UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the Transition Period From __________ to __________
Commission File Number: 0-24138
DIAMOND EQUITIES, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
NEVADA 88-0232816
------------------------------ ----------------------
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2010 E. UNIVERSITY DRIVE, SUITE 3, TEMPE, AZ 85281
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(Address of Principal Executive Offices)
(602) 921-2760
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and formal fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and, (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- ------
As of January 31, 1999, Diamond Equities, Inc. Registrant had 4,666,099 shares
of its $0.001 par value common stock outstanding.
Page 1 of 11 sequentially numbered pages
<PAGE>
FORM 10-Q
SECOND QUARTER 1999
DIAMOND EQUITIES, INC.
----------------------
INDEX
PART I. FINANCIAL INFORMATION
PAGE
----
Balance Sheets - December 31, 1998 and June 30, 1998 ...................3-4
Statements of Operations for the Three and Six Months
Ended December 31, 1998 and 1997 .........................................5
Statement of Cash Flows - for the Six Months
Ended December 31, 1998 and 1997 .......................................6-7
Notes to Financial Statements ............................................8
Management's Discussion and Analysis of Financial Condition and
Results of Operations ....................................................9
PART II. OTHER INFORMATION
Item 3(b) Defaults Upon Senior Securities ...............................10
Page 2
<PAGE>
DIAMOND EQUITIES, INC.
Balance Sheets
ASSETS
December 31, June 30,
1998 1998
------------ ------------
(Unaudited) (Audited)
CURRENT ASSETS
Cash $ 96,188 $ 600,231
Certificates of Deposit 519,828 505,404
Receivables
Trade accounts, net of allowance for
doubtful accounts of $35,588 at December 31,
1998 and June 30, 1998 210,266 10,560
Inventory 58,941 5,400
Prepaid expenses 1,783 5,111
Note Receivable-current portion 35,750 35,750
------------ ------------
Total Current Assets 922,756 1,162,456
------------ ------------
PROPERTY AND EQUIPMENT 1,013,536 197,162
------------ ------------
OTHER ASSETS
Notes Receivable-noncurrent portion 416,388 405,625
Deposits 1,000 --
Investments 5,000 66,000
------------ ------------
Total Other Assets 422,388 471,625
------------ ------------
$ 2,358,680 $ 1,831,243
============ ============
See accompanying notes to financial statements.
3
<PAGE>
DIAMOND EQUITIES, INC.
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, June 30,
1998 1998
---------- -----------
CURRENT LIABILITIES
Accounts payable $ 313,195 $ 111,234
Accrued expenses 7,203 8,473
Line of Credit 290,200 250,200
Current Portion Long Term Debt 329,960 21,362
Accrued preferred dividends 194,023 194,023
---------- -----------
Total Current Liabilities 1,134,581 585,292
---------- -----------
LONG-TERM LIABILITIES
Captial Lease obligations 160,836 10,150
Notes payable 466,032 --
Current Portions Long-term Debt (329,960) --
---------- -----------
Total Long-Term Liabilities 296,908 10,150
---------- -----------
Total Liabilities 1,431,489 595,442
---------- -----------
MINORITY INTEREST 37,971 66,975
---------- -----------
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.001 par,
6% cumulative, non-voting, class A;
10,000 shares authorized; 0 and 727
shares issued and outstanding -- 1,817,591
Convertible preferred stock, non-voting,
non-cumulative class B; 20,000 shares
authorized; 18,000 shares issued and outstanding 1,817,591 --
Common stock, $.001 par value; 50,000,000 shares
authorized; 4,666,099 shares issued and outstanding 4,666 4,666
Additional paid-in capital 2,582,282 2,582,282
Accumulated deficit 3,515,319) (3,235,713)
---------- -----------
Total Stockholders' Equity 889,220 1,168,826
---------- -----------
$2,358,680 $ 1,831,243
========== ===========
See accompanying notes to financial statements.
4
<PAGE>
DIAMOND EQUITIES, INC.
Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended December 31, Ended December 31,
------------------------ ------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 305,683 $ -- $ 703,304 $ --
Less cost of sales 171,075 -- 320,652 --
---------- ---------- ---------- ----------
Gross profit 134,607 -- 382,651 --
Selling, general and
administrative expenses 290,812 87,397 683,393 208,455
---------- ---------- ---------- ----------
Operating income or (loss) (156,205) (87,397) (300,742) (208,455)
---------- ---------- ---------- ----------
Other income and (expenses), net (6,372) 15,534 (7,076) 32,924
Income (loss) from Discontinued
Operations -- (33,196) -- (33,196)
Minority Interest 20,702 -- 28,686 --
Gain on sale of assets -- -- --
---------- ---------- ---------- ----------
Net income (loss) before income taxes (141,875) (105,059) (279,132) (208,727)
Provision for income taxes -- -- -- --
---------- ---------- ---------- ----------
Net income or (loss) before preferred
dividends (141,875) (105,059) (279,132) (208,727)
Preferred dividends -- -- -- --
---------- ---------- ---------- ----------
Net loss attributed to common stock $ (141,875) $ (105,059) $ (279,132) $ (208,727)
---------- ---------- ---------- ----------
Net income or (loss) per share $ (.03) $ (.02) $ (.06) $ (.04)
---------- ---------- ---------- ----------
Weighted Average Shares Outstanding 4,666,099 4,666,099 4,666,099 4,666,099
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
DIAMOND EQUITIES, INC.
Statements of Cash Flows
(Unaudited)
For the Six Months Ended
December 31,
------------------------
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(279,132) $(208,727)
Adjustments to reconcile net loss to net
cash used in operating activities:
Minority Interest 113,681 --
Depreciation and amortization (36,670) 2,962
Changes in operating assets and liabilities
(Increase) decrease in
Receivables - trade and other 25,207 (13,396)
Inventory 30,027 --
Prepaid expenses and other 3,328 (1,000)
Increase (decrease) in
Accounts payable 25,102 8,662
Accrued liabilities (1,270) (143,400)
--------- ---------
Net Cash Used in Operating Activities (119,727) (354,899)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (12,867) (6,232)
Proceeds form sale of investments 49,236 --
Cash paid for subsidiary (375,000)
Cash paid for notes receivable -- --
--------- ---------
Net Cash Used by Investing Activities $(338,631) $ (21,982)
--------- ---------
See accompanying notes to financial statements.
6
<PAGE>
DIAMOND EQUITIES, INC.
Statements of Cash Flows (Continued)
(Unaudited)
For the Six Months Ended
December 31,
------------------------
1998 1997
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash advanced from Lines of Credit 40,000 --
Principal payments on notes payable $ 85,685 $ --
----------- -----------
Net Cash Provided (Used) by Financing
Activities (45,685) --
----------- -----------
INCREASE (DECREASE) IN CASH (504,043) (376,881)
CASH, BEGINNING OF PERIOD 600,231 1,586,983
----------- -----------
CASH, END OF PERIOD $ 96,188 $ 1,210,102
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes $ -- $ --
=========== ===========
Cash paid for interest $ 23,150 $ 555
=========== ===========
See accompanying notes to financial statements.
7
<PAGE>
Diamond Equities, Inc.
December 31, 1998
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
GENERAL
Diamond Equities, Inc. (the "Company") has elected to omit substantially all
footnotes to the financial statements for the six months ended December 31,
1998, since there have been no material changes (other than indicated in other
footnotes) to the information previously reported by the Company in their Annual
Report filed on Form 10-KSB for the Fiscal year ended June 30, 1998.
UNAUDITED INFORMATION
The information furnished herein was taken from the books and records of the
Company without audit. However, such information reflects all adjustment which
are, in the opinion of management, necessary to properly reflect the results of
the interim period presented. The information presented is not necessarily
indicative of the results from operations expected for the full fiscal year.
ACQUISITION OF ACCURATE THERMOPLASTICS
Effective July 21, 1998, the Company acquired the assets and assumed various
debts and leases of Accurate Thermoplastics, Inc. (Accurate), a plastics
injection molder in Mesa, Arizona. The Company paid $375,000 in cash, issued a
note for $185,000, assumed capital leases in the amount of $185,734 and notes of
$94,639. The Company also signed a consulting commitment for $5,000 per month
for 48 months to the previous owner as part of the acquisition. A commitment
liability was recorded for $205,679 (the present value of the payments).
Accounts payable of $176,859 were also assumed.
For the above payments, notes and assumptions, the Company received accounts
receivable of $224,913, Inventory of $83,567 and fixed assets of $914,430.
8
<PAGE>
Diamond Equities, Inc.
December 31, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
With the two acquisitions of plastic injection molding companies, the operations
of the Company have changed significantly as compared to the same period a year
ago, when the Company was merely looking for business opportunities. With the
increased operations however, there is also an
increase in commitments and cash requirements.
Cash and cash equivalents totaled $96,188 at December 31, 1998 compared to
$600,231 at June 30, 1998. The decrease in cash was due primarily to the
acquisition of Accurate wherein $375,000 was disbursed. The Company also used
approximately $120,000 in operations and $85,000 in payments on debt. During the
past six months the Company has withdrawn $40,000 on its line of credit. The
Company's current cash requirements are for the operations of the Company, the
purchase of inventory and payments on commitments and debt. The Company also has
a balloon payment of $185,000 currently due from the acquisition of Accurate.
The Company has two Certificates of Deposit totaling $500,000 securing two lines
of credit. There is $210,000 available to borrow on these lines of credit at
December 31 1998. The CDs have not been included in the cash balances disclosed
above.
Long term cash requirements, other than normal operating expenses, are
anticipated for the acquisition of additional plastic operations. The Company
will need to raise additional funds from investors in order to complete
additional acquisitions. The Company believes that its existing cash and
anticipated cash generated from operations will be sufficient to satisfy its
currently anticipated cash requirements for fiscal year 1999.
The Company's principal commitments at December 31, 1998 consist of obligations
under capital leases, operating leases for facilities and commitments incurred
in connection with the acquisition of Accurate.
RESULTS OF OPERATIONS
The Company generated revenues from the new operations of $703,304 with cost of
sales of $320,652, and a gross profit of $382,651. The Company's gross margin
for the six months ended December 31, 1998 was 54%. Because there were no
operations in the first half of fiscal 1998, there are no comparatives in this
area.
Selling, general and administrative expenses were $683,393 for the second
quarter 1999, an increase of $595,996 over the same period last year. The
increase is primarily due the change in operations, personnel and professional
fees incurred in connection with the acquisitions.
Management anticipates that general selling and administrative expenses will
continue to remain constant or decrease slightly due to the fine tuning of
operations.
9
<PAGE>
Diamond Equities, Inc.
December 31, 1998
The Company incurred a loss of (141,875) for the second quarter 1999 as compared
to $(105,059) for the second quarter 1998. The increase is due to the new
operations and the additional expenses incurred to secure the operations.
There are no seasonal aspects of the Company's business which had, or are
expected to have, a material effect on the financial conditions or results of
operations.
PLAN OF OPERATIONS
The Company's plan for 1999 is to acquire additional plastic operations and
consolidate the operations for maximum efficiency and profit. Management is
currently reviewing several potential acquisition candidates in the plastics
industry, and hopes to secure the third operations in the near future. The
Company is also reviewing various start up proprietary products to acquire as a
division of the plastics molding Company. The Company will assist in bringing
the products to market as well as doing the plastic molding for the products.
PART II OTHER INFORMATION
ITEM 3(B) DEFAULTS UPON SENIOR SECURITIES
The Company is 36 months in arrears ($194,023) as of February 14, 1999, in the
payment of dividends to the shareholders of the Class A 6% Preferred Stock. The
class A Preferred shares have been replaced by Class B shares, however accrued
preferred dividends have not yet been paid. No demand has yet been made on the
Company by the Preferred shareholders.
10
<PAGE>
Diamond Equities, Inc.
December 31, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly
authorized.
Date: February 15, 1999
Diamond Equities, Inc.
By: /s/ David Westfere
-----------------------------
David Westfere, CEO and
Principal Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 96,188
<SECURITIES> 0
<RECEIVABLES> 210,266
<ALLOWANCES> (35,588)
<INVENTORY> 58,941
<CURRENT-ASSETS> 922,756
<PP&E> 1,013,536
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,358,680
<CURRENT-LIABILITIES> 1,134,581
<BONDS> 0
0
1,817,591
<COMMON> 4,666
<OTHER-SE> (933,037)
<TOTAL-LIABILITY-AND-EQUITY> 2,358,680
<SALES> 703,304
<TOTAL-REVENUES> 703,304
<CGS> 320,652
<TOTAL-COSTS> 320,652
<OTHER-EXPENSES> 683,393
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,150
<INCOME-PRETAX> (279,132)
<INCOME-TAX> 0
<INCOME-CONTINUING> (279,132)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (279,132)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
