Medical Imaging (MEDD) 10-Q 2014 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from _________________ to _______________

Commission File Number 333-136436

MEDICAL IMAGING CORP.

(Exact name of registrant as specified in charter)

NEVADA	98-0493698
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

848 N. Rainbow Blvd. #2494, Las Vegas, Nevada	89107
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code   (877) 331-3444

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer    o	Accelerated filer    o
Non-accelerated filer    o (Do not check if smaller reporting company)	Smaller reporting company    ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No ý

As of August 01, 2014 the Company had outstanding 23,821,481 shares of its common stock.

TABLE OF CONTENTS

ITEM NUMBER AND CAPTION	PAGE
PART I
ITEM 1.      Consolidated Financial Statements and Supplementary Data (Unaudited)	3
ITEM 2.      Management’s Discussion and Analysis of Financial Condition And Results of Operations	20
ITEM 3       Quantitative and Qualitative Disclosures About Market Risk Controls and Procedures	27
ITEM 4T     Controls and Procedures	27
PART II
ITEM 1.       Legal Proceedings	28
ITEM 1A.   Risk Factors	28
ITEM 2.       Unregistered Sales of Equity Securities and Use of Proceeds	28
ITEM 3.       Defaults Upon Senior Securities	29
ITEM 4.       Mine Safety Disclosures	29
ITEM 5.       Other Information	29
ITEM 6.       Exhibits	29

2

Item 1. Consolidated Financial Statements

Medical Imaging Corp.

Consolidated Balance Sheets (Unaudited)

	June 30, 2014		December 31, 2013
ASSETS
Current Assets
Cash and Cash Equivalents	$	150,088	$	77,300
Accounts Receivable, net		385,262		295,614
Prepaid Expenses		10,633		5,364
Total Current Assets		545,983		378,278
Property and Equipment
Equipment		1,523,583		1,437,464
Less: Accumulated Depreciation		(317,192)		(237,763)
Total Property and Equipment, net		1,206,391		1,199,701
Intangibles
Hospital Contracts		524,585		794,707
Non-Compete Contract		133,245		133,245
Less: Accumulated Amortization		(657,830)		(905,027)
Total Intangible Assets, net		-		22,925
Goodwill		1,422,670		1,422,670
Other Assets
Deposits		133,488		12,855
Loan Receivable		1,430		2,046
Total Other Assets		134,918		14,901
TOTAL ASSETS	$	3,309,962	$	3,038,475
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts Payable	$	297,165	$	250,099
Accrued Taxes Payable		323,277		358,052
Obligations Under Capital Lease, short term portion		132,152		102,210
Acquisition Liability		-		200,000
Promissory Notes, short term portion		81,640		27,543
Loans Payable		75,000		-
Convertible Notes, net short term portion		55,164		-
Total Current Liabilities		964,398		937,904
Long Term Liabilities
Obligations Under Capital Lease, long term portion		157,262		228,495
Promissory Notes, long term portion		10,262		17,472
Convertible Notes, net long term portion		2,198,501		1,856,869
Total Long Term Liabilities		2,366,025		2,102,836
Total Liabilities		3,330,423		3,040,740
Stockholders' Deficit
Preferred Stock-$0.001 par value; 5,000,000 shares authorized, no shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively		-		-
Common Stock-$0.001 par value; 500,000,000 shares authorized, 23,821,481 and 23,421,481 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively		23,822		23,422
Additional Paid-In Capital		1,868,029		1,837,079
Accumulated Other Comprehensive Gain		6,437		6,708
Accumulated Deficit		(1,918,749)		(1,869,474)
Total Stockholders' Equity (Deficit)		(20,461)		(2,265)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	3,309,962	$	3,038,475

The accompanying notes are an integral part of these consolidated financial statements.

3

Medical Imaging Corp.

Consolidated Statements of Operations (Unaudited)

	Three Months ended				Six Months ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Revenue:
Sales	$	1,316,125	$	1,193,840	$	2,512,062	$	2,492,845
Less: Cost of sales		796,126		766,244		1,501,621		1,570,120
Gross Margin		519,999		427,596		1,010,441		922,725
Operating Expenses:
Advertising		17,730		14,775		34,253		16,192
Amortization		-		34,387		22,925		68,773
Depreciation		39,835		39,486		79,655		78,922
Bad Debt Expense (Recapture)		7,458		(7,657)		14,980		21,738
General and Administrative		53,974		58,945		108,497		104,929
Insurance		11,362		12,645		23,108		23,250
Labor		185,784		162,727		376,264		349,575
Legal and professional		56,852		49,427		98,078		90,262
Management fees		4,666		3,831		9,088		7,715
Rent Office Space and Servers		34,586		22,396		73,722		61,106
Travel		12,082		10,511		26,470		19,597
Total Operating Expenses		424,329		401,473		867,040		842,059
Income from Operations		95,670		26,123		143,401		80,666
Other Income and (Expenses):
Other Income		43		314		203		314
Debt Settlement Loss		-		-		-		(607)
Foreign Currency Gains (Losses)		394		918		809		4,269
Amortization of Debt Discount		(22,640)		(20,357)		(42,996)		(39,163)
Interest Expense		(82,467)		(75,914)		(150,692)		(146,425)
Total Other Income (Expenses)		(104,670)		(95,039)		(192,676)		(181,612)
Income  (Loss) Before Provision for Income Taxes		(9,000)		(68,916)		(49,275)		(100,946)
Provision for Income Taxes		-		-		-		-
Net Income (Loss)		(9,000)		(68,916)		(49,275)		(100,946)
Comprehensive Income (Loss)		(1,336)		1,903		(271)		3,290
Total Comprehensive Income  (Loss)	$	(10,336)	$	(67,013)	$	(49,546)	$	(97,656)
Basic and Diluted Income  (Loss) per Share	$	0.000	$	(0.003)	$	(0.002)	$	(0.004)
Weighted Average Shares Outstanding:
Basic and Diluted		23,767,195		23,421,481		23,605,790		23,278,937

The accompanying notes are an integral part of these consolidated financial statements.

4

Medical Imaging Corp.

Consolidated Statements of Cash Flows (Unaudited)

	Six Months Ended
	June 30, 2014		June 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)	$	(49,275)	$	(100,946)
Adjustments to Reconcile Net Loss to Net Cash provided by Operating Activities:
Depreciation		79,655		78,922
Asset Write Off		1,009		-
Accrued Interest Converted into note		132,707		118,802
Amortization of Debt Discount		42,996		39,163
Shares issued for services		150		-
Amortization of Intangible Assets		22,925		68,773
Foreign currency transaction Gain/ Loss		64		(3,394)
Changes in operating assets and liabilities:
Accounts Receivable		(89,648)		104,469
Deposits and prepaid expenses		(5,269)		2,131
Accounts Payable and accrued liabilities		12,291		(88,495)
Loans Receivable		616		1,087
NET CASH AND CASH EQUIVALENTS PROVIDED BY OPERATING ACTIVITIES		148,221		220,512
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments on acquisition liability		(110,062)		-
Deposit on Possible Acquisition		(20,000)		-
Deposit on Equipment		(100,650)		-
Equipment Purchase		(87,401)		(14,166)
NET CASH  USED IN  INVESTING ACTIVITIES		(318,113)		(14,166)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt issuance		445,000		156,000
Principal payments on Related Party debt		-		(8,905)
Principal payments on debt		(160,758)		(214,981)
Principal Payments on Capital Lease Obligations		(41,291)		(169,431)
NET CASH AND CASH EQUIVALENTS USED IN FINANCING ACTIVITIES		242,951		(237,317)
Gain (Loss) due to foreign currency translation		(271)		3,290
NET CHANGE IN CASH AND CASH EQUIVALENTS		72,788		(27,681)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		77,300		107,701
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	150,088	$	80,020
Cash paid during the year for:
Interest	$	17,985	$	27,624
Income Taxes	$	36,555	$	-
Non-cash financing and investing activities:
Shares Issued for Convertible Note	$	31,200	$	18,600
Acquisition Liability Assigned to Loan Payable	$	64,937	$	-
Acquisition Liability Assigned to Promissory Note	$	25,000	$	-

The accompanying notes are an integral part of these consolidated financial statements.

5

Medical Imaging Corp.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2014

Note 1.  Organization and Summary of Significant Accounting Policies

Organization and Basis of Presentation

Medical Imaging Corp., (“MIC” or the “Company”), formerly: Diagnostic Imaging International Corp. (“DIIC”) a Nevada Corporation was incorporated in 2000. In 2005, the Company developed a business plan for private healthcare opportunities in Canada with the objective of owning and operating private diagnostic imaging clinics. In 2009, the Company purchased Canadian Teleradiology Services Inc., which operates as: Custom Teleradiology Services (“CTS”), CTS provides remote reading of medical diagnostic imaging scans for rural hospitals and clinics. In early 2010, the Company modified its business plan to grow its CTS subsidiary while commencing the acquisition of existing full service imaging clinics located in the United States and exploring the development of new diagnostic imaging technology. In 2012, the Company purchased Schuylkill Open MRI Inc., which operates as: Schuylkill Medical Imaging (“SMI”) an independent diagnostic imaging facility located in Pottsville, Pennsylvania.

Basis of Presentation

These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in U.S. dollars. The Company’s fiscal year-end is December 31.

Principle of Consolidation

The consolidated financial statements include the accounts of Medical Imaging, Corp., and our wholly-owned subsidiaries, Custom Teleradiology Services, Inc. and Schuylkill Medical Imaging. Intercompany accounts and transactions have been eliminated in the consolidated financial statements. CTS’ and SMI’s accumulated earnings prior to their acquisition (March 2, 2009 and December 10, 2012, respectively) are not included in the consolidated balance sheet.

Reclassification of Accounts

Certain prior period amounts have been reclassified to conform to the June 30, 2014 presentation.

Use of Estimates and Assumptions

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the consolidated financial statements are published, and (iii) the reported amount of net sales, expenses and costs recognized during the periods presented. Adjustments made with respect to the use of estimates often relate to improved information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of consolidated financial statements; accordingly, actual results could differ from these estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.  At June 30, 2014, and December 31, 2013, cash includes cash on hand and cash in the bank.

Accounts Receivable Credit Risk

The allowance for doubtful accounts is maintained at a level sufficient to provide for estimated credit losses based on evaluating known and inherent risks in the receivables portfolio.

Management evaluates various factors including expected losses and economic conditions to predict the estimated realization on outstanding receivables. As of June 30, 2014 and December 31, 2013, the allowance for bad debts was $32,097 and $17,294, respectively.

6

Bad debt expense for the six months ended June 30, 2014 and 2013 was $14,980 and $21,738, respectively.

Bad debt expense for the three months ended June 30, 2014 was $7,458 and Bad debt recapture for the three months ended June 30, 2013 was $7,657.

At June 30, 2014 two customers of CTS totalled approximately 44% of the total accounts receivable. As of December 31, 2013, three customers totalled approximately 70% of the total accounts receivable.

Goodwill and Indefinite Intangible Assets

The Company follows the provisions of Financial Accounting Standard (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, Goodwill and Other Intangible Assets. In accordance with ASC Topic 350, goodwill, representing the excess of the purchase price and related costs over the value assigned to net tangible and identifiable intangible assets of businesses acquired and accounted for under the purchase method, acquired in business combinations is assigned to reporting units that are expected to benefit from the synergies of the combination as of the acquisition date. Under this standard, goodwill and intangibles with indefinite useful lives are not amortized.  The Company assesses goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter, or more frequently if events and circumstances indicate impairment may have occurred in accordance with ASC Topic 350. If the carrying value of a reporting unit's goodwill exceeds its implied fair value, the Company records an impairment loss equal to the difference. ASC Topic 350 also requires that the fair value of indefinite-lived purchased intangible assets be estimated and compared to the carrying value. The Company recognizes an impairment loss when the estimated fair value of the indefinite-lived purchased intangible assets is less than the carrying value. As of June 30, 2014, the Company has goodwill of $1,422,670 as result of the acquisition of SMI on December 10, 2012. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the consolidated financial statements.

Intangible Assets

CTS has contracts with various hospitals in the province of Ontario, Canada.  These contracts are for specific radiology services to be provided for a length of time.  Contracts varied between one and five years. The contracts do not specify any minimum billings for any period of time. The contracts in existence on acquisition were valued on acquisition using a discounted cash flow model and the fair value as recorded is amortized over the remaining life of the contract using the straight line method.

The Company has written off one of the hospital contracts to reflect end of service with no potential for renewal.

The Company also attributed value to the non-compete agreement obtained as part of the acquisition agreement with CTS’ former director. As of June 30, 2014.The value attributed to this agreement has been fully amortized.

SMI has a non-compete agreement with previous owners of SMI. The value attributed to this agreement has been fully amortized.

Amortization of Intangible Assets

The accumulated amortization of intangible assets with finite useful lives was $657,830 and $905,027 at June 30, 2014 and December 31, 2013, respectively.

These assets have been fully amortized; therefore there is no expected amortization expense for the next five years.

Revenue Recognition

The Company holds contracts with several hospitals and groups of health care facilities to provide Teleradiology services for a specific period of time. The Company bills for services rendered on a monthly basis.  For the quarter ended June 30, 2014, CTS held seven contracts; one contract that is renewable on a year-to-year basis, four contracts that are renewable in 2014 ,2015, and 2016, and its two largest contracts, which renewed automatically in 2013 for successive one year terms. As described above, in accordance with the requirement of Staff Accounting Bulletin (“SAB”) 104, the Company recognizes revenue when: (1) persuasive evidence of an arrangement exists (contracts); (2) delivery has occurred (monthly); (3) the seller’s price is fixed or determinable (per the customer’s contract, and services performed); and (4) collectability is reasonably assured (based upon our credit policy).

7

Revenue is accounted for under the guidelines established by SAB 101, Revenue Recognition in Financial Statements, and ASC Topic 605-45, Revenue Recognition – Principal Agent Considerations. For CTS, the Company has the following indicators of gross revenue reporting: (1) CTS is the primary obligator in the provision of services to the Hospitals under contract, (2) CTS has latitude in establishing price, and negotiating contracts with each hospital, (3) CTS negotiates and determines the service specification to be provided to each hospital client, (4) CTS has complete discretion in supplier selection, and (5) CTS has the credit risk. Accordingly, the Company records CTS revenue at gross.

For SMI, revenue is recorded at the time of service.

Cost of Sales

Cost of sales includes fees paid to radiologists for teleradiology services, transcription fees, equipment repairs, system license and usage costs.

Impairment of Long-Lived Assets

In accordance with ASC Topic 360, Property, Plant and Equipment, property, plant, and equipment, and purchased intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Goodwill and other intangible assets are tested for impairment.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Amortization and Depreciation

Depreciation and amortization are calculated using the straight-line method over the following useful lives:

3 - 7 years

Equipment

5 – 7 years

Furniture and Fixtures

2 to 5 years

Hospital Contracts

3 - 5 years

Non-compete Contract

39 years

Leasehold Improvements

Stock Based Compensation

The Company measures all share-based payments to employees (which includes non-employee Board of Directors), including employee stock options, warrants and restricted stock, at the fair value of the award and expenses it over the requisite service period (generally the vesting period). The fair value of common stock options or warrants granted to employees is estimated at the date of grant using the Black-Scholes option pricing model. The calculation also takes into account the common stock fair market value at the grant date, the exercise price, the expected life of the common stock option or warrant, the dividend yield and the risk-free interest rate.

The Company from time to time may issue stock options, warrants and restricted stock to acquire goods or services from third parties. Restricted stock, options or warrants issued to other than employees or directors are recorded on the basis of their fair value. The options or warrants are valued using the Black-Scholes option pricing model on the basis of the market price of the underlying equity instrument on the “valuation date,” which for options and warrants related to contracts that have substantial disincentives to non-performance, is the date of the contract, and for all other contracts is the vesting date. Expenses related to the options and warrants are recognized on a straight-line basis over the period which services are to be received.

The Company did not recognize stock-based compensation expenses from stock granted to non-employees for the six and three months ended June 30, 2014 and 2013.

The Company recognized stock-based compensation expenses of $150, and $0 from stock granted to employees for the six months ended June 30, 2014, and 2013, respectively.

8

The Company did not recognize stock-based compensation expenses from stock granted to employees for the three months ended June 30, 2014 and 2013.

Fair Value of Financial Instruments

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties other than in a forced sale or liquidation.

The carrying amounts of the Company’s financial instruments, including cash, accounts receivable, prepaid expenses, accounts payable, accrued liabilities and notes and loans payable approximate fair value due to their most maturities.

Fair Value Measurements

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification (“ASC”) for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB ASC (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

Level 1

Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

Level 2

Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

Level 3

Pricing inputs that are generally observable inputs and not corroborated by market data.

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accounts payable approximate their fair values because of the short maturity of these instruments.

The company does not have assets and liabilities that are carried at fair value on a recurring basis.

The Company’s functional currency for its wholly-owned subsidiary, CTS, is the Canadian dollar, and their financial statements have been translated into U.S. dollars. The Canadian dollar based accounts of the Company’s foreign operations have been translated into United States dollars using the current rate method. Assets and liabilities of those operations are translated into U.S. dollars using exchange rates as of the balance sheet date; income and expenses are translated using the weighted average exchange rates for the reporting period. Translation adjustments are recorded as accumulated other comprehensive income (loss), a separate component of stockholders’ equity.

The Company recognized a foreign currency gain on transactions from operations of $809 and $4,269 for the six months ended June 30, 2014 and 2013, respectively.

The Company recognized a foreign currency gain on transactions from operations of $394 and $918 for the three months ended June 30, 2014 and 2013, respectively.

The Company recognized other comprehensive loss of $271 and gain of $3,290 for the six months ended June 30, 2014 and 2013, respectively.

The Company recognized other comprehensive loss of $1,336 and gain of $1,903 for the three months ended June 30, 2014 and 2013, respectively.

Income Taxes

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes.  This statement prescribes the use of the asset and liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

9

Net Income (Loss) Per Share

The Company follows the provisions of ASC Topic 260, Earnings per Share.  Basic net income (loss) per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Basic and diluted losses per share are the same as all potentially dilutive securities are anti-dilutive.

Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock or conversion of notes into shares of the Company’s common stock that could increase the number of shares outstanding and lower the earnings per share of the Company’s common stock. This calculation is not done for periods in a loss position as this would be antidilutive. As of June 30, 2014, there were no stock options or stock awards that would have been included in the computation of diluted earnings per share that could potentially dilute basic earnings per share in the future.

The information related to basic and diluted earnings per share is as follows:

	Three Months Ending				Six Months Ending
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Numerator:
Continuing operations:
Total Comprehensive Income (Loss)	$	(10,336)	$	(67,013)	$	(49,546)	$	(97,656)
Total	$	(10,336)	$	(67,013)	$	(49,546)	$	(97,656)
Total Comprehensive Income (Loss)	$	(10,336)	$	(67,013)	$	(49,546)	$	(97,656)
Denominator:
Weighted average number of shares outstanding – basic and diluted		23,767,195		23,421,481		23,605,790		23,278,937
EPS:
Basic:
Total Comprehensive Income (Loss)	$	0.00	$	(0.003)	$	(0.002)	$	(0.004)
Net Income (loss)	$	0.00	$	(0.003)	$	(0.002)	$	(0.004)
Diluted
Total Comprehensive Income (Loss)	$	0.00	$	(0.003)	$	(0.002)	$	(0.004)
Total Comprehensive Income (Loss)	$	0.00	$	(0.003)	$	(0.002)	$	(0.004)

Recent Accounting Updates

The Company does not expect the adoption of any other recently issued accounting pronouncements to have a significant impact on its results of operations, financial position or cash flow.

Note 2. Interim Financial Statements

The accompanying interim unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six and three month period ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. For further information, refer to the financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Note 3. Property and Equipment

In the quarter ending June 30, 2014 the Company made deposit payments of $100,650 towards the purchase of a CT machine that was delivered and put into operations in July 2014.

10

In the quarter ending June 30, 2014 the Company made payments of $87,401 toward construction of an additional space designated for the CT machine. The construction of the CT room was completed in July 2014. The progress amounts paid were capitalized and classified as leasehold improvements.

Property and equipment are stated at cost.  Depreciation is calculated on the accelerated method over the estimated useful life of the assets. At June 30, 2014 and December 31, 2013, the major class of property and equipment were as follows:

	June 30, 2014		December 31, 2013		Estimated useful lives
Computer/Office Equipment	$	87,096	$	88,378	3-7 years
Medical Equipment		601,774		601,774	3-7 years
Leasehold Improvements		834,713		747,312	39 years
Less: Accumulated Depreciation		(317,192)		(237,763)
Net Book Value	$	1,206,391	$	1,199,701

Depreciation expense was $79,655 and $78,922 for the six months ended June 30, 2014 and 2013, respectively.

Depreciation expense was $39,835 and $39,486 for the three months ended June 30, 2014 and 2013, respectively.

Note 4. Business Combination

SMI acquisition:

On December 10, 2012, the Company acquired 100% of Schuylkill Medical Imaging. for consideration including cash which is described in detail below. Accordingly, the results of operations for SMI have been included in the accompanying consolidated financial statements from that date forward. SMI provides Magnetic Resonance Imaging (MRI) services. Pursuant to the terms of the Share Purchase Agreement, the Company paid an aggregate purchase price of $1,825,000 for the shares, plus a possible earn-out payment of up to $200,000 to be paid within sixty days after December 31, 2013 if certain post-closing revenue targets are met. The earn out payment was paid out in June 2014.

In connection with the Share Purchase Agreement, SMI entered into a lease agreement with one of the Sellers for the lease of two MRI machines. Under the terms of the lease, SMI is to make monthly payments of $11,013, plus applicable sales tax, over a period of 48 months.  In addition, SMI agreed to make a one-time lease payment of $125,000 which was fully paid by March 30, 2013. The Company has guaranteed all of SMI’s obligations under the lease.  At the end of the lease, SMI will have the option to purchase the MRI machines for a total purchase price of $1.00. The lease was accounted for as a capital lease for a total value of $555,000.

Consideration for the acquisition comprised the following (at fair value):

Cash	$	1,825,000
Acquisition Liability		200,000
Total consideration paid	$	2,025,000

Following assets and liabilities were recognized in the acquisition (at fair value):

Cash	$	42,887
Accounts receivable		124,436
Fixed Assets		1,345,647
Deposits		8,140
Non-compete agreement		27,917
Goodwill		1,422,670
Liabilities assumed		(946,697)
Net assets purchased	$	2,025,000

The Company has evaluated this transaction and believes that the historical cost of the tangible and intangible assets acquired approximated fair market value given the current nature of the assets acquired. As part of the acquisition the Company has acquired Goodwill of $1,422,670. The Company expects to amortize the full amount of goodwill for tax purposes. At December 31, 2013 year end the Company performed an annual testing of goodwill for impairment, and valued the fair value of the reporting units to be greater than its carrying amount. As such, goodwill impairment was not recorded.

The amounts of revenue included in the consolidated statement of operations for the six months ended June 30, 2014 and 2013 is $960,419, and $885,540, respectively.

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The amounts of gross earnings included in the consolidated statement of operations for six months ended June 30, 2014 and 2013 is $727,889, and $639,368, respectively.

The amounts of revenue included in the consolidated statement of operations for the three months ended June 30, 2014 and 2013 is $502,454, and $409,524, respectively.

The amounts of gross earnings included in the consolidated statement of operations for three months ended June 30, 2014 and 2013 is $371,834, and $294,134, respectively.

Costs related to the acquisition, which include legal fees, in the amount of $81,811 have been charged directly to operations and are included in legal and professional expenses in the 2012 consolidated statement of operations.

Prospective Acquisitions:

On June 16, 2014, MIC entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with the owners of a mobile diagnostic imaging company (the “Business”) located in Northern Florida. Pursuant to the terms of the Share Purchase Agreement, the Company was to purchase from the owners all of the outstanding capital stock of the Business for an aggregate purchase price of $3 million, consisting of $2.5 million in cash payable at closing and the issuance of a 12-month $500,000 promissory note, bearing interest at the rate of 5% per annum, payable at maturity, and secured by all of the personal property of the Business. Under the terms of the Share Purchase Agreement, the Company has made a refundable payment of $20,000 to the owners of the Business, which will be credited against the purchase price at closing. The refundable payment is shown on the consolidated balance sheet as a deposit.

Consummation of the transaction was subject to certain customary closing conditions, including, among other things, the satisfactory completion of the Company’s due diligence review of the Business, the continued regulatory compliance of the Business, the completion of a financial audit of the Business which shall be acceptable to the Company, and the continued employment of specified personnel of the Business. Additionally, the acquisition of the Business may be abandoned by the Company at any time, in its sole discretion. On July 11, 2014 the Company terminated the Share Purchase Agreement with the owners of the business located in Northern Florida area and the deposit of $20,000 was refunded in July 2014.

Note 5. Goodwill

The change in the carrying amount of goodwill for the two years ended June 30, 2014 was:

Balance as of January 1, 2013	$	1,422,670
Changes in goodwill during the year		-
Balance as of December 31, 2013		1,422,670
Changes in goodwill during the year		-
Balance as of June 30, 2014	$	1,422,670

Note 6.  Lease Commitments

CTS has a lease commitment for its office space of approximately $2,450 minimum rental, and approximately $2,850 in utilities, realty taxes, and operating costs, for a total of approximately $5,300 per month. The Lease renewed in April 2013 for a period of five years and will expire in March 2018. On renewal, CTS was given a rental credit of approximately $28,000. This lease was accounted for as an operating lease.

CTS has a lease for its off-site servers at a cost of approximately $1,500 per month. This lease is accounted for as an operating lease. The lease will expire in April 30, 2017.

SMI has a lease for its off-site servers at a cost of approximately $1,092 per month. This lease is accounted for as an operating lease on a month-to-month basis.

SMI entered into a lease commitment for its office space in Pottsville, Pennsylvania. The lease will expire on June 30, 2016, and it is renewable for an additional term of 5 years on the same terms and conditions. Monthly rental amounts in 2014 were $5,437 per month plus approximately $1,674 in utilities, realty taxes, and operating costs. The lease was amended to include the additional space of 700 square feet occupied by the CT machine and equipment. The first additional rental payment will begin in July of 2015; the additional rental amount is expected to be approximately $1,100.   

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SMI has a lease for office space in Dallas, Texas of approximately $880 per month plus approximately $660 in utilities, realty taxes, and operating costs. The lease will expire in February 28, 2015.

Expected Lease commitments for the next three years:

Year	Office Space		Servers		Total
2014	$	83,706	$	15,552	$	99,258
2015		158,612		31,104		189,716
2016		112,866		31,104		143,970
	$	355,184	$	77,760	$	432,944

Note 7. Accounts Payable and Accrued Liabilities

As of June 30, 2013 and December 31, 2013, the trade payables and accrued liabilities of the Company were $620,442 and $608,151, respectively. Of the total amount as of June 30, 2014, approximately $267,581 is related to CTS operations and $298,063 is related to SMI operations. The balance of the accounts is for vendors supplying goods and services used in the normal course of business. Of the total amount as of December 31, 2013, approximately $301,965 is related to CTS operations and $278,854 is related to SMI operations. The balance of the accounts is for vendors supplying goods and services used in the normal course of business.

Note 8. Obligations Under Capital Lease

On December 10, 2012, the Company entered into a lease agreement with one of the sellers of SMI to lease the two MRI machines. Under the terms of the lease, SMI is to make monthly payments of $11,013, plus applicable sales tax, over a period of 48 months.  In addition, SMI agreed to make a one-time lease payment of $125,000, which was paid by March 30, 2013. The Company has guaranteed all of SMI’s obligations under the lease.  At the end of the lease, SMI will have the option to purchase the MRI machines for a total purchase price of $1.00. The lease was accounted for as a capital lease for a total value of $555,000.

Minimum future lease payments under the capital lease are as follows as of June 30, 2014:

2014		66,076
2015		132,152
2016		132,150
Total minimum lease payments		330,378
Less amount representing interest		40,964
Present value of minimum lease payments		289,414
Less current portion of minimum lease payments		132,152
Long-term capital lease obligations	$	157,262

The gross amount of the equipment held under capital leases totals $555,000 ($379,333 net book value after accumulated amortization of $175,667) at June 30, 2014.

Amortization of the capital lease assets is included in the depreciation expense of $55,500, and $27,750 for the six and three months ending June 30, 2014, respectively.

Note 9. Promissory Notes and Loans Payable

Promissory Notes:

During the year ended December 31, 2013, $6,616 in accrued interest was recorded on the notes, and $87,225 was paid towards the balance of the notes.$18,736 of the notes assumed on acquisition represented by a promissory note accruing interest at an annual rate of 10.5% and paid out monthly. $45,792 of the notes assumed on acquisition represented by a promissory note accruing interest at an annual rate of 6% and paid out monthly.

During the six months ended June 30, 2014, $875 in accrued interest was recorded on the notes, and $18,925 was paid towards the balance of the notes.

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In June 2014 $64,937 of the acquisition liability that was due as part of SMI acquisition (see Note 4) was assigned to a promissory note accruing interest at an annual rate of 12%, and due on February 1, 2015. Interest accrued is to be paid out monthly with the principal amount due on maturity.

A summary of the promissory notes is as follows:

Promissory notes at January 1, 2013	$	119,624
Added: Proceeds through December 31, 2013		6,000
Added: Accrued Interest through December 31, 2013		6,616
Less: Payments through December 31, 2013		(87,225)
Promissory notes at December 31, 2013	$	45,015
Added: Note assigned through June 30, 2014		64,937
Added: Accrued Interest through June 30, 2014		875
Less: Payments through June 30, 2014		(18,925)
Promissory notes at June 30, 2014	$	91,902
Less: Short term portion		81,640
Long term portion June 30, 2014	$	10,262

Loans Payable:

In May 2014 the Company received proceeds of $50,000 through private placement from an accredited investor, and in June 2014 the Company assigned $25,000 of the acquisition liability that was due as part of SMI acquisition (see Note 4) to loans payable. The loans are held with the Company until it is registered with Pennsylvania Securities Commission and is permitted to sell to the Pennsylvania residents investors Series C convertible note.

The total of $75,000 is shown on the consolidated balance sheets as loans payable until Series C notes can be issued.

Note 10. Convertible Notes

Series B:

On December 3, 2012, the Company sold, through a private placement to accredited investors, three year 12% convertible notes (“Series B Notes”) in the aggregate principal amount of $1,865,000. On March 27, 2013 the Company sold an additional $150,000 of Series B Notes.

Series B Notes pay interest at a rate of 12% per annum, payable to the holder at 1% per month. The Notes are convertible into common shares of the Company at $0.10 per share. In addition, each holder of Series B Notes received shares dependent on the dollar amount of Notes purchased. The total number of shares issued was 5,315,000 shares of common stock of the Company. $1,865,000 of Series B Notes issued on December 3, 2012 mature on December 31, 2013; and $150,000 of Series B Notes issued March 27, 2013 mature on March 31, 2016.

For the six month ended June 30, 2014, $120,900 in accrued interest was recorded on the notes and paid.

In accordance with ASC 470 on issuance of the shares given, the Company recognized additional paid-in capital and a discount against the notes for a total of $244,275.  Amortization of the discount for the six months ended June 30, 2014 was $40,713.

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The Details of Series B Notes are as follows:

Issuance	December 31,		December 31,		Six Months		Six Months		Six Months		Six Months		June 30,		Maturity
Date	2013		2013		Ended		Ended		Ended		Ended		2014		Date
	Balance		Unamortized		June 30,		June 30,		June 30,		June 30,		Balance, net
			Discount		2014		2014		2014		2014
			Beginning		Proceeds		Accrued		(Payments)		Amortization
			Balance				Interest				of Debt
											Discount
03-Dec-12	$	25,000	$	(719)	$	-	$	1,500	$	(1,500)	$	188	$	24,469	31-Dec-15
03-Dec-12		125,000		(10,569)		-		7,500		(7,500)		2,487		116,919	31-Dec-15
03-Dec-12		50,000		(2,156)		-		3,000		(3,000)		563		48,406	31-Dec-15
03-Dec-12		25,000		(719)		-		1,500		(1,500)		188		24,469	31-Dec-15
03-Dec-12		25,000		(719)		-		1,500		(1,500)		188		24,469	31-Dec-15
03-Dec-12		25,000		(719)		-		1,500		(1,500)		188		24,469	31-Dec-15
03-Dec-12		1,500,000		(129,375)		-		90,000		(90,000)		33,750		1,404,375	31-Dec-15
03-Dec-12		50,000		(2,156)		-		3,000		(3,000)		563		48,406	31-Dec-15
03-Dec-12		15,000		(431)		-		900		(900)		113		14,681	31-Dec-15
03-Dec-12		100,000		(7,081)		-		6,000		(6,000)		1,713		94,631	31-Dec-15
27-Mar-13		25,000		(1,162)		-		1,500		(1,500)		258		24,096	31-Mar-16
27-Mar-13		25,000		(1,162)		-		1,500		(1,500)		258		24,096	31-Mar-16
27-Mar-13		25,000		(1,162)		-		1,500		(1,500)		258		24,096	31-Mar-16
Total	$	2,015,000	$	(158,131)	$	-	$	120,900	$	(120,900)	$	40,713	$	1,897,582

Summary of Series B Notes is as follows:

	June 30, 2014		December 31, 2013
Convertible notes Beginning Balance	$	2,015,000	$	2,015,000
Less: unamortized debt discount		(117,418)		(158,131)
Convertible notes principal, net		1,897,582		1,856,869
Less: Payments in Period		(120,900)		(235,300)
Added: Accrued interest		120,900		235,300
Total Convertible notes, net	$	1,897,582	$	1,856,869
Less: Short term portion, net		-		-
Long term portion, net	$	1,897,582	$	1,856,869

Following are maturities of the long –term debt in Series B Notes for each of the next 5 years:

	Principal Payments		Interest Payments		Amortization of Discount
2014	$	-	$	120,900	$	40,713
2015		1,865,000		241,800		75,155
2016		150,000		4,500		1,550
2017		-		-		-
2018		-		-		-
Total	$	2,015,000	$	367,200	$	117,418

Series C:

On May 22, 2014 the Company sold, through private placement to accredited investors, three year 12% convertible notes (“Series C Notes”) in the aggregate principal amount of $95,000.

The Notes bear interest at a rate of 12% per annum, payable to the holder at1% per month, with the principal amount due on May 31, 2017. The Notes are convertible into shares of the Company’s common stock at an initial conversion rate of $0.15 per share. In addition, each holder of Series C Notes received shares dependent on the dollar amount of Notes purchased. The total number of shares issued was 95,000 shares of common stock of the Company.

In accordance with ASC 470 on issuance of the shares given, the Company recognized additional paid-in capital and a discount against the notes for a total of $5,700. Amortization of the discount for the six months ended June 30, 2014, was $158.

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For the six month ended June 30, 2014, $1,218 in accrued interest was recorded on the notes and paid.

Issuance	December 31,		Six Months		June 30,		Six Months		Six Months		Six Months		June 30,		Maturity
Date	2013		Ended		2014		Ended		Ended		Ended		2014		Date
	Balance		June 30,		Unamortized		June 30,		June 30,		June 30,		Balance, net
			2014		Discount		2014		2014		2014
			Proceeds		Beginning		Accrued		(Payments)		Amortization
						Balance	Interest				of Debt
											Discount
22-May-14	$	-	$	50,000	$	(3,000)	$	642	$	(642)	$	82	$	47,082	31-May-17
22-May-14		-		22,500		(1,350)		288		(288)		38		21,188	31-May-17
22-May-14		-		22,500		(1,350)		288		(288)		38		21,188	31-May-17
Total	$	-	$	95,000	$	(5,700)	$	1,218	$	(1,218)	$	158	$	89,458

Summary of Series C Notes is as follows:

	June 30, 2014		December 31, 2013
Convertible notes Beginning Balance	$	95,000	$	-
Less: unamortized debt discount		(5,542)		-
Convertible notes principal, net		89,458		-
Less: Payments in Period		(1,218)		-
Added: Accrued interest		1,218		-
Total Convertible notes, net	$	89,458	$	-
Less: Short term portion, net		-		-
Long term portion, net	$	89,458	$	-

Following are maturities of the long –term debt in Series C Notes for each of the next 5 years:

	Principal Payments		Interest Payments		Amortization of Discount
2014	$	-	$	5,700	$	950
2015		-		11,400		1,900
2016		-		11,400		1,900
2017		95,000		4,750		792
2018		-		-		-
Total	$	95,000	$	32,250	$	5,542

Individually issued Convertible Note:

On March 26, 2014 the Company issued $300,000 in convertible note to a non-affiliate.  The note pays interest at a rate of 12% per annum, payable to the holder at 1% per month. In addition to interest payments the Company will be making monthly payments of $5,000 towards the principal balance beginning June 1, 2014 for three years until the note due date of February 27, 2017. The note is convertible into common shares of the Company at $0.15 per share. In addition, the non-affiliate will receive 300,000 shares as part of the note agreement.

For the six month ended June 30, 2014, $9,715 in accrued interest was recorded on the notes and paid.

In accordance with ASC 470 on issuance of the shares given, the Company recognized additional paid-in capital and a discount against the notes for a total of $25,500. Amortization of the discount for the six months ended June 30, 2014 was $2,125.

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Summary of the notes is as follows:

	June 30, 2014		December 31, 2013
Convertible note Beginning Balance	$	300,000	$	-
Less: unamortized debt discount		(23,375)		-
Convertible notes principal, net		276,625		-
Less: Payments in Period		(19,715)		-
Added: Accrued interest		9,715		-
Total Convertible note, net	$	266,625	$	-
Less: short term portion, net		55,164		-
Long term portion, net	$	211,461	$	-

Following are maturity of the individually issued convertible note for each of the next 5 years:

	Principal Payments		Interest Payments		Amortization of Discount
2014	$	30,000	$	16,788	$	4,250
2015		60,000		27,884		8,500
2016		60,000		20,749		8,500
2017		140,000		2,625		2,125
2018		-		-		-
Total	$	290,000	$	68,046	$	23,375

Note 11. Related Party Transactions

During the year ended December 31, 2013, Richard Jagodnik (an officer and shareholder of the Company), had a $7,062 note payable from MIC. The note was non-interest bearing and payable on demand. As at December 31, 2013 the note is fully paid.

During the second quarter of 2010, Richard Jagodnik loaned MIC $42,944 under the same terms of convertible notes Series A. The note was carried in Canadian dollars and a foreign exchange gain of $693 was recorded for the year ended December 31, 2013. For the year ended December 31, 2013 $48 in accrued interest was recorded and added to the note. As at December 31, 2013 the note was fully paid.

For the six months ended June 30, 2014 the Company did not have any related party debt outstanding.

Summary of related party notes is as follows:

	Shareholder Note		Shareholder Convertible Note
Balance at January 1, 2013	$	7,062	$	10,936
Added: Accrued Interest		-		48
Less: Foreign Exchange Gain		-		693
Less: Payments		(7,062)		(10,291)
Balance at December 31, 2013	$	-	$	-
Balance at June 30, 2014	$	-	$	-

Note 12. Major Customers

For the six months ending June 30, 2014 and 2013, revenue was derived primarily from radiology services.

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Major customers representing more than 10% of total revenue for the six months ended June 30, 2014 and 2013 are as follow:

	Six Months Ended			Six Months Ended
	June 30, 2014			June 30, 2013
Customers	Revenue amount		Revenue percentage	Revenue amount		Revenue percentage
Contract A	$	529,754	21%	$	576,141	23%
Contract E		455,253	18%		529,133	21%
Contract F		279,189	11%		281,610	11%
Contract H	$	149,408	6%	$	131,060	5%

Closing balances of accounts receivable for our major customers were as follow:

	Balance at			Balance at
	June 30, 2014			December 31, 2013
	Accounts Receivable		Accounts Receivable	Accounts Receivable		Accounts Receivable
Customers	Closing Balance		Percentage	Closing Balance		Percentage
Contract A	$	18,485	5%	$	17,876	6%
Contract E		106,730	28%		95,552	34%
Contract F		50,883	13%		46,796	17%
Contract H	$	24,843	6%	$	54,757	19%

On May 8, 2014, the Company’s wholly-owned subsidiary, CTS, received notice that Contract A of its major customers is terminating its contract (the “Agreement”) with CTS. Pursuant to the terms of the Agreement, such termination is effective 90 days from the date of the notice.

Note 13. Major Vendors

The Company has one major vendor providing its system software and support. Expenses relating to this vendor for the three months ended June 30, 2014 and 2013 were $14,610 and $13,811, respectively.

Note 14. Common Stock Transactions

For the six months ended June 30, 2014, 5,000 shares were issued for services valued at $150 based upon the closing price of our common stock at the grant date.

For the six months ended June 30, 2014, 300,000 shares were issued as part of individually issued convertible note agreement. The shares were valued at $25,500 based upon the closing price of our common stock at the grant date.

For the six months ended June 30, 2014, 95,000 shares were issued as part of series C convertible note agreement. The shares were valued at $5,700 based upon the closing price of our common stock at the grant date.

For the year ended December 31, 2013, 300,000 shares were issued as part of convertible notes agreements. The shares were valued at $18,600 based upon the closing price of our common stock at the grant date.

For the year ended December 31, 2012 5,015,000 shares were issued as an additional part of convertible notes agreements. The shares were valued at $225,675 based upon the closing price of our common stock at the grant date.

Note 15. Income Tax

The Company follows ASC 740, Income Taxes, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between consolidated financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

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The provisions of ASC 740 require companies to recognize in their financial statements the impact of a tax position if that position is more likely than not to be sustained upon audit, based upon the technical merits of the position. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure.

Management does not believe that the Company has any material uncertain tax positions requiring recognition or measurement in accordance with the provisions of ASC 740. Accordingly, the adoption of these provisions of ASC 740 did not have a material effect on the Company’s financial statements. The Company’s policy is to record interest and penalties on uncertain tax positions, if any, as income tax expense.

Note. 16. Going Concern

As shown in the accompanying consolidated financial statements, the Company incurred net losses of $10,336 for the three months ended June 30, 2014 as well as a working capital deficit of $418,415. These conditions raise substantial doubt as to if the Company’s ability to continue as a going concern. Management plan to raise additional financing in order to continue its operations and fulfil its debt obligations in 2015, but there can be no assurances that the plan will be successful. These consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Note 17. Subsequent events

Subsequent to quarter end, the Company terminated the Share Purchase Agreement with the owners of the business located in Northern Florida area and the deposit of $20,000 was refunded in July 2014 (see Note 4).

Subsequent to quarter end, the Company has completed the purchase of a CT and an X-ray machine for its SMI location.  SMI has purchased a 16 Slice Toshiba Aquillion CT and a Viztek Digital Direct Radiography Straight Arm x-ray System. Both machines were delivered and installed prior to the end of July 2014. In addition SMI has completed building CT and x-ray rooms prior to house the additional machines. Both new machines were put in operation at the end of July 2014.

Subsequent to quarter end, the Company has entered into a capital lease agreement to lease the x-ray machine that was delivered and installed in July 2014. Under the terms of the lease, the Company’s subsidiary, SMI, is to make monthly payments of $1,495, plus applicable sales tax, over a period of 60 months. The gross amount of the x-ray machine held under the capital lease is $78,500.

Subsequent to quarter end, The Company’s subsidiary, SMI, has entered into a sublease agreement for approximately one hundred fifty (150) square feet of space for the use of operating the x-ray machine as well as use of common areas of the sublessor. The lease calls for monthly payments of $2,000 beginning October 1, 2014.

The Company evaluated subsequent events through the date the consolidated financial statements were issued.

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Item 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Forward Looking Statements

This Form 10-Q quarterly report of Medical Imaging Corp. (the “Company”) for the three and six months ended June 30, 2014, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby.  To the extent that there are statements that are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties.  In any forward-looking statement, where the Company expresses an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will be achieved or accomplished.

The following are factors that could cause actual results or events to differ materially from those anticipated, and include, but are not limited to: variations in revenue; possible inability to attract investors for its equity securities or otherwise raise adequate funds from any source should the Company seek to do so; increased governmental regulation; increased competition; unfavorable outcomes to litigation involving the Company or to which the Company may become a party in the future; and a very competitive and rapidly changing operating environment.

Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof.  The Company believes the information contained in this Form 10-Q to be accurate as of the date hereof. Changes may occur after that date, and the Company will not update that information except as required by law in the normal course of its public disclosure practices.

Additionally, the following discussion regarding the Company’s financial condition and results of operations should be read in conjunction with the financial statements and related notes contained in Item 1 of Part 1 of this Form 10-Q, as well as the financial statements in Item 8 of Part II of the Company’s Form 10-K for the fiscal year ended December 31, 2013.

Business description

Medical Imaging Corp., (“MIC” or the “Company”), formerly: Diagnostic Imaging International Corp  (“DIIC”) is a U.S.-based healthcare services company with a specific focus on medical diagnostic imaging.  We currently own and operate two wholly-owned subsidiaries: Canadian Teleradiology Services, Inc., which operates as Custom Teleradiology Services; and Schuylkill Open MRI., which operates as Schuylkill Medical Imaging.  With operations in the U.S. and Canada, our Company is executing a growth strategy centered on acquiring and operating profitable medical diagnostic imaging facilities and imaging services businesses with a goal of profitably increasing revenues.

MIC’s mission is to provide superior quality medical diagnostic imaging services to its clients across North America, delivering convenience, accuracy and the highest standards of care and service.  Our Company’s mandate is to make available, on a timely basis, valued-based on-site and remote medical imaging services for patients, hospitals, workers compensation boards and insurance companies.  With a focus on continuous improvement in key process metrics that help drive service excellence and customer satisfaction, MIC is dedicated to providing patient-centric care and comprehensive support to our broad network of medical partners.

Custom Teleradiology Services, Inc. (CTS)

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Founded in 2004 and acquired by MIC in 2009, CTS is one of Canada’s leading providers of remote reading and reporting of medical diagnostic imaging scans, otherwise known as Teleradiology, for rural hospitals and clinics. Our network of board certified radiologists is, collectively providing medical imaging interpretations for our clients, helping to speed diagnoses, improve outcomes and enhance patient care.

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On a 24/7/365 basis, CTS receives diagnostic imaging scans from hospitals, clinics and referring physicians, and transmits them to qualified radiologists, who are typically located in large urban medical centers. The receiving radiologist reads and interprets the diagnostic images and associated clinical data and prepares medical reports on the findings, which are in turn transmitted to the client allowing the hospital to continue with patient care.

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CTS specializes in Magnetic Resonance Imaging (MRI), Computed Tomography (CT), Positron Emission Tomography (PET), Ultrasound (US), Nuclear Medicine (NM), Digital Mammography (MAMMO), X-Ray and Bone Mineral Densitometry (BDM) modalities.

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CTS uses a leading brand Picture Archiving and Communications System (PACS) to ensure high resolution images can be delivered for interpretation in a quick, secure and highly dependable manner.  CTS also works with our IT Company to ensure our doctors workstations and hospital servers are always running.

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Guided by the Canada Health Act of 1984, healthcare in Canada is delivered through a publicly funded healthcare system, which is mostly free at the point of use and has most services provided by private entities.  CTS’ revenues are derived from service agreements we enter with hospitals, clinics and other medical facilities where patients are treated.  Fees for services provided by CTS are billed to the government by each CTS client, which, upon being paid by the government, remits payment to CTS in accordance with the contracted payment terms.

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CTS primary growth objectives are concentrated on optimizing our current contract portfolio and increasing our share of the Teleradiology market in the province of Ontario, expanding our geographic service region to include penetrating other Canadian provinces, and scaling our Canadian network of board certified radiologists to ensure effective support of our geographic expansion initiatives.

SMI

Incorporated in 2003, SMI is the premier medical imaging facility serving patients in Schuylkill County, Pennsylvania.  SMI has provided high quality medical diagnostic imaging services for more than 11 years in a caring, safe and convenient environment.  Located in Pottsville, Pennsylvania and accredited by the American College of Radiology, SMI has the first and only Open MRI in Schuylkill County and has earned a strong reputation within the communities it serves through its board certified radiologists, highly trained technologists, medical equipment and advanced technology matched with exceptional care and service.

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Our care facility currently houses two types of MRI systems – both of which provide exceptional anatomic detail and are particularly useful for diagnostic tests and procedures requiring high resolution.  Our digital imaging equipment includes a Siemens Concerto Open MRI System, as well as a closed 1.5 T Siemens Symphony MRI System.  The open MRI system is open on three sides, providing a panoramic 270° view – ideal for pediatric patients and those who may suffer from claustrophobia or are large bodied.  Our highly skilled radiologists weigh all factors to choose the right system for each individual patient to ensure the best outcome.  SMI is capable of facilitating MRI procedures that include cranial, spinal, abdominal, pelvic, musculoskeletal and head/neck scans.

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Most MRI procedures take between 20 to 45 minutes to complete depending on the body part imaged and how many images are needed, although some may take 60 to 90 minutes or longer. The scan is done as an outpatient procedure, which means the patient can go home after the test is completed.

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In July 2014, SMI has purchased x-ray and Computed Tomography (CT) imaging equipment.

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The x-ray machine is a Viztek Digital Direct Radiography Straight Arm system. X-ray imaging is a simple and quick way to get an inside view of a person’s pathology, skeletal system and soft tissue. X-ray procedures take only seconds to a couple of minutes and are commonly needed before proceeding to more extensive scans such as a CT or MRI, or in some cases in conjunction with them.

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The CT machine is a 16 slice Toshiba Aquillion. CTs are a more extensive version of x-rays that allow doctors to detect diseases, and view imaging such as: head, lung, cardiac, pelvic and abdomen for diagnosis.

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SMI’s business is highly reliant upon referrals from area physicians and group practices and does not maintain dedicated or contractual relationships with hospitals or clinics.   In fact, hospitals and clinics may compete with SMI to provide services to patients.  We believe that our community presence assists referring physicians with further enhancing their practices by providing well-coordinated and responsive care to their patients who require diagnostic imaging services; therefore we maintain an active outreach program, ensuring that the SMI brand and quality service offerings are well represented and communicated to practicing physicians in the region and to local healthcare consumers who exercise their own personal discretion in determining at what local medical imaging facility they choose to have their imaging procedures performed.

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Our relationships with government-sponsored plans, including Medicare, Medicaid and TRICARE, as well as managed care organizations and commercial health insurance payors, are vital to our business. We seek to maintain professional working relationships with our third-party payors, streamline the administrative process of billing and collection, and assist our patients and their families in understanding any balances due for co-payments, co-insurance, deductibles or out-of-network benefit limitations. In addition, through our quality initiatives and continuing research and education efforts, we have sought to enhance the level of service we provide to patients, which we believe benefits third-party payors by contributing to improved patient outcomes and reduced long-term health system costs.

SMI prides itself on its patient-centered culture and inviting, peaceful, healing environment that is aesthetically pleasing and designed specifically to allay patient fear, anxiety and discomfort.

SMI has a staff of approximately 10 employees including a center manager responsible for all the day operations and medical manager who oversees contrast studies and can advise on patient care.

About Teleradiology

Teleradiology encompasses the electronic transmission of medical images from one location to another healthcare set-up via the Internet. Teleradiology bridges the gap between the imbalanced demand and supply of radiologists and diagnostic services across the globe. Efficient image transfer demands three major components, an image capture and sending station, telecommunication channels (such as the Internet), and lastly, an image receiving station.

Initially, the image transfer process was tedious and time consuming, coupled with no assurance of image clarity and quality.  That has all changed with the rapid evolution of imaging processing and transmission tools and technologies.  Today, Teleradiology has emerged as a viable and cost effective alternative to hiring for many hospitals and clinics worldwide needing better coverage for imaging reading and interpretations.

Teleradiology improves patient care by allowing radiologists to provide services without actually having to be at the location of the patient. This is important when a sub-specialist, such as a MRI Radiologist, Neuroradiologist, Pediatric Radiologist or Musculoskeletal Radiologist is required, as these professionals are generally only located in large metropolitan areas.  Moreover, sharing high quality images at high speed saves precious time for medical staff and patients, and allows physicians to be better connected, work smarter and make more confident decisions.  Teleradiology allows hospitals in remote rural communities the ability to provide patient care 24 hours a day without having to close its emergency rooms.  Rural communities are able to receive the same high end healthcare and service that those in large urban centers experience and expect.

Teleradiology allows trained specialists to be available 24/7 – including those with difficult-to-find sub-specialties, such as MRI Radiology, Neuroradiology and Pediatric Neuroradiology.

CTS’ network utilizes secured network technologies such a wide area networks (WAN) or a local area networks (LAN) that are fully compatible with. Highly specialized software is used to transmit the images and enable our radiologists to effectively analyze what can be hundreds of images for a given study. We also engage advanced technologies that include graphics processing, voice recognition and image compression are often used in Teleradiology.

Through Teleradiology, our radiologists can provide a Preliminary Read Report for emergency room purposes, or a Final Read Report for the official patient record and for use in billing. Preliminary reports include all pertinent findings and a phone call for any critical findings. For some of our Teleradiology services, such as those involving critical or stroke studies, the turnaround time is extremely fast with a one-hour standard turnaround.  Our Teleradiology Final Reports can be provided for emergent and non-emergent studies. Final reports include all findings and require access to prior studies and all relevant patient information for a complete diagnosis.

About Magnetic Resonance Imaging (MRI)

MRI is an investigative procedure to detect structural or anatomical problems inside the body without the need for exploratory surgery or more complex invasive tests. MRI scanning is a painless way to "see" through bones.

MRI can be used to detect problems in almost any area - head, brain, eyes, ears, neck, chest, abdomen, pelvis, spine and limbs. It is particularly useful for detecting nerve root compression (pinched, trapped nerves) in the spine by a slipped disc, and is also commonly used to assess major joints (knees and ankles - torn ligaments, meniscus injuries).

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MRI has found wide applications in many branches of medicine. Neurology, cardiology, orthopedics, urology and general surgery all use MRI for making and confirming diagnosis.

MRI can also be used in angiography studies without the need for contrast. MRI scans produce detailed pictures of soft body tissue and organs without using ionizing radiation, making early detection of cancers, neurological, and musculoskeletal diseases possible.

About Magnetic Resonance Imaging

A noninvasive medical test, magnetic resonance imaging (MRI) uses a combination of magnetism, radio waves and computer processing to create detailed images of nearly every body part and internal structure - from bones and joints to vital organs and tiny blood vessels in the brain. Unlike imaging techniques based on x-ray, with MRI there's no exposure to radiation. It is among the safest and most versatile of imaging methods. Since its introduction for medical purposes in the 1970s, advances in MRI technology have greatly improved image quality, speed and convenience for patients, while giving physicians a safe and versatile tool for screening, diagnosing, surgical planning, treatment and reconstruction.

MRI technology has proven valuable when diagnosing a variety of conditions, including cancer, heart and vascular disease, stroke, and joint and musculoskeletal disorders. Sports injuries can also be diagnosed, especially those occurring in the knee, shoulder, hip, elbow and wrist.  The benefits of MRI include:

•Images of the soft-tissue structures, such as the heart and lungs, can be clearer and more detailed than with other imaging technology.

•Enhanced ability to provide an early diagnosis and evaluation of tumors.

•Enables medical professionals to detect abnormalities that may be obscured by a bone.

About Computerized Tomography (CT) or Computerized Axial Tomography (CAT)

A 'computerized tomography' (CT) or 'computerized axial tomography' (CAT) scan uses a computer that takes data from several X-ray images of structures inside a human's or animal's body and converts them into pictures on a monitor. Tomography is the process of generating a 2-dimensional image of a slice or section through a 3-dimensional object. Similar to looking at one slice of bread within the whole loaf.

CT scans are used to study areas of the body and the arms or legs, including:

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Chest (thorax). A CT scan of the chest can look for problems with the lungs, the heart, the esophagus or the major blood vessel (aorta) or the tissues in the center of the chest. Some common chest problems a CT scan may find include infection, lung cancer, a pulmonary embolism, and an aneurysm. It also can be used to see if cancer has spread into the chest from another area of the body.

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Abdomen. A CT scan of the abdomen can find cysts, abscesses, infection, tumors, an aneurysm, enlarged lymph nodes, foreign objects, bleeding in the belly, diverticulitis, inflammatory bowel disease, and appendicitis.

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Urinary tract. A CT scan of the kidneys, ureters, and bladder is called a CT KUB or CT urogram. This type of scan can find kidney stones, bladder stones, or blockage of the urinary tract. A special type of CT scan, called a CT intravenous pyelogram (IVP), uses injected dye (contrast material) to look for kidney stones, blockage, growths, infection, or other diseases of the urinary tract.

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Liver. A CT scan can find liver tumors, bleeding from the liver and liver diseases. A CT scan of the liver can help determine the cause of jaundice.

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Pancreas. A CT scan can find a tumor in the pancreas or inflammation of the pancreas (pancreatitis).

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Gallbladder and bile ducts. A CT scan can be used to check for blockage of the bile ducts. Gallstones occasionally show up on a CT scan. But other tests, such as ultrasound, usually are used to find problems with the gallbladder and bile ducts.

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Adrenal glands. A CT scan can find tumors or enlarged adrenal glands.

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Spleen. A CT scan can be used to check for an injury to the spleen or the size of the spleen.

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Pelvis. A CT scan can look for problems of organs in the pelvis. For a woman, these include the uterus, ovaries, and fallopian tubes. For a man, the pelvic organs include the prostate gland and the seminal vesicles.

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Arm or leg. A CT scan can look for problems of the arms or legs, including the shoulder, elbow, wrist, hand, hip, knee, ankle, or foot.

About Positron Emission Tomography (PET)

A Positron Emission Tomography (PET) scan uses radiation, or nuclear medicine imaging, to produce three-dimensional, color images of the functional processes within the human body. The machine detects pairs of gamma rays which are emitted indirectly by a tracer (positron-emitting radionuclide) which is placed in the body on a biologically active molecule. The images are reconstructed by computer analysis. Modern machines often use a CT X-ray scan which is performed on the patient at the same time in the same machine.

A PET scan can measure such vital functions as blood flow, oxygen use, and glucose metabolism, which helps doctors identify abnormal from normal functioning organs and tissues. The scan can also be used to evaluate the effectiveness of a patient’s treatment plan, allowing the course of care to be adjusted if necessary. Currently, PET scans are most commonly used to detect cancer, heart problems (such as coronary artery disease and damage to the heart following a heart attack), brain disorders (including brain tumors, memory disorders, seizures) and other central nervous system disorders.

One of the main differences between PET scans and other imaging tests like CT scan or magnetic resonance imaging (MRI) is that the PET scan reveals the cellular level metabolic changes occurring in an organ or tissue. This is important and unique because disease processes often begin with functional changes at the cellular level. A PET scan can often detect these very early changes whereas a CT or MRI detect changes a little later as the disease begins to cause changes in the structure of organs or tissues.

Canadian Government Regulation

Our CTS subsidiary is subject to extensive regulation by the Canadian federal government, as well as the governments of the provinces and territories in which we conduct our business. A diagnostic imaging clinic or hospital must be licensed by the Ministry of Health and sanctioned by the College of Physicians and Surgeons in the province in which it is located.

In addition to extensive existing Canadian government healthcare regulation, there could be at the federal and provincial levels reforms affecting the payment for and availability of diagnostic healthcare services. Limitations on reimbursement amounts and other cost containment pressures could result in a decrease in the revenue we expect to receive for each scan we perform. It is not clear at this time what proposals, if any, will be adopted or, if adopted, what affect these proposals would have on our business.

U.S. Government Regulation

Our SMI subsidiary is subject to extensive regulation under federal, State, and local laws.  This includes but is not limited to complying with HIPPA, Accreditation standards, Medicare and private insurance standards. In addition, we believe that our business will continue to be subject to increasing regulation, the scope and effect of which we cannot predict.

Competition

We compete with numerous public and private diagnostic imaging clinics. We also compete for the hiring of qualified medical experts and MRI, CT and x-ray technicians to perform and evaluate the diagnostic imaging scans.  Most of our current competitors have, and our future competitors are expected to have, greater resources than us. Therefore, our ability to compete largely depends on our financial resources and capacity.

Customers

Between direct hospital contracts and satellite hospitals that feed into the main hospital, we have a client roster of more than 15 hospitals that rely on CTS. The loss of any of these clients would have a negative impact on the Company.

SMI has built up its referral base from many family and specialized practitioners in the community.  Currently, we have nearly 200 local physicians that refer patients to us for our medical imaging services, helping to lessen the impact should some physicians elect to no longer refer us patients.

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Employees

MIC currently has one full time executive (Chief Executive Officer), one part time executive (Chief Financial Officer) and  15 full time employees who include the head office accounting staff, CTS staff, the Dallas based billing staff and the SMI clinic staff. In addition, the Company employs as many as 40 sub-contractors who are physicians, radiologists, accountants, business development consultants, clerical staff and IT professionals.

Operations

CTS

During the second quarter of 2014, CTS continued concentrating on expanding customer service with existing contracts. In addition our operations manager is focusing on marketing outside of Ontario to grow the company.

SMI

During the second quarter of 2014, efforts were focused on constructing the new CT and Xray rooms, purchasing the new equipment and preparing for expanded service. In late July both new modalities came on line.

Overall Operating Results:

For the six months ended June 30, 2014 revenues from teleradiology services was $1,551,643 compared to $1,607,304 for the six months ended June 30, 2013, a decrease of 4 % or $55,661. The decrease in revenue from teleradiology services of 4% is related to revenues carried in Canadian dollar. The exchange rate used to convert CTS revenues carried in Canadian dollars for the six months ended June 30, 2014 was 0.9170, while the exchange rate used to convert CTS revenue carried in Canadian dollars for the six months ended June 30, 2014 was 0.9841, a difference of about 7% resulting in an increase of 3% due to a slight increase in reading volume.

For the six months ended June 30, 2014, revenues from medical scans services were $960,419 compared to $885,540 for the six months ended June 30, 2013, an increase of 8 % or $74,879. The increase of revenue from medical scans services of 8% is due to higher scan volume.

For the six months ended June 30, 2014, cost of sales relating to radiology services were $1,501,621 compared to $1,570,120 for the six months ended June 30, 2013, a decrease of 4% or $68,499. The decrease pertaining to cost of sales of CTS was mainly due to fluctuations in exchange rate, and the decrease pertaining to SMI cost of sales was mainly due to set up costs incurred in 2013 that were not recurring in 2014.

Operating expenses for the six months ended June 30, 2014 and June 30, 2013, totalled $867,040 and $842,059, respectively.

During the six months ended June 30, 2014, we incurred $102,580 in amortization and depreciation expenses, $98,078 in legal and professional fees, $108,497 in general and administrative costs, $9,088 in management fees, $34,253 in advertising and promotion, $376,264 for labor, and $96,830 for rent and insurance.

During the six months ended June 30, 2013, we incurred $147,695 in amortization and depreciation expenses, $90,262 in legal and professional fees, $104,929 in general and administrative costs, $7,715 in management fees, $16,192 in advertising and promotion, $349,575 for labor, and $84,356 for rent and insurance.

For the three months ended June 30, 2014 revenues from teleradiology services was $804,876 compared to $790,210 for the three months ended June 30, 2013, an increase of about 2 % or $14,666. The increase in revenue from teleradiology services of about 2% is related to revenues carried in Canadian dollar. The exchange rate used to convert CTS revenues carried in Canadian dollars for the three months ended June 30, 2014 was 0.9170, while the exchange rate used to convert CTS revenue carried in Canadian dollars for the three months ended June 30, 2013 was 0.9841, a difference of about 7%. The resulting increase of about 9% in revenue was due to a new contract that has started in the middle of June 2013.

For the three months ended June 30, 2014, revenues from medical scans services were $502,454 compared to $409,524 for the three months ended June 30, 2013, an increase of 22% or $92,930. The increase of revenue from medical scans services of 22% is due to a higher scan volume.

For the three months ended June 30, 2014, cost of sales relating to radiology services were $519,999 compared to $427,596 for the three months ended June 30, 2013, an increase of about 22% or $92,403. The increase mainly pertains to the increase in SMI revenue.

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Operating expenses for the three months ended June 30, 2014 and June 30, 2013, totalled $424,329 and $401,473, respectively.

During the three months ended June 30, 2014, we incurred $39,835 in amortization and depreciation expenses, $56,852 in legal and professional fees, $53,974 in general and administrative costs, $4,666 in management fees, $17,730 in advertising and promotion, $185,784 for labor, and $45,948 for rent and insurance.

During the three months ended June 30, 2013, we incurred $73,873 in amortization and depreciation expenses, $49,427 in legal and professional fees, $58,945 in general and administrative costs, $3,831 in management fees, $14,775 in advertising and promotion, $162,727 for labor, and $35,041 for rent and insurance.

The Company generated positive cash flow in 2014 in order to service its obligations but will require substantial investment in the near term in order to expand as we implement our business plan.

Liquidity and Capital Resources:

Prior to 2011, the Company funded its operations and working capital through the sale of common stock and convertible notes. Since the third quarter of 2010, through the third quarter of 2012 the Company has funded its operations and working capital through revenue generation. During the fourth quarter of 2012 through the first quarter of 2013 the Company sold convertible notes to fund the acquisition of SMI and associated costs. Since the second quarter of 2013, the Company has funded its operations and working capital with revenue generation. In the first and second quarter of 2014 the company issued a convertible note to fund future expansion of SMI operations and additional potential acquisitions.

The Company’s operations have produced $1,316,125 and $2,512,062 of revenues for the three and six months ended June 30, 2014, respectively, which have been used to fund its operating expenses and to reduce its liabilities. The Company expects that current operations will be able to cover its operating expenses on an ongoing basis through 2014 and beyond.

Based on the debt payment obligations of the Company that are due within the next 12 months, there is doubt about its ability to continue as a going concern, and the Company’s continued operations therefore are dependent upon either increasing revenues or adequate additional financing being raised, or both, to enable it to continue its operations as currently conducted.  Alternatively, the Company could adjust some of its operational requirements or modify some of its debt obligations; however, these changes may not necessarily provide sufficient funds to continue as a going concern. In the event that the Company is unable to continue as a going concern, it may be forced to realize upon its assets or even elect or be required to seek protection from its creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered these alternatives as a likely outcome, since it has continuing revenues from operations and is considering capital raising actions.

As of June 30, 2014, our assets totalled $3,309,962 which consisted of cash balances, accounts receivable, pre - paid expenses, deposits, intangible assets and computer and office equipment. As of June 30, 2014, our total liabilities consisted of accounts payable and accrued liabilities of $620,442, obligations under capital lease of $289,414, promissory notes of $91,902, loans payable of $75000, and non-related party convertible notes of $2,253,665 (net of discount). As of June 30, 2014, we had an accumulated deficit of $1,918,749 and a working capital deficit of $418,415.

As of June 30, 2014 the Company had promissory notes to non–related parties for a total amount of $91,902. $25,890 of the promissory notes had scheduled monthly payments of $1,295 including interest at a rate of 6% per annum. This note is expected to mature on February 18, 2016. $1,075 of the promissory notes have scheduled monthly payments of $1,075 including interest of 10.5% per annum. This note matured in June 2014. $64,937 of the promissory notes accrues interest at an annual rate of 12%, and due on February 1, 2015. Interest accrued is to be paid out monthly with the principal amount due on maturity.

In May 2014 the Company received proceeds of $50,000 through private placement from an accredited investor, and in June 2014 the Company assigned $25,000 of the acquisition liability that was due as part of SMI acquisition (see Note 4) to loans payable. The loans are held with the Company until it is registered with Pennsylvania Securities Commission and is permitted to sell to the Pennsylvania residents investors Series C convertible note.

The total of $75,000 is shown on the consolidated balance sheets as loans payable until Series C notes can be issued.

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On December 5, 2012, the Company sold, through a private placement to accredited investors, three year 12% convertible notes (“Series B Notes”) in the aggregate principal amount of $1,865,000. The Notes pay interest at a rate of 12% per annum, payable to the holder at 1% per month, and are due on December 31, 2015. On March 27, 2013 the Company sold an additional $150,000 of Series B Notes, these notes have the same terms and mature on March 31, 2016. The Notes are convertible into common shares of the Company at $0.10 per share. In addition, each purchaser of the Notes received shares dependent on the dollar amount of Notes purchased. The total number of shares issued was 5,315,000 shares of common stock of the Company. A detailed schedule of the Notes is presented in Note 10 to the consolidated financial statements.

On May 22, 2014 the Company sold, through private placement to accredited investors, three year 12% convertible notes (“Series C Notes”) in the aggregate principal amount of $95,000.

The Notes bear interest at a rate of 12% per annum, payable to the holder at1% per month, with the principal amount due on May 31, 2017. The Notes are convertible into shares of the Company’s common stock at an initial conversion rate of $0.15 per share. In addition, each holder of Series C Notes received shares dependent on the dollar amount of Notes purchased. The total number of shares issued was 95,000 shares of common stock of the Company. A detailed schedule of the Notes is presented in Note 10 to the consolidated financial statements.

On March 26, 2014 the Company issued $300,000 in convertible note (“Individually issued note”) to a non-affiliate.  The note pays interest at a rate of 12% per annum, payable to the holder at 1% per month. In addition to interest payments the Company will be making monthly payments of $5,000 towards the principal balance beginning June 1, 2014 for three years until the note due date of February 27, 2017. The note is convertible into common shares of the Company at $0.15 per share. In addition, the purchaser of the note received 300,000 shares as part of the note agreement.  A detailed schedule of the Note is presented in Note 10 to the consolidated financial statements.

The Company intends to explore capital raising options in the near term which may include the issuance of additional debt and the sale of equity or equity based securities.  The Company has no agreements or arrangements for additional capital at this time.  There can be no assurance that it will be able to raise additional capital, or if funds are offered, that they will on terms acceptable to the Company. A substantial amount of the assets of the Company, held through its subsidiaries, are pledged to secure certain debt; therefore, the ability of the Company to issue secured debt may be limited or require waivers or modifications to the current outstanding debt, which the current lenders do not have to provide.

Off Balance Sheet Arrangements

None.

New Accounting Pronouncements

There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s condensed consolidated financial position, results of operations or cash flows.

Item 3 – Quantitative and Qualitative Analysis of Market Risks

There are no material changes in the market risks faced by us from those reported in our Annual Report on Form 10-K for the year ended December 31, 2013.

Item 4T. – Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

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Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this quarterly report, management carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Limitations on Effectiveness of Controls and Procedures

Our management, which includes our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.  These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Controls over Financial Reporting

In connection with the evaluation of our internal controls, our principal executive officer and principal financial officer have determined that during the period covered by this quarterly report, there have been no changes to our internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II

ITEM 1. Legal Proceedings

On December 27, 2011, Geoffrey Blackner v. Schuylkill Open MRI, et al litigation, docketed in the Schuylkill County Court of Common Pleas, No. S15802011 was commenced against SMI by Mr. and Mrs. Blackner (“Plaintiffs”). The Plaintiffs allege that a radiologist at Schuylkill Medical Center was negligent in not finding the T1-2 disc herniation when interpreting a CT scan of Mr. Blackner’s head and neck. They further allege that a second doctor was negligent in not finding the T1-2 disc herniation when interpreting an MRI of Mr. Blackner’s cervical spine. Plaintiffs allege that SMI is vicariously liable for this negligence, because the second doctor was an independent contractor of Schuylkill Open MRI. Plaintiffs’ argue that the delay in discovering the T1-2 disc herniation, and thus the delay in surgery for that disc herniation, resulted in the damages to Mr. Blackner, specifically to his right hand. Mrs. Blackner has a loss of consortium claim.  SMI has passed this case to its insurer and has received a full indemnity from the seller of SMI to MIC for this claim. The Company has fully paid its insurance deductible and does not anticipate any further monetary damages from this claim.

ITEM 1A. Risk Factors

Not Applicable

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The Company issued 95,000 shares in May 2014 at a per share price of $0.06 to purchasers of Series C Notes issued in May of 2014.

The Company issued 300,000 shares in March 2014 at a per share price of $0.085 to purchasers of $300,000 of a convertible note issued in March of 2014.

The Company issued 5,000 shares in January 2014 at a per share price of $0.03 for services.

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These securities were issued in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act and Regulation D thereunder.

ITEM 3. Defaults Upon Senior Securities

None

ITEM 4. Mine Safety Disclosures

None

ITEM 5. Other Information

None

ITEM 6. Exhibits

(a) Exhibits.

Exhibit No.	Description
31.1	Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002*
32.1	Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002*

* Filed herewith.

In accordance with 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.

MEDICAL IMAGING CORP.
By:	/s/ Mitchell Geisler
	Mitchell Geisler
	Chief Executive Officer (Principal Executive Officer)
Date:	August 13, 2014

MEDICAL IMAGING CORP.
By:	/s/ Richard Jagodnik
	Richard Jagodnik
	Chief Financial Officer (Principal Financial Officer)
Date:	August 13, 2014

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