<PAGE> 1
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, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NO. 1-11602
<TABLE>
<CAPTION>
SI DIAMOND TECHNOLOGY, INC.
(Exact name of Small Business Issuer as specified in charter)
<S> <C>
TEXAS 76-0273345
(State of (IRS Employer
Incorporation) Identification Number)
12100 Technology Blvd.
AUSTIN, TEXAS 78727
(Address of principal executive office) (Zip Code)
</TABLE>
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 May 12, 1998, the registrant had 33,924,507 shares of common
stock, par value $.001 per share, issued and outstanding.
Transitional Small Business Disclosure Format.
Yes [ ] No [X]
<PAGE> 2
SI DIAMOND TECHNOLOGY, INC.
INDEX
<TABLE>
<CAPTION>
Part I Financial Information PAGE
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets--March 31, 1998 and December 31, 1997........................ 3
Consolidated Statements of Operations--Three Months Ended
March 31, 1998 and 1997................................................................ 4
Consolidated Statements of Cash Flows--Three Months Ended
March 31, 1998 and 1997................................................................ 5
Notes to Consolidated Financial Statements............................................... 6
Item 2. Management's Discussion and Analysis or Plan of Operation............................ 9
Part II Other Information
Item 5. Other Information.................................................................... 13
Item 6. Exhibits and Reports on Form 8-K..................................................... 13
</TABLE>
2
<PAGE> 3
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS MARCH 31, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................................... $ 93,548 $ 1,000
Accounts receivable, trade......................................................... 204,064 448,042
Receivables from shareholders...................................................... -- 250,000
Inventory.......................................................................... 13,965 --
Prepaid expenses and other assets.................................................. 67,340 80,128
------------- -------------
Total current assets............................................................. 378,917 779,170
Property, plant and equipment, net................................................. 1,680,803 1,841,419
Intangible assets, net............................................................. 13,500 15,000
------------- -------------
Total assets..................................................................... $ 2,073,220 $ 2,635,589
============= =============
LIABILITIES AND STOCKHOLDERS DEFICIT
Current liabilities:
Bank overdraft..................................................................... $ -- $ 156,686
Accounts payable................................................................... 1,282,333 1,272,958
Notes payable...................................................................... 1,500,598 550,000
Accrued liabilities................................................................ 1,339,673 892,553
Billings in excess of costs and estimated earnings on uncompleted contracts........ 5,100 6,000
------------- -------------
Total current liabilities........................................................ 4,127,704 2,878,197
Notes payable, long-term.............................................................. -- 437,593
Commitments and contingencies......................................................... -- --
Stockholders' deficit:
Preferred stock, $1.00 par value, 2,000,000 shares authorized; Series A
convertible, 100 shares issued and
outstanding.................................................................... 100 100
Series E convertible, 101 and 196 shares issued and
outstanding, respectively...................................................... 101 196
Series F convertible, 902 and 1,081 shares issued and
outstanding, respectively...................................................... 902 1,081
Series G convertible, 1,700 shares issued and
outstanding.................................................................... 1,700 1,700
Common stock, $.00l par value, 120,000,000 shares authorized,
28,738,356 and 24,238,356 shares issued and
outstanding, respectively.......................................................... 28,738 24,239
Additional paid-in capital............................................................ 50,528,591 50,386,816
Accumulated deficit................................................................... (52,614,616) (51,094,333)
------------- -------------
Total stockholders' deficit...................................................... (2,054,484) (680,201)
------------- -------------
Total liabilities and stockholders' deficit...................................... $ 2,073,220 $ 2,635,589
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
-----------------------------
1998 1997
----------- ------------
<S> <C> <C>
Revenues............................................................ $ 338,220 $ 1,012,827
----------- -----------
Cost of sales....................................................... 814,703 1,189,294
Selling, general and administrative
expenses......................................................... 692,271 851,534
Research and development............................................ 282,020 154,180
----------- -----------
Operating costs and expenses..................................... 1,788,994 2,195,008
Loss from operations............................................. (1,450,774) (1,182,181)
Other income (expense), net........................................ (69,509) 49,873
------------ -----------
Net loss..................................................... $(1,520,283) $(1,132,308)
============ ===========
Less preferred stock dividend....................................... (71,063) (278,216)
----------- -----------
Net loss applicable to common stockholders.......................... $(1,591,346) $(1,410,524)
=========== ===========
Basic and diluted net loss per common share......................... $ (0.06) $ (0.11)
=========== ===========
Average shares outstanding.......................................... 26,050,306 13,401,083
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................. $ (1,520,283) $ (1,132,308)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization expense................................ 219,446 260,003
Services provided for payment of MCC notes........................... -- (73,284)
Changes in assets and liabilities:
Accounts receivable, trade......................................... 243,978 372,884
Notes receivable................................................... -- (85,000)
Costs and estimated earnings in excess of billings on uncompleted
contracts........................................................ -- (293,891)
Inventory.......................................................... (13,965) 5,452
Prepaid expenses................................................... 12,788 26,671
Accounts payable and accrued liabilities........................... 456,495 (1,262,962)
Billings in excess of costs and estimated earnings on uncompleted
contracts........................................................ (900) 341,172
------------ ------------
Total adjustments............................................. 917,842 (708,955)
------------ ------------
Net cash used in operating activities.............................. (602,441) (1,841,263)
------------ ------------
Cash flows from investing activities:
Capital expenditures................................................. (44,035) (20,710)
Proceeds from the sale of equipment.................................. 15,710 117,910
------------ ------------
Net cash provided by (used in) investing activities................ (28,325) 97,200
------------ ------------
Cash flows from financing activities:
Repayment of notes payable........................................... -- (57,296)
Bank overdraft....................................................... (156,686) --
Proceeds from notes payable.......................................... 580,000 500,000
Restricted cash...................................................... -- 25,240
Proceeds of stock issuance, net of costs............................. 300,000 1,627,500
------------ ------------
Net cash provided by financing activities.......................... 723,314 2,095,444
------------ ------------
Net increase in cash and cash equivalents................................... 92,548 351,381
Cash and cash equivalents, beginning of period.............................. 1,000 16,290
------------ ------------
Cash and cash equivalents, end of period.................................... $ 93,548 $ 367,671
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
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, 1997, included in the Company's 1997 Annual Report on
Form 10-KSB. The balance sheet information for December 31, 1997 has been
derived from the audited financial statements at that date.
2. Supplemental Cash Flow Information:
No cash was paid for interest for the three months ended March 31, 1998.
Cash paid for interest for the three months ended March 31, 1997 was $47,143.
3. Capital Stock.
Under the terms of an August 1997 agreement between the Company and its
Series F preferred stock shareholders, the Company was obligated to renegotiate
the agreement if the Company's stock price did not exceed $1.50 per share by
October 12, 1997. The share price did not exceed the specified level by that
date and as a result, the Company and the Series F preferred stock shareholders
reached a new agreement in March 1998 whereby the Series F preferred stock
shareholders are allowed to convert one-sixth of the number of Series F
preferred shares held as of March 17, 1998 in each of the months from March 1998
through August 1998 into the Company's common stock. The conversion price for
each month shall be the average closing bid price of the Company's common stock
for the preceding month, except that the conversion price for March 1998 was
$0.15. Upon submission for conversion, the Company has the right to redeem the
preferred shares for 107.5% of the original purchase price.
In January 1998, the Company received proceeds of $50,000 for the issuance
of 250,000 shares of its common stock at a price of $0.20 per share. Subsequent
to the end of the quarter, in May 1998, the Company received proceeds of $47,000
for the issuance of a total of 470,000 shares of its common stock at a price of
$0.10 per share. The Company is in the process of filing a registration
statement to register these shares.
As described in greater detail in the Company's 1997 Annual Report on Form
10-KSB, in January 1998, the Company and certain holders of its common stock
terminated a subscription agreement that had been signed in October 1997. In
connection with the termination of this agreement, the Company received cash
proceeds of $250,000 in January 1998. In addition, the investors returned
318,868 shares of the Company's common stock and forfeited warrants giving them
the right to purchase 3,948,202 shares of the Company's common stock.
4. Notes Payable
During the quarter ended March 31, 1998, the Company borrowed a total of
$580,000 from shareholders of the Company to be used for working capital
purposes. The notes are primarily 90 day notes bearing interest at a rate of 15%
per annum. The assets of Diamond Tech One, Inc.,("DTO)" a wholly-owned
subsidiary of the Company are pledged as collateral for $400,000 of these notes.
An additional $100,000 of proceeds were received in April 1998 in connection
with the same secured loan agreement. In connection with this secured loan
agreement, the shareholder also received warrants enabling the holder to
purchase a total of 600,000 shares of the Company's common stock at $0.15 per
share, which approximated the market price of the common stock on the date the
agreement was made. These warrants were assigned a value of $0.16 per share. The
resulting discount is being amortized as interest expense over the life of the
notes. $10,000 of the unsecured notes payable are payable to the Company's
President.
6
<PAGE> 7
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 it is expected to be no later than September 1999. At this time, the
outcome can not be predicted with any certainty and the potential liability, if
any, is unknown. The Company believes it has meritorious defenses and intends to
continue to vigorously defend this action.
Customer Claim at Diamond Tech One, Inc.
On April 16, 1998, Alpine Microsystems, Inc. ("Plaintiff"), a customer of
DTO, filed a complaint with the Supreme Court of the State of California, County
of Santa Clara. The Complaint names DTO and the Company as defendants. Plaintiff
claims a breach of contract related to $271,000 advanced to DTO against work to
be performed under certain purchase orders issued by Plaintiff. At the time the
suit was filed, work was completed on certain of these purchase orders and in
process on others. The Plaintiff claims that DTO has failed to supply the agreed
upon services. Plaintiff seek to recover all amounts paid to DTO in connection
with these purchase orders as well as attorneys' fees, punitive damages, costs
of the suit, interest, and other relief as the court may deem appropriate. The
Company believes that this suit is without merit and intends to vigorously
defend this action. At this time, the outcome can not be predicted with any
certainty and the potential liability, if any, is unknown, however management
believes the ultimate resolution of this claim will not have a material effect
on the financial statements or financial condition of the Company.
Outlook
At March 31, 1998, the Company had a deficit in stockholder's equity of
$2,054,484 and current liabilities exceeded current assets by $3,748,787. As
discussed in the Company's 1997 Annual Report on Form 10-KSB, survival of the
Company has been on a day to day basis. As described in Note 7, the Company has
signed an agreement to sell the majority of the operating assets of DTO. Cash
proceeds from this transaction will improve the financial condition of the
Company, however upon completion of this transaction, the Company will still
have a stockholders' deficit in excess of $1.5 million and current liabilities
will still exceed current assets by a significant amount. The Company has
developed a plan to allow it to maintain operations until the Company is able to
sustain itself on its own revenue. In order to have time to implement this plan,
the Company is dependent upon the continued cooperation of its creditors. Upon
completion of the DTO transaction, the Company will have existing resources to
enable it to maintain its planned operations for a period of approximately 30 to
45 days from the date of this filing. The Company expects to be able to obtain
additional resources during this time period to enable it to complete the
implementation of its plan.
The Company's plan is primarily dependent on raising funds through
strategic partners and debt offerings as well as raising revenues and reducing
expenses. The Company expects to sell certain of DTO's intangible assets that
are not being sold in the present transaction as well as to possibly sell some
of the excess equipment not included in the present transaction. As a result of
the reduction in operating activity related to the disposition of the DTO
operating assets, the Company plans to significantly reduce other costs
including selling, general, administrative, and interest cost. This reduction in
costs would mean that the Company would require significantly reduced amounts of
capital to fund its ongoing operations. In addition, the Company is seeking
additional strategic partners to invest in both its Electronic Billboard
Technology, Inc. and Field Emission Picture Element Technology, Inc.
subsidiaries to allow these subsidiaries
7
<PAGE> 8
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to continue development of commercial products. It is anticipated that any such
strategic partners would receive a minority interest in the subsidiaries of not
more than 20% as a result of their investment. It is anticipated that the
Company would retain a majority interest of at least 80% in each of these
subsidiaries. It is the Company's plan that these investments would allow each
of these subsidiaries to continue to develop their products and bring them to
the level whereby each subsidiary is operating at break-even or better.
Management believes that it has the ability to raise short term funding, if
necessary, to enable it to continue operations until its plan can be fully
implemented.
This plan 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 which
would cause certain assumptions on which this plan is based to be no longer
valid. 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. Further spending in Russia has been halted since 1996 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.
6. Reporting Comprehensive Income
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income", which establishes standards for
reporting and displaying comprehensive income and its components in a full set
of general purpose financial statements. Comprehensive loss approximates the net
loss reported.
7. Subsequent events
On May 8, 1998 the Company signed an agreement to sell the majority of the
operating assets of DTO for a total price of approximately $2.2 million, of
which $1.8 million was payable at closing and the remaining $400,000 was
deposited in escrow. The purchaser has assumed the building lease on the DTO
facility. The Company retained all cash, accounts receivable, certain equipment
identified as excess, certain intangibles, and all liabilities. In connection
with this transaction, all loans secured by the assets of DTO were paid from the
proceeds of the sale and the liens were released by the noteholders.
8
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THREE MONTHS ENDED MARCH 31, 1998 AND 1997:
OVERVIEW
During the quarter ended March 31, 1998, the Company's primary revenues
were earned through microelectronics fabrication and assembly services at
its wholly owned subsidiary, Diamond Tech One, Inc. ("DTO"). 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 for the year
ended December 31, 1997, the Company expects to incur additional research
and development expenses throughout 1998 in developing the Company's DFE
technology and in developing and commercializing its electronic billboard
product through its subsidiaries Field Emission Picture Element Technology
("FEPET") and Electronic Billboard Technology, Inc. ("EBT").
RECENT DEVELOPMENTS
On May 8, 1998 the Company signed an agreement to sell the majority of the
operating assets of DTO for a total price of approximately $2.2 million, of
which $1.8 million was paid at closing and the remaining $400,000 was
deposited in escrow. The purchaser has also assumed the building lease on
the DTO facility. The Company retained all cash, accounts receivable,
certain equipment identified as excess, certain intangibles, and all
liabilities.
In April 1998, the Company received proceeds of $100,000 in connection with
a loan to a shareholder. The note is a 90 day note, bearing interest at a
rate of 15% annum, and secured by the assets of DTO. As described in the
notes to the financial statements, this note was repaid as part of the sale
of the DTO assets.
In May 1998, the Company received proceeds of $47,000 in exchange for the
issuance of 470,000 shares of the Company's common stock at a price of
$0.10 per share.
RESULTS OF OPERATIONS
The Company's revenues for the first quarter ended March 31, 1998 (the
"1998 Period") totaled $338,220 compared to $1,012,827 for the first
quarter ended March 31, 1997 (the "1997 Period"). Commercial sales were
$338,220 for the 1998 Period compared to $680,758 for the 1997 Period. The
decrease in commercial revenues is the result of the Company's decision to
shut down its Plasmatron Coatings and Systems, Inc. ("Plasmatron")
subsidiary in the third quarter of 1997. Commercial revenues in the 1997
Period included $341,955 in revenues from Plasmatron. Commercial revenues
for DTO were approximately the same in the 1998 and 1997 periods. DTO's
backlog was approximately $532,000 at March 31, 1998 as compared with
$381,000 at March 31, 1997. The Company had no contract research revenues
for the 1998 Period compared with $332,069 for the 1997 Period. At March
31, 1998, the Company had no research backlog of anticipated future
revenues from existing contracts, as compared with a backlog of
approximately $656,000 at March 31, 1997. The decreased contract research
revenue and backlog in the 1998 Period results from the completion of the
spending of funds available to the Company under the $3,500,000 National
Institute of Science and Technology ("NIST") contract which commenced
during the second quarter of 1995. The NIST contract was intended to
provide matching grants to facilitate further research and development on
the Company's DFE technology. The Company is continuing to fund research
and development of the DFE technology despite the unavailability of any
further reimbursement for these costs. The Company's ability to perform the
research on its backlog should not require significant addition of
personnel.
9
<PAGE> 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
For the 1997 Period, the Company's costs of sales were $814,703, exceeding
revenues by 141%, as compared with $1,189,294 or an excess of 17% over
revenues for the 1997 Period. This decreasing margin resulted from a
combination of factors. First, the shutdown of Plasmatron impacted the
Company's overall gross margins. Plasmatron had a positive gross margin of
approximately 30% in the 1997 Period. In addition, the Company had no
reimbursed research and development in the 1998 period. While this did not
affect the absolute dollar amount of the gross margin, it did affect the
percentage. The existence of additional revenues and an equal amount of
costs in 1997 had the effect of increasing the sales, thereby decreasing
the percentage by which costs exceeded sales. Finally, the Company's DTO
subsidiary had a negative margin of approximately 127% in the 1998 Period
as compared with a negative margin of approximately 87 % in the 1997
Period. The negative margins at DTO are due to low utilization of its
facility which has relatively high fixed costs associated with its clean
rooms. The increase in negative margin from 1997 to 1998 is primarily the
result of increased labor costs due to the addition of a second and third
shift, as well as increased support labor to increase DTO's capacity.
Customer orders during the 1998 quarter did not enable the Company to
utilize this increased capacity. The Company's general and administrative
expenses were $692,271 for the 1998 Period, compared with $851,534 for the
1997 Period. The expense decrease resulted from the Company's ongoing
efforts to reduce costs and the elimination of general administrative costs
associated with the Plasmatron facility. Company sponsored research and
development expenses for the 1998 Period were $282,020 as compared to
$154,180 for the 1997 Period. This increase in research expense is the
result of the lack of availability of any outside funding for the Company's
research projects. A portion of the research and development expenses
incurred in the 1997 Period were reimbursed and therefore not included in
the Company's research and development expenses. The Company expects to
continue to incur expense in 1998 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 is dependent upon the amount of funding obtained from outside
sources to support the research activities and level of spending on other
internal activities.
FINANCIAL CONDITION
At March 31, 1998, the Company had cash and cash equivalents in the amount
of $93,548 as compared with cash and cash equivalents of $1,000 at December
31, 1997. This increase in cash is primarily the result of the proceeds of
debt and equity transactions, less costs incurred in the 1998 Period. 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.
As described in greater detail in the notes to the financial statements,
the Company received proceeds of $300,000 from the issuance of common stock
and $580,000 from the issuance of notes payable during the quarter ended
March 31, 1998. A portion of these proceeds from financing activities were
used to eliminate the bank overdraft that existed as of December 31, 1997.
This resulted in net cash provided by financing activities of $723,314 for
the 1998 Period. Cash provided by financing activities of $2,095,444 for
the 1997 Period was substantially higher because of the issuance of the
Company's Series F Preferred during that quarter.
Cash used in operating activities was $602,441 for the 1998 Period compared
to $1,841,263 for the 1997 Period. The decrease in the cash used by
operating activities was primarily the result of a higher level of accounts
payable and accrued liabilities during the 1998 Period which offset the
increased operating loss in the 1998 Period. Accounts payable and accrued
expenses increased by 456,495 during the 1998 period as compared to a
decrease of $1,262,962 during the 1997 Period.
10
<PAGE> 11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cash used in investing activities during the 1998 Period was $28,325 as
compared with cash provided by investing activities of $97,200 for the 1997
Period. The cash provided in the 1997 Period resulted primarily from the
sale of excess equipment. The cash used in the 1998 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 and it is unlikely that any
significant proceeds from the exercise of warrants will be received in the
near future. 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. Coopers & Lybrand L.L.P.,
independent auditors of the Company, expressed substantial doubt as to the
ability of the Company to continue as a going concern based on accumulated
losses from operations. See "Report of Independent Accountants" included in
the Company's 1997 Annual Report on Form 10-KSB.
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.
As described in the notes to the consolidated financial statements, the
Company has entered into an agreement to sell substantially all of the
operating assets of DTO. In the quarter ended March 31, 1998, substantially
all of the Company's revenue was from DTO. There is, however, a high fixed
cost associated with the operation of DTO and as previously discussed, DTO
operates at a negative gross margin. The Company anticipates that its
overall loss will be substantially reduced once it no longer operates the
DTO facility. In addition to no longer incurring the loss specifically
associated with the DTO facility, the Company expects to also substantially
reduce its general, administrative, and interest costs. The Company expects
to generate additional funds by selling all or a portion of the DTO
intangible assets being retained and possibly selling a portion of the
excess equipment not being sold as a part of this transaction.
11
<PAGE> 12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OUTLOOK
At March 31, 1998, the Company had a deficit in stockholder's equity of
$2,054,484 and current liabilities exceeded current assets by $3,748,787.
As discussed in the Company's 1997 Annual Report on Form 10-KSB, survival
of the Company has been on a day to day basis. As previously described, the
Company has signed an agreement to sell the majority of the operating
assets of DTO. Cash proceeds from this transaction will improve the
financial condition of the Company, however upon completion of this
transaction, the Company will still have a deficit in stockholders' deficit
in excess of $1.5 million and current liabilities will still exceed current
assets by a significant amount. The Company has developed a plan to allow
it to maintain operations until the Company is able to sustain itself on
its own revenue. In order to have time to implement this plan, the Company
is dependent upon the continued cooperation of its creditors. Upon
completion of the DTO transaction, the Company will have existing resources
to enable it to maintain its planned operations for a period of
approximately 30to 45 days from the date of this filing. The Company
expects to be able to obtain additional resources during this time period
to enable it to complete the implementation of its plan.
The Company's plan is primarily dependent on raising funds through
strategic partners and debt offerings as well as raising revenues and
reducing expenses. The Company expects to sell certain of DTO's intangible
assets that are not being sold in the present transaction as well as to
possibly sell some of the excess equipment not included in the present
transaction. As a result of the reduction in operating activity related to
the disposition of the DTO operating assets, the Company plans to
significantly reduce other costs including selling, general,
administrative, and interest cost. This reduction in costs would mean that
the Company would require significantly reduced amounts of capital to fund
its ongoing operations. In addition, the Company is seeking additional
strategic partners to invest in both its Electronic Billboard Technology,
Inc. and Field Emission Picture Element Technology, Inc. subsidiaries to
allow these subsidiaries to continue development of commercial products. It
is anticipated that any such strategic partners would receive a minority
interest in the subsidiaries of not more than 20% as a result of their
investment. It is anticipated that the Company would retain a majority
interest of at least 80% in each of these subsidiaries. It is the Company's
plan that these investments would allow each of these subsidiaries to
continue to develop their products and bring them to the level whereby each
subsidiary is operating at break-even or better. Management believes that
it has the ability to raise short term funding, if necessary, to enable it
to continue operations until its plan can be fully implemented.
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.
12
<PAGE> 13
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 for the fiscal year
ended December 31, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Index to Exhibits on page 15 for a descriptive
response to this item.
(b) Reports on Form 8-K:
(1) none
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SI DIAMOND TECHNOLOGY, INC.
(Registrant)
Date: May 14, 1998 /s/ Marc W. Eller
-------------------------------------
Marc W. Eller
Chairman and Chief Executive
Officer (Principal Executive Officer)
Date: May 14, 1998 /s/ Douglas P. Baker
------------------------------------------
Douglas P. Baker
Vice President and Chief Financial Officer
(Principal Financial Officer)
14
<PAGE> 15
INDEX TO EXHIBITS
The following documents are filed as part of this Report:
<TABLE>
<CAPTION>
Exhibit
-------
<S> <C>
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).
27.1 Financial Data Schedule
27.2 Financial Data Schedule (Restated 1997)
</TABLE>
15
<PAGE> 1
EXHIBIT 11
SI DIAMOND TECHNOLOGY, INC.
COMPUTATION OF (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months ended March 31,
----------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
Computation of (loss) per common share:
Net loss applicable to common stockholders $ (1,591,346) $ (1,410,524)
Weighted average number of common
shares outstanding 26,050,306 13,401,083
Net Loss per common share $ (0.06) $ (0.11)
Computation of (loss) per common share
assuming full dilution:
</TABLE>
No calculation of loss per common share assuming full dilution is
submitted because such computation results in an antidilutive loss per
common share.
2
<PAGE> 1
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> 2
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> 3
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> 4
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> 5
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SI DIAMOND TECHNOLOGY, INC. FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 93,548
<SECURITIES> 0
<RECEIVABLES> 204,064
<ALLOWANCES> 0
<INVENTORY> 13,965
<CURRENT-ASSETS> 378,917
<PP&E> 4,076,979
<DEPRECIATION> 2,396,176
<TOTAL-ASSETS> 1,680,803
<CURRENT-LIABILITIES> 4,127,704
<BONDS> 0
0
2,903
<COMMON> 28,738
<OTHER-SE> (2,086,125)
<TOTAL-LIABILITY-AND-EQUITY> (2,054,484)
<SALES> 338,220
<TOTAL-REVENUES> 338,220
<CGS> 814,703
<TOTAL-COSTS> 1,788,994
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,509
<INCOME-PRETAX> (1,520,283)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,520,283)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,520,283)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SI DIAMOND TECHNOLOGY, INC. FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 379,657
<SECURITIES> 0
<RECEIVABLES> 561,680
<ALLOWANCES> 0
<INVENTORY> 403,441
<CURRENT-ASSETS> 2,433,461
<PP&E> 5,150,252
<DEPRECIATION> 2,384,036
<TOTAL-ASSETS> 5,619,264
<CURRENT-LIABILITIES> 3,927,702
<BONDS> 502,083
0
2,366
<COMMON> 14,050
<OTHER-SE> 1,173,063
<TOTAL-LIABILITY-AND-EQUITY> 5,619,264
<SALES> 1,012,827
<TOTAL-REVENUES> 1,012,827
<CGS> 1,189,294
<TOTAL-COSTS> 2,195,008
<OTHER-EXPENSES> (153,124)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 103,251
<INCOME-PRETAX> (1,132,308)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,132,308)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,132,308)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
