UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
Commission File Number 0-15224
ADVANCE DISPLAY TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-0969445
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(State of incorporation) (I.R.S. Identification No.)
1251 S. Huron, Unit C, Denver, Colorado 80223
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(Address of principle executive offices) (Zip Code)
(303) 733-5339
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(Registrant's telephone number including area code)
Securities registered under Section 12 (b) of the Exchange Act:
None
Securities registered under Section 12 (g) of the Exchange Act:
Title of Class
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Common Stock $.001 par value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [ ]No [X]
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [ ]
The issuer did not report any revenues for the fiscal year ended June 30,
1996.
The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed as the average bid and asked prices as of March 13,
1997 was $362,704. As of March 13, 1997 registrant had outstanding 3,834,055
shares of Common Stock.
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Table of Contents
Page
Part I.
Item 1. Business.......................................................... 3
Item 2. Description of Property...........................................12
Item 3. Legal Proceedings.................................................12
Item 4. Submission of Matters to a Vote of Security Holders...............15
Part II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder .................................................15
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................16
Item 7. Financial Statements and Supplementary Data.......................20
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure......................................20
Part III.
Item 9. Directors and Executive Officers of the Registrant and ...........21
Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation.............................................23
Item 11. Security Ownership of Certain Beneficial Owners
and Management...............................................25
Item 12. Certain Relationships and Related Transactions.....................32
Item 13. Exhibits, Financial Statement Schedules and Reports
on Form 8-K...................................................34
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PART I
Item 1. BUSINESS
Introduction
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Advance Display Technologies, Inc. ("ADTI") is a development stage company,
incorporated under the laws of the State of Colorado on October 7, 1983. ADTI
was formed to engage in the business of manufacturing full color video screen
systems. ADTI completed its initial public offering in April, 1986, selling five
million shares of its common stock for net proceeds of $4.2 million. Since that
date, the ADTI's common stock has been split such that each 50 shares previously
outstanding are now equal to one common share. ADTI has not received material
revenues from the sale of its products, as its activities since inception have
been primarily focused on research and development of its technology and raising
capital. Common stock of ADTI is currently traded over the counter and is quoted
on the electronic bulletin board under the symbol ADTI.
In December, 1993, ADTI organized a limited partnership to continue
research and development, manufacturing and marketing of its products. Display
Optics, Ltd. ("Partnership") is a Colorado limited partnership of which ADTI
serves as a general partner and Display Group, LLC acts as the managing general
partner. ADTI transferred its technology, including patent rights and a
non-exclusive license agreement to the Partnership in exchange for a then
majority interest in the Partnership. ADTI's majority interest is subject to a
reduction upon conversion of rights granted to additional investors. (See - "The
Partnership" below.) ADTI currently conducts substantially all of its business
through the Partnership. Accordingly, all references to "the Company" and its
operations since December 1993 in this report refer to the Partnership unless
specifically stated otherwise.
The Company's system (the "FiberVision System" or "System") uses a video
light source to project images through optical fibers to a screen designed so
that the image is enlarged approximately thirty-six (36) times (the "FiberVision
Screen" or "Screen"). Possible applications include video display systems for
indoor stadiums and arenas, point-of-purchase advertising in such markets as
shopping malls, department stores and supermarkets, as well as advertising in
such locations as airports, trade shows and race tracks.
The Company's activities since inception have been directed to refining the
FiberVision Technology, limited marketing and obtaining additional working
capital. The Company is in the development stage, has not commenced principal
operations and has not sold significant products to date.
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The Product
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The FiberVision Screen consists of an apparatus in which layers of optical
fiber ends are accurately aligned between black plastic spacers. A block of
spacers and fiber ends bonded together is cut at an angle so that each fiber has
a larger opening at the end where light exits. The spacer block thus becomes a
small, black, video screen segment described as a screen module. This screen
module magnifies the image up to 36 times and is the display unit's faceplate.
Any number of 6 inch x 6 inch screen modules may be connected to form a
screen of virtually any size. For example, 432 modules could be connected to
form one 9' x 12' screen containing 442,368 color pixels. The number of pixels
per module can also be changed by simply increasing the space between fibers or
adding or subtracting fiber or by using different sizes of fiber to obtain the
resolution level desired.
The FiberVision Screen is illuminated by projecting an image onto the rear
of the screen where the fiber optic strands are coherently bundled together into
a matrix 36 times smaller than the screen front surface. For instance, a 9' x
12' screen would have an image input matrix on the rear of the screen only 18" x
24" in size. The projected image travels through the fibers and appears on the
screen surface 36 times larger. Focusing and projecting an image onto the input
matrix significantly reduces the throw distance necessary for projection
displays. Management believes this offers an advantage for large screen display
applications.
The Company's video screen technology has unique features compared to other
display screen products. The fiber optic screen is a passive light transfer and
magnification device constructed of very durable plastic material. The screen
has no moving parts which will wear out or need replacement. As video projection
technology products continue to become higher in quality, brighter and lower in
cost, replacing projectors (the light source) is easily accomplished.
Replacement of the fiber optic screen, however, is not necessary in permanent
installations.
The Company has several options to choose from relating to the use of
various projector light source technologies and products. At this time, the
Company plans to use existing video light source products manufactured by a
number of electronics companies to illuminate the screen. To the date of this
report, ADTI has sold one complete FiberVision System (including laser
projectors), one Screen, components to build additional Screens and technology
services relating to the building of a Screen. All of the foregoing products and
services were sold to Mitsubishi Rayon in the late 1980's. In addition, the
Company sold one 9'x12' screen which was installed at the National Western Event
Center in Denver, Colorado in January, 1997.
FiberVision Systems are less costly to produce than competitive systems due
to the elimination of the expense of numerous light bulbs or cathode ray tubes
("CRT's") and complex electrical wiring. Elimination of these components will
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reduce maintenance expenses because the fiber optic screen is a "passive"
display system and contains no electrical components or moving parts. All
electrical components are constrained to the imaging devices and are typical of
current electronic projection technology.
The Company presently anticipates that it will concentrate its marketing,
manufacturing and development efforts on this product.
The Company has also developed a method for combining the fiber optic
modules with a Light Emitting Diode ("LED") image emitter array board. The
Company produced an engineering proof of concept demonstrating the feasibility
of combining the technologies. Due to the expense and complexity of
manufacturing this technology, along with the recent emergence of extremely
bright conventional video projection products, ongoing development of the LED
image emitter array board has been delayed pending additional financing.
The Company also successfully completed the development of the electronic
hardware and software architecture necessary to control this LED image emitter
array board. The Company is currently considering using this LED technology as a
stand alone product rather than mating the LEDs to the fiber modules. The
technology developed by the Company for use with LEDs makes it possible to
control LED display boards of any size, configuration or resolution for displays
requiring video speed capability. The Company is currently evaluating this
product for consideration as a possible second technology to be marketed in the
outdoor large screen display market.
The quality of a video image depends upon the number of dots or "pixels"
which form the picture and the contrast ratio. The Company's screen may contain
up to twenty times the number of pixels as competitive large displays.
The contrast ratio for a video screen depends upon the ambient light
reflected back to the viewer's eyes by the screen. Since the FiberVision Screen
is black, very little ambient light is reflected. This results in a greater
contrast ratio.
Current developments
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Sales. During fiscal 1996, projection technology took a major leap in terms
of brightness and resolution capabilities. At the same time, prices for
projector products have gone down and continue to decline. A typical 9'x12'
large screen bulb matrix full color display system in a sports arena contains
approximately 80,000 bulbs (only 20,000 pixels). The same size FiberVision
display contains 442,368 pixels which use no energy. The entire display can be
illuminated by a single light source which runs off a AC 110V power. The fiber
optics do not burn out or need replacement. Subsequent to fiscal year end, the
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Company sold and installed one 9'x12' screen. In addition to providing the
Company with its first revenues from the sale of product since 1986, the Company
plans to use this installation as a marketing showpiece.
Partnership. Effective December, 1993, ADTI organized Display Optics, Ltd,
a Colorado limited partnership (the "Partnership"), to develop, manufacture and
market the fiber optic product line. ADTI acts as a general partner and Display
Group, LLC, a Colorado limited liability company, acts as Managing General
Partner of the Partnership. The Partnership has issued units of partnership
interest to qualified investors under exemptions from the registration
requirements of the Securities Act of 1933, as amended and applicable state
securities laws. There are currently six equity investors in the Partnership in
addition to ADTI, and it is anticipated that additional units will be offered in
the future. The Partnership has issued an aggregate of six limited partnership A
units for $50,000 and ADTI has issued 2,991,474 shares of series B preferred
stock for $350,000 to these investors. In addition, through January 31, 1997,
Display Group, the initial investors and additional investors have loaned to
Display Optics $1,552,846, the total of which is convertible into B units which
in turn can be converted into 11,808,617 shares of common stock of ADTI.
Certain of these investors also made loans to Display Group, LLC for the
purpose of acquiring the security interest in the technology which was
transferred to DOL and for other administrative costs. These loans are also
convertible into Class B units of DOL and ultimately convertible into shares of
common stock of ADTI. As of January 31, 1997, these additional loans totaled
$232,000 which are convertible into 23.21 Class B units and ultimately
convertible into 1,765,057 shares of common stock of ADTI. The B units are
currently oversubscribed which the partners of Display Optics, including ADTI,
intend to cure by amending the Partnership Agreement to provide for a greater
number of authorized B units. (See Item 3. Management's Discussion and Analysis,
and Item 12. Certain Relationships and Related Transactions).
Proceeds from the sale of partnership units and debt financing have been
utilized for administrative expenses, research and development on the LED video
technology (which has been indefinitely delayed), and to further develop the
Company's fiber optic technology and perfect light sources specific to end user
applications. Partners in the partnership will share in any economic benefits
generated from sale of the Company's products or technology. ADTI has
contributed all of its patents, technology and related know how to the
Partnership in exchange for its partnership interest. In exchange for this
contribution, ADTI will receive the following allocation:
(a) One percent of all losses until each limited partner has been allocated
an amount of loss on a cumulative basis during the term of the Partnership, an
amount equal to all capital contributions of the limited partners, and
thereafter 99% of all losses generated by the Partnership.
(b) A share in profits equal to the amount of losses previously allocated
to ADTI on a cumulative basis, thereafter, one percent until each limited
partner has received in the aggregate an amount equal to $5,000 per unit, and
thereafter 99% of all profits generated by the Partnership.
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(c) One percent of all distributions of available net cash flow until each
limited partner has received on a cumulative basis an amount equal to $15,000
per limited partnership unit, and thereafter 99 percent of all distributions of
available net cash flow.
Units of partnership interest carry conversion rights pursuant to which the
limited partners have the right to convert units into common stock of ADTI on
the following basis:
i. Class A limited partners may convert each unit into 8,333 shares of
ADTI's common stock.
ii. Each Class B unit may be converted into 76,045 shares of common
stock.
iii. Each Class C unit may be converted into 2,000 shares of common
stock.
Such units may be converted at any time at the option of the limited
partner in accordance with applicable provisions of the 1933 Act. In exchange
for contribution of its patent, technology and other proprietary rights, ADTI
received a majority interest in the partnership, currently recorded at $403,619
net of amortization at June 30, 1996. Further, it is management's understanding
that Display Group and related parties, through one or more transactions, intend
to propose that they contribute certain assets, including the security interest
and all debt and equity of the Partnership to the Company for an economic
equivalent of equity in the Company.
Management efforts during the fiscal year ended June 30, 1996 were primarily
focused on raising additional capital, developing and demonstrating the
technology, and taking steps necessary to preserve and protect the technology.
Mitsubishi Relationship
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In December of 1985, ADTI executed a letter of intent with Mitsubishi Rayon
of Japan outlining a number of interests which led to an ongoing active
relationship for more than three years. Pursuant to additional agreements
entered into with Mitsubishi Rayon, ADTI a) licensed its technology to
Mitsubishi Rayon, exclusive in Japan and non-exclusive throughout the world
(excluding North America and products for the home television market) for an
eleven year period; b) sold them 600,000 shares of common stock of ADTI; and, c)
sold product to Mitsubishi Rayon. ADTI received payments of $4,400,000 and
future royalties based on a percentage of sales (as specified) under these
agreements. Minimum annual royalties, as defined, were prepaid in the amount of
$350,000 in December of 1988. Mitsubishi experienced many of the same
difficulties with the projection aspect of the product as ADTI. To the best
knowledge of management, Mitsubishi currently is not pursuing further
development of the Company's products. Management is not aware of any additional
royalty fees due ADTI.
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Manufacturing
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ADTI and the Company have developed and patented a semi-automated
manufacturing system for production of the screen segments. The system
automatically aligns the optical fibers allowing the fiber optics and plastic
spacers to be bonded into screen blocks. The screen blocks are then manually cut
into two screen segments. This process is currently completed by the Company but
on a larger scale may be subcontracted to third parties, either totally or in
part.
Manufacturing has not been a material part of the business to date.
However, the Company recently manufactured a 9' x 12' FiberVision screen for
sale. Screen modules were manufactured by Company employees . Final assembly of
the screen was also completed by Company employees. The screen structure and
installation were contracted to third parties.
Raw Materials
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Procurement of raw materials has not been a significant factor in the
Company's operations due to the early stages of manufacturing in which the
Company is engaged. Raw materials required to produce the Screen consist
primarily of optical fibers and plastic spacers. The Company currently obtains
its fibers from Mitsubishi Rayon and Toray Industries, Inc., both of Japan. The
plastic spacers are manufactured by one plastics molding company in Colorado.
Spacers could be obtained from a number of alternate sources. Other components
such as glue, steel, aluminum, etc. are readily available.
Marketing
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It is the Company's intention to continue to develop products for the small
screen video display market which includes televisions and computer screens.
However, the Company will also seek to sell its products in other markets such
as the large screen market, while development continues for the smaller screen
applications. The total large screen market represents approximately $3.1
billion annually. Targets for the Company in the large screen market include
sports facilities, trade show exhibitors, and users of message boards and
signage.
The Company has made one commercial sale of the FiberVision Screen (see
"Sales" below) due to multiple factors including the lack of adequate projection
systems and the lack of brightness of prior screens. In addition, the Company
has not had the working capital necessary to aggressively market its products.
With the recent emergence of very bright projection technology products and
anticipated capital infusion from various sources, the Company expects to
significantly expand its marketing in an effort to produce additional sales in
the near future. There can be no assurance, however, that additional capital
will be obtained or that the brightness levels of projectors available at this
time are sufficient to make the FiberVision Screen marketable.
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Competition
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Management is not aware of any other products on the market which are based
on the same technology as the FiberVision System. However, the Company is aware
that Toray Industries, Inc., one of the Company's potential suppliers of fiber,
is currently experimenting in the development of fiber optic video displays.
InWave, Inc. of Eugene, Oregon also manufactures a fiber optic display screen.
InWave is currently marketing its product for advertising applications. The
fiber optic display sold by InWave is much lower in resolution than the
FiberVision product and is manufactured much differently. To the best of the
Company's knowledge, the InWave product is made entirely by a manual process and
does not utilize an automated manufacturing method. The Company has several
patents on its screen technology and the manufacturing method for the screen
which precludes competitors from using exactly the patented technology which is
used by the Company. Additionally, the Company intends to file for new patents
on proprietary developments. There is no assurance that the products of the
Company will be perceived in the industry as favorably competitive to the
products described below.
Light Bulb or CRT Systems: Several companies, including Sony, Panasonic,
and Mitsubishi, manufacture large video screens which are based on light bulb or
CRT technology. These systems are potentially competitive with the FiberVision
system. In the opinion of management, the drawbacks of such systems in
comparison with the FiberVision System are low picture quality, high
maintenance, high electricity consumption, height, weight, and high cost.
Projection Systems: Video projectors are good for light controlled
environments where a long throw distance necessary for creating large images
isn't a problem. Unless at night, these projectors must be used indoor. Poor
viewing angle and the need for a long throw distance are drawbacks to video
projectors.
The FiberVision display screen has been operational for commercial use
since late 1987. The product has been delayed, however, from becoming a
commercially viable system because of lack of screen brightness, primarily
related to inadequate light sources.
The FiberVision Screen eliminates the necessity of having a projector
positioned 12' to 15' away in order to produce a large display image. Currently,
the FiberVision System can be configured so that total depth of the system is
less than 3' with a projected image throw distance of approximately 12 to 15
inches. This is a significant advantage when space limitations are an important
consideration.
Videowalls: Videowalls consist of many Projection Televisions (PTV),
similar to those used as big screens for home use, stacked upon each other to
form one giant screen. Less expensive than the CRT and light bulb displays, the
Videowall is an alternative for video reinforcement for sports events, concerts,
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trade shows, conventions and other special events. Poor viewing angle, visible
seams, uniform color and brightness difficulty and lack of brightness for
outdoor use are existing problems.
The Company is subject to active competition in the sale of its products
from both domestic and foreign companies, substantially all of which have
financial resources and production capabilities far greater than those of the
Company. Many other competitors also have established products. The Company is
at a substantial competitive disadvantage because of the new technology upon
which its products are based and the limited track record of those products.
Many potential purchasers are reluctant to commit substantial resources to the
purchase of products based on new technology, even if such new products have a
lower purchase price.
Research and Development
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During fiscal 1996, the Company's primary research and development
activities were related to developing the integration of the semiconductor light
source made of light emitting diodes ("LED") to provide illumination for the
fiber optic screen. In September, 1996, the Company was able to successfully
demonstrate a proof of concept LED prototype array board. The board was
approximately 2"x6" in size and was capable of controlling 4,096 pixels combined
over that same area. This size configuration was originally designed in an
effort to directly mate the LED array to the fiber optic module providing a
light source for the display screen which would combine LEDs and fiber optics
together.
The recent emergence of video projector products which provide sufficient
brightness to the fiber optic screen has resulted in a decision by the Company
to proceed with commercial projectors currently available and not combine the
LED technology with fiber optic modules. The Company believes, however, that the
LED technology may represent a future stand alone product and is continuing to
explore this potential technology. Importantly, the Company was able to
successfully develop the electronic hardware and software architecture necessary
to control a display board made up entirely of LEDs. This makes it possible to
control LED (or any other bulb array technology) boards of any size,
configuration, or resolution for displays requiring video speed, full color
capability. This potential product is being evaluated for possible use in large
screen outdoor applications.
During fiscal 1996, the Company also continued to make improvements to the
screen. Most improvements were focused on the integration of new projection
technology to the fiber optic screen. In addition, many cosmetic improvements
related to the screen to make it more efficient and uniform in appearance have
been made during 1996. Approximately $387,209 was spent on research and
development by Display Optics during the fiscal year ended June 30, 1996.
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Proprietary Rights
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The Company's product is predicated on a proprietary fiber optic display
module with coherently ordered fibers which can be designed and configured in a
variety of sizes, shapes and resolution to provide large and small display
screen products. Since its inception, the Company has been issued various
patents covering its technology, products, components, assembly methods and
processes, primarily relating to the fiber optic module. The first patent for
the screen and manufacturing method for the screen was filed in February 1984
and subsequently issued in March, 1987. The original holder of this patent
assigned all his rights to patents owned or thereafter owned or controlled by
him and all technology, processes, formula and know how, that relate directly or
indirectly to fiber optics display technology, whether owned or controlled
thereafter, to the Company for a two percent interest in the Company's net
income, as defined.
The Company has subsequently been granted three additional patents covering
the design and manufacturing process for the FiberVision Screen. One of the
additional patents which was considered by management to be non-essential has
expired. Preservation of existing patents and related technology and any ongoing
enhancements is a top priority for management. Patents are issued for a period
of 17 years and may not be renewed.
Technology licensed from Visual Optics, Inc. which was under development by
the Company in fiscal 1996 to refine the light source for the fiber optic screen
was the subject of a dispute subsequent to fiscal year end. ADTI, the
Partnership and Display Group reached a settlement whereby Visual Optics
assigned to the Company the patent previously licensed on a non-exclusive basis
to ADTI and transferred to the Partnership. The Company has currently delayed
further development on this technology for use with the fiber optic screen,
however, the technology will be evaluated for development as a future stand
alone product.
Technology for manufacturing FiberVision Systems has been developed by the
Company in strict confidence. All employees and key consultants with access to
information about manufacturing techniques are required to execute
non-disclosure statements. (See Item 3. "Legal Proceedings" for a discussion of
certain claims potentially affecting the Company's technology.)
Government Regulations
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Certain manufacturing processes used by the Company required small
quantities of toxic materials consisting of glue and cleaning solvents for which
there are conventional, standard neutralizers. These materials require the
execution of safety procedures for safe handling. No unusual equipment or
facilities are required to conform to environmental regulations. The Company
will collect all waste solvents and solid materials and may use subcontractors
to destroy toxic chemicals. Management estimates the cost of such procedures and
subcontractors will average less than $2,000 per year.
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Employees
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ADTI has no full or part time employees as all operations are currently
conducted by the Partnership. At the date of this report, the Partnership has
six full time and two part time employees who conduct research and development,
production, marketing and administrative functions. The Company anticipates
employment of additional staff as manufacturing requirements dictate and working
capital permits. The officers of ADTI are not paid by ADTI. They were employees
of and paid by the Partnership during the fiscal year ended June 30, 1996. The
Partnership also retains various consultants on a contract basis as needed for
management, legal and accounting services.
Item 2. DESCRIPTION OF PROPERTY
ADTI currently occupies, with the Partnership, office, R & D and
manufacturing space at 1251 South Huron, Units B and C, Denver, Colorado 80223.
The facility has a total of 4,200 square feet at a current rental cost of
$1,697.50 per month which is paid by the Partnership. Of the total space,
approximately 40 percent is office space and 60 percent is R & D and
manufacturing area. The lease continues until December 31, 1997. ADTI may
terminate the lease prior to December 31, 1997 by providing written notice to
the landlord 90 days prior to vacating the premises and paying a fee equal to
one monthly rental payment. Management believes this space to be adequate for
its R&D and manufacturing needs for the immediate future, and if required, does
not expect any difficulties in attaining additional space.
In June of 1995, Display Optics, Ltd. entered into a sub-lease for
additional office space at 5251 DTC Parkway, Suite 1210, Englewood, CO 80111.
The facility has a total of 4,150 square feet, of which Display Optics occupies
approximately 475 square feet exclusively and shares common areas comprising
approximately 1,050 square feet. The current rent cost to Display Optics for
this facility is $1,611.41. Other office expenses are shared based on percentage
of usage. The sub-lease term is for two years and expires on June 30, 1997.
Item 3. LEGAL PROCEEDINGS
ADVANCE DISPLAY TECHNOLOGIES, INC., et al. vs. VISUAL OPTICS, INC., et al.
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The Company is a plaintiff in a civil action pending in the United States
District Court for the District of Colorado, captioned Advance Display
Technologies, Inc., Display Optics, Ltd. And Display Group, LLC, Plaintiffs vs
Visual Optics, Inc., Michael A. Nixon and Jeffrey D. Blackard, Defendants, Civil
Action No. 96-D-1616 (the "Civil Action"). The Civil Action was brought to
enforce Plaintiff's rights under an agreement executed with Defendants Visual
Optics, Inc. and Michael A. Nixon. Plaintiffs contended that Defendants, Michael
A. Nixon and Jeffrey D. Blackard, are officers, directors and principal
shareholders of Defendant Visual Optics.
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The Complaint filed on Plaintiff's behalf seeks declaratory and other
relief with regard to an exclusive license agreement executed by the parties.
Plaintiffs contend that what was once a nonexclusive license with regard to LED
technology combined with fiber optic screens was converted to an exclusive,
perpetual and worldwide license by an agreement dated February 9, 1995. This LED
technology was in development by the Company in an effort to improve the
performance of its fiber optic screen technology. Plaintiffs sought injunctive,
declaratory and compensatory relief against the Defendants for an alleged breach
of that agreement. The Complaint sought a preliminary and permanent injunction
enjoining the Defendants, and each of them, from transferring rights to the
technology, soliciting rights to the technology or disclosing any confidential
information regarding the technology to any third party. Plaintiffs also sought
a declaration that the license was exclusive, perpetual and worldwide and sought
damages for breach of the agreement.
The parties have executed an agreement to settle the dispute represented by
the Civil Action. Plaintiffs and Defendants have agreed to resolve the Civil
Action and dismiss the case. The principle terms of the settlement include the
following:
1. The Company has received a transferable, royalty-free, assignment of
the patent which was the subject of the original dispute for the full
term of the patent.
2. All rights, title and interest in any intellectual property developed
in whole or in part by Defendants and related in any way to the
technology are the sole and exclusive property of the Plaintiffs.
3. Plaintiff Display Group, LLC will pay $41,000 to Defendants.
4. Defendant Michael Nixon has resigned as an officer and director of
ADTI and terminated his employment agreement with ADTI.
5. The parties have executed reciprocal releases as to all claims
encompassed in the Civil Action.
6. The Defendants shall return all stock of the Company owned by them to
Display Group, LLC, believed to be 350,000 shares of Common Stock.
7. The Civil Action has been dismissed with prejudice.
DISPLAY GROUP, LLC vs. AMERICAN CONSOLIDATED GROWTH CORPORATION.
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This civil action involves ownership of a substantial portion of the issued
and outstanding Common Stock of ADTI. Plaintiff Display Group, LLC filed a civil
action dated July 19, 1996 against American Consolidated Growth Corporation and
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AGT Sports, Inc. in the Arapahoe County District Court, Civil Action No.
96-CV1560, seeking ownership of approximately 1,400,000 shares of Common Stock
of ADTI pursuant to a security interest owned by the Plaintiff. That security
interest, in turn, was acquired from the Resolution Trust Corporation ("RTC")
pursuant to a public sale.
Pursuant to an order of the District Court dated October 9, 1996, the
Common Stock which is the subject of this dispute was released to Plaintiff
Display Group. Pursuant to the Court's Order, Plaintiff is entitled to possess,
use and exercise voting rights of the Common Stock pending final judgement on
its claim for possession. Display Group has filed a motion for summary judgement
to expedite consideration of its final claim.
The security interest acquired by Display Group also encompasses certain of
the Company's assets. In a transaction which originated in 1988, certain of the
Company's intangible assets, including patents and extensions of patents, were
subject to a security interest in favor of a third party. That security interest
arose in conjunction with execution of a debenture by ADTI. A second security
interest arose from the Company's efforts to obtain release from that debenture
and the sale of the Company's technology to a third party. The assets which were
subsequently reacquired by the Company, are still subject to the security
interest.
The assets acquired by Display Group from the RTC and assigned by the FDIC
include the security interest in those intangible assets. As of the date of this
report, and to the best of management's knowledge, no action has been undertaken
by Display Group to enforce its security interest against the company's assets.
Further, it is management's understanding that Display Group and related
parties, through one or more transactions, intend to propose that they
contribute certain assets, including the security interest and all debt and
equity of the Partnership to the Company for an economic equivalent of equity in
the Company. Consummation of those transactions would effectively extinguish any
claim under the security interest in the Company's assets. However, as of the
date of this report, no transfer has occurred and there is no assurance that
such transfer will be consummated in the future.
DISPLAY GROUP, LLC vs CORPORATE PARTNERS, INC. and JEFFREY S. ROBINSON
- ----------------------------------------------------------------------
This Civil action arises from the same loan package acquired by Display
Group, LLC from the RTC that is described above regarding the lawsuit on the
collateral for this loan against American Consolidated Growth Corporation.
Plaintiff Display Group, LLC filed a civil action against Corporate Partners,
Inc. ("CPI") and Jeffrey S. Robinson in the District Court of Lubbock County ,
Texas, the 140th Judicial District, Civil Action No. 96-557024, seeking judgment
on a Renewal Promissory Note executed by CPI and assigned to Display Group in
the approximate amount of $2.1 million with an 18% default rate accruing since
October, 1990. Mr. Robinson personally guaranteed the Note.
Display Group intends to file a motion for Summary Judgment in this matter.
In the event that Display Group is awarded a judgment in this Civil Action, it
is Management's understanding that any funds obtained by the Plaintiff, either
14
<PAGE>
through collection or settlement, will accrue to the benefit of the Partnership
in consideration for its payment of the legal fees associated with these claims.
However, there can be no assurance that the Plaintiff will prevail.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the security holders during the fourth
quarter of ADTI's fiscal year.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table shows the range of high and low bids for ADTI's common
stock for the last two fiscal years. Since completion of its public offering in
1986, ADTI 's securities have traded over the counter and the common stock is
currently quoted on the electronic bulletin board maintained by the NASD and is
listed in the pink sheets maintained by members of the NASD and published by the
National Quotation Bureau. Trading in the common stock of ADTI is very limited
at present. The quotations represent prices between dealers as shown on the
electronic bulletin board, do not include retail markup, markdown or
commissions, and may not necessarily represent actual transactions.
Fiscal Quarter Ended High Low
---- ---
September 30, 1994 $2.0000 $1.2500
December 31, 1994 1.5000 .3750
March 31, 1995 .6250 .2500
June 30, 1995 .6875 .3125
September 30, 1995 .3125 .1250
December 31, 1995 .2500 .1250
March 31, 1996 .1875 .1250
June 30, 1996 .1875 .1250
As of June 30, 1996, there were approximately 1,473 record holders of
ADTI's common stock. No dividends have been paid with respect to ADTI's common
stock and ADTI has no present plans to pay dividends in the foreseeable future.
15
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
General
- -------
During December 1993, ADTI and other individual investors organized a
limited partnership, Display Optics, Ltd. (the "Partnership"), to obtain capital
and to continue development of the fiber optic video technology. ADTI acts as a
general partner and the Partnership is managed by Display Group, LLC (the
"Managing General Partner"). ADTI conducts substantially all of its business
through the Partnership. The Partnership was organized to acquire, and
participate in the economic benefits derived from the research and development
of display screens and fiber optic products. The Partnership Agreement provides
for an aggregate of 501 units, six class A units at $8,333 per unit and 495
class B and C units at $10,000 per unit, for total capitalization of $5 million.
There are three classes of units, A, B, and C, each convertible to a specified
number of shares of ADTI's common stock. At June 30, 1996, ADTI had sold a total
of six class A units for a total of $50,000. ADTI transferred all of its
patents, technology and other proprietary rights, including the Visual Optics,
Inc. License Agreement, into the Partnership and received an equity interest in
the Partnership.
In February 1995, the Partnership agreed to borrow $275,000, secured by the
assets of the Partnership, from the Managing General Partner for working
capital. In conjunction with the loans the Company entered into certain
agreements with the investors. The Company agreed that the investors, who are
also preferred shareholders, may approve certain fundamental actions to which
the Company may be party, including without limitation, amendment to the
Articles of Incorporation and Bylaws, mergers and acquisitions and certain other
significant transactions, sales or other issuance of equity or debt securities
and operating and capital budgets. The Company also agreed to the admittance of
Display Group, LLC., an entity formed by the investors as Managing General
Partner of the Partnership, and establishment of a four member management
committee to manage the business activities of the Partnership by majority vote.
It is anticipated that these changes will be implemented through execution of a
Shareholders' Agreement between the investors and the Company, as well as an
amendment to the Partnership Agreement of the Partnership. In addition, the
partners have agreed in principle to re-calculation of the Class A units among
the initial partners to reflect pro-rata ownership in relation to their
ownership of the preferred shares of ADTI, as well as increase the number of
authorized Class B units to satisfy the over subscription. At June 30, 1996, the
Partnership had borrowed $275,000 under the agreement. As of January 31, 1997,
the Partnership has total borrowings of approximately $1,552,846.
Following the organization of the Partnership and sale of preferred shares
to the partners of the Partnership as described above, the Company was able to
increase its research and development efforts on the product as well as
administrative activities, including raising additional capital, developing and
demonstrating the technology and taking steps necessary to preserve and protect
the technology. (See Current Developments under Item 1. Business, above.) Based
on an analysis of the Partnership Agreement and generally accepted accounting
principles, the transaction is being recorded as a research and development
arrangement which requires ADTI to record the expenses incurred by the
Partnership as a liability.
16
<PAGE>
Results of Operations
- ---------------------
For the fiscal year ended June 30, 1996, ADTI and the Partnership reported
net loss of ($976,642) as compared to ($513,402) for fiscal 1995. There were no
sales of the Company's products during either period. Management believes the
lack of sales of products has been attributed to the inadequacies or cost
inefficiencies of projection systems. In addition, the Company's abilities to
adequately develop and market its products has been severely limited over the
past several years due to the lack of adequate operating capital. The Company
seeks to raise additional capital for continued development and marketing of its
products through the partnership.
During 1996, projection technology took a major leap in terms of brightness
and resolution capabilities. At the same time, prices of projectors have gone
down and continue to decline. This enabled the Company to sell one screen,
subsequent to fiscal year end. The Company manufactured the screen internally
and installed the 9' x 12' fiber optic screen at the National Western Event
Center in Denver, Colorado. This installation represents the first sale of the
Company's product since the late 1980's. The Company plans to use this
installation for continued marketing of its products.
In December, 1988, ADTI received payment of $350,000 for future minimum
royalty fees pursuant to a license agreement between ADTI and Mitsubishi Rayon.
(See Mitsubishi Relationship under Item 1. Business and Note 1. to the Financial
Statements) This prepaid royalty fee revenue was being amortized over an eleven
year period ending in 1999. During fiscal 1995, Management believed Mitsubishi
was no longer pursuing the manufacture or development of the licensed technology
thereby eliminating any future obligation of ADTI under the agreement. As a
result, ADTI realized the remainder of the prepaid royalty fees of $167,342 in
fiscal 1995 compared to $0 in fiscal 1996.
ADTI and the Partnership reported general and administrative expenses of
$602,233 and $467,042 for the years ended June 30, 1996 and 1995, respectively.
The increase in 1996 from amounts reported in 1995 was due to several factors:
1) increased interest expense on outstanding debt of approximately $56,000, 2)
an increase in administrative salaries of approximately $25,000, 3) an increase
in legal and accounting fees of approximately $102,200 due to organizational
issues of the Partnership, ongoing litigation and auditing fees, 4) additional
office expenses of approximately $29,000 for increases in rent, phone and other
expenses, and 5) increased travel expenses of approximately $7,300. These
increases were partially offset by the write down of other assets in fiscal 1995
of $87,700 and a decrease in depreciation expense of approximately $10,900. ADTI
reported research and development expenses of $387,209 and $231,901 for the
fiscal years ended June 30, 1996 and 1995, respectively. The increase in 1996
from 1995 was primarily due to an increase in salaries and ongoing development
on the integration technology described above.
17
<PAGE>
Interest income decreased from $18,199 for the fiscal year ended June 30,
1995 to $12,800 for fiscal 1996 due to the reduction of the amount due ADTI from
the Partnership. The advance from ADTI to the Partnership is reduced as debts of
ADTI are accrued and ultimately paid by the Partnership.
Liquidity and Capital Resources
- -------------------------------
ADTI has been totally dependent on the ability of the Partnership to obtain
capital to fund operations for more than three years and expects to continue to
be dependant, in total or in part, for the foreseeable future. At June 30, 1996,
ADTI reported negative net worth of $1,033,367 and negative working capital of
$125,072. The Company will require additional capital for administrative
expenses, continued development of the product, manufacturing start up costs and
marketing the product. The Company hopes to obtain additional funding to support
working capital requirements. Management anticipates continuing to manufacture
the product for sale, initially to the large display screen markets, in 1997.
Management believes that the Company's continued existence is dependent upon its
ability to: 1) perfect its interest in the technology and develop the technology
into a commercially viable product; 2) successfully market the product; 3)
obtain additional sources of funding through outside financing or equity
investments; and 4) achieve and maintain profitable operations. Although
Management believes it will be able to achieve these objectives, there can be no
assurance that the Company will be able to obtain additional capital or sell its
products on terms and conditions satisfactory to the Company.
Due to significant costs associated with development and marketing of the
Company's technology, ADTI and the Company have experienced a continuing need
for working capital since inception. This need became particularly acute
beginning in 1989, following protracted litigation over the Company's
technology. To alleviate this situation, ADTI formed the Partnership in fiscal
1994 to obtain capital to continue development of its technology. (See General,
above)
In conjunction with formation of the Partnership, ADTI sold an aggregate of
2,991,474 shares of Series B preferred stock. Qualified investors acquired the
Series B preferred stock for aggregate consideration of $350,000, or $.117 per
share. Proceeds from the issuance of the Series B preferred stock were advanced
to and disbursed by the Partnership. These funds have been used for
organizational and administrative costs of the Partnership, preparation and
filing of ADTI's annual and quarterly reports and other general and
administrative expenses of ADTI and the Partnership, and on continued research
and development of the fiber optic screen and projection technologies. In
addition, the Partnership has borrowed funds from certain investors, (See
General, above). Amounts paid by the Partnership for ADTI expenses reduce
advances due ADTI by the Partnership. At June 30, 1996, the balance of advances
due ADTI by the Partnership was approximately $203,185, including interest. For
financial reporting purposes, the advances due ADTI by the Partnership are
offset by the liability due the Partnership under the research and development
arrangement.
ADTI reported a working capital deficit position at June 30, 1996 and June 30,
1995. ADTI's sole asset at June 30, 1996 and June 30, 1995 was its investment in
the Partnership. Therefor, the working capital deficit position at June 30, 1996
and June 30, 1995 was the amount of the current liabilities reported of $125,072
and 124,376, respectively.
18
<PAGE>
Cash flows from financing activities for fiscal 1996 and 1995 consisted
entirely of the increase in the research and deve8lopment liability of $856,074
and $498,370, respectively. Total cash flows from financing activities for both
1996 and 1995 were used completely for operating activities.
The Company's efforts will continue to be focused on further development of
the projection system and screen, and on raising additional capital through the
sale of additional partnership units or other sources. Management plans to meet
specific milestones in the development of its products. The first milestone is
expected to be refinement of existing technology to produce systems for the
large screen display market. Phase two will include higher definition, smaller
displays for the information board market. The last milestone currently
contemplated is further development toward the high definition television
market. Although Management has defined these three levels of development, each
level will overlap with others and result in some concurrent development of each
stage. The Company may solely continue research and development until it has
completed its final stage, or may produce products resulting from achievement of
each milestone to concurrently fund additional research and development. Any
revenue projections that Management may make for the immediate future will be
dependent on these factors. There can be no assurances that Management will be
able to acquire the capital needed or complete each stage as contemplated.
Impact of Recently Issued Accounting Standards
- ----------------------------------------------
In March 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Impairment of Long-Lived Assets." This new
standard is effective for years beginning after December 15, 1995 and would
change the Company's method of determining impairment of long-lived assets.
Although the Company has not performed a detailed analysis of the impact of this
new standard on the Company's financial statements, the Company does not believe
that adoption of the new standard will have a material effect on the financial
statements assuming it is successful in completing development of its
technology, whereby its investment in the Partnership becomes fully realizable.
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 fail 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. The Company currently does not intend to adopt the fair value accounting
prescribed by FAS 13, and will be subject only to the disclosure requirements
prescribed by FAS 123. However, the Company intends to continue its analysis of
FAS 123 and may elect to adopt its provisions in the future.
19
<PAGE>
Item 7. FINANCIAL STATEMENTS
See index to financial statements on page F-1.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
A. (i) Effective June 23, 1995, T. Alan Walls, CPA, P.C., certified public
accountant for Advance Display Technologies, Inc. ("Company"), resigned its
position as independent auditor for the Company. Walls held that position since
1993, when the Company resumed reporting under Section 13 of the Securities
Exchange Act of 1934.
(ii) The Reports of Walls on the financial statements of the Company for
the years ended June 30, 1993 and 1994 were qualified as to uncertainty and
audit scope. Due to perceived inadequacies in the Company's accounting records
and systems of internal control during the 1990 fiscal year, Walls did not
believe it was practical to extend its auditing procedures to the extent
necessary to enable it to express an opinion on the results of operations, cash
flows and changes in shareholders equity for the year ended September 30, 1990.
In addition, Walls did not observe the taking of physical inventory at September
30, 1991 (stated at $126,412) since that date was prior to the date it was
initially engaged as auditor for the Company. Finally, Walls recognized that the
Company has been in the development stage since inception, had not had
significant revenues from the sale of its product and had an accumulated deficit
of approximately $12,000,000 since inception. Accordingly, Walls expressed
uncertainty as to the Company's ability to continue as a going concern.
(iii) The decision to accept the resignation of Walls was approved by the
Company's Board of Directors.
(iv) During the time preceding its resignation, there were no disagreements
with Walls on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of Walls, would have caused it to make reference to
the subject matter of the disagreement in connection with its report during the
last two fiscal years and any subsequent interim period preceding its
resignation.
B. On August 17, 1995, Hein + Associates LLP was engaged as the principal
accountant to audit the registrant's two most recent fiscal years. Prior to
engaging the new accountant, the Company did not consult the newly engaged
accountant regarding (1) the application of accounting principles to a specified
transaction, either completed or proposed; or the type of audit opinion that
might be rendered on the registrant's financial statements; or, (2) any matter
that was either the subject of a disagreement or a reportable event.
20
<PAGE>
C. In the course of preparing its financial statements for the fiscal year ended
June 30, 1995, disagreements with the Company's former accountant concerning the
accounting for certain transactions have resulted in three prior period
adjustments, and as a result, the restatement of the financial statements for
the fiscal year ended June 30, 1994.
Management discussed the substance of these adjustments with its new
accountants. The Board of Directors agrees with the prior period adjustments as
discussed above. The former accountant disagrees with such adjustments. The
Company has authorized the former accountant to respond to any inquiries from
the successor accountant concerning the subject matter of these disagreements.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The following table sets forth certain information as to each current and
proposed director and executive officer of ADTI as of June 30, 1996:
Directors and Officers Age Position with ADTI
- ---------------------- --- ------------------
Darrell D. Avey 40 Chairman of the Board, Vice
President of Operations, Secretary
Michael A. Nixon 37 Director, President, Treasurer
Darrell D. Avey - Mr. Avey joined ADTI in September of 1985 and has held
numerous positions throughout his tenure. In January of 1990, Mr. Avey was named
Chairman of the Board of Directors and currently holds that position. He is in
charge of creating new opportunities for the Company to exploit its fiber optic
technologies. Prior to his appointment as Chairman, Mr. Avey was the production
manager, supervising more than 25 assembly, quality control and machine shop
employees. His primary duties included ensuring project completion within
specific deadlines, quality specification and controlling manufacturing costs.
As Project Scheduler Mr. Avey was responsible for the coordination of
engineering, drafting, purchasing and production departments to ensure timely
completion of projects. Mr. Avey joined ADTI as purchasing agent and performed
numerous other duties required in a start-up company.
21
<PAGE>
Michael A. Nixon - Mr. Nixon joined ADTI as President in February, 1993. As part
of his duties, Mr. Nixon directed the research and development activities of the
Company. Mr. Nixon has received M.A. and B.A. degrees in electrical engineering
from the University of Illinois and has performed Doctoral Thesis work as well.
During his academic career, he focused primarily on the theoretical operation of
semiconductor devices, applications of integrated circuits, and the device
physics of solid state light emitters. Mr. Nixon worked for McDonnell Douglas
from 1978 to 1982 as an engineer in the cooperative program on special computer
system projects including the F-4 and F-15 aircraft, Harrier Aircraft, Harpoon
Anti-ship Missile Systems and Caterpillar diesel engine fuel injectors.
Mr. Nixon is also associated with Visual Optics, Inc., which previously owned a
patent which was licensed by the Company on a non-exclusive basis for
development in connection with the Company's screen technology. That patent was
subsequently assigned to the Company pursuant to a settlement agreement arising
from a dispute between the parties. Also in connection with that settlement, Mr.
Nixon resigned as an officer and director of ADTI effective March 5, 1997. (See
Item 3. Legal Proceedings.)
COMPLIANCE WITH SECTION 16.
The following sets forth each director, officer or beneficial owner of more than
ten percent of any class of equity securities of the registrant registered
pursuant to Section 12 that failed to file on a timely basis, Forms 3, 4 or 5 as
required by Section 16(a) during the most recent fiscal year or prior years.
Based upon a review of Form 13D submitted to the issuer, the Company believes
certain beneficial owners of more than 10% of the common stock of ADTI required
to file Forms 3, 4 or 5 pursuant to section 16a have not timely filed these
reports.
The numbers of late Form 3, Form 4 and Form 5 reports, and the late Form 4
transactions reported are as follows:
<TABLE>
<CAPTION>
Late Form 4
Name of Reporting Person Late Form 3 Late Form 4 Late Form 5 Transaction
- ------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
GS Holdings 1 7 1 12*
Display Group 1 12 1 24
Jan Helen 1 1 1 1
William Becker 1 1 1 1
Mark Schneider 1 7 1 9
William Elsner 1 1 1 1
Peregrine Investments 1
Daryl H. Owen 1
Lindsay D. Hooper 1
James C. Gould 1
Keith Hancock 1 1 1 1
Bruce Etkin 1 6 1 8
John Seiver 1 1 1
John Cole 1 1 1
J. Timothy Brittan 1 4 1 4
Display Optics 1 12 1 24
</TABLE>
22
<PAGE>
Item 10. EXECUTIVE COMPENSATION
Compensation
- ------------
The following table sets forth the compensation paid, or to be paid, by the
Company for the services rendered during the fiscal year ended June 30, 1996 to
(a) the Chief Executive Officer of the Company, and (b) each of the four most
highly compensated executive officers who served as executive officers at the
end of the fiscal year and whose total annual salary and bonus exceeded
$100,000.
SUMMARY COMPENSATION
Other Annual
Name Year Salary Bonus Compensation Total
---- ---- ------ ----- ------------ -----
Darrell D. Avey 1996 (1)$ -0- -0- -0- -0-
Chairman, Vice 1995 (2)$ -0- -0- -0- -0-
President of 1994 $ -0- -0- (3)24,234 24,234
Operations, Secretary
Michael A. Nixon (4) 1996 (1)$ -0- -0- -0- -0-
President, Treasurer 1995 (2)$ -0- -0- -0- -0-
1994 $ 0- -0- (3)16,200 16,200
(1) Messrs. Avey and Nixon were each paid $80,000 in salary by Display
Optics, Ltd.
(2) Messrs. Avey and Nixon were each paid $65,000 in salary by Display
Optics, Ltd.
(3) Messrs. Avey and Nixon were issued 201,950 and 135,000 shares,
respectively, as compensation in lieu of cash which was valued at the
time at approximately $0.12 per share.
(4) Mr. Nixon resigned as an officer and director effective March 5, 1997.
There were no stock options granted, exercised or held by any executive
officer during the current fiscal year.
Compensation of Directors
- -------------------------
No fees are paid to directors for attendance at meetings of the Board of
Directors. However, members are reimbursed for expenses to attend the meetings.
Incentive Plans
Employee Stock Option Plan
- --------------------------
ADTI adopted a Stock Option Plan (the "Stock Option Plan") for its
employees on December 1, 1984, and such plan was approved by ADTI's shareholders
on December 1, 1984.
23
<PAGE>
In December of 1986, the Stock Option Plan was amended to become a broader
Employee Incentive Plan (the "Employee Incentive Plan"). There were no options
outstanding under the plan at June 30, 1996.
Employee Stock Purchase Plan
- ----------------------------
In 1986 ADTI adopted an Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") in order to obtain more widespread ownership of ADTI's common
stock among employees who are not officers and directors of ADTI and to provide
such employees an inducement to work toward the overall objectives of ADTI.
There were no options outstanding under this plan at June 30, 1996.
Non-Employee Incentive Plan
- ---------------------------
On December 19, 1986, the Board adopted, and on January 17, 1987, the
shareholders of ADTI approved, a Non-Employee Incentive Plan and reserved 20,000
shares of ADTI's common stock for issuance under this plan. The purpose of this
plan is to provide a method whereby non-employees such as consultants,
professionals, and independent contractors of ADTI may be offered incentives and
rewards which will encourage them to acquire an interest, or increase their
interest, in ADTI and continue in the service of ADTI. Stock Options granted
under this plan are Non-Qualified Stock Options. This plan also provides for the
granting of outright stock bonuses, the sale of stock to grantees at a discount,
the granting of stock appreciation rights and the provision of certain forms of
financial assistance to grantees. These forms of assistance include deferred
payments in connection with stock, the granting of loans or the making of loan
guarantees in connection with stock acquisitions, and surrender provisions
permitting cash payments in exchange for the surrender of rights under the plan.
There were no options outstanding under this plan at June 30, 1996.
Non-qualified Options
- ---------------------
ADTI granted options to purchase 61,500 shares at $.25 to $10.00 per share.
These options were outstanding at June 30, 1996, have not been exercised, have
similar terms as the Non-employee Incentive Plan options and expire from 1999 to
2000.
Non-qualified Incentive Stock Option Plan
- -----------------------------------------
Effective February 6, 1990, ADTI's Board of Directors adopted a
Non-qualified Incentive Stock Option Plan and reserved 100,000 shares of ADTI's
common stock for issuance under this plan. The purpose of this plan is to
provide incentives to key employees, directors and consultants of ADTI. The Plan
is to be administered by ADTI's Board of Directors (the "Board") or a committee
24
<PAGE>
(the "Committee") consisting of not less that three persons. The Board or
Committee has the power under the Plan to grant stock options, discount stock,
stock appreciation rights and related benefits such as loans, tax benefits,
surrender and other rights (each of which is referred to as an "Award").
Eligibility to receive Awards pursuant to the Plan is limited to individuals who
render services which tend to contribute materially to the success of ADTI or
its subsidiaries or which may reasonably be anticipated to contribute materially
to the future success of ADTI or its subsidiaries. The Board or Committee has
discretion as to the number and nature of the Awards granted to any individual.
No option granted under the plan shall have a term in excess of ten years from
the grant date.
Pursuant to this plan, ADTI's Board of Directors, effective February 6,
1990, granted an aggregate of 65,000 options to purchase shares of ADTI's common
stock for a per share exercise price of $3.50. All of these options are still
outstanding, exercisable and expire in 2000.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of January 31, 1997, certain information
regarding the voting securities of ADTI beneficially owned of record by each
officer, current and proposed director, each person known by ADTI to own 5% or
more of the voting securities of ADTI, and all officers and directors as a
group. Information regarding certain beneficial ownership was derived from
Schedule 13D, as amended, received by ADTI from the reporting persons pursuant
to requirements of the Securities and Exchange Commission. At January 31, 1997,
ADTI had outstanding 3,834,055 common shares and 2,991,474 Series B preferred
shares (convertible into shares of ADTI's common stock at a one for one ratio).
The voting securities of ADTI consist of i) common stock which is entitled to
one vote per share; and, ii) Series B preferred stock which may be entitled to
one-fifth of one vote with respect to all matters on which the holders of shares
of common stock are entitled to vote, and one vote with respect to those matters
on which holders of Series B preferred stock are alone entitled to vote. Also, a
Certificate of Designation of Preferences with respect to other preferred shares
has been filed with the Colorado Secretary of State in connection with a
previous transaction. Due to a dispute with the other party to the transaction,
ADTI does not intend to issue these shares. In the event these shares are
issued, they would be convertible into 8,000 shares of common stock.
25
<PAGE>
<TABLE>
<CAPTION>
Title of Name and address of Amount and nature Percent
Class Beneficial owner of Beneficial Ownership of Class
----- ---------------- ----------------------- --------
<S> <C> <C> <C>
Common Darrell D. Avey (1) 296,950 7.7%
$.001 Par 4851 E. Harvard Lane Direct
Denver, CO 80222
Common Michael A. Nixon (2,3,4) 350,000 9.1%
$.001 Par 1100 Muller Road Direct
Blythwood, SC 29016 and Indirect
Common Display Optics, Ltd. (5) 14,079,945 78.6%
$.001 Par 5251 DTC Parkway, Suite 1210 Direct
Englewood, CO 80111 and Indirect
Common Display Group, LLC (6) 15,444,975 86.2%
$.001 Par 5251 DTC Parkway, Suite 1210 Direct
Englewood, CO 80111 and Indirect
Common Keith A. Hancock (7) 15,444,975 86.2%
$.001 Par 5251 DTC Parkway, Suite 1210 Direct
Englewood, CO 80111 and Indirect
Common G. Schneider Holdings, Co. (8) 5,398,148 58.5%
$.001 Par 4643 S. Ulster St., Suite 1300 Direct
Denver, CO 80237 and Indirect
Common Gene W. Schneider (9 ) 5,398,148 58.5%
$.001 Par 4643 S. Ulster, Suite 1300 Direct
Denver, CO 80237 and Indirect
Common William W. Becker (10) 1,873,288 32.8%
$.001 Par Box 143 Direct
Grand Cayman Island, British West Indies and Indirect
Common Mark L. Schneider (11) 2,509,132 39.5%
$.001 Par 4643 S. Ulster St., Suite 1300 Direct
Denver, CO 80237 and Indirect
Common Jan E. Helen (12) 936,643 19.6%
$.001 Par 5251 DTC Parkway, Suite 1010 Direct
Englewood, CO 80111 and Indirect
26
<PAGE>
Common William J. Elsner (13) 936,658 19.6%
$.001 Par 83 Glenmoor Place Direct
Englewood, CO 80110 and Indirect
Common J. Timothy Brittan (14) 851,216 18.8%
$.001 Par 2680 S. University Blvd., No. 103 Direct
Denver, CO 80210 and Indirect
Common Bruce H. Etkin (15) 3,247,457 45.8%
$.001 Par 1512 Larimer St., No. 325 Direct
Denver, CO 80202 and Indirect
Common Peregrine Investments (16) 760,450 16.5%
$.001 Par 6636 Fletcher Lane Indirect
McLean, VI 22101
Common Daryl H. Owen (17) 760,450 16.5%
$.001 Par 801 Pennsylvania Ave., NW, Suite 730 Indirect
Washington, DC 20004
Common Lindsay D. Hooper (18) 760,450 16.5%
$.001 Par 801 Pennsylvania Ave., NW, Suite 730 Indirect
Washington, DC 20004
Common James C. Gould (19) 760,450 16.5%
$.001 Par 801 Pennsylvania Ave., NW, Suite 730 Indirect
Washington, DC 20004
Common John D. Seiver (20) 76,045 1.9%
$.001 Par 1919 Pennsylvania Ave., NW, No. 200 Indirect
Washington, DC 20006
Common John P. Cole, Jr. (21) 570,338 12.9%
$.001 Par 1919 Pennsylvania Ave., NW, No. 200 Indirect
Washington, DC 20006
Common American Consolidated 1,249,750 32.6%
$.001 Par Growth Corporation Direct
8100 E. Arapahoe Rd., Suite 309
Englewood, CO 80112
Common All officers and (22) 646,950 16.9%
$.001 Par directors as a group Direct
(2 persons/entities) and Indirect
27
</TABLE>
<PAGE>
(1) Officer or director.
(2) Includes 100,000 shares previously owned by Visual Optics, Inc., of which
Mr. Nixon is a principal shareholder. Such shares were conveyed to the
members of Display Group, L.L.C. by that entity pursuant to a settlement
agreement by and between the Company, Visual Optics, Inc. and certain other
entities effective March 5, 1997.
(3) Mr. Nixon resigned as an officer and director of ADTI effective March 5,
1997.
(4) All shares of Common Stock previously owned by Mr. Nixon have been assigned
to Display Group, L.L.C.
(5) Includes 50,000 shares of Common stock underlying Class A Partnership Units
and 14,029,945 shares of Common Stock underlying Class B Partnership Units,
which ADTI is obligated to issue in accordance with the terms of the
Partnership Agreement of Display Optics, Ltd. ADTI is a general partner of
Display Optics, Ltd.
(6) Includes: (i) 1,365,030 shares of Common Stock which the reporting
person has the right to vote pursuant to a court order
pending resolution of a civil proceeding regarding
ownership of those shares:
(ii) 14,079,945 shares of Common Stock reported by Display
Optics, Ltd., of which the reporting person is the
managing general partner;
(iii)7,094,428 shares of Common Stock underlying class B
Partnership Units of Display Optics, Ltd., which in
turn underlie convertible loans made by the reporting
person to Display Optics, Ltd.
(7) Includes: (i) 15,444,975 shares of Common Stock reported by Display
Group, L.L.C., of which Mr. Hancock is the manager;
(ii) 76,045 shares of Common Stock underlying Class B
Partnership Units of Display Optic, Ltd. which in turn
underlie convertible loans made by Mr. Hancock to
Display Optics, Ltd. and Display Group, L.L.C.
(8) Includes: (i) 747,869 shares of Common Stock underlying 747,869
shares of Series B Preferred Stock owned by the
reporting person;
(ii) 12,500 shares of Common Stock underlying Class A
Partnership Units of Display Optics, Ltd. issued to the
reporting person;
28
<PAGE>
(iii)2,058,690 shares of Common Stock underlying Class B
Partnership Units of Display Optics, Ltd. which in turn
underlie convertible loans made by the reporting person
to Display Optics, Ltd.;
(iv) 998,167 shares of Common Stock underlying Class B
Partnership Units of Display Optics, Ltd. which in turn
underlie convertible loans made by the reporting person
on behalf of Display Group, L.L.C.;
(v) 1,124,652 shares of Common Stock underlying Class B
Partnership Units of Display Optics, Ltd. which in turn
underlie convertible loan guarantees made by the
reporting person on behalf of Display Group, L.L.C.;
(vi) 456,270 shares of Common Stock underlying Class B
Partnership Units of Display Optics, Ltd. which in turn
underlie a letter of intent guaranteed by the reporting
person on behalf of Display Group, L.L.C.
(9) Includes 5,398,148 shares of Common Stock reported by G. Schneider
Holdings, Co., of which the reporting person is the general partner.
(10) Includes: (i) 747,869 shares of Common Stock underlying 747,869
shares of Series B Preferred Stock owned by the
reporting person;
(ii) 12,500 shares of Common Stock underlying Class A
Partnership Units of Display Optics, Ltd. owned by the
reporting person;
(iii)152,090 shares of Common Stock underlying Class B
Partnership Units of Display Optics, Ltd., which in
turn underlie convertible loans made by the reporting
person to Display Optics, Ltd.;
(iv) 960,829 shares of Common Stock underlying Class B
Partnership Units of Display Optics, Ltd., which in
turn underlie convertible loans made by the reporting
person to Display Group, L.L.C.
(11) Includes: (i) 373,934 shares of Common Stock underlying 373,934
shares of Series B Preferred Stock owned by the
reporting person;
(ii) 6,250 shares of Common Stock underlying Class A
Partnership Units of Display Optics, Ltd. owned by the
reporting person;
(iii)1,005,140 shares of Common Stock underlying Class B
Partnership Units of Display Optics, Ltd., which in
turn underlie convertible loans made by the reporting
person to Display Optics, Ltd.;
29
<PAGE>
(iv) 439,684 shares of Common Stock underlying Class B
Partnership Units of Display Optics, Ltd., which in
turn underlie convertible loans made by the reporting
person on behalf of Display Group, L.L.C.;
(v) 630,124 shares of Common Stock underlying Class B
Partnership Units of Display Optics, Ltd., which in
turn underlie convertible loan guarantees made by the
reporting person to Display Group, L.L.C.
(12) Includes: (i) 373,934 shares of Common Stock underlying 373,934
shares of Series B Preferred Stock owned by the
reporting person;
(ii) 6,250 shares of Common Stock underlying Class A
Partnership Units of Display Optics, Ltd. owned by the
reporting person;
(iii)76,045 shares of Common Stock underlying Class B
Partnership Units of Display Optics, Ltd., which in
turn underlie convertible loans made by the reporting
person to Display Optics, Ltd.;
(iv) 219,010 shares of Common Stock underlying Class B
Partnership Units of Display Optics, Ltd., which in
turn underlie convertible loans made by the reporting
person to Display Group, L.L.C.;
(v) 261,405 shares of Common Stock underlying Class B
Partnership Units of Display Optics, Ltd., which in
turn underlie convertible loan guarantees made by the
reporting person on behalf of Display Group, L.L.C.
(13) Includes: (i) 373,934 shares of Common Stock underlying 373,934
shares of Series B Preferred Stock owned by the
reporting person;
(ii) 6,250 shares of Common Stock underlying Class A
Partnership Units of Display Optics, Ltd. owned by the
reporting person;
(iii)76,045 shares of Common Stock underlying Class B
Partnership Units of Display Optics, Ltd., which in
turn underlie convertible loans made by the reporting
person to Display Optics, Ltd.;
(iv) 480,429 shares of Common Stock underlying Class B
Partnership Units of Display Optics, Ltd., which in
turn underlie convertible loans made by the reporting
person to Display Group, L.L.C.
(14) Includes: (i) 373,934 shares of Common Stock underlying 373,934
shares of Series B Preferred Stock owned by the
reporting person;
30
<PAGE>
(ii) 6,250 shares of Common Stock underlying Class A
Partnership Units of Display Optics, Ltd. owned by the
reporting person;
(iii)45,627 shares of Common Stock underlying Class B
Partnership Units of Display Optics, Ltd., which in
turn underlie convertible loans made by the reporting
person to Display Optics, Ltd.;
(iv) 261,405 shares of Common Stock underlying Class B
Partnership Units of Display Optics, Ltd., which in
turn underlie convertible loans guaranteed by the
reporting person on behalf of Display Group, L.L.C.
(15) Includes: (i) 1,262,530 shares of Common Stock underlying Class B
Partnership Units of Display Optics, Ltd., which in
turn underlie convertible loans made by the reporting
person to Display Optics, Ltd.;
(ii) 1,984,927 shares of Common Stock underlying Class B
Partnership Units of Display Optics, Ltd., which in
turn underlie convertible loans made by the reporting
person to Display Group, L.L.C.
(16) Includes 760,450 shares of Common Stock underlying Class B Partnership
Units of Display Optics, Ltd., which in turn underlie a convertible loan
made by the reporting person to Display Group, L.L.C.
(17) Includes 760,450 shares of Common Stock reported by Peregrine Investments,
of which the reporting person is a general partner.
(18) Includes 760,450 shares of Common Stock reported by Peregrine Investments,
of which the reporting person is a general partner.
(19) Includes 760,450 shares of Common Stock reported by Peregrine Investments,
of which the reporting person is a general partner.
(20) Includes 76,045 shares of Common Stock underlying Class B Partnership Units
of Display Optics, Ltd., which in turn underlie convertible loans made by
the reporting person to Display Group, L.L.C.
(21) Includes 570,338 shares of Common Stock underlying Class B Partnership
Units of Display Optics, Ltd., which in turn underlie convertible loans
made by the reporting person to Display Group, L.L.C.
31
<PAGE>
Changes in Control
- ------------------
There are currently six equity investors in the Partnership in addition to
ADTI, and it is anticipated that additional units will be offered in the future.
ADTI has sold an aggregate of six limited partnership A units for $50,000 and
2,991,474 shares of series B preferred stock of ADTI to these investors. In
addition, through January 31, 1997, Display Group, the initial investors and
additional investors have made loans to Display Optics of $1,552,846 the total
of which is convertible into B units which in turn can be converted into
11,808,617 shares of common stock of ADTI.
Certain of these investors also made loans or guaranteed loans to or on
behalf of Display Group, LLC for the purpose of acquiring the security interest
in the technology which was transferred to DOL and for other administrative
costs. These loans are also convertible into Class B units of DOL and ultimately
convertible into shares of common stock of ADTI. As of January 31, 1997, these
additional loans totaled $292,107 which are convertible into 29.21 Class B units
and ultimately convertible into 2,221,328 shares of common stock of ADTI. The B
units are currently oversubscribed which the partners of Display Optics,
including ADTI, intend to cure by amending the Partnership Agreement to provide
for a greater number of authorized B units. (See Item 3. Management's Discussion
and Analysis, and Item 12. Certain Relationships and Related Transactions).
Conversion of all of these securities could result in a change in control
of ADTI.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal years ended June 30, 1996 and 1995, certain individuals
and entities have advanced money to a partnership in which ADTI acts as general
partner. Display Group, LLC, the Managing General Partner of Display Optics,
Ltd., together with certain of its members, have advanced an aggregate of
$963,425 and $299,918 to the Partnership as of the years ended June 30, 1996 and
1995 respectively. Proceeds from those loans were utilized by the Partnership to
continue research, development, manufacture and marketing of the Company's fiber
optic display technology. In conjunction with the loans the Company entered into
certain agreements with the investors. The Company agreed that the investors,
who are also preferred shareholders, may approve certain fundamental actions to
which the Company may be party, including without limitation, amendment to the
Articles of Incorporation and Bylaws, mergers and acquisitions and certain other
significant transactions, sales or other issuance of equity or debt securities
and operating and capital budgets. The Company also agreed to the admittance of
Display Group, LLC., an entity formed by the investors as Managing General
Partner of the Partnership, and establishment of a four member management
committee to manage the business activities of the Partnership by majority vote.
Further, it is management's understanding that Display Group and related
parties, through one or more transactions, intend to propose that they
contribute certain assets, including the security interest and all debt and
equity of the Partnership to the Company for an economic equivalent of equity in
the Company. (See Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT for a more complete description of advances made by individuals to
the Partnership.)
The two officers of ADTI were paid salary by the Partnership for services
rendered in connection with administrative, research and development activities
during the years ended 1996 and 1995. During those years the two officers were
paid total compensation of $160,000, or $80,000 each and $130,000 or $65,000
each, respectively.
In connection with a dispute regarding rights to certain technology, the
Company commenced a civil action against Michael Nixon, a former officer and
director of the Company and certain other entities. In connection with the
settlement of that litigation, Display Group has made certain payments to or on
behalf of Mr. Nixon and other defendants. (See Item 3. Legal Proceedings.)
ADTI conducts a portion of its administrative activities in space leased by
the Partnership. ADTI presently has use of approximately 200 square feet of
office space, together with reception services and conference room facilities on
a rent free basis. It is anticipated that this arrangement will continue for the
foreseeable future.
32
<PAGE>
During the fiscal years ended June 30, 1996 and 1995, the Partnership paid
or accrued certain administrative fees to individuals or entities listed as
principal shareholders of ADTI. During the year ended June 30, 1996, the
Partnership paid $17,500 to Keith Hancock for management services rendered to
that entity. During the fiscal years ended June 30, 1996 and 1995, the Company
incurred $42,500 and $33,000, respectively, in management fees to Reserve
Battery Cell, L.P., a Colorado limited partnership. Mr. Hancock is listed as a
principal shareholder of ADTI under Item 11 and is the President and Chief
Executive Officer of Reserve Battery. G. Schneider Holdings, Co., Mark L.
Schneider and Gene W. Schneider are listed as principal shareholders of ADTI
under Item 11 and are limited partners of Reserve Battery.
During the years ended June 30, 1996 and 1995, the partnership also
incurred rent and other administrative expenses to two entities in which Gene
and Mark Schneider are members or principal shareholders. During the year ended
June 30, 1996, the Partnership paid approximately $19,900 and $7,600 to
Schneider Investments, LLC and Wild West Development, LLC , a portion of which
related to an accrued balance carried forward from the fiscal year ended June
30, 1995.
Management of the Company are of the opinion that the terms and conditions
of the foregoing transactions are no less favorable and could be obtained from
unaffiliated third parties.
Conflicts of Interest
- ---------------------
Certain of the present officers and directors of ADTI and the manager of
Display Group, LLC own or invest, or may in the future, own or invest for their
own account in other businesses, either individually or through entities in
which they own an interest or with which they are associated. Participation in
these activities pose inherent conflicts of interest and such conflicts may not
always be resolved to the maximum benefit of ADTI or the Partnership.
33
<PAGE>
Item 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules.
The Financial Statements and Schedules filed herein are described in
the Index to Financial Statements included in Item 8 and indexed on
page F-1.
(b) Exhibits.
Exhibit No.
- -----------
3.1 Amended and Restated Articles of Incorporation of ADTI dated December 5,
1985 (incorporated by reference, Registration Statement on Form S-18, File No.
2-164-D-33).
3.2 Amended and Restated Bylaws of ADTI (incorporated by reference, Registration
Statement on Form S-18, File No. 2-164-D-33 and Annual Report on Form 10-K for
the fiscal year ended September 30, 1986).
3.3 Form of Certificate of Designation and Determination of Preference of Series
A Convertible Preferred Stock as filed with the Colorado Secretary of State on
January 4, 1990 (incorporated by reference, Annual Report Form 10-K for the
fiscal year ended September 30, 1989).
3.4 Corrected Articles of Amendment to the Articles of Incorporation dated
August 5, 1994. (incorporated by reference, Annual Report Form 10-KSB for the
fiscal year ended June 30, 1995).
4.1 Specimen certificate for common stock, par value $.001 per share of ADTI
(incorporated by reference, Annual Report Form 10-K for the fiscal year ended
September 30, 1987).
4.2 (Reference is made to Exhibit Nos. 3.1, 3.2, 3.3 and 4.1 above).
5. Not applicable.
6. Not applicable.
7. Not applicable.
8. Not applicable.
9. Not applicable.
10.1 ADTI's 1986 Employee Stock Purchase Plan (incorporated by reference, Annual
Report Form 10-K for the fiscal year ended September 30, 1987).
34
<PAGE>
10.2 ADTI's 1984 Non-Employee Incentive Plan (incorporated by reference, Annual
Report Form 10-K for the fiscal year ended September 30, 1987).
10.3 ADTI's 1984 Employee Incentive Plan, as amended (incorporated by reference,
Annual Report Form 10-K for the fiscal year ended September 30, 1987).
10.4 (a)License Agreement dated December 31, 1986 by and between ADTI and
Mitsubishi Rayon (incorporated by reference, Annual Report Form 10-K for the
fiscal year ended September 30, 1987).
10.4 (b)Stock Purchase Agreement dated January 6, 1987 by and between ADTI and
Mitsubishi Rayon (incorporated by reference, Annual Report Form 10-K for the
fiscal year ended September 30, 1987).
10.4 (c)FiberVision Sale and Purchase Contract dated January 12, 1987 by and
between ADTI and Mitsubishi Rayon (incorporated by reference, Annual Report Form
10-K for the fiscal year ended September 30, 1987).
10.5 Debenture Release Agreement dated December 30, 1993 by and between American
Consolidated Growth Corporation and Corporate Partners, Inc. (incorporated by
reference, Annual Report Form 10-KSB for the fiscal year ended June 30, 1994).
10.6 Agreement dated April 16, 1990 by and between Ultratech Corporation and
Corporate Partners, Inc. (incorporated by reference, Annual Report Form 10-KSB
for the fiscal year ended June 30, 1994).
10.7 Asset acquisition Agreement dated May 15, 1991 by and between American
Consolidated Growth Corporation and ADTI (incorporated by reference, Annual
Report Form 10-KSB for the fiscal year ended June 30, 1994).
10.8 Display Optics, Ltd. Limited Partnership Agreement effective December 31,
1993 (incorporated by reference, Annual Report Form 10-KSB for the fiscal year
ended June 30, 1994).
10.9 Letter Agreement dated February 8, 1995 between Display Group, LLC and ADTI
(incorporated by reference, Annual Report Form 10-KSB for the fiscal year ended
June 30, 1995).
10.10 Promissory Note dated March 14, 1995 between Display Group, LLC and
Display Optics, Ltd. (incorporated by reference, Annual Report Form 10-KSB for
the fiscal year ended June 30, 1995).
10.11 Security Agreement dated March 14, 1995 between Display Group, LLC and
Display Optics, Ltd. (incorporated by reference, Annual Report Form 10-KSB for
the fiscal year ended June 30, 1995).
35
<PAGE>
10.12 First Revised Amendment to the Display Optics, Ltd. Limited Partnership
Agreement effective September 1, 1995 (enclosed herewith)
10.13 Patent Assignment effective February 28, 1997 between Visual Optics, Ltd.
et al and Advance Display Technologies, Inc. (enclosed herewith)
11. Not applicable.
12. Not applicable.
13. Not applicable.
16. Not applicable.
18. Not applicable.
19. Not applicable.
22. Not applicable.
23. Not applicable.
24. Not applicable.
25. Not applicable.
26. Not applicable.
27. Not applicable
28. Not applicable.
29. Not applicable.
Reports on Form 8-K.
--------------------
ADTI filed a Form 8-K dated October 15, 1996 to report its inability to
file timely its Annual Report on Form 10-KSB for the fiscal year ended June 30,
1996. Due to a continuing need for working capital, ADTI was unable to retain
qualified advisors, including attorneys and accountants, to assist in the
preparation of the Report and audit of ADTI's financial statements in time to
file in a timely manner.
36
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) 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.
/s/ Darrell D. Avey
- ----------------------
By: Darrell D. Avey
Chairman of the Board
Secretary
Date: March 17, 1997
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
/s/ Darrell D. Avey
- -----------------------
By: Darrell D. Avey
Chairman of the Board
Secretary
Date: March 17, 1997
37
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditor's Report...........................................F-2
Balance Sheet - June 30, 1996..........................................F-4
Statements of Operations - For the Years Ended June 30, 1996
and 1995 and for the Period from October 7, 1983
(Inception) through June 30, 1996...................................F-5
Statements of Changes in Stockholders' Equity (Deficit) -
For the Period from October 7, 1983 (Inception)
through June 30, 1996...............................................F-6
Statements of Cash Flows - For the Years Ended June 30, 1996
and 1995 and for the Period from October 7, 1983 (Inception)
through June 30, 1996..............................................F-10
Notes to the Financial Statements.....................................F-12
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Advance Display Technologies, Inc.
Englewood, CO
We have audited the accompanying balance sheet of Advance Display Technologies,
Inc. (a development stage company), as of June 30, 1996, and the related
statements of operations, stockholders' equity (deficit), and cash flows for the
years ended June 30, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Advance Display Technologies,
Inc. 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.
We also applied procedures to the combination of the statements of operations,
stockholders' equity (deficit), and cash flows for the period from inception
(October 7, 1983) through June 30, 1994, and the years ended June 30, 1996 and
1995, into the cumulative period from inception to June 30, 1996. In our
opinion, such statements have been properly combined into the cumulative period
referred above.
As discussed in Note 5, in prior transactions related to the Company's
technology, the Company understands a security interest in such technology
collateralized a debenture payable to a financial institution. This debenture
and the underlying note payable are in default and it is the Company's belief
that the debenture is an obligation of a major stockholder of the Company
(ACGC). This security interest and the underlying note payable have been
recently purchased by an entity affiliated with the Company. However, there are
various complex legal transactions surrounding previous transfers of the
Company's technology and related security interest; the final disposition of
which may ultimately affect the Company's rights in the technology.
<PAGE>
The Board of Directors
Advance Display Technologies, Inc.
Page 2
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 5 to the financial
statements, the Company currently is in the development stage, has no liquid
assets, incurred a substantial accumulated deficit, and has certain contingent
liabilities. These factors raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in 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
December 27, 1996
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEET
JUNE 30, 1996
ASSET
INVESTMENT IN DOL $ 403,619
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accrued expenses $ 92,748
Due to affiliated parties 32,324
-------------
Total current liabilities 125,072
RESEARCH AND DEVELOPMENT LIABILITY 1,311,914
COMMITMENTS AND CONTINGENCIES (Notes 1, 5, and 6) --
STOCKHOLDERS' DEFICIT:
Preferred stock, $.001 par value, 100,000,000
shares authorized, 2,991,474
issued and outstanding (liquidation preference of
$350,000) 2,991
Common Stock, $.001 par value, 100,000,000 shares
authorized, 3,834,055 shares issued 3,834
Additional paid-in capital 11,450,062
Deficit accumulated during the development stage (12,490,254)
-------------
Total stockholders' deficit (1,033,367)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 403,619
=============
See accompanying notes to these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
OCTOBER 7,
1983
FOR THE YEARS ENDED (INCEPTION)
JUNE 30, THROUGH
------------------------------------ JUNE 30,
1996 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Licensing and exclusivity fees $ -- $ -- $ 2,500,000
Royalty fees -- 167,342 320,047
Product and equipment sales -- -- 1,243,935
Consulting -- -- 60,000
Other -- -- 1,037,971
------------ ------------ ------------
Total revenue -- 167,342 5,161,953
COSTS AND EXPENSES:
Cost of goods sold -- -- 1,004,614
Marketing -- -- 741,463
Research and development 387,209 231,901 3,757,845
General and administrative 602,233 467,042 11,436,179
------------ ------------ ------------
Total costs and expenses 989,442 698,943 16,940,101
------------ ------------ ------------
OPERATING LOSS (989,442) (531,601) (11,778,148)
OTHER INCOME (EXPENSES):
Other income and expense, net -- -- 696,799
Interest income 12,800 18,199 293,467
Loss on disposal of assets -- -- (1,002,838)
Interest expense -- -- (699,534)
------------ ------------ ------------
Total other income (expense) 12,800 18,199 (712,106)
------------ ------------ ------------
NET LOSS $ (976,642) $ (513,402) $(12,490,254)
============ ============ ============
NET LOSS PER COMMON SHARE $ (.25) $ (.13)
============ ============
WEIGHTED AVERAGE SHARES OF COMMON STOCK 3,834,055 3,829,417
OUTSTANDING ============ ============
See accompanying notes to these financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM OCTOBER 7, 1983 (INCEPTION) THROUGH JUNE 30, 1996
Preferred Stock Common Stock Additional
--------------- --------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, October 7, 1983 (inception) - $ - - $ - $ - $ - $ -
Common stock issued for cash
($.02 per share) - - 296,924 297 4,695 - 4,992
Non-reimbursed business expenses
of major stockholder - - - - 9,782 - 9,782
Net loss - - - - - (153,978) (153,978)
------ ----- --------- ------ --------- --------- ---------
BALANCES, September 30, 1984 - - 296,924 297 14,477 (153,978) (139,204)
Redeemable common stock issued
to secure $100,000 in notes
($.42 per share) - - 14,870 15 6,183 - 6,198
Common stock issued for an
employee/stockholder loan - - 297 - 5 - 5
Common stock issued to secure
a loan ($.02 per share) - - 330 1 4 - 5
Common stock issued for cash
($.67 per share) - - 3,338 3 2,242 - 2,245
Net loss - - - - - (333,354) (333,354)
------ ----- --------- ------ --------- ---------- ----------
BALANCES, September 30, 1985 - - 315,759 316 22,911 (487,332) (464,105)
Common stock issued for cash
($15 per share) net of
offering costs of $74,383 - - 70,000 70 975,547 - 975,617
Common stock issued for cash
($50 per share) net of
offering costs if $789,025 - - 100,000 100 4,210,975 - 4,211,075
Adjustment of redeemable
common stock - - - - (90,457) - (90,457)
Net loss - - - - - (1,620,217) (1,620,217)
------ ----- --------- ------- --------- ----------- ----------
- $ - 485,759 $ 486 $5,118,976 $(2,107,549) $3,011,913
====== ===== ========= ======= ========== =========== ==========
See accompanying notes to these financial statements.
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM OCTOBER 7, 1983 (INCEPTION) THROUGH JUNE 30, 1996
(Continued)
Preferred Stock Common Stock Additional
--------------- --------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, September 30, 1986 - $ - 485,759 $486 $5,118,976 $(2,107,549) $ 3,011,913
Common stock issued for exercise of
incentive stock options
($12.64 per share) - - 905 1 11,439 - 11,440
Common stock issued for cash
($100 per share) - - 12,000 12 1,199,988 - 1,200,000
Common stock issued for services
($78.95 per share)
as compensation - - 475 - 37,502 - 37,502
Adjustment of redeemable
common stock - - - - (5,066) - (5,066)
Net loss - - - - - (853,644) (853,644)
---- ----- -------- ----- ---------- ---------- ----------
BALANCES, September 30, 1987 - - 499,139 499 6,362,839 (2,961,193) 3,402,145
Common stock issued for exercise of
warrants ($3.50 per share) - - 12,000 12 41,988 - 42,000
Common stock issued to officers to
replace stock foreclosed on
($7.52 per share) - - 8,000 8 60,123 - 60,131
Expired option to repurchase
redeemable common stock - - 14,870 15 101,706 - 101,721
Common stock issued for services
($3.00 per share) - - 29,663 30 88,953 - 88,983
Net loss - - - - - (3,151,469) (3,151,469)
---- ------ -------- ---- ---------- --------- ----------
BALANCES, September 30, 1988 - - 563,672 564 6,655,609 (6,112,662) 543,511
Common stock issued for cash
($1.37 per share) - - 146,267 146 199,854 - 200,000
Accrued salaries forgiven by
stockholders - - - - 343,972 - 343,972
Common stock issued to employee
for exercise of incentive stock
options ($13.62 per share) - - 494 - 6,551 - 6,551
Common stock issued to officer to
replace stock foreclosed
($9.67 per share) - - 6,000 6 58,007 - 58,013
Common stock issued for exercise of
stock option ($.67 per share) - - 6,000 6 3,984 - 3,990
Common stock issued to replace
stock foreclosed on and to retire
certain debts ($14.43 per share) - - 25,250 26 364,373 - 364,399
Commitment to issue 400,000 shares
preferred stock for conversion of
convertible debt - - - - 400,000 - 400,000
Net loss - - - - - (1,966,754) (1,966,754)
---- ------ -------- ----- ---------- ---------- ----------
- $ - 747,683 $748 $8,032,350 $(8,079,416) $ (46,318)
==== ====== ======== ===== ========== ============= ==========
F-7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM OCTOBER 7, 1983 (INCEPTION) THROUGH JUNE 30, 1996
(Continued)
Preferred Stock Common Stock Additional
--------------- --------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, September 30, 1989 - $ - 747,683 $ 748 $ 8,032,350 $(8,079,416) $ (46,318)
Common stock issued for settlement
and services ($11.75 per share) - - 148,602 148 1,729,443 - 1,729,591
Accumulated deficit adjustment - - - - - (3,712) (3,712)
Treasury stock acquired and retired
2080 shares of common stock) - - (2,080) (2) (22,878) - (22,880)
Net loss - - - - - (2,532,169) (2,532,169)
----- ----- ------- ------ ----------- ----------- ----------
BALANCES, September 30, 1990 - - 894,205 894 9,738,915 (10,615,297) (875,488)
Common stock issued as compensation
($.10 per share) - - 640,000 640 63,359 - 63,999
Common stock issued to reacquire
fiber optic technology patents
pursuant to reorganization - - 1,400,000 1,400 732,709 - 734,109
Net loss - - - - - (61,820) (61,820)
---- ----- --------- ----- ----------- ---------- ---------
BALANCES, September 30, 1991 - - 2,934,205 2,934 10,534,983 (10,677,117) (139,200)
Net loss - - - - - (235,918) (235,918)
---- ----- --------- ----- ----------- ---------- ---------
BALANCES, September 30, 1992 - - 2,934,205 2,934 10,534,983 (10,913,035) (375,118)
Common stock issued for services
($1.30 per share) - - 30,000 30 38,970 - 39,000
Common stock issued for licensing
agreement - - 10,000 10 12,990 - 13,000
Net loss - - - - - (198,661) (198,661)
---- ----- --------- ----- ----------- ----------- ---------
- $ - 2,974,205 $2,974 $10,586,943 $(11,111,696) $(521,779)
==== ===== ========= ====== =========== ============ =========
See accompanying notes to these financial statements.
F-8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM OCTOBER 7, 1983 (INCEPTION) THROUGH JUNE 30, 1996
(Continued)
Preferred Stock Common Stock Additional
--------------- --------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, June 30, 1993 - $ - 2,974,205 $2,974 $10,586,943 $(11,111,696) $(521,779)
Common stock issued for services
($.13 per share) - - 220,000 220 28,679 - 28,899
Common stock issued for services
($.22 per share) - - 386,950 387 80,047 - 80,434
Accrued salaries forgiven by
stockholders - - - - 155,734 - 155,734
Common stock issued for settlement of
trade payables ($1.50 per share - - 153,600 154 230,349 - 230,503
Common stock issued for technology
and license agreement - - 90,000 90 12,010 - 12,100
Preferred stock issued for cash
($.12 per share) 2,991,474 2,991 - - 347,009 - 350,000
Net income - - - - - 111,486 111,486
---------- ------ --------- ------ ------------ ------------ ----------
BALANCES, June 30, 1994 2,991,474 2,991 3,824,755 3,825 11,440,771 (11,000,210) 447,377
Common stock issued for settlement
of trade payables
($1.00 per share) - - 9,300 9 9,291 - 9,300
Net loss - - - - - (513,402) (513,402)
---------- ----- ---------- ------ ------------ ------------ ---------
BALANCES, June 30, 1995 2,991,474 2,991 3,834,055 3,834 11,450,062 (11,513,612) (56,725)
Net loss - - - - - (976,642) (976,642)
----------- ----- ---------- ------ ------------ ------------ ----------
BALANCES, June 30, 1996 2,991,474 $2,991 3,834,055 $3,834 $11,450,062 $(12,490,254) $(1,033,367)
=========== ====== ========== ====== =========== ============ ===========
See accompanying notes to these financial statements.
F-9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
PERIOD FROM
OCTOBER 7, 1983
FOR THE YEARS ENDED (INCEPTION)
JUNE 30, THROUGH
-------------------------------- JUNE 30,
1996 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (976,642) $ (513,402) $(12,490,254)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 56,254 67,136 3,252,154
Deferred revenues -- (167,346) (315,004)
Stock issued for services -- -- 2,133,727
Loss on disposal of assets -- -- 1,002,838
(Increase) decrease in:
Video display screens -- 72,496 --
Due from affiliates and other 63,618 52,862 (225,018)
Increase (decrease) in:
Accounts payable -- (242) 349,811
Accrued expenses (126) 126 568,360
Due to officers stockholders 822 (10,000) (7,639)
and affiliated parties ------------ ------------ ------------
Net cash used in operating activities (856,074) (498,370) (5,731,025)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment -- -- (3,692,226)
Other assets -- -- (677,675)
Acquisition of subsidiary -- -- (85,524)
Cash received on disposal of assets -- -- 273,417
------------ ------------ ------------
Net cash used in investing activities -- -- (4,182,008)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from affiliates -- -- 39,960
Issuance of common stock -- -- 6,774,027
Increase in treasury stock -- -- (22,280)
Increase in notes payable -- -- 2,862,760
Sale leaseback proceeds, net of certificate of deposit
($550,000); loan fees ($30,000) -- -- 180,000
Payments of principal on notes payable and
capital lease obligations -- -- (1,882,780)
Deferred loan costs -- -- (55,556)
Royalty fees received in advance -- -- 315,000
Settlement of capital lease -- -- (163,199)
Issuance of preferred stock -- -- 349,999
Research and development liability 856,074 498,370 1,515,102
------------ ------------ ------------
Net cash provided by financing activities 856,074 498,370 9,913,033
------------ ------------ ------------
INCREASE (DECREASE) IN CASH -- -- --
CASH, at beginning of period -- -- --
------------ ------------ ------------
CASH, at end of period $ -- $ -- $ --
============ ============ ============
See accompanying notes to these financial statements.
F-10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
PERIOD FROM
OCTOBER 7, 1983
FOR THE YEARS ENDED (INCEPTION)
JUNE 30, THROUGH
-------------------------- JUNE 30,
1996 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for:
Interest $ - $ - $ -
========= ========= ==========
Taxes $ - $ - $ -
========= ========= ==========
PROPERTY AND EQUIPMENT THROUGH
CAPITAL LEASES $ - $ - $1,332,376
========= ========= ==========
ASSETS ACQUIRED FOR LIABILITIES ASSUMED IN
PURCHASE OF VIDEO VIEW, INC. $ - $ - $ 297,130
========= ========= ==========
ACQUISITION OF CERTAIN ASSETS (INCLUDING
PATENTS) FOR COMMON STOCK AND ASSUMPTION OF
LIABILITIES $ - $ - $ 200,000
========= ========= ==========
SETTLEMENT OF TRADE PAYABLES AND ACCRUED
SALARIES THROUGH ISSUANCE OF COMMON STOCK $ - $ 9,300 $ 599,803
========= ========= ==========
</TABLE>
- -------------
See Note 4 for issuances of common stock for services, accrued expenses and
accounts payable, licensing agreements and technology.
F-11
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Operations - Advance Display Technologies, Inc. (ADTI or the Company)
business activity is to develop and manufacture full color video display
systems. Originally, the system was to use a light valve projector
currently available for other suitable alternatives to project high
intensity images through optic fibers to a fiber optic screen. During 1994,
the management of ADTI explored new technology which integrates a solid
state light source with its existing fiber optic screen to create a concept
of the combined technologies. The Company completed an engineering proof of
concept for the combined technologies. However, due to the recent
advancement of projector technologies and the cost associated with the
integration technology, the Company delayed further development on the
light source technology indefinitely pending additional funding. The
Company plans to use projectors currently available for use with its
patented screen technology.
During the year ended June 30, 1994, the Company became a general partner
in a limited partnership known as Display Optics Ltd. (DOL) to continue
developing the video display technology of the Company. DOL now owns the
patents and technology as contributed by the Company for its interest in
DOL. The Company accounts for its relationship with DOL as a research and
development partnership (see Note 6 for further discussion). The Company
conducts substantially all of its business through the partnership.
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. The Company 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, the Company has
devoted most of its efforts on raising capital and developing the
technology. Its proposed operations, currently through DOL, are subject to
all of the risks inherent in the establishment of a new business enterprise
and the Company has incurred substantial losses since inception and has no
liquid assets. As further discussed in Note 5, certain of these patents and
technology are the security interest on a debenture payable currently
believed to be owed by a major stockholder (ACGC) of the Company. The
debenture and the underlying note are currently in default. In December
1995, the security interest and the underlying note were purchased by the
managing general partner, Display Group, LLC of DOL who brought action
against ACGC under the default provisions of the note and has won temporary
ownership rights, pending final judgement, in approximately 1,400,000
shares of the Company's stock held by ACGC. The Company's investment in DOL
is its only asset. The Company has also received notice from the State of
Colorado alleging past due sales tax and related accrued interest totaling
approximately $174,000. Based on prior discussions with state personnel,
the Company has accrued the amount it believes it will ultimately pay.
However, there can be no assurance as to the ultimate amount of any
settlement with the State of Colorado. These issues raise substantial doubt
about the Company's ability to continue as a going concern. The Company's
continued existence is dependent upon, among other things, its ability to:
perfect DOL's interest in the technology and develop DOL's 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.
F-12
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
Impact of Recently Issued Accounting Standards - In March 1995, the
Financial Accounting Standards Board issued a new statement titled
"Accounting for Impairment of Long-Lived Assets." This new standard is
effective for years beginning after December 15, 1995 and would change the
Company's method of determining impairment of long-lived assets. Although
the Company has not performed a detailed analysis of the impact of this new
standard on the Company's financial statements, the Company does not
believe that adoption of the new standard will have a material effect on
the financial statements assuming it is successful in completing
development of its technology, whereby its investment in DOL becomes fully
realizable.
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. The Company currently does not intend to adopt
the fair value accounting prescribed by FAS 123, and will be subject only
to the disclosure requirements prescribed by FAS 123. However, the Company
intends to continue its analysis of FAS 123 and may elect to adopt its
provisions in the future.
Cash and Cash Equivalents - For purposes of the Statements of Cash Flows,
the Company 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 years ended June 30, 1996
and June 30, 1995 was $-0- and $10,883, respectively.
Investment - The investment in DOL is stated at the Company's original cost
basis in the underlying patents and technology which was contributed to DOL
(less related amortization of the patents and technology). The patents and
technology are being amortized through 2004.
Research and Development - Research and development costs for new products
or product improvements are charged to expense as incurred.
Royalty Fees and Miscellaneous Income - In 1988, the Company received
royalty fees from an entity for license rights to certain of the Company's
patents and technology. The royalty fee was recorded as deferred revenue
and amortized through 1994. During 1995, the patents and technology that
related to these royalty fees were determined to need additional
development. The Company believes the entity is no longer pursuing the
development and manufacture of the licensed technology, thereby eliminating
any future obligation of the Company. As a result, the Company realized the
remaining deferred revenue of $167,342 as royalty revenues in fiscal 1995.
F-13
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
Income Taxes - Income taxes are accounted for under the liability method,
whereby deferred tax assets and liabilities are recorded based on the
differences between the financial statement and tax basis of assets and
liabilities and the tax rates which will be in effect when these
differences are expected to reverse. Deferred tax assets are reduced by a
valuation allowance which reflects expectations of the extent to which such
assets will be realized.
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.
Net Loss Per Common Share - Loss per common share is computed by dividing
net loss by the weighted average number of shares of common stock
outstanding during the period. Outstanding preferred stock, stock options
and warrants were not considered in the loss per common share computation
since their inclusion would be anti-dilutive.
Reclassifications - Certain reclassifications have been made to conform the
cumulative to date financial statements to the presentation in 1995 and
1996. The reclassifications had no effect on net loss.
2. PROPERTY AND EQUIPMENT:
-----------------------
Property and equipment consist of the following at June 30, 1996:
Equipment $121,859
Office furniture 2,344
Less accumulated depreciation and amortization (124,203)
--------
Property and equipment, net $ -
========
3. INCOME TAXES:
-------------
Long-term deferred tax assets are comprised of the following at June 30,
1996:
Deferred liability, net book basis in
acquired technology $ (6,000)
in excess of net tax basis
Net operating loss carryforward 5,320,000
----------
Net deferred tax asset 5,314,000
Less valuation allowance (5,314,000)
----------
$ -
==========
F-14
<PAGE>
The Company's valuation allowance increased $837,000 from June 30, 1995 to
June 30, 1996 primarily due to the increase in the Company's net operating
loss carryforward.
The Company has had no taxable income under Federal or state laws.
Therefore, no provision for income taxes was included in net loss.
The Company has accumulated net operating loss carryforwards of
approximately $14,000,000 for income tax purposes as of June 30, 1996
subject to reduction or limitation of use as a result of limitations
relating to a 50% change in ownership in prior years. These amounts expire
periodically through 2011 if not utilized sooner.
4. STOCKHOLDERS' DEFICIT:
---------------------
Key Employee Stock Option Plan - In 1984, the Company approved a stock
option plan for key employees. Options covering 89,220 shares of common
stock are available for grant under the Plan. Options are granted at fair
market value (110% of fair market value for 10% stockholders). No option
can have a term in excess of ten years (five years in the case of 10%
stockholders). The Board of Directors determine the terms, conditions, and
restrictions on grants of options. Incentive options are non-transferrable
and terminate within three months of the optionee's termination of
employment, unless employment is terminated for cause in which case the
option terminates immediately. In 1986, this Plan was amended to provide
for stock bonuses, discount stock, stock appreciation rights and certain
forms of financial assistance grants and the Plan expires in 1996. At June
30, 1996, there were no options outstanding under this plan.
Employee Stock Purchase Plan - In 1986, the Company approved an Employee
Stock Purchase Plan. Options covering 20,000 shares of common stock are
available under the Plan. The option price shall be the lesser of (i) 85%
of the fair market value of the Company's common stock at date of grant or
(ii) 85% of the fair market value on the date of exercise. The option
exercise period cannot exceed 5 years from the date of grant. These options
are non-transferrable and terminate within three months of the optionee's
termination of employment. At June 30, 1996, there were no options
outstanding under this plan.
Non-Employee Incentive Plan - Also in 1986, the Company approved a
Non-Employee Incentive Plan. Options covering 20,000 shares of common stock
are available under the Plan. The options are granted at fair market value.
No option can have a term in excess of ten years and is non-transferrable.
At June 30, 1996, there were no options outstanding under this plan.
Non-Qualified Options - The Non-Qualified Options Plan has similar terms as
the Non-Employee Incentive Plan. In January 1995, the Company granted
60,000 options to employees for $.25 per common share which expire in the
year 2000. At June 30, 1996, there were options to purchase 61,500 shares
outstanding which expire in the years 1999 through 2000, and are
exercisable at $.25 to $10 per share.
F-15
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
Non-Qualified Incentive Stock Option Plan - In 1990, the Company's Board of
Directors adopted a Non-Qualified Incentive Stock Option Plan (NQI Plan)
and reserved 100,000 shares of the Company's common stock for issuance
under this plan. Under the NQI Plan the Company can grant stock options,
stock, stock appreciation rights and related benefits such as loans, tax
benefits, surrender and other rights (each of which is referred to as an
"Award"). Eligibility to receive Awards under the NQI Plan is limited to
individuals who render services which tend to contribute materially to the
success of the Company or which may reasonably be anticipated to contribute
materially to the future success of the Company or its subsidiaries. No
option granted under the NQI Plan shall have a term in excess of ten years
from the grant date.
In 1990, the Company granted an aggregate of 65,000 options to purchase
shares of the Company's common stock at an exercise price of $3.50 per
share. These options have not been exercised and expire in the year 2000.
Common Stock Transactions - Since inception, the Company has had a 2.974 to
1 stock split, a 1 for 5 reverse stock split and 1 for 10 reverse stock
split. Accordingly, all common shares, options and warrants including
related prices reflected in the financial statements and the accompanying
notes were restated based on the stock split and reverse stock splits.
Preferred Stock - The Company has the authority to issue 100,000,000 shares
of preferred stock. The Board of Directors has the authority to issue such
preferred shares in series and determine the rights and preferences of the
shares. As of June 30, 1996, 2,991,474 shares have been designated and
issued as described below.
The Company has authorized 1,000,000 shares of Series A preferred stock of
which a Certificate of Designation of Preferences for 400,000 shares has
been filed with the Colorado Secretary of State in connection with a
previous transaction. Due to a dispute with the other party to the
transaction, the Company does not intend to issue these shares. In the
event these shares are issued, they would be convertible into 8,000 shares
of common stock.
During the period ended June 30, 1994, the Company issued 2,991,474 shares
of its non-cumulative Series B preferred stock to individuals for
consideration of $.117 per share. Each share of Series B preferred stock is
entitled to one-fifth of one vote on matters on which the holders of shares
of common stock are entitled and one full vote on matters which the
preferred stock are alone entitled to vote. Each share of Series B
preferred stock can be converted into common stock at the ratio of one
share of common stock for each share of Series B preferred stock.
5. TECHNOLOGY TRANSFERS AND RELATED CONTINGENCIES:
-----------------------------------------------
During 1990, the Company surrendered its patents and related technology for
relief of debt to an entity (CPI). In May 1991, the Company reacquired its
patents and technology from ACGC for 1,400,000 shares of the Company's
common stock. The Company has valued the reacquired patents and technology
F-16
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
at approximately the book basis of the technology and patents when
surrendered in 1990, considering impairment of certain intangibles upon
reacquisition (see Note 6). The patents and technology were subject to a
security interest in favor of a commercial lender and ACGC. The assets of
the commercial lender were subsequently acquired by the Resolution-Trust
Corporation (RTC) as receiver, resulting in the RTC maintaining the
security interest in these patents and technology together with the note
and debenture, which the technology secured. Management does not believe
any action was ever commenced to foreclose or otherwise enforce the
security interest. In December 1995, a general partner (managing partner)
of DOL acquired from the RTC for $225,000, the security interest in these
patents and technology and the debenture and underlying note. The patents
and technology continue to serve as collateral to the debenture believed to
be currently due from ACGC and other parties in the principal amount of
$2,175,000, which note and debenture are in default. During fiscal 1996,
the managing partner in DOL brought action against ACGC and other parties
under the default provisions of the note and has won temporary ownership
rights pending final judgement in approximately 1,400,000 shares of the
Company's stock held by ACGC to partially offset the debt owed to the
managing partner.
In an effort to determine status of the security interest and potential
claims against the Company, management has conducted extensive
investigation into the chain of title of its technology between 1990 and
the present. Due to the fact that the Company did not own the technology
during this entire time period, it has been difficult to locate and
evaluate all documents which potentially affect the Company's interest in
this technology. The Company believes many of the documents were prepared
by third parties without the assistance of legal counsel. As a result, the
Company's rights and obligations are often difficult to unequivocally
evaluate. However, as previously discussed, the Company believes a security
interest is still outstanding, but that the Company is not obligated on any
of the underlying debt. As a result, no liability has been recorded in the
financial statements. Also, the financial statements do not reflect any
adjustments to the Company's investment in DOL, that would occur if the
patents and technology were forfeited to a security interest holder.
The Company has been advised of a claim by ACGC. The claim alleges that the
Company entered into an agreement to purchase from ACGC approximately
1,250,000 shares of the Company's common stock, which represents the shares
currently owned by ACGC. This is for an unspecified amount. Management
believes that the Managing Partner only entered into exploratory discussion
with ACGC which has never resulted in an obligation of the Company. The
Company believes the claim is without merit, intends to vigorously contest
it, and is pursuing counter claims against ACGC.
In 1984, the Company acquired the rights to a certain patent and agreed to
pay the original patent holder 2% of the Company's net income (as defined).
6. INVESTMENT IN DOL:
------------------
In December 1993, the Company and other individual investors formed DOL, a
Limited Partnership, to further develop the fiber optic video technology of
the Company. To accomplish this, the Company transferred its interests in
its patents and related technology along with a Licensing Agreement to DOL
in exchange for an interest in the partnership. The Company is a General
Partner of DOL. For financial reporting purposes, DOL is considered as a
research and development partnership. As a result, all expenses incurred by
F-17
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DOL have been recorded as an expense of the Company, with funding by the
limited partners and outside entities recorded as a research and
development liability.
DOL's summarized financial information is as follows:
JUNE 30,
----------------------------
1996 1995
----------- ----------
Current assets $ 17,331 $ 33,000
=========== ==========
Total assets $ 437,107 $ 496,000
=========== ==========
Current and total liabilities* $ 1,499,337 $ 647,000
=========== ==========
Partners' capital (deficit) $(1,062,230) $ (151,000)
=========== ==========
Revenues $ - $ -
=========== ==========
Net (loss) $ (913,082) $ (555,000)
=========== ==========
- -----------
* Included in liabilities are amounts due the Company of $203,000 and
$267,000 at June 30, 1996 and 1995, respectively. This amount is offset
against the research and development liability recorded in the Company's
financial statements.
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. The Company will receive 99% of all distributions
thereafter.
The Partnership allows for three classes of limited partners: Class A,
Class B, and Class C. The Partnership authorized six Class A Units, 100
Class B Units and 395 Class C Units. The purchase price for each Class A
Unit is $8,333 in cash. The purchase price for each Class B and Class C
Unit is $10,000 in cash per Unit at the time of subscription or may be
financed by a one-half payment at the time of subscription, with the
remaining payment to be made in one installment one year from date of
subscription. As of June 30, 1996, six Class A units and no Class B or C
units have been purchased.
The Limited Partners shall have the right to convert fully paid Units into
common stock of the Company on the following basis:
o Class A Limited Partners: 8,333 shares of common stock per Unit;
conversion price $1.00
o Class B Limited Partners: 76,045 shares of common stock per Unit;
conversion price $.1315
o Class C Limited Partners: 2,000 shares of common stock per Unit;
conversion price $5.00
Such Units may be converted by the Limited Partners with the written
approval of the Company.
In addition to the purchase of Class A units, loans were made to DOL by
certain investors, including the managing partner, Display Group, LLC,
which are convertible to Class B units, such Class B units convertible into
common stock of the Company. At June 30, 1996, DOL had received loans
totaling $963,000 which are convertible into 96.34 Class B units and
ultimately convertible into
F-18
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
7,326,365 shares of common stock of the Company. At January 31, 1997, DOL
had received loans totaling $1,552,000 (unaudited) which are convertible
into 155.28 Class B units and ultimately convertible into 11,808,617 shares
of common stock of the Company.
Certain investors also made loans to the managing partner for the purpose
of acquiring the security interest in the technology which was transferred
to DOL and for other administrative costs. These loans are also convertible
into Class B units of DOL and ultimately convertible into shares of common
stock of the Company. As of June 30, 1996, additional loans to Display
Group totaled $283,000, which were convertible into 28.26 Class B units and
ultimately convertible into 2,149,084 shares of common stock of the
Company. As of January 31, 1997, these additional loans totaled $292,000
(unaudited) which are convertible into 29.21 Class B units and ultimately
convertible into 2,221,328 shares of the common stock of the Company.
F-19
ADVANCE DISPLAY TECHNOLOGIES, INC.
FORM 10-KSB
FOR THE FISCAL YEAR ENDED
JUNE 30, 1996
EXHIBIT 10.12
<PAGE>
REVISED FIRST AMENDMENT TO THE
AGREEMENT OF LIMITED PARTNERSHIP
OF DISPLAY OPTICS, LTD.
The Agreement of Limited Partnership of Display Optics, Ltd., a Colorado
limited partnership (the "Agreement") is dated as of December 31, 1993. The
General Partner is authorized to amend the Agreement as set forth below. Terms
herein have the same meaning as those in the Agreement.
Section 2.1 of the Agreement, is hereby amended as follows:
The term "The Partnership authorizes five Class A Units, 200
Class B Units and 295 Class C Units" shall be amended to read:
The Partnership authorizes a maximum of six Class A Units, 100
Class B Units and 395 Class C Units."
Section 2.2 of the Agreement is hereby amended as follows:
The term "Class B Limited Partners: 3,333 shares of stock per
unit; conversion price $3.00 is amended to read: Class B Limited
Partners: 76,045 shares of common stock per Unit; conversion
price $.1315."
Section 2.2 of the Agreement is hereby amended as follows:
The term "50,000 shares at the time the Class A Units are issued;
660,000 shares at the time the Class B Units are issued; and
590,000 at the time the Class C Units are issued." is amended to
read:
"Sufficient shares to meet the common stock conversion
rights at each close of Class A, Class B and Class C Unit
offering(s), based on the total number of Units subscribed at
each offering times the stock conversion ratio as defined in
Section 2.2 herein."
This amendment shall be effective on September 1, 1995.
This First Amendment to the Agreement of Limited Partnership of
Display Optics, Ltd., was approved by partners possessing total sharing ratios
required for its adoption as set forth in the Agreement.
ADVANCED DISPLAY TECHNOLOGIES, INC.,
a Colorado Corporation,
Display Optics, Ltd.
By:
------------------------------------------
Darrell Avey, Manager
ADVANCE DISPLAY TECHNOLOGIES, INC.
FORM 10-KSB
FOR THE FISCAL YEAR ENDED
JUNE 30, 1996
EXHIBIT 10.13
<PAGE>
PATENT ASSIGNMENT
This AGREEMENT is between Advanced Display Technologies, Inc. ("ADTI"), a
Colorado Corporation, having a place of business at 1251 South Huron Street,
Denver, Colorado 80223, and Michael A. Nixon. ("NIXON"), Jeffory D. Blackard
("BLACKARD"), and Visual Optics, Inc., ("VOI"), a Texas corporation having a
place of business at P.O. Box 702315, Dallas, Texas 75370 (NIXON, BLACKARD and
VOI are referred to herein collectively as the "ASSIGNORS").
WHEREAS, one or more of ASSIGNORS own a patent in the field of display
screen technology, and
WHEREAS, ADTI is desirous of receiving an assignment of the patent and
assigning same to Display Optics, Ltd. ("DOL"),
NOW, THEREFORE, in consideration of the SETTLEMENT AGREEMENT, the promises,
and mutual covenants and conditions, warranties and representations contained
herein, the parties hereto have agreed as follows:
ARTICLE I - EFFECTIVE DATE
--------------------------
1.1 This Agreement and the assignment granted herein shall become effective
as of the effective date of the SETTLEMENT AGREEMENT.
ARTICLE II - DEFINITIONS
------------------------
2.1 "PATENT" means United States Patent No. 5,293,437.
2.2 "AFFILIATES" means Display Optics, Ltd. ("DOL") and Display Group, LLC
("DGLLC").
2.3 "SETTLEMENT AGREEMENT" means the agreement between ADTI and its
AFFILIATES as Plaintiffs on the one hand and VOI, BLACKARD and NIXON as
Defendants on the other hand, effective as of February 27, 1997.
1
<PAGE>
ARTICLE III - LICENSES GRANTED
------------------------------
3.1 ASSIGNORS hereby assign, sell, transfer and set over to ADTI the
PATENT, the same to be held and enjoyed by ADTI for its own use and enjoyment,
and for the use and enjoyment of its successors, assigns or other legal
representatives, to the end of the term or terms for which said letters patent
of the United States are or may be granted or reissued as fully and entirely as
the same would have been held and enjoyed by the ASSIGNORS if this assignment
and sale had not been made. The assignment of the PATENT to ADTI granted herein
includes all claims for damages by reason of past infringement of said letters
patent, with the right to sue for, and collect the same for ADTI's own use and
for the use of ADTI's successors, assigns or other legal representatives.
ARTICLE IV - RELEASES AND COVENANTS
-----------------------------------
4.1 In consideration of the payment to be made pursuant to the SETTLEMENT
AGREEMENT, ASSIGNORS hereby release ADTI, its predecessors, its AFFILIATES,
their members, managers, employees, limited partners, representatives and, its
customers (direct and indirect) from all claims, which, as of the effective date
of this Agreement, ASSIGNORS may have against ADTI, its predecessors, its
AFFILIATES, their members, managers, employees, limited partners,
representative, or its customers based upon any infringement by them of the
PATENT by reason of any act of manufacture, use, or sale anywhere in the World.
ARTICLE V - WARRANTIES
----------------------
5.1 ASSIGNORS warrant that there are no counter-parts which claim priority
from the PATENT pending or issued in other countries or any corresponding
reissue applications pending or issued in the United States.
5.2 Notwithstanding any other provision of this Agreement, ASSIGNORS make
no express or implied warranties or representations to ADTI with respect to (a)
the validity or enforceability of any claims of the PATENT or (b) whether the
practice of any invention disclosed or claimed in the PATENT infringes any
patent or other proprietary rights owned by any third party.
2
<PAGE>
5.3 The undersigned represent and warrant that each respectively maintains
the authority to enter into this PATENT ASSIGNMENT and bind their respective
companies pursuant to the authority granted and legally provided by their
companies in accordance with said authority as attested by the undersigned as
duly authorized officers, retaining the titles set forth below.
ARTICLE VI - MISCELLANEOUS
--------------------------
6.1 This Agreement and all matters relating to the construction,
interpretation, and enforcement thereof shall be governed by the laws of the
State of Colorado.
6.2 This Agreement supercedes and cancels the Non-Exclusive License
Agreement between VOI and ADTI dated April 23, 1993.
IN WITNESS WHEREOF, the parties hereto cause their corporate names to be
affixed by their respective duly authorized officers or representatives, and to
bind the individuals executing on behalf of themselves.
Advanced Display Technologies, Inc. Visual Optics, Inc.
a Colorado Corporation a Texas Corporation
By: By:
--------------------------------- -------------------------------
Darrell D. Avey, Chairman & Jeffory D. Blackard, President
Vice President
By:
-------------------------------
Michael A. Nixon, Vice President
3
<PAGE>
Individuals
By:
----------------------------------
Jeffory D. Blackard, Individually
By:
----------------------------------
Michael A. Nixon, Individually
Acknowledged and Agreed:
Display Optics, Ltd.
By: Display Group, LLC,
the managing general partner
By:
---------------------------------------
Keith A. Hancock, Manager
By: Advance Display Technologies, Inc.,
a general partner
By:
---------------------------------------
Darrell D. Avey, Chairman &
Vice President
4
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