ADVANCE DISPLAY TECHNOLOGIES INC, 10KSB, 2000-10-12

ADVANCE DISPLAY TECHNOLOGIES INC
10KSB, 2000-10-12
PATENT OWNERS & LESSORS

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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, 2000
Commission File Number 0-15224

ADVANCE DISPLAY TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

Colorado 84-0969445
(State of incorporation) (I.R.S. Identification No.)

7334 South Alton Way, Suite F, Englewood, Colorado 80112
(Address of principle executive offices) (Zip Code)

(303) 267-0111
(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:

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 [X] No [ ]

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's reported interest and other income for the fiscal year ended
June 30, 2000 was $2,363.

The aggregate market value of the 7,011,879 shares of voting stock held by
non-affiliates of the registrant, computed as the average of the closing bid and
asked prices as of September 15, 2000 was $1,582,230. As of September 15, 2000,
the registrant had outstanding 23,774,275 shares of Common Stock.

<PAGE>

Table of Contents

Part I. Page

Item 1. Business.......................................................... 1
Item 2. Description of Property........................................... 6
Item 3. Legal Proceedings................................................. 6
Item 4. Submission of Matters to a Vote of Security Holders............... 6

Part II.

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................. 7
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 7
Item 7. Financial Statements and Supplementary Data....................... 10
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................ 10

Part III.

Item 9. Directors and Executive Officers of the Registrant and Compliance
with Section 16(a) of the Exchange Act.......................... 10
Item 10. Executive Compensation............................................ 12
Item 11. Security Ownership of Certain Beneficial Owners
and Management.................................................. 14
Item 12. Certain Relationships and Related Transactions.................... 16
Item 13. Exhibits, Financial Statement Schedules and Reports
on Form 8-K..................................................... 17

ii
<PAGE>

Special Note Regarding Forward Looking Statements

Certain statements contained herein constitute "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward looking statements include, without limitation, statements regarding
Advance Display Technologies, Inc.'s ("ADTI" or the "Company") anticipated
marketing and production, need for working capital, future revenues and results
of operations. Factors that could cause actual results to differ materially
include, among others, the following: future economic conditions, the ability of
the Company to obtain sufficient capital, to further develop and improve the
manufacturing process for its product, to manufacture its product at a cost that
would result in profitable sales, to sell a sufficient number of screens at a
sufficient price to result in positive operating margins, to attract and retain
qualified management and other personnel, and generally to successfully execute
a business plan that will take the Company from a development stage entity to a
profitable operating company. Many of these factors are outside the control of
the Company. Investors are cautioned not to put undue reliance on forward
looking statements. Except as otherwise required by rules of the Securities and
Exchange Commission, the Company disclaims any intent or obligation to update
publicly these forward looking statements, whether as a result of new
information, future events or otherwise.

Statements in this Report are qualified in their entirety by reference to
contracts, agreements, and other exhibits filed or incorporated with this Report
(See Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K).

iii
<PAGE>

PART I

Item 1. BUSINESS

Introduction
------------

Advance Display Technologies, Inc. ("ADTI" or the "Company") is a
development stage company, incorporated under the laws of the State of Colorado
on October 7, 1983. ADTI was formed to engage in the business of the
technological development and manufacture of fiber optic display screen systems.
ADTI completed its initial public offering in April 1986, selling five million
shares of its Common Stock for net proceeds of $4.2 million. Since that date,
ADTI's Common Stock has been split such that each 50 shares previously
outstanding are now equal to one 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 core technologies,
manufacturing processes, and raising operating capital. The Common Stock of ADTI
is currently traded over the counter and is quoted on the electronic bulletin
board under the symbol "ADTI".

Products
--------

Since inception, ADTI has developed large screen fiber optic displays (the
"Screen") for various industries and applications. The Screen may utilize a
variety of projection light sources which project images into the Screen's
matrix bundle of collated optical fibers (the "Input Matrix") which in turn,
transmit, magnify, and display the correlative images onto the viewable face
(the "Output Matrix") of the Screen. The Screen is essentially a high
resolution, optically passive, image transfer and magnification device,
exhibiting a high contrast ratio and enhanced image display.

The Screen is still in the development stage and as such, the Company has
been unable to successfully market the Screen products. The Company's current
strategy is to continue to pursue development and design of application specific
fiber optic displays or Screens for various industries. The Company believes
that application specific Screens will represent a significant source of its
future business. During the fiscal year ended June 30, 2000, the Company worked
on the design and development of Screen prototypes for an Intelligent Traffic
System Variable Message Sign application. For this Screen design, the Company
solicited customer input and industry specifications to develop and produce an
original product design and manufacturing processes incorporating this
information. The Company intends to use similar strategies in pursuit of other
Screen applications. The Company also plans to develop and produce standard or
"off-the-shelf" Screens, which involve designs that are adaptable to various
fixed end uses with slight modification utilizing modular assembly techniques.

The Company will attempt to identify specific industries that present the
greatest long-term growth potential. Research and development activities may
then focus upon technological developments that attempt to meet the then current
and future requirements of those industries. The Company will also seek to
establish strong and long-lasting business relationships by aligning its
prospects with member companies of those industries and by seeking to make its
engineering and manufacturing processes functional extensions of the industry's
product development needs. The Company intends to engage in a careful selection
process of various application specific needs because it recognizes that its own
growth and development will be closely aligned with that of the target
industries. The Company currently intends to concentrate its efforts on
developing fiber optic display solutions for four primary industries:
Intelligent Traffic System Variable Message Signs, Public Information Displays,
Large Venue Video Displays and Advanced Advertising Displays. Initial efforts
have been focused on prototypes specifically targeted for the traffic sign
industry.

1
<PAGE>

The electrical and mechanical components of the Screen are limited to
projection light source technologies either developed by the Company or acquired
from other sources. The Screen's fiber optic assembly module, and its viewable
surface, are assembled from durable plastic and metal components exhibiting
excellent high impact resistance and ageing characteristics. Therefore, the
Screen's serviceable life is increased by virtually limiting maintenance
requirements to a particular projection system. This unique design feature also
enables the Screen to be field "upgraded" at a future date by simply replacing
the projection system.

The unique image display qualities of the ADTI fiber optic Screens are
created using technologies which enhance a viewers' human factor perception of
images displayed through the fiber optic medium. As in all image display
systems, image quality depends upon key factors such as resolution,
chromaticity, contrast ratio and conspicuousness.

ADTI Screen technologies incorporate design features displaying the following:

High Resolution - The Screen's resolution is determined by the space between
fibers, by adding or subtracting a number of fibers or by using fibers of
various diameters to obtain a specific resolution. The Screen resolutions may
range from approximately 8,000 to 130,000 pixels per square meter.

Resolution defined -- The total number of picture elements ("pixels") comprising
an image.

Accurate Chromaticity - The Screens are passive image transfer devices
constructed of low attenuation fiber optic strands which transmit light with
minimal loss and distortion of the originally projected images. The Screen's
chromaticity is only dependent on the quality of projection light source
employed.

Chromaticity defined -- The quality of color reproduction according to
international standards.

High Contrast Ratio - The Screen surface or Output Matrix is flat black which
absorbs a majority of the ambient light, thereby increasing the contrast ratio.

Contrast ratio defined -- The measurable photometric intensity difference
between illuminated and non-illuminated pixels.

Excellent Conspicuousness - The Screen's fiber optic medium possesses some
unique optical qualities in conveying an image to the human eye. The Screen's
conspicuousness is enhanced by the polar distribution of light when exiting the
fiber optic strands and by the aperture ratio.

Conspicuousness defined -- The human factor measurement of the quality ratio of
an image in relation to its environmental background. This measurement includes
overall screen contrast due to reflected ambient light, pixel to pixel aperture
ratio or "fill factor" (the size of the illuminated pixel in relation to the
flat black area surrounding the pixel), and glare or "bloom" of the displayed
image.

Current Developments
--------------------

2
<PAGE>

program of concurrent engineering involving substantial changes in overall
product design, assembly processes, quality control procedures and various
alternative manufacturing technologies.

This re-engineering program resulted in the Company contracting optical,
electrical and mechanical engineering specialists to design and build
application specific Screen prototypes. These recent prototype efforts are
yielding a Screen product displaying images which enable ADTI to proficiently
demonstrate the quality and brightness necessary for application specific
markets. Through these recent developments, the Company is gaining relationships
which management intends to leverage in creating industry alliance opportunities
with strategic partners and to gain established distribution and manufacturing
capabilities in various global markets.

Management believes difficulties experienced by the Company generating
sales of its Screen systems for the large display markets are due in part to
inadequacies or cost inefficiencies of projection systems, as well as certain
deficiencies relating to the Screen surface. Research in the large screen video
display market has led management to believe that standard "off-the-shelf" full
color video projection systems may soon provide a cost effective video
projection solution for Screen products targeted toward the large venue video
display market. Video projection developments by other companies are beginning
to demonstrate cost to performance ratios of projection systems which may
benefit the Company's development of market specific systems.

Approximately $418,300 was spent on research and development by the Company
during the fiscal year ended June 30, 2000. The Company completed two prototypes
for use in technology demonstrations and preliminary testing for certain traffic
sign applications. Management believes these prototypes demonstrated the
feasibility of the Screen for this intended application.

If the Company is unable to successfully demonstrate the prototypes,
develop adequately suitable image projection systems, develop manufacturing
technologies, develop automated assembly processes or develop industry business
relationships, the ability of the Company to raise additional capital to
continue operations will be significantly hindered and the Company may be forced
to discontinue operations.

Manufacturing
-------------

The Company has in the past developed and patented a semi-automated
manufacturing system for production of the Screens in their former
configurations. This former assembly system automatically aligned the optical
fibers allowing the fiber optics and plastic spacers to be bonded into screen
modules. These screen modules were then assembled in rows and columns to create
the Screen's front faceplate. This former manufacturing and assembly process was
performed in-house by the Company. While the Company will seek to aggressively
develop and patent new processes of manufacture and assembly, the Company's
current process patents, mentioned above, will continue to be serviced and
maintained to protect their residual economic value.

The Company has recently initiated an assembly automation development
program for the Screen supporting the new concurrently engineered product
designs. Commitment to the automation program is intended to yield greater
efficiencies in manufactured assembly and overall higher quality of the Screens.
However, this is an incremental automation program being implemented in parallel
with semi-automated and manual assembly process developments and therefore,
should the automation program not be immediately successful, it will not
substantially effect the Company's ability to produce Screens for commercial use
in the short term.

Although manufacturing has not been a material part of the business to
date, the Company is currently engaged in a program of developing start-up
manufacturing operations to support the Company's ongoing product design,
manufacturing methods and automated assembly initiatives mentioned above. These
activities are directed and overseen by the Company's Director of Manufacturing
Operations, Gary G. Sullivan. Mr. Sullivan is a seasoned manufacturing
professional hired by the Company in November 1999.

3
<PAGE>

If the Company is unable to successfully develop and demonstrate the new
product designs, manufacturing methods and automated assembly technologies
stated above, certain efficiencies of manufacturing economics may not be
achieved and the ability of the Company to raise additional capital to continue
operations may be significantly hindered and the Company may be forced to
discontinue operations.

Raw Materials
-------------

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, common plastics and metal materials. The Company
currently obtains its optical fibers from Mitsubishi Rayon of Japan. The Company
is aware of two additional fiber optic suppliers with comparable quality and
competitive pricing.

Marketing
---------

In the past, the Company concentrated its marketing efforts toward selling
products in the large screen display market for video applications. In the last
several years, the Company has made only one commercial sale of the Screen in
fiscal 1997 to the National Western Events Center in Denver, Colorado. Current
management believes this negative sales history was due to less than ideal
Screen quality related to the overall design and process of manufacture that
were employed during the Company's limited manufacturing history. However,
current efforts in business, product, and manufacturing development have
progressed with the Screens now exhibiting more desirable image display
qualities.

The Company is currently planning to introduce one or more new Screen
products during the fiscal year ending June 30, 2001. New product introductions
will utilize some of the Company's recent developments in product design,
manufacturing processes and display technologies. The Company suspended the
aggressive marketing of its former Screen designs in January 1998 when the
Company began investigating alternatives to the overall design of the Screen and
the associated manufacturing processes. Since this time, the Company has renewed
marketing efforts and has explored various alternative uses and markets for its
fiber optic Screen technologies. Also, the Company has continued to pursue the
development of the large screen video display market through substantial
improvements in the Screen's overall design and manufacturing technologies.

As the product redesign, manufacturing methods and assembly automation
processes become more fully developed, ADTI will continue to expand its
marketing efforts to further explore application specific products for new and
existing markets. However, there can be no assurance that sufficient capital
will be obtained to undertake these activities or that the new product design or
manufacturing process will be significantly improved.

Competition
-----------

Fiber Optic Systems: Management is not aware of any other products on the
market which are based on the same design or manufacturing technologies as the
Company's Screens. However, InWave, Inc. of Eugene, Oregon and American Shizuki
Corporation (ASC) of Louisville, Colorado also manufacture and/or sell fiber
optic display screens. The Company believes that InWave is currently selling its
product for advertising applications and ASC has concentrated on product
introductory efforts for video display applications. The fiber optic display
sold by InWave has a lower resolution and a narrower viewing angle than ADTI's
Screen product and it is manufactured using a significantly different method.
The fiber optic display currently being marketed by ASC in the United States is
based on technology purportedly acquired from Nippon Telephone & Telegraph
(NTT). ASC, a wholly owned subsidiary of Shizuki Electric Company, Inc. of
Japan, is primarily a manufacturer of electronic capacitors in the United States
and has limited experience in the fiber optic screen market.

4
<PAGE>

Light Bulb or CRT Systems: Several companies, including Sony, Panasonic,
Toshiba, and Mitsubishi, manufacture large video screens which are based on
light bulb, cathode luminescent or CRT technology. These systems are competitive
with the Screen in certain applications and formerly represented a significant
portion of the new large screen market. However, these systems are currently
being supplanted in the market by Light Emitting Diode (LED) systems. In the
opinion of management, the drawbacks of such systems in comparison with the
Screen are lower resolution, higher maintenance costs, higher consumption of
electricity, and higher purchase price.

Projection Systems: Front and rear screen projection systems are currently
useful only in controlled ambient light environments. In the opinion of
management, the drawbacks of such systems in comparison with the Screen, include
limited viewing angle, low contrast ratio, and a need for a long throw distance.
However, these projection systems still represent a majority of the market in
certain large venue video and graphic display market segments consisting of
conference rooms, schools, sports bars, and casinos.

Videowalls: Videowalls are assembled using modular rear screen projection
television systems coupled together in rows and columns. Videowalls are mainly
used for sports events, concerts, trade shows, conventions and other special
events for information and amusement. In the opinion of management, the
drawbacks of such systems in comparison with the Screen include a limited
viewing angle, visible seams, non-uniform color and brightness, lack of contrast
ratio, and lack of necessary brightness for outdoor use.

LED Systems: Full color LED matrix displays represent a major competitive
challenge for the Screen. Although the Screen has some unique advantages over
LED technology, the LED displays are being marketed by over 108 separate
companies including some major electronics manufacturers such as Sony,
Mitsubishi, Panasonic, Toshiba and Philips. Many LED screens operated over the
past few years now exhibit undesirable viewing characteristics which management
believes is one draw back of such systems in comparison with the Screen. These
characteristics include "pixel to pixel" and "module to module", color or
chromatic shift, variations in uniform luminous intensities, and other
undesirable optical variations due to inconsistent thermal dissipation and
variations in the manufacturing processes of LED components. Also, LED screens
have a relatively high "cost per pixel" ratio when compared to the Company's
Screen technology.

In summary, the Company is subject to active competition from various
companies in the large screen image projection and display industry. Most of
these companies have substantially greater financial resources, human resources
and production capabilities than those of the Company. Some of these competitors
also have more well-established products and brand names in the market. 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.

Proprietary Rights
------------------

Currently, the Company is engaged in an aggressive intellectual property
development program to capture the intrinsic value which management believes was
created through the ongoing research and development of new products and methods
of manufacture for its Screen technologies. The Company's Screen systems are
based on proprietary fiber optic display and optical image projection
technologies either developed or acquired by the Company, covering its
technology, products, components, methods of manufacture and assembly processes.

The first patent for the Screen and method of manufacture was filed in
February 1984 and subsequently issued in March 1987. The Company was
subsequently granted or assigned five additional patents covering the product
design and method of manufacture for the Screen. One of the additional patents
which was considered by management to be nonessential to the Company's
intellectual property position has expired. In fiscal year ended June 30, 1999,
the Company was issued an additional patent by the U.S. Patent and Trademark
Office (USPTO) which reflected improvements to the Company's design and method
of manufacture strategy.

5
<PAGE>

During the fiscal year ended June 30, 2000, the Company continued to
develop new intellectual property reflecting new product designs and methods of
manufacture for the Screens. Based on these recent developments, the Company
does not expect to generate significant future revenues from the use of
intellectual property contained in patents issued prior to June 30, 1999 and has
accordingly, written off capitalized costs associated with these patents.
However, the Company will continue to aggressively develop and patent new
intellectual property, and the Company's current portfolio of issued patents,
mentioned above, will continue to be serviced and maintained to protect any
residual economic value to the Company on an ongoing basis.

In the fiscal year ended June 30, 1999, the Company began a relationship
with the law firm Mc Andrews, Held & Malloy, LTD. of Chicago, Illinois to act as
legal consul concerning future intellectual property developments by the
Company. Subsequent to this event, and with this firms assistance, the Company
filed a new patent application which has a current status of "patent pending"
with the USPTO. The USPTO has subsequently issued an "office action", to which
the Company responded, and the Company expects this patent to issue in the
fiscal year ending June 30, 2001. This latest patent reflects a portion of new
intellectual property created through the Company's current program of research
and development.

The Company intends to continue to protect its intellectual property
through issued patents, trade secrets, patents pending, and continuing to file
for new patents on proprietary developments as appropriate. The Company believes
intellectual property to be material to its business objectives and seeks to
protect, develop, and maintain its technology for the design and manufacture of
Screens in the strictest confidence.

Employees
---------

As of September 15, 2000, ADTI employed five full-time employees, who
directed research and development efforts and conducted administrative
functions. The Company may employ additional staff as further development or
manufacturing requirements dictate and working capital permits. The Company has
placed illumination, projection, electrical, and mechanical engineering
specialists under contract to design and develop adequately bright image
projection and manufacturing technologies. The Company also retains various
consultants on a contract basis as needed for management, engineering, legal and
accounting services.

Item 2. DESCRIPTION OF PROPERTY

The Company leases one unit containing office, R&D and manufacturing space
at 7334 South Alton Way, Building 14, Suite F, Englewood, Colorado 80112. The
current facility has a total of 1,411 square feet at a current base rental of
$1,058 per month plus operating expenses of $497 per month. Of the total space,
approximately 40 percent is office space and 60 percent is R&D and manufacturing
area. The Company leases the facility pursuant to a three-year lease expiring
May 31, 2002. As working capital permits and operations dictate, the Company may
consider alternative facilities in the future to accommodate space requirements
for business, product and process development, as well as for housing
manufacturing operations.

Item 3. LEGAL PROCEEDINGS

Neither the Company, nor any officers or directors in their capacities as
such, are involved in any matters of material litigation as of the date of
filing this Report.

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 the Company's fiscal year.

6
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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. 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
---- ---
1999
----
September 30, 1998 $0.2200 $0.0600
December 31, 1998 .0600 .0200
March 31, 1999 .1000 .0200
June 30, 1999 .0550 .0500

2000
----
September 30, 1999 $0.0600 $0.0500
December 31, 1999 .0625 .0600
March 31, 2000 .3125 .0600
June 30, 2000 .2500 .1875

As of September 15, 2000 there were approximately 1,750 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.

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

Special Note Regarding Forward Looking Statements

Certain statements contained herein constitute forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. (See
page iii of this report.)

Results of Operations
---------------------

In the past, the Company conducted research and development activities for
full color large screen display applications primarily used in the large venue
video display market. Due to various factors in the past, the Company did not
achieve the desired results in the development of the Screen for those
particular applications. Accordingly, the Company embarked on a program to
re-engineer itself and develop new markets utilizing substantially improved
product designs and methods of manufacture. As of the date of this report, the
Company remains in a development stage as it has not received significant
revenues from operations.

7
<PAGE>

For the fiscal year ended June 30, 2000, the Company reported a net loss of
($916,368), or ($.04) per share, as compared to ($582,813), or ($.02) per share,
for fiscal 1999. Without the extraordinary gain reported in 2000, the net loss
would have been ($1,187,202), or ($.05) per share. The increase in net loss for
the fiscal year ended June 30, 2000 from 1999 is primarily due to: 1) other
income of $175,550 received during the fiscal year ended June 30, 1999 primarily
in settlement of previously pending litigation; 2) an increase in research and
development (R&D) expenses of $255,100 due primarily to the design and
development of the prototypes, and 3) an increase in interest expense of
$210,600. These increases were partially offset by: 1) a decrease in general and
administrative (G&A) expenses of approximately $35,700, and 2) the
extinguishment of certain payables and accruals previously carried on the
Company's books totaling $270,834 during the fiscal year ended June 30, 2000
(See Note 9., under Notes to Financial Statements).

During the fiscal year ended June 30, 1999, the Company received funds in
settlement of previously pending litigation. In connection with a settlement
agreement effective August 10, 1998, the Company received $175,000 cash and
1,402,157 shares of ADTI Common Stock. The ADTI Common Stock acquired in the
settlement has been returned to the authorized but unissued stock of the
Company. The cash received in settlement of the litigation was used to pay
certain litigation costs and as working capital.

The Company reported no revenue from the sale of its product for either
fiscal year. Management believes the lack of sales of products has been
attributed to the inadequacies or cost inefficiencies of projection systems
together with certain deficiencies relating to the screen surface. The Company
reported interest income of $2,363 and $1,170 for the fiscal years ended June
30, 2000 and 1999, respectively.

The Company reported G&A expenses of $433,612 and $469,282 for the fiscal
years ended June 30, 2000 and 1999, respectively. Depreciation decreased in 2000
by approximately $10,600 due to certain assets being fully depreciated.
Professional fees decreased by approximately $47,800 for the fiscal year ended
June 30, 2000 from 1999 primarily due to a decrease in consulting fees related
to market research and analysis. During the first quarter of fiscal 1999, the
former president of the Company resigned and the Company hired an administrative
contract employee resulting in a net decrease in contract services, salaries and
employment taxes of approximately $18,500. Employee benefits increased
approximately $9,700 primarily due to rising health care costs and the addition
of certain manufacturing/R&D employees during the fiscal year ended June 30,
2000. On June 1, 1999, the Company moved its offices to a facility approximately
one third the size of its previous facility resulting in a decrease in rent
expense of approximately $17,300 for the fiscal year ended June 30, 2000 from
the prior year. In connection with the Company's efforts to further develop and
design its products and continue to evaluate potential market conditions, travel
and related expenses increased approximately $34,100 for the fiscal year ended
June 30, 2000 from June 30, 1999. In addition, during the fiscal year ended June
30, 1999, the Company negotiated a $20,300 reduction in legal fees previously
recorded in connection with the settlement of prior litigation. Other G&A
expenses fluctuated slightly resulting in a net decrease of the combined
remaining G&A expenses of approximately $5,600.

Research and development costs increased from $163,180 for the year ended
June 30, 1999 to $418,307 for the year ended June 30, 2000. This increase is
primarily due to the design and development activities described above.

Interest expense increased from $127,071 for 1999 to $337,646 for 2000
primarily due to 1) an increase of approximately $71,500 related to an increase
in Convertible, Redeemable Promissory Notes outstanding for the fiscal year
ended June 30, 2000, and 2) imputed interest of $139,640, a non-cash expense
which relates to immediately convertible debt that was issued at a conversion
price below the quoted price of the Company's common stock. However, the Company
believes that the conversion price more closely reflected the actual fair market
value of the Company's common stock on the dates of issuance.

8
<PAGE>

Liquidity and Capital Resources
-------------------------------

The Auditor's Opinion Letter included in the Financial Statement Exhibits,
includes an explanatory paragraph regarding the Company's ability to continue as
a going concern. 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 toward raising capital and research and development efforts.

The Company and its subsidiaries have been totally dependent on financing
from outside sources to fund operations. At June 30, 2000, the Company reported
negative net worth of $2,820,276 and negative working capital of $547,885. The
Company will require additional capital for administrative expenses, continued
development of the display system, capture of intellectual property, further
design and development of an automated manufacturing process and marketing
costs. Management believes that the Company's continued existence is dependent
upon its ability to: 1) develop the Screen technologies for specific
applications; 2) complete the design and development of an automated
manufacturing process; 3) successfully market the product; 4) obtain additional
sources of funding through outside sources; and 5) achieve and maintain
profitable operations. There can be no assurance that the Company will be able
to achieve its research and development goals, obtain sufficient additional
capital or manufacture or sell its products on terms and conditions satisfactory
to the Company.

Cash flows from financing activities for the fiscal years ended June 30,
2000 and 1999 consisted entirely of the issuance of 10% convertible, redeemable
promissory notes to shareholders totaling $720,900 and $550,242, respectively.
Substantially all of this financing was used for operations during each fiscal
year. These notes are due October 15, 2002 and are convertible, at the option of
the noteholder, into shares of the Company's Common Stock at rates from $.05 to
$0.30 per share. These notes are unsecured. The Company has the right to call
these Notes after one year and the noteholders have 30 days in which to convert
if these Notes are called by the Company. The Company may elect to pay interest
on any of these Notes converted in cash or by issuance of additional shares of
the Company's Common Stock. Cash flows for the year ended June 30, 2000 were
used for ongoing product and manufacturing process development, operating
expenses and investments in capital equipment.

At June 30, 2000, the Company reported current assets of $22,667. However,
subsequent to the fiscal year ended June 30, 2000, the Company sold an aggregate
of $470,000 of additional 10% convertible, redeemable promissory notes under a
private placement offered to qualified investors with substantially the same
terms as those discussed above. This funding provided additional cash for
operations.

ADTI reported a working capital deficit position at June 30, 2000. Current
liabilities exceeded current assets by $547,885. At June 30, 2000, current
liabilities consisted of trade payables and accrued expenses which were incurred
primarily for 1) interest on the outstanding convertible, redeemable promissory
notes, 2) product design and development, and 3) operating costs. Accrued
interest on notes payable due to stockholders totaled approximately $361,522.
The Company intends to satisfy payment of accrued interest with cash from future
operations or funding, or by issuance of common stock. In addition, management
intends to negotiate settlement on approximately $113,700 of very old payables
and accrued expenses by payment of a reduced amount in cash or by issuance of
shares of the Company's Common Stock.

In the future, the Company will continue efforts toward the successful
design and development of the Screens for application specific markets, as well
as continue to research and develop cost effective and quality enhancing
manufacturing processes. In addition, the Company will continue efforts on
raising additional capital through private placements or other sources. There
can be no assurances that management will be able to acquire the capital needed
or be successful in achieving these objectives.

9
<PAGE>

Item 7. FINANCIAL STATEMENTS

See indexes to financial statements on page F-1.

Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

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 director and
executive officer of ADTI as of September 25, 2000:

Directors and Officers Age Position with ADTI
---------------------- --- ------------------

Gene W. Schneider 74 Chairman of the Board and Director

Matthew W. Shankle* 40 President and Director

Rebecca L. McCall 43 Secretary

David J. Babiarz, Esq. 45 Assistant Secretary

Lawrence F. DeGeorge 56 Director

Mark L. Schneider** 45 Director

* Matthew W. Shankle is the son-in-law of Gene W. Schneider and the
brother-in-law of Mark L. Schneider.

** Mark L. Schneider is the son of Gene W. Schneider and the brother-in-law of
Matthew W. Shankle.

Business Experience for Executive Officers and Directors:
---------------------------------------------------------

Gene W. Schneider - Mr. Schneider was appointed a Director effective
September 16, 1997 and as Chairman of the Board of Directors on October 3, 1997.
Since 1989, Gene W. Schneider has served as Chairman and/or Chief Executive
Officer of UnitedGlobalCom, Inc. ("UCOMA"), a NASDAQ listed Company that
provides multichannel television services in Europe, Asia/Pacific, and South
America. Prior to that, Mr. Schneider was a Director and Officer of United Cable
Television Corporation, a NYSE company, and its predecessors since inception.
United Cable merged with several entities including United Artists
Communications to form United Artists Entertainment Company ("UAEC"), a
publicly-traded company, where Mr. Schneider was Chairman until 1991, when UAEC
merged with Tele-Communications, Inc. Mr. Schneider is currently on the board of
five private corporations in addition to being on the board of UCOMA.

Matthew W. Shankle - Mr. Shankle was appointed President effective
September 14, 1998 and served as a Vice President of the Company from October 3,
1997. He is responsible for the overall day-to-day operations and strategic
direction of the Company in conjunction with the Board of Directors. From June
1996 to September 1997, he served as a consultant to the Company for product
research and development (R&D). He is also currently responsible for leading the
effort to refine product design and further automate the Company's manufacturing
process. From 1995 to 1997, Mr. Shankle served as an operations consultant for
several high tech R&D/manufacturing subsidiaries of Telxon Corporation, a NASDAQ

10
<PAGE>

listed company. From 1992 to 1995, Mr. Shankle was employed by Virtual Vision,
Inc. as the R&D/manufacturing facility development specialist. Mr. Shankle began
his career at Lockheed Missiles and Space in the San Diego area.

Rebecca L. McCall - Ms. McCall was appointed Secretary of the Company on
March 7, 1997. She is also the Company's Controller responsible for the
Company's accounting and reporting functions. Previously she served as the
accountant for the Company and Display Optics, Ltd., a former privately held
subsidiary of the Company. Since 1993, Ms. McCall has provided general
accounting services for several other small companies. From 1990 to 1993, she
served as the Controller for Television Technology Corporation in Louisville,
Colorado, a small manufacturer of radio and television station transmission
equipment. From 1985 to 1990, Ms. McCall held various accounting positions with
the Company, including Vice President of Administration, Secretary and Director
of Accounting.

David J. Babiarz, Esq. - Mr. Babiarz was appointed Assistant Secretary on
October 3, 1997. He has been President and Director of the law firm of Overton,
Babiarz & Associates, P.C. (OB&A) of Englewood, CO since 1994. From 1992 to
1994, Mr. Babiarz served as a Vice President of OB&A and from 1986 to 1992, as
the Secretary and a Director. Mr. Babiarz practices corporate and securities
law.

Lawrence F. DeGeorge - Mr. DeGeorge was appointed a Director effective
September 2, 1998. Since 1991 Mr. DeGeorge has directed venture capital
investment in telecommunications and biotechnology as Chief Executive Officer of
LPL Group, Inc., LPL Investment Group, Inc., LPL Management Group, Inc., and
DeGeorge Holding, Ltd. From 1986 to 1991, Mr. DeGeorge held various positions
with Amphenol Corporation, a manufacturer of telecommunications interconnect
products, including serving as President from May 1989 to January 1991,
Executive Vice President and Chief Financial Officer from September 1986 to May
1989, and as a director from June 1987 to January 1991. Mr. DeGeorge served as a
director of UCOMA from June 1997 until 1999. Since May 1998, Mr. DeGeorge served
as a director of CompleTel, LLC, a multinational provider of switched, local
telecommunications and related services.

Mark L. Schneider - Mr. Schneider was appointed a Director effective
September 16, 1997. Mr. Schneider is currently Chairman and Chief Executive
Officer of United Pan-European Communications ("UPC"), an AEX and NASDAQ listed
company which provides enhanced broadband video, data communication and voice
telephony services. Mr. Schneider is also currently Executive Vice President of
UCOMA where he is responsible for international investments, a position he has
occupied since December, 1996. He has also been a Director of UCOMA since its
inception. From 1989 to December, 1996, Mr. Schneider served as President or a
consultant to UCOMA. Prior to 1989, Mr. Schneider was a Vice President of
Corporate Development of United Cable Television Corporation in international
and domestic acquisitions. Mr. Schneider also held numerous positions as
legislative counsel in Washington, D.C.

Other Significant Employees
---------------------------

Gary G. Sullivan - Mr. Sullivan joined the company on November 2, 1999. He
is the Director of Manufacturing Operations in charge of material procurement,
manufacturing, quality, facilities and computer systems. He has earned BSME and
MBA degrees, and has thirty years of management experience in engineering,
manufacturing and general plant management. His experience has spanned the
aerospace, semiconductor, medical products and government electronics
industries. Most recently, Mr. Sullivan served as the Manufacturing Director for
DCX-Chol, Inc., from August, 1997, through October, 1997, when he was promoted
to General Manager, a position he held until October, 1999. Mr. Sullivan served
as the Director of Manufacturing Engineering and Facilities at Fischer Imaging,

11
<PAGE>

Inc. from November, 1995, through August, 1997. Prior to November 1995, Mr.
Sullivan held various engineering and management positions with Boeing,
Motorola, Siemens, COBE and Colorado Medtech.

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.

The numbers of late Form 3, Form 4 and Form 5 reports, and the late Form 4
transactions reported are as follows:

Name of Reporting Person Late Form 3 Late Form 4 Late Form 5 Transactions
------------------------ ----------- ----------- ----------- ------------

Lawrence F. DeGeorge 0 1 0 1
Gene W. Schneider 0 1 0 1
Louise H. Schneider 1 0 0 1
Mark L. Schneider 0 2 0 2
Carla G. Shankle 1 0 0 1
Tina M. Wildes 1 0 0 1

Item 10. EXECUTIVE COMPENSATION

Compensation
------------

The following table sets forth the compensation paid, or to be paid, by the
Company for services rendered during the fiscal year ended June 30, 2000 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

Year Ended Other Annual
Name June 30, Salary Bonus Compensation Total
---- -------- ------ ----- ------------ -----

Matthew W. Shankle(1) 2000 $ 75,808 -0- -0- $ 75,808
President, Former 1999 $ 73,000 -0- -0- $ 73,000
Vice President 1998 $ 68,868 -0- -0- $ 68,868

Kenneth P. Warner (2) 2000 $ -0- -0- -0- -0-
Former President, Former 1999 $ 34,615 -0- -0- $ 34,615
Chief Executive Officer 1998 $114,231 -0- -0- $114,231

(1) Mr. Shankle was appointed President effective September 14, 1998. From
October 3, 1997 until his appointment as President, Mr. Shankle served as
Vice President. Prior to his appointment as Vice President, he received
approximately $35,343 in consulting fees for marketing, research and
development.

(2) Mr. Warner was appointed President and Chief Executive Officer (CEO)
effective September 17, 1997. Prior to his appointment, he received
approximately $17,404 in fees for management services. He resigned as
President and CEO effective September 11, 1998.

12
<PAGE>

Aggregated Option/SAR Values at June 30, 2000

Number of Value of
Securities Unexercised
underlying Options/SARs in-the-money
Unexercised Options/SARs Not options/SARs
Name Options/SARs Exercisable Exercisable ($) (1)
---- ------------ ----------- ----------- ----------

Matthew W. Shankle (2) 500,000 302,083 197,917 $ 7,854

(1) Based on the last sale price of the Company's Common Stock prior to the
fiscal year ended June 30, 2000 of $.1875.

(2) One quarter of these options vest each year (annually for the first year
and then on a monthly basis) during which the individual remains employed
by the Company, for four years. As of September 15, 2000, 322,917 of these
options were vested.

Compensation of Directors
-------------------------

During the fiscal year ended June 30, 2000, no fees were paid to directors
for attendance at meetings of the Board of Directors. However, members are
reimbursed for expenses to attend the meetings.

Incentive Plans

Equity Incentive Plan
---------------------

On September 18, 1997, the Board adopted, subject to shareholder approval,
an Equity Incentive Plan and reserved 2,500,000 shares of the Company's Common
Stock for issuance under this plan. The purposes of this plan are to provide
those who are selected for participation in the Plan with added incentives to
continue in the long-term service of the Company and to create in such persons a
more direct interest in the future success of the operations of the Company by
relating incentive compensation to increases in shareholder value, so that the
income of those participating in the Plan is more closely aligned with the
income of the Company's shareholders. The Plan is also designed to provide a
financial incentive that will help the Company attract, retain and motivate the
most qualified employees and consultants. The Plan permits the grant of
Incentive Stock Options, Non-qualified Stock Options, Restricted Stock Awards,
Stock Appreciation Rights, Stock Bonuses, Stock Units and other stock grants.

As of June 30, 2000, and subject to approval of the plan by the
shareholders of the Company, there were 850,000 options outstanding under this
plan at exercise prices from $.07 to $.1615 per share. Of these options, 362,500
options were exercisable at June 30, 2000 and expire in 2008. Of the 487,500
non-vested options at June 30, 2000, there were 237,500 expiring in 2008 and
250,000 expiring in 2009.

This plan has not been approved by the shareholders of the Company
following adoption by the Board of Directors. Accordingly, all of the options
issued thereunder are non-qualified options under the Internal Revenue Code.

13
<PAGE>

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of September 15, 2000, certain
information regarding the equity securities of ADTI beneficially owned of record
by each officer, director, each person known by ADTI to beneficially 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. As of September 15,
2000, the Company had outstanding 23,774,275 shares of Common Stock. The voting
securities of the Company consist of i) Common Stock which is entitled to one
vote per share; and, ii) Series C Preferred Stock which have no voting rights
with respect to 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 C Preferred Stock are alone entitled to vote, except as provided by law.
Unless otherwise stated, all ownership is direct by the reporting person. In
calculating each individual's percent of class, consideration is given only to
the number of shares that would be outstanding if such individual, exclusively,
converted all of the derivative securities beneficially owned by that individual
to Common Stock of the Company.

Amount and Amount and
nature of nature of
Name and address of Title of Beneficial Percent Title of Beneficial Percent
Beneficial owners Class Ownership of Class Class Ownership of Class
----------------- ----- --------- -------- ----- --------- --------
<S> <C> <C> <C> <C> <C> <C>
David J. Babiarz, Esq. (1) Common 0 .00% Series C 0 .00%
7720 E. Belleview Ave. $.001 Par Preferred
Suite 200 "Preferred"
Englewood, CO 80223

William W. Becker Common 1,873,369 7.88% Preferred 197,278 10.70%
Box 143 $.001 Par
Grand Cayman Island
British West Indies

Lawrence F. DeGeorge (1) Common (2) 13,889,183 41.48% Preferred 0 .00%
140 Intracoastal Pointe Drive $.001 Par
Suite 410
Jupiter, Florida 33477

Bruce H. Etkin Common(3) 3,699,196 15.27% Preferred 341,978 18.55%
1512 Larimer St., No. 325 $.001 Par
Denver, CO 80202

Rebecca L. McCall (1) Common (4) 68,347 0.29% Preferred 0 .00%
7334 South Alton Way $.001 Par
Building 14, Suite F
Englewood Denver, CO 80223

G. Schneider Holdings, Co. Common 4,941,959 20.79% Preferred 520,420 28.22%
4643 S. Ulster, Suite 1300 $.001 Par
Denver, CO 80237

14
<PAGE>

Gene W. Schneider (1) Common (5) 14,510,197 43.52% Preferred (5) 520,420 28.22%
4643 S. Ulster, Suite 1300 $.001 Par Direct and
Denver, CO 80237 Indirect

Louise H. Schneider Common (6) 4,941,959 20.79% Preferred (6) 520,420 28.22%
4643 S. Ulster, Suite 1300 $.001 Par Indirect
Denver, CO 80237

Mark L. Schneider (1) Common (7) 13,104,521 44.53% Preferred (7) 784,652 42.55%
4643 S. Ulster, Suite 1300 $.001 Par Direct and
Denver, CO 80237 Indirect

Carla G. Shankle Common (8) 4,941,959 20.79% Preferred (8) 520,420 28.22%
7334 South Alton Way $.001 Par
Building 14, Suite F
Englewood, CO 80112

Matthew W. Shankle (1) Common (9) 302,083 1.25% Preferred 0 .00%
7334 South Alton Way $.001 Par
Building 14, Suite F
Englewood, CO 80112

Tina M. Wildes Common (10) 4,941,959 20.79% Preferred (10) 520,420 28.22%
4643 S. Ulster, Suite 1300 $.001 Par Direct and
Denver, CO 80237 Indirect

All current officers and Common (11) 36,932,373 75.27% Preferred (11) 784,652 42.55%
directors as a group Direct and
Indirect
</TABLE>

(1) Officer or director.

(2) Includes 9,706,674 shares underlying convertible promissory notes owned by
the reporting person. The notes are convertible at prices ranging from $.05
to $.30 per share until October 15, 2002 unless the notes are called sooner
by the Company.

(3) Includes 451,740 shares underlying convertible promissory notes owned by
the reporting person. The notes are convertible at $.1615 per share until
October 15, 2002 unless the notes are called sooner by the Company.

(4) Includes options to purchase 60,417 shares of Common Stock at $.1615 per
share which expire in 2008.

(5) Includes 9,568,238 shares underlying convertible promissory notes owned by
the reporting person. The notes are convertible at prices ranging from $.05
to $0.30 per share until October 15, 2002 unless the notes are called
sooner by the Company. Also includes 4,941,959 shares of Common Stock and
520,420 shares of Series C Preferred Stock owned by G. Schneider Holdings
Co. of which Gene W. Schneider serves on the Executive Committee.

15
<PAGE>

(6) Includes 4,941,959 shares of Common Stock and 520,420 shares of Series C
Preferred Stock owned by G. Schneider Holdings Co. of which Louise H.
Schneider serves on the Executive Committee.

(7) Includes 5,653,389 shares underlying convertible promissory notes owned by
the reporting person. The notes are convertible at prices ranging from $.05
to $0.1615 per share until October 15, 2002 unless the note is called
sooner by the Company. Also includes 4,941,959 shares of Common Stock and
520,420 shares of Series C Preferred Stock owned by G. Schneider Holdings
Co. of which Mark L. Schneider serves on the executive committee.

(8) Includes 4,941,959 shares of Common Stock and 520,420 shares of Series C
Preferred Stock owned by G. Schneider Holdings Co. of which Carla G.
Shankle serves on the Executive Committee.

(9) Includes 302,083 options to purchase Common Stock at $0.1615 per share,
which expire in 2008.

(10) Includes 4,941,959 shares of Common Stock and 520,420 shares of Series C
Preferred Stock owned by G. Schneider Holdings Co. of which Tina M. Wildes
serves on the Executive Committee.

(11) Includes 24,928,302 shares underlying convertible promissory notes. The
notes are convertible at prices ranging from $.05 to $0.30 per share until
October 15, 2002 unless the note is called sooner by the Company. Also
includes options to purchase 362,500 shares of Common Stock that are
currently exercisable at $.1615 per share and which expire in 2008.

Changes in Control
------------------

The Company knows of no arrangement or events, the occurrence of which may
result in a change in control.

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Gene W. Schneider, Mark L. Schneider, Lawrence F. DeGeorge and Matthew W.
Shankle are Directors of ADTI.

As of September 15, 2000, Messrs. Gene Schneider, Larry DeGeorge and Mark
Schneider have loaned $1,073,708, $1,131,463 and $476,710, respectively,
including accrued interest, for which they received 10% convertible, redeemable
promissory notes of the Company with conversion rates from $.05 to $.30.
Interest expense associated with notes to directors was $336,050 and $127,071
for the fiscal years ended June 30, 2000 and 1999, respectively. For 2000,
interest expense includes $139,640 imputed interest which relates to immediately
convertible debt that was issued at a conversion price below the quoted market
price of the Company's common stock. As of September 15, 2000, $391,818 of
interest expense had accrued on these notes.

Management of the Company is of the opinion that the terms and conditions
of the foregoing transactions were no less favorable for the Company than could
be obtained from unaffiliated third parties.

At June 30, 2000, the Company had payables totaling $35,175 due to entities
with which officers or directors are affiliated.

16
<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.
---------

The following exhibits are filed or incorporated herein by reference, as
indicated below:

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).

3.5 Articles of Amendment to the Company's Articles of Incorporation
regarding designation of the Series C Preferred Stock (incorporated by
reference, Form 8-K dated May 21, 1997.)

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 1984 Non-Employee Incentive Plan (incorporated by reference,
Annual Report Form 10-K for the fiscal year ended September 30, 1987).

10.4 Form of Indemnification Agreement between the Company and its Officers
and Directors (incorporated by reference, Annual Report Form 10-K for
the fiscal year ended June 30, 1997).

10.5 Executive Employment Agreement between Kenneth P. Warner and the
Company effective September 17, 1997 including: Exhibit A,
Non-Qualified Stock Option Agreement between Kenneth P. Warner and the
Company (effective September 17, 1997), and Exhibit B, Covenant Not to
Compete between Kenneth P. Warner and the Company effective September
17, 1997 (incorporated by reference, Annual Report Form 10-K for the
fiscal year ended June 30, 1997).

17
<PAGE>

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.
--------------------

None.

18
<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has caused this report on Form 10-KSB to be signed on its
behalf by the undersigned, thereunto duly authorized.

ADVANCE DISPLAY TECHNOLOGIES, INC.

/s/ Matthew W. Shankle Date: October 4, 2000
---------------------- ---------------------
By: Matthew W. Shankle
President
(Chief Executive and Financial Officer)

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/ Gene W. Schneider Date: October 4, 2000
--------------------- ---------------------
By: Gene W. Schneider
Chairman of the Board and Director

/s/ Lawrence F. DeGeorge Date: October 4, 2000
------------------------ ---------------------
By: Lawrence F. DeGeorge
Director

/s/ Mark L. Schneider Date: October 4, 2000
--------------------- ---------------------
By: Mark L. Schneider
Director

/s/ Matthew W. Shankle Date: October 4, 2000
---------------------- ---------------------
By: Matthew W. Shankle
Director

19
<PAGE>

ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)

INDEX TO FINANCIAL STATEMENTS

PAGE
----

Independent Auditor's Report................................................ F-2

Balance Sheet - June 30, 2000 .............................................. F-3

Statements of Operations - For the Years Ended June 30, 2000 and 1999,
and Cumulative from Inception (March 15, 1995) through June 30, 2000 ..... F-4

Statement of Changes in Stockholders' Equity (Deficit) - For the Period
from Inception (March 15, 1995) through June 30, 2000..................... F-5

Statements of Cash Flows - For the Years Ended June 30, 2000 and 1999,
and Cumulative from Inception (March 15, 1995) through June 30 2000 ...... F-7

Notes to Financial Statements............................................... F-9

F-1
<PAGE>

INDEPENDENT AUDITOR'S REPORT

Board of Directors
Advance Display Technologies, Inc.
Denver, Colorado

We have audited the balance sheet of Advance Display Technologies, Inc. as of
June 30, 2000 and the related statements of operations, changes in stockholders'
equity (deficit) and cash flows for the years ended June 30, 2000 and 1999 and
for the period from inception (March 15, 1995) to June 30, 2000. 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 an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advance Display Technologies,
Inc. as of June 30, 2000 and the results of its operations and its cash flows
for the years ended June 30, 2000 and 1999 and for the period from inception
(March 15, 1995) to June 30, 2000 in conformity with generally accepted
accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred substantial losses from
operations, has negative working capital and is in the development stage. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans with regard to these matters are described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.

/s/ HEIN + ASSOCIATES LLP
-------------------------
HEIN + ASSOCIATES LLP

Denver, Colorado
August 22, 2000

F-2
<PAGE>
<TABLE>
<CAPTION>

ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)

BALANCE SHEET
JUNE 30, 2000

ASSETS
------

<S> <C>
CURRENT ASSETS:
Cash $ 18,010
Other current assets 4,657
-----------
Total current assets 22,667

PROPERTY AND EQUIPMENT, net 22,476
-----------

TOTAL ASSETS $ 45,143
===========

LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------

CURRENT LIABILITIES:
Accounts payable $ 143,907
Other accrued liabilities 426,645
-----------
Total current liabilities 570,552

CONVERTIBLE NOTES PAYABLE - RELATED PARTIES 2,294,867

COMMITMENTS AND CONTINGENCY (Notes 1 and 4)

STOCKHOLDERS' DEFICIT:
Preferred stock, $.001 par value, 100,000,000 shares authorized,
1,843,900 shares issued and outstanding (liquidation
preference of $2,765,850) 1,844
Common Stock, $.001 par value, 100,000,000 shares authorized,
23,774,275 shares issued and outstanding 23,775
Additional paid-in capital 4,368,770
Deficit accumulated during the development stage (7,214,665)
-----------
Total stockholders' deficit (2,820,276)
-----------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 45,143
===========

See accompanying notes to these financial statements.

F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)

STATEMENTS OF OPERATIONS

CUMULATIVE
FROM
INCEPTION
FOR THE YEARS ENDED (MARCH 15, 1995)
JUNE 30, THROUGH
---------------------------- JUNE 30,
2000 1999 2000
------------ ------------ ------------

<S> <C> <C> <C>
CONSULTING REVENUE $ -- $ -- $ 30,200

OTHER INCOME:
Related party interest income -- -- 162,761
Other interest income 2,363 1,170 5,954
Settlement income -- 175,000 175,000
Other -- 550 550
------------ ------------ ------------
Total revenue and other income 2,363 176,720 374,465

COSTS AND EXPENSES:
General and administrative 433,612 469,282 2,145,979
Research and development 418,307 163,180 3,490,453
Impairment of intangible assets -- -- 451,492
Interest expense - related party 337,646 127,071 1,772,040
------------ ------------ ------------
Total costs and expenses 1,189,565 759,533 7,859,964
------------ ------------ ------------

LOSS BEFORE EXTRAORDINARY GAIN $ (1,187,202) $ (582,813) $ (7,485,499)
------------ ------------ ------------

EXTRAORDINARY GAIN DUE TO
FORGIVENESS OF DEBT 270,834 -- 270,834
------------ ------------ ------------

NET LOSS $ (916,368) $ (582,813) $ (7,214,665)
============ ============ ============

NET LOSS PER COMMON SHARE
(BASIC AND DILUTIVE):
Loss before extraordinary gain $ (0.05) $ (0.02)
Extraordinary gain 0.01 --
------------ ------------
Net loss $ (0.04) $ (0.02)
============ ============

WEIGHTED AVERAGE SHARES OF
COMMON STOCK OUTSTANDING 23,774,275 24,012,450
============ ============

See accompanying notes to these financial statements.

F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM MARCH 15, 1995 (INCEPTION) THROUGH JUNE 30, 2000

PREFERRED STOCK COMMON STOCK Additional
------------------------- ------------------------- Paid-In Accumulated
SHARES Amount Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, March 15, 1995
(Inception) -- $ -- $ -- $ -- $ -- $ -- $ --

Capital contributions -- -- 697,095 697 90,971 -- 91,668
Net loss -- -- -- -- -- (286) (286)
----------- ----------- ----------- ----------- ----------- ----------- -----------

BALANCE, June 30, 1995 -- -- 697,095 697 90,971 (286) 91,382

Capital contributions -- -- 87,141 87 11,372 -- 11,459
Net loss -- -- -- -- -- (24,430) (24,430)
----------- ----------- ----------- ----------- ----------- ----------- -----------

BALANCE, June 30, 1996 -- -- 784,236 784 102,343 (24,716) 78,411

Conversion of debt to common
stock and issuance of
preferred stock pursuant
to acquisition of
Display Group, LLC and
Display Optics, Ltd. 1,843,900 1,844 20,559,687 20,560 2,351,160 -- 2,373,564
Net loss -- -- -- -- -- (2,718,839) (2,718,839)
----------- ----------- ----------- ----------- ----------- ----------- -----------

BALANCE, June 30, 1997 1,843,900 1,844 21,343,923 21,344 2,453,503 (2,743,555) (266,864)

See accompanying notes to these financial statements.

F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM MARCH 15, 1995 (INCEPTION) THROUGH JUNE 30, 2000
(continued)

PREFERRED STOCK COMMON STOCK Additional
--------------------------- ------------------------- Paid-In Accumulated
SHARES Amount Shares Amount Capital Deficit Total
------------ ------------ ------------ --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1997
(carryforward) 1,843,900 1,844 21,343,923 21,344 2,453,503 (2,743,555) (266,864)

Debt convertible at
below market -- -- -- -- 1,013,933 -- 1,013,933
Conversion of debt
to common stock -- -- 4,182,509 4,183 545,817 -- 550,000
Retirement of shares
in settlement -- -- (350,000) (350) 350 -- --
Employee stock options
issued for services -- -- -- -- 214,125 -- 214,125
Net loss -- -- -- -- -- (2,971,929) (2,971,929)
------------ ------------ ------------ --------- ------------ ------------ ------------

BALANCE, June 30, 1998 1,843,900 1,844 25,176,432 25,177 4,227,728 (5,715,484) (1,460,735)

Retirement of shares
in settlement -- -- (1,402,157) (1,402) 1,402 -- --
Net loss -- -- -- -- -- (582,813) (582,813)
------------ ------------ ------------ --------- ------------ ------------ ------------

BALANCE, June 30, 1999 1,843,900 1,844 23,774,275 23,775 4,229,130 (6,298,297) (2,043,548)

Discount costs related
to debt conversion
feature at less than
fair market value -- -- -- 139,640 -- 139,640
Net loss -- -- -- -- (916,368) (916,368)
------------ ------------ ------------ --------- ------------ ------------ ------------

BALANCE, June 30, 2000 1,843,900 $ 1,844 $ 23,774,275 $ 23,775 $ 4,368,770 $ (7,214,665) $ (2,820,276)
============ ============ ============ ========= ============ ============ ============

See accompanying notes to these financial statements.

F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)

STATEMENTS OF CASH FLOWS
(continued)

CUMULATIVE
FROM
INCEPTION
FOR THE YEARS ENDED (MARCH 15, 1995)
JUNE 30, THROUGH
-------------------------- JUNE 30,
2000 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Net loss $ (916,368) $ (582,813) $(7,214,665)
Adjustments to reconcile net loss to net cash used
in operating activities:
Acquired research and development expense -- -- 2,536,494
Impairment of intangibles -- -- 451,492
Depreciation and amortization 35,259 47,994 251,006
Stock option compensation expense -- -- 214,125
Interest expense related to debt discount 139,640 -- 1,153,573
Loss on sale of property and equipment 3,245 1,896 5,445
(Increase) decrease in:
Inventory -- 16,238 6,048
Other current assets (346) 3,805 (136,142)
Increase (decrease) in:
Accounts payable (196,868) (143,291) (301,943)
Accrued interest payable to stockholders 160,714 114,702 546,726
Other accrued liabilities 585 (6,160) (35,423)
----------- ----------- -----------
Net cash used in operating activities (774,139) (547,629) (2,523,264)
----------- ----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (9,103) (8,355) (107,817)
Proceeds from sale of property and equipment -- 8,630 17,030
Advances to affiliates -- -- (932,925)
Purchase of note receivable and security
interest -- -- (225,000)
Cash received in acquisition -- -- 303,812
----------- ----------- -----------
Net cash provided by (used in) investing
activities (9,103) 275 (944,900)
----------- ----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions -- -- 103,127
Proceeds from notes payables to stockholders 720,900 550,242 3,083,542
Proceeds from line-of-credit -- -- 299,505
----------- ----------- -----------
Net cash flows provided by financing activities 720,900 550,242 3,486,174
----------- ----------- -----------

See accompanying notes to these financial statements.

F-7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)

STATEMENTS OF CASH FLOWS
(continued)

CUMULATIVE
FROM
INCEPTION
FOR THE YEARS ENDED (MARCH 15, 1995)
JUNE 30, THROUGH
-------------------- JUNE 30,
2000 1999 2000
--------- -------- ----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (62,342) 2,888 18,010

CASH AND CASH EQUIVALENTS, Beginning of
period 80,352 77,464 --
--------- -------- ----------

CASH AND CASH EQUIVALENTS, End of period $ 18,010 $ 80,352 $ 18,010
========= ======== ==========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for:
Interest $ -- $ -- $ 26,570
========= ======== ==========
Taxes $ -- $ -- $ --
========= ======== ==========
Non-cash transactions:
Issuance of common stock for acquisition of
Display Group, LLC and Display Optics,
Ltd. and conversion of convertible debt $ -- $ -- $2,199,026
========= ======== ==========
Conversion of notes payable stockholders to
common stock $ -- $ -- $ 550,000
========= ======== ==========
Conversion of interest payable on notes to notes
payable $ 900 $ 10,242 $ 11,142
========= ======== ==========
Retirement of shares in settlement $ -- $ 1,402 $ 1,402
========= ======== ==========
Extinguishment of debt $ 270,834 $ -- $ 270,834
========= ======== ==========

See accompanying notes to these financial statements.

F-8
</TABLE>
<PAGE>

ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------

Organization and Nature of Operations - Advance Display Technologies,
Inc.'s ("ADTI" or the "Company") business activity is to develop and
manufacture full color video and other display screen systems. The Company
has not yet commenced principal operations and is therefore still in the
development stage.

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 research and development
efforts. Its proposed operations are subject to all of the risks inherent
in the establishment of a new business enterprise and the Company has
incurred losses since inception and has a working capital deficit of
$547,885 as of June 30, 2000. The Company has also received notice from the
State of Colorado alleging past due sales tax and related accrued interest
totaling approximately $220,000. 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.

Since inception, ADTI has developed large screen fiber optic displays (the
"Screen") for various industries and applications. The Screen may utilize a
variety of projection light sources which project images into the Screen's'
matrix bundle of collated optical fibers (the "Input Matrix") which in
turn, transmit, magnify, and display the correlative images onto the
viewable face (the "Output Matrix") of the Screen. The Screen is a high
resolution, optically passive, image transfer and magnification device,
exhibiting a high contrast ratio, and enhanced conspicuousness of the
images displayed. As of the date of this report, the Company remains in a
development stage as it has not received significant revenues from
operations.

Management efforts during the fiscal year ended June 30, 2000 were directed
toward raising additional capital for operations with a primary focus on
redesigning the Screen systems and their method of manufacture. In an
effort to eliminate certain image display deficiencies of the former Screen
products and improve the overall quality of the new Screen systems, the
Company embarked on a program of concurrent engineering involving
substantial changes in overall product design, assembly processes, quality
control procedures, and various alternative manufacturing technologies.

The Company will continue to require additional capital for administrative
expenses, continued development of the Screen, capture of intellectual
property, further development of manufacturing processes and marketing
costs. Management estimates that the Company has sufficient funding to last
through the second quarter of the next fiscal year. Management believes
that the Company's continued existence beyond that time is dependent upon
its ability to: (1) develop the Screen technologies for specific
applications; (2) complete the design and development of an automated
manufacturing process; (3) successfully market the product; (4) obtain
additional sources of funding through outside sources; and (5) achieve and
maintain profitable operations. There can be no assurance that the Company

F-9
<PAGE>

ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

will be able to achieve its research and development goals, obtain
sufficient additional capital or manufacture or sell its products on terms
and conditions satisfactory to the Company.

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 7 years) of the
respective assets. Depreciation expense for the years ended June 30, 2000
and June 30, 1999 was $35,259 and $47,994, respectively.

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.

Research and Development - Research and development for new products or
product improvements are charged to expense as incurred.

Impairment of Long-Lived Assets - In fiscal 1997, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for
Impairment of Long-Lived Assets. In the event that facts and circumstances
indicate that the cost of assets or intangibles may be impaired, an
evaluation of recoverability would be performed. If an evaluation is
required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
write-down to market value or discounted cash flow value is required.
Management of the Company is pursuing new technology alternatives for the
production of the fiber vision screens. The Company does not expect to
generate significant future revenues from its current patents and,
accordingly, during fiscal 1998 wrote off capitalized costs associated with
those patents.

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.

Fair Value of Financial Instruments - The estimated fair values for
financial instruments under SFAS No. 107, Disclosures About Fair Value of
Financial Instruments, are determined at discrete points in time based on
relevant market information. These estimates involve uncertainties and
cannot be determined with precision. The interest rate associated with
related party notes payable and other debt is considered to be
significantly less than an interest rate that the Company could obtain from
third parties. Due to the financial condition of the Company (see Note 1),
management of the Company is unable to determine whether third party
financing is currently available to the Company at any interest rate. As
such, the Company is unable to determine the fair value of these financial
instruments as of June 30, 2000.

F-10
<PAGE>

ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

Stock-Based Compensation - As permitted under SFAS No. 123, Accounting for
Stock-Based Compensation, the Company accounts for its stock-based
compensation in accordance with the provisions of Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. As
such, compensation expense is recorded on the date of grant if the current
market price of the underlying stock exceeds the exercise price. Certain
pro forma net income and earnings per share (EPS) disclosures for employee
stock option grants are also included in the notes to the financial
statements as if the fair value method as defined in SFAS No. 123 had been
applied. Transactions in equity instruments with non-employees for goods or
services are accounted for by the fair value method.

Loss Per Share - Loss per share is presented in accordance with the
provisions of SFAS No. 128, Earnings Per Share. SFAS No. 128 replaced the
presentation of primary and fully diluted earnings (loss) per share with a
presentation of basic EPS and diluted EPS. Basic EPS is calculated by
dividing the income or loss available to common stockholders by the
weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into
common stock. Basic and diluted EPS were the same for 2000 and 1999 because
the Company had losses from operations and therefore, the effect of all
potential common stock was anti-dilutive.

Comprehensive Loss - In June 1997, the Financial Accounting Standards Board
issued SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130, which is
effective for fiscal years beginning after December 15, 1997, defines
comprehensive income as all changes in shareholders' equity exclusive of
transactions with owners, such as capital investments. Comprehensive income
includes net income or loss, changes in certain assets and liabilities that
are reported directly in equity such as translation adjustments on
investments in foreign subsidiaries, and certain changes in minimum pension
liabilities. The Company's comprehensive loss was equal to its net loss for
all periods presented in these financial statements.

2. PROPERTY AND EQUIPMENT:
-----------------------

Property and equipment consist of the following at June 30, 2000:

Equipment $ 113,786
Office furniture 26,354
---------
140,140
Less accumulated depreciation and amortization (117,664)
---------

Property and equipment, net $ 22,476
=========

F-11
<PAGE>

ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

3. NOTES PAYABLE - RELATED PARTIES:
--------------------------------

At June 30, 2000, the Company had $2,294,867 of notes payable to investors
which mature on October 15, 2002 and accrue interest at 10% per annum.
These notes are convertible into shares of the Company's common stock, at
the option of the holder, $1,173,725 at a rate of $.1615 per share,
$740,242 at a rate of $.05 per share, and $380,900 at a rate of $.30 per
share. For 1999 issuances of $550,242, this conversion feature was above
quoted market price of the common stock, so no additional interest expense
was recorded during fiscal 1999. For the 2000 issuance of $720,900, this
conversion feature was below the quoted market price of the common stock
and the debt was immediately convertible so the Company recorded
approximately $139,640 of additional interest expense during fiscal 2000.
However, the Company believes the conversion price represented the fair
market value of the common stock at the time of the transactions. Notes
payable totaling $2,294,867 and $361,522 of accrued interest payable at
June 30, 2000 were to directors of the Company or owners of more than 5% of
the Company's common stock. Interest expense associated with notes to
directors was $336,050 and $127,071 for the years ended June 30, 2000 and
1999, respectively.

Effective March 16, 2000, the Board of Directors of the Company approved an
additional Private Placement offered to qualified investors. The private
placement provides for the issuance of a maximum of $1,100,000 of 10%
Convertible, Redeemable Promissory Notes (the "Notes"). The Notes are due
October 15, 2002 and are convertible, at the option of the noteholder, into
shares of the Company's common stock at a rate equal to the fair market
value of the common stock, as defined, on the date of subscription. The
Company has the right to call these Notes at any time after March 16, 2001
and the noteholders have 30 days in which to convert if these Notes are
called by the Company. The Company may elect to pay interest on any of the
converted Notes in cash or by issuance of additional shares of the
Company's common stock. As of June 30, 2000, the Company had issued Notes
totaling $380,900 to stockholders. Subsequent to June 30, 2000, the Company
issued additional Notes totaling $470,000 to stockholders (unaudited).

4. COMMITMENT AND CONTINGENCY:
---------------------------

Office Lease - The Company leases office and warehouse facilities under a
three-year operating lease. Total rental expense was $18,176 and $35,442
for the years ended June 30, 2000 and 1999, respectively.

The Company's lease requires monthly payments of approximately $1,556.

As of June 30, 2000, lease payments are due during the fiscal year ended
June 30 as follows:

2001 $18,672
2002 17,116
-------

$35,788
=======

F-12
<PAGE>

ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

5. STOCKHOLDERS' DEFICIT:
----------------------

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.

In 1990, the Company granted an aggregate of 65,000 options under the NQI
plan to purchase shares of the Company's common stock at an exercise price
of $3.50 per share. These options expired during fiscal 2000. Also in
fiscal 2000, the NQI plan terminated according to the life of the plan.

Equity Incentive Plan - On September 18, 1997, the Board adopted, subject
to shareholder approval, the Equity Incentive Plan (the Plan) and reserved
2,500,000 shares of the Company's common stock for issuance under the Plan.
The purposes of the Plan is to provide those who are selected for
participation in the Plan with added incentives to continue in the
long-term service of the Company and to provide a financial incentive that
will help the Company attract, retain, and motivate the most qualified
employees and consultants. The Plan permits the grant of Incentive Stock
Options, Non-Qualified Stock Options, Restricted Stock Awards, Stock
Appreciation Rights, Stock Bonuses, Stock Units and other stock grants. The
Plan was not approved by the shareholders of the Company within a year of
adoption. Therefore, all options granted are non-qualified.

A summary of stock option activity is as follows:

2000 1999
-------------------- --------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
---------- -------- --------- --------

Outstanding, beginning of year 1,607,750 $ .29 2,376,500 $ .24

Granted 250,000 $ .07 -- $ .00
Canceled (1,007,750) $ .36 (768,750) $ .13
---------- ---------

Outstanding, end of year 850,000 $ .13 1,607,750 $ .29
========== =========

At June 30, 2000, options for 362,500 shares were exercisable (at a
weighted average exercise price of $0.16) with 248,958, 150,000, 62,500,
and 26,042 becoming exercisable in fiscal 2001, 2002, 2003, and 2004,

F-13
<PAGE>

ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

respectively, subject to continued employment by certain individuals. If
not previously exercised, options outstanding at June 30, 2000, will expire
as follows:

Weighted
Average
Year Ending Number Exercise
June 30, of Shares Price
-------- --------- -----

2008 600,000 $.16
2009 250,000 .07
-------

850,000 $.13
=======

Pro Forma Stock-Based Compensation Disclosures - The Company applies APB
Opinion 25 and related interpretations in accounting for stock options and
warrants which are granted to employees. Accordingly, compensation cost of
$214,725 was recorded during fiscal 1998 for grants of options to employees
as the exercise prices were less than the quoted market price of the
Company's common stock on the grant dates. Had compensation cost been
determined based on the fair value at the grant dates for awards under
those plans consistent with the method of SFAS No. 123, the Company's net
loss applicable to common stockholders and the related per share amounts
would have been increased to the pro forma amounts indicated below.

Year Ended June 30,
-----------------------
2000 1999
--------- ---------
Net loss applicable to common stockholders:
As reported $(916,368) $(582,813)
Pro forma $(943,533) $(639,905)
Net loss per common share:
As reported $ (.04) $ (0.02)
Pro forma $ (.04) $ (0.03)

F-14
<PAGE>

ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

The weighted average fair value of options granted to employees for the
year ended June 30, 2000 was $.07. All options issued in 2000 had an
exercise price equal to the market price. The fair value of each employee
option and warrant granted in 2000 was estimated on the date of grant using
the Black-Scholes option- pricing model with the following weighted average
assumptions:

Year
Ended
June 30,
2000
----

Expected volatility 495%
Risk-free interest rate 6%
Expected dividends --
Expected terms (in years) 10

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, 2000, the Company has issued 1,843,900 shares of Series C
Preferred Stock (the Preferred Stock). The Preferred Stock entitles holders
to receive dividends, if declared by the Board of Directors, totaling, in
the aggregate, $.83 per share. Dividends on the Preferred Stock shall be
paid before any dividends or other distributions shall be declared or paid
on ADTI's common stock. ADTI may elect to redeem, in cash, some or all the
Preferred Stock, at its option, at the Preferred Stock's liquidation value
of $.67 plus any unpaid dividends. Holders may require ADTI to redeem the
Preferred Stock any time after ADTI has fully paid the dividend of $.83 per
share or at any time after a change in control of ADTI, as defined. If the
Preferred Stock is redeemed at the election of the holder, ADTI has the
option to redeem the Preferred Stock by issuance of either cash or ADTI's
common stock at market value based on a value of $1.50 per preferred share,
less dividends previously paid.

6. SETTLEMENT AGREEMENT:
---------------------

During the fiscal year ended June 30, 1999, the Company executed an
agreement (the "Settlement Agreement") in settlement of previously pending
litigation. In connection with the Settlement Agreement, the Company
received $175,000 cash and 1,402,157 shares of ADTI common stock. The ADTI
common stock acquired in the settlement has been returned to the authorized
but unissued stock of ADTI.

F-15
<PAGE>

ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

7. INCOME TAXES:
-------------

A long-term deferred tax asset totaling approximately $6,272,000 is
primarily the result of the Company's net operating loss carryforward,
which the Company has fully reserved through a valuation allowance. This
valuation allowance increased by approximately $372,000 during 2000 mainly
as a result of the increase in losses.

The Company has had no taxable income under Federal or state laws.
Therefore, no provision for income taxes was included in net loss.

A reconciliation between the amount of reported Federal income tax benefit
and the amount computed by multiplying the applicable statutory Federal
income tax rate is as follows at June 30:

<TABLE>
<CAPTION>
2000 % 1999 %
--------- ----- --------- -----

<S> <C> <C> <C> <C>
Computed expected tax benefit $(372,000) (34)% $(198,000) (34)%
(Increase) decrease in tax benefit resulting from:
Non-deductible expenses -- -- -- --
Increase (reduction) in valuation allowance
related to net operating loss carryforwards
and change in temporary differences 372,000 34 198,000 34
--------- ----- --------- -----

$ -- 0% $ -- 0%
========= ===== ========= =====
</TABLE>

As of June 30, 2000, the Company has accumulated net operating loss
carryforwards of approximately $18,448,000 for income tax purposes 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 2020 if not utilized sooner.

8. RELATED PARTY TRANSACTIONS:
---------------------------

At June 30, 2000, the Company had payables totaling $70,197 due to related
entities (mainly an officer family member and companies with common
directors) of the Company. Also see Note 3.

9. EXTRAORDINARY GAIN ON DEBT FORGIVENESS :
----------------------------------------

During the year ended June 30, 2000, $270,834 of payables due to a law firm
and other vendors were forgiven. The Company recorded the debt forgiveness
as an extraordinary gain. There was no tax consequences related to this
extraordinary gain as a result of the Company's net loss and a valuation
allowance associated with the Company's deferred tax asset.

F-16