UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
- ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From to
---------- ----------
Commission File Number: 0-24138
DIAMOND EQUITIES, INC.
----------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada 88-0232816
- ------------------------------- ----------------
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2010 E. University Drive, Suite 3, Tempe, Az 85281
--------------------------------------------------
(Address of Principal Executive Offices)
(602) 921-2760
-------------------------------
(Registrant's telephone number, including area code)
N/A
-------------------------------
(Former name, former address and formal fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and, (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
As of April 30, 1998, Diamond Equities, Inc. Registrant had 4,666,099 shares of
its $0.001 par value common stock outstanding.
Page 1 of 11 sequentially numbered pages
<PAGE>
FORM 10-Q
THIRD QUARTER 1998
Diamond Equities, Inc.
----------------------
INDEX
PART I. FINANCIAL INFORMATION
PAGE
----
Balance Sheets - March 31, 1998 and June 30, 1997................. 3-4
Statements of Operations for the Three and Nine Months
Ended March 31, 1998 and 1997 .................................... 5
Statement of Cash Flows - for the Nine Months
Ended March 31, 1998 and 1997 . ................................... 6-7
Notes to Financial Statements...................................... 8
Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 9
PART II. OTHER INFORMATION
Item 3(b) Defaults Upon Senior Securities......................... 10
Page 2
<PAGE>
Diamond Equities, Inc.
Balance Sheets
ASSETS
------
<TABLE>
<CAPTION>
March 31, June 30,
---------- ----------
1998 1997
---------- ----------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 873,868 $1,586,983
Receivables
Trade accounts, net of allowance for doubtful accounts of
$0 at March 31, 1998 and June 30, 1997 35,588 20,292
Interest receivable -- 1,900
Note Receivable-current portion 15,750 41,123
Certificate of Deposit 250,000 --
---------- ----------
Total Current Assets 1,175,206 1,650,298
---------- ----------
PROPERTY AND EQUIPMENT 24,882 20,980
---------- ----------
OTHER ASSETS
Investment 5,000 --
Notes Receivable-noncurrent portion 811,250 770,127
Deposits 1,000 2,106
---------- ----------
Total Other Assets 817,250 772, 233
---------- ----------
$2,017,338 $2,441,405
========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
Diamond Equities, Inc.
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
March 31, June 30,
----------- -----------
1998 1997
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 112,246 $ 112,812
Accrued expenses 4,964 59,940
Sales tax payable -- 88,098
Accrued preferred dividends 194,023 194,023
----------- -----------
Total Current Liabilities 311,233 454,873
----------- -----------
Total Liabilities 311,233 454,873
----------- -----------
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.001 par, 6% cumulative,
non-voting, class A; 10,000 shares authorized;
0 and 727 shares issued and outstanding -- 1,817,591
Convertible preferred stock, non-voting, non-cumulative
class B; 20,000 shares authorized; 18,000 shares issued
and outstanding 1,817,591 --
Common stock, $.001 par value; 50,000,000 shares
authorized; 4,666,099 shares issued and outstanding 4,666 4,666
Additional paid-in capital 2,582,282 2,582,282
Accumulated deficit (2,698,434) (2,418,007)
----------- -----------
Total Stockholders' Equity 1,706,105 1,986,532
----------- -----------
$ 2,017,338 $ 2,441,127
=========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
Diamond Equities, Inc.
Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended March 31, Ended March 31,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ -- $ -- -- --
Less cost of sales -- -- -- --
----------- ----------- ----------- -----------
Gross profit -- -- -- --
Selling, general and administrative expenses 83,625 115,719 292,080 166,340
----------- ----------- ----------- -----------
Operating income or (loss) (83,625) (115,719) (292,080) (166,340)
----------- ----------- ----------- -----------
Other income and (expenses), net 11,925 36,927 44,849 63,089
Income (loss) from Discontinued Operations -- -- (33,196) (1,117)
Gain on sale of assets -- -- -- 1,856,985
----------- ----------- ----------- -----------
Net income (loss) before income taxes (71,700) (78,792) (280,427) 1,752,617
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
Net income or (loss) before preferred dividends (71,700) (78,792) (280,427) 1,752,617
Preferred dividends -- (27,264) -- (81,792)
----------- ----------- ----------- -----------
Net loss attributed to common stock (71,700) $ (106,056) (280,427) 1,670,825
----------- ----------- ----------- -----------
Net income or (loss) per share $ (.02) $ (.02) (.06) .32
----------- ----------- ----------- -----------
Weighted Average Shares Outstanding 4,666,099 4,666,099 4,666,099 5,073,432
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
Diamond Equities, Inc.
Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
--------------------------
March 31,
--------------------------
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (280,427) $ 1,670,825
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on sale of equipment -- (1,856,985)
Depreciation and amortization 4,443 81,306
Changes in operating assets and liabilities
(Increase) decrease in
Receivables - trade and other (13,396) (57,434)
Prepaid expenses and other (1,000) 3,657
Increase (decrease) in
Accounts payable (566) (95,232)
Accrued liabilities (143,074) 80,152
----------- -----------
Net Cash Used in Operating Activities (434,020) (173,711)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (8,345) (45,610)
Proceeds form sale of assets -- 1,711,250
Cash paid for notes receivable (15,750) (143,291)
Cash paid for investments (5,000) --
Cash paid for certificate of deposit (250,000) --
----------- -----------
Net Cash Provided by Investing Activities $ (279,095) $ 1,522,349
----------- -----------
See accompanying notes to financial statements.
6
<PAGE>
Diamond Equities, Inc.
Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
March 31,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes payable $ -- $ (246)
Proceeds from SB2 offering returned to shareholders -- (458,250)
----------- -----------
Net Cash Provided (Used) by Financing Activities -- (458,496)
----------- -----------
INCREASE (DECREASE) IN CASH (713,115) 890,142
CASH, BEGINNING OF PERIOD 1,586,983 694,293
----------- -----------
CASH, END OF PERIOD $ 873,868 $ 1,584,435
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes $ -- $ --
=========== ===========
Cash paid for interest $ 915 $ 178
=========== ===========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
Diamond Equities, Inc.
March 31, 1998
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
GENERAL
- -------
Diamond Equities, Inc. (the "Company") has elected to omit substantially all
footnotes to the financial statements for the nine months ended March 31, 1998,
since there have been no material changes (other than indicated in other
footnotes) to the information previously reported by the Company in their Annual
Report filed on Form 10-KSB for the Fiscal year ended June 30, 1997.
UNAUDITED INFORMATION
- ---------------------
The information furnished herein was taken from the books and records of the
Company without audit. However, such information reflects all adjustment which
are, in the opinion of management, necessary to properly reflect the results of
the interim period presented. The information presented is not necessarily
indicative of the results from operations expected for the full fiscal year.
8
<PAGE>
Diamond Equities, Inc.
March 31, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources of the Company
- ----------------------------------------------
On November 15, 1996, the Company sold its payphone base and all
related equipment, contracts, automobiles and nearly all furniture & fixtures to
Tru-Tel Communications, L.L.C. for $1,711,250 in cash and a note receivable of
$811,250. The Company assigned the office and warehouse lease to the buyer and
moved its operations to another location in Tempe, Arizona. Since November 15,
1996, the Company has been winding down operations relative to the payphone
business and has been involved in searching for new business ventures and
operations to acquire in different industries. Because the Company discontinued
its operations in the pay telephone industry in fiscal year 1997, the results of
operations will greatly differ from that of fiscal year 1998.
Cash and cash equivalents totaled $873,868 at March 31, 1998 compared to
$1,586,983 at June 30, 1997. The decrease in cash was due primarily to general
and administrative expenses exceeding the interest income, which is the only
form of revenue the Company currently has, as well as the payment of sales tax
liabilities and attorneys fees related to the discontinued operations. The
Company also purchased an 18 month certificate of deposit for $250,000, which is
security on a line of credit with a bank of $235,000.
Long term cash requirements, other than normal operating expenses, are
anticipated for the acquisition or start up of new business operations. The
Company believes that its existing cash and anticipated cash generated from
operations will be sufficient to satisfy its currently anticipated cash
requirements for fiscal year 1998.
The Company's principal commitment at March 31, 1998 consists of an obligation
under an operating leases for facilities.
Results of Operations
- ---------------------
Revenues of $11,925 from interest income for the third quarter of 1998 decreased
slightly from the same period last year due to diminishing cash. The only form
of revenues currently being recorded is the interest on the cash accounts.
Because the note receivable is in default, no interest income is being recorded.
Selling, general and administrative expenses were $83,625 for the third quarter
1998, a decrease of $32,094 over the same period last year. The decrease is
primarily due to a decrease in legal fees and other expenses related to the
change of operations.
Management anticipates that general selling and administrative expenses will
continue to remain constant until new business operations begin.
The Company incurred a loss of $(71,700) for the third quarter 1998 compared to
a loss of $(106,056) for the same timely period a year ago. The Company no
longer has a preferred dividend burden due to the exchange of Series A Preferred
Stock for Series B non-cumulative preferred stock. This results in an additional
net income of $27,264 available to common shareholders every quarter.
9
<PAGE>
Diamond Equities, Inc.
March 31, 1998
There are no seasonal aspects of the Company's business which had, or are
expected to have, a material effect on the financial conditions or results of
operations.
Plan of Operations
- ------------------
The Company's plan for 1998 is to acquire or begin operations in a different
industry. Management is currently reviewing several potential acquisition
candidates in various industries, and hopes to secure operations in the near
future.
PART II OTHER INFORMATION
Item 3(b) Defaults Upon Senior Securities
- -----------------------------------------
The Company is 24 months in arrears ($194,023) as of May 1, 1998, in the payment
of dividends to the shareholders of the Class A 6% Preferred Stock. The class A
Preferred shares have been replaced by Class B shares, however accrued preferred
dividends have not yet been paid.
10
<PAGE>
Diamond Equities, Inc.
March 31, 1998
SIGNATURES
Pursuant to the requirements 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.
Date: May 11, 1998
Diamond Equities, Inc.
By: /S/ David Westfere
-----------------------------
David Westfere, CEO and
Principal Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 873,868
<SECURITIES> 5,000
<RECEIVABLES> 35,588
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,175,206
<PP&E> 24,882
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,017,338
<CURRENT-LIABILITIES> 311,233
<BONDS> 0
0
1,817,591
<COMMON> 4,666
<OTHER-SE> (116,152)
<TOTAL-LIABILITY-AND-EQUITY> 2,017,338
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 292,080
<OTHER-EXPENSES> (44,849)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (280,427)
<INCOME-TAX> 0
<INCOME-CONTINUING> (280,427)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (280,427)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
