-----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, MkZxY3DV36AYDSoB7hI6rSHCKiw3Xdg96aw6LGszJ6IiVnuI8LhZVV2X8ki3iaqI dtQALd7QJSc/IkxSUv9Ugw== 0001161697-02-000056.txt : 20020415 0001161697-02-000056.hdr.sgml : 20020415 ACCESSION NUMBER: 0001161697-02-000056 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBAL MAINTECH CORP /MN/ 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: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-14692 FILM NUMBER: 02595794 BUSINESS ADDRESS: STREET 1: 2917 W 133 STREET CITY: SHAKOPEE STATE: MN ZIP: 55379 BUSINESS PHONE: 9528770091 MAIL ADDRESS: STREET 1: 2917 W 133 STREET CITY: SHAKOPEE STATE: MN ZIP: 55379 FORMER COMPANY: FORMER CONFORMED NAME: GLOBAL MAINTECH CORP DATE OF NAME CHANGE: 19950628 FORMER COMPANY: FORMER CONFORMED NAME: SINGLEPOINT SYSTEMS CORP DATE OF NAME CHANGE: 20000814 FORMER COMPANY: FORMER CONFORMED NAME: MIRROR TECHNOLOGIES INC /MN/ DATE OF NAME CHANGE: 19920703 10KSB 1 form10-ksb_dec312001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ FORM 10-KSB (Mark One) [x] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the fiscal year ended December 31, 2001 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____ to ____. Commission File Number 0-14692 GLOBAL MAINTECH CORPORATION Minnesota 41-1703940 (State of Incorporation) (I.R.S. Employer Identification No.) ------------------------ 7836 Second Avenue South, Suite 1 Bloomington, MN 55420 (Address of principal executive offices) (Zip Code) Telephone Number: (952) 887-0092 ------------------------ Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock, no par value 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 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 --- --- Check if disclosure of delinquent filers in response to Item 405 of Regulations S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. __ The Company's revenues for the Fiscal Year Ended December 31, 2001 totaled $ 4,133,780. The aggregate market value of voting common stock held by non-affiliates of the registrant as of March 25, 2002 was approximately $11,650,414 based upon the closing bid price on the Over The Counter Bulletin Board ("OTCBB") on that date. The number of shares of the Company's no par value common stock outstanding as of March 25, 2002 was 10,402,155. Documents incorporated by reference: None. Transitional Small Business Disclosure Format (Check One): Yes No X --- --- SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Except for historical information, this document 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. We believe that 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 Company's history of operating losses and the uncertainty of the Company's ability to continue to operate profitably in the future; failure of the Company to meet its future additional capital requirements; failure of the Company to respond to evolving industry standards and technological changes; lack of market acceptance of the Company's products, including products under development; inability to successfully adjust the Company's product mix and product sales following divestiture of some businesses; loss of key personnel; failure of the Company to secure adequate protection for its intellectual property rights; and exposure to third party claims of intellectual property infringement by the Company. The forward-looking statements are qualified in their entirety by these factors and the cautions and risk factors set forth in Exhibit 99, under the caption "Cautionary Statement," to this Annual Report on Form 10-KSB for the year ended December 31, 2001. Copies of the Company's Annual Reports on Form 10-KSB, as filed with the Securities and Exchange Commission, may be obtained free of charge from the Company. Such requests should be made in writing or by telephone and should be directed to Global MAINTECH Corporation, Attention: Sue Korsgarden, 7836 Second Avenue South, Suite 1, Bloomington, Minnesota 55420, telephone (952) 887-0092. PART I ITEM 1. DESCRIPTION OF BUSINESS. GENERAL Global MAINTECH Corporation, through its subsidiaries (the "Company"), has two primary businesses: its Virtual Command Center ("VCC") business, which is operated through the Company's Global Maintech, Inc. ("GMI") subsidiary, and its Lavenir business ("Lavenir"), which is operated through Lavenir Technology, Inc., a subsidiary of GMI. The VCC business supplies the Virtual Command Center, which is an enterprise wide system capable of consolidating all of a data center's platform consoles (including mainframes, midrange, client-server and other systems) into a single screen, control and automation tool for the entire enterprise, including disaster recovery. The Company's VCC customers are Fortune 500 companies with computing centers the size of football fields in several locations worldwide. The VCC is the only product in the world that provides this solution without the need for agent software for the associated distribution process. The Company's VCC customers include Acxiom Corporation, A.I.G. (American International Group), Alaska USA Federal Credit Union, Altell Information Services, Inc., American Home Products Corporation, Bank One Corporation, Bear, Stearns & Co. Inc., Burlington Northern Santa Fe, Citicorp Global Technology, General Electric Information Systems GmbH, 3M (Minnesota Mining and Manufacturing Company), MetLife - NER Data Products, Sempra Energy, Southern California Edison, and Wellpoint Health Networks Inc. The Company has established partnerships with Hewlett-Packard Company, IBM, BMC Software, Inc. and Compaq Computer Corporation. The Lavenir business is a global leader in the printed circuit board industry. For over 15 years, Lavenir has been providing innovative CAM and TEST software and state of the art raster photoplotters. Printed circuit board manufacturers worldwide rely on technology and products developed by Lavenir to automate the board manufacturing process. The top ten Lavenir customers are Lockheed Martin Vought Systems, EVI Incorporated, Dong IL CAD System, Inc., Cordova Circuits, Kinetics Group Inc., Janco Electronics, Inc. (P/C Div.), Printed Circuit Corp., PIU Printex, Axon Circuit, Inc., and Jetmask Ltd. 2 Together, the Company's products and services provide solutions that enhance the IT Framework solutions provided by these and other partner companies. The Company was incorporated under the laws of the State of Minnesota in 1985 under the name Computer Aided Time Share, Inc. Effective February 28, 2001, the Board of Directors of the Company approved a change in the Company's name from Singlepoint Systems, Inc. to Global MAINTECH Corporation. The name change will be adopted upon shareholder approval. PRODUCTS AND SERVICES Virtual Command Center. The Virtual Command Center (VCC) is a computer system, consisting of software and an optional hardware device, that monitors and controls diverse computers in a data center (whether distributed or not) from a single, master console. A console is a computer terminal with access to the internal operation of other computers. The VCC can simultaneously manage servers, networks, mainframes and mid-range computers such as MVS, VM, ESA, OS/390, Z/OS, AS400, UNIX, Microsoft NT/W2K/XP, and Linux platforms. We believe the VCC is a platform which can support new products to meet other systems and network management needs not currently met by existing competitive products. We intend to continue to provide new products through our internal research and development efforts or through acquisitions to meet changes in customer needs. Functions and Features. Our VCC product is designed to perform four primary functions: o consolidate consoles into one monitor, known as a virtual console or single point of control; o monitor and control the computers connected to the virtual console; o automate most or all of the routine processes performed by computer operators in data centers; and o provide the ability to remotely reboot console attached devices. The VCC is an external system that monitors data center computers from a workstation-quality reduced instruction set, RISC-based UNIX/LINUX system computer. This system is usually housed separately from the computers it controls. The primary feature of this product is that it allows centralized management and automated operations of multiple hardware platforms and networks on a local and remote basis. Users of our VCC product can consolidate the management of entire data centers into a single workstation that provides the complete inter-connectivity and control over a network and the systems on that network. This can be accomplished regardless of whether the computing devices comprising the data center are located in one location or distributed across the world. The product's ability to consolidate operational computer consoles reduces the need for operational staff, technical support and software licenses. In addition, the VCC is an invaluable tool for disaster recovery procedures, since the product allows access to all of the equipment within a data center even if humans are not physically able to get to the equipment. Our VCC product is easy to install and use and is scalable to accommodate data center growth. Other features include: o management of any task or computer console on local or remote basis; and o automated warnings of potential or actual system problems. Annual sales of systems and network management software were estimated to be $10 billion as of December 1999. It is believed this market will grow to almost $11 billion by 2002. Differentiation from Software-Only Products. The majority of systems and network management products are software-only products employing invasive software agents, known as active agents. Active agents are installed on each of the mission critical computing devices. Software agents can be either passive collectors of information or active searchers for information. Software that employs active agents is time consuming to install and by its nature activates the need for change control, which is one of the functions of systems and network management. Any new software must go through the change control process to determine compatibility with all other software deployed on the device. This process may be extensive depending on which systems and network management software is used. 3 The VCC is not designed to compete with the active agent software now prevalent in the industry. It is an external system that accepts the signals and information output of each of the devices to which it is connected. Consequently, it can use the infrastructure provided by native and non-native operational software to control the enterprise computing operations. The greater the information issuing from these devices, the more useful the VCC becomes. Some of the other products we offer employ passive agents to collect information from host devices or networks before passing that information on to the VCC. Although the VCC can co-exist with today's agent software products, the VCC is capable of replacing many or all of the functions for which customers are using the agent software today. Given that what the agent software and the VCC provide are functionally equivalent, replacing the agent software with the VCC is usually a decision that is based on significant cost savings to the customer. Global Watch MVS. Our Global Watch MVS product manages the customer's networked environment for IBM's mainframe-based console message streams, and can operate on a stand-alone or fully integrated basis with the VCC. In addition, it reduces exposure to network outages, improves average repair times on network problems and provides many analytic problem-solving tools. When Global Watch MVS is combined with the VCC, the customer can take advantage of the MVS Logical Console. The Logical Console enables the customer to receive and respond to status messages, in real time, from all logical partitions (logical partitions divide a mainframe device into multiple internal devices). The Logical Console allows the user to look at all partitions without having to access each partition. The status messages from each partition are displayed in a single logical console alert window in the VCC. There is no need for any customization of the host computer's devices and messages can be collected from a nearly infinite number of central processing units and logical partitions. CAM Products and Software. The Company's Lavenir business develops, manufactures and supports CAM (Computer Aided Manufacturing), and test software and raster photoplotters for use by printed circuit board (PCB) manufacturers. Lavenir's products are used at every stage of the printed circuit board manufacturing process. Its software products allow the PCB manufacturer to generate the files necessary to produce and test bare circuit boards. Lavenir's CAM products (ViewMaster Pro and CAMMaster) allow the PCB manufacturer to generate panelized PCB data files from data originally provided by printed circuit board designers. Additionally, these products generate the data files needed to drive PCB drilling and routing equipment. Our test software (FixMaster and ProbeMaster for Windows), generates files utilized to construct test fixtures and to drive various bed of nails and flying probe testers. Lavenir's raster photoplotters (which image with light on film, at resolutions up to 400,000,000 dots per square inch) generate accurate master photo tools for use in PCB manufacturing. Professional Services. We offer system management services that help our customers design and implement network and system management products to manage their information technology environment. We specialize in integrating multiple products into a complete enterprise-wide solution for corporate data centers. We support our VCC product as well as implement the industry's leading system and network management products, including Hewlett-Packard's OpenView, BMC Software's Patrol and IBM's Tivoli TME. Our capabilities include strategic planning and implementation, installation of enterprise system management tools, product training, product conversions, and consulting. DIVESTITURES Voluntary Foreclosure of Breece Hill Technologies, Inc. On February 3, 2000, the Company entered into a stock purchase agreement with Tandberg Data ASA of Oslo, Norway ("Tandberg"), GMI, Hambrecht & Quist Guaranty Finance LLC, Greyrock Capital and Cruttenden Roth, Incorporated, pursuant to which Tandberg would purchase Breece Hill Technologies, Inc. ("Breece Hill"), a subsidiary of the Company at that time. Tandberg terminated the Stock Purchase Agreement on the grounds that its shareholders did not approve the transaction. On December 22, 2000, Hambrecht and Quist Guaranty Finance (H&QGF), as secured lender, foreclosed on the assets of the Breece Hill subsidiary to cover outstanding loans and earn out provisions totaling $24.87 million. The Company's Board of Directors had determined that the only other alternative to such foreclosure was to file for bankruptcy protection and/or discontinue operating. Following the 4 foreclosure, H&QGF sold Breece Hill to MaxOptix Corporation of Fremont, California. This sale satisfied the outstanding loan amount to H&QGF. The Company also received additional consideration in the form of MaxOptix stock and warrants. Rescission of Enterprise Solutions, Inc. Asset Purchase Agreement Effective December 20, 2000 the Company and Enterprise Solutions Inc. (ESI) d.b.a. Singlepoint Systems, Inc. executed a Rescission and Settlement Agreement rescinding the acquisition of ESI by the Company. The original ESI acquisition agreement had provided for an earn-out as a portion of the purchase price for ESI, which at the end of the earn-out period was determined to be approximately $11.1 million (unaudited figure). The Company was unable to pay this amount, and determined that ESI was not worth this amount. Both companies exhausted every option to find a workable solution to benefit both companies' shareholders, ultimately determining that the best course of action was to rescind the acquisition agreement. All assets and liabilities belonging to ESI were returned to ESI's shareholders. SALES AND MARKETING We currently employ several different sales channels to sell the VCC and Global Watch MVS. The VCC, as well as Global Watch MVS, are sold primarily through direct sales and through our business partnerships using our sales force. This requires appropriate training for each sales person and direct, consultative sales techniques. The direct sales team is supported by a dedicated telemarketing process and sales support in the form of written materials, CD-ROM presentations, VCR tape presentations and remote PC-based presentation routines available on the salespersons laptop computer. We use a combination of direct sales and a dealer network to sell our Lavenir products, which are utilized worldwide. Our other products, excluding storage management products, are sold through resellers and strategic arrangements with other companies that have products complementary to ours. The direct sales team and our telemarketing staff sell these other products to allow an entry point to a customer at any level in which the customer may become engaged. Our professional services are sold directly to the customer. Our largest customer accounted for approximately 10% of our revenue in the fiscal year ended December 31, 2001, and our second and third largest customers accounted for approximately six and five percent, respectively, of our revenue in the same period. COMPETITION Our VCC product faces competition from internal monitoring software products, which monitor certain pieces of hardware and software applications in the computer in which such internal software is installed. Major competitive products and companies producing them in the system and network management industry are as follows: Product Maker Base Platform ------- ----- ------------- NetView IBM Mainframe TME IBM/Tivoli Mid-range server Unicenter Computer Associates Mainframe Command/Post Boole & Babbage Mainframe Open View Hewlett-Packard Mid-range server The majority of the makers listed above are expanding their base focus to include other platforms through partnerships, acquisition or further internal development. In all cases these products use active agents and often take months or years to deploy throughout a company's computer network. The mainframe products of other makers can consolidate from 7 to 16 computer consoles. Their architecture, however, does not allow significant console consolidation into one monitor. We believe each of these products requires a significant number of people to install, maintain and to complete the installation due primarily to the invasive nature of the active software agents. Additionally, the ability of these other products to be expanded with the addition of new devices and data center 5 sites adds to the complexity of the initial installation. The VCC and related products are all designed to be initially installed in hours or at most days and to automatically recognize the addition or removal of devices after installation. One VCC can consolidate from two to several hundred devices and our other software products such as Global Watch MVS can monitor from two to thousands of devices. We have positioned ourselves in the professional services marketplace as niche oriented. This has allowed us to build a reputation without competing with the large consulting services organizations such as IBM and EDS. As our customer base grows, we believe we will compete more directly with these companies. Our CAM products and software compete against the software and hardware of several companies that serve PCB manufacturers. Principal software competitors include Frontline PCB Solutions Ltd., Barco, Innoveda, Inc. and Everett Charles Technologies. Our primary hardware competitors include First EIE SA and Barco. RESEARCH AND DEVELOPMENT The systems and network management industry is characterized by rapid technological change, including changes in customer requirements, frequent new product introductions and enhancements, and evolving industry standards. We believe that continued research and development efforts are an important factor in our ability to maintain technological competitiveness. Our research and development activities have been substantial. Other than the VCC and the Global Watch MVS products, all of our products were developed in 1998. In addition, we introduced our new E-bus technology for the VCC in 1998. In 1999, we introduced single E-bus units that can be used to connect up to five devices per unit and allow remote access from a primary VCC unit via a customer's LAN or WAN. The single E-bus allows economic access of the VCC technology to any company with widely dispersed devices that tie into a central VCC in another location. Retail organizations with numerous devices dispersed across a wide geographic area and computer outsourcers can economically achieve full operational control over the dispersed devices and keep operating expertise centrally located. We are currently focusing our product development efforts on extending the application of our software products across multiple platforms, including the various versions of UNIX and Linux. We are currently working on the development of the next generation of the VCC, code-named Camelot. Camelot has two main components, the VCC engine (or middleware) and the human interface (GUI). The Camelot VCC engine will run on the Linux operating system and the Camelot GUI will run from a web browser. Porting the VCC engine to Linux will allow customers more freedom in choosing the hardware and operating system platform which they can run the VCC on. This will also allow the product to be scaled so that it has sufficient processing power to support expanding data centers. Running the Camelot GUI within a web browser will allow customers an "access from anywhere" interface into their data centers as well as provide new monitoring features for customers. The Camelot GUI will allow customers the ability to monitor multiple VCC complexes from a single monitor. This feature should prove significantly valuable to outsourcing facilities and customers who need to satisfy disaster recovery policies. The Camelot GUI provides the highest security features by utilizing Secured Sockets Layer (SSL). The Camelot GUI is developed by employing the latest proven technologies including java, xml, soap and ssl. Customer access to the customer's vital data center information can also be accessed from a hand-held device. This human interface frees the customer from having to be at a computer system since the hand-held devices are small enough to fit in a pocket. The first version of this interface runs on the WindowsCE operating system. Future versions may also support PalmPilot and/or web-enabled cellular phones. The Company is also active in other venues of opportunity by forming partnerships with other Enterprise Management software vendors. Specifically, the company is an approved partner with Microsoft Corporation with respect to its integration products with the Microsoft Operations Manager product . The Company supports Microsoft in areas where the company has specific expertise in areas in which Microsoft does not. Currently, the company is providing an interface to MVS systems and will shortly release interfaces for AS400 and the VCC product itself. 6 The Company upgrades and will continue to upgrade the Global Watch MVS, which was re-introduced in February of 2001 using the TCP/IP communications protocol and the ability to link management information from mainframes and UNIX workstations. This brings the functionality of Global Watch to additional platforms. Lavenir currently collaborates with Jetmask Limited, a U.K.-based, venture backed, start-up company, to produce a series of inkjet printers for use by PCB manufacturers. Jetmask Limited is providing expertise in ink formulation and inkjet processes and Lavenir is providing intellectual property related to image processing and motion control and is responsible for the manufacture of the system. A prototype of the DLP direct legend printer (the first product resulting from the joint collaboration) was introduced in April 2000, at the IPC tradeshow in Anaheim, California. The DLP printer is utilized to apply legend directly to a printed circuit board, replacing numerous steps inherent in a more traditional silkscreen process. Lavenir is responsible for DLP sales and marketing in the USA and Canada. Jetmask Limited is responsible for sales and marketing in the markets not served by Lavenir. Jetmask Limited will share revenue from worldwide product sales with Lavenir. Our research and development costs were approximately $0 in 2000 as the Company focused on its restructuring efforts, and approximately $200,000 in 2001, which consisted of certain employee salaries. PATENTS, TRADEMARKS AND COPYRIGHTS We have three patents issued and one patent pending for the VCC and related products. Lavenir has three patents issued relating to printed circuit board photoplotters. Our trademark is Global MAINTECH(TM). On June 1, 1999, we registered the three following copyrights with the U.S. copyright office: Virtual Command (version 2.14), The Coordinator (version 1.6), and Cap Trend (version 2.1). We license hardware that is used in the VCC from Circle Corporation. Under the license, we can distribute the hardware worldwide, except in Japan. This hardware is not sold as part of our current products, but we do support it with respect to existing customers to whom we previously distributed it. The initial term of this license expires on December 20, 2004. EMPLOYEES As of March 20, 2002, we had 26 total employees, all of which are full-time employees. ITEM 2. DESCRIPTION OF PROPERTY. The Company's headquarters is located at 7836 Second Avenue South, Suite 1, Bloomington, Minnesota 55420. The sublease for this location, entered into on April 18, 2001, is for approximately 3,073 square feet and terminates on July 31, 2002 with an option for the Company to extend the sublease until April 30, 2004. This property is used administratively as the Company's corporate headquarters, and is also used to house the Company's technical support department. The current monthly rent is $2,645.00. The Company also leases 7,940 square feet of property located at 2440 Estand Way, Pleasant Hill, California 94523 for its Lavenir business. The property is utilized for warehouse space, manufacturing purposes (including the assembly of photoplotters and direct legend printers), research and development, administrative functions, and for Lavenir's CNC machine center. The Company leased the property under a written lease which expired on August 31, 2001, and currently leases the property on a month-to-month basis for a monthly rent of $8,880.00, under the same terms as the expired lease. The Company and Lavenir are responsible for utilities, insurance, and other operating expenses at the Bloomington and Pleasant Hill locations, respectively. ITEM 3. LEGAL PROCEEDINGS. HIGHLINE CAPITAL CORP. LITIGATION. The Company is involved in the following litigation: Highline Capital Corp. v. Singlepoint Systems, Inc. (f/k/a Global Maintech Corp.). Highline Capital Corp. ("Highline") served the Company on March 20, 2000 with a complaint filed in the District Court for the County of Boulder, in the State of 7 Colorado, seeking $142,876.96 in damages for an alleged default by the Company on a software license agreement, as well as $18,717.27 in attorney's fees and costs, and interest. Highline Capital Corp. was granted summary judgment in the amount of $ 142,876.96, attorney's fees and costs currently totaling $18,717.27, and interest. The judgment has accumulated interest and costs totaling $13,000. Highline has taken steps to collect on the judgment, and the Company is currently attempting to negotiate a settlement. ALLIANT PARTNERS LITIGATION. The Company is involved in the following litigation: Alliant Partners, a California corporation, vs. Singlepoint Systems, Inc., a Minnesota corporation also known as Global Maintech, Inc., Breece Hill, Inc., a Delaware corporation, MaxOptix Corporation, a Delaware corporation, Hambrecht & Quist Guaranty Finance, L.L.C., a California limited liability company a/k/a H&Q Guaranty Finance L.L.C. In February 2000, the Company entered into a stock purchase agreement to sell its subsidiary, Breece Hill Technologies, Inc. ("Breece Hill"). When the buyer terminated the stock purchase agreement, Hambrecht and Quist Guaranty Finance (H&QGF"), as secured lender, foreclosed on the assets of Breece Hill to cover amounts owed to H&QGF by the Company. H&QGF entered into an agreement with Alliant Partners ("Alliant") pursuant to which Alliant agreed to find a buyer for the Breece Hill assets in exchange for a commission based on the proceeds of the sale. Once the Breece Hill assets were sold Alliant requested payment of the commission, but did not receive it. Alliant then commenced an action against H&QGF, the Company and the parties listed above on May 25, 2001 in the Superior Court of the State of California, County of Santa Clara, alleging breach of contract, fraudulent conveyance of the Breece Hill assets and unjust enrichment on the part of H&QGF, and seeking general damages of $487,281. Alliant subsequently entered into a tolling agreement with Singlepoint Systems, Inc. ("SSI"), GMI and Breece Hill pursuant to which Alliant has agreed to dismiss the civil action against these three parties without prejudice. The parties also agreed that any statute of limitations would be tolled as to the causes of action alleged in the complaint for a period of four years provided that SSI, GMI and Breece Hill cooperate with Alliant in providing documents and information with respect to the action against H&QGF and MaxOptix Corporation. Management believes it is unlikely that there will be any further financial involvement on the Company's part with respect to the Alliant Partners litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of the Company's shareholders during the quarter ended December 31, 2001. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's common stock is currently traded on the Over the Counter Bulletin Board ("OTCBB") under the symbol "GBMT." The following are the high and low bid quotations for the Company's common stock as reported on OTCBB (for all of 2000 and the first quarter of 2001) and the Pink Sheets (for the second, third and fourth quarters of 2001) during each quarter of the fiscal years ended December 31, 2001 and 2000. These quotations represent prices quoted between dealers, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions. Year Ended December 31, 2001 - ----------------------------------------------- Quarter High Low - ---------------------------- ------ ------ First $ .500 $ .200 Second .809 .260 Third 1.359 .059 Fourth 1.059 .309 8 Year Ended December 31, 2000 - ----------------------------------------------- Quarter High Low - --------------------------- ------- ------ First $10.375 $6.250 Second 5.750 2.094 Third 2.500 .750 Fourth .800 .095 As of March 25, 2002, the Company had approximately 356 holders of record of its common stock. The Company has not paid cash dividends on its common stock and does not anticipate paying cash dividends in the foreseeable future. RECENT SALES OF UNREGISTERED SECURITIES NOVEMBER 2000 COMMON STOCK. Effective November 20, 2000, the Company entered into an agreement for the purchase of the Global Watch MVS product from Dabew, Inc. A portion of the purchase price was paid in the Company's Common Stock as follows: 350,000 shares of the Company's common stock, a certificate for which was issued in January 2002 to Norm Freedman, sole proprietor of Dabew, Inc., dated November 24, 2000. The common stock issued in connection with the acquisition is subject to customary registration rights. The issuance of common stock was exempt from registration under Section 4(2) of the Securities Act. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis should be read in conjunction with the consolidated financial statements of the Company and the notes thereto appearing elsewhere. The foregoing plan of operation contains forward-looking statements that are subject to risks and uncertainties, which could cause actual results to differ materially from those discussed in the forward-looking statements and from historical results of operations. Among the risks and uncertainties, which could cause such a difference, are those relating to our Company's dependence upon certain key personnel, our ability to manage our growth, our Company's success in implementing our business strategy, our success in arranging financing where required, and the risk of economic and market factors affecting our Company or our customers. Many of such risk factors are beyond the control of our Company and its management. RESULTS OF OPERATIONS We supply world-class systems (device and system consolidation, systems and network management, professional services and storage products) and network management products primarily to computer data centers and provide professional services to help our customers implement enterprise system management solutions. These products and services provide solutions that enable companies to better use their IT management tools. One of our businesses produces the Global MAINTECH Virtual Command Center ("VCC"), a master console that provides simultaneous control, operation, monitoring and console consolidation for mainframe, midrange, UNIX, Microsoft NT and networks. Our second business, Lavenir, is a global leader in the printed circuit board industry. For over fifteen years, Lavenir has been providing innovative CAM and TEST software and state of the art raster photoplotters. Printed circuit board manufacturers worldwide rely on technology and products developed by Lavenir to automate the board manufacturing process. YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 Net sales from continuing operations for the year ended December 31, 2001 were $4,133,780 as compared to net sales of $4,232,482 for year ended December 31, 2000. Net sales consists of the following items: 9 1) Systems sales were $1,609,188 in 2001 compared to $1,658,277 in 2000. The decrease in systems sales in 2001 was primarily due to decreased sales of VCC systems. In July 2001, after our reorganization, we began to expand our sales force to increase sales. Sales cycles take approximately nine months; therefore the company expects positive results in the second quarter of 2002 and continuing throughout the year. 2) For the year ended December 31, 2001, maintenance revenue was $1,568,611 as compared to $1,280,825 for the year ended December 31, 2000. The increase in maintenance fees in 2001 is related to the sale of new systems. We expect our maintenance revenue to increase in 2002 with increased hardware sales. 3) Revenues from the sale of our Lavenir Technology products were $765,190 for the year ended December 31, 2001 as compared to $1,283,776 for the year ended December 31, 2000. The decrease in Lavenir's sales is attributable to a downturn in the circuit board industry. We believe that the circuit board industry is starting to firm up. Our management team is adjusting product mix to fit the new market conditions. Printed circuit board manufacturers worldwide have relied on software technology and hardware products developed by Lavenir. We are working hard to leverage our products for the printed circuit board industries new direction. 4) Other revenues which include consulting fees, late fees collected and other items were $190,791 for the year ended December 31, 2001 as compared to $9,655. The increase was attributable to an increase in consulting fees. Cost of sales as a percentage of sales decreased to 15% for the year ended December 31, 2001 from 37% in the prior period. This decrease is primarily related to a decrease in materials costs and labor costs due to the reduction of head count. Gross margin from continuing operations for the year ended December 31, 2001 was 85% compared to 63% for the year ended December 31 30, 2000. Payroll and related benefit costs for the year ended December 31, 2001 were $2,702,355 compared to $2,755,851 for the year ended December 31, 2000. The decrease of $53,496 is related primarily to decreases in personnel. For the year ended December 31, 2001, other selling, general and administrative expenses were $1,055,366 compared to $3,956,926 for the year ended December 31, 2000. The decrease of $2,901,560 was attributable to the following: 1) Amortization of purchased technology was $0 in 2001 compared to $1,028,759 in 2000. We wrote off all purchase technology in 2000 due to impairment. 2) For the year ended December 31, 2001, we incurred professional and technical expenses of $150,837 compared to $ 1,343,742 for the year ended December 31, 2000, a decrease of $1,192,905 due to the elimination of contract labor positions and a reduction in legal and accounting expenses that resulted from the divestitures and earn outs of business units that occurred in 2000. 3) We reduced other costs and expenses due to cost cuttings measures, the consolidation of administrative functions, and a reduction in office space. Other operating expenses of $4,275,462 for the year ended December 31, 2000 consisted of the write-off of purchased technology and restructuring expenses of approximately $3,461,746, and expense incurred from the settlement of a patent dispute of $615,611. We did not incur any of these expenses during the year ended December 31, 2001. Other expenses of $15,610 for the year ended December 31, 2001 consisted of interest and penalty expense compared to $1,683,755 in 2000. Interest and penalties expense decreased in 2001. During the year ended December 31, 2000, we incurred interest and penalty expenses due to the issuance of common stock in exchange for the reduction of debt and penalties related to the preferred stock. 10 For the year ended December 31, 2001, we had a gain from discontinued operations of $975.798 attributable to settlement of debt compared to a loss from discontinued operations of $2,071,054 for the year ended December 31, 2000. We reported net income for the year ended December 31, 2001 of $704,501 compared to net loss for the year ended December 31, 2000 of $(12,086,195). This translates to an overall per-share income of $0.01 for the year ended December 31, 2001 compared to a per share loss of $(2.36) for the year ended December 31, 2000. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 2001, we had negative working capital of $8,906,646 compared to negative working capital of $9,117,773 as of December 31, 2000. The decrease in negative working capital is related primarily to the rescission of asset purchase agreements entered into during fiscal 2000. Our operations have been funded by loans from third parties and the sale of preferred stock and common stock. These funds were used for working capital, capital expenditures, and the acquisition of certain subsidiaries, which were subsequently divested. Additionally, in March 2002, we entered into a modification agreement with our preferred stockholders, We have no other material commitments for capital expenditures. Other than cash generated from our operations, we have no external sources of liquidity. Our future operations and growth are dependent on our ability to raise capital for expansion, seek additional revenue sources, and to seek additional opportunities. Net cash used in operating activities for the year ended December 31, 2001 was $18,415 compared to $5,250,043 used in such activities during the year ended December 31, 2000. The major adjustments to reconcile the 2000 net loss of $(12,086,195) to the net cash used in operating activities were the net change in net liabilities from discontinued operations of $3,437,450 offset by a write down of purchased technology and other assets of $3,895,164, issued equity instruments for services of $2,333,164, amortization of purchased technology of $1,028,759, a decrease in other net assets of approximately $2,667,000 and depreciation expense of $349,101. Cash used by investing activities for the year ended December 31, 2001 was $34,365 from the purchase of property and equipment. Cash used by investing activities during the year ended December 31, 2000 was $236,954 and reflects purchases of property and equipment of $28,315, investment in other intangibles of $44,639, and an increase in a net increase in a note receivable of $164,000. Net cash provided by financing activities for the year ended December 31, 2001 was $89,928. This reflects payments of long-term debt of $5,072 and proceeds of long-term debt of $95,000. Net cash provided by financing activities for the year ended December 31, 2000 was $3,398,619. This reflects net proceeds from the issuance of preferred stock of $3,300,000. Cash was also provided by the issuance of common stock amounting to $558,496 primarily from the sale of stock through a private placement. Additionally, cash was used in payments of long term debt amounting to $153,899 and the payment of debt costs of $415,478. Presently, with the divestiture of all but our VCC and Lavenir operations and the substantial reduction of our workforce, we are currently operating with a positive cash flow. We believe that we have sufficient working capital to pay our current liabilities and are currently negotiating a settlement of liabilities related to our discontinued operations. Additionally, we have restructured our operations and are concentrating on our core business. We are currently increasing our marketing efforts and sales force and have recently hired one additional sales person and two resellers. We believe that our working capital will improve as our profitability improves and as we settle certain debt. Additionally, we expect our profitability to improve as a result of further increases in sales and the expense reduction programs implemented during the first quarter of 2001. Nevertheless, we can provide no assurance as to our future profitability, access to capital markets, the completion of our projected asset and business sales, or successful re-negotiation of existing debt. RECENT PRONOUNCEMENTS In July, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is effective for all business combinations completed after June 30, 2001. SFAS 142 is effective for the year beginning 11 January 1, 2002; however certain provisions of that Statement apply to goodwill and other intangible assets acquired between July 1, 2001, and the effective date of SFAS 142. We do not believe the adoption of these standards will have a material impact on our financial statements. In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement applies to all entities. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. This Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. We do not believe the adoption of these standards will have a material impact on our financial statements. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. We do not believe the adoption of these standards will have a material impact on our financial statements. RECENT DEVELOPMENTS MODIFICATION AGREEMENT WITH PREFERRED HOLDERS. Effective March 18, 2002, the Company entered into a modification agreement and release (the "Modification Agreement") with the holders (the "Series D-G Holders") of its Series D, E, F and G convertible preferred stock (collectively, the "Series D-G Preferred Stock"), under which the preferred holders conditionally agreed to modify certain terms of the Preferred Documents relating to the Preferred Stock (each as defined in the modification agreement) including the following: o suspension of conversion of the Series D-G Preferred Stock for an initial period of six months from the effective date of the Modification Agreement; o rescission of outstanding redemption and conversion notices delivered to the Company with respect to the Series D-G Preferred Stock; o waiver of defaults by the Company under the Preferred Documents and waiver of accrued penalties associated therewith; o waiver of penalties accrued under the Registration Rights Agreements (as defined in the Modification Agreement); and o amendment of the Preferred Documents, including provisions relating to the following o suspension of the Company's obligation to file (or refile) registration statements with respect to the shares underlying each series of preferred stock referenced in the Modification Agreement; o suspension of conversion of any Series D-G Preferred Stock for an initial period of six months, and limits on conversion for specified periods thereafter; o modification of the conversion formula as follows: as of the date of the Modification Agreement, the conversion discount shall equal 5% if the current market price per share of common stock is $1.00 to $1.24; 10% if the current market price is $1.25 to $1.49; 15% if the current market price is $1.50 to $1.74; 20% if the current market price is $1.75 to $2.00; and 25% if the current market price is $2.00 or more; o limitations on daily sales of the Company's common stock by the preferred holders; o waiver of the accrual of dividends on the Series D-G Preferred Stock accruing from and after June 15, 2001; and o continuation of the Company's right to exercise its redemption rights at a price per preferred share equal to 110% multiplied by the stated value plus accrued dividends through June 15, 2001. The agreement also provides that the Company shall not issue any further warrants or stock options to Dale Ragan or William Erhart (or their respective affiliates or family members), except that each of Mr. Ragan and Mr. Erhart shall each be entitled to the issuance of warrants from time to time as conversions by the Series D-G Holders occur, 12 in an amount equal to (i) the number of shares issued to each of the Series D-G Holders upon a conversion of preferred shares, divided by 1.10, multiplied by (ii) ten percent (with respect to Mr. Ragan) or three percent (with respect to Mr. Erhart). The provisions with respect to amendment of the Preferred Documents and all waivers of defaults and penalties are conditional upon the Company's compliance with the terms of the Modification Agreement and the Preferred Documents as modified by the Modification Agreement, and are null and void if the Company defaults under any of the terms and conditions of the Modification Agreement or of the Preferred Documents as modified by the Modification Agreement. NAME CHANGE. Effective February 28, 2001, the Board of Directors of the Company approved a change in the Company's name from Singlepoint Systems, Inc. to Global MAINTECH Corporation. The name change will be adopted upon shareholder approval. The Company's current stock symbol is GBMT. CHANGE IN MARKET FOR COMMON EQUITY. The Company's common stock is currently traded on OTCBB. From May 23, 2001 until November 6, 2001, however, due to the Company's failure to timely file its annual report on Form 10-KSB for the fiscal year ended December 31, 2000 and its quarterly report on Form 10-QSB for the quarter ended March 31, 2001, the Company was removed from listing on OTCBB and quotations for its common stock were available on the Pink Sheets. The Company filed all required reports and by November 6, 2001 became eligible once again for listing on OTCBB. DIVESTITURES. See "Divestitures," above. SETTLEMENT OF BREECE HILL LITIGATION. 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 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's and Breece Hill filed a lawsuit against Tandberg in the United States District Court for the District of Minnesota 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 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's failure to consummate the acquisition. The Company sought 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 further sought 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 us and Breece Hill. Both suits have been settled by the parties with a waiver by each party of all claims against each other party. BREECE HILL EARN OUT. The former Breece Hill shareholders claim entitlement to an earn out pursuant to an earlier merger agreement. They claim entitlement to 2,000,000 shares of the Company's common stock, $1,600,000 in cash, and a transfer of the MaxOptix warrants held by the Company. The Company's current management is reviewing the legitimacy of entitlement and has received information from prior legal counsel that the earn out calculation is extremely inflated. In addition, the Board of Directors at the time the merger agreement was entered into included two members who were former Breece Hill shareholders, representing a significant conflict of interest. Further, the same directors made material misrepresentations relating to the value of a lawsuit against Tandberg for failure to consummate the Breece Hill purchase agreement and did not disclose the legitimacy of the $800,000 debt that was owed to Tandberg. The current management intends to aggressively defend any action that would be brought by the former Breece Hill shareholders and is considering suing the former directors for damages stemming from their conduct. 13 ITEM 7. FINANCIAL STATEMENTS. GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 2001 and 2000 CONTENTS Report of Independent Certified Public Accountants...................... 15 Consolidated Financial Statements: Consolidated Balance Sheet............................................ 16 Consolidated Statements of Operations................................. 17 Consolidated Statement of Changes in Stockholders' Equity (Deficit)... 18-A&B Consolidated Statements of Cash Flows................................. 19 Notes to Consolidated Financial Statements.............................. 20-40 14 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Stockholders Global Maintech Corporation Bloomington, MN We have audited the accompanying consolidated balance sheet of Global Maintech Corporation and subsidiaries as of December 31, 2001 and the related consolidated statements of operations, changes in stockholders' equity (deficit), and cash flows for the years ended December 31, 2001 and 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Global Maintech Corporation and subsidiaries as of December 31, 2001, and the results of their operations and their cash flows for the years ended December 31, 2001 and 2000, in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered losses from operations and has a working capital deficiency and an accumulated deficit that raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Feldman Sherb & Co., P.C. Certified Public Accountants February 15, 2002 New York, New York 15 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 2001 ASSETS CURRENT ASSETS: Cash ........................................................... $ 72,900 Accounts receivable, net ....................................... 710,574 Inventories .................................................... 587,490 Prepaid expenses and other ..................................... 71,680 ------------- Total current assets ....................................... 1,442,644 ------------- Property and equipment, net ...................................... 72,029 Intangibles assets, net .......................................... 19,735 ------------- Total assets ............................................... $ 1,534,408 ============= LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable ............................................... $ 443,982 Current portion of notes payable .............................. 102,688 Accrued liabilities, compensation and payroll taxes ............ 1,468,452 Accrued interest and penalties ................................. 490,030 Accrued dividends .............................................. 1,317,108 Deferred revenue ............................................... 741,143 Net liabilities of discontinued operation ...................... 5,785,887 ------------- Total current liabilities .................................. 10,349,290 Notes payable .................................................. 1,751 ------------- Total liabilities .......................................... 10,351,041 ------------- STOCKHOLDERS' DEFICIT: Voting, convertible preferred stock - Series A, no par value; 887,980 shares authorized; 63,956 shares issued and outstanding; total liquidation preference of outstanding shares-$32,586 ..... 30,012 Voting, convertible preferred stock - Series B, no par value; 123,077 shares authorized; 51,023 shares issued and outstanding total liquidation preference of outstanding shares-$1,678,040 .. 1,658,270 Convertible preferred stock - Series D, no par value; 2,775 shares authorized; 1,563 shares issued and outstanding total liquidation preference of outstanding shares-$1,563,000 .. 1,080,252 Convertible preferred stock - Series E, no par value; 2,675 shares authorized; 1,702 shares issued and outstanding total liquidation preference of outstanding-$1,702,000 ......... 1,352,775 Convertible preferred stock - Series F, no par value; 2,000 shares authorized; 2,000 shares issued and outstanding total liquidation preference of outstanding-$2,000,000 ......... 1,373,475 Convertible preferred stock - Series G, no par value; 1,000 shares authorized; 600 shares issued and outstanding total liquidation preference of outstanding shares-$600,000 .... 562,500 Common stock, no par value; 18,500,000 shares authorized; 10,052,155 shares issued and outstanding ....................... - Additional paid-in-capital ....................................... 40,595,613 Accumulated deficit .............................................. (55,469,530) ------------- Total stockholders' deficit ................................ (8,816,633) ------------- Total liabilities and stockholders' deficit ................ $ 1,534,408 ============= See accompanying notes to consolidated financial statements. 16 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, --------------------------- 2001 2000 ----------- ------------- Net sales ...........................................$4,133,780 $4,232,482 Cost of sales ....................................... 631,746 1,575,629 ----------- ------------- Gross profit ............................... 3,502,034 2,656,853 ----------- ------------- Operating expenses: Payroll and related benefits ...................... 2,702,355 2,755,851 Other selling, general and administrative ......... 1,055,366 3,956,926 Other operating expenses .......................... - 4,275,462 ----------- ------------- Total operating expenses ................... 3,757,721 10,988,239 ----------- ------------- Loss from operations ....................... (255,687) (8,331,386) ----------- ------------- Other income (expense): Interest and penalty expense ...................... (15,742) (1,724,379) Interest income ................................... 132 11,896 Other ............................................. - 28,728 ----------- ------------- Total other income (expense), net .......... (15,610) (1,683,755) ----------- ------------- Loss from continuing operations ..................... (271,297) (10,015,141) Discontinued operations: Gain (loss) on disposal of discontinued operations; net of tax .................................... 975,798 (2,071,054) ----------- ------------- Net income (loss) ................................... 704,501 (12,086,195) Accrual of cumulative dividends on preferred stock .. (607,929) (449,261) Attribution of beneficial conversion feature on preferred stock ............................... - (4,298,861) ----------- ------------- Net income (loss) attributable to common stockholders $96,572 $(16,834,317) =========== ============= Basic and diluted loss per common share: Loss from continuing operations ................... $(0.09) $(2.07) Income (loss) from discontinued operations ........ 0.10 (0.29) ----------- ------------- Net income (loss) per common share ................ $0.01 $(2.36) =========== ============= Shares used in calculations: Basic and diluted .................................10,052,155 7,138,405 =========== ============= See accompanying notes to consolidated financial statements. 17 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) YEARS ENDED DECEMBER 31, 2001 AND 2000
Preferred Stock A Preferred Stock B Preferred Stock C Preferred Stock D Preferred Stock E Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount -------- -------- ------- ----------- ------- ----------- ------- ----------- ------ ----------- Balance at December 31, 1999 ....... 86,896 $40,765 51,632 $1,678,069 1,675 $1,368,712 - $ - 2,675 $2,097,605 Net loss .................. - - - - - - - - - - Sales of preferred stock series D ................ - - - - - - 700 310,000 - - Sales of preferred stock series F ................ - - - - - - - - - - Sales of preferred stock series G ................ - - - - - - - - - - Stock issue costs ......... - - - - - - 50 (91,250) - - Stock and stock options issued for services ..... - - - - - - - - - - Issuances of common stock in connection with acquisitions of Lavenir . - - - - - - - - - - Exercise of common stock options ........... - - - - - - - - - - Accrual of dividends on preferred stock ......... - - - - - - - - - - Issuance of common stock in connection with preferred stock penalties and other penalties ..... - - - - - - - - - - Conversion of preferred series C to series D .... - - - - (1,675) (1,368,712) 1,675 1,368,712 - - Conversion of notes payable ........... - - - - - - 300 300,000 - - Receipt of payment on notes receivable and reclass . - - - - - - - - - - Conversion of preferred shares to common shares .(22,940) (10,753) (609) (19,799) - - (1,162) (807,210) (973) (744,830) -------- -------- ------- ----------- ------- ----------- ------- ----------- ------ ----------- Balance at December 31, 2000 ....... 63,956 30,012 51,023 1,658,270 - - 1,563 1,080,252 1,702 1,352,775 Net income ................ - - - - - - - - - - Accrual of dividends on preferred stock ......... - - - - - - - - - - -------- -------- ------- ----------- ------- ----------- ------- ----------- ------ ----------- Balance at December 31, 2001 ....... 63,956 $30,012 51,023 $1,658,270 - $ - 1,563 $1,080,252 1,702 $1,352,775 ======== ======== ======= =========== ======= =========== ======= =========== ====== ===========
See accompanying notes to consolidated financial statements 18-A GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) YEARS ENDED DECEMBER 31, 2001 AND 2000
Preferred Preferred Additional Notes Stock F Stock G Common Stock Paid-in Receivable Accumulated Shrs Amount Shr Amount Shares Amt Capital Officer Deficit Total ----- ----------- --- -------- ---------- --- ------------ ---------- ------------- ------------ Balance at December 31, 1999 ....... - $ - - $ - 5,404,099 $ - $35,117,564 $(235,500) $(43,030,646) $(2,963,431) Net loss .................. - - - - - - - - (12,086,195) (12,086,195) Sales of preferred stock series D ................ - - - - 21,000 - 558,000 - - 868,000 Sales of preferred stock series F ................2,000 1,612,500 - - - - 387,500 - - 2,000,000 Sales of preferred stock series G ................ - - 600 562,500 - - 37,500 - - 600,000 Stock issue costs ......... - (239,025) - - - - (85,203) - - (415,478) Stock and stock options issued for services ..... - - - - 109,177 - 533,177 - - 533,177 Issuances of common stock in connection with acquisitions of Lavenir . - - - - 504,085 - 787,500 - - 787,500 Exercise of common stock options ........... - - - - 232,164 - 558,496 - - 558,496 Accrual of dividends on preferred stock ......... - - - - - - - - (449,261) (449,261) Issuance of common stock in connection with preferred stock penalties and other penalties ..... - - - - 209,468 - 1,172,487 - - 1,172,487 Conversion of preferred series C to series D .... - - - - - - - - - - Conversion of notes payable ........... - - - - 9,000 - 72,000 - - 372,000 Receipt of payment on notes receivable and reclass . - - - - - - (126,000) 235,500 - 109,500 Conversion of preferred shares to common shares . - - - - 3,563,162 - 1,582,592 - - - ----- ----------- --- -------- ---------- --- ------------ ---------- ------------- ------------ Balance at December 31, 2000 .......2,000 1,373,475 600 562,500 10,052,155 - 40,595,613 - (55,566,102) (8,913,205) Net income ................ - - - - - - - - 704,501 704,501 Accrual of dividends on preferred stock ......... - - - - - - - - (607,929) (607,929) ----- ----------- --- -------- ---------- --- ------------ ---------- ------------- ------------ Balance at December 31, 2001 .......2,000 $1,373,475 600 $562,500 10,052,155 $ - $40,595,613 $ - $(55,469,530) $(8,816,633) ===== =========== === ======== ========== === ============ ========== ============= ============
See accompanying notes to consolidated financial statements 18-B GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, --------------------------- 2001 2000 ---------- ------------- Cash flows from operating activities: Loss from continuing operations ................................................. $(271,297) $(10,015,141) Adjustments to reconcile net loss from continuing operations to net cash used in operating activities: Stock, options, and warrants issued for services and payment of interest .... - 2,333,164 Depreciation and amortization ............................................... 158,668 349,101 Amortization of purchased technologies and other intangibles ................ - 1,028,759 Loss on disposal of property and equipment .................................. - 139,080 Write off of note receivable ................................................ 164,000 - Loss from asset write-offs .................................................. - 3,756,084 Changes in operating assets and liabilities: Accounts receivable ..................................................... (263,321) 248,721 Inventories ............................................................. (223,622) 958,467 Prepaid expenses and other .............................................. 7,554 204,699 Accounts payable ........................................................ 353,736 698,043 Accrued liabilities, compensation and payroll taxes ..................... (188,046) 919,500 Accrued interest and penalties .......................................... 30 (312,801) Deferred revenue ........................................................ 232,110 (49,215) ---------- ------------- Cash (used in) provided by continuing operating activities .................. (30,188) 258,461 ---------- ------------- Income (loss) from discontinued operations ...................................... 975,798 (2,071,054) Adjustments to reconcile income (loss) from discontinued operations to net cash provided by (used in) discontinued activities: Net decrease in net liabilities of discontinued operations .................. (964,025) (3,437,450) Cash provided by (used in) discontinued operating activities ................ 11,773 (5,508,504) ------------ Cash used in operating activities ........................................... (18,415) (5,250,043) Cash flows from investing activities: Purchase of property and equipment ............................................ (34,365) (28,315) Investment in other intangibles ............................................... - (44,639) Increase in note receivable ................................................... - (214,000) Payments received on notes receivable ......................................... - 50,000 ---------- ------------- Cash used by investing activities ............................................ (34,365) (236,954) ---------- ------------- Cash flows from financing activities: Disbursements for deferred debt costs .......................................... - (415,478) Proceeds from note receivable .................................................. - 109,500 Proceeds from issuance of common stock ......................................... - 558,496 Net proceeds from issuance of preferred stock .................................. - 3,300,000 Proceeds from long-term debt ................................................... 95,000 - Payments of long-term debt ..................................................... (5,072) (153,899) ---------- ------------- Cash provided by financing activities ...................................... 89,928 3,398,619 ---------- ------------- Net increase (decrease) in cash ............................................ 37,148 (2,088,378) Cash and cash equivalents at beginning of year ............................. 35,752 2,124,130 ---------- ------------- Cash and cash equivalents at end of year ................................... $ 72,900 $ 35,752 ========== ============= Supplemental disclosure of cash flow information: Cash paid for: Interest ....................................................... $ - $ - ========== ============= Income taxes ................................................... $ - $ - ========== ============= NON-CASH INVESTING AND FINANCING ACTIVITIES: Issuance of preferred stock for note payable ................................ $ - $ 300,000 ========== ============= Issuance of common stock in connection with acquisition ..................... $ - $ 400,000 ========== ============= Accrual of dividends payable ................................................ $ 607,929 $ 449,261 ========== ============= Conversion of preferred stock to common stock ............................... $ - $ 1,582,592 ========== =============
See accompanying notes to consolidated financial statements. 19 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS Global Maintech Corporation and subsidiaries (the "Company"), through its Virtual Command Center business and its Lavenir Technology business), supply world class systems and services to data centers; manufactures and sells event notification software and provides professional services to help customers implement enterprise management solutions; and manufactures and sells printed circuit board design software and plotters. As further discussed in Note 3, 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. Additionally, during the year ended December 31, 2000, the Company entered into rescission and settlement agreements and accordingly discontinued operations of certain subsidiaries as outlined in Note 3. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Global Maintech Corporation and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. RECENT PRONOUNCEMENTS In July, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is effective for all business combinations completed after June 30, 2001. SFAS 142 is effective for the year beginning January 1, 2002; however certain provisions of that Statement apply to goodwill and other intangible assets acquired between July 1, 2001, and the effective date of SFAS 142. The Company does not believe the adoption of these standards will have a material impact on the Company's financial statements. In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations. This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement applies to all entities. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. This Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company does not believe the adoption of these standards will have a material impact on the Company's financial statements. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company does not believe the adoption of these standards will have a material impact on the Company's financial statements. 20 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. INVENTORIES Inventories are stated on a first in, first out (FIFO) basis at the lower of cost or market. PROPERTY AND EQUIPMENT Property and equipment is recorded at cost and is comprised primarily of computer and office equipment. The Company uses the straight-line method of depreciation. Depreciation is provided based upon useful lives of the respective assets, which generally have lives of three to five years. Maintenance and repairs are charged to expense as incurred. REVENUE RECOGNITION Revenue from product sales is recognized upon the later of shipment or final acceptance. Deferred revenue is recorded when the Company receives customer payments before shipment and/or acceptance or before maintenance and/or service revenues are earned. Under Statement of Position ("SOP") No. 97-2, "Software Revenue Recognition" (as amended by SOP 98-4 and 98-9), the Company recognizes revenue from software sales when the software has been delivered (delivery is deemed to have occurred upon the later of shipment or final acceptance), if a signed contract exists, the fee is fixed and determinable, collection of resulting receivables is probable, and product returns are reasonably estimable. Maintenance and support fees related to software sales including product upgrade rights (when and if available) committed as part of new product licenses and maintenance resulting from renewed maintenance contracts are deferred and recognized ratably over the contract period. Professional service revenue is recognized when services are performed. Revenues related to multiple element arrangements are allocated to each element of the arrangement based on the fair values of such elements. The determination of fair value is based on vendor specific objective evidence. If such evidence of fair value for each element (or the aggregate of the undelivered elements as allowed by SOP 98-9) does not exist, all revenue from the arrangement is deferred until such time that, for applicable elements of the arrangement, evidence of fair value does exist or until such elements are delivered. RESEARCH AND DEVELOPMENT Research and development costs are expensed as incurred. 21 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 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 were 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. During the year ended December 31, 2000, the Company determined that its purchased technologies were impaired and recorded a charge to operations amounting to $3,659,851. Additionally, in year 2000, the Company discontinued operations of substantially all of its subsidiaries and accordingly, wrote off all remaining purchased technology to discontinued operations. Patents are stated at cost and are amortized over three years or over the useful life using the straight-line method. Recorded amounts for patents 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. STOCK BASED COMPENSATION The Company has adopted the disclosure requirements under SFAS No. 123, "Accounting for Stock-Based Compensation." As permitted under SFAS No. 123, the Company applies Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees," and related interpretations in accounting for its plans. Accordingly, no compensation expense has been recognized for its stock-based compensation plans. FAIR VALUE OF FINANCIAL INSTRUMENTS All financial instruments are carried at amounts that approximate estimated fair values. 22 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) LOSS PER COMMON 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 2001 and 2000, potentially dilutive shares were excluded from the diluted loss per common share computation as their effect was antidilutive. INCOME TAXES Deferred taxes are provided on an asset and liability method for temporary differences and operating loss and tax credit carryforwards. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. RECLASSIFICATIONS Certain amounts previously reported in 2000 have been reclassified to conform to the 2001 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 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. 23 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 2-BASIS OF PRESENTATION The accompanying consolidated financial statements are prepared assuming the Company will continue as a going concern. During the year ended December 31, 2001 and 2000, the Company incurred a net loss from operations of $271,297 and $10,015,141, respectively. At December 31, 2001, the Company had a working capital deficit of $8,906,646 and a stockholders' deficit of $8,816,633. In addition, during 2000, the Company disposed of substantially all of its subsidiaries, for which the Company recorded a loss on disposal of $2,071,054. In 2000, the Company had negotiated and resolved approximately $5,900,000 of current liabilities by issuance of equity securities for certain acquisition earn out obligations and the rescission of certain acquisition agreements (See Note 3). The completion of the disposal of BHT and other subsidiaries and resolution of earn out liabilities aided in reducing the Company's working capital deficit. In January and February 2000, the Company issued Series D and F Convertible Preferred Stock with combined gross proceeds of $2,700,000 (see Note 8). Furthermore, during the last fiscal quarter of 2000, the Company appointed a new Chief Executive Officer and other executive management (the appointments were approved by the Board of directors in January 2001), who took action to reduce future operating expenses in an effort to improve operating margins in 2001. In the first fiscal quarter of 2001 the Company implemented additional budgetary controls and established performance criteria to monitor expenses and improve financial performance. In addition, the Company has and is currently negotiating with vendors to settle overdue payables. 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. NOTE 3-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. subsidiary ("BHT"), which was acquired on April 14, 1999 and which formerly represented the Company's tape storage products business segment. Accordingly, the 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 accompanying consolidated financial statements and notes thereto. As a result of the Company approving a formal plan with regards to the disposal of BHT on December 27, 1999, the Company reported BHT's financial position, results of operations and estimated loss on disposal as discontinued operations in 2001 and 2000. 24 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 3-DISCONTINUED OPERATIONS (CONTINUED) BREECE HILL TECHNOLOGIES, INC. (CONTINUED) During the year ended December 31, 2000, the Company recorded a gain from discontinued operations related to this subsidiary amounting to approximately $1,000,000. On December 22, 2000, the Company signed a foreclosure agreement with Hambrecht & Quist Guaranty Finance, LLC ("H&QGF"). In summary, the Company transferred all of the assets of BHT to the H&QGF in satisfaction of BHT's obligation to H&QGF in the amount of approximately $5,900,000. As of December 31, 2001 and 2000, the Company has liabilities related to this discontinued operation of $4,200,000. SALE OF ASSETS ACQUIRED FROM ASSET SENTINEL, INC Effective March 31, 2000 the Company amended the Asset Purchase Agreement dated as of October 1, 1998 by and among the Company, Global Maintech, Inc. ("GMI"), and Asset Sentinel, Inc. ("ASI"), in which the assets of ASI were purchased by GMI. Pursuant to the amendment, the assets were returned to ASI. ASI also received a release from GMI and the Company for all claims arising out of the association of ASI with GMI and the Company. In exchange for the foregoing, ASI released all claims it might have against the Company and GMI relating to the parties' activities before March 31, 2000 and assumed various obligations and contracts related to the assets transferred. Loss from operations of ASI from the period of January 1, 2000 through the discontinued operations measurement date (March 31, 2000) of $90,438 and reflects no net sales. The gain on disposal of ASI was $69,497. ASSET SALE TO MT ACQUIRING CORP The Company, GMI, and Magnum Technologies, Inc., a wholly owned subsidiary of GMI ("Magnum"), sold all of the business and properties used by GMI in connection with its business conducted under the Magnum name pursuant to an Agreement of Purchase and Sale of Assets made as of January 26, 2000 by and among MT Acquiring Corp., Tim Hadden, Greg Crow, GMI, Magnum and the Company. In the sale, MT Acquiring Corp. received properties and three software products used to provide network monitoring and analysis services: CAP-TREND, Coordinator and Advantage. MT Acquiring Corp. and it principals, Tim Hadden and Greg Crow, also received a release from GMI, Magnum and the Company for all claims arising out of the association of MT Acquiring Corp.'s principals with GMI, Magnum and the Company. In exchange for the foregoing, MT Acquiring Corp. and its principals released all claims against the Company, GMI and Magnum relating to the parties' activities before January 26, 2000, assumed various obligations and contracts related to the business, and delivered a subordinated promissory note payable to the Company in the amount of $214,000. The note bears interest at six percent annually and provides for four semi-annual payments of principal and interest from the date of the note until its maturity date of December 30, 2001. As of December 31, 2000, the note receivable balance amounted to $164,000, the balance of which was written off in 2001. 25 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 3-DISCONTINUED OPERATIONS (CONTINUED) SETTLEMENT AGREEMENT WITH IGI The Company has signed a letter of intent and has negotiated the transfer of certain assets and the termination of various software licenses under a proposed settlement agreement between the Company and Infinite Graphics, Inc. ("IGI"). The Company acquired the assets and licenses under a February 27, 1998 License and Asset Purchase Agreement with IGI. The assets to be transferred would include those used by GMI in designing, assembling and marketing computer-aided design and manufacturing software systems that operate on a variety of mid-range and personal computer platforms. The terminated licenses would include an exclusive software license of software products used in the business and a non-exclusive license of software used in both the Company's business and IGI's business. The transfer and termination would be made in exchange for IGI's assumption of specific contracts and liabilities related to the assets and for mutual release of all claims arising from the License and Asset Purchase Agreement, including IGI's release of payment obligations of the Company. As of December 31, 2000, the Company had discontinued all operations of IGI. RESCISSION AND SETTLEMENT AGREEMENT RELATED TO ENTERPRISE SOLUTIONS, INC. On November 1, 1998, the Company, through its SSI subsidiary, purchased certain assets and rights and assumed various liabilities from Enterprise Solutions, Inc. ("ESI"). The net assets and rights acquired related primarily to items used in manufacturing and selling event notification software and in providing services with respect to the implementation of enterprise management solutions. On December 20, 2000, the Company signed a Rescission and Settlement Agreement (the "Agreement") with Enterprise Solutions, Inc. (ESI). Subject to certain terms and conditions and in settlement of all disputes and claims that any of the parties may have with or against each other, the Company transferred back all transferred assets and all other assets that were part of the business. These assets, among other things, included certain trademarks and fixed assets. In exchange for the return of these assets, all shareholder options held by ESI shareholders were cancelled. Additionally, ESI assumed all liabilities amounting to approximately $590,000 related to such transferred assets. As security for ESI's obligation to indemnify the Company with respect to the liabilities assumed by ESI, ESI granted the Company a security interest in XO Technologies, Inc. common shares. Net losses of ESI amounting to approximately $3,655,211 from the period January 1, 2000 through the discontinued operations measurement date (December 20, 2000) have been included in discontinued operations. Additionally, the Company recorded a net gain from discontinued operations on the ESI rescission and settlement agreement of $2,851,587 which consists of the write-off of intangible assets of $4,897,607, a loss from the transfer of account receivables to ESI of $689,645, a write off of other assets of $351,219 and a gain for the assumption of liabilities by ESI of $8,890,059. Additionally, the Company accrued a liability of $100,000 related to this rescission agreement. 26 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 3-DISCONTINUED OPERATIONS (CONTINUED) SINGLEPOINT LIMITED On May 27, 1999, the Company, through Singlepoint Systems, Inc, (SSI), acquired all of the outstanding stock of Singlepoint Limited ("SSI Ltd"), a distributor of SSI products and services. In return for the SSI Ltd shares, the Company paid $80,000. On August 10, 2000, the Company entered into a cancellation agreement with SSI Ltd. The purpose of this agreement was to cancel the original Share Purchase agreement, whereby SSI will cancel the purchase of shares from SSI Ltd. Net losses from discontinued operations related to SSI Ltd. amounted to $68,844. NOTE 4-INVENTORIES At December 31, 2001, inventories consist of the following: Raw materials $491,286 Completed systems and finished goods 96,204 -------- Total $587,490 ======== NOTE 5-CAPITAL ASSETS At December 31, 2001, the Company's capital assets are comprised of the following: Property and equipment Computers and office equipment $ 1,514,105 Accumulated depreciation (1,442,076) ------------ Property and equipment, net $ 72,029 ============ Intangible assets Patents $ 69,826 Accumulated amortization (50,091) ------------ Intangible assets, net $ 19,735 ============ 27 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 6 - ACQUISITIONS LAVENIR ASSETS AND LIABILITIES 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 ("Lavenir"), pursuant to an Agreement and Plan of Reorganization (the "Lavenir Agreement") by and among the Company, GMI and Lavenir. Subject to the Lavenir Agreement, the Company also assumed certain liabilities of Lavenir, including Lavenir'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. Under the terms of the Lavenir Agreement, the total purchase price of $5,300,000 is comprised of the following: (a) 266,000 shares of the Company's common stock initially paid to Lavenir on the closing date, (b) $400,000 originally in the form of a note 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 March 31, 2000. Accordingly, during 2000, the Company issued 404,085 shares of common stock in connection with this acquisition. 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 in return for 100,000 shares of the Company's common stock to be issued in January 2000. In connection with issuance of the 100,000 shares of common stock in 2000, the Company recorded interest expense amounting to $387,500. ACQUISITION OF GLOBAL WATCH PRODUCT: On November 20, 2000, the Company purchased the right to its "Global Watch" product. Under the terms of the Global Watch Agreement, the total purchase price of $1,350,000 is comprised of the following: (a) $1,350,000 cash which shall be paid by the Company at a rate of five percent of gross monies collected on purchase orders on every Global Watch product sold by the Company, and (b) 350,000 shares of the Company's common stock issuable as of November 20, 2000. These shares were issued in January 2002. Accordingly, the Company has included in accrued expense the fair market value of common shares issuable under this agreement of $33,250. As of December 31, 2001, the Company has reflected accrued consideration due under this agreement of $945,906, which has been included in accrued liabilities. Additionally, in connection with this agreement, the Company shall pay a minimum licensing fee of $125,000 per year. 28 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 7 - NOTES PAYABLE At December 31, 2001, notes payable are comprised of the following: Equipment loans; due through 2003, bearing interest at 9% to 21% .....$ 9,439 Note payable to the Company made by an officer of the Company, due July 31, 2002, bearing interest at 12% per annum and secured by assets of the Company .................................. 95,000 --------- 104,439 Less: current portion ................................................ (102,688) --------- Current portion of notes payable ..................................... 1,751 ========= 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 2000. Borrowings under the 1999 Debt Agreement were secured by all of the assets of the Company, exclusive of those of its BHT subsidiary. As of December 31, 1999, the Company was not in compliance with the 1999 Debt Agreement and had entered into certain forbearance agreements with the lender. These agreements established a forbearance period through March 31, 2000 during which, among other things, collection of accounts receivable was made through a bank lockbox and these proceeds were immediately applied to outstanding borrowings. Interest rates on borrowings subject to the 1999 Debt Agreement were increased 3% per annum, certain modifications to the borrowing base formula were in effect, and 50% of proceeds from equity issuances and 75% of proceeds from other debt issuances were to be paid to the lender. The Company was unable to comply with all of the terms of the forbearance agreements. On December 22, 2000, the Company signed a foreclosure agreement with Hambrecht & Quist Guaranty Finance, LLC. In summary, the Company transferred all of the assets of BHT to H&QGF in satisfaction of BHT's obligation to H&QGF under the loan agreement and other loan documents as discussed above in the amount of approximately $5,890,000. In December 1999, the Company issued $300,000 in short-term promissory notes. As discussed in Note 8, these promissory notes were converted to shares of Series D Convertible Preferred stock of the Company in January 2000. As a result of the 1999 transaction with Lavenir (see Note 6), the Company assumed certain equipment loans and notes payable. The general terms and outstanding balances related to these debt obligations are summarized in the table above. 29 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT) COMMON STOCK ISSUED During the year ended December 31, 2000, the Company issued 232,164 shares of common stock as a result of exercises of stock options. The Company received $558,496 in proceeds for these exercises. During the year ended December 31, 2000, the Company issued 404,085 shares of common stock to LTI in settlement of a previously negotiated acquisition liability. Additionally, the Company issued 100,000 shares of common stock in connection with the reduction of a note payable in the amount of $300,000. In connection with the issuance of these shares, the Company recorded an interest charge of $387,500, which represents the difference between the reduction of the note payable and the fair market values of common shares issued. On January 20, 2000, the Company issued 150,000 shares of common stock in connection with the issuance of Series D Convertible Preferred Stock, the reduction of penalties associated with the Series C Preferred Stock, and the reduction of a note payable amounting to $300,000. These shares were valued at a fair market value of $1,200,000 or $8.00 per share and charged to operations. During the year ended December 31, 2000, the Company issued 109,177 shares of common stock for services rendered. These shares were valued at a fair market value at the date of issuance of $533,177 and charged to operations. During the year ended December 31, 2000, the Company issued 3,563,162 shares of common stock for the conversion of Series A, B, D and E Convertible Preferred Stock. On June 29, 2000 the Company issued 89,468 shares of common stock to LTI in order to compensate LTI for the late registration of the 770,085 shares of the Company's Common Stock. LTI agreed to accept the 89,468 shares of the Company's common stock in place of an interest penalty for the period from April 15, 2000 to July 20, 2000. These shares were valued at a fair market value of $212,487 and charged to operations. AUTHORIZED SHARES OF COMMON STOCK On April 5, 2000, the shareholders of the Company approved an increase in the number of authorized shares of common stock to 18,500,000. As of December 31, 2001, the Company does not have enough authorized common shares to cover conversion of all of the outstanding warrants, options and preferred stock. 30 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) PREFERRED STOCK SERIES B CONVERTIBLE PREFERRED STOCK ISSUANCE: From late August 1998 until December 31, 1998, the Company sold 67,192 units in a private placement of securities. Each unit consisted of one share of Series B Preferred Stock (the "Series B Stock") and one warrant to purchase shares of common stock. The purchase price per unit was $32.50. Each share of Series B Stock entitles the holder thereof to receive an annual dividend equal to 8% of the per share purchase price. Beginning in February 1999, each share of Series B Stock is convertible into that number of shares of common stock equal to the per unit purchase price divided by 80% of the average closing bid price of the common stock for the 20 consecutive trading days prior to the conversion date, subject to certain adjustments; provided, however, that such average price may not be greater than $12.50 nor less than $3.75. The beneficial conversion feature present in the issuance of the Series B Stock as determined on the date of issuance of the Series B Stock totaled $562,392 and was treated as a reduction in earnings available (increase in loss attributable) to common stockholders over the period from the date of issuance of the Series B Stock to the earliest date such shares may be converted. All outstanding shares of Series B Preferred Stock will be automatically converted into common stock on September 23, 2001. As of December 31, 2001, no conversion had occurred. Each warrant issued in connection with the Series B Stock is a five-year callable warrant to purchase common stock at $16.25 per share. The number of shares of common stock for which the warrant in each unit will be exercisable is equal to the number of shares of common stock into which the associated share of Series B Preferred Stock contained in the unit will have been converted. In connection with the offering of the Series B Stock, the Company agreed to use its best efforts to register the shares of common stock underlying the Series B Stock and associated warrants and to pay a penalty if such registration was not effective by February 28, 1999. As a result, the Company incurred a penalty owed to the investors in the offering who have not formally waived this penalty equal to 1% of the purchase price of the units for each of the first two 30-day periods following February 28, 1999 and 3% for every 30-day period thereafter until the registration statement had been declared effective. During 2000 and 1999, the Company has accrued approximately $490,000 in such penalties. During the year ended December 31, 2000, certain Series B stockholders converted 609 Series B shares into 4,327 shares of common stock. SERIES C CONVERTIBLE PREFERRED STOCK ISSUANCE: On March 25, 1999, the Company issued 1,600 shares of its Series C Convertible Preferred Stock (the "Series C Stock") to certain accredited investors in a private offering. Sixty days after the issuance of the Series C Stock, each share of Series C 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 $12.50 or 80% 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 C Stock as determined on the date of issuance of the Series C Stock totaled $522,972 and was treated as a reduction in earnings available (increase in loss attributable) to common stockholders over the period from the date of issuance of the Series C Stock to the earliest date such shares may be converted. Holders of Series C Stock were entitled to receive dividends at an annual rate of 8% of the per share purchase price payable 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. 31 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) In addition, in connection with the Series C Stock offering, the Company also issued warrants to the investors to purchase 20,000 shares of common stock at $8.28 per share. A portion of the aggregate proceeds from the Series C Stock offering equal to the $135,288 fair value of these warrants was allocated to additional paid in capital. This fair value was determined by use of a Black- Scholes valuation model, considering the following assumptions: expected dividend yield 0%, risk-free interest rate of 5.5%, volatility of 112%, and expected warrant lives of five years. Additionally, in 1999, the Company issued 75 shares of Series C Stock to the placement agent in return for capital raising services and incurred $96,000 in other capital raising cost with respect to this private offering. In connection with the offering of the Series C Stock, the Company agreed to use its best efforts to register the shares of common stock underlying the Series C Stock and associated warrants and to pay a penalty if such registration was not effective 30 days after their issuance. As a result, the Company incurring a penalty owed to the investors equal to 1% of the purchase price of the shares for the first 30-day periods following April 25, 1999 and 3% for every 30-day period thereafter until the registration statement was declared effective. During 1999, the Company incurred approximately $400,000 in such penalties. In January 2000, the Company exchanged all outstanding Series C Convertible Preferred Stock by issuing Series D Convertible Preferred Stock. In connection with this transfer, all warrants associated with Series C Convertible Preferred Stock were cancelled. In connection with the transfer of Series C Stock to Series D Stock, the Company issued 120,000 shares of common stock and Series C investors waived all claims they may have against the Company for failure to register the Series C stock. 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, 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. 32 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) 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 new Series D holders 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. During the year ended December 31, 2000, certain Series D shareholders converted 1,162 shares of Series D Stock into 1,850,371 shares of common stock. (See Note 12-Subsequent Events related to Modification Agreement signed by Preferred Shareholders.) SERIES E CONVERTIBLE PREFERRED STOCK ISSUANCE: On December 30, 1999, the Company issued 2,650 shares of its Series E Convertible Preferred Stock (the "Series E Stock") to certain accredited investors in a private offering. At any time after the issuance of the Series E Stock, each share of Series E 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 $5.125 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 E Stock as determined on the date of issuance of the Series E Stock totaled $1,683,453 and is treated as a reduction in earnings available (increase in loss attributable) to common stockholders upon the date of issuance of the Series E Stock since such shares may be converted at any time following issuance. In February 2000, as a result of the Series F Convertible Preferred offering (see below), the 75% conversion factor included in the formula described above was changed to 70%. Holders of Series E Stock are entitled to receive dividends at an annual rate of 8% of the per share purchase price. The dividends are payable 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. During the year ended December 31, 2000, certain Series E shareholders converted 973 shares of Series E Stock into 1,703,876 shares of common stock. In addition, in connection with the Series E Stock offering, the Company also issued warrants to the investors to purchase 50,000 shares of common stock at $6.375 per share. A portion of the aggregate proceeds from the Series E Stock offering equal to the $260,370 fair value of these warrants was allocated to additional paid in capital. This fair value was determined by use of a Black- Scholes valuation model, considering the following assumptions: expected dividend yield 0%, risk-free interest rate of 5.5%, volatility of 112%, and expected warrant lives of five years. The Company issued 25 shares of Series E Stock to the placement agent in return for capital raising services and incurred approximately $292,000 in other capital raising cost with respect to this private offering. (See Note 12-Subsequent Events related to Modification Agreement signed by Preferred Shareholders.) 33 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) 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 five-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. As of the date of this report, the Company had not registered these shares. As of December 31, 2000, the Series F stockholders have waived all penalties related to the non-registration of these shares. (See Note 12-Subsequent Events related to Modification Agreement signed by Preferred Shareholders.) ISSUANCE OF SERIES G CONVERTIBLE PREFERRED STOCK: On August 31, 2000, the Company issued 600 shares of its Series G Convertible Preferred Stock (the "Series G Stock") to certain accredited investors in a private offering for proceeds of $600,000. At any time after the issuance of the Series G Stock, each share of Series G 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 $1.62 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 G Stock as determined on the date of issuance of the Series G Stock totaled $309,092 and is treated as a reduction in earnings available (increase in loss attributable) to common stockholders upon the date of issuance of the Series G Stock since such shares may be converted at any time following issuance. All outstanding shares of Series G Stock will be automatically converted into Common stock on August 1, 2002. 34 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) The holders of Series G stock are entitled to receive dividends at an annual rate of 8% of the stated value ($1,000) of the Series G 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, Series E Stock, and Series F stock are entitled. Dividends on shares of the Series G 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 G Stock. In connection with such offering, the Company also issued warrants to the investors to purchase 62,000 shares of common stock at $1.62 per share and expires on August 31, 2005. A portion of the aggregate proceeds from the Series G Stock offering equal to the $37,500 fair value of these warrants was allocated to additional paid in capital. This fair value was determined by use of a Black- Scholes valuation model, considering the following assumptions: expected dividend yield 0%, risk-free interest rate of 5.5%, volatility of 48%, and expected warrant lives of five years. 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 G 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 G 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. As of the date of this report, the Company had not registered these shares. As of December 31, 2000, the Series G stockholders have waived all penalties related to the non-registration of these shares. (See Note 12-Subsequent Events related to Modification Agreement signed by Preferred Shareholders.) COMMON STOCK WARRANTS: During 2000, the Company issued warrants to purchase 162,000 shares of its common stock for $1.62-$11.00 per share in connection with the issuance of preferred series D, F and G. The following table summarizes the Company's warrants outstanding at December 31, 2001. Range of Weighted average EXERCISE PRICE NUMBER EXERCISE PRICE -------------- --------- ---------------- $ 1.80-4.00 68,279 $ 2.09 5.40-8.30 1,219,696 7.24 9.00-13.00 256,336 10.44 16.25-20.63 595,268 18.38 --------- ------- 2,139,579 $ 10.55 ========= ======= COMMON STOCK OPTIONS: The Company's 1999 Stock Option Plan (the "Plan") provides for granting to the Company's employees, directors and consultants, qualified incentive and nonqualified options to purchase common shares of stock. The plan provides options exercisable for a maximum of 1,200,000 shares of common stock to be granted. Both incentive and nonqualified stock options may be granted under the Plan. The exercise price of options granted pursuant to this plan is determined by a committee but may not be less than 100% of the fair market value on the day of grant. The term of each option is fixed by the committee; provided, however, that the term of an Incentive Stock Option shall not exceed ten years from the grant date. For holders of 10% or more of the combined voting power of all classes of the Company's stock, options may not be granted at less than 110% of the fair value of the common stock at the date of grant and the option may not exceed 5 years from the date of grant. 35 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) During 2001, the Company granted options to purchase 752,500 shares of common stock to certain employees of the Company. The options are exercisable at per share prices ranging from $.16 to $.80 per share, which was the fair market value of the common stock at the grant date. Accordingly, under APB 25, no compensation expense was recognized. These options vest 50% one year from the date of grant and 50% two years from the date of grant. During 2001, the Company granted options to purchase 140,000 shares of common stock to consultants of the Company. The options are exercisable at per share prices ranging from $.45 to $.50 per share, which was the fair market value of the common stock at the grant date. The Company utilizes the Black-Scholes option-pricing model to calculate the fair value of each individual issuance of options with the following assumptions used for grants during the year ended December 31, 2001 and 2000: Since no options vest in 2001, no compensation expense has been recorded. The per-share weighted average fair value of stock options granted during 2001 and 2000 was $0.35 and $0.25, respectively, on the date of grant using the Black-Scholes pricing model and the following assumptions: Years Ended December 31, 2001 2000 ---- ---- Expected dividend yield 0% 0% Risk-free interest rate 5.0% 5.5% Annualized volatility 150% 158% Expected life, in years 5 5 Stock option activity for the years ended December 31, 2001 and 2000 is summarized as follows: Number of Weighted average shares exercise price ----------- -------------- Outstanding at December 31, 1999 ................. 1,701,500 6.42 Granted ...................................... 2,481,000 0.48 Exercised .................................... (232,164) 2.41 Canceled .....................................(1,484,186) 7.30 ----------- ----- Outstanding at December 31, 2000 ................. 2,466,150 0.82 Granted ...................................... 892,500 0.35 Exercised .................................... (-) 0.00 Canceled ..................................... (16,000) 2.50 ----------- ----- Outstanding at December 31, 2001 ................. 3,342,650 $0.45 =========== ===== The following table summarizes the Company's stock options outstanding at December 31, 2001: Options outstanding Options exercisable -------------------------------- -------------------- Weighted Weighted Weighted average average average Range of remaining exercise exercise exercise price Number life price Number price - -------------- --------- --------- -------- --------- -------- $ 0.16-0.80 3,243,500 4.05 $0.21 2,248,500 $0.16 6.25-7.50 64,150 3.25 6.76 64,150 6.76 7.65-10.00 35,000 2.50 9.55 35,000 9.55 --------- --------- 3,342,650 2,347,650 ========= ========= 36 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) The Company applies APB No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock options. As a result no compensation expense has been recognized for employee and director stock options. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net loss would have been reported as follows: Years Ended December 31, 2001 2000 ------------ ------------- Net Income (loss): As reported ............................... $704,501 $(12,086,196) Pro forma ................................. 704,501 (12,615,636) Diluted income (loss) per common share: As reported ............................... $.01 $(2.36) Pro forma ................................. .01 (2.43) NOTE 9 - INCOME TAXES At December 31, 2001, the Company had a net operating loss carryforward of approximately $40 million. The net operating loss carryforward may be subject to an annual limitation as defined by Section 382 of the Internal Revenue Code. Current and future equity transactions could further limit the net operating losses available in any one year. The tax effects of temporary differences from continuing operations that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2001 are shown as follows: Deferred tax assets: Write-downs of intangible assets $ 1,900,000 Allowance for doubtful accounts 40,000 Net operating loss carryforward 8,970,000 ----------------- 10,910,000 Less valuation allowance (10,910,000) ----------------- $ -0- ================= The total deferred tax assets indicated above do not include approximately a $5 million deferred tax asset attributable to discontinued operations. Additionally, the valuation allowance indicated above does not include a valuation allowance of $5 million attributable to discontinued operations used to completely offset the deferred tax asset attributable to discontinued operations. A valuation allowance is required to reduce a potential deferred tax asset when it is likely that all or some portion of the potential deferred tax asset will not be realized due to the lack of sufficient taxable income. The Company has reviewed its taxable earnings history and projected future taxable income. Based on this assessment, the Company has provided a valuation allowance for the portion of the deferred tax assets that will likely not be realized due to lack of sufficient taxable income in the future. 37 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 9 - INCOME TAXES (CONTINUED) For the years ended December 31, 2001 and 2000, there was no income tax provision. The income tax expense (benefit) from continuing operations differed from the amounts computed by applying the U. S. federal income tax rate of 34% as a result of the following: Years Ended December 31, 2001 2000 ---------------- ---------------- Expense (benefit) at statutory rate $ (85,061) $ (3,405,148) State income tax expense (benefit), net of federal (10,007) (400,606) Change in valuation allowance 95,068 3,805,754 ---------------- ---------------- Actual tax expense (benefit) $ - $ - ================ ================ NOTE 10 - OPERATING LEASES The Company has two operating leases for office space. The rental payments under these leases are charged to expense as incurred. These leases provide that the Company pay taxes, maintenance, insurance, and other operating expenses applicable to the lease. Lease expense in 2001 and 2000 was approximately $264,200 and $264,200, respectively. Future minimum lease payments under these noncancellable operating lease are approximately $31,740, $31,740, and $10,580 for the years 2002, 2003, and 2004, respectively. NOTE 11 - LITIGATION The Company was named as a defendant is various lawsuits due to non-payment of vendor invoices. The Company is currently trying to negotiate settlements with these vendors. NOTE 12 - SUBSEQUENT EVENTS In January 2002, the Company issued 350,000 shares of its common stock in connection with a prior acquisition of its Global Watch product as discussed in Note 6. In March 2002, the Company signed a modification agreement with substantially all of its preferred series stock holders (the "Holders"). The Company is currently in default of the Preferred Documents (as defined in the modification agreement) for certain series of Preferred Shares, which defaults include, but are not limited to, (i) the Company's failure to register some or all of the shares of common stock into which the Preferred Shares are convertible and its failure to maintain the effectiveness of its registration statement which was declared effective on July 24, 2000, (ii) the Company's failure to authorize 200% of the shares of common stock into which, from time to time, the Preferred Shares were convertible into based on the Company's common stock price and (iii) the Company's failure to honor all of the conversion notices delivered by the Holders pursuant to the Preferred Documents (collectively the "Defaults"). 38 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 12 - SUBSEQUENT EVENTS (CONTINUED) In consideration for the Company's release of any and all claims against the Holders, the Holders have agreed to (A) rescind outstanding redemption and conversion notices delivered with respect to the Preferred Shares, (B) waive the Company's defaults (arising prior to the date of the agreement) under each and every Preferred Document applicable to each Holder and waive any penalties accruing in connection with any such default, (C) waive any penalties accrued under the Registration Rights Agreements (the "Registration Agreements") (whether or not related to a default) and (D) amend the Preferred Documents applicable to each Holder as set forth below. The amendment to the Preferred Documents as set forth below and all waivers of defaults and penalties are conditional on the Company's compliance with the terms of this Agreement and the Preferred Documents as modified, and shall be null and void if the Company defaults under any of the terms and conditions hereof or of the Preferred Documents as modified by this Agreement. 1) The parties to the Modification Agreement have agreed that the requirement to maintain authorized shares pursuant to the Preferred Agreements shall be satisfied (and the Company's default for failure to maintain sufficient authorized shares shall be waived) if the Company notices a shareholders' meeting to increase its authorized common stock as required by the Preferred Agreements on or before 60 days from the effective date of the agreement, and obtains approval for such authorization from its shareholders on or before 180 days from the effective date of the agreement. The Company's failure to either call said shareholders' meeting or obtain within the time frame stated shall be deemed a default. 2) The Holders have agreed that (i) they shall suspend conversions of the Preferred Shares for a period of six months from the date of this Agreement, (ii) during the period from six months to nine months after the date of this Agreement each Holder shall not convert more than one-third (1/3) of the Preferred Shares initially held by such Holder, (iii) during the period from nine (9) months to twelve (12) months after the date of this Agreement each Holder shall not convert more than an additional one-third (1/3) of the Preferred Shares initially held by such Holder, and (iv) commencing twelve (12) months after the date hereof there shall be no further restrictions on any Holder's right to convert Preferred Shares. However, shares issuable and relating to accrued dividends due shall not be convertible for two years from the date of this agreement unless the Company is sold to a third party in which case such dividends shall become due and payable immediately and any and all other time restrictions agreed to by any party to this agreement shall cease to exist. 3) The Holders have agreed that notwithstanding anything to the contrary in the Preferred Documents, the conversion formula for the Preferred Shares shall be modified as follows (all prices referred to below are based upon the formula set forth in each of the applicable Preferred Documents for determining the "current market price" of the stock on the date of a conversion notice is delivered by a Holder to the Company and for purposes hereof the current market price shall be a minimum of one dollar ($1.00)): If the current market price is from: $1.00 to $1.24 the conversion discount shall equal 5% $1.25 to $1.49 the conversion discount shall equal 10% $1.50 to $1.74 the conversion discount shall equal 15% $1.75 to $2.00 the conversion discount shall equal 20% $2.00 and up the conversion discount shall equal 25% 39 GLOBAL MAINTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 12 - SUBSEQUENT EVENTS (CONTINUED) 4) Each Holder (individually and not in the aggregate) will limit their daily sales of the Company's common shares as follows: If the previous day's closing price for the Company's common stock is from: $1.00 to $1.24, each Holder's sales shall not exceed 15% of the previous three trading days average daily volume $1.25 to $1.74, each Holder's sales shall not exceed 20% of the previous three trading days average daily volume $1.75 and up, each Holder's sales shall not exceed 25% of the previous three trading days average daily volume 5) The Holders hereby agree to waive the accrual of dividends on the Preferred Shares which accrue from and after June 15, 2001. 6) The Company shall have the right to exercise its redemption rights at a price per preferred share equal to (i) 110%, multiplied by (ii) the stated value plus accrued dividends through June 15, 2001. Redemptions shall occur pro rata among the different classes of preferred shares and pro rata among different holders of the same class of preferred shares. Except for the price adjustment provided for in the agreement, the terms and conditions of any redemption shall otherwise be subject to each of the terms and conditions contained in the Preferred Documents 40 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS. KPMG LLP, which was previously the principal accountant for the Company, resigned on November 2, 2000. The Company's Board of Directors approved the decision to change accountants. In connection with the audits of the two fiscal years ended December 31, 1998 and 1999, and the subsequent interim period through November 2, 2000, the Company had no disagreements with KPMG LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreement, except as follows: Certain matters involving internal control and its operation that KPMG LLP considered to be reportable conditions under standards established by the American Institute of Certified Public Accountants were communicated by KPMG LLP to the Audit Committee of the Company's Board of Directors on June 14, 1999, December 9, 1999 and August 3, 2000. These matters on internal control included (1) controls over revenue recognition related to client acceptance provisions, (2) controls over capitalization of software development costs and (3) the volume of audit adjustments. Management has authorized KPMG LLP to respond fully to inquiries of the successor accountant concerning these matters. The audit reports of KPMG LLP on the consolidated financial statements of the Company and subsidiaries as of and for the years ended December 31, 1998 and 1999 did not contain any adverse opinion or disclaimer of opinion nor were they qualified or modified as to uncertainty, audit scope or accounting principles except as follows: KPMG LLP's auditors' report on the consolidated financial statements of the Company and subsidiaries as of and for the years ended December 31, 1998 and 1999 contained a separate paragraph stating that "the Company has losses from operations and has a working capital deficiency that raise substantial doubt about the Company's ability to continue as a going concern." Management's plans in regard to these matters were also described in Note 2 to these consolidated financial statements. The financial statements did not include any adjustments that might result from the outcome of this uncertainty. In connection with its reorganization, the Company on March 10, 2001 engaged Feldman, Sherb & Company, P.C. as its principal independent accountant. 41 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES The directors, executive officers and significant employees of the Company are as follows: NAME AGE POSITION ---- --- -------- Wild Cat Management, Inc., 57 (2) Chief Executive Officer, through Dale Ragan (1) Chairman of the Board, and Director William A. Erhart 50 Director Sue Korsgarden 41 Chief Accounting Officer - ------------ (1) Mr. Ragan serves pursuant to an agreement between the Company and Wild Cat Management, Inc., of which Mr. Ragan is President. (2) Represents the age of Dale Ragan. William A. Erhart. Mr. Erhart is a member of the law firm of Erhart & Associates, L.L.C. and has served as a director of the Company since January 2001. Mr. Erhart has broad experience in general business litigation, corporate, and general practice, and has litigated with the Federal Trade Commission and attorney general offices. He serves as general outside counsel for Alpine Industries, Inc., a Tennessee corporation, and as general counsel for the Company. Most recently, Mr. Erhart was appointed by Governor Jesse Ventura for a four-year term to the Metropolitan Airports Commission. Sue Korsgarden. Ms. Korsgarden has served as the Company's Chief Accounting Officer since March 2001. She has a background in Business Management, Accounting and Credit Management and previously worked for ten years in the management department of A.H. Bennett Company, a roofing distributor. Dale Ragan. Mr. Ragan has served as both the Company's Chief Executive Officer and a director since January 2001, pursuant to an agreement between the Company and Wild Cat Management, Inc., of which Mr. Ragan is President. Mr. Ragan has been a long time investor in the Company and brings with him over 25 years of management experience in the private sector, as well as his experience as a venture capitalist specializing in small capitalization public companies. One of the companies he co-founded was listed in Inc. Magazine in 1988 as twenty-fifth out of the top 100 fastest growing privately owned companies in the United States. At that time, his company had grown over 6000% in five years. Prior to February 19, 1999, the Board did not have any standing audit, compensation, stock option or nominating committees. On February 19, 1999, the Board established an Audit Committee and a Compensation Committee. The Company has since ceased using its Audit and Compensation Committees. The Company at present does not pay any director's fees. The Company may reimburse its outside directors for expenses actually incurred in attending meetings of the Board. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that the Company's directors, certain officers, and persons who own more than 10% of a registered class of the Company's equity securities file reports of ownership on Form 3 and changes in ownership on Forms 4 or 5 with the Securities and Exchange Commission (the "SEC"). Such officers, directors and 10% shareholders are also required by the SEC's rules to furnish the Company with copies of all Section 16(a) reports filed by them. 42 Specific due dates for such reports have been established by the SEC and the Company is required to disclose in this annual report on Form 10-KSB any failure to file such reports on a timely basis. Based solely on its review of the copies of such reports received by it or by written representations from certain reporting persons, the Company believes that no Section 16(a) filing requirements applicable to its officers, directors and 10% shareholders were complied with during the fiscal year ended December 31, 2001. ITEM 10. EXECUTIVE COMPENSATION. SUMMARY COMPENSATION TABLE The following table provides the cash compensation awarded to or earned by the Chief Executive Officer of the Company. No other executive officer earned salary and bonus in excess of $100,000 during the fiscal year ended December 31, 2001. SUMMARY COMPENSATION TABLE Annual Compensation ------------------------- Name and Principal Position Year Salary ($) --------------------------- ---- ---------- Wild Cat Management, Inc., 2001 $1(2) through Dale Ragan 2000 -0- Chief Executive Officer (1) 1999 -0- - ----------- (1) Dale Ragan became the Company's Chief Executive Officer in January 2001 pursuant to an employment agreement dated December 20, 2000 between the Company and Wild Cat Management Inc. (Wild Cat), of which Mr. Ragan is President, under which Wild Cat agreed to provide the Company with the services of a chief executive officer. Pursuant to the employment agreement, all compensation for Mr. Ragan's services are paid to Wild Cat. See "Employment Agreements," below. (2) The agreement between Wild Cat and its principal, Dale Ragan, provides that Mr. Ragan will act as the Company's Chief Executive Officer for a period of one year, and as Chairman of the Board of Directors of the Company for a period of two years. The employment agreement between the Company and Wild Cat provides for a salary of $1 over the term of the agreement, and also provides that Wild Cat will receive, in lieu of salary and as compensation for services rendered since approximately November 1, 2000 and continuing into the future, stock options to purchase common stock at $0.16 per share, in the amount of 500,000 options upon signing, 750,000 on June 20, 2001, and 750,000 options on December 20, 2001. All options are five-year options. The agreement is discussed further in "Employment Agreements" and "Item 12. Certain Relationships and Related Transactions," below. STOCK OPTIONS The Company made no individual grants of stock options to any person named in the "Summary Compensation Table" above in the year ended December 31, 2001, and no stock appreciation rights were granted or exercised during that period. AGGREGATE OPTION EXERCISES IN FISCAL YEAR 2001 AND YEAR END OPTION VALUES There were no stock option exercises in fiscal year 2001 by any person listed in the "Summary Compensation Table" above. The following table summarizes the value of the options held as of December 31, 2001 by the individual listed in the Summary Compensation Table, above. 43 Value of Shares Unexercised Unexercised Acquired Options at In-the-Money on Value December Options at Exercise Realized 31, 2001 December 31, Name (#) ($) (#) 2001 ($) - ----------------------- -------- -------- ----------- ------------ Wild Cat Management - - 2,000,000 $220,000 (1) /Dale Ragan - ----------- (1) The strike price of the options is $0.16 per share. The value of $420,000 assumes a fair market value per share of the Company's common stock of $0.27, the closing price as reported by OTCBB on December 31, 2001. EMPLOYMENT AGREEMENTS On November 8, 2000, the Company's Board of Directors approved the engagement of Wild Cat Management, Inc. ("Wild Cat") to advise the Board. On December 20, 2000, the Company entered into a Stock Option Agreement (the "Agreement") with Wild Cat wherein Wild Cat agrees to provide services to fulfill the functions of CEO and/or Chairman of the Board until the earlier of two years following the date of the Agreement or a change in control of the Company (as defined in the Agreement). In January 2001, the Board appointed Wild Cat to act, through its president Dale Ragan, as Chief Executive Officer of the Company. Wild Cat will receive $1 salary over the term of the Agreement. Additionally, as compensation for services rendered since approximately November 1, 2000 and continuing into the future, Wild Cat was granted an option to purchase 2,000,000 shares of common stock at $0.16 per share, vesting as follows: 500,000 upon signing, 750,000 on June 20, 2001, and 750,000 on December 20, 2001. All options are five-year options. The Agreement does not confer upon Wild Cat any right with respect to continued employment, nor does it interfere in any way with the right of the Company to terminate such employment at any time. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The tables below set forth information regarding the beneficial ownership of the Company's capital stock, as of March 25, 2001, by (1) each person known to the Company to be the beneficial owner of 5% or more of any class of the Company's voting securities, (2) each of the Company's directors, (3) each of the Company's named executive officers and (4) the directors and executive officers of the Company as a group. Beneficial ownership is determined in accordance with the rules of the SEC, and includes generally the voting and investment power of the securities. Shares of common stock or preferred stock issuable upon exercise or conversion of options, warrants, or other securities currently exercisable or exercisable within 60 days of the date of determination are deemed outstanding for purposes of computing the percentage of shares beneficially owned by the person holding those options, warrants, or other securities, but are not deemed to be outstanding for purposes of computing the percentage for any other person. Each person identified below has sole voting and investment power of all shares of common stock and preferred stock shown as beneficially owned by that person. The following table provides information about the beneficial ownership of the Company's common stock as of March 25, 2002 by each director, each executive named in the Summary Compensation Table above, and by all directors and all executive officers as a group. The amounts set forth in the column entitled "Number of Shares Beneficially Owned" include shares set forth in the column entitled "Number of Shares Beneficially owned as a Result of Options Exercisable Within 60 Days of March 25, 2002." 44 Number of Shares Beneficially Owned as Number of Percentage of a Result of Options Shares Shares Exercisable Within 60 Name and Address of Beneficially Beneficially Days of Beneficial Owner (1) Owned (2) Owned(3) March 25, 2002 - ------------------------ ------------ -------------- --------------------- Wild Cat Management Inc. 2,000,000 16.1 2,000,000 William Erhart 125,000 1.2 125,000 All executive officers and directors as a group (3 persons) 2,125,000 17.0 2,125,000 - -------- (1) Unless otherwise indicated, the address of each of the above is c/o 7836 Second Avenue South, Suite 1, Bloomington, Minnesota 55420. (2) The number of shares of the Company's no par value common stock outstanding as of March 25, 2002 was 10,402,155. (3) Shares not outstanding but deemed beneficially owned by virtue of the right of an individual to acquire them within 60 days of March 25, 2002 are treated as outstanding only when determining the amount and percent owned by such individual or group. The following table provides information about the beneficial ownership of the Company's common stock as of March 25, 2002 by each shareholder known to the Company to own beneficially more than 5% of any class of the Company's voting securities. Convertible Preferred Stock Common Stock --------------------------- -------------------------- Number Percentage Percentage of Name and Address of of of Shares Number of Shares of Beneficial Owner (1) Series Shares of Series Shares Common Stock(2) - ------------------------ ------ ------ ---------- --------- --------------- Donald Fraser .......... A 26,670 41.7 (3) (3) James Lehr ............. A 10,670 16.7 (3) (3) Donald Hagen ........... A 5,335 8.3 (3) (3) Henry Mlekoday ......... A 6,670 10.4 (3) (3) Douglas Swanson ........ A 6,670 10.4 (3) (3) Aaron Boxer Rev Trust u/a dtd 8/1/89 ....... B 3,446 6.8 (3) (3) Industricorp & Co. ..... FBO 1561000091 ....... B 5,000 9.8 (3) (3) John O. Hanson ......... B 6,150 12.1 (3) (3) Crow 1999 CRUT ......... B 3,385 6.6 (3) (3) Amro International S.A. Ultra Finance (4) D 200 12.8 555,197(3) 5.3(3) Esquire Trade & Finance Inc. ......... D 444 28.4 (3) (3) Austinvest Anstalt Balzers .............. D 444 28.4 (3) (3) Garros Ltd. ............ D 350 22.4 (3) (3) Intercoastal Financial Corp. ...... D 125 8.0 (3) (3) Greenfield Capital Partners ............... E 100 5.9 (3) (3) Nash, LLC .............. E 1,557 91.5 (3) (3) G 600 100.0 (3) (3) RBB Bank Aktiengeselischaft ... F 2,000 100.0 (3) (3) - ----------- (1) Unless otherwise indicated, the address of each of the above is c/o 7836 Second Avenue South, Suite 1, Bloomington, Minnesota 55420. 45 (2) Percent of class calculation is based on 10,402,155 shares of Common Stock outstanding as of March 25, 2002. (3) The Company has reached an agreement with the Series D, E, F and G convertible preferred stockholders under which such stockholders have agreed to suspend conversion of their shares of preferred stock for an initial period of six months from the effective date of the agreement. See Note 12 of the Notes to Financial Statements and "Recent Developments - Modification Agreement with Preferred Holders," above. (4) The address of Amro International S.A. Ultra Finance is Grossmuenster Platz #6, Zurich CHB022, Switzerland. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Company has signed an employment agreement with Wild Cat under which Wild Cat will provide the services of a chief executive officer and president and has been granted, as compensation for such services and for other services rendered an option to purchase a total of 2,000,000 shares of the Company's common stock at a strike price of $0.16 per share. Wild Cat provides these services through its president, Dale Ragan, who is a director of the Company. William A. Erhart, a director of the Company, is a member of the law firm of Erhart & Associates, L.L.C., the Company's corporate legal counsel. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. (a) Index of Exhibits. Exhibit NUMBER DESCRIPTION OF EXHIBIT - ------ ---------------------- 2 Agreement and Plan of Merger dated March 5, 1999, among the Company, Global MAINTECH, Inc. ("GMI"), BHT Acquisition, Inc., and Breece Hill Technologies, Inc. (incorporated by reference to Exhibit 2.2 to the Company's Form 10-KSB for the year ended December 31, 1998). 3.1 Bylaws of the Company, as amended (incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-34894)). 3.2 Third Restated Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000). 4.1 Form of Certificate of the Company Series A Convertible Preferred Stock (incorporated by reference to the Company's Form 10-KSB for the year ended December 31, 1994 (File No. 0-14692)). 4.2 Form of Certificate of the Company's Common Stock following change of corporate name (incorporated by reference to Exhibit 4.5 to the Company's Form 10-KSB for the year ended December 31, 1995 (File No. 0-14692)). 4.3 Form of Preferred Stock and Warrant Purchase Agreement, including Registration Rights exhibit thereto, relating to sale of Series B Convertible Preferred Stock and Callable Common Stock Warrants during the fourth quarter of 1998 (incorporated by reference to Exhibit 4.6 to the Company's Registration Statement on Form SB-2 filed with the SEC on February 17, 1999 (File No. 333-72513)). 46 4.4 Common Stock and Series B Preferred Stock Purchase Agreement dated as of February 3, 2000 by and among the Company, GMI, Tandberg Date ASA, Hambrecht & Quist Guaranty Finance LLC, Greyrock Capital, and Cruttenden Roth (incorporated by reference to Annex C to the Company's Definitive Proxy Statement on Schedule 14A filed with the SEC on March 15, 2000). 4.5 Form of Certificate of the Company's Series B Convertible Preferred Stock (incorporated by reference to Exhibit 4.7 to the Company's Registration Statement on Form SB-2 filed with the SEC on February 17, 1999 (File No. 333-72513)). 4.6 Form of Series D Convertible Preferred Stock Purchase Agreement, including Registration Rights Agreement and Common Stock Purchase Warrant attached as exhibits thereto (incorporated by reference to Exhibit 4.10 to the Company's Registration Statement on Form SB-2 filed with the SEC on March 3, 2000 (File No. 333-31736)). 4.7 Form of Certificate of the Company's Series D Convertible Preferred Stock (incorporated by reference to Exhibit 4.11 to the Company's Registration Statement on Form SB-2 filed with the SEC on March 3, 2000 (File No. 333-31736)). 4.8 Form of Securities Purchase Agreement for Series E Convertible Preferred Stock, including Registration Rights Agreement and Common Stock Purchase Warrant attached as exhibits thereto (incorporated by reference to Exhibit 4.12 to the Company's Registration Statement on Form SB-2 filed with the SEC on March 3, 2000 (File No. 333-31736)). 4.9 Form of Certificate of the Company's Series E Convertible Preferred Stock (incorporated by reference to Exhibit 4.13 to the Company's Registration Statement on Form SB-2 filed with the SEC on March 3, 2000 (File No. 333-31736)). 4.10 Form of Securities Purchase Agreement for Series F Convertible Preferred Stock, including Registration Rights Agreement and Common Stock Purchase Agreement (incorporated by reference to Exhibit 4.14 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999). 4.11 Form of Certificate of the Company's Series F Convertible Preferred Stock (incorporated by reference to Exhibit 4.16 to the Company's Registration Statement on Form SB-2 filed with the SEC on March 3, 2000 (File No. 333-31736)). 4.12 Form of Securities Purchase Agreement for Series G Convertible Preferred Stock, including Registration Rights Agreement and Common Stock Purchase Agreement (incorporated by reference to Exhibit 4.12 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000). 4.13 Form of Certificate of the Company's Series G convertible Preferred Stock (incorporated by reference to Exhibit 4.13 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000). 4.14 Modification Agreement and Release, dated March 18, 2002, by and among Nash, LLC, Greenfield Capital Partners, LLC, RBB Bank Aktiengeselischaft, Amro International, S.A., Austinvest Anstall Balzers, Esquire Trade & Finance, Inc., Garros, Ltd., Intercoastal Financial Services Corp. and the Company (filed herewith). 10.1 Global MAINTECH Corporation 1999 Stock Option Plan (filed herewith).* 47 10.2 Asset Purchase Agreement, dated November 1, 1998, by and among GMI, the Company, SinglePoint Systems, Inc. and Enterprise Solutions, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the SEC on December 23, 1998). 10.3 Sublease Agreement, dated April 18, 2001, by and between Global MAINTECH Corporation and Minnesota News Service, Inc. (incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000). 10.4 Extension of Lease, dated July 23, 1999, by and between Pleasant Hill Industrial Park Associates and Lavenir Technology, Inc. (incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000). 10.5 Separation Agreement and General Release, dated August 4, 2000, by and between the Company and James Geiser (incorporated by reference to the Company's Registration Statement on Form SB-2 filed with the SEC on March 3, 2000 (File No. 333-31736)). 10.6 Rescission and Settlement Agreement, dated December 20, 2000, by and among Singlepoint Systems Corporation (now Global MAINTECH Corporation), Global MAINTECH, Inc. (formerly a wholly-owned subsidiary of Singlepoint Systems Corporation), Singlepoint Systems, Inc. (formerly a wholly-owned subsidiary of Global MAINTECH, Inc.), Enterprise Solutions Inc., Stewart Trent Wong, and Desi Dos Santos (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000). 10.7 Stock Option Agreement with Wild Cat Management, Inc., dated December 20, 2000 (incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000).* 10.8 Stock Option Agreement with William Erhart dated December 20, 2000 (incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000). 10.9 Agreement for the Purchase and Sale of Global Watch dated as of November 20, 2000, by and between the Company and Dabew, Inc. (filed herewith). 16 Consent of KPMG LLP (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the SEC on November 9, 2000). 21 Subsidiaries of the Company (filed herewith). 23 Consent of Feldman, Sherb and Company, P.C. (filed herewith). 99 Cautionary Statement (filed herewith). - ---------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to Form 10-KSB pursuant to Item 13(a) of this Report. (b) Reports on Form 8-K None. 48 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Global MAINTECH Corporation Dated: March 28, 2002 By: /s/ Dale Ragan ----------------------------------------- Wild Cat Management, Inc., by Dale Ragan, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE --------- ----- ---- /s/ Dale Ragan - -------------------------- Chief Executive Officer, March 28, 2002 Wild Cat Management, Inc., Director (principal by Dale Ragan executive officer) /s/ Sue Korsgarden - -------------------------- Chief Accounting Officer March 28, 2002 Sue Korsgarden (principal financial officer and principal accounting officer) /s/ William A. Erhart - -------------------------- Director March 28, 2002 William A. Erhart 49 INDEX TO EXHIBITS DESCRIPTION OF EXHIBIT EXHIBIT NUMBER - ---------------------- -------------- Modification Agreement and Release, dated March 18, 2002, by 4.14 and among Nash, LLC, Greenfield Capital Partners, LLC, RBB Bank Aktiengeselischaft, Amro International, S.A., Austinvest Anstall Balzers, Esquire Trade & Finance, Inc., Garros, Ltd., Intercoastal Financial Services Corp. and the Company. Global MAINTECH Corporation 1999 Stock Option Plan 10.1 Agreement for the Purchase and Sale of Global Watch dated as of 10.9 November 20, 2000, by and between the Company and Dabew, Inc. Subsidiaries of the Company. 21 Consent of Feldman, Sherb and Company, P.C. 23 Cautionary Statement 99 50 EX-4 3 exhibit4-14.txt EXHIBIT 4.14 MODIFICATION AGREEMENT AND RELEASE THIS MODIFICATION AGREEMENT ("Agreement") is by and between Nash, LLC, a Cayman Islands limited liability company ("Nash"), Greenfield Capital Partners, LLC, RBB Bank Aktiengeselischaft ("RBB"), Amro International, S.A. ("Amro"), Austinvest Anstall Balzers ("AAB"), Esquire Trade & Finance, Inc. ("ETF"), Garros, Ltd. ("Garros"), and Intercoastal Financial Services Corp. ("IFSC") (sometimes collectively referred to as the "Holders"), on the one hand, and Global MAINTECH Corporation, a Minnesota corporation ("GBMT"), on the other hand, in accordance with the terms and conditions set forth below and is effective on the day the last Holder signs ("effective date"). RECITALS 1. On or about December 31, 2000, Nash and GBMT entered into that certain Securities Purchase Agreement (the "Series E Securities Purchase Agreement") whereby Nash purchased 2,500 shares of Series E Convertible Preferred Stock from GBMT, for the sum of $2,600,000 (the "Series E Preferred") 2. On or about August 24, 2000, Nash and GBMT entered into that certain Securities Purchase Agreement (the "Series G Securities Purchase Agreement") whereby Nash purchased 600 shares of Series G Convertible Preferred Stock from GBMT, for the sum of $600,000 (the "Series G Preferred") 3. On or about January 19, 2000, Amro, ADC, AAB, ETF, Garros, IFSC, and Nesher (the "Amro Group"), and GBMT entered into that certain Securities Purchase Agreement (the "Series D Securities Purchase Agreement") whereby the Amro Group purchased 2,725 shares of Series D Convertible Preferred Stock from GBMT, for the sum of $2,725,000 (the "Series D Preferred"). A portion of the Series D Preferred was rolled over from the Amro Group's purchase of Series C Convertible Preferred Stock from GBMT on or about March 25, 1999. 4. On or about February 23, 2000, RBB and GBMT entered into that certain Securities Purchase Agreement (the "Series F Securities Purchase Agreement")(the Series C Securities Purchase Agreement, Series D Securities Purchase Agreement, Series E Securities Purchase Agreement, Series F Securities Purchase and Series G Securities Purchase Agreement and documents entered into in connection therewith, all of which are listed in Schedule A, attached hereto, are sometimes collectively referred to as the "Preferred Documents"), whereby RBB purchased 2,000 shares of Series F Convertible Preferred Stock from GBMT, for the sum of $2 million (the "Series F Preferred")(the Series C Preferred, Series D Preferred, Series E Preferred, Series F Preferred and the Series G Preferred are sometimes collectively referred to as the "Preferred Shares") 5. GBMT is in default of the Preferred Documents for each series of the Preferred Shares referred to herein, which defaults include, but are not limited to, 1 (i) GBMT's failure to register some or all of the shares of common stock into which the Preferred Shares are convertible and its failure to maintain the effectiveness of its registration statement which was declared effective on July 24, 2000, (ii) GBMT's failure to authorize 200% of the shares of common stock into which, from time to time, the Preferred Shares were convertible into based on GBMT's common stock price and (iii) GBMT's failure to honor all of the conversion notices delivered by the Holders pursuant to the Preferred Documents (collectively the "Defaults"). 6. GBMT, for various reasons, experienced setbacks and by the end of 2000 was in a financial crisis. 7. The following board members and management of GBMT resigned effective January 12, 2001: John Haugo, Bill Howdon, Dave McCaffrey, Jim Watson, and Trent Wong (as a director and President). 8. Dale Ragan ("Ragan") and William Erhart ("Erhart") are currently the only directors of GBMT. 9. The Holders have agreed to conditionally waive the Defaults and conditionally modify certain terms of the Preferred Documents pursuant to terms and conditions hereof 10. GBMT acknowledges that it has no knowledge that the Preferred Holders have either breached the Preferred Documents, or federal securities laws and further acknowledges that the Holders have entered into this Agreement as an accommodation to GBMT to permit it to restructure its businesses and capital structure. 11. GBMT agrees to release all claims it may have against the Holders and waive all defenses to its performance under the Preferred Documents pursuant to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants, agreements, representations and warranties herein contained, the parties agree as follows: TERMS ARTICLE I RESCISSIONS, WAIVERS AND PREFERRED DOCUMENT AMENDMENTS; COVENANTS BY GBMT 1.1 AMOUNTS OUTSTANDING. As of the date hereof, GBMT hereby acknowledges and agrees that each Holder owns that number of Preferred Shares (with the stated value thereof) set forth in Schedule A hereto, and owes each Holder dividends through June 15, 2001, as set forth in said schedule. GBMT hereby further acknowledges 2 that it owes each Holder late filing and delivery penalties, all of which are conditionally waived by the Holders subject to the conditions set forth in Section 1.2 hereof. 1.2 HOLDERS' CONDITIONAL RESCISSION AND WAIVER OF DEFAULTS AND PENALTIES. In consideration for GBMT's release of any and all claims against the Holders pursuant to Article III hereof, the Holders hereby agree to (A) rescind outstanding redemption and conversion notices delivered with respect to the Preferred Shares, (B) waive GBMT's defaults (arising prior to the date hereof) under each and every Preferred Document applicable to each Holder and waive any penalties accruing in connection with any such default, (C) waive any penalties accrued under the Registration Rights Agreements (the "Registration Agreements") (whether or not related to a default) and (D) amend the Preferred Documents applicable to each Holder as set forth in Section 1.3 below. The amendment to the Preferred Documents as set forth in Section 1.3 below and all waivers of defaults and penalties set forth in Sections (B) and (C) are conditional on GBMT's compliance with the terms of this Agreement and the Preferred Documents as modified herein, and shall be null and void if GBMT defaults under any of the terms and conditions hereof or of the Preferred Documents as modified by this Agreement. 1.3 MODIFICATION OF PREFERRED DOCUMENTS. Each Holder hereby agrees to modify the Preferred Documents applicable to the Preferred Shares held by such Holder, as set forth below: (a) GBMT hereby acknowledges it is obligated to file registration statements and register shares underlying each series of Preferred referenced herein by certain specified dates pursuant to those certain Registration Agreements separately entered into by GBMT and each holder. Notwithstanding anything to the contrary in the Preferred Documents, including the Registration Agreements , the obligation for GBMT to file (or refile) registration statements for each of series of Preferred Shares is hereby suspended on the condition that (i) it is not otherwise in default of this Agreement or the Preferred Documents, and (ii) if GBMT files a registration statement pursuant to the Securities Act of 1934 to permit the sale of common stock of GBMT (or securities resulting from a change of GBMT common stock into the same or a different number of shares of another class or classes of stock or securities of GBMT or another entity or shares of stock of any entity GBMT is merged into) on any public exchange, NASDAQ or the over-the-counter market, GBMT shall include in such registration statement the common stock that the Preferred Shares (and warrants issued in connection with the issuance of the Preferred Shares) are or have been converted into. If GBMT is in default of any of its obligations hereunder or the Preferred Documents, than the original time periods for the accrual of penalties set forth in the Registration Statements prior to this Agreement shall be restored, and penalties accrued prior to the date of this Agreement will be reinstated and penalties will accrue from and after the date of this Agreement based on said original time periods. (b) GBMT hereby acknowledges that it was obligated to maintain authorized and reserved for issuance, free from preemptive rights, shares of GBMT common stock ranging from one hundred percent (100%) and two hundred percent 3 (200%) of the number of shares of GBMT common stock issuable upon conversion of the applicable series of Preferred Shares, dividends due on the Preferred Shares and the exercise of warrants ("Warrants") issued in connection therewith. GBMT hereby represents and acknowledges that as of November 1, 2001, it had 10,052,155 common shares issued and outstanding out of 18,500,000 common shares authorized and, accordingly, has insufficient common shares authorized and reserved for issuance in connection with any future conversion of Preferred Shares and Warrants. The parties hereto hereby agree that the requirement to maintain authorized shares pursuant to the Preferred Agreements shall be satisfied (and GBMT's default for failure to maintain sufficient authorized shares shall be waived) if GBMT notices a shareholders' meeting to increase its authorized common stock as required by the Preferred Agreements on or before 60 days from the effective date of the agreement, and obtains approval for such authorization from its shareholders on or before 180 days from the effective date of the agreement. GBMT's failure to either call said shareholders' meeting or obtain within the time frame stated shall be deemed a default. Additionally, the parties hereto acknowledge that GBMT's common stock is currently listed for trading on the Over-the-Counter Bulletin Board ("OTCBB") and GBMT agrees that its failure to maintain such listing for a consecutive period of 30 days shall constitute a default hereunder. (c) On the condition that GBMT is not in default hereunder or any of the Preferred Documents, the Holders hereby agree that (i) they shall suspend conversions of the Preferred Shares for a period of six months from the date of this Agreement, (ii) during the period from six months to nine months after the date of this Agreement each Holder shall not convert more than one-third (1/3) of the Preferred Shares set forth next to such Holder's name in Schedule A hereto, (iii) during the period from nine (9) months to twelve (12) months after the date of this Agreement each Holder shall not convert more than an additional one-third (1/3) of the Preferred Shares set forth next to such Holder's name in Schedule A hereto, and (iv) commencing twelve (12) months after the date hereof there shall be no further restrictions on any Holder's right to convert Preferred Shares. However, shares issuable and relating to accrued dividends due shall not be convertible for two years from the date of this agreement unless GBMT is sold to a third party in which case such dividends shall become due and payable immediately and any and all other time restrictions agreed to by any party to this agreement shall cease to exist. (d) On the condition that GBMT is not in default hereunder or any of the Preferred Documents, the Holders hereby agree that notwithstanding anything to the contrary in the Preferred Documents, the conversion formula for the Preferred Shares shall be modified as follows (all prices referred to below are based upon the formula set forth in each of the applicable Preferred Documents for determining the "current market price" of the stock on the date of a conversion notice is delivered by a Holder to GBMT and for purposes hereof the current market price shall be a minimum of one dollar ($1.00)): 4 If the current market price is from: $1.00 to $1.24 the conversion discount shall equal 5% $1.25 to $1.49 the conversion discount shall equal 10% $1.50 to $1.74 the conversion discount shall equal 15% $1.75 to $2.00 the conversion discount shall equal 20% $2.00 and up the conversion discount shall equal 25% For example, if the current market price as calculated on the date of conversion is $1.30 the conversion price shall equal $1.17 ($1.30 x 90%). Notwithstanding the foregoing and except as provided below, the modifications to the conversion formula for the Preferred Shares which are set forth in this Section 1.3(d) below shall be terminated one (1) year from the date of this Agreement (the "Anniversary Date") and the conversion formula set forth in the Preferred Documents shall be reinstated. In the event that during each of the thirty (25) trading days immediately preceding the Anniversary Date, the common stock has a closing bid price above one dollar ($1.00), than the termination date for the formula contained in Sections 1.3(d)-(e) shall be extended for an additional three (3) months beyond the Anniversary Date. (e) On the condition that GBMT is not in default of this Agreement, each Holder (individually and not in the aggregate) will limit their daily sales of GBMT common shares as follows: If the previous days closing price for GBMT common stock is from: $1.00 to $1.24, each Holder's sales shall not exceed 15% of the previous three trading days average daily volume $1.25 to $1.74, each Holder's sales shall not exceed 20% of the previous three trading days average daily volume $1.75 and up, each Holder's sales shall not exceed 25% of the previous three trading days average daily volume Notwithstanding the foregoing, the volume limitations set forth in this Section 1(e) shall terminate on the Anniversary Date. (f) On the condition that GBMT does not breach the terms of this Agreement, the Holders hereby agree to waive the accrual of dividends on the Preferred Shares which accrue from and after June 15, 2001. (g) On the condition that GBMT does not breach the terms of this Agreement, GBMT shall have the right to exercise its redemption rights at a price per preferred share equal to (i) 110%, multiplied by (ii) the stated value plus accrued dividends through June 15, 2001. Redemptions shall occur pro rata among the different classes of preferred shares and pro rata among different holders of the same class of preferred shares. Except for the price adjustment provided for herein, the terms and 5 conditions of any redemption shall otherwise be subject to each of the terms and conditions contained in the Preferred Documents 1.4 WARRANTS TO DALE RAGAN AND WILLIAM ERHART. GBMT shall not issue any further warrants or stock options to Dale Ragan ("Ragan") and William Erhart ("Erhart")(or their respective affiliates or family members), except as follows: Ragan shall be entitled to the issuance of warrants, from time to time as conversions by Holders occur, to warrants equal to (i) the number of shares issued to each of the Holders upon a conversion of Preferred Shares, divided by 1.10, multiplied by (ii) ten percent (10%). The strike price will be $1.10. Erhart shall be entitled to the issuance of warrants, from time to time as conversions by Holders occur, to warrants equal to (i) the number of shares issued to each of the Holders upon a conversion of Preferred Shares, divided by 1.10, multiplied by (ii) three percent (3%). The strike price will be $1.10. Ragan and Erhart agree that neither the warrants issued pursuant to the foregoing formula nor the shares issued upon exercise thereof, nor any other shares underlying any security issued previously or in the future shall be sold, conveyed, hypothecated or otherwise transferred (except to a trust for estate planning purposes) for a period of eighteen (18) months from the date hereof. following the exercise of the option except if GBMT is sold to a third party and all the preferred shareholders are made whole. The general terms of the warrants shall not be amended without the written consent of a majority of the Holders of each series of Preferred Stock. ARTICLE II REPRESENTATIONS AND WARRANTIES 2.1 GBMT'S REPRESENTATIONS AND WARRANTIES. GBMT hereby makes the following representations and warranties, each of which representations and warranties is and shall be (i) true in all respects as of the date of this Agreement, and (ii) shall survive the closing of the transactions contemplated hereby: A. CONCERNING THE SETTLEMENT SHARES. Except as otherwise expressly provided for herein, the GBMT Common Shares into which the Preferred Shares are convertible (and which are issuable upon the exercise of the Warrants) will be duly authorized and validly issued, fully paid and non-assessable and will not subject the holder thereof to personal liability by reason of being such holder. There are no preemptive rights of any stockholder of GBMT, as such, to acquire said GBMT common shares. 6 B. REPORTING COMPANY STATUS. GBMT is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota and has the requisite corporate power to own its properties and to carry on its business as now being conducted. GBMT has registered its Common Stock pursuant to Section 12(g)of the 1934 Act, and the Common Stock is listed for trading on the OTCBB. GBMT has received no notice, either oral or written, with respect to the continued eligibility of the Common Stock for such listing. GBMT shall continue to meet all requirements for continued listing of its stock on the OTCBB in accordance with this agreement. In connection therewith, GBMT hereby represents that it has filed its Form 10-QSB for the quarter ended September 30, 2001 and is current with respect to its 34 Act reporting requirements. C. AUTHORIZED SHARES. GBMT has, as of November 1, 2001, 18,500,000 authorized shares of Common Stock of which 10,052,845 shares are issued and outstanding. D. MODIFICATION AGREEMENT. This Agreement and the transactions contemplated hereby, have been duly and validly authorized by GBMT. This Agreement has been duly executed and delivered by GBMT and is a valid and binding agreement of GBMT, enforceable in accordance with its terms, and subject, as to enforceability, to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors' rights generally. E. NON-CONTRAVENTION. The execution and delivery of this Agreement by GBMT, and the consummation by GBMT of the other transactions contemplated by this Agreement, do not and will not conflict with or result in a breach by GBMT of any of the terms or provisions of, or constitute a default under (i) the articles of incorporation or by-laws of GBMT, each as currently in effect, (ii) ) to its actual knowledge, any indenture, mortgage, deed of trust, or other material agreement or instrument to which GBMT is a party or by which it or any of its properties or assets are bound, including any listing agreement for the Common Stock (except as herein set forth), (iii) to its actual knowledge, any existing applicable law, rule, or regulation or any applicable decree, judgment, or order of any court, United States federal or state regulatory body, administrative agency, or other governmental body having jurisdiction over GBMT or any of its properties or assets, or (iv) any listing agreement for its Common Stock, except such conflict, breach or default which would not have a material adverse effect on the transactions contemplated herein. F. APPROVALS. To GBMT's actual knowledge, except as otherwise expressly provided for herein, no authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the stockholders of GBMT is required to be obtained by GBMT for the issuance of GBMT common shares as contemplated by this Agreement, except such authorizations, approvals and consents that have been obtained or require shareholder approval to increase the number of authorized shares. 7 G. ABSENCE OF LITIGATION. Except for the Litigation and as set forth in GBMT's SEC Reports, which Holders has reviewed, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of GBMT, threatened against or affecting GBMT, wherein an unfavorable decision, ruling or finding would have a material adverse effect on the properties, business or financial condition, results of operation or prospects of GBMT and its subsidiaries, the transactions contemplated by this Agreement, or which would adversely affect the validity or enforceability of, or the authority or ability of GBMT to perform its obligations under, this Agreement. Notwithstanding the foregoing, this representation specifically excludes, those claims (in connection with there is no pending litigation) which are less than $200,000. 2.2 HOLDERS'S REPRESENTATIONS AND WARRANTIES. Each Holder (severally but not jointly) hereby makes the following representations and warranties, each of which representations and warranties is and shall be (i) true in all respects as of the date of this Agreement, and (ii) shall survive the closing of the transactions contemplated hereby: A. MODIFICATION AGREEMENT. This Agreement has been duly and validly authorized, executed and delivered on behalf of Holder and is a valid and binding agreement of Holder enforceable in accordance with its terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors' rights generally. B. NON-CONTRAVENTION. The execution and delivery of this Agreement by Holder and the consummation by Holder of the other transactions contemplated by this Agreement, do not and will not conflict with or result in a breach by Holder of any of the terms or provisions of, or constitute a default under (i) the incorporation/formation documents of Holder, as currently in effect, (ii) any indenture, mortgage, deed of trust, or other material agreement or instrument to which Holder is a party or by which it or any of its properties or assets are bound, or (iii) to its knowledge, any existing applicable law, rule, or regulation or any applicable decree, judgment, or order of any court, United States federal or state regulatory body, administrative agency, or other governmental body having jurisdiction over Holder or any of its properties or assets, except such conflict, breach or default which would not have a material adverse effect on the transactions contemplated herein. ARTICLE III RELEASE OF CLAIMS Except for the performance by the parties of the provisions of this Agreement and further except for the representations, warranties and indemnities of the parties contained herein (which representations, warranties and indemnities shall survive the consummation of this Agreement and as to which the parties shall continue to be liable), GBMT, for itself and on behalf of all its direct and indirect partners, officers, 8 directors, employees, affiliates (both persons and entities), representatives, agents, representatives, servants, trustees, beneficiaries, predecessors in interest, successors in interest, assigns, nominees and insurers (collectively, the "Releasing Parties"), shall be deemed to have released and forever discharged Holders and all direct and indirect partners, officers, directors, employees, affiliates(both persons and entities, including, without limitation, Steven Hicks, Dan Pickett, Navigator Management and Thomson Kernaghan) and representatives, agents, representatives, servants, trustees, beneficiaries, predecessors in interest, successors in interest, assigns, nominees and insurers of Holders and Southridge Capital Management LLC (collectively "related parties"), of and from any and all claims, demands, actions and causes of action, whether known or unknown, fixed or contingent, that any of the Releasing Parties may have had, may now have or may hereafter acquire with respect to any matters whatsoever arising under or in any way related to (i) Purchase Agreements and Credit Agreement and all agreements entered into in connection therewith (collectively the "Documents"), (ii) any act which may constitute a defense to the performance of the Documents, and (iii) any claims GBMT may have against Holders and related parties with respect to or in connection with any alleged violation of any state or Federal securities laws, including the Securities Act and the Exchange Act (as defined in the Purchase Agreements). The parties agree not to divulge the terms of this Agreement to any person or entity whatsoever, unless required to do so by law or as provided for in this Agreement. GBMT represents, warrants and covenants that it has not, and at the time this release becomes effective will not have, sold, assigned, transferred or otherwise conveyed to any other person or entity all or any portion of its rights, claims, demands, actions or causes of action herein released. GBMT acknowledges that it is familiar with Section 1542 of the Civil Code of the State of California, which provides as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." GBMT hereby waives any and all rights and benefits that it now has or in the future may have under Section 1542 of the Civil Code (and under the comparable provisions of any other applicable law) and agrees and acknowledges that this Agreement contains a full and final release applying to unknown and unanticipated claims, injuries or damages arising out of the subject matter hereof, as well as to those now known or disclosed. GBMT represents and warrants that it has relied wholly upon its own judgment, belief and knowledge of the existence, nature, extent or duration of any claim, demand, debt, damage, liability, account, reckoning, obligation, cost, expense, cause of action, chosen action, right of indemnity, agreement or promise that it may have against Holders and the 9 other released parties and that it has made full investigations with respect to potential rights and claims released and that it has not been influenced to any extent whatsoever in making the releases contemplated by this agreement by any representation or statement regarding any such matter. Each party further represents and warrants that it is executing and delivering this Agreement and, as applicable, the releases contemplated hereunder after having received full legal advise as to its rights hereunder and the legal effect thereof from legal counsel of its own choosing. Notwithstanding the above, this Agreement is not intended to and does not, release or extinguish the rights of any of the parties to enforce this Agreement. ARTICLE V GENERAL PROVISIONS 5.1 ENTIRE AGREEMENT. This Agreement and the documents referred to herein constitute the entire understanding, arrangement and agreement among the parties hereto or any of them with respect to the subject matter hereof, and supersedes all prior agreements, arrangements, understandings, negotiations and discussions with respect thereto among the parties hereto. Except as expressly modified by the terms hereof, the Preferred Documents shall remain unamended and in full force and effect. 5.2 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. 5.3 MODIFICATIONS IN WRITING. No provisions of this Agreement may be amended, supplemented or waived except by a writing signed by the party or parties to be bound thereby. 5.4 EXECUTION IN COUNTERPARTS. This Agreement may be executed in two or more counterparts, all of which taken together shall be considered one and the same agreement and each of which shall be deemed an original. 5.5 SEVERABILITY. In case any provision of this Agreement shall be held illegal, invalid or unenforceable, the legality, validity and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. 5.6 CONSTRUCTION. This Agreement shall be governed by and construed under the laws of the State of New York. The parties acknowledge that each party and its counsel have reviewed and revised this Agreement and that no rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall be employed in the interpretation of this Agreement or any amendments or exhibits to it or any document executed and delivered by either party in connection with this Agreement. All captions in this Agreement are for reference only and shall not be used in the interpretation of this Agreement or any related document. If any provision of this Agreement shall be determined to be illegal or unenforceable, such determination shall 10 not affect any other provision of this Agreement and all such other provisions shall remain in full force and effect. All Exhibits attached hereto are hereby incorporated herein by reference. 5.7 ATTORNEYS' FEES. In the event any dispute between the parties to this Agreement should result in litigation or other proceeding, the prevailing party shall be reimbursed by the non-prevailing party for all reasonable costs and expenses, including, without limitation, reasonable attorneys' fees, incurred by the prevailing party in connection with such litigation or other proceeding and any appeal thereof. Such costs, expenses and fees shall be included in and made a part of the judgment recovered by the prevailing party, if any. 5.8 CONFLICTING TERMS. To the extent any of the terms herein conflict with the terms of the Loan Documents, the terms herein shall prevail. 5.9 INFORMED CONSENT. The parties admit, acknowledge and declare that each has given mature and careful thought and consideration to the making of this Agreement and to all of the obligations hereby undertaken and the rights hereby extinguished or created; that this Agreement is entered into voluntarily, after consultation with counsel, free of undue influence, coercion, duress, menace or fraud of any kind; that this Agreement and each and every paragraph and every part hereof has been carefully read and explained; and, that each fully and completely understands and is cognizant of all of the terms and conditions in this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. Nash, LLC, a Cayman Islands limited liability company By: /S/ DAVID SIMS Dated: MARCH 11, 2002 ----------------------------------- -------------- its authorized agent Greenfield Capital Partners, LLC By: /S/ CARYN HIRSCH KAHN Dated: MARCH 11, 2002 ----------------------------------- -------------- its authorized agent RBB Bank Aktiengeselischaft Capital Bank - Grawa Gruppa AG (fka RBB Bank AG) as agent of its clients By: /S/ HERMANN POLTL Dated: 2/8/02 ----------------------------------- ----------- its authorized agent 11 Amro International, S.A. By: /S/ MICHAEL KLEE Dated: 3/18/02 ----------------------------------- ----------- its authorized agent Austinvest Anstall Balzers By: /S/ WALTER GRILL Dated: 3/1/02 ----------------------------------- ----------- its authorized agent Esquire Trade & Finance, Inc. By: /S/ GISELLA KINDLE Dated: 3/8/02 ----------------------------------- ----------- its authorized agent Garros, Ltd. By: /S/ GIORA LAVIE, ATTORNEY-IN-FACT Dated: MARCH 17, 2002 ----------------------------------- -------------- its authorized agent Intercoastal Financial Services Corp. By: /S/ MARILYN R. O'LEARY Dated: 3/14/02 ----------------------------------- ----------- Global MAINTECH Corporation, a Minnesota corporation By: /S/ DALE RAGAN Dated: 3/21/02 ------------------------------------ ----------- 12 SCHEDULE A GBMT PREFERRED STOCK PRINCIPAL REMAINING ACCRUED DIVIDENDS SERIES (THROUGH 06/15/01) - ------ ------------------- ----------------- D --- Amro $ 200,000 $ 39,441 Austinvest $ 444,000 $ 55,413 Esquire $ 444,000 $ 55,413 Garros $ 350,000 $ 39,296 Intercoastal $ 125,000 $ 14,034 E ---------- Nash $1,557,000 $ 234,042 Greenfield $ 100,000 $ 11,662 F ---------- RBB $2,000,000 $ 209,205 G ---------- Nash $ 600,000 $ 37,128 13 EX-10 4 exhibit10-1.txt EXHIBIT 10.1 GLOBAL MAINTECH CORPORATION 1999 STOCK OPTION PLAN Section 1. Purpose. The purpose of the Global MAINTECH Corporation 1999 Stock Option Plan (the "Plan") is to aid in attracting and retaining management personnel and members of the Board of Directors who are not also employees ("Non-Employee Directors") of Global MAINTECH Corporation (the "Company") capable of assuring the future success of the Company, to offer such personnel incentives to put forth maximum efforts for the success of the Company's business and to afford such personnel an opportunity to acquire a proprietary interest in the Company. Section 2. Definitions. As used in the Plan, the following terms shall have the meanings set forth below: (a) "Affiliate" shall mean (i) any entity that, directly or indirectly through one or more intermediaries, is controlled by the Company, and (ii) any entity in which the Company has a significant equity interest, in each case as determined by the Committee. (b) "Award" shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent or Other Stock-Based Award granted under the Plan. (c) "Award Agreement" shall mean any written agreement, contract or other instrument or document evidencing any Award granted under the Plan. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder. (e) "Committee" shall mean a committee of the Board of Directors of the Company designated by such Board to administer the Plan, which shall consist of members appointed from time to time by the Board of Directors. Each member of the Committee shall be an "outside director" as defined in Section 162(m) of the Code. (f) "Company" shall mean Global MAINTECH Corporation, a Minnesota corporation, and any successor corporation. (g) "Dividend Equivalent" shall mean any right granted under Section 6(e) of the Plan. (h) "Eligible Person" shall mean any employee, officer, consultant or independent contractor providing services to the Company or any Affiliate who the Committee determines to be an Eligible Person. (i) "Fair Market Value" shall mean, with respect to any property (including, without limitation, any Shares or other securities), the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee. 1 (j) "Incentive Stock Option" shall mean an option granted under Section 6(a) of the Plan that is intended to meet the requirements of Section 422 of the Code or any successor provision. (k) "Non-Qualified Stock Option" shall mean an option granted under Section 6(a) of the Plan that is not intended to be an Incentive Stock Option. (l) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock Option, and shall include Restoration Options. (m) "Other Stock-Based Award" shall mean any right granted under Section 6(f) of the Plan. (n) "Participant" shall mean an Eligible Person designated to be granted an Award under the Plan. (o) "Performance Award" shall mean any right granted under Section 6(d) of the Plan. (p) "Person" shall mean any individual, corporation, partnership, association or trust. (q) "Plan" shall mean this 1999 Stock Option Plan, as amended from time to time. (r) "Reload Option" shall mean any Option granted under Section 6(a)(iv) of the Plan. (s) "Restricted Stock" shall mean any Share granted under Section 6(c) of the Plan. (t) "Restricted Stock Unit" shall mean any unit granted under Section 6(c) of the Plan evidencing the right to receive a Share (or a cash payment equal to the Fair Market Value of a Share) at some future date. (u) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, or any successor rule or regulation. (v) "Shares" shall mean shares of Common Stock, no par value, of the Company or such other securities or property as may become subject to Awards pursuant to an adjustment made under Section 4(c) of the Plan. (w) "Stock Appreciation Right" shall mean any right granted under Section 6(b) of the Plan. Section 3. Administration. (a) Power and Authority of the Committee. The Plan shall be administered by the Committee. Subject to the express provisions of the Plan and to applicable law, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to each Participant under the Plan; (iii) determine the number of Shares to be covered by (or with respect to which payments, rights or other matters are to be calculated in connection with) each Award; (iv) determine the terms and conditions of any Award or Award Agreement; (v) amend the terms and conditions of any Award or Award Agreement and accelerate the exercisability of Options or the lapse of restrictions relating to Restricted Stock, Restricted Stock Units or other Awards; (vi) determine whether, to what extent and under what circumstances Awards may be exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or suspended; (vii) determine whether, to what extent and under what circumstances cash, Shares, other securities, other Awards, other property and other amounts payable with respect to an Award under the Plan shall be deferred either automatically or 2 at the election of the holder thereof or the Committee; (viii) interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan; (ix) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (x) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon any Participant, any holder or beneficiary of any Award and any employee of the Company or any Affiliate. (b) Delegation. The Committee may delegate its powers and duties under the Plan to one or more officers of the Company or of any Affiliate or a committee of such officers, subject to such terms, conditions and limitations as the Committee may establish in its sole discretion; provided, however, that the Committee shall not delegate its powers and duties under the Plan with regard to officers or directors of the Company or any Affiliate who are subject to Section 16 of the Securities Exchange Act of 1934, as amended. Section 4. Shares Available for Awards. (a) Shares Available. Subject to adjustment as provided in Section 4(c), the number of Shares available for granting Awards under the Plan shall be 6,000,000. If any Shares covered by an Award or to which an Award relates are not purchased or are forfeited, or if an Award otherwise terminates without delivery of any Shares, then the number of Shares counted against the aggregate number of Shares available under the Plan with respect to such Award, to the extent of any such forfeiture or termination, shall again be available for granting Awards under the Plan. (b) Accounting for Awards. For purposes of this Section 4, if an Award entitles the holder thereof to receive or purchase Shares, the number of Shares covered by such Award or to which such Award relates shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Plan. (c) Adjustments. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or other property) which thereafter may be made the subject of Awards, (ii) the number and type of Shares (or other securities or other property) subject to outstanding Awards and (iii) the purchase or exercise price with respect to any Award; provided, however, that the number of Shares covered by any Award or to which such Award relates shall always be a whole number. (d) Limitation on Annual Awards to Individuals. Notwithstanding any other provision in this Plan, no Participant may be granted an Award or Awards under the Plan, the value of which is based solely on an increase in the value of the Shares after the date of grant of such Award or Awards, for more than 800,000 Shares in the aggregate in any one calendar year period beginning with the period commencing on January 1, 1999 through December 31, 1999. The foregoing annual limitation 3 specifically includes the grant of any "performance-based" awards within the meaning of Section 162(m) of the Code. Section 5. Eligibility. Any Eligible Person, including any Eligible Person who is an officer or director of the Company or any Affiliate, shall be eligible to be designated a Participant. In determining which Eligible Persons shall receive an Award and the terms of any Award, the Committee may take into account the nature of the services rendered by the respective Eligible Persons, their present and potential contributions to the success of the Company or such other factors as the Committee, in its discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive Stock Option may only be granted to full or part-time employees (which term as used herein includes, without limitation, officers and directors who are also employees) and an Incentive Stock Option shall not be granted to an employee of an Affiliate unless such Affiliate is also a "subsidiary corporation" of the Company within the meaning of Section 424(f) of the Code or any successor provision. Section 6. Awards. (a) Options. The Committee is hereby authorized to grant Options to Participants with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine: (i) Exercise Price. The purchase price per Share purchasable under an Option shall be determined by the Committee; provided, however, that such purchase price shall not be less than 100% of the Fair Market Value of a Share on the date of grant of such Option. (ii) Option Term. The term of each Option shall be fixed by the Committee; provided, however, that the term of an Incentive Stock Option shall not extend more than ten years from the date of grant of such Incentive Stock Option. (iii) Time and Method of Exercise. The Committee shall determine the time or times at which an Option may be exercised in whole or in part and the method or methods by which, and the form or forms (including, without limitation, cash, Shares, promissory notes, other securities, other Awards or other property, or any combination thereof, having a Fair Market Value on the exercise date equal to the relevant exercise price) in which, payment of the exercise price with respect thereto may be made or deemed to have been made. (vi) Reload Options. The Committee may grant Reload Options, separately or together with another Option, pursuant to which, subject to the terms and conditions established by the Committee and any applicable requirements of Rule 16b-3 or any other applicable law, the Participant would be granted a new Option when the payment of the exercise price of the option to which such Reload Option relates is made by the delivery of Shares owned by the Participant pursuant to the relevant provisions of the plan or agreement relating to such option, which new Option would be an Option to purchase the number of Shares not exceeding the sum of (A) the number of Shares so provided as consideration upon the exercise of the previously granted option to which such Reload Option relates and (B) the number of Shares, if any, tendered or withheld as payment of the amount to be withheld under applicable tax laws in connection with the exercise of the option to which such Reload Option relates pursuant to the relevant provisions of the plan or agreement relating to such option. Reload Options may be granted with respect to options previously granted under the Plan or any other stock option plan of the Company, and may be 4 granted in connection with any option granted under the Plan or any other stock option plan of the Company at the time of such grant. (v) Certain Options to be Treated as Non-Qualified Stock Options. To the extent that the aggregate Fair Market Value of all Shares subject to Incentive Stock Options granted to a Participant under all plans of the Company and its parent and subsidiary corporations (as described in Section 422(d) of the Code) that are exercisable for the first time during any calendar year exceeds $100,000 at the time such Options are granted to such Participant, then such Options shall be treated as Options that do not qualify as Incentive Stock Options. (vi) Ten Percent Shareholder Rule. Notwithstanding any other provision in the Plan, if an Option is granted pursuant to the Plan to a Participant who owns, directly or indirectly (within the meaning of Section 424(d) of the Code), stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or its parent or any subsidiary, then any Incentive Stock Option to be granted to such Participant pursuant to the Plan shall satisfy the requirements of Section 422(c)(5) of the Code, and the exercise price of such Option shall be not less than 110% of the Fair Market Value of the Shares covered, and such Option by its terms shall not be exercisable after the expiration of five years from the date such Option is granted. (b) Stock Appreciation Rights. The Committee is hereby authorized to grant Stock Appreciation Rights to Participants subject to the terms of the Plan and any applicable Award Agreement. A Stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive upon exercise thereof the excess of (i) the Fair Market Value of one Share on the date of exercise (or, if the Committee shall so determine, at any time during a specified period before or after the date of exercise) over (ii) the grant price of the Stock Appreciation Right as specified by the Committee, which price shall not be less than 100% of the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right. Subject to the terms of the Plan and any applicable Award Agreement, the grant price, term, methods of exercise, dates of exercise, methods of settlement and any other terms and conditions of any Stock Appreciation Right shall be as determined by the Committee. The Committee may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate. (c) Restricted Stock and Restricted Stock Units. The Committee is hereby authorized to grant Awards of Restricted Stock and Restricted Stock Units to Participants with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine: (i) Restrictions. Shares of Restricted Stock and Restricted Stock Units shall be subject to such restrictions as the Committee may impose (including, without limitation, any limitation on the right to vote a Share of Restricted Stock or the right to receive any dividend or other right or property with respect thereto), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise as the Committee may deem appropriate. (ii) Stock Certificates. Any Restricted Stock granted under the Plan shall be evidenced by issuance of a stock certificate or certificates, which certificate or certificates shall be held by the Company. Such certificate or certificates shall be registered in the name of the Participant and shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted Stock. In the case of Restricted Stock Units, no Shares shall be issued at the time such Awards are granted. 5 (iii) Forfeiture; Delivery of Shares. Except as otherwise determined by the Committee, upon termination of employment (as determined under criteria established by the Committee) during the applicable restriction period, all Shares of Restricted Stock and all Restricted Stock Units at such time subject to restriction shall be forfeited and reacquired by the Company; provided, however, that the Committee may, when it finds that a waiver would be in the best interest of the Company, waive in whole or in part any or all remaining restrictions with respect to Shares of Restricted Stock or Restricted Stock Units. Any Share representing Restricted Stock that is no longer subject to restrictions shall be delivered to the holder thereof promptly after the applicable restrictions lapse or are waived. Upon the lapse or waiver of restrictions and the restricted period relating to Restricted Stock Units evidencing the right to receive Shares, such Shares shall be issued and delivered to the holders of the Restricted Stock Units. (d) Performance Awards. The Committee is hereby authorized to grant Performance Awards to Participants subject to the terms of the Plan and any applicable Award Agreement. A Performance Award granted under the Plan (i) may be denominated or payable in cash, Shares (including, without limitation, Restricted Stock), other securities, other Awards or other property and (ii) shall confer on the holder thereof the right to receive payments, in whole or in part, upon the achievement of such performance goals during such performance periods as the Committee shall establish. Subject to the terms of the Plan and any applicable Award Agreement, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award granted, the amount of any payment or transfer to be made pursuant to any Performance Award and any other terms and conditions of any Performance Award shall be determined by the Committee. (e) Dividend Equivalents. The Committee is hereby authorized to grant to Participants Dividend Equivalents under which such Participants shall be entitled to receive payments (in cash, Shares, other securities, other Awards or other property as determined in the discretion of the Committee) equivalent to the amount of cash dividends paid by the Company to holders of Shares with respect to a number of Shares determined by the Committee. Subject to the terms of the Plan and any applicable Award Agreement, such Dividend Equivalents may have such terms and conditions as the Committee shall determine. (f) Other Stock-Based Awards. The Committee is hereby authorized to grant to Participants such other Awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purpose of the Plan; provided, however, that such grants must comply with Rule 16b-3 and applicable law. Subject to the terms of the Plan and any applicable Award Agreement, the Committee shall determine the terms and conditions of such Awards. Shares or other securities delivered pursuant to a purchase right granted under this Section 6(f) shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms (including without limitation, cash, Shares, promissory notes, other securities, other Awards or other property or any combination thereof), as the Committee shall determine, the value of which consideration, as established by the Committee, shall not be less than 100% of the Fair Market Value of such Shares or other securities as of the date such purchase right is granted. (g) General. (i) No Cash Consideration for Awards. Awards shall be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law. 6 (ii) Awards May Be Granted Separately or Together. Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with or in substitution for any other Award or any award granted under any plan of the Company or any Affiliate other than the Plan. Awards granted in addition to or in tandem with other Awards or in addition to or in tandem with awards granted under any such other plan of the Company or any Affiliate may be granted either at the same time as or at a different time from the grant of such other Awards or awards. (iii) Forms of Payment under Awards. Subject to the terms of the Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise or payment of an Award may be made in such form or forms as the Committee shall determine (including, without limitation, cash, Shares, promissory notes, other securities, other Awards or other property or any combination thereof), and may be made in a single payment or transfer, in installments or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of Dividend Equivalents with respect to installment or deferred payments. (iv) Limits on Transfer of Awards. No Award and no right under any such Award shall be transferable by a Participant otherwise than by will or by the laws of descent and distribution; provided, however, that, if so determined by the Committee, a Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Participant and receive any property distributable with respect to any Award upon the death of the Participant. Each Award or right under any Award shall be exercisable during the Participant's lifetime only by the Participant or, if permissible under applicable law, by the Participant's guardian or legal representative. No Award or right under any such Award may be pledged, alienated, attached or otherwise encumbered, and any purported pledge, alienation, attachment or encumbrance thereof shall be void and unenforceable against the Company or any Affiliate. (v) Term of Awards. The term of each Award shall be for such period as may be determined by the Committee. (vi) Restrictions; Securities Exchange Listing. All certificates for Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of the Securities and Exchange Commission and any applicable federal or state securities laws, and the Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. If the Shares or other securities are traded on a securities exchange, the Company shall not be required to deliver any Shares or other securities covered by an Award unless and until such Shares or other securities have been admitted for trading on such securities exchange. Section 7. Amendment and Termination; Adjustments. Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Plan: (a) Amendments to the Plan. The Board of Directors of the Company may amend, alter, suspend, discontinue or terminate the Plan; provided, however, that, notwithstanding any other provision 7 of the Plan or any Award Agreement, without the approval of the stockholders of the Company, no such amendment, alteration, suspension, discontinuation or termination shall be made that, absent such approval: (i) would cause Rule 16b-3 to become unavailable with respect to the Plan; (ii) would violate the rules or regulations of the New York Stock Exchange, any other securities exchange or the National Association of Securities Dealers, Inc. that are applicable to the Company; or (iii) would cause the Company to be unable, under the Code, to grant Incentive Stock Options under the Plan. (b) Amendments to Awards. The Committee may waive any conditions of or rights of the Company under any outstanding Award, prospectively or retroactively. The Committee may not amend, alter, suspend, discontinue or terminate any outstanding Award, prospectively or retroactively, without the consent of the Participant or holder or beneficiary thereof, except as otherwise herein provided. (c) Correction of Defects, Omissions and Inconsistencies. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry the Plan into effect. Section 8. Income Tax Withholding; Tax Bonuses. (a) Withholding. In order to comply with all applicable federal or state income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal or state payroll, withholding, income or other taxes, which are the sole and absolute responsibility of a Participant, are withheld or collected from such Participant. In order to assist a Participant in paying all or a portion of the federal and state taxes to be withheld or collected upon exercise or receipt of (or the lapse of restrictions relating to) an Award, the Committee, in its discretion and subject to such additional terms and conditions as it may adopt, may permit the Participant to satisfy such tax obligation by (i) electing to have the Company withhold a portion of the Shares otherwise to be delivered upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes or (ii) delivering to the Company Shares other than Shares issuable upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes. The election, if any, must be made on or before the date that the amount of tax to be withheld is determined. (b) Tax Bonuses. The Committee, in its discretion, shall have the authority, at the time of grant of any Award under this Plan or at any time thereafter, to approve cash bonuses to designated Participants to be paid upon their exercise or receipt of (or the lapse of restrictions relating to) Awards in order to provide funds to pay all or a portion of federal and state taxes due as a result of such exercise or receipt (or the lapse of such restrictions). The Committee shall have full authority in its discretion to determine the amount of any such tax bonus. Section 9. General Provisions. (a) No Rights to Awards. No Eligible Person, Participant or other Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Eligible Persons, Participants or holders or beneficiaries of Awards under the Plan. The terms and 8 conditions of Awards need not be the same with respect to any Participant or with respect to different Participants. (b) Award Agreements. No Participant will have rights under an Award granted to such Participant unless and until an Award Agreement shall have been duly executed on behalf of the Company. (c) No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases. (d) No Right to Employment. The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ, or as giving a Non-Employee Director the right to continue as a Director, of the Company or any Affiliate, nor will it affect in any way the right of the Company or an Affiliate to terminate such employment at any time, with or without cause. In addition, the Company or an Affiliate may at any time dismiss a Participant from employment, or terminate the term of a Non-Employee Director, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement. (e) Governing Law. The validity, construction and effect of the Plan or any Award, and any rules and regulations relating to the Plan or any Award, shall be determined in accordance with the laws of the State of Minnesota. (f) Severability. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction or Award, and the remainder of the Plan or any such Award shall remain in full force and effect. (g) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate. (h) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash shall be paid in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated. (i) Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. Section 10. Effective Date of the Plan. The Plan shall be effective as of the date on which it is approved by the shareholders of the Company. 9 Section 11. Term of the Plan. Unless the Plan shall have been discontinued or terminated as provided in Section 7(a), the Plan shall terminate on the date which is ten years after the date on which the Plan receives shareholder approval. No Award shall be granted after the termination of the Plan. However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond the termination of the Plan, and the authority of the Committee provided for hereunder with respect to the Plan and any Awards, and the authority of the Board of Directors of the Company to amend the Plan, shall extend beyond the termination of the Plan. 10 EX-10 5 exhibit10-9.txt EXHIBIT 10.9 AGREEMENT FOR THE PURCHASE AND SALE OF GLOBAL WATCH This Agreement is entered into between GLOBAL MAINTECH, INC. ("Global") and DABEW, INC. ("Dabew") for the purpose of achieving the sale of the Global Watch product, as the sale of a capital asset, in total, from Dabew to Global. 1. PRODUCT. In return for the "Purchase Price" as set forth in Paragraph 3 below, Dabew agrees to sell the Global Watch product ("Global Watch") to Global. Dabew shall retain no rights in Global Watch other than the rights securing payment as described in Paragraph 4 below. 2. EFFECTIVE DATE. The effective date of this sale shall be on November 20, 2000, and title to Global Watch shall pass to Global on that day. Dabew agrees to sign such other and further documentation as Global may reasonably request in order to further evidence this sale. 3. PURCHASE PRICE. In return for the sale of Global Watch, Global shall provide Dabew, as the "Purchase Price," a combination of cash and shares of Global's common stock. A. CASH. The cash element of the Purchase Price shall be the sum ONE MILLION THREE HUNDRED AND FIFTY THOUSAND DOLLARS ($1,350,000) which shall be paid by Global to Dabew at a rate of FIVE PERCENT (5%) of gross monies collected on Purchase Orders (POs) on every Global product sold by Global. Maintenance revenue is excluded. At the time of entering this agreement the products are the Virtual Command Center (VCC) and Global Watch (GWMVS). There is no intent to exclude future versions or releases of these products nor is there any intent to exclude products that may be sold by Global in the future. B. COMMON STOCK. The common stock element of the purchase price shall be a total of 350,000 shares of Global's common stock issued, effective on November 20, 2000. Such shares shall have piggyback registration rights and will be subject to any applicable "dribble-out" rules. The number of shares provided for in this section shall be adjusted to reflect any stock splits or shares sold at below market values, in order to prevent dilution. These shares are to be delivered to Norm Freedman, 4 Amador Lane, Newport Coast, California 92657, on or before November 24, 2000. C. MINIMUM LICENSE FEES. The minimum license fee to be paid is $125,000 per year (the year runs from November 20th of each year through November 20th of each following year). 4. SECURITY. Dabew shall retain a security interest in Global Watch, entitling Dabew to regain possession and all rights, title, and interest in Global Watch if the Purchase Price is not paid in full and in accordance with Section 3 above. Global and Dabew agree to enter into an escrow agreement with DSI Technology Escrow Services ("DSI") and to deposit with DSI a full 1 copy of the source and object code, including revisions which occur from time to time. The first deposit is to be made on or before December 20, 2000. Such deposit shall be in accordance with a standard form DSI preferred agreement, with instructions to release the source and object code to Dabew if Global defaults and such a default is not cured within 30 days written notice from Dabew; an indication that DSI is holding these items as collateral for Dabew; and an indication that if the items are delivered by DSI to Dabew it is the parties intention to pass all incidents of ownership and rights to use these items at the same time to the exclusion of any future use by Global. The DSI preferred agreement shall be a document of title within the meaning of Commercial Code Section 1201 and shall obligate DSI to deliver the items DSI holds in accordance with the terms of Commercial Code Section 7403(4). 5. INDEMNIFICATION. Until the security interest (defined in Section 4) has been removed, Dabew shall indemnify and hold Global harmless from and will defend Global against any action brought against Global, and shall pay any and all liabilities, damages, costs and expenses in connection with such actions to the extent that such actions are based on a claim that the Global Watch product infringes on any patent, copyright, or other proprietary rights on any third party; provided that Global (1) notifies Dabew promptly in writing of any claim made on or after November 20, 2000, (2) permits Dabew to defend, compromise, or settle the claim (and/or alter the product so it is no longer infringing on any rights of any third party), and (3) provides all available information, reasonable assistance and authority, at Dabew's expense, to enable Dabew to do so. 6. NOTICES. Any and all notices and other communications required or permitted by this Agreement or by law to be given to a party hereto shall be in writing and shall be deemed duly served and delivered when: (1) personally delivered to that party; or (2) on the third day following deposit into the United States mail, postage prepaid, registered or certified, return receipt requested, addressed to the other party at the address shown below in the Agreement; providing that evidence of the completed transmission is retained. 7. INTEGRATION. This Agreement contains the entire agreement of the parties. There are no oral representation or side agreements, which remain in effect between the parties, which have not been incorporated in this Agreement and signed by the parties hereto. This agreement may not be modified, amended, or supplemented, except by the terms of a writing referencing this Agreement and signed by the parties. 2 Dated: November 20, 2000 GLOBAL MAINTECH, INC. By: -------------------------------- (Authorized Officer) DABEW, INC. By: -------------------------------- (Authorized Officer) 3 EX-21 6 exhibit21.txt EXHIBIT 21 LIST OF SUBSIDIARIES NAME STATE OF INCORPORATION - ---- ---------------------- Global MAINTECH, Inc Minnesota Lavenir Technology, Inc. California EX-23 7 exhibit23.txt EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT The Board of Directors Global MAINTECH Corporation: We consent to incorporation by reference in the registration statement (No.33-33576) on Form S-8 of Global MAINTECH Corporation of our report dated February 15, 2002, relating to the consolidated balance sheets of Global MAINTECH Corporation and subsidiaries as of December 31, 2001 and 2000 and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the years then ended, which report appears in the December 31, 2001 annual report on Form 10-KSB of Global MAINTECH Corporation. Our report dated February 15, 2002, contains an explanatory paragraph that states that the Company has suffered losses from operations and has a working capital deficiency and an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. /s/ Feldman Sherb & Co., P.C. Certified Public Accountants New York, New York March 27, 2002 EX-99 8 exhibit99.txt 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 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, 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 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 A HISTORY OF OPERATING LOSSES AND WE CANNOT ASSURE YOU THAT WE WILL ACHIEVE ONGOING PROFITABILITY. We have a history of operating losses. We reported net losses from operations of approximately $0.3 million for 2001 and $10.0 million for 2000. Our losses in 2001 are primarily attributable to losses from operations. We cannot be certain that we can achieve or sustain profitability in the future. IF WE DO NOT MEET OUR FUTURE CAPITAL NEEDS, OUR ABILITY TO GROW AND CONTINUE AS A GOING CONCERN WILL BE LIMITED. The Company's management expects to be cash-flow positive in the first quarter of 2002; however, the Company 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 may not be able to obtain financing and, if we do, such financing may not be available at reasonable rates and terms. 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 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 products and services 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 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. 1 IF OUR VIRTUAL COMMAND CENTER PRODUCT DOES NOT ACHIEVE BROAD MARKET ACCEPTANCE, OUR PRODUCT REVENUE WILL DECREASE AND MAY DECREASE SIGNIFICANTLY. Our VCC product is still relatively new and we cannot be certain that it will achieve high levels of demand and market acceptance. In 2001, we sold approximately 2 units of the VCC system to one customer. 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. 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 BE ADVERSELY AFFECTED. 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 VCC system. 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. WE ARE DEPENDENT ON NEW KEY PERSONNEL. IF WE ARE NOT ABLE TO ATTRACT AND RETAIN THESE NEW KEY EMPLOYEES, OUR BUSINESS COULD BE HARMED. Our success depends to a large extent on the ability of our key personnel to integrate within our operations and successfully interact with our customers. In particular, we are highly dependent on the services of Wild Cat Management, Inc., through its President Dale Ragan, our chief executive officer, and Sue Korsgarden, our chief accounting officer. We do not carry key-man life insurance for any of our officers or employees. The loss of these new key personnel, current 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 to us, 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. 2 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. OUR STOCK PRICE IS VOLATILE, WHICH MAY RESULT IN SIGNIFICANT LOSSES TO SHAREHOLDERS. Our stock price is volatile. During 2001, our stock price fluctuated between a high of $ 1.359 and a low of $.059. 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; o general economic conditions; o the outlook of market analysts and investors of the industry that we are in; and o the 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-----