Scio Diamond Technology Corp., a Greenville-based startup company that manufacturers lab-grown diamonds for the gemstone and industrial marketplace, reported a net loss of just over $1 million and a total deficit of $15.6 million in its latest earning report.
The report also shows that the Securities and Exchange Commission subpoenaed records on May 16 “ordering the provision of documents and related information concerning various corporate transactions between the Company and its predecessors and other persons and entities.” The filing said the company is “fully cooperating with this inquiry.”
The report, filed with the SEC for the quarter ending June 30, 2014, also said that “the company has generated very little revenue to date and consequently its operations are subject to all risks inherent in the establishment and commercial launch of a new business enterprise.”
In the filing, Scio listed actions being taken that they believe will be “sufficient to provide the Company with the liquidity it needs to meet its obligations.” Actions include ongoing solicitation of investments, a focus on new business development to generate revenue, and enhanced efforts to optimize production.
In July, the company board of directors also approved the issuance and sale of up to 2 million shares of common stock at 30 cents a share to raise additional funds. According to the SEC filing, the company has issued 750,000 shares through the offering and raised $225,000 through Aug. 8.
Scio also has a loan payment of $1.4 million due to Platinum Capital Partners that matured on June 30, 2014. The company went into default on the loan, and according to the filing documents “in default status, Platinum could foreclose on the loan and has the right to take possession of the collateral including the Company’s fixed assets and intellectual property. To date, Platinum has not taken any action related to this default, including adjusting the interest rate, as the Company continues to pursue additional financing alternatives.”
In June, Scio had a management shakeup as it fired CEO Michael McMahon and CFO Jonathan Pfohl. In July, Scio named interim replacements, Gerald McGuire as CEO and Douglas Walker as CFO.
Four members of its board of directors also resigned, including Edward Adams, Scio’s co-chairman and cofounder.
Additionally, Scio added Michael Laub, a consultant specializing in restructuring, to the management team.
A letter filed with the SEC in April from a group of investors led by a former board member calling themselves “Save Scio” accused the company’s board of “trying to rob stockholders of their ability to elect the management of their corporation by written consent – all the while knowing Scio has not held an annual meeting to elect directors in the last several years.”
The group had filed a lawsuit seeking damages from the directors, but a judge dismissed that in December. The letter was penned by Bernard McPheely, who had himself resigned from the board in May 2013. It represents the group’s efforts to publicize through SEC filings a dispute that has been ongoing since at least early 2012.
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