<P>
DIAMOND INTERNATIONAL GROUP, INC.
<P>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2000
<P>
AUDITOR'S REPORT
<P>
To the Board of Directors and Stockholders of
Diamond International Group, Inc.
<P>
We have reviewed the pro forma adjustments reflecting the
event described in Note 1 and the application of those
adjustments to the historical amounts in the accompanying
pro forma consolidated balance sheet of Diamond
International Group, Inc. as of April 30, 2000, and the
related pro forma consolidated statement of income and
accumulated deficit for the four months then ended. These
historical financial statements are derived from the April
30, 2000 historical consolidated financial statements of
Diamond International Group, Inc., which were reviewed by
us, and the audited financial statements of Segway I Corp.
as of March 31, 2000, which were audited by Varma and
Associates, Certified Public Accountants. Our review was
conducted in accordance with Statements on Standards for
Accounting and Review Services issued by the American
Institute of Certified Public Accountants. All information
included in these pro forma consolidated financial
statements is the representation of the management of
Diamond International Group, Inc. and Segway I Corp.
<P>
A review is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion on
management's assumptions, the pro forma adjustments and the
application of those adjustments to historical information.
Accordingly, we do not express such an opinion.
<P>
The objective of this pro forma financial information is to
show what the significant effects on the historical
information might have been had the event described in Note
1 occurred at an earlier date. However, the pro forma
financial statements are not necessarily indicative of the
results of operations or related effects on financial
position that would have been attained had the
aforementioned event actually occurred earlier.
<P>
Based on our review, nothing came to our attention that
caused us to believe that management's assumptions do not
provide a reasonable basis for presenting the significant
effects directly attributable to the aforementioned event
described in Note 1, that the related pro forma adjustments
do not give appropriate effect to those assumptions, or that
the pro forma column does not reflect the proper application
of those adjustments to the historical financial statement
amounts in the pro forma consolidated balance sheet as of
April 30, 2000, and the pro forma consolidated statement of
income and accumulated deficit for the four months then
ended.
<P>
/s/ Weisberg, Mole & Company, LLP
- -----------------------------------
Hicksville, New York
May 24, 2000
<P>
DIAMOND INTERNATIONAL GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
April 30, 2000
<P>
ASSETS
Diamond Segway Eliminations Consolidated
CURRENT ASSETS
Cash and cash equivalents $ 94,187 $ 350 $ $ 94,537
Accounts receivable (net of
allowance for doubtful accounts
of$ll,181) 1,477,927 1,477,927
Prepaid expenses 71,545 71,545
--------------------------------------------------------
Total Current Assets 1,643,659 350 - 1,644,009
FIXED ASSETS
Furniture and fixtures 591,025 591,025
Machinery and equipment 817,595 817,595
Leasehold improvements 803,664 803,664
Delivery equipment 33,844 33,844
Equipment held under
capital leases 937,472 937,472
---------------------------------------------------------
3,183,600 3,183,600
Less: Accumulated Depreciation (2,223,019) (2,223,019)
----------------------------------------------------------
Fixed Assets , net 960,581 - - 960,581
----------------------------------------------------------
OTHER ASSETS
Investment in subsidiary (170) 170 -
Purchase price in excess of net book
value of acquired company 95,170 95,170
Security deposits 6,357 6,357
----------------------------------------------------------
Total Other Assets 101,357 - 170 101,527
----------------------------------------------------------
Total Assets $ 2,705,597 $ 350 $170 $ 2,706,117
==========================================================
<P>
LIABILITIES AND STOCKHOLDERS' EQUITY
<P>
CURRENT LIABILITIES
Loan payment - State Bank of
Long Island $ 1,011,059 $ $ $ 1,011,059
Obligations under capital
leases - current 167,030 167,030
Accounts payable 381,338 381,338
Accrued expenses and taxes 399,526 520 - 400,046
----------------------------------------------------------
Told Current Liabilities 1,958,953 520 - 1,959,473
----------------------------------------------------------
LONG-TERM LIABILITIES
Loan payable - stockholders 562,854 562,854
Obligations under capital leases
long-term 171,964 171,964
----------------------------------------------------------
Total Long-term Liabilities 734,818 - - 734,818
-----------------------------------------------------------
Total Liabilities 2,693,771 520 - 2,694,291
-----------------------------------------------------------
<P>
STOCKHOLDERS' EQUITY
Common stock - $.0001 par value; 100,000,000 shares
authorized 46,000,000 shares issued
And outstanding 4,600 500 (500) 4,600
Additional paid-in capital 1,550,237 1,550,237
Accumulated deficit (1,228,011) (670) 670 (1,228,011)
Notes receivable from
stock sales (315,000) (315,000)
-----------------------------------------------------------
Total Stockholders' Equity 11,826 (170) 170 11,826
-----------------------------------------------------------
Total Liabilities and Stockholders'
Equity 2,705,597 $350 $170 $ 2,706,117
===========================================================
See Accountants pro forma and note to
pro forma financial statements
<P>
Page 2
<P>
DIAMOND INTERNATIONAL GROUP, INC
PRO FORMA CONSOLIDATED STATEMENT OF
INCOME AND ACCUMULATED DEFICIT
<P>
For the Four Months Ended April 30, 2000
Diamond Segway Consolidated
Fulfillment Income $ 2,420,383 $ $ 2,420,383
<P>
Cost of Operations 1,573,477 1,573,477
-------------------------------------------------
Gross Profit 846,906 - 846,906
Selling, general and administration
Expenses 584,332 670 585,002
------------------------------------------------
Income before interests depreciation
and amortization 262,574 (670) 261,904
------------------------------------------------
Other Expenses
Interest expense 78,095 78,095
Depreciation and amortization 80,000 80,000
------------------------------------------------
Total Other Expenses 158,095 - 158,095
------------------------------------------------
Net Income 104,479 (670) 103,809
<P>
Accumulated deficit -
January 1, 2000 (1,332,490) - (1,332,490)
------------------------------------------------
Accumulated deficit -
April 30, 2000 (1,228,011) (670) (1,228,681)
================================================
See Accountants' pro forma report to
pro forma financial statements.
<P>
Page 3
<P>
DIAMOND INTERNATIONAL GROUP, INC.
<P>
NOTE TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
<P>
April 30, 2000
<P>
NOTE 1 ACQUISITION OF COMPANY
<P>
In May 2000, Diamond International Group, Inc. ("Diamond")
entered into an agreement to purchase all of the outstanding
stock of Segway I Corp. ("Segway"). The agreement provides
for a cash payment of $95,000 and 5,000 shares of $.0001 par
value stock of Diamond to the owners of Segway in exchange
for all of the common stock of Segway. These pro forma
financial statements are based on the transaction having
taken place on April 30, 2000 and reflect the financial
statements of Diamond as of that date as reviewed by
Weisberg, Mole' & Company, LLP, Certified Public Accountants
combined with the financial statements of Segway as of that
date as reviewed by Varma and Associates, Certified Public
Accountants. The resulting pro forma consolidated financial
statements reflect the effect on those historical financial
statements.
<P>
DIAMOND INTERNATIONAL GROUP, INC.
TABLE OF CONTENTS
April 30,2000
PAGE
Accountants' Review Report 1
Consolidated Balance Sheet 2
Consolidated Statement of Income 3
Consolidated Statement of Stockholders' Deficit 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6 - 10
<P
ACCOUNTANT'S REPORT
<P>
To the Board of Directors and Stockholders of
Diamond International Group, Inc.
<P>
We have reviewed the accompanying consolidated balance sheet
of Diamond International Group, Inc. as of April 30, 2000,
and the related consolidated statements of income,
stockholders' deficit and cash flows for the four months
then ended, in accordance with Statements on Standards,; for
Accounting and Review Services issued by the American
Institute of Certified Public Accountants. All information
included in these consolidated financial statements is the
representation of the management of Diamond International
Group, Inc.
<P>
A review consists principally of inquiries of company
personnel and analytical procedures applied to financial
data. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding
the consolidated financial statements taken as a whole.
Accordingly, we do not express such an opinion.
<P>
Based on our review, we are not aware of any material
modifications that should be made to the accompanying
consolidated financial statements in order for them to be in
conformity with generally accepted accounting principles.
<P>
/s/ Weisberg, Mole & Company, L.L.P.
- --------------------------------------
Hicksville, New York
May 24, 2000
<P>
DIAMOND INTERNATIONAL GROUP, INC.
CONSOLIDATED BALANCE SHEET
April 30, 2000
<P>
ASSETS
CURRENT ASSETS
Cash and cash equivalents - note 1 $94,187
Accounts receivable (net of allowance for doubtful accounts
of$11,181)-note 2 1,477,927
Prepaid expenses 71,545
---------------
Total Current Assets 1,643,659
<P>
FIXED ASSETS - notes 1 and 3
Furniture and fixtures 591,025
Machinery and equipment 817,595
Leasehold improvements 803,664
Delivery equipment 33,844
Equipment held under capital leases 937,472
---------------
3,183,600
Less: Accumulated Depreciation (2,223,019)
---------------
Fixed Assets, net - 960,581
---------------
OTHER ASSETS
Security deposits 6,357
---------------
Total Assets $2,610,597
===============
<P>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<P>
CURRENT LIABILITIES
Loan payable - State Bank of Long Island - notes 2 and 3 1,011,059
Obligations under capital leases -current - note 6 167,030
Accounts payable 381,338
Accrued expenses and taxes 399,526
--------------
Total Current Liabilities 1,958,953
<P>
LONG-TERM LIABILITIES
Loan payable - stockholder- note 4 467,854
Obligations under capital leases - long-term - note 6 171,964
--------------
Total Long-term Liabilities 639,818
--------------
Total Liabilities 2,598,771
--------------
COMMITMENTS AND CONTINGENCIES - note 6
<P>
STOCKHOLDERS' DEFICIT
Common stock - $.0001 par value, 100,000,000 shares
authorized, 46,000,000 shares issued and outstanding 4,600
Additional paid-in capital 1,550,237
Accumulated deficit (1,228,011)
Notes receivable from stock sales (315,000)
---------------
Total Stockholders Deficit 11,826
---------------
Total Liabilities and Stockholders' Deficit $2,610,597
===============
<P>
DIAMOND INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENT OF INCOME
For the Four Months Ended April 30, 2000
Fulfillment Income $2,420,383
<P>
Cost of Operations 1,573,477
<P>
Gross Profit 846,906
<P>
Selling, general and administrative expenses 584,332
<P>
Income before interest, depreciation and amortization 262,574
<P>
Other Expenses
Interest expense 78,095
Depreciation and amortization 80,000
<P>
Total Other Expenses 158,095
<P>
Net Income $104,479
<P>
DIAMOND INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<P>
For the Four Months Ended April 30, 2000
Notes
Additional Accumu- Receivable
Common Paid-In lated from
Shares Stock Capital Deficit Stock Sales Total
--------------------------------------------------------------------
Balance at
January 1, 2000 46,000,000 $ 4,600 $1,550,237 $(1,332,490)$(560,000) $(337,653)
<P>
Repayment of notes
receivables from
stock sales - - - - 245,000 245,000
<P>
Net Income - - - 104,479 - 104,479
---------------------------------------------------------------------
Balance at
April 30, 2000 46,000,000 $ 4,600 $1,550,237 $(1,228,011) $(315,000)$ 11,826
======================================================================
<P>
DIAMOND INTERNATIONAL GROUP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Four months Ended April 30, 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income 104,479
<P>
Adjustments to reconcile net income to net cash
provided operating activities;
Depreciation and amortization
Changes in assets and liabilities 80,000
Accounts receivable (210,435)
Prepaid expenses (10,368)
Accounts payable 67,898
Accrued expenses and taxes (68,412)
------------
Total adjustments (141,317)
Net Cash Used in Operating Activities (36,838)
<P>
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from notes receivable - stock sales 245,000
Purchases of machinery and equipment (86,506)
------------
Net Cash Provided by Investing Activities 158,494
<P>
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in loan payable - State Bank of Long Island 70,391
Principal payments of capital lease obligations (80,815)
Repayment of loan payable - shareholder (96,285)
------------
Net Cash Used in Financing Activities (106,709)
------------
Net Increase in Cash and Cash Equivalents 14,947
<P>
Cash and cash equivalents - beginning of period 79,240
-------------
Cash and cash equivalents - end of period $94,187
=============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $78,095
=============
State income tax paid 325
=============
Non-cash investing / financing activities;
Capital lease obligations $39,960
=============
<P>
DIAMOND INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 3O,2000
<P>
NOTE I - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
<P>
Nature of Business and Significant Customers
- --------------------------------------------
<P>
Diamond International Group, Inc, ("Diamond") was
incorporated in November, 1998 for the express purpose of
acquiring all of the outstanding common stock of H. Y.
Applied Inter-Data Services, Inc, ("Hyaid"). Hyaid operates
a computerized order fulfillment service for clients in the
direct mail order business.
<P>
On January 29, 1999, Diamond acquired all of the outstanding
common stock of Hyaid in exchange for 18,462,404 shares of
newly issued Diamond common stock. This acquisition has
been accounted for as a pooling of interests.
<P>
Principles of consolidation
- ------------------------
<P>
The consolidated financial statements include the accounts
of Diamond and Hyaid (together, the "Company"). All
significant intercompany accounts and transactions have been
eliminated.
<P>
Use of Estimates
- -----------------
<P>
The preparation of the financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
<P>
Revenue Recognition
- -------------------
<P>
Revenue is recorded upon the performance of fulfilment and
other services for the Company's clients. Revenue from
reimbursable expenses is recorded in the same period as the
corresponding expenses.
<P>
Concentrations
- ---------------
<P>
Sales to three major customers during the period ended April
30, 2000 amounted to 20%, 17% and 15% of sales.
<P>
DIAMOND INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30,2000
<P>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
<P>
Fixed Assets and Leases
- -----------------------
<P>
Fixed assets are recorded at cost and are depreciated using
the straight-line method over the estimated useful lives of
the assets, generally 3 to 10 years. Computer and office
equipment that are acquired under leases, which meet certain
criteria evidencing substantive ownership by the Company,
are capitalized and the related capital lease obligations
are included in current and long-term liabilities. Related
amortization and interest are charged to expense over the
lease term. Leases not meeting the criteria are accounted
for as operating leases, with rent payments being charged to
expense as incurred.
<P>
Income Taxes
- ------------
<P>
Diamond applies the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). SFAS 109 requires a company to recognize
deferred tax liabilities and assets for the expected future
tax consequences of events that have been recognized in a
company's financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined
based on the difference between the financial statement
carrying amounts and tax bases of assets and liabilities
using enacted tax rates in effect in the years in which the
differences are expected to reverse. Differences between
taxable income and income for financial statement purposes
result from the recognition of certain income and expense
items for tax purposes in periods which differ from those
used for financial statement purposes.
<P>
Advertising
- -------------
<P>
The Company expenses advertising costs as they are incurred.
<P>
Cash and Cash Equivalents
- --------------------------
<P>
The Company considers all short-term investments with an
original maturity of three months or less to be cash
equivalents.
<P>
DIAMOND INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30,2000
<P>
NOTE- 2 - ACCOUNTS RECEIVABLE
<P>
Pursuant to the terms and conditions of a Revolving Line of
Credit with State Bank of Long Island dated July 30, 1999, a
credit line of $1,100,000 is available to the Company (Note
3). Advances are made against the credit line based upon
the value of accounts receivable, considered eligible by the
bank. The limit on advances is 80% of the eligible
receivables up to 150 days (180 days on receivables from one
major customer).
<P>
At April 30, 2000, accounts- receivable from three major
customers amounted to 24%, 20% and 15% of total accounts
receivable.
<P>
NOTE 3 - LOAN PAYABLE - STATE BANK OF LONG ISLAND
<P>
The Company entered into a revolving line of credit
agreement with State Bank of Long Island (the "Line of
Credit") in the amount of $1,100,000. The Line of Credit
provides for advances subject to a limit of 80% of eligible
accounts receivable, as defined. Repayments of interest
must be made on a monthly basis at the rate of 2.5% per
annum in excess of State Bank of Long Island's prime rate of
interest. Principal payments are payable on demand at any
time during the term of the Line of Credit. The Line of
Credit is secured by a security interest in all of the
assets of the Company, as well as a $200,000 life insurance
policy on a stockholder of the Company. Additionally, the
Company subordinated advances in the amount of $327,500 due
to the stockholder of the Company (Note 4).
<P>
The Line of Credit provides for certain covenants which (a)
prevent the Company from incurring, without prior written
consent, capital expenditures in excess of$ 100,000 per
year, (b) prevent the Company from paying cash dividends to
its shareholders and (c) report the operating results of the
Company on a timely basis.
<P>
The Line of Credit expires on May 31, 2000, at which time
all unpaid principal and interest are due.
<P>
NOTE 4 - LOAN PAYABLE - STOCKHOLDER
<P>
As of April 30, 2000, a stockholder of the Company made
unsecured advances to the Company for working capital
purposes aggregating $467,854. Interest expense has not
been imputed on the advances. In connection with the Line of
Credit (Note 3), $327,500 of these advances have been
subordinated.
<P>
DIAMOND INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30,2000
<P>
NOTE 5 - RELATED PARTY TRANSACTIONS
<P>
During the period ended April 30, 2000, the Company paid
salaries and other fees to a stockholder in the approximate
amount of $109,000.
<P>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
<P>
Leases
- ------
<P>
The Company has entered into various non-cancelable capital
lease agreements for computer and office equipment. The,
Company has also entered into non-cancelable operating lease
agreements for their three operating facilities and computer
equipment. The leases expire in varying periods through
2003. Rent expense recorded under such operating leases
amounted to $143,922 for the period ended April 30, 2000.
<P>
Future minimum lease payments at April '30, 2000 are as
follows:
<P>
Capital Operating
Year Ended Lease Lease
April 30,2001 $207,362 336,858
April 30, 2002 162,196 217,158
April 30, 2003 14,916 157,755
April 30, 2004 10,644 -
April 30, 2005 7,169 -
---------------------------------
Total Minimum Lease Payments 402,287 711,771
Less: Amount Representing Interest (63,293) ===========
-----------
Present Value of Minimum Lease Payments $338,994
===========
<P>
Accumulated amortization for assets under capital leases was
$612,998 as of April 30, 2000.
<p>
Going Concern
- -------------
<P>
As shown in the accompanying financial statements, as of
April 30, 2000, the Company's current liabilities exceeded
its current assets by $315,294, This factor creates an
uncertainty as to the Company's ability to continue as a
going concern. The Company's plans include vigorous cost
controls, aggressive marketing strategies and additional
financing on an as needed basis, including a public
offering.
<P>
DIAMOND INTERNATIONAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
April 30, 2000
<P>
NOTE 7 - PROFIT SHARING PLAN
<P>
The Company maintains a 401 (k) plan for substantially all
full-time employees of the Company. Employer contributions
are voluntary and at the discretion of the stockholder. The
Company did not contribute to the plan for the period ended
April 30,2000.
<P>
NOTE 8 - INCOME TAXES
<P>
A reconciliation of the tax provision at the federal
statutory rate to the effective tax rate is as follows:
<P>
Tax provision at federal statutory rate 34.0 %
Net operating loss carryforwards (34.0)%
---------
0.0 %
=========
<P>
Deferred tax assets are comprised of the following at April
30, 2000:
Federal State
Net Operating Loss Carryforward $60,112 $15,911
Less: Valuation Allowance (60,112) (15,911)
----------------------
$ 0 $ 0
======================
<P>
Net operating loss carryforwards for federal income taxes of
approximately $281,000 expire in the year 2014.
<P>
DIAMOND INTERNATIONAL GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
<P>
AUDITORS' REPORT
<P>
To the Stockholders of
<P>
Diamond International Group, Inc.
<P>
We have audited the accompanying consolidated balance sheet
of Diamond International Group, Inc. as of December 31, 1999
and 1998 and the related consolidated statements of
operations, and stockholders' deficit and cash flows for the
years then ended. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
<P>
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures on the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
<P>
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Diamond International Group, Inc. as of December
31, 1999 and 1998, and the results of its operations and its
cash flows for the years ended in conformity with generally
accepted accounting principles.
<P>
Our audits were conducted for the purpose of forming an
opinion on the basic financial statements taken as a whole.
The information included in the accompanying schedules of
cost of operations and selling, general and administrative
expenses on pages 11 - 12 is presented for purposes of
additional analysis and is not a required part of the basic
financial statements. Such information has been subjected
to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, is fairly stated
in all materials respects in relation to the basic financial
statements taken as a whole.
<P>
/s/ Weisberg, Mole & Company, LLP
- ---------------------------------------
Hicksville, New York
March 3, 2000
<P>
DIAMOND INTERNATIONAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
<P>
ASSETS
1999 1998
----------------------
CURRENT ASSETS
Cash and cash equivalents - note 1 $ 79,240 $ 30,630
Accounts receivable 1,267,492 1,329,758
Prepaid expenses 61,177 28,684
----------------------------
Total Current Assets 1,407,909 1,389,072
<P>
FIXED ASSETS - notes 1 and 3
Furniture and fixtures 591,025 588,037
Machinery and equipment 746,762 650,497
Leasehold improvements 758,083 447,367
Delivery equipment 33,844 33,844
Equipment held under capital leases 927,421 874,255
----------------------------
3,057,135 2,594,000
Less: Accumulated Depreciation (2,143,020) (1,911,469)
----------------------------
<P>
Fixed Assets net 914,115 682,531
----------------------------
OTHER ASSETS
Security deposits 6,357 7,983
----------------------------
Total Assets $2,328,381 2,079,586
============================
<P>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<P>
CURRENT LIABILITIES
Loans payable - State Bank of Long Island
notes 2 and 3 $940,668 1,040,178
Obligations under capital leases -current - note 6 190,898 219,826
Accounts payable 313,440 287,103
Accrued expenses and taxes 467,938 191,058
Customer deposits - note 1 - 32,713
----------------------------
Total Current Liabilities 1,912,944 1,770,878
<P>
LONG-TERM LIABILITIES
Loans payable - shareholders- note 4 564,139 386,509
Obligations under capital leases -
long-term - note 6 188,951 289,220
----------------------------
Total Long-term Liabilities 753,090 675,729
----------------------------
Total Liabilities 2,666,034 2,446,607
<P>
COMMITMENTS AND CONTINGENCIES - note 6
<P>
STOCKHOLDERS' DEFICIT
Common stock - $.0001 par value; 100,000,000 shares authorized;
46,000,000 shares issued and outstanding
in 1999; 20,200,000 issued and outstanding in 1998 4,600 2,020
Additional paid-in capital 1,550,237 550,517
Accumulated deficit (1,332,490) (919,558)
Notes receivable from stock sales (560,000) -
----------------------------
Total Stockholders, Deficit (337,653) (367,021)
Total Liabilities and Stockholders' Deficit $2,328,381 $2,079,586
=============================
<P>
See notes to financial statements.
Page 2
<P>
DIAMOND INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<P>
For the Years Ended December 31,
1999 1998
-------------------------
Fulfillment Income $5,936,204 $ 5,641,872
<P>
Cost of Operations 4,104,926 3,738,933
---------------------------
Gross Profit 1,831,278 1,902,939
<P>
Selling, general and administrative expenses 1,691,326 1,707,607
---------------------------
Income (loss) before interest, depreciation
and amortization 139,952 195,332
<P>
Other Expenses
Interest expense 260,583 209,545
Depreciation and amortization 231,551 222,904
Registration and issuance costs 60,000 -
--------------------------
<P>
Total Other Expenses 552,134 432,449
--------------------------
Loss before provision for income taxes (412,182) (237,117)
<P>
Provision for income taxes - notes 1 and 8 750 325
--------------------------
Net loss $ (412,932) $ (237,442)
==========================
<P>
See notes to financial statements.
Page 3
<P>
DIAMOND INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<P>
For the Years Ended December 31, 1999 and 1998
Notes
Additional Accumu- Receivable
Common Paid-In lated from
Shares Stock Capital Deficit Stock Sales Total
Balance at
January 1, 1998 $ - $ - $ - $ - $ - $ -
<p>
Formation of Diamond
International Group,
Inc. and issuances
of common stock 1,737,596 174 1,566 - - 1,740
<P>
Pooling of interests 18,462,404 1,846 548,951 (682,116) - (131,319)
<P>
Net Loss - - - (237,442) - (237,442)
--------------------------------------------------------------------
Balance at
December 31, 1998 20,200,000 2,020 550,517 (919,558) - (367,021)
<P>
Issuance of
Common Stock 23,800,000 2,380 159,920 - - 162,300
<P>
Exercising of Warrants 2,000,000 200 839,800 - (560,000) 280,000
<P>
Net Loss - - - (412,932) - (412,932)
--------------------------------------------------------------------
Balance at
December 31, 1999 46,000,000 4,600 1,550,237(1,332,490)(560,000) (337,653)
====================================================================
<P>
See notes to financial statements
<P>
Page 4
<P>
DIAMOND INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<P>
For the Years Ended December 31,
1999 1998
----------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(412,932) $ (235,652)
----------------------------
Adjustments to reconcile net loss to net
cash provided by
(used in) operating activities:
Depreciation and amortization 231,551 222,904
Changes in assets and liabilities:
Accounts receivable 62,266 (222,742)
Prepaid expenses (32,493) 77,483
Security deposits 1,626 (26)
Accounts payable 26,337 34,976
Accrued expenses and taxes 276,880 80,372
Customer deposits (32,713) 21,383
----------------------------
Total adjustments 533,454 214,350
Net Cash Provided by (Used in)
Operating Activities 120,522 (21,302)
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of machinery and equipment (409,969) (64,754)
Other - 1,400
Net Cash Used in Investing Activities (409,969) (63,354)
<P>
CASH FLOWS FROM FINANCING ACTIVITIES
Change in loan payable - State
Bank of Long Island (99,510) 163,321
Principal payments of capital lease obligations (182,363) (174,100)
Principal payments of notes payable - (637)
Proceeds from issuance of common stock 162,300 -
Proceeds from exercising of warrants 280,000 -
Proceeds from loans payable - shareholders 177,630 59,009
-----------------------------
Net Cash Provided By Financing Activities 338,057 47,593
-----------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 48,610 (37,063)
<P>
Cash and cash equivalents - beginning of year 30,630 67,693
-----------------------------
Cash and cash equivalents - end of year $79,240 $30,630
=============================
<P>
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $260,919 $211,708
=============================
State income tax paid 750 325
=============================
New capital lease obligations $ 53,166 $ 27,255
=============================
See notes to financial statements.
Page 5
<P>
DIAMOND INTERNATIONAL GROUP, INC.
SUPPLEMENTAL INFORMATION
<P>
For the Years Ended December 31,
1999 1998
----------------------
COST OF OPERATIONS
Purchases
EDP maintenance $156,950 $181,314
Other rentals 127,579 180,933
EDP forms and envelopes 87,127 74,837
Outside services 134,254 69,073
--------------------------
Total Purchases 505,910 506,157
--------------------------
Payroll Expenses
Payroll - Administration 1 139,135 138,525
Payroll - Administration 2 51,877 23,902
Payroll - Accounting 188,801 186,918
Payroll - Data Entry 208,678 206,487
Payroll - Client Services 438,102 522,774
Payroll - Control 281,002 130,287
Payroll - Correspondence 7 841,280 665,744
Payroll - EDP 220,248 199,666
Payroll - Input 211,034 170,496
Payroll - Order Entry 76,559 61,797
Payroll - Programming 318,713 342,355
Payroll - Warehouse - Mgt. 40,500 33,588
Payroll - Warehouse - Labor 85,658 68,074
Payroll - Correspondence 15 173,823 181,953
---------------------------
Total Payroll Expense 3,275,410 2,932,566
---------------------------
Taxes
FICA tax 243,704 216,773
Federal unemployment tax 9,603 9,797
State unemployment tax 37,198 29,008
Disability insurance 9,791 19,319
Other taxes 23,310 25,313
---------------------------
Total Taxes 323,606 300,210
---------------------------
Total Cost of Operations 4,104,926 3,738,933
===========================
Page 11
<P>
DIAMOND INTERNATIONAL GROUP, INC.
SUPPLEMENTAL INFORMATION
<P>
For the Years Ended December 31,
1999 1998
----------------------
SELLING, GENERAL and ADMINISTRATIVE EXPENSES
<P>
Advertising $10,045 $ 550
Auto expense 3,489 2,491
Bank charges 3,392 -
Contributions 25 -
Conventions and shows 850 -
Dues and subscriptions 4,074 4,324
Employee benefits 62,218 52,057
Freight and parcel post 111,947 122,720
Insurance 82,399 115,713
Officer life insurance - 11,884
Miscellaneous expense 4,941 3,714
Office expense 375,049 282,756
Postage 9,001 9,908
Professional fees 59,160 38,290
Consulting 99,900 97,320
Promotions 22,461 9,565
Rent 254,601 259,254
Repairs and maintenance - 10,378
Building maintenance 110,470 100,952
Maintenance contracts 68,208 123,856
Telephone 228,251 216,659
Entertainment 34,925 43,718
Travel expense 15,197 26,182
Utilities 130,723 154,305
Penalties - 21,011
----------------------------
Total Selling General and Administrative Expenses $1,691,326 $ 1,707,607
============================
<P>
page 12
<P>
DIAMOND INTERNATIONAL GROUP, INC.
<P>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<P>
December 31, 1999 and 1998
<P>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
<P>
Nature of Business and Significant Customers
- --------------------------------------------
<P>
Diamond International Group, Inc. ("Diamond") was
incorporated on November 5, 1998 for the express purpose of
acquiring all of the outstanding common stock of H. Y.
Applied Inter-Data Services, Inc. ("Hyaid"). Hyaid operates
a computerized order fulfillment service for clients in the
direct mail order business.
<P>
On January 29, 1999, Diamond acquired all of the outstanding
common stock of Hyaid in exchange for 18,462,404 shares of
newly issued Diamond common stock. This acquisition has
been accounted for as a pooling of interests. As a result
of the use of the pooling of interests method, the financial
statements as of and for the years ended December 31, 1999
and 1998 have been shown as though Diamond has been in
existence as of January 1, 1998 and that the pooling of
interests took place as of that date.
<P>
A summary of selected financial data for Diamond and Hyaid
for the year ended December 31, 1999 is as follows:
<P>
Diamond Hyaid Total
--------------------------------------------------
Gross Profit $ - $ 1,831,278 $ 1,831,278
<P>
Selling, general and administrative
expenses (2,300) (1,689,026) (1,691,326)
<P>
Other expenses (60,000) (492,134) (552,134)
--------------------------------------------------
Loss before provision for income
taxes (62,300) (349,882) (412,182)
<P>
Provision for income taxes - (750) (750)
--------------------------------------------------
Net Loss $ (62,300) $ (350,632) $ (412,932)
===================================================
Principles of Consolidation
- ---------------------------
<P>
The consolidated financial statements include the accounts of
Diamond and Hyaid (together, the "Company"). All significant
transactions have been eliminated.
<P>
Issuance of Common Stock
<P>
In March 1999, Diamond executed an offering consisting of
400,000 units at $.40 per unit. Each unit consists of 2
shares of common stock and one stock purchase warrant which
enables the holder to purchase 5 shares of common stock at
$.42 per share. In connection with this offering, Diamond
raised $100,000, net of registration and issuance costs of
$60,000. The warrants were exercised in April,
1999. Diamond issued the stock to the warrant holders in
exchange for a note in the amount of $840,000. The note is
secured by stock. In September, 1999, Diamond issued
23,000,000 shares of stock to a major shareholder in
exchange for services rendered.
<P>
DIAMOND INTERNATIONAL GROUP, INC.
<P>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<P>
December 31, 1999 and 1998
<P>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
- -----------------------------------------------------
<P>
Use of Estimates
<P>
The preparation of the financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
<P>
Revenue Recognition
<P>
Revenue is recorded upon the performance of fulfillment and
other services for the Company's clients. Revenue from
reimbursable expenses is recorded in the same period as the
corresponding expenses.
<P>
Concentrations
<P>
Sales to three major customers during the year ended
December 31, 1999 amounted to 16%, 15% and 14% of sales.
Sales to three major customers during the year ended
December 31, 1998 amounted to 20%, 17% and 15% of sales.
<P>
Fixed Assets and Leases
<P>
Fixed assets are recorded at cost and are depreciated using
the straight-line method over the estimated useful lives of
the assets, generally 3 to 10 years. Computer and office
equipment that are acquired under leases which meet certain
criteria evidencing substantive ownership by the Company are
capitalized and the related capital lease obligations are
included in current and long-term liabilities. Related
amortization and interest are charged to expense over the
lease term. Leases not meeting the criteria are accounted
for as operating leases, with rent payments being charged to
expense as incurred.
<P>
Income Taxes
<P>
Diamond applies the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). SFAS 109 requires a company to recognize
deferred tax liabilities and assets for the expected future
tax consequences of events that have been recognized in a
company's financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined
based on the difference between the financial statement
carrying amounts and tax bases of assets and liabilities
using enacted tax rates in effect in the years in which the
differences are expected to reverse. Differences between
taxable income and income for financial statement purposes
result from the recognition of certain income and expense
items for tax purposes in periods which differ from those
used for financial statement purposes.
<P>
Prior to the acquisition by Diamond on January 29, 1999,
Hyaid had elected to be taxed as an "S" Corporation.
Accordingly, no provision for federal income taxes was
recorded as income or loss from the corporation flowed
through to the shareholder. Pursuant to the acquisition,
Hyaid forfeited its "S" Corporation status. As a result,
from January 30, 1999 through the end of the year, Hyaid
followed the principles of SFAS 109.
<P>
DIAMOND INTERNATIONAL GROUP, INC.
<P>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<P>
December 31, 1999 and 1998
<P>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
- -----------------------------------------------------
<P>
Advertising
<P>
The Company expenses advertising costs as they are incurred.
<P>
Customer Deposits
<P>
The Company maintains a policy of requiring their customers
to advance deposits for postage and presort charges. The
customer deposits are reduced as postage charges are
incurred and are increased when the customer replenishes
their advances.
<P>
Cash and Cash Equivalents
<P>
The Company considers all short-term investments with an
original maturity of three months or less to be cash
equivalents.
<P>
NOTE 2 - ACCOUNTS RECEIVABLE
- ----------------------------
<P>
Pursuant to the terms and conditions of a Revolving Line of
Credit with State Bank of Long Island dated July 30, 1999, a
credit line of $1,100,000 is available to the Company (Note
3). Advances are made against the credit line based upon
the value of accounts receivable considered eligible by the
bank. The limit on advances is 80% of the eligible
receivables up to 150 days (180 days on receivables from one
major customer).
<P>
At December 31, 1999 accounts receivable from three major
customers amounted to 34%, 13% and 11% of total accounts
receivable.
<P>
NOTE 3 - LOAN PAYABLE - STATE BANK OF LONG ISLAND
- -------------------------------------------------
<P>
The Company entered into a revolving line of credit
agreement with State Bank of Long Island (the "Line of
Credit") in the amount of $1,100,000. The Line of Credit
provides for advances subject to a limit of 80% of eligible
accounts receivable, as defined. Repayments of interest
must be made on a monthly basis at the rate of 2.5% per
annum in excess of State Bank of Long Island's prime rate of
interest. Principal payments are payable on demand at any
time during the term of the Line of Credit. The Line of
Credit is secured by a security interest in all of the
assets of the Company, as well as a $200,000 life insurance
policy on the shareholder of the Company.
Additionally, the Company subordinated advances in the
amount of $327,500 due to the shareholder of the Company
(Note 4).
<P>
The Line of Credit provides for certain covenants which (a)
prevent the Company from incurring, without prior written
consent, capital expenditures in excess of $100,000 per
year, (b) prevent the Company from paying cash dividends to
its shareholders and (c) report the operating results of the
Company on a timely basis.
<P>
The Line of Credit expires on May 31, 2000, at which time
all unpaid principal and interest are due.
<P>
DIAMOND INTERNATIONAL GROUP, INC.
<P>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<P>
December 31, 1999 and 1998
<P>
NOTE 4 - LOANS PAYABLE - SHAREHOLDERS
- --------------------------------------
<P>
As of December 31, 1999, the primary shareholder of the
Company made unsecured advances to the Company for working
capital purposes aggregating $564,139. Interest expense has
not been imputed on the advances. In connection with the
Line of Credit (Note 3), $327,500 of these advances have
been subordinated.
<P>
NOTE 5 - RELATED PARTY TRANSACTIONS
- ------------------------------------
<P>
During the years ended December 31, 1999 and 1998, the
Company paid salaries and other fees to the shareholder in
the amount of $328,450 and $304,750 respectively.
<P>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
<P>
Leases
<P>
The Company has entered into various non-cancelable capital
lease agreements for computer
and office equipment. The Company has also entered into
non-cancelable operating lease
agreements for their three operating facilities and computer
equipment. The leases expire in varying periods through
2003. Rent expense recorded under such operating leases
amounted to $381,966 and $440,187 for the years ended
December 31, 1999 and 1998, respectively.
<P>
Future minimum lease payments at December 31, 1999 are as
follows:
<P>
Capital Operating
Year Ended Lease Lease
December 31, 2000 $239,645 $461,158
December 31, 2001 150,534 352,758
December 31, 2002 49,280 148,075
December 31, 2003 7,760 20,980
December 31, 2004 7,113 -
---------------------------------
Total Minimum Lease Payments 454,332 $982,971
Less: Amount Representing Interest (74,483) ===========
-----------
Present Value of Minimum Lease Payments $379,849
===========
<P>
Accumulated amortization for assets under capital leases was
$554,998 as of December 31, 1999.
<P>
DIAMOND INTERNATIONAL GROUP, INC.
<P>
NOTES TO FINANCIAL STATEMENTS
<P>
December 31, 1999 and 1998
<P>
Going Concern
<P>
As shown in the accompanying financial statements, the
Company incurred a net loss of $412,932 for the year ended
December 31, 1999, and as of December 31, 1999, the
Company's current liabilities exceeded its current assets by
$505,035. These factors create an uncertainty as to the
Company's ability to continue as a going concern. The
Company's plans include vigorous cost controls, aggressive
marketing strategies and additional financing on an as
needed basis, including a public offering.
<P>
NOTE 7 - PROFIT SHARING PLAN
- ----------------------------
<P>
The Company maintains a 401(k) plan for substantially all
full-time employees of the Company. Employer contributions
are voluntary and at the discretion of the stockholder. The
Company did not contribute to the plan for the year ended
December 31, 1999.
<P>
NOTE 8 INCOME TAXES
- ---------------------
<P>
A reconciliation of the tax benefit at the federal statutory
rate to the effective tax rate is as follows:
Tax benefit at federal statutory rate (34.0)%
Valuation allowance 34.0 %
0.0 %
<P>
Deferred tax assets are comprised of the following at
December 31, 1999:
<P>
Federal State
Net Operating Loss Carryforward $ 95,635 $ 25,315
Less: Valuation Allowance (95,635) (25,315)
$ 0 $ 0
<P>
Net operating loss carryforwards for federal income taxes of
approximately $281,000 expire in the year 2014.
<P>