-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OHwIEf2elxbnTtMHAA/I6+m6r6FZ7WmudKwCfH/TcEYq70V4cPtHesBCp7COgQG4 lpK8+Q5SEWYi8IEb47QbWA== 0000783738-96-000005.txt : 19961118 0000783738-96-000005.hdr.sgml : 19961118 ACCESSION NUMBER: 0000783738-96-000005 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBAL MAINTECH CORP CENTRAL INDEX KEY: 0000783738 STANDARD INDUSTRIAL CLASSIFICATION: [9995] IRS NUMBER: 411523657 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-14692 FILM NUMBER: 96663754 BUSINESS ADDRESS: STREET 1: 6468 CITY WEST PARKWAY CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 BUSINESS PHONE: 612-944-0400 MAIL ADDRESS: STREET 1: 9220 JAMES AVENUE SOUTH CITY: BLOOMINGTON STATE: MN ZIP: 55431 FORMER COMPANY: FORMER CONFORMED NAME: MIRROR TECHNOLOGIES INC /MN/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: COMPUTER AIDED TIME SHARE INC DATE OF NAME CHANGE: 19900122 10QSB 1 FORM 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1996 Commission File Number 0-14692 ______________________________________________ Global MAINTECH Corporation Minnesota 41-1523657 State of Incorporation I.R.S. Employer Identification No. 6468 City West Parkway, Eden Prairie, MN 55344 Telephone Number: (612) 944-0400 ______________________________________________ Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No______ ______________________________________________ On November 12, 1996 there were 10,320,428 shares of the Registrant's no par value common stock outstanding. Transitional small business issuer format: No Page 1 of 11 ITEM 1. FINANCIAL STATEMENTS GLOBAL MAINTECH CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS September 30, December 31, 1996 1995 CURRENT ASSETS Cash and cash equivalents $ 44,471 $ 39,364 Accounts receivable, less allowance for doubtful accounts of $12,500 and $15,000 452,177 321,052 Other receivables 30,679 40,218 Inventory 253,466 186,812 Prepaid expenses and other 41,611 21,004 ----------- ----------- Total current assets 822,404 608,450 CAPITALIZED SOFTWARE COSTS 314,929 0 PROPERTY AND EQUIPMENT, NET 33,487 16,300 ----------- ----------- $ 1,170,820 $ 624,750 The accompanying notes are an integral part of these consolidated statements. 2 GLOBAL MAINTECH CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) September 30, December 31, 1996 1995 CURRENT LIABILITIES Accounts payable $ 514,448 $ 808,430 Current portion of notes payable 428,943 479,038 Convertible subordinated debentures 226,750 261,750 Accrued liabilities Compensation and payroll taxes 60,383 33,810 Interest 8,224 38,070 Other 53,167 6,430 Deferred revenue 27,200 0 ----------- ----------- Total current liabilities 1,319,114 1,627,528 Notes payable, less current portion 0 58,000 ----------- ----------- Total liabilities 1,319,114 1,685,528 STOCKHOLDERS' EQUITY (DEFICIT) Voting, convertible preferred stock - Series A, convertible into one common stock share for each pre- ferred share, no par value; 887,980 shares authorized; 865,208 shares issued and outstanding; total liquid- ation preference of outstanding shares-$1,622,000 405,770 405,770 Common stock, no par value; 49,112,020 shares authorized; 10,320,428 shares issued and outstanding 0 0 Additional paid-in-capital 1,191,169 906,658 Accumulated deficit (1,745,233) (2,373,206) ----------- ----------- Total stockholders' deficit (148,294) (1,060,778) ----------- ----------- $ 1,170,820 $ 624,750 The accompanying notes are an integral part of these consolidated statements. 3 GLOBAL MAINTECH CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Nine Months Ended September 30 September 30 1996 1995 1996 1995 Net sales $ 801,817 $ 181,947 $ 2,006,091 $ 613,647 Cost of sales 224,814 66,455 646,745 142,751 ----------- ----------- ----------- ----------- Gross profit 577,003 115,492 1,359,346 470,895 Operating expenses Selling, general and administrative 188,098 201,884 490,264 633,283 Research and development 39,993 0 186,102 0 ----------- ----------- ----------- ----------- Income from operations 348,913 (86,392) 682,980 (162,388) Other income (expense): Interest expense (16,425) (30,396) (33,955) (104,073) Interest income 0 0 0 5,715 Other 0 (2,294) (2,554) (129) ----------- ----------- ----------- ----------- Total other expense, net (16,425) (32,690) (36,509) (98,487) ----------- ----------- ----------- ----------- Income from continuing operations before income taxes 332,488 (119,082) 646,471 (260,874) Provision for income taxes 18,500 1,800 18,500 4,300 ----------- ----------- ----------- ----------- Income from continuing operations 313,988 (120,882) 627,971 (265,174) ----------- ----------- ----------- ----------- Discontinued operations Income from operations 0 0 0 0 Loss on disposal 0 (159,551) 0 (15,558) ----------- ----------- ----------- ----------- Loss from discontinued operations 0 (159,551) 0 (15,558) ----------- ----------- ----------- ----------- Net income $ 313,988 $ (280,433) $ 627,971 $ (280,732) Net earnings (loss) per common and common equivalent share: Continuing operations $ 0.021 $ (0.012) $ 0.044 $ (0.031) Discontinued operations 0.000 (0.016) 0.000 0.000 ----------- ----------- ----------- ----------- Net earnings/ (loss) $ 0.021 $ (0.028) $ 0.044 $ (0.033) Weighted average number of common and common equivalent shares outstanding 14,689,871 10,132,148 14,254,034 8,539,550 The accompanying notes are an integral part of these consolidated statements 4 GLOBAL MAINTECH CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 1996 1995 Cash flows from operating activities: Net loss $ 627,971 $ (280,732) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 7,121 50,872 (Gain)/Loss on sale of equipment (1,600) (8,173) Changes in operating assets and liabilities: (Increase) decrease in accounts and other receivables (121,585) (55,403) (Increase) decrease in inventory (66,654) 152,982 Increase in prepaid expenses (24,786) (3,827) Decrease in accounts payable (298,980) (205,497) Increase (decrease) in accrued expenses 48,462 (23,275) Increase (decrease) in deferred revenue 27,200 (148,000) Increase in other 0 33,710 ----------- ----------- Cash used by operating and discontinued activities 197,149 (487,343) Cash flows from investing activities: Proceeds (payment) from sale (purchase) of property and equipment (18,530) 743,389 Investment in computer software costs (314,929) 0 Net cash received in merger 0 637,071 ----------- ----------- Cash provided (used) by investing activities (333,460) 1,380,460 ----------- ----------- Cash flows from financing activities: Proceeds from issuance of common stock 249,511 150,000 Conversion to equity of subordinated debentures 35,000 0 Decrease in short-term notes payable (85,095) (62,641) Principal payments on mortgage note payable 0 (620,000) Decrease in long-term notes payable (58,000) (268,490) ----------- ----------- Cash provided (used) by financing activities 141,416 (801,131) ----------- ----------- Net increase (decrease) in cash 5,107 91,986 Cash and cash equivalents at beginning of period 39,364 24,309 ----------- ----------- Cash and cash equivalents at end of period $ 44,471 $ 116,295 The accompanying notes are an integral part of these consolidated statements. 5 FOOTNOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) General The Company was incorporated under the laws of the State of Minnesota in 1985. In May 1995, the Company's name was changed to Global MAINTECH Corporation from Mirror Technologies, Incorporated. Global MAINTECH, Inc., formerly MAINTECH Resources, Inc., a Minnesota corporation (-MAINTECH+), is the principal operating subsidiary of the Company. Effective January 1, 1995, the Company merged with MAINTECH whereby MAINTECH became a wholly owned subsidiary of the Company. For the fiscal years 1992, 1993 and 1994 the majority of the Company+s activity had been in buying and selling used IBM mainframes, parts and features. During this time the Company changed its business strategy and began to maintain and monitor computer equipment in large data centers. In late 1994, the Company became the exclusive distributor, outside of Japan, of the monitoring system of Circle Corporation of Japan. In 1995, the Company adapted this monitoring system which is oriented to single-unit users and to simple functions, to meet the more complex requirements of the U. S. market. While the Company continues to buy some hardware and software from Circle Corporation, the Company has added significant architecture, compiling and source code. The updated system provides enhanced operational control over computer hardware and software. In 1995, the Company made its first three installations of this system, now called the Enterprise Control System or ECS, in the data centers of a large industrial and financial company. The ECS is a tool designed to automate many of the processes associated with the physical and operational attributes of mainframe-based data centers. 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. ECS 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. The ECS competes with internal monitoring systems (which monitor certain pieces of hardware internally) sold by other companies. Sales of internal monitoring systems within the U.S. were estimated at $700 million for 1994. It is believed the market recently has been expanding at a rapid rate, growing over 30% in recent years. The Company believes the ECS is well suited for use in enterprise computing applications. Enterprise computing is the term associated with the hardware and software that enables computers that contain different processors to be linked together. The Company has adapted the ECS and coupled it with proprietary software to form an enterprise computing management system. The market size for computer networking systems, which is one segment of the enterprise computing system market, is estimated to be $15 billion per year within the U.S. The ECS can also be used to monitor and control desktop and mid-range servers. 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/A-1 for the year ended December 31, 1995. 6 Reclassifications Certain reclassifications have been made to the fiscal 1995 data to conform with the fiscal 1996 presentation. Reverse Stock Split The Company effected a reverse stock split of 1 share of the Company's Common or Preferred Stock, as appropriate, on November 12, 1996. As a result, the aggregate number of authorized shares of the Company was reduced from 250,000,000 to 50,000,000 shares. Excluding the Preferred Stock, the aggregate number of authorized shares is now 49,112,020, The reverse stock split does not adversely affect the rights or preferences of the holders of outstanding shares of any class or series of the Company's capital stock. Common Equivalent Shares Outstanding The preferred stock is, because of its terms and the circumstances under which it was issued, in substance a common stock equivalent. The preferred stockholders can convert, at their option, to common stock on a one-for-one basis and can expect to participate in the appreciation of the value of the common stock. Accordingly, the weighted average common and common equivalent shares outstanding for the quarter ended September 30, 1996 include the weighted average of 9,798,753 common shares outstanding, the 865,207 shares of preferred stock outstanding since their issuance on September 13, 1994, and stock options and warrants which have a dilutive effect. The stock options and warrants included as common equivalent shares outstanding total 4,025,911 and are computed by application of the treasury stock method. Capitalized Computer Software Costs In the quarter ended September 30, 1996, the Company recorded capitalized computer software costs, which represent software production costs incurred in connection with the development of enhancements to one or more particular software programs. The amount of such computer software costs recorded is $314,929 and will be amortized over a 36 month period. Amortization of these costs and a determination of net realizable value of any unamortized costs will begin in the quarter ending December 31, 1996. The Company has a plan to modify a completed software version each quarter in the form of a new "release". The production costs of each new release will also be capitalized and amortized over a 36 month period. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Net cash provided by operations for the nine month period ended September 30, 1996 was approximately $197,000. Cash was generated from net income for the nine month period ended September 30, 1996 of approximately $630,000. In addition, cash was provided from a moderate increase in deferred revenue and accrued expenses. Cash was used primarily to reduce accounts payable of approximately $300,000, to fund an increase in accounts receivable of approximately $120,000 and to fund an increase in inventory of approximately $67,000. Sales for the quarter ended September 30, 1996 were approximately $800,000 compared to sales of approximately $180,000 in the same period in 1995. Sales for the nine month period ended September 30, 1996 were $2.0 million compared to $0.6 million in the same period in 1995. The increase in sales was due to increased sales of the Company's Enterprise Control System ("ECS") product. The gross profit margin percentage in the quarter ended September 30, 1996 was approximately 72% compared to approximately 64% in the same period in the prior year and approximately 68% for the nine month period ended September 30, 1996 compared to approximately 77% in the same period in 1995. With the exception of the one-time high gross margin sale in the quarter ended March 31, 1995, the gross margin percentage has improved during 1996, to date, over the comparable period for the prior year. The Company attributes this improvement primarily to value adding software improvements and partially to improved cost efficiencies. This trend is evident in the increased gross margin in the quarter ended September 30, 1996 compared to the same quarter in the previous year. The trend is less obvious for the nine month period because the year to date gross profit margin percentage for the comparable period for the prior year includes a one-time sale of software with a low associated cost of sale. Selling and general and administrative costs were approximately $190,000 for the quarter ended September 30, 1996 and approximately $200,000 in the same period in 1995. For the nine month period ended September 30, 1996 these costs were approximately $490,000 compared to $630,000 in the comparable period for the prior year. The $10,000 quarterly decrease and the $140,000 nine month decrease are both primarily related to declines in salary and professional expenses which were partially offset by an increase in travel and entertainment expenses. Salary expense declined due to a decrease in administrative personnel and professional expenses decreased primarily due to a decline in legal expenses. In the quarter ended September 30, 1995, the Company incurred legal expenses in connection with certain legal issues arising prior to the merger of the present legal entities and for the nine month period ended September 30, 1995 the Company incurred legal costs in connection with the merger with MAINTECH Resources, Inc. Travel and entertainment expenses increased in the three and nine month periods ended September 30, 1996 due to increased activity related to new sales. Research and development expenses incurred in the three and nine month periods ended September 30, 1996 relate entirely to the continuing development of the ECS product and costs incurred for minor software updates. There was no comparable activity in the three or nine month month periods ended September 30, 1995. Non-operating expenses for the quarter and for the nine month period ended September 30, 1996 and September 30, 1995 primarily consisted of interest expense. Interest expense includes accrued interest on the Company's convertible subordinated debentures, notes payable to vendors, a bank and individuals. Interest expense declined primarily due to a decline in total debt. From January 1, 1995 to September 30, 1996, unsecured debt declined by approximately $1.0 million, of which $400,000 is due to the forgiveness of subordinated debt held by certain officers of the Company in 1995. Cash was used by investing activities primarily to fund capitalizable computer software costs associated with the Company's ECS product. Cash was provided by financing activities primarily due to the issuance of common stock for approximately $169,000 during January 1996 and $81,000 in September 1996 and partially due to conversion of some of the subordinated convertible debentures. A portion of these proceeds was used to reduce debt. 8 Liquidity and Capital Resources As of September 30, 1996, the Company had negative working capital of approximately $500,000 compared to negative working capital as of December 31, 1995 of $1,019,000. The negative working capital is primarily due to the approximately $656,000 of debt obligations due in the next twelve months. This includes convertible subordinated debentures of $226,750 ("Debentures") due on July 1, 1996. No principal payments have been made on the Debentures as of November 13, 1996. Another $345,000 debt payment is due in monthly or quarterly installments through December 31, and the remainder of approximately $84,000 is due after December 31, 1996. If the assumption that earnings for the remainder of 1996 continue at a level equal to the first nine months of such year, the Company believes the cash flow from its current operating activities will continue to be sufficient to satisfy its current liabilities as they become due, with the exception of the Debentures. During the nine month period ended September 30, 1996, the Company used a portion of its operating cash to reduce accounts payable and to fund an increase in operating assets such as accounts receivable and inventory. Another signifcant use of cash was the investment in capitalized computer software costs. This activity, begun in the quarter ended September 30, 1996, is designed to enhance the existing product offerings of the Company. The research and development investing activity was funded from a combination of net cash from operating activities and financing activities. Net cash from financing activities is primarily the result of the issuance of common stock partially offset by reductions in notes payable. The Company's past losses from discontinued operations and its remaining debt obligations, indicate additional capital will be needed to fund the Company's future cash needs, particularly the maturing Debentures. The Company believes increased sales of its ECS product will provide operating capital to satisfy some of these requirements. However, it is likely additional capital will be needed to satisfy all the obligations as they become due. And the company is currently unable to meet the payment obligation on its matured Debentures of $226,750 and principal and interest payments on two unsecured senior notes payable totalling another approximately $45,000. There can be no assurance that either sufficient sales will occur or that additional sources of new capital will be found to allow the Company to meet such obligations. If the Company does not succeed in one or both of these areas, the effect on the business could be material and adverse. During the last nine months, the Company borrowed periodically against its accounts receivable from its principal bank and may continue to do so in the future and issued unsecured debt to individual investors and an officer of the Company. As of September 30, 1996,the Company had no debt outstanding from its principal bank. During 1995, the Company began to focus its activities on the computer monitoring and control systems operations and to reduce its Brokerage operations. By the end of 1995, the Company had discontinued and sold its Brokerage operations. The liquidity and capital resources of the Company have been diminished as a result of the discontinued operations and a substantial portion of the current interest bearing obligations that remain with the Company as of September 30, 1996 relate to the Brokerage activities not assumed by the buyer of the discontinued operations. The Company's ability to renegotiate or convert portions of its notes payable and to attract additional capital to facilitate these negotiations is uncertain, as is the timing of new sales of ECS units. While the Company 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. To the extent this plan is delayed, the Company will seek the continued forbearance of its lenders. 9 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES The Company issued a Private Placement Memorandum dated August 19, 1996 (the "Memorandum") offering for purchase shares of the Company's common stock up to 600,000 shares at $0.50 per share adjusted for the reverse stock split discussed below. As of September 30, 1996, 240,000 shares were issued pursuant to this Memorandum. During October 1996, the Company issued an additional 280,000 shares in connection with such offering. The Memorandum names Maven Securities, Inc. as the exclusive placement agent and agrees to pay the placement agent 10% commission and 3% expenses and to issue a warrant for up to 30,000 shares of common stock exercisable at $0.50 per share. The shares of common stock issued pursuant to the Memorandum are exempt from registration under Rule 506 of Regulation D of the Securities Act of 1933. The Company effected a reverse stock split of 1 share of the Company's Common or Preferred Stock, as appropriate, on November 12, 1996. As a result, the aggregate number of authorized shares of the Company was reduced from 250,000,000 to 50,000,000 shares. Excluding the Preferred Stock, the aggregate number of authorized shares is now 49,112,020. The reverse stock split does not adversely affect the rights or preferences of the holders of outstanding shares of any class or series of the Company's capital stock. ITEM 3. DEFAULT UPON SENIOR DEBT AND CONVERTIBLE SUBORDINATED DEBENTURES The Company is more than thirty days in default on principal payments of convertible subordinated debentures, all of which matured on July 1, 1996. Prior to certain changes occurring in the third quarter of 1996, the principal amount was $261,750. During the third quarter of 1996, holders of $35,000 of such convertible subordinated debentures converted their debentures into common stock and another debenture holder accepted a replacement subordinated convertible debenture maturing September 1, 1997. As a result, the principal payments in default have been reduced from $261,750 to $176,750. In addition, interest payments have been disbursed monthly for the period July through October on the delinquent principal amount of $176,750. Separately, the Company is more than thirty days in default on principal and interest payments of $17,343 and $1,580, respectively, on a $114,234 note payable to a vendor. A third principal and interest default exists on a note payable to a related party. The principal amount in default is $25,000 and interest payment default is $1,350 on a note payable totalling $41,667. 10 SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GLOBAL MAINTECH CORPORATION November 13, 1996 By: /s/ James Geiser James Geiser Chief Financial and Chief Accounting Officer In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. November 13, 1996 By: /s/ David McCaffrey David McCaffrey Chief Executive Officer 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the September 30, 1996 SEC Form 10-QSB and is qulified in its entirety by reference to such financial statements. 0000783738 GLOBAL MAINTECH CORPORATION 1000 3-MOS DEC-31-1996 SEP-30-1996 44 0 483 0 253 822 33 0 1171 1319 0 1191 0 406 (1745) 1171 802 802 225 225 0 0 16 332 18 314 0 0 0 314 0.02 0.02
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