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, 1999
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, $.001 par value
(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, 1999, the Company's revenue was
$741,901.
As of September 30, 1999, the number of shares of Common Stock outstanding
was 5,970,607. The aggregate market value of the Company's Common Stock held by
non-affiliates of the registrant as of September 30, 1999, was approximately
$8,574,055 (based upon 5,964,560 shares at $1.4375 per share).
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated herein by reference: (a)
Registration Statement on Form S-1, as amended (Registration No. 33-24554), is
incorporated in Part III, Item 13(a); (b) Forms 10-KSB for the fiscal years
ended June 30, 1992, 1993, 1994, and 1995, are incorporated in Part III, Item
13(a); (c) Current Report on Form 8-K, filed with the SEC on September 27, 1995,
(File No. 001-10196) is incorporated in Part III, Item 13(a) ; (d) Registration
Statement on Form S-8, filed with the SEC on June 14, 1996 (Registration No.
333-06679), is incorporated in Part III, Item 13(a); and (e) Current Report on
Form 8-K, filed with the SEC on October 21, 1997, (File No. 001-10196) is
incorporated in Part III, Item 13(a).
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Dimensional Visions Incorporated (the "Company") creates and delivers special
value-added & integrated product/packaging solutions and integrated marketing
solutions called "HALOGraphix* MarketingLenses(SM) Solutions" utilizing its
unique patent pending Multi-Dimensional Digital Design and Production Processing
System.
*HALOGraphix (Holographic Alternative Lenticulated Optics)
MarketingLenses(SM) Solutions" are very dramatic Multi-Dimensional Visual
Effects. These Multi-Dimensional Visual Effects may be produced in varying
sizes to specified customer applications for leading visionary companies
who want to differentiate their products from the competition while
increasing their sales and profits.
Lenticulated (also called lenticular) - There is a layer of lenticles (or
lenses) in front of the image. They 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) not only do they allow the viewer to see the
proper stereo views, but also fluid animation simultaneously.
The Company's objective is to become a dominant marketer, developer and producer
of HALOGraphix MarketingLenses(SM) Solutions in the United States and
internationally.
The Company believes its HALOGraphix MarketingLenses(SM) Solutions offer unique
selling solutions demanded by leading companies and select visionary leaders in
the "Promotion Marketing Industry," "Advertising & Graphic Design Industry," and
Original Equipment Manufacturers throughout the United States.
The Company's sole active subsidiary, InfoPak, Inc., manufactures and markets a
hardware/software packaged product line called the "InfoPakSystem(TM)." This
system was designed to handle substantial offline information and databases that
may require frequent updating.
References herein to the Company include Dimensional Visions Incorporated and
its InfoPak, Inc. subsidiary collectively unless the context denotes otherwise.
The Company has decided to focus all of its resources on its HALOGraphix
MarketingLenses(SM) Solutions product line. During Fiscal Year 1999, the Company
retained an investment-banking firm to assist the Company in the sale of its
InfoPak, Inc. subsidiary. The Company has been unable to secure a buyer. The
Company will continue to support the operations of InfoPak until such time as it
is either sold or management decides to discontinue operations.
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
FISCAL YEARS 1998-1999
In January 1998, the Company established its current headquarters in Phoenix,
AZ. Under the leadership of a totally new executive management team, the Company
was completely restructured including changing its corporate name to Dimensional
Visions Incorporated and modifying its stock trading symbol from DVGL to "DVUI."
FISCAL YEARS 1995-1997
In 1995, Dimensional Visions acquired InfoPak, Incorporated (of Phoenix,
Arizona) which is currently a wholly owned subsidiary. InfoPak, Inc.
manufactures and markets a hardware/software package called the
"InfoPakSystem(TM)". It was marketed to mobile business professionals and
delivered to carefully targeted companies in the automobile appraisal and
real-estate businesses.
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From 1995 to 1997, the Company utilized the software development resources of
InfoPak, Incorporated to develop the patent-pending software and systematic
digital process for its HALOGraphix MarketingLenses(SM) Solutions.
FISCAL YEARS 1988-1994
In 1988, Dimensional Visions Group, Ltd. (OTC Bulletin Board: DVGL) was
incorporated in the state of Delaware. The Company was headquartered in
Philadelphia, PA. The Company was in the "robotic camera controlled"
three-dimensional photographic imaging and lenticular lithographic printing
business. The entire complicated process utilized during this timeframe was very
expensive and extremely difficult to consistently reproduce quality images to
meet the price and delivery demands of the product promotion markets. The
Company, during this timeframe, tried unsuccessfully to perfect the complicated
"robotic camera" process.
Note: In January 1998, the Company sold all of the original robotic photographic
equipment to concentrate on the new HALOGraphix MarketingLenses(SM) Solutions
(utilizing very high-end Intel based graphic design computers). The Company
believes that the new process is much more cost effective and best meets the
demands of today's quick changing market.
STRATEGY
MARKET & PENETRATION
Multi-dimensional marketing promotion, once considered a novelty, is a growing
part of the marketing communication mainstream. The nation's most savvy
marketing groups and decision-makers are adopting multi-dimensional solutions as
means for reaching and influencing readers who simply ignore even the most
sophisticated, "flat" marketing communications. HALOGraphix MarketingLenses(SM)
Solutions are dramatic. You can combine depth and movement to excite the senses,
command attention, and leave a lasting impression. Statistics continue to
demonstrate the effectiveness of multi-dimension. Consider the Time magazine
study of a mass-circulation dimensional advertisement:
- 96 percent of Time readers recalled seeing the advertisement. It caught
practically everyone's attention.
- 91 percent reported reading half or more of the advertisement. This
compares to the 30-40 percent readership that is typical of a flat print
advertisement.
- 72 percent retained a distinct association between the dimensional
advertisement, the corporation that produced the ad, and the services that
firm represented.
- 69 percent were favorably disposed toward the dimensional advertiser,
compared to a 14 percent favorable rating among those not exposed to the
ad.
HALOGraphix MarketingLenses(SM) Solutions have and will be (a) integrated onto
products, (b) integrated onto product packaging, and (c) integrated onto
marketing communications for products and services.
The Company defines the market for its HALOGraphix MarketingLenses(SM) Solutions
as the following major vertical markets in the United States as further defined
and segmented below:
- Specially selected Original Equipment Manufacturers (OEM's)
- Specially selected Promotional Marketing Firms.
- Specially selected Advertising & Graphics Design Firms. (less newspaper,
radio and TV)
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The Company believes that the market for HALOGraphix MarketingLenses(SM)
Solutions is in its infancy particularly with the advent of new very high-end
Intel based graphic design computers and vastly improved lenticular plastic
extrusion capabilities. With these advances, coupled with the best-integrated
software methodology and marketing strategy, the Company believes it can be a
market leader.
The Company estimates that the market universe for its HALOGraphix
MarketingLenses(SM) Solutions is as follows:
Original Equipment Manufacturers: The estimated total annual revenues for
original equipment manufacturers is approximately 3.8 trillion dollars with an
estimated marketing communications 1-year universe of 38 billion dollars and an
estimated marketing communications 5-year universe of 190 billion dollars.
Promotion Marketing Industry: According to PROMO MAGAZINE, the estimated
1997 revenues for the promotion marketing industry was 79.5 billion dollars. The
Company believes that the Premium/Incentives, Point of Purchase, Specialty
Printing, and Agencies Net Revenues categories, which account for over 43.7
billion dollars, are potential users of the HALOGraphix MarketingLenses
Solutions.
Advertising Industry: According to ADVERTISING AGE, the 1997 advertising
revenues in the U.S. totaled over 187.6 billion dollars. The Company believes
that Newspapers, Magazines, Direct Mail, Business Papers, and Miscellaneous
other advertising methods are potential users of the HALOGraphix MarketingLenses
Solutions. These categories make up over 116.4 billion dollars or 62% of the
total advertising revenues.
PRODUCTION
The Company controls or supervises all phases of the production of its
HALOGraphix MarketingLenses(SM) Solutions 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.
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 product. 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 filed a patent application on February 15, 1999 for its HALOGraphix
(Holographic Alternative Lenticulated Optics)- DV3D(R) and Animotion(TM)
Software and Print System. The Company believes that the patent will issue
within two years.
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The Company has received trademark registration approval of DV3D(R) and has
submitted a trademark application for Animotion(TM) which the Company believes
will issue within the next 24 months as well.
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 that 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.
EMPLOYEES
As of June 30, 1999, the Company had four employees, including three in
management, one of whom is involved in manufacturing, one in marketing and
sales, one in finance, 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.
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, 1999 June 30, 1998 June 30, 1997 June 30, 1996 June 30, 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operation revenue $ 741,901 $ 609,392 $ 551,517 $ 1,083,897 $ 134,028
Net Loss $(1,465,812) $ (421,659) $(2,162,134) $(2,035,647) $(1,192,332)
Net Loss per share of
common stock $ (.37) $ (.14) $ (1.11) $ (2.98) $ (1.81)
Balance Sheet Data:
Working Capital (deficit) $ (603,946) $ (235,920) $ (107,952) $ 9,528 $ (138,013)
Total Assets $ 530,973 $ 920,841 $ 529,520 $ 1,408,919 $ 451,237
Total Liabilities $ 1,118,740 $ 713,539 $ 613,947 $ 673,058 $ 2,502,230
Stockholders' equity
(deficiency) $ (587,767) $ 207,302 $ (84,427) $ 735,861 $(2,050,993)
</TABLE>
ITEM 2. DESCRIPTION OF PROPERTY.
The Company leases approximately 4,364 square feet of office space at 2301 W.
Dunlap Avenue, Suites 207 and 201 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 total lease payments for fiscal year 2000 will be $66,600. The
lease also requires the Company to pay all taxes and insurance.
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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. The case
was transferred to the United States District Court, District of Arizona, case
number CIV 97-1383 PHX RGS. Mr. Wright claimed he was damaged by the Company's
refusal to register warrants owned by Mr. Wright in the amount of $1,549,375.
The Company filed a Motion for Summary Judgement which prevailed and this case
was dismissed on September 30, 1999.
In July 1996, the Company filed a complaint in the United States District Court
for the Eastern District of Pennsylvania, case number 96-CV-5259, against
Dimensional Graphic Sales, Inc. The Company sought damages in the amount of
$213,522 for breach of contract. Dimensional Graphic Sales, Inc. filed a
counter-claim against the Company seeking an unspecified amount in excess of
$100,000. The matter was moved to deferred status while the parties engaged in
settlement negotiations. There has been no action in this matter by either party
and the Company will no longer pursue this claim.
In June 1999, Electronic Pricing Guides, Inc., an Arizona corporation ("EPG"),
filed a claim against InfoPak, Inc., a Delaware corporation and the Company at
the American Arbitration Association, Dallas, Texas branch, arbitration file
number 76 Y 181 00146 99. EPG claimed breach of contract and InfoPak, Inc. filed
a counter-claim also seeking breach of contract and breach of promissory note.
EPG seeks money damages for lost business in an undiscerned amount. InfoPak
seeks money damages in the amount of $85,500 plus interest from March 1, 1998
and $8,000. The Company does not believe that this legal proceedings will have a
material adverse effect on the Company's financial condition or operating
results.
To the best knowledge of management, there are no other material litigation
matters pending or threatened against the Company.
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 1998.
PART II
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 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 11/32 27/64
Second Quarter............................................. 21/32 1/4
Third Quarter.............................................. 7/16 3/16
Fourth Quarter............................................. 27/32 3/16
FISCAL 2000
First Quarter.............................................. 2 3/16 3/8
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HOLDERS
As of September 30, 1999, the number of stockholders of record was 438, 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 on its Common Stock 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 Series B Convertible Preferred stock, a 8% annual dividend is due and
owing. As of June 30, 1999, the Company has not declared dividends on Series A
or B preferred stock. The unpaid cumulative dividends totaled approximately
$88,000. See Note 10 of Notes to Consolidated Financial Statements.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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 was precarious. The
Company needed funding in order to maintain current operations. The Company
funded its operations by selling its securities in private placements, through
short-term borrowing, and from the sale of its products.
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 was 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 were only
slightly higher than fiscal 1997, the product mix was 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.
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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.
FISCAL YEARS 1998 AND 1999
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had a working capital deficiency of $603,946
compared with a working capital deficiency of $235,920 as of June 30, 1998. The
decrease in working capital is largely the result of increased short-term
borrowings used as operating funds, the write-off of certain bad debts (see Note
3 to the Consolidated Financial Statements), and the reduction of accounts
receivable. During the period ended June 30, 1999, the Company raised a total of
$720,000 before debt issuance costs of approximately $57,450 through the sale of
long and short term debentures.
As of June 30, 1999, 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 long-term and short-term borrowing, and from the sale of its
products.
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, 1999, was $1,465,812 compared
with a net loss of $421,659 for the fiscal year ended June 30, 1998. The
substantial increase of the net loss is the result of the gain recognized from
the sale of the product line of $410,000 for the fiscal year ended June 30,
1998, and the subsequent recognition of bad debt totaling $402,006 for the
fiscal year ended June 30, 1999. Interest expense and administrative expenses
were also significantly higher for the fiscal year ended June 30, 1999.
Revenue for the fiscal year ended June 30, 1999, was $741,901 compared to
revenue of $609,392 for the fiscal year ended June 30, 1998. Approximately
$614,000 of total revenue for the fiscal year ended June 30, 1999, was from
print products compared to $323,000 of total revenue for the fiscal year ended
June 30, 1998. The Company is continuing to increase the percentage of print
revenue as a part of total revenue. Sales of products and licensing fees for
InfoPak, Inc. are continuing to diminish.
On March 1, 1998, the Company sold computer hardware through its InfoPak, Inc.
subsidiary 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 Company has not been
able to collect the required monthly payments due on this note. The customer has
filed for an arbitration hearing on the basis that the Company failed to provide
data to support their customer base (see Note 3 to the Consolidated Financial
Statements). The Company has filed a counter-claim for full payment of the note.
EVENTS SUBSEQUENT TO JUNE 30, 1999
The Company has received subscription agreements for the sale of 1,125,000
shares of its Common Stock totaling $875,000. As of October 7, 1999, the Company
has received $750,000.
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The Company extended an offer to the long and short term debenture holders to
convert their debt into shares of the Company's common stock at $.375 per share
which was the market closing price the day the offer was made. As of October 7,
1999, all of the debenture holders have agreed to convert the principal and
interest into shares of the Company's Common Stock. The Company has agreed to
register these shares with the SEC on the appropriate form. Additionally,
certain accounts payable were offered the opportunity to convert their
receivables into shares of the Company's Common Stock at $.375 per share.
Approximately $62,000 of accounts payable were converted. See Note 17 to the
Consolidated Financial Statements for a pro forma statement of the changes to
the Company's Balance Sheet.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. These date code fields
will need to accept four-digit entries to distinguish 21st century dates from
20th century dates. This problem could result in system failures or
miscalculations causing disruptions of business operations. As a result,
computer systems and/or software used by many companies may need to be upgraded
to comply with such "Year 2000" requirements. Significant uncertainty exists in
the software industry concerning the potential effects associated with such
compliance.
The Company believes its key internal software systems are either compliant, the
vendors claim compliance, or the problems can be corrected by purchasing small
amounts of hardware, software or software upgrades, where necessary. Based on
its assessments and current knowledge, the Company believes it will not, as a
result of the Year 2000 issue, experience any material disruptions in internal
processes, information processing or services from outside relationships. The
Company presently believes that the Year 2000 issue will not pose significant
operational problems and the Company will be able to manage its total Year 2000
transition without any material effect on the Company's results of operations or
financial condition.
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.
PART III
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 56 Director, Chairman of the Board of Directors
and Chief Executive Officer
Roy D. Pringle 31 Vice President and Chief Financial Officer
Bruce D. Sandig 40 Senior Vice President Engineering
Susan A. Gunther 49 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.
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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. Susan A. Gunther has served as 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.
On March 11, 1999, Mr. Ray Quadt and Mr. Lawrence Olson resigned as
directors of the Company, and on June 25, 1999, Mr. George Smith resigned as a
Director of the Company.
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
11
<PAGE>
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.
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 for the fiscal year ended June 30, 1999.
No officer of the Company earned more than $100,000 in the fiscal year ended
June 30, 1999.
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
----------------------------- ------------------------- -------
Securities
Other Annual Restricted Underlying LTIP All Other
Salary Bonus Compensation Stock Options/SARs Payouts Compensation
Year ($) ($) ($) Awards ($) (#) ($) ($)
---- ------- ----- ------------ ----------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John D. McPhilimy 1999 $89,250 $0 $0 $0 -- $0 $0
</TABLE>
OPTIONS/SAR GRANTS IN THE FISCAL YEAR 1999
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Number of
Securities % of Total
Underlying Options/SARs Granted
Option/SARs to Employees in Exercise or Base Expiration
Name Year Granted (#) Fiscal Year Price ($/Share) Date
---- ---- -------- -------------------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
John D. McPhilimy 1999 0 -- -- --
</TABLE>
AGGREGATED OPTIONS/SAR EXERCISES IN THE FISCAL YEAR 1999 AND FY-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Exercised Value of
Acquired Options/ SARs at FY-End Unexercised
on (#) In-the-Money
Exercise Value Exercisable/ Options/SARs at
Name Year (#) Realized Unexercisable FY-End ($)
---- ---- -------- -------- ----------------------- ---------------
<S> <C> <C> <C> <C> <C>
John D. McPhilimy 1999 -- 0 450,000(E)/0(U) $191,250
</TABLE>
12
<PAGE>
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 June 30, 1999 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.
Amount and Nature of Percent
Name and Address of Beneficial Owners(1) Beneficial Ownership(2) Ownership(2)
- ---------------------------------------- ----------------------- ------------
George S. Smith (3) 280,141 5.32
3688 N. Littlerock Drive
Provo, UT 84604
John D. McPhilimy (4) 450,000 8.05
1340 W. Elgin Street
Chandler, AZ 85224
Bruce D. Sandig (5) 270,962 5.04
13247 N. 3rd Place
Phoenix, AZ 85022
Roy D. Pringle (6) 216,047 4.04
7186 W. Topeka Drive
Glendale, AZ 85308
Susan A. Gunther (7) 40,000 0.77
26210 S. Lime Drive
Queen Creek, AZ 85242
All executive officers and directors
as a group (4 persons) (8) 977,009 16.07
- ----------
(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.
(2) The percentages shown are calculated based upon the 5,138,192 shares of
Common Stock outstanding on June 30, 1999. The numbers and percentages
shown include the shares of Common Stock actually owned as of June 30, 1999
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 155,141 shares of the Company's Common Stock. Also included
in the amount are warrants to purchase 125,000 shares of the Company's
Common Stock at an exercise price of $.20 until October 28, 2003.
(4) Mr. McPhilimy has warrants to purchase 450,000 shares of the Company's
Common Stock at an exercise price of $.20 until October 28, 2003.
(5) Mr. Sandig owns 30,962 shares of the Company's Common Stock. Also included
in the amount are common stock purchase warrants to purchase 240,000 shares
of the Company's Common Stock at an exercise price of $.20 until October
28, 2003.
(6) Mr. Pringle owns 6,047 shares of the Company's Common Stock. Also included
in the amount are common stock purchase warrants to purchase 210,000 shares
of the Company's Common Stock at an exercise price of $.20 until October
28, 2003.
13
<PAGE>
(7) Ms. Gunther has warrants to purchase 20,536 shares of the Company's Common
Stock at an exercise price of $.50 until October 28, 2003.
(8) Includes common stock purchase warrants to purchase in the aggregate
977,009 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 June 30, 1999, no options are outstanding under this plan.
1996 EQUITY INCENTIVE PLAN
The Company, in June 1996. adopted the 1996 Equity Incentive Plan (the
"1996 Plan") covering 10,000,000 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 June 30, 1999, 4,558,978 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 in November 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 $72,000 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 $84,000 per year.
14
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1(f) Articles of Incorporation, dated May 12, 1988
3.2(a) Bylaws
4.1(b) Certificate of Designation of Series A Convertible Preferred
Stock, dated December 12, 1992
4.2(b) Certificate of Designation of Series B Convertible Preferred
Stock, dated December 22, 1993
4.3(c) Certificate of Designation of Series P Convertible Preferred
Stock, dated September 11, 1995
4.4(d) Certificate of Designation of Series S Convertible Preferred
Stock, dated August 28, 1995
4.5(d) Certificate of Designation of Series C Convertible Preferred
Stock, dated November 2, 1995
4.6(f) Form of Warrant Agreement to debt holders, dated January 15, 1998
4.7(f) Form of Warrant Agreement to debt holders, dated April 8, 1998
4.8(f) Form of Warrant Agreement to participants in Private Placement
dated April 8, 1998
4.9(f) Series A Convertible Secured Debenture
4.10(f) Security Agreement for Series A Convertible Secured Debentures
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.,
DataNet Enterprises, LLC, and David and Staci Noles
10.4 Lease Agreement, dated October 27, 1997
21.0 Subsidiaries of the Registrant
27.0 Financial Data Schedule
(b) Reports on Form 8-K.
None.
- ----------
(a) Incorporated by reference from the Registrant's Registration Statement on
Form S-1, as amended (Registration No. 33-24554).
(b) Incorporated by reference from the Registrant's Forms 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,
filed with the SEC on September 27, 1995.
(d) Incorporated by reference from the Registrant's Registration Statement on
Form S-8, filed with the SEC on June 14, 1996 (Registration No. 333-06679).
(e) Incorporated by reference from the Registrant's Current Report on Form 8-K,
filed with the SEC on October 21, 1997.
(f) Incorporated by reference from the Registrant's Form 10-KSB for the fiscal
year ended June 30, 1998.
15
<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 8, 1999 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 8, 1999
- -------------------------- Officer
John D. McPhilimy
/s/ Bruce D. Sandig Vice President, Director October 8, 1999
- --------------------------
Bruce D. Sandig
/s/ Susan A. Gunther Director October 8, 1999
- --------------------------
Susan A. Gunther
16
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
FINANCIAL REPORT
YEARS ENDED JUNE 30, 1999 AND 1998
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'Deficiency F-6
Statements of Cash Flows F-10
Notes to Consolidated Financial Statements F-14
Schedules
Independent Auditors' Report F-35
Schedule IV - Property and Equipment F-36
Schedule V - Accumulated Depreciation and
Amortization of Property and Equipment F-37
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Dimensional Visions Incorporated and Subsidiary
Phoenix, Arizona
We have audited the accompanying consolidated balance sheet of Dimensional
Visions Incorporated and Subsidiary (the "Company") as of June 30, 1999, 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, 1999. 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 Subsidiary as of June 30, 1999 and the results of their operations and their
cash flows for each of the two years in the period ended June 30, 1999 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 its ability to
F-2
<PAGE>
To the Board of Directors and Stockholders
Dimensional Visions Incorporated and Subsidiary
(1) 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) achieve a level
of sales adequate to support the Company's cost structure, and (4) 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.
Jenkintown, Pennsylvania
October 7, 1999
F-3
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
ASSETS
Current assets
Cash $ 20,019
Notes receivable, net of allowance for bad
debts of $402,006 41,663
Accounts receivable, trade, net of allowance for
bad debts of $11,833 78,068
Inventory 6,900
Prepaid expenses 17,896
------------
Total current assets 164,546
------------
Equipment
Equipment 401,678
Furniture and fixtures 50,162
------------
451,840
Less accumulated depreciation 279,681
------------
172,159
------------
Other assets
Deferred costs 158,567
Patent rights and other assets 35,701
------------
194,268
------------
Total assets $ 530,973
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Short-term borrowings $ 213,767
Current portion of obligations under capital leases 20,552
Accounts payable, accrued expenses and other
liabilities 534,173
------------
Total current liabilities 768,492
------------
Long-term debt 268,215
------------
Obligations under capital leases, net of current portion 82,033
------------
Total liabilities 1,118,740
------------
Commitments and contingencies --
Stockholders' equity (deficiency)
Preferred stock - $.001 par value, authorized 10,000,000
shares; issued and outstanding 130,810 shares 131
Additional paid-in capital 658,170
------------
658,301
Common stock - $.001 par value, authorized 100,000,000
shares; issued and outstanding 5,138,192 shares 5,138
Additional paid-in capital 19,556,402
Deficit (20,807,608)
------------
Total stockholders' equity (deficiency) (587,767)
------------
Total liabilities and stockholders' equity (deficiency) $ 530,973
============
See notes to consolidated financial statements.
F-4
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1999 AND 1998
1999 1998
----------- -----------
Operating revenue $ 741,901 $ 609,392
Cost of sales 562,711 473,147
----------- -----------
Gross profit 179,190 136,245
Sale of product line -- 410,000
----------- -----------
179,190 546,245
----------- -----------
Operating expenses
Engineering and development costs 146,480 226,237
Marketing expenses 301,630 249,607
General and administrative expenses 605,347 395,414
----------- -----------
Total operating expenses 1,053,457 871,258
----------- -----------
Loss before other income (expenses) (874,267) (325,013)
----------- -----------
Other income (expenses)
Interest expense (207,727) (92,117)
Interest income 18,188 30,806
Loss on sale/abandonment of leasehold
improvements and equipment -- (35,335)
Bad debt expense on notes receivable (402,006) --
=========== ===========
(591,545) (96,646)
----------- -----------
Net loss $(1,465,812) $ (421,659)
=========== ===========
Loss per share
Basic and diluted loss per common share $ (.37) $ (.14)
=========== ===========
Shares used in computing net loss per share 3,973,118 3,073,650
=========== ===========
See notes to consolidated financial statements.
F-5
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock
($.001 Par Value) Additional ($.001 Par Value)
------------------- Paid-in ---------------------
Shares Amount Capital Shares Amount
------- ----- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1997 219,378 $ 219 $ 923,209 68,137,872 $68,138
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
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
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
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
Exercise of 1,000,000 warrants to
purchase 1,000,000 pre-split shares of
the Company's common stock at $.10 per
share -- -- -- 1,000,000 1,000
Issuance of 50,000 pre-split shares of
the Company's common stock to an
employee for compensation valued at $2,750 -- -- -- 50,000 50
Issuance of 180,000 pre-split shares of
the Company's common stock to consultants
for services valued at $11,250 -- -- -- 180,000 180
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
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
Additional
Paid-in
Capital Deficit Total
------- ------- -----
Balance, July 1, 1997 $17,844,144 $(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 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 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 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 48,182 -- 50,000
Exercise of 1,000,000 warrants to
purchase 1,000,000 pre-split shares of
the Company's common stock at $.10 per
share 9,000 -- 10,000
Issuance of 50,000 pre-split shares of
the Company's common stock to an
employee for compensation valued at $2,750 2,700 -- 2,750
Issuance of 180,000 pre-split shares of
the Company's common stock to consultants
for services valued at $11,250 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 68,600 -- 70,000
The Company sold through an offshore
placement 1,666,666 pre-split shares of
the Company's common stock valued at
$.045 per share 73,333 -- 75,000
</TABLE>
F-6
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock
($.001 Par Value) Additional ($.001 Par Value)
---------------- Paid-in --------------------
Shares Amount Capital Shares Amount
------- ----- --------- ---------- -------
<S> <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 -- -- -- -- --
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
Additional
Paid-in
Capital Deficit Total
----------- ------------ --------
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 -- 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 $2.00 per share until February
28, 2001 477,779 -- 492,700
</TABLE>
F-7
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock
($.001 Par Value) Additional ($.001 Par Value)
--------------- Paid-in --------------------
Shares Amount Capital Shares Amount
------- ----- --------- ---------- -------
<S> <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 -- -- -- -- --
1 for 25 reverse stock split -- -- -- (86,690,419) (86,691)
Net loss -- -- -- -- --
------- ---- -------- ----------- --------
Balance, June 30, 1998 133,321 $133 $683,278 3,612,101 $ 3,612
======= ==== ======== =========== ========
Additional
Paid-in
Capital Deficit Total
----------- ------------ --------
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 -- 28
1 for 25 reverse stock split 86,691 -- --
Net loss -- (421,659) (421,659)
----------- ------------ --------
Balance, June 30, 1998 $18,862,075 $(19,341,796) $207,302
=========== ============ ========
</TABLE>
F-8
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock
($.001 Par Value) Additional ($.001 Par Value)
--------------- Paid-in -------------------
Shares Amount Capital Shares Amount
------- ----- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1998 133,321 $ 133 $ 683,278 3,612,101 $3,612
Conversion of 1,500 shares Series B
convertible preferred stock valued at
$15,000 into 6,000 shares of the
Company's common stock (1,500) (1) (14,999) 6,000 6
Conversion of 1,011 shares Series C
convertible preferred stock valued at
$10,110 into 47,390 shares of the
Company's common stock (1,011) (1) (10,109) 403 --
Issuance of 1,519,688 shares of the
Company's common stock to consultants
for services valued at $320,593 -- -- -- 1,519,688 1,520
Issuance of 485,000 warrants to purchase
485,000 shares of the Company's common
stock at $.50 per share for a three and
a half year period commencing January 16,
1998 in connection with the issuance of
convertible debentures due July 31, 2001
Black Scholes option pricing model was
used to value the warrants -- -- -- -- --
Issuance of 85,000 warrants to purchase
85,000 shares of the Company's common
stock at $.25 per share and issuance of
150,000 warrants to purchase 150,000
shares of the Company's common stock at
$.10 per share for a three year period
commencing January 25, 1999 in connection
with the issuance of convertible
debentures due July 1999 through October
1999. The Black Scholes option pricing
model was used to value the warrants -- -- -- -- --
Net loss -- -- -- -- --
-------- ----- --------- --------- ------
Balance, June 30, 1999 130,810 $ 131 $ 658,170 5,138,192 $5,138
======== ===== ========= ========= ======
Additional
Paid-in
Capital Deficit Total
----------- ------------ --------
Balance, July 1, 1998 $18,862,075 $(19,341,796) $207,302
Conversion of 1,500 shares Series B
convertible preferred stock valued at
$15,000 into 6,000 shares of the
Company's common stock 14,994 -- --
Conversion of 1,011 shares Series C
convertible preferred stock valued at
$10,110 into 47,390 shares of the
Company's common stock 10,110 -- --
Issuance of 1,519,688 shares of the
Company's common stock to consultants
for services valued at $320,593 319,073 -- 320,593
Issuance of 485,000 warrants to purchase
485,000 shares of the Company's common
stock at $.50 per share for a three and
a half year period commencing January 16,
1998 in connection with the issuance of
convertible debentures due July 31, 2001
Black Scholes option pricing model was
used to value the warrants 310,850 -- 310,850
Issuance of 85,000 warrants to purchase
85,000 shares of the Company's common
stock at $.25 per share and issuance of
150,000 warrants to purchase 150,000
shares of the Company's common stock at
$.10 per share for a three year period
commencing January 25, 1999 in connection
with the issuance of convertible
debentures due July 1999 through October
1999. The Black Scholes option pricing
model was used to value the warrants 39,300 -- 39,300
Net loss -- (1,465,812) (1,465,812)
----------- ------------ ---------
Balance, June 30, 1999 $19,556,402 $(20,807,608) $(587,767)
=========== ============ =========
</TABLE>
See notes to financial statements.
F-9
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999 AND 1998
1999 1998
----------- -----------
Operating activities:
Net loss $(1,465,812) $ (421,659)
Adjustments to reconcile net loss to net
cash used in operating activities
Gain on sale of product line -- (410,000)
Allowance for bad debts on notes
receivable 402,006 --
Compensation paid to officers/
employees through issuance of
warrants and common stock -- 2,750
Consulting service paid through
issuance of warrants and common
stock 65,593 11,250
Depreciation and amortization of
property and equipment 46,172 43,117
Amortization of debt discount 112,132 --
Amortization of other assets and
deferred costs 36,811 19,856
Interest expense paid through
reduction of warrant price to
debenture holders -- 1,660
Interest expense paid through
issuance of common stock -- 73,840
Loss on sale/abandonment of leasehold
improvements and equipment -- 35,335
Transfer of prepaid expenses to assets
sold -- (10,002)
Changes in assets and liabilities
which provided (used) cash
Accounts receivable, trade 66,552 (62,319)
Inventory 62,464 109,763
Prepaid supplies and expenses 7,782 (15,677)
Accounts payable, accrued expenses
and other liabilities 94,196 26,030
----------- -----------
Net cash used in operating activities (572,104) (596,056)
----------- -----------
Investing activities:
Payment of obligations under capital lease (16,477) (19,850)
Purchase of equipment (57,279) (10,200)
Deposits -- (4,100)
Notes receivable -- (90,000)
Proceeds from payments on notes receivable 18,169 38,162
----------- -----------
Net cash used in investing activities (55,587) (85,988)
----------- -----------
F-10
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
1999 1998
--------- ---------
Financing activities:
Proceeds from Sale of:
Common stock -- 145,000
Warrant right -- 28
Short-term borrowings 235,000 --
Long-term debt 485,000 --
Reduction in deferred consulting fee contract
originally paid in common stock 100,000 --
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
Proceeds from sale of equipment and
supplies -- 10,000
Borrowings from factor 195,560 79,500
Payment of debt obligations (350,060) (100,000)
Disbursement of debt issuance costs (33,700) --
--------- ---------
Net cash provided by financing activities 631,800 588,388
--------- ---------
Net increase (decrease) in cash and cash equivalents 4,109 (93,656)
Cash and cash equivalents, beginning of year 15,910 109,566
--------- ---------
Cash, end of year $ 20,019 $ 15,910
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 34,957 $ 5,425
========= =========
Issuance of common stock in connection
with consulting services $ 320,593 $ 11,250
========= =========
F-11
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
Supplemental disclosure of non-cash investing and financing activities for
fiscal year 1999:
The Company issued 6,403 shares of the Company's common stock in connection
with the conversion of convertible preferred stock valued at $25,110 as
follows:
Converted to
Value Common Stock
----- ------------
Series B Convertible Preferred Stock $15,000 6,000
Series C Convertible Preferred Stock 10,110 403
------- -----
$25,110 6,403
======= =====
The Company issued 1,519,688 shares of the Company's common stock to
consultants for services valued at $320,593.
The Company recorded additional paid-in capital of $350,150 with the
issuance of warrants to purchase 920,000 shares of the Company's common
stock in connection with the short and long-term debenture financing.
F-12
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
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 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 SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
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, 1999 and 1998. 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 $20,807,608 and has a
working capital deficiency of $603,946 as of June 30, 1999. The future of
the Company as an operating business will depend on its ability to (1)
successfully market and sell its products, (2) obtain sufficient capital
contributions and/or financing as may be required to sustain its current
operations and to fulfill its sales and marketing activities, (3) achieve a
level of sales adequate to support the Company's cost structure, and (4)
ultimately achieve 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-14
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
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, 1999, 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 subsidiary, 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 finished goods of
$6,900.
F-15
<PAGE>
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.
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
The Company accounts for income taxes under the liability method. Deferred
tax assets and liabilities are determined based on differences between the
financial reporting and tax bases of assets and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
F-16
<PAGE>
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOSS PER SHARE
The Company adopted Statement of Financial Accounting Standards Statement
No. 128, "Earnings Per Share" (FAS 128"), which is effective for fiscal
years ending after December 15, 1997. FAS 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants and convertible
securities. Dilutive earnings per share is very similar to the previously
reported fully diluted earnings per share.
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.
F-17
<PAGE>
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB Opinion No. 25") and has adopted the disclosure-only
alternative of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123").
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, 1999, there were no uninsured balances.
NOTE 3: NOTES RECEIVABLE
Notes receivable consists of the following:
Interest
Rate Amount Maturity
---- ------ --------
Sale of Product Line (1) 11% $360,506 September 2001
Sale of InfoReaders (2) 10% 83,163 August 2001
--------
443,669
Less allowance for bad debts 402,006
--------
$ 41,663
========
(1) On September 25, 1997, the Company sold one of its product lines for
$410,000 (see Note 14). 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. The
Company has been unable to collect the required monthly payments.
During the year ended June 30, 1999, the Company received three
installments and a fee of $10,000 which was included as interest
F-18
<PAGE>
NOTE 3: NOTES RECEIVABLE (CONTINUED)
(1) income. Management has determined that they are currently unable to
collect the amounts due on the note. Accordingly, management has
established a 100% allowance against this note. The Company has
determined that it does not make economic sense to take back this
product line and operate this aspect of the business. The Company will
continue to pursue the collection of this note.
(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
payments commencing on September 1, 1998. The monthly installment is
$2,904, including interest at 10% per annum for thirty-six months. The
Company has not been able to collect the required monthly payments due
on this note. The customer has filed for an arbitration hearing on the
basis that the Company failed to provide data to support their
customer base and is requesting payment of $1,000,000 for the lost
business. The Company made provisions to acquire the data for the
customer. However, the customer was unwilling to pay for the
acquisition cost of the data and bring their account current.
Accordingly, without the updated data and failure to pay the
outstanding balance due the Company, there is no reason to support the
system. No date has been set for the arbitration hearings. The Company
has filed a counter-claim for full payment of the note. The Company
has taken a $41,500 allowance against the balance due on the note as
of June 30, 1999.
NOTE 4: DEFERRED COSTS
Deferred costs as of June 30, 1999 consists of the following:
Consulting contract $133,788
Debt issuance costs 24,779
--------
$158,567
========
On April 5, 1999, the Company entered into a contract with a consultant.
The fee for services for 36 months is $287,668 ($7,991 per month), or upon
signing of the contract, the Company will issue $255,000 of the Company's
F-19
<PAGE>
NOTE 4: DEFERRED COSTS (CONTINUED)
common stock. The market value of the common stock on April 5, 1999 was
$.1875 per share and 1,360,000 shares of registered common stock was issued
(registered under Form S-8). In addition, the warrant price on previously
issued 500,000 warrants will be reduced to $.10 per share.
In accordance with the terms of the agreement either party may terminate or
change the terms of this agreement with 30 days written notice. On May 28,
1999 the term of this agreement was modified and the term was reduced to 22
months. Under the provisions of the contract, the consultant is required to
either return the shares or the cash equivalency of the reduction.
Accordingly on May 28, 1999, the Company received a $100,000 payment from
the consultant.
The Company incurred debt issuance costs of $33,700 which is being
amortized over 34 months, the term of the Series A convertible debentures.
NOTE 5: PATENT RIGHTS AND OTHER ASSETS
Patent rights $ 58,426
Deposits 4,100
Trademark 225
--------
62,751
Less accumulated amortization 27,050
--------
Total $ 35,701
========
NOTE 6: ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES
Accounts payable $403,837
Accrued expenses
Interest 61,465
Salaries 63,159
Payroll taxes payable 5,712
--------
Total $534,173
========
F-20
<PAGE>
NOTE 7: 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, 1999, there
were no outstanding borrowings under this arrangement.
During January through April 1999, the Company received short-term
borrowings of $235,000. The loans were 12% convertible debentures, with due
dates ranging from July 25, 1999 through October 29, 1999. The terms of the
debenture provide for a three month extension if the debenture is not paid
on the original due date. During the extension period, interest is
calculated at the stated rate plus 3% through the extended due date (15%).
As of June 30, 1999, the debentures are convertible into 685,000 shares of
the Company's common stock.
The Company also issued to the debenture holders three year warrants which
expire January 25, 2002 to purchase the Company's common stock at $.25 per
share for 85,000 warrants and at $.10 per share for 150,000 warrants.
The warrants were valued at $39,300 by Black Scholes option pricing model.
Accordingly, the debentures were discounted for the value allocated to the
warrants and additional paid-in capital was recorded. As of June 30, 1999,
additional interest expense of $18,067 was recorded and the remaining
unamortized discount was $21,233.
As of June 30, 1999, the discounted value of the debenture was $213,767.
F-21
<PAGE>
NOTE 8: LONG-TERM DEBT
During July through September 1998, the Company through a private placement
was able to borrow $485,000 through the issuance of Series A 12%
convertible secured debentures. The debentures are due July 31, 2001.
Interest is accrued and payable on July 31 of each year and the first
interest payment is due July 31, 1999. In the event the Company fails to
pay the debenture holders any accrued interest or principal the default
rate is 16% from the due date through the date paid.
On July 15, 1998, the Company entered into a security agreement with the
debenture holders that grants a security interest in substantially all the
assets of the Company.
As of June 30, 1999, the debentures are convertible into 485,000 shares of
the Company's common stock.
The Company also issued to the debenture holders three year warrants which
expire January 15, 2001 to purchase the Company's common stock at $.50 per
share.
The warrants were valued at $310,850 by using the Black Scholes option
pricing model. Accordingly, the debentures were discounted for the value
allocated to the warrants and additional paid-in capital was recorded. As
of June 30, 1999 additional interest expense of $94,065 was recorded and
the remaining unamortized discount was $216,785.
As of June 30, 1999, the discounted value of the debentures was $268,215.
F-22
<PAGE>
NOTE 9: 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, 1999, was
as follows:
Equipment $138,912
Less accumulated
amortization 21,502
--------
$117,410
========
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, 1999:
Years Ending Capital Operating
June 30, Leases Leases
-------- ------ ------
2000 $ 39,400 $ 66,600
2001 39,400 33,800
2002 39,400 --
2003 29,550 --
--------- --------
147,750 $100,400
========
Amounts representing interest 45,165
---------
Present value of net minimum
payments 102,585
Current portion 20,552
---------
Long-term portion $ 82,033
=========
The Company's rental expense for operating leases was approximately $69,100
and $33,700 for the years ended approximately June 30, 1999 and 1998,
respectively.
F-23
<PAGE>
NOTE 10: COMMITMENTS AND CONTINGENCIES
The Company has outstanding employment and consulting contracts that expire
through June 30, 2001 as follows:
Years Ending June 30, Amount
--------------------- ------
2000 $246,000
2001 102,500
--------
$348,500
========
On June 22,1999, a customer filed a lawsuit demanding a claim for loss of
value or market share for $1,000,000 under the provision of a
distributorship contract that provides for arbitration on a material breach
of contract. The suit was amended by the customer on July 6, 1999. To date
the Company was never notified of a breach of contract for which the
Company has a period of time to remedy the breach under the terms of the
distributorship contract. The customer has breached the contract by failing
to pay for products, licensing fees and failing to provide the Company with
information on the number of updates needed for the units. The Company has
filed a counter claim for payment of the entire amount of the note for
product received by the customer and the outstanding accounts receivable
balance. Management believes that this matter will be resolved favorably
and will not have an adverse effect on its financial position.
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, 1999
was approximately $88,000.
F-24
<PAGE>
NOTE 11: 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, 1999, there are outstanding 4,746,710 of non-public warrants
and options to purchase the Company's common stock at prices ranging from
$.20 to $12.50 with a weighted average price of $.2339 per share.
As of June 30, 1999, there were 130,810 shares of various classes of
Convertible Preferred Stock outstanding which can be converted to 92,524
shares of common stock (see Note 11).
As of June 30, 1999, there were short-term convertible debentures which can
be converted to 685,000 shares of common stock.
As of June 30, 1999, there were Series A convertible debentures which can
be converted to 485,000 shares of common stock.
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 6,009,234 shares as of June 30, 1999, and would be
in addition to the 5,138,192 shares of common stock outstanding as of June
30, 1999.
The Company issued during the year ended June 30, 1999, 1,519,688 shares of
the Company's common stock to consultants for services (including $133,788
as deferred) valued at $320,593 (average price per share $.21).
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).
F-25
<PAGE>
NOTE 11: COMMON STOCK (CONTINUED)
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.
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.
F-26
<PAGE>
NOTE 12: 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, 1999, as follows:
Allocated Outstanding
--------- -----------
Series A Preferred 100,000 23,000
Series B Preferred 200,000 3,500
Series C Preferred 1,000,000 17,670
Series P Preferred 600,000 86,640
--------- -------
Total Preferred Stock 1,900,000 130,810
========= =======
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 10).
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 10).
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-27
<PAGE>
NOTE 12: 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 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 P Preferred was issued 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.
NOTE 13: 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
F-28
<PAGE>
NOTE 13: STOCK OPTION PLAN AND EQUITY INCENTIVE PLAN (CONTINUED)
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.
A summary of transactions under this Plan is as follows:
Weighted
Average Exercise
Shares Price Per Share
------ ---------------
Options outstanding
July 1, 1997 -- $ --
Grants 1,300,000 .93
Cancelled -- --
---------- ----
Options outstanding
June 30, 1998 1,300,000 .93
Grants -- --
Cancelled (1,300,000) (.93)
---------- ----
Options outstanding
June 30, 1999 -- $ --
========== ====
Options exercisable
at end of year -- $ --
========== ====
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
F-29
<PAGE>
NOTE 13: STOCK OPTION PLAN AND EQUITY INCENTIVE PLAN (CONTINUED)
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 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. Since inception of this plan in
1996 through June 30, 1999, 4,558,978 shares of common stock has been
issued. For the year ended June 30, 1999, 1,519,688 shares of common stock
has been issued at prices ranging from $.1875 to $.6562 per share. In
addition, as of June 30, 1999, 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.
F-30
<PAGE>
NOTE 13: STOCK OPTION PLAN AND EQUITY INCENTIVE PLAN (CONTINUED)
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:
1999 1998
---- ----
Net Loss - as reported $(1,465,812) $(421,659)
Net Loss - pro forma $(1,465,812) $(855,464)
Net Loss per share - as reported $ (.37) $ (.14)
Net Loss per share - pro forma $ (.37) $ (.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 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 14: 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. The Company has been unable to collect
the required monthly payments (see Note 3).
F-31
<PAGE>
NOTE 15: INCOME TAXES
The tax effects of significant items comprising the Company's net deferred
taxes as of June 30, 1999 were as follows:
Deferred tax assets:
Goodwill $ 311,000
Net operating loss carryforwards 6,207,000
-----------
6,518,000
-----------
Deferred tax liabilities
Allowance for bad debts 173,000
Equipment 79,000
Patent rights 4,000
-----------
256,000
-----------
Net deferred tax asset 6,262,000
Valuation allowance (6,262,000)
-----------
Net deferred tax asset reported $ --
===========
The change in valuation allowance for the year ended June 30, 1999 was
increased by approximately $151,000.
There was no provision for current income taxes for the years ended June
30, 1999 and 1998.
The federal net operating loss carryforwards of approximately $17,632,000
expires in various years through 2019. In addition the Company has state
carryforwards of approximately $2,358,000.
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-32
<PAGE>
NOTE 16: SEGMENT OF BUSINESS REPORTING
The operations of the Company are divided into the following business
segments for financial reporting purposes.
* Lithographically printed stereoscopic prints commonly referred to as
three-dimensional prints and lithographically printed animation.
* 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 47% of the lithographic sales and two customers account for
approximately 94% 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 $ 613,989 $ 127,912 $ 741,901
Interest income -- 18,188 18,188
Interest expense 207,726 -- 207,726
Operating loss (852,174) (22,093) (874,267)
Segment assets 469,526 61,447 530,973
Depreciation and
amortization 33,955 12,217 46,172
Bad debt expense on
notes receivable -- 402,006 402,006
F-33
<PAGE>
NOTE 17: SUBSEQUENT EVENTS
The Company sold 1,250,000 shares of the Company's common stock for
$787,500, net of estimated offering costs of $87,500, through a private
placement of its common stock during August through October 7, 1999.
The Company extended an offer to the debenture holders and certain
creditors to convert their debt to equity in the Company. The offer which
expires on October 15, 1999 permits the conversion of debt into shares of
the Company's common stock at $.375 per share. As of October 7, 1999, the
entire outstanding balance of $720,000 of debentures (discounted value
$481,982 at June 30, 1999) and $60,748 of accounts payable will be
converted to 2,081,995 shares of the Company's common stock. Interest on
the debentures continues to accrue at 12% per annum until the filing of a
registration statement is completed.
The following pro-forma gives effect to the subsequent events as indicated
in the above paragraphs as if the transactions occurred on June 30, 1999:
Actual Pro-forma
------ ---------
Current liabilities $ 768,492 $ 493,977
Long-term debt 268,215 --
Obligations under capital lease net
of current portion 82,033 82,033
------------ ------------
Total liabilities 1,118,740 576,010
------------ ------------
Stockholders' equity (deficiency)
Preferred stock 131 131
Additional paid-in capital 658,170 658,170
------------ ------------
658,301 658,301
Common stock 5,138 8,470
Additional paid-in capital 19,556,402 21,121,318
Deficit (20,807,608) (20,807,608)
------------ ------------
(587,767) 980,481
------------ ------------
Total liabilities and stockholders'
equity (deficiency) $ 530,973 $ 1,556,491
============ ============
F-34
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Dimensional Visions Incorporated and Subsidiary
Phoenix, Arizona
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of DIMENSIONAL VISIONS INCORPORATED AND
SUBSIDIARY included in this annual report on Form 10-KSB and have issued our
report thereon dated October 7, 1999. 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
October 7, 1999
F-35
<PAGE>
Schedule IV
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
SCHEDULE IV - PROPERTY AND EQUIPMENT(1)
Other
Balance at Changes -
Beginning of Additions Add Balance at
Classification Period at Cost Retirements(2) (Deduct) End of Period
- --------------------------------------------------------------------------------
Year Ended
June 30, 1999
- -------------
Equipment $ 370,344 $ 31,334 $ -- $ -- $401,678
Furniture and
fixtures 24,217 25,945 -- -- 50,162
---------- --------- ---------- ------- --------
$ 394,561 $ 57,279 $ -- $ -- $451,840
========== ========= ========== ======= ========
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
========== ========= ========== ======= ========
- ----------
(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
(2) Represents equipment and leasehold improvements abandoned or sold
F-36
<PAGE>
Schedule V
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
SCHEDULE V - ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY AND EQUIPMENT
Other
Balance at Changes -
Beginning of Additions Add Balance at
Classification Period at Cost Retirements(1) (Deduct) End of Period
- --------------------------------------------------------------------------------
Year Ended
June 30, 1999
- -------------
Equipment $ 209,819 $ 41,241 $ -- $ -- $251,060
Furniture and
fixtures 23,690 4,931 -- -- 28,621
---------- --------- ---------- ------- --------
$ 233,509 $ 46,172 $ -- $ -- $279,681
========== ========= ========== ======= ========
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
========== ========= ========== ======= ========
- ----------
(1) Represents accumulated depreciation and amortization written off as a
result of abandonment or sale
F-37
OFFICE LEASE
by and between
PRESSION ADVISORY L.L.C
An Arizona Limited Liability Company
"Landlord"
and
DIMENSIONAL VISIONS GROUP, LTD.
A Delaware Corporation
"Tenant"
October 27, 1997
for premises known as
"DUNLAP EXECUTIVE OFFICE"
2301 West Dunlap Avenue, Suite 207
Phoenix, Arizona
<PAGE>
TABLE OF CONTENTS Page
1. BASIC PROVISIONS 1
2. LEASED PREMISES; NO ADJUSTMENT 2
3. LEASE TERM; COMMENCEMENT DATE 2
4. SECURITY DEPOSIT 2
5. RENT; RENT TAX; ADDITIONAL RENT 3
6. OPERATING COSTS 3
7. CONDITION, REPAIRS AND ALTERATIONS 4
8. SERVICES 5
9. LIABILITY AND CASUALTY INSURANCE 6
10. CASUALTY DAMAGE 6
11. WAIVER OF SUBROGATION 7
12. LANDLORD'S RIGHT TO PERFORM TENANT OBLIGATIONS 7
13. DEFAULT AND REMEDIES 7
14. LATE PAYMENTS 8
15. SURRENDER 8
16. INDEMNIFICATION AND EXCULPATION 9
17. ENTRY BY LANDLORD 9
18. SUBSTITUTE PREMISES 9
19. ASSIGNMENT AND SUBLETTING 10
20. USE OF LEASED PREMISES 11
21. SUBORDINATION AND ATTORNMENT 11
22. ESTOPPEL CERTIFICATE 12
23. SIGNS 12
24. PARKING 12
25. LIENS 12
26. HOLDING OVER 12
27. ATTORNEYS' FEES 13
<PAGE>
28. RESERVED RIGHTS OF LANDLORD 13
29. EMINENT DOMAIN 13
30. NOTICES 13
31. RULES AND REGULATIONS 14
32. ACCORD AND SATISFACTION 14
33. EARLY MOVE-IN 14
34. MISCELLANEOUS 14
<PAGE>
OFFICE LEASE
I. BASIC PROVISIONS
<TABLE>
<CAPTION>
<S> <C> <C>
1.1 Date October 27. 1997
1.2 Landlord: Presson Advisory. L.LC.
an Arizona Limited Liability Company
1.3 Landlord's Address: 501 Fast Thomas. Suite 200
Phoenix. Arizona 85012
1.4 Tenant: Dimensional Visions Group, Ltd.
A Delaware Corporation
1.5 Tenant's Address 2301 West Dunlap, Suite 207
Phoenix, Arizona 85021
1.6 Property The parcel of real estate located in Maricopa County, Arizona,
described on Exhibit "A" attached hereto and incorporated herein by
this reference.
1.7 Building That certain office building located at 2301 West Dunlap. Phoenix,
AZ and situated on the Property, and the landscaping, parking
facilities, and all other improvements and appurtenances to the
Property.
1.8 Leased Premises Approximately 3100 rentable square feet of office space located on
the 2nd floor of the Building and commonly known as Suite 207
1.9 Permitted use General office and no other purpose.
1.10 Lease Term. Three (3) years and One-Half (1/2 ) months.
1.11 Scheduled Commencement Date: December 15, 1997
1.12 Annual Basic Rent: December 15, 1997 through December 31, 1997-Rent at no charge.
1. $44,950.00 ($3,745.83/month) based upon a rental rate of $14.50
PSF 1/1/98 through 12/31/98.
2. $46,500.00 ($3,875.00/month) based upon a rental rate of $15.00
PSF 1/1/99 through 12/31/99
3. $48,050.00 ($4,004.17/month) based upon a rental rate of $15.50
PSF 1/1/2000 through 12/31/2000.
1.13 Security Deposit. $4,100.00
1.14 Base Year Costs 1998 actual Operating Costs per rentable square foot from the
Commencement Date until December 31, 1998 extrapolated over a twelve
(12) month period.
1.15 Building Hours 7 a.m., to 7 p.m., Monday through Friday, and 8 a.m. to 2 p.m. on
Saturday, excluding recognized federal, state or local holidays.
1.16 Parking Spaces Three (3) covered/reserved.
1.17 Parking Charge. Two (2) covered/reserved no charge.
One (1) covered/reserved at $25.00 per month.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
1.18 Guarantors None
1.19 Broker DAUM Commercial Real Estate Services and CB Commercial.
1.20 Metropolitan Area: Phoenix
1.21 Late Charge Percentage Ten Percent (10%)
1.22 Riders 1= Hazardous Materials - exception would be for copy machine and
common office supplies.
1.23 Exhibits A = Description of the Property
B = Floor Plan
E = Building Rules and Regulations
G = Work Letter
</TABLE>
2. LEASED PREMISES: NO ADJUSTMENTS
2.1 Leased Premises. Landlord leases to Tenant, and Tenant leases and
accepts from Landlord, the Leased Premises, upon the terms and conditions set
forth in this Lease and any modifications, supplements or addenda to this Lease
(the "Lease"), including the Basic Provisions of Article I which are
incorporated into this Lease by this reference, together with the nonexclusive
right to use, in common with Landlord and others, the Building Common Areas (as
defined below). For the purposes of this Lease, the term "Building Common Areas"
means common hallways, corridors, walkways and footpaths, foyers and lobbies,
bathrooms and janitorial closets, electrical and telephone closets, landscaped
areas, and such other areas within or adjacent to the Building which are subject
to or are designed or intended solely for the common enjoyment, use and/or
benefits of the tenants of the Building.
2.2 No Adjustment The Annual Basic Rent at the Commencement Date (as
defined below) is based on the Leased Premises containing approximately the
rentable square footage set forth in Article 1.8 above. The Annual Basic Rent
shall not be increased or decreased if the actual rentable square footage of the
Leased Premises is more or less than the rentable square footage set forth in
Article 1.8.
3. LEASE TERM: COMMENCEMENT DATE
3.1 Lease Term. The Lease Term shall begin on the Commencement Date and
shall be for the period set forth in Article 1.10 above, plus any period of less
than one (1) month between the Commencement Date and the first day of the next
succeeding calendar month, unless sooner terminated in accordance with the
further provisions of this Lease.
3.2 Commencement Date. The Commencement Date shall mean the earliest of (a)
the date on which Landlord tenders possession of the Leased Premises to Tenant;
(b) the date on which Landlord would have tendered possession of the Leased
Premises to Tenant but for any act or omission of Tenant, its agents,
contractors or employees, or (c) the date on which Tenant takes possession of
the Leased Premises.
3.3 Memorandum of Commencement Date. Landlord and Tenant shall, within ten
(10) days after the Commencement Date, execute a declaration in the form of
Exhibit "C" attached hereto specifying the Commencement Date should the
Commencement Date be a date other than the Scheduled Commencement Date.
3.4 Delay in Commencement Date. In the event Landlord shall be unable, for
any reason, to deliver possession of the Leased Premises to Tenant on the
Scheduled Commencement Date, Landlord shall not be liable for any loss or damage
occasioned due to such failure, nor shall such inability affect the validity of
this Lease or the obligations of Tenant. In such event, Tenant shall not be
obligated to pay Annual Basic Rent or Additional Rent until the Commencement
Date. In the event Landlord shall not have delivered possession of the Leased
Premises to Tenant within thirty (30) days after the Scheduled Commencement
<PAGE>
Date, and if such failure to deliver possession was (a) caused solely by the
fault or neglect of Landlord, and (b) not caused by any fault or neglect of
Tenant or due to additional time required to plan for and install other work for
Tenant beyond the amount of time which would have been required if only building
standard improvements had been installed, then, as its sole and exclusive remedy
for Landlord's failure to deliver possession of the Leased Premises in a timely
manner, Tenant shall have the right to terminate this Lease by delivering
written notice of termination to Landlord at any time within thirty (30) days
after the expiration of such thirty (30) day period. Such termination shall be
effective thirty (30) days after receipt by Landlord of Tenant's notice of
termination unless Landlord shall, prior to the expiration of such thirty (30)
day period, deliver possession of the Leased Premises to Tenant. Upon a
termination of this Lease pursuant to the provisions of this Article 3.4, the
parties shall have no further obligations or liabilities to the other and
Landlord shall promptly return any monies previously deposited or paid by
Tenant.
3.5 Lease Year. Each "Lease Year" shall be a period of twelve (12)
consecutive calendar months, the first Lease Year beginning on the Commencement
Date or on the first day of the calendar month next succeeding the Commencement
Date if the Commencement Date is not on the first day of a calendar month.
4. SECURITY DEPOSIT
Tenant shall pay to Landlord, upon the execution of this Lease, the
Security Deposit set forth in Article 1.13 above as security for the performance
by Tenant of its obligations under this Lease, which amount shall be returned to
Tenant after the expiration or earlier termination of this Lease, provided that
Tenant shall have fully performed all of its obligations contained in this
Lease. The Security Deposit, at the election of Landlord, may be retained by
Landlord as and for its full damages or may be applied in reduction of any loss
and/or damage sustained by Landlord by reason of the occurrence of any breach,
nonperformance or default by Tenant under this Lease without the waiver of any
other right or remedy available to Landlord at law, in equity or under the terms
of this Lease. If any portion of the Security Deposit is so used or applied,
Tenant shall, within five(5) days after written notice from Landlord, deposit
with Landlord immediately available funds in an amount sufficient to restore the
Security Deposit to its original amount, and Tenant's failure to do so shall be
a breach of this Lease. Tenant acknowledges and agrees that in the event Tenant
shall file a voluntary petition pursuant to the Bankruptcy Code, or if an
involuntary petition is filed against Tenant pursuant to the Bankruptcy Code,
then Landlord may apply the Security Deposit towards those obligations of Tenant
to Landlord which accrued prior to the filing of such petition. Tenant
acknowledges further that the Security Deposit may be commingled with Landlord's
other funds and that Landlord shall be entitled to retain any interest earnings
on the Security Deposit. In the event of termination of Landlord's Interest in
this Lease, Landlord shall transfer the Security Deposit to Landlord's successor
in interest, and Landlord shall be released from liability by Tenant for the
return of such deposit or for an accounting of the Security Deposit.
5. RENT: RENT TAX: ADDITIONAL RENT
5.1 Payment of Rent. Tenant shall pay to Landlord the Annual Basic Rent set
forth in Article 1.12 above, subject to adjustment as provided for in Article
1.12. The Annual Basic Rent shall be paid in equal monthly installments, on or
before the first day of each and every calendar month during the Lease Term, in
advance, without notice or demand and without abatement, deduction or set-off,
except for the first month's rent which is due and payable on execution, and
pro-rata, in advance for any partial month.. The Annual Basic Rent for the first
full month of the Lease Term shall be paid upon the execution of this Lease. All
payments requiring proration shall be prorated on the basis of a thirty (30) day
month. In addition, all payments to be made under this Lease shall be paid in
lawful money of the United States of America to Landlord or its agent at the
address set forth in Article 1.3 above, or to such other person or at such other
place as Landlord may from time to time designate in writing.
5.2 Rent Tax. In addition to the Annual Basic Rent and Additional Rent (as
defined below), Tenant shall pay to Landlord, together with the monthly
installments of Annual Basic Rent and payments of Additional Rent, an amount
equal to any state or local sales, rental, occupancy, excise, use or
transactional privilege taxes assessed or levied upon Landlord with respect to
the amounts paid by Tenant to Landlord under this Lease, as well as all taxes
assessed or imposed upon Landlord's gross receipts or gross income from leasing
the Leased Premises to Tenant, including, without limitation, transaction
privilege taxes, education excise taxes, any tax now or subsequently imposed by
the City of Phoenix, the State of Arizona, any other governmental body, and any
<PAGE>
taxes assessed or imposed in lieu of or in substitution of any of the foregoing
taxes. Such taxes shall not, however, include any franchise, gift, estate,
inheritance, conveyance, transfer or net income tax assessed against Landlord.
5.3 Additional Rent In addition to Annual Basic Rent, all other amounts to
be paid by Tenant to Landlord pursuant to this Lease (including amounts to be
paid by Tenant pursuant to Article 6 below), if any, shall be deemed to be
Additional Rent, irrespective of whether designated as such, and shall be due
and payable within thirty (30) days after receipt by Tenant of Landlord's
statement or together with the next succeeding installment of Annual Basic Rent,
whichever shall first occur. Landlord shall have the same remedies for the
failure to pay Additional Rent as for the nonpayment of Annual Basic Rent.
6. OPERATING COSTS
6.1 Tenant's Obligation. The Annual Basic Rent does riot include amounts
attributable to any increase in the amount of Taxes (as hereinafter defined) or
amounts attributable to any increase in the cost of the use, management, repair,
service, insurance, condition, operation and maintenance of the Building.
Therefore, in order that the Annual Basic Rent payable throughout the Lease Term
shall reflect any such increases, Tenant shall pay to Landlord, in accordance
with the further provisions of this Article 6, an amount per rentable square
foot of the Leased Premises equal to the difference between the Operating Costs
(as hereinafter defined) per rentable square foot and the Base Year Costs.
Tenant acknowledges that the Base Year Costs does not constitute a
representation by Landlord as to the Operating Costs per rentable square foot
that may be incurred during any calendar year.
6.2 Landlord's Estimate. Landlord shall furnish Tenant an estimate of the
Operating Costs per rentable square foot for each Fiscal Year (as hereinafter
defined) commencing with the Fiscal Year in which the Commencement Date occurs.
In addition, Landlord may, from time to time, furnish Tenant a revised estimate
of Operating Costs should Landlord anticipate any increase in Operating Costs
from that set forth in a prior estimate. Commencing with the first month to
which an estimate applies, Tenant shall pay, in addition to the monthly
installments of Annual Basic Rent, an amount equal to one-twelfth (1/12th) of
the product of the rentable square footage of the Leased Premises multiplied by
the difference (but not less than zero (0)), if any, between such estimate and
the Base Year Costs; provided, however, if less than ninety-five percent (95%)
of the rentable area of the Building shall be occupied by tenants during the
period covered by such estimate, the estimated Operating Costs for such period
shall be, for the purposes of this Article 6, increased to an amount reasonably
determined by Landlord to be equivalent to the Operating Costs that would be
incurred if occupancy would be at least ninety-five percent (95%) during the
entire period. Within one hundred twenty (120) days after the expiration of each
Fiscal Year or such longer period of time as may be necessary to compile such
statement, Landlord shall deliver to Tenant a statement of the actual Operating
Costs for such Fiscal Year, If the actual Operating Costs for such Fiscal Year
are more or less than the estimated Operating Costs, a proper adjustment shall
be made; provided, however, if less than ninety-five percent (95%) of the
rentable area of the Building shall have been occupied by tenants at any time
during such period, the actual Operating Costs for such period shall be, for the
purposes of this Article 6, increased to an amount reasonably determined by
Landlord to be equivalent to the Operating Costs that would have been incurred
had such occupancy been at least ninety-five (95%) during the entire period. Any
excess amounts paid by Tenant shall be, at Landlord's option, applied to any
amounts then payable by Tenant to Landlord or to the next maturing monthly
installments of Annual Basic Rent or Additional Rent. Any deficiency between the
estimated and actual Operating Costs shall be paid by Tenant to Landlord
concurrently with the monthly installment of Annual Basic Rent next due. Any
amount owing for a fractional Fiscal Year in the first or final Lease Years of
the Lease Term shall be prorated. For the purposes of this Lease, the term means
the fiscal year (or portion of the fiscal year) of Landlord. The Fiscal Year
currently commences on January land ends on December 31; provided, however,
Landlord reserves the right to change the Fiscal Year at any time or times, but
no such change shall result in an increase in the amounts otherwise payable by
Tenant pursuant to the provisions of this Article 6.
6.3 Operating Costs - Defined. For the purposes of this Lease, "Operating
Costs" shall mean all costs and expenses accrued, paid or incurred by Landlord,
or on Landlord's behalf, in respect of the use, management, repair. service,
insurance, condition, operation and maintenance of the Building including, but
not limited to the following: (a) salaries, wages and benefits of all persons
who perform duties in connection with landscaping, parking, janitorial and
general cleaning services, security services and any and all other employees
engaged by or on behalf of Landlord; (b) payroll taxes, workmen's compensation,
uniforms and related expenses for such employees; (c) the cost of all charges
for oil, gas, steam, electricity, any alternate source of energy, heat,
ventilation, air-conditioning, refrigeration, water, sewer service, trash
<PAGE>
collection, pest control and all other utilities, together with any taxes on
such utilities; (d) the cost of painting non-tenant space; (e) the cost of all
charges for rent, casualty, liability, fidelity and other insurance maintained
by Landlord, including any deductible amounts incurred with respect to an
insured loss; (f) the cost of all supplies (including cleaning supplies), tools,
materials, equipment and personal property, the rental of the personal property
and sales, transaction privilege, excise and oilier taxes on the personal
property; (g) depreciation of hand tools and other moveable equipment; (h) the
cost of all charges for window and other cleaning, janitorial, and security
services; (i) the cost of charges for independent contractors; (j) the cost of
repairs and replacements made by Landlord at its expense and the fees and other
charges for maintenance and service agreements; (k) the cost of exterior and
interior landscaping; (l) costs relating to the operation and maintenance of all
real property and improvements appurtenant to the Building including, without
limitation, all parking areas, service areas, walkways and landscaping; (m) the
cost of alterations and improvements made by reason of the laws and requirements
of any public authorities or the requirements of insurance bodies; (n) all
management fees and other charges for management services and overhead costs
(including travel and related expenses), whether provided by an independent
management company, Landlord or an affiliate of Landlord, not to exceed,
however, the then prevailing range of rates charged in comparable office
buildings in tile metropolitan area set forth in Article 1.20; (o) the cost of
any capital improvements or additions which improve the comfort or amenities
available to tenants of the Building, provided, however, that any such costs
shall be amortized with interest over the useful life of the improvement or
addition; (p) the cost of any capital improvements or additions which are
intended to enhance the safety of the Building or reduce (or avoid increases in)
Operating Costs, provided, however, that any such costs shall be amortized with
interest over the useful life of the improvement or addition; (q) the cost of
licenses and permits, inspection fees and reasonable legal, accounting and other
professional fees and expenses; (r) taxes (as defined below); and (s) all other
charges properly allocable to the use, management, repair, service, insurance,
condition, operation and maintenance of the Building in accordance with
generally accepted accounting principles.
6.4 Operating Costs - Exclusions. Excluded from Operating Costs shall be
the following: (a) depreciation, except to the extent expressly included
pursuant to Article 6.3 above; (b) interest on and amortization of debts, except
to the extent expressly included pursuant to Article 6.3 above;(c)leasehold
improvements, including redecorating made for tenants of the Building; (d)
brokerage commissions and advertising expenses for procuring tenants for the
Building or the Property; (e) refinancing costs; (f) the cost of any repair,
replacement or addition which would be required to be capitalized under general
accepted accounting principles, except to the extent expressly included pursuant
to Article 6.3 above; and (g) the cost of any item included in Operating Costs
under Article 6.3 above to the extent that such cost is reimbursed or paid
directly by an insurance company, condemnor, a tenant of the Building or any
other party.
6.5 Taxes - Defined. For the purposes of this Lease, "Taxes" shall mean and
include all real property taxes and personal property taxes, general and special
assessments, foreseen as well as unforeseen, which are levied or assessed upon
or with respect to the Property any improvements, fixtures, equipment and other
property of Landlord, real or personal, located on the Property and used in
connection with the operation of all or any portion of the Property, as well as
any tax, surcharge or assessment which shall be levied or assessed in addition
to or in lieu of such real or personal property taxes and assessments. Taxes
shall also include any expenses incurred by Landlord in contesting the amount or
validity of any real or personal property taxes and assessments. Taxes shall
not, however, include any franchise, gift, estate, inheritance, conveyance,
transfer or income tax assessed against Landlord.
No Waiver. The failure by Landlord to furnish Tenant with a statement of
Operating Costs shall not constitute a waiver by Landlord or its right to
require Tenant to pay excess Operating Costs per rentable square foot.
7. CONDITION. REPAIRS AND ALTERATIONS
7.1 As-Is Condition. Landlord shall provide the Leased Premises to Tenant,
and Tenant accepts the Leased Premises in an "AS-IS" condition, and Landlord
makes no representations or warranties concerning the condition of the Leased
Premises and has no obligation to construct, remodel, improve, repair, decorate
or paint the Leased Premises or any improvement on or part of the Leased
Premises, except as set forth in Articles 7.4. 10 or as outlined in the "Work
Letter" marked as Exhibit's" below. Tenant represents and warrants that it has
inspected the Leased Premises prior to execution of this Lease, and that it is
relying on its own inspection in executing this Lease and not on any statement,
representation or warranty of Landlord, its agents or employees.
<PAGE>
7.2 Alterations and Improvements. Tenant shall not make any improvements or
other alterations to the interior or exterior of the Leased Premises (the
"Tenant Improvements") without first obtaining the written consent of Landlord
to the proposed work, including the plans, specifications and the proposed
architect and/or contractor(s) for such alterations and/or improvements. All
such Tenant Improvements shall be at the sole cost and expense of Tenant. Tenant
acknowledges and agrees that any review by Landlord of Tenant's plans and
specifications and/or right of approval exercised by Landlord with respect to
any Tenant Improvements is for Landlord's benefit only and Landlord shall not,
by virtue of such review or right of approval, be deemed to make any
representation. warranty or acknowledgment to Tenant or to any other person or
entity as to the adequacy of Tenant's plans and specifications or any Tenant
Improvements.
7.3 Tenant's Obligations. Tenant shall, at Tenants sole cost and expense,
maintain the Leased Premises in a clean, neat and sanitary condition and shall
keep the Leased Premises and every part of the Leased Premises in good condition
and repair except where the same is required to be done by Landlord. Tenant
waives all rights to make repairs at the expense of Landlord as provided by any
law, statute or ordinance now or subsequently in effect. All of Tenant's
Improvements are the property of the Landlord, and Tenant shall, upon the
expiration or earlier termination of the Lease Term, surrender the Leased
Premises, including Tenants Improvements, to Landlord, broom clean and in the
same condition as when received, ordinary wear and tear excepted. Except as set
forth in Articles 7.4.10 and the "Work Letter" marked as Exhibit "G" below,
Landlord has no obligation to construct, remodel, improve, repair, decorate or
paint the Leased Premises or any improvement on or part of the Leased Premises.
Tenant shall pay for the cost of all repairs to the Leased Premises not required
to be made by Landlord and shall be responsible for any redecorating,
remodeling, alteration, painting and carpet cleaning other than routine
vacuuming during the Lease Term. Tenant shall pay for any repairs to the Leased
Premises and/or the Building made necessary by any negligence or carelessness of
Tenant, its employees or invitees.
7.4 Landlord's Obligations. Landlord shall (a) make all necessary repairs
to the exterior walls, exterior doors, windows and corridors of the Building,
(b) keep the Building and the Building Common Areas in good condition,
and(c)keep the Building equipment such as elevators, plumbing, heating, air
conditioning and similar Building equipment in good repair, but Landlord shall
not be liable or responsible for breakdowns or interruptions in service when
reasonable efforts are made to restore such service.
7.5 Removal of Alterations. Upon the expiration or earlier termination of
this Lease, Tenant shall remove from the Leased Premises all movable trade
fixtures and other movable personal property, and shall promptly repair any
damage to the Leased Premises and/or the Building caused by such removal. All
such removal and repair shall be entirely at Tenants sole cost and expense. At
any time within fifteen (15) days prior to the scheduled expiration of the Lease
Term or immediately upon any termination of this Lease, Landlord may require
that Tenant remove from the Leased Premises any alterations, additions,
improvements, trade fixtures, equipment, shelving, cabinet units or movable
furniture (and other personal property) designated by Landlord to be removed. In
such event, Tenant shall, in accordance with the provisions of Article 7.2 above
and Article 10 below, complete such removal (including the repair of any damage
caused thereby) entirely at its own expense and within fifteen (15) days after
notice from Landlord. All repairs required of tenant pursuant to the provisions
of this Article 7.5 and Article 10 below shall be performed in a manner
satisfactory to Landlord, and shall include, but not be limited to, repairing
plumbing, electrical wiring and holes in walls, restoring damaged floor and/or
ceiling tiles, repairing any other cosmetic damage, and cleaning the Leased
Premises. Except for normal wear.
7.6 No Abatement. Except as provided herein, Landlord shall have no
liability to Tenant, nor shall Tenants covenants and obligations under this
Lease, including without limitation, Tenant's obligation to pay Annual Basic
Rent and Additional Rent, be reduced or abated in any manner whatsoever by
reason of any inconvenience, annoyance, interruption or injury to business
arising from Landlord's making any repairs or changes which Landlord is required
or permitted to make pursuant to the terms of this Lease or by any other tenants
lease or are required by law to be made in and to any portion of the Leased
Premises or the Building. Landlord shall, nevertheless, use reasonable efforts
to minimize any interference with Tenant's business in the Leased Premises. If
Landlord is unable to abate damages within sixty (60) days then Tenant has the
right to terminate.
<PAGE>
8. SERVICES
8.1 Climate Control. Landlord shall provide reasonable climate control to
the Leased Premises during the Building Hours as is suitable, in Landlord's
judgment, for the comfortable use and occupation of the Leased Premises,
excluding, however, air conditioning, evaporative cooling or heating for
electronic data processing or other equipment requiring extraordinary climate
control.
8.2 Janitorial Services. Landlord shall make janitorial and cleaning
services available to the Leased Premises at least five (5) evenings per week,
except recognized federal, state or local holidays. Tenant shall pay to
Landlord, within five (5) days after receipt of Landlord's bill, the reasonable
costs incurred by Landlord for extra cleaning in the Leased Premises required
because of (a) misuse or neglect on the part of Tenant, its employees or
invitees, (b) use of portions of the Leased Premises for special purposes
requiring greater or more difficult cleaning work than office areas,(c)interior
glass partitions or unusual quantities of glass surfaces, (d) non-building
standard materials or finishes installed by Tenant or at its request, (e)
removal from the Leased Premises of refuse and rubbish of Tenant in excess of
that ordinarily accumulated in general office occupancy or at times other than
Landlord's standard cleaning times, and (f) shampooing or other forms of carpet
cleaning other than routine vacuuming.
8.3 Electricity. Landlord shall, during Building Hours, furnish reasonable
amounts of electric current as required for normal and usual lighting purposes
and for office machines and equipment such as personal computers, telecopy or
facsimile machines, typewriters, adding machines, copying machines, calculators
and similar machines and equipment normally utilized in general office use.
Tenants use of electric energy in the Leased Premises shall not at any time
exceed the capacity of any of the risers, piping, electrical conductors and
other equipment in or serving the Leased Premises. The Tenant will have
electricity uninterrupted except for any emergency throughout lease period
without regauged to building hours.
8.4 Water. Landlord shall furnish cold and heated water for drinking and
lavatory purposes to the Building Common Areas.
8.5 Light Bulbs. Landlord shall perform such replacement of lamps,
fluorescent tubes and lamp ballasts in the Leased Premises and in the Building
as may be required from time to time. If the lighting fixtures in the Leased
Premises are other than those furnished at the beginning of the Lease Term,
Tenant shall pay Landlord's charge for replacing the lamps, lamp ballasts and
fluorescent tubes in such lighting fixtures so installed by Tenant within thirty
(30) days after receipt of Landlord's bill.
8.6 Additional Services. Tenant shall pay to Landlord, monthly as billed,
as Additional Rent, Landlord's charge for services furnished by Landlord to
Tenant in excess of that agreed to be furnished by Landlord pursuant to this
Article 8, including, but not limited to (a) any utility services utilized by
Tenant during other than Building Hours, and (b) climate control in excess of
that agreed to be furnished by Landlord pursuant to Article 8.1 above or
provided at times other than Building Hours.
8.7 Interruptions in Service. Landlord does not warrant that any of the
foregoing services or any other services which Landlord may supply will be free
from interruption. Tenant acknowledges that anyone or more of such services may
be suspended by reason of accident, repairs, inspections, alterations or
improvements necessary to be made, or by strikes or lockouts, or by reason of
operation of law, or by causes beyond the reasonable control of Landlord.
Landlord shall not be liable for and Tenant shall not be entitled to any
abatement or reduction of Annual Basic Rent or Additional Rent by reason of any
disruption of the services to be provided by Landlord pursuant to this Lease.
9. LIABILITY AND CASUALTY INSURANCE
9.1 Liability Insurance. Tenant shall, during the Lease Term, keep in full
force and effect, a policy or policies of commercial general liability insurance
for bodily injury, personal injury (including wrongful death) and damage to
property resulting from (i) any occurrence in the Leased Premises, (ii) any act
or omission by Tenant, by any subtenant of Tenant, or by any of their respective
invitees, agents, servants, contractors or employees anywhere in the Leased
Premises or the Building, (iii) the business operated by Tenant or by any
subtenant of Tenant in the Leased Premises, and (iv) the contractual liability
of Tenant to Landlord pursuant to the indemnification provisions of Article 16.1
<PAGE>
below, which coverage shall not be less than One Million and No/100 Dollars
($l,000,000.00), combined single limit, per occurrence. The liability policy or
policies shall contain an endorsement naming Landlord as an additional insured.
9.2 Casualty Insurance. Tenant shall, during the Lease Term, keep in full
force and effect, a policy or policies of so called "All Risk" or "All Peril"
insurance, including coverage for vandalism or malicious mischief, insuring the
Tenant Improvements and Tenant's stock in trade, furniture, personal property,
fixtures, equipment and other items in the Leased Premises, with coverage in an
amount equal to the replacement cost.
9.3 Worker's Compensation Insurance. Tenant shall, during the Lease Term,
keep in full force and effect, a policy or policies of worker's compensation
insurance with an insurance carrier and in amounts approved by the Industrial
Commission of the State of Arizona.
9.4 Business Interruption Insurance. If Landlord shall so require, Tenant
shall, during the Lease Term, keep in full force and effect, a policy or
policies of business interruption insurance in an amount equal to twelve (12)
monthly installments of Annual Basic Rent and Additional Rent payable to
Landlord, together with the taxes on such rent, insuring Tenant against losses
sustained by Tenant as a result of any cessation or interruption of Tenant's
business in the Leased Premises for any reason.
9.5 Insurance Requirements. Each insurance policy and certificate of such
insurance policy obtained by Tenant pursuant to this Lease shall contain a
clause that the insurer will provide Landlord with at least thirty (30) days
prior written notice of any material change, non-renewal or cancellation of the
policy. Each such insurance policy shall be with an insurance company authorized
to do business in the State of Arizona and reasonably acceptable to Landlord. A
certificate (e.g. Acord Form 27) evidencing the coverage under each such policy,
as well as a certified copy of the required additional insured endorsement(s)
shall be delivered to Landlord prior to commencement of the Lease Term. All
insurance policies required pursuant to this Article 9 shall be written as
primary policies, not contributing with or in excess of any coverage which
Landlord may carry. Tenant shall procure and maintain all policies entirely at
its own expense and shall, at least twenty (20) days prior to the expiration of
such policies, furnish Landlord with renewal certificates of such policies.
Tenant shall not do or permit to be done anything which shall invalidate the
insurance policies maintained by Landlord or the insurance policies required
pursuant to this Article 9 or the coverage under such policies.
9.6 Co-Insurance. If on account of the failure of Tenant to comply with the
provisions of this Article 9 Landlord is deemed a co-insurer by its insurance
carrier, then any loss or damage which Landlord shall sustain by reason of such
failure shall be borne by Tenant, and shall be paid by Tenant within ten (10)
days after receipt of a bill for such loss or damage.
9.7 Adequacy of Insurance. Landlord makes no representation or warranty to
Tenant that the amount of insurance to be carried by Tenant under the terms of
this Lease is adequate to fully protect Tenant's interests. If Tenant believes
that the amount of any such insurance is insufficient, Tenant is encouraged to
obtain, at its sole cost and expense, such additional insurance as Tenant may
deem desirable or adequate. Tenant acknowledges that Landlord shall not, by the
fact of approving, disapproving, waiving, accepting, or obtaining any insurance,
incur any liability for or with respect to the amount of insurance carried, the
form or legal sufficiency of such insurance, the solvency of any insurance
companies or the payment or defense of any lawsuit in connection with such
insurance coverage, and Tenant hereby expressly assumes full responsibility for
and all liability, if any, with respect to, Tenant's insurance coverage.
10. CASUALTY DAMAGE
10.1 Obligation to Repair. In the event of any damage to the Leased
Premises, Tenant shall promptly notify Landlord in writing. If the Leased
Premises or any part of the Building are damaged by fire or other casualty not
due to the fault or negligence of Tenant, its employees, invitees, agents,
contractors or servants, the damage to the Building and/or the Leased Premises
shall be repaired by and at the expense of Landlord, excluding any alterations
or improvements made by Tenant, unless this Lease is terminated in accordance
with the provisions of Article 10.2 below. Until such repairs by Landlord are
completed, Annual Basic Rent and Additional Rent shall be abated in proportion
to the part of the Leased Premises which is unusable by Tenant in the conduct of
its business. If, however, such damage is due in whole or in part to the fault
or neglect of Tenant or any subtenant of Tenant, or any of their respective
<PAGE>
agents, employees, servants, contractors or invitees, there shall be no
abatement of Annual Basic Rent or Additional Rent and Tenant shall be required
to repair all such damage at its sole cost and expense. There shall be no
abatement of Annual Basic Rent or Additional Rent on account of damage to the
Building or the Property unless there is also damage to the Leased Premises.
Tenant hereby waives any statute now or subsequently in effect which grants
to Tenant the right to terminate this Lease or which provides for an abatement
of rent on account of damage or destruction, including, without limitation, ARS.
ss. 33-343.
10.2 Landlord's Option. If the damage is not fully covered by Landlord's
insurance, or if Landlord determines in good faith that the cost of repairing
the damage is more than one-third of the then replacement cost of the Building,
or if Landlord has determined in good faith that the required repairs to the
Building cannot be made within a one hundred twenty (120) day period without the
payment of overtime or other premiums, or in the event a holder of a mortgage or
a deed of trust against the Building or the Property requires that all or any
portion of the insurance proceeds be applied in reduction of the mortgage debt,
or if such damage occurs during the final year of the Lease Term, then Landlord
may, by written notice to Tenant within sixty (60) days after the occurrence of
such damage, terminate this Lease as of the date set forth in Landlord's notice
to Tenant. This right will be reciprocal. If Landlord does not elect to
terminate this Lease, Landlord shall, at its sole cost and expense, repair the
Building and the Leased Premises, excluding any alterations or improvements made
by Tenant, and while such repair work is being performed, the Annual Basic Rent
and Additional Rent shall be abated as provided above. Nothing in this Article
10 shall be construed as a limitation of Tenant's liability for any such damage,
should such liability otherwise exist.
11. WAIVER OF SUBROGATION
Landlord and Tenant each hereby waives its rights and the subrogation
rights of its insurer against the other patty and any other tenants of space in
the Building or the Property as well as their respective officers, employees,
agents, authorized representatives and invitees, with respect to any claims
including, but not limited to, claims for injury to any persons, and/or damage
to the Property, the Building or the Leased Premises and/or any fixtures,
equipment, personal property, furniture, improvements and/or alterations in or
to the Leased Premises, which are caused by or result from (a) risks or damages
required to be insured against under this Lease, or (b) risks and damages which
are insured against by insurance policies maintained by Landlord and Tenant from
time to time. Landlord and Tenant shall obtain for the other party from its
insurers under each policy required by this Lease or otherwise maintained a
waiver of all rights of subrogation which such insurers of Landlord or Tenant
might otherwise have against the other party.
12. LANDLORD'S RIGHT TO PERFORM TENANT OBLIGATIONS
All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any abatement of Annual Basic Rent or Additional Rent. If
Tenant shall fail to pay any sum of money, other than Annual Basic Rent,
required to be paid by it under this Lease, or shall fail to perform any other
act on its part to be performed under this Lease, and such failure shall
continue for ten (10) days after notice of such failure by Landlord (or such
shorter period of time as may be reasonable in the event of an emergency),
Landlord may (but shall not be obligated to do so) without waiving or releasing
Tenant from any of Tenant's obligations, make any such payment or perform any
such other act on behalf of Tenant. All sums so paid by Landlord and all
necessary incidental costs, together with interest at the greater of (a)
eighteen percent (18%) per annum or (b) the rate of interest per annum publicly
announced, quoted or published, from time to time, by Bank of America, at its
Phoenix, Arizona office as its "reference rate" plus four (4) percentage points,
from the date of such payment by Landlord until reimbursement in full by Tenant
(the "Default Rate"), shall be payable to Landlord as Additional Rent with the
next monthly installment of Annual Basic Rent; provided, however, in no event
shall the Default Rate exceed the maximum rate (if any) permitted by applicable
law.
13. DEFAULT AND REMEDIES
13.1 Event of Default. If Tenant shall fail to pay any installment of
Annual Basic Rent, any Additional Rent or any other sum required to be paid by
Tenant under this Lease, and such failure shall continue for ten (10) days, or
if Tenant shall fail to perform any of the other covenants or conditions which
Tenant is required to observe and perform and such failure shall continue for
<PAGE>
fifteen (15) days (or such shorter period of time as may be specified by
Landlord in the event of an emergency) after written notice of such failure by
Landlord to Tenant, or if Tenant makes or has made any warranty, representation
or statement to Landlord in connection with this Lease which is or was
materially false or misleading when made or furnished, or if Tenant shall commit
an Event of Default under any other agreement between Landlord and Tenant, or if
the interest of Tenant in this Lease or any of Tenant's equipment, fixtures, or
personal property located on the Leased Premises shall be levied upon under
execution or other legal process. or if any petition shall be filed by or
against Tenant or any Guarantor to declare Tenant or any Guarantor a bankrupt or
to delay, reduce or modify Tenant's or any Guarantor's debts or obligations, or
if any petition shall be filed or other action taken to reorganize or modify
Tenant's or any Guarantor's capital structure, or if Tenant or any Guarantor
shall be declared insolvent according to law, or if any assignment of Tenant's
or any Guarantor's property shall be made for the benefit of creditors, or if a
receiver or trustee is appointed for Tenant or any Guarantor or all or any of
their respective property, or if Tenant or any Guarantor shall file a voluntary
petition pursuant to the Bankruptcy Code or any successor the Bankruptcy Code or
if an involuntary petition be filed against Tenant or any Guarantor pursuant to
the Bankruptcy Code or any successor the Bankruptcy Code, then Tenant shall have
committed a material breach and default under this Lease (an "Event of
Default").
13.2 Remedies. Upon the occurrence of an Event of Default under this Lease
by Tenant, Landlord may, without prejudice to any other rights and remedies
available to a landlord at law, in equity or by statute, Landlord may exercise
one or more of the following remedies, all of which shall be construed and held
to be cumulative and non-exclusive: (a) Terminate this Lease and re-enter and
take possession of the Leased Premises, in which event, Landlord is authorized
to make such repairs, redecorating, refurbishments or improvements to the Leased
Premises as may be necessary in the reasonable opinion of Landlord acting in
good faith for the purposes of reletting the Leased Premises and the costs and
expenses incurred in respect of such repairs, redecorating and refurbishments
and the expenses of such reletting (including brokerage commissions) shall be
paid by Tenant to Landlord within ten (10) days after receipt of Landlord's
statement; or (b) Without terminating this Lease, re-enter and take possession
of the Leased Premises; or (c)Without such re-entry, recover possession of the
Leased Premises in the manner prescribed by any statute relating to summary
process, and any demand for Annual Basic Rent, re-entry for condition broken,
and any and all notices to quit, or other formalities of any nature to which
Tenant may be entitled, are hereby specifically waived to the extent permitted
by law; or (d) Without terminating this Lease, Landlord may relet the Leased
Premises as Landlord may see fit without thereby avoiding or terminating this
Lease, and for the purposes of such reletting, Landlord is authorized to make
such repairs, redecorating, refurbishments or improvements to the Leased
Premises as may be necessary Ill the reasonable opinion of Landlord acting in
good faith for the purpose of such reletting, and if a sufficient sum is not
realized from such reletting (after payment of all costs and expenses of such
repairs, redecorating and refurbishments and expenses of such reletting
(including brokerage commissions) and the collection of rent accruing therefrom)
each month to equal the Annual Basic Rent and Additional Rent payable under this
Lease, then Tenant shall pay such deficiency each month within ten (10) days
after receipt of Landlord's statement; or (e) Landlord may declare immediately
due and payable all the remaining installments of Annual Basic Rent and
Additional Rent, and such amount, less the fair rental value of the Leased
Premises for the remainder of the Lease Term shall be paid by Tenant within ten
(10) days after receipt of Landlord's statement. Landlord shall not by re-entry
or any other act, be deemed to have terminated this Lease, or the liability of
Tenant for the total Annual Basic Rent and Additional Rent reserved under this
Lease or for any installment of Annual Basic Rent and Additional Rent then due
or subsequently accruing, or for damages. unless Landlord notifies Tenant in
writing that Landlord has so elected to terminate this Lease. After the
occurrence of an Event of Default, the acceptance of Annual Basic Rent or
Additional Rent, or the failure to re-enter by Landlord shall not be deemed to
be a waiver of Landlord's right to subsequently terminate this Lease and
exercise any other rights and remedies available to it, and Landlord may
re-enter and take possession of the Leased Premises as if no Annual Basic Rent
or Additional Rent had been accepted after the occurrence of an Event of
Default. Upon an Event of Default, Tenant shall also pay to Landlord all costs
and expenses incurred by Landlord, including court costs and attorneys' fees, in
retaking or otherwise obtaining possession of the Leased Premises, removing and
storing all equipment, fixtures and personal property on the Leased Premises and
otherwise enforcing any of Landlord's rights, remedies or recourses arising as a
result of an Event of Default
13.3 Interest on Past Due Amounts. In addition to the late charge described
in Article 14 below, if any installment of Annual Basic Rent or Additional Rent
is not paid promptly when due, it shall bear interest at the Default Rate;
provided, however, this provision shall not relieve Tenant from any default in
the making of any payment at the time and in the manner required by this Lease;
and provided, further, in no event shall the Default Rate exceed the maximum
rate (if any) permitted by applicable law.
<PAGE>
13.4 Landlord Default. In the event Landlord should neglect or fail to
perform or observe any of the covenants, provisions or conditions contained in
this Lease on its part to be performed or observed, and such failure continues
for thirty (30) days after written notice of default (or if more than thirty
(30) days shall be required because of the nature of the default, if Landlord
shall fail to commence the curing of such default within such thirty (30) day
period and proceed diligently to completion), then Landlord shall be responsible
to Tenant for any actual damages sustained by Tenant as a result of Landlord's
breach, but not special or consequential damages. Notwithstanding any other
provisions in this Lease, any claim which Tenant may have against Landlord for
failure to perform or observe any of the covenants, provisions or conditions
contained in this Lease shall be deemed waived unless such claim is asserted by
written notice of such claim to Landlord within ten (10) days of commencement of
the alleged default or of occurrence of the cause of action and unless suit be
brought upon such claim within six (6) months subsequent to the occurrence of
such cause of action. Tenant shall have no right to terminate this Lease, except
as expressly provided elsewhere in this Lease.
14. LATE PAYMENTS
Tenant hereby acknowledges that the late payment by Tenant to Landlord of
any monthly installment of Annual Basic Rent any Additional Rent or any other
sums due under this Lease will cause Landlord to incur costs not contemplated by
this Lease, the exact amount of which will be extremely difficult and
impracticable to ascertain. Such costs include but are not limited to
processing, administrative and accounting costs. Accordingly, if any monthly
installment of Annual Basic Rent, any Additional Rent or any other sum due from
Tenant shall not be received by Landlord within ten (10) days after the date
when due, Tenant shall pay to Landlord a late charge equal to the greater of the
Late Charge Percentage set forth in Article 1.21 multiplied by such overdue
amount or One Hundred and No/l00 Dollars ($100.00). Tenant acknowledges that
such late charge represents a fair and reasonable estimate of the costs Landlord
will incur by reason of late payments by Tenant. Nothing contained in this
Article 14 shall be deemed to condone, authorize, sanction or grant to Tenant an
option for the late payment of Annual Basic Rent, Additional Rent or any other
sum due under this Lease. If any check of Tenant is returned for insufficient
funds, Tenant shall pay to Landlord a Fifty and No/l00 Dollars ($50.00)
processing charge, in addition to payment of the amount due plus applicable
interest and late charges.
15. SURRENDER
Tenant shall, upon the expiration or earlier termination of this Lease,
peaceably surrender the Leased Premises, including any Tenant Improvements, in a
broom clean condition and otherwise in as good condition as when Tenant took
possession, except for (i) reasonable wear and tear subsequent to the last
repair, replacement, restoration, alteration or renewal; (ii) loss by fire or
other casualty, and (iii) loss by condemnation. If Tenant shall abandon, vacate
or surrender the Leased Premises, or be dispossessed by process of law or
otherwise, any personal property and fixtures belonging to Tenant and left in
the Leased Premises shall be deemed abandoned and, at Landlord's option, title
shall pass to Landlord under this Lease as by a bill of sale. Landlord may,
however, if it so elects, remove all or any part of such personal property from
the Leased Premises and the costs incurred by Landlord in connection with such
removal, including storage costs and the cost of repairing any damage to the
Leased Premises and/or the Building caused by such removal shall be paid by
Tenant within ten (10) days after receipt of Landlord's statement. Upon the
expiration or earlier termination of this Lease, Tenant shall surrender to
Landlord all keys to the Leased Premises and shall inform Landlord of the
combination of any vaults, locks and safes left on the Leased Premises. The
obligations of Tenant under this Article 15 shall survive the expiration or
earlier termination of this Lease. Tenant shall indemnify Landlord against any
loss or liability resulting from delay by Tenant in so surrendering the
Premises, including, without limitation, any claims made by any succeeding
Tenant founded on such delay. Tenant shall give written notice to Landlord at
least thirty (30) days prior to vacating the Leased Premises for the express
purpose of arranging a meeting with Landlord for a joint inspection of the
Leased Premises. In the event of Tenants failure to give such notice or to
participate in such joint inspection, Landlord's inspection at or after Tenant's
vacation of the Leased Premises shall be conclusively deemed correct for
purposes of determining Tenant's liability for repairs and restoration under
this Lease.
<PAGE>
16. INDEMNIFICATION AND EXCULPATION
16.1 Indemnification. Tenant shall indemnify, protect, defend and hold
Landlord harmless for, from and against all claims, damages, losses, costs,
liens, encumbrances, liabilities and expenses, including reasonable attorneys',
accountants' and investigators' fees and court costs (collectively, the
"Claims"), however caused, arising in whole or in part from Tenant's use of all
or any part of the Leased Premises and/or the Building or the conduct of Tenants
business or from any activity, work or thing done, permitted or suffered by
Tenant or by any invitee, servant, agent, contractor, employee or subtenant of
Tenant in the Leased Premises and/or the Building, and shall further indemnify,
protect, defend and hold Landlord harmless for, from and against all Claims
arising in whole or in part from any breach or default in the performance of any
obligation on Tenant's part to be performed under the terms of this Lease or
arising in whole or in part from any act, neglect, fault or omission by Tenant
or by any invitee, servant, agent, employee or subtenant of Tenant anywhere in
the Leased Premises and/or the Building. In case any action or proceeding is
brought against Landlord to which this indemnification shall be applicable,
Tenant shall pay all Claims resulting therefrom and shall defend such action or
proceeding, if Landlord shall so request, at Tenant's sole cost and expense, by
counsel reasonably satisfactory to Landlord. The obligations of Tenant under
this Article 16.1 shall survive the expiration or earlier termination of this
Lease.
16.2 Exculpation. Tenant, as a material part of the consideration to
Landlord, hereby assumes all risk of damage to property, injury and death to
persons and all claims of any other nature resulting from Tenants use of all or
any part of the Leased Premises and/or the Building, and Tenant hereby waives
all claims against Landlord arising out of Tenants use of all or any part of the
Leased Premises and/or the Building. Neither Landlord nor its agents or
employees shall be liable for any damaged property of Tenant entrusted to any
employee or agent of Landlord or for loss of or damage to any property of Tenant
by theft or otherwise. Landlord shall not be liable for any injury or damage to
persons or property resulting from any cause, including, but not limited to,
fire, explosion, falling plaster, steam, gas, electricity, sewage, odor, noise,
water or rain which may leak from any part of the Building or from the pipes,
appliances or plumbing works in tile Building, or from the roof of any structure
on the Property, or from any streets or subsurface on or adjacent to the
Building or the Property, or from any other place or resulting from dampness or
any other causes whatsoever, unless caused solely by the gross negligence or
willful misconduct of Landlord. Neither Landlord nor its employees or agents
shall be liable for any defects in the Leased Premises and/or the Building, nor
shall Landlord be liable for the negligence or misconduct, including, but not
limited to, criminal acts, by maintenance or other personnel or contractors
serving the Leased Premises and/or the Building, other tenants or third parties,
unless Landlord is grossly negligent or guilty of willful misconduct. All
property of Tenant kept or stored on the Property shall be so kept or stored at
the risk of Tenant only, and Tenant shall indemnify, defend and hold Landlord
harmless for, from and against any Claims arising out of damage to the same,
including subrogation claims by Tenant's insurance carriers, unless such damage
shall be caused by the willful act or gross neglect of Landlord and through no
fault of Tenant. None of the events or conditions set forth in this Article 16
shall be deemed a constructive or actual eviction or result in a termination of
this Lease, nor shall Tenant be entitled to any abatement or reduction of Annual
Basic Rent or Additional Rent by reason of such events or condition. Tenant
shall give prompt notice to Landlord with respect to any defects, fires or
accidents which Tenant observes in the Leased Premises and/or the Building.
17. ENTRY BY LANDLORD
Landlord reserves and shall at any and all times have, upon twenty four
(24) hours prior written notice (except in the event of an emergency), the right
to enter the Leased Premises, to inspect tile same, to submit the Leased
Premises to prospective purchasers or tenants, to post notices of
non-responsibility, and to alter, improve or repair the Leased Premises and any
portion of the Building of which the Leased Premises area part, without
abatement of Annual Basic Rent or Additional Rent, and may for that purpose
erect scaffolding and other necessary structures where reasonably required by
the character of the work to be performed, always providing that access into the
Leased Premises shall not be blocked thereby, and further providing that the
business of Tenant shall not be interfered with unreasonably. Tenant hereby
waives any claim for damages for any injury or inconvenience to or interference
with Tenant's business, any loss of occupancy or quiet enjoyment of the Leased
Premises or any loss occasioned thereby. For each of the aforesaid purposes,
Landlord shall at all times have and retain a key with which to unlock all the
doors in, upon or about the Leased Premises, excluding Tenant's vaults and
safes, and Landlord shall have the right to use any and all means which Landlord
may deem proper to open such doors in an emergency in order to obtain entry to
the Leased Premises, and any entry to the Leased Premises obtained by Landlord
by any such means or otherwise shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into, or a detainer of, the Leased
Premises or an eviction of Tenant from all or any portion of the Leased
<PAGE>
Premises. Nothing in this Article 17 shall be construed as obligating Landlord
to perform any repairs, alterations or maintenance except as otherwise expressly
required elsewhere in this Lease.
18. SUBSTITUTE PREMISES
18.1 Relocation of Leased Premises. Landlord may, before or after the
Commencement Date, elect by notice to Tenant, to substitute for the Leased
Premises other office space in the Building (the "Substitute Premises")
designated by Landlord, provided that the Substitute Premises shall contain at
least the same useable area as the Leased Premises and have a configuration
substantially similar to the Leased Premises. Landlord's notice shall be
accompanied by a plan of the Substitute Premises. Tenant shall vacate and
surrender the Leased Premises and shall occupy the Substitute Premises promptly
(and, in any event, not later than fifteen (15) days) after Landlord has
substantially completed the work to be performed by Landlord in the Substitute
Premises pursuant to Article 18.2 below. Tenant shall pay the same rental rate
per square foot with respect to tile Substitute Premises as was payable with
respect to the Leased Premises. This Lease shall remain in full force and effect
and the Substitute Premises shall subsequently be deemed to be the Leased
Premise
18.2 Compensation to Tenant. In the event Landlord shall elect to relocate
Tenant to Substitute Premises, Tenant shall not be entitled to any compensation
for any inconvenience or interference with Tenant's business, nor any abatement
or reduction of Annual Basic Rent or Additional Rent, but Landlord shall, at
Landlord's expense perform the following: (a) furnish and install in the
Substitute Premises fixtures, equipment, improvements, appurtenances and
leasehold improvements at least equal in kind and quality to those contained or
to be contained in the Leased Premises at the time such notices of substitution
is given by Landlord; (b) provide personnel to perform, under Tenant's
direction, the moving of Tenant's personal property and trade fixtures from the
Leased Premises to the Substitute Premises;(c)promptly reimburse Tenant for
Tenant's actual and reasonable out-of-pocket costs incurred in connection with
the relocation of any telephone or other communications equipment from the
Leased Premises to the Substitute Premises; and (d) promptly reimburse Tenant
for any other actual and reasonable out-of-pocket costs incurred by Tenant in
connection with Tenants move from Leased Premises to the Substitute Premises,
provided such costs are approved by Landlord in advance which approval shall not
be unreasonably withheld. Tenant shall cooperate with Landlord so as to
facilitate the performance by Landlord of its obligations under this Article
13.2 and the prompt surrender by Tenant of the Leased Premises. Without limiting
the generality of the preceding sentence, Tenant shall provide Landlord promptly
any approvals or instructions and any plans or specifications or any other
information reasonably requested by Landlord, and Tenant shall perform promptly
in the Substitute Premises any work to be performed in the Substitute Premises
by Tenant to prepare the same for Tenant's occupancy.
19. ASSIGNMENT AND SUBLET'TING
19.1 Assignment and Subletting Prohibited. Tenant shall not transfer or
assign this Lease or any right or interest under this Lease, or sublet the
Leased Premises or any part of the Leased Premises, without first obtaining
Landlord's prior written consent, which consent Landlord shall not unreasonably
withhold. No transfer or assignment (whether voluntary or involuntary, by
operation of law or otherwise) or subletting shall be valid or effective without
such prior written consent. Should Tenant attempt to make or allow to be made
any such transfer, assignment or subletting, except as stated above, or should
any of Tenant's rights under this Lease be sold or otherwise transferred by or
under court order or legal process or otherwise, then, and in any of the
foregoing events Landlord may, at its option, treat such act as an Event of
Default by Tenant. Should Landlord consent to a transfer, assignment or
subletting, such consent shall not constitute a waiver of any of the
restrictions or prohibitions of this Article 19, and such restrictions or
prohibitions shall apply to each successive transfer, assignment or subletting
under this Article 19, if any.
19.2 Deemed Transfers. If Tenant is a corporation, an unincorporated
association, a limited liability company or a partnership, the transfer,
assignment or hypothecation of twenty-five percent (25%) or more of any stock or
interest in such corporation, association, limited liability company or
partnership shall be deemed a transfer within the meaning of and subject to the
provisions of this Article 19.
19.3 Landlord's Consent Required. If Tenant desires at any time to assign
this Lease or sublet the Leased Premises or any portion of the Leased Premises,
it shall first notify Landlord of its desire to do so and shall submit in
writing to Landlord: (a) the name, address, telephone number and social security
<PAGE>
number or taxpayer identification number, if applicable, of the proposed
sub-tenant or assignee; (b) the nature of the proposed subtenant's or assignee's
business to be carried on in the Leased Premises;(c)the terms and the provisions
of the proposed sublease or assignment; and (d) such financial information as
Landlord may reasonably request concerning the proposed subtenant or assignee.
Tenant's failure to comply with the provisions of this Article 19.3 shall
entitle Landlord to withhold its consent to the proposed assignment or
subletting.
19.4 Recapture. If Tenant proposes to assign its interest in this Lease or
sublet all or any part of the Leased Premises, Landlord may, at its option, upon
written notice to Tenant within thirty (30) days after Landlord's receipt of the
information specified in Article 19.3 above, elect to recapture all or any
portion of the Leased Premises, and within sixty (60) days after notice of such
election has been given to Tenant, this Lease shall terminate as to the portion
of the Leased Premises recaptured. If all or a portion of the Leased Premises is
recaptured by Landlord pursuant to this Article 19.4, Tenant shall promptly
execute and deliver to Landlord a termination agreement setting forth the
termination date with respect to the Leased Premises or the recaptured portion
of the Leased Premises, and prorating the Annual Basic Rent, Additional Rent and
other charges payable under this Lease to such date. If Landlord doe not elect
to recapture as set forth above, Tenant may then after enter into a valid
assignment or sublease with respect to the Leased Premises, provided that
Landlord consents to such assignment or sublease pursuant to this Article 19,
and provided further, that (a) such assignment or sublease is executed within
ninety (90) days after Landlord has given its consent, (b) Tenant pays all
amounts then owed to Landlord under this Lease,(c)there is not in existence an
Event of Default as of the effective date of the assignment or sublease, (d)
there have been no material changes with respect to the financial condition of
the proposed subtenant or assignee or the business such party intends to conduct
in the Leased Premises, aid (e) a fully executed original of such assignment or
sublease providing for an express assumption by the assignee or subtenant of all
of the terms, covenants and conditions of this Lease is promptly delivered to
Landlord.
19.5 Adjustment to Rental. In the event Tenant assigns its interest in this
Lease or sublets the Leased Premises, the Annual Basic Rent set forth in Article
1.12 above, as adjusted, shall be increased effective as of the date of such
assignment or subletting to the rent and other consideration payable by any such
assignee or sublessee pursuant to such assignment or sublease. Notwithstanding
the foregoing, in no event shall the Annual Basic Rent after any such assignment
or subletting be less than the Annual Basic Rent specified in Article 1.12
above, as adjusted.
19.6 No Release from Liability. Landlord may collect Annual Basic Rent and
Additional Rent from the assignee, subtenant, occupant or other transferee, and
apply the amount so collected, first to the monthly installments of Annual Basic
Rent, then to any Additional Rent and other sums due and payable to Landlord,
and the balance, if any, to Landlord, but no such assignment, subletting,
occupancy, transfer or collection shall be deemed a waiver of Landlord's rights
under this Article 19, or the acceptance of the proposed assignee, subtenant,
occupant or transferee. Notwithstanding any assignment, sublease or other
transfer (with or without the consent of Landlord), Tenant shall remain
primarily liable under this Lease and neither Tenant nor any Guarantor shall be
released from performance of any of the terms, covenants and conditions of this
Lease.
19.7 Landlord's Expenses. If Landlord consents to an assignment, sublease
or other transfer by Tenant of all or any portion of Tenants interest under this
Lease, Tenant shall reimburse Landlord for its actual administrative expenses
and for legal, accounting and other out of pocket expenses incurred by Landlord,
all not to exceed an aggregate of Two Hundred Fifty and No/100 Dollars
($250.00).
19.8 Assumption Agreement. If Landlord consents to an assignment, sublease
or other transfer by Tenant of all or any portion of Tenants interest under this
Lease, Tenant shall execute and deliver to Landlord, and cause the transferee to
execute and deliver to Landlord, an instrument in the form and substance
acceptable to Landlord it) which (a) the transferee adopts this Lease and
assumes and agrees to perform, jointly and severally with Tenant, all of the
obligations of Tenant under this Lease, (b) Tenant acknowledges that it remains
primarily liable for the payment of Annual Basic Rent, Additional Rent and other
obligations under this Lease,(c)Tenant subordinates to Landlord's statutory
lien, contract lien and security interest, any liens, security interests or
other rights which Tenant may claim with respect to any property of transferee
and (d) the transferee agrees to use and occupy the Leased Premises solely for
the purpose specified in Article 20 and otherwise in strict accordance with this
Lease.
<PAGE>
20. USE OF LEASED PREMISES
The Leased Premises are leased to Tenant solely for the Permitted Use set
forth in Article 1.9 above and for no other purpose whatsoever. If Tenant wishes
to change the Permitted Use set forth in Article 1.9 above, Tenant shall first
seek Landlord's prior written consent. Within thirty (30) days after receipt by
Landlord of Tenant's request for consent, Landlord shall provide Tenant written
notice that Landlord has (i) consented to the proposed change in the Permitted
Use, or (ii) decline to consent to the change, or (iii) elected to terminate
this Lease, in which event this Lease shall terminate ten (10) days following
receipt by Tenant of Landlord's Notice of Termination. Tenant shall not do or
permit anything to be done in or about tile Leased Premises nor bring or keep
anything in the Leased Premises which will in any way increase the existing rate
of or affect any casualty or other insurance on the Building, the Property, or
any of their respective contents, or cause a cancellation of any insurance
policy covering the Building, the Property, or any part of the Building or the
Property, or any of their respective contents. Tenant shall not do or permit
anything to be done in or about the Leased Premises and/or the Building which
will in any way obstruct or interfere with the rights of other tenants or
occupants of the Building, or injure or annoy them. Tenant shall not use or
allow the Leased Premises to be used for any improper, immoral, unlawful or
objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance
in, on or about the Leased Premises and/or the Building. In addition, Tenant
shall not commit or suffer to be committed any waste in or upon the Leased
Premises and/or the Building. Tenant shall not use the Leased Premises and/or
the Building or permit anything to be done in or about the Leased Premises
and/or the Building which will in any way conflict with any matters of record,
or any law, statute, ordinance or governmental rule or regulation now in force
or which may subsequently be enacted or promulgated, and shall, at its sole cost
and expense, promptly comply with all matters of record and all laws, statutes,
ordinances and governmental rules, regulations and requirements now in force or
which may subsequently be in force and with the requirements of any Board of
Fire Underwriters or other similar body now or subsequently constituted,
foreseen or unforeseen, ordinary as well as extraordinary, relating to or
affecting the condition, use or occupancy of the Property, excluding structural
changes not relating to or affected by Tenant's improvements or acts. The
judgment of any court of competent jurisdiction or the admission by Tenant in
any action against Tenant, irrespective of whether Landlord is a party, that
Tenant has violated any matters of record, or any law, statute, ordinance or
governmental rule, regulation or requirement, shall be conclusive of that fact
between Landlord and Tenant. In addition, Tenant shall not place a load upon any
floor of the Leased Premises which exceeds the load per square foot which the
floor was designed to carry, nor shall Tenant install business machines or other
mechanical equipment in the Leased Premises which cause noise or vibration that
may be transmitted to the structure of the Building.
21. SUBORDINATION AND AT'TORNMENT
21.1 Subordination. This Lease and all rights of Tenant under this Lease
shall be, at the option of Landlord, subordinate to (a) all matters of record,
(b) all ground leases, overriding leases and underlying leases (collectively
referred to as the "leases") of the Building or the Property now or subsequently
existing,(c)all mortgages and deeds of trust (collectively referred to as the
"mortgages") which may now or subsequently encumber or affect the Building or
the Property, and (d) all renewals, modifications, amendments, replacements and
extensions of leases and mortgages and to spreaders and consolidations of the
mortgages, irrespective or whether leases or mortgages shall also cover other
lands, buildings or leases. The provisions of this Article 21.1 shall be
self-operative and no further instruments of subordination shall be required. In
confirmation of such subordination, Tenant shall promptly execute, acknowledge
and deliver any instrument that Landlord, the lessor under any lease or the
holder of any mortgage or any of their respective assigns or successors in
interest may reasonably request to evidence such subordination. Any lease to
which this Lease is subject and subordinate is called a "Superior Lease" and the
lessor under a Superior Lease or its assigns or successors in interest is called
a "Superior Lessor". Any mortgage to which this Lease is subject and subordinate
is called a "Superior Mortgage" and tile holder of a Superior Mortgage is called
a "Superior Mortgagee". If Landlord, a Superior Lessor or a Superior Mortgagee
requires that such instruments be executed by Tenant, Tenant's failure to do so
within ten (10) days after request for such instrument shall be deemed an Event
of Default under this Lease. Tenant waives any right to terminate this Lease
because of any foreclosure proceedings. Tenant hereby irrevocably constitutes
and appoints Landlord (and any successor Landlord) as Tenants attorney-in-fact
to execute and deliver to any Superior Lessor or Superior Mortgagee any
documents required to be executed by Tenant for and on behalf of Tenant if
Tenant shall have failed to do so within ten (10) days after the request for
execution and delivery.
21.2 Attornment If any Superior Lessor or Superior Mortgagee (or any
purchaser at a foreclosure sale) succeeds to the rights of Landlord under this
Lease, whether through possession or foreclosure action, or the delivery of anew
<PAGE>
lease or deed (a "Successor Landlord"), Tenant shall attorn to and recognize
such Successor Landlord as Tenant's landlord under this Lease and shall promptly
execute and deliver any instrument that such Successor Landlord may reasonably
request to evidence such attornment. Notwithstanding such subordination,
Tenant's right to quiet possession of the Premises shall not be disturbed if
Tenant is not in default and so long as Tenant shall pay the rent and observe
and perform all of the provisions of this Rental Agreement, unless this Rental
Agreement is otherwise terminated pursuant to its terms.
22. ESTOPPEL CERTIFICATE
Tenant shall, from time to time, within ten (10) days after written request
by Landlord, execute, acknowledge and deliver to Landlord a statement in writing
certifying: (a) that this Lease is unmodified and in full force and effect (or,
if modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect); (b) the dates to which
Annual Basic Rent, Additional Rent and other charges are paid in advance, if
any;(c)that there are not, to Tenant's knowledge, any uncured defaults on the
part of Landlord under this Lease or specifying such defaults if any are
claimed; (d) that Tenant has paid Landlord the Security Deposit; (e) the
Commencement Date and the scheduled expiration date of the Lease Term; (f) the
rights (if any) of Tenant to extend or renew this Lease or to expand the Leased
Premises; and (g) the amount of Annual Basic Rent, Additional Rent and other
charges currently payable under this Lease. In addition, such statement shall
provide such other information and facts Landlord may reasonably require. Any
such statement may be relied upon by any prospective or existing purchaser,
ground lessee or mortgagee of all or any portion of the Property, as well as by
any other assignee of Landlord's interest in this Lease. Tenant's failure to
deliver such statement within such time shall be conclusive upon Tenant (I) that
this Lease is in full force and effect, without modification except as may be
represented by Landlord; (ii) that there are no uncured defaults in Landlord's
performance under this Lease; (iii) that Tenant has paid to Landlord the
Security Deposit; (iv) that not more than one month's installment of Annual
Basic Rent or Additional Rent has been paid in advance; (v) that the
Commencement Date and the scheduled expiration date of the Lease Term are as
stated in the statement, (vi) that Tenant has no rights to extend or renew this
Lease or to expand the Leased Premises; (vii) that the Annual Basic Rent,
Additional Rent and other charges are as set forth in the certificate; and
(viii) that the other information and facts set forth in the certificate are
true and correct.
23. SIGNS
Landlord shall retain absolute control over the exterior appearance of the
Building and the exterior appearance of the Leased Premises as viewed from the
public halls. Tenant shall not install, or permit to be installed, any drapes.
shutters, signs, lettering, advertising, or any items that will in any way alter
the exterior appearance of tile Building or the exterior appearance of the
Leased Premises as viewed from the public halls or the exterior of the Building.
Notwithstanding the foregoing, Landlord shall install, at Tenant's sole cost and
expense, letters or numerals at or near the entryway to the Leased Premises
provided Tenant obtains Landlord's prior written consent as to size, color,
design and location. All such letters or numerals shall be in accordance with
the criteria established by Landlord for the Building. In addition, Tenant's
name and suite number shall be identified on the Building directory.
24. PARKING
Tenant is allocated the number of parking spaces designated in Article 1.16
above entitling Tenant to park in parking spaces located in the Parking Facility
as designated by Landlord from time to time for use by Tenant, its employees and
licensees, and for which Tenant shall pay the monthly charges set forth in
Article 1.17 above. The parking spaces shall be available to Tenant, its
employees and licensees on a "first come, first serve" basis. Landlord reserves
the right to increase the parking charges set forth in Article 1.17 in such
reasonable amounts as Landlord deems necessary based upon increased costs of
operating and maintaining the Parking Facility. Holders of parking passes shall
not be entitled to park in visitor parking spaces so designated by Landlord, or
in any other parking spaces other than those designated by Landlord for use by
holders of parking passes.
25. LIENS
Tenant shall keep the Leased Premises free and clear of all mechanic's and
materialmen's liens. If, because of any act or omission (or alleged act or
omission) of Tenant, any mechanics', materialmen's or other lien, charge or
order for the payment of money shall be filed or recorded against the Leased
Premises, the Property, or the Building, or against any other property of
<PAGE>
Landlord (irrespective of whether such lien, charge or order is valid or
enforceable as such), Tenant shall, at its own expense, cause the same to be
canceled or discharged of record within thirty (30) days after Tenant shall have
received written notice of the filing of such lien, or Tenant may. within such
thirty (30) day period, furnish to Landlord, a bond pursuant to A.R.S.
ss.33-1004 (or any successor statute) and satisfactory to Landlord and all
Superior Lessors and Superior Mortgagees against the lien, charge or order, in
which case Tenant shall have the right to contest, in good faith, the validity
or amount of such lien.
26. HOLDING OVER
It is agreed that the date of termination of this Lease and the right of
Landlord to recover immediate possession of the Leased Premises thereupon is an
important and material matter affecting the parties hereto and the rights of
third parties, all of which have been specifically considered by Landlord and
Tenant. In the event of any continued occupancy or holding over of the Leased
Premises without the express written consent of Landlord beyond the expiration
or earlier termination of this Lease or of Tenants right to occupy the Leased
Premises, whether in whole or in part, or by leaving property on the Leased
Premises or otherwise, this Lease shall be deemed a monthly tenancy and Tenant
shall pay 150% times the Annual Basic Rent then in effect, in advance at the
beginning of the hold-over month(s), plus any Additional Rent or other charges
or payments contemplated in this Lease.
27. ATTORNEYS' FEES
Tenant shall pay to Landlord all amounts for costs (including reasonable
attorneys' fees) incurred by Landlord in connection with any breach or default
by Tenant under this Lease or incurred in order to enforce or interpret the
terms or provisions of this Lease. Such amounts shall be payable within ten (10)
days after receipt by Tenant of Landlord's statement. In addition, if any action
shall be instituted by either of the parties hereto for the enforcement or
interpretation of any of their respective rights or remedies in or under this
Lease, the prevailing party shall be entitled to recover from the losing party
all costs incurred by the prevailing party in such action and any appeal
therefrom, including reasonable attorneys' fees to be fixed by the court.
28. RESERVED RIGHTS OF LANDLORD
Landlord reserves the following rights, exercisable without liability to
Tenant for damage or injury to property, persons or business and without
effecting an eviction, constructive or actual, or disturbance of Tenant's use or
possession or giving rise to any claim: (a) to name the Building and the
Property and to change the name or street address of the Building and the
Property; (b) to install and maintain all signs on the exterior and interior of
the Building and the Property;(c)to designate all sources furnishing sign
painting and lettering; (d) during the last ninety (90) days of the Lease Term,
if Tenant has vacated the Leased Premises, to decorate, remodel, repair, alter
or otherwise prepare the Leased Premises for re-occupancy, without affecting
Tenants obligation to pay Annual Basic Rent; (e) on reasonable prior notice to
Tenant, to exhibit the Leased Premises to any prospective purchaser, mortgagee,
or assignee of any mortgage on the Building or the Property and to others having
interest in the Leased Premises, Building and/or the Property, at any time
during the Lease Term, and to prospective tenants during the last six (6) months
of the Lease Term; (f) to take any and all measures, including entering the
Leased Premises for the purposes of making inspections, repairs, alterations,
additions and improvements to the Leased Premises or to the Building (including,
for the purposes of checking, calibrating, adjusting and balancing controls and
other parts of the Building systems) as maybe necessary or desirable for the
operation, improvement, safety, protection or preservation of the Leased
Premises or the Building, or in order to comply with all laws, orders and
requirements of governmental or other authorities, or as may otherwise be
permitted or required by this Lease; provided, however, that Landlord shall
endeavor (except in an emergency) to minimize interference with Tenants business
in the Leased Premises; (g) to relocate various facilities within the Building
and on the Property if Landlord shall determine such relocation to be in the
best interest of the development of the Building and/or the Property, provided,
that such relocation shall not materially restrict access to the Leased
Premises; (h) to change the nature, extent, arrangement, use and location of the
Building Common Areas; (i) to make alterations or additions to and to build
additional stories on the Building and to build additional buildings or
improvements on the Property; and (j) to install vending machines of all kinds
in the Leased Premises and the Building, and to receive all of the revenue
derived therefrom, provided, however, that no vending machines shall be
installed by Landlord in the Leased Premises unless Tenant so requests. Landlord
further reserves the exclusive right to the roof of the Building. No easement
for light, air, or view is included in the leasing of the Leased Premises to
Tenant. Accordingly, any diminution or shutting off of light, air or view by any
<PAGE>
structure which may be erected on the Property or other properties in the
vicinity of the Building shall in no way affect this Lease or impose any
liability upon Landlord.
29. EMINENT DOMAIN
29.1 Taking. If the whole of the Building is lawfully and permanently taken
by condemnation or any other manner for any public or quasi-public purpose, or
by deed in lieu of condemnation, this Lease shall terminate as of the date of
vesting of title in such condemning authority and the Annual Basic Rent and
Additional Rent shall be pro rated to such date. If any part of the Building or
Property is so taken, or if the whole of the Building is taken, but not
permanently, then this Lease shall be unaffected thereby, except that (a)
Landlord may terminate this Lease by notice to Tenant within sixty (60) days
after the date of vesting of title in the condemning authority, and (b) if
twenty percent (20%) or more of the Leased Premises shall be permanently taken
and the remaining portion of the Leased Premises shall not be reasonably
sufficient for Tenant to continue operation of its business, Tenant may
terminate this Lease by notice to Landlord within sixty (60) days after the date
of vesting of title in such condemning authority. This Lease shall terminate on
the thirtieth (30th) day after receipt by Landlord of such notice, by which date
Tenant shall vacate and surrender the Leased Premises to Landlord. The Annual
Basic Rent and Additional Rent shall be pro rated to the earlier of the
termination of this Lease or such date as Tenant is required to vacate the
Leased Premises by reason of the taking. If this Lease is not terminated as a
result of a partial taking of the Leased Premises, the Annual Basic Rent and
Additional Rent shall be equitably adjusted according to the rentable area of
the Leased Premises and Building remaining.
29.2 Award. In the event of a taking of all or any part of the Building or
the Property, all of the proceeds or the award, judgment, settlement or damages
payable by the condemning authority shall be and remain the sole and exclusive
property of Landlord, and Tenant hereby assigns all of its right, title and
interest in and to any such award, judgment, settlement or damages to Landlord.
Tenant shall, however, have the right, to the extent that the same shall not
reduce or prejudice amounts available to Landlord, to claim from the condemning
authority, but not from Landlord, such compensation as may be recoverable by
Tenant in its own right for relocation benefits, moving expenses, and damage to
Tenants personal property and trade fixtures.
30. NOTICES
Any notice or communication given under the terms of this Lease shall be in
writing and shall be delivered in person, sent by any public or private express
delivery service or deposited with the United States Postal Service or a
successor agency, certified or registered mail, return receipt requested,
postage pre-paid, addressed as set forth in the Basic Provisions, or at such
other address as a party may from time to time designate by notice under this
Article 30. Notice given by personal delivery or by public or private express
delivery service shall be effective upon delivery, notice sent by mail shall be
deemed to have occurred upon deposit of the notice in the United States mail.
The inability to deliver a notice because of a changed address of which no
notice was given or a rejection or other refusal to accept any notice shall be
deemed to be the receipt of the notice as of the date of such inability to
deliver or rejection or refusal to accept. Any notice to be given by Landlord
may be given by the legal counsel and/or the authorized agent of Landlord.
31. RULES AND REGULATIONS
Tenant shall abide by all rules and regulations (the "Rules and
Regulations") of the Building imposed by Landlord, as attached hereto as Exhibit
"E" or as may subsequently be issued by Landlord. The Rules and Regulations may
be changed from time to time upon ten (10) days notice to Tenant. Breach of the
Rules and Regulations, by Tenant shall constitute an Event of Default if such
breach is not fully cured within ten (10) days alter written notice to Tenant by
Landlord; provided, however, no notice or opportunity to cure shall be required
in connection with a breach of rule number 39. Landlord shall not be responsible
to Tenant for nonperformance by any other tenant, occupant or invitee of the
Building of any Rules or Regulations.
32. ACCORD AND SATISFACTION
No payment by Tenant or receipt by Landlord of a lesser amount than the
monthly installment of Annual Base Rent and Additional Rent (jointly called
"Rent" in this Article 32), shall be deemed to be other than on account of the
<PAGE>
earliest stipulated Rent due and not yet paid, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment as Rent
be deemed an accord and satisfaction. Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such Rent or to
pursue any other remedy in this Lease. No receipt of money by Landlord from
Tenant after the termination of this Lease, after the service of any notice
relating to the termination of this Lease, after the commencement of any suit,
or after final judgment for possession of the Leased Premises, shall reinstate,
continue or extend the Lease Term or affect any such notice, demand, suit or
judgment.
33. EARLY MOVE IN
Landlord shall give occupancy to Tenant on December 8, 1997 to start moving
furniture, equipment, etc. into the premises. All terms and conditions of this
lease shall apply during the early move-in period.
34. MISCELLANEOUS
34.1 Entire Agreement, Amendments. This Lease and any Exhibits attached to
and forming a part of this Lease set forth all of the covenants, promises,
agreements, conditions and understandings between Landlord and Tenant concerning
the Leased Premises and there are no covenants, promises, agreements,
representations, warranties, conditions or understandings either oral or written
between them other than as contained in this Lease. Except as otherwise provided
in this Lease, no subsequent alteration, amendment, change or addition to this
Lease shall be binding unless it is in writing and signed by both Landlord and
Tenant..
34.2 Time of the Essence. Time is of the essence of each and every term,
covenant and condition of this Lease.
34.3 Binding Effect. The covenants and conditions of this Lease shall,
subject to the restrictions on assignment and subletting, apply to and bind the
heirs, executors, administrators, personal representatives, successors and
assigns of the parties to this Lease.
34.4 Recordation Neither this Lease nor any memorandum of this Lease shall
be recorded by Tenant.
34.5 Governing law. This Lease and all the terms and conditions of this
Lease shall be governed by and construed in accordance with the laws of the
State of Arizona.
34.6 No Partnership. Nothing contained in this Lease shall be deemed or
construed as creating an agency, partnership or joint venture relationship
between Landlord and Tenant or between Landlord and any other party, or cause
Landlord to be responsible in any way for the debts or obligations of Tenant or
any other party.
34.7 Authority. If Tenant executes this Lease as a partnership, each
individual executing this Lease on behalf of the partnership represents and
warrants that he or she is a general partner of the partnership and that this
Lease is binding upon file partnership in accordance with its terms. If Tenant
executes this Lease as a corporation, each of the persons executing this Lease
on behalf of Tenant covenants and warrants that Tenant is a duly authorized and
existing corporation, that Tenant has and is qualified to transact business in
Arizona, that the corporation has full right, authority and power to enter into
this Lease and to perform its obligations under this Lease, that each person
signing this Lease on behalf of the corporation is authorized to do so and that
this Lease is binding upon the corporation in accordance with its terms.
34.8 No Waiver. The failure of either party to insist in any one or more
instances upon the strict performance of any one or more of the obligations of
this Lease, or to exercise any election contained in this Lease, shall not be
construed as a waiver or relinquishment for the future of the performance of
such one or more obligations of this Lease or the right to exercise such
election, but the same shall continue and remain in full force and effect with
respect to any subsequent breach, act or omission.
34.9 Severability. If any clause or provision of this Lease is or becomes
illegal or unenforceable because of any present or future law or regulation of
any governmental body or entity effective during the Lease Term, the intention
of the parties is that the remaining provisions of this Lease shall not be
affected by such determination.
<PAGE>
34.10 Exhibits. If any provision contained in an Exhibit or Addenda to this
Lease is inconsistent with any other provision of this Lease, the provision
contained in this Lease shall supersede the provisions contained in such Exhibit
or Addenda, unless otherwise provided.
34.11 Fair Meaning. The language of this Lease shall be construed to its
normal and usual meaning and not strictly for or against either Landlord or
Tenant. Landlord and Tenant acknowledge and agree that each party has reviewed
and revised this Lease and that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not apply to the
interpretation of this Lease, or any Exhibits, Riders or amendments to this
Lease.
34.12 No Merger. The voluntary or other surrender of this Lease by Tenant
or a mutual cancellation of this Lease shall not work as a merger and shall, at
Landlord's option, either terminate any or all existing subleases or
subtenancies, or operate as an assignment to Landlord of any or all of such
subleases or subtenancies.
34.13 Force Majeure. Any prevention, delay or stoppage due to strikes,
lockouts, labor disputes, acts of God, inability to obtain labor or materials or
reasonable substitutes for labor or materials, governmental restrictions,
regulations or controls, judicial orders, enemy or hostile government actions,
civil commotion, fire or other casualty and other causes beyond the reasonable
control of Landlord shall excuse the Landlord's performance under this Lease for
the period of any such prevention, delay, or stoppage.
34.14 Transfer of Landlord's Interest. The term "Landlord" as used in this
Lease, insofar as the covenants or agreements on the part of the Landlord are
concerned, shall be limited to mean and include only the owner or owners of
Landlord's interest in this Lease at the time in question. Upon any transfer or
transfers of such interest, the Landlord herein named in this Lease (and in the
case of any subsequent transfer, the (lien transferor) shall be relieved of all
liability for the performance of any covenants or agreements on the part of the
Landlord contained in this Lease.
34.15 Limitation on Landlord's Liability. If Landlord becomes obligated to
pay Tenant any judgment arising out of any failure by the Landlord to perform or
observe any of the terms, covenants, conditions or provisions to be performed or
observed by Landlord under this Lease, Tenant shall be limited in the
satisfaction of such judgment solely to Landlord's interest in the Building and
the Property or any proceeds arising from the sale of the Building or the
Property, and no other property or assets of Landlord or the individual
partners, directors, officers or shareholders of Landlord or its constituent
partners shall be subject to levy, execution or other enforcement procedure
whatsoever for the satisfaction of any such money judgment.
34.16 Brokerage Fees. Tenant warrants and represents that it has not dealt
with any realtor, broker or agent in connection with this Lease except the
Broker identified in Article 1.19 above. Tenant shall indemnify, defend and hold
Landlord harmless for, from and against any cost, expense or liability
(including the cost of suit and reasonable attorneys' fees) for any
compensation, commission or charges claimed by any other realtor, broker or
agent in connection with this Lease or by reason of any act of Tenant.
34.17 Guaranty. Concurrently with the execution of this Lease, Tenant shall
cause the Guarantors to execute, have acknowledged and deliver to Landlord, the
Guaranty of Lease attached hereto as Exhibit "F", whereby Guarantors
unconditionally guaranty to Landlord each and every obligation of Tenant under
this Lease.
34.18 Continuing Obligations. All obligations of Tenant under this Lease
not fully performed as of the expiration or earlier termination of this Lease
shall survive the expiration or earlier termination of this Lease, including,
without limitation, all payment obligations with respect to Annual Basic Rent,
Additional Rent and all obligations concerning the condition of the Leased
Premises.
34.19 Confidentiality. Tenant shall keep the term, rental rate and all
other provisions of this lease confidential and shall prevent the publication or
other disclosure thereof by Tenant, its shareholders, officers, directors,
employees, agents or representatives unless Tenant receives the prior written
consent of Landlord, which consent Landlord may withhold in its sole and
absolute discretion. A breach by Tenant of the provisions of this paragraph
shall constitute an Event of Default under this Lease.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the date
and year first above written.
LANDLORD TENANT
PRESSON ADVISORY L.L.C. Dimensional Vision Group, Ltd.
an Arizona Limited Liability Company A Delaware Corporation
By Presson Corporation, An Arizona Corporation
Its: General Manager
By: /s/ Daryl R. Burton By: /s/ Roy D. Pringle
-------------------------- --------------------------
Its President Its: CFO
<PAGE>
RIDER "1"
Rider I to Office Lease dated October 27,1997, between PRESSON ADVISORY
L.L.C., an Arizona Limited Liability Company ("Landlord") and Dimensional
Visions Group, Ltd. a Delaware Corporation ("Tenant").
1. Hazardous Materials Laws. "Hazardous Materials Laws" means any and all
federal, state or local laws, ordinances, rules, decrees, orders, regulations or
court decisions (including the so-called "common-law") relating to hazardous
substances, hazardous materials, hazardous waste, toxic substances,
environmental conditions on, under or about the Property, or soil and ground
water conditions, including, but not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), as amended, 42
U.S.C. ss.9601, et seq., the Resource Conservation and Recovery Act ("RCRA"), 42
U.S.C. ss.6901, et seq., the Hazardous Materials Transportation Act, 49 U.S.C.
ss. 1801, et seq., any amendments to the foregoing, and any similar federal,
state or local laws, ordinances, rules, decrees, orders or regulations.
2. Hazardous Materials. "Hazardous Materials" means any chemical, compound,
material, substance or other matter that: (I) is a flammable explosive,
asbestos, radioactive material, nuclear medicine material, drug, vaccine,
bacteria, virus, hazardous waste, toxic substance, petroleum product, or related
injurious or potentially injurious material, whether injurious or potentially
injurious by itself or in combination with other materials; (ii) is controlled,
designated in or governed by any Hazardous Materials Law; (iii) gives rise to
any reporting, notice or publication requirements under any Hazardous Materials
Law; or (iv) gives rise to any liability, responsibility or duty on the part of
Tenant or Landlord with respect to any third person under any Hazardous
Materials Law.
3. Use. Tenant shall not allow any Hazardous Material to be used, generated,
released, stored or disposed of on, under or about, or transported from, the
Leased Premises, the Building or the Property, unless: (I) such use is
specifically disclosed to and approved by Landlord in writing prior to such use;
and (ii) such use is conducted in compliance with the provisions of this Rider
1. Landlord may approve such use subject to reasonable conditions to protect the
Leased Premises, the Building or the Property, and Landlord's interests.
Landlord may withhold approval if Landlord determines that such proposed use
involves a material risk of a release or discharge of Hazardous Materials or a
violation of any Hazardous Materials Laws or that Tenant has not provided
reasonable assurances of its ability to remedy such a violation and fulfill its
obligations under this Rider 1.
4. Compliance With Laws. Tenant shall strictly comply with, and shall maintain
the Leased Premises in compliance with, all Hazardous Materials Laws. Tenant
shall obtain and maintain in full force and effect all permits. licenses and
other governmental approvals required for Tenant's operations on the Leased
Premises under any Hazardous Materials Laws and shall comply with all terms and
conditions of any Hazardous Materials laws. At Landlord's request, Tenant shall
deliver copies of; or allow Landlord to inspect, all such permits, licenses and
approvals. Tenant shall perform any monitoring, investigation, clean-up, removal
and other remedial work (collectively, "Remedial Work") required as a result of
any release or discharge of Hazardous Materials affecting the Leased Premises or
the Building, or any violation of hazardous Materials Laws by Tenant or any
assignee or sublessee of Tenant or their respective agents, contractors,
employees, licensees, or invitees. Landlord shall have the right to intervene in
any governmental action or proceeding involving any Remedial Work, and to
approve performance of the work, in order to protect Landlord's interests.
5. Compliance With Insurance Requirements. Tenant shall comply with the
requirements of Landlord's and Tenant's respective insurers regarding Hazardous
Materials and with such insurers' recommendations based upon prudent industry
practices regarding management of Hazardous Materials.
6. Notice: Reporting. Tenant shall notify Landlord, in writing, within two (2)
days after any of the following: (a) a release or discharge of any Hazardous
Material, whether or not the release or discharge is in quantities that would
otherwise be reportable to a public agency; (b) Tenant's receipt of any order of
a governmental agency requiring any Remedial Work pursuant to any Hazardous
Materials Laws; (c) Tenant's receipt of any warning, notice of inspection,
notice of violation or alleged violation, or Tenant's receipt of notice or
knowledge of any proceeding, investigation of enforcement action, pursuant to
any Hazardous Materials Laws; or (d) Tenant's receipt of notice or knowledge of
any claims made or threatened by any third party against Tenant or the Leased
Premises, the Building or the Property, relating to any loss or injury resulting
from Hazardous Materials. Tenant shall deliver to Landlord copies of all test
<PAGE>
results, reports and business or management plans required to be filed with any
governmental agency pursuant to any Hazardous Materials Laws.
7. Termination: Expiration. Upon the termination or expiration of this Lease,
Tenant shall remove any equipment, improvements or storage facilities utilized
in connection with any Hazardous Materials and shall, clean up, detoxify, repair
and otherwise restore the Leased Premises to a condition free of Hazardous
Materials.
8. Indemnity. Tenant shall protect, indemnify, defend and hold Landlord harmless
for, from and against any and all claims, costs, expenses, suits, judgments,
actions, investigations, proceedings and liabilities arising out of or in
connection with any breach of any provisions of this Rider I or directly or
indirectly arising out of the use, generation, storage, release, disposal or
transportation of Hazardous Materials by Tenant or any sublessee or assignee of
Tenant, or their respective agents, contractors, employees, licensees, or
invitees, on, under or about the Leased Premises, the Building or the Property
during the Lease Term or Tenant's occupancy of the Leased Premises, including,
but not limited to, all foreseeable and unforeseeable consequential damages and
the cost of any Remedial Work. Neither the consent by Landlord to the use,
generation, storage, release, disposal or transportation of Hazardous Materials
nor the strict compliance with all Hazardous Material Laws shall excuse Tenant
from Tenant's indemnification obligations pursuant to this Rider 1. The
foregoing indemnity shall be in addition to and not a limitation of the
indemnification provisions of Rider 1 of the Lease. Tenant's obligations
pursuant to this Rider 1 shall survive the termination or expiration of this
Lease.
9 Assignment: Subletting. If Landlord's consent is required for an assignment of
this Lease or a subletting of the Leased Premises, Landlord shall have the right
to refuse such consent if the possibility of a release of Hazardous Materials is
materially increased as a result of the assignment or sublease or if Landlord
does not receive reasonable assurances that the new tenant has the experience
and the financial ability to remedy a violation of the Hazardous Materials Laws
and fulfill its obligations under this Rider 1.
10. Entry and Inspection: Cure. Landlord and its agents, employees and
contractors, shall have the right, but not the obligation, to enter the Leased
Premises at all reasonable times to inspect the Leased Premises and Tenant's
compliance with the terms and conditions of this Rider 1, or to conduct
investigations and tests. No prior notice to Tenant shall be required in the
event of an emergency, or if Landlord has reasonable cause to believe that
violations of this Rider 1 have occurred, or if Tenant consents at the time of
entry. In all other cases, Landlord shall give at least twenty-four (24) hours
prior notice to Tenant. Landlord shall have the right, but not the obligation,
to remedy any violation by Tenant of the provisions of this Rider I or to
perform any Remedial Work which is necessary or appropriate as a result of any
governmental order, investigation or proceeding. Tenant shall pay, upon demand,
as Additional Rent, all costs incurred by Landlord in remedying such violations
or performing all Remedial Work, plus interest on such costs incurred at the
Default Rate from the date of demand until the date received by Landlord.
11. Event of Default. The release or discharge of any Hazardous Material or the
violation of any Hazardous Materials Law shall constitute an Event of Default by
Tenant under this Lease. In addition to and not in lieu of the remedies
available under this Lease as a result of such Event of Default, Landlord shall
have the right, without terminating this Lease, to require Tenant to suspend its
operations and activities on the Leased Premises until Landlord is satisfied
that appropriate Remedial Work has been or is being adequately performed and
Landlord's election of this remedy shall not constitute a waive of Landlord's
right to subsequently pursue the other remedies set forth in this Lease.
LANDLORD TENANT
PRESSON ADVISORY L.L.C. Dimensional Vision Group, Ltd.
an Arizona Limited Liability Company A Delaware Corporation
By Presson Corporation, An Arizona Corporation
Its: General Manager
By: /s/ Daryl R. Burton By: /s/ Roy D. Pringle
-------------------------- --------------------------
Its President Its: CFO
<PAGE>
EXHIBIT "E"
RULES AND REGULATIONS
1. Unless otherwise specifically defined in this Exhibit, all capitalized
terms in these Rules and Regulations shall have the meaning set forth in the
Lease to which these Rules and Regulations are attached.
2. The sidewalks, driveways, entrances, passages, courts, elevators,
vestibules, stairways, corridors or halls of the Building shall not be
obstructed or encumbered or used for any purpose other than ingress and egress
to and from the premises leased to any tenant or occupant. The halls, passages,
exits, entrances, elevators, stairways, balconies and roof are not for the use
of the general public, and the Landlord shall in all cases retain the right to
control and prevent access thereto by all persons whose presence in the judgment
of Landlord shall be prejudicial to the safety, character, reputation and
interests of the Building and its tenants.
3. No awnings or other projection shall be attached to the outside walls or
windows of the Building. No curtains, blinds, shades, or screens shall be
attached to or hung in, or used in connection with, any window or door of the
premises leased to any tenant or occupant, without the prior written consent of
Landlord. All electrical fixtures hung in any premises leased to any tenant or
occupant must be of a type, quality, design, color, size and general appearance
approved by Landlord.
4. No tenant shall place objects against glass partitions, doors or windows
which would be in sight from the Building corridors or from the exterior of the
Building and such tenant will promptly remove any such objects when requested to
do so by Landlord.
5. The windows and doors that reflect or admit light and air into the
halls, passageways or other public places in the Building shall not be covered
or obstructed, nor shall any bottles, parcels, or other articles be placed on
any window sills.
6. No show cases or other articles shall be put in front of or affixed to
any part of the exterior of the Building nor placed in the halls, corridors,
walkways, landscaped areas, vestibules or other public parts of the Building.
7. The restrooms, water and wash closets and other plumbing fixtures shall
not be used for any purposes other than those for which they were constructed,
and no sweepings, rubbish, rags or other substances shall be thrown in the
restrooms, water and wash closets. The reasonable costs incurred by Landlord (a)
for extra cleaning in any restroom, water or wash closet required because of any
misuse of such restroom, water or wash closet, and/or (b) to repair any damage
resulting from any misuse of the fixtures will be borne by the tenant who, or
whose employees, agents, visitors or licensees, caused the same. No tenant shall
bring or keep, or permit to be brought or kept, any inflammable, combustible,
explosive or hazardous fluid, material, chemical or substance in or about the
premises leased to such tenant or the Property.
8. No tenant or occupant shall mark, paint, drill into, or ii any way
deface any part of the Building or the premises leased to such tenant or
occupant. No boring, cutting or strings of wires shall be permitted, except with
the prior consent of Landlord, and as Landlord may direct. No tenant or occupant
shall install any resilient tile or similar floor covering in the premises
leased to such tenant or occupant except in a manner approved by Landlord.
9. Any carpeting cemented down by a tenant shall be installed with a
releasable adhesive. In the event of a violation of this paragraph by a tenant,
Landlord may charge the expense incurred to remove the carpeting to such tenant.
10. No bicycles, vehicles or animals of any kind (except seeing eye dogs)
shall be brought into or kept in or about the premises leased to any tenant. No
cooking shall be done or permitted in the Building by any tenant without the
written approval of Landlord. No tenant shall cause or permit any unusual or
objectionable odors to emanate from the premises leased to such tenant.
11. No space in the Building shall be used for manufacturing, for the
storage of merchandise, or for the sale of merchandise, goods or property of any
kind at auction.
<PAGE>
12. No tenant and no employee, visitor, agent, or licensee of any Tenant
shall make, or permit to be made, any unseemly or disturbing noises or
vibrations or disturb or interfere with other tenants or occupants of the
Building, or neighboring buildings or premises whether by the use of any musical
instrument, radio, television set broadcasting equipment or other audio device,
unmusical noise, whistling, singing, yelling or screaming. or in any other way.
Nothing shall be thrown out of any doors. No tenant and no employee, visitor,
agent, or licensee of any Tenant shall conduct itself in any manner that is
inconsistent with the character of the Building as a first quality building or
that will impair the comfort, convenience or safety of other tenants in the
Building.
13. No additional locks or bolts of any kind shall be placed upon any of
the doors, nor shall any changes be made in belts or the mechanism of such
locks. Each tenant must, upon the termination of its tenancy, restore to
Landlord all keys of stores, offices and toilet rooms, either furnished to, or
otherwise procured by, such tenant.
14. All removals from the Building, or the carrying in or out of the
Building or from the premised leased to any tenant, of any safes, freight,
furniture or bulky matter of any description must take place at such time and in
such manner as Landlord or its agents may determine, from time to time. Landlord
reserves the right to inspect all freight to be brought into the Building and to
exclude from the Building all freight which violates any of the Rules and
Regulations or the provisions of such tenant's lease.
15. Landlord shall have the right to prohibit any advertising by any tenant
or occupant which, in Landlord's opinion, tends to impair the reputation of the
Building or its desirability as a building for offices, and upon notice from
Landlord, such tenant or occupant shall refrain from or discontinue such
advertising.
16. Each tenant, before closing and leaving the premises leased to such
tenant at any time, shall see that all entrance doors are locked and all
electrical equipment and lighting fixtures are turned off. Corridor doors, when
not in use, shall be kept closed.
17. Each tenant shall, at its expense, provide artificial light in the
premises leased to such tenant for Landlord's agents, contractors and employees
while performing janitorial or other cleaning services and making repairs or
alterations in said premises.
18. No premises shall be used, or permitted to be used for lodging or
sleeping, or for any immoral or illegal purposes or in any manner that, in
Landlord's reasonable judgment, threatens the safety of the Building or the
tenants of the Building and their employees and invitees.
19. The requirements of tenants will be attended to only upon application
at the office of Landlord. Building employees shall not be required to perform,
and shall not be requested by any tenant or occupant to perform, and work
outside of their regular duties, unless under specific instructions from the
office of Landlord.
20. Canvassing, soliciting and peddling in the Building are prohibited and
each tenant and occupant shall cooperate in seeking their prevention.
21. There shall not be used in the Building, either by any tenant or
occupant or by their agents or contractors, in the delivery or receipt of
merchandise, freight or other matter, any hand trucks or other means of
conveyance except those equipped with rubber tires, rubber side guards and such
other safeguards as Landlord may require.
22. If the premises leased to any tenant become infested with vermin, such
tenant, at its sole cost and expense, shall cause its premises to be
exterminated, from time to time, to the satisfaction of Landlord, and shall
employ such exterminators for the extermination of the vermin as shall be
approved in writing by Landlord.
23. No premises shall be used, or permitted to be used, at any time,
without the prior written approval of Landlord, as a store for the sale or
display of goods, wares or merchandise of any kind, or as a restaurant, shop,
booth, bootblack or other stand, or for the conduct of any business or
occupation which predominantly involves direct patronage of the general public
in the premises leased to such tenant, or for manufacturing or for other similar
purposes.
<PAGE>
24. No tenant shall clean any window of the Building from the outside
25. No tenant shall move, or permit to be moved, into or out of the
Building or the premises leased to such tenant, any heavy or bulky matter,
without the specific approval of Landlord. If any such matter requires special
handling, only a qualified person shall be employed to perform such special
handling. No tenant shall place or permit to be placed, on any pad of the floor
or floors of the premises leased to such tenant, a load exceeding the floor load
per square foot which such floor was designed to carry and which is allowed by
law. Landlord reserves the right to prescribe the weight and position of safes
and other heavy objects, which must be placed so as to distribute the weight.
26. With respect to work being performed by a tenant in its premises with
the approval of Landlord, the tenant shall refer all contractors, contractors'
representatives and installation technicians to Landlord for its supervision,
approval and control prior to the performance of any work or services. This
provision shall apply to all work performed in the Building including
installation of telephones, telegraph equipment, electrical devices and
attachments, and installations of every nature affecting floors, walls,
woodwork, trim, ceilings, equipment and ally other physical portion of the
Building.
27. Landlord shall not be responsible for lost or stolen personal property,
equipment, money, or jewelry from the premises of tenants or public rooms
whether or not such loss occurs when the Building or the premises are locked
against entry.
28. Landlord may permit entrance to the premises of tenants by use of pass
keys controlled by Landlord employees, contractors, or service personnel
directly supervised by Landlord and employees of the United States Postal
Service.
29. Each tenant and all of tenant's representatives, shall observe and
comply with the directional and parking signs on the property surrounding the
Building, and Landlord shall not be responsible for any damage to any vehicle
towed because of noncompliance with parking regulations.
30. No tenant shall install any radio, telephone, television, microwave or
satellite antenna, loudspeaker music system or other device on the roof or
exterior walls of the Building or on common walls with adjacent tenants.
31. Each tenant shall store all trash and garbage within its premises. No
material shall be placed in the trash boxes or receptacles in the Building
unless such material may be disposed of in the ordinary and customary manner of
removing and disposing of trash and garbage and will not result in a violation
of any law or ordinance governing such disposal. All garbage and refuse disposal
shall be made only through entryways and elevators provided for such purposes
and at such times as Landlord shall designate.
32. No tenant shall employ any persons other than the janitor of Landlord
for the purpose of cleaning its premises without the prior written consent of
Landlord.
33. Each tenant shall give prompt notice to Landlord of any accidents to or
defects in plumbing, electrical or heating apparatus so that same may be
attended to properly.
34. No tenant shall bring into the Building any pollutants, contaminants,
inflammable, gasoline, kerosene or hazardous substances (as now or later defined
under State or Federal law).
35. Landlord reserves the right to restrict access to and from the Building
between the hours of 6:00P.M. and 8:00 A.M. on business days and at all hours on
Saturdays, Sundays and holidays.
36. All tenant and tenant's servants, employees, agents, visitors, invitees
and licensees shall observe faithfully and comply strictly with these Rules and
Regulations and such other and further appropriate Rules and Regulations as
Landlord or Landlord's agent from time to time adopt. Each tenant shall at all
times keep the premises leased to such tenant, its employees, agents mid
invitees under its control so as to prevent the performance of any act that
would damage the Building or its reputation or the premises leased to such
tenant or could injure, annoy, or threaten the security of the other tenants in
the Building or their respective employees, agents or invitees or the public.
<PAGE>
37. Landlord may deny entrance to the Building and may remove from the
Building any person or persons who appear to be or are intoxicated, or who
appear to be or are under the influence of liquor or drugs, or who are in any
manner violating any of the Building Rules and Regulations, or who present a
hazard or nuisance to any other person. The reasonable costs incurred by
Landlord for security services or other costs reasonably incurred by Landlord to
remove any such persons shall be borne by the tenant whose employees, agents
and/or invitees are so removed.
38. Landlord shall furnish each tenant, at Landlord's expense, with two (2)
keys to unlock the entry level doors and two (2) keys to unlock each corridor
door entry to each tenant's premises and, at such tenant's expense, with such
additional keys as such tenant may request. No tenant shall install or permit to
be installed any additional lock on any door into or inside of the premises
leased to that tenant or make or permit to be made any duplicate of keys to tile
entry level doors or the doors to such premises. Landlord shall be entitled at
all times to possession of a duplicate of all keys to all doors into or inside
of the premises leased to tenants of the Building. All keys shall remain the
property of Landlord. Upon the expiration of the Lease Term, each tenant shall
surrender all such keys to Landlord and shall deliver to Landlord the
combination to all locks on all safes, cabinets and vaults which will remain in
the premises leased to that tenant. Landlord shall be entitled to install,
operate and maintain security systems in or about the Property which monitor, by
computer, close circuit television or otherwise, persons entering or leaving the
Property, tile Building and/or the premises leased to any tenant. For the
purposes of this rule the term "keys" shall mean traditional metallic keys,
plastic or other key cards and other lock opening devices.
39. Each person using the Parking Facility or other areas designated by
Landlord where parking will be permitted shall comply with all Rules and
Regulations adopted by Landlord with respect to the Parking Facility or other
areas, including any employee or visitor parking restrictions, and any sticker
or other identification system established by Landlord. Landlord may refuse to
permit any person who violates any parking rule or regulation to park in the
Parking Facility or other areas, aid may remove any vehicle which is parked in
the Parking Facility or other areas in violation of the parking Rules and
Regulations. The Rules and Regulations applicable to the Parking Facility and
the outside parking areas are as follows:
a. The maximum speed limit within the Parking Facility shall be 5 miles per
hour, the maximum speed limit in other parking areas shall be 15 miles per
hour.
b. All directional signs and arrows must be strictly observed
c. All vehicles must be parked entirely within painted stall lines.
d. No intermediate or full-size car may be parked in any parking space
reserved for a compact car; no bicycle, motorcycle or other two or three
wheeled vehicle, and no truck, van or other oversized vehicle, may be
parked in any area not specifically designated for use by such vehicle.
e. No vehicle may be parked (i) in an area not striped for parking, (ii) in a
space which has been reserved for visitors or for another person or firm,
(iii) in an aisle or on a ramp, (iv) where a "no parking" sign is posted or
which has otherwise designated as a 110 parking area, (v) in a cross
hatched area, (vi) ii an area bearing a "handicapped parking only" or
similar designation unless the vehicle bears an appropriate handicapped
designation, (vii) in an area bearing a "loading zone" or similar
designation unless the vehicle is then engaged in a loading or unloading
function and (viii) in an area with a posted height limitation if the
vehicle exceeds the limitation.
f. Parking passes, stickers or other identification devices supplied by
Landlord shall remain the property of Landlord and shall not be
transferable. A replacement charge determined by Landlord will be payable
by each tenant for loss of any magnetic parking card or parking pass or
sticker.
g. Garage managers or attendants shall not be authorized to make or allow any
exceptions to these Rules and Regulations.
<PAGE>
h. Each operator shall be required to park and lock his or her own vehicle,
shall use the Parking Facilities at his or her own risk and shall bear full
responsibility for all damage to or loss of his or her vehicle, and for all
injury to persons and damage to property caused by his or her operation of
the vehicle.
i. Landlord reserves the right to tow away, at the expense of the owner, any
vehicle which is inappropriately parked or parked in violation of these
Rules and Regulations.
40. Landlord has designated the Building a "non-smoking" building in
accordance with The Smoking Pollution Control Ordinance adopted by the City of
Phoenix, Arizona as set forth in Sections 23-101, etc. of the City of Phoenix
Municipal Code. Accordingly, smoking of tobacco or any other weed plant is
prohibited in the Building Common Areas located within the Building, including
the Building lobby, public corridors, lavatories, elevators and other public
areas. Further, smoking of tobacco or any other weed plant is prohibited within
the Leased Premises.
41. Landlord reserves the right at any tine and from time to time to
rescind, alter or waive, in whole or in part, any of the Building Rules and
Regulations when it is deemed necessary, desirable or proper, in Landlord's
judgment for its best interest or of the best of the tenants of the Building.
TENANT:
Dimensional Visions Group, Ltd.
A Delaware Corporation
BY: /s/ Roy D. Pringle
----------------------------
Its: CFO
<PAGE>
EXHIBIT G
WORKLETTER
Landlord at its sole cost and expense shall provide the following tenant
improvements:
1. Demise suite in accordance with plan in Exhibit B.
2. Touch-up paint throughout.
3. Install new carpet throughout.
4. Remove and replace the glass wall adjacent to the exterior door for the
purpose of moving large office equipment through the door.
<PAGE>
RIDER 2
THIS RIDER 2 to Office Lease dated October 27, 1997 between PRESSON ADVISORY
L.L.C. an Arizona Limited Liability Company ("Landlord") and DIMENSIONAL VISIONS
GROUP, LTD. a Delaware Corporation ("Tenant").
1. Quite Enjoyment:
Landlord covenants that, provided Tenant complies with the terms and conditions
set forth herein, Tenant shall quietly and peacefully have and hold the Leased
Premises for the Term of the Lease.
2. In Addition to 7.1:
Notwithstanding the foregoing, Landlord knows of no defect or repair or other
condition of the Leased Premises that would interfere with Tenant's Quiet
Enjoyment and possession of the Leased Premises.
3. In Addition to 18.1:
In the event Landlord needs to relocate Tenant into a substitute premise in the
building and substitute promise is not acceptable to Tenant, Tenant may cancel
the Lease.
LANDLORD TENANT
PRESSON ADVISORY L.L.C. Dimensional Vision Group, Ltd.
an Arizona Limited Liability Company A Delaware Corporation
By Presson Corporation, An Arizona Corporation
Its: General Manager
By: /s/ Daryl R. Burton By: /s/ Roy D. Pringle
-------------------------- --------------------------
Its President Its: CFO
<PAGE>
AMENDMENT #1
TO LEASE
THIS AMENDMENT #1 TO LEASE, made and entered into this 10th day of August, 1998
by and between PRESSON ADVISORY L.L.C., an Arizona Limited Liability Company,
hereinafter referred to as ("Landlord") and DIMENSIONAL VISIONS GROUP, LTD, a
Delaware Corporation hereinafter referred to as ("Tenant").
WITNESSETH
WHEREAS, Landlord leased certain premises to Tenant in the Dunlap Executive
Office Building, located at 2301 W. Dunlap Avenue, Suite 207, in the City of
Phoenix, State of Arizona, pursuant to that certain Lease dated the 27th day of
October 1997, the premises being more particularly described; therein; and
WHEREAS, Landlord wishes to expand Tenant's premises and Tenant wishes to expand
its premises from Landlord; and
WHEREAS, Landlord and Tenant therefore wish to amend said Lease;
NOW, THEREFORE, in consideration of these present and the agreement of each
other, Landlord and Tenant agree that the said Lease shall be and the same is
hereby amended as of the 15th day of September 1998.
1. Lease Premises:
Paragraph 1.8 of the Lease is deleted and the following new Paragraph
replaces it:
"Approximately 4,364 rentable square feet of office space located on the
2nd floor of the Building and commonly known as Suite 207 and 201.
Furthermore, Suite 207 consists of approximately 3,100 rentable square feet
and Suite 201 consists of approximately 1,264 rentable square feet.
2. Rental:
The Annual Basic Rent set forth by Paragraph 1.12 shall be amended to
reflect the following New Base Rent Schedule:
September 15, 1998 through September 30, 1998 - $63,278.00 ($2,812.32 per
month), based upon a rental rate of $14.50 per rentable square foot.
October 1, 1998 through December 31, 1998 - $63,278.00 ($5,273.17 per
month), based upon a rental rate of $14.50 per rentable square foot.
January 1, 1999 through December 31, 1999 - $65,460.00 ($5,455.00 per
month), based upon a rental rate of $15.00 per rentable square foot.
January 1, 2000 through December 31, 2000 - $67,642.00 ($5,636.83 per
month), based upon a rental rate of $15.50 per rentable square foot.
3. All other terms and conditions of this Lease, as amended, remain in full
force and effect as heretofore.
IN WITNESS WHEREOF, Landlord and Tenant have executed this instrument by proper
persons thereunto duly authorized so to do on the day and year first
hereinabove.
LANDLORD TENANT
PRESSON ADVISORY L.L.C. Dimensional Vision Group, Ltd.
an Arizona Limited Liability Company A Delaware Corporation
By Presson Corporation, An Arizona Corporation
Its: General Manager
By: /s/ Daryl R. Burton By: /s/ Roy D. Pringle
-------------------------- --------------------------
Its President Its: CFO
EXHIBIT 21.0 SUBSIDIARIES OF THE REGISTRANT
Name State of Incorporation
- ---- ----------------------
InfoPak, Inc. Delaware
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