Index

**UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**

**FORM 10-QSB**

ý                                  Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of1934

       For the quarterly period ended March 31, 2003

 ̈                             Transition report pursuant to Section 13 or 15(d) of the SecuritiesExchange 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 bycheck mark whether the issuer: (1) filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements for the past90 days.

Yes  [X]  No [  ]

As of May 9,2003, the registrant had 85,079,181 shares of common stock, par value $.001 pershare, issued and outstanding.

TransitionalSmall Business Disclosure Format.

Yes  [  ]   No [X]

----

 

**SI DIAMOND TECHNOLOGY, INC.INDEX**

 

| Part I.  Financial Information | **Page**                                                                                                                                                                                                                                   |
|-------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                |                                                                                                                                                                                                                                       |   |   |
|                                | Item 1.  Financial Statements                                                                                                                                                                                                         |   |
|                                |                                                                                                                                                                                                                                       |   |   |
|                                |                                                                                                                                                                                                                                       | Consolidated Balance Sheets--March 31, 2003and December 31, 2002 | 3 |
|                                |                                                                                                                                                                                                                                       |   |   |
|                                |                                                                                                                                                                                                                                       | Consolidated Statements of Operations--Three Months Ended           March 31, 2003 and 2002 | 4 |
|                                |                                                                                                                                                                                                                                       |   |   |
|                                |                                                                                                                                                                                                                                       | Consolidated Statements of Cash Flows--Three Months Ended           March 31, 2003 and 2002 | 5 |
|                                |                                                                                                                                                                                                                                       |   |   |
|                                |                                                                                                                                                                                                                                       | Notes to Consolidated Financial Statements | 6 |
|                                |                                                                                                                                                                                                                                       |   |   |
|                                | Item 2.  Management’s Discussion and Analysisof Financial Condition                       andResults of Operations | 9 |
|                                |                                                                                                                                                                                                                                       |   |   |
|                                | Item 3.  Controls andProcedures                                                                                                                                                                                                  | 13 |
|                                |                                                                                                                                                                                                                                       |   |   |
| Part II.  Other Information    |                                                                                                                                                                                                                                       |
|                                |                                                                                                                                                                                                                                       |   |   |
|                                | Item 1. Legal Proceedings                                                                                                                                                                                                                  | 13      
Item 6.  Exhibits and Reports on Form 8-K

14    
Signatures

15

2

Index

**PART I.  FINANCIAL INFORMATION**
**ITEM 1.  FINANCIAL STATEMENTS**
**SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS**

**ASSETS**
 
**(Unaudited) March 31, 2003**
 
**December 31, 2002**

Current assets:
     
Cash and cash equivalents

 $

3,346 

$

15,868 
 
Accounts receivable, trade – net of allowance for doubtful              accounts of $0 in 2003 and 2002
 
20,529 
 
32,316 
 
Prepaid expenses and other assets
 
62,877 
 
95,232 
       
               Total current assets
 
86,752 
 
143,416 
       
Property and equipment, net
 
103,883 
 
115,239 
 
Officer receivable
 
62,500 
 
62,500 
 
Other Assets
 
800 
 
800 
  
               Total assets
$253,935$321,955       
**LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)**
          
Current liabilities:
     
Accounts payable

$

453,130 

$

584,878 
 
Current portion of long-term debt
 
26,881 
 
39,832 
 
Obligations under capital lease
 
17,986 
 
17,993 
 
Notes payable
 
1,000,000 
 
1,600,000 
 
Accrued liabilities
 
666,682 
 
493,564 
       
               Total current liabilities
 
2,164,679 
 
2,736,267       
Obligations under capital lease
 
42,071 
 
46,283 
      
Commitments and contingencies
 
– 
 
–        
Stockholders' equity:
    
Preferred stock, $1.00 par value, 2,000,000 shares authorized;      No shares issued and outstanding
 
– 
 
–   
Common stock, $.00l par value, 120,000,000 shares authorized,      82,715,076 and 76,970,792 shares issued and outstanding at      March 31, 2003 and December 31, 2002, respectively
 
82,715 
 
76,971 
Additional paid-in capital
 
69,982,626 
 
68,709,621 

Accumulated deficit
 
(72,018,156)
 
(71,247,187)
     
               Total stockholders' equity (deficit)
 
(1,952,815)
 
(2,460,595)
     
               Total liabilities and stockholders' equity

$

253,935 
$
321,955 
See notes to consolidated financial statements.

3

Index

**SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OFOPERATIONS(UNAUDITED)**
   
**For  the Three Months Ended March 31,**
  
**2003**
  
**2002**

Revenues
      
Government contracts

$

10,387 
 
$

86,403 
 
Privately funded research
 
400,000 
   
170,589 
 
Royalties
 
920 
  
– 
 
Other

 

33,145 
 
 

28,085 
 
          Total Revenues
 
444,452 
  
285,077 
       
Cost of sales
 
76,893 
  
273,364 

Research and development
 
282,498 
  
376,084 

Selling, general and administrative
      
expenses
 
434,585 
  
789,543 

Royalty expense
 
400,000 
  
–  
       
Operating costs and expenses
 
1,193,976 
  
1,438,991 
        
Loss from operations
 
(749,524)
  
(1,153,914)
       
Other income (expense), net
      
Interest expense
  
(26,140)
  
(218,895)
 
Other
 
4,695 
  
1,658 
       
Loss from continuing operations
 
(770,969)  
(1,371,151)       
Discontinued operations
     
Income from the operation of SignBuilders of America, Inc.
 
–  
  
2,209           
Net loss

$
(770,969)
 
$
(1,368,942)
         
Less accretion on convertible preferred stock
 
–  
  
(21,250)
         
Net loss applicable to common stockholders

$
(770,969)
 
$
(1,390,192)

Loss per share
                
Basic
  
$
(0.01)
 
$
(0.02)
 
Diluted
  
$
(0.01)
 
$
(0.02)

Average shares outstanding
               
Basic
  
 
79,738,707 
 
 
67,318,116 
 
Diluted
  
 
79,738,707 
 
 
67,318,116 

See notes to consolidated financial statements.

4

Index

**SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OFCASH FLOWS(UNAUDITED)**

 

**For  the Three Months Ended March 31,**
 
**2003**
 
**2002**

Cash flows from operating activities:
      
Net loss
  
$

(770,969)

$

(1,368,942)
  
Adjustments to reconcile net loss to net
       
cash used in operating activities:
       
Depreciation and amortization expense
 
11,356 
 
84,694 
   
Amortization of discount on debt
 
– 
 
147,832 
   
Net realized and unrealized (gain) loss on marketable securities
 
– 
 
(1,521)    
Shares issued for patent option
 
13,636  
– 
   
Changes in assets and liabilities:
        
Accounts receivable, trade
 
11,787 
(61,476)
    
Inventory
 
– 
 
53,456 
    
Prepaid expenses and other current assets
 
 32,355  
 (27,185)    
Accounts payable and accrued liabilities
 
202,233 
 
101,151 
    
Customer deposits and deferred income

 

– 
 
287,987 
             
Total adjustments
 
271,367 
 
584,938 
            
Net cash used in operating activities
 
(499,602)
 
(784,004)
          
Cash flows from investing activities:
    
 
 
Capital expenditures
   
– 
 
(43,729)
  
Purchase of marketable securities
 
– 
 
(25,859)
  
Proceeds from the sale of marketable securities
 
– 
 
24,980 
  
       Net cash used in investing activities

 
– 

 
(44,608)
         
Cash flows from financing activities:
    
  
 
Repayment of notes payable and capital lease obligations
 
(17,170)
 
(68,084)
  
Proceeds from long term debt
 
–  
 
500,000 
  
Proceeds of stock issuance, net of costs
 
504,250 
 
506,901 
           
       Net cash provided by financing activities
 
487,080 
 
938,817 
         
Net increase in cash and cash equivalents
 
(12,522)
 
110,205 
         
Cash and cash equivalents, beginning of period
 
15,868 
 
261,861 
         
Cash and cash equivalents, end of period

$

3,346 

 

$
372,066 

See notes to consolidated financial statements.

5

Index

**SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES**
**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**
1.     Basis of Presentation
       The consolidated financial statementsof the Company for the three-month periods ended March 31, 2003 and 2002 havebeen prepared by the Company without audit pursuant to the rules and regulationsof the Securities and Exchange Commission. In the opinion of the Company’smanagement, all adjustments necessary to present fairly the financial position,results of operations, and cash flows of the Company as of March 31, 2003 and2002 and for the periods then ended have been made. Those adjustments consist ofnormal and recurring adjustments. The consolidated balance sheet of the Companyas of December 31, 2002 has been derived from the audited consolidated balancesheet of the Company as of that date.
       Certain information and notedisclosures normally included in the Company’s annual financial statementsprepared in accordance with generally accepted accounting principals have beencondensed or omitted. These consolidated financial statements should be read inconjunction with a reading of the financial statements and notes theretoincluded in the Company’s Annual Report on Form 10-KSB for 2002 as filedwith the U.S.  Securities and Exchange Commission.
       The results of operations for thethree-month period ended March 31, 2003 are not necessarily indicative of theresults to be expected for the full year.
2.     Supplemental Cash Flow Information
       Cash paid for interest for the threemonths ended March 31, 2003 and 2002 was  $1,917 and $11,513, respectively.During the quarters ended March 31, 2003 and 2002, the Company had  non-cashtransactions related to the conversion of  notes payable, including relatedaccrued interest into shares of the Company’s common stock. Thesetransactions are  described in greater detail in Note 3. 
3.      Capital Stock
       In the quarter ended March 31, 2003,the Company issued 2,089,517 restricted shares of its common stock and receivednet proceeds of $504,250 in exempt offerings under Regulation D of theSecurities Act of 1933.  The Company also issued 3,483,746 shares of commonstock in connection with the payment of convertible notes payable and relatedaccrued interest. The face amount of the notes was $600,000 and the relatedaccrued interest totaled $105,863. The Company also issued 100,000 shares valuedat $55,000 in connection with the payment of accounts payable and 71,021 sharesvalued at $13,636 in connection with a patent extension. In the quarter endedMarch 31, 2002, the Company also issued 479,911 shares of restricted commonstock in payment of a convertible note payable and related accrued interest. Thegross amount of the note was $250,000 and related accrued interest was$18,750.
4.     Notes Payable
       The Company has a convertible notepayable in the amount of $1,000,000 outstanding. This note and related accruedinterest are convertible into shares of the Company’s common stock at arate of $0.25 per share.
6

Index

**SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES**
**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**
5.     Contingencies
Litigation
       The Company is a defendant in minorlawsuits described in greater detail in its 2002 annual report on Form 10-KSB.The Company expects any potential eventual payment to have no material affect onthe financial statements.
6.    Business Segments
     Following is information related to the Company’s business segments for the quarters ended March 31, 2003 and 2002:  
  
ANI 
EBT 
All Other 
Total
2003                 Revenue  
$  
444,452  
$  
 - 
$ 
 -  
$  
444,452          Profit (Loss)  
(558,458) 
(5,382) 
(207,129) 
(770,969)          Expenditures for         
     long-lived assets
 
-   
-  
-  
-          
2002                 Revenue  
$   
264,592 
       $  
20,485  
$  
-    
$  
285,077           Profit (Loss)  
(358,493) 
(402,619)    
(1,371,151)         Expenditures for         
     long-lived assets
 
29,249   
12,028  
1,990   
43,267  
7.     Related Party Transactions
       The Company has made a non-interestbearing advance in the amount of $62,500 to its President and Chief OperatingOfficer, Dr. Zvi Yaniv. The advance as been classified as long-term becausethere are no scheduled repayment terms. Dr. Yaniv does have the opportunity toearn bonuses based on the achievement of certain milestones. Any such bonusesthat may be earned would be applied against this loan.
7

Index

**SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES**
**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**
8.      Subsequent Events
       From April 1, 2003 through May 9,2003,  the Company received $1,100,000 and issued 2,364,105 shares of commonstock in exempt offerings under Regulation D of the Securities Act of 1933.
       On May 9, 2003, the Company made a$400,000 payment due to Till Keesman in connection with a minimum royaltypayment associated with a patent license agreement.

9.     Recently Issued Accounting Standards
       In September 2001, the FASB issued Statement 143, Asset Retirement Obligations. This Statement addresses financial accounting and reporting for obligation associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Statement will be effective for the Company’s fiscal year ending December 2003.  The Company does not believe that the adoption of this pronouncement will have a material effect on its financial statements.  
       In June 2002, the FASB issued Statement 146, Accounting for Costs Associated with Exit or Disposal Activities. This Statement will be effective after December 31, 2002. The Company does not believe that the adoption of this pronouncement will have a material effect on its financial statements.10.Discontinued Operations       In October 2002, the Company sold the assets of its Sign Builders of America, Inc. subsidiary. The results of Sign Builders of America, Inc. for the quarter ended March 31, 2002 are included in the consolidated statements as a discontinued operation.  

8

Index

**ITEM 2:     MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS**
       The following is management’s discussion and analysis of certain significant factors that have affected the Company’s financial position and operating results during the periods included in the accompanying consolidated financial statements.  

FORWARD-LOOKING STATEMENTS 
         This Form 10-QSB contains certain forward-looking statements that we believe are within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by such acts. For this purpose, any statements that are not statements of historical fact may be deemed to be forward-looking statements, including the statements under "Management’s Discussion and Analysis of Financial Condition and Results of Operations" regarding our strategy, future operations, future expectations or future estimates, financial position and objectives of management. Those statements in this Form 10-QSB containing the words "believes," "anticipates," "plans," "expects" and similar expressions constitute forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and are subject to a number of risks, uncertainties and assumptions relating to our operations, results of operations, competitive factors, shifts in market demand and other risks and uncertainties.Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate and actual results may differ from those indicated by the forward-looking statements included in this Form 10-QSB.  In light of the significant uncertainties inherent in the forward-looking statements included in this Form 10-QSB, you should not consider the inclusion of such information as a representation by us or anyone else that we will achieve such results. Moreover, we assume no obligation to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.  
       **Three Months Ended March 31, 2003and 2002:**
**OVERVIEW**
       During the quarter ended March 31, 2003, our primary revenues were earned as a result of reimbursed research expenditures at our Applied Nanotech, Inc. (“ANI”) subsidiary. We continued to incur substantial expenses in support of the development of our proprietary Carbon Nanotube Based Field Emission (“CFE”) Technology. As more fully discussed in our Annual Report on Form 10-KSB for the year ended December 31, 2002, we expect to incur additional research and development expenses throughout 2003 in developing our CFE technology. We have restructured the company to focus on licensing our technology and obtaining sufficient to revenue to cover our ongoing research expenditures.  OUTLOOK       We expect our external cash needs for 2003 to be approximately $3.0 million, including the amount necessary to  maintain our license of the Keesman patent. We intend to fund those needs through a combination of reimbursements for research, license agreements, and issuance of debt and equity securities.  As of the date of this filing, we have raised approximately $2.0 million of this amount through private placements and a research project and have commitments for the remainder. A license agreement or development agreement with a substantial up-front payment could eliminate the need for additional outside capital.  
       We have developed a plan to enable usto achieve break-even on revenues of $2.5 million, excluding the cost of theacquisition of the Keesman patent. There can be no assurance that we willachieve break-even or be profitable in the future.  To the extent our revenuesdo not allow us to break-even, or if the timing of revenues is weighted towardthe latter part of the year, we may be required to raise additional fundsthrough the issuance of debt or equity securities to enable us to maintainoperations at the present level. The mix of revenues received could also causethe revenues required to break-even to increase. If revenue producing projectsrequire unanticipated expenses, or heavier than anticipated use of outsideservices or materials, we may be unable to achieve break-even at that level.
9

Index

**ITEM 2:  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS (continued)**
       We have developed a plan to allow ourselves to maintain operations  until we are able to sustain ourselves on our own revenue. Our plan is  primarily dependent on raising funds through the licensing of our technology  and through additional debt and equity offerings. Our current cash, including  commitments, is sufficient to allow us to maintain operations for  approximately six months. We expect additional revenue producing projects or  license agreements to be finalized during that time period. 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. 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 its technologies or products.  Such results would materially and adversely affect us.  
RECENT DEVELOPMENTS
       In April 2003, we were notified by theU.S. Patent office that it had issued a notice of allowance for the reissuanceof U.S. Patent No. 5,773,921, which we had licensed from Argus Holdings GmbH(“the Keesman patent”). The reissuing process considerably enhancedthe existing nine claims of the U.S. patent, as well as added additional claims.The reissuance of this patent solidifies our already strong position in thecarbon nanotube field and expands the number of companies likely to license ourtechnology in the future. Allowance of this reissuance also triggers a minimumroyalty payment of $400,000 due on this patent in May 2003. This payment wasmade in cash on May 9, 2003.
       In January 2003, we signed anagreement to study the formation of a strategic partnership with MITSUI &CO. LTD., one of the largest trading houses in Japan and we are currently in theprocess of completing that study. In April 2003, we signed a technicalcooperation agreement with Mitsubishi Heavy Industries Ltd. (MHI), one of thelargest industrial corporations in the world, headquartered in Tokyo Japan. Weexpect either one or both of these agreements to ultimately result in reimbursedresearch projects and license agreements for the Company.RECENT ACCOUNTINGPRONOUNCEMENTS
         In September 2001, the FASB issued Statement 143, Asset Retirement Obligations. This Statement addresses financial accounting and reporting for obligation associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Statement will be effective for the Company’s fiscal year ending December 2003.  The Company does not believe that the adoption of this pronouncement will have a material effect on its financial statements.  

         In June 2002, the FASB issued  Statement 146, Accounting for Costs Associated with Exit or Disposal  Activities. This Statement will be effective after December 31, 2002. The  Company does not believe that the adoption of this pronouncement will have a  material effect on its financial statements.  

10

Index

**ITEM 2:  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS (continued)**
**RESULTS OF OPERATIONS**
       Our revenues for the quarter endedMarch 31, 2003 (the “2003 Period”) totaled $444,452 compared to$285,077 for the quarter ended March 31, 2002 (the “2002 Period”).All of the revenue in the 2003 Period was from ANI. During the 2002 Period, wehad revenues of  $264,592 from ANI and $20,485 from EBT.  The ANI revenues inthe both periods were all the result of reimbursed research expenditures undergovernment programs and private research contracts. The EBT revenues in the 2002Period resulted from the sale of miscellaneous products and services. There wereno EBT revenues in the 2003 Period.
       We had a total revenue backlog ofapproximately $900,000 as of March 31, 2003, as compared with a backlog ofapproximately $550,000 at March 31, 2002. The backlog at March 31, 2003 consistsof a government grant at ANI that will be completed over a period ofapproximately two years. The backlog at March 31, 2002 was primarily reimbursedresearch at ANI related to projects that were completed in 2002.
       For the 2003 Period, our cost of sales was $76,893, or 17% of revenues, as compared with $273,364, which was 96% of revenues, for the 2002 Period. The 2003 margin of 83% was much higher than normal because the majority of our revenue came from one single research project with a large Japanese display manufacturer. This contract dealt with a technical area where we have performed extensive research, and therefore, we were able to complete this project with minimal outside expenditures. We would expect our future margins to be lower than this, especially as it relates to government contracts that have little or no margin associated with them.  
       Our  selling, general, and administrative expenses were $434,585 for the 2003 Period, compared with $789,543 for the 2002 Period. The primary reason for the reduction from 2002 to 2003 relates to the restructuring at EBT and the elimination of the sales and marketing costs associated with EBT, as well as an overall reduction in general and administrative costs.       Our royalty expense was $400,000 in the 2003 Period. There was no royalty expense in the 2002 Period. The royalty expense is a minimum payment due in connection with the recently allowed Keesman patent. We expect royalty expense in future periods to be highly correlated with royalty income.

         We incurred research and development expenses  of $ 282,498 for  the 2003 Period, which was a reduction from the $376,084 incurred in the 2002 Period. This decrease results from the restructuring at EBT which resulted in the elimination of all research and development related to the EBT products. We expect total research and development expense to decline for the balance of the year as we seek and receive additional revenues to fund our research.  We expect to continue to incur expense in 2002 in support of additional research and development activities related to the commercial development of our CFE nanotube technology, however we expect the overall research and development expense in 2003 to be lower than 2002 as a result of the increased funding available to ANI.  

       Our interest expense decreasedsubstantially in the 2003 Period because we issued no new debt, continued to payon old debt, and converted a portion of our debt into equity in 2003.
11

Index

**ITEM 2:  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS (continued)**
**FINANCIAL CONDITION AND LIQUIDITY**
       Our cash position for the quarter was substantially unchanged. At March 31, 2003, we had cash and cash equivalents in the amount of $3,346 as compared with cash and cash equivalents of $15,868 at December 31, 2002.  This slight decrease in cash is primarily the result of cash provided by financing activities, offset by cash used in operating activities. The cash used in operations was primarily the result of our net operating loss for the period. The cash used in operating activities during the 2003 Period of $499,602 was substantially lower than the $784,004 used in the 2002 Period. The primary reason for the decrease was the reduced loss in the 2003 Period.  
       As described in greater detail in thenotes to the financial statements, we received net proceeds of $504,250 from theissuance of common stock related to private placements during the 2003 Period,as compared with $506,901 from the issuance of common stock, including sharesrelated to options and warrants, during the 2002 Period.  We issued no new debtin the 2003 Period, as opposed to the 2002 Period when we issued $500,000 in newdebt.
       We used no cash for investingactivities in the 2003 Period. Cash used in investing activities during the 2002Period was $44,608. The cash used in the 2002 Period resulted primarily from thepurchase of research equipment.
       The principal source of our liquidity has been funds received from exempt offerings of common and preferred stock. In the event that we need additional funds, we may seek to sell additional debt or equity securities. While we expect to be able to obtain any funds needed for operations, there can be no 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, and our ability to obtain additional debt or equity financings in the future. Our independent auditors, Sprouse & Anderson, L.L.P., expressed uncertainty as to the ability of the Company to continue as a going concern based on accumulated  past losses from operations and our working capital deficiency. See “Independent Auditor’s Report.” 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"). 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. Therefore, it is anticipated that  the commercialization of our existing and proposed products may require  additional capital in excess of our current funding. We have however developed  a plan to enable us to operate at break-even levels based on the receipt of  research funding and other revenues. Achievement of break-even would enable us  to continue our research with out seeking additional debt or equity financing.

         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 license or royalty agreements 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. If revenues do not increase as  rapidly as anticipated, or if product development and testing require more  funding than anticipated, we may be required to curtail our operations or seek  additional financing from other sources.  

12

Index
ITEM 3. CONTROLS AND PROCEDURES
       Under the supervision and with theparticipation of our management, including our principal executive officer andprincipal financial officer, we conducted an evaluation of the effectiveness ofthe design and operation of our disclosure controls and procedures, as definedin Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934,within 90 days of the filing date of this report (the "Evaluation Date"). Basedupon this evaluation, our principal executive officer and principal financialofficer concluded as of the Evaluation Date that our disclosure controls andprocedures were effective such that the material information required to theincluded in our Securities and Exchange Commission ("SEC") reports is recorded,processed, summarized, and reported within the time periods specified in SECrules and forms relating to the Company, including, our consolidatedsubsidiaries, and was made known to them by others within those entities,particularly during the period when this report was being prepared.
       In addition, there were no significantchanges in our internal controls or in other factors that could significantlyaffect these controls subsequent to the Evaluation Date. We have not identifiedany significant deficiencies or material weaknesses in our internal controls,and therefore, there were no corrective actions taken.
 
13

Index

**PART II.  OTHER INFORMATION**
ITEM 1.   LEGAL PROCEEDINGS
       None
**ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K**
       (a)     Exhibits:See Index to Exhibits on page 18 for a descriptive response to this item.
       (b)     Reportson Form 8-K:

                (1)Current Report on Form 8-K dated April9, 2003 (Item 5)
14

Index

**SIGNATURES**
Pursuant to the requirements of the Securities and Exchange Act of 1934, theRegistrant has duly caused this Report to be signed on its behalf by theundersigned thereunto duly authorized.
  SI DIAMOND TECHNOLOGY, INC.      (Registrant)  Date:     May 9, 2003      /s/ Marc W.Eller                                        Marc W. Eller      Chairman and Chief Executive      Officer (Principal Executive Officer)  Date:     May 9, 2003      /s/      Douglas P. Baker                                        Douglas P. Baker      Chief Financial Officer      (Principal Financial Officer and Principal      Accounting Officer) 
       
 
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**Certificate of Chief Executive Officer**
        I, Marc W. Eller, certify that:
1.     I have reviewed this quarterly report on Form10-QSB of SI Diamond Technology, Inc. (“SIDT”).
2.     Based on my knowledge, this quarterly reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading with respectto the period covered by this quarterly report.
3.     Based on my knowledge, the financial statementsand other financial information included in this quarterly report, fairlypresent, in all material respects, the financial condition, results ofoperations and cash flows of SIDT as of, and for, the periods presented in thisquarterly report.
4.     SIDT’s other certifying officers and I areresponsible for establishing and maintaining disclosure controls and procedures(as defined in the Exchange Act Rules 13a-14 and 15d-14) for SIDT and wehave:
a.     designed such disclosure controls and proceduresto ensure that material information relating to SIDT, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this quarterly report is being prepared;
b.     evaluated the effectiveness of SIDT’sdisclosure controls and procedures as of a date within 90 days prior to thefiling date of this quarterly report (the "Evaluation Date"); and
c.     presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date.
5.     SIDT’s other certifying officers and Ihave disclosed, based on our most recent evaluation, to our auditors and theaudit committee of SIDT’s board of directors :
a.     all significant deficiencies in the design oroperation of internal controls which could adversely affect SIDT’s abilityto record, process, summarize and report financial data and have identified forSIDT’s auditors any material weaknesses in internal controls; and
b.     any fraud, whether or not material, thatinvolves management or other employees who have a significant role inSIDT’s internal controls. 
6.     SIDT’s other certifying officers and Ihave indicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantly affectinternal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.
Date: May 9, 2003
     /s/ Marc W. Eller                                                  Marc W. Eller, Chairman of the Board and Chief Executive Officer
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Certificate of Chief Financial Officer
 
        I, Douglas P. Baker, certify that:
1.     I have reviewed this quarterly report on Form10-QSB of SI Diamond Technology, Inc. (“SIDT).
2.     Based on my knowledge, this quarterly reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading with respectto the period covered by this quarterly report.
3.     Based on my knowledge, the financial statementsand other financial information included in this quarterly report, fairlypresent, in all material respects, the financial condition, results ofoperations and cash flows of SIDT as of, and for, the periods presented in thisquarterly report.
4.     SIDT’s other certifying officers and I areresponsible for establishing and maintaining disclosure controls and procedures(as defined in the Exchange Act Rules 13a-14 and 15d-14) for SIDT and wehave:
a.     designed such disclosure controls and proceduresto ensure that material information relating to SIDT, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this quarterly report is being prepared;
b.     evaluated the effectiveness of SIDT’sdisclosure controls and procedures as of a date within 90 days prior to thefiling date of this quarterly report (the "Evaluation Date"); and
c.     presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date.
5.     SIDT’s other certifying officers and Ihave disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of SIDT’s board of directors:
a.     all significant deficiencies in the design oroperation of internal controls which could adversely affect SIDT’s abilityto record, process, summarize and report financial data and have identified forSIDT’s auditors any material weaknesses in internal controls; and
b.     any fraud, whether or not material, thatinvolves management or other employees who have a significant role inSIDT’s internal controls.
6.     SIDT’s other certifying officers and Ihave indicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantly affectinternal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.
Date:    May 9, 2003
 
     /s/ Douglas P. Baker                              Douglas P. BakerVice-President and Chief Financial Officer
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**INDEX TO EXHIBITS**
The following documents are filed as part of this Report:
       Exhibit
       11            Computationof (Loss) Per Common Share
       99.1        Certification of Periodic FinancialReports
       99.2        Certification of Periodic FinancialReports
 

 

 

 

 

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