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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the Quarterly Period Commission file
Ended September 30, 1999 number 0-14427
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DISPLAY TECHNOLOGIES, INC.
--------------------------
(Exact name of registrant as specified in its charter)
NEVADA 38-2286268
(State or other jurisdiction (I.R.S. Employer
of incorporation or other organization) Identification Number)
5029 EDGEWATER DRIVE, ORLANDO, FLORIDA 32810 (407)521-7477
(Address, including zip code, and telephone number,
including area code, of registrant's office)
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Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities 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.
[X] Yes [ ] No
As of November 12, 1999, 7,429,879 shares of Common Stock were outstanding.
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<PAGE>
PART 1 - FINANCIAL INFORMATION
DISPLAY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1999
(unaudited) June 30, 1999
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 411,765 $ 79,832
Accounts receivable:
Trade, less allowance for doubtful accounts of $339,025 and $309,543 13,290,782 10,977,251
Other 2,642,440 1,747,635
Inventories 7,445,591 6,084,709
Costs and estimated earnings in excess of billings
on uncompleted contracts 8,811,824 4,442,012
Prepaid expenses 609,882 859,371
Deferred tax assets 216,000 133,000
----------- -----------
Total current assets 33,428,284 24,323,810
----------- -----------
Property, plant and equipment, less accumulated depreciation 11,048,647 7,947,010
----------- -----------
Other assets:
Intangibles, less accumulated amortization 15,046,018 11,283,095
Equity investments 500,000 --
Other 1,220,254 1,801,729
----------- -----------
Total other assets 16,766,272 13,084,824
----------- -----------
$61,243,203 $45,355,644
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,955,490 $ 4,833,042
Customer deposits 1,471,867 785,391
Accrued expenses 3,985,976 2,762,897
Billings in excess of costs and estimated earnings on uncompleted contracts 193,756 191,304
Current portion of long-term debt 888,558 781,926
Current portion of obligations under capital leases 688,023 336,096
----------- -----------
Total current liabilities 14,183,670 9,690,656
----------- -----------
Non-current liabilities:
Line of credit 6,413,211 5,302,630
Long-term debt, less current maturities 10,912,157 9,108,519
Obligations under capital leases, less current portion 1,477,025 962,483
Deferred tax liabilities 389,000 170,000
Other -- 169,876
----------- -----------
Total non-current liabilities 19,191,393 15,713,508
----------- -----------
Stockholders' equity:
Common stock 7,406 6,303
Additional paid-in capital 21,073,197 18,999,292
Preferred stock 5,000,000 --
Retained earnings 1,787,537 945,885
----------- -----------
Total stockholders' equity 27,868,140 19,951,480
----------- -----------
$61,243,203 $45,355,644
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
DISPLAY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Sales $ 23,096,557 $ 17,034,013
Costs of sales 15,514,780 11,034,780
------------ ------------
Gross profit 7,581,777 5,999,233
------------ ------------
Operating expenses:
Selling 2,940,511 2,461,240
General and administrative 2,823,096 1,752,058
------------ ------------
Total operating expenses 5,763,607 4,213,298
------------ ------------
Income from operations 1,818,170 1,785,935
------------ ------------
Other income (expense):
Interest income 43,426 18,757
Interest expense (432,899) (305,282)
Gain on disposals of property and equipment 6,845 4,784
Other 30,116 921
------------ ------------
(352,512) (280,820)
------------ ------------
Income from continuing operations before provision
for income taxes 1,465,658 1,505,115
Provision for income taxes 579,000 587,000
------------ ------------
Net income 886,658 918,115
Preferred dividends (43,750) --
------------ ------------
Net income available to common shareholders $ 842,908 $ 918,115
============ ============
Earnings per common share:
Basic $ 0.12 $ 0.18
============ ============
Diluted $ 0.10 $ 0.14
============ ============
Weighted average shares outstanding:
Basic 6,803,893 5,170,794
============ ============
Diluted 9,262,850 7,171,423
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
DISPLAY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 886,658 $ 918,115
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization 394,970 247,551
Gain on disposal of property and equipment (6,845) (4,784)
Contribution of common stock to 401(k) plan 86,449 29,255
Change in deferred income taxes 12,000 69,000
Other 8,372 (20,857)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable, trade (1,096,279) (2,200,119)
Other receivables (834,936) (2,998)
Inventories, including adjustments to costs,
billings and estimated earnings (4,358,741) (2,624,103)
Prepaid expenses 285,381 235,657
Accounts payable 1,257,179 899,195
Customer deposits 322,593 (211,508)
Accrued expenses 688,545 180,696
Other 28,680 5,427
----------- -----------
Net cash used for operating activities (2,325,974) (2,479,473)
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (539,961) (208,206)
Business acquisitions, net of cash acquired (1,844,980) --
Proceeds from sales of property, plant and equipment 37,059 10,526
Other investing activities -- (1,007)
----------- -----------
Net cash used for investing activities (2,347,882) (198,687)
----------- -----------
Cash flows from financing activities:
Net change in line of credit borrowings 860,581 2,853,056
Principal payments on notes payable (608,676) (372,075)
Proceeds from sales of stock, including option and
warrant exercises, net of issuance costs 67,509 33,437
Payments on capital lease obligations (197,379) (76,865)
Proceeds from the sale of preferred stock, net 4,946,000 --
Payment of preferred stock dividends (43,750) --
Other financing activities (18,496) --
----------- -----------
Net cash provided by financing activities 5,005,789 2,437,553
----------- -----------
Increase (decrease) in cash 331,933 (240,607)
Cash, beginning of period 79,832 537,564
----------- -----------
Cash, end of period $ 411,765 $ 296,957
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
DISPLAY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The financial information included herein is unaudited and does not
include all of the information and disclosures required by generally accepted
accounting principles; however, such information reflects all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of our financial position and
results of operations for the interim periods. Certain reclassifications have
been made to the prior year financial statements to conform to the current year
presentations. This report should be read in conjunction with the Consolidated
Financial Statements included in our Annual Report on Form 10-KSB for the year
ended June 30, 1999.
The results of operations for the three months ended September 30,
1999 are not necessarily indicative of the results to be expected for the full
year.
NOTE 2 - ACQUISITIONS
On July 1, 1999, we acquired all of the outstanding common stock of
Lockwood Sign Group, Inc. ("Lockwood") in exchange for 415,000 shares of our
common stock valued at $1,909,000 and $1,900,000 in cash. Up to an additional
285,000 shares of the Company's $.001 par value common stock (the "contingent
shares") are issuable on a pro-rata basis if Lockwood's net income for the year
ending June 30, 2000 is between $350,000 and $625,000. The contingent shares are
issuable at a rate of 25,909 shares for each $25,000 of net income in excess of
$350,000 up to the maximum of 285,000 shares to be issued for net income of
$625,000 or higher. The acquisition was recorded using the purchase method of
accounting. Accordingly, the purchase price was allocated to the net assets
acquired based upon their estimated fair market values. The excess of the
purchase price over the estimated fair value of the net assets acquired was
$3,840,000, which has been accounted for as goodwill and is being amortized over
40 years. The operating results of Lockwood are included in our consolidated
results of operations from the date of the acquisition.
NOTE 3 - INVENTORIES
Inventories are based on perpetual inventory records and physical
counts. Inventories consisted of the following:
September 30,
1999 June 30,
(unaudited) 1999
------------ ------------
Raw materials and work in progress $ 7,043,718 $ 5,938,552
Finished goods 401,873 146,157
------------ ------------
$ 7,445,591 $ 6,084,709
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5
<PAGE>
NOTE 4 - UNCOMPLETED CONTRACTS
The costs and estimated earnings in excess of billings on uncompleted
contracts consisted of the following:
September 30,
1999 June 30,
(unaudited) 1999
------------ ------------
Costs incurred on uncompleted
contracts $ 7,565,061 $ 5,851,502
Estimated earnings 3,644,548 3,441,933
------------ ------------
11,209,609 9,293,435
Billings to date (2,591,541) (5,042,727)
------------ ------------
$ 8,618,068 $ 4,250,708
============ ============
Included in the accompanying balance sheet under the following captions:
Costs and estimated earnings in excess
of billings on completed contracts $ 8,811,824 $ 4,442,012
Billings in excess of costs and estimated
earnings on completed contracts (193,756) (191,304)
------------ ------------
$ 8,618,068 $ 4,250,708
============ ============
NOTE 5 - REVOLVING LINE OF CREDIT
We have a $10 million revolving line of credit. The line of credit
bears interest, at our option, at either (A) three quarters of a percent over
the bank's prime rate or (B) 325 basis points over LIBOR and matures June 30,
2002. At September 30, 1999, the interest rate was 8.62%. The line of credit is
secured by eligible receivables and inventory and is cross-collateralized with
two letters of credit from the same lender and $4,775,000 in notes payable
secured by the letters of credit. As of September 30, 1999, $4,413,475 was
borrowed against this line of credit. This line of credit contains certain
financial and operating covenants. We were in compliance with all covenants at
September 30, 1999.
We also have, through our Lockwood subsidiary, an additional
$2,000,000 revolving line of credit. Advances on the credit line carry an
interest rate of 0.5% over prime. The line of credit, which is renewable,
initially matures June 22, 2001 and is collateralized by accounts receivable and
inventory of Lockwood and its real property in Charlotte, NC. At September 30,
1999, $1,999,736 was outstanding against this line of credit. This line of
credit contains certain financial and operating covenants. We were in compliance
with all covenants at September 30, 1999.
NOTE 6 - CAPITAL STOCK
During the three months ended September 30, 1999, a total of 88,827
options to purchase our common stock were exercised for total cash proceeds of
$67,509.
Also during the three months ended September 30, 1999, 22,672 shares
of our common stock valued at $86,448 were issued in connection with our 401(k)
plan matching contribution.
6
<PAGE>
On July 1, 1999, in conjunction with the acquisition of Lockwood, we
issued 415,000 shares of common stock valued at $1,909,000.
On August 1, 1999, 50,000 shares of Series A Convertible Preferred
Stock were issued for $5 million. The issuance costs of $54,000 reduced
additional paid in capital. The Series A Preferred Stock pays dividends of 5.25%
per year on the last day of March, June, September, and December in each year
and is required to be redeemed by the Company on July 30, 2004. The preferred
stock is entitled to a preference over common stock at liquidation at the
liquidation price of $100 per share plus any accrued but unpaid dividends and is
convertible into shares of common stock at the conversion price of $3.50 per
share, subject to certain anti-dilution and other adjustments. Cash dividends of
$43,750 on the preferred stock were paid during the three months ended September
30, 1999.
On September 10, 1999, accrued executive bonuses totaling $64,795 were
paid through the issuance of 16,456 shares of common stock.
NOTE 7 - EARNINGS PER SHARE
Diluted earnings per share for the three months ended September 30,
1999 and 1998 are calculated as follows:
Net income $ 886,658 $ 918,115
Convertibles debt interest, net 47,926 62,615
----------- -----------
Net income for purposes of calculating
diluted earnings per share $ 934,584 $ 980,730
=========== ===========
Basic weighted average shares 6,803,893 5,170,794
Convertible securities 1,726,717 947,525
Options and warrants 473,241 1,053,104
Lockwood acquisition contingent shares 259,000 --
----------- -----------
Diluted weighted average shares 9,262,851 7,171,423
=========== ===========
Diluted earnings per share $ 0.10 $ 0.14
=========== ===========
NOTE 8 - SUPPLEMENTAL CASH FLOW INFORMATION
The cash payments for interest for the three months ended September
30, 1999, and 1998 was $232,253 and $289,750, respectively. The following
summarizes noncash investing and financing transactions:
Three months ended
September 30,
-----------------------
1999 1998
---------- ----------
Capital lease obligations incurred
to acquire fixed assets $ 814,282 $ 84,689
Contribution of common stock to 401(k) plan 86,448 29,255
Stock issued for employee bonuses 64,795 --
Equity issued for the acquisition of Lockwood 1,909,000 --
7
<PAGE>
NOTE 9 - INDUSTRY SEGMENTS
Our operations are classified into two business segments: image
enhancement displays ("displays") and other.
The display segment markets and produces custom designed and stock
sign products which are specifically designed for internal and external use by
institutional, governmental and commercial enterprises. The display segment also
provides peripheral services on the sign products such as installation,
maintenance and service.
Operations within the other segment include the manufacture and sale
of a line of products which, when installed in compressed air lines,
substantially reduce or totally eliminate water and condensate problems and most
foreign contaminants in the air line.
The following table shows sales and operating income from continuing
operations and other financial information by segment as of and for the three
months ended September 30, 1999 and 1998:
Three months ended
September 30,
-----------------------------
1999 1998
------------ ------------
Sales to external customers
Displays $ 22,684,373 $ 16,617,876
Other 412,184 416,137
------------ ------------
$ 23,096,557 $ 17,034,013
============ ============
Operating income
Displays $ 2,351,726 $ 2,133,219
Other 64,959 113,519
Corporate expenses (598,515) (460,803)
------------ ------------
$ 1,818,170 $ 1,785,935
============ ============
Depreciation and amortization
Displays $ 363,336 $ 222,876
Other 9,410 10,009
Corporate 22,224 14,666
------------ ------------
$ 394,970 $ 247,551
============ ============
Interest income
Displays $ 43,426 $ 18,710
Other -- --
Corporate -- 47
------------ ------------
$ 43,426 $ 18,757
============ ============
Interest expense
Displays $ 143,352 $ 151,756
Other -- --
Corporate 289,547 153,526
------------ ------------
$ 432,899 $ 305,282
============ ============
8
<PAGE>
NOTE 9 - INDUSTRY SEGMENTS - (CONTINUED)
Identifiable assets
Displays $ 57,899,809 $ 33,036,988
Other 1,020,529 1,029,770
Corporate 2,322,865 1,105,950
------------ ------------
$ 61,243,203 $ 35,172,708
============ ============
Capital expenditures
Displays $ 493,307 $ 182,534
Other 37,436 1,410
Corporate 9,218 24,262
------------ ------------
$ 539,961 $ 208,206
============ ============
NOTE 10 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). FAS 133 requires companies to
recognize all derivative contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. FAS 133, as amended by FAS 137,
is effective for periods beginning after June 15, 2000. Historically, we have
not entered into derivative contracts. Accordingly, FAS 133 is not expected to
affect our financial statements.
CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------
The following discussion should be read in conjunction with
management's discussion and analysis of financial condition and results of
operations set forth in our Annual Report on Form 10-KSB for the year ended June
30, 1999, filed with the Securities and Exchange Commission on September 28,
1999, which discussion is incorporated herein by reference.
Certain matters addressed in this report may constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of
1934, as amended. Such forward-looking statements are subject to a variety of
risks and uncertainties that could cause actual results to be different
materially from those anticipated by our management. The Private Securities
Litigation Reform Act of 1995 provides certain "safe harbor" provisions for
forward-looking statements. All forward-looking statements made in this
Quarterly Report on form 10-Q are made pursuant to such act. For more
information on the potential factors which could affect our financial results,
reference should be made to our filings with the Securities and Exchange
Commission, including our Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1999.
The results of operations for the three months ended September 30,
1999, are not necessarily indicative of the results to be expected for the full
year.
THREE MONTHS ENDED SEPTEMBER 30, 1999 VS. SEPTEMBER 30, 1998
- ------------------------------------------------------------
Our sales for the quarter ended September 30, 1999 increased by
$6,062,544, or 36% over the same quarter in the prior year. Operating income
increased by $32,235, or 2%, while net income decreased by $31,457, or 3%.
The increased sales resulted from increases in the sign and image
enhancement display segment (the "display segment"). The display segment's
sales, which accounted for 97.6% of consolidated sales for the three months
ended September 30, 1999, increased by $6,066,496, or 37%, while filter sales
decreased by $3,953, or 1%, over the same quarter of the prior year. The sales
9
<PAGE>
growth in the display segment can be broken down into internal sales growth of
$228,293 and growth from acquisitions of $5,838,203.
The acquisition growth in the display segment resulted from the July
1, 1999 acquisition of Lockwood. Excluding the effects of acquisitions, display
segment sales increased from $16,617,877 in the first quarter of fiscal 1999 to
$16,846,170 in the first quarter of fiscal 2000. This modest internal growth
rate follows record sales levels during last year's first quarter. We
experienced growth in sales of both our commercial displays and our
institutional displays.
Our overall gross profit margin dropped to 32.8% for the quarter ended
September 30, 1999, from 35.2% for the same quarter of the previous year. The
drop in gross margin is due to the drop in margins on the display segment from
35% to 32%, while the filter sales margins increased to 58% from 57%. The
decrease in margins on display segment sales is a result of a change in the
sales mix from last year's first quarter. The current year's first quarter
includes a significant amount of low margin work on certain national accounts
that are expected to produce higher margins in future periods.
Selling expense increased by 19% from $2,461,240 in the first quarter
of fiscal 1999, to $2,940,511 in the first quarter of fiscal 2000. This increase
was mostly a result of acquisitions. Selling expenses, as a percentage of sales,
dropped from 14% of sales during last year's first quarter to 13% of sales
during this year's first quarter.
General and administrative expenses increased from $1,752,058 to
$2,823,096 for the three months ended September 30, 1998 and 1999, respectively.
The display segment, which includes the effects of acquisitions, had an increase
from $1,228,114 to $2,122,497. Additionally, corporate general and
administrative expenses increased from $460,803 to $598,515 for the first
quarters of fiscal 1999 and 2000, respectively.
A majority of the increase in the display segment's general and
administrative expenses came from the acquisition of Lockwood, which added
$570,276. The remainder of the increase is a result of general increases in
operating costs that have been incurred to support the growth of the Company.
The most significant areas of increase have been in personnel costs and
depreciation, as we have continued to invest in our employees and our equipment.
These increased costs will continue to support our growth throughout the
remainder of the fiscal year.
Corporate general and administrative expenses primarily consist of
executive compensation and benefits, occupancy costs of the corporate office,
and other compliance costs incurred as a result of being a public company such
as legal fees, director fees, SEC and NASDAQ filing costs and investor relations
and publicity costs. From the quarter ended September 30, 1998 to the quarter
ended September 30, 1999 corporate general and administrative costs increased
$137,712. A majority of this increase resulted from increased salaries to
executives whose compensation is calculated under a formula based upon the
financial performance of the Company.
Non-operating items netted to a $280,820 expense for the first quarter
in fiscal 1999 compared to a $352,512 expense in the first quarter of fiscal
2000 - a net increase in expenses of $71,692. The main component of this
increase is interest expense, which increased by $127,617 or 42%, from $305,282
for the three months ended September 30, 1998 to $432,899 for the three months
ended September 30, 1999. A majority of the increase in interest expense is
attributable to the Lockwood acquisition, which contributed an additional
$90,304 in interest expense for the three months ended September 30, 1999, while
the remaining increase relates to increased debt. The increase in interest
expense was partially offset by increases in interest income and other
miscellaneous income.
10
<PAGE>
Net income decreased by 4%, from $918,115 for the three months ended
September 30, 1998 to $886,658 for the three months ended September 30, 1999. On
a per share basis, basic earnings per share decreased by 33% from $0.18 per
share for the first quarter of fiscal 1999 to $0.12 per share for the first
quarter of fiscal 2000, due mostly to the 32% increase in weighted average
shares outstanding. Diluted earnings per share decreased by 29% from $0.14 for
the three months ended September 30, 1998 to $0.10 for the three months ended
September 30, 1999, again, due mostly to a 29% increase in diluted weighted
average shares outstanding.
The 29% increase in our diluted weighted average shares outstanding is
principally due to shares issued in the acquisition of Lockwood, as well as
convertible preferred stock issued in August 1999 and for net proceeds of
$4,946,000. A portion of these proceeds were used to fund the Lockwood
acquisition and $500,000 was invested in convertible preferred stock of
AmeriVision Outdoor, Inc. The remainder is held for future acquisitions.
AmeriVision is an outdoor electronic media company that owns L.E.D.
(light emitting diode) displays that are used for third party advertising
primarily at major shopping malls. AmeriVision owns and operates the signs and
collects revenue from the advertisers who buy time on the displays. As of
November 12, 1999, AmeriVision had identified sites for its first 150 displays
in major markets, secured advertising for the two displays currently operating,
and received serious expressions of interest from major national advertisers for
its network of displays. AmeriVision expects to have displays operating in major
markets in New York, California and Texas by December 31, 1999. During September
1999, AmeriVision sold two of its displays that were not located at shopping
malls.
Pursuant to an agreement dated June 28, 1999, we purchased 8,000 newly
issued shares of convertible preferred stock from AmeriVision for $500,000. The
preferred stock pays quarterly cumulative dividends at a rate of 9% per year.
Upon the satisfaction of certain conditions, the preferred stock is convertible
into common stock of AmeriVision at the price of $62.50 per share, which upon
issuance would be 80% of the outstanding common stock of AmeriVision. We also
have the option, upon certain conditions, to purchase the remaining 20% of the
common stock of AmeriVision.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash used for continuing operating activities for the quarter
ended September 30, 1999 was $2,325,974. Net income for the period provided cash
of $1,381,604, net of non-cash charges for depreciation and amortization, stock
contributions to our 401(k) plan, the change in deferred income taxes and other
non-cash items. This cash provided was offset by a net change of $3,707,578 in
our operating assets and liabilities, consisting primarily of increases in
inventories, receivables, and accounts payable.
Net cash used for investing activities for the quarter ended September
30, 1999 was $2,347,882 of which $1,844,980 was used to purchase Lockwood,
$539,961 was used for capital expenditures, and $37,059 was provided by the sale
of fixed assets.
Net cash provided by financing activities for the quarter ended
September 30, 1999 was $5,005,789. Of this amount, $4,946,000 (net of issuance
costs) was received from the sale of preferred stock, $860,581 was received
through advances on our lines of credit, and $67,509 was received upon the
exercise of outstanding stock options. Other financing activities included
payments of notes payable and capital lease obligations of $608,676 and
$197,379, respectively, and the payment of preferred stock dividends of $43,750.
11
<PAGE>
We have a $10,000,000 revolving bank line of credit. Advances on the
credit line carry an interest rate of either (A) 3/4% over prime or (B) 325
basis points over LIBOR, and initially matures June 30, 2002. The line of credit
is collateralized by eligible receivables and inventory and is
cross-collateralized with the two letters of credit from the same lender and the
$4,775,000 in notes payable secured by the letters of credit. As of November 10,
1999, $6,379,843 was borrowed against this line of credit.
We also have, through our Lockwood subsidiary, an additional
$2,000,000 revolving line of credit. Advances on the credit line carry an
interest rate of 1/2% over prime. The line of credit, which is renewable,
initially matures June 22, 2001 and is collateralized by accounts receivable and
inventory of Lockwood and its real property in Charlotte, NC. At November 10,
1998, $2,000,000 was outstanding against this line of credit.
During the first quarter of fiscal 1999, we issued 50,000 shares of
Series A Convertible Preferred Stock for $5 million. The issuance costs of
$54,000 reduced additional paid in capital. The Series A Preferred Stock pays
dividends of 5.25% per year on the last day of March, June, September, and
December in each year and is required to be redeemed by the Company on July 30,
2004. The preferred stock is entitled to a preference over common stock at
liquidation at the liquidation price of $100 per share plus any accrued but
unpaid dividends and is convertible into shares of common stock at the
conversion price of $3.50 per share, subject to certain anti-dilution and other
adjustments.
YEAR 2000 COMPUTER COMPLIANCE
- -----------------------------
Many existing computer programs only use two digits to identify a year
in the date field, with the result that data referring to the Year 2000 and
subsequent years may be misinterpreted by these programs. If present in our
computer applications or our suppliers and not corrected, this problem could
cause computer applications to fail or to create erroneous results and could
cause a disruption in operations and have an adverse effect on our business and
results of operations.
Over the last few years, we have analyzed and evaluated all internal
information technology systems, equipment and operations to ensure their Year
2000 compliance. We have been actively implementing new systems over the last
few years, and believe that all of our major information technology, including
our computer operated electronic display products, are Year 2000 complaint.
Letters of compliance have been requested from each vendor and, when the need is
identified, we intend to work with our vendors in determining appropriate
testing and compliance processes. Expenditures to remediate Year 2000 issues
have not been material and are not expected to be material in the future.
We do not assess as high the risks to operations of Year 2000
noncompliance by vendors, since numerous alternate sources of suppliers exist.
However, despite this fact and our efforts to ensure our Year 2000 compliance
and that of our vendors, we could potentially experience a disruption in our
operations as a result of Year 2000 noncompliance of certain vendors, financial
institutions, governmental agencies or other third parties or external systems.
Such a disruption could potentially affect various aspects of business
operations, such as the timeliness of completion and delivery of major
electronic display products.
(THE REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK)
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
- ----------------------------
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
- --------------------------------
On July 30, 1999, we completed a private sale of 50,000 shares of our
authorized preferred stock designated as Series A Convertible Preferred Stock
for gross proceeds of $5,000,000. The preferred stock is convertible into shares
of common stock at the conversion price of $3.50 per share, subject to certain
anti-dilution and other adjustments.
40,000 shares of the preferred stock were purchased by Raymond James
Capital Partners L.P., and the remaining 10,000 shares were purchased 5,000 each
by Renaissance Capital Growth & Income Fund III, Inc. and Renaissance U.S.
Growth & Income Trust PLC. We also issued to Raymond James and the two
Renaissance entities warrants to purchase 120,000 shares, 15,000 shares and
15,000 shares, respectively, of common stock at any time prior to July 30, 2004
at the exercise price of $3.50 per share. The exercise price is subject to
certain anti-dilution and other adjustments.
The Series A Preferred Stock pays dividends at the rate of 5.25% per
year on the last day of March, June, September and December in each year and is
required to be redeemed by the Company on July 30, 2004. The Series A Preferred
Stock is entitled to a preference over common stock at liquidation at the
liquidation price of $100 per share plus any accrued but unpaid dividends.
Holders of the Series A Preferred Stock are entitled to vote with
holders of common stock as a single class on all matters on which holders of
common stock are entitled to vote. Each share of preferred stock is entitled to
the number of votes equal to the number of shares of common stock into which it
is convertible.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
- ------------------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY - HOLDERS.
- --------------------------------------------------------------
Not applicable.
ITEM 5. OTHER INFORMATION.
- ----------------------------
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- -------------------------------------------
Not applicable.
13
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LA-MAN CORPORATION
November 12, 1999 By: /s/ J. WILLIAM BRANDNER
---------------------------------------
J. William Brandner, President &
Chief Executive Officer
By: /s/ TODD D. THRASHER
---------------------------------------
Todd D. Thrasher, Vice President &
Treasurer, Chief Financial Officer
and Chief Accounting Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DISPLAY
TECHNOLOGIES, INC. FORM 10-Q DATED SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 411,765
<SECURITIES> 0
<RECEIVABLES> 13,629,807
<ALLOWANCES> 339,025
<INVENTORY> 7,445,591
<CURRENT-ASSETS> 33,428,284
<PP&E> 16,141,099
<DEPRECIATION> 5,092,452
<TOTAL-ASSETS> 61,243,203
<CURRENT-LIABILITIES> 14,183,670
<BONDS> 10,912,157
5,000,000
5,000,000
<COMMON> 7,406
<OTHER-SE> 22,860,734
<TOTAL-LIABILITY-AND-EQUITY> 61,243,203
<SALES> 23,096,557
<TOTAL-REVENUES> 23,096,557
<CGS> 15,514,780
<TOTAL-COSTS> 5,763,607
<OTHER-EXPENSES> 352,512
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 432,899
<INCOME-PRETAX> 1,465,658
<INCOME-TAX> 579,000
<INCOME-CONTINUING> 886,658
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 886,658
<EPS-BASIC> .12
<EPS-DILUTED> .10
</TABLE>
