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 September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From to
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Commission File Number: 0-24138
DIAMOND EQUITIES, INC.
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(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
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(Address of Principal Executive Offices)
(602) 921-2760
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(Registrant's telephone number, including area code)
N/A
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(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 October 31, 1998, Diamond Equities, Inc. Registrant had 4,666,099 shares
of its $0.001 par value common stock outstanding.
Page 1 of 12 sequentially numbered pages
<PAGE>
FORM 10-Q
FIRST QUARTER 1999
DIAMOND EQUITIES, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Balance Sheets - September 30, 1998 and June 30, 1998.............. 3-4
Statements of Operations for the Three Months
Ended September 30, 1998 and 1997.................................. 5
Statement of Cash Flows - for the Three Months
Ended September 30, 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
2
<PAGE>
DIAMOND EQUITIES, INC.
Balance Sheets
ASSETS
September 30, June 30,
1998 1998
---- ----
(Unaudited) (Audited)
CURRENT ASSETS
Cash $ 65,003 $ 600,231
Certificates of Deposit 513,113 505,404
Receivables
Trade accounts, net of allowance for
doubtful accounts of $35,588 at
September 30, 1998 and June 30, 1998 254,418 10,560
Inventory 139,514 5,400
Note Receivable-current portion 35,750 35,750
Prepaid expenses 3,067 5,111
---------- ----------
Total Current Assets 1,010,865 1,162,456
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PROPERTY AND EQUIPMENT 1,071,291 197,162
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OTHER ASSETS
Notes Receivable-noncurrent portion 405,624 405,625
Investments 66,000 66,000
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Total Other Assets 471,624 471,625
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$2,553,780 $1,831,243
========== ==========
See accompanying notes to financial statements.
3
<PAGE>
DIAMOND EQUITIES, INC.
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, June 30,
1998 1998
---- ----
CURRENT LIABILITIES
Accounts payable $ 335,782 $ 111,234
Accrued expenses 9,433 8,473
Line of credit 250,200 250,200
Accrued preferred dividends 194,023 194,023
Current portion Long term debt 329,960 21,362
----------- -----------
Total Current Liabilities 1,119,398 585,292
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LONG-TERM LIABILITIES
Capital lease obligations 191,513 10,150
Notes payable 477,155 --
Less current portion (329,960) --
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Total Long-term liabilities 338,708 10,150
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Total Liabilities 1,458,106 595,442
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MINORITY INTEREST 64,105 66,975
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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 (3,372,970) (3,235,713)
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Total Stockholders' Equity 1,031,569 1,168,826
----------- -----------
$ 2,553,780 $ 1,831,243
=========== ===========
See accompanying notes to financial statements.
4
<PAGE>
DIAMOND EQUITIES, INC.
Statements of Operations
(Unaudited)
For the Three Months Ended
September 30,
--------------------------
1998 1997
---- ----
Net sales $ 397,621 $ --
Less cost of sales 149,577 --
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Gross profit 248,044 --
Selling, general and administrative expenses 392,581 121,058
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Operating income or (loss) (144,537) (121,058)
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Other income and (expenses), net (704) 17,390
Minority Interest 7,984 --
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Net income (loss) before income taxes (137,257) (103,668)
Provision for income taxes -- --
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Net loss $ (137,257) $ (103,668)
=========== ===========
Net income or (loss) per share $ (.03) $ (.02)
=========== ===========
Weighted Average Shares Outstanding 4,666,099 4,666,099
=========== ===========
See accompanying notes to financial statements.
5
<PAGE>
DIAMOND EQUITIES, INC.
Statements of Cash Flows
(Unaudited)
For the Three Months Ended
September 30,
--------------------------
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(137,257) $(103,668)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 57,298 1,481
Minority interest (7,984) --
Changes in operating assets and liabilities
(net of acquisition) (Increase) decrease in
Receivables - trade and other (18,945) (13,396)
Inventory (50,546) --
Prepaid expenses and other 2,044 (1,000)
Increase (decrease) in
Accounts payable 47,689 17,415
Accrued liabilities 960 (17,187)
--------- ---------
Net Cash Used in Operating Activities (106,741) (116,355)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (11,495) (5,200)
Cash paid for notes receivable -- (15,750)
Cash paid for acquisition of Accurate (375,000) --
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Net Cash Provided by Investing Activities $(386,495) $ (20,950)
--------- ---------
See accompanying notes to financial statements.
6
<PAGE>
DIAMOND EQUITIES, INC.
Statements of Cash Flows (Continued)
(Unaudited)
For the Three Months Ended
September 30,
--------------------------
1998 1997
---- ----
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes payable $ (41,992) $ --
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Net Cash Provided (Used) by Financing Activities (41,992) --
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INCREASE (DECREASE) IN CASH (535,228) (137,305)
CASH, BEGINNING OF PERIOD 600,231 1,586,983
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CASH, END OF PERIOD $ 65,003 $ 1,449,678
========= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 9,973 $ --
========= ===========
Cash paid for interest $ -- $ --
========= ===========
See accompanying notes to financial statements.
7
<PAGE>
Diamond Equities, Inc.
September 30, 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 three months ended September 30,
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, 1998.
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.
ACQUISITION OF ACCURATE THERMOPLASTICS
Effective July 21, 1998, the Company acquired the assets and assumed various
debts and leases of Accurate Thermoplastics, Inc. ("Accurate"), an injection
molder in Mesa, Arizona. The Company paid $375,000 in cash, issued a note for
$185,000, assumed capital leases in the amount of $185,734 and notes of $94,639.
The Company also signed a consulting commitment for $5,000 per month for 48
months to the previous owner as part of the acquisition. A commitment liability
was recorded for $205,679 (the present value of the payments). Accounts payable
of $176,859 were also assumed.
For the above payments, notes and assumptions the Company received accounts
receivable of $224,913, Inventory of $83,567 and fixed assets of $914,430.
8
<PAGE>
Diamond Equities, Inc.
September 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
With the two acquisitions of plastic injection molding companies, the operations
of the Company have changed significantly as compared to the same period a year
ago, when the Company was merely looking for business opportunities. With the
increased operations however, there is also an increase in commitments and cash
requirements.
Cash and cash equivalents totaled $65,003 at September 30, 1998 compared to
$600,231 at June 30, 1998. The decrease in cash was due primarily to the
acquisition of Accurate wherein $375,000 was disbursed. The Company also used
approximately $100,000 in operations and $40,000 in payments on debt. The
Companies current cash requirements are for the operations of the Company, the
purchase of inventory and payments on commitments and debt. The Company also has
a balloon payment of $185,000 from the acquisition due within the year. The
Company has two Certificates of Deposit totaling 500,000 securing two lines of
credit. There is $250,000 available to borrow on these lines of credit. The CD's
have not been included in the cash balances disclosed above.
Long term cash requirements, other than normal operating expenses, are
anticipated for the acquisition of additional plastic operations. The Company
will need to raise additional funds from investors in order to complete
additional acquisitions. 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 1999.
The Company's principal commitments at September 30, 1998 consists of
obligations under capital leases, operating leases for facilities and
commitments incurred in connection with the acquisition of Accurate.
RESULTS OF OPERATIONS
The Company generate revenues from the new operations of $397,621 with cost of
sales of $149,577, and a gross profit of $248,044. The Company's gross margin
for the quarter was 62%. Because there were no operations in the first quarter
1998, there are no comparatives in this area.
Selling, general and administrative expenses were $392,581 for the first quarter
1999 an increase of $271,523 over the same period last year. The increase is
primarily due to the change in operations, personnel and professional fees
incurred in connection with the acquisitions.
Management anticipates that general selling and administrative expenses will
continue to remain constant or decrease slightly due to the fine tuning of
operaions.
The Company incurred a loss of $(137,2578) for the first quarter 1999 compared
to a loss of $(103,668) for the same timely period a year ago.
9
<PAGE>
Diamond Equities, Inc.
September 30, 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 1999 is to acquire additional plastic operations and
consolidate the operations for maximum efficiency and profit. Management is
currently reviewing several potential acquisition candidates in the plastics
industry, and hopes to secure the third operation in the near future.
PART II OTHER INFORMATION
ITEM 3(b) DEFAULTS UPON SENIOR SECURITIES
The Company is 33 months in arrears ($194,023) as of November 14, 1998, in the
payment of dividends to the shareholders of the Class A 6% Preferred Stock. No
demand has yet been made on the Company by the Preferred shareholders.
10
<PAGE>
Diamond Equities, Inc.
September 30, 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: November 13, 1998
Diamond Equities, Inc.
By: /s/ David Westfere
------------------------------
David Westfere, CEO and
Principal Financial Officer
11
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<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 65,003
<SECURITIES> 0
<RECEIVABLES> 254,418
<ALLOWANCES> (35,588)
<INVENTORY> 139,514
<CURRENT-ASSETS> 1,010,865
<PP&E> 1,146,684
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<CURRENT-LIABILITIES> 1,119,398
<BONDS> 0
0
1,817,591
<COMMON> 4,666
<OTHER-SE> (790,688)
<TOTAL-LIABILITY-AND-EQUITY> 2,553,780
<SALES> 397,621
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<CGS> 149,577
<TOTAL-COSTS> 149,577
<OTHER-EXPENSES> 392,581
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,973
<INCOME-PRETAX> (137,257)
<INCOME-TAX> 0
<INCOME-CONTINUING> (137,257)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (137,257)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.006)
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