-----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, SwZP9+hztES/KdS3T31oL6K+okvuGEWvaWE1mAf6bODRRc+nkD7LhQ/+KYk/Nr4b xSgziWWy2Dsmj+ajt5USLA== 0000783738-97-000004.txt : 19971124 0000783738-97-000004.hdr.sgml : 19971124 ACCESSION NUMBER: 0000783738-97-000004 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19971121 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBAL MAINTECH CORP CENTRAL INDEX KEY: 0000783738 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 411523657 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B3 SEC ACT: SEC FILE NUMBER: 333-33477 FILM NUMBER: 97726509 BUSINESS ADDRESS: STREET 1: 6468 CITY WEST PARKWAY CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 BUSINESS PHONE: 612-944-04 MAIL ADDRESS: STREET 1: 6468 CITY WEST PKY CITY: EDEN PRAIRIE STATE: MN ZIP: 55344-3245 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 424B3 1 Filed under Rule 424(b)(3) in connection with the Company's Registration Statement on Form SB-2 (File No. 333-33477) PROSPECTUS SUPPLEMENT SUPPLEMENT NO. 1 TO PROSPECTUS DATED SEPTEMBER 26, 1997 3,489,961 SHARES OF COMMON STOCK OF GLOBAL MAINTECH CORPORATION The following information amends and updates the Prospectus of Global MAINTECH Corporation (the "Company")dated September 26, 1997 (the "Prospectus") and should be read in conjunction therewith. Please keep this Prospectus Supplement with your Prospectus for future reference. THE DATE OF THIS PROSPECTUS SUPPLEMENT IS NOVEMBER 21, 1997. page 1 of 11 GLOBAL MAINTECH CORPORATION TABLE OF CONTENTS Page ---- Selected Financial Data. .................................................3 Balance Sheet as of September 30, 1997 (unaudited) and December 31, 1996.................................................. 4 and 5 Statement of Operation for the Three and Nine Months Ended September 30, 1997 and 1996 (unaudited).................................................6 Statement of Cash Flows for the Nine Months Ended September 30, 1997 and 1996 (unaudited)..........................................................7 Notes to Financial Statements (unaudited).............................8 and 9 Management's Discussion and Analysis of Financial Condition and Results of Operation..............................................10 and 11 SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Prospectus Supplement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties that may cause the Company's actual results to differ materially from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, the uncertainty in the Company's ability to continue to operate profitably in the future; failure of the Company to meet its future additional capital requirements; loss of key personnel; inability of the Company to compete in the industry in which it operates; failure of the Company to respond to evolving industry standards and technological changes; lack of market acceptance of the Company's products; failure of the Company to secure adequate protection for the Company's intellectual property rights; failure by the Company to sustain demand in current products or to expand its product lines to meet demand or to meet the costs associated with product expansion; and the Company's exposure to product liability claims. The forward-looking statements are qualified in their entirety by the cautions and risk factors set forth in the Prospectus under the caption "Risk Factors". page 2 of 11 SELECTED FINANCIAL DATA The selected financial data presented below have been extracted from, and are qualified in their entirety by, and should be read in conjunction with, the financial statements and notes thereto included elsewhere in this Prospectus Supplement, including the information presented under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations".
Three months ended September 30, STATEMENT OF OPERATIONS DATA (Unaudited): 1997 1996 Sales $ 1,181,043 $ 421,486 Costs of sales 304,020 43,932 Gross profit 877,023 377,554 Operating expenses 576,259 237,063 Income from operations 300,764 140,491 Other income (expense) (83,418) (20,829) Net income 217,345 101,162 Net income per common and common equivalent 0.012 0.007 shares Weighted average common and common equivalent 18,845,064 14,689,871 shares outstanding
September 30, 1997 December 31, 1996 BALANCE SHEET DATA: (Unaudited) Working capital $ 4,219,755 $ (400,397) Current assets 4,704,237 750,657 Total assets 6,018,436 1,351,553 Current liabilities 484,482 1,151,054 Long-term liabilities 2,000,000 16,600 Total stockholders' equity 3,533,954 183,899
page 3 of 11 GLOBAL MAINTECH CORPORATION CONSOLIDATED BALANCE SHEETS ASSETS
September 30, December 31, 1997 1996 (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 2,597,472 $ 32,890 Accounts receivable, less allowance for doubtful accounts of $15,000 1,566,738 451,599 Other receivables 85,622 21,519 Inventory 372,661 217,943 Prepaid expenses and other 81,744 26,706 ----------- ----------- Total current assets 4,704,237 750,657 Property and equipment, net 152,089 31,221 Leased equipment, net 58,678 82,377 Patent costs, net 70,525 61,779 Deferred subordinated debt costs 200,898 - Software development costs, net 832,009 425,519 ----------- ----------- TOTAL ASSETS $ 6,018,436 $ 1,351,553
The accompanying notes are an integral part of these consolidated statements. page 4 of 11 GLOBAL MAINTECH CORPORATION CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) September 30, December 31, 1997 1996 (Unaudited) CURRENT LIABILITIES Accounts payable $ 258,664 $ 396,004 Current portion of notes payable - 211,613 Convertible subordinated debentures - 151,750 Accrued liabilities Compensation and payroll taxes 92,153 79,655 Interest 70,000 13,960 Other 18,813 38,325 Deferred revenue 44,852 259,747 ----------- ----------- Total current liabilities 484,482 1,151,054 Subordinated notes payable, less current portion 2,000,000 16,600 ----------- ----------- Total liabilities 2,484,482 1,167,654 STOCKHOLDERS' EQUITY (DEFICIT) Voting, convertible preferred stock - Series A, convertible into one common stock share for each preferred share, no par value; 887,980 shares authorized; 258,780 shares issued and outstanding; total liquidation preference of outstanding shares-$485,000 121,368 328,601 Common stock, no par value; 49,112,020 shares authorized; 16,810,221 shares issued and outstanding - - Additional paid-in-capital 5,125,184 2,243,438 Notes receivable-officers (294,500) (324,500) Accumulated deficit (1,418,098) (2,063,640) ----------- ----------- Total stockholders' equity 3,533,954 183,899 ----------- ----------- $ 6,018,436 $ 1,351,553
The accompanying notes are an integral part of these consolidated statements. page 5 of 11 GLOBAL MAINTECH CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Nine Months Ended September 30 September 30 1997 1996 1997 1996 Net sales $ 1,181,043 $ 421,486 $ 2,756,430 $ 1,471,487 Cost of sales 304,020 43,932 701,113 424,961 ----------- ----------- ----------- ----------- Gross Profit 877,023 377,554 2,055,317 1,046,526 Operating expenses Selling, general and administrative 497,271 197,071 1,199,917 506,054 Research and development 78,988 39,993 159,995 186,102 ----------- ------------ ----------- ----------- Income from operations 300,764 140,491 695,405 354,370 Other income (expense): Interest expense (72,845) (20,829) (106,791) (39,744) Other (10,574) - (10,574) (2,554) ----------- ----------- ----------- ------------ Total other expense, net (83,418) (20,829) (117,365) (42,298) ----------- ----------- ----------- ----------- Income from continuing operations before income taxes 217,345 119,662 578,040 312,072 Provision for income taxes - 18,500 2,500 18,500 ----------- ----------- ----------- ----------- Income from continuing operations 217,345 101,162 575,540 293,572 Recovery of discontinued operations - - 70,000 - ----------- ----------- ----------- ----------- Gain from discontinued operations - - 70,000 - ----------- ----------- ----------- ----------- Net income $ 217,345 $ 101,162 $ 645,540 $ 293,572 Net earnings (loss) per common and common equivalent share: Continuing operations $ 0.012 $ 0.007 $ 0.033 $ 0.021 Discontinued operations - - 0.004 - ------- ------- ------- ------- Net earnings $ 0.012 $ 0.007 $ 0.038 $ 0.021 Weighted average number of common and common equivalent shares outstanding 18,845,064 14,689,871 17,189,261 14,254,034
The accompanying notes are an integral part of these consolidated statements. page 6 of 11 GLOBAL MAINTECH CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 1997 1996 Cash flows from operating activities: Net income $ 645,540 $ 293,572 Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 283,849 22,911 Changes in operating assets and liabilities: (Increase) decrease in accounts and other receivables (1,179,242) 278,610 Increase in inventory (154,718) (181,298) Increase in leased equipment (6,437) (107,140) Increase in prepaid expenses (55,039) (24,786) Decrease in accounts payable (125,541) (298,979) Increase (decrease) in accrued expenses 37,226 48,462 Increase (decrease) in deferred revenue (214,895) 167,398 Increase in other - - ----------- ----------- Cash provided(used) by operating activities (769,256) 198,750 ----------- ----------- Cash flows from investing activities: Purchase of property and equipment (166,006) (20,130) Increase in deferred debt costs (211,472) - Investment in software development costs (586,489) (314,929) Investment in patent costs (26,746) - ----------- ----------- Cash used by investing activities (990,713) (335,059) ----------- ----------- Cash flows from financing activities: Proceeds from issuance of common stock 2,704,513 284,511 Decrease in short-term notes payable (363,363) (85,095) Increase (decrease) in long-term notes payable 1,983,400 (58,000) ----------- ----------- Cash provided (used) by financing activities 4,324,551 141,416 ----------- ----------- Net increase (decrease) in cash 2,564,582 5,107 Cash and cash equivalents at beginning of period 32,890 39,364 ----------- ----------- Cash and cash equivalents at end of period $ 2,597,472 $ 44,471
The accompanying notes are an integral part of these consolidated statements. page 7 of 11 GLOBAL MAINTECH CORPORATION FOOTNOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) General The Company, through its wholly owned subsidiary Global MAINTECH, Inc., designs, develops and markets a computer system, consisting of hardware and software, which monitors mainframe and mid-range computer operations and consolidates control of large corporate data centers. This system is called the Virtual Command Center ("VCC") and 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. The VCC can be operated from a remote location and accepts multiple 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 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 VCC competes with internal monitoring software, which monitors certain pieces of hardware and software in the computer in which it is installed, sold by other companies. Sales of such software were estimated to be $3 billion in November 1996. It is believed this market will grow to almost $9 billion by 2000, which would represent a compound annual growth rate of approximately, 30%. The Company believes the VCC also is 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. The Company has adapted the VCC and coupled it with its own proprietary software 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 such UNIX-based systems in 1995 were $19 billion. 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, 1996. Reclassifications Certain reclassifications have been made to the fiscal 1996 data to conform with the fiscal 1997 presentation. Reverse Stock Split The Company effected a one-for-five reverse stock split of the Company's common stock and series A preferred stock 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. page 8 of 11 GLOBAL MAINTECH CORPORATION FOOTNOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 any appreciation of the value of the common stock. Accordingly, the weighted average common and common equivalent shares outstanding for the quarter ended September 30, 1997 include the weighted average of 15,927,008 common shares outstanding, 258,780 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 2,659,275 shares and are computed by application of the treasury stock method. Capitalized Computer Software Costs In the quarter ended September 30, 1997, the Company recorded software development costs, net of amortization, of approximately $832,009, 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 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 over a 36 month period using the straight-line method. Operating Leases The Company began leasing its Virtual Command Center product (VCC) to customers in 1996. The Company offers flexible lease terms to meet its customers' preferences. In some cases the lease may be classified as an operating lease on the Company's financial statements. Generally, a lease will be classified as an operating lease if the lease extends for a term less than the full economic life of the product and the Company retains a residual interest at the end of the lease term. Operating leases require the lessee to pay fair market value for the VCC if the lessee chooses to purchase the product at the end of the lease term. Since the Company is the manufacturer and seller of the VCC, the Company is comfortable with the risk of retaining a residual interest. The net investment in leased equipment was $117,869 less accumulated depreciation of $47,000 for a total of $70,869. A majority of the Company's VCC leases were assigned to a third party, on a non-recourse basis, for a lump sum payment to the Company in 1996. Under the terms of this assignment, the Company retained a residual value in the equipment under lease. The present value of the cash received was recorded as deferred revenue, and is being recognized into revenue over the term of the lease. Lease revenue assigned to third parties recorded in 1996 and the quarter ended September 30, 1997 was $91,000 and $85,500, respectively. The annual lease revenue in 1997 and 1998 is expected to be $114,000 and $23,000, respectively. page 9 of 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Net cash used in operating and discontinued activities for the nine month period ended September 30, 1997 was approximately $769,000. Cash provided from net income, before depreciation and amortization, for this nine month period was approximately $930,000. However, cash was used to fund increases in current assets, primarily accounts receivable and inventory totaling approximately $1,334,000 and to reduce accounts payable and deferred revenue totaling approximately $340,000. In the same period in the prior year operating activities generated cash of approximately $199,000, which was largely due to net income of $293,572. Sales for the third quarter ended September 30, 1997 were approximately $1,181,000 compared to sales of continuing operations for the third quarter of 1996 of approximately $421,000. Sales for the nine months ended September 30, 1997 were approximately $2.8 million compared to $1.5 million in the same nine month period of 1996. The increase in sales of $760,000 for the third quarter of 1997 is primarily due to an increase in product sales of approximately $920,000 offset by a decrease in licensing fees of approximately $160,000. In the quarter ended September 30, 1996, the Company recorded a one-time licensing fee sale of $225,000. Otherwise, ongoing licensing fees sales, exclusive of the one-time sale, increased $60,000. The increase in sales of $1.3 million for the nine month period ended September 30, 1997 is primarily due to an approximate $1.0 million increase in product sales, an approximate $50,000 increase in ongoing licensing fees and an increase in consulting fees of approximately $100,000. The gross profit margin percentage in the third quarter of 1997 was approximately 74% compared to approximately 90% in the same quarter in the prior year and was approximately 75% for the nine month period ended September 30, 1997 compared to approximately 71% in the same period in the prior year. The decrease in gross profit margin in the quarter ended September 30, 1997 compared to the same quarter in the prior year is due to the one-time license fee sale in the quarter ended September 30, 1996. The increase in gross profit margin for the nine months ended September 30, 1997 compared to the same period in the prior year is primarily due to a decrease in the cost of sales. The Company attributes this decrease in costs of sales to temporary decreases in equipment costs which fluctuate from time to time. Selling, general and administrative expenses in the third quarter of 1997 were approximately $500,000 compared to $200,000 for the third quarter of 1996. For the nine month period ended September 30, 1997 these expenses were approximately $1,200,000 compared to $500,000 in the same period in the prior year. The increase of $300,000 for the third quarter ended September 30, 1997 is due primarily to increases in salaries, professional and technical, travel and expenses, marketing, insurance and depreciation expenses. Salaries increased due to increases in the number of employees the majority of which is due to new hires in sales and sales support. Professional and technical expenses increased in the areas of legal and investor relations. These increases in corporate governance expenses are largely related to expenses incurred from the registration of certain common stock securities previously issued in a series of private issues of such securities. The increases in travel expenses are due to increases in sales activities; marketing expense increases are due to increased product marketing efforts; insurance expense increases are related to increased sales and inventory levels; and, depreciation expense increases are due to purchases of machinery and equipment for software development. The $700,000 increase for the nine month period ended September 30, 1997 compared to the nine month period ended September 30, 1996 is primarily due to increases in salaries, professional and technical, travel and expenses, marketing, insurance and depreciation expenses. These increases are primarily attributable to the same factors that caused the increases in these same expense categories in the third quarter comparison above, with one exception: Legal expenses increased in the nine month period primarily due to the settlement in the prior year's nine month period ended September 30, 1996 of old claims from continuing operations at less than the accrued amount. Research and development costs in the third quarter of 1997 were approximately $79,000 compared to $40,000 in the third quarter of 1996, one year ago. For the nine month period ended September 30, 1997 research and development costs were approximately $160,000 compared to $186,000 in the same period in the prior year. The increase in the comparative three month periods is due to increases in consulting expenses related to the development of certain improvements to the hardware used in the VCC. The decrease in the comparative nine month period is primarily due to changes in salary expenses. The Company reduced its administrative engineering activities and increased its focus on enhancements to existing products, the costs of which are recorded in costs of goods sold. page 10 of 11 Non-operating expenses in both periods under comparison primarily consisted of interest expense. Interest expense increased in the three and nine month periods ending September 30, 1997 compared to the same periods in the prior year. This is due to the issuance in June 1997 of $2,000,000 of subordinated debt. The increase in other non-operating expenses is entirely due to the amortization of deferred subordinated debt costs, which costs are being amortized over the term of the related subordinated debt. Cash used by investing activities of approximately $991,000 reflects investments of $586,000 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. The Company also incurred costs of approximately $211,000 in connection with the issuance of five year subordinated notes payable in the amount of $2,000,000 in June 1997 which costs will be amortized on a straight-line basis over the term of the related debt. The Company also purchased approximately $166,000 of additions to machinery and equipment during the first nine months of 1997. During the nine months ended September 30,1996, the Company invested approximately $315,000 in software development and $20,000 in machinery and equipment. Net cash provided by financing activities in the nine month period ended September 30, 1997 was approximately $4,325,000. This is due to the receipt of net proceeds from the issuance of common stock of approximately $2,705,000 in two private issues, one ending in February 1997 with common stock issued at a per share price of $0.75 and one ending in June 1997 at a per share price of $1.40 raising approximately $1,104,00 and $1,601,000, respectively. In addition, on June 19, 1997 the Company received $2,000,000 in return for the issuance of five year subordinated notes payable. Offsetting this increase was a $363,000 use of cash to reduce notes payable. In the nine month period ending September 30, 1996, the Company raised approximately $284,000 from the issuance of common stock which was offset by reductions of short and long-term notes payable of $143,000 resulting in a net use of cash by financing activities of $141,000. Liquidity and Capital Resources As of September 30, 1997, the Company had positive working capital of approximately $4,220,000 compared to negative working capital as of December 31, 1996 of approximately $400,000. The positive working capital was substantially enhanced by the net proceeds of approximately $2,705,000 received from the issuance of common stock in connection with two private placements of such securities and the issuance of five year subordinated notes payable in the amount of $2,000,000. The Company used these proceeds to pay all other outstanding debt, a portion of which had been delinquent as to principal payments. Due to continued profitability and the equity and long-term debt financings, the Company's liquidity and capital resources currently appear adequate to meet the expected needs of the Company's operations. Although the Company is not currently dependent on its earnings to provide liquidity, it has recently demonstrated an ability to realize gross margins of better than 70% in all periods under review and to produce a profit. Accordingly, management believes the liquidity and capital resources of the Company are sufficient to meet its operational needs and to allow the Company to realize the value of its assets. page 11 of 11 -----END PRIVACY-ENHANCED MESSAGE-----