Digital Home Theater(TM) (DHT)
The DHT is a modular, large screen, digital entertainment system that can
be used as either a 60-inch rear projection television, a front projector
capable of casting an image of up to 20 feet in size, or as an SVGA-compatible
computer monitor. The DHT produces a bright, crisp picture without visible
pixels and it is lightweight and easy to assemble, making it user-friendly for
both consumers and retailers. The heart of the DHT is the projector, which
contains a proprietary DLP light engine supplied by Texas Instruments. The
complete projector utilizes the Company's proprietary technology and engineering
innovations, including audio/video connection docking and user interfaces, power
management sequence, audio processing and amplification, and a central control
and monitoring system. The key interface of the DHT is a 50-pin docking station
that connects the projector and the cabinet. This proprietary interface allows
for the easy removal and replacement of the projector when switching between
front and rear projection formats. The cabinet also includes storage for the
front projection lens and a second external docking station. Furthermore, since
the DHT is a 100% digital design, it can be upgraded to receive HDTV broadcast
signals.
Features of the DHT
Picture Size - The picture size produced by the DHT in the front
projection format can be varied continuously to up to a 20-foot diagonal
picture by changing the projection distance or by adjusting the DHT's
built-in zoom lens. The lens can increase the size of the projected image
by a magnitude of 100%.
No Flicker - In contrast to current CRT projection television systems,
Projectavision's DLP-based system does not employ the old scan line
technology, which causes flicker laden images.
Picture Quality - The DHT is capable of displaying large size images with
rich color and high contrast on a screen or on a white or light-colored
surface. The DHT produces images with a continuous tone photographic
effect without visible pixels, enabling viewers to perceive substantially
improved image quality.
Design - The DHT is a lightweight, modular design made up of three
components: the cabinet, screen and projector. The cabinet is made of
lightweight plastics and is only 23 inches deep. The projector is
portable, weighing only 30 pounds, resulting in an easy switch between
front and rear projection formats. The entire product can be assembled in
minutes using four wing nuts.
Other Features - The DHT has a built-in television tuner/receiver and
audio system, UHF and VHF tuning and a user-friendly interface operated by
remote control. The DHT can be connected to cable television, video games,
VCRs, laser disc players, DVD players, desktop and laptop computers, and
direct broadcast satellite systems.
Research and Development
From the Company's inception in September, 1988 through December 31, 1997,
the Company has invested approximately $6,400,000 for research and development
of its technology. The Company has constructed production prototypes and
completed substantially all research and development activities in connection
with the Projector and the Digital Home Theater, although certain refinements
are still ongoing, including optimizing picture brightness. The Company has and
continues to explore the feasibility of using light valves other than LCDs in
its projection technologies.
The Company has applied for U.S. patent protection for a portable,
knockdown folding rear screen video display cabinet which includes its own
screen and may be used in conjunction with the Projector, as well as for its
thin screen display technology. The proposed screen is to have a 50" diagonal
measurement, only six (6) inches thick, and relies on a variation of the
Company's video projection technologies as an image source.
Partnerships, Alliances, and Licenses
Projectavision has entered into a number of key strategic alliances in
order to design, manufacture and distribute the DHT. Projectavision believes
that strong alliances are the key to insuring the successful development and
continued growth of the Company.
5
Texas Instruments
Projectavision's relationship with Texas Instruments began in the fall of
1995 and initially involved a major engineering effort to jointly develop the
DLP technology that is incorporated into the Company's DHT projector. Texas
Instruments has invested approximately $500 million over the past eight years to
research and develop the DLP technology. The second phase of this alliance,
which is currently underway, involves the production of the two-chip DLP light
engine and, to date, over 300 production engines have been received from Texas
Instruments. In the first quarter of 1998, Texas Instruments transferred
manufacturing of the two-chip DLP light engine to Solectron Corporation, a
California-based global supplier of various manufacturing services to electronic
OEMs. Solectron currently manufactures single- and three-chip DLP systems for
Texas Instruments. The Company expects to continue working with Texas
Instruments on improving the DLP technology for current and future products.
C-MAC Electronic Systems Inc.
Projectavision has contracted with C-MAC Electronic Systems Inc. ("C-MAC")
to produce the DHT projector. C-MAC, a publicly traded company based in Quebec,
Canada, is a leading international manufacturer of advanced microelectronics for
major OEMs, including Northern Telecom Limited and International Business
Machines Corporation, among others. C-MAC markets its products and services to
OEMs in the telecommunications, computer, military hardware, medical equipment
and automobile industries.
Como Products
Projectavision has contracted with Como Plastics, located in Columbus,
Indiana, to manufacture the rear cabinet and to assemble and ship the DHT to
customers. Como Plastics is a subsidiary of LDM Corporation, a large, privately
held plastics design and molding company based in Detroit, Michigan. LDM is a
major supplier to Ford Motor Company and General Motors Corporation, as well as
to major consumer electronics companies such as Thomson and Toshiba.
Boxlight Corporation
Commercial distribution of the DHT will be conducted through an alliance
with Boxlight, a leading seller of projection products to the commercial market
with sales of $60 million in 1996. Boxlight distributes products directly to
corporations, educational institutions, hotels/conference centers and
bars/restaurants. Boxlight has a reputation for providing unparalleled service
to its customers and partners, and it continues to grow dramatically. In 1997,
for the fourth consecutive year, Boxlight was named by Inc. magazine as one of
the 500 fastest growing private companies in the U.S.
Other Partnerships and Alliances
Tandy Corporation, a large publicly traded consumer electronics company,
will provide the after sales product service for the DHT nationwide. The Company
has retained the services of the Hamilton Group, a privately held marketing
services firm located in Detroit, Michigan to provide a toll-free customer
service number as well as gather and to analyze information regarding consumer
reaction to the DHT. The DHT was designed by Lunar Design, a nationally
recognized industrial design firm. The innovative quality of the DHT's design
was recognized when Projectavision was awarded the Innovations'97 Design and
Engineering Showcase Award at the recent Consumer Electronics Show. Montalbano
Development Inc., a New York-based firm, was responsible for the mechanical
design and engineering work for the DHT. In addition, the Company enjoys
strategic alliances with several high-end video enhancement companies including
Faroudja, Inc. and Genesis.
Vidikron Acquisition.
In January 1998 the Company signed a definitive agreement to acquire
substantially all of the assets of Vidikron Industries, S.p.A. ("Vidikron")
relating to its video business, including its U.S. distribution subsidiary,
Vidikron of America, Inc. In accordance with the definitive acquisition
agreement, the Company has advanced Vidikron $ 1,000,000 on a non-refundable
basis. The closing of the acquisition is expressly subject to the satisfactory
completion by the Company of all due diligence and obtaining the requisite
financing to complete the transaction. There can be no assurances that the
Company will be satisfied upon its completion of its due diligence, that it will
be able to secure the necessary financing, or that it will otherwise be able to
effect the acquisition of Vidikron.
6
Marketing
Public relations, advertising and media coverage have increased consumer
awareness of the DHT. Feature articles have appeared in leading publications,
including magazines such as Home Theater, Popular Electronics, GQ, Rolling
Stone, Wired, Playboy, and Audio/Video, and newspapers such as The New York
Times. The DHT has been featured at major trade shows such as InfoComm, Comdex
and the Consumer Electronics Show, where the DHT received the coveted Industrial
Design & Engineering Award.
Distribution
The DHT is being marketed through both retail and commercial distribution
channels. Retail distribution will initially focus on high-end custom
installation retailers who have the experience and understanding to sell this
unique product to consumers. As the customer base expands and consumer
acceptance grows, the Company expects to expand retail distribution to higher
volume channels, including regional and national consumer electronics chains and
superstores, thereby increasing volume substantially. The Company employs
independent sales firms nationwide for retail distribution of the DHT.
Tamarack Investment and Purchase of Shares by Manhattan Scientifics, Inc.
In April, 1993, the Company entered into an agreement with Tamarack
Storage Devices, Inc. ("Tamarack"), a spin-off development stage company of the
Microelectronics and Computer Technology Corporation, a research consortium of
leading U.S. technology companies of which the Company is a member. Tamarack
which was established to commercialize holographic storage technology for
various uses such as for the personal computer workstation, commercial storage
and the consumer electronics market. Pursuant to the April 1993 agreement, the
Company acquired approximately 37% of Tamarack's issued and outstanding voting
securities. In addition, since Tamarack did not achieve certain revenue
benchmarks by the end of the first calendar quarter of 1995, the Company
exercised its right in March, 1996 to purchase, for minimal consideration,
additional shares of Tamarack's Common Stock such that upon effecting such
purchase, the Company assumed ownership of approximately 53% of Tamarack's
issued and outstanding voting securities.
In May, 1994, the Company loaned Tamarack an additional $1,500,000 and in
connection therewith also received warrants to purchase additional shares of
Tamarack's common stock, the precise amount of which is dependent upon the
timing and pricing of a future equity offering by Tamarack. From August through
December of 1995, the Company advanced an aggregate of an additional $97,339
either directly to or for the benefit of Tamarack for general working capital
purposes. Due to Tamarack's inability, to date, to commercialize its holographic
storage technology and Tamarack's current lack of prospects, the Company has
recorded a reserve against its entire investment in Tamarack, including the loan
of $1,500,000. In November, 1996, the Company loaned Tamarack an additional
$100,000 which has been reserved.
In January 1998, Tamarack was acquired by Manhattan Scientific, Inc.,
"MSI") (formally Grand Enterprises, Ltd.) a NASDAQ bulletin-board traded
company. All of the shares of Tamarack (97% of which were represented by the
Company's holdings in Tamarack at the time of the closing) were exchanged for 44
million shares of MSI. Simultaneously therewith, an additional 5 million shares
of MSI were sold to the public, resulting in aggregate gross proceeds of
$1 million to MSI. Further, in connection with the transaction, the Company's
$1,500,000 loan plus accrued interest thereon was exchanged for 182,525 shares
of convertible preferred stock of MSI. Each share of this convertible preferred
stock is convertible into 50 shares of MSI common stock. The Company also
received a warrant to purchase 750,000 shares of MSI common stock at an exercise
price of $0.20 per share. Subsequent to the closing of the transaction, MSI has
agreed to issue an aggregate of 7.2 million shares to purchase patents in a
portable fuel cell technology which MSI is planning to develop commercially.
7
Proprietary Rights
Projectavision is the owner of seven (7) United States patents and nine
(9) foreign patents in a number of countries and has sixty (60) patent
applications pending in numerous industrialized nations around the world. The
Company has filed for further patent protection in the United States and in
various foreign countries for improvements in its technologies. Specifically in
1995, the Company filed separate patent applications covering its thin screen
system, collimation increasing means, light splitting means, input lens arrays
on opposite sides of the image forming element, double input lens array, real
illumination polarized screen and brightness enhancing technologies.
Applications covering such technologies have also been filed in Canada, China
(People's Republic), Europe (E.P.O.), India, Japan, Mexico, South Korea and
Taiwan. Also in 1995, three additional "design" patent applications were filed
in the United States covering Projectavision's rear screen technology systems.
Rear screen technology utility applications were also filed in Canada, China
(People's Republic), Europe (E.P.O.), India, Japan, Mexico, South Korea and
Taiwan. Notwithstanding the Company's patent or pending patent applications,
there can be no assurance that others have not developed such technologies
without the Company's knowledge, or that such pending applications will be
allowed or that others will not independently develop similar technologies,
duplicate the Company's technologies or design around the patented aspects of
the Company's technologies. Even though the Company has been issued patents,
challenges may be instituted by third parties as to the validity, enforceability
and infringement of the patents. In the event that if others are able to design
around the Company's patents, the Company's business could be materially and
adversely affected. In addition, in the event the Company's products are based
upon the DLP developed by Texas Instruments, the Company will also be dependent
to a certain extent on the efficacy of Texas Instruments' patents relative to
the DLP, of which there can be no assurance. The Company has not conducted any
independent analysis of the patents owned by Texas Instruments relating to the
DLP.
The cost of the litigation to uphold the validity and enforceability and
prevent infringement of the Company's patents can be substantial. The Company's
patent counsel, has conducted a study to determine whether the manufacture, use
or sale in the United States of the projector would infringe patents of others.
The study reviewed patents covering active matrix LCDs, optics and LCDs and
various electronic and optical components used in conjunction with such
combinations. Counsel has determined that the combination of features disclosed
in the Company's patent application would not constitute literal infringement of
the patents reviewed.
Counsel also has reviewed certain of the patents covered by the literal
infringement study to determine whether the combination of features described in
the Company's application would infringe such patents under the doctrine of
equivalents. Under this doctrine, a product which does not literally infringe a
patent because it does not have all features of any of the patent claims might,
nevertheless, be deemed to infringe such patent, if and only if the difference
between the patented product and accused products are insubstantial. Counsel has
concluded that the combination of features described in the Company's patent
application would not infringe any of the patents included in counsel's doctrine
of equivalents study under the doctrine of equivalents. With respect to those
patents which were not included in the doctrine of equivalents study, counsel
has advised the Company that even if the combination of features described in
the Company's application would infringe such patents under the doctrine of
equivalents it is likely that either (i) suitable non-infringing alternative
components would be available, or (ii) the Company will be able to obtain a
license from the owner of such patent. In order for the Company to obtain such a
license it may be necessary for the Company to grant a cross license of the
Company's patent-pending technology to a potential licensor.
8
Counsel also has reviewed the patents to determine whether the components
of the Projector set forth in the Company's patents constitute literal
infringement of the other patents reviewed. Counsel has concluded that the
manufacture, use or sale in the United States of the Projector including such
components would not constitute literal infringement of the patents reviewed;
however, Counsel will not be able to determine whether the components of the
Projector would infringe the remaining patents reviewed until certain components
to be used in the Projector are definitively selected. Counsel has not reviewed
the patents to determine whether the components of the Projector disclosed in
the Company's patent application would constitute infringement of the patents
directed to such components under the doctrine of equivalents. However, counsel
has advised the Company that, as a matter of law, any component purchased from a
seller in the normal course of business ("off the shelf") is purchased with a
warranty from the seller that such component does not constitute literal or
equivalents infringement of patents of others. In addition, counsel has advised
that if the Company arranges to have certain components manufactured to its
specifications and, therefore, is not deemed to have purchased such components
off the shelf it is likely that either (i) the seller of such component will
indemnify the Company from patent infringement claims, or (ii) the Company will
be able to obtain a license from the owner of the patent which is infringed.
However, there can be no assurance that the Company will enter into any such
arrangements and if the Company is unable to enter into such arrangements, its
business may be adversely affected.
In some cases, the Company may rely on trade secrets to protect its
innovations. There can be no assurance that trade secrets will be established or
that others will not independently develop similar or superior technologies. The
Company routinely requires employees, Directors, consultants and other third
parties to whom confidential information has been or will be disclosed, to agree
to keep the Company's proprietary information confidential and to refrain from
using such information in any manner that is adverse to the Company's interest.
However, there can no assurance that such agreements will be complied with or
will be enforceable.
The Company is the owner of the trade name Projectavision, Inc. This mark
was registered by the United States Patent and Trademark Office on February 4,
1997.
The following Trademark applications have been filed:
TRADEMARK COUNTRIES STATUS
--------- --------- ------ |
