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 December 31, 1997
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 January 31, 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
SECOND QUARTER 1998
Diamond Equities, Inc.
----------------------
INDEX
PART I. FINANCIAL INFORMATION
PAGE
----
Balance Sheets - December 31, 1997 and June 30, 1997..............3 - 4
Statements of Operations for the Three and Six Months
Ended December 31, 1997 and 1996.................................. 5
Statement of Cash Flows - for the Six Months
Ended December 31, 1997 and 1996..................................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
December 31, June 30,
--------------- ---------------
1997 1997
--------------- ---------------
(Unaudited) (Audited)
CURRENT ASSETS
Cash $ 1,210,102 $ 1,586,983
Receivables
Trade accounts, net of allowance for
doubtful accounts of $0 at December
31, 1997 and June 30, 1997 35,588 20,292
Interest receivable - 1,900
Note Receivable-current portion 72,623 41,123
--------------- ---------------
Total Current Assets 1,318,313 1,650,298
--------------- ---------------
PROPERTY AND EQUIPMENT 24,260 20,980
--------------- ---------------
OTHER ASSETS
Notes Receivable-noncurrent portion 754,377 770,127
Deposits 1,000 2,106
--------------- ---------------
Total Other Assets 755,377 772, 233
--------------- ---------------
$ 2,097,950 $ 2,441,405
=============== ================
See accompanying notes to financial statements.
3
<PAGE>
Diamond Equities, Inc.
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
December 31, June 30,
--------------- ----------------
1997 1997
--------------- ----------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 121,483 $ 112,812
Accrued expenses 4,638 59,940
Sales tax payable - 88,098
Accrued preferred dividends 194,023 194,023
--------------- ----------------
Total Current Liabilities 320,144 454,873
--------------- ----------------
Total Liabilities 320,144 454,873
--------------- ----------------
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 (2,626,733) (2,418,007)
--------------- ----------------
Total Stockholders' Equity 1,777,806 1,986,532
--------------- ----------------
$ 2,097,950 $ 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 Six Months
Ended December 31, Ended December 31,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C>
Net sales $ -- $ -- -- --
Less cost of sales -- -- -- --
----------- ----------- ----------- -----------
Gross profit -- -- -- --
Selling, general and administrative expenses 87,397 50,621 208,455 50,621
----------- ----------- ----------- -----------
Operating income or (loss) (87,397) (50,621) (208,455) (50,621)
----------- ----------- ----------- -----------
Other income and (expenses), net 15,534 21,790 32,924 26,162
Income (loss) from Discontinued Operations (33,196) (40,568) (33,196) (36,705)
Gain on sale of assets -- 1,856,985 -- 1,856,985
----------- ----------- ----------- -----------
Net income (loss) before income taxes (105,059) 1,787,586 (208,727) 1,795,821
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
Net income or (loss) before preferred dividends (105,059) 1,787,586 (208,727) 1,795,821
Preferred dividends -- (27,264) -- (54,528)
----------- ----------- ----------- -----------
Net loss attributed to common stock (105,059) $ 1,760,322 (208,727) 1,741,293
----------- ----------- ----------- -----------
Net income or (loss) per share $ (.02) $ .33 (.04) .32
----------- ----------- ----------- -----------
Weighted Average Shares Outstanding 4,666,099 5,277,099 4,666,099 5,277,099
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
Diamond Equities, Inc.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
----------------------------------
December 31,
--------------- ----------------
1997 1996
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (208,727) $ 1,795,821
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on sale of equipment - (1,856,985)
Depreciation and amortization 2,962 79,768
Changes in operating assets and liabilities
(Increase) decrease in
Receivables - trade and other (13,396) (19,197)
Prepaid expenses and other (1,000) 1,363
Increase (decrease) in
Accounts payable 8,662 (22,203)
Accrued liabilities (143,400) (3,524)
--------------- ----------------
Net Cash Used in Operating Activities (354,899) (24,957)
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (6,232) (44,466)
Proceeds form sale of assets - 1,711,250
Cash paid for notes receivable (15,750) -
--------------- ----------------
Net Cash Provided by Investing Activities $ (21,982) $ 1,666,784
--------------- ----------------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
Diamond Equities, Inc.
Statements of Cash Flows (Continued)
(Unaudited)
S
<TABLE>
<CAPTION>
For the Six Months Ended
----------------------------------
December 31,
----------------------------------
1997 1996
--------------- -----------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes payable $ - $ (246)
--------------- -----------------
Net Cash Provided (Used) by Financing Activities - (246)
--------------- ----------------
INCREASE (DECREASE) IN CASH (376,881) 1,641,581
CASH, BEGINNING OF PERIOD 1,586,983 694,293
--------------- ----------------
CASH, END OF PERIOD $ 1,210,102 $ 2,335,874
=============== ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes $ - $ -
=============== ================
Cash paid for interest $ 555 $ 134
=============== ================
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
Diamond Equities, Inc.
December 31, 1997
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
GENERAL
- -------
Diamond Equities, Inc. (the "Company") has elected to omit substantially all
footnotes to the financial statements for the six months ended December 31,
1997, 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.
December 31, 1997
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 $1,210,102 at December 31, 1997 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.
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 December 31, 1997 consists of an
obligation under an operating leases for facilities.
Results of Operations
- ---------------------
Revenues of $15,534 from interest income for the second 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 $87,397 for the second quarter
1998, an increase of $36,776 over the same period last year. The increase is
primarily due additional wages paid due to added personnel, travel expenses and
professional fees incurred in the search for new 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 $(105,059) for the second quarter 1998 compared
to a gain of $1,760,322 for the same timely period a year ago, due to the sale
of the payphone operations. 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.
December 31, 1997
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 the plastics industry, and hopes to secure operations in the near
future.
PART II OTHER INFORMATION
Item 3(b) Defaults Upon Senior Securities
- -----------------------------------------
The Company is 21 months in arrears ($194,023) as of November 14, 1997, 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.
December 31, 1997
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: February 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,210,102
<SECURITIES> 0
<RECEIVABLES> 35,588
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,318,363
<PP&E> 24,260
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,097,950
<CURRENT-LIABILITIES> 320,144
<BONDS> 0
0
1,817,591
<COMMON> 4,666
<OTHER-SE> (44,451)
<TOTAL-LIABILITY-AND-EQUITY> 2,097,950
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 208,455
<LOSS-PROVISION> (208,455)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (175,531)
<INCOME-TAX> 0
<INCOME-CONTINUING> (175,531)
<DISCONTINUED> (33,196)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (208,727)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
