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EX-31 - EXHIBIT 31.1 - MEDICAL IMAGING CORP.exhibit311.htm
EX-31 - EXHIBIT 31.2 - MEDICAL IMAGING CORP.exhibit312.htm
EX-32 - EXHIBIT 32.1 - MEDICAL IMAGING CORP.exhibit321.htm

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 June 30, 2010


¨ 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 x    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 o    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  ¨

 

Accelerated Filer  ¨

Non-accelerated filer  ¨ (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 x


As of August 11, 2010 the Company had outstanding 18,756,781 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

17

  ITEM 4T

Controls and Procedures

18

 

 

 

PART II

 

 

 

 

 

  ITEM 1.

Legal Proceedings

18

  ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

18

  ITEM 3.

Defaults Upon Senior Securities

19

  ITEM 4.

Submission of Matters to a Vote of Security Holders

19

  ITEM 5.

Other Information

19

  ITEM 6.

Exhibits

19





2




Item 1. Consolidated Financial Statement


Diagnostic Imaging International Corp.

Consolidated Balance Sheets

 

 

 

 

 

 

 

June 30,

 

December 31,

 

2010

 

2009

ASSETS

(Unaudited)

 

 

 

Current Assets

 

 

 

 

 

Cash

$

45,199 

 

$

18,076 

Accounts Receivable, net

 

84,587 

 

 

73,390 

Prepaid Expenses

 

5,469 

 

 

Total Current Assets

 

135,255 

 

 

91,466 

Property and Equipment

 

 

 

 

 

Equipment

 

98,932 

 

 

100,243 

Less: Accumulated Depreciation

 

(94,468)

 

 

(93,806)

Total Property and Equipment, net

 

4,464 

 

 

6,437 

Intangibles

 

 

 

 

 

Hospital Contracts

 

794,707 

 

 

794,707 

Non Compete Contract

 

205,328 

 

 

205,328 

Less: Accumulated Amortization

 

(464,765)

 

 

(346,754)

Total Intangible Assets, net

 

535,270 

 

 

653,281 

Other Assets

 

 

 

 

 

Deposits and Prepaid Expenses

 

15,478 

 

 

1,911 

Restricted Deposits

 

141,435 

 

 

Loans Receivable

 

24,698 

 

 

Total Other Assets

 

181,611 

 

 

1,911 

TOTAL ASSETS

$

856,600 

 

$

753,095 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current Liabilities

 

 

 

 

 

Accounts Payable and Accrued Expenses

$

255,118 

 

$

223,494 

Promissory Notes

 

138,925 

 

 

286,650 

Loans Payable

 

10,305 

 

 

29,559 

Note Payable – Shareholder

 

7,282 

 

 

7,282 

Total Current Liabilities

 

411,630 

 

 

546,986 

Long Term Liabilities

 

 

 

 

 

Convertibles note – shareholder, net

 

14,854 

 

 

Convertible notes, net

 

132,195 

 

 

Loans Payable

 

4,440 

 

 

6,200 

Total Long Term Liabilities

 

151,489 

 

 

6,200 

Total Liabilities

 

563,119 

 

 

553,186 

Stockholders’ Equity

 

 

 

 

 

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, 18,756,781 and 16,531,256 shares issued and outstanding at June 30, 2010 and December 31, 2009 respectively

 

18,713 

 

 

16,532 

Additional Paid-In Capital

 

1,651,860 

 

 

1,268,245 

Contingent Shares

 

 

 

150,000 

Comprehensive Loss Accumulated

 

(6,570)

 

 

(3,030)

Accumulated Deficit

 

(1,370,522)

 

 

(1,231,841)

Total Stockholders’ Equity (Deficit)

 

293,481 

 

 

199,904 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

856,600 

 

$

753,095 



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

 

Six months ended

 

June 30,

 

June 30,

 

June 30,

 

June 30,

 

2010

 

2009

 

2010

 

2009

Revenue:

 

 

 

 

 

 

 

 

 

 

 

Sales

$

733,526 

 

$

426,252 

 

$

1,397,263 

 

$

520,691 

Cost of sales

 

605,634 

 

 

351,509 

 

 

1,145,952 

 

 

428,073 

Gross Margin

 

127,892 

 

 

74,743 

 

 

251,311 

 

 

92,618 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

Advertising

 

1,531 

 

 

97,433 

 

 

20,934 

 

 

198,397 

Amortization

 

36,495 

 

 

104,026 

 

 

118,011 

 

 

138,701 

Depreciation

 

1,069 

 

 

4,456 

 

 

1,940 

 

 

4,496 

General and Administrative

 

16,892 

 

 

28,585 

 

 

33,795 

 

 

39,926 

Insurance

 

3,809 

 

 

4,558 

 

 

7,319 

 

 

5,588 

Labor

 

25,842 

 

 

12,087 

 

 

50,225 

 

 

12,690 

Legal and professional

 

65,516 

 

 

129,386 

 

 

100,503 

 

 

171,182 

Management fees

 

2,321 

 

 

150,000 

 

 

3,848 

 

 

150,000 

Rent office space

 

14,583 

 

 

6,436 

 

 

19,333 

 

 

6,436 

Rent  Servers

 

7,541 

 

 

 

 

15,082 

 

 

Travel

 

940 

 

 

2,193 

 

 

2,218 

 

 

3,533 

Stock Option Expense

 

 

 

9,000 

 

 

 

 

9,000 

Total Operating Expenses

 

176,539 

 

 

548,160 

 

 

373,208 

 

 

739,949 

Operating Loss

 

(48,647)

 

 

(473,417)

 

 

(121,897)

 

 

(647,331)

 

 

 

 

 

 

 

 

 

 

 

 

Other Income and (Expenses):

 

 

 

 

 

 

 

 

 

 

 

Amortization of Debt Discount

 

(18,112)

 

 

-

 

 

(21,950)

 

 

-

Foreign Currency Gains/(Losses)

 

13,798 

 

 

 

 

 

5,120 

 

 

Interest Expense

 

(11,456)

 

 

(13,876)

 

 

(19,055)

 

 

(16,862)

Total Other Income/(Expenses)

 

(15,770)

 

 

(13,876)

 

 

(35,885)

 

 

(16,862)

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

(64,417))

 

 

(487,293)

 

 

(157,782)

 

 

(664,193)

Comprehensive Income/(Loss)

 

(344)

 

 

(5,178)

 

 

(3,540)

 

 

(2,643)

Total comprehensive Loss

$

(64,761)

 

$

(492,471)

 

$

(161,322)

 

$

(666,836)

Basic and Diluted Loss per Share

$

(0.004)

 

$

(0.030)

 

$

(0.009)

 

$

(0.050)

Weighted Average Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

18,273,199 

 

 

14,820,588 

 

 

17,564,025 

 

 

12,912,918 


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



4





Diagnostic Imaging International Corp.

Consolidated Statements of Cash Flows (Unaudited)

 

 

 

 

 

 

 

Six Months Ended

 

June 30,

 

June 30,

 

2010

 

2009

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net Loss

$

(157,782)

 

$

(664,193)

Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:

 

 

 

 

 

Depreciation

 

1,940 

 

 

4,496 

Stock Option Expense

 

 

 

9,000 

Interest imputed on shareholder loan

 

364 

 

 

11,124 

Interest imputed on promissory  notes

 

9,568 

 

 

Amortization of Debt Discount

 

21,949 

 

 

Shares issued for services

 

16,200 

 

 

326,700 

Amortization of Intangible Assets

 

118,011 

 

 

138,701 

Foreign currency Translation Gain/ Loss

 

(8,968)

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts Receivable

 

(11,197)

 

 

(27,487)

Deposits and prepaid expenses

 

(19,036)

 

 

(6,911)

Accounts Payable and accrued liabilities

 

39,461 

 

 

56,779 

Loans Receivable

 

(24,698)

 

 

NET CASH USED IN OPERATING ACTIVITIES

 

(14,188)

 

 

(151,791)

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Increase in Restricted Cash

 

(141,435)

 

 

Acquisition of CTS

 

 

 

(313,185)

NET CASH  USED IN  INVESTING ACTIVITIES

 

(141,435)

 

 

(313,185)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from Sale of Common Stock

 

36,000 

 

 

608,138 

Proceeds from related party debt

 

42,944 

 

 

19,680 

Principal payments on Related Party debt

 

 

 

(58,887)

Principal payments on debt

 

(191,745)

 

 

(68,042)

Proceeds from debt issuance

 

299,087 

 

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

186,286 

 

 

500,889 

 

 

 

 

 

 

Gain / (Loss) due to foreign currency translation

 

(3,540)

 

 

(2,643)

NET CHANGE IN CASH

 

27,123 

 

 

33,270 

CASH AT BEGINNING OF PERIOD

 

18,076 

 

 

427 

CASH AT END OF PERIOD

$

45,199 

 

$

33,697 

Cash paid during the year for:

 

 

 

 

 

Interest

$

3,279 

 

$

6,578 

Income Taxes

$

 

$

Non-cash financing and investing activities:

 

 

 

 

 

Issuance of Earn-Out shares

$

150,000 

 

$

Purchase of business by issuing common stock

$

 

$

150,000 

Contingent issuance of common stock on acquisition

$

 

$

150,000 

Issuance of promissory note in connection with a business acquisition

$

 

$

234,889 


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




5




Diagnostic Imaging International Corp.

Notes to consolidated statements

June 30, 2010 (Unaudited)


Note 1  Organization and Summary of Significant Accounting Policies


Organization and Basis of Presentation


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 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.


In the first quarter of 2009 the Company began to generate revenue. Therefore, in accordance with SFAS 7, “Accounting and Reporting by Development Stage Enterprises”, the Company is no longer required to disclose a cumulative amount for development stage activities, for comparative purposes, in its Statements of Operations and Statements of Cash Flows.


Principle of Consolidation


The consolidated financial statements include the accounts of Diagnostic Imaging International, Corp. and Canadian Teleradiology Services, Inc. Intercompany accounts and transactions have been eliminated in the consolidated financial statements. CTS’ operations were included as of the beginning of the year in the consolidated statement of operations for the three months and six months ended June 30, 2010. CTS’ accumulated earnings prior to the date of acquisition March 02, 2009 were not included in the consolidated statement of Balance sheet. A consolidation adjustment was made and reflected in retained earnings on the consolidated balance sheet for the quarter ended June 30, 2010.


Reclassification of Accounts  


Certain prior period amounts have been reclassified to conform to June 30, 2010 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 and expenses 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.


These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting period.  Management evaluates these estimates and assumptions on a regular basis.  Actual results could differ from those 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 June 30, 2010, and December 31, 2009 cash and cash equivalents include 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 June 30, 2010, and December, 31, 2009 there was no allowance for bad debts.




6




Goodwill and Other Intangible Assets


The Company adopted Statement of Financial Accounting Standard (“FASB”) Accounting Standards Codification (“ASC”) Topic 350 Goodwill and Other Intangible Assets, effective July 1, 2002.  In accordance with (“ASC Topic 350”) "Goodwill and Other Intangible Assets," goodwill, represents 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 no longer 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 June 30, 2010, 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.


The accumulated amortization of intangible assets with finite useful lives was $464,765 and $138,702 in June 30, 2010 and 2009, respectively.


For these assets, amortization expense over the next five years is expected to be $653,283.


Year

 

USD

2010

 

$

191,003

2011

 

 

145,983

2012

 

 

145,983

2013

 

 

145,983

2014

 

 

24,331

 

 

$

653,283


Restricted Deposit


In relation to the August 13, 2009, Statement of Claim, that the Company filed in the Ontario Superior Court of Justice, Case Number CV-09384970, against Syed Haider, Dawn Haider, and Quinte Magnetic Resonance Imaging Inc. (“Vendors”), the court ruled that the Company should pay $300,000 CDN into court in case Mr. Haider is successful in proving his counter claims in court. The ruling called for a one-time payment of $150,000 CDN, and bi-monthly payments of $6,500 CDN, until $300,000 CDN in total is on deposit with the court. The funds are held by the court in a non-interest baring account. Mr. Haider gave an undertaking to the court to pay any damages that the Company suffers as a result of the Company not having access to the funds in the case that the Company is not liable to Mr. Haider for any portion of the money. As of June 30, 2010 the Company has paid $150,000 CDN into court.


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 six months ended June 30, 2010, CTS held seven contracts; three contracts that are renewable on a year-to-year basis, one contract which is a five-year contract  renewable in 2014,one contract which is a five-year contract  renewable in 2015, and its two largest contracts, which are five-year contracts, each renewable in 2013. As described above in accordance with the requirement of 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 (4) collectability is reasonably assured (based upon our credit policy).




7




Impairment of Long-Lived Assets


In accordance with ASC Topic 3605, long-lived assets, such as 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. There were no events or changes in circumstances that necessitated an impairment of long lived assets.


Amortization and Depreciation


In previous reporting periods the Company has presented the amortization and depreciation expenses above the gross profit line to maintain consistency with previous reporting. As of the third quarter of 2009, the Company has decided to classify amortization and depreciation as operating expenses to better reflect the nature of the expenses.


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 or the vesting period, whichever is shorter.


The Company recognized stock-based compensation expenses from stock granted to non-employees for the six months ended June 30, 2010 of $16,200.  


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 categorize each of our fair value measurements 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.


• 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.




8




• 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 do not have assets and liabilities that are carried at level 1, 2 or 3.  


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 shareholders’ equity.


The Company recognized a foreign currency gain from operations of $5,120, and $0 for the six months ended June 30, 2010 and June 30, 2009, respectively.


The Company recognized a foreign currency translation loss of $(3,540), and $(2,643) for the six months ended June 30, 2010 and June 30, 2009, respectively.


Income Taxes


The Company accounts for income taxes in accordance with ASC Topic 740, formerly Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for 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, formerly SFAS No. 128, Earnings per Share.  Basic net loss 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.




9




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 June 30, 2010, 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.  The information related to basic and diluted earnings per share is as follows:


 

Six Months Ended

 

June 30

2010

 

June 30

2009

Numerator:

 

 

 

 

 

Continuing operations:

 

 

 

 

 

Loss from continuing operations

$

(161,322)

 

$

(666,836)

Total

$

(161,322)

 

$

(666,836)

 

 

 

 

 

 

Net loss

$

(313,032)

 

$

(666,836)

 

 

 

 

 

 

Denominator:

 

 

 

 

 

     Weighted average number of shares outstanding – basic and diluted

 

17,564,025 

 

 

12,912,918 

 

 

 

 

 

 

EPS:

 

 

 

 

 

Basic:

 

 

 

 

 

Continuing operations

$

(0.009)

 

$

(0.050)

Net loss

$

(0.009)

 

$

(0.050)

 

 

 

 

 

 

Diluted

 

 

 

 

 

Continuing operations

$

(0.009)

 

$

(0.050)

Net loss

$

(0.009)

 

$

(0.050)


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 June 30, 2010, 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 Condensed Consolidated Financial Statements.


Updates issued but not yet adopted


In October 2009, the FASB issued updates to revenue recognition guidance. These changes provide application guidance on whether multiple deliverables exist, how the deliverables should be separated, and how the consideration should be allocated to one or more units of accounting.


This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available.


The Company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified after January 1, 2011; however, earlier application is permitted. The Company has not determined the impact that this update may have on its 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.




10




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 six and three month period ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. 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, 2009.


Note 3. Correction of Errors and Restatements


The Company has restated its consolidated balance sheet and consolidated statement of operations for the three and six months ended June 30, 2010 to correct errors in its accounting. As part of the company’s agreements for convertible notes sold for the three and six months ended June 30, 2010 the Company issued 566,100 and 1,140,525 shares of common stock valued at $93,240, and $173,660, respectively based upon the closing price of our common stock at the grant date. The amount was initially recorded as an interest expense on the shares issuance date. During the Company’s December 31, 2010 audit, an adjusting entry was made to reflect the amount relating to the share issuances as a discount on the convertible notes as opposed to interest expense. Therefore, the interest expense as well as the net value of the convertible notes were reduced by the same amount. In addition, an amortization of the debt discounts for the three and six months ended June 30, 2010 of $18,112 and $21,950 respectively was recorded.


Total liabilities and accumulated deficit were corrected in the June 30, 2010 consolidated financial statements.


The following are the previous and corrected balances for the three and six months ended June 30, 2010:


June 30, 2010

Consolidated Financial Statements

 

Line Item

 

Corrected

 

Previously Stated

 

Change

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheet

 

Total Long Term Liabilities

 

151,489 

 

303,199 

 

(151,710)

Consolidated Balance Sheet

 

Total Liabilities

 

563,119 

 

714,829 

 

(151,710)

Consolidated Balance Sheet

 

Accumulated Deficit

 

(1,370,522)

 

(1,522,232)

 

151,710 

Consolidated Balance Sheet

 

Stockholders’ Equity

 

293,481 

 

141,771 

 

151,710 

Consolidated Three months Ended Income Statement

 

Other Income / (Expenses)

 

(15,770)

 

(90,898)

 

75,128 

Consolidated Three months Ended Income Statement

 

Net Loss

 

(64,761)

 

(139,889)

 

75,128 

Consolidated Six Months Ended Income Statement

 

Other Income / (Expenses)

 

(35,885)

 

(187,595)

 

151,710 

Consolidated Six Months Ended Income Statement

 

Net Loss

 

(161,322)

 

(313,032)

 

151,710 


Note 4.  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 June 30, 2010 and December 31, 2009, the major class of property and equipment were as follows:


 

June 30,

2010

 

December 31,

2009

 

Estimated useful lives

Computer/Office Equipment

$

98,932 

 

$

100,243 

 

3 years

Less: Accumulated Depreciation

 

(94,468)

 

 

(93,806)

 

 

Net Book Value

$

4,464 

 

$

6,437 

 

 


Depreciation expense was $1,940 and $4,496 for the six months ended June 30, 2010 and June 30, 2009, respectively.


Note 5.  Lease Commitments


CTS, a wholly owned subsidiary of the Company has a lease for its off-site servers at a cost of $2,600 CAD per month. This lease was accounted for as an operating lease and will expire in June of 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 $2,452 CAD minimum rental, and approximately $2,839 CAD in utilities, realty taxes, and operating costs; for a total of $5,292 CAD 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.




11




Expected Lease commitments for the next three years:


Year

 

Office Space

 

Servers

 

CAD

 

USD

2010

 

$

45,837 

 

$

31,200 

 

$

77,037 

 

$

72,638 

2011

 

 

63,504 

 

 

31,200 

 

 

94,704 

 

 

89,296 

2012

 

 

63,504 

 

 

31,200 

 

 

94,704 

 

 

89,296 

 

 

$

172,845 

 

$

93,600 

 

$

266,445 

 

$

251,230 


Note 6.  Business Combination


On March 2, 2009, the Company acquired 100% of Canadian Teleradiology Services Inc. (“CTS”) for consideration including cash and stock which is described in detail below. Accordingly, the results of operations for CTS have been included in the accompanying consolidated financial statements from that date forward. CTS provides remote radiology (teleradiology) services to hospitals and practices, on-call 24 hours a day, seven days a week.  CTS connects its clients with a teleradiology network, providing access to partner facilities and American and Canadian board-certified radiologists.


This purchase has been accounted for as a business purchase pursuant to the new business combination standard adopted in 2009.  The 500,000 shares issued pursuant to the acquisition were valued based on the closing price of our common stock at the date of the announcement.  An additional 500,000 shares have been reflected as part of the non-compete value based upon the fair market value of the contingent consideration to be issued.  The contingent consideration of 500,000 shares was paid on February 26, 2010 as revenues for the year ended December 31, 2009 reached 90% of pre-acquisition levels.


Consideration for the acquisition comprised the following (at fair value):


Cash

$

313,185 

Promissory Note

 

234,887 

500,000 contingent shares

 

150,000 

500,000 Shares of DIIC

 

150,000 

Total consideration paid

$

848,072 


Following assets and liabilities were recognized in the acquisition (at fair value):


Accounts receivable

$

12,136 

Computer equipment

 

8,155 

Hospital contracts

 

794,707 

Non-compete agreement

 

205,328 

Liabilities assumed

 

(172,254)

Net assets purchased

$

848,072 


The Company has evaluated this transaction and believes that the historical cost of the tangible assets acquired approximated fair market value given the current nature of the assets acquired. The fair value of the intangible assets was calculated using a discounted cash flow model of the expected net cash flows from these assets over the next five years. These intangible assets will be amortized over their determined life, being the length of the current contract in effect as at the day of the acquisition.


The amounts of revenue included in the consolidated income statement for the three months ended June 30, 2010 and June 30, 2009 are $733,526 and $426,252, respectively.


The amounts of earnings included in the consolidated income statement for the three months ended June 30, 2010 and June 30, 2009 are $127,892 and $74,743, respectively.


The amounts of revenue included in the consolidated income statement for the six months ended June 30, 2010 and June 30, 2009 are $1,397,263 and $520,691, respectively.


The amounts of earnings included in the consolidated income statement for the six months ended June 30, 2010 and June 30, 2009 are $251,311 and $92,618, respectively.


Costs related to the acquisition, which include legal fees, in the amount of $2,892 have been charged directly to operations and are included in legal and professional expenses in the 2009 consolidated income statement.




12




Note 7.  Accounts Payable and Accrued Liabilities


As of June 30, 2010 and December 31, 2009, the trade payables and accrued liabilities of the Company were $255,118 and $223,494, respectively. Of the total amount as of June 30, 2010, approximately $176,809 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.  Of the total amount in 2009, $151,634 is related to CTS ongoing operations with the balance of the accounts for vendors supplying goods and services used in the normal course of business.


Note 8.  Promissory Notes


The Company assumed debt of CTS for payments made against accounts payable by the former stockholders. Previous stockholders of CTS loaned CDN$125,760 to CTS to pay some accounts payable liabilities owed by CTS prior to consummation of the transaction. This loan is memorialized by a promissory note, secured by DIIC’s shares in and assets of CTS. The note was paid out by DIIC in 2009.


The Company also entered into promissory note agreements with the former shareholders of CTS as part of the acquisition agreement.


The balance of the notes as of June 30, 2010:


Note holder

 

Face value1

 

USD

 

Maturity Date

Dawn Haider

 

 

44,201 

 

 

41,677 

 

March 2, 2010

Syed Haider

 

 

44,201 

 

 

41,677 

 

March 2, 2010

Quinte MRI

 

 

58,935 

 

 

55,570 

 

March 2, 2010

 

 

$

147,337 

 

$

138,924 

 

 


1 Face value of promissory notes is denominated in Canadian dollars.


On March 2, 2010 the Company paid CDN$152,000 towards the balance of the outstanding promissory notes that were due on March 2, 2010. The US dollar equivalent to satisfy the payment was $146,495. An exchange loss of $626 was recorded on the payment towards these notes.


The remaining balance of the notes is non-interest bearing. The Company imputed interest on the notes at an imputed interest rate of 10%. Imputed interest on these notes for the six months ended June 30, 2010 was $9,567.


The remaining balance of the notes is being claimed as an offset in a legal action brought by DIIC against the former shareholders of CTS. No payments are expected to be made on the balance of the notes pending the outcome of the legal action where it is expected that the court will determine the final amount, if any, that is owing under the notes.


During the six months ended June 30, 2010 a total of $6,144 in foreign currency gain was recorded against the balance of the notes to adjust to the value on the Balance sheet date.


Note 9.  Convertible Notes


During the first quarter the Company closed a financing of $215,141 in loans from private investors. The notes are due on March 31, 2012.


During the second quarter the company closed a financing of $116,890 in loans from private investors. The individual notes are due at various dates of April 01, May 01, and June 01 of 2012.


The total of $332,031 in notes as stated above requires principal payments of 3% per month on the outstanding principal balance. Interest on the notes accrues at 10% per annum. In addition, each note holder was given 3.33 shares of Company stock for each $1 of notes purchased. The notes and interest are convertible into shares of common stock of the Company at $0.15 per share.


During the six months ended June 30, 2010, $7,837 in accrued interest was recorded on the notes.


During the six months ended June 30, 2010, $5,231 in foreign currency gain was recorded against the notes.


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 $173,660.  An amortization of the discount for the six months ended June 30, 2010 was $21,950.




13




The Details of the Notes are as follows:


Issuance date

 

Principal

amount

 

Total Debt

Discount

 

Accrued

Interest

 

Foreign

Exchange

Gain/(Loss)

 

Six Months

Ended

June 30, 2010

(Payments)

 

6 Months ended

June 30, 2010

Amortization of

Debt Discount

 

June 30,

2010

Balance

 

Maturity date

March 01, 2010

 

$

25,000

 

$

(11,655)

 

$

817

 

$

n/a 

 

$

(2,250)

 

$

1,942

 

$

13,854

 

March 01, 2012

April 14, 2010

 

 

25,000

 

 

(11,655)

 

 

521

 

 

n/a 

 

 

(1,500)

 

 

1,647

 

 

14,013

 

April 01, 2012

March 04, 2010

 

 

24,250

 

 

(11,655)

 

 

746

 

 

623 

 

 

(2,197)

 

 

1,942

 

 

12,463

 

March 31, 2012

March 18, 2010

 

 

24,658

 

 

(11,655)

 

 

677

 

 

1,074 

 

 

(1,458)

 

 

1,457

 

 

12,605

 

March 31, 2012

March 22, 2010

 

 

24,528

 

 

(11,655)

 

 

625

 

 

909 

 

 

(2,197)

 

 

1,942

 

 

12,334

 

March 31, 2012

March 01, 2010

 

 

23,990

 

 

(11,655)

 

 

773

 

 

355 

 

 

(2,197)

 

 

1,942

 

 

12,498

 

March 31, 2012

April 16, 2010

 

 

24,635

 

 

(11,655)

 

 

473

 

 

1,051 

 

 

(1,458)

 

 

1,457

 

 

12,401

 

April 01, 2012

February 26, 2010

 

 

92,716

 

 

(45,455)

 

 

2,772

 

 

(30)

 

 

(22,619)

 

 

7,575

 

 

35,019

 

March 31, 2012

June 01, 2010

 

 

42,944

 

 

(29,970)

 

 

349

 

 

513 

 

 

 

 

2,044

 

 

14,854

 

June 01, 2012

June 17, 2010

 

 

24,310

 

 

(16,650)

 

 

84

 

 

738 

 

 

 

 

-

 

 

7,006

 

June 01, 2012

Total

 

$

332,031

 

$

(173,660)

 

$

7,837

 

$

5,231 

 

$

(35,876)

 

$

21,950

 

$

147,049

 

 


Note 10.  Related Party Transaction


As of June 30, 2010, Richard Jagodnik (an officer and shareholder of the Company), had a $7,282 note payable owing by DIIC.  The note is non-interest bearing and payable on demand. Interest has been imputed at 10% for transactions in 2010, resulting in additional interest expense and additional paid in capital of $364 for the six months ended June 30, 2010.


During the second quarter Richard Jagodnik has loaned DIIC $42,944 under the same terms of convertible notes as described in Note 9 above. The note is carried in Canadian dollars and a foreign exchange gain of $513 was recorded for the six months ended June 30, 2010. During the six months ended June 30, 2010, $349 in accrued interest was recorded on the note.


Note 11.  Common Stock Transactions


During the second quarter, 450,000 shares were issued by private placement for $36,000.


During the second quarter, 566,100 shares were issued as an additional part of convertible notes agreements. The shares were valued at $93,240 based upon the closing price of our common stock at the grant date.


During the first quarter, 135,000 shares were issued for services valued at $16,200 based upon the closing price of our common stock at the grant date.


During the first quarter, 574,425 shares were issued as an additional part of convertible notes agreements. The shares were valued at $80,420 based upon the closing price of our common stock at the grant date.


During the first quarter, 500,000 shares previously recorded as contingent shares were issued. The shares were valued at $150,000 based upon the closing price of our common stock at the initial measurement date.


Note 12. Subsequent Events


On August 06, 2010 the Company closed a financing of $24,335 in an additional loan from a private investor. The note is due on July 31, 2012 and requires principal payments of 3% per month on the outstanding principal balance. Interest on the note accrues at 10% per annum. In addition, the note holder was given 3.33 shares of Company stock for each $1 of notes purchased. The note and interest are convertible into shares of common stock of the Company at $0.15 per share.


In August 2010 the company paid into court an additional of $37,500 CDN in relation to the August 13, 2009, Statement of Claim, that the Company filed in the Ontario Superior Court of Justice, Case Number CV-09384970.


The company evaluated subsequent events through August 16, 2010.




14




Item2.   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 six months ended June 30, 2010, 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, 2009.


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 planning for 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 co-ordinates 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 PCAS 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.


Operations


CTS


In the first quarter CTS continued to grow its client base and expand operations. The Company moved into new offices and began implementation of a new client contract.


In the second quarter CTS secured a new client hospital with a five year contract. Time was spent on preparing for this new contract including assembling a team of radiologists for reporting, protocols initiated, hardware and software installation and testing of the system. This was all accomplished by the end of the quarter.


In addition, marketing efforts were increased and the Company focused its attention on provinces outside the Ontario marketplace.


Diagnostic Imaging Clinics


In the first quarter DIIC continued to develop its plan, for acquiring imaging clinics in the United States and for financing the purchase of the clinics.


In the second quarter DIIC worked on acquiring capital for both expanding CTS and diagnostic clinic acquisitions.


Overall Operating Results:


During the six months ended June 30, 2010 and June 30, 2009, the Company generated $1,397,263, and $520,691, respectively, in revenues from radiology services.


During the six months ended June 30, 2010, and June 30, 2009, the Company incurred $1,145,952, and $428,073, respectively, in cost of sales.


Operating expenses for the six months ended June 30, 2010, and June 30, 2009 totaled $373,208, and $739,949, respectively.


During the six months ended June 30, 2010, we incurred $119,951 in amortization and depreciation expenses, $100,503 in legal and professional fees, $33,795 in general and administrative costs, $3,848 in management fees, $20,934 in advertising and promotion, $50,225 for labor, 41,734 for rent and insurance, and $2,218 for travel expenses.  


During the six months ended June 30, 2009, we incurred $143,197 in amortization and depreciation expenses, $171,182 in legal and professional fees, $39,926 in general and administrative costs, $150,000 in management fees, $198,397 in advertising and promotion, $12,690 for labor, $12,024 for rent and insurance, $3,533 for travel expenses, and $9,000 for stock option expense.  


During the three months ended June 30, 2010, and June 30, 2009, the Company incurred $605,634, and $351,509, respectively, in cost of sales.


During the three months ended June 30, 2010 and June 30, 2009, the Company generated $733,526, and $426,252, respectively, in revenues from radiology services.


Operating expenses for the three months ended June 30, 2010, and June 30, 2009 totaled $176,539, and $548,160, respectively.


During the three months ended June 30, 2010, we incurred $37,564 in amortization and depreciation expenses, $65,516 in legal and professional fees, $16,892 in general and administrative costs, $2,321 in management fees, $1,531 in advertising and promotion, $25,842 for labor, $25,933 for rent and insurance, and $940 for travel expenses.  


During the three months ended June 30, 2009, we incurred $108,482 in amortization and depreciation expenses, $129,386 in legal and professional fees, $28,585 in general and administrative costs, $97,433 in advertising and promotion, $150,000 in management fees, $12,087 for labor, $10,994 for rent and insurance, $2,193 for travel expenses, and $9,000 for stock option expense. 


We believe that the Company will become cash flow positive in 2010 but will require substantial investment in the near term in order to expand as we implement our business plan.



16





Liquidity and Capital Resources:


Prior to 2010, the Company funded its operations and working capital through the sale of common stock.  In 2010, the Company has continued to fund its operations and working capital with the sale of common stock.


During the past two years, the Company sold an aggregate of 4,604,582 shares of common stock in several private offerings to accredited investors, in which it raised an aggregate of $669,137.  In connection with the capital raising activities, the Company paid $57,850 in certain fees and other expenses, such as professional fees and filing fees.


The Company’s operations have produced $1,397,263 of revenues during the six months ended June 30, 2010, 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 2010 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 CDN$148,000 in notes payable due the previous stockholders of CTS; 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 six months ended June 30, 2010, the balance outstanding on this note was $7,282.


During the second quarter our current Chief Financial Officer (and former Chairman and Chief Executive Officer) has loaned DIIC $42,944 under the same terms of convertible notes as described in Note 9 of the financial statements. The note is carried in Canadian dollars and a foreign exchange gain of $513 was recorded for the six months ended June 30, 2010. During the six months ended June 30, 2010, $349 in accrued interest was recorded on the note.


As of June 30, 2010, our assets totaled $856,600, which consisted of cash balances, accounts receivable, deposits, intangible assets and computer and office equipment. As of June 30, 2010, our total liabilities consisted of accounts payable and accrued liabilities of $255,118, related party notes payable of $7,282, loans payable of $14,745, promissory notes of $138,925, and convertible notes of $298,759. As of June 30, 2010, we had an accumulated deficit of $1,370,522 and a working capital deficit of $276,375.


During the first quarter the Company closed a financing of $215,141 in loans from private investors. The notes are due on March 31, 2012 and require principal payments of 3% per month on the outstanding principal balance. Interest on the notes accrues at 10% per annum. In addition, each note holder was given 3.33 shares of Company stock for each $1 of notes purchased. The notes and interest are convertible into shares of common stock of the Company at $0.15 per share.


During the second quarter the Company closed an additional financing of $116,890 in loans from private investors under the same terms. The notes are due on April 01, May 01, and June 01 of 2012.


On March 2, 2010, the Company paid CDN$152,000 towards the balance of the outstanding promissory notes that were due on March 2, 2010. The $148,000 balance of the promissory notes is currently being set off against claims by the Company against the previous owners of CTS. Please see Legal Proceedings.


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.


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, 2009.




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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 June 30, 2010. 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 June 30, 2010, 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 June 30, 2010, 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


On August 13, 2009, the Company filed a Statement of Claim, in the Ontario Superior Court of Justice, Case Number CV-09384970, against Syed Haider, Dawn Haider, and Quinte Magnetic Resonance Imaging Inc. (“Vendors”), to recover monies owed to the Company by the defendants for breach of the terms of the purchase contract to acquire the assets and business of CTS. On September 16, 2009, the Vendors filed a Statement of Defense and Syed Haider filed a Statement of Defense and Counterclaim, the latter for monies claimed to be owed under his consulting contract. The Statement of Defence and Counterclaim also asks for $1,500.00 in legal costs alleged due under a promissory note and a declaration of the breach of the promissory note and a declaration that the security agreement has been breached on a number of grounds. The Company plans to vigorously pursue its action against the Vendors and defend against the counterclaim.


On or about October 20, 2009, Syed Haider served a Notice of Motion to enforce the terms of a security agreement relating to the assets of CTS, based on his assertion he is due certain sums under the consulting contract, about which the Company has asserted a right of set off and his breach. In March the court ruled that the Company should pay $150,000 into court in case Mr. Haider is successful in proving his claims in court. The Company appealed this ruling in the second quarter and was unsuccessful. To date the Company has paid $187,500 into court to comply with the ruling.


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


During the quarter ended June 30, 2010 the Company issued 1,016,100 shares of common stock.


The company issued 566,100 shares as an additional part of convertible notes agreements. The shares were valued at $93,240 based upon the closing price of our common stock at the grant date.


The company issued 450,000 shares for $36,000 in cash.




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ITEM 3.  Defaults Upon Senior Securities


None


ITEM 4. Submission of Matters to a Vote of Security Holders


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




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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 08, 2011




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 08, 2011

Mitchell Geisler

 

 

 

 

 

 

 

 

 

/s/ Richard Jagodnik

 

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

 

August 08, 2011

Richard Jagodnik

 

 

 

 




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