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, 2000
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 principal 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, 2000 there were 3,960,730 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, 2000 3-4
STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months ended September 30, 2000 5
STATEMENTS OF OPERATIONS (UNAUDITED)
Nine Months ended September 30, 2000 6
NOTES TO UNAUDITED FINANCIAL STATEMENTS 7-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 10
ITEM 2. CHANGES IN SECURITIES 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
ITEM 5. OTHER INFORMATION 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES
SIGNATURE PAGE 12
- 2 -
<PAGE>
DIAPULSE CORPORATION OF AMERICA
BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 30, 2000 Dec. 31, 1999
Unaudited Audited
--------- -------
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 409,117 $ 258,383
Current portion of accounts receivable, net of
Allowance for doubtful accounts of $1,323,931 at
September 30, 2000 and $1,712,000 at December 31, 1999 488,165 83,682
Inventories, current portion 177,258 195,549
Commission advances, less allowance for doubtful accounts
of $11,306 at December 31, 1999 -- 34,367
Other current assets 12,349 5,561
---------- ----------
Total current assets 1,086,889 577,542
---------- ----------
Property and equipment, net 23,592 15,413
---------- ----------
Other assets:
Accounts receivable, net of current portion 24,290 4,166
Inventory, net of current portion 147,519 147,519
Commission advances to related parties 258,199 259,904
Security deposits 18,298 24,168
---------- ----------
Total other assets 448,306 435,757
---------- ----------
Total Assets $1,558,787 $1,028,712
========== ==========
</TABLE>
See Notes to Financial Statements
- 3 -
<PAGE>
DIAPULSE CORPORATION OF AMERICA
BALANCE SHEETS
Liabilities and Stockholder's Equity (Deficiency)
<TABLE>
<CAPTION>
Sept. 30, 2000 Dec. 31, 1999
Unaudited Audited
--------- -------
<S> <C> <C>
Current Liabilities:
Current portion of amounts due to officer and
Former officer $ 100,000 $ 241,959
Accounts payable and accrued liabilities including
$166,227 and $203,862 to related parties in
2000 and 1999 199,405 234,459
Accrued commissions 72,750 --
Accrued income taxes 76,320 15,000
----------- -----------
Total current liabilities 448,475 491,418
Long-term portion of amounts due to officer 2,001,507 1,917,616
----------- -----------
Total Liabilities 2,449,982 2,409,034
----------- -----------
Stockholders' equity:
Common stock - $.025 par value:
Authorized 15,000,000 shares, issued 3,962,058
Shares in 2000 and 1999 99,051 99,051
Additional paid-in capital 2,293,272 2,293,272
Accumulated deficit (3,281,190) (3,770,317)
----------- -----------
(888,867) (1,377,994)
Less treasury stock 1,328 shares in 2000 and 1999 at cost (2,328) (2,328)
----------- -----------
Total stockholders' equity (Deficiency) (891,195) (1,380,322)
----------- -----------
Total liabilities and stockholders' equity (Deficiency) $ 1,558,787 $ 1,028,712
=========== ===========
</TABLE>
See Notes to Financial Statements
- 4 -
<PAGE>
DIAPULSE CORPORTION OF AMERICA
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
2000 1999
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 489,127 $ 323,306
--------- ---------
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization 3,593 14,400
Changes in operating assets and liabilities:
(Increase) in accounts receivable (424,607) (625,816)
(Increase) decrease in commission advances 36,072 (92,691)
Decrease in inventories 18,291 7,447
(Increase) in other assets (918) (10,640)
Increase in accounts payable and
Accrued liabilities 37,696 66,792
(Decrease) increase in income taxes payable 61,320 (6,665)
--------- ---------
Total adjustments (268,553) (647,173)
--------- ---------
Net cash (used in) operating
Activities 220,574 (323,867)
--------- ---------
Net cash used in investing activities, capital
Expenditures (11,772) (2,344)
--------- ---------
Cash flow from financing activities:
Net (decrease) in due to officer and
Former officer (141,959) (15,278)
(Decrease) increase long term portion of amounts
due to officer 83,891 250,932
Net increase in Bank line of credit -- (50,000)
--------- ---------
Net cash provided (used) by
Financing activities (58,068) 185,654
--------- ---------
Net (decrease) increase in cash
And cash equivalents 150,734 (140,557)
Cash and cash equivalents -
Beginning of Period 258,383 319,868
--------- ---------
Cash and cash equivalents -
End of Period $ 409,117 $ 179,311
========= =========
</TABLE>
See Notes to Financial Statements
- 5 -
<PAGE>
DIAPULSE CORPORATION OF AMERICA
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
---- ----
<S> <C> <C>
Net Sales and rentals $1,542,088 $1,332,781
Cost of sales and rentals 60,740 9,218
---------- ----------
Gross Margin 1,481,348 1,323,563
Operating Expenses:
Selling, general and administrative 869,081 860,585
Interest expense 57,525 142,565
---------- ----------
Total Operating Expenses $ 926,606 $1,003,150
Net Operating Income 554,742 320,413
Interest and other income 25,465 2,893
---------- ----------
Income before Provision for Income Taxes 580,207 323,306
Provision for Income Taxes 91,080 --
---------- ----------
Net Income $ 489,127 $ 323,306
========== ==========
Basic Earnings Per Share $ 0.12 $ 0.08
========== ==========
Diluted Earnings Per Share $ 0.09 $ 0.06
========== ==========
Weighted Average Number of Common
Shares Outstanding 3,960,730 3,960,730
========== ==========
</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, 2000, and the related statements of income and cash flows for the nine
months ended September 30, 2000 and 1999 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, 2000 and 1999 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, 1999 annual report to shareholders. There have been no
changes of significant accounting policies since December 31, 1999. 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, 2000.
2. Income Taxes
The Company accounts for income taxes under the asset and liability
method.
3. Inventories
Inventories as of September 30, 2000 and December 31, 1999 consisted of
the following:
September 30 December 31
------------ -----------
2000 1999
---- ----
Parts, components and subassemblies $ 99,159 $ 94,097
Finished goods 318,896 342,249
-------- --------
Total Inventories 418,055 436,346
Allowance for inventory obsolescence (93,278) (93,278)
-------- --------
Net Inventory $324,777 $343,068
======= ========
-7-
<PAGE>
4. 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. For periods ended September 30, 2000 and 1999 the
basic earnings per share is based on a weighted average of 3,960,730 shares
outstanding. The fully diluted earnings per share computation is based on a
weighted average of 5,260,730 shares outstanding. The diluted earnings per share
computation gives pro forma effect to the exercise of stock options which will
result in an additional 1,300,000 shares outstanding.
-8-
<PAGE>
DIAPULSE CORPORATION OF AMERICA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Nine Months Ended September 30, 2000
Results of Operations
Net sales for the current nine months increased by $209,307 to
$1,542,088 from last year's comparable nine month period of $1,332,781. This was
due primarily to collections of prior years disputed receivables.
Operating expenses for the current nine months decreased to $926,606
from last year's comparable nine month period of $1,003,150. This was due
primarily to a reduction of personnel.
Liquidity and Capital Resources
As of September 30, 2000, the Company had working capital of $638,414
and a current ratio of 2.42 to 1. This represents an increase in working capital
since December 31, 1999 of $552,290.
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.
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
- 9 -
<PAGE>
DIAPULSE CORPORATION OF AMERICA
PART II - OTHER INFORMATION
For the Nine Months Ended September 30, 2000
Item 1. Legal Proceedings
The Company was 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 attorney's 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.
In early 2000, the parties agreed to a settlement of the matter and a settlement
agreement is in the process of being concluded and signed. The agreement
provides for the payment of $50,000 to the Company. The agreement also provides
for the defendants to refrain from engaging in certain marketing practices in
the future and the dismissal with prejudice, of all claims against the Company.
A former employee sued the Company in 1997 for certain unpaid deferred salary.
The Company counterclaimed for breaches of contract and fiduciary duty relating
to unauthorized purchases made by the plaintiff when he was an employee of the
Company. The employee obtained summary judgement on his claim for deferred
salary. The judgment amount was $120,475, including interest. The Company's
counterclaims were severed and referred to the trial court for resolution.
Thereafter, a settlement was reached in the sum of $95,000. The Company is to
pay the former employee seven (7) installments of $13,571 every six months
beginning in March 2000. Two payments have since been made.
-10-
<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.
-11-
<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 7, 2000
- 12 -
