<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended March 31, 2000
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _____ to _____
SEC File Number 0-24725
GLOBAL ELECTION SYSTEMS INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
British Columbia, Canada 85-0394190
(State or Province of Incorporation) (IRS Employer Identification
No.)
1611 Wilmeth Road, McKinney, TX, 75069
(Address of Principal Executive Offices)
972-542-6000
(Issuer's Telephone Number, Including Area Code)
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 [ ] (issuer not subject to filing requirements for past 90 days)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of May 12, 2000 the
issuer had 18,583,672 shares of its common stock outstanding.
Transitional Small Business Disclosure Form (check one): Yes [ ] No [x]
<PAGE> 2
TABLE OF CONTENTS
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis.
Part 2. OTHER INFORMATION
Item 1. Legal proceedings.
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K
<PAGE> 3
Part 1. FINANCIAL INFORMATION
Item 1: FINANCIAL STATEMENTS
GLOBAL ELECTION SYSTEMS INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 2000
U.S. FUNDS
PREPARED WITHOUT AUDIT
STALEY, OKADA, CHANDLER & SCOTT
Chartered Accountants
<PAGE> 4
REVIEW ENGAGEMENT REPORT
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS OF GLOBAL ELECTION SYSTEMS INC.:
We have reviewed the interim consolidated balance sheet of Global Election
Systems Inc. as at 31 March 2000 and the interim consolidated statements of
changes in shareholders' equity, income (loss) and cash flows for the period
then ended. Our review was made in accordance with generally accepted standards
for review engagements and accordingly consisted primarily of enquiry,
analytical procedures and discussion related to information supplied to us by
the company.
A review does not constitute an audit and consequently we do not express an
audit opinion on these interim financial statements.
Based on our review, nothing has come to our attention that causes us to believe
that these interim financial statements are not, in all material respects, in
accordance with generally accepted accounting principles.
The comparative figures were complied by management and have not been reviewed.
"STALEY, OKADA, CHANDLER & SCOTT"
Burnaby, B.C. STALEY, OKADA, CHANDLER & SCOTT
5 May 2000 CHARTERED ACCOUNTANTS
- --------------------------------------------------------------------------------
<PAGE> 5
GLOBAL ELECTION SYSTEMS INC. Statement 1
INTERIM CONSOLIDATED BALANCE SHEET
AS AT 31 MARCH
U.S. Funds
Prepared Without Audit
<TABLE>
<CAPTION>
ASSETS 2000 1999
(Note 1)
------------ ------------
<S> <C> <C>
CURRENT
Cash and short term deposits $ 1,953,169 $ 511,762
Accounts receivable 4,320,550 2,484,725
Contracts receivable 8,162,483 5,591,217
Deposits and prepaid expenses 287,974 218,675
Inventory (Note 3) 5,724,328 6,789,835
Current portion of agreements receivable 148,925 248,916
------------ ------------
20,597,429 15,845,130
AGREEMENTS RECEIVABLE (Note 4) 21,050 238,275
DEFERRED COSTS (Note 5) 563,425 --
CAPITAL ASSETS (Note 6) 388,640 419,243
OTHER ASSETS (Note 7) 606,375 832,875
------------ ------------
$ 22,176,919 $ 17,335,523
============ ============
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 3,968,429 $ 2,120,101
Deferred revenue 405,001 938,997
Current portion of loans payable 5,368,373 4,888,578
------------ ------------
9,741,803 7,947,676
LOANS PAYABLE (Note 8) -- 36,757
------------ ------------
9,741,803 7,984,433
------------ ------------
COMMITMENTS (Note 11)
CONTINGENCY (Note 12)
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 9)
Authorized:
100,000,000 common voting shares, without par value
20,000,000 convertible voting preferred shares, without par value
Issued and fully paid:
18,583,672 (18,483,672) common shares 10,217,262 10,126,865
RETAINED EARNINGS (DEFICIT) - Statement 2 2,217,854 (775,775)
------------ ------------
12,435,116 9,351,090
------------ ------------
$ 22,176,919 $ 17,335,523
============ ============
</TABLE>
ON BEHALF OF THE BOARD:
Signed: "Howard T. Van Pelt"
---------------------
Howard T. Van Pelt, Director
Signed: "Clinton H. Rickards"
----------------------
Clinton H. Rickards, Director
- See Accompanying Notes -
<PAGE> 6
GLOBAL ELECTION SYSTEMS INC. Statement 2
INTERIM CONSOLIDATED STATEMENT OF
CHANGES IN SHAREHOLDERS' EQUITY
U.S. Funds
Prepared Without Audit
<TABLE>
<CAPTION>
Retained
Common Shares Earnings
Shares Amount (Deficit) Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance - 30 June 1998 18,482,440 $ 10,125,867 $ 639,693 $ 10,765,560
Issuance of shares on exercise of options ($0.81
per share) 1,232 998 -- 998
Net loss for the period - Statement 3 -- -- (1,415,468) (1,415,468)
------------ ------------ ------------ ------------
Balance - 31 March 1999 (Note 1) 18,483,672 $ 10,126,865 $ (775,775) $ 9,351,090
============ ============ ============ ============
Balance - 30 June 1999 18,483,672 $ 10,126,865 $ 1,355,738 $ 11,482,603
Issuance of shares on exercise of options ($0.90
per share) 100,000 90,397 -- 90,397
Net income for the period - Statement 3 -- -- 862,116 862,116
------------ ------------ ------------ ------------
Balance - 31 March 2000 18,583,672 $ 10,217,262 $ 2,217,854 $ 12,435,116
============ ============ ============ ============
</TABLE>
- See Accompanying Notes -
<PAGE> 7
GLOBAL ELECTION SYSTEMS INC. Statement 3
INTERIM CONSOLIDATED STATEMENT OF INCOME (LOSS)
FOR THE NINE MONTHS ENDED 31 MARCH
U.S. Funds
Prepared Without Audit
<TABLE>
<CAPTION>
For the Quarter Ended 31 March For the Nine Months Ended
31 March
2000 1999 2000 1999
(Note 1) (NOTE 1)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Sales and operating income $ 3,951,563 $ 2,674,147 $ 15,230,720 $ 9,320,339
Other income 3,315 17,749 25,672 102,780
------------ ------------ ------------ ------------
3,954,878 2,691,896 15,256,392 9,423,119
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Cost of sales and operating expenses 2,012,181 1,553,960 7,962,223 4,758,529
Selling, administrative and general expenses 1,395,671 1,433,051 4,889,845 4,470,088
Research and development expenses 120,274 121,941 423,364 731,211
Interest 125,587 90,455 409,728 200,654
Amortization 93,287 78,335 264,143 284,580
------------ ------------ ------------ ------------
3,747,000 3,277,742 13,949,303 10,445,062
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE THE UNDERNOTED 207,878 (585,846) 1,307,089 (1,021,943)
Revaluation of used equipment (131,175) (131,175) (393,525) (393,525)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 76,703 (717,021) 913,564 (1,415,468)
Provision for income taxes (Note 10) (2,552) -- (51,448) --
------------ ------------ ------------ ------------
NET INCOME (LOSS) FOR THE PERIOD $ 74,151 $ (717,021) $ 862,116 $ (1,415,568)
============ ============ ============ ============
EARNINGS (LOSS) PER SHARE - U.S. FUNDS
Basic $ 0.01 $ (0.04) $ 0.05 $ (0.08)
Fully diluted $ 0.01 $ N/A $ 0.04 $ N/A
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 18,550,795 18,483,264
============ ============ ============ ============
</TABLE>
- See Accompanying Notes -
<PAGE> 8
GLOBAL ELECTION SYSTEMS INC. Statement 4
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED 31 MARCH
U.S. Funds
Prepared Without Audit
<TABLE>
<CAPTION>
For the Quarter Ended 31 March FOR THE NINE MONTHS ENDED
31 MARCH
2000 1999 2000 1999
(Note 1) (NOTE 1)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) for the period $ 74,151 $ (717,021) $ 862,116 $ (1,415,468)
Items not affecting cash
Amortization 93,287 78,335 264,143 284,580
Revaluation of used equipment 131,175 131,175 393,525 393,525
------------ ------------ ------------ ------------
298,613 (507,511) 1,519,784 (737,363)
Changes in non-cash working capital
Accounts receivable 1,165,914 20,284 20,853 (171,862)
Contracts receivable (359,023) (518,115) 2,119,239 2,387,390
Deposits and prepaid expenses 69,912 9,830 3,324 28,414
Inventory (281,991) (59,383) (1,510,930) (3,515,486)
Accounts payable and accrued liabilities (280,197) (281,287) 1,680,962 (2,587,101)
Deferred revenue (108,486) 913,570 (622,717) 734,197
------------ ------------ ------------ ------------
504,742 (422,612) 3,210,515 (3,861,811)
------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Deferred costs (563,425) -- (563,425) --
Capital assets acquired (60,807) (25,411) (106,827) (77,985)
Agreements receivable 80,902 156,503 321,529 466,574
------------ ------------ ------------ ------------
(543,330) 131,092 (348,723) 388,589
------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Loans payable 501,310 300,000 (1,620,240) 3,644,361
Common shares issued -- -- 90,397 998
------------ ------------ ------------ ------------
501,310 300,000 (1,529,843) 3,645,359
------------ ------------ ------------ ------------
NET INCREASE IN CASH 462,722 8,480 1,331,949 172,137
Cash position - Beginning of period 1,490,447 503,282 621,220 339,625
------------ ------------ ------------ ------------
CASH POSITION - END OF PERIOD $ 1,953,169 $ 511,762 $ 1,953,169 $ 511,762
============ ============ ============ ============
</TABLE>
- See Accompanying Notes -
<PAGE> 9
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 2000
U.S. Funds
Prepared Without Audit
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
These interim consolidated financial statements have been prepared using
generally accepted accounting principles of Canada as follows:
a) NATURE OF OPERATIONS
The company markets a complete electronic voting system which includes
vote tally and voter registration software.
b) CONSOLIDATION
These consolidated financial statements include the accounts of the
company and its wholly-owned subsidiary, Global Election Systems, Inc.,
a company incorporated in Delaware and operating in Texas, U.S.A. The
purchase method of accounting has been applied to this acquisition.
c) FOREIGN CURRENCY TRANSLATION
The accounts of the company are prepared in U.S. funds and the
company's Canadian operations are translated into U.S. dollars as
follows:
o Monetary assets and liabilities at period-end rates,
o All other assets and liabilities at historical rates, and
o Revenue and expense items at the average rate of exchange prevailing
during the period.
Exchange gains and losses arising from these transactions are reflected
in income or expense in the period.
d) INVENTORY
Inventory of finished goods and work-in-progress is valued at the lower
of cost and net realizable value as estimated by management. Raw
materials, which consist of parts and components, are valued at average
cost less any allowances for obsolescence. Inventory of goods taken in
trade in prior years, was valued at the lesser of trade-in value and
net realizable value as estimated by management (Note 15).
Commencing 1 July 1998, goods taken in trade are treated as additional
discounts granted to complete sales agreements and no value is
recognized in inventory.
e) AMORTIZATION
Capital assets are recorded at cost and the company provides for
amortization on the following basis:
Demonstration and computer equipment - 20% to 30% declining balance
method
Manufacturing equipment - 20% declining balance method
Furniture and equipment - 20% declining balance method
Leasehold improvements - straight-line over 5 years
One-half of the rate is applied in the year of acquisition and
disposition.
<PAGE> 10
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 2000
U.S. Funds
Prepared Without Audit
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES - Continued
f) DEFERRED COSTS
Development costs are deferred on projects which are clearly defined;
attributable costs can be identified; technical feasibility is
established; management has clearly indicated its intention to produce
and market; a future market is clearly defined; and for which adequate
resources exist or are available.
The company provides for amortization of these costs over the
anticipated life of the product or process on a straight-line basis of
8 - 10 years.
g) PATENTS
Patents are recorded at cost and the company provides for amortization
on a straight-line basis over 10 years.
h) GOODWILL
Goodwill is recorded at cost and the company provides for amortization
on a straight-line basis over 5 years.
i) REVENUE RECOGNITION
Revenue from sales of products and supplies is recognized at the time
of shipment of products and supplies to customers. Revenue from sales
of services is recognized on completion of the related services. The
company defers a portion of revenue received related to contracted
future services to match against management's estimate of the future
costs of providing these services to customers.
j) WARRANTY RESERVE
Provisions for future estimated warranty costs are recorded in the
accounts based upon historical maintenance records. Management
periodically reviews the warranty reserve to determine the adequacy of
the provision.
k) RESEARCH AND DEVELOPMENT TAX CREDITS
Research and development tax credits are applied against research and
development expenses in the period in which the tax credit is received.
l) EARNINGS PER SHARE
Basic earnings per share computations are based on the weighted average
number of shares outstanding during the period. Fully diluted earnings
per share are based on the actual number of shares outstanding at the
end of the period plus performance shares, share purchase options and
warrants as if they had been issued as at the beginning of the period.
<PAGE> 11
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 2000
U.S. Funds
Prepared Without Audit
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES - Continued
m) SHARE CAPITAL
i) The proceeds from the exercise of stock options, warrants and
escrow shares are recorded as share capital in the amount for
which the option, warrant or escrow share enabled the holder to
purchase a share in the company.
ii) Share capital issued for non-monetary consideration is recorded at
an amount based on fair market value reduced by an estimate of
transaction costs normally incurred when issuing shares for cash,
as determined by the board of directors of the company.
n) MANAGEMENT'S ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues
and expenses during the reported periods. Actual results could differ
from those estimates.
o) COMPARATIVE FIGURES
The comparative figures were complied by management and were not
subject to independent review.
- --------------------------------------------------------------------------------
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and short term deposits, accounts receivable,
contracts receivable, deposits, agreements receivable, accounts payable and
accrued liabilities approximates their fair value due to their short term
maturity or capacity of prompt liquidation.
Concentration of credit risk may arise from exposure to a single debtor or
to a group of debtors having similar characteristics such that their
ability to meet their obligations to the company is expected to be affected
similarly by changes in economic or other conditions.
The company's counterparty concentration is with its authorized resellers
and state, county, city and municipal election customers in the United
States and Canada and arises in the normal course of the company's
business.
Included in the 31 March 2000 current accounts receivable of $4,320,550,
are three authorized resellers which together account for $2,155,295 or
49.9% of this balance. To 5 May 2000, the company has collected $166,750
from these three resellers and the balance is due on specific terms.
Included in the 31 March 2000 current contracts receivable of $8,162,483 is
one such election customer which accounts for $1,311,413 or 16.1% of this
balance. To 5 May 2000, the company has collected $NIL from this customer
and the balance is due at specific dates within one year from 31 March
2000.
- --------------------------------------------------------------------------------
<PAGE> 12
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 2000
U.S. Funds
Prepared Without Audit
- --------------------------------------------------------------------------------
3. INVENTORY
Details are as follows:
<TABLE>
<CAPTION>
31 MARCH 31 March
2000 1999
---------- ----------
<S> <C> <C>
Supplies and parts $3,170,100 $3,638,790
Trade-in goods 131,175 655,875
Finished goods 2,423,053 2,495,170
---------- ----------
$5,724,328 $6,789,835
---------- ----------
</TABLE>
- --------------------------------------------------------------------------------
4. AGREEMENTS RECEIVABLE
Details of agreements receivable from customers are as follows:
<TABLE>
<CAPTION>
31 MARCH 31 March
2000 1999
--------- ---------
<S> <C> <C>
Sales agreement receivable with interest at 5% per annum,
repayable in 60 equal monthly payments commencing
15 December 1995, secured by the underlying goods (i) $ 128,174 $ 312,616
Sales agreement receivable with interest at 4.4% per annum
commencing 27 January 1998, repayable by 1 July 2000,
secured by the underlying goods 20,751 44,485
Sales agreement receivable with interest at 5.4% per annum
commencing 15 July 1998, repayable by 15 July 2001,
secured by the underlying goods 21,050 63,150
Sales agreement receivable, non-interest bearing -- 66,940
--------- ---------
169,975 487,191
Less: Current portion (148,925) (248,916)
--------- ---------
$ 21,050 $ 238,275
--------- ---------
</TABLE>
(i) The sales agreement receivable has been pledged as security for a loan
payable (Note 8).
Scheduled principal repayments on the sales agreements receivable are as
follows:
<TABLE>
<S> <C>
Period to 31 March 2001 $148,925
Period to 31 March 2002 21,050
--------
$169,975
--------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 13
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 2000
U.S. Funds
Prepared Without Audit
- --------------------------------------------------------------------------------
5. DEFERRED COSTS
Details areas follows:
<TABLE>
<CAPTION>
Accumulated 31 MARCH 31 March
Cost Amortization 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Touch screen projects $ 339,281 $ 29,946 $ 309,335 $ --
Voter registration project 274,692 20,602 254,090 --
------------ ------------ ------------ ------------
$ 613,973 $ 50,548 $ 563,425 $ --
------------ ------------ ------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
6. CAPITAL ASSETS
Details are as follows:
<TABLE>
<CAPTION>
Accumulated 31 MARCH 31 March
Cost Amortization 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Demonstration and computer
equipment $ 665,470 $ 395,023 $ 270,447 $ 269,768
Manufacturing equipment 78,519 60,858 17,661 21,416
Furniture and equipment 263,331 174,181 89,150 108,129
Leasehold improvements 39,360 27,978 11,382 19,930
------------ ------------ ------------ ------------
$ 1,046,680 $ 658,040 $ 388,640 $ 419,243
------------ ------------ ------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
7. OTHER ASSETS
Details are as follows:
<TABLE>
<CAPTION>
Accumulated 31 MARCH 31 March
Cost Amortization 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Patents $ 165,000 $ 136,125 $ 28,875 $ 45,375
Goodwill 1,300,960 723,460 577,500 787,500
------------ ------------ ------------ ------------
$ 1,465,960 $ 859,585 $ 606,375 $ 832,875
------------ ------------ ------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 14
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 2000
U.S. Funds
Prepared Without Audit
- --------------------------------------------------------------------------------
8. LOANS PAYABLE
Details are as follows:
<TABLE>
<CAPTION>
31 MARCH 31 March
2000 1999
---------- ----------
<S> <C> <C>
Line of credit, bearing interest at bank prime plus 1% per annum (interest rate
floor of 9%), interest payments due quarterly, due in full by 15 November
2000, secured by the $128,174 sales agreement receivable
(Note 4) $ 250,113 $ 361,700
Line of credit, bearing interest at bank prime plus 1% per annum (interest
rate floor of 10%), interest payments due quarterly, due in full by 22 May
2000, secured by a contract receivable with a balance receivable of
$1,311,413 as at 31 March 2000 904,950 1,508,500
Line of credit, bearing interest at bank prime plus 1% per annum (interest
rate floor of 9%), interest payments due quarterly, due in full by 27 May
2000, secured by a contract receivable with a balance receivable of
$76,869 as at 31 March 2000 133,310 --
Line of credit, bearing interest at The Wall Street Journal prime rate,
interest payments due quarterly, balance due in full by 11 April 2000 (i),
secured by a commercial security agreement covering all assets of
the company 3,600,000 3,000,000
Note payable, bearing interest at bank prime plus 1% per annum, due in full
by 19 January 2001, secured by three contracts receivable with a combined
balance receivable of $420,311 as at 31 March 2000 480,000 --
Note payable, bearing interest at bank prime -- 55,135
---------- ----------
5,368,373 4,925,335
Less: Current portion 5,368,373 4,888,578
---------- ----------
$ -- $ 36,757
---------- ----------
</TABLE>
(i) The Company and Hibernia Bank are currently negotiating an extension of
this due date. The new maturity date is anticipated by management to be
11 April 2001.
- --------------------------------------------------------------------------------
<PAGE> 15
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 2000
U.S. Funds
Prepared Without Audit
- --------------------------------------------------------------------------------
9. SHARE CAPITAL
a) The authorized share capital is 120,000,000 shares divided into
100,000,000 voting common shares without par value and 20,000,000
convertible voting preferred shares without par value.
The conversion rights and the other terms and restrictions of the
preferred shares will be set by the directors of the company at the date
of issuance.
The issued and outstanding share capital consists of:
<TABLE>
<CAPTION>
Common Unit
Shares Value Amount
----------- ----------- -----------
<S> <C> <C> <C>
Balance - 30 June 1998 18,482,440 $10,125,867
Options exercised 1,232 $ 0.81 998
----------- ----------- -----------
Balance - 31 March 1999 and 30 June 1999 18,483,672 10,126,865
Options exercised 100,000 $ 0.90 90,397
----------- ----------- -----------
Balance - 31 March 2000 18,583,672 $10,217,262
----------- ----------- -----------
</TABLE>
b) STOCK OPTION PLAN
The company has a stock option plan which covers its officers and
directors. The options are granted for varying terms ranging from three
to five years. Options granted prior to 30 June 1998, were immediately
vested upon grant. Certain options granted subsequent to 30 June 1998,
vest over the term of the option. The following is a schedule of the
activity pursuant to this stock option plan:
<TABLE>
<CAPTION>
Price per
Number of Share
Shares (CDN $) Expiration Date
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
500,000 $ 0.65 22 November 1996
30,000 $ 0.75 04 February 1997
100,000 $ 2.30 22 April 1997
200,000 $ 0.77 09 February 1998
200,000 $ 2.40 17 September 1998
100,000 $ 3.10 15 November 1998
150,000 $ 1.89 20 September 1999
100,000 $ 1.33 01 November 1999
- --------------------------------------------------------------------------------------------
Balance - 31 December 1994 1,380,000 $ 0.65 to $ 3.10
Options exercised (100,000) $ 0.77 09 February 1998
Options expired (100,000) $ 0.77 09 February 1998
Options expired (80,000) $ 3.10 15 November 1998
Options expired (20,000) $ 1.89 20 September 1999
New options granted 100,000 $ 1.35 22 February 2000
New options granted 100,000 $ 1.00 17 August 2000
- --------------------------------------------------------------------------------------------
Balance - 31 December 1995 1,280,000 $ 0.65 to $ 3.10
Options exercised (500,000) $ 0.65 22 November 1996
Options expired (200,000) $ 2.40 17 September 1998
Options expired (100,000) $ 1.00 17 August 2000
- --------------------------------------------------------------------------------------------
Balance - 31 December 1996 480,000 $ 1.33 to $ 3.10
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 16
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 2000
U.S. Funds
Prepared Without Audit
- --------------------------------------------------------------------------------
9. SHARE CAPITAL - Continued
b) STOCK OPTION PLAN - Continued
<TABLE>
<CAPTION>
Price per
Number of Share
Shares (CDN $) Expiration Date
------------------------------------------ --------------- -------------- -------------------
<S> <C> <C> <C>
Balance - 31 December 1996 480,000 $ 1.33 to $ 3.10
Options expired (30,000) $ 0.75 04 February 1997
Options expired (100,000) $ 2.30 22 April 1997
Options expired (100,000) $ 1.35 22 February 2000
------------------------------------------ --------------- -------------- -------------------
Balance - 30 June 1997 250,000 $ 1.33 to $ 3.10
New options granted 1,075,000 $ 1.25 22 August 2002
New options granted 50,000 $ 1.49 17 December 2002
New options granted 100,000 $ 1.60 13 February 2003
Options cancelled (20,000) $ 3.10 15 November 1998
Options cancelled (130,000) $ 1.89 20 September 1999
Options exercised (55,000) $ 1.25 22 August 2002
------------------------------------------ --------------- -------------- -------------------
Balance - 30 June 1998 1,270,000 $ 1.25 to $1.80
New options granted (i) 205,000 $ 2.05 15 October 2001
Options exercised (1,232) $ 1.25 22 August 2002
------------------------------------------ --------------- -------------- -------------------
Balance - 30 June 1999 1,473,768 $ 1.25 to $2.05
Options expired (100,000) $ 1.60 13 February 2003
Options expired (23,768) $ 1.25 2 August 2002
Options exercised (100,000) $ 1.33 1 November 1999
Options granted 50,000 $ 1.69 7 February 2005
------------------------------------------ --------------- -------------- -------------------
$ 1.25 15 October 2001 to
Balance - 31 March 2000 1,300,000 to $ 2.05 7 February 2005
------------------------------------------ --------------- -------------- -------------------
</TABLE>
As at 31 March 2000, 1,244,989 options had vested and were exercisable
and 55,011 options had yet to vest. The weighted average exercise price
per option was $1.40 per share and the weighted average remaining
contractual life of the options was 2.34 years.
(i) Options granted with vesting over the term of the option.
c) STOCK PURCHASE WARRANTS
The following is a schedule of the activity pursuant to stock purchase
warrants:
<TABLE>
<CAPTION>
Price per
Number of Share
Shares (CDN $) Expiration Date
--------------- -------------- -------------------
<S> <C> <C>
166,667 $ 1.88 31 March 2001
--------------- -------------- -------------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 17
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 2000
U.S. Funds
Prepared Without Audit
- --------------------------------------------------------------------------------
10. INCOME TAXES
a) A summary of the taxable income of the company for the period ended 31
March 2000 is as follows:
<TABLE>
<CAPTION>
Canadian Parent U.S. Subsidiary Total
--------------- --------------- ---------------
<S> <C> <C> <C>
Net income before taxes per financial
statements $ 204,061 $ 658,055 $ 862,116
Application of losses carried forward -- (658,055) (658,055)
Timing/permanent differences 115,489 -- 115,489
--------------- --------------- ---------------
Taxable income $ 319,550 $ -- $ 319,550
--------------- --------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
Canadian Parent U.S. Subsidiary Total
--------------- --------------- ---------------
<S> <C> <C> <C>
Statutory tax rate 45.2% N/A 45.2%
Federal tax credit on application of
investment tax credits (29.1) N/A (29.1)
--------------- --------------- ---------------
Adjusted tax rate 16.1% N/A 16.1%
--------------- --------------- ---------------
Tax provision $ 51,448 $ N/A $ 51,448
--------------- --------------- ---------------
</TABLE>
b) The company has unclaimed investment tax credits, for Canadian tax
purposes, arising from its research and development activities in the
amount of $243,000 which may be carried forward to be applied against
future federal taxes payable. The future tax benefits, if any, of these
tax credits have not been recognized in the accounts and expire as
follows:
<TABLE>
<S> <C>
30 June 2000 $ 25,000
30 June 2002 35,000
30 June 2003 64,000
30 June 2004 119,000
---------------
$ 243,000
---------------
</TABLE>
c) As at 31 March 2000, the company's subsidiary has tax losses, for U.S.
tax purposes, of approximately $497,000 which may be carried forward to
be applied against future taxable income. The future benefits, if any,
of these tax losses have not been recognized in the accounts of the
company and expire in 2011.
- --------------------------------------------------------------------------------
<PAGE> 18
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 2000
U.S. Funds
Prepared Without Audit
- --------------------------------------------------------------------------------
11. COMMITMENTS
a) By way of an employment agreement, the company has secured the services
of a key employee for a three year term expiring 31 July 2000. The
contract contains fixed annual compensation totaling $180,000 per annum
plus a bonus of 3% of earnings before taxes not to exceed $200,000 per
annum.
b) By way of an employment agreement, the company has secured the services
of a key employee for a three year term expiring 31 July 2000. The
contract contains fixed annual compensation totalling $115,000 per
annum.
c) Under the terms of a lease agreement dated 8 December 1998, the company
is committed to minimum annual lease payments which increased from CDN
$25,529 in the first year to CDN $35,741 by the final year, plus its
share of common area costs. The lease is for a five year term to 30
April 2004 representing a minimum lease commitment of:
<TABLE>
<CAPTION>
CDN $
-----------------
<S> <C>
Period to 31 March 2001 $ 28,294
Period to 31 March 2002 30,847
Period to 31 March 2003 33,400
Period to 31 March 2004 35,563
Period to 31 March 2005 2,978
-----------------
$ 131,082
-----------------
</TABLE>
d) By an agreement dated 4 March 1997, the company's United States
subsidiary has agreed to lease 13,050 square feet of general office and
warehouse space in McKinney, Texas for five years from 1 July 1997. The
annual lease amount of $110,272 representing a minimum lease commitment
of:
<TABLE>
<S> <C>
Period to 31 March 2001 $ 110,272
Period to 31 March 2002 110,272
Period to 31 March 2003 27,568
-----------------
$ 248,112
-----------------
</TABLE>
The lease may be extended for two additional terms of five years with
the rate to be the current base rent plus the lesser of a consumer
price adjustment or a fair rental value adjustment.
e) By an agreement dated 8 December 1999 the company has committed to
lease additional space, currently under construction, adjacent to its
existing leased property in McKinney, Texas. The lease is for 5 years
commencing 1 May 2000 at $9,189 per month representing an annual lease
commitment of:
<TABLE>
<S> <C>
Period to 31 March 2001 $ 101,079
Period to 31 March 2002 110,268
Period to 31 March 2003 110,268
Period to 31 March 2004 110,268
Period to 31 March 2005 110,268
Period to 31 March 2006 9,189
-----------------
$ 551,340
-----------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 19
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 2000
U.S. Funds
Prepared Without Audit
- --------------------------------------------------------------------------------
12. CONTINGENCY
During the 1999 fiscal year, the company was served with a lawsuit which
alleged that the direct recording electronic voting machine process,
acquired during 1998, infringed on the plaintiff's patent. The plaintiff
had requested treble monetary damages, injunctive relief and declaratory
judgement of the infringement.
On 18 June 1999, the United States District Court for the District of
Nebraska ordered that the plaintiffs' motion to dismiss and strike the case
be granted.
- --------------------------------------------------------------------------------
13. RELATED PARTY TRANSACTIONS
In addition to items disclosed elsewhere in these consolidated financial
statements, the company paid/accrued salaries or fees to directors and
officers of $283,309 during the period ended 31 March 2000 and $418,590
during the period ended 31 March 1999.
- --------------------------------------------------------------------------------
14. SALES AND OPERATING INCOME
Details of sales and operating income generated from customers which
individually account for approximately 10% or more of that period's
consolidated sales and operating income are as follows:
<TABLE>
<CAPTION>
Period Ended
PERIOD ENDED 31 March
31 MARCH 2000 1999
--------------- ---------------
<S> <C> <C>
Number of Large Customers -- 2
--------------- ---------------
Amount of Sales to Large Customers $ -- $ 2,922,910
--------------- ---------------
Total Consolidated Sales and Operating Income $ -- $ 9,423,119
--------------- ---------------
Total Percentage of Consolidated Sales and Operating Income Generated
from Large Customers 0.00% 31.0%
--------------- ---------------
</TABLE>
Due to the nature of the company's business, large sales to individual
customers are generated on a non-recurring basis. As a result, the company
is not dependent on any single customer or small group of customers such
that the loss of any of these would have not a material adverse effect on
the future results of the company.
- --------------------------------------------------------------------------------
<PAGE> 20
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 2000
U.S. Funds
Prepared Without Audit
- --------------------------------------------------------------------------------
15. REVALUATION OF USED EQUIPMENT
During the period ended 31 March 2000, management re-evaluated the carrying
value of equipment taken as trade-ins on sales made prior to 1 July 1998
(Note 1d). A significant write-down in the amount of $393,525 resulted as
management seeks to carry such inventory on a conservatively priced basis.
Management periodically reviews market conditions and obtains independent
valuations in determining if adjustments to the carrying value of used
equipment is required. Management's estimates of recoverability on the used
equipment have been based on current conditions. However, it is reasonably
possible that changes could occur which could adversely affect management's
estimates and may result in future write-downs.
- --------------------------------------------------------------------------------
<PAGE> 21
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 2000
U.S. Funds
Prepared Without Audit
- --------------------------------------------------------------------------------
16. SEGMENT INFORMATION
The company operated in only one industry segment in Canada and the United
States as follows:
<TABLE>
<CAPTION>
Canada United States
--------------------------- ---------------------------
31 MARCH 31 March 31 MARCH 31 March
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales to customers $ 284,982 $ 596,510 $ 14,971,410 $ 8,826,609
Sales between the segments 731,110 484,133 74,097 373,169
------------ ------------ ------------ ------------
Total sales revenue $ 1,016,092 $ 1,080,643 $ 15,045,507 $ 9,199,778
------------ ------------ ------------ ------------
Operating profits $ 899,144 $ 705,259 $ 6,395,025 $ 3,959,331
------------ ------------ ------------ ------------
General corporate expenses
Interest
Revaluation of used equipment
Income taxes
Net income (loss)
------------ ------------ ------------ ------------
Identifiable assets $ 459,635 $ 328,942 $ 21,739,891 $ 17,029,188
------------ ------------ ------------ ------------
Capital expenditures $ 12,868 $ 8,006 $ 93,959 $ 69,979
------------ ------------ ------------ ------------
Amortization of capital assets $ 12,915 $ 13,989 $ 81,540 $ 75,749
------------ ------------ ------------ ------------
<CAPTION>
Elimination Consolidation
---------------------------- ----------------------------
31 MARCH 31 March 31 MARCH 31 March
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales to customers $ -- $ -- $ 15,256,392 $ 9,423,119
Sales between the segments (805,207) (857,302) -- --
------------ ------------ ------------ ------------
Total sales revenue $ (805,207) $ (857,302) $ 15,256,392 $ 9,423,119
------------ ------------ ------------ ------------
Operating profits $ -- $ -- $ 7,294,169 $ 4,664,590
------------ ------------
General corporate expenses (5,577,352) (5,485,879)
Interest (409,728) (200,654)
Revaluation of used equipment (393,525) (393,525)
Income taxes (51,448) --
------------ ------------
Net income (loss) $ 862,116 $ (1,415,468)
------------ ------------ ------------ ------------
Identifiable assets $ (22,607) $ (22,607) $ 22,176,919 $ 17,335,523
------------ ------------ ------------ ------------
Capital expenditures $ -- $ -- $ 106,827 $ 77,985
------------ ------------ ------------ ------------
Amortization of capital assets $ -- $ -- $ 94,455 $ 89,738
------------ ------------ ------------ ------------
</TABLE>
- See Accompanying Notes -
<PAGE> 22
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 2000
U.S. Funds
Prepared Without Audit
- --------------------------------------------------------------------------------
17. DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
These consolidated financial statements are prepared in accordance with
accounting principles generally accepted in Canada. Any differences in
United States accounting principles as they pertain to the accompanying
consolidated financial statements are not material except as follows:
a) COMPENSATION EXPENSE
Under accounting principles generally accepted in the United States,
there is a compensation expense associated with the release of escrowed
shares of the company, as those shares become eligible for release. No
compensation expense is applied under accounting principles generally
accepted in Canada.
b) FINANCIAL STATEMENT RECONCILIATION
<TABLE>
<CAPTION>
31 MARCH 31 March
2000 1999
---------------- ----------------
<S> <C> <C>
i) Share capital - Canadian basis $ 10,217,262 $ 10,126,865
Add: Escrow share compensation expense - prior periods 3,194,621 3,194,621
---------------- ----------------
Share capital - U.S. basis $ 13,411,883 $ 13,321,486
---------------- ----------------
ii) Retained earnings - Canadian basis $ 2,217,854 $ (775,775)
Less: Escrow share compensation expense - prior periods (3,194,621) (3,194,621)
---------------- ----------------
Deficit - U.S. basis $ (976,767) $ (3,970,396)
---------------- ----------------
</TABLE>
iii) U.S. GAAP consolidated statement of shareholders' equity
<TABLE>
<CAPTION>
Common Shares Earnings
Shares Amount Deficit Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance - 30 June 1998 18,482,440 $ 13,320,488 $ (2,554,928) $ 10,765,560
Issuance of shares on exercise of
options ($0.81 per share) 1,232 998 -- 998
Net loss for the period -- -- (1,415,468) (1,415,468)
------------ ------------ ------------ ------------
Balance - 31 March 1999 18,483,672 13,321,486 (3,970,396) 9,351,090
Net income for the period -- -- 2,131,513 2,131,513
------------ ------------ ------------ ------------
Balance - 30 June 1999 18,483,672 13,321,486 (1,838,883) 11,482,603
Issuance of shares on exercise of
options ($0.90 per share) 100,000 90,397 -- 90,397
Net income for the period - Statement 3 -- -- 862,116 862,116
------------ ------------ ------------ ------------
Balance - 31 March 2000 18,583,672 13,411,883 976,767 12,435,116
------------ ------------ ------------ ------------
</TABLE>
<PAGE> 23
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 2000
U.S. Funds
Prepared Without Audit
- --------------------------------------------------------------------------------
17. DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES - Continued
c) EARNINGS PER SHARE - BASIC OR PRIMARY
Under accounting principles generally accepted in the United States,
stock options and stock warrants are treated as common stock
equivalents in the determination of basic or primary earnings per share
if they would have a dilutive effect. Stock options and stock warrants
are not treated as common stock equivalents in the determination of
basic or primary earnings per share in Canada.
Reconciliation of Canadian to U.S. basis - Basic Earnings per Share
<TABLE>
<CAPTION>
31 MARCH 31 March
2000 1999
------------ ------------
<S> <C> <C>
Weighted average number of common shares outstanding
- Canadian basis 18,550,795 18,483,264
Add: Dilutive stock options and warrants 1,466,667 N/A
------------ ------------
Weighted average number of common shares outstanding
- U.S. basis 20,017,462 18,483,264
------------ ------------
Net income (loss) for the year $ 862,116 $ (1,415,468)
------------ ------------
Basic earnings per share
- U.S. basis $ 0.04 $ (0.08)
------------ ------------
- Canadian basis $ 0.05 $ (0.08)
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
18. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. Although the change in date has
occurred, it is not possible to conclude that all aspects of the Year 2000
Issue that may affect the entity, including those related to customers,
suppliers, or other third parties, have been fully resolved.
- --------------------------------------------------------------------------------
<PAGE> 24
Summary of Significant Accounting Policies:
The accounting policies as set forth in Global Election
Systems Inc.'s Form 10-KSB, filed on September 28, 1999 have been adhered to in
preparing the accompanying interim consolidated financial statements. These
statements are unaudited, but include all adjustments, consisting of normal
recurring adjustments, that the Company considers necessary for a fair
presentation of the results for the interim period. Results for an interim
period are not necessarily indicative of results for a full year.
a) Foreign Currency Transactions
The accounts of the Company are prepared in U. S. funds and
the Company's Canadian operations are translated into U.S. dollars as follows:
Monetary assets and liabilities at quarter-end rates
All other assets and liabilities at historical rates
Revenue and expense items at the average rate of exchange
prevailing during the quarter.
Exchange gains and losses arising from these transactions are
reflected in income or expense in the period.
b) Inventory
Inventory of finished goods and work-in-progress is valued at
the lower of cost and net realizable value as estimated by management. Raw
materials, which consist of parts and components, are valued at average cost
less any allowances for obsolescence. Inventory of goods taken in trade is
valued at the lesser of trade-in value and net realizable value as estimated by
management.
<PAGE> 25
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
The discussion and analysis of the operating results and the
financial position of the Company should be read in conjunction with the
Company's Interim Financial Statements and the notes to them. See "Interim
Consolidated Financial Statements". The financial statements have been prepared
in United States dollars in accordance with Canadian GAAP. Certain of the
information discussed in this report contains forward-looking statements
regarding future events or the future financial performance of the Company, and
is subject to a number of risks and other factors which could cause the actual
results to differ materially from those contained in any forward-looking
statements. Among those factors are: general business and economic conditions:
customer acceptance and demand for the Company's products; the Company's overall
ability to design, test and introduce new products on a timely basis; the nature
of the markets addressed by the Company's products; the interaction with
governmental entities in the United States and world-wide which purchase the
Company's products; and other risk factors listed from time to time in documents
filed by the Company with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 2000 COMPARED TO QUARTER ENDED MARCH 31, 1999.
SALES AND OPERATING INCOME.
Sales and other income increased 46.9%, or $1,263,000, to
$3,955,000 in the third quarter ended March 31, 2000 from $2,692,000 in the
third quarter ended March 31, 1999. The increase in sales is due to new account
sales and the continued expansion of the customer base.
COST OF SALES AND OPERATING EXPENSES.
Cost of sales and operating expenses increased 29.5%, or
$458,000, to $2,012,000 in the third quarter of fiscal 2000 from $1,554,000 in
the third quarter of fiscal 1999. In fiscal 2000, cost of sales and operating
expense as a percentage of gross revenues decreased to 50.9% from 57.7% in
fiscal 1999. This decrease resulted primarily from lower product cost for the
Accuvote - OS system and cost reductions in manufacturing.
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES.
In the third quarter ended March 31, 2000 selling,
administrative and general expenses decreased 2.6%, or $37,000, to $1,396,000,
from $1,433,000 in the third quarter ended March 31, 1999. The decrease is
largely attributable to decrease in cost of communication.
RESEARCH AND DEVELOPMENT EXPENSES.
Research and development expenses decreased 1.4%, or $2,000,
to $120,000 in the third quarter of fiscal 2000 from $122,000 in fiscal 1999.
The decrease in research and development expense in the 2000 period was within
the Company's operating plan. The Company continues to fund research and
development in order to offer leading edge products to the market place.
<PAGE> 26
INTEREST.
Interest expense increased 38.8%, or $36,000, to $126,000, in
the third quarter of fiscal 2000 from $90,000 in the third quarter of fiscal
1999. The increase was within the Company's operating plan and resulted from
interest on U.S. bank loans. The increase in bank loans was related to increased
sales.
AMORTIZATION.
Amortization increased 19.1%, or $15,000, to $93,000 in the
third quarter of fiscal 2000, from $78,000 in the third quarter of fiscal 1999
period. The increase is due to acquisition of fixed assets.
REVALUATION OF TRADE-IN EQUIPMENT.
The trade-in inventory write off amounted to $131,000 in the
third quarter of fiscal 2000, which is equal to the same amount that was written
off in the third quarter of fiscal 1999. The trade-in inventory write down will
continue for the next quarter. At that time the value of the trade-in inventory
is anticipated to be nil.
EARNINGS (LOSS) PER SHARE.
The Company's earnings for the third quarter ended March 31,
2000 were $208,000 or $0.01 per share before a write down of $131,000 for
trade-in inventory and provision for income taxes of $3,000. The earnings for
the third quarter ended March 31, 2000 after the trade-in inventory write down
and provision for income taxes was $74,000 or $0.01 per share compared to a loss
of $717,000, or $(0.04) per share for the same period for fiscal 1999. The
increase in earnings per share for the 2000 fiscal period as compared to the
1999 fiscal period was attributable to increases in revenue from sales of
products, offset by increases in cost of sales and operating expenses, interest
expense and amortization and enhanced by decreases in selling, administrative
and general expenses and research and development.
YEAR TO DATE MARCH 31, 2000 COMPARED TO YEAR TO DATE MARCH 31, 1999.
SALES AND OPERATING INCOME.
Year to date sales and other income for nine months ended
March 31, 2000 increased 61.9% or $5,833,000, to $15,256,000 from $9,423,000 for
the nine months ended March 31, 1999. The increase in sales was due to new
account sales and the continued expansion of the customer base.
COST OF SALES AND OPERATING EXPENSES.
Year to date cost of sales and operating expenses for fiscal
period 2000 increased 67.3% or $3,203,000, to $7,962,000 from $4,759,000 for
fiscal 1999. In fiscal 2000, year to date cost of sales and operating expense as
a percentage of gross revenues increased to 52.2% from 50.5% in fiscal 1999.
This increase is due to lower gross margin on the voter registration product,
offset by lower product cost for the Accuvote - OS system and more efficient
utilization of labor.
<PAGE> 27
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES.
Year to date selling, administrative and general expenses for
fiscal 2000 increased 9.4% or $420,000, to $4,890,000 from $4,470,000 for fiscal
1999. The increase was due largely to increased sales efforts and an increase in
manpower and associated costs thereon in the sales, field support and
administrative areas.
RESEARCH AND DEVELOPMENT EXPENSES.
Year to date research and development expenses for fiscal 2000
decreased by 42.1%, or $308,000, to $423,000 from $731,000 for fiscal 1999. In
fiscal 1999 extensive development was being performed on the Accu Touch
software; this is not occurring in fiscal 2000. The decrease in research and
development expense in the 2000 period was within the Company's operating plan.
The Company continues to fund research and development in order to offer leading
edge products to the market place.
INTEREST.
Year to date interest expense for fiscal 2000 increased 104.2%
or $209,000, to $410,000 from $201,000 in fiscal 1999. The increase resulted
from interest on increased bank loans which resulted from increased production.
The increase was within the Company's operating plan
AMORTIZATION.
Year to date amortization for fiscal 2000 decreased 7.2%, or
$21,000, to $264,000 from $285,000 in fiscal 1999. The decrease was anticipated
as Lynro Manufacturing goodwill is now fully written off.
REVALUATION OF USED EQUIPMENT.
Year to date trade-in inventory write off for fiscal 2000 was
$394,000, the same as in fiscal 1999. The trade-in inventory write down will
continue for the next quarter. At that time the value of the trade-in inventory
is anticipated to be nil.
EARNINGS (LOSS) PER SHARE.
The Company's year to date earnings for fiscal 2000 were
$1,307,000 or $0.07 per share before a write down of $394,000 for trade-in
inventory and provision for income taxes of $51,000. The year to date earnings
for fiscal 2000 after the trade-in inventory write down and provision for income
taxes was $862,000 or $0.05 per share compared to a loss of $1,415,000 or
$(0.08) per share for the same period for fiscal 1999. The increase in earnings
per share for the 2000 fiscal period as compared to the 1999 fiscal period was
attributable to increases in revenue from sales of products, offset by increases
in cost of sales and operating expenses, selling, administrative and general
expense, and interest expense and enhanced by decreases in research and
development and amortization.
<PAGE> 28
LIQUIDITY AND CAPITAL RESOURCES.
The Company uses a combination of internally generated funds
and bank borrowings to finance its working capital requirements, capital
expenses and operations. During the period ended March 31, 2000, the Company
generated most of its funding through cash flow.
At March 31, 2000 the Company's cash totaled $1,953,169, an
increase of $462,722 from December 31, 1999. Accounts and contracts receivable
decreased to $12,483,000 at March 31, 2000 from $13,290,000 at December 31,
1999. Due to the nature of the Company's business, timing of payments on large
contracts may vary significantly, causing significant variances from period to
period in the mix of cash, other liquid funds, accounts receivable and contracts
receivable. Inventory figures may vary significantly, depending upon delivery
dates for voting systems. At March 31, 2000, inventory amounted to $5,724,000,
an increase of $150,000 from December 31, 1999. The increase in inventory is
within the Company's operating plan.
The Company has contractual arrangements with customers
whereby credit terms may be extended for the amounts due for voting systems. At
March 31, 2000 agreements receivable less current portion amounted to $21,000,
an increase of $11,000 from December 31, 1999. These loans are repaid at varying
terms and with varying interest rates determined on a case by case basis.
Historically, the Company has not experienced any default in connection with
loans due from customers.
The Company currently has five loans outstanding, four with
Compass Bank, Albuquerque, New Mexico and one loan with Hibernia National Bank
of Texas, McKinney, Texas. One loan in the amount of $250,113 is secured by a
sales agreement receivable in the amount of $128,174. This loan bears interest
at Compass Bank of Albuquerque Prime Rate plus 1% and is due November 15, 2000.
A second loan in the amount of $904,950 is secured by a contract receivable in
the amount of $1,311,413. This loan bears interest at Compass Bank of
Albuquerque Prime Rate plus 1% and is due May 22, 2000. A third loan in the
amount of $133,310 is secured by a contract receivable with a balance receivable
of $76,869. This loan bears interest at Compass Bank of Albuquerque Prime Rate
plus 1% and is due May 27, 2000. A fourth loan in the amount of $480,000 is
secured by three contracts receivable with a combined balance receivable of
$420,311. This loan bears interest at Compass Bank of Albuquerque Prime Rate
plus 1% and is due January 19, 2001. The loan with Hibernia National Bank of
Texas in the amount of $3,600,000 is secured by a commercial security agreement
covering all assets of the Company, and bears interest at The Wall Street
Journal Prime Rate and was due April 11, 2000. The Company and Hibernia bank are
currently negotiating an extension of this due date. The new maturity date is
anticipated to be April 11, 2001. The loans are used for working capital.
During the Company's current and two most recently ended
fiscal years, the Company has not experienced any material impact from inflation
or changing prices on its net sales and revenues or on income from continuing
operations.
Management believes that financial resources, including
internally generated funds and available bank line of credit and borrowings will
be sufficient to finance the Company's current operations and capital
expenditures, excluding acquisitions, for the next twelve months.
<PAGE> 29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
No material legal proceeding is pending or, to the knowledge
of the Company, threatened by any governmental agency, against the Company.
Item 2. Changes in Securities.
On October 29, 1999 the Company issued 100,000 shares
of common stock to Mr. M. Wilson who exercised stock options.
The purchase price of the shares was $90,397. The shares were
issued under the exemption provided by Section 4(2) of the
Securities Act. The individual was informed of the risks
involved in an investment in the Company and had all
information about the Company that the individual needed to
make an informed investment in the Company. All shares bear
restrictive legends.
On February 8, 2000, a Director, Mr. J. Larmer was
issued 50,000 stock options at a purchase price of Cdn $1.69
per share.
During the year a Director, Mr. G. Cobbe resigned and
100,000 stock options expired. These options were at a
purchase price of Cdn $1.60 per share. In addition, 23,768
stock options of a former employee expired. These options were
at a purchase price of Cdn $1.28 per share.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 4. Other Information.
None
Item 5. Exhibits and Reports on Form 8-K.
A. Exhibits
3 (1) Memorandum and Articles of Incorporation, as
amended.*
4 (1) Parts 7, 10, 12, and 27 of the Memorandum
and Articles of Incorporation, as amended, set
forth in Exhibit 3.*
10 (1) Property lease dated December 8, 1999
between Jersey Investments, Inc. and the Company
filed electronically herewith.
10 (2) Property lease dated August 6, 1999 between
David Wood and the Company filed electronically
herewith.
11 Computation of per-share income Treasury Stock
Method of the Company filed electronically
herewith.
27 Financial Data Schedule filed electronically
herewith.
<PAGE> 30
* Incorporated by reference to the Company's Form 10-SB filed with the SEC on
July 31, 1998.
B. Reports on Form 8-K
The Company filed no reports on Form 8-K
during the third quarter of Fiscal 2000.
<PAGE> 31
Signature
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on behalf by the undersigned, hereunto duly authorized.
Dated: May 12, 2000
Global Election Systems Inc.
By: /s/ Howard T. Van Pelt
-----------------------
Howard T. Van Pelt, President,
Chief Executive Officer and
Chief Financial Officer
<PAGE> 32
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3(1) Memorandum and Articles of Incorporation, as amended.*
4(1) Parts 7, 10, 12, and 27 of the Memorandum and Articles of
Incorporation, as amended, set forth in Exhibit 3.*
10(1) Property lease dated December 8, 1999 between Jersey Investments,
Inc. and the Company filed electronically herewith.
10(2) Property lease dated August 6, 1999 between David Wood and the
Company filed electronically herewith.
11 Computation of per-share income Treasury Stock Method of the
Company filed electronically herewith.
27 Financial Data Schedule filed electronically herewith.
</TABLE>
* Incorporated by reference to the Company's Form 10-SB filed with the SEC on
July 31, 1998.
<PAGE> 1
EXHIBIT 10.1
Texas Association of Realtors(R)
-----------------------------
IMPROVED PROPERTY COMMERCIAL LEASE
USE OF THIS FORM BY PERSONS WHO ARE NOT MEMBERS OF THE TEXAS ASSOCIATION
OF REALTORS(R) IS NOT AUTHORIZED
(C)TEXAS ASSOCIATION OF REALTORS(R), INC. 1998
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
NO. PARAGRAPH DESCRIPTION PG.
- --- --------------------- ---
<S> <C> <C>
1 Parties 2
2 Leased Premises 2
3 Term 2
A Term
B Delay of Occupancy
4 Rent and Expenses 2
A Base Monthly Rent
B Prorated Rent
C Additional Rent
D Place of Payment
E Method of Payment
F Late Charges
G Returned Checks
5 Security Deposit 3
6 Taxes 3
7 Utilities 3
8 Tenant's Insurance 3
9 Use and Hours 4
A Tenant's Normal Business Hours
B Building Operating Hours
10 Legal Compliance 4
11 Signs 4
12 Access by Landlord 5
13 Move-In Condition 5
14 Move-Out Condition 5
15 Maintenance and Repairs 5
A Cleaning
B Repairs of Conditions Caused by a Party
C Repair and Maintenance Responsibility
D Repair Persons 6
E HVAC Service Contract
F Common Areas
G Notice of Repairs
H Failure to Repair
16 Alterations 7
17 Liens 7
18 Liability 7
19 Indemnity 7
20 Default 7
21 Abandonment, Interruption of Utilities, Lockout 8
</TABLE>
<TABLE>
<CAPTION>
NO. PARAGRAPH DESCRIPTION PG.
- --- --------------------- ---
<S> <C> <C>
22 Holdover 8
23 Landlord's Lien 8
24 Assignment and Subletting 8
25 Relocation 8
26 Subordination 8
27 Estoppel Certificates 9
28 Casualty Loss 9
29 Condemnation 9
30 Attorney's Fees 9
31 Representations 9
32 Broker's Fees 10
33 Addenda 10
34 Agreement of Parties 10
35 Notices 10
36 Special provisions 11
</TABLE>
ADDENDA & EXHIBITS
(CHECK ALL THAT APPLY)
<TABLE>
<S> <C>
[ ] Property Description Exhibit
[ ] Addendum for Broker's Fee
[ ] Expense Addendum for Single-Tenant Property
[ ] Net Addendum
[ ] Percentage Rent Addendum
[ ] Parking Addendum
[ ] Landlord's Rules and Regulations
[ ] Commercial Lease Guaranty
[ ] Optional Space Addendum
[ ] Leasehold Construction Addendum (Landlord to Complete Construction)
[ ] Leasehold Construction Addendum (Tenant to Complete Construction)
[ ] .
[ ] .
</TABLE>
Initialed for Identification by Tenants: , , and Landlord:
Page 1 of 11
<PAGE> 2
Texas Association of Realtors(R)
-----------------------------
IMPROVED PROPERTY COMMERCIAL LEASE
USE OF THIS FORM BY PERSONS WHO ARE NOT MEMBERS OF THE TEXAS ASSOCIATION
OF REALTORS(R) IS NOT AUTHORIZED
(C)TEXAS ASSOCIATION OF REALTORS(R), INC. 1998
- --------------------------------------------------------------------------------
1. PARTIES: The parties to this lease are the owner of the Property Jersey
Investments, Inc. (Landlord) and the tenant Global Election Systems, Inc.
(Tenant).
2. LEASED PREMISES: Landlord leases to Tenant the following described real
property, known as the "leased premises," along with all its improvements:
Number 1611-B (suite or unit), containing approximately 13,050 square feet
of rentable area, located within the Expansion of 1611 Wilmeth Rd.
(building or complex name) on the land known as 1611 Wilmeth Rd., McKinney,
Texas 75069 (address, city, state) which is legally described as Bray
Central Two, Block D, Lot 1E and [ ] or X as described on attached exhibit.
"Property" means the building or complex in which the leased premises are
located, inclusive of any common areas, drives, parking areas, and walks.
The parties agree that the rentable area of the leased premises may not
equal the actual or useable area within the leased premises and may include
an allocation of common areas in the Property.
3. TERM:
A. Term: The term of this lease is 60 months, commencing on May 1, 2000
(Commencement Date) and ending on April 30, 2005 (Expiration Date).
B. Delay of Occupancy: If Tenant is unable to occupy the leased premises
on the Commencement Date because of construction on the leased
premises to be completed by Landlord that is not substantially
complete or a prior tenant's holding over of the leased premises,
Landlord will not be liable to Tenant for such delay and this lease
will remain enforceable. In the event of such a delay, the
Commencement Date will automatically be extended to the date Tenant is
able to occupy the Property and the Expiration Date will also be
extended by a like number of days, so that the term of this lease
remains unchanged. If Tenant is unable to occupy the leased premises
after the 30th day after the Commencement Date because of construction
on the leased premises to be completed by Landlord that is not
substantially complete or a prior tenant's holding over of the leased
premises, Tenant may terminate this lease by giving written notice to
Landlord before the leased premises become available to be occupied by
Tenant and Landlord will refund to Tenant any amounts paid to Landlord
by Tenant. This Paragraph 3B does not apply to any delay in occupancy
caused by cleaning or repairs.
4. RENT AND EXPENSES:
A. Base Monthly Rent: On or before the first day of each month during
this lease, Tenant will pay Landlord base monthly rent in the amount
of $9,189.37. The first full base monthly rent is due on or before
May 1, 2000.
B. Prorated Rent: If the Commencement Date is on a day other than the
first day of a month, Tenant will pay Landlord as prorated rent, an
amount equal to the base monthly rent multiplied by the following
fraction: the number of days from the Commencement Date to the first
day of the following month divided by the number of days in a month in
which this lease commences. The prorated rent is due on or before the
Commencement Date.
C. Additional Rent: In addition to any base monthly rent or prorated
rent, Tenant will pay Landlord all other amounts as provided by the
attached:
[ ] (1) Net Addendum
[ ] (2) Percentage Rent Addendum
[ ] (3) Expense Reimbursement Addendum
[X] (4) Expense Addendum for Single-Tenant Property
[ ] (5) Parking Addendum
[ ] (6)
------------------------------------------------------------------
Initialed for Identification by Tenants: , , and Landlord:
Page 2 of 11
<PAGE> 3
Commercial Lease concerning: 1611 Wilmeth Rd. 1611-B
D. Place of Payment: Tenant will remit all amounts due Landlord under
this lease to Royce Smith at PO Box 2770, McKinney, Texas 75069 or to
such other person or at such other place as Landlord may designate in
writing.
E. Method of Payment: Tenant must pay all rent timely without demand,
deduction, or offset, except as permitted by law or this lease. Time
is of the essence for the payment of rent. If Tenant fails to timely
pay any amounts due under this lease or if any check of Tenant is
returned to Landlord by the institution on which it was drawn,
Landlord may require Tenant to pay, in addition to any other available
remedy, all amounts due under this lease by certified funds by
providing written notice to Tenant.
F. Late Charges: If Landlord does not actually receive a rent payment at
the designated place of payment within 10 days after the date the rent
is due, The mailbox is not the agent for receipt for Landlord. The
late charge is a cost associated with the collection of rent and
Landlord's acceptance of a late charge does not waive Landlord's
rights to exercise remedies under Paragraph 20. Late charge $30 a day.
G. Returned Checks: Tenant will pay $25.00 (not to exceed $25) for each
check Tenant tenders to Landlord which is returned by the institution
on which it is drawn for any reason, plus any late charges until
Landlord receives payment.
5. SECURITY DEPOSIT: Upon execution of this lease, Tenant will pay a security
deposit to Landlord in the amount of 9189.37 N/A . Landlord may apply the
security deposit to any amounts owed by Tenant under this lease. If
Landlord applies any part of the security deposit during any time this
lease is in effect to amounts owed by Tenant, Tenant must, within 10 days
after receipt of notice from Landlord, restore the security deposit to the
amount stated. Within a reasonable time after this lease ends, Landlord
will refund the security deposit to Tenant less any amounts applied toward
amounts owed by Tenant.
6. TAXES: Unless otherwise agreed by the parties, Tenant will pay all real
property ad valorem taxes assessed against the leased premises.
7. UTILITIES: Tenant will pay all charges for the use of all utility services
to the leased premises and any connection charges except the following
which will be paid by Landlord: N/A
N/A
NOTICE: Tenant should determine if any and all necessary utilities (e.g.,
water, gas, electricity, telephone, sewer, etc.) are available to the
leased premises, are adequate for Tenant's intended use, and the cost to
provide the necessary utilities.
8. TENANT'S INSURANCE:
A. During all times this lease is in effect, Tenant must maintain in full
force and effect:
(1) public liability insurance from an insurer acceptable to
Landlord in an amount not less than $1,000,000.00 on an
occurrence basis naming Landlord as an additional insured;
and
(2) personal property damage insurance for Tenant's business
operations on the leased premises from an insurer acceptable
to Landlord in an amount not less than $1,000,000.00 on an
occurrence basis.
B. Before the Commencement Date, Tenant must provide Landlord with a copy
of the insurance certificates evidencing the required coverage. If the
insurance coverage changes in any manner or degree at any time this
lease is in effect, Tenant must provide Landlord a copy of an
insurance certificate evidencing such change within 10 days of the
change.
C. If Tenant fails to maintain the required insurance in full force and
effect at all times this lease is in effect, Landlord may:
(1) purchase such insurance on behalf of Tenant and Tenant must
immediately reimburse Landlord for such expense; or
(2) exercise Landlord's remedies under Paragraph 20.
D. If there is an increase in Landlord's insurance premiums for the
leased premises or Property or its contents that is caused by Tenant,
Tenant's use of the leased premises, or any improvements made by or
for Tenant, Tenant will, for each year this lease is in effect, pay
Landlord the increase immediately after Landlord notifies Tenant of
the increase.
Initialed for Identification by Tenants: , , and Landlord:
Page 3 of 11
<PAGE> 4
Commercial Lease concerning: 1611 Wilmeth Rd. 1611-B
9. USE AND HOURS: Tenant may use the leased premises for the following
purpose and no other: General Office, Warehouse, and Assembly Work
[ ] A. N/A
N/A
[ ] B. N/A
N/A
10. LEGAL COMPLIANCE:
A. Tenant may not use or permit any part of the leased premises to be
used for:
(1) any activity which is a nuisance or is offensive, noisy, or
dangerous;
(3) any activity that violates any applicable law, regulation,
zoning ordinance, restrictive covenant, governmental order,
owners' association rules, tenants' association rules,
Landlord's rules or regulations, or this lease;
(4) any hazardous activity that would require any insurance
premium on the Property or leased premises to increase or that
would void any such insurance;
(5) any activity that violates any applicable federal, state, or
local law, including but not limited to those laws related to
air quality, water quality, hazardous materials, wastewater,
waste disposal, air emissions, or other environmental matters;
(6) the permanent or temporary storage of any hazardous material;
or
(7) N/A
B. "Hazardous material" means any pollutant, toxic substance, hazardous
waste, hazardous material, hazardous substance, solvent, or oil as
defined by any federal, state, or local environmental law,
regulation, ordinance, or rule existing as of the date of this lease
or later enacted.
C.
11. SIGNS:
A.
B. By providing written notice to Tenant before this lease ends,
Landlord may require Tenant, upon move-out and at Tenant's expense,
to remove, without damage to the Property or leased premises, any or
all signs that were placed on the Property or leased premises by or
at the request of Tenant. Any signs that Landlord does not require
Tenant to remove and that are fixtures become the property of the
Landlord and must be surrendered to Landlord at the time this lease
ends.
Initialed for Identification by Tenants: , , and Landlord:
Page 4 of 11
<PAGE> 5
Commercial Lease concerning: 1611 Wilmeth Rd. 1611-B
12. ACCESS BY LANDLORD:
A. During Tenant's normal business hours Landlord may enter the leased
premises for any reasonable purpose, including but not limited to
purposes for repairs, maintenance, alterations, and showing the
leased premises to prospective tenants or purchasers. Landlord may
access the leased premises after Tenant's normal business hours with
Tenant's permission or to complete emergency repairs. Landlord will
not unreasonably interfere with Tenant's business operations when
accessing the leased premises.
B. During the last 60 days of this lease, Landlord may place a "For
Lease" or similarly worded sign in the leased premises.
13.
14. MOVE-OUT CONDITION AND FORFEITURE OF TENANT'S PERSONAL PROPERTY:
A. At the time this lease ends, Tenant will surrender the leased
premises in the same condition as when received, normal wear and
tear excepted. Tenant will leave the leased premises in a clean
condition free of all trash, debris, personal property, hazardous
materials, and environmental contaminants. Before this lease ends,
Tenant [ ] will [X] will not provide Landlord with a report, by an
environmental engineer or assessor acceptable to Landlord, dated not
earlier than 20 days before the date this lease ends that indicates
that no hazardous material or other environmental hazard is on or
affects the leased premises.
B. If Tenant leaves any personal property in the leased premises after
Tenant surrenders possession of the leased premises, Landlord may:
(1) require Tenant, at Tenant's expense, to remove the personal
property by providing written notice to Tenant; or (2) retain such
personal property as forfeited property to Landlord.
C. "Surrender" means vacating the leased premises and returning all
keys and access devices to Landlord. "Normal wear and tear" means
deterioration that occurs without negligence, carelessness,
accident, or abuse.
D. By providing written notice to Tenant before this lease ends,
Landlord may require Tenant, upon move-out and at Tenant's expense,
to remove, without damage to the Property or leased premises, any or
all fixtures that were placed on the Property or leased premises by
or at the request of Tenant. Any fixtures that Landlord does not
require Tenant to remove become the property of the Landlord and
must be surrendered to Landlord at the time this lease ends.
15. MAINTENANCE AND REPAIRS:
A. Cleaning: Tenant must keep the leased premises clean and sanitary
and promptly dispose of all garbage in appropriate receptacles.
[ ] Landlord [X] Tenant will provide, at its expense, reasonable
janitorial services to the leased premises.
B. Repairs of Conditions Caused by a Party: Each party must promptly
repair a condition caused, either intentionally or negligently, by
that party or that party's guests, patrons, invitees, contractors or
permitted subtenants.
C. Repair and Maintenance Responsibility: Except as provided by
Paragraph 15B, the party designated below, at its expense, is
responsible to maintain and repair the following specified items in
the leased premises. The specified items must be maintained in: (i)
clean condition; (ii) good repair; and (iii) operable condition. If
a modification to any of the specified items is required by law or
governmental regulation or order, the party designated to maintain
the item must complete and pay the expense of the modification. The
specified items include and relate only to real property in the
leased premises. Tenant is responsible for the repair and
maintenance of its personal property.
Initialed for Identification by Tenants: , , and Landlord:
Page 5 of 11
<PAGE> 6
Commercial Lease concerning: 1611 Wilmeth Rd. 1611-B
<TABLE>
<CAPTION>
N/A Landlord Tenant
--- -------- ------
<S> <C> <C> <C>
(1) Foundation, exterior walls, roof, and other structural components [ ] [ ] [X]
(2) Glass and windows [ ] [ ] [X]
(3) Fire protection equipment and fire sprinkler systems [ ] [ ] [X]
(4) Exterior & overhead doors, including closure devices, molding, locks, and hardware [ ] [ ] [X]
(5) Grounds maintenance, including landscaping and ground sprinklers [ ] [X] [ ]
(6) Interior doors, including closure devices, frames, molding, locks, and hardware [ ] [ ] [X]
(7) Parking areas and walks [ ] [ ] [X]
(8) Plumbing systems, drainage systems, electrical systems [ ] [ ] [X]
(including ballast and lamp replacement) & mechanical systems,
except those specifically designated otherwise
(9) Heating Ventilation and Air Conditioning (HVAC) systems [ ] [X] [ ]
(10) Signs [ ] [ ] [X]
(11) Extermination and pest control, excluding wood-destroying insects [ ] [ ] [X]
(12) Storage yards and storage buildings [ ] [ ] [X]
(13) Wood-destroying insect treatment and repairs [ ] [ ] [X]
(14) Cranes and related systems [ ] [ ] [X]
(15) [ ] [ ] [ ]
(16) [ ] [ ] [ ]
(17) All other items and systems [ ] [ ] [ ]
</TABLE>
D. Repair Persons: Repairs must be completed by trained, qualified, and
insured repair persons.
E. HVAC Service Contract: If Tenant is responsible to maintain the HVAC
system, Tenant [ ] is [X] is not required to maintain, at its
expense, a regularly scheduled maintenance and service contract for
the HVAC system. The maintenance and service contract must be
purchased from a HVAC maintenance company that regularly provides
such contracts to similar properties. If Tenant fails to maintain a
required HVAC maintenance and service contract in effect at all
times during this lease, Landlord may do so and charge Tenant the
expense of such a maintenance and service contract or exercise
Landlord's remedies under Paragraph 20.
F.
Initialed for Identification by Tenants: , , and Landlord:
Page 6 of 11
<PAGE> 7
Commercial Lease concerning: 1611 Wilmeth Rd. 1611-B
G. Notice of Repairs: Tenant must promptly notify Landlord of any item
that is in need of repair and that is Landlord's responsibility to
repair. All requests for repairs to Landlord must be in writing.
H. Failure to Repair: Landlord must make a repair for which Landlord is
responsible within a reasonable period of time after Tenant provides
Landlord written notice of the needed repair. If Tenant fails to
repair or maintain an item for which Tenant is responsible within 10
days after Landlord provides Tenant written notice of the needed
repair or maintenance, Landlord may: (1) repair or maintain the
item, without liability for any damage or loss to Tenant, and tenant
must immediately reimburse Landlord for the cost to repair or
maintain; or (2) exercise Landlord's remedies under Paragraph 20.
16. ALTERATIONS:
A. Tenant may not alter, improve, or add to the Property or the leased
premises without Landlord's written consent. Landlord will not
unreasonably withhold consent for the Tenant to make reasonable
alterations, modifications, or improvements to the leased premises.
B. Tenant may not alter any locks or any security devices on the
Property or the leased premises without Landlord's consent. If
Landlord authorizes the changing, addition, or rekeying of any locks
or other security devices, Tenant must immediately deliver the new
keys and access devices to Landlord.
C. If a governmental order requires alteration or modification to the
leased premises, the party obligated to maintain and repair the
item to be modified or altered as designated in Paragraph 15 will,
at its expense, modify or alter the item in compliance with the
order.
D. Any alterations, improvements, fixtures or additions to the Property
or leased premises installed by either party during the term of this
lease will become Landlord's property and must be surrendered to
Landlord at the time this lease ends, except for those fixtures
Landlord requires Tenant to remove under Paragraph 14 or if the
parties agree otherwise in writing.
17. LIENS: Tenant may not do anything that will cause the title of the
Property or leased premises to be encumbered in any way. If Tenant causes
a lien to be filed against the Property or leased premises, Tenant will
within 20 days after Landlord demands Tenant to take action to remove the
lien, pay the lien or take whatever action is necessary to cause the lien
to be released of record. Tenant will provide a copy of any release Tenant
obtains pursuant to this paragraph.
18. LIABILITY: To the extent permitted by law, Landlord is not responsible to
Tenant or Tenant's employees, patrons, guests, or invitees for any
damages, injuries or losses to person or property caused by:
A. an act, omission, or neglect of: Tenant; Tenant's agent; Tenant's
guest; Tenant's employees; Tenant's patrons; Tenant's invitees; or
any other tenant on the Property;
B. fire, flood, water leaks, ice, snow, hail, winds, explosion, smoke,
riot, strike, interruption of utilities, theft, burglary, robbery,
assault, vandalism, other persons, environmental contaminants, or
other occurrences or casualty losses.
19. INDEMNITY: Tenant will indemnify and hold Landlord harmless from any
property damage, personal injury, suits, actions, liabilities, damages,
cost of repairs or service to the leased premises or Property, or any
other loss caused, negligently or otherwise, by Tenant or Tenant's
employees, patrons, guests, or invitees.
20. DEFAULT:
A. If Landlord fails to comply with this lease within 30 days after
Tenant notifies Landlord of Landlord's failure to comply, Landlord
will be in default and Tenant may seek any remedy provided by law.
If, however, Landlord's non-compliance reasonably requires more than
30 days to cure, Landlord will not be in default if the cure is
commenced within the 30 day period and is diligently pursued.
B. If Landlord does not actually receive at the place designated for
payment any rent due under this lease within 5 days after it is due,
Tenant will be in default. If Tenant fails to comply with this lease
for any other reason within 10 days after Landlord notifies Tenant
of its failure to comply, Tenant will be in default.
Initialed for Identification by Tenants: , , and Landlord:
Page 7 of 11
<PAGE> 8
Commercial Lease concerning: 1611 Wilmeth Rd. 1611-B
C. If Tenant is in default, Landlord may: (i) terminate Tenant's right
to occupy the leased premises by providing Tenant with at least 3
days written notice; and (ii) accelerate all rents which are payable
during the remainder of this lease or any renewal period without
notice or demand. Landlord will attempt to mitigate any damage or
loss caused by Tenant's breach. If Tenant is in default, Tenant will
be liable for:
(1) any lost rent;
(2) Landlord's cost of reletting the leased premises, including
brokerage fees, advertising fees, and other fees necessary to
relet the leased premises;
(3) repairs to the leased premises for use beyond normal wear and
tear;
(4) all Landlord's costs associated with eviction of Tenant, such
as attorney's fees, court costs, and prejudgment interest;
(5) all Landlord's costs associated with collection of rent such
as collection fees, late charges, and returned check charges;
(6) cost of removing any equipment and trade-fixtures left on the
leased premises by Tenant;
(7) cost to remove any trash, debris, personal property, hazardous
materials, or environmental contaminants left by Tenant or
Tenant's employees, patrons, guests, or invitees in the leased
premises or Property; and
(8) any other recovery to which Landlord may be entitled by law.
21. ABANDONMENT, INTERRUPTION OF UTILITIES, REMOVAL OF TENANT'S PROPERTY, AND
LOCKOUT: Chapter 93 of the Texas Property Code governs the rights and
obligations of the parties with regard to: (a) abandonment of the leased
premises; (b) interruption of utilities; (c) removal of Tenant's personal
property; and (d) "lock-out" of Tenant.
22. HOLDOVER: If Tenant fails to vacate the leased premises at the time this
lease ends, Tenant will become a tenant-at-will and must vacate the leased
premises immediately upon receipt of demand from Landlord. No holding over
by Tenant, with or without the consent of Landlord, will extend this
lease. Tenant will indemnify Landlord and any prospective Tenants for any
and all damages caused by the holdover. Rent for any holdover period will
be the base monthly rent.
23. LANDLORD'S LIEN AND SECURITY INTEREST: To secure Tenant's performance
under this lease, Tenant grants to Landlord a lien and security interest
against all of Tenant's nonexempt personal property that is in the leased
premises or Property. This lease is a security agreement for the purposes
of the Uniform Commercial Code. Landlord may file a copy of this lease as
a financing statement.
24. ASSIGNMENT AND SUBLETTING: Tenant may not assign this lease or sublet any
part of the leased premises without Landlord's written consent. An
assignment of this lease or subletting of the leased premises without
Landlord's written consent is voidable by Landlord. If Tenant assigns this
lease or sublets any part of the leased premises, Tenant will remain
liable for all of Tenant's obligations under this lease regardless if the
assignment or sublease is made with or without the consent of Landlord.
25.
26. SUBORDINATION:
A. This lease and Tenant's leasehold interest are and will be subject,
subordinate, and inferior to:
(1) any lien, encumbrance, or ground lease now or hereafter placed
on the leased premises or the Property by Landlord;
(2) all advances made under any such lien, encumbrance, or ground
lease;
(3) the interest payable on any such lien or encumbrance;
(4) any and all renewals and extensions of any such lien,
encumbrance, or ground lease;
(5) any restrictive covenant affecting the leased premises or the
Property; and
(6) the rights of any owners' association affecting the leased
premises or Property.
Initialed for Identification by Tenants: , , and Landlord:
Page 8 of 11
<PAGE> 9
Commercial Lease concerning: 1611 Wilmeth Rd. 1611-B
B. Tenant must, on demand, execute any instrument subordinating this
lease as Landlord may request, provided that such subordination is
made on the condition that this lease and Tenant's rights under this
lease are recognized by the lien-holder.
27. ESTOPPEL CERTIFICATES: Within 10 days after receipt of a written request
from Landlord, Tenant will execute and deliver to Landlord an estoppel
certificate that identifies: (a) when this lease commences and ends; (b)
any amendments to this lease; (c) any rights that Tenant may have to
extend this lease or purchase the Property or leased premises; (d) any
default by Landlord; and (e) any other information reasonably requested in
the certificate.
28. CASUALTY LOSS:
A. Tenant must immediately notify Landlord of any casualty loss in the
leased premises. Within 20 days after receipt of Tenant's notice of
a casualty loss, Landlord will notify Tenant if the leased premises
are less than or more than 50% unusable, on a per square foot basis,
and if Landlord can substantially restore the leased premises within
120 days after Tenant notifies Landlord of the casualty loss.
B. If the leased premises are less than 50% unusable and Landlord can
substantially restore the leased premises within 120 days after
Tenant notifies Landlord of the casualty, Landlord will restore the
leased premises to substantially the same condition as before the
casualty. If Landlord fails to substantially restore within the time
required, Tenant may terminate this lease.
C. If the leased premises are more than 50% unusable and Landlord can
substantially restore the leased premises within 120 days after
Tenant notifies Landlord of the casualty, Landlord may: (1)
terminate the lease; or (2) restore the leased premises to
substantially the same condition as before the casualty. If Landlord
chooses to restore and does not substantially restore the leased
premises within the time required, Tenant may terminate this lease.
D. If Landlord notifies Tenant that Landlord cannot substantially
restore the leased premises within 120 days after Tenant notifies
Landlord of the casualty loss, Landlord may: (1) choose not to
restore and terminate this lease; or (2) choose to restore, notify
Tenant of the estimated time to restore, and give Tenant the option
to terminate this lease by notifying Landlord within 10 days.
E. If this lease does not terminate because of a casualty loss, rent
will be reduced from the date Tenant notifies Landlord of the
casualty loss to the date the leased premises are substantially
restored by an amount proportionate to the extent the leased
premises are unusable.
29. CONDEMNATION: If after a condemnation or purchase in lieu of condemnation
the leased premises are totally unusable for the purposes stated in this
lease, this lease will terminate. If after a condemnation or purchase in
lieu of condemnation the leased premises are partially unusable for the
purposes stated in this lease, this lease will continue and rent will be
reduced in an amount proportionate to the extent the leased premises are
unusable. Any condemnation award or proceeds in lieu of condemnation are
the property of Landlord and Tenant has no claim to such proceeds or
award. Tenant may seek compensation from the condemning authority for its
moving expenses and damages to Tenant's personal property.
30. ATTORNEY'S FEES: Any person who is a prevailing party in any legal
proceeding brought under or related to the transaction described in this
lease is entitled to recover prejudgment interest, reasonable attorney's
fees, and all other costs of litigation from the non-prevailing party.
31. REPRESENTATIONS: Tenant's statements in this lease and any application for
rental are material representations relied upon by Landlord. Each party
signing this lease represents that he or she is of legal age to enter into
a binding contract and is authorized to sign the lease. If Tenant makes
any misrepresentation in this lease or in any application for rental,
Tenant is in default. Landlord is not aware of any material defect on the
Property that would affect the health and safety of an ordinary person or
any environmental hazard on or affecting the Property that would affect
that health or safety of an ordinary person, except: N/A
N/A
Initialed for Identification by Tenants: , , and Landlord:
Page 9 of 11
<PAGE> 10
Commercial Lease concerning: 1611 Wilmeth Rd. 1611-B
32. BROKERS' FEES:
A. RE/MAX North Central (Broker A) represents
[ ] [X] Landlord [ ] Tenant Broker A's fees will be paid pursuant to
(choose 1 or 2):
[ ] (1) a separate written agreement between Broker
[X] A and Landlord [ ] Tenant [ ] Broker N/A.
[ ] (2) the attached Addendum for Broker's Fee.
B. N/A (Broker B) represents
[ ] [ ] Landlord [ ] Tenant Broker B's fees will be paid pursuant to
(choose 1 or 2):
[ ] (1) a separate written agreement between Broker B and
[ ] [ ] Landlord [ ] Tenant [ ] Broker N/A.
[ ] (2) the attached Addendum for Broker's Fee.
C. N/A (Broker C) represents
[ ] [ ] Landlord [ ] Tenant Broker C's fees will be paid pursuant to
(choose 1 or 2):
[ ] (1) a separate written agreement between Broker C and
[ ] Landlord [ ] Tenant [ ] Broker N/A.
[ ] (2) the attached Addendum for Broker's Fee.
33. ADDENDA: Incorporated into this lease are the addenda, exhibits and other
information marked in the Addenda and Exhibit section of the Table of
Contents. If Landlord's Rules and Regulations are made part of this lease,
Tenant agrees to comply with the Rules and Regulations as Landlord may, at
its discretion, amend from time to time.
34. AGREEMENT OF PARTIES:
A. Entire Agreement: This lease contains the entire agreement between
Landlord and Tenant and may not be changed except by written
agreement.
B. Binding Effect: This lease is binding upon and inures to the benefit
of the parties and their respective heirs, executors,
administrators, successors, and permitted assigns.
C. Joint and Several: All Tenants are jointly and severally liable for
all provisions of this lease. Any act or notice to, or refund to, or
signature of, any one or more of the Tenants regarding any term of
this lease, its renewal, or its termination is binding on all
Tenants.
D. Controlling Law: The laws of the State of Texas govern the
interpretation, performance, and enforcement of this lease.
E. Severable Clauses: If any clause in this lease is found invalid or
unenforceable by a court of law, the remainder of this lease will
not be affected and all other provisions of this lease will remain
valid and enforceable.
F. Waiver: Landlord's delay, waiver, or non-enforcement of
acceleration, contractual or statutory lien, rental due date, or any
other right will not be deemed a waiver of any other or subsequent
breach by Tenant or any other term in this lease.
G. Quiet Enjoyment: Provided that Tenant is not in default of this
lease, Landlord covenants that Tenant will enjoy possession and use
of the leased premises free from serious interference.
H. Force Majeure: If Landlord's performance of a term in this lease is
delayed by strike, lock-out, shortage of material, governmental
restriction, riot, flood, or any cause outside Landlord's control,
the time for Landlord's performance will be abated until after the
delay.
35. NOTICES: All notices under this lease must be in writing and are effective
when hand-delivered, sent by mail, or sent by facsimile transmission to:
Tenant Landlord
at the address of the leased premises. at
------------------------------
------------------------------
Fax:
----------------------------
with a copy to: with a copy to:
------------------------ -----------------
at at
------------------------------------ -----------------------------
------------------------------------ -----------------------------
Fax: Fax:
----------------------------------- ----------------------------
Initialed for Identification by Tenants: , , and Landlord:
Page 10 of 11
<PAGE> 11
Commercial Lease concerning: 1611 Wilmeth Rd. 1611-B
36. SPECIAL PROVISIONS:
REAL ESTATE BROKERS ARE NOT QUALIFIED TO RENDER LEGAL ADVICE, PROPERTY
INSPECTIONS, SURVEYS, ENGINEERING STUDIES (E.G. STUDIES OF THE STRUCTURES,
DRAINAGE, AND SOIL CONDITIONS), ENVIRONMENTAL ASSESSMENTS, TAX ADVICE, FINANCIAL
ADVICE, OR INSPECTIONS TO DETERMINE COMPLIANCE WITH ZONING, GOVERNMENTAL
REGULATIONS, OR ANY LAW (E.G., ADA, TEXAS ARCHITECTURAL BARRIERS STATUTE, ETC.).
THE PARTIES SHOULD SEEK EXPERTS TO RENDER SUCH SERVICES. SELECTION OF SUCH
EXPERTS IS THE RESPONSIBILITY OF THE PARTIES AND NOT THE REAL ESTATE BROKER. THE
TERMS OF THIS LEASE ARE NEGOTIABLE AMONG THE PARTIES. THIS IS INTENDED TO BE A
LEGAL AGREEMENT BINDING UPON FINAL ACCEPTANCE. READ IT CAREFULLY. IF YOU DO NOT
UNDERSTAND THE EFFECT OF THIS LEASE, CONSULT YOUR ATTORNEY BEFORE SIGNING.
<TABLE>
<S> <C>
SIGNED: "HOWARD T. VAN PELT" 12/8/99
- -------------------------------------------- -----------------------------------------------
Landlord Jersey Investments, Inc. Date Tenant Global Election Systems, Inc. Date
By
----------------------------------------- -----------------------------------------------
Royce or Mike Smith Tenant By: Howard Van Pelt Date
as for Landlord
-----------------------------
</TABLE>
Initialed for Identification by Tenants: , , and Landlord:
Page 11 of 11
<PAGE> 12
Texas Association of Realtors(R)
-----------------------------
LEASEHOLD CONSTRUCTION ADDENDUM
LANDLORD TO COMPLETE CONSTRUCTION
USE OF THIS FORM BY PERSONS WHO ARE NOT MEMBERS OF THE TEXAS ASSOCIATION
OF REALTORS(R) IS NOT AUTHORIZED
(C)TEXAS ASSOCIATION OF REALTORS(R), INC. 1998
- --------------------------------------------------------------------------------
ADDENDUM TO THE COMMERCIAL LEASE BETWEEN THE UNDERSIGNED PARTIES CONCERNING THE
LEASED PREMISES AT 1611 Wilmeth Road 1611-B
McKinney Texas 75069
A. On or before May 1, 2000, Landlord will substantially complete the
improvements to the leased premises as described below.
[X] (1) Landlord will complete the following improvements:
Per interior plans to be delivered to Landlord within sixty
(60) days after the executed date of this lease agreement.
[X] (2) On or before January 1, 2000, Tenant will specify in a
separate written notice to Landlord the improvements that
Tenant desires Landlord to complete. If Landlord objects to
any desired improvement, Tenant will promptly amend Tenant's
notice to comply with Landlord's objections. Landlord will not
unreasonably object to Tenant's desired improvements.
B. On or before January 15, 2000, Landlord will notify Tenant of the total
cost to complete the improvements described in Paragraph A, including but
not limited to costs of construction, permits, and plans. The total cost
to complete the improvements may not exceed $189,709.00 (maximum cost).
Landlord will pay $189,709.00 of the cost to complete the improvements and
Tenant will pay the remainder. If the total cost to complete the
improvements exceeds the maximum cost, the lease will terminate and have
no further effect unless a party notifies the other party within 10 days
after Landlord notifies Tenant of the cost to complete the improvements
that it will pay the excess.
C. Unless otherwise agreed by the parties in writing, any amount required to
be paid by Tenant under this addendum must be paid by Tenant to Landlord
before construction of the improvements commences.
D. All construction required by this addendum will be performed by trained
and qualified persons in a workman-like manner and will comply with
applicable building codes, local ordinances governmental regulations, and
statutes (e.g. ADA).
[X] Landlord Tenant will, at its expense, obtain any required
certificate of occupancy.
E. Tenant may, at reasonable times during construction, inspect the
construction of the improvements. Tenant may object to any deficiencies in
the completion of the improvements by providing specific written notice to
Landlord and Landlord will promptly cure the deficiencies. Upon completion
of the improvements, Tenant will acknowledge in writing (e.g., TAR No.
2113) that the improvements have been completed and that Tenant accepts
the leased premises for the purpose of the lease.
F. Paragraph 3B of the lease governs any delay in the commencement of the
lease or occupancy by Tenant caused by the construction of the
improvements.
G. Special Provisions:
<TABLE>
<S> <C>
SIGNED: "HOWARD T. VAN PELT"
- -------------------------------------------- -----------------------------------------------
Landlord Jersey Investments, Inc. Date Tenant Global Election Systems, Inc. Date
By
----------------------------------------- -----------------------------------------------
Royce or Mike Smith Tenant By: Howard Van Pelt Date
as for Landlord
------------------------------
</TABLE>
<PAGE> 13
Page 1 of 1
Texas Association of Realtors(R)
-----------------------------
EXPENSE ADDENDUM FOR SINGLE-TENANT PROPERTY
USE OF THIS FORM BY PERSONS WHO ARE NOT MEMBERS OF THE TEXAS ASSOCIATION
OF REALTORS(R) IS NOT AUTHORIZED
(C)TEXAS ASSOCIATION OF REALTORS(R), INC. 1998
- --------------------------------------------------------------------------------
ADDENDUM TO THE COMMERCIAL LEASE BETWEEN THE UNDERSIGNED PARTIES CONCERNING THE
LEASED PREMISES AT 1611 Wilmeth Road 1611-B
McKinney Texas 75069
A. Taxes: "Taxes means all the real property ad valorem taxes assessed
against the leased premises and Property (choose 1 or 2).
[X] (1) Tenant Reimburses Landlord: Each year during the term of the
above-referenced lease Tenant will reimburse Landlord for all taxes
assessed against the leased premises and Property for that year.
Taxes will be prorated to the Commencement Date of the lease for the
first year of the lease and through the Expiration Date for the last
year. The reimbursements are due immediately upon Tenant's receipt
of Landlord's notice accompanied by a copy of the tax statement for
that year. If tax statements for the last year of the lease are not
available at the time the lease terminates, Tenant will, before
Tenant vacates the leased premises, pay Landlord an amount for the
prorated taxes for the last year based on the prior year's tax
statements, and no subsequent adjustment will be made.
[X] (2) Tenant Pays Direct: During all times the above-referenced lease is
in effect, Tenant must maintain, at Tenant's expense, property
insurance in full force and effect naming Landlord as a named
insured from an insurance company acceptable to Landlord. On or
before the Commencement Date of the above-referenced lease and on or
before each anniversary of the Commencement Date, Tenant must
provide Landlord with a copy of the insurance certificate(s)
evidencing the required coverage.
C. Special Provisions:
<TABLE>
<S> <C>
SIGNED: "HOWARD T. VAN PELT"
- -------------------------------------------- -----------------------------------------------
Landlord Jersey Investments, Inc. Date Tenant Global Election Systems, Inc. Date
By
----------------------------------------- -----------------------------------------------
Royce or Mike Smith Tenant By: Howard Van Pelt Date
as for Landlord
------------------------------
</TABLE>
<PAGE> 14
Page 1 of 1
RE/MAX NORTH CENTRAL
EXHIBIT C
RENEWAL OPTIONS
PROPERTY ADDRESS OR DESCRIPTION: 1611 WILMETH RD, MCKINNEY, TEXAS 75069
DATE OF LEASE: MARCH 4, 1997
1. OPTION(S) TO EXTEND TERM
Landlord hereby grants to Tenant TWO option(s) [the "Option(s)"] to extend
the Lease Term for additional term(s) of 5 years each [the
"Extension(s)"], on the same terms, conditions and covenants set forth in
the Lease Agreement, except as provided below. Each Option shall be
exercised only by written notice delivered to the Landlord at least NINETY
(90) days before the expiration of the Lease Term or the preceding
Extension of the Lease Term. If Tenant fails to deliver Landlord written
notice of the exercise of an Option within the prescribed time period,
such Option and any succeeding Options shall lapse, and there shall be no
further right to extend the Lease Term. Each Option shall be exercisable
by Tenant on the express condition that at the time of the exercise, and
at all times prior to the commencement of such Extension(s), Tenant shall
not be in default under any of the provisions of this Lease. The foregoing
Option(s) are personal to Tenant and may not be exercised by an assignee
or subtenant.
2. CALCULATION OF RENT
The Base Rent during the Extension(s) shall be determined by one of the
following methods: whichever is lower [INDICATED BY CHECKING THE
APPROPRIATE BOX UPON THE EXECUTION OF THE LEASE AGREEMENT]
[X] (a) Consumer Price Index Adjustment
[X] (b) Fair Rental Value Adjustment
[ ] (c) Fixed Rental Adjustment
A. CONSUMER PRICE INDEX ADJUSTMENT
The monthly rent during the particular Extension shall be determined
by multiplying the monthly installment of Base Rent during the Lease
Term by a fraction determined as follows:
(1) The numerator shall be the latest Index.
(2) The denominator shall be the initial Index.
If such computation would reduce the rent for the particular
Extension, it shall be disregarded, and the rent during the
immediately preceding period shall apply instead.
The Index, as defined herein, shall mean the Consumer Price Index
for Urban Consumers (all items), Dallas/Fort Worth, Texas, area
(1984 = 100) published by the United States Department of Labor,
Bureau of Labor Statistics.
The initial Index shall mean the Index published for the nearest
calendar month preceding the commencement date of the Lease Term.
The latest Index shall mean the Index published for the nearest
calendar month preceding the first day of the Extension.
If a base year other than 1984 is adopted, the Index shall be
converted in accordance with the appropriate conversion factor. If
the Index is discontinued or revised, such other Index or
computation with which it is replaced shall be used in order to
obtain substantially the same results as would have been obtained if
it had not been discontinued or revised.
B. FAIR RENTAL VALUE ADJUSTMENT
The Base Rent shall be increased on the first day of the particular
Extension to the "Fair Rental Value" of the Demised Premises,
determined in the following manner:
(1) If the Landlord and Tenant have not been able to agree on the
Fair Rental Value Adjustment prior to the date the option is
required to be exercised, the rent for the Extension shall be
determined as follows: Within fifteen (15) days following the
exercise of the option, Landlord and Tenant shall endeavor in
god faith to agree upon a single appraiser. If
<PAGE> 15
Landlord and Tenant are unable to agree upon a single
appraiser within said fifteen (15) day period, each shall
then, by written notice to the other, given within ten (10)
days after said fifteen (15) day period, appoint one
appraiser. Within ten (10) days after the two appraisers are
appointed, they shall appoint a third appraiser. If either
Landlord or Tenant fails to appoint its appraiser within the
prescribed time period the single appraiser appointed shall
determine the Fair Rental Value of the Demised Premises. Each
party shall hear the cost of the appraiser appointed by it and
the parties shall share equally the cost of the third
appraiser.
(2) The "Fair Rental Value" of the Demised Premises shall mean the
price that a ready and willing tenant would pay as of the
commencement of the Extension as monthly rent to a ready and
willing landlord of demised premises comparable to the Demised
Premises if such property were exposed for lease on the open
market for a reasonable period of time and taking into account
all of the purposes for which such property may be used and
not just the use proposed to be made of the Demised Premises
by the Tenant. The Fair Rental Value of the Demised Premises
shall be the average of the two of the three appraisals which
are the closest in amount, and the third appraisal shall be
disregarded. In no event shall the rent be reduced by reason
of such computation. If the Fair Rental Value is not
determined prior to the commencement of the Extension, then
Tenant shall continue to pay to Landlord the rent applicable
to the Demised Premises immediately prior to such Extension
until the Fair Rental Value is determined, and when it is
determined, Tenant shall pay to Landlord within ten (10) days
after receipt of such notice the difference between the rent
actually paid by Tenant to Landlord and the new rent
determined hereunder.
C. FIXED ADJUSTMENTS
The Base Rent shall be increased to the following amounts on the
following dates:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
N/A N/A
- ---------------------------------- ---------------------------------------
N/A N/A
- ---------------------------------- ---------------------------------------
N/A N/A
- ---------------------------------- ---------------------------------------
N/A N/A
- ---------------------------------- ---------------------------------------
N/A N/A
- ---------------------------------- ---------------------------------------
</TABLE>
INITIALS: LANDLORD: RDS INITIALS: TENANT: HVP
------------ -------------
MS MES
------------ -------------
<PAGE> 1
EXHIBIT 10.2
GREATER DALLAS ASSOCIATION OF REALTORS(R), INC.
SHORT FORM COMMERCIAL LEASE
State of Texas
County of Grayson
This lease agreement made and entered into by and between
David Wood
P.O. Box 66
Anna, Texas 75495
(hereinafter referred to as "Landlord"), and
Global Election Systems, Inc.
1611 Wilmeth Road
McKinney, Texas 75069
(hereinafter referred to as "Tenant");
WITNESSETH:
Landlord hereby leases to Tenant, and Tenant hereby takes from Landlord the
following described premises situated within the County of Grayson, State of
Texas:
5,000sf metal building located on Highway 75, West side service road near FM 121
in Van Alstyne, Texas
together with all the rights, privileges, easements and appurtenances belonging
to or in any way pertaining to the demised premises for a term of one year
beginning the 1st day of August, 1999, and ending the 31st day of July, 2000,
to be occupied as warehouse space and not otherwise, paying therefor the sum of
Eighteen thousand and no/100-------------------- ($1500.00/month) ($18,000.00)
Dollars, payable upon the conditions and covenants following:
1. Each year during the term of this lease, Landlord shall pay real estate
taxes assessed against the demised premises in an amount equal to the total real
estate taxes assessed against the demised premises in the base year. Each year
during the term of the lease, Tenant shall pay as additional rental, upon
receipt of statement from landlord along with tax statements or verification
from proper authority, his pro rate share of any increase in real estate taxes
over the base year on the property of which the demised premises form a part.
Any increase in real estate taxes for a fractional year shall be prorated. The
base year shall be 1999. Tenant shall also pay all charges for utility services
to the demised premises.
2. Failure of Tenant to surrender the demised premises at the expiration
of the lease constitutes a holding over which shall be construed as a tenancy
from month to month at a rental of $2,500.00 per month.
3. Rent shall be paid in Grayson County, Texas, monthly in advance as the
same shall become due.
<PAGE> 2
4. Tenant has examined and accepts the premises, building, and each
appurtenance thereto in their present condition as suitable for the purposes for
which the same are leased, and agrees to accept the premises regardless of
reasonable deterioration between the date of this lease and the date Tenant
begins occupying the premises.
5. Landlord shall maintain in good repair the roof, foundation and
exterior walls of the building. Tenant agrees to give Landlord written notice of
defects and need for repairs of the roof, foundation or exterior walls. Landlord
shall not be liable to Tenant for damage caused by the premises being or
becoming out of repair until it has been notified of the necessity of repair by
the Tenant and has had reasonable opportunity to repair the same.
6. Tenant shall maintain the premises and equipment, including plate
glass, store front and entrances. Tenant shall, at its expense, keep the
interior of the building, including the plumbing, closets, pipes, fixtures and
air conditioning equipment, if any, in good repair and shall keep water pipes
and connections free from ice and other obstructions. Tenant shall take good
care of the premises and its fixtures and suffer no waste. If Tenant leases an
entire building unit, Tenant shall be responsible for keeping the roof clean and
downspouts open.
All alterations, additions and improvements, except trade fixtures and air
conditioning and heating equipment installed at expense of Tenant, shall become
the property of Landlord and shall remain upon and be surrendered with the
premises as a part thereof on the termination of the lease.
No cooling tower, equipment, or structure of any kind shall be placed on
the roof of the leased premises by Tenant without prior written permission of
Landlord. If such permission is granted, such work or installation shall be done
at Tenant's expense and in such a manner that the roof shall not be damaged
thereby. If it becomes necessary to remove such cooling tower, equipment or
structure, temporarily, so that repairs to the roof can be made, Tenant shall
promptly remove and reinstall the cooling tower, equipment or structure at
Tenant's expense and repair at Tenant's expense any damage resulting from such
removal or reinstallation. Upon termination of this lease, Tenant shall remove
or cause to be removed from the roof any such cooling tower, equipment or
structure, if directed to do so by Landlord or Landlord's agent. Tenant shall
promptly repair at its expense any damage resulting from such removal.
At the termination of this lease, Tenant shall deliver the premises in
good order and condition, natural deterioration and damage by fire, or other
casualty only excepted. Any damage caused by the installation or removal of
Tenant's equipment, trade fixtures, air conditioning and heating equipment,
shall be repaired at Tenant's expense prior to the expiration of the lease term.
All alterations, improvements, additions and repairs made by Tenant shall
be made in a good and workmanlike manner.
7. Tenant shall comply with all ordinances of the municipal corporation or
other governmental authority applicable to such premises because of Tenant's use
of the premises. Tenant, at its expense, shall comply with all orders and
requirements imposed by such governmental authorities during the term of this
lease.
8. Tenant shall not assign this agreement or sublet the premises or any
part thereof or make any improvements or alterations in or to the demised
premises without the prior written consent of Landlord, which consent shall not
be unreasonably withheld. Tenant shall not occupy or allow the premises to be
occupied for any business or purpose deemed extra hazardous because of the
threat of fire or otherwise. If consent is granted to assign or sublet the
premises, Tenant shall remain principal obligor for the fulfillment of each and
every condition of this lease. If consent is granted for the making of
improvements or alterations to the premises, such improvements and alterations
shall not commence until Tenant has furnished to Landlord a certificate of an
insurance company showing coverage in an amount satisfactory to Landlord and
protecting Landlord from liability for injury to any person and damage to any
personal property, on or off the premises, in connection with the making of such
improvements or alterations.
9. In the event the demised premises are partially damaged or destroyed or
rendered partially unfit for occupancy by fire or tornado or other casualty,
Tenant shall give immediate notice to Landlord who may repair the damage and
restore the premises to substantially the condition in which they were
immediately prior to the occurrence of the casualty. Such repairs shall be made
at Landlord's expense. Landlord shall Tenant a fair reduction of rent during the
time the premises
<PAGE> 3
are partially unfit for occupancy. If the premises are totally destroyed or
deemed by the Landlord to be rendered wholly unfit for occupancy by fire,
tornado or other casualty, or if the Landlord shall decide not to repair or
rebuild, this lease shall terminate and the rent shall be paid to the time of
such destruction or casualty.
10. If Tenant defaults in the performance of any obligations or covenants
herein, Landlord may enforce the performance of this lease in any mode provided
by law. This lease may be terminated at Landlord's discretion if such default
continues for a period of 10 days after Landlord notifies Tenant of such default
and of its intention to declare the lease terminated. Such notice shall be sent
by Landlord to Tenant at the demised premises by mail or otherwise. If Tenant
has not completely removed or cured default within the 10 day period, this lease
shall terminate. Thereafter, Landlord or its agents shall have the right,
without further notice or demand, to enter the premises and remove all persons
and property therefrom without being deemed guilty of trespass and without
waiving any other remedies for arrears of rent or breach of covenant. Landlord
or Landlord's agents may resume possession of the premises and relet the same
for the remainder of the term at the best rent obtainable for the account of
Tenant, who shall make good any deficiency.
11. Landlord and its agents shall not be liable to Tenant or to Tenant's
employees, patrons, visitors, invitees, or any other persons for any injury to
any such persons or for any damage to personal property caused by any act,
omission, or neglect of Tenant or Tenant's agents or of any other tenant of the
premises of which demised premises are a part. Tenant agrees to indemnify and
hold Landlord and its agents harmless from any and all claims for such injury
and damage, whether the injury occurs on or off the demised premises.
12. Tenant shall not post or paint any signs at, on or about the premises
or paint the exterior walls of the building except with the prior written
approval of the Landlord. landlord shall have the right to remove any sign or
signs in order to paint the building or premises or to make any repairs or
alterations.
13. If Landlord herein is not the owner of the demised premises, but holds
the property by virtue of another lease, then this sublease is and shall remain
subject to all terms and conditions of such existing lease of the Landlord so
far as they shall be applicable to the demised premises.
14. If Tenant becomes bankrupt or makes a voluntary assignment for the
benefit of creditors or if a receiver is appointed for Tenant, Landlord may
terminate this lease by giving five (5) days written notice to the Tenant of its
intention to do so.
15. If the whole or any substantial part of the demised premises is taken
for any public or quasi-public use under any governmental law, ordinance or
regulation or by right of eminent domain or should the premises be sold to a
condemning authority under threat of condemnation, this lease shall terminate
and the rent shall be abated during the unexpired portion of the lease effective
from the date of the physical taking of the premises.
16. Landlord agrees to pay the within named Principal REALTOR(R) a
commission in cash equal to Four and one-half percent (4.5%) per cent of the
total gross rental for negotiating this lease, payable as per agreement with
Owner. If any options are granted to Tenant, Landlord agrees to pay to Principal
REALTOR(R) an additional commission on the date such options are exercised by
Tenant, even if with changes. Should the term of the primary lease be for a
shorter period than five (5) years, Landlord agrees to pay an additional
commission on all hold-overs, renewals, new leases or rental agreements made by
Landlord with Tenant relative to Tenant's first five year occupancy of the
demised premises from this date. The commission due for each renewal will be
calculated as if a new lease had been made for such period of time. If the
premises are sold to the Tenant during the term of this lease or any renewal or
extension thereof, or within 180 days following the expiration date of this
lease, or any renewal or extension, Landlord will pay to Principal
<PAGE> 4
REALTOR(R) a sales commission in cash equal to 4.5 (4.5%) per cent of the
selling price of said property. All commissions are payable in Grayson County,
Texas.
If this lease is assigned or the premises are sold prior to the
termination of this lease, Landlord, its assigns, successors, and heirs shall be
jointly and severally liable for all REALTOR(R)'S commissions due or to become
due hereunder. Landlord will not transfer, convey or sell the premises without
specific written agreement with the purchaser that all commissions due or to
become due will be paid to Principal REALTOR(R) when due by purchaser in
connection with existing leases on the premises at the time the sale occurs.
If, on account of any breach or default by any party hereto in his or its
obligation to Principal REALTOR(R), it shall become necessary for Principal
REALTOR(R) to employ an attorney to enforce or defend any of Principal
REALTOR(R)'S rights or remedies hereunder and should Principal REALTOR(R)
prevail, such parties agree to pay Principal REALTOR(R) reasonable attorney fees
in connection herewith.
17. No waiver by Landlord of any default or breach of any term, covenant,
condition, agreement, provision, or stipulation herein contained shall
constitute a waiver of any subsequent default or breach of the same or any other
term, covenant, condition, agreement, provision or stipulation hereof.
18. This lease constitutes the full and final expression of the agreement
between the parties and it may not be amended except by written instrument
signed by all the parties.
19. SPECIAL CONDITIONS:
19.1 Tenant shall be responsible for electric utility payment for
building.
19.2 Tenant shall be responsible for propane expense associated with
heating located in warehouse.
19.3 Provided Tenant is not in, nor has been in default, tenant to have
right to vacate property on January 31, 2000. Should tenant exercise
the option to vacate property, tenant to pay landlord $3000.00 prior
to vacating property.
19.4 Tenant to notify landlord in writing of intent to vacate property,
should tenant exercise such option, no later than thirty days prior
to January 31, 2000.
19.5 Upon execution of lease agreement by tenant, tenant to pay security
deposit of $1500.00 to Landlord.
19.6 Landlord to deliver property free of roof leaks.
19.7 Landlord to deliver property with HVAC system in good working
condition at time of occupancy.
19.8 Landlord to remove debris from West side of building.
19.9 Landlord to remove paving machine from South side of building.
19.10 Landlord to deliver property with toilets and plumbing system in
good working condition at time of occupancy.
<PAGE> 5
EXECUTED the 6th day of August, 1999
LANDLORD: DAVID WOOD
P.O. BOX 66
ATTEST: ANNA, TEXAS 75495
DAVID WOOD
- ------------------------------------ ----------------------------------------
By
owner
----------------------------------------
Title
TENANT: GLOBAL ELECTION SYSTEMS, INC.
1611 WILMETH ROAD
ATTEST: MCKINNEY, TEXAS 75069
Susan Martin Howard T Van Pelt
- ------------------------------------ ----------------------------------------
By
President
----------------------------------------
Title
REALTORS(R)
CAREY COX COMPANY
- -----------------------------------------
Principal REALTOR(R), Member of the
GREATER DALLAS BOARD OF REALTORS(R), INC.
RUS
- -----------------------------------------
By
N/A
- -----------------------------------------
Cooperating REALTOR(R)*
- -----------------------------------------
By
* NOTE: If this lease agreement is negotiated by Principal REALTOR(R) in
cooperation with another REALTOR(R), Landlord shall be liable for payment of al
commissions to Principal REALTOR(R) only, whereupon it shall be protected from
any claims from said Cooperating REALTOR(R).
<PAGE> 1
EXHIBIT 11
GLOBAL ELECTION SYSTEMS INC.
Computation of Per-Share Income
Treasury Stock Method
<TABLE>
<CAPTION>
Period Ended Period Ended
March 31, 2000 March 31, 1999
Nine Months Nine Months
<S> <C> <C>
Weighted average number of share outstanding 18,550,795 18,483,264
Total common and common equivalent shares 20,017,462 20,123,699
Net Income (Loss) for the period $ 862,116 $ (1,415,468)
Weighted average number of share outstanding 18,550,795 18,483,264
Earnings per share - basic $ 0.05 $ (0.08)
Net Income for the period $ 862,116 $ (1,415,468)
Total common and common equivalent shares 20,017,462 20,123,699
Earnings per share - fully diluted $ 0.04 $ N/A
Earnings per share:
</TABLE>
Basic earnings per share is computed by dividing the net income for the period
by the weighted average number of common shares outstanding for the period.
Fully diluted earnings per share is computed by dividing the net income for the
period by the common and common equivalent shares outstanding for the period.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 1,953,169
<SECURITIES> 0
<RECEIVABLES> 12,483,033
<ALLOWANCES> 0
<INVENTORY> 5,724,328
<CURRENT-ASSETS> 20,597,429
<PP&E> 1,046,680
<DEPRECIATION> (658,040)
<TOTAL-ASSETS> 22,176,919
<CURRENT-LIABILITIES> 9,941,803
<BONDS> 0
0
0
<COMMON> 10,217,262
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 22,176,919
<SALES> 15,230,720
<TOTAL-REVENUES> 15,256,392
<CGS> 7,962,223
<TOTAL-COSTS> 13,539,575
<OTHER-EXPENSES> 5,313,209
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 409,728
<INCOME-PRETAX> 913,564
<INCOME-TAX> 51,448
<INCOME-CONTINUING> 862,116
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 862,116
<EPS-BASIC> .05
<EPS-DILUTED> .04
</TABLE>
