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Global Election Systems Inc · 10KSB · For 6/30/00

Filed On 9/28/00, 4:42pm ET   ·   Accession Number 950134-0-8277   ·   SEC File 0-24725

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  As Of                Filer                Filing    For/On/As Docs:Size              Issuer               Agent

 9/28/00  Global Election Systems Inc       10KSB       6/30/00    6:258K                                   Bowne of Dallas I..01/FA

Annual Report — Small Business   —   Form 10-KSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10KSB       Form 10KSB for Fiscal Year End June 30, 2000          54    255K 
 2: EX-10.3     Changes in Terms Agreement for Loan, 5/22/00           7     28K 
 3: EX-10.4     Change in Terms Agreement for Loan, 5/27/00            7     28K 
 4: EX-10.5     Loan Agreement, 7/19/00                               29    133K 
 5: EX-11.1     Statement Re: Computation of Earnings Per Share        1      6K 
 6: EX-27       Financial Data Schedule                                1      6K 


10KSB   —   Form 10KSB for Fiscal Year End June 30, 2000
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
3Item 5. Market for Common Equity and Related Stockholder Matters
4Item 1. Description of Business
8Competition
9Intellectual Property
14Item 2. Description of Property
"Item 3. Legal Proceedings
"Item 4. Submission of Matters to A Vote of Security Holders
16Item 6. Management's Discussion and Analysis of Operation
21Item 7. Financial Statements
"Consolidated Financial Statements
43Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
"Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(A) of the Exchange Act
45Item 10. Executive Compensation
49Robert J. Urosevich
"Item 11. Security Ownership of Certain Beneficial Owners and Management
51Item 12. Certain relationships and related transactions
52Item 13. Exhibits and Reports on Form 8-K
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SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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 June 30, 2000 [ ] Transition report under Section 13 or 15(d) of the Exchange Act of 1934 For the transition period from _____ to _____ SEC File Number 0-24725 GLOBAL ELECTION SYSTEMS INC. (Exact Name of Small Business Issuer as Specified in Its Charter) British Columbia, Canada 85-0394190 (State or Province of Incorporation) (IRS Employer Identification No.) 1611 Wilmeth Road, McKinney, TX, 75069 (Address of Principal Executive Offices) 972-542-6000 (Issuer's Telephone Number, Including Area Code) Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Act: COMMON STOCK, WITHOUT 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 shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] (issuer not subject to filing requirements for past 90 days)
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Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation 405 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 amendments to this Form 10-KSB. The issuer's revenues for its most recent fiscal year were $20,236,828. The aggregate market value of the voting stock held by non-affiliates of the registrant at June 30, 2000 was C$19,141,182 (based on the closing sale price on the Toronto Stock Exchange on June 30, 2000 of C$1.03). This calculation does not reflect a determination that persons are affiliates for any other purposes. At June 30, 2000, there were 18,583,672 of the registrant's voting shares issued and outstanding. Documents incorporated by reference: None Transitional Small Business Disclosure Format (check one): Yes [ ] No [x]
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GLOBAL ELECTION SYSTEMS INC. Form 10-KSB For the Fiscal Year Ended June 30, 2000 TABLE OF CONTENTS [Download Table] PART I ITEM 1. DESCRIPTION OF BUSINESS ITEM 2. DESCRIPTION OF PROPERTY ITEM 3. LEGAL PROCEEDINGS ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS PART II  ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION ITEM 7. FINANCIAL STATEMENTS ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT ITEM 10. EXECUTIVE COMPENSATION ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K SIGNATURES
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PART I  ITEM 1. DESCRIPTION OF BUSINESS COMPANY OVERVIEW Global Election Systems Inc. (the "Company") is a leading manufacturer and distributor, through its wholly owned United States subsidiary, Global Election Systems, Inc., ("Global USA") of state of the art computerized electronic election management systems. The Company's signature products are the ES-2000 AccuVote optical scan voting system ("AccuVote - OS"), and the paperless AccuVote touch screen voting system ("AccuVote - TS"), using a special voter access card ("Smart Card"). The AccuVote - OS voting system and the AccuVote - TS voting system are stand-alone voting systems. They are both classified as precinct count and central accumulation systems and have functionality that permits management control of the voting process from ballot preparation to verification of results. The AccuVote - TS which is a "paperless DRE" (Direct Record Equipment), was added to the Company's product line in 1997 when the Company acquired all of the assets of I-Mark Systems, Inc. The Company was formed on November 22, 1991, under the Company Act (British Columbia, Canada) by way of a statutory amalgamation of North American Professional Technologies B. C. Ltd. and Macrotrends International Ventures Inc. Global USA was incorporated in Delaware in 1991. The address of the Company's executive offices is 1611 Wilmeth Road, McKinney, TX 75069; and its telephone number is (972) 542-6000. The Company's no par value common stock ("Common Stock") is traded on the Toronto Exchange under the symbol GSM. Reference in this document to the "Company" includes its wholly owned subsidiary, Global USA, unless the context otherwise requires. All funds are reported in U.S. dollars unless otherwise specified. Canadian funds are designated by "C$". INDUSTRY OVERVIEW Elections are held under the auspices of various governmental systems, especially those in democratic countries. Until the 1960's, almost all elections were conducted with manually counted paper ballots and lever-activated mechanical voting machines. Lever machines, which were bulky, heavy and consisted of over 800 moving parts, required significant maintenance and were expensive to warehouse. This method of voting and tallying votes, in addition to being cumbersome and inefficient, was susceptible to inaccuracies, significant time delays, and other difficulties. In 1964, the Votomatic punch card voting system was patented. While this system has not been actively manufactured since the mid-1980's, it remains the most widely used system in North America. In the early 1980's, optical scan voting systems were introduced and began to penetrate the election equipment marketplace on a relatively small scale. In recent years, the election industry has begun to computerize in response to increased public acceptance and familiarity with using computers. Computers offer the opportunity to count ballots accurately and quickly. Additionally, computer technology has created the potential for more convenient methods of voting and has provided avenues to encourage more voter participation. Service and support have also become increasingly important components of the newer, technologically advanced voting systems. Even though technology is being accepted more readily, many voting systems being marketed continue to lag in the application of state-of-the-art computer technology, and have lacked durability and flexible functionality.
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GLOBAL ELECTION SYSTEMS' STRATEGY As previously noted, the Company is a leading manufacturer and distributor of state-of-the-art computerized electronic voting systems. Only three major election system companies actively market and sell products in the United States and Canada, and sales are a matter of public record. The Company capitalizes on its highly acclaimed application software, its advanced product design, and its customer support to market its election systems to voting jurisdictions throughout North America. Its objective is to become a leading supplier of comprehensive voter registration and election systems to governments in the United States, Canada, and around the world. The Company believes that the continuing need for accurate, efficient election systems and the increasingly recognized need for the voting process to be highly voter accessible and simple to use should provide numerous opportunities for the Company to expand the scope of its activity. * Expand Market Penetration Through Internal Growth The Company has achieved growth in its market and has expanded its market through continual innovation in and expansion of its product line and aggressive marketing of its election systems to increasingly populous voting jurisdictions. The Company has increased its market share by providing its proven voting systems plus election-related products such as voter registration systems. It also seeks avenues to apply its standard products to other governmental related processes such as vehicle registration and welfare systems. * Compliment Internal Growth Through Acquisition or Selling Arrangements The Company has developed its business, in part, through acquisition of an election products company. It has also entered into marketing agreements with other companies that produce leading edge technology products that compliment the Company's standard product line. These acquisitions and marketing agreements have provided opportunities for the Company to expand its customer base into more populous jurisdictions. * Continued Technology Innovation and Integration The Company maintains an active, on-going research and development program to improve product performance and provide innovative solutions to the needs of the voting jurisdictions and other governmental applications. For example, while continually upgrading its existing products, the Company has developed a comprehensive Windows NTR-based application software program to anchor its product line. It is currently in the process of adapting biometric authorization technology to increase voter security and pave the way for Internet voting. The Company is also pursuing methods of providing unattended voting opportunities in much the same manner as ATM's provide banking services to the general public. All of the products offered by the Company are designed to integrate the entire election process, from voter registration and election management through tabulation and reporting of election results. * International Sales The Company seeks to sell its full line of election-related systems throughout North America and globally. The Company believes, based on past experience, the market for election systems in Central and South America is expanding.
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* Customer Support Customer support is a significant part of the Company's marketing strategy and its system sales. The Company intends to continue its commitment to, and to enhance, its pre-election through post-election assistance to its customers. It offers service contracts for all aspects of the election process, including election management training, assistance with the conduct of elections, programming services plus standard extended warranty and support agreements. GLOBAL ELECTION SYSTEMS' PRODUCTS The products currently offered by the Company include optical scan and touch screen voting systems, plus related voter registration systems supplied through cooperative marketing agreements with third party companies. State-of-the-Art Computerized Electronic Voting Systems The Company's signature product is its patented AccuVote ES-2000 Election System. The AccuVote system, patented in Canada and the United States, automates all facets of election administration from initial ballot layout through certification of results. The ballot-processing unit optically scans marked voted paper ballots and produces printed precinct level results immediately after the polls close. Totals are captured on a memory card and transferred to the counting center or sent from the precinct tabulator directly to the host computer over a modem using common carrier lines. Designed for security and integrity, the ballot-processing unit is compact and lightweight and is easily transported to and from the polling place. GEMS application software automates the entire election administration cycle from ballot layout through certification of results. GEMS software is used to define all election-specific parameters. Direct Record Voting System. The Company offers additional, technologically advanced election products with its innovative AccuVote - TS (touch screen) system. The system is anchored by smart card technology that stores voter identification information, allowing the automatic selection of any ballot style for any voter at any polling place. The Voter Access Card can permit the placement of voting stations in places where people assemble, like shopping malls, rather than in specific precinct locations. AccuVote - OS and AccuVote - TS can be used as a blended system, permitting flexibility in solving the particular problems and requirements of a voting jurisdiction. For instance, AccuVote - TS can be used for early voting, where its capacity to store all ballot styles allows early voters from all precincts to insert Smart Cards into the same unit to select their particular precinct ballot. AccuVote systems can be used at the precinct level during the election. The vote tallies from both the AccuVote - OS and AccuVote - TS units are then sent to a host computer to be combined to determine the election result. AccuVote - OS and AccuVote - TS units have a list price of approximately $6,500 per unit, to which quantity discounts and additional products may be applied, depending upon the needs and size of the election district. Other Product Arrangements. The Company occasionally makes arrangements with companies producing other products that are complementary to and enhance the Company's product offering to a particular voting jurisdiction. For instance, in King County, Washington, the Company is providing, through a license, additional voter registration software. These arrangements are generally made on a case-by-case basis, depending on the need and size of a voting jurisdiction.
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Backlog. At fiscal year end June 30, 2000, the Company had a backlog of approximately $225,000, of orders for its AccuVote - OS, AccuVote - TS and Smart Card products. This backlog compared to a backlog of $2,280,000 on June 30, 1999. Backlogs are principally the result of customer-scheduled shipment dates, which are usually a period of months after the contract date and which may also be in installments. The decrease in the backlog is attributable primarily to the timing of delivery schedules. All backlog orders are expected to be filled during fiscal year 2001. CUSTOMER SUPPORT SERVICES The Company emphasizes continuing service support to its customers. These services begin with initial equipment acceptance and testing and continue through on-site Election Day and election night support. Some election-specific services provided by the Company are pre-election consultation, ballot design/layout programming assistance, precinct worker training, voter education assistance, system testing and verification, and on-site Election Day and election night support. CUSTOMERS The Company's customers include over 840 voting jurisdictions in the United States and Canada. Recent contract awards include El Paso County, Colorado, Fresno County, California and Brevard County, Florida. During the twelve months ended June 30, 2000, Santa Barbara County, California, Cobb County, Georgia, El Paso County, Texas and Marin County, California together accounted for approximately 21% of Company revenues. During the fiscal year ended June 30, 1999, El Paso County, Colorado and Fresno County, California together, accounted for approximately 20% of Company revenues. During the fiscal year ended June 30, 1998, King County, Washington accounted for approximately 20% of the Company's revenues. SALES AND MARKETING The Company markets its products both domestically and internationally to governments. Because of the close involvement of the Company in the use of its election systems by customer governments and the Company's desire to maintain a high level of contact and service, sales are made by salaried, commissioned salespersons employed by the Company and assigned to various territories. Salespersons work directly with the election officials in each Territory to close and implement sales. At June 30, 2000, the Company employed 18 of these salespersons, who were assigned to specific territories in the United States and Canada. The Company also has six resellers, which are established in the election business and have contracts for specific territories. Sales outside the United States and Canada are supervised by the Company's sales staff. The Company plans to use in-country representatives in these countries, but currently has none. Payment for sales is typically made in United States and Canadian dollars. As a result, the Company's actual receipts are subject to fluctuation based upon currency exchange rates between the United States and Canada and, should the Company accept payment in another currency, to the fluctuations in that currency's exchange rate.
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The Company, because it sells election products and services, could tend to operate on a two-year business cycle because in the United States, a substantially larger number of elections for public office are held in even-numbered years than in odd-numbered years. As a result, revenues and underlying production and support activities for a majority of the Company's Products and services could significantly increase or decrease in accordance with the election cycle. However, because the Company's fiscal year ends June 30, and because many voting jurisdictions now attempt to purchase election products and services following an election, the Company believes that it has to some extent ameliorated the possible effect of the United States' biennial election cycle. Also, in Canada, elections are conducted on an irregular schedule, which differs in and among national, provincial and municipal elections. Thus, the Company's Canadian business may also be expected to ameliorate any United States cyclically. RESEARCH AND DEVELOPMENT The Company expended approximately $1,284,000 (including deferred development costs), $857,000 and $483,000 for research and development during the fiscal years ended June 30, 2000, June 30, 1999, and June 30, 1998 respectively. All of the Company's in-house research efforts are conducted at its facilities in Vancouver, Canada, and McKinney, Texas.  COMPETITION The election system market is defined by the voting needs and specifications of voting jurisdictions. In that regard, sales, and therefore competition, are directed to Secretaries of State and election officials in each voting jurisdiction who issue requests for proposals in which desired specifications are set forth. Responsive bids are submitted to these officials and other specified reviewers for their evaluation and the selection of the company awarded the project. Competitive factors include accuracy, security and speed of voting and tallying of votes, ease of use of the system, flexibility in ballot preparation, cost and customer support. Because of its ability to offer a complete, state of the art, integrated election system that can be tailored to the customer's needs, the Company believes it is able to compete in all major areas of the election systems market. See "Risk Factors: Global competes with larger, well-established companies" for additional information on competitors. In North America, the Company competes primarily with moderately sized companies (some of which are affiliates of much larger companies) in the overall election system market and with some small companies who offer some aspect otherwise included in the overall system, such as voting equipment. The Company's largest competitors in the North American election system market are Sequoia Pacific Systems, Inc. ("Sequoia"), a subsidiary of Jefferson Smurfit, and ES&S ("ESS"). ESS and Sequoia offer local and state election management systems, optical scan ballot tallying and reporting, and election information management software. Microvote, Inc., of Indianapolis, offers a direct record voting system. The Company also competes with a number of regional companies, including those mentioned previously, which produce and sell products designed to provide specific election-related functions. MANUFACTURING The Company assembles its AccuVote - OS and AccuVote - TS products at its plant in McKinney, Texas. With the exception of its visible light optical reader (which it obtains from another source but could replace with an in-house product) and its ballot box (for which the Company owns the molds and could obtain an alternate manufacturer), the Company obtains components for its products largely from various off-the-shelf vendors of electronic components, any of which could be replaced by another vendor should the need present itself.
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 INTELLECTUAL PROPERTY  PATENTS The Company holds the United States and Canadian patents, the rights to which it purchased in 1991, on its AccuVote ES-2000 system ("Patent"). The United States patent expires on April 24, 2006. Except for the Patent, the Company has not sought patent protection for its technology, even though it believes that some of its processes and equipment are proprietary to it. The Company has relied upon industrial know-how, and trade secret laws. The Company cannot assure that its proprietary processes and equipment will provide it with sufficient competitive advantage to overcome its lack of patent protection, nor can it assure that others will not independently develop equivalent or superior products or technology. Also, the Company cannot assure that it will be able to establish trade secret protection or those trade secret obligations will be honored. To the extent that consultants, employees and other parties apply technological information developed independently by them or others to Company projects, disputes may arise as to the proprietary rights to that information, which may not be resolved in favor of the Company. It is also possible that litigation may be necessary to enforce the Company's proprietary rights, to protect its trade secrets, to determine the validity and scope of the intellectual property rights of others or to defend against claims of infringement. Litigation of that nature could result in substantial costs and diversion of resources and could have a material adverse effect on the Company's business, financial condition and results of operation. Patent applications in the United States are not disclosed until the patents issue; therefore, patent applications could have been filed which relate to the Company's processes and equipment. The Company does not believe that it infringes any patents of which it is aware; however, it cannot assure that patent infringement claims will not be asserted against the Company. These claims, if asserted, could have a material adverse effect on the Company's business, financial condition or results of operation. If infringement or invalidity claims were to be asserted against the Company, litigation could become necessary to defend the Company against those claims. In certain circumstances, the Company might choose to seek to obtain a license under the third party's intellectual property rights, which the Company cannot assure would be available, if at all, on terms acceptable to the Company. TRADEMARKS AND TRADENAMES The Company has no registered trademarks or trade names, but claims proprietary rights to AccuVote and Global Election Systems. Trademark registration applications have been filed for AccuVote and Global Election Systems in the United States, but no assurance can be given that these trademarks will issue. GOVERNMENT REGULATION The Company's products are sold almost exclusively to governmental units. The Company's AccuVote - OS and AccuVote - TS election products meet or exceed United States Federal Election Commission ("FEC") standards and are required to be, and are, tested to FEC standards by Wylie Labs, the industry's designated Independent Testing Authority. In the United States, election systems must also be certified in each State where they are used. Currently, one or the other or both of the Company's systems are certified in 35 States. Canada does not require testing and certification.
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Each governmental unit to which the Company markets its products specifies its own particular requirements for system operation. Without exception, the Company's customers seek, and require, tamper-proof, efficient, confidential and expeditious election equipment and systems. These requirements and others typically are embodied in the customer's Request for Proposal ("RFP"), issued to solicit bids from the Company and others. Because the Company must be able to respond with complying bids to RFP's, the Company must continually monitor, adapt to, anticipate and design for changes in specifications and in the expectations that governmental units have for efficient systems. For example, in the United States, promoting and increasing voter participation is a concern of many jurisdictions. As a result, enhancing convenience and opportunity to vote are increasingly important. The Company's products are a direct response to these changing needs. To the extent that the Company is or becomes unable to anticipate or respond to the concerns of jurisdictions, its ability to submit responsive bids to RFP's will be impeded. Because the Company is incorporated and does business in British Columbia and its subsidiary, Global USA, is incorporated in the State of Delaware and does business in the United States and internationally, the Company as a whole is subject to both Canadian and United States tax laws. Additionally, the Company must comply with the taxation, export and import, currency, and other laws of each country in which it sells products or otherwise does Business. These laws can be burdensome. To the extent that the Company is unable or unwilling to comply, its business in a particular country may be expected to be materially adversely affected. WARRANTIES Key to all elections is the reliability of the system, including the voting equipment, accuracy of voting results, and accuracy of tallying of results. The Company's equipment is designed to optimize this reliability. The Company warrants its election systems for a period of one year from purchase, unless another period is specified by the RFP from a voting jurisdiction. The Company self-insures against warranty claims. The Company has never been the subject of any material warranty claims and has generally repaired or replaced malfunctioning equipment in the pre-election stage; however, if a claim were to be made and to prevail, a lack or insufficiency of insurance coverage could have a material adverse effect on the Company. However, all contracts with customers require insurance to be in place before execution of the contract. ENVIRONMENTAL COMPLIANCE The Company operates a manufacturing plant in McKinney, Texas. Although its manufacturing consists largely of parts assembly, the Company is required to comply with United States and Texas environmental and Occupational Safety and Health Act requirements applicable to electronics manufacturing operations in general, including, for example, storage, marking, and disposal of various products used for cleaning parts to be assembled. Although the Company takes appropriate measures to comply with these requirements, violations can occur. The New York Department of Environmental Conservation cited the Company once for alleged violation of certain storage and marking, and disposal requirements applicable to two of these substances used at its former New York manufacturing facility. The Company responded immediately to correct the situation. The Company believes that its compliance programs are adequate, but cannot assure that no problems will arise in the future, some of which could have a material adverse impact on the Company and its business.
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EMPLOYEES As of June 30, 2000, the Company had approximately 70 employees, of whom all were full-time, at its three locations in Canada and the United States. Of the full-time employees, 13 were in executive and administrative positions, 18 were in sales, marketing and customer relations, 5 were in research and development, 19 were in manufacturing, and 15 were in field customer support. RISK FACTORS In addition to the matters set forth in the foregoing discussion of the Company's business, the operations and financial performance of the Company are subject to the risks, among others, described below. FLUCTUATIONS IN OPERATING RESULTS MAY AFFECT REVENUES IN NON-ELECTION YEARS. Sales of election products and services tend to occur on a two-year business cycle because in the United States a substantially larger number of elections for public office are held in even-numbered years. As a result, revenues and underlying production and support activities for a majority of Global's products and services could significantly increase or decrease in accordance with these cycles. Some of the reasons for these fluctuations, many of which are beyond Global's control, include: The timing of customer orders; Delays in shipment due to component shortages or defects, which must be remedied; Production problems; Cancellation of orders; and Regulatory changes. For additional reasons for certain fluctuations see "Description of Business Sales and Marketing". GLOBAL'S MANAGEMENT AND FINANCIAL CONTROLS, PERSONNEL AND OTHER CORPORATE SUPPORT SYSTEMS MAY NOT BE ADEQUATE TO INTEGRATE FULLY ACQUIRED BUSINESSES AND DISTRIBUTORSHIPS. One of the Company's strategies is to increase its scope of business and the product lines it offers by acquiring other election businesses and products or entering into distributorship or similar arrangements with other producers. The company cannot assure that its management and financial controls, personnel, and other corporate support systems will be adequate to manage the increase in the size and diversity of scope of the Company's operations as a result of any such acquisition or distributorship. Also, the Company cannot assure that the acquisition or distributorship arrangement will be accretive to earnings. By its nature, a distributorship does not give the Company complete control over the distributed products' manufacturing, shipment or quality, all of which are the responsibility of the manufacturer. Problems in any of these areas should they occur, could materially adversely affect the Company and its business. If and when appropriate acquisition opportunities, some of which could be material, arise, the Company intends to pursue them actively. No assurance can be given that any acquisition by the Company will or will not occur, that if such an acquisition does occur that it will not, despite the Company's efforts, materially and adversely affect the Company, or that any such acquisition will be successful in enhancing the Company's business.
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GLOBAL'S PRODUCTS ARE DEPENDENT UPON SATISFACTORY TESTING AND CERTIFICATION BEFORE SALES MAY BE MADE IN A VOTING JURISDICTION. In the United States, the Company's ability to respond to RFP's from voting jurisdictions and to make sales to those jurisdictions is dependent upon satisfactory completion of testing of the AccuVote - OS and AccuVote - TS (and similar future products or variations) by Wyle Labs, the industry's designated Independent Testing Authority and upon certification by each State. If for some reason not now known or anticipated, a product did not test satisfactorily, the Company's business could be materially adversely affected to the extent it was unable to offer and sell that product. Similarly, the failure of a product to be certified in a State would prevent the sale of the product in that State and the voting jurisdictions in that State. Because the Company deals with governmental authorities in making offers and sales of its products, it can also be adversely affected by changes in those authorities, revisions to or promulgation of new requirements and standards in a State, and unanticipated or unforeseen impediments in the bidding, award and implementation process. INTERNATIONAL SALES MAY SUBJECT THE COMPANY TO CERTAIN POLITICAL, ECONOMIC AND OTHER UNCERTAINTIES. The Company sells its election systems primarily in the United States and Canada, but intends to market actively to other countries throughout the world, particularly in Latin America. Sales of the Company's election systems will subject it to various governmental regulations, exports controls, and the normal risks involved in international sales. Sales of products and services in Latin America and elsewhere are subject to political, economic and other uncertainties, including, among others, risk of war, revolution, expropriation, renegotiation or modification of existing contracts, election laws and regulations, standards and tariffs, and taxation policies, as well as international monetary fluctuations which may make payment in United States dollars more expensive for foreign customers, and other uncertainties and trade barriers. DECLINES IN THE VALUE OF OTHER CURRENCIES AGAINST THE U.S. DOLLAR WILL DECREASE EARNINGS FROM SALES IN THOSE CURRENCIES WHEN STATED IN U.S. DOLLARS. Substantially all of the Company's revenues to date have been received in United States and Canadian dollars; however, some sales in the future may be in other currencies. Any decline in the value of other currencies in which the Company makes sales against the United States dollar will have the effect of decreasing the Company's earnings when stated in United States dollars. The Company does not engage in any hedging transactions that might have the effect of minimizing the consequences of currency fluctuations (which are not currently material) and does not intend to do so in the immediate future. GLOBAL AND GLOBAL USA MAY BE SUBJECT TO VARIOUS TAX PENALTIES BECAUSE OF TRANSFER PRICE ARRANGEMENTS. The Company and Global USA have entered into various agreements between themselves with respect to the transfer of technology, services and manufactured product. Because the Company is generally subject only to Canadian taxation and Global USA is generally subject only to U.S. taxation, issues of transfer pricing arise. Both the Canadian and U.S. tax authorities generally require that pricing arrangements between the Company and Global USA be entered into on a fair market basis. Further, Canada now requires that contemporaneous documentation be completed evidencing the arrangements. While the Company is attempting to meet its obligations in this regard, the Company could be subject to various penalties, and increased tax, if the taxing authorities take issue with the transfer pricing arrangements reached between the Company and Global USA. Because appropriate transfer prices cannot be arrived at with certainty, there is no assurance that the taxing authorities would agree with the Company's transfer pricing arrangements. POLITICAL INSTABILITY COULD MATERIALLY ADVERSELY AFFECT GLOBAL'S INTERNATIONAL BUSINESS. The political and economic instability in some countries in Latin America and elsewhere could result in the adoption of new trade policies or lead to trade disputes, which could materially adversely affect the Company and its business. The Company has no insurance against political instability.
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GLOBAL COMPETES WITH LARGER, WELL-ESTABLISHED COMPANIES. These companies have financial, and could develop technological and marketing, resources that are significantly greater than the Company's and may have established relationships with customers or potential customers that afford them a competitive advantage. The Company cannot assure that it will be able to compete effectively in its future markets or that competitive pressures will not adversely affect its business, financial condition or results of operations. Please see "--Competition" above for more information. GLOBAL DOES NOT HAVE PATENT PROTECTION FOR ITS PROPRIETARY INTELLECTUAL PROPERTY OTHER THAN THE ACCUVOTE - OS, AND, THEREFORE, DISPUTES COULD ARISE AS TO ITS OWNERSHIP OF AND THE SCOPE OF ITS RIGHTS TO THAT INTELLECTUAL PROPERTY. These disputes, as well as any that might arise as to the patented technology, may not be resolved in the Company's favor and could be very expensive to resolve. Please see "--Intellectual Property" above for more information. The success of the Company is dependent upon the services of its President, Mr. Urosevich, its Vice President of Operations, Mr. Dix, its Vice President of Sales/Marketing, Mr. Herron, and its Vice President of Acquisitions and Mergers, Mr. Ensminger. The Company has an employment agreement only with Mr. Urosevich. The Company has no key man insurance with respect to any of these persons. The loss of the services of any one of them for any reason could materially impede the Company's marketing effort and strategic planning. EXERCISE OF OUTSTANDING WARRANTS AND OPTIONS COULD DILUTE EARNINGS. As of June 30, 2000 the Company had 1,300,000 options and 166,667 warrants for Common Stock outstanding. To the extent that any outstanding options and warrants for Common Stock are exercised, there will be additional dilution in excess of that resulting from use of common and common equivalent shares in earnings calculations. GLOBAL HAS NO ACTIVE MARKET FOR ITS COMMON STOCK IN THE UNITED STATES AND ONE MAY NOT DEVELOP. THE MARKET PRICE MAY ALSO BE VOLATILE. The Company's Common Stock is traded on the Toronto (Canada) Exchange and is expected to trade on the Nasdaq electronic bulletin board. While a public market for the Company's Common Stock currently exists in Canada, no such market exists in the United States as yet, even though the Common Stock has been registered under Section 12(g) of the Securities Exchange Act of 1934, and the Company cannot assure that any market for the Common Stock will develop in the United States. The number of freely traded shares in the Canadian market is 12,306,518, and the number of shares expected to be in the United States market is 6,277,154, about 33.8 % of the 18,583,672 shares of Common Stock outstanding at June 30, 2000. However, trading volume in the four weeks ended June 30, 2000 in Canada averaged 20,062 shares traded per day. Thus, even though a substantial percentage of the Company's outstanding shares could be traded, trading of relatively small blocks of stock can have a significant impact on the price at which the stock is traded. In addition, the Nasdaq electronic bulletin board has experienced, and is likely to experience in the future, significant price and volume fluctuations, which could adversely affect the market price of he Common Stock without regard to the operating performance of the Company. The Company believes that factors such as quarterly and annual fluctuations in financial results, announcements by competitors, or changes in securities analysts' recommendations may cause the market price to fluctuate, perhaps substantially. These fluctuations, as well as general economic conditions, such as recessions or high interest rates, may adversely affect the market price of the Common Stock. Please see "Part II. Item 5. "Market For Common Equity and Related Stockholder Matters" for more information.
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FUTURE SALES BY EXISTING SHAREHOLDERS COULD ADVERSELY AFFECT THE PREVAILING MARKET PRICE OF THE COMMON STOCK. At June 30, 2000, the Company had 18,583,672 shares of Common Stock outstanding, and an additional 1,300,000 shares that could be issued under an employee option plan. In addition, the authorized capital of the Company includes 20,000,000 shares of Preferred Stock, none of which had been issued as of June 30, 2000. However, the Board of Directors may determine at any time and from time to time to set the terms and preferences of the Preferred Stock, or a series of it, and to issue it, subject to approval of the Toronto Stock Exchange. GLOBAL HAS NEVER PAID CASH DIVIDENDS ON ITS COMMON STOCK AND DOES NOT EXPECT TO DO SO FOR THE FORESEEABLE FUTURE. The Company intends to retain future earnings, if any, to provide funds for business operations and, accordingly, does not anticipate paying any cash dividends on its Common Stock in the foreseeable future.  ITEM 2. DESCRIPTION OF PROPERTY The Company leases office and manufacturing facilities in McKinney, Texas, in Omaha, Nebraska and Vancouver, British Columbia. The Company's standard practice is to lease its facilities, and to insure the facilities and their contents under an insurance plan. The McKinney, Texas, leased facility consists of about 13,050 square feet in a stand-alone, one-story building. This facility includes the Company's manufacturing operations and its United States corporate headquarters. The current capacity utilization of the manufacturing area is about 100%. The lease term commenced on August 1, 1997 and continues for a period of five years, with two five-year options to renew. A new facility consisting of approximately 13,000 square feet in a stand-alone, one-story building is under construction adjacent to the current facility. The new facility is expected to be occupied on October 1, 2000. The Vancouver, British Columbia leased facility consists of about 2,785 square feet in an office building. This facility houses the Company's Canadian corporate headquarters and most of its research and development activities. The lease term commenced on January 1, 1998 and continues for a period of five years, with a five-year option to renew at an annual rent to be negotiated. The Omaha, Nebraska leased facility consists of approximately 610 square feet. The facility is used for field support. The lease term has been extended commencing on September 1, 1999 and continues for a period of two years.  ITEM 3. LEGAL PROCEEDINGS At June 30, 2000, the end of the last fiscal year, no material legal proceeding was pending, or to the knowledge of the Company, threatened by any governmental agency, against the Company. The Company is subject to various claims that arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position of the Company.  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company did not submit any matter to a vote of security holders during the fourth quarter of the fiscal year covered by this report.
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PART II  ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET PRICE OF THE REGISTRANT'S COMMON EQUITY The Company's Common Stock is traded on the Toronto Stock Exchange under the symbol "GSM". The Company's Common Stock is not traded on an established public trading market in the United States. The following table sets forth for the periods indicated the high and low closing prices of the Company's Common Stock as reported by the Toronto Stock Exchange, in Canadian funds. [Download Table] HIGH LOW ---- --- Fiscal Year 1999 Quarter ended September 30, 1998 3.90 2.01 Quarter ended December 31, 1998 3.48 1.93 Quarter ended March 31, 1999 3.50 2.10 Quarter ended June 30, 1999 2.85 2.00 Fiscal Year 2000 Quarter ended September 30, 1999 2.60 1.75 Quarter ended December 31, 1999 2.55 1.40 Quarter ended March 31, 2000 2.15 1.56 Quarter ended June 30, 2000 1.85 .95 The last sale price of the Company's Common Stock on September 20, 2000 as reported on the Toronto [Canada] Stock Exchange was C$1.85 per share. As of June 30, 2000, there were approximately 636 holders of record of the Company's Common Stock, of whom approximately 56.1 % were in the United States. At that date, approximately 33.8 % of the outstanding 18,583,672 shares of Common Stock were held in the United States. The Company has no issued and outstanding Preferred Stock. ABSENCE OF DIVIDENDS Since its inception, the Company has not paid cash dividends on it Common Stock. The Company intends to retain future earnings, if any, to provide funds for business operations and, accordingly, does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. The Company is not subject to any restrictions (not imposed by law on corporations generally) that limit its ability to pay dividends on its Common Stock.
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RECENT SALES OF UNREGISTERED SECURITIES From July 1, 1999 to June 30, 2000, the Registrant issued the following securities without registration under the Securities Act of 1933, pursuant to exemptions from registration under that Act: [Download Table] DATE ISSUANCE EXEMPTION RELIED UPON 02/08/2000 Options for 50,000 shares issued to 1 Director Section 4(2): Employees had All information required to make an informed investment decision.  ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION The discussion and analysis of the operating results and the financial position of the Company should be read in conjunction with the Company's Consolidated Financial Statements and the notes to them. See "Consolidated Financial Statements". The financial statements have been prepared in United States dollars in accordance with Canadian GAAP. See Note 16 of the Notes to Consolidated Financial Statements for an explanation of differences between Canadian GAAP and United States GAAP. Certain of the information discussed in this report contains forward-looking statements regarding future events or the future financial performance of the Company, and is subject to a number of risks and other factors which could cause the actual results to differ materially from those contained in any forward-looking statements. Among those factors are: general business and economic conditions; customer acceptance and demand for the company's products; the Company's overall ability to design, test and introduce new products on a timely basis; the nature of the markets addressed by the Company's products; the interaction with governmental entities in the United States and world-wide which purchase the Company's products; and other risk factors listed from time to time in documents filed by the Company with the Securities and Exchange Commission. RESULTS OF OPERATIONS Fiscal 2000 Compared with 1999 YEAR ENDED JUNE 30, 2000 COMPARED TO YEAR ENDED JUNE 30, 1999 SALES AND OPERATING INCOME Sales and other income for the year ended June 30, 2000 increased 10.5% or $1,927,000, to $20,237,000 from $18,310,000 for the year ended June 30, 1999. The sales increase was largely attributable to increased voter registration and service revenue. COST OF SALES AND OPERATING EXPENSES Cost of sales and operating expenses for fiscal year 2000 increased 14.9%, or $1,339,000, to $10,337,000 from $8,998,000 for fiscal year 1999. In fiscal year 2000, cost of sales and operating expense as a percentage of gross revenues increased to 51.1% from 49.1% in fiscal year 1999. This increase resulted primarily from higher product cost for the AccuVote - 0S system whose contribution to sales was greater in fiscal year 2000 than in fiscal year 1999.
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SELLING, ADMINISTRATIVE AND GENERAL EXPENSES Selling, administrative and general expenses for fiscal year 2000 increased 6.2%, or $381,000, to $6,511,000 from $6,130,000 for fiscal year 1999. The increase was due largely to an increase in manpower and associated costs in the sales, field support and administrative areas required to support current and anticipated growth. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses for fiscal year 2000 increased by 49.8%, or $427,000, to $1,284,000 from $857,000 for fiscal year 1999. The fiscal year 2000 expenses include $588,000 of development costs deferred under Canadian generally accepted accounting principles (see Note 16 to the consolidated financial statements for a reconciliation of this item for United States generally accepted accounting principles). The Company continues to fund research and development in order to offer leading edge products to the market place. AMORTIZATION Amortization for fiscal year 2000 decreased 4.1%, or $16,000, to $372,000 from $388,000 in fiscal year 1999. This decrease was due primarily to capital assets fully amortized during fiscal year 1999. INTEREST Interest expense for fiscal year 2000 increased 66.8%, or $218,000, to $544,000 from $326,000 in fiscal year 1999. The increase was within the Company's operating plan of funding current accounts receivable and resulted from interest on increased U.S. bank loans used to finance operations. REVALUATION OF USED EQUIPMENT Trade-in inventory write off for fiscal year 2000 decreased to $525,000 from $873,000 in fiscal year 1999 as a result of management writing down trade-in inventory. The trade-in inventory write down has now been completed and its value is considered to be nil. EARNINGS PER SHARE The Company's earnings for fiscal year 2000 were $1,777,000 or $0.10 per share before a write down of $525,000 for trade-in inventory. The after tax earnings for fiscal year 2000 after the trade-in inventory write down was $1,107,000 or $0.06 per share compared to a profit of $716,000 or $0.04 per share for the same period for fiscal year 1999. The increase in earnings per share for the 2000 fiscal period as compared to the 1999 fiscal period was due to an increase in sales, and increases in cost of sales and operating expenses, selling, administrative and general expense and interest expense and enhanced by a decrease in research and development expense, amortization and the write down of the trade-in inventory.
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Fiscal 1999 Compared with 1998 YEAR ENDED JUNE 30, 1999 COMPARED TO YEAR ENDED JUNE 30, 1998 SALES AND OPERATING INCOME Sales and other income for the year ended June 30, 1999 decreased 10.3% or $2,111,000, to $18,310,000 from $20,421,000 for the year ended June 30, 1998. The sales decrease was largely attributable to a shorter U. S. selling season in a general election year. The U.S. market comprises, and has comprised, 95% or more of the Company's sales. During a general election year, new voting systems generally are not installed for several months prior to a general election and usually for several months after a general election; therefore, the selling season is shorter during general election years. COST OF SALES AND OPERATING EXPENSES Cost of sales and operating expenses for fiscal year 1999 decreased 5.7%, or $547,000, to $8,998,000 from $9,545,000 for fiscal year 1998. In fiscal year 1999, cost of sales and operating expense as a percentage of gross revenues increased to 49.1% from 46.7% in fiscal year 1998. This increase resulted primarily from higher product cost for the AccuVote - TS system whose contribution to sales was greater in fiscal year 1999 than in fiscal year 1998. SELLING, ADMINISTRATIVE AND GENERAL EXPENSES Selling, administrative and general expenses for fiscal year 1999 increased 17.5%, or $912,000, to $6,130,000 from $5,218,000 for fiscal year 1998. The increase was due largely to election support provided in the second quarter and an increase in manpower and associated costs in the sales, field support and administrative areas. In addition, expenses relating to the I-Mark asset acquisition were incurred for the whole 1999 fiscal period, whereas in the 1998 fiscal period expenses were incurred for only eleven months. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses for fiscal year 1999 increased by 77.3%, or $374,000, to $857,000 from $483,000 for fiscal year 1998. The increase was due to developing enhancements to software for the AccuVote - TS system. The Company continues to fund research and development in order to offer leading edge products to the market place. AMORTIZATION Amortization for fiscal year 1999 increased 40.6%, or $112,000, to $388,000 from $276,000 in fiscal year 1998. This increase was due primarily to amortization associated with the acquisition of I-Mark in 1997. During the 1999 fiscal year Lynro Manufacturing Corporation goodwill was fully written off. INTEREST Interest expense for fiscal year 1999 increased 110.1%, or $171,000, to $326,000 from $155,000 in fiscal year 1998. The increase was within the Company's operating plan of funding current accounts receivable and resulted from interest on increased U.S. bank loans used to finance operations.
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REVALUATION OF USED EQUIPMENT Trade-in inventory write off for fiscal year 1999 increased to $873,000 from $706,000 in fiscal year 1998 as a result of management writing down trade-in inventory. The trade-in inventory write down will continue for the next four consecutive quarters. At that time the value of the trade-in inventory is anticipated to be nil. EARNINGS PER SHARE The Company's earnings for fiscal year 1999 were $1,611,000 or $0.09 per share before a write down of $873,000 for trade-in inventory. The after tax earnings for fiscal year 1999 after the trade-in inventory write down was $716,000 or $0.04 per share compared to a profit of $4,038,000 or $0.24 per share for the same period for fiscal year 1998. The decrease in earnings per share for the 1999 fiscal period as compared to the 1998 fiscal period was due to a decrease in sales, and increases in selling, administrative and general expense, research and development expense, amortization and interest expense, along with the write down of the trade-in inventory. LIQUIDITY AND CAPITAL RESOURCES The Company used a combination of internally generated funds and bank borrowings to finance its acquisitions, working capital requirements, capital expenses and operations. During the period ended June 30, 2000, the Company generated most of its funding through cash flow from operations. At June 30, 2000, the Company's cash totaled $1,446,613, an increase of $825,393 from June 30, 1999. Accounts and contracts receivable decreased to $12,717,000 at June 30, 2000 from $13,906,000 at June 30, 1999. Due to the nature of the Company's business, the timing of payments on large contracts may vary significantly, and cause significant variances from period to period in the mix of cash, other liquid funds, accounts receivable and contracts receivable. Inventory figures may vary significantly, depending upon delivery dates for voting systems. At June 30, 2000, inventory amounted to $5,352,000, an increase of $745,000 from June 30, 1999. Inventory has increased due to the addition of the AccuVote - TS system. The Company has contractual arrangements with customers whereby credit terms may be extended for the amounts due for voting systems. At June 30, 2000, agreements receivable less current portion amounted to $16,000, a decrease of $190,000 from June 30, 1999. These agreements are repaid at varying terms and with varying interest rates determined on a case-by-case basis. Historically, the Company has not experienced any default in connection with agreements due from customers.
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The Company currently has four loans and one promissory note outstanding, three loans and the promissory note are with Compass Bank, Albuquerque, New Mexico and a line of credit with Hibernia National Bank of Texas, McKinney, Texas. One loan in the amount of $250,113 is secured by an agreement receivable amounting to $80,608. This loan bears interest at Compass Bank, Albuquerque Prime Rate plus 1% and is due November 15, 2000. A second loan in the amount of $904,950 is secured by a specific Global USA contract in the amount of $1,360,590. This loan bears interest at Compass Bank, Albuquerque Prime Rate plus 1 % and is due November 22, 2000. A third loan in the amount of $133,310 is secured by a specific Global USA contract in the amount of $178,782. This loan bears interest at Compass Bank, Albuquerque Prime Rate plus 1% and is due November 27, 2000. The line of credit with Hibernia National Bank of Texas in the amount of $3,600,000 is secured by a blanket assignment of accounts receivable, and bears interest at The Wall Street Journal Prime Rate and is due July 18, 2001. The promissory note in the amount of $480,000 is with Compass Bank, Albuquerque, New Mexico is secured by three specific contracts receivable with a combined balance receivable of $332,078. The promissory note loan bears interest at Compass Bank, Albuquerque Prime Rate plus 1% and is due January 19, 2001. Subsequent to the fiscal 2000 year end the Company has renegotiated a revolving line of credit with Hibernia National Bank of Texas to a maximum of $5,000,000. Management believes that financial resources, including internally generated funds and available bank line of credit and borrowings would be sufficient to finance the Company's current operations and capital expenditures, excluding acquisitions, for the next twelve months. The following table sets out the exchange rates, based on the noon buying rates in Toronto, Ontario, Canada, for cable transfers in foreign currencies as certified for customs purposes by the Bank of Canada, for the conversion of Canadian dollars into United States dollars in effect at the end of the following periods, and the average exchange rates (based on the average of the exchange rates on the last day of each month in those periods) and the Range of high and low exchange rates for those periods. [Download Table] YEAR END YEAR END YEAR END JUNE 30 JUNE 30 JUNE 30 2000 1999 1998 END OF PERIOD 1.4806 1.4630 1.4678 AVERAGE FOR PERIOD 1.4731 1.5103 1.4177 HIGH FOR PERIOD 1.5063 1.5685 1.4678 LOW FOR PERIOD 1.4433 1.4570 1.3783 On June 30, 2000, the noon rate of exchange as reported by the Bank of Canada for the conversion of United States dollars into Canadian dollars was $0.67600 (US$1.00=C$1.4793).
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ITEM 7. FINANCIAL STATEMENTS GLOBAL ELECTION SYSTEMS INC.  CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2000 and 1999 U.S. Funds STALEY, OKADA, CHANDLER & SCOTT Chartered Accountants
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MANAGEMENT'S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- The accompanying consolidated financial statements and all information in the annual report are the responsibility of management. The consolidated financial statements have been prepared by management in accordance with the accounting policies outlined in the notes to the consolidated financial statements. Where necessary, management has made informed judgements and estimates in accounting for transactions which were not complete at the balance sheet date. In the opinion of management, the consolidated financial statements have been prepared within acceptable limits of materiality and are in accordance with Canadian generally accepted accounting principles. The financial information contained elsewhere in the annual report has been reviewed to ensure consistency with that in the consolidated financial statements. Management maintains appropriate systems of internal control. Policies and procedures are designed to give reasonable assurances that transactions are appropriately authorized, assets are safeguarded and financial records are properly maintained to provide reliable information for the preparation of financial statements. Staley, Okada, Chandler & Scott, an independent firm of chartered accountants, has been engaged, as approved by a vote of the shareholders at the company's most recent annual general meeting, to examine the consolidated financial statements in accordance with generally accepted auditing standards in Canada and provide an independent professional opinion. The audit committee has met with the auditors and management in order to determine that management has fulfilled its responsibilities in the preparation of the consolidated financial statements. The audit committee has reported its findings to the Board of Directors who have approved the consolidated financial statements. Robert J. Urosevich Maurice E. Sokulski President Treasurer --------------------------------------------------------------------------------
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AUDITORS' REPORT -------------------------------------------------------------------------------- TO THE DIRECTORS OF GLOBAL ELECTION SYSTEMS INC.: We have audited the consolidated balance sheet of Global Election Systems Inc. as at 30 June 2000 and 1999 and the consolidated statements of changes in shareholders' equity, income and cash flows for the years ended 30 June 2000, 1999 and 1998. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at 30 June 2000 and 1999 and the results of its operations and its cash flows for the years ended 30 June 2000, 1999 and 1998 in accordance with generally accepted accounting principles. As required by the Company Act of British Columbia, we report that, in our opinion, these principles have been applied on a basis consistent with that of the preceding year. Burnaby, B.C. STALEY, OKADA, CHANDLER & SCOTT 6 September 2000 CHARTERED ACCOUNTANTS --------------------------------------------------------------------------------
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GLOBAL ELECTION SYSTEMS INC. Statement 1 CONSOLIDATED BALANCE SHEET AS AT 30 JUNE U.S. Funds [Enlarge/Download Table] ASSETS 2000 1999 ----------- ----------- CURRENT Cash and short-term deposits $ 1,446,613 $ 621,220 Accounts receivable 6,204,048 4,341,403 Contracts receivable 6,512,549 9,564,678 Work-in-progress 822,211 717,044 Deposits and prepaid expenses 286,248 291,298 Inventory (Note 3) 5,352,216 4,606,923 Current portion of agreements receivable 178,808 285,965 ----------- ----------- 20,802,693 20,428,531 AGREEMENTS RECEIVABLE (Note 4) 15,876 205,539 DEFERRED COSTS (Note 5) 587,852 -- CAPITAL ASSETS (Note 6) 540,293 376,081 OTHER ASSETS (Note 7) 549,750 776,250 ----------- ----------- $22,496,464 $21,786,401 =========== =========== LIABILITIES CURRENT Accounts payable and accrued liabilities $ 3,953,980 $ 2,287,467 Deferred revenue 348,692 1,027,718 Current portion of loans payable 1,768,373 6,738,500 ----------- ----------- 6,071,045 10,053,685 FUTURE INCOME TAXES (Note 10b) 145,000 -- LOANS PAYABLE (Note 8) 3,600,000 250,113 ----------- ----------- 9,816,045 10,303,798 ----------- ----------- COMMITMENTS (Note 11) SHAREHOLDERS' EQUITY SHARE CAPITAL (Note 9) Authorized: 100,000,000 common voting shares, without par value 20,000,000 convertible voting preferred shares, without par value Issued and fully paid: 18,583,672 (18,483,672) common shares 10,217,262 10,126,865 RETAINED EARNINGS - Statement 2 2,463,157 1,355,738 ----------- ----------- 12,680,419 11,482,603 ----------- ----------- $22,496,464 $21,786,401 =========== =========== ON BEHALF OF THE BOARD: "Robert J. Urosevich", Director -------------------- "Clinton H. Rickards", Director -------------------- - See Accompanying Notes -
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GLOBAL ELECTION SYSTEMS INC. Statement 2 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY U.S. Funds [Enlarge/Download Table] Common Shares Retained Shares Amount Earnings Total ----------- ----------- ----------- ----------- Balance - 30 June 1997 14,689,440 $ 9,374,197 $(3,397,853) $ 5,976,344 Issuance of shares for name and operating assets of I-Mark Systems, Inc. ($0.55 per share) 1,000,000 548,148 -- 548,148 Issuance of performance shares from escrow ($0.06 per share) 2,738,000 155,562 -- 155,562 Issuance of shares on exercise of options ($0.89 per share) 30,000 26,632 -- 26,632 Issuance of shares on exercise of options ($0.85 per share) 25,000 21,328 -- 21,328 Net income for the year - Statement 3 -- -- 4,037,546 4,037,546 ----------- ----------- ----------- ----------- Balance - 30 June 1998 18,482,440 10,125,867 639,693 10,765,560 Issuance of shares on exercise of options ($0.81 per share) 1,232 998 -- 998 Net income for the year - Statement 3 -- -- 716,045 716,045 ----------- ----------- ----------- ----------- Balance - 30 June 1999 18,483,672 10,126,865 1,355,738 11,482,603 Issuance of shares on exercise of options ($0.90 per share) 100,000 90,397 -- 90,397 Net income for the year - Statement 3 -- -- 1,107,419 1,107,419 ----------- ----------- ----------- ----------- Balance - 30 June 2000 18,583,672 $10,217,262 $ 2,463,157 $12,680,419 =========== =========== =========== =========== - See Accompanying Notes -
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GLOBAL ELECTION SYSTEMS INc. Statement 3 CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED 30 JUNE U.S. Funds [Enlarge/Download Table] 2000 1999 1998 ------------ ------------ ------------ REVENUE Sales and operating income (Note 13) $ 20,195,209 $ 18,198,041 $ 20,320,155 Other income 41,618 112,106 101,123 ------------ ------------ ------------ 20,236,828 18,310,147 20,421,278 ------------ ------------ ------------ COSTS AND EXPENSES Cost of sales and operating expenses 10,336,767 8,997,955 9,544,781 Selling, administrative and general expenses 6,510,887 6,129,777 5,218,472 Research and development expenses 696,042 857,057 483,437 Amortization 372,480 388,400 276,294 Interest 543,535 325,748 155,041 ------------ ------------ ------------ 18,459,711 16,698,937 15,678,025 ------------ ------------ ------------ INCOME BEFORE THE UNDERNOTED 1,777,117 1,611,210 4,743,253 Revaluation of used equipment (Note 14) (524,698) (873,101) (705,707) ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 1,252,419 738,109 4,037,546 Provision for income taxes (Note 10a) -- (22,064) -- Provision for future income taxes (Note 10b) (145,000) -- -- ------------ ------------ ------------ NET INCOME FOR THE YEAR $ 1,107,419 $ 716,045 $ 4,037,546 ============ ============ ============ EARNINGS PER SHARE - U.S. FUNDS Basic $ 0.06 $ 0.04 $ 0.24 Fully diluted $ 0.06 $ 0.04 $ 0.22 ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 18,550,521 18,483,264 16,773,928 ============ ============ ============ - See Accompanying Notes -
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GLOBAL ELECTION SYSTEMS INC. Statement 4 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED 30 JUNE U.S. Funds [Enlarge/Download Table] 2000 1999 1998 ----------- ----------- ----------- OPERATING ACTIVITIES Net income for the year $ 1,107,419 $ 716,045 $ 4,037,546 Items not affecting cash Amortization 372,480 388,400 276,294 Amortization of deferred costs 71,983 -- -- Revaluation of used equipment 524,698 873,101 705,707 Provision for future income taxes 145,000 -- -- ----------- ----------- ----------- 2,221,580 1,977,546 5,019,547 Changes in non-cash working capital Accounts receivable (1,862,645) (2,028,540) (209,527) Contracts receivable 3,052,129 (1,586,071) (5,319,524) Work-in-progress (105,167) (717,044) -- Deposits and prepaid expenses 5,050 (44,209) (192,180) Inventory (1,269,991) (1,812,150) (2,741,214) Accounts payable and accrued liabilities 1,666,513 (2,419,735) 3,543,644 Customer deposits -- -- (36,219) Deferred revenue (679,026) 822,918 (120,122) ----------- ----------- ----------- 3,028,443 (5,807,285) (55,595) ----------- ----------- ----------- INVESTING ACTIVITIES Deferred costs (659,835) -- -- Capital assets acquired (310,192) (82,018) (414,961) Other assets acquired -- -- (514,104) Proceeds on sale of capital assets -- -- 62,685 Agreements receivable 296,820 462,261 357,664 ----------- ----------- ----------- (673,207) 380,243 (508,716) ----------- ----------- ----------- FINANCING ACTIVITIES Loans payable (1,620,240) 5,707,639 622,584 Common shares issued 90,397 998 203,522 ----------- ----------- ----------- (1,529,843) 5,708,637 826,106 ----------- ----------- ----------- NET INCREASE IN CASH 825,393 281,595 261,795 Cash position - Beginning of year 621,220 339,625 77,730 ----------- ----------- ----------- CASH POSITION - END OF YEAR $ 1,446,613 $ 621,220 $ 339,625 =========== =========== =========== SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Issuance of shares for name and operating assets of I-Mark Systems, Inc. $ -- $ -- $ 548,148 =========== =========== =========== - See Accompanying Notes -
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GLOBAL ELECTION SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2000 AND 1999 U.S. Funds -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES These consolidated financial statements have been prepared using generally accepted accounting principles of Canada as follows: a) NATURE OF OPERATIONS The company markets a complete electronic voting system which includes vote tally and voter registration software. b) CONSOLIDATION These consolidated financial statements include the accounts of the company and its wholly-owned subsidiary, Global Election Systems, Inc., a company incorporated in Delaware and operating in Texas, U.S.A. The purchase method of accounting has been applied to this acquisition. On 26 April 2000, the company's wholly-owned U.S. subsidiary incorporated a wholly-owned subsidiary, integrivote.com., Ltd., a company incorporated in Nevada, U.S.A. The new subsidiary remains inactive to date and is accounted under the purchase method of accounting. c) FOREIGN CURRENCY TRANSLATION The accounts of the company are prepared in U.S. funds and the company's Canadian operations are translated into U.S. dollars as follows: o Monetary assets and liabilities at year-end rates, o All other assets and liabilities at historical rates, and o Revenue and expense items at the average rate of exchange prevailing during the year. Exchange gains and losses arising from these transactions are reflected in income or expense in the year. d) INVENTORY Inventory of finished goods is valued at the lower of cost and net realizable value as estimated by management. Raw materials, which consist of parts and components, are valued at the lower of average cost and net realizable value, less any allowances for obsolescence. Inventory of goods taken in trade are treated as additional discounts granted to complete sales agreements and no value is recognized in inventory. e) AMORTIZATION Capital assets are recorded at cost and the company provides for amortization on the following basis: Demonstration and computer equipment - 20% to 30% declining balance method Manufacturing equipment - 20% declining balance method Furniture and equipment - 20% declining balance method Leasehold improvements - straight-line over 5 years One-half of the rate is applied in the year of acquisition and disposition. f) PATENTS Patents are recorded at cost and the company provides for amortization on a straight-line basis over 10 years.
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GLOBAL ELECTION SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2000 AND 1999 U.S. Funds -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED g) GOODWILL Goodwill is recorded at cost and the company provides for amortization on a straight-line basis over 5 years. h) REVENUE RECOGNITION Revenue from sales of products is recognized at the time of shipment of products to customers. Revenue from sales of services is recognized on the basis of the percentage completion of the related services. The company defers a portion of revenue received related to contracted future services to match against management's estimate of the future costs of providing these services to customers. Receivables with extended payment terms less than one year are recorded as contracts receivable and those over one year are recorded as agreements receivable. i) WORK-IN-PROGRESS Amounts related to revenues recognized in the fiscal period which remain unbilled to the customer at the end of the fiscal period are presented as work-in-progress in these consolidated financial statements. j) WARRANTY RESERVE Provisions for future estimated warranty costs are recorded in the accounts based upon historical maintenance records. Management periodically reviews the warranty reserve to determine the adequacy of the provision. k) RESEARCH AND DEVELOPMENT New product development costs and existing product enhancement costs are deferred to future periods when the product or process is clearly defined, the costs can be identified, the technical feasibility has been established, management intends to market the product or process, a market exists for the product or process and adequate resources exist to complete the project. The company provides for amortization on a straight-line basis over 10 years. Research costs and development costs which do not meet the preceding criteria are expensed in the period incurred. Research and development tax credits are applied against either the deferred costs or expense, as applicable, in the period in which the tax credit is received. l) SHARE CAPITAL i) The proceeds from the exercise of stock options, warrants and escrow shares are recorded as share capital in the amount for which the option, warrant or escrow share enabled the holder to purchase a share in the company. ii) Share capital issued for non-monetary consideration is recorded at an amount based on fair market value reduced by an estimate of transaction costs normally incurred when issuing shares for cash, as determined by the board of directors of the company. m) EARNINGS PER SHARE Basic earnings per share computations are based on the weighted average number of shares outstanding during the period. Fully diluted earnings per share are based on the actual number of shares outstanding at the end of the period plus performance shares, and share purchase options and warrants as if they had been issued as at the beginning of the period.
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GLOBAL ELECTION SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2000 AND 1999 U.S. Funds -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES - Continued n) MANAGEMENT'S ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. o) FUTURE INCOME TAXES During the year, the company adopted the asset and liability method of accounting for income taxes as prescribed by the CICA Handbook. The major impact of this change is the use of current income tax rates in the determination of future income taxes. This change in accounting policy had no impact on the prior year income tax expense or future income tax liability, and has therefore been applied for prospectively. Under the asset and liability method, the change in the net future tax asset or liability is included in income. The income tax effects of temporary differences in the time when income and expenses are recognized in accordance with company accounting practices, and the time they are recognized for income tax purposes, are reflected as future income tax assets or liabilities. Future income tax assets and liabilities are measured using statutory rates that are expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. p) RECLASSIFICATION Certain of the comparative figures have been reclassified to conform with the current year presentation. -------------------------------------------------------------------------------- 2. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of cash and short term deposits, accounts receivable, contracts receivable, work-in-progress, deposits, agreements receivable, accounts payable and accrued liabilities and loans payable approximates their fair value due to their short term maturity or capacity of prompt liquidation. Concentration of credit risk may arise from exposure to a single debtor or to a group of debtors having similar characteristics such that their ability to meet their obligations to the company is expected to be affected similarly by changes in economic or other conditions. The company's counterparty concentration is with its authorized resellers and state, county, city and municipal election customers in the United States and Canada and arises in the normal course of the company's business. Included in the 30 June 2000 current accounts receivable of $6,204,048, are three authorized resellers and one election customer which together account for $3,881,764 or 62.6% of this balance. To 6 September 2000, the company has collected $856,384 from these customers and the balance is due on specific terms. Included in the 30 June 2000 current contracts receivable of $6,512,549 is one election customer which accounts for $1,360,590 or 20.9% of this balance. To 6 September 2000, the company has collected $39,096 from this customer and the balance is due at specific dates within one year from 30 June 2000. --------------------------------------------------------------------------------
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GLOBAL ELECTION SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2000 AND 1999 U.S. Funds -------------------------------------------------------------------------------- 3. INVENTORY Details are as follows: [Download Table] 2000 1999 ---------- ---------- Supplies and parts $3,115,792 $2,061,974 Trade-in goods -- 524,698 Finished goods 2,236,424 2,020,251 ---------- ---------- $5,352,216 $4,606,923 ---------- ---------- -------------------------------------------------------------------------------- 4. AGREEMENTS RECEIVABLE Details of agreements receivable from customers are as follows: [Enlarge/Download Table] 2000 1999 --------- --------- Sales agreement receivable with interest at 5% per annum, repayable in 60 equal monthly payments of principal and interest commencing 15 December 1995, secured by the underlying products and supplies (i) $ 80,608 $ 267,364 Sales agreement receivable with interest at 4.4% per annum commencing 27 January 1998, repayable at $22,455 of principal and interest by 1 July 1998, $21,759 of principal and interest by 1 July 1999 and the balance by 1 July 2000, secured by the underlying goods 20,751 44,485 Sales agreement receivable with interest at 5.4% per annum commencing 15 July 1998, repayable at $22,738 per annum for principal and interest on 15 July 1998 to 15 July 2001, secured by the underlying goods 36,926 63,150 Sales agreement receivable, non-interest bearing, repayable at $60,000 in July 1999 and the balance in July 2000, secured by the underlying goods 56,399 116,505 --------- --------- 194,684 491,504 Less: Current portion (178,808) (285,965) --------- --------- $ 15,876 $ 205,539 --------- --------- (i) The sales agreement receivable has been pledged as security for a loan payable (Note 8). Scheduled principal repayments on the sales agreements receivable are as follows: [Download Table] 2001 $178,808 2002 15,876 -------- $194,684 -------- --------------------------------------------------------------------------------
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GLOBAL ELECTION SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2000 AND 1999 U.S. Funds -------------------------------------------------------------------------------- 5. DEFERRED COSTS Details are as follows: [Download Table] 2000 1999 Accumulated NET BOOK Net Book Costs Amortization VALUE Value -------- ------------ -------- -------- Deferred costs $659,835 $71,983 $587,852 $ -- -------- ------- -------- -------- 6. CAPITAL ASSETS Details are as follows: [Download Table] 2000 1999 Accumulated NET BOOK Net Book Cost Amortization VALUE Value ---------- ------------ -------- -------- Demonstration and computer equipment $ 858,222 $439,328 $418,894 $235,693 Manufacturing equipment 88,954 61,870 27,084 22,116 Furniture and equipment 263,322 179,303 84,019 104,216 Leasehold improvements 39,360 29,064 10,296 14,056 ---------- -------- -------- -------- $1,249,858 $709,565 $540,293 $376,081 ---------- -------- -------- -------- 7. OTHER ASSETS Details are as follows: [Download Table] 2000 1999 Accumulated NET BOOK Net Book Cost Amortization VALUE Value ---------- ------------ -------- -------- Patents $ 165,000 $140,250 $ 24,750 $ 41,250 Goodwill 1,300,960 775,960 525,000 735,000 ---------- -------- -------- -------- $1,465,960 $916,210 $549,750 $776,250 ---------- -------- -------- -------- --------------------------------------------------------------------------------
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GLOBAL ELECTION SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2000 AND 1999 U.S. Funds -------------------------------------------------------------------------------- 8. LOANS PAYABLE Details are as follows: [Enlarge/Download Table] 2000 1999 ----------- ----------- Line of credit, bearing interest at bank prime plus 1% per annum (interest rate floor of 9%), interest payments due quarterly, due in full by 15 November 2000 (ii), secured by the $80,608 sales agreement receivable (Note 4) $ 250,113 $ 250,113 Line of credit, bearing interest at bank prime plus 1% per annum (interest rate floor of 10%), interest payments due quarterly, due in full by 22 November 2000, secured by a contract receivable with a balance receivable of $1,360,590 as at 30 June 2000 904,950 1,508,500 Line of credit, bearing interest at bank prime plus 1% per annum (interest rate floor of 9%), interest payments due quarterly, due in full by 27 November 2000, secured by a contract receivable with a balance receivable of $178,782 as at 30 June 2000 133,310 1,330,000 Line of credit, bearing interest at The Wall Street Journal prime rate, interest payments due quarterly, balance due in full by 18 July 2001 (i), secured by a commercial security agreement covering all assets of the company 3,600,000 3,600,000 Promissory note payable, due to a director of the company, bearing interest at 10% per annum payable monthly -- 300,000 Promissory note payable, bearing interest at bank prime rate plus 1% (interest rate floor of 10%), interest payments due quarterly, due on demand or by 19 January 2001, secured by three specific contracts receivable with a combined balance receivable of $332,078 as at 30 June 2000 480,000 -- ----------- ----------- 5,368,373 6,988,613 Less: Current portion (1,768,373) (6,738,500) ----------- ----------- $ 3,600,000 $ 250,113 ----------- ----------- (i) Subsequently extended to a $5,000,000 revolving line of credit. (ii) Subsequently repaid in full 5 September 2000. Scheduled principal repayments on the loans payable are as follows: [Download Table] 2001 $1,768,373 2002 3,600,000 ---------- $5,368,373 ---------- --------------------------------------------------------------------------------
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GLOBAL ELECTION SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2000 AND 1999 U.S. Funds -------------------------------------------------------------------------------- 9. SHARE CAPITAL a) STOCK OPTION PLAN The company has a stock option plan which covers its officers and directors. The options are granted for varying terms ranging from three to five years. Options granted prior to 30 June 1998, were immediately vested upon grant. Options granted subsequent to 30 June 1998, vest over the term of the option. The following is a schedule of the activity pursuant to this stock option plan: [Enlarge/Download Table] Number of Price per Share Shares (CDN $) Expiration Date ----------- --------------- --------------- Balance - 30 June 1997 250,000 $ 1.33 to $ 3.10 New options granted 1,075,000 $ 1.25 22 August 2002 New options granted 50,000 $ 1.49 17 December 2002 New options granted 100,000 $ 1.60 13 February 2003 Options cancelled (20,000) $ 3.10 15 November 1998 Options cancelled (130,000) $ 1.89 20 September 1999 Options exercised (55,000) $ 1.25 22 August 2002 -------------------------------------------------------------------------------------------------------- Balance - 30 June 1998 1,270,000 $ 1.25 to $1.80 New options granted 205,000 $ 2.05 15 October 2001 Options exercised (1,232) $ 1.25 22 August 2002 -------------------------------------------------------------------------------------------------------- Balance - 30 June 1999 1,473,768 $ 1.25 to $2.05 Options expired (100,000) $ 1.60 13 February 2003 Options expired (23,768) $ 1.25 22 August 2002 Options exercised (100,000) $ 1.33 1 November 1999 Options granted 50,000 $ 1.69 7 February 2005 -------------------------------------------------------------------------------------------------------- 15 October 2001 to Balance - 30 June 2000 1,300,000 $ 1.25 to $2.05 7 February 2005 -------------------------------------------------------------------------------------------------------- b) STOCK PURCHASE WARRANTS The following is a schedule of the activity pursuant to stock purchase warrants: [Download Table] Number of Price per Share Shares (CDN $) Expiration Date ----------- --------------- --------------- 166,667 $1.88 31 March 2001 --------------------------------------------------------------------------------
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GLOBAL ELECTION SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2000 AND 1999 U.S. Funds -------------------------------------------------------------------------------- 10. INCOME TAXES a) A summary of the taxable income of the company for the year ended 30 June 2000 is as follows: [Enlarge/Download Table] Canadian Parent U.S. Subsidiary Total --------------- --------------- ----------- Net income (loss) before taxes per financial statements $(133,072) $ 1,385,491 $ 1,252,419 Application of losses carried forward -- (797,639) (797,639) Timing differences on capital assets (21,651) -- (21,651) Recapture of scientific research and experimental development deductions 38,230 -- 38,230 Other timing differences 17,014 (587,852) (570,838) --------- ----------- ----------- (99,479) -- (99,479) Benefit of current tax loss not recorded 99,479 -- 99,479 Current Taxable Income $ -- $ -- $ -- --------- ----------- ----------- Current Income Tax Provision $ -- $ -- $ -- --------- ----------- ----------- b) A summary of the future taxable income and future income tax provision for the year ended 30 June 2000 is as follows: [Enlarge/Download Table] Canadian Parent U.S. Subsidiary Total --------------- --------------- ----------- Timing differences on capital assets $ 21,651 $ -- $ 21,651 Other timing differences (17,014) 587,852 570,838 Eliminate Canadian differences against current year loss (4,637) -- (4,637) Recognize benefit of U.S. losses carried forward -- (173,394) (173,394) Future Taxable Income $ -- $ 414,458 $ 414,458 -------- --------- --------- Statutory tax rate -- 35.0 35.0 -------- --------- --------- Future Income Tax Provision $ -- $ 145,000 $ 145,000 -------- --------- --------- c) The company has unclaimed investment tax credits, for Canadian tax purposes, arising from its research and development activities in the amount of $317,000 which may be carried forward to be applied against future federal taxes payable. The future tax benefits, if any, of these tax credits have not been recognized in the accounts and expire as follows: [Download Table] 2002 $103,000 2004 34,000 2005 63,000 2006 117,000 -------- $317,000 -------- d) As at 30 June 2000, the company has tax losses, for Canadian tax purposes, of approximately $99,000, which may be carried forward to be applied against future taxable income. The future benefits, if any, of these tax losses have not been recognized in the accounts of the company and expire in 2007.
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GLOBAL ELECTION SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2000 AND 1999 U.S. Funds -------------------------------------------------------------------------------- 10. INCOME TAXES - CONTINUED e) As at 30 June 2000, the company's subsidiary has tax losses, for U.S. tax purposes, of approximately $174,000 which may be carried forward to be applied against future taxable income. The future benefits, if any, of these tax losses has been recognized in the accounts of the company as a reduction of the future income tax provision. These losses expire in 2011. -------------------------------------------------------------------------------- 11. COMMITMENTS a) By way of an employment agreement, the company has secured the services of a key employee for a three year term which expired 31 July 2000. The contract contained fixed annual compensation totaling $180,000 per annum plus a bonus of 3% of earnings before taxes not to exceed $200,000 per annum. Subsequent to 30 June 2000, the parties reached a mutual agreement to not extend the contract past the 31 July 2000 expiry date. Severance of $162,000 was negotiated and will be expensed in the 2001 fiscal year. b) By way of an employment agreement, the company has secured the services of a key employee for a three year term which expired 31 July 2000. The contract contained fixed annual compensation totalling $115,000 per annum. The contract is currently in the process of renegotiation. c) Under the terms of a lease agreement dated 8 December 1998, the company is committed to minimum annual lease payments which increased from CDN $25,529 in the first year to CDN $35,741 by the final year, plus its share of common area costs. The lease is for a five year term to 30 April 2004 representing a minimum lease commitment of: [Download Table] CDN $ -------- 2001 $ 28,508 2002 31,060 2003 33,614 2004 29,784 -------- $122,966 -------- d) By an agreement dated 4 March 1997, the company's United States subsidiary has agreed to lease 13,050 square feet of general office and warehouse space in McKinney, Texas for five years from 1 July 1997. The annual lease amount of $110,272 represents a minimum lease commitment of: [Download Table] 2001 $110,272 2002 110,272 -------- $220,544 -------- The lease may be extended for two additional terms of five years with the rate to be the current base rent plus the lesser of a consumer price adjustment or a fair rental value adjustment.
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GLOBAL ELECTION SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2000 AND 1999 U.S. Funds -------------------------------------------------------------------------------- 11. COMMITMENTS - CONTINUED e) By an agreement dated 9 December 1999, the company's United States subsidiary has agreed to lease an additional 13,050 square feet of general office and warehouse space in McKinney, Texas, immediately adjacent to its existing facilities, for five years from 1 July 2000. The annual lease amount of $110,268 represents a minimum lease commitment of: [Download Table] 2001 $110,268 2002 110,268 2003 110,268 2004 110,268 2005 110,268 -------- $551,340 -------- The lease may be extended for two additional terms of five years with the rate to be the current base rent plus the lesser of a consumer price adjustment or a fair rental value adjustment. The leasehold improvements which were completed after 30 June 2000, amounted to $264,804 of which $189,709 was paid by the landlord and subsequent to 30 June 2000 the balance of $75,096 was paid by the company. -------------------------------------------------------------------------------- 12. RELATED PARTY TRANSACTIONS In addition to items disclosed elsewhere in these consolidated financial statements, the company conducted the following transactions with related parties: a) EXPENDITURES Details are as follows: [Download Table] 2000 1999 1998 ---- ---- ---- Paid/accrued salaries and fees to officers and directors $625,392 $629,036 $459,736 Paid rent (at fair market value) to a company controlled by a former director -- -- 75,000 Paid interest to a director (i) 6,625 -- -- -------- -------- -------- $632,017 $629,036 $534,736 -------- -------- -------- (i) The interest was paid directly to the underlying financial institution from which the director borrowed the $300,000 to lend to the company (Note 8). b) SHARE CAPITAL During 2000, the company granted a director 50,000 share purchase options with an exercise price of CDN $1.69 per share and an expiry date of 7 February 2005. --------------------------------------------------------------------------------
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GLOBAL ELECTION SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2000 AND 1999 U.S. Funds -------------------------------------------------------------------------------- 13. SALES AND OPERATING INCOME Details of sales and operating income generated from customers which individually account for approximately 10% or more of that year's consolidated sales and operating income are as follows: [Enlarge/Download Table] 2000 1999 1998 ----------- ----------- ----------- Number of Large Customers -- 2 2 ----------- ----------- ----------- Amount of Sales to Large Customers $ -- $ 3,620,295 $ 6,351,000 ----------- ----------- ----------- Total Consolidated Sales and Operating Income $20,195,209 $18,198,041 $20,320,155 ----------- ----------- ----------- Total Percentage of Consolidated Sales and Operating Income Generated from Large Customers 0.0% 19.9% 31.3% ----------- ----------- ----------- Due to the nature of the company's business, large sales to individual customers are generated on a non-recurring basis. As a result, the company is not dependent on any single customer or small group of customers such that the loss of any of these would have a material adverse effect on the future results of the company. -------------------------------------------------------------------------------- 14. REVALUATION OF USED EQUIPMENT During the year ended 30 June 2000, management re-evaluated the carrying value of equipment taken as trade-ins on sales made prior to 1 July 1998. A write-down in the amount of $524,698 resulted as management determined to carry trade-in inventory at no value in inventory. A similar re-evaluation was conducted in fiscal 1999 and resulted in a write-down of $873,101 and $705,707 in 1998. The fiscal 2000 write-down completed the full write-down of the trade-in inventory to a nil balance at 30 June 2000 (Note 3). --------------------------------------------------------------------------------
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GLOBAL ELECTION SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2000 AND 1999 U.S. Funds -------------------------------------------------------------------------------- 15. SEGMENT INFORMATION The company operated in only one industry segment in Canada and the United States as follows: [Enlarge/Download Table] Canada United States Elimination Consolidation ----------- ------------- ----------- ------------- 2000 2000 2000 2000 ----------- ----------- ----------- ----------- Sales to customers $ 1,584,899 $18,610,310 $ -- $20,195,209 Sales between the segments 282,168 839,373 (1,121,541) -- ----------- ----------- ----------- ----------- Total sales revenue $ 1,867,067 $19,449,683 $(1,121,541) $20,195,209 ----------- ----------- ----------- ----------- Operating profits $ 1,001,256 $ 8,898,805 $ -- $ 9,900,061 ----------- ----------- ----------- General corporate expenses (7,579,409) Interest (543,535) Revaluation of used equipment (524,698) Income taxes -- Future income taxes (145,000) ----------- Net income (loss) $ 1,107,419 ----------- ----------- ----------- ----------- Identifiable assets $ 1,838,040 $20,681,031 $ (22,607) $22,496,464 ----------- ----------- ----------- ----------- Capital expenditures $ 12,964 $ 297,228 $ -- $ 310,192 ----------- ----------- ----------- ----------- Amortization of capital assets $ 18,279 $ 354,201 $ -- $ 372,480 ----------- ----------- ----------- ----------- Canada United States Elimination Consolidation ----------- ------------- ----------- ------------- 1999 1999 1999 1999 ----------- ----------- ----------- ----------- Sales to customers $ 824,232 $17,373,809 $ -- $18,198,041 Sales between the segments 957,198 550,677 (1,507,875) -- ----------- ----------- ----------- ----------- Total sales revenue $ 1,781,430 $17,924,486 $(1,507,875) $18,198,041 ----------- ----------- ----------- ----------- Operating profits $ 1,266,249 $ 8,045,943 $ -- $ 9,312,192 ----------- ----------- ----------- General corporate expenses (7,374,234) Interest (325,748) Revaluation of used equipment (873,101) Income taxes (22,064) Future income taxes -- ----------- Net income (loss) $ 716,045 ----------- ----------- ----------- ----------- Identifiable assets $ 518,440 $21,290,568 $ (22,607) $21,786,401 ----------- ----------- ----------- ----------- Capital expenditures $ 12,672 $ 69,346 $ -- $ 82,018 ----------- ----------- ----------- ----------- Amortization of capital assets $ 19,912 $ 368,488 $ -- $ 388,400 ----------- ----------- ----------- -----------
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GLOBAL ELECTION SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2000 AND 1999 U.S. Funds -------------------------------------------------------------------------------- 16. DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES These consolidated financial statements are prepared in accordance with accounting principles generally accepted in Canada. Any differences in United States accounting principles as they pertain to the accompanying consolidated financial statements are not material except as follows: a) COMPENSATION EXPENSE Under accounting principles generally accepted in the United States, there is a compensation expense associated with the release of escrowed shares of the company, as those shares become eligible for release. No compensation expense is applied under accounting principles generally accepted in Canada. b) DEFERRED COSTS Under accounting principles generally accepted in the United States, expenditures related to research and development projects are expensed in the period incurred. Under accounting principles generally accepted in Canada, research expenditures are expensed as incurred and development expenses, which meet certain prescribed criteria (Note 1k), may be deferred and amortized against future income. c) FINANCIAL STATEMENT RECONCILIATION [Enlarge/Download Table] 2000 1999 1998 ----------- ----------- ----------- i) Deferred costs - Canadian basis $ 587,852 $ -- $ -- Less: Deferred costs expensed - current year (587,852) -- -- ----------- ----------- ----------- Deferred costs - U.S. basis $ -- $ -- $ -- ----------- ----------- ----------- ii) Share capital - Canadian basis $10,217,262 $10,126,865 $10,125,867 Add: Escrow share compensation expense - prior years 3,194,621 3,194,621 3,194,621 ----------- ----------- ----------- Share capital - U.S. basis $13,411,883 $13,321,486 $13,320,488 ----------- ----------- ----------- iii) Retained earnings - Canadian basis $ 2,463,157 $ 1,355,738 $ 639,693 Less: Deferred costs expensed - current year (587,852) -- -- Less: Escrow share compensation expense - prior years (3,194,621) (3,194,621) (3,194,621) ----------- ----------- ----------- Deficit - U.S. basis $(1,319,316) $(1,838,883) $(2,554,928) ----------- ----------- ----------- iv) Net income for the year - Canadian basis $ 1,107,419 $ 716,045 $ 4,037,546 Less: Deferred costs expensed - current year (587,852) -- -- ----------- ----------- ----------- Net income for the year - U.S basis $ 519,567 $ 716,045 $ 4,037,546 ----------- ----------- -----------
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GLOBAL ELECTION SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2000 AND 1999 U.S. Funds -------------------------------------------------------------------------------- 16. DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - CONTINUED c) FINANCIAL STATEMENT RECONCILIATION - CONTINUED v) U.S. GAAP consolidated statement of shareholders' equity [Enlarge/Download Table] Common Shares Shares Amount Deficit Total ---------- ----------- ----------- ----------- Balance - 30 June 1997 - U.S. basis 14,689,440 $12,568,818 $(6,592,474) $ 5,976,344 Issuance of share for name and operating assets of I-Mark Systems, Inc. ($0.55 per share) 1,000,000 548,148 -- 548,148 Issuance of performance shares from escrow ($0.06 per share) 2,738,000 155,562 -- 155,562 Issuance of shares on exercise of options ($0.87 per share) 55,000 47,960 -- 47,960 Net income for the year -- -- 4,037,546 4,037,546 ---------- ----------- ----------- ----------- Balance - 30 June 1998 - U.S. basis 18,482,440 13,320,488 (2,554,928) 10,765,560 Issuance of shares on exercise of options ($0.81 per share) 1,232 998 -- 998 Net income for the year -- -- 716,045 716,045 ---------- ----------- ----------- ----------- Balance - 30 June 1999 - U.S. basis 18,483,672 13,321,486 (1,838,883) 11,482,603 Issuance of shares on exercise of options ($0.90 per share) 100,000 90,397 -- 90,397 Net income for the year -- -- 519,567 519,567 ---------- ----------- ----------- ----------- Balance - 30 June 2000 - U.S. basis 18,583,672 $13,411,883 $(1,319,316) $12,092,567 ---------- ----------- ----------- ----------- d) EARNINGS PER SHARE - BASIC OR PRIMARY Under accounting principles generally accepted in the United States, stock options and stock warrants are treated as common stock equivalents in the determination of basic or primary earnings per share if they would have a dilutive effect. Stock options and stock warrants are not treated as common stock equivalents in the determination of basic or primary earnings per share in Canada. Reconciliation of Canadian to U.S. basis - Basic Earnings per Share [Enlarge/Download Table] 2000 1999 1998 ----------- ----------- ----------- Weighted average number of common shares outstanding - Canadian basis 18,550,521 18,483,264 16,773,928 Add: Dilutive stock options and warrants 1,466,667 1,640,435 1,436,667 ----------- ----------- ----------- Weighted average number of common shares outstanding - U.S. basis 20,017,188 20,123,699 18,210,595 ----------- ----------- ----------- Net income for the year - U.S. basis $ 519,567 $ 716,045 $ 4,037,546 ----------- ----------- ----------- Basic and fully diluted earnings per share - U.S. basis $ 0.03 $ 0.04 $ 0.22 ----------- ----------- ----------- - Canadian basis $ 0.06 $ 0.04 $ 0.24 ----------- ----------- ----------- --------------------------------------------------------------------------------
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GLOBAL ELECTION SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2000 AND 1999 U.S. Funds -------------------------------------------------------------------------------- 17. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE The Year 2000 Issue arises because many computerized systems use two digits rather than four to identify a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in errors when information using year 2000 dates is processed. In addition, similar problems may arise in some systems which use certain dates in 1999 to represent something other than a date. Although the change in date has occurred, it is not possible to conclude that all aspects of the Year 2000 Issue that may affect the entity, including those related to customers, suppliers, or other third parties, have been fully resolved. The company has not experienced any Year 2000 issues to date. -------------------------------------------------------------------------------- 18. SUBSEQUENT EVENTS a) On 10 August 2000, the company entered into a letter of intent to acquire 100% of the issued and outstanding shares of Spectrum Print and Mail Services Ltd. The agreement, which is subject to regulatory approval, calls for consideration to be paid by the company of $1,600,000 cash and 1,600,001 shares of the company at a deemed price of CDN $2.09 per share. The cash consideration will be payable as to $600,000 on closing and the balance in three equal payments on the next three anniversary dates of the closing. The shares will be issued pursuant to Canadian and U.S. security regulations. b) On 28 August 2000, the company reached an agreement with a trade receivable customer under which the company will collect the amount in full as follows: - a cash payment of $250,000 by 31 August 2000 (received); - the assignment of certain leases with a net present value of $650,000 (received); and - a corporate guarantee of the payment of $100,000 per month commencing 30 September 2000 until the account is paid in full, including interest at the company's borrowing rates. The company reinstated the customer as an authorized reseller of the company's products. c) Subsequent to year-end, the company granted a director 50,000 share purchase options with an exercise price of CDN $1.25 per share and an expiry date of 2 August 2005. d) Subsequent to year-end, a former director exercised 50,000 share purchase options for cash in the amount of CDN $62,500. --------------------------------------------------------------------------------
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 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III  ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT The following persons are Directors of the Company and have also been nominated for election as Directors at the Company's 2000 annual general meeting of shareholders. Directors serve for a term of one year and until their successors are elected and qualified. BRIAN W. COURTNEY has served as a Director of the Company since July 2000. Mr. Courtney is the Chairman and Chief Executive Officer of Patent Enforcement and Royalties Ltd., a company which makes investments in intellectual property with an emphasis on patents relating to computer applications, software and the Internet. Mr. Courtney, was the founding President of Oracle Canada from 1985 to 1991. Later he became Vice-President of Oracle Corporation (USA), responsible for Latin America, Canada and Mexico. During a 17-year period with Xerox, he held a number of senior positions including Manager of Major Accounts (Western Europe) and Manager of Marketing Planning (Canada). Mr. Courtney holds a Bachelor of Commerce Degree from the University of Manitoba. P. NICHOLAS M. GLASS has served as a Director of the Company since 1997 and Chairman of the Board of the Company since 2000. Mr. Glass is a member of the British Columbia Bar, and of England and Wales, and currently practices in the field of labour relations as a mediator and arbitrator. He is a Director of Belvedere Resources, a Vancouver Stock Exchange listed company, which owns mineral rights in Finland. From 1992 to 1996, Mr. Glass was a Director of Tradepoint Investment Exchange, a public company traded on AIM in London and the Vancouver Stock Exchange that has started a new electronic stock exchange based in London. From 1972 to 1990, he was a civil trial lawyer with Swinton and Company in Vancouver, British Columbia. Mr. Glass holds a Master of Arts degree from Trinity College, Oxford University. JOHN W. LARMER II has served as a Director of the Company since 1999. Mr. Larmer is President of Soza & Company, Ltd., an international finance and management information technology consulting company. His senior level consulting practice encompasses a wide range of technology areas and he has lectured on numerous topics, including the use of computers in management related to tax liabilities and national and local election systems. Mr. Larmer has served as President of the Washington Chapter of the Data Processing Management Association and as the Accounting Chairman for the International Business Exposition and Conference. Mr. Larmer holds an ABA degree in Accounting from Benjamin Franklin School of Accounting, George Washington University, Washington, D.C. CLINTON H. RICKARDS was appointed a Director of the Company in 1991, and until 1995 served as the Company's President. From 1993 to present, Mr. Rickards has managed the Company's Marketing Division, Investor Relations. Involved in the computer industry since 1968, Mr. Rickards formed a private computer company in 1980 with several partners. In 1983, he bought out his partners and founded North American Professional Technologies ("NAPT"). NAPT began the development of ES-2000 in 1986 which subsequently became the Company's signature product.
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ROBERT J. UROSEVICH was appointed President and Chief Operating Officer of the Company on July 31, 2000. From 1997 to 2000, he served as Global USA's Vice-President, Sales, Marketing and Business Development. Mr. Urosevich has over 24 years of experience in the election systems industry. His background with leading edge election products began in 1976 with the development of the first OMR-based centralized vote counting system utilizing standard test scoring equipment in the United States. In 1979, he founded American Information Systems (AIS), which developed and marketed proprietary election counting systems to small and medium sized jurisdictions nationwide. Mr. Urosevich served as the President of AIS from 1979 through 1992 during which time AIS grew to be the largest processor of OMR ballots handling approximately 400 jurisdictions and 40 million documents per year. In 1995, he launched I-Mark Systems after designing a robust touch screen voting system anchored by smart card and biometric encryption authorization technology. The Company acquired I-Mark in 1997, at which time Mr. Urosevich joined the Company. NAMED EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS: LARRY ENSMINGER Mr. Ensminger has served with the Company for nine years. From 1991 to 1993 he was a sales representative, from 1993 to 1997 he was Manager, Sales and Operations, from 1997 to August 31, 2000 he was Vice-President of Operations, and from September 1, 2000 to present he serves as the Company's Vice-President, Business Development. Mr. Ensminger holds an Associate of Arts Degree (Education) from Dodge City Community College and Bachelor and Master of Science (Education) degrees from Kansas State College. TALBOT R. IREDALE Mr. Iredale has served as Vice President Research and Development of the Company since 1991. During that time Mr. Iredale has been instrumental in developing the companies products, including the Accu-Vote-OS (optical mark sense reader), the Accu-Votes-TS (touch screen voting system) and GEMS (Global Election Management System). From 1986 to 1991 Mr. Iredale was in charge of research and development for North American Professional Technologies. In this position Mr. Iredale managed the team who developed the original Accu-Vote-OS and VTS (Vote Tally System), which were the predecessors to Global Election Systems products. Mr. Iredale is a Registered Professional Engineer in the Province of British Columbia and holds a Bachelor of Applied Science Degree from the University of British Columbia. MAURICE E. SOKULSKI Mr. Sokulski was appointed Treasurer of the Company in 1994. He served as a Director of the Company from 1996 to 1997 and Controller from 1994 to 1996. From 1993 to 1994, he was Controller of Northcoast Building Products Ltd., a British Columbia, Canada, distributor of lumber products. In 1992, he was Controller for Adagio Enterprises Ltd, a British Columbia, Canada, clothing manufacturer and distributor. He is a Chartered Accountant and holds a Bachelor of Commerce degree from the University of Alberta. No Director or Executive Officer of the Company is related to any other by blood or marriage. BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Under the US Securities Exchange Act of 1934 (the "Act"), directors and officers of public companies are required to report to the Securities and Exchange Commission all personal transactions involving the Company's common shares. Based solely upon a review of Forms 3, 4 and 5 filed by Directors and officers of the Company during the 2000 fiscal year, to the best knowledge of the Company, all Forms required by Section 16(a) were timely filed with the exception of a Form 4 to be filed by Mr. Courtney.
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 ITEM 10. EXECUTIVE COMPENSATION COMPENSATION OF EXECUTIVE OFFICERS Set out below are particulars of compensation paid to the following persons (the "Named Executive Officers: (a) the Company's chief executive officer; (b) each of the Company's four most highly compensated executive officers who were serving as executive officers at the end of the most recently completed financial year and whose total salary and bonus exceeds C$100,000 per year; and (c) any additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as an executive officer of the Company at the end of the most recently completed financial year. Based on the foregoing, during the fiscal year ended June 30, 2000, there were six Named Executive Officers of the Company, namely: [Enlarge/Download Table] Name Title ---- ----- Larry Ensminger Vice-President, Business Development; Secretary of the Company Talbot R. Iredale Vice-President, Research and Development Clinton H. Rickards Director of Investor Relations; Director of the Company Maurice E. Sokulski Treasurer of the Company Robert J. Urosevich Former Vice-President, Sales, Marketing and Business Development of Global USA (1) Howard T. Van Pelt Former President and Chief Executive Officer of the Company (2) (1) Mr. Urosevich was appointed President and Chief Operating Officer of the Company on July 31, 2000. (2) Mr. Van Pelt resigned as a Director of the Company in August 2000.
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The following table sets forth the compensation awarded, paid to or earned by the Company's Named Executive Officers during the fiscal years ended June 30, 2000, 1999 and 1998 and the six months and fiscal year ended June 30, 1997. SUMMARY COMPENSATION TABLE [Enlarge/Download Table] ANNUAL COMPENSATION LONG TERM COMPENSATION ------------------------------------------------- -------------------------------------- AWARDS PAYOUTS ---------- ------------------------- SECURITIES RESTRICTED UNDER SHARES OR OTHER ANNUAL OPTIONS RESTRICTED LTIP ALL OTHER NAME AND PRINCIPAL YEAR SALARY(5) BONUS COMPENSATION GRANTED SHARE UNITS PAY-OUTS COMPENSATION POSITION ENDED ($) ($) ($) (#) (#) ($) ($) ------------------- ------ ---------- ---------- ------------ ---------- ----------- -------- ------------ HOWARD T. VAN PELT 2000(1) US$180,000 NIL NIL NIL NIL NIL US$1,388 Former President 1999(2) US$180,000 US$ 22,143(5) NIL NIL NIL NIL US$1,044 and CEO of the 1998(3) US$177,500 US$126,015 NIL 50,000 NIL NIL US$1,607 Company 1997(4) US$ 75,000 US$ 63,610 NIL NIL NIL NIL NIL Former President of Global USA(6) ------------------- ------ ---------- ---------- ------------ ---------- ----------- -------- ------------ CLINTON H. RICKARDS 2000(1) C$154,332(8) NIL NIL NIL NIL NIL C$1,407 Director 1999(2) C$145,577 C$35,006 NIL NIL NIL NIL C$1,308 1998(3) C$136,000 C$33,026 NIL 50,000 NIL NIL C$ 171 1997(4) C$ 68,000 C$42,155 NIL NIL NIL NIL C$ 150 ------------------- ------ ---------- ---------- ------------ ---------- ----------- -------- ------------ ROBERT J. UROSEVICH 2000(1) US$115,000 US$10,000 NIL NIL NIL NIL US$858 Former VP, Sales, 1999(2) US$115,000 NIL NIL NIL NIL NIL US$812 Marketing and 1998(3) US$105,417 US$25,000 NIL 120,000 NIL NIL NIL Business 1997(4) N/A N/A NIL N/A NIL NIL N/A Development (Global USA)(7) ------------------- ------ ---------- ---------- ------------ ---------- ----------- -------- ------------ MAURICE E. SOKULSKI 2000(1) US$80,833 US$10,000 NIL NIL NIL NIL US$589 Treasurer 1999(2) US$75,000 NIL NIL NIL NIL NIL US$638 1998(3) US$75,000 US$35,000 NIL 100,000 NIL NIL NIL 1997(4) US$27,324 NIL NIL NIL NIL NIL NIL ------------------- ------ ---------- ---------- ------------ ---------- ----------- -------- ------------ TALBOT R. IREDALE 2000(1) C$105,000 C$1,500 NIL NIL NIL NIL C$2,313 VP, Research and 1999(2) C$ 96,667 N/A N/A N/A N/A N/A C$1,875 Development 1998(3) N/A N/A N/A N/A N/A N/A N/A 1997(4) N/A N/A N/A N/A N/A N/A N/A ------------------- ------ ---------- ---------- ------------ ---------- ----------- -------- ------------ LARRY ENSMINGER 2000(1) US$107,083 US$10,000 NIL NIL NIL NIL US$733 VP, Business 1999(2) US$95,500 NIL NIL NIL NIL NIL US$789 Development 1998(3) US$90,000 US$40,000 NIL 50,000 NIL NIL US$916 Secretary of the 1997(4) US$45,000 NIL NIL NIL NIL NIL NIL Company ---------------------------------------------------------------------------------------------------------------------------------- (1) For the fiscal year ended June 30, 2000. (2) For the fiscal year ended June 30, 1999. (3) For the fiscal year ended June 30, 1998. (4) For the six months and fiscal year ended at June 30, 1997. (5) Refer to "Management Contracts" for further particulars. (6) Mr. Van Pelt resigned as a Director of the Company in August 2000. (7) Subsequent to the fiscal year ended June 30, 2000, Mr. Urosevich was appointed President and Chief Operating Officer of the Company effective July 31, 2000. (8) This number includes C$12,381 paid to Mr. Rickards as a result of exchange rate fluctuations between United States and Canadian currency. LONG TERM INCENTIVE PLAN AWARDS Long term incentive plan awards ("LTIP") means "any plan providing compensation intended to serve as an incentive for performance to occur over a period longer than one financial year whether performance is measured by reference to financial performance of the Company or an affiliate, or the price of the Company's shares but does not include option or stock appreciation rights plans or plans for compensation through restricted shares or units". No LTIPs were granted to the Named Executive Officers or Directors during the fiscal year ended June 30, 2000.
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STOCK APPRECIATION RIGHTS Stock appreciation rights ("SAR's") means a right, granted by an issuer or any of its subsidiaries as compensation for services rendered or in connection with office or employment, to receive a payment of cash or an issue or transfer of securities based wholly or in part on changes in the trading price of the Company's shares. No SARs were granted to or exercised by the Named Executive Officers or Directors during the fiscal year ended June 30, 2000. OPTION GRANTS DURING THE FISCAL YEAR ENDED JUNE 30, 2000 During the fiscal year ended June 30, 2000, stock options were granted to John W. Larmer II, a Director of the Company, to purchase up to a total of 50,000 common shares at a price of C$1.69 per share, exercisable on or before February 7, 2005. No other stock options were granted to the Named Executive Officers or Directors during the fiscal year ended June 30, 2000. Subsequent to the fiscal year ended June 30, 2000, Bryan W. Courtney, a Director of the Company, was granted an option to purchase up to a total of 50,000 common shares at a price of C$1.25 per share exercisable on or before August 2, 2005. AGGREGATED OPTION EXERCISES DURING THE FISCAL YEAR ENDED JUNE 30, 2000 AND FISCAL YEAR END OPTION VALUES No stock options were exercised by the Named Executive Officers or Directors during the fiscal year ended June 30, 2000. Subsequent to the fiscal year ended June 30, 2000, Mr. Van Pelt, the Company's former President and Chief Executive Officer, exercised an option to purchase 50,000 shares at $1.25 per share. OUTSTANDING OPTIONS The total number of outstanding stock options to purchase common shares held by the Named Executive Officers, Directors who were not Named Executive Officers, and employees who were neither Directors nor Named Executive Officers of the Company as at June 30, 2000 (including all such officers, directors and employees of Global USA) is as follows: [Enlarge/Download Table] NO. OF SHARES NO. OF OPTIONS OPTIONEES UNDER OPTION EXERCISABLE EXERCISE PRICE EXPIRY DATES ------------------------ ------------- -------------- -------------- ----------------- NAMED EXECUTIVE OFFICERS 370,000 370,000 C$1.25 August 22, 2002 100,000 50,000 C$1.49 December 17, 2002 DIRECTORS 50,000 C$1.69 February 7, 2005 EMPLOYEES 830,000 830,000 205,000 @ October 15, 2001 C$2.05 625,000 @ August 22, 2002 C$1.25 TOTAL 1,300,000 1,300,000 Subsequent to the fiscal year ended June 30, 2000, Bryan W. Courtney, a Director of the Company, was granted an option to purchase up to a total of 50,000 common shares at a price of C$1.25 per share exercisable on or before August 2, 2005.
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The following table provides the details of stock options exercised during the fiscal year ended June 30, 2000, and the fiscal year end stock option values for the Named Executive officers: [Enlarge/Download Table] NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS, IN-THE-MONEY OPTIONS, ALL OF WHICH WERE ALL OF WHICH WERE SHARES ACQUIRED EXERCISABLE, AT EXERCISABLE, AT OPTIONEES ON EXERCISE VALUE REALIZED JUNE 30, 2000 JUNE 30, 2000 ------------------- --------------- -------------- ------------------- --------------------- HOWARD T. VAN PELT Nil(1) N/A 50,000 Not in the Money CLINTON H. RICKARDS Nil N/A 50,000 Not in the Money LARRY ENSMINGER Nil N/A 50,000 Not in the Money MAURICE E. SOKULSKI Nil N/A 100,000 Not in the Money TALBOT R. IREDALE N/A N/A N/A N/A ROBERT J. UROSEVICH Nil N/A 120,000 Not in the Money (1) Subsequent to the fiscal year ended June 30, 2000, Mr. Van Pelt exercised his stock option to purchase a total of 50,000 shares in the capital of the Company at a price of C$1.25 per share. DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE The Company has no Defined Benefit or Actuarial Plan benefits payable upon retirement of the Named Executive Officers. TERMINATION OF EMPLOYMENT, CHANGE IN RESPONSIBILITIES AND EMPLOYMENT CONTRACTS No employment contracts exist between the Company and the Named Executive Officers, other than set out below under the heading entitled "Management Contracts". COMPENSATION OF DIRECTORS No cash compensation was paid to any Director of the Company for the Director's services as a Director during the fiscal year ended June 30, 2000 other than to David H. Brown, the former Chairman of the Company (C$46,667), George Cobbe, a former director of the Company (US$5,000) P. Nicholas M. Glass (US$12,500) and John W. Larmer II (US$7,500). These amounts included Directors' fees for the fiscal year ended June 30, 2000. The Company has no standard arrangement pursuant to which the Directors are compensated by the Company for the services in their capacity as Directors except for the granting from time to time of incentive stock options in accordance with the policies of The Toronto Stock Exchange. The Company reimburses Directors for expenses they incur to attend board meetings. COMPOSITION OF THE COMPENSATION COMMITTEE The Company's Compensation Committee consists of P. Nicholas M. Glass, Robert J. Urosevich and Brian W. Courtney. However, compensation matters may also be reviewed and approved by the entire Board of Directors. EMPLOYMENT AGREEMENTS HOWARD T. VAN PELT Pursuant to an Employment Agreement dated August 1, 1997, Global USA employed Howard T. Van Pelt as its President at an annual salary of US$180,000 plus an annual bonus of 3% of the consolidated pre-tax earnings to a maximum of US$200,000 per year. The agreement, which was for a term of three years, expired July 31, 2000 and was not renewed. Subsequent to the fiscal year ended June 30, 2000, Mr. Van Pelt resigned as a Director of the Company, and received a severance package of US$169,937.
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 ROBERT J. UROSEVICH Pursuant to an Employment Agreement dated August 1, 1997, Global USA employed Mr. Urosevich as Vice-President, Sales, Marketing and Business Development at an annual salary of US$115,000, as adjusted from time to time. The agreement, which was for a term of three years, expired July 31, 2000. Mr. Urosevich was appointed President and Chief Operating Officer of the Company on July 31, 2000. On August 1, 2000 he entered into an Employment Agreement with Global USA pursuant to which he will receive an annual salary of US$150,000 plus an annual bonus of 3% of the consolidated pre-tax earnings to a maximum of US$200,000 per year. The agreement, which is for a term of two years, will expire July 31, 2002. See Item 12: "Certain relationships and related transactions" below for additional information.  ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT To the knowledge of the directors and senior officers of the Company, there are no individuals or companies who beneficially own, directly or indirectly, or exercise control or direction over shares carrying more than 10% of the voting rights attached to all outstanding shares of the Company. The following table sets forth, as of August 31, 2000, the beneficial ownership of common shares by each person who is known by the Company to beneficially own more than 5% of outstanding common shares in the capital of the Company: [Download Table] AMOUNT AND NATURE OF NAME AND ADDRESS OF BENEFICIAL OWNERSHIP PERCENT OF CLASS BENEFICIAL OWNER (1)(2)(3) BENEFICIALLY OWNED --------------------------------------------------------------------- DAVID H. BROWN 1,310,067 7.1% Toronto, Ontario CLINTON H. RICKARDS 1,023,419(4) 5.5% Surrey, British Columbia HOWARD T. VAN PELT 968,000 5.2% McKinney, Texas --------------------------------------------------------------------- (1) Not being within the knowledge of the Company, the ownership information disclosed above has been furnished by the respective directors individually. (2) To the Company's knowledge, except where otherwise noted, each person listed above has sole voting power of his shares. (3) Free trading shares, except as to option shares. See footnote (4) below as to number of stock option shares included in the table. (4) Includes, as to the named person, the number of shares underlying exercisable stock options:Rickards - 50,000 option shares exercisable at C$1.25 per share.
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The following table sets forth, as at August 31, 2000, the beneficial ownership of common shares held by each director and nominee for director of the Company, each Named Executive Officer, and by all directors and officers as a group: [Download Table] AMOUNT AND NATURE OF NAME AND ADDRESS OF BENEFICIAL OWNERSHIP PERCENT OF CLASS BENEFICIAL OWNER (1)(2)(3)(6) BENEFICIALLY OWNED --------------------------------------------------------------------- BRIAN W. COURTNEY 50,000(4) 0.3% Director and Nominee P. NICHOLAS M. GLASS 50,000(4) 0.3% Director and Nominee JOHN W. LARMER II 50,100(4) 0.3% Director and Nominee CLINTON H. RICKARDS(5) 1,023,419(4) 5.5% Director, Named Executive Officer and Nominee ROBERT J. UROSEVICH(5) 166,023(4) 0.9% Director, Named Executive Officer and Nominee LARRY ENSMINGER(5) 402,835(4) 2.1% Named Executive Officer TALBOT R. IREDALE(5) 24,900 0.1% Named Executive Officer MAURICE E. SOKULSKI(5) 276,700(4) 1.5% Named Executive Officer DIRECTORS AND OFFICERS 2,043,977 11.0% AS A GROUP --------------------------------------------------------------------- (1) Not being within the knowledge of the Company, the ownership information disclosed above has been furnished by the respective directors individually. (2) A person is deemed, under United States securities law, to be the owner of securities that can be acquired by that person within 60 days of the date of the table upon exercise of options or warrants. Each beneficial owner's percentage ownership is determined by assuming that options or warrants that are held by that person and that are exercisable within 60 days of the date of this table have been exercised. The information as to the shares beneficially owned or over which a director exercises control or direction been furnished by the respective Directors individually and is for the month ended June 30, 2000. (3) To the Company's knowledge, except where otherwise noted, each person has sole voting and investment power as to the shares. (4) Includes, as to the person listed, stock options to purchase shares in the capital of the Company as follows: Courtney - 50,000 option shares exercisable at C$1.25 per share; Glass - 50,000 option shares exercisable at C$1.49 per share; Larmer - 50,000 option shares exercisable at C$1.69 per share; Rickards - 50,000 option shares exercisable at C$1.25 per share; Urosevich - 120,000 option shares exercisable at C$1.25 per share); Ensminger - 50,000 option shares exercisable at C$1.25 per share; and Sokulski - 100,000 option shares exercisable at C$1.25 per share. (5) Named Executive Officer.
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(6) Free trading shares under Canadian law, except for the stock option shares which are subject to US Rule 144. See footnote (4) above as to the number of stock option shares included in the table.  ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In addition to the employment arrangements discussed under Item 10. Executive Compensation, the Company employs Clinton Rickards, its Director of Investor Relations at a salary of C$147,500 per year. Until the beginning of the current fiscal year, the Company paid Mr. Rickards a salary of C$141,951 per year. The Company employs its President, Mr. Urosevich at a salary of $150,000. Until the beginning of the current fiscal year, the Company paid Mr. Urosevich at a salary of $115,000. The Company employs its Vice President Sales & Marketing, Mr. Herron at a salary of $120,000 per year. The Company employs its Vice President Operations, Mr. Dix at a salary of $115,000 per year. The Company employs its Vice President Business Development, Mr. Ensminger at a salary of $115,000 per year. Until the beginning of the current fiscal year, the Company paid Mr.Ensminger a salary of $107,083 per year. The Company employs its Treasurer, Maurice E. Sokulski, at a salary of $100,000 per year; for the previous fiscal year, the Company paid Mr. Sokulski a salary in the amount of $80,833. The Company employs Talbot Iredale, its Vice President of Research and Development at a salary of C$120,000 per year. Until the beginning of the current fiscal year, the Company paid Mr. Iredale at a salary of C$105,000 per year. In May 1999, Mr. Van Pelt loaned the Company US$300,000 on an unsecured short-term promissory note bearing interest at a rate of 10% per annum. This loan was repaid in full by the Company in August 1999. With respect to transactions that were entered into before June 30, 1997, the following information is provided as a matter of interest. By an agreement dated November 22, 1991, the Company reserved for issuance 4,150,000 treasury shares for issuance as restricted "performance shares". These shares were to be issued upon payment of C$0.08 per share, and, upon issuance, were to be held in escrow and released to specified employees on the basis of "cumulative cash flow". Two of the original allotees ceased to be employees of the Company and, therefore, were no longer eligible for restricted performance shares. Their 270,000 share allotment was canceled, leaving a balance of 3,880,000 reserved for issuance. During 1996, the Directors resolved to cancel 1,142,000 of the allotted but unissued restricted performance shares and to extend the earn-out period on the remaining 2,738,000 restricted performance shares from January 17, 1997 to January 17, 2000. The Directors' resolution was subsequently approved by shareholders and regulatory authorities. On December 6, 1996, the Company entered into an Amended and Restated Performance Shares Allotment Agreement with respect to the remaining shares which extended the earn-out time from January 17, 1997 to January 17, 2000, but retained the earn-out requirements of the earlier agreement. Those requirements provided that performance shares would have to be earned out on the basis of one performance share for every C$0.7975 cumulative cash flow. The following Directors and Officers were awarded the following rights to acquire restricted performance shares, subject to the escrow terms: Howard Van Pelt, 2,187,581 (of which 1,305,492 were intended for other employees); David H. Brown, 88,208; and Clinton H. Rickards, 282,267. In January 1998, the restrictions on the performance shares lapsed and they were earned, purchased and released from escrow. Of Mr. Van Pelt's allotment, as intended, 1,305,492 were issued to other employees, leaving him a balance of 882,089 shares.
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 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K [Download Table] A. EXHIBITS PAGE 03.1 Memorandum and Articles of Incorporation, as amended.* previously filed 04.1 Parts 7, 10, 12, and 27 of the Memorandum and Articles of previously Incorporation, as amended, set forth in Exhibit 3.1** filed 10.1 Property lease dated August 6, 1999 between David Wood previously and the Company. filed 10.2 Property lease dated December 8, 1999 between Jersey previously Investments, Inc. and the Company. filed 10.3 Change in terms agreement for loan dated May 22, 2000 filed between compass Bank and the Company. herewith electronically 10.4 Change in terms agreement for loan dated May 27, 2000 filed between Compass Bank and the Company. herewith electronically 10.5 Loan agreement dated July 19, 2000 between Hibernia filed National Bank and the Company herewith electronically Schedule 1. Commercial guarantee. filed herewith electronically Schedule 2. Commercial security agreement. filed herewith electronically 11.1 Computation of per-share income Treasury Stock Method filed of the Company. herewith electronically 27 Financial Data Schedule filed herewith electronically * Incorporated by reference to Exhibit 2(1) to the Company's Form 10-SB filed July 31, 1998. ** Incorporated by reference to Exhibit 3(1) to the Company's Form 10-SB filed July 31, 1998. B. Reports on Form 8-K The Company filed no reports on Form 8-K during the fourth quarter of Fiscal 2000.
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SIGNATURE In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on behalf by the undersigned, hereunto duly authorized. Dated: September 28, 2000 GLOBAL ELECTION SYSTEMS INC. By: /s/ Robert J. Urosevich ---------------------------------------------------------- Robert J. Urosevich, President and Chief Operating Officer
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INDEX TO EXHIBITS [Download Table] EXHIBIT NUMBER DESCRIPTION ------- ----------- 03.1 Memorandum and Articles of Incorporation, as amended.* 04.1 Parts 7, 10, 12, and 27 of the Memorandum and Articles of Incorporation, as amended, set forth in Exhibit 3.1** 10.1 Property lease dated August 6, 1999 between David Wood and the Company. 10.2 Property lease dated December 8, 1999 between Jersey Investments, Inc. and the Company. 10.3 Change in terms agreement for loan dated May 22, 2000 between compass Bank and the Company. 10.4 Change in terms agreement for loan dated May 27, 2000 between Compass Bank and the Company. 10.5 Loan agreement dated July 19, 2000 between Hibernia National Bank and the Company Schedule 1. Commercial guarantee. Schedule 2. Commercial security agreement. 11.1 Computation of per-share income Treasury Stock Method of the Company. 27 Financial Data Schedule * Incorporated by reference to Exhibit 2(1) to the Company's Form 10-SB filed July 31, 1998. ** Incorporated by reference to Exhibit 3(1) to the Company's Form 10-SB filed July 31, 1998.

Dates Referenced Herein   and   Documents Incorporated By Reference

Referenced-On Page
This 10KSB Filing   Date First   Last      Other Filings
12/6/9651
1/17/9751
6/30/974651
8/1/971449
1/1/9814
6/30/98746
7/31/98525410SB12G
6/30/9974610KSB
7/1/9916
8/6/995254
9/1/9914
12/8/995254
1/17/0051
5/22/005254
5/27/005254
For The Period Ended6/30/00150
7/19/005254
7/31/004449
8/1/0049
8/31/004450
9/1/0044
9/20/0015
Filed On / Filed As Of9/28/0053
10/1/0014
11/15/0020NT 10-Q
11/22/0020
11/27/0020
1/19/0120
7/18/0120
10/15/0147
7/31/0249
8/22/0247
12/17/0247
2/7/0547
8/2/0547
4/24/069
 
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