-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rx+EvsFeg/mbu7z1b+zDxJl5dicm5Ej+vNhXTBA3sapcmpnlHHiSO95NGMAYO1ad JlfM3UfZdmZDZ0SyFh+2Bw== 0000950147-99-001122.txt : 19991018 0000950147-99-001122.hdr.sgml : 19991018 ACCESSION NUMBER: 0000950147-99-001122 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19991013 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIMENSIONAL VISIONS INC/ DE CENTRAL INDEX KEY: 0000836809 STANDARD INDUSTRIAL CLASSIFICATION: COMMERCIAL PRINTING [2750] IRS NUMBER: 232517953 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: SEC FILE NUMBER: 001-10196 FILM NUMBER: 99727668 BUSINESS ADDRESS: STREET 1: 2301 WEST DUNLAP STREET 2: SUITE 207 CITY: PHOENIX STATE: AZ ZIP: 85021 BUSINESS PHONE: 6029971990 MAIL ADDRESS: STREET 1: 8855 N. BLACK CANYON HWY STREET 2: STE 2000 CITY: PHOENIX STATE: AZ ZIP: 85021 10KSB40 1 ANNUAL REPORT FOR YEAR ENDED 6/30/99 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). 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). 2 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. 3 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) 4 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. 5 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.
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 ----------- ----------- ----------- ----------- ----------- 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)
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. 6 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 7 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. 8 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. 9 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. 10 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 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 $100,000 in the fiscal year ended June 30, 1999.
Long Term Compensation ----------------------------------- Annual Compensation Awards Payouts ----------------------------- ------------------------- ------- Securities Other Annual Restricted Underlying LTIP All Other Salary Bonus Compensation Stock Options/SARs Payouts Compensation Year ($) ($) ($) Awards ($) (#) ($) ($) ---- ------- ----- ------------ ----------- ------------ ------- ------------ John D. McPhilimy 1999 $89,250 $0 $0 $0 -- $0 $0
OPTIONS/SAR GRANTS IN THE FISCAL YEAR 1999 INDIVIDUAL GRANTS
Number of Securities % of Total Underlying Options/SARs Granted Option/SARs to Employees in Exercise or Base Expiration Name Year Granted (#) Fiscal Year Price ($/Share) Date ---- ---- -------- -------------------- ---------------- ---------- John D. McPhilimy 1999 0 -- -- --
AGGREGATED OPTIONS/SAR EXERCISES IN THE FISCAL YEAR 1999 AND FY-END OPTION/SAR VALUES
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 ($) ---- ---- -------- -------- ----------------------- --------------- John D. McPhilimy 1999 -- 0 450,000(E)/0(U) $191,250
12 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 (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 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 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 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 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 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 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 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 DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) YEARS ENDED JUNE 30, 1999 AND 1998
Preferred Stock Common Stock ($.001 Par Value) Additional ($.001 Par Value) ------------------- Paid-in --------------------- Shares Amount Capital Shares Amount ------- ----- --------- ---------- ------- 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 $.045 per share 73,333 -- 75,000
F-6 DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED) YEARS ENDED JUNE 30, 1999 AND 1998
Preferred Stock Common Stock ($.001 Par Value) Additional ($.001 Par Value) ---------------- Paid-in -------------------- Shares Amount Capital Shares Amount ------- ----- --------- ---------- ------- 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 $2.00 per share until February 28, 2001 477,779 -- 492,700
F-7 DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED) YEARS ENDED JUNE 30, 1999 AND 1998
Preferred Stock Common Stock ($.001 Par Value) Additional ($.001 Par Value) --------------- Paid-in -------------------- Shares Amount Capital Shares Amount ------- ----- --------- ---------- ------- 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) $207,302 =========== ============ ========
F-8 DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED) YEARS ENDED JUNE 30, 1999 AND 1998
Preferred Stock Common Stock ($.001 Par Value) Additional ($.001 Par Value) --------------- Paid-in ------------------- Shares Amount Capital Shares Amount ------- ----- --------- ---------- ------- 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) =========== ============ =========
See notes to financial statements. F-9 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 EX-10.4 2 LEASE AGREEMENT, DATED OCTOBER 27, 1997 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 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 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 OFFICE LEASE I. BASIC PROVISIONS
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.
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
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 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 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 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. 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. 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 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 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 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. 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. 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 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 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. 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 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 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 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 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. 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. 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 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 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 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. 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. 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. 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. 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 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. 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 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 EX-21.0 3 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.0 SUBSIDIARIES OF THE REGISTRANT Name State of Incorporation - ---- ---------------------- InfoPak, Inc. Delaware EX-27 4 FINANCIAL DATA SCHEDULE
5 U.S. DOLLARS YEAR JUN-30-1999 JUL-01-1998 JUN-30-1999 1 20,019 0 173,064 53,333 6,900 164,546 451,840 279,681 530,973 768,492 0 0 658,301 5,138 (1,251,206) 530,973 741,901 741,901 562,711 562,711 1,053,457 0 207,727 (1,465,812) 0 0 0 0 0 (1,465,812) (.37) 0
-----END PRIVACY-ENHANCED MESSAGE-----