<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 March 31, 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 May 11, 2000, the registrant had 56,307,340 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
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<S> <C>
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets--March 31, 2000 and December 31, 1999... 3
Consolidated Statements of Operations--Three Months Ended
March 31, 2000 and 1999........................................... 4
Consolidated Statements of Cash Flows--Three Months Ended
March 31, 2000 and 1999........................................... 5
Notes to Consolidated Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis or Plan of Operation..... 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)
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 213,844 $ 348,832
Marketable Securities ............................................... 817,412 719,376
Accounts receivable, trade ....................................... 582,513 314,518
Notes receivable .................................................... 16,667 60,000
Inventory ........................................................... 175,993 167,775
Prepaid expenses and other assets ................................... 48,683 52,312
------------ ------------
Total current assets ............................................... 1,855,112 1,662,813
Property, plant and equipment, net .................................. 1,839,559 1,437,246
Intangible assets, net .............................................. 782,816 836,021
Other Assets ........................................................ 7,250 7,250
------------ ------------
Total assets ....................................................... $ 4,484,737 $ 3,943,330
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................... $ 917,583 $ 751,225
Current portion of long-term debt ................................... 5,578 5,473
Obligations under capital lease ..................................... 26,545 31,432
Notes payable ....................................................... 250,000 250,000
Accrued liabilities ................................................. 387,717 723,842
Customer deposits ................................................... 221,813 256,947
------------ ------------
Total current liabilities .......................................... 1,809,236 2,018,919
Notes payable, long-term .............................................. 120,189 21,623
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
March 31, 2000 and December 31, 1999, respectively ............... 900 1,100
Common stock, $.00l par value, 120,000,000 shares authorized,
55,940,688 and 53,906,719 shares issued and outstanding at
March 31, 2000 and December 31, 1999, respectively ................. 55,940 53,906
Additional paid-in capital .......................................... 57,911,416 55,410,993
Accumulated deficit ................................................. (55,412,944) (53,585,758)
------------ ------------
Total stockholders' equity ......................................... 2,555,312 1,880,241
------------ ------------
Total liabilities and stockholders' equity ......................... $ 4,484,737 $ 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
MARCH 31,
-----------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues
License Fees and Royalties ........................................... $ 25,500 $ 5,632,156
Other ................................................................ 888,274 24,961
------------ ------------
Total Revenues ..................................................... 913,774 5,657,117
------------ ------------
Cost of sales ........................................................... 664,091 19,431
Selling, general and administrative
expenses .............................................................. 1,547,155 1,221,288
Research and development ................................................ 364,967 380,849
------------ ------------
Operating costs and expenses .......................................... 2,576,213 1,621,568
Income (loss) from operations ......................................... (1,662,439) 4,035,549
Other income (expense), net
Amortization of goodwill related to minority interest .............. (486,000) --
Other .............................................................. 298,706 (109,009)
------------ ------------
Income (loss) before taxes and minority interest in subsidiary earnings (1,849,733) 3,926,540
Minority interest in subsidiary earnings ................................ 22,547 --
------------ ------------
Income (loss) before taxes ............................................ (1,827,186) 3,926,540
Provision for taxes ..................................................... -- 555,556
------------ ------------
Net income (loss) .................................................. $ (1,827,186) $ 3,370,984
============ ============
Less preferred stock dividend ........................................... (27,500) (38,945)
------------ ------------
Net income (loss) applicable to common stockholders ..................... $ (1,854,686) $ 3,332,039
============ ============
Earnings (loss) per share
Basic ................................................................. $ (0.03) $ 0.07
============ ============
Diluted ............................................................... $ (0.03) $ 0.06
============ ============
Average shares outstanding
Basic ................................................................. 54,236,200 47,798,022
============ ============
Diluted ............................................................... 54,236,200 54,852,952
============ ============
</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 THREE MONTHS ENDED
MARCH 31,
----------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ....................................... $(1,827,186) $ 3,370,984
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 ................... 583,440 19,594
Interest paid in common stock ........................... 7,669 35,099
Common shares issued for services ....................... 675,000 --
Net realized and unrealized gain on marketable securities (303,207) --
Changes in assets and liabilities:
Accounts receivable, trade ............................. (267,995) 101,691
Notes receivable ....................................... 43,333 --
Inventory .............................................. (8,218) (2,000)
Prepaid expenses and other current assets .............. 3,629 (20,980)
Accounts payable and accrued liabilities ............... 55,233 342,583
Customer deposits and other current liabilities ........ (35,134) 212,493
----------- -----------
Total adjustments ................................... 731,203 688,480
----------- -----------
Net cash provided by (used in) operating activities .... (1,095,983) 4,059,464
----------- -----------
Cash flows from investing activities:
Capital expenditures .................................... (446,548) --
Increase in deposits .................................... -- (333)
Purchase of marketable securities ....................... (1,116,852) --
Proceeds from the marketable securities ................. 1,322,023 --
----------- -----------
Net cash used in investing activities .................. (241,377) (333)
----------- -----------
Cash flows from financing activities:
Repayment of notes payable .............................. (6,216) (410,000)
Proceeds from notes payable ............................. -- 250,000
Proceeds of stock issuance, net of costs ................ 1,208,588 214,864
----------- -----------
Net cash provided by financing activities .............. 1,202,372 54,864
----------- -----------
Net increase (decrease) in cash and cash equivalents ......... (134,998) 4,113,995
Cash and cash equivalents, beginning of period ............... 348,832 2,636
----------- -----------
Cash and cash equivalents, end of period ..................... $ 213,844 $ 4,116,631
=========== ===========
</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 notes 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. For further
information, refer to the consolidated 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 consolidated balance sheet information for
December 31, 1999 has been derived from the audited consolidated financial
statements at that date.
2. Supplemental Cash Flow Information
Cash paid for interest for the three months ended March 31, 2000 and 1999
was $3,129 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 three months ended
March 31, 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. Capital Stock
In the quarter ended March 31, 2000, the Company issued 500,000 restricted
shares of its common stock for a total of $750,000 in cash in an exempt offering
under Regulation D of the Securities Act of 1933. The Company also received
$183,588 and issued 441,595 shares as the result of the exercise of options and
received $275,000 and issued 275,000 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 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 of during
the quarter.
6
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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 to elected 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 $250,000 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 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 seeks 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. 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.
Outlook
We anticipate that losses will continue in early 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 by the end of 2000. 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)
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 its 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.
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 three 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. 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.
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, the Company's President and Chief
Operating Officer. The assignment is conditioned on an initial payment of
$200,000 from the Company to ATI. The payment was initially due February 15,
1999, but the time for payment was extended to April 15, 1999. In April 1999,
the agreement was amended to allow additional extensions, in three month
increments, for a period of up to one year until April 15, 2000. In exchange for
each three month extension, the Company paid ATI $12,500. These extension
payments, totaling $50,000 are to be applied against the $200,000 initial
royalty payment. In April 2000, the Company and ATI agreed to an additional
three month extension until July 15, 2000 for an additional extension payment of
$12,500. At that time the Company can either complete the patent assignment in
exchange for a payment of $137,500 or allow the agreement to lapse.
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 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 three month period ended March 31, 1999. If this net
operating loss carryforward had not been available, the Company would have
recorded $1,175,000 in income tax for the three month period ended March 31,
1999. As a result of the net loss, no income taxes were recorded for the period
ended March 31, 2000.
8. Subsequent Events
In April 2000, certain assets of Diamond.com LLC (including the principal
asset, the domain name "diamond.com") were sold to Odimo, Inc. As described in
more detail in the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1999, the Company received a 10% ownership interest in
Diamond.com LLC as a result of the sale of its rights to the domain name,
"diamond.com" to Diamond.com, LLC in September 1999. The Company was guaranteed
certain minimum proceeds in the event Diamond.com LLC was sold and as a result,
in April 2000, we received $375,000 in cash and common stock in Odimo, Inc. with
an estimated fair market value of $375,000.
8
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THREE MONTHS ENDED MARCH 31, 2000 AND 1999:
OVERVIEW
During the quarter ended March 31, 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 CFE technology. We expect to begin receiving
advertising revenues through our Electronic Billboard Technology, Inc.
("EBT") subsidiary 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.
RESULTS OF OPERATIONS
Our revenues for the quarter ended March 31, 2000 (the "2000 Period")
totaled $913,774 compared to $5,657,117 for the quarter ended March 31,
1999 (the "1999 Period"). During the 2000 Period, we had revenues of $
607,804 from SBOA, $260,557 from FEPET, and $45,413 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 $5,576,006, 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. 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") and $19,913 in revenue from
miscellaneous product sales. During the 1999 Period, EBT had revenue of
$81,111, virtually all of which was related to the TDS agreement.
We had a revenue backlog of $405,242 as of March 31, 2000. The portion of
that backlog that related to SBOA was $335,430. The remaining backlog of
$69,812 relates to uncompleted research contracts at FEPET. Our backlog of
$217,363 at March 31, 1999 consisted of research contracts at FEPET. EBT
had no backlog at either March 31, 2000 or 1999. EBT expects to begin
generating advertising revenue in the quarter ended June 2000 as a result
of the installation of its electronic billboards at customer sites.
9
<PAGE> 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
FEPET received contract research revenues from government contracts of
$260,557 during the 2000 period. Of this, $215,709 was related to the
National Institute of Science and Technology ("NIST") contract. The
majority of these expenditures were made by subcontractors and the revenue
represents reimbursement of those costs. This program ends May 31, 2000.
At March 31, 2000, FEPET had a research backlog of anticipated future
revenues from governmental research contracts of $69,812. We may apply for
additional government contacts in the future, if the proposed work relates
directly to our core technologies. We are continuing to fund research and
development of our CFE technology despite the unavailability of any
significant reimbursement for these costs. Our ability to perform
continued research should not require significant additional personnel.
For the 2000 Period, our cost of sales was $664,091, or 71% of revenues,
as compared with $19,431, which was less than 1% of revenues, for the 1999
Period. The resulting margin of 29% in the 2000 Period was substantially
lower than the 99% margin in the 1999 Period. This decreased margin
resulted from a combination of factors. First, substantially all of our
revenue in the 1999 Period resulted from royalty agreements that had
minimal ongoing costs associated with the agreement. The revenues in the
2000 Period were from SBOA, which had a margin of approximately 38% and
FEPET. Since the FEPET revenues represent reimbursement of costs under
research contracts, there is no margin associated with those revenues. 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.
Our selling, general, and administrative expenses were $1,547,155 for the
2000 Period, compared with $1,221,288 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 $ 364,967 for the 2000 Period. This was
similar to the $380,849 incurred in the 1999 Period. We expect to continue
to incur expense in 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 $298,706 in the 2000 Period was primarily the result
of net realized and unrealized gains on our marketable securities
portfolio. Our other expense in the 1999 Period was primarily the result
of interest expense of approximately $34,000 and expenses accrued related
to a potential settlement in the Semi-Alloys case of $75,000.
FINANCIAL CONDITION
At March 31, 2000, we had cash and cash equivalents in the amount of
$213,844 as compared with cash and cash equivalents of $348,832 at
December 31, 1999. This decrease in cash is primarily the result of cash
used in operation and investing activities offset by the cash provided by
financing activities . The cash used in operations was primarily the
result of our net operating loss for the period. 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,
we received proceeds of $1,208,588 from the issuance of common stock,
including shares related to options and warrants, during the quarter ended
March 31, 2000. This resulted in net cash provided by financing activities
of $1,202,372 for the 2000 Period. Cash provided by financing activities
of $54,864 for the 1999 Period was substantially lower because of the
funds provided by the Canon license agreement in the 1999 Period.
10
<PAGE> 11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
Cash provided by operating activities was $4,059,564 for the 1999 Period
compared to cash used in operating activities of $1,095,983 for the 2000
Period. The main reason for the decrease from the 1999 Period was that the
1999 Period included $5,555,556 of revenue related to the Canon license
agreement, while there was no such license agreement during the 2000
Period.
Cash used in investing activities during the 2000 Period was $241,377 as
compared with cash used by investing activities of $333 for the 1999
Period. The cash used in the 2000 Period was primarily the result of
expenditures related to the construction of billboards, partially offset
by funds generated by our marketable securities portfolio. The cash used
in the 1999 Period resulted from the purchase of 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. Wallace Sanders & Co., 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 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 by the conclusion of
2000. 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 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 by the end of 2000. 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.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
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 three 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 its 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 seeks 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. 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 January 21,
2000
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SIGNATURES
Pursuant to the requirements of the Securities and 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:
<TABLE>
<CAPTION>
Exhibit
-------
<S> <C>
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
</TABLE>
16
