<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
Under the Securities Act of 1933
GLOBAL MAINTECH CORPORATION
(Name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
MINNESOTA 3571 41-1523657
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
7578 MARKET PLACE DRIVE
EDEN PRAIRIE, MINNESOTA 55344
(612) 944-0400
(Address and telephone number of registrant's principal executive offices)
DAVID H. MCCAFFREY
CHIEF EXECUTIVE OFFICER
GLOBAL MAINTECH CORPORATION
7578 MARKET PLACE DRIVE
EDEN PRAIRIE, MINNESOTA 55344
(612) 944-0400
(Name, address and telephone number of agent for service)
Copies to:
KENNETH L. CUTLER, ESQ. WENDY SKJERVEN, ESQ.
DORSEY & WHITNEY LLP LEONARD STREET & DEINARD, P.A.
PILLSBURY CENTER SOUTH SUITE 2300
220 SOUTH SIXTH STREET 150 SOUTH FIFTH STREET
MINNEAPOLIS, MINNESOTA 55402 MINNEAPOLIS, MINNESOTA 55402 (612)
(612) 340-2600 (612) 335-1500
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this registration statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [] _______
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------
Proposed Proposed
Title of Each Class of Proposed Amount Maximum Offering Maximum Aggregate Amount of
Securities to be Registered to be Registered Price per Unit (1) Offering Price (1) Registration Fee
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value 6,539,511 Shares $ 1.56 $ 10,217,986 $ 2,841
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee based
upon the average of the high and low sales prices for the Common Stock on
February 10, 1999 as reported on the over-the-counter bulletin board.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION"), ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
PROSPECTUS
GLOBAL MAINTECH CORPORATION
__________________________
6,539,511 SHARES OF COMMON STOCK
__________________________
Global MAINTECH Corporation
7578 Market Place Drive
Eden Prairie, Minnesota 55344
THE OFFERING
------------
<TABLE>
<CAPTION>
Per Share Total These securities may be sold from
--------- -----
time to time by the Selling
Shareholders named in this
prospectus.
<S> <C> <C>
Public Price............. $ $
Underwriting discounts $0.00 $0.00
SYMBOL: GLBM
Proceeds to Selling MARKET: Over-the-Counter
Shareholders............ $ $ LAST SALE PRICE ON
_______, 1999: ________
</TABLE>
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SHAREHOLDERS IDENTIFIED HEREIN MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE OF SUCH SECURITIES IS NOT PERMITTED.
The date of this Prospectus is _____, 1999.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements of Global MAINTECH Corporation ("we" or the
"Company"), including the notes thereto, appearing elsewhere in this Prospectus.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Investors should carefully
consider the information set forth under the heading "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Forward Looking
Statements."
ABOUT GLOBAL MAINTECH CORPORATION
THE VIRTUAL COMMAND CENTER
We design, develop and market a The VCC is an external system that
computer system called the Virtual monitors and controls the subject
Command Center, or VCC. This mainframe and other data center
computer system monitors and computers from a workstation-quality
controls diverse computers in a reduced instruction set computer,
data center from one master known as RISC, which is housed
console. The VCC is comprised of separately from the computers it
hardware and software. The VCC controls.
simultaneously manages mainframes,
mid-range computers (e.g., UNIX, By using the VCC, customers can:
Microsoft and Windows NT
platforms) and networks. . reduce staffing levels
The VCC is designed to perform . consolidate all data center
three primary functions: operations and technical support
functions into a single location
. consolidate consoles into one
monitor, or "virtual console" . improve the operational control of
computer systems
. monitor and control the
computers connected to the
virtual console Our primary business is the manufacture
and sale of VCC units and related
software and accessories. This line of
. automate many routine processes business generated all of our revenue
performed in data centers in 1996 and 1997, and the majority of
revenue for the nine months ended
September 30, 1998. We expect this
business will generate the majority
of our revenue in fiscal years 1998
and 1999.
We were incorporated in Minnesota in 1985 under the name Computer Aided
Time Share, Inc. In 1995, we changed our name to Global MAINTECH Corporation.
As of December 31, 1998, Global MAINTECH, Inc., our wholly owned subsidiary, had
79 employees. Global MAINTECH Corporation is a holding company and we have no
paid employees.
OUR CUSTOMERS
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, 1998, the Company had sold or leased a cumulative total of 32 VCC
Units to a total of 14 customers.
-2-
<PAGE>
The Company's customers include:
General Electric Capital Corporation Bank One Services Corp.
Burlington Northern Santa Fe Railroad BMC Software
Storage Technology Corporation Merrill Lynch & Co. Inc.
Systems Management Specialists, Inc. Southern California Gas Company
Ferntree Computer Corp. (Australia) Alltel Information Services
SAP America, Inc. Spiegel Inc.
Deluxe Corporation Minnesota Mining and Manufacturing
Company
ABOUT SYSTEMS MANAGEMENT SOFTWARE
The VCC competes with internal monitoring software sold by other companies.
Internal monitoring software monitors pieces of hardware and software
applications in the computer in which the internal software is installed. U.S.
companies sold approximately $6.8 billion in systems-management software in
1998. It is believed this market will grow to almost $10 billion by the year
2000.
We believe the VCC is also well suited for use in enterprise computing
applications. Enterprise computing is the term associated with the hardware and
software which enables computers that contain different processors to be linked
together for purposes of managing the operation of hardware and internal
systems. The VCC has its own proprietary software and hardware which allow it to
form an enterprise computing management system. The VCC can be used to monitor
and control desktops, mid-range servers and mainframes. Sales of all UNIX-based
enterprise computing applications in 1997 were approximately $33 billion.
THE OFFERING
Securities Offered..... 6,539,511 shares of the Company's Common Stock, no par
value, which may be offered from time to time for resale
by the persons named as Selling Shareholders in this
prospectus.
-3-
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). 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.
The forward-looking statements are qualified in their entirety by the cautions
and risk factors set forth below, and prospective purchasers of the Common Stock
offered hereby should carefully review the following items.
COMPETITION
Our industry is characterized by rapidly evolving technology and intense
competition. We know of several other competitors that have much greater
resources and experience in research and development and marketing than we do.
These companies may represent significant competition for us. However, none of
these companies produces as complete an enterprise computing system as we do,
but rather they only produce components that could be combined to form such a
system. We believe that we have a competitive advantage because we can produce
an integrated system. Nevertheless, we cannot predict whether our competitors
will develop or market technologies and products that are more effective than
ours or that would make our technology and products obsolete or noncompetitive.
NEW PRODUCT WITH UNCERTAIN DEMAND
Recently the Company revised aspects of the external control and monitoring
systems to enhance its remote capabilities. Our VCC product provides customers
with an economically feasible method of controlling and monitoring
geographically dispersed computers and systems, particularly for systems that
consist of many different locations with as few as one server per location, such
as a retail organization. In such organizations, the local servers often upload
data regarding product sales and inventory levels to a centralized data center.
Our product allows the centralized data center to control these local servers
(shutting down, starting-up, etc.) and operating systems for a price per server
ranging from $3,000 to $8,000. The concept of an external monitor and control
system for computer hardware is relatively new, and we do not yet know what the
continued demand for the product will be. It is difficult to project the
overall size of the future market for this product. We estimate that the
current market size for internal systems is several billion dollars per year.
We believe the market for external control systems could expand because external
control systems could soon be used to solve networking problems with enterprise
computing. Based on recent feedback we have received from current and potential
customers, we believe the demand for the VCC is significant. However, to date,
we have sold the VCC to only 14 customers and we cannot assure you that
additional customers will buy our products.
DEPENDENCE ON LIMITED PRODUCT OFFERINGS AND CUSTOMER BASE
We currently offer a limited number of products, primarily consisting of a
base VCC unit and related software and accessories. Our existing customers are
not required to buy additional hardware products or to renew their software
license and maintenance agreements with us when such license and agreements
expire. Therefore, a significant portion of our revenue is derived from non-
recurring revenue sources. To succeed, we will need to develop a sustained
demand for our current products and to develop and sell additional products. We
cannot assure you that we will be successful in developing and maintaining
demand or in developing and selling additional products.
PRODUCT UNDER DEVELOPMENT
We are currently developing a set of software products that monitors
networking and communication devices primarily for networks, Microsoft NT,
midrange and mainframes. These products will perform capacity tests to measure
systems activity and hardware utilization and will correlate measured trends
with specific events or expected benchmarks. Although preliminary tests
indicate that these products will perform as intended and can be integrated with
the VCC, we cannot assure you that they will do so or, even if they do, that the
market will demand such products.
-4-
<PAGE>
NEWLY ACQUIRED BUSINESSES; INTEGRATION OF OPERATIONS
We purchased two new product lines during 1998. Effective November 1,
1998, we purchased substantially all of the assets of Enterprise Solutions,
Inc., an Ohio corporation ("ESI"). As a result of this acquisition, we obtained
substantially all of the assets and assumed certain liabilities of ESI,
including a suite of software products that notify the proper person(s) by
telephone, pager or the Internet of critical data center events. In addition, we
obtained ESI's short-term consulting business, which assists companies to
optimize their existing systems management and network management tools. See
"Recent Developments." On February 27, 1998, we licensed certain software and
purchased certain assets relating to the system software business of Infinite
Graphics Incorporated, a Minnesota corporation ("IGI"). We will use such
software and assets to design, assemble and market computer-aided design and
manufacturing software systems that operate on a variety of mid-range and
personal computer platforms. Although we believe we will be able to successfully
integrate the employees we hired from IGI and ESI into our own workforce and
that we will be able to market and sell the product lines purchased from ESI and
IGI on a profitable basis for the next several years, we cannot assure you that
this will happen.
FLUCTUATIONS IN OPERATING RESULTS
Our future operating results may vary substantially from quarter to
quarter. At our current stage of operations, the timing of the development and
market acceptance of our products may materially affect our quarterly revenues
and results of operations. Generally, our operating expenses are higher when we
are developing and marketing a product. For these reasons, the market price of
our stock may be highly volatile. The price of our stock may also be affected
by:
. the general state of the country's economy
. the conditions in the stock market
. the development of new products by us and our competitors
. public announcements by us or our competitors
FUTURE CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL WILL BE AVAILABLE
We expect that the proceeds of our recent equity and debt offerings will be
enough to fund our operations through at least June 1999. Within the next 60
days, we expect to obtain an asset-based line of credit to finance our growth in
receivables and to meet short-term working capital requirements. Thereafter, we
may need additional funds to continue the marketing of our products and to meet
our long-term growth needs. To meet our needs, we may have to obtain additional
funding through public or private financings, including equity and debt
financings. Any additional equity financings may be dilutive to our
shareholders, and debt financing, if available, may have restrictive covenants.
We are uncertain as to whether we will be able to obtain financing and, if we
do, whether the financing will be available at reasonable rates and terms. Our
business could be adversely affected if we do not secure such additional
financing.
RELIANCE ON KEY PERSONNEL
We rely heavily on three technicians, Jeff Jensen, Steve Vranyes and Norm
Freedman, to further develop the VCC. In addition, we rely heavily on Trent
Wong and Desmond DosSantos for technical or business development for products of
Singlepoint Systems, Inc. Even though these five employees have incentive stock
options and are subject to standard rules of confidentiality, we cannot
guarantee that they will stay with the Company. If any of these individuals
leave the Company, we would need to hire a comparable employee. We cannot
assure you that we would be able to hire someone quickly and at an affordable
salary.
INTELLECTUAL PROPERTY
We protect our intellectual property rights through a combination of
statutory and common law patent, copyright, trademark and trade secret laws,
customer licensing agreements, employee and third-party non-disclosure
agreements and other methods.
Although we do not own any patents, we believe the VCC will be protected by
two patents that are being reviewed by the U.S. Patent and Trademark Office and
by a patent for hardware that Circle Corporation, a Japanese
-5-
<PAGE>
corporation, applied for on December 28, 1993. We license the hardware from
Circle Corporation and use it in the VCC. Under our license, we can distribute
the hardware worldwide, except in Japan. The initial term of this license
expires on December 20, 2004.
Although we have taken these precautions to protect our intellectual
property rights, a third party may copy or otherwise obtain or use our products
or technology without our authorization, or develop similar products or
technology independently. Our business would be adversely affected if someone
used or copied our products to any substantial degree. We cannot assure you
that the protection for our intellectual property rights is adequate or that our
competitors will not independently develop similar products.
We require our consultants and developers to assign to us their rights in
any materials they provide to or make for us. We also ask their assurance that
if we use any of their materials in our products we will not violate the rights
of third parties. Based on these assurances and our relationships with our
consultants and developers, we have no reason to believe that our products
infringe on the proprietary rights of third parties. However, we have not
commissioned an independent investigation to reaffirm the basis for our belief,
and we cannot guarantee that our current or future products will infringe on
their rights. We believe that developers of control systems increasingly may be
subject to such claims as the number of products and competitors in the industry
grows and the functionality of such products in the industry overlaps. Any such
claim, with or without merit, could result in expensive litigation and could
have a material adverse effect on our business.
LACK OF PRODUCT LIABILITY INSURANCE
We may be liable for product liability claims if someone claims that our
products injured a person or business. We do not have product liability
insurance. We cannot assure you we could obtain insurance on commercially
reasonable terms, or at all, or that even if we obtained insurance it would
adequately cover a product liability claim. We are not aware of any pending or
threatened product liability or other legal claim against us. Our business
could be adversely affected if someone brings a product liability or other legal
claim against us.
YEAR 2000 ISSUE
Many currently installed computer systems and software are coded to accept
only two-digit entries in the date code fields. These date code fields will need
to accept four-digit entries to distinguish 21st century dates from 20th century
dates. This problem could result in system failures or miscalculations causing
disruptions of business operations (including, among other things, a temporary
inability to process transactions, send invoices or engage in other similar
business activities). As a result, many companies' computer systems and software
will need to be upgraded or replaced in order to comply with year 2000
requirements. The potential global impact of the year 2000 problem is not known,
and, if not corrected in a timely manner, could affect the Company and the U.S.
and world economies generally.
Based on our assessments to date, we believe we will not experience any
material disruption as a result of year 2000 problems with respect to our
products and the third-party systems we use for our internal functions, and, in
any event, we do not anticipate the year 2000 issues we will encounter will be
significantly different than those encountered by other computer hardware and
software manufacturers, including our competitors. For example, if certain
critical third-pary providers, such as those providers supplying electricity,
water or telephone service, experience difficulties resulting in disruption of
service to the Company, a shutdown of our operations at individual facilities
could occur for the duration of the disruption. Assuming no major disruption in
service from utility companies or other critical third-party providers, we
believe that we will be able to manage our total year 2000 transition without
any material effect on our results of operations or financial condition. For
additional information, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Year 2000 Issue."
USE OF PROCEEDS
This Prospectus relates to an aggregate of 6,539,511 shares of Common Stock
(the "Shares"), no par value, that may be sold from time to time by the Selling
Shareholders. Although the Company has agreed to pay the expenses of
registration of the Shares, including legal and accounting fees, the Company
will not receive any proceeds from the sale of the Shares.
-6-
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth certain information, as of February 1, 1999,
as to the maximum number of Shares that may be sold by each of the shareholders
listed below (the "Selling Shareholders") pursuant to this Prospectus.
<TABLE>
<CAPTION> Number of
Number of Maximum Shares
Shares Number of Beneficially
Beneficially Shares to be Owned After
Owned Prior Sold Pursuant This
Name to the Offering to the Offering Prospectus
- ------------------------------------------------------ --------------- --------------- -------------
<S> <C> <C> <C>
Industricorp & Co. FBO Twin Cities Carpenters & Joiners
Pension Fund........................................... 485,334
Robert W. Clark Self-Declared Trust
Robert W. Clark TTEE u/a dated 11/12/90................. 97,067
Isadore J. Goldstein Rev Living Trust
Isadore J. Goldstein TTEE dtd 3/14/90................... 149,327
James N. Owens Revocable Trust
James N. Owens TTEE dtd 9/10/70......................... 298,655
David A. Lawrence....................................... 74,664
Gary S. Kohler IRA First Trust NA TTEE.................. 74,742
Gary Kohler............................................. 74,664
John O. Hanson.......................................... 597,349
John R. Albers.......................................... 298,675
VBS General Partnership................................. 74,664
David A. Lawrence IRA First Trustee NA TTEE............. 74,664
Betty L. Johnson........................................ 298,675
Aaron Boxer Revocable Trust
Aaron Boxer TTEE u/a DTD 8/1/89......................... 633,166
David W. Johnson and Linda M. Johnson JT TEN............ 291,200
Earl L. Ferris.......................................... 74,664
WGN/GAN PARTNERS, LTD................................... 1,494,827
T.L. & C.A. CROW CRT #1................................. 328,532
Johnston Family CRT #1.................................. 119,450
Johnston Family CRT #2.................................. 104,522
Gary L. Tooker Charitable Remainder..................... 119,450
Tooker Family Ltd. Partnership.......................... 223,991
Welstad Charitable Remainder Unitrust I dated 12/26/97.. 298,655
George D. Marx.......................................... 37,332
Paul R. Owings & Lenore Owings, JT TEN.................. 74,664
Lenore Owings & Paul R. Owings, JT TEN.................. 74,664
Robert Terhaar & Harriet Terhaar, JT TEN................ 48,534
Paul R. Kuehn........................................... 6,518
David B. Johnson........................................ 6,518
Eldon C. Miller......................................... 2,172
Stanley D. Rahn......................................... 2,172
--------------- --------------- -------------
Total 6,539,511
=============== =============== =============
</TABLE>
-7-
<PAGE>
PLAN OF DISTRIBUTION
The Shares will be offered and sold by the Selling Shareholders for their
own accounts. The Company will not receive any proceeds from the sale of the
Shares pursuant to this Prospectus. The Company has agreed to pay the expenses
of registration of the Shares, including legal and accounting fees.
The Selling Shareholders may offer and sell the Shares from time to time in
transactions on the OTC Market, in brokerage transactions at prevailing market
prices or in transactions at negotiated prices. Sales may be made to or through
brokers or dealers who may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholders or the purchasers of
Shares for whom such brokers or dealers may act as agent or to whom they may
sell as principal, or both. As of the date of this Prospectus, the Company is
not aware of any agreement, arrangement or understanding between any broker or
dealer and the Selling Shareholders.
The Selling Shareholders and any brokers or dealers acting in connection
with the sale of the Shares hereunder may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, and any commissions received
by them and any profit realized by them on the resale of Shares as principals
may be deemed underwriting compensation under the Securities Act.
BUSINESS
GENERAL
The Company, through its wholly owned subsidiary Global MAINTECH, Inc.
("MAINTECH"), 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 terminals
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 operators in data centers. 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, 1998, the Company had sold or leased a cumulative total of 38 VCC
Units to a total of 14 customers. 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, Merrill Lynch & Co. Inc., Southern California Gas Company,
Alltel Information Services, Spiegel Inc. and Minnesota Mining and Manufacturing
Company. Our existing customers are not required to buy additional hardware
products or to renew their software license and maintenance agreements with us
when such license and agreements expire. Therefore, a significant portion of
our revenue is derived from non-recurring revenue sources.
In an effort to enhance our revenue base, we purchased two new product
lines during 1998. Effective November 8, 1998, we purchased substantially all of
the assets of Enterprise Solutions, Inc., an Ohio corporation ("ESI"). As a
result of this acquisition, we obtained substantially all of the assets and
assumed certain liabilities of ESI, including a suite of software products that
notify the proper person(s) by telephone, pager or the Internet of critical data
center events. See "Recent Developments." On February 27, 1998, we licensed
certain software and purchased certain assets relating to the system software
business of Infinite Graphics Incorporated, a Minnesota corporation ("IGI"). We
will use such software and assets to design, assemble and market computer-aided
design and manufacturing software systems that operate on a variety of mid-range
and personal computer platforms.
-8-
<PAGE>
We were incorporated in Minnesota in 1985 under the name Computer Aided
Time Share, Inc. In 1995, we changed our name to Global MAINTECH Corporation.
SYSTEMS MANAGEMENT SOFTWARE
The VCC competes with internal monitoring software sold by other companies.
Internal monitoring software monitors pieces of hardware and software
applications in the computer in which the internal software is installed. U.S.
companies sold approximately $6.8 billion in systems-management software in
1998. It is believed this market will grow to almost $10 billion by the year
2000.
We believe the VCC is also well suited for use in enterprise computing
applications. Enterprise computing is the term associated with the hardware and
software which enables computers that contain different processors to be linked
together for purposes of managing the operation of hardware and internal
systems. The VCC has its own proprietary software and hardware which allow it to
form an enterprise computing management system. The VCC can be used to monitor
and control desktops, mid-range servers and mainframes. Sales of all UNIX-based
enterprise computing applications in 1997 were approximately $33 billion.
The Company is engaged primarily in the business of manufacturing and
selling VCC Units and related software and accessories. This line of business
generated all of the Company's revenue in 1996 and 1997, and the majority of
revenue for the nine months ended September 30, 1998. The Company expects such
business will generate the majority of its revenue in fiscal years 1998 and
1999.
As of December 31, 1998, the Company had no paid employees and its wholly
owned subsidiary, MAINTECH, had 79 paid employees.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
David H. McCaffrey 53 Chief Executive Officer and Director
Robert E. Donaldson 55 President and Director
James Geiser 48 Chief Financial Officer and Secretary
John E. Haugo 62 Director
John Clarey 41 Director
Doug Pihl 39 Director
</TABLE>
Mr. McCaffrey has served as the Company's Chief Executive Officer since
January 1995, and as a Director of the Company since January 1995. Mr.
McCaffrey also has served as MAINTECH's Chief Executive Officer since December
1994. Prior to joining MAINTECH in December 1994, Mr. McCaffrey served as
President, Chief Executive Officer and Chief Financial Officer of Rimage
Corporation from April 1989 to October 1994. Mr. McCaffrey also served as a
director of Rimage Corporation from November 1992 until October 1994.
Mr. Donaldson has served as the Company's President and as a Director since
January 1995. Mr. Donaldson founded MAINTECH in April 1992 and has served as
its President since inception. Mr. Donaldson also served as MAINTECH's Chief
Executive Officer from April 1992 to December 1994. Prior to founding MAINTECH,
Mr. Donaldson served as a Vice President of Meridian Technology Leasing Corp.
from 1986 to 1991. Prior to 1986, Mr. Donaldson served in various capacities
with Itel Corp. and International Business Machines Corporation.
Mr. Geiser has served as the Secretary of the Company since September 1993
and Chief Financial Officer of the Company since January 1994. Since 1991, Mr.
Geiser has served as President of G&B Financial Advisory Services, a firm
engaged in providing financial consulting services to corporations requiring
financial restructuring. From 1989
-9-
<PAGE>
until January 1992, Mr. Geiser served as Chief Financial Officer and consultant
to International Broadcasting Corporation, an owner and operator of family
entertainment attractions including the Harlem Globetrotters and Ice Capades
touring shows and three regional amusement parks. From 1987 until October 1989,
Mr. Geiser was Vice President and Treasurer of Washington Square Capital, Inc.,
an investment management company and subsidiary of Northwestern National Life
Insurance Company. From 1979 until 1987, Mr. Geiser held various positions with
Gelco Corporation, including the position of Assistant Treasurer of Gelco
Corporation, and Vice President and Treasurer of Gelco Finance Corporation.
Mr. Haugo has served as a director of the Company Since June 1997. Mr.
Haugo was the founder and Chief Executive Officer of both Edusystems, Inc.,
an educational software business, and Serving Software, Inc., a developer of
applications for the healthcare industry. Serving Software, Inc. was sold in
1994 to HBO & Company. Mr. Haugo also serves on the board of directors of St.
Paul Software, Inc., Catalog Marketing Services, Inc. and Member Services
International, Inc.
Mr. Pihl has served as a director of the Company since September 1998.
Between 1979 and early 1989, Mr. Pihl was affilated with Lee Data Corporation,
which he co-founded. Lee Data developed and sold advanced hardware
communications devices for IBM mainframes. Subsequently, Mr. Pihl co-founded
NetStar, Inc., a developer of high-speed technology for network routers. NetStar
Inc. was sold to Ascend Communications, Inc. in August 1996. Mr. Pihl is
Chairman of the Board and Chief Executive Officer of Vital Images, Inc., a
provider of three demensional rendering software for the healthcare industry.
Mr. Pihl is also on the board of directors of Astrocom, Inc., Astron-Fearing
Corporation and three privately held companies.
Mr. Clarey has been a director of the Company since September 1998. Mr.
Clarey is Executive Vice President and Chief Operating Officer of Miller &
Schroeder Financial, Inc., an investment banking firm. Prior to joining Miller
& Schroeder, Mr. Clarey was Chief Executive Officer of Allison-Williams Company,
an investment banking firm, from 1980 to 1988.
The Board of Directors does not have any standing audit, compensation,
stock option or nominating committees. The Board of Directors administers the
Company's 1989 Stock Option Plan and approves awards of stock options and
restricted stock awards made thereunder.
The Company at present does not pay any director's fees. The Company may
reimburse its outside directors for expenses actually incurred in attending
meetings of the Board of Directors.
-10-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The consolidated financial statements that accompany this discussion show
the operating results of the Company for the fiscal quarters ended September 30,
1997 and 1998 and for the years ended December 31, 1997 and 1996. The results
include the operations of MAINTECH. This Prospectus contains, in addition to
historical information, forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from the
results discussed in the forward-looking statements. Factors that could cause
or contribute to such differences include those discussed below, as well as
those discussed elsewhere in this Prospectus. See " -- Forward Looking
Statements."
RESULTS OF OPERATIONS
Fiscal Quarter Ended September 30, 1998 Compared to Fiscal Quarter Ended
September 30, 1997
Sales from operations for the third quarter ended September 30, 1998 were
approximately $1,659,000 compared to sales from operations for the third quarter
of 1997 of approximately $1,181,000. Sales for the nine months ended September
30, 1998 were approximately $5.1 million compared to $2.8 million in the same
nine month period of 1997. The $478,000 increase for the third quarter is
primarily related to an approximate increase of $409,000 in system sales which
includes both the Virtual Command Center ("VCC") and computer-aided design
software products, and an increase of $68,000 in maintenance, consulting and
other fees. The $2.4 million increase for the nine months ended September 30,
1998 is substantially due to a $2.1 million increase in system sales and
increases in maintenance, consulting and other fees is the primary reason for
the remaining $0.3 million increase.
Cost of sales increased in the third quarter ended September 30, 1998 to
31% from 26% in the third quarter of 1997 and for the nine months ended
September 30, 1998 increased to 34% from 25% in the nine months ended September
30, 1997. Nearly all of the increase in the third quarter ended September 30,
1998 is due to increased amounts of software amortization. The increase in cost
of sales for the nine months ended September 30, 1998 is evenly split between
increases in software amortization and product costs. Product costs include
increased distribution costs which are the result of certain of the sales in the
nine months ended 1998 being made through a third party distributor. The Company
had no third party distribution costs in the same nine month period of 1997.
Software amortization increased in 1998 as a result of increases in capitalized
software development costs. As a result, the gross margin in the third quarter
ended September 30, 1998 was approximately 69% compared to 74% in the third
quarter of 1997 and for the nine months ended September 30, 1998 the gross
margin was approximately 66% compared to 75% in the same nine month period in
1997.
Selling, general and administrative expenses in the third quarter of 1998
were approximately $838,000 compared to $491,000. For the nine month period
ended September 30, 1998 these expenses were approximately $2,440,000 compared
to $1,182,000 in the same period in 1997. These increases of $347,000 and
$1,258,000 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 equipment purchases for new 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 third quarter of 1998 were
approximately $212,000 compared to $85,000 in the third quarter of 1997, one
year ago. For the nine month period ended September 30, 1998 research and
development costs were approximately $486,000 compared to $178,000 in the same
period in the prior year. The increases of $127,000 in the third quarter and
$308,000 for the nine months ended September 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.
-11-
<PAGE>
Net cash used in operating activities for the nine month period ended
September 30, 1998 was approximately $1,169,000. Cash generated from net income
for this nine month period was approximately $312,000 and was $990,000 from
depreciation and amortization. However, cash was used to fund increases in
current assets, primarily receivables and inventory totaling approximately
$2,605,000. Cash was also provided by accounts payable and accrued expenses
totaling approximately $245,000. In the same period in the prior year operating
activities used cash of approximately $763,000, which was largely due to net
income and depreciation and amortization of approximately $929,000 which was
more than offset by cash used to increase current assets and to reduce current
liabilities.
Cash used by investing activities of approximately $2,292,000 reflects
investments of $2,709,000 in software licenses purchased in February 1998,
included in other assets, and in capitalized computer software costs, which
represent 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 $205,000 of
additions to property and equipment during the first nine months of 1998,
invested $170,000 in notes receivable and received payments on notes receivable
of $75,000. During the nine months ended September 30, 1997, the Company
invested $785,000 primarily in capitalized computer software development costs
of $586,000, and $166,000 in property and equipment.
Net cash provided by financing activities in the nine month period ended
September 30, 1998 was approximately $2,034,000. This is due to the receipt of
net proceeds from the issuance of Common Stock of approximately $2,109,000 in
three private placements of the Company's securities. Offsetting this increase
was a $75,000 use of cash to reduce subordinated notes payable. In the nine
month period ending September 30, 1997, the Company raised $2,705,000 in two
private issues of Common Stock at per share prices of $0.75 and $1.40. In
addition, in the nine month period ending September 30, 1997, the Company issued
five year subordinated notes payable of $2,000,000, disbursed $212,000 for debt
issuance costs, and reduced short term debt of $363,000 resulting in net cash
provided by financing activities of $4,112,000.
Fiscal Year ended December 31, 1997 Compared to Fiscal Year Ended December 31,
1996
Sales from continuing operations for the year ended December 31, 1997 were
approximately $3,003,000 compared to sales from continuing operations of
$2,130,000 in the year ended December 31, 1996. Sales of the VCC were
approximately $2,138,000 in 1997 compared to approximately $1,797,000 in 1996.
Maintenance fees were approximately $702,000 in 1997 on previously sold systems.
Revenue in 1997 also included approximately $132,000 of consulting revenue and
$30,000 from sales of miscellaneous computer parts. Revenue in 1996 related to
maintenance, consulting, and other activities totaled approximately $332,000.
These revenue activities reflect the installation of a cumulative total of 20
VCC units with eight customers compared to a cumulative total of 10 VCC units
with three customers in 1996. The gross margin on sales was approximately 75% in
1997 compared to 71% in the year ended December 31,1996. The increase in gross
margin in 1997 is primarily related to the increase in maintenance fees in 1997.
Selling, general and administrative ("SG&A") costs for the year ended
December 31,1997 were approximately $1,649,000 compared to approximately
$962,000 for the same period in 1996. This $687,000 increase is related to a
$235,000 increase in salary expense which reflects an increase in paid employees
which grew during the year from 16 to 26. Advertising, travel and entertainment
costs increased $134,000 and $97,000, respectively in the year ended 1997 versus
1996. This reflects the increased selling activities of the Company. Nearly all
the other SG&A costs increased by amounts ranging from $84,000 to $15,000,
including professional and technical costs, depreciation expense, and supplies,
insurance, rent and utilities costs. These increases are all primarily related
to increased business activities of the Company. Professional and technical
expenses which include legal, accounting and investor relations expenses
increased due to additional governance costs and a recovery of reserves which
offset such expenses in 1996. There were no new litigation expenses in either
1997 or 1996. Depreciation expense increased as a function of the increase in
equipment purchases for new employees. Office and warehouse supplies, insurance,
rent and utilities all increased due to additional employees and additional
offices. Insurance expense in 1996 was also unusually low due to an insurance
refund received in 1996. Research and development expenses in 1997 and 1996
relate to the ongoing maintenance of existing software and comprise salaries and
consulting fees for technical expertise. In 1997, this cost reflects fees paid
of nearly $100,000 to a technical search firm hired to recruit additional
technical employees.
-12-
<PAGE>
Non-operating expenses in the year ended December 31, 1997 consisted of
interest expense, interest income and amortization of deferred debt issue costs
indicated as "Other." In the last six months of 1997, interest expense includes
only the cost of the $2,000,000 of subordinated debt issued by the Company on
June 19, 1997. In the prior year, interest expense represented the costs of the
Company's convertible subordinated debentures, notes payable to vendors, a bank,
and individuals, the principal amount of which totaled approximately $380,000 at
December 31, 1996. Interest income in 1997 is the result of short-term
investments of excess cash. Amortization ($44,294 annually on a straight-line
basis over five years) of deferred debt issue costs of $221,470 relates to the
issuance of $2,000,000 of subordinated debt.
Net cash used in operating activities for the year ended December 31, 1997
was approximately $302,000 compared to approximately $163,000 provided by such
activities in the year ended December 31, 1996. During the year ended December
31, 1997, operating funds of approximately $662,000 were provided by net income
prior to depreciation/amortization. This increase was more than offset by the
use of operating funds for assets including inventory, accounts receivable, and
prepaid expenses of approximately $760,000 and for short-term liabilities of
approximately $204,000.
Cash used for investing activities in the year ended December 31, 1997 of
approximately $2,270,000 reflects investments of approximately $780,000 in
capitalized computer software development costs, which represent costs incurred
after technological feasibility has been established in connection with the
development of enhancements to one or more particular software programs, and
approximately $109,000 in software licenses and patent costs. Additionally, the
Company invested approximately $780,000 in sales-type leases covering the
Company's products, purchased approximately $362,000 of property and equipment
and invested approximately $163,000 in operating leases covering the Company's
products. The Company also invested $75,000 in a note receivable from a software
company due in 1998. In 1996, the Company invested approximately $473,000 in
capitalized computer software development costs, $107,000 in leased equipment,
$68,000 in patent costs and purchased $37,000 of property and equipment.
Net cash of approximately $4,266,000 was provided by financing activities
in the year ended December 31, 1997. This is the result of net proceeds from the
issuance of Common Stock of $2,768,000 primarily through two separate private
placements at per share prices of $0.75, $1.40, and a net issuance of long-term
notes payable of $2,000,000. These proceeds were partially offset by payments of
short-term notes payable of $320,000 and disbursements of approximately $212,000
for the issuance of new debt in the year ended December 31, 1997. In the year
ended December 31, 1996, cash was provided by financing activities of
approximately $516,000. This is the result of approximately $675,000 of proceeds
from the issuance of Common Stock offset by decreases in short-term and long-
term notes payable of approximately $159,000.
LIQUIDITY AND CAPITAL RESOURCES
Fiscal Quarter Ended September 30, 1998 Compared to Fiscal Quarter Ended
September 30, 1997
As of September 30, 1998, the Company had positive working capital of
approximately $3,661,000 compared to positive working capital as of December 31,
1997 of approximately $2,884,000. The increase in positive working capital is
related to the net earnings plus depreciation and amortization recorded in the
nine months ended September 30, 1998 which was partially offset by an increase
in current liabilities.
During the nine months ended September 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.
-13-
<PAGE>
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.
YEAR 2000 ISSUE
Background
Many currently installed computer systems and software are coded to accept
only two-digit entries in the date code fields. These date code fields will need
to accept four-digit entries to distinguish 21st century dates from 20th century
dates. This problem could result in system failures or miscalculations causing
disruptions of business operations (including, among other things, a temporary
inability to process transactions, send invoices or engage in other similar
business activities). As a result, many companies' computer systems and software
will need to be upgraded or replaced in order to comply with year 2000
requirements. The potential global impact of the year 2000 problem is not known,
and, if not corrected in a timely manner, could affect the Company and the U.S.
and world economies generally.
State of Readiness
The Company has analyzed the potential effect of the year 2000 issue on
both the system software included in the Company's products and its internal
systems (e.g., word processing and billing software), including its information
technology ("IT") and non-IT systems (which systems contain embedded technology
in manufacturing or process control equipment containing microprocessors or
other similar circuitry). The Company's year 2000 compliance program includes
the following phases: identifying systems that need to be modified or replaced;
carrying out remediation work to modify existing systems or convert to new
systems; and conducting validation testing of systems and applications to ensure
compliance. The Company is currently in the remediation phase of this program
with respect to software purchased or licensed from software vendors by the
Company and used internally and has completed the validation phase of this
program with respect to its own products.
The amount of remediation work required to address year 2000 problems is
not expected to be extensive. The Company has tested all of the system software
included in its products and determined that it is year 2000 compliant. In
addition, the Company has requested and received documentation from vendors
supplying software for its primary business applications addressing year 2000
compliance. In all cases, vendors' responses indicated that their applications
were either currently year 2000 compliant or that they would be compliant by the
end of 1998. Therefore, the Company will be required to modify some of its
existing software applications in order for its internal computer systems to
function properly in the year 2000 and thereafter. The Company estimates that it
will complete its year 2000 compliance program for all of its significant
internal systems no later than July 1, 1999. The Company also has had informal
discussions with its major suppliers and customers regarding their efforts to
address the year 2000 problem. These actions are intended to help mitigate the
possible external impact of the year 2000 problem. However, it is impossible to
fully assess the potential consequences in the event service interruptions from
suppliers occur or in the event that there are disruptions in such
infrastructure areas as utilities, communications, transportation, banking and
government.
-14-
<PAGE>
Costs
Because essentially all of the Company's products and internal systems were
created in the last few years, such products and internal systems were designed
to avoid the year 2000 problem. As a result, the total cost for resolving the
Company's year 2000 issues is expected to be less than $10,000, a negligible
amount of which has been spent through December 31, 1998. The total cost
estimate includes the cost of replacing or upgrading non-compliant systems that
were otherwise planned (but perhaps accelerated due to the year 2000 issue) or
which have significant improvements and benefits unrelated to year 2000 issues.
Estimates of year 2000 costs are based on numerous assumptions, and there can be
no assurance that the estimates are correct or that actual costs will not be
materially greater than anticipated.
Contingency
The Company has not yet developed a contingency plan to provide for
continuity of processing in the event of various problem scenarios, but it will
assess the need to develop such a plan based on the outcome of the validation
phase of all of its systems and any additional results from surveys of its major
suppliers and customers with respect to their year 2000 compliance.
Risk
Based on its assessments to date, the Company believes it will not
experience any material disruption as a result of year 2000 problems with
respect to its products and the third-party systems it uses for its internal
functions, and, in any event, the Company does not anticipate the year 2000
issues it will encounter will be significantly different than those encountered
by other computer hardware and software manufacturers, including its
competitors. For example, if certain critical third-party providers, such as
those providers supplying electricity, water or telephone service, experience
difficulties resulting in disruption of service to the Company, a shutdown of
the Company's operations at individual facilities could occur for the duration
of the disruption. Assuming no major disruption in service from utility
companies or other critical third-party providers, the Company believes that it
will be able to manage its total year 2000 transition without any material
effect on the Company's results of operations or financial condition.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock and Preferred Stock, as of December 31, 1998, by (i)
each person known to the Company to be the beneficial owner of 5% or more of
outstanding Common Stock and Preferred Stock, (ii) each of the Company's
directors, (iii) the executive officers named in the Summary Compensation Table
below and (iv) the directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Percentage
Percentage of
Number of of Number of Shares of
Shares of Shares of Shares of Preferred
Common Stock Common Stock Preferred Stock Stock
Beneficially Beneficially Beneficially Beneficially
Name and Address(1) Owned (2) Owned (2) Owned (2) Owned (2)
- ------------------------- ------------ ------------ --------------- ------------
<S> <C> <C> <C> <C>
David H. McCaffrey 1,980,000 10.5 % -- -- %
John E. Haugo 25,000 * -- --
John Clarey 4,000 * -- --
Doug Pihl -- -- -- --
Robert E. Donaldson 1,750,000 9.5 -- --
Ruth E. Donaldson 1,100,000 6.0 -- --
All officers and directors
as a group (6 persons) 4,129,000 21.8 -- --
</TABLE>
_________________
(1) Unless otherwise indicated, the address of each of the following
individuals is 7578 Market Place Drive, Eden Prairie, Minnesota 55344.
* Less than 1%.
-15-
<PAGE>
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes generally voting and
investment power with respect to securities. Shares of Common Stock or
Preferred Stock subject to options or warrants currently exercisable or
exercisable within sixty (60) days of the date of determination are deemed
outstanding for purposes of computing the percentage of shares beneficially
owned by the person holding such options or warrants, but are not deemed to
be outstanding for purposes of computing such percentage for any other
person. Unless otherwise indicated by footnote, each person or group
identified has sole voting and investment power with respect to all shares
of Common Stock and Preferred Stock shown as beneficially owned by such
person.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation awarded to or earned
by the Chief Executive Officer and any employee who earned in excess of $100,000
during the year ended December 31, 1998. No executive officer of the Company
earned salary and bonus in excess of $100,000 during the year ended December 31,
1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
-----------------------------------------------------------
Annual Compensation Awards Payouts
------------------------------------------------ -------
Securities
Name and Principal Underlying LTIP
Position Year Salary Bonus Options Payouts
---------------------- ------ -------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
David H. McCaffrey, 1998 $ 90,000 $ 8,000 180,000 --
Chief Executive Officer 1997 97,000 -- 250,000 --
1996 95,475 -- -- --
</TABLE>
STOCK OPTIONS
The following table sets forth information concerning individual grants of
stock options made to the persons named in the "Summary Compensation Table"
above (the "Named Executive Officer"). No stock appreciation rights were granted
or exercised for the year ended December 31, 1998.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Name Number of % of Total
Securities Options Exercise
Underlying Granted to or Base
Options Employees in Price Expiration
Granted (1) Fiscal Year ($/Sh) Date
- --------------------------------- ------------ -------- -----------
<S> <C> <C> <C> <C>
David H. McCaffrey 180,000 11% 1.94 01/23/03
</TABLE>
________________
(1) The right to purchase 90,000 shares vested on 12/31/98 and the remainder
vests on 12/31/99.
-16-
<PAGE>
AGGREGATED OPTION EXERCISES IN 1998 AND YEAR END OPTION VALUES
The following table provides information concerning stock option exercise
and the value of unexercised options at December 31, 1998 for the Named
Executive Officer.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
Number of Securities Value of Unexercised
Underlying In-the-Money
Shares Unexercised Options at FY-end
Acquired Value Options at FY-end Exercisable/Unexer.
Name on Exercise Realized Exercisable/Unexer. (1)
- ------------------- ----------- -------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
David H. McCaffrey -- -- 430,000 0 $136,250 $0
</TABLE>
_______________
(1) Mr. McCaffrey believes his stock options have no value, based on the low
trading volume of the Common Stock and the restrictive trading rules
applicable to insiders. Notwithstanding the foregoing, for reporting
purposes only, Mr. McCaffrey's unexercised in-the-money options have a
value of $136,250 (calculated based on the difference between the fair
market value of the 430,000 shares of Common Stock underlying in-the-money
options at year end ($1.50 at December 31, 1998) and the exercise price of
the options at year end (250,000 shares at $1.00 and 180,000 shares at
$1.4375)).
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the OTC Market under the symbol
"GLBM". Prior to November 12, 1996, the Company's Common Stock traded under the
symbol "GBMT". The Company effected a one-for-five reverse split on November 12,
1996 (the "Reverse Stock Split"). As of December 31, 1998 (the date of its
annual shareholders meeting), the Company had approximately 3,100 shareholders
of record. The following are the high and low bid quotations for the Company's
Common Stock as reported on the OTC Market during the periods indicated.
<TABLE>
<CAPTION>
1996 High Low
---- ----- -----
<S> <C> <C>
First Quarter................................ $0.75 $0.30
Second Quarter............................... 1.60 0.40
Third Quarter................................ 1.30 0.65
Fourth Quarter............................... 1.81 0.90
1997
----
First Quarter................................ $2.56 $1.44
Second Quarter............................... 2.75 1.50
Third Quarter................................ 2.38 1.69
Fourth Quarter............................... 2.88 1.94
1998
----
First Quarter................................ $2.75 $1.88
Second Quarter............................... 2.75 1.94
Third Quarter................................ 2.34 1.13
Fourth Quarter .............................. 1.69 1.06
</TABLE>
-17-
<PAGE>
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future.
DESCRIPTION OF CAPITAL STOCK
As of December 31, 1998, the authorized capital stock of the Company
consisted of 50,000,000 shares, no par value, of which 887,980 shares are
designated as Series A Convertible Preferred Stock (the "Series A Preferred
Stock"), 615,385 shares are designated as Series B Convertible Preferred Stock
(the "Series B Preferred Stock") and 48,496,635 shares shall be divisible into
such other classes and series as the Board of Directors may from time to time
determine. The Series A Preferred Stock and the Series B Preferred Stock are
sometimes referred to herein collectively as the "Preferred Stock." As of
December 31, 1998, there were 18,409,397 shares of Common Stock outstanding,
which were held of record by approximately 3,100 shareholders, 129,176 shares of
Series A Preferred Stock outstanding, which were held of record by approximately
17 shareholders, and 335,961 shares of Series B Preferred Stock outstanding,
which were held of record by 25 shareholders.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. There is no
cumulative voting for the election of directors so that the holders of more than
50% of the aggregate voting power of the outstanding Common Stock and Preferred
Stock can elect all directors. See "-- Preferred Stock." Subject to preferences
that may be applicable to any outstanding Preferred Stock, holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors of the Company out of funds legally available therefor and in
liquidation proceedings. Holders of Common Stock have no preemptive or
subscription rights and there are no redemption rights with respect to such
shares.
PREFERRED STOCK
The holders of Preferred Stock are entitled to vote on all matters
submitted to a vote of shareholders the number of votes for each share held of
record equal to the number of shares of Common Stock into which such share of
Preferred Stock is then convertible. There is no cumulative voting for the
election of directors so that the holders of more than 50% of the aggregate
voting power of the outstanding Common Stock and Preferred Stock can elect all
directors. Holders of Series A Preferred Stock are entitled to receive ratably
such dividends as may be declared by the Board of Directors of the Company, and
holders of Series B Preferred Stock are entitled to receive dividends at an
annual rate of $.52 per share, out of funds legally available therefor and in
liquidation proceedings. Dividends on shares of Series B Preferred Stock are
cumulative and are only payable upon conversion of the Series B Stock. Holders
of Preferred Stock have no preemptive or subscription rights and there are no
redemption rights with respect to such shares.
Under Minnesota law and the Company's Second Amended and Restated Articles
of Incorporation, the Board of Directors is authorized, without further
shareholder action, to issue preferred stock in one or more classes or series
and to fix the voting rights, liquidation preferences, dividend rights,
repurchase rights, conversion rights, redemption rights and terms, including
sinking fund provisions, and certain other rights and preferences, of the
preferred stock. Accordingly, although it has no current intention of doing so,
the Board of Directors of the Company may, with the approval of the holders of a
majority of the voting power of the then outstanding Preferred Stock, issue
shares of a class or series of preferred stock with voting and conversion rights
which could adversely affect the voting power and the dividend and other rights
of the holders of Common Stock.
WARRANTS AND OPTIONS
As of December 31, 1998, the Company had outstanding options to purchase
6,951,593 shares of Common Stock that had been issued to employees, directors
and consultants to the Company pursuant to the 1989 Stock Option Plan, as
amended, with a weighted average exercise price of $1.19 per share. Such options
expire between April 5, 2001 and January 7, 2005, the majority of which expire
on or before December 31, 2003. As of December 31, 1998, the Company also had
outstanding warrants to purchase a total of 2,058,081 shares of Common Stock
that have been granted to third parties outside of the 1989 Stock Option Plan
with a weighted average exercise price of $2.07 per share.
-18-
<PAGE>
Such third-party warrants are all currently exercisable, but are not all in-the-
money, and expire on dates ranging from January 17, 2000 to November 30, 2003.
All agreements embodying such outstanding third-party warrants and options
provide for antidilution adjustments in the event of certain mergers,
consolidations, reorganizations, recapitalizations, stock dividends, stock
splits or other changes in the corporate structure of the Company.
ANTI-TAKEOVER PROVISIONS OF THE MINNESOTA BUSINESS CORPORATION ACT
Certain provisions of Minnesota law described below could have an anti-
takeover effect. These provisions are intended to provide management
flexibility, to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and in the policies formulated by the
Board of Directors and to discourage an unsolicited takeover of the Company if
the Board of Directors determines that such a takeover is not in the best
interests of the Company and its shareholders. However, these provisions could
have the effect of discouraging certain attempts to acquire the Company, which
could deprive the Company's shareholders of opportunities to sell their shares
of Common Stock at prices higher than prevailing market prices.
Section 302A.671 of the Minnesota Business Corporation Act (the "MBCA")
provides that, unless the acquisition of certain new percentages of voting
control of the Company (in excess of 20%, 33 1/3% or 50%) by an existing
shareholder or other person is approved by a majority of the disinterested
shareholders of the Company, the shares acquired above such new percentage level
of voting control will not be entitled to voting rights. The Company is required
to hold a special shareholders' meeting to vote on any such acquisition within
55 days after the delivery to the Company by the acquiror of an information
statement describing, among other things, the acquiror and any plans of the
acquiror to liquidate or dissolve the Company and copies of definitive financing
agreements for any financing of the acquisition not to be provided by funds of
the acquiror. If any acquiror does not submit an information statement to the
Company within ten days after acquiring shares representing a new threshold
percentage of voting control of the Company, or if the disinterested
shareholders vote not to approve such an acquisition, the Company may redeem the
shares so acquired by the acquiror at their market value. Section 302A.671
generally does not apply to a cash offer to purchase all shares of voting stock
of the issuing corporation if such offer has been approved by a majority vote of
disinterested board members of the issuing corporation.
Section 302A.673 of the MBCA restricts certain transactions between the
Company and a shareholder who becomes the beneficial holder of 10% or more of
the Company's outstanding voting stock (an "interested shareholder") unless a
majority of the disinterested directors of the Company have approved, prior to
the date on which the shareholder acquired a 10% interest, either the business
combination transaction suggested by such a shareholder or the acquisition of
shares that made such a shareholder a statutory interested shareholder. If such
prior approval is not obtained, the statute imposes a four-year prohibition from
the statutory interested shareholder's share acquisition date on mergers, sales
of substantial assets, loans, substantial issuances of stock and various other
transactions involving the Company and the statutory interested shareholder or
its affiliates.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar with respect to the Common Stock is
Norwest Bank, Minnesota, N.A.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Second Amended and Restated Articles of Incorporation and the
statutes of the State of Minnesota require the Company to indemnify any
director, officer, employee or agent who was or is a party to any threatened,
pending or completed action, suit or proceedings, whether civil, criminal,
administrative or investigative, against certain liabilities and expenses
incurred in connection with the action, suit or proceeding, except where such
persons have not acted in good faith or did not reasonably believe that the
conduct was in the best interests of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or other persons controlling the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
informed that in the opinion of the SEC, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
-19-
<PAGE>
CERTAIN TRANSACTIONS
On December 16, 1996, pursuant to the advice of the Company's financial
advisor, Bob Donaldson, David McCaffrey and Jim Geiser exercised certain stock
options to purchase 730,000, 840,000 and 240,000 shares of Common Stock,
respectively. Messrs. Donaldson, McCaffrey and Geiser paid their respective
exercise prices totaling $109,000, $126,000 and $59,000 in the form of personal
promissory notes payable to the Company. Each of these promissory notes had an
interest rate of 5.75% per annum and was scheduled to be repaid no later than
the termination date of the option to which the note related. Messrs. Donaldson,
McCaffrey and Geiser intend to repay these personal promissory notes in full on
or prior to February 28, 1998. Bob Donaldson is a Director of the Company and
its President. David McCaffrey is a Director of the Company and its Chief
Executive Officer. Jim Geiser is the Company's Chief Financial Officer and
Secretary.
RECENT DEVELOPMENTS
SECURITIES OFFERING
From late August 1998 until December 31, 1998, the Company offered up to
615,384 units for sale in a private placement of securities. Each unit consisted
of one share of Series B Preferred Stock and one Warrant to purchase shares of
Common Stock. The purchase price per unit was $6.50.
Each share of Series B Preferred Stock entitles the holder thereof to
receive an annual dividend equal to $.52. Until February 15, 1999, each share of
Series B Preferred Stock is convertible into that number of shares of Common
Stock equal to the per unit purchase price divided by $3.25, subject to certain
adjustments. Thereafter, each share of Series B Preferred Stock is convertible
into that number of shares of Common Stock equal to the per unit purchase price
divided by 80% of the average closing bid price of the Common Stock for the 20
consecutive trading days prior to the conversion date, subject to certain
adjustments; provided, however, that such average price may not be greater than
$2.50 nor less than $.75. All outstanding shares of Series B Preferred Stock
will be automatically converted into Common Stock on September 23, 2001 if the
Company has registered such common shares under the Securities Act and the
Common Stock is traded on Nasdaq.
Each Warrant is a five-year callable warrant to purchase Common Stock at
$3.25 per share. The number of shares of Common Stock for which the Warrant in
each unit will be exercisable will equal the number of shares of Common Stock
into which the associated share of Series B Preferred Stock contained in the
unit will have been converted. The Warrants are callable by the Company provided
the Common Stock has not traded below $4 3/8 for 20 consecutive trading days
prior to the call exercise date and the underlying shares are registered under
the Securities Act and the Common Stock is traded on Nasdaq.
The Company agreed to use its best efforts to register the shares of Common
Stock underlying the Series B Preferred Stock and the Warrants and to pay a
penalty if such registration is not effective by February 28, 1999. This penalty
is equal to 1% of the purchase price of the units for each of the first two 30-
day periods following February 28, 1999 and 3% for every 30-day period
thereafter until the registration statement has been declared effective. All
shares of Common Stock that may be sold pursuant to this Prospectus were issued
in connection with this offering.
The Company issued 335,961 of such units for total gross proceeds of
$2,183,747 Commissions paid on this amount totaled $126,687 to MJK for
placement agent commissions and $23,302 for the payment of MJK's accountable
expenses, including legal fees, incurred in connection with the offering.
ASSET PURCHASE FROM ENTERPRISE SYSTEMS, INC.
On December 9, 1998, the Company, through its wholly owned subsidiary
Singlepoint Systems, Inc. ("SSI"), purchased substantially all the assets of
Enterprise Solutions, Inc., an Ohio corporation ("ESI"), pursuant to an Asset
Purchase Agreement dated as of November 1, 1998 (the "Purchase Agreement") by
and among the Company, Global MAINTECH, Inc., SSI and ESI. Immediately prior to
the acquisition, ESI was a market leader in critical event notification software
for data center management and also provides engineering/project management
consulting to implement enterprise automation tools in small, medium and large
data centers.
-20-
<PAGE>
As a result of this acquisition, the Company obtained substantially all of
the assets and assumed certain liabilities of ESI, including rights under and to
ESI's computer software products, and the trademarks and copyrights related
thereto, as well as ESI's ongoing leases, contracts and certain office
equipment. The primary assets acquired by the Company were a suite of software
products, including AlarmPoint and PhonePoint, which provide intelligent
software linked to telephones, pagers and the Internet for notification of
critical events. This software is linked to other systems management tools and
delivers timely and critical information to the proper person(s) for problem
resolution. The Company also obtained ESI's short-term consulting business,
which assists companies to optimize their existing systems management and
network management tools. The Company expects that this consulting business will
generate sales of newly acquired software and of VCC units.
The acquisition was recorded as an asset purchase. The purchase price was
paid as follows: $200,000 was paid in cash, options to purchase a total of
1,700,000 shares of Common Stock were issued to the shareholders of ESI (the
"Shareholder Options") and options to purchase a total of 80,000 shares of
Common Stock were issued to the employees of ESI (the "Employee Options"). All
such options have an exercise price equal to $1.25 and terminate on December 9,
2003. The purchase price is subject to further adjustment depending on the
after-tax earnings generated by the Company using the purchased assets during
the 18-month period following the acquisition ("Adjusted Earnings"). In the
event the Adjusted Earnings are less than certain amounts set forth in the
Purchase Agreement, the number of shares that may be purchased under the
Shareholder Options would be reduced by up to 1,300,000 shares. The Company also
will pay ESI the excess, if any, of the Earn-out Amount (as defined below) minus
the Option Value (as defined below). "Earn-out Amount" means the greater of (a)
18 times the sum of the Adjusted Earnings for the first, second, third, tenth,
eleventh, twelfth, thirteenth, fourteenth, fifteenth, sixteenth, seventeenth and
eighteenth months following the acquisition or (b) 16 times the sum of the
Adjusted Earnings for the seventh month through the eighteenth month following
the acquisition. "Option Value" means $200,000 plus the product of the number of
shares subject to the Shareholder Options (after any adjustments as described
above) multiplied by the spread between the exercise price thereof and the
average daily closing price of the Company's Common Stock during the month
immediately preceding the last month of the Earn Out Period. Notwithstanding the
foregoing, in the event the Earn-out Amount minus the Option Value is less than
$5,000,000, the Company, at its option, will either pay the difference to ESI or
shall return the purchased assets (and related liabilities) to ESI. In the event
such assets are returned, the Shareholder Options and the Employee Options will
be canceled. The acquired software will be offered by the Company to customers
as an additional component of the Company's base VCC unit.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
DESCRIPTION OF PROPERTY
The Company's headquarters is located at 7578 Market Place Drive, Eden
Prairie, MN 55344. The Company leases this space pursuant to a 20-month lease
for 10,500 square feet, which lease began on August 1, 1998. The Company also
leases four small office spaces for sales and technical development services,
one of which is in Ohio and the others are in California.
EXPERTS
The financial statements of Global MAINTECH Corporation as of December 31,
1997 and 1996, and for each of the years in the two-year period ended December
31, 1997, have been included herein and in the registration statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
LEGAL MATTERS
The validity of the Shares offered hereby has been passed upon for the
Company by Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis, Minnesota
55402.
-21-
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act
with respect to the Common Stock offered hereby. The Company is subject to the
informational requirements of the Exchange Act, and in accordance therewith
files reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information filed by the Company can be
inspected and copied at the public reference facilities of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and
CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also maintains a Web site that contains reports, proxy
statements, information statements and other information concerning the Company
at the site located at http://www.sec.gov. This Prospectus does not contain all
the information set forth in the Registration Statement and exhibits thereto
which the Company has filed with the Commission under the Securities Act, and to
which reference is hereby made.
-22-
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996................................ F-3
Consolidated Statements of Operations for the Years ended December 31, 1997 and
1996................................................................................... F-5
Consolidated Statements of Stockholders' Equity for the Years ended December 31, 1997,
1996 and 1995.......................................................................... F-6
Consolidated Statements of Cash Flows for the Years ended December 31, 1997 and
1996................................................................................... F-7
Notes to Consolidated Financial Statements.................................................. F-8
Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997 (unaudited)...... F-17
Consolidated Statements of Earnings for the Three and Nine Months ended September 30, 1998
and 1997 (unaudited)................................................................... F-19
Consolidated Statements of Cash Flows for the Nine Months ended
September 30, 1998 and 1997 (unaudited)................................................ F-20
Notes to Interim Consolidated Financial Statements (Unaudited).............................. F-21
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of Global MAINTECH Corporation:
We have audited the accompanying consolidated balance sheets of Global MAINTECH
Corporation and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Global MAINTECH
Corporation and subsidiary as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 23, 1998
F-2
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31
1997 1996
------------ -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,726,889 $ 32,890
Accounts receivable, less allowance for doubtful 576,573 451,599
accounts of $15,000
Other receivables 26,111 21,519
Inventories 797,435 217,943
Prepaid expenses and other assets 77,308 26,706
Notes receivable 75,000 --
Current portion of investment in sales-type leases 286,997 --
------------ -----------
Total current assets 3,566,313 750,657
Property and equipment, net 308,347 31,221
Leased equipment 209,033 82,377
Software development costs, net 955,835 425,519
Net investment in sales-type leases, net of current portion 492,918 --
Other assets, net 331,003 61,779
------------ -----------
TOTAL ASSETS $ 5,863,449 $ 1,351,553
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ -------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 396,159 $ 396,004
Current portion of subordinated notes payable 100,000 211,613
Convertible subordinated debentures -- 151,750
Accrued liabilities
Compensation and payroll taxes 123,605 79,655
Interest -- 13,960
Other 10,588 38,325
Deferred revenue 52,443 259,747
----------- -------------
Total current liabilities 682,795 1,151,054
Subordinated notes payable, less current portion 1,900,000 16,600
----------- -------------
Total liabilities 2,582,795 1,167,654
STOCKHOLDERS' EQUITY
Voting, convertible preferred stock - Series A, convertible into one 114,489 328,601
common stock share for each preferred share, no par value;
887,980 shares authorized; 244,113 shares in 1997 and 700,667
shares in 1996 issued and outstanding; total liquidation preference
of outstanding shares - $458,000
Common stock, no par value; 49,112,020 shares authorized; -- --
17,084,587 shares in 1998 and 13,260,533 shares in 1996 issued
and outstanding
Additional paid-in-capital 5,295,829 2,243,438
Notes receivable-officers (294,500) (324,500)
Accumulated deficit (1,835,164) (2,063,640)
----------- -------------
Total stockholders' equity $ 3,280,654 183,899
----------- -------------
$ 5,863,449 $ 1,351,553
=========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net sales
Systems $ 2,138,323 $ 1,797,295
Maintenance, consulting and other 864,184 332,208
------------ ------------
Total net sales 3,002,507 2,129,503
Cost of sales
Systems 417,225 538,803
Maintenance, consulting and other 344,808 86,664
------------ ------------
Total cost of sales 762,033 625,467
------------ ------------
Gross profit 2,240,474 1,504,036
Operating expenses
Selling, general and administrative 1,649,394 962,398
Research and development 319,859 150,273
------------ ------------
Income from operations 271,221 391,365
Other income (expense):
Interest expense (183,004) (60,746)
Interest income 92,406 --
Other (22,147) (2,554)
------------ ------------
Total other expense, net (112,745) (63,300)
------------ ------------
Income from continuing operations before income taxes 158,476 328,065
Provision for income taxes -- 18,500
------------ ------------
Income from continuing operations 158,476 309,565
Gain from discontinued operations 70,000 --
------------ ------------
Net income $ 228,476 $ 309,565
============ ============
Basic earnings per common share:
Continuing operations $ 0.010 $ 0.026
Discontinued operations 0.004 --
------------ ------------
Net earnings $ 0.014 $ 0.026
============ ============
Diluted earnings per common share:
Continuing operations $ 0.008 $ 0.022
Discontinued operations 0.004 --
------------ ------------
Net earnings $ 0.012 $ 0.022
============ ============
Shares used in calculations:
Basic 15,918,047 11,988,189
Diluted 19,555,417 14,268,610
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARY
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL NOTES ACCUMU-
PREFERRED STOCK COMMON STOCK PAID-IN RECEIVABLE- LATED
-------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL OFFICERS DEFICIT TOTAL
-------------------- ------------------------ ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> -- <C> <C> <C> <C>
Balance at December 31,
1995 865,207 $ 405,770 10,487,695 $ $ 906,658 -- $(2,373,206) $(1,060,778)
Net income -- -- -- -- -- -- 309,566 309,566
Common stock issued -- -- 1,609,965 -- 777,545 -- -- 777,545
Stock issue costs -- -- -- -- (119,434) -- -- (119,434)
Voluntary stock reduction -- -- (1,340,000) -- -- -- -- --
Conversion of notes payable -- -- 200,000 -- 150,000 -- -- 150,000
Conversion of subordinated
debentures -- -- 168,333 -- 110,000 -- -- 110,000
Common stock options and
warrants exercised -- -- 1,970,000 -- 341,500 -- -- 341,500
Exercise officer stock
options -- -- -- -- -- (324,500) -- (324,500)
Converted preferred shares (164,540) (77,169) 164,540 -- 77,169 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31,
1996 700,667 $ 328,601 13,260,533 $ -- $2,243,438 $ (324,500) $(2,063,640) 183,899
Net income -- -- -- -- -- -- 228,476 228,476
Common stock issued -- -- 2,752,800 -- 2,779,600 -- -- 2,779,600
Stock issue costs -- -- -- -- (312,278) -- -- (312,278)
Common stock options and
warrants exercised -- -- 614,970 -- 300,957 -- -- 300,957
Stock options exercised in
conjunction with
retirement
of note payable -- -- -- -- 60,000 -- -- 60,000
Receipt of payment of
officer
note receivable related to
stock options exercised in
1996 -- -- -- -- -- 30,000 -- 30,000
Warrants issued in
conjunction with
issuance
of notes payable -- -- -- -- 10,000 -- -- 10,000
Converted preferred shares (456,554) (214,112) 456,554 -- 214,112 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31,
1997 244,113 $ 114,489 17,084,857 $ -- $5,295,829 $ (294,500) $(1,835,164) $ 3,280,654
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 228,476 $ 309,566
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 433,981 101,215
Changes in operating assets and liabilities:
Increase in accounts and other receivables (129,566) (111,848)
Increase in inventories (579,492) (31,131)
Increase in prepaid expenses (50,602) (5,702)
Increase (decrease) in accounts payable 155 (412,426)
Increase in accrued expenses 2,253 53,630
Increase (decrease) in deferred revenue (207,304) 259,747
------------ ------------
Cash provided (used) by operating activities (302,099) 163,051
------------ ------------
Cash flows from investing activities:
Net increase in investment in sales-type leases (779,915) --
Purchase of property and equipment (361,869) (37,173)
Investment in leased equipment (162,548) (107,140)
Investment in software development costs (781,516) (473,719)
Investment in other intangibles (108,900) (67,779)
Investments in note receivable (75,000) --
------------ ------------
Cash used by investing activities (2,269,748) (685,811)
------------ ------------
Cash flows from financing activities:
Disbursements for deferred debt costs (212,470) --
Proceeds from issuance of common stock 2,768,279 675,111
Payments of notes payable and convertible subordinate debentures (319,963) (158,825)
Payments received on officers note receivable 30,000 --
Proceeds from issuance of notes payable 2,000,000 --
------------ ------------
Cash provided by financing activities 4,265,846 516,286
------------ ------------
Net increase (decrease) in cash 1,693,999 (6,474)
Cash and cash equivalents at beginning of year 32,890 39,364
------------ ------------
Cash and cash equivalents at end of year $ 1,726,889 $ 32,890
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for: Interest $ 200,584 $ 62,686
Income taxes $ 9,999 $ --
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
During 1997, warrants to purchase shares of common stock were issued in
connection with the issuance of notes payable. The estimated value of warrants
($10,000) was capitalized related to this transaction (Note 7).
During 1997, options held by a vendor were exercised in connection with the
retirement of $60,000 of outstanding notes payable.
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
Global MAINTECH, Inc., the Company's principal operating subsidiary,
produces and assembles a computer software and hardware product that it sells as
a console consolidation and console management solution to the systems and
network management marketplace primarily in the United States. The produce is
called the Virtual Command Center ("VCC").
The VCC is a tool designed to do three function: the first is to
consolidate consoles (computer terminals with access to the internal operation
of a computer) into one monitor, a 'virtual console" or single point of control;
the second is to monitor and control the computers connected to the virtual
console; and, the third is to automate most, if not all, of the routine
processes performed by computer operators in data centers. The VCC can be
operated from a remote location and accepts multiple different 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 RISC computer, which is housed separately from the computers
it controls. VCC users 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.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Global
MAINTECH Corporation and its operating subsidiary, Global MAINTECH, Inc. All
significant intercompany accounts and transactions have been eliminated.
NEW ACCOUNTING PRONOUNCEMENTS:
Effective for 1997, the Company implemented SFAS No. 128, Earnings Per
Share, and SFAS No. 129, Disclosure of Information about Capital Structure. The
effect of SFAS 128 is described below. SFAS 129 incorporated several existing
disclosure requirements on capital structure into a single accounting standard
and had no effect on the Company's reporting.
SFAS No. 130, Reporting Comprehensive Income, is effective for the Company
for all periods reported after December 31, 1997. This standard prescribes a new
way of reporting and displaying the balances of and changes in certain equity
accounts. SFAS 130 does not affect the measurement of accounting for these
accounts. By its nature, SFAS 130 will, when implemented, have no effect on the
Company's reported operations or financial position. The Company is considering
alternative presentations to meet the new requirements.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORY:
Inventory is stated on a first in, first out (FIFO) basis at the lower of
cost of market.
F-8
<PAGE>
PROPERTY AND EQUIPMENT:
Property and equipment is recorded at cost and comprised primarily of
computer and office equipment. Depreciation is provided for principally using
the double declining balance method, based on the estimated useful lives of the
respective assets which generally have lives of three years.
Maintenance and repairs are charged to expense as incurred.
REVENUE RECOGNITION:
Revenue from product sales is recognized upon the latter of shipment or
final acceptance. Deferred revenue is recorded when the Company receives
customer payments before shipment or acceptance or before maintenance revenues
are earned. The Company sells maintenance agreements which require minor updates
of software to be delivered to the customers free of charge. New versions of the
Company's software representing a major upgrade are not a part of the
maintenance agreements. The Company expenses the costs of minor updates to its
software as incurred.
The Company recognizes revenue from leasing activities in accordance with
SFAS No. 13, Accounting for Leases. Accordingly, leases that transfer
substantially all the benefits and risks of ownership are accounted for as
sales-type leases. All other leases are accounted for as operating leases.
Under the sales-type method, profit is recognized at lease inception by
recording revenue and cost. Revenue consists of the present value of the future
minimum lease payments discounted at the rate implicit in the lease. Cost
consists of the equipment's book value. The present value of the estimated value
of the equipment at lease termination (the residual value), which is generally
not material, and the present value of the future minium lease payments are
recorded as assets. In each period, interest income is recognized as a
percentage return on asset carrying values.
The Company is the lessor of equipment under operating leases expiring in
various years. The cost of equipment subject to such leases is recorded as
leased equipment and is depreciated on a straight-line basis over the estimated
service life of the equipment. Operating lease revenue is recognized as earned
over the term of the underlying lease.
CAPITALIZED SOFTWARE AND DEVELOPMENT COSTS:
Under the criteria set forth in SFAS No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed, capitalization of
software development costs begins upon the establishment of technological
feasibility of the software. 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. Capitalized software
development costs are amortized utilizing the straight-line method over the
estimated economic life of the software not to exceed three years.
The carrying value of a software development asset is regularly reviewed by
the Company and a loss is recognized when the unamortized costs are not
recoverable based on the estimated cash flows to be generated from the
applicable software.
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 three years or over the useful
life of the license 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.
F-9
<PAGE>
RESEARCH AND DEVELOPMENT:
Research and development costs are expensed as incurred.
STOCK BASED COMPENSATION:
The Company has adopted the disclosure requirements SFAS No. 123,
Accounting and Disclosure of Stock-Based Compensation. As permitted under SFAS
No. 123, the Company applies Accounting Principles Board Opinion No. 25 (APB No.
25), Accounting for Stock Issued to Employee and related interpretations in
accounting for its plans. Accordingly, no compensation expense has been
recognized for its stock-based compensation plans.
EARNINGS PER SHARE:
SFAS 128 Earnings per Share, became effective to the Company for the year
ended December 31, 1997 and requires restatement of all earnings per share
amount presented for prior periods. Under the new standard, primary earnings per
share will not longer be presented. Basic earnings per share will 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 (formerly called "fully diluted") will 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.
The weighted average shares and total dilutive shares used in the
calculation of basic and diluted earnings per share are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Basic Earnings Per Share
Weighted average shares 15,918,047 11,988,189
Diluted Earnings Per Share
Weighted average shares 15,918,047 11,988,189
Stock Options 2,765,174 1,416,352
Warrants 628,083 163,402
Conversion of preferred stock 244,113 700,667
---------- ----------
Total dilutive shares 19,555,417 14,268,610
========== ==========
Antidilutive stock options excluded 83,000 83,000
Antidilutive warrants excluded 600,000 --
</TABLE>
No adjustments to net income presented on the Consolidated Statements of
Operations were made in the determination of earnings per share.
INCOME TAXES:
Deferred taxes are provided on an asset and liability method for temporary
differences and operating loss and tax credit carryforwards. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more
F-10
<PAGE>
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
FAIR VALUE OF INSTRUMENTS:
All financial instruments are carried at amounts that approximate estimated
fair values.
USE OF ESTIMATES:
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from these estimates.
RECLASSIFICATIONS:
Certain amounts previously reported in 1996 have been reclassified to
conform to the 1997 presentation.
NOTE 2.
RECOVERY FROM DISCONTINUED OPERATION
The Company's Board of Directors made the decision to discontinue that
portion of the operations which brokered and sold parts for IBM mainframe
computers in 1995. Effective December 31, 1995 these operations were sold to
Norcom Resources, Inc. ("Norcom") for $123,000. A portion of the sale included a
$70,000 note receivable from Norcom which the Company treated as uncollectible.
However, in March 1997, the Company collected the full amount of such note
receivable and recorded a recovery related to the discontinued operation.
NOTE 3.
INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
-------- --------
<S> <C> <C>
Raw materials $526,379 $108,484
Completed systems 271,056 109,459
-------- --------
Total Inventories $797,435 $217,943
======== ========
</TABLE>
NOTE 4.
NET INVESTMENT IN SALES-TYPE LEASES
The Company began leasing equipment as lessor under sales-type leases in
1997. The components of net investment in sales-type leases as of December 31,
1997 are as follows:
<TABLE>
<S> <C>
Minimum lease payments receivable $ 892,323
Less: Unearned revenue (112,408)
----------
779,915
Less: current portion (286,997)
----------
Investment in sales-type lease, net of current portion $ 492,918
</TABLE>
Future minimum lease payments to be received under sales-type leases are
$328,361, $328,361, and $235,601 in 1998, 1999, and 2000, respectively.
F-11
<PAGE>
NOTE 5.
CAPITAL ASSETS
Certain of the Company's capital assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
---------- ----------
<S> <C> <C>
Property and Equipment
Computer and office equipment $ 400,192 $ 166,656
Accumulated depreciation (91,845) (135,435)
---------- ----------
Property and equipment, net $ 308,347 $ 31,221
Leased Equipment
Leased equipment $ 269,688 $ 107,140
Accumulated depreciation (60,655) (24,763)
---------- ----------
Leased equipment, net $ 209,033 $ 82,377
Software Development Costs
Software development costs $1,255,235 $ 473,719
Accumulated amortization (299,400) (48,200)
---------- ----------
Software development costnet $ 955,835 $ 425,519
Other Assets
Patents $ 101,680 $ 67,779
Software licenses 75,000 --
Other 221,470 --
---------- ----------
398,150 67,779
Accumulated amortization (67,147) (6,000)
---------- ----------
Other assets, net $ 331,003 $ 61,779
</TABLE>
NOTE 6.
CONVERTIBLE SUBORDINATED DEBENTURES
The Company's 11% convertible subordinated debentures were due July 1, 1996,
with interest due semi-annually, and prior to maturity were redeemable by the
Company or convertible at the option of the holder into 41,880 common shares at
a price per share of $6.25. During the year ended December 31, 1996, debentures
valued at $110,000 converted to equity pursuant to conversion terms other than
the original $6.25 per share. In 1997, the Company paid all of the principal
outstanding to debenture holders along with interest payments calculated at 11%
per year. Expenses associated with the original issuance of the unconverted
debentures were fully amortized as of July 1, 1996.
F-12
<PAGE>
NOTE 7.
NOTES PAYABLE
Notes payable at December 31, 1997 and 1996 are comprised of the following:
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------------
AMOUNT INTEREST AMOUNT INTEREST
RATE RATE
------------- -------- --------- --------
<S> <C> <C> <C> <C>
Subordinated notes payable to Mezzanine Capital
Partners and Marquette Bancshares, Inc. due in
installments of various amounts as described below
through June 30, 2002 $2,000,000 14.00% -- --
Notes payable to First Bank, paid in 1997 -- -- 83,000 10.25%
Note payable to related party, paid in 1997 -- -- 16,667 13.00%
Note payable to vendor, paid in 1997 -- -- 108,532 16.50%
Note payable to officer, paid in 1997 -- -- 15,000 18.00%
Note payable to vendor, paid in 1997 -- -- 5,014 6.00%
------------- --------
2,000,000 228,213
Less current portion (100,000) (211,613)
------------- --------
$1,900,000 $ 16,600
============= ============
</TABLE>
The Company issued subordinated notes payable in the form of two $1,000,000
notes payable to Mezzanine Capital Partners, Inc. and Marquette Bancshares,
Inc., respectively. The interest rate of 14% is fixed for the term of the notes.
Aggregate installments of $100,000, $200,000, $300,000, $300,000, and $1,100,000
are due for the years 1998 through 2002, respectively. The notes are subject to
a 5% prepayment penalty through June 30, 1998 and 4% prepayment penalty from
July 1, 1998 through June 30, 1999 and may be prepaid without penalty
thereafter. The Company incurred costs related to the issuance of this debt in
the amount of $221,470 which includes the estimated fair value of warrants to
purchase a total of 530,000 shares of common stock at $1.80 per share that were
issued in connection with the issuance of notes payable. These costs are being
amortized on a straight-line basis over the five year term of such debt.
NOTE 8.
STOCKHOLDERS' EQUITY
COMMON STOCK WARRANTS:
The Company issued warrants in 1997 in conjunction with common stock issued
pursuant to the Private Placement Memorandum dated November 25, 1996. These
warrants are exercisable at $0.75 per share and expire on February 28, 2002.
During 1997, the Company also issued warrants pursuant to a subsequent private
placement of common stock in June 1997, which are exercisable at $1.40 and
expire on June 6, 2002. An additional 530,000 warrants were issued in 1997,
which are exercisable at a per share price of $1.80 and expire in the year 2002.
These warrants were issued in connection with the $2,000,000 of subordinated
debt issued in June 1997. The total warrants outstanding as of December 31, 1997
was 1,724,298. Such warrants are exercisable at a weighted average price of
$1.94 per share and expire in 2000 through 2004.
COMMON STOCK OPTIONS:
The Company's stock option plan ("Plan"), provides for granting to the
Company's employees, directors and consultants, qualified incentive and
nonqualified options to purchase common shares of stock. The Plan was amended
during 1995 to increase the number of aggregate options that can be issued to
10,000,000 shares of common stock. Qualified incentive options must be granted
with exercise prices equal to the fair market value of the stock at the date of
grant. Nonqualified options must be granted with exercise prices equal to at
least 85% of the fair market value of the stock at the date of grant.
F-13
<PAGE>
The Company applies APB No. 25, Accounting for Stock Issued to Employees,
and related interpretations in accounting for its stock options. As a result no
compensation expense has been recognized for stock-based compensation plans. Had
the Company determined compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123, Accounting and Disclosure of
Stock Based Compensation, the Company's net income and earnings per share would
have been reduced by approximately $18,000 in 1997 and by an immaterial amount
in 1996. The Company made this calculation using the Black-Scholes option
pricing model with the following assumptions: volatility of 113%, risk-free
interest rate of 5.5%, and an expected life of 5 years.
This pro-forma effect does not include the compensation cost of stock
options currently issued but which do not vest until future years nor does it
include the compensation cost of stock options issued prior to 1995. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro-forma net income amounts presented above.
Information with respect to stock options under the plan are summarized as
follows:
<TABLE>
<CAPTION>
INCENTIVE STOCK OPTIONS NONQUALIFIED OPTIONS
-------------------------------------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------------ ---------------- ------ ------------------
<S> <C> <C> <C> <C>
Total outstanding at December 31, 1995 4,232,000 $0.35 83,000 $5.87
Granted 941,000 $0.59 -- --
Canceled (620,000) $0.30 -- --
Exercised (1,938,000) $0.17 -- --
------------ ---------------- ------ ------------------
Total outstanding at December 31, 1996 2,615,000 $0.49 83,000 $5.87
Granted 1,432,000 $1.51
Canceled (75,000) $1.00
Exercised (455,000) $0.40
------------ ---------------- ------ ------------------
Total outstanding at December 31, 1997 3,517,000 $0.79 83,000 $5.87
============ ================ ====== ==================
</TABLE>
Options for 2,152,000 shares of common stock were exercisable at a weighted
average exercise price of $0.54 as of December 31, 1997.
COMMON STOCK ISSUED:
In 1997 the Company issued a total of approximately 2,752,800 shares of
common stock. These shares were issued pursuant to two separate private
placement issues: one ending February 1997; and one ending July 1997. In
addition, 456,554 and 164,540 shares of common stock were issued to holders of
preferred stock Series A on a one-for-one exchange conversion in accordance with
terms of the preferred stock in 1997 and 1996, respectively.
Specifically, the Company issued 1,652,800 and 653,500 shares of common
stock in 1997 and 1996, respectively at $0.75 per share pursuant to the private
placement memorandum dated November 1996. During 1997 the Company also issued
1,100,000 shares of common stock at $1.40 per share pursuant to a private
placement dated June 1997. In addition 455,000 shares of common stock were
issued due to the exercise of qualified stock options by certain non-officer
employees or former employees of the Company and 159,970 shares of common stock
were issued to converting warrantholders. Stock issue costs were $312,278 and
$119,434 in 1997 and 1996, respectively.
NOTE 9.
INCOME TAXES
At December 31, 1997, the Company had a net operating loss carryforward of
approximately $3.3 million. The net operating loss carryforward will be subject
to an annual limitation as defined by Section 382 of the Internal Revenue Code
of approximately $200,000.
Future equity transactions could further limit the net operating losses
available in any one year.
F-14
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 1997 and
1996 are shown as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
-------------------------------
<S> <C> <C>
Deferred tax assets
Allowance for doubtful accounts $ 5,000 $ 5,000
Net operating loss carryforward 1,360,000 1,454,000
--------------- -------------
Subtotal 1,365,000 1,459,000
Less valuation allowance for deferred tax asset (1,212,000) (1,306,000)
--------------- -------------
153,000 153,000
Deferred tax liabilities (153,000) (153,000)
--------------- -------------
Net deferred tax assets $ -- $ --
=============== =============
</TABLE>
The provision for income taxes consists of the following for the years
ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
--------------- -------------
<S> <C> <C>
Current
Federal $ -- $ 9,500
State -- 9,000
--------------- -------------
Total -- 18,500
Deferred -- --
--------------- -------------
Total $ -- $ 18,500
=============== =============
</TABLE>
The income tax expense (benefit) differed from the amounts computed by
applying the U.S. federal income tax rate of 34% as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
--------------- -------------
<S> <C> <C>
Expense (benefit) at statutory rate $ 77,000 $ 112,000
State income tax benefit, net of federal 13,000 6,000
Change in valuation allowance (94,000) (139,000)
Effect of change in ownership on net operating loss carryforward -- --
Other 4,000 39,500
--------------- -------------
Actual tax expense (benefit) $ -- $ 18,500
=============== =============
</TABLE>
NOTE 10.
OPERATING LEASES
COMPANY AS LESSOR:
The Company leases equipment, primarily VCC units, under noncancellable
operating leases expiring in various years. The cost of equipment subject to
such leases is recorded as leased equipment.
The operating lease payment stream related to leases initiated in 1996 was
assigned to a third party, on a non-recourse basis, for a lump sum payment to
the Company in 1996. The present value of the cash received was recorded
F-15
<PAGE>
as deferred revenue and is being recognized into revenue over the term of the
underlying leases. These underlying leases terminate in 1997 and 1998. Deferred
revenue recorded by the Company related to these leases as of December 31, 1997
and 1996 was approximately $20,000 and $116,000, respectively. Future minimum
lease payments to be received for operating leases in which the payment stream
has not been assigned to a third party are $15,192, $15,192 and $11,224 for
1998, 1999, and 2000 respectively.
COMPANY AS LESSEE:
The Company has operating leases for certain development related IBM
computers, office equipment and its office premises. The rental payments under
these leases are charged to expense as incurred. All the leases provide that the
Company pay taxes, maintenance, insurance, and other operating expenses
applicable to the leases. Lease expense in 1997 and 1996 was approximately
$112,000 and $103,000, respectively. The future minimum lease payments are
approximately $94,000, $22,000 and $2,000 for the years 1998, 1999, and 2000,
respectively.
NOTE 11.
SUBSEQUENT EVENT
On February 27, 1998 the Company purchased certain software and other
assets relating to the system software business of Infinite Graphics
Incorporated ("IGI"), a Minnesota corporation based in Minneapolis. The
acquisition will be recorded as an asset purchase. The acquisition agreement
provides for an initial payment of $500,000 and additional payments of up to
$3,500,000. The payment of up to $3,300,000 of this additional payment is
contingent on the future net income of 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 platforms. Assets
purchased in the acquisition include inventory, machinery and equipment,
furniture and fixtures, a perpetual exclusive software license of a majority of
the IGI software products used in the system software business and a non-
exclusive license of certain software used in IGI's remaining business segment.
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.
In addition, in February 1998 the Company began a 400,000 share private
placement of common stock at $1.90 per share and had issued 221,000 shares as of
March 23, 1998. Maven Securities, Inc. acted as the placement agent wherein the
Company agreed to pay the placement agent a 10% commission, a 3% fee for
expenses and to issue to such agent a warrant to purchase up to 10% of the
number of shares of common stock issued in connection with such offering at an
exercise price of $1.90 per share. 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.
F-16
<PAGE>
GLOBAL MAINTECH CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 299,871 $ 1,726,889
Accounts receivable, less allowance for doubtful accounts 2,407,743 576,573
of $15,000
Other receivables 199,724 26,111
Inventories 1,397,272 797,435
Prepaid expenses and other 158,951 77,308
Notes receivable 170,000 75,000
Current portion of investment in sales-type leases -- 286,997
------------- ------------
Total current assets 4,633,561 3,566,313
Property and equipment, net 308,118 308,347
Leased equipment 128,541 209,033
Software development costs, net 2,352,893 955,835
Net investment in sales-type leases, net of current portion -- 492,918
Other assets, net 1,000,957 331,003
------------- ------------
TOTAL ASSETS $ 8,424,070 $ 5,863,449
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-17
<PAGE>
GLOBAL MAINTECH CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
---------------- --------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 494,545 $ 396,159
Current portion of notes payable 175,000 100,000
Accrued liabilities
Compensation and payroll taxes 256,729 123,605
Other 24,389 10,588
Deferred revenue 21,927 52,443
---------------- --------------
Total current liabilities 972,590 682,795
Subordinated notes payable, less current portion 1,750,000 1,900,000
---------------- --------------
TOTAL LIABILITIES 2,722,590 2,582,795
STOCKHOLDERS' EQUITY
Voting, convertible preferred stock - Series A, convertible into one
common stock share for each preferred share, no par value;
887,980 shares authorized; 134,510 shares in 1998 and 244,113
shares in 1997 issued and outstanding; total liquidation preference
of outstanding shares - $50,441 61,859 114,489
Voting, convertible preferred stock - Series B, convertible on or
before September 23, 2001 based on price of common stock;
conversion price not to exceed $2.50 per share or be less than
$0.75; dividend of 8% payable in cash or common stock; no par
value; 615,385 shares authorized; 74,152 shares in 1998 and none
in 1997 issued and outstanding; total liquidation preference of
outstanding shares - $481,988 481,988 --
Common stock, no par value; 48,496,635 shares authorized;
18,175,362 shares in 1998 and 17,084,857 shares in 1997 issued
and outstanding -- --
Additional paid-in capital 6,975,466 5,295,829
Notes receivable-officers (294,500) (294,500)
Accumulated deficit (1,523,333) (1,835,164)
------------------------------
TOTAL STOCKHOLDERS' EQUITY 5,701,480 3,280,654
------------------------------
$ 8,424,070 $ 5,863,449
==============================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-18
<PAGE>
GLOBAL MAINTECH CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended NINE MONTHS ENDED
September 30 SEPTEMBER 30,
----------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
NET SALES
Systems $ 1,378,093 $ 968,647 $ 4,325,499 $ 2,176,294
Maintenance, consulting and other 280,517 $ 212,396 806,369 580,136
------------ ------------ ------------- ------------
TOTAL NET SALES 1,658,610 1,181,043 5,131,868 2,756,430
COST OF SALES
Systems 243,386 231,318 1,117,380 509,930
Maintenance, consulting and other 275,624 72,702 652,564 191,183
------------ ------------ ------------- ------------
TOTAL COST OF SALES 519,010 304,020 1,769,944 701,113
------------ ------------ ------------- ------------
Gross Profit 1,139,600 877,023 3,361,924 2,055,317
OPERATING EXPENSES
Selling, general and administrative 838,494 491,272 2,440,027 1,181,568
Research and development 212,463 84,987 485,984 178,344
------------ ------------ ------------- ------------
Income from operations 88,643 300,764 435,913 695,405
Other income (expense):
Interest expense (68,591) (73,955) (215,257) (107,901)
Interest income 607 1,110 124,395 1,110
Other (11,073) (10,574) (33,220) (10,574)
------------ ------------ ------------- ------------
TOTAL OTHER INCOME (EXPENSE), NET (79,057) (83,419) (124,082) (117,365)
------------ ------------ ------------- ------------
Income from continuing operations before income taxes 9,586 217,345 311,831 578,040
Provisions from income taxes -- -- -- 2,500
------------ ------------ ------------- ------------
Income from continuing operations 9,586 217,345 311,831 575,540
Gain from discontinued operations -- -- -- 70,000
------------ ------------ ------------- ------------
Net earnings $ 9,586 $ 217,345 $ 311,831 $ 645,540
============ ============ ============= ============
Basic earnings per common share:
Continuing operations $ 0.001 $ 0.014 $ 0.018 $ 0.040
Discontinued operations -- -- -- 0.005
------------ ------------ ------------- ------------
Net earnings $ 0.001 $ 0.014 $ 0.018 $ 0.045
============ ============ ============= ============
Diluted earnings per common share:
Continued operations $ 0.000 $ 0.012 $ 0.015 $ 0.033
Discontinued operations -- -- -- 0.004
------------ ------------ ------------- ------------
Net earnings $ 0.000 $ 0.012 $ 0.015 $ 0.038
============ ============ ============= ============
Shares used in calculations:
Basic 17,910,212 16,081,176 17,609,610 14,425,373
Diluted 19,993,323 18,845,064 20,302,729 17,189,261
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-19
<PAGE>
GLOBAL MAINTECH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1998 1997
-------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 311,831 $ 645,540
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 990,238 283,849
Changes in operating assets and liabilities:
Increase in accounts receivable (1,831,170) (1,115,139)
Increase in other receivables (173,613) (64,103)
Increase in inventories (599,837) (154,718)
Increase in prepaid expenses and other (81,643) (55,039)
Increase (decrease) in accounts payable 98,386 (125,541)
Increase in accrued liabilities 146,925 37,226
Decrease in deferred revenue (30,516) (214,895)
-------------- ------------
CASH USED BY OPERATING ACTIVITIES 1,169,399) (762,820)
-------------- ------------
Cash flows from investing activities:
Sale of investment in sales-type leases 679,634 --
Purchase of property and equipment (204,770) (166,006)
Reduction (increase) in leased equipment 37,156 (6,437)
Investment in software development costs (1,904,808) (586,489)
Investment in other assets (803,826) (25,746)
Investments in notes receivable (170,000) --
Payments received on notes receivable 75,000 --
-------------- ------------
CASH USED BY INVESTING ACTIVITIES (2,291,614) (784,678)
-------------- ------------
Cash flows from financing activities:
Disbursements for deferred debt costs -- (212,470)
Net proceeds from issuance of common stock 1,627,007 2,704,513
Net proceeds from issuance of preferred stock 481,988 --
Payments of short-term notes payable -- (363,363)
Payments of long-term notes payable (75,000) 1,983,400
-------------- ------------
CASH PROVIDED BY FINANCING ACTIVITIES 2,033,995 4,112,080
-------------- ------------
NET INCREASE (DECREASE) IN CASH (1,427,018) 2,564,582
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,726,889 32,890
-------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 299,871 $ 2,597,472
============== ============
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 215,257 $ 13,960
Income taxes $ -- $ 9,999
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-20
<PAGE>
GLOBAL MAINTECH CORPORATION
NOTES TO 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 20 VCC
Units to a total of eight customers and had shipped four VCC Units for
evaluation purposes to three prospective customers. As of September 30, 1998,
the Company had sold an additional 10 VCC Units for a total of 30. 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, Spiegel Inc., and Minnesota Mining and
Manufacturing Company.
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 the continuing operations are a loss, other potentially dilutive
securities will not be included in the calculation of loss per share.
F-21
<PAGE>
GLOBAL MAINTECH CORPORATION
NOTES 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:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-----------------------
1998 1997
----------- ----------
<S> <C> <C>
BASIC EARNINGS PER SHARE
Weighted average shares 17,609,610 14,425,373
DILUTED EARNINGS PER SHARE
Weighted average shares 17,609,610 14,425,343
Stock options and warrants 2,558,609 2,505,108
Conversion of preferred stock 134,510 258,780
----------- -----------
Total dilutive shares 20,302,729 17,189,231
=========== ----------
</TABLE>
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 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
F-22
<PAGE>
GLOBAL MAINTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
primarily as software licences 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.
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. 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 Rule 506 of Regulation D of the Securities Act of 1933, as
amended.
On August 11, 1998, the Company completed a 1,667,000 share private
placement of units, each consisting of one share of Common Stock and one Warrant
to purchase a fraction of a share of Common Stock, at a price of $2.20 per unit.
The offering began on July 21, 1998. A total of 450,000 units were sold in such
offering. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Recent Developments" and "Item 2. Changes in
Securities."
At the end of August 1998, the Company began a private placement of up to
615,384 units, each consisting of one share of Series B Cumulative Convertible
Preferred Stock ("Series B Stock") and one Warrant to purchase shares of Common
Stock. The purchase price per unit is $6.50. As of September 30, 1998, the
Company had sold 74,152 of such units for total gross proceeds of $481,988. The
offering is expected to terminate on or before December 31, 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments" and "Item 2. Changes in Securities."
RECLASSIFICATIONS
Certain amounts previously reported in 1997 have been reclassified to
conform to the 1998 presentation.
NEW ACCOUNTING PRONOUNCEMENTS
The Company is currently reviewing the potential impact of the recently
released FAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which is effective for Global MAINTECH Corporation in January 2000.
F-23
<PAGE>
No dealer, salesperson or other person is authorized to give any information or
to make any representation in connection with this offering other than those
contained in this Prospectus, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or any of the underwriters. This Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any of the securities offered hereby by
anyone in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or solicitation is not qualified to do
so or to anyone to whom it is unlawful to make such an offer or solicitation.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that the information herein is correct
as of any time subsequent to the date of this Prospectus.
<TABLE>
____________________
TABLE OF CONTENTS
Page
<S> <C>
Prospectus Summary............................. 2
Risk Factors................................... 4
Use of Proceeds................................ 6
Selling Shareholders........................... 7
Plan of Distribution........................... 8
Business....................................... 8
Management..................................... 9
Management's Discussion and Analysis of
Financial Conditions and Results
of Operations................................. 11
Security Ownership of Certain Beneficial
Owners and Management......................... 15
Executive Compensation......................... 16
Market for Common Equity and
Related Stockholder Matters.................... 17
Dividend Policy................................ 18
Description of Capital Stock................... 19
Certain Transactions........................... 20
Recent Developments............................ 20
Legal Proceedings.............................. 21
Description of Property........................ 21
Experts........................................ 21
Legal Matters.................................. 21
Available Information.......................... 22
Financial Statements........................... F-1
</TABLE>
____________________
Until ______, 1999, all dealers that effect transactions in these securities
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
6,539,511 Shares
GLOBAL
MAINTECH
CORPORATION
COMMON STOCK
______________
PROSPECTUS
______________
FEBRUARY 17, 1999
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Seven of the Company's Second Amended and Restated Articles of
Incorporation provides that a director shall not be liable to the Company or its
stockholders for monetary damages for a breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its shareholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Sections 302A.559 or 80A.23 of the Minnesota Statutes, (iv) for any transaction
from which the director derived an improper personal benefit, or (v) for any act
or omission occurring prior to the date when such Article Seven became
effective.
The Bylaws of the Company, as amended, provide that the officers and
directors of the Company and certain others shall be indemnified to
substantially the same extent permitted by Minnesota law.
Section 302A.521 of the Minnesota Business Corporation Act provides that a
corporation shall indemnify any person who was or is made or is threatened to be
made a party to any proceeding, by reason of the former or present official
capacity (as defined) of such person, against judgments, penalties, fines,
settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding if
certain statutory standards are met. "Proceeding" means a threatened, pending
or complete civil, criminal, administrative, arbitration or investigative
proceeding, including one by or in the right of the corporation. Section
302A.521 contains detailed terms regarding such right of indemnification and
reference is made thereto for a complete statement of such indemnification
rights.
The Company maintains a standard policy of officers' and directors'
insurance.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee............. $ 2,841
Accounting Fees and Expenses..... 15,000
Legal Fees and Expenses.......... 15,000
Blue Sky Fees and Expenses....... 6,000
Printing and Engraving Expenses.. 5,000
Miscellaneous.................... 0
------
Total....................... $ 43,841
</TABLE>
All fees and expenses other than the SEC registration fee are estimated.
The expenses listed above will be paid by the Company.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The Company issued a Private Placement Memorandum dated November 1, 1995,
as amended (the "1995 Memorandum"), offering for purchase up to 1,650,000 shares
of the Company's Common Stock at $0.30 per share, as adjusted for the Reverse
Stock Split. In connection with this offering, the Company issued a total of
1,160,400 shares. R. J. Steichen & Company acted as the placement agent. The
Company paid the placement agent a 10% commission and a 3% fee for expenses and
issued to such agent a warrant to purchase up to 10% of the number of shares of
Common Stock issued in connection with such offering at an exercise price of
$0.36 per share. The shares of Common Stock issued pursuant to the 1995
Memorandum were exempt from registration under Rule 506 of Regulation D of the
Securities Act.
The Company issued a Private Placement Memorandum dated August 19, 1996, as
amended (the "August 1996 Memorandum"), offering for purchase up to 600,000
shares of the Company's Common Stock at $0.50 per share, as adjusted for the
Reverse Stock Split. In connection with this offering, the Company issued a
total of 600,000 shares. Maven Securities, Inc. acted as the placement agent.
The Company paid the placement agent a 10% commission and a 3% fee for expenses
and issued to such agent a warrant to purchase up to 10% of the number of shares
of Common Stock issued in connection with such offering at an exercise price of
$0.50 per share. The shares of Common Stock issued pursuant to the August 1996
Memorandum were exempt from registration under Rule 506 of Regulation D of the
Securities Act.
The Company issued a Private Placement Memorandum dated November 25, 1996,
as amended (the "November 1996 Memorandum"), offering for purchase up to
2,415,000 shares of the Company's Common Stock at $0.75 per share, as adjusted
for the Reverse Stock Split. As of December 31, 1996, 653,500 shares were
issued pursuant to the November 1996 Memorandum. During January and February
1997, the Company issued an additional 1,632,801 shares in connection with such
offering. Maven Securities, Inc. acted as the placement agent. The Company
paid the placement agent a 10% commission and a 3% fee for expenses and issued
to such agent a warrant to purchase up to 10% of the number of shares of Common
Stock issued in connection with such offering at an exercise price of $0.75 per
share. The shares of Common Stock issued pursuant to the November 1996
Memorandum were exempt from registration under Rule 506 of Regulation D of the
Securities Act.
On June 6, 1997, the Company offered for purchase up to 1,100,000 shares of
the Company's Common Stock at $1.40 per share, as adjusted for the Reverse Stock
Split. All 1,100,000 shares were sold pursuant to this offering in July 1997.
The Company did not use a placement agent with respect to such offering. The
shares of Common Stock issued in connection with this offering were exempt from
registration under Rule 506 of Regulation D of the Securities Act.
On June 19, 1997, the Company issued a promissory note in the amount of
$1,000,000 to each of two accredited investors in exchange for a secured
subordinated loan in the total amount of $2,000,000. The Company also issued a
warrant to purchase 500,000 shares of the Company's Common Stock at a purchase
price of $1.80 per share, as adjusted for the Reverse Stock Split, to one of
these accredited investors as a condition to such investor's loan.
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. 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 to the placement agent 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) at an exercise price of
$1.90 per share. The aggregate offering price for such shares 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. This offering terminated on July 9, 1998 and
a total of 426,500 shares were sold.
On July 21, 1998, the Company began a private placement of 1,667,000 units,
each consisting of one share of Common Stock (subject to possible adjustment as
described below) and one Warrant to purchase a fraction of a share
II-2
<PAGE>
of Common Stock (determined as described below), at a price of $2.20 per unit.
Each Warrant entitles the holder thereof to purchase .2667 shares of Common
Stock at $2.60 per share for each $1 such investor invested 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 in accordance with
the following formula: the number of adjusted shares will equal the result
obtained by dividing the aggregate investment by 75% of the Average Price;
provided, however, that the Average Price is subject to a minimum value of
$2.00. This offering terminated on August 11, 1998 and a total of 450,000 units
were sold for a total offering price of $990,000. The Company offered this
private placement without the assistance of a placement agent. The shares of
Common Stock issued pursuant to this offering were exempt from registration
under Rule 506 of Regulation D of the Securities Act.
At the end of August 1998, the Company began a private placement of up to
615,384 units, each consisting of one share of Series B Cumulative Convertible
Preferred Stock ("Series B Stock") and one Warrant to purchase shares of Common
Stock. The purchase price per unit was $6.50.
Each share of Series B Stock entitles the holder thereof to receive an
annual dividend equal to $.26. Until February 15, 1999, each share of Series B
Stock is convertible into that number of shares of Common Stock equal to the per
unit purchase price divided by $3.25, subject to certain adjustments.
Thereafter, each share of Series B Stock is convertible into that number of
shares of Common Stock equal to the per unit purchase price divided by 80% of
the average closing bid price of the Common Stock for the 20 consecutive trading
days prior to the conversion date, subject to certain adjustments; provided,
however, that such average price may not be greater than $2.50 nor less than
$.75. All outstanding shares of Series B Stock will be automatically converted
in Common Stock on September 23, 2001 if the Company has registered the such
common shares under the Securities Act and the Common Stock is traded on Nasdaq.
Each Warrant is a five-year callable warrant to purchase Common Stock at
$3.25 per share. The number of shares of Common Stock for which the Warrant in
each unit will be exercisable will equal the number of shares of Common Stock
into which the associated share of Seris B Stock contained in the unit will have
been converted. The Warrants are callable by the Company provided the Common
Stock has not traded below $4 3/8 for 20 consecutive trading days prior to the
call exercise date and the underlying shares are registered under the Securities
Act and the Common Stock is traded on Nasdaq.
The Company agreed to use its best efforts to register the shares of Common
Stock underlying the Series B Stock and the Warrants and to pay a penalty if
such registration is not effective by February 28, 1999. This penalty is equal
to 1% of the purchase price of the units for the first 30-day period following
February 28, 1999 and 3% for every 30-day period thereafter until the
registration statement has been declared effective. The units were sold only to
accredited investors and this offering was exempt from registration under Rule
506 of Regulation D of the Securities Act.
Miller, Johnson & Kuehn Incorporated ("MJK") acted as the placement agent.
In consideration for MJK's services, it received a cash fee equal to 10% of the
proceeds from the units it sold and a cash fee equal to 2% of the proceeds from
the units sold by the Company. In addition, at each closing held in connection
with the offering, MJK received a warrant to purchase that number of shares of
Common Stock equal to 10% of the number of units it sold and 2% of the number of
units the Company sold, with a per share exercise price equal to 110% of the
average closing bid price of the Common Stock for the 20 trading day period
immediately prior to such closing. This resulted in the Company issuing to MJK
warrants to purchase 2,282, 13,502 and 1,596 shares of Common Stock at per share
exercise prices equal to $1.41, $1.47 and $1.16, respectively.
The Company issued 335,961 of such units for total gross proceeds of
$2,183,746.50. Commissions paid on this amount totaled $126,687 to MJK for
placement agent commissions and $23,302 for the payment of MJK's accountable
expenses, including legal fees, incurred in connection with the offering.
II-3
<PAGE>
ITEM 27. LIST OF EXHIBITS
Exhibit
Number Description
- ------ -----------
2 Agreement and Plan of Merger dated December 6, 1994, as amended, among
the Company, Mirror Consolidation Company, and MAINTECH Resources, Inc.
(incorporated herein by reference to the Registrant's Form 8-K filed
with the Commission on January 19, 1995 (File No. 0-14692)).
3.1 Bylaws of the Company, as amended (incorporated herein by reference to
the Registrant's Form S-1 (File No. 33-34894)).
3.2 Second Amended and Restated Articles of Incorporation of the Company
(incorporated herein by reference to the Registrant's Form 10-QSB for
the quarter ended September 30, 1998 (File No. 0-14692)).
4.1 Form of 11% Convertible Subordinated Debenture due July 1, 1996
(incorporated herein by reference to the Registrant's Form 10-K for the
year ended March 31, 1991 (File No. 0-14692)).
4.2 Form of Registration Agreement between the Company and holders of the
Company's 11% Convertible Subordinated Debentures Due July 1, 1996
(incorporated herein by reference to the Registrant's Form 10-K for the
year ended March 31, 1991 (File No. 0-14692)).
4.3 Form of Certificate of the Company's Series A convertible Preferred
Stock (incorporated herein by reference to the Registrant's Form 10-KSB
for the year ended December 31, 1994 (File No. 0-14692)).
4.4 Form of Certificate of the Company's Common Stock following change of
corporate name change (incorporated herein by reference to the
Registrant's Form 10-KSB for the year ended December 31, 1995 (File No.
0-14692)).
4.5 Form of Promissory Note, dated June 19, 1997, issued to each of
Marquette Bancshares, Inc. and Mezzanine Capital Partners, Inc.
(incorporated by reference to the Registrant's Form SB-2, as amended
(File No. 333-33477)).
4.6 Form of Preferred Stock and Warrant Purchase Agreement, including
Registration Rights exhibit thereto, relating to sale of Series B
Convertible Preferred Stock and Callable Common Stock Warrants during
the fourth quarter of 1998 (filed herewith).
4.7 Form of Certificate of the Company's Series B Convertible Preferred
Stock (filed herewith).
5 Opinion of Dorsey & Whitney LLP (filed herewith).
10.1 The Company's 1989 Stock Option Plan (incorporated herein by reference
to Exhibit 28 to the Registrant's Registration Statement on Form S-8
(File No. 33-33576)).
10.2 Amendments No. 1 and 2, dated October 17, 1991 and April 24, 1992,
respectively, to the Company's 1989 Stock Option Plan (incorporated
herein by reference to the Registrant's Form 10-K for the year ended
March 31, 1992 (File No. 0-14692)).
10.3 Mirror Technologies, Incorporated 401(K) Plan effective April 1, 1992
(incorporated herein by reference to the Registrant's Form 10-K for the
year ended March 31, 1992 (File No. 0-14692)).
II-4
<PAGE>
10.5 Exclusive Distributor and Licensing Agreement between Yutaka Takagi and
Circle Corporation and MAINTECH Resources, Inc. and Global MAINTECH,
Inc. dated December 20, 1994 (incorporated herein by reference to the
Registrant's Form 10-KSB for the year ended December 31, 1994 (File No.
0-14692)).
10.8 Amendment No. 3, dated May 15, 1995 to the Company's 1989 Stock Option
Plan (incorporated herein by reference to the Registrant's Form 10-KSB
for the year ended December 31, 1995 (File No. 0-14692)).
10.10 License and Asset Purchase Agreement between Infinite Graphics
Incorporated and Global MAINTECH Corporation dated February 27, 1998
(incorporated herein by reference to the Registrant's Form 10-KSB for
the year ended December 31, 1997 (File No. 0-14692)).
10.11 Asset Purchase Agreement, dated November 1, 1998, by and among Global
MAINTECH, Inc., Global MAINTECH Corporation, Singlepoint Systems, Inc.
and Enterprise Solutions, Inc. (incorporated herein by reference to the
Registrant's Form 8-K filed with the Commission on December 23, 1998
(File No. 0-14692)).
10.12 Office Lease between Global MAINTECH Corporation and Compass Marketing,
Inc., sublessor, and Glenborough Realty Trust Incorporated, lessor,
dated March 3, 1998 (incorporated herein by reference to the
Registrant's Form 10-KSB for the year ended December 31, 1997 (File No.
0-14692)).
21 Subsidiaries of the Registrant (incorporated herein by reference to the
Registrant's Form 10-KSB for the year ended December 31, 1994 (File No.
0-14692)).
23.1 Consent of KPMG Peat Marwick LLP (filed herewith).
23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 5 to this
Registration Statement).
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change in the information set forth in the registration statement;
II-5
<PAGE>
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the Exchange Act
that are incorporated by reference in the registration statement.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis, State of Minnesota, on February 16,
1999.
Global MAINTECH Corporation
By /s/ David H. McCaffrey
------------------------
David H. McCaffrey
Chief Executive Officer
In accordance with the requirements of the Securities Act, this
registration statement has been signed by the following persons in the
capacities indicated on February 16, 1999.
NAME TITLE
- ---- -----
/s/ David H. McCaffrey Chief Executive Officer
- -------------------------
David McCaffrey (Principal Executive Officer) and Director
/s/ James Geiser Chief Financial Officer and Secretary
- -------------------------
James Geiser (Principal Financial and Accounting Officer)
/s/ Robert E. Donaldson Director
- -------------------------
Robert E. Donaldson
/s/ John Haugo Director
- -------------------------
John Haugo
/s/ John Clarey Director
- --------------------------
John Clarey
/s/ Doug Pihl Director
- --------------------------
Doug Pihl
II-7
<PAGE>
EXHIBIT INDEX
Number Description
- ------ -----------
4.6 Form of Preferred Stock and Warrant Purchase Agreement, including
Registration Rights Agreement exhibit, which sets forth the rights of
the holders of Series B Convertible Preferred Stock and Callable Common
Stock Warrants.
4.7 Form of Certificate of the Company's Series B Convertible Preferred
Stock.
5 Opinion of Dorsey & Whitney LLP.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 5 to this
Registration Statement).
<PAGE>
EXHIBIT 4.6
FORM OF
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
This Preferred Stock and Warrant Purchase Agreement is made and
entered into as of the 17th day of November, 1998, between Global MAINTECH
Corporation, a Minnesota corporation, and those investors who have executed an
Acceptance on Schedule A attached hereto (collectively, the "Investors" and
each, an "Investor"). Except where the context otherwise requires, all
references to the "Company" herein shall be collectively to Global MAINTECH
Corporation and its subsidiaries, including, without limitation, Global
MAINTECH, Inc.
For good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged by the Company and the Investors, the Company and the
Investors agree as follows:
1. Sale and Purchase of Securities. Subject to the terms and
-------------------------------
conditions hereof, the Company agrees to sell to each Investor at the Closing
(as defined herein), and each Investor agrees, severally, to purchase from the
Company at the Closing, the number of Units set forth above such Investor's name
on Schedule A, each Unit consisting of one share of the Company's Series B
Convertible Cumulative Preferred Stock (the "Preferred Stock") with the rights
and preferences provided in the Certificate of Designation for such Preferred
Stock attached hereto as Exhibit A (the "Certificate of Designation") and a
five-year callable Warrant in the form attached hereto as Exhibit B (the
"Warrant") provided, however, the Company shall not be obligated to sell more
than 615,385 Units in the aggregate. Subject to adjustment as set forth in the
Warrant, the Warrant in each Unit will entitle the holder thereof to purchase
the same number of shares of common stock into which the share of Preferred
Stock contained in the same Unit will have been converted. The purchase price
per Unit is $6.50. The Units, the Preferred Stock and the Warrant are sometimes
collectively referred to herein as the "Securities."
2. Closing.
-------
(a) Closing. Provided that Investor acceptances have been
-------
received for at least the Minimum Offering, the closing or closings of the
purchase and sale of the Securities hereunder shall take place at the offices of
Leonard, Street and Deinard Professional Association, Minneapolis, Minnesota, at
1:00 p.m., Minnesota time, on September 23, 1998 or at such other place(s) or
different time(s) or day(s) as the Company in its own discretion shall determine
(the "Closing"). At the Closing, the Company will deliver to each Investor
participating in such closing a Warrant representing the right to purchase that
number of shares of the common stock of the Company to be determined at the time
of conversion of the Preferred Stock, dated such Closing date and will deliver
to each such Investor a certificate representing the number of shares of
Preferred Stock set forth above such Investor's name on Schedule A and each such
Investor shall cause to be delivered to the Company a wire transfer or check
payable to the Company in the amount set forth opposite such Investor's name on
Schedule A.
<PAGE>
3. Representations and Warranties by the Company. To induce the
---------------------------------------------
Investors to enter into this Agreement and to purchase the Securities, the
Company hereby represents and warrants to the Investors as follows:
(a) Disclosure. The Company has provided each Investor with all
----------
the information such Investor has requested in deciding whether to purchase the
Securities and all information the Company believes is necessary or appropriate
relating to an investment in the Company, including, without limitation, the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1997,
Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1998 and June
30, 1998, the Company's Proxy Statement for its 1998 Annual Meeting of
Shareholders and its 1997 Annual Report to Shareholders (collectively, the "SEC
Filings") press releases issued by the Company since June 30, 1998 and a Term
Sheet describing the terms of this offering and the Securities (such documents
and the SEC Filings referred to collectively as the "Disclosed Information").
There are no facts known to the Company which individually or in the aggregate
materially adversely affect the business, assets, financial condition or
prospects of the Company, except as set forth in the Disclosed Information. The
Disclosed Information fairly presents all material information regarding the
Company as of the date hereof and, as of the date of the Closing, the Disclosed
Information will (i) fairly present all material information regarding the
Company, and (ii) not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading. The SEC Filings comply in all material
respects with the requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and all applicable rules and regulations of the
Securities Exchange Commission (the "Commission").
(b) Organization, Good Standing, Etc. The Company is duly
--------------------------------
incorporated and validly existing as a corporation in good standing under the
laws of the State of Minnesota, with power and authority to own its properties
and conduct its business as now conducted and proposed to be conducted. The
Company is duly qualified to do business as a foreign corporation and is in good
standing in all states or jurisdictions in which the ownership or lease of its
property or the conduct of its business requires such qualification and the
failure to be so qualified would have a material adverse effect on the Company's
business. The Company has one active subsidiary, Global MAINTECH, Inc.
(c) Financial Statements. The financial statements (including all
--------------------
related schedules and notes) included in the Disclosed Information fairly
represent the financial condition and results of operations of the Company as of
the dates and for the periods indicated; such statements have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods indicated; and the report of the public accountant
included in the Disclosed Information is issued by an independent public
accountant within the meaning of the Exchange Act, and the rules and regulations
thereunder.
(d) Authorization and Enforceability. The Company has full legal
--------------------------------
power, right and authority to enter into this Agreement and the Registration
Rights Agreement among the Company and the Investors, the form of which is
attached hereto as Exhibit E (the "Registration Rights Agreement") and to issue
the Securities and to carry out and perform its obligations under this Agreement
and the Registration Rights Agreement. This Agreement, the
2
<PAGE>
Registration Rights Agreement and the Securities, have been duly authorized,
executed and delivered on behalf of the Company and are the valid and binding
obligations of the Company, enforceable in accordance with their respective
terms and subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the rights of creditors
generally, to the exercise of judicial discretion as to the availability of
equitable remedies such as specific performance and injunction and, as to
enforcement of the indemnification provisions, to limitations under applicable
securities laws. The Securities when delivered pursuant to the terms of this
Agreement will be validly issued, fully paid and nonassessable.
(e) License and Approvals. The Company has all licenses,
---------------------
certificates, permits and other approvals from governmental and regulatory
authorities necessary for the conduct of its business as it is currently being
conducted and as proposed to be conducted except those which would not have a
material adverse effect on the Company if not obtained.
(f) Intellectual Property. The Company owns or possesses all
---------------------
assets, patents, patent applications, trademarks, service marks, trade names,
trademark registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets and rights necessary for the conduct of its business
as it is currently being conducted and as proposed to be conducted and has not
received any notice of conflict with the asserted rights of others in respect
thereof. To the best of the Company's knowledge, no name which the Company uses
and no other aspect of the business of the Company involves or gives rise to any
infringement of, or license or similar fees for, any patents, patent
applications, trademarks, service marks, trade names, trademark registrations,
service mark registrations, copyrights, licenses, inventions, trade secrets or
other similar rights of others, except for license fees payable by the Company
to Circle X Corp. of Japan for the Company's use of certain intellectual
property rights used by the Company in its VCC product, which rights are
licensed to it by Circle X Corp. of Japan.
(g) Defaults. The Company is not in breach, default or violation
--------
of, and the execution of this Agreement and the Registration Rights Agreement
and the consummation of the transactions herein and therein contemplated will
not conflict with or result in any breach of, any of the terms or conditions of,
or constitute a default or violation under, (i) the Articles of Incorporation,
as amended, or Bylaws, as amended, of the Company, (ii) any indenture, agreement
or other instrument to which the Company is now a party, or (iii) any law or any
order, rule or regulation applicable to the Company of any court or of any
federal or state regulatory body or administrative agency having jurisdiction
over the Company or its property.
(h) Consents. No consent, authorization, approval, permit or
--------
order of or filing with any governmental or regulatory authority is required
under current laws and regulations in connection with the execution and delivery
of this Agreement or the Registration Rights Agreement or the offer, issuance,
sale or delivery of the Securities, other than the qualification thereof, if
required, under applicable state securities laws, which qualification has been
or will be effected as a condition of the sale of the Securities to the
Investors. The Company has not, directly or through any agent other than Miller,
Johnson & Kuehn Incorporated, offered the Securities or any similar securities
for sale to, or solicited any offers to acquire such securities from, persons
other than the Investors. Under the circumstances contemplated by this
3
<PAGE>
Agreement, the offer, issuance, sale and delivery of the Securities will not,
under current laws and regulations, require compliance with the prospectus
delivery or registration requirements of the Securities Act of 1933, as amended
(the "Securities Act"). The Company has filed all reports or other documentation
that it is required to file under the Exchange Act, any rules or regulations
promulgated thereunder, the applicable rules and regulations of the National
Association of Securities Dealers ("NASD") and all applicable state securities
laws, and the information contained in such reports or other documents did not
make any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein made, in the light of the
circumstances under which they were made, not misleading.
(i) Valid Issuance of Preferred Stock. The Preferred Stock, when
---------------------------------
authorized, issued, sold and delivered in accordance with the terms hereof will
be duly authorized, validly issued, fully paid and nonassessable and after
registration under applicable securities laws as contemplated by this Agreement
will be free of restrictions on transfer and, based in part upon the
representations of the Investors in this Agreement, will be issued in compliance
with applicable securities laws.
(j) Valid Issuance of Common Stock. The shares of the Company's
------------------------------
common stock issuable upon conversion of the Preferred Stock and upon exercise
of the Warrant have been reserved for issuance and, when issued and delivered in
accordance with the terms thereof, will be duly authorized, validly issued,
fully paid and non-assessable, shall be free of any pledges, liens, encumbrances
and restrictions, and will be issued in compliance with all applicable
securities laws.
(k) Litigation/Proceedings. There are no pending, threatened or,
----------------------
to the Company's knowledge, contemplated actions, suits, proceedings or
investigations before or by any court or governmental agency, authority or body,
or any arbitrator, which are not ordinary, routine and incidental to the
business of the Company or which might result in any material adverse change in
the business condition (financial and other) or properties of the Company.
(l) Capital Stock. The authorized capital stock of the Company
-------------
consists of 50,000,000 shares, including the following: (a) 48,496,635 shares of
common stock, of which 17,549,758 shares are issued and outstanding; (b) 887,980
shares of Series A Convertible Preferred Stock, of which 244,113 shares are
issued and outstanding; and (c) 615,385 shares of Series B Convertible Preferred
Stock. Except for an aggregate of 4,944,593 shares of the Company's common stock
which are subject to outstanding options to employees under the Company's
various stock option plans, or reserved for issuance under such plans, 1,773,398
shares of the Company's common stock which are subject to outstanding warrants
and 147,868 shares of the Company's common stock into which the Company's
outstanding Series A Convertible Preferred Stock is convertible, there are no
outstanding rights to acquire from the Company any shares of its capital stock.
All outstanding shares of the Company's capital stock have been duly authorized,
validly issued, fully paid and nonassessable and, to the Company's knowledge,
have been issued pursuant to valid registrations under, or valid exemptions
from, the registration requirements of the Securities Act and appropriate state
blue sky laws. There are no voting agreements, voting trusts, calls, pledges,
transfer restrictions (other than those imposed by federal and state securities
laws and, with respect to outstanding options or warrants, those
4
<PAGE>
imposed by the Company's stock option plans or by applicable option or warrant
agreements), liens, rights of first refusal, rights of first offer, anti-
dilution provisions or commitments of any kind relating to the issued or
unissued capital stock of the Company.
(m) Title to Properties. The Company has good and marketable
-------------------
title, free and clear of all liens, encumbrances and equities, and of all
charges or claims, to all of the real and personal property owned by it, except
liens, encumbrances and equities, and charges or claims, which are not material
and do not materially affect the value of such property or interfere with the
conduct of the Company's business. The Company has valid and binding leases to
all of the real and personal property necessary for the conduct of its business
with such exceptions as do not materially interfere with the conduct of its
business.
(n) Tax Returns. The Company has filed all necessary federal,
-----------
state and foreign income, franchise and other tax returns and has paid all taxes
shown as due thereon, and the Company has received no notice of any tax
deficiency which has been asserted against the Company.
(o) Authority. The Company has all requisite power and authority
---------
to issue, sell and deliver the Preferred Stock and Warrants in accordance with
and upon the terms set forth in this Agreement. The Company has duly taken all
required action for the due and proper authorization, issuance, sale and
delivery of the Preferred Stock and Warrants. No preemptive rights or other
rights of subscription, first refusal or similar rights of security holders of
the Company exist with respect to the issuance and sale of the Preferred Stock
and Warrants by the Company or the shares of the Company's common stock issuable
upon conversion and exercise, respectively, thereof. No security holder of the
Company possesses any registration rights. The issuance of the Securities and
the shares of the Company's common stock underlying the Securities will not
result in the issuance of any additional shares of the Company's common stock or
the triggering of other anti-dilution or similar rights contained in any
options, warrants or other securities issued by, or agreements of, the Company.
(p) Investment Company. In retaining and using the proceeds from
------------------
the sale of the Securities, the Company will not be required to register as an
"Investment Company" under the Investment Company Act of 1940, as amended.
(q) Bad Boy Certification. Neither the Company, any of its
---------------------
predecessors, any affiliated issuer nor any of the Company's directors,
officers, beneficial owners of 10% or more of any class of its equity securities
or other affiliates nor any promoter of the Company is subject to any of the
disabilities enumerated in Exhibit C hereto and the representations and
warranties contained therein are true and correct.
(r) Fees and Commissions. Other than pursuant to agreements with
--------------------
Miller, Johnson & Kuehn, Incorporated, the Company has not incurred any
liability for any finder's or broker's fee or agent's commission in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
5
<PAGE>
(s) Changes, Dividends, Etc. Except for the transactions
------------------------
contemplated by this Agreement, since the date of the most recent financial
statements of the Company provided to Investors, the Company has not: (i)
incurred any debts, obligations or liabilities, absolute, accrued or contingent
and whether due or to become due, except current liabilities incurred in the
ordinary course of business which (individually or in the aggregate) will not
materially and adversely affect the business, properties or prospects of the
Company; (ii) paid any obligation or liability other than, or discharged or
satisfied any liens or encumbrances other than those securing, current
liabilities, in each case in the ordinary course of business; (iii) declared or
made any payment to or distribution to its shareholders as such, or used or
redeemed any of its shares of capital stock, or obligated itself to do so; (iv)
mortgaged, pledged or subjected to lien, charge, security interest or other
encumbrance any of its assets, tangible or intangible, except in the ordinary
course of business; (v) sold, transferred or leased any of its assets except in
the ordinary course of business; (vi) suffered any physical damage, destruction
or loss (whether or not covered by insurance) materially and adversely affecting
the tangible properties, business or prospects of the Company; (vii) encountered
any labor difficulties or labor union organizing activities; (viii) except as
set forth on Schedule 3(n), issued or sold any shares of capital stock or other
securities or granted any options other than to employees, warrants, or other
purchase rights with respect thereto other than pursuant to this Agreement; (ix)
made any acquisition or disposition of any material assets or became involved in
any other material transaction, other than for fair value in the ordinary course
of business; or (x) agreed to do any of the foregoing other than pursuant
hereto. There has been no material adverse change in the financial condition,
operations, results of operations or business of the Company since the date of
the most recent financial statements of the Company provided to the Investors.
(t) Reporting. The Company is subject to the reporting
---------
requirements of the Securities Act and the Exchange Act and (i) has timely filed
all reports and statements required to be filed thereunder in the 12-month
period prior to the date hereof, and (ii) to the Company's knowledge, each
report and statement was true and complete in all material respects when filed.
4. Representations of the Investors. Each Investor represents for
--------------------------------
itself that:
(a) Investment Intent. The Securities being acquired by the
-----------------
Investor are being purchased for investment for the Investor's own account and
not with the view to, or for resale in connection with, any distribution or
public offering thereof. The Investor understands that the Securities have not
been registered under the Securities Act or any state securities laws by reason
of their contemplated issuance in a transaction exempt from the registration
requirements of the Securities Act and applicable state securities laws, and
that the reliance of the Company upon these exemptions is predicated in part
upon this representation by the Investor. The Investor further understands that
the Securities, and the shares of the Company's common stock issuable upon
conversion or exercise thereof, may not be transferred or resold without (i)
registration under the Securities Act and applicable state securities laws, or
(ii) an exemption from the requirements of the Securities Act and applicable
state securities laws.
(b) Location of Principal Office, Qualification as an Accredited
------------------------------------------------------------
Investor, Etc. The state in which the Investor's principal office is located is
- --------------
the state set forth in the Investor's address on Schedule A. The Investor
qualifies as an accredited investor for purposes of Regulation
6
<PAGE>
D promulgated under the Securities Act. The Investor acknowledges receipt of the
Disclosed Information and that the Company has made available to the Investor at
a reasonable time prior to the execution of this Agreement the opportunity to
ask questions and receive answers concerning the business and affairs of the
Company and the terms and conditions of the sale of Securities contemplated by
this Agreement and to obtain any additional information (which the Company
possessed or could acquire without unreasonable effort or expense) to verify the
accuracy of information furnished to the Investor. The Investor (i) is able to
bear the loss of the Investor's entire investment in the Securities without any
material adverse effect on such Investor's business, operations or prospects,
and (ii) has such knowledge and experience in financial and business matters
that such Investor is capable of evaluating the merits and risks of the
investment to be made pursuant to this Agreement.
(c) Acts and Proceedings. This Agreement has been duly authorized
--------------------
by all necessary action on the part of the Investor, has been duly executed and
delivered by the Investor, and is a valid and binding agreement of the Investor.
5. Conditions of the Investors' Obligation. The obligation to
---------------------------------------
purchase and pay for the Securities at the Closing is subject to the fulfillment
prior to or on the Closing date of the conditions set forth in this Section 5.
In the event that any such condition is not satisfied to the satisfaction of
each Investor, then the Investors shall not be obligated to proceed with the
purchase of the Securities at the Closing.
(a) Representations and Warranties. The representations and
-------------------------------
warranties of the Company under this Agreement shall be true on and as of the
Closing date with the same effect as though made on and as of the Closing date.
(b) Compliance with Agreement. The Company shall have performed
-------------------------
and complied with all agreements or conditions required by this Agreement to be
performed and complied with by it prior to or as of the Closing date.
(c) Certificate of Officers. The Company shall have delivered to
-----------------------
the Investors a certificate, dated the Closing date, executed by the Chief
Executive Officer and the Chief Financial Officer of the Company, and certifying
to the satisfaction of the conditions specified in Sections 5(a) and 5(b).
(d) Opinion of the Company's Counsel. The Investors shall have
--------------------------------
received from Dorsey & Whitney LLP, counsel for the Company, an opinion, dated
the Closing date, in the form attached hereto as Exhibit D.
(e) Supporting Documents. The Investors shall have received the
--------------------
following:
(i) A copy of the resolutions of the Board of Directors of
the Company certified by the Secretary of the Company authorizing and approving
the execution, delivery and performance of this Agreement and issuance of the
Securities;
(ii) A certificate of incumbency executed by the Secretary of
the Company certifying the names, titles and signatures of the officers of the
Company authorized to
7
<PAGE>
execute this Agreement and further certifying that the Articles of Incorporation
and Bylaws of the Company delivered to the Investors at the time of the
execution of this Agreement have been validly adopted and have not been amended
or modified; and
(iii) A copy of the Articles of Incorporation and Bylaws of
the Company as of such date and such additional supporting documentation and
other information with respect to the transactions contemplated hereby as the
Investors may reasonably request.
(f) Qualification Under State Securities Laws. All registrations,
-----------------------------------------
qualifications, permits and approvals required under applicable state securities
laws for the lawful execution and delivery of this Agreement and the offer,
sale, issuance and delivery of the Securities to the Investors at the Closing
shall have been obtained.
(g) Proceeding and Documents. All corporate and other proceedings
------------------------
and actions taken in connection with the transactions contemplated hereby and
all certificates, opinions, agreements, instruments and documents mentioned
herein or incident to any such transaction shall be reasonably satisfactory in
form and substance to the Investors.
(h) File Certificate of Designation. It shall be a condition to
-------------------------------
the Investors' obligation to close the transactions contemplated hereby that the
Company have filed the Certificate of Designation with the Secretary of State of
the State of Minnesota and that such certificate be accepted and duly filed by
such Secretary's office.
(i) Execution of Registration Rights Agreement. It shall be a
------------------------------------------
condition to the Investors' obligation to close the transactions contemplated
hereby that the Company execute and deliver to the Investors the Registration
Rights Agreement attached hereto as Exhibit E.
6. Affirmative Covenants of the Company. The Company covenants and
------------------------------------
agrees as follows:
(a) Corporate Existence. The Company will maintain its corporate
-------------------
existence in good standing.
(b) Books of Accounts. The Company will keep books of record and
-----------------
account in which correct and complete entries are made of all of its respective
dealings, business and affairs, in accordance with generally accepted accounting
principles. The Company will employ certified public accountants who are
"independent" within the meaning of the accounting regulations of the
Commission.
(c) Patents and Other Intangible Rights. The Company will apply
-----------------------------------
for, or obtain assignments of, or licenses to use, all patents, trademarks,
trade names and copyrights which in the opinion of a prudent and experienced
businessperson operating in the industry in which the Company is operating are
desirable or necessary for the conduct and protection of the business of the
Company.
(d) Fees of Counsel. At the Closing, the Company shall pay all
---------------
reasonable fees and expenses of legal counsel to the Investors as well as the
fees and expenses of counsel to
8
<PAGE>
Miller, Johnson & Kuehn, Incorporated ("MJK") incurred through the date of the
Closing. In addition, at the Closing, the Company shall pay MJK 8% of the
Purchase Price and shall issue MJK a warrant, in the form attached hereto as
Exhibit F (the "Agent's Warrant"), to purchase that number of shares of the
Company's common stock equal to 10% of the number of shares of the Company's
common stock issuable upon conversion of the Preferred Stock sold by the Company
to the Investors at the Closing, assuming the conversion of the Preferred Stock
on the date of Closing. The exercise price of MJK's warrant shall be 110% of the
average closing bid price of the Company's common stock for the 20 trading days
immediately prior to the date of Closing.
(e) Reservation of Shares. The Company will, at all times on and
---------------------
after the Closing, reserve and keep available (i) authorized and unissued shares
of Preferred Stock sufficient for issuance pursuant to the terms of Section 4(c)
of Exhibit A attached hereto, and (ii) authorized and unissued shares of its
common stock sufficient for issuance upon conversion of the Preferred Stock and
exercise of each Warrant and the Agent's Warrant.
(f) Nasdaq Listing. The Company will use its best efforts to have
--------------
its common stock included on the Nasdaq Stock Market (either Nasdaq Small Cap
Market or Nasdaq National Market) on or before December 31, 1998.
7. Restriction on Transfer of Preferred Stock, Warrant and Shares.
---------------------------------------------------------------
(a) Legend. Each share of Preferred Stock, each Warrant, the
------
Agent's Warrant, and each certificate representing shares of the Company's
common stock issued pursuant to the transactions contemplated hereby shall be
endorsed with a legend in substantially the form which follows:
"The securities represented by this certificate may not be
transferred without (i) the opinion of counsel satisfactory
to this corporation that such transfer may lawfully be made
without registration under the Securities Act of 1933, as
amended, and all applicable state securities laws, or (ii)
such registration."
(b) Removal of Legend. Any legend endorsed on a certificate
-----------------
evidencing a security pursuant to Section 7(a) hereof shall be removed, and the
Company promptly shall issue a certificate without such legend to the holder of
such security, if such security is properly being transferred pursuant to a
registration under the Securities Act or pursuant to Rule 144 or any similar
rule then in effect or if such holder provides the Company with an opinion of
counsel satisfactory to the Company to the effect that a transfer of such
security may be made without registration. In addition, if the holder of such
security delivers to the Company an opinion of counsel satisfactory to the
Company to the effect that no subsequent transfer of such security will require
registration under the Securities Act, the Company will promptly upon such
contemplated transfer deliver new certificates evidencing such security that do
not bear the legend set forth in Section 7(a).
9
<PAGE>
8. Miscellaneous.
-------------
(a) Changes, Waivers, Etc. Neither this Agreement nor any
----------------------
provisions hereof may be changed, waived, discharged or terminated orally, but
only by a statement in writing, signed by the party against which enforcement of
the change, waiver, discharge or termination is sought.
(b) Notices. All notices, requests, consents and other
-------
communications required or permitted hereunder shall be in writing and shall be
delivered, or mailed first-class postage prepaid, registered or certified mail
or shall be sent by facsimile transmission followed by mailed copy:
if to the Investors at their respective addresses set forth
on Schedule A, or at such other address or facsimile number as any Investor may
specify in writing to the Company; or
if to the Company at Global MAINTECH Corporation, 7578 Market
Place Drive, Eden Prairie, Minnesota 55344, Attention: CEO, facsimile number
(612) 944-0400; or at such other address or facsimile number as the Company may
specify by written notice to the Investors;
and such notices and other communications shall for all
purposes of this Agreement be treated as being effective or having been given if
delivered personally, if sent by mail, when received, or, if sent by facsimile,
upon the sender's receipt of confirmation from its facsimile machine of
transmission.
(c) Survival of Representations and Warranties. All
------------------------------------------
representations and warranties and agreements contained herein shall survive the
execution and delivery of this Agreement, any investigation at any time made by
the Investors or on their behalf and the sale and purchase of the Securities and
payment therefor. All statements contained in any certificate, instrument or
other writing delivered by or on behalf of the Company pursuant to this
Agreement (other than legal opinions) at the Closing shall constitute
representations and warranties by the Company hereunder.
(d) Headings. The headings of the sections of this Agreement have
--------
been inserted for convenience of reference only and do not constitute a part of
this Agreement.
(e) Choice of Law. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the laws of the State of Minnesota
without regard to the principles of conflicts of law thereof.
(f) Counterparts. This Agreement may be executed at different
------------
times and in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
(g) Parties in Interest. All the terms and provisions of this
-------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and
10
<PAGE>
assigns of the parties hereto, whether so expressed or not, and, in particular,
shall inure to the benefit of and be enforceable by the holder or holders from
time to time of any of the Securities.
(h) Entire Agreement. This Agreement, including and incorporating all
----------------
Exhibits and Schedules hereto, constitutes and contains the entire agreement and
understanding of the parties regarding the subject matter of this Agreement and
supersedes any and all prior negotiations, correspondence, understandings and
agreements, written or oral, among the parties with respect to the subject
matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed personally or by their duly authorized representatives as of the date
indicated above.
GLOBAL MAINTECH CORPORATION
By:_________________________________
Its:_________________________________
INVESTOR:
[See Attached Acceptance on Schedule A]
11
<PAGE>
EXHIBIT E TO PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement is made and entered into as of the 23rd
day of September, 1998, by and among Global MAINTECH Corporation, a Minnesota
corporation (the "Company") and the Investors listed on Schedule A attached
hereto (individually, an "Investor" and collectively, the "Investors").
RECITALS
A. The Investors and the Company have entered into that certain Preferred
Stock and Warrant Purchase Agreement, dated September 23, 1998 (the "Purchase
Agreement").
B. It is a condition to the transactions contemplated in the Purchase
Agreement that the Company provide the registration and other rights provided
herein and the parties hereto desire to provide for such rights on the terms and
conditions contained herein.
NOW, THEREFORE, in consideration of the premises and covenants contained
herein, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise noted, all capitalized terms used
-------------
herein shall have the meanings afforded them in the Purchase Agreement and the
Exhibits attached thereto.
2. Required Registration. Within 30 days of the date hereof (the "File
---------------------
Date"), the Company shall file a Registration Statement under the Securities Act
of 1933, as amended (the "Securities Act"), in accordance with the provisions of
either Form SB-1, Form SB-2 or Form S-3, as required by the Securities and
Exchange Commission (the "Commission") covering the resale of the shares of the
Company's common stock (i) underlying the Preferred Stock, (ii) underlying the
Warrants issued by the Company to Investors of even date herewith (collectively,
the "Warrants"), and (iii) issuable by the Company in payment of the dividends
on the shares of the Preferred Stock (the "Dividends") and will use its best
efforts to have such Registration Statement become effective with the Commission
as soon as possible thereafter, and in any event, by December 31, 1998. The
shares of the Company's common stock underlying the Preferred Stock and the
Warrants and issuable in payment of the Dividends is referred to herein as the
"Registrable Stock."
3. Registration--General Provisions. In connection with the registration
--------------------------------
of the Registrable Stock under the Securities Act, the Company will:
(a) prepare and file with the Commission a registration statement with
respect to such securities, within 30 days of the date hereof, and use its best
efforts to cause such registration statement to become effective as soon as
possible after the date it is filed and keep
E-1
<PAGE>
the prospectus which is a part of such Registration Statement current until the
earlier of the date on which: (i) all such shares have been sold, or (ii) five
years after the date it is declared effective by the Commission (the
"Effectiveness Period");
(b) prepare and file with the Commission such amendments to such
Registration Statement and supplements to the prospectus contained therein as
may be necessary to keep such Registration Statement effective for the
Effectiveness Period referred to in Section 3(a) above;
(c) at the request of an Investor, provide such Investor's counsel
(referred to herein as "Investor's Counsel") with reasonable opportunities to
review and comment on, and otherwise participate in, the preparation of such
Registration Statement;
(d) furnish to the Investors participating in such registration and to
the underwriters of the securities being registered, if any, such reasonable
number of copies of the Registration Statement, preliminary prospectus, final
prospectus and such other documents as the Investors and underwriters may
reasonably request in order to facilitate the public offering of such
securities;
(e) use its diligent, good-faith efforts to register or qualify the
securities covered by such Registration Statement under such state securities or
blue sky laws of such jurisdictions as the Investors may reasonably request in
writing within 30 days following the original filing of such Registration
Statement, except that the Company shall not for any purpose be required to
execute a general consent to service of process (which shall not include a
"Uniform Consent to Service of Process" or other similar consent to service of
process which relates only to actions or proceedings arising out of or in
connection with the sale of securities, or out of a violation of the laws of the
jurisdiction requesting such consent) or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified;
(f) notify the Investors, promptly after it shall receive notice
thereof, of the time when such Registration Statement has become effective or a
supplement to any prospectus forming a part of such Registration Statement has
been filed with the Commission;
(g) notify the Investors promptly of any request by the Commission for
the amending or supplementing of such Registration Statement or prospectus or
for additional information;
(h) prepare and file with the Commission, promptly upon the request of
the Investors, any amendments or supplements to such Registration Statement or
prospectus which, in the opinion of Investor's Counsel, if any (and concurred in
by counsel for the Company), is required under the Securities Act or the rules
and regulations promulgated thereunder in connection with the distribution of
the shares of the Company's common stock by the Investors;
(i) prepare and promptly file with the Commission and promptly notify
the Investors of the filing of such amendment or supplement to such Registration
Statement or
E-2
<PAGE>
prospectus as may be necessary to correct any statements or omissions if, at the
time when a prospectus relating to such securities is required to be delivered
under the Securities Act, any event shall have occurred as the result of which
any such prospectus or any other prospectus as then in effect would include an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances in which they
were made, not misleading;
(j) advise the Investors, and the Investor's Counsel, if any,
promptly after it shall receive notice or obtain knowledge thereof, of the
issuance of any stop order by the Commission suspending the effectiveness of
such Registration Statement or the initiation or threatening of any proceeding
for that purpose and promptly use its best efforts to prevent the issuance of
any stop order or to obtain its withdrawal if such stop order should be issued;
(k) not file any amendment or supplement to such Registration
Statement or prospectus to which the Investors shall have reasonably objected on
the grounds that such amendment or supplement does not comply in all material
respects with the requirements of the Securities Act or the rules and
regulations promulgated thereunder, after having been furnished with a copy
thereof at least five business days prior to the filing thereof, unless in the
opinion of counsel for the Company the filing of such amendment or supplement is
reasonably necessary to protect the Company from any liabilities under any
applicable federal or state law and such filing will not violate applicable law;
and
(l) at the request of the Investors, furnish on the effective date of
the Registration Statement and, if such registration includes an underwritten
public offering, at the closing provided for in the underwriting agreement: (i)
opinions, dated such respective dates, of the counsel representing the Company
for the purposes of such registration, addressed to the underwriters, if any,
and to the Investors making such request, covering such matters as such
underwriters or Investors may reasonably request, and (ii) letters, dated such
respective dates, from the independent certified public accountants of the
Company, addressed to the underwriters, if any, and to the Investors, covering
such matters as such underwriters or Investors may reasonably request.
(m) Notwithstanding the foregoing, following the effectiveness of
such Registration Statement, the Company may, at any time, suspend the
effectiveness of such Registration Statement for up to no longer than ninety
(90) days, as appropriate (a "Suspension Period"), by giving notice to the
Investors, if (i) the Company, with the advice of its counsel, shall have
determined that the Company may be required to disclose any material corporate
development or (ii) the Company shall be involved in an underwritten public
offering of its securities. The Company will use its best efforts to minimize
the length of any Suspension Period. Further, no more than one 90-day Suspension
Period or multiple Suspension Periods which do not exceed 90 days in the
aggregate may occur in any 12-month period and the Effectiveness Period referred
to in Section 3(a) shall be extended by the number of days such registration is
subject to any Suspension Period. Each Investor agrees that, upon receipt of
any notice from the Company of a Suspension Period, it will not sell (subject to
the limitations on the Company set forth above) any Registrable Stock pursuant
to such Registration Statement until (i)
E-3
<PAGE>
such Investor is advised in writing by the Company that the use of the
applicable prospectus may be resumed, (ii) such Investor has received copies of
any additional or supplemental or amended prospectus, if applicable, and (iii)
such Investor has received copies of any additional or supplemental filings
which are incorporated or deemed to be incorporated by reference in such
prospectus.
4. Registration Expenses. The Company shall pay all Registration
---------------------
Expenses (as defined below) in connection with the inclusion of shares of the
Company's common stock in any Registration Statement, or application to register
or qualify such shares under state securities laws, filed by the Company
hereunder, other than as set forth herein. For purposes of this Agreement, the
term "Registration Expenses" means the filing fees payable to the Commission,
any state agency and the NASD; the fees and expenses of the Company's legal
counsel and independent certified public accountants in connection with the
preparation and filing of the Registration Statement (and all amendments and
supplements thereto) with the Commission; and all expenses relating to the
printing of the Registration Statement, prospectuses and various agreements
executed in connection with the Registration Statement. Notwithstanding the
foregoing, the Investors will pay the fees and expenses of any legal counsel the
Investors may engage, as well as the Investors' proportionate share of any
custodian fees or commission or discounts or transfer taxes which may be payable
to any underwriter and any other expenses incurred by the Investors not
expressly included herein.
5. Penalty Payments. In the event that the Registration Statement
----------------
relating to the resale of the Registrable Stock is not (i) filed with the
Commission by the Company on or before the File Date and/or the Company has not
exercised its best efforts to facilitate the Registration Statement being
declared effective within 90 days of the date hereof, or (ii) declared effective
by the Commission by December 31, 1998, then, the Company shall pay the
Investors the following amounts ("Penalty Payments"): (i) 1% of the purchase
price of the Preferred Stock and Warrants (the "Purchase Price") paid by the
Investors to the Company for the first 30-day period in which the Company is not
in compliance with any of the above provisions; (ii) an additional 1% of the
Purchase Price for the next 30-day period in which the Company is not in
compliance with any of the above provisions; and (iii) 3% of the Purchase Price
for each 30-day period thereafter in which the Registration Statement is not
declared effective by the Commission. Penalties for failure to file and/or to
obtain effectiveness shall be cumulative, but in no event shall the aggregate of
all such Penalty Payments paid hereunder exceed 100% of the Purchase Price . The
Company shall be liable to the Investor for a full 30-day period, determined in
accordance with the above schedule, regardless of by how many days it misses one
of the targeted filing or effective dates set forth above. All such Penalty
Payments shall be immediately payable by the Company to the Investors (on a pro
rata basis based on the number of shares of Preferred Stock purchased by each
under the Purchase Agreement) via wire transfer or Company check by the close of
business on last day of each respective period set forth above.
6. Indemnification. With respect to the registration of the resale of the
---------------
shares of Registrable Stock:
E-4
<PAGE>
(a) to the extent permitted by law, the Company will indemnify and
hold harmless each Investor, the trustees, partners, officers and directors of
each Investor, any underwriter (as defined in the Securities Act) for such
Investor and each person, if any, who controls such Investor or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any of the following statements, omissions or violations
(collectively a "Violation") by the Company: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the offering
covered by the Registration Statement; and the Company will reimburse each such
Investor, trustee, partner, officer, director, underwriter or controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section 6(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished to
it expressly for use in connection with such registration by an Investor,
trustee, partner, officer, director, underwriter or controlling person of an
Investor.
(b) to the extent permitted by law, each Investor will indemnify and
hold harmless the Company, each of its directors, each of its officers, each
person, if any, who controls the Company within the meaning of the Securities
Act, any underwriter and any other Investor selling securities under the
Registration Statement or any of such other Investor's, trustees, partners,
directors or officers or any person who controls such Investor, against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, underwriter or other such
Investor, or trustee, partner, director, officer or controlling person of such
other Investor may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Investor and stated to be specifically for use in connection
with such registration; and each such Investor will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or other Investor, or trustee, partner, officer,
director or controlling person of such other Investor in connection with
investigating or defending any such loss, claim, damage, liability or action if
it is judicially determined that there was such a Violation; provided,
E-5
<PAGE>
however, that the indemnity agreement contained in this Section 6(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Investor,
which consent shall not be unreasonably withheld; provided further, that in no
event shall any indemnity under this Section 6 exceed the gross proceeds from
the offering received by such Investor unless the Violation is the result of
fraud on the part of such Investor.
(c) promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action (including any governmental action),
such indemnified party shall, if a claim in respect thereof is to be made
against any indemnifying party under this Section, deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to retain its
own counsel, with the reasonable fees and expenses to be paid by the
indemnifying party; and provided further, that if there is more than one
indemnified party, the indemnifying party shall pay for the reasonable fees and
expenses of one counsel for any and all indemnified parties to be mutually
agreed upon by such indemnified parties, unless representation of an indemnified
party by the counsel retained by the other indemnified parties would be
inappropriate due to actual or potential differing interests between such
indemnified parties. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action, if
materially prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section,
but the omission so to deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any indemnified party other than
under this Section.
(d) if the indemnification provided for in this Section is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any losses, claims, damages or liabilities referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party thereunder,
shall to the extent permitted by applicable law, contribute to the amount paid
or payable by such indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the Violation(s) that resulted in such loss, claim, damage or
liability, as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by a court of law by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the indemnifying
party or by the indemnified party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. No person or entity guilty of fraudulent misrepresentation (within
the meaning of Section 11 of the Securities Act) shall be entitled to
contribution from any person or entity who shall not have been guilty of such
fraudulent misrepresentation.
E-6
<PAGE>
(e) the obligation of the Company and the Investors under this
Section shall survive the completion of any offering for resale of shares of the
Registrable Stock in the Registration Statement, and otherwise.
7. Limitation on Subsequent Registration Rights. From and after the date
--------------------------------------------
of this Agreement and until all the Securities have been registered under the
Securities Act or become eligible for transfer under Rule 144(k) or similar rule
under the Securities Act, the Company shall not, without the prior written
consent of all of the Investors, enter into any agreement with any person or
persons providing for the granting to such holder of registration rights pari
passu or senior to those granted to Investors pursuant to this Agreement, or of
registration rights which might cause a reduction in the number of shares
includable by the Investors in any registration.
8. Miscellaneous.
-------------
(a) The Company shall not hereafter enter into any agreement with
respect to its securities that is inconsistent with the rights granted to the
Investors in this Agreement.
(b) Except as otherwise provided herein, the provisions of this
Agreement may not be amended, modified or supplemented, and waivers or consents
to or departures from the provisions hereof may not be given or made unless the
Company has obtained the written consent of the Investors.
(c) All notices and other communications provided for or permitted
hereunder shall be made by hand delivery, telex, facsimile, overnight courier or
registered first-class mail:
(i) if to an Investor, at the address set forth on Schedule A
attached hereto;
(ii) if to the Company, at the address set forth in the Purchase
Agreement.
All such notices and communications shall be deemed to have been duly given:
when delivered, if by hand, overnight courier or mail; when the appropriate
answer back is received, if by telex; when transmission is confirmed by the
sending unit, if by facsimile.
(d) This Agreement may be executed in any number of counterparts and
by the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
(e) The headings to this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
(f) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Minnesota without giving effect to the
principles of conflicts of law thereof.
E-7
<PAGE>
(g) In the event that any one or more of the provisions contained
herein, or the application thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability of such provision in every other respect and of the remaining
provisions contained herein shall not be in any way impaired thereby, it being
intended that all of the rights and privileges of the Investors and the Company
shall be enforceable to the fullest extent permitted by law.
(h) The remedies provided for in this Agreement shall be cumulative
and in addition to all other remedies available, at law or in equity, and
nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date indicated
above.
GLOBAL MAINTECH CORPORATION
By:______________________________
Its:______________________________
E-8
<PAGE>
ENTITY INVESTOR INDIVIDUAL INVESTOR
- --------------- -------------------
__________________________ __________________________________
Name of Entity Signature
By _______________________ __________________________________
* Signature Signature of Joint Holder, if any
Its ______________________
Title
__________________________ __________________________________
Name Typed or Printed Name Typed or Printed
E-9
<PAGE>
EXHIBIT 4.7
PLEASE SEE RESTRICTIVE LEGENDS ON REVERSE SIDE HEREOF
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
NUMBER SHARES
SPECIMEN SPECIMEN
GLOBAL MAINTECH CORPORATION
This certifies that SPECIMEN is the owner and
_________________________________________
registered holder of --------------------------------------- Shares of
_______________________________________________
fully paid and nonassessable shares of Series B Convertible Preferred Stock,
no par value, of
Global MAINTECH Corporation
transferable only on the books of the corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this certificate properly
endorsed.
IN WITNESS WHEREOF, the said corporation has caused this certificate to be
signed by its duly authorized officers and so be sealed with the seal of the
corporation this __________________ day of ______________________ , _____,
_________________________________ ____________________________________
Secretary President
<PAGE>
The shares represented by this certificate have not been registered or qualified
under the Securities Act of 1933, as amended, or any state securities laws. Such
shares of stock may not be sold, transferred or otherwise disposed of without
either (i) an opinion of counsel satisfactory to the corporation that such
transfer may lawfully be made without registration or qualification under the
federal Securities Act of 1933, as amended, and all applicable state securities
laws; or (ii) such registration or qualification.
A full statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof of the corporation and the qualifications, limitations or restrictions
of such preferences and/or rights will be furnished by said corporation to any
stockholder under request and without charge.
For Value Received _____________________ hereby sell, assign and transfer unto
______________________________________________________________________________
_______________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute
and appoint
____________________________________________________________________ Attorney
to transfer the said shares on the Books of the within named Corporation with
full power of substitution in the premises.
Dated ____________________, 19____ _______________________________
IN PRESENCE OF _____________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 5
[LETTERHEAD OF DORSEY & WHITNEY LLP]
Global MAINTECH Corporation
7578 Market Place Drive
Eden Prairie, Minnesota 55344
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
We have acted as counsel to Global MAINTECH Corporation, a Minnesota
corporation (the "Company"), in connection with a Registration Statement on Form
SB-2 (the "Registration Statement") to be filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, relating to the sale of
6,539,511 shares (the "Shares") of common stock of the Company, no par value,
which will be sold from time to time by the persons named in the Registration
Statement (the "Selling Shareholders"), on the over-the-counter electronic
bulletin board or otherwise, directly or through underwriters, brokers or
dealers.
We have examined such documents and have reviewed such questions of
law as we have considered necessary and appropriate for the purposes of our
opinions set forth below. In rendering our opinions set forth below, we have
assumed the authenticity of all documents submitted to us as originals, the
genuineness of all signatures and the conformity to authentic originals of all
documents submitted to us as copies. We have also assumed the legal capacity
for all purposes relevant hereto of all natural persons and, with respect to all
parties to agreements or instruments relevant hereto other than the Company,
that such parties had the requisite power and authority (corporate or otherwise)
to execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. As to questions of fact material to our opinions, we have relied
upon certificates of officers of the Company and of public officials.
Based on the foregoing, we are of the opinion that the Shares to be
sold by the Selling Shareholders pursuant to the Registration Statement, upon
issuance, delivery and payment therefor as described in the Registration
Statement or in accordance with the terms of the Series B Convertible
Preferred Stock or the warrants under which the Shares are to be issued, as
appropriate, will be duly authorized by all requisite corporate action, validly
issued, fully paid and nonassessable.
Our opinions expressed above are limited to the laws of the State of
Minnesota.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the heading
"Legal Matters" in the Prospectus constituting part of the Registration
Statement.
Dated: February 17, 1999 Very truly yours,
/s/ Dorsey & Whitney LLP
KLC
<PAGE>
Exhibit 23.1
THE BOARD OF DIRECTORS
GLOBAL MAINTECH CORPORATION
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 17, 1999
