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As filed with Securities and Exchange Commission on October 11, 1996
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the Quarter Ended August 31, 1996
Commission file number 0-28506
AMERICAN DIGITAL COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
Wyoming 13-3411167
(State of Incorporation) (I.R.S. Employer ID No.)
3773 Cherry Creek North Drive
Suite 615, Denver, Colorado 80209
(Address of Principal Executive Offices) (Zip Code)
(303) 377-9486
(Registrant's Telephone No. incl. area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 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 __
The number of shares outstanding of each of the Registrant's class of common
equity, as of August 31, 1996 are as follows:
Class of Securities Shares Outstanding
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Common Stock, $.0001 par value 16,836,771
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This quarterly report on Form 10-QSB contains 10 pages.
American Digital Communications, Inc.
INDEX
PART I Financial Information
Item 1. Financial Statements
Balance Sheet........................................... 3
Statements of Operations................................ 5
Statements of Cash Flows................................ 6
Notes to Financial Statements........................... 7
Item 2. Management's Discussion and Analysis or Plan of Operations 8
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K.......................... 10
Signatures................................................ 10
American Digital Communications, Inc.
Balance Sheet
(UNAUDITED)
ASSETS Aug. 31, February 29,
1996 1996
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Current Assets:
Cash 35,882 115,312
Accounts receivable 46,888 43,020
Inventories 278,119 628,602
Other current assets 21,575 7,642
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Total current assets 382,464 794,576
Property and equipment:
Office equipment 126,746 112,801
Radio tower equipment 1,703,076 564,254
Furniture and fixtures 26,082 26,082
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1,855,904 703,137
Less: Accumulated depreciation -123,785 -99,091
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Net property and equipment 1,732,119 604,046
Other assets:
Distribution agreement, net 373,332 393,333
Deposits and other 321,988 209,137
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Total other assets: 695,320 602,470
TOTAL ASSETS 2,809,903 2,001,092
See accompanying notes to financial statements.
American Digital Communications, Inc.
Balance Sheet
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY Aug. 31, February 29,
1996 1996
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Current Liabilities:
Accounts payable 118,117 4,220
Accounts payable - related parties 6,021 2,576
Accrued payroll and payroll taxes - 9,593
Accrued interest - 50,503
Accrued warranty liability 18,108 23,620
Notes payable - related parties 18,283 37,881
Current portion of capital lease obligations 8,336 12,886
Current portion of long term note 1,088 2,756
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Total current liabilities 169,953 144,035
Long term debt:
Capital lease obligations 8,666 -
Long term note payable - related party 806,077 564,254
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Total long term debt 814,743 564,254
Shareholders' equity:
Common stock, $.0001 par value; 1,684 1,459
Unlimited shares authorized, issued
and outstanding 16,836,771 shares,
issued and outstanding 14,590,760 on
February 29, 1996.
Additional paid in capital 6,748,915 5,723,983
Accumulated deficit -4,925,392 -4,432,639
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Total shareholder's equity 1,825,207 1,292,803
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 2,809,903 2,001,092
See accompanying notes to financial statements.
American Digital Communications, Inc.
Statements of Operations
(UNAUDITED)
Three Months Ended Aug. 31,
1996 1995
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Revenue
Equipment sales 138,685 -
Interest income - -
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Total revenue 138,685 -
Costs and expenses:
General and administrative 179,195 131,691
Cost of equipment sales 177,598 -
Depreciation 23,119 15,820
Consulting fee / retainer 20,000 -
Regulation S offering expenses 46,002 -
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Total costs and expenses 445,914 147,511
Net Loss: -307,229 -147,511
Net loss per share of common stock -0.02 -0.02
Weighted average number of common
shares outstanding 14,898,946 7,345,645
See accompanying notes to financial statements.
American Digital Communications, Inc.
Statements of Cash Flows
(UNAUDITED)
Increase (Decrease) in Cash Three Months Ended Aug. 31,
1996 1995
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Net cash used in operations
Net loss -307,229 -147,511
Adjustments to reconcile net loss
to cash used in operating activities:
Depreciation and amortization 23,119 15,820
Write off of deposits - -
Changes in:
Accounts receivable 55,689 -
Inventories 144,170 -
Other current assets -12,833 -20,000
Accounts payable 93,919 37,800
Accrued payroll and payroll taxes - 48,389
Other accrued liabilities -83,483 4,748
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Net cash used in operating activities -86,648 -60,754
Cash flows from investing activities:
Purchase of equipment / licenses -897,000 -1,000
Deposits - payments / refunds - 12,100
Borrowings from related party - 60,000
Payments to related parties - -
Deposits received / waived - -29,500
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Net cash provided by (used in)
investing activities -897,000 41,600
Cash flows from financing activities:
Proceeds from sale of common stock, net 899,775 -
Payments of capital lease obligations 2,406 3,386
Payments of note payable 623 245
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Net cash provided by financing activities 902,804 3,631
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Increase (decrease) in cash -80,844 -15,523
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Cash, at beginning of period 116,726 16,166
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Cash, at end of period 35,882 643
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See accompanying notes to financial statements.
American Digital Communications, Inc.
Notes to Financial Statements
August 31, 1996
Presentation
The unaudited financial statements and related notes have been prepared
in accordance with the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to such
rules and regulations. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. The
accompaning financial statements and related notes should be read in
conjunction with the audited financial statements of the Company, and notes
thereto, for the fiscal year ended February 29, 1996.
Business
The Company which transitioned from developmental stage to a revenue
generating operational stage in January 1996, is engaged in the wireless
telecommunications business in the United States, and intends to provide
two-way dispatch communications in the 220 MHz frequency bandwidth while
concurrently selling Midland 800 MHz LTR Radios. Sales during the quarter
ended generated approximately $139,000 in revenue. The Company has entered
into agreements to purchase and/or to manage licenses granted by the Federal
Communications Commission (FCC) which are known in the industry as "specialized
mobile radio" or SMR bandwidths. Effective December 31, 1995, the Company
became the exclusive licensee for distribution of Midland 800 MHz LTR Radio
Products in the U.S.
Due to Related Party
A significant shareholder of the Company, loaned the Company $75,000
on March 15, 1994. This year, the Company signed a new note due in 1996. As
of August 31, 1996 the balance due on the 9% interest bearing note was
approximately $18,000.
In August 1996 the Company constructed 13 additional "turn-key"
communication systems through Securicor Ltd. The terms were $897,000, half
in cash, half in common stock (1,150,000 shares at $0.39). The Company has
an agreement with a third party which includes an option to acquire the
Company's constructed 220 MHz installations for up to $200,000 per site plus
$500 per radio loaded per respective site. However, there can be no assurance
that the third party will exercise the option.
Last year, the Company constructed and financed 13 220 MHz communications
systems for $1,047,900 through Ventel, Inc. In February 1996, the Company
sold three of the financed, constructed systems and currently owes Ventel,
Inc. $806,077 plus interest.
In May 1996 the Company executed the purchase options under the Manage-
ment Agreements of three constructed licenses (Portland, Phoenix and
St. Louis). To date the Company has 23 220 MHz communication systems.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Plan of Operation
The Company is the exclusive licensee in the U.S. for the next ten years
for distribution of 800 MHz Midland LTR Radios. The Company will continue
active LTR Radio sales efforts. This activity enabled the Company to become
operational in January 1996, generating revenues between $50,000 and $75,000
per month.
In February of 1996, the Company signed a letter of intent to purchase
100% of the outstanding stock of Pagers Plus Cellular (PPC), Walnut Creek,
California. As a result of due diligence, the Company decided to change this
acquisition from a stock exchange to an asset purchase. In August 1996,
formal negotiations between the parties were suspended.
During June and July 1996, the Company loaned approximately $8,548 in
three 9% interest bearing "Promissory Notes" to Pagers Plus Cellular. These
three notes are outstanding and due "On Demand".
On October 1, 1996, the Company entered into a Letter of Intent to acquire
international distribution rights for the Midland Land Mobile Radio (LMR)
products from Midland International Limited, a wholly owned subsidiary of
Simmonds Capital Limited (SCL). Under the terms of the agreement, the primary
markets include most of Western Canada, Mexico, South America, The Pacific
Rim, Australia and Thailand. These operations will continue under a new name,
American Digital Corporation (ADC, Canada), as a wholly-owned subsidiary of
American Digital Communications, Inc.
The terms of this acquisition calls for the Company to acquire the
distribution rights to the Midland LMR products for the indicated inter-
national markets with a combination of 1,750,000 shares of ADC common stock
which will be issued under Regulation S guidelines and 3,000,000 shares of
non-voting preferred stock, convertible on a one-for-one basis into the
Company's common stock after one year. The Company will also acquire
approximately $1 million in inventory for which SCL has agreed to take back
a three year interest bearing note. This transaction is scheduled to close
in October 1996.
The Company is negotiating to acquire for cash and stock, 100% of a
wireless communications hardware distribution. The Company to be acquired
is a major distributor of wireless communications products. In 1996, the
company's proforma revenue and profit projections reflect good growth.
Additionally, the company serves as a major repair depot for radio products.
The Company views this acquisition as the flag-ship operation for its
previously announced strategy to become a major Channel-To-Market, full
service distribution operation for the wireless communications industry.
The Company hopes to close this transaction in late 1996, however, there
can be no assurance that the Company will consummate this transaction.
The Company intends to use its fully integrated 220 MHz and wireless
industry hardware distribution operations as the foundation for implementa-
tion of its Channel-To-Market strategy. The current operating plan calls for
the Channel-To-Market launch in 1997. Through acquisition within the wireless
industry, the Company expects rapid expansion, and conspicuous growth.
However, there is no assurance the Channel-To-Market strategy will roll-out
as currently projected, or that the Company will achieve its current proforma
objectives.
Liquidity and Capital Resources
Cash on hand at quarter end was nominal in light of the Company's
acquisition plan. During the quarter ended August 31, 1996, the Company
raised $138,685 through sale of its Midland LTR products. The Company
issued 376,086 shares of its common stock in exchange for cash of $86,500
pursuant to a Private Placement Memorandum (PPM). The Company also issued
1,521,739 shares in a Regulation S offering in exchange for $304,000 net of
expenses and 40,000 shares common stock in exchange for $10,000 through
the execution of the Company's Compensatory Stock Option plan (CSO).
In May 1996 the Company executed the purchase options under the 220 MHz
Management Agreements of three constructed licenses (Portland, Phoenix and
St. Louis). To date the Company has 23 220 MHz communication systems
constructed. At the earliest opportunity, the Company will strive to exercise
its purchase options on the remaining 20 licenses currently under management
agreements.
Although the Company became operational in January of 1996, the Company's
historical lack of operating cash flow has meant that it has been dependent
on sales of its securities, borrowings, leasehold financing or other
extensions of credit. The Company intends to raise additional capital in the
current fiscal year, either through the sale of equity securities or a
combination of equity sales, borrowings and leasehold financing. Market
conditions will dictate what the Company can do in this regard.
Financial Conditions and results of operations.
During the quarter ended August 31, 1996, total assets increased 32%,
from $2,136,388 to $2,809,903 and shareholders' equity increased 47% from
$1,237,438 to $1,825,207. The ratio of current assets versus current
liabilities is 2.3 times. Cash on hand at August 31, 1996 was $35,882.
The Company incurred a loss of $307,229 during the quarter ended August
31, 1996. The activities during the fiscal quarter ended were mainly part of
the sale of the Company's Midland LTR products and the preparation required
to begin loading the Company's 23 constructed 220 MHz communication systems.
It should also be noted, that the difference between the second quarters
total revenue of $138,685 and cost of equipment sales of $177,598 is a
function of the assigned cost from the issuance of stock. The Company's
inventory to date is exclusively from the issuance of stock. Hence, the
result of each sale is a positive cash flow with no accounts payable
associated to the inventory on hand.
(Remainder of page left intentionally blank)
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Exhibits. The following exhibits are included as part of this report.
Exhibit
Page
Number Document Page Number
- ------- -------- -----------
None.
SIGNATURES
Pursuant to the registration requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereto duly authorized.
DATE: October 11, 1996 BY: /s/ R. Gene Klawetter
R. Gene Klawetter
President / CEO / Director
DATE: October 11, 1996 BY: /s/ Daniel M. Smith
Daniel M. Smith
Acting Chief Financial Officer,
Controller, Chief Accounting Officer
