UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2014

¨ 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

MEDICAL IMAGING CORP.

(Exact name of registrant as specified in charter)

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

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý No o

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

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

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

As of November 10, 2014 the Company had outstanding 23,946,481 shares of its common stock.

TABLE OF CONTENTS

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Item 1. Consolidated Financial Statements

Medical Imaging Corp.

Consolidated Balance Sheets (Unaudited)

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

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Medical Imaging Corp.

Consolidated Statements of Operations (Unaudited)

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

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Medical Imaging Corp.

Consolidated Statements of Cash Flows (Unaudited)

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

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Medical Imaging Corp.

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2014

Note 1.  Organization and Summary of Significant Accounting Policies

Organization and Basis of Presentation

Medical Imaging Corp., (“MIC” or the “Company”), formerly: 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., which operates as: Custom Teleradiology Services (“CTS”), CTS provides remote reading of medical diagnostic imaging scans for rural hospitals and clinics. In early 2010, the Company modified its business plan to grow its CTS subsidiary while commencing the acquisition of existing full service imaging clinics located in the United States and exploring the development of new diagnostic imaging technology. In 2012, the Company purchased Schuylkill Open MRI Inc., which operates as: Schuylkill Medical Imaging (“SMI”) an independent diagnostic imaging facility located in Pottsville, Pennsylvania.

Basis of Presentation

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

Principle of Consolidation

The consolidated financial statements include the accounts of Medical Imaging, Corp., and our wholly-owned subsidiaries, Custom Teleradiology Services, Inc. and Schuylkill Medical Imaging. Intercompany accounts and transactions have been eliminated in the consolidated financial statements. CTS’ and SMI’s accumulated earnings prior to their acquisition (March 2, 2009 and December 10, 2012, respectively) are not included in the consolidated balance sheet.

Reclassification of Accounts

Certain prior period amounts have been reclassified to conform to the September 30, 2014 presentation.

Use of Estimates and Assumptions

The preparation of consolidated 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 consolidated financial statements are published, and (iii) the reported amount of net sales, expenses and costs recognized during the periods presented. Adjustments made with respect to the use of estimates often relate to improved information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of consolidated financial statements; accordingly, actual results could differ from these estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.  At September 30, 2014, and December 31, 2013, cash includes cash on hand and cash in the bank.

Accounts Receivable Credit Risk

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

Management evaluates various factors including expected losses and economic conditions to predict the estimated realization on outstanding receivables. As of September 30, 2014 and December 31, 2013, the allowance for bad debts was $31,583 and $17,294, respectively.

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Bad debt expense for the nine months ended September 30, 2014 and 2013 was $14,465 and $1,283, respectively.

Bad debt recapture for the three months ended September 30, 2014 and 2013 was $515 and $20,455, respectively.

At September 30, 2014 two customers of CTS totalled approximately 33% of the total accounts receivable. As of December 31, 2013, three customers totalled approximately 70% of the total accounts receivable.

Goodwill and Indefinite Intangible Assets

The Company follows the provisions of Financial Accounting Standard (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, Goodwill and Other Intangible Assets. In accordance with ASC Topic 350, goodwill, representing the excess of the purchase price and related costs over the value assigned to net tangible and identifiable intangible assets of businesses acquired and accounted for under the purchase method, acquired in business combinations is assigned to reporting units that are expected to benefit from the synergies of the combination as of the acquisition date. Under this standard, goodwill and intangibles with indefinite useful lives are not amortized.  The Company assesses goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter, or more frequently if events and circumstances indicate impairment may have occurred in accordance with ASC Topic 350. If the carrying value of a reporting unit's goodwill exceeds its implied fair value, the Company records an impairment loss equal to the difference. ASC Topic 350 also requires that the fair value of indefinite-lived purchased intangible assets be estimated and compared to the carrying value. The Company recognizes an impairment loss when the estimated fair value of the indefinite-lived purchased intangible assets is less than the carrying value. As of September 30, 2014, the Company has goodwill of $1,422,670 as result of the acquisition of SMI on December 10, 2012. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the consolidated financial statements.

Intangible Assets

CTS 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 varied between one and five years. The contracts do not specify any minimum billings for any period of time. The contracts in existence on acquisition were valued on acquisition using a discounted cash flow model and the fair value as recorded is amortized over the remaining life of the contract using the straight line method.

The Company has written off the hospital contracts to reflect end of service with no potential for renewal.

The Company also attributed value to the non-compete agreement obtained as part of the acquisition agreement with CTS’ former director. As of September 30, 2014.The value attributed to this agreement has been fully amortized.

SMI has a non-compete agreement with previous owners of SMI. The value attributed to this agreement has been fully amortized.

Amortization of Intangible Assets

The accumulated amortization of intangible assets with finite useful lives was $133,245 and $905,027 at September 30, 2014 and December 31, 2013, respectively.

These assets have been fully amortized; therefore there is no expected amortization expense for the next five years.

Revenue Recognition

The Company holds contracts with several hospitals and 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 quarter ended September 30, 2014, CTS held six contracts; one contract that is renewable on a year-to-year basis, three contracts that are renewable in 2014 ,2015, and 2016, and its largest contract, which renewed automatically in 2013 for successive one year terms. As described above, in accordance with the requirement of Staff Accounting Bulletin (“SAB”) 104, the Company recognizes revenue when: (1) persuasive evidence of an arrangement exists (contracts); (2) delivery has occurred (monthly); (3) the seller’s price is fixed or determinable (per the customer’s contract, and services performed); and (4) collectability is reasonably assured (based upon our credit policy).

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

For SMI, revenue is recorded at the time of service.

Cost of Sales

Cost of sales includes fees paid to radiologists for teleradiology services, transcription fees, equipment repairs, system license and usage costs.

Impairment of Long-Lived Assets

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

Amortization and Depreciation

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

3 - 7 years

Equipment

5 – 7 years

Furniture and Fixtures

2 to 5 years

Hospital Contracts

3 - 5 years

Non-compete Contract

39 years

Leasehold Improvements

Stock Based Compensation

The Company measures all share-based payments to employees (which includes non-employee Board of Directors), including employee stock options, warrants and restricted stock, at the fair value of the award and expenses it over the requisite service period (generally the vesting period). The fair value of common stock options or warrants granted to employees is estimated at the date of grant using the Black-Scholes option pricing model. The calculation also takes into account the common stock fair market value at the grant date, the exercise price, the expected life of the common stock option or warrant, the dividend yield and the risk-free interest rate.

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

The Company did not recognize stock-based compensation expenses from stock granted to non-employees for the nine and three months ended September 30, 2014 and 2013.

The Company recognized stock-based compensation expenses of $150, and $0 from stock granted to employees for the nine months ended September 30, 2014, and 2013, respectively.

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The Company did not recognize stock-based compensation expenses from stock granted to employees for the three months ended September 30, 2014 and 2013.

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, prepaid expenses, accounts payable, accrued liabilities and notes and loans payable approximate fair value due to their most maturities.

Fair Value Measurements

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification (“ASC”) for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB ASC (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

Level 1

Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

Level 2

Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

Level 3

Pricing inputs that are generally observable inputs and not corroborated by market data.

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accounts payable approximate their fair values because of the short maturity of these instruments.

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

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

The Company recognized a foreign currency gain on transactions from operations of $954 and $4,440 for the nine months ended September 30, 2014 and 2013, respectively.

The Company recognized a foreign currency gain on transactions from operations of $145 and $171 for the three months ended September 30, 2014 and 2013, respectively.

The Company recognized other comprehensive gain of $63 and $2,222 for the nine months ended September 30, 2014 and 2013, respectively.

The Company recognized other comprehensive gain of $334 and loss of $1,068 for the three months ended September 30, 2014 and 2013, respectively.

Income Taxes

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

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Net Income (Loss) Per Share

The Company follows the provisions of ASC Topic 260, Earnings per Share.  Basic net income (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.

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, 2014, 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:

Recent Accounting Updates

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

Note 2. Interim Financial Statements

The accompanying interim unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine and three month period ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. 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, 2013.

Note 3. Property and Equipment

In the quarter ending September 30, 2014, the Company has completed the purchase of a CT and an X-ray machine for its SMI location.  SMI has purchased a 16 Slice Toshiba Aquillion CT for $198,000 and a Viztek Digital Direct Radiography Straight Arm x-ray System for $78,250. In addition SMI has completed building CT and x-ray rooms to house the additional machines; the additions in leasehold improvements were for a total of $96,470.

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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, 2014 and December 31, 2013, the major class of property and equipment were as follows:

Depreciation expense was $129,907 and $118,753 for the nine months ended September 30, 2014 and 2013, respectively.

Depreciation expense was $50,252 and $39,831 for the three months ended September 30, 2014 and 2013, respectively.

Note 4. Business Combination

SMI acquisition:

On December 10, 2012, the Company acquired 100% of Schuylkill Medical Imaging for consideration including cash which is described in detail below. Accordingly, the results of operations for SMI have been included in the accompanying consolidated financial statements from that date forward. SMI provides Magnetic Resonance Imaging (MRI) services. Pursuant to the terms of the Share Purchase Agreement, the Company paid an aggregate purchase price of $1,825,000 for the shares, plus a possible earn-out payment of up to $200,000 to be paid within sixty days after December 31, 2013 if certain post-closing revenue targets are met. The earn - out payment was paid out in June 2014.

In connection with the Share Purchase Agreement, SMI entered into a lease agreement with one of the Sellers for the lease of two MRI machines. Under the terms of the lease, SMI is to make monthly payments of $11,013, plus applicable sales tax, over a period of 48 months.  In addition, SMI agreed to make a one-time lease payment of $125,000 which was fully paid by March 30, 2013. The Company has guaranteed all of SMI’s obligations under the lease.  At the end of the lease, SMI will have the option to purchase the MRI machines for a total purchase price of $1.00. The lease was accounted for as a capital lease for a total value of $555,000.

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

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

The Company has evaluated this transaction and believes that the historical cost of the tangible and intangible assets acquired approximated fair market value given the current nature of the assets acquired. As part of the acquisition the Company has acquired Goodwill of $1,422,670. The Company expects to amortize the full amount of goodwill for tax purposes. At December 31, 2013 year end the Company performed an annual testing of goodwill for impairment, and valued the fair value of the reporting units to be greater than its carrying amount. As such, goodwill impairment was not recorded.

The amounts of revenue included in the consolidated statement of operations for the nine months ended September 30, 2014 and 2013 is $1,555,083, and $1,371,737, respectively.

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The amounts of gross earnings included in the consolidated statement of operations for nine months ended September 30, 2014 and 2013 is $1,169,591, and $985,272, respectively.

The amounts of revenue included in the consolidated statement of operations for the three months ended September 30, 2014 and 2013 is $1,696,155, and $1,560,185, respectively.

The amounts of gross earnings included in the consolidated statement of operations for three months ended September 30, 2014 and 2013 is $441,702, and $345,904, respectively.

Costs related to the acquisition, which include legal fees, in the amount of $81,811 have been charged directly to operations and are included in legal and professional expenses in the 2012 consolidated statement of operations.

Prospective Acquisitions:

On August 28, 2014the Company entered into a Purchase Agreement to purchase three diagnostic imaging businesses for an aggregate purchase price of $1.8 million. The Company made a refundable deposit of $20,000 to the owner of the businesses, which will be credited against the purchase price at closing. The refundable payment is shown on the consolidated balance sheet as a deposit.

On October 31, 2014 the Company completed the acquisitions of Partners Imaging Center of Venice LLC, Partners Imaging Center of Charlotte LLC., and Partners Imaging Center of Naples LLC, located in Florida for a purchase price of $1,800,000.

Note 5. Goodwill

The change in the carrying amount of goodwill for the two years ended September 30, 2014 was:

Note 6.  Leases Commitments

CTS has a lease commitment for its office space of approximately $2,450 minimum rental, and approximately $2,850 in utilities, realty taxes, and operating costs, for a total of approximately $5,300 per month. The Lease renewed in April 2013 for a period of five years and will expire in March 2018. On renewal, CTS was given a rental credit of approximately $28,000. This lease was accounted for as an operating lease.

CTS has a lease for its off-site servers at a cost of approximately $1,500 per month. This lease is accounted for as an operating lease. The lease will expire in April 30, 2017.

SMI has a lease for its off-site servers at a cost of approximately $1,092 per month. This lease is accounted for as an operating lease on a month-to-month basis.

SMI entered into a lease commitment for its office space in Pottsville, Pennsylvania. The lease will expire on June 30, 2016, and it is renewable for an additional term of 5 years on the same terms and conditions. Monthly rental amounts in 2014 were $5,437 per month plus approximately $1,674 in utilities, realty taxes, and operating costs. The lease was amended to include the additional space of 700 square feet occupied by the CT machine and equipment. The first additional rental payment will begin in July of 2015; the additional rental amount is expected to be approximately $1,100.

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SMI has a lease for office space in Dallas, Texas of approximately $880 per month plus approximately $660 in utilities, realty taxes, and operating costs. The lease will expire in February 28, 2015.

SMI, has entered into a sublease agreement for approximately one hundred fifty (150) square feet of space for the use of operating the x-ray machine as well as use of common areas of the sublessor. The lease calls for monthly payments of $2,000 beginning October 1, 2014. The lease will expire in October 01, 2021.

Expected Lease commitments for the next three years:

Note 7. Accounts Payable and Accrued Liabilities

As of September 30, 2014 and December 31, 2013, the trade payables and accrued liabilities of the Company were $723,551 and $608,151, respectively. Of the total amount as of September 30, 2014, approximately $252,350 is related to CTS operations and $400,551 is related to SMI operations. The balance of the accounts is for vendors supplying goods and services used in the normal course of business. Of the total amount as of December 31, 2013, approximately $301,965 is related to CTS operations and $278,854 is related to SMI operations. The balance of the accounts is for vendors supplying goods and services used in the normal course of business.

Note 8. Obligations Under Capital Lease

On December 10, 2012, the Company entered into a lease agreement with one of the sellers of SMI to lease the two MRI machines. Under the terms of the lease, SMI is to make monthly payments of $11,013, plus applicable sales tax, over a period of 48 months.  In addition, SMI agreed to make a one-time lease payment of $125,000, which was paid by March 30, 2013. The Company has guaranteed all of SMI’s obligations under the lease.  At the end of the lease, SMI will have the option to purchase the MRI machines for a total purchase price of $1.00. The lease was accounted for as a capital lease for a total value of $555,000.

Minimum future lease payments under the capital lease are as follows as of September 30, 2014:

The gross amount of the equipment held under capital leases totals $555,000 ($351,583 net book value after accumulated amortization of $203,417) at September 30, 2014.

Amortization of the capital lease assets is included in the depreciation expense of $83,250, and $27,750 for the nine and three months ending September 30, 2014, respectively.

On July 03, 2014 Company has entered into a capital lease agreement to lease the x-ray machine that was delivered and installed in July 2014. Under the terms of the lease, the Company’s subsidiary, SMI, is to make monthly payments of $1,495, plus applicable sales tax, over a period of 60 months. At the end of the lease, SMI will have the option to purchase the MRI machines for a total purchase price of $1.00. The lease was accounted for as a capital lease for a total value of $78,250

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Minimum future lease payments under the capital lease are as follows as of September 30, 2014:

The gross amount of the x-ray machine held under the capital lease is $78,250 ($74,337 net book value after accumulated amortization of $3,913) at September 30, 2014.

Amortization of the capital lease assets is included in the depreciation expense of $3,913, for the nine and three months ending September 30, 2014, respectively.

Note 9. Promissory Notes

Promissory Notes:

During the year ended December 31, 2013, $6,616 in accrued interest was recorded on the notes, and $87,225 was paid towards the balance of the notes.$18,736 of the notes assumed on acquisition represented by a promissory note accruing interest at an annual rate of 10.5% and paid out monthly. $45,792 of the notes assumed on acquisition represented by a promissory note accruing interest at an annual rate of 6% and paid out monthly.

During the nine months ended September 30, 2014, $3,823 in accrued interest was recorded on the notes, and $26,483 was paid towards the balance of the notes.

In June 2014 $64,937 of the acquisition liability that was due as part of SMI acquisition (see Note 4) was assigned to a promissory note accruing interest at an annual rate of 12%, and due on February 1, 2015. Interest accrued is to be paid out monthly with the principal amount due on maturity.

A summary of the promissory notes is as follows:

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Note 10. Convertible Notes

Series B:

On December 3, 2012, the Company sold, through a private placement to accredited investors, three year 12% convertible notes (“Series B Notes”) in the aggregate principal amount of $1,865,000. On March 27, 2013 the Company sold an additional $150,000 of Series B Notes.

Series B Notes pay interest at a rate of 12% per annum, payable to the holder at 1% per month. The Notes are convertible into common shares of the Company at $0.10 per share. In addition, each holder of Series B Notes received shares dependent on the dollar amount of Notes purchased. The total number of shares issued was 5,315,000 shares of common stock of the Company. $1,865,000 of Series B Notes issued on December 3, 2012 mature on December 31, 2013; and $150,000 of Series B Notes issued March 27, 2013 mature on March 31, 2016.

For the nine month ended September 30, 2014, $181,350 in accrued interest was recorded on the notes and paid.

In accordance with ASC 470 on issuance of the shares given, the Company recognized additional paid-in capital and a discount against the notes for a total of $244,275.  Amortization of the discount for the nine months ended September 30, 2014 was $61,069.

The Details of Series B Notes are as follows:

Summary of Series B Notes is as follows:

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Following are maturities of the long –term debt in Series B Notes for each of the next 5 years:

Series C:

On May 22, 2014 the Company sold, through private placement to accredited investors, three year 12% convertible notes (“Series C Notes”) in the aggregate principal amount of $95,000.

The Notes bear interest at a rate of 12% per annum, payable to the holder at1% per month, with the principal amount due on May 31, 2017. The Notes are convertible into shares of the Company’s common stock at an initial conversion rate of $0.15 per share. In addition, each holder of Series C Notes received shares dependent on the dollar amount of Notes purchased. On August 25, 2014 the company sold an additional $75,000 of “series C notes”.  The total number of shares issued was 170,000 shares of common stock of the Company.

In accordance with ASC 470 on issuance of the shares given, the Company recognized additional paid-in capital and a discount against the notes for a total of $11,655. Amortization of the discount for the nine months ended September 30, 2014, was $964.

For the nine month ended September 30, 2014, $5,568 in accrued interest was recorded on the notes and paid.

Summary of Series C Notes is as follows:

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Following are maturities of the long –term debt in Series C Notes for each of the next 5 years:

Individually issued Convertible Note:

On March 26, 2014 the Company issued $300,000 in convertible note to a non-affiliate.  The note pays interest at a rate of 12% per annum, payable to the holder at 1% per month. In addition to interest payments the Company will be making monthly payments of $5,000 towards the principal balance beginning June 1, 2014 for three years until the note due date of February 27, 2017. The note is convertible into common shares of the Company at $0.15 per share. In addition, the non-affiliate will receive 300,000 shares as part of the note agreement.

For the nine month ended September 30, 2014, $18,337 in accrued interest was recorded on the notes and paid.

In accordance with ASC 470 on issuance of the shares given, the Company recognized additional paid-in capital and a discount against the notes for a total of $25,500. Amortization of the discount for the nine months ended September 30, 2014 was $4,250.

Summary of the note is as follows:

Following are maturity of the individually issued convertible note for each of the next 5 years:

Note 11. Related Party Transactions

In 2013, Richard Jagodnik (an officer and shareholder of the Company), had a $7,062 note payable from MIC. The note was non-interest bearing and payable on demand. As at December 31, 2013 the note is fully paid.

During the second quarter of 2010, Richard Jagodnik loaned MIC $42,944 under the same terms of convertible notes Series A. The note was carried in Canadian dollars and a foreign exchange gain of $693 was recorded for the year ended December 31, 2013. For the year ended December 31, 2013 $48 in accrued interest was recorded and added to the note. As at December 31, 2013 the note was fully paid.

For the nine months ended September 30, 2014 the Company did not have any related party debt outstanding.

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Summary of related party notes is as follows:

Note 12. Major Customers

For the nine months ending September 30, 2014 and 2013, revenue was derived primarily from radiology services.

Major customers representing more than 10% of total revenue for the nine months ended September 30, 2014 and 2013 are as follow:

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

On May 8, 2014, the Company’s wholly-owned subsidiary, CTS, received notice that Contract A of its major customers is terminating its contract (the “Agreement”) with CTS. Pursuant to the terms of the Agreement, such termination is effective 90 days from the date of the notice.

Note 13. Major Vendors

The Company has one major vendor providing its system software and support. Expenses relating to this vendor for the three months ended September 30, 2014 and 2013 were $14,190 and $14,560, respectively.

Note 14. Common Stock Transactions

For the nine months ended September 30, 2014, 5,000 shares were issued for services valued at $150 based upon the closing price of our common stock at the grant date.

For the nine months ended September 30, 2014, 300,000 shares were issued as part of individually issued convertible note agreement. The shares were valued at $25,500 based upon the closing price of our common stock at the grant date.

For the nine months ended September 30, 2014, 170,000 shares were issued as part of series C convertible note agreement. The shares were valued at $11,655 based upon the closing price of our common stock at the grant date.

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For the year ended December 31, 2013, 300,000 shares were issued as part of convertible notes agreements. The shares were valued at $18,600 based upon the closing price of our common stock at the grant date.

For the year ended December 31, 2012 5,015,000 shares were issued as an additional part of convertible notes agreements. The shares were valued at $225,675 based upon the closing price of our common stock at the grant date.

Note 15. Income Tax

The Company follows ASC 740, Income Taxes, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between consolidated financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

The provisions of ASC 740 require companies to recognize in their financial statements the impact of a tax position if that position is more likely than not to be sustained upon audit, based upon the technical merits of the position. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure.

Management does not believe that the Company has any material uncertain tax positions requiring recognition or measurement in accordance with the provisions of ASC 740. Accordingly, the adoption of these provisions of ASC 740 did not have a material effect on the Company’s financial statements. The Company’s policy is to record interest and penalties on uncertain tax positions, if any, as income tax expense.

Note. 16. Going Concern

As shown in the accompanying consolidated financial statements, the Company incurred net losses of $15,777 for the three months ended September 30, 2014 as well as a working capital deficit of $427,696. These conditions raise substantial doubt as to if the Company’s ability to continue as a going concern. Management plan to raise additional financing in order to continue its operations and fulfil its debt obligations in 2015, but there can be no assurances that the plan will be successful. These consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Note 17. Subsequent events

Subsequent to quarter end, the company issued $50,000 in Series C Notes to a non-affiliate. The Company evaluated subsequent events through the date the consolidated financial statements were issued. In addition, the purchaser of the note received 50,000 bonus shares as part of the note agreement.

Subsequent to quarter end, the company completed the acquisitions of Partners Imaging of Venice, Partners Imaging of Port Charlotte, and Partners Imaging of Naples all located in Florida for a purchase price of $1,800,000.  To fund the purchase price, the company entered into a royalty purchase agreement with Grenville Strategic Royalty Corp. and using $2 million of the available credit amount to finance the acquisition, with the remainder as for general working capital purposes.

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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 Medical Imaging Corp. (the “Company”) for the three and nine months ended September 30, 2014, 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, 2013.

Business description

Medical Imaging Corp., (“MIC” or the “Company”), formerly: Diagnostic Imaging International Corp  (“DIIC”) is a U.S.-based healthcare services company with a specific focus on medical diagnostic imaging.  We currently own and operate two wholly-owned subsidiaries: Canadian Teleradiology Services, Inc., which operates as Custom Teleradiology Services; and Schuylkill Open MRI., which operates as Schuylkill Medical Imaging.  With operations in the U.S. and Canada, our Company is executing a growth strategy centered on acquiring and operating profitable medical diagnostic imaging facilities and imaging services businesses with a goal of profitably increasing revenues.

Custom Teleradiology Services, Inc. (CTS)

Founded in 2004 and acquired by MIC in 2009, CTS is one of Canada’s leading providers of remote reading and reporting of medical diagnostic imaging scans, otherwise known as Teleradiology, for rural hospitals and clinics. Our network of board certified radiologists is, collectively providing medical imaging interpretations for our clients, helping to speed diagnoses, improve outcomes and enhance patient care.

SMI

Incorporated in 2003, SMI is a premier medical imaging facility serving patients in Schuylkill County, Pennsylvania.  SMI has provided high quality medical diagnostic imaging services for more than 11 years in a caring, safe and convenient environment.  Located in Pottsville, Pennsylvania and accredited by the American College of Radiology, SMI has the first and only Open MRI in Schuylkill County and has earned a strong reputation within the communities it serves through its board certified radiologists, highly trained technologists, medical equipment and advanced technology matched with exceptional care and service.

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Operations

CTS

During the third quarter of 2014, CTS continued concentrating on expanding customer service with existing contracts. In addition our operations manager is focusing on marketing and exploring new opportunities for CTS to grow. grow the company. CTS stopped service of one contract that was announced in an 8K in on May 8, 2014, CTS has seen an increase in service from its other contracts.

SMI

During the third quarter of 2014, efforts were focused on constructing the new CT and Xray rooms, purchasing new equipment and preparing for expanded service. In late July both new modalities began servicing patients. The clinic has seen increased business with the addition of the new modalities and also from its MRI patients. SMI had a strong quarter resulting from an expansion of its referring base of physicians through a focus on community involvement.

Overall Operating Results:

For the nine months ended September 30, 2014 revenues from teleradiology services was $2,232,320 compared to $2,443,134 for the nine months ended September 30, 2013, a decrease of 8.6 % or $210,814. The decrease in revenue from teleradiology services of 8.6% is related to revenues carried in Canadian dollar. 6% of the decrease in revenues from teleradiology services is attributed to the change in exchange rate from 0.9769 for the nine months ended September 30, 2013 to 0.9184 for the nine months ended September 30, 2014. The remaining decrease of 2% is a result of a loss of revenues of a major customer in August 2014.

For the nine months ended September 30, 2014, revenues from medical scans services were $1,555,083 compared to $1,371,737 for the nine months ended September 30, 2013, an increase of 13 % or $183,346. The increase of revenue from medical scans services of 13% is owing to the addition of CT and X-Ray imaging services along with an increase in existing MRI imaging services.

For the nine months ended September 30, 2014, cost of sales relating to radiology services were $2,212,967 compared to $2,390,607 for the nine months ended September 30, 2013, a decrease of 7.5% or $177,640. The decrease pertaining to cost of sales of CTS was mainly due to fluctuations in exchange rate and decrease in reading costs as a result of the loss of a major customer, and the decrease pertaining to SMI cost of sales was mainly due to set up costs incurred in 2013 that were not recurring in 2014.

Operating expenses for the nine months ended September 30, 2014 and September 30, 2013, totalled $1,340,602 and $1,237,237, respectively.

During the nine months ended September 30, 2014, we incurred $152,832 in amortization and depreciation expenses, $138,400 in legal and professional fees, $202,829 in general and administrative costs, $13,866 in management fees, $42,543 in advertising and promotion, $597,412 for labor, and $147,088 for rent and insurance.

During the nine months ended September 30, 2013, we incurred $221,913 in amortization and depreciation expenses, $116,063 in legal and professional fees, $170,264 in general and administrative costs, $11,442 in management fees, $35,984 in advertising and promotion, $522,327 for labor, and $128,099 for rent and insurance.

For the three months ended September 30, 2014 revenues from teleradiology services was $680,677 compared to $835,829 for the three months ended September 30, 2013, a decrease of about 20 % or $169,019. The decrease in revenue from teleradiology services of 20% is related to revenues carried in Canadian dollar. 6% of the decrease in revenues from teleradiology services is attributed to the change in exchange rate from 0.9769 for the three months ended September 30, 2013 to 0.9184 for the three months ended September 30, 2014. The remaining decrease of 14% is a result of a loss of revenues of a major customer in August 2014.

For the three months ended September 30, 2014, revenues from medical scans services were $594,664 compared to $486,197 for the three months ended September 30, 2013, an increase of 22% or $108,467. The increase of revenue from medical scans services of 22% is owing to the addition of CT and X-Ray imaging services along with an increase in existing MRI imaging services.

For the three months ended September 30, 2014, cost of sales relating to radiology services were $711,346 compared to $820,487 for the three months ended September 30, 2013, a decrease of about 13% or $109,141. The decrease pertaining to cost of sales of CTS was mainly due to fluctuations in exchange rate and decrease in reading costs as a result of the loss of a major customer, and the decrease pertaining to SMI cost of sales was mainly due to set up costs incurred in 2013 that were not recurring in 2014.

Operating expenses for the three months ended September 30, 2014 and September 30, 2013, totalled $473,562 and $395,178, respectively.

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During the three months ended September 30, 2014, we incurred $50,252 in amortization expense, $40,322 in legal and professional fees, $94,332 in general and administrative costs, $4,778 in management fees, $8,290 in advertising and promotion, $221,148 for labor, and $50,258 for rent and insurance.

During the three months ended September 30, 2013, we incurred $74,218 in amortization and depreciation expenses, $25,801 in legal and professional fees, $65,335 in general and administrative costs, $3,727 in management fees, $19,792 in advertising and promotion, $172,752 for labor, and $43,743 for rent and insurance.

The Company generated positive cash flow in 2014 in order to service its obligations but will require substantial investment in the near term in order to expand as we implement our business plan.

Liquidity and Capital Resources:

Prior to 2011, the Company funded its operations and working capital through the sale of common stock and convertible notes. Since the third quarter of 2010, through the third quarter of 2012 the Company has funded its operations and working capital through revenue generation. During the fourth quarter of 2012 through the first quarter of 2013 the Company sold convertible notes to fund the acquisition of SMI and associated costs. Since the second quarter of 2013, the Company has funded its operations and working capital with revenue generation. In 2014 the company issued a convertible note to fund future expansion of SMI operations and additional potential acquisitions.

The Company’s operations have produced $1,275,341 and $3,787,403 of revenues for the three and nine months ended September 30, 2014, respectively, 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 operating expenses on an ongoing basis through 2014 and beyond.

Based on the debt payment obligations of the Company that are due within the next 12 months, there is doubt about its ability to continue as a going concern, and the Company’s continued operations therefore are dependent upon either increasing revenues or adequate additional financing being raised, or both, to enable it to continue its operations as currently conducted.  Alternatively, the Company could adjust some of its operational requirements or modify some of its debt obligations; however, these changes may not necessarily provide sufficient funds to continue as a going concern. In the event that the Company is unable to continue as a going concern, it may be forced to realize upon its assets or even elect or be required to seek protection from its creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered these alternatives as a likely outcome, since it has continuing revenues from operations and is considering capital raising actions.

As of September 30, 2014, our assets totalled $3,450,982 which consisted of cash balances, accounts receivable, pre - paid expenses, deposits, intangible assets and computer and office equipment. As of September 30, 2014, our total liabilities consisted of accounts payable and accrued liabilities of $723,551, obligations under capital lease of $339,425, promissory notes of $87,292, and non-related party convertible notes of $2,330,997 (net of discount). As of September 30, 2014, we had an accumulated deficit of $1,934,860 and a working capital deficit of $427,696.

As of September 30, 2014 the Company had promissory notes to non–related parties for a total amount of $87,292. $22,355 of the promissory notes had scheduled monthly payments of $1,295 including interest at a rate of 6% per annum. This note is expected to mature on February 18, 2016. $64,937 of the promissory notes accrues interest at an annual rate of 12%, and due on February 1, 2015. Interest accrued is to be paid out monthly with the principal amount due on maturity.

On December 5, 2012, the Company sold, through a private placement to accredited investors, three year 12% convertible notes (“Series B Notes”) in the aggregate principal amount of $1,865,000. The Notes pay interest at a rate of 12% per annum, payable to the holder at 1% per month, and are due on December 31, 2015. On March 27, 2013 the Company sold an additional $150,000 of Series B Notes, these notes have the same terms and mature on March 31, 2016. The Notes are convertible into common shares of the Company at $0.10 per share. In addition, each purchaser of the Notes received shares dependent on the dollar amount of Notes purchased. The total number of shares issued was 5,315,000 shares of common stock of the Company. A detailed schedule of the Notes is presented in Note 10 to the consolidated financial statements.

On March 26, 2014 the Company issued $300,000 in convertible note (“Individually issued note”) to a non-affiliate.  The note pays interest at a rate of 12% per annum, payable to the holder at 1% per month. In addition to interest payments the Company will be making monthly payments of $5,000 towards the principal balance beginning June 1, 2014 for three years until the note due date of February 27, 2017. The note is convertible into common shares of the Company at $0.15 per share. In addition, the purchaser of the note received 300,000 shares as part of the note agreement.  A detailed schedule of the Note is presented in Note 10 to the consolidated financial statements.

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On May 22, 2014 the Company sold, through private placement to accredited investors, three year 12% convertible notes (“Series C Notes”) in the aggregate principal amount of $95,000.

The Notes bear interest at a rate of 12% per annum, payable to the holder at1% per month, with the principal amount due on May 31, 2017. The Notes are convertible into shares of the Company’s common stock at an initial conversion rate of $0.15 per share. In addition, each holder of Series C Notes received shares dependent on the dollar amount of Notes purchased. The total number of shares issued was 95,000 shares of common stock of the Company. A detailed schedule of the Notes is presented in Note 10 to the consolidated financial statements.

In May 2014 the Company received proceeds of $50,000 through private placement from an accredited investor, and in June 2014 the Company assigned $25,000 of the acquisition liability that was due as part of SMI acquisition (see Note 4) to loans payable. The loans were held with the Company until they were registered with Pennsylvania Securities Commission and were permitted to sell to the Pennsylvania residents investors Series C convertible note. On August 25, 2014 Series C Notes were issued to the investors and 75,000 shares of common stock of the Company were issued.

The Company intends to explore capital raising options in the near term which may include the issuance of additional debt and the sale of equity or equity based securities.  The Company has no agreements or arrangements for additional capital at this time.  There can be no assurance that it will be able to raise additional capital, or if funds are offered, that they will on terms acceptable to the Company. A substantial amount of the assets of the Company, held through its subsidiaries, are pledged to secure certain debt; therefore, the ability of the Company to issue secured debt may be limited or require waivers or modifications to the current outstanding debt, which the current lenders do not have to provide.

Off Balance Sheet Arrangements

None.

New Accounting Pronouncements

There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s condensed consolidated financial position, results of operations or cash flows.

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, 2013.

Item 4T. – Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this quarterly report, management carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

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Limitations on Effectiveness of Controls and Procedures

Our management, which includes our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.  These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Controls over Financial Reporting

In connection with the evaluation of our internal controls, our principal executive officer and principal financial officer have determined that during the period covered by this quarterly report, there have been no changes to our internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II

ITEM 1. Legal Proceedings

On December 27, 2011, Geoffrey Blackner v. Schuylkill Open MRI, et al litigation, docketed in the Schuylkill County Court of Common Pleas, No. S15802011 was commenced against SMI by Mr. and Mrs. Blackner (“Plaintiffs”). The Plaintiffs allege that a radiologist at Schuylkill Medical Center was negligent in not finding the T1-2 disc herniation when interpreting a CT scan of Mr. Blackner’s head and neck. They further allege that a second doctor was negligent in not finding the T1-2 disc herniation when interpreting an MRI of Mr. Blackner’s cervical spine. Plaintiffs allege that SMI is vicariously liable for this negligence, because the second doctor was an independent contractor of Schuylkill Open MRI. Plaintiffs’ argue that the delay in discovering the T1-2 disc herniation, and thus the delay in surgery for that disc herniation, resulted in the damages to Mr. Blackner, specifically to his right hand. Mrs. Blackner has a loss of consortium claim.  SMI has passed this case to its insurer and has received a full indemnity from the seller of SMI to MIC for this claim. The Company has fully paid its insurance deductible and does not anticipate any further monetary damages from this claim.

ITEM 1A. Risk Factors

Not Applicable

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

The Company issued 75,000 shares in May 2014 at a price of $0.0794 per share to purchasers of Series C Notes issued in August of 2014.

The Company issued 95,000 shares in May 2014 at a price of $0.06 per share to purchasers of Series C Notes issued in May of 2014.

The Company issued 300,000 shares in March 2014 at a price of $0.085 per share to purchasers of $300,000 of a convertible note issued in March of 2014.

The Company issued 5,000 shares in January 2014 at a price of $0.03 per share for services.

These securities were issued in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act and Regulation D thereunder.

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ITEM 3. Defaults Upon Senior Securities

None

ITEM 4. Mine Safety Disclosures

None

ITEM 5. Other Information

None

ITEM 6. Exhibits

(a) Exhibits.

* Filed herewith.

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.