U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
<P>
FORM 10-QSB
<P>
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
<P>
For the quarterly period ended September 30, 2000
<P>
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
<P>
For the transition period from to
<P>
Commission File No.
<P>
DIAMOND INTERNATIONAL GROUP, INC.
(Name of Small Business Issuer in Its Charter)
<P>
<TABLE>
<S> <C>
Delaware 73-1556428
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</TABLE>
<P>
6 Commercial Street, Hicksville, New York 11801
(Address of Principal Executive Offices) (Zip Code)
<P>
(516) 433-3800
(Issuer's Telephone Number, Including Area Code)
<P>
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.
<P>
Yes No X
<P>
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest
practicable date: As of November 1, 2000, the Company had
23,000,071 shares of Common Stock outstanding, $0.0001
par value.
<P>
DIAMOND INTERNATIONAL GROUP, INC.
Form 10-QSB Quarterly Report
For the Period Ended September 30, 2000
<P>
<TABLE>
<S> <C>
Page
Part I - FINANCIAL INFORMATION
<P>
Item 1. Financial Statements
<P>
Independent Auditor's Report
<P>
Consolidated Balance Sheets at September 30, 2000
for Diamond International Group, Inc. 1-2
<P>
Consolidated Statements of Operations for the
Three months and Nine months ended September 30,
2000 and 1999 for Diamond International Group, Inc. 3
<P>
Consolidated Statements of Stockholders' Equity
(Deficiency) for the Nine Months Ended September 30, 2000
and 1999 for Diamond International Group, Inc. 4
<P>
Consolidated Statement of Cash Flows for the Three
Months Ended and the Nine Months Ended September 30,
2000 and 1999 for Diamond International Group, Inc. 5
<P>
Notes to Consolidated Financial Statements 6-11
<P>
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 12
<P>
PART II - OTHER INFORMATION 13
<P>
Item 1. Legal Proceedings 13
<P>
Item 2. Changes in Securities 13
<P>
Item 3. Defaults Upon Senior Securities 13
<P>
Item 4. Submission of Matters to a Vote of Security Holders 13
<P>
Item 5. Other Information 13
<P>
Signatures 13
<P>
</TABLE>
<P>
PART I - FINANCIAL INFORMATION
<P>
Item 1. Financial Statements
<P>
BASIS OF PRESENTATION
<P>
The accompanying reviewed financial statements are
presented in accordance with generally accepted
accounting principles for interim financial information
and the instructions to Form 10-QSB and item 310 under
subpart A of Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements. The accompanying statements should
be read in conjunction with the audited financial
statements for the years ended December 31, 1999 and
1998. In the opinion of management, all adjustments
(consisting only of normal occurring accruals) considered
necessary in order to make the financial statements not
misleading, have been included. Operating results for
the three months and six months ended June 30, 2000 are
not necessarily indicative of results that may be
expected for the year ending December 31, 2000. The
financial statements are presented on the accrual basis.
<P>
INDEPENDENT AUDITOR'S REPORT
<P>
To the Board of Directors and Stockholders of
Diamond International Group, Inc.
<P>
We have reviewed the accompanying consolidated balance
sheet of Diamond International Group, Inc., as of
September 30, 2000, and the related consolidated
statements of operations, stockholders' equity (deficit)
and cash flows for the nine months then ended, in
accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of
Certified Public Accountants. All information included
in these financial statements is the representation of
the management of Diamond International Group, Inc.
<P>
A review consists principally of inquiries of company
personnel and analytical procedures applied to financial
data. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion
regarding the consolidated financial statements taken as
a whole. Accordingly, we do not express such an opinion.
<P>
Based on our review, we are not aware of any material
modification that should be made to the September 30,
2000 consolidated financial statements in order for them
to be in conformity with generally accepted accounting
principles.
<P>
The consolidated balance sheet as of December 31, 1999
was audited by us, and we expressed an unqualified
opinion on it in our report dated March 3, 2000, but we
have not performed any auditing procedures since that
date. The accompanying September 30, 1999 consolidated
statements of operations, stockholders equity (deficit)
and cash flows were compiled by us in accordance with
statements on Standards for Accounting and review
Services issued by the American Institute of
Certified Public Accountants. A compilation is limited
to presenting in the form of financial statements
information that is the representation of management. We
have not audited or reviewed the September 30, 1999
consolidated statements of operations, stockholders'
equity (deficit) and cash flows and, accordingly, do not
express an opinion or any other form of assurance on
them. As disclosed in Note 1, management has restated
its June 30, 1999 consolidated financial statements.
<P>
/s/Weisberg, Mole & Company, LLP
Hicksville, New York
October 26, 2000
<P>
DIAMOND INTERNATIONAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
September 30, December 31,
2000 1999
-------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents - Note 1 $ 73,132 $ 79,240
Accounts receivable - note 2 1,391,017 1,267,492
Prepaid expenses 49,537 61,177
--------------------------------
Total current assets 1,513,686 1,407,909
--------------------------------
FIXED ASSETS - notes 1 and 3
Furniture and fixtures 591,025 591,025
Machinery and equipment 923,658 746,762
Leasehold improvements 803,664 758,083
Delivery equipment 33,844 33,844
Equipment held under capital leases 1,095,652 927,421
--------------------------------
3,447,843 3,057,135
Less: Accumulated Depreciation (2,323,020) (2,143,020)
--------------------------------
Fixed Assets, net 1,124,823 914,115
---------------------------------
OTHER ASSETS
<P>
Goodwill - note 1 95,000 -
Security deposits 31,357 6,357
----------------------------------
TOTAL ASSETS $2,764,866 $2,328,381
==================================
</TABLE>
<P>
DIAMOND INTERNATIONAL GROUP, INC.
<P>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<S> <C> <C>
September 30, December 31,
2000 1999
CURRENT LIABILITIES
Loans payable - State Bank of
Long Island - note 3 $ 907,270 $ 940,668
Obligations under capital leases -
current - note 6 183,626 190,898
Accounts payable 351,308 313,440
Accrued expenses and taxes 542,222 467,938
-----------------------------
Total current liabilities 1,984,426 1,912,944
-----------------------------
LONG-TERM LIABILITIES
Loans payable -Stockholders
- Note 4 $ 562,854 $ 564,139
Obligations under capital leases
- long term - note 6 222,430 188,951
-----------------------------
Total long-term liabilities 785,284 753,090
-----------------------------
Total liabilities 2,769,710 2,666,034
-----------------------------
<P>
COMMITMENTS AND CONTINGENCIES - note 6
<P>
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock
$.0001 par value, 100,000,000
shares authorized,23,005,000 shares
issued and outstanding in 2000;
46,000,000 issued and
outstanding in 1999 2,300 4,600
Additional paid-in capital 1,550,237 1,550,237
Accumulated deficit (1,242,381) (1,332,490)
Notes receivable from
stock sales (315,000) (560,000)
-----------------------------
Total Stockholders' Equity (Deficit) (4,844) (337,653)
-----------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $2,764,866 $2,328,381
=============================
</TABLE>
<P>
DIAMOND INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-----------------------------------------------------------
Fulfillment Income $2,034,037 $1,509,281 $5,746,998 $4,373,152
<P>
Cost of Operations 1,555,765 1,046,859 4,059,873 2,996,320
-----------------------------------------------------------
Gross Profit 478,272 462,422 1,687,125 1,376,832
<P>
Selling, general and
administrative expenses 377,068 435,876 1,238,661 1,285,267
-----------------------------------------------------------
Income before
other expenses 101,204 26,546 448,464 91,565
-----------------------------------------------------------
OTHER EXPENSES
Interest expense 47,021 47,026 177,830 171,325
Depreciation and
amortization 60,000 60,000 180,000 180,000
Registration and
issuance costs - - 60,000
------------------------------------------------------------
<P>
Total Other Expenses 107,021 107,026 357,830 411,325
------------------------------------------------------------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (5,817) (80,480) 90,634 (319,760)
<P>
PROVISION FOR INCOME TAXES -
notes 1 and 8 - - 525 325
-------------------------------------------------------------
NET INCOME (LOSS) $ (5,817) $ (80,480) $ 90,109 (320,085)
==============================================================
<P>
BASIC AND DILUTED INCOME (LOSS)
PER COMMON SHARE
- note 1 $ (0.00) $ 0.00 $ 0.00 $ (0.01)
==============================================================
<P>
See notes to financial statements
</TABLE>
<P>
DIAMOND INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Notes
Additional Receivable
Common Paid-In Accumulated from Stock
Shares Stock Capital Deficit Sales Total
--------------------------------------------------------------------
Balance at
January 1, 1999 20,200,000 $2,020 $550,517 $(919,558) $ - $(367,021)
<P>
Issuance of
common stock 23,800,000 2,380 159,920 - - 162,300
<P>
Exercising of
warrants 2,000,000 200 839,800 - (840,000) -
<P>
Net Loss - - - (320,085) - (320,085)
--------------------------------------------------------------------
<P>
Balance at
Sept. 30, 1999 46,000,000 4,600 1,550,237 (1,239,643) (840,000)(524,806)
=======================================================================
<P>
Balance at
January 1, 2000 46,000,000 4,600 1,550,237 (1,332,490) (560,000)(337,653)
<P>
Repayment of
notes receivable - - - - 245,000 245,000
<P>
Retirement of
common stock (23,000,000) (2,300) - - - (2,300)
<P>
Purchase of
Segway I Corp. 5,000 - - - - -
<P>
Net Income - - - 90,109 - 90,109
---------------------------------------------------------------------
<P>
Balance at
June 30, 2000 23,005,000 $ 2,300 $1,550,237 $(1,242,381) $(315,000) (4,844)
=========================================================================
<P>
See notes to financial statements
</TABLE>
<P>
DIAMOND INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (5,817) $ (80,480) $ 99,109 $ (320,085)
---------------------------------------------------
Adjustments to reconcile net income
(loss) to net cash
provided by operating activities:
Depreciation and amortization 60,000 60,000 180,000 180,000
Changes in assets and liabilities:
Accounts receivable (37,440) 14,321 (123,525) 152,899
Prepaid expenses 15,777 (36,389) 11,640 (20,934)
Security deposits (25,000) - (25,000) 1,626
Accounts payable (72,685) 10,423 37,868 (14,707)
Accrued expenses and taxes 260,424 60,086 74,284 51,136
Customer deposits - (32,965) - (32,713)
---------------------------------------------------
Total adjustments 201,076 75,476 155,267 317,307
---------------------------------------------------
Net Cash Provided by
Operating Activities 195,259 (5,004) 245,376 (2,778)
<P>
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of machinery and equipment (59,035) (106,578) (189,852) (143,578)
Purchase of Segway I Corp. - - (95,000) -
---------------------------------------------------
Net Cash Used in Investing
Activities (59,035) (106,578) (284,852) (143,578)
---------------------------------------------------
<P>
CASH FLOW FROM FINANCING ACTIVITIES
Change in loan payable - State Bank
of Long Island (74,972) 9,745 (33,398) (72,041)
Principal payments of capital
lease obligations (62,342) (34,707) (174,649) (132,444)
Proceeds from issuance of
common stock - 2,300 - 162,300
Retirement of common stock - - (2,300) -
Proceeds from exercising
of warrants - - 245,000 -
Proceeds from loans payable
- shareholders - 125,000 (1,285) 205,000
----------------------------------------------------
Net Cash Provided by (Used in)
Financing Activities (137,314) 102,338 33,368 162,815
----------------------------------------------------
<P>
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,090) (9,244) (6,108) 16,459
<P>
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 74,222 56,333 79,240 30,630
----------------------------------------------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 73,132 $ 47,089 $ 73,132 $ 47,089
====================================================
<P>
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 47,021 $ 47,026 $ 177,830 $ 171,325
====================================================
State income tax paid $ - $ - $ 525 $ 325
====================================================
New capital lease obligations $ 125,783 $ - $ 200,856 $ -
====================================================
<P>
See notes to financial statements
</TABLE>
<P>
DIAMOND INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
<P>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
<P>
Nature of Business
------------------
<P>
Diamond International Group, Inc. ("Diamond") was
incorporated on November 5, 1998 for the express purpose
of acquiring all of the outstanding common stock of H.Y.
Applied Inter-Data Services, Inc. ("Hyaid"). Hyaid
operates a computerized order fulfillment service for
clients in the direct mail order business.
<P>
On January 29, 1999, Diamond acquired all for the
outstanding common stock of Hyaid in exchange for
18,462,404 shares of newly issued Diamond common stock.
This acquisition has been accounted for as a pooling of
interests.
<P>
Principals of Consolidation
---------------------------
<P>
The consolidated financial statements include the
accounts of Diamond and Hyaid (together, the "Company").
All significant intercompany accounts and transactions
have been eliminated.
<P>
Issuance of Common Stock
-------------------------
<P>
In March 1999, Diamond executed an offering consisting of
400,000 units at $.40 per unit. Each unit consists of 2
shares of common stock and one stock purchase warrant
which enables the holder to purchase 5 shares of common
stock at $.42 per share. In connection with this
offering, Diamond raised $100,000, net of registration
and issuance costs of $60,000. The warrants were
exercised in April, 1999. Diamond issued the stock to
the warrant holders in exchange for a note in the amount
of $840,000. The note is secured by stock. In September
1999, Diamond issued 23,000,000 shares of stock to a
major stockholder in exchange for services rendered. The
stockholder retired the shares in May 2000.
<P>
Acquisition
-----------
<P>
On June 9, 2000, Diamond acquired all of the outstanding
common stock of Segway I Corp. ("Segway") for $95,000 and
5,000 shares of Diamond common stock. Prior to being
acquired, Segway was subject to the reporting
requirements of the Securities Exchange Act of 1934 ( the
"Act"). Pursuant to the acquisition, the Company is now
subject to the reporting requirements of the Act.
Accordingly, the Company has filed a report with the
Securities and Exchange Commission reporting this
acquisition.
<P>
In connection with the acquisition, the Company recorded
goodwill for the excess of the cost over the fair market
value of the net assets acquired in the amount of
$95,000. Goodwill is being amortized over fifteen years
using the straight-line method.
<P>
<PAGE>
DIAMOND INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
<P>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
<P>
Use of Estimates
----------------
<P>
The preparation of the financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that effect
the amounts reported in the financial statements and
accompanying notes. Actual results could differ from
those estimates.
<P>
Revenue Recognition
-------------------
<P>
Revenue is recorded upon the performance of fulfillment
and other services for the Company's clients. Revenue
from reimbursable expenses is recorded in the same period
as the corresponding expenses.
<P>
Concentrations
---------------
<P>
Sales to three major customers during the nine months
ended September 30, 2000 amounted to 39%, 16% and 13% of
sales. Sales to three major customers during the nine
months ended September 30, 1999 amounted to 18%, 17% and
15% of sales.
<P>
Fixed Assets and Leases
-----------------------
<P>
Fixed assets are recorded at cost and are depreciated
using the straight-line method over the estimated useful
lives of the assets, generally 3 to 10 years. Computer
and office equipment that are acquired under leases that
meet certain criteria evidencing substantive ownership by
the Company are capitalized and the related capital lease
obligations are included in current and long-term
liabilities. Related amortization and interest are
charged to expense over the lease term. Leases not
meeting the criteria are accounted for as operating
leases, with rent payments being charged to expense as
incurred.
<P>
Income Taxes
-------------
<P>
Diamond applies the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires a company to
recognize deferred tax liabilities and assets for the
expected future tax consequences of events that have been
recognized in a company's financial statements or tax
returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the
financial statements carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect
in the years in which the differences are expected to
reverse. Differences between taxable income and income
for financial statement purposes result from the
recognition of certain income and expenses items for tax
purposes in periods which differ from those used for
financial statement purposes.
<P>
Prior to the acquisition by Diamond on January 29, 1999,
Hyaid had elected to be taxed as an "S" Corporation.
Accordingly, no provision for federal income taxes was
recorded as income or loss from the corporation flowed
through to the shareholder. Pursuant to the acquisition,
Hyaid forfeited its "S" Corporation status. As a result,
effective January 30, 1999, Hyaid follows the principles
of SFAS 109.
<P>
<PAGE>
DIAMOND INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
<P>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
<P>
Advertising
-----------
<P>
The Company expenses advertising costs as they are
incurred.
<P>
Cash and Cash Equivalents
-------------------------
<P>
The Company considers all short-term investments with an
original maturity of three months or less to be cash
equivalents.
<P>
Earnings per Share
------------------
<P>
The calculation of earnings per share is based upon the
weighted average number of common shares outstanding as
follows:
<TABLE>
<S> <C>
Three months ended September 30, 2000 23,000,000
Three months ended September 30, 1999 30,666,667
Six Months ended September 30, 2000 33,222,222
Six months ended September 30, 1999 24,711,111
</TABLE>
<P>
The effect of exercising the outstanding warrants would
have an anti-dilutive effect on the Company.
Accordingly, basic and diluted earnings per share are the
same for the three months ended September 30, 2000 and
1999 and the nine months ended September 30, 2000 and
1999.
<P>
NOTE 2 - ACCOUNTS RECEIVABLE
<P>
At September 30, 2000 accounts receivable from three
major customers amounted to 25%, 22% and 21% of total
accounts receivable.
<P>
<PAGE>
DIAMOND INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
<P>
NOTE 3 - LOAN PAYABLE - STATE BANK OF LONG ISLAND
<P>
The Company renewed its revolving line of credit
agreement with State Bank of Long Island ( the
"Line of Credit") in the amount of $1,100,000. The Line
of Credit provides for advances subject to a limit of 70%
of eligible accounts receivable, as defined. Repayments
of interest must be made on a monthly basis at the rate
of 2.5% per annum in excess of State Bank of Long
Island's prime rate of interest. Principal payments are
payable on demand at any time during the term of the Line
of Credit. The Line of Credit is secured by a security
interest in all of the assets of the Company, as well as
a $200,000 life insurance policy on the shareholder of
the Company. Additionally, advances by a stockholder in
the amount of $467,000 have been subordinated to this
loan (Note 4).
<P>
The Line of Credit provides for certain covenants which
(a) prevent the Company from incurring, without prior
written consent, capital expenditures in excess of
$100,000 per year, (b) prevent the Company from paying
cash dividends to its stockholders and (c) report the
operating results of the Company on a timely basis.
<P>
NOTE 4 - LOANS PAYABLE - STOCKHOLDERS
<P>
As of September 30, 2000, the primary stockholder of the
Company made unsecured advances to the Company for
working capital purposes aggregating $562,854. Interest
expense has not been imputed on the advances. In
connection with the Line of Credit (Note 3), $467,000 of
these advances have been subordinated.
<P>
NOTE 5 - RELATED PARTY TRANSACTIONS
<P>
During the nine months ended September 30, 2000 and 1999,
the Company paid salaries and other fees to its primary
stockholder in the approximate amount of $354,000 and
$240,000, respectively.
<P>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
<P>
Leases
------
The Company has entered into various non-cancelable
capital lease agreements for computer and office
equipment. The Company has also entered into non-
cancelable operating lease agreements for its three
operating facilities and computer equipment. The lease
expires in varying periods through 2003. Rent expense
recorded under such operating leases amounted to $361,167
and $291,612 for the nine months ended September 30, 2000
and 1999, respectively.
<P>
<PAGE>
DIAMOND INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
<P>
NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)
<P>
Future minimum lease payments at September 30, 2000 are
as follows:
<TABLE>
<S> <C> <C>
Capital Operating
Year Ended Leases Leases
<P>
September 30, 2001 $ 231,318 $ 84,215
September 30, 2002 157,162 156,871
September 30, 2003 60,380 49,929
September 30, 2004 23,372 5,245
September 30, 2005 11,563 -
----------------------------------------
Total Minimum Lease Payments 483,795 $ 296,260
Less: Amount Representing Interest ( 77,739) ---------------
---------------
<P>
Present Value of Minimum Lease Payments $ 406,056
===============
</TABLE>
<P>
Accumulated amortization for assets under capital leases
was $685,498 as of September 30, 2000.
<P>
Going Concern
--------------
<P>
As shown in the accompanying financial statements, as of
September 30, 2000, the Company's current liabilities
exceeded its current assets by $470,740. This factor
creates an uncertainty as to the Company's ability to
continue as a going concern. The Company's plans include
vigorous cost controls, aggressive marketing strategies
and additional financing on an as needed basis.
<P>
NOTE 7 - PROFIT SHARING PLAN
<P>
The Company maintains a 401(k) plan for substantially all
full time employees of the Company. Employer
contributions are voluntary and at the discretion of the
stockholder. The Company did not contribute to the plan
for the nine months ended September 30, 2000 and 1999.
<P>
<PAGE>
DIAMOND INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
<P>
NOTE 8 - INCOME TAXES
<P>
The provision for income taxes for the six months ended
September 30, 2000 is as follows:
<TABLE>
<S> <C> <C>
Federal State
------- -----
Current $19,066 $8,682
Deferred (19,066) (8,157)
------------------------
$ 0 $ 525
====== =====
</TABLE>
<P>
A reconciliation of the tax provision at the federal
statutory rate to the effective tax rate is as follows:
<TABLE>
<S> <C>
Tax provision at federal statutory rate 34.0%
Net operating loss carryforward (34.0%)
--------
0.0%
========
</TABLE>
<P>
Deferred tax assets are comprised of the following at
September 30, 2000:
<TABLE>
<S> <C> <C>
Federal State
------- -------
Net operating loss carryforward $ 64,819 $ 17,158
Less: Valuation Allowance (64,819) (17,158)
------- --------
$ 0 $ 0
======== ========
</TABLE>
<P>
Net operating loss carryforwards for federal income taxes
of approximately $281,000 expire in the year 2019.
<P>
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
<P>
DIAMOND INTERNATIONAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
<P>
Forward-Looking Statements
--------------------------
<P>
Forward-looking statements, based on management's current
views and assumptions, are made throughout the
Management's Discussion and Analysis and elsewhere in
this report to stockholders. These statements are subject
to certain risks and uncertainties that could cause
actual results to differ materially from historical
results and those presently anticipated or projected.
Among the factors that may affect operating results are
the following: success of the Company's change in focus;
competitive environment; and general economic conditions.
<P>
Results of Operations
---------------------
<P>
<TABLE>
<S> <C> <C>
Quarter Ended Septmeber 30,
2000 1999
---- ----
Net Sales $ 2,034,037 $ 1,509,281
<P>
Cost of Operations 1,555,765 1,046,859
<P>
Gross Profit 478,272 462,422
<P>
Selling, General and
Administrative
Expenses 377,068 435,876
</TABLE>
<P>
Revenues from operations during the three months ended
September 30, 2000 were $2,034,037 as compared to
$1,509,281 for the three months ended September 30, 1999.
The increase in sales was due to an increase in
correspondence services provided for selected
clients.(See Future Outlook).
<P>
Selling, general and administrative expenses decreased to
$377,068 for the three months ended September 30, 2000 as
compared to $435,876 for the three months ended September
30, 1999. This decrease is a result of managements
successful efforts to reduce overhead expenses including
office expenses and outside consulting services.
<P>
Liquidity
---------
<P>
<TABLE>
<S> <C> <C>
Quarter Ending September 30,
2000 1999
---- ----
<P>
Net Cash Provided by
(Used in) Operations $195,259 $ (5,004)
<P>
Working Capital (471,000) (397,000)
</TABLE>
<P>
Net cash flow from operations increased from $(5,004)
during the nine months ended September 30, 1999 to
$195,259 during the nine months ended September 30, 2000.
This increase was primarily due to the decrease in net
loss offset by the timing of collections and payments.
<P>
The Company had a working capital deficit of $471,000 as
of September 30, 2000 as compared to a working capital of
$397,000 as of September 30, 1999. The decrease in
working capital deficit is primarily due to the addition
of equipment which has been financed, in most instances
by leasing arrangements accounted for as capital leases.
<P>
Future Outlook
--------------
<P>
The Company is aggressively looking for profitable
companies to acquire as well as to joint venture and/or
partner with all in the direct mail marketing sales and
servicing industry. The businesses that the Company
acquires, joint venture and/or partners with will be
mainly in the area of product sales either in the direct
mail, space, internet, infomercial and other large scale
consumer penetration mediums. This is the most natural
fit, given the experiences of management in the success
running of types of businesses and the proprietary
software and systems developed to service these
businesses. In addition, the Company is in the process
of expanding its operations to include the licensing of
its custom service software. Currently, the Company has
a contract to license this software to a major credit and
collections company and anticipates entering into
additional contracts in the near future. We are
optimistic that our Company will be profitable for the
remainder of this year with a far more profitable year in
2001.
<P>
Part II. OTHER INFORMATION
<P>
Item 1. Legal Proceedings
<P>
The Company is not involved in any legal proceedings.
<P>
Item 2. Changes in Securities. None for the Quarter.
<P>
Item 3. Defaults Upon Senior Securities. Not
applicable.
<P>
Item 4. Submission of Matters to a Vote of Security
Holders.
<P>
None for the Quarter.
<P>
Item 5. Other information. None.
<P>
Item 6. Exhibits and reports on Form 8-K. On June 20,
2000, the Company filed an 8-K12G(3) with the Securities
and Exchange Commission. (SEC File No. 000-29461)
<P>
Exhibit 27 Financial data schedule electronic filing
only.
<P>
SIGNATURES
<P>
Pursuant to the requirements of section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed in its behalf by the
undersigned, thereunto duly authorized, on August 14,
2000.
<P>
DIAMOND INTERNATIONAL GROUP, INC.
(Registrant)
<P>
Date: November 13, 2000 /s/ Richard Levinson
-------------------------------
Richard Levinson
Chairman and President
<P>
