<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
Commission File Number 0-14692
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GLOBAL MAINTECH CORPORATION
MINNESOTA 41-1523657
State of Incorporation I.R.S. Employer Identification No.
6468 City West Parkway, Eden Prairie, MN 55344
Telephone Number: (612) 944-0400
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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 ____
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On July 19, 1998 there were 17,549,758 shares of the Registrant's no par value
common stock outstanding.
Transitional small business issuer format: No
Page 1 of 12
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SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-QSB contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve risks and uncertainties that may cause the
Company's actual results to differ materially from the results discussed in the
forward-looking statements. Factors that might cause such differences include,
but are not limited to, the uncertainty in the Company's ability to operate
profitably in the future; failure of the Company to meet its future additional
capital requirements; loss of key personnel; inability of the Company to compete
in the industry in which it operates; failure of the Company to respond to
evolving industry standards and technological changes; lack of market acceptance
of the Company's products; failure of the Company to secure adequate protection
for the Company's intellectual property rights; and the Company's exposure to
product liability claims. The forward-looking statements are qualified in their
entirety by the cautions and risk factors set forth in Exhibit 99, under the
caption "Cautionary Statement," to this Quarterly Report on Form 10-QSB for the
year ended June 30, 1998.
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PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
GLOBAL MAINTECH CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
1998 1997
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 425,807 $1,726,889
Accounts receivable, less allowance for
doubtful accounts of $15,000 1,707,438 576,573
Other receivables 150,446 26,111
Inventories 1,383,068 797,435
Prepaid expenses and other 108,516 77,308
Notes receivable 125,000 75,000
Current portion of investment in
sales-type leases -- 286,997
---------- ----------
Total current assets 3,900,275 3,566,313
Property and equipment, net 319,459 308,347
Leased equipment 140,699 209,033
Software development costs, net 1,804,941 955,835
Net investment in sales-type leases,
net of current portion -- 492,918
Other assets, net 1,026,853 331,003
---------- ----------
TOTAL ASSETS $7,192,227 $5,863,449
========== ==========
The accompanying notes are an integral part of these consolidated statements.
2
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GLOBAL MAINTECH CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 682,274 $ 396,159
Current portion of notes payable 100,000 100,000
Accrued liabilities
Compensation and payroll taxes 202,558 123,605
Interest -- --
Other 32,392 10,588
Deferred revenue 42,735 52,443
----------- -----------
Total current liabilities 1,059,959 682,795
----------- -----------
Subordinated notes payable, less current portion 1,850,000 1,900,000
----------- -----------
Total liabilities 2,909,959 2,582,795
STOCKHOLDERS' EQUITY (DEFICIT)
Voting, convertible preferred stock - Series A,
convertible into one common stock share for each pre-
ferred share, no par value; 887,980 shares authorized;
233,446 shares in 1998 and 244,113 shares in 1997
issued and outstanding; total liquidation preference of
outstanding shares-$438,000 XXX 109,486 114,489
Common stock, no par value; 49,112,020 shares
authorized; 17,418,258 shares in 1998 and 15,248,816 XXX -- --
shares in 1997 issued and outstanding
Additional paid-in-capital 5,998,352 5,295,829
Notes receivable-officers (294,500) (294,500)
Accumulated deficit (1,531,070) (1,835,164)
----------- -----------
Total stockholders' equity 4,282,268 3,280,654
----------- -----------
$ 7,192,227 $ 5,863,449
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
GLOBAL MAINTECH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales
Systems 1,439,433 $ 697,860 $ 2,878,177 $ 1,293,867
Maintenance, consulting and other 237,424 $ 170,976 $ 595,081 $ 281,520
------------ ------------ ------------ ------------
Total net sales $ 1,676,857 $ 868,836 $ 3,473,258 $ 1,575,387
Cost of sales
Systems 334,727 $ 197,438 $ 818,025 $ 370,429
Maintenance, consulting and other 231,735 $ 19,075 $ 432,909 $ 26,664
------------ ------------ ------------ ------------
Total cost of sales 566,462 216,513 1,250,934 397,093
------------ ------------ ------------ ------------
Gross profit 1,110,395 652,323 2,222,324 1,178,294
Operating expenses
Selling, general and administrative 843,515 380,553 1,599,684 696,644
Research and development 126,199 42,681 273,521 87,007
------------ ------------ ------------ ------------
Income from operations 140,681 229,089 349,119 394,643
Other income (expense):
Interest expense (72,567) (32,106) (146,666) (32,106)
Interest income 9,918 14,707 123,788 14,708
Other (11,073) -- (22,147) (16,548)
------------ ------------ ------------ ------------
Total other income (expense), net (73,722) (17,399) (45,025) (33,946)
------------ ------------ ------------ ------------
Income from continuing operations before income taxes 66,959 211,690 304,094 360,697
Provision for income taxes -- -- -- 2,500
------------ ------------ ------------ ------------
Income from continuing operations 66,959 211,690 304,094 358,197
Gain from discontinued operations -- -- -- 70,000
------------ ------------ ------------ ------------
Net income $ 66,959 $ 211,690 $ 304,094 $ 428,197
============ ============ ============ ============
Basic earnings per common share:
Continuing operations $ 0.004 $ 0.015 $ 0.018 $ 0.028
Discontinued operations -- 0.000 -- 0.005
------------ ------------ ------------ ------------
Net earnings $ 0.004 $ 0.015 $ 0.018 $ 0.034
============ ============ ============ ============
Diluted earnings per common share:
Continuing operations $ 0.003 $ 0.012 $ 0.015 $ 0.024
Discontinued operations -- 0.000 -- 0.005
------------ ------------ ------------ ------------
Net earnings $ 0.003 $ 0.000 $ 0.015 $ 0.029
============ ============ ============ ============
Shares used in calculations:
Basic 17,328,065 14,157,234 17,137,029 12,747,552
Diluted 20,396,641 17,057,874 20,271,924 14,639,009
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
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GLOBAL MAINTECH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 304,094 $ 428,197
Adjustments to reconcile net income to
net cash provided (used) in operating activities:
Depreciation and amortization 590,006 171,580
Changes in operating assets and liabilities:
Increase in accounts receivable (1,130,865) (732,209)
Increase in other receivables (124,335) (24,660)
Increase in inventories (585,633) (63,996)
Increase in prepaid expenses and other (31,208) (3,815)
Increase (decrease) in accounts payable 286,115 (166,939)
Increase (decrease) in accrued liabilities 100,757 (32,097)
Decrease in deferred revenue (9,708) (159,422)
----------- -----------
Cash used by operating and discontinued activities (600,777) (583,361)
----------- -----------
Cash flows from investing activities:
Sale of investment in sales-type leases 712,333 --
Purchase of property and equipment (126,112) (89,142)
Reduction (increase) in leased equipment 35,858 (8,584)
Investment in software development costs (1,146,856) (425,086)
Investment in other assets (773,046) (233,778)
Disbursement of payment on note receivable (50,000) --
----------- -----------
Cash used by investing activities (1,347,823) (756,590)
----------- -----------
Cash flows from financing activities:
Disbursements for deferred debt costs
Proceeds from issuance of common stock 697,518 2,669,242
Payments of short-term notes payable -- (358,349)
Payments of long-term notes payable (50,000) 1,983,400
----------- -----------
Cash provided by financing activities 647,518 4,294,293
----------- -----------
Net increase (decrease) in cash (1,301,082) 2,954,342
Cash and cash equivalents at beginning of period 1,726,889 32,890
----------- -----------
Cash and cash equivalents at end of period $ 425,807 $ 2,987,232
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
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GLOBAL MAINTECH CORPORATION
FOOTNOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
GENERAL
The Company, through its wholly owned subsidiary Global MAINTECH, Inc.,
designs, develops and markets a computer system, consisting of hardware and
software, which monitors and controls diverse computers in a data center from a
single, master console. The Virtual Command Center ("VCC" or "VCC Unit") can
simultaneously manage mainframes, mid-range computers (e.g., UNIX, Microsoft and
Windows NT platforms) and networks. The VCC is designed to perform three primary
functions: (a) consolidate consoles (computer terminal with access to the
internal operation of a computer) into one monitor, a "virtual console" or
single point of control: (b) monitor and control the computers connected to the
virtual console; and (c) automate most, if not all, of the routine processes
performed by computer platforms and operating systems. It is an external system
that monitors and controls the subject mainframe and other data center computers
from a workstation-quality reduced instruction set computer ("RISC") which is
housed separately from the computers it controls. VCC users are able to reduce
staffing levels, consolidate all data center operations and technical support
functions to a single location regardless of the physical location of the data
center(s) and achieve improved levels of operational control and system
availability.
In 1995, the Company installed its first three VCC Units in the data
centers of a large industrial and financial company. In 1996, the Company sold
or leased seven additional VCC Units and added two new customers. As of December
31, 1997, the Company had sold or leased a cumulative total of 26 VCC Units to a
total of eight customers and had shipped four VCC Units for evaluation purposes
to three prospective customers. As of March 31, 1998, the Company had sold an
additional 5 VCC Units for a total of 31. The Company's customers include:
General Electric Capital Corporation, Burlington Northern Santa Fe Railroad,
Storage Technology Corporation, Systems Management Specialists, Inc., Ferntree
Computer Corp. (Australia), SAP America, Inc., Deluxe Corporation, Bank One
Services Corp., BMC Software, Frontier Information Technologies, Inc., Merrill
Lynch & Co. Inc., Southern California Gas Company, Alltel Information Services
and Spiegel Inc.
Basis of Presentation
The interim consolidated financial statements are unaudited, but in the
opinion of management, reflect all adjustments necessary for a fair presentation
of results for such periods. All such adjustments are of a normal recurring
nature.
The results of operations for any interim period are not necessarily
indicative of results for the full year. These financial statements should be
read in conjunction with the audited consolidated financial statements and notes
thereto contained in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997.
Basic and Diluted Earnings Per Share
Basic earnings per share represent earnings, reduced by any dividends
on preferred stock, divided by the weighted average number of common shares
outstanding for the reporting period. Diluted earnings per share represent
earnings divided by the sum of the weighted average number of common shares
outstanding plus shares derived from other potentially dilutive securities. For
the Company, potentially dilutive securities include "in the money" stock
options and warrants for the purchase of shares of common stock and the amount
of common shares which would be added by conversion of the outstanding
convertible preferred stock. The number of shares added for stock options and
warrants is determined by the treasury stock method, which assumes exercise of
these securities and the use of any proceeds from these actions to repurchase a
portion of these shares at the average market price for the period. When the
results of continuing operations are a loss, other potentially dilutive
securities will not be included in the calculation of loss per share.
<PAGE>
GLOBAL MAINTECH CORPORATION
FOOTNOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The weighted average shares and total dilutive shares used in the
calculation of basic and diluted earnings per share are as follows:
Six Months Ended June 30,
----------------------------
1998 1997
----------------------------
BASIC EARNINGS PER SHARE
Weighted average shares 17,137,029 12,747,552
DILUTED EARNINGS PER SHARE
Weighted average shares 17,137,029 12,747,552
Stock options and Warrants 2,901,454 1,551,345
Conversion of preferred stock 233,441 340,112
----------------------------
Total dilutive shares 20,271,924 14,639,009
============================
Capitalized Software Development Costs
Capitalized software development costs represent costs incurred after
technological feasibility has been established in connection with the
development of enhancements to one or more particular software programs. The
establishment of technological feasibility and the ongoing assessment of the
recoverability of these costs require considerable judgment by management with
respect to certain external factors, including, but not limited to, anticipated
future gross product revenues, estimated economic life, and changes in software
and hardware technology. The software development costs are being amortized
using the straight-line method over the estimated economic life of the software
not to exceed three years.
Other Assets
Other assets is comprised of patents, capitalized software license
fees, and capitalized debt issuance costs. Patents and capitalized software
license fees are stated at cost and are amortized over their useful life of
three to five years using the straight-line method. Capitalized debt issuance
costs are stated at cost and are amortized over the term of the related debt
agreement. Recorded amounts for patents and license fees are regularly reviewed
and recoverability assessed. The review considers factors such as whether the
amortization of these capitalized amounts can be recovered through forecasted
undiscounted cash flows.
Asset Purchase and Software License
On February 27, 1998 the Company licensed certain software and
purchased certain assets relating to the system software business of Infinite
Graphics Incorporated ("IGI"), a Minnesota corporation based in Minneapolis. The
acquisition has been recorded as an asset purchase. The acquisition agreement
provides for initial payments of $700,000 and additional payments of up to
$3,300,000, the payment of which is contingent on the future revenue generated
by this business segment and is determinable as of May 31, 1999. In the twelve
months ended December 31, 1997 the unaudited revenue of IGI's software segment
was $1,683,000 and the gross margin was $621,000.
The acquired software and assets will be used by the Company to design,
assemble and market computer-aided design and manufacturing software systems
that operate on a variety of mid-range and personal computer
7
<PAGE>
GLOBAL MAINTECH CORPORATION
FOOTNOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
platforms. Assets purchased in the acquisition include inventory, machinery,
equipment, furniture and fixtures, used in IGI's system software business. In
connection with such transaction, the Company also obtained a perpetual
exclusive software license of a majority of IGI's software products used in
IGI's system software business and a non-exclusive license of certain software
used in IGI's remaining business segment. The company has recorded the initial
payments of $700,000 primarily as software licenses to be amortized over a
useful life not to exceed five years. IGI will reimburse the Company for the
liabilities of IGI explicitly assumed by the Company in connection with the
acquisition. The Company also agreed to satisfy IGI's unrecorded service
obligations to the software end users in return for which the Company expects to
receive support payments from such end users.
Common Stock Issuance
In February 1998, the Company began a 400,000 share private placement
of common stock at $1.90 per share. This offering was later amended to include
an additional 100,000 shares for a total of 500,000 shares. As of June 30, 1998,
the Company had issued 411,500 of such shares. This offering terminated on July
9, 1998 and a total of 426,500 shares were sold. Maven Securities, Inc.
("Maven") acted as the placement agent. The Company paid Maven a 10% commission,
a 3% fee for expenses and issued a warrant to purchase 42,650 shares of common
stock at an exercise price of $1.90 per share to Maven. The shares of common
stock issued pursuant to this issuance are exempt from registration under
Rule506 of Regulation D of the Securities Act of 1933, as amended.
On July 21, 1998, the Company began a 1,667,000 share private placement
of units. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Recent Developments."
Reclassifications
Certain amounts previously reported in 1997 have been reclassified to
conform to the 1998 presentation.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Sales from continuing operations for the second quarter ended June 30, 1998
were approximately $1,677,000 compared to sales from continuing operations for
the second quarter of 1997 of approximately $869,000. Sales for the six months
ended June 30, 1998 were approximately $3.5 million compared to $1.6 million in
the same six month period of 1997. The $808,000 increase for the second quarter
is primarily related to an increase of $741,000 in product sales which includes
both the Virtual Command Center (VCC) and computer-aided design software
products, and an increase of $66,000 in software license and hardware
maintenance fees. The $1.9 million increase for the six months ended June 30,
1998 is substantially due to a $1.6 million increase in product sales and
increases in license and maintenance fees is the primary reason for the
remaining $.3 million increase.
Cost of sales increased in the second quarter ended June 30, 1998 to 34%
from 25% in the second quarter of 1997 and for the six months ended June 30,
1998 increased to 36% from 25% in the six months ended June 30, 1997. Nearly 45%
of the increases in the second quarter and six months ended June 30, 1998 are
related to increased distribution costs and the remainder is due to increased
amounts of software amortization and an increase in the cost of parts.
Distribution costs increased because certain of the sales in the six months
ended 1998 were made through a third party distributor. The Company had no third
party distribution arrangements in the first quarter of 1997. Software
amortization increased in 1998 as a result of increases in capitalized software
development costs. The increase in equipment cost is related to an upgrade of
computer parts made to the VCC after March 31, 1997. As a result, the gross
margin in the second quarter ended June 30, 1998 was approximately 66% compared
to 75% in the second quarter of 1997 and for the six months ended June 30, 1998
the gross margin was approximately 64% compared to 75% in the same six month
period in 1997
Selling, general and administrative expenses in the second quarter of 1998
were approximately $844,000 compared to $381,000. For the six month period ended
June 30, 1998 these expenses were approximately $1,600,000 compared to $697,000
in the same period in 1997. These increases of $463,000 and $903,000 are both
primarily due to increases in salaries and secondarily to increases in travel,
depreciation and marketing expenses. The salary increase is almost entirely due
to an increase in employees the majority of which is due to an increase in the
areas of sales and sales support. The increase in travel expenses is related to
sales activity, depreciation expenses increased due to the additional employees
and the rapid depreciation method used by the Company, and marketing expenses
increased as part of a plan to communicate with the marketplace.
Research and development costs in the second quarter of 1998 were
approximately $126,000 compared to $43,000 in the second quarter of 1997, one
year ago. For the six month period ended June 30, 1998 research and development
costs were approximately $274,000 compared to $87,000 in the same period in the
prior year. The increases of $83,000 in the second quarter and $187,000 for the
six months ended June 30, 1998 are substantially due to increased salary
expenses relating to additional employees in this expense category and
secondarily to fees paid to employee search firms.
Non-operating expenses include interest expense, amortization of
capitalized debt issuance costs and interest income. Interest expense increased
due to the issuance in June 1997 of subordinated notes payable and amortization
is related to cost of this debt. The increase in interest income is related to
the sale of sales-type leases in March 1998.
Net cash used in operating and discontinued activities for the six month
period ended June 30, 1998 was approximately $600,000. Cash generated from net
income for this six month period was approximately $304,000 and was $590,000
from depreciation and amortization. However, cash was used to fund increases in
current assets, primarily accounts receivable and inventory totaling
approximately $1,872,000. Cash was also provided by accounts payable, accrued
expenses and deferred revenue totaling approximately $377,000. In the same
period in the prior year operating activities used cash of approximately
$583,000, which was largely due to net income and depreciation and amortization
of approximately $600,000 which was more than offset by cash used to increase
current assets and to reduce current liabilities.
Cash used by investing activities of approximately $1,348,000 reflects
investments of $1,920,000 in capitalized computer software development costs
including the purchase of software licenses in a March 1998 included in other
assets costs incurred after technological feasibility has been established in
connection with the development of enhancements to one or more particular
software programs. The Company also purchased approximately $126,000 of
additions to machinery and equipment during the first six months of 1998 and
$50,000 in notes receivable. During the six months ended June 30,1997, the
Company invested $756,000 primarily in capitalized computer software development
costs of $425,000, and $211,000 in connection with the issuance of five year
subordinated notes payable, and $89,000 in machinery and equipment.
9
<PAGE>
Net cash provided by financing activities in the six month period ended
June 30, 1998 was approximately $648,000. This is due to the receipt of net
proceeds from the issuance of common stock of approximately $698,000 in a
private issue at a per share price of $1.90. Offsetting this increase was a
$50,000 use of cash to reduce subordinated notes payable. In the six month
period ending June 30, 1997, the Company raised $1,104,000 and $1,566,000 in two
private issues of common stock at a per share price of $0.75 and $1.40,
respectively. In addition, in the six month period ending June 30, 1997, the
Company issued five year subordinated notes payable of $2,000,000 and reduced
other long term debt of $17,000 and short term debt $358,000 resulting in net
cash provided by financing activities of $4,294,000.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company had positive working capital of
approximately $2,840,000 compared to positive working capital as of December 31,
1997 of approximately $2,884,000. The moderate decrease in positive working
capital can be explained by the moderate principal payments of subordinated
notes payable.
During the six months ended June 30, 1998, the Company's liquidity and
capital resources were reduced by cash investments in accounts receivable and
inventory and cash was invested in long-term assets as described above. As a
result the Company's liquidity was reduced from year-end 1997. The Company is
now more dependent on the collection of its accounts receivable and the
liquidation of its inventory through sales. The growing demand for the Company's
technology from new customers suggests the Company will continue to invest in
inventory and accounts receivable during the remainder of the year. Accordingly,
management expects cash will continue to be invested in short-term assets. The
Company's operating plan for the year ending December 31, 1998 anticipates a
continuing increase in sales over the year ended December 31, 1997 with a
commensurate increase in net income. As a result, this operating plan projects
the working capital of the Company will increase.
Furthermore, the Company is committed to making long-term investments
in the form of additional software development, additional purchases of software
licenses, such as the IGI software business, and additional purchases of
property and equipment.
As a result of the growth in short-term and long-term investments,
management expects the Company will continue to raise cash in the capital
markets. While management believes in the viability of its operating plan and
currently anticipates that its operating plan will be achieved, there can be no
assurances to that effect, nor can management provide any assurance of the
Company's continued access to the capital markets. At this point management
believes the Company's growth will be funded by a combination of operating
income and access to outside capital. Management believes these sources will be
sufficient to meet the Company's liquidity needs for the foreseeable future.
On July 21, 1998, the Company began a 1,667,000 share private placement
of units, consisting of one share of common stock (subject to possible
adjustment as described below) and one warrant to purchase a fraction of a share
of common stock (determined as described below), at a price of $2.20 per unit.
Each investor in this offering will receive a warrant to purchase .2667 shares
of common stock at $2.60 per share for each $1 such investor invests in the
offering. In addition, the number of shares purchased in the offering may be
increased based on the future market price of the common stock. In the event
that the average closing price per share for the Company's common stock for all
trading days in December 1998 (the "Average Price") is less than $2.93, then the
number of shares issued to an investor in the offering will be adjusted such
that the total number of shares issued to such investor after such adjustment
equals 75% of the total dollar amount invested by such investor in the offering
divided by the Average Price; PROVIDED, HOWEVER, that the Average Price is
subject to a minimum value of $1.50. As of July 21, 1998, the Company had issued
450,000 of such shares. The Company is offering this private placement without
the assistance of a placement agent. The shares of common stock issued pursuant
to this issuance are exempt from registration under Rule 506 of Regulation D of
the Securities Act of 1933, as amended.
10
<PAGE>
- --------------------------------------------------------------------------------
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 2. CHANGES IN SECURITIES
During the second quarter of 1998, the Company issued 146,500 shares of
common stock to certain accredited investors at a purchase price of $1.90
per share in a private offering pursuant to the terms of a private
placement agreement dated February 19, 1998. Maven Securities, Inc.
("Maven") acted as placement agent for such sale and was paid a 10%
commission and a 3% fee for expenses. As additional compensation, the
Company issued Maven a warrant to purchase 42,650 shares of common stock
(equal to 10% of the number of shares of common stock issued in connection
with such offering which occurred during the first and second quarters of
1998) at an exercise price of $1.90 per share. The aggregate offering price
for the shares offered in the second quarter of 1998 was $278,350 and the
aggregate placement agent commissions and expenses were approximately
$36,200. The shares issued were exempt from registration under Rule 506 of
Regulation D of the Securities Act of 1933, as amended. This offering
terminated on July 9, 1998 and a total of 426,500 shares were sold.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A. The annual meeting of shareholders was held on May 27, 1998. The
Company solicited proxies and filed its definitive proxy statement with
the Securities and Exchange Commission pursuant to Regulation 14A. The
only matters voted upon at the meeting were the election of directors
and the ratification of the Company's accountants. All items presented
to shareholders were passed.
B. The shareholders re-elected Messrs. McCaffery, Donaldson and Haugo to
serve on the board of directors for a term expiring on the next regular
meeting and until their successors are elected and qualified.
C. The shareholders ratified the selection of KPMG Peat Marwick LLP as
independent auditors of the Company for the year ending December 31,
1998. There were 14,138,342 shares represented at the annual meeting of
a total of 17,636,704 entitled to vote. Of the shares represented,
David H. McCaffrey received 14,120,396, Robert E. Donaldson received
14,120,396 and John E. Haugo received 14,115,596 votes for re-election.
Of the shares represented, the votes for the ratification of KPMG Peat
Marwick LLP as independent auditors was 14,105,503 for, 2,000 against
and 30,839 abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27--Financial Data Schedule
99--Cautionary Statement
(b) Reports on Form 8-K
None.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GLOBAL MAINTECH CORPORATION
August 14, 1998 By: /s/ James Geiser
-----------------
James Geiser
Chief Financial and Chief Accounting Officer
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
August 14, 1998 By: /s/ David McCaffrey
--------------------
David McCaffrey
Chief Executive Officer
12
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10QSB
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<MULTIPLIER> 1,000
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<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 426 426
<SECURITIES> 0 0
<RECEIVABLES> 1,858 1,858
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<INVENTORY> 1,383 1,383
<CURRENT-ASSETS> 3,900 3,900
<PP&E> 319 319
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 7,192 7,192
<CURRENT-LIABILITIES> 1,060 1,060
<BONDS> 1,850 1,850
0 0
109 109
<COMMON> 5,704 5,704
<OTHER-SE> (1,531) (1,531)
<TOTAL-LIABILITY-AND-EQUITY> 7,192 7,192
<SALES> 1,677 3,473
<TOTAL-REVENUES> 1,677 3,473
<CGS> 566 1,251
<TOTAL-COSTS> 970 1,873
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<INTEREST-EXPENSE> (74) (147)
<INCOME-PRETAX> 67 304
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<PAGE>
Exhibit 99
CAUTIONARY STATEMENT
The Company, or persons acting on behalf of the Company, or outside
reviewers retained by the Company making statements on behalf of the Company, or
underwriters, from time to time, may make, in writing or orally, "forward-
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. When used in conjunction with an identified forward-looking statement,
this Cautionary Statement is for the purpose of qualifying for the "safe harbor"
provisions of such sections and is intended to be a readily available written
document that contains factors which could cause results to differ materially
from such forward-looking statements. These factors are in addition to any
other cautionary statements, written or oral, which may be made or referred to
in connection with any such forward-looking statement.
The following matters, among others, may have a material adverse effect on
the business, financial condition, liquidity, results of operations or
prospects, financial or otherwise, of the Company. Reference to this Cautionary
Statement in the context of a forward-looking statement or statements shall be
deemed to be a statement that any or more of the following factors may cause
actual results to differ materially from those in such forward-looking statement
or statements:
Liquidity and Capital Resources. As of June 30, 1998, the Company had
working capital of approximately $2,840,000. The Company believes it has
sufficient working capital to pay its current liabilities. The Company believes
its working capital will be sufficient to fund its liabilities and believes its
working capital may improve as the Company's profitability improves and access
to capital markets remains available to the Company. Nevertheless, the Company
can provide no assurance as to its continued profitability and access to the
capital markets.
Reliance Upon Key Personnel. The Company will be relying heavily upon the
abilities of key personnel, in particular, two technicians. Jeff Jensen and
Norm Freedman, and division head Bob Donaldson, to further develop the VCC. If
any of these employees should cease to be employed by the Company or for any
reason be unable to continue in their respective capacities as employees of the
Company, the Company would be required to hire a comparable employee. There can
be no assurance that it would be able to do so quickly and at an affordable
compensation rate. While these three employees have incentive options and are
bound by a confidentiality requirement, the Company does not have "key man"
insurance for them and cannot guarantee their continued employment.
Competitive Conditions. The Company's industry is characterized by rapidly
evolving technology and intense competition. The Company is aware of several
other competitors. These competitors have substantially greater resources and
experience in research and development and marketing than the Company and may
therefore represent significant competition for the Company. However, unlike
the Company, no competitor produces a complete enterprise computing system, but
rather components that could be combined to form such a system. The Company's
management believes that the Company's ability to produce an integrated whole
gives the Company a competitive advantage. Nevertheless, there can be no
assurance that the Company's competitors will not succeed in developing or
marketing technologies and products that are more effective than those developed
or marketed by the Company or that would render the Company's technology and
products obsolete or noncompetitive.
New Product with Uncertain Demand. The concept of an external monitor and
control system for computer hardware is relatively new, and the demand for the
product is not yet fully know. It is difficult to project the overall size of
the future market for such a product. The Company estimates the market size for
internal systems to be several billion dollars per year. The Company believes
the market for an external system could be much larger based upon the fact that
external control systems also soon could be used to solve networking problems
associated with linking computers containing different processors together, a
process commonly called enterprise computing. Based on recent feedback from the
Company's current and potential customers, management believes the demand for
<PAGE>
the VCC is large. However, to date, the Company has sold to only eight
customers, and there is no certainty that additional customers will purchase the
Company's products.
Product Under Development. The Company currently is developing a software
product which monitors networking and communication devices used by mainframes.
Although preliminary tests indicate that this product will perform as intended
and can be integrated with the VCC, there can be no assurance that it will do so
or, even if it does, that the Company will be able to establish a market for
such a product.
Future Capital Requirements; No Assurance Future Capital Will Be Available.
If the current capital of the Company is insufficient to meet its operating and
working capital needs the Company may be required to raise additional funding
through public or private financings, including equity financings. Any
additional equity financings may be dilutive to the shareholders of the Company,
and debt financing, if available, may involve restrictive covenants. Adequate
funds for the Company's operations, whether from financial markets or from other
sources, may not be available when needed on terms attractive to the Company, or
at all. Whether the Company would be able to secure such financing and, if so,
whether such financing would be available at reasonable rates and terms is
uncertain. Failure to secure such additional financing could adversely affect
the Company.
Intellectual Property Rights. The Company holds no patents. However,
applications are being prepared, and the Company believes the VCC will be
protected by a patent that is currently under review by the U.S. Patent and
Trademark Office. This patent was filed by Circle Corporation, a Japanese
corporation, on December 28, 1993 and the Company licenses the product from
Circle Corporation. The license agreement provides the Company with exclusive
distribution rights outside of Japan.
Dependence on Diversification of Product Offerings. The Company currently
has a limited number of product offerings, and none of the existing customers of
the Company's products are required to purchase additional products.
Accordingly, a significant portion of the Company's revenues are generated from
non-recurring revenue sources, and the success of the Company is dependent, in
part, on its ability to develop sustained demand for its current products and to
develop and sell additional products. There can be no assurance that the Company
will be successful in developing and maintaining such demand or in developing
and selling additional products.
Fluctuations in Operating Results. The Company's future operating results
may vary substantially from quarter to quarter. At its current stage of
operations, the Company's quarterly revenues and results of operations may be
materially affected by the timing of the development and market acceptance of
the Company's products. Generally, operating expenses will be higher during
periods in which product development costs are incurred and marketing efforts
are commenced. Due to these and other factors, including the general economy,
stock market conditions and announcements by the Company or its competitors, the
market price of the Company's securities may be highly volatile.
Lack of Product Liability Insurance. The Company may face a risk of
exposure to product liability claims in the event that use of its products is
alleged to have resulted in damage to its customers. The Company does not
currently carry product liability insurance. There can be no assurance that
such insurance will be available on commercially reasonable terms, or at all, or
that such insurance, even if obtained, would adequately covers any product
liability claim. A product liability or other claim with respect to uninsured
liabilities or in excess of insured liabilities could have a material adverse
effect on the business and prospects of the Company.
