<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended September 30, 1999
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _____ to _____
SEC File Number 0-24725
GLOBAL ELECTION SYSTEMS INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
British Columbia, Canada 85-0394190
(State or Province of Incorporation) (IRS Employer Identification No.)
1611 Wilmeth Road, McKinney, TX, 75069
(Address of Principal Executive Offices)
972 - 542 - 6000
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ] (issuer not subject to filing requirements for past 90 days)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of November 8, 1999, the
issuer had 18,483,672 shares of its common stock outstanding.
Transitional Small Business Disclosure Form (check one): Yes [ ] No [X]
<PAGE> 2
TABLE OF CONTENTS
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis.
Part 2. OTHER INFORMATION
Item 1. Legal proceedings.
Item 2. Changes in Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K
<PAGE> 3
Part 1. FINANCIAL INFORMATION
Item 1: FINANCIAL STATEMENTS
GLOBAL ELECTION SYSTEMS INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDING
30 SEPTEMBER 1999 AND 1998
PREPARED WITHOUT AUDIT IN U.S. FUNDS
<PAGE> 4
GLOBAL ELECTION SYSTEMS INC. Statement 1
INTERIM CONSOLIDATED BALANCE SHEET
AS AT 30 SEPTEMBER
Prepared without audit in U.S. Funds
<TABLE>
<CAPTION>
ASSETS 1999 1998
---------------- ---------------
<S> <C> <C>
CURRENT
Cash and short term deposits $ 1,302,874 $ 62,438
Accounts receivable 4,348,245 3,722,757
Contracts receivable 11,031,410 4,898,650
Deposits and prepaid expenses 210,455 212,307
Inventory 5,040,600 5,721,988
Current portion of agreements receivable 232,876 573,701
---------------- ---------------
22,166,460 15,191,841
AGREEMENTS RECEIVABLE 64,396 336,474
CAPITAL ASSETS 331,335 426,248
OTHER ASSETS 719,625 958,681
---------------- ---------------
$ 23,281,816 $ 16,913,244
---------------- ---------------
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 3,814,795 $ 4,051,147
Deferred revenue 685,358 128,294
Current portion of loans payable 5,816,674 1,675,580
---------------- ---------------
10,316,827 5,855,021
---------------- ---------------
LOANS PAYABLE 814,569 36,757
---------------- ---------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL
Authorized:
100,000,000 common voting shares, without par value
20,000,000 convertible voting preferred shares, without par value
Issued and fully paid:
18,483,672 common shares (1998 - 18,482,440) 10,126,865 10,125,867
RETAINED EARNINGS - STATEMENT 2 2,023,555 895,599
---------------- ---------------
12,150,420 11,021,466
---------------- ---------------
$ 23,281,816 $ 16,913,244
---------------- ---------------
</TABLE>
ON BEHALF OF THE BOARD:
SIGNED: "HOWARD T. VAN PELT"
- -------------------------------------------
HOWARD T. VAN PELT, DIRECTOR
SIGNED: "CLINTON H. RICKARDS"
- -------------------------------------------
CLINTON H. RICKARDS, DIRECTOR
<PAGE> 5
GLOBAL ELECTION SYSTEMS INC. Statement 2
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD ENDED 30 SEPTEMBER
Prepared without audit in U.S. Funds
<TABLE>
<CAPTION>
Common Shares Retained Total
Shares Amount Earnings
(Deficit)
---------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Balance - 31 December 1995 14,189,440 $ 9,138,775 $ (3,714,708) $ 5,424,067
Issuance of shares on exercise of options ($0.47 per share) 500,000 235,422 - 235,422
Loss for the year - - (1,736,657) (1,736,657)
---------- ------------ ------------- -------------
Balance - 31 December 1996 14,689,440 9,374,197 (5,451,365) 3,922,832
Net income for the period - - 2,053,512 2,053,512
---------- ------------ ------------- -------------
Balance - 30 June 1997 14,689,440 9,374,197 (3,397,853) 5,976,344
Issuance of shares for name and operating assets of
I-Mark Systems, Inc. ($0.55 per share) 1,000,000 548,148 - 548,148
Issuance of performance shares from escrow ($0.06 per Share) 2,738,000 155,562 - 155,562
Issuance of shares on exercise of options ($0.89 per share) 30,000 26,632 - 26,632
Issuance of shares on exercise of options ($0.85 per share) 25,000 21,328 - 21,328
Net income for the period - - 4,037,546 4,037,546
---------- ------------ ------------- -------------
Balance - 30 June 1998 18,482,440 10,125,867 639,693 10,765,560
Net income for the period - - 255,906 255,906
---------- ------------ ------------- -------------
Balance - 30 September 1998 18,482,440 10,125,867 895,599 11,021,466
Issuance of shares on exercise of options ($0.81 per share) 1,232 998 - 998
Net income for the period - - 460,139 460,139
---------- ------------ ------------- -------------
Balance - 30 June 1999 18,483,672 10,126,865 1,355,738 11,482,603
Net income for the period - - 667,817 667,817
---------- ------------ ------------- -------------
Balance - 30 September 1999 18,483,672 $ 10,126,865 $ 2,023,555 $ 12,150,420
---------- ------------ ------------- -------------
</TABLE>
<PAGE> 6
GLOBAL ELECTION SYSTEMS INC. Statement 3
INTERIM CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED 30 SEPTEMBER
Prepared without audit in U.S. Funds
<TABLE>
<CAPTION>
1999 1998
---------------- ---------------
<S> <C> <C>
REVENUE
Sales and operating income $ 6,250,680 $ 4,272,463
Other income 4,653 9,025
---------------- ---------------
6,255,333 4,281,488
---------------- ---------------
COSTS AND EXPENSES
Cost of sales and operating expenses 3,359,190 1,835,439
Selling, administrative and general expenses 1,681,019 1,522,335
Research and development expenses 140,718 374,971
Interest 146,798 36,131
Amortization 108,221 125,531
---------------- ---------------
5,435,946 3,894,407
---------------- ---------------
INCOME BEFORE THE UNDERNOTED 819,387 387,081
Revaluation of used equipment (131,175) (131,175)
---------------- ---------------
INCOME BEFORE INCOME TAXES 688,212 255,906
Provision for income taxes (20,395) --
---------------- ---------------
NET INCOME FOR THE PERIOD $ 667,817 $ 255,906
---------------- ---------------
EARNINGS PER SHARE - U.S. FUNDS
Basic $ 0.04 $ 0.01
Fully Diluted $ 0.03 $ 0.01
---------------- ---------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 18,483,672 18,482,440
---------------- ---------------
</TABLE>
<PAGE> 7
GLOBAL ELECTION SYSTEMS INC. Statement 4
INTERIM CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE THREE MONTHS ENDED 30 SEPTEMBER
Prepared without audit in U.S. Funds
<TABLE>
<CAPTION>
1999 1998
----------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income for the period $ 667,817 $ 255,906
Items not affecting cash
Amortization 108,221 125,531
Revaluation of used equipment 131,175 131,175
----------- ---------------
907,213 512,612
Changes in non-cash working capital
Accounts receivable (6,842) (1,409,894)
Contracts receivable (749,688) 3,079,957
Deposits and prepaid expenses 80,843 34,782
Inventory (564,852) (2,185,289)
Accounts payable and accrued liabilities 1,527,328 (656,055)
Deferred revenue (342,360) (76,506)
----------- ---------------
851,642 (700,393)
----------- ---------------
INVESTING ACTIVITIES
Capital assets acquired (6,850) (51,747)
Agreements receivable 194,232 43,590
----------- ---------------
187,382 (8,157)
----------- ---------------
FINANCING ACTIVITIES
Loans payable (357,370) 431,363
----------- ---------------
NET INCREASE (DECREASE) IN CASH 681,654 (277,187)
Cash position - Beginning of period 621,220 339,625
----------- ---------------
CASH POSITION - END OF PERIOD $ 1,302,874 $ 62,438
----------- ---------------
</TABLE>
<PAGE> 8
Summary of Significant Accounting Policies:
The accounting policies as set forth in Global Election
Systems Inc.'s Form 10-KSB, filed on September 28, 1999 have been adhered to in
preparing the accompanying interim consolidated financial statements. These
statements are unaudited, but include all adjustments, consisting of normal
recurring adjustments, that the Company considers necessary for a fair
presentation of the results for the interim period. Results for an interim
period are not necessarily indicative of results for a full year.
a) Foreign Currency Transactions
The accounts of the Company are prepared in U.S. funds and
the Company's Canadian operations are translated into U.S. dollars as follows:
Monetary assets and liabilities at quarter-end rates
All other assets and liabilities at historical rates
Revenue and expense items at the average rate of exchange
prevailing during the quarter.
Exchange gains and losses arising from these transactions are
reflected in income or expense in the period.
b) Inventory
Inventory of finished goods and work-in-progress is valued at
the lower of cost and net realizable value as estimated by management. Raw
materials, which consist of parts and components, are valued at average cost
less any allowances for obsolescence. Inventory of goods taken in trade is
valued at the lesser of trade-in value and net realizable value as estimated by
management.
<PAGE> 9
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
The discussion and analysis of the operating results and the
financial position of the Company should be read in conjunction with the
Company's Interim Financial Statements and the notes to them. See "Interim
Consolidated Financial Statements". The financial statements have been prepared
in United States dollars in accordance with Canadian GAAP. Certain of the
information discussed in this report contains forward-looking statements
regarding future events or the future financial performance of the Company, and
is subject to a number of risks and other factors which could cause the actual
results to differ materially from those contained in any forward-looking
statements. Among those factors are: general business and economic conditions:
customer acceptance and demand for the company's products; the Company's overall
ability to design, test and introduce new products on a timely basis; the nature
of the markets addressed by the Company's products; the interaction with
governmental entities in the United States and world-wide which purchase the
Company's products; the unknown and unforeseen effects of potential "Year 2000"
problems encountered by the Company, its suppliers, customers and others; and
other risk factors listed from time to time in documents filed by the Company
with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998.
SALES AND OPERATING INCOME.
Sales and other income increased 46.1 %, or $1,974,000, to
$6,256,000 in the three months ended September 30, 1999 from $4,281,000 in the
three months ended September 30, 1998. The increase in sales is due to new
account sales and the continued expansion of the customer base.
COST OF SALES AND OPERATING EXPENSES.
Cost of sales and operating expenses increased 83.1 %, or
$1,524,000, to $3,359,000 in the 1999 period from $1,835,000 in the 1998 period.
In the 1999 period, cost of sales and operating expense as a percentage of gross
revenues increased to 53.9% from 42.9% in the 1998 period due to lower gross
margin on the voter registration product.
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES.
In the three months ended September 30, 1999 selling,
administrative and general expenses increased 10.4 %, or $159,000, to
$1,681,000, from $1,522,000 in the 1998 period. The increase is attributable to
increased sales effort which resulted in increased sales; however, expenses were
below plan.
<PAGE> 10
RESEARCH AND DEVELOPMENT EXPENSES.
Research and development expenses decreased 62.4%, or
$234,000, to $141,000 in the 1999 period from $375,000. In the first quarter of
fiscal 1999 extensive development was being performed on the Accu Touch
software; this was not occurring in the first quarter of fiscal 2000. The
decrease in research and development expense in the 2000 period was within the
Company's operating plan.
INTEREST.
Interest expense increased 308.3%, or $111,000, to $147,000,
in the 1999 period from $36,000 in the 1998 period. The increase was within the
Company's operating plan and resulted from interest on U.S. bank loans.
AMORTIZATION.
Amortization decreased 14.3%, or $18,000, to $108,000 in the
1999 period, from $126,000 in the 1998 period. The decrease was anticipated as
Lynro Manufacturing goodwill is now fully written off.
REVALUATION OF TRADE-IN EQUIPMENT.
The trade-in inventory write off amounted to $131,000 in the
1999 period, which is equal to the same amount that was written off in the 1998
period. The trade-in inventory write down will continue for the next three
consecutive quarters.
EARNINGS PER SHARE.
Earnings for the first quarter ended September 30, 1999 were
$668,000 or $0.04 per share compared to $256,000, or $0.01 per share for the
same period in the previous year.
.
Income for the first quarter ended September 30, 1999 was
$928,000 or $0.05 per share before revaluation of trade-in equipment amounting
to $131,000, amortization amounting to $108,000 and provision for income taxes
of $20,000. This compares to income of $513,000 or $0.03 per share before
revaluation of trade-in equipment amounting to $131,000, and amortization
amounting to $126,000 for the same period in the previous year.
The increase in earnings per share for the 1999 period as
compared to the 1998 period was attributable to increases in revenue from sales
of products, offset by increases in cost of sales and operating expenses,
selling, administrative and general expense, and interest expense and enhanced
by decreases in research and development and amortization.
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES.
The Company uses a combination of internally generated funds
and bank borrowings to finance its working capital requirements, capital
expenses and operations. During the period ended September 30, 1999, the Company
generated most of its funding through cash flow.
At September 30, 1999 the Company's cash totaled $1,302,874 an
increase of $681,654 from June 30, 1999. Accounts and contracts receivable
increased to $15,380,000 at September 30, 1999 from $14,623,000 at June 30,
1999. Due to the nature of the Company's business, timing of payments on large
contracts may vary significantly, causing significant variances from period to
period in the mix of cash, other liquid funds, accounts receivable and contracts
receivable. Inventory figures may vary significantly, depending upon delivery
dates for voting systems. At September 30, 1999, inventory amounted to
$5,041,000, an increase of $434,000 from June 30, 1999. The increase in
inventory is within the Company's operating plan.
The Company has contractual arrangements with customers
whereby credit terms may be extended for the amounts due for voting systems. At
September 30, 1999, agreements receivable less current portion amounted to
$64,000, a decrease of $142,000 from June 30, 1999. These loans are repaid at
varying terms and with varying interest rates determined on a case by case
basis. Historically, the Company has not experienced any default in connection
with loans due from customers.
The Company currently has five loans outstanding, four with
Western Bank, Albuquerque, New Mexico and one loan with Hibernia National Bank
of Texas, McKinney, Texas. One loan in the amount of $1,508,500 is secured by a
specific Global USA contract in the amount of $2,155,312. This loan bears
interest at Western Bank of Albuquerque Prime Rate plus 1 % and is due January
31, 2000. A second loan in the amount of $708,174 is secured by a specific
Global USA contract in the amount of $942,789. This loan bears interest at
Western Bank of Albuquerque Prime Rate plus 1 % and is due May 27, 2000. A third
loan in the amount of $250,113 is secured by an agreement receivable amounting
to $267,364. This loan bears interest at Western Bank of Albuquerque Prime Rate
plus 1 % and is due November 15, 2000. A fourth loan, a new loan, in the amount
of $564,456 is secured by specific Global USA contracts in the amount of
$1,050,583. This loan bears interest at Western Bank of Albuquerque Prime Rate
plus 1% and is due January 19, 2001. The loan with Hibernia National Bank of
Texas in the amount of $3,600,000 is secured by a blanket assignment of accounts
receivable, and bears interest at The Wall Street Journal Prime Rate and is due
January 12, 2000. The $300,000 loan with Mr. Van Pelt was repaid in full by the
Company in August, 1999. The loans are used for working capital.
During the Company's current and two most recently ended
fiscal years, the Company has not experienced any material impact from inflation
or changing prices on its net sales and revenues or on income from continuing
operations.
Management believes that financial resources, including
internally generated funds and available bank line of credit and borrowings will
be sufficient to finance the Company's current operations and capital
expenditures, excluding acquisitions, for the next twelve months.
<PAGE> 12
YEAR 2000 ISSUE
DESCRIPTION OF THE ISSUE
The Y2K issue refers to the ability of certain date -
sensitive computer chips, software, and systems to recognize a two - digit data
field as belonging to the 21st century. Mistaking "00" for 1900 or any other
incorrect year could result in a system failure or miscalculations causing
disruptions to operations, including manufacturing, a temporary inability to
process transactions, send invoices, or engage in other normal business
activities. This is a significant issue for most, if not all, companies, with
far reaching implications, some of which cannot be anticipated or predicted with
any degree of certainty. The Y2K issue may create unforeseen risks to the
Company from its internal computer systems as well as from computer systems of
third parties with which it deals. Failures of the Company or third parties'
computer systems could have a material adverse impact on the Company's ability
to conduct its business.
YEAR 2000 ASSESSMENT
Management of the Company has been assessing the magnitude of
the Y2K issue with respect to the Company's products, business, suppliers and
customers. In conjunction with the Company's assessment of Y2K issues which
might affect it, the Company formulated plans to address the Y2K issue,
including contingencies to address unforeseen problems.
INTERNAL BUSINESS
Management has reviewed all internal business computer systems
to ensure that these systems will be Y2K ready. As best the Company can
determine all systems are Y2K ready.
SUPPLIERS
The major suppliers to the Company are component parts
distributors. Often the Company sources its products and manufacturing services
from multiple, competing vendors. The Company has contacted all vendors and has
made a list of whether each vendor is Y2K compliant, and, if not, alternate
sources of product have been located. The only sole source supplier's product is
not date sensitive, and the Company has made plans to have a sufficient
inventory to cover any delays that the supplier might have in delivering
product. There can be no assurance that the systems of other companies on which
the Company relies will be Y2K ready on a timely basis and will not have an
adverse effect on the operations of the Company.
PRODUCTS
The Company completed an assessment of the magnitude of the
Y2K issue with respect to the Company's products. The Company's AccuVote - OS
and AcuVote - TS systems are designed to be Year 2000 compliant, which is
generally a requirement in requests for proposals for voting systems, and the
Company does not expect any material problems or difficulties to arise out of
its systems.
<PAGE> 13
COSTS
The Company does not expect the cost of its Y2K assessment,
including both incremental spending and reallocated resources, to be material.
The current assessment does not include potential costs related to any customer
or other claims or the cost of internal software and hardware being replaced in
the normal course of business. This assessment is subject to change because
there is no uniform definition of "readiness for Y2K". All customer situations
cannot be anticipated, particularly those involving third party products;
therefore, the Company may see claims as a result of the Y2K transition. These
claims, if successful, could have a material adverse impact on future results.
CUSTOMERS
The Company has communicated with its customers to determine
the extent of the Company's vulnerability to the failure of third parties to
premeditate their own Y2K issues. All of the Company's customers are
governmental entities, and, as such, all customers have certified that they are
Y2K compliant. The Company cannot predict the effect of a lack of Y2K compliance
by its customers on the Company. The inability of a governmental unit to
generate data needed in order to conduct elections or to interface with the
Company's voting systems, or other problems, could prevent the customer from
using the Company's systems or could result in disruption of the election
process. The Company is unable to predict the impact this could have on its
business and revenues or the extent of any liability to third parties the
Company might incur, although the impact or liability could be materially
adverse to the Company and its business.
COST ESTIMATES
The Company has not been required to incur costs for Y2K
remedial work and has not set aside any contingency fund to deal with any
contingencies, which may arise. The costs for Y2K compliance are based upon
management's best estimates, which were derived from numerous assumptions about
future events, including third-party modification plans and other factors.
However, the Company cannot guarantee that those estimates will be accurate and
actual results could differ materially from those plans. Specific factors that
might cause material differences include, but are not limited to, the
availability and cost of personnel trained in this area and the ability to
identify and correct all relevant computer codes.
<PAGE> 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
No material legal proceeding is pending or, to the knowledge
of the Company, threatened by any governmental agency, against the Company.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
3 (1) Memorandum and Articles of Incorporation, as
amended.
4 (1) Parts 7, 10, 12, and 27 of the Memorandum
and Articles of Incorporation, as amended, set
forth in Exhibit 3 (1)
10 (1) Promissory note dated August 25, 1999 between
Western Bank and the Company filed electronically
herewith.
11 (1) Computation of per-share income Treasury
Stock Method of the Company filed electronically
herewith.
27 Financial Data Schedule filed electronically
herewith.
(1) Incorporated by reference to the Company's Form 10-SB filed with
the commission on July 31, 1998.
<PAGE> 15
B. Reports on Form 8-K
The Company filed no reports on Form 8-K during
the first quarter of Fiscal 2000.
<PAGE> 16
Signature
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on behalf by the undersigned, hereunto duly authorized.
Dated: November 8, 1999
Global Election Systems Inc.
By: /s/ HOWARD T. VAN PELT
---------------------------
Howard T. Van Pelt, President,
Chief Executive Officer and
Chief Financial Officer
<PAGE> 17
INDEX TO EXHIBITS
3 (1) Memorandum and Articles of Incorporation, as amended.
4 (1) Parts 7, 10, 12, and 27 of the Memorandum and Articles of
Incorporation, as amended, set forth in Exhibit 3 (1)
10(1) Promissory note dated August 25, 1999 between
Western Bank and the Company filed electronically
herewith.
11(1) Computation of per-share income Treasury Stock
Method of the Company filed electronically herewith.
27 Financial Data Schedule filed electronically herewith.
(1) Incorporated by reference to the Company's Form 10-SB filed with
the commission on July 31, 1998.
<PAGE> 1
EXHIBIT 10 (1)
PROMISSORY NOTE
<TABLE>
<S> <C>
Borrower: Global Election Systems, Inc. (TIN: 850394190) Lender: WESTERN BANK
1611 Wilmeth Road Main
McKinney, TX 750698250 505 Marquette NW
P O Box 26144
Albuquerque, NM 87125
</TABLE>
Principal Amount: $1,444,579.00 Initial Rate: 10.000%
Date of Note: August 25, 1999
PROMISE TO PAY. Global Election Systems, Inc. ("Borrower") promises to pay to
WESTERN BANK ("Lender",), or order, in lawful money of the United States of
America, the principal amount of One Million Four Hundred Forty Four Thousand
Five Hundred Seventy Nine & 00/100 Dollars ($1,444,579.00) or so much as may be
outstanding, together with interest on the unpaid outstanding principal balance
of each advance. Interest shall be calculated from the date of each advance
untili repayment of each advance. The interest rate will not increase above
55.000%.
PAYMENT. Borrower will pay this loan on demand, or if no demand is made, in one
payment of all outstanding principal plus all accrued unpaid interest on January
19, 2001. In addition, Borrower will pay regular quarterly payments of accrued
unpaid interest beginning November 23, 1999, and all subsequent interest
payments are due on the same day of each quarter after that. The annual interest
rate for this Note is computed on a 365/360 basis; that is, by applying the
ratio of the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding. Borrower will pay Lender at Lender's address
shown above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied first
to accrued unpaid interest, then to principal, and any remaining amount to any
unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is Lender's Prime Rate (the
"Index"). This is the rate Lender charges, or would charge, on 90-day unsecured
loans to the most creditworthy corporate customers. This rate may or may not be
the lowest rate available from Lender at any given time. Lender will tell
Borrower the current index rate upon Borrower's request. Borrower understands
that Lender may make loans based on other rates as well. The interest rate
change will not occur more often than each 1st day of the following month. The
Index currently is 9.000% per annum. The interest rate to be applied to the
unpaid principal balance of this Note will be at a rate of 1.000 percentage
point over the Index, adjusted if necessary for the minimum and maximum rate
limitations described below, resulting in an initial rate of 10.000% per annum.
Notwithstanding any other provision of this Note, the variable interest rate or
rates provided for in this Note will be subject to the following minimum and
maximum rates. NOTICE: Under no circumstances will the interest rate on this
Note be less than 10.000% per annum or more than the lesser of 55.000% per annum
or the maximum rate allowed by applicable law. Notwithstanding the above
provisions, the maximum increase or decrease in the interest rate at any one
time on this loan will not exceed 1.000 percentage points.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
reuslt of default), except as otherwise required by law. In any event, even upon
full prepayment of this Note, Borrower understands that Lender is entitled to a
minimum interest charge of $25.00. Other than Borrower's obligation to pay any
minimum interest charge, Borrower may pay without penalty all or a portion of
the amount owed earlier than it is due. Early payments will not, unless agreed
to by Lender in writing, relieve Borrower of Borrower's obligation to continue
to make payments of accrued unpaid interest. Rather, they wil reduce the
principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment or $10.00,
whichever is less.
<PAGE> 2
08-25-1999 PROMISSORY NOTE
PAGE 2
LOAN NO 4687100 (CONTINUED)
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender.
(g) Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Note. (h) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the indebtedness is impaired. (I) Lender
in good faith deems itelf insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within ten (10) days; or (b) if the
cure requires more than ten (10) days, immediately initiates steps which Lender
deems in Lender's sole discretion to be sufficient to cure the default and
thereafter continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Lender may hire or pay someone
else to help collect this Note if Borrower does not pay. Borrower also will pay
Lender that amount. This includes, subject to any limits under applicable law,
Lender's attorneys' fees and Lender's legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. This Note has been delivered to
Lender and accepted by Lender in the State of New Mexico. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of Bernalillo County, the State of New Mexico. This Note shall be
governed by and construed in accordance with the laws of the State of New
Mexico.
RIGHT OF SETOFF. Borrower grants to Lender a contractural security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on this Note against any and all such accounts, and, at
Lender's option, to administratively freeze all such accounts to allow Lender to
protect Lender's charge and setoff rights provided on this paragraph.
COLLATERAL. This Note is secured by Contract No. 99 22-12 between Franklin
County, OH and Global Election Systems, Inc. Contract No. V-18(5) between
Washington County, MN and Global Election Systems, Inc. Contract No. RES 99-111
between Marin Co., Calif. and Global Election Systems, Inc.
<PAGE> 3
08-25-1999 PROMISSORY NOTE
PAGE 3
LOAN NO 4687100 (CONTINUED)
LINE OF CREDIT. This Note evidences a straight line of credit. Once the total
amount of principal has been advanced, Borrower is not entitled to further loan
advances. Advances under this Note may be requested orally by Borrower or by an
authorized person. Lender may, but need not, require that all oral requests be
confirmed in writing. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender" office shown
above. The following party or parties are authorized to request advances under
the line of credit until Lender receives from Borrower at Lender" address shown
above written notice of revocation of their authority: Howard T. Van Pelt,
President. Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to any
of Borrower's accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor is
in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantor's guarantee of this Note or any
other loan with Lender; (d) Borrower has applied funds provided pursuant to this
Note for purposes other than those authorized by Lender; or (e) Lender in good
faith deems itself insecure under this Note or any other agreement between
Lender and Borrower.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive presentment, demand for payment, protest and notice of
dishonor. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone. All such parties
also agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THIS NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
GLOBAL ELECTION SYSTEMS, INC.
BY: Signed: /s/ HOWARD T. VAN PELT
-------------------------------
HOWARD T. VAN PELT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE> 1
EXHIBIT 11 (1)
GLOBAL ELECTION SYSTEMS INC.
Computation of Per-Share Income
Treasury Stock Method
<TABLE>
<CAPTION>
Period Ended Period Ended
September 30, 1999 September 30, 1998
Three Months Three Months
<S> <C> <C>
Weighted average number of share outstanding 18,483,672 18,482,440
Total common and common equivalent shares 20,100,339 19,919,107
Net Income for the period $ 667,817 $ 255,906
Weighted average number of share outstanding 18,483,672 18,482,440
Earnings per share - basic $ 0.04 $ 0.01
Net Income for the period $ 667,817 $ 255,906
Total common and common equivalent shares 20,100,339 19,919,107
Earnings per share - fully diluted $ 0.03 $ 0.01
Earnings per share:
</TABLE>
Basic earnings per share is computed by dividing the net income for the period
by the weighted average number of common shares outstanding for the period.
Fully diluted earnings per share is computed by dividing the net income for the
period by the common and common equivalent shares outstanding for the period.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,302,874
<SECURITIES> 0
<RECEIVABLES> 15,379,655
<ALLOWANCES> 0
<INVENTORY> 5,040,600
<CURRENT-ASSETS> 22,166,460
<PP&E> 923,758
<DEPRECIATION> (592,423)
<TOTAL-ASSETS> 23,281,816
<CURRENT-LIABILITIES> 10,316,827
<BONDS> 0
0
0
<COMMON> 10,126,865
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 23,281,816
<SALES> 6,250,680
<TOTAL-REVENUES> 6,255,333
<CGS> 3,359,190
<TOTAL-COSTS> 5,289,148
<OTHER-EXPENSES> 1,821,737
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146,798
<INCOME-PRETAX> 688,212
<INCOME-TAX> 20,395
<INCOME-CONTINUING> 667,817
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 667,817
<EPS-BASIC> .04
<EPS-DILUTED> .03
</TABLE>
