compared to $79,373 for the quarter ended June 30, 2004. General and administrative expenses primarily include salaries, investment banker fees, management fees, professional fees and general operating expenses. We experienced a significant decrease in professional fees down from $26,153 for the quarter ending June 2004 to
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$15,046, a decrease of ($11,107) or (42%) for the quarter ending June 30, 2005. This is due to cost delays associated with our ongoing due diligence of acquisition targets. We expect professional fees to increase once we move towards final negotiations with intended targets. Salaries for this quarter were on track compared to salaries paid during the three months ending June 30, 2004, which included payment of deferred salary due an employee for services rendered in 2003. We realized a slight decrease in rent as a result of relocating to our new space. However, we realized an increase in general administrative expenses of $4,199, an increase of $1,401 or 50% up from $2,798 for the quarter ending June 30, 2004, due to costs associated with our relocation (purchase of new supplies, equipment, accounting software and costs associated with relocating our telephones). Decreases were further offset by a significant increase in transfer agent fees which were $5,317 for the quarter ending June 30, 2005 as compared to $624 for the quarter ending June 30, 2004 or a 752% increase. The higher transfer agent expense is attributed to ongoing costs associated with our engagement of a new transfer agent in the last quarter of 2004 and costs incurred in the reprinting of certificates following our name change in November 2004. We also realized an increase in insurance expenses, $4,297 for the quarter ending June 30, 2005, an increase of $1,540 or 56% up from $2,727 for the quarter ending June 30, 2004. This increase was due to a monthly rate increase from United Healthcare.
Interest expense
Interest expense for the quarter ended June 30, 2005 was $12,000, an increase of $7,272 or 154% compared to $4,728 for the quarter ended June 30, 2004. The increase is due to interest on convertible notes payable that we entered into during the third quarter of 2004.
Six months ended June 30, 2005 as compared to six months ended June 30, 2004
Revenues
Revenues for the six months ended June 30, 2005 were $0, no change from the $0 reported for the six months ended June 30, 2004.
Selling Expenses
Selling expenses (marketing, commissions and travel) for the six months ended June 30, 2005 were up 3811% to $26,518 as compared to $678 for the six months ended June 30, 2004. As indicated in our quarterly comparison, the increase was due to our redirected marketing efforts.
General and administrative expenses
Total general and administrative expenses for six months ended June 30, 2005 were $141,507 an increase of $9,408 or 7% as compared to $132,099 for the six months ended June 30, 2004. We incurred a significant increase of $4,305 or 352% in transfer agent fees which were $5,529 for the six months ending June 30, 2005 as compared to $1,224 for the six months ending June 30, 2004. As indicated in the three month comparison above, the higher transfer agent expense was due to our changing transfer agents in the last quarter of 2004 and increasing
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costs to reprint certificates following our name change in November 2004. We also realized an increase in insurance expenses, $8,664 for the six months ending June 30, 2005, an increase of $2,207 or 34% up from $6,457 for the six months ending June 30, 2004 due to rate increases from our provider, United Healthcare.
Interest expense
Interest expense for the six months ended June 30, 2005 was $24,000, the increase due to interest on convertible notes entered into during the third quarter of 2004. The increase was $14,544 or 154% compared to $9,456 for the six months ended June 30, 2004.
Liquidity and Capital Resources
As reflected in the Statement of Cash Flows for the six months ended June 30, 2005 and 2004, net cash flow from operating activities for the six months ended June 30, 2005 was ($124,312), a decrease of ($64,255) or 107% as compared to ($60,057) for the six months ended June 30, 2004. We realized a significant decrease in accounts payable from $33,023 for the period ended June 30, 2004, to $2,528 for the period ended June 30, 2005. Our accrued interest payable was $0 for the period June 30, 2005, as compared to $9,456 for the period ended June 30, 2004. Accrued payroll was ($56) for the period ended June 30, 2005 compared to $13,457 as of June 30, 2004. The changes in assets and liabilities is offset by an increase in prepaid expenses of $25,100 in connection with our redirected marketing efforts compared to $0 for the six months ending June 30, 2004, and amounts due to stockholders of $30,000 as of the six months ending June 30, 2005 compared to $16,240 for the six months ending June 30, 2004.
We continue to rely upon proceeds realized from the issuance of notes payable and stock sold to an existing shareholder to meet our funding requirements. Funds raised by us have been redirected to fund our efforts to identify and acquire independent imaging centers. As of June 30, 2005, we reported net losses of ($191,884) and show an accumulated deficit since inception of ($1,456,405).
Between now and the end of the year, we expect to spend between $305,000 and $423,000 on operating expenses. The significant expenses will be professional fees which will include audit and accounting fees associated with planned acquisitions, management fees, salaries, marketing fees, interest, and insurance. As of the June 30, 2005, we had cash on hand of $32,612.
Financing/Capital Commitments
Our contractual obligations and commitments at June 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 $7,187 until May 31, 2006 and we expect to finance this contractual commitment from cash on hand and cash generated from operations.
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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.
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.
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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”.
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” issued in May 2005 (“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 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 to market and lease equipment for teleradiology and medical testing to physicians and medical diagnostic centers. We are also actively marketing and selling digital motion x-ray (“DMX”) systems through an agreement with DMX Works, Inc. We receive a percentage of the purchase price of each DMX unit we place and through our subsidiary, DMP and will lease DMX units to diagnostic imaging facilities on a “use” lease basis.
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As of the date of this quarterly report, we have been unable to place any DMX units. Our prospective lessees have been focusing on becoming full modality centers, since most managed care plans, as well as government-sponsored plans only want to refer patients to full modality centers. We feel that our efforts are better served by marketing conventional CT scan and other equipment. Currently, we are seeking contracts with manufacturers to market these units. It is unknown at this time, whether or not we will be able to market “use” leases on this equipment.
The main focus of the company is to acquire and manage outpatient diagnostic healthcare facilities and provide them with management expertise and operating efficiencies. We continue to actively pursue this plan. Our goal of consolidating several facilities and building a larger network will come closer to fruition as soon as financing is in place. As of the date of this quarterly report, our due diligence of acquisition candidates in Florida is ongoing and our queries remain preliminary. We intend to complete our due diligence and anticipate acquiring at least three facilities within the next nine months.
Employees
We have two full-time employees. During the next 12 months, we do not anticipate hiring more than two additional employees.
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 June 30, 2005, that has materially affected, or is reasonably likely to affect, our internal control over the 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 May 2005, we issued 100,000 shares of restricted common stock with a fair value of $5,000 or $.05 per share each to Private Capital Group, Inc. for consulting services rendered to the Company and to Island Stock Transfer, our transfer agent, for services rendered to the Company. The securities were issued with legends restricting their transferability absent registration or applicable exemptions.
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In May 2005, we sold 1,000,000 shares of restricted common stock in a private placement to an existing stockholder for $50,000 or $.05 per share. The shares were issued in July 2005. The transaction was 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: August 12, 2005 |
/s/ Sam Winer | |
| Chief Executive Officer, Chief Financial Officer, | ||
| Secretary and Chairman of the Board of Directors |
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