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 September 30, 1998
[ ] 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 Street, 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 November 10, 1998, 23,774,275 shares of Common Stock, $.001 par value per
share were outstanding.
Transitional Small Business Disclosure Format (check one):
YES_____ NO X
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ADVANCE DISPLAY TECHNOLOGIES, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Balance Sheets (unaudited) -
September 30, 1998 and June 30, 1998................................3
Statements of Operations (unaudited) -
Three months ended September 30, 1998 and 1997 and for the
period from March 15, 1995, inception, to September 30, 1998........4
Statements of Cash Flows (unaudited) -
Three months ended September 30, 1998 and 1997 and for the
period from March 15, 1995, inception, to September 30, 1998........5
Notes to Financial Statements (unaudited)............................6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition.....................7-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................9
Item 2. Changes in Securities...............................................10
Item 3. Defaults on Senior Securities.......................................10
Item 4. Submission of Matters to a Vote of
Security Holders...................................................10
Item 5. Other Information...................................................10
Item 6. Exhibits and Reports on Form 8-K....................................10
Signatures.........................................................11
2
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<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)
September 30, June 30,
1998 1998
----------- -----------
ASSETS
------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 55,856 $ 77,464
Inventory 16,238 16,238
Other current assets 12,987 8,108
----------- -----------
Total current assets 85,081 101,810
PROPERTY AND EQUIPMENT 143,719 142,934
Less: Accumulated depreciation (52,763) (40,892)
----------- -----------
Net Property and Equipment 90,956 102,042
----------- -----------
TOTAL ASSETS $ 176,037 $ 203,852
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 353,738 $ 484,060
Other accrued liabilities 204,324 156,802
----------- -----------
Total current liabilities 558,062 640,862
CONVERTIBLE, REDEEMABLE NOTES PAYABLE 1,073,725 1,023,725
SHAREHOLDERS' DEFICIT:
Preferred stock, $.001 par value, 100,000,000
shares authorized, 1,843,900 shares issued
and outstanding (liquidation preference of
$2,765,850) 1,844 1,844
Common stock, $.001 par value, 100,000,000
shares authorized, 23,774,275 and
25,176,432 shares issued and outstanding,
respectively 23,774 25,177
Additional paid-in capital 4,229,130 4,227,728
Deficit accumulated during the development
stage (5,710,498) (5,715,484)
----------- -----------
Total Shareholders' Deficit (1,455,750) (1,460,735)
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 176,037 $ 203,852
=========== ===========
(See accompanying notes to unaudited financial statements)
3
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<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
March 15, 1995
(Inception)
Three Months Ended Through
September 30, September 30,
1998 1997 1998
------------ ------------ ------------
REVENUE:
<S> <C> <C> <C>
Consulting Rees $ -- $ 15,000 $ 30,200
------------ ------------ ------------
TOTAL REVENUE -- 15,000 30,200
COSTS AND EXPENSES:
General and administrative 107,257 259,287 1,350,342
Research and development 37,441 45,668 2,946,407
Impairment of intangible assets -- -- 451,492
------------ ------------ ------------
Total costs and expenses 144,698 304,955 4,748,241
------------ ------------ ------------
OPERATING LOSS (144,698) (289,955) (4,718,041)
OTHER INCOME (EXPENSES):
Interest Income 323 -- 163,084
Other Income 175,550 -- 177,971
Interest expense - related party (26,189) (15,169) (1,333,512)
------------ ------------ ------------
Total Other Income (Expenses) 149,684 (15,169) (992,457)
------------ ------------ ------------
NET INCOME (LOSS) $ 4,986 $ (305,124) $ 5,710,498
============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE
(Basic and diluted) $ -- $ (.01)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 24,555,128 21,343,923
============ ============
(See accompanying notes to unaudited financial statements)
4
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<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
March 15, 1995
Three Months Ended (Inception)
September 30, Through
-------------------------------- September 30,
1998 1997 1998
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income (Loss) $ 4,986 $ (305,124) $(5,710,498)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Acquired research and development expense -- -- 2,536,494
Impairment of intangible asset -- -- 451,492
Depreciation and amortization 11,871 25,036 179,624
Stock option compensation expense -- -- 214,125
Interest expense related to debt discount -- -- 1,013,933
Loss on disposal of assets -- -- 304
(Increase) decrease in:
Inventory -- (57,992) (10,190)
Other current assets (4,879) (20,866) (144,480)
(Decrease) increase in:
Accrued interest payable to members 26,189 14,646 297,499
Accounts payable (130,322) (29,486) (92,106)
Other accrued liabilities 21,333 57,673 (8,515)
----------- ----------- -----------
Net cash used in operating activities (70,822) (316,113) (1,272,318)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (786) (6,536) (91,145)
Proceeds from sale of assets -- -- 8,400
Advances to affiliates -- -- (932,925)
Purchase of notes receivable and
security interest -- -- (225,000)
Cash received in acquisition -- -- 303,812
----------- ----------- -----------
Net Cash used in investing activities (786) (6,536) (936,858)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions -- -- 103,127
Proceeds from notes payable to shareholders -- 65,000 65,000
Proceeds from convertible notes
payable to shareholders 50,000 50,000 1,797,400
Proceeds from line-of-credit -- -- 299,505
----------- ----------- -----------
Net Cash provided by
financing activities 50,000 115,000 2,265,032
----------- ----------- -----------
Increase (decrease) in cash (21,608) (207,649) 55,856
Cash & cash equivalents
at beginning of period 77,464 235,731 --
----------- ----------- -----------
Cash and cash equivalents at end
of period $ 55,856 $ 28,082 $ 55,856
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ -- $ -- $ 26,570
=========== =========== ===========
Taxes $ -- $ -- $ --
=========== =========== ===========
Issuance of common Stock for acquisition
of Display Group, LLC and Display
Optics, Ltd. and conversion of
Convertible debt $ -- $ -- $ 2,199,026
=========== =========== ===========
Conversion of notes payable to stockholders
to common stock $ -- $ -- $ 550,000
=========== =========== ===========
(See accompanying notes to unaudited financial statements)
5
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ADVANCE DISPLAY TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1.
The accompanying unaudited interim 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 Form 10-KSB for Advance Display Technologies, Inc.
("ADTI" or the "Company")for the year ended June 30, 1998, as the notes to these
interim financial statements omit certain information required for complete
financial statements.
Note 2.
Subsequent Events
- -----------------
Effective October 5, 1998, the Company issued an additional convertible,
redeemable promissory note in the amount of $50,000 due and payable October 15,
2000 and under substantially the same terms and conditions as the Company's
other convertible, redeemable promissory notes previously outstanding.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
Special Note Regarding Forward Looking Statements
Certain statements contained herein constitute "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward looking statements include, without limitation, statements regarding
Advance Display Technologies, Inc.'s ("ADTI" or the "Company") anticipated
marketing and production, need for working capital, future revenues and results
of operations. Factors that could cause actual results to differ materially
include, among others, the following: future economic conditions, the ability of
the Company to obtain sufficient capital, to further develop and improve the
manufacturing process for its product, to manufacture its product at a cost that
would result in profitable sales, to sell a sufficient number of screens at a
sufficient price to result in positive operating margins, to attract and retain
qualified management and other personnel, and generally to successfully execute
a business plan that will take the Company from a development stage entity to a
profitable operating company. Many of these factors are outside the control of
the Company. Investors are cautioned not to put undue reliance on forward
looking statements. Except as otherwise required by rules of the Securities and
Exchange Commission, the Company disclaims any intent or obligation to update
publicly these forward looking statements, whether as a result of new
information, future events or otherwise.
Statements in this Report are qualified in their entirety by reference to
contracts, agreements, and other exhibits filed or incorporated with the
Company's Form 10-KSB for the fiscal year ended June 30, 1998.
Results of Operations
- ---------------------
During the quarter ended September 30, 1998, the Company remained in a
research and development ("R&D") phase, continuing efforts to design and develop
an adequately bright projector for use with the Company's fiber optic screen
technology. As of the date of this report, no definitive solution to this issue
has been reached. If these efforts are not successful, the ability of the
Company to raise additional capital to continue operations will be significantly
hindered and the Company may be forced to discontinue operations.
For the fiscal quarter ended September 30, 1998, the Company reported net
income of $4,986 as compared to net loss of ($305,133) for the fiscal quarter
ended September 30, 1997. The difference in net income and loss for the quarters
presented is primarily due to: 1) other income of $175,000 received during the
quarter ended September 30, 1998 in settlement of previously pending litigation
(see Part II, Item 1. Legal Proceedings, below) compared to consulting revenues
of $15,000 for the same period of the prior year; and, 2) a decrease in general
and administrative ("G&A") costs for 1998 of approximately $152,000 from amounts
reported in 1997 primarily due to reductions in legal, professional and
consulting fees, marketing costs, amortization expense and salaries. As a result
of downsizing and cost containment measures, the Company was able to reduce
operating loss from approximately $290,000 for the quarter ended September 30,
1997 to approximately $145,000 for the same quarter of the current fiscal year.
The Company reported total other income of $175,550 for the fiscal quarter
ended September 30, 1998 which consisted almost entirely of the litigation
settlement fees. The Company reported total revenue of $15,000 for the fiscal
quarter ended September 30, 1997 which consisted entirely of consulting fees
pursuant to an agreement with Toshiba Lighting and Technology Corporation
("TLT") effective July 1, 1997. The agreement called for the Company to provide
technical support for an outdoor product of TLT and to provide market research
information for consideration of $5,000 per month. There were no sales of the
Company's products to report for either fiscal quarter.
The Company reported G&A expenses of $107,257 and $259,102 for the quarters
ended September 30, 1998 and 1997, respectively. Legal and other professional
fees decreased approximately $96,000 in 1998 from 1997 due to the settlement of
litigation, completion of a marketing study in 1997, and a reduction in
7
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management consulting fees in 1998 from 1997. In June 1998, the Company recorded
a write-down of its intellectual property to $0 which reduced amortization
expense in the fiscal quarter ended September 30, 1998 from 1997 by
approximately $19,500. The Company also reduced its workforce in 1998 from 1997
by approximately 6 people resulting in a net decrease in salaries and payroll
expenses of $25,000. G&A expenses for the fiscal quarter ended September 30,
1998 included: 1) depreciation of approximately $11,000; 2) general office
expense of approximately $19,000; 3) employee salaries and expenses of
approximately $48,000; and 4) professional fees of approximately $29,000
(including legal fees incurred for settlement of the litigation and general
corporate matters, and, accounting fees in connection with the audit of the
Company's financial statements for the fiscal year ended June 30, 1998).
The Company also reported research and development ("R&D") expenses of
$37,441 and $45,668 for the quarters ended September 30, 1998 and 1997,
respectively. The Company has determined that a projector substantially brighter
and possessing a better cost to performance ratio than those commercially
available today is needed to provide adequate illumination for the successful
marketing of its screen. Toward that end, the Company has placed illumination,
projection and electrical engineering specialists under contract to design and
develop an adequately bright projector for use with the Company's fiber optic
screen. During the quarter ended September 30, 1998, R&D costs were primarily
incurred in this pursuit.
Interest expense increased from $15,169 for the fiscal year ended September
30, 1997 to $26,189 for the same period of the current fiscal year. This
increase is due to an increase in outstanding notes payable for the quarter
ended September 30, 1998.
Liquidity and Capital Resources
- -------------------------------
Due to significant costs associated with development and marketing of the
Company's products and the lack of material sales to date, the Company has
experienced a continuing need for financing since the 1980's. The Company and
its subsidiaries have been totally dependent on financing from outside sources
to fund operations for nearly five years. At September 30, 1998, the Company
reported negative net worth of $1,455,750 and negative working capital of
$472,981. The Company will require additional capital for administrative
expenses, continued development of the product, further design and development
of an automated manufacturing process and marketing costs. Management believes
that the Company's continued existence is dependent upon its ability to: 1)
develop or acquire an adequately bright projector at an acceptable cost; 2)
complete the design and development of the alternative automated manufacturing
process; 3) successfully market the product; 4) obtain additional sources of
funding through outside sources; and 5) achieve and maintain profitable
operations. There can be no assurance that the Company will be able to achieve
its research and development goals, obtain sufficient additional capital or
manufacture or sell its products on terms and conditions satisfactory to the
Company.
During the fiscal quarter ended September 30, 1998, the Company received a
payment of $175,000 in settlement of previously outstanding litigation (see Item
II, Part 1. Legal Proceedings, below). Cash flows from financing activities for
the fiscal quarter ended September 30, 1998, consisted entirely of proceeds from
the issuance of a convertible, redeemable promissory note in the amount of
$50,000, due and payable October 15, 2000 and with substantially the same terms
as the Company's other convertible, redeemable promissory notes outstanding.
Proceeds from the settlement and financing activities received during the fiscal
quarter ended September 30, 1998 were primarily used for ongoing research in the
design and development of an adequately bright projector and operating expenses.
Effective October 5, 1998, the Company issued an additional convertible,
redeemable promissory note in the amount of $50,000 under the same terms and
conditions as the convertible, redeemable promissory note issued in September
1998.
The Company received consulting fees of $15,000 for the fiscal quarter
ended September 30, 1997 pursuant to an agreement with Toshiba Lighting and
8
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Technology Corporation ("TLT") effective July 1, 1997. Cash flows from financing
activities for the fiscal quarter ended September 30, 1997 consisted of notes
payable and convertible, redeemable promissory notes totaling $115,000.
ADTI reported a working capital deficit position at September 30, 1998.
Current liabilities exceeded current assets by $472,981. At September 30, 1998,
current liabilities consisted of trade payables and accrued expenses of $558,062
for costs of the Exchange, operating costs and various payables and accruals
from prior years. While management intends to pursue various strategies to
reduce or eliminate certain of these liabilities, there is no assurance that
these efforts will be successful.
The Company's efforts will continue to be focused on research for the
design and development of an adequately bright projector for use with the
Company's fiber optic screen technology. As of the date of this report, no
definitive solution to this issue has been reached. If these efforts are not
successful, the ability of the Company to raise additional capital to continue
operations will be significantly hindered and the Company may be forced to
discontinue operations. Although the Company will continue efforts on raising
additional capital through private placements or other sources, there can be no
assurances that the Company will be able to acquire the capital needed or be
successful in achieving these objectives.
Impact of the Year 2000 Issue
- -----------------------------
There have been no changes in the Company's assessments or plans regarding
the impact of the year 2000 since the Company filed its Form 10-KSB for the
fiscal year ended June 30, 1998.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
- --------------------------
DISPLAY GROUP, LLC vs. AMERICAN CONSOLIDATED GROWTH CORPORATION.
- ----------------------------------------------------------------
This civil action involved ownership of Common Stock of ADTI. Plaintiff
Display Group, LLC, a subsidiary of the Company, filed a civil action dated July
19, 1996 against American Consolidated Growth Corporation ("ACGC") and AGT
Sports, Inc. in the Arapahoe County District Court, Civil Action No. 96-CV1560,
seeking ownership of approximately 1,400,000 shares of Common Stock of ADTI
pursuant to a security interest owned by Display Group. That security interest
was acquired from the Resolution Trust Corporation ("RTC") pursuant to a public
sale. This civil action was terminated concurrently with the suit discussed
below.
DISPLAY GROUP, LLC vs CORPORATE PARTNERS, INC. and JEFFREY S. ROBINSON
- ----------------------------------------------------------------------
This civil action arose from the same loan package acquired by Display
Group, LLC from the RTC that is described above regarding the claim on the
collateral against American Consolidated Growth Corporation. Plaintiff Display
Group, LLC filed a civil action against Corporate Partners, Inc. ("CPI") and
Jeffrey S. Robinson in the District Court of Lubbock County, Texas, the 140th
Judicial District, Civil Action No. 96-557024. This civil action sought judgment
on a promissory note dated September 19, 1990 (the "Note") and against Jeffrey
Robinson under a Guarantee and Confirmation of Guarantee of that Note.
On August 17, 1998, the Company executed an agreement effective August 10,
1998 (the "Settlement Agreement") in settlement of both matters. In connection
with the Settlement Agreement, CPI and Robinson paid the Company $175,000 cash
and transferred and assigned to the Company a minimum of 1,402,157 shares of
ADTI Common Stock. Prior to the settlement, a portion of this Common Stock was
held by the registry of the court pending completion of trial on the merits of
the case. CPI, Robinson and/or ACGC have also agreed to transfer any additional
shares of ADTI Common Stock owned by any of them and which was not transferred
on the date of closing. The ADTI Common Stock acquired in the settlement was
9
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returned to the authorized but unissued stock of ADTI. The cash received in
settlement of the litigation was used as working capital.
Also as part of the settlement, the parties executed mutual releases and
covenants not to sue for any claims which were or could have been the subject of
the litigation and which existed from the beginning of time to the settlement
date.
ITEM 2. CHANGES IN SECURITIES.
- ------------------------------
On September 28, 1998 and October 5, 1998, the Company sold an aggregate of
$100,000 of convertible, redeemable promissory notes pursuant to a previously
Board authorized private placement of its securities in a transaction exempt
from the registration requirements of the 1933 Act. These notes were sold
pursuant to the provisions of Regulation D, Rule 506 of the 1933 Act. The notes
will be due October 15, 2000 and are convertible, at the option of the
noteholder, into shares of the Company's Common Stock at the rate of $0.1615 per
share. The Company will have the right to call these notes after one year and
the note holders will have 30 days in which to convert if these notes are called
by the Company. The Company may elect to pay interest on any of these notes
converted in cash or by issuance of additional shares of the Company's Common
Stock.
ITEM 3. DEFAULTS ON SENIOR SECURITIES.
- --------------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------
None.
ITEM 5. OTHER INFORMATION.
- --------------------------
Mr. Kenneth P. Warner resigned his positions as President and Chief
Executive Officer of the Company effective September 17, 1998 to pursue other
interests. Mr. Warner has remained on the Board of Directors. Mr. Matthew W.
Shankle was appointed President as Mr. Warner's replacement and was also
appointed to the Board of Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- -----------------------------------------
The Company filed a report on Form 8-k dated August 10, 1998 to report the
settlement of previously pending litigation. (See Part II, Item 1. Legal
Proceedings, above)
10
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report on Form 10-QSB to be signed on its behalf by the undersigned,
thereunto duly authorized.
ADVANCE DISPLAY TECHNOLOGIES, INC.
(Registrant)
Date: November 16, 1998 /s/ Matthew W. Shankle
----------------- -----------------------------------
Matthew W. Shankle
President
(Chief Executive and Financial Officer)
11
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<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 55,856
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 16,238
<CURRENT-ASSETS> 85,081
<PP&E> 143,719
<DEPRECIATION> (52,763)
<TOTAL-ASSETS> 176,037
<CURRENT-LIABILITIES> 558,062
<BONDS> 0
0
1,844
<COMMON> 23,774
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<TOTAL-LIABILITY-AND-EQUITY> 176,037
<SALES> 0
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<TOTAL-COSTS> 144,698
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