<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 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>
PAGE
----
<S> <C>
Part I Financial Information
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)
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................... $ 1,526,403 $ 348,832
Marketable securities ....................................................... 404,366 719,376
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 ...................................................... 2,507,163 1,662,813
Property, plant and equipment, net .......................................... 2,119,705 1,437,246
Intangible assets, net ...................................................... 1,159,612 836,021
Other assets ................................................................ 7,250 7,250
------------ ------------
Total assets .............................................................. $ 5,793,730 $ 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, $.00l 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 ............................................................ (56,364,548) (53,585,758)
------------ ------------
Total stockholders' equity ................................................ 3,490,828 1,880,241
------------ ------------
Total liabilities and stockholders' equity ................................ $ 5,793,730 $ 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 ............... 1,007,184 574,348 2,567,838 1,795,636
Research and development ................................... 480,134 378,549 845,101 759,398
------------ ------------ ------------ ------------
Operating costs and expenses .......................... 1,943,985 1,033,557 4,533,697 2,655,125
Income (loss) from operations .............................. (1,311,295) (891,177) (2,987,233) 3,144,372
Other income (expense), net ................................ (112,809) 83,539 185,896 (25,470)
------------ ------------ ------------ ------------
Income (loss) before taxes and
minority interest in subsidiary earnings .......... (1,424,104) (807,638) (2,801,337) 3,118,902
Minority interest in subsidiary earnings ................... -- -- 22,547 --
------------ ------------ ------------ ------------
Income (loss) before taxes ................................. (1,424,104) (807,638) (2,778,790) 3,118,902
Provision for taxes ........................................ -- -- -- 555,556
------------ ------------ ------------ ------------
Net Income (loss) .......................................... (1,424,104) (807,638) (2,778,790) 2,563,346
Less preferred stock dividend .............................. (22,500) (38,750) (50,000) (77,695)
------------ ------------ ------------ ------------
Net income (loss) applicable to common shareholders ........ $ (1,446,604) $ (846,388) $ (2,828,790) $ 2,485,651
============ ============ ============ ============
Earnings (loss) per share
Basic ................................................. $ (0.03) $ (0.02) $ (0.05) $ 0.05
============ ============ ============ ============
Diluted ............................................... $ (0.03) $ (0.02) $ (0.05) $ 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) ..................................................... $ (2,778,790) $ 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 ............................... 299,716 46,279
Net realized and unrealized gain (loss) on marketable securities .... (209,950) --
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 ............................................ 817,918 (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
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 is
being amortized over a period of 36 months.
6
<PAGE> 7
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
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 Electronic 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 $2,567,838 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 income of $185,896 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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<PAGE> 12
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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<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 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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<PAGE> 14
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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<PAGE> 15
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: August 11, 2000 /s/ Marc W. Eller
----------------------------------------------------
Marc W. Eller
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: August 11, 2000 /s/ Tracy Vaught
----------------------------------------------------
Tracy Vaught
Chief Financial Officer
(Principal Financial Officer and Principal Accounting
Officer)
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<PAGE> 16
INDEX TO EXHIBITS
The following documents are filed as part of this Report:
<TABLE>
<CAPTION>
Exhibit
-------
<S> <C>
10 Patent license agreement between SI Diamond Technology, Inc. and Till Keesmann
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 (for SEC use only)
</TABLE>
16
