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 JUNE 30, 2000
DIAPULSE CORPORATION OF AMERICA
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(Exact Name of registrant as specified on its charter)
Delaware 1305671991
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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
-----------------------
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 June 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)
June 30, 2000 3-4
STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months ended June 30, 2000 5
STATEMENTS OF OPERATIONS (UNAUDITED)
Six Months ended June 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
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<PAGE>
DIAPULSE CORPORATION OF AMERICA
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 2000 Dec. 31, 1999
Unaudited Audited
------------- -------------
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 451,795 $ 258,383
Current portion of accounts receivable, net of
allowance for doubtful accounts of $1,333,210 at
June 30, 2000 and $1,712,000 at December 31, 1999 337,663 83,682
Inventories, current portion 187,591 195,549
Commission advances, less allowance for doubtful accounts
of $11,306 at December 31, 1999 -- 34,367
Other current assets 12,478 5,561
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Total current assets 989,527 577,542
---------- ----------
Property and equipment, net 21,913 15,413
---------- ----------
Other assets:
Accounts receivable, net of current portion 16,802 4,166
Inventory, net of current portion 147,519 147,519
Commission advances to related parties 254,910 259,904
Security deposits 21,298 24,168
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Total other assets 440,529 435,757
---------- ----------
Total Assets $1,451,969 $1,028,712
========== ==========
</TABLE>
See Notes to Financial Statements
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<PAGE>
DIAPULSE CORPORATION OF AMERICA
BALANCE SHEETS
Liabilities and Stockholder's Equity (Deficiency)
<TABLE>
<CAPTION>
June 30, 2000 Dec. 31, 1999
Unaudited Audited
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<S> <C> <C>
Current Liabilities:
Current portion of amounts due to officer and
former officer $ 249,022 $ 241,959
Accounts payable and accrued liabilities including
$183,082 and $203,862 to related parties in
2000 and 1999 207,811 234,459
Accrued commissions 54,760 --
Accrued income taxes 105,000 15,000
---------- ----------
Total current liabilities 616,593 491,418
Long-term portion of amounts due to officer 1,953,675 1,917,616
---------- ----------
Total Liabilities 2,570,268 2,409,034
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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 (3,508,294) (3,770,317)
---------- ----------
(1,115,971) (1,377,994)
Less treasury stock 1,328 shares in 2000 and 1999 at cost (2,328) (2,328)
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Total stockholders' equity (Deficiency) (1,118,299) (1,380,322)
---------- ----------
Total liabilities and stockholders' equity (Deficiency) $1,451,969 $1,028,712
========== ==========
</TABLE>
See Notes to Financial Statements
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<PAGE>
DIAPULSE CORPORTION OF AMERICA
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-------
2000 1999
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $262,025 $ 80,939
-------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,236 9,600
Changes in operating assets and liabilities:
(Increase) in accounts receivable (266,618) (437,037)
(Increase) decrease in commission advances 39,361 (52,015)
Decrease in inventories 7,958 2,707
(Increase) in other assets (4,048) (10,170)
Increase in accounts payable and
accrued liabilities 28,112 282,513
(Decrease) increase in income taxes payable 90,000 (6,665)
-------- --------
Total adjustments (102,999) (211,067)
-------- --------
Net cash (used in) operating
Activities 159,026 (130,128)
-------- --------
Net cash used in investing activities, capital
expenditures (8,736) (2,144)
-------- --------
Cash flow from financing activities:
Net increase in due to officer and
former officer 7,063 134,738
(Decrease) increase long term portion of amounts
due to officer 36,059 (263,102)
Net increase in Bank line of credit -- 110,000
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Net cash provided (used) by
Financing activities 43,122 (18,364)
-------- --------
Net (decrease) increase in cash
and cash equivalents 193,412 (150,636)
Cash and cash equivalents -
Beginning of Period 258,383 319,868
-------- --------
Cash and cash equivalents -
End of Period $451,795 $169,232
======== ========
</TABLE>
See Notes to Financial Statements
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<PAGE>
DIAPULSE CORPORATION OF AMERICA
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------
2000 1999
---- ----
<S> <C> <C>
Net Sales and rentals $1,060,194 $ 799,933
Cost of sales and rentals 10,643 3,816
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Gross Margin 1,049,551 796,117
Operating Expenses:
Selling, general and administrative 610,509 623,948
Interest expense 92,549 93,767
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Total Operating Expenses $ 703,058 $ 717,715
Net Operating Income 346,493 78,402
Interest and other income 6,612 2,537
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Income before Provision for Income Taxes 353,105 80,939
Provision for Income Taxes 91,080 --
---------- ----------
Net Income $ 262,025 $ 80,939
========== ==========
Basic Earnings Per Share $ 0.07 $ 0.02
========== ==========
Diluted Earnings Per Share $ 0.05 $ 0.02
========== ==========
Weighted Average Number of Common
Shares Outstanding 3,960,730 3,960,730
========== ==========
</TABLE>
See Notes to Financial Statements
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<PAGE>
DIAPULSE CORPORATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS
1. Basis of presentation
The balance sheets of Diapulse Corporation of America as of June 30, 2000,
and the related statements of income and cash flows for the six months ended
June 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 six months ended June 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 six
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 June 30, 2000 and December 31, 1999 consisted of the
following:
June 30 December 31
2000 1999
------- -----------
Parts, components and subassemblies $ 96,754 $ 94,097
Finished goods 331,634 342,249
-------- --------
Total Inventories 428,388 436,346
Allowance for inventory obsolescence (93,278) (93,278)
-------- --------
Net Inventory $335,110 $343,068
======== ========
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<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 June 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.
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<PAGE>
DIAPULSE CORPORATION OF AMERICA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Six Months Ended June 30, 2000
Results of Operations
Net sales for the current six months increased by $260,261 to
$1,060,194 from last year's comparable six month period of $799,933. This was
due primarily to collections of prior years receivables.
Operating expenses for the current six months decreased to $703,058
from last year's comparable six month period of $717,715. This was due primarily
to a reduction of personnel.
Liquidity and Capital Resources
As of June 30, 2000, the Company had working capital of $372,934 and a
current ratio of 1.60 to 1. This represents an increase in working capital since
December 31, 1999 of $286,810.
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
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<PAGE>
DIAPULSE CORPORATION OF AMERICA
PART II - OTHER INFORMATION
For the Six Months Ended June 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
counterclains 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. The first payment has since been made.
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<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.
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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: , 2000
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