<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): September 3, 1999
SI DIAMOND TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in its Charter)
Texas
(State or Other Jurisdiction of Incorporation)
1-11602 76-0273345
(Commission File No.) (I.R.S. Employer Identification No.)
3006 Longhorn Boulevard
Suite 107
Austin, Texas 78758
(Address of Principal Executive Offices)
(512) 331-5020
(Registrant's Telephone Number, Including Area Code)
<PAGE> 2
Item 2. Acquisition or Disposition of Assets
On September 3, 1999, SI Diamond Technology, Inc. ("SIDT") and SIDT, Inc.,
its wholly owned indirect subsidiary closed an asset purchase with Sign Builders
of America, Inc. ("SBOA") and Sign Builders, Inc., a wholly owned subsidiary of
SBOA (collectively these two companies are referred to herein as the "Seller"),
and Lance Adams ("Adams") who owned 100% of the common stock of SBOA, in which
SIDT, Inc. purchased all of the assets of Seller.
At the Closing:
(1) SIDT, Inc. paid $150,000 in cash to Seller and $300,000 in cash to
Adams
(2) SIDT, Inc. executed a promissory note ("Note"), guaranteed by SIDT, in
the amount of $450,000 payable to SBOA. Such Note is convertible, at
the sole option of SBOA, into an equivalent value of shares of SIDT
common stock as follows:
(a) The Note will bear interest at the rate of 6% per annum and
shall be due and payable in two equal installments, the first
due 6 months from the Closing Date and the second due one
(1) year from the Closing Date.
(b) Payment of the Note is secured by the Seller retaining a
security interest in the assets transferred to SIDT, Inc.
(c) $225,000 of the principal amount of the Note, plus accrued and
unpaid interest, is convertible into SIDT Common Stock 6 months
from the Closing Date. The remaining principal amount of
$225,000, plus accrued and unpaid interest is convertible one
year from the Closing Date. The conversion rate for converting
the Note amounts into shares of SIDT Common Stock is equal to
$2.127. If SBOA elects to convert the Note into shares of SIDT
Common Stock (whether in whole or part), the number of shares of
SIDT Common Stock to be issued shall be determined by dividing
the amount of the Note being converted (including accrued
interest) by the conversion rate of $2.127. SBOA, at its option
may make an election individually on each payment as to whether
to receive cash or SIDT Common Stock.
(d) However, the Purchase Price is based on the requirement that the
Gross Sales of Seller and SIDT for the 1999 calendar year be at
least equal to $3,000,000. To the extent that such Gross Sales
fall below $3,000,000, the principal balance of the Note shall be
reduced proportionately. The Note shall be reduced in the amount
of $1.00 for each $2.00 of sales that the actual Gross Sales fall
below $3,000,000.
(3) SIDT issued 329,101 shares of SIDT Common Stock to SBOA and 94,030
shares to Adams. Adams owns 100% of the common stock of SBOA. SIDT
agreed to register these shares of SIDT Common Stock as soon as
administratively possible. If SIDT is unable to accomplish this
registration within 6 months of the Closing Date, SIDT will issue
Seller and Adams an additional number of shares of SIDT Common Stock
equal to 20% of the number of shares of SIDT Common Stock issued to
Seller and Adams at the Closing Date. SIDT agreed to keep this
registration effective for a period of 1 year.
The assets acquired in this transaction are for use in connection with the
building of electronic billboards and related products. SIDT intends to continue
to use and devote these assets to such business. SIDT used working capital funds
to pay the cash portion of the purchase price identified above. After the
closing, Mr. Adams will become employed by SIDT as an officer of Electronic
Billboard Technology, Inc. and SIDT, Inc., its wholly-owned subsidiaries.
<PAGE> 3
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The following financial statements of Sign Builders of America, Inc. are
filed with this Form 8-K/A:
<TABLE>
<CAPTION>
Description Page
----------- ----
<S> <C> <C>
1. Independent Auditors' Report. F-1
2. Consolidated Balance Sheets. F-2
3. Consolidated Statements of Operations. F-4
4. Consolidated Statements of Stockholder's Equity. F-5
5. Consolidated Statements of Cash Flows. F-6
6. Notes to Consolidated Financial Statements. F-8
</TABLE>
(b) Pro Forma Financial Information
<TABLE>
<S> <C> <C>
1. Introduction to Unaudited Pro Forma Financial Information. P-1
2. Unaudited Proforma Balance Sheet. P-2
3. Unaudited Pro Forma Statement of Operations for the Six
Months Ended June 30, 1998. P-3
4. Unaudited Pro Forma Statement of Operations for the Year
Ended December 31, 1998. P-4
5. Notes to Pro Forma Financial Information. P-5
</TABLE>
(c) Exhibits:
*2.1 Asset Purchase Agreement by and among SI Diamond Technology, Inc., SIDT,
Inc., Sign Builders of America, Inc., Sign Builders, Inc. and Lance Adams
dated as of August 31, 1999 (Exhibit 2.1 to the Company's Current Report on
Form 8-K dated as of September 3, 1999)
*4.1 Secured Promissory Note dated as of September 3, 1999 by SIDT, Inc., as
Maker and Sign Builders of America, Inc. and Sign Builders, Inc.,
collectively as Payee (Exhibit 4.1 to the Company's Current Report on Form
8-K dated as of September 3, 1999)
* Incorporated by reference
SIGNATURES
Pursuant to the requirements of the Securities 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.
By /s/ Douglas P. Baker
----------------------------------
Douglas P. Baker
Vice President and
Chief Financial Officer
Dated: November 18, 1999
<PAGE> 4
SIGN BUILDERS OF AMERICA, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
<PAGE> 5
INDEPENDENT AUDITORS' REPORT
To the Directors and Stockholders of
SI Diamond Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Sign Builders of
America, Inc. as of December 31, 1998 and 1997 and the related consolidated
statements of operations, stockholder's equity, and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sign Builders of
America, Inc. as of December 31, 1998 and 1997 and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
November 17, 1999
F-1
<PAGE> 6
SIGN BUILDERS OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 82,017 $ 93,011
Short-term contracts receivable, less allowance for
doubtful accounts of $28,854 and $2,751, respectively 297,884 359,334
Inventories 139,253 102,474
Costs and estimated earnings in excess of billings 89,807 5,835
on uncompleted contracts
Other current assets 20,200 11,286
-------- --------
Total current assets 629,161 571,940
PROPERTY AND EQUIPMENT, NET 150,346 145,706
INTANGIBLE ASSETS
Goodwill, net of accumulated amortization
of and $132,476, at December 31, 1997 -- 33,119
Deferred costs, net of accumulated amortization
of $7,233 and $5,179, respectively 3,038 5,092
-------- --------
$782,545 $755,857
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 7
SIGN BUILDERS OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES
Revolving line-of-credit with a bank $ -- $ 40,000
Current portion of long-term debt 45,921 41,097
Note payable, stockholder 21,721 21,721
Notes payable, related parties 108,482 132,002
Accounts payable and accrued expenses 113,510 171,944
Billings in excess of costs and estimated 92,352 44,658
earnings on uncompleted contracts
Income taxes payable 45,306 8,545
--------- ---------
Total current liabilities 427,292 459,967
LONG-TERM DEBT, less current portion 185,721 229,087
--------- ---------
Total liabilities 613,013 689,054
--------- ---------
COMMITMENTS -- --
STOCKHOLDER'S EQUITY
Common stock, no par value at December 31, 1998 and
$1 par value at December 31, 1997; 1,000,000 shares
authorized at December 31, 1998 and 500,000 shares
authorized at December 31, 1997; 600,000 shares
issued and outstanding at December 31, 1998 and
2,000 shares issued and outstanding at
December 31, 1997 2,000 2,000
Additional paid-in capital 37,500 37,500
Treasury stock, 1,000 shares at cost (1,000) (1,000)
Retained earnings 131,032 28,303
--------- ---------
Total stockholder's equity 169,532 66,803
--------- ---------
$ 782,545 $ 755,857
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 8
SIGN BUILDERS OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
CONTRACT REVENUE EARNED $2,802,880 $2,227,472
COST OF CONTRACT REVENUE EARNED 1,719,489 1,412,263
---------- ----------
GROSS PROFIT 1,083,391 815,209
GENERAL AND ADMINISTRATIVE EXPENSES 882,604 746,981
---------- ----------
INCOME FROM OPERATIONS 200,787 68,228
INTEREST EXPENSE 42,252 43,785
---------- ----------
INCOME BEFORE INCOME TAX EXPENSE 158,535 24,443
INCOME TAX EXPENSE 55,806 8,545
---------- ----------
NET INCOME $ 102,729 $ 15,898
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 9
SIGN BUILDERS OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Treasury Retained
Shares Amount Paid-in Capital Stock Earnings Total
------ ------ --------------- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 2,000 $2,000 $37,500 $(1,000) $ 12,405 $ 50,905
Net Income -- -- -- -- 15,898 15,898
----- ------ ------- ------- -------- --------
Balances at December 31, 1997 2,000 2,000 37,500 (1,000) 28,303 66,803
Net Income -- -- -- -- 102,729 102,729
----- ------ ------- ------- -------- --------
Balances at December 31, 1998 2,000 $2,000 $37,500 $(1,000) $131,032 $169,532
===== ====== ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 10
SIGN BUILDERS OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 102,729 $ 15,898
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 58,054 58,560
Decrease (increase) in short-term contracts receivable 61,450 (101,495)
Decrease in notes receivable -- 16,300
(Increase) decrease in inventories (36,779) 11,421
Increase in costs and estimated earnings in excess of
billings on uncompleted contracts (83,972) (3,914)
(Increase) decrease in other current assets (8,914) 15,263
(Decrease) increase in accounts payable and accrued expenses (58,434) 13,507
Increase in billings in excess of costs and estimated earnings
on uncompleted contracts 47,694 34,484
Increase (decrease) in income taxes payable 36,761 (8,920)
--------- ---------
Net cash provided by operating activities 118,589 51,104
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (27,521) (18,815)
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 11
SIGN BUILDERS OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on revolving
line-of-credit with a bank (40,000) (91,714)
Borrowings on revolving line-of-credit with a bank -- 42,198
Increase in note payable to stockholder -- 160
Principal payments on notes payable
to related parties (23,520) (8,200)
Additional borrowing on long-term debt -- 225,000
Principal payments on long-term debt (38,542) (114,196)
--------- ---------
Net cash (used in) provided by financing activities (102,062) 53,248
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (10,994) 85,537
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 93,011 7,474
--------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 82,017 $ 93,011
========= =========
SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS:
Interest paid during the year $ 38,702 $ 30,482
========= =========
Income taxes paid during the year $ 10,500 $ 17,465
========= =========
</TABLE>
F-7
<PAGE> 12
SIGN BUILDERS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Sign Builders of America, Inc. (the "Company") located in Austin, Texas
was formed on March 29, 1994 as a Texas C corporation, for the purpose
of designing, manufacturing and installing electrical signs. The length
of contracts typically range from two to eight weeks.
Principles of Consolidation
The accompanying consolidated financial statements of the Company
include the accounts of the Company and its subsidiary, Sign Builders,
Inc. Intercompany transactions and balances have been eliminated in
consolidation.
Accounting Method
The Company uses the accrual method of accounting.
Assets and liabilities are recorded at historical values which, unless
otherwise believed by management, approximate the fair value thereof.
Revenue and Cost Recognition
Revenues from fixed-price and modified fixed-price construction
contracts are recognized on the percentage-of-completion method,
measured by the percentage of cost incurred to date to total estimated
cost for each contract.
Contract costs include all direct material and labor costs and indirect
costs related to contract performance. Selling, general, and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in
which such losses are determined. Changes in job performance, job
conditions, and estimated profitability, including those arising from
contract penalty provisions, and final contract settlements may result
in revisions to costs and income and are recognized in the period in
which such revisions are determined.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of
amounts billed. The liability, "Billings in excess of costs and
estimated earnings on uncompleted contracts," represents billings on
uncompleted contracts in excess of revenue earned.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of short-term
contracts receivable. The Company generally requires a 50% deposit from
its customers to begin work on a job. Management considers the carring
value of short-term contracts receivable to approximate the fair value
thereof.
F-8
<PAGE> 13
SIGN BUILDERS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Cash and Cash Equivalents
For the purposes of the consolidated statements of cash flows, the
Company considers all highly liquid investments with initial maturities
of three months or less to be cash equivalents.
Allowance for Doubtful Accounts
The Company determines the allowance for doubtful accounts based on
specific short-term contracts receivable accounts that it deems
uncollectable.
Inventories
Inventories consist of raw materials and parts and are stated at the
lower of cost or market, cost generally being determined on a first-in,
first-out basis.
Property and Equipment
Property and equipment are reported at cost and depreciated using the
straight-line method over the estimated useful lives of the assets,
which is 7 years.
Expenditures for maintenance and repairs are expensed as incurred.
Goodwill
Amount paid for the initial acquisition of the Company in excess of the
fair value of the net assets acquired has been recorded as goodwill.
Goodwill has been amortized over the estimated period of benefit, which
management estimated to be five years.
Deferred Costs and Amortization
Deferred costs represent deferred financing costs and organization
costs. Deferred financing costs are amortized over the appropriate loan
period on a straight-line basis.
Organization costs are amortized on a straight-line basis over a
five-year period. Amortization expense totaled $35,173 for each of the
years ended December 31, 1998 and 1997, and is included in general and
administrative costs in the accompanying consolidated statements of
operations.
F-9
<PAGE> 14
SIGN BUILDERS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Income Taxes
Income taxes are accounted for using the liability method provided by
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS No. 109). Under this method, deferred assets and
liabilities are determined based on differences between financial
reporting and tax bases that will be in effect when the differences are
expected to reverse.
Management Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements, as well as the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(2) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
--------- ---------
<S> <C> <C>
Vehicles (includes capitalized lease of $90,028) $ 106,328 $ 106,328
Machinery and equipment 95,936 68,416
--------- ---------
202,264 174,744
Less accumulated amortization and depreciation (51,918) (29,038)
--------- ---------
$ 150,346 $ 145,706
========= =========
</TABLE>
Depreciation and amortization expense for property and equipment
totaled $22,881 and $23,387 for the years ended December 31, 1998 and
1997, respectively, and is included in cost of goods sold in the
accompanying consolidated statements of operations.
F-10
<PAGE> 15
SIGN BUILDERS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) REVOLVING LINE-OF-CREDIT WITH A BANK
The Company has a $75,000 revolving line-of-credit with a bank that
expires on April 28, 1999. The line-of-credit requires monthly interest
payments at prime plus 2% (prime being 7.75% at December 31, 1998 and
1997). The loan is secured by a blanket lien over substantially all the
assets of the Company and is personally guaranteed by the stockholder
of the Company. At December 31, 1998, there are no outstanding
borrowings on the line-of-credit
(4) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
-------- -------
<S> <C> <C>
Note payable to the same bank as in (3) above,
secured by substantially all assets of the Company,
requiring monthly principal and interest payments of
$3,853, bearing interest at 11%, with a maturity date of
April 28, 2004. In 1999, the outstanding balance was
paid in full. $186,310 $210,275
Obligation under a capital lease, secured by a vehicle
requiring monthly principal and interest payments of
$1,629, maturing in September 2000. 45,332 59,909
-------- --------
231,642 270,184
Less current portion (45,921) (41,097)
-------- --------
$185,721 $229,087
======== ========
</TABLE>
Scheduled maturities of long-term debt, including future minimum lease
payments under the capitalized lease, at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Year ending Notes Capitalized Total Long-
December 31, Payable Leases Term Debt
------------ ------- ----------- -----------
<S> <C> <C> <C>
1999 $ 29,925 $19,549 $ 49,474
2000 30,538 30,851 61,389
2001 34,071 - 34,071
2002 38,014 - 38,014
2003 42,413 - 42,413
Thereafter 11,349 - 11,349
-------- ------- --------
186,310 50,400 236,710
Less interest component of
capital lease - (5,068) (5,068)
-------- ------- --------
$186,310 $45,332 $231,642
======== ======= ========
</TABLE>
F-11
<PAGE> 16
SIGN BUILDERS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) LEASE COMMITMENTS
The Company leases its facilities under a non-cancelable operating
lease expiring on July 31, 2000. Future minimum rental payments are
$61,606.
Rent expense recorded to cost of goods sold and general and
administrative costs in the accompanying consolidated statements of
operations was $34,800 and $36,900 for the years ended December 31,
1998 and 1997, respectively.
(6) INCOME TAXES
The components of income tax expense consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
-------- -------
<S> <C> <C>
Current income taxes
Federal $ 48,310 $ 6,573
State - Franchise $ 7,496 1,972
-------- -------
$ 55,806 $ 8,545
======== =======
</TABLE>
Current income taxes are based on the year's income taxable for federal
and state income tax reporting purposes. At December 31, 1998 and 1997,
the Company had no unutilized net operating losses or temporary
differences, and consequently had no deferred tax assets or deferred
tax liabilities.
Federal income taxes on net income based on the statutory tax rate of
34% and is 15% for 1998 and 1997, respectively, are $53,902 and $4,416
for the years ended December 31, 1998 and 1997, respectively. Permanent
differences of ($5,592) and $2,157 for the years ended December 31,
1998 and 1997, respectively, resulted in the federal income tax
expenses of $48,310 and $6,573 for the years ended December 31, 1998
and 1997, respectively.
(7) RETIREMENT PLAN
The Company provides a 401(k) retirement plan (the "Plan") in which
employees of the Company may participate. Employees qualify for
participation upon employment with the Company. Participants are
permitted to make contributions to the Plan on a pre-tax salary
reduction basis in accordance with provisions of Section 401(k) of the
Internal Revenue Code. The Plan provides for contributions by the
Company matching 1% of the employee's contribution up to $100 per
employee per year. The Company contributed $1,565 and $1,657 for the
years ended December 31, 1998 and 1997, respectively.
F-12
<PAGE> 17
SIGN BUILDERS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) RELATED PARTY TRANSACTIONS
On March 29, 1994, the Company entered into a demand promissory note
payable to the stockholder of the Company for a maximum amount of
$100,000 bearing interest at 6% per annum. If no demand is made, the
scheduled maturity of the note is March 29, 1999. In 1999, the
outstanding balance was paid in full.
In 1994, the Company entered into two demand promissory notes payable
with related parties for a maximum amount of $100,000 each, bearing
interest at 6% per annum. If no demand is made, the scheduled
maturities of the notes are April 6, 1999 and March 29, 1999,
respectively. In 1999, the outstanding balances were paid in full.
(9) MAJOR CUSTOMERS AND SUPPLIERS
During the years ended December 31, 1998 and 1997, the Company had
sales to one major customer, which represented 14% of total sales for
each year.
During the years ended December 31, 1998 and 1997, the Company had
purchases from one major supplier, which represented 10% and 15% of
total purchases, respectively.
(10) STOCK OPTIONS
The Company sponsors a stock-based incentive compensation plan (the
"Plan"). The Company applies Accounting Principles Board ("APB")
Opinion No. 25 and related interpretations in accounting for the Plan.
In 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation" which, if fully adopted by the Company, would change the
methods the Company applies in recognizing the cost of the Plan.
Adoption of the cost recognition provisions of SFAS No. 123 is optional
and the Company has decided not to elect these provisions of SFAS No.
123. However, pro forma disclosures as if the Company adopted the cost
recognition provisions of SFAS No. 123 are required by SFAS No. 123. No
options were issued under this plan as of December 31, 1998. Therefore,
no pro forma disclosures are required at this time.
In September 1998, the shareholders of the Company approved the Sign
Builders of America, Inc. Employee Stock Option Plan (the "Plan") for
purposes of granting incentive or non-qualified stock options. The Plan
is administered by a committee (the "Committee") of the Board of
Directors of the Company. The Plan allows the Company to grant options
for up to 400,000 shares of common stock for issuance to certain key
employees. The incentive stock options are exercisable for up to five
years, at an option price per share equal to the fair market value of
the common stock on the date the option is granted. The incentive stock
options are limited to persons who are regular full-time employees of
the Company or its present and future subsidiaries. Employees that own
stock equal to 10% or more of the total combined voting power of the
Company and its subsidiaries are not eligible for incentive stock
option grants. Non-qualified options may be granted to any employee of
the Company who the Committee believes has contributed, or will
contribute, to the success of the Company.
F-13
<PAGE> 18
SIGN BUILDERS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) STOCK OPTIONS (CONTINUED)
Non-qualified options may be issued at option prices of less than fair
market value on the date of grant and are exercisable for up to five
years from date of grant. All option grants become fully exercisable 30
days after the date of the grant unless a shorter period is provided by
the Committee. At December 31, 1998, 400,000 shares remained available
for grant under the Plan.
(11) SUBSEQUENT EVENT
On August 31, 1999, the Company was acquired by SI Diamond
Technologies, Inc. for $1,800,000.
F-14
<PAGE> 19
SI Diamond Technology, Inc.
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information set forth on the following
pages has been prepared utilizing the historical consolidated financial
statements of SI Diamond Technology, Inc. (the "Company") and Sign Builders of
America, Inc. ("SBOA"). On September 1, 1999, a wholly-owned indirect subsidiary
of the Company acquired substantially all of the assets and assumed certain
liabilities of SBOA for a total purchase price of $1,800,000. The unaudited pro
forma balance sheet as of June 30, 1999 presents the consolidated assets and
liabilities as if the transaction occurred on June 30, 1999. The unaudited pro
forma statement of operations for the six months ended June 30, 1999 presents
the consolidated results of operation of the Company as if the transaction
occurred on January 1, 1999. The unaudited pro forma statement of operations for
the year ended December 31, 1998 presents the consolidated results of operation
of the Company as if the transaction occurred on January 1, 1998.
The acquisition of the assets of SBOA has been accounted for under the
purchase method of accounting. The pro forma financial information has been
prepared on such basis of accounting utilizing estimates and assumptions that
the Company believes are reasonable under the circumstances. The pro forma
financial information and accompanying notes should be read in conjunction with
the consolidated financial statements of the Company and its subsidiaries,
including notes thereto, and the other financial information pertaining to the
Company and SBOA included elsewhere herein.
The pro forma financial information is presented for informational purposes
and is not necessarily indicative of the future financial position or results of
operations of the combined companies or of the financial position or the results
of operations that would have actually occurred had the acquisition been
consummated on such date or as of the periods described above. The purchase
price allocations reflected in the pro forma financial information have been
based on preliminary estimates of the respective fair values of assets and
liabilities which may differ from the actual allocations and are subject to
revision based on further studies and valuations. Certain amounts in the
historical financial statements of SBOA have been reclassified to conform to the
financial presentation of the Company.
P-1
<PAGE> 20
SI Diamond Technology, Inc.
Unaudited Pro Forma Balance Sheet
June 30, 1999
<TABLE>
<CAPTION>
SI Diamond Sign Builders
Technology, of America,
Inc. Inc. Adjustments Combined
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents 2,393,622 162,425 (450,000) 2,106,047
Accounts receivable, trade 105,790 342,655 448,445
Inventories 62,329 75,838 138,167
Prepaid expenses 411,783 -- 411,783
----------- ------- --------- -----------
Total current assets 2,973,524 580,918 (450,000) 3,104,442
Property, plant & equipment, net 159,891 167,557 244,634 572,082
Intangible assets, net 6,000 -- 1,030,590 1,036,590
Other assets 11,600 -- 11,600
----------- ------- --------- -----------
Total Assets 3,151,015 748,475 825,224 4,724,714
=========== ======= ========= ===========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities
Accounts payable 739,795 55,963 795,758
Notes payable -- 115,066 359,414 474,480
Accrued liabilities and other 916,627 118,836 -- 1,035,463
----------- ------- --------- -----------
Total current liabilities 1,656,422 289,865 359,414 2,305,701
----------- ------- --------- -----------
Notes payable -- long term -- 157,430 (133,010) 24,420
----------- ------- --------- -----------
Commitments and contingencies
Shareholders' equity
Preferred stock 1,550 -- 1,550
Common stock 51,358 1,000 (577) 51,781
Additional paid-in capital 53,582,231 37,500 862,077 54,481,808
Retained earnings (deficit) (52,140,546) 262,680 (262,680) (52,140,546)
----------- ------- --------- -----------
Total shareholders' equity 1,494,593 301,180 598,820 2,394,593
----------- ------- --------- -----------
Total liabilities and shareholders' equity 3,151,015 748,475 825,224 4,724,714
=========== ======= ========= ===========
</TABLE>
See accompanying notes to pro forma financial information
P-2
<PAGE> 21
SI Diamond Technology, Inc.
Unaudited Pro Forma Statement of Operations
Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
SI Diamond Sign Builders
Technology, of America,
Inc. Inc. Adjustments Combined
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues 5,799,497 1,488,227 7,287,724
Cost of Sales 100,091 887,967 23,881 1,011,939
Selling, general, and administrative 1,795,636 403,599 103,290 2,302,525
Research and development 759,398 -- 759,398
----------- ------------ ----------- -----------
Total operating costs and expenses 2,655,125 1,291,566 127,171 4,073,862
Income (loss) from operations 3,144,372 196,661 (127,171) 3,213,862
----------- ------------ ----------- -----------
Other income (expense) (581,026) (15,013) (16,372) (612,411)
----------- ------------ ----------- -----------
Income (loss) before
income taxes 2,563,346 181,648 (143,543) 2,601,451
Provision for income taxes -- 50,000 (50,000) --
----------- ------------ ----------- -----------
Net income (loss) 2,563,346 131,648 (93,543) 2,601,451
============ ===========
Less preferred stock dividend (77,695) (77,695)
-----------
Net income applicable to common
shareholders 2,485,651 2,523,756
=========== ===========
Earnings per common share
Basic $ 0.05 $ 0.05
=========== ===========
Diluted $ 0.05 $ 0.04
=========== ===========
Weighted average common
shares outstanding
Basic 49,294,145 2,222,222 51,516,367
=========== ========== ===========
Diluted 55,569,195 2,222,222 57,791,417
=========== ========== ===========
</TABLE>
See accompanying notes to pro forma financial information
P-3
<PAGE> 22
SI Diamond Technology, Inc.
Unaudited Pro Forma Statement of Operations
Year Ended December 31, 1998
<TABLE>
<CAPTION>
SI Diamond Sign Builders
Technology, of America
Inc. Inc. Adjustments Combined
----------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Revenues $ 721,841 $2,832,880 $ 3,554,721
Cost of Sales 1,592,225 1,749,489 $ 47,761 3,389,475
Selling, general, and administrative 2,149,018 882,604 173,461 3,205,083
Research and development 1,167,673 -- 1,167,673
----------- ---------- ---------- -----------
Total operating costs and expenses 4,908,916 2,632,093 221,222 7,762,231
Income (loss) from operations (4,187,075) 200,787 (221,222) (4,207,510)
----------- ---------- ---------- -----------
Other income (expense) 629,527 (42,252) (45,995) 541,280
----------- ---------- ---------- -----------
Income (loss) before income taxes (3,557,548) 158,535 (267,217) (3,666,230)
Provision for income taxes -- 55,806 (55,806) --
----------- ---------- ---------- -----------
Net income (loss) (3,557,548) 102,729 (211,411) (3,666,230)
========== ==========
Less preferred stock dividend (254,957) (254,957)
----------- -----------
Net loss applicable to common
shareholders (3,812,505) (3,921,187)
=========== ===========
Basic and diluted-net
loss per common share $ (0.10) $ (0.10)
=========== ===========
Weighted average common
shares outstanding 37,207,122 2,215,385 39,422,507
=========== ========== ===========
</TABLE>
See accompanying notes to pro forma financial information
P-4
<PAGE> 23
SI Diamond Technology, Inc.
Notes to Pro Forma Financial Information
(Unaudited)
PRO FORMA BALANCE SHEET AT JUNE 30, 1999
SI Diamond Technology, Inc. (the "Company"), through an indirect, wholly-owned
subsidiary acquired substantially all of the assets and assumed certain
liabilities of Sign Builders of America, Inc. ("SBOA") for a total purchase
price of $1,800,000. The purchase price consisted of cash of $450,000, notes
payable of $450,000 and 423,132 shares of the Company's common stock with a
market value of $900,000.
The purchase price plus the value of the liabilities assumed was allocated to
the assets acquired based on their estimated fair market values. In this pro
forma balance sheet which assumes the transaction had taken place on June 30,
1999, the Company allocated $1,030,590 to intangible assets consisting of a
covenant not to compete in the amount of $500,000 and goodwill in the amount
of $530,590. The covenant not to compete will be amortized over a period of
three years and the goodwill will be amortized over a period of fifteen years.
In addition to the addition of the intangible assets previously described, the
pro forma adjustments included in the balance sheet include an increase of
$244,634 in the book value of the SBOA equipment to adjust it to its estimated
fair market value and a reduction in cash of $450,000 to reflect the cash
portion of the purchase price. The current portion of notes payable were
increased by $450,000 to reflect the notes issued in connection with the
purchase of the SBOA assets and both the current and long term portion of notes
payable were reduced to remove that portion of the SBOA debt that was not
assumed by the Company.
The net increase in stockholder's equity reflects the market value of the
Company's common shares issued as part of the acquisition price reduced by the
value of SBOA's common shares, additional paid in capital, and retained
earnings, which were not acquired in the transaction.
PRO FORMA STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999
The pro forma adjustments to the statement of operations represent the
adjustments that would have resulted from acquisition had the acquisition
occurred on January 1, 1999.
The increase in cost of goods sold reflects the increased depreciation on SBOA
equipment as a result of the adjustment to fair market value at the date of
acquisition. The increase in selling, general, and administrative expense
results from the amortization of the intangible assets acquired in the
transaction.
P-5
<PAGE> 24
The increase in other expense results from interest expense on the debt issued
in connection with the transaction, reduced for the interest expense on the SBOA
debt that was not assumed in the transaction. The reduction in the provision for
income taxes results from the usage of the Company's federal net operating loss
carryforward to offset the taxable income generated by SBOA.
The pro forma adjustment for the weighted average number of common shares
outstanding is based on the assumption that had the acquisition occurred on
January 1, 1999, shares with an equivalent value to the number of shares issued
at the acquisition date would have been issued for the purchase. The market
value of the Company's common stock for the five day period ended December 31,
1998 was $0.405, compared to $2.127 for the five day period ended September 3,
1999, the date the agreement was signed.
PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
The pro forma adjustments to the statement of operations represent the
adjustment that would have resulted from acquisition had the acquisition
occurred on January 1, 1998.
The increase in cost of goods sold reflects the increased depreciation on SBOA
equipment as a result of the adjustment to fair market value at the date of
acquisition. The increase in selling, general, and administrative expense
results from the amortization of the intangible assets acquired in the
transaction.
The increase in other expense results from interest expense on the debt issued
in connection with the transaction, reduced for the interest expense on the SBOA
debt that was not assumed in the transaction. The reduction in the provision for
income taxes results from the usage of the Company's federal net operating loss
carryforward to offset the taxable income generated by SBOA.
The pro forma adjustment for the weighted average number of common shares
outstanding is based on the assumption that had the acquisition occurred on
January 1, 1998, shares with an equivalent value to the number of shares issued
at the acquisition date would have been issued for the purchase. The market
value of the Company's common stock for the five day period ended December 31,
1997 was $0.4625, compared to $2.127 for the five day period ended September 3,
1999, the date the agreement was signed.
P-6
