<PAGE>
As filed with the Securities and Exchange Commission on July 12, 1996.
===============================================================================
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 May 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 NO X
--- ---
The number of shares outstanding of each of the Registrant's class of common
equity, as of June 30, 1996 are as follows:
CLASS OF SECURITIES SHARES OUTSTANDING
-------------------------------- ------------------
Common Stock, $.0001 par value 14,898,946
===============================================================================
THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS 10 PAGES.
1
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AMERICAN DIGITAL COMMUNICATIONS, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
<S> <C>
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
</TABLE>
2
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AMERICAN DIGITAL COMMUNICATIONS, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS MAY 31, FEB. 29,
---------- ----------
1996 1996
---------- ----------
<S> <C> <C>
Current assets:
Cash 116,726.00 115,312.00
Accounts Receivable 102,577.00 43,020.00
Inventories 422,289.00 628,602.00
Other current assets 8,742.00 7,642.00
- -------------------------------------------------------------------
Total current assets 650,334.00 794,576.00
- -------------------------------------------------------------------
Property and equipment:
Office equipment 126,746.00 112,801.00
Radio tower equipment 806,076.00 564,254.00
Furniture and fixtures 26,082.00 26,082.00
- -------------------------------------------------------------------
958,904.00 703,137.00
Less: Accumulated 110,664.00 99,091.00
depreciation
- -------------------------------------------------------------------
Net property and equipment 848,240.00 604,046.00
Other assets:
Distribution agreement, net of 383,333.00 393,333.00
amortization
Deposits and other 254,479.00 209,137.00
- -------------------------------------------------------------------
Total other assets: 637,814.00 602,470.00
TOTAL ASSETS 2,136,388.00 2,001,092.00
- -------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
3
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AMERICAN DIGITAL COMMUNICATIONS, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY MAY 31, FEB. 29,
----------- -----------
1996 1996
----------- -----------
<S> <C> <C>
Current Liabilities:
Accounts Payable 25,688 4,220
Accounts payable - related parties 4,531 2,576
Accrued payroll and payroll taxes - 9,593
Accrued interest 81,187 50,503
Accrued warranty liability 21,184 23,620
Notes payable - related parties 17,881 37,881
Current portion of capital lease 10,869 12,886
obligations
Current portion of long term note 2,133 2,756
- ----------------------------------------------------------------------------
Total current liabilities 163,473 144,035
Long term debt:
Capital lease obligations 8,666 -
Long term note payable - related 726,811 564,254
parties
- ----------------------------------------------------------------------------
Total long term debt 735,477 564,254
Shareholders' equity:
Common stock, $.0001 par value; 1,490 1,459
Unlimited shares authorized, issued
and outstanding 14,898,946 shares,
issued and outstanding 14,590,760 on
February 28, 1995.
Additional paid in capital 5,849,140 5,723,983
Accumulated Deficit (4,613,192) (4,432,639)
- ----------------------------------------------------------------------------
Total shareholder's equity 1,237,438 1,292,803
- ----------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' 2,136,388 2,001,092
EQUITY
- ----------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended May 31,
1996 1995
---------- ----------
<S> <C> <C>
Revenue
Equipment sales 198,385 -
Interest income - -
- ----------------------------------------------------------------
Total revenue 198,385 -
Costs and expenses:
General and administrative 165,115 173,199
Cost of equipment sales 207,221 -
Losses on SMR systems - -
Loss on SMR system operations and
disposal - -
Depreciation 11,573 15,820
Other Charges - -
Total costs and expenses 383,909 189,019
- ----------------------------------------------------------------
Net Loss: (185,524) (189,019)
- ----------------------------------------------------------------
Net loss per share of common stock (0.01) (0.03)
- ----------------------------------------------------------------
Weighted average number of common
shares outstanding 14,650,845 6,962,610
- ----------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH Three Months Ended May 31,
1996 1995
---- ----
- -----------------------------------------------------------------------
NET CASH USED IN OPERATIONS
<S> <C> <C>
Net loss (185,524) (189,019)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 21,573 15,820
Write off of deposits - -
Changes in:
Accounts receivable (59,557) -
Inventory 206,313 -
Other current assets (1,100) (550)
Accounts Payable 23,423 (671)
Accrued payroll and payroll taxes (9,593) (14,813)
Other accrued liabilities 28,248 -
- -----------------------------------------------------------------------
Net cash used in operating activities 23,783 (189,233)
- -----------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of office equipment / licenses (130,166) (1,500)
Deposits - payments \ refunds - (1340)
Borrowings from related party - -
Payments to related parties (20,000) -
- ----------------------------------------------------------------------
Net cash provided by (used in)
investing activities (150,166) (2,840)
- ----------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock, net 125,157 207,657
Payments of capital lease obligations 2,017 (3,472)
Payments of note payable 623 (834)
- ----------------------------------------------------------------------
Net cash provided by financing activities 127,797 203,351
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
INCREASE (DECREASE) IN CASH 1,414 11,278
- ----------------------------------------------------------------------
CASH, at beginning of period 115,312 4,888
- ----------------------------------------------------------------------
CASH, at end of period 116,726 16,166
- ----------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
AMERICAN DIGITAL COMMUNICATIONS, INC.
Notes to Financial Statements
May 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 accompanying 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.
ITEM 1. 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 met expectations
and generated approximately $198,000 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 LTR Radio Products in the
U.S. The Company also signed a letter of intent to acquire approximately $1.9
million in Midland 800 MHz LTR parts and accessories, but has not closed the
transaction.
DUE TO RELATED PARTY
A significant shareholder of the Company, loaned the Company $75,000 on
March 15, 1994. The Company signed a new note due in 1996. As of May 31, 1996
the balance due on the 9% interest bearing note was approximately $17,000.
To date, the Company has constructed and financed 13 220 MHz
communication systems for $1,047,900 through Ventel, Inc. In February 1996, the
Company sold three of the constructed systems and currently owes Ventel, Inc.
$806,077 plus interest.
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.
7
<PAGE>
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. PPC is a Company similar to ADC with 36 220 MHz systems constructed
and approximately 200 licenses under Management and Option Agreements. As a
result of due diligence, the Company has decided to change this acquisition from
a stock exchange to an asset purchase. With this new change, the Company is
anticipating a July close giving it 46 constructed 220 MHz transmitter sites
and, additionally, more than 200 licenses under management.
With respect to 220 MHz operations, the Company is currently in
negotiations to secure favorable equipment financing terms from Securicor LM
Radiocoms which will enable the Company to construct an additional 30 - 60 220
MHz transmitter sites. The sites have been identified and site leases are
tentatively in place. All regulatory requirements with respect to the targeted
licenses have been met and the Company is awaiting approval on all its
applications for permanent site modifications (some approvals have been
received). To fund this equipment purchase and the actual buildout, the Company
anticipates a private placement offering of its stock in July/August 1996,
concurrently with the launching of this buildout phase. There is no assurance
that the equipment negotiations or private placement will be successful.
As a result of a letter of intent signed by the Company in March 1996, the
Company intends to acquire for cash and stock, 100% of the stock of a $7.0
million mid-west wireless communications hardware distribution. The company to
be acquired is a major distributor of Motorola, Uniden, Kenwood and Midland
wireless communications products. In 1996, the company to be acquired projects
$9.0 million in sales, $1.7 million pre-tax profits. 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
the late summer.
The Company intends to use its fully integrated 220 MHz and wireless
industry hardware distribution operations as the foundation for implementation
of its Channel-To-Market strategy. The current operating plan calls for the
Channel-To-Market launch in late 1996. Through acquisition within the wireless
industry, the Company expects rapid expansion, resulting in targeted revenues
after two years in excess of $100 million. However, there is no assurance the
Channel-To-Market strategy will roll-out as currently projected.
During the period March - May 1996, the Company developed and launched an
innovative "Loading Agent" program designed to maximize loading of radios in the
shortest possible time fame. The program has been well received in four key
markets where as many as twelve agents have verbally committed to the Company to
support this strategy. The Company has purchased fifty (50) demo radios from
Securicor to facilitate loading agent activity.
LIQUIDITY AND CAPITAL RESOURCES
Cash on hand at quarter end was nominal in light of the Company's
acquisition plan. During the quarter ended May 31, 1996, the Company raised
$198,000 through sales of its Midland LTR products. The Company also issued
308,186 shares of its common stock in exchange for cash of $125,157 all pursuant
to a Regulation D offering of the Company's common stock.
During the quarter ended, the Company purchased outright three of the
licenses involved in the Company's constructed 220 MHz systems.
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 at least $6,500,000 in the current fiscal
year, either through the sale of equity securities or a combination of equity
sales, borrowings and leasehold financing.
8
<PAGE>
As explained under "Plan of Operations", the Company needs to secure
financing in the $2.5 to $3.0 million dollar range in order to execute its 220
MHz 30 - 60 system buildout plan. It is projected that the Company will require
about $6.5 million of total financing to execute its current consolidated plan
of operation. There is no assurance that the Company will raise the necessary
funding. The actual number of systems (30 - 60) which the Company is able to
construct prior to the FCC deadline is a function of when a deposit is placed
with the equipment manufacturer and when the manufacturer can ship. The Company
expects to benefit greatly from Securicor's field manpower as far as the
buildout is concerned.
In addition to the previously mentioned equity financing, the Company is in
negotiations with a major west coast financial organization to secure lease to
rent financing for subscriber equipment. This will enable the Company to execute
its marketing plan whereby it provides the radio, unlimited airtime and warranty
service for a flat monthly bundled fee. The Company estimates it will need
approximately 36,000 subscriber units in the first 30 months after launch.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
During the quarter ended May 31, 1996, total assets increased 7%, from
$2,001,092 to $2,136,388 and shareholders' equity changed from $1,292,803 to
$1,237,438. The rate of current assets against current liabilities is 4.0 times.
Cash on hand increased from the beginning of the period at $115,312 to quarter
end at $116,726. The Company has an deficit of $4,613,192 at quarter end.
The Company incurred a loss of $185,524 during the quarter ended May 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 constructed 220 MHz communication systems.
(REMAINDER OF PAGE LEFT INTENTIONALLY BLANK)
9
<PAGE>
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 PAGE
NUMBER DOCUMENT NUMBER
- --------- -------- ------
27 Financial Data Schedule
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: July 12, 1996 BY:
/s/ R. GENE KLAWETTER
-----------------------------------
R. Gene Klawetter
President / CEO / Director
DATE: July 12, 1996 BY:
/s/ DANIEL M. SMITH
------------------------------------
Daniel M. Smith
Acting Chief Financial Officer,
Controller, Chief Accounting Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE PERIOD ENDED MAY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FORM 10-QSB.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> MAY-31-1996
<CASH> 116,726
<SECURITIES> 0
<RECEIVABLES> 102,577
<ALLOWANCES> 0
<INVENTORY> 422,289
<CURRENT-ASSETS> 650,334
<PP&E> 958,904
<DEPRECIATION> 110,664
<TOTAL-ASSETS> 2,136,388
<CURRENT-LIABILITIES> 163,473
<BONDS> 0
0
0
<COMMON> 1,490
<OTHER-SE> 1,235,948
<TOTAL-LIABILITY-AND-EQUITY> 2,136,388
<SALES> 198,385
<TOTAL-REVENUES> 198,385
<CGS> 207,221
<TOTAL-COSTS> 207,221
<OTHER-EXPENSES> 176,688
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (185,524)
<INCOME-PRETAX> 0
<INCOME-TAX> (185,524)
<INCOME-CONTINUING> 0
<DISCONTINUED> (185,524)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (185,524)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
