SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Date of Report (Date of earliest event reported) May 21, 1997
------------
ADVANCE DISPLAY TECHNOLOGIES, INC.
----------------------------------
(Exact name of registrant as specified in its charter)
COLORADO 0-15224 84-0969445
-------- ------- ----------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
1251 South Huron, Unit C, Denver, Colorado 80223
------------------------------------------------
(Address of principle executive offices) (Zip Code)
(303) 733-5339
--------------
(Registrant's telephone number, including area code)
Former name or former address if changed since last report: N/A
<PAGE>
The Company previously reported the date of this Form 8-K as May 19, 1997, which
date is hereby amended to May 21, 1997.
ITEM 7. Financial Statements and Exhibits.
----------------------------------
See Index to Financial Statements on page F-1.
<PAGE>
Advance Display Technologies, Inc.
(A Development Stage Company)
Financial Statements
March 31, 1997
<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
PAGE
----
<S> <C> <C>
1. Unaudited Pro Forma Combined Condensed Financial Information
a. Introduction............................................................................F-3
b. Pro Forma Combined Condensed Balance Sheet..............................................F-4
o Advance Display Technologies, Inc. as of March 31, 1997
o Display Optics, Ltd. as of March 31, 1997
o Display Group, LLC as of March 31, 1997
c. Pro Forma Interim Combined Condensed Statement of Operations............................F-5
o Advance Display Technologies, Inc. for the Nine Months Ended
March 31, 1997
o Display Optics, Ltd. for the Nine Months Ended March 31, 1997
o Display Group, LLC for the Nine Months Ended March 31, 1997
d. Pro Forma Fiscal Combined Condensed Statement of Operations.............................F-6
o Advance Display Technologies, Inc. for the Year Ended June 30, 1996
o Display Optics, Ltd. for the Year Ended June 30, 1996
o Display Group, LLC for the Year Ended June 30, 1996
e. Notes to Pro Forma Financial Information................................................F-7
2. Display Optics, Ltd.
a. Independent Auditor's Report............................................................F-8
b. Balance Sheets as of March 31, 1997 (Unaudited) and June 30, 1996 ......................F-9
c. Statements of Operations for the Nine Months Ended March 31, 1997
and 1996 (Unaudited), for the Years Ended June 30, 1996 and 1995 and
Cumulative from Inception (December 31, 1993) through March 31, 1997
(Unaudited)............................................................................F-10
d. Statement of Changes in Partners' Capital for the Period from December 31, 1993
(Inception) to March 31, 1997 (Unaudited)..............................................F-11
F-1
<PAGE>
e. Statements of Cash Flows for the Nine Months Ended March 31, 1997
and 1996 (Unaudited), for the Years Ended June 30, 1996 and 1995, and
Cumulative from Inception (December 31, 1993) through March 31, 1997
(Unaudited)............................................................................F-12
f. Notes to Financial Statements..........................................................F-13
3. Display Group, LLC
a. Independent Auditor's Report...........................................................F-17
b. Balance Sheets as of March 31, 1997 (Unaudited) and June 30, 1996 .....................F-18
c. Statements of Operations for the Nine Months Ended March 31, 1997
and 1996 (Unaudited), for the Year Ended June 30, 1996, for the Period
from Inception (March 15, 1995) through June 30, 1995, and Cumulative from
Inception (March 15, 1995) through March 31, 1997 (Unaudited)..........................F-19
d. Statement of Changes in Members' Capital for the Period from March 15, 1995
(Inception) to March 31, 1997 (Unaudited)..............................................F-20
e. Statements of Cash Flows for the Nine Months Ended March 31,
1997 and 1996 (Unaudited), for the Year Ended June 30, 1996,
for the Period from Inception (March 15, 1995) through June
30, 1995, and Cumulative from
Inception (March 15, 1995) through March 31, 1997 (Unaudited)..........................F-21
f. Notes to Financial Statements..........................................................F-22
F-2
</TABLE>
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
INTRODUCTION TO PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(Unaudited)
The following unaudited pro forma combined condensed financial information has
been prepared in accordance with guidelines established by regulations
promulgated by the Securities and Exchange Commission.
The accompanying unaudited pro forma combined condensed balance sheet presents
the balance sheet of Advance Display Technologies, Inc. (ADTI or the "Company")
as of March 31, 1997 together with the balance sheets of Display Optics, Ltd.
(DOL) and Display Group, LLC (Group) as of March 31, 1997 and gives effect to
the acquisition of DOL and Group resulting in those two entities becoming
wholly-owned subsidiaries of ADTI resulting from (i) the exchange of DOL and
Group ownership interests, (ii) the exchange of $1,799,027 in convertible notes
and guarantees, and (iii) the exchange of 2,991,474 shares of ADTI's Series B
Preferred Stock held by certain investors all for 17,509,868 shares (or 89% of
the outstanding common stock after the exchange) of ADTI common stock, and the
issuance of 1,843,900 shares of ADTI Series C Preferred Stock to the exchanging
parties. The unaudited pro forma condensed statements of operations for the nine
months ended March 31, 1997 and the year ended June 30, 1996 include the results
of operations of ADTI, DOL and Group for their respective periods and give
effect to the pro forma adjustments as if all such transactions had occurred at
the beginning of the periods presented.
The Series C Preferred Stock issued as part of the exchange entitles holders to
receive dividends, as and if declared by the Board of Directors, totaling, in
the aggregate, $.83 per share. Dividends on the Series C Preferred Stock shall
be paid before any dividends or other distributions shall be declared or paid on
the Company's common stock. The Company may elect to redeem some or all the
Series C Preferred Stock, at its option, at the preferred stock's liquidation
value of $.67 plus any unpaid dividends. Holders may require the Company to
redeem the Series C Preferred Stock any time after the Company has fully paid
the dividend of $.83 per share or at any time after a change in control of the
Company, as defined. If redeemed at the election of the holder, the Company has
the option to redeem the Series C Preferred Stock by issuance of either cash or
the Company's common stock.
These unaudited pro forma statements are not necessarily indicative of future
financial positions or results of operations or the actual results that would
have occurred had the acquisition been consummated at the beginning of the
periods presented and should be read in conjunction with the historical
financial statements included elsewhere in this Form 8-K filing or ADTI's Form
10-KSB for the year ended June 30, 1996.
F-3
<PAGE>
<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
ADTI DOL GROUP
MARCH 31, MARCH 31, MARCH 31, PRO FORMA PRO FORMA
1997 1997 1997 ADJUSTMENTS COMBINED
------------ ----------- -------------- ----------- -----------
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C>
Cash $ -- $ 8,360 $ 2,641 $ -- $ 11,001
Notes receivable -- -- 932,925 (932,925)(A) --
Other current assets -- 13,034 109,785 (112,812)(A) 10,007
----------- ----------- ----------- ----------- -----------
Total current assets -- 21,394 1,045,351 (1,045,737) 21,008
EQUIPMENT, net -- 65,498 -- -- 65,498
INTANGIBLE ASSETS 361,429 361,429 225,000 (361,429)(B) 586,429
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS $ 361,429 $ 448,321 $ 1,270,351 $(1,407,166) $ 672,935
=========== =========== =========== =========== ===========
CURRENT LIABILITIES:
Due to affiliated parties $ -- $ 319,934 $ 161,948 $ (112,812)(A)$ --
-- -- -- (163,449)(A)
-- -- -- (205,621)(C)
Accounts payable and accrued liabilities 125,073 455,819 -- -- 580,892
Notes payable -- 1,670,046 1,061,905 (932,925)(A) --
(1,799,026)(D)
----------- ----------- ----------- ----------- ----------
Total current liabilities 125,073 2,445,799 1,223,853 (3,213,833) 580,892
RESEARCH AND DEVELOPMENT LIABILITY 2,244,605 -- -- 163,449 (A) --
(2,408,054)(E) --
STOCKHOLDERS' EQUITY (DEFICIT) (2,008,249) (1,997,478) 46,498 (361,429)(B) 92,043
1,799,026 (D)
2,408,054 (E)
205,621 (C)
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 361,429 $ 448,321 $ 1,270,351 $(1,407,166) $ 672,935
=========== =========== =========== =========== ===========
See accompanying notes to condensed financial information.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
PRO FORMA INTERIM COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
ADTI DOL GROUP
----------- ----------- -----------
FOR THE FOR THE FOR THE
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, PRO FORMA PRO FORMA
1997 1997 1997 ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES $ -- $ 122,841 $ -- $ -- $ 122,841
COSTS AND EXPENSES (995,257) (928,769) (2,240) 928,769(F) (997,497)
----------- ----------- ----------- ----------- -----------
OPERATING LOSS (995,257) (805,928) (2,240) 928,769 (874,656)
OTHER INCOME (EXPENSES):
Other income and expense, net 12,841 -- -- (12,841)(F) --
Interest income 7,534 408 84,529 (7,534)(F) 408
(84,529)(G)
Interest expense -- (129,728) (114,202) 152,691 (H) (6,710)
84,529 (G)
----------- ---------- ----------- ----------- -----------
Total other income (expense) 20,375 (129,320) (29,673) 132,316 (6,302)
----------- ---------- ----------- ----------- -----------
NET LOSS $ (974,882) $ (935,248) $ (31,913) $ 1,061,085 $ (880,958)
=========== =========== =========== =========== ===========
NET LOSS PER COMMON SHARE $ (.25) $ (.04)
=========== ===========
WEIGHTED AVERAGE SHARES OF
COMMON STOCK OUTSTANDING 3,834,055 21,402,285 (I)
=========== ===========
See accompanying notes to condensed financial information.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
PRO FORMA FISCAL COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
ADTI DOL GROUP
---------- ---------- -----------
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, PRO FORMA PRO FORMA
1996 1996 1996* ADJUSTMENTS COMBINED
----------- ---------- ------------ ---------------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES $ -- $ -- $ -- $ -- (F) $ --
COSTS AND EXPENSES (989,442) (828,092) (5,019) 828,092 (F) (994,461)
------------ ------------ ------------ ------------ ----------
OPERATING LOSS (989,442) (828,092) (5,019) 828,092 (994,461)
OTHER INCOME (EXPENSES):
Interest income 12,800 70 59,671 (12,800) (F) 70
(59,671) (G)
Interest expense -- (85,060) (79,081) 59,671 (G) (2,103)
102,367 (H)
------------ ------------ ------------ ------------ ----------
Total other income (expense) 12,800 (84,990) (19,410) 89,567 (2,033)
------------ ------------ ------------ ------------- ----------
NET LOSS $ (976,642) $ (913,082) $ (24,429) $ 917,659 $ (996,494)
============ ============ ============ ============ ==========
NET LOSS PER COMMON SHARE $ (.25) $ (.05)
============ ==========
WEIGHTED AVERAGE SHARES OF
COMMON STOCK OUTSTANDING 3,834,055 21,343,923(I)
============ ==========
- ------------------------
*Group was formed March 15, 1995, however, there was no significant activity through June 30, 1995.
See accompanying notes to condensed financial information.
F-6
</TABLE>
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
NOTES TO PRO FORMA FINANCIAL INFORMATION
A To eliminate receivable and payable balances between ADTI, DOL, and Group.
B To eliminate ADTI's investment in DOL which was the result of patents and
technology which were contributed by ADTI for its interest in DOL.
C To reduce accrued interest for interest forgiven by note holders in
connection with the acquisition.
D To reflect the exchange of $1,499,522 in convertible notes for shares of
ADTI common stock and Series C Preferred Stock. Furthermore, Group
exchanged its line-of-credit, which had an outstanding balance of $299,505
at March 31, 1997, with the guarantors on the line in exchange for shares
of ADTI common stock and Series C Preferred Stock.
E To eliminate the research and development liability on ADTI's books and
accumulated deficit related to research and development and general and
administrative expenses recorded on both ADTI's and DOL's books.
F To eliminate income statement activity for DOL which is reflected in both
the DOL income statement and the ADTI income statement due to ADTI
accounting for its relationship with DOL as a research and development
partnership.
G To eliminate income statement activity between ADTI, DOL, and Group.
H To reduce interest expense recognized on the convertible notes and the
line-of-credit which were exchanged for shares of ADTI common stock and
Series C Preferred Stock.
I Common shares outstanding on a pro forma basis represents ADTI weighted
average shares outstanding for the respective periods, plus the 17,509,868
shares issued in connection with the acquisition.
F-7
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Display Optics, Ltd.
Denver, Colorado
We have audited the balance sheet of Display Optics, Ltd. as of June 30, 1996
and the related statements of operations, changes in partners' capital (deficit)
and cash flows for the years ended June 30, 1996 and 1995. These financial
statements are the responsibility of DOL's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. 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 financial position of Display Optics, Ltd. as of June
30, 1996 and the results of its operations and its cash flows for the years
ended June 30, 1996 and 1995 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that DOL will
continue as a going concern. As discussed in Note 1 to the financial statements,
DOL has incurred substantial losses from operations and is in the development
stage, as it has not yet commenced principal operations and has not yet realized
significant revenues. These factors raise substantial doubt about DOL'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.
HEIN + ASSOCIATES LLP
Denver, Colorado
June 16, 1997
F-8
<PAGE>
DISPLAY OPTICS, LTD.
(A Development Stage Company)
BALANCE SHEETS
March 31, June 30,
1997 1996
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 8,360 $ 9,984
Prepaid and other current assets 13,034 7,347
----------- -----------
Total current assets 21,394 17,331
PROPERTY AND EQUIPMENT, net of $16,286
and $3,737 accumulated depreciation for 1997
and 1996, respectively 65,497 16,156
INTANGIBLE ASSETS 361,430 403,620
----------- -----------
TOTAL ASSETS $ 448,321 $ 437,107
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 455,819 $ 271,129
Due to ADTI 124,915 172,188
Accrued interest - related parties 195,019 92,595
Notes payable - related parties 1,670,046 963,425
----------- -----------
Total current liabilities 2,445,799 1,499,337
COMMITMENT (Note 4)
PARTNERS' DEFICIT:
Partners' capital 592,740 592,740
Accumulated deficit (2,590,218) (1,654,970)
----------- -----------
Total partners' deficit (1,997,478) (1,062,230)
----------- -----------
TOTAL LIABILITIES AND PARTNERS' DEFICIT $ 448,321 $ 437,107
=========== ===========
See accompanying notes to these financial statements.
F-9
<PAGE>
<TABLE>
<CAPTION>
DISPLAY OPTICS, LTD.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
CUMULATIVE
FROM
INCEPTION
FOR THE NINE FOR THE (DECEMBER 31,
MONTHS ENDED YEARS ENDED 1993)
MARCH 31, JUNE 30, THROUGH
----------------------------- ---------------------------- MARCH 31,
1997 1996 1996 1995 1997
----------- ------------ ----------- ----------- ------------
(Unaudited) (Unaudited)
REVENUE:
<S> <C> <C> <C> <C> <C>
Sales revenue $ 110,000 $ -- $ -- $ -- $ 110,000
Other 12,841 -- -- -- 12,841
Interest income 408 26 70 -- 478
----------- ----------- ----------- ----------- -----------
123,249 26 70 -- 123,319
COSTS AND EXPENSES:
Cost of sales 244,740 -- -- -- 244,740
General and administrative 494,652 285,720 440,880 294,688 1,361,785
Research and development
expense 105,214 273,092 387,212 231,585 779,917
Marketing expense 84,163 -- -- -- 84,163
Interest expense to related
parties 129,728 56,341 85,060 28,347 242,932
----------- ----------- ----------- ----------- -----------
Total costs and expenses 1,058,497 615,153 913,152 554,620 2,713,537
----------- ----------- ----------- ----------- -----------
NET LOSS $ (935,248) $ (615,127) $ (913,082) $ (554,620) $(2,590,218)
=========== =========== =========== =========== ===========
See accompanying notes to these financial statements.
F-10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DISPLAY OPTICS, LTD.
(A Development Stage Company)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
FOR THE PERIOD FROM DECEMBER 31, 1993 (INCEPTION)
THROUGH MARCH 31, 1997 (UNAUDITED)
Partners' Accumulated
Capital Deficit Total
------- ------- -----
<S> <C> <C> <C>
PARTNERS' CAPITAL, December 31, 1993 (Inception) $ -- $ -- $ --
Capital contributions 592,740 -- 592,740
Net loss -- (187,268) (187,268)
----------- ----------- -----------
PARTNERS' CAPITAL, June 30, 1994 592,740 (187,268) 405,472
Net loss -- (554,620) (554,620)
----------- ----------- -----------
PARTNERS' CAPITAL, June 30, 1995 592,740 (741,888) (149,148)
Net loss -- (913,082) (913,082)
----------- ----------- -----------
PARTNERS' CAPITAL, June 30, 1996 592,740 (1,654,970) (1,062,230)
Net loss (unaudited) -- (935,248) (935,248)
----------- ----------- -----------
PARTNERS' CAPITAL, March 31, 1997 (Unaudited) $ 592,740 $(2,590,218) $(1,997,478)
=========== =========== ===========
See accompanying notes to these financial statements.
F-11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DISPLAY OPTICS, LTD.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
CUMULATIVE
FROM
INCEPTION
FOR THE NINE FOR THE (DECEMBER 31,
MONTHS ENDED YEARS ENDED 1993)
MARCH 31, JUNE 30, THROUGH
--------------------------- --------------------------- MARCH 31,
1997 1996 1996 1995 1997
------------ ------------ ----------- ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net loss $ (935,248) $ (615,127) $ (913,082) $ (554,620) $(2,590,218)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 54,739 44,536 58,615 57,250 197,596
Increase (decrease) in:
Prepaid and other current
assets (5,687) 1,543 6,205 4,843 (13,034)
Accounts payable and
accrued liabilities 184,690 145,778 198,815 52,844 455,819
Accrued interest - related
parties 102,424 42,981 66,614 25,787 195,019
Due to ADTI (47,273) (66,568) (76,226) 135,608 124,915
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities (646,355) (446,857) (659,059) (278,288) (1,629,903)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of furniture and equipment (61,890) (14,325) (14,259) (1,834) (81,783)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Capital contributions -- -- -- -- 50,000
Proceeds from notes payable - related
parties 706,621 442,459 663,507 299,917 1,670,046
----------- ----------- ----------- ----------- -----------
Net cash flows from financing
activities 706,621 442,459 663,507 299,917 1,720,046
----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH (1,624) (18,723) (9,811) 19,795 8,360
CASH, at beginning of period 9,984 19,795 19,795 -- --
----------- ----------- ----------- ----------- -----------
CASH, at end of period $ 8,360 $ 1,072 $ 9,984 $ 19,795 $ 8,360
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for:
Interest $ 27,757 $ 14,602 $ 18,446 $ 2,561 $ 48,764
=========== =========== =========== =========== ===========
Investment in ADTI, received in
exchange for capital $ -- $ -- $ -- $ -- $ 542,740
=========== =========== =========== =========== ===========
See accompanying notes to these financial statements.
F-12
</TABLE>
<PAGE>
DISPLAY OPTICS, LTD.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Information Subsequent to June 30, 1996 is Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Nature of Operations - Display Optics, Ltd. ("DOL") was formed as a limited
partnership under the laws of the state of Colorado in December 1993. DOL
is engaged primarily in developing and manufacturing full color video
display systems. DOL's system uses a light valve projector currently
available or other suitable alternatives to project high intensity images
through optic fibers to a fiber optic screen.
Development Stage Company/Going Concern - 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. DOL is in the development stage, as it has not yet
commenced principal operations and has not yet realized significant
revenues from its planned operations. Since inception, DOL has devoted most
of its efforts on raising capital and developing the technology. Its
proposed operations are subject to all of the risks inherent in the
establishment of a new business enterprise and DOL has incurred substantial
losses since inception and has few liquid assets. These issues raise
substantial doubt about DOL's ability to continue as a going concern. DOL's
continued existence is dependent upon its ability to: develop its
technology into a commercially viable product; successfully market its
product; obtain additional sources of funding through outside financing or
equity investments; and achieve and maintain profitable operations.
Cash and Cash Equivalents - For purposes of the Statements of Cash Flows,
DOL considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
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 3 to 5 years) of the
respective assets. Depreciation expense for the year ended June 30, 1996
was $3,310.
Intangibles - Intangibles include the patents and technology related to
DOL's video display systems. This intangible is being amortized over 7.5
years. Amortization expense for the year ended June 30, 1996 was $55,305.
Research and Development - Research and development costs for new products
or product improvements are charged to expense as incurred.
Income Taxes - No provision has been made for income taxes since DOL is a
limited partnership. As such, the partners of DOL will report DOL's taxable
income or loss on their individual income tax returns.
Impairment of Long-Lived Assets - Effective July 1, 1996, the Company
adopted Financial Accounting Standards Board Statement 121 (FAS 121). In
the event that facts and circumstances indicate that the cost of assets or
other assets may be impaired, 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
F-13
<PAGE>
DISPLAY OPTICS, LTD.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Information Subsequent to June 30, 1996 is Unaudited)
cash flow value is required. The adoption of FAS 121 had no effect on the
unaudited March 31, 1997 financial statements.
Use of Estimates - The preparation of DOL's financial statements in
conformity with generally accepted accounting principles requires DOL'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 - In October 1995, the Financial Accounting
Standards Board issued a new statement titled "Accounting for Stock-Based
Compensation" (FAS 123). The new statement is effective for fiscal years
beginning after December 15, 1995. FAS 123 encourages, but does not
require, companies to recognize compensation expense for grants of stock,
stock options, and other equity instruments to employees based on fair
value. Companies that do not adopt the fair value accounting rules must
disclose the impact of adopting the new method in the notes to the
financial statements. Transactions in equity instruments with non-employees
for goods or services must be accounted for on the fair value method. DOL
has elected not to adopt the fair value accounting prescribed by FAS 123
for employees, and will be subject only to the disclosure requirements
prescribed by FAS 123.
Unaudited Information - The statement of operations for the nine-month
periods ended March 31, 1997 and 1996 was taken from DOL's books and
records without audit. However, in the opinion of management, such
information includes all adjustments (consisting only of normal accruals),
which are necessary to properly reflect the results of operations for the
nine months ended March 31, 1997 and 1996. The results of operations for
the interim periods presented are not necessarily indicative of those
expected for the year.
2. NOTES PAYABLE - RELATED PARTIES:
-------------------------------
DOL has loans from partners in DOL, Display Group, LLC (Group), and members
in Group. Group is the managing general partner in DOL. These loans are due
on demand and are convertible into partnership interests of DOL and are
ultimately convertible into shares of common stock of ADTI. In May 1997, as
part of the exchange agreement with ADTI, Group, and the owners of Group
and DOL (see Note 6), these notes were converted into shares of ADTI common
stock and Series C preferred stock. Furthermore, all accrued interest due
to the note holders was forgiven as part of the agreement.
3. RELATED PARTY TRANSACTION:
-------------------------
Advance Display Technologies, Inc. (ADTI) is a general partner of DOL. For
financial reporting purposes, DOL is considered as a research and
development partnership. As a result, all revenue and expenses earned and
incurred by DOL are also recorded as revenue and expense on the financial
statements of ADTI.
F-14
<PAGE>
DISPLAY OPTICS, LTD.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Information Subsequent to June 30, 1996 is Unaudited)
DOL has a $172,382 payable to ADTI as of June 30, 1996. This balance
represents amounts advanced to DOL by ADTI for research and development.
4. COMMITMENT:
----------
DOL leased office, research and development and manufacturing space under a
lease extending to December 31, 1998 at a monthly rental of $1,698.
Effective June 1, 1997, ADTI assumed the lease obligation. ADTI extended
the facility by 50% which increased the monthly rental fee to $2,546
effective August 1, 1997.
In June of 1995, DOL entered into a sublease for additional office space at
a monthly rate of approximately $1,600 plus a percentage of shared
expenses. This lease expired on June 30, 1997 and the premises were
vacated. Total rental expense was $43,596 and $23,039 for the years ended
June 30, 1996 and 1995, respectively.
5. PARTNERS' CAPITAL:
-----------------
DOL was organized as a limited partnership in December 1993. The
Partnership allows for the limited partners to receive 99% of all
distributions of available net cash flow until each partner has received,
on a cumulative basis, an amount equal to approximately 150% of their
contributions. ADTI, one of the general partners in DOL, will receive 99%
of all distributions thereafter.
The limited partnership interests are convertible into shares of ADTI
common stock. In May 1997, as part of the exchange agreement with ADTI,
Group, and the owners of Group and DOL (see note 6), these ownership
interests were converted into shares of ADTI common stock and Series C
preferred stock.
6. SUBSEQUENT EVENT:
----------------
In May 1997, DOL entered into an exchange agreement with ADTI, Group, and
the owners of Group and DOL. Under the terms of the agreement, all
partnership interests in DOL, membership interests in Group, convertible
debt and Series B preferred stock of ADTI held by certain investors were
exchanged for shares of ADTI common stock and Series C Preferred Stock,
thereby resulting in DOL and Group becoming wholly-owned subsidiaries of
ADTI. The exchanging parties were issued shares of ADTI common stock at the
same conversion rate to which they were entitled prior to the exchange. The
Series C Preferred Stock issued as part of the exchange entitles holders to
receive dividends if declared by the Board of Directors totaling, in the
aggregate, $.83 per share. Dividends on the Series C Preferred Stock shall
be paid before any dividends or other distributions shall be declared or
paid on ADTI's common stock. ADTI may elect to redeem some or all of the
F-15
<PAGE>
DISPLAY OPTICS, LTD.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Information Subsequent to June 30, 1996 is Unaudited)
Series C Preferred Stock, at its option, at the preferred stock's
liquidation value of $.67 plus any unpaid dividends. Holders may require
ADTI to redeem the Series C Preferred Stock any time after ADTI has fully
paid the dividend of $.83 per share or at any time after a change in
control of ADTI, as defined. If redemption, is done at the election of the
holder, ADTI has the option to redeem the Series C Preferred Stock by
issuance of either cash or ADTI's common stock.
F-16
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Display Group, LLC
Denver, Colorado
We have audited the balance sheet of Display Group, LLC ("Group") as of June 30,
1996 and the related statements of operations, changes in members' capital and
cash flows for the year ended June 30, 1996 and the period from inception (March
15, 1995) to June 30, 1995. These financial statements are the responsibility of
Group's management. Our responsibility is to express an opinion of these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. 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 presenta tion.
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 financial position of Display Group, LLC as of June
30, 1996 and the results of its operations and its cash flows for the year ended
June 30, 1996 and the period from inception (March 15, 1995) to June 30, 1995,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that Group
will continue as a going concern. As discussed in Note 1 to the financial
statements, Group has incurred substantial losses from operations and is in the
development stage, as it has not yet commenced principal operations and has not
yet realized significant revenues. These factors raise substantial doubt about
Group'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.
HEIN + ASSOCIATES LLP
Denver, Colorado
June 16, 1997
F-17
<PAGE>
DISPLAY GROUP, LLC
(A Development Stage Company)
BALANCE SHEETS
March 31, June 30,
1997 1996
----------- -----------
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash $ 2,641 $ 54,355
Interest receivable - DOL 109,785 46,103
Notes receivables - DOL 932,925 877,425
----------- -----------
Total current assets 1,045,351 977,883
INTANGIBLE ASSETS 225,000 225,000
----------- -----------
TOTAL ASSETS $ 1,270,351 $ 1,202,883
=========== ===========
LIABILITIES AND MEMBERS' CAPITAL
--------------------------------
CURRENT LIABILITIES:
Accrued interest payable to members $ 161,948 $ 67,567
Line-of-credit 299,505 299,505
Notes payable to members 762,400 757,400
----------- -----------
Total current liabilities 1,223,853 1,124,472
COMMITMENT AND CONTINGENCY (Note 4)
MEMBERS' CAPITAL:
Members' capital 103,127 103,127
Accumulated deficit (56,629) (24,716)
----------- -----------
Total members' capital 46,498 78,411
----------- -----------
TOTAL LIABILITIES AND MEMBERS' CAPITAL $ 1,270,351 $ 1,202,883
=========== ===========
See accompanying notes to these financial statements.
F-18
<PAGE>
<TABLE>
<CAPTION>
DISPLAY GROUP, LLC
(A Development Stage Company)
STATEMENTS OF OPERATIONS
FOR THE CUMULATIVE
PERIOD FROM FROM
INCEPTION INCEPTION
FOR THE NINE FOR THE (MARCH 15, (MARCH 15,
MONTHS ENDED YEAR 1995) 1995)
MARCH 31, ENDED THROUGH THROUGH
--------------------------- JUNE 30, JUNE 30, MARCH 31,
1997 1996 1996 1995 1997
------------- ------------ --------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME - DOL $ 84,529 $ 37,928 $ 59,671 $ 5,335 $ 149,535
COSTS AND EXPENSES:
General and administrative 2,240 5,008 5,018 235 7,493
Interest expense - members 114,202 49,076 79,083 5,386 198,671
--------- --------- --------- --------- ---------
Total costs and expenses 116,442 54,084 84,101 5,621 206,164
--------- --------- --------- --------- ---------
NET LOSS $ (31,913) $ (16,156) $ (24,430) $ (286) $ (56,629)
========= ========= ========= ========= =========
See accompanying notes to these financial statements.
F-19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DISPLAY GROUP, LLC
(A Development Stage Company)
STATEMENTS OF CHANGES IN MEMBER'S CAPITAL
FOR THE PERIOD FROM MARCH 15, 1995 (INCEPTION)
THROUGH MARCH 31, 1997 (UNAUDITED)
Members' Accumulated
Capital Deficit Total
------- ---------- --------
<S> <C> <C> <C>
MEMBERS' CAPITAL, March 15, 1995 (Inception) $ -- $ -- $ --
Capital contributions 91,668 -- 91,668
Net loss -- (286) (286)
-------- -------- --------
MEMBERS' CAPITAL, June 30, 1995 91,668 (286) 91,382
Capital contributions 11,459 -- 11,459
Net loss -- (24,430) (24,430)
-------- -------- --------
MEMBERS' CAPITAL, June 30, 1996 103,127 (24,716) 78,411
Net loss (unaudited) -- (31,913) (31,913)
-------- -------- --------
MEMBERS' CAPITAL, March 31, 1997 (Unaudited) $103,127 $(56,629) $ 46,498
======== ======== ========
See accompanying notes to these financial statements.
F-20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DISPLAY GROUP, LLC
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
FOR THE CUMULATIVE
PERIOD FROM FROM
INCEPTION INCEPTION
FOR THE NINE FOR THE (MARCH 15, (MARCH 15,
MONTHS ENDED YEAR 1995) 1995)
MARCH 31, ENDED THROUGH THROUGH
--------------------------- JUNE 30, JUNE 30, MARCH 31,
1997 1996 1996 1995 1997
----------- ----------- ------------ ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net loss $ (31,913) $ (16,156) $ (24,430) $ (286) $ (56,629)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Increase (decrease) in:
Accrued interest payable to
members 93,355 36,578 62,742 2,830 158,927
Interest receivable - DOL (62,656) (25,430) (43,329) (779) (106,764)
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by
operating activities (1,214) (5,008) (5,017) 1,765 (4,466)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to DOL (55,500) (438,459) (659,507) (217,918) (932,925)
Purchase of note receivable and security
interest -- (225,000) (225,000) -- (225,000)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities (55,500) (663,459) (884,507) (217,918) (1,157,925)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Capital contributions -- 11,459 11,459 91,668 103,127
Proceeds from notes payables to
members 5,000 612,400 757,400 -- 762,400
Proceeds from line-of-credit -- -- 129,505 170,000 299,505
----------- ----------- ----------- ----------- -----------
Net cash flows provided by financing
activities 5,000 623,859 898,364 261,668 1,165,032
----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH (51,714) (44,608) 8,840 45,515 2,641
CASH, at beginning of period 54,355 45,515 45,515 -- --
----------- ----------- ----------- ----------- -----------
CASH, at end of period $ 2,641 $ 907 $ 54,355 $ 45,515 $ 2,641
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION -
Cash paid for -
Interest $ 19,821 $ 12,498 $ 14,339 $ 2,561 $ 36,721
=========== =========== =========== =========== ===========
See accompanying notes to these financial statements.
F-21
</TABLE>
<PAGE>
DISPLAY GROUP, LLC
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Information Subsequent to June 30, 1996 is Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Nature of Operations - Display Group, LLC ("Group") was formed as a limited
liability company under the laws of the state of Colorado in March 1995.
Group was formed for the purpose of becoming the managing general partner
in Display Optics, Ltd. (DOL). Group has no operating activities and is
engaged primarily in raising capital (primarily from its members) which
was, for the most part, loaned to DOL to fund its operations.
Development Stage Company/Going Concern - 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. Group is in the development stage, as it has not yet
commenced principal operations and has not yet realized significant
revenues from its planned operations. Since inception, Group has devoted
most of its efforts on raising capital which, for the most part, has been
advanced to DOL. Its proposed operations, currently through DOL, are
subject to all of the risks inherent in the establishment of a new business
enterprise and Group has incurred losses since inception and has no liquid
assets. These issues raise substantial doubt about Group's ability to
continue as a going concern. Group's continued existence is dependent upon
its ability to: have DOL develop its technology into a commercially viable
product; successfully assist DOL to market the product; obtain additional
sources of funding through outside financing or equity investments; and
achieve and maintain profitable operations.
Cash and Cash Equivalents - For purposes of the Statements of Cash Flows,
Group considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
Intangibles - Intangibles include the costs incurred primarily to protect
DOL's interest in certain existing technology (see Note 4). This intangible
will be amortized over five years.
Income Taxes - No provision has been made for income taxes since Group is a
limited liability company. As such, the members of Group will report
Group's taxable income or loss on their individual income tax returns.
Impairment of Long-Lived Assets - Effective July 1, 1996, Group adopted
Financial Accounting Standards Board Statement 121 (FAS 121). In the event
that facts and circumstances indicate that the cost of assets or other
assets may be impaired, 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. The adoption of FAS 121 had no effect on the unaudited March
31, 1997 financial statements.
F-22
<PAGE>
DISPLAY GROUP, LLC
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Information Subsequent to June 30, 1996 is Unaudited)
Use of Estimates - The preparation of Group's financial statements in
conformity with generally accepted accounting principles requires Group'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 - In October 1995, the Financial Accounting
Standards Board issued a new statement titled "Accounting for Stock-Based
Compensation" (FAS 123). The new statement is effective for fiscal years
beginning after December 15, 1995. FAS 123 encourages, but does not
require, companies to recognize compensation expense for grants of stock,
stock options, and other equity instruments to employees based on fair
value. Companies that do not adopt the fair value accounting rules must
disclose the impact of adopting the new method in the notes to the
financial statements. Transactions in equity instruments with non-employees
for goods or services must be accounted for on the fair value method. Group
has elected not to adopt the fair value accounting prescribed by FAS 123
for employees, and will be subject only to the disclosure requirements
prescribed by FAS 123.
Unaudited Information - The statement of operations for the nine-month
periods ended March 31, 1997 and 1996 was taken from Group's books and
records without audit. However, in the opinion of management, such
information includes all adjustments (consisting only of normal accruals),
which are necessary to properly reflect the results of operations for the
nine months ended March 31, 1997 and 1996. The results of operations for
the interim periods presented are not necessarily indicative of those
expected for the year.
2. NOTES RECEIVABLES - DOL:
-----------------------
Group has made loans to DOL to fund its operations. These loans are due on
demand, are secured by essentially all of DOL's assets, and are ultimately
convertible into shares of common stock of ADTI. These loans accrue
interest at 10% per annum and mature in December 1998. As of June 30, 1996,
Group had made loans to DOL totaling $877,425. In May 1997, as part of the
exchange agreement with ADTI, Group, and the owners of Group and DOL (see
Note 6), these notes were converted into shares of ADTI common stock and
Series C preferred stock, which in turn, were used to satisfy a portion of
the conversion obligations of Group's notes payable (see Note 3).
3. NOTES PAYABLE AND LINE-OF-CREDIT:
--------------------------------
Group has available $300,000 under a line-of-credit pursuant to a loan
agreement. Borrowing under this line-of-credit bears interest at the
lenders prime rate plus 1%, payable quarterly with outstanding principal
due July 3, 1997. This note is personally guaranteed by four of Group's
members. The outstanding balance on this line-of-credit was $299,505 at
both June 30, 1996 and 1995. In May 1997, the line-of-credit was
transferred to the guarantors of the line in exchange for shares of ADTI
common stock. Group has no further obligation under this line.
F-23
<PAGE>
DISPLAY GROUP, LLC
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Information Subsequent to June 30, 1996 is Unaudited)
Group also has loans from its members. These loans are due on demand and
are convertible into partnership interests of DOL and are ultimately
convertible into shares of common stock of ADTI or a membership interest in
Group. These loans accrue interest at prime plus 3% per annum. In May 1997,
as part of the exchange agreement with ADTI, Group, and the owners of Group
and DOL (see Note 6), these notes were converted into shares of ADTI common
stock and Series C preferred stock. Furthermore, all accrued interest due
to the note holders was forgiven as part of the agreement.
4. COMMITMENT AND CONTINGENCY:
--------------------------
During fiscal 1996, Group brought action in Colorado against American
Consolidated Growth Corporation (ACGC) under the default provisions of a
debenture which served as collateral for a note in the principal amount of
$2,175,000. This note was purchased by Group from the Resolution Trust
Company (RTC) for $225,000. Because the purchase of the note by Group
protected the ownership of the technology from unaffiliated parties, Group
has capitalized the costs to acquire this note as an intangible which will
be amortized over five years.
In a complex series of transactions, the RTC acquired this note which was
executed by a Texas corporation and guaranteed by the sole shareholder of
that corporation. The debenture, which served as collateral for the note
was acquired by Group and was initially collateralized by ADTI's technology
which was contributed as capital to DOL. In connection with its actions
against ACGC and pending final judgment, Group has been awarded temporary
ownership rights of approximately 1,400,000 shares of ADTI's common stock
held by ACGC. Group contends that these shares were the proceeds from the
exchange of the technology from ACGC to ADTI.
Group also brought action in Texas against the payor and guarantor on the
note seeking payment on the note in the principal amount of $2,175,000 plus
interest (18% per annum default rate). In defense of this civil action,
defendants have raised as an affirmative defense and counterclaim an
alleged agreement which the defendants claim obligated ADTI to relieve ACGC
from liability on a debenture in the amount of $2,175,000 and implicitly
contend that this would have discharged defendants' liability to Group on
the Note and Guarantee. Group was not a party to the alleged agreement and
the counterclaim does not address how, if at all, Display Group is
obligated on the agreement.
5. SUBSEQUENT EVENT:
----------------
In May 1997, Group entered into an exchange agreement with ADTI, DOL, and
the owners of Group and DOL. Under the terms of the agreement, all member
interests in Group, partnership interests in DOL, convertible debt and
Series B preferred stock held by certain investors were exchanged for
shares of ADTI common stock and Series C Preferred Stock, thereby resulting
in Group and DOL becoming wholly-owned subsidiaries of ADTI. The exchanging
parties were issued shares of ADTI common stock at the same conversion rate
to which they were entitled prior to the exchange. The Series C Preferred
Stock issued as part of the exchange entitles holders to receive dividends,
F-24
<PAGE>
DISPLAY GROUP, LLC
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Information Subsequent to June 30, 1996 is Unaudited)
if declared by the Board of Directors, totaling, in the aggregate, $.83 per
share. Dividends on the Series C Preferred Stock shall be paid before any
dividends or other distributions shall be declared or paid on ADTI's common
stock. ADTI may elect to redeem some or all the Series C Preferred Stock,
at its option, at the preferred stock's liquidation value of $.67 plus any
unpaid dividends. Holders may require ADTI to redeem the Series C Preferred
Stock any time after ADTI has fully paid the dividend of $.83 per share or
at any time after a change in control of ADTI, as defined. If redemption,
is done at the election of the holder, ADTI has the option to redeem the
Series C Preferred Stock by issuance of either cash or ADTI's common stock.
F-25
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ADVANCE DISPLAY TECHNOLOGIES, INC.
----------------------------------
(Registrant)
Date: September 29, 1997 /s/ DARRELL D. AVEY
------------------------------
Darrell D. Avey
Chairman of the Board
Acting Chief Financial Officer
