U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. |
| Form 10-Q |
(Mark one) |
[ X ] | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2008 |
OR |
[ ] | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| Commission File No. 33-19961 |
| Diamond I, Inc. | ||
| (Exact name of registrant as specified in its charter) |
| DELAWARE | 01-0623010 |
(State or Other Jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
| 8733 Siegen Lane, Suite 309, Baton Rouge, LA 70810 |
| (Address of principal executive offices, including zip code) |
| (225) 341-4004 |
| (Issuer’s telephone number, including area code) |
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 (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 [ ] |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): |
Large accelerated filer [ ] | Accelerated filer [ ] |
Non-accelerated filer [ ] (Do not check if a smaller reporting company) | Smaller reporting company [ X ] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ] |
As of May 16, 2008, there were 352,016,707 shares of the issuer’s common stock outstanding. |
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| PART I - FINANCIAL INFORMATION |
Item 1. Financial Statements |
| INDEX TO FINANCIAL STATEMENTS |
| Page |
Diamond I, Inc. |
Condensed Consolidated Balance Sheets as of March 31, 2008 (unaudited), and December 31, 2007 (audited) | 3 |
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2008 (unaudited) and 2007 (unaudited), and the Period from June 17, 2003 (Inception), Through March 31, 2007 (unaudited) | 4 |
Statement of Stockholders’ Equity for the Three Months Ended March 31, 2008 (unaudited) | 5 |
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 (unaudited) and 2007 (unaudited), and the Period from June 17, 2003 (Inception), Through March 31, 2007 (unaudited) | 6 |
Notes to Condensed Consolidated Financial Statements | 8 |
| DIAMOND I, INC. |
| (a development stage company) |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
| March 31, 2008, and December 31, 2007 |
3/31/08 unaudited | 12/31/07 |
ASSETS |
Current assets |
Cash | $70 | $294 |
Total current assets | 70 | 294 |
Equipment - net of accumulated depreciation of $102,115 and $100,911, respectively | --- | 1,204 |
Total assets | $70 | $1,498 |
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
Current liabilities |
Accounts payable | $4,500 | $4,500 |
Accrued expenses | 368,032 | 293,032 |
Short-term payable - third party | 30,400 | 30,400 |
Short-term note payable - related party | 41,640 | 41,640 |
Accrued interest - shareholders | 8,419 | 7,582 |
Dividend payable on preferred stock | 120,000 | 112,500 |
Total current liabilities | 572,991 | 489,654 |
Commitments |
Stockholders’ equity (deficit) |
Series A Convertible Preferred Stock, $.001 par value, 50,000,000 shares authorized, 500,000 Series A shares issued and outstanding | 500 | 500 |
Common stock, $.001 par value; 700,000,000 shares authorized, 342,016,707 and 342,016,707 shares issued and outstanding | 342,017 | 342,017 |
Subscription receivable | (128,000) | (128,000) |
Additional paid-in capital | 29,865,658 | 29,873,158 |
Deficit accumulated during the development stage | (30,653,096) | (30,575,831) |
Total stockholders’ (deficit) | (572,921) | (488,156) |
Total liabilities and stockholders’ equity (deficit) | $70 | $1,498 |
The accompanying notes are an integral part of these statements. |
| DIAMOND I, INC. |
| (a development stage company) |
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
| For the Three Months Ended March 31, 2008 and 2007, and the Period from June 17, 2003 (Inception), Through March 31, 2008 |
| Three Months Ended March 31, |
(2008) (unaudited) | 2007 (unaudited) | Inception through 3/31/2008 (unaudited) |
Revenues | $--- | $--- | $10,784 |
Internet access costs | --- | --- | (32,850) |
Gross profit (loss) | --- | --- | (22,066) |
OPERATING EXPENSES |
Professional and consulting fees | --- | 202,100 | 4,183,672 |
Compensation expense | 75,000 | 78,000 | 5,257,776 |
Depreciation and amortization | 1,204 | 43,475 | 298,680 |
Impairment loss | --- | --- | 17,473,096 |
General and administrative (excluding professional and consulting fees, compensation expense, depreciation and impairment loss) | 224 | 213 | 3,387,529 |
Total operating expenses | 76,428 | 323,788 | 30,600,753 |
LOSS FROM OPERATIONS | (76,428) | (323,788) | (30,622,819) |
OTHER INCOME (EXPENSE) | (837) | (837) | (30,277) |
NET LOSS | $(77,265) | $(324,625) | $(30,653,096) |
Deemed dividend on preferred stock | $--- | $(---) | $(165,442) |
Cumulative preferred dividends | (7,500) | (7,500) | (120,000) |
Net Loss Charged to Common Shareholders | $(84,765) | $(332,125) | $(30,938,538) |
Net loss applicable to common shareholders |
Basic and diluted | $(0.00) | $(0.00) |
Weighted average number of shares outstanding |
Basic and diluted | 342,016,707 | 289,677,312 |
The accompanying notes are an integral part of these statements. |
| DIAMOND I, INC. |
| (a development stage company) |
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT) |
| For the Three Months Ended March 31, 2008 (unaudited) |
| Preferred Stock | Common Stock |
Shares | Amount | Shares | Amount | Additional Paid-in Capital | Subscription Receivable | Deficit Accumulated During the Development Stage | Total |
Balance, December 31, 2007 | 500,000 | $500 | 342,016,707 | $342,017 | $29,873,158 | $(128,000) | $(30,575,831) | $(488,156) |
Dividend payable on preferred stock | --- | --- | --- | --- | (7,500) | --- | --- | (7,500) |
Net loss | --- | --- | --- | --- | --- | --- | (77,265) | (77,265) |
Balance, March 31, 2008 | 500,000 | $500 | 342,016,707 | $342,017 | $29,865,658 | $(128,000) | $(30,653,096) | $(572,921) |
The accompanying notes are an integral part of these statements. |
| DIAMOND I, INC. |
| (a development stage company) |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| For the Three Months Ended March 31, 2008 and 2007, and the Period from June 17, 2003 (Inception), Through March 31, 2008 |
| Three Months Ended March 31, |
(2008) (unaudited) | 2007 (unaudited) | Inception Through 3/31/08 (unaudited) |
CASH FLOWS FROM OPERATING ACTIVITIES |
Net loss | $(77,265) | $(324,625) | $(30,653,096) |
Adjustments to reconcile net loss to cash used for operating activities: |
Depreciation and amortization | 1,204 | 43,475 | 298,680 |
Stock issued for services and bonuses | --- | 191,000 | 8,276,698 |
Impairment loss and write-down of assets | --- | --- | 17,473,096 |
Warrant expense | --- | --- | 2,200,389 |
Donated capital, officers’ salaries | --- | --- | 279,808 |
Loss on debt extinguishment | --- | --- | 23,000 |
Changes in assets and liabilities: |
Accrued expenses | 75,000 | 75,837 | 368,032 |
Accrued interest | 837 | --- | 8,419 |
Accounts payable | --- | --- | 4,500 |
CASH FLOWS USED IN OPERATING ACTIVITIES | (224) | (14,313) | (1,720,474) |
CASH FLOWS FROM INVESTING ACTIVITIES |
Purchase of equipment | --- | --- | (102,116) |
CASH FLOWS USED IN INVESTING ACTIVITIES | --- | --- | (102,116) |
The accompanying notes are an integral part of these statements. |
| Three Months Ended March 31, |
(2008) (unaudited) | 2007 (unaudited) | Inception Through 3/31/08 (unaudited) |
CASH FLOWS FROM FINANCING ACTIVITIES |
Repayment of related party advances | (14,000) | --- | (73,000) |
Proceeds from related party advances | 2,000 | --- | 102,640 |
Sale of preferred stock and warrants | --- | --- | 500,000 |
Proceeds from exercise of warrants | --- | --- | 742,400 |
Shareholder contributions to capital | --- | 2,220 | 5,220 |
Contract party contributions to capital | --- | 25,200 | --- |
Proceeds from short term payable | 12,000 | --- | 67,400 |
Sale of common stock, net | --- | --- | 478,000 |
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES | --- | 27,420 | 1,822,660 |
NET CHANGE IN CASH | 216 | 13,107 | 70 |
Cash, beginning of period | 294 | 35 | --- |
Cash, end of period | $78 | $13,142 | $70 |
The accompanying notes are an integral part of these statements. |
| DIAMOND I, INC. |
| (a development stage company) |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
March 31, 2008 (unaudited) |
Note 1. Basis of Presentation |
The condensed consolidated balance sheet as of March 31, 2008, the statement of revenues and expenses for the three months ended March 31, 2008 and 2007, and the period from inception (June 17, 2003) through March 31, 2008, the statement of stockholders’ equity (deficit) for the three months ended March 31, 2008, and the statement of cash flows for the three months ended March 31, 2008 and 2007, and the period from inception (June 17, 2003) through March 31, 2008, have been prepared by Diamond I, Inc. (together with its subsidiaries, “Diamond I”) without audit. In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations and cash flows of Diamond I at March 31, 2008, and for all other periods presented, have been made. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted in accordance with the Securities and Exchange Commission’s rules for interim reporting. Accordingly, these financial statements should be read in conjunction with the financial statements and accompanying notes thereto in Diamond I’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007. |
Note 2. Going Concern |
Diamond I has incurred losses totaling $30,653,096 through March 31, 2008, and had limited working capital at March 31, 2008. Because of these conditions, Diamond I will require additional working capital to continue operations and develop the business. Diamond I intends to raise additional working capital either through private placements, public offerings and/or bank financing. |
There are no assurances that Diamond I will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations or obtain additional financing through private placements, public offerings and/or bank financing necessary to support Diamond I’s working capital requirements. To the extent that funds generated from any private placements, public offerings and/or bank financing are insufficient, Diamond I will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to Diamond I. If adequate working capital is not available Diamond I may not continue its operations or execute its business plan. |
These conditions raise substantial doubt about Diamond I's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should Diamond I be unable to continue as a going concern. |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
General |
References to “us”, “we” and “our” include our subsidiary, Diamond I Technology, Inc., unless otherwise indicated. |
Certain statements contained herein are not based on historical facts and are "forward-looking statements" within the meaning of Section 21A of the Securities Exchange Act of 1934. Forward-looking statements which are based on various assumptions (some of which are beyond the Company's control), may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "estimate," "anticipate," "continue," or similar terms or variations on those terms, or the negative of these terms. Actual results could differ materially from those set forth in forward-looking statements, due to a variety of factors, including, but not limited to, events that deprive us of the services of our president and largest shareholder, David Loflin, whether we are able to obtain adequate capital with which to pursue our full business plan; and other uncertainties, all of which are difficult to predict and many of which are beyond our control. |
We do not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. |
Online Casinos. During the second quarter of 2008, We expect to begin to generate revenues from IslandBlueCasino.net and VegasBetLive.com, through our click-through advertising programs. Access to capital would permit us to expand our cadre of online casinos at a greater rate. |
We have launched IslandBlueCasino.net and VegasBetLive.com, and intend to launch additional online gaming web sites, as a means to creating a revenue stream for our company, much the same way that traditional magazine publishers generate revenues from their businesses: advertising. As traditional magazine publishers seek ever-increasing subscription rates upon which to base advertising rates, we seek to establish an ever-increasing number of Internet visitors, or “traffic”, to each of our gaming web pages, thereby increasing mathematically our opportunities to generate revenues through “click-through” advertising and e-commerce commissions, through the use of click-through advertising programs, including Google Adsense(TM), Commission Junction, AdBright and LinkShare. To date, this strategy has proven to be successful, as we have begun to derive click-through advertising revenues from our online casinos. |
Oil and Gas. We have not generated any revenues from this line of business. |
In January 2008, following a period during which our management had received numerous business propositions from oil and gas industry participants, our board of directors determined to diversify our business first into the oil and gas industry. To that end, in January 2008, we entered into an agreement with a private Texas company to acquire six producing oil and gas properties. It was our intention to complete the acquisition of the first of these properties by the end of the first quarter of 2008. However, due to circumstances beyond our control, we have not yet completed the acquisition of the first property. We believe that we will be able to do so, during the second quarter of 2008. |
We are pursuing a strategy of acquiring near-term oil and gas production without sacrificing our long-term success. To accomplish this objective we are focused on: acquiring and, where appropriate, developing oil and gas production, including secondary recovery operations; lease acquisitions in areas of established production, thereby achieving stable, predictable production rates; and developing and maintaining a low-risk property portfolio through diversified oil and gas activities. Over time, we intend to focus our efforts on the development of complete energy solutions, through the development of a vertically integrated company. We believe our strategy will result in our being largely insulated from energy market fluctuations, while participating in one of the most profitable industries in the world. We cannot make any assurances that we will be successful in establishing our oil and gas operations or that, if established, our oil and gas operations will ever earn a profit. |
Wireless Gaming. We have not generated any revenues from this line of business. |
During 2007, we completed the development of our GS3(TM) (third-generation) wireless hand-held gaming unit, the hand-held component of our WifiCasino(TM) wireless gaming system. However, we were unable to make any significant progress in commercially exploiting this product, due our inability to obtain needed capital. Unless and until we obtain approximately $200,000, we will be unable to achieve significant progress in exploiting our WifiCasino product. |
Critical Accounting Policies |
While we believe that the factors considered provide a meaningful basis for the accounting policies applied in the preparation of the consolidated financial statements, we cannot guarantee that our estimates and assumptions will be accurate. If such estimates and assumptions prove to be inaccurate, we may be required to make adjustments to these estimates in future periods. |
Revenue Recognition. We charge our customers service fees for Internet access and recognize the revenue in the month the services are provided. |
Litigation and Tax Assessments. Should we become involved in lawsuits, we intend to assess the likelihood of any adverse judgments or outcomes of any of these matters as well as the potential range of probable losses. A determination of the amount of accrual required, if any, for these contingencies will be made after careful analysis of each matter. The required accrual may change from time to time, due to new developments in any matter or changes in approach (such as a change in settlement strategy) in dealing with these matters. |
Additionally, in the future, we may become engaged in various tax audits by federal and state governmental authorities incidental to our business activities. We anticipate that we will record reserves for any estimated probable losses for any such proceeding. |
Stock-Based Compensation. We account for stock-based compensation based on the provisions of Statement of Financial Accounting Standards No. 123. In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment, (FAS-123R). This statement replaces FAS-123, Accounting for Stock-Based Compensation, supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FAS-95, Statement of Cash Flows. FAS-123R requires companies to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees and to record compensation cost for all stock awards granted after the required effective date and for awards modified, repurchased or cancelled after that date. The scope of FAS-123R encompasses a wide range of share-based compensation arrangements, including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. FAS-123R was effective for us on January 1, 2006. |
New Accounting Pronouncements. In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective January 1, 2008. We do not believe this statement will adversely impact our financial statements. |
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 applies to all entities and is effective for fiscal years beginning after November 15, 2007. |
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”), which establishes principles and requirements for how the acquirer shall recognize and measure in its financial statements the identifiable assets acquired, liabilities assumed, any noncontrolling interest in the acquiree and goodwill acquired in a business combination. SFAS No. 141(R) is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently assessing the potential impact that the adoption of SFAS No. 141(R) will have on its financial position and results of operations. |
Results of Operations - First Quarter 2008 vs. First Quarter 2007 |
Revenues. We generated no revenues during the First Quarter 2008 from our Internet click-through advertising program. During the second quarter of 2008, we expect to begin to generate monthly revenues from this program. We did not have any revenue during the First Quarter 2007. |
Should we acquire one or more oil and gas properties, it is expected that we would derive revenues from such property. However, we must obtain capital with which to many any such acquisition, of which there is no assurance. |
Expenses. Our operating expenses during the First Quarter 2008 were $76,428 compared to $323,788 for the First Quarter 2007. Our non-cash operating expenses, which include stock issued for services, accrued salaries and depreciation and amortization, totalled $76,204 for the First Quarter 2008 compared to $323,575 for the First Quarter 2007. |
Until we obtain operating capital, it can be expected that we will issue shares of our common stock to third-parties in payment of services rendered on our behalf. |
Financial Condition |
We have incurred losses from inception of $30,653,088 and we have lacked adequate capital with which to accomplish our business objectives. At March 31, 2008, we had a working capital deficit of $572,921 and we remain substantially illiquid. |
Our Capital Needs |
We believe that our current level of operations can be maintained for the next twelve months. We anticipate our capital needs will be met through the sale of shares for cash, exercise of options and issuance of shares for services. However, to achieve our business objectives, we must obtain at least $500,000. To date, we have not received a commitment for capital in any amount and we cannot assure you that we will be able to obtain any capital. Should we fail to obtain such financing, our plan of business would likely be unsuccessful and we may be forced to cease operations. |
Capital Expenditures |
During the First Quarter 2008 and the First Quarter 2007, we made no our capital expenditures. |
Item 3. Quantitative and Qualitative Disclosures About Market Risk. |
Not applicable. |
Item 4T. Controls and Procedures. |
Evaluation of Controls and Procedures |
As of March 31, 2008, an evaluation was performed by our President and Acting Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including our President and Acting Chief Financial Officer, concluded that our disclosure controls and procedures were not effective as of March 31, 2008. Our evaluation identified deficiencies related to the accuracy and completeness of our accounting records and disclosures resulting in substantial adjustments identified by our independent auditors. These deficiencies are due to the limited resources currently available to the Company. Management is making efforts to utilize its resources more effectively to eliminate these deficiencies until the Company is able to obtain sufficient funds for business development, including improvements in internal controls and procedures. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to March 31, 2008. |
Management’s Assessment of Internal Controls Over Financial Reporting |
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2008, using the framework set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon this assessment, our management concluded that, as of March 31, 2008, our internal control over financial reporting was not effective. Due to our lack of capital, our management determined that our control environment, risk assessment functions, control activities, information and communication functions and monitoring systems were not effective. |
PART II - OTHER INFORMATION |
Item 1. Legal Proceedings. |
We are not currently involved in any legal proceedings. |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. |
None which have not been previously reported. |
Item 3. Defaults upon Senior Securities. |
None. |
Item 4. Submission of Matters to a Vote of Security Holders. |
No matter was submitted to our shareholders, during the three months ended March 31, 2008. |
Item 5. Other Information. |
None. |
Item 6. Exhibits. |
Exhibit No. | Description |
31.1 * | Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(b) |
31.2 * | Certification of Chief Accounting Officer required by Rule 13a-14(a) or Rule 15d-14(b) |
32.1 * | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 |
32.1 * | Certification of Chief Accounting Officer Pursuant to 18 U.S.C. Section 1350 |
* filed herewith. |
SIGNATURES |
In accordance with the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. |
Date: May 20, 2008. | DIAMOND I, INC. |
By: | /s/ DAVID LOFLIN |
David Loflin |
President and Acting Chief Financial Officer |
