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 December 31, 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 January 31, 1999, 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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<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Balance Sheets (unaudited) -
December 31, 1998 and June 30, 1998........................ 3
Statements of Operations (unaudited) -
Three months and six months ended December 31, 1998
and 1997 and for the period from March 15, 1995,
inception, to December 31, 1998............................ 4
Statements of Cash Flows (unaudited) -
Three months and six months ended December 31, 1998
and 1997 and for the period from March 15, 1995,
inception, to December 31, 1998............................ 5
Notes to Financial Statements (unaudited)................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 11
Item 2. Changes in Securities.......................................... 11
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................................................. 12
2
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)
December 31, June 30,
1998 1998
------------ --------
ASSETS
------
CURRENT ASSETS:
Cash $ 30,593 $ 77,464
Inventory 16,238 16,238
Other current assets 15,717 8,108
------------ ------------
Total current assets 62,548 101,810
PROPERTY AND EQUIPMENT 139,342 142,934
Less: Accumulated depreciation (63,101) (40,892)
------------ ------------
Net Property and Equipment 76,241 102,042
------------ ------------
TOTAL ASSETS $ 138,789 $ 203,852
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Notes payable $ 40,000 $ --
Accounts payable 340,597 484,060
Other accrued liabilities 236,820 156,802
------------ ------------
Total current liabilities 617,417 640,862
CONVERTIBLE, REDEEMABLE NOTES PAYABLE 1,173,725 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 (5,907,101) (5,715,484)
------------ ------------
Total Shareholders' Deficit (1,652,353) (1,460,735)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
DEFICIT $ 138,789 $ 203,852
============ ============
(See accompanying notes to unaudited financial statements)
3
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<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
March 15, 1995
(Inception)
Three Months Ended Six Months Ended Through
December 31, December 31, December 31,
------------------------------ ------------------------------ ---------------
1998 1997 1998 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Consulting $ -- $ 15,000 $ -- $ 30,000 $ 30,200
------------ ------------ ------------ ------------ ------------
Total Revenue -- 15,000 -- 30,000 30,200
COSTS AND EXPENSES:
General and administrative 110,152 263,693 217,408 522,980 1,460,494
Research and development 57,550 92,284 94,992 137,952 3,003,957
Impairment of Intangible -- -- -- -- 451,492
------------ ------------ ------------ ------------ ------------
aspartysets
Total costs and expenses 167,702 355,977 312,400 660,932 4,915,943
------------ ------------ ------------ ------------ ------------
OPERATING LOSS (167,702) (340,977) (312,400) (630,932) (4,885,743)
OTHER INCOME (EXPENSE):
Interest Income 457 -- 780 -- 163,541
Other Income -- -- 175,550 -- 177,971
Interest expense - related party (29,358) (930,555) (55,547) (945,724) (1,362,870)
------------ ------------ ------------ ------------ ------------
Total Other Income (Expense) (28,901) (930,555) 120,783 (945,724) (1,021,358)
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (196,603) $ (1,271,532) $ (191,617) $ (1,576,656) $ (5,907,101)
============ ============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE $ (.01) $ (.05) $ (.01) $ (.07)
============ ============ ============ ============
(Basic and diluted)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 23,774,275 24,829,347 24,164,702 23,086,635
============ ============ ============ ============
(See accompanying notes to unaudited consolidated financial statements)
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
March 15,
1995
Three Months Ended Six Months Ended (Inception)
December 31, December 31, Through
1998 1997 1998 1997 1998
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net Loss $ (196,603) $(1,271,532) $ (191,617) $(1,576,656) $(5,907,101)
Adjustments to reconcile net loss to net
Cash used in operating activities:
Acquired research and development -- -- -- -- 2,536,494
Impairment of intangible asset -- -- -- -- 451,492
Depreciation and amortization 12,595 30,260 24,466 55,296 192,219
Stock option compensation expense -- -- -- -- 214,125
Interest expense related to debt -- 918,267 -- 918,267 1,013,933
Loss on disposal of assets (675) -- (675) -- (371)
(Increase)decrease in:
Inventory -- 3,846 -- (54,146) (10,190)
Other current assets (2,730) 2,406 (7,609) (18,460) (147,210)
(Decrease) increase in:
Interest payable to shareholders 29,358 11,183 55,547 25,829 326,857
Accounts payable (13,141) (7,212) (143,463) (36,698) (105,247)
Other accrued liabilities 3,138 (9,616) 24,471 48,057 (5,377)
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities (168,058) (322,398) (238,880) (638,511) (1,440,376)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (2,355) (68,316) (3,141) (74,852) (93,500)
Proceeds from sale of assets 5,150 8,702 5,150 8,702 13,550
Advances to affiliates -- -- -- -- (932,925)
Purchase of notes receivable and
security interest -- -- -- -- (225,000)
Cash received in acquisition -- -- -- -- 303,812
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities 2,795 (59,614) 2,009 (66,150) (934,063)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions -- -- -- -- 103,127
Proceeds from notes payable
to shareholders 40,000 95,000 40,000 160,000 105,000
Proceeds from convertible notes
payable to shareholders 100,000 390,000 150,000 440,000 1,897,400
Proceeds from line-of-credit -- -- -- -- 299,505
----------- ----------- ----------- ----------- -----------
Net Cash provided by
financing activities 140,000 485,000 190,000 600,000 2,405,032
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash (25,263) 102,988 (46,871) (104,661) 30,593
Cash & cash equivalents at
beginning of period 55,856 28,082 77,464 235,731 --
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end
of period $ 30,593 $ 131,070 $ 30,593 $ 131,070 $ 30,593
=========== =========== =========== =========== ===========
(See accompanying notes to unaudited consolidated financial statements)
5
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ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
March 15, 1995
(Inception)
Three Months Ended Six Months Ended Through
December 31, December 31, December 31,
1998 1997 1998 1997 1998
----------- ------------ ---------- ---------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ --- $ 746 $ --- $ 746 $ ---
=========== =========== ========== =========== ===========
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
shareholders to common stock $ --- $ --- $ --- $ --- $ 550,000
=========== =========== ========== =========== ===========
(See accompanying notes to unaudited consolidated financial statements)
6
</TABLE>
<PAGE>
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.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 six months ended December 31, 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 in a full color video display application. 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 and six months ended December 31, 1998, the Company
reported net losses of ($196,603) and ($191,617), respectively, as compared to
net losses of ($1,271,532) and ($1,576,656) for the same periods in 1997. The
differences in net losses for the periods ended 1998 as compared to 1997 are
primarily due to: 1) a charge to interest expense for the quarter ended December
31, 1997 of approximately $918,000, 2) other income of $0 and $175,550 received
during the quarter and six months ended December 31, 1998, respectively, in
settlement of previously pending litigation, 3) a decrease in general and
administrative ("G&A") expenses for the quarter and six months ended December
31, 1998 of approximately $153,500 and $305,500, respectively, from amounts
8
<PAGE>
reported in 1997, and, 4) a decrease in research and development ("R&D")costs
for the quarter and six months ended December 31, 1998 of approximately $34,700
and $43,000, respectively from the same periods of the prior year. As a result
of downsizing and cost containment measures, the Company was able to reduce the
operating losses from approximately $341,000 and $631,000 for the quarter and
six months ended December 31, 1997 to approximately $168,000 and $312,000 for
the same periods of the current fiscal year.
The Company reported total revenue of $15,000 and $30,000 for the quarter
and six months ended December 31, 1997, respectively, 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. This agreement was
not renewed, therefore, there were no revenues reported for the six months ended
December 31, 1998. Although, the Company received no revenue in 1998, the
Company reported total other income of $175,550 for the six months ended
December 31, 1998 which consisted almost entirely of litigation settlement fees.
There were no sales of the Company's products to report for either fiscal
period.
The Company reported G&A expenses of $110,152 and $217,408 for the quarter
and six months ended December 31, 1998, respectively as compared to $263,693 and
$522,980 for the same periods of the prior year. Legal and other professional
fees decreased approximately $102,000 for the six months ended December 31, 1998
from 1997 due to the settlement of litigation, completion of a marketing study
in 1997, and a reduction in 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 six month period ended December 31,
1998 from the same period in 1997 by approximately $39,000. The Company also
reduced its workforce in 1998 from 1997 by approximately 7 people resulting in a
net decrease in salaries and payroll expenses for the six month periods of
approximately $162,000. G&A expenses for the six months ended December 31, 1998
included: 1) depreciation of approximately $22,000; 2) general office expense of
approximately $73,000; 3) employee salaries and expenses of approximately
$77,000; and 4) professional fees of approximately $45,000 (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
$57,550 and $94,992 for the quarter and six months ended December 31, 1998,
respectively, as compared to $92,284 and $137,952 for the same periods of the
prior year. This decrease is primarily due to the Company's down-sizing. R&D
expenditures during the first six months of fiscal 1998 are associated with the
Company's efforts to develop a projector substantially brighter and possessing a
better cost to performance ratio than those commercially available today which
the Company believes is needed to provide adequate illumination for the
successful marketing of its screen in the color video display market. 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.
9
<PAGE>
During the quarter ended December 31, 1997, the Company recorded a charge
to interest expense of approximately $918,000 which was the result of
immediately convertible debt issued at a conversion price below the quoted price
of the Company's Common Stock. Excluding this charge, interest expense increased
from $12,288 and $27,457 for the quarter and six months ended December 31, 1997
to $29,358 and $55,547 for the same periods of the current fiscal year. This
increase is due to an increase in outstanding notes payable for the quarter and
six months ended December 31, 1998.
Liquidity and Capital Resources
At December 31, 1998, the Company reported negative net worth of $1,652,353
and negative working capital of $554,869. 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 for use with its products; 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 six months ended December 31, 1998, the Company received a
payment of $175,000 in settlement of previously outstanding litigation. Cash
flows from financing activities for the fiscal quarter ended December 31, 1998,
consisted of proceeds from the issuance of $40,000 of 10% demand notes and the
issuance of convertible, redeemable promissory notes in the aggregate amount of
$100,000, 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 six
months ended December 31, 1998 were primarily used for payment of litigation
fees, ongoing research in the design and development of an adequately bright
projector and operating expenses.
Subsequent to December 31, 1998, the Company issued an additional $60,000
of 10% demand notes. It is anticipated that these notes together with the demand
notes previously issued will be converted into convertible, redeemable
promissory notes in a future offering under similar terms and conditions as the
convertible, redeemable promissory notes currently outstanding.
The Company received consulting fees of $15,000 and $30,000 for the fiscal
quarter and six months ended December 31, 1997, respectfully, pursuant to an
agreement with Toshiba Lighting and Technology Corporation ("TLT") effective
July 1, 1997. Cash flows from financing activities for the fiscal quarter and
six months ended December 31, 1997 consisted of notes payable and convertible,
redeemable promissory notes totaling $485,000 and $600,000, respectively.
10
<PAGE>
ADTI reported a working capital deficit position at December 31, 1998.
Current liabilities exceeded current assets by $554,869. At December 31, 1998,
current liabilities consisted of trade payables and accrued expenses of $577,417
for costs of a reorganization, operating costs, R&D 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 and on alternative uses for the fiber
optic screen. As of the date of this report, no definitive solution to these
issues 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.
None.
ITEM 2. CHANGES IN SECURITIES.
On October 5, 1998 and November 13, 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.
11
<PAGE>
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.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has 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: February 16, 1999 /S/ Matthew W. Shankle
--------------------------------------
Matthew W. Shankle
President
(Chief Executive and Financial Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 30,593
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 16,238
<CURRENT-ASSETS> 62,548
<PP&E> 139,342
<DEPRECIATION> (63,101)
<TOTAL-ASSETS> 138,789
<CURRENT-LIABILITIES> 617,417
<BONDS> 0
0
1,844
<COMMON> 23,774
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 138,789
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 312,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,547
<INCOME-PRETAX> (191,617)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (191,617)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
