Form 10-Q for Scio Diamond Technology Corp

14-Feb-2012

Quarterly Report

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Statements made in this Form 10-Q that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of
Section 27A of the Securities Act of 1933 (the “Act”) and Section 21E of the Securities Exchange Act of 1934. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

RESULTS OF OPERATIONS

THREE MONTH PERIOD ENDED DECEMBER 31, 2011 COMPARED TO THE THREE MONTH PERIOD ENDED DECEMBER 31, 2010 AND THE PERIOD FROM INCEPTION TO DECEMBER 31, 2011

Our net loss for the three-month period ended December 31, 2011 was ($319,923) compared to net losses of ($2,585) and ($638,387) during the three months ended December 31, 2010 and the period from inception (September 17, 2009) to December 31, 2011. We have not generated any revenue since inception.

During the three-month period ended December 31, 2011, we incurred total expenses of $445,349 compared to total expense of $2,585 during the three months ended December 31, 2010 and $761,313 incurred during the period from inception (September 17, 2009) to December 31, 2011. Total expenses incurred during all periods since inception were generally related to corporate overhead, marketing, financial and administrative contracted services, such as legal and accounting, developmental costs, and expenses associated with the filing of our registration statement.

Our net loss during the three-month period ended December 31, 2011 was
($319,923) or ($0.01) per share compared to net losses of ($2,585) or ($0.00)
per share and ($638,387) or ($0.05) per share during the three months ended December 31, 2010 and the period from inception (September 17, 2009) to December 31, 2011. The weighted average number of shares outstanding was 23,571,440 and 6,400,000 for the three-month periods ended December 31, 2011 and 2010.

Liquidity and Capital Resources

NINE-MONTH PERIOD ENDED DECEMBER 31, 2011

At December 31, 2011, our current assets were $1,495,939 and our current liabilities were $136,274 which resulted in working capital of $1,359,665. At December 31, 2011, current assets were mostly comprised of $1,463,909 in cash and current liabilities were comprised of $136,274 in short-term notes payable and accrued interest.

Stockholders’ equity increased from a deficit of ($11,057) for fiscal year ended March 31, 2011 to equity of $3,696,236 at December 31, 2011.

CASH FLOWS FROM OPERATING ACTIVITIES

We have not generated positive cash flows from operating activities. For the nine-month period ended December 31, 2011, net cash flows used in operating activities was ($645,350) consisting primarily of a net loss of ($601,330) and decrease in accrued expenses of ($44,020). Net cash flows used in operating activities was ($24,935) and ($670,417) for the nine months ended December 31, 2010 and the period from inception (September 17, 2009) to December 31, 2011, respectively.

CASH FLOWS FROM INVESTING ACTIVITIES

For the nine-month period ended December 31, 2011, net cash flows used in investing activities was ($2,076,571) consisting mainly of purchasing the assets of Apollo Diamond Inc. Net cash flows used in investing activities was $0 and ($2,076,571) for the nine-months ended December 31, 2010 and the period from inception (September 17, 2009) to December 31, 2011, respectively.

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CASH FLOWS FROM FINANCING ACTIVITIES

We have financed our operations primarily from either advancements or the issuance of equity and debt instruments. For the nine-month periods ended December 31, 2011 and December 31, 2010, we generated $4,184,897 and $0 cash from financing activities respectively. For the period from inception (September 17, 2009) to December 31, 2011, net cash provided by financing activities was $4,210,897 consisting primarily of the sale of common stock.

PLAN OF OPERATION AND FUNDING

We expect that working capital requirements will continue to be funded through a combination of our existing funds and further issuances of securities. Our working capital requirements are expected to increase in line with the growth of our business.

Existing cash is expected to be adequate to fund our operations over the next three months. We have no lines of credit or other bank financing arrangements. Generally, we have financed operations to date through the proceeds of the private placement of equity. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) manufacturing operations; (ii) developmental expenses associated with a start-up business; and (iii) marketing expenses. We intend to finance these expenses with further issuances of securities. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.

QUARTERLY EVENTS

On October 12, 2011, Michael W. McMahon was appointed as Chief Operating Officer of the Company.

Michael W. McMahon is a project management and business development executive with an exceptionally wide range of construction/ engineering and senior management experience. Mr. McMahon has been an outstanding contributor from his early work as a Project Manager to his more recent executive assignments at Fluor, Jacobs Engineering, CRS Sirrine and his own management consulting firm. He has compiled a record of personal achievement in project turnarounds, business development, managing key accounts, process controls & improvements, startups, joint ventures, mergers & acquisitions and profit improvement initiatives.

Skilled at managing complex business challenges, Mr. McMahon is an experienced leader with well-developed business instincts, solid communication skills and determination. He recognizes issues vital to organizational success and then focuses his team on overcoming all obstacles to progress. His management skills are complemented by a talent for translating creative thought into an actionable strategies and his ability to recognize, communicate and keep his teams focused on the core issues at hand.

On December 7, 2011, Charles G. Nichols was appointed as Chief Financial Officer of the Company, with an effective starting date of January 1, 2012.

Mr. Nichols has 25 years of diverse experience across a number of industries and financial functions. After beginning his career as a successful commercial lender, he joined a $4 billion automotive supplier, growing with it through its listing on the NYSE, multiple M&A transactions and European expansion. He led hundreds of millions in financing before departing as the automotive supplier’s Treasurer. He has led bank financings at an investment grade energy company and taken the role of Treasurer and Investor Relations Head at an NYSE technology manufacturer. Mr. Nichols holds an MBA from the University of North Carolina - Chapel Hill and a BA in Economics from Duke University.

During the quarter ending December 31, 2011, the Company issued 4,048,623 shares at a price of $0.70 per share for total cash proceeds, net of fees, of $ 2,619,558.74. This was part of a private offering that began on 8/01/2011 and was extended through December 31, 2011. Some of the offering was not concluding until after the period and will be reported on the Company’s next Quarterly Report

OFF BALANCE SHEET ARRANGEMENTS

As of the date of this Quarterly Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.