UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the Year Ended December 31, 1995
Commission file number 132-3
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Diapulse Corporation of America
(Exact name of registrant as specified on its charter)
Delaware 13-5671991
- -------------------------------- ------------------------------
(State or other jurisdiction of) (I.R.S Employer
incorporation of organization) Identification Number)
321 East Shore Road
Great Neck, New York 11023
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(Address of principal offices) (Zip Code)
Registrant's telephone number
including area code (516) 466-3030
------------------------------
===============================================================================
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.025 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-----
Aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the mean of the bid and the ask prices of the common
stock on December 31, 1995 as reported by an independent market maker.
$4,883,750
Number of shares outstanding of each of the registrant's classes of common
stock as of December 31, 1995
$3,956,448
DOCUMENTS INCORPORATED BY REFERENCE
None
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Diapulse Corporation of America
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995
TABLE OF CONTENTS
PART I.
Page
--------
Item 1. Business 1
Item 2. Properties 2
Item 3. Legal Proceedings 2
Item 4. Submission of Matters to a vote of Security Holders 2
PART II.
Item 5. Market for registrant's Common Equity and Related
Stockholder Matters 3
Item 6. Selected Financial Data 3
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 4-5
Item 8. Financial Statements and Supplementary Data 5
Item 9. Changes in Disagreements with Accountants on
accounting and Financial Disclosure 5
PART III.
Item 10. Directors and Executive Officers of the Registrant 6
Item 11. Executive Compensation 6
Item 12. Security Ownership of Certain Beneficial Owners and
Management 7
Item 13. Certain Relationships and Related Transactions 7
PART IV.
Item 14. Exhibits, Financial Statements Schedules and Reports
on Form 8-K 8-21
Signatures 22
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PART I
ITEM 1. Business
The Registrant develops, manufactures and markets Diapulser Technology, a
proprietary medical system which produces non-thermal pulsed high
frequency, high peak power electromagnetic energy to treat post-operative
edema and pain in acute and chronic wounds. It is used in hospitals,
nursing facilities, outpatient clinics, physicians practice and on
prescription in a patients' home. A number of insurance companies
reimburse for treatment. The Registrant has not significantly varied the
product or its service rendered since its last filing for the year ended
December 31, 1994.
Suppliers - The Registrant purchases raw materials and component parts of
its units from various suppliers of electronic products. A majority of the
individual component parts of the Diapulse units are standard and available
from any one of many suppliers. Were the Registrant to change from its
present suppliers for any reason, no significant difficulties would be
experienced in the replacement of raw materials from other suppliers, and
there would be no reduction in the quality or quantity of the material
purchased.
Sales and customers - Until October 1987, the Registrant derived
substantially all of its revenue from sales of the Diapulse and related
parts to customers in foreign countries. Upon obtaining Food and Drug
Administration approval to market Diapulse in the United States, in October
1987, the Registrant began selling and renting the Dialpulse nationally.
The Registrant is not dependent upon any single customer, but sells and
rents to numerous customers, the loss of any one of which would not have a
significant effect on the Registrant's results of operations.
The Registrant rents and sells Diapulse machines to hospitals, nursing
homes and physicians, and rents its equipment to individuals covered by
Medicare and private insurance companies whose claims have been assigned to
the Registrant in various parts of the country. Payment has been received
from private insurance and substantial reimbursements have been received
from Medicare. The registrant has been following the administrative
procedure to obtain additional payments from Medicare.
Backlog - The Registrant has sufficient inventory of complete units and
spare parts to manufacture additional units for the foreseeable future to
fill orders as they arrive. Because orders are filled quickly, firm
backlog at most points in time is not significant. Orders received by the
Registrant are not seasonal and are routinely filled throughout the year.
Patents - The Registrant has patents whose rights thereunder expire in
1999.
Employees - The Registrant has forty-two full-time and part-time
employees and commission salesmen.
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ITEM 2. Properties
The Registrant leases approximately 6,000 square feet of office
space in Great Neck, New York for a term expiring December 31, 1996 at an
annual rental of approximately $104,000 under a lease entered into during
the year ended December 31, 1991. The premises are used as the national
and international headquarters of the Company, as well as for research and
development. The Registrant does not lease or own any other premises.
ITEM 3. Legal Proceedings
Information with respect to this Item may be found in Note 3 of Notes to
Consolidated Financial Statements in Part IV, Item 14 of this form 10-K
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the year
covered by this report
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Part II
ITEM 5. Market For Registrant's Common Equity and Related Stockholder Matters
The Registrant's common stock has been traded on the NASDAQ over-the-
counter market, under the symbol DIAC. The bid and ask closing sales
prices are listed below.
Quarter Ended
____________________________________________________________________________
1995 1994
_______________________________ ____________________________
Mar31 Jun30 Sep30 Dec31 Mar31 Jun30 Sep30 Dec31
Common Shares:
Bid: $1.00 $1.00 $0.50 $1.00 $1.50 $1.25 $1.25 $1.125
Ask: $1.25 $1.25 $0.75 $1.25 $1.75 $1.50 $1.50 $1.375
As of December 31, 1995, there were approximately 1,528 stockholders of
record. The Company has not paid any cash dividends during any of the
periods indicated above. The Company anticipates that it will continue to
retain its earnings to finance the growth of its business.
ITEM 6. Selected Financial Data
The following selected financial data is qualified in its entirety by and
should be read in conjunction with the more detailed consolidated financial
statements and related notes included elsewhere herein.
SELECTED FINANCIAL DATA:
Year Ended December 31,
_______________________________________________________
1994 1993
1995 as restated as restated 1992 1991
__________ ___________ ___________ ________ ________
Net revenues:
Rentals and sales $1,286,774 $1,235,729 $1,264,966 $766,906 $670,732
Income (loss) before
extraordinary item 59,319 110,447 54,788 (59,182) 5,611
Net income (loss) 59,319 110,447 54,788 (59,182) 5,611
Income (loss) before
extraordinary item
per share 0.01 0.03 0.01 (0.02) -
Net income (loss)
per share 0.01 0.03 0.01 (0.02) -
At year end:
Total assets 2,112,507 2,146,224 2,427,005 1,048,701 949,635
Long-term obligations 977,350 977,350 977,350 865,205 750,000
Working capital 596,108 582,870 551,528 292,744 289,927
Stockholders' equity
(deficiency) 33,811 (25,508) (137,010) (488,755) (429,573)
Cash dividends
paid per share - - - - -
-3-
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ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview - The Registrant has been establishing and expanding its
distribution network, sales force and sales and rental programs. Control,
blind and double-blind studies demonstrating the clinical value of the
Registrant's product have been published in peer review medical journals
which continue to aid marketing. At the present time there are 36 diapulse
publications on medline.
Net Revenues - The net revenues increased in 1995 as compared to 1994,
although there were aggressive write-offs in 1995. The continued increase
in revenues during 1995 and 1994 as compared to 1993 is primarily
attributable to an improved marketing program, expansion of the
Registrant's distribution network and sales force, as well as a broader
rental program. Net revenue increased 4.1% in 1995 over 1994 levels and
decreased 13.5% in 1994 over 1993 levels and increased 12.9% in 1993 over
1992 levels.
Cost of Sales - Cost of sales for 1995 increased to 9.6% of net revenues
from 6.2% in 1994, and 5.7% in 1993. The increase resulted primarily from
aggressive write-offs in 1995.
Operating Expenses - Operating expenses, exclusive of interest, increased
in 1995 by 1.4% over 1994 and decreased 26.2% in 1994 over 1993 due
principally to cost cutting procedures in 1995.
Interest Expense - Interest expense, principally due to officers,
increased by 25% from 1994 to 1995 and increased by 29% from 1993 to 1994.
Inflation - In the opinion of management, inflation has not had a
material effect on the operations of the Registrant.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1995 and 1994, the Registrant has working capital of
$596,108 and $582,870 respectively.
It is the intention of management to utilize the cash flow from operations
to support the financial requirements of the Registrant and the working
capital should be sufficient to support future operations. The Registrant
has no capital expenditure commitments.
-4-
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At December 31, 1995 accounts receivable included approximately $428,000 of
Medicare claims from covered individuals for rentals of Diapulse's self-
administered medical treatment at home. The Company instituted the
administrative procedure of requesting a hearing with a Medicare hearings
officer, and if necessary, appealing the findings of the hearings officer
with an administrative law judge of the Social Security Administration. To
date, approximately 100 such cases have been adjudicated, with the Company
receiving totally favorable decisions from the administrative law judge and
Medicare hearing officer and full reimbursement in all 100 cases. The
Company has instituted the administrative procedures necessary in order to
receive payment against these accounts receivables. The Company is
awaiting decisions on approximately 200 cases.
The Registrant considers, and currently used for internal management
purposes, a number of measures of liquidity. These measures include
working capital and operating ratios, all of which are set forth below.
WORKING CAPITAL RATIOS: These ratios measure the Registrant's ability to meet
its short-term obligations.
1995 1994 1993
_________ _________ _________
Working capital $ 596,108 $ 582,870 $ 576,634
Current Ratio 1.5 to 1 1.5 to 1 1.6 to 1
Quick Ratio 1.0 to 1 1.0 to 1 1.1 to 1
ITEM 8. Financial Statements and Supplementary Data.
Annual Financial Statements. See Part IV, Item 14 of this Form 10-K
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable
-5-
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Part III
ITEM 10. Directors and Executive Officers of the Registrant
The executive officers and key employees of the Company are as follows:
Name Age Title
______________________ ____ _________________________
Jesse Ross 74 President, Director and
Chairman of the Board
David M. Ross 48 Director
Raymond Evans 59 Director
Jesse Ross has been actively engaged in the business of the Registrant and
has been its President since its incorporation. He has devoted his full time
services to the business of the Registrant since 1957.
David M. Ross, son of Jesse Ross, became a Director of the Company during
1981. Mr. Ross is also an independent sales representative for the
Registrant's product.
Raymond Evans became a Director of the Company during 1989.
The present term of office for the above directors expires during April 1996.
ITEM 11. Executive Compensation.
Cash Compensation - For the year ended December 31, 1995, no officer
received or was entitled to receive $60,000 or more in compensation from
the Registrant. No cash bonuses were earned by any of the Registrant's
officers during the year.
Compensation pursuant to plans - The Registrant has no pension,
retirement, stock or any other form of compensation plans.
-6-
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ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Security ownership of certain beneficial owners - No individual or group
outside of management is known to the Registrant to be the beneficial owner
of more than five percent of the Registrant's common stock.
Security ownership of management - The following table sets forth certain
information with respect to shares of the Registrant's common stock
beneficially owned by all officers and directors of the Registrant as of
December 31, 1995.
Name of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
__________________ ______________________ ________
Jesse Ross 2,220,150 (i) 56.11%
David Ross 77,600 (i) 1.96%
Raymond Evans 8,000 0.20%
All officers and directors as a
group (3 persons) 2,305,750 58.27%
(i)Include certain shares owned by the wives and other relatives
of these individuals
ITEM 13. Certain Relationships and Related Transactions
One of the Company's directors, who is a son of the President, serves as an
independent sales representative for the Company. In addition, another son
of the President also served as an independent sales representative for the
Company until April 1993. Commissions earned by these individuals during
1995, 1994 and 1993 were approximately $53,800, $80,800, and $77,500,
respectively. In addition, the Company had outstanding advances to these
representatives of approximately $199,000, $171,000 and $133,200 at
December 31, 1995, 1994 and 1993, respectively.
-7-
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DIAPULSE CORPORATION OF AMERICA
CONTENTS
PAGE
------
Independent Auditors' Report 9
Consolidated Financial Statements:
Consolidated balance sheets 10
Consolidated statements of operations 11
Consolidated statements of stockholders' equity (deficiency) 12
Consolidated statements of cash flows 13
Note to Consolidated Financial Statements 14-21
-8-
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Independent Auditors' Report
To the Board of Directors and Stockholders of
Diapulse Corporation of America
We have audited the consolidated balance sheets of Diapulse Corporation of
America and Subsidiaries (a Delaware corporation) as of December 31, 1995 and
1994, and the related consolidated statements of operations, stockholders'
equity (deficiency), and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The consolidated financial
statements of Diapulse Corporation of America and subsidiaries as of December
31, 1993, were audited by other auditors whose report dated March 31, 1994, on
those statements included explanatory paragraphs that described the Company's
change in method of accounting for income taxes, as discussed in Note 2 to the
consolidated financial statements, and its appeal of pending Medicare cases, as
discussed in Note 3 to the consolidated financial statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the December 31, 1995 and 1994 consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Diapulse Corporation of America and Subsidiaries at
December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As explained in Note 3 to the consolidated financial statements, the Company
has accounts receivables from various intermediaries of Medicare that have
refused to reimburse it for claims arising from rentals of Diapulse equipment
by covered individuals for in-home use in their medical treatment. Diapulse
Corporation of America has begun, or plans to begin, if necessary, proceedings
against Medicare for this money. Based on prior cases the Company instituted
for similar claims, which have been adjudicated with the Company receiving
totally favorable outcomes in each case, the Company expects to ultimately
collect the full amount of these accounts receivables. Although the outcome of
future cases cannot presently be determined, management believes the Company
will prevail in each case, and as a result has not provided for any losses in
the accompanying consolidated financial statements on these receivables.
SCHWAEBER SLOANE SCHULMAN AND CO., P.C.
Great Neck, New York
March 7, 1996
-9-
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DIAPULSE CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
December 31,
December 31 1994
Notes 1995 as restated
----- ------------- ------------
A S S E T
CURRENT ASSETS:
Cash $ 222,318 $ 148,503
Trade accounts receivable, net of
allowance for doubtful accounts of
$60,000 in 1995 and $60,000 in 1994 3 777,873 856,005
Inventories 2 & 5 458,720 533,055
Commission advances 4 238,544 239,689
------------ ------------
Total Current Assets 1,697,454 1,777,252
COMMISSION ADVANCES, Net of
Current Portion 4 198,948 170,838
EQUIPMENT, Net of Accumulated
Depreciation 2 & 6 187,851 170,880
OTHER ASSETS 28,254 27,254
----------- ------------
TOTAL ASSETS $2,112,507 $2,146,224
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to officers/stockholders and
former officer 4 $ 650,688 $ 686,042
Accounts payable and accrued
liabilities 4 & 7 450,658 489,340
Bank line of credit 10 - 19,000
----------- ------------
Total Current Liabilities 1,101,346 1,194,382
DUE TO OFFICER/PRINCIPAL STOCKHOLDER 4 977,350 977,350
COMMITMENTS 8
STOCKHOLDERS' EQUITY:
Common stock, $.025 par value per
share; authorized 6,000,000 shares;
issued 3,956,448 shares 98,911 98,911
Additional paid-in capital 2,131,426 2,131,426
Accumulated deficit (2,187,184) (2,246,503)
------------ ------------
43,153 (16,166)
Less: Treasury stock, 5,328 shares
in 1995 and 5,328 shares in 1994,
at cost (9,342) (9,342)
------------ ------------
Total Stockholders' Equity 33,811 (25,508)
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,112,507 $2,146,224
============ ============
See accompanying independent auditors' report and notes to consolodated
financial statements
-10-
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DIAPULSE CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, 1993
December 31, December 31,
December 31, 1994 1993
Notes 1995 as restated as restated
----- ---------- ----------- -------------
NET REVENUES: 1 & 11
Rentals and sales $1,286,774 $1,235,729 $ 1,429,010
---------- ----------- -------------
Total Net Revenues 1,286,774 1,235,729 1,429,010
COST OF SALES AND RENTALS 123,782 76,664 81,008
---------- ----------- -------------
Gross Margin 1,162,991 1,159,065 1,348,002
OPERATING EXPENSES:
Selling, general and administrative 885,135 881,502 1,160,030
Interest expense
(principally to officers) 4 197,770 157,643 122,452
---------- ----------- -------------
Total Operating Expenses 1,082,905 1,039,145 1,282,482
---------- ----------- -------------
Income From Operations 80,086 119,920 65,520
INTEREST AND OTHER INCOME 4,233 1,527 1,268
---------- ----------- -------------
Income Before Income
Taxes and Extraordinary Item 84,319 121,447 66,788
PROVISION FOR INCOME TAXES 9 25,000 11,000 12,000
---------- ----------- -------------
Income Before
Extraordinary Item 59,319 110,447 54,788
EXTRAORDINARY ITEM:
Tax benefit of net
operating loss carryforward 9 - - -
---------- ----------- -------------
NET INCOME $ 59,319 $ 110,447 $ 54,788
EARNINGS PER COMMON SHARE
BEFORE EXTRAORDINARY ITEM $ 0.01 $ 0.03 $ 0.01
EARNINGS PER COMMON SHARE 2 $ 0.01 $ 0.03 $ 0.01
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 3,956,148 3,897,704 3,897,004
See accompanying independent auditors' report and notes to consolodated
financial statements.
-11-
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DIAPULSE CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, 1993
Common Stock Additional
Issued Paid-in Accumulated
Shares Amounts Capital Deficit
----------- -------- ------------ ------------
BALANCE
January 1, 1993 as
as originally reported 3,903,732 $97,593 $2,133,099 $(2,355,905)
Cumulative effect of
correction of accounting
error (Note 11) 52,716 1,318 (1,318) (55,833)
----------- -------- ------------ ------------
BALANCE
January 1, 1993 restated 3,956,448 98,911 2,131,781 (2,411,738)
Net income restated 54,788
----------- -------- ------------ ------------
BALANCE
December 31, 1993 3,956,448 98,911 2,131,781 (2,356,950)
Treasury Stock sold (355)
Net income restated 110,447
----------- --------- ------------ -----------
BALANCE
December 31, 1994 3,956,448 98,911 2,131,426 (2,246,503)
Net income 59,319
----------- --------- ----------- -----------
BALANCE
December 31, 1995 3,956,448 $ 98,911 $2,131,426 $(2,187,184)
=========== ========= =========== ============
Total
Treasury Stock Stockholders'
Shares Amounts Equity (Deficiency)
---------- ---------- -------------------
BALANCE
January 1, 1993
as originally reported 6,728 $(11,797) $ (137,010)
Cumulative effect of correction
of accounting error (Note 11) (55,833)
--------- ---------- -------------------
BALANCE
January 1, 1993 restated 6,728 (11,797) (192,843)
Net income restated 54,788
--------- ---------- -------------------
BALANCE
December 31, 1993 6,728 (11,797) (138,055)
Treasury stock sold (1,400) 2,455 2,100
Net income restated 110,447
---------- ---------- -------------------
BALANCE
December 31, 1994 5,328 (9,342) (25,508)
Net income 59,319
---------- ---------- ------------------
BALANCE
December 31, 1995 5,328 $ (9,342) $ 33,811
========== ========== ==================
See accompanying independent auditors' report and notes to consolodated
financial statements.
-12-
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DIAPULSE CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, 1993
December 31, December 31, December 31,
1995 1994 1993
--------------- ------------ ------------
OPERATING ACTIVITIES:
Net income $ 59,319 $ 110,447 $ 54,788
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Provision for doubtful accounts - - 50,000
Prior period adjustments (Note 11) - 8,439 (21,992)
Depreciation 22,813 18,223 14,988
Deferred salaries and accrued
interest employees & former officer 186,598 197,309 217,452
Increase in accounts receivable 78,132 (24,123) (517,127)
(Increase) decrease in inventories 74,335 (38,845) (14,857)
(Increase) decrease in other assets (1,000) (3,588) 100
(Increase) decrease in commission
advances (26,965) (43,615) 59,488
Increase (decrease) in accounts
payable and accrued liabilities (38,681) (98,438) 144,955
--------- --------- ---------
Net Cash Provided by (Used in)
Operating Activities 354,551 125,809 (12,205)
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures (39,784) (17,296) (23,709)
----------- ---------- ----------
FINANCING ACTIVITIES:
Loans from officers 50,000 48,000 82,694
Sale of treasury stock - 2,100 -
Repayments to officers (271,952) (94,868) (88,556)
Net borrowings under bank
line of credit (19,000) 19,000 -
Net Cash Used in Financing Activities (240,952) (25,768) (5,862)
NET INCREASE (DECREASE) IN CASH 73,815 82,745 (41,776)
------------ ------------ -----------
CASH, BEGINNING OF YEAR 148,503 65,758 107,534
CASH, END OF YEAR $ 222,318 $ 148,503 $ 65,758
============ =========== ============
SUPPLEMENTAL SCHEDULE OF CASH
FLOW INFORMATION:
Interest paid $ 78,665 $ 86,688 $ 65,188
Income taxes paid $ 12,443 $ 7,636 $ 11,900
SUPPLEMENTAL SCHEDULE OF NON - CASH
INVESTING AND FINANCING ACTIVITIES:
Reclassification of machines held
for rental from inventory to
equipment $ 34,132 $ 12,630 $ 17,069
See accompanying independent auditors' report and notes to consolodated
financial statements.
-13-
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DIAPULSE CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, 1993
Note 1 - Business description
The Company develops, manufactures and markets Diapulser Technology, a
proprietary medical system which produces non-thermal pulsed high
frequency, high peak power electromagnetic energy to treat post-
operative edema and pain in acute and chronic wounds. It is used in
hospitals, nursing facilities, outpatient clinics, physicians practice
and on prescription in a patients' home. A number of insurance
companies reimburse for treatment.
Note 2 - Summary of significant accounting policies
A summary of the Company's significant accounting policies are as
follows:
Principles of consolidation
The consolidated financial statements include the accounts of Diapulse
Corporation of America and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated
in consolidation. The companies are collectively referred to hereafter
as the "Company".
Inventories
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out method for parts and
components and the specific identification method for finished goods.
The Company classifies machinery which has never been rented and held
for sale as inventory.
Equipment
Equipment is stated at cost and is being depreciated on a straight-line
basis over the estimated useful lives of the related assets.
Income taxes
During 1993, the Company adopted FAS No. 109, "Accounting for Income
Taxes". This statement requires the use of the asset and liability
approach in the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. If it
is more likely than not that some portion or all of a deferred tax
asset will not be realized, a valuation allowance is recognized.
Financial statements for prior years have not been restated and the
cumulative effect of the accounting change would not be material.
-14-
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DIAPULSE CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, 1993
Note 2 - Summary of significant accounting policies (continued)
Earnings per common share
Earnings per common share is based on the weighted average number of
common shares outstanding during each of the periods presented.
Note 3 - Trade accounts receivable - Medicare
At December 31, 1993 accounts receivable included approximately
$619,000 of Medicare claims from covered individuals for rentals of
Diapulses' self-administered medical treatment at home, and from
nursing homes for treatments administered to covered individuals. The
Company filed several claims with Medicare for which no significant
reimbursements had been received in 1993. The Company subsequently
withdrew its claims pertaining to treatments administered at nursing
homes and removed such amounts from their accounts receivable. Since
such treatments were administered by a nurse rather than a physical
therapist, Diapulse was ineligible for reimbursement from Medicare for
these procedures. The nursing homes are filing claims for
reimbursement for these treatments. If the Company is subsequently
reimbursed for these claims, it will recognize such amounts as income.
As to the remaining claims, in order to effect payment, the Company
instituted the administrative procedure of requesting a hearing with a
Medicare hearings officer, and if necessary, appealed the findings of
the hearings officer with an administrative law judge of the Social
Security Administration. To date, one-hundred such cases have been
adjudicated, with the Company receiving totally favorable decisions
from the administrative law judge and Medicare hearing officer and full
reimbursement in all one-hundred cases.
At December 31, 1995 and 1994 accounts receivable included
approximately $427,797 and $273,000 respectively, of Medicare claims
from covered individuals for rentals of Diapulse's self-administered
medical treatment at home. The Company has instituted the
administrative procedures necessary in order to receive payment against
these accounts receivables.
During the fourth quarter of 1995 and 1994, the Company charged to
operations $496,000 and $293,000, respectively, for write-offs of
accounts receivable. These amounts consisted of $496,000 in 1995 and
$293,000 in 1994 of direct write-offs. The accounts receivable write-
offs were charged to sales. Excluding these write-offs, sales for 1995
and 1994 would be $1,782,286 and $1,528,729, respectively.
-15-
- ----------------------------------------------------------------------------
DIAPULSE CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, 1992
Note 4 - Related party transactions
Related party transactions consisted of the following:
Due to officers/stockholders and former officer
During January 1993, the President/principal stockholder of the Company
extended to January 1, 1995 the due date of $977,350 of amounts due
him. During December 1994 the due date was extended to January 1,
1996. During December 1995 the due date was extended to January 1,
1997. The interest rate shall be prime (eight and one half percent at
December 31, 1995) plus two percent, compounded monthly.
Amounts due under this note could be accelerated if the Company's
annual net income exceeds $250,000 prior to the scheduled maturity
date. However, the stockholder has agreed not to demand repayment
prior to January 1, 1997.
In addition, the President has granted the Company an unconditional
right to offset any commission advances to his son and an unrelated
salesperson, aggregating $367,993 as of December 31, 1995, that may
become uncollectible.
In October 1992 two officers/stockholders purchased 208,101 common
share of the Company for $130,063, which was paid for by a reduction of
the amounts due to them.
Amounts due to officers, stockholders and a former officer at December
31, 1995 and 1994 consisted of the following:
December 31,
-----------------------
1995 1994
----------- ----------
Cash advances $ 133,820 $ 286,986
Accrued salaries 609,463 628,758
Accrued interest 884,755 747,648
----------- ----------
Total amount due 1,628,038 1,663,392
Less: Long-term portion 977,350 977,350
Total Amount Due, Net of ----------- ----------
Long-Term Portion $ 650,688 $ 686,042
=========== ==========
Accounts payable and accrued liabilities at December 31, 1995 and 1994
included $111,845 and $104,060, respectively, due to individuals
relating to the principle stockholder.
-16-
- ----------------------------------------------------------------------------
DIAPULSE CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, 1993
Note 4 - Related party transactions (continued)
Due from related parties
One of the Company's directors who is a son of the President serves as
an independent sales representative for the Company. In addition,
another son of the President also served as an independent sales
representative for the Company until April 1993. Commissions earned by
these individuals during 1995, 1994 and 1993 were approximately
$53,800, $80,800, and $77,500, respectively. In addition, the Company
had outstanding advances to these representatives of approximately
$199,000, $171,000 and $133,200 at December 31, 1995, 1994 and 1993,
respectively.
Note 5 - Inventories
Inventories at December 31, 1995 and 1994 consisted of the following:
December 31,
__________________________
1995 1994
------------- ------------
Parts, components and subassemblies $ 204,384 $ 316,317
Finished goods 301,336 263,738
Finished goods, rental and loaner machines 236,481 202,349
------------- ------------
Total inventories 742,201 782,404
Less: Inventories in fixed assets (Note 6) (236,481) (202,349)
------------- -------------
Total inventories for resale 505,720 580,055
Less: Inventory reserve 47,000 47,000
------------ -------------
Total Inventories $ 458,720 $ 533,055
============ ============
The Company's inventory quantities have historically exceeded its
annual sales quantities. The Company is attempting to expand its
distribution network, which if attained should increase the movement of
inventory.
-17-
- ----------------------------------------------------------------------------
DIAPULSE CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, 1993
Note 6 - Equipment
Equipment at December 31, 1995 and 1994 consisted of the following:
December 31,
1995 1994
----------- -----------
Rental equipment $ 236,481 $ 202,349
Autos 5,000 5,000
Furniture and fixtures 58,262 56,867
Machinery and equipment 7,875 7,306
Office equipment 6,465 5,235
Computer equipment 7,829 5,371
----------- -----------
Totals 321,912 282,128
Less: Accumulated depreciation 134,061 111,248
----------- -----------
Total Equipment Less Accumulated
Depreciation $ 187,851 $ 170,880
Note 7 - Accounts payable and accrued liabilities
Accounts payable and accrued liabilities at December 31, 1995 and 1994
consisted of the following:
December 31,
1995 1994
Accrued payroll and interest thereon (non-officers) $ 216,059 $ 214,991
Accrued commissions payable 215,310 240,993
Accounts payable and other accrued liabilities 86 26,856
Corporation taxes payable 19,203 6,500
---------- ----------
Total Accounts Payable and Accrued Liabilities $ 450,658 $ 489,340
Interest is payable on accrued payroll at two percent above the prime
rate in 1995 and 1994, respectively. The effective annual rate for
1995 and 1994 was 11.0% and 10.5%, respectively.
-18-
- -----------------------------------------------------------------------------
DIAPULSE CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, 1993
Note 8 - Commitments
The Company leases its office facility under a lease that expires in
1996. Future minimum payments through the end of the lease term are as
follows:
1996 $ 111,360
---------
Total $ 111,360
=========
Rent expense was approximately $108,000 in 1995, $104,000 in 1994 and
$100,000 in 1993.
Note 9 - Income taxes
The annual provision for income taxes differs from amounts computed by
applying the maximum U.S. Federal income tax rate to the pre-tax income
as follows:
1995 % 1994 % 1993 %
-------- --- ------- --- -------- ---
Computed tax at maximum rate $ 22,500 34% $60,000 34% $ 15,250 34%
State income taxes, net of
Federal income tax effect 2,500 4% 4,500 4% 7,750 17.30%
Tax benefit of operating loss
carryforward - 0% (53,500) -23% (11,000)-24.50%
-------- --- -------- ---- -------- ------
Provision For Income Taxes $ 25,000 38% $11,000 15% $ 12,000 26.80%
-19-
- -----------------------------------------------------------------------------
DIAPULSE CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, 1993
Note 9 - Income taxes (continued)
Deferred tax assets (liabilities) at December 31, 1995 and 1994
consisted of the following:
December 31,
1995 1994
Deferred tax assets:
Accrued salaries $ 382,000 $ 311,000
Accrued commissions 82,000 42,000
Allowance for doubtful accounts 24,000 24,000
---------- ----------
Gross deferred tax assets 488,000 377,000
Deferred tax liabilities:
Accumulated depreciation (10,000) (10,000)
Net deferred tax assets before
valuation allowance 478,000 367,000
Deferred tax assets valuation allowance (478,000) (367,000)
----------- ------------
Net Deferred Tax Assets $ - $ -
=========== ============
Note 10 - Bank line of credit
During 1994 the Company established a line of credit with Citibank for
$20,000. At December 31, 1994 the Company had drawn down $19,000 on
this line of credit. This loan was satisfied in full in 1995.
Note 11 - Prior period adjustments
Certain errors, resulting in an understatement of previously reported
assets and liabilities were discovered during the year. Correction of
these errors resulted in a decrease of previously reported net income
for 1994 amounting to $8,439; and an increase of previously reported
net income for 1993 amounting to $21,992. The 1994 and 1993 Statements
of Operations have been restated for the effect of correcting these
errors.
The following schedule details the nature and amount of each error:
Understatement of commision advances $ 30,813
Understatement of due to officers/stockholders (73,093)
----------
$ (42,280)
==========
-20-
- -----------------------------------------------------------------------------
DIAPULSE CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, 1993
Note 12 - Supplementary operating statement information
Advertising and promotion costs were approximately $14,500 in 1995,
$11,500 in 1994 and $16,000 in 1993.
SELECTED FINANCIAL DATA:
Year Ended December 31,
1994 1993
1995 as restated as restated 1992 1991
Net revenues:
Rentals and sales $1,286,774 $1,235,729 $1,264,966 $766,906 $670,732
Income (loss) before
extraordinary item 59,319 110,447 54,788 (59,182) 5,611
Net income (loss) 59,319 110,447 54,788 (59,182) 5,611
Income (loss) before
extraordinary item
per share 0.01 0.03 0.01 (0.02) -
Net income (loss)
per share 0.01 0.03 0.01 (0.02) -
At year end:
Total assets 2,112,507 2,146,224 2,427,005 1,048,701 949,635
Long-term obligations 977,350 977,350 977,350 865,205 750,000
Working capital 596,108 582,870 551,528 292,744 289,927
Stockholders' equity
(deficiency) 33,811 (25,508) (137,010) (488,755) (429,573)
Cash dividends
paid per share - - - - -
-21-
- -----------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of 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.
DIAPULSE CORPORATION OF AMERICA
Registrant
By:
// Jesse Ross - President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-31-1995
<CASH> 222,318
<SECURITIES> 0
<RECEIVABLES> 837,873
<ALLOWANCES> (60,000)
<INVENTORY> 458,720
<CURRENT-ASSETS> 1,697,454
<PP&E> 321,912
<DEPRECIATION> (134,061)
<TOTAL-ASSETS> 2,112,507
<CURRENT-LIABILITIES> 1,101,346
<BONDS> 0
<COMMON> 98,911
0
0
<OTHER-SE> (65,100)
<TOTAL-LIABILITY-AND-EQUITY> 2,112,507
<SALES> 1,286,774
<TOTAL-REVENUES> 1,286,774
<CGS> 123,782
<TOTAL-COSTS> 1,008,917
<OTHER-EXPENSES> 197,770
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 197,770
<INCOME-PRETAX> 84,319
<INCOME-TAX> 25,000
<INCOME-CONTINUING> 59,319
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,319
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
