<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 March 31, 1997
[ ] 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 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 April 25, 1997, the registrant had 14,371,794 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> <C>
Item 1. Financial Statements
Consolidated Balance Sheets--March 31, 1997 and December 31, 1996......... 3
Consolidated Statements of Operations--Three Months Ended
March 31, 1997 and 1996................................................. 4
Consolidated Statements of Cash Flows--Three Months Ended
March 31, 1997 and 1996................................................. 5
Notes to Consolidated Financial Statements................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................. 8
Part II Other Information
Item 5. Other Information.................................................. 12
Item 6. Exhibits and Reports on Form 8-K................................... 12
</TABLE>
2
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SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS MARCH 31, DECEMBER 31,
1997 1996
------------- -------------
Current assets:
Cash and cash equivalents................. $ 367,671 $ 16,290
Restricted cash........................... 11,986 37,226
Accounts receivable, trade................ 561,680 934,564
Notes receivable.......................... 100,000 15,000
Inventory................................. 403,441 329,643
Costs and estimated earnings in excess of
billings on uncompleted contracts........ 878,661 584,770
Prepaid expenses and other assets......... 110,022 136,693
------------ ------------
Total current assets.................... 2,433,461 2,054,186
Property, plant and equipment, net........ 2,766,216 3,143,510
Intangible assets, net.................... 419,587 423,563
------------ ------------
Total assets............................ $ 5,619,264 $ 5,621,259
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... $ 1,653,402 $ 2,647,487
Bank line of credit....................... -- 30,000
Notes payable............................. 935,972 961,222
Capital lease obligations................. 45,731 71,061
Accrued liabilities....................... 941,550 1,210,427
Billings in excess of costs and estimated
earnings on uncompleted contracts........ 351,047 9,875
------------ ------------
Total current liabilities............... 3,927,702 4,930,072
Notes payable, long-term................... 502,083 --
Commitments and contingencies.............. -- --
Stockholders' equity:
Preferred stock, $1.00 par value,
2,000,000 shares authorized;
Series A convertible, 100
shares issued and outstanding at
March 31, 1997 and December 31, 1996..... 100 100
Series E convertible, 566 and
646 shares issued and outstanding
at March 31, 1997 and December 31, 1996.. 566 646
Series F convertible, 1700 shares issued
and outstanding at March 31, 1997......... 1,700 --
Common stock, 120,000,000 shares
authorized, $.00l par value,
14,050,404 shares issued and outstanding
at March 31, 1997;
13,126,083 shares issued and outstanding
at December 31, 1996...................... 14,050 13,126
Additional paid-in capital.................. 47,029,472 45,412,283
Accumulated deficit......................... (45,837,750) (44,705,442)
Unearned compensation....................... (18,659) (29,526)
------------ ------------
Total stockholders' equity............... 1,189,479 691,187
------------ ------------
Total liabilities and stockholders'
equity.................................. $ 5,619,264 $ 5,621,259
============ ============
The accompanying notes are an integral part of the financial statements.
3
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SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
-----------------------------
1997 1996
-------------- -------------
Revenues.................................... $ 1,012,827 $ 903,244
----------- -----------
Cost of sales............................... 1,189,294 1,334,495
Selling, general and administrative
expenses................................... 851,534 2,642,574
Research and development.................... 154,180 2,127,425
----------- -----------
Operating costs and expenses............... 2,195,008 6,104,494
Loss from operations....................... (1,182,181) (5,201,250)
Other income (expense)
Loss on impairment of assets............. -- (850,000)
Loss on disposal of assets............... -- (350,000)
Other income, net........................ 49,873 231,199
----------- -----------
Net loss................................. $(1,132,308) $(6,170,051)
=========== ===========
Less preferred stock dividend............... (278,216) (223,518)
----------- -----------
Net loss applicable to common stockholders.. $(1,410,524) $(6,393,569)
=========== ===========
Net loss per common share $ (0.11) $ (0.59)
=========== ===========
Average shares outstanding 13,401,083 10,859,724
=========== ===========
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 THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1996
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net loss............................................................. $(1,132,308) $(6,170,051)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization expense................................ 260,003 312,756
Services provided for payment of MCC notes........................... (73,284) (224,843)
Revaluation of stock warrants........................................ -- 450,000
Loss on impairment of net assets..................................... -- 850,000
Changes in assets and liabilities:
Accounts receivable, trade......................................... 372,884 (446,761)
Notes receivable................................................... (85,000) --
Costs and estimated earnings in excess of billings on uncompleted
contracts......................................................... (293,891) (228,360)
Inventory.......................................................... 5,452 --
Prepaid expenses................................................... 26,671 (156,682)
Accounts payable and accrued liabilities........................... (1,262,962) 365,045
Billings in excess of costs and estimated earnings on uncompleted
contracts......................................................... 341,172 (14,506)
----------- -----------
Total adjustments................................................ (708,955) 906,649
----------- -----------
Net cash used in operating activities.............................. (1,841,263) (5,263,402)
----------- -----------
Cash flows from investing activities:
Capital expenditures................................................. (20,710) (448,656)
Proceeds from the sale of equipment.................................. 117,910 --
Expenditures for intangible and other assets......................... -- (104,906)
----------- -----------
Net cash provided by (used in) investing activities................ 97,200 (553,562)
----------- -----------
Cash flows from financing activities:
Repayment of notes payable........................................... (57,296) (291,494)
Proceeds from notes payable.......................................... 500,000 --
Restricted cash...................................................... 25,240 50,827
Proceeds of stock issuance, net of costs............................. 1,627,500 10,859,064
----------- -----------
Net cash provided by financing activities.......................... 2,095,444 10,618,397
----------- -----------
Net increase in cash and cash equivalents............................... 351,381 4,801,433
Cash and cash equivalents, beginning of year............................ 16,290 293,593
----------- -----------
Cash and cash equivalents, end of the period............................ $ 367,671 $ 5,095,026
=========== ===========
</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 SI Diamond
Technology, Inc. and Subsidiaries ("The Company") 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, 1996, included in the Company's 1996 Annual Report on
Form 10-KSB/A. The balance sheet information for December 31, 1996 has been
derived from the audited financial statements at that date.
2. Supplemental Cash Flow Information:
Cash paid for interest for the three months ended March 31 was approximately
$47,143 and $5,263 for 1997 and 1996, respectively.
3. Capital Stock:
Preferred Stock
In March 1997, through an exempt offering under Regulation D of the
Securities Act of 1933 the Company issued 1,700 shares of its Series F Preferred
Stock ("Series F Preferred"). The offering provided gross proceeds of $1,700,000
to the Company less expenses of $172,500. The registration statement covering
shares of the Company's Common Stock into which the Series F Preferred is
convertible has not yet been declared effective, but is expected to be declared
effective no later than June 9, 1997.
Common Stock
In the quarter ended March 1997, the Company received a total of
$100,000 in proceeds from the exercise of warrants. These warrants were issued
in connection with the Company's October 1996 debt financing.
4. Notes Payable
In February 1997, the Company closed an offering of 8% Convertible
Debentures (the "Debentures") under Regulation S of the Securities Act of 1933.
The Company agreed to issue two Debentures, each with a face amount of $555,555.
The second debenture is to be issued within 60 days of issuance of the first
debenture. On March 7, 1997 the Company received gross proceeds of $555,555,
less expenses of $55,755, for the issuance of the first debenture. The
Debentures bear interest at a rate of 8 %. The entire unpaid principal and
accumulated interest on the Debentures shall be due and payable on the second
anniversary of the date on which the Debentures were issued.
5. Contingencies
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"), 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, prior to the Company's ownership of Plasmatron. 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. Although there is uncertainty associated with any litigation, 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.
6
<PAGE>
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Contingencies (cont.):
Outlook
The Company anticipates that capital raised to date, including commitments
received for future funding, will enable it to maintain its planned operations
for approximately two to three months after the date of this filing. Thereafter,
if adequate funds are not available from operations or additional sources of
financing, the Company will have to reduce substantially or eliminate
expenditures for research and development, testing and production of its
products, and associated overhead costs, or obtain funds through arrangements
with other entities that may require the Company to relinquish rights to certain
of its technologies or products. No assurance can be given that there will be no
change that would cause available resources to be consumed before such time or
that other sources of funding will be available. Such results could materially
and adversely affect the Company.
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. According to
its internal records, the Company has spent approximately $2,000,000 on this
research through December 31, 1996. Further spending in Russia has been
temporarily halted pending agreement as to the nature and amount of the services
to be performed in Russia for the remaining balance to be spent under the
original agreement.
7
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Three Months Ended March 31, 1997 and 1996:
OVERVIEW
During the quarter ended March 31, 1997, the Company's primary revenues were
earned through manufacture of coatings systems at Plasmatron Coatings and
Systems, Inc. ("Plasmatron"), microelectronics fabrication and assembly
services at Diamond Tech One, Inc. ("DTO"), and from performing research under
government contracts. The Company continued to incur substantial expenses in
support of the development of its proprietary Diamond Based Field Emission
("DFE") Technology. As more fully discussed in the Company's Annual Report on
Form 10-KSB/A for the year ended December 31, 1996, the Company expects to
incur additional research and development expenses throughout 1997 in
developing the Company's DFE technology and in developing and commercializing
its electronic billboard product.
RECENT DEVELOPMENTS
In March 1997, through an exempt offering under Regulation D of the Securities
Act of 1933 the Company issued 1,700 shares of its Series F Preferred Stock
("Series F Preferred"). The offering provided gross proceeds of $1,700,000 to
the Company less expenses of $172,500. The registration statement covering
shares of the Company's Common Stock into which the Series F Preferred is
convertible has not yet been declared effective, but is expected to be
declared effective no later than June 9, 1997.
In February 1997, the Company closed an offering of 8% Convertible Debentures
(the "Debentures") under Regulation S of the Securities Act of 1933. The
Company agreed to issue two Debentures, each with a face amount of $555,555.
The second debenture is to be issued within 60 days of issuance of the first
debenture. On March 7, 1997 the Company received gross proceeds of $555,555,
less expenses of $55,755, for the issuance of the first debenture. The
Debentures bear interest at a rate of 8 %. The entire unpaid principal and
accumulated interest on the Debentures shall be due and payable on the second
anniversary of the date on which the Debentures were issued.
RESULTS OF OPERATIONS
The Company's revenues for the first quarter ended March 31, 1997 (the
"1997 Period") totaled $1,012,827 compared to $903,244 for the first quarter
of 1996 (the "1996 Period"). Commercial sales were $680,758 for the 1997
Period compared to $321,854 for the 1996 Period. The increase in commercial
revenues is the result of the Company's increased focus on commercialization
of its existing products. Commercial revenues in the 1997 Period are from the
Company's Plasmatron and DTO subsidiaries in roughly equal amounts. Commercial
revenues in the 1996 Period were primarily from Plasmatron. Plasmatron's
commercial backlog was $849,000 and $812,000 at March 31, 1997 and 1996,
respectively. DTO's backlog was $381,000 at March 31, 1997. Contract research
revenues for the 1997 Period were $332,069 compared to $581,390 for the 1996
Period. At March 31, 1997, the Company had a research backlog of approximately
$656,000 in anticipated future revenues from its existing contracts, as
compared with a backlog of approximately $2,139,000 at March 31, 1996. The
decreased contract research revenue in 1997 results from the Company's focus
on only those areas of research that are directly related to its strategic
objectives. The majority of contract research revenue in both periods resulted
from the Company's DFE technology development related to the $3,500,000
National Institute of Science and Technology ("NIST") contract which commenced
during the second quarter of 1995. The NIST contract is intended to provide
matching grants to facilitate further research and development on the
Company's DFE technology. The decrease in the contract research backlog
results from spending on the NIST contract. The Company's ability to perform
the research on its backlog should not require significant addition of
personnel.
8
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For the 1997 Period, the Company's costs of sales were $1,189,294, exceeding
revenues by 17%, as compared with $1,334,495 or an excess of 48% over revenues
for the 1996 Period. This decreasing negative margin resulted primarily from
increased commercial revenues which caused greater absorption of fixed costs.
The Company's DTO subsidiary had a negative margin of approximately 87 % in
the 1997 Period due to low utilization of its facility which has relatively
high fixed costs associated with its clean rooms. The Company's Plasmatron
subsidiary had a gross margin of approximately 30% during the 1997 Period. The
Company's general and administrative expenses were $851,534 for the 1997
Period, compared with $2,642,574 for the 1996 Period. The expense decrease
resulted primarily from the Company's May 1996 reorganization which resulted
in a significant reduction of the Company's overhead expenses. The 1996 Period
also included a higher level of fund raising activity, as well as $450,000 in
contract settlements with underwriters during that time. Company sponsored
research and development expenses for the 1997 Period were $154,180 as
compared to $2,127,425 for the 1996 Period. This reduction in research
expense is the result of the Company's decision to focus on commercialization
of its existing products and to discontinue all research that is not at least
partially funded and is not directly related to the Company's strategic
business objectives. The Company expects to continue to incur expense in 1997
in support of additional research and development activities related to the
commercial development of its DFE technology and its electronic billboard
technology. The amount of these expenditures are dependent upon the amount of
funding obtained from outside sources to support the research activities.
FINANCIAL CONDITION
At March 31, 1997, the Company had cash and cash equivalents in the amount of
$367,671 as compared with cash and cash equivalents of $16,290 at December 31,
1996. This increase in cash is a result of the Company's successful
Regulation D stock offering and Regulation S Debenture offering in March 1997,
less costs incurred in the quarter. Based on the developmental stages of the
Company's DFE and electronic billboard technologies, additional debt, equity,
joint ventures, sale of product distribution or technology rights, or other
financing will be required in the future. There can be no assurance that any
of these financing alternatives can be arranged on commercially acceptable
terms.
In March 1997, through an exempt offering under Regulation D of the Securities
Act of 1933, the Company issued 1,700 shares of its Series F Preferred Stock
("Series F Preferred"). The offering provided gross proceeds of $1,700,000 to
the Company less expenses of $172,500. The registration statement covering
shares of the Company's Common Stock into which the Series F Preferred is
convertible has not yet been declared effective, but is expected to be
declared effective no later than June 9, 1997.
In February 1997, the Company closed an offering of 8% Convertible Debentures
(the "Debentures") under Regulation S of the Securities Act of 1933. The
Company agreed to issue two Debentures, each with a face amount of $555,555.
The second debenture is to be issued within 60 days of issuance of the first
debenture. On March 7, 1997 the Company received gross proceeds of $555,555,
less expenses of $55,755, for the issuance of the first debenture. The
Debentures bear interest at a rate of 8 %. The entire unpaid principal and
accumulated interest on the Debentures shall be due and payable on the second
anniversary of the date on which the Debentures were issued.
In the quarter ended March 1997, the Company received a total of $ 100,000 in
proceeds from the exercise of warrants. These warrants were issued in
connection with the Company's October 1996 debt financing.
Cash used in operating activities was $1,841,263 for the 1997 Period compared
to $5,263,402 for the 1996 Period. The decrease in the requirement of cash
flows was primarily the result of a generally lower level of company sponsored
research and development, sales and marketing, and administrative expenses
during the 1997 Period.
9
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cash provided by investing activities during the 1997 Period was $97,200 as
compared with cash used in investing activities of $553,562 for the 1996
Period. The cash provided in the 1997 Period resulted from the sale of excess
equipment. The cash used in the 1996 Period resulted primarily from the
purchase of equipment.
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 or debt instruments. The Company may receive
additional funds from the exercise of warrants, although there can be no
assurance that such warrants will be exercised. When the Company needs
additional funds, the Company may seek to sell additional debt or equity
securities, secure joint venture partnerships, or sell certain technology
rights. The Company may seek to increase its liquidity through bank borrowings
or other financing. 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 financing in the future.
The Company expects to continue to incur substantial expenses for research and
development ("R&D"), product testing, and product marketing. 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 of the Company's
current funding. The combined effect of the foregoing may prevent the Company
from achieving profitability for an extended period of time. 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. If revenues do not
increase as rapidly as anticipated, or if product development and testing and
marketing require more funding than anticipated, the Company will be required
to curtail its operations and seek additional financing from other sources.
The Company anticipates that capital raised to date, including commitments
received for future funding, will enable it to maintain its planned operations
for approximately two to three months after the date of this filing. This
belief is based on current development plans, the current state of the
Company's business, the current regulatory environment, historical experience
in the development of electronic products and general economic conditions. No
assurance can be given that there will be no change that would cause available
resources to be consumed before such time. Thereafter, if adequate funds are
not available from operations or additional sources of financing, the Company
will have to reduce substantially or eliminate expenditures for research and
development, testing and production of its products, and associated overhead
costs, 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 could materially and adversely affect the Company.
10
<PAGE>
OUTLOOK
It is anticipated that losses will continue throughout 1997 as the Company
continues to fund the development of its DFE technology and its electronic
billboard. Increased commercial revenues are anticipated in the Company's DTO
and Plasmatron subsidiaries; however, they will not be sufficient to offset
the planned research and development efforts and selling, general and
administrative expenses. Sales from the DFE products or the electronic
billboard are not anticipated in 1997. Full commercial development of the
Company's DFE technology and electronic billboard will require additional
funds that may not be available at terms acceptable to the Company. Should
the Company be unable to obtain acceptable additional debt or equity
financings, management intends to eliminate or reduce the level of internally
funded research and development and to reduce the level of administrative
expense. Management believes that the capital raised to date, including
commitments received for future funding, will be adequate to fund the
Company's operations and current developmental funding plans for approximately
two to three months. Management is in the process of seeking additional
funding and has developed a plan to reduce expenses to enable it to continue
operations at the planned level for a period of 12 months, at which point it
would be expected that the Company could sustain itself through internally
generated funding. This plan is primarily dependent on increasing revenues and
raising additional funding through a strategic partner, debt offerings, or
equity offerings.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this report are forward-looking statements concerning the
future operations of the Company. The Company is including the following
cautionary statement in this Quarterly Report on Form 10-QSB to make applicable
and take advantage of the 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.
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.
Important factors that could cause the Company's actual results to differ from
results in forward-looking statements are incorporated herein by reference from
pages ii-vi of the Company's Annual Report on Form 10-KSB/A for the fiscal year
ended December 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Index to Exhibits on page 13 for a descriptive response to
this item.
(b) Reports on Form 8-K:
(1) Current report on Form 8-K dated as of February 14, 1997 (Item 5).
(2) Current report on Form 8-K dated as of March 7, 1997 (Item 5).
12
<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: April 30, 1997 /s/ Marc W. Eller
------------------------------------------
Marc W. Eller
Chairman and Chief Executive
Officer (Principal Executive Officer)
Date: April 30, 1997 /s/ Douglas P. Baker
------------------------------------------
Douglas P. Baker
Vice President and Chief Financial Officer
(Principal Financial Officer)
13
<PAGE>
INDEX TO EXHIBITS
The following documents are filed as part of this Report:
Exhibit
-------
* 3.1 Amended and Restated Articles of Incorporation of the Company as filed
with the Secretary of State of the State of Texas on February 14, 1997
(Exhibit 3.1 to the Company's Current Report on Form 8-K dated as of
February 14, 1997 (File No. 1-11602)).
* 3.2 Statement of Resolutions Establishing and Designating the Company's
Series F Preferred Stock, as filed with the Secretary of the State of
the State of Texas on March 10, 1997 (Exhibit 3.1 to the Company's
Current Report on Form 8-K dated as of March 7, 1997 (File No.
1-11602)).
* 4.1 Form of Subscription Agreement by and between the Company and the
Holders of the Company's Eight Percent (8%) Convertible Debentures
(Exhibit 4.1 to the Company's Current Report on Form 8-K dated as of
March 7, 1997 (File No. 1-11602)) .
* 4.2 Form of the Company's Eight Percent (8%) Convertible Debenture
(Exhibit 4.2 to the Company's Current Report on Form 8-K dated as of
March 7, 1997 (File No. 1-11602)).
* 4.3 Form of Regulation D Subscription Agreement by and between the Company
and the Holders of the Company's Series F Preferred Current Report on
Form 8-K dated as of March 7, 1997 (File Stock (Exhibit 4.3 to the
Company's No. 1-11602)).
* 4.4 Form of Registration Rights Agreement by and between the Company and
the Holders of the Company's Series F Preferred Stock (Exhibit 4.4 to
the Company's Current Report on Form 8-K dated as of March 7, 1997
(File No. 1-11602)).
11 Computation of (Loss) Per Common Share
13 Forward-Looking Statements and Important Factors Affecting Future
Results (pages ii - vi of the Company's Annual Report on Form 10-KSB/A
for the fiscal year ended December 31, 1996, incorporated by reference
into the Quarterly Report on Form 10-QSB for the fiscal quarter ended
March 31, 1997).
27 Financial Data Schedule
14
____________________
* Incorporated by reference
<PAGE>
EXHIBIT 11
SI DIAMOND TECHNOLOGY, INC.
COMPUTATION OF (LOSS) PER COMMON SHARE
Three Months ended March 31,
-------------------------------
1997 1996
--------------- ------------
Computation of ( loss ) per common share:
Net loss applicable to common stockholders $ (1,410,524) $ (6,393,569)
Weighted average number of common
shares outstanding 13,401,083 10,859,724
Net Loss per common share $ (0.11) $ (0.59)
Computation of ( loss ) per common share
assuming full dilution:
No calculation of loss per common share assuming full dilution is submitted
because such computation results in an antidilutive loss per common share.
<PAGE>
EXHIBIT 13
FORWARD - LOOKING STATEMENTS AND IMPORTANT
FACTORS AFFECTING FUTURE RESULTS
Certain statements in this annual report are forward-looking statements
concerning the future operations of SI Diamond Technology, Inc. and it
subsidiaries (collectively referred to as the "Company"). The Company is
including the following cautionary statement in this Annual Report on Form 10-
KSB to make applicable and take advantage of the 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.
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 (but not all 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 DFE PRODUCT DEVELOPMENT; NO DFE PRODUCT REVENUES; DFE PRODUCT
UNCERTAINTY
The Company's Diamond Field Emission ("DFE") technology and products
resulting therefrom will require significant additional development,
engineering, testing and investment prior to commercialization. The Company's
leading potential DFE product is the Diamond Field Emission Lamp ("DFEL"). If
the DFEL is successful, the Diamond Field Emission Display ("DFED) is also a
possibility. There can be no assurance that either the DFEL or the DFED 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, 1996, the Company suffered a net loss of
$13,709,006. For the years ended December 31, 1992, 1993, 1994, and 1995, the
Company suffered net losses of $1,630,978, $7,527,677, $7,255,420, and
$14,389,856, respectively. The Company expects to continue to incur additional
operating losses for an extended period of time 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.
ii
<PAGE>
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. The
majority of R&D expenditures are for the development of the Company's DFE
technology. 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 of the
Company's current sources of funding. The combined effect of the foregoing may
prevent the Company from achieving profitability for an extended period of time.
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 has developed a plan to maintain operations for 12-18 months
from the date of this Annual Report. However, existing resources at current
spending levels are only available for approximately 2-3 months. This estimate
is based on current development plans, current operating 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. The Company's plan is primarily
dependent on increasing revenues and raising additional funds through strategic
partners, additional debt offerings, or additional equity offerings. 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
The Company's DFE technology is an emerging technology. The financial
condition and prospects of the Company are dependent upon market acceptance and
sales of the Company's DFE products and its Electronic Billboard. Additional R&D
needs to be conducted with respect to the DFE products and the Electronic
Billboard before marketing and sales efforts can be commenced. Market acceptance
of the Company's products 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
products. There can be no assurance that the Company will be able to gain
commercial market acceptance for its products or develop other products for
commercial use.
COMPETITION; POSSIBLE TECHNOLOGICAL OBSOLESCENCE
The display, semiconductor, and coating system 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. Most 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.
iii
<PAGE>
TECHNOLOGIES SUBJECT TO LICENSES
As a licensee of certain research technologies, the Company has
various license agreements with Microelectronics and Computer Technology
Corporation ("MCC") 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. Each agreement is
subject to termination by either party, upon notice, in the event of certain
defaults by the other party. The payment of such royalties may adversely affect
the future profitability of the Company.
NO ASSURANCE OF MARKET ACCEPTANCE
Since its inception, the Company has focused its product development
efforts on R&D technologies that the Company believes will be a significant
advance over currently available technologies. The Company has limited
experience in manufacturing and marketing. The new management team that was put
in place in 1996 has experience in manufacturing and marketing; however, with
any new technology there is a risk that the market may not appreciate the
benefits or recognize the potential applications of the technology. Market
acceptance of the Company's products will depend, in part, on the Company's
ability to convince potential customers of the advantages of such products as
compared to competitive products, and will also depend upon the Company's
ability to train manufacturers and others to use the Company's products. There
can be no assurance that the Company will be able to successfully market its
proposed products even if such products perform as anticipated.
LIMITED MANUFACTURING CAPACITY AND EXPERIENCE
The Company has no established commercial manufacturing facilities in
the areas in which it is conducting its principal research. Its existing
manufacturing, while related, would not directly support manufacturing of the
proposed new products. The new management team that was put in place has
commercial manufacturing and marketing experience; however, the Company will be
required to either employ additional 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 DFE related products or the
Electronic Billboard 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.
iv
<PAGE>
DEPENDENCE UPON GOVERNMENT CONTRACTS
A significant portion of the Company's revenues have been derived from
contracts with agencies of the United States government. In the years ended
December 31, 1992, 1993, 1994, 1995 and 1996, such contracts accounted for
approximately $930,000, $1,147,000, $820,000, $1,009,000, and $2,869,000,
respectively, or approximately 99%, 89%, 41%, 33%, and 50% 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.
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
investment 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.
v
<PAGE>
AVAILABILITY OF MATERIALS AND DEPENDENCE ON SUPPLIERS
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.
vi
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<PAGE>
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<CASH> 379,657 5,095,386
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