<PAGE>
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1995; or
[ ] Transition report under 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 its charter)
TEXAS 76-0273345
(State of Incorporation) (IRS Employer Identification Number)
12100 Technology Boulevard, Austin, Texas 78727
(Address of principal executive office, including Zip Code)
Registrant's telephone number, including area code: (512) 331-6200
Securities registered pursuant to Section 12(b) of the Exchange Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $0.001 par value The NASDAQ Stock Market
Boston Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Check 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 past 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
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $3,042,942.
The aggregate market value of the Common Stock held by non-affiliates of
the Registrant, based upon the closing sale price of the Common Stock on the
NASDAQ/Small Cap Market on March 8, 1996, was approximately $55,533.359. Shares
of Common Stock held by each officer and director and by each person who may be
deemed to be an affiliate have been excluded.
As of March 8, 1996, the registrant had 10,858,889 shares of Common
Stock issued and outstanding.
Portions of the definitive Proxy Statement relating to the 1996 Annual
Meeting of Shareholders are incorporated by reference into Items 9, 10, 11 and
12 of Part III of this Report.
Transitional Small Business Disclosure Format (check one).
Yes No X
--- ---
<PAGE>
THE COMPANY IS FILING THIS AMENDMENT ON FORM 10-KSB/A TO INCORPORATE THE REVISED
REPORT OF INDEPENDENT ACCOUNTANTS DATED MARCH 4, 1996, EXCEPT AS TO THE FOURTH
PARAGRAPH FOR WHICH THE DATE IS NOVEMBER 6, 1996, WHICH REFERS TO UNCERTAINTY
REGARDING THE ABILITY OF THE COMPANY TO CONTINUE AS A GOING CONCERN.
ITEM 7. FINANCIAL STATEMENTS
The information required hereunder is included in this report as set forth in
the "Index to Consolidated Financial Statements."
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF SI DIAMOND TECHNOLOGY, INC.
<TABLE>
<CAPTION>
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants 17
Consolidated Balance Sheets - December 31, 1995 and 1994 18
Consolidated Statements of Operations - Years Ended December 31, 1995 and 1994 19
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 1995 and 1994 20
Consolidated Statements of Cash Flows - Years Ended December 31, 1995 and 1994 22
Notes to Consolidated Financial Statements 23
</TABLE>
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of SI Diamond Technology, Inc. and
Subsidiaries:
We have audited the accompanying consolidated balance sheets of SI Diamond
Technology, Inc. and Subsidiaries (the "Company") as of December 31, 1995 and
1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1995 and 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SI Diamond
Technology, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As described in Note 1 to the financial
statements, the Company has relied on capital raised through offerings of common
and preferred stock to fund its operations and has experienced operating losses.
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 financings in
the future. As of November 6, 1996, the Company has not yet achieved
profitability, has a working capital deficit and must obtain additional capital
to fund its ongoing operations. As a result, there is substantial doubt about
the Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
COOPERS & LYBRAND L.L.P.
Houston, Texas
March 4, 1996, except as to the fourth paragraph
for which the date is November 6, 1996
17
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------
ASSETS 1995 1994
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 293,593 $ 1,687,104
Restricted cash 259,880 --
Accounts receivable, trade 283,614 914,975
Stock subscriptions receivable 9,583,750 --
Notes receivable 400,000 --
Costs and estimated earnings in excess of billings
on uncompleted contracts 300,485 201,333
Prepaid expenses and other assets 147,466 22,750
----------- -----------
Total current assets 11,268,788 2,826,162
Property, plant and equipment, net 4,803,621 1,158,133
Intangible assets, net 788,530 601,846
Other assets, net 36,766 184,337
----------- -----------
Total assets $16,897,705 $ 4,770,478
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 863,048 $ 940,579
Notes payable 862,513 --
Capital lease obligations 190,326 --
Accrued liabilities 2,305,315 246,367
Billings in excess of costs and estimated earnings
on uncompleted contracts 49,891 305,695
----------- -----------
Total current liabilities 4,271,093 1,492,641
Notes payable, long-term 86,687 --
Capital lease obligations, long-term 77,422 --
Commitments and contingencies (Notes 4, 5, 8. 9. 11 and 12)
Stockholders' equity:
Preferred Stock, $1.00 par value, 2,000,000 shares authorized;
Series A Convertible Preferred, 100 shares issued and out-
standing at December 31, 1995 and December 31, 1994
($100,000 aggregate liquidation preference) 100 100
Common Stock, 120,000,000 shares authorized, $.001 par value,
10,858,889 shares issued and outstanding at December 31, 1995;
7,368,295 shares issued and outstanding at December 31, 1994 10,859 7,368
Additional paid-in capital 34,681,872 19,914,440
Preferred stock subscribed but unissued at December 31, 1995 8,905,072 --
Accumulated deficit (30,991,571) (16,601,715)
Unearned compensation (143,829) (42,356)
----------- -----------
Total stockholders' equity 12,462,503 3,277,837
----------- -----------
Total liabilities and stockholders' equity $16,897,705 $ 4,770,478
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended
December 31,
-------------------------
1995 1994
----------- -----------
Revenues $ 3,042,942 $ 1,989,972
Cost of sales 3,413,623 2,156,596
Selling, general and administrative expenses 5,161,415 2,910,650
Stock compensation 166,895 (183,064)
Research and development 8,726,355 4,410,976
------------ -----------
Operating costs and expenses 17,468,288 9,295,158
------------ -----------
Loss from operations (14,425,346) (7,305,186)
Other income (expense), net 35,490 49,766
------------ -----------
Net loss $(14,389,856) $(7,255,420)
============ ===========
Net loss per share $(1.52) $(1.07)
============ ===========
Average shares outstanding 9,479,610 6,782,354
============ ===========
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred Preferred
Stock Stock Common Stock Common Stock Additional
Shares Amount Shares Amount Paid-In Capital
--------- --------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 100 $ 100 6,189,113 $ 6,189 $ 17,336,467
--------- --------- ------------ ------------ ---------------
Conversion of Convertible
Subordinated Debentures -- -- 31,500 31 52,469
Stock warrants exercised -- -- 114,000 114 168,084
Stock options exercised -- -- 25,500 26 25,054
Foreign issuance of
common stock for cash -- -- 1,000,000 1,000 2,908,000
Issuance of common stock
for services in lieu
of cash -- -- 8,182 8 18,177
Recognition of
compensation related to
issuance of common
stock and the forfeiture
of shares by former
officer -- -- -- -- (593,811)
Net Loss -- -- -- -- --
--------- --------- ------------ ------------ ---------------
Balance, December 31, 1994 100 $ 100 7,368,295 $ 7,368 $ 19,914,440
========= ========= ============ ============ ===============
Preferred
Stock
Subscribed But Accumulated Unearned
Unissued Deficit Compensation Total
--------- ----------- ------------ ------------
Balance, January 1, 1994 $ -- $(9,346,295) $ (453,103) $7,543,358
--------- ----------- ------------ ------------
Conversion of Convertible
Subordinated Debentures -- -- 52,500
Stock warrants exercised -- -- 168,198
Stock options exercised -- -- 25,080
Foreign issuance of
common stock for cash -- -- 2,909,000
Issuance of common stock
for services in lieu
of cash -- -- 18,185
Recognition of
compensation related to
issuance of common
stock and the forfeiture
of shares by former
officer 410,747 (183,064)
Net Loss (7,255,420) -- (7,255,420)
--------- ----------- ------------ ------------
Balance, December 31, 1994 $ -- $(16,601,715) $ (42,356) $3,277,837
========= ============ ============ ============
</TABLE>
20
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - (Continued)
<TABLE>
<CAPTION>
Preferred Preferred
Stock Stock Common Stock Common Stock Additional
Shares Amount Shares Amount Paid-In Capital
--------- --------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 100 $ 100 7,368,295 $ 7,368 $ 19,914,440
--------- --------- ------------ ------------ ---------------
Stock warrants exercised -- -- 81,500 82 103,798
Stock options exercised -- -- 86,085 86 174,725
Issuance of common
and Series C preferred
stock for cash 90,000 90,000 600,150 600 5,692,681
Conversion of Series C
preferred stock into (90,000) (90,000) 900,000 900 89,100
common stock
Issuance of common
stock for cash -- -- 1,585,786 1,586 7,372,952
Issuance of common stock
to maintain exclusive
rights to technology
under MCC agreement -- -- 223,256 223 996,284
Issuance of common stock
in partial payment
of building purchase -- -- 13,817 14 69,524
Recognition of unearned
compensation -- -- -- -- 268,368
Subscriptions received on
Series E preferred stock -- -- -- -- --
Net Loss -- -- -- -- --
--------- --------- ------------ ------------ ---------------
Balance, December 31, 1995 100 $ 100 10,858,889 $ 10,859 $ 34,681,872
========= ========= ============ ============ ===============
</TABLE>
<TABLE>
<CAPTION>
Preferred
Stock
Subscribed Accumulated Unearned
but Unissued Deficit Compensation Total
------------ ----------- -------------- ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 $ -- $(16,601,715) $ (42,356) $ 3,277,837
------------ ------------ -------------- ------------
Stock warrants exercised -- -- 103,880
Stock options exercised -- -- 174,811
Issuance of common
and Series C preferred
stock for cash -- -- 5,783,281
Conversion of Series C
preferred stock into -- -- --
common stock
Issuance of common
stock for cash -- -- 7,374,538
Issuance of common stock
to maintain exclusive
rights to technology
under MCC agreement -- -- 996,507
Issuance of common stock
in partial payment
of building purchase -- -- 69,538
Recognition of unearned
compensation -- (101,473) 166,895
Subscriptions received on
Series E preferred stock 8,905,072 -- -- 8,905,072
Net Loss (14,389,856) -- (14,389,856)
------------ ------------ -------------- ------------
Balance, December 31, 1995 $ 8,905,072 $(30,991,571) $ (143,829) $ 12,462,503
============ ============ ============== ============
</TABLE>
21
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net Loss $ (14,389,856) $ ( 7,255,420)
Adjustments to reconcile net loss to net
cash used by operating activities:
Non-cash compensation of employees and consultants
upon issuance and forfeiture of common stock 166,895 (183,064)
Non-cash consulting and interest expense through
issuance of common stock -- 20,685
Non-cash research and development 900,000 --
Depreciation and amortization expense 955,911 395,065
Services provided for payment of MCC note (336,585) --
Contract payment through issuance of stock 1,000,000 --
Changes in assets and liabilities:
Accounts receivable, trade 631,361 (435,393)
Notes receivable (400,000) --
Costs and estimated earnings in excess of billings on
uncompleted contracts (99,152) 73,980
Other assets 116,071 --
Prepaid expenses (124,716) 31,962
Accounts payable (77,531) 398,715
Accrued expenses 1,508,998 135,777
Billings in excess of costs and estimated earnings on
uncompleted contracts (255,804) 274,291
------------- -------------
Total adjustments 3,985,448 712,018
------------- -------------
Net cash used by operating activities (10,404,408) (6,543,402)
------------- -------------
Cash flows from investing activities:
Capital expenditures (2,765,942) (207,922)
Expenditures for intangible and other assets (288,451) (142,144)
------------- -------------
Net cash used by investing activities (3,054,393) (350,066)
------------- -------------
Cash flows from financing activities:
Proceeds from notes payable 391,605 --
Repayment of notes payable (496,762) --
Proceeds from issuance of preferred and common stock 12,791,102 3,250,000
Financing costs related to stock issuance (360,775) (147,722)
Restricted cash (259,880) --
------------- -------------
Net cash provided by financing activities 12,065,290 3,102,278
------------- -------------
Net decrease in cash and cash equivalents (1,393,511) (3,791,190)
Cash and cash equivalents, beginning of year 1,687,104 5,478,294
------------- -------------
Cash and cash equivalents, end of year $ 293,593 $ 1,687,104
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Operations:
----------------------------
SI Diamond Technology, Inc. and Subsidiaries (the "Company" and "SIDT") are
engaged in the production of industrial coatings and coating equipment.
Additionally, the Company performs contract research and development of advanced
scientific applications for governmental customers and is in the early
commercialization of several products to utilize its proprietary man-made
diamond technologies. The Company is performing significant research and
development related to its Diamond-based Field Emission Display ("DFED").
As indicated in the accompanying statements of operations, the Company
experienced operating losses in 1995 and 1994. During 1993 through January
1996, the Company completed its initial public offering and a series of
offerings, raising proceeds of approximately $39.1 million, net of issuance
costs (See Note 7). Management believes that the capital raised will be
adequate to fund the Company's operations and current developmental funding
plans for 12-18 months and enable the commercialization of several of its
technologies. There is no assurance that such commercialization will result in
income from operations. Furthermore, full commercial development of the
Company's DFED technology may require additional funds that may not be available
at terms acceptable to the Company.
A substantial portion of the Company's research and development is funded
through U.S. Government agency sponsorship. Should this sponsorship be delayed
or terminated, the Company has the ability to suspend research and development
projects until it can obtain the necessary financing. Any such delay or
termination would have a material impact on the amount of funded research and
development performed by the Company.
The principal source of the Company's liquidity has been from the funds received
from exempt offerings of common and preferred stock. The Company may receive
additional funds from the exercise of warrants, although there can be no
assurance that such warrants will be exercised. In the event that the Company
needs additional funds, the Company may seek to sell additional debt or equity
securities. The Company may seek to increase its liquidity through bank
borrowings or other financings. There can be no assurance that any of these
financing alternatives can be arranged on commercially acceptable terms. 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 financings in the future.
2. Summary of Significant Accounting Policies:
-------------------------------------------
Principles of consolidation
The accompanying consolidated financial statements include the accounts of SI
Diamond Technology, Inc. and its wholly-owned subsidiaries, SDI Acquisition
Corp., Plasmatron Coatings and Systems, Inc. ("Plasmatron"), SIDT Coatings, Inc.
("Coatings"), Diamond Tech One, Inc. ("DTO") and Northlight Displays, Inc.
("Northlight"), after the elimination of all significant intercompany accounts
and transactions.
Contract revenues and technology rights
A significant portion of the Company's revenues consists of earnings under
agreements to perform research and development for others, primarily U.S.
federal government agencies. The agreements with federal government agencies
generally provide that, upon completion of a technology development program, the
funding agency is granted a royalty-free license to use the newly developed
technology for its own purposes. The Company retains all other rights to use,
further develop and commercialize the technology.
Revenues under long-term research and development agreements are recorded under
the percentage of completion method, wherein costs and estimated gross margin
are recorded as the work is performed. Costs include direct engineering and
manufacturing costs, applicable overheads and special tooling and test
equipment. Estimated gross
23
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
margin provides for the recovery of allocable research, development (including
bid and proposal), marketing and administration costs and for accrued income.
Accrued income is based on the percentage of estimated total income that
incurred direct labor costs to date bear to estimated total direct labor costs
after giving effect to the most recent estimates of cost and funding at
completion. Since many contracts extend over a long period of time, revisions
in cost and funding estimates during the progress of work have the effect of
adjusting in the current period earnings applicable to performance in prior
periods. When the current contract estimate indicates a loss, provision is made
for the total anticipated loss. In accordance with these practices, contracts
in process are stated at cost plus estimated profit but not in excess of
realizable value.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. The Company maintains
its cash in bank deposit accounts which at times may exceed federally insured
limits. The Company has not experienced any losses in such accounts.
Accounts receivable
The Company sells products and services and grants credit primarily to large
corporations, governmental agencies and other institutions involved in
scientific research. These customers are geographically dispersed throughout
the United States. The Company generally does not require collateral.
Furthermore, it is the Company's policy to record reserves for potential credit
losses. Since inception, the Company has experienced minimal losses.
Property, plant and equipment
Property and equipment are recorded at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets, which range
from two to seven years. Expenditures for major renewals and betterments that
extend the original estimated economic useful lives of the applicable assets are
capitalized. Expenditures for normal repairs and maintenance are charged to
expense as incurred. The cost and related accumulated depreciation of assets
sold or otherwise disposed of are removed from the accounts, and any gain or
loss is included in operations.
Intangible assets
The Company has applied to obtain certain United States patents, which are
currently pending. Patent costs, which consist primarily of legal fees, have
been capitalized and will be amortized using the straight-line method over the
useful lives of the patents (5 years), if approved. If such patents are
rejected, the costs will expensed at the date of rejection.
Costs in excess of fair value of assets acquired, stated at cost, are being
amortized using the straight-line method over 7.5 years.
Organization costs, stated at cost, representing the costs of establishing DTO,
are amortized using the straight-line method over five years.
24
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Income Taxes
The Company has adopted the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standards No. 109. Under this
method, deferred income taxes are recorded to reflect the tax consequences on
future years of temporary differences between the tax basis of the assets and
liabilities and their financial amounts at year-end. The Company provides a
valuation allowance to reduce deferred tax assets to their net realizable value.
Research and development expenses
Costs of research and development for Company-sponsored projects are expensed as
incurred.
Loss per share
Loss per share is computed on the basis of the weighted average number of shares
of common stock and common stock equivalents outstanding during each period.
During the noted periods, all common stock equivalents were anti-dilutive.
Reclassifications
Certain reclassifications were made to previously reported amounts in the
consolidated financial statements and notes to make them consistent with the
current presentation format.
Managements Estimate
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company includes fair value information in the notes to financial statements
when the fair value of its financial instruments is different from the book
value. When the book value approximates fair value, no additional disclosure is
made.
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").
The Company plans to adopt the requirements of SFAS 121 during fiscal year 1996
and does not expect that the impact of adopting this standard will be material.
In October 1995, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). SFAS No. 123, which is effective for fiscal years beginning after
December 15, 1995, encourages but does not require companies to recognize
compensation expense for grants of stock, stock options and other equity
instruments to employees based on new fair value accounting rules. The Company
has not yet decided if it will adopt this new fair value based method of
accounting for its stock-based incentive plans.
25
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
3. Details of Certain Balance Sheet Accounts:
------------------------------------------
Additional information regarding certain balance sheet accounts at December 31,
1995 and 1994 is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
<S> <C> <C>
1995 1994
---- ----
Costs and estimated earnings in excess of
billings on uncompleted contracts:
Costs incurred $ 1,370,862 $ 1,720,036
Estimated earnings 563,682 681,354
Related billings (1,683,950) (2,505,752)
----------- -----------
$ 250,594 $ (104,362)
=========== ===========
Included in the accompanying balance sheets:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 300,485 $ 201,333
Billings in excess of costs and estimated
earnings on uncompleted contracts (49,891) (305,695)
----------- -----------
$ 250,594 $ (104,362)
=========== ===========
Property, plant and equipment, at cost:
Plant and equipment $ 4,691,756 $ 1,212,997
Furniture and office equipment 744,804 160,574
Building 177,491 --
Land 100,000 --
Leasehold improvements 345,621 264,663
----------- -----------
6,059,672 1,638,234
Less accumulated depreciation (1,256,051) (480,101)
----------- -----------
$ 4,803,621 $ 1,158,133
=========== ===========
Intangible assets:
Costs in excess of fair value related
to the purchase of subsidiary $ 471,496 $ 471,496
Patents 273,201 268,201
Organization costs 327,828 --
Computer software costs -- 34,811
----------- -----------
1,072,525 774,508
Less amortization (283,995) (172,662)
----------- -----------
$ 788,530 $ 601,846
=========== ===========
Accrued liabilities:
Payroll and related accruals $ 515,432 $ 222,690
Accounting and legal fees 413,700 --
Exclusively fee payable to MCC 250,000 --
Accrued offering and related costs 549,950 --
Other 576,233 23,677
----------- -----------
$ 2,305,315 $ 246,367
=========== ===========
</TABLE>
26
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. Lease Obligations
-----------------
The Company leases various facilities and equipment having terms expiring at
various dates through 1999. Rental expense under short-term operating leases was
$303,485 and $228,831 for the periods ended December 31, 1995 and 1994,
respectively.
In April of 1995, the Company assumed a lease for certain equipment under a
capital lease agreement having a 3 year term. At December 31, 1995, assets
acquired under capital lease agreements of $733,688 and related accumulated
amortization of $122,281 are included in plant and equipment. There were no
assets under capital lease agreements at December 31, 1994.
Future minimum lease payments, excluding contingent rentals at December 31,
1995, were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
<S> <C> <C>
1996 $202,825 $ 478,953
1997 79,297 494,688
1998 -- 470,398
1999 -- 13,519
-------- ----------
Total future minimum lease payments $282,122 $1,457,558
==========
Less amount representing interest 14,374
--------
Present value of future minimum
lease payments 267,748
Less current portion 190,326
--------
Long-term lease obligations $ 77,422
========
</TABLE>
5. Notes Payable
-------------
At December 31, 1995, notes payable consisted of the following:
<TABLE>
<S> <C> <C>
Note payable to a corporation,
unsecured, interest at 12%, payable
through performance of services, due
in April 1997 $ 588,415
Note payable to bank, principal and
interest at prime (8.75% at December
31, 1995) plus 2% due February 1996,
weighted average interest rate for
fiscal year 1995 was approximately 10%,
note is collateralized by certain
equipment of the Company 239,800
Various notes payable to financial
institutions, principal and interest
at rates from 6.5% to 12%, due in
dates from June 1996 to April 2000 120,985
----------
949,200
Less current portion (862,513)
----------
Note payable, long-term $ 86,687
==========
</TABLE>
27
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. Income Taxes:
-------------
The components of deferred tax assets (liabilities) at December 31, 1995 and
1994, were as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating losses $ 4,556,000 $ 2,428,000
Research and development credits 313,000 200,000
Accrued expenses not deductible until paid 45,000 3,000
----------- -----------
Total deferred tax assets 4,914,000 2,631,000
----------- -----------
Deferred tax liabilities:
Depreciation and amortization 66,000 6,000
Other -- 2,000
----------- -----------
Total deferred tax liabilities 66,000 8,000
----------- -----------
Net deferred tax assets before valuation allowance 4,848,000 2,623,000
Valuation allowance (4,848,000) (2,623,000)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
</TABLE>
Following is a reconciliation of the amount of the income tax benefit that
would result from applying the statutory federal income tax rates to pretax loss
and the reported amount of income tax benefit for the periods ended December 31,
1995 and 1994.
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
---------- ----------
<S> <C> <C>
Tax benefit at statutory rate of 15% $ 2,158,000 $ 1,088,000
Net increase in valuation allowance (2,225,000) (1,345,000)
Research and development credits 113,000 200,000
Nondeductible expenses (35,000) --
Other (11,000) 57,000
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
As of December 31, 1995, the Company had net operating loss carryforwards of
approximately $30 million expiring through 2010 available to offset future
taxable income. Additionally, the Company has tax credit carryforwards related
to research and development expenditures of approximately $313,000 expiring
through 2010. The Company completed its IPO in 1993 and elected certain
ownership changes. These events effected an ownership change, which, under the
Internal Revenue Code Section 382, will limit the Company's ability to utilize
its net operating loss carryforwards and research and development credits
generated before the change in ownership. The Company has used the lowest
marginal U.S. corporate tax rate of 15% to determine deferred tax amounts and
related valuation allowances because it had not had any taxable earnings through
December 31, 1995.
28
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Capital Stock:
--------------
Preferred Stock
- ---------------
The Company currently has authorization for the issuance of 2,000,000 shares of
$1.00 par value preferred stock.
Series A
The Company has issued and outstanding, 100 shares of its Series A Convertible
Preferred Stock ("Series A Preferred"). The Series A Preferred is noncumulative.
It has a liquidation preference of $1,000 per share, is convertible into
1,002.75 shares of common stock per share and is entitled to vote on all matters
submitted to a vote of the stockholders on an "as if converted" basis. The
Series A Preferred shall also share equally and simultaneously in any
distribution to common shareholders after liquidation preference has been paid.
Series C
There are currently no outstanding shares of the Series C Preferred Stock;
however, 75,000 shares are authorized for issuance pursuant to outstanding
Series C Warrants. Each share of Series C Preferred Stock is currently
convertible into ten (10) shares of Common Stock, subject to adjustment in
certain circumstances. Except as otherwise required by law, the holders of the
Series C Preferred Stock are entitled to vote on all matters with the holders of
the Common Stock and are entitled to one vote for every share of Common Stock
into which the holders' Series C Preferred Stock is convertible. In order to
maintain the voting power of the shares of Series C Preferred Stock, the holders
thereof are entitled to purchase additional shares of the Company's voting
securities upon the Company's issuance of additional shares of voting securities
in certain circumstances. The holders of Series C Preferred Stock have no
preferential dividend rights and are entitled to share in any dividends declared
on the Common Stock based on the number of shares of Common Stock into which the
shares of Series C Preferred Stock are convertible. Holders of Series C
Preferred Stock have no preference with respect to any distributions in the
event of voluntary or involuntary liquidation, dissolution or winding up on the
Company but are entitled to share equally with the holders of the Common Stock
based on the number of shares of Common Stock into which the shares of Series C
Preferred Stock are convertible. The Company has no redemption rights or
obligations with respect to the Series C Preferred Stock. Without the mutual
consent of the Board of Directors of the Company and holders of not less than a
majority of all outstanding shares of Series C Preferred Stock, none of the
rights of the holders of Series C Preferred Stock may be altered.
Series E
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. Additionally, the Company issued
warrants to purchase 60,000 shares of common stock as described in Note 9. The
Series E Preferred is noncumulative. It has a liquidation preference of $10,000
per share plus 8% per annum from the date of issuance, and is entitled to vote
on all matters submitted to a vote of the stockholders on an "as if converted"
basis. Each share of Series E Preferred Stock is convertible into that number of
shares of Common Stock determined by dividing (i) the original issue price of
the Series E Preferred Stock (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 Stock 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
29
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
five trading days immediately preceding the conversion date. The Series E
Preferred shall also share equally and simultaneously in any distribution to
common shareholders after the liquidation preference has been paid. Pursuant to
the terms of the offering of the Series E Preferred, the Company shall use its
best efforts to have a registration statement declared effective no later than
April 18, 1996 covering all shares of common stock issuable or issued upon
conversion of the Series E Preferred Stock to such shareholders. If this
registration statement is not declared effective by April 18, 1996, the Company
shall pay the shareholders of the Series E Preferred an amount equal to two
percent (2%) per month of the aggregate amount of Series E Preferred stock sold
to each shareholder, compounded monthly and accruing daily, payable in common
stock.
Common Stock
- ------------
In February 1995, the Company closed an exempt offering under Regulation D of
the Securities Act of 1933. The Company collected cash proceeds of $5,000,000.
Related to this offering, the Company issued 600,150 shares of common stock and
90,000 shares of Series C Preferred Stock which were converted into 900,000
shares of common stock. Additionally, the Company issued warrants to purchase an
additional 75,000 shares of Series C Preferred Stock, which is further
convertible into 750,000 shares of the Company's Common Stock. The Company paid
approximately $117,000 in expenses on these offerings. The common stock issued
in these transactions has certain restrictions and holding period requirements
in accordance with Regulation D and pursuant to other rules promulgated under
the Securities Act of 1933. See DiaGasCrown Venture - Note 11.
In June 1995, the Company closed an exempt offering of the Company's common
stock aggregating approximately $5,800,000 (the "June 1995 Offering"). Under the
terms of the equity sale agreement, the Company issued approximately 1,100,000
shares of its Common Stock to a venture group and other individual investors.
The Company paid approximately $753,000 in expenses on this offering. The Common
Stock issued in this transaction has certain restrictions and holding period
requirements in accordance with Regulation D and pursuant to other rules
promulgated under the Securities Act of 1933. The holders of these shares have
demand registration rights which have been exercised and should result in the
shares becoming freely tradeable during the second quarter of 1996.
Additionally, since the registration statement subject to such demand
registration was not declared effective within 120 days of such demand, each of
the holders under this offering was granted warrants to purchase additional
shares of the Company's Common Stock. See Note 9.
In August 1995, the Company closed a Regulation D exempt offering of the
Company's common stock aggregating approximately $990,000 (the "August 1995
Offering"). Under the terms of the placement agreement for the August 1995
Offering, the Company issued 200,000 shares of its common stock. The common
stock issued in this transaction has certain restrictions and holding period
requirements in accordance with Regulation D and pursuant to other rules
promulgated under the Securities Act of 1933. The holders of these shares have
demand registration rights wich have been exercised and should result in the
shares becoming freely tradeable during the second quarter of 1996.
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.
The Company recorded a subscription receivable for $15,750 of these proceeds as
they were received in January of 1996. The Company agreed that in the event it
is not able to have a registration statement effective concerning the shares
issued in the December 1995 Offering within ninety (90) days following the
receipt of the written request of such shareholders, then those shareholders
shall be issued warrants to purchase additional shares of the Company's common
stock. See Note 9.
In September 1994, the Company closed a foreign offering under Regulation S of
the Securities Act of 1933. The Company collected proceeds of approximately
$3,591,000. Related to this offering, the Company issued 1,000,000 shares of its
common stock and subsequently issued warrants to purchase 150,000 shares of
common stock at $3.90
30
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
per share. The warrants expire in 1999. The Company paid approximately $489,000
in sales commissions and other expenses on these offerings.
8. Stock Options
-------------
In March 1992, the shareholders of the Company approved the 1992 Employees Stock
Option Plan (the "1992 Employees Plan") for purposes of granting incentive or
non-qualified stock options. The 1992 Employees Plan was amended in June 1994 by
the shareholders of the Company to reserve up to 1,275,000 shares of common
stock for issuance to certain officers and key employees. The incentive stock
options are exercisable for up to ten years, at an option price per share not
less than the fair market value on the date the option is granted. The incentive
stock options shall be limited to persons who have been regular full-time
employees of the Company or its present and future subsidiaries for more than
one (1) year and at the grant of any option are in the employ of the Company or
its present and future subsidiaries. Non-qualified options may be granted to any
person, including, but not limited to, employees, independent agents,
consultants and attorneys, who the Company's compensation committee believes
has contributed, or will contribute, to the success of the Company.
Non-qualified options may be issued at option prices of less than fair market
value on the date of grant and are exercisable for up to ten (10) years from
date of grant. At December 31, 1995, 405,000 shares were exercisable under the
plan, and an additional 283,650 shares were available for grant. The following
is a summary of stock option activity:
<TABLE>
<CAPTION>
Number of Exercise
Shares Price
---------- ----------
<S> <C> <C>
Options outstanding at January 1, 1994 240,000 $0.56-7.88
--------
Granted 544,500 $4.40-5.69
Exercised (25,500) $0.56-2.00
Canceled (206,250) $0.56-7.63
--------
Options outstanding at December 31, 1994 552,750 $0.56-7.88
--------
Granted 451,500 $4.38-9.00
Exercised (86,085) $0.56-7.75
Canceled (38,400) $0.56-7.81
--------
Options outstanding at December 31, 1995 879,765 $0.56-9.00
========
</TABLE>
In March 1992, the Board of Directors adopted the 1992 Non Employee Director
Stock Option Plan (the "1992 Directors Plan"), which reserved up to 50,000
shares of common stock for issuance to certain non employee directors. Under
this plan, the Board may grant incentive stock options. The stock options
granted under the 1992 Directors Plan are exercisable for up to ten years at an
option price not less than the fair market value on the date the option is
granted.
In December 1994, the Board of Directors approved an amendment to the 1992
Directors Plan that would increase the shares reserved from 50,000 to 500,000.
Additionally, the Board awarded 90,000 options at the then market price to three
directors of the Company.
Both actions were approved by the shareholders of the Company at a special
shareholders meeting on April 3, 1995.
31
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In 1995, the Company awarded 153,000 non-qualified options to purchase its
common stock under the 1992 Employees Stock Option Plan to 26 employees,
including one officer of the Company. The options vest over a period of four
years and are exercisable at a price of $4.94 per share. Compensation expense of
$124,539 has been recognized related to the issuances through December 31, 1995.
Unearned compensation of $143,829 was recorded at year-end and is shown as a
separate component of stockholder's equity. The unearned compensation will be
amortized over the remaining term of the vesting periods of the options.
9. Stock Warrants
--------------
Common Stock Warrants
In connection with 1992 debt offerings, the Company issued warrants to purchase
195,500 shares of its common stock at $1.67 per share. These warrants were
exercised in 1994 and 1995.
In the Company's initial public offering completed in February 1993 (the "IPO"),
the Company issued a total of 100,000 warrants to purchase shares of the
Company's common stock as part of the underwriter's compensation. These warrants
are exercisable at $6.00 per share and may be exercised until February 17, 1998.
In August 1993, in connection with an exempt offering under Regulation D of the
Securities Act of 1933, the Company issued one warrant for every two shares of
common stock that was purchased in this transaction. A total of 62,400 warrants
were issued in this transaction, which may be exercised at prices ranging from
$5.65 to $6.78 per share until June 30, 1998.
In connection with the Company's offerings under Regulation S of the Securities
Act of 1933 that were closed in August, September, October and November 1993
(the "1993 Reg. S Offerings"), the Company issued 219,149 warrants to purchase
shares of the Company's common stock until 1997. In February 1996 these warrants
were repriced and reissued at an exercise price of $3.90 per share.
Contemporaneously with the repricing of the warrants, the Company granted the
holder registration rights in consideration of the holder's agreement to sell no
more than 1/12 of the underlying shares, upon exercise, in any month for the
next year. The Company estimates that the warrants as repriced have a value of
approximately $550,000. Prior to repricing, the Company estimates that the
warrants had a value of approximately $100,000.
In September 1994, the Company closed a foreign offering under Regulation S of
the Securities Act of 1933 (the "1994 Reg. S Offering"). In connection with this
offering, the Company subsequently issued warrants to purchase 150,000 shares of
its common stock at an exercise price of $3.90 per share. These warrants expire
on February 21, 1999.
In connection with the termination of existing contractual obligations to an
underwriter arising out of the IPO and the 1993 Reg. S Offerings, in February
1996, the Company issued warrants to purchase 60,000 shares of its common stock
at an exercise price of $6.50 per share and paid $150,000 to settle an
outstanding disputed claim and $350,000 to terminate future rights of the
underwriter under such agreements, which have been reflected in additional
paid-in capital as a cost of the Series E Preferred. These warrants expire on
February 21, 1999.
The Company issued to a former adviser in February 1996 warrants to purchase
55,000 shares of the Company's common stock at an exercise price of $5.50 per
share. These warrants expire on February 21, 1999.
In connection with the June 1995 Offering, the Company agreed that if the shares
in the June 1995 Offering were not registered in a registration statement within
120 days of demand by such shareholders, each of the holders under the June 1995
Offering would be granted warrants to purchase additional shares of the
Company's common stock equivalent to ten percent (10%) of the number of shares
of common stock they acquired in this offering. The
32
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Company did not have such registration effective before the 120-day deadline and
therefore issued 109,790 warrants to purchase shares of the Company's common
stock. These warrants may be exercised at a purchase of $5.736 per share and
expire on June 1, 1997.
In December 1995 the Company closed an exempt offering of common stock under
Regulation D of the Securities Act of 1933 (the "December 1995 Offering"). The
Company agreed that in the event the Company is not able to have a registration
statement effective concerning the shares issued in the December 1995 Offering
within ninety (90) days following the receipt of the written request of such
shareholders, then those shareholders shall be issued warrants to purchase
additional shares of the Company's common stock in an amount equal to ten
percent (10%) of the number of shares purchased by the shareholder in the
December 1995 Offering. The Company is in the process of registering such
shares. Such warrants, if issued, will be exercisable for three (3) years from
the date of issuance at a price of $6.30 per share of common stock.
Preferred Stock Warrants
In February 1995, the Company issued 75,000 warrants (the "Series C Warrants")
to purchase shares of its Series C Preferred Stock. These Series C Warrants are
exercisable at $50.00 per share until February 9, 1998. Each share of Series C
Preferred Stock is further convertible into ten (10) shares of the Company's
common stock.
Summary
The following is a summary of stock warrant activity (Preferred stock warrants
are accounted for as common stock on an "as if converted" basis):
<TABLE>
<CAPTION>
Number of
Shares Exercise Price
--------- --------------
<S> <C> <C>
Warrants outstanding at
January 1, 1994 577,049 $1.67 - $6.00
---------
Granted 150,000 $3.90
Exercised (114,000) $1.67
Expired -- --
---------
Warrants outstanding at
December 31, 1994 613,049 $1.67 - $6.00
---------
Granted 974,790 $5.00 - $6.50
Exercised (81,500) $1.67
Expired -- --
---------
Warrants outstanding at
December 31, 1995 1,506,339 $3.90 - $6.50
=========
</TABLE>
33
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. Supplemental Cash Flow Information:
-----------------------------------
Cash paid for interest was $37,023 and $5,920 for 1995 and 1994, respectively.
The following non-cash transactions have been excluded from the statement of
cash flows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Non-cash investing activities:
Purchase of fixed assets through the
issuance of a note payable for services $ 925,000 $ --
Stock issued in partial payment of building
purchase 75,000 --
Assets acquired under capital lease
arrangement 733,689 --
Non-cash financing activities:
Issuance of common stock in exchange for
conversion of debentures -- 52,500
Recognition of the forfeiture of shares
related to stock compensation increasing
additional paid-in capital -- 583,811
Accrued offering and related costs 579,950 --
Financing costs in connection with stock
issuance deducted from proceeds 677,411 341,000
Accrued preferred stock subscriptions
receivable 9,583,750 --
</TABLE>
11. Commitments and Contingencies
-----------------------------
Original Agreement with MCC to cross-license and pool technologies
- ------------------------------------------------------------------
During 1994 and continuing during 1995, management elected to increase the
Company's efforts to develop its proprietary DFED. Significant management effort
and resources continue to be applied to the DFED which utilizes one of the
Company's proprietary diamond technologies. In September 1993, the Company
entered into an agreement with Microelectronics and Computer Technology
Corporation ("MCC") to cross-license and pool technologies. The agreement gives
the Company exclusive world-wide license to manufacture flat panel displays
using the joint technology as well as rights to royalties on sales of the
technology.
January 1995 Amendment
In January 1995, the MCC agreement was modified to make the Company solely
responsible for licensing the technology and gave the Company the ability to
maintain its exclusive rights to the technology. In exchange for this
modification, the Company agreed to pay MCC $500,000 in cash and to deliver
223,256 shares of its common stock. The initial term of the exclusivity extends
to 1996. Should MCC locate a qualified sublicensing candidate after that time,
the Company can maintain its exclusive rights to the technology by paying an
exclusivity fee to MCC
34
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
of $41,666 per month. Additionally, the Company will pay MCC a royalty equal to
.9% of sales of DFED-related products to third parties.
April 1995 Agreements with MCC
- ------------------------------
In April 1995, the Company entered into further agreements with MCC to acquire
substantially all of the leasehold improvements and equipment associated with
MCC's electronics packaging and display fabrication facility in Austin, Texas.
The facility was previously being used by MCC for consortium research and DFED
fabrication and development under previous agreements between MCC and the
Company. Under the agreement, DTO signed a three year lease on the 28,000 square
foot fabrication and clean room facility for monthly rental of approximately
$26,000. DTO leases 22,000 square feet in an adjacent building for a monthly
rental of approximately $14,000. Additionally, the Company assumed lease
commitments of approximately $750,000 over the next two years on certain
equipment currently leased by MCC. Related to these assumed lease commitments,
the Company placed $730,000 in cash on deposit with the lender to pay down the
remaining lease commitments ($259,880 remains on deposit as of December 31,
1995). The Company paid cash of $925,000 in the transaction and committed to
provide MCC $925,000 in services or common stock over the next two years. In
addition, the Company is relieved of approximately $1,800,000 in rental
commitments associated with its previous services and facilities arrangement
with MCC.
In connection with the Company's acquisition of MCC's electronics packaging and
display fabrication assets, the Company acquired non-exclusive licenses to 144
MCC patents and other technology related to the acquired assets. Under the
licenses, the Company must pay MCC a royalty of up to 3%, subject to a maximum
cumulative royalty of $2,000,000. Additionally, the Company is required to have
paid a cumulative minimum royalty of $500,000 on or before December 31, 1997 and
$1,000,000 on or before December 31, 2000.
DiaGasCrown Venture
- -------------------
In February 1995, the Company entered into an agreement with Diagascrown, Inc.
("DGC"), a Russian joint stock company controlled by Gazcomplektimpex, a
subsidiary of Gazprom, the Russian national natural gas company. In return for
an equity position in the Company, DGC paid the Company $5,000,000 and granted
the Company an exclusive license to DGC display and related diamond technology
and license rights to all related background patents. The Company has committed
to perform $2.5 million in research and development in Russia through February
1997. This research can be in the form of travel and service performed by the
Company's employees in Russia, government funded research performed in Russia
and through direct funding of Russian efforts related to displays. The Company
realized net proceeds of approximately $4.8 million in this transaction. During
the fourth quarter of 1995, the Company completed its financial evaluation of
the licenses and other rights acquired, and established a $900,000 minimum value
for the Russian technology acquired in the transaction. This valuation was based
on an assessment of potential uses of the licenses and other rights as well as
the stock price relative to its market value. The Company determined that the
technology acquired was in-process research and development and charged the
$900,000 to research and development expense for 1995.
Philips Venture
- ---------------
In July 1995, the Company and Philips Components B.V. ("Philips") announced the
signing of a technology cooperation agreement under which Philips will provide
$10 million of development support over the next two years to accelerate
commercialization of the Company's DFED. Under the terms of the agreement,
Philips and SIDT have committed at least $5,000,000 per year for two years to
the joint effort. The commitment may include in-kind contributions or cash. At
the point in development that mass manufacturing of DFEDs is anticipated,
non-exclusive licenses may be granted to an anticipated production venture to
enable the manufacture of DFEDs. The agreement
35
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
includes a broad based ongoing program of technical collaboration and any joint
inventions resulting from the collaboration can be used by either company.
Government contracts
- --------------------
Governmental contractors are subject to many levels of audit and investigation.
Among United States agencies that oversee contract performance are: the Defense
Contract Audit Agency, the Inspector General, the Defense Criminal Investigative
Service, the General Accounting Office, the Department of Commerce, the
Department of Justice and Congressional Committees. The Company's management
believes that an audit or investigation, if any, as a result of such oversight
would not have any material adverse effect upon the Company's financial
condition.
Legal Proceedings
- -----------------
The Company is not a party to any current or pending legal proceeding.
Litigation, which could result in substantial cost to and diversion of effort by
the Company, may be necessary to enforce any patent issued to the Company, to
protect trade secrets or know-how owned by the Company or to determine the scope
and validity of the proprietary rights of others. Adverse findings in any
proceedings could subject the Company to significant liabilities to third
parties, require the Company to seek licenses from third parties and adversely
affect the Company's ability to sell its products.
12. Customer Claim at Plasmatron Coatings and Systems, Inc.
-------------------------------------------------------
Plasmatron Coatings and Systems, Inc. ("Plasmatron") has received a demand from
a customer to recover approximately $7.9 million for an alleged breach of
contract related to $1 million of coating equipment that Plasmatron delivered
in 1993. The customer claims that the equipment does not perform as required
under the contract. The Company believes that Plasmatron has meritorious
defenses to the customer's claim. No lawsuit has been filed in this matter, and
no discovery has been conducted. The Company believes that the ultimate
resolution of this matter will not have a material adverse effect on the
Company's financial position and results of operations.
36
<PAGE>
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
SI DIAMOND TECHNOLOGY, INC.
By: /s/ DOUGLAS P. BAKER
--------------------------------
Douglas P. Baker
Vice President and
Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of SI Diamond Technology, Inc. on Form S-3 (File No. 333-00674) and the
registration statement of SI Diamond Technology, Inc. on Form S-8 (File No. 33-
82666) of our report dated March 4, 1996, except as to the fourth paragraph for
which the date is November 6, 1996, on our audits of the consolidated financial
statements of SI Diamond Technology, Inc. as of December 31, 1995 and 1994, and
for each of the years then ended, which report refers to uncertainty regarding
the ability of the Company to continue as a going concern and is included in
this Annual Report on Form 10-KSB/A.
COOPERS & LYBRAND L.L.P.
Houston, Texas
November 6, 1996
