<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 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 November 9, 2000, the registrant had 59,561,032 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> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets--September 30, 2000 (unaudited) and December 31, 1999................ 3
Consolidated Statements of Operations--Three Months and Nine Months Ended
September 30, 2000 and 1999 (unaudited)......................................................... 4
Consolidated Statements of Cash Flows--Nine Months Ended
September 30, 2000 and 1999 (unaudited)......................................................... 5
Notes to Consolidated Financial Statements (unaudited)............................................ 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 4. Submission of matters to a vote of security holders........................................... 14
Item 6. Exhibits and Reports on Form 8-K.............................................................. 15
Signatures ................................................................................................ 16
</TABLE>
2
<PAGE> 3
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
ASSETS SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................................... $ 546,866 $ 348,832
Marketable securities.............................................................. 108,285 719,376
Accounts receivable, trade, net.................................................. 328,934 314,518
Notes receivable................................................................... -- 60,000
Inventory.......................................................................... 163,451 167,775
Prepaid expenses and other current assets.......................................... 39,158 52,312
------------- --------------
Total current assets............................................................. 1,186,694 1,662,813
Property, plant and equipment, net................................................. 2,174,179 1,437,246
Intangible assets, net............................................................. 897,908 836,021
Other assets....................................................................... 8,308 7,250
------------- --------------
Total assets..................................................................... $ 4,267,089 $ 3,943,330
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................... $ 896,026 $ 751,225
Current portion of long-term debt.................................................. 23,031 5,473
Obligations under capital lease.................................................... -- 31,432
Notes payable...................................................................... 600,000 250,000
Accrued liabilities................................................................ 468,675 723,842
Customer deposits.................................................................. 133,964 256,947
------------- --------------
Total current liabilities........................................................ 2,121,696 2,018,919
Notes payable, long-term.............................................................. -- 21,623
------------- --------------
Total Liabilities..................................................................... 2,121,696 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
September 30, 2000 and December 31, 1999, respectively......................... 900 1,100
Common stock, $.00l par value, 120,000,000 shares authorized,
58,877,004 and 53,906,719 shares issued and outstanding at
September 30, 2000 and December 31, 1999, respectively............................. 58,877 53,906
Additional paid-in capital............................................................ 60,459,037 55,410,993
Accumulated deficit................................................................... (58,373,421) (53,585,758)
------------- --------------
Total stockholders' equity ...................................................... 2,145,393 1,880,241
------------- -------------
Total liabilities and stockholders' equity $ 4,267,089 $ 3,943,330
============= ==============
</TABLE>
See notes to 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 Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
License fees and royalties ................................. $ -- $ 83,950 $ 25,500 $ 5,779,356
Sign construction .......................................... 642,572 157,825 1,804,714 157,825
Other, primarily contracts ................................. 22,901 67,342 381,723 171,433
------------ ------------ ------------ ------------
Total Revenues .......................................... 665,473 309,117 2,211,937 6,108,614
------------ ------------ ------------ ------------
Cost of sales ................................................ 438,689 152,045 1,559,447 252,136
Selling, general and administrative expenses ................. 880,458 752,470 3,390,797 2,548,106
Research and development ..................................... 675,491 360,925 1,520,591 1,120,323
------------ ------------ ------------ ------------
Operating costs and expenses .............................. 1,994,638 1,265,440 6,470,835 3,920,565
Income (loss) from operations ................................ (1,329,165) (956,323) (4,258,898) 2,188,049
Other income (expense), net
Gain on sale of investments ............................ -- -- 375,000 --
Gain (loss) on marketable securities ................... (44,404) 2,411 (409,455) 2,411
Amortization of goodwill related to minority interest .. -- -- (486,000) --
Other .................................................. (6,804) 149,934 (30,857) 114,464
------------ ------------ ------------ ------------
Income (loss) before taxes and
minority interest in subsidiary earnings .............. (1,380,373) (803,978) (4,810,210) 2,304,924
Minority interest in subsidiary earnings ..................... -- -- 22,547 --
------------ ------------ ------------ ------------
Income (loss) before taxes ................................... (1,380,373) (803,978) (4,787,663) 2,304,924
Provision for taxes .......................................... -- -- -- 555,556
------------ ------------ ------------ ------------
Net income (loss) ........................................... (1,380,373) (803,978) (4,787,663) 1,749,368
Less preferred stock dividend ................................ (22,500) (33,221) (72,500) (110,916)
------------ ------------ ------------ ------------
Net income (loss) applicable to common shareholders .......... $ (1,402,873) $ (837,199) $ (4,860,163) $ 1,638,452
============ ============ ============ ============
Earnings (loss) per share
Basic ..................................................... $ (0.02) $ (0.02) $ (0.09) $ 0.03
============ ============ ============ ============
Diluted ................................................... $ (0.02) $ (0.02) $ (0.09) $ 0.03
============ ============ ============ ============
Weighted average shares outstanding
Basic ..................................................... 58,348,597 52,452,791 56,539,673 50,358,597
============ ============ ============ ============
Diluted ................................................... 58,348,597 52,452,791 56,539,673 57,104,036
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................. $(4,787,663) $ 1,749,368
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 ....................... 861,652 78,894
Net realized and unrealized loss on marketable securities ... 409,454 --
Net realized and unrealized gain on other investments ....... (375,000) --
Interest paid in common stock ............................... 7,669 44,852
Common shares and warrants issued for services ............. 675,000 66,400
Changes in assets and liabilities:
Accounts receivable, trade, net ........................... (14,416) (58,176)
Notes receivable .......................................... 60,000 --
Inventory ................................................. 4,324 (27,235)
Prepaid expenses and other current assets ........................ 13,154 (611,884)
Accounts payable and accrued liabilities .................. 114,634 (432,203)
Customer deposits ......................................... (122,983) 84,434
----------- -----------
Total adjustments .................................... 1,610,941 (854,918)
----------- -----------
Net cash provided by (used in) operating activities .............. (3,176,722) 894,450
----------- -----------
Cash flows from investing activities:
Capital expenditures ........................................ (910,472) (49,230)
Proceeds from the sale of investments ....................... 375,000 --
Cash paid for acquisition ................................... -- (425,911)
Proceeds from the sale of marketable securities ............. 1,996,589 --
Purchase of marketable securities ........................... (1,794,952) --
Change in deposits and other assets ......................... (1,058) 6,602
----------- -----------
Net cash used in investing activities ..................... (334,893) (468,539)
----------- -----------
Cash flows from financing activities:
Repayment of notes payable .................................. (160,497) (412,058)
Proceeds from notes payable ................................. 375,000 250,000
Proceeds of stock issuance, net of costs .................... 3,495,146 1,161,068
----------- -----------
Net cash provided by financing activities ................. 3,709,649 999,010
----------- -----------
Net increase in cash and cash equivalents ........................ 198,034 1,424,921
Cash and cash equivalents, beginning of period ................... 348,832 2,636
----------- -----------
Cash and cash equivalents, end of the period ..................... $ 546,866 $ 1,427,557
=========== ===========
</TABLE>
See notes to 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 nine months ended September
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. Revenue Recognition
In 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 summarizes some of the staff's interpretations of the
application of generally accepted accounting principals to revenue recognition.
The Company will adopt SAB No. 101 when required in the fourth quarter of 2000.
Management believes the adoption of SAB No. 101 will not have a significant
effect on its financial statements.
2. Supplemental Cash Flow Information
Cash paid for interest for the nine months ended September 30, 2000 and
1999 was approximately $25,457and $24,484, respectively. Cash paid for foreign
taxes was $555,556 in 1999. No cash was paid for foreign taxes in 2000. In the
nine months ended September 30, 2000, we also had non-cash transactions related
to the issuance of its common stock in exchange for the minority interest in its
FEPET subsidiary, the acquisition of patents, and the conversion of debt to
equity. These transactions are described in greater detail in Note 3.
3. Stockholders' Equity
In the nine months ended September 30, 2000, we issued a total of
2,462,500 restricted shares of our common stock for a total of $2,670,000 in
cash in a series of exempt offerings under Regulation D of the Securities Act of
1933. We also received $450,146 and issued 1,075,247 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 period.
In March 2000, a total of 200 shares of our Series G preferred shares
were converted into 255,000 shares of our common stock.
As described in greater detail in Note 4, a total of 62,374 shares of
our common stock were issued in February 2000 in connection with a convertible
note payable in the amount of $125,000 issued by us in September 1999 related to
the purchase of the assets of Sign Builders of America, Inc.
In January 2000, we 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 our Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1999.
In February 2000, we issued 200,000 shares of our common stock, valued
at $500,000 at the time, to Nomura Trading Co., Ltd. in exchange for Nomura's 5%
minority interest in our FEPET subsidiary. As a result of this transaction, we
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 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.
6
<PAGE> 7
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Notes Payable
At December 31, 1999, we had a note payable in the amount of $250,000
due to a shareholder of the Company. The note arose in connection with our
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 our common
stock 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 our common stock. The note holder received a total of 62,374
shares of our common stock in lieu of a principal payment of $125,000 and
related interest of $7,669. We have the right to make purchase price adjustments
and offset claims related to the acquisition of Sign Builders of America, Inc.
against the remaining balance due on the note. In September 2000, we notified
the note holder that we have sufficient claims to completely offset the
remaining amount due on the note. As such, no payment was made. The note holder
disagreed with our claims and has indicated that he intends to initiate legal
action as a means of resolving the dispute. Until such time as the dispute is
resolved, the note payable has been left as a liability.
In June 2000, we issued a total of $375,000 in unsecured notes payable,
bearing interest at a rate of 15%. The notes, originally due in October 2000,
have been extended indefinitely by the lenders. The notes are also convertible
into our common stock at our option.
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, SI Diamond Technology, Inc., 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 our 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, we agreed
to participate in a settlement agreement between the plaintiff and the other
defendant; notwithstanding our denial of any liability to the plaintiff. We
agreed to pay a total of $450,000, of which $225,000 was paid at signing. We
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 two notes in the amount of $25,000 and $100,000, respectively,
were paid when due in April and September 2000. In exchange for this settlement,
and upon complete payment of the notes, we 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, SI Diamond
Technology, Inc., 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 us are dependent
upon Westchester collecting from other guarantors on the bond, and those
guarantors succeeding in obtaining a judgement against us. Westchester has
released its claims against us. We consider this case to be without merit and
expect to have the case ultimately resolved in our favor.
7
<PAGE> 8
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. Related Party Transactions
As described in greater detail in Item 12 of our Annual Report on Form
10-KSB for the fiscal year ended December 31, 1999, our 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, we had a net operating loss
carryforward of approximately $51 million available 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, we 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 September
30, 2000.
8
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
OVERVIEW
During the nine months ended September 30, 2000, our 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 technology. Our Electonic Billboard Technology, Inc.
("EBT") subsidiary began receiving advertising revenue related to its
electronic billboard product in the quarter ending June 2000.
RECENT DEVELOPMENTS
In the period from October 1, 2000 through November 6, 2000, we issued
a total of 684,028 shares of our common stock in an exempt offering
under Regulation D of the Securities Act of 1933 and received proceeds
of $500,000.
RESULTS OF OPERATIONS
Our revenues for the third quarter ended September 30, 2000 totaled
$665,473 compared to $309,117 for the third quarter of 1999. We earned
$2,211,937 in revenues during the nine month period ended September 30,
2000, (the "2000 Period") as compared with $6,108,614 during the nine
month period ended September 30, 1999 (the "1999 Period"). During the
2000 Period, we had revenues of $1,804,714 from SBOA, $330,329 from
FEPET, and $76,894 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 $5,721,846, 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. The revenues from SBOA in the 1999 Period were only $157,825
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"), $27,414 in revenue from
miscellaneous product sales, and $23,980 of advertising revenue related
to its recently installed electronic billboard and its non-electronic
billboard . During the 1999 Period, EBT had revenue of $228,944,
virtually all of which was related to the TDS agreement.
We had a commercial revenue backlog of $335,178 as of September 30,
2000. This backlog consists of $322,343 of contracts in process at SBOA
and $12,835 of advertising commitments at EBT. The entire backlog of
$72,423 at September 30, 1999 was related to research contracts in
process at FEPET at that time. EBT had no backlog at September 30,
1999. We had government contract research revenues of $330,329 in the
2000 Period and no contract research revenues in the 1999 Period. We
have a current backlog of anticipated future government contract
revenues of approximately $600,000 at FEPET. We intend to continue 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 $1,559,447, or a gross
margin of 29%, as compared with $252,136 or a gross margin of 96%, 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
29% 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.
9
<PAGE> 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT.)
Our selling, general, and administrative expenses were $3,390,797 for
the 2000 Period, compared with $2,548,106 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 minimal
selling, general, and administrative expenses associated with SBOA
during the 1999 Period. We incurred research and development expenses
of $1,520,592 for the 2000 Period. This was an increase over the
$1,120,323 incurred in the 1999 Period and results from a higher level
of research activity related to the Company's electronic display
products. 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 $551,312 in the 2000 Period was primarily the
result of the write off of goodwill associated with the repurchase of
the minority interest in our FEPET subsidiary. It also included 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 September 30, 2000, we had cash and cash equivalents in the amount
of $546,866 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 our
technology and electronic display products, 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, we received proceeds of $3,495,146 from the issuance of our
common stock and $375,000 from the issuance of notes payable during the
nine months ended September 30, 2000. We also repaid $160,497 of notes
payable during this period. This resulted in net cash provided by
financing activities of $3,709,649 for the 2000 Period. Cash provided
by financing activities was $999,010 for the 1999 Period.
Cash used in operating activities was $3,176,722 for the 2000 Period
compared to cash provided by operating activities of $894,450 for the
1999 Period. The main reason for this decrease is that the cash
provided by operating activities during the 1999 period was primarily
the result of the patent license agreement signed during that period.
No revenue from patent license agreements was received in the 2000
Period.
Cash used in investing activities during the 2000 Period was $334,893
as compared with cash used in investing activities of $468,539 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 SBOA and minor amounts of capital equipment.
The principal source of our liquidity has been the funds received from
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.
10
<PAGE> 11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT.)
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.
OUTLOOK
We anticipate that losses will continue in 2000 as we continue to fund
the development of our 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 have 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 display
products, which are 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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<PAGE> 12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT.)
FORWARD LOOKING STATEMENTS
Statements contained in this Quarterly Report on Form 10-QSB which are
not historical facts are forward-looking statements. Without limiting
the generality of the preceding statement, all statements in this
Quarterly Report on Form 10-QSB concerning or relating to estimated and
projected earnings, margins, costs, expenditures, cash flows, growth
rates and financial results are forward-looking statements. In
addition, SI Diamond, through its senior management, from time to time
makes forward-looking public statements concerning our expected future
operations and performance and other developments. Such forward-looking
statements are necessary estimates reflecting our best judgment based
upon current information, involve a number of risks and uncertainties
and are made pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. There can be no assurance
that other factors will not affect the accuracy of such forward-looking
statements or that our actual results will not differ materially from
the results anticipated in such forward-looking statements. While is
impossible to identify all such factors, factors which could cause
actual results to differ materially from those estimated by us include,
but are not limited to the completion of the development of our
products, our ability to obtain capital in the future, changes in
technology which could render our products obsolete and general
conditions in the economy and capital markets and other factors which
may be identified from time to time in our Securities and Exchange
Commission filings and other public announcements. We undertake no
obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events, or otherwise,
unless required by law.
12
<PAGE> 13
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 was included in accrued liabilities at December 31, 1999. The
remaining amount due of $100,000 at September 30, 2000 is included in notes
payable.
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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<PAGE> 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On July 24, 2000 the Company held its 2000 Annual Meeting of
Shareholders. The following items were presented to a vote of the holders (the
"Shareholders") of the Company's issued and outstanding Common Stock and Series
G Preferred Stock:
(1) The Shareholders elected David R. Sincox, Charles C. Bailey, and Dr.
Zvi Yaniv to the Company's Board of Directors as Class I Directors,
whose terms expire at the Company's 2003 Annual Meeting of
Shareholders.
(2) The Shareholders ratified the appointment of Wallace Sanders & Company
as the Company's independent auditors for the 2000 fiscal year.
The number of votes cast for each of the above is summarized in the
table below. (Pursuant to the Company's Amended and Restated Articles of
Incorporation, the holders of the Company's Series G Preferred Stock cast votes
equivalent to the number of shares of the Company's Common Stock into which the
shares of Series G Preferred Stock were convertible as of June 5, 2000. All
numbers in the table below represent shares of Common Stock or the voting
equivalent thereof):
<TABLE>
<CAPTION>
Broker
Item Submitted to Shareholders For Against Withheld Non-Votes Total
------------------------------ --- ------- -------- --------- -----
<S> <C> <C> <C> <C> <C>
Election of David R. Sincox 48,232,471 0 116,804 0 48,349,275
Election of Dr. Zvi Yaniv 48,243,221 0 106,054 0 48,349,275
Election of Charles C. Bailey 48,232,721 0 116,554 0 48,349,275
Ratification of Wallace Sanders &
Company as auditors 48,243,665 27,801 77,809 0 48,349,275
</TABLE>
14
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Index to Exhibits on page 17 for a descriptive response
to this item.
(b) Reports on Form 8-K:
(1) Current Report on Form 8-K (Item 4) dated as of September 12, 2000.
15
<PAGE> 16
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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<PAGE> 17
INDEX TO EXHIBITS
The following documents are filed as part of this Report:
<TABLE>
<CAPTION>
Exhibit
-------
<S> <C>
11 Computation of (Loss) Per Common Share
27 Financial Data Schedule
</TABLE>
17
