Attached files
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
fiscal year ended June 30, 2009
or
o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from _______________ to _______________
Commission
File Number 0-15224
ADVANCE
DISPLAY TECHNOLOGIES, INC.
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(Exact
name of registrant as specified in its charter)
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Colorado
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84-0969445
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(State
of incorporation)
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(I.R.S.
Identification No.)
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7334
South Alton Way, Suite F, Centennial, Colorado
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80112
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(Address
of principal executive offices)
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(Zip
Code)
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(303)
267-0111
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(Registrant’s
telephone number including area code)
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Securities
registered under Section 12 (b) of the Exchange Act:
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None
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Securities
registered under Section 12 (g) of the Exchange Act:
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Common
Stock, $.001 par value
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Indicate
by check mark whether the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act.
Yes o No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes o No
x
Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15 (d) of the 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
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes
o No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. o
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (check one).
Large
accelerated filer o
|
Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting company x
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No
x
The
aggregate market value of the 8,111,873 shares of common stock held by
non-affiliates of the registrant, computed as the average of the closing bid and
asked prices as of December 31, 2008 was $730,069. As of October 12,
2009, the registrant had outstanding 32,014,723 shares of Common
Stock.
TABLE OF CONTENTS
PART
I
ITEM
1.
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3
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ITEM
1A.
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10
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ITEM
1B.
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15
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ITEM
2.
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15
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ITEM
3.
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16
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ITEM
4.
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16
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PART
II
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ITEM
5.
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21
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ITEM
6.
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21
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ITEM
7.
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22
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ITEM
7A.
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31
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ITEM
8.
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31
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ITEM
9.
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31
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ITEM
9A(T).
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31
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ITEM
9B.
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32
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PART
III
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ITEM
10.
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33
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ITEM
11.
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36
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ITEM
12.
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38
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ITEM
13.
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40
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ITEM
14.
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45
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PART
IV
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ITEM
15.
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45
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51
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Special
Note Regarding Forward Looking Statements
Certain
statements contained herein constitute “forward-looking
statements.” 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
develop a profitable business, its success in attracting and retaining 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 this Report (See Item
13. Exhibits.)
PART I
ITEM
1. BUSINESS
Introduction
Advance
Display Technologies, Inc. (“ADTI” or the “Company”) is a development stage
company, incorporated under the laws of the State of Colorado on October 7,
1983. ADTI was formed to engage in the business of the technological
development and manufacture of fiber optic display screen systems and, since
December 2004, ADTI also has engaged in the business of the technological
development and manufacture of proprietary Light Emitting Diode (“LED”) display
screen systems.
ADTI
completed its initial public offering in April 1986, selling five million shares
of its Common Stock for net proceeds of $4.2 million. Since that
date, ADTI’s Common Stock has been reverse split such that each 50 shares
previously outstanding are now equal to one share. Other than a brief
venture into the motion picture releasing and theater operations business in the
second half of fiscal 2004, which business has been discontinued, ADTI has not
received material revenues from the sale of its products or
otherwise. The Company’s activities since inception primarily have
been focused on research and development of its core technologies, manufacturing
processes, and raising operating capital. The Common Stock of ADTI
currently is traded over the counter and is quoted on the OTC Bulletin Board
under the symbol “ADTI.” Historically, trading in the Company’s
Common Stock has been extremely limited, although trading volume has been higher
in recent years.
Products, Technologies and
Operations
Fiber Screen
Technology. ADTI initially was engaged in the development of
large screen fiber optic displays (“Fiber Screens” or “Screens”) and associated
manufacturing processes for various industries and applications. A
Fiber Screen may utilize any of a variety of projection light sources that
project images into the Screen’s matrix bundle of collated optical fibers that
in turn, transmit, magnify, and display the correlative image segments onto the
viewable face of the Screen. The Company’s FiberVision™ Fiber Screen,
which the Company has never produced or sold in commercial quantities, is a
large format high-resolution, optically passive, image transfer and
magnification device, exhibiting a high contrast ratio and enhanced image
display characteristics. While the Company may resume development of
its proprietary Fiber Screen technology sometime in the future, all of its
current research and development, production and marketing efforts are focused
on its Light Emitting Diode (LED) product. The Company believes that
there may still be a market opportunity for the Company to sell, support and
service Fiber Screens and related non-proprietary products to the out-of-home
advertising market, architectural media façade market and other visual display
dependent markets. Any such activity would be in addition to, and not
a replacement for, its ongoing development, production and marketing of SkyNet™
LED displays, discussed below.
Acquired
Technologies. In fiscal 2005, the Company acquired the rights
to two proprietary LED technologies. These LED Screen technologies
(the “Acquired Technologies”) were designed for large format out-of-home
advertising displays, generally in excess of 14ft. x 48ft. Various
features of the Acquired Technologies were the subject of patents and patents
applications on file in the United States. The Company subsequently
developed and built two generations of a proprietary LED Screen product using
one of the two Acquired Technologies (the “UltraNet Technology”). The
Company demonstrated the Generation I prototype in November 2005 and the
Generation II prototype in December of 2006, but these demonstrations exposed
various inadequacies of the UltraNet Technology. As a result, the
Company concluded that neither of these two prototypes could justify commercial
production based on the UltraNet Technology, which the Company determined was
not commercially viable.
Proprietary LED
Technology. The Company subsequently determined to develop its
own “third generation” LED Screen product and commenced a new product
development project without using any of the Acquired
Technologies. The Company designed an entirely new product from
scratch, engaging the services of a contract engineering firm and its affiliated
electrical engineering development company (collectively, the “Engineering
Firm”) and utilizing new, proprietary technologies. The result was
the all-new Generation III prototype, SkyNet™, which was successfully
demonstrated in December of 2007. The SkyNet™ product is a mesh LED
Screen with a plurality of LED modules distributed in a grid matrix format with
a spacing of 50 millimeters, utilizing a stainless steel mesh backplane to
provide flexibility. The product is thin, lightweight, sunlight
readable and runs video at 60 frames per second. The SkyNet™ screen
is 50% transparent, thereby allowing light and air to pass through, and can be
installed and operational in one day.
Manufacturing
Operations. During fiscal 2008, the Company developed its own
manufacturing capacity for SkyNet™ LED Screens, leasing approximately 19,360
square feet of industrial space in Temecula, California, and hiring
manufacturing, administrative and supervisory personnel on board in
Temecula. In order to commence production of SkyNet™ video display
screens and subassemblies in Temecula, the Company significantly increased its
workforce, including the hiring of production workers and
engineers. The Company also expanded its administrative, sales and
marketing staff to foster sales of SkyNet™ products.
The
Company began manufacturing activities in June 2008 and completed its first 123
square meter production level SkyNet™ screen in the first six weeks of fiscal
2009. The Company installed the completed screen on the Colorado
Convention Center in Denver on August 11, 2008, as its beta test sign for
marketing purposes, where it was to be used to air video advertisements and live
programming during the Democratic National Convention in
Denver. Unfortunately, this first SkyNet™ screen experienced an
unacceptable level of “string failures,” with random portions of the video
display losing power or going dark. The Company ultimately
determined, via x-ray analysis and other investigative techniques, that these
performance failures were the result of noncompliant and defective parts
provided by a key supplier. Due to the extent of the defective
components provided by the supplier, the screen had to be removed prior to the
commencement of the Convention. It was ultimately determined that the
Screen could not be repaired and offered for sale for outdoor use but could
only be used internally for marketing demonstrations and for ongoing development
and testing.
The
failure of the first production SkyNet™ screen was a serious setback for the
Company’s nascent production and marketing program. Production of
additional screens was halted for several months while the Company investigated
the source of the performance failure and established new quality control
procedures, including enhanced testing procedures to detect noncompliant or
defective parts and design improvements to reduce the impact of such parts on
screen performance. Production of SkyNet™ screen displays did not
resume until December of 2008, when the Company obtained fully compliant parts
from the supplier and eliminated all potential sources of failure besides the
defective and noncompliant parts. The Company has demanded
restitution from the supplier for its losses, including consequential damages,
caused by the failure of these parts. The parties are currently
engaged in discussions aimed at negotiating a consensual resolution of the
matter.
Proprietary
Technologies. The Company has filed patent applications for
various proprietary features of SkyNet™ with the United States Patent &
Tradmark Office (the “USPTO”) as well as
through the Patent Cooperation Treaty, which covers most of the world’s
industrialized nations, and with other patent offices around the
world. While the Company elected not to utilize the Acquired
Technologies in SkyNet™, it has retained its rights to the Acquired
Technologies, including the UltraNet Technology, in hopes of someday utilizing a
portion of those technologies in future products.
The
Company continues to invest substantial resources in exploring and developing
new proprietary technologies and product designs that may contribute to future
proprietary display products. The Company is currently seeking to further
develop and refine its existing proprietary technologies and display products by
incorporating and utilizing the Company’s newly implemented Quality Management
System (“QMS”).
Recent
Developments
During
fiscal 2009, the Company invested significant resources to develop and enhance
its corporate infrastructure including improvements in research and development,
product development, marketing, production engineering, manufacturing capacity
and quality management. The Company implemented a new quality
management system as well as an enterprise resource planning system and enhanced
its sales capabilities, internal audit and accounting functions.
The
Company initiated and implemented its Quality Management System in fiscal
2009. As a result, on August 21, 2009, the International Standards
Authority issued a Certificate of Registration to the Company for “conformance
with the provisions set forth by ISO 9001:2008”. As a result of
achieving ISO 9000 certification, the Company expects to be permitted to affix a
“CE Mark” to all of its SkyNet™ products in early 2010, thus declaring quality
and conformity to the necessary standards and directives. The CE mark
is internationally recognized and accepted as the standard of a quality
manufactured product. CE Marking also is widely considered to be a
prerequisite to selling manufactured products in the European
Union.
While the
failure of the initial production SkyNet™ display in Denver was a serious
setback for the Company’s production, sales and marketing efforts, the Company
responded by implementing corrective actions in fiscal 2009 to protect against
future failures. Besides eliminating the identified deficiencies in
vendor-supplied components of the SkyNet™ display product, the Company performed
exhaustive environmental testing of the SkyNet™ product both in house and at
independent test labs. As a result of the positive results of this
testing regimen, management believes that the SkyNet™ Screen product is capable
of successful deployment and long-term operation in even the harshest
environmental conditions.
During
fiscal 2009, the Company raised a substantial amount of new capital to fund the
expansion of its operations, including manufacturing, sales and marketing, and
ongoing research and development efforts. In particular, the
Company entered into a Senior Secured Revolving Credit Facility (the “Credit
Agreement”) with DeGeorge Holdings Three LLC, a Delaware limited liability
company (“Lender”), an affiliate of its majority shareholder and a member of its
Board of Directors, Lawrence F. DeGeorge. The November 6, 2008,
Credit Agreement, as amended June 15, 2009 (the “Amendment”), established a
revolving line of credit (the “Credit Facility”) not to exceed an aggregate
amount of Fifteen Million Dollars, $15,000,000 secured by all of the Company’s
assets. The Company issued a Convertible Revolving Promissory Note to
the Lender dated June 15, 2009 (the “Convertible Note”) for any
amounts drawn on the revolving line of credit, which provides for interest at
ten percent per annum, and is due and payable December 31, 2010. The
principal amount of the Convertible Note is convertible into shares of the
Company’s Series D Preferred stock from $0.084 to $0.11 per
share. The Company also issued a warrant to the Lender for the
purchase of 810,564 shares of Series D Convertible Preferred Stock at $0.084 per
share which expires on June 15, 2013. As of June 30, 2009,
the Company had borrowed a total of $9,117,869 under the Credit
Facility.
Employees and Other Company
Personnel
During
fiscal 2009, the Company hired additional employees and engaged a number of
independent contractors, consultants and temporary workers to provide services
in support of the Company’s sales, marketing and manufacturing
operations.
During
fiscal 2009, the Company reconfigured its sales strategy and organization by,
among other things, eliminating the Business Development Manager and Sales
Engineer positions. This realignment of the Company’s sales organization was
done to better align the Company’s assets with the market. The
Company appointed one of its former Business Development Managers as the new
Director of Sales and assigned to him the task of building a network of
independent sales agents to better serve the sales requirements of the
Company. Also during fiscal 2009, the Company hired a Director of
Middle East Operations to pursue opportunities in the Middle East markets, a
Senior Development Engineer, a Mechanical and Electrical Engineer, a Buyer, five
contract assembly technicians and additional administrative support
staff. Subsequent to year end, the Company appointed an Optical
Physicist previously providing consulting services for the Company to the
position of Vice President of Research and Development and Chief Technology
Officer. In addition, the Company added a Senior Director of
Engineering, a Quality and Manufacturing Engineer and two additional assembly
technicians.
As of
September 19, 2009, the Company employed one part-time and 27 full-time
employees, who coordinated sales and marketing functions, directed business,
manufacturing and product development efforts and conducted administrative and
accounting functions. The Company may employ additional staff as
required and as working capital permits. The Company also retains
various independent contractors on an as-needed basis for management, financial,
engineering, marketing, sales and consulting services.
Research and
Development
During
fiscal 2009 the Company continued its pursuit of technological and product
development activities. The technological activities were primarily
focused on refining and improving the performance of discrete components and
their associated manufacturing processes for use in the Company's products. The
Company's product development activities were focused on improving existing
product performance and initiating the creation of product variants to expand
product offerings. Management believes that continued support and
promotion of the Company's ongoing research and development efforts are
necessary to create and sustain a technological leadership position in the
market for large area mesh LED displays.
During
fiscal 2009, the Company incurred approximately $600,000 in research and
development expenses for the LED Screen, including ongoing development,
engineering verification and testing of its SkyNet™ LED Screen
product. During fiscal 2008, the Company incurred approximately
$2,900,000 in research and development expenses for the LED Screen, including
the Generation-3 prototype LED Screen.
Manufacturing
Operations
During
fiscal 2009, the Company continued development and implementation of its
manufacturing capacity and production capabilities for its SkyNet™ LED Screens.
Multiple new pieces of capital equipment for improved production and testing
purposes were purchased and installed at the Temecula
facility. Management believes that these activities have provided the
Company with sufficient production capacity to satisfy, in the near term, any
future demand for product contemplated by management’s current sales
projections.
The
Company’s SkyNet™ product is a large, flexible, high resolution, video display
screen that can be assembled in varying sizes and specifications according to a
customer’s individual needs. Accordingly, the Company’s manufacturing
process consists of assembling portions of the screens that can, in turn, be
assembled into larger, custom sized screens. During fiscal 2009, the
Company continued to purchase parts from third party suppliers and to use those
components to build screen sub-assemblies in order to be able to promptly
respond to orders for finished screens from prospective
buyers. Specifically, the Company significantly increased its
materials inventory in order to build “strings,” subassemblies that are used to
build any size or configuration of the Company’s LED screen
product. During the fiscal year, the Company completed one screen
system in order to have it ready for sale and also increased its work in
progress for varying subassemblies to position the Company to respond to
anticipated fulfillment timelines for current customer
prospects. Most of the components and sub-assemblies in inventory at
June 30, 2009 can be configured for screen systems of varying size or
dimension.
Marketing and
Sales
The
Company’s SkyNet™ LED Screen’s target market includes at least five distinct
out-of-home advertising or promotional market segments, namely (1) the larger
roadside video billboards, (2) retrofit video building wraps, (3) engineered
video panels for architectural media facades, (4) mass transit hubs, and (5) the
rental-staging industry. Management believes that these segments are
currently underserved by competing technologies, such as Bulb Matrix, other LED
displays, and various projection technologies, and that the SkyNet™ technology
offers substantial advantages over existing technologies in these
segments.
The
Company currently is engaged in a concentrated effort to market and sell its
SkyNet™ LED Screens to these target markets and customers. Among the
potential customers being pursued by the Company are outdoor advertising
companies, which erect and place video displays, billboards and other outdoor
signs in various commercial locations and who sell advertising space or time to
third party advertisers. The Company also is seeking the business of
various types of entertainment and sporting venues, especially those where the
Company’s flexible, lightweight, semi-transparent, and “direct sunlight
readable” SkyNet™ video display may provide particular
value. Commercial building owners looking to develop their “vertical
real-estate spaces” who may find the same attributes beneficial for generating
additional revenues from their buildings, comprise another market known as
Architectural Media Facades that the Company is currently trying to
penetrate.
The
success of the Company’s sales and marketing efforts are partially dependent on
the overall health of the worldwide advertising industry. This industry,
particularly in the United States, has experienced significant declines in
revenue and new activity during the past year as a result of the global economic
downturn. Because of these market factors, the Company’s current sales and
marketing plan is focused on generating sales of SkyNet™ LED Screens in fiscal
2010 in certain overseas markets. In the second half of fiscal year
2009, the Company launched concerted efforts to develop selected overseas
markets with the goal of achieving sales in areas of the world that have been
less affected by the current economic downturn in the United
States.
Competition
The
Company’s SkyNet™ video display products are subject to competition from
companies with substantially greater financial resources, human resources,
marketing and production capabilities than the Company. Likely
competitors are often part of large diversified corporate groups with a variety
of other operations, which can provide both a means of distributing their
products and stable sources of earnings and cash flows. Some of the
companies which may compete with the Company include, but are not limited to,
Barco N.V., Philips Electronics N.V., Daktronics, Inc. & Lighthouse
Technologies, Ltd.
Proprietary
Rights
The
Company relies on a combination of patents, trademarks, copyrights, trade
secrets, licensing and contract laws to protect its trade secrets and other
proprietary information.
The
Company’s SkyNet™ LED Screen and its FiberVison™ Fiber Screen are based on the
Company’s proprietary technologies for fiber optic display, LED screen design,
optical image projection, and manufacturing process methodologies, all of which
were either developed or acquired by the Company. Since inception in
1983, the Company has been directly issued, acquired, and/or licensed 11 patents
issued by the USPTO for the technologies it employs in its Fiber
Screens. Of these 11 patents, three remain active, though they will
expire in March 2011, November 2015, and February 2018,
respectively. At the end of fiscal 2000, the Company determined that,
at that time, it did not have a reasonable expectation that it would generate
significant future revenues from the use of intellectual property contained in
the patents issued prior to June 30, 1999 and, therefore, wrote off all
capitalized costs associated with these patents. The decision to
write off the capitalized costs in 2000 does not, however, limit the Company’s
ability to rely upon valid patents or to use the patented technologies in the
future.
In fiscal
2001, the Company reinitiated its efforts to pursue the development of the large
screen video display market through substantial improvements in the FiberVision™
Fiber Screen’s overall design and manufacturing technologies. The
Company placed major emphasis on the development of Variable Message Sign (VMS)
products specifically for the Intelligent Traffic System (ITS)
industry. In February 2001, the USPTO issued the Company patent
number 6,195,016 titled “Fiber Optic Display System with Enhanced Light
Efficiency” allowing a total of 64 claims. This patent currently is
active and being maintained by the Company.
In fiscal
2002, the Company developed certain proprietary manufacturing process
technologies through its assembly automation development program for Fiber
Screens. In light of the Company’s limited operating capital at that
time, the Company did not file for patents covering this technology and
continues to hold these intellectual property assets as trade
secrets.
In fiscal
2005, the Company acquired an exclusive worldwide, perpetual and irrevocable
license for certain LED display technologies (the “Acquired Technologies”) by an
assignment from John Temple, a former officer and director of the
Company. The Acquired Technologies included, but were not limited to,
all intellectual property disclosed in two patents issued by the USPTO and one
USPTO patent application for mesh LED display technologies. One of the two
issued patents subsequently was determined to be in the public domain, though
the second patent remains active and is being maintained by the
Company. This second patent, USPTO # 6,737,983 was issued in the
United States on May 18, 2004. The current status of this patent
is: (1) issued by the USPTO, (2) issued by the Mexican Patent Office,
(3) pending with the Japanese Patent Office, and (4) pending with the European
Patent Office (the “EPO”). The one patent application for the LED
display technologies that was assigned to the Company and subsequently issued as
USPTO #7,319,408, has, to date, been applied for in the following patent offices
around the world: Australia, Brazil, Canada, Japan, Mexico and the
EPO. In fiscal 2008, the Company filed five additional patent
applications for its own, newly developed LED Screen technology utilized in the
SkyNet™ video display screens. The Company may file additional patent
applications for other aspects of its proprietary LED Screen technologies that
are currently under development.
In the
ordinary course of business, the Company could from time to time be subject to
claims or litigation to defend against alleged infringement of the rights of
others or to determine the scope and validity of the intellectual property
rights of others. If material, such claims or litigation could be
costly and divert management’s time and attention from the development of its
business. Adverse determinations in such litigation could result in
the loss of the Company’s proprietary rights, subject the Company to significant
liabilities, or require the Company to seek licenses from third parties, any one
of which could have a material adverse effect on the Company’s business and
results of operations. In addition, the Company’s intellectual
property may be licensed in foreign countries, and the laws of such foreign
countries may treat the protection of proprietary rights differently from, and
may not protect the Company’s proprietary rights to the same extent as, laws in
the United States.
Going
Concern
The
Report of the Company’s Independent Registered Public Accounting firm on the
Company’s Financial Statements for fiscal 2009 (included in Part II, Item 8 of
this report) includes a qualification regarding the Company’s ability to
continue as a going concern. The Company’s continuation as a going
concern is subject to question because it still has not realized significant
revenues from continuing operations and it remains dependent on the continuation
of outside funding, which is not certain. The Company has borrowed an
additional $1,900,000 under the Credit Facility since the end of its fiscal year
on June 30, 2009. The Company believes that the Credit Facility will
be sufficient to fund operations through June 30, 2010. There is no
assurance, however, that such financing will be sufficient or that the Company
will be able to extend or refinance or repay that debt in a timely
manner.
Even if
the Company does obtain all necessary financing to sustain its operations
through June of 2010, the Company may not be successful in generating enough
revenue from sales of SkyNet™ video display products to sustain its operations
or, in the absence of such revenue, in raising sufficient new capital to fund
operating losses. Moreover, if the Company does obtain enough sales
orders for SkyNet™ products to sustain its operations, it still faces a variety
of challenges in manufacturing products to fill those orders, including but not
limited to, the resolution of its recent supplier problems. If the
Company is not successful in these endeavors, it may be forced to discontinue
operations and liquidate its assets. Because substantially all of the
Company’s assets would have to be used to satisfy the secured debt of the Credit
Facility, it is extremely unlikely that there would be any funds or property
available for distribution to shareholders from a liquidation.
ITEM 1A. RISK
FACTORS
Ownership of the Company’s securities,
including its Common Stock, is subject to a number of risks and uncertainties,
some of which are described below. While the Company believes that
the following list of risk factors is reasonably complete and accurate, there
can be no assurance that other risks or uncertainties not presently anticipated
by the Company will not adversely affect its results of operations or the value
of its securities.
We reported a net loss of $5.6
million for the fiscal year ended June 30, 2009. We cannot
assure you that we will become profitable, and if we do not, the value of your
investment could be adversely affected or you could lose your
investment.
The global economic downturn may
inhibit our ability to generate sales of our products. While
we have confidence in the quality of our SkyNet™ LED screens and their
suitability for the needs of various potential customers, as a development stage
company, we have never sold any SkyNet™ LED screens. The recent
global economic downturn has made the challenge of consummating our first sale
in this market an even more daunting task. If we are unable to close
any sales in fiscal 2010, we may lose our existing financing through the Credit
Facility and, if additional financing is not available, we would have to suspend
operations and might be forced to liquidate. Because all of our
assets are pledged to support the Credit Facility, it is extremely unlikely that
there would be any distribution of funds or assets to shareholders in a
liquidation.
Dependence on outside suppliers could
disrupt our business if they fail to meet expectations. We
outsource the majority of our manufacturing to outside
suppliers. A negative performance issue with a single
supplier could lead to significant quality and delivery issues and prevent the
sale of the display. Because of the negative perception which results
and the time it takes to resolve these issues, it could also result in the loss
of subsequent sales opportunities. We have sought to mitigate this
risk by qualifying alternate suppliers for key components as well as
implementing a more robust quality assurance system but there is no assurance
that our efforts will be successful.
We may not be able to manufacture our
products efficiently due to changes in demand or technology, or other unforeseen
events. Rapid technological change could lead to numerous
design changes and more rigorous performance specifications. New
product designs with such higher performance specifications may be more
difficult to manufacture or may require additional capital expenditures or
increased development and support expenses. We cannot be sure that we
will attain output goals or be profitable with regard to any of our new
products.
Our products may become obsolete due
to rapid technological change within the industry. Product
technology evolves rapidly, making timely product innovation essential to
success in the marketplace. The introduction of products with
improved technologies or features may render our existing products obsolete and
unmarketable. If we cannot develop products in a timely manner in
response to industry changes, or if our products do not perform well, our
business and financial condition will be adversely affected. To
mitigate these risks, our technical staff monitors technological changes in the
marketplace and seeks to implement those technologies and develop new
proprietary technologies for future products.
Our products will be covered by
warranties and fulfilling these warranties could adversely affect our financial
results. Unanticipated warranty and other costs for defective
products could adversely affect our financial condition and results of
operations and reputation. We will provide limited warranties on our
products and may offer extended warranties in response to customer
needs. These warranties will require us to repair or replace faulty
products and meet certain performance standards, among other customary warranty
provisions. The need to repair or replace products with design or
manufacturing defects could temporarily delay the sale of new products, reduce
profits, and adversely affect our reputation.
Product liability claims not covered
by insurance could adversely affect our financial condition and results of
operations. We may be subject to product liability claims
involving claims of personal injury or property damage. Although we
maintain product liability insurance coverage to protect us in the event of such
a claim, our coverage may not be adequate to cover the cost of defense and the
potential award. Also, a publicized actual or perceived problem could
adversely affect our reputation and reduce the demand for our
products.
We may be unable to protect our
intellectual property rights. We rely on a variety of
intellectual property rights in our business. Even though we have
existing patents and a number of pending patent applications covering various
aspects of our proprietary technologies, we may not be able to successfully
preserve all our intellectual property rights in the future, and these rights
could be invalidated, circumvented or challenged. A failure to
protect our own proprietary information or a successful intellectual property
challenge or infringement proceeding against us could materially and adversely
affect our competitive position. In addition, even if we are
successful in protecting our intellectual property rights or defending ourselves
against a claim of infringement, the dispute or litigation could be costly and
time-consuming. Moreover, we may be required to pay compensatory and
punitive damages or license fees if we settle or are found culpable in such a
case. Additionally, we may be precluded from offering products that
are determined to rely on the intellectual property of others or, in some cases,
while a determination as to an allegation of infringement is
considered. These developments could decrease our revenues and reduce
our available cash flow to the detriment of our business.
We may not attract, develop, and
retain the top management and other key employees we need. We
depend on the performance of our senior management team and other key
employees. The loss of certain members of our senior management could
negatively impact our operating results and ability to execute our business
strategy. Our future success also depends in part on our ability to
attract, train, motivate, and retain additional qualified
personnel.
Our SkyNet™ technologies may not gain market
acceptance. Our future sales performance will depend on market
acceptance of our technology. To date, we have not completed any
sales of our SkyNet™ video display product. If our SkyNet™ technology
and product line do not gain sufficient positive market acceptance, we will not
be able to generate adequate sales of SkyNet™ to achieve profitable
operations.
We are a small company facing intense
competition in our target markets. The market for
all-environment video display products like SkyNet™ is intensely competitive and
sensitive to new product introductions and enhancements. The market
is affected by ongoing technological developments, frequent new product
announcements and introductions, evolving industry standards and changing
customer requirements. Many of our competitors are better capitalized
and have a stronger market presence than us. Although we believe that our
products compare favorably with other products in the market, we may not be able
to establish and maintain our competitive position against current or potential
competitors. Competition may have the effect of reducing the prices
we can charge for our products, increasing marketing costs associated with
developing and maintaining our market niche, or reducing the demand for our
products. If we fail to compete successfully, either now or in the
future, our profitability and financial performance likely will be materially
adversely affected. Additionally, because a customer’s budget for the
purchase of an electronic video display like SkyNet™ may be part of that
customer’s broader advertising budget, our products may indirectly compete with
other forms of advertising, such as television, print media or fixed display
signs.
We are susceptible to general
economic conditions, and a downturn in our industry or a reduction in spending
by consumers. Our operating results are subject to
fluctuations based on general economic conditions, including conditions that
impact discretionary consumer spending, which could in turn affect advertising
revenues, entertainment spending, and other expenditures that drive demand for
our products. As a result of the current downturn in the U.S.
economy, the electronic video display industry has experienced a slowdown in
sales, which has adversely impacted our ability to generate revenues and may
continue to affect the results of our future operations.
We may not be able to obtain the
capital we need to maintain or grow our business. Our ability
to execute our long-term strategy may depend on our ability to obtain additional
long-term debt or equity capital. We cannot determine the precise
amount and timing of our funding needs at this time. We may be unable
to obtain future additional financing on terms acceptable to us, or at
all. We also may need to refinance our new or existing indebtedness
at maturity. We may not be able to obtain additional capital on
favorable terms to refinance our indebtedness. All of our assets are
pledged as collateral for our indebtedness and we may lose those assets upon a
default and subsequent foreclosure. If we are unable to obtain
sufficient capital in the future, we may have to curtail our capital
expenditures and reduce research and development expenditures. Any
such actions could have a material adverse effect on our business, financial
condition, and results of operations.
Servicing our existing debt may
constrain our future operations. Our ability to satisfy our
obligations to pay interest and to repay debt in the future will depend on our
future performance. Our performance depends, in part, on prevailing
economic conditions and financial, business and other factors, including factors
beyond our control. To the extent that we use a portion of our cash
flow from operations to pay the principal of, and interest on our indebtedness,
that cash flow will not be available to fund future operations and capital
expenditures. We cannot be certain that our operating cash flow will
be sufficient to fund our future capital expenditures and debt service
requirements or to fund future operations.
We may not be able to achieve and
maintain effective internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act
requires annual management assessments of the effectiveness of our internal
controls over financial reporting and a report by our Independent Registered
Public Accountants addressing these assessments. While the full
effectiveness of Section 404 has been postponed for smaller companies like us by
SEC rules, if we fail to maintain the adequacy of our internal controls, as such
standards are modified, supplemented or amended from time to time, we may not be
able to ensure that we can conclude on an ongoing basis that we have effective
internal controls over financial reporting in accordance with Section
404. Failure to achieve and maintain an effective internal control
environment could have a material adverse effect on our results of operations
and, in turn, the value of our securities.
There are a large number of shares of
Common Stock underlying our Preferred Stock that may be available for future
sale, and the sale of these shares may depress the market price of our Common
Stock. As of June 30, 2009, there were 177,002,763 shares of
our Series D Preferred Stock outstanding. In addition, amounts
borrowed under the Credit Facility, as amended, are convertible into Series D
Preferred Stock. If we borrow the full amount available under the
Credit Facility, as amended, or $15,000,000, the lender may elect to convert the
note into 159,171,711 shares of Series D Preferred Stock. The same
lender also has warrants to purchase 810,564 shares of Series D Preferred Stock
at $.084 per share. Our Series D Preferred Shares are convertible to
Common Stock on a one for one basis.
Holders of our preferred stock have a
majority of the voting power and economic ownership of the Company and various
rights that are senior to the rights of holders of Common
Stock. Our Articles of Incorporation authorize the issuance of
preferred stock in several different series. Our Board of Directors
is authorized to determine the rights, provisions, privileges, restrictions, and
number of authorized shares of any series of preferred stock. As the
result of various issuances of preferred stock over the past several years to
finance the Company’s continuing operations, the holders of preferred stock have
greater rights, including voting and economic rights, than the Common
Stock. The issuance of additional shares of preferred stock could
adversely affect the value of the Common Stock. As noted above, the
holders of Series D preferred stock have substantially greater voting power and
economic interest in the Company than Common Stock.
Ownership may be diluted by the
exercise or grant of employee stock options. The 2007 Equity
Incentive Plan provides for an aggregate of twenty-five million (25,000,000)
shares of the Company’s Common Stock to be available for issuance upon the
exercise of options granted. In August 2007, our compensation
committee granted a total of 6,750,000 options to six individuals, including
officers, employees and consultants, which vest quarterly beginning September
2007 and are exercisable at $0.11 per share. Further, in December
2007, we granted 750,000 stock options to two new employees, which are
exercisable at $0.14 per share and will vest quarterly beginning at several
different dates and some in relation to specific performance
goals. As of June 30, 2009, there were 6,500,000 options outstanding,
of which 3,221,875 were exercisable at an exercise price of $0.11 to $0.14 per
share. When shares of Common Stock are issued upon the exercise of
these options or other stock options or stock grants that may be made under our
Equity Incentive Plan, the ownership of existing shareholders may be
diluted.
Our largest shareholder will continue
to have significant ownership of our voting securities and voting control for
the foreseeable future. As of the date of this report,
Lawrence F. DeGeorge, a member of our Board of Directors, owns or controls
approximately 80% of our issued and outstanding capital stock on a fully
converted basis. As a result, Mr. DeGeorge may be able to effectively
control our affairs and business, including the election of directors, and
subject to certain limitations, approval or preclusion of fundamental corporate
transactions. This concentration of ownership may be detrimental to
the interests of our minority shareholders in that it may limit our
shareholders’ ability to elect or remove directors, delay or prevent a change in
control, impede a merger, consolidation, take over or other transaction, or
discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of our Company.
We do not intend to pay dividends in
the foreseeable future. We do not anticipate paying cash
dividends in the foreseeable future. Instead, we intend to retain
future earnings, if any, for reinvestment in our business. You should
not expect to receive any cash dividends as a stockholder of our
company.
There is only a limited market for
our Common Stock, which could cause our investors to incur trading losses or
prevent them from reselling their shares at or above the price they paid for
them, or from selling them at all. Our Common Stock is quoted
on the OTC Bulletin Board (OTCBB). The OTCBB is an inter-dealer,
over-the-counter market that provides significantly less liquidity than NASDAQ
or other stock exchanges. Securities traded on the OTCBB are usually
thinly traded, highly volatile, have fewer market makers, and are not followed
by analysts. The Securities and Exchange Commission’s order handling
rules, which apply to NASDAQ-listed securities, do not apply to securities
quoted on the OTCBB. Quotes for stocks included on the OTCBB are
seldom listed in newspapers. Dealers may dominate the market and set
prices that are not based on competitive forces. Moreover, the
dealer’s spread (the difference between the bid and ask price) may be large and
may result in substantial losses to the seller of shares on the OTCBB if the
stock must be sold immediately, and the seller may therefore incur an immediate
“paper” loss from the price spread. Accordingly, demand for shares of
our Common Stock on the OTCBB may be decreased or eliminated and holders of our
Common Stock may be unable to resell their securities at or near their original
acquisition price, or at any price.
Our Common Stock is thinly traded,
which may result in low liquidity and price volatility. The
daily trading volume of our Common Stock is relatively low. If this
were to continue in the future, the liquidity and appreciation of our Common
Stock may not meet shareholders’ expectations, and the prices at which it trades
may be volatile. The market price of our Common Stock could be
adversely impacted as a result of sales by existing shareholders of a large
number of shares of our Common Stock in the market or by the perception that
such sales could occur.
The “Penny Stock” rules could make
selling our Common Stock more difficult. Under these rules,
broker-dealers who recommend such securities to persons other than institutional
accredited investors must: (i) make a special written suitability determination
for the purchaser; (ii) receive the purchaser’s written agreement to a
transaction prior to sale; (iii) provide the purchaser with risk disclosure
documents that identify certain risks associated with investing in “penny
stocks” and that describe the market for these “penny stocks” as well as a
purchaser’s legal remedies; and (iv) obtain a signed and dated acknowledgment
from the purchaser demonstrating that the purchaser has actually received the
required risk disclosure document before a transaction in “penny stock” can be
completed. Because of these requirements, broker-dealers may find it
difficult to effect customer transactions, related transaction costs will rise
and trading activity in our securities may be greatly reduced. As a
result, the market price of our Common Stock may be depressed, and holders may
find it more difficult to sell their shares.
ITEM 1B. UNRESOLVED STAFF
COMMENTS
Not
applicable.
ITEM 2.
PROPERTIES
The
Company currently leases office space at 7334 South Alton Way, Suite F,
Centennial, Colorado 80112. The current facility has a total of 1,411
square feet at a current base rental of $1,965 per month plus operating expenses
of $504 per month. The facility is currently being used as office
space for accounting, administrative, sales and marketing
activities. The Company currently leases the facility on a
month-to-month basis. As working capital permits and operations
dictate, the Company may consider alternative facilities in the future to
accommodate space requirements for other business operations and
products.
In
November 2006, the Company entered into a lease agreement for 2,300 square feet
of office, product demonstration and product maintenance space in Rockaway, New
Jersey. The lease is for a five-year term beginning December 2006 and
calls for monthly base lease payments of $1,342, plus common area maintenance
charges estimated at $667 per month. The Company continues with plans
to sublease all or a portion of this space until such time as it is required for
the Company’s business.
On March
27, 2008, the Company entered into a lease for approximately 19,360 square feet
of industrial space in Temecula, California, for a five (5) year rental term
beginning April 1, 2008 and ending March 31, 2013. The facility is
used for research and development activities and to manufacture the Company’s
proprietary outdoor flexible digital display product, SkyNet™. The
Lease calls for a monthly payment of $13,552.00 for the first year of the lease
and a security deposit of $15,252.90, with increased rental amounts in each year
of the five year term, commencing with $13,552.00 per month for the year ended
March 31, 2009 and ending with $15,252.90 per month for the year ending March
31, 2013. In addition, the Company will pay a percentage of the
annual rent to the Lessor’s broker partners of between 4% and 6% per year, and
the Company has provided a separate guaranty of the Lease (the
“Guaranty”).
ITEM 3. LEGAL
PROCEEDINGS
The
Company has not been engaged in any material legal proceedings in fiscal
2009. If the Company’s ongoing discussions with the supplier of the
defective and noncompliant parts used in the SkyNet™ sign installed in Denver in
August of 2008 are not fruitful, however, the Company could resort to litigation
against the supplier to recover the damages suffered by the Company as a result
of the supplier’s actions.
ITEM 4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June
29, 2009, the Company held its Annual Meeting of Shareholders for the purpose of
considering and acting upon a series of transactions designed to simplify the
Company’s capital structure, to elect directors and to ratify certain
transactions and the selection of auditors. At the meeting the
shareholders considered the following 14 proposals:
1. To
elect Messrs. Shankle, DeGeorge and Martindale to the Company’s Board of
Directors to serve until the next Annual Meeting of Shareholders or until their
successors are elected;
2. To
ratify the appointment of AJ Robbins, P.C. as the Company’s independent
registered public accounting firm for the fiscal year ending June 30, 2009;
and
3. To
approve an amendment to the Company’s Articles of Incorporation to increase the
authorized shares of Common Stock from 175,000,000 to 1,000,000,000
shares;
4. To
approve an amendment to the Company’s Articles of Incorporation to increase the
authorized shares of Preferred Stock from 130,000,000 to 1,000,000,000
shares;
5. To
approve an amendment to the Company’s Articles of Incorporation to increase the
authorized shares of Series D Preferred Stock from 70,100,000 to 500,000,000
shares;
6. To
ratify the Senior Secured Revolving Credit Agreement entered into on November 6,
2008, by and between the Company and DeGeorge Holdings Three LLC;
7. To
ratify the conversion of all of the Company’s Revolving 10% Convertible,
Redeemable Promissory Notes into 55,888,021 shares of the Company’s Series D
Preferred Stock;
8. To
ratify the exchange of all outstanding shares of the Company’s Series E
Preferred Stock for 1,267,531 shares of the Company’s Common Stock;
9. To
ratify the exchange of all outstanding shares of the Company’s Series F
Preferred Stock for 4,549,015 shares of the Company’s Common Stock;
10. To
ratify the exchange of all outstanding shares of the Company’s Series G
Preferred Stock for 90,544,000 shares of the Company’s Series D Preferred
Stock;
11. To
approve an amendment to the Company’s Articles of Incorporation to amend the
terms of the Series D Preferred Stock, in light of the exchange of the Series G
Preferred Stock;
12. To
approve an amendment to the Company’s Articles of Incorporation to eliminate the
Series E, Series F and Series G Preferred Stock;
13. To
approve a reverse stock split of the Company’s Common Stock and Preferred Stock
at a specific ratio to be determined by the Board of Directors in its discretion
no later than 12 months after the annual meeting, within a range of not less
than 10 to 1 and not more than 20 to 1, and in connection therewith, an
amendment and restatement of the Company’s Articles of Incorporation to reflect
all prior amendments approved herewith and the reverse stock split ultimately
selected by the Board; and
14. To
ratify all prior issuances of, or agreements to issue, capital stock of the
Company.
Series G
Preferred shares are counted as 1,000 common equivalent shares for each Series G
Preferred share voted. The votes cast for, against or withheld, as
well as the number of abstentions, as to each of the proposals presented at the
meeting were as follows:
Proposal
1 – the election of directors
Director
|
Votes
For
(General
Voting Class)
|
Votes
Withheld
(General
Voting Class)
|
||||||
Matthew
W. Shankle
|
180,310,497 | 394,039 | ||||||
Lawrence
F. DeGeorge
|
180,310,397 | 394,139 | ||||||
James
P. Martindale
|
180,310,497 | 394,039 |
Proposal
2 – the ratification of AJ Robbins, P.C. as the Company’s independent audit
firm
Votes
For
|
Votes
Against
|
Votes
Abstain
|
||||||||||
General
Voting Class
|
180,697,607 | 2,077 | 4,852 |
Proposal
3 – the amendment to the Company’s Articles of Incorporation to increase the
authorized shares of Common Stock:
Votes
For
|
Votes
Against
|
Votes
Abstain
|
||||||||||
General
Voting Class
|
180,695,497 | 7,283 | 1,756 | |||||||||
Common
Stock
|
20,191,658 | 7,283 | 1,756 |
Proposal
4 – the amendment to the Company’s Articles of Incorporation to increase the
authorized shares of Preferred Stock
Votes
For
|
Votes
Against
|
Votes
Abstain
|
||||||||||
General
Voting Class
|
178,129,728 | 5,168 | 1,747 | |||||||||
Common
Stock
|
17,625,889 | 5,168 | 1,747 | |||||||||
Preferred
Stock Class
|
166,045,850 | - | - | |||||||||
Series
D and Series G Class
|
160,503,839 | - | - | |||||||||
Series
E
|
1,008,985 | - | - | |||||||||
Series
F
|
4,533,026 | - | - |
Proposal
5 – the amendment to the Company’s Articles of Incorporation to increase the
authorized shares of Series D Preferred Stock
Votes
For
|
Votes
Against
|
Votes
Abstain
|
||||||||||
General
Voting Class
|
178,130,062 | 5,124 | 1,457 | |||||||||
Common
Stock
|
17,626,223 | 5,124 | 1,457 | |||||||||
Series
D
|
69,959,839 | - | - |
Proposal
6 – the ratification of the Senior Secured Revolving Credit Agreement with
DeGeorge Holdings Three LLC
Votes
For
|
Votes
Against
|
Votes
Abstain
|
||||||||||
General
Voting Class
|
180,696,567 | 5,958 | 2,011 |
Proposal 7 – the ratification of the conversion of the Company’s Revolving 10% Convertible Redeemable Promissory Notes
Votes
For
|
Votes
Against
|
Votes
Abstain
|
||||||||||
General
Voting Class
|
178,130,426 | 4,698 | 1,519 |
Proposal
8 – the ratification of the exchange of Series E Preferred Stock for 1,267,531
shares of Common Stock
Votes
For
|
Votes
Against
|
Votes
Abstain
|
||||||||||
General
Voting Class
|
178,130,714 | 4,412 | 1,517 |
Proposal
9 – the ratification of the exchange of Series F Preferred Stock for 4,549,015
shares of Common Stock
Votes
For
|
Votes
Against
|
Votes
Abstain
|
||||||||||
General
Voting Class
|
177,990,303 | 4,558 | 141,782 |
Proposal
10 – the ratification of the exchange of Series G Preferred Stock for 90,544,000
shares of the Company’s Series D Preferred Stock
Votes
For
|
Votes
Against
|
Votes
Abstain
|
||||||||||
General
Voting Class
|
178,130,395 | 4,597 | 1,651 |
Proposal
11 – the amendment to the Company’s Articles of Incorporation to change the
terms of the Series D Preferred Stock to reflect the exchange of Series G
Preferred Stock
Votes
For
|
Votes
Against
|
Votes
Abstain
|
||||||||||
General
Voting Class
|
178,130,581 | 4,375 | 1,687 | |||||||||
Series
D and Series G Class
|
160,503,839 | - | - | |||||||||
Series
D
|
69,959,839 | - | - | |||||||||
Series
G
|
90,544,000 | - | - |
Proposal
12 – the amendment to the Company’s Articles of Incorporation to eliminate
Series E, Series F and Series G Preferred Stock
Votes
For
|
Votes
Against
|
Votes
Abstain
|
||||||||||
General
Voting Class
|
178,132,792 | 2,018 | 1,833 | |||||||||
Series
E
|
1,008,985 | - | - | |||||||||
Series
F
|
4,533,026 | - | - | |||||||||
Series
G
|
90,544,000 | - | - |
Proposal
13 – the approval of the reverse stock split at a ratio to be determined by the
Board and to restate the Company’s Articles of Incorporation to reflect the
stock split and other amendments
Votes
For
|
Votes
Against
|
Votes
Abstain
|
||||||||||
General
Voting Class
|
180,695,293 | 7,658 | 1,585 | |||||||||
Common
Stock
|
20,191,454 | 7,658 | 1,585 | |||||||||
Series
D and Series G Class
|
160,503,839 | - | - |
Proposal
14 – the ratification of prior issuances of capital stock issuances and
agreements
Votes
For
|
Votes
Against
|
Votes
Abstain
|
||||||||||
General
Voting Class
|
178,130,203 | 4,697 | 1,743 | |||||||||
Common
Stock
|
17,626,364 | 4,697 | 1,743 | |||||||||
Series
D
|
69,959,839 | - | - | |||||||||
Series
G
|
90,544,000 | - | - |
Accordingly,
all fourteen proposals were approved.
PART II
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
The
following table shows the range of high and low bids for ADTI’s Common Stock for
the last two fiscal years. Since completion of its public offering in
1986, it has traded over the counter and is currently quoted on the OTC Bulletin
Board (the “OTCBB”). Historically, trading in the Common Stock of
ADTI has been extremely limited, although trading volume has been higher in
recent years. The quotations represent prices between dealers as
shown on the OTCBB, do not include retail markup, markdown or commissions, and
may not necessarily represent actual transactions.
Fiscal
Quarter Ended
|
High
|
Low
|
|||||||
Fiscal
2008
|
September
30, 2007
|
$ | 0.12 | $ | 0.07 | ||||
December
31, 2007
|
0.15 | 0.08 | |||||||
March
31, 2008
|
0.19 | 0.09 | |||||||
June
30, 2008
|
0.58 | 0.11 | |||||||
Fiscal
Quarter Ended
|
High
|
Low
|
|||||||
Fiscal
2009
|
September
30, 2008
|
$ | 0.45 | $ | 0.10 | ||||
December
31, 2008
|
0.20 | 0.08 | |||||||
March
31, 2009
|
0.10 | 0.01 | |||||||
June
30, 2009
|
0.08 | -- |
As
of October 12, 2009 there were 1,742 record holders of ADTI’s Common Stock,
excluding those held in street name. No dividends have been paid with
respect to ADTI’s Common Stock and ADTI has no present plans to pay dividends on
its Common Stock in the foreseeable future.
ADTI’s
Series D Preferred Stock ranks senior and prior to ADTI’s Common Stock as
to dividends. For more information regarding ADTI’s Series D
Preferred Stock, see Note 10 of the accompanying Notes to our Consolidated
Financial Statements included in this Form 10-K.
ITEM
6.
|
SELECTED FINANCIAL
DATA
|
Not
Applicable
ITEM 7.
|
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”. (See page ii of this report.)
Going
Concern
The
Report of the Company’s Independent Registered Public Accounting firm on the
Company’s Financial Statements included in Part II, Item 8 of this report
contains a qualification regarding the Company’s ability to continue as a going
concern because the Company is in the development stage, has not realized
significant revenues from operations and is dependent on the continuation of
outside funding, which is not certain. Since inception, the Company
has devoted most of its efforts toward raising capital and its research and
development efforts
During
fiscal 2009, the Company raised a substantial amount of new capital for
manufacturing operations and for continuing research and development for its
proprietary LED mesh video display screens, SkyNet™. The Company’s principal
business activities consisted of: (1) improvement of its manufacturing and
quality management operations for SkyNet™ LED screens; (2) expanding and
training its production, engineering, sales, marketing and administrative
workforce; (3) performing sales and marketing analysis and sales operations to
support and bring to market SkyNet™ LED Screens, and (4) continuing its
proprietary product development activities.
Credit
Facility
On
November 6, 2008, the Company entered into a Senior Secured Revolving Credit
Facility (the “Credit Agreement”) with DeGeorge Holdings Three LLC, a Delaware
limited liability company (“Lender”), an affiliate of a member of the Company’s
Board of Directors and its majority shareholder. By the Credit
Agreement, the Company established a revolving line of credit secured by a
pledge of all of the Company’s assets (the “Credit Facility”) not to exceed the
aggregate amount of Six Million Eight Hundred Ninety-Four Thousand Three Hundred
Sixty-Two Dollars ($6,894,362), which included a rollover of $1.8 million in
Demand Notes issued during the six-month period, and $700,000 in previously
issued 10% Demand Notes and accrued interest on the Demand Notes totaling
$194,362. In connection with the execution of the Credit Agreement,
the Company issued a Convertible Revolving Promissory Note in favor of the
Lender dated November 6, 2008 (the “Convertible Note”), which provides for
interest at ten percent (10%) per annum based on a 365/366 day year on the
outstanding balance, with interest payable along with principal at maturity on
November 6, 2009 (the “Maturity Date”) or upon conversion of the Convertible
Note. Under the terms of the Credit Agreement, the Lender may elect
to convert all or any portion of the unpaid principal owed under the Convertible
Note into shares of the Company’s Series D Preferred Stock at any time or from
time-to-time at a conversion price of $0.11 per share (the “Conversion
Price”).
On June
15, 2009, the Company and the Lender, entered into the Amendment (“Amendment”)
to the Credit Facility. The Amendment modified the Credit Agreement
to, among other things: (1) increase the maximum amount of revolving credit
available to $15,000,000, resulting in an additional $8,105,638 of available
credit (the “Additional Credit”); (2) extend the maturity date of the Credit
Agreement from November 6, 2009 to December 31, 2010; (3) issue a stock purchase
warrant (the “Warrant”) in favor of the Lender for the purchase of 810,564
shares of Series D Convertible Preferred Stock (the “Warrant Shares”); (4) enter
into a revolving note in favor of the Lender in an aggregate principal amount
not to exceed $15,000,000 (the “New Revolving Note”) and (5) make various other
revisions to the terms of the Credit Agreement.
Under the
terms of the Amendment, the Lender may elect to convert all or any portion of
the unpaid principal relating to the Additional Credit and the New Revolving
Note into shares of the Company’s Series D Preferred Stock at a conversion price
of $0.084 per share (the “Amendment Conversion Price”). The Warrant
grants the Lender the right to purchase 810,564 shares of Series D Convertible
Preferred Stock at any time or from time-to-time until June 15, 2013, at the
Amendment Conversion Price. The Series D Convertible Preferred Stock converts
1-for-1 into shares of the Company’s Common Stock.
Under the
Amendment, the Lender also has the right to accelerate payment of all principal,
interest and other amounts, if any, that are outstanding under the New Revolving
Note as of July 1, 2010 (the “Performance Date”), if the Company has not sold,
delivered and executed any binding agreements with unaffiliated third-parties
for the sale of SkyNet™ during the period beginning on June 15, 2009, and ending
on the Performance Date. In the event that the Company does not
satisfy such performance obligation and is unable to pay such amounts
outstanding within thirty (30) days of the Performance Date, the Lender may (i)
elect to sell or seize all or any portion of the Collateral, or (ii) refinance
any amounts outstanding by offering to enter into a new revolving credit or
installment loan agreement. The Lender shall also have the same
foreclosure right if there is a continuing event of default under the Credit
Agreement.
The
Company believes the Credit Facility will provide sufficient financial resources
to support its operations until June of 2010. Management believes
that the Company’s continued existence after such funding is discontinued is
dependent upon its ability to: (1) successfully raise new permanent capital; (2)
secure interim funding from outside sources; and (3) achieve and maintain
positive cash flow and profitable operations. There can be no
assurance that the Company will be able to do so.
Capital
Restructuring
On January 15, 2009, the holders
of our Convertible Redeemable Promissory notes agreed to convert all principal
($740,000) and accrued interest ($193,330) outstanding into shares of Series D
Preferred stock at a rate of $0.0167 per share or 55,888,021 shares. The
Company had 39,539,258 additional Series D Preferred shares authorized at that
time. Each of the note holders acknowledged they would convert a total of
$660,139 of their notes in exchange for the 39,529,258 shares of Series D
Preferred stock and they would receive the additional 16,358,763 for the
remaining $79,861 of convertible notes and $193,330 of accrued interest as soon
as the shareholders approved an increase to the Company’s authorized preferred
stock and the Company amended its articles of incorporation. The note
holders also agreed that interest on the entire principal amount of the
Convertible Redeemable Promissory Notes would cease as of January 15,
2009.
Effective
February 1, 2009, the holders of our Series E Preferred Stock and Series F
Preferred Stock agreed to convert all the Series E and Series F Preferred Stock
to 1,267,531 and 4,549,015 shares of the Company’s Common Stock, respectively,
subject to shareholder approval.
Also effective February 1, 2009, the
holders of our Series G Preferred Stock agreed to convert all of the outstanding
Series G Preferred Stock to 90,544,000 shares of Series D Preferred Stock,
subject to shareholder approval.
On June 29, 2009 the shareholders
approved all of the above mentioned transactions and approved a proposal to
eliminate the Series E, F and G Preferred Stock, leaving the Company with only
two classes of stock, Common and Series D Preferred. As a result, at
June 30, 2009, the Company had 177,002,763 shares of Series D Preferred Stock
and 32,014,723 shares of Common Stock outstanding. Also, the Company
had borrowed $9,117,869 under the Credit Facility, as amended, which amount is
convertible into 89,146,342 shares of the Company’s Series D Preferred
Stock.
Denver SkyNet™ Video Screen
Installation
The Company installed a SkyNet™ screen
at the Colorado Convention Center in Denver on August 11, 2008. While
installed, the screen suffered a series of performance failures resulting from
noncompliant and defective parts provided by one of the Company’s key
suppliers. It was subsequently determined that, due to the extent of
the defective components, the screen could not be repaired in a manner that
would permit it to be offered for sale for outdoor use. The Company
determined that the sign would be used for marketing demonstrations and for
ongoing product integration testing purposes and ultimately may be sold for an
indoor application.
The Company, as of this filing,
continues to be engaged in negotiations with the supplier and its insurance
company concerning the losses suffered by the Company because of the supplier’s
nonconforming parts. The Company remains optimistic that a mutually
satisfactory resolution of the problem, which temporarily suspended production
at the Temecula facility, will be reached in the near future. The
Company received conforming parts from the supplier in late November of 2008,
and screen production was resumed in December.
Critical Accounting
Policies
Income
Taxes – Income taxes are accounted for under the liability method,
whereby deferred tax assets and liabilities are recorded based on the
differences between the financial statement and tax basis of assets and
liabilities and the tax rates that will be in effect when these differences are
expected to reverse. Deferred tax assets are reduced by a valuation
allowance that reflect expectations of the extent to which such assets will be
realized.
Effective
July 1, 2007, the Company adopted the provisions of Financial Accounting
Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes,” (“FIN
48”). FIN 48 prescribes recognition thresholds that must be met before a
tax position is recognized in the financial statements and provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. Under FIN 48, an entity may only
recognize or continue to recognize tax positions that meet a "more likely than
not" threshold. The Company did not make any adjustment to opening retained
earnings as a result of the implementation.
Impairment
of Long-Lived Assets
– If facts and circumstances indicate that the carrying value of
long-lived assets may be impaired, then an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared to the
asset’s carrying amount to determine if a write-down to market value or
discounted cash flow value is required.
Use
of Estimates
– The preparation of the Company’s financial statements in conformity
with generally accepted accounting principles requires the Company’s management
to make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could
differ from those estimates.
Stock-Based
Compensation
– The Company adopted SFAS No. 123 (Revised 2004), Share Based
Payment (“SFAS No. 123R”), under the modified-retrospective method on
July 1, 2005. SFAS No. 123R requires companies to
measure and recognize the cost of employee services received in exchange for an
award of equity instruments based on the grant-date fair
value. Share-based compensation recognized under the
modified-retrospective method of SFAS No. 123R includes share-based
compensation based on the grant-date fair value determined in accordance with
the original provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, for all share-based payments granted prior to and not yet vested
as of July 1, 2005 and share-based compensation based on the
grant-date fair-value determined in accordance with SFAS No. 123R for all
share-based payments granted after July 1, 2005. SFAS
No. 123R eliminates the ability to account for the award of these
instruments under the intrinsic value method prescribed by Accounting Principles
Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and
allowed under the original provisions of SFAS No. 123. Prior to
the adoption of SFAS No. 123R, the Company accounted for the stock option
plans using the intrinsic value method in accordance with the provisions of APB
Opinion No. 25 and related interpretations.
Management
Team
Matthew
W. Shankle is the Company’s President and CEO responsible for managing its
day-to-day operations. James P. Martindale is the Company’s Executive
Vice President of Manufacturing and Chief Operations Officer and Rebecca L.
McCall is the Company’s Vice President of Accounting. Effective July
20, 2009, the Board of Directors appointed Mr. Gregory L. Heacock as Vice
President of Research and Development and Chief Technology
Officer. Messrs. DeGeorge, Shankle and Martindale comprise the
Board of Directors of the Company. See the biographical data
concerning the individual members of management in Part III, Item 9 of this
report.
Results of
Operations
For the
fiscal year ended June 30, 2009, the Company reported net losses of
($5,585,758), or ($.21) per share, compared to net losses of ($5,368,563), or
($.20) per share, for fiscal 2008. The increase in net loss for the
fiscal year ended June 30, 2009 over 2008 primarily is due to: (1) an increase
in the Company’s manufacturing expense of approximately $1,794,000 due to the
commencement of manufacturing operations in the second half of fiscal 2008; (2)
an increase in general and administrative costs of approximately $409,000, which
is largely attributable to higher personnel and consulting costs to support the
Company’s expanded operations, and legal and other expenses relating to the new
financing and capital restructuring; (3) an increase in marketing expenses of
approximately $364,000 primarily due to the launch of the SkyNet™ LED Screens;
and (4) an increase in interest expense to related parties of approximately
$298,000 due to higher debt balances in 2009 from 2008. These
increases were substantially offset by: (1) a decrease in research and
development costs of approximately $2,217,000 attributable to the Company
completing its initial proprietary product development of the SkyNet™ Screen in
2008; and (2) other income reported for 2009 relating to the derivative
conversion feature associated with the Credit Agreement.
The
Company had no sales in either fiscal 2009 or 2008. As of the date of
this report, the Company remains in a development stage, since it has not
received significant revenues from operations. The Company reported
interest income of approximately $1,000 and $19,000 for the fiscal years ended
June 30, 2009 and 2008, respectively.
The
Company reported manufacturing costs of approximately $2,343,000 and $549,000
for the fiscal years ended June 30, 2009 and 2008, respectively. In
June 2008, the Company completed one half of its first 123 square meter
production level SkyNet™ Screen. In August 2008, the Company
completed the second half of the screen and installed the completed screen in
Denver at the Colorado Convention Center in August 2008 for marketing
purposes. Due to nonconforming and defective parts provided by one of
the Company’s key suppliers, the Company removed the screen and returned it to
the Company’s manufacturing facility in Temecula, California for analysis and
repair. Because of the extent of the defective components, it was
determined that it would be uneconomical to repair the screen for sale for
outdoor use. Following reconditioning of the screen, management
determined that the screen could be used for marketing demonstrations and for
product integration testing. Accordingly, the Company capitalized
$277,888 to marketing equipment. These costs will be amortized over
the screen’s expected useful life, which is estimated to be three
years. Estimated annual amortization is expected to be approximately
$93,000. As a result, the Company recorded a net impairment to
inventory of approximately $375,000 and $193,000 for the years ended June 30,
2009 and 2008, respectively, for the defective screen and components, which
costs are included in manufacturing costs. The impairment to
inventory recorded by the Company to date does not reflect the consequential
damages and other losses suffered by the Company due to the nonconforming and
defective parts provided by the supplier.
From
December 2008 through the end of June 2009, and in subsequent periods, the
Company has continued to purchase parts from third party suppliers and to use
those parts to build screen sub-assemblies and finished product in order to be
able to promptly respond to orders from prospective buyers. Specifically, the
Company significantly increased its materials inventory in order to build
“strings”, subassemblies that are used to build any size or configuration of the
Company’s LED screen product. The Company completed one screen system
for sale and increased its work-in-progress for varying subassemblies during the
year ended June 30, 2009 to position the Company to respond to anticipated
fulfillment timelines for current customer prospects. Manufacturing
costs were allocated to work in progress and finished goods inventory based on
expected normal capacity rates. Cost in excess of the allocations to
work-in-progress and finished goods inventories are included in manufacturing
expense, including a reserve for obsolete inventory of approximately $223,000
for year ended June 30, 2009.
The
Company reported general and administrative (“G&A”) expenses of
approximately $1,882,000 and $1,472,000 for the fiscal years ended June 30, 2009
and 2008, respectively. The increase of approximately $409,000, or
28%, is primarily attributable to increases in salaries and professional fees
due to the expanded operations, raising additional capital and the capital
restructuring.
G&A
Salaries and related expenses increased approximately $162,000 in fiscal 2009
from 2008, primarily resulting from an increase in accounting and IT
personnel.
Professional
fees increased by approximately $134,000 for the year ended June 30, 2009 from
2008. The increase is primarily due to (1) an increase in audit fees
due to the expanded manufacturing and business operations; (2) an increase in
legal fees primarily related to the complete reorganization of the Company’s
capital structure, the negotiation of the Credit Facility, and expanded business
operations; and (3) the addition of a human resource consultant to assist with
recruiting qualified candidates for technical positions. These
increases were partially offset by a reduction in legal fees associated with
patent applications and other activities related to protection of the Company’s
proprietary products and processes, and extended analysis of competitive
products and patents conducted in the prior year. G&A travel
expense decreased by approximately $13,000 in fiscal 2009 versus the same period
a year ago due to less trips to the manufacturing facility and to oversee the
engineering firm conducting research and development activities in
2008.
The
Company is currently working to convert its enterprise software system to a more
robust and comprehensive system with enhanced accounting, reporting, customer
relationship management, inventory tracking and manufacturing resource planning
capabilities. G&A software license and training fees increased by
approximately $23,000 in 2009 from 2008 in connection with this ongoing system
conversion.
On June
29, 2009, the Company held its Annual Meeting of Shareholders but did not hold
one during the fiscal year ended June 30, 2008. This resulted in an
increase in shareholder related costs of approximately $24,000 in 2009 from
2008. The Company continued enhancing its website resulting in an
increase of approximately $37,000 for the fiscal year ended June 30, 2009 over
2008. Other net expenses increased approximately $42,000 in the year
ended June 30, 2009 from 2008.
Sales and
marketing expenses increased by approximately $364,000 to approximately $709,000
for the year ended June 30, 2009 from $345,000 for the prior
year. During the fiscal year ended June 30, 2009, the Company
employed three people to conduct business development activities related to
sales, market analysis and project management of anticipated installations from
the sales of SkyNet™ screens. These same individuals were employed
for only a few months in the prior year. After the removal of the
first production screen from the Colorado Convention Center installation and the
resulting shutdown of the Company’s production line, the business development
and project management positions were eliminated to conserve
costs. In May 2009, the Company hired a Director of Middle East
Operations, initially to develop the market and pursue potential
sales. These changes resulted in an increase in salaries and related
benefits of approximately $47,000 for 2009 from 2008. Consulting fees
for sales and marketing increased approximately $88,000 for the fiscal years
ended June 30, 2009 from 2008 primarily due to the addition of a Director of
Sales and a Director of Marketing on a contract basis. Also due to
these changes in sales and marketing employees and consultants, travel expenses
increased for 2009 from 2008 by approximately $33,000.
The
Company has increased its customer management software licenses to aid in its
sales efforts resulting in an increase in these fees of approximately $9,000 for
2009 from 2008. For the fiscal year ended June 30, 2009, the Company
reported an increase in marketing, promotional and product demonstration costs
of approximately $103,000 over the prior year, primarily in connection with the
Colorado Convention Center installation and attendance at trade shows in
2009. Marketing depreciation expense increased approximately $88,000
for the fiscal year ended June 30, 2009 from 2008 primarily due to the
capitalization of a portion of the initial production screen for marketing
demonstration purposes. Other sales and marketing expenses decreased by
approximately $4,000 for the 2009 fiscal year from 2008.
During
fiscal 2008, the Company continued research and development of its SkyNet™
screen utilizing the services of a contract engineering firm and its affiliated
electrical engineering development company (collectively, the “Project
Engineering Firm”). The Company reported approximately $2,900,000 in
total research and development expense for 2008. By the end of June
2008, the SkyNet™ research and development provided by the Project Engineering
Firm was substantially complete resulting in a decrease in research and
development costs of approximately $2,300,000 for the fiscal year ended June 30,
2009 from 2008. The Company reported approximately $600,000 for
ongoing research and development activities for fiscal 2009.
Interest
expense increased by approximately $298,000 for fiscal 2009 over 2008 due to the
higher annualized debt balance in connection with the newly established Credit
Facility.
Liquidity and Capital
Resources
Since
inception, the Company has been totally dependent on financing from outside
sources to fund its operations. At June 30, 2009, the Company
reported negative net worth of $2,612,540 and negative working capital of
$4,337,634 compared to positive net worth of $325,812 and negative working
capital of $1,246,936 at June 30, 2008. On November 6, 2008, the
Company entered into a Senior Secured Revolving Credit Agreement with an
affiliate of the Company’s majority shareholder and director and issued a
Convertible, Revolving Promissory Note, secured by a first priority lien on all
of the Company’s assets, which matures on November 6, 2009. On June
15, 2009, the Company and the Lender, entered into an Amendment (the
“Amendment”) to the Credit Facility that, among other things, increased the
amount available and extended the maturity date to December 31,
2010. After the Amendment, the Lender has the right to accelerate
payment of principal, interest and other amounts, if any, that are outstanding
as of July 1, 2010, if the Company has not sold, delivered or executed any
binding sales agreements for SkyNet™ screens by that time. If the
Company does not pay the amounts due under the Credit Agreement when due, or if
there is a continuing Event of Default under the Credit Agreement, the Lender
may elect to sell or seize all or any portion of the Collateral or, in its
discretion, refinance any amounts outstanding. Management believes
that the Credit Facility will provide sufficient financial resources to support
its operations until June of 2010. Management also believes that the
Company’s continued existence after this source of funding is no longer
available will depend upon its ability to: (1) successfully raise new permanent
capital; (2) secure interim funding from outside sources; and (3) achieve and
maintain positive cash flow and profitable operations. There can be
no assurance that the Company will be able to successfully raise the necessary
capital, secure interim funding from outside sources or achieve or maintain
profitable operations. If the Company fails to do so, it will be forced to
discontinue operations and liquidate its assets. In such an event, it
is extremely unlikely that there would be any funds or property available for
distribution to shareholders in any such liquidation.
Cash
flows from financing activities for the fiscal year ended June 30, 2009
consisted of borrowings under the Credit Facility totaling $8,217,000, partially
offset by capital lease payments of $5,567. These cash flows were
used for (1) operating expenses; (2) sales and marketing efforts; (3)
manufacturing operations; (4) ongoing research and product development; (5)
continued manufacturing process development and tooling design and fabrication;
(6) purchases of materials inventory; and (7) equipment purchases.
Cash
flows from financing activities for the fiscal year ended June 30, 2008
consisted of the receipt of $1,000,000 on a subscription receivable outstanding
for the purchase of shares of the Company’s Series G Preferred Stock, the
receipt of $5,212,750 from the sale of additional Series G Preferred Stock,
partially offset by nominal principal lease payments. During fiscal
2008, 13,475 shares of Series G Preferred Stock were sold at $90 per share for a
total of $1,212,750, and an additional 36,364 shares were sold at a price of
$110 per share for $4,000,000. The Series G Preferred Stock is
convertible into shares of Common Stock at a rate of 1,000 shares of Common
Stock for one share of Series G. These cash flows primarily were used
for: (1) operating expenses; (2) business development; (3) research and
development expenses for the SkyNet™ LED Screens; (4) manufacturing preparation,
process development and tooling design and fabrication; (5) purchasing materials
inventory; (6) manufacturing the first half of the initial SkyNet™ screen; and
(7) equipment purchases.
At June
30, 2009, the Company reported current assets of approximately $3,990,000 and a
working capital deficit. Current liabilities exceeded current assets
by approximately $4,338,000.
At June
30, 2009 current liabilities consisted of: (1) notes to shareholders with
accrued interest, net of debt discount, of approximately $7,617,000; and (2)
trade payables and accrued expenses totaling approximately $711,000 which were
incurred primarily for sales and marketing costs, inventory purchases,
manufacturing operations, research and development and operating
costs.
As stated
above, on November 6, 2008, the Company entered into a Senior Secured Revolving
Credit Facility (the “Credit Agreement”) with an affiliate of a director and
majority shareholder, DeGeorge Holdings Three LLC, a Delaware limited liability
company (“Lender”). By the Credit Agreement, the Company established
a revolving line of credit (the “Credit Facility”) not to exceed the aggregate
amount of Six Million Eight Hundred Ninety-Four Thousand Three Hundred Sixty-Two
Dollars ($6,894,362), which included a rollover of $1.8 million in Demand Notes
issued during the six-month period, and $700,000 in previously issued 10% Demand
Notes and accrued interest on the Demand Notes totaling $194,362. In
connection with the execution of the Credit Agreement, the Company issued a
Convertible Revolving Promissory Note in favor of the Lender dated November 6,
2008 (the “Convertible Note”), which provides for interest at ten percent (10%)
per annum based on a 365/366 day year on the outstanding balance, with interest
payable along with principal at maturity on November 6, 2009 (the “Maturity
Date”) or upon conversion of the Convertible Note. Under the terms of
the Credit Agreement, the Lender may elect to convert all or any portion of the
unpaid principal owed under the Convertible Note into shares of the Company’s
Series D Preferred Stock at any time or from time-to-time at a conversion price
of $0.11 per share (the “Conversion Price”).
On June
15, 2009, the Company and the Lender, entered into an Amendment (“Amendment”) to
the Credit Facility. The Amendment modified the Credit Agreement to,
among other things: (1) increase the maximum amount of revolving credit
available to $15,000,000, resulting in an additional $8,105,638 of available
credit (the “Additional Credit”); (2) extend the maturity date of the Credit
Agreement from November 6, 2009 to December 31, 2010; (3) issue a stock purchase
warrant (the “Warrant”) in favor of the Lender for the purchase of 810,564
shares of Series D Convertible Preferred Stock (the “Warrant Shares”); (4) enter
into a revolving note in favor of the Lender in an aggregate principal amount
not to exceed $15,000,000 (the “New Revolving Note”) and (5) make certain other
revisions. Unless otherwise changed by the Amendment, the terms of
the Credit Agreement are still in effect.
Under the
terms of the Amendment, the Lender may elect to convert all or any portion of
the unpaid principal relating to the Additional Credit and the New Revolving
Note into shares of the Company’s Series D Preferred Stock, at any time or from
time-to-time at a conversion price of $0.084 per share (the “Amendment
Conversion Price”). The Warrant grants the Lender the right to
purchase 810,564 shares of Series D Convertible Preferred Stock at any time or
from time-to-time until June 15, 2013, also at the Amendment Conversion Price.
The Series D Convertible Preferred Stock converts 1-for-1 into shares of the
Company’s Common Stock.
Under the
Amendment, the Lender also has the right to accelerate payment of all principal,
interest and other amounts, if any, that are outstanding under the New Revolving
Note as of July 1, 2010 (the “Performance Date”), if the Company has not sold,
delivered and executed any binding agreements with unaffiliated third-parties
for the sale of the Company’s proprietary digital display product (SkyNet™),
during the period beginning on June 15, 2009, and ending on the Performance
Date. In the event that the Company does not satisfy such performance
obligation and is unable to pay such amounts outstanding within thirty (30) days
of the Performance Date, the Lender may (i) elect to sell or seize all or any
portion of the Collateral as set out in the Credit Agreement, or (ii) refinance
any amounts outstanding by offering to enter into a new revolving credit or
installment loan agreement. The Lender shall also have the same
foreclosure right if there is a continuing event of default under the Credit
Agreement. The Lender is an affiliate of Lawrence F. DeGeorge, a
member of the Board of Directors of the Company and the Company’s controlling
shareholder. The Company will use the amounts borrowed under the
Credit Facility for operating capital. The descriptions of the Credit
Agreement, the Amendment and the Convertible Notes set forth above are qualified
in their entirety by the Senior Secured Revolving Credit Agreement and
corresponding Convertible Revolving Promissory Note, both of which are attached
as exhibits to the Company’s Form 8-K filed with the Securities and Exchange
Commission on November 13, 2008, and the Amendment to Senior Secured Revolving
Agreement and corresponding Convertible Revolving Promissory Note, both of which
are attached as exhibits to the Company’s Form 8-K filed with the Securities and
Exchange Commission on June 19, 2009.
For
information regarding the conversion of our Convertible Redeemable Promissory
Notes and the exchange of our Series E, F and G Preferred Stock, refer to
“Capital Restructuring” above.
Off-Balance Sheet
Arrangements
The
Company does not have any off-balance sheet arrangements.
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Not
applicable.
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
See
indexes to financial statements on page F-1.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
ITEM 9A(T).
|
CONTROLS
AND PROCEDURES.
|
(a) Evaluation
of Disclosure Controls and Procedures
The
Company's management, with the participation of its Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of the Company's
disclosure controls and procedures (as defined in 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of the end
of the period covered by this report. Based on that evaluation, the Company's
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective to provide reasonable assurance
that information required to be disclosed in the Company's periodic filings
under the Exchange Act is accumulated and communicated to the Company's
management, including the Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure.
(b) Management's
Report on Internal Control over Financial Reporting
The
Company's management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rule 13a-15(f). Management, with the participation of its Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of the
Company’s internal control over financial reporting based on the framework in
Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, management
concluded that the Company's internal control over financial reporting was
effective as of June 30, 2009.
This
annual report does not include an attestation report of the Company's
independent registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by the
Company's independent registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to
provide only management's report in this annual report.
Changes
in Internal Control over Financial Reporting
There
were no changes in the Company's internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred
during the fiscal quarter ended June 30, 2009 that has materially affected, or
is reasonably likely to materially affect, the Company's internal control over
financial reporting except for the risks ordinarily associated with the
increased level of business activity at the Company since that date, as the
Company continues to develop its manufacturing capacity for its proprietary LED
Screens, including but not limited to the purchase, shipment and tracking of
parts, tooling and equipment and the implementation of new systems and software,
including an enterprise resource management system and related
software.
Inherent
Limitations on Effectiveness of Controls
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. All internal control systems, no
matter how well designed, have inherent limitations. Therefore, even
those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and
presentation. Additionally, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART
III
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
The
following table sets forth certain information as to each director and executive
officer of ADTI as of September 19, 2009:
Directors and Officers
|
Age
|
Position with ADTI
|
||
Lawrence
F. DeGeorge
|
65
|
Director
|
||
Matthew
W. Shankle
|
49
|
Chief
Executive Officer, President and Director
|
||
James
P. Martindale
|
46
|
Chief
Operations Officer, Executive Vice President of Manufacturing, and
Director
|
||
Gregory
L. Heacock
|
49
|
Vice
President of Research and Development, Chief Technology
Officer
|
||
Rebecca
L. McCall
|
52
|
Vice
President of Accounting
|
Business
Experience for Executive Officers and Directors:
Lawrence F. DeGeorge
- Mr. DeGeorge was appointed a Director effective
September 2, 1998. Since 1991, Mr. DeGeorge has directed
venture capital investment in telecommunications, biotechnology, internet
infrastructure, information display screens and financial services as Chief
Executive Officer of LPL Investment Group, Inc. and LPL Management Group,
Inc. From 1986 to 1991, Mr. DeGeorge held various positions with
Amphenol Corporation, a manufacturer of telecommunications interconnect
products, including serving as President from May 1989 to January 1991,
Executive Vice President and Chief Financial Officer from September 1986 to May
1989, and as a director from June 1987 to January 1991. From 1984 to
1986, Mr. DeGeorge served as Executive Vice President of LPL Group, Inc., a
company specializing in mergers, acquisitions and leveraged
buyouts. Mr. DeGeorge currently serves as a director of several
companies: (a) iPlan Networks since November 1998, an IP-based CLEC
located in Argentina providing voice, data and internet infrastructure services;
(b) Cervalis LLC since April 2000, a high-end provider of managed IT server
hosting, disaster recovery; and storage; and (c) Miniweb Interactive Ltd. since
July 2008, an Interactive Service Provider of converged broadcast and broadband
entertainment. From May 1998 to November 2007, Mr. DeGeorge served as
a director of CompleTel, LLC, a multinational provider of switched, local
telecommunications and related services. From November 1998 to
September 2001, Mr. DeGeorge served as director of GigaRed S.A., a converged
broadband cable television operator providing voice, video, data and internet
infrastructure services. Mr. DeGeorge served as a director of
UnitedGlobalCom, Inc., a provider of multi-channel television services, from
June 1997 until October 1999, and from September 1987 to January
1991.
Matthew W. Shankle -
Mr. Shankle was appointed as the Company’s President effective September 11,
1998 and as a Director effective October 3, 1997 from which time he also served
as a Vice President of the Company until his appointment as
President. He is responsible for the overall day-to-day operations
and strategic direction of the Company in conjunction with the Board of
Directors. He currently is also responsible for leading the business
development effort of the Company. From June 1996 to September 1997,
he served as a consultant to the Company for product research and development
(R&D). From 1995 to 1997, Mr. Shankle served as an operations
consultant for several high tech R&D/manufacturing subsidiaries of Telxon
Corporation, a NASDAQ listed company. From 1992 to 1995, Mr. Shankle
was employed by Virtual Vision, Inc. as the R&D/manufacturing facility
development specialist. Mr. Shankle began his career at Lockheed
Missiles and Space in the San Diego area.
James P. Martindale –
Mr. Martindale was appointed Vice President of Manufacturing and Technical
Operations effective November 12, 2006. On February 20, 2008, Mr.
Martindale was appointed Executive Vice President of Manufacturing and Chief
Operations Officer, and was named to the Board of Directors. He is
responsible for directing the Company’s product research and development and
manufacturing operations. From 1999 to 2006, was employed by InFocus Digital
Media. His most recent position with InFocus was Senior Director, New
Business Development. He was responsible for developing and executing
new business strategies leveraging InFocus’ software, hardware and service
assets to offer digital-media solutions to the education, corporate, and digital
advertising markets. In addition to his business development role at InFocus,
Mr. Martindale held senior positions in Service, Application Engineering, and
Technical Sales. From 1981 to 1999, Mr. Martindale held several
positions with Hewlett-Packard Co., ranging from Mechanical Engineer, to
Manufacturing Development Manager for HP’s Specialty Printing
Systems. Mr. Martindale holds a Bachelor of Science degree in
Mechanical Engineering from San Diego State University.
Gregory L. Heacock -
Effective July 20, 2009, Mr. Heacock, age 49, was appointed the Company’s Vice
President, Research & Development and Chief Technology. Prior to
joining the Company, Mr. Heacock co-founded Sensor LLC, a material science
development company for the medical industry and served as its Vice President,
Research & Development from December 2006 to July 2009. From
October 2003 to December 2006, Mr. Heacock served as Director of Engineering,
Visient Division of Light Sciences Corporation, a medical research
company. Mr. Heacock was also the co-founder and Chief Scientist of
Retinal Technologies Inc., (now Retica Systems Inc.), a company specializing in
high security biometric identification from September 2002 to September
2003. Prior to that, Mr. Heacock was the Research Fellow at eMagin
Inc. (Virtual Vision) and the Research Director for Ocular Instruments
Inc.
Rebecca L. McCall –
Ms. McCall was appointed as the Company’s Vice President of Accounting in March
of 2008. She has over 23 years of accounting and finance experience,
including substantial experience with SEC reporting and corporate
accounting. She most recently joined the Company with the title of
Controller in 1993. Ms. McCall previously had served as a senior
officer of the Company from 1985 to 1990, when she was Vice President of
Administration and Director of Accounting. In addition to her duties
as the Company’s Controller, Ms. McCall also served as Controller for College
Partnership, Inc. from 2000 to 2003 and as Controller for Television Technology
Corporation from 1990 to 1993. From 1993 to 2007, Ms. McCall,
provided contract accounting and other services to various clients, including
the Company. Ms. McCall holds a Bachelors degree in Accounting from Metropolitan
State College in Denver, Colorado.
Section 16(a) Beneficial
Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires the Company’s executive officers and
directors, and persons who own more than ten percent of the Common Stock of the
Company to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Those persons are required by
regulations promulgated under the Exchange Act to furnish the Company with
copies of all reports filed pursuant to Section 16(a).
To our
knowledge, based solely on the oral and written representations of the Company’s
directors and executive officers and a review of copies of Forms 3, 4, and 5
that were filed with the Securities and Exchange Commission, the Company
believes that for the fiscal year ended June 30, 2009, the number of late Form 4
and 5 reports, and the number of late transactions reported are as
follows:
Name of Reporting Person
|
Late Forms 4 or 5
|
Transactions
|
||
Gene
W. Schneider
|
1
|
1
|
||
Lawrence
F. DeGeorge
|
2
|
4
|
Code of
Ethics
The
Company adopted a Code of Ethics for all of its employees, directors and
officers in March 2007, a copy of which is available on the Company’s
website at http://www.adtimedia.com . To access the Code of Ethics,
click on “Investors.”
Code of Business
Conduct
The
Company has a stated policy against any conflict of interest transaction in its
Code of Business Conduct, which was adopted in March 2008. The Code
of Business Conduct prohibits officers, directors and employees from employment
by or investment in, any customer, supplier, or competitor of the
Company. The Code of Business Conduct also prohibits acceptance of
commissions, compensation or excessive gifts or entertainment from persons or
firms with whom the Company does or may do business, as well as any exploitation
of a corporate opportunity. Exceptions to the prohibition on conflict
of interest transactions may be made on a case-by-case basis to avoid
inequitable results.
A copy of
the Company’s Code of Business Conduct is available on the Company’s website at
http://www.adtimedia.com. To access the Code of Business Conduct,
click on “Investors.”
Audit
Committee; Audit Committee Financial Expert
The Company does not have a
separately-designated standing Audit Committee established in accordance with
section 3(a)(58)(A) of the Exchange Act or a separate committee performing
similar functions. The entire Board of Directors performs the
functions of an Audit Committee as provided in section 3(a)(58)(B) of the
Exchange Act.
The Board
of Directors has determined that Lawrence F. DeGeorge qualifies as an “audit
committee financial expert,” as that term is defined by the Securities and
Exchange Commission. In addition, only Mr. DeGeorge is independent as
defined by the Nasdaq Stock Market (“Nasdaq”) (the Company’s Common Stock is
traded on the OTC Bulletin Board, which does not have its own independence
standard).
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The
following table sets forth in summary form the compensation received during each
of the Company’s last three fiscal years by the Principal Executive Officer and
the two other most highly compensated executive officers of the Company (the
“Named Executive Officers”).
SUMMARY
COMPENSATION
Name
|
Year
Ended
June 30
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)(1)
|
Non-Equity
Incentive Plan Compen-
sation
($)
|
Non-qualified
deferred Compen-
sation
earnings
($)
|
All
Other Compen-
sation
|
Total
|
||||||||||||||||||||||||
Matthew
W. Shankle
|
2009
|
$ | 132,686 | $ | 0 | $ | 0 | $ | 49,516 | (2) | $ | 0 | $ | 0 | $ | 0 | $ | 182,202 | (2) | ||||||||||||||
President
and CEO
|
2008
|
$ | 132,686 | $ | 0 | $ | 0 | $ | 49,516 | (2) | $ | 0 | $ | 0 | $ | 0 | $ | 182,202 | (2) | ||||||||||||||
James
P. Martindale
|
2009
|
$ | 150,000 | $ | 0 | $ | 0 | $ | 37,136 | (3) | $ | 0 | $ | 0 | $ | 0 | $ | 187,136 | (3) | ||||||||||||||
Executive
Vice
|
2008
|
$ | 150,000 | $ | 0 | $ | 0 | $ | 37,136 | (3) | $ | 0 | $ | 0 | $ | 0 | $ | 187,136 | (3) | ||||||||||||||
President
of
|
|||||||||||||||||||||||||||||||||
Manufacturing,
COO
|
|||||||||||||||||||||||||||||||||
Rebecca
L. McCall
|
2009
|
$ | 126,000 | $ | 0 | $ | 0 | $ | 24,756 | (4) | $ | 0 | $ | 0 | $ | 0 | $ | 150,756 | (4) | ||||||||||||||
Vice President
of
|
2008
|
$ | 106,923 | $ | 0 | $ | 0 | $ | 24,756 | (4) | $ | 0 | $ | 0 | $ | 0 | $ | 131,679 | (4) | ||||||||||||||
Accounting
|
|
(1)
|
The
assumptions we used in valuing the option awards are described in Note 6
Equity Incentive Plans to the Consolidated Financial Statements included
in this report.
|
|
(2)
|
Includes
vested option to purchase 500,000 shares of the Company’s common stock out
of the option to purchase 2,000,000 shares of common stock granted on
August 15, 2007.
|
|
(3)
|
Includes
vested option to purchase 375,000 shares of the Company’s common stock out
of the option to purchase 1,500,000 shares of common stock granted on
August 15, 2007.
|
|
(4)
|
Includes
vested option to purchase 250,000 shares of the Company’s common stock out
of the option to purchase 1,000,000 shares of common stock granted on
August 15, 2007.
|
Messers.
Shankle and Martindale and Ms. McCall do not have employment agreements with the
Company. Compensation Committee determines changes, if any, to their
salary or other compensation.
2009
Outstanding Equity Awards to Officers at Fiscal Year-End
Option Award
|
Stock Awards
|
|||||||||||||||||||||||||||||||||||
Name
|
Number of Securities Underlying Unexercised
Options (#)
Exercisable
|
Number of Securities Underlying Unexercised
Options (#)
Unexercisable
(#)
|
Equity Incentive Plan Awards: Number of Securities
Underlying Unexercised Unearned Options
(#)
|
Option Exercise Price
($)
|
Option Expiration Date
|
Number of Shares or Units of Stock That Have Not
Vested
(#)
|
Market Value of Shares or Units of Stock That Have
Not Vested
($)
|
Equity Incentive Plan Awards: Number of Unearned
Shares, Units or Other Rights That Have Not Vested
(#)
|
Equity Incentive Plan Awards: Market or Payout
Value of Unearned Shares, Units or Other Rights That Have Not
Vested
($)
|
|||||||||||||||||||||||||||
Matthew
W. Shankle
|
1,000,000 | (1) | 1,000,000 | (1,2) | 0 | $ | 0.11 | 2017 | 0 | $ | 0 | 0 | $ | 0 | ||||||||||||||||||||||
James
P. Martindale
|
750,000 | (3) | 750,000 | (2,3) | 0 | $ | 0.11 | 2017 | 0 | $ | 0 | 0 | $ | 0 | ||||||||||||||||||||||
Rebecca
L. McCall
|
500,000 | 500,000 | (2) | 0 | $ | 0.11 | 2017 | 0 | $ | 0 | 0 | $ | 0 |
(1)
|
Includes
500,000 non-qualified options.
|
(2)
|
These
options vest equally over the next eight quarters beginning with the
quarter ending
September 30, 2009.
|
(3)
|
Includes
375,000 non-qualified options.
|
As of
June 30, 2009 there were 4,500,000 options outstanding to officers of which
2,250,000 were exercisable at an exercise price of $.11 per share and expire in
2017.
Potential Payments Upon
Termination of Employment or Change of Control
The
Company has no agreements with any of its named executive officers or with any
other person that would require the Company to make any payments or provide any
other consideration in the event of a transaction or other event resulting in a
change in control of the Company.
Compensation of
Directors
During
the fiscal year ended June 30, 2009, our directors did not receive any
compensation for their services.
Compensation Committee
Interlocks and Insider Participation
Mr.
Lawrence F. DeGeorge served as the only member of the Company’s Compensation
Committee during the last fiscal year. Mr. DeGeorge has never been an
officer or employee of the Company. For information regarding Mr.
DeGeorge’s reportable transactions with the Company, refer to “Certain
Relationships and Related Transactions – Review of Related Person
Transactions.”
The
Company is not aware of any other transactions or relationships required to be
disclosed under applicable rules of the Securities and Exchange
Commission.
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
Equity Compensation Plan
Information at June 30, 2009
Plan Category
|
Number of Securities to be Issued Upon Exercise of Outstanding Options,
Warrants and Rights
(a)
|
Weighted Average Exercise Price of Outstanding
Options, Warrants and Rights
(b)
|
Number of Securities Remaining Available for
Future Issuance Under Equity Compensation Plans (excluding Securities
Reflected in Column (a)
(c)
|
|||||||||
Equity
compensation plans approved
by security holders
|
6,500,000 | $0.11 to $0.14 | 18,020,000 | |||||||||
Equity
compensation plans not approved
by security holders
|
-0- | -0- | -0- | |||||||||
Total
|
6,500,000 | $0.11 to $0.14 | 18,020,000 |
Security Ownership of
Certain Beneficial Owners and Management
The
following table sets forth, as of September 19, 2009, certain information
regarding the equity securities of ADTI beneficially owned of record by each
Named Executive Officer, director, each person known by ADTI to beneficially
more than 5% of any voting class of the Company’s voting securities, and all
executive officers and directors as a group. The voting securities of
the Company consist of Common Stock that is entitled to one vote per share, and
Series D Preferred Stock that is entitled to one vote per share. As
of September 19, 2009, the Company had outstanding 32,014,723 shares of Common
Stock and 177,002,763 shares of Series D Preferred Stock.
Information
as to beneficial ownership is based upon statements furnished to the Company by
such persons. Except as otherwise indicated, each person has sole
voting and investment power with respect to all shares shown as beneficially
owned. Security ownership information for beneficial owners is taken
from statements filed with the Securities and Exchange Commission pursuant to
Sections 13(d), 13(g) and 16(a) and information made known to the Company.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. For purposes of this disclosure, the amount of
the securities beneficially owned is the aggregate number of shares of Common
and Series D Preferred Stock outstanding on such date, plus: (1) the aggregate
amount of Common Stock which could be issued upon the exercise of options within
60 days of such date, plus (2) the aggregate amount of Series D Preferred Stock
that could be issued upon exercise of warrants, plus (3) the aggregate amount of
Series D Preferred Stock that could be issued upon conversion of the outstanding
Credit Facility.
Name
and address of
beneficial
owners
|
Title
of Class
|
Amount and nature of Beneficial Ownership
|
Percent
of
Class
|
Title
of Class
|
Amount and nature of Beneficial Ownership
|
Percent
of Class
|
Total amount and nature of Beneficial Ownership
|
Total Percent of Beneficial Ownership
|
||||||||||||||||||||
Preferred
|
||||||||||||||||||||||||||||
William
W. Becker
Box
143
Grand
Cayman Island
British
West Indies
|
Common
$.001
Par
(“Common”)
|
2,070,647 | 6.47 | % |
Series
D
|
0 | 0.00 | % | 2,070,647 | 0.99 | % | |||||||||||||||||
Lawrence F. DeGeorge (1)
140
Intracoastal Pointe Drive
Suite
410
Jupiter,
FL 33477
|
Common
|
7,393,941 | 23.10 | % |
Series D(2)
|
235,823,821 | 84.75 | % | 243,217,762 | (2) | 78.38 | % | ||||||||||||||||
Bruce
H. Etkin
1512
Larimer St., No. 325
Denver,
CO 80202
|
Common
|
3,706,084 | 11.58 | % |
Series
D
|
0 | 0.00 | % | 3,706,084 | 1.77 | % | |||||||||||||||||
James P. Martindale(1)
7334
South Alton Way
Suite
F
Centennial,
CO 80112
|
Common(3)
|
843,750 | 2.57 | % |
Series
D
|
0 | 0.00 | % | 843,750 | (3) | 0.40 | % | ||||||||||||||||
Rebecca L. McCall (1)
7334
South Alton Way
Suite
F
Centennial,
CO 80112
|
Common(4)
|
570,430 | 1.75 | % |
Series
D
|
0 | 0.00 | % | 570,430 | (4) | 0.27 | % | ||||||||||||||||
G.
Schneider Holdings, Co.
12300
Liberty Boulevard
Englewood,
CO 80112
|
Common
|
5,462,379 | 17.06 | % |
Series
D
|
0 | 0.00 | % | 5,462,379 | 2.61 | % | |||||||||||||||||
Estate
of Gene W. Schneider
12300
Liberty Boulevard
Englewood,
CO 80112
|
Common(5)
|
7,261,549 | 22.68 | % |
Series
D
|
42,167,626 | 23.82 | % | 49,429,175 | (5) | 23.65 | % | ||||||||||||||||
Louise
H. Schneider
12300
Liberty Boulevard
Englewood,
CO 80112
|
Common(6)
|
5,462,379 | 17.06 | % |
Series
D
|
0 | 0.00 | % | 5,462,379 | (6) | 2.61 | % | ||||||||||||||||
Mark
L. Schneider
12300
Liberty Boulevard
Englewood,
CO 80112
|
Common(7)
|
8,235,784 | 25.72 | % |
Series
D
|
0 | 0.00 | % | 8,235,784 | (7) | 3.94 | % | ||||||||||||||||
Carla
G. Shankle
7334
South Alton Way
Suite
F
Centennial,
CO 80112
|
Common(8)
|
5,462,379 | 17.06 | % |
Series
D
|
0 | 0.00 | % | 5,462,379 | (8) | 2.61 | % | ||||||||||||||||
Matthew W. Shankle(1)
7334
South Alton Way
Suite
F
Centennial,
CO 80112
|
Common(9)
|
1,125,000 | 3.39 | % |
Series
D
|
0 | 0.00 | % | 1,125,000 | (9) | 0.54 | % | ||||||||||||||||
Tina
M. Wildes
12300
Liberty Boulevard
Englewood,
CO 80112
|
Common(10)
|
5,462,379 | 17.06 | % |
Series
D
|
0 | 0.00 | % | 5,462,379 | (10) | 2.61 | % | ||||||||||||||||
All
executive officers and directors as a group (5 persons)
|
Common(11)
|
9,936,121 | 28.76 | % |
Series
D
|
235,823,821 | (2) | 84.75 | % | 247,728,692 | (2,11) | 78.77 | % |
(1)
|
Officer
or director
|
(2)
|
Includes
draws under a convertible, revolving promissory note held by DeGeorge
Holdings Three, LLC convertible into 100,458,442 shares of Series D Stock
and warrants to purchase 810,564 shares of Series D Stock also held by
DeGeorge Holdings Three, LLC. Mr. DeGeorge is the Manager of
DeGeorge Holdings Three, LLC.
|
(3)
|
Includes
options to purchase 843,750 shares of Common Stock at $0.11 per share,
which expire in 2017.
|
(4)
|
Includes
options to purchase 562,500 shares of Common Stock at $0.11 per share,
which expire in 2017.
|
(5)
|
Includes
5,462,379 Common Stock owned by G. Schneider Holdings Co. of which Gene W.
Schneider serves on the Executive
Committee.
|
(6)
|
Includes
5,462,379 Common Stock owned by G. Schneider Holdings Co. of which Louise
H. Schneider serves on the Executive
Committee.
|
(7)
|
Includes
5,462,379 Common Stock owned by G. Schneider Holdings Co. of which Mark L.
Schneider serves on the Executive
Committee.
|
(8)
|
Includes
5,462,379 Common Stock owned by G. Schneider Holdings Co. of which Carla
G. Shankle serves on the Executive
Committee.
|
(9)
|
Includes
options to purchase 1,125,000 shares of Common Stock at $0.11 per share,
which options expire in 2017.
|
(10)
|
Includes
5,462,379 Common Stock owned by G. Schneider Holdings Co. of which Tina M.
Wildes serves on the Executive
Committee.
|
(11)
|
Includes
2,531,250 options to purchase Common
Stock.
|
Changes in
Control
The
Company knows of no arrangement or events, the occurrence of which may result in
a change in control.
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
Review of Related Person
Transactions
On
November 6, 2008, the Company entered into a Senior Secured Revolving Credit
Facility (the “Credit Agreement”) with DeGeorge Holdings Three LLC
(“Lender”), an affiliate of Mr. Lawrence F. DeGeorge, a director of
the Company and its majority shareholder. Mr. DeGeorge is the Manager of
DeGeorge Holdings Three, LLC . By the Credit Agreement, the Company
established a revolving line of credit secured by a pledge of all of the
Company’s assets (the “Credit Facility”) not to exceed the aggregate amount of
Six Million Eight Hundred Ninety-Four Thousand Three Hundred Sixty-Two Dollars
($6,894,362), which included a rollover of $1.8 million in Demand Notes issued
during the six-month period ended December 31, 2008, and $700,000 in
previously issued 10% Demand Notes and accrued interest on the Demand Notes
totaling $194,362. In connection with the execution of the Credit
Agreement, the Company issued a Convertible Revolving Promissory Note in favor
of the Lender dated November 6, 2008 (the “Convertible Note”), which provides
for interest at ten percent (10%) per annum based on a 365/366 day year on the
outstanding balance, with interest payable along with principal at maturity on
November 6, 2009 (the “Maturity Date”) or upon conversion of the Convertible
Note. Under the terms of the Credit Agreement, the Lender may elect
to convert all or any portion of the unpaid principal owed under the Convertible
Note into shares of the Company’s Series D Preferred Stock at any time or from
time-to-time at a conversion price of $0.11 per share (the “Conversion
Price”).
On June
15, 2009, the Company and the Lender, entered into the Amendment (“Amendment”)
to the Credit Facility. The Amendment modified the Credit Agreement
to, among other things: (1) increase the maximum amount of revolving credit
available to $15,000,000, resulting in an additional $8,105,638 of available
credit (the “Additional Credit”), which included a rollover of $950,000 in a
Demand Note issued May 21, 2009 and accrued interest thereon of $6,507; (2)
extend the maturity date of the Credit Agreement from November 6, 2009 to
December 31, 2010; (3) issue a stock purchase warrant (the “Warrant”) in
favor of the Lender for the purchase of 810,564 shares of Series D Convertible
Preferred Stock (the “Warrant Shares”); (4) enter into a revolving note in favor
of the Lender in an aggregate principal amount not to exceed $15,000,000 (the
“New Revolving Note”) with interest at 10% per annum and (5) make various other
revisions to the terms of the Credit Agreement.
Under the
terms of the Amendment, the Lender may elect to convert all or any portion of
the unpaid principal relating to the Additional Credit and the New Revolving
Note into shares of the Company’s Series D Preferred Stock at a conversion price
of $0.084 per share (the “Amendment Conversion Price”). The Warrant
grants the Lender the right to purchase 810,564 shares of Series D Convertible
Preferred Stock at any time or from time-to-time until June 15, 2013, at the
Amendment Conversion Price. The Series D Convertible Preferred Stock converts
1-for-1 into shares of the Company’s Common Stock.
Under the
Amendment, the Lender also has the right to accelerate payment of all principal,
interest and other amounts, if any, that are outstanding under the New Revolving
Note as of July 1, 2010 (the “Performance Date”), if the Company has not sold,
delivered and executed any binding agreements with unaffiliated third-parties
for the sale of SkyNet™ during the period beginning on June 15, 2009, and ending
on the Performance Date. In the event that the Company does not
satisfy such performance obligation and is unable to pay such amounts
outstanding within thirty (30) days of the Performance Date, the Lender may (i)
elect to sell or seize all or any portion of the Collateral, or (ii) refinance
any amounts outstanding by offering to enter into a new revolving credit or
installment loan agreement. The Lender shall also have the same
foreclosure right if there is a continuing event of default under the Credit
Agreement.
The Board
of Directors, with Mr. DeGeorge abstaining, approved the foregoing transactions
and it is of the opinion that the terms and conditions of the foregoing
transactions were no less favorable for the Company than could have been
obtained from unaffiliated third parties.
During
fiscal 2009, the largest aggregate amount of principal outstanding under the
Credit Facility was $9,117,868 and the amount of
principal outstanding as of October 6, 2009 was $11,017,869. The Company did not make
any payments of principal or interest to the Lender during the fiscal year ended
June 30, 2009. Subsequent to year end, the Company made an interest
payment to the Lender of $316,452.
During
fiscal 2009, the largest aggregate amount of principal outstanding under the 10%
Demand Notes due to Mr. DeGeorge was $700,000, the same amount rolled into the
Credit Facility on November 6, 2008. The Company did not make
any payments of principal or interest to the Lender during the fiscal year ended
June 30, 2009.
On
January 15, 2009, Mr. DeGeorge elected to convert all of the principal and
accrued interest on his Convertible Redeemable Promissory Notes from the Company
(the “DeGeorge D Notes”), into shares of Series D Preferred
Stock. Pursuant to the terms of the DeGeorge D Notes, Mr. DeGeorge
had the right to convert both the principal and the interest, which accrued at a
rate of 10%, into shares of Series D Preferred Stock at a conversion price of
$0.0167 per share. As of January 15, 2009, the total aggregate amount
outstanding on the DeGeorge D Notes, including principal and interest, totaled
$479,631. Based on a conversion price of $0.0167 per share, the
DeGeorge D Notes were convertible into 28,720,395 shares of Series D Preferred
Stock. The Board of Directors, with Mr. DeGeorge abstaining, approved the
foregoing transactions and it is of the opinion that the terms and conditions of
the foregoing transactions were no less favorable for the Company than could
have been obtained from unaffiliated third parties. During fiscal
2009, the largest aggregate amount of principal outstanding was $407,500 which
was the same amount of principal outstanding on January 15, 2009. The
Company did not make any payments of principal or interest to the Lender during
the fiscal year ended June 30, 2009.
On
January 15, 2009, the Company entered into a Series E Preferred Stock Exchange
Agreement (the “Series E Exchange Agreement”) with Mr. DeGeorge, whereby the
parties agreed to exchange all of Mr. DeGeorge’s 1,008,985 shares of Series E
Preferred Stock for 1,267,531 shares of Common Stock, at a price of $1.00 per
share (the “Series E Exchange”). In accordance with the Series E
Exchange Agreement, the Company’s shareholders ratified the Series E Exchange at
the Annual Meeting of Shareholders held on June 29, 2009. The Board of
Directors, with Mr. DeGeorge abstaining, approved the foregoing transaction and
it is of the opinion that the terms and conditions of the foregoing transaction
were no less favorable for the Company than could have been obtained from
unaffiliated third parties.
On
January 15, 2009, the Company entered into a Series F Preferred Stock Exchange
Agreement (the “Series F Exchange Agreement”) with Mr. DeGeorge, whereby the
parties agreed to exchange all of Mr. DeGeorge’s 1,943,901 shares of Series F
Preferred Stock for 1,943,901 shares of Common Stock, at a price of $1.00 per
share (the “Series F Exchange”). In accordance with the Series F
Exchange Agreement, the Company’s shareholders ratified the Series F Preferred
Exchange at the Annual Meeting of Shareholders held on June 29, 2009. The Board
of Directors, with Mr. DeGeorge abstaining, approved the foregoing transaction
and it is of the opinion that the terms and conditions of the foregoing
transaction were no less favorable for the Company than could have been obtained
from unaffiliated third parties.
On
January 15, 2009, the Company entered into a Series G Preferred Stock Exchange
Agreement (the “Series G Exchange Agreement”) with Lawrence F. DeGeorge, whereby
the parties agreed to exchange all Mr. DeGeorge’s 90,544 shares of Series G
Preferred Stock for 90,544,000 shares of Series D Preferred Stock, at a rate of
1,000 to 1 (the “Series G Exchange”). In accordance with the Series G
Exchange Agreement, the Company’s Shareholders ratified the Series G Exchange at
the Annual Meeting of Shareholders held on June 29, 2009. The Board of
Directors, with Mr. DeGeorge abstaining, approved the foregoing transaction and
it is of the opinion that the terms and conditions of the foregoing transaction
were no less favorable for the Company than could have been obtained from
unaffiliated third parties.
On
January 15, 2009, Gene W. Schneider, a beneficial owner of more than 5% of the
Company’s common stock and Series D Preferred Stock, elected to convert all of
the principal and accrued interest on his Convertible Redeemable Promissory
Notes from the Company (the “Schneider D Notes”), into shares of Series D
Preferred Stock. Pursuant to the terms of the Schneider D Notes, Mr.
Schneider had the right to convert both the principal and the interest, which
accrued at a rate of 10%, into shares of Series D Preferred Stock at a
conversion price of $0.0167 per share. As of January 15, 2009, the
total aggregate amount outstanding on the Schneider D Notes, including principal
and interest, totaled $453,699.36. Based on a conversion price of
$0.0167 per share, the Schneider D Notes were convertible into 27,167,626 shares
of Series D Preferred Stock. The Board of Directors approved the
foregoing transaction and it is of the opinion that the terms and conditions of
the foregoing transaction were no less favorable for the Company than could have
been obtained from unaffiliated third parties. During fiscal 2009,
the largest aggregate amount of principal outstanding was $332,500 which was the
same amount of principal outstanding on January 15, 2009. The Company
did not make any payments of principal or interest to the Lender during the
fiscal year ended June 30, 2009.
On
January 15, 2009, the Company entered into a Series F Preferred Stock Exchange
Agreement (the “Series F Exchange Agreement”) with Mr. Schneider, whereby the
parties agreed to exchange all of Mr. Schneider’s 1,799,170 shares of Series F
Preferred Stock for 1,799,170 shares of Common Stock, at a price of $1.00 per
share (the “Series F Exchange”). In accordance with the Series F
Exchange Agreement, the Company’s shareholders ratified the Series F Exchange at
the Annual Meeting of Shareholders held on June 29, 2009. The Board of Directors
approved the foregoing transaction and it is of the opinion that the terms and
conditions of the foregoing transaction were no less favorable for the Company
than could have been obtained from unaffiliated third parties.
During
fiscal 2009, the Company had an aggregate of $100,000 of principal outstanding
on 10% Demand Notes payable to Mr. Schneider. The largest aggregate
amount of principal outstanding on these Demand Notes during fiscal 2009 was
$100,000, the same amount of principal outstanding as of October 6,
2009. The Company did not make any payments of principal or interest
to the Lender during the fiscal year ended June 30, 2009.
At
June 30, 2009, the Company had borrowings under the Credit Facility totaling
$9,117,868, 10% demand notes totaling $100,000 and accrued interest of $381,785
all of which were due to a director, an affiliate of the director and a
shareholder. The Company also had payables totaling $62,979 due to
officers, employees and certain consultants incurred in the ordinary course of
business.
During
fiscal 2008, the Company had an aggregate of $407,500 principal outstanding on
the DeGeorge D Notes during all of fiscal 2008. The Company did not
make any payments of principal or interest to the Mr. DeGeorge during the fiscal
year ended June 30, 2008. During fiscal 2008, $80,000 of accrued
interest on these notes were converted into 4,790,420 shares of Series D
Preferred Stock. As discussed above, these notes, along with the
remaining interest, were converted into shares of the Company’s Series D
Preferred Stock on January 15, 2009.
The
Company had an aggregate of $332,500 principal outstanding on the Schneider D
Notes during all of fiscal 2008. The Company did not make any
payments of principal or interest to the Lender during the fiscal year ended
June 30, 2008. As discussed above, these notes were converted into
shares of the Company’s Series D Preferred Stock on January 15,
2009.
The
Company had an aggregate of $700,000 principal outstanding on Demand Notes
issued to Mr. DeGeorge during all of fiscal 2008. The Company did not
make any payments of principal or interest to the Lender during the fiscal year
ended June 30, 2008.The Company had an aggregate of $100,000 principal
outstanding on Demand Notes issued to Mr. Schneider during all of fiscal
2008. The Company did not make any payments of principal or interest
to the Lender during the fiscal year ended June 30, 2008.
During
fiscal 2008, Mr. DeGeorge purchased 13,475 and 36,364 share of the Company’s
Series G Preferred Stock at a price of $90 and $110 per share, respectively, for
total proceeds of $1,212,750 and $4,000,000, respectively.
The
Company also had payables totaling $35,821 due to officers, employees and
certain consultants incurred in the ordinary course of business.
The Board
of Directors approved the foregoing transactions and it is of the opinion that
the terms and conditions of the foregoing transactions were no less favorable
for the Company than could have been obtained from unaffiliated third
parties.
Director
Independence
The Company has three directors,
Lawrence F. DeGeorge, Matthew W. Shankle and James P. Martindale. The
Board of Directors has made the determination that only one of the members of
the Board, Lawrence F. DeGeorge, is independent, as defined by
Nasdaq. Messrs. Shankle and Martindale are employees of the Company
and therefore cannot be considered independent, as defined by
Nasdaq.
A former member of the Board, Mr. John
W. Temple, resigned from the Company in February 2008. Mr. Temple was
also an employee of the Company for most of the time that he served as on the
Board of Directors and was therefore not an independent director during that
time. The Board, at a meeting by unanimous written consent, appointed
Mr. James P. Martindale, the Executive Vice President, Manufacturing, and the
Chief Operating Officer of the Company, to fill the vacancy left by Mr. Temple
until the next election of directors.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND
SERVICES
The following table presents fees for
professional audit services rendered by AJ Robbins, P.C., our independent
registered public accounting firm, for the audit or review of the Company’s
financial statements for the years ended June 30, 2008 and June 30, 2009, and
fees billed for other services rendered by AJ Robbins, P.C. during those
periods.
Fiscal
Year Ended
June
30, 2009
|
Fiscal
Year Ended
June
30, 2008
|
|||||||
Audit
Fees (1)
|
$ | 110,830 | $ | 64,610 | ||||
Tax
Fees (2)
|
$ | 11,130 | $ | 2,500 | ||||
Audit
Related Fees
|
$ | – | $ | – | ||||
All
Other Fees
|
$ | – | $ | – | ||||
Total
Fees
|
$ | 121,960 | $ | 67,110 |
(1)
|
Audit
fees consist of fees for the audit of the Company’s financial statements
included in the Company’s annual report and review of financial statements
included in the Company’s quarterly
reports.
|
(2)
|
Tax
fees consist of fees for the preparation of federal and State income tax
returns.
|
There were no non-audit services
rendered to the Company by AJ Robbins, PC in fiscal 2009 and
2008. While the Board acting as the Audit Committee has not
established formal policies and procedures concerning pre-approval of audit and
non-audit services, the Company’s president has been directed by the Board that
all audit and non-audit services must be approved in advance by the
Board. All audit and non-audit services performed during the fiscal
years indicated above were pre-approved by the Board acting as the Audit
Committee. The establishment of any formal policies or procedures concerning
pre-approval of audit and non-audit services in the future is subject to the
approval of the Board.
PART IV
ITEM
15. EXHIBITS, FINANCIAL
STATEMENTS AND SCHEDULES
(a)
|
Financial
Statements and Schedules
|
Our financial statements are attached
following Part IV of this report, commencing on page F-1. Financial
statement schedules have been omitted since they are not required, not
applicable, or the information is otherwise included.
(b)
|
Exhibits
|
Exhibit No.
|
Description
|
3.1
|
Amended
and Restated Articles of Incorporation of ADTI dated December 5, 1985
(incorporated by reference, Registration Statement on Form S-18, File No.
2-164-D-33).
|
3.2
|
Amended
and Restated Bylaws of ADTI (incorporated by reference, Registration
Statement on Form S-18, File No. 2-164-D-33 and Annual Report on Form
10-KSB for the fiscal year ended September 30, 1986).
|
3.3
|
Form
of Certificate of Designation and Determination of Preference of Series A
Convertible Preferred Stock as filed with the Colorado Secretary of State
on January 4, 1990 (incorporated by reference, Annual Report Form 10-KSB
for the fiscal year ended September 30, 1989).
|
3.4
|
Corrected
Articles of Amendment to the Articles of Incorporation dated August 5,
1994. (incorporated by reference, Annual Report Form 10-KSB for
the fiscal year ended June 30, 1995).
|
3.5
|
Articles
of Amendment to the Company’s Articles of Incorporation regarding
designation of the Series C Preferred Stock (incorporated by reference,
Form 8-K filed June 4, 1997).
|
3.6
|
Certificates
of Designation for Preferred Stock (incorporated by reference, Form 8-K
filed December 20, 2004).
|
3.7
|
Articles
of Amendment to the Company's Articles of Incorporation regarding the
Certificate of Designation of the Series G Preferred
Stock.
|
3.8
|
Articles
of Amendment to the Company’s Certificate of Designation of the Series D
Preferred Stock.
|
3.9
|
Articles
of Amendment to the Company’s Articles of Incorporation regarding an
increase in the Company’s authorized common and preferred
stock.
|
3.10
|
Amendment
to the Certificate of Designation of the Series G Preferred Stock of the
Company (incorporated by reference, Form 8-K filed November 19,
2007).
|
3.11
|
Amended
and Restated Certificate of Designation of the Series G Preferred Stock of
the Company (incorporated by reference, Form 8-K filed February 27,
2008).
|
3.12
|
Amended
and Restated Articles of Incorporation dated July 2, 2009 (filed as
Exhibit 3.1 to the Company’s Form 8-K filed on July 6, 2009 and
incorporated by reference herein).
|
4.1
|
Specimen
certificate for Common Stock, par value $.001 per share of ADTI
(incorporated by reference, Annual Report Form 10-KSB for the fiscal year
ended September 30, 1987).
|
4.2
|
Form
of Convertible, Redeemable Promissory Note (incorporated by reference,
Annual Report Form 10-KSB for the fiscal year ended June 30,
1999).
|
4.3
|
Form
of Warrant for the Purchase of Shares of Common Stock issued to Tucker
Anthony Sutro Capital Markets, Inc. (incorporated by reference, Annual
Report Form 10-KSB for the fiscal year ended June 30,
2001).
|
4.4
|
Subscription
Agreement between the Company and New Iplan AR, LLC dated December 1, 2007
(incorporated by reference, Form 8-K filed March 6, 2007 and Form 8-K/A
filed June 19, 2007).
|
4.5
|
Subscription
Agreement between the Company and New Iplan AR, LLC dated April 4, 2007
(incorporated by reference, Form 8-K filed April 10, 2007 and Form 8-K/A
filed June 19, 2007).
|
4.6
|
Subscription
Agreement between the Company and Mr. Lawrence F. DeGeorge dated June 27,
2007 (incorporated by reference, Form 8-K filed June 29,
2007).
|
4.7
|
Subscription
Agreement between the Company and Mr. Lawrence F. DeGeorge dated June 28,
2007 (incorporated by reference, Form 8-K filed June 29,
2007).
|
4.8
|
Subscription
Agreement between the Company and Mr. Lawrence F. DeGeorge dated November
13, 2007 (incorporated by reference, Quarterly Report on Form 10-QSV for
the quarter ended September 30, 2007).
|
4.9
|
Subscription
Agreement between the Company and Mr. Lawrence F. DeGeorge dated February
27, 2008 (incorporated by reference, Form 8-K filed February 27,
2008).
|
4.10
|
Notice
of Exercise from the Company to Mr. Lawrence F. DeGeorge (incorporated by
reference, Form 8-K filed July 2, 2008).
|
4.11
|
Convertible
Revolving Promissory Note issued in favor of DeGeorge Holdings Three LLC
dated November 6, 2008 (filed as Exhibit 10.2 to the Company’s Form 8-K
filed on November 13, 2008 and incorporated by reference
herein).
|
4.12
|
Warrant
for the Purchase of Shares of Series D Convertible Preferred Stock issued
to DeGeorge Holdings Three LLC dated June 15, 2009 (filed as Exhibit 4.1
to the Company’s Form 8-K filed on June 19, 2009 and incorporated by
reference herein).
|
4.13
|
Convertible
Revolving Promissory Note issued in favor of DeGeorge Holdings Three LLC
dated June 15, 2009 (filed as Exhibit 10.2 to the Company’s Form 8-K filed
on June 19, 2009 and incorporated by reference herein).
|
10.1
|
1997
Equity Incentive Plan dated September 18, 1997 (incorporated by reference,
Annual Report Form 10-KSB for the fiscal year ended June 30,
1997).
|
10.2
|
Form
of Indemnification Agreement between the Company and its Officers and
Directors (incorporated by reference, Annual Report Form 10-KSB for the
fiscal year ended June 30, 1997).
|
10.3
|
Letter
of Intent with Regent Worldwide Sales, LLC dated May 23, 2002
(incorporated by reference, Form 8-K filed May 28,
2002).
|
10.4
|
Unit
Purchase Agreement dated November 25, 2003, by and among Regent Theaters,
LLC, Regent Releasing, LLC, Regent Entertainment Partnership, L.P. and the
Company (incorporated by reference, Form 8-K filed December 15,
2003).
|
10.5
|
Stock
Purchase Agreement dated November 25, 2003, by and among the Company and
the Purchasers as listed therein (incorporated by reference, Form 8-K
filed December 15, 2003).
|
10.6
|
Series
C Preferred Stock Conversion Agreement dated November 25, 2003, by and
among the Company and the Series C Preferred Stock shareholders
(incorporated by reference, Form 8-K filed December 15,
2003).
|
10.7
|
Old
Debt Exchange Agreement dated November 25, 2003, by and among the Company
and the Lenders as name therein (incorporated by reference, Form 8-K filed
December 15, 2003).
|
10.8
|
New
Debt Exchange Agreement dated November 25, 2003, by and between the
Company and Lawrence F. DeGeorge (incorporated by reference, Form 8-K
filed December 15, 2003).
|
10.9
|
Shareholders
Agreement dated November 25, 2003, by and among the Company and Gene W.
Schneider, Lawrence F. DeGeorge and Stephen P. Jarchow (incorporated by
reference, Form 8-K filed December 15, 2003).
|
10.10
|
Settlement
Agreement and Release (Investment) by and between Stephen Jarchow, Paul
Colichman, the Company, Gene Schneider and Lawrence DeGeorge dated
effective July 1, 2004 (incorporated by reference, Form 8-K filed October
19, 2004).
|
10.11
|
Settlement
Agreement and Release (Theaters) by and between Regent Entertainment
Partnership, L.P., Regent Theaters LLC, Regent Releasing LLC and the
Company dated effective July 1, 2004 (incorporated by reference, Form 8-K
filed October 19, 2004).
|
10.12
|
Executive
Employment Agreement with John W. Temple dated December 1, 2004
(incorporated by reference, Form 8-K filed December 20,
2004).
|
10.13
|
Settlement
Agreement with Lawrence F. DeGeorge dated January 11, 2005 (incorporated
by reference, Form 8-K filed January 18, 2005).
|
10.14
|
Form
of Revolving 10% Convertible, Redeemable Promissory Note (incorporated by
reference, Form 8-K filed January 18, 2005).
|
10.15
|
Settlement
Agreement and Release of Claims with Cybotics Systems, Cache Media, Inc.
and Stephen J. Shankle dated November 8, 2005 (incorporated by reference,
Form 8-K filed November 11, 2005).
|
10.16
|
2007
Equity Incentive Plan (incorporated by reference, to the Company’s
definitive proxy statement on Schedule 14A filed January 31,
2007).
|
10.17
|
Consulting
Agreement dated October 1, 2007 between Dwight E. Thomas III and the
Company (incorporated by reference, Form 8-K filed October 18,
2007).
|
10.18
|
Standard
Industrial/Commercial Single-Tenant Lease and Guaranty of Lease effective
April 1, 2008 (incorporated by reference, Form 8-K filed April 1,
2008).
|
10.19
|
Senior
Secured Revolving Credit Facility between the Company and DeGeorge
Holdings Three LLC dated November 6, 2008 (filed as Exhibit 10.1 to the
Company’s Form 8-K filed on November 13, 2008 and incorporated by
reference herein).
|
10.20
|
First
Amendment to Senior Secured Revolving Credit Facility between the Company
and DeGeorge Holdings Three LLC dated June 15, 2009 (filed as Exhibit 10.1
to the Company’s Form 8-K filed on June 19, 2009 and incorporated by
reference herein).
|
10.21
|
Exchange
Agreement between the Company and Lawrence F. DeGeorge dated January 15,
2009 (exchanging Series E Preferred Stock for Common Stock) (filed as
Exhibit 99.1 to the Company’s Form 8-K filed on July 6, 2009 and
incorporated by reference herein).
|
10.22
|
Exchange
Agreement between the Company and Lawrence F. DeGeorge dated January 15,
2009 (exchanging Series F Preferred Stock for Common Stock) (filed as
Exhibit 99.2 to the Company’s Form 8-K filed on July 6, 2009 and
incorporated by reference
herein).
|
10.23
|
Exchange
Agreement between the Company and Gene W. Schneider dated January 15, 2009
(exchanging Series F Preferred Stock for Common Stock) (filed as Exhibit
99.3 to the Company’s Form 8-K filed on July 6, 2009 and incorporated by
reference herein).
|
10.24
|
Exchange
Agreement between the Company and Mark L. Schneider dated January 15, 2009
(exchanging Series F Preferred Stock for Common Stock) (filed as Exhibit
99.4 to the Company’s Form 8-K filed on July 6, 2009 and incorporated by
reference herein).
|
10.25
|
Exchange
Agreement between the Company and Bruce H. Etikin dated February 1, 2009
(exchanging Series F Preferred Stock for Common Stock) (filed as Exhibit
99.5 to the Company’s Form 8-K filed on July 6, 2009 and incorporated by
reference herein).
|
10.26
|
Exchange
Agreement between the Company and John Cole dated February 1, 2009
(exchanging Series F Preferred Stock for Common Stock) (filed as Exhibit
99.6 to the Company’s Form 8-K filed on July 6, 2009 and incorporated by
reference herein).
|
10.27
|
Exchange
Agreement between the Company and Lawrence F. DeGeorege dated January 15,
2009 (exchanging Series G Preferred Stock for Series D Preferred Stock)
(filed as Exhibit 99.7 to the Company’s Form 8-K filed on July 6, 2009 and
incorporated by reference herein).
|
List
of Subsidiaries
|
|
*23.1 | Consent of Independent Registered Public Accounting Firm |
Certificate
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
Certificate
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
Certificate
of Principal Executive and Principal Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
|
|
*
|
FILED
WITH THIS REPORT
|
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has caused this report on Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
/s/ Matthew W. Shankle
|
Date: |
October 13, 2009
|
By: | Mattew W. Shankle | |
President,
Chief Executive and FinancialOfficer
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Matthew W. Shankle
|
Date:
|
October 13, 2009
|
By:
|
Matthew
W. Shankle
|
|
President,
Chief Executive and Financial Officer, Director (Principal Executive
Officer and
Principal Financial Offer)
|
/s/ Rebecca L. McCall
|
Date:
|
October 13, 2009
|
By:
|
Rebecca
L. McCall
|
|
Vice
President of Accounting (Principal Accounting Officer)
|
/s/ Lawrence F. DeGeorge
|
Date:
|
October 13, 2009
|
By:
|
Lawrence
F. DeGeorge
|
|
Director
|
/s/ James P. Martindale
|
Date:
|
October 13, 2009
|
By:
|
James
P. Martindale
|
|
Director
|
Advance
Display Technologies, Inc.
(A
Development Stage Company)
Financial
Statements
June
30, 2009 and 2008
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
INDEX
TO FINANCIAL STATEMENTS
PAGE
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Balance Sheets - June
30, 2009 and 2008
|
F-3
|
Statements of Operations
- For the Years Ended June 30, 2009 and 2008, and Cumulative from
Inception (March 15, 1995) through June 30, 2009
|
F-4
|
Statement of Changes in
Stockholders’ Equity (Deficit) - For the Period from Inception
(March 15, 1995) through June 30, 2009
|
F-5
|
Statements of Cash Flows
- For the Years Ended June 30, 2009 and 2008, and Cumulative from
Inception (March 15, 1995) through June 30, 2009
|
F-13
|
Notes
to the Financial Statements
|
F-15
|
AJ.
ROBBINS, PC
216
16TH
STREET, SUITE 600
DENVER,
CO 80202
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors
Advance
Display Technologies, Inc.
Denver,
Colorado
We have
audited the accompanying consolidated balance sheets of Advance Display
Technologies, Inc. (a development stage company) as of June 30, 2009 and
2008 and the related consolidated statements of operations, changes in
stockholders’ equity (deficit) and cash flows for each of the years in the two
year period then ended. The financial statements for the period from
inception (March 15, 1995) to June 30, 2005, were audited by other
auditors whose report included an explanatory paragraph that expressed
substantial doubt about the Company’s ability to continue as a going
concern. The financial statements for the period from inception
(March 15, 1995) to June 30, 2005 include total revenues and net loss of
$601,637 and $11,499,513, respectively. Our opinion on the statements
of operations, stockholders’ equity (deficit) and cash flows for the period from
inception (March 15, 1995) to June 30, 2009, insofar as it relates to amounts
for prior periods through June 30, 2005, is based solely on the report of the
other auditors. These financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Advance Display
Technologies, Inc. as of June 30, 2009 and 2008, and the results of its
operations and its cash flows for each of the years in the two year period then
ended and for the period from inception (March 15, 1995) to June 30, 2009 in
conformity with U.S. generally accepted accounting principles.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred substantial losses from
operations, has negative working capital, has negative stockholders’ equity and
is in the development stage. These factors raise substantial doubt
about the Company’s ability to continue as a going
concern. Management’s plans with regard to these matters are
described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of these
uncertainties.
AJ
ROBBINS, PC
CERTIFIED
PUBLIC ACCOUNTANTS
Denver,
Colorado
October
8, 2009
(A
Development Stage Company)
CONSOLIDATED
BALANCE SHEETS
JUNE
30,
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
|
$ | 1,320,358 | $ | 1,271,364 | ||||
Component
inventory, net of reserve for obsolescence
|
429,350 | 224,314 | ||||||
Work
in progress inventory
|
1,624,001 | 102,561 | ||||||
Finished
goods inventory
|
531,685 | --- | ||||||
Vendor
deposits
|
29,775 | 33,400 | ||||||
Other
current assets
|
54,893 | 57,512 | ||||||
Total
current assets
|
3,990,062 | 1,689,151 | ||||||
Property
and Equipment, Net
|
1,381,888 | 1,153,892 | ||||||
Deferred
Manufacturing Costs, Net
|
344,134 | 407,232 | ||||||
Deposits
|
31,353 | 31,353 | ||||||
Total
Assets
|
$ | 5,747,437 | $ | 3,281,628 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
(DEFICIT)
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
payable - Trade
|
$ | 551,732 | $ | 989,450 | ||||
Accounts
payable - Related party
|
62,979 | 35,821 | ||||||
Senior
secured revolving convertible note, net of debt discount, to related
parties
|
7,135,357 | --- | ||||||
Revolving
convertible redeemable promissory notes to related parties
|
--- | 740,000 | ||||||
Demand
notes to related parties
|
100,000 | 800,000 | ||||||
Accrued
interest payable to related parties
|
381,715 | 321,008 | ||||||
Other
accrued liabilities
|
95,913 | 49,808 | ||||||
Total
current liabilities
|
8,327,696 | 2,936,087 | ||||||
Long-term
obligations, less current maturities
|
32,281 | 19,729 | ||||||
Total
liabilities
|
8,359,977 | 2,955,816 | ||||||
COMMITMENTS
AND CONTINGENCIES
|
||||||||
Stockholders’ Equity
(Deficit):
|
||||||||
Preferred
Series D stock, $.001 par value, 500,000,000 shares authorized,
177,002,763 and 30,570,742 shares issued and outstanding,
respectively.
|
177,003 | 30,571 | ||||||
Preferred
Series E stock, $.001 par value, 0 and 1,008,985 shares authorized, 0 and
1,008,985 shares issued and outstanding, respectively.
|
--- | 1,009 | ||||||
Preferred
Series F stock, $.001 par value, 0 and 4,549,015 shares authorized, 0 and
4,549,015 shares issued and outstanding.
|
--- | 4,549 | ||||||
Preferred
Series G stock, $.001 par value, 0 and 100,000 shares authorized, 0 and
90,544 shares issued and outstanding.
|
--- | 91 | ||||||
Common
stock, $.001 par value, 1,000,000,000 shares authorized, 32,014,723 and
26,198,177 issued and outstanding, respectively
|
32,015 | 26,199 | ||||||
Additional
paid-in capital
|
23,201,490 | 20,442,137 | ||||||
Deficit
accumulated during the development stage
|
(26,023,048 | ) | (20,178,744 | ) | ||||
Total
stockholders’ equity (deficit)
|
(2,612,540 | ) | 325,812 | |||||
Total
Liabilities and Stockholders’ Equity (Deficit)
|
$ | 5,747,437 | $ | 3,281,628 |
See
accompanying notes to these consolidated financial statements.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS
OF OPERATIONS
For the Years Ended
June 30,
|
Cumulative
From Inception
(March 15, 1995)
Through
June 30,
|
|||||||||||
2009
|
2008
|
2009
|
||||||||||
Consulting
Revenue
|
$ | – | $ | – | $ | 91,014 | ||||||
Other
Income:
|
||||||||||||
Related
party interest income
|
– | – | 162,761 | |||||||||
Other
interest income
|
1,493 | 19,224 | 30,493 | |||||||||
Settlement
income
|
– | – | 463,179 | |||||||||
Other
|
– | – | 550 | |||||||||
Total
revenue and other income
|
1,493 | 19,224 | 747,997 | |||||||||
Costs
and Expenses:
|
||||||||||||
Cost
of consulting revenues
|
– | – | 93,648 | |||||||||
Manufacturing
operations
|
2,343,444 | 549,287 | 2,892,731 | |||||||||
General
and administrative
|
1,881,850 | 1,472,359 | 8,900,863 | |||||||||
Marketing
|
709,033 | 345,290 | 1,664,923 | |||||||||
Research
and development
|
647,457 | 2,864,284 | 8,728,846 | |||||||||
Impairment
of intangible assets
|
– | – | 451,492 | |||||||||
Interest
expense - related party
|
454,906 | 156,567 | 4,464,594 | |||||||||
Total
costs and expenses
|
6,036,690 | 5,387,787 | 27,197,097 | |||||||||
Operating
Loss
|
(6,035,197 | ) | (5,368,563 | ) | (26,449,100 | ) | ||||||
Other
Income and (Expense):
|
||||||||||||
Change in
derivative conversion feature
|
4,917,976 | – | 4,917,976 | |||||||||
Interest expense
– derivative conversion feature
|
(1,516,736 | ) | – | (1,516,736 | ) | |||||||
Amortization
of debt discount
|
(2,951,801 | ) | – | (2,951,801 | ) | |||||||
Total
other income and (expense)
|
449,439 | – | 449,439 | |||||||||
Loss
Before Discontinued Operations and extraordinary
Gain
|
(5,585,758 | ) | (5,368,563 | ) | (25,999,661 | ) | ||||||
Loss
from Discontinued Operations
|
– | – | (202,278 | ) | ||||||||
Gain
on Disposal of Discontinued Operations
|
– | – | 108,652 | |||||||||
Loss
Before Extraordinary Gain
|
(5,585,758 | ) | (5,368,563 | ) | (26,093,287 | ) | ||||||
Extraordinary
Gain Due to Extinguishment of Debt
|
– | – | 328,785 | |||||||||
Net
Loss
|
$ | (5,585,758 | ) | $ | (5,368,563 | ) | $ | (25,764,502 | ) | |||
Accrued
Preferred Series E Dividend
|
(27,326 | ) | (50,448 | ) | (258,546 | ) | ||||||
Net
Loss Applicable to Common Shareholders
|
$ | (5,613,084 | ) | $ | (5,419,011 | ) | $ | (26,023,048 | ) | |||
Net
Loss Per Common Share (Basic and Diluted):
|
$ | (.21 | ) | $ | (.21 | ) | ||||||
Weighted
Average Shares of Common Stock Outstanding
|
26,230,048 | 26,198,177 |
See
accompanying notes to these consolidated financial statements.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR
THE PERIOD FROM INCEPTION (MARCH 15, 1995) THROUGH JUNE 30, 2009
Preferred
Stock
|
||||||||||||||||||||||||||||||||||||||||
Series
C
|
Series
D
|
Series
E
|
Series
F
|
Series
G
|
||||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
BALANCE,
March 15, 1995 (Inception)
|
- | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | |||||||||||||||||||||||||
Capital
contributions
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
BALANCE,
June 30, 1995
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Capital
contributions
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
BALANCE,
June 30, 1996
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Conversion
of debt to common stock and issuance of preferred stock pursuant to
Acquisition of Display Group, LLC and Display Optics, Ltd.
|
1,843,902 | 1,844 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
BALANCE,
June 30, 1997
|
1,843,902 | 1,844 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Debt
convertible at below market
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Conversion
of debt to common stock
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Retirement
of shares in settlement
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Employee
stock options issued for services
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
BALANCE,
June 30, 1998
|
1,843,902 | 1,844 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Retirement
of shares in settlement
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
BALANCE,
June 30, 1999
|
1,843,902 | 1,844 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Debt
convertible at below market
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
BALANCE,
June 30, 2000
|
1,843,902 | 1,844 | - | - | - | - | - | - | - | - |
See
accompanying notes to these consolidated financial statements.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR
THE PERIOD FROM INCEPTION (MARCH 15, 1995) THROUGH JUNE 30,
2009
(Continued)
Preferred
|
Additional
|
Deferred
|
||||||||||||||||||||||||||||||
Subscriptions
|
Common
Stock
|
Paid-In
|
Merger
|
Deferred
|
Accumulated
|
|||||||||||||||||||||||||||
Receivable
|
Shares
|
Amount
|
Capital
|
Costs
|
Compensation
|
Deficit
|
Total
|
|||||||||||||||||||||||||
BALANCE,
March 15, 1995 (Inception)
|
$ | - | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||
Capital
contributions
|
- | 697,095 | 697 | 90,971 | - | - | - | 91,668 | ||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | (286 | ) | (286 | ) | ||||||||||||||||||||||
BALANCE,
June 30, 1995
|
- | 697,095 | 697 | 90,971 | - | - | (286 | ) | 91,382 | |||||||||||||||||||||||
Capital
contributions
|
- | 87,141 | 87 | 11,372 | - | - | - | 11,459 | ||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | (24,430 | ) | (24,430 | ) | ||||||||||||||||||||||
BALANCE,
June 30, 1996
|
- | 784,236 | 784 | 102,343 | - | - | (24,716 | ) | 78,411 | |||||||||||||||||||||||
Conversion
of debt to common stock and issuance of preferred stock pursuant to
acquisition of Display Group, LLC and Display Optics, Ltd.
|
- | 20,559,687 | 20,560 | 2,351,160 | - | - | - | 2,373,564 | ||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | (2,718,839 | ) | (2,718,839 | ) | ||||||||||||||||||||||
BALANCE,
June 30, 1997
|
- | 21,343,923 | 21,344 | 2,453,503 | - | - | (2,743,555 | ) | (266,864 | ) | ||||||||||||||||||||||
Debt
convertible at below market
|
- | - | - | 1,013,933 | - | - | - | 1,013,933 | ||||||||||||||||||||||||
Conversion
of debt to common stock
|
- | 4,182,509 | 4,183 | 545,817 | - | - | - | 550,000 | ||||||||||||||||||||||||
Retirement
of shares in settlement
|
- | (350,000 | ) | (350 | ) | 350 | - | - | - | - | ||||||||||||||||||||||
Employee
stock options issued for services
|
- | - | - | 214,125 | - | - | - | 214,125 | ||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | (2,971,929 | ) | (2,971,929 | ) | ||||||||||||||||||||||
BALANCE,
June 30, 1998
|
- | 25,176,432 | 25,177 | 4,227,728 | - | - | (5,715,484 | ) | (1,460,735 | ) | ||||||||||||||||||||||
Retirement
of shares in settlement
|
- | (1,402,157 | ) | (1,402 | ) | 1,402 | - | - | - | - | ||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | (582,813 | ) | (582,813 | ) | ||||||||||||||||||||||
BALANCE,
June 30, 1999
|
- | 23,774,275 | 23,775 | 4,229,130 | - | - | (6,298,297 | ) | (2,043,548 | ) | ||||||||||||||||||||||
Debt
convertible at below market
|
- | - | - | 139,640 | - | - | - | 139,640 | ||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | (916,368 | ) | (916,368 | ) | ||||||||||||||||||||||
BALANCE,
June 30, 2000
|
- | 23,774,275 | 23,775 | 4,368,770 | - | - | (7,214,665 | ) | (2,820,276 | ) |
See
accompanying notes to these consolidated financial statements.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR
THE PERIOD FROM INCEPTION (MARCH 15, 1995) THROUGH JUNE 30,
2009
(Continued)
Preferred
Stock
|
||||||||||||||||||||||||||||||||||||||||
Series
C
|
Series
D
|
Series
E
|
Series
F
|
Series
G
|
||||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
BALANCE,
June 30, 2000
|
1,843,902 | 1,844 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Warrants
issued for prepaid services
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
BALANCE,
June 30, 2001
|
1,843,902 | 1,844 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Amortization
of deferred merger costs
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
BALANCE,
June 30, 2002
|
1,843,902 | 1,844 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
BALANCE,
June 30, 2003
|
1,843,902 | 1,844 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Conversion
of preferred stock
|
(1,843,902 | ) | (1,844 | ) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
Conversion
of debt to preferred stock
|
- | - | 60,000,000 | 60,000 | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Conversion
of debt to preferred stock
|
- | - | - | - | 1,008,985 | 1,009 | - | - | - | - | ||||||||||||||||||||||||||||||
Conversion
of debt to preferred stock
|
- | - | - | - | - | - | 4,549,015 | 4,549 | - | - | ||||||||||||||||||||||||||||||
Preferred
Subscriptions Receivable
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
BALANCE,
June 30, 2004
|
- | - | 60,000,000 | 60,000 | 1,008,985 | 1,009 | 4,549,015 | 4,549 | - | |||||||||||||||||||||||||||||||
Cancellation
of subscriptions receivable
|
- | - | (19,500,000 | ) | (19,500 | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||||
Acquisition
of Series D Preferred stock
|
- | - | (15,000,000 | ) | (15,000 | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||||
Issuance
of Series D Preferred stock for deferred compensation
|
- | - | 4,000,000 | 4,000 | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Deferred
compensation related to issuance of Series D Preferred
stock
|
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||
Debt
convertible at below market
|
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
BALANCE,
June 30, 2005
|
- | $ | - | 29,500,000 | $ | 29,500 | 1,008,985 | $ | 1,009 | 4,549,015 | $ | 4,549 | - | $ | - |
See
accompanying notes to these consolidated financial statements.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR
THE PERIOD FROM INCEPTION (MARCH 15, 1995) THROUGH JUNE 30,
2009
(Continued)
Preferred
|
Additional
|
Deferred
|
||||||||||||||||||||||||||||||
Subscriptions
|
Common
Stock
|
Paid-In
|
Merger
|
Deferred
|
Accumulated
|
|||||||||||||||||||||||||||
Receivable
|
Shares
|
Amount
|
Capital
|
Costs
|
Compensation
|
Deficit
|
Total
|
|||||||||||||||||||||||||
BALANCE,
June 30, 2000
|
- | 23,774,275 | 23,775 | 4,368,770 | - | $ | - | $ | (7,214,665 | ) | (2,820,276 | ) | ||||||||||||||||||||
Warrants
issued for prepaid services
|
- | - | - | 75,000 | (75,000 | ) | - | - | - | |||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | (974,468 | ) | (974,468 | ) | ||||||||||||||||||||||
BALANCE,
June 30, 2001
|
- | 23,774,275 | 23,775 | 4,443,770 | (75,000 | ) | - | (8,189,133 | ) | (3,794,744 | ) | |||||||||||||||||||||
Amortization
of deferred merger costs
|
- | - | - | - | 75,000 | - | - | 75,000 | ||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | (1,062,736 | ) | (1,062,736 | ) | ||||||||||||||||||||||
BALANCE,
June 30, 2002
|
- | 23,774,275 | 23,775 | 4,443,770 | - | - | (9,251,869 | ) | (4,782,480 | ) | ||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | (889,742 | ) | (889,742 | ) | ||||||||||||||||||||||
BALANCE,
June 30, 2003
|
- | 23,774,275 | 23,775 | 4,443,770 | - | - | (10,141,611 | ) | (5,672,222 | ) | ||||||||||||||||||||||
Conversion
of preferred stock
|
- | 1,843,902 | 1,844 | - | - | - | - | - | ||||||||||||||||||||||||
Conversion
of debt to preferred stock
|
- | - | - | 940,000 | - | - | - | 1,000,000 | ||||||||||||||||||||||||
Conversion
of debt to preferred stock
|
- | - | - | 1,007,976 | - | - | - | 1,008,985 | ||||||||||||||||||||||||
Conversion
of debt to preferred stock
|
- | - | - | 4,544,466 | - | - | - | 4,549,015 | ||||||||||||||||||||||||
Preferred
Subscriptions Receivable
|
(325,000 | ) | - | - | - | - | - | - | (325,000 | ) | ||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | (598,039 | ) | (598,039 | ) | ||||||||||||||||||||||
BALANCE,
June 30, 2004
|
(325,000 | ) | 25,618,177 | 25,619 | 10,936,212 | - | - | (10,739,650 | ) | (37,261 | ) | |||||||||||||||||||||
Cancellation
of subscriptions receivable
|
325,000 | - | - | (305,500 | ) | - | - | - | - | |||||||||||||||||||||||
Acquisition
of Series D Preferred stock
|
- | - | - | (60,000 | ) | - | - | - | (75,000 | ) | ||||||||||||||||||||||
Issuance
of Series D Preferred stock for deferred compensation
|
- | - | - | 231,000 | - | (235,000 | ) | - | - | |||||||||||||||||||||||
Deferred
compensation related to issuance of Series D Preferred
stock
|
- | - | - | - | - | 2,753 | - | 2,753 | ||||||||||||||||||||||||
Debt
convertible at below market
|
- | - | - | 400,000 | - | - | - | 400,000 | ||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | (759,863 | ) | (759,863 | ) | ||||||||||||||||||||||
BALANCE,
June 30, 2005
|
$ | - | 25,618,177 | $ | 25,619 | $ | 11,201,712 | $ | - | $ | (232,247 | ) | $ | (11,499,513 | ) | $ | (469,371 | ) |
See
accompanying notes to these consolidated financial statements.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR
THE PERIOD FROM INCEPTION (MARCH 15, 1995) THROUGH JUNE 30,
2009
(Continued)
Preferred
Stock
|
||||||||||||||||||||||||||||||||||||||||
Series
C
|
Series
D
|
Series
E
|
Series
F
|
Series
G
|
||||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
BALANCE,
June 30, 2005
|
- | $ | - | 29,500,000 | $ | 29,500 | 1,008,985 | $ | 1,009 | 4,549,015 | $ | 4,549 | - | $ | - | |||||||||||||||||||||||||
Issuance
of Series D Preferred stock for Deferred compensation
|
- | - | 2,000,000 | 2,000 | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Deferred
compensation related to issuance of Series D Preferred
stock
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Debt
convertible at below market
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Compensation
expense on vested options
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Unearned
Series D Preferred stock
|
- | - | (5,719,678 | ) | ( 5,720 | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||||
Settlement
of debt for common stock
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Exercise
of stock options
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
BALANCE,
June 30, 2006
|
- | $ | - | 25,780,322 | $ | 25,780 | 1,008,985 | $ | 1,009 | 4,549,015 | $ | 4,549 | - | $ | - | |||||||||||||||||||||||||
Issuance
of Series G Preferred stock
|
- | - | - | - | - | - | - | - | 40,705 | 41 | ||||||||||||||||||||||||||||||
Preferred
Subscriptions Receivable
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Compensation
expense on vested options
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
BALANCE,
June 30, 2007
|
- | $ | - | 25,780,322 | $ | 25,780 | 1,008,985 | $ | 1,009 | 4,549,015 | $ | 4,549 | 40,705 | $ | 41 | |||||||||||||||||||||||||
Receipt
of Subscription Receivable
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Issuance
of Series G Preferred stock
|
- | - | - | - | - | - | - | - | 49,839 | 50 | ||||||||||||||||||||||||||||||
Conversion
of accrued interest to Series D Preferred
stock
|
- | - | 4,790,420 | 4,791 | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Compensation
expense on vested options
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
BALANCE,
June 30, 2008 (Consolidated)
|
- | $ | - | 30,570,742 | $ | 30,571 | 1,008,985 | $ | 1,009 | 4,549,015 | $ | 4,549 | 90,544 | $ | 91 |
See
accompanying notes to these consolidated financial statements.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR
THE PERIOD FROM INCEPTION (MARCH 15, 1995) THROUGH JUNE 30,
2009
(Continued)
Preferred
|
Additional
|
Deferred
|
||||||||||||||||||||||||||||||
Subscriptions
|
Common
Stock
|
Paid-In
|
Merger
|
Deferred
|
Accumulated
|
|||||||||||||||||||||||||||
Receivable
|
Shares
|
Amount
|
Capital
|
Costs
|
Compensation
|
Deficit
|
Total
|
|||||||||||||||||||||||||
BALANCE,
June 30, 2005
|
$ | - | 25,618,177 | $ | 25,619 | $ | 11,201,712 | $ | - | $ | (232,247 | ) | $ | (11,499,513 | ) | $ | (469,371 | ) | ||||||||||||||
Issuance
of Series D Preferred stock for Deferred compensation
|
- | - | - | 67,500 | - | ( 69,500 | ) | - | - | |||||||||||||||||||||||
Deferred
compensation related to issuance of Series D Preferred
stock
|
- | - | - | - | - | 4,256 | - | 4,256 | ||||||||||||||||||||||||
Debt
convertible at below market
|
- | - | - | 340,000 | - | - | - | 340,000 | ||||||||||||||||||||||||
Compensation
expense on vested options
|
- | - | - | 19,541 | - | - | - | 19,541 | ||||||||||||||||||||||||
Unearned
Series D Preferred stock
|
- | - | - | (291,771 | ) | - | 297,491 | - | - | |||||||||||||||||||||||
Settlement
of debt for common stock
|
- | 100,000 | 100 | 4,900 | - | - | - | 5,000 | ||||||||||||||||||||||||
Exercise
of stock options
|
- | 480,000 | 480 | 13,920 | - | - | - | 14,400 | ||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | (1,181,777 | ) | (1,181,777 | ) | ||||||||||||||||||||||
BALANCE,
June 30, 2006
|
$ | - | 26,198,177 | $ | 26,199 | $ | 11,355,802 | $ | - | $ | - | $ | (12,681,290 | ) | $ | (1,267,951 | ) | |||||||||||||||
Issuance
of Series G Preferred stock
|
- | - | - | 3,589,959 | - | - | - | 3,590,000 | ||||||||||||||||||||||||
Preferred
Subscriptions Receivable
|
(500,000 | ) | - | - | - | - | - | - | (500,000 | ) | ||||||||||||||||||||||
Compensation
expense on vested options
|
- | - | - | 15,632 | - | - | - | 15,632 | ||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | (2,128,891 | ) | (2,128,891 | ) | ||||||||||||||||||||||
BALANCE,
June 30, 2007
|
$ | ( 500,000 | ) | 26,198,177 | $ | 26,199 | $ | 14,961,393 | $ | - | $ | - | $ | (14,810,181 | ) | $ | (291,210 | ) | ||||||||||||||
Receipt
of Subscription Receivable
|
500,000 | - | - | - | - | - | - | 500,000 | ||||||||||||||||||||||||
Issuance
of Series G Preferred stock
|
- | - | - | 5,212,700 | - | - | - | 5,212,750 | ||||||||||||||||||||||||
Conversion
of accrued interest to Series D Preferred stock
|
- | - | - | 75,209 | - | - | - | 80,000 | ||||||||||||||||||||||||
Compensation
expense on vested options
|
- | - | - | 192,835 | - | - | - | 192,835 | ||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | (5,368,563 | ) | (5,368,563 | ) | ||||||||||||||||||||||
BALANCE,
June 30, 2008 (Consolidated)
|
$ | - | 26,198,177 | $ | 26,199 | $ | 20,442,137 | $ | - | $ | - | $ | (20,178,744 | ) | $ | 325,812 |
See
accompanying notes to these consolidated financial statements.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR
THE PERIOD FROM INCEPTION (MARCH 15, 1995) THROUGH JUNE 30,
2009
(Continued)
Preferred
Stock
|
||||||||||||||||||||||||||||||||||||||||
Series
C
|
Series
D
|
Series
E
|
Series
F
|
Series
G
|
||||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
BALANCE,
June 30, 2008 (Consolidated)
|
- | $ | - | 30,570,742 | $ | 30,571 | 1,008,985 | $ | 1,009 | 4,549,015 | $ | 4,549 | 90,544 | $ | 91 | |||||||||||||||||||||||||
Conversion
of convertible, redeemable notes to related parties to Series D Preferred
stock
|
- | - | 44,311,377 | 44,311 | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Conversion
of interest on convertible, redeemable notes to related parties to Series
D Preferred
stock
|
- | - | 11,576,644 | 11,577 | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Debt
discount attributable to warrant attached to Senior Revolving Credit
Agreement
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Conversion
of Series E Preferred stock and dividend to Common stock
|
- | - | - | - | (1,008,985 | ) | (1,009 | ) | - | - | - | - | ||||||||||||||||||||||||||||
Conversion
of Series F Preferred stock to Common stock
|
- | - | - | - | - | - | (4,549,015 | ) | (4,549 | ) | - | - | ||||||||||||||||||||||||||||
Conversion
of Series G Preferred stock to Series D Preferred stock
|
- | - | 90,544,000 | 90,544 | - | - | - | - | (90,544 | ) | (91 | ) | ||||||||||||||||||||||||||||
Removal
of Derivative Liability
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Compensation
expense on vested options
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
BALANCE,
June 30, 2009 (Consolidated)
|
- | $ | - | 177,002,763 | $ | 177,003 | - | $ | - | - | $ | - | - | $ | - |
See
accompanying notes to these consolidated financial statements.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR
THE PERIOD FROM INCEPTION (MARCH 15, 1995) THROUGH JUNE 30,
2009
(Continued)
Preferred
|
Additional
|
Deferred
|
||||||||||||||||||||||||||||||
Subscriptions
|
Common
Stock
|
Paid-In
|
Merger
|
Deferred
|
Accumulated
|
|||||||||||||||||||||||||||
Receivable
|
Shares
|
Amount
|
Capital
|
Costs
|
Compensation
|
Deficit
|
Total
|
|||||||||||||||||||||||||
BALANCE,
June 30, 2008 (Consolidated)
|
$ | - | 26,198,177 | $ | 26,199 | $ | 20,442,137 | $ | - | $ | - | $ | (20,178,744 | ) | $ | 325,812 | ||||||||||||||||
Conversion
of convertible, redeemable notes to related parties to Series D Preferred
stock
|
- | - | - | 695,689 | - | - | - | 740,000 | ||||||||||||||||||||||||
Conversion
of interest on convertible,redeemable notes to related parties to Series D
Preferred
stock
|
- | - | - | 181,753 | - | - | - | 193,330 | ||||||||||||||||||||||||
Debt
discount attributable to warrant attached to Senior Revolving Credit
Agreement
|
- | - | - | 33,980 | - | - | - | 33,980 | ||||||||||||||||||||||||
Conversion
of Series E Preferred stock and dividend to Common stock
|
- | 1,267,531 | 1,267 | 258,288 | - | - | (258,546 | ) | - | |||||||||||||||||||||||
Conversion
of Series F Preferred stock to Common stock
|
- | 4,549,015 | 4,549 | - | - | - | - | - | ||||||||||||||||||||||||
Conversion
of Series G Preferred stock to Series D Preferred stock
|
- | - | - | (90,453 | ) | - | - | - | - | |||||||||||||||||||||||
Removal
of Derivative Liability
|
- | - | - | 1,499,092 | - | - | - | 1,499,092 | ||||||||||||||||||||||||
Compensation
expense on vested options
|
- | - | - | 181,004 | - | - | - | 181,004 | ||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | (5,585,758 | ) | (5,585,758 | ) | ||||||||||||||||||||||
BALANCE,
June 30, 2009 (Consolidated)
|
$ | - | 32,014,723 | $ | 32,015 | $ | 23,201,490 | $ | - | $ | - | $ | (26,023,048 | ) | $ | (2,612,540 | ) |
See
accompanying notes to these consolidated financial statements.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS
OF CASH FLOWS
For the Years Ended
June 30,
|
Cumulative
From
Inception
(March 15, 1995)
Through
June 30,
|
|||||||||||
2009
|
2008
|
2009
|
||||||||||
Cash
Flows From (To) Operating Activities
|
||||||||||||
Net
loss
|
$ | (5,585,758 | ) | $ | (5,368,563 | ) | $ | (25,764,502 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Loss
from discontinued operations
|
– | – | 202,278 | |||||||||
(Gain)
on disposition of discontinued operations
|
– | – | (108,652 | ) | ||||||||
(Gain)
on debt and trade payables forgiven
|
– | – | (496,777 | ) | ||||||||
Acquired
research and development expense
|
– | – | 2,536,494 | |||||||||
Reserve
for inventory obsolescence
|
223,076 | – | 223,076 | |||||||||
Impairment
of intangibles
|
– | – | 451,492 | |||||||||
Impairment
of assets
|
374,957 | 193,392 | 755,330 | |||||||||
Depreciation
and amortization of property and equipment
|
665,506 | 77,105 | 1,071,167 | |||||||||
Amortization
of deferred merger costs
|
– | – | 75,000 | |||||||||
Stock
and stock option compensation expense
|
181,004 | 192,835 | 630,146 | |||||||||
Interest
expense related to debt discount
|
2,951,800 | – | 4,845,373 | |||||||||
Interest
expense related to derivative conversion feature on debt
|
1,516,736 | – | 1,516,736 | |||||||||
Change
in derivative conversion feature
|
(4,917,976 | ) | – | (4,917,976 | ) | |||||||
Loss
on disposal of property and equipment
|
1,750 | – | 8,765 | |||||||||
(Increase)
decrease in:
|
||||||||||||
Inventory
|
(2,856,194 | ) | (520,267 | ) | (3,502,413 | ) | ||||||
Vendor
deposits
|
3,625 | (33,400 | ) | (29,775 | ) | |||||||
Other
current assets
|
4,377 | (38,243 | ) | (109,620 | ) | |||||||
Increase
(decrease) in:
|
||||||||||||
Accounts
payable
|
(410,560 | ) | 731,990 | 577,012 | ||||||||
Accrued
interest payable to stockholders
|
454,906 | 156,567 | 2,498,069 | |||||||||
Other
accrued liabilities
|
55,829 | 18,452 | (74,459 | ) | ||||||||
Net
cash used in operating activities
|
(7,336,922 | ) | (4,590,132 | ) | (19,613,236 | ) | ||||||
Cash
Flows from (To) Investing Activities:
|
||||||||||||
Purchases
of property and equipment
|
(711,129 | ) | (1,159,293 | ) | (2,121,622 | ) | ||||||
Proceeds
from sale of property and equipment
|
– | – | 17,030 | |||||||||
Long-term
deposits
|
(1,758 | ) | (15,253 | ) | (33,111 | ) | ||||||
Deferred
manufacturing costs
|
(112,630 | ) | (412,968 | ) | (525,598 | ) | ||||||
Advances
to affiliates
|
– | – | (932,925 | ) | ||||||||
Purchase
of note receivable and security interest
|
– | – | (225,000 | ) | ||||||||
Cash
received in acquisition
|
– | – | 303,812 | |||||||||
Net
cash used in investing activities
|
(825,517 | ) | (1,587,514 | ) | (3,517,414 | ) | ||||||
Cash
Flows from (To) Financing Activities:
|
||||||||||||
Proceeds
from stock sales
|
– | 6,212,750 | 9,505,877 | |||||||||
Proceeds
from exercise of options
|
– | – | 14,400 | |||||||||
Proceeds
from notes payable to stockholders
|
8,217,000 | – | 14,646,754 | |||||||||
Proceeds
from line-of-credit
|
– | – | 299,505 | |||||||||
Principal
payments on leased equipment
|
(5,567 | ) | (1,339 | ) | (15,528 | ) | ||||||
Net
cash provided by financing activities
|
8,211,433 | 6,211,411 | 24,451,008 | |||||||||
Increase
in Cash and Cash Equivalents
|
48,994 | 33,765 | 1,320,358 | |||||||||
Cash
and Cash Equivalents, Beginning of period
|
1,271,364 | 1,237,599 | – | |||||||||
Cash
and Cash Equivalents, End of period
|
$ | 1,320,358 | $ | 1,271,364 | $ | 1,320,358 |
See
accompanying notes to these consolidated financial statements.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS
OF CASH FLOWS
(Continued)
For
the Years Ended
June
30,
|
Cumulative
From
Inception
(March
15, 1995)
Through
June
30,
|
|||||||||||
2009
|
2008
|
2009
|
||||||||||
Supplemental
Disclosure of Cash Flow Information:
|
||||||||||||
Cash
paid for:
|
||||||||||||
Interest
|
$ | – | $ | – | $ | 26,570 | ||||||
Non-cash
transactions:
|
||||||||||||
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 stockholders to common stock
|
$ | - | $ | - | $ | 550,000 | ||||||
Conversion
of interest payable on notes to notes payable
|
$ | – | $ | – | $ | 12,354 | ||||||
Retirement
of shares in settlement
|
$ | – | $ | – | $ | 1,402 | ||||||
Extinguishment
of debt and trade payables
|
$ | – | $ | – | $ | 496,777 | ||||||
Acquired
membership interest in Regent Theaters, LLC and Regent Releasing,
LLC
|
$ | – | $ | – | $ | 50,000 | ||||||
Conversion
of Preferred Series C stock to common stock
|
$ | – | $ | – | $ | 1,844 | ||||||
Subscriptions
for Preferred Series D stock
|
$ | – | $ | – | $ | 400,000 | ||||||
Cancellation
of Subscriptions for Preferred Series D stock
|
$ | – | $ | – | $ | (325,000 | ) | |||||
Conversion
of convertible, redeemable promissory notes to Preferred
Series D Stock
|
$ | 740,000 | $ | – | $ | 740,000 | ||||||
Conversion
of interest on convertible, redeemable promissory notes
to Preferred Series D stock
|
$ | 193,330 | $ | 80,000 | $ | 273,330 | ||||||
Conversion
of demand notes and accrued interest to Preferred Series
E stock
|
$ | – | $ | – | $ | 1,008,985 | ||||||
Conversion
of convertible, redeemable Promissory notes, demand notes and accrued
interest to Preferred Series F stock
|
$ | – | $ | – | $ | 4,549,015 | ||||||
Acquisition
of 15,000,000 shares of Preferred Series D stock
|
$ | – | $ | – | $ | 75,000 | ||||||
Conversion
of demand notes and accrued interest to senior secured,
revolving, convertible note to related parties
|
$ | 2,694,362 | $ | – | $ | 2,694,362 | ||||||
Conversion
feature on senior secured, revolving, convertible note
to related parties
|
$ | 6,417,068 | $ | – | $ | 6,417,068 | ||||||
Discount
on senior secured, revolving, convertible note to
related parties
|
$ | (4,934,312 | ) | $ | – | $ | (4,934,312 | ) | ||||
Equipment
acquired under capital lease
|
$ | 8,395 | $ | 19,608 | $ | 42,606 | ||||||
Issuance
of shares of Common Stock for debt
|
$ | – | $ | – | $ | 5,000 | ||||||
Issuance
of shares of Preferred Series D stock for deferred
compensation
|
$ | – | $ | – | $ | 304,500 | ||||||
Cancellation
of unearned Preferred Series D stock
|
$ | – | $ | – | $ | (297,491 | ) |
See
accompanying notes to these consolidated financial statements.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
1.
|
Organization,
Nature of Operations,
Going
Concern
and Plan of Operation:
|
Organization
and Nature of Operations: - Advance Display Technologies, Inc. (“ADTI” or
the “Company”) is in the development stage as defined in Financial Accounting
Standards Board Statement No. 7. The fiscal year end is June
30. The Company was incorporated under the laws of the State of
Colorado on October 7, 1983. ADTI was formed to engage in the
business of the technological development and manufacture of fiber optic display
screen systems. Since December 2004, ADTI has engaged in the business of the
technological development and manufacture of certain proprietary Light Emitting
Diode (LED) display screen systems (the “Screen Business”).
Going
Concern and Plan of Operation - The accompanying financial statements
have been prepared on a going concern basis, which contemplates the realization
of assets and the liquidation of liabilities in the normal course of
business. The Company is in the development stage, has not yet
realized significant revenues from operations and is dependent on the
continuation of outside funding which is not certain. Since
inception, the Company devoted most of its efforts on raising capital and
research and development efforts. More recently, the Company has
begun manufacturing operations and related marketing and sales
efforts. The Company has incurred losses since inception and has a
working capital deficit of $4,337,634 and negative shockholders’ equity of
$2,612,540 as of June 30, 2009. These issues raise substantial
doubt about the Company’s ability to continue as a going concern.
During
fiscal 2009, the Company’s business activities included raising a substantial
amount of new capital for manufacturing operations and the continued efforts of
research and development for its proprietary light emitting diode (“LED”)
display products (“LED Screens”). In addition, the Company: (1)
continued production of its proprietary SkyNet™ LED Screens; (2) significantly
increased its workforce; (3) conducted sales and marketing analysis and
operations to support and bring to market its LED Screens, and (4) continued
proprietary product development activities.
The
Company’s current sales and marketing plan calls for a concentrated effort to
generate sales of SkyNet™ video display screens in the first half of fiscal
2010. The Company’s SkyNet™ LED Screen is a large, flexible, high
resolution, video display screen that can be assembled in varying sizes and
specifications according to a customer’s individual
needs. Accordingly, the Company’s manufacturing process consists of
assembling portions of the screens that can, in turn, be assembled into larger,
custom sized screens. During the fiscal year ended June 30, 2009, the
Company has continued to purchase parts from third party suppliers and to use
those components to build screen sub-assemblies in order to be able to promptly
respond to orders from prospective buyers. Specifically, the Company
increased its materials inventory in order to build “strings,” subassemblies
that are used to build any size or configuration of the Company’s LED screen
product. During the fiscal year, the Company completed one screen
system in order to have it ready for sale and also increased its work in
progress for various assemblies. Most of the components and
assemblies in inventory at June 30, 2009 can be configured for different sizes
of the LED Screens. The Company has not yet sold any of its SkyNet™
LED Screens and there can be no assurance that the Company will be able to do so
in the future.
On
November 6, 2008, the Company entered into a Senior Secured Revolving Credit
Facility (the “Credit Facility”) with DeGeorge Holdings Three LLC, a Delaware
limited liability company (“Lender”), which is an affiliate of the Company’s
majority shareholder and a member of its Board of Directors. On June
15, 2009, the Company and the Lender entered into the Amendment to the Credit
Facility (the “Amendment”) that modified certain terms of the Credit Facility.
See Note 5, Notes Payable – Related Parties.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
The
Company believes the Credit Facility will provide sufficient financial resources
to support its operations until June of 2010. Management believes
that the Company’s continued existence after such funding is discontinued is
dependent upon its ability to: (1) successfully raise new permanent capital; (2)
secure interim funding from outside sources; and (3) achieve and maintain
positive cash flow and profitable operations. There can be no
assurance that the Company will be able to do so.
2.
|
Summary
of Significant Accounting
Policies:
|
Principles
of Consolidation - On July 23, 2007, the
Company formed a subsidiary called ADTI Media Inc. (the “Subsidiary”). The
Company purchased 100 shares of the Subsidiary’s common stock for $100 and is
the sole shareholder of the Subsidiary. The consolidated financial
statements include the accounts of the Company and the
Subsidiary. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Cash and
Cash Equivalents – The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
Concentration
of Credit Risk -
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist of cash and cash
equivalents. The Company places its cash with high quality financial
institutions and at times may exceed the FDIC $250,000 insurance
limit. The Company has not experienced a loss in such
accounts.
Vendor
Deposits - Purchase terms often require a deposit from the Company prior
to processing its purchase order. Vendor deposits are applied to a
specific invoice and the expense and remaining payable are recorded upon
shipment from the vendor.
Component
Inventory –
Component inventory consists of parts and materials stated at the lower
of cost or market on a first in - first out basis. Parts that may be
used in research and development activities are expensed as
used.
Work-in-Progress
Inventory – Work-in-progress inventory consists of raw materials, labor
and overhead used to build subassemblies and finished product
assemblies.
Finished
Goods Inventory – Finished goods inventory consists of completed LED
Screen products, including the raw materials, labor and overhead required to
build these units.
Property
and Equipment – Property and equipment are stated at
cost. Depreciation and amortization are provided principally on the
straight-line method over the estimated useful lives (ranging from three to
seven years) of the respective assets. Depreciation expense for
the years ended June 30, 2009 and June 30, 2008 was $489,778 and $71,369,
respectively. The Company has adopted the units-of-production method
of depreciation for certain equipment used in the production of parts for its
LED Screens.
Deferred
Manufacturing Costs - During the year ended June 30, 2008 the Company
initiated manufacturing activities for its LED Screens. Costs
associated with production engineering, process development and facility
preparation were capitalized as deferred manufacturing costs and are being
amortized over the estimated life of this LED Screen product, currently
estimated to be three years. Amortization expense for the years ended
June 30, 2009 and 2008 was $175,728 and $5,736, respectively. Annual
amortization for the years ended June 30, 2010 and 2011 is expected to be
$175,728 and $168,406, respectively.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
Income
Taxes – Income taxes are accounted for under the liability method,
whereby deferred tax assets and liabilities are recorded based on the
differences between the financial statement and tax basis of assets and
liabilities and the tax rates that will be in effect when these differences are
expected to reverse. Deferred tax assets are reduced by a valuation
allowance that reflects expectations of the extent to which such assets will be
realized.
Effective
July 1, 2007, the Company adopted the provisions of Financial Accounting
Standards Board (“FASB”) Interpretation No. 48,
“Accounting for Uncertainty in
Income Taxes,” (“FIN
48”). FIN 48 prescribes recognition thresholds that must be met before a
tax position is recognized in the financial statements and provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. Under FIN 48, an entity may only
recognize or continue to recognize tax positions that meet a "more likely than
not" threshold. The Company did not make any adjustment to opening retained
earnings as a result of the implementation.
Based on
its evaluation, the Company has concluded that there are no significant
uncertain tax positions requiring recognition in its financial statements. The
Company’s evaluation was performed for the tax years ended June 30, 2006 through
2009 for U.S. Federal Income Tax and for the tax years ending June 30, 2006
through 2009 for the State of Colorado Income Tax, the tax years which remain
subject to examination by major tax jurisdictions as of June 30,
2009.
The
Company does not have any unrecognized tax benefits as of July 1, 2008 and June
30, 2009 which if recognized would affect the Company’s effective income tax
rate.
The
Company’s policy is to recognize interest and penalties related to income tax
issues as components of income tax expense. The Company did not recognize or
incur any accrual for interest and penalties relating to income taxes as of July
1, 2008 or June 30, 2009.
Research
and Development – Research and development for new products or product
improvements are charged to expense as incurred.
Impairment
of Long-Lived Assets – If facts and circumstances indicate that the
carrying value of long-lived assets may be impaired, then an evaluation of
recoverability would be performed. If an evaluation is required, the
estimated future undiscounted cash flows associated with the asset would be
compared to the asset’s carrying amount to determine if a write-down to market
value or discounted cash flow value is required.
Use of
Estimates – The preparation of the Company’s financial statements in
conformity with generally accepted accounting principles requires the Company’s
management to make estimates and assumptions that affect the amounts reported in
these financial statements and accompanying notes. Actual results
could differ from those estimates.
Revenue
Recognition – Consulting revenue is recorded when goods are shipped from
the supplier to the customer for orders on which the Company provided consulting
services. Notice of defects or incomplete shipments are directed to
the supplier for resolution. Sales revenue for the Company’s products
will be recorded when goods are shipped by the Company to the
customer. The Company may offer additional services associated with
maintenance and content management for its LED screen products. The
Company’s management is currently analyzing its revenue recognition policy
regarding these potential multiple deliverables.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
Fair
Value of Financial Instruments –The Company’s financial instruments,
including cash and cash equivalents, vendor deposits, accrued liabilities,
accounts payable and notes payable are carried at historical cost, which
approximates their fair value because of the short-term maturities or repayment
terms of these instruments.
Stock-Based
Compensation – The Company adopted SFAS No. 123 (Revised 2004),
Share Based Payment
(“SFAS No. 123R”), under the modified-retrospective method on
July 1, 2005. SFAS No. 123R requires companies to
measure and recognize the cost of employee services received in exchange for an
award of equity instruments based on the grant-date fair
value. Share-based compensation recognized under the
modified-retrospective method of SFAS No. 123R includes share-based
compensation based on the grant-date fair value determined in accordance with
the original provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, for all share-based payments granted prior to and not yet
vested as of July 1, 2005 and share-based compensation based on the
grant-date fair-value determined in accordance with SFAS No. 123R for all
share-based payments granted after July 1, 2005. SFAS
No. 123R eliminates the ability to account for the award of these
instruments under the intrinsic value method prescribed by Accounting Principles
Board (“APB”) Opinion No. 25, Accounting for Stock Issued to
Employees, and allowed under the original provisions of SFAS
No. 123. Prior to the adoption of SFAS No. 123R, the
Company accounted for the stock option plans using the intrinsic value method in
accordance with the provisions of APB Opinion No. 25 and related
interpretations. Primarily as a result of adopting SFAS No. 123R, the
Company recognized $181,004 and $192,835 in share-based compensation
expense for the years ended June 30, 2009 and 2008,
respectively. There were 7,500,000 new incentive options granted
during the year ended June 30, 2008. Of these shares,
1,000,000 expired during the fiscal year ended June 30, 2009. The
impact of this share-based compensation expense on the Company’s basic and
diluted earnings per share was $.007 per share for both 2009 and
2008. The fair value of the stock options was estimated using the
Black-Scholes option pricing model.
Loss Per
Share – Loss per share is presented in accordance with the provisions of
SFAS No. 128, Earnings
Per Share (“EPS”). SFAS No. 128 provides for the calculation
of basic and diluted earnings or loss per share. Basic EPS is
calculated by dividing the income or loss available to common stockholders by
the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock. Such amounts include shares potentially
issuable pursuant to the Revolving, Convertible, Redeemable Promissory Notes and
related interest, the outstanding balance on the Credit Facility, Stock Options,
Warrants and the convertible preferred stock. Basic and diluted EPS
were the same for 2009 and 2008 because the Company had losses from operations
and therefore, the effect of all potential common stock representing shares
underlying convertible notes including interest, the outstanding balance on the
Credit Facility, preferred stock, options and warrants in 2009 and 2008 was
anti-dilutive. Diluted EPS does not include the following because
they would have been anti-dilutive.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
Fiscal
Year Ended
June 30,
|
Preferred
Series D
stock
|
Preferred
Series G
stock
|
Convertible,
redeemable promissory
notes
|
Interest
on convertible redeemable promissory
notes
|
Outstanding
balance under the Credit Facility
|
Warrants
|
Vested
Stock
Options
|
||||||||||||||||||||||
2009
|
177,002,763 | -0- | -0- | -0- | 89,146,342 | 810,564 | 3,221,875 | ||||||||||||||||||||||
2008
|
30,570,742 | 90,544,000 | 44,311,377 | 9,127,202 | -0- | -0- | 1,796,875 |
Had such
shares been included in the calculation of diluted EPS, they would have resulted
in weighted-average common shares of 201,276,563 and 171,213,281 for the years
ended June 30, 2009 and 2008, respectively.
Comprehensive
Loss – Comprehensive loss represents all changes in shareholders’ equity
exclusive of transactions with owners, such as capital investments.
Comprehensive loss includes net income or loss, changes in certain assets and
liabilities that are reported directly in equity such as translation adjustments
on investments in foreign subsidiaries, and certain changes in minimum pension
liabilities. The Company’s comprehensive loss was equal to its net loss for all
periods presented in these financial statements.
Impact
of Recently Issued Accounting Pronouncements –
In May 2009, the FASB issued SFAS No.
165, Subsequent Events.
SFAS 165 establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. Although there is new terminology, the
standard is based on the same principles as those that currently exist in the
auditing standards. The standard also includes a required disclosure of the date
through which the entity has evaluated subsequent events and whether the
evaluation date is the date of issuance or the date the financial statements
were available to be issued. The standard is effective for interim or annual
periods ending after June 15, 2009. The Company has complied with the disclosure
requirements.
In June 2009, the FASB issued SFAS No.
166 “Accounting for Transfers of Financial Assets — an amendment of FASB
Statement No. 140” (“SFAS 166”). SFAS 166 improves the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor’s continuing involvement, if any,
in transferred financial assets. SFAS 166 is effective as of the beginning of
each reporting entity’s first annual reporting period that begins after November
15, 2009, for interim periods within that first annual reporting period and for
interim and annual reporting periods thereafter. The Company is evaluating the
impact the adoption of SFAS 166 will have on its financial
statements.
In June 2009, the FASB issued SFAS No.
168 “The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles — a replacement of FASB Statement No. 162”. The
FASB Accounting Standards Codification (“Codification”) will be the single
source of authoritative nongovernmental U.S. generally accepted accounting
principles. Rules and interpretive releases of the SEC under authority of
federal securities laws are also sources of authoritative GAAP for SEC
registrants. SFAS 168 is effective for interim and annual periods ending after
September 15, 2009. All existing accounting standards are superseded as
described in SFAS 168. All other accounting literature not included in the
Codification is non authoritative
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
In May
2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement), which specifies that issuers of convertible debt instruments
that may be settled in cash upon conversion should separately account for the
liability and equity components in a manner reflecting their nonconvertible debt
borrowing rate when interest costs are recognized in subsequent periods. FSP APB
14-1 is effective for interim periods and fiscal years beginning after December
15, 2008. The Company adopted FSP APB 14-1 effective January 1, 2009. Adoption
of FSP APB 14-1 did not have a material effect on the financial position or
results of operations of the Company.
In June
2008, the FASB ratified Emerging Issues Task Force Issue No. (“EITF”) 07-5,
“Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an
Entity’s Own Stock” (EITF 07-5). EITF 07-5 provides that an entity should use a
two step approach to evaluate whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock, including evaluating the
instrument’s contingent exercise and settlement provisions. It also clarifies on
the impact of foreign currency denominated strike prices and market-based
employee stock option valuation instruments on the evaluation. EITF 07-5 is
effective for fiscal years beginning after December 15, 2008. The Company
adopted EITF 07-5 effective January 1, 2009. Adoption of EITF 07-5 is not
expected to have a material effect on the financial position or results of
operations of the Company.
In June
2008, the FASB issued FSP Emerging Issues Task Force (EITF) No. 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities.” Under the FSP, unvested share-based payment awards
that contain rights to receive nonforfeitable dividends (whether paid or unpaid)
are participating securities, and should be included in the two-class method of
computing EPS. The FSP is effective for fiscal years beginning after December
15, 2008, and interim periods within those years. Adoption of EITF 03-6-1 is not
expected to have a material effect on the financial position or results of
operations of the Company.
In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities - an Amendment of FASB Statement 133
(“FAS 161”). This standard enhances required disclosures regarding
derivatives and hedging activities to help investors better understand how
derivative instruments and hedging activities affect an entity’s financial
position, financial performance and cash flows. Requirements under FAS 161
include disclosure of the objectives for using derivative instruments,
disclosure of the fair values of derivative instruments and their gains and
losses in a tabular format, disclosure of credit risk related features, and
cross-referencing within the footnotes of derivative-related information. FAS
161 is effective for fiscal years and interim periods beginning after November
15, 2008. Adoption of EITF 07-5 did not have a material effect on the financial
position or results of operations of the Company.
In
September 2007, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
No. 157”). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. This
statement does not require any new fair value measurements; rather, it applies
under other accounting pronouncements that require or permit fair value
measurements. The provisions of this statement are to be applied prospectively
as of the beginning of the fiscal year in which this statement is initially
applied, with any transition adjustment recognized as a cumulative-effect
adjustment to the opening balance of retained earnings. The provisions of SFAS
No. 157 are effective for the fiscal years beginning after November 15, 2007.
Adoption of SFAS 157 did not have a material impact on the Company’s financial
position, results of operations or cash flows.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities. Under the provisions of SFAS
No. 159, the Company may choose to carry many financial assets and
liabilities at fair values, with changes in fair value recognized in earnings.
Adoption of SFAS No. 159 did not have a material effect on the financial
position or results of operations of the Company..
In
December 2007, the FASB issued SFAS NO. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51”. The
objective of this Statement is to improve the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards that require the following changes. The ownership interests in
subsidiaries held by parties other than the parent be clearly identified,
labeled, and presented in the consolidated statement of financial position
within equity, but separate from the parent’s equity. The amount of consolidated
net income attributable to the parent and to the noncontrolling interest must be
clearly identified and presented on the face of the consolidated statement of
income. When a subsidiary is deconsolidated, any retained noncontrolling equity
investment in the former subsidiary is initially measured at fair value. The
gain or loss on the deconsolidation of the subsidiary is measured using the fair
value of any noncontrolling equity investment rather than the carrying amount of
that retained investment and entities provide sufficient disclosures that
clearly identify and distinguish between the interest of the parent and the
interest of the noncontrolling owners. The changes to current practice resulting
from the application of SFAS No. 160 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. The adoption of SFAS No. 160 before
December 15, 2008 is prohibited. Adoption of SFAS No. 160
is not expected to have a material effect on the
Company’s financial statements.
In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations – Revised” that improves the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its effects.
To accomplish that, this statement establishes principles and requirements how
the acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree, recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase, and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. The changes to
current practice resulting from the application of SFAS No. 141(R) are
effective for financial statements issued for fiscal years beginning after
December 15, 2008. The adoption of SFAS No. 141(R) before
December 15, 2008 is prohibited. Adoption of SFAS 141(R)
is not expected to have a material effect on the
Company’s financial statements.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
3.
|
Property
and Equipment:
|
Property
and equipment consist of the following at June 30, 2009 and 2008.
2009
|
2008
|
|||||||
Office
furniture and equipment
|
$ | 177,026 | $ | 134,406 | ||||
Capitalized
software
|
63,204 | 23,312 | ||||||
Equipment
|
636,050 | 343,699 | ||||||
Manufacturing
tooling
|
1,087,067 | 760,279 | ||||||
Leasehold
improvements
|
34,100 | 34,100 | ||||||
1,997,447 | 1,295,796 | |||||||
Less
accumulated depreciation and amortization
|
(615,559 | ) | (141,904 | ) | ||||
Property
and equipment, net
|
$ | 1,381,888 | $ | 1,153,892 |
4.
|
Impairment
of assets:
|
In June
2008 the Company completed one-half of its first 123 square meter production
level SkyNet™ Screen. The second half of this screen was completed in
July and early August 2008. The Company installed the completed
screen in Denver, Colorado near the Colorado Convention Center in August 2008
for marketing purposes. Due to nonconforming and defective parts
supplied by one of the Company’s key suppliers the Company removed the screen
and returned it to the manufacturing facility for analysis and
repair. Because of the extent of the defective components, the screen
could not be repaired for sale for outdoor use. As a result, the
Company experienced an impairment to work in progress and component inventory of
$453,397 and $9,315 for fiscal 2009, respectively and $380,266 and $3,259 for
fiscal 2008, respectively, for the defective parts of the screen and the
additional faulty components on hand at that time from the same
supplier. A portion of the screen will be used internally for
marketing demonstrations and for ongoing product integration development and
testing. Accordingly, the Company reclassified a total of $277,888 as
marketing equipment. These costs capitalized as marketing
equipment will be amortized over the expected useful life of three
years. Estimated annual amortization is expected to be approximately
$93,000. Management intends to offer the screen for sale for an
indoor application once it is no longer needed for product
demonstrations. The remaining $365,643 and the $9,315 of impaired
work in progress and component inventory for 2009, respectively, and $190,133 of
impaired work in progress and the $3,259 of impaired component inventory for
2008, respectively, were expensed to manufacturing costs in the accompanying
Statements of Operations. The impairment to inventory does not
reflect the consequential damages and other losses suffered by the Company due
to the nonconforming and defective parts provided by the supplier.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
5.
|
Notes
Payable - Related Parties:
|
During
the six months ended December 31, 2008, the Company issued $1,800,000 in 10%
demand notes to its majority shareholder, who is also a member of its Board of
Directors. Then, on November 6, 2008, the Company entered into a
Senior Secured Revolving Credit Facility (the “Credit Agreement”) with an
affiliate of the majority shareholder, DeGeorge Holdings Three LLC, a Delaware
limited liability company (“Lender”). By the Credit Agreement, the
Company established a revolving line of credit (the “Credit Facility”) with the
Lender not to exceed the aggregate amount of Six Million Eight Hundred
Ninety-Four Thousand Three Hundred Sixty-Two Dollars ($6,894,362), which
included a rollover of $1.8 million in Demand Notes issued during the six-month
period, and $700,000 in previously issued 10% Demand Notes and accrued interest
on the Demand Notes totaling $194,362. In connection with the
execution of the Credit Agreement, the Company issued a Convertible Revolving
Promissory Note in favor of the Lender dated November 6, 2008 (the “Convertible
Note”), which provides for interest at ten percent (10%) per annum based on a
365/366 day year on the outstanding balance, with interest and principal payable
on November 6, 2009 (the “Maturity Date”) or upon conversion of the Convertible
Note. If any portion of the Convertible Note is converted prior to
the Maturity Date, interest on the portion converted is payable at the time of
conversion. In the absence of conversion or acceleration of the term
of the Convertible Note, all principal, interest and other amounts owed to
Lender are due and payable on the Maturity Date. The Convertible Note
is secured by a first priority lien on all of the Company’s assets (the
“Collateral”).
Under the
terms of the Credit Agreement, the Lender may elect to convert all or any
portion of the unpaid principal owed under the Convertible Note into shares of
the Company’s Series D Preferred Stock at any time or from time-to-time at a
conversion price of $0.11 per share (the “Conversion Price”). The
Credit Agreement also provides for an anti-dilution adjustment that would cause
an adjustment to the Conversion Price, the kind of securities issuable upon
conversion, and the number of shares issuable under the Convertible
Note.
The
Lender also has the right under the Credit Agreement to accelerate payment of
all principal, interest and other amounts, if any, that are outstanding under
the Convertible Note as of July 1, 2009 (the “Performance Date”), if the Company
has not sold, delivered and executed any binding agreements with unaffiliated
third-parties for the sale of the Company’s proprietary digital display product
(SkyNet™) during the period beginning on November 6, 2008 and ending on the
Performance Date. In the event the Company does not satisfy the
foregoing performance obligation and is unable to pay such amounts outstanding
within thirty (30) days of the Performance Date, the Lender may (i) elect to
sell or seize all or any portion of the Collateral or (ii) refinance any amounts
outstanding by offering to enter into a new revolving credit facility or
installment loan agreement. The Lender also shall have the foregoing
foreclosure right if there is a continuing Event of Default (as defined in the
Credit Agreement) under the Credit Agreement, including non-payment of principal
and interest when due, and breach of the representations and warranties or
covenants contained in the Credit Agreement. During the fiscal year
ended June 30, 2009, the Company had drawn the full amount available under the
Credit Agreement.
The
Company has analyzed Statement of Financial Accounting Standards No. 133 (“FAS
133”) and Emerging Issues Task Force No.’s 00-19, 05-2 and 07-5 to determine the
proper accounting treatment of the conversion feature associated with this
Convertible Note. In accordance with EITF 00-19, the Convertible Note
does not meet the definition of a “conventional convertible debt instrument”
since the Company did not have enough shares available on a fully diluted basis
to satisfy the requirements should all outstanding options, preferred stock and
convertible debt be exercised. As a result, the Company is not exempt
from FAS 133 under paragraph 11.a. and must follow the provisions of FAS 133 and
account for this conversion feature as a derivative. Therefore, the
Company bifurcated the embedded conversion feature and accounted for it as a
derivative instrument.
During
the last quarter of fiscal 2009, the Company borrowed the remaining amount
available under the Credit Facility by way of two additional draws.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
On April
15, 2009 the Company borrowed $975,000 under the Credit
Agreement. The Company valued the conversion feature related to this
borrowing using the Black-Scholes Merton model with the following
assumptions:
·
|
Expected
term – 56% of one year
|
·
|
Volatility
– 248%
|
·
|
Annual
rate of quarterly dividends –
0%
|
·
|
Discount
rate - .34%
|
·
|
Stock
Price at Valuation Date -
$0.05
|
·
|
Conversion
Price - $0.11
|
The fair
value of the conversion feature for the loan taken on April 15, 2009 was
$221,927. The Company recorded a debt discount of $221,927 which will
be amortized over the life of the loan as additional interest
expense.
On April
30, 2009 the Company borrowed $140,000 under the Credit
Agreement. The Company valued the conversion feature related to this
borrowing using the Black-Scholes Merton model with the following
assumptions:
·
|
Expected
term – 52% of one year
|
·
|
Volatility
– 248%
|
·
|
Annual
rate of quarterly dividends –
0%
|
·
|
Discount
rate - 0.29%
|
·
|
Stock
Price at Valuation Date -
$0.08
|
·
|
Conversion
Price - $0.11
|
The fair
value of the conversion feature for the loan taken on April 30, 2009 was
$57,952. The Company recorded a debt discount of $57,952, which will
be amortized over the life of the loan as additional interest
expense.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
The
following table summarizes the draws on the Credit Agreement through June 30,
2009, including the above transactions:
Amount
of Draw
|
Conversion
Feature
|
Debt
Discount
|
Amount
Recorded as Interest expense – derivative conversion
feature
|
Amortization
of Debt Discount
|
Senior
Secured Revolving Convertible Note, net of debt discount, to related
parties
|
|||||||||||||||||||
November
6, 2008
|
$ | 2,694,362 | $ | 4,137,731 | $ | (2,694,362 | ) | $ | 1,443,369 | $ | 1,742,108 | $ | 1,742,108 | |||||||||||
November
10, 2008
|
650,000 | 723,367 | (650,000 | ) | 73,367 | 417,729 | 417,729 | |||||||||||||||||
December
21, 2008
|
650,000 | 337,775 | (337,775 | ) | - | 201,610 | 513,835 | |||||||||||||||||
January
22, 2009
|
975,000 | 560,327 | (560,327 | ) | - | 309,347 | 724,020 | |||||||||||||||||
March
5, 2009
|
810,000 | 377,989 | (377,989 | ) | - | 179,775 | 611,786 | |||||||||||||||||
April
15, 2009
|
975,000 | 221,927 | (221,927 | ) | 82,275 | 835,348 | ||||||||||||||||||
April
30, 2009
|
140,000 | 57,952 | (57,952 | ) | 18,605 | 100,653 | ||||||||||||||||||
Total
|
$ | 6,894,362 | $ | 6,417,068 | $ | (4,900,332 | ) | $ | 1,516,736 | $ | 2,951,449 | $ | 4,945,479 |
In
accordance with FAS 133, the Company is required to revalue the conversion
feature at each reporting period and record the change in value to
earnings.
The fair
value of the conversion feature for all of the amounts drawn as of June 29, 2009
was $1,499,092 on June 29, 2009, using the Black-Scholes Merton model with the
following assumptions:
·
|
Expected
term – 35% of one year
|
|
·
|
Volatility
– 248%
|
·
|
Annual
rate of quarterly dividends –
0%
|
·
|
Discount
rate - 0.29%
|
·
|
Stock
Price as Valuation Date –
$0.06
|
·
|
Conversion
Price - $0.11
|
On June
29, 2009, the Company’s shareholders voted to increase the Company’s authorized
Preferred and Common stock to 1,000,000,000 shares each, eliminating the need
for the conversion feature liability as the Company is now exempt from FAS 133
under paragraph 11.a. and no longer needs to account for the conversion feature
as a derivative. The remaining conversion feature liability of
$1,499,092 has been removed and recorded as an increase to paid in capital on
the accompanying balance sheet.
The
decrease in fair value of the conversion feature from the respective draw dates
to June 30, 2009
of $4,917,976 is recorded in the statement of operations as a change in
derivative conversion feature. For the year ended June 30, 2009 the
Company amortized $2,951,801 of debt discount related to the Credit Agreement
which is recorded as amortization of debt discount on the accompanying statement
of operations.
The
descriptions of the Credit Agreement and the Convertible Note set forth above
are qualified in their entirety by the Senior Secured Revolving Credit Agreement
and corresponding Convertible Revolving Promissory Note, both of which are
attached as exhibits to the Company’s Form 8-K filed with the Securities and
Exchange Commission on November 13, 2008.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
On May
21, 2009, the Company issued a demand note to DeGeorge Holdings Three LLC for
$950,000.
On June
15, 2009, the Company and the Lender, entered into the Amendment (“Amendment”)
to the Credit Agreement. The Amendment modified the Credit Agreement
to, among other things: (1) increase the maximum amount of revolving credit
available to $15,000,000, resulting in an additional $8,105,638 of available
credit (the “Additional Credit”), including the rollover of the $950,000 demand
note and accrued interest of $6,507; (2) extend the maturity date of the Credit
Agreement from November 6, 2009 to December 31, 2010; (3) issue a stock purchase
warrant (the “Warrant”) to the Lender for the purchase of 810,564 shares of
Series D Convertible Preferred Stock (the “Warrant Shares”); (4) enter into a
revolving note in favor of the Lender in an aggregate principal amount not to
exceed $15,000,000 (the “New Revolving Note”) and (5) make certain other
revisions. Unless otherwise changed by the Amendment, the terms of the Credit
Agreement are still in effect.
Under the
terms of the Amendment, the Lender may elect to convert all or any portion of
the unpaid principal relating to the Additional Credit and the New Revolving
Note into shares of the Company’s Series D Preferred Stock, at any time or from
time-to-time at a conversion price of $0.084 per share (the “Amendment
Conversion Price”). The Warrant grants the Lender the right to purchase 810,564
shares of Series D Convertible Preferred Stock at any time or from time-to-time
until June 15, 2013, also at the Amendment Conversion Price. The Series D
Convertible Preferred Stock converts 1-for-1 into shares of the Company’s Common
Stock. The Company recorded debt discount of $33,980 in connection
with the issuance of the Warrant using the Black Scholes pricing model and
recorded amortization of the debt discount of $352 for the fiscal year ended
June 30, 2009.
Under the
Amendment, the Lender also has the right to accelerate payment of all principal,
interest and other amounts, if any, that are outstanding under the New Revolving
Note as of July 1, 2010 (the “Performance Date”), if the Company has not sold,
delivered and executed any binding agreements with unaffiliated third-parties
for the sale of the Company’s proprietary digital display product (SkyNet™),
during the period beginning on June 15, 2009, and ending on the Performance
Date. In the event that the Company does not satisfy such performance
obligation and is unable to pay such amounts outstanding within thirty (30) days
of the Performance Date, the Lender may (i) elect to sell or seize all or any
portion of the Collateral as set out in the Credit Agreement, or (ii) refinance
any amounts outstanding by offering to enter into a new revolving credit or
installment loan agreement. The Lender shall also have the same
foreclosure right if there is a continuing event of default under the Credit
Agreement.
The
Lender is an affiliate of Lawrence F. DeGeorge, a member of the Board of
Directors of the Company and the Company’s controlling
shareholder. The Company will use the amounts borrowed under the
Credit Agreement for operating capital.
The above
summary description of the terms of the Amendment, the New Revolving Note and
the Warrant may not contain all information that is of interest. The description
of the terms of the Amendment, the New Revolving Note and the Warrant are
qualified in their entirety by reference to such agreements, which were filed
with the Company’s Form 8-K dated June 15, 2009 as Exhibits 10.1, 10.2 and
4.1, respectively, and incorporated herein by reference.
As of
June 30, 2009, the Company had borrowed an additional $2,223,507 under the
amended Credit Agreement, including the rollover of the $956,507 demand note and
accrued interest. Total borrowings under the amended Credit Agreement
at June 30, 2009 were $9,117,869, including all rollover notes and
interest..
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
As part
of the recapitalization plan described under Note 9. - 2009 Recapitalization,
below, on January 15, 2009, the holders of our Convertible Redeemable
Promissory notes agreed to convert all principal ($740,000) and accrued interest
($193,330) outstanding into shares of Series D Preferred stock at a rate of
$0.0167 per share or 55,888,021 shares. The Company had 39,539,258
additional Series D Preferred shares authorized at that time. Each of the
note holders agreed to convert a total of $660,139 of their notes in exchange
for the 39,539,258 shares of Series D Preferred stock, acknowledging that they
would receive the additional 16,358,763 for the remaining $79,861 of convertible
notes and $193,330 of accrued interest after the shareholders approved an
increase to the Company’s authorized preferred stock and the Company amended its
articles of incorporation, which was completed on June 29, 2009. The
note holders also agreed that interest on the entire principal amount of the
Convertible Redeemable Promissory Notes would cease as of January 15,
2009.
As of
June 30, 2009, the Company had $100,000 of 10% Demand Notes and $9,117,869 on
the Credit Agreement due to related parties. Accrued interest on
these notes totaled $33,000 and $348,715 at June 30, 2009,
respectively. Interest expense on all the outstanding notes for the
fiscal year ended June 30, 2009 was $454,906.
At June
30, 2008 the Company had total revolving, convertible, redeemable promissory
notes outstanding to related parties of $740,000 and total 10% demand notes
outstanding to related parties of $800,000. The revolving,
convertible, redeemable promissory notes, together with accrued interest, were
converted into shares of the Company’s Series D Convertible Preferred Stock at
$.0167 per share in June 2009. The Series D is convertible into the
Company’s Common Stock at on a one for one basis. Interest expense
for the fiscal year ended June 30, 2008 relating to these notes was
$156,567. Interest payable on these notes totaled $321,008 at June
30, 2008.
6.
|
Lease
Obligations:
|
Colorado
Lease - The Company leases office space in Centennial, Colorado on a
month-to-month basis. The Company’s current monthly rental payment
for this space is approximately $2,484, including operating
expenses.
New
Jersey Lease – The Company leases office, product demonstration and
product maintenance space in Rockaway, New Jersey. The lease is for a
five-year term beginning December 2006 and calls for monthly base lease payments
of $1,342, plus common area maintenance charges and taxes, currently at $668 and
$282 per month, respectively. The Company currently is not using this
facility and continues with plans to sublease all or a portion of this space
until such time as it is required for the Company’s business. The
Company does not currently have a sublease tenant.
California
Lease – On March 27, 2008, the Company entered into a lease for
approximately 19,360 square feet of industrial space in Temecula, California,
for a five (5) year rental term beginning April 1, 2008 and ending March 31,
2013. The facility is to be used for the manufacture of the Screens
and research and development activities. The Lease calls for a
monthly payment of $13,552 for the first year of the lease and a security
deposit of $15,253, with increased rental amounts in each year of the five year
term, commencing with $13,552 per month for the year ended March 31, 2009 and
ending with $15,253 per month for the year ending March 31, 2013. In
addition, the Company will pay a percentage of the annual rent to the Lessor’s
broker partners of between 4% and 6% per year, and the Company has provided a
separate guaranty of the Lease (the “Guaranty”).
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
The
future minimum base lease payments under these operating leases are as
follows:
Year
ending June 30, 2010
|
184,859 | |||
Year
ending June 30, 2011
|
189,922 | |||
Year
ending June 30, 2012
|
185,745 | |||
Year
ending June 30, 2013
|
137,276 | |||
Total
minimum lease payments
|
$ | 697,802 |
Total
rental expense was $238,099 and $100,970 for the years ended June 30, 2009 and
2008, respectively.
Equipment
Leases – The Company leases equipment under lease obligations, which have
been classified as capital leases, expiring through
2014. Accordingly, the present value of future minimum lease payments
under such leases and corresponding liabilities have been recorded as equipment
under capital lease obligations, net of amortization (computed over the
estimated useful lives of the assets), and obligations under capital leases,
respectively. As of June 30, 2009, the Company has recorded equipment
under capital leases valued at $44,606 and corresponding accumulated
amortization of $17,762.
The
future minimum lease payments under capital lease obligations together with the
present value of the net minimum lease payments included in other current
liabilities as of June 30, 2009 are as follows:
Year
ending June 30, 2010
|
7,541 | |||
Year
ending June 30, 2011
|
6,420 | |||
Year
ending June 30, 2012
|
5,247 | |||
Year
ending June 30, 2013
|
5,247 | |||
Year
ending June 30, 2014
|
5,826 | |||
Net
minimum lease payments
|
30,281 | |||
Less
amount representing interest
|
3,204 | |||
Present
value of net minimum lease payments
|
27,077 | |||
Less
current portion
|
6,145 | |||
Long-Term
Capital Lease Obligations
|
$ | 20,932 |
Interest
expense on capital lease obligations for the years ended June 30, 2009 and 2008
was $1,802 and $954, respectively. Amortization expense on capital
leased equipment for the years ended June 30, 2009 and 2008 was $5,566 and
$4,241, respectively.
7.
|
Equity
Incentive Plan:
|
In
December 2006, the Company’s Board of Directors amended and readopted the 1997
Equity Incentive Plan and renamed it as the 2007 Equity Incentive Plan (the
“2007 Plan”) which was approved by the Company’s shareholders. The
purposes of the Plan are to provide those who are selected for participation in
the Plan with added incentives to continue in the long-term service of the
Company and to provide a financial incentive that will help the Company attract,
retain, and motivate the most qualified employees and
consultants. The 2007 Plan provides for an aggregate of twenty-five
million (25,000,000) shares of the Company’s common stock (“Common Stock”) to be
available for issuance upon the exercise of options granted under the 2007
Plan. The 2007 Plan will be terminated no later than July 31,
2017.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
The 2007
Plan authorizes the Compensation Committee to grant to participants in the Plan
(i) stock options (which may be non-qualified options, or, for employees,
incentive stock options (“ISOs”)), (ii) stock appreciation rights (“SARS”)
(which may be issued in tandem with stock options), (iii) restricted stock
grants (either an outright grant of stock or a grant of stock subject to and
conditioned upon employment or performance related goals), and (iv) stock units
(which means a measurement component equal to the fair market value of one share
of stock on the date for which a determination is made pursuant to the
provisions of the 2007 Plan) (collectively “Awards”). All of the
Company’s employees and all of the Company’s directors are eligible for grants
of awards under the terms of the 2007 Plan.
A summary
of stock option activity is as follows:
2009
|
2008
|
|||||||||||||||
Number
of Shares
|
Weighted
Average
Exercise
Price
|
Number
of Shares
|
Weighted
Average
Exercise
Price
|
|||||||||||||
Outstanding,
beginning of year
|
7,500,000 | (1) | $ | 0.11 | 1,700,000 | (2) | $ | 0.07 | ||||||||
Granted
|
– | $ | – | 7,500,000 | (1) | $ | 0.11 | |||||||||
Exercised
|
– | $ | – | – | $ | – | ||||||||||
Canceled
or expired
|
(1,000,000 | )(2) | $ | 0.11 | (1,700,000 | )(2) | $ | 0.07 | ||||||||
Outstanding,
end of year
|
6,500,000 | (3) | $ | 0.11 | 7,500,000 | (1) | $ | 0.11 | ||||||||
Exercisable,
end of year
|
3,221,875 | (4) | $ | 0.11 | 1,796,875 | (5) | $ | 0.11 |
(1)
|
3,500,000
are non-qualified options.
|
(2)
|
Non-qualified
options.
|
(3)
|
2,500,000
are non-qualified options.
|
(4)
|
1,250,000
are non-qualified options.
|
(5)
|
875,000
are non-qualified options.
|
The
weighted average remaining contractual life of compensatory options outstanding
is 8.16 years at June 30, 2009.
On August
15, 2007, the Compensation Committee approved the grant of 6,750,000 options to
officers, employees and consultants. The options vest quarterly over
16 quarters beginning September 30, 2007, are exercisable at $0.11 per share and
expire August 15, 2017. Of these options, 1,000,000 expired during
January 2009.
The fair
value of these options was estimated to be $668,443 at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 4.71%; dividend yields
of 0%; volatility factors of the expected market price of the Company’s common
shares of 159%; and a weighted average expected life of the option
of 10 years.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
On
December 21, 2007, the Compensation Committee of the Board of Directors granted
750,000 stock options to new employees. All of the options are
exercisable at $0.14 per share and will expire on December 20,
2017. 550,000 of the options will vest at the end of each fiscal
quarter over 16 quarters, with 250,000 beginning to vest on December 31, 2007,
and 300,000 beginning to vest on March 31, 2008. The vesting of the
remaining 200,000 options depends on the employee’s successful achievement of
specific performance metrics over 8 quarters beginning with the quarter ending
September 30, 2008.
The fair
value of these options was estimated to be $95,982 at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 4.18%; dividend yields
of 0%; volatility factors of the expected market price of the Company’s common
shares of 149%; and a weighted average expected life of the option
of ten years.
During
the fiscal years ended June 30, 2009 and 2008, 1,758,334 and 2,156,875 of total
options vested resulting in compensation expense of $181,004 and $192,835,
respectively. As of June 30, 2009, 3,278,125 of the outstanding
options are not vested with an estimated remaining value of $372,687 and a
weighted average vesting life of 1.13 years.
At June
30, 2009 2,875,000 of these options were exercisable at an exercise price of
$.11 and will expire in August 2017 if not previously exercised, and 346,875
were exercisable at an exercise price of $.14 and will expire in December 2017
if not previously exercised.
At June
30, 2009 there were 18,020,000 shares available to be issued under the 2007
plan.
8.
|
Warrants
|
On June
15, 2009, in connection with the Amendment, the Company issued warrants to
purchase 810,564 shares of Series D Preferred Stock at an exercise price of
$0.084 per share, exercisable at any time and expiring on June 15,
2013. See Note 5, Notes Payable – Related Parties.
9.
|
2009
Recapitalization
|
On August
20, 2008, the Company’s Board of Directors approved a recapitalization plan
proposed by a special committee of the Board of Directors (the “Special
Committee”) that had previously been appointed by the Board to study the
Company’s capital structure and to make recommendations for its
simplification. The Special Committee consisted of one director,
James P. Martindale, the Company’s Executive Vice President – Manufacturing and
Chief Operating Officer.
The
recapitalization recommended by the Special Committee called for first proposing
a number of voluntary transactions to the holders of various series of the
Company’s Preferred Stock, followed by Board of Directors and shareholder action
to effect the remainder of the recapitalization by amendments to the Company’s
Articles of Incorporation. In particular, it was recommended that all
outstanding shares of Series E and Series F Preferred Stock be exchanged for
Common Stock at a rate of $1.00 in original purchase price per common share, on
an all or nothing basis. The effectiveness of these voluntary
exchanges would be conditioned upon the occurrence of the additional
transactions in the Company’s Preferred Stock included as part of the
recapitalization proposed by the Special Committee, namely: (a) all outstanding
promissory notes that, by their terms, are convertible to Series D Preferred
Stock (the “Series D Notes”) would be converted to Series D stock at the
conversion price of $0.0167 per share, again on an all or nothing basis; (b) all
outstanding shares of Series G would be voluntarily exchanged for shares of
Series D based on the underlying numbers of shares of Common Stock into which
the Series G were convertible, so that every Share of Series G would be
converted to 1,000 shares of Series D; and (c) the Series D shares issued upon
conversion of the Series G shares would retain their existing aggregate
liquidation preference, which was based on the original purchase prices, ranging
from $0.0167 to $0.11 per common stock equivalent, of the Series G shares
converted. If all of these steps were to be successfully completed,
each of which would be dependent on the successful completion of the others, the
Company would have only two classes of capital stock outstanding: the Common
Stock and the Series D Preferred Stock.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
The
recapitalization proposed by the Special Committee and approved by the Board
included a number of voluntary transactions by the Company’s existing
shareholders and noteholders, including the voluntary Series D Note
conversions and the exchanges of Series E, F and G Preferred Stock, which did
not, by their terms, require shareholder approval. Nevertheless, the
Board determined that, in addition to obtaining shareholder approval of the
various amendments to the Company’s Articles of Incorporation needed to
accommodate the conversions and exchanges, the Board would also seek shareholder
ratification of the various voluntary conversions and exchanges and their
respective terms. Since the various amendments to the Articles, such
as increasing the number of authorized shares of Common Stock, Preferred Stock
and Series D Preferred Stock and conforming the rights and preferences of the
Series D to the addition of the Series G shares converted to Series D, would
require shareholder approval, the Board deemed it reasonable and appropriate to
obtain such ratifications at the same shareholders meeting.
The
Special Committee also recommended, and the Board approved, a proposal that,
after the completion of these conversions, exchanges and amendments, the Company
effect a reverse stock split of between 1 for 10 and 1 for 20, with the Board
retaining the discretion, after shareholder approval, to choose the timing and
the final amount of the split, or even to abandon the split
entirely. The Board also approved the Special Committee’s
recommendation to seek shareholder ratification of the Company’s agreement with
its majority shareholder and member of its Board of Directors, concerning an
additional investment in the Company, and therefore sought ratification of the
$6.9 million convertible loan by the majority shareholder to the Company,
secured by all of the Company’s assets.
The
Company subsequently obtained the agreement of the various holders of Series D
Notes, and Series E, F and G Preferred Stock to the voluntary conversions and
exchanges proposed in the recapitalization plan.
At the
Company’s Annual Meeting of Shareholders held on June 29, 2009, the shareholders
approved the following proposals with respect to the Company’s
stock:
|
(a)
|
To
increase the Company’s authorized Common Stock from 175,000,000 shares to
1,000,000,000;
|
|
(b)
|
To
increase the Company’s authorized preferred stock from 130,000,000 shares
to 1,000,000,000 shares;
|
|
(c)
|
To
increase the authorized shares of Series D Preferred stock from 70,100,000
shares to 500,000,000 shares;
|
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
|
(d)
|
To
ratify the conversion of all of the Company’s revolving 10% Convertible,
Redeemable Promissory Notes into 55,888,021 shares of Series D Preferred
Stock;
|
|
(e)
|
To
ratify the exchange of all outstanding shares of the Company’s Series E
Preferred Stock for 1,267,531 shares of the Company’s Common
Stock;
|
|
(f)
|
To
ratify the exchange of all outstanding shares of the Company’s Series F
Preferred Stock for 4,549,015 shares of the Company’s Common
Stock;
|
|
(g)
|
To
ratify the exchange of all of the Company’s Series G Preferred Stock for
90,544,000 shares of the Company’s Series D Preferred
Stock.
|
|
(h)
|
To
approve an amendment to the Company’s Articles of Incorporation to amend
the terms of the Series D Preferred Stock, in light of the exchange of the
Series G Preferred Stock;
|
(i)
|
To
eliminate the Series E, F and G classes of Preferred
Stock.
|
10.
|
Stockholders’
Equity (Deficit)
|
Preferred
Stock – June 30, 2009
Following
the actions by the Company’s shareholders as described in Note 9 . 2009
Recapitalization, the Company has the authority to issue
1,000,000,000 shares of preferred stock. The Board of Directors
has the authority to issue such preferred shares in series and determine the
rights and preferences of the shares.
Series D
Preferred
As of
June 30, 2009, the Company had 500,000,000 shares of Series D Preferred stock
authorized and 177,002,763 shares issued and outstanding.
Holders
of Series D Preferred have one vote per share and vote with the holders of
Common Stock on all matters and have class voting rights where required by
law. The Series D Preferred is convertible into a number of shares of
Common Stock, equal to the applicable Liquidation Amount (as defined) divided by
the then applicable Conversion Price (as defined), at any time, or from time to
time, at the election of the holder. The Liquidation Amount shall be
equal to the purchase price paid to the Corporation for the share of Series D
Preferred Stock at the time of its issuance by the Corporation, provided,
however, that for any shares of Series D Preferred Stock issued by the
Corporation in exchange for shares of Series G Preferred Stock, the Liquidation
Amount per Exchange Share shall be equal to the total amount originally paid to
the Corporation for issuance of all of the shares of Series G Preferred Stock
being exchanged for Exchange Shares, divided by the total number of Exchange
Shares then issued, in each case as it may be subsequently adjusted for stock
splits, dividends, combinations or other recapitalization of the Series D
Preferred Stock. The initial conversion price per share of the Series D
Preferred Stock (the “Conversion Price”) shall be equal to the purchase price
paid to the Corporation for the share of Series D Preferred Stock at the time of
its issuance by the Corporation, provided, however, that for any shares of
Series D Preferred Stock issued by the Corporation in exchange for shares of
Series G Preferred Stock (the “Exchange Shares”), the Conversion Price per
Exchange Share shall be equal to the total amount originally paid to the
Corporation for issuance of all of the shares of Series G Preferred Stock being
exchanged for Exchange Shares, divided by the total number of Exchange Shares
then issued; in each case as it may be subsequently adjusted for stock splits,
dividends, combinations or other recapitalization of the Series D Preferred
Stock, and as subject to adjustment as provided in subsection 6.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
The
Series D Preferred Stock ranks, as to dividends, rights upon liquidation,
dissolution or winding up, senior and prior to the Common
Stock. Future issuances of preferred stock maybe on parity with, but
may not be senior to, the Series D Preferred Stock with respect to
dividends, rights upon liquidation, dissolution, winding up or otherwise;
provided, however, that one or more future issuances of preferred stock which
provides for greater rights for such preferred stock with respect to dividends,
rights upon liquidation, dissolution, winding up or otherwise but only to the
extent that the greater amount of such preferential right is directly
proportional to, and reflective of, a higher cash purchase price paid by the
purchasers of such additional preferred stock (after accounting for conversion
ratios, stock splits, stock dividends, recapitalizations and similar
transactions), shall be considered to be in parity with, and not senior to, the
Series D Preferred Stock
The
Series D Preferred does not earn any dividend and the holders of Series D
Preferred are entitled to dividends only if and when declared by the Board of
Directors.
Finally,
holders of 29,500,000 shares Series D Preferred have been granted demand
registration rights for the underlying shares of Common Stock and the right to
“piggy back” on registrations that the Company initiates, subject to customary
limitations.
Preferred Stock – June 30,
2008
Prior
to the recapitalization described above, the Company had the authority to issue
130,000,000 shares of preferred stock. The Board of Directors
has the authority to issue such preferred shares in series and determine the
rights and preferences of the shares.
Series D
Preferred. The Company had 30,570,742 shares of Series D
Preferred stock outstanding at June 30, 2008.
Holders
of Series D Preferred had one vote per share and voted with the holders of
Common Stock on all matters and had class voting rights where required by
law. The Series D Preferred was convertible into shares of Common
Stock, on a one for one basis, at the election of the holder thereof at an
initial conversion rate of $0.0167 per share. The conversion rate
would be adjusted in the event of a merger, stock split, stock combination, or
stock dividend.
As of
June 30, 2008, the Series D Preferred was the most senior liquidation preference
of all of the Company’s capital stock along with the Series G Preferred (see
below). In the event of any liquidation, dissolution or winding up of
the Company, either voluntarily or involuntarily, or a sale of the Company, the
holders of the Series D Preferred would be entitled to receive, after due
payment or provision for payment for the debts and other liabilities of the
Company, a liquidating distribution before any distribution may have been made
to holders of any other capital stock, in an amount equal to the greater of (a)
the stated value of the shares of Series D Preferred plus any accrued and unpaid
dividends or (b) the amount that would be paid to the holders of Series D
Preferred on an “as converted” basis.
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
The
Series D Preferred did not earn any dividend; rather, like the Common Stock, the
holders of Series D Preferred were entitled to dividends only if and when
declared by the Board of Directors.
Finally,
the holders of Series D Preferred had been granted demand registration rights
for the underlying shares of Common Stock and the right to “piggy back” on
registrations that the Company initiated, subject to customary
limitations. In addition, in order to protect potential tax benefits
of the Company, the holders of Series D Preferred had agreed not to transfer
their Series D Preferred (or Common Stock received upon conversion) without the
Company’s permission.
Series E
Preferred. The Company had 1,008,985 shares Series E Preferred
stock outstanding at June 30, 2008. The Series E Preferred had no
voting rights except for those required by law.
The
Series E Preferred was entitled to a 5% dividend based on the $1,008,985
purchase price of the Series E Preferred. This was a mandatory
dividend, which may not be increased or decreased, and automatically cumulated
on December 31st of each year even if not declared by the Company’s Board of
Directors. The Series E Preferred was not convertible into any other
series or class of the Company’s capital stock. Upon liquidation of
the Company, the Series E Preferred would have been junior to the Series D
Preferred (described above), but senior to all of the Company’s other capital
stock.
The
Company had the option, but not the obligation, to redeem any or all of the
shares of Series E Preferred at any time beginning three years from the date of
issuance. The redemption price was the stated value per share plus
accrued but unpaid dividends.
Series F
Preferred. The Company had 4,549,015 shares of Series F
Preferred stock outstanding at June 30, 2008. Like the Series E
Preferred, the Series F Preferred had no voting rights except as required by
law, had no conversion rights, and was redeemable by the Company at a stated
value at any time beginning three years from the date of
issuance. Unlike the Series E Preferred, however, the Series F
Preferred had no rights to dividends. Furthermore, the Series F
Preferred was junior to the Series D Preferred and Series E Preferred, but
senior to the Company’s Common Stock, upon liquidation.
Series G
Preferred. The Company had 90,544 shares of Series G Preferred
stock outstanding at June 30, 2008. During fiscal 2008, a director
and shareholder of the Company purchased 13,475 and 36,364 shares of
Series G Preferred Stock at a price of $90.00 and $110.00 per share,
respectively, for total proceeds of $1,212,750 and $4,000,000,
respectively.
Holders
of Series G Preferred were entitled to the number of votes equal to the number
of whole shares of Common Stock into which the shares of Series G Preferred
Stock were convertible, vote with the holders of Common Stock on all matters and
had class voting rights where required by law. The Series G Preferred
Stock was convertible into shares of Common Stock at a rate of 1,000 shares of
Common Stock for one share of Series G. The conversion rate would be
adjusted in the event of a merger, stock split, stock combination, or stock
dividend.
The
Series G Preferred had the most senior liquidation preference of all of the
Company’s capital stock, in parity with the Series D Preferred
Stock. In the event of any liquidation, dissolution or winding up of
the Company, either voluntarily or involuntarily, or a sale of the Company, the
holders of the Series G Preferred were entitled to receive, after due payment or
provision for payment of the debts and other liabilities of the Company, a
liquidating distribution pro-rata with the Series D Preferred before any
distribution may be made to holders of any other capital stock, in an amount
equal to the greater of (a) the stated value of the shares of Series G
Preferred, or (b) the amount that would be paid to the holders of Series G
Preferred on an “as converted” basis. The Series G Preferred did not
earn and was not entitled to payment of any dividends.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
Common
Stock. – The Company had 32,014,723 and 26,198,177 shares of Common Stock
outstanding at June 30, 2009 and 2008, respectively. At the Company’s
Annual Meeting of Shareholders held on June 29, 2009, the shareholders approved
a proposal to increase the Company’s authorized Common Stock from 175,000,000
shares to 1,000,000,000 shares.
11.
|
Income
Taxes:
|
A
long-term deferred tax asset totaling approximately $8,879,000 is primarily the
result of the Company’s net operating loss carryforward, which the Company has
fully reserved through a valuation allowance as the result of a determination by
management that it is more likely that a tax benefit will not be realized than
it is that such a tax benefit will be realized. If and to the extent
that the Company does generate taxable income before the expiration of the
remaining loss carryforwards, however, the Company would realize a tax benefit
therefrom. This valuation allowance increased by approximately
$1,861,000 during 2009 primarily as a result of the increase in net operating
loss carryforward due to the current year operating loss as decreased by the
expiration of net operating losses.
The
Company has had no taxable income under Federal or state
laws. Therefore, no provision for income taxes was included in net
loss.
The
components of deferred income tax (benefit) are as follows:
2009
|
2008
|
|||||||
Deferred
tax asset:
|
||||||||
Net
operating losses
|
$ | 8,879,000 | $ | 7,010,000 | ||||
Valuation
allowance
|
(8,879,000 | ) | (7,010,000 | ) | ||||
Total
|
$ | -- | $ | -- |
Reconciliation
between the amount of reported income tax benefit and the amount computed by
multiplying the applicable statutory Federal income tax rate is as follows at
June 30:
2009
|
2008
|
|||||||
Computed
expected tax benefit
|
$ | 2,061,000 | $ | 1,984,000 | ||||
(Increase)
decrease in tax benefit (expense) resulting from:
|
||||||||
Expiration
of NOL
|
(200,000 | ) | (209,000 | ) | ||||
(Increase)
reduction in valuation allowance related to net operating loss
carryforwards and change in temporary differences
|
(1,861,000 | ) | (1,775,000 | ) | ||||
Other
|
- | - | ||||||
$ | – | $ | – |
ADVANCE
DISPLAY TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009 AND 2008
As of
June 30, 2009-, the Company has accumulated net operating loss
carryforwards of approximately $24,397,000. However, utilization of
these net operating loss carryforwards is significantly dependent on the
Company’s ability to generate future taxable income which is
uncertain. Any future tax benefit may be further limited due to a
change in control in the Company’s ownership as defined by the Internal Revenue
Code, Section 382. Due to these factors, the Company is not currently
able to ascertain the amount of tax benefit that will be realized in future
periods, if any. These amounts expire periodically through 2028 if
not utilized sooner.
12.
|
Subsequent
Events:
|
The
Company has evaluated events and transactions that occurred between July 1, 2009
and October 8, 2009, which is the date the financial statements were issued for
possible disclosure or recognition in the financial statements. The Company has
determined that the following events and transactions required disclosure in the
footnotes to the financial statements.
On July
7, 2009, the Company paid interest of $316,452 to the Lender under the Credit
Facility.
On July
20, 2009, the Company appointed Gregory L. Heacock as the Company’s Vice
President of Research and Development and Chief Technology Officer
On August
20, 2009, the Company received a draw on the Credit Facility of
$950,000.
On
October 2, 2009, the Company received a draw on the Credit Facility of
$950,000.
F-36