<PAGE> 1
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, 2000
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
COMMISSION FILE NO. 1-11602
SI DIAMOND TECHNOLOGY, INC.
(Exact name of Small Business Issuer as specified in charter)
TEXAS 76-0273345
(State of (IRS Employer
Incorporation) Identification Number)
3006 Longhorn Blvd., Suite 107
AUSTIN, TEXAS 78758
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (512) 339-5020
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 11, 2000, the registrant had 56,307,340 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>
PAGE
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<S> <C> <C>
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets--March 31, 2000 and December 31, 1999................ 3
Consolidated Statements of Operations--Three Months Ended
March 31, 2000 and 1999........................................................ 4
Consolidated Statements of Cash Flows--Three Months Ended
March 31, 2000 and 1999........................................................ 5
Notes to Consolidated Financial Statements....................................... 6
Item 2. Management's Discussion and Analysis or Plan of Operation................... 9
Part II Other Information
Item 1. Legal Proceedings........................................................... 13
Item 5. Other Information........................................................... 14
Item 6. Exhibits and Reports on Form 8-K............................................ 14
Signatures.................................................................................. 15
</TABLE>
2
<PAGE> 3
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
ASSETS MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................ $ 213,844 $ 348,832
Marketable Securities .................................................... 817,412 719,376
Accounts receivable, trade ............................................... 582,513 314,518
Notes receivable ......................................................... 16,667 60,000
Inventory ................................................................ 175,993 167,775
Prepaid expenses and other assets ........................................ 48,683 52,312
------------ ------------
Total current assets ................................................... 1,855,112 1,662,813
Property, plant and equipment, net ....................................... 1,839,559 1,437,246
Intangible assets, net ................................................... 1,255,316 836,021
Other Assets ............................................................. 7,250 7,250
------------ ------------
Total assets ........................................................... $ 4,957,237 $ 3,943,330
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................................... $ 917,583 $ 751,225
Current portion of long-term debt ........................................ 5,578 5,473
Obligations under capital lease .......................................... 26,545 31,432
Notes payable ............................................................ 250,000 250,000
Accrued liabilities ...................................................... 387,717 723,842
Customer deposits ........................................................ 221,813 256,947
------------ ------------
Total current liabilities .............................................. 1,809,236 2,018,919
Notes payable, long-term ................................................... 120,189 21,623
Commitments and contingencies .............................................. -- --
Minority interest in subsidiary ............................................ -- 22,547
Stockholders' equity:
Preferred stock, $1.00 par value, 2,000,000 shares authorized;
Series G convertible, 900 and 1,100 shares issued and outstanding at
March 31, 2000 and December 31, 1999, respectively ................... 900 1,100
Common stock, $.00l par value, 120,000,000 shares authorized,
55,940,688 and 53,906,719 shares issued and outstanding at
March 31, 2000 and December 31, 1999, respectively ....................... 55,940 53,906
Additional paid-in capital ................................................. 57,911,416 55,410,993
Accumulated deficit ........................................................ (54,940,444) (53,585,758)
------------ ------------
Total stockholders' equity ............................................. 3,027,812 1,880,241
------------ ------------
Total liabilities and stockholders' equity ............................. $ 4,957,237 $ 3,943,330
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated 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,
-----------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues
License Fees and Royalties ............................................. $ 25,500 $ 5,632,156
Other .................................................................. 888,274 24,961
------------ ------------
Total Revenues ....................................................... 913,774 5,657,117
------------ ------------
Cost of sales .............................................................. 664,091 19,431
Selling, general and administrative expenses ............................... 1,560,655 1,221,288
Research and development ................................................... 364,967 380,849
------------ ------------
Operating costs and expenses ............................................. 2,589,713 1,621,568
Income (loss) from operations ............................................ (1,675,939) 4,035,549
Other income (expense), net ................................................ 298,706 (109,009)
------------ ------------
Income (loss) before taxes and minority interest in subsidiary earnings .. (1,377,233) 3,926,540
Minority interest in subsidiary earnings ................................... 22,547 --
------------ ------------
Income (loss) before taxes ............................................... (1,354,686) 3,926,540
Provision for taxes ........................................................ -- 555,556
------------ ------------
Net income (loss) .................................................... $ (1,354,686) $ 3,370,984
============ ============
Less preferred stock dividend .............................................. (27,500) (38,945)
------------ ------------
Net income (loss) applicable to common stockholders ........................ $ (1,382,186) $ 3,332,039
============ ============
Earnings (loss) per share
Basic .................................................................... $ (0.03) $ 0.07
============ ============
Diluted .................................................................. $ (0.03) $ 0.06
============ ============
Average shares outstanding
Basic .................................................................... 54,236,200 47,798,022
============ ============
Diluted .................................................................. 54,236,200 54,852,952
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated 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,
---------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................... $(1,354,686) $ 3,370,984
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Minority interest in subsidiary earnings .................... (22,547) --
Depreciation and amortization expense ....................... 110,940 19,594
Interest paid in common stock ............................... 7,669 35,099
Common shares issued for services ........................... 675,000 --
Net realized and unrealized gain on marketable securities ... (303,207) --
Changes in assets and liabilities:
Accounts receivable, trade ................................ (267,995) 101,691
Notes receivable .......................................... 43,333 --
Inventory ................................................. (8,218) (2,000)
Prepaid expenses and other current assets ................. 3,629 (20,980)
Accounts payable and accrued liabilities .................. 55,233 342,583
Customer deposits and other current liabilities ........... (35,134) 212,493
----------- -----------
Total adjustments ...................................... 245,203 688,480
----------- -----------
Net cash provided by (used in) operating activities ....... (1,095,983) 4,059,464
----------- -----------
Cash flows from investing activities:
Capital expenditures ........................................ (446,548) --
Increase in deposits ........................................ -- (333)
Purchase of marketable securities ........................... (1,116,852) --
Proceeds from the marketable securities ..................... 1,322,023 --
----------- -----------
Net cash used in investing activities ..................... (241,377) (333)
----------- -----------
Cash flows from financing activities:
Repayment of notes payable .................................. (6,216) (410,000)
Proceeds from notes payable ................................. -- 250,000
Proceeds of stock issuance, net of costs .................... 1,208,588 214,864
----------- -----------
Net cash provided by financing activities ................. 1,202,372 54,864
----------- -----------
Net increase (decrease) in cash and cash equivalents .............. (134,998) 4,113,995
Cash and cash equivalents, beginning of period .................... 348,832 2,636
----------- -----------
Cash and cash equivalents, end of period .......................... $ 213,844 $ 4,116,631
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated 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 of 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 notes 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 consolidated financial statements and footnotes
thereto for the year ended December 31, 1999, included in the Company's 1999
Annual Report on Form 10-KSB. The consolidated balance sheet information for
December 31, 1999 has been derived from the audited consolidated financial
statements at that date.
2. Supplemental Cash Flow Information
Cash paid for interest for the three months ended March 31, 2000 and 1999
was $3,129 and $19,173, respectively. Cash paid for foreign taxes was $555,556
in 1999. No cash was paid for foreign taxes in 2000. In the three months ended
March 31, 2000, the Company also had non-cash transactions related to the
issuance of its common stock in exchange for the minority interest in its FEPET
subsidiary and the conversion of debt to equity. These transactions are
described in greater detail in Note 3.
3. Capital Stock
In the quarter ended March 31, 2000, the Company issued 500,000 restricted
shares of its common stock for a total of $750,000 in cash in an exempt offering
under Regulation D of the Securities Act of 1933. The Company also received
$183,588 and issued 441,595 shares as the result of the exercise of options and
received $275,000 and issued 275,000 shares as the result of the exercise of
warrants during the quarter.
In March 2000, a total of 200 shares of the Company's Series G preferred
shares were converted into 255,000 shares of its common stock.
As described in greater detail in Note 4, a total of 62,374 shares of the
Company's common stock were issued in February 2000 in connection with a
convertible note payable in the amount of $125,000 issued by the Company in
September 1999 related to the purchase of the assets of Sign Builders of
America, Inc.
In January 2000, the Company issued a total of 300,000 shares to C&A
Services LLC ("C&A"), a Texas limited liability company, in connection with a
marketing, consulting and advisory services agreement described in greater
detail in Note 12 to the financial statements included in the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1999.
In February 2000, the Company issued 200,000 shares of its common stock,
valued at $500,000 at the time, to Nomura Trading Co., Ltd. in exchange for
Nomura's 5% minority interest in the Company's FEPET subsidiary. As a result of
this transaction, the Company recorded goodwill of $486,000, which approximated
the amount of the market value of the common shares issued in excess of the book
value of the subsidiary's stock acquired. This goodwill is being amortized over
a period of 36 months.
6
<PAGE> 7
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Notes Payable
At December 31, 1999, the Company had a note payable in the amount of
$250,000 due to a shareholder of the Company. The note arose in connection with
the Company's purchase of the assets of Sign Builders of America, Inc. in
September 1999. The note was payable in two equal installments due March 1, 2000
and September 1, 2000. The note and related interest is convertible into shares
of common stock of the Company at the option of the note holder at a rate of
$2.127 per share. In February 2000, the note holder to elected convert the
installment due March 1, 2000 into shares of the Company's common stock. The
note holder received a total of 62,374 shares of the Company's common stock in
lieu of a principal payment of $125,000 and related interest of $7,669.
As described in greater detail in Note 5, the Company issued three notes
payable totaling $250,000 in connection with a settlement agreement in the
Semi-Alloys lawsuit.
5. Contingencies
Customer Claim at Plasmatron Coatings and Systems, Inc.
On May 20, 1996, Semi-Alloys Company, a former customer of Plasmatron, 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. Semi-Alloys 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. Semi-Alloys claims the equipment does not
perform as required under the contract. Semi-Alloys seeks to recover
compensatory, consequential and incidental damages. In January 2000, the Company
agreed to participate in a settlement agreement between the plaintiff and the
other defendant; notwithstanding our denial of any liability to the plaintiff.
The Company agreed to pay a total of $450,000, of which $225,000 was due at
signing. The Company signed three notes payable for the balance of the
settlement. These notes, in the amount of $25,000, $100,000, and $100,000, are
due in three months, nine months, and eighteen months, respectively and bear
interest at a rate of 10% per annum. In exchange for this settlement, and upon
payment of the notes, the Company will receive a complete release from further
liability from both the plaintiff and the co-defendant. The entire amount of
this settlement is included in accrued liabilities at December 31, 1999.
On April 30, 1998, Universal Bonding Company, managing general agent for
Westchester Fire Insurance Company filed a complaint with the Superior Court of
New Jersey, Atlantic County. The Complaint named Richland Glass Company, Inc.,
Robert Williams, Joan Williams, Bawa Singh, Narinder Singh, Gaylord Evey and
Doris Evey, all guarantors under the bond, as defendants. All defendants were
former owners, or associated with former owners, of Plasmatron. Defendant
Gaylord Evey filed an answer with the court naming Plasmatron, the Company,
Nicholas Rettino, and the Rettino Insurance agency as third party defendants and
asking for indemnification by the third party defendants. A separate
indemnification claim filed by Richland Glass against the same third party
defendants was consolidated with this case. The amount of this claim is to be
determined at trial; however, any potential amounts due by the Company are
dependent upon Westchester collecting from other guarantors on the bond, and
those guarantors succeeding in obtaining a judgement against the Company.
Westchester has released its claims against the Company. The Company considers
this case to be without merit and expects to have the case ultimately resolved
in its favor.
Outlook
We anticipate that losses will continue in early 2000 as we continue to
fund the development of our CFE technology and begin installations of our
electronic billboard and related electronic display products. We expect the
magnitude of the losses, if they continue, to decrease. We expect to reach
break-even on a monthly operating basis by the end of 2000. There can be no
assurance that we will be profitable in the future. Full commercial development
of our technology and electronic billboard and related electronic display will
require additional funds that may not be available at terms acceptable to us.
7
<PAGE> 8
SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Contingencies (continued)
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. Our plan is primarily dependent on increasing revenues and raising funds
through additional debt and equity offerings. Although we do not expect funding
our operations to be a problem, if adequate funds are not available from
operations, or additional sources of financing, we may have to eliminate, or
reduce substantially, expenditures for research and development, testing and
production of its products, or obtain funds through arrangements with other
entities that may require us to relinquish rights to certain of our technologies
or products. Such results may materially and adversely affect us.
We have developed a plan to allow ourselves to maintain operations until we
are able to sustain ourselves on our own revenue. However, at current spending
levels, existing resources (including commitments) are only available to allow
us to operate for a period of approximately three months from the date of this
report. Our plan is primarily dependent on raising funds through the licensing
of our technology and through additional debt and equity offerings. We are also
concentrating on raising revenue by seeking customers for our electronic
billboard product. We believe that we have the ability to continue to raise
short term funding, if necessary, to enable us to continue operations until our
plan can be completed.
6. Related Party Transactions
As described in greater detail in Item 12 of the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1999, the Company's
subsidiary, Electronic Billboard Technology, Inc. has entered into a Patent
Assignment and Royalty Agreement with Advanced Technology Incubator, Inc.,
("ATI"). ATI is owned by Dr. Zvi Yaniv, the Company's President and Chief
Operating Officer. The assignment is conditioned on an initial payment of
$200,000 from the Company to ATI. The payment was initially due February 15,
1999, but the time for payment was extended to April 15, 1999. In April 1999,
the agreement was amended to allow additional extensions, in three month
increments, for a period of up to one year until April 15, 2000. In exchange for
each three month extension, the Company paid ATI $12,500. These extension
payments, totaling $50,000 are to be applied against the $200,000 initial
royalty payment. In April 2000, the Company and ATI agreed to an additional
three month extension until July 15, 2000 for an additional extension payment of
$12,500. At that time the Company can either complete the patent assignment in
exchange for a payment of $137,500 or allow the agreement to lapse.
7. Income Taxes
As discussed in more detail in the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1999, the Company had a net operating
loss of approximately $51 million available to it for federal income tax
purposes. A portion of that net operating loss carryforward was used to offset
the taxable income for the three month period ended March 31, 1999. If this net
operating loss carryforward had not been available, the Company would have
recorded $1,175,000 in income tax for the three month period ended March 31,
1999. As a result of the net loss, no income taxes were recorded for the period
ended March 31, 2000.
8. Subsequent Events
In April 2000, certain assets of Diamond.com LLC (including the principal
asset, the domain name "diamond.com") were sold to Odimo, Inc. As described in
more detail in the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1999, the Company received a 10% ownership interest in
Diamond.com LLC as a result of the sale of its rights to the domain name,
"diamond.com" to Diamond.com, LLC in September 1999. The Company was guaranteed
certain minimum proceeds in the event Diamond.com LLC was sold and as a result,
in April 2000, we received $375,000 in cash and common stock in Odimo, Inc. with
an estimated fair market value of $375,000.
8
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THREE MONTHS ENDED MARCH 31, 2000 AND 1999:
OVERVIEW
During the quarter ended March 31, 2000, our primary revenues were earned as
a result of the construction of signs at our Sign Builders of America, Inc.
("SBOA") subsidiary and reimbursed research expenditures at our Field
Emission Picture Element Technologies, Inc. ("FEPET") subsidiary. We
continued to incur substantial expenses in support of the development of our
proprietary Carbon Based Field Emission ("CFE") Technology and in the
development of our electronic display products. As more fully discussed in
the our Annual Report on Form 10-KSB for the year ended December 31, 1999,
we expect to incur additional research and development expenses throughout
2000 in developing our CFE technology. We expect to begin receiving
advertising revenues through our Electronic Billboard Technology, Inc.
("EBT") subsidiary related to its electronic billboard product in the
quarter ending June 2000. We also expect monthly advertising revenues to
consistently increase for the balance of the year as additional billboards
are installed at customer locations.
RECENT DEVELOPMENTS
In January 2000, EBT signed an agreement with Eckerd Corporation, a
subsidiary of JCPenney to install two electronic billboards at Eckerd
locations as part of a pilot program. Under this arrangement, EBT will sell
advertising on these boards and share a portion of the advertising revenue
with Eckerd. The first of these billboards was installed in March 2000 and
the pilot program is currently underway.
In April 2000, EBT signed a license agreement with Cinemark USA, Inc.
whereby EBT will install its electronic billboard product at selected
Cinemark locations throughout the United States. Initially five locations
have been jointly selected by EBT and Cinemark. When the billboards are
installed, EBT will sell advertising on the boards and share a portion of
the revenues with Cinemark.
RESULTS OF OPERATIONS
Our revenues for the quarter ended March 31, 2000 (the "2000 Period")
totaled $913,774 compared to $5,657,117 for the quarter ended March 31, 1999
(the "1999 Period"). During the 2000 Period, we had revenues of $ 607,804
from SBOA, $260,557 from FEPET, and $45,413 in revenues from EBT. The FEPET
revenues in the 2000 Period were all the result of reimbursed research
expenditures under two government programs. In the 1999 Period, FEPET had
revenues of $5,576,006, of which $5,555,556 was from licensing certain of
its patents and patent applications to Canon, Inc. The SBOA revenues in the
2000 period were all from the sale of signs designed, manufactured, or
installed by SBOA. There were no SBOA revenues in the 1999 Period. We
purchased SBOA in September 1999. During the 2000 period, EBT received
$25,500 in royalties under its now terminated agreement with Texas Digital
Systems, Inc. ("TDS") and $19,913 in revenue from miscellaneous product
sales. During the 1999 Period, EBT had revenue of $81,111, virtually all of
which was related to the TDS agreement.
We had a revenue backlog of $405,242 as of March 31, 2000. The portion of
that backlog that related to SBOA was $335,430. The remaining backlog of
$69,812 relates to uncompleted research contracts at FEPET. Our backlog of
$217,363 at March 31, 1999 consisted of research contracts at FEPET. EBT had
no backlog at either March 31, 2000 or 1999. EBT expects to begin generating
advertising revenue in the quarter ended June 2000 as a result of the
installation of its electronic billboards at customer sites.
9
<PAGE> 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
FEPET received contract research revenues from government contracts of
$260,557 during the 2000 period. Of this, $215,709 was related to the
National Institute of Science and Technology ("NIST") contract. The majority
of these expenditures were made by subcontractors and the revenue represents
reimbursement of those costs. This program ends May 31, 2000. At March 31,
2000, FEPET had a research backlog of anticipated future revenues from
governmental research contracts of $69,812. We may apply for additional
government contacts in the future, if the proposed work relates directly to
our core technologies. We are continuing to fund research and development of
our CFE technology despite the unavailability of any significant
reimbursement for these costs. Our ability to perform continued research
should not require significant additional personnel.
For the 2000 Period, our cost of sales was $664,091, or 71% of revenues, as
compared with $19,431, which was less than 1% of revenues, for the 1999
Period. The resulting margin of 29% in the 2000 Period was substantially
lower than the 99% margin in the 1999 Period. This decreased margin resulted
from a combination of factors. First, substantially all of our revenue in
the 1999 Period resulted from royalty agreements that had minimal ongoing
costs associated with the agreement. The revenues in the 2000 Period were
from SBOA, which had a margin of approximately 38% and FEPET. Since the
FEPET revenues represent reimbursement of costs under research contracts,
there is no margin associated with those revenues. We expect our future
margins to increase substantially from the 29% margin in this quarter as EBT
begins to generate advertising revenue from its electronic billboards and as
FEPET enters into additional license or royalty agreements.
Our selling, general, and administrative expenses were $1,547,155 for the
2000 Period, compared with $1,221,288 for the 1999 Period. The primary
reason for the increase was selling, general, and administrative expenses
associated with SBOA during the 2000 Period. Since SBOA was not acquired
until September 1999, there were no selling, general, and administrative
expenses associated with SBOA during the 1999 period. We incurred research
and development expenses of $ 364,967 for the 2000 Period. This was similar
to the $380,849 incurred in the 1999 Period. We expect to continue to incur
expense in 2000 in support of additional research and development activities
related to the commercial development of our CFE technology and our
electronic billboard technology.
Our other income of $298,706 in the 2000 Period was primarily the result of
net realized and unrealized gains on our marketable securities portfolio.
Our other expense in the 1999 Period was primarily the result of interest
expense of approximately $34,000 and expenses accrued related to a potential
settlement in the Semi-Alloys case of $75,000.
FINANCIAL CONDITION
At March 31, 2000, we had cash and cash equivalents in the amount of
$213,844 as compared with cash and cash equivalents of $348,832 at December
31, 1999. This decrease in cash is primarily the result of cash used in
operation and investing activities offset by the cash provided by financing
activities . The cash used in operations was primarily the result of our net
operating loss for the period. Based on the developmental stages of the
Company's CFE technology and electronic billboard product, additional debt,
equity, sale of product distribution or technology rights, or other
financing will be required in the future. Although we expect to obtain
acceptable financing for our future operations, there can be no absolute
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, we
received proceeds of $1,208,588 from the issuance of common stock, including
shares related to options and warrants, during the quarter ended March 31,
2000. This resulted in net cash provided by financing activities of
$1,202,372 for the 2000 Period. Cash provided by financing activities of
$54,864 for the 1999 Period was substantially lower because of the funds
provided by the Canon license agreement in the 1999 Period.
10
<PAGE> 11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
Cash provided by operating activities was $4,059,564 for the 1999 Period
compared to cash used in operating activities of $1,095,983 for the 2000
Period. The main reason for the decrease from the 1999 Period was that the
1999 Period included $5,555,556 of revenue related to the Canon license
agreement, while there was no such license agreement during the 2000 Period.
Cash used in investing activities during the 2000 Period was $241,377 as
compared with cash used by investing activities of $333 for the 1999 Period.
The cash used in the 2000 Period was primarily the result of expenditures
related to the construction of billboards, partially offset by funds
generated by our marketable securities portfolio. The cash used in the 1999
Period resulted from the purchase of equipment.
The principal source of our liquidity has been the funds received from our
initial public offering and from subsequent foreign and exempt offerings of
common stock or debt instruments. We may receive additional funds from the
exercise of warrants or stock options, although there can be no assurance
that such warrants or options will be exercised. When we need additional
funds, we may seek to sell additional debt or equity securities, or sell or
license certain technology rights. We may seek to increase our liquidity
through bank borrowings or other financing. While we expect to be able to
finance our future operations, there can be no absolute assurance that any
of these financing alternatives can be arranged on commercially acceptable
terms. We believe that our success in reaching profitability will be
dependent upon the viability of our products and their acceptance in the
marketplace, the acceptance of our technology by potential licensees, and
our ability to obtain additional financing in the future. Wallace Sanders &
Co., independent auditors of the Company, expressed uncertainty as to the
ability of the Company to continue as a going concern based on accumulated
losses from operations. See "Independent Auditors' Report." included in the
Company's 1999 Annual Report on Form 10-KSB. We have received similar
opinions from our auditors in each year since 1995.
We expect to continue to incur substantial expenses for research and
development ("R&D"), product testing, and product marketing. Further, we
believe that certain products that may be developed by potential licensees
of our technology may not be available for commercial sale or routine use
for a period of one to two years. While we would likely receive initial
license payments, ongoing royalty streams related to those licenses will not
be available until potential licensees have introduced products using our
technology. Our electronic billboard product is available for installation
and being installed in certain locations at the present time. Our business
model calls for us to install electronic billboards and generate revenues
from the sale of advertising. As a result we must incur the cost of
installing the billboards and recover that cost through the advertising
revenues generated by the billboards. Therefore, it is anticipated that the
commercialization of our existing and proposed products will require
additional capital in excess of our current funding.
The combined effect of the foregoing may prevent us from achieving sustained
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 our
results of operations. We expect, however, to be operating at break even on
a monthly basis by the conclusion of 2000. If revenues do not increase as
rapidly as anticipated, or if product development, testing, and marketing
require more funding than anticipated, we may be required to curtail our
expansion or seek additional financing from other sources.
OUTLOOK
We anticipate that losses will continue in 2000 as we continue to fund the
development of our CFE technology and begin installations of our electronic
billboard and related electronic display products. We expect the magnitude
of the losses, if they continue, to decrease. We expect to reach break-even
on a monthly operating basis by the end of 2000. There can be no assurance
that we will be profitable in the future. Full commercial development of our
technology and electronic billboard and related electronic display will
require additional funds that may not be available at terms acceptable to
us.
11
<PAGE> 12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
We developed a plan to allow ourselves to maintain operations until we are
able to sustain ourselves on our own revenue. However, at current spending
levels, existing resources (including commitments) are only available to
allow us to operate for a period of approximately three months from the date
of this report. Our plan is primarily dependent on raising funds through the
licensing of our technology and through additional debt and equity
offerings. We are also concentrating on raising revenue by seeking customers
for our electronic billboard product, which is currently available for
installation. We believe that we have the ability to continue to raise short
term funding, if necessary, to enable us to continue operations until our
plan can be completed.
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. Our plan is primarily dependent on increasing revenues and
raising funds through additional debt and equity offerings. Although we do
not expect funding our operations to be a problem, if adequate funds are not
available from operations, or additional sources of financing, we may have
to eliminate, or reduce substantially, expenditures for research and
development, testing and production of its products, or obtain funds through
arrangements with other entities that may require us to relinquish rights to
certain of our technologies or products. Such results may materially and
adversely affect us.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 20, 1996, Semi-Alloys Company, a former customer of Plasmatron, 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. Semi-Alloys 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. Semi-Alloys claims the equipment does not
perform as required under the contract. Semi-Alloys seeks to recover
compensatory, consequential and incidental damages. In January 2000, the Company
agreed to participate in a settlement agreement between the plaintiff and the
other defendant; notwithstanding our denial of any liability to the plaintiff.
The Company agreed to pay a total of $450,000, of which $225,000 was due at
signing. The Company signed three notes payable for the balance of the
settlement. These notes, in the amount of $25,000, $100,000, and $100,000, are
due in three months, nine months, and eighteen months, respectively and bear
interest at a rate of 10% per annum. In exchange for this settlement, and upon
payment of the notes, the Company will receive a complete release from further
liability from both the plaintiff and the co-defendant. The entire amount of
this settlement is included in accrued liabilities at December 31, 1999.
On April 30, 1998, Universal Bonding Company, managing general agent for
Westchester Fire Insurance Company filed a complaint with the Superior Court of
New Jersey, Atlantic County. The Complaint named Richland Glass Company, Inc.,
Robert Williams, Joan Williams, Bawa Singh, Narinder Singh, Gaylord Evey and
Doris Evey, all guarantors under the bond, as defendants. All defendants were
former owners, or associated with former owners, of Plasmatron. Defendant
Gaylord Evey filed an answer with the court naming Plasmatron, the Company,
Nicholas Rettino, and the Rettino Insurance agency as third party defendants and
asking for indemnification by the third party defendants. A separate
indemnification claim filed by Richland Glass against the same third party
defendants was consolidated with this case. The amount of this claim is to be
determined at trial; however, any potential amounts due by the Company are
dependent upon Westchester collecting from other guarantors on the bond, and
those guarantors succeeding in obtaining a judgement against the Company.
Westchester has released its claims against the Company. The Company considers
this case to be without merit and expects to have the case ultimately resolved
in its favor.
13
<PAGE> 14
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-vii of the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1999. The Company undertakes no obligation to publicly
update any forward-looking statements, whether as a result of new information,
future events, or otherwise. You are advised, however, to consult any further
disclaimers the Company may make on related subjects in our 10-QSB, 8-K, and
10KSB reports to the SEC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Index to Exhibits on page 16 for a descriptive response to
this item.
(b) Reports on Form 8-K:
(1) Current Report on Form 8-K (Item 5) dated as of January 21, 2000
14
<PAGE> 15
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 11, 2000 /s/ Marc W. Eller
-------------------------------------------
Marc W. Eller
Chairman and Chief Executive
Officer (Principal Executive Officer)
Date: May 11, 2000 /s/ Tracy Vaught
-------------------------------------------
Tracy Vaught
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
15
<PAGE> 16
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 - vii of the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1999,
incorporated by reference into the Quarterly Report on Form
10-QSB for the fiscal quarter ended March 31, 2000).
27 Financial Data Schedule (for SEC use only)
</TABLE>
16
<PAGE> 1
EXHIBIT 11
SI DIAMOND TECHNOLOGY, INC.
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months ended March 31,
---------------------------------
2000 1999
------------ -----------
<S> <C> <C>
Computation of income (loss) per common share:
Net income (loss) applicable to common stockholders $ (1,382,186) $ 3,332,039
Weighted average number of common shares
outstanding 54,236,200 47,798,022
Net income (loss) per common share $ (0.03) $ 0.07
Computation of income (loss) per common share
assuming full dilution:
Net income (loss) applicable to common stockholders 3,332,039
Plus: Income impact of assumed conversions
Preferred stock dividends 38,945
Interest on convertible notes 21,834
Income available to common stockholders
assuming conversion 3,392,818
Weighted average number of common
Shares outstanding 47,798,022
Plus incremental shares from dilutive securities
Convertible preferred stock 1,959,297
Convertible notes payable 2,435,660
Warrants 246,616
Options 2,413,357
Adjusted weighted average number of
common shares 54,852,952
Net income (loss) per common share 0.06
</TABLE>
No computation of diluted loss per common share is included for the 2000 period
because such Computation results in an antidilutive loss per common share.
<PAGE> 1
EXHIBIT 13
FORWARD - LOOKING STATEMENTS AND IMPORTANT
FACTORS AFFECTING FUTURE RESULTS
Our disclosure and analysis in this report contains some forward-looking
statements. Forward-looking statements give our current expectations or
forecasts of future events. They use words such as "anticipate", "believe",
"expect", "estimate", "project", "intend", "plan", and other words and terms of
similar meaning in connection with any discussion of future operating or
financial performance. In particular, these include statements relating to
future actions, prospective products or product approvals, future performance or
results of current and anticipated products, sales efforts, expenses, the
outcome of contingencies such as legal proceedings, and financial results. From
time to time, we also may provide oral or written forward-looking statements in
other materials we release to the public.
Any or all of our forward-looking statements in this report and in any
other public statements we make may turn out to be wrong. They can be affected
by inaccurate assumptions we might make or by known or unknown risks or
uncertainties. Many factors mentioned in the following discussion - for example,
product development, competition, and the availability of funding - are
important in determining future results. Consequently, no forward-looking
statement can be guaranteed. Actual future results may vary materially.
We undertake no obligation to publicly update any forward-looking
statements, whether as the result of new information, future events, or
otherwise. You are advised, however, to consult any further disclosures we make
on related subjects in our 10-QSB, 8-K, and 10-KSB reports to the SEC. Also note
that we provide the following cautionary discussion of risks, uncertainties, and
possibly inaccurate assumptions relevant to our business. These are factors that
we think could cause our actual results to differ materially from expected and
historical results. Other factors besides those listed here could also adversely
affect us. This discussion is provided as permitted by the Private Securities
Litigation Reform Act of 1995.
OUR CFE PRODUCT DEVELOPMENT IS IN ITS EARLY STAGES AND THE OUTCOME IS UNCERTAIN
Our Carbon Field Emission ("CFE") technology, and products that use this
technology, will require significant additional development, engineering,
testing and investment prior to commercialization. We have two leading potential
CFE products. The first is a Picture Element Tube, or PET, intended for use
initially in large indoor displays. If the PET is successful, we expect to
enhance it to allow it to be used in outdoor displays. The PET or displays may
not be successfully developed. We are also working on a product called the
HyFED, which combines what we believe to be the best properties of a cathode ray
tube ("CRT") and field emission display ("FED"). It is our intention to license
this technology to be used in the production of flat-screen TV applications that
are cost competitive with CRTs. If either of these products are developed, it
may not be possible for potential licensees to produce these products in
significant quantities at a price that is competitive with other similar
products.
WE HAVE NO CURRENT ROYALTY AGREEMENTS
Our future strategy is dependent on licensing our technology to other
companies and obtaining royalties based on products that these licensees develop
and sell. We have no plans to manufacture and sell any CFE products ourselves,
and as such, we have no CFE product revenues. We signed a license agreement in
1999, for a payment of approximately $5.6 million. We have no other license
agreements at the present time that will provide any future revenues. It is our
intention that all future license agreements will include a provision that
requires the payment of ongoing royalties.
Page ii
<PAGE> 2
OUR SUCCESS IS DEPENDENT ON OUR PRINCIPAL PRODUCTS AND TECHNOLOGY
Our CFE technology is an emerging technology. Our financial condition
and prospects are dependent upon our licensing the technology to others and upon
market acceptance of our Electronic Billboard and other electronic display
products. Additional R&D needs to be conducted on the CFE technology before
others can produce products using this technology. Market acceptance of our
products and products using our technology 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 we will be
able to gain commercial market acceptance for our products or develop other
products for commercial use.
WE HAVE A HISTORY OF OPERATING LOSSES
We have a history of operating losses. Our first profitable year was
1999, based on the strength of a license agreement of approximately $5.6 million
signed in March 1999. We have incurred operating losses as shown below:
<TABLE>
<CAPTION>
Net Income
Year Ended December 31 (Loss)
---------------------- -------------
<S> <C>
1992 $ (1,630,978)
1993 $ (7,527,677)
1994 $ (7,255,420)
1995 $(14,389,856)
1996 $(13,709,006)
1997 $ (6,320,901)
1998 $ (3,557,548)
1999 $ 1,118,134
</TABLE>
Although we expect to be profitable in the future, we may not be. Our
profitability in 2000 is dependent on the signing of additional license
agreements. We may, however, continue to incur additional operating losses for
an extended period of time as we continue to develop products. We do, however,
expect the magnitude of those losses, if they continue, to decrease. Wallace
Sanders & Company, independent auditors of the Company, have expressed
uncertainty as to our ability to continue as a going concern based on our
accumulated losses from operations in prior years. See "Independent Auditors'
Report." We have funded our operations to date primarily through the proceeds
from the sale of our equity securities. In order to continue our transition from
a contract research and development organization to an organization with ongoing
operations, we anticipate that substantial product development expenditures will
continue to be incurred.
WE ARE EXPOSED TO LITIGATION LIABILITY
We were sued in 1996 by a former customer of Plasmatron for damages that
the former customer claimed that it incurred as a result of the alleged failure
of the machine provided by Plasmatron to perform as intended. That suit was
settled in January 2000. The majority of that settlement was paid by a bonding
company that had provided a bond on the original contract. Other guarantors on
the original bond that may now be subject to liability as a result of the
bonding company's payment have sued us for indemnification. We consider these
claims to be without merit and expect to have no liability in these suits;
however, they are still pending.
Various trade creditors have also filed suit to collect unpaid trade
amounts due. We expect these items to be resolved with no material impact on our
financial statements. If we were to become subject to a judgment that exceeds
our ability to pay, that judgment would have a material impact on our financial
condition and could affect our ability to continue in existence.
Page iii
<PAGE> 3
WE HAVE FUTURE CAPITAL NEEDS AND THE SOURCE OF THAT FUNDING IS UNCERTAIN
We expect to continue 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 our CFE
technology and our electronic billboard product. Our business model is based on
our installing electronic billboards at customer sites at our cost and then
deriving advertising revenues from the signs. This will require a significant
capital investment on our part. Our electronic billboard product is available
now and we are in the process of installing our first units. Some of our other
proposed products may not be available for commercial sale or routine use for a
period of up to two years. Commercialization of our existing and proposed
products will require additional capital in excess of our current capital. A
shortage of capital may prevent us 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 our 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, we may be
required to curtail our expansion and/or seek additional financing from other
sources. We may seek additional financing through the offer of debt or equity or
any combination of the two at any time.
We have developed a plan to allow us to maintain operations until we are
able to sustain ourselves on our own revenue. However, we only have the existing
resources, including commitments, to allow us to survive for a period of
approximately six months from the date of this report at our current spending
levels. We have been operating in this manner for an extended period of time and
we believe that we have the ability to continue to raise short term funding, if
necessary, to enable us to continue operations until our plan can be completed.
Our plan is primarily dependent on raising funds through the licensing of our
technology, revenue generated from the installation of our electronic billboard
product, and through debt and equity offerings.
Our 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. Our plan is primarily dependent on increasing revenues, licensing our
technology, and raising additional funds through additional debt and equity
offerings. If adequate funds are not available from operations or additional
sources of financing, we may have to eliminate, or reduce substantially,
expenditures for research and development, testing and production of our
products. We may have to obtain funds through arrangements with other entities
that may require us to relinquish rights to certain of our technologies or
products. These actions could materially and adversely affect us.
RAPID TECHNOLOGICAL CHANGE COULD RENDER OUR PRODUCTS OBSOLETE AND WE MAY NOT
REMAIN COMPETITIVE
The display industry is highly competitive and is characterized by rapid
technological change. Our 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 our products. There is no assurance
that other products, processes or technologies will not render our proposed
products obsolete or less competitive. Many of our competitors have greater
financial, managerial, distribution, and technical resources than we do. We will
be required to devote substantial financial resources and effort to further R&D.
There can be no assurance that we will successfully differentiate our products
from our competitors' products, or that we will adapt to evolving markets and
technologies, develop new products, or achieve and maintain technological
advantages.
Page iv
<PAGE> 4
WE HAVE TECHNOLOGIES SUBJECT TO LICENSES
As a licensee of certain research technologies through license and
assignment agreements with Microelectronics and Computer Technology Corporation,
we have acquired rights to develop and commercialize certain research
technologies. In certain cases, we are required to pay royalties on the sale of
products developed from the licensed technologies and fees on revenues from
sublicensees. We also have to pay for the costs of filing and prosecuting patent
applications. The agreement is subject to termination by either party, upon
notice, in the event of certain defaults by the other party. We expect any
royalty payments to be insignificant.
OUR PRODUCTS MAY NOT BE ACCEPTED BY THE MARKET
Since our inception, we have focused our product development and R&D
efforts on technologies that we believe will be a significant advancement over
currently available technologies. 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 our products and products
using our technology will depend, in part, on our ability to convince potential
customers of the advantages of such products as compared to competitive
products. It will also depend upon our ability to train manufacturers and others
to use our products.
WE HAVE LIMITED MANUFACTURING CAPACITY AND EXPERIENCE
We have no established commercial manufacturing facilities in the area
of CFE technology in which we are conducting our principal research. At the
present time, we have no intention of establishing a manufacturing facility
related to our CFE technology. We are focusing our efforts on licensing our
technology to others for use in their manufacturing processes. The management
team has commercial manufacturing and marketing experience in other industries
and with other products in the display industry; however, we have no experience
in manufacturing our proposed CFE products.
In August 1999, we acquired the assets of Sign Builders of America,
Inc. ("SBOA"). SBOA is a manufacturer of high quality signage and provided
significant assistance in the development of our electronic billboard product.
To the extent that any of our other products require manufacturing facilities,
we intend to contract with a qualified manufacturer.
WE ARE DEPENDENT ON THE AVAILABILITY OF MATERIALS AND SUPPLIERS
The materials used in producing our current and future products are
purchased from outside vendors. In certain circumstances, we may be required to
bear the risk of material price fluctuations. We anticipate that the majority of
raw materials used in products to be developed by us will be readily available.
However, there is no assurance that the current availability of these materials
will continue in the future, or if available, will be procurable at favorable
prices.
Page v
<PAGE> 5
WE MAY BE UNABLE TO ENFORCE OR DEFEND OUR OWNERSHIP AND USE OF PROPRIETARY
TECHNOLOGY
Our ability to compete effectively with other companies will depend on
our ability to maintain the proprietary nature of our technology. Although we
have been awarded patents, have filed applications for patents, or have licensed
technology under patents that we do not own, the degree of protection offered by
these patents or the likelihood that pending patents will be issued is
uncertain. Competitors in both the United States and foreign countries, many of
which have substantially greater resources and have made substantial investment
in competing technologies, may already have, or may apply for and obtain patents
that will prevent, limit or interfere with our ability to make and sell our
products. Competitors may also intentionally infringe on our patents. The
defense and prosecution of patent suits is both costly and time-consuming, even
if the outcome is favorable to us. 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 us to significant
liabilities to third parties. Although third parties have not asserted
infringement claims against us, there is no assurance that third parties will
not assert such claims in the future.
We also rely on unpatented proprietary technology, and there is no
assurance that others will not independently develop the same or similar
technology, or otherwise obtain access to our proprietary technology. To protect
our rights in these areas, we require employees, consultants, advisors and
collaborators to enter into confidentiality agreements. These agreements may not
provide meaningful protection for our 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 we have attempted to protect proprietary technology that we develop or
acquire and will continue to attempt to protect future proprietary technology
through patents, copyrights and trade secrets, we believe that our success will
depend upon further innovation and technological expertise.
WE MAY NOT BE ABLE TO PROVIDE SYSTEM INTEGRATION
In order to prove that our technologies work and will produce a complete
product, we must ordinarily integrate a number of highly technical and
complicated subsystems into a fully-integrated prototype. There is no assurance
that we will be able to successfully complete the development work on some of
our proposed products or ultimately develop any market for those products.
THE LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS
Our future success will depend on our ability to attract and retain
highly qualified scientific, technical and managerial personnel. Competition for
such personnel is intense. We may not be able to attract and retain all
personnel necessary for the development of our business. In addition, much of
the know-how and processes developed by us reside in our key scientific and
technical personnel. The loss of the services of key scientific, technical and
managerial personnel could have a material adverse effect on us.
Page vi
<PAGE> 6
OUR REVENUES HAVE BEEN DEPENDENT ON GOVERNMENT CONTRACTS IN THE PAST
In previous years, a significant part of our revenues were derived
from contracts with agencies of the United States government. Following is a
summary of those revenues in recent years:
<TABLE>
<CAPTION>
REVENUES FROM PERCENTAGE OF
YEAR ENDED DECEMBER 31 GOV. CONTRACTS TOTAL REVENUE
- ---------------------- -------------- -------------
<S> <C> <C>
1992 $ 930,000 99%
1993 $ 1,147,000 89%
1994 $ 820,000 41%
1995 $ 1,009,000 33%
1996 $ 2,869,000 50%
1997 $ 854,000 24%
1998 $ 0 0%
1999 $ 0 0%
</TABLE>
We currently have no significant commitment for any future government
funding and do not intend to seek any government funding unless it directly
relates to achievement of our strategic objectives.
Contracts involving the United States government are, or may be,
subject to various risks including, but not limited to, the following:
- - 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
- - Potential disclosure of our confidential information to third parties
- - The failure or inability of the prime contractor to perform its prime
contract in circumstances where we are a subcontractor
- - The failure of the government to exercise options provided for in the
contracts
- - The right of the government to obtain a non-exclusive, royalty free,
irrevocable world-wide license to technology developed under contracts
funded by the government if we fail to continue to develop the technology
Page vii
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SI DIAMOND TECHNOLOGY FOR THE THREE MONTHS ENDED MARCH
31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 213,844
<SECURITIES> 817,412
<RECEIVABLES> 582,513
<ALLOWANCES> 0
<INVENTORY> 175,997
<CURRENT-ASSETS> 1,855,112
<PP&E> 2,448,624
<DEPRECIATION> 609,065
<TOTAL-ASSETS> 4,957,237
<CURRENT-LIABILITIES> 1,809,236
<BONDS> 0
0
900
<COMMON> 55,940
<OTHER-SE> 2,970,972
<TOTAL-LIABILITY-AND-EQUITY> 4,957,237
<SALES> 913,774
<TOTAL-REVENUES> 913,774
<CGS> 664,091
<TOTAL-COSTS> 2,589,713
<OTHER-EXPENSES> (327,507)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,254
<INCOME-PRETAX> (1,354,686)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,354,686)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,354,686)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
