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 September 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 November 01, 2011 the Company had outstanding 18,106,481 shares of its common stock.

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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		16
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.        Submission of Matters to a Vote of Security Holders		20
ITEM 5.        Other Information		20
ITEM 6.        Exhibits		20

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Item 1. Consolidated Financial Statement

Diagnostic Imaging International Corp.
Consolidated Balance Sheets (Unaudited)
	September 30, 2010			December 31, 2009
ASSETS
Current Assets
Cash	$	73,104		$	18,076
Accounts Receivable, net		123,583			73,390
Prepaid Expenses		7,120			-
Total Current Assets		203,807			91,466
Property and Equipment
Equipment		101,867			100,243
Less: Accumulated Depreciation		(98,330)			(93,806)
Total Property and Equipment, net		3,537			6,437
Intangibles
Hospital Contracts		794,707			794,707
Non Compete Contract		205,328			205,328
Less: Accumulated Amortization		(501,261)			(346,754)
Total Intangible Assets, net		498,774			653,281
Other Assets
Deposits		5,259			1,911
Restricted Deposits		182,081			-
Loans Receivable		25,436			-
Total Other Assets		212,776			1,911
TOTAL ASSETS	$	918,894		$	753,095
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Accrued Expenses	$	286,604		$	223,498
Promissory Notes		143,080			286,650
Loans Payable		15,186			29,559
Note Payable - Shareholder		7,282			7,282
Total Current Liabilities		452,152			546,986
Long Term Liabilities
Convertible note - shareholder, net		16,984			-
Convertible notes, net		177,770			-
Loans Payable		12,042			6,200
Total Long Term Liabilities		206,796			6,200
Total Liabilities		658,948			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, 18,973,231 and 16,531,256 shares issued and outstanding at September 30, 2010 and December 31, 2009 respectively		18,928			16,532
Additional Paid-In Capital		1,676,015			1,268,245
Contingent Shares		-			150,000
Comprehensive Loss Accumulated		(3,930)			(3,030)
Accumulated Deficit		(1,431,067)			(1,231,841)
Total Stockholders' Equity		259,946			199,904
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	918,894		$	753,095

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

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Diagnostic Imaging International Corp.
Consolidated Statements of Operations (unaudited)
	Three months ended						Nine months ended
	September 30,			September 30,			September 30,			September 30,
	2010			2009			2010			2009
Revenue:
Sales	$	831,894		$	558,350		$	2,229,157		$	1,079,041
Cost of sales		683,817			451,901			1,829,769			879,974
Gross Margin		148,077			106,449			399,388			199,067
Operating Expenses:
Advertising		16,314			1,216			37,248			199,613
Amortization		36,496			104,026			154,507			242,728
Depreciation		1,041			2,224			2,981			6,719
General and Administrative		10,180			28,128			43,975			67,551
Insurance		4,823			2,679			12,142			8,267
Labor		33,848			13,382			84,073			26,072
Legal and professional		32,795			52,863			133,298			224,045
Management fees		2,292			11,000			6,140			161,000
Rent Office Space		15,297			10,405			34,630			16,841
Rent Servers		7,508			1,040			22,590			1,543
Travel		662			19			2,880			3,552
Stock Option Expense		-			-			-			9,000
Total Operating Expenses		161,256			226,982			534,464			966,931
Operating Loss		(13,179)			(120,533)			(135,076)			(767,864)
Other Income and (Expenses):
Amortization of Debt Discount		(22,955)			-			(44,904)
Other Income		-			17,597			-			17,597
Foreign Currency Gains/(Losses)		(12,362)			(64,251)			(7,242)			(64,251)
Interest Expense		(12,623)			(9,594)			(31,679)			(26,456)
Total Other Income/(Expenses)		(47,940)			(56,248)			(83,825)			(73,110)
Net Loss		(61,119)			(176,781)			(218,902)			(840,974)
Comprehensive Income/(Loss)		2,640			366			(900)			366
Total comprehensive Loss	$	(58,479)		$	(176,415)		$	(219,802)		$	(840,608)
Basic and Diluted Loss per Share	$	(0.003)		$	(0.011)		$	(0.012)		$	(0.060)
Weighted Average Shares Outstanding: Basic and Diluted		18,802,024			16,364,223			17,981,226			14,075,892

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

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Diagnostic Imaging International Corp.
Consolidated Statements of Cash Flows (unaudited)
	Nine Months Ended
	September 30,			September 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income / (Loss)	$	(218,902)		$	(840,974)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Depreciation		2,981			6,719
Stock Option Expense		-			9,000
Interest imputed on shareholder loan		546			18,693
Interest imputed on promissory  notes		13,112
Amortization of Debt Discount		44,906			-
Shares issued for services		15,200			348,700
Amortization of Intangible Assets		154,507			242,728
Foreign currency Translation Gain/ Loss		4,434			64,251
Changes in operating assets and liabilities:
Accounts Receivable		(50,193)			(47,220)
Deposits and prepaid expenses		(10,468)			1,291
Accounts Payable and accrued liabilities		78,526			60,188
Loans Receivable		(25,436)			-
NET CASH USED IN OPERATING ACTIVITIES		9,213			(136,624)
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in Restricted Cash		(182,081)			-
Acquisition of CTS		-			(313,185)
NET CASH  USED IN  INVESTING ACTIVITIES		(182,081)			(313,185)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Sale of Common Stock		36,000			633,137
Proceeds from related party debt		54,306			44,112
Principal payments on Related Party debt		(3,869)			(89,875)
Principal payments on debt		(219,860)			(113,285)
Proceeds from debt issuance		362,219			-
NET CASH PROVIDED BY FINANCING ACTIVITIES		228,796			474,089
Gain / (Loss) due to foreign currency translation		(900)			369
NET CHANGE IN CASH		55,028			24,649
CASH AT BEGINNING OF PERIOD		18,076			428
CASH AT END OF PERIOD	$	73,104		$	25,077
Cash paid during the year for:
Interest	$	4,238		$	7,763
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	$	-		$	234,887

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

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Diagnostic Imaging International Corp.

Notes to Consolidated Financial Statements (unaudited)

September 30, 2010

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 nine months ended September 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 September 30, 2010.

Reclassification of Accounts  

Certain prior period amounts have been reclassified to conform to September 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 September 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 September 30, 2010, and December, 31, 2009 there was no allowance for bad debts.

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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 September 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 $501,261 and $242,728 in September 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 September 30, 2010 the Company has paid $187,500 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 nine months ended September 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).

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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 nine months ended September 30, 2010 of $17,200.

The Company recognized stock-based compensation expenses from stock granted to employees for the three months ended September 30, 2010 of $5,000.

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.

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• 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 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 loss from operations of $7,242, and $64,251 for the nine months ended September 30, 2010 and September 30, 2009, respectively.

The Company recognized a foreign currency translation loss of $900 for the nine months ended September 30, 2010, and a foreign currency translation gain of 366 for the nine months ended September 30, 2009.

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.

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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 September 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:

	Nine Months Ended
	September 30, 2010			September 30, 2009
Numerator:
Continuing operations:
Loss from continuing operations	$	(219,802)		$	(840,608)
Total	$	(219,802)		$	(840,608)
Net loss	$	(219,802)		$	(840,608)
Denominator:
Weighted average number of shares outstanding – basic and diluted		17,981,226			14,075,892
EPS:
Basic:
Continuing operations	$	(0.012)		$	(0.060)
Net loss	$	(0.012)		$	(0.060)
Diluted
Continuing operations	$	(0.012)		$	(0.060)
Net loss	$	(0.012)		$	(0.060)

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 September 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.

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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 nine and three month period ended September 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 nine months ended September 30, 2010 to correct errors in its accounting. As part of the company’s agreements for convertible notes sold for the three and nine months ended September 30, 2010 the Company issued 216,450 and 1,356,975 shares of common stock valued at $21,645, and $195,305, 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 nine months ended September 30, 2010 of $22,955 and $44,906 respectively was recorded.

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

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

September 30, 2010 Consolidated Financial Statements		Line Item		Corrected		Previously Stated		Change
Consolidated Balance Sheet		Total Long Term Liabilities		206,796		357,196		(150,400)
Consolidated Balance Sheet		Total Liabilities		658,948		809,348		(150,400)
Consolidated Balance Sheet		Accumulated Deficit		(1,431,067)		(1,581,467)		150,400
Consolidated Balance Sheet		Stockholders’ Equity		259,946		109,546		150,400
Consolidated Three months Ended Income Statement		Other Income / (Expenses)		(47,940)		(46,630)		(1,310)
Consolidated Three months Ended Income Statement		Net Loss		(61,119)		(59,809)		(1,310)
Consolidated Nine Months Ended Income Statement		Other Income / (Expenses)		(83,825)		(234,225)		150,400
Consolidated Nine Months Ended Income Statement		Net Loss		(218,902)		(370,201)		150,400

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 September 30, 2010 and December 31, 2009, the major class of property and equipment were as follows:

	September 30, 2010			December 31, 2009			Estimated useful lives
Computer/Office Equipment	$	101,867		$	100,243		3 years
Less: Accumulated Depreciation		(98,330)			(93,806)
Net Book Value	$	3,537		$	6,437

Depreciation expense was $2,981 and $6,719 for the nine months ended September 30, 2010 and September 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.

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Expected Lease commitments for the next three years:

Year		Office Space			Servers			CAD			USD
2010		$	45,837		$	31,200		$	77,037		$	74,811
2011			63,504			31,200			94,704			91,967
2012			63,504			31,200			94,704			91,967
		$	172,845		$	93,600		$	266,445		$	258,745

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 September 30, 2010 and September 30, 2009 are $831,894 and $558,350, respectively.

The amounts of earnings included in the consolidated income statement for the three months ended September 30, 2010 and September 30, 2009 are $148,077 and $106,449, respectively.

The amounts of revenue included in the consolidated income statement for the nine months ended September 30, 2010 and September 30, 2009 are $2,229,157 and $1,079,041, respectively.

The amounts of earnings included in the consolidated income statement for the nine months ended September 30, 2010 and September 30, 2009 are $399,388 and $199,067, 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.

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Note 7.  Accounts Payable and Accrued Liabilities

As of September 30, 2010 and December 31, 2009, the trade payables and accrued liabilities of the Company were $286,604 and $223,494, respectively. Of the total amount as of September 30, 2010, approximately $203,794 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 September 30, 2010:

Note holder		Face value1			USD			Maturity Date
Dawn Haider			44,201			42,924		March 2, 2010
Syed Haider			44,201			42,924		March 2, 2010
Quinte MRI			58,935			57,232		March 2, 2010
		$	147,337		$	143,080

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 nine months ended September 30, 2010 was $13,112.

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 nine months ended September 30, 2010 a total of $2,298 in foreign currency loss 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.

During the third quarter the company closed a financing of $63,161 in loans from private investors. The individual notes are due at various dates of September 01, and October 01 of 2012.

The total of $395,162 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 nine months ended September 30, 2010, $15,319 in accrued interest was recorded on the notes.

During the nine months ended September 30, 2010, $1,907 in foreign currency loss 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 $195,305.  An amortization of the discount for the nine months ended September 30, 2010 was $44,905.

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

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The Details of the Notes are as follows:

Issuance date		Principal amount			Total Debt Discount			Accrued Interest			Foreign Exchange Gain/(Loss)			Nine Months Ended September 30, 2010 (Payments)			Nine Months ended September 30, 2010 Amortization of Debt Discount			September 30, 2010 Balance			Maturity date
March 01, 2010		$	25,000		$	(11,655)		$	1,372		$	n/a		$	(4,500)		$	3,399		$	13,616		March 01, 2012
April 14, 2010			25,000			(11,655)			1,095			n/a			(3,750)			3,104			13,794		April 01, 2012
March 04, 2010			24,250			(11,655)			1,261			4			(4,338)			3,399			12,913		March 31, 2012
March 18, 2010			24,658			(11,655)			1,210			434			(3,599)			2,914			13,094		March 31, 2012
March 22, 2010			24,528			(11,655)			1,140			290			(4,338)			3,399			12,784		March 31, 2012
March 01, 2010			23,990			(11,655)			1,288			(264)			(4,338)			3,399			12,948		March 31, 2012
April 16, 2010			24,635			(11,655)			4,492			(2,180)			(32,058)			13,257			851		April 01, 2012
February 26, 2010			92,716			(45,455)			1,006			411			(3,598)			2,914			47,172		March 31, 2012
June 01, 2010			42,944			(29,970)			1,374			(714)			(3,868)			5,790			16,984		June 01, 2012
June 17, 2010			24,310			(16,650)			653			78			(2,141)			2,082			8,176		June 01, 2012
August 06,2010			24,335			(8,325)			354			83			(705)			693			16,269		September 01, 2012
September 23,2010			38,796			(13,320)			74			(48)			-			555			26,153		October 01, 2012
Total		$	395,162		$	(195,305)		$	15,319		$	(1,906)		$	(67,234)		$	44,905		$	194,754

Note 10.  Related Party Transaction

As of September 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 $546 for the nine months ended September 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 loss of $714 was recorded for the nine months ended September 30, 2010. During the nine months ended September 30, 2010, $1,374 in accrued interest was recorded on the note.

Note 11.  Common Stock Transactions

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.

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 third quarter, 50,000 shares, previously issued in the first quarter, were canceled for services not rendered, valued at $6,000 based upon the closing price of our common stock at the grant date.

During the third quarter, 50,000 shares we issued for employee services valued at $5,000 based upon the closing price of our common stock at the grant date.

During the third quarter, 216,450 shares were issued as an additional part of convertible notes agreements. The shares were valued at $21,645 based upon the closing price of our common stock at the grant date.

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Note 12. Subsequent Events

On October 19, 2010 the Company closed a financing of $25,000 in an additional loan from a private investor. The note is due on November 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 October 2010 the company paid into court an additional of $50,000 CDN and 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 November 15, 2010.

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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 nine months ended September 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

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

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.

In the third quarter CTS focused on expanding its marketing efforts.  CTS also began some reporting of studies for a private MRI clinic in Quebec which represents CTS expansion beyond Ontario.

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.

In the third quarter DIIC continued to work towards acquiring capital for expansion.  

Overall Operating Results:

During the nine months ended September 30, 2010 and September 30, 2009, the Company generated $2,229,157, and $1,079,041, respectively, in revenues from radiology services.

During the nine months ended September 30, 2010, and September 30, 2009, the Company incurred $1,829,769, and $879,974, respectively, in cost of sales.

Operating expenses for the nine months ended September 30, 2010, and September 30, 2009 totaled $534,464, and $966,931, respectively.

During the nine months ended September 30, 2010, we incurred $157,488 in amortization and depreciation expenses, $133,298 in legal and professional fees, $43,975 in general and administrative costs, $6,140 in management fees, $37,248 in advertising and promotion, $84,073 for labor, 69,362 for rent and insurance, and $2,880 for travel expenses.  

During the nine months ended September 30, 2009, we incurred $249,447 in amortization and depreciation expenses, $224,045 in legal and professional fees, $67,551 in general and administrative costs, $161,000 in management fees, $199,613 in advertising and promotion, $26,072 for labor, $26,651 for rent and insurance, $3,552 for travel expenses, and $9,000 for stock option expense.  

During the three months ended September 30, 2010 and September 30, 2009, the Company generated $831,894, and $558,350, respectively, in revenues from radiology services.

During the three months ended September 30, 2010, and September 30, 2009, the Company incurred $683,817, and $451,901, respectively, in cost of sales.

Operating expenses for the three months ended September 30, 2010, and September 30, 2009 totaled $148,077, and $106,449, respectively.

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During the three months ended September 30, 2010, we incurred $37,537 in amortization and depreciation expenses, $32,795 in legal and professional fees, $10,180 in general and administrative costs, $2,292 in management fees, $16,314 in advertising and promotion, $33,848 for labor, $27,628 for rent and insurance, and $662 for travel expenses.  

During the three months ended September 30, 2009, we incurred $106,250 in amortization and depreciation expenses, $52,863 in legal and professional fees, $28,128 in general and administrative costs, $1,216 in advertising and promotion, $11,000 in management fees, $13,382 for labor, $14,124 for rent and insurance, $19 for travel expenses. 

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.

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 $2,229,157 of revenues during the nine months ended September 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$147,300 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 nine months ended September 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 loss of $714 was recorded for the nine months ended September 30, 2010. $1,374 in accrued interest was recorded on the note and payments of $3,868 were made during the nine months ended September 30, 2010,

As of September 30, 2010, our assets totaled $918,894, which consisted of cash balances, accounts receivable, deposits, intangible assets and computer and office equipment. As of September 30, 2010, our total liabilities consisted of accounts payable and accrued liabilities of $286,604, related party notes payable of $7,282, loans payable of $27,228, promissory notes of $143,080, and convertible notes of $194,754. As of September 30, 2010, we had an accumulated deficit of $1,431,067 and a working capital deficit of $248,345.

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.

During the third quarter the company closed a financing of $63,161 in loans from private investors under the same terms. The individual notes are due at various dates of September 01, and October 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 $143,080 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.

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Off Balance Sheet Arrangements

The Company’s off-balance sheet arrangements relate to operating lease and are detailed in Note 5 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, 2009.

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 September 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 September 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 September 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.

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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 2010 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 $237,500 into court to comply with the ruling.

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

During the quarter ended September 30, 2010 the Company issued 216,450 shares of common stock.

The company issued 216,450 shares as an additional part of convertible notes agreements. The shares were valued at $21,645 based upon the closing price of our common stock at the grant date.

The Company canceled 50,000 shares for services not rendered , previously issued in the first quarter, valued at $6,000 based upon the closing price of our common stock at the grant date.

The Company issued 50,000 shares for employee services valued at $5,000 based upon the closing price of our common stock at the grant date.

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:	November 14, 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		November 14, 2011
Mitchell Geisler
/s/ Richard Jagodnik		Chief Financial Officer (Principal Financial and Accounting Officer) and Director		November 14, 2011
Richard Jagodnik

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