<PAGE>
U.S. 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, 1996
[ ] 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)
12100-A TECHNOLOGY BLVD.
AUSTIN, TEXAS 78727
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (512) 331-6200
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 12, 1996, the registrant had 12,131,098 shares of common stock,
par value $.001 per share, issued and outstanding.
Transitional Small Business Disclosure Format.
Yes [ ] No [X]
<PAGE>
SI DIAMOND TECHNOLOGY, INC.
INDEX
<TABLE>
<CAPTION>
Part I Financial Information PAGE
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets--June 30, 1996 and December 31, 1995.......... 3
Consolidated Statements of Operations--Three Months and Six Months Ended
June 30, 1996 and 1995.................................................. 4
Consolidated Statements of Cash Flows--Six Months Ended
June 30, 1996 and 1995.................................................. 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...................................................... 13
Item 6. Exhibits and Reports on Form 8-K....................................... 13
Signatures............................................................................ 14
</TABLE>
2
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SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS JUNE 30, DECEMBER 31,
1996 1995
------------- -------------
Current assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents.................................................... $ 2,207,863 $ 293,593
Restricted cash.............................................................. 157,971 259,880
Accounts receivable, trade................................................... 1,789,994 267,318
Stock subscriptions receivable............................................... -- 9,583,750
Notes receivable............................................................. 15,000 400,000
Costs and estimated earnings in excess of billings on uncompleted contracts.. 374,732 300,485
Prepaid expenses and other assets............................................ 235,382 147,466
------------ ------------
Total current assets........................................................ 4,780,942 11,252,492
------------ ------------
Property, plant and equipment, net........................................... 3,334,362 4,147,849
Intangible assets, net....................................................... 709,847 788,530
Net assets of discontinued operations and assets held for sale............... 754,548 513,216
Other assets, net............................................................ 130,374 36,766
------------ ------------
Total assets................................................................ $ 9,710,073 $ 16,738,853
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................. $ 3,834,954 $ 794,154
Notes payable................................................................ 529,751 862,513
Capital lease obligations.................................................... -- 190,326
Accrued liabilities.......................................................... 774,742 2,215,357
Billings in excess of costs and estimated earnings on uncompleted contracts.. 438,479 49,891
------------ ------------
Total current liabilities................................................... 5,577,926 4,112,241
------------ ------------
Notes payable, long-term...................................................... 56,120 86,687
Capital lease obligations, long-term.......................................... -- 77,422
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $1.00 par value, 2,000,000 shares authorized;
Series A convertible preferred, 100 shares issued and out-
standing at June 30, 1996 and December 31, 1995 ($100,000
aggregate liquidation preference).......................................... 100 100
Series E convertible preferred, 843 shares issued and out-
standing at June 30, 1996 ($8,430,000 aggregate liquidation preference)... 843 --
Common Stock, $.00l par value , 120,000,000 shares authorized,
11,784,125 shares issued and outstanding at June 30, 1996;
10,858,889 shares issued and outstanding at December 31, 1995................ 11,784 10,859
Additional paid-in capital.................................................... 45,304,291 34,681,872
Preferred stock subscribed, but unissued...................................... -- 8,905,072
Accumulated deficit........................................................... (41,131,134) (30,991,571)
Unearned compensation......................................................... (109,857) (143,829)
------------ ------------
Total stockholders' equity.................................................. 4,076,027 12,462,503
------------ ------------
Total liabilities and stockholders' equity.................................. $ 9,710,073 $ 16,738,853
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended June 30, For the Six Months Ended June 30,
------------------------------------- -----------------------------------
1996 1995 1996 1995
------------------ ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Revenues................................ $ 2,035,985 $ 639,127 $ 2,884,352 $ 863,654
----------- ----------- ------------ -----------
Cost of sales........................... 1,208,024 480,623 2,260,138 622,271
Selling, general and administrative
expenses............................... 2,314,074 1,464,306 4,534,652 2,138,272
Research and development................ 2,509,845 1,013,277 4,637,270 2,138,056
Loss on impairment of assets............ -- -- 850,000 --
----------- ----------- ------------ -----------
Operating costs and expenses.......... 6,031,943 2,958,206 12,282,060 4,898,599
----------- ----------- ------------ -----------
Other income, net....................... 26,446 19,028 257,645 83,401
----------- ----------- ------------ -----------
Loss from continuing operations......... (3,969,512) (2,300,051) (9,140,063) (3,951,544)
----------- ----------- ------------ -----------
Discontinued operations:
Loss from discontinued operations..... -- (352,000) (649,500) (632,533)
Provision for loss on disposition of
discontinued operations.............. -- -- (350,000) --
----------- ----------- ------------ -----------
Total losses on discontinued
operations........................... -- (352,000) (999,500) (632,533)
----------- ----------- ------------ -----------
Net loss................................ (3,969,512) (2,652,051) (10,139,563) (4,584,077)
Less preferred stock dividend........... (923,128) -- (923,128) --
----------- ----------- ------------ -----------
Net loss applicable to common
shareholders........................... $(4,892,640) $(2,652,051) $(11,062,691) $(4,584,077)
=========== =========== ============ ===========
Net loss per common share:
Continuing operations................ $(0.44) $(0.29) $(0.91) $(0.50)
Discontinued operations.............. -- (0.04) (0.09) (0.08)
---------- ----------- ----------- ----------
Net loss per common share............ $(0.44) $(0.33) $(1.00) $(0.58)
========== ========== =========== ==========
Average shares outstanding............. 11,169,930 8,108,389 11,014,827 7,908,439
========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Continuing operations:
Net loss from continuing operations............................................... $(9,140,063) $(3,951,544)
Adjustments to reconcile net loss to net
cash required by operating activities:
Stock compensation................................................................ 33,972 19,586
Depreciation and amortization expense............................................. 595,502 305,062
Revaluation of stock warrants..................................................... 450,000 --
Loss on settlement of note receivable............................................. 300,000 --
Loss on impairment of net assets.................................................. 850,000 --
Changes in assets and liabilities:
Accounts receivable, trade...................................................... (1,522,676) 443,309
Costs and estimated earnings in excess of billings on uncompleted
contracts...................................................................... (74,247) 27,500
Prepaid expenses................................................................ (87,916) (100,415)
Accounts payable and accrued liabilities........................................ 1,602,425 563,723
Billings in excess of costs and estimated earnings on uncompleted
contracts...................................................................... 388,588 (160,340)
----------- -----------
Total adjustments............................................................. 2,535,648 1,098,425
----------- -----------
Net cash required by continuing operations...................................... (6,604,415) (2,853,119)
----------- -----------
Discontinued operations:
Net loss from discontinued operations........................................... (999,500) (632,533)
Increase in net assets of discontinued operations............................... (141,332) --
----------- -----------
Net cash required by discontinued operations.................................... (1,140,832) (632,533)
----------- -----------
Net cash required by operations............................................... (7,745,247) (3,485,652)
----------- -----------
Cash flows from investing activities:
Capital expenditures............................................................... (595,597) (3,383,536)
Proceeds from disposition of equipment............................................. 27,265 --
Net change in intangibles and other assets......................................... (93,608) (881,575)
----------- -----------
Net cash required by investing activities....................................... (661,940) (4,265,111)
----------- -----------
Cash flows from financing activities:
Restricted cash.................................................................... -- (613,134)
Proceeds from notes payable........................................................ -- 1,203,956
Repayment of notes payable......................................................... (529,167) --
Proceeds of stock issuance, net of costs........................................... 10,850,624 9,860,351
----------- -----------
Net cash provided by financing activities....................................... 10,321,457 10,451,173
----------- -----------
Net increase in cash and cash equivalents............................................ 1,914,270 2,700,410
Cash and cash equivalents, beginning of year......................................... 293,593 1,687,104
----------- -----------
Cash and cash equivalents, end of the period......................................... $ 2,207,863 $ 4,387,514
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements 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. For further information, refer to the
financial statements and footnotes thereto for the year ended December 31,
1995, included in the Company's 1995 Annual Report on Form 10-KSB. The
balance sheet information for December 31, 1995 has been derived from the
audited financial statements at that date and reclassified to present
comparative information related to discontinued operations.
2. Supplemental Cash Flow Information
Cash paid for interest for the six months was $13,290 and $3,173 for 1996
and 1995, respectively. The following non-cash transactions have been
excluded from the statement of cash flows for the six months ended:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Purchase of intangible assets through the issuance of
common stock........................................... $ - $900,000
Recognition of deferred offering costs as contra equity
in additional paid-in capital.......................... - 150,000
</TABLE>
3. Capital Stock:
Common Stock
In December 1995, the Company closed an exempt offering under Regulation D
of the Securities Act of 1933 (the "December 1995 Offering"). The Company
collected cash proceeds of $1,511,575, for the issuance of 287,919 shares of
common stock. At December 31, 1995, the Company recorded a subscription
receivable for $15,750 of these proceeds as they were received in January
1996. The registration statement covering these shares was declared
effective on April 18, 1996.
Preferred Stock
In December 1995, through an exempt offering under Regulation D of the
Securities Act of 1933 the Company received subscriptions for 1,040 shares
of its Series E Convertible Preferred Stock ( "Series E Preferred"). As of
December 31, 1995, $9,568,000 was recorded as subscriptions receivable from
issuance of the Series E Preferred. In January 1996, the Company received
subscriptions for an additional 150 shares of Series E Preferred. The
Company received the proceeds of these subscriptions and issued 1,190 shares
of Series E Preferred in January 1996. The offering provided proceeds of
$11,900,000 to the Company less expenses of approximately $1,631,000. The
registration statement covering the common shares into which the Series E
Preferred are convertible was declared effective on April 18, 1996. During
the quarter ended June 30, 1996, 347 shares of Series E Preferred were
converted into 904,735 shares of the Company's common stock. The difference
between the conversion price and the trading price of the common stock at
the date of conversion has been treated as a preferred stock dividend to the
Series E Preferred Shareholders.
4. Discontinued Operations
During May 1996, the Company adopted a corporate reorganization plan to cut
costs and streamline operations. Pursuant to this plan, the Company is
negotiating the sale of assets of its Houston-based coatings business and
has completed closing down the operations of the SIDT-Coatings, Inc.
business unit.
6
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Discontinued Operations (continued)
Net assets of discontinued operations are stated at estimated net realizable
value and consist primarily of accounts receivable of approximately $28,000,
property, plant and equipment of approximately $706,000, accounts payable
and accrued liabilities of approximately $29,500, and a reserve to reflect
expenses associated with disposal of approximately $50,000. The net of these
amounts has been classified on the balance sheet as non-current assets.
5. Diamond Tech One
Earlier this year, the Company announced it was considering the sale of the
Company's Diamond Tech One, Inc. ("DTO") subsidiary as part of a company
wide reorganization focusing on commercialization of the Company's field
emission products. After further consideration, the Company has determined
that DTO has the potential to be a leading force in the high density
electronics assembly industry. In addition, DTO will play an important roll
in meeting the Company's needs for advanced electronics, bringing unique
technology to the continuing development of it's field emission display and
lamp products. During the six months ended June 30, 1996, the Company
recorded an $850,000 reserve for impairment of assets of this division to
write down the carrying value of the assets to the estimated net realizable
value.
6. Customer Claim at Plasmatron Coatings and Systems, Inc.
On May 20, 1996, Semi-Alloys Company ("Plaintiff"), a former customer of
Plasmatron Coatings and Systems, Inc. ("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. Plaintiff claims a breach of contract
related to $1 million of coating equipment that Plasmatron delivered in
1993. The Plaintiff claims that the equipment does not perform as required
under the contract. Plaintiff seeks to recover compensatory, consequential
and incidental damages. The amount of this claim is to be determined at
trial. No trial date has been set at this time. The Company believes it has
a meritorious defense to the Plaintiff's claim and is seeking dismissal of
this claim. The Company believes that the ultimate resolution of this matter
will not have a material adverse effect on its financial position, results
of operations or cash flows.
7. Warrant Repricing
In February 1996, the Company repriced 219,149 warrants held by GH
Securities, Ltd. ("GH"), its former underwriter. The warrants were repriced
to compensate GH in connection with relinquishing its disputed right to
place current and future offerings. The Company recognized a $450,000
charge, reflected in selling, general and administrative expense, in
connection with the repricing.
8. Net Assets Available for Sale
During the quarter ended June 30, 1996, the Company negotiated to receive
payment on a note receivable from Plasmaco, Inc. The settlement included
receipt by the Company of an estimated $100,000 worth of equipment in lieu
of a $400,000 note receivable. In addition, the Company incurred
approximately $49,500 worth of expenses associated with relocation of the
assets. This transaction resulted in a charge of approximately $349,500 to
selling, general and administrative expense during the second quarter. The
Company intends to solicit offers to buy this equipment. The estimated net
realizable value is $100,000 and is being carried on the balance sheet as
assets held for sale.
7
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Recently Issued Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of" (SFAS 121").
As of January 1, 1996, the Company adopted SFAS 121. In connection with
this pronouncement, the Company recorded an $850,000 impairment to assets
for the six month period ended June 30, 1996.
8
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Six months ended June 30, 1996 and 1995
OVERVIEW
During the six months ended June 30, 1996, the Company's primary revenues
from continuing operations were earned through the manufacture of coatings
systems at Plasmatron Coatings and Systems, Inc. ("Plasmatron"), from the
assembly of high density electronics at Diamond Tech One, and from
performing research under government contracts. In May 1996, the Company
adopted a corporate reorganization plan to reduce expenditures and
streamline operations. See "Recent Developments." The Company continued to
incur substantial expenses in support of the development of a diamond-based
flat panel display and a diamond-based field emission lamp. As more fully
discussed in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1995, the Company expects to incur substantial research and
development expenses throughout 1996 in developing the Company's
proprietary Diamond Based Field Emission Display ("DFED") and Diamond Based
Field Emission Lamp ("DFEL")./1/
RECENT DEVELOPMENTS
During May 1996, the Company adopted a corporate reorganization plan to
reduce expenditures and streamline operations. Pursuant to this plan, the
Company has ceased operations of its subsidiary, SIDT Coatings,
Inc.("Coatings") which provided industrial hard coatings services. The
Company is in the process of negotiating to sell the assets of the
subsidiary.
During the quarter ended June 30, 1996, the Company completed a Company-
wide reduction in work force as part of the reorganization plan, to reduce
operating costs. The reduction of approximately 45% of its employees, which
occurred primarily in June, was 5% less than originally anticipated. As a
result of this reorganization, the Company has recorded total losses on
discontinued operations of $999,500 and an $850,000 loss on impairment of
net assets, for the six months ended June 30, 1996.
RESULTS OF OPERATIONS
The Company's revenues for the second quarter ended June 30, 1996 totaled
$2,035,985 compared to $639,127 for the second quarter of 1995. The Company
earned $2,884,352 in revenues during the six month period ended June 30,
1996, (the "1996 Period") as compared with $863,654 during the six month
period ended June 30, 1995 (the "1995 Period"). Commercial sales were
$1,406,230 for the 1996 Period compared to $491,999 for the 1995 Period.
The majority of the Company's commercial revenues are from production under
vacuum equipment contracts through its subsidiary, Plasmatron, and from the
assembly of high density electronics through its subsidiary, Diamond Tech
One. Plasmatron's commercial backlog as of June 30, 1996 was approximately
$719,000 as compared with approximately $700,000 at June 30, 1995. Diamond
Tech One's commercial backlog as of June 30, 1996 was approximately
$743,000 as compared with approximately $196,000 at June 30, 1995. Contract
research revenues for the 1996 Period were $1,478,122 compared to $371,655
for the 1995 Period. At June 30, 1996, the Company had a research backlog
of approximately $1,650,000 in anticipated future revenues from its
existing contracts, as compared with a backlog of approximately $3,600,000
at June 30, 1995. The increased contract revenue for the 1996 Period
resulted primarily from the Company's increased DFED and DFEL development
related to the $2,174,000 National Institute of Science and Technology
("NIST") contract which commenced during the third quarter of 1995. The
NIST contract is intended to provide matching grants to facilitate further
research and development on the Company's DFED and DFEL. Many of the
personnel previously performing Company sponsored research on the DFED and
DFEL are now performing the contract research for the NIST contract which
is also related to displays.
9
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For the 1996 Period, the Company's cost of sales were $2,260,138, or a 22%
gross margin, as compared with $622,271, or a 28% gross margin, for the
1995 Period. The decreased margin resulted primarily from a larger
concentration of revenues and related expenditures under the NIST contract,
which has no margin, in the 1996 Period. The Company's selling, general and
administrative expenses were $4,534,652 for the 1996 Period, compared with
$2,138,272 for the 1995 Period. The expense increase resulted primarily
from a higher level of fund raising activity during the 1996 period, as
well as $450,000 in contract settlements and a $349,500 loss on settlement
of a note receivable, and associated expenses, during this time. Company
sponsored research and development expenses for the 1996 Period were
$4,637,270 as compared to $2,138,056 for the 1995 Period. These continued
costs are a result of the Company's efforts to develop a diamond-based flat
panel display and a diamond based field emission lamp. The Company expects
to incur substantial expenses in support of additional research and
development activities related to the commercial development of a diamond
based flat panel display, and the related diamond based field emission
lamp./1/
During May 1996, the Company adopted a corporate reorganization plan to cut
costs and streamline operations. Pursuant to this plan, it has ceased
operations of its subsidiary, SIDT Coatings, Inc. ("Coatings"). The Company
is in the process of negotiating offers to sell the assets of the
subsidiary. Net assets of discontinued operations are stated at estimated
realizable value of $654,548. In addition, during the second quarter of
1996, the Company received an estimated $100,000 worth of equipment in lieu
of a $400,000 note receivable. The Company intends to solicit offers to buy
this equipment. This equipment is classified as assets held for sale and
presented in non-current assets on the balance sheet.
Earlier this year, the Company announced it was considering the sale of the
Company's Diamond Tech One, Inc. ("DTO") subsidiary as part of a company
wide reorganization focusing on commercialization of the Company's field
emission products. After further consideration, the Company has determined
that DTO has the potential to be a leading force in the high density
electronics assembly industry. In addition, DTO will play an important roll
in meeting the Company's needs for advanced electronics, bringing unique
technology to the continuing development of it's field emission display and
lamp products. The Company did record an $850,000 reserve for impairment of
assets of this division in the first quarter of 1996 to write down the
carrying value of the assets to the estimated net realizable value.
FINANCIAL CONDITION
At June 30, 1996, the Company had cash and cash equivalents in the amount
of $2,207,863 as compared with cash and cash equivalents of $293,593 at
December 31, 1995. This increase in cash is a result of the Company's
successful Regulation D stock offerings in December 1995, for which the
Company received cash in January 1996, less expenditures incurred. Based on
the developmental stages of the Company's DFED and DFEL technologies,
additional equity, sale of product distribution or technology rights or
other financing will be necessary in the future./1/ There can be no
assurance that any of these financing alternatives can be arranged on
commercially acceptable terms./1/
In December 1995, the Company closed an exempt offering under Regulation D
of the Securities Act of 1933 (the "December Offering"). The Company
collected cash proceeds of $1,511,575, for the issuance of 287,919 shares
of common stock. At December 31, 1995, the Company recorded a subscription
receivable for $15,750 of these proceeds as they were received in January
1996. The registration statement concerning these shares became effective
April 18, 1996.
Also in December 1995, through an exempt offering under Regulation D of the
Securities Act of 1933, the Company received subscriptions for 1,040 shares
of its Series E Convertible Preferred Stock ("Series E Preferred"). As of
December 31, 1995, $9,568,000 was recorded as subscriptions receivable from
issuance of the Series E Preferred. In January 1996, the Company received
subscriptions for an additional 150 shares of Series E Preferred. The
Company received the proceeds of these subscriptions and issued 1,190
shares of Series E Preferred in January 1996. The offering provided
proceeds of $11,900,000 to the Company less expenses of approximately
$1,631,000. The registration statement covering common shares into which
the Series E Preferred are convertible was declared effective on April 18,
1996.
10
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Subject to adjustment in certain circumstances, each share of Series E
Preferred is convertible into that number of shares of common stock
determined by dividing (i) the original issue price of the Series E
Preferred (the "Issue Price") plus an amount equal to 8% of the Issue Price
per annum from the date the escrow agent first had in its possession the
funds representing payment of the Series E Preferred to the conversion date
by (ii) the conversion price, which is the lesser of $6.575 or 85% of the
average closing bid price for the Company's common stock for the five
trading days immediately preceding the conversion date. Any shares of
Series E Preferred outstanding on January 15, 1999 shall be automatically
converted into the Company's common stock on such date. During the
quarter ended June 30, 1996, 347 shares of preferred were converted into
904,735 shares of common. The difference between the conversion price and
the trading price of the common stock at the date of conversion has been
treated as a preferred stock dividend to the Series E Preferred
Shareholders.
Cash required by operating activities was $7,745,247 for the 1996 Period
compared to $3,485,652 for the 1995 Period. The increase in the requirement
of cash flows was primarily the result of a higher level of company
sponsored research and development and selling, general and administrative
expenses during the 1996 Period. Cash required by investing activities
during the 1996 period was $661,940 as compared with $4,265,111 for 1995
Period. The significantly higher activity for the 1995 period resulted from
the purchase of DFED licensing rights from MCC during that period.
The principal source of the Company's liquidity has been the funds received
from its initial public offering and from the subsequent foreign and exempt
offerings of common stock. The Company may receive additional funds from
the exercise of warrants, although there can be no assurance that such
warrants will be exercised./1/ In the event that the Company needs
additional funds, the Company may seek to sell additional debt or equity
securities or certain technology rights. /1/ The Company may seek to
increase its liquidity through bank borrowings or other financing. /1/
There can be no assurance that any of these financing alternatives can be
arranged on commercially acceptable terms. /1/ The Company believes that
its success in reaching profitability will be dependent upon the viability
of its products and their acceptance in the marketplace, and its ability to
obtain additional debt or equity financing in the future. /1/
The Company expects to incur substantial expenses for research and
development ("R&D"), product testing, product marketing and administrative
overhead. /1/ Further, the Company believes that certain proposed products
may not be available for commercial sale or routine use for a period of one
to two years. /1/ Therefore, it is anticipated that the commercialization
of the Company's existing and proposed products will require additional
capital in excess of the Company's current funding. /1/ The combined effect
of the foregoing may prevent the Company from achieving profitability for
an extended period of time. /1/ The Company is currently pursuing several
alternatives, including discussions with potential joint venture partners,
that would allow it to achieve profitability in 1997. /1/ 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 the Company's results of operations. /1/ If
revenues do not increase as rapidly as anticipated, or if product
development and testing and marketing require more funding than
anticipated, the Company may be required to curtail its expansion and seek
additional financing from other sources. /1/
The Company anticipates that its existing resources, including its line of
credit, will enable it to maintain its planned operations for approximately
five months after the date of this filing. /1/ This belief is based on
current development plans, the successful implementation of the Company's
May 1996 restructuring plan, the current regulatory environment, historical
experience in the development of electronic products and general economic
conditions./1/ No assurance can be given that other factors will not arise
that would cause available resources to be consumed before such time. /1/
It is the Company's intention to raise additional funds prior to the end of
the five month period, either through previously mentioned joint venture
alternatives or through additional equity funding. If adequate funds are
not available from operations or additional sources of financing, the
Company may have to reduce substantially or eliminate 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./1/ Such
results would materially and adversely affect the Company.
11
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OUTLOOK
It is anticipated that losses will continue throughout 1996, and into 1997,
as the Company continues to fund the development of its DFED flat panel
display and DFEL lamp products. /1/ Increased commercial revenues are
anticipated in the Company's Plasmatron and DTO subsidiaries; however, they
will not be sufficient to fund the planned research and development
efforts. Sales from the DFEL product are not anticipated before 1997. /1/
The Company is currently pursuing alternatives, including discussions with
potential joint venture partners, that would allow it to achieve
profitability in 1997. /1/ There is no assurance that any of these
alternatives will actually result in profitability by the time indicated.
/1/ Full commercial development of the Company's DFED and DFEL technologies
may require additional funds that may not be available at terms acceptable
to the Company. /1/ Should the Company be unable to obtain acceptable
additional debt or equity financing, if needed, management intends to
reduce the level of internally funded research and development. /1/
/1/ ENDNOTE
This sentence is a forward-looking statement. Please refer to the
disclosure on pages ii - v of the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1995, incorporated herein by
reference, and the discussion under "Item 5. Other Information" in this
Quarterly Report on Form 10-QSB for factors that could cause actual results
to differ from those projected in this statement.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 20, 1996, Semi-Alloys Company ("Plaintiff"), a former customer of
Plasmatron Coatings and Systems, Inc. ("Plasmatron"), a wholly-owned subsidiary
of the Company, 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. Plaintiff claims a breach of
contract related to $1 million of coating equipment that Plasmatron delivered in
1993. The Plaintiff claims the equipment does not perform as required
under the contract. Plaintiff seeks to recover compensatory, consequential and
incidental damages. The amount of this claim is to be determined at trial. No
trial date has been set at this time. The Company believes it has a meritorious
defense to the Plaintiff's claim and is seeking dismissal of this claim. The
Company believes that the ultimate resolution of this matter will not have a
material adverse effect on its financial position, results of operations or cash
flow.
ITEM 5. OTHER INFORMATION
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-QSB contains forward-looking statements and
estimates such as forecasts and projections of the Company's future performance
or statements of management's plans and objectives. Additionally forward-looking
statements may be contained in the Company's other Securities and Exchange Act
filings, press releases, oral statements made by the officers of the Company,
and other sources. Actual results could differ materially from such forward
looking statements. Therefore no assurance can be given that the results
estimated or anticipated in a forward-looking statement will be achieved. THE
COMPANY HAS ATTEMPTED TO IDENTIFY THE FORWARD-LOOKING STATEMENTS IN THE TEXT OF
THIS REPORT BY ENDNOTE 1 ON PAGE 12.
Important factors that could cause the Company's actual results to differ from
results in forward-looking statements are incorporated herein by reference, with
the following additions and revisions, from pages ii-v of the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995.
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FUNDING
The Company anticipates its existing resources, including lines of credit, will
enable it to maintain its current and planned operations for approximately five
months after the date of this filing./1/ This belief is based on current
development plans, the successful implementation of the Company's May 1996
restructuring plan, the current regulatory environment, historical experience in
the development of electronic products and general economic conditions. It is
the Company's intention to raise additional funds either through previously
mentioned joint venture possibilities or additional equity financing. No
assurance can be made that this effort will be successful or that other factors
may not arise that will affect the Company's solvency.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Index to Exhibits on page 14 for a descriptive response to
this item.
(b) Reports on Form 8-K:
(1) Current Report of Form 8-K dated May 20, 1996 (Item 5 - Other
Events).
13
<PAGE>
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: August 13, 1996 /s/ Dr. Zvi Yaniv
-----------------
Dr. Zvi Yaniv
President and Chief Operating Officer
(Principal Executive Officer)
Date: August 13, 1996 /s/ Douglas P. Baker
--------------------
Douglas P. Baker
Chief Financial Officer
(Duly Authorized Officer)
14
<PAGE>
INDEX TO EXHIBITS
The following documents are filed as part of this Report:
<TABLE>
<CAPTION>
Exhibit Description of Exhibit Page
------- ---------------------- ----
<S> <C> <C>
10.1 Consulting Agreement between the Company and C. Robert Kline, Jr. dated as of
March 31, 1996
10.2 Amended and Restated 1992 Stock Option Plan of the Company
10.3 The Company's Amended and Restated 1992 Outside Directors' Stock Option Plan
11 Computation of (Loss) Per Common Share
13 Forward-Looking Statements and Important Factors Affecting Future Results (Pages
ii-v of the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995, incorporated by reference into this Quarterly Report on Form 10-
QSB for the fiscal quarter ended June 30, 1996)
27 Financial Data Schedule
</TABLE>
15
<PAGE>
EXHIBIT 10.1
CONSULTING AGREEMENT
--------------------
THIS CONSULTING AGREEMENT for independent contractor consulting services
("Agreement") is made and entered into as of March 31, 1996, by and between S.I.
Diamond Technology, Inc. (the "Company" or "SIDT"), a corporation and C. Robert
Kline, Jr. (the "Contractor" or "Kline"), an individual.
IT IS AGREED:
1. In accordance with the mutual intentions of the Company and the
Contractor, this Agreement establishes between them an independent contractor
relationship, and all of the terms and conditions of this Agreement shall be
interpreted in light of that relationship. There is no intention to create by
this Agreement an employer-employee relationship.
2. The Contractor shall commence providing services on May 2, 1996, and
shall continue to do so until at least the close of business on September 2,
1996. Notwithstanding this foregoing, the Agreement may be terminated at any
time by the Company pursuant to paragraph 17.b hereof. This Agreement may be
terminated by either party pursuant to paragraph 17.a hereof.
3. In performing services under this Agreement, Contractor shall report
directly to the Company's CEO and such others, if any, to whom he may be
directed by the Company's CEO to report on a project by project basis.
4. Consultant shall perform only sales and marketing services for SIDT and
its subsidiaries that he is authorized to perform by the Company's CEO or others
to whom he may be directed to report on a project by project basis.
5. The Company shall provide Consultant with an e-mail connection and a
voice-mail box at SIDT. However, Consultant shall not have an office at SIDT.
-1-
<PAGE>
6. It is understood by the parties that the Company does not have the
exclusive right to the Contractor's services.
7. (a) During the term of the Agreement, Contractor shall not influence
or attempt to influence any customers of the Company, or any of their present or
future employees, shareholders, subsidiaries or affiliates (or any subsidiary or
affiliate of the Company) prospective customers of the Company (or any
subsidiary or affiliate of the Company), either directly or indirectly, to
divert their business that is potentially appropriate for the Company (based on
the Company's prior or proposed business activities) to any individual,
partnership, firm, corporation or other entity then engaged or who thereafter
becomes engaged in competition with the business of the Company (or any
subsidiary or affiliate of the Company).
8. During the term of this Agreement, Contractor shall not directly or
indirectly solicit and shall not hire any of the Company's employees who earn
annually $25,000 or more to work for Contractor or for any business, individual,
partnership, firm, corporation or other entity in competition with the business
of the Company or any subsidiary or affiliate of the Company.
9. During the term of this Agreement, the Company shall pay to the
Contractor for his services a fee of $10,000 per month, payable in advance on
the 1st day of each month in which Contractor's services are available.
Additionally, the Contractor shall be paid commissions on revenues or values
received by the Company or its subsidiaries which are derived from goods or
services sold by Contractor during the term hereof according to the following
formula:
-2-
<PAGE>
<TABLE>
<CAPTION>
Revenue From Sales by Contractor Percentage
During Any Calendar Year Commission
------------------------ ----------
<S> <C>
up to $1,000,000 5%
$1,000,000 - $1,999,999 4%
$2,000,000 - $2,999,999 3%
$3,000,000 - $3,999,999 2%
$4,000,000 and above 1%
</TABLE>
Such commission shall be (i) earned when orders are booked and (2) paid and
calculated when value is received by the Company or a subsidiary of the Company,
whether or not this Agreement has sooner terminated. Notwithstanding the
foregoing, the Contractor shall be paid commissions based on only values
received by the Company or a subsidiary of the Company prior to the 366th day
following the termination of this Agreement for any reason. Each commission
shall be pro-rated among Contractor and other persons, if any, who receive a
commission from SIDT for such sale. The payments herein provided shall
constitute full payment for the Contractor's services to the Company during the
term of this Agreement, and the Contractor shall not receive any additional fee,
benefits or compensation for consulting services, except reimbursement to the
Contractor in connection with such consulting when his consulting expenses,
including travel, are pre-approved by the Company in writing for reimbursement.
All such costs and expenses shall be itemized by statement and each statement
shall be accompanied by substantiating bills or vouchers. Expenses for office
space and secretarial and administrative support shall be the sole
responsibility of the Contractor, and shall not be reimbursed under this
Agreement. The parties recognize that, in renewals or extensions of this
Agreement, it may be appropriate for the parties to negotiate with each other to
adjust the monthly fee and/or commission formula.
10. The Contractor shall select and shall have full and complete control
of and responsibility for all agents, employees and subcontractors, if any,
employed or used by the
-3-
<PAGE>
Contractor and for the conduct of the Contractor's independent business and none
of said agents, employees or subcontractors shall be, or shall be deemed to be,
the agent, employee or subcontractor of the Company for any purpose whatsoever,
and the Company shall have no duty, liability or responsibility, of any kind, to
or for the acts or omissions of Contractor or such agents, employees or
subcontractors, or any of them. Contractor agrees to defend, indemnify and hold
the Company harmless from and with respect to any and all claims of any kind
based on any act or omission of the Contractor or Contractor's agents, employees
or subcontractors.
11. Without limiting any of the foregoing, the Contractor agrees to accept
exclusive liability for the payment of taxes or contributions for unemployment
insurance or old age pensions or annuities or social security payments which are
measured by the wages, salaries or other remuneration paid to the Contractor or
the employees of the Contractor, if any, and to reimburse and indemnify the
Company for such taxes or contributions which the Company may be compelled to
pay. The Contractor also agrees to comply with all valid administrative
regulations respecting the assumption of liability for such taxes and
contributions.
12. The Contractor agrees to furnish personal services as provided herein
as an independent contractor using the Contractor's own means and methods.
13. (a) The Contractor hereby assigns the Company the entire right, title
and interest for the entire world in and to all work performed, writing(s),
formula(s), design(s), model(s), drawing(s), photograph(s), design invention(s)
and other invention(s) made, conceived or reduced to practice or authorized by
the Contractor, either solely or jointly with others, during the performance of
this Agreement or with use of information, materials or facilities of the
Company received or used by the Contractor during the period in which the
Contractor is retained by the Company or its successor in business, under this
Agreement. The Contractor shall promptly disclose to the Company all work(s),
writing(s), formula(s), design(s), other
-4-
<PAGE>
invention(s) made, conceived, or reduced to practice or authored by the
Contractor in the course of the performance of this Agreement.
(b) The Contractor shall sign, execute and acknowledge or cause to be
signed, executed and acknowledged without cost, but at the expense of the
Company, any and all documents and to perform such acts as may be necessary,
useful or convenient for the purpose of securing to the Company or its nominees,
patent, trademark, or copyright protection throughout the world upon all such
writing(s), formula(s), design(s), model(s), drawing(s), photograph(s), design
invention(s) and other invention(s), title to which the Company may acquire in
accordance with the provisions of this clause.
14. All information developed under this Agreement, of whatever type
relating to the work performed under this Agreement, shall be the exclusive
property of the Company. All information acquired by the Contractor pursuant to
this Agreement shall be the exclusive property of the Company. Upon termination
of this Agreement, the Contractor shall dispose of such items as directed by the
Company.
15. The Contractor agrees that all data and information about the Company's
business, plans, finances, plants, equipment, processes and methods of operation
disclosed to, acquired by or developed by the Contractor during performance of
the work hereunder is and shall remain the exclusive property of the Company.
Except for such information and data as can be proven by the Contractor to be in
or to have entered the public domain through no fault of the Contractor or to
have been in the Contractor's possession prior to disclosure to the Contractor
by the Company, Contractor shall during the term of the Agreement and thereafter
in perpetuity maintain as confidential and not disclose to third parties or
otherwise use, and will enjoin the Contractor's employees, agents or
subcontractors (as applicable) from using, such information except as duly
authorized in the conduct of the Company's business or as otherwise
-5-
<PAGE>
authorized in advance in writing signed by the Company's CEO. The Contractor
agrees that such data and information shall be used by the Contractor solely for
the purpose of performing services for the Company and not for the benefit of
any other person or entity whatsoever.
16. Neither the Contractor nor the Company shall assign or transfer any
rights under this Agreement without the other party's prior written consent, and
any attempt of assignment or transfer without such consent shall be void.
17. This Agreement shall terminate, prior to the expiration of the term,
as follows:
a. Voluntary. Either party may terminate this Agreement at any time
following July 2, 1996, by giving sixty (60) days prior written notice of
termination to the other party.
b. Involuntary With Cause. The Company may, upon written notice
effective immediately, terminate this Agreement at any time during the term
of this Agreement or any extension hereof if any of the following
conditions exist:
(1) If Contractor should be convicted of a crime punishable by
imprisonment;
(2) If Contractor should fail to perform his duties which are
assigned to him in accordance with the terms of this Agreement or
otherwise fail to comply with the terms and conditions of this
Agreement;
(3) If the Contractor should die;
(4) If Contractor should breach his fiduciary duty of loyalty to
the Company; or
-6-
<PAGE>
(5) If Contractor should disobey lawful directions or instructions
given to Contractor by the CEO or his designee or the Board of
Directors of the Company, within the scope of sales and marketing
services which the Contractor has then been authorized to provide
pursuant to paragraph 4 of this Agreement.
18. This Agreement shall be deemed to have been executed and delivered
within the State of Texas, and the rights and obligations of the parties
hereunder shall be construed and enforced in accordance with, and governed by,
the laws of the State of Texas without regard to principles of conflict of laws.
19. If any provision of this Agreement or the application thereof is held
invalid, the invalidity shall not affect other provisions or applications of the
Agreement which can be given effect without the invalid provisions or
applications and, to this end, the provisions of this Agreement are declared to
be severable.
20. No waiver of any breach of any term or provision of this Agreement
shall be construed to be, or shall be, a waiver of any other breach of this
Agreement. No waiver shall be binding unless in writing and signed by the party
waiving the breach.
21. Any notice required to be given pursuant to this Agreement shall be
deemed to have been sufficiently given either when served personally or when
served by first-class mail addressed to either party. Notices to the Company
shall be effective only when addressed to: Chief Executive Officer, SI Diamond
Technology, Inc. 2435 North Boulevard, Houston, Texas 77098, (or another
designated by proper notice under this Agreement). Notice to the Contractor
shall be effective only when addressed to: C. Robert Kline, Jr., 5350 Navarro
Street, Houston, Texas 77056 (or another designated by proper notice under this
Agreement).
-7-
<PAGE>
22. Each party has cooperated in the drafting and preparation of this
Agreement. Hence, this Agreement shall not be construed against any party on the
basis that the party was the drafter.
23. Any controversy or claim arising out of or relating to this Agreement,
its enforcement or interpretation, or because of an alleged breach, default, or
misrepresentation in connection with any of its provisions, shall be submitted
to final and binding arbitration, to be held in Houston, Texas in accordance
with the rules of the American Arbitration Association. In the event either
party institutes arbitration under this Agreement, the party prevailing in any
such arbitration may, in addition to all other relief, be awarded reasonable
attorneys' fees relating to such arbitration and the nonprevailing party shall
be responsible for all costs of the arbitration, including, but not limited to,
the arbitration fees. Any person choosing to engage a court reporter for such
arbitration shall bear all responsibility for the court reporter's fees.
24. This Agreement supersedes all prior negotiations and agreements,
proposed or otherwise, whether written or oral, between the parties concerning
consulting services provided by the Contractor, and this Agreement constitutes
the entire agreement between the parties with respect thereto. This Agreement
may be modified only with a written instrument duly executed by each of the
parties. No person has any authority to make any representation or promise on
behalf of any of the parties not set forth herein and this Agreement has not
been executed in reliance upon any representations or promises except those
contained herein.
25. In entering into this Agreement, the parties represent that they have
relied on advice of their attorneys, who are attorneys of their own choice, and
that the terms of this Agreement have been completely read and explained to them
by their attorneys, and that those terms are fully understood and voluntarily
accepted by them.
-8-
<PAGE>
DATED: May 1, 1996.
S.I. DIAMOND TECHNOLOGY, INC.
By: /s/ Howard K. Schmidt
-----------------------
Howard K. Schmidt
President
/s/ C. Robert Kline
--------------------------
C. Robert Kline
THE STATE OF TEXAS (S)
COUNTY OF HARRIS (S)
BEFORE ME, the undersigned authority, on this day personally appeared C.
Robert Kline known to me to be the person whose name is subscribed to the
foregoing instrument, and upon oath acknowledged to me that he signed the same
for the purposes and the consideration therein expressed.
IN WITNESS WHEREOF, I have affixed my hand and seal the 1st day of May,
1996.
/s/ Chris E. Myers
----------------------------
Notary Public in and for
the State of Texas
My Commission Expires: May 10, 1997
-9-
<PAGE>
EXHIBIT 10.2
AMENDED AND RESTATED
1992 STOCK OPTION PLAN OF
SI DIAMOND TECHNOLOGY, INC.
1. Purpose
SI Diamond Technology, Inc. (the "Corporation") desires to attract and retain
the best available talent and encourage the highest level of performance in
order to continue to serve the best interests of the Corporation and its
shareholders. By affording key personnel the opportunity to acquire proprietary
interests in the Corporation and by providing them incentive to put forth
maximum efforts for the success of the business, the Amended and Restated 1992
Stock Option Plan of SI Diamond Technology, Inc. (the "1992 Plan") is expected
to contribute to the attainment of those objectives.
2. Scope and Duration
Options under the 1992 Plan may be granted in the form of Awards ("Awards")
of incentive stock options ("Incentive Options") as provided in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), or in the form of
nonqualified stock options ("Nonqualified Options"). (Unless otherwise
indicated, references in the 1992 Plan to "options" include Incentive Options
and Nonqualified Options.) The maximum aggregate number of shares as to which
options may be granted from time to time under the 1992 Plan is 3,000,000 shares
of the Common Stock of the Corporation ("Common Stock"), which shares may be, in
whole or in part, authorized but unissued shares or shares reacquired by the
Corporation. If an option shall expire, terminate or be surrendered for
cancellation for any reason without having been exercised in full, the shares
represented by the option or portion thereof not so exercised shall (unless the
1992 Plan shall have been terminated) become available for subsequent option
grant under the 1992 Plan. As provided in paragraph 13, the 1992 Plan shall
become effective on March 16, 1992, and unless terminated sooner pursuant to
paragraph 14, the 1992 Plan shall terminate on March 15, 2002, and no option
shall be granted hereunder after that date.
3. Administration
The 1992 Plan shall be administered by a committee which is appointed by the
Board of Directors to perform such function (the "Committee"). Effective upon
the Corporation being registered under Section 12 of the Securities Exchange Act
of 1934, the Committee shall consist of two or more members of the Board of
Directors, each of whom shall be a "disinterested person" as defined in Rule
16b-3 pursuant to the Securities Exchange Act of 1934.
The Committee shall have plenary authority in its discretion, subject to and
not inconsistent with the express provisions of the 1992 Plan, to grant options,
to determine the purchase price of the Common Stock covered by each option, the
term of each option, the persons to whom, and the time or times at which,
options shall be granted and the number of shares to be covered by each option;
to designate options as Incentive Options or Nonqualified Options; to interpret
the 1992 Plan; to prescribe, amend, and rescind regulations relating to the 1992
Plan; to determine the terms and provisions of the option agreements (which need
not be identical) entered into in connection with options under the 1992 Plan;
and to make all other determinations deemed necessary or advisable for the
administration of the 1992 Plan. The Committee may also, in its discretion,
provide for the extension of the exercisability of an Award, accelerate the
vesting or exercisability of an Award, eliminate or make less restrictive any
restrictions contained in an Award, waive any restriction or other provision of
this 1992 Plan or an Award or otherwise amend and modify an Award in any manner
that is either (i) not adverse to the participant holding such Award or (ii)
consented to by such participant. The Committee may correct any defect or supply
any omission or reconcile any inconsistency in this Plan or in any Award in the
manner and to the extent the Committee deems necessary or desirable to carry it
into effect. The Committee may delegate to one or more of its members, or to one
or more agents, such administrative duties as it may deem advisable, and the
1
<PAGE>
Committee, or any person to whom it has delegated duties as aforesaid, may
employ one or more persons to render advice with respect to any responsibility
the Committee, or such person, may have under the 1992 Plan.
4. Eligibility; Factors to be Considered in Granting Options
Incentive Options shall be limited to persons who have been regular full-time
employees of the Corporation or its present and future subsidiaries for more
than one year, and, at the grant of any options, are in the employ of the
Corporation or its present and future subsidiaries. In determining the employees
to whom Incentive Options shall be granted and the number of shares to be
covered by each Incentive Option, the Committee shall take into account the
nature of employees' duties, their present and potential contributions to the
success of the Corporation, and such other factors as it shall deem relevant in
connection with accomplishing the purposes of the 1992 Plan. An employee who had
been granted an option or options under the 1992 Plan may be granted an
additional option or options, subject, in the case of Incentive Options, to such
limitations as may be imposed by the Code on such options. Except as provided
below, a Nonqualified Option may be granted to any person, including, but not
limited to, employees, independent agents, consultants and attorneys, who the
Committee believes has contributed, or will contribute, to the success of the
Corporation. Directors of the Corporation who are not salaried employees of or
exclusive, full-time consultants to the Corporation or its present and future
subsidiaries may not receive options under the 1992 Plan.
5. Option Price
The purchase price of the Common Stock covered by each option shall be
determined by the Committee and, in the case of Incentive Options, shall not
be less than 100% of the Fair Market Value (as defined in paragraph 15 below)
of a share of the Common Stock on the date on which the option is granted. In
the case of Nonqualified Options, the purchase price of an option shall
generally be Fair Market Value, although the Committee may grant options with
option prices of less than Fair Market Value. Such price shall be subject to
adjustment as provided in paragraph 12 below. The Committee shall determine
the date on which an option is granted; in the absence of such a
determination, the date on which the Committee adopts a resolution granting an
option shall be considered the date on which such option is granted.
6. Term of Option
The term of each option shall be not more than ten (10) years from the date
of grant, as the Committee shall determine, subject to earlier termination as
provided in paragraphs 10 and 11 below.
7. Exercise of Options
(a) Except as provided below, no option granted under the 1992 Plan shall be
exercisable prior to the expiration of the first year of its term. Thereafter,
subject to the provisions of the 1992 Plan and unless otherwise provided in
the option agreement, an option granted under the 1992 Plan shall become
exercisable in full at the earlier of the holder's death or the fourth
anniversary of the date of grant. Prior thereto, each option shall become
exercisable in cumulative installments as follows: to the extent of 25% of the
number of shares originally covered thereby on the first anniversary of the
date of grant of the option; and to the extent of an additional 25% of the
number of shares originally covered thereby on the second, third and fourth
anniversary, respectively, of the date of grant of the option. In its
discretion, the Committee may, in any case, prescribe different installments
or provide that an option may be exercisable in full immediately upon the date
of its grant. Notwithstanding the installments set forth above, the Committee
may in its sole discretion, provide that an option shall immediately become
exercisable in full upon the happening of any of the following events: (i) the
first purchase of shares of Common Stock pursuant to a tender offer or
exchange offer (other than an offer by the Corporation) for all, or any part
of, the Common Stock; (ii) the approval by the shareholders of the Corporation
of an agreement for a merger in which the Corporation will not survive as an
independent, publicly owned corporation, a consolidation, or a sale, exchange
or other disposition of all or substantially all of the Corporation's assets;
(iii) with respect to an employee, on his 65th birthday; or (iv) with respect
to an employee, on the employee's involuntary termination from employment. In
the event of a question or controversy as to whether any of the events
2
<PAGE>
hereinafter described has taken place, a determination by the Committee that
such event has or has not occurred shall be conclusive and binding upon the
Corporation and participants in the 1992 Plan.
(b) An option may be exercised, at any time or from time to time (subject,
in the case of Incentive Options, to such restrictions as may be imposed by
the Code), as to any or all full shares as to which the option has become
exercisable until the expiration of the period set forth in Section 6 hereof,
by the delivery to the Corporation, at its principal executive offices, of (i)
written notice of exercise in the form specified by the Committee specifying
the number of shares of Common Stock with respect to which the option is being
exercised and signed by the person exercising the option as provided herein;
(ii) payment of the purchase price; and (iii) in the case of Nonqualified
Options, payment in cash of all withholding tax obligations imposed on the
Corporation by reason of the exercise of the option. Upon acceptance of such
notice, receipt of payment in full, and receipt of payment of all withholding
tax obligations, the Corporation shall cause to be issued a certificate
representing the shares of Common Stock purchased. In the event the person
exercising the option delivers the items specified in (i) and (ii) of this
Subsection 7 (b), but not the item specified in (iii) hereof, if applicable,
the option shall still be considered exercised upon acceptance by the
Corporation for the full number of shares of Common Stock specified in the
notice of exercise but the actual number of shares issued shall be reduced by
the smallest number of whole shares of Common Stock which, when multiplied by
the Fair Market Value of the Common Stock as of the date the option is
exercised, is sufficient to satisfy the required amount of withholding tax.
(c) The purchase price of the shares as to which an option is exercised
shall be paid in full at the time of exercise. Payment shall be made in cash,
which may be paid by check or other instrument acceptable to the Corporation;
in addition, subject to compliance with applicable laws and regulations and
such conditions as the Committee may impose, the Committee, in its sole
discretion, may on a case-by-case basis elect to accept payment in shares of
Common Stock of the Corporation which are already owned by the option holder,
valued at the Fair Market Value thereof (as defined in paragraph 15 below) on
the date of exercise; provided, however, that with respect to Incentive
Options, no such discretion may be exercised unless the option agreement
permits the payment of the purchase price in that manner. The Committee may
also allow an Optionee to exercise an option by use of the proceeds to be
received from the sale of Common Stock issuable pursuant to the option.
(d) An Option shall become fully exercisable upon a Change in Control (as
hereinafter defined) of the Corporation. For purposes of this Plan, a "Change
of Control" shall be conclusively deemed to have occurred if (and only if) any
of the following events shall have occurred: (a) there shall have occurred an
event required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A (or in response to any similar item on any similar schedule or
form) promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Corporation is then subject to such
reporting requirement; (b) any "person" (as such term is used in Section 13(d)
and 14(d) of the Exchange Act) shall have become the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation representing 20% or more of the combined voting
power of the Corporation's then outstanding voting securities without prior
approval of at least two-thirds of the members of the Board of Directors in
office immediately prior to such person's attaining such percentage interest;
(c) the Corporation is a party to a merger, consolidation, sale of assets or
other reorganization, or a proxy contest, as a consequence of which members of
the Board of Directors in office immediately prior to such transaction or
event constitute less than a majority of the Board of Directors thereafter or
(d) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (including for
this purpose any new Director whose election or nomination for election by the
Corporation's shareholders was approved by a vote of at least two-thirds of
the Directors then still in office who were Directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board of
Directors.
(e) Except as provided in paragraphs 10 and 11 below, no option granted to
an employee may be exercised at any time by such employee unless such employee
is then a regular full-time employee of the Corporation or a subsidiary and
unless the employee has remained in the continuous employ of the Corporation,
any of its subsidiaries or any combination thereof for one year from the date
of its grant.
3
<PAGE>
8. Incentive Options
(a) With respect to Incentive Options granted, the aggregate Fair Market
Value (determined in accordance with the provisions of paragraph 15 at the
time the Incentive Option is granted) of the Common Stock or any other stock
of the Corporation, its parent or subsidiary corporations with respect to
which incentive stock options, as defined in Section 422 of the Code, are
exercisable for the first time by any employee during the calendar year (under
all incentive stock option plans of the Corporation and its parent and
subsidiary corporations, as those terms are defined in Section 425 of the
Code) shall not exceed $100,000.
(b) No Incentive Option may be awarded to any employee who immediately prior
to the date of the granting of such Incentive Option owns more than 10% of the
combined voting power of all classes of stock of the Corporation or any of its
subsidiaries unless the exercise price under the Incentive Option is at least
110% of the Fair Market Value and the option expires within five (5) years
from the date of the grant.
(c) In the event of amendments to the Code or applicable regulations
relating to the Incentive Options subsequent to the date hereof, the
Corporation may amend the provisions of the 1992 Plan, and the Corporation and
the employees holding options may agree to amend outstanding option
agreements, to conform to such amendments.
9. Non-Transferability of Options
Incentive Options granted under the 1992 Plan shall not be transferable
otherwise than by will or the laws of descent and distribution, and Incentive
Options may be exercised during the lifetime of the employee only by the
employee.
10.Termination of Employment
In the event that the employment of an employee to whom an option has been
granted under the 1992 Plan shall be terminated (except as set forth in
paragraph 11 below), such option may be, subject to the provisions of the 1992
Plan, exercised (to the extent that the employee was entitled to do so at the
termination of his employment) at any time within 30 days after such
termination, but not later than the date on which the option terminates;
provided, however, that any option which is held by an employee whose
employment is terminated for Cause shall, to the extent not theretofore
exercised, automatically terminate as of the date of termination of
employment. As used herein, "Cause" shall mean conduct amounting to fraud,
dishonesty, or negligence, or engaging in competition or solicitations in
contradiction and breach of any applicable employment agreement between the
Corporation and Holder. In the event of such termination not for Cause, the
Committee may, in its discretion, provide for the extension of the
exercisability of an Award, accelerate the vesting of exercisability of an
Award, eliminate or make less restrictive any restrictions contained in an
Award, waive any restriction or other provision of this Plan or an Award or
otherwise amend or modify the Award in any manner that is either (i) not
adverse to the participant or (ii) consented to by such participant. Options
granted to employees under the 1992 Plan shall not be affected by any change
of duties or position so long as the holder continues to be a regular full-
time employee of the Corporation or any of its subsidiaries. Any option
agreement or any rules and regulations relating to the 1992 Plan may contain
such provisions as the Committee shall approve with reference to the
determination of the date employment terminates and the effect of leaves of
absence. Nothing in the 1992 Plan or in any option granted pursuant to the
1992 Plan shall confer upon any employee any right to continue in the employ
of the Corporation or any of its subsidiaries or interfere in any way with the
right of the Corporation or any such subsidiary to terminate such employment
at any time.
11. Death of Employee
If an employee to whom an option has been granted under the 1992 Plan shall
die while employed by the Corporation or a subsidiary, or within 30 days after
the termination of such employment (other than termination for Cause), such
option may be exercised, to the extent exercisable by the employee on the date
of death, by a legatee or legatees of the employee under the employee's last
will, or by the employee's personal representatives
4
<PAGE>
or distributees, at any time within six (6) months after the date of the
employee's death, but not later than the date on which the option terminates.
12. Adjustment Upon Changes in Capitalization, etc.
Notwithstanding any of the provisions of the 1992 Plan, the Committee may,
at any time, make or provide for such adjustments to the 1992 Plan, to the
number and class of shares issuable thereunder or to any outstanding options
as it shall deem appropriate to prevent dilution or enlargement of rights,
including adjustments in the event of changes in the outstanding Common Stock
by reason of stock dividends, split-ups, recapitalizations, mergers,
consolidations, combinations or exchanges of shares, separations,
reorganizations, liquidations and the like. In the event of any offer to
holders of Common Stock generally relating to the acquisition of their shares,
the Committee may make such adjustment as it deems equitable in respect to
outstanding options and rights, including, in its discretion, revision of
outstanding options and rights so that they may be exercisable for the
consideration payable in the acquisition transaction. Any such determination
by the Committee shall be conclusive. Any fractional shares resulting from
such adjustments shall be eliminated.
13. Effective Date
The 1992 Plan, as amended, shall become effective upon approval by the
Corporation's shareholders. The date of grant of any option granted prior to
such approval by the shareholders shall be determined for all purposes as if
the option had not been subject to such approval; provided, however, that no
option granted under the 1992 Plan, as amended, may be exercised prior to the
approval of the 1992 Plan, as amended, by the shareholders of the Corporation.
14. Termination and Amendment
The Committee of the Corporation may suspend, terminate, modify or amend the
1992 Plan, provided that any amendment that would increase the aggregate
number of shares which may be issued under the 1992 Plan, materially increase
the benefits accruing to participants under the 1992 Plan, or materially
modify the requirements as to eligibility for participation in the 1992 Plan,
shall be subject to the approval of the Corporation's shareholders, except
that any such increase or modification that may result from adjustments
authorized by paragraph 12 does not require such approval. No suspension,
termination, modification or amendment of the 1992 Plan may, without the
consent of the employee to whom an option shall theretofore have been granted,
affect the rights of such employee under such option.
15. Miscellaneous
As said term is used in the 1992 Plan, the "Fair Market Value" of a share of
Common Stock on any day shall be deemed to mean:
(a) if the shares of Common Stock are listed on a national securities
exchange, the average of the highest and lowest sales price per share of
the Common Stock on the principal such national securities exchange on that
date, or if there shall have been no such sale so reported on that date, on
the last preceding date on which such a sale was so reported;
(b) if the shares of Common Stock are not so listed but are quoted on the
NASDAQ National Market System, the average of the highest and lowest sales
price per share of Common Stock on the NASDAQ National Market System on
that date, or, if there shall have been no such sale so reported on that
date, on the last preceding date on which such a sale was so reported;
(c) if the Common Stock is not so listed or quoted, the average of the
closing bid and asked price on that date, or, if there are no quotations
available for such date, on the last preceding date on which such
quotations shall be available, as reported by NASDAQ; or
(d) in all other events, "Fair Market Value" shall be determined by the
Board of Directors in good faith.
5
<PAGE>
The Committee may require, as a condition to the exercise of any options
granted under the 1992 Plan, that to the extent required at the time of
exercise, (i) the shares of Common Stock reserved for purposes of the 1992
Plan shall be duly listed, upon official notice of issuance, upon the stock
exchange(s) on which the Common Stock is listed, (ii) a Registration Statement
under the Securities Act of 1933, as amended, with respect to such shares
shall be effective, and/or (iii) the person exercising such option deliver to
the Corporation such documents, agreements and investment and other
representations as the Committee shall determine to be in the best interests
of the Corporation.
IN WITNESS WHEREOF, the undersigned have set their hands and seals this 26th
day of April, 1996.
/s/ Howard K. Schmidt /s/ Wilburn O. McDonald, Jr.
- ------------------------------- -------------------------------------
Howard K. Schmidt Wilburn O. McDonald, Jr.
Chief Executive Officer and Corporate Secretary
President
6
<PAGE>
EXHIBIT 10.3
SI DIAMOND TECHNOLOGY, INC.
AMENDED AND RESTATED
1992 OUTSIDE DIRECTORS' STOCK OPTION PLAN
1. DEFINITIONS. As used herein, the following terms have the meanings
hereinafter set forth unless the context clearly indicates to the contrary:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Company" shall mean SI Diamond Technology, Inc.
(c) "Common Stock" shall mean the common stock, par value $.001 per
share, of the Company or, in the event that the outstanding shares of
Common Stock are hereafter changed into or exchanged for different stock or
securities of the Company or some other corporation, such other stock or
securities.
(d) "Date of Grant" shall mean the date of each annual meeting of the
shareholders of the Company.
(e) "Fair Market Value" of a share of Common Stock on a particular date
shall be deemed to mean:
(i) if the shares of Common Stock are listed on a national securities
exchange, the average of the highest and lowest sales price per share
of the Common Stock on the principal such national securities exchange
on that date, or if there shall have been no such sale so reported on
that date, on the last preceding date on which such a sale was so
reported;
(ii) if the shares of Common Stock are not so listed but are quoted
on the NASDAQ National Market System, the average of the highest and
lowest sales price per share of Common Stock on the NASDAQ National Market
System on that date, or, if there shall have been no such sale so reported
on that date, on the last preceding date on which such a sale was so
reported;
(iii) if the Common Stock is not so listed or quoted, the average of
the closing bid and asked price on that date, or, if there are no
quotations available for such date, on the last preceding date on which
such quotations shall be available, as reported by NASDAQ, or
(iv) in all other events, "Fair Market Value" shall be determined by
the Board in good faith.
(f) "Effective Date of the Plan" shall mean March 16, 1992.
(g) "Eligible Director" shall mean any Director of the Company who is not a
salaried employee of or exclusive, full-time consultant to the Company or its
subsidiaries.
(h) "Option" shall mean an Eligible Director's stock option to purchase
stock granted pursuant to the provisions of Article 4 hereof.
(i) "Optionee" shall mean an Eligible Director to whom an Option has been
granted hereunder.
(j) "Option Price" shall mean the price at which an Optionee may purchase
a share of Common Stock under a Stock Option Agreement.
(k) "Plan" shall mean the SI Diamond Technology, Inc. Amended and
Restated 1992 Outside Directors' Stock Option Plan, as hereby amended, the
terms of which are set forth herein.
(1) "Stock Option Agreement" shall mean an agreement between the Company
and the Optionee under which the Optionee may purchase Common Stock in
accordance with the Plan.
(m) "Subsidiary" of the Company shall mean any corporation of which the
Company directly or indirectly owns shares representing more than 50% of
the voting power of all classes or series of capital stock of such
corporation which have the right to vote generally on matters submitted to
a vote of the stockholders of such corporation.
1
<PAGE>
2. THE PLAN.
(a) Name. This Plan shall be known as the "SI Diamond Technology, Inc.
Amended and Restated 1992 Outside Directors' Stock Option Plan."
(b) Purpose. This Plan is intended as an incentive to retain and attract
Eligible Directors of training, experience and ability to serve as independent
directors of the Board and to afford Eligible Directors of the Company an
opportunity to acquire or increase their proprietary interests in the Company,
and thereby to encourage their continued service as Directors and to provide
them additional incentives to achieve the growth objectives of the Company.
(c) Termination Date. The Plan shall terminate and no further Options shall
be granted hereunder upon the tenth anniversary of the Effective Date of the
Plan.
3. SHAREHOLDER APPROVAL. All Options granted pursuant to this Plan, as
hereby amended, are subject to, and may not be exercised before, the approval
of this Plan, as hereby amended, by the affirmative vote of the holders of a
majority of the outstanding shares of the Common Stock of the Company that are
present, or represented, and entitled to vote at a meeting of the Company's
shareholders.
4. DESIGNATION OF PARTICIPANTS; AUTOMATIC GRANT OF OPTIONS. On the date of
each annual meeting of shareholders of the Company, each Eligible Director who
has served as such since the next previous annual meeting of shareholders,
with the exception of Dr. Philip Shaffer, shall receive options to purchase
20,000 shares of the Company's Common Stock pursuant to the provisions of the
Plan. On the date of each annual meeting of shareholders Dr. Philip Shaffer
shall receive options to purchase 50,000 shares of Common Stock pursuant to
the Plan, as long as he remains an Eligible Director.
If an Eligible Director begins his or her service on the Board after any
held annual meeting of shareholders of the Company, whether by appointment by
the Board or pursuant to a vote at a special meeting of the shareholders of
the Company, such Eligible Director shall receive options at the next
successive annual meeting of shareholders to purchase the nearest whole number
of shares of Common Stock pursuant to the Plan resulting from the product of
(a) 20,000 multiplied by (b) a fraction (i) the numerator of which is the
number of days which have elapsed between the commencement of such Eligible
Director's service and the date of the next successive annual meeting of
shareholders, and (ii) the denominator of which is 365; provided however, that
any Eligible Director beginning such service after a held annual meeting of
shareholders shall be entitled to a maximum grant of options to purchase
20,000 shares of the Company's Common Stock at such next successive annual
meeting of shareholders.
Notwithstanding the foregoing, in the case of any grant of Options made on a
date subsequent to the Effective Date, such grant shall only be made if the
number of shares subject to future grant under this Plan is sufficient to make
all automatic grants required to be made pursuant to this Plan on such date of
grant.
5. STOCK OPTION AGREEMENT, OPTION GRANT AND NUMBER OF SHARES. Each Option
granted hereunder shall be embodied in a Stock Option Agreement, which shall
be subject to the terms and conditions set forth herein and shall be signed by
the Optionee and by the Chief Executive Officer, the Chief Operating Officer,
or any Vice President of the Company for and on behalf of the Company. Each
Option Agreement shall state the Options' number, duration, time of exercise,
vesting schedule and exercise price. The terms and conditions of the Option
shall be consistent with the Plan.
6. COMMON STOCK RESERVED FOR THE PLAN. Subject to adjustment as provided in
Section 11 hereof, a total of 500,000 Shares of Common Stock shall be reserved
for issuance upon the exercise of Options granted pursuant to this Plan. The
shares subject to the Plan shall consist of unissued shares or previously
issued shares reacquired and held by the Company, or any parent or Subsidiary
of the Company, in its treasury. The Board of Directors and the appropriate
officers of the Company shall from time to time take whatever actions are
necessary to
2
<PAGE>
execute, acknowledge, file and deliver any documents required to be filed with
or delivered to any governmental authority or any stock exchange or
transaction reporting system on which shares of Common Stock are listed or
quoted in order to make shares of Common Stock available for issuance to an
Optionee; provided, however, that shares of Common Stock with respect to which
an Option has been exercised shall not again be available for any grant of
options hereunder, pursuant to this Plan. Common Stock subject to Options that
are forfeited or terminated or expire unexercised in such a manner that all or
some of the shares subject thereto are not issued to an Optionee shall
immediately become available for the granting of Options.
7. OPTION PRICE. The purchase price of each share of Common Stock that is
subject to an Option granted pursuant to this Plan shall be 100% of the Fair
Market Value of such share of Common Stock on the Date of Grant.
8. OPTION PERIOD. Each Option granted pursuant to this Plan shall terminate
and be of no force and effect with respect to any shares of Common Stock not
purchased by the Optionee upon the expiration of the tenth anniversary of the
Date of Grant.
9. EXERCISE OF OPTIONS.
(a) Options granted pursuant to this Plan shall be exercisable on a
cumulative basis, as follows:
Until the first anniversary of the Date of Grant of each Option under the
Plan, 6.25% of the number of shares in the Option grant shall vest every
three months from such Date of Grant so that 25% of the Option shall be
vested on the first anniversary of such Option grant. Thereafter, an
additional 25% of each Option shall vest on the second, third and fourth
anniversary of the Date of Grant, respectively.
(b) An Option may be exercised solely by the Optionee during his lifetime or
after his death by the person or persons entitled thereto under his will or
the laws of descent and distribution.
(c) In the event that an Optionee ceases to serve as an Eligible Director
for any reason other than death, disability or mandatory retirement, an
Option granted to such Optionee may be exercised only to the extent such
Option was exercisable at the time he ceased to serve in such capacity.
(d) An Option may be exercised at any time or from time to time during the
term of the Option as to any or all full shares which have become
exercisable in accordance with this Section, but not as to less than 25
shares of Common Stock unless the remaining shares of Common Stock that are
so exercisable are less than 25 shares of Common Stock.
(e) An Option shall be exercised by written notice of exercise of the
Option, with respect to a specified number of shares of Stock, delivered to
the Company at its principal office.
(f) In the event that an Optionee ceases to serve as an Eligible Director by
reason of death, disability or mandatory retirement, at a time when an Option
granted hereunder is still in force and unexpired under the terms of Section 8
hereof, each such unmatured Option shall be accelerated. Such acceleration
shall be effective as of the date of death, disability or retirement, as
appropriate, and each Option so accelerated shall be exercisable in full for
so long as it is still in force and unexpired under the terms of Section 8
hereof.
(g) The purchase price of the shares as to which an Option is exercised
shall be paid in full at the time of the exercise before any shares of Common
Stock are issued. Such purchase price shall be payable in cash or by means of
tendering theretofore owned Common Stock which has been held by the Optionee
for more than six months, valued at Fair Market Value on the date of exercise,
or any combination thereof. The Board may also provide for procedures to
permit the exercise of Options by the use of the proceeds to be received from
the sale of Common Stock issuable pursuant to an Option. No holder of an
Option shall be, or have any of the rights or privileges of, a stockholder of
the Company in respect of any shares to any Option unless and until
certificates evidencing such shares shall have been issued by the Company to
such holder.
3
<PAGE>
10. NONTRANSFERABILITY OF OPTION. Options may not be transferred or assigned
by an Optionee otherwise than by will or the laws of descent and distribution
or pursuant to a qualified domestic relations order. During the lifetime of an
Optionee, an Option may be exercised only by the Optionee (or by his guardian
or legal representative, should one be appointed). In the event of the death
of an Optionee, any Option held by him may be exercised by his legatee(s) or
other distributee(s) or by his personal representative. Any attempted transfer
of an Option in violation of this Section 10 shall be null, void and of no
effect.
11. ADJUSTMENTS.
(a) The existence of outstanding Options shall not affect in any manner the
right or power of the Company or its shareholders to make or authorize any or
all adjustments, recapitalization, reorganizations or other changes in the
capital stock of the Company or its business or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock (whether or not such issue is prior to, on a parity with or junior to
the Common Stock) or the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding of any kind, whether or not of a character similar
to that of the acts or proceedings enumerated above.
(b) In the event of any subdivision or consolidation of outstanding shares
of Common Stock or declaration of a dividend payable in shares of Common Stock
or capital reorganization or reclassification or other transaction involving
an increase or reduction in the number of outstanding shares of Common Stock,
the Board may adjust proportionally (i) the number of shares of Common Stock
reserved under these Options; and (ii) the exercise price of such Options. In
the event of any consolidation or merger of the Company with another
corporation or entity or the adoption by the Company of a plan of exchange
affecting the Common Stock or any distribution to holders of Common Stock of
securities or property (other than normal cash dividends or dividends payable
in Common Stock), the Board shall make such adjustments or other provisions as
it may deem equitable, including adjustments to avoid fractional shares, to
give proper effect to such event. In the event of a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation, the Board shall be authorized to issue or assume stock options by
means of substitution of new options for previously issued options or an
assumption of previously issued options, or to make provision for the
acceleration of the exercisability of, or lapse of restrictions with respect
to, the termination of unexercised options in connection with such
transaction.
(c) An Option granted under the Plan shall be accelerated and become fully
exercisable upon a Change in Control (as hereinafter defined) of the Company.
For purposes of this Plan, a "Change of Control" shall be conclusively deemed
to have occurred if (and only if) any of the following events shall have
occurred: (a) there shall have occurred an event required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any
similar item on any similar schedule or form) promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the
Company is then subject to such reporting requirement; (b) any "person" (as
such term is used in Section 13(d) and 14(d) of the Exchange Act) shall have
become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 20% or
more of the combined voting power of the Company's then outstanding voting
securities without prior approval of at least two-thirds of the members of the
Board in office immediately prior to such person's attaining such percentage
interest; (c) the Company is a party to a merger, consolidation, sale of
assets or other reorganization, or a proxy contest, as a consequence of which
members of the Board in office immediately prior to such transaction or event
constitute less than a majority of the Board thereafter or (d) during any
period of two consecutive years, individuals who at the beginning of such
period constituted the Board (including for this purpose any new Director
whose election or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the Directors then still in
office who were Directors at the beginning of such period) cease for any
reason to constitute at least a majority of the Board.
The foregoing adjustments and the manner of applications thereof shall be
determined solely by the Board. The adjustments required under this Article
shall apply to any successor or successors of the Company and shall be made
regardless of the number or type of successive events requiring adjustments
hereunder.
4
<PAGE>
12. PURCHASE FOR INVESTMENT. Unless the Options and shares of Common Stock
covered by this Plan have been registered under the Securities Act of 1933, as
amended, each person exercising an Option under this Plan may be required by
the Company to give a representation in writing in form and substance
satisfactory to the Company to the effect that he is acquiring such shares for
his own account for investment and not with a view to, or for sale in
connection with, the distribution of such shares or any part thereof.
13. TAXES. The Company may make such provisions as it may deem appropriate
for the withholding of any taxes that it determines is required in connection
with any Options granted to any Optionee hereunder.
14. TERMINATION, AMENDMENT AND MODIFICATION OF PLAN. The Board may at any
time terminate the Plan, and may at any time and from time to time, and in any
respect, amend or modify the Plan, except that (a) no amendment or alteration
that would impair the rights of any Optionee under any Option that he has been
granted shall be made without his consent or (b) no amendment or alteration
shall be effective prior to approval by the Company's shareholders to the
extent such approval is then required pursuant to Rule 16b-3 (or any successor
provision) under the Exchange Act in order to preserve the applicability of
any exemption provided by such rule to any Option then outstanding or to the
extent shareholders' approval is otherwise required by applicable legal
requirements.
15. STOCK CERTIFICATES. The Company shall not be required to issue or
deliver any certificate for shares of Common Stock purchased upon the exercise
of any Option granted hereunder or any portion thereof unless, in the opinion
of counsel to the Company, there has been compliance with all applicable legal
requirements. An Option granted under the Plan may provide that the Company's
obligation to deliver shares of Stock upon the exercise thereof may be
conditioned upon the receipt by the Company of a representation as to the
investment intention of the holder thereof in such form as the Company shall
determine to be necessary or advisable solely to comply with the provisions of
the Securities Act of 1933, as amended, or any other federal, state or local
securities laws.
16. GOVERNMENT REGULATIONS. This Plan, and the granting and exercise of
Options hereunder, and the obligation of the Company to sell and deliver
shares of Common Stock under such Options, shall be subject to all applicable
laws, rules and regulations, and to such approvals on the part of any
governmental agencies or national securities exchanges or transaction
reporting systems as may be required.
17. GOVERNING LAW. This Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by mandatory provisions
of the Code or the securities laws of the United States, shall be governed by
and construed in accordance with the laws of the State of Texas.
18. EFFECTIVE DATE OF PLAN. This Plan, as hereby amended, shall be effective
as of the date it is approved by the Board of Directors of the Company.
Notwithstanding the foregoing, the adoption of this Plan, as currently
amended, is expressly conditioned upon the approval by the holders of a
majority of shares of Common Stock present, or represented, and entitled to
vote at a meeting of the Company's stockholders held on or before December 31,
1996. If the stockholders of the Company should fail so to approve this Plan
prior to such date, this Plan shall terminate and cease to be of any further
force or effect and all grants of options hereunder shall be null and void.
19. MISCELLANEOUS. The granting of any Option shall not impose upon the
Company or Board any obligation to nominate any Optionee for election as a
director, and the right of the stockholders of the Company to remove any
person as a director of the Company shall not be diminished or affected by
reason of the fact that an Option has been granted to such person.
20. RELATIONSHIP TO OTHER COMPENSATION PLANS. The adoption of the Plan shall
neither affect any other stock option, incentive or other compensation plans
in effect for the Company or any of its Subsidiaries, nor shall the adoption
of the Plan preclude the Company from establishing any other forms of
incentive or other compensation plan for directors of the Company.
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21. MISCELLANEOUS.
(a) Plan Binding on Successors. The Plan shall be binding upon the
successors and assigns of the Company.
(b) Singular, Plural; Gender. Whenever used herein nouns in the singular
shall include the plural, and the masculine pronoun shall include the feminine
gender.
(c) Headings, etc., No Part of Plan. Headings of articles and paragraphs
hereof are inserted for convenience and reference, and do not constitute a
part of the Plan.
IN WITNESS WHEREOF, the undersigned have set their hands and seals this 26th
day of April, 1996.
SI DIAMOND TECHNOLOGY, INC.
/s/ Howard K. Schmidt /s/ Wilburn O. McDonald, Jr.
- ------------------------------- -------------------------------------
Howard K. Schmidt Wilburn O. McDonald Jr.
Chief Executive Officer and Corporate Secretary
President
6
<PAGE>
EXHIBIT 11
SI DIAMOND TECHNOLOGY, INC.
COMPUTATION OF (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
For the Three Months Ended June 30, For the Six Months Ended June 30,
----------------------------------- ----------------------------------
1996 1995 1996 1995
------------------ --------------- ------------------ --------------
<S> <C> <C> <C> <C>
Computation of (loss) per common share:
Net loss applicable to common
shareholders:
Continuing operations................... $(4,892,640) $(2,300,051) $(10,063,191) $(3,951,544)
Discontinued operations................. -- (352,000) (999,500) (632,533)
----------- ----------- ------------ -----------
Net loss applicable to common
shareholders........................... $(4,892,640) $(2,652,051) $(11,062,691) $(4,584,077)
----------- ----------- ------------ -----------
Weighted average number of common
shares outstanding....................... 11,169,930 8,108,389 11,014,827 7,908,439
Net loss per common share:
Continuing operations................... $(0.44) $(0.29) $(0.91) $(0.50)
Discontinued operations................. -- (0.04) (0.09) (0.08)
----------- ----------- ------------ -----------
Net loss per common share................. $(0.44) $(0.33) $(1.00) $(0.58)
=========== =========== ============ ===========
Computation of (loss) per common share
assuming full dilution (A):
Net loss applicable to common
shareholders:
Continuing operations................... $(4,892,640) $(2,300,051) $(10,063,191) $(3,951,544)
Discontinued operations................. -- (352,000) (999,500) (632,533)
----------- ----------- ------------ -----------
Net loss applicable to common
shareholders........................... $(4,892,640) $(2,652,051) $(11,062,691) $(4,584,077)
----------- ----------- ------------ -----------
Weighted average number of common
shares outstanding....................... 11,169,930 8,108,389 11,014,827 7,908,439
Common shares issuable under
outstanding convertible instruments,
stock options and warrants............... 5,410,367 3,187,324 5,410,367 3,187,324
Less shares assumed repurchased with
proceeds................................. (2,576,189) (1,536,067) (2,159,238) (1,612,998)
----------- ----------- ------------ -----------
14,004,108 9,759,646 14,265,956 9,482,765
Net loss per common share:
Continuing operations.................... $(0.35) $(0.23) $(0.71) $(0.41)
Discontinued operations.................. -- (0.04) (0.07) (0.07)
----------- ----------- ------------ -----------
Net loss per common share - fully diluted. $(0.35) $(0.27) $(0.78) $(0.48)
=========== =========== ============ ===========
</TABLE>
(A) This calculation is submitted in accordance with the Securities and
Exchange Act of 1934 Release No. 9083 although it is contrary to APB Opinion 15
because it does not result in any dilution.
<PAGE>
EXHIBIT 13
FORWARD - LOOKING STATEMENTS AND IMPORTANT
FACTORS AFFECTING FUTURE RESULTS
(From Form 10-KSB for fiscal year ended December 31, 1995)
SI Diamond Technology, Inc. and its subsidiaries (collectively
referred to as the "Company") unless the context requires otherwise, are
including the following cautionary statement in this Annual Report on Form 10-
KSB to make applicable and take advantage of the new "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. FORWARD-LOOKING STATEMENTS ARE IDENTIFIED THROUGHOUT THE TEXT OF THIS
REPORT BY ENDNOTE 1, WHICH APPEARS ON PAGE 15.
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.
Taking into account the foregoing, the following are identified as
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.
EARLY STAGE OF DFED PRODUCT DEVELOPMENT; NO DFED PRODUCT REVENUES; DFED PRODUCT
UNCERTAINTY
The Company's Diamond Field Emission Display ("DFED") and related
products will require significant additional development, engineering, testing
and investment prior to commercialization. There can be no assurance that the
DFED, the Company's leading product, will be successfully developed, be capable
of being produced in commercial quantities on a cost-effective basis or be
successfully marketed.
HISTORY OF OPERATING LOSSES
For the year ended December 31, 1995, the Company suffered a net loss
of $14,389,856. For the years ended December 31, 1992, 1993, and 1994, the
Company suffered net losses of $1,630,978, $7,527,677, and $7,255,420,
respectively. The Company expects to continue to incur additional operating
losses, at least through 1996, as it continues to develop products for
commercialization, and there can be no assurance that the Company will be
profitable in the future. The Company's operations to date have been primarily
financed by the proceeds of the sale of equity securities of the Company and
from revenues generated from research and development conducted for third
parties, although since the second quarter of 1994, revenues from commercial
services and product sales have exceeded those earned through such research and
development ("R&D") activities. In order to continue its transition from a
contract research and development organization into a company with viable
operations, the Company anticipates substantial product development expenditures
for the foreseeable future.
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FUNDING
The Company expects to incur substantial expenses for R&D, product
testing, production, manufacturing, product marketing and administrative
overhead. Further, the Company believes that certain proposed products may not
be available for commercial sale or routine use for a period of one to two
years. Therefore, it is anticipated that the commercialization of the Company's
existing and proposed products will require additional capital in excess
Page ii
<PAGE>
of the Company's other current sources of funding. The combined effect of the
foregoing may prevent the Company from achieving profitability at least through
1996. Because the timing and receipt of revenues from the sale of products will
be tied to the achievement of certain product development, testing,
manufacturing and marketing objectives which cannot be predicted with certainty,
there may be substantial fluctuations in the Company's results of operations.
If revenues do not increase as rapidly as anticipated, or if product development
and testing and marketing require more funding than anticipated, the Company may
be required to curtail its expansion and/or seek additional financing from other
sources. The Company may seek such additional financing through the offer of
debt or equity or any combination thereof at any time.
The Company anticipates that its existing resources will enable it to
maintain its current and planned operations for approximately the next twelve
(12) to eighteen (18) months. This belief is based on current development
plans, the current regulatory environment, historical experience in the
development of electronic products and general economic conditions. Changes
could occur to cause available resources to be consumed before such time. If
adequate funds are not available from operations or additional sources of
financing, the Company may have to reduce substantially or eliminate
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.
DEPENDENCE ON PRINCIPAL PRODUCTS; NO ASSURANCE OF MARKET ACCEPTANCE
The Company's DFED and related products are emerging technologies.
The financial condition and prospects of the Company are dependent upon market
acceptance and sales of the Company's DFED in the next two years. Additional
R&D needs to be conducted with respect to the DFED before marketing and sales
efforts can be commenced. Market acceptance of the Company's DFED will be
dependent upon the perception within the electronics and instrumentation
industries of the quality, reliability, performance, efficiency, breadth of
application and cost-effectiveness of the DFED. There can be no assurance that
the Company will be able to gain commercial market acceptance for its DFED or
develop other products for commercial use.
COMPETITION; POSSIBLE TECHNOLOGICAL OBSOLESCENCE
The display, semiconductor, coating system and industrial coating
industries are highly competitive and are characterized by rapid technological
change. The Company's existing and proposed products will compete with other
existing products and may compete against other developing technologies.
Development by others of new or improved products, processes or technologies may
reduce the size of potential markets for the Company's products. There can be
no assurance that such products, processes or technologies will not render the
Company's proposed products obsolete or less competitive. Many of the Company's
competitors have greater financial, managerial distribution and technical
resources than the Company. The Company will be required to devote substantial
financial resources and effort to further R&D. There can be no assurance that
the Company will successfully differentiate its products from its competitors'
products or that the Company will be able to adapt to evolving markets and
technologies, develop new products or achieve and maintain technological
advantages.
TECHNOLOGIES SUBJECT TO LICENSES
As a licensee of certain research technologies, the Company has
various license agreements with Philips Components B.V., Microelectronics and
Computer Technology Corporation, The University of Texas at Dallas and
DiaGasCrown, Inc., wherein the Company has acquired rights to develop and
commercialize certain research technologies. In certain cases, agreements
require the Company to pay royalties on sale of products developed from the
licensed technologies and fees on revenues from sublicensees, where applicable,
and to pay for the costs of filing and prosecuting patent applications. The
Company's principal license agreement with MCC requires the Company to pay
exclusivity fees under certain circumstances in order to maintain the Company's
exclusive rights under the MCC Agreement. The Company's license agreement with
the University of Texas at Dallas requires the Company to pay annual license
maintenance fees. Each agreement is subject to termination by either party,
upon notice, in
Page iii
<PAGE>
the event of certain defaults by the other party. The payment of such royalties
may adversely affect the future profitability of the Company.
LIMITED MANUFACTURING CAPACITY AND EXPERIENCE
The Company has no established commercial display manufacturing
facilities and the present management has limited commercial manufacturing and
marketing experience. Accordingly, the Company will be required to either
employ qualified personnel to establish manufacturing facilities or enter into
appropriate manufacturing agreements with others. There is no assurance that
the Company will be successful in attracting experienced personnel or financing
the cost of establishing commercial manufacturing facilities, if required, or be
capable of producing a high quality product in quantity for sale at competitive
prices.
MARKETING AND SALES UNCERTAINTIES
There can be no assurance that the DFED and related products will be
successfully developed or that such products will be commercially successful.
The Company intends to establish a sales organization to promote, market, and
sell its products. To develop a sales organization will require significant
additional expenditures, management resources and training time. There can be
no assurance that the Company will be able to establish such a sales
organization.
UNPROVEN TECHNOLOGY; NEED FOR SYSTEM INTEGRATION
In order to prove that the Company's technologies work and will
produce a complete product, the Company must ordinarily integrate a number of
highly technical and complicated subsystems into a fully-integrated prototype.
There can be no assurance that the Company will be able to successfully complete
the development work on any of its proposed products or ultimately develop any
marketable products.
DEPENDENCE UPON GOVERNMENT CONTRACTS
A significant, but diminishing, portion of the Company's revenues has
been derived from contracts with agencies of the United States government. In
the years ended December 31, 1992, 1993, 1994 and 1995, such contracts accounted
for approximately $930,000, $1,147,000, $820,000 and $1,009,000, respectively,
or approximately 99%, 89%, 41%, and 33% of the Company's total revenues for each
of those periods. The Company's contracts involving the United States
government are or may be subject to various risks, including unilateral
termination for the convenience of the government, reduction or modification in
the event of changes in the government's requirements or budgetary constraints,
increased or unexpected costs causing losses or reduced profits under fixed-
price contracts or unallowable costs under cost reimbursement contracts, risks
of potential disclosure of the Company's confidential information to third
parties, the failure or inability of the prime contractor to perform its prime
contract in circumstances where the Company is a subcontractor, the failure of
the government to exercise options provided for in the contracts and the
exercise of "march-in" rights by the government. March-in rights refer to the
right of the government or government agency to exercise a non-exclusive,
royalty-free, irrevocable, worldwide license to any technology developed under
contracts funded by the government if the contractor fails to continue to
develop the technology. The programs in which the Company participates may
extend for several years but are normally funded on an annual basis. There can
be no assurance that the government will continue its commitment to programs to
which the Company's development projects are applicable or that the Company can
compete successfully to obtain funding available pursuant to such programs. A
reduction in, or discontinuance of, such commitment or of the Company's
participation in these programs would have a material adverse effect on the
Company's business, operating results and financial condition.
Page iv
<PAGE>
PATENTS AND OTHER INTELLECTUAL PROPERTY
The Company's ability to compete effectively with other companies will
depend, in part, on the ability of the Company to maintain the proprietary
nature of its technology. Although the Company has been awarded, has filed
applications for or has been licensed technology under numerous patents, there
can be no assurance as to the degree of protection offered by these patents or
as to the likelihood that pending patents will be issued. There can be no
assurance that competitors in both the United States and foreign countries, many
of which have substantially greater resources and have made substantial
investments in competing technologies, have not already or will not apply for
and obtain patents that will prevent, limit or interfere with the Company's
ability to make and sell its products. There can also be no assurance that
competitors will not intentionally infringe the Company's patents. The defense
and prosecution of patent suits are both costly and time-consuming, even if the
outcome is favorable to the Company. In foreign countries, the expenses
associated with such proceedings can be prohibitive. In addition, there is an
inherent unpredictability in obtaining and enforcing patents in foreign
countries. An adverse outcome in the defense of a patent suit could subject the
Company to significant liabilities to third parties, require disputed rights to
be licensed from third parties or require the Company to cease selling its
products. Although third parties have not asserted infringement claims against
the Company, there can be no assurance that third parties will not assert such
claims in the future. Claims that the Company's products infringe on the
proprietary rights of others are more likely to be asserted after commencement
of commercial sales incorporating the Company's technology. The Company also
relies on unpatented proprietary technology, and there can be no assurance that
others may not independently develop the same or similar technology or otherwise
obtain access to the Company's proprietary technology. To protect its rights in
these areas, the Company requires all employees and most consultants, advisors
and collaborators to enter into confidentiality agreements. There can be no
assurance that these agreements will provide meaningful protection for the
Company's trade secrets, know-how or other proprietary information in the event
of any unauthorized use, misappropriation or disclosure of such trade secrets,
know-how or other proprietary information. While the Company has attempted to
protect proprietary technology it may develop or acquire and will attempt to
protect future developed proprietary technology through patents, copyrights and
trade secrets, it believes that its success will depend more upon further
innovation and technological expertise.
AVAILABILITY OF MATERIALS AND DEPENDENCE ON SUPPLIES
It is anticipated that materials to be used by the Company in
producing its future products will be purchased by the Company from outside
vendors and, in certain circumstances, the Company may be required to bear the
risk of material price fluctuations. It is anticipated by the Company's
management that the majority of raw materials to be used in products to be
manufactured by the Company will be readily available. However, there can be no
assurance that such materials will be available in the future or if available
will be procurable at prices which will be favorable to the Company.
DEPENDENCE ON KEY PERSONNEL
The future success of the Company will depend in large part on its
ability to attract and retain highly qualified scientific, technical and
managerial personnel. Competition for such personnel is intense and there can
be no assurance that the Company will be able to attract and retain all
personnel necessary for the development of its business. In addition, much of
the know-how and processes developed by the Company reside in its key scientific
and technical personnel and such know-how and processes are not readily
transferable to other scientific and technical personnel. The loss of the
services of key scientific, technical and managerial personnel could have a
material adverse effect on the Company.
Page v
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-QSB AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,365,834
<SECURITIES> 0
<RECEIVABLES> 1,789,994
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,780,942
<PP&E> 3,334,362
<DEPRECIATION> 595,502
<TOTAL-ASSETS> 9,710,073
<CURRENT-LIABILITIES> 5,577,926
<BONDS> 0
0
943
<COMMON> 11,784
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,710,073
<SALES> 2,884,352
<TOTAL-REVENUES> 2,884,352
<CGS> 2,260,138
<TOTAL-COSTS> 12,282,060
<OTHER-EXPENSES> (257,645)
<LOSS-PROVISION> 350,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (10,063,191)<F1>
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,063,191)<F1>
<DISCONTINUED> (649,500)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,062,691)
<EPS-PRIMARY> (1.00)
<EPS-DILUTED> (1.00)
<FN>
<F1>Income-pretax and Income-continuing include a preferred stock dividend
applicable for calculating net (loss) per common share.
</FN>
</TABLE>
