SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT
For the transition period from ____________ to ____________
Commission file number: 0-15224
ADVANCE DISPLAY TECHNOLOGIES, INC.
----------------------------------
(Exact name of small business issuer as
specified in its charter)
COLORADO 84-0969445
- ------------------------ -----------------------
(State of incorporation) (IRS Employer ID number)
1251 South Huron, Unit C, Denver, Colorado 80223
--------------------------------------------------
(Address of principle executive offices) (Zip Code)
(303) 733-5339
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 March 31, 1996, 3,836,135 common shares, $.001 par value per share were
outstanding.
Transitional Small Business Disclosure Format (check one):
YES NO [ X ]
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets -
March 31, 1996 (unaudited) and June 30,1995 .............. 3
Consolidated Statements of Operations - (Unaudited)
Three months and nine months ended March 31, 1996
and March 31, 1995 and for the period from
October 7, 1983, inception, to March 31, 1996 ............ 4
Consolidated Statements of Cash Flows - (Unaudited)
Three months and nine months ended March 31, 1996
and March 31, 1995 and for the period from
October 7, 1983, inception, to March 31, 1996 ........... 5-6
Notes to Consolidated Financial Statements ............... 7
Item 2. Managements' Discussion and Analysis of
Results of Operations and Financial Condition ........... 8-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................ 12
Item 2. Changes in Securities .................................... 12
Item 3. Defaults on Senior Securities ............................ 12
Item 4. Submission of Matters to a Vote of
Security Holders ........................................ 12
Item 5. Other Information ........................................ 12
Item 6. Exhibits and Reports on Form 8-K ......................... 12
Signatures ............................................... 13
2
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
1996 1995
------------ ------------
(Unaudited)
ASSETS
Property, and Equipment $ 124,203 $ 124,203
Less: Accumulated depreciation (124,203) (124,203)
------------ ------------
Net Property and Equipment --- ---
------------ ------------
Investment in DOL 417,682 459,873
------------ ------------
Total Assets $ 417,682 $ 459,873
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accrued expenses $ 92,748 $ 92,874
Due to affiliated parties 32,323 31,502
------------ ------------
Total Current Liabilities 125,071 124,376
Research and Development Liability 1,021,703 392,222
------------ ------------
Total Liabilities 1,146,774 516,598
Shareholders' Equity:
Preferred stock, $.001 par value 2,991 2,991
Common stock, $.001 par value 3,836 3,836
Additional paid-in capital 11,472,940 11,472,940
Treasury stock (22,880) (22,880)
Accumulated deficit (12,185,979) (11,513,612)
------------ ------------
Total Shareholders' Equity (729,092) (56,725)
------------ ------------
Total Liabilities and
Shareholders' Equity $ 417,682 $ 459,873
============ ============
(See accompanying notes to financial statements)
3
<PAGE>
<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended October 7, 1983
March 31, March 31, Inception through
---------------------------- ---------------------------- March 31,
1996 1995 1996 1995 1996
------------ ------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
Revenue:
Licensing and exclusivity fees $ --- $ --- $ --- $ --- $ 2,500,000
Royalty fees --- 4,430 --- 13,289 320,047
Product and equipment sales --- --- --- --- 1,243,935
Consulting --- --- --- --- 60,000
Other --- --- --- --- 1,037,971
------------ ------------ ------------ ------------ -------------
Total Revenue --- 4,430 --- 13,289 5,161,953
Cost of Goods Sold --- --- --- --- (1,004,614)
------------ ------------ ------------ ------------ -------------
Gross Operating Profit --- 4,430 --- 13,289 4,157,339
Expenses:
Marketing --- --- --- --- 741,463
Research and development 125,800 22,896 273,409 142,019 3,623,930
General and administrative 148,143 126,056 409,038 310,717 11,263,099
------------ ------------ ------------ ------------ -------------
Total Expenses 273,943 148,952 682,447 452,736 15,628,492
------------ ------------ ------------ ------------ -------------
Operating (Loss) (273,943) (144,522) (682,447) (439,447) (11,471,153)
Other Income (Expenses):
Other income --- --- --- --- 696,799
Interest income 2,919 3,998 10,077 14,142 290,744
Loss on assets disposed --- --- --- --- (1,002,838)
Interest expense --- --- --- --- (699,534)
------------ ------------ ------------ ------------ -------------
Total Other Income (Expense) 2,919 3,998 10,077 14,142 (714,829)
------------ ------------ ------------ ------------ -------------
Net Loss $ (271,024) $ (140,524) $ (672,370) $ (425,305) $ (12,185,982)
============ ============ ============ ============ =============
Net Loss per Common Share $ ( .07) $ ( .04) $ .18) $ ( .11)
======= ======= ======= =======
Weighted Average Number of Common
Shares Outstanding 3,836,135 3,786,135 3,836,135 3,785,252
========= ========= ========= =========
(See accompanying notes to financial statements)
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Nine Months Ended October 7, 1983
March 31, March 31, Inception through
--------------------------- --------------------------- March 31,
1996 1995 1996 1995 1996
------------ ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (271,024) $ (140,524) $ (672,370) $ (425,305) $ (12,185,982)
Adjustments to reconcile net loss
to net cash (used in)
operating activities:
Depreciation and amortization 14,063 16,206 42,190 51,755 3,238,090
Deferred revenue --- (4,430) --- (13,289) (315,004)
Stock issued for services --- --- --- --- 2,133,727
Loss on disposal of assets --- --- --- --- 1,002,838
(Increase) decrease in:
Due from affiliates and other 17,323 13,135 56,495 29,267 (232,141)
Increase (decrease) in:
Accounts payable --- --- --- (116) 349,811
Accrued expenses (126) --- (126) --- 568,360
Due to officers, stockholders
and affiliated parties 821 (10,000) 821 (10,000) (7,640)
----------- ----------- ------------ ------------ -------------
Net cash used in
operating activities (238,943) (125,613) (572,990) (367,688) (5,447,941)
----------- ----------- ------------ ------------ -------------
Cash Flows from Investing Activities:
Additions to property and equipment --- --- --- --- (3,692,226)
Other assets --- --- --- --- (677,675)
Acquisition of subsidiary --- --- --- --- (85,524)
Cash from disposal of assets --- --- --- --- 273,417
----------- ----------- ------------ ------------ -------------
Net Cash used in
investing activities --- --- --- --- (4,182,008)
----------- ----------- ------------ ------------ -------------
Cash Flows from Financing Activities:
Proceeds from affiliates --- --- --- --- 39,960
Issuance of common stock --- --- --- --- 6,774,027
Increase in treasury stock --- --- --- --- (22,280)
Increase in notes payable --- --- --- --- 2,862,760
Sale leaseback proceeds,
net of certificate
of deposit ($550,000),
loan fees ($30,000) --- --- --- --- 180,000
Payments of principal on
notes payable and capital
lease obligations --- --- --- --- (1,882,780)
Deferred loan costs --- --- --- --- (55,556)
Royalty fees received in advance --- --- --- --- 315,000
Settlement of capital lease --- --- --- --- (163,199)
Issuance of preferred stock --- --- --- --- 349,999
Research and development liability 238,943 125,613 572,990 367,688 1,232,018
----------- ----------- ------------ ------------ -------------
Net Cash provided by
financing activities 238,943 125,613 572,990 367,688 9,629,949
----------- ----------- ------------ ------------ -------------
(See accompanying notes to financial statements)
(Continued)
5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
Three Months Ended Nine Months Ended October 7, 1983
March 31, March 31, Inception through
---------------------------- ---------------------------- March 31,
1996 1995 1996 1995 1996
------------ ------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in cash --- --- --- --- ---
Cash and cash equivalents
at beginning of period --- --- --- --- ---
------------ ------------ ----------- ------------ --------------
Cash and cash equivalents at end
of period $ --- $ --- $ --- $ --- $ ---
============ ============ =========== ============ ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ --- $ --- $ --- $ --- $ 718,515
============ ============ =========== ============ ==============
Taxes $ --- $ --- $ --- $ --- $ ---
============ ============ ========== ============ ==============
Property and equipment through
capital leases $ --- $ --- $ --- $ --- $ 1,332,376
============ ============ =========== ============ ==============
Assets acquired for liabilities
assumed in purchase of
Video View, Inc. $ --- $ --- $ --- $ --- $ 297,130
=========== ============ =========== ============ ==============
Acquisition of certain assets
(including patents) for common
stock and assumption of
liabilities $ --- $ --- $ --- $ --- $ 200,000
============ ============ =========== ========= ==============
Settlement of trade payables and
accrued salaries through
issuance of common stock $ --- $ --- $ --- $ 9,300 $ 599,803
============ ============ =========== ============ ==============
(See accompanying notes to financial statements)
6
</TABLE>
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1.
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with the instructions to Form 10-QSB and do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The results of operations
for any interim period are not necessarily indicative of results for the entire
fiscal year. These statements should be read in conjunction with the financial
statements and related notes included in the Company's Form 10-KSB for the year
ended June 30, 1995, as the notes to these interim financial statements omit
certain information required for complete financial statements.
Note 2.
The consolidated financial statements include the accounts of Video View,
Inc., a subsidiary which the Company owns 100 percent of the voting stock. Video
View, Inc. has been inactive since 1991.
Note 3.
In December 1993, the Company organized a limited partnership, Display
Optics, Ltd. (the "Partnership" or "DOL"), to obtain capital to continue
development of the fiber optic video technology and other related display screen
technology. The Company acts as a general partner and the Partnership is managed
by Display Group, LLC. The Company conducts substantially all of its business
through the Partnership. The Company accounts for its relationship with DOL as a
research and development partnership which requires the Company to record
certain expenses incurred by DOL as expenses of the Company and a liability to
the investors.
Note 4.
The Company has restated net loss for the quarter and nine months ended
March 31, 1995, deficit accumulated during the development stage, investment in
DOL, common stock and additional paid-in capital as a result of certain
transactions and adjustments described in the notes to the financial statements
contained in the Company's annual report on Form 10-KSB for the fiscal year
ended June 30, 1995.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
General
- -------
In December 1993, the Company organized a limited partnership, Display
Optics, Ltd. (the "Partnership"), to obtain capital to continue development of
the fiber optic video technology and related display screen technology and to
manufacture and market the display screen products world-wide. The Company acts
as a general partner and the Partnership is managed by Display Group, LLC. The
Company conducts substantially all of its business through the Partnership. For
accounting purposes, the Company accounts for its relationship with the
Partnership as a research and development partnership which requires the Company
to record certain expenses incurred by the Partnership as expenses of the
Company and a liability to the investors. As of March 31, 1996, the research and
development liability was $1,021,703, net of advances due the Company from the
Partnership. The investors are entitled to preferential payment from available
cash flows from the Partnership which would reduce the research and development
liability of the Company.
In February 1995, the Partnership agreed to borrow $275,000 from the
managing partner secured by the assets of the Partnership, for working capital.
In conjunction with the loans the Company entered into certain agreements with
the investors. As of March 31, 1996, the Partnership had borrowed $273,127 under
the agreement and had additional borrowings of approximately $469,250 from the
managing partner and affiliates. The loans are convertible to partnership units
which may then be converted into common shares of the Company.
The patents and technology formerly owned by the Company and transferred to
the Partnership in connection with the initial capitalization are subject to a
security interest in favor of a commercial lender and another entity. Management
believes that a security interest arose while the patents and technology were
owned by the third party. The assets of the commercial lender were subsequently
acquired by the Resolution Trust Corporation (RTC) as receiver, resulting in the
RTC maintaining the security interest in these patents and technology together
with the debt which the technology secured. Management does not believe any
action was ever commenced to foreclose or otherwise enforce the security
interest. In December, 1995, the managing partner of the Partnership acquired
the security interest in these patents and technology as collateral for a
debenture securing the underlying note which was also acquired from the RTC. The
Company believes such security interest or the interest in the underlying
technology will ultimately be contributed to the Partnership for additional
consideration. The patents and technology continue to serve as collateral to the
debenture in the principal amount of $2,175,000, which debenture and underlying
note is currently in default. The managing partner is in the process of
foreclosing upon the note and debenture.
8
<PAGE>
The Company has restated net loss for the quarter and nine months ended
March 31, 1995, deficit accumulated during the development stage, investment in
DOL, common stock and additional paid-in capital as a result of certain
transactions and adjustments described in the notes to the financial statements
contained in the Company's annual report on Form 10-KSB for the fiscal year
ended June 30, 1995.
Results of Operations
- ---------------------
For the quarter and nine months ended March 31, 1996, the Company reported
net loss of $271,024 and $672,370, respectively, as compared to net loss of
$140,524 and $425,305, respectively, for the same fiscal periods of 1995. There
were no sales of the Company's products to report for the fiscal periods of
either year. The Company believes the lack of sales of products has been
attributed to the inadequacies or cost inefficiencies of projection systems. In
addition, the Company's ability to adequately develop and market its products
has been severely limited over the past several years due to the lack of
adequate operating capital. As a result of the formation of the Partnership,
significant engineering developments have been accomplished which the Company
believes will substantially improve the projection aspect of the system, as well
as refine the fiber optic screen and other display screen technologies. The
Company hopes that additional capital will be raised from the sale of
partnership units for continued development and aggressive marketing of the
display screen products through the Partnership.
The increase in net loss for the quarter and nine months ended March 31,
1996 from the same periods of the prior fiscal year is primarily due to: 1) an
increase in research and development expenses, 2) and increase in general and
administrative expenses, and 3) a reduction in interest income and royalty fees.
Research and development expenses for the quarter and nine month periods
increased by $102,904 and $131,390, respectively, from 1995 to 1996, due to
continued development of the Company's products. General and administrative
expenses for the quarter and nine month periods increased by $22,087 and
$98,321, respectively, relating primarily to: 1) increased interest expense on
outstanding debt, 2) increased rent and utilities for additional space, and 3)
increased salaries, consulting, accounting and legal expenses for day to day
operations, completing the Company's filings required by regulatory agencies and
preserving and protecting the Company's technology. The Company reported a
reduction in royalty revenues of $4,430 and $13,289 and interest income of
$1,079 and $4,065 for the quarter and nine months ended March 31, 1996 from the
same periods of the prior fiscal year, respectively. The Company continued
development of its technologies through the Partnership during fiscal 1996.
Approximately $125,800 and $273,400 was expended by the Partnership on research
and development during the quarter and nine months, respectively.
Management of the Company is presently unable to predict with any degree of
certainty when, if ever, the Company might obtain revenues from the commercial
sale of products through the Partnership. Such revenue is dependent upon
continued refinement of the display screen technologies and raising additional
working capital. The Partnership hopes to finalize the prototype and begin
manufacturing the product for sale, initially to the large display screen
markets, in 1996.
9
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company has been totally dependent on the ability of the Partnership to
obtain capital to fund operations and expects to continue to be in the
foreseeable future. As of March 31, 1996, the Company reported negative net
worth of $729,092 and negative working capital of $125,071. The negative net
worth is primarily due to the partnership arrangement which is treated as a
research and development liability for accounting purposes. According to the
terms of partnership documents, the investors will receive preferential
distribution from any available cash flows of the partnership which will reduce
the liability. Additional capital will be required for administrative expenses,
continued development of the products, including completion of prototypes,
manufacturing start up costs and marketing the product. The Partnership hopes to
obtain additional capital from the sale of Partnership units under the
Partnership Agreement or additional loans from the managing partner or limited
partners. Management of the Company believes the partners' continued willingness
to fund the Partnership is dependent upon acceptance of: completed prototype
stages; continued development schedules; a marketing plan; and, other factors.
The Company's continued existence is dependent upon its ability to: perfect
the Partnership's interest in the technology and develop the technology into a
commercially viable product; successfully assist the Partnership in marketing
the products; obtain additional sources of funding through outside financing or
equity investments; and achieve and maintain profitable operations. The
Company's efforts will continue to be focused on further supporting the
Partnership's development of the projection system and screen, and on raising
additional capital through the sale of additional partnership units or other
sources. Although management believes these objectives will be achieved, there
can be no assurance that the Company or the Partnership will be able to obtain
additional capital or sell the products on terms and conditions satisfactory to
the Company and the Partnership.
In conjunction with formation of the Partnership, the Company sold an
aggregate of 2,991,474 shares of Series B preferred stock. Qualified investors
executed an agreement to acquire the Series B preferred stock for aggregate
consideration of $350,000, or $.117 per share. Proceeds from the issuance of the
Series B preferred stock were advanced to and disbursed by the Partnership.
These funds have been used for organizational and administrative costs of the
Partnership, preparation and filing of the Company's annual and quarterly
reports and other general and administrative expenses of the Company, and on
continued research and development of the fiber optic screen, projection and
other related display screen technologies. Amounts accrued by the Partnership
for Company expenses reduce advances due the Company by the Partnership. As of
March 31, 1996, the balance of advances due the Company by the Partnership was
approximately $210,000. For financial reporting purposes, the advances due the
Company by the Partnership are offset by the liability due the Partnership under
the research and development arrangement.
10
<PAGE>
Cash flows from financing activities for the quarters and nine months ended
March 31, 1996 and 1995 consisted entirely of the increase in the research and
development liability of $238,943 and $572,990, respectively, for 1996 and
$125,613 and $367,688, respectively, for 1995. Total cash flows from financing
activities for both 1996 and 1995 were used completely for operating activities.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
- ------- ------------------
None.
ITEM 2. CHANGES IN SECURITIES.
- ------- ----------------------
None.
ITEM 3. DEFAULTS ON SENIOR SECURITIES.
- ------- ------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------- ----------------------------------------------------
None.
ITEM 5. OTHER INFORMATION.
- ------- ------------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------- ---------------------------------
None.
12
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ADVANCE DISPLAY TECHNOLOGIES, INC.
----------------------------------
(Registrant)
Date: May 11, 1996 /S/ Darrell D. Avey
------------ -------------------------------------
Darrell D. Avey
Chairman of the Board
Corporate Secretary
Acting Chief Financial Officer
Date: May 11, 1996 /S/ Michael A. Nixon
------------ --------------------------------------
Michael A. Nixon
Member of the Board
President
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
Consolidated Balance Sheet as of March 31, 1996 and June 30, 1995.
Consolidated Statements of Operations and Consolidated Statements
of Cash Flows for the three and nine month periods ended March 31, 1995 and 1995
and for the period from inception to March 31, 1996 (all unaudited)AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 417,682
<CURRENT-LIABILITIES> 125,071
<BONDS> 0
0
2,991
<COMMON> 3,836
<OTHER-SE> (735,919)
<TOTAL-LIABILITY-AND-EQUITY> 417,682
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 682,447
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (682,447)
<INCOME-TAX> 0
<INCOME-CONTINUING> (682,447)
<DISCONTINUED> 0
<EXTRAORDINARY> 10,077
<CHANGES> 0
<NET-INCOME> (672,370)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
