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, 1999
[ ] 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)
7334 South Alton Way, Building 14, Suite F, Englewood, CO 80112
---------------------------------------------------------------
(Address of principle executive offices) (Zip Code)
(303) 267-0111
--------------
(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, 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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ADVANCE DISPLAY TECHNOLOGIES, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Balance Sheets (unaudited) -
September 30, 1999 and June 30, 1999........................... 3
Statements of Operations (unaudited) -
Three months ended September 30, 1999 and 1998 and for the
period from March 15, 1995, inception, to September 30, 1999... 4
Statements of Cash Flows (unaudited) -
Three months ended September 30, 1999 and 1998 and for the
period from March 15, 1995, inception, to September 30, 1999... 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............................................ 9
Item 3. Defaults on Senior Securities.................................... 9
Item 4. Submission of Matters to a Vote of
Security Holders............................................... 9
Item 5. Other Information................................................ 9
Item 6. Exhibits and Reports on Form 8-K................................. 9
Signatures..................................................... 10
2
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<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)
September 30, June 30,
1999 1999
----------- -----------
ASSETS
------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 8,203 $ 80,352
Other current assets 8,964 4,311
----------- -----------
Total current assets 17,167 84,663
PROPERTY AND EQUIPMENT 137,932 135,624
Less: Accumulated depreciation (92,520) (83,747)
----------- -----------
Net Property and Equipment 45,412 51,877
----------- -----------
TOTAL ASSETS $ 62,579 $ 136,540
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 333,000 $ 340,775
Other accrued liabilities 303,269 265,346
----------- -----------
Total current liabilities 636,269 606,121
CONVERTIBLE, REDEEMABLE NOTES PAYABLE TO SHAREHOLDERS 1,673,967 1,573,967
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
23,774,275 shares issued and outstanding,
respectively 23,775 23,775
Additional paid-in capital 4,338,814 4,229,130
Deficit accumulated during the development
stage (6,612,090) (6,298,297)
----------- -----------
Total Shareholders' Deficit (2,247,657) (2,043,548)
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 62,579 $ 136,540
=========== ===========
(See accompanying notes to unaudited financial statements)
3
</TABLE>
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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,
1999 1998 1999
------------ ------------- ------------
<S> <C> <C> <C>
CONSULTING REVENUE $ -- $ -- $ 30,200
OTHER INCOME:
Related party interest income -- -- 162,761
Other interest income 286 323 3,877
Settlement income -- 175,000 175,000
Other -- 550 550
------------ ------------ ------------
Total revenue and other income 286 175,873 372,388
COSTS AND EXPENSES:
General and administrative 123,661 107,257 1,836,028
Research and development 39,238 37,441 3,111,384
Impairment of intangible assets 451,492
Interest expense - related party 151,180 26,189 1,585,574
------------ ------------ ------------
Total costs and expenses 314,079 170,887 (6,984,478)
------------ ------------ ------------
NET INCOME (LOSS) $ (313,793) $ 4,986 $ (6,612,090)
============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE
(BASIC AND DILUTED) $ (.01) $ --
============ =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 23,774,275 24,555,128
============ =============
(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
(Inception)
Three Months Ended Through
September 30, September 30,
1999 1998 1999
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income (Loss) $ (313,793) $ 4,986 $(6,612,090)
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 8,773 11,871 224,520
Stock option compensation expense -- -- 214,125
Interest expense related to debt discount 109,685 -- 1,123,618
Loss on disposal of assets -- -- 2,200
(Increase) decrease in:
Inventory -- -- 6,048
Other current assets (4,653) (4,879) (140,449)
(Decrease) increase in:
Accrued interest payable to members 41,494 26,189 427,506
Accounts payable (7,775) (130,322) (112,850)
Other accrued liabilities (3,572) 21,333 (39,580)
----------- ----------- -----------
Net cash used in operating activities (169,841) (70,822) (1,918,966)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (2,308) (786) (101,022)
Proceeds from sale of assets -- -- 17,030
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 (2,308) (786) (938,105)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions -- -- 103,127
Proceeds from convertible, redeemable notes
payable to shareholders 100,000 50,000 2,462,642
Proceeds from line-of-credit -- -- 299,505
----------- ----------- -----------
Net Cash provided by
financing activities 100,000 50,000 2,865,274
----------- ----------- -----------
Increase (decrease) in cash (72,149) (21,608) 8,203
Cash & cash equivalents
at beginning of period 80,352 77,464 --
----------- ----------- -----------
Cash and cash equivalents at end
of period $ 8,203 $ 55,856 $ 8,203
=========== =========== ===========
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, 1999, as the notes to these
interim financial statements omit certain information required for complete
financial statements.
Note 2.
Subsequent Events
- -----------------
Subsequent to the fiscal quarter ended September 30, 1999, the Company
issued additional convertible, redeemable promissory notes in the aggregate
amount of $240,000 due and payable October 15, 2000 and convertible at the
option of the noteholder, into shares of the Company's Common Stock at the rate
of $.05 per share. These notes were issued with substantially the same
additional terms and conditions as the Company's other convertible, redeemable
promissory notes previously outstanding.
6
<PAGE>
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, 1999.
Results of Operations
- ---------------------
In the past, the Company conducted research and development activities for
full color image projection applications primarily for the large video display
screen market. Due to varius factors, the Company has not yet achieved the
desired results in the development of the screen and projection system for these
applications. Accordingly, the Company has explored alternate image projection
and manufacturing technologies which, in the future, may achieve desirable
results for certain applications of the Screen technologies. As of the date of
this report, the Company remains in a development stage as it has not received
significant revenues from operations.
During the quarter ended September 30, 1999, the Company directed its
efforts toward alternative applications and markets which may utilize various
image projection system technologies in conjunction with its Screen
technologies. The Company completed a first generation prototype for use in
technology demonstrations and preliminary testing programs with positive
results. A second generation prototype will be completed for more extensive
demonstrations and testing during the current fiscal year.
For the fiscal quarter ended September 30, 1999, the Company reported net
loss of $313,793 compared to net income of $4,986 for the fiscal quarter ended
September 30, 1998. The difference in net loss and net income 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,
2) an increase to general and administrative expenses of approximately 15% in
1999 from 1998, and 3) an increase in interest expense for the quarter ended
September 30, 1999 from the quarter ended September 30, 1998 of approximately
$124,991.
The Company reported total revenue and other income of $286 for the quarter
ended September 30, 1999 which consisted entirely of interest income. In
comparison, the Company reported total revenue and other income of $175,873 for
the fiscal quarter ended September 30, 1998 which consisted of settlement fees
from prior litigation of $175,000, interest income of $323 and other income of
$550. There were no sales of the Company's products to report for either fiscal
quarter.
The Company reported G&A expenses of $123,661 and $107,257 for the quarters
ended September 30, 1999 and 1998, respectively. Depreciation decreased by
approximately $2,400 in 1999 from 1998 due to certain assets being fully
depreciated. Legal and other professional fees increased approximately $3,000 in
7
<PAGE>
1999 from 1998 primarily due to an increase in consulting fees in connection
with the Company's investigation of alternative applications and markets for its
display screen systems. Due to these same efforts, travel expenses increased by
approximately $19,300 for the quarter ended September 30, 1999 from the same
period of the prior fiscal year. The Company also reduced its workforce in 1999
from 1998 by one individual and hired a former contract employee resulting in a
net decrease in contract services, salaries and employee related expenses of
approximately $19,900.
On June 1, 1999, the Company moved its offices to a facility approximately
one third the size of its previous facility resulting in a decrease in rent
expense of approximately $6,000 for the quarter ended September 30, 1999 from
the quarter ended September 30, 1998. In addition, during the quarter ended
September 30, 1998, the Company negotiated a $20,300 reduction in legal fees
previously recorded in connection with the settlement of prior litigation. G&A
expenses for the fiscal quarter ended September 30, 1999 included: 1)
depreciation of approximately $8,300; 2) general office expense of approximately
$22,500; 3) employee salaries and expenses of approximately $41,300; 4) travel
related expenses of approximately 19,900; and 5) professional fees of
approximately $31,700 (including legal fees incurred for patent work 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, 1999).
The Company reported research and development ("R&D") expenses of $39,238
and $37,441 for the quarters ended September 30, 1999 and 1998, respectively.
Interest expense increased from $26,189 for the fiscal quarter ended
September 30, 1998 to $151,180 for the quarter ended September 30, 1999. This
increase is due to: 1) $15,306 increase due to an increase in long term debt
outstanding; and, 2) $109,685 which related to immediately convertible debt that
was issued at a conversion price below the quoted price of the Company's common
stock. However, the Company believes that the conversion price more closely
reflected the actual fair market value of the Company's common stock on the
dates of issuance.
Liquidity and Capital Resources
- -------------------------------
The Company has been totally dependent on financing from outside sources to
fund operations for more than five years. At September 30, 1999, the Company
reported negative net worth of $2,247,657 and negative working capital of
$619,102. The Company will require additional capital for administrative
expenses, continued development of the display system, 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, or other light source; 2) complete the design and development
of an 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.
Cash flows from financing activities for the fiscal quarter ended September
30, 1999 consisted entirely of the issuance of 10% convertible, redeemable
promissory notes to shareholders totaling $100,000. These notes are due October
15, 2000 and are convertible, at the option of the noteholder, into shares of
the Company's Common Stock at a conversion rate of $.05 per share. These notes
are unsecured. The Company has the right to call these notes after one year and
the noteholders 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. Cash flows for the quarter ended September 30, 1999 were used for ongoing
product and manufacturing process development, alternative market analysis,
operating expenses and investment in capital equipment.
8
<PAGE>
Subsequent to the quarter ended September 30, 1999, the Company issued
additional convertible, redeemable promissory notes in the aggregate amount of
$240,000 under the same terms and conditions as the convertible, redeemable
promissory notes issued during the quarter.
During the fiscal quarter ended September 30, 1998, the Company received a
payment of $175,000 in settlement of previously outstanding litigation which
reduced cash used in operations. Similar to the current year, 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 then outstanding. Proceeds from the settlement and financing
activities received during the fiscal quarter ended September 30, 1998 were
primarily used for ongoing research and development and operating expenses.
ADTI reported a working capital deficit position at September 30, 1999.
Current liabilities exceeded current assets by $619,102. At September 30, 1999,
current liabilities consisted of trade payables and accrued expenses of $636,269
for costs of a previous exchange transaction, operating costs, various payables
and accruals from prior years.
Pending a favorable outcome of the second phase prototype project described
above, the Company will recommence efforts on further design and development of
the fiber optic screen and related manufacturing process. In addition, the
Company will continue efforts on raising additional capital through private
placements or other sources. There can be no assurances that management will be
able to acquire the capital needed or be successful in achieving these
objectives. If these efforts are not successful, the Company may be forced to
discontinue operations.
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, 1999.
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.
9
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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 10, 1999 /S/ Matthew W. Shankle
----------------- -------------------------------------
Matthew W. Shankle
President
(Chief Executive and Financial Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,203
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,167
<PP&E> 137,932
<DEPRECIATION> 92,520
<TOTAL-ASSETS> 62,579
<CURRENT-LIABILITIES> 636,269
<BONDS> 0
0
1,844
<COMMON> 23,775
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 62,579
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 314,079
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (313,793)
<INCOME-TAX> 0
<INCOME-CONTINUING> (313,793)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (313,793)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
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