UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-Q


(Mark
One)





T
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
Quarter Ended September 30, 2009





£
            TRANSITION
      REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT





For the
transition period from ____________ to ____________





Commission
file number:  0-15224





Advance
      Display Technologies, Inc.(Exact
      name of registrant as specified in its charter)





Colorado
            
            84-0969445(State
      of incorporation)
            
            (IRS
      Employer ID number)





7334 South Alton Way, Suite F, Centennial, CO
      80112(Address
      of principal executive offices)  (Zip Code)





(303) 267-0111(Issuer’s
      telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


YES  T     NO  £





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, 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  £     NO  £





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 the definitions of “larger accelerated filer,”
“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





Large
      accelerated filer
            £
            
            Accelerated
      filer
            £Non-accelerated
      filer
            £
            
            Smaller
      reporting company
            T





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


YES  £     NO  T





As of
November 20, 2009, there were 32,014,723 shares of the registrant’s common stock
outstanding.










ADVANCEDISPLAY TECHNOLOGIES, INC.





INDEX





PART
I.  FINANCIAL INFORMATION





PageItem
      1.
            Financial
      StatementsConsolidated
      Balance Sheets -September 30, 2009 (unaudited) and June 30,
      2009
            1Consolidated Statements of Operations
      (unaudited)Three months ended September 30, 2009 and 2008 and for
      theperiod from March 15, 1995, inception, to September 30,
      2009
            2Consolidated Statements of Cash Flows
      (unaudited)Three months ended September 30, 2009 and 2008 and for
      theperiod from March 15, 1995, inception, to September 30,
      2009
            3Notes to Consolidated Financial Statements
      (unaudited)
            5Item
      2.
            Management’s Discussion and Analysis of Financial
      Conditionand Results of Operations
            10Item
      3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            16Item
      4.
            Controls and Procedures
            16PART
      II.  OTHER INFORMATIONItem
      1.
            Legal Proceedings
            17Item
      1A.
            Risk Factors
            17Item
      2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            17Item
      3.
            Defaults Upon Senior Securities
            17Item
      4.
            Submission of Matters to a Vote of Security
      Holders
            17Item
      5.
            Other Information
            18Item
      6.
            Exhibits
            18Signatures


Index




Item
1.


ADVANCE DISPLAY TECHNOLOGIES, INC.


(A
Development Stage Company)


CONSOLIDATED
BALANCE SHEETS





September 30,
              2009
            
            
            June 30,
              2009(Unaudited)ASSETSCurrent
      Assets:Cash
            
            $
            135,970
            
            
            $
            1,320,358Component
      inventory, net of reserve for obsolescence
            
            
            527,236
            
            
            
            429,350Work
      in progress inventory
            
            
            1,795,481
            
            
            
            1,624,001Finished
      Goods inventory
            
            
            619,342
            
            
            
            531,685Vendor
      deposits
            
            
            42,898
            
            
            
            29,775Other
      current assets
            
            
            75,635
            
            
            
            54,893Total
      current assets
            
            
            3,196,562
            
            
            
            3,990,062Property
      and Equipment, Net
            
            
            1,146,114
            
            
            
            1,381,888Deferred
      Manufacturing Costs, Net
            
            
            300,202
            
            
            
            344,134Deposits
            
            
            31,353
            
            
            
            31,353Total
      Assets
            
            $
            4,674,231
            
            
            $
            5,747,437LIABILITIES AND STOCKHOLDERS’ EQUITY
      (DEFICIT)Current
      Liabilities:Accounts
      payableTrade
            
            $
            514,423
            
            
            $
            551,732Related
      party
            
            
            73,603
            
            
            
            62,979Senior
      secured revolving convertible note, net of debt discount, to related
      parties
            
            
            9,477,010
            
            
            
            7,135,357Demand
      notes to related parties
            
            
            100,000
            
            
            
            100,000Accrued
      interest payable to related parties
            
            
            308,310
            
            
            
            381,715Other
      accrued liabilities
            
            
            64,618
            
            
            
            95,913Total
      current liabilities
            
            
            10,537,964
            
            
            
            8,327,696Long-term
      obligations, less current maturities
            
            
            31,343
            
            
            
            32,281Total
      liabilities
            
            
            10,569,307
            
            
            
            8,359,977COMMITMENTS
      AND CONTINGENCIESStockholders’ Equity
      (Deficit):Preferred
      Series D stock, $.001 par value, 500,000,000 shares authorized,
      177,002,763 shares issued and outstanding.
            
            
            177,003
            
            
            
            177,003Common
      stock, $.001 par value,1,000,000,000 shares authorized, 32,014,723 issued
      and outstanding
            
            
            32,015
            
            
            
            32,015Additional
      paid-in capital
            
            
            23,250,290
            
            
            
            23,201,490Deficit
      accumulated during the development stage
            
            
            (29,354,384
            )
            
            
            (26,023,048
            )Total
      stockholders’ equity (deficit)
            
            
            (5,895,076
            )
            
            
            (2,612,540
            )Total
      Liabilities and Stockholders’ Equity (Deficit)
            
            $
            4,674,231
            
            
            $
            5,747,437





(See
accompanying notes to consolidated, unaudited financial
statements)


1
 Index


ADVANCE DISPLAY TECHNOLOGIES, INC.


(A
Development Stage Company)


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)





Three Months Ended
              September 30,
            
            
            March 15, 1995
              (Inception)
              Through
              September 30,2009
            
            
            2008
            
            
            2009Consulting
      Revenue
            
            $
            ---
            
            
            $
            ---
            
            
            $
            91,014Other
      Income:Related
      party interest income
            
            
            ---
            
            
            
            ---
            
            
            
            162,761Other
      interest income
            
            
            407
            
            
            
            430
            
            
            
            30,900Settlement
      Income
            
            
            ---
            
            
            
            ---
            
            
            
            463,179Other
            
            
            ---
            
            
            
            ---
            
            
            
            550Total
      revenue and other income
            
            
            407
            
            
            
            430
            
            
            
            748,404Costs
      and Expenses:Cost
      of consulting revenue
            
            
            ---
            
            
            
            ---
            
            
            
            93,648Manufacturing
      operations
            
            
            554,253
            
            
            
            754,507
            
            
            
            3,446,984General
      and administrative
            
            
            488,333
            
            
            
            476,409
            
            
            
            9,389,196Marketing
            
            
            360,090
            
            
            
            289,260
            
            
            
            2,025,013Research
      and development
            
            
            288,755
            
            
            
            70,275
            
            
            
            9,017,601Impairment
      of intangible assets
            
            
            ---
            
            
            
            ---
            
            
            
            451,492Interest
      expense – related party
            
            
            243,047
            
            
            
            49,411
            
            
            
            4,707,641Total
      costs and expenses
            
            
            1,934,478
            
            
            
            1,639,862
            
            
            
            29,131,575Operating
      Loss:
            
            
            (1,934,071
            )
            
            
            (1,639,432
            )
            
            
            (28,383,171
            )Other
      Income and (Expense):Changes
      in derivative conversion feature
            
            
            ---
            
            
            
            ---
            
            
            
            4,917,976Interest
      expense – derivative conversion feature
            
            
            ---
            
            
            
            ---
            
            
            
            (1,516,736
            )Amortization
      of debt discount
            
            
            (1,397,265
            )
            
            
            ---
            
            
            
            (4,349,066
            )Total
      other income and expense
            
            
            (1,397,265
            )
            
            
            ---
            
            
            
            (947,826
            )Loss
      Before Discontinued Operations and Extraordinary Gain
            
            $
            (3,331,336
            )
            
            $
            (1,639,432
            )
            
            $
            (29,330,997
            )Loss
      from discontinued operations
            
            
            ---
            
            
            
            ---
            
            
            
            (202,278
            )Gain
      on disposal of discontinued operations
            
            
            ---
            
            
            
            ---
            
            
            
            108,652Loss
      Before Extraordinary Gain
            
            $
            (3,331,336
            )
            
            $
            (1,639,432
            )
            
            $
            (29,424,623
            )extraordinary
      gain due to forgiveness of debt
            
            
            ---
            
            
            
            ---
            
            
            
            328,785NET
      LOSS
            
            $
            (3,331,336
            )
            
            $
            (1,639,432
            )
            
            $
            (29,095,838
            )Accrued
      Preferred Series E Dividend
            
            
            ---
            
            
            
            (12,612
            )
            
            
            (258,546
            )Net
      Loss Applicable to Common Shareholders
            
            $
            (3,331,336
            )
            
            $
            (1,652,044
            )
            
            $
            (29,354,384
            )net loss per common
      share  (Basic and
      Dilutive):
            
            $
            (.10
            )
            
            $
            (.06
            )Weighted
      Average Number of Common Shares Outstanding
            
            
            32,014,723
            
            
            
            26,198,177





(See
accompanying notes to consolidated, unaudited financial
statements)


2
 Index


ADVANCE DISPLAY TECHNOLOGIES, INC.


(A
Development Stage Company)


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)





Three
      Months Ended
              September 30,
            
            
            March 15, 1995
              (Inception)
              Through
              September 30,2009
            
            
            2008
            
            
            2009Cash
      Flows from Operating Activities:Net
      (Loss)
            
            $
            (3,331,336
            )
            
            $
            (1,639,432
            )
            
            $
            (29,095,838
            )Adjustments
      to reconcile net (loss)to net cash
      used in operating activities:Loss
      from discontinued operations
            
            
            ---
            
            
            
            ---
            
            
            
            202,278Gain
      on disposition of discontinued operations
            
            
            ---
            
            
            
            ---
            
            
            
            (108,652
            )Gain
      on debt forgiven
            
            
            ---
            
            
            
            ---
            
            
            
            (496,777
            )Acquired
      research and development expense
            
            
            ---
            
            
            
            ---
            
            
            
            2,536,494Reserve
      for inventory obsolescence
            
            
            30,954
            
            
            
            ---
            
            
            
            254,030Impairment
      of intangibles
            
            
            ---
            
            
            
            ---
            
            
            
            451,492Impairment
      of assets
            
            
            164,706
            
            
            
            374,957
            
            
            
            920,036Depreciation
      and amortization of property and equipment
            
            
            176,655
            
            
            
            160,541
            
            
            
            1,247,822Amortization
      of deferred merger costs
            
            
            ---
            
            
            
            ---
            
            
            
            75,000Stock
      and stock option compensation expense
            
            
            43,188
            
            
            
            49,377
            
            
            
            673,334Interest
      expense related to debt discount
            
            
            1,397,265
            
            
            
            ---
            
            
            
            6,242,638Interest
      expense related to derivative conversion feature on debt
            
            
            ---
            
            
            
            ---
            
            
            
            1,516,736Change
      in derivative conversion feature
            
            
            ---
            
            
            
            ---
            
            
            
            (4,917,976
            )Loss
      on sale of property and equipment
            
            
            ---
            
            
            
            ---
            
            
            
            8,765(Increase)  decrease
      in:Inventory
            
            
            (387,977
            )
            
            
            (
      558,848
            )
            
            
            (3,890,390
            )Vendor
      deposits
            
            
            (13,123
            )
            
            
            29,300
            
            
            
            (42,898
            )Other
      current assets
            
            
            (20,742
            )
            
            
            8,476
            
            
            
            (132,120
            )(Decrease)  increase
      in:Accounts
      payable
            
            
            (26,685
            )
            
            
            (430,784
            )
            
            
            550,327Accrued
      interest payable to shareholders
            
            
            (73,405
            )
            
            
            49,411
            
            
            
            2,424,664Other
      accrued liabilities
            
            
            (30,745
            )
            
            
            (16,973
            )
            
            
            (105,204
            )Net
      cash used in operating activities
            
            
            (2,071,245
            )
            
            
            (1,973,975
            )
            
            
            (21,686,239
            )Cash
      Flows from (to) Investing Activities:Purchases
      of property and equipment
            
            
            (61,655
            )
            
            
            (336,577
            )
            
            
            (2,183,277
            )Proceeds
      from sale of property and equipment
            
            
            ---
            
            
            
            ---
            
            
            
            17,030Long-term
      deposits
            
            
            ---
            
            
            
            ---
            
            
            
            (31,353
            )Deferred
      manufacturing costs
            
            
            ---
            
            
            
            (112,630
            )
            
            
            (525,598
            )Advances
      to affiliates
            
            
            ---
            
            
            
            ---
            
            
            
            (932,925
            )Purchase
      of notes receivable and security interest
            
            
            ---
            
            
            
            ---
            
            
            
            (225,000
            )Cash
      received in acquisition
            
            
            ---
            
            
            
            ---
            
            
            
            303,812Net
      cash used in investing activities
            
            
            (61,655
            )
            
            
            (449,207
            )
            
            
            (3,577,311
            )Cash
      Flows from (to) Financing Activities:Proceeds
      from stock sales
            
            
            ---
            
            
            
            ---
            
            
            
            9,505,877Proceeds
      from exercise of options
            
            
            ---
            
            
            
            ---
            
            
            
            14,400Proceeds
      from notes payable to shareholders
            
            
            950,000
            
            
            
            1,300,000
            
            
            
            15,596,754Proceeds
      from line-of-credit
            
            
            ---
            
            
            
            ---
            
            
            
            299,505Principal
      payments on leased equipment
            
            
            (1,488
            )
            
            
            (1,282
            )
            
            
            (17,016
            )Net
      cash provided by financing activities
            
            
            948,512
            
            
            
            1,298,718
            
            
            
            25,399,520Increase
      (decrease) in cash
            
            
            (1,184,388
            )
            
            
            (1,124,464
            )
            
            
            135,970Cash and cash
      equivalents,Beginning of Period
            
            
            1,320,358
            
            
            
            1,271,364
            
            
            
            ---Cash and cash
      equivalents,End of Period
            
            $
            135,970
            
            
            $
            146,900
            
            
            $
            135,970





(See
accompanying notes to consolidated, unaudited financial
statements)


3
 Index


ADVANCE
DISPLAY TECHNOLOGIES, INC.


(A
Development Stage Company)


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)


(Continued)





Three Months Ended
              September 30,
            
            
            March 15, 1995
              (Inception)
              Through
              September 30,2009
            
            
            2008
            
            
            2009Supplemental
      Disclosure of Cash Flow Information:Cash
      paid for:Interest
            
            $
            316,452
            
            
            $
            ---
            
            
            $
            343,022Non-cash
      transactions:Issuance
      of common stock for acquisition of Display Group, LLC and Display Optics,
      Ltd. and conversion of convertible debt
            
            $
            ---
            
            
            $
            ---
            
            
            $
            2,199,026Conversion
      of notes payable stockholders to common stock
            
            $
            ---
            
            
            $
            ---
            
            
            $
            550,000Conversion
      of interest payable on notes to notes payable
            
            $
            ---
            
            
            $
            ---
            
            
            $
            12,354Retirement
      of shares in settlement
            
            $
            ---
            
            
            $
            ---
            
            
            $
            1,402Extinguishment
      of debt and trade payables
            
            $
            ---
            
            
            $
            ---
            
            
            $
            496,777Acquired
      membership interest in Regent Theaters and Regent Releasing,
      LLC
            
            $
            ---
            
            
            $
            ---
            
            
            $
            50,000Conversion
      of Preferred Series C stock to common stock
            
            $
            ---
            
            
            $
            ---
            
            
            $
            1,844Subscriptions
      for Preferred Series D stock
            
            $
            ---
            
            
            $
            ---
            
            
            $
            400,000Cancellation
      of Subscriptions for Preferred Series D stock
            
            $
            ---
            
            
            $
            ---
            
            
            $
            (325,000
            )Conversion
      of convertible, redeemable promissory notes toPreferred Series D
      Stock
            
            $
            ---
            
            
            $
            ---
            
            
            $
            740,000Conversion
      of interest on convertible, redeemable promissory notes to Preferred
      Series D Stock
            
            $
            ---
            
            
            $
            ---
            
            
            $
            273,330Conversion
      of demand notes and accrued interest to Preferred Series E
      stock
            
            $
            ---
            
            
            $
            ---
            
            
            $
            1,008,985Conversion
      of convertible, redeemable Promissory notes, demand notes and accrued
      interest to Preferred Series F stock
            
            $
            ---
            
            
            $
            ---
            
            
            $
            4,549,015Acquisition
      of 15,000,000 shares of Preferred Series D stock
            
            $
            ---
            
            
            $
            ---
            
            
            $
            75,000Conversion
      of demand notes and accrued interest to senior secured revolving
      convertible note to related parties
            
            $
            ---
            
            
            $
            ---
            
            
            $
            2,694,362Conversion
      feature on senior secured revolving convertible note to related
      parties
            
            $
            ---
            
            
            $
            ---
            
            
            $
            6,417,068Discount
      on senior secured revolving convertible note to relatedParties
            
            $
            ---
            
            
            $
            ---
            
            
            $
            (4,934,312
            )Equipment
      acquired under capital lease
            
            $
            ---
            
            
            $
            8,395
            
            
            $
            42,606Issuance
      of Common Stock for debt
            
            $
            ---
            
            
            $
            ---
            
            
            $
            5,000Issuance
      of  shares of Preferred Series D stock for deferred
      compensation
            
            $
            ---
            
            
            $
            ---
            
            
            $
            304,500Cancellation
      of unearned Preferred Series D stock
            
            $
            ---
            
            
            $
            ---
            
            
            $
            (297,491
            )





(See
accompanying notes to consolidated, unaudited financial
statements)


4
 Index


ADVANCE DISPLAY TECHNOLOGIES, INC.


(A
Development Stage Company)


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS








Note 1. – Interim Financial
Statements





These
unaudited consolidated interim financial statements have been prepared by
Advance Display Technologies, Inc. (the “Company”) in accordance with the rules
and regulations of the Securities and Exchange Commission.  The
information furnished herein reflects all adjustments (consisting of normal
recurring accruals and adjustments) that are, in the opinion of management,
necessary to fairly present the operating results for the respective
periods.  Certain information and footnote disclosures normally
present in annual financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been omitted
pursuant to such rules and regulations.  These unaudited consolidated
interim financial statements should be read in conjunction with the audited
financial statements and footnotes for the Company for its year ended June 30,
2009 included in the Company’s Annual Report on Form 10-K for that
year.  The results for the three-month interim period ended September
30, 2009 are not necessarily indicative of the results to be expected for the
full year ending June 30, 2010.





Going
Concern





The
Company’s 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 $7,341,402 and negative stockholders’ equity of
$5,895,076 as of September 30, 2009.  These issues raise substantial
doubt about the Company’s ability to continue as a going concern.





The
Company’s current sales and marketing plan calls for a concentrated effort to
generate sales of its proprietary SkyNetTM video display screens in the first
half of fiscal 2010.  The Company’s SkyNetTM 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 quarter ended September 30, 2009,
the Company continued to build screen sub-assemblies and finished product
inventory in order to be able to promptly respond to orders from prospective
buyers.    The Company is actively pursuing sales from
specific domestic and international customers.  The Company has not
yet sold any of its SkyNetTM 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 3, Notes Payable – Related
Parties.


5
 Index


ADVANCE
DISPLAY TECHNOLOGIES, INC.


(A
Development Stage Company)


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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.





At the
end of fiscal 2009, we completed a series of transactions (the
“Recapitalization”) that restructured our debt and senior debt
securities.  As part of the Recapitalization, we converted $740,000 in
principal and $193,330 in interest outstanding on our Convertible Redeemable
Promissory Notes into 55,888,021 shares of Series D Preferred
Stock.  We also exchanged all of the outstanding shares of our Series
E Preferred Stock and Series F Preferred Stock for 1,267,531 and 4,549,015
shares of our Common Stock, respectively.  In addition, we converted
all of our outstanding shares of Series G Preferred Stock into 90,544,000 shares
of Series D Preferred Stock.  As a result of the foregoing
transactions, we eliminated the Series E, F and G Preferred Stock, leaving the
Company with only two classes of stock, Common Stock and Series D Preferred
Stock.  The Recapitalization lowered our total debt, reduced our
interest expense and eliminated accrued dividend costs.





Principles of
Consolidation





On July
23, 2007, the Company formed a subsidiary called ADTI Media Inc. (the
“Subsidiary”), 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.





Significant Accounting
Policies





For a
description of the Company’s significant accounting policies, refer to the
footnotes to the audited financial statements for the Company for its year ended
June 30, 2009 included in the Company’s Annual Report on Form 10-K for that
year.





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.





Component
Inventory





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.


6
 Index


ADVANCE
DISPLAY TECHNOLOGIES, INC.


(A
Development Stage Company)


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





Finished Goods
Inventory





Finished
goods inventory consists of completed screen systems for sale.





Deferred Manufacturing
Costs





Costs
associated with production engineering, process development and facility
preparation have been capitalized as deferred manufacturing costs and are being
amortized over the estimated life of this generation of the LED Screens,
currently estimated to be three years, of which approximately 21 months
remain.  The Company reported deferred manufacturing costs of $300,302
at September 30, 2009, reflecting total capitalized costs of $525,598 less
accumulated amortization of $225,396.  Amortization expense for the
quarter ended September 30, 2009 was $43,932.





Impact of Recently Issued
Accounting Pronouncements





In June
2009, the FASB issued SFAS No. 166 “Accounting for Transfers of Financial Assets
— an amendment of FASB Statement No. 140” (“SFAS 166”) codified as FASB ASC
Topic 860.  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.





On
September 15, 2009, the Company adopted Accounting Standards Update (“ASU”) No.
2009-01, “Topic 105 - Generally Accepted Accounting Principles - amendments
based on Statement of Financial Accounting Standards No. 168 , “The FASB
Accounting Standards CodificationTM and the Hierarchy of Generally Accepted
Accounting Principles” (“ASU No. 2009-01”).  ASU No. 2009-01
re-defines authoritative US GAAP for nongovernmental entities to be only
comprised of the FASB Accounting Standards CodificationTM (“Codification”) and,
for SEC registrants, guidance issued by the SEC.  The Codification is
a reorganization and compilation of all then-existing authoritative US GAAP for
nongovernmental entities, except for guidance issued by the SEC.  The
Codification is amended to effect non-SEC changes to authoritative US
GAAP.  Adoption of ASU No. 2009-01 only changed the referencing
convention of US GAAP in Notes to the Consolidated Financial
Statements.





Note
      2.
            Impairment of
      Assets





During
fiscal 2009 the Company installed its first completed screen in Denver near the
Colorado Convention Center on August 11, 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 manufacturing facility for analysis and repair.  Because of the
extent of the defective components, it was considered 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 reported a net impairment to inventory totaling $568,349 and marketing
equipment of $277,888.  The sign was being depreciated over its
estimated useful life of three years.  Accumulated amortization on the
sign totaled $115,787 through September 30, 2009.  The Company has
continued to experience some outages on the repaired screen due to the
non-conforming parts that could not be replaced.  Management of the
Company estimates that the market value of the screen has decreased to
approximately $75,000 and, accordingly, recorded an additional impairment to the
screen of $87,101 at September 30, 2009.   These equipment costs
will be amortized over the screen’s remaining expected useful life of 21 months,
at $3,571 per month, unless sold sooner.  The impairment to inventory
recorded by the Company does not reflect the consequential damages and other
losses suffered by the Company due to the nonconforming and defective parts
provided by the supplier.


7
 Index


ADVANCE
DISPLAY TECHNOLOGIES, INC.


(A
Development Stage Company)


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





Note 3. – Notes Payable to
Related Parties





During
fiscal 2009, 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.  The Company borrowed an
additional $950,000 under the Credit Facility during the quarter.  As
of September 30, 2009, the Company had borrowed a total of $10,067,869 under the
Credit Facility.  If the value of the underlying shares based on the
share price of the Company’s common stock on the date of borrowing is greater
than the value of the underlying shares based on the conversion rate, a debt
discount is recorded for the difference up to the amount
borrowed.  From November 6, 2008 to September 30, 2009, the Company
reported total debt discount of $4,939,924 less amortization of
$4,349,066.  The Company reported amortization expense on debt
discount of $1,397,264 and net debt discount of $590,859 at September 30,
2009.





Note 4. – Loss Per
Share





Loss per share is presented in
accordance with the provisions of SFAS No. 128,Earnings Per Share
(“EPS”)and Accounting
Standards Codification Subtopic 260-10-55-2,Earnings Per
Share-Computing a Weighted-Average.  SFAS No. 128 and ASC
260-10-55-2 provide 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, borrowings under
the Credit Facility, Stock Options, warrants and the convertible preferred
stock.  Basic and diluted EPS were the same for the quarters ended
September 30, 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 under
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.


8
 Index


ADVANCE
DISPLAY TECHNOLOGIES, INC.


(A
Development Stage Company)


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





Fiscal
      Year Ended June 30,
            
            Preferred
      Series Dstock
            
            
            Preferred
      Series Gstock
            
            
            Convertible,
      redeemable promissorynotes
            
            
            Interest
      on convertible redeemable promissorynotes
            
            
            Outstanding
      balance under theCreditFacility
            
            
            Warrants
            
            
            Vested
      Stock Options2009
            
            
            177,002,763
            
            
            
            -0-
            
            
            
            -0-
            
            
            
            -0-
            
            
            
            100,455,866
            
            
            
            810,564
            
            
            
            3,640,6252008
            
            
            30,570,742
            
            
            
            90,544,000
            
            
            
            44,311,377
            
            
            
            10,259,605
            
            
            
            -0-
            
            
            
            -0-
            
            
            
            2,278,125








Had such
shares been included in the calculation of diluted EPS, they would have resulted
in weighted-average common shares of 307,363,862 and 167,070,092 for the
quarters ended September 30, 2009 and 2008, respectively.





Note 5. – Subsequent
Events





The
Company has evaluated events and transactions that occurred between October 1,
2009 and November 20, 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
October 2, 2009 and November 20, 2009, the Company made additional draws on the
Credit Facility totaling $1.9 million.


9
 Index


Item 2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION





Going
Concern





The
Report of the Company’s Independent Registered Public Accounting firm on the
Financial Statements included in the Company’s Annual Report on Form 10-K for
the fiscal year ended June 30, 2009, includes a qualification regarding the
Company’s ability to continue as a going concern because the Company is in the
development stage, has not yet commenced significant operations from its
business, 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 has devoted most of its efforts
toward raising capital and its research and development efforts.





Credit
Facility





During
fiscal 2009, 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 September 30, 2009, the
Company had borrowed a total of $10,067,869 under the Credit
Facility.  The Company borrowed an additional $950,000 each on October
2, 2009 and November 20, 2009.





Recapitalization





At the
end of fiscal 2009, we completed a series of transactions (the
“Recapitalization”) that restructured our debt and senior debt
securities.  As part of the Recapitalization, we converted $740,000 in
principal and $193,330 in interest outstanding on our Convertible Redeemable
Promissory Notes into 55,888,021 shares of Series D Preferred
Stock.  We also exchanged all of the outstanding shares of our Series
E Preferred Stock and Series F Preferred Stock for 1,267,531 and 4,549,015
shares of our Common Stock, respectively.  In addition, we converted
all of our outstanding shares of Series G Preferred Stock into 90,544,000 shares
of Series D Preferred Stock.  As a result of the foregoing
transactions, we eliminated the Series E, F and G Preferred Stock, leaving the
Company with only two classes of stock, Common Stock and Series D Preferred
Stock.  The Recapitalization lowered our total debt, reduced our
interest expense and eliminated accrued dividend costs.


10
 Index


Denver SkyNetTM Video Screen
Installation





The
Company installed a SkyNetTM 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 at a significantly reduced
price due to the impairment.





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
of 2008.





Activities This
Period





During
the quarter ended September 30, 2009, the Company’s business activities were
principally focused on (1) building subassemblies and finished product to
position the company to respond to anticipated fulfillment timelines for current
customer prospects; (2) improvement of its manufacturing and quality management
operations for SkyNetTM LED screens; (3) expanding and training its production,
engineering, sales, marketing and administrative workforce; (4) performing sales
and marketing analysis and sales operations to support and bring to market
SkyNetTM LED Screens, and (5) continuing its proprietary product development
activities.





During
the quarter ended September 30, 2009, the Company’s engineering and production
facility in Temecula, California was successfully certified for ISO 9001
compliance.  As a result of achieving ISO 9001 certification, the
Company expects to be permitted to affix a “CE Mark” to all of its SkyNetTM
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.





Subsequent
to the quarter ended September 30, 2009, the Company continued its international
sales and marketing efforts by exhibiting its SkyNetTM LED screen products at
Trade Expos in both Abu Dhabi, UAE and Buenos Aires, Argentina.  While
no immediate sales were realized at either of these expositions, successful
demonstration of the SkyNetTM product to interested commercial parties in and
around these markets was accomplished.





The
Company may not be successful in generating enough revenue from sales of its
proprietary SkyNetTM LED Screens to sustain the Company’s operating expenses or,
in the absence of such revenue, in raising sufficient capital to fund operating
losses.  Even if the Company generates a substantial amount of new
sales orders for Screens, it will still face challenges in developing,
internally or through outside vendors, sufficient manufacturing capacity to fill
those orders.  If the Company is not successful in these endeavors,
the Lender may foreclose on the Collateral, which would leave the Company
without any assets or operations.  In such an event, it is extremely
unlikely that there would be any funds or property available for distribution to
shareholders upon a liquidation of the Company.


11
 Index


During
the same quarter a year ago, the Company’s business activities were principally
focused on (1) raising additional capital in support of manufacturing operations
of its SkyNetTM screens; (2) completing the second half of its first production
model SkyNetTM screen; (3) after that screen failed because of the supplier’s
defective parts, reconditioning the damaged screen for indoor marketing
demonstrations and product integration testing purposes; (4) extensive analysis
on the defective components from the supplier; (5) continued sales and marketing
efforts in anticipation of resumed production; (6) evaluating other potential
business opportunities; and (7) continuing its proprietary product development
efforts.





Results of
Operations





For the
quarter ended September 30, 2009, the Company reported a net loss of
($3,331,336), or ($.10) per share, compared to ($1,639,432), or ($.06) per
share, for the fiscal quarter ended September 30, 2008.  The increase
in net loss for the fiscal quarter ended September 30, 2009 from 2008 is
primarily due to: (1) an increase in research and development costs of
approximately $218,000 due to continued product development efforts and (2) an
increase in interest and amortization of debt discount of approximately $194,000
and $1,397,000, respectively, in connection with the Senior Secured Revolving
Credit Facility.





The
Company had no sales during the first quarter of 2009 or the first quarter of
2008.  As of the date of this report, the Company remains in a
development stage, since it has not received significant revenues from
continuing operations.  The Company reported interest income of $407
and $430 for the fiscal quarters ended September 30, 2009 and 2008,
respectively.





Manufacturing
Operations - The Company reported manufacturing costs of approximately
$554,000 for the quarter ended September 30, 2009 compared to approximately
$755,000 for 2008.   During the September 2009 quarter, the
Company continued to build subassemblies and finished product. The Company
completed one screen system for sale and increased its work-in-progress for
varying subassemblies 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 $31,000 for
the 2009 quarter.  In addition to these manufacturing activities, the
Company made preparations to install one of its SkyNetTM Screens for
demonstration purposes in Dubai, UAE.





During
the quarter ended September 30, 2008, the Company completed the second half of
its first 123 square foot production level SkyNetTM Screen and installed the
completed screen in Denver at the Colorado Convention Center on August 11, 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 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 a
total of $277,888 to marketing equipment.  The Company recorded a net
impairment to inventory of approximately $375,000 for the quarter ended
September 30, 2008 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


12
 Index


Impaired
and obsolete inventory decreased by approximately $329,000 primarily on account
of the impairment to the SkyNetTM Screen recorded in the 2008 quarter. Contract
labor decreased by approximately $52,000 due to most of the contract assemblers
having been hired as employees.  Salaries and benefits increased by
approximately $98,000 due to hiring the contract assemblers and additional
personnel for quality assurance and production
activities.  Professional consulting fees increased by approximately
$67,000 for ongoing product enhancement efforts and review and design of
installation specifications for the Dubai project.  Travel expenses
for manufacturing decreased by approximately $22,000 on account of international
travel in the 2008 quarter to meet with the supplier of faulty
components.     Depreciation expense increased by
approximately $7,000 due to additional equipment and tooling purchases since the
year ago period.  Other manufacturing expenses increased approximately
$30,000 due to the expanded staff and increased level of manufacturing
activity.





General and Administrative
Costs - The Company reported general and administrative (“G&A”)
expenses of $488,333 and $476,409 for the fiscal quarters ended September 30,
2009 and 2008, respectively, an increase of approximately
$12,000.  Salaries and related expenses increased approximately
$60,000 in 2009 from 2008, primarily resulting from additional accounting staff,
including the conversion of a contract accounting assistant to an employee, and
a reduced allocation of the president’s time to research and
development.  Contract service fees decreased by approximately $10,000
primarily due to hiring the contract accounting assistant.





Professional
fees decreased by approximately $52,000 primarily due to a decrease in legal
fees associated with the Company’s patent applications and other activities
related to protection of the Company’s proprietary products and processes during
the 2008 quarter.





The
Company is continuing work to convert its existing enterprise software system to
a more robust and comprehensive system with enhanced accounting, reporting,
customer relationship management, inventory tracking and manufacturing resource
planning capabilities.  This effort required  an increase in
G&A software license fees of approximately $15,000 the quarter ended
September 30, 2009 from the 2008  quarter.





Other net
G&A expenses fluctuated slightly, resulting in a decreased of approximately
$1,000 for the 2009 quarter from 2008.





Marketing Costs -
Sales and marketing expenses increased by approximately $71,000 to $360,090 for
the quarter ended September 30, 2009 from $289,260 for the same period in
2008.  During the 2008 quarter, 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 SkyNetTM
Screens.  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.  During the quarter ended
September 30, 2009, the Company employed a Director of Middle East Operations to
develop the market and pursue potential sales. Combined, these changes resulted
in a decrease in marketing salaries and related benefits of approximately
$26,000 for 2009 from 2008.  On the other hand, consulting fees for
sales and marketing increased approximately $38,000 primarily from expanded
marketing efforts and installation design for inclusion in marketing
proposals.  Due to the changes in sales and marketing employees and
consultants, travel expenses decreased approximately $8,000 for the quarter on a
year to year comparison.


13
 Index


Product
demonstration costs decreased approximately $77,000 for the quarter ended
September 30, 2009, from the year ago period, primarily due to costs incurred in
connection with the Colorado Convention Center installation in the 2008
quarter.  With respect to the video screen originally installed at
that location and subsequently relocated to the Company’s Temecula facility for
marketing purposes, the Company has continued to experience some outages on the
repaired screen due to non-conforming parts that cannot be
replaced.  As a result, management estimates that the market value of
the screen has decreased to approximately $75,000 and, accordingly, recorded an
additional impairment to the screen of approximately $87,000 for the quarter
ended September 30, 2009.





Trade
show fees increased by approximately $13,000 for the September 30, 2009 quarter
from 2008 primarily due to the Company’s exhibition at a Boston trade show
during the quarter.  Also during the 2009 quarter, the Company
incurred approximately $43,000 in freight and duty taxes in connection with the
shipment of the SkyNetTM Screen to Dubai for demonstration
installation.





Other
sales and marketing expenses increased slightly by approximately $1,000 for the
2009 quarter from 2008.





Research and Development
Costs - Research and development fees increased by approximately $218,000
for the 2009 quarter over the 2008 quarter as the Company continued development
for new generations of the SkyNetTM Screen.  Due to changes in design
with some of these efforts, in September 2009, the Company recorded an
impairment for certain tooling that had been purchased for prior iterations of
approximately $62,000.





Salaries
and related benefits increased by approximately $91,000 during the quarter
compared to the same period a year ago, primarily due to the addition of the
Company’s new Vice President of Research and Development and Chief Technology
Officer in July 2009, along with more internal engineering efforts being
directed toward research and development.  Travel expenses for
research and development also increased approximately $22,000 primarily due to
international travel to LED and other suppliers for future
development.





Other
research and development costs for the quarter increased by approximately
$43,000 versus a year ago on account of the purchase of materials, prototype
development and testing.





Other Expense -Interest expense increased by approximately $194,000 for the quarter
ended September 30, 2009 over 2008 due to a higher debt
balance.  During fiscal 2009, 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.  If the
value of the underlying shares based on the share price of the Company’s common
stock on the date of borrowing is greater than the value of the underlying
shares based on the conversion rate, a debt discount is recorded for the
difference up to the amount borrowed. The Company recorded total debt discount
under the Convertible Note of approximately $4,940,000.  As of June
30,  2009, the Company had recorded amortization of the debt discount
totaling approximately $2,951,000.  The Company reported approximately
$1,397,000 in additional amortization of debt discount for the quarter ended
September 30, 2009.


14
 Index


Liquidity and Capital
Resources





Since
inception, the Company has been totally dependent on financing from outside
sources to fund operations.  At September 30, 2009, the Company
reported negative net worth of $5,895,076 and negative working capital of
$7,341,402, compared to negative net worth of $2,612,540 and negative working
capital of $4,337,634 at June 30, 2009.  The Company continues to
require the infusion of outside capital to cover its administrative expenses,
product development, manufacturing costs and business development
efforts.  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 SkyNetTM 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 quarter ended September 30, 2009
consisted of borrowings under the Credit Facility totaling $950,000, partially
offset by lease payments of $1,488.  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 quarter ended September 30, 2008,
consisted of $1,300,000 in loan proceeds from 10% demand notes issue to the
Company’s majority shareholder and director, partially offset by nominal lease
payments.  These cash flows primarily were used for: (1) operating
expenses; (2) business development; (3) manufacturing operations; (4) materials
inventory; and (5) equipment purchases.


15
 Index


At
September 30, 2009, the Company reported current assets of $3,196,562 and a
working capital deficit. Current liabilities exceeded current assets by
$7,341,402.  At September 30, 2009 current liabilities consisted of:
(1) notes to shareholders with accrued interest, net of debt discount, of
$9,885,320 and (2) trade payables and accrued expenses totaling $652,644, which
were incurred primarily for business development, operating costs, inventory
purchases, equipment purchases and manufacturing operations.





Off-Balance Sheet
Arrangements





The
Company does not have any off-balance sheet arrangements.








ITEM3.
            QUANTITATIVE AND
      QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK





Not
applicable.








ITEM
      4.
            CONTROLS AND
      PROCEDURES





Our
management, including our Principal Executive and Financial Officer, has
evaluated the design, operation, and effectiveness of our disclosure controls
and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the
period covered by this quarterly report on Form 10-Q.  Based upon this
evaluation, the Company’s Principal Executive and Financial Officer, concluded
that the Company’s disclosure controls and procedures were effective to provide
reasonable assurance that information required to be disclosed in the reports
filed or submitted pursuant to the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in the rules and
forms of the SEC, and that such information is accumulated and communicated to
our management, including its Principal Executive Officer and Principal
Financial Officer, or persons performing similar functions, as appropriate to
allow timely decisions regarding disclosures.





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 quarter ended September 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 operations 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 an 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.


16
 Index


PART
II.  OTHER INFORMATION





ITEM
      1.
            LEGAL
      PROCEEDINGS





None.





ITEM1A.
            RISK
      FACTORS





Risk of
Foreclosure on Assets.Management has pledged all of its
assets as collateral to secure a revolving line of credit agreement (the “Credit
Agreement”) with its principal investor group (the “Lender”). By that agreement,
the Lender has indicated a willingness to continue to fund the Company’s
operations through the fourth quarter of fiscal 2010 and, if the Company has
sold, delivered or executed any binding agreements with unaffiliated
third-parties for the sale of SkyNetTM display systems by that time, to continue
such funding until December 2010.  Management believes that the
Company’s continued existence beyond that time 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.
There can be no assurance that the Company will be successful in raising any
more capital or producing revenue from operations.  Accordingly, if
the Company fails to meet the goals set by the Credit Agreement or otherwise
fails to raise enough new capital to repay the amounts owed under the Credit
Agreement and otherwise needed to sustain its operations, the Lender can be
expected to seize all of the Company’s assets upon a default, and the Company
will be forced to immediately 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.





Please
see the additional Risk Factors relating to the Company in Item 1A of the
Company’s Annual Report on Form 10-K for the year ended June 30, 2009, which
Risk Factors are incorporated herein by reference.





ITEM2.
            UNREGISTERED SALES OF
      EQUITY SECURITIES AND USE OF
PROCEEDS





None.





ITEM3.
            DEFAULTS UPON SENIOR
      SECURITIES





None.





ITEM4.
            SUBMISSION OF MATTERS
      TO A VOTE OF SECURITY
HOLDERS





None.


17
 Index


ITEM5.
            OTHER
      INFORMATION





None.





ITEM6.
            EXHIBITS





Exhibit
              No.
            Description31.1
            Certificate
      of Principal Executive Officer pursuant to Section 302 of The
      Sarbanes-Oxley Act of 200231.2
            Certificate
      of Principal Financial Officer pursuant to Section 302 of The
      Sarbanes-Oxley Act of 200232.1
            Certificate
      of Principal Executive and Principal Financial Officer pursuant to Section
      906 of The Sarbanes-Oxley Act of
2002


18
 Index


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
caused this report on Form 10-Q to be signed on its behalf by the undersigned,
thereunto duly authorized.








ADVANCE
      DISPLAY TECHNOLOGIES, INC.Date:
      November 23, 2009
            /s/  Matthew W.
      ShankleMatthew
      W. Shankle
              President,
      Chief Executive and Financial OfficerDate:  November
      23, 2009
            /s/  Rebecca L.
      McCallRebecca
      L. McCall
              VP
      of Accounting, Principal Accounting
Officer


Index


INDEX
OF EXHIBITS








Exhibit
              No.
            Description31.1
            Certificate
      of Principal Executive Officer pursuant to Section 302 of The
      Sarbanes-Oxley Act of 200231.2
            Certificate
      of Principal Financial Officer pursuant to Section 302 of The
      Sarbanes-Oxley Act of 200232.1
            Certificate
      of Principal Executive and Principal Financial Officer pursuant to Section
      906 of The Sarbanes-Oxley Act of
2002