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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 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)
2435 NORTH BOULEVARD
HOUSTON, TEXAS 77098
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (713) 529-9040
Indicate by check mark whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
As of May 7, 1996, the registrant had 10,862,889 shares of common stock, par
value $.001 per share, issued and outstanding.
Transitional Small Business Disclosure Format.
Yes [ ] No [X]
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SI DIAMOND TECHNOLOGY, INC.
(Registrant)
Date: May 16, 1996 /s/ Anthony N. Davies
--------------------------------
Anthony N. Davies
Assistant Secretary and Controller
(Duly Authorized Officer and Principal
Accounting Officer)
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INDEX TO EXHIBITS
The following documents are filed as part of this Report:
Exhibit
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3(ii) Amended and Restated Bylaws, adopted April 26, 1996
10.01 Consulting Agreement between the Company and BEG Enterprises,
Inc.
10.02 Contract #01-96/01C between the Company and Microelectronics
Systems dated February 16, 1996 (Confidential
treatment has been Requested)
10.03 Contract No. 27 in 02-96 between the Company and High Technologies,
Ltd. dated February 25, 1996 (Confidential treatment has been
Requested)
10.04 Contract No. 26 in 02-96 between the Company and High Technologies,
Ltd. dated February 25,1996 (Confidential treatment
has been Requested)
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 March 31, 1996)
27 Financial Data Schedule
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EXHIBIT 13
FORWARD - LOOKING STATEMENTS AND IMPORTANT
FACTORS AFFECTING FUTURE RESULTS
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
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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
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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.
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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.
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