SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ___________________
Commission file number 1-10196
DIMENSIONAL VISIONS INCORPORATED
--------------------------------
(Name of Small Business Issuer as specific in its Charter)
Delaware 23-251-17953
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2301 W. Dunlap Avenue, Suite 207 85021
Phoenix, Arizona (Zip Code)
(Address of Principal Executive Offices)
Issuer's telephone number, including area code: (602) 997-1990
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods 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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained
herein, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10- KSB. Yes X No
----- -----
For the fiscal year ended June 30, 1998, the Company's revenue was
$609,392.
As of September 30, 1998, the number of shares of Common Stock
outstanding was 3,612,226. The aggregate market value of the Company's Common
Stock held by non-affiliates of the registrant as of September 30, 1998, was
approximately $2,337,732 (based upon 3,402,812 shares at $0.687 per share).
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Certain exhibits are incorporated by reference to the Company's
Registration Statements on Form S-1 and Form S-8, Form 10-KSB and Form 8-K as
listed in response to Item 13(a)(3) of Part III.
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ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Dimensional Visions Incorporated (the "Company") employs a proprietary
software system methodology (the "System") to convert client provided and
Company created materials into lithographically printed three-dimensional and
animated images ("Multi-Dimensional Images"). The Company markets its
Multi-Dimensional Images products under the "MARKETINGLENSES(SM)" product line,
consisting of "DV3D(R)" and "Animotion(TM)" Multi-Dimensional Images.
The MARKETINGLENSES(SM) product line of DV3D(R) and Animotion(TM)
Multi-Dimensional Images create promotion marketing image solutions for clients
who want to utilize the images to help promote their products and services and
increase their sales. The Company currently is delivering these marketing image
solutions to a limited number of carefully targeted companies in the promotion
marketing industry in the United States and intends to seek to significantly
expand and create additional markets for its products.
The DV3D(R) and Animotion(TM) products are determined by the technical
specifications of the polymer based "LENTICULAR" material on which the image is
printed. Lenticular is a plastic optical material that allows the
three-dimensional and/or animation image to be viewed without the use of any
viewing apparatus such as glasses or hoods. Lenticular is a layer of lenticles
(or lenses) in front of the image. These lenses work as a viewer which
self-adjusts to whatever distance the viewer is from the image. If the viewer is
looking at DV3D(R) and Animotion(TM) Multi-Dimensional Images, not only do they
allow for three dimensional and/or animation images without any viewing
apparatus, but also fluid animation simultaneously. These Multi-Dimensional
Images may be produced in varying sizes for specified customer applications.
The Company's sole active subsidiary, InfoPak, Inc., manufacturers and
markets a hardware/software packaged product line called the
"INFOPAKSYSTEM(TM)." This system is designed to handle substantial offline
information and databases that may require frequent updating. This system is
particularly well suited to mobile sales professionals. The Company currently is
delivering these mobility solutions to a limited number of carefully targeted
companies in the automobile appraisal and inventory sales businesses.
References herein to the Company include Dimensional Visions
Incorporated and its InfoPak, Inc. subsidiary unless the context denotes
otherwise.
The Company intends to focus its resources on its MARKETINGLENSES(SM)
product line of DV3D(R) and Animotion(TM) Multi-Dimensional Images. The Company
has retained an investment banking firm to assist the Company in the sale of its
InfoPak, Inc. subsidiary.
The Company has been dependent upon the proceeds of the sale of its
securities, loans and revenue from operations to conduct its business. Since its
inception, the Company has continuously sustained significant losses and such
losses are continuing. There can be no assurance that the Company will generate
sufficient revenue from the sale of its products or be able to continue to raise
funds from other sources necessary to maintain its business. See "Description of
Business - Special Considerations."
The Company currently maintains its executive offices and principal
place of business at 2301 West Dunlap Avenue, Suite 207, Phoenix, Arizona 85021,
and its telephone number is (602) 997-1990.
COMPANY HISTORY
The Company was incorporated in the State of Delaware in 1988. In
September 1995, the Company acquired all of the outstanding Capital Stock of
InfoPak, Inc. in exchange for 500,000 shares of Series P Preferred Stock.
From 1988 through 1996, the Company utilized a photographic three
dimensional/lithographically printed imaging process. This process severely
limited the Company's ability to economically and repetitively transform
two-dimensional images into multi-dimensional images. Thus, in 1997, after two
years of research and development, the Company introduced its
MARKETINGLENSES(SM) product line of DV3D(R) and Animotion(TM) Multi-Dimensional
Images using its proprietary software and production process. In December 1997,
the Company sold all of its remaining photographic equipment from its prior
printing technology.
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MARKETINGLENSES(SM) PRODUCTS
The Company currently is focused on offering and delivering integrated
and systematic promotion marketing solutions to clients to provide them with the
ability to help them increase their sales by using the Company's two primary
products: DV3D(R) and Animotion(TM) Multi-Dimensional Images.
The Company believes that these products will appeal to marketers
because they can motivate customers to purchase and induce action at the point
of sale. The Company's goal is to produce a highly advanced, high quality,
LENTICULAR image, with a wide variety of imaging options in today's market,
while offering unique products and services to the promotion marketing industry.
Applications which the Company has developed and currently is marketing to
current and potential clients include:
1. VIRTUALLY COUNTERFEIT-PROOF "SPECIAL EVENT COLLECTIBLE TICKETS" SUCH AS:
DV3D(R)Animotion TicketS
2. VIRTUALLY COUNTERFEIT-PROOF "SPECIAL COLLECTIBLE FINANCIAL CARDS" SUCH AS:
DV3D(R)Animotion Phone CardS
DV3D(R)Animotion Affinity Credit CardS
DV3D(R)Animotion Bank Credit Cards
3. QUINTESSENTIAL QUALITY AND QUICKEST "VALUE ADDED PROMOTION IMAGES" SUCH AS:
CD, Book and magazine covers and inserts.
Trading cards and greeting cards
Point of Purchase displays
INFOPAKSYSTEM(TM) PRODUCTS
The Company's InfoPak, Inc. subsidiary produces sales automation
technology that enables highly mobile professionals such as salespeople to
increase their productivity by helping them better manage certain critical
information. The Company believes that sales automation is currently
revolutionizing the sales process by using technology to serve customers better
and increase sales productivity.
The Company provides an integrated "Sales Automation" palmtop
hardware/software package and database update subscription service called the
"InfoPakSystem(TM)". This system is designed to handle substantial offline
information and databases that may require frequent updating. The Company
believes that the system is well suited to sales professionals who are highly
mobile and require frequent utilization of data to effectively sell and
communicate with their companies and customers. The Company's goal is to produce
unique "MOBILITY AUTOMATION" products and services that the Company's
competitors currently do not have. Applications which the Company currently is
marketing to current and potential clients include:
1. Automobile "AutoInfoPak" NADA Appraisals
2. Automobile "AutoInfoPak" Blue Book Appraisals
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STRATEGY
MARKET & PENETRATION
The Company has defined the primary market for its
"MARKETINGLENSES(SM)" product lines as promotion marketing companies located
throughout the United States. According to the January 1998 issue of Promo
Magazine, these companies spent a total of $71 billion on promotion marketing in
1996 as follows:
Estimated:
Market: ----------
------- Promotion Marketing
Promotion Marketing Industry Total Market $
Categories 1996 Revenue % of Total
---------- ------------ ----------
Premium/Incentives $20,500,000,000 29%
Point of Purchase $12,600,000,000 18%
Ad Specialties $ 9,490,000,000 13%
Couponing $ 6,040,000,000 8%
Specialty Printing $ 5,600,000,000 8%
Sponsorships $ 5,400,000,000 8%
Promo Licensing $ 4,990,000,000 7%
Promo Fulfillment $ 2,500,000,000 3%
Agencies Net Revenue $ 1,089,900,000 2%
Promo Research $ 1,000,000,000 1%
Product Sampling $ 856,300,000 1%
Internet Interactive $ 815,400,000 1%
In Store Services $ 652,000,000 1%
TOTAL $71,533,600,000 100%
The Company intends to focus its efforts on the promotion markets which
had revenue of approximately $71 billion in 1996. The Company believes that if
it can obtain a relatively small portion of this business (less than one-tenth
percent), the Company can achieve profitability.
The Company uses its own employees and "Value-added Resellers" ("VARs")
to sell its products.
The Company has developed a comprehensive "high-profile" marketing
program to help market its products. The Company's initial and sustaining
marketing program is comprised of the following components:
1. DIMENSIONAL VISIONS CORPORATE IDENTITY & COLLATERAL MATERIALS - The
Company has created an effective corporate identity program utilizing
its own DV3D(R) and Animotion(TM) created images for its stationery,
business cards, Qualifications/Capabilities Brochure, and "Show & Sell"
presentations. These corporate identity materials were first designed
and produced in January 1998. By utilizing its own DV3D(R) and
Animotion(R) images for itself, the Company believes it will become a
self-promotional testimonial to the potential "increased sales" power
of its products.
2. QUARTERLY DIRECT MAILINGS - The Company intends to create a one page
letter that will be sent to approximately 500 companies every quarter.
The marketing message will be changed for every mailing and will be
sent to the
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creative director of the top 100 largest promotional marketing agencies
and the 200 largest regional advertising agencies throughout the United
States. The mailings will request that the target company fax the
letter back to the Company requesting more information and particular
samples of the Company's products.
3. TRADE SHOWS & VARS PROSPECTS - The Company plans to attend and display
its MARKETINGLENSES(SM) product line at two promotion and marketing
trade shows a year. The primary objective is to create VAR prospects,
as well as, create awareness of its product line.
4. INTERNET HOME PAGE (DV3D.COM) - The Company inaugurated its home page
on the Internet/World Wide Web in February 1998. This home page concept
has been expanded to include VARs and clients.
5. PUBLIC RELATIONS - Starting in 1998, the Company has generated press
releases to announce significant product introductions and achievements
which will be sent to the appropriate promotion of marketing and
advertising trade magazines.
6. ADVERTISING - Because the Company utilizes VARs for the sales of its
products, the Company plans to offer a co-op-advertising program to its
VARs starting in 1999.
RESEARCH AND DEVELOPMENT
The Company has incurred substantial research and development expenses
to develop and improve its MARKETINGLENSES(SM) products. In the fiscal years
ended June 30, 1998 and 1997, the Company expended approximately $100,000 and
$200,000, respectively, in such expenses. The Company does not believe that it
will be necessary to incur major additional research and development
expenditures at this time. However, in view of the substantial competition and
potential technological changes in the imaging industry, the Company may find it
necessary to incur substantial additional research and development expenditures.
PRODUCTION
PRODUCTION OF MARKETINGLENSES(SM) PRODUCTS
The Company controls or supervises all phases of the production of its
print products from the image development and computerized enhancement phases
through the color separation and printing phases. Images are provided to the
Company by clients in many formats including digitally in graphic file formats
and photographically in pictures or transparencies. Photographic images are
scanned into the computer to be modified and enhanced. Through a proprietary
process, several images are composited together to generate a final image that
will appear as a three-dimensional and/or animation image when viewed through a
lenticular material. Lenticular is a plastic optical material that allows the
three-dimensional and/or animation image to be viewed without the use of any
viewing apparatus such as glasses or hoods. The final computer image is sent to
an image setter located at the Company's main offices where films are made.
These films are forwarded to a commercial printer where, through the
lithographic process, the images are printed on a polymer based lenticular
material which focuses the multi-dimensional or animation images. The Company
produces the DV3D(R) and Animotion(TM) images for the final image at its
facilities in Phoenix, Arizona. Printing is done under the supervision of the
Company with third-party vendors. The polymer based lenticular material on which
the DV3D(R) and Animotion(TM) images are printed is supplied by producers in the
petrochemical and plastic fabricating industries.
PRODUCTION OF INFOPAKSYSTEM(TM) PRODUCTS
The Company programs the software for its InfoPakSystem(TM) products at
its facilities in Phoenix, Arizona. The hardware for its system, including the
palmtop hardware, is provided by third party vendors.
STRATEGIC BUSINESS ALLIANCES
In January 1998, the Company also entered into a strategic business
alliance with Consolidated Printing Corporation for marketing of the Company's
DV3D(R) Animotion(TM) tickets, similar to the type of tickets produced for the
Arizona Diamondbacks' opening day game. The agreement provides that Consolidated
Printing, one of the largest printing companies of specialty events tickets in
the United States, will market the Company's DV3D(R) Animotion(TM) tickets for
sporting and other specialty events throughout the United States.
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In September, 1998, the Company entered into a strategic business
alliance with Cookies, a supplier of children's accessories to the Walt Disney
Company and Warner Bros. The agreement provides that Cookies will integrate the
Company's DV3D(R) Animotion(TM) products into various children's accessories.
In September 1998, the Company also entered into a strategic business
alliance with Plymouth, Inc. for utilizing the Company's DV3D(R) Animotion(TM)
in Plymouth's school supply products.
The Company believes that these and future strategic business alliances
will allow the Company to vastly expand the scope of its marketing and
production of its MARKETINGLENSES(SM) Multi-Dimensional Images products.
COMPETITION
Other processes currently are available which allow a viewer to
perceive an image in three-dimensions, including those which employ stereoscopic
glasses and viewing hoods and other processes, and holograms and other
three-dimensional image systems which do not require the use of viewing
apparatus. The Company is aware of at least two companies, Optigraphics, Inc.
and National Graphics, Inc., which compete with the Company's print products.
Further, the Company's products may be more expensive than conventional, high
quality, two-dimensional prints and for this reason, high quality, conventional
processes and methods may be favored for many, if not most, illustration and
promotion contexts.
PATENTS, TRADEMARKS AND PROPRIETARY PROTECTION
The Company owns the rights to two U.S. patents, "Method and Apparatus
For Stereoscopic Photography" and "Electronic (digitized) Method and Apparatus
For Stereoscopic Photography". The Company uses a portion of the technology
covered by these patents in the Multi-Dimensional Images compositing process.
However, in view of the Company's current process of production,
Multi-Dimensional Images, the Company intends to seek a patent for its current
process. No assurances can be given that a patent will be granted. The Company
also owns U.S. patents "System and Method for Providing Data and Program Code to
a Card for Use by a Reader" and "Electronic Telephone Directory with
Interchangeable Listings" which relate to its INFOPAKSYSTEM(TM) data delivery
system.
The Company enters into confidentiality agreements with all persons and
entities who or which may have access to its technology. However, no assurance
can be given that such agreements, the patents or any additional patents which
may be issued to the Company will prevent third parties from developing similar
or competitive technology. There can be no assurance that the patents will
provide the Company with any significant competitive advantages, or that
challenges will not be instituted against the validity or enforceability of its
patents, or if instituted that any such challenges will not be successful. The
cost of litigation to uphold the validity and prevent infringement can be
substantial. In addition, no assurance can be given that the Company will have
sufficient resources to either institute or defend any action, suit or other
proceeding by or against the Company with respect to any claimed infringement of
patent or other proprietary rights. In the event that the Company should lose,
in the near future, the protection afforded by the patents and any future
patents, such event could have a material adverse effect on the Company's
operations. Furthermore, there can be no assurance that the Company's technology
will not infringe patent or other rights owned by others or licenses to which
may not be available to the Company.
The Company has registered the DV3D(R) trademark and has applied to
register the Animotion(TM) and MARKETINGLENSES(SM) marks with the United States
Patent and Trademark office.
EMPLOYEES
As of June 30, 1998, the Company had eight employees, including four in
management (one of whom is involved in manufacturing), one involved in marketing
and sales, three in manufacturing and production, and one in administrative and
clerical functions. The Company is not a party to any collective bargaining
agreements. The Company considers its relations with employees to be good.
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SPECIAL CONSIDERATIONS
The following factors, in addition to those discussed elsewhere in this
Report, should be carefully considered in evaluating the Company and its
business.
LACK OF SIGNIFICANT COMMERCIAL SALES; SUBSTANTIAL CHANGE IN BUSINESS STRATEGY
AND NEW PRODUCTS
Although the Company has been in existence since 1988, the Company only
recently developed its MARKETINGLENSES(SM) product line of DV3D(R) and
Animotion(TM) Multi-Dimensional Images. From 1988 through 1996, the Company
utilized a photographic three dimensional/lithographically printed imaging
process. Utilizing this photographic process severely limited the Company's
ability to economically and repetitively transform current two-dimensional
images into multi-dimensional images to meet the demands of today's market.
In 1997, after two years of refinement and development, the Company
developed a proprietary software and printing processes system to convert
existing client provided and newly created materials into lithographically
printed three-dimensional and animated images. This new system provided the
basis for the Company's new management to create and market the new
MARKETINGLENSES(SM) product line of DV3D(R) and Animotion(TM) Multi-Dimensional
Images. Consequently, the Company sold all of its photographic equipment in
December 1997.
However, the Company has generated only limited sales from these new
MARKETINGLENSES(SM) products. There can be no assurance that the
MARKETINGLENSES(SM) products will achieve market acceptance. During the period
of development of the MARKETINGLENSES(SM) products, the Company incurred
significant losses. Given the history of substantial losses during the
developmental stage of its products, and the failure of the Company to achieve
profitability at anytime during its ten year history, there can be no assurance
that the Company will be profitable or will be able to satisfy any of its
obligations.
CONTINUING LOSSES; QUALIFIED REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Company has incurred net losses since inception of $19,341,796, and
reported a net loss of approximately $2,162,000 for the fiscal year ended June
30, 1997, and $422,000 for the fiscal year ended June 30, 1998. Operating losses
before other income and expenses were approximately $1,331,000 for the fiscal
year ended June 30, 1997 and $325,000 for the fiscal year ended June 30, 1998.
Losses incurred since inception are attributable primarily to start-up costs
incurred in developing a now obsolete photographic imaging system, developing
the Company's MARKETINGLENSES(SM) Multi-Dimensional Imaging System and the
Company's INFOPAKSYSTEM(TM), the costs of introducing these products to market,
and the administrative costs associated with the business. To date, operating
revenue has not been sufficient to cover these costs. Moreover, the Company
expects its losses to continue for at least the next three to six months. There
can be no assurance that the Company will generate sufficient operating revenue,
expand sales of its products, or control its costs sufficiently to achieve or
sustain profitability. In addition, the report by the Company's independent
certified public accountants on the Company's financial statements for the year
ended June 30, 1998 states that the Company's recurring losses from operations
and limited sales of its products raise substantial doubt about the Company's
ability to continue as a going concern. See "Consolidated Financial Statements"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in this Report.
POTENTIAL NEED FOR ADDITIONAL FUNDING
At September 30, 1998, the Company had $32,178 in cash. The Company
will need additional funding to expand its business even if it can achieve
profitability. The Company will be seeking additional funding through public or
private financing to repay indebtedness and for working capital. There can be no
assurance that additional financing will be available, or if available, on
acceptable terms. The Company's inability to raise capital when needed could
have a material adverse effect on the Company's business, financial condition,
and results of operations.
RECENT CHANGE IN MANAGEMENT
The Company experienced a significant change in its management
beginning in November 1997. Mr. John McPhilimy was appointed as a Director,
President, and Chief Executive Officer of the Company in November 1997,
replacing Mr. George S. Smith. Mr. McPhilimy was appointed Chairman of the Board
in January 1998, also replacing
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Mr. Smith, who continues to serve the Company as a Director. Mr. Roy D. Pringle
was appointed as Vice President, Chief Financial Officer, and Chief Information
Officer of the Company in November 1997, Mr. Bruce D. Sandig was appointed as
the Senior Vice President of Creative Design and Engineering in November 1997
and also as a Director in January 1998, and Ms. Ronnie Matlock was appointed
Vice President of Customer Service and Operations in November 1997. In addition,
in January 1998, three prior Directors of the Company resigned and were replaced
by three new Directors. Although the Company believes these changes in
management will be beneficial to the Company's operations, significant changes
in management often cause serious disruptions to businesses. No assurance can be
given that the new management of the Company will be able to turn around the
Company and cause it to achieve profitability.
CERTAIN FACTORS AFFECTING OPERATING RESULTS
The Company's operating results may be affected by a wide variety of
factors that could adversely affect its total revenue and profitability. These
factors, many of which are beyond the control of the Company, include creating
and continuing interest by customers in the MARKETINGLENSES(SM)
Multi-Dimensional Images products and the INFOPAKSYSTEM(TM); the Company's
ability to establish and maintain strong and long-lasting relationships with
customers, including a sufficient number of national customers which can provide
substantial orders for the Company's products; the Company's success in
obtaining and maintaining customer satisfaction with its MARKETINGLENSES(SM)
MultiDimensional Images products and the INFOPAKSYSTEM(TM) products and related
services; the level and timing of the demand for the Company's
MARKETINGLENSES(SM) Multi-Dimensional Images products and the INFOPAKSYSTEM(TM);
the Company's ability to expand its personnel, equipment, and administrative
support functions, including particularly its ability to place in service a
sufficient number of MARKETINGLENSES(SM) Multi-Dimensional Images products and
INFOPAKSYSTEM(TM) products to achieve profitability; changes in the mix of
services it provides; technological changes; and competition and competitive
pressures on prices. The Company's revenue and results of operations also may be
subject to fluctuations based upon general economic conditions. If there were to
be a general economic downturn or a recession, there would be a material adverse
effect on the Company's business, operating results, and financial condition.
LACK OF DIVERSIFICATION; RISKS OF INVESTING IN LIMITED PRODUCTS
The success of the Company's business will depend primarily on the
market acceptance of the MARKETINGLENSES(SM) Multi- Dimensional Images products.
The plan of operation, therefore, subjects the Company to the economic
fluctuations within the imaging industry and increases the risk associated with
its operations. This primary dependence on one type of product (a situation the
Company expects will continue for the foreseeable future) renders the Company
more vulnerable than companies with a more diversified product line. Significant
delays in development could greatly affect the Company's competitiveness. There
can be no assurance that the Company's products will not become obsolete earlier
than anticipated. Nor can there be any assurance that the Company will be able
to devote sufficient resources to the research and development effort required
to enable the Company to meet future technological changes. An investment in any
aspect of the imaging industry is speculative and historically has involved a
high degree of risk.
FLUCTUATING QUARTERLY RESULTS
The Company has experienced significant quarterly and other
fluctuations in revenue and operating results. The Company believes that these
fluctuations have been attributable primarily to its changes in business
strategies and to a lesser extent to the budgeting and purchasing practices of
its customers. Future revenue and operating results may fluctuate as a result of
these and other factors, including the demand for the Company's products, the
timing and cost of new product introductions, changes in the mix of products
sold, and in the mix of sales by distribution channels, the size and timing of
customer orders, changes in pricing policies by the Company or its competitors,
execution of agreements with distributors, competitive conditions in the
industry, and general economic conditions.
The Company has a sales backlog of approximately $250,000 at June 30,
1998. Historically, however the Company has had minimal sales backlog. Quarterly
revenue and operating results therefore depend primarily on the volume and
timing of orders received during the quarter, which are difficult to forecast. A
significant portion of the Company's operating expenses is relatively fixed,
since personnel levels and other expenses are based upon anticipated revenue.
Many of the factors that could result in quarterly fluctuations are not within
the Company's control. Accordingly, the Company believes that quarter to quarter
comparisons of its financial results may not necessarily be meaningful and
should not be relied upon as an indication of future performance.
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COMPETITION
The Company faces competition from two major competitors in the
multi-dimensional imaging market. The Company is aware that competitors
currently are developing competing products and the Company faces indirect
competition from various types of imaging products. The Company expects that
direct and indirect competition is likely to intensify in the future. There can
be no assurance that the Company will be able to compete successfully.
DEPENDENCE ON NEW PRODUCTS AND TECHNOLOGIES
The Company's future operating results will depend to a significant
extent on its ability to continue to develop and introduce on a timely basis new
products, which compete effectively on the basis of price and performance and
address customer needs and requirements. The success of new product introduction
depends on various factors, including proper new product selection, timely
completion and introduction of new product designs, and the use and market
acceptance of customers' end products. The Company's inability to design,
develop, and introduce competitive products on a timely basis could adversely
affect its future operating results. Some of the Company's products also require
compatibility with products manufactured by third-party vendors. There can be no
assurance the Company will be able to maintain compatibility in the event such
vendors modify their products. In addition, there can be no assurance that
products or technologies developed by others will not render the Company's
products noncompetitive or obsolete. In fiscal years 1997 and 1998 the Company
has expended approximately $300,000 on research and development for its
MARKETINGLENSES(SM) products. There can be no assurance that the Company's level
of expenditure on research and development will be adequate to develop new
products required by the Company to remain competitive.
TECHNOLOGICAL OBSOLESCENCE
The industries that the Company serves are marked by rapid
technological change. The Company must continuously modify its existing products
and seek to develop new products in order to remain competitive. There can be no
assurance that new technological developments will not adversely affect the
Company. Specifically, the Company was forced to completely abandon its prior
development of photographic-based imaging and replace it with a computer-based
digital printing process. Changes in computer-based design and printing
technology could render the Company's current products obsolete. In fiscal years
1997 and 1998 the Company has expended approximately $300,000 on research and
development for its MARKETINGLENSES(SM) products. There can be no assurance that
the Company's level of expenditure on research and development will be adequate
to avoid technological obsolescence of the Company's products.
LIMITED PROPRIETARY TECHNOLOGY
The Company's current patented technology is based on its now obsolete
and abandoned photographic printing process. Thus, unless the Company is able to
obtain a patent on its new technology, the Company will have only limited useful
patented technology. It regards aspects of its manufacturing processes as trade
secrets and seeks to protect this know-how with secrecy agreements. There can be
no assurance, however, that these agreements will be enforceable in the event of
a breach. Therefore, even if the Company is able to develop successful new
products, the Company may be limited in its ability to prevent competitors from
copying these products. In addition, the Company has only limited registered
trademarks, and products manufactured by the Company may not develop any value
from these trademarks.
DEPENDENCE ON THIRD-PARTY SUPPLIERS
The Company historically has purchased its components from multiple
suppliers. The Company does not have supply agreements with any of these
suppliers. Although the Company has not experienced any material difficulties in
obtaining supplies in the past and the Company believes that additional
suppliers are readily identifiable, any reduction or interruption in supply from
its vendors or suppliers could adversely affect the Company's ability to supply
orders for certain of its products.
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RISK OF PRODUCT RETURNS
The Company's MARKETINGLENSES(SM) products are based on the Company's
recently developed technology. Although the Company believes its products will
meet with a high level of satisfaction from customers, as with any newly
developed products, it is difficult to estimate the rates of return. There is a
risk, however, that such returns could be substantial. A significant number of
returns could have a material adverse effect upon the Company's business.
MANAGEMENT OF GROWTH
The Company plans to expand its business significantly over the next 12
months. The expansion of the Company's business will require it to enhance its
operational, financial, and information systems, to motivate and manage its
existing personnel and to attract and retain additional managerial, technical,
and marketing personnel, to enhance its technical equipment, and to expand the
manufacture and distribution of its products. The failure of the Company to
expand its systems, personnel, equipment, and administrative resources on an
effective basis could have a material adverse effect on the Company's business,
operating results, and financial condition.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the
technical and management skills of its officers and key employees, including in
particular those of Mr. John McPhilimy, the Company's President, Chairman and
Chief Executive Officer and Mr. Bruce D. Sandig, the Company's Senior Vice
President of Creative Design and Production Engineering. The Company currently
maintains a "key-man" life insurance policy on Mr. McPhilimy in the amount of
$1,000,000. In addition, the Company has been approved for, but has not yet
received, a "key-man" life insurance policy on Mr. Sandig in the amount of
$1,000,000. The loss of the services of either Mr. McPhilimy or Mr. Sandig could
have a material adverse effect on the Company. Although the Company has
employment agreements with Mr. McPhilimy and Mr. Sandig, the Company currently
has only eight employees, including Mr. McPhilimy and Mr. Sandig. The Company's
success also will depend upon its ability to attract and retain additional
qualified management, marketing, technical, and sales executives and personnel.
Competition for such executives and other qualified personnel is intense as a
result of a limited number of persons with knowledge of and experience in the
Company's industry. There can be no assurance that the Company will be
successful in attracting or retaining such executives and personnel.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of a
maximum of 10,000,000 shares of preferred stock, par value $.001 per share
("Preferred Stock"). The Board has the authority to divide the Preferred Stock
into series and to fix and determine the relative rights and preferences of the
shares of any such series. Currently, the Company has issued Preferred Stock
designated as the Series A, Series B, Series C, Series P, and Series S Preferred
Stock (collectively, the "Outstanding Preferred Stock"). The Company may in the
future issue other series of Preferred Stock and the terms of any additional
series of Preferred Stock may operate to the disadvantage of holders of the
Common Stock.
OUTSTANDING PREFERRED STOCK
The Outstanding Preferred Stock have certain dividend and liquidation
rights which may impact the Company's ability to pay dividends on its Common
Stock or make any payments to the holders of the shares in the event of
10
<PAGE>
liquidation. At June 30, 1998, the Company owed $78,300 in accumulated and
unpaid dividends on its Series A Preferred Stock and its Series B Preferred
Stock. Additionally, the holders of the Outstanding Preferred Stock have the
right to convert their shares into 98,928shares of Common Stock, which could
serve to dilute the Common Stock rights. In the event of dissolution and
liquidation, holders of the Preferred Stock would be entitled to payment before
holders of the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Approximately 3,612,101 shares of Common Stock of the Company are
outstanding as of June 30, 1998. Approximately 3,013,261 shares of such Common
Stock are freely tradeable shares and only 598,840 are "restricted securities,"
as that term is defined in Rule 144 promulgated under the Securities Act, and
may be sold only in compliance with Rule 144, pursuant to registration under the
Securities Act, or pursuant to an exemption therefrom. Thus, most of the
Company's outstanding Common Stock may be immediately sold by stockholders of
the Company. Sales of substantial amounts of Common Stock by stockholders of the
Company or even the potential of such sales, are likely to have a depressive
effect on the market price of the Common Stock and could impair the Company's
ability to raise capital through the sale of its equity securities.
RIGHTS TO ACQUIRE SHARES
A total of 4,166,617 shares of Common Stock has been reserved for
issuance upon exercise of various non-public warrants and options issued by the
Company at a weighted average exercise price of $1.09 per share and the
Company's currently outstanding Preferred Stock is convertible into 98,928
shares of Common Stock. During the terms of such options and warrants, the
holders thereof will have the opportunity to profit from an increase in the
market price of Common Stock with resulting dilution in the interest of holders
of Common Stock. The existence of such options and warrants, and the conversion
of the Preferred Stock, may adversely affect the terms on which the Company can
obtain additional financing, and the holders of such options and warrants can be
expected to exercise such options and warrants at a time when the Company, in
all likelihood, would be able to obtain additional capital by offering shares of
its Common Stock on terms more favorable to the Company than those provided by
the exercise of such options or warrants. Moreover, most of the shares which may
be acquired pursuant to such exercises or conversions are subject to "demand" or
"piggy-back" "registration rights" and thus may be sold in a manner which may
have a depressive effect on the market price of the Company's Common Stock.
NASDAQ LISTING
The Company's Common Stock currently trades on the OTC Bulletin Board.
The Bulletin Board provides a very illiquid trading market for the Company's
Common Stock. The Company's Common Stock currently does not qualify for
inclusion and is not quoted on the National Association of Securities Dealers'
Automated Quotation System ("NASDAQ"). The Company's Common Stock can qualify
for inclusion on NASDAQ only if the Company meets the entry criteria, which
require that the Company has total assets of at least $4,000,000, at least 300
holders of its Common Stock, at least 1,000,000 publicly held shares of Common
Stock having a market value of at least $5,000,000, three market makers and a
minimum bid price of its Common Stock of $4.00 per share.
There can be no assurance that the Company will meet the listing
criteria as of the date hereof or thereafter or that the Common Stock will ever
be quoted on NASDAQ. The failure to qualify the Company's Common Stock on NASDAQ
will adversely affect the liquidity and market price of the Company's Common
Stock.
LACK OF DIVIDENDS
The Company has never paid any dividends on its Common Stock and does
not anticipate that it will pay dividends in the foreseeable future. Moreover,
at June 30, 1998, the Company currently owed approximately $78,300 in
cumulative, unpaid dividends in arrears on its Outstanding Preferred Stock.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements and information contained in this Report under the
headings "Business," "Special Considerations," and "Management's Discussion and
Analysis of Financial Conditions and Results of Operations,"
11
<PAGE>
concerning future, proposed, and anticipated activities of the Company, certain
trends with respect to the Company's revenue, operating results, capital
resources and liquidity or with respect to the markets in which the Company
competes or the promotional marketing industry in general, and other statements
contained in this Report regarding matters that are not historical facts are
forward-looking statements, as such term is defined in the Securities Act.
Forward-looking statements, by their very nature, include risks and
uncertainties, many of which are beyond the Company's control. Accordingly,
actual results may differ, perhaps materially, from those expressed in or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially include those discussed elsewhere under this Item
1, "Business - Special Considerations."
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below is selected financial data derived from the Company's
Consolidated Financial statements, some of which appear elsewhere in this
Report. This data should be read in conjunction with the Consolidated Financial
statements, included elsewhere in this Report.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
June 30, 1998 June 30, 1997 June 30, 1996 June 30, 1995 June 30, 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Operation revenue $609,392 $551,517 $1,083,897 $134,028 $ -0-
Net Loss ($421,659) ($2,162,134) ($2,035,647) ($1,192,332) ($1,069,642)
Net Loss per share of
common stock ($.14) ($1.11) ($2.98) ($1.81) ($1.68)
Balance Sheet Data:
Working Capital (deficit) ($235,920) ($107,952) $9,528 ($138,013) ($85,149)
Total Assets $920,841 $529,520 $1,408,919 $451,237 $449,725
Total Liabilities $713,539 $613,947 $673,058 $2,502,230 $1,464,861
Stockholders' equity
(deficiency) $207,302 ($84,427) $735,861 ($2,050,993) ($1,015.136)
</TABLE>
ITEM 2. DESCRIPTION OF PROPERTY.
The Company leases approximately 3,100 square feet of office space at
2301 W. Dunlap Avenue, Suite 207 in Phoenix, Arizona. This location serves as
the Company's principal executive offices and the Company's current design and
production facilities. The lease covering this property terminates on December
31, 2000. The lease provides for escalating monthly rental payments ranging from
approximately $44,950 annually during the first year of the lease term to
approximately $48,000 annually in the third year of the lease term. The lease
also requires the Company to pay all taxes and insurance.
ITEM 3. LEGAL PROCEEDINGS.
On March 12, 1997, Douglas J. Wright filed a lawsuit in the United
States District Court, Eastern District of Pennsylvania, against the Company.
Mr. Wright is a former officer and employee of the Company. In the complaint,
Mr. Wright alleges that he was damaged by the Company's refusal to register
warrants to purchase stock in the Company. Mr. Wright alleges damages in the
amount of $1,549,375, representing the alleged difference between the market
price of the Company's stock and Mr. Wright's costs of exercising the warrants.
Mr. Wright alternatively seeks an injunction against the Company "from
withdrawing or completing its registration statement without including the stock
of the plaintiff." The Company moved to dismiss the compliant for improper
venue, or in the alternative, to transfer to United States District Court,
District of Arizona. The court granted the Company's motion to transfer. On July
17, 1997 the Company filed its answer, affirmative defenses and counterclaim.
Mr. Wright did not answer the counterclaim in a timely fashion and the court
entered a default judgement against Mr. Wright on the counterclaim on September
9, 1997. The Company is seeking summary judgement against Mr. Wright on this
claim.
In July 1996, the Company filed a complaint in the United States District
Court for the Eastern District of Pennsylvania (No. 96-CV-5259) against
Dimensional Graphic Sales, Inc. ("DGS"). In the complaint the Company
12
<PAGE>
alleges that it delivered an order to DGS and properly invoiced DGS pursuant to
a sales and marketing agreement. DGS attempted to pay the invoice in full by
tendering a check for an amount less than the full amount of the invoice and
placing a restrictive endorsement on the check which purported to constitute
payment in full for the invoice. The Company crossed out the restrictive
endorsement and attempted to deposit the check only to subsequently learn that
DGS had stopped payment on the check. In its complaint the Company is seeking
$213,522 the full amount of the invoice together with interest costs and such
other relief as the court deems just and proper. DGS filed a counterclaim
against the Company for an unspecified amount in excess of $100,000. The matter
has moved to a deferred status while the parties engage in settlement
negotiation.
The Company does not believe that either of these legal proceedings
will have a material adverse effect on the Company's financial condition or
operating results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth fiscal quarter of 1997.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock has been quoted on the OTC Bulletin Board
(the "Bulletin Board") under the symbol "DVUI" since January 12, 1998. Prior to
January 12, 1998, the Company's Common Stock traded under the symbol "DVGL." The
following table sets forth the quarterly high and low bid prices of the
Company's Common Stock for the periods indicated, after adjusting such prices
for the Company's 1-for-25 reverse Common Stock split which was effective
January 15, 1998. Bid quotations represent interdealer prices without adjustment
for retail markup, markdown and/or commissions and may not necessarily represent
actual transactions.
HIGH LOW
---- ---
FISCAL 1997
First Quarter......................... 8 2 3/4
Second Quarter........................ 6 7/8 2 5/8
Third Quarter......................... 4 3/4 1 3/8
Fourth Quarter........................ 4 1 1/8
FISCAL 1998
First Quarter......................... 2 1/2 1 1/8
Second Quarter........................ 2 1/2 1/2
Third Quarter......................... 2 1/4 1/2
Fourth Quarter........................ 1 5/8 3/4
FISCAL 1999
First Quarter......................... 1 3/8 3/8
HOLDERS
As of September 30, 1998, the number of stockholders of record was 443,
not including beneficial owners whose shares are held by banks, brokers and
other nominees. The Company estimates that it has approximately 3,000
stockholders in total.
DIVIDENDS
The company has paid no dividends since its inception and does not
anticipate or contemplate paying cash dividends in the foreseeable future.
Pursuant to the terms of the Company's Series A Convertible Preferred
Stock, a 5% annual dividend is due and owing. Pursuant to the terms of the
Company's Series B Convertible Preferred stock, an 8% annual dividend is due and
13
<PAGE>
owing. As of June 30, 1998, the Company has not declared dividends on Series A
or B preferred stock. The unpaid cumulative dividends totaled approximately
$78,300. See Note 9 of Notes to Consolidated Financial Statements.
14
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
FISCAL YEARS 1996 AND 1997
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had a working capital deficiency of
$107,952 compared with a working capital of $9,528 as of June 30, 1996. The
decrease in working capital was a result of the Company not generating
sufficient revenues from operations or securing funds from other sources
sufficient to cover its cost structure. During the period ended June 30, 1997,
the Company raised a total of $944,000 through the sale of its equity securities
and debt in various private placements and offshore transactions, and through
the exercise of warrants.
As of June 30, 1997, the Company's financial position was precarious.
The Company needed funding in order to maintain current operations. The Company
funded its operations by selling its securities in private placements, offshore
transactions, short-term borrowing and sale of its products. The Company also
had certain employees and consultants defer a portion of their compensation.
The Company's independent auditors report contained an explanatory
paragraph regarding the ability of the Company to continue as a going concern.
RESULTS OF OPERATIONS
The net loss for the fiscal year ended June 30, 1997 was $2,162,134
compared with a net loss of $2,035,647 for the fiscal year ended June 30, 1996.
The increase in the loss was caused primarily by the write down of goodwill of
$619,172. The write down was associated with the sale of the Company's real
estate data delivery system product line and the Company redirecting its
marketing efforts to its print products. The Company continued during the period
to decrease expenses by reducing consulting fees, professional fees and
salaries. For the fiscal year ended June 30, 1997, administrative costs were
approximately $850,000 of which salaries were approximately $244,000.
Engineering and Development costs were approximately $397,400, of which
approximately $197,500 was salaries. Marketing costs for the fiscal year were
$328,792 of which approximately $187,000 was salaries. Legal and accounting fees
for the fiscal year totaled approximately $110,500.
Revenues for the fiscal year ended June 30, 1997 were $551,517 compared
to revenues of $1,083,897 for the fiscal year ended June 30, 1996. Approximately
$98,800 of total revenues for the fiscal year ended June 30, 1997 was from print
products. The balance of the revenues was substantially all derived from the
real estate multiple listing data delivery system, which system was sold in
October 1997. The decrease in revenues was the result of the Company not being
able to sell its DV3D(R) print products and not being able to increase sales of
its data delivery system products. In November 1996, management determined to
convert the imaging compositing process used in its print products from a
photographic base to a computer software base. This process was not complete
until March 1997. During the period of the conversion there were no new sales of
print products
FISCAL YEARS 1997 AND 1998
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company had a working capital deficiency of
$235,920 compared with a working capital deficiency of $107,952 as of June 30,
1997. The decrease in working capital was a result of the Company not generating
sufficient revenues from operations or securing funds from other sources
sufficient to cover its cost structure. During the period ended June 30, 1998,
the Company raised a total of $802,000 before offering costs of approximately
$203,000 through the sale of its equity securities and debt in various private
placements and offshore transactions, and through the exercise of warrants.
As of June 30, 1998, the Company's financial position is still
precarious. The Company needs funding in order to maintain current operations.
The Company is continuing to fund its operations by selling its securities in
private placements, through short-term borrowing, and from the sale of its
products.
15
<PAGE>
On October 14, 1997, the Company entered into a letter agreement with
Capital West Investment Group, Inc. ("CWIG"). In fiscal 1998 CWIG raised funds
amounting to $647,000 in proceeds before paying expenses and commissions. In
exchange for CWIG's agreement to raise funds for the Company, the Board of
Directors recommended to the stockholders a 25 to 1 reverse stock split on all
outstanding classes of stock which was approved on January 15, 1998.
The Company's independent auditors report contained an explanatory
paragraph regarding the ability of the Company to continue as a going concern.
RESULTS OF OPERATIONS
The net loss for the fiscal year ended June 30, 1998, was $421,659
compared with a net loss of $2,162,134 for the fiscal year ended June 30, 1997.
The reduction of the net loss is the result of the gain recognized from the sale
of the product line of $410,000, the elimination of the amortization of
goodwill, the forgiveness of accrued compensation, and the reduction in
operating expenses of approximately $700,000 which consisted largely of
compensation, consulting fees, travel, and stock related costs.
Revenue for the fiscal year ended June 30, 1998, was $609,392 compared
to revenue of $551,517 for the fiscal year ended June 30, 1997. Approximately
$323,000 of total revenues for the fiscal year ended June 30, 1998 was from
print products. Although operating revenues for fiscal year 1998 are only
slightly higher than fiscal 1997, the product mix is significantly different.
Prior to the sale of the real estate product line the majority of the revenues
was generated by InfoPak. Beginning in January 1998, the majority of the revenue
was generated through the sale of the Company's print products.
In September 1997, the Company sold its real estate multiple listing
data delivery system. The purchase price was $410,000 plus the assumption of
$59,427 in contingent liabilities. The purchase price did not include a $40,000
payment which was applied to outstanding accounts receivable. The $410,000 was
payable ratably over a thirty-six month period at ten percent interest. The
terms were subsequently changed to forty-eight months at eleven percent In
connection with the sale the Company agreed to provide consulting services for a
period of one hundred and twenty days at no cost and thereafter at certain
prescribed rates.
In December 1997 the Company sold all of its photographic equipment and
supplies for $10,000 resulting in a loss of $5,799. Currently all DV3D(R) and
Animotion(TM) print products are processed on high-end Intel-based graphical
work stations to improve the quality, time to market, and repeatability of these
images.
EVENTS SUBSEQUENT TO JUNE 30, 1998
In July through September 1998, the Company raised $475,000 through the
issuance of its Series A 12% Convertible Secured Debentures. The debentures are
convertible into Common Stock at the rate of $1.00 per share. Each
Debentureholder also was issued a warrant to purchase one share of Common Stock
at $0.50 per share for each dollar of Debenture acquired.
ITEM 7. FINANCIAL STATEMENTS.
The consolidated financial statements required to be filed pursuant to
this Item 7 begin on page F-1 of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable.
16
<PAGE>
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
---- --- --------
John D. McPhilimy 55 Director, Chairman of the Board of Directors
and Chief Executive Officer
Roy D. Pringle 30 Vice President and Chief Financial Officer
Bruce D. Sandig 39 Director and Senior Vice President
Engineering
Ronnie M. Matlock 48 Vice President Customer Service
George S. Smith 64 Director
Raymond A. Quadt 82 Director
Lawrence G. Olson 62 Director
Susan A. Gunther 48 Director
- --------------------
Mr. John McPhilimy was appointed as a Director, President, and Chief
Executive Officer of the Company in November 1997. In January 1998, he was
appointed Chairman of the Board. From January 1995 until November 1997, Mr.
McPhilimy served as President of Selah Information Systems, Inc., Mesa, Arizona,
a company involved in information systems. From March 1992 to December 1995, Mr.
McPhilimy served as President of Travel Teller, Inc. Mr. McPhilimy has over 30
years of executive and marketing experience in high-technology industries such
as aerospace, air transportation, and electronic telecommunication networks with
Bell Helicopter Textron, Aerospatiale, Executive Jet Aviation, Travel Teller
Inc., Marketing Works, and Selah Information Systems. Over the last 15 years he
has been responsible for implementing marketing strategies of NetJets and Travel
Teller, which created the new industries of "nationwide fractional ownership of
business jets" and "electronic ticket delivery networks," respectively.
Mr. Roy D. Pringle was appointed as Vice President, Chief Financial
Officer, and Chief Information Officer of the Company in November 1997, and
provides overall integrated enterprise-wide financial management systems for the
Company. Mr. Pringle has worked for InfoPak, Inc. for more than the past five
years. Mr. Pringle holds a master's degree from the American Graduate School of
International Management. Prior to joining InfoPak, he was President and founder
of a small software company, Signature Software.
Mr. Bruce D. Sandig was appointed as a Director of the Company in
January 1998 and as Senior-Vice President of Creative Design and Production
Engineering of the Company in November 1997 and provides overall development and
integration of the DV3D(R) and Animotion(TM) Multi-Dimensional Images systems.
Mr. Sandig was a co-founder of InfoPak in 1992. Mr. Sandig has over 15 years
experience in electro-mechanical and software engineering/design with such
companies as Universal Propulsion Company, Kroy, Inc., Dial Manufacturing, and
Softie, Inc., where he also created several proprietary software games for
Nintendo.
Ms. Ronnie M. Matlock was appointed Vice President of Customer Service
and Operations in November 1997, and provides the overall integrated customer
support and production deliveries for its MARKETINGLENSES product line of
DV3D(R) and Animotion(TM) images. Ms. Matlock served as customer service
director for the Company since 1993. She has over 20 years of customer solutions
experience with such companies as Osage Communications, Arizona Auto
Accessories, and Arrowhead Medical.
17
<PAGE>
Mr. George S. Smith has served as a Director of the Company since April
1992 and as Chairman of the Board from April 1992 until January 1998. From April
1992 until September 1995 and from June 1996 until November 1997, Mr. Smith
served as the Chief Executive Officer of the Company. From 1988 to 1990 he was a
senior Vice President at Shearson Lehman Brothers. From 1980 to 1988, Mr. Smith
was a Senior Vice-President at Drexel Burnham Lambert. Mr. Smith is an honors
graduate in economics with a minor in engineering from San Jose State
University.
Mr. Lawrence G. Olson has served as a Director of the Company since
October 1997. For more than the past five years, Mr. Olson has served as the
President and Chief Executive Officer of Olson Precast Inc.
Ms. Susan A. Gunther has served as a Director of the Company since
January 1998. Since January 1998 she has served as Managing Principal Consultant
for Oracle, Inc. She served as Director of Business Processing from March 1995
to December 1997 for AmKor Electronics.
Mr. Raymond A. Quadt has served as a Director of the Company since
January 1998. Mr. Quadt was one of the founders of Republic National Bank of
Phoenix, where he served as a Director from January 1983 to January 1998.
On January 12, 1998, three prior Directors, Robert L. Morris, Steven L.
Flint, and Hans Kaemmlein, resigned as Directors of the Company and on February
9, 1998, Mr. Sean Lee resigned as a Director of the Company. The Board filled
the vacancies created by their resignations by appointing Susan A. Gunther,
Raymond L. Quadt, and Bruce D. Sandig as Directors effective January 16, 1998.
There currently are no Committees on the Board of Directors.
Directors serve until the next annual meeting or until their successors
are qualified and elected. Officers serve at the discretion of the Board of
Directors.
The Certificate of Incorporation and Bylaws of the Company provide that
the Company will indemnify and advance expenses, to the fullest extent permitted
by the Delaware General Corporation Law, to each person who is or was a
director, officer or agent of the Company, or who serves or served any other
enterprise or organization at the request of the Company (an "Indemnitee").
Under Delaware law, to the extent that an Indemnitee is successful on
the merits of a suit or proceeding brought against him or her by reason of the
fact that he or she was a director, officer or agent of the Company, or serves
or served any other enterprise or organization at the request of the Company,
the Company will indemnify him or her against expenses (including attorneys'
fees) actually and reasonably incurred in connection with such action.
If unsuccessful in defense of a third-party civil suit or a criminal
suit, or if such a suit is settled, an Indemnitee may be indemnified under
Delaware law against both (i) expenses, including attorneys' fees, and (ii)
judgments, fines and amounts paid in settlement if he or she acted in good faith
and in a manner he or she reasonably believed to be in, or not opposed to, the
best interests of the Company, and, with respect to any criminal action, had no
reasonable cause to believe his other conduct was unlawful.
If unsuccessful in defense of a suit brought by or in the right of the
Company, where the suit is settled, an Indemnitee may be indemnified under
Delaware law only against expenses (including attorneys' fees) actually and
reasonably incurred in the defense or settlement of the suit if he or she acted
in good faith and in a manner he or she reasonably believed to be in, or not
opposed to, the best interests of the Company except that if the Indemnitee is
adjudged to be liable for negligence or misconduct in the performance of his or
her duty to the Company, he or she cannot be made whole even for expenses unless
a court determines that he or she is fully and reasonably entitled to
indemnification for such expenses.
Also under Delaware law, expenses incurred by an officer or director in
defending a civil or criminal action, suit or proceeding may be paid by the
Company in advance of the final disposition of the suit, action or proceeding
upon receipt of an undertaking by or on behalf of the officer or director to
repay such amount if it is ultimately determined that he or she is not entitled
to be indemnified by the Company. The Company may also advance expenses incurred
by other employees and agents of the Company upon such terms and conditions, if
any, that the Board of Directors of the Company deems appropriate.
18
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act of 1933 and is therefore unenforceable.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires directors and certain officers of the Company, as well as persons who
own more than 10% of a registered class of the Company's equity securities
("Reporting Persons") to file reports of ownership and changes in ownership of
Forms 3, 4 and 5 with the Securities and Exchange Commission. The Company
believes that all Reporting Persons have complied on a timely basis with all
filing requirements applicable to them.
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation earned by or paid
to the Company's Chief Executive Officer and its former Chief Executive Officer
for the fiscal year ended June 30, 1998. No officer of the Company earned more
than $100,000 in the fiscal year ended June 30, 1998.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION Awards Payouts
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Salary Bonus Compensation Awards Options/SARs Payouts Compens
Year ($) ($) ($) ($) (#) ($) ation ($)
------ ----- ------------ ------ ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John D. McPhilimy 1998 $54,750 $0 $0 $0 -- $0 $0
CEO
George S. Smith 1998 $37,5001. $0 $0 $0 -- $0 $0
CEO
</TABLE>
1. Excludes approximately $5,000 of travel and living expenses and $10,000
of consulting fees which were paid during the year.
OPTIONS/SAR GRANTS IN THE FISCAL YEAR 1998
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to
Option/SARs Employees in Exercise or Base Expiration
Name Year Granted (#) Fiscal Year Price ($/Share) Date
---- ---- ----------- ----------- --------------- ----
<S> <C> <C> <C> <C> <C>
John D. McPhilimy 1998 312,143 41% $0.93 Jan. 15, 2003
CEO
George S. Smith 1998 0 0% $0 --
CEO
</TABLE>
19
<PAGE>
AGGREGATED OPTIONS/SAR EXERCISES IN THE FISCAL YEAR 1998 AND FY-END
OPTION/SAR VALUES
Number of Securities
Shares Underlying Exercised Value of
Acquired Options/ SARs at FY- Unexercised In-
on End (#) the-Money
Exercise Value Exercisable/ Options/SARs
Name Year (#) Realized Unexercisable at FY-End ($)
---- ---- --- -------- ------------- -------------
John D. McPhilimy 1998 -- 0 312,143 (E)/0(U) $0
CEO
George S. Smith 1998 -- 0 102,679 (E)/0(U) $0
CEO
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the shares
of the Company's outstanding Common Stock beneficially owned as of September 30,
1998 by (i) each of the Company's directors and executive officers, (ii) all
directors and executive officers as a group, and (iii) each other person who is
known by the Company to own beneficially more than 5% of the Company's Common
Stock.
Name and Address Amount and Nature of Percent
of Beneficial Owners(1) Beneficial Ownership(2) Ownership(2)
- ----------------------- ----------------------- ------------
George S. Smith (3) 257,821 6.94
3688 N. Littlerock Drive
Provo, UT 84604
John D. McPhilimy (4) 156,072 4.14
1340 W. Elgin Street
Chandler, AZ 85224
Bruce D. Sandig (5) 157,641 4.22
13247 N. 3rd Place
Phoenix, AZ 85022
Roy D. Pringle (6) 120,726 3.24
7186 W. Topeka Drive
Glendale, AZ 85308
Ronnie M. Matlock (7) 126,160 3.39
19960 N. Denaro Drive
Glendale, AZ 85308
Susan A. Gunther (8) 20,536 0.57
26210 S. Lime Drive
Queen Creek, AZ 85242
Lawrence G. Olson (9) 20,536 0.57
214 W. Vista Avenue
Phoenix, AZ 85021
Raymond A. Quadt (10) 20,536 0.57
6454 S. Willow Drive
Tempe, AZ 85283
All executive officers and directors
as a group (8 persons) (11) 880,027 20.55
(1) Each person named in the table has sole voting and investment power
with respect to all Common Stock beneficially owned by him or her,
subject to applicable community property law, except as otherwise
indicated. Except as otherwise indicated, each of such persons may be
reached through the Company at 2301 W. Dunlap Avenue, Suite 207,
Phoenix, Arizona 85021.
20
<PAGE>
(2) The percentages shown are calculated based upon the 3,612,226 shares of
Common Stock outstanding on June 30, 1998. The numbers and percentages
shown include the shares of Common Stock actually owned as of June 30,
1998 and the shares of Common Stock that the identified person or group
had the right to acquire within 60 days of such date. In calculating
the percentage of ownership, all shares of Common Stock that the
identified person or group had the right to acquire within 60 days of
June 30, 1998 upon the exercise of options and warrants, or the
conversion of Preferred Stock, are deemed to be outstanding for the
purpose of computing the percentage of the shares of Common Stock owned
by such person or group, but are not deemed to be outstanding for the
purpose of computing the percentage of the shares of Common Stock owned
by any other person.
(3) Mr. Smith owns 154,924 shares of the Company's Common Stock. Also
included in the amount are options to purchase 102,679 shares of the
Company's Common Stock, and 544 shares of Series C Convertible
Preferred Stock, convertible into 218 shares of the Company's Common
Stock.
(4) Mr. McPhilimy has options to purchase 312,143 shares of the Company's
Common Stock, of which 156,072 currently are exercisable.
(5) Mr. Sandig owns 30,962 shares of the Company's Common Stock. Also
included in the amount are common stock purchase warrants and options
to purchase 229,357 shares of the Company's Common Stock, of which
126,679 currently are exercisable.
(6) Mr. Pringle owns 6,047 shares of the Company's Common Stock. Also
included in the amount are common stock purchase warrants and options
to purchase 114,679 shares of the Company's Common Stock.
(7) Ms. Matlock owns 17,481 shares of the Company's Common Stock. Also
included in the amount are common stock purchase warrants and options
to purchase 108,679 shares of the Company's Common Stock.
(8) Ms. Gunther has options to purchase 20,536 shares of the Company's
Common Stock.
(9) Mr. Olson has options to purchase 20,536 shares of the Company's Common
Stock.
(10) Mr. Quadt has options to purchase 20,536 shares of the Company's Common
Stock.
(11) Includes common stock purchase warrants to purchase in the aggregate
929,145 shares of the Company's Common Stock, of which 670,395
currently are exercisable, and 544 shares of the Company's Series C
Convertible Preferred Stock which would be convertible into 218 shares
of the Company's Common Stock.
STOCK OPTION PLAN
The Company has adopted a stock option plan (the "Plan") covering
1,500,000 shares of the Company's post-split Common Stock (increased from 20,000
post-split by the Board of Directors on January 13, 1998), $.001 par value,
pursuant to which officers, directors, key employees and consultants of the
Company are eligible to receive incentive as well as non-qualified stock options
and Stock Appreciation Rights ("SAR'S"). The Plan, which has been extended for
10 years by the Board of Directors on January 13, 1998, and expires September
2008, is administered by the Board of Directors. Incentive stock options granted
under the Plan are exercisable for a period of up to 10 years from the date of
grant and at an exercise price which is not less than the fair market value of
the Common Stock on the date of the grant, except that the term of an incentive
stock option granted under the Plan to a stockholder owning more than 10% of the
outstanding Common Stock may not exceed five years and the exercise price of an
incentive stock option granted to such a stockholder may not be less than 110%
of the fair market value of the Common Stock on the date of the grant.
Non-qualified stock options may be granted on terms determined by the Board of
Directors. SAR's which give the holder the privilege of surrendering such rights
for the appreciation in the Company's Common Stock between the time of grant and
the surrender, may be granted on any terms determined by the Board of Directors.
No SAR's have been granted.
As of September 30, 1998, 1,099,109 options have been granted under the
plan, at a weighted average exercise price of $0.93 per share.
21
<PAGE>
1996 EQUITY INCENTIVE PLAN
The Company, in June 1996. adopted the 1996 Equity Incentive Plan (the
"1996 Plan") covering 400,000 shares of the Company's Common Stock pursuant to
which employees, consultants and other persons or entities who are in a position
to make a significant contribution to the success of the Company are eligible to
receive awards in the form of incentive or non-incentive options, stock
appreciation rights, restricted stock or deferred stock. The 1996 Plan will
terminate ten (10) years after June 12, 1996, the effective date of the 1996
Plan. The 1996 Plan is administered by the Board of Directors. In its
discretion, the Board of Directors may elect to administer the 1996 Plan.
Restricted stock entitles the recipients to receive shares of the Company's
Common Stock subject to such restriction and condition as the Compensation
Committee may determine for no consideration or such considerations as
determined by the Compensation Committee. Deferred stock entitles the recipients
to receive shares of the Company's Common Stock in the future.
As of September 30, 1998, 121,572 shares have been issued pursuant to
this plan.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
John D. McPhilimy has an employment agreement with the Company. The
term of the agreement is three years ending November 1, 2000. Mr. McPhilimy's
base compensation is $90,000 per year. The agreement renews by mutual written
consent on the thirtieth month of its term for a two year period without further
action by either party by either the Company or Mr. McPhilimy. The agreement may
be terminated by the Company for cause.
Roy D. Pringle has an employment agreement with the Company. The term
of the agreement is three years ending in November 2000. Mr. Pringle's base
compensation is $60,000 per year.
Bruce D. Sandig has an employment agreement with the Company. The term
of the agreement is three years ending in November 2000. Mr. Sandig's base
compensation is $65,000 per year.
Ms. Ronnie M. Matlock has an employment agreement with the Company. The
term of the agreement is three years ending in November 2000. Ms. Matlock's base
compensation is $60,000 per year.
Mr. George S. Smith has a consulting agreement with the Company. The
agreement terminates in December 1998. Mr. Smith receives $2,000 per month as
compensation for his efforts on behalf of the company. Additionally, the Company
is obligated to pay Mr. Smith's monthly medical insurance costs through June 30,
1999.
ITEM 13. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
A. The following documents are filed as part of this report:
1. The consolidated financial statements filed as part of this
report are listed under the caption "Index to Financial
Statements and Schedules", appearing elsewhere in this report.
2. The consolidated financial schedules of the Company are filed
as part of this report:
SCHEDULE IV - Property and Equipment
SCHEDULE V - Accumulated Depreciation and Amortization of
Property and Equipment
3. The following Exhibits are filed herein:
22
<PAGE>
Exhibit
Number Description
- ------- -----------
3.1 Certificate of Incorporation
3.2(a) By-Laws
4.1(b) Form of Certificate of Designation - Series A Convertible
Preferred Stock
4.2(b) Form of Certificate of Designation - Series B Convertible
Preferred Stock
4.3(c) Form of Certificate of Designation - Series P Convertible
Preferred Stock
4.4(d) Form of Certificate of Designation - Series S Convertible
Preferred Stock
4.5(d) Form of Certificate of Designation - Series C Convertible
Preferred Stock
4.6(a) Warrant Agreement (including form of warrant)
4.7 Form of warrant
4.8 Form of warrant
4.9 Form of warrant
10.1(b) Stock Option Plan
10.2(d) 1996 Equity Incentive Plan
10.3(e) Agreement dated September 25, 1997 by and between InfoPak,
Inc. and DataNet Enterprises, LLC and David and Staci Noles
21.0 Subsidiaries of the registrant
27.0 Financial Data Schedule
99.1 Form of Debenture
99.2 Security Agreement
B. No reports on Form 8-K were filed during the last quarter of the period
covered by this Report.
- ----------
(a) Incorporated by reference from the registrant's registration
statement on Form S-1 (No. 33-24554)
(b) Incorporated by reference from the registrant's Annual Report
on Form 10-KSB for the fiscal years ended June 30, 1992, 1993,
1994 and 1995
(c) Incorporated by reference from the registrant's Current Report
on Form 8-K dated September 27, 1995.
(d) Incorporated by reference from the registrant's registration
statement on Form S-8 (No. 333-06679).
(e) Incorporated by reference from the registrant's current report
on Form 8-K dated October 21, 1997.
23
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
duly authorized.
DIMENSIONAL VISIONS INCORPORATED
DATED: October 9, 1998 By: /s/ John D. McPhilimy
---------------------
John D. McPhilimy, Chairman and
Chief Executive Officer
In accordance with Section 13 or 15(d) of the Exchange Act, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ John D. McPhilimy Chairman, Chief Executive October 9, 1998
- --------------------- Officer
John D. McPhilimy
/s/ Bruce D. Sandig Vice President, Director October 9, 1998
- ---------------------
Bruce D. Sandig
/s/ George S. Smith Director October 9, 1998
- ---------------------
George S. Smith
/s/ Raymond A. Quadt Director October 9, 1998
- ---------------------
Raymond A. Quadt
/s/ Lawrence G. Olson Director October 9, 1998
- ---------------------
Lawrence G. Olson
/s/ Susan A. Gunther Director October 9, 1998
- ---------------------
Susan A. Gunther
24
<PAGE>
DIMENSIONAL VISIONS INCORPORATED
AND SUBSIDIARIES
FINANCIAL REPORT
YEARS ENDED JUNE 30, 1998 AND 1997
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
YEARS ENDED JUNE 30, 1998 AND 1997
Index to Consolidated Financial Statements and Schedules
--------------------------------------------------------
Page
----
Independent Auditors' Report F-2
Consolidated Financial Statements
Balance Sheet F-4
Statements of Operations F-5
Statements of Stockholders' Equity (Deficiency) F-6
Statements of Cash Flows F-11
Notes to Consolidated Financial Statements F-15
Schedules
Independent Auditors' Report F-36
Schedule IV - Property and Equipment F-37
Schedule V - Accumulated Depreciation and
Amortization of Property and Equipment F-38
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders
Dimensional Visions Incorporated and Subsidiaries
Phoenix, Arizona
We have audited the accompanying consolidated balance sheet of Dimensional
Visions Incorporated and Subsidiaries (the "Company") as of June 30, 1998, and
the related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for each of the two years in the period ended June
30, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Dimensional Visions Incorporated
and Subsidiaries as of June 30, 1998 and the results of their operations and
their cash flows for each of the two years in the period ended June 30, 1998 in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has financed its
operations primarily through the sale of its securities. As described in Note 1
to the consolidated financial statements, the Company has suffered recurring
losses from operations and has limited sales of its products, which raises
substantial doubt about the Company's ability to continue as a going concern.
The future of the Company as an operating business will depend on (1) its
F-2
<PAGE>
To the Board of Directors and Stockholders
Dimensional Visions Incorporated and Subsidiaries
ability to successfully market its products, (2) obtain sufficient capital
contributions and/or financing as may be required to sustain its current
operations and fulfill its sales and marketing activities, (3) achieving a level
of sales adequate to support the Company's cost structure, and (4) to ultimately
achieve a level of profitability. Management's plan concerning these matters are
also described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
GITOMER & BERENHOLZ, P.C.
Jen
kintown, Pennsylvania
September 15, 1998
F-3
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
ASSETS
Current assets
Cash $ 15,910
Current portion of notes receivable 119,461
Accounts receivable, trade, net of allowance for
bad debts of $215,743 144,620
Inventory 69,364
Prepaid expenses 25,678
------------
Total current assets 375,033
------------
Equipment
Equipment 370,344
Furniture and fixtures 24,217
------------
394,561
Less accumulated depreciation 233,509
------------
161,052
------------
Other assets
Notes receivable net of current portion 342,377
Patent rights and other assets 42,379
------------
384,756
------------
Total assets $ 920,841
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 79,500
Current portion of long-term debt 75,000
Current portion of obligations under capital leases 16,476
Accounts payable, accrued expenses and other
liabilities 439,977
------------
Total current liabilities 610,953
Obligations under capital leases 102,586
------------
Total liabilities 713,539
------------
Commitments and contingencies --
Stockholders' equity
Preferred stock - $.001 par value, authorized
10,000,000 shares; issued and outstanding
133,321 shares 133
Additional paid-in capital 683,278
------------
683,411
------------
Common stock - $.001 par value, authorized
100,000,000 shares; issued and outstanding
3,612,101 shares 3,612
Additional paid-in capital 18,862,075
Deficit (19,341,796)
------------
Total stockholders' equity 207,302
------------
Total liabilities and stockholders'
equity $ 920,841
============
See notes to consolidated financial statements.
F-4
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997
---- ----
Operating revenue $ 609,392 $ 551,517
Cost of sales 473,147 306,190
----------- -----------
Gross profit 136,245 245,327
Sale of product line 410,000 --
----------- -----------
546,245 546,245
----------- -----------
Operating expenses
Engineering and development costs 226,237 397,387
Marketing expenses 249,607 328,792
General and administrative expenses 395,414 850,016
----------- -----------
Total operating expenses 871,258 1,576,195
----------- -----------
Loss before other income (expenses) (325,013) (1,330,868)
----------- -----------
Other income (expenses)
Interest expense (92,117) (25,048)
Interest income 30,806 7,102
Loss on sale/abandonment of leasehold
improvements and equipment (35,335) (1,150)
Amortization of goodwill -- (192,998)
Goodwill writedown -- (619,172)
----------- -----------
(96,646) (831,266)
----------- -----------
Net loss $ (421,659) $(2,162,134)
=========== ===========
Loss per share of common stock
Net loss $ (.14) $ (1.11)
=========== ===========
Weighted average shares of common stock
Outstanding 3,073,650 1,950,642
=========== ===========
See notes to consolidated financial statements.
F-5
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
Preferred Stock Additional Common Stock Additional
($.001 Par Value ) Paid-in ($.001 Par Value) Paid-in
Shares Amount Capital Shares Amount Capital
------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1996 632,207 $632 $3,503,161 26,711,657 $26,712 $13,963,359
Conversion of 15,000 shares of Series A
convertible preferred stock valued at
$150,000 into 600,000 shares of the
Company's common stock (15,000) (15) (149,985) 600,000 600 149,400
Conversion of 185,700 shares Series B
convertible preferred stock valued at
$1,857,000 into 22,284,000 shares of the
Company's common stock (185,700) (186) (1,856,814) 22,284,000 22,284 1,834,716
Conversion of 4,739 shares Series C
convertible preferred stock valued at
$47,390 into 47,390 shares of the
Company's common stock (4,739) (5) (47,385) 47,390 47 47,343
Conversion of 206,390 shares Series P
convertible preferred stock valued at
$515,975 into 2,063,900 shares of the
Company's common stock (206,390) (206) (515,769) 2,063,900 2,064 513,911
Conversion of 1,000 shares Series S
convertible preferred stock valued at
$10,000 into 100,000 shares of the
Company's common stock (1,000) (1) (9,999) 100,000 100 9,900
Conversion of $375,000 of convertible
debentures to 6,853,335 shares of the
Company's common stock issued pursuant
to a Regulation S offering - - - 6,853,335 6,853 368,147
Exercise of 1,000,000 warrants to
purchase the Company's common stock - - - 1,000,000 1,000 99,000
Conversion of a $15,000 advance to
150,000 shares of the Company's common
stock - - - 150,000 150 14,850
Issuance of 1,625,700 shares of the
Company's common stock to consultants
for services valued at $144,247 - - - 1,625,700 1,626 142,621
<CAPTION>
Deficit Total
------- -----
<S> <C> <C>
Balance, July 1, 1996 $(16,758,003) $735,861
Conversion of 15,000 shares of Series A
convertible preferred stock valued at
$150,000 into 600,000 shares of the
Company's common stock - -
Conversion of 185,700 shares Series B
convertible preferred stock valued at
$1,857,000 into 22,284,000 shares of the
Company's common stock - -
Conversion of 4,739 shares Series C
convertible preferred stock valued at
$47,390 into 47,390 shares of the
Company's common stock - -
Conversion of 206,390 shares Series P
convertible preferred stock valued at
$515,975 into 2,063,900 shares of the
Company's common stock - -
Conversion of 1,000 shares Series S
convertible preferred stock valued at
$10,000 into 100,000 shares of the
Company's common stock - -
Conversion of $375,000 of convertible
debentures to 6,853,335 shares of the
Company's common stock issued pursuant
to a Regulation S offering - 375,000
Exercise of 1,000,000 warrants to
purchase the Company's common stock - 100,000
Conversion of a $15,000 advance to
150,000 shares of the Company's common
stock - 15,000
Issuance of 1,625,700 shares of the
Company's common stock to consultants
for services valued at $144,247 - 144,247
</TABLE>
F-6
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
Preferred Stock Additional Common Stock Additional
($.001 Par Value ) Paid-in ($.001 Par Value) Paid-in
Shares Amount Capital Shares Amount Capital
------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Issuance of 427,940 shares of the
Company's common stock to employees for
compensation valued at $63,599 including
accrued compensation of $36,100
- - - 427,940 428 63,171
Conversion of $50,000 of accrued
consulting fees to 312,500 shares of the
Company's common stock valued at $.16
per share - - - 312,500 313 49,687
The Company sold through two private
placements 1,390,000 shares of the
Company's common stock valued at $.10
per share and 2,100,000 shares of the
Company's common stock valued at $.05
per share - - - 3,490,000 3,490 240,510
The Company sold through an offshore
placement 2,500,000 shares of the
Company's common stock valued at $.14
per share and issued 350,000 warrants to
purchase the Company's common stock
at $.14 and 250,000 warrants to purchase
the Company's common stock at $.15 for
three years commencing October 1996 - - - 2,500,000 2,500 347,500
450,800 shares of the Company's
restricted stock was exchanged for
450,800 shares from the Company's 1996
Equity Incentive Plan - - - - - -
28,550 shares of the Company's common
stock was surrendered by the Chairman of
the Board/Chief Executive Officer - - - (28,550) (29) 29
Net loss - - - - - -
------- -------- -------- ---------- ------- -----------
219,378 $ 219 $923,209 68,137,872 $68,138 $17,844,144
======= ======== ======== ========== ======= ===========
<CAPTION>
Deficit Total
------- -----
<S> <C> <C>
Issuance of 427,940 shares of the
Company's common stock to employees for
compensation valued at $63,599 including
accrued compensation of $36,100
- 63,599
Conversion of $50,000 of accrued
consulting fees to 312,500 shares of the
Company's common stock valued at $.16
per share - 50,000
The Company sold through two private
placements 1,390,000 shares of the
Company's common stock valued at $.10
per share and 2,100,000 shares of the
Company's common stock valued at $.05
per share - 244,000
The Company sold through an offshore
placement 2,500,000 shares of the
Company's common stock valued at $.14
per share and issued 350,000 warrants to
purchase the Company's common stock
at $.14 and 250,000 warrants to purchase
the Company's common stock at $.15 for
three years commencing October 1996 - 350,000
450,800 shares of the Company's
restricted stock was exchanged for
450,800 shares from the Company's 1996
Equity Incentive Plan - -
28,550 shares of the Company's common
stock was surrendered by the Chairman of
the Board/Chief Executive Officer - -
Net loss (2,162,134) (2,162,134)
------------ ----------
$(18,920,137) $ (84,427)
============ ==========
</TABLE>
F-7
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
Preferred Stock Additional Common Stock Additional
($.001 Par Value) Paid-in ($.001 Par Value) Paid-in
Shares Amount Capital Shares Amount Capital
------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1997 219,378 $219 $923,209 68,137,872 $68,138 $17,844,144
Conversion of 2,500 shares of Series A
convertible preferred stock valued at
$25,000 into 100,000 pre-split shares of
the Company's common stock (2,500) (3) (24,997) 100,000 100 24,900
Conversion of 81,407 shares Series P
convertible preferred stock valued at
$203,517 into 814,070 pre-split shares
of the Company's common stock (81,407) (81) (203,436) 814,070 814 202,703
Conversion of 2,150 shares Series S
convertible preferred stock valued at
$11,500 into 215,000 pre-split shares of
the Company's common stock (2,150) (2) (11,498) 215,000 215 11,285
Conversion of 50,000 of convertible
debentures to 1,818,182 pre-split shares
of the Company's common stock issued
pursuant to a Regulation S offering - - - 1,818,182 1,818 48,182
Exercise of 1,000,000 warrants to
purchase 1,000,000 post-split shares of
the Company's common stock at $.10 per
share - - - 1,000,000 1,000 9,000
Issuance of 50,000 pre-split shares of
the Company's common stock to an
employee for compensation valued at - - - 50,000 50 2,700
$2,750
Issuance of 180,000 pre-split shares of
the Company's common stock to
consultants for services valued at - - - 180,000 180 11,070
$11,250
The Company sold through a private
placement 1,400,000 pre-split shares of
the Company's common stock valued at
$.05 per share - - - 1,400,000 1,400 68,600
The Company sold through an offshore
placement 1,666,666 pre-split shares of
the Company's common stock valued at
$.045 per share - - - 1,666,666 1,667 73,333
<CAPTION>
Deficit Total
------- -----
<S> <C> <C>
Balance, July 1, 1997 $(18,920,137) $(84,427)
Conversion of 2,500 shares of Series A
convertible preferred stock valued at
$25,000 into 100,000 pre-split shares of
the Company's common stock - -
Conversion of 81,407 shares Series P
convertible preferred stock valued at
$203,517 into 814,070 pre-split shares
of the Company's common stock - -
Conversion of 2,150 shares Series S
convertible preferred stock valued at
$11,500 into 215,000 pre-split shares of
the Company's common stock - -
Conversion of 50,000 of convertible
debentures to 1,818,182 pre-split shares
of the Company's common stock issued
pursuant to a Regulation S offering - 50,000
Exercise of 1,000,000 warrants to
purchase 1,000,000 post-split shares of
the Company's common stock at $.10 per
share - 10,000
Issuance of 50,000 pre-split shares of
the Company's common stock to an
employee for compensation valued at - 2,750
$2,750
Issuance of 180,000 pre-split shares of
the Company's common stock to
consultants for services valued at - 11,250
$11,250
The Company sold through a private
placement 1,400,000 pre-split shares of
the Company's common stock valued at
$.05 per share - 70,000
The Company sold through an offshore
placement 1,666,666 pre-split shares of
the Company's common stock valued at
$.045 per share - 75,000
</TABLE>
F-8
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
Preferred Stock Additional Common Stock Additional
($.001 Par Value ) Paid-in ($.001 Par Value) Paid-in
Shares Amount Capital Shares Amount Capital
------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Issuance of 1,500,000 post-split
warrants to purchase 1,500,000 shares of
the Company's common stock at $.50 per
share for a five year period commencing
January 1998 to the investment banker
connection with private placement of the
Company's securities - - - - - -
Issuance of 420,000 warrants to purchase
the Company's common stock at $1 per
share based on the post-split price for
a five year period commencing during
October 1997 through January 1998 in
connection with a bridge loan that was
converted to equity - - - - - -
Issuance of 297,000 post-split warrants
to purchase the Company's common stock
at prices ranging from approximately
$.91 to $.93 per share in connection
with the issuance of debentures that
were converted to equity for a three
year period commencing April 1998 or
June 1998. The warrant price was
adjusted by the accrued interest on the
debenture that was applied against the
warrant exercise price - - - - - 1,660
The noteholders converted substantially
all the short term loans and related
interest through a private placement
into 14,921,000 pre-split shares of the
Company's common stock valued at $1.50
per share based on the post-split price
or $.06 per share at the pre-split price
and issued 298,808 post-split warrants
to purchase the Company's common stock
at $1.50 per share until February 28,
1999 and $2.00 per share until February
28, 2001 - - - 14,921,000 14,921 477,779
<CAPTION>
Deficit Total
------- -----
<S> <C>
Issuance of 1,500,000 post-split
warrants to purchase 1,500,000 shares of
the Company's common stock at $.50 per
share for a five year period commencing
January 1998 to the investment banker
connection with private placement of the
Company's securities - -
Issuance of 420,000 warrants to purchase
the Company's common stock at $1 per
share based on the post-split price for
a five year period commencing during
October 1997 through January 1998 in
connection with a bridge loan that was
converted to equity - -
Issuance of 297,000 post-split warrants
to purchase the Company's common stock
at prices ranging from approximately
$.91 to $.93 per share in connection
with the issuance of debentures that
were converted to equity for a three
year period commencing April 1998 or
June 1998. The warrant price was
adjusted by the accrued interest on the
debenture that was applied against the
warrant exercise price - 1,660
The noteholders converted substantially
all the short term loans and related
interest through a private placement
into 14,921,000 pre-split shares of the
Company's common stock valued at $1.50
per share based on the post-split price
or $.06 per share at the pre-split price
and issued 298,808 post-split warrants
to purchase the Company's common stock
at $1.50 per share until February 28,
1999 and $2.00 per share until February
28, 2001 - 492,700
</TABLE>
F-9
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
Preferred Stock Additional Common Stock Additional
($.001 Par Value ) Paid-in ($.001 Par Value) Paid-in
Shares Amount Capital Shares Amount Capital
------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Issuance of a warrant to purchase 3.53
units each consisting of 16,000 shares
of the Company's common stock and 8,000
redeemable common stock purchase
warrants to the investment banker in
connection with the private placement of
the Company's securities at $28,800 per
unit for a five year period commencing
April 1998 - - - - - 28
1 for 25 reverse stock split - - - (86,690,419) (86,691) 86,691
Net loss - - - - - -
------- ------ -------- ---------- ------ -----------
133,321 $ 133 $683,278 3,612,101 $3,612 $18,862,075
======= ====== ======== ========== ====== ===========
<CAPTION>
Deficit Total
------- -----
<S> <C> <C>
Issuance of a warrant to purchase 3.53
units each consisting of 16,000 shares
of the Company's common stock and 8,000
redeemable common stock purchase
warrants to the investment banker in
connection with the private placement of
the Company's securities at $28,800 per
unit for a five year period commencing
April 1998 - 28
1 for 25 reverse stock split - -
Net loss (421,659) (421,659)
------------ --------
$(19,341,796) $207,302
============ ========
</TABLE>
See notes to financial statements.
F-10
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997
---- ----
Operating activities
Net loss $ (421,659) $(2,162,134)
Adjustments to reconcile net loss to net
cash used in operating activities
Gain on sale of product line (410,000) --
Goodwill writedown -- 619,172
Compensation paid to officers/
employees through issuance of
warrants and common stock 2,750 27,499
Consulting service paid through
issuance of warrants and common
stock 11,250 144,247
Depreciation and amortization of
property and equipment 43,117 50,366
Amortization of other assets and
deferred costs 19,856 37,246
Interest expense paid through
reduction of warrant price to
debenture holders 1,660 --
Interest expense paid through
issuance of common stock 73,840 --
Amortization of goodwill -- 192,998
Loss on sale/abandonment of leasehold
improvements and equipment 35,335 1,150
Transfer of prepaid expenses to assets
Sold (10,002) --
Changes in assets and liabilities
which provided (used) cash
Accounts receivable, trade (62,319) (49,693)
Inventory 109,763 (89,669)
Prepaid supplies and expenses (15,677) 22,446
Other assets -- 6,542
Accounts payable, accrued expenses
and other liabilities 26,030 166,989
----------- -----------
Net cash used in operating activities (596,056) (1,032,841)
----------- -----------
Investing activities
Payment of obligations under capital lease (19,850) --
Purchase of equipment (10,200) (4,666)
Deposits (4,100) --
Notes receivable (90,000) --
Proceeds from payments on notes receivable 38,162 --
----------- -----------
Net cash used in investing activities (85,988) (4,666)
----------- -----------
F-11
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997
---- ----
Financing activities
Proceeds from
Sale of
Common stock 145,000 594,000
Warrant right 28 --
Debt obligation not converted to
common stock 25,000 --
Debt obligations converted to common
stock net of offering costs of
$203,140 in 1998 418,860 --
Issuance of common stock in connection
with the exercise of warrants 10,000 100,000
Proceeds from sale of equipment and
supplies 10,000 --
Borrowings from factor 79,500 250,000
Payment of debt obligations (100,000) --
--------- ---------
Net cash provided by financing activities 588,388 944,000
--------- ---------
Net decrease in cash and cash equivalents (93,656) (93,507)
Cash and cash equivalents, beginning of year 109,566 203,073
--------- ---------
Cash, end of year $ 15,910 $ 109,566
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 5,425 $ --
========= =========
Issuance of common stock in connection
With
Accrued compensation settled for
common stock in lieu of cash payment $ -- $ 36,100
========= =========
Accrued consulting fee settled for
common stock in lieu of cash
payment $ -- $ 50,000
========= =========
Advance settled for common stock in
lieu of cash payment $ -- $ 15,000
========= =========
Consulting services $ 11,250 $ 144,247
========= =========
Officers/employees compensation $ 2,750 $ 27,499
========= =========
F-12
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Supplemental disclosure of non-cash investing and financing activities for
fiscal year 1998:
The Company recorded capital lease obligations of $138,912 relating to the
acquisition of equipment.
In connection with the sale of a product line for $410,000 the Company
recorded a note receivable.
The Company issued 72,727 shares (1,818,182 pre-split shares) of the
Company's common stock in connection with the conversion of $50,000 of
convertible debentures to common stock under a Regulation S Securities
Subscription Agreement.
The Company issued 596,840 shares (14,921,000 pre-split shares) of the
Company's common stock in connection with the conversion of $695,840 short
term debt and related interest expense.
The Company issued 45,163 post-split shares (1,129,070 pre-split shares) of
the Company's common stock in connection with the conversion of convertible
preferred stock valued at $240,018 as follows:
Converted to
Value Common Stock
----- ------------
Series A Convertible Preferred Stock $ 25,000 100,000
Series P Convertible Preferred Stock 203,518 814,070
Series S Convertible Preferred Stock 11,500 215,000
---------- ----------
$ 240,018 1,129,070
========== ==========
The Company issued 7,200 shares (180,000 pre-split shares) of the Company's
common stock to consultants for services valued at $11,250.
The Company issued 2,000 shares (50,000 pre-split shares) of the Company's
common stock to employees valued at $2,750 for compensation and/or accrued
compensation.
F-13
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Supplemental disclosure of non-cash investing and financing activities for
fiscal year 1997:
The Company issued 1,003,812 post-split shares (25,095,290 pre-split
shares) of the Company's common stock in connection with the conversion of
convertible preferred stock valued at $2,580,365 as follows:
Converted to
Value Common Stock
----- ------------
Series A Convertible Preferred Stock $ 150,000 600,000
Series B Convertible Preferred Stock 1,857,000 22,284,000
Series C Convertible Preferred Stock 47,390 47,390
Series P Convertible Preferred Stock 515,975 2,063,900
Series S Convertible Preferred Stock 10,000 100,000
---------- ----------
$2,580,365 25,095,290
========== ==========
The Company issued 1,625,700 pre-split shares of the Company's common stock
to consultants for services valued at $144,247.
The Company issued 427,940 pre-split shares of the Company's common stock
to employees valued at $63,599 for compensation and/or accrued
compensation.
The Company issued 462,500 pre-split shares of the Company's common stock
valued at $65,000 in connection with certain liabilities settled in lieu of
a cash payment for accrued consulting fee of $50,000 and an advance of
$15,000.
See notes to consolidated financial statements.
F-14
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998 AND 1997
Note 1: Summary of Significant Accounting Policies
DESCRIPTION OF BUSINESS, FINANCING AND BASIS OF FINANCIAL STATEMENT
PRESENTATION
Dimensional Visions Incorporated (the "Company" or "DVI") was
incorporated in Delaware on May 12, 1988. The Company produces and
markets lithographically printed stereoscopic and animation print
products. The stockholders of the Company approved a name change
effective January 15, 1998 from Dimensional Visions Group, Ltd. to
Dimensional Visions Incorporated.
The Company, through a wholly-owned subsidiary of InfoPak, Inc. has
developed a data delivery system that provides end users with specific
industry printed materials by way of a portable hand-held reader. Data
is acquired electronically from the data provided by mainframe systems
and distributed through a computer network to all subscribers.
The Company has financed its operations primarily through the sale of
its securities. The Company has had limited sales of its products
during the years ended June 30, 1998 and 1997. Even though the sales
during the past two years have significantly increased over the prior
years, the volume of business is not nearly sufficient to support the
Company's cost structure.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred losses since inception of $19,341,796 and has
a working capital deficiency of $235,920 as of June 30, 1998. The
future of the Company as an operating business will depend on (1) its
ability to successfully market and sell its products, (2) obtaining
sufficient capital contributions and/or financing as may be required
to sustain its current operations and to fulfill its sales and
marketing activities, (3) achieving a level of sales adequate to
support the Company's cost structure, and (4) ultimately achieving a
level of profitability. Management's plan to address these issues
includes (a) redirecting its marketing efforts of the Company's
products and substantially increasing sales results, (b) continued
exercise of tight cost controls to conserve cash, (c) raising
additional long term financing, and (d) selling of its subsidiary.
F-15
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Note 1: Summary of Significant Accounting Policies (Continued)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The consolidated financial statements have been prepared on a going
concern basis which contemplates the realization and settlement of
liabilities and commitments in the normal course of business. The
available funds at June 30, 1998, plus the limited revenue is not
sufficient to satisfy the present cost structure. Management
recognizes that the Company must generate additional resources to
enable it to continue operations. Management plans include the
continued expansion of the sale of its products and the sale of
additional securities.
Further, there can be no assurances, assuming the Company successfully
raises additional funds that the Company will achieve profitability or
positive cash flow from the sale of its products. In the event the
Company is not able to secure sufficient funds on a timely basis
necessary to maintain its current operations, it may cease all or part
of its existing operations and/or seek protection under the bankruptcy
laws.
CONSOLIDATION POLICY
The consolidated financial statements include the accounts of DVI and
its wholly-owned subsidiaries, InfoPak, Inc., DVG Plastics, Inc.,
Digital Dimensions, Inc. and DV3D Images, Inc. As of June 30, 1998,
all of the wholly-owned subsidiaries were dissolved, except for
InfoPak, Inc. All significant intercompany balances and transactions
have been eliminated in consolidation.
INVENTORY
Inventory is stated at the lower of cost or market. Cost is determined
by the first-in, first-out method. Inventory consists of raw materials
of $8,400 and finished goods of $60,964.
F-16
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Note 1: Summary of Significant Accounting Policies (Continued)
EQUIPMENT, DEPRECIATION AND AMORTIZATION
Equipment is stated at cost. Depreciation, which includes amortization
of assets under capital lease is provided by the use of the
straight-line method over the estimated useful lives of the assets as
follows:
Equipment 5 - 7 years
Furniture and fixtures 5 years
PATENT RIGHTS
Costs incurred to acquire patent rights and the related technology are
amortized over the shorter of the estimated useful life or the
remaining term of the patent rights. In the event that the costs of
patent rights and/or acquired technology are abandoned, the write-off
will be charged to expenses in the period the determination is made to
abandon them.
GOODWILL
As of June 30, 1997, the Company recorded a goodwill writedown of
$619,172. This writedown eliminates all the remaining goodwill of the
Company. The asset of goodwill was determined to have been impaired
because of the current financial condition of the Company and the
Company's inability to generate future operating income without
substantial sales volume increases, which are uncertain. In addition,
anticipated future cash flows of the Company indicate that the
recoverability of the asset is not reasonably assured.
F-17
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Note 1: Summary of Significant Accounting Policies (Continued)
GOODWILL (CONTINUED)
The Company is required to analyze the value of its recorded
intangible assets on an ongoing basis to determine that the recorded
amounts are reasonable and are not impaired. The Company's management
considers the Company's financial condition and expected future
operating income in determining if goodwill is impaired at the balance
sheet date. Upon determination that goodwill was impaired at June 30,
1997, the amount of impairment was calculated by determining that
portion of the goodwill which would not be expected to be recovered
against operating income during the remaining amortization period.
ENGINEERING AND DEVELOPMENT COSTS
The Company charges to engineering and development costs all items of
a non-capital nature related to bringing "significant" improvement to
its product. Such costs include salaries and expenses of employees and
consultants, the conceptual formulation, design, and testing of the
products and creation of prototypes. All such costs of a capital
nature are capitalized.
INCOME TAXES
Deferred income taxes reflect the net effect of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes, and (b) operating loss carryforwards.
NET LOSS PER SHARE OF COMMON STOCK
Net loss per share of common stock is based on the weighted average of
shares of common stock outstanding. Outstanding warrants or options
are not considered in the calculation of net loss per share of common
stock, as they would have an anti-dilutive effect.
F-18
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Note 1: Summary of Significant Accounting Policies (Continued)
USE OF 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 revenue
and expenses during the reporting periods. Actual results could differ
from those estimates.
CONCENTRATION OF CREDIT RISK
The Company is subject to credit risk through trade receivables. The
Company relies on a limited number of customers for its sales. The
Company is in the process of building a customer base for its products
and, therefore, the degree of risk is substantially higher until the
base grows.
The Company also relies on several key vendors to supply plastics and
printing services. Although there are a limited number of vendors
capable of fulfilling the Company's needs, the Company believes that
other vendors could provide for the Company's needs on comparable
terms. Abrupt changes could, however, cause a delay in processing and
a possible inability to meet sales commitments on schedule, or a
possible loss of sales, which would affect operating results
adversely.
Note 2: Cash
The Company considers all highly liquid investments, with an original
maturity of three months or less when purchased, to be cash
equivalents.
The Company maintains its cash in banks located in Arizona. The total
cash balances are insured by the FDIC up to $100,000 per financial
institution. As of June 30, 1998, there were no uninsured balances.
F-19
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Note 3: Notes Receivable
Notes receivable consists of the following:
Interest
Rate Amount Maturity
-------- ------ --------
Sale of Product Line (1) 11% $374,338 September 2001
Sale of inforeaders (2) 10% 87,500 August 2001
--------
46 1,838
Less current portion 119,461
--------
$342,377
========
(1) On September 25, 1997, the Company sold one of its product lines for
$410,000 (see Note 13). During February 1998, the terms of the note
were modified. The payment period was changed to forty-eight months
and the interest rate was increased to 11%. Effective September 1998,
the modified terms provide for payments to be $11,533 per month.
(2) On March 1, 1998, the Company sold inforeaders (hardware) to a
customer for $100,000 and agreed to accept a note for $90,000 with
interest at 10%, commencing on September 1, 1998. The monthly payment
will be $2,904, including interest for thirty-six months.
Note 4: Patent Rights and Other Assets
Patent rights $ 58,426
Organization costs 2,000
Deposits 4,100
Trademark 225
Deferred compensation 2,604
--------
67,355
Less accumulated amortization 24,976
--------
Total $ 42,379
========
Note 5: Accounts Payable, Accrued Expenses and Other Liabilities
Accounts payable $370,633
Accrued expenses
Interest 20,886
Salaries 46,650
Payroll taxes payable 1,808
--------
Total $439,977
========
F-20
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Note 6: Short-Term Borrowings
On May 26, 1998, the Company entered into a renewable one year
agreement with a factor that provides advances up to $100,000 based on
80% of the face value of accounts receivable factored. As collateral
for this funding, the Company has provided a security interest under
the Uniform Commercial Code in all of the Company's assets and has
guaranteed the collection of the receivable under recourse. Interest
is charged at the rate of .0067 per day or 2% a month on outstanding
borrowings. As of June 30, 1998, the outstanding borrowings under this
arrangement were $79,500.
During October 1997 through January 1998, the Company received bridge
loans of $350,000. The lenders were issued Series A convertible
secured promissory notes that were due in full on February 28, 1998.
Interest on these borrowings was calculated at 5% per month and
amounted to $79,264. The lenders also received 420,000 warrants to
purchase the Company's common stock at $1 per share for five years,
commencing during October 1997 through January 1998. On April 8, 1998,
$325,000 of the outstanding bridge loan was converted to equity along
with the related interest due on the obligation of $73,839. The
balance of $25,000 and interest of $5,425 was paid off on April 8,
1998. The lenders who converted received approximately 24.93 units. A
unit consists of 16,000 post-split shares of the Company's common
stock and 8,000 post-split warrants to purchase the Company's common
stock (see Note 10, paragraph 12).
During March through May 1998, the Company sold $297,000 of unsecured
12% convertible promissory notes and warrants to purchase 297,000
shares of the Company's common stock at $.93 per share (post-split).
The notes were due on June 30, 1998 and subject to a 90 day extension.
On April 8 and June 12, 1998, $249,000 and $48,000 respectively, were
converted to common stock. The interest, which amounted to $1,660 was
treated as an adjustment to each lender's warrant exercise price and
the new warrant prices range between $.91 and $.93 per share.
F-21
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Note 6: Short-Term Borrowings (Continued)
The Company issued on the conversion dates 198,000 (post-split) shares
of the Company's common stock valued at $1.50 per share or
approximately 12.4 units. A unit consists of 16,000 shares of the
Company's common stock and 8,000 warrants to purchase the Company's
common stock (see Note 10, paragraph 12).
Note 7: Long-Term Debt
As of June 30, 1998, long-term debt consisted of the following:
10% secured notes due in January
and February, 1998 $ 75,000(1)(2)
Less current portion 75,000
--------
$ -
========
(1) On July 24, 1998, the Company paid the 10% secured note holders
the outstanding principal and accrued interest and all collateral
was released by the note holders.
(2) As collateral for the secured notes, the Company has given a
security interest in all of the Company's tangible and intangible
assets, including all patents and proprietary technology, which
was evidenced by a uniform commercial code of living on March 24,
1994.
As of July 1, 1997, the outstanding balance on the 5% convertible
debentures was $125,000. During July 1997, $50,000 of the outstanding
debentures were converted to 1,818,182 shares of the Company's common
stock at an average price of $.0275 per share. The remaining balance
was paid off; $25,000 during December 1997, and $50,000 during
February 1998.
F-22
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Note 8: Leases
The company leases certain equipment under a master lease agreement,
which are classified as capital leases. The equipment leases have a
five year term with an option to acquire the equipment for $1 at the
end of the lease term. Leased capital assets included in equipment as
of June 30, 1998, was as follows:
Equipment $138,912
Less accumulated
amortization l,654
--------
$137,258
========
Future minimum payments, by year and in the aggregate, under
noncancellable capital leases and operating leases with terms of one
year or more consist of the following as of June 30, 1998:
Years Ending Capital Operating
June 30, Leases Leases
-------- ------ ------
1999 $ 39,400 $ 45,725
2000 39,400 47,275
2001 39,400 24,025
2002 39,000 -
2003 29,550 -
------ ---------
187,150 $117,025
========
Amounts representing interest 68,088
--------
Present value of net minimum
payments 119,062
Current portion 16,476
--------
Long-term portion $102,586
========
The Company's rental expense for operating leases was $33,700 and
$57,600 for the years ended approximately June 30, 1998 and 1997,
respectively.
F-23
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Note 9: ommitments and Contingencies
The Company has outstanding employment and consulting contracts that
expire through June 30, 2001 as follows:
Years Ending June 30, Amount
--------------------- ------
1999 $270,000
2000 270,000
2001 112,500
--------
$652,500
========
During 1996, the Company's former principal distributor of its print
products refused to pay a certain sales invoice for goods shipped to,
accepted and paid for by the distributor's customer. The Company had
demanded payment and the distributor has refused to pay the invoice
for $213,522. In July 1996, the Company filed for judgment on the
$213,522 invoice together with interest, costs and such other relief
the court will deem just and proper. The distributor has filed a
counterclaim. Management feels this matter will be resolved favorably
and will not have a material adverse effect on its financial position.
During 1997, this matter has moved to a deferred status while the
parties engage in settlement negotiations.
During 1996, the Company provided an allowance for possible bad debts
for the full amount of this sales transaction.
There are no other legal proceedings which the Company believes will
have a material adverse effect on its financial position.
The Company has not declared dividends on Series A or B Convertible
Preferred Stock. The cumulative dividends in arrears through June 30,
1998 was approximately $78,300.
F-24
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Note 10: Common Stock
The shareholders of record at the close of business on December 5,
1997, voted on January 15, 1998, to approve a 1 for 25 reverse stock
split effective that date. In this report, all per share calculations
have been adjusted to give retroactive effect to a 1 for 25 reverse
split.
As of June 30, 1998, there are outstanding 4,166,617 of post-split
non-public warrants and options to purchase the Company's common stock
at prices ranging from $.50 to $12.50 with a weighted average price of
$1.09 per share.
As of June 30, 1998, there were 133,321 shares of various classes of
Convertible Preferred Stock outstanding which can be converted to
98,928 post-split shares of common stock (see Note 11).
The total number of shares of the Company's common stock that would
have been issuable upon conversion of the outstanding warrants,
options and preferred stock equaled 4,265,545 shares as of June 30,
1998, and would be in addition to the 3,612,101 shares of common stock
outstanding as of June 30, 1998.
During July 1997, 1,400,000 shares (pre-split) of the Company's common
stock was sold to third parties in a private placement for $70,000
($.05 per share).
On July 14, 1997, the Company issued 1,818,182 (pre-split) shares of
the Company's common stock in connection with the conversion of a
$50,000 convertible debenture to common stock under a Regulation S
offering ($.0275 per share).
On September 30, 1997, the Company issued 1,666,666 (pre-split) shares
of the Company's common stock to a third party for $75,000 under a
Regulation S offering ($.045 per share).
On December 30, 1997, the Company issued 1,000,000 (pre-split) shares
of the Company's common stock in connection with the exercise of
1,000,000 warrants (pre-split) at $.10 per share.
F-25
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Note 10: Common Stock (Continued)
The Company issued 180,000 (pre-split) shares of the Company's common
stock to consultants for services valued at $11,250 (average price per
share $.0625).
The Company issued to an employee 50,000 (pre-split) shares of the
Company's common stock for compensation valued at $2,750 ($.055 per
share).
The Company issued 1,128,800 (pre-split) shares of the Company's
common stock in connection with the conversion of preferred stock
valued at $240,018.
On April 8, 1998, the Company issued 564,840 post-split shares
(14,121,000 pre-split shares) of the Company's common stock in
connection with the conversion of short-term financing into units.
Each unit consists of 16,000 (post-split) shares of the Company's
common stock and 8,000 (post-split) redeemable common stock purchase
warrants which provides the right to purchase 8,000 shares of the
Company's common stock at $1.50 per share until February 28, 1999 and
$2.00 per share until February 28, 2001. The unit price is $24,000.
The Company sold 35.3 units.
On June 12, 1998, the Company issued 800,000 (pre-split) shares of the
Company's common stock in connection with the conversion of short-term
financing into units, as described in the previous paragraph. The
Company sold 2 units for $48,000.
The Company raised, through the sale of these units, approximately
$695,840 less offering costs of approximately $203,140 for net
proceeds to the Company of $492,700.
During the year ended June 30, 1997, 3,490,000 shares of the Company's
common stock was sold to third parties in two private placements for
$244,000 (at an average price per share of $.07).
On October 16, 1996, the Company sold 2,500,000 shares of the
Company's common stock to a third party for $350,000 under a
Regulation S offering.
F-26
<PAGE>
Note 10: Common Stock (Continued)
On December 12, 1996, the Company issued 1,000,000 shares of the
Company's common stock in connection with the exercise of 1,000,000
warrants at $.10 per share.
The Company issued 6,835,335 shares of the Company's common stock in
connection with the conversion of $375,000 of convertible debentures
to common stock under a Regulation S offering.
The Company issued 1,625,700 shares of the Company's common stock to
consultants for services valued at $144,247 (average price per share
$.09).
The Company issued 427,940 shares of the Company's common stock to
employees for compensation and/or accrued compensation valued at
$63,599 (average price per share $.15).
On January 14, 1997, the Company issued 1,000,000 shares of the
Company's common stock to a former consultant which consisted of the
issuance of 236,700 shares of the Company's common stock to the former
consultant in full release under a letter agreement dated March 15,
1996, valued at $37,872 (price per share $.16), issuance of 312,500
shares of the Company's common stock in settlement of the outstanding
accrued consulting fee of $50,000 (price per share $.16) and exchange
of 450,800 shares of restricted stock for 450,800 shares of free
trading from the 1996 equity incentive plan.
The Company issued 150,000 shares of the Company's common stock in
order to pay a $15,000 advance ($.10 per share).
The Chairman of the Board/Chief Executive Officer surrendered to the
Company 28,550 shares of the Company's common stock.
F-27
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Note 11: Preferred Stock
The Company has authorized 10,000,000 shares of $.001 par value per
share Preferred Stock, which has been allocated to the following
Series and is outstanding as of June 30, 1998, as follows:
Allocated Outstanding
--------- -----------
Series A Preferred 100,000 23,000
Series B Preferred 200,000 5,000
Series C Preferred 1,000,000 18,681
Series P Preferred 600,000 86,640
Series S Preferred 50,000 - _
--------- -------
Total Preferred
Stock 1,950,000 133,321
========= =======
The Company's Series A Convertible 5% Preferred Stock ("Series A
Preferred"), 100,000 shares authorized, is convertible into common
stock at the rate of 1.6 (post-split) shares of common stock for each
share of the Series A Preferred. Dividends from date of issue, are
payable from retained earnings, and have been accumulated on June 30
each year, but have not been declared or paid (see Note 9).
The Company's Series B Convertible 8% Preferred Stock ("Series B
Preferred"), is convertible at the rate of 4 (post-split) shares of
common stock for each share of Series B Preferred. Dividends from date
of issue are payable on June 30 from retained earnings at the rate of
8% per annum and have not been declared or paid (see Note 9).
The Company's Series C Convertible Preferred Stock ("Series C
Preferred"), is convertible at a rate of .4 (post-split) shares of
common stock per share of Series C Preferred.
F-28
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Note 11: Preferred Stock (Continued)
The Company's Series P Convertible Preferred Stock ("Series P
Preferred"), is convertible at a rate of .4 (post-split) shares of
common stock for each share of Series P Preferred.
The Company's Series S Convertible Preferred Stock ("Series S
Preferred"), is convertible at the rate of 4 (post-split) shares of
common stock for each share of Series S Preferred.
The Company's Series A Preferred and Series B Preferred were issued
for the purpose of raising operating funds. The Series C Preferred was
issued to certain holders of the Company's 10% Secured Notes in lieu
of accrued interest and also will be held for future investment
purposes. The Series S Preferred was issued to certain stockholders
consisting mainly of officers and directors of the Company in exchange
for such stockholders' shares of common stock. After this exchange,
common stock was sold on September 5, 1995 for the purpose of raising
additional capital.
The Series P Preferred was issued on September 12, 1995 to InfoPak
shareholders in exchange for (1) all of the outstanding capital stock
of InfoPak, (2) as signing bonuses for certain employees and a
consultant of InfoPak, and (3) to satisfy InfoPak's outstanding debt
obligations to certain shareholders.
The 190,700 shares of Series B Preferred were issued to holders of
warrants to purchase such preferred stock. The funding for the
exercise of these warrants was the exchange of $1,907,000 of principal
amount of secured and unsecured notes. On December 3, 1996, 185,700
shares of Series B Preferred were exchanged for 22,284,000 pre-split
shares of the Company's common stock.
The 26,275 shares of Series C Preferred were also issued in exchange
for $262,750 of interest due under the secured and unsecured notes.
Noteholders of 7,594 shares of Series C Preferred Stock have
subsequently converted their shares into the Company's common stock.
F-29
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Note 12: Stock Option Plan and Equity Incentive Plan
The Company has adopted a stock option plan (the "Plan") covering
1,500,000 shares post-split (increased from 20,000 post-split by the
Board of Directors on January 13, 1998) of the Company's common stock
$.001 par value, pursuant to which officers, directors, key employees
and consultants of the Company are eligible to receive incentive, as
well as non-qualified stock options and Stock Appreciation Rights
("SAR's"). The Plan, which has been extended for 10 years by the Board
of Directors on January 13, 1998, and expires September 2008, will be
administered by the Board of Directors or a committee chosen
therefrom. This plan must be formally approved by the stockholders of
the Company. Incentive stock options granted under the Plan are
exercisable for a period of up to 10 years from the date of grant at
an exercise price, which is not less than the fair market value of the
common stock on the date of the grant, except that the terms of an
incentive stock option granted under the Plan to a stockholder owning
more than 10% of the outstanding common stock may not exceed five
years and the exercise price of an incentive stock option granted to
such a stockholder may not be less than 110% of the fair market value
of common stock on the date of the grant. Non-qualified stock options
may be granted on terms determined by the Board of Directors or a
committee designated by the Board of Directors. SAR's which give the
holder the privilege of surrendering such rights for the appreciation
in the Company's common stock between the time of grant and the
surrender, may be granted on any terms determined by the Board of
Directors or committee designated by the Board of Directors. No SAR's
have been granted.
F-30
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Note 12: Stock Option Plan and Equity Incentive Plan (Continued)
A summary of transactions under this Plan is as follows:
Weighted
Average
Exercise
Price
Shares Per Share
------ ---------
Options outstanding
July 1, 1996 20,000 $.48
Cancelled (20,000) .48
--------
Options outstanding
June 30, 1997 -
Grants 1,300,000 .93
---------
Options outstanding
June 30, 1998 1,300,000 .93
=========
Options exercisable at end of
year 985,000 $.93
========
The Company on June 13, 1996 adopted the 1996 Equity Incentive Plan
(the "Plan") covering 10,000,000 shares of the Company's common stock
$.001 par value, pursuant to which officers, directors, key employees
and consultants of the Company are eligible to receive incentive, as
well as non-qualified stock options, SAR's, and Restricted Stock and
Deferred Stock. The Plan, which expires in June 2006, will be
administered by the Compensation Committee of the Board of Directors.
Incentive stock options granted under the Plan are exercisable for a
period of up to 10 years from the date of grant at an exercise price,
which is not less than the fair market value of the common stock on
the date of the grant, except that the terms of an incentive stock
option granted under the Plan to a stockholder owning more than 10% of
the outstanding common stock may not exceed five years and the
exercise price of an incentive stock option granted to such a
stockholder
F-31
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Note 12: Stock Option Plan and Equity Incentive Plan (Continued)
may not be less than 110% of the fair market value of common stock on
the date of the grant. Non-qualified stock options may be granted on
terms determined by the Compensation Committee of the Board of
Directors. SAR's which give the holder the privilege of surrendering
such rights for the appreciation in the Company's common stock between
the time of grant and the surrender, may be granted on any terms
determined by the Compensation Committee of the Board of Directors.
Restricted stock awards entitle the recipient to acquire shares for no
cash consideration or for consideration determined by the Compensation
Committee. The award may be subject to restrictions, conditions and
forfeiture as the Committee may determine. Deferred stock award
entitles recipient to receive shares in the future. As of June 30,
1997, 2,859,290 shares of common stock has been issued under this plan
at prices ranging from $.09 to $.26 per share, except for 450,800
shares that were issued at zero value in exchange for restricted
shares that were cancelled. In addition, as of June 30, 1997, no
options or SAR's have been granted. As of June 30, 1998, 7,200
(post-split) shares of common stock has been issued under this plan at
prices ranging from $1.50 to $2.00 per share. In addition, as of June
30, 1998, no options or SAR's have been granted.
If the Company had elected to recognize compensation expense based on
the fair value of stock plans as prescribed by FAS No. 123, the
Company's net loss and net loss per share would have been increased to
the pro forma amounts indicated below:
1998
----
Net Loss - as reported $(421,659)
Net Loss - pro forma $(855,464)
Net Loss per share - as reported $(.14)
Net Loss per share - pro forma $(.28)
The weighted-average fair value at the date of grant for options
granted in 1998 was $.93. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes Option Pricing
Model. The following weighted average assumptions were used: no
dividends; expected volatility factor of .99; risk-free interest of
6.25%; and
F-32
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Note 12: Stock Option Plan and Equity Incentive Plan (Continued)
an expected life of five years. The compensation expense and pro forma
net loss may not be indicative of amounts to be included in future
periods. All references to the number of shares under option and
option prices have been adjusted to reflect a 1 for 25 reverse stock
split effective January 15, 1998.
Note 13: Sale of Product Line
On September 25, 1997, the Company sold one of its product lines, the
real estate multiple listing data delivery system. The purchase price
was $410,000 plus the assumption of a $59,247 contingent liability to
a third party. At closing a promissory note for $410,000 was delivered
to the Company. The terms of the note provided for 36 monthly
installments of $13,330, including interest at 10% per annum,
commencing on October 25, 1997. During February 1998, the terms of the
note were modified. The payment period was changed to forty-eight
months and the interest rate was increased to 11%. Effective September
1998, the modified terms provide for payments to be $11,533 per month.
Note 14: Income Taxes
The tax effects of significant items comprising the Company's net
deferred taxes as of June 30, 1998 were as follows:
Deferred tax assets:
Goodwill $ 339,000
Net operating loss carryforwards 5,766,000
-----------
6,105,000
-----------
Deferred tax liabilities
Equipment 1,000
Patent rights 5,000
-----------
6,000
-----------
Net deferred tax asset 6,111,000
Valuation allowance (6,111,000)
-----------
Net deferred tax asset reported $ -
===========
F-33
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Note 14: Income Taxes (Continued)
The change in valuation allowance for the year ended June 30, 1998 was
increased by approximately $95,000.
There was no provision for current income taxes for the years ended
June 30, 1998 and 1997.
The federal net operating loss carryforwards of approximately
$16,539,000 expires in various years through 2018.
The Company has had numerous transactions in its common stock. Such
transactions may have resulted in a change in the Company's ownership,
as defined in the Internal Revenue Code Section 382. Such change may
result in an annual limitation on the amount of the Company's taxable
income which may be offset with its net operating loss carryforwards.
The Company has not evaluated the impact of Section 382, if any, on
its ability to utilize its net operating loss carryforwards in future
years.
F-34
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
Note 15: Segment of Business Reporting
The operations of the Company are divided into the following business
segments for financial reporting purposes.
o Lithographically printed stereoscopic prints commonly referred to
as three-dimensional prints and litho- graphically printed
animation.
o Hardware and software information and audio playback systems and
method products and programs.
There are no intersegment or foreign sales. Three customers account
for approximately 58% of the lithographic sales and three customers
account for approximately 87% of the hardware and software information
and playback systems.
Financial information by business segments is as follows:
Hardware
and
Lithographic Software Consolidated
------------ -------- ------------
Net customer sales $ 322,940 $ 286,452 $ 609,392
Interest income 422 30,384 30,806
Interest expense 92,117 - 92,117
Operating loss (627,545) (107,468) (735,013)
Segment assets 728,831 192,010 920,841
Depreciation and
amortization 9,773 33,343 43,116
Capitalized lease 149,112 - 149,112
Note 16: Subsequent Events
The Company raised $475,000, through a private placement of 12%
convertible debentures during July through September 1998.
F-35
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders
Dimensional Visions Incorporated and Subsidiaries
Phoenix, Arizona
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of DIMENSIONAL VISIONS INCORPORATED AND
SUBSIDIARIES included in this annual report on Form 10-KSB and have issued our
report thereon dated September 15, 1998. Our audit was made for the purpose of
forming an opinion on the basic consolidated financial statements taken as a
whole. The schedules listed in the preceding index are the responsibility of the
Company's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
consolidated financial statements. These schedules have been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly state in all material respects the
consolidated financial data required to be set forth in relation to the basic
consolidated financial statements taken as a whole.
GITOMER & BERENHOLZ, P.C.
Jenkintown, Pennsylvania
September 15, 1998
F-36
<PAGE>
Exhibit IV
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
SCHEDULE IV - PROPERTY AND EQUIPMENT(1)
- --------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
- --------------------------------------------------------------------------------
Balance at Other
Beginning Changes -
of Additions Add Balance at
Classification Period at Cost Retirements(2) (Deduct) End of Period
- --------------------------------------------------------------------------------
Year Ended
June 30, 1998
- -------------
Equipment $1,527,776 $149,112 $1,306,544 $ - $370,344
Furniture and
fixtures 125,035 - 100,818 - 24,217
---------- ------- ----------- -------- --------
$1,652,811 $149,112 $1,407,362 $ - $394,561
========== ======== ========== ======== ========
Year Ended
June 30, 1997
- -------------
Equipment $1,891,703 $ 3,614 $367,541 $ - $1,527,776
Furniture and
fixtures 143,408 1,052 19,425 - 125,035
Leasehold
improvements 109,446 - 109,446 - -
---------- -------- -------- -------- ----------
$2,144,557 $ 4,666 $496,412 $ - $1,652,811
========== ======== ======== ======== ==========
(1) Depreciation and amortization is computed by the straight-line method
over the estimated useful lives of the related assets as follows:
Equipment 5 - 7 years
Furniture and fixtures 5 years
Leasehold improvements Term of the initial operating lease (5 years)
(2) Represents equipment and leasehold improvements abandoned or sold
F-37
<PAGE>
Exhibit V
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARIES
SCHEDULE V - ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY AND EQUIPMENT
- -------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
- -------------------------------------------------------------------------------
Balance at Other
Beginning Changes -
of Additions Add Balance at
Classification Period at Cost Retirements(2) (Deduct) End of Period
- -------------------------------------------------------------------------------
Year Ended
June 30, 1998
- -------------
Equipment $1,447,228 $ 40,919 $1,278,328 $ - $209,819
Furniture and
fixtures 115,193 2,198 93,701 - 23,690
---------- -------- ---------- -------- --------
$1,562,421 $ 43,117 $1,372,029 $ - $233,509
========== ======== ========== ======== ========
Year Ended
June 30, 1997
- -------------
Equipment $1,767,977 $ 46,084 $366,833 $ - $1,447,228
Furniture and
fixtures 130,188 4,092 19,087 - 115,193
Leasehold
improvements 109,152 190 109,342 - -
---------- -------- -------- -------- ------
$2,007,317 $ 50,366 $495,262 $ - $1,562,421
========== ======== ======== ======== ==========
(1) Represents accumulated depreciation and amortization written off as a
result of abandonment or sale
F-38
CERTIFICATE OF INCORPORATION
OF
DIMENSIONAL VISIONS GROUP, LTD.
------------
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the
"corporation") is
DIMENSIONAL VISIONS GROUP, LTD.
SECOND: The address, including street, number, city, and county, of the
registered office of the corporation in the State of Delaware is 229 South State
Street, City of Dover, County of Kent; and the name of the registered agent of
the corporation in the State of Delaware is The Prentice-Hall Corporation
System, Inc.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is Twenty Two Million (22,000,000), consisting of Two
Million (2,000,000) shares of Preferred Stock, all of a par value of ($.001),
and Twenty Million (20,000,000) shares of Common Stock, all of a par value of
($.001).
The classes and designations and the voting powers, preferences and
qualifications and the other rights, limitations and restrictions of the
Preferred Stock shall be determined by the Board of Directors by appropriate
resolution from time to time.
FIFTH: The name and the mailing address of the incorporator are as
follows:
NAME MAILING ADDRESS
T. M. Bonovich 229 South State Street, Dover, Delaware
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as
<PAGE>
the case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on the corporation.
EIGHTH; For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation and regulation
of the powers of the corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by, or in the
manner provided in, the By-Laws. The phrase "whole Board" and the phrase "total
number of directors" shall be deemed to have the same meaning, to wit, the total
number of directors which the corporation would have if there were no vacancies.
No election of directors need be by written ballot.
2. After the original or other By-Laws of the corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of Section 109 of the General Corporation Law of the State of
Delaware, and, after the corporation has received any payment for any of its
stock, the power to adopt, amend, or repeal the By-Laws of the corporation may
be exercised by the Board of Directors of the corporation; provided, however,
that any provision for the classification of directors of the corporation for
staggered terms pursuant to the provisions of subsection (d) of Section 141 of
the General Corporation Law of the State of Delaware shall be set forth in an
initial By-Law or in a By-Law adopted by the stockholders entitled to vote of
the corporation unless provisions for such classification shall be set forth in
this certificate of incorporation.
3. Whenever the corporation shall be authorized to issue only one class
of stock, each outstanding share shall entitle the holder thereof to notice of,
and the right to vote at, any meeting of stockholders. Whenever the corporation
shall be authorized to issue more than one class of stock, no outstanding share
of any class of stock which is denied voting power under the provisions of the
certificate of incorporation shall entitle the holder thereof to the right to
vote at any meeting of stockholders except as the provisions of paragraph (2) of
subsection (b) of section 242 of the General Corporation Law of the State of
Delaware shall otherwise require; provided, that no share of any such class
which is otherwise denied voting power shall entitle the holder thereof to vote
upon the increase or decrease in the number of authorized shares of said class.
NINTH: The personal liability of the directors of the corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of subsection
(b) of Section 102 of the General Corporation Law of the State of Delaware, as
the same may be amended and supplemented.
TENTH: The corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, indemnify any and all persons whom it shall
have power to indemnify under said section from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said
section, and the
<PAGE>
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this certificate
of incorporation may be amended altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the corporation by this
certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
Signed on May 12, 1988.
/s/ T. M. Bonovich.
------------------------
T. M. Bonovich
Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DIMENSIONAL VISIONS GROUP, LTD.
Dimensional Visions Group, Ltd., a corporation duly organized and existing under
the Delaware General Corporation Law (the "Corporation"), does hereby certify:
FIRST: That Article Fourth of the Certificate of Incorporation of the
Corporation (the "Certificate of Incorporation") is hereby amended by the
insertion of the paragraph set forth below immediately prior to the first
paragraph thereof:
Upon the filing date of the Certificate of Amendment
of Certificate of Incorporation of the Corporation (the
"Effective Date") adding this paragraph to Article Fourth, a
one-for-twenty five reverse split of the Corporation's Common
Stock shall become effective, such that each twenty five (25)
shares of Common Stock outstanding and held of record by each
stockholder of the Corporation (including treasury shares)
immediately prior to the Effective Date shall be reclassified
as and shall represent one (1) share of Common Stock from and
after the Effective Date."
SECOND: That Article First of the Certificate of Incorporation is
hereby amended to read in it entirety as follows:
The name of the corporation is "Dimensional Visions Incorporated."
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, Dimensional Visions Group, Ltd. has caused this
Certificate of Amendment to be executed by its duly authorized officer this 15th
day of January, 1998.
Dimensional Visions Group, Ltd.,
a Delaware corporation
By:/s/ John D. McPhilimy
---------------------------
Name: John D. McPhilimy
Title: President
Date: 1/17/98 .
--------------------
NEITHER THIS WARRANT, NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF, HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAW. SUCH SECURITIES MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO OR (II) IN THE OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER THE SECURITIES ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH A PROPOSED
SALE OR TRANSFER.
COMMON STOCK
PURCHASE WARRANT
For the Purchase of Shares of
Common Stock of
DIMENSIONAL VISIONS INCORPORATED
(Par Value $0.001 Per Share)
(Incorporated under the Laws of the State of Delaware)
VOID AFTER 5:00 P.M. PST ON JANUARY 15, 2001
Date of Original Issuance: January 15, 1998
This is to certify that, for value received, __________________________
or assigns (the "Warrantholder"), is entitled, subject to the terms and
conditions hereinafter set forth, at any time and on or before 5:00 P.M.,
Pacific Standard Time, on January 15, 2001, but not thereafter, to purchase
200,000 shares of common stock, par value $0.001 per share (the "Common Stock"),
of DIMENSIONAL VISIONS INCORPORATED (the "Company") for the Warrant Price (as
defined below), and to receive a certificate or certificates for the shares of
Common Stock so purchased.
1. TERMS AND EXERCISE OF WARRANTS.
(a) EXERCISE PERIOD. Subject to the terms of this Warrant, the
Warrantholder shall have the right, at any time during the period (the "Exercise
Period") commencing on the date hereof and ending at 5:00 P.M., Pacific Standard
Time, on January 15, 2001 (the "Termination Date"), or if such date is a day on
which banking institutions are authorized by law to close, then on the next
succeeding day which shall not be such a day, to purchase from the Company up to
the number of fully paid and nonassessable shares of Common Stock which the
Warrantholder may at the time be entitled to purchase pursuant to this Warrant,
provided that, until September 15, 1998, no such shares shall be purchased, on
September 15, 1998, 100,000 shares of Common Stock may be purchased, and on
January 15, 1999, all 200,000 shares of Common Stock may be purchased pursuant
to this Warrant. Such shares of Common Stock and any other securities that the
Company may be required by the operation of SECTION 3 to issue upon the exercise
hereof are referred to hereinafter as the "Warrant Shares."
<PAGE>
(b) METHOD OF EXERCISE. This Warrant shall be exercised by
surrender of this Warrant to the Company at its principal office in Phoenix,
Arizona, or at such other address as the Company may designate by notice in
writing to the Warrantholder at the address of the Warrantholder appearing on
the books of the Company or such other address as the Warrantholder may
designate in writing, together with the form of Election to Purchase included as
EXHIBIT "A" hereto, duly completed and signed, and upon payment to the Company
of the Warrant Price (as defined in SECTION 2) multiplied by the number of
Warrant Shares being purchased upon such exercise (the "Aggregate Warrant
Price"), together with all taxes applicable upon such exercise. Payment of the
Aggregate Warrant Price shall be made in cash or by certified check or cashier's
check, payable to the order of the Company.
(c) PARTIAL EXERCISE. This Warrant shall be exercisable, at
the election of the Warrantholder, either in full or from time to time in part,
during the Exercise Period.
(d) SHARE ISSUANCE UPON EXERCISE. Upon the exercise and
surrender of this Warrant certificate and payment of such Warrant Price, the
Company shall issue and cause to be delivered with all reasonable dispatch to
the Warrantholder, in such name or names as the Warrantholder may designate in
writing, a certificate or certificates for the number of full Warrant Shares so
purchased upon the exercise of the Warrant, together with cash, as provided in
SECTION 7 hereof, with respect to any fractional Warrant Shares otherwise
issuable upon such surrender and, if applicable, the Company shall issue and
deliver a new Warrant to the Warrantholder for the number of shares not so
exercised. Such certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed to have become
a holder of such Warrant Shares as of the close of business on the date of the
surrender of the Warrant and payment of the Warrant Price, notwithstanding that
the certificates representing such Warrant Shares shall not actually have been
delivered or that the stock transfer books of the Company shall then be closed.
2. WARRANT PRICE.
The price per share at which Warrant Shares shall be purchasable on the
exercise of this Warrant shall be $.50 per share until January 15, 2001, subject
to adjustment pursuant to SECTION 3 hereof (originally and as adjusted, the
"Warrant Price").
3. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES.
The Company agrees to reserve and shall keep reserved for issuance the
number of shares of Common Stock issuable upon exercise of this Warrant. The
number and kind of securities purchasable upon the exercise of this Warrant and
the Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events, as follows:
(a) In case the Company shall (1) pay a dividend or make a
distribution in shares of its Common Stock, (2) subdivide its outstanding Common
Stock into a greater number of shares, (3) combine its outstanding Common Stock
into a smaller number of shares, or (4) issue by reclassification of its Common
Stock any shares of capital stock of the Company (other than a change in par
value, or from par value to no par value, or from no par value to par value),
the Warrant Price and the number of shares of Common Stock or other securities
issuable upon exercise of this Warrant in effect immediately prior thereto shall
be adjusted so that the Warrantholder, by operation of SECTION 3(d) hereof,
shall be entitled to receive
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<PAGE>
the number of shares which it would have owned or have been entitled to receive
immediately following the happening of any of the events described above, had
this Warrant been exercised immediately prior to the record or effective date
thereof.
An adjustment made pursuant to SECTIONS 3(a)(1)-(4) above shall become
effective immediately after the record date in the case of a dividend or
distribution (PROVIDED, HOWEVER, that such adjustments shall be reversed if such
dividends or distributions are not actually paid) and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification. If, as a result of an adjustment made pursuant to this
paragraph, the Warrantholder shall become entitled to receive shares of two or
more classes of capital stock of the Company, the Board of Directors (whose
determination shall be conclusive and shall be evidenced by a resolution) shall
determine the allocation of the adjusted Warrant Price between or among the
shares of such classes of capital stock.
(b) In case of any reclassification of the outstanding Common
Stock (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision, combination or
stock dividend), or in case of any consolidation of the Company with, or merger
of the Company into, another corporation wherein the Company is not the
surviving entity, or in case of any sale of all, or substantially all, of the
property, assets, business and goodwill of the Company, the Company, or such
successor or purchasing corporation, as the case may be, shall provide, by a
written instrument delivered to the Warrantholder, that the Warrantholder shall
thereafter be entitled, upon exercise of this Warrant, to the kind and amount of
shares of stock or other equity securities, or other property or assets that
would have been receivable by such Warrantholder upon such reclassification,
consolidation, merger or sale, if this Warrant had been exercised immediately
prior thereto. Such corporation, which thereafter shall be deemed to be the
"Company" for purposes of this Warrant, shall provide in such written instrument
for adjustments to the Warrant Price that shall be as nearly equivalent as may
be practicable to the adjustments provided for in this SECTION 3.
(c) No adjustment in the number of securities purchasable
hereunder shall be required unless such adjustment would require an increase or
decrease of at least one percent (1%) in the number of securities (calculated to
the nearest full share or unit thereof) then purchasable upon the exercise of
this Warrant; provided, however, that any adjustment which by reason of this
SECTION 3(c) is not required to be made immediately shall be carried forward and
taken into account in any subsequent adjustment.
(d) Whenever the Warrant Price is adjusted as provided in this
SECTION 3, the number of shares of Common Stock or other securities issuable
upon exercise of this Warrant shall be adjusted simultaneously, by multiplying
the number of shares previously issuable by a fraction, of which the numerator
shall be the Warrant Price in effect immediately prior to such adjustment, and
of which the denominator shall be the Warrant Price as so adjusted.
(e) For the purpose of this SECTION 3, the term "Common Stock"
shall mean (i) the class of stock designated as Common Stock of the Company at
April 8, 1998, or (ii) any other class of stock resulting from successive
changes or reclassifications of such Common Stock consisting solely of changes
in par value, or from par value to no par value, or from no par value to par
value. In the event that at any time, as a result of an adjustment made pursuant
to this SECTION 3, the Warrantholder shall become entitled to purchase any
shares of the Company's capital stock other than Common Stock, thereafter the
number of such other shares so purchasable upon the exercise of this Warrant and
the Warrant Price of such shares shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the shares contained in this SECTION 3.
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<PAGE>
(f) Whenever the number of shares of Common Stock and/or other
securities purchasable upon the exercise of this Warrant or the Warrant Price is
adjusted as herein provided, the Company shall cause to be promptly mailed to
the Warrantholder by first class mail, postage prepaid, notice of such
adjustment and a certificate of the Company's chief financial officer setting
forth the number of shares of Common Stock and/or other securities purchasable
upon the exercise of this Warrant, the Warrant Price after such adjustment, a
brief statement of the facts requiring such adjustment, and the computation by
which such adjustment was made.
(g) Irrespective of any adjustments in the Warrant Price or
the number or kind of securities purchasable upon the exercise of this Warrant,
the Warrant certificate or certificates theretofore or thereafter issued may
continue to express the same price or number or kind of securities stated in
this Warrant initially issuable hereunder.
4. REGISTRATION RIGHTS.
The Company covenants and agrees as follows:
(a) For purposes of this SECTION 4:
(i) The terms "register," "registered" and
"registration" refer to a registration effected by preparing and filing
a registration statement or similar document in compliance with the
Securities Act, and the declaration or ordering of effectiveness of
such registration statement or document;
(ii) The term "Registrable Securities" means (A) the
shares of Common Stock and the Warrant Shares and (B) any shares of
Common Stock or other securities of the Company issuable with respect
to the units (the "Units") offered by the Company pursuant to the
Private Placement Memorandum dated February 17, 1998, as amended to
date (the "Private Placement Memorandum"), as a result of a stock split
or dividend or any sale, transfer, assignment, or other transaction by
the Company or a Holder (as defined below) involving the Units and any
securities into which the Units may thereafter be changed as a result
of merger, consolidation, recapitalization, or otherwise. As to any
particular Registrable Securities, such securities will cease to be
Registrable Securities when they have been distributed to the public
pursuant to an offering registered under the Securities Act or sold to
the public through a broker, dealer, or market-maker in compliance with
Rule 144 under the Securities Act; and
(iii) The term "Holder" means any person owning or
having the right to acquire Registrable Securities.
(b) Commencing promptly following the final Closing Date (as
defined in the Private Placement Memorandum), the Company shall prepare and file
a registration statement covering all of the Registrable Securities as further
provided in SECTION 4(c).
(c) To effect the registration of any Registrable Securities,
the Company shall, as expeditiously as reasonably possible, use its best efforts
to:
4
<PAGE>
(i) Prepare and file with the Securities and Exchange
commission (the "SEC") a registration statement with respect to such
Registrable Securities, cause such registration statement to become
effective, and keep such registration statement effective until the
expiration of the Warrants.
(ii) Prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used
in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement.
(iii) Furnish to the Holders such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents as
they may reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(iv) Register and qualify the securities covered by
such registration statement under such other securities or blue sky
laws of the jurisdictions in which the purchasers reside at the time of
the issuance of the Units; provided that in no event shall (A) the
Company be required to qualify to do business in any state or to take
any action which would subject it to general or unlimited service of
process in any state where it is not now so subject, (B) any
stockholder be required to escrow their shares of capital stock of the
Company, or (C) the Company or any stockholder be required to comply
with any other requirement which they deem unduly burdensome.
(v) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement
with terms generally satisfactory to the managing underwriter of such
offering. Each Holder participating in such underwriting shall also
enter into and perform its obligations under such an agreement.
(d) It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this SECTION 4 that the selling
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them, and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
(e) All expenses incurred in connection with the registration
pursuant to SECTION 4(b) (other than underwriter's commissions and fees or any
fees of others employed by a selling Holder, including attorneys' fees),
including without limitation all registration, filing and qualification fees,
printers' and accounting fees, and fees and disbursements of counsel for the
Company, shall be borne by the Company.
(f) With respect to the registration of the Registrable
Securities under this SECTION 4:
(i) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the officers and directors of
each Holder, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), against any
losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the Securities Act, the Exchange Act or
any state securities law or
5
<PAGE>
regulation, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule
or regulation promulgated under the Securities Act, the Exchange Act or
any state securities law; and the Company will reimburse each such
Holder, officer or director, underwriter or controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in
this SECTION 4(f)(i) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability, or action if such settlement
is effected without the consent of the Company (which consent shall not
be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability, or action to the
extent that it arises out of or is based upon a Violation which occurs
in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such
Holder, underwriter or controlling person.
(ii) To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its
directors and officers, any underwriter (as defined in the Securities
Act) for the Company, each person, if any, who controls the Company or
any such underwriter within the meaning of the Securities Act or the
Exchange Act, and any other Holder selling securities in such
registration statement or any of its directors or officers or any
person who controls such Holder, against any losses, claims, damages,
or liabilities (or actions in respect thereto) which arise out of or
are based upon any Violation, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will
reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, any person who controls the
Company, any underwriter or controlling person of any such underwriter,
any other such Holder, officer, director, or controlling person in
connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity
agreement contained in this SECTION 4(f)(ii) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder (which
consent shall not be unreasonably withheld), and provided further that
the obligations of each selling Holder hereunder shall be limited to an
amount equal to the proceeds of each such selling Holder of the shares
sold by such selling Holder pursuant to such registration.
(iii) Promptly after receipt by an indemnified party
under this Section 5(f) of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party
under this Section 4(f), notify the indemnifying party in writing of
the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have the
right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying
6
<PAGE>
party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding. The failure
to notify an indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying
party of any liability that it may have to any indemnified party
otherwise than under this SECTION 4(f).
(g) With a view to making available to the Holders the
benefits of Rule 144 promulgated under the Securities Act and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration or pursuant to a registration
form which permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC, the Company
agrees that, if and for so long as it is subject to the reporting requirements
of Section 13 of the Exchange Act, it will:
(i) File with the SEC in a timely manner all reports
and other documents required of the Company under the Securities Act
and the Exchange Act; and
(ii) Furnish to any Holder, so long as the Holder
owns any Registrable Securities, forthwith upon reasonable request (i)
a written statement by the Company that it has complied with the
reporting requirements of the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information
as may be reasonably requested in availing any Holder of any rule or
regulation of the SEC permitting the selling of any such securities
without registration or pursuant to such rule.
(h) The rights to cause the Company to register securities
granted to a Holder by the Company under this SECTION 4 may be transferred or
assigned by a Holder only to a transferee or assignee of not less than 5,000
shares of Registrable Securities (as presently constituted and subject to
subsequent adjustments for stock splits, stock dividends, reverse stock splits,
and the like), provided that the Company is given written notice at the time of
or within a reasonable time after said transfer or assignment and identifying
the securities with respect to which such registration rights are being
transferred or assigned, and provided further that the transferee or assignee of
such rights assumes the obligations of such Holder under this SECTION 4 and
acknowledges the possible restriction of such rights as set forth under SECTION
4(c)(iv).
5. TRANSFER OF WARRANT.
Subject to the transfer conditions referred to in the legend endorsed
hereon, this Warrant and all rights hereunder are transferable, in whole or in
part, without charge to the Warrantholder, upon surrender of this Warrant with a
properly executed Assignment (in the form of EXHIBIT "B" hereto) at the
principal office of the Company in Phoenix, Arizona.
6. NO RIGHTS AS SHAREHOLDER; NOTICES TO WARRANTHOLDER.
Nothing contained in this Warrant shall be construed as conferring upon
the Warrantholder or its transferee any rights as a shareholder of the Company,
either at law or in equity, including the right to vote, receive dividends,
consent or receive notices as a shareholder with respect to any meeting of
shareholders for the election of directors of the Company or for any other
matter.
7
<PAGE>
7. FRACTIONAL INTERESTS.
The Company shall not be required to issue fractional shares of Common
Stock on the exercise of a Warrant. If any fraction of a share of Common Stock
would, except for the provisions of this SECTION 7, be issuable on the exercise
of a Warrant (or specified portion thereof), the Company shall in lieu thereof
pay an amount in cash equal to the then Current Market Price multiplied by such
fraction. For purposes of this Agreement, the term "Current Market Price" shall
mean (i) if the Common Stock is traded in the over-the-counter market and not in
the NASDAQ National Market System nor on any national securities exchange, the
average of the per share closing bid prices of the Common Stock on the 30
consecutive trading days immediately preceding the date in question, as reported
by NASDAQ or an equivalent generally accepted reporting service, or (ii) if the
Common Stock is traded in the NASDAQ National Market System or on a national
securities exchange, the average for the 30 consecutive trading days immediately
preceding the date in question of the daily per share closing prices of the
Common Stock in the NASDAQ National Market System or on the principal stock
exchange on which it is listed, as the case may be. For purposes of clause (i)
above, if trading in the Common Stock is not reported by NASDAQ, the bid price
referred to in said clause shall be the lowest bid price as reported on the OTC
Bulletin Board, or if not available, in the "pink sheets" published by National
Quotation Bureau, Incorporated. The closing price referred to in clause (ii)
above shall be the last reported sale price or, in the case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices, in either case in the NASDAQ National Market System or on the national
securities exchange on which the Common Stock is then listed.
8. NOTICES.
Any notice given pursuant to this Warrant by the Company or by the
Warrantholder shall be in writing and shall be deemed to have been duly given
upon (a) transmitter's confirmation of the receipt of a facsimile transmission,
(b) confirmed delivery by a standard overnight carrier, or (c) the expiration of
three business days after the day when mailed by United States Postal Service by
certified or registered mail, return receipt requested, postage prepaid at the
following addresses:
If to the Company:
Dimensional Visions Incorporated
2301 West Dunlap Avenue
Suite 207
Phoenix, Arizona 85021
If to the Warrantholder, then to the address of the Warrantholder in
the Company's books and records.
Each party hereto may, from time to time, change the address to which
notices to it are to be transmitted, delivered or mailed hereunder by notice in
accordance herewith to the other party.
9. GENERAL PROVISIONS.
(a) SUCCESSORS. All covenants and provisions of this Warrant
shall bind and inure to the benefit of the respective executors, administrators,
successors and assigns of the parties hereto.
8
<PAGE>
(b) CHOICE OF LAW. This Warrant and the rights of the parties
hereunder shall be governed by and construed in accordance with the laws of the
State of Arizona, including all matters of construction, validity, performance,
and enforcement, and without giving effect to the principles of conflict of
laws.
(c) ENTIRE AGREEMENT. Except as provided herein, this Warrant,
including exhibits, contains the entire agreement of the parties, and supersedes
all existing negotiations, representations or agreements and all other oral,
written, or other communications between them concerning the subject matter of
this Warrant.
(d) SEVERABILITY. If any provision of this Warrant is
unenforceable, invalid, or violates applicable law, such provision shall be
deemed stricken and shall not affect the enforceability of any other provisions
of this Warrant.
(e) CAPTIONS. The captions in this Warrant are inserted only
as a matter of convenience and for reference and shall not be deemed to define,
limit, enlarge, or describe the scope of this Warrant or the relationship of the
parties, and shall not affect this Warrant or the construction of any provisions
herein.
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed as of the date first above written.
DIMENSIONAL VISIONS INCORPORATED, a
Delaware corporation
By: ____________________________________
Its:____________________________________
10
<PAGE>
EXHIBIT A
DIMENSIONAL VISIONS INCORPORATED
ELECTION TO PURCHASE
Dimensional Visions Incorporated
2301 West Dunlap Avenue
Suite 207
Phoenix, Arizona 85021
The undersigned hereby irrevocably elects to exercise the
right of purchase set forth in the attached Warrant to purchase thereunder
__________ shares of the Common Stock (the "Shares") provided for therein and
requests that the Shares be issued in the name of
Name: ____________________________________
Address: ____________________________________
____________________________________
Social Security Number or Employer Identification Number: __________________
Dated: ____________________________
Name of Warrantholder or Assignee:____________________________________________
(Please Print)
Signature: ___________________________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant.)
Method of payment: ___________________________________________________
(Please Print)
______________________________________________________________
Medallion Signature Guarantee (required if an assignment
of Shares acquired on exercise, or an assignment of Warrants
remaining after exercise, is made upon exercise.)
<PAGE>
EXHIBIT B
ASSIGNMENT
FOR VALUE RECEIVED, _____________________________________
hereby sells, assigns and transfers all of the rights of the undersigned under
the attached Warrant with respect to the number of shares of Common Stock
covered thereby set forth below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint _____________________,
Attorney, to transfer the attached Warrant on the books of the Company, with
full power of substitution.
Dated: ____________ Signature:__________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant.)
__________________________________________
(SSN or EIN of Warrantholder)
______________________________________________________________
Medallion Signature Guarantee (required if an assignment
of Shares acquired on exercise, or an assignment of Warrants
remaining after exercise, is made upon exercise.)
NEITHER THIS WARRANT, NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF, HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAW. SUCH SECURITIES MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO OR (II) IN THE OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER THE SECURITIES ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH A PROPOSED
SALE OR TRANSFER.
COMMON STOCK
PURCHASE WARRANT
For the Purchase of Shares of
Common Stock of
DIMENSIONAL VISIONS INCORPORATED
(Par Value $0.001 Per Share)
(Incorporated under the Laws of the State of Delaware)
VOID AFTER 5:00 P.M. PST ON FEBRUARY 28, 2001
Date of Original Issuance: April 8, 1998
This is to certify that, for value received, __________________________
or assigns (the "Warrantholder"), is entitled, subject to the terms and
conditions hereinafter set forth, at any time and on or before 5:00 P.M.,
Pacific Standard Time, on February 28, 2001, but not thereafter, to purchase
_______ shares of common stock, par value $0.001 per share (the "Common Stock"),
of DIMENSIONAL VISIONS INCORPORATED (the "Company") for the Warrant Price (as
defined below), and to receive a certificate or certificates for the shares of
Common Stock so purchased.
1. TERMS AND EXERCISE OF WARRANTS.
(a) EXERCISE PERIOD. Subject to the terms of this Warrant, the
Warrantholder shall have the right, at any time during the period (the "Exercise
Period") commencing on the date hereof and ending at 5:00 P.M., Pacific Standard
Time, on February 28, 2001 (the "Termination Date"), or if such date is a day on
which banking institutions are authorized by law to close, then on the next
succeeding day which shall not be such a day, to purchase from the Company up to
the number of fully paid and nonassessable shares of Common Stock which the
Warrantholder may at the time be entitled to purchase pursuant to this Warrant.
Such shares of Common Stock and any other securities that the Company may be
required by the operation of SECTION 3 to issue upon the exercise hereof are
referred to hereinafter as the "Warrant Shares."
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(b) METHOD OF EXERCISE. This Warrant shall be exercised by
surrender of this Warrant to the Company at its principal office in Phoenix,
Arizona, or at such other address as the Company may designate by notice in
writing to the Warrantholder at the address of the Warrantholder appearing on
the books of the Company or such other address as the Warrantholder may
designate in writing, together with the form of Election to Purchase included as
EXHIBIT "A" hereto, duly completed and signed, and upon payment to the Company
of the Warrant Price (as defined in SECTION 2) multiplied by the number of
Warrant Shares being purchased upon such exercise (the "Aggregate Warrant
Price"), together with all taxes applicable upon such exercise. Payment of the
Aggregate Warrant Price shall be made in cash or by certified check or cashier's
check, payable to the order of the Company.
(c) PARTIAL EXERCISE. This Warrant shall be exercisable, at
the election of the Warrantholder, either in full or from time to time in part,
during the Exercise Period.
(d) SHARE ISSUANCE UPON EXERCISE. Upon the exercise and
surrender of this Warrant certificate and payment of such Warrant Price, the
Company shall issue and cause to be delivered with all reasonable dispatch to
the Warrantholder, in such name or names as the Warrantholder may designate in
writing, a certificate or certificates for the number of full Warrant Shares so
purchased upon the exercise of the Warrant, together with cash, as provided in
SECTION 7 hereof, with respect to any fractional Warrant Shares otherwise
issuable upon such surrender and, if applicable, the Company shall issue and
deliver a new Warrant to the Warrantholder for the number of shares not so
exercised. Such certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed to have become
a holder of such Warrant Shares as of the close of business on the date of the
surrender of the Warrant and payment of the Warrant Price, notwithstanding that
the certificates representing such Warrant Shares shall not actually have been
delivered or that the stock transfer books of the Company shall then be closed.
2. WARRANT PRICE.
The price per share at which Warrant Shares shall be purchasable on the
exercise of this Warrant shall be [$.93, as adjusted] per share until February
28, 2001, subject to adjustment pursuant to SECTION 3 hereof (originally and as
adjusted, the "Warrant Price").
3. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES.
The Company agrees to reserve and shall keep reserved for issuance the
number of shares of Common Stock issuable upon exercise of this Warrant. The
number and kind of securities purchasable upon the exercise of this Warrant and
the Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events, as follows:
(a) In case the Company shall (1) pay a dividend or make a
distribution in shares of its Common Stock, (2) subdivide its outstanding Common
Stock into a greater number of shares, (3) combine its outstanding Common Stock
into a smaller number of shares, or (4) issue by reclassification of its Common
Stock any shares of capital stock of the Company (other than a change in par
value, or from par value to no par value, or from no par value to par value),
the Warrant Price and the number of shares of Common Stock or other securities
issuable upon exercise of this Warrant in effect immediately prior thereto shall
be adjusted so that the Warrantholder, by operation of SECTION 3(d) hereof,
shall be entitled to receive the number of shares which it would have owned or
have been entitled to receive immediately following the happening of any of the
events described above, had this Warrant been exercised immediately prior to the
record or effective date thereof.
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An adjustment made pursuant to SECTIONS 3(a)(1)-(4) above shall become
effective immediately after the record date in the case of a dividend or
distribution (PROVIDED, HOWEVER, that such adjustments shall be reversed if such
dividends or distributions are not actually paid) and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification. If, as a result of an adjustment made pursuant to this
paragraph, the Warrantholder shall become entitled to receive shares of two or
more classes of capital stock of the Company, the Board of Directors (whose
determination shall be conclusive and shall be evidenced by a resolution) shall
determine the allocation of the adjusted Warrant Price between or among the
shares of such classes of capital stock.
(b) In case of any reclassification of the outstanding Common
Stock (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision, combination or
stock dividend), or in case of any consolidation of the Company with, or merger
of the Company into, another corporation wherein the Company is not the
surviving entity, or in case of any sale of all, or substantially all, of the
property, assets, business and goodwill of the Company, the Company, or such
successor or purchasing corporation, as the case may be, shall provide, by a
written instrument delivered to the Warrantholder, that the Warrantholder shall
thereafter be entitled, upon exercise of this Warrant, to the kind and amount of
shares of stock or other equity securities, or other property or assets that
would have been receivable by such Warrantholder upon such reclassification,
consolidation, merger or sale, if this Warrant had been exercised immediately
prior thereto. Such corporation, which thereafter shall be deemed to be the
"Company" for purposes of this Warrant, shall provide in such written instrument
for adjustments to the Warrant Price that shall be as nearly equivalent as may
be practicable to the adjustments provided for in this SECTION 3.
(c) No adjustment in the number of securities purchasable
hereunder shall be required unless such adjustment would require an increase or
decrease of at least one percent (1%) in the number of securities (calculated to
the nearest full share or unit thereof) then purchasable upon the exercise of
this Warrant; provided, however, that any adjustment which by reason of this
SECTION 3(c) is not required to be made immediately shall be carried forward and
taken into account in any subsequent adjustment.
(d) Whenever the Warrant Price is adjusted as provided in this
SECTION 3, the number of shares of Common Stock or other securities issuable
upon exercise of this Warrant shall be adjusted simultaneously, by multiplying
the number of shares previously issuable by a fraction, of which the numerator
shall be the Warrant Price in effect immediately prior to such adjustment, and
of which the denominator shall be the Warrant Price as so adjusted.
(e) For the purpose of this SECTION 3, the term "Common Stock"
shall mean (i) the class of stock designated as Common Stock of the Company at
April 8, 1998, or (ii) any other class of stock resulting from successive
changes or reclassifications of such Common Stock consisting solely of changes
in par value, or from par value to no par value, or from no par value to par
value. In the event that at any time, as a result of an adjustment made pursuant
to this SECTION 3, the Warrantholder shall become entitled to purchase any
shares of the Company's capital stock other than Common Stock, thereafter the
number of such other shares so purchasable upon the exercise of this Warrant and
the Warrant Price of such shares shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the shares contained in this SECTION 3.
(f) Whenever the number of shares of Common Stock and/or other
securities purchasable upon the exercise of this Warrant or the Warrant Price is
adjusted as herein provided, the
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Company shall cause to be promptly mailed to the Warrantholder by first class
mail, postage prepaid, notice of such adjustment and a certificate of the
Company's chief financial officer setting forth the number of shares of Common
Stock and/or other securities purchasable upon the exercise of this Warrant, the
Warrant Price after such adjustment, a brief statement of the facts requiring
such adjustment, and the computation by which such adjustment was made.
(g) Irrespective of any adjustments in the Warrant Price or
the number or kind of securities purchasable upon the exercise of this Warrant,
the Warrant certificate or certificates theretofore or thereafter issued may
continue to express the same price or number or kind of securities stated in
this Warrant initially issuable hereunder.
4. REGISTRATION RIGHTS.
The Company covenants and agrees as follows:
(a) For purposes of this SECTION 4:
(i) The terms "register," "registered" and
"registration" refer to a registration effected by preparing and filing
a registration statement or similar document in compliance with the
Securities Act, and the declaration or ordering of effectiveness of
such registration statement or document;
(ii) The term "Registrable Securities" means (A) the
shares of Common Stock and the Warrant Shares and (B) any shares of
Common Stock or other securities of the Company issuable with respect
to the units (the "Units") offered by the Company pursuant to the
Private Placement Memorandum dated February 17, 1998, as amended to
date (the "Private Placement Memorandum"), as a result of a stock split
or dividend or any sale, transfer, assignment, or other transaction by
the Company or a Holder (as defined below) involving the Units and any
securities into which the Units may thereafter be changed as a result
of merger, consolidation, recapitalization, or otherwise. As to any
particular Registrable Securities, such securities will cease to be
Registrable Securities when they have been distributed to the public
pursuant to an offering registered under the Securities Act or sold to
the public through a broker, dealer, or market-maker in compliance with
Rule 144 under the Securities Act; and
(iii) The term "Holder" means any person owning or
having the right to acquire Registrable Securities.
(b) Commencing promptly following the final Closing Date (as
defined in the Private Placement Memorandum), the Company shall prepare and file
a registration statement covering all of the Registrable Securities as further
provided in SECTION 4(c).
(c) To effect the registration of any Registrable Securities,
the Company shall, as expeditiously as reasonably possible, use its best efforts
to:
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(i) Prepare and file with the Securities and Exchange
commission (the "SEC") a registration statement with respect to such
Registrable Securities, cause such registration statement to become
effective, and keep such registration statement effective until the
expiration of the Warrants.
(ii) Prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used
in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement.
(iii) Furnish to the Holders such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents as
they may reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(iv) Register and qualify the securities covered by
such registration statement under such other securities or blue sky
laws of the jurisdictions in which the purchasers reside at the time of
the issuance of the Units; provided that in no event shall (A) the
Company be required to qualify to do business in any state or to take
any action which would subject it to general or unlimited service of
process in any state where it is not now so subject, (B) any
stockholder be required to escrow their shares of capital stock of the
Company, or (C) the Company or any stockholder be required to comply
with any other requirement which they deem unduly burdensome.
(v) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement
with terms generally satisfactory to the managing underwriter of such
offering. Each Holder participating in such underwriting shall also
enter into and perform its obligations under such an agreement.
(d) It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this SECTION 4 that the selling
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them, and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
(e) All expenses incurred in connection with the registration
pursuant to SECTION 4(b) (other than underwriter's commissions and fees or any
fees of others employed by a selling Holder, including attorneys' fees),
including without limitation all registration, filing and qualification fees,
printers' and accounting fees, and fees and disbursements of counsel for the
Company, shall be borne by the Company.
(f) With respect to the registration of the Registrable
Securities under this SECTION 4:
(i) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the officers and directors of
each Holder, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), against any
losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the Securities Act, the Exchange Act or
any state securities law or regulation, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise
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out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto,
(ii) the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law; and the
Company will reimburse each such Holder, officer or director,
underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this SECTION 4(f)(i)
shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any
such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance
upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder,
underwriter or controlling person.
(ii) To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its
directors and officers, any underwriter (as defined in the Securities
Act) for the Company, each person, if any, who controls the Company or
any such underwriter within the meaning of the Securities Act or the
Exchange Act, and any other Holder selling securities in such
registration statement or any of its directors or officers or any
person who controls such Holder, against any losses, claims, damages,
or liabilities (or actions in respect thereto) which arise out of or
are based upon any Violation, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will
reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, any person who controls the
Company, any underwriter or controlling person of any such underwriter,
any other such Holder, officer, director, or controlling person in
connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity
agreement contained in this SECTION 4(f)(ii) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder (which
consent shall not be unreasonably withheld), and provided further that
the obligations of each selling Holder hereunder shall be limited to an
amount equal to the proceeds of each such selling Holder of the shares
sold by such selling Holder pursuant to such registration.
(iii) Promptly after receipt by an indemnified party
under this Section 5(f) of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party
under this Section 4(f), notify the indemnifying party in writing of
the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have the
right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party
by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between
such indemnified party
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and any other party represented by such counsel in such proceeding. The
failure to notify an indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying
party of any liability that it may have to any indemnified party
otherwise than under this SECTION 4(f).
(g) With a view to making available to the Holders the
benefits of Rule 144 promulgated under the Securities Act and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration or pursuant to a registration
form which permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC, the Company
agrees that, if and for so long as it is subject to the reporting requirements
of Section 13 of the Exchange Act, it will:
(i) File with the SEC in a timely manner all reports
and other documents required of the Company under the Securities Act
and the Exchange Act; and
(ii) Furnish to any Holder, so long as the Holder
owns any Registrable Securities, forthwith upon reasonable request (i)
a written statement by the Company that it has complied with the
reporting requirements of the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information
as may be reasonably requested in availing any Holder of any rule or
regulation of the SEC permitting the selling of any such securities
without registration or pursuant to such rule.
(h) The rights to cause the Company to register securities
granted to a Holder by the Company under this SECTION 4 may be transferred or
assigned by a Holder only to a transferee or assignee of not less than 5,000
shares of Registrable Securities (as presently constituted and subject to
subsequent adjustments for stock splits, stock dividends, reverse stock splits,
and the like), provided that the Company is given written notice at the time of
or within a reasonable time after said transfer or assignment and identifying
the securities with respect to which such registration rights are being
transferred or assigned, and provided further that the transferee or assignee of
such rights assumes the obligations of such Holder under this SECTION 4 and
acknowledges the possible restriction of such rights as set forth under SECTION
4(c)(iv).
5. TRANSFER OF WARRANT.
Subject to the transfer conditions referred to in the legend endorsed
hereon, this Warrant and all rights hereunder are transferable, in whole or in
part, without charge to the Warrantholder, upon surrender of this Warrant with a
properly executed Assignment (in the form of EXHIBIT "B" hereto) at the
principal office of the Company in Phoenix, Arizona.
6. NO RIGHTS AS SHAREHOLDER; NOTICES TO WARRANTHOLDER.
Nothing contained in this Warrant shall be construed as conferring upon
the Warrantholder or its transferee any rights as a shareholder of the Company,
either at law or in equity, including the right to vote, receive dividends,
consent or receive notices as a shareholder with respect to any meeting of
shareholders for the election of directors of the Company or for any other
matter.
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7. FRACTIONAL INTERESTS.
The Company shall not be required to issue fractional shares of Common
Stock on the exercise of a Warrant. If any fraction of a share of Common Stock
would, except for the provisions of this SECTION 7, be issuable on the exercise
of a Warrant (or specified portion thereof), the Company shall in lieu thereof
pay an amount in cash equal to the then Current Market Price multiplied by such
fraction. For purposes of this Agreement, the term "Current Market Price" shall
mean (i) if the Common Stock is traded in the over-the-counter market and not in
the NASDAQ National Market System nor on any national securities exchange, the
average of the per share closing bid prices of the Common Stock on the 30
consecutive trading days immediately preceding the date in question, as reported
by NASDAQ or an equivalent generally accepted reporting service, or (ii) if the
Common Stock is traded in the NASDAQ National Market System or on a national
securities exchange, the average for the 30 consecutive trading days immediately
preceding the date in question of the daily per share closing prices of the
Common Stock in the NASDAQ National Market System or on the principal stock
exchange on which it is listed, as the case may be. For purposes of clause (i)
above, if trading in the Common Stock is not reported by NASDAQ, the bid price
referred to in said clause shall be the lowest bid price as reported on the OTC
Bulletin Board, or if not available, in the "pink sheets" published by National
Quotation Bureau, Incorporated. The closing price referred to in clause (ii)
above shall be the last reported sale price or, in the case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices, in either case in the NASDAQ National Market System or on the national
securities exchange on which the Common Stock is then listed.
8. NOTICES.
Any notice given pursuant to this Warrant by the Company or by the
Warrantholder shall be in writing and shall be deemed to have been duly given
upon (a) transmitter's confirmation of the receipt of a facsimile transmission,
(b) confirmed delivery by a standard overnight carrier, or (c) the expiration of
three business days after the day when mailed by United States Postal Service by
certified or registered mail, return receipt requested, postage prepaid at the
following addresses:
If to the Company:
Dimensional Visions Incorporated
2301 West Dunlap Avenue
Suite 207
Phoenix, Arizona 85021
If to the Warrantholder, then to the address of the Warrantholder in
the Company's books and records.
Each party hereto may, from time to time, change the address to which
notices to it are to be transmitted, delivered or mailed hereunder by notice in
accordance herewith to the other party.
9. GENERAL PROVISIONS.
(a) SUCCESSORS. All covenants and provisions of this Warrant
shall bind and inure to the benefit of the respective executors, administrators,
successors and assigns of the parties hereto.
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(b) CHOICE OF LAW. This Warrant and the rights of the parties
hereunder shall be governed by and construed in accordance with the laws of the
State of Arizona, including all matters of construction, validity, performance,
and enforcement, and without giving effect to the principles of conflict of
laws.
(c) ENTIRE AGREEMENT. Except as provided herein, this Warrant,
including exhibits, contains the entire agreement of the parties, and supersedes
all existing negotiations, representations or agreements and all other oral,
written, or other communications between them concerning the subject matter of
this Warrant.
(d) SEVERABILITY. If any provision of this Warrant is
unenforceable, invalid, or violates applicable law, such provision shall be
deemed stricken and shall not affect the enforceability of any other provisions
of this Warrant.
(e) CAPTIONS. The captions in this Warrant are inserted only
as a matter of convenience and for reference and shall not be deemed to define,
limit, enlarge, or describe the scope of this Warrant or the relationship of the
parties, and shall not affect this Warrant or the construction of any provisions
herein.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed as of the date first above written.
DIMENSIONAL VISIONS INCORPORATED, a
Delaware corporation
By: _______________________________
Its:_______________________________
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EXHIBIT A
DIMENSIONAL VISIONS INCORPORATED
ELECTION TO PURCHASE
Dimensional Visions Incorporated
2301 West Dunlap Avenue
Suite 207
Phoenix, Arizona 85021
The undersigned hereby irrevocably elects to exercise the
right of purchase set forth in the attached Warrant to purchase thereunder
__________ shares of the Common Stock (the "Shares") provided for therein and
requests that the Shares be issued in the name of
Name: ____________________________________
Address: ____________________________________
____________________________________
Social Security Number or Employer Identification Number: __________________
Dated: _________________________
Name of Warrantholder or Assignee:____________________________________________
(Please Print)
Signature: _________________________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant.)
Method of payment: __________________________________________
(Please Print)
________________________________________________________________
Medallion Signature Guarantee (required if an assignment
of Shares acquired on exercise, or an assignment of Warrants
remaining after exercise, is made upon exercise.)
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EXHIBIT B
ASSIGNMENT
FOR VALUE RECEIVED, _____________________________________
hereby sells, assigns and transfers all of the rights of the undersigned under
the attached Warrant with respect to the number of shares of Common Stock
covered thereby set forth below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint ______________________,
Attorney, to transfer the attached Warrant on the books of the Company, with
full power of substitution.
Dated: ____________ Signature:__________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant.)
__________________________________________
(SSN or EIN of Warrantholder)
________________________________________________________________
Medallion Signature Guarantee (required if an assignment
of Shares acquired on exercise, or an assignment of Warrants
remaining after exercise, is made upon exercise.)
NEITHER THIS WARRANT, NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF, HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAW. SUCH SECURITIES MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO OR (II) IN THE OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER THE SECURITIES ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH A PROPOSED
SALE OR TRANSFER.
COMMON STOCK
PURCHASE WARRANT
For the Purchase of Shares of
Common Stock of
DIMENSIONAL VISIONS INCORPORATED
(Par Value $0.001 Per Share)
(Incorporated under the Laws of the State of Delaware)
VOID AFTER 5:00 P.M. PST ON FEBRUARY 28, 2001
Date of Original Issuance: ______________, 1998
This is to certify that, for value received, __________________________
or assigns (the "Warrantholder"), is entitled, subject to the terms and
conditions hereinafter set forth, at any time and on or before 5:00 P.M.,
Pacific Standard Time, on February 28, 2001, but not thereafter, to purchase
_______ shares of common stock, par value $0.001 per share (the "Common Stock"),
of DIMENSIONAL VISIONS INCORPORATED (the "Company") for the Warrant Price (as
defined below), and to receive a certificate or certificates for the shares of
Common Stock so purchased.
1. TERMS AND EXERCISE OF WARRANTS.
(a) EXERCISE PERIOD. Subject to the terms of this Warrant, the
Warrantholder shall have the right, at any time during the period (the "Exercise
Period") commencing on the date hereof and ending at 5:00 P.M., Pacific Standard
Time, on February 28, 2001 (the "Termination Date"), or if such date is a day on
which banking institutions are authorized by law to close, then on the next
succeeding day which shall not be such a day, to purchase from the Company up to
the number of fully paid and nonassessable shares of Common Stock which the
Warrantholder may at the time be entitled to purchase pursuant to this Warrant.
Such shares of Common Stock and any other securities that the Company may be
required by the operation of SECTION 3 to issue upon the exercise hereof are
referred to hereinafter as the "Warrant Shares."
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(b) METHOD OF EXERCISE. This Warrant shall be exercised by
surrender of this Warrant to the Company at its principal office in Phoenix,
Arizona, or at such other address as the Company may designate by notice in
writing to the Warrantholder at the address of the Warrantholder appearing on
the books of the Company or such other address as the Warrantholder may
designate in writing, together with the form of Election to Purchase included as
EXHIBIT "A" hereto, duly completed and signed, and upon payment to the Company
of the Warrant Price (as defined in SECTION 2) multiplied by the number of
Warrant Shares being purchased upon such exercise (the "Aggregate Warrant
Price"), together with all taxes applicable upon such exercise. Payment of the
Aggregate Warrant Price shall be made in cash or by certified check or cashier's
check, payable to the order of the Company.
(c) PARTIAL EXERCISE. This Warrant shall be exercisable, at
the election of the Warrantholder, either in full or from time to time in part,
during the Exercise Period.
(d) SHARE ISSUANCE UPON EXERCISE. Upon the exercise and
surrender of this Warrant certificate and payment of such Warrant Price, the
Company shall issue and cause to be delivered with all reasonable dispatch to
the Warrantholder, in such name or names as the Warrantholder may designate in
writing, a certificate or certificates for the number of full Warrant Shares so
purchased upon the exercise of the Warrant, together with cash, as provided in
SECTION 7 hereof, with respect to any fractional Warrant Shares otherwise
issuable upon such surrender and, if applicable, the Company shall issue and
deliver a new Warrant to the Warrantholder for the number of shares not so
exercised. Such certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed to have become
a holder of such Warrant Shares as of the close of business on the date of the
surrender of the Warrant and payment of the Warrant Price, notwithstanding that
the certificates representing such Warrant Shares shall not actually have been
delivered or that the stock transfer books of the Company shall then be closed.
2. WARRANT PRICE.
The price per share at which Warrant Shares shall be purchasable on the
exercise of this Warrant shall be $1.50 per share until February 28, 1999 and
$2.00 per share until February 28, 2001, subject to adjustment pursuant to
SECTION 3 hereof (originally and as adjusted, the "Warrant Price").
3. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES.
The Company agrees to reserve and shall keep reserved for issuance the
number of shares of Common Stock issuable upon exercise of this Warrant. The
number and kind of securities purchasable upon the exercise of this Warrant and
the Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events, as follows:
(a) In case the Company shall (1) pay a dividend or make a
distribution in shares of its Common Stock, (2) subdivide its outstanding Common
Stock into a greater number of shares, (3) combine its outstanding Common Stock
into a smaller number of shares, or (4) issue by reclassification of its Common
Stock any shares of capital stock of the Company (other than a change in par
value, or from par value to no par value, or from no par value to par value),
the Warrant Price and the number of shares of Common Stock or other securities
issuable upon exercise of this Warrant in effect immediately prior thereto shall
be adjusted so that the Warrantholder, by operation of SECTION 3(d) hereof,
shall be entitled to receive the number of shares which it would have owned or
have been entitled to receive immediately following the happening of any of the
events described above, had this Warrant been exercised immediately prior to the
record or effective date thereof.
2
<PAGE>
An adjustment made pursuant to SECTIONS 3(a)(1)-(4) above shall become
effective immediately after the record date in the case of a dividend or
distribution (PROVIDED, HOWEVER, that such adjustments shall be reversed if such
dividends or distributions are not actually paid) and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification. If, as a result of an adjustment made pursuant to this
paragraph, the Warrantholder shall become entitled to receive shares of two or
more classes of capital stock of the Company, the Board of Directors (whose
determination shall be conclusive and shall be evidenced by a resolution) shall
determine the allocation of the adjusted Warrant Price between or among the
shares of such classes of capital stock.
(b) In case of any reclassification of the outstanding Common
Stock (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision, combination or
stock dividend), or in case of any consolidation of the Company with, or merger
of the Company into, another corporation wherein the Company is not the
surviving entity, or in case of any sale of all, or substantially all, of the
property, assets, business and goodwill of the Company, the Company, or such
successor or purchasing corporation, as the case may be, shall provide, by a
written instrument delivered to the Warrantholder, that the Warrantholder shall
thereafter be entitled, upon exercise of this Warrant, to the kind and amount of
shares of stock or other equity securities, or other property or assets that
would have been receivable by such Warrantholder upon such reclassification,
consolidation, merger or sale, if this Warrant had been exercised immediately
prior thereto. Such corporation, which thereafter shall be deemed to be the
"Company" for purposes of this Warrant, shall provide in such written instrument
for adjustments to the Warrant Price that shall be as nearly equivalent as may
be practicable to the adjustments provided for in this SECTION 3.
(c) No adjustment in the number of securities purchasable
hereunder shall be required unless such adjustment would require an increase or
decrease of at least one percent (1%) in the number of securities (calculated to
the nearest full share or unit thereof) then purchasable upon the exercise of
this Warrant; provided, however, that any adjustment which by reason of this
SECTION 3(c) is not required to be made immediately shall be carried forward and
taken into account in any subsequent adjustment.
(d) Whenever the Warrant Price is adjusted as provided in this
SECTION 3, the number of shares of Common Stock or other securities issuable
upon exercise of this Warrant shall be adjusted simultaneously, by multiplying
the number of shares previously issuable by a fraction, of which the numerator
shall be the Warrant Price in effect immediately prior to such adjustment, and
of which the denominator shall be the Warrant Price as so adjusted.
(e) For the purpose of this SECTION 3, the term "Common Stock"
shall mean (i) the class of stock designated as Common Stock of the Company at
April 8, 1998, or (ii) any other class of stock resulting from successive
changes or reclassifications of such Common Stock consisting solely of changes
in par value, or from par value to no par value, or from no par value to par
value. In the event that at any time, as a result of an adjustment made pursuant
to this SECTION 3, the Warrantholder shall become entitled to purchase any
shares of the Company's capital stock other than Common Stock, thereafter the
number of such other shares so purchasable upon the exercise of this Warrant and
the Warrant Price of such shares shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the shares contained in this SECTION 3.
3
<PAGE>
(f) Whenever the number of shares of Common Stock and/or other
securities purchasable upon the exercise of this Warrant or the Warrant Price is
adjusted as herein provided, the Company shall cause to be promptly mailed to
the Warrantholder by first class mail, postage prepaid, notice of such
adjustment and a certificate of the Company's chief financial officer setting
forth the number of shares of Common Stock and/or other securities purchasable
upon the exercise of this Warrant, the Warrant Price after such adjustment, a
brief statement of the facts requiring such adjustment, and the computation by
which such adjustment was made.
(g) Irrespective of any adjustments in the Warrant Price or
the number or kind of securities purchasable upon the exercise of this Warrant,
the Warrant certificate or certificates theretofore or thereafter issued may
continue to express the same price or number or kind of securities stated in
this Warrant initially issuable hereunder.
4. REGISTRATION RIGHTS.
The Company covenants and agrees as follows:
(a) For purposes of this SECTION 4:
(i) The terms "register," "registered" and
"registration" refer to a registration effected by preparing and filing
a registration statement or similar document in compliance with the
Securities Act, and the declaration or ordering of effectiveness of
such registration statement or document;
(ii) The term "Registrable Securities" means (A) the
shares of Common Stock and the Warrant Shares and (B) any shares of
Common Stock or other securities of the Company issuable with respect
to the units (the "Units") offered by the Company pursuant to the
Private Placement Memorandum dated February 17, 1998, as amended to
date (the "Private Placement Memorandum"), as a result of a stock split
or dividend or any sale, transfer, assignment, or other transaction by
the Company or a Holder (as defined below) involving the Units and any
securities into which the Units may thereafter be changed as a result
of merger, consolidation, recapitalization, or otherwise. As to any
particular Registrable Securities, such securities will cease to be
Registrable Securities when they have been distributed to the public
pursuant to an offering registered under the Securities Act or sold to
the public through a broker, dealer, or market-maker in compliance with
Rule 144 under the Securities Act; and
(iii) The term "Holder" means any person owning or
having the right to acquire Registrable Securities.
(b) Commencing promptly following the final Closing Date (as
defined in the Private Placement Memorandum), the Company shall prepare and file
a registration statement covering all of the Registrable Securities as further
provided in SECTION 4(c).
(c) To effect the registration of any Registrable Securities,
the Company shall, as expeditiously as reasonably possible, use its best efforts
to:
4
<PAGE>
(i) Prepare and file with the Securities and Exchange
commission (the "SEC") a registration statement with respect to such
Registrable Securities, cause such registration statement to become
effective, and keep such registration statement effective until the
expiration of the Warrants.
(ii) Prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used
in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement.
(iii) Furnish to the Holders such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents as
they may reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(iv) Register and qualify the securities covered by
such registration statement under such other securities or blue sky
laws of the jurisdictions in which the purchasers reside at the time of
the issuance of the Units; provided that in no event shall (A) the
Company be required to qualify to do business in any state or to take
any action which would subject it to general or unlimited service of
process in any state where it is not now so subject, (B) any
stockholder be required to escrow their shares of capital stock of the
Company, or (C) the Company or any stockholder be required to comply
with any other requirement which they deem unduly burdensome.
(v) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement
with terms generally satisfactory to the managing underwriter of such
offering. Each Holder participating in such underwriting shall also
enter into and perform its obligations under such an agreement.
(d) It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this SECTION 4 that the selling
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them, and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
(e) All expenses incurred in connection with the registration
pursuant to SECTION 4(b) (other than underwriter's commissions and fees or any
fees of others employed by a selling Holder, including attorneys' fees),
including without limitation all registration, filing and qualification fees,
printers' and accounting fees, and fees and disbursements of counsel for the
Company, shall be borne by the Company.
(f) With respect to the registration of the Registrable
Securities under this SECTION 4:
(i) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the officers and directors of
each Holder, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), against any
losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the Securities Act, the Exchange Act or
any state securities law or regulation, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise
5
<PAGE>
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto,
(ii) the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law; and the
Company will reimburse each such Holder, officer or director,
underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this SECTION 4(f)(i)
shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any
such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance
upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder,
underwriter or controlling person.
(ii) To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its
directors and officers, any underwriter (as defined in the Securities
Act) for the Company, each person, if any, who controls the Company or
any such underwriter within the meaning of the Securities Act or the
Exchange Act, and any other Holder selling securities in such
registration statement or any of its directors or officers or any
person who controls such Holder, against any losses, claims, damages,
or liabilities (or actions in respect thereto) which arise out of or
are based upon any Violation, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will
reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, any person who controls the
Company, any underwriter or controlling person of any such underwriter,
any other such Holder, officer, director, or controlling person in
connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity
agreement contained in this SECTION 4(f)(ii) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder (which
consent shall not be unreasonably withheld), and provided further that
the obligations of each selling Holder hereunder shall be limited to an
amount equal to the proceeds of each such selling Holder of the shares
sold by such selling Holder pursuant to such registration.
(iii) Promptly after receipt by an indemnified party
under this Section 5(f) of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party
under this Section 4(f), notify the indemnifying party in writing of
the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have the
right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party
by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between
such indemnified party
6
<PAGE>
and any other party represented by such counsel in such proceeding. The
failure to notify an indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying
party of any liability that it may have to any indemnified party
otherwise than under this SECTION 4(f).
(g) With a view to making available to the Holders the
benefits of Rule 144 promulgated under the Securities Act and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration or pursuant to a registration
form which permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC, the Company
agrees that, if and for so long as it is subject to the reporting requirements
of Section 13 of the Exchange Act, it will:
(i) File with the SEC in a timely manner all reports
and other documents required of the Company under the Securities Act
and the Exchange Act; and
(ii) Furnish to any Holder, so long as the Holder
owns any Registrable Securities, forthwith upon reasonable request (i)
a written statement by the Company that it has complied with the
reporting requirements of the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information
as may be reasonably requested in availing any Holder of any rule or
regulation of the SEC permitting the selling of any such securities
without registration or pursuant to such rule.
(h) The rights to cause the Company to register securities
granted to a Holder by the Company under this SECTION 4 may be transferred or
assigned by a Holder only to a transferee or assignee of not less than 5,000
shares of Registrable Securities (as presently constituted and subject to
subsequent adjustments for stock splits, stock dividends, reverse stock splits,
and the like), provided that the Company is given written notice at the time of
or within a reasonable time after said transfer or assignment and identifying
the securities with respect to which such registration rights are being
transferred or assigned, and provided further that the transferee or assignee of
such rights assumes the obligations of such Holder under this SECTION 4 and
acknowledges the possible restriction of such rights as set forth under SECTION
4(c)(iv).
5. TRANSFER OF WARRANT.
Subject to the transfer conditions referred to in the legend endorsed
hereon, this Warrant and all rights hereunder are transferable, in whole or in
part, without charge to the Warrantholder, upon surrender of this Warrant with a
properly executed Assignment (in the form of EXHIBIT "B" hereto) at the
principal office of the Company in Phoenix, Arizona.
6. NO RIGHTS AS SHAREHOLDER; NOTICES TO WARRANTHOLDER.
Nothing contained in this Warrant shall be construed as conferring upon
the Warrantholder or its transferee any rights as a shareholder of the Company,
either at law or in equity, including the right to vote, receive dividends,
consent or receive notices as a shareholder with respect to any meeting of
shareholders for the election of directors of the Company or for any other
matter.
7
<PAGE>
7. FRACTIONAL INTERESTS.
The Company shall not be required to issue fractional shares of Common
Stock on the exercise of a Warrant. If any fraction of a share of Common Stock
would, except for the provisions of this SECTION 7, be issuable on the exercise
of a Warrant (or specified portion thereof), the Company shall in lieu thereof
pay an amount in cash equal to the then Current Market Price multiplied by such
fraction. For purposes of this Agreement, the term "Current Market Price" shall
mean (i) if the Common Stock is traded in the over-the-counter market and not in
the NASDAQ National Market System nor on any national securities exchange, the
average of the per share closing bid prices of the Common Stock on the 30
consecutive trading days immediately preceding the date in question, as reported
by NASDAQ or an equivalent generally accepted reporting service, or (ii) if the
Common Stock is traded in the NASDAQ National Market System or on a national
securities exchange, the average for the 30 consecutive trading days immediately
preceding the date in question of the daily per share closing prices of the
Common Stock in the NASDAQ National Market System or on the principal stock
exchange on which it is listed, as the case may be. For purposes of clause (i)
above, if trading in the Common Stock is not reported by NASDAQ, the bid price
referred to in said clause shall be the lowest bid price as reported on the OTC
Bulletin Board, or if not available, in the "pink sheets" published by National
Quotation Bureau, Incorporated. The closing price referred to in clause (ii)
above shall be the last reported sale price or, in the case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices, in either case in the NASDAQ National Market System or on the national
securities exchange on which the Common Stock is then listed.
8. REDEMPTION.
(a) The then outstanding Warrants may be redeemed, at the
option of the Company, at $.05 per share of Common Stock purchasable upon
exercise of such Warrants, any time after February 17, 1999, the Daily Market
Price per share of the Common Stock for a period of at least 20 consecutive
trading days ending not more than 10 days prior to the date of the notice given
pursuant to SECTION 8(b) hereof has equaled or exceeded $2.50, and prior to
expiration of the Warrants. The Daily Market Price of the Common Stock shall be
determined by the Company in the manner set forth in SECTION 8(e) as of the end
of each trading day (or, if no trading in the Common Stock occurred on such day,
as of the end of the immediately preceding trading day in which trading
occurred) before the Company may give notice of redemption. All outstanding
Warrants must be redeemed if any are redeemed, and any right to exercise an
outstanding Warrant shall terminate at 5:00 p.m. (Arizona Time) on the business
day immediately preceding the date fixed for redemption. A trading day shall
mean a day in which trading of securities occurred on the New York Stock
Exchange.
(b) The Company may exercise its right to redeem the Warrants
only by giving the notice set forth in the following sentence by the end of the
tenth day after the provisions of SECTION 8(a) have been satisfied. In case the
Company shall exercise its right to redeem, it shall give notice to the
registered holders of the outstanding Warrants, by mailing to such registered
holders a notice of redemption, first class, postage prepaid, at their addresses
as they shall appear on the records of the Company. Any notice mailed in the
manner provided herein shall be conclusively presumed to have been duly given
whether or not the registered holder actually receives such notice.
(c) The notice of redemption shall specify the redemption
price, the date fixed for redemption (which shall be between the thirtieth and
forty-fifth day after such notice is mailed), the place where the Warrant
certificates shall be delivered and the redemption price shall be paid, and that
the right to exercise the Warrant shall terminate at 5:00 p.m. (Arizona Time) on
the business day immediately preceding the date fixed for redemption.
8
<PAGE>
(d) Appropriate adjustment shall be made to the redemption
price and to the minimum Daily Market Price prerequisite to redemption set forth
in SECTION 8(a) hereof, in each case on the same basis as provided in SECTION 3
hereof with respect to adjustment of the Warrant Price.
(e) For purposes of this Agreement, the term "Daily Market
Price" shall mean (i) if the Common Stock is traded in the over-the-counter
market and not in the NASDAQ National Market System nor on any national
securities exchange, the closing bid price of the Common Stock on the trading
day in question, as reported by NASDAQ or an equivalent generally accepted
reporting service, or (ii) if the Common Stock is traded in the NASDAQ National
Market System or on a national securities exchange, the daily per share closing
price of the Common Stock in the NASDAQ National Market System or on the
principal stock exchange on which it is listed on the trading day in question,
as the case may be. For purposes of clause (i) above, if trading in the Common
Stock is not reported by NASDAQ, the bid price referred to in said clause shall
be the lowest bid price as reported on the OTC Bulletin Board, or if not
available, in the "pink sheets" published by National Quotation Bureau,
Incorporated. The closing price referred to in clause (ii) above shall be the
last reported sale price or, in case no such reported sale takes place on such
day, the average of the reported closing bid and asked prices, in either case in
the NASDAQ National Market System or on the national securities exchange on
which the Common Stock is then listed.
9. NOTICES.
Any notice given pursuant to this Warrant by the Company or by the
Warrantholder shall be in writing and shall be deemed to have been duly given
upon (a) transmitter's confirmation of the receipt of a facsimile transmission,
(b) confirmed delivery by a standard overnight carrier, or (c) the expiration of
three business days after the day when mailed by United States Postal Service by
certified or registered mail, return receipt requested, postage prepaid at the
following addresses:
If to the Company:
Dimensional Visions Incorporated
2301 West Dunlap Avenue
Suite 207
Phoenix, Arizona 85021
If to the Warrantholder, then to the address of the Warrantholder in
the Company's books and records.
Each party hereto may, from time to time, change the address to which
notices to it are to be transmitted, delivered or mailed hereunder by notice in
accordance herewith to the other party.
10. GENERAL PROVISIONS.
(a) SUCCESSORS. All covenants and provisions of this Warrant
shall bind and inure to the benefit of the respective executors, administrators,
successors and assigns of the parties hereto.
(b) CHOICE OF LAW. This Warrant and the rights of the parties
hereunder shall be governed by and construed in accordance with the laws of the
State of Arizona, including all matters of
9
<PAGE>
construction, validity, performance, and enforcement, and without giving effect
to the principles of conflict of laws.
(c) ENTIRE AGREEMENT. Except as provided herein, this Warrant,
including exhibits, contains the entire agreement of the parties, and supersedes
all existing negotiations, representations or agreements and all other oral,
written, or other communications between them concerning the subject matter of
this Warrant.
(d) SEVERABILITY. If any provision of this Warrant is
unenforceable, invalid, or violates applicable law, such provision shall be
deemed stricken and shall not affect the enforceability of any other provisions
of this Warrant.
(e) CAPTIONS. The captions in this Warrant are inserted only
as a matter of convenience and for reference and shall not be deemed to define,
limit, enlarge, or describe the scope of this Warrant or the relationship of the
parties, and shall not affect this Warrant or the construction of any provisions
herein.
10
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed as of the date first above written.
DIMENSIONAL VISIONS INCORPORATED, a
Delaware corporation
By: _______________________________
Its:_______________________________
11
<PAGE>
EXHIBIT A
DIMENSIONAL VISIONS INCORPORATED
ELECTION TO PURCHASE
Dimensional Visions Incorporated
2301 West Dunlap Avenue
Suite 207
Phoenix, Arizona 85021
The undersigned hereby irrevocably elects to exercise the
right of purchase set forth in the attached Warrant to purchase thereunder
__________ shares of the Common Stock (the "Shares") provided for therein and
requests that the Shares be issued in the name of
Name: ____________________________________
Address: ____________________________________
____________________________________
Social Security Number or Employer Identification Number: __________________
Dated: _________________________
Name of Warrantholder or Assignee: ____________________________________________
(Please Print)
Signature: _________________________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant.)
Method of payment: __________________________________________
(Please Print)
_________________________________________________________________
Medallion Signature Guarantee (required if an assignment
of Shares acquired on exercise, or an assignment of Warrants
remaining after exercise, is made upon exercise.)
<PAGE>
EXHIBIT B
ASSIGNMENT
FOR VALUE RECEIVED, _____________________________________
hereby sells, assigns and transfers all of the rights of the undersigned under
the attached Warrant with respect to the number of shares of Common Stock
covered thereby set forth below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint _____________________,
Attorney, to transfer the attached Warrant on the books of the Company, with
full power of substitution.
Dated: ____________ Signature:___________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant.)
___________________________________________
(SSN or EIN of Warrantholder)
________________________________________________________________
Medallion Signature Guarantee (required if an assignment
of Shares acquired on exercise, or an assignment of Warrants
remaining after exercise, is made upon exercise.)
EXHIBIT 21.0 SUBSIDIARIES OF THE REGISTRANT
Name State of Incorporation
- ---- ----------------------
InfoPak, Inc. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 15910
<SECURITIES> 0
<RECEIVABLES> 360363
<ALLOWANCES> 215743
<INVENTORY> 69364
<CURRENT-ASSETS> 375033
<PP&E> 394561
<DEPRECIATION> 233509
<TOTAL-ASSETS> 920841
<CURRENT-LIABILITIES> 610953
<BONDS> 0
0
683411
<COMMON> 3612
<OTHER-SE> (479721)
<TOTAL-LIABILITY-AND-EQUITY> 920841
<SALES> 609392
<TOTAL-REVENUES> 1019392
<CGS> 473147
<TOTAL-COSTS> 473147
<OTHER-EXPENSES> 871258
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 92117
<INCOME-PRETAX> (421659)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (421659)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> 0
</TABLE>
FORM OF DEBENTURE
THIS DEBENTURE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE
TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (II)
RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN
CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS IN VIOLATION OF ANY APPLICABLE
STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY DEBENTURE ISSUED
IN EXCHANGE FOR THIS DEBENTURE.
DIMENSIONAL VISIONS INCORPORATED
Series A 12% Convertible Secured Debenture
$__________ July ___, 1998
FOR VALUE RECEIVED, Dimensional Visions Incorporated, a Delaware
corporation (the "Company") with its principal executive office at 2301 West
Dunlap Avenue, Suite 207, Phoenix, Arizona 85021, promises to pay to the order
of __________________ (the "Payee" or the "Holder of this Debenture") or
registered assigns on July 31, 2001 (the "Maturity Date"), the principal sum of
__________ ($______________) (the "Principal Amount"), in such coin or currency
of the United States of America as at the time of payment shall be legal tender
for the payment of public and private debts, together with interest thereon at
the rate of twelve (12%) percent per annum (the "Stated Rate"), payable as
hereinafter set forth in cash, or at the option of the Holder of this Debenture,
in the Company's Common Stock as provided in SECTION 4 hereof. Payment of
interest shall be made at the Stated Rate on July 31, 1999 and each July 31
thereafter (an "Interest Payment Date") through the Maturity Date at the address
designated above or at such other place as the Payee shall have notified the
Company in writing at least five (5) days before such payment is due.
Each payment by the Company pursuant to this Debenture shall be made
without setoff or counterclaim and in immediately available funds.
This Debenture is one of a duly authorized issue of Debentures of the
Company designated as its Series A 12% Convertible Secured Debenture due July
31, 2001 (herein called the
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"Debentures"), limited in aggregate principal amount to Five Hundred Thousand
Dollars ($500,000).
The amount of all repayments of principal, interest rates applicable
thereto and interest accrued thereon shall be recorded on the records of the
Payee and, prior to any transfer of, or any action to collect, this Debenture
shall be endorsed on this Debenture. Any such recordation or endorsement shall
constitute PRIMA FACIE evidence of the accuracy of the information so recorded
or endorsed, but the failure to record any such amount or rate shall not limit
or otherwise affect the obligations of the Company hereunder to make payments of
principal or interest when due. All payments by the Company hereunder shall be
applied first to pay any interest which is due, but unpaid ("Accrued Interest"),
then to reduce the Principal Amount.
The Company (i) waives presentment, demand, protest, or notice of any
kind in connection with this Debenture and (ii) agrees, in the event of an Event
of Default (as defined in Section 2 hereof), to pay to the Holder of this
Debenture, on demand, all costs and expenses (including reasonable legal fees)
incurred in connection with the enforcement and collection of this Debenture. If
the date for any payment due hereunder would otherwise fall on a day which is
not a Business Day, such payment or expiration date shall be extended to the
next following Business Day with interest payable at the applicable rate
specified herein during such extension. "Business Day" shall mean any day other
than a Saturday, Sunday, or any day which shall be in the State of Arizona a
legal holiday or a day on which banking institutions are authorized by law to
close.
In the event that for any reason the Company shall fail to pay to the
Holder of this Debenture when due all or any portion of the unpaid Accrued
Interest or Principal Amount of this Debenture, interest shall accrue and be
payable on such due but unpaid amounts at a rate per annum (the "Default Rate")
equal to the Stated Rate plus four percent (4%) (but in no event higher than the
maximum rate permitted by law) from the date when first due until and including
the date when actually collected by the Holder of this Debenture. Such interest
shall be payable on demand.
In consideration for the loan evidenced by this Debenture and other
identical Debentures in the aggregate Principal Amount of up to Five Hundred
Thousand Dollars ($500,000), the Company shall issue to the Holders of this
Debenture warrants to purchase 25,000 shares of the Company's common stock, at
an exercise price of Fifty Cents ($0.50) per share (subject to adjustment) (the
"Warrant") for each Twenty Five Thousand Dollars ($25,000) Principal Amount of
Debentures.
THE OBLIGATIONS OF THE COMPANY UNDER THE DEBENTURES ARE SECURED
PURSUANT TO A SEPARATE SECURITY AGREEMENT.
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<PAGE>
1. CONVERSION OF DEBENTURE.
A. CONVERSION. This Debenture is convertible, in whole or in
part, at the option of the Holder, into shares of the Company's common stock,
par value $.001 (the "Common Stock") at any time prior to the repayment of this
Debenture at the rate of One Dollar ($1.00) per share (the "Conversion Price")
(i.e., one share of Common Stock for each One Dollar ($1.00) of principal amount
converted) subject to adjustment as hereinafter provided.
B. ADJUSTMENT BASED UPON STOCK DIVIDENDS, COMBINATION OF
SHARES OR RECAPITALIZATION. In the event that the Company shall at any time (i)
pay a stock dividend, (ii) subdivide its outstanding shares of Common Stock into
a greater number of shares, (iii) combine its outstanding shares of Common Stock
into a smaller number of shares, or (iv) issue by reclassification of its shares
of Common Stock any other special capital stock of the Company, the Holder, upon
surrender of this Debenture for conversion, shall be entitled to receive the
number of shares of Common Stock or other capital stock of the Company which he
would have owned or have been entitled to receive after the happening of any of
the events described above had this Debenture been converted immediately prior
to the happening of such event.
C. ADJUSTMENT BASED UPON MERGER OR CONSOLIDATION. In case of
any consolidation or merger to which the Company is a party (other than a merger
in which the Company is the surviving entity and which does not result in any
reclassification of or change in the outstanding Common Stock of the Company),
or in case of any sale or conveyance to another corporation of the property of
the Company as an entirety or substantially as an entirety, the Holder shall
have the right to convert this Debenture into the kind and amount of securities
and property receivable upon such consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock into which such Debenture might
have been converted immediately prior thereto.
D. EXERCISE OF CONVERSION PRIVILEGE. The conversion privilege
provided for herein shall be exercisable in whole or in part by the Holder by
written notice to the Company and the surrender of this Debenture in exchange
for up to the number of shares of Common Stock into which this Debenture is
convertible based upon the Conversion Price. If the entire amount of this
Debenture is not so exercised, the Company shall issue a new Debenture
representing the remaining outstanding Principal Amount.
E. CORPORATE STATUS OF SHARES TO BE ISSUED. All shares of the
Company's Common Stock which may be issued upon the conversion of this Debenture
shall, upon issuance, be fully paid and non-assessable.
F. ISSUANCE OF STOCK CERTIFICATE. Upon the conversion of this
Debenture, the Company shall in due course issue to the Holder a certificate or
certificates representing the number of shares of its Common Stock to which the
conversion relates.
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G. STAMP TAXES, ETC. The Company shall pay all documentary,
stamp or other transactional taxes attributable to the issuance or delivery of
the Common Stock upon conversion of this Debenture; PROVIDED, HOWEVER, that the
Company shall not be required to pay any taxes which may be payable in respect
of any transfer involved in the issuance or delivery of any certificate for such
Common Stock in a name other than that of the Holder of this Debenture and the
Company shall not be required to issue or deliver any such certificate unless
and until the person requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the Company's
satisfaction that such tax has been paid.
2. EVENTS OF DEFAULT
A. The term "Event of Default" shall mean any of the events
set forth in this SECTION 2A:
(a) NON-PAYMENT OF OBLIGATIONS. The Company shall
default in the payment of the principal or accrued interest of this
Debenture as and when the same shall become due and payable, whether by
acceleration or otherwise.
(b) BANKRUPTCY, INSOLVENCY, ETC. The Company shall:
(i) become insolvent or generally fail or be
unable to pay, or admit in writing its inability to pay, its
debts as they become due;
(ii) apply for, consent to, or acquiesce in,
the appointment of a trustee, receiver, sequestrator or other
custodian for the Company or any of its property, or make a
general assignment for the benefit of creditors;
(iii) in the absence of such application,
consent or acquiesce in, permit or suffer to exist the
appointment of a trustee, receiver, sequestrator or other
custodian for the Company or for any part of its property;
(iv) permit or suffer to exist the
commencement of any bankruptcy, reorganization, debt
arrangement or other case or proceeding under any bankruptcy
or insolvency law, or any dissolution, winding up or
liquidation proceeding, in respect of the Company, and, if
such case or proceeding is not commenced by the Company or
converted to a voluntary case, such case or proceeding shall
be consented to or acquiesced in by the Company or shall
result in the entry of an order for relief; or
(v) take any corporate or other action
authorizing, or in furtherance of, any of the foregoing.
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(c) JUDGMENTS. A judgment which, with other such
outstanding judgments against the Company and its subsidiaries (in each
case to the extent not covered by insurance), exceeds an aggregate of
One Hundred Thousand Dollars($100,000), shall be rendered against the
Company or any subsidiary and, within fifteen (15) days after entry
thereof, such judgment shall not have been discharged or execution
thereof stayed pending appeal, or, within fifteen (15) days after the
expiration of any such stay, such judgment shall not have been
discharged.
(d) SECURITY AGREEMENT. The Company shall breach or
default under any provision of the Security Agreement.
B. ACTION IF BANKRUPTCY. If any Event of Default described in
clauses (b)(i) through (v) of Section 2A shall occur, the outstanding principal
amount of this Debenture and all other obligations hereunder shall automatically
be and become immediately due and payable, without notice or demand.
C. ACTION IF OTHER EVENT OF DEFAULT. If any Event of Default
(other than any Event of Default described in clauses (b)(i) through (v) of
Section 2A) shall occur for any reason, whether voluntary or involuntary, and be
continuing, the Holder of this Debenture may, upon notice to the Company,
declare all or any portion of the outstanding principal amount of this Debenture
together with interest accrued thereon to be due and payable and any or all
other obligations hereunder to be due and payable, whereupon the full unpaid
principal amount hereof, such accrued interest, and any and all other such
obligations which shall be so declared due and payable shall be and become
immediately due and payable, without further notice, demand, or presentment.
D. REMEDIES. Subject to the provisions of Section 2C and 3A
hereof, in case any Event of Default shall occur and be continuing, the Holder
of this Debenture may proceed to protect and enforce its rights by a proceeding
seeking the specific performance of any covenant or agreement contained in this
Debenture or the Security Agreement, or in aid of the exercise of any power
granted in this Debenture or may proceed to enforce the payment of this
Debenture or to enforce any other legal or equitable rights as such Holder.
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3. AMENDMENTS AND WAIVERS.
A. WAIVERS, AMENDMENTS, ETC.
(a) The provisions of this Debenture may from time to
time be amended, modified or waived, if such amendment, modification,
or waiver is in writing and consented to by the Company and the holders
of not less than 50% in principal amount of the Debentures (the
"Required Holders"); PROVIDED, HOWEVER, that no such amendment,
modification or waiver:
(i) which would modify this Section 3A,
change the definition of "Required Holders", extend the
Maturity Date, or subject the Payee under each Debenture to
any additional obligations shall be made without the consent
of the Payee of each Debenture, or
(ii) which would reduce the amount of any
payment or prepayment of principal of or interest on any
principal amount payable hereunder (or reduce the principal
amount of or rate of interest payable hereunder) shall be made
without the consent of the Holder of each Debenture so
affected.
(b) No failure or delay on the part of the Payee in
exercising any power or right under this Debenture shall not operate as
a waiver thereof, nor shall any single or partial exercise of any such
power or right preclude any other or further exercise thereof or the
exercise of any other power or right. No notice to or demand on the
Company in any case shall entitle it to any notice or demand in similar
or other circumstances. No waiver or approval by the Payee shall,
except as may be otherwise stated in such waiver or approval, be
applicable to subsequent transactions. No waiver or approval hereunder
shall require any similar or dissimilar waiver or approval thereafter
to be granted hereunder.
(c) To the extent that the Company makes a payment or
payments to the Payee, and such payment or payments or any part thereof
are subsequently for any reason invalidated, set aside, and/or required
to be repaid to a trustee, receiver, or any other party under any
bankruptcy law, state or federal law, common law, or equitable cause,
then to the extent of such recovery, the obligation or part thereof
originally intended to be satisfied, and all rights and remedies
therefor, shall be revived and continued in full force and effect as if
such payment had not been made or such enforcement or setoff had not
occurred.
(d) After any waiver, amendment, or supplement under
this section becomes effective, the Company shall mail to the Holders
of the Debentures a copy thereof.
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<PAGE>
4. COMMON STOCK IN LIEU OF INTEREST.
At the sole discretion of the Holder, the Holder may elect to
receive one share of Common Stock for each one dollar of interest due to Holder
on any Interest Payment Date (i.e., Common Stock at the rate of $1.00 per share)
partially or entirely in lieu of cash payment of interest, by notifying the
Company of its election to receive the Common Stock at least five (5) days prior
to any Interest Payment Date. The number of shares of Common Stock so issued
shall be subject to adjustment in accordance with SECTION 1B AND 1C hereof.
5. REDEMPTION/PREPAYMENT.
The Company may not redeem or prepay this Debenture, except
that the Company may redeem or prepay this Debenture, in whole, but not in part,
at any time on or after July 31, 1999, upon 30 days prior written notice, for
the outstanding Principal Amount and Accrued Interest, but only if a
registration statement with respect to the Common Stock issuable on conversion
of this Debenture is then effective under the Securities Act of 1933, as
amended.
6. MISCELLANEOUS.
A. PARTIES IN INTEREST. All covenants, agreements, and
undertakings in this Debenture binding upon the Company or the Payee shall bind
and inure to the benefit of the successors and permitted assigns of the Company
and the Payee, respectively, whether so expressed or not.
(a) REGISTERED HOLDER. The Company may consider and
treat the person in whose name this Debenture shall be registered as
the absolute owner thereof for all purposes whatsoever (whether or not
this Debenture shall be overdue) and the Company shall not be affected
by any notice to the contrary. In case of transfer of this Debenture by
operation of law, the transferee agrees to notify the Company of such
transfer and of its address, and to submit appropriate evidence
regarding such transfer so that this Debenture may be registered in the
name of the transferee. This Debenture is transferable only on the
books of the Company by the Holder hereof, in person or by attorney, on
the surrender hereof, duly endorsed. Communications sent to any
registered owner shall be effective as against all Holders or
transferees of the Debenture not registered at the time of sending the
communication.
B. GOVERNING LAW. This Debenture shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
any conflict provisions therein.
C. NOTICES. Unless otherwise provided, all notices required or
permitted under this Debenture shall be in writing and shall be deemed
effectively given (i) upon personal delivery to the party to be notified, (ii)
upon confirmed delivery by Federal Express or other nationally
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<PAGE>
recognized courier service providing next-business-day delivery, or (iii) three
(3) business days after deposit with the United States Postal Service, by
registered or certified mail, postage prepaid and addressed to the party to be
notified, in each case at the address set forth below, or at such other address
as such party may designate by written notice to the other party (provided that
notice of change of address shall be effective upon receipt by the party to whom
such notice is addressed).
If sent to Payee, notices shall be sent to the following address:
________________________________
________________________________
________________________________
________________________________
If sent to the Company, notices shall be sent to the following address:
Dimensional Visions Incorporated
2301 West Dunlap Avenue
Suite 207
Phoenix, Arizona 85201
John D. McPhilimy, President
D. WAIVER OF JURY TRIAL. THE PAYEE AND THE COMPANY HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS DEBENTURE OR ANY OTHER DOCUMENT OR INSTRUMENT
EXECUTED AND DELIVERED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE PAYEE OR
THE COMPANY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PAYEE'S EXTENDING
CREDIT PURSUANT TO THIS DEBENTURE.
IN WITNESS WHEREOF, this Debenture has been executed and delivered on
the date specified above by the duly authorized representative of the Company.
DIMENSIONAL VISIONS INCORPORATED
By:________________________________
John D. McPhilimy
President
FORM OF SECURITY AGREEMENT
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made and entered into as
of July ___, 1998, by DIMENSIONAL VISIONS INCORPORATED, a Delaware corporation
("Borrower"), whose chief executive office is located at 2301 W. Dunlap Avenue,
Suite 207, Phoenix, Arizona 85021, for the benefit of the holders (collectively,
"Lender") of the Borrower's Series A 12% Convertible Secured Debentures (the
"Debentures").
1. SECURITY INTEREST
1.1 COLLATERAL. Borrower hereby grants to Lender a security interest
(the "Security Interest") in the property, or interests in property, of
Borrower, whether now owned or existing or hereafter acquired or arising and
wherever located (collectively, the "Collateral"), as set forth below:
(a) All contract rights, leases, documents of title, deposit
accounts, certificates of deposit, and general intangibles;
(b) The Note dated September 25, 1997 payable by DataNet
Enterprises, LLC, a Texas limited liability company to InfoPak, Inc., in the
original principal amount of $410,000, as amended, by Addendum No. 1 thereto
dated __________, 199___, and Addendum No. 2 thereto dated March 11, 1998 (the
"InfoPak Note");
(c) All inventory, including, without limitation, raw
materials, work-in-process, or materials used or consumed in the business of
Borrower, whether in the possession of Borrower, warehouseman, bailee, or any
other person or entity;
(d) All machinery, furniture, fixtures, and other equipment;
(e) All negotiable and nonnegotiable documents of title;
(f) All monies, securities or other property now or hereafter
in the possession of or on deposit with Lender, whether held in a general or
special account of deposit, including, without limitation, any account or
deposit held jointly by Borrower with any other person or entity, or for
safekeeping or otherwise, except to the extent specifically prohibited by law;
(g) All rights under contracts of insurance covering any of
the above-described property;
<PAGE>
(h) All attachments, accessions, tools, parts, supplies,
increases and additions to, and all replacements of and substitutions for any of
the above-described property;
(i) All products of any of the above-described property,
including any products evidenced by a note or other instrument;
(j) All proceeds of any of the above-described property,
including any proceeds evidenced by a note or other instrument; and
(k) All books and records pertaining to any of the
above-described property, including, without limitation, any computer readable
memory and any computer hardware or software necessary to process such memory
(collectively, the "Books and Records").
1.2 EXCLUSIONS FROM COLLATERAL. Notwithstanding the foregoing, the
Collateral shall not include any accounts, receivables, chattel paper, or other
rights to payment, except as specifically provided in SECTION 1.1. hereof, nor
shall the Collateral include any of the assets or common stock of InfoPak, Inc.,
except the Note described in SECTION1.1 HEREOF.
2. SECURED OBLIGATIONS
The Collateral shall secure, in such order of priority as Lender may
elect, the following (collectively, the "Secured Obligations"):
(a) payment and performance of all obligations of Borrower
under the terms of the Debentures, together with all extensions, modifications,
substitutions, or renewals thereof, or other advances made thereunder; and
(b) payment and performance of every obligation, covenant and
agreement of Borrower contained in this Agreement, together with all extensions,
modifications, substitutions, or renewals hereof.
Unless Borrower shall have otherwise agreed in writing, the Secured Obligations,
for purposes of this Agreement, shall not include "consumer credit" subject to
the disclosure requirements of the Federal Truth in Lending Act or any
regulations promulgated thereunder.
3. REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower hereby represents and warrants to Lender that:
3.1 USE. The Collateral is or will be used or produced primarily for
business purpose of Borrower.
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<PAGE>
3.2 LOCATION. The Collateral, including, without limitation, the Books
and Records will be kept at the facilities of Borrower at 2301 West Dunlap
Avenue, Suite 201, Phoenix, Arizona 85021, except for the InfoPak Note which
shall be held by Capital West Investment Group ("Capital West") or an affiliate
of Capital West for the benefit of Lender, or any agent designated by Lender to
hold the InfoPak Note.
3.3 BUSINESS NAMES. Borrower does not do business under any name other
than Dimensional Visions Incorporated.
3.4 OTHER AGREEMENTS. The execution, delivery and performance by
Borrower of this Agreement and all other documents and instruments relating to
the Secured Obligations will not result in any material breach of the terms and
conditions or constitute a material default under any agreement or instrument
under which Borrower is a party or is obligated. Borrower is not in material
default in the performance or observance of any covenants, conditions or
provisions of any such agreement or instrument.
3.5 PRIORITY. The Security Interest in the Collateral granted to Lender
constitutes, and hereafter will constitute, a security interest of first
priority, except with respect to any liens existing as of the date hereof and
except for any purchase money security interests as defined in A.R.S.
ss.47-9312.
3.6 AUTHORITY. Borrower has the full power, authority and legal right
to grant to Lender the Security Interest, and no further consent, authorization,
approval, or other action is required for the grant of the Security Interest or
for Lender's exercise of its rights and remedies under this Agreement, except as
may be required in connection with the sale of the Collateral by Lender by the
laws affecting the offering and sale of securities.
3.7 CHIEF EXECUTIVE OFFICE. The address of Borrower set forth in the
preamble of this Agreement is the chief executive office of Borrower.
3.8 OBLIGORS. To the knowledge of Borrower, each account, chattel
paper, instrument, or general intangible included in the Collateral is genuine
and enforceable in accordance with its terms against the party named therein who
is obligated to pay the same ("Obligor"), and the security interests that are
part of each item of chattel paper included in the Collateral are valid security
interests. To the knowledge of Borrower, each Obligor is solvent, and the amount
that Borrower has represented to Lender as owing by each Obligor is the amount
actually and unconditionally owing by that Obligor, without deduction except for
normal cash discounts where applicable. To the knowledge of Borrower, no Obligor
has any material defense, setoff, claim or counterclaim of a material nature
against Borrower that can be asserted against Lender whether in any proceeding
to enforce the Security Interest or otherwise. To the knowledge of Borrower,
each document,
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instrument and chattel paper included in the Collateral is complete and regular
on its face and free from evidence of forgery or alteration. To the knowledge of
Borrower, no material default has occurred in connection with any instrument,
document or chattel paper included in the Collateral. To the knowledge of
Borrower, no material payment in connection therewith is overdue and to the
knowledge of Borrower, no presentment, dishonor or protest has occurred in
connection therewith.
4. COVENANTS OF BORROWER
4.1 TRANSFERS. Borrower shall not sell, transfer, assign or otherwise
dispose of any Collateral or any interest therein (except as permitted herein)
without obtaining the prior written consent of Lender and shall keep the
Collateral free of all security interests or other encumbrances except the
Security Interest, except any liens existing as of the date hereof and any liens
junior to the Security Interest. Although proceeds of Collateral are covered by
this Agreement, this shall not be construed to mean that Lender consents to any
sale or other transfers of the Collateral.
4.2 MAINTENANCE. Borrower shall keep and maintain the Collateral in
good condition and repair and shall not use the Collateral in violation of any
provision of this Agreement or any applicable statute, ordinance or regulation
or any policy of insurance insuring the Collateral.
4.3 INSURANCE. Borrower shall provide and maintain insurance in
accordance with its customary practices.
4.4 PAYMENTS OF CHARGES. Borrower shall pay when due all taxes,
assessments and other charges which may be levied or assessed against the
Collateral.
4.5 FIXTURES AND ACCESSIONS. Borrower shall prevent any portion of the
Collateral that is not a fixture from being or becoming a fixture and shall
prevent any portion of the Collateral from being or becoming an accession to
other goods that are not part of the Collateral.
4.6 POSSESSION BY LENDER. Borrower, upon demand, shall promptly deliver
to Lender all instruments, documents and chattel paper included in the
Collateral. Borrower shall notify Lender immediately of any material default by
any Obligor in the payment or performance of its obligations with respect to any
Collateral, upon Borrower obtaining actual knowledge of such default. Borrower,
without Lender's prior written consent, shall not make or agree to make any
material alteration, modification or cancellation of, or substitution for, or
credit, adjustment or allowance on, any Collateral.
4.7 NOTICE TO LENDER. Borrower shall give Lender 45 days' prior written
notice of any change: (i) in the location of any of the facilities of Borrower;
(ii) in the location of the Collateral, including, without limitation, the Books
and Records; or (iii) of the names under which it does business.
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4.8 INSPECTIONS. Lender or its agents may inspect the Collateral at
reasonable times and may enter into any premises where the Collateral is or may
be located. Borrower shall keep the Books and Records in accordance with
generally accepted accounting principles, to the extent applicable. Unless
waived in writing by Lender, Borrower shall, when applicable, mark the
Collateral, including, without limitation, the Books and Records, to indicate
the Security Interest. Lender shall have free and complete access to the Books
and Records and shall have the right to make extracts therefrom or copies
thereof. Upon the reasonable request of Lender from time to time, Borrower shall
submit up-to-date schedules of the accounts receivable comprising the Collateral
in such detail as Lender may reasonably require and shall deliver to Lender
confirming specific assignments of all accounts, instruments, documents and
chattel paper included in such accounts receivable. After the occurrence of any
Event of Default (as defined below), upon the request of Lender, Borrower shall
submit up-to-date schedules of inventory comprising the Collateral in such
detail as Lender may reasonably require.
4.9 DEFENSE OF COLLATERAL. Borrower, at its cost and expense, shall
protect and defend this Agreement, all of the rights of Lender hereunder, and
the Collateral against all claims and demands of other parties, including,
without limitation, defenses, setoffs, claims and counterclaims asserted by any
Obligor against Borrower and/or Lender. Borrower shall pay all claims and
charges that in the reasonable opinion of Lender might prejudice, imperil or
otherwise affect the Collateral or the Security Interest. Borrower shall
promptly notify Lender of any levy, distraint or other seizure by legal process
or otherwise of any part of the Collateral and of any threatened or filed claims
or proceedings that might in any way affect or impair the terms of this
Agreement.
4.10 PERFECTION OF SECURITY INTEREST. The Security Interest, at all
times, shall be perfected and except as otherwise agreed by Lender shall be
prior to any other interests in the Collateral. Borrower shall act and perform
as necessary and shall execute and file all security agreements, financing
statements, continuation statements and other documents requested by Lender to
establish, maintain and continue the perfected Security Interest. Borrower, on
written demand, shall promptly pay all reasonable costs and expenses of filing
and recording, including, without limitation, the reasonable costs of any
searches, deemed necessary by Lender from time to time to establish and
determine the validity and the continuing priority of the Security Interest.
4.11 PAYMENT OF CHARGES. Except with respect to any payment less than
$25,000 other than for income taxes or payroll taxes, if Borrower fails to pay
any taxes, assessments, expenses or charges, or fails to keep all of the
Collateral free from other security interests, encumbrances or claims except for
Permitted Liens, or fails to keep the Collateral in good condition and repair,
or fails to procure and maintain insurance thereon, or to perform otherwise as
required herein, Lender may advance the monies necessary to pay the same, to
accomplish such repairs, to procure and maintain such insurance or to so
perform. Lender is hereby authorized to enter upon any property in the
possession or control of Borrower for such purposes.
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4.12 RIGHTS AND POWERS. Any actions of Lender hereunder may be taken by
the holders of the Debentures owning the majority in outstanding principal
amount of the Debentures, or any agent acting on their behalf. The costs and
expenses of any agent appointed by Lender, including any agent appointed to hold
the InfoPak Note, shall be borne by Borrower. All rights, powers, and remedies
granted Lender herein, or otherwise available to Lender, are for the sole
benefit and protection of Lender, and Lender may exercise any such right, power,
or remedy at its option and in its sole and absolute discretion without any
obligation to do so. In addition, if under the terms hereof, Lender is given two
or more alternative courses of action, Lender may elect any alternative or
combination of alternatives at its option and in its sole and absolute
discretion. All monies advanced by Lender under the terms hereof and all amounts
paid, suffered, or incurred by Lender in exercising any authority granted
herein, including, without limitation, reasonable attorneys' fees, shall be
added to the Secured Obligations, shall be secured by the Collateral, shall bear
interest at the highest rate payable on any of the Debentures until paid, and
shall be due and payable by Borrower to Lender immediately without demand.
5. NOTIFICATION AND PAYMENTS; COLLECTION OF COLLATERAL; USE OF COLLATERAL BY
BORROWER
5.1 NOTICE TO OBLIGORS. Lender, after the occurrence of any Event of
Default, and without notice to Borrower, may notify any or all Obligors of the
existence of the Security Interest and may direct the Obligors to make all
payments on the Collateral to Lender. Until Lender has notified the Obligors to
remit payments directly to it, Borrower, at Borrower's own cost and expense,
shall collect or cause to be collected the accounts and monies due under the
accounts, documents, instruments and general intangibles or pursuant to the
terms of the chattel paper. Lender shall not be liable or responsible for any
embezzlement, conversion, negligence or default by Borrower or Borrower's agents
with respect to such collections. All agents used in such collections shall be
agents of Borrower and not agents of Lender. Unless Lender notifies Borrower in
writing that it waives one or more of the requirements set forth in this
sentence, any payments or other proceeds of Collateral received by Borrower,
after notification to Obligors, shall be held by Borrower in trust for Lender in
the same form in which received, shall not be commingled with any assets of
Borrower and shall be turned over to Lender not later than the next business day
following the day of receipt. All payments and other proceeds of Collateral
received by Lender directly or from Borrower shall be applied to the Secured
Obligations in such order and manner and at such time as Lender, in its sole
discretion, shall determine.
5.2 COLLECTION. Lender, after the occurrence of an Event of Default and
without notice to Borrower, may demand, collect and sue on the Collateral
(either in Borrower's or Lender's name), enforce, compromise, settle or
discharge the Collateral and endorse Borrower's name on any instruments,
documents, or chattel paper included in or pertaining to the Collateral.
5.3 USE OF COLLATERAL. Until the occurrence of an Event of Default,
Borrower may: (i) use, consume, and sell any inventory included in the
Collateral in any lawful manner in the
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ordinary course of Borrower's business provided that all sales shall be at
commercially reasonable prices; (ii) make all transfers permitted by SECTION 4.1
hereof; and (iii) subject to SECTION 5.1 and SECTION 5.2 hereof, retain
possession of any other Collateral and use it in any lawful manner consistent
with this Agreement.
6. COLLATERAL IN THE POSSESSION OF LENDER
6.1 CARE. Lender shall use such reasonable care in handling, preserving
and protecting the Collateral in its possession as it uses in handling similar
property for its own account. Lender, however, shall have no liability for the
loss, destruction or disappearance of any Collateral unless there is affirmative
proof of a lack of due care. A lack of due care shall not be implied solely by
virtue of any loss, destruction, or disappearance.
6.2 PRESERVATION OF COLLATERAL. Borrower shall be solely responsible
for taking any and all actions to preserve rights against all Obligors. Lender
shall not be obligated to take any such actions whether or not the Collateral is
in Lender's possession. Borrower waives presentment and protest with respect to
any instrument included in the Collateral on which Borrower is in any way liable
and waives notice of any action taken by Lender with respect to any instrument,
document, or chattel paper included in any Collateral that is in the possession
of Lender.
7. EVENTS OF DEFAULT; REMEDIES
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events or
conditions shall constitute an "Event of Default":
(i) Any failure to pay any principal or interest or any other
part of the Secured Obligations when the same shall become due and
payable.
(ii) Borrower shall breach any warranty, representation,
covenant, or agreement made herein.
(iii) Any warranty, representation, or statement made or
furnished to Lender by or on behalf of Borrower shall prove to have
been false or misleading in any material respect when made or
furnished.
(iv) The abandonment by Borrower of all or any part of the
Collateral with a value in excess of $25,000.
(v) The loss, theft, or destruction of, or any substantial
damage to, in excess of $25,000 in amount, any portion of the
Collateral, that is not adequately covered by insurance.
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(vi) The occurrence of a Default or an Event of Default under
and as defined in the Debentures.
7.2 REMEDIES. Upon the occurrence of any Event of Default, and at any
time while such Event of Default is continuing, Lender shall have the following
rights and remedies and may do one or more of the following:
(i) Declare all or any part of the Secured Obligations to be
immediately due and payable, and the same, with all costs and charges,
shall be collectible thereupon by action at law.
(ii) Without further notice or demand and without legal
process, take possession of the Collateral wherever found and, for this
purpose, enter upon any property occupied by or in the control of
Borrower. Borrower, upon demand by Lender, shall assemble the
Collateral and deliver it to Lender or to a place designated by Lender
that is reasonably convenient to both parties.
(iii) Operate the business of Borrower as a going concern,
including, without limitation, extend sales or services to new
customers and advance funds for such operation. Lender shall not be
liable for any depreciation, loss, damage, or injury to the Collateral
or other property of Borrower as a result of such action. Borrower
hereby waives any claim of trespass or replevin arising as a result of
such action.
(iv) Pursue any legal or equitable remedy available to collect
the Secured Obligations, to enforce its title in and right to
possession of the Collateral and to enforce any and all other rights or
remedies available to it.
(v) Upon obtaining possession of the Collateral or any part
thereof, after written notice to Borrower as provided in SECTION 7.4
hereof, sell such Collateral at public or private sale either with or
without having such Collateral at the place of sale. The proceeds of
such sale, after deducting therefrom all expenses of Lender in taking,
storing, repairing, and selling the Collateral (including, without
limitation, reasonable attorneys' fees) shall be applied to the payment
of the Secured Obligations, and any surplus thereafter remaining shall
be paid to Borrower or any other person that may be legally entitled
thereto. In the event of a deficiency between such net proceeds from
the sale of the Collateral and the total amount of the Secured
Obligations, Borrower, upon demand, shall promptly pay the amount of
such deficiency to Lender.
7.3 PURCHASE OF COLLATERAL. Lender, so far as may be lawful, may
purchase all or any part of the Collateral offered at any public or private sale
made in the enforcement of Lender's rights and remedies hereunder.
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7.4 NOTICE. Any demand or notice of sale, disposition or other intended
action hereunder or in connection herewith, whether required by the UCC or
otherwise, shall be deemed to be commercially reasonable and effective if such
demand or notice is given to Borrower at least 10 days prior to such sale,
disposition or other intended action, in the manner provided herein for the
giving of notices.
7.5 COSTS AND EXPENSES. Borrower shall pay all reasonable costs and
expenses of Lender, including, without limitation, costs of uniform commercial
code searches, court costs and reasonable attorneys' fees, incurred by Lender in
enforcing payment and performance of the Secured Obligations or in exercising
the rights and remedies of Lender hereunder. All such reasonable costs and
expenses shall be secured by this Agreement and by other lien and security
documents securing the Secured Obligations. In the event of any court
proceedings, court costs and attorneys' fees shall be set by the court and not
by jury and shall be included in any judgment obtained by Lender.
7.6 ADDITIONAL REMEDIES. In addition to any remedies provided herein
for an Event of Default, Lender shall have all the rights and remedies afforded
a secured party under the UCC and all other legal and equitable remedies allowed
under applicable law. No failure on the part of Lender to exercise any of its
rights hereunder arising upon any Event of Default shall be construed to
prejudice its rights upon the occurrence of any other or subsequent Event of
Default. No delay on the part of Lender in exercising any such rights shall be
construed to preclude it from the exercise thereof at any time while that Event
of Default is continuing. Lender may enforce any one or more rights or remedies
hereunder successively or concurrently. By accepting payment or performance of
any of the Secured Obligations after its due date, Lender shall not thereby
waive the agreement contained herein that time is of the essence, nor shall
Lender waive either its right to require prompt payment or performance when due
of the remainder of the Secured Obligations or its right to consider the failure
to so pay or perform an Event of Default.
8. MISCELLANEOUS PROVISIONS
8.1 POWER OF ATTORNEY. Borrower hereby appoints Lender as its true and
lawful attorney-in-fact, with full power of substitution to do the following:
(i) to demand, collect, receive, receipt for, sue and recover all sums of money
or other property which may now or hereafter become due, owing, or payable from
the Collateral; (ii) to execute, sign, and endorse any and all claims,
instruments, receipts, checks, drafts or warrants issued in payment for the
Collateral; (ii) to settle or compromise any and all claims arising under the
Collateral, and, in the place and stead of Borrower to execute and deliver its
release and settlement for the claim; (iv) to file any claim or claims or to
take any action or institute or take part in any proceedings, either in its own
name or in the name of Borrower, or otherwise, which in the sole and absolute
discretion of Lender may seem to be necessary or advisable; and (v) to execute
any documents necessary to perfect or continue the
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Security Interest. This power is a power coupled with an interest and is given
as security for the Secured Obligations, and the authority hereby conferred is
and shall be irrevocable and shall remain in full force and effect until
renounced by Lender.
8.2 INDEMNIFICATION. Borrower agrees to indemnify, defend, protect, and
hold harmless Lender, and its affiliates and their respective heirs, personal
representatives, successors, assigns and shareholders and the directors,
officers, employees, agents, and attorneys of the foregoing (collectively, the
"Indemnified Parties") for, from, and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses, and disbursements of any kind or nature whatsoever (including,
without limitation, the fees and disbursements of counsel for such Indemnified
Parties in connection with any investigative, administrative, or judicial
proceeding commenced or threatened, whether or not such Indemnified Parties are
designated parties thereto) that may be imposed on, incurred by, or asserted
against the Indemnified Parties, in any manner relating to or arising out of
this Agreement or the Debentures (the "Indemnified Liabilities"); provided,
however, that Borrower shall have no obligation to an Indemnified Party
hereunder with respect to Indemnified Liabilities arising from the gross
negligence or willful misconduct of that Indemnified Party.
8.3 OTHER SECURITY. The acceptance of this Agreement by Lender shall
not be considered a waiver of or in any way to affect or impair any other
security that Lender may have, acquire simultaneously herewith, or hereafter
acquire for the payment or performance of the Secured Obligations, nor shall the
taking by Lender at any time of any such additional security be construed as a
waiver of or in any way to affect or impair the Security Interest. Lender may
resort, for the payment or performance of the Secured Obligations, to its
several securities therefor in such order and manner as it may determine.
8.4 ACTIONS BY LENDER. Without notice or demand, without affecting the
obligations of Borrower hereunder, and without affecting the Security Interest
or the priority thereof, Lender, from time to time, may: (i) extend the time for
payment of all or any part of the Secured Obligations, accept a renewal note
therefor, reduce the payments thereon, release any person liable for all or any
part thereof, or otherwise change the terms of all or any part of the Secured
Obligations; (ii) take and hold other security for the payment or performance of
the Secured Obligations and enforce, exchange, substitute, subordinate, waive,
or release any such security; (iii) join in any extension or subordination
agreement; or (iv) release any part of the Collateral from the Security
Interest.
8.5 WAIVERS. Borrower waives and agrees not to assert: (i) any right to
require Lender to proceed against any guarantor, to proceed against or exhaust
any other security for the Secured Obligations, to pursue any other remedy
available to Lender, or to pursue any remedy in any particular order or manner;
(ii) the benefits of any legal or equitable doctrine or principle of
marshalling; (iii) the benefits of any statute of limitations affecting the
enforcement hereof; (iv) demand, diligence, presentment for payment, protest and
demand, and notice of extension, dishonor, protest, demand and nonpayment,
relating to the Secured Obligations; and (v) any benefit of, and any right to
participate in, any other security now or hereafter held by Lender.
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8.6 DEFINITIONS. All undefined capitalized terms used herein shall have
the meaning given them in the Debentures. Otherwise the terms herein shall have
the meanings in and be construed under the UCC.
8.7 GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of Delaware, without regard to the choice
of law rules of the State of Delaware.
8.8 JURISDICTION AND VENUE. Borrower hereby expressly agrees that in
the event any actions or other legal proceedings are initiated by or against
Borrower or Lender involving any alleged breach or failure by any party to pay,
perform or observe any sums, obligations or covenants to be paid, performed or
observed by it under this Agreement, or involving any other claims or
allegations arising out of the transactions evidenced or contemplated by this
Agreement, regardless of whether such actions or proceedings shall be for
damages, specific performance or declaratory relief or otherwise, such actions,
in the sole and absolute discretion of Lender, may be required to be brought in
Maricopa County, Arizona; and Borrower hereby submits to the jurisdiction of the
State of Arizona for such purposes and agrees that the venue of such actions or
proceedings shall properly lie in Maricopa County, Arizona; and Borrower hereby
waives any and all defenses to such jurisdiction and venue.
8.9 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same agreement.
8.10 ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding of the parties with respect to the subject matter hereof,
supersede all other prior understandings, oral or written, with respect to the
subject matter hereof, and are intended by Lender and Borrower as the final,
complete and exclusive statement of the terms agreed to by them.
8.11 AMENDMENTS. No amendment, modification, change, waiver, release,
or discharge hereof and hereunder shall be effective unless evidenced by an
instrument in writing and signed by the party against whom enforcement is
sought.
8.12 SECTION HEADINGS. The section headings set forth in this Agreement
are for convenience only and shall not have substantive meaning hereunder or be
deemed part of this Agreement.
8.13 TIME OF ESSENCE. Time is of the essence of this Agreement and each
and every provision hereof.
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8.14 SEVERABILITY. If any provision hereof is invalid or unenforceable,
the other provisions hereof shall remain in full force and effect and shall be
liberally construed in favor of Lender in order to effectuate the other
provisions hereof.
8.15 BINDING NATURE. This provisions of this Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their heirs,
personal representatives, successors and assigns. The term "Lender" shall
include not only the original Lender hereunder but also any future owner and
holder, including, without limitation, pledgees, of Debenture or Debentures or
note or notes evidencing the Secured Obligations. The provisions hereof shall
apply to the parties according to the context thereof and without regard to the
number or gender of words or expressions used.
8.16 CONSTRUCTION. This Agreement shall be construed as a whole, in
accordance with its fair meaning, and without regard to or taking into account
any presumption or other rule of law requiring construction against the party
preparing this Agreement.
8.17 CONTINUING AGREEMENT. This is a continuing Agreement which shall
remain in full force and effect until actual receipt by Lender of written notice
of its revocation as to future transactions and shall remain in full force and
effect thereafter until all of the Secured Obligations incurred before the
receipt of such notice, and all of the Secured Obligations incurred thereafter
under commitments extended by Lender before the receipt of such notice, shall
have been paid and performed in full.
8.18 NO SETOFFS BY BORROWER. No setoff or claim that Borrower now has
or may in the future have against Lender shall relieve Borrower from paying or
performing the Secured Obligations.
8.19 NOTICES. All notices required or permitted to be given hereunder
shall be in accordance with provisions of the Debentures.
8.20 COPY. A carbon, photographic or other reproduced copy of this
Agreement and/or any financing statement relating hereto shall be sufficient for
filing and/or recording as a financing statement.
8.21 CONFLICTS. In the event any provision of this Agreement is
inconsistent with any provisions of the Debentures, the provision of the Loan
Agreement shall prevail.
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IN WITNESS WHEREOF, this Agreement was executed by Borrower as of the
date first set forth above.
BORROWER
DIMENSIONAL VISIONS INCORPORATED,
a Delaware corporation
By:___________________________________
Name: John D. McPhilimy
Title: President
[INSERT POWER OF ATTORNEY] - LOO
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