-----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, KaFJ8VWjUiYUwzjz/VofXbmPKw6olBWQRqEEVByWhjOGsGbZgOQrTEUN5f9+4N+4 0ykjGHUgFVhMs/VNAKHSFQ== /in/edgar/work/20000815/0001045969-00-000616/0001045969-00-000616.txt : 20000922 0001045969-00-000616.hdr.sgml : 20000921 ACCESSION NUMBER: 0001045969-00-000616 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SINGLEPOINT SYSTEMS CORP CENTRAL INDEX KEY: 0000783738 STANDARD INDUSTRIAL CLASSIFICATION: [3571 ] IRS NUMBER: 411523657 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-14692 FILM NUMBER: 701470 BUSINESS ADDRESS: STREET 1: SINGLEPOINT SYSTEMS CORPORATION STREET 2: 4020 MOORPARK AVENUE SUITE 115 CITY: SAN JOSE STATE: CA ZIP: 95117 BUSINESS PHONE: 408-557-6500 EXT 118 MAIL ADDRESS: STREET 1: 4020 MOORPARK AVENUE STREET 2: SUITE 115 CITY: SAN JOSE STATE: CA ZIP: 95117 FORMER COMPANY: FORMER CONFORMED NAME: GLOBAL MAINTECH CORP DATE OF NAME CHANGE: 19950628 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 0001.txt 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 June 30, 2000 Commission File Number 0-14692 ---------------------------------------------- Singlepoint Systems Corporation Minnesota 41-1523657 State of Incorporation I.R.S. Employer Identification No. 4020 Moorpark Avenue, Suite 115, San Jose, California 95117-1845 Telephone Number: (408) 557-6500 Global MAINTECH Corporation 7578 Market Place Drive, Eden Prairie, Minnesota, 55344 (Former name and address) ---------------------------------------------- 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 --- --- ---------------------------------------------- As of August 10, 2000 there were 7,194,142 shares of the Registrant's no par value common stock outstanding with approximately 3,100 shareholders of record. Transitional small business issuer format: No SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Quarterly Report on Form 10-QSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties that may cause the Company's actual results to differ materially from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, the uncertainty in the Company's ability to continue to operate profitably in the future; failure of the Company to meet its future additional capital requirements; loss of key personnel; failure of the Company to respond to evolving industry standards and technological changes; inability of the Company to compete in the industry in which it operates; failure of the Company to successfully integrate the operations of newly acquired businesses; lack of market acceptance of the Company's products, including products under development; failure of the Company to secure adequate protection for the Company's intellectual property rights; and the Company's exposure to product liability claims. The forward-looking statements are qualified in their entirety by the cautions and risk factors set forth in Exhibit 99, under the caption "Cautionary Statement," to this Quarterly Report on Form 10-QSB for the quarter ended June 30, 2000. - -------------------------------------------------------------------------------- PART I. FINANCIAL INFORMATION - -------------------------------------------------------------------------------- ITEM 1. FINANCIAL STATEMENTS SINGLEPOINT SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS
June 30, December 31, 2000 1999 ----------- ----------- CURRENT ASSETS Cash and cash equivalents $ 610,374 $ 2,171,648 Accounts receivable, less allowance for doubtful accounts of $165,000 and $190,000, respectively 1,211,610 2,013,371 Other receivables 176,699 94,211 Inventories 1,159,564 1,322,336 Prepaid expenses and other 67,616 161,252 Current portion of investment in sales-type leases 13,207 20,753 ----------- ----------- Total current assets 3,239,070 5,783,571 Property and equipment, net 556,228 823,286 Leased equipment, net 88,385 123,285 Software development costs, net 57,806 1,092,283 Purchased technology and other intangibles, net 10,095,391 12,371,739 Investments 500,000 -- Other assets, net 289,689 131,835 ----------- ----------- TOTAL ASSETS $14,826,569 $20,325,999 =========== ===========
The accompanying notes are an integral part of these consolidated statements. 2 SINGLEPOINT SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, December 31, 2000 1999 ------------- ------------ CURRENT LIABILITIES Accounts payable $ 2,437,863 $ 2,103,764 Current portion of notes payable 3,579,089 5,390,270 Accrued liabilities, compensation and payroll taxes 620,215 1,103,004 Accrued consideration related to acquistions 5,238,128 7,264,519 Accrued interest and penalties 1,370,164 802,801 Accrued dividends 425,402 259,919 Deferred revenue 1,280,427 997,141 Net liabilities of discontinued operation 7,908,018 5,300,000 ------------ ------------ Total current liabilities 22,859,306 23,221,418 ------------ ------------ Notes payable, less current portion 14,514 68,012 ------------ ------------ Total liabilities 22,873,820 23,289,430 STOCKHOLDERS' EQUITY (DEFICIT) Voting, convertible preferred stock - Series A, no par value; 887,980 shares authorized; 63,956 on June 30, 2000 and 86,896 on December 31, 1999 issued and outstanding; total liquidation preference of outstanding shares-$23,984 $ 30,012 $ 40,765 Voting, convertible preferred stock - Series B, no par value; 123,077 shares authorized; 51,023 on June 30, 2000 and 51,632 on December 31, 1999 issued and outstanding; total liquidation preference of outstanding shares-$1,658,248 1,658,270 1,678,069 Convertible preferred stock - Series C, no par value; 1,675 shares authorized; none on June 30, 2000 and 1,675 shares on December 31, 1999 issued and outstanding -- 1,368,712 Convertible preferred stock - Series D, no par value; 2,775 shares authorized; 2,653 shares on June 30, 2000 and none on December 31, 1999 issued and outstanding; total liquidation preference of outstanding shares-$2,653,000 1,836,659 -- Convertible preferred stock - Series E, no par value; 2,675 shares authorized; 2,675 shares on June 30, 2000 and none on December 31, 1999 issued and outstanding; total liquidation preference of outstanding shares-$2,675,000 2,097,605 2,097,605 Convertible preferred stock - Series F, no par value; 2,000 shares authorized; 2,000 shares on June 30, 2000 and none on December 31, 1999 issued and outstanding; total liquidation preference of outstanding shares-$2,000,000 1,373,475 -- Common stock, no par value; 17,479,818 shares authorized; 6,460,662 on June 30, 2000 and 5,404,099 shares on December 31, 1999 issued and outstanding -- -- Additional paid-in-capital 38,244,617 35,117,564 Notes receivable-officers (126,000) (235,500) Accumulated deficit (53,161,889) (43,030,646) ------------ ------------ Total stockholders' equity (deficit) (8,047,251) (2,963,431) ------------ ------------ $ 14,826,569 $ 20,325,999 ============ ============
The accompanying notes are an integral part of these consolidated statements. 3 SINGLEPOINT SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the three months ended For the six months ended June 30, June 30, ----------------------------- ---------------------------- 2000 1999 2000 1999 ------------- ------------- ------------ ------------- Net sales: Systems $ 1,610,150 $ 1,516,851 $ 2,481,482 $ 3,033,442 Maintenance, consulting and other 1,039,524 1,182,790 2,258,689 2,246,415 ------------ ------------ ------------ ------------ Total net sales 2,649,674 2,699,641 4,740,171 5,279,857 Cost of sales: Systems 427,735 15,498 590,599 216,783 Maintenance, consulting and other 162,658 693,789 484,413 1,243,084 ------------ ------------ ------------ ------------ Total cost of sales 590,393 709,287 1,075,012 1,459,867 ------------ ------------ ------------ ------------ Gross profit 2,059,281 1,990,354 3,665,159 3,819,990 Operating expenses: Selling, general and administrative 3,546,598 1,951,802 7,148,053 3,633,149 Research and development 119,275 555,726 358,825 892,550 Other operating expenses 311,111 -- 2,537,613 -- ------------ ------------ ------------ ------------ Loss from operations (1,917,703) (517,174) (6,379,332) (705,709) Other income (expense): Interest expense (105,705) (126,732) (222,356) (205,240) Interest income 12,803 745 13,806 2,272 Other expenses (758,365) (421,687) (884,264) (562,690) ------------ ------------ ------------ ------------ Total other income (expense), net (851,267) (547,674) (1,092,814) (765,658) ------------ ------------ ------------ ------------ Loss from continuing operations (2,768,970) (1,064,848) (7,472,146) (1,471,367) Discontinued operations: Loss from discontinued operations, net of tax -- (914,318) -- (914,318) Loss on disposal of discontinued operations, net of tax (829,614) -- (2,493,614) -- ------------ ------------ ------------ ------------ Loss before cumulative effect of change in accounting principle (3,598,584) (1,979,166) (9,965,760) (2,385,685) ------------ ------------ ------------ ------------ Cumulative effect of change in method of depreciation -- -- -- 231,936 ------------ ------------ ------------ ------------ Net loss (3,598,584) (1,979,166) (9,965,760) (2,153,749) Accrual of cumulative dividends on preferred stock (140,347) (45,000) (256,465) (88,675) Attribution of beneficial conversion feature on preferred stock -- (471,532) (3,466,797) (758,973) ------------ ------------ ------------ ------------ Net loss attributable to common stockholders $ (3,738,931) $ (2,495,698) $(13,689,022) $ (3,001,397) ============ ============ ============ ============ Basic loss per common share: Loss from continuing operations $ (0.477) $ (0.392) $ (1.890) $ (0.622) Loss from discontinued operations (0.136) (0.226) (0.421) (0.245) ------------ ------------ ------------ ------------ Loss before cumulative effect of change in accounting principle (0.613) (0.618) (2.311) (0.868) Cumulative effect of change in accounting principle -- -- -- 0.062 ------------ ------------ ------------ ------------ Net loss $ (0.613) $ (0.618) $ (2.311) $ (0.805) ============ ============ ============ ============ Diluted loss per common share: Loss from continuing operations $ (0.477) $ (0.392) $ (1.890) $ (0.622) Loss from discontinued operations (0.136) (0.226) (0.421) (0.245) ------------ ------------ ------------ ------------ Loss before cumulative effect of change in accounting principle (0.613) (0.618) (2.311) (0.868) Cumulative effect of change in accounting principle -- -- -- 0.062 ------------ ------------ ------------ ------------ Net loss $ (0.613) $ (0.618) $ (2.311) $ (0.805) ============ ============ ============ ============ Shares used in calculations: Basic 6,096,047 4,037,528 5,923,047 3,727,057 Diluted 6,096,047 4,037,528 5,923,047 3,727,057
The accompanying notes are an integral part of these consolidated statements. 4 SINGLEPOINT SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, ------------------------- 2000 1999 ----------- ---------- Cash flows from operating activities: Net loss $(9,965,760) $(2,153,749) Adjustments to reconcile net loss to net cash used in operating activities: Stock issued for services 74,521 -- Loss on write-off of purchased technology 1,800,000 -- Loss on operations of discontinued operations -- 914,318 Loss on disposal of discontinued operations 2,368,614 -- Advances to discontinued operations -- (2,230,454) Depreciation and amortization 2,053,586 2,040,221 Cumulative effect of change in accounting principle -- (231,936) Loss on sales of property and equipment (184,342) -- Changes in operating assets and liabilities: Accounts receivable 156,487 (1,301,459) Other receivables (82,488) (75,964) Inventories 162,772 (138,683) Prepaid expenses and other 93,636 (246,468) Accounts payable 434,348 247,267 Accrued liabilities (163,773) 46,919 Accrued consideration related to acquisition (511,872) -- Accrued interest and penalties 967,363 -- Deferred revenue 126,331 158,768 ----------- ----------- Cash used by operating activities (2,670,577) (2,971,220) ----------- ----------- Cash flows from investing activities: Cash received from sales-type leases 7,546 43,186 Purchase of property and equipment (131,610) (296,206) Purchase of leased equipment -- (42,185) Investment in software development costs -- (1,762,327) Investment in purchased technology (100,000) -- Investment in other assets (24,856) (12,731) ----------- ----------- Cash used by investing activities (248,920) (2,070,263) ----------- ----------- Cash flows from financing activities: Proceeds from note receivable - officer 109,500 -- Proceeds from issuance of preferred stock 2,369,725 1,504,000 Proceeds from issuance of common stock 443,677 1,295,004 Proceeds from short-term notes payable -- 1,764,729 Payments of short-term notes payable (1,511,181) -- Proceeds from long-term notes payable -- 1,391,464 Payments of long-term notes payable (53,498) -- ----------- ----------- Cash provided by financing activities 1,358,223 5,955,197 ----------- ----------- Net increase (decrease) in cash (1,561,274) 913,714 Cash and cash equivalents at beginning of period 2,171,648 664,066 ----------- ----------- Cash and cash equivalents at end of period $ 610,374 $ 1,577,780 =========== ===========
The accompanying notes are an integral part of these consolidated statements. 5 SINGLEPOINT SYSTEMS CORPORATION AND SUBSIDIARIES FOOTNOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) General The Company, through its subsidiaries, Global MAINTECH, Inc. ("GMI") and Singlepoint Systems, Inc. ("SSI"), supplies world class systems and services to corporate data centers; manufactures and sells event notification software to corporate clients; provides professional services to help companies implement enterprise management solutions; and manufactures and sells printed circuit board design software and plotters. The Company's Breece Hill Technologies, Inc. ("BHT") subsidiary, which was acquired in April 1999 and formerly represented the Company's tape library storage products segment, is presented as a discontinued operation. 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, which are contained in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999. Continuation as a Going Concern The accompanying consolidated financial statements are prepared assuming the Company will continue as a going concern. During the year ended December 31, 1999 and the six months ended June 30, 2000, the Company incurred losses from operations of $14,920,021 and $6,379,332, respectively. At June 30, 2000, the Company had a working capital deficit of $19,620,236 and a stockholders' deficit of $8,047,251. The Company is currently in negotiation to resolve approximately $5,200,000 of current liabilities included in the Company's June 30, 2000 consolidated financial statements by issuance of equity securities for certain acquisition earn out obligations with Enterprise Solutions, Inc. ("ESI"). The completion of the disposal of BHT and resolution of earnout liabilities will aid in alleviating the Company's working capital deficit. During the fourth quarter of 1999 the Company appointed a new Chief Executive Officer and other executive management who took action to reduce future operating expenses in an effort to improve operating margins in 2000. In January and February 2000, the Company issued Series D and F Convertible Preferred Stock with combined gross proceeds of $2,400,000. In the first quarter of 2000 the Company implemented additional budgetary controls and established performance criteria. In the second quarter of 2000 the Company reduced the cost of sales and improved the gross profit. The Company also expects to reach a satisfactory extension of its borrowing arrangements with its primary secured lender. These actions are significant and their impact on future results is uncertain as of the date of the consolidated financial statements. In addition, the ability of the Company to attract additional capital if events do not occur as expected by the Company is uncertain. While the Company believes in the viability of its strategy to improve operating margins and believes in its financial plan to improve the Company's working capital position, there can be no assurances to that effect. Other Operating Expenses Other operating expenses is primarily comprised of a charge taken by the Company in February 2000 related to certain technology acquired during the quarter ended March 31, 2000. In February 2000, the Company contracted to purchase the full rights to certain software currently used by the Company in its Virtual Command Center (VCC) product from a company owned by an employee of Singlepoint Systems Corporation for aggregate consideration with a value of $1,800,000. This consideration is comprised of (a) $400,000 in cash, $100,000 of which was paid in February and the remainder payable in installments through December 31, 2001; (b) 70,600 shares of common stock valued at approximately $600,000, 17,650 shares of which were issued in February 2000 and the remainder to be issued through December 31, 2000; and (c) options to purchase 100,000 shares of the Company's common stock at $7.3125 per share during the five year term of such options, the aggregate value of which, determined by use of a Black-Scholes valuation model, was approximately $800,000. The software technology acquired, Global Watch MVS, can be sold on a stand-alone basis or as part of the VCC product. The Company determined in the fourth quarter of 1999 that the expected future cash flows from certain software related assets were impaired and, as a result, certain software assets were written down to their recoverable amount. Since the Global Watch MVS software has insufficient history to provide evidence of satisfactory future cash flows, the Company expensed the cost of the software technology acquired. In the second quarter of 2000, the Company accrued $135,500 relating to employee terminations costs associated with the relocation of the Company headquarters from Minneapolis to San Jose. The Company accrued $135,000 for 6 the future lease payments for a software development package, which the Company is no longer utilizing. Loss Per Share Basic loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. The net loss attributable to common stockholders is determined by increasing net loss by the accrual of dividends on preferred stock for the respective period and by the value of any embedded beneficial conversion feature present in issuances of preferred stock attributable to the respective period. Diluted loss per common share is computed by dividing the net loss attributable to common stockholders 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 (a) "in-the-money" stock options and warrants, (b) the amount of weighted average common shares which would be added by the conversion of outstanding convertible preferred stock and convertible debt, (c) the number of weighted average common shares which would be added upon the satisfaction of certain conditions with respect to arrangements involving contingently issuable shares, and (d) the number of weighted average common shares that may be issued subject to contractual arrangements entered into by the Company that may be settled in common stock or in cash at the election of either the Company or the holder. During the quarter and six months ended June 30, 2000 and June 30, 1999, potentially dilutive shares were excluded from the diluted loss per common share computation, as their effect was antidilutive. The weighted average number of antidilutive option and warrant shares excluded from the calculation of diluted loss per common share for the three and six months periods ended June 30, 2000 and June 30, 1999 are listed in the table below.
Three Months Ended Six Months Ended June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999 ------------- ------------- ------------- ------------- Weighted Average Antidilutive Option Shares 1,552,030 1,290,986 1,494,459 1,109,026 Weighted Average Antidilutive Warrant Shares 1,993,030 1,891,112 2,004,590 1,999,833
At June 30, 2000 and June 30, 1999, the numbers of common shares issuable (and excluded from the calculation of diluted loss per common share) upon conversion of the then outstanding preferred shares and convertible debt were the following:
June 30, 2000 June 30, 1999 ------------- ------------- Number of Common Shares Issuable Upon Conversion of Series A Convertible Preferred Stock 12,791 17,379 Series B Convertible Preferred Stock 442,199 367,790 Series C Convertible Preferred Stock -- 370,507 Series D Convertible Preferred Stock 1,624,791 -- Series E Convertible Preferred Stock 1,755,284 -- Series F Convertible Preferred Stock 1,294,871 -- Number of Common Shares Issuable Upon Conversion of Debt 121,773 173,811
In addition to the above convertible securities, at June 30, 2000, 400,000 shares of the Company's BHT subsidiary's Series B Preferred Stock were outstanding. Such shares are convertible to 80,000 shares of the Company's common stock. Similar to the items discussed above, such shares were excluded from the calculation of diluted loss per common share because their inclusion would have been antidilutive. As part of the acquisition of the Global Watch MVS software the Company will issue an additional 52,950 shares of the Company's common stock through December 2000. The Company is a party to a number of arrangements that may be settled in common stock or in cash at the election of either the Company or the other party to the arrangement as stipulated in such contracts. These contractual arrangements include accrued dividends with respect to the Company's preferred stock, a minimum 7 earn out payment related to certain assets acquired from BHT, ESI and various other contractual arrangements. The settlement of such contractual obligations, if sought by either party through the issuance of common shares, would have required 425,402 shares for accrued dividends, 89,468 shares for the Lavenir Technology, Inc. late registration penalty, 1,530,191 shares for the BHT earn out payment and 1,750,000 shares for the ESI earn out payment as of June 30, 2000. These shares were excluded from the calculation of diluted loss per common share because their inclusion would have been antidilutive. Capitalized Software 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 Company regularly reviews the carrying value of software development assets and a loss is recognized when the unamortized costs are deemed unrecoverable based on the estimated cash flows to be generated from the applicable software. Purchased Technology and Other Intangibles The Company has recorded the excess of purchase price over net tangible assets as purchased technology and customer lists based on the fair value of these intangibles at the date of purchase. These assets are amortized over their estimated economic lives of three to five years using the straight-line method. Recorded amounts for purchased technology 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. Discontinued Operations-Breece Hill Technologies, Inc. On December 27, 1999, the Company approved a formal plan with regards to the disposal of its Breece Hill Technologies, Inc. (BHT) subsidiary, which was acquired on April 14, 1999 and which formerly represented the Company's tape storage products business segment. Accordingly, the estimated loss from the disposal of this segment and the financial position, results of operations and cash flows of BHT have been separately presented as discontinued operations, and eliminated from the continuing operations amounts in the consolidated financial statements. The loss on disposal of discontinued operations was increased $2,493,614 for the six months ended June 30, 2000 to reflect a revised calculation of liability for the earn-out period of March 15, 1999 through March 14, 2000. No further adjustment was deemed necessary for the loss from discontinued operations for the six months ended June 30, 2000 since such loss was provided at December 31, 1999. Acquisitions Enterprise Solutions, Inc.: The Company, through its wholly owned subsidiary Singlepoint Systems, Inc. ("SSI"), purchased substantially all of the assets of Enterprise Solutions, Inc., an Ohio corporation ("ESI"), pursuant to an Asset Purchase Agreement effective as of November 1, 1998 ("ESI Agreement") by and among the Company, GMI, SSI and ESI. The transaction was treated as an asset purchase for accounting purposes and involved contingent consideration based on operating results through April 30, 2000. The ESI Agreement provides for payment of the earn out amount to be made by SSI to ESI no later than 60 days after the expiration of the earn out period. ESI has consented to an extension of the required payment date of the earn out amount to no later than 120 days after the expiration of the earn out period. The Company is currently negotiating the final settlement with ESI and believes that they have adequately accrued for the earn-out payment. Lavenir Technology, Inc.: On September 29, 1999, the Company, through its GMI subsidiary, purchased substantially all the assets and rights to certain hardware and software products, trademarks and copyrights of Lavenir Technology, Inc., a California corporation ("LTI"), pursuant to an Agreement and Plan of Reorganization ("LTI Agreement") by and among the Company, GMI and LTI. Subject to the LTI Agreement, the Company also assumed certain liabilities of LTI, including LTI's outstanding debt, ongoing leases, and contract obligations. The assets and rights acquired relate primarily to a suite of CAD/CAM software and certain hardware products sold for use in the printed circuit board industry. The Company received net assets with a fair value of approximately $315,000 as a result of the LTI asset acquisition and allocated the remaining purchase price of $4,985,000 to purchased technology intangible assets with useful lives of three to five years. 8 Under the terms of the LTI Agreement, the total purchase price of $5,300,000 was comprised of the following: (a) 266,000 shares of the Company's common stock initially paid to LTI on the closing date, (b) $400,000 originally in the form of a payable due on January 31, 2000, and (c) additional shares of the Company's common stock issuable as of March 31, 2000 sufficient to cause the aggregate value of the shares previously issued and the original $400,000 liability to total $5,300,000 as of the March 31, 2000. In November 1999 the Company renegotiated the $400,000 liability due on January 31, 2000 to a $100,000 amount due on January 31, 2000 and 100,000 shares of the Company's common stock to be issued in January 2000. In June of 2000 the Company issued 404,085 of the Company's common stock to LTI as final payment under the terms of the LTI Agreement. On June 29, 2000 the Company approved a written action to issue 89,468 shares of the Company's Common Stock to LTI in order to compensate LTI for the late registration of the 770,085 shares of the Company's Common Stock discussed above. LTI agreed to accept the 89,468 shares of the Company's Common Stock in place of the interest penalty of $156,569 for the period from April 15, 2000 to July 20, 2000. Singlepoint Limited: The Company, through its wholly owned subsidiary Singlepoint Systems, Inc. ("SSI"), acquired all of the outstanding stock of Singlepoint Limited ("SSI Ltd"), a distributor of SSI products and services in England, pursuant to a Share Purchase Agreement effective as of May 27, 1999 ("SSI Ltd Agreement"} by and among SSI and SSI Ltd. In return for the SSI Ltd shares, the Company paid $80,000 and forgave $50,000 of trade receivables. In addition, under the terms of the related acquisition agreement, the Company is required to pay an earn-out payment based upon net income of SSI Ltd for a period subsequent to the acquisition date through April 30, 2000. The Company and SSI LTD have signed a letter of intent to dissolve this transaction and for the shares of SSI Ltd to revert back to the previous shareholders. As a result, the Company will not be obligated to pay the final earn-out payment. Unaudited 1999 Pro Forma Financial Information: The following table summarizes unaudited pro forma 1999 consolidated financial information with respect to results of operations of the Company as if the acquisitions of the assets, licenses, and various rights and assumption of the described liabilities with respect to the transactions with LTI and SSI Ltd described above had occurred as January 1, 1999: Six Months Ended June 30, 1999 ---------------- Net Sales $ 7,070,252 Loss from Continuing Operations (2,154,502) Diluted Loss per Common Share from Continuing Operations (0.9108) Common Stock Issuance During the six months ended June 30, 2000 the Company issued 291,430 shares of common stock as a result of exercises of stock options. The Company received $558,496 in proceeds for these exercises. The Company also issued 504,085 shares of common stock to LTI in settlement of a previously negotiated acquisition liability, 17,650 shares for the purchase of Global Watch MVS, 150,000 shares in connection with the issuance of Series D Convertible Preferred Stock, 36,106 shares to satisfy a previous commitment and 47,290 for the conversion of Series A, B, and D Convertible Preferred Stock. Preferred Stock Issuance Issuance of Series D Convertible Preferred Stock: On January 19, 2000, the Company issued 2,725 shares of Series D Convertible Preferred Stock ("Series D Stock") in a private placement. The shares were issued as follows: (1) 700 shares to new investors for $700,000 in the aggregate; (2) 300 shares to certain investors upon conversion of $300,000 of promissory notes issued by the Company; (3) 1,600 shares to the holders of the Company's then outstanding Series C Convertible Preferred Stock in exchange for all of their Series C shares; and (4) 125 shares to the placement agent, of which 75 shares were issued in exchange for all of the Company's Series C Stock held by the placement agent and of which 50 shares were compensation for placement agent services. At any time after the issuance of the Series D Stock, each share of Series D Stock is convertible into the number of shares of common stock calculated by dividing the per share purchase price of $1,000 by the conversion price. The conversion price equals the lesser of 75% of the average of the three lowest closing bid prices of the common stock during the 15 trading days immediately before the conversion date or $5.4375. The beneficial conversion feature present in the issuance of the Series D Stock as determined on the date of issuance of the Series D Stock totaled $2,386,830 of which $1,863,858 was treated as a reduction in earnings available (increase in loss attributable) to common stockholders upon the date of issuance of the Series D Stock since such shares may be converted at any time following issuance. The other $522,972 was attributed to Series C Stock and was treated as a reduction in earnings available to common stockholders in the year ended December 31, 1999. Holders of Series D Stock are entitled to receive dividends at an annual rate of 8% of the per share purchase price. The dividends are payable, 9 upon conversion of the Series D Stock, in either cash or shares of common stock, at the option of the Company. The number of shares of common stock issuable as a dividend payment will equal the total dividend payment then due divided by the conversion price calculated as of the date that the dividend payment is due. In addition, in connection with the Series D Stock offering the holders of warrants issued in the Series C offering were issued warrants to purchase 20,000 shares of the Company's common stock in exchange for the warrants issued to them in the Series C offering. Each new warrant issued entitles its holder to purchase the Company's Common Stock at $8.30 per share at any time before the fifth anniversary of the date of issuance of the warrant. In conjunction with the Series D Stock offering, the Company also issued 30,000 shares of common stock to the Placement Agent and 120,000 shares of Common Stock to the holders of the Series C Stock. The Company agreed to use its best efforts to file a registration statement with regard to sales of the shares of common stock underlying the Series D Stock and the warrants and to pay a penalty if such registration statement is not effective by the 120th day after issuance of the Series D Stock. This penalty is equal to 2% of the purchase price of the Series D Stock for the first 30-day period following such 120-day period and 3% of such purchase price for every 30-day period thereafter until the registration statement has been declared effective. The registration statement was declared effective July 24, 2000. Issuance of Series F Convertible Preferred Stock: On February 23, 2000, the Company issued 2,000 shares of its Series F Convertible Preferred Stock (the "Series F Stock") to certain accredited investors in a private offering. At any time after the issuance of the Series F Stock, each share of Series F Stock is convertible into that number of shares of common stock equal to the stated value of each such share ($1,000) divided by the lesser of $6.75 or 75% of the average of the three lowest closing bid prices of the Common Stock during the 15 trading days immediately preceding the conversion date. The beneficial conversion feature present in the issuance of the Series F Stock as determined on the date of issuance of the Series F Stock totaled $1,291,429 and is treated as a reduction in earnings available (increase in loss attributable) to common stockholders upon the date of issuance of the Series F Stock since such shares may be converted at any time following issuance. All outstanding shares of Series F Stock will be automatically converted into Common stock on February 23, 2002. The holders of Series F Stock are entitled to receive dividends at an annual rate of 8% of the stated value ($1,000) of the Series F Stock, subject to the prior declaration or payment of any dividend to which the holders of the Company's Series A Stock, Series B Stock, Series D Stock or Series E Stock are entitled. Dividends on shares of the Series F Stock are cumulative, payable in either cash or shares of common stock, at the option of the Company, and are payable only upon conversion of the Series F Stock. In connection with such offering, the Company also issued warrants to the investors to purchase 50,000 shares of common stock. Each warrant is a four-year callable warrant to purchase common stock at $11.00 per share. Due to certain provisions in effect with respect to the Series E Stock offering, as a result of the Series F Stock offering, the conversion formula with respect to the Series E Stock was modified. Based upon this modification, an additional beneficial conversion feature was created with respect to the Series E Stock. The value of this additional conversion benefit of $311,510 was treated as a reduction in earnings available (increase in loss attributable) to common stockholders in the first quarter of 2000. The Company agreed to use its best efforts to file a registration statement with regard to sales of the shares of common stock underlying the Series F Stock and the warrants and to pay a penalty if such registration statement is not effective by the 120th day after issuance of the Series F Stock. This penalty is equal to 2% of the purchase price of the Series F Stock for the first 30-day period following such 120-day period and 3% of such purchase price for every 30-day period thereafter until the registration statement has been declared effective. Patent infringement claim and settlement: The Company was named as a defendant in a patent infringement claim filed in February 2000. The claim alleged, among other things, that the Company's VCC product, when monitoring a mainframe computer, infringed on a patent held by the plaintiffs. The Company believed that the plaintiffs' claims were without merit, but in order to avoid protracted and potentially costly litigation, the Company settled the claim on March 16, 2000. Reclassifications Certain amounts previously reported in 1999 have been reclassified to conform to the 2000 presentation. Use of estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management of the Company to make a number of estimates and assumptions relating to the reporting of 10 assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant Events On March 28, 2000 Singlepoint Systems, Inc. ("SSI") signed a Software License Agreement with XO Technology, Inc. ("XOT"), a privately held software company, whereby SSI agreed to grant XOT a non exclusive, worldwide, perpetual, irrevocable, sublicensable right and license to reproduce, modify, make derivatives, perform, display and distribute the AlarmPoint, Release 3.2 ("Software") for a License Fee of $500,000. The Software was accepted by XOT on June 30, 2000 and the License Fee was paid with a minority interest in XOT Common Stock. In addition, SSI agreed to provide consulting support for a Co-Development Fee of $250,000 payable in twelve equal monthly installments over a one-year period. XOT may also purchase Annual Non Exclusive License Renewals for three additional years for a fee of $250,000 per year and an Exclusive License Purchase Option for a fee of $4,000,000. The Company is recognizing revenue related to this arrangement over the expected life of the license beginning June 30, 2000. In November of 1999, the Company received notice from Infinite Graphics Incorporated ("IGI") of IGI's intent to terminate the licenses granted to the Company and to seek recovery of the assets purchased by the Company under a February 1998 agreement due to the Company's inability to pay IGI the outstanding $1,864,519 balance of contingent consideration. In December of 1999, the Company recorded a charge of approximately $2,470,000 to write down the net balance of purchased technology and intangible assets, assumed legal costs and an estimated loss on operations. The Company has allowed the rights to the purchased technology and intangible assets to revert back to IGI during the second quarter and therefore has eliminated the accrued consideration with respect to these rights, and the related capitalized software and purchased technology has been written-off. These amounts were written down to net realizable value at December 31, 1999 and accordingly there was no charge in 2000. In May 1999, the Company entered into a Loan and Security Agreement and has since executed certain amendments (collectively, the "1999 Debt Agreement") that provided for (a) a senior revolving loan maturing in May 2000, (b) a convertible term loan, and (c) a term loan. Various amendments were made to the 1999 Debt Agreement throughout 1999. The Company utilized $1,900,000 of proceeds under this agreement to pay its then outstanding subordinated notes payable. Borrowings under the 1999 Debt Agreement are secured by all of the assets of the Company, exclusive of those of its BHT subsidiary. The Company is currently not in compliance with the 1999 Debt Agreement and has entered into a Workout Agreement with the lender. The Workout Agreement established a forbearance period through December 31, 1999 during which, among other things, collection of accounts receivable is made through a bank lockbox, lockbox proceeds are immediately applied to outstanding borrowings, interest rates on borrowings subject to the 1999 Debt Agreement are increased 3% per annum, certain modifications to the borrowing base formula are in effect, and 50% of proceeds from equity issuances and 75% of proceeds from other debt issuances are to be paid to the lender. The Company has been unable to comply with all of the terms of the Workout Agreement. The Company is continuing to negotiate terms of the Workout Agreement. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The consolidated financial statements that accompany this discussion show the operating results from continuing operations of the Company for the quarters ended June 30, 2000 and June 30, 1999, and for the six months ended June 30, 1999 and June 30, 2000. These results include the operations of GMI and its subsidiaries. The Company's Breece Hill Technologies segment is treated as a discontinued operation. Net Sales for the second quarter of 2000 were $2,649,674 compared to Net Sales for the second quarter of 1999 of $2,699,641. The $49,967 (1.85%) decrease is due to a decrease in Net Sales resulting from the divestitures of Infinite Graphics, Inc. ("IGI"), Magnum Technologies, Inc. ("MTI") and Asset Sentinel, Inc. ("ASI"), which were partially offset by the increase in Net Sales resulting from the acquisition of Lavenir Technologies, Inc. ("LTI"). Net Sales for the six months ended June 30, 2000 were $4,740,171 compared to Net Sales for the six months ended June 30, 1999 of $5,279,857. The $539,686 (10.22%) decrease is due to a decrease in Net Sales resulting from the divestitures of IGI, MTI and ASI, which were partially offset by the increase in Net Sales resulting from the acquisition of Lavenir Technologies, Inc. ("LTI"). Cost of Sales for the second quarter of 2000 were $590,393 compared to Cost of Sales for the second quarter of 1999 of $709,287. The $118,894 (16.76%) decrease is primarily due to a decrease in software amortization, which was the result of a write off of portions of capitalized software costs in the fourth quarter of 1999. This was partially offset by an increase in Costs of Sales resulting from the acquisition of LTI. Cost of Sales for the six months ended June 30, 2000 were $1,075,012 compared to Cost of Sales for the six months ended June 30, 1999 of $1,459,867. The $384,855 (26.36%) decrease is primarily due to a decrease in software amortization, which was the result of a write off of portions of capitalized software costs in the fourth quarter of 1999. This was partially offset by an increase in Costs of Sales resulting from the acquisition of LTI. As a result, the Gross Profit for the second quarter of 2000 was $2,059,281 compared to the Gross Profit for the second quarter of 1999 of $1,990,354, which represented an increase in Gross Profit of $68,927 (3.46%). The Gross Margin for the second quarter of 2000 was 77.72% compared to the Gross Margin for the second quarter of 1999 of 73.73%. The Gross Profit for the six months ended June 30, 2000 was $3,665,159 compared to the Gross Profit for the six months ended June 30, 1999 of $3,819,990, which represented a decrease in Gross Margin of $154,831 (4.05%). The Gross Margin for the second quarter of 2000 was 77.32% compared to the Gross Margin for the six months ended June 30, 1999 of 72.35%. Selling, General and Administrative expenses (SG&A) for the second quarter of 2000 were $3,546,598 compared to Selling, General and Administrative expenses for the second quarter of 1999 of $1,951,802. The $1,594,796 (81.71%) increase is primarily due to increases in payroll and payroll related expenses, amortization of purchase technology and building leases that resulted from acquisitions made by the Company since June 30. 1999. Professional services including legal and accounting expenses also increased. Legal expenses increased due to the divestitures and earn outs of business units. Accounting expenses increased due to the complexity of acquisition and divestiture activities. Selling, General and Administrative expenses (SG&A) for the six months ended June 30, 2000 were $7,148,053 compared to Selling, General and Administrative expenses for the six months ended June 30, 1999 of $3,633,149. The $3,514,904 (96.75%) increase is primarily due to increases in payroll and payroll related expenses, amortization of purchase technology and building leases that resulted from acquisitions made by the Company since June 30. 1999. Professional services including legal and accounting expenses also increased. Legal expenses increased due to the divestitures and earn outs of business units. Accounting expenses increased due to the complexity of acquisition and divestiture activities. Research and Development expenses for the second quarter of 2000 were $119,275 compared to Research and Development expenses for the second quarter of 1999 of $555,726. The $436,451 (78.54%) decrease is primarily related to the restructuring of the resources for research and development. Research and Development expenses for the six months ended June 30, 2000 were $358,825 compared to Research and Development expenses for the six months ended June 30, 1999 of $892,550. The $533,725 (59.80%) decrease is primarily related to the restructuring of the resources for research and development. 12 Other Operating Expenses for the second quarter of 2000 were $311,111 compared to Other Operating Expenses for the second quarter of 1999 of $0. The $311,111 increase is due to expenses for corporate relocation and lease for software development that is no longer being utilized. Other Operating Expenses for the six months ended June 30, 2000 were $2,537,613 compared to Other Operating Expenses for the six months ended June 30, 1999 of $0. The $2,537,613 increase is due to expenses for corporate relocation and lease for software development that is no longer being utilized. Other Income (Expense) for the second quarter of 2000 was $851,267 compared to Other Income (Expense) for the second quarter of 1999 of $547,674. The $303,593 (55.43%) increase in expense is due to the increase in penalties caused by the late registration of the Company's preferred and common stock. Other Income (Expense) for the six months ended June 30, 2000 was $1,092,814 compared to the Other Income (Expense) for the six months ended June 30, 1999 of $765,658. The $327,156 (42.73%) increase in expense is due to the increase in penalties caused by the late registration of Company preferred and common stock. Liquidity and Capital Resources As of June 30, 2000, the Company had negative working capital of $19,620,236 compared to negative working capital of $17,437,847 as of December 31, 1999. The decrease in working capital of $2,182,389 is primarily due to a decrease in cash of $1,561,274, a decrease in accounts receivable of $801,761, an increase in accrued interest and penalties of $567,363 and an increase in net liabilities of discontinued operations of $2,608,018, which was partially offset by a decrease in current portion of notes payable of $1,811,181 and a decrease in accrued consideration related to acquisitions of $2,026,391. Net cash used in operating activities for the six months ended June 30, 2000 was $2,670,577 compared to Net cash used in operating activities of $2,971,220 for the six months ended June 30, 1999. The major adjustments to reconcile the net loss in the six months of 2000 to net cash used in operating activities were loss on write off of purchased technology of $1,800,000, loss on disposal of discontinued operations of $2,368,614 and depreciation and amortization of $2,053,586. Cash provided by changes in operating assets and liabilities was $1,182,804 with operating assets providing $330,407 primarily in decreases in accounts receivable and inventories, and operating liabilities providing $852,397 primarily in increases in accounts payable and accrued interest and penalties, which was partially offset by a decrease in accrued consideration related to acquisition. Cash used by investing activities for the six months ended June 30, 2000 was $248,920 compared to Cash used by investing activities of $2,070,263 for the six months ended June 30, 1999. The $248,920 reflects purchases in property and equipment of $131,610 and investment in purchased technology of $100,000. Cash provided by financing activities for the six months ended June 30, 2000 was $1,358,223 compared to cash provided by financing activities of $5,955,197 for the six months ended June 30, 1999. The $1,358,223 reflects proceeds from the issuance of convertible preferred stock for series D and series F for $2,369,725, common stock issuance provided $443,677 and proceeds from notes receivable provided $109,500. These proceeds were partially offset by the reduction in short-term notes payable of $1,511,181. Presently, the Company will need to raise additional capital to support operations through the third quarter. The Company expects that its Breece Hill subsidiary will not be a substantial drain on the cash resources of the Company and believes Breece Hill will be sold sometime during the year 2000. The Company believes its working capital will improve as the Company's profitability improves. The Company expects its profitability to improve as a result of further increases in sales and the expense reduction programs implemented during fourth quarter 1999. Nevertheless, the Company can provide no assurance as to its future profitability, access to the capital markets or the completion of its projected asset and business sales. 13 - -------------------------------------------------------------------------------- PART II. OTHER INFORMATION - -------------------------------------------------------------------------------- ITEM 1. LEGAL PROCEEDINGS The Company is currently involved in the following litigation: Global MAINTECH, Inc. (now Singlepoint Systems Corporation) and Breece Hill Technologies, Inc. v. Tandberg Data ASA; and Tandberg Data Inc. v. Breece Hill Technologies, Inc. On February 3, 2000, the Company entered into a stock purchase agreement with Tandberg Data ASA, Hambrecht & Quist Guaranty Finance LLC, Greyrock Capital and Cruttenden Roth, Incorporated, under which Tandberg agreed to purchase the Company's Breece Hill Technologies subsidiary. The closing of the transaction was contingent upon approval by the shareholders of both the Company and Tandberg. The Company's shareholders approved the transaction at a special meeting held on April 5, 2000. Shortly thereafter, Tandberg informed the Company that it did not believe that its shareholders would approve the transaction and, in a meeting on May 4, 2000, Tandberg's shareholders failed to approve the acquisition. On July 17, 2000, the Company and Breece Hill filed a lawsuit against Tandberg in the United States District Court for the District of Minnesota (Global MAINTECH, Inc. (now Singlepoint Systems Corporation) and Breece Hill Technologies, Inc. v. Tandberg Data ASA) for various claims arising out of Tandberg's shareholders' failure to approve the acquisition. On August 4, 2000, Tandberg Data, Inc. filed suit against Breece Hill, also in the United States District Court for the District of Minnesota, alleging that Breece Hill failed to pay for approximately $800,000 in tape drives that Tandberg Data had delivered to Breece Hill. Breece Hill denies Tandberg Data, Inc.'s claims and damages. Breece Hill has brought a counterclaim in the same suit for various claims arising out of promises Tandberg, Inc., made in connection with the proposed acquisition of Breece Hill, and Tandberg ASA's failure to consummate the acquisition. The Company is seeking a judgment against Tandberg in an amount in excess of $75,000 to be determined at trial for damages resulting from Tandberg's breach of the stock purchase agreement and its failure to acquire Breece Hill. The Company and Breece Hill are further seeking a judgment against Tandberg in an amount in excess of $75,000 to be determined at trial for damages resulting from Tandberg's failure to honor its promises to the Company and Breece Hill. ITEM 3. DEFAULTS UPON SENIOR SECURITIES (a) On May 25, 1999, the Company, Global MAINTECH, Inc. (now Singlepoint Systems Corporation), Singlepoint Systems, Inc., and Breece Hill Technologies, Inc., as borrower, and Hambrecht & Quist Guaranty Finance, LLC ("H&QGF"), as lender, entered into a Loan and Security Agreement (the "Loan Agreement") pursuant to which the Company and its affiliates are indebted to H&QGF in the amount of approximately $5,500,000. In 1999, the Company defaulted on its obligations under Sections 1.4, 8(a), 8(f), 8(g), 8(j) of the Loan Agreement, and Section 1.3 of the Schedule to the Loan Agreement. In an attempt to permit the Company to cure its defaults under the Loan Agreement, on November 5, 1999, the Company and H&QGF executed a Workout Agreement (the "Workout Agreement"). The Company is currently in default under Section 2, 3, and 4 of the Workout Agreement. The Company's default under Section 1.3 of the Schedule to the Loan Agreement was due to its failure to pay $800,000 of principal under the terms of the Loan Agreement. The default under Section 1.4 of the Loan Agreement was the failure to pay $133,333.33 in principal. The default under Section 8(a) was the failure to pay $2,423.29 in interest. The default under Section 8(a) was the failure to pay interest of $28,508.20. The Company was also in default under the Loan Agreement by failing to pay interest of $16,561.64 and $12,421.23. The Company is in default under: Section 2 of the Workout Agreement due to its failure to establish a lockbox; Section 3 of the Workout Agreement due to its failure to pay 50% of all equity proceeds to H&QCF and Section 4 of the Workout Agreement due to its failure to pay to H&QGF $1.8 million after failing to execute a sale agreement for Breece Hill Technologies. (b) The Company is currently more than 30 days in default of its obligations to register for resale shares of Common Stock issuable upon conversion of the Company's Series F convertible preferred stock, and to reserve for issuance 200% of the number of shares issuable upon conversion of the Series E and F convertible preferred stock. The Company intends to cure these defaults promptly by increasing the number of shares the 14 Company is authorized to issue, and reserving for issuance and registering for resale the required number of shares of Common Stock. ITEM 5. OTHER INFORMATION On August 11, 2000, the Company changed its name from Global MAINTECH Corporation to Singlepoint Systems Corporation. The Company's new ticker symbol is "SSCN." ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27--Financial Data Schedule 99--Cautionary Statement (b) Reports on Form 8-K None. 15 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. SINGLEPOINT SYSTEMS CORPORATION August 14, 2000 By: /s/ Chares A. Smart ------------------------------------- Charles A. Smart Chief Financial Officer and Treasurer 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. SINGLEPOINT SYSTEMS CORPORATION August 14, 2000 By: /s/ Trent Wong ------------------------------------- Trent Wong Chief Executive Officer 16 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-2000 APR-01-2000 JUN-30-2000 610,374 0 1,388,309 165,000 1,159,564 3,239,070 556,228 0 14,826,569 22,859,306 14,514 0 6,996,021 38,118,617 (53,161,889) 14,826,569 2,649,674 2,649,674 590,393 4,567,377 851,267 0 105,705 (2,768,970) 0 (2,768,970) (829,614) 0 0 (3,598,584) (0.613) (0.613)
EX-99 3 0003.txt CAUTIONARY STATEMENT Exhibit 99 CAUTIONARY STATEMENT The Company (sometimes referred to below as "we" or "us"), or persons acting on behalf of the Company, or outside reviewers retained by the Company making statements on behalf of the Company, or underwriters, from time to time, may make, in writing or orally, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in conjunction with an identified forward-looking statement, this Cautionary Statement is for the purpose of qualifying for the "safe harbor" provisions of such sections and is intended to be a readily available written document that contains factors that could cause results to differ materially from such forward-looking statements. These factors are in addition to any other cautionary statements, written or oral, that may be made or referred to in connection with any forward-looking statement. The following matters, among others, may have a material adverse effect on the business, financial condition, liquidity, results of operations or prospects, financial or otherwise, of the Company. Reference to this Cautionary Statement in the context of a forward-looking statement or statements shall be deemed to be a statement that any one or more of the following factors may cause actual results to differ materially from those in such forward-looking statement or statements: We have experienced substantial losses and cannot assure you that we will operate profitably in the future. We reported net losses of approximately $38.9 million for 1999 and $10.0 million for the six months ended June 30, 2000. At June 30, 2000, we had negative working capital of approximately $19.6 million. Our losses in 1999 were primarily attributable to approximately $26.2 million in charges related to discontinued operations and write-downs of intangible and other assets. We cannot be certain that we can achieve or sustain profitability in the future. If we are unable to continue as a going concern, you could lose your entire investment. The report of our independent auditors on our December 31, 1999 financial statements contains an explanatory paragraph stating that substantial doubt exists about our ability to continue as a going concern. If we are unable to continue as a going concern, your entire investment in our common stock could be lost. Our ability to improve our working capital position will depend, in part, on our ability to: o complete the timely disposal of our Breece Hill operations; o resolve $5.2 million of our acquisition-related earn out obligations through the issuance of equity securities; o increase the size of our customer base for our products and services; and o raise additional capital. We cannot assure you that we will be successful in accomplishing any or all of the above factors. If our secured lenders choose to demand repayment of our debt, we may not be able to pay them. We are currently in default under certain of our loan agreements with respect to approximately $3.6 million. As a result of these defaults, our lenders are entitled to demand that we repay them these amounts at any time. If we received such a demand, we might not have sufficient funds to pay the amount due and the lender could seize our assets to sell them and satisfy our obligations to our lenders. If we fail to compete effectively with current or future competitors, our revenues and operating results will be harmed. We compete in the systems and network management market. The market for our products and services is highly competitive and we expect competition to intensify in the future. Most of our competitors have significantly greater financial, technical and marketing resources than we do. These competitors may be able to respond more 1 rapidly than us to new technologies or changes in customer requirements. They may also devote greater resources to the development and promotion of their products than we do. Increased competition could result in price reductions, reduced margins and loss of market share. New products or technologies developed by our competitors could reduce sales and market acceptance of our products or make our products obsolete. Our failure to compete successfully against current or future competitors could seriously harm our business, financial condition and results of operations. If our Virtual Command Center product does not achieve broad market acceptance, our product revenue will decrease and may decrease significantly. Our Virtual Command Center product is still relatively new and we cannot be certain that it will achieve high levels of demand and market acceptance. As of June 30, 2000, we have sold approximately 50 units of the Virtual Command Center system to 17 customers. If we are not able to increase the number of customers, or if we are not able to renew a significant portion of our maintenance agreements with existing customers, our business and financial performance will be adversely affected. One customer accounted for 30% of our net sales in 1999. The loss of business from this customer or failure to obtain new customers will materially reduce our revenues. In 1999, we realized 30.4% of our net sales from professional services provided to one customer. At December 31, 1999, this customer represented 18% of our total accounts receivable. We expect that our services to this customer will diminish throughout the year 2000. At June 30, 2000, this customer represented 9.7% of our total accounts receivable. If we are not able to generate sufficient new business from this customer or other customers, our revenues may decline. If our efforts to sell our other lines of business and products and to focus on the systems and network management business are not successful, our business may fail. We have decided to sell our other lines of business and products and to focus our business on our enterprise management professional services and on our event notification software systems. We are actively seeking to sell our tape storage business, as well as other assets. If we are not successful in completing these sales, our business will be adversely affected. If we fail to develop new and enhanced products, we will be unable to remain competitive and our revenues may decline. We operate in a highly competitive market that is characterized by rapid technological change and changing customer requirements. Our future success depends in part on our ability to develop and introduce new products and enhancements to existing products on a successful and timely basis. If we fail to develop and introduce new products or product enhancements on a successful and timely basis, we may not be able to compete effectively, and our revenues may decline. For example, we are currently developing software products that are intended to bridge the gap between operational data from the mainframe environment and open distributed systems management tools. We may not be successful in developing or introducing to the market these or any other new products. If we do not meet our future capital needs, our ability to grow and continue as a going concern will be limited. We will need additional financing to develop and market products and to meet our long-term growth needs. In the past, we have relied on the issuance of equity securities and borrowings to finance our operations. We cannot be certain that additional financing will be available to us on favorable terms when required, or at all. If we are not able to obtain sufficient additional capital, we may not be able to grow our operations or compete effectively and there could be substantial doubt as to our ability to continue as a going concern. If we raise additional funds through the issuance of equity or debt securities, those securities may have rights, preferences or privileges senior to those of our common stock and the percentage ownership of our shareholders may be reduced. If we are unable to expand by means of acquisitions, our business could be materially harmed and we may be unable to compete effectively. Our efforts to expand our operations by making acquisitions of products, technologies or businesses may not be successful. Our ability to expand by means of acquisitions involves many risks, including: o the difficulty of integrating operations, products, technology and personnel of the acquired business with us; o unanticipated costs associated with acquisitions; and 2 o the difficulty in realizing the anticipated benefits of the transaction in a timely manner. We are dependent on key personnel. If we are not able to attract and retain key employees, our business could be harmed. Our success depends to a large extent on the continued services of our key personnel. In particular, we are highly dependent on the services of Trent Wong, our chief executive officer, Norm Freedman, our vice president of development, and Desmond Dos Santos, our vice president of operations. We do not carry key-man life insurance for any of our officers or employees. The loss of key personnel, or the failure to attract and retain additional key personnel, could negatively affect our business. If third parties infringe on our intellectual property, our business and our ability to compete effectively will be significantly harmed. Our success depends in part on our ability to protect our proprietary technology. We rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality agreements and licensing arrangements. We may be required to spend significant financial and managerial resources to monitor and police our intellectual property rights. We may not be able to detect infringement or misappropriation. If we fail to protect or enforce our intellectual property rights, our business and competitive position could suffer. Third parties may claim we are infringing their intellectual property, and we could incur substantial costs or be prevented from selling products if these claims are successful. Third parties may claim that we are infringing their intellectual property rights. Any litigation regarding patents or other intellectual property could result in substantial costs, a loss of revenues and a diversion of key personnel from our business operations. If we become subject to an infringement claim, we may be required to modify our products and technologies or obtain a license to permit our continued use of those rights. We may not be able to do either of these things on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions from developing and selling our products. Undetected errors may increase our costs and impair the market acceptance of our products. Our products have occasionally contained and may contain in the future undetected errors when first introduced or when new versions are released. Errors in our products or technology could result in: o loss of revenues; o liability claims for damages; and o failure to achieve market acceptance. We do not have product liability insurance. We cannot assure you that disclaimer of warranty and limitation-of-liability provisions included in our customer agreements will be successful in limiting our liability. Sales of substantial amounts of our common stock could cause our stock price to decline. We recently registered for resale by shareholders 5,230,629 shares of common stock that have been issued, or are issuable, in connection with asset acquisitions, conversion of our outstanding Series B, Series D and Series E convertible preferred stock, and exercise of outstanding warrants. Sales of substantial amounts of our common stock in the public market could cause the market price of our common stock to drop. This factor could make it more difficult for us to raise funds in the future through the sale of equity securities. As of August 10, 2000, we had 7,194,142 shares of our common stock outstanding. A substantial portion of these shares is eligible for sale in the public market. Our stock price is volatile, which may result in significant losses to shareholders. The market price of our common stock could be subject to significant fluctuations due to factors such as: o variations in our operating results; o announcements by us or our competitors; and o realization of any of the risks described in this section. The stock market has experienced extreme price and volume fluctuations. These broad market fluctuations may adversely affect the trading price of our common stock. 3 -----END PRIVACY-ENHANCED MESSAGE-----