<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 10549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 11 OR 15 (d) of
EXCHANGE ACT OF 1934
FOR THE QUARTER PERIOD ENDING MARCH 31, 1999
DIAPULSE CORPORATION OF AMERICA
(Exact Name of registrant as specified on its charter)
Delaware 1305671991
(State or other jurisdiction of) (I.R.S. Employer
incorporation of organization Identification Number)
321 East Shore Road
Great Neck, New York 11023
(Address of principle offices) (Zip Code)
Registrant's telephone number,
including area code 516-466-3030
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 12 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
As of March 31, 1999 there were 3,962,058 shares of common stock outstanding.
Transitional Small Business Disclosure Format:
Yes [ ] No [X]
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DIAPULSE CORPORATION OF AMERICA
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS (UNAUDITED)
March 31, 1999 3-4
STATEMENTS OF CASH FLOW (UNAUDITED)
Three Months ended March 31, 1999 5
STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended March 31, 1999 6
NOTES TO UNAUDITED FINANCIAL STATEMENTS 7-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 9-10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 2. CHANGES IN SECURITIES 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 5. OTHER INFORMATION 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES
SIGNATURE PAGE 13
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DIAPULSE CORPORATION OF AMERICA
BALANCE SHEETS
<TABLE>
<CAPTION>
Mar. 31, 1999 Dec. 31, 1998
Unaudited Audited
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<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 181,914 $ 319,868
Current portion of accounts receivable, net of
allowance doubtful accounts of $1,081,135 at
March 31, 1999 and $1,493,000 at December 31, 1998 195,294 38,440
Inventories, current portion 192,718 195,418
Commission advances, less allowance for doubtful accounts
of $11,306 at March 31, 1999 and December 31, 1998 68,509 43,034
Other current assets 23,808 15,953
---------- ----------
Total current assets 662,243 612,713
---------- ----------
Property and equipment, net 32,619 34,775
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Other assets:
Accounts receivable, net of current portion 98,923 98,923
Inventory, net of current portion 146,125 146,125
Commission advances to related parties 305,495 299,638
Security deposits 24,168 24,168
---------- ----------
Total other assets 574,711 568,854
---------- ----------
Total Assets $1,269,573 $1,216,342
========== ==========
</TABLE>
See Notes to Financial Statements
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DIAPULSE CORPORATION OF AMERICA
BALANCE SHEETS
Liabilities and Stockholder's Equity (Deficiency)
<TABLE>
<CAPTION>
March 31, 1999 Dec. 31, 1998
Unaudited Audited
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<S> <C> <C>
Current Liabilities:
Current portion of amounts due to officer and
former officer $ 348,599 $ 228,822
Accounts payable and accrued liabilities including
$456,901 and $223,590 to related parties in
1999 and 1998 555,284 309,979
Bank Line of Credit 100,000 50,000
Accrued tax assessment and related interest 8,500 8,500
Income taxes payable (6,665) -
---------- ----------
Total current liabilities 1,005,718 597,301
Long-term portion of amounts due to officer 1,395,674 1,692,980
---------- ----------
Total Liabilities 2,401,392 2,290,281
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Stockholders' equity:
Common stock - $.025 par value:
authorized 15,000,000 shares, issued 3,962,058
shares in 1999 and 1998 99,051 99,051
Additional paid-in capital 2,293,272 2,293,272
Accumulated deficit (3,521,814) (3,463,934)
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Less treasury stock 2,328 shares in 1999 and 1998 at cost (2,328) (2,328)
---------- ----------
Total stockholders' equity (Deficiency) (1,131,819) (1,073,939)
---------- ----------
Total liabilities and stockholders' equity (Deficiency) $1,269,573 $1,216,342
========== ==========
</TABLE>
See Notes to Financial Statements
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DIAPULSE CORPORTION OF AMERICA
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------------------------
1999 1998
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<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ (57,880) $ 39,483
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Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,800 4,900
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (156,854) (266,040)
(Increase) in commission advances (31,332) (53,673)
(Increase) decrease in inventories 2,700 (9,668)
(Increase) decrease in other assets (7,855) (547)
Increase (decrease) accounts payable and
accrued liabilities 245,305 55,326
Income taxes payable (6,665) (100,707)
---------- ---------
Total adjustments 50,099 (370,409)
---------- ---------
Net cash provided by (used in) operating
Activities (7,781) (330,926)
---------- ---------
Net cash used in investing activities, capital
Expenditures (2,644) (1,537)
---------- ---------
Cash flow from financing activities:
Net increase (decrease) in due to officer and
former officer 119,777 (58,184)
Increase (decrease) long term portion of amounts
due to officer (297,306) 40,329
Net increase (decrease) in Bank line of credit 50,000
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Net cash provided (used) by
financing activities (127,529) (17,855)
---------- ---------
Net increase (decrease) in cash
and cash equivalents (137,954) (350,318)
Cash and cash equivalents -
Beginning of Period 319,868 696,282
Cash and cash equivalents -
---------- ---------
End of Period $ 181,914 $ 345,964
========== =========
</TABLE>
See Notes to Financial Statements
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DIAPULSE CORPORATION OF AMERICA
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------------------------
1999 1998
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<S> <C> <C>
Net Sales and rentals $ 309,671 $ 392,492
Cost of sales and rentals (3,933) 7,124
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Gross Margin 313,604 385,368
Operating Expenses:
Selling, general and administrative 327,512 279,861
Interest expense 46,168 50,279
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Total Operating Expenses $ 373,680 $ 330,140
Net Operating Income (60,076) 55,228
Interest and other income 2,196 4,595
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Income before Provision for Income Taxes (57,880) 59,823
Provision for Income Taxes - 20,340
---------- ----------
Net Income $ (57,880) $ 39,483
Basic Earnings Per Share $ (0.01) $ 0.01
========== ==========
Diluted Earnings Per Share $ (0.01) $ 0.01
========== ==========
Weighted Average Number of Common
Shares Outstanding 3,962,058 3,962,058
========== ==========
</TABLE>
See Notes to Financial Statements
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DIAPULSE CORPORATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS
1. Basis of presentation
The balance sheets of Diapulse Corporation of America as of March 31,
1999, and as of December 31, 1998, the related statements of income and cash
flows for the three months ended March 31, 1999 and 1998 have been prepared by
the Company without audit. In the opinion of management, all adjustments (which
included only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and changes in cash flows for the
three months ended March 31, 1999 and 1998 and for all periods presented have
been made. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Company's December 31, 1998 annual report to shareholders. There have been
no changes of significant accounting policies since December 31, 1998. Results
of operations for the three month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
2. Principles of Consolidation
The consolidated financial statements as of and for the three (3)
months ended March 31, 1999 include the accounts of the Company and its wholly
owned subsidiary DCA Healthcare. All significant intercompany accounts and
transactions have been eliminated in consolidation.
3. Income Taxes
The Company accounts for income taxes under the asset and liability
method.
4. Inventories
Inventories as of March 31, 1999 and December 31, 1998 consisted
of the following:
Mar. 31, Dec. 31,
1999 1998
-------- --------
Parts, components and subassemblies $101,417 $101,994
Finished goods 330,704 332,827
-------- --------
Total Inventories 432,121 434,821
Allowance for inventory obsolescence (93,278) (93,278)
-------- --------
Net Inventory $338,843 $341,543
======== ========
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5. Basic and diluted Loss per Common Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," which required the
presentation of basic earnings per share and diluted earnings per share for all
periods presented. Basic earnings per share is based on the weighted average
number of outstanding common shares for the period. Diluted earnings per share
adjusts the weighted average for the potential dilution that could occur if
stock options, warrants, or other convertible securities were exercised or
converted into common stock. Diluted earnings per share equals basic earnings
per share for all periods presented because the effect of such items was
anti-dilutive.
6. New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," and
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which are both effective for the year
ending December 31, 1998. SFAS No. 130 establishes standards for reporting
comprehensive income in a full set of general purpose financial statements
either in the income statement or in a separate statement. SFAS No. 131
establishes standards for reporting information about operating segments,
including related disclosures about products and services, geographic areas and
major customers. The Company has adopted SFAS No. 130 during the first quarter
of 1998 and has no items of comprehensive income to report.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This Statement requires that any entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measured those instruments as fair value. The Company will be
required to adopt this new accounting standard by January 1, 2000. Management
does not anticipate early adoption. The Company believes that the effect of
adoption of SFAS No. 133 will not be material
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<PAGE>
DIAPULSE CORPORATION OF AMERICA AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the current three months decreased by $82,821 to $309,671
from last year's comparable three month period of $392,492. This was due
primarily to a decrease in Medicare machine rentals in the Florida and New York
regions.
Operating expenses for the current three months increased to $373,680
from last year's comparable three month period of $ 330,140. This was due
primarily to an increase in salaries and office personnel.
Liquidity and Capital Resources
As of March 31, 1999, the Company had working capital of ($343,475) and
a current ratio of 0.66 to 1. This represents a decrease in working capital
since December 31, 1998 of $358,887.
The Company intends to fund its future operations, pursue research and
development of current and future products and expand operations through product
rental and sales.
Impact of Inflation
Although the Company has not attempted to calculate the effect of
inflation, management does not believe inflation has had a material effect on
its results of operations. Material increases in costs and expenses in the
future could have a significant impact on the Company's operating results to the
extent that the effect of such increases cannot be transferred to its customers.
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Impact of Year 2000 Issue
The Company is in the process of assessing its computer applications to
insure their functionality with respect to the "Year 2000" millennium change. At
present, the Company does not anticipate that material incremental costs will be
incurred in any single future year due to the year 2000 issue.
Forward-Looking Information
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements made by the Company in its
disclosures to the public. There is certain information contained herein in the
Company's press releases and in oral statements made by authorized officers of
the Company which are forward-looking statements, as defined by such Act. When
used herein, in the Company's press releases and in such oral statements, the
words "estimate," "project", "anticipate", "expect", "intend", "believe",
"plans", and similar expressions are intended to identify forward-looking
statements. Because such forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by such forward-looking
statements
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<PAGE>
DIAPULSE CORPORATION OF AMERICA
PART II - OTHER INFORMATION
For the Three Months Ended March 31, 1999 and 1998
Item 1. Legal Proceedings
The Company is involved as plaintiff in litigation filed in August 1994,
alleging deceptive acts and practices, false advertising, unfair competition,
breach of fiduciary duty under New York law and under Federal Law. The complaint
demands damages in an unspecified amount for compensatory, punitive and treble
damages, profits and attorneys' fees. The defendants answered in April 1997 and
asserted counterclaims against the Company for alleged Federal Law violations,
interference with contract, deceptive acts and unfair trade practices and trade
disparagement. The counterclaims demand unspecified damages.
It is impossible for counsel at this time to assess the defendants'
counterclaims. Management for the Company believes that the defendants at this
time may not have significant assets and that all of the counterclaims are
without merit.
The Company was initially involved as a defendant in litigation, commenced on
June 19, 1997, with a former employee. The complaint alleges that the Company
entered into a salary-loan agreement in the amount of $94,064 with the employee
and that said amount was not paid. The Company is vigorously defending the
lawsuit on the grounds that (1) the amount was only to be paid when the Company
had sufficient funds to make the payments and (2) the action is barred by the
applicable statute of limitations. The Company also interposed a counterclaim
for the misuse of corporate funds. The parties are currently conducting
discovery; an evaluation of the likely outcome cannot be made at this early
stage of litigation. The liability for the amount in question is reflected on
the 1998 and 1997 financial statements.
On September 10, 1997 and on October 28, 1997 the Health Care Financing
Administration of the United States Department of Health & Human Services
Departmental Appeals Board ("the Appeals Board") notified the Company that the
Medicare Appeals Council ("the Council") had decided to review certain decisions
made earlier in 1997 wherein an ALJ had concluded that the Company's diapulse
equipment was durable medical equipment and that the related treatment to the
beneficiary was medically necessary, and therefore, the Company was entitled to
be paid. The Company was notified that the Council is reviewing these decisions
because it believes that the ALJ's decisions are not supported by substantial
evidence, and because there is a broad policy issue in these cases that may
affect the public interest. With respect to the September 10, 1997 notification,
the Council vacated the
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<PAGE>
ALJ's decision and remanded the cases back to an ALJ for further proceedings
including a new decision. In view of (1) the foregoing and (2) the lack of
significant collections and age of the receivables, the Company has provided an
allowance for doubtful receivables of approximately $1,493,000, the remaining
uncollected balance as of December 31, 1998. For the year ended December 31,
1997 the Company provided an allowance of approximately $1,007,000, the
remaining uncollected balance of the Medicare Accounts Receivable as of October
12, 1998. In connection with the above, the Company (1) provided an allowance
for doubtful accounts of $11,306 and $37,949 for commission advances for the
years 1998 and 1997, respectively, and (2) reversed accrued commissions payable
of $99,681 and $58,197 for the years 1998 and 1997, respectively.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Filed: None
(b) Reports on Form 8-K: None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 11 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
Date: , 1999
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 181914
<SECURITIES> 0
<RECEIVABLES> 1375352
<ALLOWANCES> (1081135)
<INVENTORY> 338843
<CURRENT-ASSETS> 662243
<PP&E> 211905
<DEPRECIATION> (179285)
<TOTAL-ASSETS> 1269573
<CURRENT-LIABILITIES> 1005718
<BONDS> 0
0
0
<COMMON> 99051
<OTHER-SE> (2328)
<TOTAL-LIABILITY-AND-EQUITY> 1269573
<SALES> 309671
<TOTAL-REVENUES> 309671
<CGS> (3933)
<TOTAL-COSTS> 327512
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46168
<INCOME-PRETAX> (57880)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (57880)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
