<PAGE> 1
Form 10-QSB
U.S. Securities and Exchange Commission
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-29486
Merge Technologies Incorporated
-------------------------------
(Exact name of small business issuer as specified in its charter.)
Wisconsin 39-1600938
(State or other jurisdiction of (IRS Employee Identification No.)
incorporation or organization)
1126 South 70th Street, Milwaukee, WI 53214-3151
------------------------------------------------
(Address of principal executive offices)
414-977-4000
------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
As of May 15, 2000, the issuer had 5,781,389 shares of Common Stock
outstanding.
<PAGE> 2
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.............................. 1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 5
PART II OTHER INFORMATION
Item 6. Exhibits....................................................... 8
Signatures..................................................... 9
Exhibit Index.................................................. 10
<PAGE> 3
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................................................... $ 934,628
Accounts receivable, net of allowance for doubtful accounts of $39,000 ......... 2,762,835
Inventory ...................................................................... 1,605,730
Prepaid expenses ............................................................... 360,562
Taxes receivable ............................................................... 386,540
-----------
Total current assets ............................................................. 6,050,295
-----------
Property and equipment:
Computer equipment ............................................................. 2,876,413
Office equipment ............................................................... 396,149
-----------
3,272,562
Less accumulated depreciation .................................................. 1,862,145
-----------
Net property and equipment ....................................................... 1,410,417
Purchased and developed software, net of accumulated amortization of $4,224,638 .. 3,856,066
Goodwill, net of accumulated amortization of $58,166 ............................. 429,954
Other intangibles, net of accumulated amortization of $270,034 ................... 275,164
Other ............................................................................ 201,780
-----------
Total assets ..................................................................... $12,223,676
===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable ............................................................... $ 1,804,406
Current portion of obligations under capital leases ............................ 18,249
Customer deposits .............................................................. 172,740
Accrued wages .................................................................. 461,917
Other accrued liabilities ...................................................... 95,173
-----------
Total current liabilities ........................................................ 2,552,485
Notes payable .................................................................... 144,242
Put options related to redeemable common stock ................................... 1,258,740
Obligations under capital leases, excluding current portion ...................... 28,846
-----------
Total liabilities .............................................................. 3,984,313
Shareholders' equity
Preferred stock, $0.01 par value; authorized 5,000,000 ......................... --
Common stock, $0.01 par value; authorized 30,000,000,
issued and outstanding 5,781,389 shares at March 31, 2000 .................... 57,814
Additional paid-in capital ..................................................... 14,306,647
Accumulated deficit ............................................................ (6,121,885)
Other comprehensive income - cumulative translation adjustment ................. (3,213)
-----------
Total shareholders' equity ....................................................... 8,239,363
-----------
Total liabilities and shareholders' equity ....................................... $12,223,676
===========
</TABLE>
See accompanying Notes to consolidated financial statements.
<PAGE> 4
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 2000
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1999 2000
------------ ------------
Net sales................................... $ 3,419,415 $ 3,269,015
Cost of goods sold:
Purchased components...................... 851,028 803,415
Amortization of purchased and developed
software................................ 307,614 355,524
------------ ------------
Total cost of goods sold.................... 1,158,642 1,158,939
------------ ------------
Gross profit................................ 2,260,773 2,110,077
------------ ------------
Operating costs and expenses:
Sales and marketing....................... 1,116,180 1,352,325
Product research and development.......... 381,394 524,372
General and administrative................ 435,173 643,903
Depreciation and amortization............. 161,875 220,334
------------ ------------
Total operating costs and expenses.......... 2,094,622 2,740,934
------------ ------------
Operating (income) loss..................... 166,151 (630,857)
------------ ------------
Other income (expenses):
Interest expense.......................... (3) (5,621)
Interest income........................... 33,774 8,441
Other, net................................ (80,120) 5,624
------------ ------------
Total other expenses........................ (46,349) 8,444
------------ ------------
Income tax expense.......................... 3,800 12,053
------------ ------------
Net income (loss)........................... $ 116,002 $ (634,466)
============ ============
Accretion of put options 35,070
Income (loss) available to common
shareholders.............................. $ 116,002 $ (669,536)
============ ============
Basic and diluted net income (loss)
per share................................. $ 0.02 $ (0.11)
============ ============
Shares used to compute basic and diluted
net income (loss) per share............... 5,778,216 6,198,216
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 2000
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 2000
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................... $ 116,002 $ (634,466)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization.................................................. 414,217 508,836
Provision for doubtful accounts receivable..................................... (40,593) (44,258)
Change in assets and liabilities:
Accounts receivable........................................................... (667,180) 367,385
Inventory..................................................................... 527,037 (96,670)
Prepaid expenses.............................................................. (76,616) (173,053)
Accounts payable.............................................................. (144,501) (312,920)
Accrued expenses.............................................................. 34,890 (20,541)
Customer deposits............................................................. 22,368 (31,756)
Other......................................................................... 31,482 (54,973)
---------- -----------
Net cash used in operating activities............................................ 217,106 (492,416)
---------- -----------
Cash flows from investing activities:
Purchases of property and equipment............................................. (207,571) (89,453)
Development of software......................................................... (345,434) (549,609)
---------- -----------
Net cash used in investing activities............................................ (553,005) (639,152)
---------- -----------
Cash flows from financing activities:
Principal payments under capital leases......................................... (4,795) (2,374)
---------- -----------
Net cash used in financing activities............................................ (4,795) (2,374)
---------- -----------
Effect of exchange rate changes on cash.......................................... 29,524 24,535
Net increase (decrease) in cash and cash equivalents............................. (311,170) (1,109,407)
Cash and cash equivalents, beginning of period................................... 3,659,879 2,044,035
---------- -----------
Cash and cash equivalents, end of period......................................... $3,348,709 $ 934,628
========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes...................................................... $ 14,346 $ --
Cash paid for interest.......................................................... $ 2,726 $ 2,231
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Property and equipment acquired through capital leases.......................... $ -- $ 10,168
Accretion of put options related to exchangeable share rights................... $ -- $ 35,070
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 1999 AND 2000
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 2000
----------- -----------
Net income (loss)............................... $ 116,002 $ (634,466)
Other comprehensive income (loss) -
cumulative translation adjustment.............. 61,376 (63,665)
----------- -----------
Comprehensive net income (loss)................. $ 177,378 $ (698,131)
=========== ===========
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared pursuant to the rules and regulations for reporting on Form 10-QSB.
Accordingly, certain information and footnotes required by generally accepted
accounting principles for complete financial statement are not included herein.
The interim statements should be read in conjunction with the financial
statements and notes thereto included in the Company's latest Annual Report on
Form 10-KSB.
The accompanying unaudited consolidated financial statements of the
Company reflect all adjustments of a normal recurring nature, which are, in the
opinion of management, necessary to present a fair statement of the financial
position.
(2) Revenue Recognition
The Company recognizes revenue according to the American Institute of
Certified Public Accountants Statement of Position 97-2, "Software Revenue
Recognition." Revenues from software fees and software maintenance are deferred
and recognized ratably over the contract period, which is generally one year.
Revenue from product sales is recognized upon shipment. No significant Company
obligations exist with regard to delivery or customer acceptance following
shipment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Certain statements in this report that are not historical facts constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as
amended (the Securities Act) and Section 21E of the Securities Exchange Act of
1934, as amended (the Exchange Act). Discussions containing such
forward-looking statements may be included herein in the material set forth
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" as well as within this report generally. In addition, when used
in this report, the words believes, intends, anticipates, expects and similar
expressions are intended to identify forward-looking statements. These
statements are subject to a number of risks and uncertainties, including, among
others, the Company's lack of consistent profitability, history of operating
losses, fluctuations in operating results, credit and payment risks associated
with end-user sales, involvement with rapidly developing technology in highly
competitive markets, significant investment in new product development,
dependence on major customers, expansion of its international sales effort,
broad discretion of management and dependence on key personnel, risks
associated with product liability and product defects, costs of complying with
government regulation, changes in external competitive market factors which
might impact trends in the Company's results of operation, unanticipated
working capital and other cash requirements, general changes in the industries
in which the Company competes, and various other competitive factors that may
prevent the Company from competing successfully in the marketplace. Actual
results could differ materially from those projected in the forward-looking
statements. The Company undertakes no obligation to publicly release the result
of any revisions to these forward-looking statements that may be made to
reflect any future events or circumstances.
5
<PAGE> 8
OVERVIEW
Our business is eHealth. Founded in 1987, Merge Technologies has been
developing, marketing and supporting Internet-based eHealth connectivity and
information management solutions for over a decade. Our products enable
communication and automate transactions that occur within and between
healthcare organizations, healthcare professionals and their patients.
A healthcare organization uses our products to provide a communications bridge
to incompatible "legacy" medical devices and information systems and to create a
standards-based electronic repository for medical data. For healthcare
professionals, we offer eHealth information appliances that plug into our
connectivity and management products. Using these information appliances,
healthcare professionals can reference pertinent information and convert a
patient's medical data into concise multi-media information that may be included
in an electronic patient record, distributed within a health care organization's
information network, and communicated externally to referring physicians and
their patients via the Internet. We also provide services to assist customers in
the planning, implementation and on-going support of their eHealth connectivity
and information management solutions.
We classify our sales by application type. OEM/VAR products are sold
primarily through original equipment manufacturers and value-added resellers,
which integrate Merge's products into their own product offerings in order to
increase the functionality of their equipment or systems. Systems Solutions are
complete networked imaging applications using a combination of Merge
components. Systems Solutions are sold to end-users either directly or through
distributors under the Merge brand name. Professional Services includes both
our MergeLink training, advisory services, project management and medical
standards validation, and our Merge Integration Technology Services worldwide
field service organization. OEM/VAR, Systems Solutions and Professional
Services sales were as follows for the three-month periods ended March 31, 2000
and March 31, 1999.
THREE MONTHS ENDED
MARCH 31,
---------------------
1999 2000
-------- --------
(UNAUDITED AND IN
APPLICATION THOUSANDS)
-----------
OEM/VAR......................... $ 1,536 $ 1,414
Systems Solutions............... 1,702 1,480
Professional Services........... 181 375
-------- --------
$ 3,419 $ 3,269
======== ========
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Net sales. Net sales decreased by 4% to $3,269,000 in the three months
ended March 31, 2000 from $3,419,000 in the three months ended March 31, 1999
due to shortfalls in product sales performance in both the OEM/VAR and Systems
Solutions areas. We expect sales growth in each of the product and services
groups in 2000. Sales of Systems Solutions, which accounted for 45% of net
sales in the three months ended March 31, 2000, are expected to account for a
higher percentage of net sales in the future. We hired a new Director of
Systems Sales this quarter and are currently recruiting additional field sales
personnel.
Cost of goods sold. Cost of goods sold consists of purchased components and
amortization of purchased and developed software. The cost of purchased
components was 25% of net sales in each of the three months ended March 31,
2000 and March 31, 1999. Amortization of purchased and developed software
increased to $356,000 or 11% of net sales in the three months ended March 31,
2000 from $308,000 or 9% of net sales in the comparable period of 1999, due to
commencement of amortization of certain software development projects.
Amortization of purchased and developed software is expected to increase in
dollar terms, but remain at or below the current level as a
6
<PAGE> 9
percentage of net sales, as net sales increase in the future.
Gross profit. Gross profit decreased to $2,110,000 in the three months
ended March 31, 2000 from $2,261,000 in the three months ended March 31, 1999.
As a percentage of net sales, gross profit was at 65% in the three months ended
March 31, 2000 compared to 66% in the three months ended March 31, 1999.
Sales and marketing. Sales and marketing expense increased $236,000 to
$1,352,000 in the three months ended March 31, 2000 from $1,116,000 in the
three months ended March 31, 1999. This increase is due primarily to additional
marketing and product service personnel and their related activities in support
of our objective of attaining sales growth in 2000. We expect to continue to
make additions to our sales/marketing and service staff, and specifically, we
intend to recruit additional field sales personnel in order to increase net
sales and gross margins. However, we expect that over time sales and marketing
expense will decrease as a percentage of net sales.
Product research and development. Product research and development expense
increased $143,000 to $524,000 in the three months ended March 31, 2000 from
$381,000 in the three months ended March 31, 1999. The increase in research and
development expense is due primarily to the cost of additional software
engineers engaged in product development in Toronto. This workforce, which was
added at the time of the Interpra acquisition, is engaged in new product
development on information service products based on Java and XML technologies.
General and administrative. General and administrative expense increased
$209,000 to $644,000 in the three months ended March 31, 2000 from $435,000 in
the three months ended March 31, 1999, primarily due to the addition of offices
in Toronto and Tokyo during 1999. As a percentage of net sales, general and
administrative expense increased to 20% in the three months ended March 31,
2000 from 13% in the three months ended March 31, 1999. General and
administrative expense includes information systems, accounting and
administrative support and management personnel and their activities. We expect
general and administrative expense to increase modestly in 2000 in dollar terms
and to decrease as a percentage of net sales due to anticipated increases in
net sales.
Depreciation and amortization. Depreciation and amortization expense
increased by $58,000 to $220,000 in the three months ended March 31, 2000 from
$162,000 in the three months ended March 31, 1999. Depreciation and
amortization is assessed on our capital equipment, goodwill and other
intangible assets acquired in the acquisitions of Signal Stream Technologies,
Inc. and Interpra.
Total other expense, net. Total other expense, net, was income of $8,000
in the three months ended March 31, 2000 compared to an expense of $46,000 in
the three months ended March 31, 1999 due primarily to a decrease in foreign
exchange transaction expense. Foreign exchange transaction charges reflect our
potential exchange rate risk on an intercompany obligation that is stated in US
dollars.
Income taxes. We recognized an income tax expense in the three months
ended March 31, 2000 and in the three months ended March 31, 1999, despite
incurring losses for financial reporting purposes, due primarily to foreign
income tax withholding on software royalties.
LIQUIDITY AND CAPITAL RESOURCES
Operating cash flows. Operating cash flows were $(492,000) for the three
months ended March 31, 2000. Our gross margin contribution was less than fixed
operating expense due to delayed sales. Accounts receivable decreased $367,000
during the quarter, an amount that was lower than would have been expected as
sales decreased from the fourth quarter of 1999, due to an increase in the
average collection period of customer accounts. We expect to collect the
majority of past due receivables in the second quarter and for the average
aging of receivables to decrease to historic levels due to refocused collection
efforts. Accounts payable decreased $313,000 during the three months ended
March 31, 2000, due primarily to payments on obligations incurred during fourth
quarter of 1999.
Investing cash flows. Investing cash flows were $(639,000) for the three
months ended March 31, 2000. Cash outflows for property and equipment were
$89,000 versus $208,000 in the comparable period last year, a result of
management initiatives to lower capital equipment spending. The Company also
invested
7
<PAGE> 10
$550,000 in capitalized software development, an increase of $204,000 over 1999
due to additional product development engineering in our Toronto office, which
was acquired in September, 1999.
Financing cash flows. Financing cash flows, which were $(2,000) for the
quarter, represented principal payments under capitalized leases.
Cash and cash equivalents were $935,000 and working capital was $3,498,000
at March 31, 2000. The decrease in cash during the quarter, which was
$1,109,000, was the result of lower than anticipated sales and slow collection
on certain customer accounts. To supplement our total available cash resources,
we executed in April an agreement with Merchants and Manufacturers BanCorp of
Milwaukee to implement a line of credit for working capital funding of up to $3
million. We are currently finalizing the related loan agreements and expect to
close on the line of credit during May, 2000. However, there can be no
assurances that the loan will close during that time period, if at all.
We expect that our current resources together with internally generated
cash flows and projected availability on the bank line of credit will be
sufficient to support operations in 2000. However, should we elect to make
targeted investments to accelerate near term sales growth, we may raise
additional capital through the sale of equities or assumption of long-term
subordinated debt.
YEAR 2000
We did not experience interruptions to our operations due to the change in
date from 1999 to 2000, and our products have functioned according to their
defined Y2K specifications. We anticipate that Y2K errors will not have a
significant impact on our operations in the future.
We continue to offer products and services to imaging device manufacturers
to correct errors inherent to the software on their devices. However, we
anticipate that sales of Y2K upgrades will not be significant to our business
in 2000.
In 2000, hospital information technology budgets could potentially be
redirected to Y2K problems unrelated to Merge product offerings, which could
delay orders for our products. However, Y2K budget redirection, as of yet, has
not had a material adverse impact on our business.
PART II OTHER INFORMATION
ITEMS 1 - 5 are omitted as not applicable for this report.
ITEM 6. EXHIBITS
(a) Exhibits
See Exhibit Index
8
<PAGE> 11
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MERGE TECHNOLOGIES INCORPORATED
By: /s/ William C. Mortimore Date: May 15, 2000
----------------------------
William C. Mortimore
President and Chief Executive Officer
By: /s/ Colleen M. Doan Date: May 15, 2000
----------------------------
Colleen M. Doan
Chief Financial Officer, Treasurer and Secretary
(Principal Financial Officer and Principal Accounting Officer)
9
<PAGE> 12
EXHIBIT INDEX
3.1 Articles of Incorporation of Registrant (1) and Articles of Amendment
as of June 16, 1998 (3)
3.2 Amended and Restated By-Laws of Registrant as of February 3, 1998 (2)
4.4 Representative's Warrant (2)
10.1 Employment Agreement dated September 1, 1997 between Registrant and
William C. Mortimore (1)
10.5 1996 Stock Option Plan for Employees of Registrant dated May 13,
1996 (1)
10.6 Supplemental Office Space Lease for 1126 West Allis Operating
Associates, Limited Partnership dated April 11, 2000
10.8 1998 Stock Option Plan For Directors (2)
21 Subsidiaries of Registrant (1)
27.1 Financial Data Schedule
- --------------
(1) Incorporated by reference to Registration Statement on Form SB-2
(No. 333-39111) effective January 29, 1998.
(2) Incorporated by reference to Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1997.
(3) Incorporated by reference to Quarterly Report on Form 10-QSB for the
three months ended March 31, 1999.
10
<PAGE> 1
EXHIBIT 10.6
AMENDMENT TO LEASE
THIS AGREEMENT is made this 11th day of April, 2000 by and between 1126
WEST ALLIS OPERATING ASSOCIATES, Limited Partnership, herein called "Lessor"
and MERGE TECHNOLOGIES, INC., herein called "Lessee".
RECITALS
WHEREAS, Whitnall Summit Company, LLC, leased office space to Lessee under
a Lease Agreement dated May 24, 1996, "1996 Lease" and under a Lease Agreement
dated January 30, 1998, "1998 Lease", collectively "Leases", and
WHEREAS, Lessor has succeeded to the right, title and interest of Whitnall
Summit Company, LLC, and
WHEREAS, the Leases have been modified by various Supplemental Office
Space Leases to provide for Lessee's use and occupancy of storage space, and
WHEREAS, Lessor and Lessee desire to change, modify and alter said Leases,
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants contained herein
and in said Leases, the parties hereto agree as follows:
1. Expansion of Premises. The Premises demised under the 1996 Lease
shall be expanded as described in paragraphs 1 a. through e. below and as shown
on Exhibit "A" attached hereto, "Expanded Premises":
a. Phase I. Effective June 16, 2000, the Premises shall be expanded
by 5,500 rental square feet. The rental rate for Phase I space shall be $12.10
per square foot, a monthly rental $5,545.83, payable each month for the period
June 16, 2000 through June 15, 2001. The tenant improvement allowance for Phase
I shall be $82,500.00.
b. Phase II A. Effective June 16, 2001, the Premises shall be
expanded by an additional 5,500 rentable square feet which, together with Phase
I space, represents a total expansion of 11,000 rentable square feet. The
rental rate for 11,000 square feet shall be $12.60 per square foot, a monthly
rental of $11,550.00, payable each month for the period June 16, 2001 through
June 15, 2002. The tenant improvement allowance for Phase II A shall be
$82,500.00.
c. Phase II B. Effective June 16, 2002, the Premises shall be
further expanded by an additional 5,545 rentable square feet which, together
with Phase I and Phase II A space, represents a total expansion of 16,545
rentable square feet. The rental rate for 16,545 square feet shall be $13.10 per
square foot, a monthly rental of $18,061.63, payable each month for the period
June 16, 2002 through June 15, 2003. The tenant improvement allowance for Phase
II B shall be $82,500.00.
d. Effective June 16, 2003, the rental rate for the 16,545 rentable
square foot expansion of the Premises shall be $13.60 per square foot, a
monthly rental of $18,751.00, payable each month for the period June 16, 2003
through June 15, 2004.
e. Effective June 16, 2004, the rental rate for the 16,545 rentable
square foot expansion of the Premises shall be $14.10 per square foot, a
monthly rental of $19,440.38, payable each month for the period June 16, 2004
through June 15, 2005.
11
<PAGE> 2
2. Lease Term.
a. The term applicable to the Expanded Premises under the 1996 Lease
shall be five (5) years commencing June 16, 2000, and expiring June 15, 2005.
b. The term applicable to the Leases and the Supplemental Office Space
Leases shall be extended for a period of nine (9) months and fifteen (15) days,
from September 1, 2004 to June 15, 2005, the "Extended Term".
3. Improvements. Lessor shall endeavor to complete improvements in the
amounts set forth above prior to the effective date of each phase. As part of
the improvements allowance, Lessor's architect shall prepare plans and
specifications for Lessee's review and approval, and upon such approval,
Lessor's contractor shall complete the improvements. In the event the cost of
the improvements requested by Lessee exceeds the improvement allowance cited
above, Lessee shall, within ten (10) days following receipt of Lessor's
statement of construction costs, pay to Lessor the amount of any such excess
cost.
4. Base Monthly Rent. The Base Monthly Rent payable by Lessee for the
Expanded Premises shall be as set forth in paragraph 2 of this Agreement. The
Base Monthly Rent payable during the Extended Term for all other space demised
under the Leases and Supplemental Office Space Leases shall be equal to the
Base Monthly Rent payable for May 2005, as set forth in such Leases.
5. Acceleration of Effective Dates. In the event Lessee desires to occupy
Phase I, II A or II B space prior to the effective date designated for such
phase, Lessee shall notify Lessor in writing of same and Lessor shall complete
improvements approved by Lessee. Upon any such prior occupancy of space, the
effective date for the inclusion of said space and the start date of the
payment of rent for same shall be adjusted to reflect the accelerated effective
date of occupancy. However, in no event shall any acceleration of the effective
dates under this paragraph change the expiration dates of the Leases as set
forth in paragraph 2.
All remaining terms and conditions of the Leases shall remain in full
force and effect with no alterations or modifications other than those
outlined above.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Agreement as of
the day and year first above written.
LESSOR LESSEE
1126 WEST ALLIS OPERATING MERGE TECHNOLOGIES, INC.
ASSOCIATES, Limited Partnership
By: BGK Properties, Inc., By: /s/ Colleen M. Doan
General Partner
By: /s/ Cheryl Willoughby Its CFO
Senior Vice President
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 934,628
<SECURITIES> 0
<RECEIVABLES> 2,801,382
<ALLOWANCES> 38,547
<INVENTORY> 1,605,730
<CURRENT-ASSETS> 6,050,295
<PP&E> 3,272,562
<DEPRECIATION> 1,862,145
<TOTAL-ASSETS> 12,223,676
<CURRENT-LIABILITIES> 2,552,485
<BONDS> 0
0
0
<COMMON> 14,364,461
<OTHER-SE> (6,125,098)
<TOTAL-LIABILITY-AND-EQUITY> 12,223,676
<SALES> 0
<TOTAL-REVENUES> 3,269,015
<CGS> 1,158,939
<TOTAL-COSTS> 2,740,934
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,621
<INCOME-PRETAX> (622,413)
<INCOME-TAX> 12,053
<INCOME-CONTINUING> (634,466)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (634,466)
<EPS-BASIC> 0
<EPS-DILUTED> (0.11)
</TABLE>
