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 SEPTEMBER 30, 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 September 30, 1999 there were 3,962,058 shares of common stock
outstanding.
Transitional Small Business Disclosure Format:
Yes [ ] No [X]
<PAGE>
DIAPULSE CORPORATION OF AMERICA
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
- -------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS (UNAUDITED)
September 30, 1999 3-4
STATEMENTS OF CASH FLOW (UNAUDITED)
Nine Months ended September 30, 1999 5
STATEMENTS OF OPERATIONS (UNAUDITED)
Nine Months ended September 30, 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
2
<PAGE>
DIAPULSE CORPORATION OF AMERICA
BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 30, 1999 Dec. 31, 1998
Unaudited Audited
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 179,311 $ 319,868
Current portion of accounts receivable, net of
allowance doubtful accounts of $728,058 at
September 30, 1999 and $1,493,000 at December 31, 1998 664,256 38,440
Inventories, current portion 187,971 195,418
Commission advances, less allowance for doubtful accounts
of $11,306 at September 30, 1999 and December 31, 1998 116,479 43,034
Other current assets 26,593 15,953
---------- ----------
Total current assets 1,174,610 612,713
---------- ----------
Property and equipment, net 22,719 34,775
---------- ----------
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 318,884 299,638
Security deposits 24,168 24,168
---------- ----------
Total other assets 588,100 568,854
---------- ----------
Total Assets $1,785,429 $1,216,342
========== ==========
</TABLE>
See Notes to Financial Statements
3
<PAGE>
DIAPULSE CORPORATION OF AMERICA
BALANCE SHEETS
Liabilities and Stockholder's Equity (Deficiency)
<TABLE>
<CAPTION>
Sept. 30, 1999 Dec. 31, 1998
Unaudited Audited
<S> <C> <C>
Current Liabilities:
Current portion of amounts due to officer and
former officer $ 213,545 $ 228,822
Accounts payable and accrued liabilities including
$230,330 and $223,590 to related parties in
1999 and 1998 376,771 309,979
Bank Line of Credit -- 50,000
Accrued tax assessment and related interest 8,500 8,500
Income taxes payable (6,665) --
---------- ----------
Total current liabilities 592,151 597,301
Long-term portion of amounts due to officer 1,943,912 1,692,980
---------- ----------
Total Liabilities 2,536,063 2,290,281
---------- ----------
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 (3,140,629) (3,463,934)
---------- ----------
Less treasury stock 2,328 shares in 1999 and 1998 at cost (2,328) (2,328)
---------- ----------
Total stockholders' equity (Deficiency) (750,634) (1,073,939)
---------- ----------
Total liabilities and stockholders' equity (Deficiency) $1,785,429 $1,216,342
========== ==========
</TABLE>
See Notes to Financial Statements
4
<PAGE>
DIAPULSE CORPORTION OF AMERICA
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1999 1998
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 323,306 $ 33,623
--------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,400 14,400
Changes in operating assets and liabilities:
(Increase) in accounts receivable (625,816) (475,946)
(Increase) in commission advances (92,691) (177,894)
Decrease in inventories 7,447 (45,532)
(Increase) in other assets (10,640) (9,339)
Increase accounts payable and
accrued liabilities 66,792 232,414
(Decrease) in income taxes payable (6,665) (103,726)
--------- --------
Total adjustments (647,173) (565,623)
--------- --------
Net cash (used in) operating
Activities (323,867) (532,000)
--------- --------
Net cash used in investing activities, capital
Expenditures (2,344) (2,669)
--------- --------
Cash flow from financing activities:
Net increase in due to officer and
former officer (15,278) (42,974)
(Decrease) long term portion of amounts
due to officer 250,932 124,221
Net increase in Bank line of credit (50,000) 50,000
--------- --------
Net cash provided (used) by
Financing activities 185,654 131,247
--------- --------
Net (decrease) in cash
and cash equivalents (140,557) (403,422)
Cash and cash equivalents -
Beginning of Period 319,868 696,282
--------- --------
Cash and cash equivalents -
End of Period $ 179,311 $292,860
========= ========
</TABLE>
See Notes to Financial Statements
5
<PAGE>
DIAPULSE CORPORATION OF AMERICA
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1999 1998
---- ----
<S> <C> <C>
Net Sales and rentals $1,332,781 $1,197,459
Cost of sales and rentals 9,218 19,989
---------- ----------
Gross Margin 1,323,563 1,177,470
Operating Expenses:
Selling, general and administrative 860,585 987,514
Interest expense 142,565 153,909
---------- ----------
Total Operating Expenses $1,003,150 $1,141,423
Net Operating Income 320,413 36,047
Interest and other income 2,893 14,896
---------- ----------
Income before Provision for Income Taxes 323,306 50,943
Provision for Income Taxes -- 17,320
---------- ----------
Net Income $ 323,306 $ 33,623
Basic Earnings Per Share $ 0.08 $ 0.01
========== ==========
Diluted Earnings Per Share $ 0.08 $ 0.01
========== ==========
Weighted Average Number of Common
Shares Outstanding 3,962,058 3,962,058
========== ==========
</TABLE>
See Notes to Financial Statements
6
<PAGE>
DIAPULSE CORPORATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS
1. Basis of presentation
The balance sheets of Diapulse Corporation of America as of September
30, 1999, and the related statements of income and cash flows for the nine
months ended September 30, 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 nine months
ended September 30, 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 nine month period ended 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 nine (9) months
ended September 30, 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 September 30, 1999 and December 31, 1998 consisted
of the following:
September 30 December. 31
------------ ------------
1999 1998
---- ----
Parts, components and subassemblies $100,216 $101,994
Finished goods 327,158 332,827
-------- --------
Total Inventories 427,374 434,821
Allowance for inventory obsolescence (93,278) (93,278)
-------- --------
Net Inventory $334,096 $341,543
======== ========
7
<PAGE>
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
8
<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 nine months increased by $125,322 to
$1,332,981 from last year's comparable nine month period of $1,197,459.
Operating expenses for the current nine months decreased to $1,003,150
from last year's comparable nine month period of $1,141,423.
Liquidity and Capital Resources
As of September 30, 1999, the Company had working capital of $582,459
and a current ratio of 1.98 to 1. This represents an increase in working capital
since December 31, 1998 of $567,047.
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.
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.
9
<PAGE>
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
10
<PAGE>
DIAPULSE CORPORATION OF AMERICA
PART II - OTHER INFORMATION
For the Nine Months Ended September 30, 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 was reviewing these decisions
because it believes that the ALJ's decisions were not supported by substantial
evidence, and because there was a broad policy issue in these cases that might
affect the public interest. The Company has received Fully Favorable decisions
on both of these cases (September 10, 1997 and October 28, 1997) and is entitled
to collect from HCFA the allowable amounts less twenty percent. This twenty
percent in some cases will be recoverable from the patient's Secondary. However,
additional cases will have to go through the Administrative Procedure and will
remain in adjudication. The broad policy issue referred to in our previous
report does not affect present and future cases as indicated.
11
<PAGE>
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.
12
<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 /s/ Jesse Ross
Jesse Ross, President
Date: November 1, 1999
13
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<ARTICLE> 5
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 179311
<SECURITIES> 0
<RECEIVABLES> 1491237
<ALLOWANCES> (728058)
<INVENTORY> 334096
<CURRENT-ASSETS> 1174610
<PP&E> 211605
<DEPRECIATION> (188886)
<TOTAL-ASSETS> 1785429
<CURRENT-LIABILITIES> 592151
<BONDS> 0
0
0
<COMMON> 99051
<OTHER-SE> (2328)
<TOTAL-LIABILITY-AND-EQUITY> 1785429
<SALES> 1332781
<TOTAL-REVENUES> 1332781
<CGS> 9218
<TOTAL-COSTS> 860585
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142565
<INCOME-PRETAX> 323306
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 323306
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.08
</TABLE>
