<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 2000
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NO. 1-11602
SI DIAMOND TECHNOLOGY, INC.
(Exact name of Small Business Issuer as specified in charter)
TEXAS 76-0273345
(State of (IRS Employer
Incorporation) Identification Number)
3006 Longhorn Blvd., Suite 107
AUSTIN, TEXAS 78758
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (512) 339-5020
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 [ ]
As of August 9, 2000, the registrant had 58,342,004 shares of common stock,
par value $.001 per share, issued and outstanding.
Transitional Small Business Disclosure Format.
Yes [ ] No [X]
<PAGE> 2
SI DIAMOND TECHNOLOGY, INC.
INDEX
<TABLE>
<CAPTION>
Part I Financial Information PAGE
----
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets--June 30, 2000 and December 31, 1999.................... 3
Consolidated Statements of Operations--Three Months and Six Months Ended
June 30, 2000 and 1999............................................................ 4
Consolidated Statements of Cash Flows--Six Months Ended
June 30, 2000 and 1999............................................................ 5
Notes to Consolidated Financial Statements.......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................... 9
Part II Other Information
Item 1. Legal proceedings............................................................... 13
Item 5. Other Information............................................................... 14
Item 6. Exhibits and Reports on Form 8-K................................................ 14
Signatures .................................................................................. 15
</TABLE>
2
<PAGE> 3
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
ASSETS JUNE 30, DECEMBER 31,
2000 1999
------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................................... $ 1,526,403 $ 348,832
Marketable securities.............................................................. 204,366 719,376
Accounts receivable, trade......................................................... 286,876 314,518
Notes receivable................................................................... -- 60,000
Inventory.......................................................................... 245,061 167,775
Prepaid expenses and other current assets.......................................... 44,457 52,312
------------- --------------
Total current assets............................................................. 2,307,163 1,662,813
Property, plant and equipment, net................................................. 2,119,705 1,437,246
Intangible assets, net............................................................. 729,612 836,021
Other assets....................................................................... 7,250 7,250
------------- --------------
Total assets..................................................................... $ 5,163,730 $ 3,943,330
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................... $ 853,472 $ 751,225
Current portion of long-term debt.................................................. 5,693 5,473
Obligations under capital lease.................................................... 21,657 31,432
Notes payable...................................................................... 700,000 250,000
Accrued liabilities................................................................ 480,855 723,842
Customer deposits.................................................................. 222,506 256,947
------------- --------------
Total current liabilities........................................................ 2,284,183 2,018,919
Notes payable, long-term.............................................................. 18,719 21,623
------------- --------------
Total Liabilities..................................................................... 2,302,902 2,040,542
Commitments and contingencies......................................................... -- --
Minority interest in subsidiary....................................................... -- 22,547
Stockholders' equity :
Preferred stock, $1.00 par value, 2,000,000 shares authorized;
Series G convertible, 900 and 1,100 shares issued and outstanding at
June 30, 2000 and December 31, 1999, respectively................................ 900 1,100
Common stock, $.001 par value, 120,000,000 shares authorized,
58,101,840 and 53,906,719 shares issued and outstanding at
June 30, 2000 and December 31, 1999, respectively................................ 58,101 53,906
Additional paid-in capital............................................................ 59,796,375 55,410,993
Accumulated deficit................................................................... (56,994,548) (53,585,758)
------------- --------------
Total stockholders' equity ...................................................... 2,860,828 1,880,241
------------- -------------
Total liabilities and stockholders' equity $ 5,163,730 $ 3,943,330
============= ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
License fees and royalties 25,500 63,250 25,500 5,695,406
Other 607,190 79,130 1,520,964 104,091
------------ ------------ ------------ ------------
Total Revenues 632,690 142,380 1,546,464 5,799,497
------------ ------------ ------------ ------------
Cost of sales 456,667 80,660 1,120,758 100,091
Selling, general and administrative expenses 964,684 574,348 2,511,838 1,795,636
Research and development 480,134 378,549 845,101 759,398
------------ ------------ ------------ ------------
Operating costs and expenses 1,901,485 1,033,557 4,477,697 2,655,125
Income (loss) from operations (1,268,795) (891,177) (2,931,233) 3,144,372
Other income (expense), net
Selling, general and administrative expenses -- -- (486,000) --
Other (312,809) 83,539 (14,104) (25,470)
------------ ------------ ------------ ------------
Income (loss) before taxes and
minority interest in subsidiary earnings (1,581,604) (807,638) (3,431,337) 3,118,902
Minority interest in subsidiary earnings -- -- 22,547 --
------------ ------------ ------------ ------------
Income (loss) before taxes (1,581,604) (807,638) (3,408,790) 3,118,902
Provision for taxes -- -- -- 555,556
------------ ------------ ------------ ------------
Net Income (loss) (1,581,604) (807,638) (3,408,790) 2,563,346
Less preferred stock dividend (22,500) (38,750) (50,000) (77,695)
------------ ------------ ------------ ------------
Net income (loss) applicable to common shareholders $ (1,604,104) $ (846,388) $ (3,458,790) $ 2,485,651
============ ============ ============ ============
Earnings (loss) per share
Basic $ (0.03) $ (0.02) $ (0.06) $ 0.05
============ ============ ============ ============
Diluted $ (0.03) $ (0.02) $ (0.06) $ 0.05
============ ============ ============ ============
Weighted average shares outstanding
Basic 55,778,265 50,773,826 55,610,804 49,294,145
============ ============ ============ ============
Diluted 55,778,265 50,773,826 55,610,804 55,569,195
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................ $(3,408,790) $ 2,563,346
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Minority interest in subsidiary earnings ....................... (22,547) --
Depreciation and amortization expense .......................... 729,716 46,279
Net realized and unrealized gain (loss) on marketable securities (9,950) --
Interest paid in common stock .................................. 7,669 44,852
Common shares issued for services .............................. 675,000 --
Changes in assets and liabilities:
Accounts receivable, trade ................................... 27,642 78,230
Notes receivable ............................................. 60,000 --
Inventory .................................................... (77,286) 3,200
Prepaid expenses and other current assets .................... 7,855 (310,275)
Accounts payable and accrued liabilities ..................... 84,260 (493,012)
Customer deposits and other current liabilities .............. (34,441) 140,073
----------- -----------
Total adjustments ....................................... 1,447,918 (490,653)
----------- -----------
Net cash provided by (used in) operating activities ............ (1,960,872) 2,072,693
----------- -----------
Cash flows from investing activities:
Capital expenditures ........................................... (805,766) (42,500)
Proceeds from the sale of marketable securities ................ 2,196,331 --
Purchase of marketable securities .............................. (1,671,371) --
Decrease in deposits and other assets .......................... -- 2,900
----------- -----------
Net cash used in investing activities ........................ (280,806) (39,600)
----------- -----------
Cash flows from financing activities:
Repayment of notes payable ..................................... (37,459) (410,000)
Proceeds from notes payable .................................... 375,000 250,000
Proceeds of stock issuance, net of costs ....................... 3,081,708 517,893
----------- -----------
Net cash provided by financing activities .................... 3,419,249 357,893
----------- -----------
Net increase in cash and cash equivalents ............................. 1,177,571 2,390,986
Cash and cash equivalents, beginning of period ........................ 348,832 2,636
----------- -----------
Cash and cash equivalents, end of the period .......................... $ 1,526,403 $ 2,393,622
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of SI Diamond
Technology, Inc. and Subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in compliance with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments consisting only of normal recurring adjustments
considered necessary for a fair presentation, have been included. All
significant intercompany transactions and balances have been eliminated in
consolidation. Operating results for the three and six months ended June 30,
2000 are not necessarily indicative of the results that may be expected for the
full year ending December 31, 2000. For further information, refer to the
financial statements and footnotes thereto for the year ended December 31, 1999,
included in the Company's 1999 Annual Report on Form 10-KSB. The balance sheet
information for December 31, 1999 has been derived from the audited financial
statements at that date.
2. Supplemental Cash Flow Information
Cash paid for interest for the six months ended June 30, 2000 and 1999 was
approximately $10,145 and $19,173, respectively. Cash paid for foreign taxes was
$555,556 in 1999. No cash was paid for foreign taxes in 2000. In the six months
ended June 30, 2000, the Company also had non-cash transactions related to the
issuance of its common stock in exchange for the minority interest in its FEPET
subsidiary and the conversion of debt to equity. These transactions are
described in greater detail in Note 3.
3. Stockholders' Equity
In the six months ended June 30, 2000, the Company issued a total of
2,000,000 restricted shares of its common stock for a total of $2,300,000 in
cash in a series of exempt offerings under Regulation D of the Securities Act of
1933. The Company also received $406,708 and issued 1,002,747 shares as the
result of the exercise of options and received $375,000 and issued 375,000
shares as the result of the exercise of warrants during the quarter.
In March 2000, a total of 200 shares of the Company's Series G preferred
shares were converted into 255,000 shares of its common stock.
As described in greater detail in Note 4, a total of 62,374 shares of
the Company's common stock were issued in February 2000 in connection with a
convertible note payable in the amount of $125,000 issued by the Company in
September 1999 related to the purchase of the assets of Sign Builders of
America, Inc.
In January 2000, the Company issued a total of 300,000 shares valued at
$675,000 to C&A Services LLC ("C&A"), a Texas limited liability company, in
connection with a marketing, consulting and advisory services agreement
described in greater detail in Note 12 to the financial statements included in
the Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1999.
In February 2000, the Company issued 200,000 shares of its common stock,
valued at $500,000 at the time, to Nomura Trading Co., Ltd. in exchange for
Nomura's 5% minority interest in the Company's FEPET subsidiary. As a result of
this transaction, the Company recorded goodwill of $486,000, which approximated
the amount of the market value of the common shares issued in excess of the book
value of the subsidiary's stock acquired. This goodwill was written off in its
entirety.
6
<PAGE> 7
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Notes Payable
At December 31, 1999, the Company had a note payable in the amount of
$250,000 due to a shareholder of the Company. The note arose in connection with
the Company's purchase of the assets of Sign Builders of America, Inc. in
September 1999. The note was payable in two equal installments due March 1, 2000
and September 1, 2000. The note and related interest is convertible into shares
of common stock of the Company at the option of the note holder at a rate of
$2.127 per share. In February 2000, the note holder elected to convert the
installment due March 1, 2000 into shares of the Company's common stock. The
note holder received a total of 62,374 shares of the Company's common stock in
lieu of a principal payment of $125,000 and related interest of $7,669.
As described in greater detail in Note 5, the Company issued three notes
payable totaling $225,000 in connection with a settlement agreement in the
Semi-Alloys lawsuit.
5. Contingencies
Customer Claim at Plasmatron Coatings and Systems, Inc.
On May 20, 1996, Semi-Alloys Company, a former customer of Plasmatron,
filed a complaint with the Supreme Court of the State of New York, County of
Westchester. The complaint named Plasmatron, the Company and Westchester Fire
Insurance Company as defendants. Semi-Alloys claimed a breach of contract
related to $1 million of coating equipment that Plasmatron delivered in 1993,
prior to the Company's ownership of Plasmatron. Semi-Alloys claimed the
equipment did not perform as required under the contract. Semi-Alloys sought to
recover compensatory, consequential and incidental damages. In January 2000, the
Company agreed to participate in a settlement agreement between the plaintiff
and the other defendant; notwithstanding our denial of any liability to the
plaintiff. The Company agreed to pay a total of $450,000, of which $225,000 was
paid at signing. The Company signed three notes payable for the balance of the
settlement. These notes, in the amount of $25,000, $100,000, and $100,000, are
due in three months, nine months, and eighteen months, respectively and bear
interest at a rate of 10% per annum. The first note in the amount of $25,000 was
paid when due in April 2000. In exchange for this settlement, and upon complete
payment of the notes, the Company will receive a complete release from further
liability from both the plaintiff and the co-defendant. The entire amount of
this settlement was included in accrued liabilities at December 31, 1999.
On April 30, 1998, Universal Bonding Company, managing general agent for
Westchester Fire Insurance Company filed a complaint with the Superior Court of
New Jersey, Atlantic County. The Complaint named Richland Glass Company, Inc.,
Robert Williams, Joan Williams, Bawa Singh, Narinder Singh, Gaylord Evey and
Doris Evey, all guarantors under the bond, as defendants. All defendants were
former owners, or associated with former owners, of Plasmatron. Defendant
Gaylord Evey filed an answer with the court naming Plasmatron, the Company,
Nicholas Rettino, and the Rettino Insurance agency as third party defendants and
asking for indemnification by the third party defendants. A separate
indemnification claim filed by Richland Glass against the same third party
defendants was consolidated with this case. The amount of this claim is to be
determined at trial; however, any potential amounts due by the Company are
dependent upon Westchester collecting from other guarantors on the bond, and
those guarantors succeeding in obtaining a judgement against the Company.
Westchester has released its claims against the Company. The Company considers
this case to be without merit and expects to have the case ultimately resolved
in its favor.
Outlook
We anticipate that losses will continue as we fund the development of our
CFE technology and accelerate installations of our electronic billboard and
related electronic display products. We expect the magnitude of the losses to
decrease. We expect to reach break-even on a monthly operating basis in 2001.
There can be no assurance that we will be profitable in the future. Full
commercial development of our technology and electronic billboard and related
electronic display will require additional funds that may not be available at
terms acceptable to us.
7
<PAGE> 8
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Contingencies (continued)
The Company has developed a plan to allow it to maintain operations until
the Company is able to sustain itself on its own revenue. The plan is primarily
dependent on raising funds through the licensing of its technology and through
strategic partners and debt offerings. The Company is also concentrating on
raising revenue by installing its electronic billboard and related display
products at customer sites. Management believes that it has the ability to
continue to raise additional funding, if necessary, to enable it to continue
operations until its plan can be completed. At the present time the Company has
existing cash available to sustain it for a period of approximately two months
from the date of this report at current spending levels and based on current
spending plans.
This plan is based on current development plans, current operating plans,
the current regulatory environment, historical experience in the development of
electronic products and general economic conditions. Changes could occur which
would cause certain assumptions on which this plan is based to be no longer
valid. The Company's plan is primarily dependent on increasing revenues and
raising additional funds through strategic partners and additional debt
offerings. If adequate funds are not available from operations, or additional
sources of financing, the Company may have to eliminate, or reduce
substantially, expenditures for research and development, testing and production
of its products, or obtain funds through arrangements with other entities that
may require the Company to relinquish rights to certain of its technologies or
products. Such results would materially and adversely affect the Company.
6. Related Party Transactions
As described in greater detail in Item 12 of the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1999, the Company's
subsidiary, Electronic Billboard Technology, Inc. has entered into a Patent
Assignment and Royalty Agreement with Advanced Technology Incubator, Inc.,
("ATI"). ATI is owned by Dr. Zvi Yaniv, SI Diamond's President and Chief
Operating Officer. The assignment is conditioned on an initial payment of
$200,000 to ATI. The initial payment was originally due February 15, 1999, but
the time for payment has been extended for an indefinite time period. A total of
$62,500 has been paid for this extension. SI Diamond can complete the assignment
of the patent at any time by paying the remaining $137,500 to ATI.
7. Income Taxes
As discussed in more detail in the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1999, the Company had a net operating
loss carryforward of approximately $51 million available to it for federal
income tax purposes. A portion of that net operating loss carryforward was used
to offset the taxable income for the six month period ended June 30, 1999. If
this net operating loss carryforward had not been available, the Company would
have recorded $900,000 in income tax for the six month period ended June 30,
1999. As a result of the net loss, no income taxes were recorded for the period
ended June 30, 2000.
8. Subsequent Events
In July 2000, we completed the acquisition of certain patents related to
the use of carbon nanotubes for field emission applications. We issued 240,164
shares of our common stock, valued at $250,000 in exchange for these patents.
8
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
OVERVIEW
During the six months ended June 30, 2000, the Company's primary revenues
were earned as a result of the construction of signs at our Sign Builders
of America, Inc. ("SBOA") subsidiary and reimbursed research expenditures
at our Field Emission Picture Element Technologies, Inc. ("FEPET")
subsidiary. We continued to incur substantial expenses in support of the
development of our proprietary Carbon Based Field Emission ("CFE")
Technology and in the development of our electronic display products. As
more fully discussed in the our Annual Report on Form 10-KSB for the year
ended December 31, 1999, we expect to incur additional research and
development expenses throughout 2000 in developing our CFE technology. Our
Electonic Billboard Technology, Inc. ("EBT") subsidiary began receiving
advertising revenue related to its electronic billboard product in the
quarter ending June 2000. We also expect monthly advertising revenues to
consistently increase for the balance of the year as additional billboards
are installed at customer locations.
RECENT DEVELOPMENTS
In January 2000, EBT signed an agreement with Eckerd Corporation, a
subsidiary of JCPenney to install two electronic billboards at Eckerd
locations as part of a pilot program. Under this arrangement, EBT will sell
advertising on these boards and share a portion of the advertising revenue
with Eckerd. The first of these billboards was installed in March 2000 and
the pilot program is currently underway.
In April 2000, EBT signed a license agreement with Cinemark USA, Inc.
whereby EBT will install its electronic billboard product at selected
Cinemark locations throughout the United States. Initially five locations
have been jointly selected by EBT and Cinemark. When the billboards are
installed, EBT will sell advertising on the boards and share a portion of
the revenues with Cinemark.
In May 2000, FEPET signed a license agreement related to carbon nanotubes
for field emission applications that will be a significant addition to our
intellectual property portfolio. The transaction was completed in July 2000
when approximately 240,000 shares of common stock valued at $250,000 were
issued to the licensor of the patent.
On July 1, 2000 EBT took over operation of a billboard located in a prime
location along Interstate Highway 35 in Austin, Texas. If EBT obtains the
necessary approvals, it will install an electronic billboard at that location.
RESULTS OF OPERATIONS
Our revenues for the second quarter ended June 30, 2000 totaled $632,690
compared to $142,380 for the second quarter of 1999. We earned $1,546,464
in revenues during the six month period ended June 30, 2000, (the "2000
Period") as compared with $5,799,497 during the six month period ended June
30, 1999 (the "1999 Period"). During the 2000 Period, we had revenues of
$1,162,142 from SBOA, $330,329 from FEPET, and $53,993 in revenues from
EBT. The FEPET revenues in the 2000 Period were all the result of
reimbursed research expenditures under two government programs. In the 1999
Period, FEPET had revenues of $5,648,426, of which $5,555,556 was from
licensing certain of its patents and patent applications to Canon, Inc. The
SBOA revenues in the 2000 period were all from the sale of signs designed,
manufactured, or installed by SBOA. There were no SBOA revenues in the 1999
Period since we purchased SBOA in September 1999. During the 2000 period,
EBT received $25,500 in royalties under its now terminated agreement with
Texas Digital Systems, Inc. ("TDS"), $27,413 in revenue from miscellaneous
product sales, and $1,080 of advertising revenue related to its recently
installed electronic billboard. During the 1999 Period, EBT had revenue of
$151,071, virtually all of which was related to the TDS agreement.
9
<PAGE> 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT.)
We had a revenue backlog of $240,020 as of June 30, 2000. This backlog
consists of $220,000 of contracts in process at SBOA and $20,020 of
advertising commitments at EBT. EBT had no backlog at June 30, 1999. The
entire backlog of $144,843 at June 30, 1999 was related to research
contracts in process at FEPET at that time. FEPET had no backlog at June
30, 2000. We had contract research revenues of $330,329 in the 2000 period
and no contract research revenues in the 1999 period. We have no current
backlog of anticipated future revenues from governmental research
contracts. We intend to apply for research contracts related to our core
technology research, however we will continue to fund this research
regardless of the availability of any reimbursement for these costs. Our
ability to perform continued research should not require significant
additional personnel.
For the 2000 Period, our cost of sales were $1,120,758, or a gross margin
of 28%, as compared with $100,091 or a gross margin of 98%, for the 1999
Period. This decreased margin resulted from a combination of factors.
First, substantially all of the Company's revenue in the 1999 Period
resulted from royalty agreements that have minimal ongoing costs associated
with the agreement. The revenue in the 2000 period was primarily from the
construction of signs, which have normal margins in the 40% range and the
reimbursement of research costs, which have no margin. We expect our future
margins to increase substantially from the 28% margin in this quarter as
EBT begins to generate advertising revenue from its electronic billboards
and as FEPET enters into additional license or royalty agreements.
Our selling, general, and administrative expenses were $2,511,838 for the
2000 Period, compared with $1,795,636 for the 1999 Period. The primary
reason for the increase was selling, general, and administrative expenses
associated with SBOA during the 2000 Period. Since SBOA was not acquired
until September 1999, there were no selling, general, and administrative
expenses associated with SBOA during the 1999 period. We incurred research
and development expenses of $845,101 for the 2000 Period. This was slightly
higher than the $759,398 incurred in the 1999 Period and results from a
higher level of research activity. We expect to continue to incur expense
throughout the remainder of 2000 in support of additional research and
development activities related to the commercial development of our CFE
technology and our electronic billboard technology.
Our other expense of $14,104 in the 2000 Period was primarily the result of
net realized and unrealized gains and losses on our marketable securities
portfolio, including the gain recognized on the sale of Diamond.com LLC.
Our other expense in the 1999 Period was primarily the result of interest
expense.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had cash and cash equivalents in the amount
of $1,526,403 as compared with cash and cash equivalents of $348,832 at
December 31, 1999. This increase in cash is primarily the result of
proceeds from the issuance of our common stock, offset by cash used in
operating activities. Based on the developmental stages of the Company's
CFE technology and electronic billboard product, additional debt, equity,
sale of product distribution or technology rights, or other financing will
be required in the future. Although we expect to obtain acceptable
financing for our future operations, there can be no absolute assurance
that any of these financing alternatives can be arranged on commercially
acceptable terms.
As described in greater detail in the notes to the financial statements,
the Company received proceeds of $3,081,708 from the issuance of common
stock and $375,000 from the issuance of notes payable during the six months
ended June 30, 2000. The Company also repaid $37,459 of notes payable
during this period. This resulted in net cash provided by financing
activities of $3,419,249 for the 2000 Period. Cash provided by financing
activities was $357,893 for the 1999 Period.
10
<PAGE> 11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT.)
Cash used in operating activities was $1,960,872 for the 2000 Period
compared to cash provided by operating activities of $2,072,693 for the
1999 Period. The decrease in the cash provided by operating activities was
primarily the result of the patent license agreement signed during the 1999
Period. No revenue from patent license agreements was included in the 2000
Period.
Cash used in investing activities during the 2000 Period was $280,806 as
compared with cash used in investing activities of $39,600 for the 1999
Period. The cash used in the 2000 Period resulted from capital expenditures
related to electronic billboards, partially offset by net proceeds from the
sale of marketable securities. The cash used in investing activities in the
1999 period was the result of the acquisition of minor amounts of capital
equipment.
The principal source of our liquidity has been the funds received from our
initial public offering and from subsequent foreign and exempt offerings of
common stock or debt instruments. We may receive additional funds from the
exercise of warrants or stock options, although there can be no assurance
that such warrants or options will be exercised. When we need additional
funds, we may seek to sell additional debt or equity securities, or sell or
license certain technology rights. We may seek to increase our liquidity
through bank borrowings or other financing. While we expect to be able to
finance our future operations, there can be no absolute assurance that any
of these financing alternatives can be arranged on commercially acceptable
terms. We believe that our success in reaching profitability will be
dependent upon the viability of our products and their acceptance in the
marketplace, the acceptance of our technology by potential licensees, and
our ability to obtain additional financing in the future. WallaceSanders &
Company, independent auditors of the Company, expressed uncertainty as to
the ability of the Company to continue as a going concern based on
accumulated losses from operations. See "Independent Auditors' Report."
included in the Company's 1999 Annual Report on Form 10-KSB. We have
received similar opinions from our auditors in each year since 1995.
We expect to continue to incur substantial expenses for research and
development ("R&D"), product testing, and product marketing. Further, we
believe that certain products that may be developed by potential licensees
of our technology may not be available for commercial sale or routine use
for a period of one to two years. While we would likely receive initial
license payments, ongoing royalty streams related to those licenses will
not be available until potential licensees have introduced products using
our technology. Our electronic billboard product is available for
installation and is being installed in certain locations at the present
time. Our business model calls for us to install electronic billboards and
generate revenues from the sale of advertising. As a result we must incur
the cost of installing the billboards and recover that cost through the
advertising revenues generated by the billboards. Therefore, it is
anticipated that the commercialization of our existing and proposed
products will require additional capital in excess of our current funding.
The combined effect of the foregoing may prevent us from achieving
sustained profitability for an extended period of time. Because the timing
and receipt of revenues from the sale of products will be tied to the
achievement of certain product development, testing and marketing
objectives which cannot be predicted with certainty, there may be
substantial fluctuations in our results of operations. We expect, however,
to be operating at break even on a monthly basis in 2001. If revenues do
not increase as rapidly as anticipated, or if product development, testing,
and marketing require more funding than anticipated, we may be required to
curtail our expansion or seek additional financing from other sources.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT.)
OUTLOOK
We anticipate that losses will continue in 2000 as we continue to fund the
development of our CFE technology and begin installations of our electronic
billboard and related electronic display products. We expect the magnitude
of the losses, if they continue, to decrease. We expect to reach break-even
on a monthly operating basis in 2001. There can be no assurance that we
will be profitable in the future. Full commercial development of our
technology and electronic billboard and related electronic display will
require additional funds that may not be available at terms acceptable to
us.
We developed a plan to allow ourselves to maintain operations until we are
able to sustain ourselves on our own revenue. However, at current spending
levels, existing resources (including commitments) are only available to
allow us to operate for a period of approximately two months from the date
of this report. Our plan is primarily dependent on raising funds through
the licensing of our technology and through additional debt and equity
offerings. We are also concentrating on raising revenue by seeking
customers for our electronic billboard product, which is currently
available for installation. We believe that we have the ability to continue
to raise short term funding, if necessary, to enable us to continue
operations until our plan can be completed.
This plan is based on current development plans, current operating plans,
the current regulatory environment, historical experience in the
development of electronic products and general economic conditions. Changes
could occur which would cause certain assumptions on which this plan is
based to be no longer valid. Our plan is primarily dependent on increasing
revenues and raising funds through additional debt and equity offerings.
Although we do not expect funding our operations to be a problem, if
adequate funds are not available from operations, or additional sources of
financing, we may have to eliminate, or reduce substantially, expenditures
for research and development, testing and production of our products, or
obtain funds through arrangements with other entities that may require us
to relinquish rights to certain of our technologies or products. Such
results may materially and adversely affect us.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 20, 1996, Semi-Alloys Company, a former customer of Plasmatron, filed a
complaint with the Supreme Court of the State of New York, County of
Westchester. The complaint names Plasmatron, the Company and Westchester Fire
Insurance Company as defendants. Semi-Alloys claims a breach of contract related
to $1 million of coating equipment that Plasmatron delivered in 1993, prior to
the Company's ownership of Plasmatron. Semi-Alloys claims the equipment does not
perform as required under the contract. Semi-Alloys sought to recover
compensatory, consequential and incidental damages. In January 2000, the Company
agreed to participate in a settlement agreement between the plaintiff and the
other defendant; notwithstanding our denial of any liability to the plaintiff.
The Company agreed to pay a total of $450,000, of which $225,000 was due at
signing. The Company signed three notes payable for the balance of the
settlement. These notes, in the amount of $25,000, $100,000, and $100,000, are
due in three months, nine months, and eighteen months, respectively and bear
interest at a rate of 10% per annum. The first note in the amount of $25,000 was
paid when due in April 2000. In exchange for this settlement, and upon payment
of the notes, the Company will receive a complete release from further liability
from both the plaintiff and the co-defendant. The entire amount of this
settlement is included in accrued liabilities at December 31, 1999.
On April 30, 1998, Universal Bonding Company, managing general agent for
Westchester Fire Insurance Company filed a complaint with the Superior Court of
New Jersey, Atlantic County. The Complaint named Richland Glass Company, Inc.,
Robert Williams, Joan Williams, Bawa Singh, Narinder Singh, Gaylord Evey and
Doris Evey, all guarantors under the bond, as defendants. All defendants were
former owners, or associated with former owners, of Plasmatron. Defendant
Gaylord Evey filed an answer with the court naming Plasmatron, the Company,
Nicholas Rettino, and the Rettino Insurance agency as third party defendants and
asking for indemnification by the third party defendants. A separate
indemnification claim filed by Richland Glass against the same third party
defendants was consolidated with this case. The amount of this claim is to be
determined at trial; however, any potential amounts due by the Company are
dependent upon Westchester collecting from other guarantors on the bond, and
those guarantors succeeding in obtaining a judgement against the Company.
Westchester has released its claims against the Company. The Company considers
this case to be without merit and expects to have the case ultimately resolved
in its favor.
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ITEM 5. OTHER INFORMATION
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this report are forward-looking statements concerning the
future operations of the Company. The Company is including the following
cautionary statement in this Quarterly Report on Form 10-QSB to make applicable
and take advantage of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 for any forward-looking statement made by, or on
behalf of, the Company. The factors identified in this cautionary statement are
important factors (but not necessarily all important factors) that could cause
actual results to differ materially from those expressed in any forward-looking
statement made by, or on behalf of, the Company.
Where any such forward-looking statement includes a statement of the
assumptions or basis underlying such forward-looking statement, the Company
cautions that, while it believes such assumptions or basis to be reasonable and
makes them in good faith, assumed facts or basis almost always vary from actual
results, and the differences between assumed facts or basis and actual results
can be material, depending upon the circumstances. Where in any forward-looking
statement, the Company or its management expresses an expectation or belief as
to future results, such expectation or belief is expressed in good faith and
believed to have a reasonable basis, but there can be no assurance that the
statement or expectation or belief will result or be achieved or accomplished.
Important factors that could cause the Company's actual results to differ
from results in forward-looking statements are incorporated herein by reference
from pages ii-vii of the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1999. The Company undertakes no obligation to publicly
update any forward-looking statements, whether as a result of new information,
future events, or otherwise. You are advised, however, to consult any further
disclaimers the Company may make on related subjects in our 10-QSB, 8-K, and
10KSB reports to the SEC
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Index to Exhibits on page 16 for a descriptive response
to this item.
(b) Reports on Form 8-K:
(1) Current Report on Form 8-K (Item 5) dated as of April 28, 2000.
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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.
SI DIAMOND TECHNOLOGY, INC.
(Registrant)
Date: November 10, 2000 /s/ Marc W. Eller
----------------------------------------
Marc W. Eller
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: November 10, 2000 /s/ Tracy Vaught
----------------------------------------
Tracy Vaught
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
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INDEX TO EXHIBITS
The following documents are filed as part of this Report:
Exhibit
11 Computation of (Loss) Per Common Share
13 Forward-Looking Statements and Important Factors Affecting
Future Results (pages ii - vii of the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1999,
incorporated by reference into the Quarterly Report on Form
10-QSB for the fiscal quarter ended March 31, 2000).
27 Financial Data Schedule
16
