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, 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)
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 April 30, 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) -
March 31, 1999 and June 30, 1998.............................3
Statements of Operations (unaudited) -
Three months and nine months ended
March 31, 1999 and 1998 and for
the period from March 15, 1995, inception,
to March 31, 1999............................................4
Statements of Cash Flows (unaudited) -
Three months and nine months ended March 31, 1999
and 1998 and for the period from March 15, 1995,
inception, to March 31, 1999.................................5
Notes to Financial Statements (unaudited)......................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............8-11
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
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ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)
March 31, June 30,
1999 1998
------------ ----------
ASSETS
------
CURRENT ASSETS:
Cash $ 66,915 $ 77,464
Inventory 16,238 16,238
Other current assets 32,677 8,108
----------- -----------
Total current assets 115,830 101,810
PROPERTY AND EQUIPMENT 140,232 142,934
Less: Accumulated depreciation (73,883) (40,892)
----------- -----------
Net Property and Equipment 66,349 102,042
----------- -----------
TOTAL ASSETS $ 182,179 $ 203,852
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Notes payable to shareholders $ 255,000 $ --
Accounts payable 309,637 484,060
Other accrued liabilities 266,267 156,802
----------- -----------
Total current liabilities 830,904 640,862
CONVERTIBLE, REDEEMABLE NOTES PAYABLE
TO SHAREHOLDERS 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 (6,077,198) (5,715,484)
----------- -----------
Total Shareholders' Deficit (1,822,450) (1,460,735)
----------- -----------
TOTAL LIABILITIES AND SHAERHOLDERS'
DEFICIT $ 182,179 $ 203,852
=========== ===========
(See accompanying notes to unaudited financial statements)
3
<PAGE>
<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
March 15, 1995
(Inception)
Three Months Ended Nine Months Ended Through
March 31, March 31, March 31,
------------------------------ ------------------------------ --------------
1999 1998 1999 1998 1999
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
REVENUE:
Consulting $ -- $ -- $ -- $ 30,000 $ 30,200
------------ ------------ ------------ ------------ ------------
Total Revenue -- -- -- 30,000 30,200
COSTS AND EXPENSES:
General and administrative 118,439 218,035 335,847 741,015 1,578,933
Research and development 19,626 85,398 114,618 223,350 3,023,583
Impairment of intangible assets -- -- -- -- 451,492
------------ ------------ ------------ ------------ ------------
Total costs and expenses 138,065 303,433 450,465 964,365 5,054,008
------------ ------------ ------------ ------------ ------------
OPERATING LOSS (138,065) (303,433) (450,465) (934,365) (5,023,808)
OTHER INCOME (EXPENSE):
Interest income 196 -- 976 -- 163,737
Other income -- -- 175,550 -- 177,971
Interest expense - related party (32,228) (90,443) (87,775) (1,036,167) (1,395,098)
------------ ------------ ------------ ------------ ------------
Total Other Income (Expense) (32,032) (90,443) 88,751 (1,036,167) (1,053,390)
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (170,097) $ (393,876) $ (361,714) $ (1,970,532) $ (6,077,198)
============ ============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE $ (.01) $ (.02) $ (.02) $ (.08)
============ ============ ============ ============
(Basic and diluted)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 23,774,275 25,176,432 24,034,560 23,781,938
============ ============ ============ ============
(See accompanying notes to unaudited consolidated financial statements)
4
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
March 15, 1995
(Inception)
Three Months Ended Nine Months Ended Through
March 31, March 31, March 31,
--------------------------- --------------------------- --------------
1999 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (170,097) $ (393,876) $ (361,714) $(1,970,532) $(6,077,198)
Adjustments to reconcile net loss to net
cash used in operating activities:
Acquired research and development -- -- -- -- 2,536,494
expense
Impairment of intangible asset -- -- -- -- 451,492
Depreciation and amortization 11,561 31,454 36,027 86,750 203,780
Stock option compensation expense -- -- -- -- 214,125
Interest expense related to debt discount -- 71,517 -- 989,784 1,013,933
(Gain) loss on disposal of assets 205 -- (470) -- (166)
(Increase)decrease in:
Inventory -- 468 -- (53,678) (10,190)
Other current assets (16,960) 6,044 (24,569) (12,416) (164,170)
(Decrease) increase in:
Interest payable to shareholders 32,228 18,926 87,775 44,755 359,085
Accounts payable (30,960) (9,834) (174,423) (46,532) (136,207)
Other accrued liabilities (2,781) (58,401) 21,690 (10,344) (8,158)
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities (176,804) (333,702) (415,684) (972,213) (1,617,180)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,874) (408) (5,015) (75,260) (95,374)
Proceeds from sale of assets -- -- 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 (1,874) (408) _ 135 (66,558) (935,937)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions -- -- -- -- 103,127
Proceeds from notes payable to shareholders 215,000 -- 255,000 160,000 320,000
Proceeds from convertible notes
payable to shareholders -- 300,000 150,000 740,000 1,897,400
Proceeds from line-of-credit -- -- -- -- 299,505
----------- ----------- ----------- ----------- -----------
Net Cash provided by financing activities 215,000 300,000 405,000 900,000 2,620,032
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash 36,322 (34,110) (10,549) (138,771) 66,915
Cash & cash equivalents at
beginning of period 30,593 131,070 77,464 235,731 --
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 66,915 $ 96,960 $ 66,915 $ 96,960 $ 66,915
=========== =========== =========== =========== ===========
(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 Nine Months Ended Through
March 31, 1999 March 31, March 31,
----------------------------- ----------------------------- -----------
1999 1998 1999 1998 1999
------------ ------------ ------------ ------------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ -- $ -- $ -- $ 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 $ 550,000
============ ============ ============ ============ ==========
Conversion of short term notes and
accrued interest into Convertible,
Redeemable Promissory Notes $ -- $ -- $ -- $ 183,575 $ 183,575
============ ============ ============ ============ ==========
(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 nine months ended March 31, 1999, the Company remained in a
research and development ("R&D") phase and, for a portion of the period,
continued efforts on the design and development of an adequately bright
projector for use with the Company's fiber optic screen technology in a full
color video display application. The Company did not experience the desired
results due to various factors and suspended further development of the
projector. During the period, the Company also investigated a possible
alternative use and market for its fiber optic screen systems which will utilize
a different light source. A market study for this application has been completed
with which the Company will prepare a comprehensive business plan for this and
other product lines. The Company expects to submit a prototype for testing of
this new application during 1999. If the Company is unable to successfully
demonstrate the new prototype or develop an adequately bright projector, 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 nine months ended March 31, 1999, the Company
reported net losses of ($170,097) and ($361,714), respectively, as compared to
net losses of ($393,876) and ($1,970,532) for the same periods in 1998. The
8
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differences in net losses for the periods ended 1999 as compared to 1998 are
primarily due to: 1) a decrease in general and administrative ("G&A") expenses
for the quarter and nine months ended March 31, 1999 of approximately $99,600
and $405,200, respectively, from amounts reported in 1998, 2) a decrease in
research and development ("R&D")costs for the quarter and nine months ended
March 31, 1999 of approximately $65,800 and $108,700, respectively from the same
periods of the prior year, 3) other income of $0 and $175,550 received during
the quarter and nine months ended March 31, 1999, respectively, in settlement of
previously pending litigation, and 4) less charges to interest expense for the
quarter and nine months ended March 31, 1999 than those reported in 1998. As a
result of downsizing and cost containment measures, the Company was able to
reduce the operating losses from approximately $303,400 and $934,400 for the
quarter and nine months ended March 31, 1998, respectfully, to approximately
$138,100 and $450,500 for the same periods of the current fiscal year.
The Company reported total revenue of $30,000 for the nine months ended
March 31, 1998 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 nine months ended March 31, 1999.
Although the Company received no revenue for the nine months ended March 31,
1999, the Company reported total other income of $175,550 for the same period
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 $118,439 and $335,847 for the quarter
and nine months ended March 31, 1999, respectively as compared to $218,035 and
$741,015 for the same periods of the prior year. Legal and other professional
fees decreased approximately $118,300 for the nine months ended March 31, 1999
from 1998 due to the settlement of litigation, completion of a marketing study
in 1998 for the full color video displays, and a reduction in management
consulting fees in 1999 from 1998. In June 1998, the Company recorded a
write-down of its intellectual property to $0 which reduced amortization expense
in the nine month period ended March 31, 1999 from the same period in 1998 by
approximately $58,600. The Company also reduced its workforce in 1999 from 1998
by approximately 7 people resulting in a net decrease in salaries and payroll
expenses for the nine month period of approximately $99,300. G&A expenses for
the nine months ended March 31, 1999 included: 1) depreciation of approximately
$32,700; 2) general office expense of approximately $123,800; 3) employee
salaries and expenses of approximately $109,500; and 4) professional fees of
approximately $69,800 (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
$19,626 and $114,618 for the quarter and nine months ended March 31, 1999,
respectively, as compared to $85,398 and $223,350 for the same periods of the
prior year. This decrease is primarily due to the Company's downsizing. R&D
9
<PAGE>
expenditures during the nine months ended March 31, 1999 were initially
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 a color
video display application. Toward that end, the Company 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. The Company has not experienced the desired results due to various
factors and has suspended further development of the projector. Subsequently,
additional R&D expenditures were incurred associated with the investigation of
an alternative application and market for the Company's fiber optic display
technology. The Company is currently building a prototype for testing in a new
application.
During the nine months ended March 31, 1998, the Company recorded interest
expense of approximately $989,000 which was the result of immediately
convertible debt issued at a conversion price below the quoted price of the
Company's Common Stock. Excluding these charges, interest expense increased from
$18,926 and $44,755 for the quarter and nine months ended March 31, 1998 to
$32,228 and $87,775 for the same periods of the current fiscal year. This
increase is due to an increase in outstanding notes payable for the quarter and
nine months ended March 31, 1999.
Liquidity and Capital Resources
At March 31, 1999, the Company reported negative net worth of $1,822,450
and negative working capital of $715,074. 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) successfully demonstrate the prototype for the
new application; 2) complete the design and development of an automated
manufacturing process; 3) perfect technology necessary for use with its products
in a full color video display application; 4) successfully market the product;
5) obtain additional sources of funding through outside sources; and 6) 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 nine months ended March 31,
1999, consisted of proceeds from the sale of $255,000 of 10% demand notes to
shareholders and proceeds from the sale of convertible, redeemable promissory
notes to shareholders in the aggregate amount of $150,000.
Included in the net loss reported for the nine months ended March 31, 1999
are proceeds of $175,000 received in settlement of previously outstanding
litigation. Taking into account the net loss, cash used in operating activities
for the period totaled $415,684. Funds were primarily used for payment of
10
<PAGE>
litigation fees, ongoing research in the design and development of an adequately
bright projector and in connection with the new application, and, operating
expenses.
Subsequent to March, 1999, the Company issued an additional $75,000 of 10%
demand notes to shareholders. 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.
ADTI reported a working capital deficit position at March 31, 1999. Current
liabilities exceeded current assets by $715,074. In addition to the $255,000 in
notes payable to shareholders discussed above, at March 31, 1999, current
liabilities included trade payables and accrued expenses of $575,904 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 development of a
prototype for alternative applications and a comprehensive business plan for
this market. The Company will also continue to evaluate continued 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. 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.
None.
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: May 14, 1999 /S/ Matthew W. Shankle
---------------------------------------
Matthew W. Shankle
President
(Chief Executive and Financial Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 66,915
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 16,238
<CURRENT-ASSETS> 115,830
<PP&E> 140,232
<DEPRECIATION> 73,883
<TOTAL-ASSETS> 182,179
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
1,844
<COMMON> 23,774
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,822,450
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 450,465
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87,775
<INCOME-PRETAX> (361,714)
<INCOME-TAX> 0
<INCOME-CONTINUING> (361,714)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (361,714)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
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