XOTC:DIIG Quarterly Report 10-Q/A Filing - 3/31/2012

Effective Date 3/31/2012

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q/A

Amendment No. 1


x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended March 31, 2012


¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from _________________ to _______________


Commission File Number 333-136436


DIAGNOSTIC IMAGING INTERNATIONAL CORP.

 (Exact name of registrant as specified in charter)


NEVADA

 

98-0493698

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)


848 N. Rainbow Blvd #2494, Las Vegas, Nevada

 

89107

Address of principal executive offices)

 

(Zip Code)



Registrant's telephone number, including area code   (877) 331-3444



Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 ý    No o


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


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


Large accelerated filer  o

 

Accelerated Filer  o

Non-accelerated filer  o (Do not check if smaller reporting company)

 

Smaller Reporting Company  ý


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


As of August 19, 2012 the Company had outstanding 18,106,481 shares of its common stock.






TABLE OF CONTENTS



ITEM NUMBER AND CAPTION

PAGE

 

 

 

PART I

 

 

 

 

 

  ITEM 1.      Consolidated Financial Statements and Supplementary Data

3

  ITEM 2.      Management’s Discussion and Analysis of Financial Condition And Results of Operations

15

  ITEM 3       Quantitative and Qualitative Disclosures About Market Risk Controls and Procedures

19

  ITEM 4T     Controls and Procedures

19

 

 

 

PART II

 

 

 

 

 

  ITEM 1.       Legal Proceedings

19

  ITEM 2.       Unregistered Sales of Equity Securities and Use of Proceeds

20

  ITEM 3.       Defaults Upon Senior Securities

20

  ITEM 4.       Mine Safety Disclosures

20

  ITEM 5.       Other Information

20

  ITEM 6.       Exhibits

20




2




Item 1. Consolidated Financial Statements


Diagnostic Imaging International Corp.

Consolidated Balance Sheets

 

 

 

 

 

 

 

March 31,

 

December 31,

 

2012

 

2011

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current Assets

 

 

 

 

 

Cash and Cash Equivalents

$

105,190 

 

$

54,504 

Accounts Receivable, net

 

153,192 

 

 

137,744 

Prepaid Expenses

 

7,257 

 

 

7,144 

Total Current Assets

 

265,639 

 

 

199,392 

Property and Equipment

 

 

 

 

 

Equipment

 

70,201 

 

 

103,136 

Less: Accumulated Depreciation

 

(70,201)

 

 

(101,762)

Total Property and Equipment, net

 

 

 

1,374 

Intangibles

 

 

 

 

 

Hospital Contracts

 

794,707 

 

 

794,707 

Non-Compete Contract

 

105,328 

 

 

105,328 

Less: Accumulated Amortization

 

(679,209)

 

 

(650,406)

Total Intangible Assets, net

 

220,826 

 

 

249,629 

Other Assets

 

 

 

 

 

Deposits

 

5,020 

 

 

4,932 

Loans Receivable

 

1,091 

 

 

966 

Total Other Assets

 

6,111 

 

 

5,898 

TOTAL ASSETS

$

492,576 

 

$

456,293 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

Current Liabilities

 

 

 

 

 

Accounts Payable and Accrued Expenses

$

313,968 

 

$

230,873 

Promissory Notes

 

59,106 

 

 

84,590 

Note Payable - Shareholder

 

7,062 

 

 

7,062 

Convertible Note - Shareholder, net short term portion

 

20,614 

 

 

19,960 

Convertible Notes, net short term portion

 

158,000 

 

 

166,333 

Total Current Liabilities

 

558,750 

 

 

508,818 

Long Term Liabilities

 

 

 

 

 

Convertible Note - Shareholder, net

 

 

 

Convertible Notes, net  

 

 

 

Total Long Term Liabilities

 

 

 

Total Liabilities

 

558,750 

 

 

508,818 

Stockholders' Deficit

 

 

 

 

 

Preferred Stock-$0.001 par value; 5,000,000 shares authorized, no shares issued and outstanding

 

 

 

Common Stock-$0.001 par value; 100,000,000 shares authorized, 18,106,481, shares issued and outstanding at March 31, 2012 and December 31, 2011

 

18,107 

 

 

18,107 

Additional Paid-In Capital

 

1,597,589 

 

 

1,597,416 

Accumulated Other Comprehensive Gain

 

4,496 

 

 

3,046 

Accumulated Deficit

 

(1,686,366)

 

 

(1,671,091)

Total Stockholders' Deficit

 

(66,174)

 

 

(52,525)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

492,576 

 

$

456,293 


The accompanying notes are an integral part of these consolidated financial statements.




3





Diagnostic Imaging International Corp.

Consolidated Statements of Operations (Unaudited)

 

 

 

 

 

 

 

Three Months Ended

 

March 31,

 

March 31,

 

2012

 

2011

Revenue:

 

 

 

 

 

Sales

$

810,638 

 

$

902,951 

Less: Cost of Sales

 

665,437 

 

 

752,872 

Gross Margin

 

145,201 

 

 

150,079 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

Advertising

 

1,293 

 

 

840 

Amortization

 

28,803 

 

 

28,803 

Depreciation

 

1,394 

 

 

365 

General and Administrative

 

15,666 

 

 

11,607 

Insurance

 

5,166 

 

 

4,798 

Labor

 

28,809 

 

 

27,859 

Legal and Professional

 

13,885 

 

 

30,198 

Management Fees

 

2,392 

 

 

2,407 

Rent Office Space and Servers

 

23,884 

 

 

24,440 

Travel

 

5,577 

 

 

2,899 

Total Operating Expenses

 

126,869 

 

 

134,216 

Net Gain from Operations

 

18,332 

 

 

15,863 

 

 

 

 

 

 

Other Income and (Expenses):

 

 

 

 

 

Other Income

 

297 

 

 

Foreign Currency Gains/(Losses)

 

(5,025)

 

 

(8,887)

Amortization of Debt Discount

 

(22,260)

 

 

(26,286)

Interest Expense

 

(6,618)

 

 

(11,326)

Total Other Income/(Expenses)

 

(33,606)

 

 

(46,499)

 

 

 

 

 

 

Net Loss

 

(15,274)

 

 

(30,636)

Other Comprehensive Income

 

1,450 

 

 

773 

Total Comprehensive Loss

$

(13,824)

 

$

(29,863)

Basic and Diluted (Loss) per Share

$

(0.001)

 

$

(0.002)

Weighted Average Shares Outstanding:

 

 

 

 

 

Basic and Diluted

 

18,106,481 

 

 

18,056,481 


The accompanying notes are an integral part of these consolidated financial statements.




4





Diagnostic Imaging International Corp.

Consolidated Statements of Cash Flows (Unaudited)

 

 

 

 

 

 

 

Three Months Ended

 

March 31,

 

March 31,

 

2012

 

2011

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net Loss

$

(15,274)

 

$

(30,636)

Adjustments to Reconcile Net Loss to Net Cash and Cash Equivalents Provided By (Used in) Operating Activities:

 

 

 

 

 

   Depreciation

 

1,394 

 

 

365 

   Accrued Interest Converted into note

 

5,787 

 

 

9,354 

   Interest imputed on shareholder loan

 

173 

 

 

180 

   Amortization of Debt Discount

 

22,260 

 

 

26,286 

   Amortization of Intangible Assets

 

28,803 

 

 

28,803 

   Foreign currency transaction Gain/ Loss

 

4,036 

 

 

8,123 

Changes in operating assets and liabilities:

 

 

 

 

 

   Accounts Receivable

 

(15,448)

 

 

(8,885)

   Deposits and prepaid expenses

 

(201)

 

 

2,983 

   Accounts Payable and accrued liabilities

 

83,095 

 

 

12,393 

   Loans Receivable

 

(125)

 

 

(245)

NET CASH AND CASH EQUIVALENTS PROVIDED BY (USED IN) OPERATING ACTIVITIES

 

114,500 

 

 

48,721 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

   Principal payments on Related Party debt

 

(4,054)

 

 

(6,015)

   Principal payments on debt

 

(61,210)

 

 

(34,280)

   Proceeds from debt issuance

 

 

 

49,826 

   Settlement payment

 

 

 

(45,862)

NET CASH AND CASH EQUIVALENTS USED IN FINANCING ACTIVITIES

 

(65,264)

 

 

(36,331)

Gain / (Loss) due to foreign currency translation

 

1,450 

 

 

773 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

50,686 

 

 

13,163 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

54,504 

 

 

19,671 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

105,190 

 

$

32,834 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

   Interest

$

831 

 

$

1,972 

   Income Taxes

$

 

$


The accompanying notes are an integral part of these consolidated financial statements.




5




Diagnostic Imaging International Corp.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2012


Note 1.  Organization and Summary of Significant Accounting Policies


Organization and Basis of Presentation


Diagnostic Imaging International Corp. (“DIIC” or the “Company”), a Nevada Corporation, was incorporated in 2000. In 2005, the Company developed a business plan for private healthcare opportunities in Canada with the objective of owning and operating private diagnostic imaging clinics. In 2009, the Company purchased Canadian Teleradiology Services, Inc. (“CTS”) a company that provides remote reading of diagnostic imaging scans for rural hospitals and clinics. In early 2010, the Company modified its business plan to grow its CTS subsidiary while planning for the acquisition of existing full service imaging clinics located in the United States and exploring the development of new diagnostic imaging technology.


Basis of Presentation


These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in U.S. dollars. The Company’s fiscal year-end is December 31.


Principle of Consolidation


The consolidated financial statements include the accounts of Diagnostic Imaging International, Corp. and our wholly-owned subsidiary, Canadian Teleradiology Services, Inc. (CTS), intercompany accounts and transactions have been eliminated in the consolidated financial statements. CTS’ accumulated earnings prior to the date of acquisition (March 2, 2009) were not included in the consolidated balance sheet.


Reclassification of Accounts  


Certain prior period amounts have been reclassified to conform to March 31, 2012 presentation.


Use of Estimates and Assumptions


The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amount of net sales, expenses and costs recognized during the periods presented. Adjustments made with respect to the use of estimates often relate to improved information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements; accordingly, actual results could differ from these estimates.


Cash and Cash Equivalents


The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.  At March 31, 2012, and December 31, 2011 cash includes cash on hand and cash in the bank.


Accounts Receivable Credit Risk


The allowance for doubtful accounts is maintained at a level sufficient to provide for estimated credit losses based on evaluating known and inherent risks in the receivables portfolio.


Management evaluates various factors including expected losses and economic conditions to predict the estimated realization on outstanding receivables. As of March 31, 2012, and December 31, 2011 there was no allowance for bad debts.  As of March 31, 2012, and December 31, 2011, four customers totaled approximately 90% of the total accounts receivable.   




6




Goodwill and Indefinite Intangible Assets


The Company follows the provisions of Financial Accounting Standard (“FASB”) Accounting Standards Codification (“ASC”) Topic 350 Goodwill and Other Intangible Assets. In accordance with ASC Topic 350, goodwill, representing the excess of the purchase price and related costs over the value assigned to net tangible and identifiable intangible assets of businesses acquired and accounted for under the purchase method, acquired in business combinations is assigned to reporting units that are expected to benefit from the synergies of the combination as of the acquisition date. Under this standard, goodwill and intangibles with indefinite useful lives are not amortized.  The Company assesses goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter, or more frequently if events and circumstances indicate impairment may have occurred in accordance with ASC Topic 350. If the carrying value of a reporting unit's goodwill exceeds its implied fair value, the Company records an impairment loss equal to the difference. ASC Topic 350 also requires that the fair value of indefinite-lived purchased intangible assets be estimated and compared to the carrying value. The Company recognizes an impairment loss when the estimated fair value of the indefinite-lived purchased intangible assets is less than the carrying value.  As of March 31, 2012, the Company has not acquired any indefinite-lived intangible assets and goodwill.


Intangible Assets


CTS, the Company’s operating subsidiary, has contracts with various hospitals in the province of Ontario, Canada.  These contracts are for specific radiology services to be provided for a length of time.  Contracts vary between one and five years. The contracts do not specify any minimum billings for any period of time. These contracts were valued on acquisition using a discounted cash flow model and the fair value as recorded is amortized over the life of the contract using the straight line method.


The Company also attributed value to the non-compete agreement obtained as part of the acquisition agreement with CTS’ former director. This agreement has a life of five years and the value attributed to it will be amortized over the same period.


Amortization of Intangible Assets


The amortization expense of intangible assets with finite useful lives was $28,803 for the three months ended March 31, 2012 and 2011.


For these assets, amortization expense over the next five years is expected to be $220,826.


Year

 

USD

2012

 

$

86,411

2013

 

 

115,213

2014

 

 

19,202

2015

 

 

-

2016

 

 

-

 

 

$

220,826


Revenue Recognition


The Company holds contracts with several hospitals and/or groups of health care facilities to provide Teleradiology services for a specific period of time. The Company bills for services rendered on a monthly basis.  For the three months ended March 31, 2012, CTS held eight contracts; three contracts that are renewable on a year-to-year basis, two contracts that are renewable in 2014 and 2015, one contract that is renewable in 2014, and its two largest contracts, which are each renewable in 2013. As described above in accordance with the requirement of Staff Accounting Bulletin (“SAB”) 104, the Company recognizes revenue when: (1) persuasive evidence of an arrangement exists (contracts); (2) delivery has occurred (monthly); (3) the seller’s price is fixed or determinable (per the customer’s contract, and services performed); and (4) collectability is reasonably assured (based upon our credit policy).


Revenue is accounted for under the guidelines established by SAB 101, Revenue Recognition in Financial Statements, and ASC Topic 605-45, Revenue Recognition – Principal Agent Considerations. The Company has the following indicators of gross revenue reporting: (1) CTS is the primary obligator in the provision of services to the Hospitals under contract, (2) CTS has latitude in establishing price, and negotiating contracts with each hospital, (3) CTS negotiates and determines the service specification to be provided to each hospital client, (4) CTS has complete discretion in supplier selection, and (5) CTS has the credit risk. Accordingly, the Company records revenue of its subsidiary, CTS, at gross.


Cost of Sales


Cost of sales includes fees paid to radiologists for teleradiology services and system usage costs. 




7




Impairment of Long-Lived Assets


In accordance with ASC Topic 360, Property, Plan and Equipment, property, plant, and equipment, and purchased intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Goodwill and other intangible assets are tested for impairment.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.


Amortization and Depreciation


Depreciation and amortization are calculated using the straight-line method over the following useful lives:


3 years

Equipment


2 to 5 years

Hospital Contracts


5 years

Non Compete Contract


Stock based compensation


Beginning January 1, 2006, the Company adopted an accounting standard for stock based compensation. The standard requires all share-based payments to employees (which includes non-employee Board of Directors), including employee stock options, warrants and restricted stock, be measured at the fair value of the award and expensed over the requisite service period (generally the vesting period). The fair value of common stock options or warrants granted to employees is estimated at the date of grant using the Black-Scholes option pricing model. The calculation also takes into account the common stock fair market value at the grant date, the exercise price, the expected life of the common stock option or warrant, the dividend yield and the risk-free interest rate.


The Company from time to time may issue stock options, warrants and restricted stock to acquire goods or services from third parties. Restricted stock, options or warrants issued to other than employees or directors are recorded on the basis of their fair value. The options or warrants are valued using the Black-Scholes option pricing model on the basis of the market price of the underlying equity instrument on the “valuation date,” which for options and warrants related to contracts that have substantial disincentives to non-performance, is the date of the contract, and for all other contracts is the vesting date. Expenses related to the options and warrants are recognized on a straight-line basis over the period which services are to be received.


The Company did not recognize stock-based compensation expenses from stock granted to non-employees for the three months ended March 31, 2012.


The Company did not recognize stock-based compensation expenses from stock granted to employees for the three months ended March 31, 2012.


Fair Value of Financial Instruments


The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties other than in a forced sale or liquidation.


The carrying amounts of the Company’s financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities, and income taxes payable approximate fair value due to their most maturities.


Fair Value Measurements


The hierarchy below lists three levels of fair values based on the extent to which inputs used in measuring fair value is observable in the market. We disclose and categorize each of our fair value measurement items that we recorded at fair value on a recurring basis in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:


• Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. Our Level 1 non-derivative investments primarily include domestic and international equities, U.S. treasuries and agency securities, and exchange-traded mutual funds. Our Level 1 derivative assets and liabilities include those traded on exchanges.




8




• Level 2—inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and forward and spot prices for currencies and commodities. Our Level 2 non-derivative investments consist primarily of corporate notes and bonds, mortgage-backed securities, certificates of deposit, certain agency securities, foreign government bonds, and commercial paper. Our Level 2 derivative assets and liabilities primarily include certain over-the-counter options, futures, and swap contracts.


• Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. Our Level 3 non-derivative assets primarily comprise investments in certain corporate bonds. We value these corporate bonds using internally developed valuation models, inputs to which include interest rate curves, credit spreads, stock prices, and volatilities. Unobservable inputs used in these models are significant to the fair values of the investments. The Company Level 3 derivative assets and liabilities primarily comprise derivatives for foreign equities. In certain cases, market-based observable inputs are not available and the company uses management judgment to develop assumptions to determine fair value for these derivatives.


The company does not have assets and liabilities that are carried at fair value on a recurring basis.


Foreign Currency Translation


The Company’s functional currency for its wholly owned subsidiary, CTS, is the Canadian dollar, and these financial statements have been translated into U.S. dollars. The Canadian dollar based accounts of the Company’s foreign operations have been translated into United States dollars using the current rate method. Assets and liabilities of those operations are translated into U.S. dollars using exchange rates as of the balance sheet date; income and expenses are translated using the weighted average exchange rates for the reporting period. Translation adjustments are recorded as accumulated other comprehensive income (loss), a separate component of stockholders’ deficit.


The Company recognized a foreign currency loss on transactions from operations of $5,025, and $8,887 for the three months ended March 31, 2012 and March 31, 2011, respectively.


The Company recognized a foreign currency translation gain of $1,450 for the three months ended March 31, 2012, and a foreign currency translation gain of $773 for the three months ended March 31, 2011.


Income Taxes


The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes.  This statement prescribes the use of the asset and liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.


Loss Per Share


The Company follows the provisions of ASC Topic 260, Earnings per Share.  Basic net income per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Basic and diluted losses per share are the same as all potentially dilutive securities are anti-dilutive.


Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock or conversion of notes into shares of the Company’s common stock that could increase the number of shares outstanding and lower the earnings per share of the Company’s common stock. This calculation is not done for periods in a loss position as this would be antidilutive.  As of March 31, 2012, there were no stock options or stock awards that would have been included in the computation of diluted earnings per share that could potentially dilute basic earnings per share in the future.




9




The information related to basic and diluted earnings per share is as follows:


 

Three Months Ended

 

March 31,

2012

 

March 31,

2011

Numerator:

 

 

 

 

 

Continuing operations:

 

 

 

 

 

Loss from continuing operations

$

(13,824)

 

$

(29,863)

Total

$

(13,824)

 

$

(29,863)

 

 

 

 

 

 

Net loss

$

(13,824)

 

$

(29,863)

 

 

 

 

 

 

Denominator:

 

 

 

 

 

Weighted average number of shares outstanding – basic and diluted

 

18,106,481 

 

 

18,056,481 

 

 

 

 

 

 

EPS:

 

 

 

 

 

Basic:

 

 

 

 

 

Continuing operations

$

(0.001)

 

$

(0.002)

Net loss

$

(0.001)

 

$

(0.002)

 

 

 

 

 

 

Diluted

 

 

 

 

 

Continuing operations

$

(0.001)

 

$

(0.002)

Net loss

$

(0.001)

 

$

(0.002)


Recent Accounting Updates


Recent accounting updates that the Company has adopted or that will be required to adopt in the future are summarized below.


On January 1, 2011, the Company adopted updates issued by the Financial Accounting Standards Board (FASB) to the authoritative hierarchy of GAAP. These changes establish the FASB Accounting Standards CodificationTM (ASC) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. These changes and the Codification itself do not change GAAP. Other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on the Consolidated Financial Statements.


The Company does not expect the adoption of any other recently issued accounting pronouncements to have a significant impact on its results of operations, financial position or cash flow.


Note 2. Interim Financial Statements


The accompanying interim unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. For further information, refer to the financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.


Note 3.  Property and Equipment


Property and equipment are stated at cost.  Depreciation is calculated on the accelerated method over the estimated useful life of the assets. At March 31, 2012 and December 31, 2011, the major class of property and equipment were as follows:


 

March 31,

2012

 

December 31,

2011

 

Estimated useful lives

Computer/Office Equipment

$

70,201 

 

$

103,136 

 

3 years

Less: Accumulated Depreciation

 

(70,201)

 

 

(101,762)

 

 

Net Book Value

$

 

$

1,374 

 

 


Depreciation expense was $1,394 and $365 for the three months ended March 31, 2012 and 2011, respectively.




10




During the three months ended March 31, 2012 some obsolete equipment for the amount of $34,767 were written off and the related accumulated depreciation was reversed.


Note 4.  Lease Commitments


CTS has a lease for its off-site servers at a cost of approximately $2,600 per month. This lease was accounted for as an operating lease and will expire in June 2012. The lease agreement includes an automatic renewal term of one year at the same monthly lease payment, for a maximum of five annual renewal terms.


On December 30, 2009, CTS entered into a new lease commitment for its office space of approximately $2,450 minimum rental, and approximately $2,850 in utilities, realty taxes, and operating costs, for a total of approximately $5,300 per month. The first lease payment was made in April 2010. This lease was accounted for as an operating lease and will expire in March of 2013.


Expected lease commitments for the next three years:


Year

 

Office Space

 

Servers

 

Total

2012

 

$

63,600 

 

$

31,200 

 

$

94,800 

2013

 

 

15,900 

 

 

31,200 

 

 

47,100 

2014

 

 

 

 

31,200 

 

 

31,200 

 

 

$

79,500 

 

$

93,600 

 

$

173,100 


Note 5.  Accounts Payable and Accrued Liabilities


As of March 31, 2012 and December 31, 2011, the trade payables and accrued liabilities of the Company were $313,968 and $230,873, respectively. Of the total amount as of March 31, 2012, approximately $261,128 is related to CTS ongoing operations. The balance of the accounts is for vendors supplying goods and services used in the normal course of business and.  Of the total amount as of December 31, 2011, approximately $167,878 is related to CTS ongoing operations. The balance of the accounts is for vendors supplying goods and services used in the normal course of business.  


In March 2012, the Ontario Health Insurance Plan (OHIP), which is administered by the provincial government  and responsible for paying for services CTS provides, determined that certain payments made between October 2009 and September 2010 were made in error.  The issue revolves around payments made for STAT or Emergency calls that CTS provided and if we qualified for this benefit payment. This finding was a part of a larger study of “C” code payments to all radiologists in Ontario including CTS radiologists.  OHIP has since determined that our radiologists did not qualify for this renumeration and as such we are paying back the money.  We have recorded expense for the 2011 year of $28,500. This will be paid out over 9 months starting in March 2012. CTS estimates it may have exposure of up to another $10,000.


In light of the issue regarding qualifying for this “C” payment, OHIP revised its schedule payment fees list in October 2010 and added in a “E” code fee to cover Teleradiology and additional numeration for STAT calls and ensuring there were no issues going forward. During the Three months ended March 31, 2012 $2,732 was paid out towards the estimated liability.


Note 6.  Promissory Notes


During the year ended December 31, 2011 the Company entered into additional promissory notes agreements with non – related parties for a total amount of $77,228. The promissory notes are due on December 31, 2012. Interest expense on the promissory notes is accrued at a rate of 10% compounded quarterly. For the year ended December 31, 2011, $7,742 in accrued interest was recorded on the notes.


During the three months ended March 31, 2012, $1,960 in accrued interest was recorded on the notes and $27,446 was paid toward the balance of the notes.


A summary of the promissory notes is as follows:


Promissory Notes  at January 1, 2011

$

Proceeds from Notes Issuances

 

77,228 

Less: Payments in 2011

 

(380)

Added: Accrued Interest

 

7,742 

 

 

 

Promissory notes  at December 31, 2011

$

84,590 

 

 

 

Added: Proceeds from Notes issuance

 

Added: Accrued Interest through March 31, 2012

 

1,960 

Less: Payments through March 31, 2012

 

(27,446)

 

 

 

Promissory notes  at March 31, 2012

$

59,104 




11




Note 7.  Convertible Notes


The convertible notes sold by DIIC in 2010 total $419,440. The convertible notes require principal payments of 3% per month on the outstanding principal balance. Interest on the notes accrues at 10% per annum. The notes and interest are convertible into shares of common stock of the Company at $0.15 per share. In addition, each note holder was given 3.33 shares of Company stock for each $1 of notes purchased.


In accordance with ASC 470 on issuance of the shares given at 3.33 shares of company stock for each $1 of notes purchased, the Company recognized an additional paid in Capital and a discount against the notes for a total of $210,290.  An amortization of the discount for the three months ended March 31, 2012 was $22,260.


For the three months ended March 31, 2012, $3,827 in accrued interest was recorded on the notes.


For the three months ended March 31, 2012, $4,052 in foreign currency loss was recorded on the portion of the notes which is carried in Canadian dollar.


The Details of the Notes are as follows:


Issuance Date

 

December 31, 2011

Balance

 

Three Months ended

March 31, 2011

Accrued Interest

 

Three Months ended

March 31, 2012 Foreign

Exchange Gain/(Loss)

 

Three Months ended

March 31, 2012

(Payments)

 

Three Months Ended

March 31, 2012

Amortization of

Debt Discount

 

March 31, 2012

Balance

 

Maturity date

March 1, 2010

 

$

11,558

 

$

210

 

$

 n/a

 

$

(2,250)

 

$

971

 

$

10,489

 

March 31, 2013

April 14, 2010

 

 

11,801

 

 

228

 

 

 n/a

 

 

(2,250)

 

 

1,267

 

 

11,046

 

April 30, 2013

March 4, 2010

 

 

11,162

 

 

194

 

 

(249)

 

 

(2,251)

 

 

971

 

 

10,324

 

March 31, 2013

March 18, 2010

 

 

11,455

 

 

212

 

 

(265)

 

 

(2,251)

 

 

1,457

 

 

11,138

 

March 31, 2013

March 22, 2010

 

 

11,040

 

 

192

 

 

(246)

 

 

(2,251)

 

 

971

 

 

10,198

 

March 31, 2012

March 1, 2010

 

 

11,189

 

 

194

 

 

(311)

 

 

(2,251)

 

 

971

 

 

10,413

 

March 31, 2013

February 26, 2010

 

 

32,282

 

 

588

 

 

(738)

 

 

(7,653)

 

 

3,788

 

 

29,743

 

March 31, 2013

April 16, 2010

 

 

11,247

 

 

219

 

 

(260)

 

 

(2,251)

 

 

1,457

 

 

10,932

 

March 31, 2013

June 1, 2010

 

 

19,960

 

 

440

 

 

(522)

 

 

(4,054)

 

 

3,746

 

 

20,614

 

June 1, 2012

June 17, 2010

 

 

9,839

 

 

250

 

 

(287)

 

 

(2,251)

 

 

2,081

 

 

10,206

 

June 1, 2012

August 6, 2010

 

 

12,920

 

 

287

 

 

(315)

 

 

(2,251)

 

 

1,041

 

 

12,312

 

September 1, 2012

September 23, 2010

 

 

20,945

 

 

490

 

 

(520)

 

 

(3,602)

 

 

1,665

 

 

20,019

 

October 1, 2012

October 19, 2010

 

 

10,895

 

 

325

 

 

(339)

 

 

(2,251)

 

 

1,873

 

 

11,181

 

November 1, 2012

Total

 

$

186,293

 

$

3,827

 

$

(4,052)

 

$

(37,819)

 

$

22,260

 

$

178,614

 

 


Summary of the Notes is as follows:


 

March 31,

2012

 

December 31,

2011

Convertible notes Beginning Balance

$

220,246 

 

$

349,066 

   Less: unamortized debt discount

 

(11,693)

 

 

(33,955)

Convertible notes principal, net

 

208,553 

 

 

315,111 

 

 

 

 

 

 

   Less: Payments in Period

 

(37,819)

 

 

(151,801)

   Added: Foreign exchange (gain) loss

 

4,052 

 

 

(2,016)

   Added: Accrued interest

 

3,827 

 

 

25,000 

Total Convertible notes, net

$

178,614 

 

$

186,293 

 

 

 

 

 

 

  Less: Short term portion, net

 

158,000 

 

 

166,333 

  Less: Shareholder short term portion, net

 

20,614 

 

 

19,960 

Long term portion, net

$

 

$


Following are maturities of the long –term debt in convertible notes for each of the next 5 years:


 

Principal

Payments

 

Interest

Payments

 

Amortization

of Discount

2012 -  (Before maturity dates)

$

92,771

 

-

 

(11,693)

2012 -  (On maturity dates) *

 

44,840

 

28,279

 

 

2013 – (Before Maturity Dates)

 

23,116

 

 

 

 

2013 -  (On Maturity Dates) *

 

 

 

29,404

 

 

2014

 

 

 

 

 

 

Total

$

160,728

 

57,683

 

(11,693)


*All unpaid principal together with the balance of unpaid and accrued interest that will be due on maturity can be converted into shares by the Holder as set in the conditions of the convertible notes agreement and discussed above.




12




Note 8.  Related Party Transactions


For the three months ended March 31, 2012, Richard Jagodnik (an officer and shareholder of the Company), had a $7,062 note payable from DIIC. The note is non-interest bearing and payable on demand.  


During the second quarter of 2010, Richard Jagodnik loaned DIIC $42,944 under the same terms of convertible notes as described in Note 7 above. The note is carried in Canadian dollars and a foreign exchange loss of $522 was recorded for the three months ended March 31, 2012. For the three months ended March 31, 2011 $440 in accrued interest was recorded and added to the note. The total value of the note, net of discount as at March 31, 2012, is $20,614, including accrued interest.


Summary of related party notes is as follows:


 

 

Shareholder

Note

 

Shareholder

Convertible

Note

Balance at December 31, 2011

 

7,062 

 

19,960 

Added: Accrued Interest

 

 

440 

Added: Foreign Exchange Loss

 

 

522 

Less: Payments

 

 

(4,054)

Added: Amortization of Debt Discount

 

 

3,746 

Balance at March 31, 2012

 

7,062 

 

20,614 


Note 9. Major Customers


For the three months ending March 31, 2012 and 2011, revenue was derived primarily from radiology services.


Major customers representing more than 10% of total revenue for the three months ended March 31, 2012 and 2011 are as follow:


 

 

Three Months Ended

 

Year Ended

 

 

March 31, 2012

 

March 31, 2011

Customers

 

Revenue

amount

 

Revenue

percentage

 

Revenue

amount

 

Revenue

percentage

Contract A

 

$

276,924

 

34%

 

$

232,001

 

26%

Contract B

 

 

-

 

0%

 

 

143,841

 

16%

Contract E

 

 

309,736

 

38%

 

 

301,044

 

34%

Contract F

 

$

137,861

 

17%

 

$

125,594

 

14%


Closing balances of accounts receivable for our major customers were as follow:


 

 

Balance at

 

Balance at

 

 

March 31, 2012

 

December 31, 2011

Customers

 

Accounts

Receivable

Closing

Balance

 

Accounts

Receivable

Percentage

 

Accounts

Receivable

Closing

Balance

 

Accounts

Receivable

Percentage

Contract A

 

$

18,774

 

12%

 

$

19,382

 

14%

Contract E

 

 

55,260

 

36%

 

 

31,603

 

23%

Contract F

 

 

47,030

 

31%

 

 

50,556

 

37%

Contract G

 

 

17,476

 

11%

 

 

21,633

 

16%

Contract H

 

$

12,930

 

8%

 

$

12,269

 

9%


Note 10. Major Vendors


The company has one major vendor providing its system software and support. Expenses relating to this vendor for the three months ended March 31, 2012 and 2011 were $18,406 and $34,404, respectively.


Note 11.  Common Stock Transactions


For the twelve months ended December 31, 2011, 50,000 shares were issued for employee services valued at $1,000 based upon the closing price of our common stock at the grant date.


No shares were issued in the first quarter of 2012.




13




Note 12. Correction of Errors and Restatements


The company has restated its consolidated balance sheet, consolidated statement of operations, and consolidated cash flow for the year ended December 31, 2011 to correct errors in its accounting. The Company has incorrectly calculated CTS income tax payable at the time of filing the December 31, 2011 financial statements, and a provision for Income Taxes was not reflected. In June 2012 CTS income tax return was prepared and taxes payable were calculated and assessed at $40,872. The provision for income taxes, liabilities, and accumulated Deficit were corrected in the December 31, 2011 financial statements.


The following are the previous and corrected balances for the year ended December 31, 2011:


December 31, 2011

Consolidated Financial Statements

 

Line Item

 

Corrected

 

Previously

Stated

 

 

 

 

 

 

 

Consolidated Balance Sheet

 

Total Current Liabilities

 

230,873 

 

190,245 

Consolidated Balance Sheet

 

Total Liabilities

 

508,818 

 

468,190 

Consolidated Balance Sheet

 

Accumulated other comprehensive gain

 

3,046 

 

2,802 

Consolidated Balance Sheet

 

Accumulated deficit

 

(1,671,091)

 

(1,630,219)

Consolidated Balance Sheet

 

Stockholders’ deficit

 

(52,525)

 

(11,897)

Consolidated Statement of Operations

 

Provision for Income Taxes

 

(40,872)

 

Consolidated Statement of Operations

 

Net Loss

 

(84,599)

 

(43,727)

Consolidated Statement of Cash Flow

 

Net Cash provided by operating activities

 

187,407 

 

187,651)


The following are the previous and corrected balances for the three months ended March 31, 2012:


March 31, 2012

Consolidated Financial Statements

 

Line Item

 

Corrected

 

Previously

Stated

 

 

 

 

 

 

 

Consolidated Balance Sheet

 

Total Current Liabilities

 

313,968 

 

273,340 

Consolidated Balance Sheet

 

Total Liabilities

 

558,750 

 

518,122 

Consolidated Balance Sheet

 

Accumulated other comprehensive gain

 

4,496 

 

4,252 

Consolidated Balance Sheet

 

Accumulated deficit

 

(1,686,366)

 

(1,645,494)

Consolidated Balance Sheet

 

Stockholders’ deficit

 

(66,174)

 

(25,546)


Note 13. Subsequent events


The Company has evaluated all events that occurred after the balance sheet date of March 31, 2012 through May 15, 2012. The Management of the Company determined that there were no reportable events that occurred during that subsequent period to be disclosed or recorded.




14




Item 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION


Forward Looking Statements


This Form 10-Q quarterly report of Diagnostic Imaging International Corp. (the “Company”) for the three months ended March 31, 2012, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby.  To the extent that there are statements that are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties.  In any forward-looking statement, where the Company expresses an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will be achieved or accomplished.


The following are factors that could cause actual results or events to differ materially from those anticipated, and include, but are not limited to: variations in revenue; possible inability to attract investors for its equity securities or otherwise raise adequate funds from any source should the Company seek to do so; increased governmental regulation; increased competition; unfavorable outcomes to litigation involving the Company or to which the Company may become a party in the future; and a very competitive and rapidly changing operating environment.


Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. The Company believes the information contained in this Form 10-Q to be accurate as of the date hereof. Changes may occur after that date, and the Company will not update that information except as required by law in the normal course of its public disclosure practices.


Additionally, the following discussion regarding the Company’s financial condition and results of operations should be read in conjunction with the financial statements and related notes contained in Item 1 of Part 1 of this Form 10-Q, as well as the financial statements in Item 8 of Part II of the Company’s Form 10-K for the fiscal year ended December 31, 2011.


Company History


Diagnostic Imaging International Corp., (“DIIC”) a Nevada Corporation, was incorporated in 2000. In 2005, the Company developed a business plan for private healthcare opportunities in Canada with the objective of owning and operating private diagnostic imaging clinics. In 2009, the Company purchased Canadian Teleradiology Services, Inc. (“CTS”) a company that provides remote reading of diagnostic imaging scans for rural hospitals and clinics. In early 2010, the Company modified its business plan to grow its CTS subsidiary while commencing the acquisition of existing full service imaging clinics located in the United States and exploring the development of new diagnostic imaging technology.  


CTS (Business description)


CTS provides leading edge remote radiology (teleradiology) technology to hospitals and practices, on-call, 24 hours a day, 7 days a week. CTS connects clients with a global teleradiology network, providing access to global partner facilities and American and Canadian board-certified radiologists.


CTS offers interpretations of urgent and elective examinations by board certified consultant radiologists. The Company specializes in MRI, CT, PET, US, NM, MAMMO, X-Ray and BMD modalities.  Emergency STAT service is available within one hour, and 24 hours for all other studies. The CTS operation centre coordinates hospitals and radiologists 24 hours a day, 365 days a year.


CTS receives diagnostic imaging scans from hospitals and clinics, and transmits them to approved, certified radiologists, who are typically located in larger urban medical centers. The radiologists read the scans and review the audio information, prepare a medical report, and transmit the reports to the hospitals and clinics. The CTS system of services allows hospitals and clinics access to on-demand radiologists. Joining the CTS team allows the radiologists to make additional income, the flexibility to work from home as opposed to being “locked” in a room in the hospital, and the flexibility to spend time with their families.  This service system also helps hospitals and clinics in remote locations, where it is difficult to hire skilled radiologists, and access professional, skilled radiology staff.


CTS has been providing Teleradiology services in North America since 2005.


CTS offers similar services to other public hospitals, and is looking to expand into other provinces and the U.S.


CTS services include:


Ø   Full PACS Networking and Compatibility *

Ø   Certified Radiologists based in North America and are vetted by the hospital

Ø   24 Hour Turnaround on Non-emergency Reports

Ø   One Hour Turnaround on Emergency Verbal STAT Reports

Ø   References from Client Public Hospitals and Clinics on request


*The Picture Archiving and Communications System (PACS) offers Remote Teleradiology Services to PACS-based hospitals and clinics.




15




Compressed scanned images are transmitted to the CTS Data Centre, including audio dictation, and stored in the PACS system.  Orders and reports are generated automatically.  The scanned images are read, and reports transcribed and completed.  The system has the ability to update reports. Certified Radiologists sign-off on the transcribed final report.


CTS adheres to all standards and Medical Insurance Plans (Ontario and PHIPA (Personal Health Information Protection Act)) guidelines.


About Teleraradiology


Teleradiology is the process of assessing radiological patient images, such as x-rays, CTs, and MRIs, from one location to another for the purposes of interpretation and/or consultation. Radiologists are increasingly a scarce resource given that imaging procedures are growing approximately 15% annually against an increase of only 2% in the radiologist population.


Teleradiology improves patient care by allowing radiologists to provide services without actually having to be at the location of the patient. This is important when a sub-specialist, such as a MRI Radiologist, Neuroradiologist, Pediatric Radiologist, or Musculoskeletal Radiologist is required, as these professionals are generally only located in large metropolitan areas.


Teleradiology allows trained specialists to be available 24/7. The Teleradiology Network utilizes secured network technologies such as the wide area network (WAN) or a local area network (LAN). Highly specialized software is used to transmit the images and enable the Radiologist to effectively analyze what can be hundreds of images for a given study. Technologies such as advanced graphics processing, voice recognition, and image compression are often used in Teleradiology. Through Teleradiology, images can be sent to another part of the hospital, or to other locations around the world.


Through Teleradiology, radiologists can provide a Preliminary Read Report for emergency room purposes, or a Final Read Report for the official patient record and for use in billing.


Preliminary Reports include all pertinent findings and a phone call for any critical findings. For some Teleradiology services, the turnaround time is extremely quick with a one hour standard turnaround which is expedited for critical and stroke studies.


Teleradiology Final Reports can be provided for emergent and non-emergent studies. Final reports include all findings and require access to prior studies and all relevant patient information for a complete diagnosis. Phone calls with any critical findings are proven quality services.


In addition, some teleradiologists are fellowship trained radiologists and have a wide variety of sub-specialty expertise, including such difficult-to-find areas as MRI Radiology, Neuroradiology, and Paediatric Neuroradiology.


Teleradiology Preliminary or Final Reports can be provided for all doctors’ and hospitals’ overflow studies. Teleradiology can be available for intermittent coverage as an extension of practices, which we believe will provide patients with higher quality care.


Magnetic Resonance Imaging (MRI)


MRI is an investigative procedure to detect structural or anatomical problems inside the body without the need for exploratory surgery or more complex invasive tests. MRI scanning is a painless way to "see" through bones.


MRI can be used to detect problems in almost any area - head, brain, eyes, ears, neck, chest, abdomen, pelvis, spine and limbs. It is particularly useful for detecting nerve root compression (pinched, trapped nerves) in the spine by a slipped disc, and is also commonly used to assess major joints (knees and ankles - torn ligaments, meniscus injuries).


MRI has found wide applications in many branches of medicine. Neurology, cardiology, orthopedics, urology and general surgery all use MRI for making and confirming diagnosis.


MRI can also be used in angiography studies without the need for contrast. MRI scans produce detailed pictures of soft body tissue and organs without using ionizing radiation, making early detection of cancers, neurological, and musculoskeletal diseases possible.


Computerized Axial Tomography (CAT) Technology


Patients find CAT scan technology less claustrophobic than an MRI scan, as the tunnel on a CAT machine is much shorter than the tunnel on an MRI scanner.


Computed Tomography scans are a three dimensional "window" into the body through which doctors can see brain, spine, joint and internal organs.


A CAT scan consists of a highly sensitive X-ray beam that is focused on a special plane of the body. As this beam passes through the body, it is picked up by a detector, which feeds the information it receives into a computer. The computer analyzes the information on the basis of tissue density.



16





Computed Tomography (CT)


Computed Tomography (CT) is a method employing tomography created by computer processing. Digital geometry processing is used to generate a three-dimensional image of the inside of an object from a large series of two-dimensional x-ray images taken around a single axis of rotation.


Positron Emission Tomography (PET)


Positron Emission Tomography (PET) is a technique which produces a three-dimensional image or map of functional processes in the body. The system detects pairs of gamma rays emitted indirectly by a positron-emitting (tracer), which is introduced into the body on a biologically active molecule. Images of tracer concentration in 3-dimensional space within the body are then reconstructed by computer analysis. In modern scanners, this reconstruction is often accomplished with the aid of a CT X-ray scan performed on the patient during the same session, in the same machine.


Canadian Government Regulation


Our CTS subsidiary is subject to extensive regulation by the Canadian federal government, as well as the governments of the provinces and territories in which we conduct our business. A diagnostic imaging clinic or hospital must be licensed by the Ministry of Health and sanctioned by the College of Physicians and Surgeons in the province in which it is located.


In addition to extensive existing Canadian government healthcare regulation, there could be at the federal and provincial levels reforms affecting the payment for and availability of diagnostic healthcare services. Limitations on reimbursement amounts and other cost containment pressures could result in a decrease in the revenue we expect to receive for each scan we perform. It is not clear at this time what proposals, if any, will be adopted or, if adopted, what affect these proposals would have on our business.


As our CTS subsidiary operates solely in Canada, we do not expect the recent U.S. healthcare reform legislation to have a material affect on our business or results of operations.


Competition


We compete with numerous public and private diagnostic imaging clinics. We also compete for the hiring of qualified medical experts and MRI technicians to perform and evaluate the diagnostic imaging scans.  Most of our current competitors have, and our future competitors are expected to have, greater resources than us. Therefore, our ability to compete largely depends on our financial resources and capacity.


Customers


Between direct hospital contracts and satellite hospitals that feed into the main hospital, we have a client roster of more than 20 hospitals that rely on CTS. The loss of any of these clients would have a negative impact on the Company.  


Employees


DIIC currently has two full time employees and one part time employee who are the Chief Executive Officer, the Controller, and the Chief Financial Officer, respectively. In addition, the Company employs many contractors who are radiologists, accountants, business development consultants, clerical staff and IT professionals. As we expand our CTS subsidiary, we expect to hire additional employees.


Operations


CTS


In the first quarter of 2012, the Company focused on external marketing for CTS in order to gain new clients.


Diagnostic Imaging Clinics


In the first quarter of 2012 the Company continued to explore opportunities for acquiring an MR clinic.




17




Overall Operating Results:


For the three months ended March 31, 2012, revenues from radiology services were $810,638 compared to $902,951 for the three months ended March 31, 2011, a decrease of 11% or $92,313. This decrease in revenues was due to one of the Company’s client hospitals ending service with CTS, citing a desire by the current team to bring the workload back into the hospital and a change in the workflow within the hospital.  The client hospital has communicated that this change was not a reflection on CTS service.


For the three months ended March 31, 2012 cost of sales incurred were $665,437 compared to $752,872 for the three months ended March 31, 2011, an increase of 13% or $87,435. As a result of the decrease in revenues, we incurred less cost of sales. As a percentage of revenues, our costs of sales slightly decreased from 83% to 82% due to reduction in service fees to our main system service provider.


Operating expenses for the three months ended March 31, 2012 and March 31, 2011, totalled $126,869 and $134,216, respectively.


During the three months ended March 31, 2012, we incurred $30,197 in amortization and depreciation expenses, $13,885 in legal and professional fees, $15,666 in general and administrative costs, $2,392 in management fees, $1,293 in advertising and promotion, $28,809 for labor, and $29,050 for rent and insurance.


During the three months ended March 31, 2011, we incurred $29,168 in amortization and depreciation expenses, $30,198 in legal and professional fees, $11,607 in general and administrative costs, $2,407 in management fees, $840 in advertising and promotion, $27,859 for labor, and $29,238 for rent and insurance.


The Company generated positive cash flow in order to service its obligations but will require substantial investment in the near term in order to expand as we implement our business plan.


Liquidity and Capital Resources:


Prior to 2012, the Company funded its operations and working capital through the sale of common stock.


During the past two years, the Company sold an aggregate of 450,000 shares of common stock in several private offerings to accredited investors, in which it raised an aggregate of $36,000.


The Company’s operations have produced $810,638 of revenues for the three months ended March 31, 2012, which have been used to fund its operating expenses, and to reduce its liabilities. The Company expects that current operations will be able to cover its expenses on an ongoing basis through 2012 and beyond. The Company will need to raise additional capital to expand its business, implement additional aspects of its business plan, and to retire the remaining balance in convertible notes; however, there can be no assurance that the Company will be able to raise the funds necessary to do so.


Since inception, our current Chief Financial Officer (and former Chairman and Chief Executive Officer) has loaned the Company a total of $112,381 to fund our operations. The note is non-interest bearing and payable upon demand. For the three months ended March 31, 2012, the balance outstanding on this note was $7,062.


During the second quarter of 2010, Richard Jagodnik loaned DIIC $42,944 under the same terms of convertible notes as described in Note 7 above. The note is carried in Canadian dollars and a foreign exchange loss of $522 was recorded for the three months ended March 31, 2012. For the three months ended March 31, 2011 $440 in accrued interest was recorded and added to the note. The total value of the note, net of discount as at March 31, 2012, is $20,614, including accrued interest.


In 2010 the Company closed a financing of $419,440 in loans from private investors. The notes are due on various dates in 2012 and 2013 and require principal payments of 3% per month on the outstanding principal balance. Interest on the notes accrues at 10% per annum. The notes and interest are convertible into shares of common stock of the Company at $0.15 per share. In addition, each note holder was given 3.33 shares of Company stock for each $1 of notes purchased. A detailed schedule of the Notes is presented in Note 7 to the consolidated financial statements.


As of March 31, 2012 the Company has promissory notes to non – related parties for a total amount of $59,106. The promissory notes are due on December 31, 2012. Interest expense on the promissory notes is accrued at a rate of 10% compounded quarterly.


As of March 31, 2012, our assets totalled $492,576, which consisted of cash balances, accounts receivable, deposits, intangible assets and computer and office equipment. As of March 31, 2012, our total liabilities consisted of accounts payable and accrued liabilities of $313,968, related party notes payable of $20,614 (net of discount), Promissory notes of $59,106, and non-related party convertible notes of $158,000 (net of discount). As of March 31, 2012, we had an accumulated deficit of $1,686,366 and a working capital deficit of $293,111.




18




We will need significant funds to consummate the acquisition of any additional diagnostic imaging clinics in the future.  We anticipate that any funds raised will be raised through the sale of our securities in public or private placement transactions, and/or the issuance of convertible debentures and/or loans. We have no commitments at this time and we cannot give any assurances that we will be successful in raising adequate funds in order to fully implement our business plan. If we are not able to secure adequate financing or it is offered on unacceptable terms, then our business plan and strategy may have to be modified or curtailed or certain aspects terminated.


Off Balance Sheet Arrangements


The Company’s off-balance sheet arrangements relate to operating lease and are detailed in Note 4 to the consolidated financial statements in this 10-Q.


New Accounting Pronouncements


Diagnostic Imaging does not expect the adoption of recently issued accounting pronouncements to have a significant impact on Diagnostic Imaging’s results of operations, financial position, or cash flow.


Item 3 – Quantitative and Qualitative Analysis of Market Risks


There are no material changes in the market risks faced by us from those reported in our Annual Report on Form 10-K for the year ended December 31, 2011.


Item 4T. – Controls and Procedures


(a)

Evaluation of Disclosure Controls and Procedures.  We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management and our board of directors, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.


We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2012. This evaluation was carried out under the supervision and with the participation of our management, including our chief executive officer (who is also our principal financial and accounting officer). Based upon the evaluation, our chief executive officer concluded that our disclosure controls and procedures were not effective at the date of management’s evaluation through the date of this report.


(b)

Changes in Internal Controls. There was no change in the Company’s internal controls over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to affect the Company’s internal control over financial reporting.


Our determination of non-effectiveness is based upon the number and magnitude of adjustments proposed by our independent auditor during their review of our quarterly results.


1.  As of March 31, 2012, we did not maintain effective controls over the control environment.  Specifically, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 207(d)(5)(ii) of Regulation S-B.  Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.


2.  As of March 31, 2012, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness.


Management is evaluating our control environment and plans to make improvements to the quality of our controls.  When changes are made to our control structure it will be disclosed in future filings.


PART II


ITEM 1.  Legal Proceedings


None




19




ITEM 2.  Unregistered Sales of Equity Securities and Use of Proceeds.


During the quarter ended March 31, 2012 the Company did not issue shares of common stock.


ITEM 3.  Defaults Upon Senior Securities


None


ITEM 4. Mine Safety Disclosures


None


ITEM 5.  Other Information


None


ITEM 6.  Exhibits


(a) Exhibits.


Exhibit No.

Description


31.1

Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002. (1)


31.2

Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002. (1)


32.1

Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002. (1)

_________________

(1)  Filed herewith




20





SIGNATURES


In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 

DIAGNOSTIC IMAGING INTERNATIONAL CORP.

 

 

 

 

 

 

 

By:

/s/ Mitchell Geisler

 

 

Mitchell Geisler

 

 

Chief Executive Officer

 

 

 

 

Date:

August 20, 2012



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


Signature

 

Capacities

 

Date

 

 

 

 

 

/s/ Mitchell Geisler

 

Chief Executive Officer (Principal Executive Officer) and Director

 

August 20, 2012

Mitchell Geisler

 

 

 

 

 

 

 

 

 

/s/ Richard Jagodnik

 

Chief Financial Officer (Principal Financial and Accounting Officer) and Director

 

August 20, 2012

Richard Jagodnik

 

 

 

 




21



XOTC:DIIG Quarterly Report 10-Q/A Filling

XOTC:DIIG Stock - Get Quarterly Report SEC Filing of XOTC:DIIG stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

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