XTRA Bitcoin Inc. - Quarter Report: 2009 March (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
x QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended March 31,
2009
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission
file number 333-149978
DIAMOND
INFORMATION INSTITUTE, INC
|
New
Jersey
|
22-2935867
|
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
12
Daniel Road East
|
||
|
Fairfield,
New Jersey
|
07004
|
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(973)
227-3230
Copies
of Communication to:
Stoecklein
Law Group
402
West Broadway
Suite
690
San
Diego, CA 92101
(619)
704-1310
(619)
704-1325
Indicate
by check mark whether the issuer (1) 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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes
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 definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Ruble 12b-2 of the Exchange
Act.
|
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
The
number of shares of Common Stock, $0.001 par value, outstanding on May 1, 2009,
was 11,863,100 shares.
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements.
|
BALANCE
SHEETS
|
||||||||
|
March 31,
|
December 31,
|
|||||||
|
2009
|
2008*
|
|||||||
|
(Unaudited)
|
||||||||
|
Assets:
|
||||||||
|
Current
Assets:
|
||||||||
|
Accounts
Receivable - Net
|
$ | 407,832 | $ | 713,194 | ||||
|
Inventory
|
1,299,774 | 1,326,989 | ||||||
|
Prepaid
Expenses
|
16,140 | 39,138 | ||||||
|
Total
Current Assets
|
1,723,746 | 2,079,321 | ||||||
|
Property
and Equipment – Net
|
187,005 | 160,983 | ||||||
|
Other
Assets:
|
||||||||
|
Investment
in Unconsolidated Affiliate
|
5,000 | 5,000 | ||||||
|
Total
Assets
|
$ | 1,915,751 | $ | 2,245,304 | ||||
|
*Derived
from audited financial statements for the year ended December 31, 2008
(See Form 10-K
Annual
Report filed on March 26, 2009 with the Securities and Exchange
Commission).
|
||||||||
|
See
Notes to Financial Statements.
|
||||||||
1
|
DIAMOND
INFORMATION INSTITUTE, INC. D/B/A DESIGNS BY BERGIO
|
||||||||
|
BALANCE
SHEETS
|
||||||||
|
March 31,
|
December 31,
|
|||||||
|
2009
|
2008*
|
|||||||
|
(Unaudited)
|
||||||||
|
Liabilities
and Stockholders' (Deficit) Equity:
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Cash
Overdraft
|
$ | 16,994 | $ | 7,345 | ||||
|
Accounts
Payable and Accrued Expenses
|
300,035 | 446,892 | ||||||
|
Bank
Lines of Credit – Net
|
884,192 | 910,449 | ||||||
|
Current
Maturities of Notes Payable
|
85,746 | 82,015 | ||||||
|
Current
Maturities of Capital Leases
|
20,704 | 23,402 | ||||||
|
Advances
from Stockholder – Net
|
383,890 | 394,532 | ||||||
|
Sales
Returns and Allowances Reserve
|
72,544 | 132,353 | ||||||
|
Total
Current Liabilities
|
1,764,105 | 1,996,988 | ||||||
|
Long-Term
Liabilities
|
||||||||
|
Notes
Payable
|
159,659 | 97,270 | ||||||
|
Capital
Leases
|
34,489 | 39,092 | ||||||
|
Total
Long-Term Liabilities
|
194,148 | 136,362 | ||||||
|
Commitments
and Contingencies
|
-- | -- | ||||||
|
Stockholders'
(Deficit) Equity
|
||||||||
|
Common
Stock - $.001 Par Value, 25,000,000 Shares Authorized, 11,813,100 and
11,643,100 Shares Issued and Outstanding as of March 31, 2009 and December
31, 2008, respectively
|
11,813 | 11,643 | ||||||
|
Additional
Paid-In Capital
|
1,646,537 | 1,599,707 | ||||||
|
Accumulated
Deficit
|
(1,700,852 | ) | (1,499,396 | ) | ||||
|
Total
Stockholders' (Deficit) Equity
|
(42,502 | ) | 111,954 | |||||
|
Total
Liabilities and Stockholders' (Deficit) Equity
|
$ | 1,915,751 | $ | 2,245,304 | ||||
|
*Derived
from audited financial statements for the year ended December 31, 2008
(See Form 10-K
Annual
Report filed on March 26, 2009 with the Securities and Exchange
Commission).
|
||||||||
|
See
Notes to Financial Statements.
|
||||||||
2
|
STATEMENTS
OF OPERATIONS (Unaudited)
|
||||||||
|
Three Months Ended March
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Sales
- Net
|
$ | 190,726 | $ | 280,164 | ||||
|
Cost
of Sales
|
180,272 | 135,113 | ||||||
|
Gross
Profit
|
10,454 | 145,051 | ||||||
|
Selling
Expenses
|
48,270 | 63,024 | ||||||
|
General
and Administrative Expenses
|
||||||||
|
Share-Based
Compensation
|
5,000 | 183,750 | ||||||
|
Common
Stock Issued for Professional Services
|
42,000 | 150,000 | ||||||
|
Other
|
95,759 | 137,938 | ||||||
|
Total
General and Administrative expenses
|
142,759 | 471,688 | ||||||
|
Total
Operating Expenses
|
191,029 | 534,712 | ||||||
|
Loss
from Operations
|
(180,575 | ) | (389,661 | ) | ||||
|
Other
Income [Expense]
|
||||||||
|
Interest
Expense
|
(21,519 | ) | (33,146 | ) | ||||
|
Other
Income
|
1,158 | 540 | ||||||
|
Total
Other Income [Expense]
|
(20,361 | ) | (32,606 | ) | ||||
|
Loss
Before Income Tax Provision [Benefit]
|
(200,936 | ) | (422,267 | ) | ||||
|
Income
Tax Provision [Benefit]
|
520 | (61,548 | ) | |||||
|
Net
Loss
|
$ | (201,456 | ) | $ | (360,719 | ) | ||
|
Net
Loss Per Common Share - Basic and Diluted
|
$ | (0.02 | ) | $ | (0.02 | ) | ||
|
Weighted
Average Common Shares Outstanding – Basic and Diluted
|
11,745,656 | 15,154,721 | ||||||
|
See
Notes to Financial Statements.
|
||||||||
3
|
STATEMENTS
OF CASH FLOWS (Unaudited)
|
||||||||
|
Three Months Ended March
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Operating
Activities
|
||||||||
|
Net
Loss
|
$ | (201,456 | ) | $ | (360,719 | ) | ||
|
Adjustments
to Reconcile Net Loss
|
||||||||
|
to
Net Cash Provided by (Used in) Operating Activities:
|
||||||||
|
Sales
Returns and Allowance Reserve
|
(59,809 | ) | (13,386 | ) | ||||
|
Depreciation
and Amortization
|
16,014 | 15,433 | ||||||
|
Share-Based
Compensation
|
5,000 | 183,750 | ||||||
|
Services
Rendered for Common Stock
|
42,000 | 150,000 | ||||||
|
Amortization
of Deferred Compensation
|
-- | 14,307 | ||||||
|
Deferred
Tax Benefit
|
-- | (66,213 | ) | |||||
|
Allowance
for Doubtful Accounts
|
6,000 | -- | ||||||
|
Changes
in Assets and Liabilities
|
||||||||
|
[Increase]
Decrease in:
|
||||||||
|
Accounts
Receivable
|
299,362 | 162,797 | ||||||
|
Inventory
|
27,215 | (16,731 | ) | |||||
|
Prepaid
Expenses
|
22,998 | 30,520 | ||||||
|
Increase
[Decrease] in:
|
||||||||
|
Accounts
Payable and Accrued Expenses
|
(146,857 | ) | (183,472 | ) | ||||
|
Total
Adjustments
|
211,923 | 277,005 | ||||||
|
Net
Cash Provided by (Used in) Operating Activities
|
10,467 | (83,714 | ) | |||||
|
Investing
Activities:
|
||||||||
|
Capital
Expenditures
|
(42,036 | ) | -- | |||||
|
Financing
Activities:
|
||||||||
|
Increase
in Cash Overdraft
|
9,649 | 28,090 | ||||||
|
Repayments
(to) Advances from Bank Lines of Credit - Net
|
(26,257 | ) | 42,455 | |||||
|
Proceeds
from Note Payable
|
100,000 | -- | ||||||
|
Repayments
of Notes Payable
|
(33,880 | ) | (30,795 | ) | ||||
|
Advances
(to) from Stockholder -- Net
|
(10,642 | ) | 48,329 | |||||
|
Repayments
of Capital Leases
|
(7,301 | ) | (4,565 | ) | ||||
|
Proceeds
from Private Placements of Common Stock
|
-- | 200 | ||||||
|
Net
Cash Provided by Financing Activities
|
31,569 | 83,714 | ||||||
|
Net
Change in Cash
|
-- | -- | ||||||
|
Cash
- Beginning of Periods
|
-- | -- | ||||||
|
Cash
- End of Periods
|
$ | -- | $ | -- | ||||
|
See
Notes to Financial Statements.
|
||||||||
4
|
DIAMOND
INFORMATION INSTITUTE, INC. D/B/A DESIGNS BY BERGIO
|
||||||||
|
STATEMENTS
OF CASH FLOWS (Unaudited)
|
||||||||
|
Three Months Ended March
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Supplemental
Disclosures of Cash Flow Information:
|
||||||||
|
Cash
Paid during the years for:
|
||||||||
|
Interest
|
$ | 22,000 | $ | 34,000 | ||||
|
Income
Taxes
|
$ | 1,000 | $ | 5,000 | ||||
|
Supplemental
Disclosures of Non-Cash Investing and Financing
Activities:
|
||||||||
|
During
2008, the Company issued 200,000 shares of common stock to vendors as full
settlement for accounts payable balances amounting to $200,000. These
shares were issued as consideration for payment of accounts payable
balances and pre-payments for services to be rendered.
|
||||||||
|
See
Notes to Financial Statements.
|
||||||||
5
[1]
Nature of Operations, Basis of Presentation and Liquidity
Nature of
Operations - Diamond Information Institute Inc. d/b/a Designs by Bergio
[the "Company"] is engaged in the product design, manufacturing, distribution of
fine jewelry throughout the United States and is headquartered from its
corporate office in Fairfield, New Jersey. Based on the nature of
operations, the Company's sales cycle experiences significant seasonal
volatility with the first two quarters of the year representing 15% - 25% of
annual sales and the remaining two quarters representing the remaining portion
of annual sales.
Basis of
Presentation - Our accounting policies are set forth in Note 2 of our
audited consolidated financial statements included in the Diamond Information
Institute, Inc. 2008 Form 10-K.
The
accompanying unaudited interim financial statements as of March 31, 2009, and
for the three months ended March 31, 2009 and 2008 have been prepared in
accordance with accounting principles generally accepted for interim financial
statement presentation and in accordance with the instructions to Form 10-Q.
Accordingly, they do not include all the information and footnotes required by
accounting principles generally accepted in the United States of America for
complete financial statement presentation. In the opinion of management, the
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial position as of
March 31, 2009 and the results of operations and cash flows for the three months
ended March 31, 2009 and 2008. The results of operations for the three months
ended March 31, 2009 are not necessarily indicative of the results to be
expected for the full year.
Liquidity
- The accompanying financial statements have been prepared on a
going-concern basis, which contemplates the continuation of operations,
realization of assets, and liquidation of liabilities in the ordinary course of
business. For the three months ending March 31, 2009 and 2008, the Company
generated net losses of approximately $200,000 and $360,000, respectively. As of
March 31, 2009, the Company has funded its working capital requirements
primarily through revenue earned, a private placement equity offering and
periodic advances from its CEO and principal stockholder. There can
be no assurance that the Company will be successful in obtaining financing at
the level needed for long-term operations or on terms acceptable to the Company.
In addition, there can be no assurance, assuming the Company is successful in
expanding commercialization of its product, realizing revenues and obtaining new
equity offerings, that the Company will achieve profitability or positive
operating cash flow.
Over
the next twelve months, the Company’s management intends on sustaining
operations through its working capital which, contemplates the liquidation of
inventory and the realization of trade accounts receivable in the ordinary
course of business at expected levels of sales volume. It is
anticipated, that working capital needs should they arise, may also be
supplemented by further advances from the CEO and principal stockholder. Any
planned expansion and product commercialization, including future business
acquisitions, will require additional capital to be raised through an equity or
debt offering which, management intends on pursuing.
6
[2]
Fair Value Measurements
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS
157). SFAS 157 defines fair value, establishes a framework for measuring fair
value and expands the disclosure requirements regarding fair value measurements.
SFAS 157 is effective for fiscal years beginning after November 15, 2007 for
financial assets and liabilities as well as for non-financial assets and
liabilities that are recognized or disclosed at fair value on a recurring basis
in the financial statements. In accordance with FSP No. 157-2, Effective Date of FASB
Statement
No. 157 (FSP 157-2), for all
other non-financial assets and liabilities, SFAS 157 is effective for fiscal
years beginning after November 15, 2008. In October 2008, the FASB issued FSP
No. 157-3, Determining the
Fair Value of a Financial Asset When the Market for That Asset is Not Active
(FSP 157-3), that clarifies the application of SFAS 157 for financial
assets in a market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active.
On
January 1, 2009, in accordance with FSP 157-2, we adopted the provisions of SFAS
157 on a prospective basis for our non-financial assets and liabilities that are
not recognized or disclosed at fair value on a recurring basis. SFAS 157
requires that we determine the fair value of financial and non-financial assets
and liabilities using the fair value hierarchy established in SFAS 157 and
describes three levels of inputs that may be used to measure fair value, as
follows:
Level
1 inputs which include quoted prices in active markets for identical assets or
liabilities;
Level
2 inputs which include observable inputs other than Level 1 inputs, such as
quoted prices for similar assets or liabilities; quoted prices for identical or
similar assets or liabilities in markets that are not active; or other inputs
that are observable or can be corroborated by observable market data for
substantially the full term of the asset or liability; and
Level
3 inputs which include unobservable inputs that are supported by little or no
market activity and that are significant to the fair value of the underlying
asset or liability. Level 3 assets and liabilities include those
whose fair value measurements are determined using pricing models, discounted
cash flow methodologies or similar valuation techniques, as well as significant
management judgment or estimation.
The
adoption of SFAS 157 had no effect on our net income for the three months ended
March 31, 2009 and 2008 as the Company has no assets or liabilities classified
as financial assets or liabilities as defined in accordance with SFAS
157.
In
addition, the adoption of SFAS 157 for our non-financial assets and liabilities
that are not recognized or disclosed at fair value on a recurring basis had no
effect on our net income for the three months ended March 31, 2009.
7
[3]
Recently Issued Accounting Standards
In
April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments. This FSP amends FASB Statement No. 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. This FSP also amends APB Opinion No.
28, Interim Financial
Reporting, to require those disclosures in summarized financial
information at interim reporting periods. This FSP shall be effective for
interim reporting periods ending after June 15, 2009. The Company will comply
with the additional disclosure requirements beginning in the second quarter of
2009.
In
April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. This FSP amends the
other-than-temporary impairment guidance in U.S. GAAP for debt securities to
make the guidance more operational and to improve the presentation and
disclosure of other-than-temporary impairments on debt and equity securities in
the financial statements. The FSP does not amend existing recognition and
measurement guidance related to other-than-temporary impairments of equity
securities. The FSP shall be effective for interim and annual reporting periods
ending after June 15, 2009. The Company currently does not have any financial
assets that are other-than-temporarily impaired.
In
April 2009, the FASB issued FSP No. FAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies, to address some of the application issues under SFAS
141(R). The FSP deals with the initial recognition and measurement of an asset
acquired or a liability assumed in a business combination that arises from a
contingency provided the asset or liability’s fair value on the date of
acquisition can be determined. When the fair value cannot be determined, the FSP
requires using the guidance under SFAS No. 5, Accounting for Contingencies,
and FASB Interpretation (FIN) No. 14, Reasonable Estimation of the Amount
of a Loss. This FSP was effective for assets or liabilities arising from
contingencies in business combinations for which the acquisition date is on or
after January 1, 2009. The adoption of this FSP has not had a material impact on
our financial position, results of operations, or cash flows during the first
quarter of 2009.
8
[4]
Notes Payable
|
March
31,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
(Unaudited)
|
||||||||
|
Notes
payable due in equal monthly installments, over 36 months,
maturing
through May 2009 at interest rates of 7.25%. The
notes
are
collateralized by the assets of the Company.
|
$ | 8,333 | $ | 20,965 | ||||
|
Notes
payable due in equal monthly installments, over 60 months,
maturing
through May 2011 at interest rates of 7.60%. The
notes
are
collateralized by the assets of the Company.
|
143,039 | 158,320 | ||||||
|
Notes
payable due in equal monthly installments, over 60 months,
maturing
through December 2013 at interest rates of 9.47%.
The notes
are collateralized by the assets of the Company.
|
94,033 | -- | ||||||
|
Total
|
245,405 | 179,285 | ||||||
|
Less:
Current Maturities Included in Current Liabilities
|
85,746 | 82,015 | ||||||
|
Total
Long-Term Portion of Debt
|
$ | 159,659 | $ | 97,270 | ||||
As
of March 31, 2009, maturities of long-term debt are as follows:
|
2010
|
$ | 85,746 | ||
|
2011
|
87,144 | |||
|
2012
|
32,161 | |||
|
2013
|
22,213 | |||
|
2014
|
18,141 | |||
|
Total
|
$ | 245,405 |
9
[5]
Bank Lines of Credit
A
summary of these credit facilities is as follows:
|
March
31,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
(Unaudited)
|
||||||||
|
Credit
Line of $700,000, minimum payment of interest only is due monthly at the
bank's prime rate plus .75%. At December 31, 2008 and 2007, the interest
rate was 4.00% and 8.00%, respectively. The Credit Line renews annually in
May 2009 and is collateralized by the assets of the
Company.
|
$ | 699,999 | $ | 699,999 | ||||
|
Credit
Line of $55,000, minimum payment of interest only is due monthly at the
bank's prime rate plus .75%. At December 31, 2008 and 2007, the interest
rate was 4.00% and 8.00%, respectively. The Credit Line renews annually in
July 2009 and is collateralized by the assets of the
Company.
|
44,927 | 45,793 | ||||||
|
Various
unsecured Credit Cards of $165,600 and $178,700, minimum payment of
principal and interest are due monthly at the credit card's annual
interest rate. At March 31, 2009 and December 31, 2008, the
interest rates ranged from 4.74% to 10.99% and 4.74% to 13.99%,
respectively.
|
139,266 | 164,656 | ||||||
|
Total Bank Lines of
Credit
|
$ | 884,192 | $ | 910,449 | ||||
The
Company's CEO and majority shareholder also serves as a guarantor of the
Company's debt.
The
Company had approximately $10,000 and $9,000 available under the various credit
facilities (not including credit cards) at March 31, 2009 and December 31, 2008,
respectively.
[6]
Equipment Held Under Capital Leases
The
Company's equipment held under the capital lease obligations is summarized as
follows:
|
March
31,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
(Unaudited)
|
||||||||
|
Showroom
Equipment
|
$ | 96,000 | $ | 96,000 | ||||
|
Less:
Accumulated Amortization
|
40,533 | 35,733 | ||||||
|
Equipment
Held under Capitalized Lease Obligations - Net
|
$ | 55,467 | $ | 60,267 | ||||
10
[6]
Equipment Held Under Capital Leases [Continued]
Amortization
related to the equipment held under capital leases for the three months ended
March 31, 2009 and 2008 was approximately $5,000 each period.
As
of March 31, 2009, the future minimum lease payments under the capital leases
are as follows:
|
2009
|
$ | 26,432 | ||
|
2010
|
26,432 | |||
|
2011
|
10,796 | |||
|
Total
|
63,660 | |||
|
Less:
Amount Representing Imputed Interest
|
8,467 | |||
|
Present
Value of Net Minimum Capital Lease Payments
|
55,193 | |||
|
Less:
Current Portion of Capitalized Lease Obligations
|
20,704 | |||
|
Non Current Portion of
Capitalized Lease Obligations
|
$ | 34,489 |
Interest
expense related to capital leases for the three months ended March 31, 2009 and
2008 was approximately $2,000 each period.
[7]
Income Taxes
The
income tax provision [benefit] is as follows:
|
Three
Months Ended
|
||||||||
|
March
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Current:
|
(Unaudited)
|
(Unaudited)
|
||||||
|
Federal
|
$ | -- | $ | -- | ||||
|
State
|
520 | 4,666 | ||||||
|
Totals
|
520 | 4,666 | ||||||
|
Deferred:
|
||||||||
|
Federal
|
-- | (59,484 | ) | |||||
|
State
|
-- | (6,730 | ) | |||||
|
Totals
|
-- | (66,214 | ) | |||||
|
Totals
|
$ | 520 | $ | (61,548 | ) | |||
11
[7]
Income Taxes [Continued]
Deferred
income tax assets [liabilities] are as follows:
|
March
31,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
(Unaudited)
|
||||||||
|
Deferred
Income Tax Assets:
|
||||||||
|
Net
Operating Loss Carryforwards
|
$ | 657,038 | $ | 590,514 | ||||
|
Allowance
for Doubtful Accounts
|
34,511 | 32,115 | ||||||
|
Allowance for Sales
Returns
|
28,974 | 52,862 | ||||||
|
Totals
|
720,523 | 675,491 | ||||||
|
Deferred
Income Tax Liabilities:
|
||||||||
|
Property
and Equipment
|
$ | (23,475 | ) | $ | (25,546 | ) | ||
|
Election
to Change from Cash to Accrual Basis of Income Tax
Accounting
|
(343,638 | ) | (374,879 | ) | ||||
|
Totals
|
(367,113 | ) | (400,425 | ) | ||||
|
Gross
Deferred Tax Asset
|
353,410 | 275,066 | ||||||
|
Valuation
Allowance for Deferred Taxes
|
(353,410 | ) | (275,066 | ) | ||||
|
Net
Deferred Tax Asset [Liability]
|
$ | -- | $ | -- | ||||
Effective
with the 2008 tax year, management voluntarily elected a change in its method of
tax accounting to the accrual basis as required by Section 481 of the Internal
Revenue Code (the "IRC"). In management's opinion, based on
provisions of the IRC, a voluntary election to the accrual basis of tax
reporting should not subject the Company to tax examinations for previous years
that income tax returns have been filed and prompt an uncertain tax position in
accordance with the Financial Accounting Standards Board Interpretation ("FIN")
No. 48, Accounting for Uncertainty in Income Taxes. As a result, no
contingent liability has been recorded for the anticipated change in tax
reporting. Further, the resulting tax liability from the change in
tax accounting method will be reduced by operating losses previously
incurred.
At
December 31, 2008, the Company had approximately $1,482,000 of federal net
operating tax loss carryforwards expiring at various dates through
2028. The Tax Reform Act of 1986 enacted a complex set of rules which
limits a company's ability to utilize net operating loss carryforwards and tax
credit carryforwards in periods following an ownership change. These rules
define an ownership change as a greater than 50 percent point change in stock
ownership within a defined testing period which is generally a three-year
period. As a result of stock which may be issued by us from time to time and the
conversion of warrants, options or the result of other changes in ownership of
our outstanding stock, the Company may experience an ownership change and
consequently our utilization of net operating loss carryforwards could be
significantly limited.
Based
upon the net losses historically incurred and, the prospective global economic
conditions, management believes that it is not more likely than not that the
deferred tax asset will be realized and has provided a valuation allowance of
100% of the deferred tax asset.
12
[8]
Stockholders' (Deficit) Equity
Articles of
Incorporation Amendment and Stock Split - The Company's Certificate
of Incorporation, as amended, authorizes the issuance of up to 25,000,000 shares
of common stock at a par value of $.001 per share. Over the course of
2007, the Company's Board of Directors ratified two forward stock splits. The
first stock split, for 1.725 to 1 and the second for 10,000 to 1.
This
resulted in common stock outstanding increasing from 1,000 to 17,250,000 which
were all owned by the Company's founder and CEO. The per share data for all
periods presented has been retroactively adjusted due to each of the stock
splits.
Subsequent
to the forward stock splits, the Company's founder and CEO transferred a total
of 2,250,000 shares to the Company's President and an Advisory Panel
member. Upon resignation of the Company’s President and Advisory
Panel Member in late 2007, the Company cancelled 2,200,000 of the shares
previously issued to those individuals along with, 5,000,000 shares held by the
CEO and principal stockholder. These shares were cancelled in
February 2008.
The
share and per share data for all periods presented has been retroactively
adjusted to reflect the stock splits.
Debt
Conversions - In
April 2007, the Company entered into a Debt Conversion Agreement (the
"Agreement") and issued 100,000 shares of common stock at $1 per share to a
vendor as full satisfaction for accounts payable previously due and future
services to be rendered. Of the total $100,000 of common stock
issued, $55,000 was to satisfy previous account payable balances and $45,000 was
issued as consideration for future services to be rendered and is reflected in
the Deferred Compensation caption of the stockholders' equity section of the
Balance Sheet, of which approximately $14,000 and $31,000, respectively was
expensed in 2008 and 2007. The shares have a one year restriction from sale or
offering.
Restricted Share
Issuances - In
January 2008, two Advisory Panel members and a Board of Director member received
restricted common stock for services to be rendered throughout
2008. The two Advisory Panel members received 50,000 and 100,000
shares, respectively, with a fair value of $1.00 per share or $150,000 while the
Board of Director member received 50,000 shares with a fair value of $1.00 per
share or $50,000. For the year ended December 31, 2008, $200,000 was
charged to the Statement of Operations as Share-based Compensation
expense.
Also
in January 2008, the Company issued 117,500 shares of restricted common stock
with a fair value of $1.00 per share or $117,500 to employees. Shares
issued in connection with the Board of Director consent, were dispersed ratably
over the first two quarters of 2008 as authorized in the consent.
Additionally,
in January and February 2008, the Company sold 600 shares of common stock at
$1.00 per share to individual investees. As of March 31, 2008, $400
of the total $600 was reflected as a stock subscription receivable.
13
[8]
Stockholders' (Deficit) Equity [Continued]
Finally,
in February 2008, certain stockholders of the Company with significant
ownership, cancelled shares they owned for no consideration. The
share cancellation totaled 7,200,000 of shares previously
outstanding.
For
the year ended December 31, 2008, the Company issued to its SEC counsel, 450,000
shares of restricted common stock with a fair value of $1.00 per share or
$450,000 for services in connection with the effective filing of Form S-1 with
the SEC.
In
January 2009, the Company agreed to issue its SEC counsel, 100,000 shares of
restricted common stock with a fair value of $0.40 per share or $40,000 for
services in connection with the effective filing of Form 15c-211 and submittal
to FINRA through a market maker.
In
February 2009, the Company issued to its CEO 50,000 shares of restricted common
stock with a fair value of $0.40 per share or $20,000 for services as a Board of
Directors member throughout 2009. Of the $20,000, $5,000 was charged
to the Statement of Operations and captioned as Share-Based Compensation for the
three months ended March 31, 2009.
In
February 2009, the Company to issue its SEC counsel 20,000 shares of restricted
common stock with a fair value of $0.40 per share or $8,000 for legal services
to be provided for and earned ratably totaling $2,000 per quarter related to the
Company’s SEC filings for the 2009 reporting year.
[9]
Related Party Transactions
The
Company receives periodic advances from its principal stockholder based upon the
Company's cash flow needs. At March 31, 2009 and December 31, 2008,
$383,890 and $394,532, respectively was due to the
shareholder. Interest expense is accrued at an average annual market
rate of interest which was 3.76% and 4.99% at March 31, 2009 and December 31,
2008, respectively. No terms for repayment have been
established. As a result, the amount is classified as a Current
Liability.
14
FORWARD-LOOKING
STATEMENTS
This
document contains “forward-looking statements”. All statements other
than statements of historical fact are “forward-looking statements” for purposes
of federal and state securities laws, including, but not limited to, any
projections of earnings, revenue or other financial items; any statements of the
plans, strategies and objections of management for future operations; any
statements concerning proposed new services or developments; any statements
regarding future economic conditions or performance; any statements or belief;
and any statements of assumptions underlying any of the foregoing.
Forward-looking
statements may include the words “may,” “could,” “estimate,” “intend,”
“continue,” “believe,” “expect” or “anticipate” or other similar
words. These forward-looking statements present our estimates and
assumptions only as of the date of this report. Accordingly, readers
are cautioned not to place undue reliance on forward-looking statements, which
speak only as of the dates on which they are made. Except for our
ongoing securities laws, we do not intend, and undertake no obligation, to
update any forward-looking statement. You should, however, consult
further disclosures we make in future filings of our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Although
we believe the expectations reflected in any of our forward-looking statements
are reasonable, actual results could differ materially from those projected or
assumed in any of our forward-looking statements. Our future
financial condition and results of operations, as well as any forward-looking
statements, are subject to change and inherent risks and
uncertainties. The factors impacting these risks and uncertainties
include, but are not limited to:
|
·
|
our
current lack of working capital;
|
|
·
|
increased
competitive pressures from existing competitors and new
entrants;
|
|
·
|
increases
in interest rates or our cost of borrowing or default under any material
debt agreements;
|
|
·
|
inability
to raise additional financing;
|
|
·
|
deterioration
in general or regional economic
conditions;
|
|
·
|
adverse
state or federal legislation or regulation that increases the costs of
compliance, or adverse findings by a regulator with respect to existing
operations;
|
|
·
|
changes
in U.S. GAAP or in the legal, regulatory and legislative environments in
the markets in which we operate;
|
|
·
|
the
fact that our accounting policies and methods are fundamental to how we
report our financial condition and results of operations, and they may
require management to make estimates about matters that are inherently
uncertain;
|
|
·
|
inability
to efficiently manage our
operations;
|
|
·
|
loss
of customers or sales weakness;
|
|
·
|
inability
to achieve future sales levels or other operating
results;
|
|
·
|
key
management or other unanticipated personnel
changes;
|
|
·
|
the
unavailability of funds for capital expenditures;
and
|
|
·
|
operational
inefficiencies in distribution or other
systems.
|
15
For
a detailed description of these and other factors that could cause actual
results to differ materially from those expressed in any forward-looking
statement, please see Item 1A. Risk Factors in this document and in our Annual
Report on Form 10-K for the year ended December 31, 2008.
AVAILABLE
INFORMATION
Our
securities as of September 8, 2008 are registered under the Securities Act of
1933, and we will file reports and other information with the Securities and
Exchange Commission as a result. Additionally, we shall file supplementary and
periodic information, documents and reports that are required under section
13(a) and Section 15(d) of the Exchange Act, as amended.
All
of our reports will be able to be reviewed through the SEC’s Electronic Data
Gathering Analysis and Retrieval System (EDGAR) which is publicly available
through the SEC’s website (http://www.sec.gov)
or they can be inspected and copied at the public reference facility maintained
by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549-0405.
Information regarding the public reference facilities may be obtained from the
SEC by telephoning 1-800-SEC-0330. Copies of such materials may also be obtained
by mail from the public reference section of the SEC at 100 F Street, N.E., Room
1580, Washington, D.C. 20549-0405 at prescribed rates.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operation
OVERVIEW
Diamond
Information Institute, Inc. was incorporated in the State of New Jersey in
October 1988 and had minimal activity until 1995 when it began in the business
of jewelry manufacturing under the name Diamond Information Institute (d/b/a
“Bergio”). Since 1995 Diamond has been engaged in the design and
manufacture of upscale jewelry through its trade name of “Bergio” and in 2002
launched its “Bergio Bridal Collection”. The Company sells to
approximately 150 independent jewelry retailers across the United States and has
incurred a significant amount of capital resources in creating brand recognition
in the jewelry industry.
OVERVIEW
OF CURRENT OPERATIONS
Diamond’s
products consist of a wide range of unique styles and designs made from precious
metals such as, gold, platinum, and Karat gold, as well as diamonds and other
precious stones. Diamond has approximately 50 to 75 product styles in
its inventory, with prices ranging from $400 to
$200,000. Additionally, Diamond has manufacturing control over its
line as a result of having a manufacturing facility in New Jersey as well as
subcontracts with facilities in Italy and Bangkok.
16
In
September of 2008, Diamond’s S-1 registration statement became effective with
the SEC. Diamond believes that in becoming a public company, it will
provide the Company increased flexibility in being able to acquire smaller
jewelry manufacturers while also being able to consolidate overlapping
expenses. It is Diamond’s intention to establish itself as a holding
company for the purpose of acquiring established jewelry design and
manufacturing firms who possess branded product lines. Branded
product lines are products and/or collections whereby the jewelry manufacturers
have established their products within the industry through advertising in
consumer and trade magazines as well as possibly obtaining federally registered
trademarks of their products and collections. This is in line with
the Company’s strategy and belief that a brand name can create an association
with innovation, design and quality which helps add value to the individual
products as well as facilitate the introduction of new products.
Diamond
intends to acquire, design and manufacturing firms throughout the United States
and Europe. If and when Diamond pursues any potential acquisition
candidates, it intends to target the top 10% of the world’s jewelry manufactures
that have already created an identity and brand in the jewelry
industry. Diamond intends to locate potential candidates through its
relationships in the industry and expects to structure the acquisition through
the payment of cash, which will most likely be provided from third party
financing, as well as Diamond’s common stock and not cash generated from
Diamond’s operations. In the event, Diamond obtains financing from
third parties for any potential acquisitions; Diamond may agree to issue
Diamond’s common stock in exchange for the capital received. However,
as of the date of this periodic report Diamond does not have any binding
agreements with any potential acquisition candidates or arrangements with any
third parties for financing.
Diamond’s management believes that the
jewelry industry competes in the global marketplace and therefore must be
adaptable to ensure a competitive measure. Recently the U.S. economy
has encountered a slowdown and Diamond anticipates the U.S. economy will most
likely remain weak at least through all of 2009. Consumer spending
for discretionary goods such as jewelry is sensitive to changes in consumer
confidence and ultimately consumer confidence is affected by general business
considerations in the U.S. economy. Consumer spending for
discretionary spending generally decline during times of falling consumer
confidence, which may affect Diamond’s retail sale of its
products. U.S. consumer confidence reflected these slowing conditions
during the last quarter of 2007 and has been carried forward throughout the year
of 2008. Therefore, Diamond intends to make strong efforts to
maintain its brand in the industry through its focus on the innovation and
design of its products as well as being able to consolidate and increase cost
efficiency when possible through acquisitions.
Result
of Operations for the Three Months Ended March 31, 2009 and 2008
The
following income and operating expenses tables summarize selected items from the
statement of operations for the three months ended March 31, 2009 compared to
the three months ended March 31, 2008.
17
INCOME:
|
Three
Months Ended
March
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||
|
Sales
|
$ | 190,726 | $ | 280,164 | ||||
|
Cost
of Sales
|
180,272 | 135,113 | ||||||
|
Gross
Profit
|
$ | 10,454 | $ | 145,051 | ||||
|
Gross
Profit Percentage of Revenue
|
5 | % | 52 | % | ||||
Sales
Sales
for the three months ended March 31, 2009 were $190,726 compared to $280,164 for
the three months ended March 31, 2008. This resulted in a decrease of
$89,438 or 32% from the comparable period of 2009 to 2008. Due to the
tough economic conditions we increased our sales discounts to partner with our
customers during the three months ended March 31, 2009. Aggregate
sales discounts in the three months ended March 31, 2009 and 2008 totaled
approximately $75,000 and $14,000. We decided to offer increased
sales discounts to move product and increase our liquidity. We
anticipate sales discounts and gross profits to return to historical levels in
the near term.
Typically,
revenues experience significant seasonal volatility in the jewelry
industry. The first two quarters of any given year typically
represent approximately 15%-25% of total year revenues, based on historic
results. The holiday buying season during the last two quarters of
every year typically account for the remainder of annual sales.
Cost of
Sales
Cost
of sales for the three months ended March 31, 2009 was $180,272 an increase of
$45,159, or 33%, from $135,113 for the three months ended March 31,
2008. Our cost of sales were higher due to selling higher commodity
priced products.
Gross
Profit:
During
the three months ended March 31, 2009, we experienced a gross profit as a
percentage of revenue of 5%, compared to a gross profit as a percentage of
revenue of 52% for the three months ended March 31, 2008. Our
decreased gross profit during the year of 2009 was a result of increased sales
discounts to partner with our customers during this tough economic condition and
selling product at reduced margins due to purchases of raw materials
particularly gold, at an increase cost.
18
OPERATING
EXPENSES:
|
Three
Months Ended
March
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||
|
Selling
Expenses
|
$ | 48,270 | $ | 63,024 | ||||
|
Total
General and Administrative Expenses
|
142,759 | 471,688 | ||||||
|
Total
Operating Expenses
|
$ | 191,029 | $ | 534,712 | ||||
|
Net
Loss
|
$ | (201,456 | ) | $ | (360,719 | ) | ||
Selling
Expenses
Total selling expenses were $48,270 for
the three months ended March 31, 2009, which was approximately a 23% decrease
from $63,024 for the three months ended March 31, 2008. Selling
expenses include advertising, trade show expenses and selling
commissions. The decrease in selling expenses during the three months
ended March 31, 2009 compared to the three months ended March 31, 2008 is a
result of decreased advertising and travel expenses under our cost saving
programs.
General and Administrative
Expenses
General
and administrative expenses were $142,759 for the three months ended March 31,
2009 versus $471,688 for the three months ended March 31, 2008. The
decrease in general and administrative expenses in 2009 is due primarily to a
decrease in non-cash charges related to stock-based compensation of
approximately $287,000.
Loss from
Operations
During
the three months ended March 31, 2009, we had a loss from operations totaling
$180,575 versus $389,661 for the same period in 2008, of approximately
54%.
Other (Expense) /
Income
Other
(Expense) / Income of $(20,361) and $(32,606) for the three months ended March
31, 2009 and 2008 is comprised primarily of interest incurred on bank lines of
credit, corporate credit cards, term loans and capital leases in connection with
operations related to manufacturing and indirect operating expenses offset by
miscellaneous income. We attribute the decrease in our other
(expense) / income during the three months ended March 31, 2009 when compared to
the three months ended March 31, 2008 as a result of a reduction in interest
expense of approximately $12,000. Interest expense in 2009 primarily decreased
due to lower interest rates on lines of credit and credit cards.
19
Income Tax (Benefit)
Provision
We reported an income tax provision of
$520 for the three months ended March 31, 2009 as compared to an income tax
benefit of $61,548 for the three months ended March 31, 2008. In
2009, we recorded a full valuation allowance against our deferred tax assets as
we believe it is not more likely than not they will be utilized.
Net Loss
We
incurred a net loss of $201,456 for the three months ended March 31, 2009 versus
a net loss of $360,719 for the three months ended March 31,
2008. This was a decrease of $159,263, or 44%, in our net loss for
the comparable period.
Liquidity
and Capital Resources
The
following table summarizes working capital at March 31, 2009 compared to
December 31, 2008.
|
March
31,
|
December
31,
|
Increase
/ (Decrease)
|
||||||||||
|
2009
|
2008
|
$
|
||||||||||
|
Current
Assets
|
$ | 1,723,746 | $ | 2,079,321 | $ | (355,575 | ) | |||||
|
Current
Liabilities
|
1,764,105 | 1,996,988 | (232,883 | ) | ||||||||
|
Working
Capital
|
$ | (40,359 | ) | $ | 82,333 | $ | (122,692 | ) | ||||
As
of March 31, 2009, we had a cash overdraft of $16,994, compared to a cash
overdraft of $7,345 at December 31, 2008. It is anticipated that we
will need to sell additional equity or debt securities or obtain credit
facilities from financial institutions to meet our long-term liquidity and
capital requirements, which include strategic growth through mergers and
acquisitions. There is no assurance that we will be able to obtain
additional capital or financing in amounts or on terms acceptable to us, if at
all or on a timely basis.
Accounts
receivable at March 31, 2009 was $407,832 and $713,194 at December 31, 2008,
representing a decrease of 43%. We typically offer our customers 60,
90 or 120 day payment terms on sales, depending upon the product mix
purchased. When setting terms with our customers, we also consider
the term of the relationship with individual customers and management’s assessed
credit risk of the respective customer, and may at management’s discretion,
increase or decrease payment terms based on those considerations.
Inventory at March 31, 2009 was
$1,299,774 and $1,326,989 at December 31, 2008. Our management seeks to maintain
a very consistent inventory level that it believes is commensurate with current
market conditions and manufacturing requirements related to anticipated sales
volume. We historically have not have an inventory reserve for slow
moving or obsolete products due to the nature of our inventory of precious
metals and stones, which are commodity-type raw materials and rise in value
based on quoted market prices established in actively traded
markets. This allows us to resell or recast these materials into new
products and/or designs as the market changes.
20
Accounts payable and accrued expenses
at March 31, 2009 were $300,035 compared to $446,892 at December 31, 2008, which
represents a 33% decrease. The reduction is due to vendor payments
and keeping inventory at manageable levels.
Bank Lines of Credit and
Notes Payable
Our indebtedness is comprised of
various bank credit lines, term loans, capital leases and credit cards intended
to provide capital for the ongoing manufacturing of our jewelry line, in advance
of receipt of the payment from our retail distributors. As of March
31, 2009, we had three outstanding term loans. One of our loans is
for $150,000 with Columbia Bank, which is payable in monthly installments and
matures in May of 2009. The note bears an annual interest rate of
7.25% and as of March 31, 2009, there was an outstanding balance of
$8,333. We also have a $300,000 term loan with JPMorgan Chase, which
is payable in monthly installments and matures in May 2011. The note
bears an annual interest rate of 7.60% and as of March 31, 2009 there was an
outstanding balance of $143,039. We also have a $100,000 term loan
with Leaf Financial Corporation, which is payable in monthly installments and
matures in December 2013. The note bears an annual interest rate of
9.47% and as of March 31, 2009 there was an outstanding balance of
$94,033. All of these notes are collateralized by our assets as well
as a personal guarantee by our CEO, Berge Abajian.
In
addition to the notes payable, we utilize bank lines of credit to support
working capital needs. As of March 31, 2009, we had two lines of
credit. One bank line of credit is for $700,000 with Columbia Bank
and requires minimum monthly payment of interest only. The interest
is calculated at the bank’s prime rate plus 0.75%. As of March 31,
2009, we had an outstanding balance of $699,999 at an effective annual interest
rate of 4.00%. Additionally, we have a bank line of credit of $55,000
with JPMorgan Chase Bank, which also requires a monthly payment of interest
only. The interest rate is calculated at the bank’s prime rate plus
0.75%. As of March 31, 2009, we had an outstanding balance of $44,927
at an effective annual interest rate of 4.00%. Each credit line
renews annually and is collateralized by our assets as well as a personal
guarantee by our CEO, Berge Abajian.
In
addition to the bank lines of credit and term loans, we have a number of various
unsecured credit cards. These credit cards require minimal monthly
payments of interest only and as of March 31, 2009 have interest rates ranging
from 4.74% to 10.99%. As of March 31, 2009, we have outstanding
balances of $139,266.
21
Satisfaction
of our cash obligations for the next 12 months.
For
the three months ended March 31, 2009 and the year ended March 31, 2008, we have
incurred net losses of approximately $200,000 and $361,000, respectively. We
have funded our working capital needs primarily from revenues, a private
placement equity offering and advances from our CEO and principal stockholder.
Our plan is to acquire design and manufacturing companies throughout the United
States and Europe. If and when we pursue any potential business acquisitions, we
intend to target the top 10% of the world’s jewelry manufacturers that have
already created an identity and brand in the jewelry business. We plan to fund
these potential business acquisitions from additional equity and/or debt
financing, and joint venture partnerships. However, we have no
binding agreements or understandings with any potential acquisition targets.
There is no assurance that we will be able to obtain additional capital in the
amount or, on terms acceptable to us, in the required timeframe.
A
critical component of our operating plan impacting our continued existence is to
efficiently manage the production of our jewelry lines and successfully develop
new lines through our Company or through possible acquisitions and/or mergers.
Our ability to obtain capital through additional equity and/or debt financing,
and joint venture partnerships will also be important to our expansion plans. In
the event we experience any significant problems assimilating acquired assets
into our operations or cannot obtain the necessary capital to pursue our
strategic plan, we may have to reduce the growth of our operations. This may
materially impact our ability to increase revenue and continue our
growth.
Over
the next twelve months we believe we have the required working capital needs to
fund our current operations through revenues. However, any expansion
or future business acquisitions will require us to raise capital through an
equity offering.
Summary
of product and research and development that we will perform for the term of our
plan.
We
are not anticipating significant research and development expenditures in the
near future.
Expected
purchase or sale of plant and significant equipment.
We
do not anticipate the purchase or sale of any plant or significant equipment; as
such items are not required by us at this time.
Significant
changes in the number of employees.
As
previously mentioned, we currently have 3 full-time employees and 2 part-time
employees. We do not anticipate a significant change in the number of
full time employees over the next 12 months. None of our employees
are subject to any collective bargaining agreements.
22
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, results or
operations, liquidity, capital expenditures or capital resources that is deemed
material.
Critical
Accounting Policies
The
Company prepares its financial statements in accordance with accounting
principles generally accepted in the United States of America. Preparing
financial statements in accordance with generally accepted accounting principles
requires the Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities as of the date of the financial statements and the reported amounts
of revenue and expenses during the reported period.
Accounts
Receivable. Management periodically performs a detailed review
of amounts due from customers to determine if accounts receivable balances are
impaired based on factors affecting the collectability of those
balances. Management has provided an allowance for doubtful accounts
of approximately $86,000 at March 31, 2009.
Long-Lived
Assets. In accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, long-lived tangible assets subject to depreciation or
amortization are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If an asset is determined to be impaired, the loss is
measured by the excess of the carrying amount of the asset over its fair value
as determined by an estimate of undiscounted future cash flows. As
these factors are difficult to predict and are subject to future events that may
alter management’s assumptions, the future cash flows estimated by management in
their impairment analyses may not be achieved.
Revenue Recognition. The
Company’s management recognizes revenue when realized or realizable and
earned. In connection with revenue recorded, the Company establishes
a sales returns and allowances reserve for anticipated merchandise to be
returned. The estimated percentage of sales to be returned is based
on the Company’s historical experience of returned merchandise. Also, management
calculates an estimated gross profit margin on returned merchandise deriving a
cost for the anticipated returned merchandise also based on the Company’s
historical operations.
The
Company’s sole revenue producing activity as a manufacturer and distributor of
upscale jewelry is affected by movement in fashion trends and customer desire
for new designs, varying economic conditions affecting consumer spending and
changing product demand by retailers affecting their desired inventory
levels.
Therefore,
management’s estimation process for merchandise returns can result in actual
amounts differing from those estimates. This estimation process is
susceptible to variation and uncertainty due to the challenges faced by
management to comprehensively discern all conditions affecting future
merchandise returns whether prompted by fashion, the economy or customer
relationships. Ultimately, management believes historical factors
provide the best indicator of future conditions based on the Company’s
responsiveness to changes in fashion trends, the cyclical nature of the economy
in conjunction with the number of years in business and consistency and
longevity of its customer mix.
23
Item
3. Quantitative and
Qualitative Disclosures About Market Risk.
This item in not applicable as we are
currently considered a smaller reporting company.
Item
4T. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
Our
Chief Executive Officer and Principal Financial Officer, Berge Abajian, has
evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended)
as of the end of the period covered by this Report. Based on that
evaluation, Mr. Abajian concluded that our disclosure controls and procedures
are effective in timely alerting him to material information relating to us
required to be included in our periodic SEC filings and in ensuring that
information required to be disclosed by us in the reports that we file or submit
under the Act is accumulated and communicated to our management, including our
principal executive and principal financial officer, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.
Changes
in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting that occurred
during our most recent fiscal quarter that have materially affected, or
reasonably likely to materially affect, our internal control over financial
reporting.
PART
II – OTHER INFORMATION
Item
1. Legal
Proceedings.
From
time to time, we may become involved in various lawsuits and legal proceedings
which arise in the ordinary course of business. However, litigation is subject
to inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. We are not presently a party
to any material litigation, nor to the knowledge of management is any litigation
threatened against us, which may materially affect us.
24
Item
1A. Risk Factors.
Risks Relating with Our
Business and Marketplace
Diamond
will need additional capital in the future to finance its operations or any
future acquisitions, which it may not be able to raise or it may only be
available on terms unfavorable to current non-affiliate
shareholders. This may result in Diamond’s inability to fund its
working capital requirements and ultimately harm its operational
results.
Diamond
has and expects to continue to have substantial capital expenditure and working
capital needs. For the three months ended March 31, 2009 and 2008,
Diamond had sales of $190,726 and $280,164, respectively and net loss of
$201,456 and $360,719, respectively. While management believes that
its financial policies have been prudent, the Company will be reliant on future
potential equity and/or debt raises to expand its current business and assist in
any future acquisitions, if and when those opportunities occur.
There
can be no assurance that Diamond will be successful in continuing to meet its
cash requirements from existing operations, or in raising a sufficient amount of
additional capital in future finance offerings. Additional financing
might not be available on terms favorable to Diamond, or at all. If adequate
funds were not available or were not available on acceptable terms, Diamond’s
ability to fund its operations, take advantage of unanticipated opportunities,
develop or enhance its business or otherwise respond to competitive pressures
would be significantly limited.
A
decline in discretionary consumer spending may adversely affect Diamond’s
industry, its operations, and ultimately its profitability.
Luxury products, such as fine jewelry,
are discretionary purchases for consumers. Any reduction in consumer
discretionary spending or disposable income may affect the jewelry industry more
significantly than other industries. Many economic factors outside of
Diamond’s control could affect consumer discretionary spending, including the
financial markets, consumer credit availability, prevailing interest rates,
energy costs, employment levels, salary levels, and tax rates. Any
reduction in discretionary consumer spending could materially adversely affect
Diamond’s business and financial condition.
Diamond
is highly dependent on its key executive officers for the success of its
business plan and may be dependent on the efforts and relationships of the
principals of future acquisitions and mergers. If any of these
individuals become unable to continue in their role, the company’s business
could be adversely affected.
Diamond believes its success will
depend, to a significant extent, on the efforts and abilities of Berge Abajian,
its CEO. If Diamond lost Mr. Abajian, it would be forced to expend
significant time and money in the pursuit of a replacement, which would result
in both a delay in the implementation of its business plan and the diversion of
limited working capital. Diamond can give you no assurance that it could find a
satisfactory replacement for Mr. Abajian at all, or on terms that are not unduly
expensive or burdensome.
25
If
Diamond grows and implements its business plan, it will need to add managerial
talent to support its business plan. There is no guarantee that
Diamond will be successful in adding such managerial talent. These
professionals are regularly recruited by other companies and may choose to
change companies. Given Diamond’s relatively small size compared to
some of its competitors, the performance of its business may be more adversely
affected than its competitors would be if Diamond loses well-performing
employees and are unable to attract new ones.
Diamond
may acquire assets or other businesses in the future.
We
may consider acquisitions of assets or other business. Any acquisition involves
a number of risks that could fail to meet our expectations and adversely affect
our profitability. For example:
|
·
|
The
acquired assets or business may not achieve expected
results;
|
|
·
|
We
may incur substantial, unanticipated costs, delays or other operational or
financial problems when integrating the acquired
assets;
|
|
·
|
We
may not be able to retain key personnel of an acquired
business;
|
|
·
|
Our
management’s attention may be diverted;
or
|
|
·
|
Our
management may not be able to manage the acquired assets or combined
entity effectively or to make acquisitions and grow our business
internally at the same time.
|
If
these problems arise we may not realize the expected benefits of an
acquisition.
The
jewelry industry in general is affected by fluctuations in the prices of
precious metals and precious and semi-precious stones.
The availability and prices of gold,
diamonds, and other precious metals and precious and semi-precious stones may be
influenced by cartels, political instability in exporting countries and
inflation. Shortages of these materials or sharp changes in their
prices could have a material adverse effect on Diamond’s results of operations
or financial condition. A significant change in prices of key
commodities, including gold, could adversely affect its business or reduce
operating margins and impact consumer demand if retail prices increased
significantly, even though Diamond historically incorporates any increases in
the purchase of raw materials to its consumers. Additionally, a
significant disruption in our supply of gold or other commodities could decrease
the production and shipping levels of our products, which may materially
increase our operating costs and ultimately affect our profit
margins.
Diamond
depends on its ability to identify and respond to fashion trends.
The jewelry industry is subject to
rapidly changing fashion trends and shifting consumer
demands. Accordingly, Diamond’s success may depend on the priority
that its target customers place on fashion and its ability to anticipate,
identify, and capitalize upon emerging fashion trends. If Diamond
misjudges fashion trends or are unable to adjust its products in a timely
manner, its net sales may decline or fail to meet expectations and any excess
inventory may be sold at lower prices.
26
Diamond’s
ability to maintain or increase its revenues could be harmed if Diamond is
unable to strengthen and maintain its brand image.
Diamond has spent significant amounts
in branding its Bergio and Bergio Bridal lines. Diamond believes that
primary factors in determining customer buying decisions, especially in the
jewelry industry, are determined by price, confidence in the merchandise and
quality associated with a brand. The ability to differentiate
products from competitors of Diamond has been a factor in attracting
consumers. However, if Diamond’s ability to promote its brand fails
to garner brand recognition, its ability to generate revenues may
suffer. If Diamond fails to differentiate its products, its ability
to sell its products wholesale will be adversely affected. These
factors could result in lower selling prices and sales volumes, which could
adversely affect its financial condition and results of operations.
Diamond
maintains a relatively large inventory of its raw materials and if this
inventory is lost due to theft, its results of operations would be negatively
impacted.
We purchase large volumes of precious
metals and store significant quantities of raw materials and jewelry products at
our facility in New Jersey. Although we have an insurance policy with
Lloyd’s of London, if we were to encounter significant inventory losses due to
third party or employee theft from our facility which required us to implement
additional security measures, this would increase our operating
costs. Also such losses of inventory could exceed the limits of, or
be subject to an exclusion from, coverage under our current insurance
policy. Claims filed by us under our insurance policies could lead to
increases in the insurance premiums payable by us or possible termination of
coverage under the relevant policy.
If
Diamond were to experience substantial defaults by its customers on accounts
receivable, this could have a material adverse affect on Diamond’s liquidity and
results of operations.
A significant portion of our working
capital consists of accounts receivable from customers. If customers
responsible for a large amount of accounts receivable were to become insolvent
or otherwise unable to pay for our products, or to make payments in a timely
manner, Diamond’s liquidity and results of operations could be materially
adversely affected. An economic or industry downturn could materially
affect the ability to collect these accounts receivable, which could then result
in longer payment cycles, increased collections costs and defaults in excess of
management’s expectations. A significant deterioration in the ability
to collect on accounts receivable could affect the cash flow and working capital
position of Diamond.
27
Risks Relating to our Common
Stock
If
we fail to remain current on our reporting requirements, we could be removed
from the OTC Bulletin Board which would limit the ability of broker-dealers to
sell our securities and the ability of stockholders to sell their securities in
the secondary market.
Companies
trading on the OTC Bulletin Board, such as us, must be reporting issuers under
Section 12 of the Securities Exchange Act of 1934, as amended, and must be
current in their reports under Section 13, in order to maintain price quotation
privileges on the OTC Bulletin Board. More specifically, the
Financial Industry Regulatory Authority (“FINRA”) has enacted Rule 6530, which
determines eligibility of issuers quoted on the OTC Bulletin Board by requiring
an issuer to be current in its filings with the Commission. Pursuant
to Rule 6530(e), if we file our reports late with the Commission three times in
a two-year period or our securities are removed from the OTC Bulletin Board for
failure to timely file twice in a two-year period then we will be ineligible for
quotation on the OTC Bulletin Board. As a result, the market
liquidity for our securities could be severely adversely affected by limiting
the ability of broker-dealers to sell our securities and the ability of
stockholders to sell their securities in the secondary market. We
have not been late in any of our SEC reports through December 31,
2008.
Our
common stock could be deemed a low-priced “Penny” stock which could make it
cumbersome for brokers and dealers to trade in our common stock, making the
market for our common stock less liquid and negatively affect the price of our
stock.
In
the event where our securities are accepted for trading in the over-the-counter
market, trading of our common stock may be subject to certain provisions of the
Securities Exchange act of 1934, commonly referred to as the “penny stock” as
defined in Rule 3a51-1. A penny stock is generally defined to be any
equity security that has a market price less than $5.00 per share, subject to
certain exceptions. If our stock is deemed to be a penny stock,
trading will be subject to additional sales practice requirements of
broker-dealers. These require a broker-dealer to:
|
|
·
|
Deliver
to the customer, and obtain a written receipt for, a disclosure
document;
|
|
|
·
|
Disclose
certain price information about the
stock;
|
|
|
·
|
Disclose
the amount of compensation received by the broker-dealer or any associated
person of the broker-dealer;
|
|
|
·
|
Send
monthly statements to customers with market and price information about
the penny stock; and
|
|
|
·
|
In
some circumstances, approve the purchaser’s account under certain
standards and deliver written statements to the customer with information
specified in the rules.
|
Consequently,
penny stock rules may restrict the ability or willingness of broker-dealers to
trade and/or maintain a market in our common stock. Also, prospective
investors may not want to get involved with the additional administrative
requirements, which may have a material adverse effect on the trading of our
shares.
28
FINRA
sales practice requirements may also limit a stockholder's ability to buy and
sell our stock.
In
addition to the “penny stock” rules described above, FINRA has adopted rules
that require that in recommending an investment to a customer, a broker-dealer
must have reasonable grounds for believing that the investment is suitable for
that customer. Prior to recommending speculative low priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to
obtain information about the customer's financial status, tax status, investment
objectives and other information. Under interpretations of these rules, the
FINRA believes that there is a high probability that speculative low priced
securities will not be suitable for at least some customers. The FINRA
requirements make it more difficult for broker-dealers to recommend that their
customers buy our common stock, which may limit your ability to buy and sell our
stock and have an adverse effect on the market for our shares.
Our
current chief executive officer and sole director, Mr. Berge Abajian, owns a
significant percentage of our company and will be able to exercise significant
influence over our company.
Berge Abajian, our chief executive
officer and sole director, beneficially owns approximately 88% of our common
stock. Accordingly, Mr. Abajian will be able to determine the
composition of our board of directors, will retain the effective voting power to
approve all matters requiring shareholder approval, will prevail in matters
requiring shareholder approval, including, in particular the election and
removal of directors, and will continue to have significant influence over our
business. As a result of his ownership and position in the Company,
Mr. Abajian is able to influence all matters requiring shareholder action,
including significant corporate transactions. In addition, sales of
significant amount of shares held by Mr. Abajian, or the prospect of these
sales, could adversely affect the market price of our common stock.
Item
2. Unregistered Sales of
Equity Securities and Use of Proceeds.
On February 12, 2009, the transfer
agent issued 50,000 shares of our common stock to Berge Abajian in
error. The 50,000 shares have been cancelled.
On February 17, 2009, we issued 100,000
shares of our common stock to Stoecklein Law Group pursuant to its retainer
agreement for legal services.
On February 17, 2009, we issued 50,000
shares of our common stock to Berge Abajian as compensation for his board
services during the 2009 year.
On March 17, 2009, we issued 20,000
shares of our common stock to Stoecklein Law Group pursuant to a new retainer
agreement for legal services during the 2009 year.
29
We
believe that the issuance of the shares was exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933 by virtue of
Section 4(2). The shares were issued directly by us and did not involve a public
offering or general solicitation. The recipients of the shares were afforded an
opportunity for effective access to files and records of our company that
contained the relevant information needed to make their investment decision,
including our financial statements. We reasonably believe that the recipients,
immediately prior to issuing the shares, had such knowledge and experience in
our financial and business matters that they were capable of evaluating the
merits and risks of their investment. The recipients had the
opportunity to speak with our management on several occasions prior to their
investment decision. There were no commissions paid on the issuance of the
shares.
Issuer
Purchases of Equity Securities
We did not repurchase any of our
securities during the quarter ended March 31, 2009.
Item
3. Defaults Upon Senior
Securities.
None.
Item
4. Submission of Matters
to a Vote of Security Holders.
None.
Item
5. Other
Information.
None.
Item
6. Exhibits.
|
Incorporated
by reference
|
||||||
|
Exhibit
|
Exhibit
Description
|
Filed
herewith
|
Form
|
Period
ending
|
Exhibit
|
Filing
date
|
|
3(i)
|
Certificate
of Incorporation, dated October 24, 1988
|
Form
S-1/A
|
3(i)
|
08/28/08
|
||
|
3(i)(b)
|
Certificate
of Trade Name, dated January 31, 1997
|
Form
S-1/A
|
3(i)(b)
|
08/28/08
|
||
|
3(i)(c)
|
Certificate
of Amendment to the Certificate of Incorporation, dated May 31,
2007
|
Form
S-1/A
|
3(i)(c)
|
08/28/08
|
||
|
3(ii)
|
Bylaws
of Diamond Information Institute, Inc.
|
Form
S-1/A
|
3(ii)
|
08/28/08
|
||
|
5
|
Opinion
of Legal Counsel (Stoecklein Law Group) – Dated August 28,
2008
|
Form
S-1/A
|
5
|
08/28/08
|
||
|
10.1
|
Sample
Subscription Agreement for the $25,000 unit offering
|
Form
S-1/A
|
10.1
|
08/28/08
|
||
|
31
|
Certification
of Berge Abajian pursuant to Section 302 of the Sarbanes-Oxley
Act
|
X
|
||||
|
32
|
Certification
of Berge Abajian pursuant to Section 906 of the Sarbanes-Oxley
Act
|
X
|
||||
30
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DIAMOND INFORMATION
INSTITUTE, INC.
(Registrant)
By:/S/ Berge
Abajian
Berge
Abajian, President &
Chief
Executive Officer (On behalf of
the
registrant and as principal accounting
officer)
Date:
May 15, 2009
31