UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition period from: ____________ to: ____________
Commission File Number. 0 27138
DIAMOND EQUITIES, INC.
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(Name of Small Business Issuer in its Charter)
Nevada 88-0232816
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State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization
216 S. Alma School Road, Mesa, Arizona 85210
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(Address of Principal Executive Offices) (Zip Code)
(602) 462-5900
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
Class A Warrants
Class B Warrants
Check whether the issuer: (1) filed all Reports 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 [X] No [ ]
Check here if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definite proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The Issuer's revenues for the year ended June 30, 1999, were $1,368,510.
The market price of the voting stock held by non-affiliates (approximately
1,332,417 shares as of September 7, 1998) based upon the average of the bid and
asked prices of such stock as of September 7, 1998, as reported on the
Electronic Bulletin Board, was $2.25.
The number of shares of Common Stock of the issuer outstanding as of
September 23, 1998, was 7,266,099.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
Documents incorporated by Reference:
Incorporated by reference to this annual report are Forms 8-K filed by the
Registrant on March 3, 1999 and April 20, 1999, respectively, which disclose the
acquisition of a company engaged in the internet commerce industry.
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TABLE OF CONTENTS
PART I Page No.
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Item 1. Description of Business ......................................... 3
Item 2. Description of Property ......................................... 10
Item 3. Legal Proceedings ............................................... 10
Item 4. Submission of Matters to a Vote of Security Holders ............. 11
PART II
Item 5. Market Price of and Dividends on the Registrant's Common
Equity and Other Stockholder Matters ............................ 11
Item 6. Management's Discussion and Analysis or Plan of Operation ....... 12
Item 7. Financial Statements ............................................ 14
Item 8. Changes in and Disagreements With Accountants ................... 14
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons .... 14
Item 10. Executive Compensation .......................................... 15
Item 11. Security Ownership of Certain Beneficial Owners and Management... 15
Item 12. Certain Relationships and Related Transactions .................. 16
Item 13. Exhibits List and Reports on Form 8-K ........................... 17
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
HISTORY. The Company was organized under the laws of the State of Nevada on
July 24, 1987, under the name of KTA Corporation. On September 25, 1989, the
Company changed its name to United Payphone Services, Inc. At that time, the
Company was in the business of operating, servicing and maintaining a system of
privately-owned public pay telephones in Nevada. In January, 1990 the Company
expanded its operations into Arizona. In December, 1994, the Company sold all of
its pay telephone location contracts in Las Vegas, Nevada, but did not include
the pay telephone equipment. All of the Nevada equipment was then relocated to
Arizona where the Company did business under the name "U.S. Payphone, Inc." The
Company generated revenues, after the sale of its Nevada contracts, from coin
and non-coin calls made from approximately 865 telephones located and installed
throughout the State of Arizona.
On November 15, 1996, the Company sold substantially all of its fixed
assets (the "Asset Sale") to Tru-Tel Communications, L.L.C., a Nevada limited
liability company ("Tru-Tel").
The Company effected the Asset Sale because the directors determined that
the changing regulatory environment and business prospects would have a negative
effect on the Company's future operations. Under an asset purchase agreement
(the "Asset Purchase Agreement") for $1,711,250 in cash and a secured promissory
note of $811,250 (the "Tru-Tel Note"). The Tru-Tel Note is payable on a monthly
basis commencing on February 15, 1997, and bears interest at the rate of 8% per
annum. The final payment of all accrued and unpaid interest and outstanding
principal is due on or before January 15, 2002. The Tru-Tel Note is secured by a
lien on all assets transferred in the Asset Sale and is further secured by
personal guarantees of the principals of Tru-Tel.
The Asset Purchase Agreement prohibited the Company from engaging in,
either directly or indirectly, in any business which operates public or private
pay phones within the State of Arizona. In addition, the Company may not install
or maintain any phone equipment, or provide related services, for any party to
its existing contracts, which were sold to Tru-Tel.
In early 1997, Tru-Tel defaulted on the Tru-Tel Note and on March 18, 1997,
the Company filed suit. On March 24, 1999, the parties settled the suit, with
Tru-Tel's promise to pay the Company a total of Four Hundred Thousand Dollars
($450,000), payable with a cash payment of One Hundred Thousand Dollars
($100,000) and the balance in quarterly installments, secured by another
Promissory Note. (See Item 3, "Legal Proceedings")
Subsequent to the Asset Sale, the Company was essentially a "blank check"
company, with cash and a promissory note as it's primary assets. It has since
acquired businesses in the plastics manufacturing industry and in the Internet
industry. These acquisitions and operations are discussed in detail below.
PLASTICS INDUSTRY ACQUISTION. In November, 1997, the Company established a
subsidiary, Precision Plastics Molding, Inc. ("Precision" or the "Subsidiary"),
a Nevada corporation, and on June 15, 1998 the Company and Precision purchased
the assets of Premier Plastics Corporation, a Tempe, Arizona private corporation
engaged in the plastic injection molding business. Consideration of $80,000 in
cash was paid along with the assumption of various notes and payables in the
amount of approximately $40,000. In addition, the selling shareholder of Premier
received 300,000 shares of common stock of the Subsidiary valued at $0.25 per
share. Prior to this acquisition, the Subsidiary had no assets. The purchase
price was determined by negotiations between the parties. The cash paid was from
the Registrant's own funds. There was no prior relationship between Premier and
its sole shareholder and the officers and directors of the Registrant or its
Subsidiary.
On July 15, 1998, the Company and Precision closed a transaction involving
the purchase of substantially all the assets of Accurate Thermoplastics, Inc.
("Accurate") an Arizona private corporation engaged in the plastic injection
molding business. The assets purchased included equipment, inventories, contract
rights, customer lists, know-how, drawings, specifications and intellectual
property. The sole shareholder of Accurate, Roy L. Thompson, was engaged to
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serve as a consultant to Precision. The business of Accurate will be continued
under the name Precision Plastics, Inc. Precision acquired the assets of
Accurate for payment of Five Hundred Sixty Thousand Dollars ($560,000)
consisting of cash and a promissory note, and in consideration for the
assumption by Precision of certain liabilities of Accurate. The purchase price
paid by Precision was determined by negotiations between the parties. The cash
paid was from funds paid to Precision by the Registrant for 2,000,000 shares of
Precision's common stock 68.9% of the outstanding common stock of Precision.
There was and is no other relationship between Accurate and its sole shareholder
and the officers and directors of the Registrant or Precision.
On July 9, 1999, Accurate filed suit against the Company alleging breach of
contract by failure to perform certain provisions of the asset purchase
agreement, seeking unspecified damages. (See Item 3, "Legal Proceedings")
CURRENT PLASTICS MANUFACTURING OPERATIONS AND BUSINESS. The Company,
through, Precision, is actively engaged in the plastics injection molding
business. The operations of Premier have been combined with those of Accurate,
with both acquisitions now operating under the name of Precision Plastics
Molding, Inc., and all operations are conducted at the former Accurate facility
at 216 S. Alma School Rd., Mesa, AZ. The following is a brief discussion of the
business conducted by Precision / the Company.
BUSINESS. The business of Precision is to produce a plastic product from
the customer's designs. A customer could either provide their own molds or have
Precision build a mold in its facility. When a mold is completed Precision then
manufactures as many or as few products as the customers desire. Most products
require more than just one molded part. In most cases several parts are molded
and then assembled. Precision does not always mold all of the parts for assembly
nor does Precision normally do the assembly.
PRODUCTS. Precision manufactures many products that are owned by its
customers. Precision does not presently own the rights to any of the products
that it produces. Precision offers the service of manufacturing parts for a
customer's products at the level of quality they demand.
MARKETING. Currently, Precision does not have a marketing or sales force.
The current customers were acquired from the companies purchased. Precision
intends to hire personnel to find companies that need plastic parts manufactured
for their own products.
CUSTOMERS/SUPPLIERS. Precision currently makes products for approximately
fifteen (15) different customers. The major customers are Ryobi, Axxes and
Amsafe. Management estimates that their business makes up at least seventy five
percent (75%) of Precision's sales. Precision works with thirty (30) different
suppliers of different products consumed in manufacturing products such as boxes
and plastic resin. Precision's main suppliers of plastic are Ferro Corp, GE
Plastics, Polymerland, and Plastics General Polymers.
SALES. Precision has, as of September 1, 1999, a sales backlog of 2 days
and has the raw materials to run production for these sales. The Company no
longer has a tooling department, and now uses subcontractors for such services.
It has no order backlog.
INTERNET BUSINESS ACQUISITION. GoProfit.Com, Inc. on April 5, 1999, the Company
entered into a Stock Purchase Agreement with GoProfit.Com, Inc., a Nevada
Corporation. Under the Stock Purchase Agreement, the shareholders of GoProfit
acquired six hundred thousand (600,000) shares of voting, restricted common
stock of the Company in exchange for approximately ninety eight percent (98%) of
the outstanding common stock of GoProfit, or 2,400,000 shares, based on the then
2,450,000 shares outstanding, as represented by GoProfit. The Agreement
recognized that GoProfit had issued options to its employees and others
representing seven hundred thirty five thousand (735,000) shares of common
stock. In addition, the GoProfit Board Members had options for 6,000,000 shares.
If all options were exercised, the percent of ownership in GoProfit by the
Company would be significantly reduced to that of a minority shareholder.
BUSINESS. GoProfit.com, Inc. ("GoProfit") was incorporated under the laws
of the State of Nevada on March 3, 1999. The Company was formed to design and
build a world wide financial search engine for the Internet. Through the
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licensing and repackaging of proprietary technology from leading Internet
purveyors of content, GoProfit.com desires to gain instant user credibility
while achieving its own branded identity. At the same time, GoProfit management
is working toward developing innovative technologies designed so that GoProfit
becomes a "next-generation" search engine/Internet portal.
An Internet portal is a service-oriented website that offers a wide range
of products and services to its users and customers. Large Internet search
engines such as "Yahoo", "Excite", and "Lycos" are considered Internet portals.
Essentially, search engines and portals have become mutually inclusive, in that
all top portal sites have some sort of search engine application. Most portals
now offer Web based e-mail services and e-Commerce shopping, as well.
Categorically speaking, portal sites are the most visited sites on the Internet,
therefore generating the highest advertising revenues. This year, portals are
expected to attract 15 percent of the Web traffic and an astounding 59 percent,
or $520 million of online advertising dollars, according to Forrester Research,
a trade publication.
GoProfit has no operating history or revenues, must be considered entirely
promotional and is in it's early development stages. As GoProfit faces all the
risks inherent in any new business, including competition, the absence of both
an operating history and profitability and the need for additional working
capital. The likelihood of the success of GoProfit must be considered in light
of the problems and expenses that are frequently encountered in connection with
the operation of a new business and the competitive environment in which the
Company will be operating.
BUSINESS STRATEGY. GoProfit is setting out to provide world-wide financial
information to the world, in all of the major languages. GoProfit hopes to help
break down cultural barriers that exist within the world's financial markets.
GoProfit is dedicated to providing the world-wide financial community with equal
access to a wide range of financial information on a timely basis.
GoProfit intends to make financial exchanges throughout the world seem more
real by providing market data feeds. Users searching the GoProfit portal Web
site will be able to access delayed quotes for markets located in the Americas,
Europe, Africa, Asia and the Pacific Rim. GoProfit will be able to will function
as a clearinghouse for delayed quotes, enabling users to track securities
trading throughout the world.
Along with an English Language site, GoProfit intends to mirror its site to
accommodate the following languages: (i) Chinese, (ii) French, (iii) German,
(iv) Japanese, and (v) Spanish, Each site's Reuters news and information feeds
would apply specifically to the culture each mirror site services (see
discussion below regarding Reuters). All mirror sites are planned to receive
world-wide market quotes in their primary language. For example, an investor in
Japan would be able to follow United States securities in Japanese; an investor
in France would be able to follow securities traded on the Hang Seng in Hong
Kong in French.
GoProfit intends to provide full quote services for most of the established
stock exchanges in the world.
STRATEGIC PARTNERSHIP AND LICENSING AGREEMENTS.
GoProfit has entered into negotiations with Inktomi Corporation (NASDAQ:
INKT) to create a proprietary financial search engine and a proprietary
directory service. Inktomi is considered by many Internet experts to be the
search engine technology on which to build a proprietary search application. The
GoProfit creative and technical personnel will work with Inktomi technical
support personnel to develop a unique branded look and feel for the GoProfit
engine's "Front-End", using Inktomi Data Protocol, to the Inktomi hosted "Back
End". The Inktomi's "Back End" clusters resolve the query and deliver the search
results to GoProfit's "Front-End" where Internet users interact with the data.
GoProfit has entered negotiations with Pair Networks, Inc. (reported to be
the Internet's largest privately held company) to provide all of the essential
services to host the "Front End" of the GoProfit Web site. pair Networks
maintains world class Web hosting facilities under its exclusive control. Pair
Networks, Inc. does not provide Web design, marketing, consulting or other value
added services. Instead, it focuses only on Web hosting.
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GoProfit has also entered into negotiations with Reuters (NASDAQ: RTRSY) to
provide news service feeds, as well as proprietary financial analytical tools.
Reuters would provide GoProfit with delayed quotes from 23 major markets
throughout the world. Reuter's proprietary investment tools include news,
charts, research, intraday charting, price history, company profiles, daily
overviews, options, option chains, income statements, annual balance sheets,
quarterly balance sheets, cash flow statements, analysts' reports, earnings
estimates, price/earnings ratios, etc.
Reuters is reported to be the worlds largest news and television agency
with 2,035 journalists, photographers and camera operators in 169 bureaus
serving 163 countries. News is gathered and edited for both business and media
clients in 25 languages. Approximately 10,000 stories made up of 1.5 to 2
million words are published daily. Some 290 subscribers, plus their networks and
affiliates in 93 countries, use Reuters television news coverage. Reuters
provides news and information to over 140 Internet sites and reaches an
estimated 10.9 million viewers per month, generating approximately 100 million
page views via the four major portal sites: Yahoo!, Lycos, Excite and Infoseek.
GoProfit recognizes the symbiotic relationship between search keywords and
relevant news stories. The keyword search "online brokers" in French, for
example, will not only return a listing of broker/dealers who offer trading
online, but also French-language Reuters news stories that relate to online
trading. GoProfit's strategic partner, Market Guide, provides market data for
over 12,000 United States publicly traded companies. Market Guide is considered
the most comprehensive financial information source within the United States
financial industry. GoProfit continuously updates its research and new companies
are frequently added to the data base. GoProfit intends to organize Market
Guide's financial information to enable Internet users to search for a company
by ticker symbol or company name, to search for a company based on market sector
or industry classification, to search for stocks, industries and market sectors
that have had the greatest percentage change in price or to search for companies
meeting a specific investment criteria determined by an Internet user. GoProfit
has purchased an off-the-shelf Web-based e-mail package which will be hosted on
pair Networks and administered by GoProfit programmers. GoProfit web designers
have customized the look and functionality of these programs in order to brand
GoProfit's e-mail service.
CONTROL OF GO PROFIT. In view of the options to acquire 6,000,000 shares of
common stock of GoProfit held by the independent Board of Directors of GoProfit,
it is very possible the Company will become a minority shareholder of GoProfit.
This would mean that the Company would not be in control of GoProfit, and that
its equity interest in GoProfit would not have a significant impact on the
financial condition of the Company.
OPERATIONS OF DIAMOND EQUITIES, INC.
CORPORATE OPPORTUNITIES. The Company intends to continue to seek corporate
opportunities which it finds or which are presented to it by third parties. The
Company's principal business objective is to seek long-term growth potential in
a business venture rather than to seek immediate, short-term earnings. The
Company does not restrict its search to any specific business, industry or
geographical location.
The Company is presently able to participate only in a limited number of
business ventures, due primarily to the Company's limited capital. Lack of
additional diversification is a risk in investing in the Company because it may
limit the ability of the Company to offset potential losses from one venture
against gains from another and will expose the Company to the cyclically and
other risks of any business in which it invests.
The Company has been seeking and engaging in business opportunities in
firms which have recently commenced operations, or are developing companies in
need of additional funds for expansion into new products or markets, or are
seeking to develop a new product or service, or are established businesses which
may be experiencing financial or operating difficulties and are in need of
additional capital. In some instances, a business opportunity may involve the
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acquisition of, or merger with a corporation which does not need substantial
additional cash but which desires to be part of a company with an established
public trading market for its common stock. The Company may purchase assets and
establish wholly- or majority-owned subsidiaries in various businesses or
purchase existing businesses as subsidiaries.
The Company anticipates that the selection of a business opportunity in
which to participate may be complex, such as that of its recent acquisition of
GoProfit.com, Inc. However, because of general economic conditions, rapid
technological advances being made in some industries, and shortages of available
capital, the Company believes that there are other companies seeking even the
limited additional capital which the Company has and/or the benefits of a
publicly-traded corporation. The perceived benefits of a publicly-traded
corporation may include facilitating or improving the terms on which additional
equity financing may be sought, providing liquidity for the principals of a
business, creating a means for providing incentive stock options or similar
benefits to key employees, providing liquidity (subject to restrictions of
applicable statutes) for all shareholders, estate planning and other factors.
Business opportunities may occur in many different industries and at various
stages of development, all of which can make the task of comparative
investigation and analysis of such business opportunities extremely difficult
and complex.
The Company has limited capital with which to provide the owners of
business opportunities with any substantial cash. However, the Company plans to
offer owners of business opportunities the possibility of acquiring equity
interests in a public company at substantially less cost than is required, for
example, to conduct an initial public offering. The owners of the business
opportunities could, however, incur significant post-merger or acquisition
registration costs if they wish to register a portion of their shares for
subsequent sale. The Company will also incur significant legal and accounting
costs in connection with the acquisition of a business opportunity including the
costs of preparing registration statements and related reports and documents if
required, Forms 8-K, acquisition and other agreements.
In connection with the acquisition of or merger with another business, the
Company may use a portion of its working capital to make short-term (less than
one year) loans to a target business. The Company will attempt to assure that
the borrower will have the ability to repay the loan within its stated term and
that the loan is either fully secured or personally guaranteed, but there can be
no assurance in this regard. The Company may make unsecured loans as well as
secured loans and, in either event, could lose its entire principal in such a
loan.
Decisions regarding future acquisitions will be made by management of the
Company, which will in all probability act without the consent, vote or approval
of the Company's shareholders. The Company presently has no other agreements,
understandings or arrangements to acquire or participate in any specific
business opportunity.
EVALUATION OF OPPORTUNITIES. Analyses of new business acquisitions will be
undertaken by or under the supervision of the officers and directors of the
Company, none of whom is a professional business analyst. In analyzing
prospective business opportunities, management considers such matters as the
available technical, financial, and managerial resources; working capital and
other financial requirements; history of operation, if any; prospects for the
future; nature of present and expected competition; the quality and experience
of management services which may be available and the depth of such management;
the potential for further research, development, or exploration; specific risk
factors not now foreseeable but which then may be anticipated to impact the
proposed activities of the Company; the potential for growth or expansion; the
potential for profit; the perceived public recognition or acceptance of
products, services, or trades; name identification; and other relevant factors.
Officers and directors of the Company will meet personally with management and
key personnel of the target business as part of their investigation. To the
extent possible, the Company intends to utilize written reports and personal
investigation to evaluate the above factors. The Company may allocate a minor
portion of its working capital for the retention of outside consultants, if the
Board deems it necessary, to aid in the analysis of a business opportunity.
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Since the Company is subject to Section 13 of the Exchange Act, it will be
required to furnish certain information about significant acquisitions,
including audited financial statements for the company(s) acquired, covering
one, two or three years depending upon the relative size of the acquisition.
Consequently, acquisition prospects that do not have or are unable to obtain the
required audited statements may not be appropriate for acquisition so long as
the reporting requirements of the Exchange Act are applicable.
Any venture in which the Company participates presents certain risks. Many
of these risks cannot be adequately identified prior to selection of the
specific opportunity, and the Company must, therefore, depend on the ability of
management to identify and evaluate such risks. Certain opportunities available
to the Company may have been unable to develop a going concern or may be in
development stage in that they have not generated significant revenues from
their principal business activities prior to the Company's participation. In
such cases, the combined enterprises may not become going concerns or advance
beyond the development stage even after the Company's participation in the
activity and the related expenditure of the Company's findings. Many of the
opportunities may involve new and untested products, processes, or market
strategies which may not succeed. Further, market and industry conditions are
subject to change. Such risks have been and will be assumed by the Company and,
therefore, its shareholders.
The Company does not restrict its search to any specific kind of firms, but
may acquire a venture which is in any stage of its corporate life, including,
but not limited to, companies in the development stage and those already in
operation. It is impossible to predict at this time the status or maturity of
any business in which the Company may further become engaged through acquisition
or otherwise. The results of the Company's past acquisitions are reflected in
the Company's combined financial statements and in Item 6, "Management's
Discussion and Analysis or Plan of Operation).
FUTURE ACQUISITIONS. In acquiring a particular business, the Company may
become party to a merger, consolidation, reorganization, joint venture, or
licensing agreement with another corporation or entity. It may also purchase the
stock or assets of an existing business. On the consummation of a transaction,
it is possible that the present management and shareholders of the Company will
not be in control of the Company. In addition, a majority or all of the
Company's directors may, as part of the terms of the acquisition transaction,
resign and be replaced by new directors without a vote of the Company's
shareholders.
It is anticipated that any securities issued in any such reorganization
would be issued in reliance on exemptions from registration under applicable
federal and state securities laws. In some circumstances, however, as a
negotiated element of this transaction, the Company may agree to register such
securities either at the time the transaction is consummated, under certain
conditions, or at specified times thereafter. The issuance of substantial
additional securities and their potential sale into any trading market which may
develop in the Company's Common Stock may adversely affect the market for such
securities.
While the actual terms of a transaction to which the Company may be a party
cannot be predicted, it is expected that the parties to the business transaction
will find it desirable to avoid the creation of a taxable event and thereby
structure the acquisition in a "tax free" reorganization under Sections
368(a)(1) or 351 of the Internal Revenue Code of 1954, as amended (the "Code").
In order to obtain tax free treatment under the Code, it may be necessary for
the owners of the acquired business to own 80% or more of all classes of stock
of the surviving entity. In such event, the shareholders of the Company, would
retain less than 20% of the issued and outstanding shares of the surviving
entity, which could result in significant dilution in the percent ownership of
such shareholders.
As part of the Company's investigation, officers and directors of the
Company may meet with management and key personnel of a target company, may
visit and inspect facilities, obtain independent analysis or verification of
certain information provided by such Company, check references of management and
key personnel, and take other reasonable investigative measures, to the extent
that the Company's limited financial resources and management expertise allow.
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The manner in which the Company participates in an opportunity will depend
on the nature of the opportunity, the respective needs and desires of the
Company and other parties, the management of the target company, and the
relative negotiating strength of the Company and such other management.
With respect to any mergers or acquisitions, negotiations with target
company management will be expected to focus on the percentage of the Company
which target company shareholders would acquire in exchange for their
shareholdings in the target company. Depending upon, among other things, the
target company's assets and liabilities, the Company's shareholders will, in all
likelihood, hold a lesser percentage ownership interest in the Company following
any merger or acquisition. Such dilution of ownership interest may be
significant in the event the Company acquires a target company with substantial
assets. Any merger or acquisition effected by the Company can be expected to
have a significant dilutive effect on the percentage of shares held by the
Company's shareholders, including those shareholders who continue their
investment.
It is probable that the Company will not have sufficient working capital to
undertake any significant development, marketing, or manufacturing for any
company which may be acquired. Accordingly, following the acquisition of any
such company, the Company may be required to either seek additional debt or
equity financing or obtain funding from third parties, in exchange for which the
Company may be required to give up a substantial portion of its interest in the
acquired company. There can be no assurance that the Company will be able to
obtain additional financing or to interest third parties in providing funding
for the further development of any companies acquired.
The Company will participate in a business opportunity only after the
negotiation and execution of appropriate written agreements. Although the terms
of such agreements cannot be predicted, generally such agreements will require
specific representations and warranties by all of the parties thereto, will
specify certain events of default, will detail the terms of closing and the
conditions which must be satisfied by each of the parties prior to such closing,
will outline the manner of bearing costs if the transaction is not closed, will
set forth remedies on default, and will include other terms typical in
transactions of such nature.
It is anticipated that the investigation of specific business opportunities
and the negotiation, drafting, and execution of relevant agreements, disclosure
documents, and other instruments will require substantial management time and
attention and substantial costs for accountants, attorneys, and others,. If a
decision is made not to participate in a specific business opportunity, the
costs incurred in the related investigation would not be recoverable.
Furthermore, even if an agreement is reached for the participation in a specific
business opportunity, the failure to consummate that transaction may result in
the loss to the Company of the related costs incurred.
As is customary in the industry, the Company may pay a finder's fee for
locating a merger or acquisition candidate and for location of additional
financing. If any such fee is paid, it will be approved by the Company's board
of directors and will be in accordance with industry standards. This type of fee
would not be paid to any employee, officer, director or a 5% or more shareholder
of the Company.
FORWARD-LOOKING STATEMENTS. This report contains 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, and is subject
to the safe harbors created thereby. Actual results could differ materially
because of the following uncertain factors: the inability to make additional
acquisitions; the probability of losses due to its new line of business; the
continued employment of key management; a change in control of the Company.
COMPETITION. In terms of making other acquisitions, the Company is a minor
participant among the firms which engage in the acquisition of business
opportunities. There are many established venture capital and financial concerns
which have significantly greater financial and personnel resources and technical
expertise than the Company. In view of the Company's limited financial
resources, the Company will continue to be at a significant competitive
disadvantage compared to the Company's competitors in making desirable
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acquisitions. Also, the Company may be competing with other small, blind-pool,
public companies located in the Southwest and elsewhere.
REGULATION. The Company might, in certain circumstances, be deemed to be an
investment company under the provisions of Section 3(a)(3) of the 1940 Act,
which could have substantial adverse impact on its operations. This could occur
if a significant proportion of its working capital were invested in short-term
debt instruments for longer than a one-year period and the Company had no
significant operations. The Company has, and intends to take all reasonable
steps to avoid such classification in the future.
Mergers or acquisitions of the Company are structured in such a manner as
to minimize federal and state tax consequences to the Company and the target
company. Management of the Company also reviews any mergers or acquisitions in
an effort to minimize the possibility that any merger or acquisition will be
classified as a taxable event by the Internal Revenue Service.
EMPLOYEES. The Company presently has two (2) employees, all engaged in
management and administrative functions. The Company also engages, from time to
time, services of outside consultants to assist it in evaluation of prospective
target companies. The Company may allocate a minor portion of its working
capital for part-time secretarial services required by the Company.
The Company's subsidiary, Precision, has ten (10) non-union employees and
six (6) machinists. One (1) is a shift supervisor, one (1) is a quality
assurance inspectors, one (1) handles shipping and receiving, and one (1) is
engaged in office and clerical duties.
The Company's other subsidiary, GoProfit.com, Inc. presently has four (4)
employees, including its management personnel. It anticipates hiring additional
employees when capital is available.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company presently operates in the offices of its subsidiary, Precision,
which leases 15,000 square feet of space at 216 South Alma School Road, Mesa,
Arizona 85210, of which 13,000 square feet are used for production and 2,000
square feet for offices. The space is rented at $6,750 per month.
The offices of GoProfit.com, Inc., the Company's other subsidiary, are
located at 10490 Wilshire Blvd, Suite 1605, Las Angeles, CA, 90024. GoProfit
pays $2,250 per month rental and has made a $4,500 lease deposit. The lease
expires March 31, 2001.
ITEM 3. LEGAL PROCEEDINGS.
Neither the Company nor any of its subsidiaries is a party to any material
pending legal proceedings or government actions (except as set forth below),
including any material bankruptcy, receivership, or similar proceedings. Except
as set forth below, management of the Company does not believe that there are
any material proceedings to which any officer or affiliate of the Company, any
owner of record of beneficially of more than 5% of the Common Stock of the
Company, or any associate of any such director, officer, affiliate of the
Company, or security holder is a party adverse to the Company or has a material
interest adverse to the Company.
On November 6, 1996, a true bill was returned by a Grand Jury in the United
States District Court in Nevada against certain former directors and officers of
the Company and other non-affiliated individuals, who were accused of
racketeering, RICO violations, securities fraud and wire fraud. All of the
charges against the former directors and officers arose out of alleged
activities the individuals undertook while serving as directors and officers of
the Company. The Company is not a party of and was not named as a defendant in
the indictments. However, because the indictments relate to activities alleged
to have been perpetrated by then officers and directors of the Company, there
can be no assurance that the indictments ultimately will not have a material
adverse effect on the Company.
The persons named in the indictments as disclosed in prior 10-KSB filings,
are no longer officers, directors or control persons of the Company.
10
<PAGE>
The government informed the Company on August 21, 1996 that Mr. and Mrs.
Westfere, the Company's then current Chief Executive Officer and
Secretary/Treasurer, were neither subjects or targets of the grand jury
investigation, and the government did not contact any other then current
officers or employees concerning the investigation. The government has never
informed the Company as to the relief, if any, to be sought. The Company
complied with the subpoena DUCES TECUM (to produce Company records and
documents) it received and cooperated with the government's investigation. The
Company is presently unable to assess the potential liability, if any, to the
Company as a result of activities which are the subject of the above
investigation. There has been no final resolution of this matter as of the date
of this filing.
BREACH OF CONTRACT LITIGATION. In connection with the sale of its
pay-telephone operations, the Company received a promissory note in the
principal sum of $811,250. Monthly payments of $14,000 on the note were to
commence on February 15, 1997. No payments on the note have been received. In
March, 1999, a complaint for breach of contract was filed with the Eighth
Judicial District Court of Clark County, Nevada. The complaint alleges of an
anticipatory breach by the defendant, Tru-Tel Communications, LLC, issuer of the
promissory note. The complaint also names as party defendants, the principals of
Tru-Tel Communications, LLC and Finova Capital Corporation (provider of the
financing used to purchase the assets.)
The lawsuit was settled pursuant to a Settlement and Release Agreement on
or about March 23, 1999, filed with the Court, wherein Tru-Tel and the other
named defendants (Finova was dismissed) agreed to pay Four Hundred Fifty
Thousand Dollars ($450,000), of which One Hundred Thousand was paid in April,
1999, and the balance is payable quarterly in payments of $21,874.98. Tru-Tel
has since filed for bankruptcy, and it may be likely that the Company may not
receive the full payment settled upon.
INVESTIGATION OF SHAREHOLDER. The State of Florida's Department of Banking
and Finance is currently reviewing the ownership of securities of the Company by
Derby Holdings Group, Ltd. (See Items 5 and 11). The review is confidential and
is not construed as an indication of a violation on the part of the Company or
any other person or entity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fiscal year ended June 30, 1998, to a
vote of the Company's security holders.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is currently traded in the over-the-counter
market and is quoted by the National Quotation Bureau as a non-NASDAQ OTC
security. According to information provided to the Company, during the fiscal
year ended June 30, 1999, 21,455,700 shares of the Company's Common Stock were
traded on the Bulletin Board. Nonetheless, the Company therefore believes that
there is no well established public trading market for the Company's Common
Stock. The Company also believes that there are only five market makers which
currently make a market in the Company's Common Stock. These quotations reflect
inter-dealer reported bid prices, and may or may not necessarily represent
actual transactions.
Quarter High Low
------- ------ -------
FISCAL YEAR ENDED First $ .1875 $0.50
JUNE 30, 1998 Second $ 0.16 $0.0625
Third $ 0.08 $0.0325
Fourth $ 0.51 $0.0325
FISCAL YEAR ENDED First $ 0.55 $0.045
JUNE 30, 1999 Second $ 0.22 $ 0.06
Third $ 1.50 $ 0.07
Fourth $6.03125 $ 0.75
11
<PAGE>
As of September 30, 1999, there were approximately 702 holders of record of
the Company's Common Stock as reported to the Company by its transfer agent.
No cash dividends have been declared or paid to date on the Company's
Common Stock.
RELATED STOCKHOLDER MATTERS.
The Registrant previously had 727 shares of Series A 6% Preferred Stock
outstanding, with $194,023 in accrued but unpaid dividends. On October 28, 1997
the Registrant entered into an agreement with Dingaan Holdings, S.A., the sole
shareholders of the Series A Preferred Stock, to exchange these shares and the
accrued dividends for 18,000 shares of new Series B Preferred Stock. The Series
B Preferred Stock carries no dividend and is convertible to 18,000,000 shares of
common stock of the Registrant.
The following is a summary of securities transactions which took place
during 1999, involving the Company and certain of the above shareholders, which
may be considered affiliates.
Of the eighteen thousand (18,000) shares of Series B convertible preferred
stock held by Dingaan Holdings, SA ("Dingaan"), an affiliate. Dingaan
transferred two thousand seven hundred (2,700) shares to Derby Holdings Group,
Limited ("Derby"). Subsequently, Derby advised the Company that it was
authorized by Dingaan Holdings, S.A. ("Dingaan") to convert shares of the
Company's Class B Preferred Stock held by Dingaan to common stock of the
Company, the certificates for which to be issued to Derby.
From March 9, 1999 to July 12, 1999, such transactions were made, and Derby
was issued a total of Two Million Seven Hundred Thousand (2,700,000) shares of
the Company's common stock.
The Company issued one hundred (100) shares of Series B Convertible
Preferred Stock to Hanes Development, Ltd., a British Virgin Islands
corporation, in connection with the Company's acquisition of GoProfit.Com, Inc.
The Company also issued six hundred thousand (600,000) shares of restricted
common stock to principals of GoProfit.Com, Inc., in connection with the
GoProfit.Com, Inc. acquisition.
On March 9, 1999, the Company sold in a private transaction, fifty (50)
shares of its Class A 6% Preferred Stock to Derby Holdings Groups, Limited,
("Derby"), at a price of One Thousand Dollars, ($1,000) each, for a total
purchase price of $50,000. Also, on June 11, 1999 the Company sold an additional
200 shares of its Class A 6% Preferred Stock, at a price of One Thousand Dollars
($1,000) per share, for a total purchase price of Two Hundred Thousand Dollars
($200,000).
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1999 AND 1998.
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, 1996, the
Company has been winding down operations relative to the payphone business and
has been involved in searching for new business ventures through June 15, 1998
when it acquired Premier Plastics, Inc. a plastic injection molding business in
Tempe, Arizona. In July 1998 the Company acquired the assets and operations of
Accurate Thermoplastics, Inc., a plastics injection molding company in Mesa,
Arizona. In April 1999, the Company acquired all of the common stock of
GoProfit.com, Inc., a development stage company in the process of developing an
internet web site and financial search engine. Because the Company had only
minimal operations in the plastics industry in fiscal year 1998, the results of
operations will differ from that of fiscal year 1999, which includes the
operating activity of both plastics companies for a full year and GoProfit.com
expenses from April through June 1999.
12
<PAGE>
The Company had a net loss of ($626,210) in the fiscal year ended June 30,
1999 as compared to a net loss of ($769,923) in the fiscal year ended June 30,
1998. The difference in net loss in the year ended June 30, 1999 versus 1998 is
largely due to the change in operations to the plastics industry. The net loss
from continuing operations for the fiscal year 1999 was ($751,422), as compared
to ($739,624) for the fiscal 1998. Though the difference isn't significant in
the aggregate, there were material changes in operating activities. Diamond, the
parent company, has losses of ($296,751), a $40,000 improvement from last year
when eliminating the $400,000 bad debt on the Tru-Tel note. Precision Plastics
had losses of ($240,340) in 1999 verses a slight loss in 1998 from the two weeks
of operations. GoProfit had losses from operations in the amount of ($214,331),
for the three months of operations included in the consolidated company.
Interest income decreased to $35,919 in fiscal 1999 as compared to $53,179
in the fiscal year ended June 30, 1998, due to diminishing cash balances. The
Plastics operations generated revenues of $1,367,610 during 1999 as compared to
0 for fiscal 1998.
The Company's selling, general and administrative expenses increased by
255% to $904,706 for the fiscal year 1999 as compared to $355,100 for the fiscal
year ended June 30, 1998. The increase is due to the change of operations to
three independent companies versus one in 1998. General and administrative
expenses for fiscal 1999 are broken down as follows: Diamond Equities
($291,924), Precision Plastics ($490,641), and GoProfit.com ($122,141), for a
total of ($904,706).
The Company's future result of operations may be materially affected due to
the recent acquisition into the internet industry. The plastics operations will
continue at operate at approximately the same level in fiscal 2000. The Company
anticipates that in the fiscal year ending June 30, 2000, that the operations in
the plastics industry will be expanded with additional acquisitions and growth.
THE FOREGOING IS A FORWARD-LOOKING STATEMENT WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND IS SUBJECT TO THE SAFE HARBORS
CREATED THEREBY. ACTUAL RESULTS COULD DIFFER MATERIALLY BECAUSE OF THE FOLLOWING
FACTORS: LOSSES DUE TO AN UNPROFITABLE NEW LINE OF BUSINESS; THE CONTINUED
EMPLOYMENT OF KEY MANAGEMENT; A CHANGE IN CONTROL OF THE COMPANY DUE TO THE
CONVERSION BY DINGAAN HOLDINGS, S.A. OF ITS SERIES B PREFERRED STOCK OR OTHER
EVENTS.
LIQUIDITY AND CAPITAL RESOURCES. The Company requires capital to support
its new operations and general and administrative expenses of the Company in its
search for viable acquisitions.
The Company requires capital to support the injection molding operations
and general and administrative expenses of the parent company, as it searches
for viable acquisitions, and overseas the investments in its subsidiaries.
At June 30, 1999, the Company had cash and cash equivalents of $210,035
compared to cash and cash equivalents of $600,231 at June 30, 1998. This
decrease of $390,196 resulted from the purchases of property and equipment in
the amount of $371,294, the purchase of investments and notes receivable of
$656,000 and the use of cash in operations of $525,900. The Company cashed the
CD which increased the cash position $500,000. The Company also raised $350,000
from the issuance of it's Series A, 6% cumulative preferred stock.
The funding sources currently available to the Company include potential
public or private offerings and additional issuances of the Series A preferred
stock to private investors. The Company has current plans to raise additional
funds in its subsidiary Precision Plastics through private placements of its
common stock or preferred stock to assist with the capital requirements of
additional acquisitions and to consolidate debt. There are however no third
party financing arrangements in place at this time. Therefore, the Company's
sole source of operating capital for the foreseeable future is likely to be from
current cash reserves and collection on the notes receivable.
13
<PAGE>
Principal uses of working capital will include payment of the Company's
general and administrative expenses and the payment of notes associated with the
purchase of assets by Precision. There is currently no requirement to pay
accrued and unpaid dividends on its previously outstanding shares of Series S 6%
Preferred Stock and no dividends are payable on its Series B Preferred Stock.
The Company has accrued dividends to the new Series A Preferred shareholders in
the amount of $2,751, which were paid subsequent to the year end.
The Company believes that its existing cash balances and net cash flows
from operations (if any) will be sufficient to meet the Company's cash
requirements for the next 12 months. However, the foregoing and the Company's
ability to operate profitably are subject to material uncertainties. See Item 6
"Results of Operations for the Fiscal Years Ended June 30, 1999 and 1998".
ITEM 7. FINANCIAL STATEMENTS.
The following financial statements are attached hereto and incorporated
herein:
Heading Page
------- ----
Independent Auditor's Report F-1
Predecessor Independent Auditor Report F-2
Balance Sheets for the Years Ended
June 30, 1998 and 1997 F-3
Statements of Operations for the Years Ended
June 30, 1998 and 1997 F-4
Statements of Stockholder's Equity for the years ended
June 30, 1998, 1997 and 1996 F-5
Statements of Cash Flows for the years ended
June 30, 1998, 1997 and 1996 F-6
Notes to Financial Statements F-8
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
As reported on Form 8-K dated July 17, 1998, the Company changed
accountants, without any disagreement or adverse opinion or disclaimer.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
GENERAL.
The following information is provided for each of the executive officers
and directors of the Company:
DAVID WESTFERE, 33, has been a Director, President and Chief Executive and
Operating Officer of the Company since April 6, 1995, and was General Manager of
Operations from January 1991 to April 1995. He also acts as president of
Precision Plastics, Inc., a subsidiary of the Company. Mr. Westfere presently
works part time for the Company, and is also presently the owner-operator of a
towing service company. From 1988 until 1990 he was the route supervisor for the
Company's pay telephone operation in Bakersfield, California, and from 1990
until 1991 he was the route supervisor of the Company's pay telephone operation
in Phoenix, Arizona. From September 1984 to June 1987 Mr. Westfere attended the
University of Akron.
TODD D. CHISHOLM, 37, has been a Director of the Company since June 27,
1995. From June 1990 until September 1992 he was employed as a staff accountant
by Orton & Company, Certified Public Accountants, and from September 1992 until
June 1994 he was employed as audit manager by Jones, Jensen, Orton & Company,
14
<PAGE>
Certified Public Accountants. Since June 1994 he has been self-employed as a
certified public accountant. Since April 1995 he has also been the
vice-president and chief financial officer of The Solarium, Inc., a privately
held travel and tanning center. Mr. Chisholm received a bachelor of arts degree
in business from the University of Utah. He has been a certified public
accountant since 1992.
The Registrant also employs Mr. Chisholm as it's CFO and
Secretary/Treasurer. Mr. Chisholm, performs accounting services for the
Registrant for which he is paid a flat fee of $920 per month for compilation and
payroll services and is paid an hourly fee for any additional work. It is
believed that the terms of the arrangement between Mr. Chisholm and the
Registrant are at least as favorable as terms that could be obtained with a
non-affiliated party.
ITEM 10. EXECUTIVE COMPENSATION.
The following table set forth the aggregate executive compensation earned by or
paid to current management of the Company for the fiscal year ended June 30,
1999, 1998 and 1997.
Annual Compensation
------------------- Other Annual
Name and Principal Positions Year Salary Bonus Compensation
- ---------------------------- ---- ------ ----- ------------
David Westfere, President (1) 1999 $38,400 $10,000 $ 19,994
1998 $36,800 $ 0.00 $ 51,787 (2)
1997 $36,800 $ 0.00 $42,429.81 (3)
Todd D. Chisholm 1999 $ 0.00 $10,000 $ 0.00
1998 $ 0.00 $ 0.00 $ 0.00
1997 $ 0.00 $ 0.00 $ 0.00
(1) The Company did not pay any long-term compensation to Mr. Westfere
during the above periods.
(2) During the fiscal year 1999, the Company paid (i) health insurance
premiums of approximately $6,000 and (ii), $33,000 to C&N, Inc., a company
controlled by Mr. Westfere, for management services. See "Item 12 -- Certain
Relationships and Related Transactions.
(3) The Company paid health insurance premiums of $5,920 for Mr. Westfere
and his family during the fiscal year 1998. The Company also paid a total of
$36,000 to C&N, Inc., a company controlled by Mr. Westfere, for management
services during such period.
(4) During the fiscal year 1997, the Company paid health insurance premiums
for Mr. Westfere and his family of $6,429.91 and $36,000 to C&N, Inc., a
corporation controlled by Mr. Westfere.
No executive officer of the Company received compensation exceeding
$100,000 for the fiscal years ended June 1999, 1998, 1997.
COMPENSATION OF DIRECTORS. Directors are permitted to receive fixed fees
and other compensation for their services as directors, as determined by the
Board of Directors. No such fees were paid to the Company's directors for the
fiscal year 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information concerning the Common
Stock ownership as of June 30, 1998, of (i) each person who is known to the
Company to be the beneficial owner of more than five percent of the Company's
Common Stock; (ii) all directors; (iii) each of the Company's executive
officers; and (iv) directors and executive officers of the Company as a group:
15
<PAGE>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership
---------------- --------------------
Oak Holdings, Inc. 2,500,000 (1)
Apartado 63685
Panama, Republic of Panama
Cede & Co. 3,433,162 (2)
P.O. Box 222
Bowling Green Station
New York, New York 10274
Todd D. Chisholm 15,000
50 West Broadway
Suite 1130
Salt Lake City, Utah 84101
David Westfere -0-
105 E. Ellis Drive
Tempe, AZ 85282
Directors and Executive Officers 15,000
as a Group (2 persons)
(1) These shares are held and of record by Oak Holdings, Inc., Grafton
Holdings, S.A. ("Grafton") has indicated that it has direct beneficial ownership
of such shares. However, the Company believes that Grafton has indirect
ownership of such shares as the sole corporate director of Oak Holdings, Inc..
As the sole corporate director of Oak Holdings, Inc., Grafton has represented to
the Company that it is responsible for the management of Oak Holdings, Inc. Mr.
Baily has indicated to the Company that he has indirect beneficial ownership of
such shares by virtue of being a controlling shareholder of Oak Holdings, Inc.
with Pedro Coronado.
(2) Represents shares held for the benefit of individual shareholders in
the "street name" of Cede & Co., an entity which exists to perform that
function.
The above table and footnotes reflects the removal of certain entities
which no longer own 5% or more of the outstanding Common Stock.
As of September 24, 1999, the Company had outstanding 15,300 shares of
Series B Preferred Stock, all of which shares were owned of record by Dingaan
Holdings, S.A.. and 100 shares held by Hanes Development, Ltd.
There are no arrangements known to the Company, the operation of which may
at a subsequent date result in a change of control of the Company. However, if
at any time Dingaan should elect to convert its shares of Series B Preferred
Stock into shares of Common Stock, control of the Company would change to that
entity upon such conversion.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Mr. Chisholm, a director of the Company, performs accounting services for
the Company. He is paid a flat fee of $920 per month for compilation and payroll
services and is paid an hourly fee for any additional work. It is believed that
the terms of the arrangement are at least as favorable as the terms that could
be obtained with a non-affiliated party.
16
<PAGE>
CERTAIN TRANSACTIONS. On May 1, 1999, the Company loaned two hundred
thousand dollars ($200,000) to C&N, Inc., a company controlled by David
Westfere. As consideration for making the loan, C&N, Inc gave up it's rights to
payments from the Company to C&N, Inc for it's management services. The loan was
fully repaid to the Company on July 15, 1999. The Company has no equity
ownership either in C&N, Inc. or in affiliates of C&N, Inc.
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K.
(a) The following exhibits are furnished with this Report pursuant to Item
601 of Regulation SB-2.
Exhibit No. Description of Exhibit Page
- ----------- ---------------------- ----
3 (i) Articles of Incorporation as amended *
3 (ii) Bylaws of the Company, as currently in effect *
3 (iii) Certificate regarding Series A 6% Preferred Stock ***
3 (iv) Certificate of Amendment of Articles of
Incorporation, dated June 20, 1997 ***
3 (v) Articles of Incorporation - Precision Plastics
Molding, Inc. *3
3 (vi) Bylaws - Precision Plastics Molding, Inc. *3
4 (a) Form of certificate evidencing shares of
Common Stock *
4 (b) Form of certificate evidencing shares of
Series A 6% Preferred Stock ***
10.1 Assignment and Assumption of Liabilities Agreement **
10.2 Stock Purchase Agreement dated April 3, 1995
between Oak Holdings and Teletek, Inc. ****
10.3 Consulting Agreement dated April 6, 1995, between
the Company and Michael Swan ****
10.4 Consulting Agreement dated January 1, 1995, between
the Company and C&N, Inc. ***
10.5 Severance Agreement dated October 3, 1996 between
the Company and Michael Swan *2
10.6 Form 12b-25 dated September 27, 1997 *****
10.7 Stock Purchase Agreement between Teletek, Inc. and
Dingaan Holdings, S.A. dated December 1, 1996
(change in control of registrant) ******
10.8 Asset Purchase Agreement between the Company,
Precision and Premier Plastics Corp, dated
June 15, 1998. *3
10.9 Asset Purchase Agreement between the Company,
Precision and Accurate Thermoplastics, Inc.,
dated July 15, 1998 *3
17
<PAGE>
10.10 Preferred Stock Exchange Agreement Dingaan/DEI *3
10.11 Stock Purchase Agreement - GoProfit.Com, Inc. E-1
10.12 Correction Agreement - GoProfit.Com, Inc. E-2
Incorporated
10.13 Form 12b-25 -- Filed 9-28-99 by reference
27 Financial Data Schedule
- ----------
* Incorporated by reference to the exhibits with the Company's registration
statement on Form 10-SB (Commission File No. 0-24138) filed with the Securities
and Exchange Commission on May 13, 1994.
** Incorporated by reference to the exhibits filed with the Company's 1994
annual report on Form 10-KSB (Commission File No. 0-24138) filed with the
Securities and Exchange Commission on October 13, 1994.
*** Incorporated by reference to the exhibits filed with the Company's
registration statement on Form SB-2 (Commission File No. 33-85884).
**** Incorporated by reference to the exhibits filed with the Company's Current
Report on form 8-K (Commission File No. 0-24138) filed with the Securities and
Exchange Commission on December 1, 1996.
***** Incorporated by reference to the Company's Form 12b-25 dated September 27,
1997.
****** Incorporated by reference to the Company's Report on Form 8-K (Commission
File No. 0-24138) filed with the Securities and Exchange Commission on March 15,
1997.
*2 Incorporated by reference to the exhibits filed with the Company's 1996
Annual Report on Form 10-KSB (Commission file No. 0-24138) filed with the
Securities and Exchange Commission on October 11, 1996.
*3 Incorporated by reference to the exhibits filed with the Company's Form
10-KSB filed with the Commission on September 28, 1998.
18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DIAMOND EQUITIES, INC.
- ----------------------
Registrant
By: /s/ David D. Westfere
----------------------------
David D. Westfere, President
Date: October 12, 1999
By: /s/ Todd D. Chisholm
----------------------------
Todd D. Chisholm, Chief Financial Officer
Date: October 12, 1999
19
<PAGE>
FORM 10-KSB
DIAMOND EQUITIES, INC.
FINANCIAL STATEMENTS
Independent Auditor's Report............................................... F-1
Balance Sheets for the Years Ended June 30, 1998 and 1997.................. F-2
Statements of Operations for the Years Ended June 30, 1998 and 1997........ F-5
Statements of Stockholder's Equity for the years ended June 30, 1998, 1997
and 1996................................................................... F-7
Statements of Cash Flows for the years ended June 30, 1998, 1997 and 1996.. F-8
Notes to Financial Statements.............................................. F-9
19
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Diamond Equities, Inc.:
We have audited the accompanying consolidated balance sheet of Diamond Equities,
Inc. and subsidiaries (the "Company"), as of June 30, 1999 and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the two years in the period ended June 30, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Diamond
Equities, Inc. at June 30, 1999 and the consolidated results of their operations
and their cash flows for each of the two years in the period ended June 30,
1999, in conformity with generally accepted accounting principles.
KING, WEBER & ASSOCIATES, P.C.
Tempe, Arizona
September 16, 1999
F-1
<PAGE>
DIAMOND EQUITIES, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 210,035
Accounts receivable (net of allowance of $13,606) 199,338
Notes receivable - current portion 274,535
Other receivable 205,000
Interest receivable 15,939
Inventories 184,143
Prepaid expenses 37,744
-----------
Total current assets 1,126,734
PROPERTY, MACHINERY AND EQUIPMENT, net 1,535,717
OTHER ASSETS 147,963
NOTES RECEIVABLE - noncurrent portion 224,388
-----------
TOTAL ASSETS $ 3,034,802
===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 330,329
Accrued liabilities 62,409
Preferred stock dividends payable 196,774
Customer deposits 8,809
Capital lease obligations - current portion 33,435
Notes payable - current portion 165,007
-----------
Total current liabilities 796,763
CAPITAL LEASE OBLIGATIONS - LONG-TERM PORTION 4,378
NOTES PAYABLE - LONG-TERM PORTION 114,787
-----------
Total liabilities 915,928
-----------
MINORITY INTEREST 241,203
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Series A 6%, $0.001 par value, convertible,
18,000 shares authorized, 350 issued and outstanding,
liquidation preference of $350,000 1
Preferred Series B, convertible, 18,000 shares authorized,
15,900 issued and outstanding 1,605,540
Common stock, $0.001 par value, 50,000,000 shares
authorized, 7,366,099 issued and outstanding 7,366
Paid in capital 4,130,066
Accumulated deficit (3,865,302)
-----------
Total stockholders' equity 1,877,671
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,034,802
===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE>
DIAMOND EQUITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
1999 1998
----------- -----------
NET SALES $ 1,368,510 $
COST OF SALES 1,063,840
----------- -----------
Gross Profit 304,670 0
----------- -----------
OPERATING EXPENSES
Salaries expense 370,259 117,217
General and administrative expenses 534,447 237,883
Selling expenses 103,627
----------- -----------
Total 1,008,333 355,100
----------- -----------
Operating loss (703,663) (355,100)
OTHER (INCOME) AND EXPENSES
Allowance for note and related account receivable 441,213
Interest income (35,919) (53,179)
Interest expense 63,665 2,849
Loss on legal settlement 22,452
Loss on sale of assets 12,861
Other income (15,300) (6,359)
----------- -----------
Total other expense 47,759 384,524
----------- -----------
LOSS FROM CONTINUING OPERATIONS BEFORE
MINORITY INTEREST AND EXTRAORDINARY ITEM (751,422) (739,624)
MINORITY INTEREST 76,588 5,114
----------- -----------
LOSS FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEM (674,834) (734,510)
EXTRAORDINARY ITEM:
Debt forgiveness income 48,624
----------- -----------
LOSS FROM CONTINUING OPERATIONS (626,210) (734,510)
DISCONTINUED OPERATIONS
Loss from discontinued operations -- (35,413)
----------- -----------
NET LOSS $ (626,210) $ (769,923)
=========== ===========
BASIC NET LOSS PER COMMON SHARE
Continuing operations before extraordinary item $ (0.13) $ (0.16)
Extraordinary item 0.01 --
----------- -----------
Total - continuing operations (0.12) (0.16)
Discontinued operations -- (0.01)
----------- -----------
Total $ (0.12) $ (0.17)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,161,715 4,666,099
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
DIAMOND EQUITIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREFERRED STOCK
------------------------------------
COMMON STOCK SERIES A SERIES B
----------------- ADDITIONAL --------------- ------------------ ACCUMULATED
SHARES AMOUNT PAID-IN SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
------ ------ ------- ------ ------ ------ ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE JULY 1, 1997 4,666,099 $4,666 $ 2,582,282 18,000 $1,817,591 $(2,465,790) $1,938,749
Net loss (769,923) (769,923)
--------- ------ ----------- ------ ------ ------ ---------- ----------- ----------
BALANCE JUNE 30,1998 4,666,099 4,666 2,582,282 18,000 1,817,591 (3,235,713) 1,168,826
Conversion of Series B 2,100,000 2,100 209,951 (2,100) (212,051) 0
Stock issued for acquisition 600,000 600 359,400 360,000
Issuance of Series A 349,999 350 $ 1 350,000
Stock issued by subsidiary 628,434 628,434
Preferred dividends (3,379) (3,379)
Net loss (626,210) (626,210)
--------- ------ ----------- ------ ------ ------ ---------- ----------- ----------
BALANCE JUNE 30, 1999 7,366,099 $7,366 $ 4,130,066 350 $ 1 15,900 $1,605,540 $(3,865,302) $1,877,671
========= ====== =========== ====== ====== ====== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
DIAMOND EQUITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
1999 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (626,210) $ (769,923)
Adjustments to reconcile net loss to net cash used
in operating activities of continuing operations:
Undistributed minority interest (76,588) (5,114)
Loss from discontinued operations 35,413
Depreciation and amortization 220,826 8,458
Allowance on note and accounts receivable 441,213
Forgiveness of debt (48,624)
Loss on disposal of equipment (12,861) 1,425
Loss on legal settlement 22,452
Notes receivable forgiven as compensation
for services 20,000
Changes in assets and liabilities
(net of acquisitions):
Accounts receivable 37,160 (9,697)
Interest receivable (14,355) 316
Inventories (95,175) (5,400)
Prepaid expenses (32,633) (5,111)
Other assets (24,950) (6,000)
Accounts payable 42,236 (8,068)
Accrued liabilities 53,936 (99,250)
Customer deposits 8,809
---------- ----------
Net cash flows used in continuing
operating activities (525,977) (421,738)
Net cash flows used in discontinued operations (123,511)
---------- ----------
Net cash used in operating activities (525,977) (545,249)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, machinery and equipment (371,294) (8,345)
Cash loaned for notes receivable (209,800) (35,750)
Payments received on notes receivable 109,800
Redemption (purchase) of certificates of deposit 505,404 (505,404)
Purchase of business assets net of cash acquired (346,429) (80,000)
Proceeds on liquidation of other assets 42,987
Cash committed and paid under investment agreement (100,000) (60,000)
---------- ----------
Net cash used in investing activities (369,332) (689,499)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on lines of credit (250,200) 250,200
Payments on notes payable (110,885)
Issuance of Preferred Series A 6% Cumulative stock 350,000
Proceeds from stock issued by subsidiary 618,250
Payment of dividends (628)
Principal payments on capital leases (101,424) (2,204)
---------- ----------
Net cash provided by financing activities 505,113 247,996
---------- ----------
DECREASE IN CASH (390,196) (986,752)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 600,231 1,586,983
---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 210,035 $ 600,231
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
DIAMOND EQUITIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
1999 1998
-------- --------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 59,521 $ 1,634
======== ========
Income taxes paid $ 800 $ 11,840
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
1999
Accounts payable assumed in asset purchase $176,859
========
Capital leases assumed in asset purchase $185,733
========
Note payable assumed in asset purchase $ 94,639
========
Notes payable issued in asset purchase $390,679
========
Equipment acquired under capital lease $ 8,097
========
Value of common stock issued in asset purchase $360,000
========
Accounts receivable offset against note payable
Balance forgiven $ 46,015
========
Note payable forgiven $ 94,639
========
Equipment returned to lessor (net of depreciation
of $21,034) $ 98,966
========
Capital lease obligation settled by equipment return $ 86,105
========
Forgiveness of officer receivables and interest $ 20,000
========
1998
Accounts payable assumed in asset purchase $ 6,490
========
Capital leases assumed in asset purchase $ 33,716
========
Value of subsidiary common stock issued
in asset purchase $ 75,000
========
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
DIAMOND EQUITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts and activity of
Diamond Equities, Inc. and its majority owned subsidiaries Precision
Plastics Molding, Inc. and GoProfit.com, Inc. (the "Company"). All
significant intercompany transactions and balances have been eliminated in
consolidation.
The Company was previously in the business of locating sites and installing
pay telephone equipment. The Company would pay commissions to the owners of
the sites where its equipment was located and earned its revenue based on
pay telephone charges to customers. On November 15, 1996, the Company sold
all of its pay-telephone assets, its only business segment, to Tru-Tel
Communications, LLC. The discontinued operations were located in the
southwestern United States. The Company changed its name to Diamond
Equities, Inc. on June 20, 1997 and has since been seeking acquisition
targets. On June 15, 1998 the Company's wholly owned subsidiary, Precision
Plastics Molding, Inc. ("Precision"), purchased the assets of a plastic
injection molding business. Operations of Precision are included for the
period June 15, 1998 through June 30, 1998 in the accompanying statement of
operations for the year ended June 30, 1998. On July 20, 1998 Precision
purchased the assets of a second plastic injection molding business. The
new businesses are located in Arizona and business is generated in the
southwestern United States.
On April 5, 1999, the Company acquired all of the common stock of
GoProfit.com, Inc. ("GoProfit"). GoProfit is a development stage enterprise
in the process of developing a Internet web site and financial search
engine for the Internet. GoProfit intends to begin operating its web site
by September 1999. Goprofit intends to earn revenue through advertising on
its web site. GoProfit was formed in March 1999.
GoProfit will be required to raise substantial equity capital to implement
its business plan. Subsequent to the Company's acquisition, GoProfit raised
additional capital which reduced the Company's holdings of GoProfit to
approximately 76% at June 30, 1999. The Company has no obligation to fund
the operations of GoProfit. There can be no assurances that GoProfit will
raise additional funding for this business or that operations will be
successful.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS include all short-term highly liquid investments
that are readily convertible to known amounts of cash and have original
maturities of three months or less.
INVENTORIES consist of finished goods, work in process and raw materials
and are stated at the lower of cost (specific identification) or market.
INCOME TAXES - The Company provides for income taxes based on the
provisions of Statement of Financial Accounting Standards No. 109,
ACCOUNTING FOR INCOME TAXES, which among other things, requires that
F-7
<PAGE>
recognition of deferred income taxes be measured by the provisions of
enacted tax laws in effect at the date of financial statements.
PROPERTY, MACHINERY AND EQUIPMENT are stated at cost and are depreciated on
the straight-line method over their respective estimated useful lives
ranging from 3 to 7 years.
REVENUE RECOGNITION - The Company recognizes revenue upon shipment of
product.
ADVERTISING EXPENSES - The Company expenses advertising costs as incurred.
Advertising expenses were $16,884 and $0 for the years ended June 30, 1999
and 1998, respectively.
FINANCIAL INSTRUMENTS - Financial instruments consist primarily of cash,
restricted cash, accounts receivable, notes receivable, investments and
obligations under accounts payable, accrued expenses, debt, and capital
lease instruments. The carrying amounts of cash, restricted cash, accounts
receivable, accounts payable, accrued expenses and short-term debt
approximate fair value because of the short maturity of those instruments.
The carrying value of the Company's capital lease arrangements approximates
fair value because the instruments were valued at the retail cost of the
equipment at the time the Company entered into the arrangements. Fair value
of officer notes receivable cannot be estimated because of the nature of
the relationship with the creditor. The fair value of the note receivable
related to the business segment disposal is discussed in Note 5. The fair
value of the investment (Note 4) is estimated to be its cost based on the
negotiated amount of the investment and the short period of time that has
elapsed as of June 30, 1999, from when the investment was made.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
LOSS PER COMMON SHARE - Net loss per common share is calculated under the
provisions of SFAS No. 128 EARNINGS PER SHARE, by dividing net loss by the
weighted average number of common shares outstanding.
SOFTWARE DEVELOPMENT COSTS - The costs incurred by GoProfit to develop its
software related to its Internet web site have been capitalized in
accordance with Statement of Position 98-1 ACCOUNTING FOR COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. All costs associated with
the development costs, primarily personnel and outside consultants,
incurred from the application development stage and forward are capitalized
and included in property and equipment in the accompanying balance sheet.
GoProfit capitalized $227,619 in such costs in the year ended June 30,
1999. Costs will begin to be amortized when the web site begins operation.
3. INVESTMENT
The Company entered into an investment agreement in June 1999 to provide
$100,000 to a company in exchange for 200,000 shares of the company's
common stock and repayment of the loan at 8% interest per annum. The
agreement stipulates that the funds are to be held in a separate account
F-8
<PAGE>
and used by the investee to pay agreed upon expenditures. The shares are
being held by a transfer agent and are to be issued ratably as expenditures
are approved and paid. Interest only payments are due quarterly and are to
commence August 2, 1999 and continue through June 2, 2001 at which time the
outstanding principal balance is due. The loan is secured by the all of the
assets of the investee. At June 30, 1999, $82,850 had been advanced and the
balance of $17,150 remains in the special restricted account. The total
investment balance of $100,000 is included in other assets in the
accompanying balance sheet.
4. CASH AND CASH EQUIVALENTS
The Company maintains cash balances at banks in Arizona and California.
Accounts are insured by the Federal Deposit Insurance Corporation up to
$100,000. At June 30, 1999, the Company's uninsured bank balances total
$7,336.
5. NOTES RECEIVABLE
Notes receivable consist of the following at June 30, 1999:
Note receivable, sale of assets $ 283,173
Loan to affiliate 200,000
Other receivables 15,750
---------
Total 498,923
Less current portion 274,535
---------
Long-term portion $ 224,388
=========
On November 15, 1996 the Company sold all of its assets related to the
operation of the pay-telephone business. In connection with the sale of the
assets, the Company received a note receivable of $811,250. The note was
payable to the Company in monthly installments of $14,000 including
interest at 8% per annum, which were to commence February 15, 1997, with
the balance due January 15, 2002. No payments had been received on the note
through June 30, 1998 and the Company commenced legal proceedings to
collect the amount. An allowance of $405,625 was established at June 30,
1998. A settlement was reached in March 1999 in the amount of $450,000
including a $100,000 payment that was received at time of settlement. The
remaining balance is to be paid in quarterly installments of $21,875
commencing July 31, 1999. Management has established the discounted value
of the note of $283,173 using a rate of 10%. The Company incurred a net
loss of $22,452 in the year ended June 30, 1999, on the basis of the
discounted value of the settlement agreement and the carrying amount of the
note at the time of the settlement. Interest income was not recognized in
the years ended June 30, 1999 and 1998 while the parties were attempting to
resolve the matter.
The Company loaned $200,000 to an affiliate in June 1999. The note was
payable to the Company in monthly installments of interest only at 10% per
annum and the principal was due June 1, 2004. The note was repaid to the
Company on August 4, 1999.
F-9
<PAGE>
6. OTHER RECEIVABLE
GoProfit had common stock subscriptions of $205,000 outstanding at June 30,
1999. These subscriptions were committed under a note agreement that was
collected in July and August of 1999.
7. LOSS PER SHARE
<TABLE>
<CAPTION>
1999 1998
------------------------------------ -------------------------------------
Per Per
(Loss) Shares Share (Loss) Shares Share
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Loss $ (626,210) 5,161,715 $ (769,923) 4,666,099
Preferred Stock Dividends (1,874) --
---------- ----------
$ (628,084) $ (769,923)
========== ==========
BASIC EARNINGS PER SHARE
Loss Available to Common
Shareholders
Continuing operations $ (628,084) $ (0.12) $ (734,510) $ (0.16)
Discontinued operations 0 -- (35,413) (0.01)
---------- ---------- ---------- ----------
Total $ (628,084) 5,161,715 $ (0.12) $ (769,923) 4,666,099 $ (0.17)
========== ========== ========== ==========
Effect of Dilutive Securities
Preferred Stock N/A N/A
DILUTED EARNINGS PER SHARE N/A N/A
</TABLE>
Diluted earnings per share are not presented because the effect of
considering the convertible preferred stock would be antidilutive for both
years ending June 30, 1999 and 1998.
8. INVENTORIES
Inventories consist of the following at June 30, 1999:
Raw materials $ 47,617
Finished goods 136,526
---------
Total inventories $ 184,143
=========
9. PROPERTY, MACHINERY AND EQUIPMENT
Property, machinery and equipment consist of the following at June 30,
1999:
Equipment $ 900,546
Computer software technology 587,619
Computer equipment 123,544
Leasehold improvements 51,634
Furniture and fixtures 49,942
Office equipment 37,263
Vehicles 1,250
----------
Total 1,751,798
Less accumulated depreciation and amortization (216,081)
Property, machinery and equipment - net $1,535,717
==========
F-10
<PAGE>
Depreciation expense for the years ended June 30, 1999 and 1998 was
$220,826 and $8,458, respectively. In the Company's purchase transaction of
GoProfit, the excess of the purchase price over the fair value of tangible
net assets of GoProfit in the amount of $360,000 was allocated to the
software technology.
10. BUSINESS ACQUISITIONS
In June 1998, the Company, through its Precision subsidiary, purchased
substantially all of the operating assets of Premier Plastics Corporation,
a plastic injection molding business in Tempe, Arizona, for an $80,000 cash
payment, the assumption of liabilities in the amount of $40,000 and the
issuance of 300,000 shares of common stock of the subsidiary valued at
$75,000. The acquisition was recorded under the purchase method of
accounting. The aggregate purchase price of $195,000 has been allocated to
the assets acquired and liabilities assumed based on their respective fair
market values. The aggregate consideration paid approximated the fair
market value of the net assets acquired and no goodwill was recorded. The
operating results of Premier Plastics are included in the accompanying
consolidated financial statements for the period June 15, 1998 through June
30, 1998. The Company issued 50,000 shares each to two officers of the
Company subsequent to the acquisition decreasing the Company's ownership
interest to approximately 87% at June 30, 1999.
The following summarizes unaudited pro forma consolidated financial
information assuming that the acquisition of Premier Plastics Corporation
occurred on July 1, 1997:
Net Sales $ 307,601
Net Loss $(693,432)
Loss per Share $ (0.15)
The pro forma financial information is presented for informational purposes
only and may not necessarily reflect the results had Premier Plastics
Corporation actually been acquired on July 1, 1997, nor is this information
indicative of the future consolidated results.
On July 20, 1998, the Company, through its Precision subsidiary, purchased
substantially all of the operating assets of Accurate Thermoplastics, Inc.,
a plastic injection molding business in Mesa, Arizona, for a purchase price
of $560,000. The purchase price consisted of a $375,000 cash payment, a
promissory note in the amount of $185,000, and the assumption of specified
liabilities totaling $662,911. The note is secured by the assets and bears
interest at 8%. The Company was in default on this note at June 30, 1999
(Note 12). The acquisition was recorded under the purchase method of
accounting. The aggregate purchase price of $1,222,911 has been allocated
to the assets acquired and liabilities assumed based on their respective
fair market values. The aggregate consideration paid approximated the fair
market value of the net assets acquired and no goodwill was recorded. The
operating results are included in the accompanying consolidated financial
statements for the period July 20, 1998 through June 30, 1999. The
consolidated operating results would not have been significantly different
if the operations of Accurate Thermoplastics, Inc. had been included from
July 1, 1998.
F-11
<PAGE>
On April 5, 1999, the Company acquired all of the common stock of
GoProfit.com, Inc. ("GoProfit") for 600,000 shares of its common stock.
GoProfit is a development stage enterprise in the process of developing a
Internet web site and financial search engine for the Internet. GoProfit
intends to begin operating its web site by September 1999. GoProfit was
incorporated in March 1999, and there were no material operations prior to
its acquisition by the Company. The acquisition was recorded under the
purchase method of accounting. The aggregate purchase price was valued at
$360,000 which was determined by the estimated value of the Company's stock
at the time of the transaction. The average between the bid and ask price
had been approximately $1 per share. The shares issued to the stockholders
of GoProfit contained restrictions. The $1 per share value was discounted
to $0.60 per share due to those restrictions. The operations of GoProfit
are included in the accompanying statement of operations from April 5, 1999
through June 30, 1999. The excess of the purchase price over the fair value
of tangible net assets of GoProfit in the amount of $360,000 was allocated
to the software technology. GoProfit raised additional capital through the
sale of common stock subsequent to the Company's acquisition. The result of
those stock sales reduced the Company ownership in GoProfit to
approximately 76% at June 30, 1999. A shareholder of the Company is also a
shareholder in the minority interest of GoProfit.
11. CUSTOMER DEPOSITS
The Company requires a fifty percent deposit at time of order placement for
tool work and recognizes the deposit as revenue upon shipment of order.
12. NOTES PAYABLE
Notes payable at June 30, 1999 consist of the following:
Note payable, collateralized by the assets of a subsidiary,
interest at 8.0%, interest and principal due in two
installments of $105,000 and $80,000 by January 16, 1999 $ 116,325
Commitment payable, monthly payments of $5,000 due
through July 2002. Original face value of $240,000 163,469
---------
Total 279,794
Less current portion (165,007)
---------
Long-term portion $ 114,787
=========
F-12
<PAGE>
The Company is in default on the note payable at June 30, 1999 and
accordingly, the entire balance of $116,325 is classified as current. The
debt is payable to the former owner of the assets purchased in July 1998.
The Company is negotiating with the note holder and is attempting to
restructure the note.
Future maturities of principal at June 30, 1999 are as follows:
2000 $ 165,007
2001 52,723
2002 57,098
2003 4,966
---------
Total $ 279,794
=========
13. FORGIVENESS OF DEBT
The Company was performing services in lieu of payments on a $94,639 note
payable assumed in the July 1998 acquisition during the year. In March 1999
an agreement was reached with the holder of the note to return all material
and tooling belonging to the holder and offset $46,015 owing from the
holder against the note balance, resulting in a gain of $48,624. The amount
is presented as an extraordinary item in the accompanying statement of
operations for the year ended June 30, 1999. There is no tax effect of the
extraordinary item.
14. INCOME TAXES
The Company recognizes deferred income taxes for the differences between
financial accounting and tax bases of assets and liabilities. Income taxes
for the years ended June 30, consisted of the following:
1999 1998
--------- ---------
Current tax benefit $(252,964) $(134,551)
Deferred tax provision 252,964 134,551
--------- ---------
Total income tax provision $ -0- $ -0-
========= =========
A deferred tax liability of $121,350 at June 30, 1999 relates primarily to
the difference in the financial accounting and tax bases of the note
receivable related to the sale of business assets in fiscal 1997. A
deferred tax asset of $1,108,607 relates primarily to net operating loss
carryforwards at June 30, 1999 of $2,632,000 for both federal and state
purposes and a credit for alternative minimum tax purposes of $11,740. The
federal carryforwards expire in fiscal 2009 through 2018. The state
carryforwards expire in fiscal 2000 through 2004. The net deferred income
tax asset balance of $987,257 is offset by an equal valuation allowance at
June 30, 1999.
F-13
<PAGE>
Deferred income taxes for the year ended June 30, 1998, relate to temporary
differences for the recognition of a deferred income tax asset for the net
operating loss carryforward. The valuation allowance was increased $300,736
from $420,000 (as restated) to $720,736, reflecting primarily the increase
in the 1998 current tax benefit and the $162,000 decrease in the deferred
income tax liability related to the allowance recorded on note receivable
which was accounted for under an installment method for income tax purposes
on the sale of assets in fiscal 1997.
Deferred income taxes for the year ended June 30, 1999, relate to temporary
differences for the recognition of a deferred income tax asset for the net
operating loss carryforward. The valuation allowance was increased by
$266,521. A decrease in the deferred income tax liability of $40,650
relates to the net change in the note receivable which was accounted for
under an installment method for income tax purposes on the sale of assets
in fiscal 1997.
A reconciliation setting forth the differences between the effective and
statutory tax rate is as follows:
1999 1998
-------------------- --------------------
Federal statutory rates (34.0)% $(212,911) (34.0)% $(261,774)
State income taxes (8.0) (50,097) (8.0) (61,593)
Valuation allowance of
operating loss carryforwards 42.6 266,521 39.2 301,810
Other, net (0.6) (3,513) 2.8 21,557
------ --------- ------ ---------
Effective rate -0-% $ -0- -0-% $ -0-
====== ========= ====== =========
15. LEASES
OPERATING LEASES
The Company leases its administrative office and operations facility under
operating leases that expire in August and July 1999, respectively. Rent
expense under these leases was approximately $96,000 and $12,000 for the
years ended June 30, 1999 and 1998. Minimum annual lease payments under
these agreements for the year ended June 30, 2000 are $7,983. Subsequent to
June 30, 1999, GoProfit entered into a lease agreement for new office space
that commits GoProfit for rent of $56,100 per year for three years.
CAPITAL LEASES
The Company leases production equipment under capital leases expiring
through June 2002. The following presents future minimum lease payments
under capital leases by year and the present value of minimum lease
payments as of June 30, 1999:
Year ended June 30:
2000 $ 34,229
2001 2,400
2002 2,400
--------
Total minimum lease payments 39,029
Less amount representing interest 1,216
--------
Present value of minimum lease payments 37,813
Current portion 33,435
--------
Long-term portion $ 4,378
========
Gross cost and accumulated amortization of equipment under the capital
leases at June 30, 1999 was approximately $245,000 and $46,301,
respectively.
F-14
<PAGE>
16. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company sold 350 shares of the Series A 6%, $0.001 par value,
Cumulative Preferred Stock for $350,000 during the year ended June 30,
1999. The Series A has a liquidation preference of $350,000. The share are
convertible to common stock at a rate equal to 75% the average bid price of
the common stock for a period of ten days prior to conversion. Dividends of
$1,874 are accrued at June 30, 1999.
During the year ended June 30, 1999, 2,100 shares of Series B Preferred
Stock were converted into 2,100,000 shares of common stock. Series B shares
are convertible into 1,000 shares of common stock for each share of
preferred. There are no cumulative dividends on the Class B preferred
stock.
COMMON STOCK
The Company issued 600,000 shares of common stock valued at $360,000 for
the purchase of all of the common stock of Go-Profit.
17. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily accounts receivable.
Approximately $142,000 of the accounts receivable balance at June 30, 1999
is due from two significant customers. Approximately 64% of the Company's
revenue for the year ended June 30,1999 was derived from three customers,
including 33% from one customer.
18. DISCONTINUED OPERATIONS
On November 15, 1996 the Company entered into an asset purchase agreement
with Tru-Tel Communications, LLC whereby all of the assets related to the
operation of the pay-telephone business were sold. Proceeds from the sale
included $1,688,750 cash and a promissory note (see Note 5) for $811,250.
Tru-Tel Communications, LLC assumed the Company's capital lease on
equipment and operating leases on facilities. The Company recorded a gain
on the sale of the assets of $1,848,279 after taxes. Revenues from the
discontinued operations totaled $835,858 for the year ended June 30, 1997.
The results of discontinued operations for the year ended June 30, 1998
represent the final settlement of an estimated sales tax liability that had
been contested by the Company. Because the tax benefit of the loss is
offset by a corresponding valuation allowance, there is no tax effect of
the loss from discontinued operations for the year ended June 30, 1998.
19. EMPLOYEE STOCK OPTION PLAN
The Company adopted an employee stock option plan in June 1998 pursuant to
which options may be granted to key employees, including officers, whether
or not they are directors, who are selected by the Board of Directors. The
exercise price of the options granted pursuant to the Plan shall be
determined by the Board of Directors on a case-by-case basis. Options are
exercisable over a three year period and only while the optionee remains an
employee of the Company, except that, in the event of an optionee's
termination of employment by reason of disability or death while an
employee. The aggregate number of shares that may be issued under the Plan
shall not exceed 900,000 shares. As of June 30, 1999, no options had been
granted under the Plan.
F-15
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20. RELATED PARTY TRANSACTIONS
The Company forgave loans of $10,000 each to two officers of the Company in
May 1999 including accrued interest of $973. The amount was treated as
compensation to the officers.
The Company pays $3,000 per month to C&N, Inc. ("C&N") for management
services. C&N is owned by an officer and director of the Company. The
agreement between the Company and C&N commenced on January 1, 1995 and is
renewable from year to year. The Company paid C&N $33,000 and $36,000 under
this agreement during the years ended June 30, 1999 and 1998, respectively.
The Company loaned C&N $200,000 in June 1999. The note was payable to the
Company in monthly installments of interest only at 10% per annum and the
principal was due June 1, 2004. The note was repaid to the Company on
August 4, 1999. Management fees to C&N were suspended while the note was
outstanding per the terms of the unsecured promissory note.
An officer and director of the Company performs accounting services for the
Company at a flat fee per month for compilation and payroll services and is
paid an hourly fee for any additional work. The Company paid $34,983 and
$28,610 to the officer's accounting firm for the years ended June 30, 1999
and 1998, respectively.
In October 1996 the Company entered into a Severance Agreement with a
former director of the Company pursuant to which the Company agreed to pay
$5,000 per month to the individual through April 1998. For the year ended
June 30, 1998 $2,217 is included in discontinued operations relating to
this agreement.
21. COMMITMENTS AND CONTINGENCIES
On June 15, 1998, the Company entered into an employment agreement with an
employee for an initial term of three years. The employee is to receive a
base salary ranging from $65,000 to $95,000 depending on annual sales and
shall be adjusted annually by the increase, if any, in the cost of living.
For each fiscal year in which the Company has positive earnings before
depreciation, interest and taxes (EBDIT) in the amount of $500,000, the
employee shall receive a bonus of 5% of EBDIT. The agreement is renewable
for additional three year terms.
The Company entered into an employment agreement with an employee on July
1, 1998 for an initial term of three years. The employee is to receive a
base salary of $36,000 and shall be adjusted annually by the increase, if
any, in the cost of living. The employee is entitled to an annual bonus as
determined by the Board of Directors.
GoProfit entered into a five year consulting agreement with one of its
stockholders. The agreement calls for payments of $5,000 per month. The
consultant is to provide strategic advice, consult on mergers and
acquisitions and assist GoProfit in securing capital.
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GoProfit has entered into agreements with third parties for the provision
of its search engine software and news and stock quote services for its
Internet web site. The commitment for the software at June 30, 1999 was
$115,000. The commitment for the news and query services at June 30, 1999,
was $48,000.
22. SUBSEQUENT EVENTS
On July 12, 1999, 600 shares of Series B Preferred Stock were converted
into 600,000 shares of common stock.
23. SEGMENT INFORMATION
The Company is operating in two business segments at June 30, 1999. The
Company operates a plastics injection molding operation through its
Precision Plastics subsidiary and intends to operate an Internet web site
through its GoProfit subsidiary. The parent Company has no business
operations that generate revenue. However, the parent Company incurs
expenses as it seeks additional business opportunities.
Precision GoProfit Parent Total
---------- ---------- ---------- ----------
Revenues $1,367,610 $ 900 $1,368,510
Segment loss $ (165,352) $ (164,107) $ (296,751) $ (626,210)
Total assets $1,260,617 $1,087,774 $ 686,411 $3,034,802
Capital expenditures $ 18,386 $ 361,005 $ 379,391
Depreciation $ 212,762 $ 785 $ 7,279 $ 220,826
* * * * * *
F-17
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is entered into this 5th day of
April 1999 by GOPROFIT.COM ("hereafter GP"), a Nevada corporation and the
shareholders of GOPROFIT.COM, INC. (Seller) with Diamond Equities, Inc., a
Nevada corporation ("Diamond").
RECITALS
GP operates a business primarily engaged in the Internet business. GP owns
contract rights, customer lists, intellectual property including trade secrets,
methods process, know-how, drawings, specifications and all memoranda, notes and
records with regard to any research and development ("Assets") and miscellaneous
assets used in connection with the operation of its business;
GP currently has issued and outstanding two million four hundred and fifty
thousand (2,450,000) shares of common stock ("Stock"). GP has not issued any
Preferred Stock, Warrants, or Options in relation to the common stock, however
Diamond recognizes that GP has set aside 735,000 Shares of common stock in the
form of Stock Options exercisable at $1.00 per share to serve as further
compensation to the following three groups: 245,000 shares of common stock for
Management; 245,000 shares of common stock for Consultants / Professional
Services Providers; 245,000 shares of common stock for Employee / Independent
Contractor Compensation. All three stock pools will vest at the same percentage
rate, based on the same target dates to be determined by GP's current board of
directors: Jeff Dalton, David Firestone, David Holifield, and Louis Torres. A
more complete description of GP's stock option program will be attached as an
exhibit to this document as soon as it is completed.
Purchaser desires to acquire one hundred percent (100%) of the Stock of GP and
make it a subsidiary of Diamond. Seller desires to sell such Stock to Purchaser;
and
WHEREAS, Seller's are the sole shareholders of GP; and
WHEREAS, Diamond Equities, Inc. is a public company
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
SECTION 1. ASSETS AND LIABILITIES.
1.1 ASSETS. Seller agrees to sell to Diamond and Diamond agrees to purchase from
Seller, on the terms and conditions set forth in this Agreement. Seller owns
stock in GP which has assets including contract rights, customer lists,
intellectual property including trade secrets, methods process, know-how,
drawings, specifications and all memoranda, notes and records with regard to any
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research and development ("Assets") and miscellaneous assets used in connection
with the operation of its business. Assets shall include all accounts
receivable, notes receivable, prepaid accounts, contracts, and any other assets
of the business specified herein.
1.2 LIABILITIES. Diamond shall not accept the assignment or assume
responsibility for any unfilled orders from customers of GP. Diamond shall not
assume or perform any of GP's obligations under
leases, agreements, and other contracts.
SECTION 2. EXCHANGE OF STOCK. Diamond and the Sellers will exchange stock as
follows:
2.1 At Closing, Diamond shall issue to Sellers six hundred (600) shares of Class
B Preferred Stock. The Preferred Stock will convert into six hundred thousand
(600,000) shares of common stock in Diamond.
2.2 At Closing, the Sellers shall transfer one hundred percent (100%) of the
outstanding shares of GP to Diamond. GP shall become a wholly owned subsidiary
of Diamond.
2.3 Piggyback Registration Rights. Diamond agrees that if is should elect to
file a registration statement, as referred to in this agreement, that Diamond
shall include on a one time basis at its own expense, those common shares into
which the Preferred Shares exchanged hereunder may be converted.
SECTION 3. SELLER'S AND GP'S REPRESENTATIONS AND WARRANTIES. GP and Seller each
represent and warrant to Diamond as follows:
3.1 CORPORATE EXISTENCE. Seller is now and on the Closing Date will be a
corporation duly organized and validly existing and in good standing under the
laws of the State of Nevada. GP has all requisite corporate power and authority
to own, operate and/or lease the Assets, as the case may
be, and to carry on its business as now being conducted.
3.2 AUTHORIZATION. The execution, delivery, and performance of this Agreement
have been duly authorized and approved by the board of directors and
shareholders of GP, and this Agreement constitutes a valid and binding Agreement
of Seller in accordance with its terms.
3.3 FINANCIAL STATEMENTS. Attached hereto as Exhibit A are GP's financial
statements. The Financial Statements are in accordance with the books and
records of GP and are true, correct, and complete; fairly present financial
conditions of GP at the dates of such Financial Statements and the results of
its operations for the periods then ended; and were prepared in accordance with
generally accepted accounting principles applied on a basis consistent with
prior accounting periods. Except as described in this Agreement, since March 31,
1999 there has been no material adverse change in the financial condition of GP.
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3.4 OWNERSHIP OF STOCK. Seller holds good and marketable stock certificates of
GP, free and clear of restrictions on or conditions to transfer or assignment,
and free and clear of liens, pledges, charges, or encumbrances. All
subscriptions must be paid before documents are signed.
3.5 BROKERS AND FINDERS. Neither Seller nor GP has employed any broker or finder
in connection with the transactions contemplated by this Agreement, or taken
action that would give rise to a valid claim against any party for a brokerage
commission, finder's fee, or other like payment.
3.6 TRANSFER NOT SUBJECT TO ENCUMBRANCES OR THIRD-PARTY APPROVAL. The execution
and delivery of this Agreement by Seller , and the consummation of the
contemplated transactions, will not result in the creation or imposition of any
valid lien, charge, or encumbrance on any of the Assets or Stock, and will not
require the authorization, consent, or approval of any third party, including
any governmental subdivision or regulatory agency.
3.7 LABOR AGREEMENTS AND DISPUTES. GP is neither a party to, nor otherwise
subject to any collective bargaining or other agreement governing the wages,
hours, and terms of employment of GP's employees. Neither Seller nor GP is aware
of any labor dispute or labor trouble involving employees of GP, nor has there
been any such dispute or trouble during the two years preceding the date of this
Agreement.
3.8 ERISA AND RELATED MATTERS. There are no "Employee Welfare Benefit Plans" or
"Employee Pension Benefit Plans" (as defined in (0)(0)3(1) and 3(2),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) existing on the date hereof that are or have been maintained or
contributed to by GP. There will be a management and employee stock option play.
3.9 NONCANCELLABLE CONTRACTS. At the time of Closing, there will be no material
leases, employment contracts, contracts for services or maintenance, or other
similar contracts existing or relating to or connected with the operation of
GP's business not cancelable within thirty (30) days, except those Agreements
listed on Exhibit B.
3.10 COMPLIANCE WITH CODES AND REGULATIONS. Seller and GP are not in violation
of any federal, state, or local government codes, ordinances, orders, or
regulations.
3.11 LITIGATION. Seller and GP have no knowledge of any claim, litigation,
proceeding, or investigation pending or threatened against Seller or GP that
might result in any material adverse change in the business or condition of
Assets or Stock being conveyed under this Agreement.
3.12 ACCURACY OF REPRESENTATIONS AND WARRANTIES. None of the representations or
warranties of Seller or GP contain or will contain any untrue statement of a
material fact or omit or will omit or misstate a material fact necessary in
order to make statements in this Agreement not misleading. Seller and GP know of
no fact that has resulted, or that in the reasonable judgment of Seller will
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result in a material change in the business, operations, or assets of GP that
has not been set forth in this Agreement or otherwise disclosed to Diamond.
SECTION 4. DIAMOND REPRESENTS AND WARRANTS AS FOLLOWS:
4.1 ORGANIZATION AND STANDING. Diamond is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Nevada, has all
requisite corporate power and authority to own, operate and lease its properties
and carry on its business as now conducted, and is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction in which
the failure to so qualify would have a material Adverse Effect. Whenever used in
this Section, "Material Adverse Effect" shall mean a material adverse effect on
the business, properties, prospects, conditions (financial or otherwise) or
result of operations of Diamond.
4.2 AUTHORITY, APPROVAL AND ENFORCEABILITY.
a. Subject to obtaining the required approval of the Diamond Board, which
approval shall be obtained prior to the Closing Date, Diamond has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement and all corporate action on its part
necessary for such execution, delivery and performance has been duly taken.
Any approval of the Transactions or any portion thereof by Diamond
shareholders shall be obtained in compliance with applicable corporate law
and, to the extent applicable, state and federal securities laws.
b. The execution and delivery of Diamond of the Agreement do not, and the
performance and consummation of the Transactions will not, result in or
give rise to (with or without giving of notice of the lapse of time, or
both) any conflict with, breach or violation of, or default, termination,
forfeiture or acceleration of obligations under, any terms or provision of
its (i) Articles of Incorporation or Bylaws, (ii) any statute, rule,
regulation or any judicial, governmental, regulatory or administrative
decree, order or judgment applicable to it, or (iii) any agreement, lease
or other instrument to which Diamond is a party or to which it or any of
its assets may be bound.
c. No consent, approval authorization, order, registration, qualification
or filing of or with any court or any regulatory authority or any other
governmental or administrative body is required on the part of Diamond for
the consummation by Diamond of the Transaction, except any approvals or
filings required under state "blue sky" laws.
d. This agreement is the legal, valid and binding obligation of Diamond,
enforceable against Diamond in accordance with the terms hereof, except as
such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally and subject to general equitable principals.
4.3 FINANCIAL STATEMENTS AND REPORTS. Diamond has delivered to the Company and
the Members complete copies of its audited financial statements for the year
ended June 30, 1998 and June 30, 1997 and for operation ended September 30,
1998, December 31, 1998 (the "Diamond Financial Statements"). The Diamond
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<PAGE>
Financial Statements (i) have been prepared from the books and records of
Diamond in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods indicated, (ii) are
complete and correct and present fairly the financial position of the Company as
of the respective dates and the results of its operations and cash flows for the
periods then ended, and (iii) contain and reflect adequate reserves for all
liabilities or obligations of any nature, whether absolute, contingent or
otherwise.
4.4 MATERIAL ADVERSE CHANGE. Since June 30, 1998, there has been no material
change in Diamond financial condition, assets or liabilities.
4.5 DIAMOND SHARES. The Diamond Shares to be issued to GP as contemplated
hereunder are (i) duly authorized, (ii) when issued and exchanged pursuant to
the terms of this Agreement, will be validly issued, fully paid, non-assessable
and not subject to any preemptive rights, and (iii) based in part upon the
representations of GP in this Agreement, shall be issued in compliance with all
applicable federal and state securities laws. The Diamond Common Stock issuable
upon conversion of Series B Preferred Stock issue pursuant to this Agreement has
been duly and validly reserved for issuance and, upon issuance in accordance
with the terms of the Certificate of Determination of the Rights, Preferences
and Privileges of the Series B Preferred Stock, shall be duly and validly
issued, fully paid and non-assessable.
4.6 LITIGATION. There are no (a) actions, proceedings or investigations pending
or any threat thereof, or verdicts or judgments entered against Diamond before
any court or before any administrative agency or officer or (b) violations by
Diamond of any foreign, federal, state or local laws, regulations or orders,
including but not limited to laws pertaining to workplace safety and
environmental clean-up.
4.7 TAX RETURNS AND PAYMENTS. Diamond has timely filed or caused to be filed and
accurately prepared all federal and state income tax returns and all other
federal and state tax returns which are required to be filed by Diamond. As of
the Closing, there are no (i) federal or state taxes that are due and owing by
Diamond, or (ii) penalties owed by Diamond for failure to timely file any
federal or state tax returns or pay any federal or state taxes. Diamond Ha no
knowledge that the federal and state tax returns of Diamond are now being or
have ever been audited by the Internal Revenue service, the Nevada Franchise Tax
Board, or Nevada State Board of Equalization or the applicable Arizona
Departments of Revenue, respectively, and no waivers of the applicable statute
of limitations have been executed.
4.9 REGISTRATION RIGHTS. Diamond is not a party to any "registration rights
agreement" or any similar agreement pursuant to which any person or entity would
have the right or cause, under any circumstances, the registration of Diamond
securities under the Securities Act of 1933, as amended.
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4.10 NO BROKER. Diamond is not obligated for the payment of fees or expenses of
any broker or finder in connection with the origin, negotiation or execution of
this Agreement or in connection with any transaction contemplated hereby or
thereby.
4.11 TAX-FREE CAPITALIZATION. Diamond has not entered into any agreement or
engaged in any transaction which would preclude the treatment of the
transactions contemplated hereby as a tax-free transfer of property to it solely
in exchange for its stock within the meaning of Section 351 of the Code.
4.12 DISCLOSURE; ACCURACY OF DOCUMENTS AND INFORMATION. Diamond and GP have
disclosed all events, conditions and facts materially affecting the business and
prospects of Diamond or GP. Diamond and GP have not withheld knowledge of any
such events, conditions or facts which Diamond or GP knows, or has reasonable
grounds to know, may materially affect Diamond's business and prospects. No
representation, warranty or statement made by Diamond or GP in this Agreement,
or any document furnished by Diamond pursuant to the terms of this Agreement, or
otherwise provided to Diamond or GP, when taken together with this Agreement in
its entirety and all such documents, contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
SECTION 5. COVENANTS OF SELLER AND GP.
5.1 GP'S OPERATION OF BUSINESS PRIOR TO CLOSING. Seller and GP agree that
between the date of this Agreement and the Closing Date, Seller and GP will:
5.1.1 Continue to operate the business that is the subject of this
Agreement in the usual and ordinary course and in substantial conformity with
all applicable laws, ordinances, regulations, rules, or orders, and will use its
best efforts to preserve its business organization and preserve the continued
operation of its business with its customers, suppliers, and others having
business relations with GP.
5.1.2 Not assign, sell, lease, or otherwise transfer or dispose of any of
the Assets used in the performance of its business, whether now owned or
hereafter acquired, except in the normal and ordinary course of business and in
connection with its normal operation.
5.1.3 Not issue, pledge, or promise any common stock, preferred stock,
options, or warrants of GP other than that disclosed in this agreement.
Seller and GP know of no fact that has resulted, or that in the reasonable
judgment of Seller will result in a material change in the business, operations,
or assets of GP that has not been set forth in this Agreement or otherwise
disclosed to Diamond.
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5.2 ACCESS TO INFORMATION. At reasonable times prior to the Closing Date, Seller
and GP will provide Diamond and its representatives with reasonable access to
the Assets, titles, contracts, and records of GP and furnish such additional
information concerning GP's business as Diamond from time to time may reasonably
request.
5.3 EMPLOYEE MATTERS.
5.3.1 Prior to Closing, GP will deliver to Diamond a list on Exhibit C of
the names of all persons on the payroll of GP, together with a statement of
amounts paid to each during GP's most recent fiscal year and amounts paid for
services from the beginning of the current fiscal year to the Closing Date. GP
will also provide Diamond with a schedule of all employee bonus arrangements and
a schedule of other material compensation or personnel benefits or policies in
effect. If not in effect they will be outlined in Exhibit C of this agreement.
5.3.2 Prior to the Closing Date, GP will not, without Diamond's prior
written consent, enter into any material agreement with any employees, increase
the rate of compensation or bonus payable to or to become payable to any
employee, or effect any changes in the management, personnel policies, or
employee benefits, except in accordance with existing employment practices.
SECTION 6. COVENANTS OF DIAMOND.
6.1 CONDITIONS AND BEST EFFORTS. Seller and GP will use their best efforts to
effectuate transactions contemplated by this Agreement and to fulfill all the
conditions of the obligations of Seller and GP under this Agreement, and will do
all acts and things as may be required to carry out their respective obligations
under this Agreement and to consummate and complete this
Agreement.
Diamond agrees on a best efforts basis, to assist GP in raising $400,000 working
capital and in immediately filing and SB-2 registration document for fund
raising, full reporting status and spin-off purposes to be completed and in
registration no later that 120 days from the execution date of this agreement.
Lou Torres and David Firestone will be copied on all SB-2 filing documentation.
On a best efforts basis, Diamond understand that it is obligated to perform the
following three tasks; (i) exchange 600 shares of Diamond Class B Preferred
Stock for all issued and outstanding shares of GP; (ii) make available within
120 days a total of $400,000 to be utilized in funding the GP Business Plan;
(iii) file and SB-2 registration document for full reporting status and spin-off
purposes to be completed and in registration no later than 120 days from the
execution date of this agreement. Inability to accomplish any one of these
requirements, at the option of GP, will result in the rescission of the
agreement and the return of the respectively exchanged stock.
6.2 CONFIDENTIAL INFORMATION. If for any reason the transactions are not closed,
Diamond will not disclose to third parties any confidential information received
from Seller or GP in the course of investigating, negotiating, and performing
the transactions contemplated by this Agreement.
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SECTION 7. CONDITIONS PRECEDENT TO DIAMOND'S OBLIGATIONS. The obligation of
Diamond to purchase the Stock is subject to the fulfillment, prior to or at the
Closing Date, of each of the following conditions, any one or portion of which
may be waived in writing by Diamond:
7.1 Diamond, after inspection of GP's premises, operations, financial and other
affairs, as provided in Paragraph 5, approves of the condition and affairs of
the Assets or financial results;
7.2 Diamond, on the Closing Date, shall receive all the Stock of Seller free and
clear of any liens, encumbrances or other obligations;
7.3 All representations and warranties made in this Agreement by Seller and GP
shall be true as of the Closing Date as fully as though such representations and
warranties had been made on and as of the Closing Date, and, as of the Closing
Date, neither Seller nor GP shall have violated or shall have failed to perform
in accordance with any covenant contained in this Agreement.
7.4 There shall have been no material adverse change in the manner of operation
of GP's business prior to the Closing Date.
7.5 At the Closing Date no suit, action, or other proceeding shall have been
threatened or instituted to restrain, enjoin, or otherwise prevent the
consummation of this Agreement or the contemplated transactions.
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND GP. The obligations
of Seller and GP to consummate the transactions contemplated by this Agreement
are subject to the fulfillment, prior to or at the Closing Date, of each of the
following condition:
8.1 REPRESENTATIONS, WARRANTIES, AND COVENANTS OF PURCHASER. All representations
and warranties made in this Agreement by Diamond shall be true as of the Closing
Date as fully as though such representations and warranties had been made on and
as of the Closing Date, and Diamond shall not have violated or shall not have
failed to perform in accordance with any covenant contained in this Agreement.
SECTION 9. DIAMOND'S ACCEPTANCE. Diamond represents and acknowledges that it has
entered into this Agreement on the basis of its own examination, personal
knowledge, and opinion of the value of the business. Diamond has not relied on
any representations made by Seller other than those specified in this Agreement.
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SECTION 10. INDEMNIFICATION AND SURVIVAL.
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made in this Agreement shall survive the Closing of this Agreement,
except that any party to whom a representation or warranty has bee made in this
Agreement shall be deemed to have waived any misrepresentation or breach of
representation or warranty of which such party had knowledge prior to Closing.
Any party learning of a misrepresentation or breach of representation or
warranty under this Agreement shall immediately give written notice thereof to
all other parties to this Agreement. The representations and warranties in this
Agreement shall terminate two (2) years from the Closing Date, and such
representations or warranties shall thereafter be without force or effect,
except any claim with respect to which notice has been given to the party to be
charged prior to such expiration date.
10.2 GP'S INDEMNIFICATION. GP hereby agrees to indemnify and hold Diamond, its
successors, and assigns harmless from and against:
10.2.1 Any and all claims, liabilities, and obligations of every kind and
description, contingent or otherwise, arising out of or related to the operation
of GP's business.
10.2.2 Any and all damage or deficiency resulting from any material
misrepresentation, breach of warranty or covenant, or non-fulfillment of any
agreement on the part of Seller and GP under this Agreement.
10.3 DIAMOND'S INDEMNIFICATION. Diamond agrees to defend, indemnify, and hold
harmless Seller from and against:
10.3.1 Any and all claims, liabilities, and obligations of every kind and
description arising out of or related to the operation of the business following
Closing
10.3.2 Any and all damage or deficiency resulting from any material
misrepresentation, breach of warranty or covenant, or non-fulfillment of any
agreement on the part of Diamond under this Agreement.
SECTION 11. CLOSING.
11.1 DATE. This Agreement shall be closed as soon as practicable after (i)
completion of the due diligence investigation contemplated; (ii) execution of
this Agreement; (iii) satisfaction of all conditions to closing set forth in
this Agreement; and (iv) receipt of any required approvals under Nevada
corporate law and any other required regulatory approvals. If Closing has not
occurred on or prior to April 10, 1999, then any party may elect to terminate
this Agreement. If, however, the Closing has not occurred because of a breach of
contract by one or more parties, the breaching party or parties shall remain
liable for breach of contract.
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11.2 OBLIGATIONS OF SELLER AND GP AT THE CLOSING. At the Closing and
coincidentally with the performance by Diamond of its obligations described
herein, Seller and GP shall deliver to Diamond
the following:
11.2.1 All documents specified in the Exhibits referred to herein with the
exception of GP's Stock Option Plan to be determined by GP's current board of
directors: Jeff Dalton, David Firestone, David Holifield, and Louis Torres.
11.3 All documents which are required to effect transfer to Diamond the GP Stock
described herein, including a certificate representing 100% of the common stock
of GP.
11.4 OBLIGATIONS OF DIAMOND AT THE CLOSING. At the Closing and coincidentally
with the performance by Seller and GP of their obligations described herein,
Diamond shall deliver to Seller the following:
11.4.1 Certificate for six hundred (600) shares of Class B Preferred Stock
in Diamond Equities Inc. Each share of Class B Preferred Stock converts into one
thousand (1,000) shares of common stock in Diamond Equities Inc.
SECTION 12. MISCELLANEOUS PROVISIONS.
12.1 AMENDMENT AND MODIFICATION. Subject to applicable law, this Agreement may
be amended, modified, or supplemented only by a written agreement signed by all
of the parties hereto.
12.2 NOTICES. All notices, requests, demands, and other communications required
or permitted hereunder will be in writing and will be deemed to have been duly
given when delivered by hand or two days after being mailed by certified or
registered mail, return receipt requested, with postage prepaid:
If to Diamond, to: Copy to:
David D. Westfere, President A.F. Schaffer, P.C.
Diamond Equities, Inc. 2700 N. Central Avenue, Suite 1500
2010 E. University Drive, Suite 3 Phoenix, AZ 85004
Tempe, AZ 85281
If to Seller, to: Copy to:
David Firestone, President Louis Torres, Secretary
GoProfit.Com, Inc. GoProfit.Com, Inc.
1801 Century Park East, Suite 1225 3760 Via Pacifica Walk
Los Angeles, CA 90067 Oxnard, CA 93035-2227
Page 10 of 18
<PAGE>
12.3 ATTORNEY FEES. In the event an arbitration, suit or action is brought by
any party under this Agreement to enforce any of its terms, or in any appeal
therefrom, it is agreed that the prevailing party shall be entitled to
reasonable attorneys fees to be fixed by the arbitrator, trial court, and/or
appellate court.
12.4 LAW GOVERNING. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada.
12.5 COMPUTATION OF TIME. In computing any period of time pursuant to this
Agreement, the day of the act, event or default from which the designated period
of time begins to run shall be included, unless it is a Saturday, Sunday or a
legal holiday, in which event the period shall begin to run on the next day
which is not a Saturday, Sunday or legal holiday.
12.6 TITLES AND CAPTIONS. All section titles or captions contained in this
Agreement are for convenience only and shall not be deemed part of the context
nor affect the interpretation of this Agreement.
12.7 PRONOUNS AND PLURALS. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the person or persons may require.
12.8 ENTIRE AGREEMENT. This Agreement contains the entire understanding between
and among the parties and supersedes any prior understandings and agreements
among them respecting the subject matter of this Agreement. Any amendments to
this Agreement must be in writing and signed by the party against whom
enforcement of that amendment is sought.
12.9 AGREEMENT BINDING. This Agreement shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.
12.10 ARBITRATION. If at any time during the term of this Agreement any dispute,
difference, or disagreement shall arise upon or in respect of the Agreement, and
the meaning and construction hereof, every such dispute, difference, and
disagreement shall be referred to a single arbiter agreed upon by the parties,
or if no single arbiter can be agreed upon, an arbiter or arbiters shall be
selected in accordance with the rules of the American Arbitration Association
and such dispute, difference, or disagreement shall be settled by arbitration in
accordance with the then prevailing commercial rules of the American Arbitration
Association, and judgment upon the award rendered by the arbiter may be entered
in any court having jurisdiction thereof.
12.11 PRESUMPTION. This Agreement or any Section thereof shall not be construed
against any party due to the fact that said Agreement or any Section thereof was
drafted by said party.
Page 11 of 18
<PAGE>
12.12 FURTHER ACTION. The parties hereto shall execute and deliver all
documents, provide all information and take or forbear from all such action as
may be necessary or appropriate to achieve the purpose of the Agreement.
12.13 COUNTERPARTS. This Agreement may be executed in several counterparts and
all so executed shall constitute one Agreement, binding on all the parties
hereto even though all the parties are not
signatories to the original or the same counterpart.
12.14 PARTIES IN INTEREST. Nothing herein shall be construed to be to the
benefit of any third party, nor is it intended that any provision shall be for
the benefit of any third party.
12.15 SAVINGS CLAUSE. If any provision of this Agreement, or the application of
such provision to any person or circumstance, shall be held invalid, the
remainder of this Agreement, or the application of such provision to persons or
circumstances other than those as to which it is held invalid, shall not be
affected thereby.
The following parties hereby agree and approve all of the terms and conditions
of this Agreement, by signing where indicated.
GP: Diamond:
GOPROFIT DIAMOND EQUITIES, INC.
a Nevada corporation a Nevada corporation
By: /s/ David Firestone By: /s/ David D. Westfere
------------------------------- ----------------------------------
David Firestone, President David D. Westfere, President & CEO
By: /s/ Louis Torres By: /s/ Todd D. Chisholm
------------------------------- ----------------------------------
Louis Torres, Secretary/Treasurer Todd D. Chisholm, Secretary/Treasurer
Page 12 of 18
<PAGE>
- --------------------------------------------------------------------------------
Seller:
SHAREHOLDERS OF GOPROFIT
By: /s/ By: /s/ David Firestone
------------------------------- --------------------------------
GlobalVest Financial, Inc. (400,000) David Firestone (400,000)
For and on behalf of
By: /s/ VICKERY LIMITED-Director By: /s/ Jeff Dalton
------------------------------- --------------------------------
Hane Development LTD (400,000) Jeff Dalton (400,000)
By: /s/ Louis Torres By: /s/ David Holifield
------------------------------- --------------------------------
Louis Torres (400,000) David Holifield (400,000)
By: /s/
-------------------------------
For and on behalf of
WOODWARD LIMITED-Director
Page 13 of 18
<PAGE>
EXHIBIT A
FINANCIAL STATEMENTS OF GOPROFIT.COM, INC.
SEE ATTACHED
Page 14 of 18
<PAGE>
EXHIBIT B
LIST OF CONTRACTS
Inktomi Corporation Information Services Agreement Date Feb. 18th, 1999
Page 15 of 18
<PAGE>
EXHIBIT C
LIST OF EMPLOYEES
Name Social Security Number Monthly Rate of Pay
- ---- ---------------------- -------------------
1. David Firestone ###-##-#### $5,000
2. Jeff Dalton ###-##-#### $7,500
3. Louis Torres ###-##-#### $6,500
4. David Holifield ###-##-#### $7,500
GP OPTION PLAN TO BE COMPLETED AFTER MERGER BUT ALLOCATED AS FOLLOWS:
245,000 GP Shares for Management Stock Option Pool
245,000 GP Shares for Consultants/Professional Services Stock Option Pool
245,000 GP Shares for Employee/Private Contractor Stock Option Pool
Page 16 of 18
<PAGE>
EXHIBIT D
GOPROFIT.COM, INC. BUSINESS PLAN
SEE ATTACHED
Page 17 of 18
<PAGE>
EXHIBIT E
EMPLOYEE / CONSULTANTS INCENTIVE STOCK OPTION PLAN
TO BE PROVIDED UPON COMPLETION
Page 18 of 18
CORRECTION AGREEMENT
This Correction Agreement (this "Correction Agreement") is entered into as
of this 11th day of June, 1999 by and between GoProfit.com, a Nevada corporation
("GoProfit"), the undersigned shareholders of GoProfit (collectively, the
"Shareholders"), and Diamond Equities, Inc., a Nevada corporation ("Diamond
Equities).
RECITALS
A. GoProfit, the Shareholders and Diamond Equities are parties to that
certain Stock Purchase Agreement, dated April 5, 1999 (the "Stock Purchase
Agreement"), pursuant to which all of the Shareholders exchanged their shares of
GoProfit for 600 shares of non-voting Class B Preferred Stock (the "Preferred
Stock") of Diamond Equities.
B. The 600 shares of Preferred Stock are convertible into 600,000 shares of
common stock of Diamond Equities.
C. The Stock Purchase Agreement explicitly states, and it has at all times
been the intention of all parties to the Stock Purchase Agreement, that the
exchange by the Shareholders of their shares of GoProfit for shares of Class B
Preferred Stock of Diamond Equities was to be a tax-free reorganization.
D. Since the date of the Stock Purchase Agreement, the parties have
determined that one of the requirements of a tax-free reorganization is that the
shares issued in such and exchange consist solely of voting shares of the
acquiring corporation.
E. Diamond Equities mistakenly issued non-voting share of Preferred Stock
to the undersigned Shareholders, which issuance will cause the transaction to be
in violation of one of the requirements of the tax-free reorganization
provisions of the Internal Revenue Code.
F. As a result of the mistake made by the parties to the Stock Purchase
Agreement, the parties to the Stock Purchase Agreement now desire to correct the
Stock Purchase Agreement and the transaction effected thereby, effective as of
the original date of the Stock purchase Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the representations, warranties, and
agreements made herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, GoProfit, the
Shareholders and Diamond Equities hereby agree as follows:
1
<PAGE>
1. Correction of Stock Purchase Agreement. The parties hereto agree that
the Stock Purchase Agreement is hereby corrected and amended, effective as of
April 5, 1999, to change to 600 shares of Preferred Stock received by the
Shareholders from Diamond Equities pursuant to the Stock Purchase Agreement to
600,000 shares of voting common stock of Diamond Equities. Each of the parties
hereto further agrees to hereafter treat the exchange effected under the Stock
Purchase Agreement, for all purposes, including tax reporting purposes,
financial accounting purposes, and SEC and OTC Bulleting Board reporting and
public disclosure purposes, as an exchange of GoProfit common stock for common
stock of Diamond Equities. In addition, the parties hereto agree to promptly
take all steps necessary and proper to correct the transaction effected by the
Stock Purchase Agreement, including without limitation, the following: (A) The
Shareholders agree to return all certificates of Preferred Stock received by
each of them under the Stock Purchase Agreement to Diamond Equities for
cancellation; (B) Diamond Equities agrees to (I) execute, deliver and/or file
any and all instruments, documents, notices or other agreements that reflect or
evidence the correction of the Stock Purchase Agreement, (ii) issue new
certificates to the Shareholders representing 600,000 shares of Diamond Equities
common stock, which certificates shall be dated as of April 5, 1999, (iii)
notify its transfer agent, and any other appropriate organization or agency, of
the correction of the Stock Purchase Agreement.
2. GoProfit and Shareholder Representation and Warranties. Each of the
Shareholders hereby severally represents and warrants to Diamond Equities as to
itself, that it still is the owner of all the shares of Preferred Stock that it
received pursuant to the Stock Purchase Agreement, and that such Shareholder has
not sold, transferred or pledged any of the shares of such Preferred Stock since
April 5, 1999.
3. Diamond Representations and Warranties. Diamond Equities represents and
warrants to each of GoProfit and the Shareholders as follows:
a. Corporate Existence and Power. Diamond Equities is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Nevada and has corporate power and authority to enter into this
Correction Agreement and the other documents to which it is a party and to
consummate the transactions contemplated hereby and thereby.
2
<PAGE>
b. Corporate Authorization of Diamond Equities. The execution,
delivery and performance by Diamond Equities of this correction Agreement and
any other documents delivered in connection with this correction Agreement, and
the consummation by Diamond Equities of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action. This
Correction Agreement, and each of the other transaction documents to which
Diamond Equities is a party, have been duly and validly executed by Diamond
Equities and constitutes the legal, valid and binding agreement of Diamond
Equities, enforceable against each Diamond Equities in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally.
c. Non-Contravention. The execution, delivery and performance by
Diamond Equities of this Correction Agreement and the other transaction
documents to which Diamond Equities is a party, and consummation of the
transactions contemplated hereby and thereby, do not and will not (a) contravene
or conflict with the certificate of incorporation or bylaws of Diamond Equities,
or (b) contravene or conflict with or constitute a violation of any material
provision of any applicable law binding upon or applicable to Diamond Equities.
d. Governmental Authorization. The execution, delivery and performance
by diamond Equities of this Correction Agreement and any of the other
transaction documents requires no action by, consent or approval of, or filing
with, any governmental authority.
e. Stock Issuance. All of the 600,000 shares of Diamond Equities'
common stock issued to the Shareholders pursuant to the Stock Purchase
Agreement, as corrected, are validly issued, outstanding, fully paid and
nonassessable shares of Diamond Equities common stock.
4. Public Announcements. Each party hereto agrees that, without the consent
of the other party, it will not, except as may be required by applicable law,
issue any press release or make any public statement with respect to this
Correction Agreement or the transactions contemplated hereby. The parties hereto
acknowledge that Diamond Equities is a public company and, accordingly, that it
may have to issue a press release regarding the Correction Agreement. In the
event that Diamond Equities does issue such a press release, Diamond Equities
hereby agrees to provide GoProfit with a copy of any such press release prior to
its issuance and, in good faith, to take into account any comments GoProfit may
reasonably have regarding the disclosure made in any such press release.
3
<PAGE>
5. Specific Performance. The parties hereto recognize and agree that in the
event of a breach by one party hereto of this Correction Agreement, money
damages would not be an adequate remedy to the other party for such breach and,
even if money damages were adequate, it would be impossible to ascertain or
measure with any degree of accuracy the damages sustained by the non-breaching
party therefrom. Accordingly, if there should be a breach or threatened breach
by one party of provisions of this Correction Agreement, the non-breaching party
or parties shall be entitled to an injunction restraining the breaching party
from any breach without showing or proving actual damage sustained by the
non-breaching party.
6. Further Assurances. Subject to the terms and conditions of this
Correction Agreement, each party will use all reasonable good faith efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary or reasonably desirable under applicable law to consummate the
transactions contemplated by this Correction Agreement. The parties agree to
execute and deliver such other documents, certificates, agreements and other
writings and to take such other actions as may be reasonably necessary or
desirable in order to consummate or implement expeditiously the transactions
contemplated by this Correction Agreement.
7. Counterparts. This Correction Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
8. Cumulative Remedies. The rights, remedies, powers and privileges herein
provided are cumulative and not exclusive of any rights, remedies, powers and
privileges provided by law.
9. Third Party Beneficiaries. No provision of this Correction Agreement
shall create any third party beneficiary rights in any person, other than the
parties hereto.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Correction
Agreement to be duly executed by them or by their respective authorized officers
as of the day and year first above written.
GP: Diamond:
GOPROFIT DIAMOND EQUITIES, INC.
a Nevada corporation a Nevada corporation
By: /s/ David Firestone By: /s/ David D. Westfere
------------------------------- ----------------------------------
David Firestone, President David D. Westfere, President & CEO
By: /s/ Louis Torres By: /s/ Todd D. Chisholm
------------------------------- ----------------------------------
Louis Torres, Secretary/Treasurer Todd D. Chisholm, Secretary/Treasurer
Page 12 of 18
<PAGE>
- --------------------------------------------------------------------------------
Seller:
SHAREHOLDERS OF GOPROFIT
By: /s/ By: /s/ David Firestone
------------------------------- --------------------------------
GlobalVest Financial, Inc. (400,000) David Firestone (400,000)
For and on behalf of
By: /s/ VICKERY LIMITED-Director By: /s/ Jeff Dalton
------------------------------- --------------------------------
Hane Development LTD (400,000) Jeff Dalton (400,000)
By: /s/ Louis Torres By: /s/ David Holifield
------------------------------- --------------------------------
Louis Torres (400,000) David Holifield (400,000)
By: /s/
-------------------------------
For and on behalf of
WOODWARD LIMITED-Director
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<ARTICLE> 5
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 210,035
<SECURITIES> 0
<RECEIVABLES> 199,338
<ALLOWANCES> 13,606
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<CURRENT-ASSETS> 1,126,734
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0
1,605,541
<COMMON> 7,366
<OTHER-SE> 264,764
<TOTAL-LIABILITY-AND-EQUITY> 3,034,802
<SALES> 1,368,510
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<EXTRAORDINARY> 48,624
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