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As filed with the Securities and Exchange Commission on January 15, 1997.
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 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 November 30, 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) (IRS. Employer ID No.)
5575 DTC Parkway, Suite 355
Englewood, CO 80111
(Address of Principal Executive Offices) (Zip Code)
(303) 770-8283
(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 November 30, 1996 are as follows:
Class of Securities Shares Outstanding
-------------------- ------------------
Common Stock, $.0001 par value 22,579,380
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This quarterly report on Form 10-QSB contains 12 pages.
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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............................. 11
A) Exhibit 27 Financial Data Schedule
B) Form 8-K
Signatures................................................... 11
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American Digital Communications, Inc.
Balance Sheet
(UNAUDITED)
ASSETS Nov. 30, February 29,
1996 1996
---------- -----------
Current Assets:
Cash 51,083 115,312
Accounts receivable 22,173 43,020
Inventories 544,901 628,602
Other current assets 6,442 7,642
---------- -----------
Total current assets 624,599 794,576
Property and equipment:
Office equipment 126,746 112,801
Radio tower equipment 1,703,076 564,254
Furniture and fixtures 26,082 26,082
---------- -----------
1,855,904 703,137
Less: Accumulated depreciation (136,907) (99,091)
---------- -----------
Net property and equipment 1,718,997 604,046
Other assets:
Distribution agreement, net 1,788,333 393,333
Deposits and other 385,896 209,137
---------- -----------
Total other assets: 2,174,229 602,470
TOTAL ASSETS 4,517,825 2,001,092
---------- ------------
See accompanying notes to financial statements.
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American Digital Communications, Inc.
Balance Sheet
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY Nov. 30, February 29,
1996 1996
----------- ------------
Current Liabilities:
Accounts payable 95,322 4,220
Accounts payable - related parties 6,201 2,576
Accrued payroll and payroll taxes - 9,593
Accrued interest 144,696 50,503
Accrued warranty liability 10,866 23,620
Notes payable - related parties 10,370 37,881
Current portion of cptl lease oblgtns 2,650 12,886
Current portion of long term note 665 2,756
----------- ------------
Total current liabilities 270,770 144,035
Long term debt:
Capital lease obligations 5,666 -
Long term note pybl - related party 1,341,376 564,254
----------- ------------
Total long term debt 1,347,042 564,254
Shareholders' equity:
Common stock, $.0001 par value;
Unlimited shares authorized, issued
and outstanding 22,579,380 shares,
issued and outstanding 14,590,760 on
February 29, 1996. 2,257 1,459
Additional paid in capital 8,175,142 5,723,983
Accumulated deficit (5,277,386) (4,432,639)
----------- ------------
Total shareholder's equity 2,900,013 1,292,803
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY 4,517,825 2,001,092
----------- ------------
See accompanying notes to financial statements.
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American Digital Communications, Inc.
Statements of Operations
(UNAUDITED)
Nine Months Ended Three Months Ended
Nov. 30, Nov. 30,
1996 1995 1996 1995
--------- -------- -------- --------
Revenue
Equipment sales 506,312 - 169,242 -
Interest income - - - -
--------- -------- -------- --------
Total revenue 506,312 - 169,242 -
Costs and expenses:
General and admin. 525,422 446,229 171,113 141,339
Cost of equip. sales 582,713 - 197,893 -
Depreciation 37,816 47,460 13,122 15,820
Consulting fee / retainer 20,000 - - -
--------- -------- -------- --------
Total costs and exp. 1,165,951 493,689 382,128 157,159
Net Loss: (659,639) (493,689) (212,886) (157,159)
Net loss per share
of common stock (0.03) (0.07) (0.01) (0.02)
Weighted average number
of common shares
outstanding 16,371,652 7,345,645 17,763,655 7,452,998
See accompanying notes to financial statements.
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American Digital Communications, Inc.
Statements of Cash Flows
(UNAUDITED)
Increase (Decrease) in Cash Three Months Ended Nov. 30,
1996 1995
--------- ---------
Net cash used in operations
Net loss (212,886) (157,159)
Adjustments to reconcile net loss
to cash used in operating activities:
Depreciation and amortization 23,120 15,820
Write off of deposits - -
Changes in:
Accounts receivable 24,715 -
Inventory (266,782) -
Other current assets 15,133 (20,000)
Accounts payable (22,615) (39,060)
Accrued payroll and payroll taxes - (6,073)
Other accrued liabilities (57,596) (4,748)
--------- --------
Net cash used in operating activities (496,911) (211,220)
Cash flows from investing activities:
Purchase of equipment / licenses (63,909) -
Deposits - payments / refunds - 38,672
Borrowings from related party 535,298 60,000
Payments to related parties (9,500) -
Deposits received / waived - (10,000)
---------- ---------
Net cash provided by (used in)
investing activities 461,889 (11,328)
Cash flows from financing activities:
Proceeds from sale of common stock, net 47,800 258,000
Payments of capital lease obligations 2,000 2,655
Payments of note payable 423 245
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Net cash provided by financing activities 50,223 260,900
Increase (decrease) in cash 15,201 38,352
--------- ---------
Cash, at beginning of period 35,882 643
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Cash, at end of period 51,083 38,995
--------- ---------
See accompanying notes to financial statements.
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American Digital Communications, Inc.
Notes To Financial Statements
November 30, 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 footnotes 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 necesary 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.
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 $169,000 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 "special-
ized mobile radio" or SMR bandwidths and at the end of the reporting period
had actually constructed 23 licenses. Effective December 31, 1995, the
Company became the exclusive licensee for distribution of Midland 800 MHz
LTR Radio Products in the US. Effective November 8, 1996, the Company
acquired exclusive license and distribution rights for the complete Midland
Land Mobile Radio (LMR) product line for Mexico, South America, Pacific Rim,
Australia, New Zealand, Thailand and other parts of Southeast Asia.
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 1997. As of
November 30, 1996 the outstanding balance on the 9% interest bearing note
was approximately $10,370.
In August 1996, the Company financed and 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 ($4,600,000 - 23 systems potentially) plus $500 per radio loaded per
respective site. However, there can be no assurance that the third party will
exercise the option or that the projected selling price will be realized.
Last year, the Company constructed its first 13 220 MHz communications
systems and financed the 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, a total of approxi-
mately $951,000. The Company plans to retire this note from the proceeds of
its eventual sale of the constructed 220 MHz systems.
In May 1996, the Company executed the purchase option under the Management
Agreement of three constructed licenses (Portland, Phoenix, and St. Louis).
To date, the Company has 23 220 MHz communication systems. During the period,
the Company exercised three additional options to purchase 220 MHz licenses
through issuance of its common stock. The Company today owns six of the
twenty-three constructed licenses and projects that additional license
purchase options will be exercised during early 1997.
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Item 2. Management's Discussion and Analysis or Plan of Operation.
The Company is the exclusive licensee in the US 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 Southeast Asia. These operations will continue under a new
name, American Digital Corporation (ADC, Canada), as a wholly-owned
subsidiary of American Digital Communications, Inc. This transaction was
consummated on November 8, 1996. As a part of the agreement, the Company can
receive up to $1,000,000 in credit for the purpose of acquiring inventory. To
date, the Company has signed one three year note for $535,298.
The terms of the November 8, 1996 acquisition calls for the Company to
acquire the distribution rights to the Midland LMR products for the indicated
international markets with a combination of 1,750,000 shares of the Company's
common stock which will be issued under Regulation S guidelines with 41 day
holding period and 3,000,000 shares of Regulation S common stock with a 12
month holding period. The Company will also acquire approximately $1 million
in inventory for which SCL has agreed to take back a three year interest
bearing note. To date, the Company has committed to acquire approximately
$535,000 worth of salable inventory.
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The Company is negotiating to acquire for cash, debt 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
operation for the wireless communications industry. The Company hopes to
close this transaction in the first quarter of 1997, however, there can be
no assurance that the Company will consummate this transaction.
The Company intends to use its fully integrated 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 strategy 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.
The Company has a Letter of Intent and is in negotiations presently with
Midland Europe Ltd. (MEL) which is 100% owned by Simmonds Capital Ltd. (SCL).
The Company expects to negotiate a 6 month option to purchase the stock of
MEL and concurrently grant a sub-license to MEL to distribute Midland LMR
products in Australia, New Zealand and Thailand and other parts of Southeast
Asia in exchange for a royalty based on total product sold by MEL. These
distribituin rights are owned by the Company. However, there can be no
assurance that the Company will be successful in its efforts.
Finally, in the first quarter of 1997, the Company will reconstitute its
Board of Directors and expand it to seven active members.
Liquidity and Capital Resources
Cash on hand at quarter end was nominal in light of the Company's
acquisition plan. During the quarter ended November 30, 1996, the Company
raised $169,242 through sale of its Midland LTR products. The Company issued
207,826 shares of its common stock in exchange for cash of $47,800 pursuant
to a Private Placement Memorandum (PPM). The Company also issued 1,750,000
shares in a Regulation S offering valued at $525,000 in exchange for the
Midland LMR distribution rights for Western Canada and 3,000,000 shares in a
Regulation S offering valued at $900,000 in exchange for the Midland LMR
distribution rights for Australia, The Pacific Rim, Thailand and other parts
of Southeast Asia.
In May 1996 the Company executed the purchase options under the 220 MHz
Management Agreements of three constructed licenses (Portland, Phoenix and
St. Louis). In November, the Company exercised its option to purchase three
additional licenses through issuance of 86,706 shares of its common stock.
To date the Company has 23 220 MHz communication systems constructed and
owns six licenses. At the earliest opportunity, the Company will strive to
exercise its purchase options on the remaining 17 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.
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Financial Conditions and results of operations.
During the quarter ended November 30, 1996, total assets increased 61%,
from $2,809,903 to $4,517,825 and shareholders' equity increased 59% from
$1,825,207 to $2,900,013. The ratio of current assets versus current
liabilities is 2.3:1. Cash on hand at November 30, 1996 was $51,083.
The Company incurred a loss of $212,886 during the quarter ended November
30, 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 80% of the third
quarters total revenue of $169,242 and cost of equipment sales of $197,893
is primarily a function of the assigned cost from the issuance of stock.
Hence, the result of each sale is a positive cash flow with no accounts
payable associated to the inventory sold.
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
American Digital Communications, Inc.
This report contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Investors are cautioned that such statements are only predictions and that
actual events or results may differ materially. In evaluating such statements,
investors should specifically consider the various factors which could cause
actual results to differ materially from those indicated in such forward-
looking statements. The most important factors that could cause actual
results to differ from those expressed in the forward-looking statements
include, but are not limited to the following:
- The failure of the market for wireless communications systems to grow
or to grow as quickly as the Company anticipates.
- The intensely competitive nature of the wireless communications industry.
- The ability of the Company's distribution operation to evolve succesfully
throughtout world markets.
into world wide markets and sales strategies.
- The Company's reliance on sole source of supply for Midland products.
- The risk of business interruption arising from the Company's dependence
on a single manufacturer.
- The Company's ability to manage potential expansion of operations.
- The Company's ability to attract and retain key personnel.
- The Company's ability to respond to rapid technological changes within
the wireless communications industry.
- Changes in rules and regulations of the Federal Communications
Commission.
- The Company's ability to protect its distribution rights.
- Changes in economic conditions affecting the Company's customers.
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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 Document
EX-27 Financial Data Schedule
Form 8-K The Company filed a report on Form 8-K dated November 8, 1996,
whereas the Comapny acquired certain distribution and license rights
and up to $1,000,000 in salable inventory.
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: JANUARY 15, 1997 BY:
/s/ R. Gene Klawetter
R. Gene Klawetter
President / CEO / Director
DATE: JANUARY 15, 1997 BY:
/s/ Daniel M. Smith
Daniel M. Smith
Acting Chief Financial Officer,
Controller, Chief Accounting Officer
