<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, 2000
[ ] 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 17, 2000,
the issuer had 20,233,673 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
REVIEW ENGAGEMENT REPORT
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS OF GLOBAL ELECTION SYSTEMS INC.:
We have reviewed the interim consolidated balance sheet of Global Election
Systems Inc. as at 30 September 2000 and the interim consolidated statements of
changes in shareholders' equity, income (loss) and cash flows for the three
months then ended. Our review was made in accordance with generally accepted
standards for review engagements and accordingly consisted primarily of enquiry,
analytical procedures and discussion related to information supplied to us by
the company.
A review does not constitute an audit and consequently we do not express an
audit opinion on these interim consolidated financial statements.
Based on our review, nothing has come to our attention that causes us to believe
that these interim consolidated financial statements are not, in all material
respects, in accordance with generally accepted accounting principles.
The comparative figures were compiled by management and have not been reviewed.
"STALEY, OKADA, CHANDLER & SCOTT"
Burnaby, B.C. STALEY, OKADA, CHANDLER & SCOTT
16 November 2000 CHARTERED ACCOUNTANTS
--------------------------------------------------------------------------------
<PAGE> 4
GLOBAL ELECTION SYSTEMS INC. Statement 1
INTERIM CONSOLIDATED BALANCE SHEET
AS AT 30 SEPTEMBER
U.S. Funds
Prepared Without Audit
<TABLE>
<CAPTION>
ASSETS 2000 1999
------ ------------ ------------
<S> <C> <C>
CURRENT
Cash and short term deposits $ 2,371,598 $ 1,302,874
Accounts receivable 4,008,737 4,348,245
Contracts receivable 3,505,332 8,456,653
Work-in-progress 1,282,874 2,518,358
Deposits and prepaid expenses 368,812 210,455
Future income taxes (Note 12b) 127,000 --
Inventory (Note 4) 5,427,414 5,040,600
Current portion of agreements receivable 173,494 289,275
------------ ------------
17,265,261 22,166,460
AGREEMENTS RECEIVABLE (Note 5) 545,876 64,396
DEFERRED COSTS (Note 6) 707,868 --
CAPITAL ASSETS (Note 7) 2,846,571 331,335
OTHER ASSETS (Note 8) 2,580,330 719,625
------------ ------------
$ 23,945,906 $ 23,281,816
============ ============
LIABILITIES
-----------
CURRENT
Accounts payable and accrued liabilities $ 3,697,387 $ 3,814,795
Deferred revenue 289,845 685,358
Current portion of loans payable 4,245,110 5,816,674
Current portion of capital lease obligations 533,669 --
------------ ------------
8,766,011 10,316,827
LOANS PAYABLE (Note 9) 507,461 814,569
CAPITAL LEASE OBLIGATIONS (Note 10) 1,346,076 --
------------ ------------
10,619,548 11,131,396
------------ ------------
COMMITMENTS (Note 13)
SHAREHOLDERS' EQUITY
--------------------
SHARE CAPITAL (Note 11)
Authorized:
100,000,000 common voting shares, without par value
20,000,000 convertible voting preferred shares, without par value
Issued and fully paid:
20,233,673 (18,483,673) common shares 11,340,370 10,126,865
RETAINED EARNINGS - Statement 2 1,985,988 2,023,555
------------ ------------
13,326,358 12,150,420
------------ ------------
$ 23,945,906 $ 23,281,816
============ ============
</TABLE>
ON BEHALF OF THE BOARD:
"Signed: Robert J. Urosevich", Director
"Signed: Clint Rickards", Director
- See Accompanying Notes -
<PAGE> 5
GLOBAL ELECTION SYSTEMS INC. Statement 2
INTERIM CONSOLIDATED STATEMENT OF
CHANGES IN SHAREHOLDERS' EQUITY
U.S. Funds
Prepared Without Audit
<TABLE>
<CAPTION>
Common Shares Retained
Shares Amount Earnings Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance - 30 June 1999 18,483,673 $ 10,126,865 $ 1,355,738 $ 11,482,603
Net income (loss) for the period -- -- 667,817 667,817
------------ ------------ ------------ ------------
Balance - 30 September 1999 18,483,673 $ 10,126,865 $ 2,023,555 $ 12,150,420
============ ============ ============ ============
Balance - 30 June 2000 18,583,673 $ 10,217,262 $ 2,463,157 $ 12,680,419
Issuance of shares on exercise of options ($0.84
per share) 50,000 42,174 -- 42,174
Issuance of shares on acquisition of subsidiary
($0.68 per share) 1,600,000 1,080,934 -- 1,080,934
Net income (loss) for the period -- -- (477,169) (477,169)
------------ ------------ ------------ ------------
Balance - 30 September 2000 20,233,673 $ 11,340,370 $ 1,985,988 $ 13,326,358
============ ============ ============ ============
</TABLE>
- See Accompanying Notes -
<PAGE> 6
GLOBAL ELECTION SYSTEMS INC. Statement 3
INTERIM CONSOLIDATED STATEMENT OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED 30 SEPTEMBER
U.S. Funds
Prepared Without Audit
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
REVENUE
Sales and operating income $ 3,479,245 $ 6,250,680
Other income 11,890 4,653
------------ ------------
3,491,135 6,255,333
------------ ------------
COSTS AND EXPENSES
Cost of sales and operating expenses 1,780,903 3,359,190
Selling, administrative and general expenses 1,902,620 1,681,019
Research and development expenses 139,270 140,718
Interest 194,776 146,798
Amortization 217,214 108,221
------------ ------------
4,234,783 5,435,946
------------ ------------
INCOME (LOSS) BEFORE THE UNDERNOTED (743,648) 819,387
Revaluation of used equipment -- (131,175)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (743,648) 688,212
Provision for income taxes (Note 12a) (5,521) (20,395)
Recovery of future income taxes (Note12b) 272,000 --
------------ ------------
NET INCOME (LOSS) FOR THE PERIOD $ (477,169) $ 667,817
============ ============
EARNINGS (LOSS) PER SHARE - U.S. FUNDS
Basic $ (0.02) $ 0.04
Fully diluted $ N/A $ 0.03
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 19,731,892 18,483,672
============ ============
</TABLE>
- See Accompanying Notes -
<PAGE> 7
GLOBAL ELECTION SYSTEMS INC. Statement 4
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED 30 SEPTEMBER
U.S. Funds
Prepared Without Audit
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) for the period $ (477,169) $ 667,817
Items not affecting cash
Amortization 217,214 108,221
Revaluation of used equipment -- 131,175
Recovery of future income taxes (272,000) --
Amortization of deferred costs 40,028 --
------------ ------------
(491,927) 907,213
Changes in non-cash working capital
Accounts receivable 1,545,311 (6,842)
Contracts receivable 3,007,217 1,108,025
Work-in-progress (460,663) (1,801,314)
Deposits and prepaid expenses (82,564) 80,843
Inventory (75,198) (564,852)
Accounts payable and accrued liabilities (256,593) 1,527,328
Deferred revenue (58,847) (342,360)
------------ ------------
3,126,736 908,041
------------ ------------
INVESTING ACTIVITIES
Goodwill (65,066) --
Deferred costs (361,134) --
Capital assets acquired (2,408,072) (6,850)
Agreements receivable 125,314 137,833
------------ ------------
(2,708,958) 130,983
------------ ------------
FINANCING ACTIVITIES
Loans payable (1,414,712) (357,370)
Capital lease obligations 1,879,745 --
Common shares issued 42,174 --
------------ ------------
507,207 (357,370)
------------ ------------
NET INCREASE IN CASH 924,985 681,654
Cash position - Beginning of period 1,446,613 621,220
------------ ------------
CASH POSITION - END OF PERIOD $ 2,371,598 $ 1,302,874
============ ============
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of shares for subsidiary $ 1,080,934 $ --
Issuance of note payable for subsidiary $ 1,000,000 --
Goodwill acquired for shares and note $ (2,080,934) --
Exchange of trade receivable for agreement receivable $ 650,000 $ --
</TABLE>
- See Accompanying Notes -
<PAGE> 8
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
30 SEPTEMBER 2000
U.S. Funds
Prepared Without Audit
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
These interim consolidated financial statements have been prepared using
generally accepted accounting principles of Canada as follows:
a) NATURE OF OPERATIONS
The company markets a complete electronic voting system which includes
vote tally and voter registration software. The company also
participates in the ballot printing, absentee voter and remote voting
sectors of the election industry.
b) CONSOLIDATION
These interim consolidated financial statements include the accounts
of the company, its wholly-owned subsidiary, Global Election Systems,
Inc., a company incorporated in Delaware and operating in Texas,
U.S.A. and its wholly-owned subsidiaries. The purchase method of
accounting has been applied to this acquisition.
On 23 March 2000, the company's wholly-owned U.S. subsidiary
incorporated a wholly-owned subsidiary, Global Systems Caribbean,
Inc., a company incorporated in Puerto Rico. The new subsidiary
remains inactive to date and is accounted under the purchase method of
accounting.
On 26 April 2000, the company's wholly-owned U.S. subsidiary
incorporated a wholly-owned subsidiary, integrivote.com., Ltd., a
company incorporated in Nevada, U.S.A. The new subsidiary remains
inactive to date and is accounted under the purchase method of
accounting.
Effective as of 10 August 2000, the company's wholly-owned U.S.
subsidiary acquired a wholly-owned subsidiary, Spectrum Print & Mail
Services, Ltd. ("Spectrum"), a company incorporated in Delaware and
operating in Washington, U.S.A., California, U.S.A. and British
Columbia, Canada. The acquisition is accounted under the purchase
method of accounting.
c) FOREIGN CURRENCY TRANSLATION
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:
o Monetary assets and liabilities at year-end rates,
o All other assets and liabilities at historical rates, and
o Revenue and expense items at the average rate of exchange
prevailing during the year.
Exchange gains and losses arising from these transactions are
reflected in income or expense in the period.
d) INVENTORY
Inventory of finished goods 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 the lower of average
cost and net realizable value, less any allowances for obsolescence.
Inventory of goods taken in trade are treated as additional discounts
granted to complete sales agreements and no value is recognized in
inventory.
<PAGE> 9
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
30 SEPTEMBER 2000
U.S. Funds
Prepared Without Audit
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES - Continued
e) AMORTIZATION
Capital assets are recorded at cost and the company provides for
amortization on the following basis:
Demonstration and computer equipment - 20% to 30% declining balance
method Manufacturing equipment - 20% declining balance method
Furniture and equipment - 20% declining balance method Leasehold
improvements - straight-line over 5 years
One-half of the rate is applied in the year of acquisition and
disposition.
f) PATENTS
Patents are recorded at cost and the company provides for amortization
on a straight-line basis over 10 years.
g) GOODWILL
Goodwill is recorded at cost and the company provides for amortization
on a straight-line basis over 5 years.
h) REVENUE RECOGNITION
Revenue from sales of products is recognized at the time of shipment
of products to customers. Revenue from sales of services is recognized
on the basis of the percentage completion of the related services. The
company defers a portion of revenue received related to contracted
future services to match against management's estimate of the future
costs of providing these services to customers. Receivables with
extended payment terms less than one year are recorded as contracts
receivable and those over one year are recorded as agreements
receivable.
i) WORK-IN-PROGRESS
Amounts related to revenues recognized in the fiscal period which
remain unbilled to the customer at the end of the fiscal period are
presented as work-in-progress in these interim consolidated financial
statements.
j) WARRANTY RESERVE
Provisions for future estimated warranty costs are recorded in the
accounts based upon historical maintenance records. Management
periodically reviews the warranty reserve to determine the adequacy of
the provision.
k) RESEARCH AND DEVELOPMENT
New product development costs and existing product enhancement costs
are deferred to future periods when the product or process is clearly
defined, the costs can be identified, the technical feasibility has
been established, management intends to market the product or process,
a market exists for the product or process and adequate resources
exist to complete the project. The company provides for amortization
on a straight-line basis over 10 years. Research costs and development
costs which do not meet the preceding criteria are expensed in the
period incurred. Research and development tax credits are applied
against either the deferred costs or expense, as applicable, in the
period in which the tax credit is received.
<PAGE> 10
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
30 SEPTEMBER 2000
U.S. Funds
Prepared Without Audit
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES - Continued
l) SHARE CAPITAL
i) The proceeds from the exercise of stock options, warrants and
escrow shares are recorded as share capital in the amount for
which the option, warrant or escrow share enabled the holder to
purchase a share in the company.
ii) Share capital issued for non-monetary consideration is recorded
at an amount based on fair market value reduced by an estimate of
transaction costs normally incurred when issuing shares for cash,
as determined by the board of directors of the company.
m) EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share computations are based on the weighted
average number of shares outstanding during the period. Fully diluted
earnings per share are based on the actual number of shares
outstanding at the end of the period plus performance shares, and
share purchase options and warrants as if they had been issued as at
the beginning of the period. A fully diluted loss per share
computation is not presented because the effect of share purchase
options and warrants is anti-dilutive.
n) MANAGEMENT'S 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 revenues
and expenses during the reported periods. Actual results could differ
from those estimates.
o) FUTURE INCOME TAXES
The company has adopted the asset and liability method of accounting
for income taxes as prescribed by the CICA Handbook, which applies
current income tax rates in the determination of future income taxes.
Under the asset and liability method, the change in the net future tax
asset or liability is included in income. The income tax effects of
temporary differences in the time when income and expenses are
recognized in accordance with company accounting practices, and the
time they are recognized for income tax purposes, are reflected as
future income tax assets or liabilities. Future income tax assets and
liabilities are measured using statutory rates that are expected to
apply to taxable income in the years in which temporary differences
are expected to be recovered or settled.
p) COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform
with the current period presentation. The comparative figures were
compiled by management and were not subject to independent review.
--------------------------------------------------------------------------------
<PAGE> 11
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
30 SEPTEMBER 2000
U.S. Funds
Prepared Without Audit
--------------------------------------------------------------------------------
2. ACQUISITION OF SUBSIDIARY
By a share purchase agreement effective as of 10 August 2000, the company's
wholly-owned U.S. subsidiary agreed to purchase 100% of the issued and
outstanding shares of Spectrum. Spectrum is involved in the ballot
printing, absentee voting processing and remote voting sectors of the
election industry as well as certain other commercial printing
applications. The company received regulatory approval for the acquisition
on 28 August 2000 and the company's statement of income (loss) includes the
results of operations of Spectrum from 11 August 2000.
The consideration for the acquisition was as follows:
i) Issuance of 1,600,000 common shares of the company (Note 11c);
ii) Cash payment of $600,000 on 29 September 2000 (paid);
iii) Cash payment of $333,334 on 29 September 2001;
iv) Cash payment of $333,333 on 29 September 2002;
v) Cash payment of $333,333 on 29 September 2003.
A summary, as at 10 August 2000, of the consideration paid or accrued and
the net identifiable assets of Spectrum is as follows:
<TABLE>
<S> <C> <C>
Consideration Paid or Accrued
Fair market value of 1,600,000 common shares issued (i) $ 1,080,934
Cash consideration paid 600,000
Cash consideration payable (Note 9b) 1,000,000
Deferred interest portion related to discounted cash consideration payable (Note 9b) (219,583)
------------
Total consideration paid or accrued $ 2,461,351
------------
Net Identifiable Assets Acquired
Cash $ 18,837
Other current assets 36,984
Capital assets 2,030,676
Goodwill 2,146,000
Bank loan (46,952)
Other current liabilities (59,686)
Capital lease obligation (1,664,508)
------------
$ 2,461,351
------------
</TABLE>
(i) The share consideration has a deemed value of CDN $2.09 per the
agreement and per acceptance by the regulatory authorities. Management
has discounted this value to CDN $1.00 per share to recognize the
estimated fair value of the common shares at 10 August 2000.
The company has agreed to use its best efforts to obtain a release of the
vendor's personal liability under certain guarantees of the obligations of
Spectrum (Notes 9 and 10). The company has agreed to indemnify and save
harmless the vendor from any claims pursuant to these guarantees.
--------------------------------------------------------------------------------
<PAGE> 12
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
30 SEPTEMBER 2000
U.S. Funds
Prepared Without Audit
--------------------------------------------------------------------------------
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and short term deposits, accounts receivable,
contracts receivable, work-in-progress, deposits, agreements receivable,
accounts payable and accrued liabilities, loans payable and capital lease
obligations approximates their fair value due to their short term maturity
or capacity of prompt liquidation.
Concentration of credit risk may arise from exposure to a single debtor or
to a group of debtors having similar characteristics such that their
ability to meet their obligations to the company is expected to be affected
similarly by changes in economic or other conditions.
The company's counterparty concentration is with its authorized resellers
and state, county, city and municipal election customers in the United
States and Canada and arises in the normal course of the company's
business.
Included in the 30 September 2000 current accounts receivable of
$4,008,737, are three authorized resellers which together account for
$1,975,164 or 49.3% of this balance. To 16 November 2000, the company has
collected $239,128 from these customers and the balance is due on specific
terms.
Included in the 30 September 2000 current contracts receivable of
$3,505,332 is one election customer which accounts for $1,321,494 or 37.7%
of this balance. To 16 November 2000, the company has collected $NIL from
this customer and the balance is due at specific dates within one year from
30 September 2000.
--------------------------------------------------------------------------------
4. INVENTORY
Details are as follows:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Supplies and parts $3,605,042 $3,599,569
Finished goods 1,822,372 1,047,507
Trade-in goods -- 393,524
---------- ----------
$5,427,414 $5,040,600
---------- ----------
</TABLE>
--------------------------------------------------------------------------------
<PAGE> 13
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
30 SEPTEMBER 2000
U.S. Funds
Prepared Without Audit
--------------------------------------------------------------------------------
5. AGREEMENTS RECEIVABLE
a) Details of agreements receivable from customers are as follows:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Assignment receivable (Note 5b) 650,000 --
Sales agreement receivable with interest at 5% per annum
commencing 15 December 1995, repayable in 60 equal
monthly payments of $16,324 including principal and
interest, secured by the underlying products and
supplies $ 32,444 $ 221,545
Sales agreement receivable with interest at 5.4% per annum
commencing 15 July 1998, repayable at $22,738 per annum
for principal and interest on 15 July 1998 to 15 July
2001, secured by the underlying goods 36,926 53,001
Sales agreement receivable, non-interest bearing, repayable
at $60,000 in July 1999 and the balance in July 2000 -- 56,399
Sales agreement receivable with interest at 4.4% per annum
commencing 27 January 1998, repayable at $22,455 of
principal and interest by 1 July 1998, $21,759 of
principal and interest by 1 July 1999 and the balance
by 1 July 2000 -- 22,726
---------- ----------
719,370 353,671
Less: Current portion (173,494) (289,275)
---------- ----------
$ 545,876 $ 64,396
---------- ----------
Scheduled principal repayments on the sales agreements receivable are
as follows:
2001 $ 173,494
2002 100,161
2003 74,285
2004 74,285
2005 74,285
2006 and subsequent 222,860
----------
$ 719,370
----------
</TABLE>
b) By a letter agreement dated 28 August 2000, the company accepted the
future gross proceeds of two Election Services Agreements as payment
for $650,000 of trade receivable owing from the customer. These
assigned agreements have an estimated future gross proceeds of
approximately $1,200,000 during their eight year terms to August 2007,
representing an implicit interest rate of approximately 18% per annum.
--------------------------------------------------------------------------------
<PAGE> 14
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
30 SEPTEMBER 2000
U.S. Funds
Prepared Without Audit
--------------------------------------------------------------------------------
6. DEFERRED COSTS
Details are as follows:
<TABLE>
<CAPTION>
2000 1999
Accumulated NET BOOK Net Book
Costs Amortization VALUE Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Deferred development costs $ 801,386 $ 93,518 $ 707,868 $ --
------------ ------------ ------------ ------------
</TABLE>
--------------------------------------------------------------------------------
7. CAPITAL ASSETS
Details are as follows:
<TABLE>
<CAPTION>
2000 1999
Accumulated NET BOOK Net Book
Costs Amortization VALUE Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Demonstration and computer
equipment $ 927,062 $ 472,259 $ 454,803 $ 198,738
Manufacturing equipment 2,421,645 124,500 2,297,145 20,630
Furniture and equipment 269,240 183,506 85,734 99,062
Leasehold improvements 39,983 31,094 8,889 12,905
------------ ------------ ------------ ------------
$ 3,657,930 $ 811,359 $ 2,846,571 $ 331,335
------------ ------------ ------------ ------------
</TABLE>
--------------------------------------------------------------------------------
8. OTHER ASSETS
Details are as follows:
<TABLE>
<CAPTION>
2000 1999
Accumulated NET BOOK Net Book
Costs Amortization VALUE Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Patents $ 165,000 $ 144,375 $ 20,625 $ 37,125
Goodwill 3,446,960 887,255 2,559,705 682,500
------------ ------------ ------------ ------------
$ 3,611,960 $ 1,031,630 $ 2,580,330 $ 719,625
------------ ------------ ------------ ------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE> 15
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
30 SEPTEMBER 2000
U.S. Funds
Prepared Without Audit
--------------------------------------------------------------------------------
9. LOANS PAYABLE
a) Details are as follows:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Revolving line of credit, bearing interest at The Wall
Street Journal prime rate, interest payments due
quarterly, balance due in full by 18 July 2001,
$5,000,000 limit, secured by a commercial security
agreement covering all assets of the company $ 3,000,000 $ 3,600,000
Line of credit, bearing interest at bank prime plus 1% per
annum (interest rate floor of 10%), interest payments
due quarterly, due in full by 22 November 2000, secured
by a contract receivable with a balance receivable of
$1,321,494 as at 30 September 2000 904,950 1,508,500
Line of credit, bearing interest at bank prime rate plus 4%,
interest payments due monthly plus a 1.25% payment on
the outstanding principal balance with a minimum
monthly principal payment of $250, secured by a
commercial security agreement covering all assets of
Spectrum and an unlimited guarantee from the former
shareholder of Spectrum 48,711 --
Loan payable, non-interest bearing, payments due $333,334 by
29 September 2001, $333,333 by 29 September 2002 and
$333,333 by 29 September 2003, unsecured (Note 9b) 798,910 --
Line of credit, bearing interest at bank prime plus 1% per
annum (interest rate floor of 9%), interest payments
due quarterly -- 250,113
Line of credit, bearing interest at bank prime plus 1% per
annum (interest rate floor of 9%), interest payments
due quarterly -- 708,174
Promissory note payable, bearing interest at bank prime rate
plus 1% (interest rate floor of 10%), interest payments
due quarterly -- 564,456
------------ ------------
4,752,571 6,631,243
Less: Current portion (4,245,110) (5,816,674)
------------ ------------
$ 507,461 $ 814,569
------------ ------------
Scheduled principal repayments on the loans payable are as follows:
2001 $ 4,245,110
2002 339,202
2003 338,379
2004 4,339
2005 3,734
2006 and subsequent 22,897
------------
$ 4,953,661
------------
</TABLE>
<PAGE> 16
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
30 SEPTEMBER 2000
U.S. Funds
Prepared Without Audit
--------------------------------------------------------------------------------
9. LOANS PAYABLE - Continued
b) The promissory note payable was issued as part consideration for the
acquisition of Spectrum (Note 2) during the period ended 30 September
2000. Management has discounted the note payable using a discount rate
of 13.5% per annum resulting in a deferred interest charge of
$219,583.
Details are as follows:
<TABLE>
<S> <C>
Face value of note payable $ 1,000,000
Discount factor (219,583)
------------
780,417
Interest accretion in the period 18,493
------------
Balance - 30 September 2000 $ 798,910
------------
</TABLE>
--------------------------------------------------------------------------------
10. CAPITAL LEASE OBLIGATIONS
a) Details are as follows:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
IFC Credit Corporation (Note 10b)
Lease #01, bearing an implicit interest rate of 14.28%
per annum, payable at $3,719 per month for 60 months to
20 September 2003, secured by the related equipment $ 119,446 $ --
Lease #02, bearing an implicit interest rate of 14.28%
per annum, payable at $3,948 per month for 60 months to
1 December 2004, secured by the related equipment 160,084 --
Lease #03, bearing an implicit interest rate of 21.71%
per annum, payable at $3,240 per month for 60 months to
1 November 2004, secured by the related equipment 111,108 --
Lease #04, bearing an implicit interest rate of 15.48%
per annum, payable at $3,901 per month for 60 months to
1 August 2005, secured by the related equipment 168,549 --
Lease #05, bearing an implicit interest rate of 15.48%
per annum, payable at $3,901 per month for 60 months to
1 August 2005, secured by the related equipment 168,549 --
Newcourt Leasing Corp. (Note 10c)
Lease, bearing an implicit interest rate of 12.12% per
annum, payable at $15,718 per month for 42 months to 1
November 2001, secured by the related equipment 204,258 --
Bankvest Capital Corp. (Note 10d)
Lease, bearing an implicit interest rate of 10.30% per
annum, payable at $11,223 per month for 42 months to 1
June 2002, secured by the related equipment 214,835 --
Copelco Capital, Inc. (Note 10e)
Lease, bearing an implicit interest rate of 12.84% per
annum, payable at $21,751 per month for 48 months to 29
February 2004, secured by the related equipment 732,916 --
------------ ------------
1,879,745 --
Less: Current portion (533,669) --
------------ ------------
$ 1,346,076 $ --
------------ ------------
</TABLE>
<PAGE> 17
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
30 SEPTEMBER 2000
U.S. Funds
Prepared Without Audit
--------------------------------------------------------------------------------
10. CAPITAL LEASE OBLIGATIONS - Continued
b) IFC CREDIT CORPORATION LEASES
The company must elect at least 90 days prior to the initial expiry
date:
i) To purchase the equipment at the greater of the fair market value
and 10% of the lessor's capitalized cost; or
ii) To extend the lease for five months at the same monthly payment
amount and purchase the equipment at 2% of the lessor's
capitalized cost; or
iii) The lease will be automatically extended for an additional twelve
months at the same monthly payment.
Management has indicated its intention to buy-out the leases at 10% of
the lessor's capitalized cost at the termination of each lease. The
estimated buy-out amount has been included in the capital lease
obligation.
Title to the equipment remains with the lessor during the term of the
lease. The leases are guaranteed by the former shareholder of Spectrum
and the shareholder's spouse.
c) NEWCOURT LEASING CORP. LEASE
The company must elect at least 60 days prior to the expiration of the
lease term to purchase the equipment at the end of the lease term for
$1. Title to the equipment remains with the lessor during the term of
the lease.
d) BANKVEST CAPITAL CORP. LEASE
The company must elect at least 60 days prior to the expiration of the
lease term to purchase the equipment at the end of the lease term for
$1. Title to the equipment remains with the lessor during the term of
the lease. The lease is guaranteed by the former shareholder of
Spectrum.
e) COPELCO CAPITAL, INC.
The company must elect at least 90 days prior to the expiration of the
lease term to return the equipment or purchase the equipment at the
end of the lease term at its fair market value. Title to the equipment
remains with the lessor during the term of the lease.
f) Scheduled principal repayments on the loans payable are as follows:
<TABLE>
<S> <C>
2001 $ 808,016
2002 617,965
2003 485,525
2004 288,637
2005 104,146
----------
$2,304,089
----------
</TABLE>
--------------------------------------------------------------------------------
<PAGE> 18
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
30 SEPTEMBER 2000
U.S. Funds
Prepared Without Audit
--------------------------------------------------------------------------------
11. SHARE CAPITAL
a) STOCK OPTION PLAN
The company has a stock option plan which covers its officers and
directors. The options are granted for varying terms ranging from
three to five years. Options granted prior to 30 June 1998, were
immediately vested upon grant. Options granted subsequent to 30 June
1998, vest over the term of the option. The following is a schedule of
the activity pursuant to this stock option plan:
<TABLE>
<CAPTION>
Number of Price per Share
Shares (CDN $) Expiration Date
--------- --------------- ---------------
<S> <C> <C> <C>
Balance - 30 June 1999 1,473,768 $1.25 to $2.05
Options expired (23,768) $1.25 22 August 2002
----------
15 October 2001 to
Balance - 30 September 1999 1,450,000 $1.25 to $2.05 17 December 2002
----------
Balance - 30 June 2000 1,300,000 $1.25 to $2.05
Options granted 50,000 $1.25 2 August 2005
Options exercised (50,000) $1.25 22 August 2002
----------
15 October 2001 to
Balance - 30 September 2000 1,300,000 $1.25 to $2.05 2 August 2005
----------
</TABLE>
b) STOCK PURCHASE WARRANTS
The following is a schedule of the activity pursuant to stock purchase
warrants:
<TABLE>
<CAPTION>
Number of Price per Share
Shares (CDN $) Expiration Date
--------- --------------- ---------------
<S> <C> <C> <C>
166,667 $1.88 31 March 2001
----------
</TABLE>
c) ESCROW AGREEMENT
Pursuant to the 10 August 2000 acquisition of Spectrum, the required
1,600,000 common shares were issued to the vendor on 29 September
2000. These shares are subject to an escrow agreement which allows for
the release of these shares on 30 September 2002, subject to any
claims by the company against the vendor for breach of representations
and warranties under the 10 August 2000 Share Purchase Agreement.
--------------------------------------------------------------------------------
<PAGE> 19
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
30 SEPTEMBER 2000
U.S. Funds
Prepared Without Audit
--------------------------------------------------------------------------------
12. INCOME TAXES
a) A summary of the taxable income of the company for the period ended 30
September 2000 is as follows:
<TABLE>
<CAPTION>
Canadian Parent U.S. Subsidiaries Total
--------------- ----------------- ------------
<S> <C> <C> <C>
Net income (loss) before taxes per financial
statements $ 896 $ (744,544) $ (743,648)
Timing differences on capital assets 33,610 -- 33,610
------------ ------------ ------------
34,506 (744,544) (710,038)
Future benefit of current tax loss (Note 12b) -- 744,544 744,544
------------ ------------ ------------
Current Taxable Income $ 34,506 $ -- $ 34,506
------------ ------------ ------------
Statutory tax rate (i) 16.0% -- 16.0%
------------ ------------ ------------
Current Income Tax Provision $ 5,521 $ -- $ 5,521
------------ ------------ ------------
</TABLE>
(i) No federal rate applied on application of investment tax credits
(Note 12c).
b) A summary of the taxable income of the company for the period ended 30
September 2000 is as follows:
<TABLE>
<CAPTION>
Canadian Parent U.S. Subsidiaries Total
--------------- ----------------- ------------
<S> <C> <C> <C>
Current tax loss (Note 12a) $ -- $ (744,544) $ (744,544)
Timing difference on deferred development costs -- (141,551) (141,551)
Non-deductible amortization and interest -- 108,799 108,799
------------ ------------ ------------
Future Taxable Income (Loss) $ -- $ (777,296) $ (777,296)
------------ ------------ ------------
Statutory tax rate -- 35.0% 35.0%
------------ ------------ ------------
Future Income Tax Recovery $ -- $ 272,000 $ 272,000
Future Income Taxes Payable - 30 June 2000 -- (145,000) (145,000)
------------ ------------ ------------
Future Income Taxes Receivable -
30 September 2000 $ -- $ 127,000 $ 127,000
------------ ------------ ------------
</TABLE>
c) The company has unclaimed investment tax credits, for Canadian tax
purposes, arising from its research and development activities in the
amount of $282,000 which may be carried forward to be applied against
future federal taxes payable. The future tax benefits, if any, of
these tax credits have not been recognized in the accounts and expire
as follows:
<TABLE>
<S> <C>
2002 $ 68,000
2004 34,000
2005 63,000
2006 117,000
------------
$ 282,000
------------
</TABLE>
<PAGE> 20
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
30 SEPTEMBER 2000
U.S. Funds
Prepared Without Audit
--------------------------------------------------------------------------------
12. INCOME TAXES - Continued
d) As at 30 September 2000, the company has tax losses, for Canadian tax
purposes, of approximately $99,000, which may be carried forward to be
applied against future taxable income. The future benefits, if any, of
these tax losses have not been recognized in the accounts of the
company and expire in 2007.
e) As at 30 September 2000, the company's subsidiary has tax losses, for
U.S. tax purposes, of approximately $951,000 which may be carried
forward to be applied against future taxable income. The future
benefits, if any, of these tax losses has been recognized in the
accounts of the company as a reduction of the future income tax
provision. These losses expire in 2011.
--------------------------------------------------------------------------------
13. COMMITMENTS
a) By way of an employment agreement, the company secured the services of
a key employee for a three year term which expired 31 July 2000. The
contract contained fixed annual compensation totaling $180,000 per
annum plus a bonus of 3% of earnings before taxes not to exceed
$200,000 per annum. During the quarter ended 30 September 2000, the
parties reached a mutual agreement to not extend the contract past the
31 July 2000 expiry date. Severance totaling $162,000 was negotiated
and will be paid on a monthly basis during the 2001 fiscal year,
subject to the employee meeting the terms of the severance agreement.
b) By way of an employment agreement, the company has secured the
services of a key employee of Spectrum for an initial term which
expires 31 December 2002. The contract contains fixed annual
compensation of $144,000 per annum for the initial twelve months of
the agreement. The contract renews automatically for successive one
years terms unless either party gives the required 30 days notice
prior to the expiration of the contract term.
c) By way of employment agreements, the company has secured the services
of three key employees of Spectrum for an initial term which expires
31 December 2000. The contracts contain fixed annual compensation
totaling $210,000 per annum and are automatically renewed for
successive one year terms unless either party gives the required 30
days notice prior to the expiration of the contract term.
d) Under the terms of a lease agreement dated 8 December 1998, the
company is committed to minimum annual lease payments which increased
from CDN $25,529 in the first year to CDN $35,741 by the final year,
plus its share of common area costs. The lease is for a five year term
to 30 April 2004 representing a minimum lease commitment of:
<TABLE>
<CAPTION>
CDN $
----------
<S> <C>
2001 $ 31,796
2002 34,580
2003 37,364
2004 25,992
----------
$ 129,732
----------
</TABLE>
<PAGE> 21
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
30 SEPTEMBER 2000
U.S. Funds
Prepared Without Audit
--------------------------------------------------------------------------------
13. COMMITMENTS - Continued
e) By an agreement dated 4 March 1997, the company's United States
subsidiary has agreed to lease 13,050 square feet of general office
and warehouse space in McKinney, Texas for five years from 1 July
1997. The annual lease amount of $110,272 represents a minimum lease
commitment of:
<TABLE>
<S> <C>
2001 $ 110,272
2002 82,704
----------
$ 192,976
----------
</TABLE>
The lease may be extended for two additional terms of five years with
the rate to be the current base rent plus the lesser of a consumer
price adjustment or a fair rental value adjustment.
f) By an agreement dated 9 December 1999, the company's United States
subsidiary has agreed to lease an additional 13,050 square feet of
general office and warehouse space in McKinney, Texas, immediately
adjacent to its existing facilities, for five years from 1 July 2000.
The annual lease amount of $110,268 represents a minimum lease
commitment of:
<TABLE>
<S> <C>
2001 $ 110,268
2002 110,268
2003 110,268
2004 110,268
2005 82,701
----------
$ 523,773
----------
</TABLE>
The lease may be extended for two additional terms of five years with
the rate to be the current base rent plus the lesser of a consumer
price adjustment or a fair rental value adjustment.
g) Under the terms of an office space lease agreement dated 5 May 1997,
Spectrum is committed to minimum annual lease payments which increased
from $39,804 in the first year to $43,512 by the final year, plus its
share of common area costs. The lease is for a four year term to 1 May
2001 representing a minimum lease commitment of $29,008 for the twelve
month period to 30 September 2001.
h) Under the terms of a production space lease agreement dated 6 June
1998, Spectrum is committed to minimum annual lease payments which
increased from $23,280 in the first year to $25,440 by the final year,
plus its share of common area costs. The lease is for a four year term
to 1 June 2002 representing a minimum lease commitment of:
<TABLE>
<S> <C>
2001 $ 24,900
2002 19,080
----------
$ 43,980
----------
</TABLE>
<PAGE> 22
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
30 SEPTEMBER 2000
U.S. Funds
Prepared Without Audit
--------------------------------------------------------------------------------
13. COMMITMENTS - Continued
i) Under the terms of a production space lease agreement dated 23
December 1999, Spectrum is committed to minimum annual lease payments
which commenced at $55,296 per annum plus annual increases based on
the C.P.I. for San Francisco, with a minimum increase of 3% and a
maximum increase of 5% per annum, plus its share of common area costs.
The lease is for a five year term to 31 December 2004 representing a
minimum lease commitment of:
<TABLE>
<S> <C>
2001 $ 56,538
2002 58,230
2003 59,979
2004 61,779
2005 15,558
----------
$ 252,084
----------
</TABLE>
--------------------------------------------------------------------------------
14. RELATED PARTY TRANSACTIONS
In addition to items disclosed elsewhere in these consolidated financial
statements, the company conducted the following transactions with related
parties:
a) EXPENDITURES
Details are as follows:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Paid/accrued salaries and fees to officers and directors $ 358,821 $ 156,348
---------- ----------
</TABLE>
b) SHARE CAPITAL
During the quarter ended 30 September 2000, the company granted a
director 50,000 share purchase options with an exercise price of CDN
$1.25 per share and an expiry date of 2 August 2005. During the
quarter ended 30 September 2000, a former director exercised 50,000
share purchase options with an exercise price of CDN $1.25 for cash in
the amount of $42,174.
--------------------------------------------------------------------------------
<PAGE> 23
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
30 SEPTEMBER 2000
U.S. Funds
Prepared Without Audit
--------------------------------------------------------------------------------
15. SEGMENT INFORMATION
The company operated in only one industry segment in Canada and the United
States as follows:
<TABLE>
<CAPTION>
CANADA UNITED STATES ELIMINATION CONSOLIDATION
2000 2000 2000 2000
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Sales to customers $ 583,615 $ 2,895,630 $ -- $ 3,479,245
Sales between the segments 34,370 711,456 (745,826) --
------------ ------------ ------------ ------------
Total sales revenue $ 617,985 $ 3,607,086 $ (745,826) $ 3,479,245
------------ ------------ ------------ ------------
Operating profits $ 280,283 $ 1,429,949 $ -- $ 1,710,232
------------ ------------ ------------ ------------
General corporate expenses (2,259,104)
Interest (194,776)
Income taxes (5,521)
Future income taxes 272,000
------------
Net income (loss) $ (477,169)
------------
Identifiable assets $ 2,430,995 $ 21,304,737 $ 210,174 $ 23,945,906
------------ ------------ ------------ ------------
Capital expenditures $ 216 $ 2,407,856 $ -- $ 2,408,072
------------ ------------ ------------ ------------
Amortization of capital
assets $ 4,609 $ 97,185 $ -- $ 101,794
------------ ------------ ------------ ------------
Canada United States Elimination Consolidation
1999 1999 1999 1999
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Sales to customers $ 197,479 $ 6,053,201 $ -- $ 6,250,680
Sales between the segments 240,925 83,998 (324,923) --
------------ ------------ ------------ ------------
Total sales revenue $ 438,404 $ 6,137,199 $ (324,923) $ 6,250,680
------------ ------------ ------------ ------------
Operating profits $ 355,736 $ 2,571,529 $ -- $ 2,927,265
------------ ------------ ------------ ------------
General corporate expenses (1,929,958)
Interest (146,798)
Revaluation of used equipment (162,297)
Income taxes --
Future income taxes --
------------
Net income (loss) $ 688,212
------------
Identifiable assets $ 657,644 $ 22,646,779 $ (22,607) $ 23,281,816
------------ ------------ ------------ ------------
Capital expenditures $ 6,699 $ 151 $ -- $ 6,850
------------ ------------ ------------ ------------
Amortization of capital
assets $ 4,253 $ 24,585 $ -- $ 28,838
------------ ------------ ------------ ------------
</TABLE>
<PAGE> 24
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
30 SEPTEMBER 2000
U.S. Funds
Prepared Without Audit
--------------------------------------------------------------------------------
16. DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
These interim consolidated financial statements are prepared in accordance
with accounting principles generally accepted in Canada. Any differences in
United States accounting principles as they pertain to the accompanying
interim consolidated financial statements are not material except as
follows:
a) COMPENSATION EXPENSE
Under accounting principles generally accepted in the United States,
there is a compensation expense associated with the release of
escrowed shares of the company, as those shares become eligible for
release. No compensation expense is applied under accounting
principles generally accepted in Canada.
b) DEFERRED COSTS
Under accounting principles generally accepted in the United States,
expenditures related to research and development projects are expensed
in the period incurred. Under accounting principles generally accepted
in Canada, research expenditures are expensed as incurred and
development expenses, which meet certain prescribed criteria (Note
1k), may be deferred and amortized against future income.
c) FINANCIAL STATEMENT RECONCILIATION
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
i) Deferred costs - Canadian basis $ 707,868 $ --
Less: Deferred costs expensed - current period (120,016) --
Less: Deferred costs expensed - prior years (587,852) --
------------ ------------
Deferred costs - U.S. basis $ -- $ --
------------ ------------
ii) Share capital - Canadian basis $ 11,340,370 $ 10,126,865
Add: Escrow share compensation expense - prior years 3,194,621 3,194,621
------------ ------------
Share capital - U.S. basis $ 14,534,991 $ 13,321,486
------------ ------------
iii) Retained earnings - Canadian basis $ 1,985,988 $ 2,023,555
Less: Deferred costs expensed - current period (120,016) --
Less: Deferred costs expensed - prior years (587,852) --
Less: Escrow share compensation expense - prior periods (3,194,621) (3,194,621)
------------ ------------
Deficit - U.S. basis $ (1,916,501) $ (1,171,066)
------------ ------------
iv) Net income (loss) for the period - Canadian basis $ (477,169) $ 667,817
Less: Deferred costs expensed - current period (120,016) --
------------ ------------
Net income (loss) for the period - U.S. basis $ (597,185) $ 667,817
------------ ------------
</TABLE>
<PAGE> 25
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
30 SEPTEMBER 2000
U.S. Funds
Prepared Without Audit
--------------------------------------------------------------------------------
16. DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES - Continued
c) FINANCIAL STATEMENT RECONCILIATION - Continued
v) U.S. GAAP interim consolidated statement of shareholders' equity
<TABLE>
<CAPTION>
Common Shares
Shares Amount Deficit Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance - 30 June 1999 - U.S. basis 18,483,673 $ 13,321,486 $ (1,838,883) $ 11,482,603
Net income (loss) for the period -- -- 667,817 667,817
------------ ------------ ------------ ------------
Balance - 30 September 1999 - U.S. basis 18,483,673 $ 13,321,486 $ (1,171,066) $ 12,150,420
------------ ------------ ------------ ------------
Balance - 30 June 2000 - U.S. basis 18,583,673 $ 13,411,883 $ (1,319,316) $ 12,092,567
Issuance of shares on exercise of
options ($0.84 per share) 50,000 42,174 -- 42,174
Issuance of shares on acquisition of
subsidiary ($0.68 per share) 1,600,000 1,080,934 -- 1,080,934
Net income (loss) for the period -- -- (597,185) (597,185)
------------ ------------ ------------ ------------
Balance - 30 September 2000 - U.S. basis 20,233,673 $ 14,534,991 $ (1,916,501) $ 12,618,490
------------ ------------ ------------ ------------
</TABLE>
d) EARNINGS PER SHARE - BASIC OR PRIMARY
Under accounting principles generally accepted in the United States,
stock options and stock warrants are treated as common stock
equivalents in the determination of basic or primary earnings per
share if they would have a dilutive effect. Stock options and stock
warrants are not treated as common stock equivalents in the
determination of basic or primary earnings per share in Canada.
Reconciliation of Canadian to U.S. basis - Earnings (Loss) per Share
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Weighted average number of common shares outstanding
- Canadian basis 19,731,892 18,483,672
Add: Dilutive stock options and warrants N/A 1,616,667
------------ ------------
Weighted average number of common shares outstanding
- U.S. basis 19,731,892 20,100,339
------------ ------------
Net income (loss) for the period - U.S. basis $ (597,185) $ 667,817
------------ ------------
Basic earnings (loss) per share
- U.S. basis $ (0.03) $ 0.03
------------ ------------
- Canadian basis $ (0.02) $ 0.04
------------ ------------
Fully diluted earnings per share
- U.S. basis $ N/A $ 0.03
------------ ------------
- Canadian basis $ N/A $ 0.03
------------ ------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE> 26
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
30 SEPTEMBER 2000
U.S. Funds
Prepared Without Audit
--------------------------------------------------------------------------------
17. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. Although the change in date has
occurred, it is not possible to conclude that all aspects of the Year 2000
Issue that may affect the entity, including those related to customers,
suppliers, or other third parties, have been fully resolved. The company
has not experienced any Year 2000 issues to date.
--------------------------------------------------------------------------------
<PAGE> 27
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 Consolidated 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. See Note 16
of the Notes to Interim Consolidated Financial Statements for an explanation of
differences between Canadian GAAP and United States 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; 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, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999.
SALES AND OPERATING INCOME.
Sales and other income decreased 44.2 %, or $2,764,000, to
$3,491,000 in the three months ended September 30, 2000 from $6,255,000 in the
three months ended September 30, 1999. Spectrum Print & Mail Services, Ltd
(Spectrum) reduced the sales decrease by $1,345,000. The decrease in sales is
due to the voting requirements of the Electoral Boards to have all new electoral
equipment and processes in operation by the months of May to June of the
national election year. As a result, Electoral Boards do not purchase new
equipment in the second half of the year. Management had anticipated the
decrease within the quarter and a subsequent rise in revenue in the second half
of the fiscal year 2001.
COST OF SALES AND OPERATING EXPENSES.
Cost of sales and operating expenses decreased 47.0 %, or
$1,578,000, to $1,781,000 in the 2000 period from $3,359,000 in the 1999 period.
Spectrum contributed $556,000 to the cost of sales and operating expenses. In
the 2000 period, cost of sales and operating expense as a percentage of gross
revenues decreased to 51.0% from 53.7% in the 1999 period due to Spectrum's
greater gross margins on the product sold in the 2000 period.
<PAGE> 28
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES.
In the three months ended September 30, 2000 selling,
administrative and general expenses increased 13.2 %, or $222,000, to
$1,903,000, from $1,681,000 in the 1999 period. Of the increase in selling,
administrative and general expenses $101,000 is attributable to Spectrum. The
increase is attributable to increased sales efforts; expansion of customer
support abilities and normal salary raises for staff.
RESEARCH AND DEVELOPMENT EXPENSES.
Research and development expenses decreased 1.4%, or $2,000,
to $139,000 in the 2000 period from $141,000. The company has also capitalized
$142,000 of costs in the first quarter of fiscal 2001. Research and development
amounting to $43,000 are attributable to Spectrum. In the quarter ended
September 30, 2000 development was being performed on the Accu Touch software;
this was not occurring in the quarter ended September 30, 1999. The decrease in
research and development expense in the 2000 period was within the Company's
operating plan.
INTEREST.
Interest expense increased 32.7%, or $48,000, to $195,000, in
the 2000 period from $147,000 in the 1999 period. Spectrum contributed $61,000
to the total interest expense incurred. The increase was within the Company's
operating plan and resulted from interest on U.S. bank loans.
AMORTIZATION.
Amortization increased 100.7%, or $109,000, to $217,000, in
the 2000 period from $108,000 in the 1999 period. Of the increase in
amortization $122,000 is attributable to the Spectrum acquisition. The increase
was anticipated and is a result of acquisition of depreciable assets.
REVALUATION OF TRADE-IN EQUIPMENT.
The trade-in inventory write off amounted to nil in the
quarter ended September 30, 2000, which is $131,000 less than the amount that
was written off in the quarter ended September 30, 1999. The trade-in inventory
write down was complete at the end of the fiscal year ending June 30, 2000.
LOSS PER SHARE.
Loss for the first quarter ended September 30, 2000 was
$477,000 or $(0.02) per share compared to earnings of $668,000, or $0.04 per
share for the same period in the previous year.
The decrease in earnings per share for the 2000 period as
compared to the 1999 period was attributable to decreases in revenue from sales
of products, increases in selling, administrative and general expense,
amortization and interest and offset by decreases in cost of sales and operating
expenses and research and development.
<PAGE> 29
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, 2000 the Company
generated most of its funding through cash flow.
At September 30, 2000 the Company's cash totaled $2,371,598 an
increase of $924,985 from June 30, 2000. Accounts and contracts receivable
decreased to $7,514,000 at September 30, 2000 from $12,717,000 at June 30, 2000.
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 the
delivery dates for voting systems. At September 30, 2000, inventory amounted to
$5,427,000, an increase of $75,000 from June 30, 2000. 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, 2000, agreements receivable less current portion amounted to
$546,000 compared to $16,000 as at June 30, 2000. During the quarter ended
September 30, 2000 the Company was assigned certain agreements receivable in
consideration for the reduction of a dealer account receivable in the amount of
$650,000. These assigned agreements have an estimated future gross proceeds of
approximately $1,200,000 over their term to August 2007, representing an
implicit interest rate of approximately 18% per annum. 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 four loans outstanding, one with
Compass Bank, Albuquerque, New Mexico, a line of credit with Hibernia National
Bank of Texas, McKinney, Texas and a promissory note payable to Mrs. Deborah M.
Dean. Spectrum has a line a line of credit with U. S. Bank. One loan in the
amount of $905,000 is secured by a specific Global USA contract in the amount of
$1,321,000. This loan bears interest at Compass Bank of Albuquerque Prime Rate
plus 1% and is due November 22, 2000. The line of credit with Hibernia National
Bank of Texas in the amount of $3,000,000 is secured by a blanket assignment of
accounts receivable, and bears interest at The Wall Street Journal Prime Rate
and is due July 18, 2001. The promissory note payable in the amount of $798,910
is unsecured and is non-interest bearing. Payments are due $333,334 September
29, 2001; $333,333 September 29, 2002 and $333,333 September 29, 2002. The line
of credit with U. S. Bank in the amount of $48,711 is secured by a commercial
security agreement covering all assets of Spectrum and an unlimited guarantee
from the former shareholder of Spectrum. This line of credit bears interest at
U. S. Bank prime plus 4%. The loans are used for working capital and
acquisition of Spectrum.
The Company has a revolving line of credit with Hibernia
National Bank of Texas to a maximum of $5,000,000.
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> 30
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
On August 2, 2000, a director, Mr. B. Courtney was
issued 50,000 stock options exercisable at a purchase
price of CDN $1.25 per share. The options were issued
under the exemption from registration provided by
Section 4(2) of the Securities Act.
On August 23, 2000 the Company issued 50,000 shares
of common stock to Mr. Van Pelt who exercised stock
options. The purchase price of the shares was
$42,174. The options were issued under the exemption
from registration provided by Section 4(2) of the
Securities Act.
On September 29, 2000 the Company issued 1,600,000
shares of common stock for the acquisition of
Spectrum to Mrs. Deborah M. Dean at a deemed price of
$0.68 per share. These shares are subject to an
escrow agreement which allows for the release of
these shares on September 30, 2002, subject to any
claims by the Company against the vendor for breach
of representations and warranties under the August
10, 2000 Share Purchase Agreement. The shares were
issued under the exemption from registration provided
by Section 4(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The following items were submitted to a vote and
approved at the Annual General Meeting held on
November 10, 2000.
A. Determine the number of the Board of
Directors of the Company at five.
B. Incentive Stock Options
To approve the grant and exercise of
stock options previously granted to
certain Insiders of the Company, and
to authorize the directors to grant
additional stock options to Insiders
and employees and amend any existing
stock options as long as the options
and amendments are in compliance
with the policies of the Toronto
Stock Exchange, and that no further
approval from the shareholders shall
be required prior to the exercise of
such stock options.
<PAGE> 31
C. Appointment of Auditor
Staley, Okada, Chandler & Scott,
Chartered Accountants
D. Election of Directors
1. Robert J. Urosevich
2. P. Nicholas M. Glass
3. Clinton H. Rickards
4. John W. Larmer II
5. Brian W. Courtney
The following were the results of the vote of the
shareholders at the Annual General Meeting held on November 10, 2000.
<TABLE>
<CAPTION>
FOR AGAINST WITHHELD ABSTAINED NOT VOTED
<S> <C> <C> <C> <C> <C>
Resolution A 10,492,582 9,913 0 0 762
Resolution B 6,213,810 134,320 400 0 4,154,727
Resolution C 10,502,255 0 240 0 762
Resolution D. 1 9,605,393 0 897,102 0 762
Resolution D. 2 9,604,993 0 897,502 0 762
Resolution D. 3 9,603,993 0 898,502 0 762
Resolution D. 4 10,502,357 0 138 0 762
Resolution D. 5 9,604,993 0 897,502 0 762
</TABLE>
Item 5. Other Information
None
<PAGE> 32
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
2.1 Share Purchase Agreement - Spectrum Print & Mail
Services, Ltd. (including Schedule A, List of Assets
of Spectrum Print & Mail Services, Ltd.; Schedule B,
Financial Statements for Spectrum Print & Mail
Service, Ltd.; Schedule C, List of Directors,
Officers and Key Employees of Spectrum Print & Mail
Services, Ltd.; Schedule D, List of Additional
Material Contracts of Spectrum Print & Mail Services,
Ltd.; Schedule E, Financial Statements for Global
Election Systems, Inc. (omitted); Schedule F,
Employment Agreements and Non-Compete Agreements;
Schedule G, Form of Vendor's and Founder's
Solicitor's Opinion (omitted); Schedule H, Form of
Purchaser's Solicitor's Opinion (omitted); Schedule
I, Certificate of Confirmation; Schedule J,
Certificate of Confirmation; Schedule K, Personal
Property Lease; Schedule L, Real Property Leases;
Schedule M, List of Spectrum's Intellectual Property
Rights; Schedule M, Customers (omitted); Schedule N,
Options Warrants and Agreements to Issue Securities
of Global Canada; Schedule P, List of Global's
Computer Programs; and Schedule Q, Escrow Agreement)
3.1 Memorandum and Articles of Incorporation, as
amended.(1)
4.1 (1) Parts 7, 10, 12, and 27 of the Memorandum and
Articles of Incorporation, as amended, set forth in
Exhibit 3.1. (1)
10.6 Property lease dated September 26, 2000 between
Jersey Investments, Inc. and the Company.
11 Computation of per-share income Treasury Stock
Method of the Company.
27 Financial Data Schedule.
(1) Incorporated by reference to the Company's Form 10-SB filed with
the commission on July 31, 1998.
B. Reports on Form 8-K
The Company filed no reports on Form 8-K during the
first quarter of Fiscal 2001.
<PAGE> 33
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 17, 2000
Global Election Systems Inc.
By: /s/ Robert J. Urosevich
------------------------
Robert J. Urosevich, President, and
Chief Operating Officer
<PAGE> 34
INDEX TO EXHIBITS
2.1 Share Purchase Agreement - Spectrum Print & Mail
Services, Ltd. (including Schedule A, List of Assets
of Spectrum Print & Mail Services, Ltd.; Schedule B,
Financial Statements for Spectrum Print & Mail
Service, Ltd.; Schedule C, List of Directors,
Officers and Key Employees of Spectrum Print & Mail
Services, Ltd.; Schedule D, List of Additional
Material Contracts of Spectrum Print & Mail Services,
Ltd.; Schedule E, Financial Statements for Global
Election Systems, Inc. (omitted); Schedule F,
Employment Agreements and Non-Compete Agreements;
Schedule G, Form of Vendor's and Founder's
Solicitor's Opinion (omitted); Schedule H, Form of
Purchaser's Solicitor's Opinion (omitted); Schedule
I, Certificate of Confirmation; Schedule J,
Certificate of Confirmation; Schedule K, Personal
Property Lease; Schedule L, Real Property Leases;
Schedule M, List of Spectrum's Intellectual Property
Rights; Schedule M, Customers (omitted); Schedule N,
Options Warrants and Agreements to Issue Securities
of Global Canada; Schedule P, List of Global's
Computer Programs; and Schedule Q, Escrow Agreement)
3.1 Memorandum and Articles of Incorporation, as
amended.(1)
4.1 (1) Parts 7, 10, 12, and 27 of the Memorandum and
Articles of Incorporation, as amended, set forth in
Exhibit 3.1 (1)
10.6 Property lease dated September 26, 2000 between
Jersey Investments, Inc. and the Company.
11 Computation of per-share income Treasury Stock
Method of the Company.
27 Financial Data Schedule.
(1) Incorporated by reference to the Company's Form 10-SB filed with
the commission on July 31, 1998.
