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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, 2011


¨ 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 x 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.






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

20

  ITEM 4T       Controls and Procedures

20

 

 

 

PART II

 

 

 

 

 

  ITEM 1.        Legal Proceedings

21

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

21

  ITEM 3.        Defaults Upon Senior Securities

21

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

21

  ITEM 5.        Other Information

21

  ITEM 6.        Exhibits

22




2




Item 1. Consolidated Financial Statements


Diagnostic Imaging International Corp.

Consolidated Balance Sheets (Unaudited)

 

 

 

 

 

 

 

September 30,

2011

 

December 31,

2010

ASSETS

 

 

 

 

 

Current Assets

 

 

 

 

 

Cash

$

42,445 

 

$

19,671 

Accounts Receivable, net

 

134,443 

 

 

127,144 

Prepaid Expenses

 

7,008 

 

 

10,643 

Total Current Assets

 

183,896 

 

 

157,458 

Property and Equipment

 

 

 

 

 

Equipment

 

100,982 

 

 

105,436 

Less: Accumulated Depreciation

 

(99,286)

 

 

(102,587)

Total Property and Equipment, net

 

1,696 

 

 

2,849 

Intangibles

 

 

 

 

 

Hospital Contracts

 

794,707 

 

 

794,707 

Non Compete Contract

 

105,328 

 

 

105,328 

Less: Accumulated Amortization

 

(621,603)

 

 

(535,192)

Total Intangible Assets, net

 

278,432 

 

 

364,843 

Other Assets

 

 

 

 

 

Deposits

 

4,828 

 

 

4,942 

Loans Receivable

 

817 

 

 

581 

Total Other Assets

 

5,645 

 

 

5,523 

TOTAL ASSETS

$

469,669 

 

$

530,673 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Current Liabilities

 

 

 

 

 

Accounts Payable and Accrued Expenses

$

160,963 

 

$

247,543 

Promissory Notes

 

82,650 

 

 

Loans Payable

 

 

 

27,402 

Loan Payable - Related Party

 

 

 

8,360 

Note Payable - Shareholder

 

7,062 

 

 

7,282 

Convertible Note – Shareholder, net short term portion

 

13,178 

 

 

Convertible Notes, net short term portion

 

129,257 

 

 

45,159 

Total Current Liabilities

 

393,110 

 

 

335,746 

Long Term Liabilities

 

 

 

 

 

Convertible note - Shareholder, net

 

4,632 

 

 

17,470 

Convertible notes, net  

 

40,159 

 

 

147,337 

Total Long Term Liabilities

 

44,791 

 

 

164,807 

Total Liabilities

 

437,901 

 

 

500,553 

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, 18,106,481, and 18,056,481 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively

 

18,107 

 

 

18,057 

Additional Paid-In Capital

 

1,597,236 

 

 

1,595,753 

Comprehensive Loss Accumulated

 

(4,833)

 

 

(1,403)

Accumulated Deficit

 

(1,578,742)

 

 

(1,582,287)

Total Stockholders' Equity

 

31,768 

 

 

30,120 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

469,669 

 

$

530,673 


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




3





Diagnostic Imaging International Corp.

Consolidated Statements of Operations (Unaudited)

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

 

September 30,

 

September 30,

 

2011

 

2010

 

2011

 

2010

Revenue:

 

 

 

 

 

 

 

 

 

 

 

Sales

$

957,775 

 

$

831,894 

 

$

2,829,033 

 

$

2,229,157 

Less: Cost of sales

 

782,984 

 

 

683,817 

 

 

2,329,153 

 

 

1,829,769 

Gross Margin

 

174,791 

 

 

148,077 

 

 

499,880 

 

 

399,388 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

Advertising

 

164 

 

 

16,314 

 

 

1,174 

 

 

37,248 

Amortization

 

28,803 

 

 

36,496 

 

 

86,410 

 

 

154,507 

Depreciation

 

367 

 

 

1,041 

 

 

1,102 

 

 

2,981 

General and Administrative

 

13,405 

 

 

10,180 

 

 

33,159 

 

 

43,975 

Insurance

 

5,274 

 

 

4,823 

 

 

15,201 

 

 

12,142 

Labor

 

39,647 

 

 

33,848 

 

 

98,626 

 

 

84,073 

Legal and professional

 

12,927 

 

 

32,795 

 

 

70,047 

 

 

133,298 

Management fees

 

2,489 

 

 

2,292 

 

 

7,279 

 

 

6,140 

Rent Office Space and Servers

 

24,429 

 

 

22,805 

 

 

73,577 

 

 

57,220 

Travel

 

1,507 

 

 

662 

 

 

4,433 

 

 

2,880 

Total Operating Expenses

 

129,012 

 

 

161,256 

 

 

391,008 

 

 

534,464 

Net Gain / (Loss) from Operations

 

45,779 

 

 

(13,179)

 

 

108,872 

 

 

(135,076)

 

 

 

 

 

 

 

 

 

 

 

 

Other Income and (Expenses):

 

 

 

 

 

 

 

 

 

 

 

Foreign Currency Gains/(Losses)

 

13,508 

 

 

(12,362)

 

 

3,658 

 

 

(7,242)

Amortization of Debt Discount

 

(26,287)

 

 

(22,955)

 

 

(78,859)

 

 

(44,904)

Interest Expense

 

(8,851)

 

 

(12,623)

 

 

(30,128)

 

 

(31,679)

Total Other Income/(Expenses)

 

(21,630)

 

 

(47,940)

 

 

(105,329)

 

 

(83,825)

 

 

 

 

 

 

 

 

 

 

 

 

Net Income / (Loss)

 

24,149 

 

 

(61,119)

 

 

3,543 

 

 

(218,902)

Comprehensive Income/(Loss)

 

(4,866)

 

 

2,640 

 

 

(3,430)

 

 

(900)

Total comprehensive Income/ (Loss)

$

19,283 

 

$

(58,479)

 

$

113 

 

$

(219,802)

Basic and Diluted Income / (Loss) per Share

$

0.001 

 

$

(0.003)

 

$

0.000 

 

$

(0.012)

Weighted Average Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

18,072,242 

 

 

18,802,024 

 

 

18,061,792 

 

 

17,981,226 


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



4





Diagnostic Imaging International Corp.

Consolidated Statements of Cash Flows (Unaudited)

 

 

 

Nine Months Ended

 

September 30,

 

September 30,

 

2011

 

2010

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net Income / (Loss)

$

3,543 

 

$

(218,902)

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

 

 

 

 

 

   Depreciation

 

1,102 

 

 

2,981 

   Accrued Interest Converted into note

 

26,194 

 

 

   Interest imputed on shareholder loan

 

535 

 

 

546 

   Interest imputed on promissory  notes

 

 

 

13,112 

   Amortization of Debt Discount

 

78,859 

 

 

44,906 

   Shares issued for services

 

1,000 

 

 

15,200 

   Amortization of Intangible Assets

 

86,410 

 

 

154,507 

   Foreign currency transaction Gain/ Loss

 

(6,003)

 

 

4,434 

Changes in operating assets and liabilities:

 

 

 

 

 

   Accounts Receivable

 

(7,299)

 

 

(50,193)

   Deposits and prepaid expenses

 

3,749 

 

 

(10,468)

   Accounts Payable and accrued liabilities

 

(40,718)

 

 

78,526 

   Loans Receivable

 

(236)

 

 

(25,436)

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

147,136 

 

 

9,213 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Increase in Restricted Cash

 

 

 

(182,081)

NET CASH  USED IN  INVESTING ACTIVITIES

 

 

 

(182,081)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

   Proceeds from Sale of Common Stock

 

 

 

36,000 

   Proceeds from related party debt

 

 

 

54,306 

   Principal payments on Related Party debt

 

(21,240)

 

 

(3,869)

   Principal payments on debt

 

(103,655)

 

 

(219,860)

   Proceeds from debt issuance

 

49,825 

 

 

362,219 

   Settlement payment

 

(45,862)

 

 

NET CASH PROVIDED BY/ (USED IN) FINANCING ACTIVITIES

 

(120,932)

 

 

228,796 

Loss due to foreign currency translation

 

(3,430)

 

 

(900)

NET CHANGE IN CASH

 

22,774 

 

 

55,028 

CASH AT BEGINNING OF PERIOD

 

19,671 

 

 

18,076 

CASH AT END OF PERIOD

$

42,445 

 

$

73,104 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

   Interest

$

3,934 

 

$

4,238 

   Income Taxes

$

 

$

 

 

 

 

 

 

Non-cash financing and investing activities:

 

 

 

 

 

   Issuance of Earn-Out shares

$

 

$

150,000 


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




5




Diagnostic Imaging International Corp.

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2011


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.


Principle of Consolidation


The consolidated financial statements include the accounts of Diagnostic Imaging International, Corp. and Canadian Teleradiology Services, Inc. (CTS), Intercompany accounts and transactions have been eliminated in the consolidated financial statements. CTS’ accumulated earnings prior to the date of acquisition March 02, 2009 were not included in the consolidated Balance sheet.


Reclassification of Accounts  


Certain prior period amounts have been reclassified to conform to September 30, 2011 presentation.


Use of Estimates and Assumptions


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


Cash and Cash Equivalents


The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.  At September 30, 2011, and December 31, 2010 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, 2011, and December 31, 2010 there was no allowance for bad debts.  As of September 30, 2011, four customers totaled approximately 84% of the total accounts receivable.   As of December 31, 2010, four customers totaled approximately 79% of the total accounts receivable.




6




Goodwill and Indefinite 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 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, 2011, 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.


As part of the settlement agreement between the Company and the previous owners of CTS (see Note 12), 1,000,000 shares of the Company previously issued as part of CTS’ acquisition were returned for cancelation. The value of the shares was based upon the closing price of our returned common stock at the cancellation date of December 2, 2010. No reversals or adjustments to previously recognized amortization expenses were recorded.


Amortization of Intangible Assets


The accumulated amortization of intangible assets with finite useful lives was $28,803 and $36,496 for the quarter ended September 30, 2011 and 2010, respectively.


For these assets, amortization expense over the next five years is expected to be $278,432.


Year

 

USD

2011

 

$

28,802

2012

 

 

115,213

2013

 

 

115,213

2014

 

 

19,204

2015

 

 

-

 

 

$

278,432


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 quarter ended September 30, 2011, CTS held eight contracts; three contracts that are renewable on a year-to-year basis, two contracts that are  renewable in 2014 and 2015, one contract that is renewable in 2014, and its two largest contracts, which are, each renewable in 2013. As described above in accordance with the requirement of 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).


Cost of Sales


Cost of sales includes fees paid to radiologists for Teleradiology services.  




7




Impairment of Long-Lived Assets


In accordance with ASC Topic 3605, long-lived assets, such as property, plant, and equipment, and purchased intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Goodwill and other intangible assets are tested for impairment.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.


On December 31, 2010 an impairment loss of $100,000 was recorded against the carrying value of the company’s purchased intangibles is reflected in the reduced value of the non-compete agreement.


Amortization and Depreciation


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


3 years

Equipment


2 to 5 years

Hospital Contracts


5 years

Non compete Contract


Stock based compensation


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


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


The Company did not recognize stock-based compensation expenses from stock granted to non-employees for the quarter ended September 30, 2011.


The Company recognized stock-based compensation expenses from stock granted to employees for the three months ended September 30, 2011 of $1,000.


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 disclose and categorize each of our fair value measurement items that we recorded at fair value on a recurring basis in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:


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



8




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


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


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


Foreign Currency Translation


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


The Company recognized a foreign currency gain on transactions from operations of $13,508, and a foreign currency loss of $12,362 for the three months ended September 30, 2011 and September 30, 2010, respectively.


The Company recognized a foreign currency translation loss of $4,866 for the three months ended September 30, 2011, and a foreign currency translation gain of $2,640 for the three months ended September 30, 2010.


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.


Net Income / (Loss) Per Share


The Company follows the provisions of ASC Topic 260, formerly SFAS No. 128, 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, 2011, there were no stock options or stock awards that would have been included in the computation of diluted earnings per share that could potentially dilute basic earnings per share in the future.




9




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


 

Three Months Ended

 

September 30,

 

September 30,

2011

2010

Numerator:

 

 

 

 

 

Continuing operations:

 

 

 

 

 

Net Income /(Loss) from continuing operations

$

19,283 

 

$

(58,479)

Total

$

19,283 

 

$

(58,479)

 

 

 

 

 

 

Net Income / (loss)

$

19,283 

 

$

(58,479)

 

 

 

 

 

 

Denominator:

 

 

 

 

 

Weighted average number of shares outstanding – basic and diluted

 

18,072,242 

 

 

18,802,024 

 

 

 

 

 

 

EPS:

 

 

 

 

 

Basic:

 

 

 

 

 

Income / (Loss) from Continuing operations

$

0.001 

 

$

(0.003)

Net Income /(loss)

$

0.001 

 

$

(0.003)

 

 

 

 

 

 

Diluted

 

 

 

 

 

Income / (Loss) from Continuing operations

$

0.001 

 

$

(0.003)

Net Income / (loss)

$

0.001 

 

$

(0.003)


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


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


Note 2. Interim Financial Statements


The accompanying interim unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine and three month period ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. 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, 2010.


Note 3.  Property and Equipment


Property and equipment are stated at cost.  Depreciation is calculated on the accelerated method over the estimated useful life of the assets. At September 30, 2011 and December 31, 2010, the major class of property and equipment were as follows:


 

September 30,

2011

 

December 31,

2010

 

Estimated useful lives

Computer/Office Equipment

$

100,982 

 

$

105,436 

 

3 years

Less: Accumulated Depreciation

 

(99,286)

 

 

(102,587)

 

 

Net Book Value

$

1,696 

 

$

2,849 

 

 




10




Depreciation expense was $367 and $1,041 for the three months ended September 30, 2011 and 2010, respectively.


Note 4.  Lease Commitments


CTS, a wholly owned subsidiary of the Company has a lease for its off-site servers at a cost of approximately $2,400 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 approximately $2,400 minimum rental, and approximately $2,800 in utilities, realty taxes, and operating costs; for a total of approximately $5,200 per month. The first lease payment was made in April 2010. This lease was accounted for as an operating lease and will expire in March of 2013.


Expected Lease commitments for the next three years:


Year

 

Office Space

 

Servers

 

Total

2011

 

$

62,400 

 

$

28,800 

 

$

91,200 

2012

 

 

62,400 

 

 

28,800 

 

 

91,200 

2013

 

 

15,600 

 

 

28,800 

 

 

44,400 

 

 

$

140,400 

 

$

86,400 

 

$

226,800 


Note 5.  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 and recognized at the date of the announcement.  An additional 500,000 shares, also valued based upon the closing price, was contingent consideration whose issuance was based upon revenue targets.  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 Acquisition Liability

 

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.


On December 31, 2010 a reduction of $100,000 in the carrying value of the Non-compete agreement was recorded and discussed above in the Intangibles assets disclosure in Note 1.


The amounts of revenue included in the consolidated income statement for the quarter ended September 30, 2011 and September 30, 2010 are $957,775 and $831,894, respectively.



11





The amounts of gross margin included in the consolidated income statement for the quarter ended September 30, 2011 and September 30, 2010 are $174,791 and $148,077, 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.


Note 6.  Accounts Payable and Accrued Liabilities


As of September 30, 2011 and December 31, 2010, the trade payables and accrued liabilities of the Company were $160,963 and $247,543, respectively. Of the total amount as of September 30, 2011, approximately $87,700 is related to CTS ongoing operations. The balance of the accounts is for vendors supplying goods and services used in the normal course of business and.  Of the total amount as of December 31, 2010, approximately $128,000 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.  


Note 7.  Promissory Notes


On March 2, 2009, the Company entered into promissory note agreements of $234,887 with the former shareholders of CTS as part of the acquisition agreement.  On March 2, 2010 the Company paid $145,869 towards the balance of the outstanding promissory notes. A foreign exchange loss of $626 was recorded on the payment towards these notes. As part of the settlement agreement between the Company and the previous owners of CTS, the remaining balance of the promissory notes of $148,134 was paid and the notes were eliminated from the company’s books against funds previously paid into court by DIIC. During 2010 a total of $7,352 in foreign currency loss was recorded against the balance of the notes to adjust to the value on the Balance sheet date.


During the nine months ended September 30, 2011 the Company entered into additional promissory notes agreements with non – related parties for a total amount of $77,228. The promissory notes are due on December 31, 2012. Interest expense on the promissory notes is accrued at a rate of 10% compounded quarterly. For the nine months ended September 30, 2011 $5,642 in accrued interest was recorded on the notes.


A summary of the Promissory Notes is as follows:


Promissory Notes  at January 1, 2010

 

$

286,650 

 

 

 

 

Less: Payments in 2010

 

 

(294,002)

Added: Foreign Exchange Loss in 2010

 

 

7,352 

 

 

 

 

Promissory notes  at December 31, 2010

 

$

 

 

 

 

Added: Proceeds from Notes issuance

 

 

77,228 

Added: Accrued Interest

 

 

5,642 

Less: Payments

 

 

(220)

 

 

 

 

Promissory notes  at  September 30, 2011

 

$

82,650 


Note 8.  Convertible Notes


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


In accordance with ASC 470 on issuance of the shares given at 3.33 shares of company stock for each $1 of notes purchased, the Company recognized an additional paid in Capital and a discount against the notes for a total of $210,290.  An amortization of the discount for the nine months ended September 30, 2011 was $78,859.


For the nine months ended September 30, 2011, $20,340 in accrued interest was recorded on the notes.


For the nine months ended September 30, 2011, $6,064 in foreign currency gain was recorded on the portion of the notes which is carried in Canadian dollar.




12




The Details of the Notes are as follows:


Issuance Date

 

December 31,

2010

Balance

 

9 Months ended

September 30, 2011

Accrued Interest

 

9 months ended

September 30, 2011

Foreign Exchange

Gain/(Loss)

 

9 Months Ended

September, 2011

(Payments)

 

9 Months Ended

September 30, 2011

(Amortization of

Debt Discount

 

September 30,

2011

Balance

 

Maturity date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 1, 2010

 

$

13,320

 

$

1,140

 

$

n/a

 

$

(6,750)

 

$

4,371

 

$

12,081

 

March 1, 2012

April 14, 2010

 

 

13,518

 

 

1,196

 

 

n/a

 

 

(6,750)

 

 

4,371

 

 

12,335

 

April 1, 2012

March 4, 2010

 

 

13,311

 

 

1,110

 

 

448

 

 

(6,940)

 

 

4,371

 

 

11,404

 

March 31, 2012

March 18, 2010

 

 

13,536

 

 

1,167

 

 

470

 

 

(6,940)

 

 

4,371

 

 

11,664

 

March 31, 2012

March 22, 2010

 

 

13,181

 

 

1,110

 

 

437

 

 

(6,940)

 

 

4,371

 

 

11,285

 

March 31, 2012

March 1, 2010

 

 

13,346

 

 

1,110

 

 

456

 

 

(6,940)

 

 

4,371

 

 

11,431

 

March 31, 2012

February 26, 2010

 

 

35,587

 

 

3,579

 

 

277

 

 

(23,306)

 

 

17,045

 

 

32,628

 

March 31, 2012

April 16, 2010

 

 

13,326

 

 

1,171

 

 

465

 

 

(6,940)

 

 

4,371

 

 

11,463

 

April 1, 2012

June 1, 2010

 

 

17,470

 

 

2,307

 

 

762

 

 

(12,444)

 

 

11,239

 

 

17,810

 

June 1, 2012

June 17, 2010

 

 

9,330

 

 

1,282

 

 

448

 

 

(6,940)

 

 

6,244

 

 

9,468

 

June 1, 2012

August 6, 2010

 

 

16,471

 

 

1,397

 

 

622

 

 

(6,940)

 

 

3,123

 

 

13,429

 

September 1, 2012

September 23, 2010

 

 

26,554

 

 

2,260

 

 

983

 

 

(11,112)

 

 

4,995

 

 

21,714

 

October 1, 2012

October 19, 2010

 

 

11,017

 

 

1,511

 

 

696

 

 

(6,940)

 

 

5,619

 

 

10,511

 

November 1, 2012

Total

 

$

209,966

 

$

20,340

 

$

6,064

 

$

(115,882)

 

$

78,859

 

$

187,223

 

 


Summary of the Notes is as follows:


 

September 30,

2011

 

December 31,

2010

Convertible notes Beginning Balance

$

349,066 

 

$

419,440 

   Less: unamortized debt discount

 

(60,237)

 

 

(139,098)

Convertible notes principal, net

 

288,829 

 

 

280,342 

 

 

 

 

 

 

   Less: Payments in Period

 

(115,882)

 

 

(104,887)

   Added: Foreign exchange loss

 

(6,064)

 

 

10,785 

   Added: Accrued interest

 

20,340 

 

 

23,728 

Total Convertible notes, net

$

187,223 

 

$

209,966 

 

 

 

 

 

 

  Less: Short term portion, net

 

129,257 

 

 

45,159 

  Less: Shareholder short term portion, net

 

13,178 

 

 

17,470 

Long term portion, net

$

44,791 

 

$

147,337 


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


 

Principal

Payments

 

Interest

Payments

 

Amortization

of Discount

2011

$

36,555 

 

 

(26,286)

2012 -  ( Before maturity dates)

 

164,778 

 

 

(33,951)

2012 -  (On maturity dates) *

 

113,220 

 

46,200 

 

2013

 

 

 

2014

 

 

 

2015

 

 

 

Total

$

314,553 

 

46,200 

 

(60,237)


*All unpaid principal of $113,220, together with the balance of unpaid and accrued interest of $46,200 that will be due on maturity can be converted into shares by the holder as set in the conditions of the convertible notes agreement and discussed above.


Note 9.  Related Party Transactions


For the nine months ended September 30, 2011, Richard Jagodnik (an officer and shareholder of the Company), had a $7,062 note payable from DIIC.  The note is non-interest bearing and payable on demand.  Payment of $256 was made during the nine months ended September 30, 2011.


During the second quarter of 2010 Richard Jagodnik loaned DIIC $42,944 under the same terms of convertible notes as described in Note 8 above. The note is carried in Canadian dollars and a foreign exchange gain of $762 was recorded for the nine months ended September 30, 2011. For the nine months ended September 30, 2011 $2,307 in accrued interest was recorded and added to the note. The total value of the note, net of discount as at September 30, 2011, is $17,810, including accrued interest.



13





In August of 2010, a related party to our CEO, Mr. Geisler, has loaned the company $11,362. The note is carried in Canadian dollars and a foreign exchange loss of $223 was recorded for the nine months ended September 30, 2011. Interest on the note accrues at 10% per annum. For the nine months ended September 30, 2011 $214 in accrued interest was recorded and added to the note. Payments of $8,797 were made during the nine months ended September 30, 2011. The note was paid out in full by June 28, 2011.


Summary of Related Party Notes is as follows:


 

Related

Party Note

 

Shareholder

Note

 

Shareholder

Convertible Note

Balance at December 31, 2010

$

 8,360 

 

$

 7,282 

 

$

 17,470 

Added: Accrued Interest

 

 214 

 

 

 - 

 

 

2,307 

Added: Foreign Exchange Loss /(Gain)

 

 223 

 

 

 - 

 

 

 (762) 

Less: Payments

 

 (8,797)

 

 

(220)

 

 

(12,444)

Added: Amortization of Debt Discount

 

 - 

 

 

 - 

 

 

 11,239 

Balance at September 30, 2011

$

 - 

 

$

 7,062 

 

$

 17,810 


Note 10. Major Customers


For the three months ending September 30, 2011 and 2010 revenue was derived primarily from radiology services.


Major customers representing more than 10% of total revenue for the three months ended September 30, 2011 and 2010 are as follow:


 

 

Three Months Ended

September 30, 2011

 

Three Months Ended

September 30, 2010

Customers

 

Revenue amount

 

Revenue percentage

 

Revenue amount

 

Revenue percentage

Contract A

 

$

250,621

 

26%

 

$

205,589

 

23%

Contract B

 

 

156,871

 

16%

 

 

163,288

 

19%

Contract E

 

 

281,856

 

29%

 

 

296,437

 

34%

Contract F

 

$

133,357

 

14%

 

$

160,175

 

18%


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


 

 

Balance at

September 30, 2011

 

Balance at

December 31, 2010

 

 

Accounts Receivable

 

Accounts Receivable

 

Accounts Receivable

 

Accounts Receivable

Customers

 

Closing Balance

 

Percentage

 

Closing Balance

 

Percentage

Contract A

 

$

14,842

 

11%

 

$

15,565

 

12%

Contract B

 

 

7,508

 

6%

 

 

9,999

 

8%

Contract E

 

 

35,614

 

26%

 

 

28,177

 

22%

Contract F

 

 

41,879

 

31%

 

 

47,320

 

37%

Contract G

 

 

20,200

 

15%

 

 

-

 

0%

Contract H

 

$

10,909

 

8%

 

$

-

 

0%


Note 11. 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, 2011 and 2010 were $19,700 and $22,400, respectively.


Note 12. 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.  




14




On November 26th, 2010 the parties to the above suits entered into a full and final settlement and mutual release of all claims against each other. The terms of the settlement called for the Company to pay the Vendors $281,512 on November 26th, 2010 and a further $45,243 on January 25th, 2011 which was recorded as an accrued liability as at December 31, 2010. These amounts were paid. In addition the Company has granted an exclusion to the Non-Compete agreement with the Vendors, allowing them to pursue a Teleradiology business located solely in British Columbia, Canada and Washington State, U.S.A. The Vendors have released the Company from any further monies owed to the Vendors and returned one (1) million shares of Company stock for cancellation.


During 2010 payments made into court were deposited in a non interest bearing account, and were allocated to a restricted deposit account on the company’s financial statements. As of December 31, 2010, $238,783 of restricted deposit paid into court was applied as part of the settlement agreement and therefore, the balance of the restricted deposit account as of December 31, 2010 was $0.


Note 13.  Common Stock Transactions


For the nine months ended September 30, 2011, 50,000 shares were issued for employee services valued at $1,000 based upon the closing price of our common stock at the grant date.


During the fourth quarter of 2010, 83,250 shares were issued as an additional part of convertible notes agreements. The shares were valued at $14,985 based upon the closing price of our common stock at the grant date.


During the fourth quarter of 2010, 1,000,000 shares valued at $100,000 based upon the closing price of our common stock at the cancellation date were returned to the Company for cancellation as part of the settlement agreement between the Company and the previous owners of CTS.


During the third quarter of 2010, 50,000 shares, previously issued in the first quarter, were cancelled 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 of 2010, 50,000 shares were 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 of 2010, 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.


During the first quarter of 2010, 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 second quarter of 2010, 450,000 shares were issued by private placement for $36,000.


During the second quarter of 2010, 566,100 shares were issued as an additional part of convertible notes agreements. The shares were valued at $93,240 based upon the closing price of our common stock at the grant date.


During the first quarter of 2010, 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 of 2010, 500,000 shares previously recorded as contingent shares were issued. The shares were valued at $150,000 based upon the closing price of our common stock at the initial measurement date.


Note 14. Subsequent events


No Subsequent events


The company evaluated subsequent events through November 01, 2011, the date the financial statements were issued.




15




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 and three months ended September 30, 2011, 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, 2010.


Company History


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


CTS (Business description)


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


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



16





Ø 24 Hour Turnaround on Non-emergency Reports


Ø One Hour Turnaround on Emergency Verbal STAT Reports


Ø References from Client Public Hospitals and Clinics on request


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


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.


About Teleradiology


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


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


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


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


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


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


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


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


Magnetic Resonance Imaging (MRI)


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


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


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


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




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Computerized Axial Tomography (CAT) Technology


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


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


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


Computed Tomography (CT)


Computed Tomography (CT) is a method employing. is used to generate a of the inside of an object from a large series of two-dimensional images taken around a single.


CT was originally known as the "EMI scan" as it was developed at a research branch of, a company best known today for its music and recording business. It was later known as computed axial tomography (CAT or CT scan).


Positron Emission Tomography (PET)


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


Canadian Government Regulation


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


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


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


Competition


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


Customers


We currently maintain a client roster of 17 public hospitals in Canada through our CTS subsidiary. The loss of any of these clients would have a negative impact on the Company.


Employees


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




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Operations


CTS


During the third quarter, CTS continued to focus on marketing its services to potential clients. In the third quarter one of the Company’s client hospitals ended service with CTS, citing a desire by the current team to bring the workload back into the hospital and a change in the workflow within the hospital.  The client hospital has communicated that this change was not a reflection on CTS service. The hospital continues an open dialogue with the potential to use CTS again in the future as their study volume increases. In the second quarter of 2011 the company focused on sales of CTS service to new hospitals. In the first quarter of 2011, the Company began servicing a new client that had signed a contract with the Company in the last quarter of 2010. In addition, the Company focused on external marketing for CTS in order to gain new clients.


Diagnostic Imaging Clinics


In the third quarter of 2011, the company continued to explore potential acquisitions of a Diagnostic Imaging clinic in the United States. In the second quarter of 2011 the company continued to look for an acquisition that meets a certain criteria. The Company continues these efforts.  In the first quarter of 2011 the Company continued to explore opportunities for acquiring an MR clinic. The Company made its final required payment as outlined in the settlement agreement regarding the purchase of CTS (see Note 12 to the consolidated financial statements).


Overall Operating Results:


For the quarter ended September 30, 2011 revenues from radiology services were $957,775 compared to $831,894 for the quarter ended September 30, 2010, an increase of 15% or $125,881. This increase in revenues was due to an increase in demand for radiology services from existing clients, as well as a new client added in 2011.


For the quarter ended September 30, 2011 cost of sales incurred were $782,984 compared to $683,817 for the quarter ended September 30, 2010, an increase of 15% or $99,167. In order to increase revenues, we incurred additional costs of sales. As a percentage of revenues, our costs of sales remained constant at 82% for the quarter ended September 30, 2011 and 2010.


Operating expenses for the quarters ended September 30, 2011 and September 30, 2010, totaled $129,012 and $161,256, respectively.


During the quarter  ended September 30, 2011, we incurred $29,170 in amortization and depreciation expenses, $12,927 in legal and professional fees, $13,405 in general and administrative costs, $2,489 in management fees, $164 in advertising and promotion, $39,647 for labor, $1,507 for travel, and $29,703 for rent and insurance.


During the quarter 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, $662 for travel, and $27,628 for rent and insurance.  


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


Liquidity and Capital Resources:


Prior to 2011, the Company funded its operations and working capital through the sale of common stock.  In 2011, 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 550,000 shares of common stock in several private offerings to accredited investors, in which it raised an aggregate of $61,000. 


The Company’s operations have produced $957,775 of revenues for the quarter ended September 30, 2011, 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 2011 and beyond. The Company will need to raise additional capital to expand its business, implement additional aspects of its business plan, and to retire the remaining balance in convertible notes; however, there can be no assurance that the Company will be able to raise the funds necessary to do so.   


Since inception, our current Chief Financial Officer (and former Chairman and Chief Executive Officer) has loaned the Company a total of $112,381 to fund our operations. The note is non-interest bearing and payable upon demand. For the quarter ended September 30, 2011, the balance outstanding on this note was $7,062.




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During the second quarter of 2010 Richard Jagodnik loaned DIIC $42,944 under the same terms of convertible notes as described in Note 8 above. The note is carried in Canadian dollars and a foreign exchange gain of $762 was recorded for the nine months ended September 30, 2011. For the nine months ended September 30, 2011 $2,307 in accrued interest was recorded and added to the note. The total value of the note, net of discount as at September 30, 2011, is $17,810, including accrued interest.


As of September 30, 2011, our assets totaled $469,669, which consisted of cash balances, accounts receivable, deposits, intangible assets and computer and office equipment. As of September 30, 2011, our total liabilities consisted of accounts payable and accrued liabilities of $160,963, related party notes payable of $17,810 (net of discount), Promissory notes of $82,650, and non related party convertible notes of $169,416 (net of discount). As of September 30, 2011, we had an accumulated deficit of $1,578,742 and a working capital deficit of $209,213.


In 2010 the Company closed a financing of $419,440 in loans from private investors. The notes are due on various dates in 2012 and require principal payments of 3% per month on the outstanding principal balance. Interest on the notes accrues at 10% per annum. The notes and interest are convertible into shares of common stock of the Company at $0.15 per share. In addition, each note holder was given 3.33 shares of Company stock for each $1 of notes purchased. A detailed schedule of the Notes is presented in Note 8 to the consolidated financial statements.


During the nine months ended September 30, 2011 the Company issued promissory notes to non – related parties for a total amount of $49,825. The promissory notes are due on December 31, 2012. Interest expense on the promissory notes is accrued at a rate of 10% compounded quarterly.


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


Off Balance Sheet Arrangements


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


New Accounting Pronouncements


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


Item 3 – Quantitative and Qualitative Analysis of Market Risks


There are no material changes in the market risks faced by us from those reported in our Annual Report on Form 10-K for the year ended December 31, 2010.


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, 2011. This evaluation was carried out under the supervision and with the participation of our management, including our chief executive officer and 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.



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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, 2011, 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, 2011, 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.  On November 26th, 2010 the parties to the above suits entered into a full and final settlement and mutual release of all claims against each other. The terms of the settlement called for the Company to pay the Vendors $281,512 on November 26th, 2010 and a further $45,243 on January 25th, 2011. These amounts were paid. In addition the Company has granted an exclusion to the Non-Compete agreement with the Vendors, allowing them to pursue a Teleradiology business located solely in British Columbia, Canada and Washington State, U.S.A. The Vendors have released the Company from any further monies owed to the Vendors and returned one (1) million shares of Company stock for cancellation.


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


The Company issued 50,000 shares for employee services valued at $1,000 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




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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)


101.INS

XBRL Instance Document


101.SCH

XBRL Taxonomy Extension Schema


101.CAL

XBRL Taxonomy Extension Calculation


101.DEF

XBRL Taxonomy Extension Definition


101.LAB

XBRL Taxonomy Extension Labels


101.PRE

XBRL Taxonomy Extension Presentation


_________________

(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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