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, 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, Colorado 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 January 31, 2000, 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) -
December 31, 1999 and June 30, 1999.........................3
Statements of Operations (unaudited) -
Three months and six months ended December 31, 1999
and 1998 and for the period from March 15, 1995,
inception, to December 31, 1999.............................4
Statements of Cash Flows (unaudited) -
Three months and six months ended December 31, 1999
and 1998 and for the period from March 15, 1995,
inception, to December 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....................................11
Item 4. Submission of Matters to a Vote of
Security Holders........................................11
Item 5. Other Information................................................11
Item 6. Exhibits and Reports on Form 8-K.................................11
Signatures...................................................12
2
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<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)
December 31, June 30,
1999 1999
------------- -------------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 41,311 $ 80,352
Other current assets 11,257 4,311
------------- -------------
Total current assets 52,568 84,663
PROPERTY AND EQUIPMENT 139,434 135,624
Less: Accumulated depreciation (101,368) (83,747)
------------- -------------
Net Property and Equipment 38,066 51,877
------------- -------------
TOTAL ASSETS $ 90,634 $ 136,540
============= =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Convertible, redeemable notes payable
to shareholders $ 1,913,967 $ --
Accounts payable 348,220 340,775
Other accrued liabilities 353,802 265,346
------------- -------------
Total current liabilities 2,615,989 606,121
CONVERTIBLE, REDEEMABLE NOTES
PAYABLE TO SHAREHOLDERS -- 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 4,358,080 4,229,130
Deficit accumulated during the development
stage (6,909,054) (6,298,297)
------------- -------------
Total Shareholders' Deficit (2,525,355) (2,043,548)
------------- -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' DEFICIT $ 90,634 136,540
============= =============
(See accompanying notes to unaudited financial statements)
3
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
March 15, 1995
(Inception)
Three Months Ended Six Months Ended Through
December 31, December 31, December 31,
----------------------------- ----------------------------- ------------
1999 1998 1999 1998 1999
------------ ------------ ------------ ------------ ------------
CONSULTING REVENUE $ -- $ -- $ -- $ -- $ 30,200
OTHER INCOME:
Related party interest income -- -- -- -- 162,761
Other interest income 935 457 1,221 780 4,812
Settlement Income -- -- -- 175,000 175,000
Other -- -- -- 550 550
------------ ------------ ------------ ------------ ------------
Total revenue and other income 935 457 1,221 176,330 373,323
COSTS AND EXPENSES:
General and administrative 116,996 110,152 240,657 217,408 1,953,024
Research and development 113,682 57,550 152,920 94,992 3,225,066
Impairment of Intangible -- -- -- -- 451,492
Interest expense - related party 67,221 29,358 218,401 55,547 1,652,795
------------ ------------ ------------ ------------ ------------
Total costs and expenses 297,899 197,060 611,978 367,947 7,282,377
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (296,964) $ (196,603) $ (610,757) $ (191,617) $ (6,909,054)
============ ============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE $ (.01) $ (.01) $ (.03) $ (.01)
============ ============ ============ ============
(Basic and diluted)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 23,774,275 23,774,275 23,774,275 24,164,702
============ ============ ============ ============
(See accompanying notes to unaudited financial statements)
4
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
March 15,
1995
(Inception)
Three Months Ended Six Months Ended Through
December 31, December 31, December 31,
--------------------------- --------------------------- ------------
1999 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (296,964) $ (196,603) $ (610,757) $ (191,617) $(6,909,054)
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 8,850 12,595 17,623 24,466 233,370
Stock option compensation expense -- -- -- -- 214,125
Interest expense related to debt 19,265 -- 128,950 -- 1,142,883
discount
Loss on disposal of assets -- (675) -- (675) 2,200
(Increase)decrease in:
Inventory -- -- -- -- 6,048
Other current assets (2,293) (2,730) (6,946) (7,609) (142,742)
(Decrease) increase in:
Interest payable to shareholders 47,957 29,358 89,451 55,547 475,463
Accounts payable 15,220 (13,141) 7,445 (143,463) (97,630)
Other accrued liabilities 2,576 3,138 (996) 24,471 (37,004)
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities (205,389) (168,058) (375,230) (238,880) (2,124,355)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,503) (2,355) (3,811) (3,141) (102,525)
Proceeds from sale of assets -- 5,150 -- 5,150 17,030
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 (1,503) 2,795 (3,811) 2,009 (939,608)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions -- -- -- -- 103,127
Proceeds from convertible notes
payable to shareholders 240,000 140,000 340,000 190,000 2,702,642
Proceeds from line-of-credit -- -- -- -- 299,505
----------- ----------- ----------- ----------- -----------
Net Cash provided by
financing activities 240,000 140,000 340,000 190,000 3,105,274
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash 33,108 (25,263) (39,041) (46,871) 41,311
Cash & cash equivalents at
beginning of period 8,203 55,856 80,352 77,464 --
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end
of period $ 41,311 $ 30,593 $ 41,311 $ 30,593 $ 41,311
=========== =========== =========== =========== ===========
(See accompanying notes to unaudited financial statements)
5
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ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
March 15, 1995
(Inception)
Three Months Ended Six Months Ended Through
December 31, December 31, December 31,
------------------------------ ----------------------------- -------------
1999 1998 1999 1998 1999
------------ ------------ ----------- ----------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ -- $ 746 $ -- $ 746 $ 26,750
============ ============ =========== ============ ==========
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)
6
</TABLE>
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ADVANCE DISPLAY TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 1.
Unaudited Financial Statements
- ------------------------------
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 December 31, 1999, the Company
issued 10% demand notes in the aggregate face amount of $80,000 to related
parties.
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, 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 various 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 provide desirable
results for certain applications. 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 six months ended December 31, 1999, the Company directed its
efforts toward alternative applications and markets which may utilize various
emerging 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. The
Company hopes to complete a second generation prototype for more extensive
demonstrations and testing during the current fiscal year.
For the fiscal quarter and six months ended December 31, 1999, the Company
reported net losses of ($296,964) and ($610,757), respectively, as compared to
net losses of ($196,603) and ($191,617) for the same periods in 1998. The
differences in net losses for the periods ended 1999 as compared to 1998 are
8
<PAGE>
primarily due to: 1) other income of $0 and $175,550 received during the quarter
and six months ended December 31, 1998, respectively, primarily in settlement of
previously pending litigation, 2) an increase in general and administrative
("G&A") expenses for the quarter and six months ended December 31, 1999 of
approximately $6,844 and $23,249, respectively, from amounts reported in 1998,
3) an increase in research and development ("R&D")costs for the quarter and six
months ended December 31, 1999 of approximately $56,132 and $57,928,
respectively from the same periods of the prior year, and, 4) an increase in
interest expense of $37,863 and $162,854 for the quarter and six months ended
December 31, 1999 over amounts reported for the same periods of the prior fiscal
year.
The Company reported total revenue and other income of $1,221 for the six
months ended December 31, 1999 which consisted entirely of interest income. In
comparison, the Company reported total revenue and other income of $176,330 for
the six months ended December 31, 1998 which consisted of settlement fees from
prior litigation of $175,000, interest income of $780 and other income of $550.
There were no sales of the Company's products to report for either fiscal
period.
The Company reported G&A expenses of $240,657 for the six months ended
December 31, 1999, compared to $217,408 for the same period in 1998.
Depreciation decreased by approximately $5,505 in 1999 from 1998 due to certain
assets being fully depreciated. Legal and other professional fees increased
approximately $3,517 for the six month period in 1999 from 1998. The Company
experienced a reduction in patent filings and maintenance fees and less
complicated SEC and other legal matters. However, other consulting fees
increased in connection with the Company's investigation of alternative
applications and markets for its display screen systems. Due to these same
efforts together with the associated prototype development, travel expenses
increased by approximately $29,677 for the six months ended December 31, 1999
from the same period of the prior fiscal year. The Company also restructured its
workforce in 1999 resulting in a net decrease in contract services, salaries and
employee related expenses of approximately $17,733 for the six month period
ended December 1999 from the same period of 1998.
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 $11,923 for the six months ended December 31, 1999 from
the six months ended December 31, 1998. During the six months ended December 31,
1998, the Company negotiated an approximate $20,300 reduction in legal fees
previously recorded in connection with the settlement of prior litigation. G&A
expenses for the six months ended December 31, 1999 included: 1) depreciation of
approximately $16,600; 2) general office expense of approximately $52,300; 3)
employee salaries and expenses of approximately $85,300; 4) travel related
expenses of approximately 38,300, and 5) professional fees of approximately
$48,200 (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 $152,920
and $94,992 for the six months ended December 31, 1999 and 1998, respectively.
The increase in 1999 over 1998 is the result of the Company's efforts to
investigate and construct various prototypes for demonstration in alternative
applications and markets.
9
<PAGE>
Interest expense increased from $55,547 for the six months ended December
31, 1998 to $218,401 for the six months ended December 31, 1999. This increase
is due to: 1) $33,904 increase due to an increase in long term debt outstanding;
and, 2) $128,950 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 December 31, 1999, the Company
reported negative net worth of $2,525,355 and negative working capital of
$2,563,421. Effective October 15, 1999, the Company's outstanding convertible,
redeemable promissory notes totaling $1,913,967 became due within one year of
that date and therefore were included in current liabilities. Management of the
Company is currently negotiating an extended term for these notes with the
noteholders. If the convertible, redeemable promissory notes were extended, the
negative working capital reported at December 31, 1999 would have been $649,454.
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 six months ended December 31,
1999 consisted entirely of the issuance of 10% convertible, redeemable
promissory notes to shareholders totaling $340,000. 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 six months ended December 31, 1999 were used for
ongoing product and manufacturing process development, alternative application
and market analysis, operating expenses and investment in capital equipment.
Subsequent to December 31, 1999, the Company issued 10% demand notes in the
aggregate face amount of $80,000 to related parties. It is anticipated that in
the near future these notes will be converted into long term debt, equity or
otherwise extended.
10
<PAGE>
During the six month period ended December 31, 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 six months ended December 31, 1998, consisted
entirely of proceeds from the issuance of convertible, redeemable promissory
notes in the aggregate amount of $190,000, 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 December 31, 1998 were
primarily used for ongoing research and development and operating expenses.
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.
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.
11
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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 14, 2000 /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-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 41,311
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 52,568
<PP&E> 139,434
<DEPRECIATION> (101,368)
<TOTAL-ASSETS> 90,634
<CURRENT-LIABILITIES> 2,615,989
<BONDS> 0
0
1,844
<COMMON> 23,775
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 90,634
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 611,978
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 218,401
<INCOME-PRETAX> (610,757)
<INCOME-TAX> 0
<INCOME-CONTINUING> (610,757)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (610,757)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
