-----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, QlCtqh/Wk37zDChTKqsL90EcHjUZPMrfV4r3R5gsdfi4iGIhrzXvuCkXpr4XbwKQ tQm9cgBpDaMsw/tz9VRjjA== 0001045969-99-000614.txt : 19990817 0001045969-99-000614.hdr.sgml : 19990817 ACCESSION NUMBER: 0001045969-99-000614 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 10QSB SEC ACT: SEC FILE NUMBER: 000-14692 FILM NUMBER: 99692978 BUSINESS ADDRESS: STREET 1: 7578 MARKET PLACE DRIVE CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 BUSINESS PHONE: 6129440400 MAIL ADDRESS: STREET 1: 7578 MARKET PLACE DRIVE 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 10QSB 1 FORM 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1999 Commission File Number 0-14692 ______________________________________________ Global MAINTECH Corporation Minnesota 41-1523657 State of Incorporation I.R.S. Employer Identification No. 7578 Market Place Drive, Eden Prairie, MN 55344 Telephone Number: (612) 944-0400 ______________________________________________ Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No______ ------- ______________________________________________ On August 4, 1999 there were 20,191,843 shares of the Registrant's no par value common stock outstanding. Transitional small business issuer format: No Page 1 of 15 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 qualified in their entirety by the cautions and risk factors set forth in Exhibit 99, under the statements are caption "Cautionary Statement," to this Quarterly Report on Form 10-QSB for the quarter ended June 30, 1999. --------------------------------------------------------------------------- PART I. FINANCIAL INFORMATION --------------------------------------------------------------------------- ITEM 1. FINANCIAL STATEMENTS GLOBAL MAINTECH CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited)
ASSETS June 30, December 31, 1999 1998 ----------------- ----------------- CURRENT ASSETS Cash and cash equivalents $ 1,577,779 $ 664,066 Accounts receivable, less allowance for doubtful accounts of $950,000 and $300,000, respectively 8,429,956 2,283,578 Other receivables 223,430 147,466 Inventories 3,305,846 861,418 Prepaid expenses and other 407,255 80,094 Deferred debt issue costs 67,044 - Current portion of investment in sales-type leases - 20,776 ----------------- ----------------- Total current assets 14,011,310 4,057,398 Property and equipment, net 1,678,550 1,042,432 Leased equipment 143,965 124,658 Software development costs, net 3,308,462 2,273,834 Purchased technology and other intangibles, net 18,661,680 1,419,008 Net investment in sales-type leases, net of current portion - 22,410 Other assets, net 426,448 193,191 ----------------- ----------------- TOTAL ASSETS $ 38,230,415 $ 9,132,931 ================= =================
The accompanying notes are an integral part of these consolidated statements. 2 GLOBAL MAINTECH CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, December 31, 1999 1998 ----------------- ---------------- CURRENT LIABILITIES Accounts payable $ 5,699,882 $ 867,120 Current portion of notes payable 6,951,502 395,680 Convertible subordinated debentures 0 200,000 Accrued liabilities compensation and payroll taxes 2,238,118 267,581 Other 144,724 31,049 Deferred revenue 386,999 228,231 ----------------- ---------------- Total current liabilities 15,421,225 1,989,661 ----------------- ---------------- Subordinated notes payable, less current portion 6,283,430 1,700,000 Minority interest 1,000,000 - ----------------- ---------------- Total liabilities 22,704,655 3,689,661 STOCKHOLDERS' EQUITY Voting, convertible preferred stock - Series A, convertible into one common stock share for each preferred share, no par value; 887,980 shares authorized; 129,176 shares in 1999 and in 1998 issued and outstanding; total liquidation preference of outstanding shares-$242,200 $ 60,584 $ 60,584 Voting, convertible preferred stock - Series B, convertible on or before September 23, 2001 based on price of common stock; conversion price not to exceed $2.50 per share or be less than $0.75; dividend of 8% payable in cash or common stock of Company; no par value; 615,385 shares authorized; 335,961 shares issued and outstanding; total liquidation preference of outstanding shares-$2,183,769 2,183,769 2,183,769 Voting, convertible preferred stock - Series C, convertible on or before March 31, 2002 based on price of common stock; conversion price not to exceed $2.50 per share; dividend of 8% payable in cash or common stock of Company; no par value; 1,675 shares authorized; 1,675 shares in 1999 and none in 1998 issued and outstanding; total liquidation preference of outstanding shares-$1,675,000 1,504,000 - Common stock, no par value; 48,496,635 shares authorized; 20,191,843 shares in 1999 and 18,409,397 shares in 1998 issued and outstanding - - Additional paid-in-capital 18,183,710 7,362,796 Notes receivable-officers (294,500) (294,500) Accumulated deficit (6,111,803) (3,869,379) ----------------- ---------------- Total stockholders' equity 15,525,760 5,443,270 ----------------- ---------------- $ 38,230,415 $ 9,132,931 ================= ================
The accompanying notes are an integral part of these consolidated statements. 3 GLOBAL MAINTECH CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ----------------- ----------------- ----------------- -------------- 1999 1998 1999 1998 ----------------- ----------------- ----------------- --------------- Net sales Systems $ 11,566,633 $ 1,439,433 $ 13,083,224 $ 2,878,177 Maintenance, consulting and other 1,182,790 237,424 2,246,416 595,081 --------------- --------------- --------------- ------------ Total net sales 12,749,423 1,676,857 15,329,639 3,473,259 Cost of sales Systems 7,851,863 334,727 8,053,148 818,025 Maintenance, consulting and other 693,788 231,735 1,243,084 432,909 --------------- --------------- -------------- ------------ Total cost of sales 8,545,651 566,462 9,296,232 1,250,935 --------------- --------------- --------------- ------------ Gross profit 4,203,772 1,110,395 6,033,407 2,222,324 Operating expenses Selling, general and administrative 4,812,236 843,515 6,348,699 1,599,684 Research and development 572,491 126,199 921,870 273,521 --------------- --------------- --------------- ------------ Income (loss) from operations (1,180,955) 140,681 (1,237,162) 349,119 Other income (expense): Interest expense (353,546) (72,567) (432,053) (146,666) Interest income 2,022 9,918 3,549 123,788 Amortization of deferred debt costs (421,687) (11,073) (562,690) (22,147) --------------- --------------- --------------- ------------ Total other income (expense), net (773,211) (73,722) (991,194) (45,025) --------------- --------------- --------------- ------------ Income (loss) before cumulative effect of change in accounting principle (1,954,166) 66,959 (2,228,356) 304,094 Cumulative effect of change to straight-line depreciation - - 99,607 - --------------- --------------- --------------- ------------ Net income (loss) $ (1,890,463) $ 66,959 $ (2,128,749) $ 304,094 =============== =============== =============== ============ Accrual of cumulative dividends on Convertible preferred stock (70,000) - (113,675) - --------------- --------------- --------------- ------------ Net income (loss) attributable to common stockholders $ (2,024,166) $ 66,959 $ (2,242,424) $ 304,094 =============== =============== =============== ============ Basic earnings per common share: Net income (loss) before cumulative effect of change in accounting principle $ (0.097) $ 0.004 $ (0.122) $ 0.018 Cumulative effect of change in accounting principle - - 0.005 - --------------- --------------- --------------- ------------ Net income (loss) $ (0.097) $ 0.004 $ (0.117) $ 0.018 =============== =============== =============== ============ Diluted income(loss) per common share: Net income (loss) before cumulative effect of change in accounting principle $ (0.097) $ 0.003 $ (0.125) $ 0.015 Cumulative effect of change in accounting principle - - 0.005 - --------------- --------------- --------------- ------------ Net income (loss) $ (0.097) $ 0.003 $ (0.120) $ 0.015 =============== =============== =============== ============ Shares used in calculations: Basic 20,187,639 17,328,065 18,635,284 17,137,029 Diluted 20,187,639 20,396,641 18,635,284 20,271,924
The accompanying notes are an integral part of these consolidated statements. 4 GLOBAL MAINTECH CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, -------------------------- 1999 1998 ----------- ----------- Cash flows from operating activities: Net income (loss) $(2,128,749) $ 304,094 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 3,370,254 590,006 Changes in operating assets and liabilities: Accounts receivable (2,635,974) (1,130,865) Other receivables (59,315) (124,335) Inventories 55,592 (585,632) Prepaid expenses and other (132,408) (31,208) Accounts payable (3,306,233) 286,115 Accrued liabilities (384,705) 100,757 Deferred revenue 158,768 (9,708) ----------- ----------- Cash used by operating activities (5,062,771) (600,777) ----------- ----------- Cash flows from investing activities: Cash received from sales-type leases 43,186 712,332 Purchase of property and equipment (349,736) (126,112) Reduction(increase) in leased equipment -- 35,858 Investment in software development costs (1,783,626) (1,146,856) Cash acquired in acquistions 580,150 -- Investment in other assets (11,711) (773,046) Investment in note receivable -- (50,000) ----------- ----------- Cash used by investing activities (1,521,737) (1,347,824) ----------- ----------- Cash flows from financing activities: Proceeds from issuance of preferred stock 1,504,000 -- Proceeds from issuance of common stock 1,579,492 697,518 Proceeds of short-term notes payable 1,764,729 -- Payments of long-term notes payable 2,650,000 (50,000) ----------- ----------- Cash provided by financing activities 7,498,221 647,519 ----------- ----------- Net increase (decrease) in cash 913,713 (1,301,082) Cash and cash equivalents at beginning of period 664,066 1,726,889 ----------- ----------- Cash and cash equivalents at end of period $ 1,577,779 $ 425,807 =========== =========== The accompanying notes are an integral part of these consolidated statements.
5 GLOBAL MAINTECH CORPORATION FOOTNOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) General The Company, through its wholly owned subsidiaries, Global MAINTECH, Inc. ("GMI"), Breece Hill Technologies, Inc. ("BHT"), and SinglePoint Systems, Inc. ("SSI"), is engaged in the business of providing systems and network management products and tape library storage devices to computer data centers, primarily in the United States. The Company has expanded through internal development and acquisitions. SSI was acquired in November 1998 and BHT was acquired effective on April 1, 1999. The network monitoring products were developed during 1998 and were made available for sale in January 1999. In addition, in February 1998 the Company licensed certain software and purchased certain assets relating to the system software business of Infinite Graphics Incorporated, a Minnesota corporation ("IGI"). The Company uses such software and assets to design, assemble and market computer-aided design and manufacturing software systems that operate on a variety of mid-range and personal computer platforms. 6 GLOBAL MAINTECH CORPORATION FOOTNOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The Company was incorporated under the laws of the State of Minnesota in 1985 under the name Computer Aided Time Share, Inc. In 1995, the Company changed its name to Global MAINTECH Corporation. 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, 1998. Earnings (Loss) Per Share Basic and diluted net earnings (loss) per share is computed by dividing the net earnings (loss) by the weighted average number of shares of common stock outstanding during the period. During 1999, dilutive shares were excluded from the net loss per share computation as their effect is antidilutive. The weighted average shares and total dilutive shares used in the calculation of basic and diluted earnings per share are as follows:
Three Months Ended Six Months Ended June 30,1999 June 30, 1998 June 30, 1999 June 30, 1998 Basic Earnings (Loss) Per Share Weighted average shares 20,187,639 17,328,065 18,635,284 17,137,029 Diluted Earnings (Loss) Per Share Weighted average shares 20,187,639 17,328,065 18,635,284 17,137,029 Stock options and Warrants -- 2,835,135 -- 2,901,454 Conversion of preferred stock -- 233,441 -- 233,441 -------------------------------------------------------- Total dilutive shares 20,187,639 20,396,641 18,635,284 20,271,924 ========================================================
7 GLOBAL MAINTECH CORPORATION FOOTNOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 carrying value of a software development asset is regularly reviewed by the Company and a loss is recognized when the unamortized costs are not recoverable based on the estimated cash flows to be generated from the applicable software. Purchased Technology and Other Intangibles The Company has recorded the excess of purchase price over net tangible assets as purchased technology and other intangibles based on the fair value of such items at the date of purchase. These assets are amortized over their estimated economic lives using the straight-line method. Recorded amounts 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. The Company has allocated the excess of purchase price over net tangible assets to purchased technology, assembled workforce, distribution agreements, OEM agreements and trade names. The amortization periods for these categories vary from 2 to 7 years and average approximately 5 years. For a substantial portion of these assets the Company employed an independent valuation firm to determine the allocation of excess purchase price and the appropriate amortization periods. Purchased technology and other intangibles at June 30, 1999 includes $15,023,030 of assets as a result of the acquisition of BHT and $3,300,000 of assets as a result of payment of contingent consideration related to the acquisition of IGI (both discussed under "Acquisitions"). Deferred Debt Issue Costs The deferred debt issue costs include a valuation for the issuance of warrants to purchase 400,000 shares of common stock attached to a subordinated short-term promissory note issued in February 1999. Common Stock Issuance In March 1999, the Company began a private placement of 1,325,000 shares of common stock at a purchase price of $1.125 per share and had issued 444,000 of such shares as of March 31, 1999. The Company completed this private placement on May 12, 1999. A total of 1, 325,000 shares were sold for total gross proceeds of $1,490,625. Aethlon Capital acted as the placement agent. The Company paid the placement agent a cash commission equal to 10% of the gross proceeds and reimbursed the agent for out-of-pocket expenses incurred in connection with the offering. The Company also issued to the agent a warrant to purchase up to 10% of the number of shares of the common stock sold in the offering, which warrant will have an exercise price of $1.125 per share. The securities issued pursuant to this offering were exempt from registration under Rule 506 of Regulation D of the Securities Act of 1933, as amended. Change in depreciation method Effective January 1, 1999, the Company adopted the straight-line method of depreciation for its property and equipment. Previously the Company used the double declining balance method. The Company changed its method based on an evaluation by management which indicated that the property and equipment does not depreciate on an accelerated basis during its early years, is not subject to significant additional maintenance in the later years of the assigned useful life and that the new method results in a better matching of revenues and expenses. The cumulative effect of this accounting change was to decrease the net loss by $99,607 ($0.005 per share) in the six months ended June 30, 1999. 8 Reclassifications Certain amounts previously reported in 1998 have been reclassified to conform to the 1999 presentation. Acquisitions On April 14, 1999, the Company acquired all of the issued and outstanding common stock and Series A Convertible Preferred Stock (the "Outstanding Shares") of Breece Hill Technologies, Inc. ("BHT") in connection with the merger of BHT Acquisition, Inc., a wholly owned subsidiary of GMI, with and into BHT. BHT was the surviving corporation and is now a wholly owned subsidiary of GMI. The Company recorded this acquisition using the purchase method of accounting. In exchange for the cancellation of their Outstanding Shares, holders of such shares received rights to proportionate interests in the merger consideration, which consisted of warrants to purchase a total of 4,500,000 shares of the Company's common stock and the right to receive an earn out payment based in part on the sales of BHT over the twelve months following the acquisition. This earn out payment will be made, if at all, in the form of the Company's common stock in the maximum amount of 5,500,000 shares, a portion of the fair market of which may be satisfied with cash. Subsequent to the date of acquisition, the BHT subsidiary issued 400,000 shares of Preferred Stock Series B to Hambrecht & Quist Guaranty Fund LLP in exchange for a reduction of debt secured by certain assets of BHT in the amount of $1,000,000. The Preferred Stock has a monthly dividend of $10,000 payable in cash or common stock of Global MAINTECH Corporation and is convertible at the option of the holder into common stock of Global MAINTECH Corporation. The Company has recorded this Preferred Stock as a minority interest in BHT. BHT is a supplier of automated tape libraries used to backup, restore and archive information stored in networks on servers, PCs and workstations, and stored via on-line data storage subsystems. The Company engaged an independent valuation firm to determine the fair value of the assets purchased. The total valuation in excess of the book value acquired was $15,517,030 and is comprised of the fair value of warrants issued using a Black-Scholes valuation model in the amount of $7,630,544, and liabilities assumed in excess of assets in the amount of $7,886,486. The Company assigned $494,000 of the $15,517,030 valuation to inventory which was expensed as a cost of sale in the fiscal quarter ended June 30, 1999. The remaining portion of this valuation of $15,023,030 was assigned to purchased technology in the following components: Amount Amortization (000's) period (yrs.) ------- ------------- Technology $ 4,958 7 Assembled workforce 1,653 3 Distribution Agreements 5,709 7 IBM OEM Agreement 1,803 2 Trade Name 900 7 ------- Total $15,023 The Company recorded amortization expenses of approximately $850,000 in the fiscal quarter ended June 30, 1999. The unaudited pro forma combined historical results, as if BHT had been acquired as of January 1, 1998, are estimated to be: Six months Six months ended ended (000's, except per share data) June 30, 1998 June 30, 1999 ------------------------------------------------------------------ Revenue $ 23,084 $ 24,547 Net loss $ (2,825) $ (2,879) Net loss per common share $ (0.171) $ (0.154) The pro forma results include amortization of the intangibles presented above and interest expense on debt assumed issued to finance the purchase. The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of each of the fiscal periods presented, nor are they necessarily indicative of future consolidated results. In June 1999 the Company settled the amount of contingent consideration related to certain software assets purchased from Infinite Graphics, Inc. pursuant to an acquisition agreement dated February 1998. In addition to the initial cash paid in 1998 of $700,000, the contract provided for additional contingent consideration based on certain operating results in the amount of $3,300,000. As operating results met the criteria related to the contingent consideration, the full contingent amount was fulfilled. The Company paid this amount by an assignment of accounts receivable in the amount of $1,435,481, the issuance $864,519 of common stock, and by the granting of $1,000,000 of minority interest in the net proceeds of this asset group. The additional consideration was recorded as additional purchased technology and other intangibles. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Operating results by segment are as follows: Segment Second Quarter Comparison
Amount Inc (Dec) % of Revenue (000's) 1999 1998 $ % 1999 1998 ---------------------------------------------------------- Revenue Monitoring Products 2,699 1,677 1,022 60.9% 21.2% 100.0% Tape Library Storage Products 10,050 -- 10,050 N/A 78.8% -- ---------------------------------------------------------- Total 12,749 1,677 11,072 660.2% 100.0% 100.0% Income (loss) from operations Monitoring Products (581) 141 (722) (512.1%) (4.6%) 8.4% Tape Library Storage Products (600) -- (600) N/A 4.7% -- ---------------------------------------------------------- Total (1,181) 141 (1,322) N/A (9.3%) 8.4% Segment Year-to-date June 30 Comparison Amount Inc (Dec) % of Revenue (000's) 1999 1998 $ % 1999 1998 ---------------------------------------------------------- Revenue Monitoring Products 5,280 3,473 1,807 52.0% 34.4% 100.0% Tape Library Storage Products 10,050 -- 10,050 100.0% 65.6% -- ---------------------------------------------------------- Total 15,330 3,473 11,857 341.4% 100.0% 100.0% Income (loss) from operations Monitoring Products (637) 349 (986) (282.5%) (4.2%) 10.0% Tape Library Storage Products (600) -- (600) N/A (3.9%) -- ---------------------------------------------------------- Total (1,237) 349 (1,586) N/A (8.1%) 10.0%
The consolidated financial statements that accompany this discussion show the operating results of the Company for the quarters ended June 30, 1999 and 1998. These results include the operations of GMI, BHT and SSI. Net Sales for the second quarter ended June 30, 1999 were approximately $12,749,000 compared to sales for the second quarter of 1998 of approximately $1,677,000. Sales for the six months ended June 30, 1999 were approximately $15,330,000 compared to $3,473,000 in the same six month period of 1998. The approximate $11,100,000 increase for the second quarter and the approximate $11,900,000 increase for the six months ended June 30, 1999 is primarily related to an increase of approximately $10,000,000 in product sales of BHT, which was acquired at the beginning of the second quarter. The remaining increases of $1,100,000 for the second quarter and $1,900,000 for the six months ended June 30, 1999 are primarily due to sales from new products and products acquired in the latter part of 1998 fiscal year. Cost of sales increased in the second quarter ended June 30, 1999 to 67% from 34% in the second quarter of 1998 and increased for the six months ended June 30, 1999 to 61% from 36% in the six months ended June 30, 1998. Excluding the newly acquired tape library business, BHT, cost of sales decreased to 30% in both the second quarter ended June 30, 1999 and for the six months ended June 30, 1999. Excluding one-time non-cash charges related to the BHT acquisition, the BHT cost of sales was 27% which reflects the typical equipment and labor assembly costs of the tape library business. The decrease in cost of sales from the non-BHT business segment reflects the increase in software sales over the prior three and six month periods. The decrease in cost of sales percentage in 1999 is in spite of an increase in software amortization in 1999 of approximately $380,000 and $680,000 for the three and six month periods ended June 30, 1999. Selling, general and administrative expenses in the second quarter of 1999 were approximately $4,812,000 compared to $844,000. For the six month period ended June 30, 1999 these expenses were approximately $6,634,000 compared to $1,600,000 in the same period in 1998. Excluding BHT's selling, general and administrative expenses of approximately $2,800,000 in the second quarter of 1999, which includes approximately $850,000 of purchase cost amortization, these increases would have been approximately $1,168,000 and $1,949,000, for the three and six month periods ended June 30, 1999, respectively. The increases in both the three and six month periods are primarily due to increases in salaries and advertising and secondarily to increases in travel and meals, depreciation and rent expenses. The increases are substantially due to increases in the product areas generating increases in sales. The Company has increased the number of employees in these product areas including sales, support and development and increased advertising and marketing to promote these products. The increase in travel expenses is related to increased sales activity. Depreciation and rent expenses increased due to the additional employees and additional equipment for these employees. Research and development costs in the second quarter of 1999 were approximately $572,000 compared to $126,000 in the second quarter of 1998, one year ago. For the six month period ended June 30, 1999 research and development costs were approximately $922,000 compared to $274,000 in the same period in the prior year. The increases of $446,000 in the second quarter and $648,000 for the six months ended June 30, 1999 are primarily due to the monitoring products business segment and are due to increased salary expenses relating to additional employees in this expense category. Non-operating expenses include interest expense, amortization of capitalized debt issuance costs and interest income. The increase in amortization is due to the addition of deferred debt costs from the issuance of warrants attached to $500,000 of subordinated short-term debt issued in February 1999. Interest expense increased $281,000 and $285,000 in the three and six months ended June 30, 1999, respectively. The majority of the increase in both periods is due to interest expense in the BHT subsidiary in the amount of $227,000. BHT has a line of credit to finance accounts receivable and inventory and subordinated debt in the amount of $2.7 million. The remainder of the increase is related to an increase in debt issued by the Company, a portion of which was issued in connection with the acquisition of BHT. Liquidity and Capital Resources As of June 30, 1999, the Company had negative working capital of approximately $1,410,000 compared to positive working capital of approximately $2,068,000 as of December 31, 1998. The decrease in positive working capital as of June 30, 1999 is due to the acquisition of BHT which has post-acquisition negative working capital of approximately $1,600,000 and the completion in May 1999 of the acquisition of the software licenses purchased from Infinite Graphics, Inc. under a 10 contract issued on February 27, 1998 which was satisfied with the assignment of accounts receivable of approximately $1,435,000 which was partially offset by common stock and long-term debt issued by the Company. Net cash used in operating activities for the six months ended June 30, 1999 was approximately $5,063,000. During this six month period of 1999 operating funds of approximately $1,242,000 were provided by the net earnings prior to depreciation/amortization. Operating funds were also provided by an increase in deferred revenue in the approximate amount of $159,000. Operating funds were used by increases in current assets of approximately $2,771,000, which includes an increase in accounts receivable of approximately $2,636,000, and a decrease in accounts payable and accrued liabilities of approximately $3,690,000. Cash used by investing activities for the six months ended June 30, 1999 was approximately $1,552,000 and included investments of $1,784,000 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 majority of the increase in capitalized software costs reflects purchased technology from acquisitions. The Company also purchased approximately $350,000 of additions to machinery and equipment during the first six months of 1999 and acquired $580,000 of cash as a result of its acquisitions. In the first six months of 1998, cash used in investing activities totaled $1,348,000, which included investments in software development costs of $1,147,000 and purchases of property and equipment of approximately $126,000, which was partially offset by the sale of sales-type leases in the amount of $712,000 and an investment in a note receivable. Net cash of approximately $7,500,000 was provided by financing activities in the first six months of 1999. This is primarily the result of net proceeds from the issuance of $1,504,000 of Series C convertible preferred stock at a per share price of $1,000 and approximately $1,500,000 from the issuance of approximately 1,326,000 shares of common stock at a per share price of $1.125. In addition, proceeds were received from the issuance of short-term debt collaterialized by accounts receivable and inventory in the amount of approximately $1,765,000 and the issuance of long-term debt in the amount of $2,650,000 secured by long-term assets. In the first six months of 1998, the Company raised $488,000 from the issuance of approximately 280,000 shares of common stock at a per share price of $1.90 in connection with a private offering of such securities. Presently, the Company believes its negative working capital can be corrected with continued earnings measured before depreciation and amortization and from the lines of credit collaterialized by accounts receivable and inventory. This depends on the Company's ability to collect its accounts receivable and to make sales sufficient to realize the full value of its current inventory. The recent gross margins of the Company have matched the Company's expectations and the Company believes these gross margin levels will continue. To that end, the Company has continued to purchase additional inventory in anticipation of additional sales. In addition, the Company believes it will be able to raise proceeds from the issuance of additional equity. Nevertheless, the Company can provide no assurance as to its future profitability and access to the capital markets. During the six months ended June 30, 1999, the Company has used its enhanced liquidity from its acquisition of BHT and has obtained a working capital line of credits, exclusive of its BHT subsidiary which also has a working capital line of credit. The Company's operating plan for the year ending December 31, 1999 anticipates a continued increase in sales over the year ended December 31, 1998, exclusive of the increase resulting from its BHT acquisition, with a commensurate increase in earnings. The projected increase in sales is based on an increase in sales of the Company's traditional products and an increase in sales resulting from the Company's acquisitions during 1998. As a result this operating plan projects the increase in liquidity from sales and earnings and from access to capital markets to exceed the Company's anticipated investment in long-term assets. While the Company believes in the viability of its operating plan and currently anticipates that it will continue to have access to capital markets, there can be no assurances to that effect. Year 2000 Issue Background. Many currently installed computer systems and software are ---------- coded to accept only two-digit entries in the date code fields. These date code fields will need to accept four-digit entries to distinguish 21st century dates from 20th century dates. This problem could result in system failures or miscalculations causing disruptions of business operations (including, among other things, a temporary inability to process transactions, send invoices or engage in other similar business activities). As a result, many companies' computer systems and software will need to be upgraded or replaced in order to comply with year 2000 requirements. The potential global impact of the year 2000 problem is not known, and, if not corrected in a timely manner, could affect the Company and the U.S. and world economy generally. State of Readiness. The Company has analyzed the potential effect of the ------------------ year 2000 issue on both the system software included in the Company's products and its internal systems (e.g., word processing and billing software), including its information technology ("IT") and non-IT systems (which systems contain embedded technology in 11 manufacturing or process control equipment containing microprocessors or other similar circuitry). The Company's year 2000 compliance program includes the following phases: identifying systems that need to be modified or replaced; carrying out remediation work to modify existing systems or convert to new systems; and conducting validation testing of systems and applications to ensure compliance. The Company is currently in the validation phase of this program with respect to software purchased or licensed from software vendors by the Company and used internally and has completed the validation phase of this program with respect to its own products. The amount of additional remediation work required to address year 2000 problems is not expected to be extensive. The Company tested all of the system software included in its products and determined that it is year 2000 compliant. In addition, the Company has requested and received documentation from vendors supplying software for its primary business applications addressing year 2000 compliance. In all cases, vendors' responses indicated that their applications were either currently year 2000 compliant or that they would be compliant by the end of 1999. Therefore, the Company will be required to modify some of its existing software applications in order for its internal computer systems to function properly in the year 2000 and thereafter. The Company believes that it has completed its year 2000 compliance program for all of its significant internal systems as of the date of this report. Nevertheless, the Company will continue to test its internal systems to determine such systems are year 2000 compliant. The Company also has had informal discussions with its major suppliers and customers regarding their efforts to address the year 2000 problem. These actions were intended to help mitigate the possible external impact of the year 2000 problem. However, it is impossible to fully assess the potential consequences in the event service interruptions from suppliers occur or in the event that there are disruptions in such infrastructure areas as utilities, communications, transportation, banking and government. Costs. Because essentially all of the Company's products and internal ----- systems were created in the last few years, such products and internal systems were designed to avoid the year 2000 problem. As a result, the total cost incurred for resolving the Company's year 2000 issues is believed to be less than $20,000, all of which has been incurred prior to July 31, 1999. No additional costs are expected. The total cost estimate includes the cost of replacing or upgrading non-compliant systems that were otherwise planned (but perhaps accelerated due to the year 2000 issue) or which have significant improvements and benefits unrelated to year 2000 issues. Estimates of final year 2000 costs are based on numerous assumptions, and there can be no assurance that the estimates are correct or that actual costs will not be materially greater than anticipated. Contingency. The Company has not yet developed a contingency plan to ----------- provide for continuity of processing in the event of various problem scenarios, but it will assess the need to develop such a plan based on the outcome of the validation phase of all of its systems and any additional results from surveys of its major suppliers and customers with respect to their year 2000 compliance. Risk. Based on its assessments to date, the Company believes it will not ---- experience any material disruption as a result of year 2000 problems with respect to its products and the third-party systems it uses for its internal functions, and, in any event, the Company does not anticipate the year 2000 issues it will encounter will be significantly different than those encountered by other computer hardware and software manufacturers, including its competitors. For example, if certain critical third-party providers, such as those providers supplying electricity, water or telephone service, experience difficulties resulting in disruption of service to the Company, a shutdown of the Company's operations at individual facilities could occur for the duration of the disruption. Assuming no major disruption in service from utility companies or other critical third-party providers, the Company believes that it will be able to manage its total year 2000 transition without any material effect on the Company's results of operations or financial condition. Recent Developments On August 6, 1999, the Company rescheduled the principal payment of $250,000 of a $500,000 note payable to Andersen, Weinroth which was due on July 31, 1999. This payment is now due on September 30, 1999. 12 - -------------------------------------------------------------------------------- PART II OTHER INFORMATION - -------------------------------------------------------------------------------- ITEM 2. CHANGES IN SECURITIES In March 1999, the Company began a private placement of 1,325,000 shares of common stock at a purchase price of $1.125 per share. The Company completed this private placement on May 12, 1999. A total of 1, 325,000 shares were sold for total gross proceeds of $1,490,625. The shares were offered and sold only to accredited investors. Aethlon Capital acted as the placement agent. The Company will pay the placement agent a cash commission equal to 10% of the gross proceeds and will reimburse the agent for out-of-pocket expenses incurred in connection with the offering. The Company also will issue to the agent a warrant to purchase up to 10% of the number of shares of the common stock sold in the offering, which warrant will have an exercise price of $1.125 per share. The securities issued pursuant to this offering were exempt from registration under Rule 506 of Regulation D of the Securities Act of 1933, as amended. On May 7, 1999, the Company issued convertible notes payable to two accredited investors in the aggregate principal amount of $167,372. The notes are convertible into common stock at $1.25 per share and bear interest at the rate of 6% per annum. The notes are subordinate to current and future debt issued by the Company. The notes are due on November 7, 1999. The notes were exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A. The annual meeting of shareholders was held on May 27, 1999. The Company solicited proxies and filed its definitive proxy statement with the Securities and Exchange Commission pursuant to Regulation 14A. The only matters voted upon at the meeting were the election of directors, the ratification of the Company's accountants and approval of the Company's 1999 Stock Option Plan. All items presented to shareholders were passed. B. The shareholders re-elected Messrs. McCaffery, Donaldson, Haugo, Clarey and Pihl to serve on the board of directors for a term expiring on the next regular meeting and until their successors are elected and qualified. C. The shareholders ratified the selection of KPMG Peat Marwick LLP as independent auditors of the Company for the year ending December 31, 1999 and approved the Company's 1999 Stock Option Plan. There were 17,045,618 shares represented at the annual meeting of a total of 20,307,890 entitled to vote. Of the shares represented, each of the Directors received 16,901,076 votes for re-election. Of the shares represented, the votes for the ratification of KPMG Peat Marwick LLP as independent auditors was 16,939,627 for, 35,248 against and 70,743 abstained. Of the shares represented, the votes for the ratification of the 1999 Stock Option Plan were 9,383,325 for, 2,908,093 against and 292,499 abstained. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27--Financial Data Schedule 99--Cautionary Statement (b) Reports on Form 8-K The Company filed Current Report on April 29, 1999 on Form 8-K reporting the acquisition of Breece Hill Technologies, Inc. by a subsidiary of the Company. The report was amended on June 28, 1999 and again on August 9, 1999 to include additional financial information regarding BHT and the Company. 13 SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GLOBAL MAINTECH CORPORATION August 16, 1999 By: /s/ James Geiser ----------------------------------------- James Geiser Chief Financial and Chief Accounting Officer In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. August 16, 1999 By: /s/ David McCaffrey ----------------------------------------- David McCaffrey Chief Executive Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 6-MOS DEC-31-1999 DEC-31-1999 APR-01-1999 JAN-01-1999 JUN-30-1999 JUN-30-1999 1,578 1,578 0 0 8,653 8,653 0 0 2,812 2,812 13,517 13,517 1,679 1,679 0 0 38,005 38,005 14,421 14,421 8,220 8,220 0 0 3,739 3,739 17,664 17,664 (6,048) (6,048) 38,005 38,005 12,749 15,330 12,749 15,330 8,546 9,296 2,898 4,000 (318) (460) (2,623) 3,307 (354) (432) (1,990) (2,165) 0 0 (1,990) (2,165) 0 0 0 0 100 100 (1,890) (2,065) (0.097) (0.117) (0.097) (0.117)
EX-99 3 CAUTIONARY STATEMENT Exhibit 99 CAUTIONARY STATEMENT The Company, or persons acting on behalf of the Company, or outside reviewers retained by the Company making statements on behalf of the Company, or underwriters, from time to time, may make, in writing or orally, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in conjunction with an identified forward-looking statement, this Cautionary Statement is for the purpose of qualifying for the "safe harbor" provisions of such sections and is intended to be a readily available written document that contains factors which could cause results to differ materially from such forward-looking statements. These factors are in addition to any other cautionary statements, written or oral, which may be made or referred to in connection with any such forward-looking statement. The following matters, among others, may have a material adverse effect on the business, financial condition, liquidity, results of operations or prospects, financial or otherwise, of the Company. Reference to this Cautionary Statement in the context of a forward-looking statement or statements shall be deemed to be a statement that any or more of the following factors may cause actual results to differ materially from those in such forward-looking statement or statements: Competition Our industry is characterized by rapidly evolving technology and intense competition. We know of several other competitors that have much greater resources and experience in research and development and marketing than we do. These companies may represent significant competition for us. However, none of these companies produces as complete an enterprise computing system as we do, but rather they only produce components that could be combined to form such a system. We believe that we have a competitive advantage because we can produce an integrated system. Nevertheless, we cannot predict whether our competitors will develop or market technologies and products that are more effective than ours or that would make our technology and products obsolete or noncompetitive. New Product with Uncertain Demand Recently the Company revised aspects of the external control and monitoring systems to enhance its remote capabilities. Our VCC product provides customers with an economically feasible method of controlling and monitoring geographically dispersed computers and systems, particularly for systems that consist of many different locations with as few as one server per location, such as a retail organization. In such organizations, the local servers often upload data regarding product sales and inventory levels to a centralized data center. Our product allows the centralized data center to control these local servers (shutting down, starting-up, etc.) and operating systems for a price per server ranging from $3,000 to $8,000. The concept of an external monitor and control system for computer hardware is relatively new, and we do not yet know what the continued demand for the product will be. It is difficult to project the overall size of the future market for this product. We estimate that the current market size for internal systems is several billion dollars per year. We believe the market for external control systems could expand because external control systems could soon be used to solve networking problems with enterprise computing. Based on recent feedback we have received from current and potential customers, we believe the demand for the VCC is significant. However, to date, we have sold the VCC to only 16 customers and we cannot assure you that additional customers will buy our products. Dependence on Limited Product Offerings and Customer Base We currently offer a limited number of products, primarily consisting of a base VCC unit and related software and accessories. Our existing customers are not required to buy additional hardware products or to renew their software license and maintenance agreements with us when such license and agreements expire. Therefore, a significant portion of our revenue is derived from non-recurring revenue sources. To succeed, we will need to develop a sustained demand for our current products and to develop and sell additional products. We cannot assure you that we will be successful in developing and maintaining demand or in developing and selling additional products. Product Under Development We are currently developing a set of software products that monitors networking and communication devices primarily for networks, Microsoft NT, midrange and mainframes. These products will perform capacity tests to measure systems activity and hardware utilization and will correlate measured trends with specific events or expected benchmarks. Although preliminary tests indicate that these products will perform as intended and can be integrated with the VCC, we cannot assure you that they will do so or, even if they do, that the market will demand such products. Newly Acquired Businesses; Integration of Operations We purchased three new product lines during 1998 and one new product line in 1999. Effective November 1, 1998, we purchased substantially all of the assets of Enterprise Solutions, Inc., an Ohio corporation ("ESI"). As a result of this acquisition, we obtained substantially all of the assets and assumed certain liabilities of ESI, including a suite of software products that notify the proper person(s) by telephone, pager or the Internet of critical data center events. In addition, we obtained ESI's short-term consulting business, which assists companies to optimize their existing systems management and network management tools. Effective October 1, 1998, we purchased substantialy all of the assets of Asset Sentinel, Inc., a Minnesota Corporation ("ASI"). The primary assets acquired were a suite of software products that provide updated mapping of network, cable and telephone lines in buildings and computer centers. On February 27, 1998, we licensed certain software and purchased certain assets relating to the system software business of Infinite Graphics Incorporated, a Minnesota corporation ("IGI"). We will use such software and assets to design, assemble and market computer-aided design and manufacturing software systems that operate on a variety of mid-range and personal computer platforms. Effective April 1, 1999, we purchased all the oustanding stock of Breece Hill Technologies, Inc., a Delaware corporation ("BHT"). As a result of this acquisition, we obtained all the assets and all the liabilities of BHT. BHT is a supplier of automated tape libraries used to backup, restore and archive information stored in networks on servers, PC's and workstations, and stored via on-line data storage subsystems. Although we believe we will be able to successfully integrate the employees we hired from BHT, IGI, ASI and ESI into our own workforce and that we will be able to market and sell the product lines purchased from ESI, ASI and IGI on a profitable basis for the next several years, we cannot assure you that this will happen. Fluctuations in Operating Results Our future operating results may vary substantially from quarter to quarter. At our current stage of operations, the timing of the development and market acceptance of our products may materially affect our quarterly revenues and results of operations. Generally, our operating expenses are higher when we are developing and marketing a product. For these reasons, the market price of our stock may be highly volatile. The price of our stock may also be affected by: the general state of the country's economy the conditions in the stock market the development of new products by us and our competitors public announcements by us or our competitors Future Capital Requirements; No Assurance Future Capital Will Be Available We expect that the proceeds of our recent equity and debt offerings will be enough to fund our operations through at least September 1999. Thereafter, we may need additional funds to continue the marketing of our products and to meet our long-term growth needs. To meet our needs, we may have to obtain additional funding through public or private financings, including equity and debt financings. Any additional equity financings may be dilutive to our shareholders, and debt financing, if available, may have restrictive covenants. We are uncertain as to whether we will be able to obtain financing and, if we do, whether the financing will be available at reasonable rates and terms. Our business could be adversely affected if we do not secure such additional financing. Reliance on Key Personnel We rely heavily on three technicians, Jeff Jensen, Steve Vranyes and Norm Freedman, to further develop the VCC. In addition, we rely heavily on Trent Wong and Desmond DosSantos for technical or business development for products of Singlepoint Systems, Inc. and Jim Watson and Robert Schaefer of Breece Hill Technologies, Inc. Even though these seven employees have incentive stock options and are subject to standard rules of confidentiality, we cannot guarantee that they will stay with the Company. If any of these individuals leave the Company, we would need to hire a comparable employee. We cannot assure you that we would be able to hire someone quickly and at an affordable salary. Intellectual Property We protect our intellectual property rights through a combination of statutory and common law patent, copyright, trademark and trade secret laws, customer licensing agreements, employee and third-party non-disclosure agreements and other methods. Although we do not own any patents, we believe the VCC will be protected by two patents that are being reviewed by the U.S. Patent and Trademark Office and by a patent for hardware that Circle Corporation, a Japanese corporation, applied for on December 28, 1993. We license the hardware from Circle Corporation and use it in the VCC. Under our license, we can distribute the hardware worldwide, except in Japan. The initial term of this license expires on December 20, 2004. Although we have taken these precautions to protect our intellectual property rights, a third party may copy or otherwise obtain or use our products or technology without our authorization, or develop similar products or technology independently. Our business would be adversely affected if someone used or copied our products to any substantial degree. We cannot assure you that the protection for our intellectual property rights is adequate or that our competitors will not independently develop similar products. We require our consultants and developers to assign to us their rights in any materials they provide to or make for us. We also ask their assurance that if we use any of their materials in our products we will not violate the rights of third parties. Based on these assurances and our relationships with our consultants and developers, we have no reason to believe that our products infringe on the proprietary rights of third parties. However, we have not commissioned an independent investigation to reaffirm the basis for our belief, and we cannot guarantee that our current or future products will infringe on their rights. We believe that developers of control systems increasingly may be subject to such claims as the number of products and competitors in the industry grows and the functionality of such products in the industry overlaps. Any such claim, with or without merit, could result in expensive litigation and could have a material adverse effect on our business. Lack of Product Liability Insurance We may be liable for product liability claims if someone claims that our products injured a person or business. We do not have product liability insurance. We cannot assure you we could obtain insurance on commercially reasonable terms, or at all, or that even if we obtained insurance it would adequately cover a product liability claim. We are not aware of any pending or threatened product liability or other legal claim against us. Our business could be adversely affected if someone brings a product liability or other legal claim against us. Year 2000 Issue Many currently installed computer systems and software are coded to accept only two-digit entries in the date code fields. These date code fields will need to accept four-digit entries to distinguish 21st century dates from 20th century dates. This problem could result in system failures or miscalculations causing disruptions of business operations (including, among other things, a temporary inability to process transactions, send invoices or engage in other similar business activities). As a result, many companies' computer systems and software will need to be upgraded or replaced in order to comply with year 2000 requirements. The potential global impact of the year 2000 problem is not known, and, if not corrected in a timely manner, could affect the Company and the U.S. and world economies generally. Based on our assessments to date, we believe we will not experience any material disruption as a result of year 2000 problems with respect to our products and the third-party systems we use for our internal functions, and, in any event, we do not anticipate the year 2000 issues we will encounter will be significantly different than those encountered by other computer hardware and software manufacturers, including our competitors. For example, if certain critical third-party providers, such as those providers supplying electricity, water or telephone service, experience difficulties resulting in disruption of service to the Company, a shutdown of our operations at individual facilities could occur for the duration of the disruption. Assuming no major disruption in service from utility companies or other critical third-party providers, we believe that we will be able to manage our total year 2000 transition without any material effect on our results of operations or financial condition. For additional information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations-Year 2000 Issue." -----END PRIVACY-ENHANCED MESSAGE-----