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, 2000
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)
(480) 898-1846
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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
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 gross revenues for the year ended June 30, 2000, were
$689,289.
The market price of the voting stock held by non-affiliates (approximately
1,876,763 shares as of June 30, 2000) based upon the prices of such stock as of
October 4, 2000, as reported in the OTC pink sheets was $0.26.
The number of shares of Common Stock of the issuer outstanding as of June
30, 2000 was 9,580,059.
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 October 2, 1999 and December 17, 1999, which respectively disclose
the acquisition of a company engaged in the internet commerce industry and the
loss of control of that company.
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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 ................................ 8
Item 3. Legal Proceedings ...................................... 9
Item 4. Submission of Matters to a Vote of Security Holders .... 10
PART II
Item 5. Market Price of and Dividends on the Registrant's
Common Equity and Other Stockholder Matters ............ 10
Item 6. Management's Discussion and Analysis or Plan of
Operation .............................................. 11
Item 7. Financial Statements ................................... 13
Item 8. Changes in and Disagreements With Accountants .......... 13
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons ................................................ 13
Item 10. Executive Compensation ................................. 14
Item 11. Security Ownership of Certain Beneficial Owners
and Management ......................................... 14
Item 12. Certain Relationships and Related Transactions ......... 15
Item 13. Exhibits List and Reports on Form 8-K .................. 16
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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."
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. The sale was made 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 was
payable on a monthly basis commencing on February 15, 1997, bearing interest at
the rate of 8% per annum. The final payment of all accrued and unpaid interest
and outstanding principal was due on or before January 15, 2002. The Tru-Tel
Note was secured by a lien on all assets transferred in the Asset Sale and was
further secured by personal guarantees of the principals of Tru-Tel.
In early 1997, Tru-Tel defaulted on the Note and on March 18, 1997, the
Company filed suit. On April 1, 1999, the parties settled the suit, with
Tru-Tel's promise to pay the Company a total of Four Hundred Fifty 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. Since that time, Tru-Tel has defaulted on the settlement
payments and filed for bankruptcy under Chapter 11 of the Bankruptcy Code. The
Company has filed a lawsuit against the principals of Tru-Tel for enforcement of
their personal guaranties of the remaining amount of Three Hundred Fifty
Thousand Dollars ($350,000).
Subsequent to the Asset Sale, the Company has been essentially a "blank
check" company, with cash and a promissory note as it's primary assets. It
currently is engaged primarily in the plastics business pursuant to the
acquisitions which are discussed below.
PLASTICS INDUSTRY ACQUISITION. 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 Company's own funds. There was no prior relationship between Premier and its
sole shareholder and the officers and directors of the Company 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
serve as a consultant to Precision. He no longer serves in that capacity. The
business of Accurate was to continue under the name Precision Plastics Molding,
Inc. ("Precision"). 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
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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 Company 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
Company 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. This lawsuit was subsequently settled by
the Company which paid $165,000 and issued 14,000 shares of its Common Stock to
the plaintiff.
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.
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 may,
if cash flow permits, hire personnel to find additional customers.
CUSTOMERS / SUPPLIERS. Precision currently makes products for approximately
fifteen (15) different customers. The major customers are Axxes and Amsafe.
Management estimates that their business makes up approximately fifty-five
percent (55%) of Precision's sales. Precision works with fifteen (15) to twenty
(20) different suppliers of different products used in the manufacturing process
such as boxes and plastic resin. Precision's main suppliers of plastic are GE
Polymerland and Plastics General Polymers.
SALES. Precision has, as of September 1, 2000, a sales backlog of 2 days
and has the raw materials to run production for these sales. The Company
maintains its own tooling department, but also uses subcontractors for such
services. It has no order backlog.
INTERNET BUSINESS ACQUISITION. 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. The GoProfit personnel exercised their
options, and the Company was, in fact, a minority shareholder from August to
November, 1999, but the company subsequently obtained the voting rights to
sufficient shares to retake control of GoProfit. (See Item 3 "Legal
Proceedings")
GoProfit.com, Inc. was formed to design and build a world wide financial
search engine for the Internet. Through the licensing and repackaging of
proprietary technology from leading Internet purveyors of content, GoProfit.com
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stated that it intended to gain instant user credibility while achieving its own
branded identity. At the same time, GoProfit management was to work toward
developing innovative technologies designed so that GoProfit would become a
"next-generation" search engine/Internet portal.
GoProfit had no operating history or revenues, and was considered entirely
promotional. GoProfit faced 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. GoProfit did not
succeed because of problems and expenses encountered in connection with the
development and operation of the business.
GoProfit had entered into negotiations with various entities which were
intended to help grow the website, but all such negotiations were halted because
of GoProfit's inability to proceed with its business plan.
OPERATIONS OF DIAMOND EQUITIES, INC.
CORPORATE OPPORTUNITIES. Although its financial resources are severely
limited, the Company intends to continue to seek corporate opportunities. 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 very limited number
of business ventures, due primarily to the Company's lack of capital. Lack of
diversification, which the Company presently experiences, is a risk in investing
in the Company because it limits the ability of the Company to offset potential
losses from one venture against gains from another and will expose the Company
to the cyclical and other risks of any business in which it invests.
The Company has been seeking 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 acquisition of, or merger
with a company which does not need cash but which desires to be part of a
corporation with an established public trading market for its common stock. The
Company may, depending on its opportunities, purchase assets, with its common or
preferred stock, 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 complicated, however, because of general economic
conditions, rapid technological advances being made in some industries, and
shortages of available capital. However, the Company believes that there are
other companies seeking the perceived 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 difficult and complex.
The Company has no capital with which to provide the owners of business
opportunities with any 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.
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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 retain outside
consultants, if the Board deems it necessary and financially possible, to aid in
the analysis of a business opportunity.
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.
Any venture in which the Company participates presents various 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, as in the case of GoProfit, may not become
going concerns or advance beyond the development stage even after the Company's
participation in the activity. Some 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 any business opportunity, 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.
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.
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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.
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 in the near term, 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.
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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
acquisitions. Also, the Company may be competing with other small, blind-pool,
public companies located in the Southwest and elsewhere.
REGULATION. The Company could, 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.
The Company plans to structure any mergers or acquisitions 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. Diamond Equities, Inc. presently has two (2) employees, both
engaged in management and administrative functions. The Company also engages,
from time to time, services of outside consultants to assist it in various
functions. The Company may allocate a portion of its working capital for
part-time secretarial and other services required by it.
The Company's subsidiary, Precision, has six (6) non-union employees: One
(1) is a plant manager, one (1) is a production supervisor, one (1) is a quality
assurance manager, one (1) is an operator, and two (2) are engaged in office and
clerical duties.
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 $6,885 per month.
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ITEM 3. LEGAL PROCEEDINGS.
Except as set forth below, Neither the Company nor any of its subsidiaries
is a party to any material pending legal proceedings or government actions
including any material bankruptcy, receivership, or similar proceedings.
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. The persons named in the indictments as disclosed in
prior 10-KSB filings, are no longer officers or directors of the Company.
TRU-TEL 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 were received. In March, 1999, a complaint for
breach of contract was filed with the Eighth Judicial District Court of Clark
County, Nevada. The complaint alleged breach by the defendant, Tru-Tel
Communications, LLC, issuer of the promissory note. The complaint also named 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 April 1, 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 was payable quarterly in payments of $21,874.98.
Tru-Tel has since filed for bankruptcy, and the Company has filed a lawsuit
against the principals of Tru-Tel who personally guarantied the Note. There is
no assurance that the Company will be able to collect the approximate $350,000
balance. It may be likely that the Company may not receive the full payment
settled upon.
INVESTIGATION OF SHAREHOLDER. In 1999, the State of Florida's Department of
Banking and Finance advised the Company that it was 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. The Company has heard
nothing further regarding this.
GOPROFIT LITIGATION. On August 28, 2000 the Company filed a complaint in
the Eight Judicial District Court, Clark County, Nevada, seeking recission of
the Stock Purchase Agreement with GoProfit.com, Inc. ("GoProfit") and damages
against the former principals of the GoProfit. In the action, the Company seeks
to cancel or retrieve the common stock it issued to GoProfit and its principals.
It also seeks the appointment of a Receiver or Custodian pursuant to Nevada
state law. The latter has been requested on the basis of the alleged fraudulent
nature of the sale, and the insolvency of GoProfit. The claim for recission is
based on the alleged breach of the terms and conditions of the GoProfit Stock
Purchase Agreement. Damages are being sought for the loss of benefit of the
buyer, i.e., because of the alleged lost opportunity with respect to its assets;
the Company has lost market value in its stock equity.
The Complaint also alleges a breach of fiduciary duty by the former
principals of GoProfit in the failure to protect assets and the misappropriation
and/or division of assets. Removal of the former principals of GoProfit as
Directors of that company is also sought.
The hearing on the Complaint filed by the Company is presently scheduled
for hearing on October 9, 2000 at 9:00 a.m. before the Eighth Judicial District
Court of Clark County, Nevada, located in Las Vegas.
1996 DEPARTMENT OF JUSTICE ACTION. In 1996, the U.S. Department of Justice
took action 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
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was not a party of and was not named as a defendant in the indictments. However,
because the indictments related 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 action (as disclosed in prior 10KSB filings),
have not been officers or directors of the Company since 1994. For more
information, see 10KSB's as previously filed by the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fiscal year ended June 30, 2000, 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, 2000, 19,503,200 shares of the Company's Common Stock were
traded on the OTC Market. 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 (5) market makers which currently
make a market in the Company's Common Stock. These "pink sheet" quotations
reflect inter-dealer reported bid prices, and may or may not necessarily
represent actual transactions.
CLOSING BID CLOSING ASK
--------------------- -------------------
1999 HIGH LOW HIGH LOW
---- --- ---- ---
July 1
through 6.4375 1.53125 6.46875 1.75
September 30
October 1
through 1.40625 .34375 1.50 .40625
December 1
2000
January 3
through .9375 .3125 1 .375
March 31
April 3
through 1.47 .28125 1.5625 .34375
June 30
As of June 30, 2000, there were approximately 715 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
10
<PAGE>
shareholders of the Series A Preferred Stock, to exchange these shares 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. Dividends were left outstanding.
Of the eighteen thousand (18,000) shares of Series B convertible preferred
stock held by Dingaan Holdings, SA ("Dingaan"), an affiliate, Dingaan
transferred all of its shares to Derby Holdings Group, Limited ("Derby").
Subsequently, Derby converted a number of the Class B preferred stock.
From March 9, 1999 to August 25, 2000, such transactions were made, and
Derby has been issued a total of Three Million Three Hundred Thousand
(3,300,000) 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. Through its lawsuit against GoProfit, the
Company is attempting to retrieve the shares issued.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
In April 1999, the Company acquired all of the common stock of GoProfit a
development stage company in the process of developing an internet web site and
financial search engine. The Company included the expenses of GoProfit.com from
April through June 1999 in the fiscal year ended June 30, 1999. In July 1999 the
management of GoProfit.com issued shares to employees and officers and the
Company's ownership in GoProfit dropped to 37 %. At such time the Company
accounted for the investment in GoProfit on the equity method , therefore the
general and administrative expenses in fiscal 2000 do not include GoProfit
expenses and comparability between the two years is compromised.
The Company had a net loss of $(943,011) in the fiscal year ended June 30,
2000 as compared to a net loss of ($626,210) in the fiscal year ended June 30,
1999. The difference of ($320,000) in net loss in the year ended June 30, 2000
versus 1999 is due mostly to the write off of the Tru-Tel note of ($261,000) and
the decrease of profitability. The loss incurred in the write off of the
investment in GoProfit of ($213,000), and the loss from GoProfit's operations
included in the 1999 figures are nearly equal. The net loss from continuing
operations for the fiscal year 2000 was ($589,285), as compared to ($703,663)
for the fiscal 1999. The increase in operating activities is due to the
fine-tuning of operations as revenues and cash reserves have declined. Precision
Plastics had losses of ($337,009) in the year 2000 verses ($240,340) in 1999.
Interest income decreased to $3,667 in fiscal 2000 as compared to $35,919
in the fiscal year ended June 30, 1999, due to diminishing cash balances. The
Plastics operations generated revenues of $689,000 during 2000 as compared to
$1,367,000 for fiscal 1999. The decrease in sales of $678,000 was due in part to
the loss of a major customer. The major customer provided a large volume of
work, however, due to the rework and small margin received on the work very
little profit was realized. The gross margin for the fiscal year 2000 was
approximately 16% verses 23% in 1999. The decrease in margin is attributed to
the decrease in sales yet maintaining the same amount of manufacturing overhead
and depreciation on the machinery.
The Company's selling, general and administrative expenses decreased by 31%
to $694,113 for the fiscal year 2000 as compared to $1,008,333 for the fiscal
year ended June 30, 1999. The decrease is due to the elimination of GoProfit's
administrative expenses of approximately ($122,000) and the decrease in
operating activities for both companies in fiscal 2000.
11
<PAGE>
The Company's future result of operations may be materially affected due to
the recent legal action taken against GoProfit.com. The plastics operations is
expected to increase in fiscal 2001, due to contracts in place at year end. The
Company anticipates that in the fiscal year ending June 30, 2001, that the
operations in the plastics industry will be expanded with additional
acquisitions and growth.
LIQUIDITY AND CAPITAL RESOURCES. 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 oversees the
investments in its subsidiaries.
At June 30, 2000, the Company had cash and cash equivalents of $125,049
compared to cash and cash equivalents of $210,035 at June 30, 1999. This
decrease of approximately ($85,000) resulted from the elimination of ($107,336)
of GoProfit's cash at the time of elimination of GoProfit as a consolidated
subsidiary, the loss of cash in operations of approximately ($200,000) and the
receipt of cash from Precision's issuance of stock for cash of $240,000.
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.
Principal uses of working capital will include payment of the Company's
general and administrative expenses and inventory. There is currently no
requirement to pay accrued and unpaid dividends on its previously outstanding
shares of Series A 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, and payments of these dividends have been made quarterly
during the year, and will continue to be due quarterly.
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, 2000 and 1999".
THE FOREGOING ARE FORWARD-LOOKING STATEMENTS 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.
12
<PAGE>
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.
On July 31, 2000, 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, 34, 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 Molding, Inc., a subsidiary of the Company. Mr. Westfere
presently works part time for the Company, and for Precision, 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, 38, 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,
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 $850 per month for compilation
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.
13
<PAGE>
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, 2000, 1999 and 1998 .
<TABLE>
<CAPTION>
Annual Compensation
-------------------------------------------------
Name and Principal Positions Year Salary Bonus Other Annual Compensation
---------------------------- ---- ------ ----- -------------------------
<S> <C> <C> <C> <C>
David Westfere, President (1) 2000 $76,000(5) $ 0.00 $ 9,496(2)
1999 $38,400 $10,000 $19,994(3)
1998 $36,800 $ 0.00 $51,787(4)
Todd D. Chisholm 2000 $ 0.00 $ 0.00 $ 0.00
1999 $ 0.00 $10,000 $ 0.00
1998 $ 0.00 $ 0.00 $ 0.00
</TABLE>
----------
(1) The Company did not pay any long-term compensation to Mr. Westfere during
the above periods.
(2) During Fiscal 2000, the Company paid $5,654.36 in Medical Insurance and
$3,841.94 in other employee benefits.
(3) 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.
(4) During fiscal year 1998, the Company paid health insurance premiums of
$5,920 for Mr. Westfere and his family. 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.
(5) Includes $46,000 as salary for the position of President of the Company and
$30,000 as President of Precision.
No executive officer of the Company received compensation exceeding
$100,000 for the fiscal years ended June 2000, 1999 and 1998.
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:
14
<PAGE>
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Ownership
------------------------------------ --------------------
Oak Holdings, Inc. 2,500,000 (1)
Apartado 63685
Panama, Republic of Panama
Cede & Co. 4,458,185 (2)
P.O. Box 222
Bowling Green Station
New York, New York 10274
Todd D. Chisholm 15,000
P.O. Box 540216
North Salt Lake, Utah 84054
David Westfere 10,000
105 E. Ellis Drive
Tempe, AZ 85282
Directors and Executive Officers as a Group 25,000
(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 27, 2000, the Company had outstanding 14,700 shares of
Series B Preferred Stock, all of which shares are now owned of record by Derby
Holding Group ("Derby")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 Derby 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 $850 per month for compilation 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.
15
<PAGE>
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 Reference
----------- ---------------------- ---------
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
10.10 Preferred Stock Exchange Agreement Dingaan/DEI *3
10.11 Stock Purchase Agreement - GoProfit.Com, Inc. *4
16
<PAGE>
Exhibit No. Description of Exhibit Reference
----------- ---------------------- ---------
10.12 Correction Agreement - GoProfit.Com, Inc. *4
10.13 Form 12b-25 -- Filed 9-28-99 Incorporated by
reference
27 Financial Data Schedule Filed herewith
-------------
* 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.
*4 Incorporated by reference to the exhibits filed with the Company's 1999
annual report on Form 10-KSB (Commission File No. 0-24138) filed with the
Securities and Exchange Commission on October 13, 1999.
17
<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 13, 2000
By: /s/ Todd D. Chisholm
-----------------------------------------
Todd D. Chisholm, Chief Financial Officer
Date: October 13, 2000
18
<PAGE>
DIAMOND EQUITIES, INC.
FINANCIAL STATEMENTS
Including the accounts of its subsidiary
TABLE OF CONTENTS
Page
----
Independent Auditors' Report F-1
Consolidated Balance Sheet -- June 30, 2000 F-2
Consolidated Statements of Operations for the years ended June 30,
2000 and 1999 F-3
Consolidated Statement of Stockholders' Equity for the years ended
June 30, 2000 and 1999 F-4
Consolidated Statements of Cash Flows for the years ended June 30,
2000 and 1999 F-5 - F-6
Notes to Consolidated Financial Statements F-7 - F-15
19
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders of
Diamond Equities, Inc.
We have audited the accompanying consolidated balance sheet of Diamond Equities,
Inc. including the accounts of its subsidiary, Precision Plastics Molding, Inc.
as of June 30, 2000, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year ended June 30, 2000. These
financial sare the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of Diamond Equities, Inc, for the period
ended June 30, 1999, were audited by other auditors whose report dated September
16, 1999, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Diamond Equities,
Inc., including the accounts of its subsidiary as of June 32000, and the results
of operations and cash flows for the period ended June 30, 2000, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 6 to the
consolidated financial statements, the Company has accumulated losses from
operations and declining revenue that raise substantial doubt about its ability
to continue as a going concern.
Management's plans in regard to these matters are also described in Note 6. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Mantyla McReynolds
MANTYLA McREYNOLDS
Salt Lake City, Utah
August 4, 2000
F-1
<PAGE>
DIAMOND EQUITIES, INC.
Including the accounts of its subsidiary
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
ASSETS
CURRENT ASSETS
Cash & cash equivalents - Notes 2 & 4 $ 125,049
Accounts receivable (net of allowance $9,960 ) - Note 15 83,607
Interest receivable 3,281
Note receivable- Note 5 15,750
Inventory - Notes 2 & 7 98,581
-----------
TOTAL CURRENT ASSETS 326,268
PROPERTY AND EQUIPMENT - NOTE 8
Property and equipment 1,044,724
Less: Accumulated depreciation (426,768)
-----------
NET PROPERTY AND EQUIPMENT 617,956
OTHER ASSETS
Deposits 6,750
-----------
TOTAL OTHER ASSETS 6,750
-----------
TOTAL ASSETS $ 950,974
===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 143,549
Accrued liabilities 56,443
Accrued preferred dividends - Note 14 17,784
Current portion of capital leases payable - Note 21 2,091
-----------
Total Current Liabilities 219,867
Long-Term Liabilities
Capital leases payable - Note 21 4,378
Less current portion of capital leases (2,091)
-----------
Total Long-Term Liabilities 2,287
-----------
Total Liabilities 222,154
Minority Interest 231,258
STOCKHOLDERS' EQUITY - Note 14
Preferred stock A -- 6%, $.001 par value, convertible,
18,000 shares authorized, 250 issued and outstanding,
liquidation preference of $ 250,000 1
Preferred stock B -- convertible, 18,000 shares
authorized, 15,194 shares issued and outstanding 1,708,684
Capital stock -- 50,000,000 shares authorized,
$.001 par value; 8,280,099 shares issued and outstanding 8,280
Additional paid-in capital 3,606,391
Deficit accumulated during the development stage (4,825,794)
-----------
Total Stockholders' Equity 497,562
-----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 950,974
===========
See accompanying notes to financial statements
F-2
<PAGE>
DIAMOND EQUITIES, INC.
Including the accounts of its subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
JUNE 30, 2000 AND 1999
YEAR YEAR
ENDED ENDED
6/30/00 6/30/99
----------- -----------
Revenues - Note 1 $ 689,289 $ 1,368,510
Cost of sales 584,461 1,063,840
----------- -----------
GROSS PROFIT 104,828 304,670
Marketing, general and administrative 694,113 1,008,333
----------- -----------
Total Operating Expenses 694,113 1,008,333
----------- -----------
NET LOSS FROM OPERATIONS (589,285) (703,663)
Other Income/(Expense)
Interest income $ 3,667 $ 35,919
Interest expense (11,937) (63,665)
Other income 23,696 15,300
Loss from write off of investments - Note 9 (212,906)
Loss from write off of note - Note 5 (261,000)
Loss on legal settlement (22,452)
Loss on sale of asset (12,861)
----------- -----------
TOTAL OTHER INCOME/(EXPENSE) (458,480) (47,759)
----------- -----------
NET LOSS FROM CONTINUING OPERATIONS BEFORE
MINORITY INTEREST AND EXTRAORDINARY ITEM (1,047,765) (751,422)
Minority Interest 104,754 76,588
----------- -----------
NET LOSS FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEM $ (943,011) $ (674,834)
EXTRAORDINARY ITEM
Debt forgiveness income 0 48,624
----------- -----------
LOSS FROM CONTINUING OPERATION (943,011) (626,210)
----------- -----------
NET LOSS $ (943,011) $ (626,210)
=========== ===========
BASIC NET LOSS PER COMMON SHARE
Continuing operations before extraordinary item $ (0.12) $ (0.13)
Extraordinary item 0.00 0.01
----------- -----------
TOTAL $ (0.12) $ (0.12)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,074,265 5,161,715
=========== ===========
See accompanying notes to financial statements
F-3
<PAGE>
DIAMOND EQUITIES, INC.
Including the accounts of its subsidiary
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2000 AND JUNE 30, 1999
<TABLE>
<CAPTION>
PREFERRED STOCK
COMMON STOCK ----------------------------------
--------------- ADDITIONAL SERIES A SERIES B
SHARES COMMON PAID-IN -------------- ------------------ ACCUMULATED
ISSUED STOCK CAPITAL SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
------ ----- ------- ------ ------ ------ ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1998 4,666,099 $ 4,666 $ 2,582,282 0 $ 0 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 for the year ended
June 30, 1999 (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
Conversion of Series B 600,000 600 59,986 (600) (60,586) 0
Stock issued to settle suit 14,000 14 114,780 114,794
Conversion of Series B 300,000 300 29,993 (300) (30,293) 0
Cancelled Series A (100,000) (100) 0 (100,000)
Adjustment to equity
method for GoProfit
minority interest (628,434) (628,434)
Conversion of Preferred
dividends to Series B
Preferred stock 194 194,023 194,023
Preferred dividends (17,481) (17,481)
Net loss for the year ended
June 30, 2000 (943,011) (943,011)
--------- ------- ----------- ---- --- ------- ----------- ----------- -----------
BALANCE, JUNE 30, 2000 8,280,099 $ 8,280 $ 3,606,391 250 $ 1 15,194 $ 1,708,684 $(4,825,794) $ 497,562
=== ==== ========= ======= =========== === === ====== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
DIAMOND EQUITIES, INC.
Including the accounts of its subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
6/30/00 6/30/99
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(943,011) $(626,210)
Minority interest net loss (104,754) (76,588)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 215,378 220,826
Allowance on note and accounts receivable (3,646) 0
Forgiveness of debt 0 (48,624)
Gain on disposal of equipment 0 (12,861)
Loss in investment 300,186 0
Loss on legal settlement 0 22,452
Notes receivable forgiven as compensation for services 0 20,000
Decrease/(increase) in accounts receivable 118,477 37,160
Increase/(decrease) in accounts payable (68,205) 42,236
Increase/(decrease) in other current liabilities (5,166) 53,936
Decrease/(increase) in deposits 1,000 0
Decrease/(increase) in interest receivable 12,658 (14,355)
Decrease/(increase) in inventories 85,562 (95,175)
Decrease/(increase) in other assets 195,893 (24,950)
Increase/(decrease) in deferred income (8,809) 8,809
Decrease/(increase) in prepaid expenses 6,628 (32,633)
--------- ---------
NET CASH USED FOR OPERATING ACTIVITIES (197,809) (525,977)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, machinery and equipment (17,839) (371,294)
Cash loaned for notes receivable 0 (209,800)
Payments received on notes receivable 200,000 109,800
Redemption (purchase) of certificates of deposits 0 505,404
Purchase of business assets net of cash acquired 0 (346,429)
Proceeds on liquidation of other assets 0 42,987
Cash committed and paid under investment agreement 0 (100,000)
--------- ---------
NET CASH USED FOR INVESTING ACTIVITIES 182,161 (369,332)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on lines of credit 0 (250,200)
Payments on notes payable (165,000) (110,885)
Issuance of Preferred Series A 6% Cumulative stock 0 350,000
Minority accrual of preferred dividends (1,119) 0
Proceeds from stock issued by subsidiary 240,000 618,250
Payment of dividends (2,448) (628)
Principal payments on leases (33,435) (101,424)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 37,998 505,113
--------- ---------
NET INCREASE/(DECREASE) IN CASH 22,350 (390,196)
BEGINNING CASH AND CASH EQUIVALENTS 210,035 600,231
--------- ---------
LESS BEGINNING CASH IN GOPROFIT (107,336)
--------- ---------
ENDING CASH AND CASH EQUIVALENTS $ 125,049 210,035
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 1,475 $ 59,521
Cash paid during the year for income/franchise taxes $ 100 $ 800
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
DIAMOND EQUITIES, INC.
Including the accounts of its subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
NONCASH FINANCING ACTIVITIES: 2000 1999
-------- --------
Common stock issued for debt $114,794 $ --
Accounts payable assumed in asset purchase -- 176,859
Capital lease 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
See accompanying notes to financial statements
F-6
<PAGE>
DIAMOND EQUITIES, INC.
Including the accounts of its subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 1 ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts and activity
of Diamond Equities, Inc. (the "Company") and its majority owned
subsidiary Precision Plastics Molding, Inc. (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. 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 majority owned subsidiary,
Precision Plastics Molding, Inc., purchased the assets of a plastic
injection molding business. 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 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. By June 30, 2000 the
Company's ownership in GoProfit dropped to approximately 37%. Due to the
decreased ownership in GoProfit the company switched to the equity method
of accounting for the investment. Thus, the accompanying financial
statements do not include the consolidated accounts of GoProfit. 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.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Includes 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 recognition of
deferred income taxes be measured by the provisions of enacted tax laws
in effect at the date of financial statements.
F-7
<PAGE>
DIAMOND EQUITIES, INC.
Including the accounts of its subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
PROPERTY, MACHINERY AND EQUIPMENT
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. Expenditures for maintenance and repairs are
charged to expense as incurred.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment of product.
ADVERTISING EXPENSES
The Company expenses advertising costs as incurred. Advertising expenses
were $1,796 and $16,884 for the years ended June 30, 2000 and 1999,
respectively.
FINANCIAL INSTRUMENTS
Financial instruments consist primarily of 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.
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. 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, 2000 and 1999.
F-8
<PAGE>
DIAMOND EQUITIES, INC.
Including the accounts of its subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 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
and used by the investee to pay agreed upon expenditures. During fiscal
year 2000 the investee company defaulted on the note. The Company's
ownership in the investee company was transferred to a third party
creditor. The Company was obligated to disburse the funds to pay for the
expenses of the investee company and had no further obligations or
ownership interest in the investee.
NOTE 4 CASH AND CASH EQUIVALENTS
The Company maintains cash balances at banks in Arizona. Accounts are
insured by the Federal Deposit Insurance Corporation up to $100,000. At
June 30, 2000, the Company's uninsured bank balances total $2,847.
NOTE 5 NOTE RECEIVABLE
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. No
payments had been received on the note through June 30, 1998 and the
Company commenced legal proceedings to collect the amount. 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. During fiscal year 2000
the company determined that the note was uncollectable therefore
management wrote the note off to bad debt expense in the amount of
$261,000.
In July 1997 the company made two loans for a total of $15,750 with terms
of 12 months and an interest rate of 9.5% per annum. The original due
dates were in July 1998. The maturity dates have been extended to
December 2000. Interest receivable has been accrued through June 30, 2000
in the amount of $3,281.
NOTE 6 LIQUIDITY
The Company has accumulated losses through June 30, 2000 amounting to
$4,825,794, and has experienced a significant decrease in revenue from
the prior year. These factors raise substantial doubt about the Company's
ability to continue as a going concern.
Management plans include increasing revenue through a joint venture in
its subsidiary and raising capital as needed (see NOTES 18 and 19). The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
F-9
<PAGE>
DIAMOND EQUITIES, INC.
Including the accounts of its subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 7 INVENTORIES
Inventories consist of the following at June 30, 2000:
Raw Materials $ 35,887
Work in Process -0-
Finished Goods 62,694
---------
Total Inventory $ 98,581
=========
NOTE 8 PROPERTY, MACHINERY AND EQUIPMENT
Property, machinery and equipment consist of the following at June 30,
2000:
ACCUMULATED
COST DEPRECIATION NET VALUE
---- ------------ ---------
Equipment $ 914,478 $345,758 $568,720
Leasehold
improvements 51,634 32,988 18,646
Furniture and fixtures 41,217 25,870 15,347
Office equipment 36,145 21,353 14,792
Vehicles 1,250 799 451
---------- -------- --------
TOTALS: $1,044,724 $426,768 $617,956
========== ======== ========
Depreciation expense for the years ended June 30, 2000 and 1999 was
$215,378 and $220,826, respectively.
NOTE 9 BUSINESS ACQUISITIONS
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
(see NOTE 11), 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. The acquisition was
recorded under the purchase method of accounting. The aggregate purchase
price of $1,222,911 was 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. The operating
results for fiscal year 2000 have been included in the consolidated
financial statements.
F-10
<PAGE>
DIAMOND EQUITIES, INC.
Including the accounts of its subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 9 BUSINESS ACQUISITIONS (CONTINUED)
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
an Internet web site and financial search engine for the Internet.
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. Through the end of fiscal year 2000, GoProfit issued
additional shares to outside investors, thus reducing the Company's
ownership to approximately 37%. The reduced ownership percentage during
fiscal year 2000 required the Company to account for this investment
under the equity method. Due to losses incurred by GoProfit, the Company
determined there was no remaining value and wrote off its investment of
$195,893 as of June 30, 2000.
The founders and principals of GoProfit have asserted claims against the
Company to remove restrictions from the common stock previously issued to
the founders and principals. The Company may have a valid rescission
claim against the founders and principals of GoProfit. As of August 8,
2000 there hasn't been any action taken on either part.
The Company has also written off a minority investment in a motorcycle
company which had a book value of $17,013.
NOTE 10 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.
NOTE 11 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.
F-11
<PAGE>
DIAMOND EQUITIES, INC.
Including the accounts of its subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 12 INCOME TAXES
The Company has the following temporary differences and loss carryforward
amounts as of the balance sheet date. The timing difference multiplied by
the estimated tax rate, for the period the temporary differences are
expected to reverse, becomes a deferred tax asset or liability.
DESCRIPTION TAX RATE
----------- --- ----
Net operating loss (expires
through 2020) $ 3,575,012 $ 1,501,505 42%
Valuation allowance (1,501,505) 42%
-----------
Deferred tax asset 6/30/2000 $ 0
===========
The allowance has increased $514,248 from $987,257 as of June 30, 2000.
For the years ending June 30, 2000 and 1999 the Company had no
significant income tax expense or liability as a result of net operating
losses incurred. Currently, there is no reasonable assurance that the
Company will be able to take advantage of deferred tax assets, thus, an
offsetting allowance has been established for the deferred asset.
NOTE 13 OPERATING LEASE
The Company leases its operations facility under an operating lease that
expired in July 1999. The rental agreement has been month to month since
July 1999. Rent expense under the lease was approximately $83,874 and
$86,000 for the years ended June 30, 2000 and 1999.
NOTE 14 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 Company cancelled 100 shares of the Series A Preferred Stock
during the year ended June 30, 2000. The Series A has a liquidation
preference of $250,000. The shares 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.
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.
During the year ended June 30, 2000, the Company converted 900 shares of
the Series B Preferred Stock into 900,000 shares of common stock. The
Company accrued dividends of $15,000 for the year on the Series A
Preferred Stock; the balance due as of June 30, 2000 is $17,784.
In prior years, the Company accrued $194,023 in preferred dividends.
Effective June 30, 2000, those dividends were converted to 194 shares of
Class B Preferred Stock.
COMMON STOCK
For the year ended June 30, 1999, 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.
F-12
<PAGE>
DIAMOND EQUITIES, INC.
Including the accounts of its subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 14 STOCKHOLDERS' EQUITY (CONTINUED)
COMMON STOCK (CONTINUED)
For the year ended June 30, 2000, the Company issued 14,000 shares of
common stock in settlement of a note payable that the Company was in
default to the prior owner of the Precision Plastics subsidiary.
The Company reclassified the minority interest in GoProfit from
additional paid in capital to the minority interest.
NOTE 15 CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily accounts receivable.
Approximately $53,000 of the accounts receivable balance at June 30, 2000
is due from two significant customers. Approximately 52% of the Company's
revenue for the year ended June 30, 2000 was derived from two customers,
including 27% and 25% from each customer.
NOTE 16 EMPLOYEE STOCK OPTION PLAN
Precision Plastics Molding, Inc., adopted an employee stock option plan
in June 1998 pursuant to which options may be granted to key employees
and/or officers who are selected by the Board of Directors. The exercise
price of the options granted through the Plan are 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 Plan
allows granting of up to 2,400,000 shares of Precision common stock. As
of June 30, 2000, 1,500,000 options have been granted and exercised for
services valued at $60,000. No other options have been granted under the
Plan.
NOTE 17 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 has agreed to pay $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
$0 and $33,000 under this agreement during the years ended June 30, 2000
and 1999, respectively. The Company has recorded approximately $46,667,
due under this obligation in accrued liabilities.
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
$20,960 and $34,983 to the officer's accounting firm for the years ended
June 30, 2000 and 1999, respectively.
F-13
<PAGE>
DIAMOND EQUITIES, INC.
Including the accounts of its subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 18 COMMITMENTS AND CONTINGENCIES
On June 15, 1998, Precision entered into an employment agreement with an
employee for an initial term of three years. The agreement was renewable
for additional three year terms, however, in November 1999, the employee
released Precision from the contract.
Precision entered into another employment agreement on July 1, 1998 for
an initial term of three years. The employee is to receive a base salary
of $40,000 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.
On June 26, 2000 the Company entered into a joint venture with National
Plastics, Inc. in which National Plastics will provide molds to the
Company to manufacture the parts. The joint venture will remain in effect
until December 31, 2001.
NOTE 19 SUBSEQUENT EVENT
On June 12, 2000 the Company authorized the sale of 100,000 shares of
common stock that it currently holds in Precision Plastics Molding. This
private placement valued the shares at $0.25 per share for a total of
$25,000. The money was received on July 7, 2000.
NOTE 20 SEGMENT INFORMATION
The Company was operating in one business segment at June 30, 2000. The
Company operates a plastics injection molding operation through its
Precision Plastics subsidiary. The parent Company has no business
operations that generate revenue. However, the parent Company incurs
expenses as it seeks additional business opportunities.
PRECISION PARENT TOTAL
--------- --------- ---------
Revenues $ 689,288 $ 0 $ 689,288
Segment loss (232,255) (660,533) (892,788)
Total assets 906,413 44,561 950,974
Capital expenditures 13,931 3,908 17,839
Depreciation $ 208,514 $ 6,864 $ 215,378
F-14
<PAGE>
DIAMOND EQUITIES, INC.
Including the accounts of its subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 21 CAPITAL LEASE
The Company leases office equipment under capital leases expiring through
June 2002. The following presents future minimum lease payments under
capital lease by year and the present value of minimum lease payments as
of June 30, 2000:
YEAR ENDED JUNE 30, 2000
------------------------
2001 $ 2,400
2002 2,400
-------
Total minimum lease payments 4,800
Less amount representing interest 422
-------
Present value of minimum lease 4,378
payments
Current portion 2,091
Long-term portion $ 2,287
F-15
