As filed with the Securities and Exchange Commission on January 31, 1997
Registration No. 333-11723
- -------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
Amendment No. 3
to
FORM SB-2
REGISTRATION STATEMENT
under the
SECURITIES ACT OF 1933
GLOBAL MED TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
Colorado 8741; 8071; 7372 84-1116894
-------- ---------------- ----------
(State or jurisdiction (Primary Standard (I.R.S Employer
of incorporation or Industrial Classification Identification
organization) Code Number) Number)
Global Med Technologies, Inc.
12600 West Colfax
Suite A-500
Lakewood, Colorado 80215
(303) 238-2000
(Address and telephone number of principal executive offices and
principal place of business)
----------
Michael I. Ruxin, M.D.
Global Med Technologies, Inc.
12600 West Colfax
Suite A-500
Lakewood, Colorado 80215
(303) 238-2000
(Name, address and telephone number of agent for service)
COPIES OF ALL COMMUNICATIONS TO:
Albert Brenman, Esq. Thomas S. Smith, Esq.
Brenman Key & Bromberg, P.C. Smith, McCullough & Ferguson, P.C.
Mellon Financial Center 1610 Wynkoop Street
1775 Sherman Street, Suite 1001 Suite 300
Denver, Colorado 80203 Denver, Colorado 80202-1135
(303) 894-0234 (303) 892-6003
(303) 839-1633 FAX (303) 892-0457 FAX
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that
this registration statement shall thereafter become effective in accordance
with section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said section 8(a), may determine.
<PAGE>
CALCULATION OF REGISTRATION FEE
============================================================================
Proposed
Title of each Proposed maximum Amount
class of Amount maximum aggregate of
securities to to be offering offering registration
be registered registered price(1) price(1) fee
============================================================================
1,537,550 Units, each
consisting of 2 shares
of Common Stock and 1
1 Class A Common Stock
Purchase Warrant (2) 1,537,550 $ 9.00 $13,837,950 $4,772
- ----------------------------------------------------------------------------
Common Stock (3) 3,075,100 $ -0- -0- -0-
- ----------------------------------------------------------------------------
Class A Common Stock
Purchase Warrants (3) 1,537,550 $ -0- -0- -0-
- ----------------------------------------------------------------------------
Common Stock Underlying
Class A Common Stock
Purchase Warrants (4) 1,537,550 $ 5.85 8,994,668 3,102
- ----------------------------------------------------------------------------
Common Stock (5) 947,970 $ 4.50 4,265,865 1,471
- ----------------------------------------------------------------------------
Shares Underlying
Outstanding Warrants to
Purchase Common Stock (5) 337,800 $ 4.50 1,520,100 524
- ----------------------------------------------------------------------------
Representative's Warrants
to Purchase Units 1 $100.00 100 Nil
- ----------------------------------------------------------------------------
Representative's Units,
each consisting of 2
shares of Common Stock
and 1 Class A Common Stock 133,700 $ 14.85 1,985,445 685
Purchase Warrant
- ----------------------------------------------------------------------------
Common Stock included in
Representative's Units (6) 267,400 $ -0- -0- -0-
- ----------------------------------------------------------------------------
Class A Common Stock Purchase
Warrants included in the
Representative's Units (6) 133,700 $ -0- -0- -0-
- ----------------------------------------------------------------------------
Common Stock Underlying
Class A Common Stock
Purchase Warrants included
in the Representative's 133,700 $ 8.67 1,159,179 400
Units (4)
============================================================================
Total: $31,763,307 $10,954(7)
============================================================================
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rules 457(a) and (g).
(2) Includes 200,550 Units consisting of 401,100 shares of Common Stock
and 200,550 Class A Common Stock Purchase Warrants, that may be
issued upon exercise of the Underwriters' over-allotment option.
(3) Included in the 1,537,550 Units. Accordingly, no separate filing fee
is payable for the registration of such shares of Common Stock and
Class A Common Stock Purchase Warrants.
(4) Pursuant to Rule 416, there are also being registered such additional
securities as may become issuable pursuant to the anti-dilution
provisions of the Warrants.
(5) Shares of Common Stock registered on behalf of Selling
Securityholders.
(6) Included in the Units which are issuable upon exercise of the
Representative's Warrants to Purchase Units. Accordingly, no separate
filing fee is payable for the registration of such shares of Common
Stock and Class A Common Stock Purchase Warrants.
(7) A fee of $11,303 was paid with the initial filing of this registration
statement.
---------------
<PAGE>
CROSS REFERENCE SHEET
FORM SB-2
ITEM NO. SECTIONS IN PROSPECTUS
- --------- ----------------------
1 Front of Registration Statement and
Outside Front Cover of Prospectus . . . . . Cover Page
2 Inside Front and Outside Back Cover
Pages of Prospectus . . . . . . . . . . . . Inside Front Cover
Pages (i)(ii); Table of
Contents
3 Summary Information and Risk
Factors . . . . . . . . . . . . . . . . . . Prospectus Summary;
Risk Factors
4 Use of Proceeds . . . . . . . . . . . . . . Prospectus Summary; Use
of Proceeds
5 Determination of Offering Price . . . . . . Cover Page;
Underwriting
6 Dilution. . . . . . . . . . . . . . . . . . Risk Factors; Dilution
7 Selling Security Holders. . . . . . . . . . Not Applicable
8 Plan of Distribution. . . . . . . . . . . . Prospectus Summary;
Underwriting
9 Legal Proceedings . . . . . . . . . . . . . Litigation
10 Directors, Executive Officers,
Promoters and Control Persons . . . . . . . Management - Directors
and Executive Officers
11 Security Ownership of Certain
Beneficial Owners and Management. . . . . . Security Ownership of
Certain Beneficial
Owners and Management
12 Description of Securities . . . . . . . . . Description of
Securities; Dividend
Policy
13 Interest of Named Experts and
Counsel . . . . . . . . . . . . . . . . . . Experts
14 Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities . . . . . . . . . . . . . . Statement as to
Indemnification
15 Organization within Last Five Years . . . . The Company; Interests
of Management and
Others in Certain
Transactions
16 Description of Business . . . . . . . . . . Prospectus Summary;
Risk Factors; The
Company
17 Management's Discussion and
Analysis or Plan of Operation . . . . . . . Management's Discussion
and Analysis or Plan of
Operation
18 Description of Property . . . . . . . . . . The Company
19 Certain Relationships and Related
Transactions. . . . . . . . . . . . . . . . Interests of Management
and Others in Certain
Transactions
<PAGE>
20 Market for Common Equity and
Related Stockholder Matters . . . . . . . . Risk Factors
21 Executive Compensation. . . . . . . . . . . Management - Executive
Compensation
22 Financial Statements. . . . . . . . . . . . Index to Financial
Statements
23 Changes In and Disagreements With
Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . Experts
24 Indemnification of Directors and
Officers. . . . . . . . . . . . . . . . . . Indemnification of
Directors and Officers
25 Other Expenses of Issuance and
Distribution. . . . . . . . . . . . . . . . Other Expenses of
Issuance and
Distribution
26 Recent Sales of Unregistered
Securities. . . . . . . . . . . . . . . . . Recent Sales of
Unregistered Securities
27 Exhibits. . . . . . . . . . . . . . . . . . Exhibits
28 Undertakings. . . . . . . . . . . . . . . . Undertakings
<PAGE>
PROSPECTUS
GLOBAL MED TECHNOLOGIES, INC.
1,337,000 UNITS, EACH CONSISTING OF
TWO SHARES OF COMMON STOCK AND
ONE CLASS A COMMON STOCK PURCHASE WARRANT
This Prospectus relates to the offering (the "Offering") by Global Med
Technologies, Inc. (the "Company") of 1,337,000 units (the "Units"), each
consisting of two shares of Common Stock (the "Common Stock") and one Class
A Common Stock Purchase Warrant (the "Warrants"). The Common Stock and the
Warrants comprising the Units will not be separately tradeable or
transferable for a period of six months commencing on the date of this
Prospectus or earlier at the discretion of RAF Financial Corporation (the
"Representative").
Prior to the Offering, there has not been any public market for the
securities of the Company. The initial public offering price of the Units
and the initial exercise price and other terms of the Warrants have been
arbitrarily determined by negotiation between the Company and the
Representative, as representative of the participating underwriters (the
"Underwriters"). It is anticipated that the offering price of the Units
will be between $7.00 and $9.00 per Unit. Application has been made to
approve the Units for quotation on the NASDAQ Small-Cap Market under the
trading symbol GLOBU. Only the Units will be listed for quotation on
NASDAQ until the Common Stock and Warrants become separately tradeable and
transferable. Thereafter, subject to the Company then meeting the NASDAQ
maintenance requirements, the Units will be delisted from quotation on
NASDAQ and only the Common Stock and Warrants will be listed for quotation
on NASDAQ.
Each Warrant entitles the registered holder thereof to purchase one
share of Common Stock at an exercise price of $________(130% of the initial
public offering price of the Common Stock) per share, subject to adjustment
in certain events, at any time commencing on the date the Warrants are
separately tradeable and transferable and ending on ________, 2000.
Commencing on the date the Warrants are separately tradeable and
transferable, the Warrants are subject to redemption by the Company at $.55
per Warrant at any time until the end of the second year after the date of
this Prospectus and thereafter at $.75 per Warrant at any time prior to
their expiration, on not less than 30 days' prior written notice to the
holders of Warrants, provided that the daily trading price per share (as
defined commencing on page 66) of Common Stock has been as least
$________(120% of the Warrant exercise price) for a period of at least 20
consecutive trading days ending within 10 days prior to the date upon which
the notice of redemption is given. Once exercisable, the Warrants will be
exercisable until the close of the business day preceding the date fixed
for redemption, if any. See Description of Securities - Warrants.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION TO INVESTORS. POTENTIAL PURCHASERS SHOULD
NOT INVEST IN THESE SECURITIES UNLESS THEY CAN AFFORD THE RISK OF LOSING
THEIR ENTIRE INVESTMENT. SEE RISK FACTORS COMMENCING ON PAGE 7 OF THIS
PROSPECTUS AND DILUTION COMMENCING ON PAGE 21 OF THIS PROSPECTUS.
After completion of this Offering, the Company will amend this
Prospectus to permit certain of its security holders to publicly offer and
sell Common Stock. See SHARES ELIGIBLE FOR FUTURE SALE.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------
=========================================================================
Proceeds
Price to Underwriting to the
Public Discount(1) Company (2)
- -------------------------------------------------------------------------
Per Unit . . . . . . . . . . . . . $_____ $_____ $_____
- -------------------------------------------------------------------------
Total(3) . . . . . . . . . . . . . $_____ $_____ $_____
- -------------------------------------------------------------------------
Footnotes on following page.
It is expected that the delivery of the Units will be made at the
offices of the Representative on or about __________________ __, 1997.
RAF FINANCIAL CORPORATION
The date of this Prospectus is ___________________ __, 1997.
<PAGE>
______________________________
(1) The Company has also agreed to pay the Representative a non-accountable
expense allowance equal to 3% of the total Price to Public
for the Units and to issue to the Representative and its designees for
a nominal consideration warrants to purchase 133,700 Units at a
purchase price equal to 165% of the Price to Public (the
"Representative's Warrants"). Each Unit issuable upon exercise of the
Representative's Warrants will consist of two shares of Common Stock
and one Warrant exercisable at a price equal to 165% of the exercise
price of the Warrants. The Representative's Warrants and the
securities underlying the Representative's Warrants have been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), by means of the Registration Statement of which
this Prospectus is a part. Subject to certain limitations, upon
exercises of the Warrants occurring after one year from the date of
this Prospectus, the Company has also agreed to pay the Representative
a solicitation fee equal to 10% of the exercise price of the Warrants.
The Representative has a three year right of first refusal with
respect to future public or private offerings for cash by the Company
or any of its subsidiaries. In addition, the Company has agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act. See Underwriting.
(2) Before deducting expenses of the Offering payable by the Company
estimated at $240,000, which excludes the non-accountable expense
allowance described in Note (1) above, and assumes no exercise of the
Underwriters' over-allotment option. See USE OF PROCEEDS.
(3) The Company has granted to the Underwriters a 30-day option to
purchase up to 200,550 additional Units from the Company at the Price
to Public, less the Underwriting Discount, solely to cover over-
allotments, if any. If the Underwriters exercise such option in full,
the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ _____, $ _____, and $_____, respectively. See
UNDERWRITING.
The following language appears in red on the left side of the cover page.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. a
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN A STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
THE UNITS OFFERED IN THIS OFFERING BY THE UNDERWRITERS ARE SUBJECT TO PRIOR
SALE. THE UNDERWRITERS RESERVE THE RIGHT TO WITHDRAW, CANCEL OR MODIFY
SUCH OFFER (WHICH MAY BE DONE ONLY BY FILING AN AMENDMENT TO THE
REGISTRATION STATEMENT) AND TO REJECT ORDERS IN WHOLE OR IN PART FOR THE
PURCHASE OF ANY OF THE COMPANY'S UNITS AND TO CANCEL ANY SALE EVEN AFTER
THE PURCHASE PRICE HAS BEEN PAID IF SUCH SALE, IN THE OPINION OF THE
UNDERWRITERS, WOULD VIOLATE FEDERAL OR STATE SECURITIES LAWS OR A RULE OR
POLICY OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. ("NASD").
IN CONNECTION WITH THIS OFFERING, THE REPRESENTATIVE MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE
UNITS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
ii
<PAGE>
WYNDGATE
TECHNOLOGIES(TM)
Wyndgate Technologies(TM), a division
of the Company, is a medical software
company specializing in information
systems that manage blood products
from donor recruitment and laboratory
testing to patient transfusion and
records management. [GRAPHIC OF BLOOD
BAGS OMITTED]
Wyndgate(TM)'s products help
protect the safety of blood
and blood products from
donation through blood center
delivery.
Wyndgate(TM)'s current product is
SafeTrace(TM), a blood bank management
information system. Wyndgate(TM) is in the
process of developing SafeTraceTx(TM), a
transfusion management information system.
Wyndgate(TM)'s products help protect the
safety of patient blood and blood product
use. Partial Client List
EDEN-OA(R) - Application Engine Stanford Medical School
------------------------------- Blood Center
SafeTrace(TM) Blood Bank of the Redwoods
SafeTraceTx(TM) Community Blood Center of
DataMed International(TM) Appleton
Medical Systems Belle Bonfils Memorial Blood
Other Medical Applications Center
Community Blood Bank,
Lincoln, Nebraska
Blood Bank of San Bernadino-
Riverside Counties
Sacramento Medical
Foundation Blood Center
Wyndgate(TM)'s products incorporate an Oklahoma Blood Institute
underlying proprietary technology, Coffee Memorial Blood Center
called EDEN-OA(R). EDEN-OA(R) is a Memorial Blood Centers of
rapid applications development tool Minnesota
created by Wyndgate(TM). EDEN-OA(R) Institute for Transfusion
provides the Company with a strategic Medicine
platform for future growth. With the Community Blood Bank of
EDEN-OA(R) software tool, the Company Erie County
will attempt to enter other medical Peninsula Blood Bank,
information management niche markets. Incorporated
The Blood Center of Central
Iowa
Blood Center of Southeast
Louisiana, Inc.
Siouxland Community Blood
Bank
Gulf Coast Regional
Blood Center
San Diego Blood Bank
Samuel W. Memorial Blood
Center
Tri-Counties Blood Bank,
Incorporated
<PAGE>
DATAMED
INTERNATIONAL(TM)
DataMed International(TM), a division of
the Company, is a medical information
management company specializing in the
third party administration of substance
abuse testing programs for large
corporations. Consequently, DataMed(TM)
is taking advantage of what the management
of the Company believes are the current [GRAPHIC OF TWO MEN LOOKING
trends of corporate outsourcing and AT COMPUTER OMITTED]
downsizing by selling its medical
information services principally to DataMed(TM)'s medical
Fortune 1000 and other corporations. physicians assist in
DataMed(TM) provides several products establishing the legal which
allow corporations to outsource all or defensibility of its part of
their employee substance abuse testing clients' substance abuse
programs. testing programs.
PARTIAL CLIENT LIST
Chevron Corporation
Owens Corning
The Company believes that the key to its Marriott International, Inc.
success is to provide medical information Air Products and Chemicals
management products and services to Jones Intercable, Inc.
"boutique" market niches. The Company Bechtel Corporation
believes that this will create Laidlaw Transit, Inc.
for quick penetration and
leadership in these market niches.
[GRAPHIC OF LABORATORY AND TEST
TUBES OMITTED] [PARTIAL GRAPHIC OF SILVER
DataMed(TM) is the liaison between DOLLAR OMITTED]
corporate clients and their selected
laboratories and collection sites, GMTI's products and services
helping to insure total quality bring value to clients and
management and continuous quality the public at large.
improvement.
<PAGE>
[GRAPHIC OF COMPUTER KEYBOARD OMITTED]
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION
WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
UNTIL ______________, 1997 ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
TABLE OF CONTENTS
Summary. . . . . . . . . . . . . . . 1 Executive Compensation . . . . . . . 53
The Offering . . . . . . . . . . . . 3 Security Ownership of Certain
Summary Financial Information. . . . 6 Beneficial Owners and Management. . 61
Risk Factors . . . . . . . . . . . . 7 Certain Relationships and Related
Use of Proceeds. . . . . . . . . . .18 Transaction . . . . . . . . . . . . 63
Capitalization . . . . . . . . . . .20 Description of Securities. . . . . . 64
Dilution . . . . . . . . . . . . . .21 Underwriting . . . . . . . . . . . . 67
Dividend Policy . . . . . . . . . .22 Legal Matters. . . . . . . . . . . . 70
Selected Financial Information . . .23 Experts. . . . . . . . . . . . . . . 70
Management's Discussion and Shares Eligible for Future Sale . . 70
Analysis or Plan of Operations. . .25 Additional Information . . . . . . . 72
The Company. . . . . . . . . . . . .30 Glossary . . . . . . . . . . . . . . 73
Legal Proceedings. . . . . . . . . .48 Financial Statements
Management . . . . . . . . . . . . .48
iii
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more
detailed information and consolidated financial statements appearing
elsewhere in this Prospectus.
The Company
Global Med Technologies, Inc. (the "Company") provides information
management software products and services to the healthcare industry and
provides substance abuse (which includes drug and alcohol) testing program
services to companies, including certain Fortune 1000 companies. The
Company consists of two divisions, Wyndgate Technologies ("Wyndgate") and
DataMed International ("DataMed"), both of which operate under their
respective trade names. Wyndgate develops, markets, licenses and supports
software for the healthcare industry. DataMed manages and markets a
variety of services that are designed to assist companies with
administering substance abuse testing programs.
Founded in 1984, Wyndgate initially developed a Student Information
System ("SIS") software product, an integrated software package for
colleges and universities to track student information. Wyndgate currently
has six contracts for the SIS software product still in effect. Pursuant
to an agreement with eight California blood centers, Wyndgate began
development of a blood tracking system to assist community blood centers,
hospitals, and plasma centers in the U.S. in complying with the quality and
safety standards of the Food and Drug Administration ("FDA") for the
collection and management of blood and blood products. After several years
of development and $1,080,000 paid by eight California blood centers,
Wyndgate has completed development and commenced marketing of the
SAFETRACE(TM) software product, which is a blood bank management
information software system, and which the Company believes to be the most
comprehensive and flexible system of its type available today. In
accordance with FDA regulations, the Company submitted a 510(k) application
to the FDA in October, 1995 for review of its SAFETRACE(TM) software
product, which is still pending. The Company is able to continue marketing
the SAFETRACE(TM) software product during the review process. There are no
assurances that the Company will receive a 510(k) clearance letter from the
FDA. If not, the Company will be required to discontinue marketing and
licensing the SAFETRACE(TM) software product.
In 1989, Wyndgate developed EDEN-OA(R) to utilize new technologies in
the evolving open systems computer market. EDEN-OA(R) is a rapid
applications development tool that can be used by software developers to
produce software products that operate in accordance with industry
standards based computer environments. EDEN-OA(R) can operate on different
types of computer hardware from different manufacturers and on several
different operating systems.
Since its acquisition of Wyndgate in 1995, the Company has been
seeking a strategic alliance with a multi-national health care corporation
in order to attempt to enhance its acceptance in health care markets and
more efficiently and rapidly market its current and possible future product
lines. To accomplish this goal, the Company's management held numerous
discussions with several different companies over the past year. On
November 14, 1996, the Company and Ortho Diagnostic
-1-
<PAGE>
Systems Inc. ("ODSI") entered into an Exclusivity and Software Development
Agreement (the "Exclusivity Agreement") in which the Company and ODSI
agreed to negotiate in good faith towards reaching a definitive agreement
relating to a transaction or transactions with respect to the Company's
activities and developments in information technology and intellectual
property relating to donor and transfusion medicine (the "Technology").
ODSI is a wholly owned subsidiary of Johnson & Johnson. Any such
transaction or transactions could take any form or structure, including,
without limitation, a sale or exchange of assets of the Company, including
the Technology. There can be no assurance that the Company and ODSI will
be able to reach to a definitive agreement on these or any other
arrangements. If the Company and ODSI are unable to reach a definitive
agreement, then the Company will renew its search for a strategic partner.
The Company also agreed to perform certain software development services in
consideration of the payment from ODSI of $500,000 in November 1996, and an
additional $500,000 received in January 1997. If the Company and ODSI
enter into a definitive agreement relating to the Technology, the Company's
other assets or Common Stock, then ODSI may decline the software
development services and apply the payments to the Company towards any
consideration payable to the Company in connection with the definitive
agreement. The Company also granted ODSI a right of first refusal during
the period May 14, 1997 through November 14, 1997, in the event the Company
proposes to transfer, dispose of, sell, lease, license (except on a
non-exclusive basis pursuant to the ordinary course of its business), mortgage
or otherwise encumber or subject to any pledge, claim, lien or security
interest of the Technology. See THE COMPANY - WYNDGATE TECHNOLOGIES
DIVISION - AGREEMENT WITH ORTHO DIAGNOSTIC SYSTEMS INC.
DataMed was founded in 1989 by Michael I. Ruxin, M.D., the Chairman
and CEO of the Company, to offer the services of a Medical Review Officer
("MRO") to the regulated segment of the substance abuse testing market.
Due to federal regulations, companies involved in commercial transportation
must comply with requirements mandating substance abuse testing of
employees in safety sensitive positions and substance abuse awareness
education for supervisors and employees. Additionally, federal substance
abuse testing requirements applicable to commercial transportation mandate
the use of an MRO to evaluate the quality and accuracy of the testing
laboratory and to determine legal or illegal use of substances. Corporate
outsourcing has been a positive factor for DataMed as some large companies
have contracted with DataMed to outsource the management of their substance
abuse testing programs.
DataMed provides customized program management services to companies
in an attempt to increase total program quality and decrease total program
costs. DataMed provides substance abuse testing management services which
coordinate and actively manage the specimen collection process, the
laboratory testing process, the MRO review process, the random testing
process, the blind sample quality control process, the substance abuse
testing process, and the data management process including compliance
reporting and record keeping.
Key elements of the Company's strategy include (i) expanding its sales
and marketing efforts to attempt to increase its customer base nationally
and internationally, (ii) developing new healthcare management software
products and services utilizing the Company's existing technology and
experience in blood bank management software and substance abuse management
services, (iii) expanding international markets within the transportation
and healthcare industries,
-2-
<PAGE>
(iv) developing strategic relationships and selective acquisitions to
capitalize on opportunities in its industry, and (v) maintaining its
technology advantage in developing regulatory compliance tracking software
and quality assurance software products by continuing to focus on research
and development.
National MRO, Inc., founded in 1989, changed its name to Global Data
Technologies, Inc. in June 1995 in connection with the merger of National
MRO, Inc. and The Wyndgate Group, Ltd. in May 1995, and changed its name
again in May 1996 to Global Med Technologies, Inc. The Company's executive
offices are located at 12600 West Colfax, Suite A-500, Lakewood, Colorado
80215, and its telephone number is (303) 238-2000.
THE OFFERING
Securities Offered. . . . . . 1,337,000 Units, each consisting of two
shares of Common Stock and one Warrant.
Each Warrant entitles the holder
thereof to purchase one share of Common
Stock. The Common Stock and the
Warrants will not be separately
tradable or transferrable for a period
of six months commencing on the date of
this Prospectus or earlier at the
discretion of the Representative. See
Description of Securities and
Underwriting.
Offering Price. . . . . . . . $7.00 to $9.00 per Unit.
Common Stock Outstanding before
Offering . . . . . . . . . . 4,966,626 shares
Common Stock to be Outstanding
after Offering (1) . . . . . 7,908,596 shares
Warrants Outstanding before
Offering . . . . . . . . . . None
Warrants to be Outstanding
after Offering . . . . . . . 1,337,000 Warrants
Exercise Price of Warrants. . $___(130% of the initial public
offering price of the shares included
in the Units) per share of Common
Stock, subject to adjustment in certain
circumstances. See DESCRIPTION OF
SECURITIES - WARRANTS.
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Expiration Date of Warrants . _______, 2000 (three years after the
date of this Prospectus.)
Redemption of Warrants . . . Commencing on the date the Warrants are
separately tradeable and transferable,
the Warrants are redeemable by the
Company at $.55 per Warrant at any time
until the end of the second year after
the date of this Prospectus and
thereafter at $.75 per Warrant at any
time until their expiration, on not
less than 30 days' prior written notice
to the holders of Warrants, provided
that the closing bid price per share of
the Common Stock on the NASDAQ SmallCap
Market, or the last sale price per
share if listed on the NASDAQ National
Market System or a national exchange,
has been at least $____ (120% of the
Warrant exercise price) for a period of
20 consecutive trading days ending on
the tenth day prior to the date on
which the Company gives notice of
redemption. See DESCRIPTION OF
SECURITIES - WARRANTS.
Estimated net proceeds
to the Company(2). . . . . . $7,902,330 (Assuming an offering price
of $7.00 per Unit)
Use of Proceeds . . . . . . . The Company intends to use the net
proceeds of this Offering for sales and
marketing, to pay research and
development costs, to pay existing
accounts payable, accrued expenses and
existing debt, and for working capital
and general corporate purposes. See
USE OF PROCEEDS and THE COMPANY.
Risk Factors. . . . . . . . . An investment in the securities offered
by this Prospectus involves a high
degree of risk and immediate
substantial dilution. See RISK FACTORS
and DILUTION.
NASDAQ Symbol(3). . . . . . . Units: GLOBU(4)
____________________
(1) Includes: (i) 2,674,000 shares of Common Stock included in the Units
to be sold by the Company in this Offering, (ii) 137,646 shares of
Common Stock issuable upon the conversion of $516,200 of the principal
amount of 10% Notes (plus an estimated additional 10,324 shares
issuable upon conversion of accrued interest thereon) and (iii)
120,000 shares of Common Stock issuable to certain shareholders of the
Company pursuant to the terms of a private placement which provided
for a share adjustment in the event the price per share in the
Company's initial public offering is less than $4.90 per share. Does
not include: (i) up to 401,100 shares of Common Stock included in the
Units subject to the over-allotment option; (ii) up to 1,337,000
shares of Common Stock issuable upon exercise of the Warrants included
in the Units to be sold
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by the Company in this Offering (1,537,550 shares if the over-allotment
option is exercised); (iii) up to 401,100 shares of Common
Stock issuable upon the exercise of the Representative's Warrants and
the Warrants included in the Units issuable upon exercise of the
Representative's Warrants; and (iv) 1,077,929 shares of Common Stock
issuable upon the exercise of outstanding options and warrants to
purchase shares of Common Stock, which includes 187,800 shares of
Common Stock underlying warrants issued in connection with the 10%
Notes and 150,000 shares of Common Stock underlying warrants
exercisable at 85% of the price per share of the Common Stock
included in the Units.
(2) After deduction of the Underwriting Discount and expense allowance and
additional offering expenses estimated at $240,000. Does not include
any proceeds from the sale of the Units included in the over-allotment
option.
(3) The continuation of quotations on NASDAQ is subject to certain
conditions. The failure to meet these conditions may prevent the
Company's securities from continuing to be quoted on NASDAQ. Failure
to maintain continued quotations on NASDAQ may have an adverse effect
on the market for the Company's securities. See Risk Factors.
(4) The Common Stock and the Warrants will not be separately tradeable or
transferable for a period of six months commencing on the date of this
Prospectus or earlier at the discretion of the Representative. Until
such time, it is unlikely that any trading market will develop for
such securities. Subject to the Company meeting the NASDAQ
maintenance requirements, the Company intends to delist the Units from
NASDAQ and to list the Common Stock and Warrants on NASDAQ on or about
the date the Common Stock and the Warrants are separately tradeable
and transferable.
OTHER SECURITIES BEING REGISTERED
As a result of agreements of the Company, the Registration Statement
of which this Prospectus is a part has registered for resale by certain
persons an additional 1,285,770 shares of Common Stock. Each such person
has agreed that they will not publicly offer, sell or otherwise dispose of,
any of such shares of the Company's Common Stock for a period of six months
after the date of this Prospectus. After the completion of this Offering,
the Company will amend its Registration Statement and this Prospectus to
permit such persons to publicly offer and sell such Common Stock after the
expiration of such six month period. See SHARES ELIGIBLE FOR FUTURE SALE -
CONCURRENT REGISTRATION BY SELLING SHAREHOLDERS.
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SUMMARY FINANCIAL INFORMATION
The following selected financial data should be read in conjunction
with the consolidated financial statements and notes thereto included
elsewhere in this Prospectus. The consolidated statement of operations
data for the years ended December 31, 1995 and 1994, and the consolidated
balance sheet data at December 31, 1995 are derived from and should be read
in conjunction with the consolidated financial statements of the Company
and notes thereto audited by Ernst & Young LLP, independent auditors.
The selected financial data as of, and for the nine months ended
September 30, 1996 and 1995, are derived from the unaudited financial
statements of the Company, which, in the opinion of the Company reflect all
adjustments, consisting only of normal recurring accruals, necessary for a
fair presentation of the results for the nine months ended September 30,
1996 and 1995, which are not necessarily indicative of the results for a
full year.
Statement of Operations Data:
Years Ended Nine Months Ended
December 31, September 30,
--------------------- --------------------
1995 1994 1996 1995
---- ---- ---- ----
Revenues $6,674,118 $4,976,255 $8,929,549 $4,841,514
Cost of sales(1) 3,217,595 2,429,789 5,016,101 2,308,078
Gross profit 3,456,523 2,546,466 3,913,448 2,533,436
Selling, general and
administrative(1) 5,980,130 2,427,383 5,792,048 4,658,018
Income (loss) from
operations (2,523,607) 119,083 (1,878,600) (2,124,582)
Net income (loss) $(2,684,858) $ 172,247 $(2,074,117)$(2,041,348)
========== ========== ========== ==========
Net income (loss) per
common share(2) $ (.59) $ .04 $ (.44)$ (.45)
========== ========== ========== ==========
Common shares used in
computing net income
(loss) per common
share(2): 4,579,848 4,379,028 4,679,028 4,546,547
Balance Sheet Data: Dec. 31, 1995 September 30, 1996
------------- ------------------
Cash and cash
equivalents $ 421,743 $ 587,724
Working capital
(deficit) $(2,171,397) $(2,250,308)
Total assets $2,720,862 $6,509,592
Long-term liabilities $ 647,929 $ 804,517
Stockholders' equity
(deficit) $(1,458,485) $(1,092,094)
___________
(1) See Note 1 to the Consolidated Financial Statements for a description
of the reclassification of certain expenses.
(2) See Note 1 to the Consolidated Financial Statements for a description
of the computation of net income (loss) per common share.
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RISK FACTORS
The Units offered hereby are speculative in nature and involve a high
degree of risk. The Units should be purchased only by persons who can
afford to lose their entire investment. Therefore, prior to making any
purchase, each prospective investor should consider very carefully the
following risk factors, as well as all of the other information set forth
elsewhere in this Prospectus, including the information contained in the
financial statements.
SIGNIFICANT OPERATING LOSSES; NEGATIVE NET WORTH; NET WORKING CAPITAL
DEFICIT
For the fiscal year ended December 31, 1995, the Company incurred a
loss in the amount of $2,684,858, as compared to a profit of $172,247 for
the fiscal year ended December 31, 1994. The loss was primarily due to (i)
employee compensation which increased because of additional sales and
operations staff hired by the Company in 1995 in anticipation of future
growth of the Company's operations and (ii) expenses related to the merger
with The Wyndgate Group, Ltd. The Company incurred a loss for the nine
months ended September 30, 1996 of $2,074,117 as compared to a loss of
$2,041,348 for the nine months ended September 30, 1995. The increased
loss was primarily due to increases in overall staffing and related
expenses necessary to handle recent and anticipated future growth of the
Company. As of September 30, 1996, the Company had a negative working
capital deficit of $2,250,308 and the Company had a negative net worth of
$1,092,094. The Company anticipates that it will incur a loss of
approximately $4,725,000 for the year ended December 31, 1996. While the
Company anticipates that its software revenue will continue to increase in
future periods, the Company expects to continue to incur losses until 1998,
and possibly thereafter, until its software products are better established
in its markets. There can be no assurance that the Company will be able to
generate sufficient revenues to operate profitably in the future or to pay
the Company's debts as they become due. See MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS and FINANCIAL STATEMENTS.
REVENUE FLUCTUATIONS
The Company has experienced revenue fluctuations when software for the
SAFETRACE(TM) software product is delivered and towards year end, when
clients of the Company historically tend to increase their substance abuse
testing activity. The SAFETRACE(TM) software product license fees are
recognized as revenue upon delivery of the software if no significant
vendor obligations exist as of the delivery date, and therefore are subject
to delays of the delivery service and customer delayed delivery requests.
Software sales and consulting revenues have not followed seasonal patterns.
The substance abuse testing business has historically experienced higher
volumes of testing in the last six months of every year compared to the
first six months of the same year. As a result, the Company's operating
results could fluctuate widely from quarter to quarter and investors should
put more emphasis on the Company's results for a full year rather than on
the Company's quarterly results.
LACK OF SIGNIFICANT OPERATING HISTORY
The Company has been in existence since 1989. As such, the Company is
subject to many of the risks common to enterprises with a limited operating
history, including potential under-
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capitalization, limitations with respect to personnel, financial and other
resources and limited customers and revenues. As of the date hereof, only
two of the licensees of the SAFETRACE(TM) software product, Wyndgate's
blood tracking system, has the SAFETRACE(TM) software product in operation.
There is no assurance that the additional licensees of the SAFETRACE(TM)
software product to date will ever become operational with their
SAFETRACE(TM) software product, that the Company will be able to license
the SAFETRACE(TM) software product to additional persons, that the Company
will be able to develop and license new products or that the Company will
be successful. The likelihood of success of the Company must be considered
in light of the problems, expenses, difficulties, complications and delays
frequently encountered in connection with the development and marketing of
new products. See THE COMPANY.
GOVERNMENT REGULATION
The Company's products and services are subject to regulations adopted
by governmental authorities, including the FDA, which governs blood center
computer software products regulated as medical devices, and the U.S.
Department of Transportation which issues regulations regarding procedures
applicable to substance abuse testing programs required in six
transportation industries. Government regulations can be burdensome and
may result in delays and expense to the Company. In addition,
modifications to regulations could adversely affect the timing and cost of
new products and services introduced by the Company. Failure to comply
with applicable regulatory requirements can result in, among other things,
operating restrictions and fines. For instance, if the Company is unable
to obtain a 510(k) clearance letter from the FDA for the Company to market
the SAFETRACE(TM) software product, or if in the future the FDA also
determines that the Company's SAFETRACETX(TM) product requires FDA
clearance prior to the marketing of such product, the time delay to market
the SAFETRACE(TM) and/or the SAFETRACETX(TM) software products could
materially and negatively impact the Company's business. The Company
cannot predict the effect of possible future legislation and regulation.
See THE COMPANY - WYNDGATE TECHNOLOGIES DIVISION - INDUSTRY OVERVIEW and
THE COMPANY - DATAMED INTERNATIONAL DIVISION - INDUSTRY OVERVIEW.
RAPIDLY CHANGING TECHNOLOGY
The market for applications software is characterized by rapidly
changing technology and by changes from mainframe to client/server computer
technology, including frequent new product introductions and technological
enhancements in the applications software business. During the last five
years the use of computer technology in the information management industry
has expanded significantly to create intense competition. With rapidly
expanding technology there can be no assurance that the Company, with its
limited resources, will be able to acquire or maintain any technological
advantage. The Company's success will be in large part dependent on its
ability to use the developing technology to its maximum advantage and to
remain competitive in price and product performance. If the Company is
unable to acquire or maintain a technological advantage, or if the Company
fails to stay current and evolve in the applications software and
information management fields, its efforts may not be successful and
shareholders may lose their entire investment. See THE COMPANY.
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ROYALTY AGREEMENTS
Pursuant to certain royalty agreements, the Company is required to pay
certain of its sales proceeds directly to outside parties. Such payments
may adversely affect the Company's available cash to fund future operations
and the Company's future profitability. See THE COMPANY - WYNDGATE
TECHNOLOGIES DIVISION - DEVELOPMENT AGREEMENTS.
POSSIBLE LOSS OF SOFTWARE LICENSES DUE TO FAILURE TO MEET MAINTENANCE
SCHEDULES
The Wyndgate software license agreements have a license term that
varies, but are typically five year licenses which are automatically
renewable. The software license may be terminated by the customer if
Wyndgate fails to deliver the maintenance services consisting of product
bug fixes, regulatory compliance and updates. Wyndgate may terminate the
license if the customer fails to meet its contractual obligations,
primarily the payment of usage fees. However, there can be no assurance
that the Company will be able to meet all of the maintenance services and
contractual commitments required to keep the license agreements in force or
that the customers will continue to make the usage fee payments.
POSSIBLE LOSS OF DATAMED SUBSTANCE ABUSE MANAGEMENT CONTRACTS DUE TO
MATERIAL DEFAULT
DataMed's substance abuse testing service agreements have contract
terms that vary from one to five years and, unless cancelled generally
ninety days prior to the end of the license term, most are automatically
renewable. Generally, either party may terminate the service agreement
upon material default or bankruptcy of the other party, if such default or
bankruptcy is not cured within thirty days. Some of the service agreements
permit DataMed to terminate the service agreement if the customer does not
agree to permit price increases due to changes in regulations or
technology or due to the percentage of positive results increasing beyond
those negotiated in the agreement. However, there can be no assurance that
the Company will be able to meet all of its contractual obligations, or
that the customers will continue to use the DataMed services required to
keep the service agreements in force.
PRODUCT AND REPORTING LIABILITY
The Company has only recently completed the final testing stages for
the SAFETRACE(TM) software product and is in the beginning stages of
marketing and customer implementation. As of the date hereof, only two of
the Company's licensees have the SAFETRACE(TM) software product in
operation. Currently, the Company has product liability exposure for
defects in its SAFETRACE(TM) software product which may become apparent
through widespread use of the SAFETRACE(TM) software product. No claims
have been filed against the Company involving the SAFETRACE(TM) software
product and the Company is not aware of any material problems involving the
SAFETRACE(TM) software product. While the Company will continue to attempt
to take appropriate precautions, there can be no assurance that it will
completely avoid product liability exposure. The Company maintains product
liability insurance on a claims made basis for the SAFETRACE(TM) software
product in the aggregate of at least $4 million. There can be no assurance
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that such coverage will be available in the future, that it will be
available at reasonable prices, or that it will be available in amounts
adequate to cover any product liabilities that may be incurred by the
Company.
Similarly, if DataMed were to release an erroneous substance abuse
test report to an employer stating that an employee's test had shown
positive results (a "false positive"), the Company could be held liable for
the publication of such information. Although the Company carries medical
professional liability insurance which insures against liability associated
with such an occurrence, there can be no assurance that a recovery or
multiple recoveries may not exceed the insurance limit, or that such
coverage will continue to be available at reasonable prices. See THE
COMPANY.
DEPENDENCE ON MAJOR CUSTOMERS
During the nine months ended September 30, 1996, two of the Company's
customers, Laidlaw Transit, Inc. and Gulf Coast Regional Blood Center,
accounted for approximately 13% and 13.5%, respectively, of the Company's
revenues. During 1995, three of the Company's customers, Laidlaw Transit,
Inc., Chevron Corporation, and a group consisting of eight California blood
centers (the "Royalty Group"), accounted for approximately 18%, 12% and
10%, respectively, of the Company's revenues. See THE COMPANY - WYNDGATE
TECHNOLOGIES DIVISION - DEVELOPMENT AGREEMENTS. During 1994, two of the
Company's customers, Chevron Corporation and the Royalty Group, accounted
for approximately 19% and 18%, respectively, of the Company's revenues.
Laidlaw Transit, Inc. is associated with the transportation industry.
Chevron Corporation is associated with extraction and distribution of oil
and gas. The Royalty Group, through a 1992 development agreement with
Wyndgate, assisted in financing the development of Wyndgate's
SAFETRACE(TM) software product. Gulf Coast Regional Blood Center is a
blood center located in Texas. Non-renewal or termination of the
contractual arrangements with these key customers could have a material
adverse effect on the Company. There can be no assurance that the Company
will be able to retain these key customers or, if such customers are not
retained, that the Company would be able to attract and retain new
customers to replace the revenues currently generated by these customers.
See THE COMPANY - CUSTOMERS.
SUBSTANTIAL COMPETITION
There is substantial competition in all aspects of the blood bank and
hospital information management and substance abuse testing industries.
Numerous companies are developing technologies and marketing products and
services in the health care information management area and many companies
are engaged in substance abuse testing. Many of these competitors have
been in business longer than the Company and have substantially greater
personnel and financial resources available to them than the Company, and
there can be no assurance that the Company will be able to compete with
these competitors successfully. See THE COMPANY - WYNDGATE TECHNOLOGIES
DIVISION - COMPETITION and THE COMPANY - DATAMED INTERNATIONAL DIVISION -
COMPETITION.
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DEPENDENCE ON DEVELOPMENT OF NEW BUSINESSES
Through the merger with The Wyndgate Group, Ltd., the Company became
engaged in the information management section of the blood center market.
To effect its plan of operations, which includes the generation of
increased revenues, the Company must expand its operations significantly
beyond the historical operations of DataMed and Wyndgate to other markets
which require similar management information services. There is no
assurance that the Company will be able to expand its business operations.
The current activities of DataMed and Wyndgate in the substance abuse and
blood center markets do not assure future business expansion or
profitability. See THE COMPANY.
PROPRIETARY RIGHTS AND LICENSES
The Company's success depends in part on its ability to obtain and
enforce intellectual property rights for its technology and software, both
in the United States and in other countries. The Company's proprietary
software is protected by the use of copyrights, trademarks, confidentiality
agreements and license agreements that restrict the unauthorized
distribution of the Company's proprietary data and limit the Company's
software products to the customer's internal use only. While the Company
has attempted to limit unauthorized use of its software products or the
dissemination of its proprietary information, there can be no assurance
that the Company will be able to retain its proprietary software rights and
prohibit the unauthorized use of proprietary information.
The Company may file additional applications for patents, copyrights,
and trademarks as management deems appropriate. There can be no assurance
that any patents, copyrights, or trademarks the Company may obtain will be
sufficiently broad to protect the Company's products, or that applicable
law will provide effective legal or injunctive remedies to stop
infringement on the Company's patents (if obtained), trademarks, or
copyrights. In addition, there can be no assurance that any patent,
trademark, or copyright obtained by the Company will not be challenged,
invalidated, or circumvented, that intellectual property rights obtained by
the Company will provide competitive advantages, or that the Company's
competitors will not independently develop technologies or products that
are substantially equivalent or superior to those of the Company. In
addition, if the Company's software tools or products infringe upon the
rights of others, the Company may be subject to suit for damages or an
injunction to cease the use of such tools or products. The Company is not
aware of any claims or infringements of the Company's software tools or
products upon the rights of others. See THE COMPANY.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company anticipates, based on its current proposed plans and
assumptions relating to its operations, that the proceeds of this Offering,
together with projected cash flow from operations, will be sufficient to
satisfy its contemplated cash requirements for the next 12 to 18 months,
although the Company anticipates that it will continue to incur operating
losses and significant capital expenses during that period. Thereafter,
the Company will likely require
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substantial funds in addition to the proceeds of this Offering in order to
continue to develop and market its products. See MANAGEMENT'S DISCUSSION
AND ANALYSIS OR PLAN OF OPERATIONS, USE OF PROCEEDS and THE COMPANY.
DEPENDENCE ON PERSONNEL
The Company is significantly dependent on a limited number of
personnel, including Michael I. Ruxin, M.D. (Chairman and Chief Executive
Officer), Joseph F. Dudziak (President and Chief Operating Officer),
William J. Collard (Secretary/Treasurer, Director and President of the
Wyndgate division), and Gerald F. Willman, Jr. (Director and Vice President
of the Wyndgate division). Although all of these individuals are subject
to employment agreements, such agreements are difficult to enforce against
employees. If the Company fails to retain the services of one or more of
these employees, the Company's operations may be adversely affected. The
Company does not have key man insurance on any of its officers or
employees; however, the Company is the designated beneficiary of a term
life insurance policy for Dr. Ruxin in the face amount of $1,000,000. See
MANAGEMENT.
ONE OUTSIDE DIRECTOR
Presently, only one of the Company's Directors, John D. Gleason, is an
"outside" director, i.e., not a member of management. Mr. Gleason is a
member of the Company's Audit/Systems Committee, but not a member of the
Compensation Committee. See MANAGEMENT.
POTENTIAL FUTURE DILUTION
Currently, the Company has outstanding options and warrants to issue
up to 1,077,929 shares of the Company's Common Stock that are exercisable
from $1.00 to $3.75 per share. In addition, the Company has reserved for
issuance 147,970 shares of Common Stock underlying the 10% Notes. The
issuance of any shares pursuant to exercise of the options and warrants or
conversion of the 10% Notes at less than the book value per share of the
Company's Common Stock could dilute the book value of the Common Stock. In
addition, 120,000 shares of Common Stock will be issuable by the Company to
certain shareholders pursuant to the terms of a private placement which
provided for a share adjustment in the event the price per share in the
Company's initial public offering is less than $4.90 per share. This
adjustment will dilute a purchaser's investment herein. See DILUTION.
NO DIVIDENDS
The Company does not anticipate paying any cash dividends for the
foreseeable future. The Company expects that future earnings, if any, will
be used to finance growth. No person seeking dividend income from an
investment should invest in this Offering. See DESCRIPTION OF SECURITIES -
DIVIDEND POLICY.
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AUTHORIZED STOCK AVAILABLE FOR ISSUANCE BY THE COMPANY
After the sale of the Units being offered hereby, the Company will
have 7,908,596 shares of Common Stock outstanding, out of a total of
40,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock
authorized for future issuance under the Company's Articles of
Incorporation. This figure includes (i) 137,646 shares of Common Stock
issuable upon conversion of $516,200 of the principal amount of 10% Notes,
(ii) approximately 10,324 shares issuable upon conversion of accrued
interest thereon and (iii) 120,000 shares of Common Stock issuable to
certain shareholders of the Company pursuant to the terms of a private
placement which provided for a share adjustment in the event the price per
share in the Company's initial public offering is less than $4.90 per
share. It does not, however, include 1,337,000 shares issuable upon
exercise of the Warrants or 1,077,929 shares issuable upon exercise of
other outstanding options and warrants. The remaining shares of Common
Stock and Preferred Stock not issued or reserved for specific purposes may
be issued without any action or approval of the Company's shareholders.
Although there are no present plans, agreements or undertakings involving
the issuance of such shares except as disclosed in this Prospectus, any
such issuances could be used as a method of discouraging, delaying or
preventing a change in control of the Company or could dilute the public
ownership of the Company. There can be no assurance that the Company will
not undertake to issue such shares if it deems it appropriate to do so.
See DILUTION and DESCRIPTION OF SECURITIES.
SUBSTANTIAL DILUTION TO INVESTORS
The Company has previously issued 4,966,626 shares of Common Stock.
Of these shares, 3,307,405 shares, including 1,960,000 shares issued in
conjunction with the May 1995 Wyndgate merger, were issued to subscribers
during the past two years at prices ranging from $2.45 to $3.75 per share.
Purchasers in this offering will pay an estimated $3.50 to $4.50 per share.
Accordingly, there is a significant disparity between the price per share
paid by present shareholders and the price to be paid by the public
purchasers in this offering. As a result of some of these prior issuances
of Common Stock by the Company, and the net losses the Company has
incurred, there will be immediate and substantial dilution to the investors
in this Offering in that the net tangible book value per share of the
Common Stock after the Offering will be substantially less than the public
offering price of the Units. The dilution to new investors, after giving
effect to conversion of the principal amount of the 10% Notes into shares
of Common Stock, and after giving effect to the sale of shares of Common
Stock in this Offering (ascribing no value to the Warrants), will be
approximately $2.63 per share. This represents a reduction of
approximately 75% from the $3.50 assumed offering price per share. See
DILUTION.
NO PRIOR JOINT OPERATIONS
Both of the Company's divisions have prior operating histories and
revenues. However, the principals of the Company have worked together for
only the past year, and have experience in the industries only in which
their respective divisions were engaged. Consequently, there can be no
assurance that the Company will be able to successfully operate either
division or both
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divisions. Furthermore, the Company may be considered as being in an early
stage of development due to the lack of operating history in its two
business segments. See THE COMPANY.
LIMITED CAPITALIZATION
The Company has only limited capitalization available to it and is
dependent on the proceeds of this Offering to effect its intended
operations. The Company may need additional capital to pursue its intended
business plan; however, the Company has received no commitment from any
person for that financing, and there can be no assurance that adequate
financing will be available on reasonable terms, if and when needed. See
THE COMPANY.
CONTROL BY PRESENT SHAREHOLDERS
After giving effect to the sale of 1,337,000 Units to be issued in
this Offering and the conversion of $516,200 principal amount of the 10%
Notes and accrued interest thereon, the present shareholders will control
approximately 63% of the outstanding shares of Common Stock of the Company,
without giving effect to the exercise of the Warrants, other outstanding
options and warrants or the Underwriters' over-allotment option. The
Company's officers, directors, holders of more than 5% of the Company's
outstanding Common Stock prior to the Offering, and their affiliates will
own approximately 42% of the outstanding Common Stock of the Company and
will be able to substantially influence all matters requiring approval by
the shareholders of the Company, including the election of directors. The
Company does not provide for cumulative voting in the election of
directors; hence, purchasers of the securities offered hereby should not
expect to be able to elect any directors to the Company's Board of
Directors. See SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
ALLOCATION OF PROCEEDS IN DISCRETION OF MANAGEMENT
Approximately 4.3% of the estimated net proceeds from the Offering
will be used by management for working capital and general corporate
purposes. In addition, approximately 21.2% of the estimated net proceeds
of the Offering has been allocated to the repayment of debt other than
accounts payable and accrued liabilities. See USE OF PROCEEDS.
POSSIBLE ANTI-TAKEOVER EFFECTS OF PROXIES AND RIGHT OF FIRST REFUSAL
GRANTED TO ODSI, PREFERRED STOCK AND SEVERANCE PAYMENTS
Certain of the Company's officers, directors and major shareholders
beneficially owning 3,033,034 shares of the Company's Common Stock have
granted an irrevocable proxy to ODSI until November 14, 1997, to vote their
shares in favor of a proposal to approve any definitive agreement between
the Company and ODSI relating to the Technology and on any other proposal
relating to the sale of any of the stock of the Company or all or
substantially all of the assets of the Company or any of the Technology.
Each of the shareholders granting a proxy to ODSI has also granted ODSI a
right of first refusal in the event a shareholder proposes to transfer,
dispose of or otherwise sell such shareholder's shares to a third party or
grant an option to acquire the
-14-
<PAGE>
shares to any third party. The grant of the proxies and rights of first
refusal to ODSI could have the effect of delaying, deferring or preventing
a change in control of the Company or a bid by a third person for the
Company and/or the Technology. See SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
The Board of Directors of the Company may issue shares of Preferred
Stock without stockholder approval on such terms as the Board may
determine. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. In addition, as discussed
under MANAGEMENT - EMPLOYMENT AGREEMENTS, if the Company terminates the
employment of Michael I. Ruxin, William J. Collard, Gerald F. Willman, Jr.
or Joseph F. Dudziak for any reason other than cause or disability, the
Company will be required to pay a lump sum per individual ranging from
approximately $220,000 (representing approximately two years salary) to
$2.5 million. The effect of the severance payment provisions is to
increase the likelihood that a potential purchaser will seek to negotiate
directly with the Board of Directors and management in order to gain
control of the Company or its assets rather than directly approaching the
Company's shareholders as a group. All of the foregoing could have the
effect of delaying, deferring or preventing a change in control of the
Company and could limit the price that certain investors might be willing
to pay in the future for shares of the Company's Common Stock. See
MANAGEMENT - EMPLOYMENT AGREEMENTS and DESCRIPTION OF SECURITIES -
PREFERRED STOCK.
DETERMINATION OF OFFERING AND EXERCISE PRICES
The offering price of the Units and the exercise price of the Warrants
were determined arbitrarily by negotiation between the Company and the
Representative. In determining the prices, the Company and the
Representative considered (among other things) estimates of the business
potential of the Company, the management of the Company, the Company's
plans for the expansion of its business base, the general condition of the
securities markets and the amount of retained equity to the present
shareholders. Prospective investors should not consider the offering price
of the Units or the exercise price of the Warrants as necessarily
indicative of the actual value of the Units or underlying shares of Common
Stock or Warrants. The offering price of the Units and the exercise price
of the Warrants do not bear any direct relationship to the Company's
assets, book value, net worth or business potential, or to any other
traditionally recognized criteria of value.
RESTRICTIONS ON EXERCISE OF WARRANTS; POSSIBLE REDEMPTION OF WARRANTS
Investors purchasing Units in this Offering will not be able to
exercise the Warrants included therein unless at the time of exercise this
Registration Statement is current, or a new registration statement
registering the Common Stock issuable upon exercise of the Warrants is
effective and such shares have been registered and/or qualified or deemed
to be exempt from registration and/or qualification under the securities
laws of the state of residence of the holder of the Warrants. The Company
does not intend to advise holders of the Warrants of their inability to
exercise the Warrants other than in response to a specific written inquiry
to the Company. The
-15-
<PAGE>
value of the Warrants may be greatly reduced if a current registration
statement covering the shares of Common Stock underlying the Warrants is
not effective or if such Common Stock is not registered or exempt from
registration in the states in which the holders of the Warrants reside.
Commencing on the date the Warrants are separately tradeable and
transferable, the Warrants are subject to redemption by the Company on 30
days prior written notice provided that the daily trading price for the
shares is above $____(120% of the Warrant exercise price) for at least 20
consecutive trading days ending within ten days prior to the date of the
notice of redemption. If the Warrants are redeemed, Warrantholders will
lose their right to exercise the Warrants except during such 30 day
redemption period. See DESCRIPTION OF SECURITIES - WARRANTS.
SHARES ELIGIBLE FOR FUTURE SALE
All of the 4,966,626 shares of the Company's Common Stock presently
issued and outstanding are "restricted securities" as that term is defined
under Rule 144 promulgated under the Securities Act of 1933, as amended.
Of this amount, 1,659,221 shares have been held in excess of two years, and
will be available for sale 90 days after the date hereof pursuant to Rule
144. In addition, 1,285,770 shares, including 187,800 shares underlying
warrants exercisable at $3.75 per share and 150,000 shares underlying
warrants exercisable at 85% of the price per share of Common Stock included
in the Units, have been registered for sale under the Registration
Statement of which this Prospectus is a part. Of these shares, 150,000
shares will be eligible for sale at the earlier of the date the Common
Stock and Warrants may be traded separately or six months after the date
of the Prospectus. The remaining 1,135,770 shares will be eligible for sale
commencing six months after the date of this Prospectus. Before this
Offering, there has been no public market for the securities of the
Company. Sales of substantial amounts of shares by shareholders after such
six month period pursuant to this Prospectus or sales made pursuant to Rule
144 or otherwise could adversely affect the market price of the Company's
securities and make it more difficult for the Company to sell equity
securities in the future at a time and price which it deems appropriate.
The Company is unable to predict the effect that sales made after such six
month period or Rule 144 or otherwise may have on the then prevailing
market price of the Common Stock. Nonetheless, the possibility exists that
the sale of these shares may have a depressive effect on the prices of the
Company's Common Stock and Warrants. See DESCRIPTION OF SECURITIES.
NO PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF PRICE OF UNITS, SHARES OF
COMMON STOCK AND WARRANTS
The prices of securities of publicly traded corporations tend to
fluctuate widely. It can be expected, therefore, that if and when trading
commences in the Company's Units, Common Stock and Warrants, there may be
wide fluctuations in price. There has been no prior public market for the
Units, Common Stock or Warrants and despite the initial listing of the
Units on NASDAQ, there is no assurance that a market will develop in the
Units or be sustained. The lack of a current market for the Units, Common
Stock and Warrants, fluctuations in trading interest and changes in the
Company's operating results, financial condition and prospects could have
a significant impact on the market prices for the Units, Common Stock and
the Warrants. See UNDERWRITING.
NASDAQ MAINTENANCE REQUIREMENTS AND EFFECTS OF POSSIBLE DELISTING; RISKS
RELATED TO LOW-PRICED STOCKS
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<PAGE>
Although the Company's Units have been approved for initial listing on
the NASDAQ Small-Cap Market upon notice of issuance of such securities, the
Company must continue to meet certain maintenance requirements in order for
such securities to continue to be listed on NASDAQ. Further, the Company
must meet such maintenance requirements for the Company to be able to list
the Company's Common Stock and Warrants on NASDAQ at such time as they are
separately tradeable and transferable. NASDAQ recently announced that it
intended to propose new entry and maintenance requirements for companies
traded on the NASDAQ Small-Cap Market, including increased financial
standards and requiring the companies to have at least two independent
directors and an audit committee, a majority of which are independent
directors. There can be no assurance that the Company will be able to meet
such new proposals if such new proposals are adopted. If the Company's
securities are delisted from NASDAQ, this could restrict investors'
interest in the Company's securities and could materially and adversely
affect any trading market and prices for such securities. In addition, if
the Company's securities are delisted from NASDAQ, and if the Company's net
tangible assets do not exceed $2 million, and if the Common Stock is
trading for less than $5.00 per share, then the Company's Units, Common
Stock and Warrants would each be considered a "penny stock" under federal
securities law. Additional regulatory requirements apply to trading by
broker-dealers of penny stocks which could result in the loss of effective
trading markets, if any, for the Company's Units, Common Stock and
Warrants.
WARRANTS TO REPRESENTATIVE
Upon successful completion of this Offering, the Company will sell to
the Representative and its designees, for a nominal cost, warrants to
purchase up to 133,700 Units (the "Representative's Warrants") at a
purchase price equal to 165% of the Price to Public of the Units in this
Offering. The Representative's Warrants will be exercisable for a forty
nine month period, commencing 11 months from the date of their issuance.
The Representative will be given the opportunity to profit from a rise in
the market price of the Company's Common Stock with a resulting dilution of
the interest of stockholders. Furthermore, the Company will give certain
registration rights with regard to the Units underlying the
Representative's Warrants and issuable upon exercise of the Warrants
included in such Units and such registration could result in substantial
expense to the Company. See UNDERWRITING.
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<PAGE>
USE OF PROCEEDS
Assuming an offering price of $7.00 per Unit, the net proceeds to the
Company, after deduction of the underwriting discount (10%) and estimated
expenses of the offering, including the Representative's nonaccountable
expense allowance, will be approximately $7,902,330. The net proceeds are
anticipated to be used as follows:
Sales and marketing(1) $ 2,000,000 25.3%
Research and development(2) 2,500,000 31.6%
Payment of accounts payable and
accrued expenses 1,390,000 17.6%
Debt repayment(3) 1,420,000 18.0%
Repayment of the 10% Notes and
estimated accrued interest(4) 253,000 3.2%
Working capital and general
corporate purposes(5) 339,330 4.3%
----------- ------
$ 7,902,330 100.0%
=========== ======
___________________
(1) Sales and marketing includes expenses for increased advertising
activity including trade shows, product demonstrations and other
advertising and promotional efforts. Sales and marketing may also
include expenses associated with the development of strategic
marketing affiliations within the Company's industry.
(2) Included in research and development is the expenditure of
approximately $860,000 to convert the EDEN-OA(R) tool to a graphical
based program, including conversion of the current SAFETRACE(TM)
software product and all enhancements in process of being made to the
SAFETRACE(TM) software product. Also included are expenditures of
approximately $420,000 for the development of the SAFETRACETX(TM)
software product, and $515,000 for continuing efforts to obtain the
FDA 510(k) clearance letter, documentation for the SAFETRACETX(TM)
software product development and expansion of the Customer Help Line.
Additionally, $500,000 will be used for ongoing research and
development of information systems technology utilized in the
Company's DataMed division to enhance the automation of its customer
service. The remaining $205,000 will be used for development of
products ancillary to the SAFETRACE(TM) software product line.
Approximately $2,000,000 of these expenditures are anticipated to be
made in 1997 and $500,000 in 1998.
(3) The Company has a revolving line of credit with a bank which bears
interest at 2% plus prime compounded monthly per annum. As of
September 30, 1996, the Company's outstanding balance on the line of
credit was $970,000. The borrowed funds were used for working capital.
In January, 1997, the Company borrowed $450,000 from two individuals
at 12% interest. The notes are due the earlier of the closing of this
Offering or March 23, 1997. The borrowed funds were used for working
capital. In connection with the loans, the Company issued warrants to
purchase 150,000 shares of Common Stock exercisable at 85% of the
price per share of the Common Stock included in the Units.
(4) Includes $235,000 principal and estimated accrued interest of
approximately $18,000 on the 10% Notes, $85,000 principal amount of
which are owned by certain directors and officers of the Company and
a principal shareholder of the Company. See CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS. Holders of an additional $516,200 principal
amount of 10% Notes have indicated their intention to convert their
10% Notes for 137,646 shares of Common Stock plus an estimated
additional 10,324 shares for approximately $38,715 of accrued
interest. The proceeds from the sale of the 10% Notes were used for
working capital.
(5) The Company may use a portion of the funds allocated for working
capital to acquire companies and/or technology in fields related to
the Company's business. The Company has no present plans, proposals,
arrangements or understandings with respect to acquisitions of other
companies or technology.
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<PAGE>
The allocation of the net proceeds from this Offering set forth above
represents the Company's best estimate based on its present plans and
certain assumptions regarding general economic and industry conditions and
the Company's anticipated future revenues and expenditures. If any of
these factors change, the Company may find it necessary or advisable to
reallocate some of the proceeds from working capital to other of the
above-described categories. The Company anticipates, based on its current
proposed plans and assumptions relating to its operations, that the
proceeds of this Offering, together with projected cash flow from
operations will be sufficient to satisfy its contemplated cash requirements
for the next 12 to 18 months, although the Company anticipates that it will
continue to incur operating losses and significant capital expenses during
that period. The Company's cash requirements beyond this period will
depend on many factors, including (but not limited to) the Company's cash
flow from operations, the length of time it may take for the Company to
develop or acquire products or services for the market, the market
acceptance of these products or services, and the response of competitors
who may develop competing products or services at lower cost. To the
extent that the funds generated by this Offering are insufficient to fund
the Company's activities in the short or long term, the Company may need to
raise additional debt or equity through public or private financings. The
Company has no commitment for any such financing, and there can be no
assurance that any additional financing will be available to the Company,
when needed, and on reasonable terms. See RISK FACTORS.
If the over-allotment option is exercised (of which there can be no
assurance), the Company will receive additional net proceeds of
approximately $1,221,350. Any proceeds received from the exercise of the
over-allotment option will be added to working capital.
The amounts set forth above merely indicate the proposed use of
proceeds, and the actual expenditures may vary substantially from the
estimates. None of the items set forth in the foregoing table should be
considered as a firm commitment by the Company.
To the extent that the net proceeds are not used immediately, the
Company will invest such net proceeds in short-term government securities
through a bank or in a non-discretionary account of the Company with the
Representative.
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<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the
Company as of September 30, 1996, and as adjusted to reflect the sale of
the 1,337,000 Units at an assumed offering price of $7.00 per Unit and
receipt of net proceeds of approximately $7,902,330 therefrom.
September 30, 1996
------------------------
Unaudited As Adjusted
--------- -----------
Notes payable. . . . . . . . . . . . . . . . $ 751,200 $ -0- (1)
Current portion of capital lease
obligations . . . . . . . . . . . . . . . . 402,968 402,968
Line of credit . . . . . . . . . . . . . . . 970,100 100
Capital lease obligations,
less current portion. . . . . . . . . . . . 804,517 804,517
Stockholders' Equity (deficit):
Preferred Stock, $.01 par value;
10,000,000 shares authorized,
no shares issued and outstanding . . . . 0 0
Common Stock, $.01 par value; 40,000,000
shares authorized, 4,966,626 shares
issued and outstanding; 7,898,272
issued and outstanding, as adjusted 49,666 78,982 (1)
Additional paid in capital . . . . . . . . . $4,131,967 $12,521,181 (1)
Accumulated deficit. . . . . . . . . . . . . $(5,273,727) $(5,273,727)
Total Stockholders' Equity (deficit) . . . . $(1,092,094) $7,326,436 (1)
_______________
(1) Assumes holders of $516,200 principal amount of 10% Notes convert
their 10% Notes into 137,646 shares of Common Stock and the issuance
of 120,000 shares of Common Stock to certain shareholders of the
Company pursuant to the terms of a private placement which provided
for a share adjustment in the event the price per share in the
Company's initial public offering is less than $4.90 per share. Does
not include (i) approximately $38,715 of accrued interest on the 10%
Notes which will be converted into approximately 10,324 shares of
Common Stock or (ii) additional accrued interest on the 10% Notes of
approximately $18,000 to be paid in cash.
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<PAGE>
DILUTION
The Company's net tangible book value (deficiency) as of September 30,
1996 was ($1,866,592) or ($.38) per share. The "net tangible book value
per share" represents the Company's total tangible assets less its total
liabilities, divided by the number of shares of Common Stock outstanding at
September 30, 1996. After giving effect to (i) the conversion of $516,200
principal amount of outstanding 10% Notes for a total of 137,646 shares of
Common Stock (ii) the issuance of 120,000 shares of Common Stock to certain
shareholders of the Company pursuant to the terms of a private placement
which provided for a share adjustment in the event the price per share in
the Company's initial public offering is less than $4.90 per share and
(iii) the sale of the 1,337,000 Units at an assumed offering price of $7.00
per Unit and allocating no value to the Class A Warrants included in the
Units, and without giving effect to the possible exercise of the over-allotment
option, the Company's pro forma net tangible book value at September 30,
1996, would have been approximately $6,901,938 or $.87 per share.
This represents an immediate increase in net tangible book value
(deficiency) per share of $1.25 to existing shareholders, and an immediate
dilution of $2.63 per share of Common Stock (75%) to the investors
purchasing Units in this Offering. The following table illustrates
dilution in net tangible book value on a per share basis to new investors:
Price to investors. . . . . . . . . . . . . . . . . . . . $3.50
Net tangible book value before Offering. . . . . . . . . $ (.38)
Increase attributable to new investors . . . . . . . . . $ 1.25
Pro forma net tangible book value
after Offering . . . . . . . . . . . . . . . . . . . . . $ .87
-----
Dilution to new investors(1). . . . . . . . . . . . . . . $2.63
=====
________________
(1) If the over-allotment option is exercised in full, dilution to
new investors would be $2.52.
The following table sets forth the number of shares of Common Stock
purchased from the Company, the effective cash contribution made and the
price per share paid by existing shareholders and by purchasers of the
1,337,000 Units offered hereby (at an assumed offering price of $7.00 per
Unit), without deducting estimated expenses and fees of the Representative.
<TABLE>
<CAPTION>
Total Avg. Price
Shares Purchased Consideration Paid Per Share
------------------- ------------------ ----------
Number Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Officers, Directors
and Promoters(1). . . . 2,237,372 28.3% $ 100,000 0.7% $ .04
Other
Shareholders(2) . . . . 2,997,224 37.9 4,699,946 33.2 $1.57
New Investors. . . . . . 2,674,000 33.8 9,359,000 66.1 $3.50
--------- ----- ----------- -----
Total . . . . . . . . 7,908,596 100.0% $14,158,946 100.0%
========= ====== =========== ======
</TABLE>
_______________
(1) Includes shares purchased by Michael I. Ruxin, William J. Collard and
Gerald F. Willman, Jr., and shares issuable to Joseph F. Dudziak upon
conversion of the 10% Notes and accrued interest thereon. Mr. Collard
and Mr. Willman's shares were issued in connection with The Wyndgate
Group, Ltd., merger. No value has been assigned to the shares issued
to Mr. Collard and Mr. Willman.
(2) Includes (i) shares (other than shares issued to Mr. Collard and Mr.
Willman) issued in connection with the merger with The Wyndgate Group,
Ltd., as to which no value has been assigned, (ii) 137,646 shares
issuable upon the conversion of the principal amount of the 10% Notes
(plus an estimated additional 10,324 shares issuable upon conversion
of accrued interest of approximately $38,715 thereon), other than the
shares issuable to Joseph F. Dudziak upon conversion of the 10% Notes
and accrued interest thereon and (iii) 120,000 shares of Common Stock
issuable to certain shareholders of the Company pursuant to the terms
of a private placement which provided for a share adjustment in the
event the price per share in the Company's initial public offering is
less than $4.90 per share.
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<PAGE>
The computations in the tables set forth above assume no exercise of
outstanding warrants or stock options as of the date hereof, and assume no
exercise of the Underwriters' over-allotment option. On the date of this
Prospectus, there were outstanding options and warrants to purchase
1,077,929 shares of Common Stock (including, but not limited to, 187,800
shares of Common Stock underlying Warrants issued in connection with the
sale of the 10% Notes and 150,000 shares of Common Stock exercisable at 85%
of the price per share of the shares of Common Stock included in the Units)
at a weighted average exercise price of $2.80 per share.
DIVIDEND POLICY
The payment of dividends by the Company is within the discretion of
its Board of Directors and depends in part upon the Company's earnings,
capital requirements and financial condition. Since its inception, the
Company has not paid any dividends on its Common Stock and does not
anticipate paying such dividends in the foreseeable future. The Company
intends to retain earnings, if any, to finance its operations.
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<PAGE>
SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial information
regarding the results of operations and financial position of the Company
for the periods and at the dates indicated. The financial statements of
the Company as of December 31, 1995 and for the years ended December 31,
1995 and 1994 have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report included elsewhere in this Prospectus. The
selected financial information as of September 30, 1996 and for the nine
months ended September 30, 1996 and 1995 are derived from the unaudited
interim consolidated financial statements of the Company set forth
elsewhere in this Prospectus and include, in the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for
the fair presentation of its results of operations for such periods. The
results of operations for the nine months ended September 30, 1996, are not
necessarily indicative of the results to be expected for the full year.
This data should be read in conjunction with the Company's consolidated
financial statements (including the notes thereto) and the Company's
unaudited interim consolidated financial statements appearing elsewhere in
this Prospectus and in conjunction with MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS.
Statement of Operations Data:
Years Ended Nine Months Ended
December 31, September 30,
--------------------- --------------------
1995 1994 1996 1995
---- ---- ---- ----
Drug testing and other $5,740,487 $3,836,136 $4,680,448 $3,957,936
Software sales and
consulting 933,631 1,140,119 4,249,101 883,578
---------- ---------- ---------- ----------
Total revenue 6,674,118 4,976,255 8,929,549 4,841,514
Cost of sales
and product
development(1) 3,217,595 2,429,789 5,016,101 2,308,078
---------- ---------- ---------- ----------
Gross profit $3,456,523 $2,546,466 $3,913,448 $2,533,436
OPERATING EXPENSES
Payroll and other(1) 1,998,452 708,718 1,574,799 1,431,242
General and
administrative(1) 1,478,666 605,459 1,418,894 1,240,230
Sales and marketing(1) 1,731,533 657,988 1,903,569 1,471,986
Research and development 654,500 403,714 547,387 442,342
Depreciation and
amortization 116,979 51,504 347,399 72,218
---------- ---------- ---------- ----------
Income (Loss) from
operations $(2,523,607) $ 119,083 $(1,878,600) $(2,124,582)
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Years Ended Nine Months Ended
December 31, September 30,
--------------------- --------------------
1995 1994 1996 1995
---- ---- ---- ----
OTHER INCOME (EXPENSE)
Interest income
(expense), net (61,112) 6,339 (179,464) (20,581)
Other (70,608) - (16,053) (4,943)
Income (loss) before
provision for (benefit
from) income taxes (2,655,327) 125,422 (2,074,117) (2,150,106)
Provision for (benefit
from) income taxes 29,531 (46,825) - (108,758)
---------- ---------- ---------- ----------
Net Income (Loss) $(2,684,858) $ 172,247 $(2,074,117) $(2,041,348)
========== ========== ========== ==========
___________________
(1) See Note 1 to the Consolidated Financial Statements for a description
of the reclassification of certain expenses.
BALANCE SHEET DATA:
December 31, September 30,
1995 1996
------------ ------------
Working capital (deficit). . . . . . . . . . $(2,171,397) $(2,250,308)
Total assets . . . . . . . . . . . . . . . . $ 2,720,862 $ 6,509,592
Accumulated deficit. . . . . . . . . . . . . $(3,199,610) $(5,273,727)
Stockholder's equity (deficit) . . . . . . . $(1,458,485) $(1,092,094)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
The Company and its two divisions are in the business of providing
information management software products and services to the healthcare
industry and substance abuse testing program services to companies.
Wyndgate is primarily involved in providing software products,
services and maintenance to purchasers of licenses for its SAFETRACE(TM)
software product. Revenues from the sales of software licenses are
recognized upon delivery of the software product to the customer unless the
Company has significant related vendor obligations remaining. Revenue from
post contract customer support is recognized over the period the customer
support services are provided, and software services revenue is recognized
as services are performed.
DataMed provides substance abuse testing management services.
Revenues from DataMed are recognized as services are provided. DataMed
typically contracts with its customers to provide for laboratory and
collection site services (which DataMed obtains from others), Medical
Review Officer ("MRO") services, data management, record storage and
coordination of all substance abuse testing program elements. DataMed
serves international, national and regional clients in a variety of
industries.
In November 1996, DataMed elected to terminate its contracts with
approximately 560 customers, representing approximately $400,000 of revenue
for the nine months ended September 30, 1996. DataMed's election was made
to improve operating efficiencies with its remaining customer contracts.
The terminated contracts represented customers each contributing average
annual revenues of less than $1000. DataMed expects it will be able to
improve its gross profit margins by eliminating the inefficiencies
associated with these smaller accounts, thus improving its ability to serve
its remaining customers.
The above Statement of Operations Data reflect results of operations
of the Company through the nine month period ended September 30, 1996.
While the Company has not finalized results of operations after that date,
the Company expects that it will have a consolidated net loss for the three
months ended December 31, 1996 of approximately $2,650,000, which will
result in a net loss of approximately $4,725,000 for the year ended
December 31, 1996.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AS COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
REVENUES. Revenues increased by $4.1 million, or 85%, to $8.9 million
for the nine months ended September 30, 1996 ("Interim 1996") compared to
$4.8 million for the nine months ended September 30, 1995 ("Interim 1995").
The increase was primarily the result of both the introduction of
Wyndgate's SAFETRACE(TM) software product which accounted for approximately
$3.4 million and the increase in substance abuse test volume which
increased by approximately
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27,000 tests, or 21%, to approximately 157,000 tests in Interim 1996
compared to approximately 130,000 tests in Interim 1995.
COST OF SALES AND PRODUCT DEVELOPMENT. Cost of sales and product
development as a percentage of revenues increased 8% to 56% in Interim 1996
compared to 48% in Interim 1995 primarily as a result of the following:
increased royalty fee expenses based on increased sales of Wyndgate's
SAFETRACE(TM) software product licenses; increased resales of vendor
hardware and software priced at lower profit margins than Company developed
software sales and increased amortization expense of the capitalized
software development costs related to the development of Wyndgate's
SAFETRACE(TM) software product.
GROSS PROFIT. Gross profit as a percentage of revenues decreased 8%
to 44% in Interim 1996 compared to 52% in Interim 1995 as a result of the
increased costs discussed above and primarily as a result of increased
sales of software and hardware purchased from third party manufacturers.
PAYROLL AND OTHER. Payroll and other increased $143,557, or 10.0%, in
Interim 1996 compared to Interim 1995. The increase in payroll and other
was primarily due to the hiring of additional management personnel together
with increases in client service personnel necessary to manage the
Company's new customers. Management does not expect significant increases
in payroll and other costs for the foreseeable future.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased $178,664, or 14.4%, in Interim 1996 compared to Interim 1995.
The increase in general and administrative expenses was attributable
primarily to increases in outside contract services, product liability
insurance, bad debt expense, leased office space and other general
administrative expenses which were related to the increase in the number
of employees. These expenses were offset by a significant decline in
merger and reorganization expenses.
SALES AND MARKETING. Sales and marketing expenses increased $431,583
or 29% in Interim 1996 compared to Interim 1995. The increase in sales and
marketing expenses was primarily due to increased activity in advertising
media, trade shows and direct sales including personnel and travel related
expenditures for both divisions of the Company. Management expects that
there will be increases in sales and marketing expenses if the Company is
successful in introducing its new transfusion management information
system, the SAFETRACETX (TM) software product.
RESEARCH AND DEVELOPMENT. Research and development expenses were
$547,387 in Interim 1996 compared to $442,342 in Interim 1995 representing
an increase of 24%. The increase in research and development expenses was
primarily due to an increase in the number of employees assigned to
software and systems development at both divisions of the Company.
Management expects research and development expenses to increase as
additional software development related to the Company's blood management
product line is planned within the next fiscal year.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
increased $275,181, in Interim 1996 compared to Interim 1995. The increase
in depreciation and amortization is due to the increases in fixed assets.
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YEAR ENDED DECEMBER 31, 1995 AS COMPARED TO THE YEAR ENDED DECEMBER 31,
1994
REVENUES. Revenues increased by $1.7 million, or 34%, to $6.7 million
for the year ended December 31, 1995 ("1995") compared to $5 million for
the year ended December 31, 1994 ("1994"). The increase was primarily the
result of the increase in substance abuse test volume which increased by
approximately 82,000 tests, or 64%, to approximately 210,000 tests in 1995
compared to approximately 128,000 tests in 1994. The increase in substance
abuse test volume was offset by a decrease in software sales and consulting
revenue of $206,448. The decrease in software sales and consulting revenue
was primarily the result of a focused effort to complete the development of
the SAFETRACE(TM) software product during 1995.
COST OF SALES AND PRODUCT DEVELOPMENT. Cost of sales and product
development as a percentage of revenues decreased 1% to 48% in 1995
compared to 49% in 1994 primarily as a result of decreases in laboratory
and collection site expenses related to substance abuse testing. These
expenses decreased because the Company renegotiated certain laboratory and
collection site agreements.
GROSS PROFIT. Gross profit as a percentage of revenues increased 1% to
52% in 1995 compared to 51% in 1994 as a result of the decreased costs
discussed above.
PAYROLL AND OTHER. Payroll and other increased $1,289,734, or 182%,
in 1995 compared to 1994. The increase in payroll and other was primarily
due to an increase in management personnel together with increases in staff
handling substance abuse testing.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased $873,207, or 144%, in 1995 compared to 1994. The increase in
general and administrative expenses can be primarily attributable to the
following events: $164,500 in expenses related to the 1995 merger with
Wyndgate; a $244,000 provision for doubtful accounts; an expense of
$350,000 for payments for certain non-compete agreements with management
personnel; and approximately $161,000 for options granted to certain
shareholders. These increases in general and administrative expenses were
offset by decreases in other general and administrative expenses. The
increases noted above are anticipated to reflect events not expected to
reoccur. See the discussion below in Credit Loss Experience for a further
discussion of bad debt expense.
SALES AND MARKETING. Sales and marketing expenses increased
$1,073,545, or 163%, in 1995 compared to 1994. The increase in sales and
marketing expenses was primarily due to increased activity in advertising
media, trade shows and direct sales including personnel and travel and
related expenditures for both divisions of the Company.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$250,786 or 62% from 1994 to 1995. The increase in research and
development is primarily due to increased staff hired by Wyndgate to
complete the development of its SAFETRACE(TM) software product during the
second half of 1995.
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DEPRECIATION AND AMORTIZATION. Depreciation and amortization
increased $65,475 in 1995 compared to 1994. The increase in depreciation
and amortization is due to the increases in fixed assets.
CREDIT LOSS EXPERIENCE. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk specific
to customers, historical trends and other information. The Company
performs ongoing credit evaluations of its customers' financial condition
and maintains allowances for potential credit losses. Actual losses,
allowances and accounts receivable turnover trends generally have been
within management's expectations. The Company's provision for doubtful
accounts was $244,000 in 1995. A significant portion of this reserve was
as a result of management's decision to reserve accounts receivable which
had been properly billed according to its contract with a specific and
significant customer, but for which the customer's expectation was to
receive billings directly from certain subcontractors of the Company rather
than from the Company. The Company is continuing to work with this
customer to resolve billing issues and anticipates there may be an
additional increase in the provision for doubtful accounts in 1996 related
to accounts receivable with this customer.
During the nine months ended September 30, 1996, the provision for
doubtful accounts was approximately $156,000, or approximately 2% of
revenues. The provision for doubtful accounts is included in general and
administrative expenses. Management is not aware of any other unusual
credit risks or material collection problems which have not been accounted
for in the allowance for doubtful accounts.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of approximately $2.3
million as of September 30, 1996 compared with a working capital deficit at
December 31, 1995 of approximately $2.2 million. The Company used cash in
operating activities of approximately $2.7 million for the nine months
ended September 30, 1996 compared to approximately $432,000 for the
comparable period in 1995. The increase in cash used for the first nine
months of 1996 is attributable primarily to an increase of approximately
$2.4 million in accounts receivable and unbilled receivables and an
increase in note receivable of $250,000, offset by increases in accrued
payroll and other accrued expenses. The Company used cash in investing
activities of approximately $184,000 for the nine months ended September
30, 1996 compared with approximately $268,000 for the comparable period in
1995. These operating and investing activities were financed primarily
from the proceeds of private placements of Common Stock, notes payable and
short term borrowing on a line of credit with a bank.
The Company generated approximately $751,000 from the issuance of
notes payable during the nine months ended September 30, 1996 and received
net short-term borrowings of $470,000 for the same period from its line of
credit. Additionally, the Company received proceeds of approximately
$1,740,000 from the private placement of its Common Stock after deducting
commissions and expenses of $260,000 during the same period. For the nine
months ended September 30, 1996, the Company also used cash from the
financing activities by making approximately $254,000 in principal payments
on capital leases and by payment of $350,000 of issuance and distribution
costs for the Offering.
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Cash provided by financing activities for the nine months ended
September 30, 1995 included proceeds from the issuance of common stock of
approximately $735,000. Net proceeds for this period from other sources
were minimal.
During January, 1997, the Company borrowed $450,000 from two
individuals at 12% interest. The loans are due the earlier of the closing
of this Offering or March 23, 1997. The proceeds of the loans were used
for working capital. In connection with the loans, the Company issued two
warrants to purchase 150,000 shares of the Company's Common Stock,
exercisable at 85% of the per share price of the shares of Common Stock
included in the Units.
The Company's cash flows have historically been used primarily in
investing in software development and working capital needs. The Company
intends to use proceeds from the Offering primarily to repay debt, to pay
certain accounts payable and accrued expenses, and for research and
development, sales and marketing programs, and working capital and general
corporate purposes. See USE OF PROCEEDS.
The Company maintains a $1,000,000 line of credit with a bank secured
by substantially all of the Company's assets, except for those assets under
lease agreements, which bears interest at prime plus two percent and
matures February 12, 1997. The amount drawn on this line of credit at
September 30, 1996 was $970,000. A principal stockholder of the Company
has personally guaranteed the repayment of any amounts under the line of
credit.
The Company recognizes the significant impact of accounts receivable
on its working capital needs. The substantial increase in revenue from
software sales and consulting for the nine months ended September 30, 1996
have generated corresponding increases in accounts receivable. While
management does not believe there are any unusual or material credit risks
related to the Company's software sales, the high number of software
installations for the Company's customers within a short period of time has
created billing and collection delays. Management intends to aggressively
pursue more timely billing and collection of accounts receivable to correct
these delays.
The Company anticipates that it will incur a loss of approximately
$4,725,000 for the year ended December 31, 1996. While the Company
anticipates that its software revenues will continue to increase in future
periods, the Company expects to continue to incur losses until 1998, and
possibly thereafter, until its software products are better established in
its markets. The Company expects that the net proceeds of this Offering
will enable the Company to meet its liquidity and capital requirements for
approximately twelve to eighteen months. There can be no assurance that
the Company can generate sufficient revenues, earnings and cash collections
from software sales and substance abuse testing sales to satisfy its
working capital requirements after such time. The Company's working
capital requirements will depend on numerous factors, including progress of
the Company's research and development of the SAFETRACETX(TM) software
product, other new products, as well as new applications for its present
core products, which include both SAFETRACE(TM) and the SAFETRACETX(TM)
software products. Additionally, the Company's working capital
requirements may depend upon its success in obtaining a FDA 510(k)
clearance letter within the next twelve to eighteen months. Failure to
receive such clearance letter
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may require the Company to seek additional financing. The Company may seek
financing to meet its working capital requirements through strategic
alliances within the Company's industry and through collaborative
arrangements with other suppliers to the Company's customers. There can be
no assurance, however, that additional funds, if required, will be
available from sources historically available to the Company or other
sources on favorable terms, if at all.
EFFECT OF INFLATION AND FOREIGN CURRENCY EXCHANGE
The Company has not experienced unfavorable effects on its results of
operations due to currency exchange fluctuations with its foreign customers
or material effects upon its results of operations as a result of domestic
inflation.
THE COMPANY
Global Med Technologies, Inc. (the "Company") provides information
management software products and services to the healthcare industry and
provides substance abuse testing program services to companies, including
certain Fortune 1000 companies. National MRO, Inc., founded in 1989,
changed its name to Global Data Technologies, Inc. in June 1995 in
connection with the merger of National MRO, Inc. and The Wyndgate Group,
Ltd. in May 1995, and changed its name again in May 1996 to Global Med
Technologies, Inc. The Company now consists of two divisions, Wyndgate
Technologies ("Wyndgate") and DataMed International ("DataMed"), both of
which operate under their respective trade names. Wyndgate develops,
markets, licenses and supports software for the healthcare industry.
DataMed manages and markets a variety of services that are designed to
assist companies with administering substance abuse testing programs.
The Company has received several indications of interest regarding a
possible acquisition of the DataMed division. While the Company has no
specific plans for divestiture of this division, or any segment of the
Company, any offer which enhances return on invested capital and
shareholder value and which furthers the Company's strategic goals will be
seriously evaluated to insure that the best interests of the Company and
its shareholders are served.
Founded in 1984, Wyndgate initially developed a Student Information
System ("SIS"), an integrated software package for colleges and
universities to track student information. Wyndgate currently has six
contracts for SIS still in effect. Pursuant to an agreement with eight
California blood centers (the "Royalty Group"), Wyndgate began development
of a blood tracking system to assist community blood centers, hospitals,
plasma centers and outpatient clinics in the U.S. in complying with the
quality and safety standards of the FDA for the collection and management
of blood and blood products. After several years of development and
$1,080,000 paid by the Royalty Group, Wyndgate has completed development
and commenced marketing of the SAFETRACE(TM) software product (Wyndgate's
blood bank management information system software), which it believes to be
the most comprehensive and flexible system of its type available today. In
accordance with FDA regulations, the Company submitted a 510(k) application
to the FDA in October, 1995 for review of its SAFETRACE(TM) software
product, which is still pending. The Company is able to continue marketing
the SAFETRACE(TM) software product during the review
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process. There are no assurances that the Company will receive a FDA
clearance letter for its 510(k) application. If not, the Company will be
required to discontinue marketing and licensing the SAFETRACE(TM) software
product. See THE COMPANY - WYNDGATE TECHNOLOGIES DIVISION - INDUSTRY
OVERVIEW.
In 1989 Wyndgate developed EDEN-OA(R) to utilize new technologies in
the evolving open systems computer market. EDEN-OA(R) is a rapid
applications development tool that can be used by software developers to
produce software products that operate in accordance with industry
standards based computer environments. EDEN-OA(R) interfaces with database
management systems and operates on multiple computer and operating system
platforms. The Company plans to continue to use EDEN-OA(R) to develop
other medical software applications.
DataMed was founded in 1989 by Michael I. Ruxin, M.D. to offer the
services of a Medical Review Officer ("MRO") to the regulated segment of
the substance abuse testing market. Due to federal regulations, companies
involved in commercial transportation must comply with requirements
mandating substance abuse testing of employees in safety sensitive
positions and substance abuse awareness education for supervisors and
employees. Additionally, federal substance abuse testing requirements
applicable to commercial transportation mandate the use of an MRO to
evaluate the quality and accuracy of the testing laboratory and to
determine legal or illegal use of substances. Corporate outsourcing has
been a positive factor for DataMed as some large companies have contracted
with DataMed to outsource the management of their substance abuse testing
programs.
DataMed provides customized program management services to companies
in an attempt to increase total program quality and decrease total program
costs. DataMed provides substance abuse testing management services which
coordinate and actively manage the specimen collection process, the
laboratory testing process, the MRO review process, the random testing
process, the blind sample quality control process, the substance abuse
testing process, and the data management process including compliance
reporting and record keeping.
STRATEGY
The following are key elements of the Company's strategy; however,
there can be no assurance that the Company will be successful in its
strategy.
EXPAND SALES & MARKETING EFFORTS. Upon completion of this Offering,
the Company intends to increase its sales and marketing efforts by hiring
additional field sales and other marketing personnel during the twelve
months following this Offering. The Company currently has six sales and
marketing personnel. The Company believes it can increase its penetration
of the U.S. blood bank information management market as well as the
substance abuse testing program management market through its planned sales
and marketing staff.
DEVELOP NEW HEALTHCARE MANAGEMENT SOFTWARE PRODUCTS AND SERVICES. The
Company believes that it can develop new products and services from its
existing technology base. The
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Company plans to build upon its technology base by using EDEN-OA(R) to
develop new applications. In the future, the Company intends to introduce
a transfusion management information system, to be known as the
SAFETRACETX(TM) software product.
EXPAND INTERNATIONAL MARKETS. The Company is focused on expanding
international markets. The Company continues to pursue new international
customers within the transportation industries, including but not limited
to, international shipping. The Company also plans to pursue international
growth as it relates to blood banks, plasma centers and hospitals.
DEVELOP STRATEGIC RELATIONSHIPS. The Company intends to pursue
strategic relationships in order to further develop uses for its
technology. Additionally, the Company may work with other healthcare
information providers to develop applications based on EDEN-OA(R).
MAINTAIN TECHNOLOGY ADVANTAGE. The Company believes that the
foundation of its SAFETRACE(TM) software product, EDEN-OA(R), is an
important technological advancement, and that the maintenance of this
technological advancement is essential in order for the Company to compete
effectively. The Company will continue to focus research and development
on evolving this software development tool. The funds generated by this
Offering may not be sufficient to enable the Company to accomplish its
goal, and additional financing may be required.
SALES AND MARKETING
The Company intends to continue to sell and market its medical
information management products and services through a direct sales force.
Each sales representative will have a geographic area and will market all
products and services. Additionally, the Company will continue to respond
to requests for proposals ("RFPs") issued by blood banks, plasma centers,
hospitals and other entities which are usually Fortune 1000 companies. The
Company is pursuing opportunities within the blood bank industry and will
continue to focus on Fortune 1000 companies to market DataMed's services.
CUSTOMERS
The Company's current customer base includes Fortune 1000 companies
that are required by the U.S. Department of Transportation or their own
company policy to have a substance abuse testing program and small to large
community blood banks.
During the nine months ended September 30, 1996, two of the Company's
customers, Laidlaw Transit, Inc. and Gulf Coast Regional Blood Center,
accounted for approximately 13% and 13.5%, respectively, of the Company's
revenues. During 1995, three of the Company's customers, Laidlaw Transit,
Inc., Chevron Corporation and the Royalty Group, accounted for
approximately 18%, 12% and 10%, respectively, of the Company's revenues.
See WYNDGATE TECHNOLOGIES DIVISION - DEVELOPMENT AGREEMENTS. During 1994,
two of the Company's customers, Chevron Corporation and the Royalty Group,
accounted for approximately 19% and
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18%, respectively, of the Company's revenues. Laidlaw Transit, Inc. is
associated with the transportation industry. Chevron Corporation is
associated with the oil and gas industry. The Royalty Group, through a
1992 development agreement with Wyndgate, assisted in the financing of the
development of Wyndgate's SAFETRACE(TM) software product. Gulf Coast
Regional Blood Center is a blood bank located in Texas. Non-renewal or
termination of the contractual arrangements with these key customers could
have a material adverse effect on the Company. There can be no assurance
that the Company will be able to retain these key customers or, if such
customers were not retained, that the Company will be able to attract and
retain new customers to replace the revenues currently generated by these
customers. See THE COMPANY - SALES AND MARKETING.
The Company currently has 22 (including the Royalty Group) blood banks
as customers for its SAFETRACE(TM) software product and intends to continue
to target domestic and international blood banks, plasma centers and
hospitals. DataMed has a number of customers for its substance abuse
testing services, including certain Fortune 1000 and other transportation
companies.
RESEARCH AND DEVELOPMENT
During the fiscal years ended December 31, 1995 and 1994, and during
the first nine months of 1996, the Company expended $654,500, $403,714 and
$547,387, respectively, for research and development.
EMPLOYEES
As of September 30, 1996, the Company had 145 full-time employees,
consisting of 12 employees for the Company, 59 at Wyndgate and 74 at
DataMed. Of the 145 full-time employees, 49 employees were in research and
development, nine employees were in sales and marketing, 13 employees were
in administration, and 74 employees were in program management and
implementation. The Company has employment agreements with certain
personnel. See MANAGEMENT. The Company's employees are not represented by
a labor union or subject to collective bargaining agreements. The Company
has never experienced a work stoppage and believes that its employee
relations are satisfactory.
PROPERTIES
The Company currently occupies two primary locations. The Company
occupies approximately 17,000 square feet of office space in Lakewood,
Colorado pursuant to a lease that expires on December 31, 2000. The
Company also leases approximately 8,800 square feet of office space in
Sacramento, California pursuant to a lease that expires on August 31, 1998.
The Company also has employees located in Virginia, Illinois, Pennsylvania
and Texas. No office lease is required at those locations because the
employees work out of their homes. During the nine months ended September
30, 1996, office lease expenses per month were approximately $25,000.
Additional leased space will be required to accommodate the planned
personnel increases.
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WYNDGATE TECHNOLOGIES DIVISION
Wyndgate designs, develops, markets, licenses and supports software
for the healthcare industry. Pursuant to an agreement with eight
California blood centers, Wyndgate developed a blood tracking system called
the SAFETRACE(TM) software product to assist community blood centers,
plasma centers, hospitals and outpatient clinics in the U.S. in complying
with the quality and safety standards of the FDA for the collection and
management of blood and blood products. Wyndgate incorporates and
integrates products and services for the management of the blood supply and
its derived products from donor recruitment to shipment from the blood bank
to the hospital, clinic, medical research institution or other purchaser.
The SAFETRACE(TM) software product was developed using the Company's
application development tool, EDEN-OA(R). The Company intends to utilize
its proprietary EDEN-OA(R) software development tool to attempt to develop
new products for the medical information market.
In addition, Wyndgate provides training and consulting services for
installation, implementation, special programming, system design, and
maintenance for the SAFETRACE(TM) software product. The majority of
customers for the SAFETRACE(TM) software product and the Student
Information System software product ("SIS") use all or a portion of these
services. Historically, maintenance and product upgrades from Wyndgate's
SIS software product have provided an on-going revenue stream and
information concerning Wyndgate's customers' requirements and satisfaction.
Special programming services can result in customer funded development, as
was done with the SAFETRACE(TM) software product.
INDUSTRY OVERVIEW
The management of the Company believes that market driven forces to
increase quality while containing rising healthcare costs have resulted in
an increasing demand for healthcare information systems that meet the
changing needs of the marketplace. This shift has resulted in systems that
utilize new technologies to provide higher-accuracy information.
With the spread of AIDS and Hepatitis-B, stringent FDA guidelines have
been imposed on blood banks in order to ensure a safe blood supply. Some
community blood centers ("CBCs") have been cited by the FDA for
noncompliance and some have even been closed. The American Red Cross and
Blood Systems, Inc. blood centers are currently under consent decrees
requiring them to comply with FDA guidelines. The blood banking industry
has developed various in-house systems to track blood collection, testing,
processing, distribution and transfusion activities. The Company believes
that most blood center in-house developed systems are not fully integrated
and do not offer the capabilities required by the FDA in view of the fact
that the Company's current customers are switching from their in-house
systems to the Company's SAFETRACE(TM) software product. While laboratory
equipment vendors have developed automated testing and reporting procedures
directed at a segment of the community blood center process, these systems
address only the laboratory function and are not fully integrated. The
Company believes that blood centers and the laboratory equipment products
vendors are looking for a way to meet the FDA guidelines and minimize their
risk and cost.
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The FDA required all blood tracking application software vendors to
submit a 510(k) application for review by March 31, 1996. The application
process for FDA review and compliance with the new guidelines relates to
computer software products regulated as medical devices. The FDA considers
software products intended for the following to be medical devices: (i)
use in the manufacture of blood and blood components; or (ii) maintenance
of data used to evaluate the suitability of donors and the release of blood
or blood components for transfusion or further manufacturing. As medical
device manufacturers, the Company and its competitors are required to
register with the Center for Biologics Evaluation and Research ("CBER"),
list their medical devices, and submit a pre-market notification or
application for pre-market review. There is no deadline to receive a
clearance letter from the FDA and the FDA has allowed those vendors that
have submitted a 510(k) by March 31, 1996, to market and license their
product. A competitor recently received a 510(k) clearance letter from the
FDA for certain modules of its blood bank management information system
software product. The Company does not believe this will impact Wyndgate's
marketing of its SAFETRACE(TM) software product because the Company does
not believe that this competitor offers the spectrum of software modules
offered by the Company.
WYNDGATE STRATEGY
The key elements of Wyndgate's strategy to address the market include:
EXPAND SALES AND MARKETING EFFORTS TO INCREASE ITS CUSTOMER BASE
NATIONALLY AND INTERNATIONALLY. In the near-term, the Company will
aggressively pursue opportunities in the U.S. and abroad in blood tracking
and management with its SAFETRACE(TM) software product. The Company has no
reason to believe that it will not receive an FDA 510(k) clearance letter
in the future. The Company plans to continue to respond to any and all
requests by the FDA for additional information up to and including
resubmission of the 510(k) application. However, there can be no assurance
that the Company will receive an FDA 510(k) clearance letter.
DEVELOP NEW HEALTHCARE MANAGEMENT SOFTWARE PRODUCTS AND SERVICES. By
using its background in healthcare information systems, the Company will
continue to attempt to develop new applications based upon its EDEN-OA(R)
architecture. In the future, the Company intends to introduce a
transfusion management information system (the SAFETRACETX(TM) software
product). However, there can be no assurance that such introduction to the
market will occur.
STRATEGIC RELATIONSHIPS AND SELECTIVE ACQUISITIONS. Wyndgate intends
to continue to pursue strategic relationships to further develop uses for
its technology.
SOFTWARE PRODUCTS
The SAFETRACE(TM) software product is a set of integrated software
modules that are used to manage and control multiple aspects of blood and
plasma operations, from recruiting of donors and collecting donated blood
or plasma, to testing and manufacturing of blood products,
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distribution and billing. The Company currently markets its SAFETRACE(TM)
software product to blood banks and plasma centers and eventually will
market it to hospitals and transfusion centers. A customer can license one
or more modules as needed to automate its operations.
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SAFETRACE(TM) Modules Function
- --------------------- --------
DONOR RECRUITMENT Used by the marketing department of a blood
or plasma center to systematically solicit,
recruit and schedule donors. Facilitates
the recruiting process by producing call
lists on demand or scheduling calls by batch
processing.
DONOR MANAGEMENT Provides a means for registering donors and
recording necessary medical and personal
donor data. All real-time donor deferral
and eligibility information is used to
determine current eligibility status of the
donor to be registered.
LABORATORY MANAGEMENT Performs a number of data recording and
evaluation functions. Permits the posting
of tests either by interfacing directly with
testing equipment or manually. Also
performs inventory label validation, which
helps to ensure that all blood components
are suitable for distribution and have been
properly tested, validated and labeled.
BLOOD INVENTORY AND
DISTRIBUTION Maintains current inventories of all
available blood products which have been
tested and labeled. Records the movement of
blood products from the blood or plasma
center to the customer and between
customers. Also maintains records for
imported blood related products.
SPECIAL PROCEDURES Registers patients and tracks blood
requirements for surgeries. Also provides
the capabilities to define and manage
special requests for autologous, designated
and therapeutic donations.
BILLING Implements the pricing and billing practices
associated with each blood product for
customers. Also provides financial
information for management control.
The SAFETRACE(TM) software product relies on its donor identification,
laboratory component, labeling and release site-based logic technology to
assist blood banks in complying with FDA regulations. The SAFETRACE(TM)
software product has an 85% table driven structure which permits it to
easily adapt to each customer's individual and unique operations. The
SAFETRACE(TM) software product has been developed using industry standards,
common operating systems and database managers to ensure portability.
Because of the independence of the SAFETRACE(TM) software product's
database, operating systems and hardware, customers have freedom and
flexibility in selecting computer hardware and software components. The
SAFETRACE(TM) software product permits customers to preserve their
application software and training investment as customer systems needs and
technology change. Currently, management estimates the SAFETRACE(TM)
software product consists of more than 1.5 million lines of code, 390 data
tables, 59 labeling occurrences of component and release logic, 3,000
discrete programs and over 1,000 screens and windows.
SERVICES
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Wyndgate believes that the high quality of the services component of
the business is the key to retaining current customers, enhancing
Wyndgate's reputation for quality and improving market penetration.
Wyndgate's services begin with initial customer contact and continue
throughout the relationship. Services include complete installation and
implementation, training, consulting and maintenance. The license
agreements currently being used by Wyndgate typically commit a customer to
five years of maintenance service. The fees associated with the
maintenance service are typically invoiced monthly, quarterly or annually
in advance. The Company believes that service fees, excluding maintenance,
range from 10% to 50% of the initial software license fee. Under the
Company's current license agreements, only the software license fee and the
maintenance fee are required to be paid and the other fees are optional.
However, many customers that have licensed the SAFETRACE(TM) software
product to date have contracted for additional services.
INSTALLATION AND IMPLEMENTATION SERVICES. Installation and
implementation services assist the customers with the selection of
hardware and software systems and, if necessary, the initial installation
of the software on the customer's system. Implementation services include
assisting customers in analyzing work flow and standard operating
procedures ("SOPs"), developing tables, screen layouts, reports, and
installation specific requirements. Management estimates that it takes
from six to twelve months to implement the SAFETRACE(TM) software product
and a portion of Wyndgate's resources are used during that time.
Installation and implementation services are not considered part of the
SAFETRACE(TM) software product license fee or usage fee, and are typically
billed separately.
TRAINING SERVICES. Training services are provided to customers either
at the customer site or at Wyndgate's offices. Training includes hands-on
access to the applications software and usually includes building initial
tables and screens. All customers to date have purchased initial training
services which range from five to fifteen days depending on the customer
size and number of people to be trained. Wyndgate also offers follow-up
training services to assist customers in training new staff on new product
functions.
MAINTENANCE SERVICES. Fees for maintenance services are required to
be paid under certain of the relevant SAFETRACE(TM) software product
license agreements for the term of the license. Maintenance services are
optional under the other license agreements. Maintenance services include
"bug" fixing, enhancements and product upgrades. Wyndgate provides an
800-Help Line number for customer service calls that permits access to
Wyndgate's technical resources directly during the working day and on a
paged call-back basis at all other times.
CONSULTING SERVICES. Consulting services are provided to customers
who want special features, assistance with system configurations, database
consulting, systems management, networking or additional capabilities
beyond those included in the applications software. Wyndgate also performs
special applications development projects under certain development
agreements. The Company has been contracted to provide consulting services
by some of its SAFETRACE(TM) software product customers.
PRODUCT DEVELOPMENT
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SAFETRACETX(TM) - TRANSFUSION MANAGEMENT INFORMATION SYSTEM. Wyndgate
has begun the development of the SAFETRACETX(TM) software product, a
transfusion management information system that can be utilized by hospitals
to help them ensure the safety of the blood transfused into patients. If
completely developed, it will provide electronic cross-matching
capabilities to help ensure blood compatibility with the recipients and
will track, inventory, bill and document all activities with the blood
product from the time it is received in inventory to the time the blood
product is used or sent back to the blood center. The SAFETRACETX(TM)
software product will complement the SAFETRACE(TM) software product as it
will integrate hospitals with blood centers that supply blood products.
The Company anticipates that the SAFETRACETX(TM) software product will be
released in 1997; however, there can be no assurance that the software will
be released as scheduled, if at all.
EDEN-OA(R) DEVELOPMENT TOOL. EDEN-OA(R) is a software tool set and
methodology that the management of the Company believes enables programmers
to easily build and maintain information management systems. It runs on
different hardware, operating system and database management system
products. The EDEN-OA(R) tool set allows the programmer to focus on the
business logic and rules (how data relates and the formulas for
calculations) and on the presentation (viewing and printing) of the
information to the user. Management believes that EDEN-OA(R) (i) reduces
application product development time and cost; (ii) reduces application
software project risk; (iii) focuses the software developer on the user's
concerns, not on the hardware, operating system or database management
system; and (iv) reduces the time and cost for modifying and maintaining a
software application. EDEN-OA(R) is the basis for the SAFETRACE(TM)
software product, and it is planned that EDEN-OA(R) will be the basis for
future products from Wyndgate.
The Company believes that a major advantage of EDEN-OA(R) is that it
allows local user modifications to the application. Additionally, it
coordinates and tracks user modifications with upgrades, "bug" fixes or
enhancements made by Wyndgate, a feature that assisted Wyndgate in
documenting the SAFETRACE(TM) software product for FDA 510(k) review. The
entire maintenance process is integrated into the application, thereby
eliminating the common problem of user changes not integrating with vendor
supplied code, which often prevents upgrading applications because of the
high cost and risk. This maintenance feature permits the customers to make
changes dictated by business requirements as opposed to the ability of the
application to accommodate such changes. For example, adding a data
element such as a suffix for a zip code, adding a new table to track
service information or adding new FDA mandated blood tests would be a very
difficult and time consuming task with most applications.
EDEN-OA(R) includes an On-Line User-System Repository Manager which
consists of the following: an Active Data Dictionary; a Database
Maintenance Manager for automatic generation of database structure and I/O
procedures; a Panel (Screen) System Manager providing a Screen Definition
Language and GUI; use of a Procedural Language; and Interactive Utility
Programs and Procedures including a software maintenance system manager and
a systems development procedures manager. This combination of capabilities
makes EDEN-OA(R) portable and easy to tailor and maintain.
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EDEN-OA(R) facilitates application maintenance through the integrated
Active Data Dictionary, common applications functions and development and
maintenance tools. Each client organization has specific needs for
tailoring functions, screens, reports and processes. By making changes to
the Active Data Dictionary, the user invokes the Applications Manager tools
which generate the code. A single Active Data Dictionary entry modifies
all application modules, screens and reports impacted by that change.
Since the Active Data Dictionary separates the application from front-end
(screen generators) and the back-end (database manager and hardware
systems), development and on-going maintenance costs are often reduced.
Traditionally, on-going maintenance has been the most costly part of any
applications development and implementation. EDEN-OA(R) is modular and can
be used to replace or extend existing application systems and provides
end-user flexibility.
EDEN-OA(R) will continue to be developed and refined. It is currently
planned that EDEN-OA(R) will be the foundation to any new medical
applications developed by Wyndgate in the future.
DEVELOPMENT AGREEMENTS
Pursuant to the development agreement between Wyndgate and the Royalty
Group, pursuant to which Wyndgate developed the SAFETRACE(TM) software
product, Wyndgate must make royalty payments to the Royalty Group based on
a percentage of Wyndgate's SAFETRACE(TM) software product license sales,
measured by invoice amounts to purchasers of the software, net of certain
fees and charges. The time period under the royalty schedule is based upon
the first date of customer invoicing, which was September 14, 1995. The
Wyndgate royalty payment schedule is as follows:
Date Royalty Percentage
---- ------------------
September 1995 to September 1997 12%
September 1997 to September 1998 9%
September 1998 to September 1999 6%
After September 1999 3%
Pursuant to a Development Agreement ("Agreement") between the Company
and The Institute for Transfusion Medicine ("ITxM"), the Company has agreed
to develop Commercial Centralized Transfusion System Software ("Commercial
CTS Software"), which it is planned will become Wyndgate's SAFETRACETX(TM)
software product. This Agreement requires that the Commercial CTS Software
be completed by December 16, 1997. If not timely completed, the Company
would be subject to monetary penalties. The Agreement provides for a
royalty payment to ITxM for revenues received from the sale of the
Commercial CTS Software, net of certain fees and charges. The royalty
period starts with the first commercial transfer for value of the
Commercial CTS Software. The royalty that would be paid is as follows:
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Percentage of Percentage of
License Fee License Fee
if ItxM if Company
Initiates Sale Initiates Sale
-------------- --------------
1 Year 10% 5%
2 Year 10% 5%
3 Year 6% 3%
4 Year 6% 3%
5 Year 4% 2%
6 Year 4% 2%
7 Year 4% 2%
8 Year 4% 2%
9 Year 4% 2%
Thereafter 2% 1%
CUSTOMERS
Wyndgate currently has SAFETRACE(TM) software product contracts with
the following blood centers:
* Belle Bonfils Memorial Blood Center, Denver, CO
* Blood Bank of Alameda-Contra Costa Medical Association, Oakland, CA
* Blood Bank of San Bernardino and Riverside Counties, San Bernardino,
CA
* Blood Bank of the Redwoods, Santa Rosa, CA
* Coffee Memorial Blood Center, Albuquerque, NM
* Community Blood Bank of Erie County, Erie, PA
* Community Blood Bank of Lancaster County Medical Society, Lincoln, NE
* Community Blood Center of Appleton, Appleton, WI
* Gulf Coast Regional Blood Center, Houston, TX
* Institute For Transfusion Medicine, Pittsburgh, PA
* Irwin Memorial Blood Center, San Francisco, CA
* Peninsula Blood Bank, Inc., Burlingame, CA
* Sacramento Medical Foundation Blood Center, Sacramento, CA
* Samuel W. Miller Memorial Blood Center, Bethlehem, PA
* San Diego Blood Bank, San Diego, CA
* Siouxland Community Blood Bank, Sioux City, IA
* Stanford Medical School Blood Center, Palo Alto, CA
* The Blood Center of Central Iowa, Des Moines, IA
* The Blood Center for Southeast Louisiana, New Orleans, LA
* Tri-Counties Blood Bank, Santa Barbara, CA
* The Memorial Blood Centers of Minnesota, Inc., Minneapolis, MN
* Oklahoma Blood Institute, Oklahoma City, OK
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See SERVICES, above, for a description of a typical license agreement.
Management of the Company estimates that SAFETRACE(TM) software
product implementations take approximately six to twelve months depending
on the blood center's size and complexity of the blood center's standard
operations procedures ("SOPs"). All of the above blood centers are in
various stages of implementation, with the exception of Tri-Counties Blood
Bank and Sacramento Medical Foundation Blood Center in which the
SAFETRACE(TM) software product is fully operational.
The Company has entered into a letter of intent with a New York Stock
Exchange listed company pursuant to which the Company and the other party
expressed their desire to negotiate a license agreement for the Company's
SAFETRACE(TM) software product for a term of ten years. The letter of
intent contemplates that the Company would grant the other party the right
to use the SAFETRACE(TM) software product in up to 15 locations in return
for the other party paying the Company a software license payment over the
life of the agreement in an amount commensurate with what the Company
believes would be an appropriate fee for multiple location licenses and a
maintenance fee substantially similar to the maintenance fee charged to
other customers of the Company. There is no assurance that the parties
will be able to negotiate a final agreement relating to the proposed
licensing arrangement.
The potential customers for Wyndgate's products include community
blood centers ("CBC"), hospitals, out-patient centers and stand alone
transfusion sites. CBCs are able to utilize the SAFETRACE(TM) software
product to manage their business and comply with FDA regulations to help
ensure the safety of the blood supply. The SAFETRACE(TM) software
product allows the CBCs to enter the FDA guidelines, consistent with the
CBC's SOPs, into SAFETRACE(TM) software product tables which then provide
system control over the manufacture and processing of blood and blood
products. In the future, the Company plans to introduce a transfusion
management information system (which it is planned will be the
SAFETRACETX(TM) software product). All acute care hospitals and alternate
transfusion sites will be potential customers for the SAFETRACETX(TM)
software product.
In the transfusion market the potential customer base is easily
identified but presents a challenge in reaching the volume of clients for
product demonstrations. Customers will require a product demonstration
before making a commitment to purchase. In addition, the transfusion
product being developed will face severe competition from established
vendors in this market. Wyndgate believes that by penetrating blood
centers with the SAFETRACE(TM) software product, hospitals that receive
blood from these centers may want to link their existing transfusion
product to the blood center. There can be no assurance that hospitals will
desire to establish this link using Wyndgate's SAFETRACETX(TM) software
product.
AGREEMENTS WITH ORTHO DIAGNOSTIC SYSTEMS INC.
On November 14, 1996, the Company entered into an Exclusivity and
Software Development Agreement (the "Exclusivity Agreement") with Ortho
Diagnostic Systems Inc. ("ODSI"), a wholly-owned subsidiary of Johnson &
Johnson. The Exclusivity Agreement provides that until May 14, 1997 (the
"Exclusivity Period"), ODSI has the exclusive right to negotiate with the
Company with respect to the Company's activities and developments in
information technology and intellectual property relating to donor and
transfusion medicine (the
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"Technology") and that, during the Exclusivity Period, the Company will
not, directly or through any intermediary, accept, encourage, solicit,
entertain or otherwise discuss any acquisition of any of the Company's
Common Stock (other than in this Offering), business, property or know-how,
including the Technology, with any person or entity other than ODSI or an
affiliate thereof and will not otherwise encumber the ability of ODSI or an
affiliate thereof to enter into any arrangement with the Company concerning
the Technology. The Exclusivity Period is subject to extension at the
Company's option for up to 60 days in the event approval of the transaction
by the Company's shareholders is required to be obtained.
The Company also agreed to perform certain software development
services in consideration of the payment by ODSI of $500,000 on November
14, 1996, and $500,000 received in January, 1997. If the Company and ODSI
enter into a definitive agreement relating to the Technology, the Company's
other assets or Common Stock, then ODSI may elect to decline the software
development services and apply the payment to the Company towards any
consideration payable to the Company in connection with the definitive
agreement. If the parties are unable to come to terms with respect to a
definitive agreement, then the Company will provide the software
development services selected by ODSI and the parties will negotiate a
definitive software development agreement. If ODSI has not elected to
decline the Company's services and the Company fails to provide the
software development services, unless ODSI has breached its obligations
under the definitive agreement and is then in breach, the Company shall
have been deemed to have granted ODSI a non-exclusive license (with the
right to sub-license) to the Technology with a royalty rate not to exceed
4% of net sales, and the parties agreed they would negotiate a definitive
license agreement.
Pursuant to the Exclusivity Agreement, the Company has granted ODSI a
right of first refusal for a period of six months after the expiration of
the Exclusivity Period in the event the Company proposes to transfer,
dispose of, sell, lease, license (except on a non-exclusive basis in the
ordinary course of its business), mortgage or otherwise encumber or subject
to any pledge, claim, lien, charge, encumbrance or security interest
(except for the security interest with the Company's current lender) of any
kind or nature any of the Technology (the "Sale"). Prior to consummating
any Sale of any of the Technology, the Company has agreed to present ODSI
with a copy of the written offer by or agreement with any third party (the
"Third Party Offer"). ODSI shall have a period of 30 days from receipt of
a copy of the Third Party Offer to notify the Company of its intention to
enter into a similar transaction with the Company upon substantially the
same terms and conditions specified therein. If the purchase price
specified in the Third Party Offer is payable in property other than cash,
ODSI has the right to pay the purchase price in the form of cash equal in
amount to the value of such property. If ODSI chooses not to exercise its
right of first refusal, the Company has 60 days thereafter in which to sell
or otherwise dispose of the Technology upon terms and conditions (including
the purchase price) no less favorable to the Company than those specified
in the Third Party Offer. In the event the Company does not sell or
otherwise dispose of the Technology during such 60-day period, ODSI has a
right of first refusal with respect to any subsequent sale of the
Technology by the Company during the six-month period of the right of
first refusal.
The Company has agreed in the Exclusivity Agreement that in the event
(a) the Company breaches any covenant, agreement, representation or
warranty contained in the Exclusivity
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Agreement and the Company shall have had contracts or entered into
negotiations relating to a Business Combination (as hereafter defined) at
any time during the Exclusivity Period, as such may be extended, and with
respect to any person, entity or group with whom such contacts or
negotiations have occurred, a Business Combination shall have occurred or
the Company shall have entered into a definitive agreement providing for a
Business Combination; or (b) any definitive agreement entered into between
the Company and ODSI fails to receive the requisite affirmative vote of the
shareholders of the Company at a shareholders' meeting called for the
purpose of voting on such agreement and at the time of such meeting there
exists a Competing Transaction (as hereafter defined); or (c) (i) the Board
of Directors of the Company shall withdraw, modify or change its
recommendation of the Exclusivity Agreement or any subsequent agreement in
a manner adverse to ODSI, or shall have resolved to do any of the
foregoing; (ii) if the Board of Directors of the Company shall have
recommended to the shareholders of the Company a Competing Transaction;
(iii) a tender offer or exchange offer for 20% or more of the outstanding
shares of Common Stock of the Company is commenced and the Company's Board
of Directors recommends that the shareholders of the Company tender their
shares in such tender or exchange offer; or (iv) any person shall have
acquired beneficial ownership or the right to acquire beneficial ownership
of or any "group" (as such term is defined under Section 13(d) of the
Securities Exchange Act of 1934, and the rules and regulations promulgated
thereunder) shall have been formed which beneficially owns, or has the
right to acquire "beneficial ownership" of more than 20% of the then
outstanding shares of the Company's Common Stock, then the Company shall
pay ODSI an amount equal to $2,000,000 plus ODSI's expenses. For purposes
of the Exclusivity Agreement, the term "Business Combination" means (i) a
merger, consolidation, share exchange, business combination or similar
transaction involving the Company; (ii) a sale, lease, exchange, transfer
or disposition of 20% or more of the assets of the Company and its
subsidiaries, if any, taken as a whole, in a single transaction or series
of transactions, including, without limitation, any sale that would trigger
ODSI's right of first refusal described in the immediately preceding
paragraph; or (iii) the acquisition by a person or entity, or any "group"
(as such term is defined under Section 13(d) of the Exchange Act and the
rules and regulations thereunder) of "beneficial ownership" of 20% or more
of the Company's Common Stock whether by tender offer or exchange offer or
otherwise. A "Competing Transaction" means any of the following involving
the Company or any or its subsidiaries (either existing or hereafter
created): (i) any merger, consolidation, share exchange, business
combination, or other similar transaction; (ii) any sale, lease, exchange,
mortgage, pledge, transfer, license (except for a non-exclusive license in
the ordinary course of the Company's business) or other disposition of 20%
or more of the assets, taken as a whole, in a single transaction or series
of transactions, or any of the Technology; (iii) any tender offer or
exchange offer for 20% or more of the outstanding shares of Common Stock of
the Company or the filing of a registration statement under the Securities
Act of 1933 in connection therewith; (iv) any person having acquired
beneficial ownership or the right to acquire beneficial ownership of, or
any "group" (as such term is defined under Section 13(d) of the Securities
Exchange Act of 1934 and the rules and regulations promulgated thereunder)
having been formed which beneficially owns or has the right to acquire
beneficial ownership of, 20% or more of the then outstanding shares of the
Common Stock of the Company; or (v) any public announcement of a proposal,
plan or intention to do any of the foregoing or any agreement to engage in
any of the foregoing.
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Concurrently with executing the Exclusivity Agreement, ODSI and
Michael I. Ruxin, William J. Collard, Gerald F. Willman, Jr., Lori J.
Willman, Timothy J. Pellegrini and Gordon Segal (collectively, the
"Shareholders") entered into a Proxy and Right of First Refusal Agreement
(the "Shareholders Agreement"), dated November 14, 1996, pursuant to which
each of the Shareholders has granted an irrevocable proxy to ODSI to vote
their shares of the Company's Common Stock (i) in favor of a proposal to
approve any definitive agreement between the Company and ODSI relating to
the Technology, or (ii) on any other proposal relating to the sale of any
of the stock of the Company or all or substantially all of the assets of
the Company or any of the Technology, unless prior to the date of the
shareholders' meeting, the definitive agreement has been terminated for any
reason other than the occurrence of any event that would trigger the
payment of the termination fees pursuant to the Exclusivity Agreement or
any similar provision in the definitive agreement, or ODSI has materially
breached any of its material obligations under the definitive agreement, in
any of which events the proxy would terminate upon the termination of the
definitive agreement. Unless earlier terminated, the proxy granted by each
of the Shareholders expires November 14, 1997. Each of the Shareholders
also agreed that until November 14, 1997, such Shareholder will not
transfer, dispose of, or otherwise sell to any third party or grant to any
third party an option or other right to buy any shares of the Company's
Common Stock held by the Shareholder without having first offered ODSI the
right to enter into a similar transaction with the Shareholder on the same
terms as proposed; provided, that each Shareholder has the right to donate
up to 6% of such Shareholder's stock ownership to a non-profit institution
without invoking ODSI's right of first refusal. ODSI has 30 days to
exercise its right of first refusal after being notified of the proposed
third party transaction. In the event ODSI declines to enter into such
transaction, then the Shareholder has 90 days after the end of the 30 day
acceptance period to consummate the proposed transaction on the terms and
conditions as proposed. In the event the transaction is not consummated
within 90 days, then ODSI has the right of first refusal with respect to
any future proposed transactions by Shareholders to a third party. ODSI's
right of first refusal is not assignable except to an affiliate of ODSI.
COMPETITION
Currently, Wyndgate is aware of five primary competitors in the blood
bank industry segment including MAK from France, Blood Trac Systems, Inc.
from Canada, Information Data Management ("IDM"), Blood Bank Computer
Systems and Systec from the United States. Some of these competitors are
larger and have greater resources than the Company. The Company believes
it is able to compete on the basis of the capabilities of the technology in
its SAFETRACE(TM) software product; however, the Company can provide no
assurances in this regard.
DATAMED INTERNATIONAL DIVISION
Founded in 1989, DataMed manages and markets a variety of services
that are designed to assist companies with administering substance abuse
testing programs. Due to federal regulations, employers involved in
commercial transportation must comply with requirements mandating substance
abuse testing of employees in safety sensitive positions and substance
abuse
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awareness education for supervisors and employees. Additionally, federal
substance abuse testing requirements mandate the use of a Medical Review
Officer ("MRO") to evaluate the quality and accuracy of a testing
laboratory and determine legal versus illegal use of controlled substances.
DataMed provides customized substance abuse testing management services to
companies. DataMed coordinates and actively manages the specimen
collection process, the laboratory testing process, the MRO review process,
the process of random testing, the blind sample quality control process,
the substance abuse testing process and the data management process,
including compliance reporting and record storage. DataMed arranges for
specimens to be tested by a qualified laboratory and appropriately monitors
the performance of: testing laboratory(ies); urine collection providers;
the MRO; and the overall quality of information that is received, stored
and reported. DataMed currently provides substance abuse testing
management services to a number of clients worldwide.
INDUSTRY OVERVIEW
In the Company's experience, most substance abuse testing programs for
Fortune 1000 companies are internally managed. Companies contract with
laboratory and collection sites and utilize internal resources to manage
the process. However, the Company believes that some companies appear to
be shifting to outsourced substance abuse program management in an attempt
to reduce overall costs as well as to increase overall quality.
The current market for the substance abuse testing industry consists
of the regulated markets and the unregulated markets. The regulated
markets include all employees that fall under federal regulations for
commercial transportation, with the largest concentration in the motor
carrier industry. Additionally, regulated employees are subject to random
substance abuse testing, post-accident testing and "reasonable suspicion"
testing. The unregulated market primarily consists of companies testing
new employees.
Currently, the urine specimen substance abuse testing industry has
several large nationally known laboratories, such as Corning Clinical
Laboratories, Lab Corp. and SmithKline-Beecham, offering drug testing lab
analysis.
The U.S. Department of Transportation ("DOT") has ruled that
activities involving the management of MRO services or activities that give
the appearance of any type of financial arrangement between an MRO and a
laboratory are prohibited from being conducted by the laboratory. The net
effect of this ruling is to limit the laboratory's ability to provide drug
testing management services. Therefore, with respect to testing performed
under DOT regulations (which is the standard by which all substance abuse
testing programs are measured), the laboratory cannot provide full service
substance abuse testing program management and meet DOT requirements.
Companies that manage their own substance abuse testing programs are
required to remain abreast of changing DOT regulations and their
implications as well as maintain significant
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amounts of data that must be processed, audited and stored. A significant
amount of work is required in administering substance abuse testing
programs, and these programs are complex to manage. The Company believes
that these factors have created a market opportunity for third- party
administrators or program management companies since it appears some
companies are moving to outsource substance abuse testing program
management.
STRATEGY
The key elements of DataMed's strategy to address the market
opportunity include:
EXPAND SALES AND MARKETING EFFORTS TO INCREASE ITS CUSTOMER BASE
NATIONALLY AND INTERNATIONALLY. The Company will continue to market
complete program management services principally to Fortune 1000 companies.
The Company's complete program management services (ProScreen Plus(TM))
typically provide higher profit margins for the Company. For the year
ended December 31, 1995, the Company's complete program management services
accounted for 48% of DataMed's revenues. For the nine months ended
September 30, 1996, DataMed's complete program management services
accounted for approximately 70% of DataMed's revenues.
EXPAND INTERNATIONAL MARKETS WITHIN THE TRANSPORTATION AND HEALTHCARE
INDUSTRIES. The Company has customers in international markets outside the
U.S. Many international customers have some local requirements for
substance abuse testing, primarily in the shipping industry. The Company
has dedicated personnel to continue to pursue these opportunities.
DEVELOP NEW HEALTHCARE MANAGEMENT SOFTWARE PRODUCTS AND SERVICES.
With federal regulations mandating substance abuse testing, the Company
will continue to provide additional products and services for complete
substance abuse testing management.
MAINTAIN ITS TECHNOLOGICAL ADVANTAGE IN DEVELOPING REGULATORY
COMPLIANCE TRACKING SOFTWARE AND QUALITY ASSURANCE SOFTWARE PRODUCTS.
Since the substance abuse testing management process is labor intensive due
to the amount of data that must be processed and audited, DataMed intends
to use Wyndgate's technology to attempt to develop an advanced system to
reduce the costs and increase the quality of its services. There can be no
assurance that the Company will be successful in developing an automated
test tracking system or that it will operate effectively.
SERVICES
DataMed's service allows a company that no longer wants to
micro-manage its substance abuse program to outsource the administration of
its entire substance abuse program. DataMed's goal is to help a company
increase total program quality and decrease total program costs. DataMed
can coordinate or actively manage the specimen collection process, the
laboratory testing process, the medical review process, random testing
process, the blind sample quality control process, the substance abuse
testing process and the data management process, including compliance
reporting and record storage. DataMed's services can be purchased
independently
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or as a management package. DataMed has two basic levels of management
services: ProScreen(TM) and ProScreen Plus(TM).
ProScreen(TM) is DataMed's program coordination service and is
designed to attract the medium to large customer operating in either a
regulated or unregulated environment. ProScreen(TM) is a solution for
clients that realize their programs are large enough to have become a
burden, but small enough not to warrant a full time employee. DataMed,
through its ProScreen(TM) service, offers companies a limited range of
"pro-active" management services designed to ease the burden of an
internally managed program. ProScreen(TM) can also be an entry point for
a client that wants to eventually move to a ProScreen Plus(TM) level of
service.
ProScreen Plus(TM) is a customized service designed to attract Fortune
1000 clients who have decided to outsource the management of their entire
program. Through its ProScreen Plus(TM) product, DataMed focuses its
efforts on helping the large organization concentrate on its core business,
increase program quality and reduce total program costs. ProScreen
Plus(TM), in its truest form, allows DataMed to function as a company's
substance abuse department.
CUSTOMERS
A customer may have programs that are federally regulated, unregulated
or both. Fortune 1000 customers tend to have both regulated and
unregulated programs. The Federal Highway Administration oversees the
largest percentage of regulated testing. Companies regulated by the
Federal Aviation, Transit and Railroad Administrations (and other federal
organizations) are also subject to federally mandated programs.
Unregulated testing accounts for the largest market segment and is driven
by company policy, state and local laws.
International companies are also potential customers. DataMed
currently provides substance abuse testing management services to
approximately 40 companies internationally. However, the management of the
Company believes that the international market is expected to grow at a
slower rate due to lack of governmental regulations. Department of
Transportation regulations adopted after the passage of The North American
Free Trade Agreement require Mexican and Canadian transportation companies
using U.S. road systems in cross-border trade to comply with U.S.
Department of Transportation regulations, including substance abuse
testing.
DataMed believes it is ahead of its competition when it comes to
offering international substance abuse testing management services because
the Company has taken many years to develop an overseas collection site
network and has developed procedures to timely usher specimens through
customs for analysis.
COMPETITION
When examining competitors it is important to distinguish between
program coordination and program management. There are hundreds of
companies capable of providing program
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coordination services. Some of these direct competitors are: Substance
Abuse Management, Inc. ("SAMI"); Concord, Inc.; National Safety Alliance
("NSA"); Drug Intervention Services of America ("DISA"); First Lab; and
University Services. If any of these companies change their marketing and
operational approach, they could quickly become more of a presence in the
program management marketplace.
The Company believes that DataMed's primary competitive advantage is
quality and name recognition. DataMed has established policies and
procedures in an attempt to achieve total quality management and continuous
quality improvement goals.
The Company believes that corporate outsourcing trends and regulatory
burdens (e.g., substance abuse testing) will continue to increase and
DataMed will attempt to capitalize on these trends. Program management
companies are increasing in number. The Company believes that SAMI, DISA,
NSA, University Services, FirstLab and Concord, Inc. are the largest
competitors present in the marketplace.
LEGAL PROCEEDINGS
The Company currently is not involved in any legal proceedings.
MANAGEMENT
The following table sets forth the names and positions of the
director, executive officers and key employees of the Company:
Officer
Name Age Position or Director Since
- ---- --- -------- -----------------
Michael I. Ruxin, M.D. 51 Chairman of the Board 1989
and CEO
Joseph F. Dudziak 59 President and COO 1995
William J. Collard 55 Secretary/Treasurer, 1995
Director and Wyndgate
President
Gerald F. Willman, Jr. 39 Director and Wyndgate 1995
Vice-President
Gregory R. Huls 45 Chief Financial Officer 1996
and General Counsel
John D. Gleason 37 Director 1994
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The directors of the Company are elected to hold office until the next
annual meeting of shareholders and until their respective successors have
been elected and qualified. Officers of the Company are elected annually
by the Board of Directors and hold office until their successors are
elected and qualified.
The following sets forth biographical information concerning the
Company's directors and executive officers for at least the past five
years. All of the following persons who are executive officers of the
Company are full time employees of the Company.
MICHAEL I. RUXIN, M.D., the founder of the Company, has been an
officer and director of the Company since its incorporation in 1989 and is
currently the Chairman and Chief Executive Officer of the Company. From
1982 to 1994, Dr. Ruxin was a director of GeriMed of America, Inc., a
private company administering senior health care centers. From 1985 to
1993, Dr. Ruxin was an officer and director of CBL Medical, Inc. ("CBL"),
a public company which managed multiple medical groups, including Medcomp
Medical Group which was a group of small clinics owned by Dr. Ruxin. CBL
focused on providing second opinions on workers compensation claims. Dr.
Ruxin left CBL management in 1988 to found the Company although he remained
on the board of CBL due to his continued ownership of clinics until 1993.
Five years after Dr. Ruxin left CBL management, in 1993, CBL filed a
Petition under Chapter 7 of the Federal Bankruptcy Code to liquidate due to
a change in the workers compensation regulations in the State of
California. Dr. Ruxin received a B.A. degree from the University of
Pittsburgh and an M.D. degree from the University of Southern California.
Dr. Ruxin is a licensed physician in California and Colorado. He is a
member of the American Association of Medical Review Officers.
JOSEPH F. DUDZIAK has been President and Chief Operating Officer of
the Company since June 1995. From January 1993 to June 1995, he was
employed as a "site executive" with Analysts International Corporation, a
contract consulting firm engaged primarily in development and support of
software. From August 1991 to December 1992, he was a self-employed
executive consultant, during which time he provided consulting services
primarily to The Wyndgate Group, Ltd. in the areas of product development
and marketing and the development of a business plan. For the 30 years
prior to August 1991, Mr. Dudziak was employed in various capacities (most
recently as a group Vice President) by Control Data Corporation ("CDC"),
which was involved in the computer systems, software and information
management businesses.
WILLIAM J. COLLARD has been a director and the Secretary/Treasurer of
the Company and the President of the Wyndgate division since May 1995.
From 1984 to May 1995 he was president and a director of The Wyndgate
Group, Ltd., and responsible for directing the sales, operations and
research and development efforts of The Wyndgate Group, Ltd. From 1976 to
1984, Mr. Collard was the executive director of Sigma Systems, Inc., a
company that provides colleges and other institutions with administrative
computer applications. Mr. Collard received
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a B.S. degree in Business Administration (Finance) and an M.S. degree in
Business Administration (Quantitative Methods) from California State
University.
GERALD F. WILLMAN, JR. has been a director of the Company and the Vice
President of the Wyndgate division since May 1995. Mr. Willman was
director and then a Vice President of The Wyndgate Group, Ltd., from 1984
to 1995 and was responsible for the overall design and development of the
products developed by The Wyndgate Group, Ltd., including research of new
technologies. Prior to his employment at The Wyndgate Group, Ltd., he was
employed as a development team leader at Systems Research, Inc. Mr.
Willman received a B.S. degree from Hampden Sydney College and M.B.A.
degree from National University.
GREGORY R. HULS has been the Chief Financial Officer and General
Counsel of the Company since October, 1996. From May, 1996 through
October, 1996, Mr. Huls was engaged in the private practice of law. From
1993 through 1995, Mr. Huls was a full time student at the University of
Denver, College of Law. From 1992 to 1993, Mr. Huls was Senior Vice
President and Chief Financial Officer for Comprecare Holdings, Inc., and
from 1987 to 1992, Vice President of Finance and Chief Financial Officer
for AMISUB (Comprecare), Inc. where he directed the financial, provider
contracting and information system functions of that health maintenance
organization (HMO). Mr. Huls received a B.S. degree in Business
(Accounting) from Indiana University and a J.D. degree from the University
of Denver, College of Law. He is also a certified public accountant. He
is a member of the American Institute of Certified Public Accountants, the
Colorado Society of Certified Public Accountants, and the Colorado and
American Bar Associations.
JOHN D. GLEASON has been a director of the Company since 1994. Since
November, 1990 he has been employed with MDS Inc., formerly MDS Health
Group Limited ("MDS"), a publicly held Canadian company that is engaged in
the business of medical laboratory testing, currently as Vice President of
Corporate Strategic Initiatives and previously as Chief Financial Officer
and Vice President of Finance. Mr. Gleason received an Honors degree (the
Canadian equivalent of a bachelors degree) from Queens University in
Ontario, Canada and a masters degree from the University of Toronto. Mr.
Gleason is a chartered accountant.
The Company's Audit/Systems Committee acts as the liaison between the
Company and its independent public accountants. Its members consist of Dr.
Ruxin and Mr. Gleason who were recently appointed in such capacity and have
not yet met as a committee. The Audit/Systems Committee is responsible for
reviewing and approving the scope of the annual audit undertaken by the
Company's independent accountants and will meet with the accountants to
review the progress and results of their work, as well as any
recommendations the accountants may offer. The Audit/Systems Committee
will also review the fees of the independent accountants and make
recommendations to the Board of Directors as to the appointment of the
accountants. In connection with the Company's internal accounting
controls, the Audit/Systems Committee will review the internal audit
procedures and reporting systems in place at the Company and review their
accuracy and adequacy with management and with the Company's independent
accountants.
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<PAGE>
The Company's Compensation Committee, which will recommend
compensation levels to the Board of Directors, consists of Dr. Ruxin and
Mr. Collard who were recently appointed in such capacity and have not yet
met as a committee. The Compensation Committee will review salaries,
bonuses, and other forms of compensation for officers and key employees of
the Company and its subsidiaries, and will establish salaries, benefits,
and other forms of compensation for new employees. Included in the
Compensation Committee's responsibility is the issuance of stock bonuses
and stock options under the Company's two stock option/bonus plans. In
addition, the Compensation Committee will review other matters concerning
compensation and personnel as the Board of Directors may request. The
Compensation Committee will design the Company's compensation to enable the
Company to attract, retain, and reward highly qualified executives, while
maintaining a strong and direct link between executive pay, the Company's
financial performance, and total stockholder return. The Compensation
Committee believes that officers and certain other key employees should
have a significant stake in the Company's stock price performance under
programs which link executive compensation to stockholder return.
SCIENTIFIC ADVISORY COMMITTEE
The Board of Directors has established a Scientific Advisory Committee
to advise and consult with the Board of Directors as may be requested by
the Board from time-to-time. Currently, the Scientific Advisory Committee
consists of William C. Dickey, M.D., Cathy Bryan and Ronald O. Gilcher,
M.D. It is not presently contemplated that the Scientific Advisory
Committee will have formal meetings as a group. The members of the
Scientific Advisory Committee will not receive any cash compensation from
the Company for serving in that capacity, but each will be reimbursed for
any expenditures incurred on behalf of the Company. In connection with
their appointment to the Scientific Advisory Committee, in January, 1996,
Dr. Dickey, Ms. Bryan and Dr. Gilcher were issued options to purchase
2,500, 1,000 and 1,000 shares, respectively, of the Company's Common Stock,
exercisable at $3.75 per share, which options vest over a five year period
and are exercisable until January, 2006.
WILLIAM C. DICKEY, M.D., CHAIRMAN OF THE SCIENTIFIC ADVISORY
COMMITTEE, has been the Medical Director, Chief Executive Officer and
President of the Belle Bonfils Memorial Blood Center, Denver, Colorado
since July 1990. From 1972 to 1974, he was the Director of the Blood Bank
for Irwin Army Hospital, located in Texas, and from 1974 to 1991, he was
the Director of the Blood Bank for St. Anthony Hospital, Denver, Colorado.
He graduated from the University of Denver with a B.S. degree and received
his M.D. degree from the University of Colorado School of Medicine. He was
certified by the American Board of Pathology for Anatomic and Clinical
Pathology in 1972, and is licensed to practice medicine in Colorado and
Kansas.
CATHY BRYAN has been the Chief Executive Officer, Administrator and
FDA Responsible Head for the Blood Bank of the Redwoods, Santa Rosa,
California, since July 1987. She received a B.A. degree in social sciences
from San Jose State University. She was one of the founders of the Blood
Centers of California, of which she served as a Director (1987) and
President (1994), and is a member of the California Blood Bank Society, of
which she served as Chairman of the Administrator Program from 1992 - 1994,
and the American Association of Blood Banks.
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<PAGE>
RONALD O. GILCHER, M.D. has been the President and Chief Executive
Officer of the Sylvan N. Goldman Center, Oklahoma Blood Institute, Oklahoma
City, Oklahoma, since 1990 and was the director thereof from 1979 to 1990.
He served in the U.S. Army Medical Corps at Walter Reed Army Institute of
Research, Washington, D.C. from 1968 - 1971, and from 1971 to the present,
has been an assistant or associate professor at the University of
Pittsburgh School of Medicine (1971-1979) and an adjunct professor and
clinical associate professor at the University of Oklahoma School of
Medicine (1979 to present). Dr. Gilcher graduated from the University of
Pittsburgh with a B.S. degree in chemistry, and received his M.D. degree
from Jefferson Medical College. He was certified by the American Board of
Internal Medicine for Internal Medicine (1969 and 1977) and by the American
Board of Internal Medicine for Hematology (1972), and is licensed to
practice medicine in the states of Pennsylvania, Oklahoma and California.
SIGNIFICANT EMPLOYEES
The following employees make a significant contribution to the
business of the Company:
BART K. VALDEZ, age 33, has been the Director of Operations for
DataMed since October, 1996. He was Director of Finance and Operations and
also acted as the Principal Financial Officer for the Company from June
1995 through mid-October 1996. Mr. Valdez functions under the direct
supervision of the President and is accountable for the effective
operations of the account management team, medical review, data management,
vendor management and information systems departments. From 1989 to
joining the Company in 1995, he was employed by Baxter International, Inc.,
a medical supply and manufacturing company, most recently as
Regional Director of Operations for the Mountain Region. Mr. Valdez
received a B.S. degree in Management from Colorado State University and a
M.B.A. degree from the University of Colorado.
L.E. "GENE" MUNDT, age 57, has been the Senior Vice President for
Wyndgate since February, 1996, where he is responsible for medical
applications. Prior to joining Wyndgate, from 1967 to 1996, Mr. Mundt was
employed by Control Data Systems, Inc., a computer hardware and software
manufacturer, most recently as the Director, Integration and Consulting
Services, Central Region, North and South America Operations. Mr. Mundt
received a Bachelors degree in Math from the University of Iowa.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding compensation paid
to the Company's CEO and the other executive officers of the Company who
received in excess of $100,000 of salary and bonus from the Company during
the year ended December 31, 1996:
<TABLE>
<CAPTION>
Annual Compensation ($$) Long Term Compensation
------------------------ ----------------------
Awards
------
Restricted
Name and Stock Options Other
Position Year Salary Bonus Awards & SARs Compensation
- -------- ---- ------ ----- ------- ------ ------------
($$) ($$) ($$) (##) ($$)
<S> <C> <C> <C> <C> <C> <C>
Michael I. Ruxin, 1996 $195,000 -0- -0- -0- $ 16,520(1)
Chairman and CEO 1995 $190,000 -0- -0- -0- $ 16,520(1)
1994 $180,000 -0- -0- -0- $ 8,216(2)
Joseph F. Dudziak, 1996 $110,000 -0- -0- 25,000(3) $ 4,800(4)
President and COO 1995 $105,000 -0- -0- 100,000(3) $ 4,800(4)
1994 -0- -0- -0- -0- $ -0-
William J. Collard, 1996 $100,000 -0- -0- -0- $180,400(5)
Secretary/Treasurer 1995 $100,000 -0- -0- -0- $ 30,400(5)
and Director, 1994 $ 75,000 $ 100(6) -0- -0- $ -0-
Wyndgate President
</TABLE>
- ----------
(1) Dr. Ruxin receives $5,000 per annum in life insurance premiums and a
$960 per month car allowance.
(2) Dr. Ruxin received a car allowance of $368 per month, and $3,800 in
life insurance premiums.
(3) In June 1995, Mr. Dudziak received options to purchase 100,000 shares
exercisable at $2.45 per share. In September 1996, Mr. Dudziak
received options to purchase 25,000 shares exercisable at $2.50 per
share. These options vest at the rate of 20% per year. No value has
been attributed to these options since the exercise price was the
estimated fair value of the Company's shares at the time of grant.
(4) Mr. Dudziak receives $400 per month car allowance.
(5) Mr. Collard receives a $450 per month car allowance. In 1995, Mr.
Collard received $25,000 under his non-compete agreement. In 1996,
Mr. Collard received $175,000 under his non-compete agreement.
(6) In 1994, Mr. Collard received a performance bonus of $100.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Dr. Ruxin
for a period of five years commencing May 24, 1995. The initial term of
this agreement can be extended at the close of the second year for an
additional two years beyond the initial term (creating a term of seven
years from May 24, 1995). Under the agreement, Dr. Ruxin receives a salary
of $190,000 per year and certain other fringe benefits. Dr. Ruxin's
employment agreement includes a cost-of-living increase at the rate of 2
1/2% per annum, plus any other increase which may be determined from time
to time at the discretion of the Company's Board of Directors. Pursuant to
the employment agreement, Dr. Ruxin is provided with a car on such lease
terms to be determined by the Company, provided that the monthly operating
costs (including lease payments) to be paid by the Company will not exceed
$960. The agreement also includes a covenant not to compete
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<PAGE>
for which Dr. Ruxin was to be paid a lump sum of $115,000 on January 1,
1996. No payments have been made in connection with the covenant not to
compete. The covenant not to compete will terminate the later of five
years from the date of the agreement or the term of the agreement; hence,
the Company will not receive any benefit from the covenant not to compete
unless the agreement is terminated prior to May 24, 2000. Dr. Ruxin has
now agreed that such payment will have to be made only if and when the
Company has sufficient cash flow, as determined by the Board of Directors.
Proceeds from this offering will not be used to make any payments in
connection with the covenant not to compete. Dr. Ruxin's employment under
the employment agreement may be terminated by Dr. Ruxin upon the sale by
the Company of substantially all of its assets, the sale, exchange or other
disposition of at least 40% of the outstanding voting shares of the
Company, a decision by the Company to terminate its business and liquidate
its assets, the merger or consolidation of the Company with another entity
or an agreement to such a merger or consolidation or any other type of
reorganization, or if the Company makes a general assignment for the
benefit of creditors, files for voluntary bankruptcy or if a petition for
the involuntary bankruptcy of the Company is filed in which an order for
relief is entered and remains in effect for a period of thirty days or
more, or if the Company seeks, consents to, or acquiesces in the
appointment of a trustee, receiver or liquidator of the Company or any
material part of its assets. Dr. Ruxin's employment under the employment
agreement also may be terminated by reason of Dr. Ruxin's death or
disability or for cause as set forth in the employment agreement. If the
agreement is terminated by the Company for any reason other than cause or
permanent disability, the Company must pay Dr. Ruxin a lump sum severance
payment of $2.5 million.
On May 24, 1995, the Company also entered into a five year employment
agreement with William J. Collard which contains the same extension
provision and reasons for termination as does Dr. Ruxin's agreement, and
provides for an annual salary of $100,000. Mr. Collard's employment
agreement includes a cost-of-living increase at the rate of 2 1/2% per
annum, plus any other increase which may be determined from time to time at
the discretion of the Company's Board of Directors. Mr. Collard's
agreement also contains a covenant not to compete, with payments of
$100,000 for the covenant to have been made on January 1, 1996 and May 24,
1996, respectively. Aggregate payments of $200,000 were made as follows:
$25,000 in December, 1995; $75,000 in January, 1996; and $100,000 in May,
1996. The covenant not to compete will terminate the later of five years
from the date of the agreement or the term of the agreement; hence, the
Company will not receive any benefit from the covenant not to compete
unless the agreement is terminated prior to May 24, 2000. If Mr. Collard's
agreement is terminated by the Company for any reason other than cause or
permanent disability, the Company must pay him a lump sum severance payment
of $2.5 million. Mr. Collard also receives a car allowance of $450 per
month.
The Company also has an employment agreement with Gerald F. Willman,
Jr. which contains an extension provision for the term of the agreement and
reasons for termination similar to those of Dr. Ruxin and Mr. Collard with
an annual salary of $95,000, except the initial term is for three years
commencing May 24, 1995 and the extension is for an additional two years.
Mr. Willman's employment agreement includes a cost-of-living increase at
the rate of 2 1/2% per
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annum, plus any other increase which may be determined from time to time in
the discretion of the Company's Board of Directors. The employment
agreement requires that if he is terminated by the Company for any reason
other than cause or permanent disability, the Company must pay Mr. Willman
a lump sum severance payment of $1.0 million.
On June 28, 1995, the Company entered into an employment agreement
with Joseph F. Dudziak for a two year term pursuant to which Mr. Dudziak
earns a salary of $105,000 per year. Mr. Dudziak's employment agreement
contains the same reasons for termination as the other employment
agreements described above, but does not include the same extension
provision or an annual cost-of-living increase. However, if increased, his
salary may not be decreased thereafter during the term of the agreement
without Mr. Dudziak's consent. If Mr. Dudziak's employment is terminated
by the Company for any reason other than for cause or permanent disability,
the Company is required to pay Mr. Dudziak his salary and benefits for the
full two years. Mr. Dudziak is entitled to certain incentive compensation
based on the Company's pre-tax profits for 1996. The agreement also grants
Mr. Dudziak options to purchase an aggregate of 100,000 shares of the
Company's common stock. Subject to early vesting in certain circumstances,
the options vest over a five year period at the rate of 20% per year and
are exercisable at $2.45 per share, which was the estimated fair value of
the shares at the time of grant. Mr. Dudziak receives a car allowance of
$400 per month. The Company has agreed to pay Mr. Dudziak approximately
$25,000 for moving expenses which have not been paid as of the date of this
Prospectus.
On February 8, 1996, the Company entered into an employment agreement
with L. E. "Gene" Mundt for a three year term pursuant to which Mr. Mundt
earns a salary of $95,000 per year. Mr. Mundt's employment agreement
contains the same reasons for termination as the other employment
agreements described above, but does not include an extension provision or
an annual cost-of-living increase. If Mr. Mundt's salary is increased, it
may not be decreased thereafter during the term of the agreement without
Mr. Mundt's consent. If Mr. Mundt's employment is terminated for any
reasons other than for cause or permanent disability, the Company is
required to pay Mr. Mundt his salary and benefits for the full three year
period. Mr. Mundt is entitled to certain incentive compensation based on
the Company's pre-tax profits for 1996. The agreement also grants Mr.
Mundt options to purchase an aggregate of 75,000 shares of the Company's
Common Stock at an exercise price of $3.75 per share which was the
estimated fair value of the shares at the time of grant. Under the terms
of the agreement, Mr. Mundt receives non-qualified stock options to
purchase 25,000 shares of Common Stock which are exercisable for ten years
from the date of the agreement and incentive stock options to purchase
50,000 shares of common stock which, subject to early vesting in certain
circumstances, vest over a five year period at the rate of 20% per year.
Mr. Mundt receives a car allowance of $400 per month. During 1996, the
Company paid Mr. Mundt approximately $42,000 for moving expenses.
The Company also has an employment agreement with Bradley V. Maberto
which contains an extension provision for the term of the agreement and
reasons for termination similar to those of Mr. Willman. The agreement
provides for an annual salary of $55,000. The initial term for
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<PAGE>
the agreement is three years commencing on May 24, 1995 and the extension
is for an additional two years. Mr. Maberto's employment agreement
includes a cost-of-living increase at the rate of 2 1/2% per annum, plus
any other increase which may be determined from time to time in the
discretion of the Company's Board of Directors. The agreement requires
that if Mr. Maberto is terminated by the Company for any reason other than
cause or permanent disability, the Company must pay Mr. Maberto a lump sum
severance payment of $1.0 million.
On October 14, 1996, the Company hired Gregory R. Huls as Chief
Financial Officer and General Counsel for the Company. According to the
terms of his employment arrangement, which has not yet been reduced to a
written employment agreement, Mr. Huls is to receive an annual salary of
$95,000 and an annual automobile allowance of $4,800. In addition, Mr.
Huls was granted incentive stock options to purchase 75,000 shares, which
vest over a five year period at 20% per year and are exercisable at $2.50
per share, and the Company agreed to pay the premium on a $15,000 life
insurance policy for Mr. Huls.
COMPENSATION OF DIRECTORS
Members of the Company's Board of Directors are not compensated in
their capacities as Board Members. However, the Company reimburses all of
its officers, directors and employees for accountable expenses incurred on
behalf of the Company.
STOCK OPTION PLAN
The Company has adopted its Amended and Restated Stock Option Plan
(the "Plan") which provides for the issuance of options or stock bonuses to
purchase up to 1,234,279 shares of Common Stock to employees, officers,
directors and consultants of the Company. The purposes of the Plan are to
encourage stock ownership by employees, officers, directors and consultants
of the Company so that they may acquire or increase their proprietary
interest in the Company, to (i) reward employees, officers, directors and
consultants for past services to the Company and (ii) encourage such
persons to become employed by or remain in the employ of or otherwise
continue their association with the Company and to put forth maximum
efforts for the success of the business of the Company.
The Plan is administered by a Committee consisting of the Board of
Directors or Compensation Committee, if appointed. At its discretion, the
Committee may determine the persons to whom Options may be granted and the
terms thereof. As noted above, the Committee may issue options to the
Board.
The terms of any Options granted under the Plan are not required to be
identical as long as they are not inconsistent with the express provisions
of the Plan. In addition, the Committee may interpret the Plan and may
adopt, amend and rescind rules and regulations for the administration of
the Plan.
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<PAGE>
Options may be granted as incentive stock options ("Incentive
Options") intended to qualify for special treatment under the Internal
Revenue Code of 1986, as amended (the "Code"), or as non-qualified stock
options ("Non-Qualified Options") which are not intended to so qualify.
Only employees of the Company are eligible to receive Incentive Options.
The period during which Options may be exercised may not exceed ten years.
The exercise price for Incentive Options may not be less than 100% of the
fair market value of the Common Stock on the date of grant; except that the
exercise price for Incentive Options granted to persons owning more than
10% of the total combined voting power of the Common Stock may not be less
than 110% of the fair market value of the Common Stock on the date of grant
and may not be exercisable for more than five years. The exercise price
for Non-Qualified Options may not be less than 85% of the fair market value
of the Common Stock on the date of grant. The Plan defines "fair market
value" as the last sale price of the Company's Common Stock as reported on
a national securities exchange or on the NASDAQ NMS or, if the quotation
for the last sale reported is not available for the Company's Common Stock,
the average of the closing bid and asked prices of the Company's Common
Stock as reported by NASDAQ or on the electronic bulletin board or, if
none, the National Quotation Bureau, Inc.'s "Pink Sheets" or, if such
quotations are unavailable, the value determined by the Committee in
accordance with its discretion in making a bona fide, good faith
determination of fair market value.
The Plan contains provisions for proportionate adjustment of the
number of shares issuable upon the exercise of outstanding Options and the
exercise price per share in the event of stock dividends, recapitalizations
resulting in stock splits or combinations or exchanges of shares.
In the event of the proposed dissolution or liquidation of the
Company, or any corporate separation or division, including, but not
limited to, split-up, split-off or spin-off, merger or consolidation of the
Company with another company in which the Company is not the survivor, or
any sale or transfer by the Company of all or substantially all its assets
or any tender offer or exchange offer for or the acquisition, directly or
indirectly, by any person or group for more than 50% of the then
outstanding voting securities of the Company, the Committee may provide
that the holder of each Option then exercisable will have the right to
exercise such Option (at its then current Option Price) solely for the kind
and amount of shares of stock and other securities, property, cash or any
combination thereof receivable upon such dissolution, liquidation,
corporate separation or division, merger or consolidation, sale or transfer
of assets or tender offer or exchange offer, by a holder of the number of
shares of Common Stock for which such Option might have been exercised
immediately prior to such dissolution, liquidation, or corporate separation
or division, merger or consolidation, sale or transfer of assets or tender
offer or exchange offer; or in the alternative the Committee may provide
that each Option granted under the Plan will terminate as of a date fixed
by the Committee; provided, however, that not less than 30 days written
notice of the date so fixed will be given to each recipient, who will have
the right, during the period of 30 days preceding such termination, to
exercise the Option to the extent then exercisable. To the extent that
Section 422(d) of the Code would not permit this provision to apply to any
outstanding Incentive Options, such Incentive Options will immediately upon
the occurrence of the dissolution or liquidation, etc., be treated for all
purposes of the Plan as Non-Qualified Options and shall be immediately
exercisable as such.
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Except as otherwise provided under the Plan, an Option may not be
exercised unless the recipient then is an employee, officer or director of
or consultant to the Company or a subsidiary of or parent to the Company,
and unless the recipient has remained continuously as an employee, officer
or director of or consultant to the Company since the date of grant of the
Option.
If the recipient ceases to be an employee, officer or director of, or
consultant to, the Company or a subsidiary or parent to the Company (other
than by reason of death, disability or retirement), other than for cause,
all Options theretofore granted to such recipient but not theretofore
exercised will terminate three months after the date the recipient ceased
to be an employee, officer or director of, or consultant to, the Company.
If the recipient ceases to be an employee, officer or director of, or
consultant to, the Company or a subsidiary or parent to the Company by
reason of termination for cause, all Options theretofore granted to such
recipient but not theretofore exercised will terminate thirty days after
the date the recipient ceases to be an employee, officer or director of, or
consultant to, the Company.
If a recipient dies while an employee, officer or director of or a
consultant to the Company, or if the recipient's employment, officer or
director status or consulting relationship, shall terminate by reason of
disability or retirement, all Options theretofore granted to such
recipient, whether or not otherwise exercisable, unless earlier terminated
in accordance with their terms, may be exercised by the recipient or by the
recipient's estate or by a person who acquired the right to exercise such
Options by bequest or inheritance or otherwise by reason of the death or
disability of the recipient, at any time within one year after the date of
death, disability or retirement of the recipient; provided, however, that
in the case of Incentive Options such one-year period will be limited to
three months in the case of retirement.
Options granted under the Plan are not transferable other than by will
or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act of 1974, or the rules thereunder. Options
may be exercised, during the lifetime of the recipient, only by the
recipient and thereafter only by his legal representative.
The Committee may suspend, terminate, modify or amend the Plan, but
without shareholder approval the Board may not materially increase the
number of shares as to which Options may be granted, change the eligibility
requirements for persons entitled to participate in the Plan or materially
increase the benefits to be received by any participant under the Plan.
The Board may not adversely affect any Option previously granted without
the consent of the participant. Unless sooner terminated, the Plan will
expire on May 31, 2000.
OPTION GRANTS
The following table sets forth certain information regarding options
to purchase shares of Common Stock issued to Executive Officers of the
Company during the fiscal year ended December 31, 1996:
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OPTION GRANTS IN 1996
Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise Expiration
Name Granted in 1996 Price Date
---- ------- ------- ----- ----
Joseph F. Dudziak 25,000(1) 10.8% $2.50 09/30/06
____________
(1) Options to purchase 5,000 shares vest each year Mr. Dudziak remains in
the employ of the Company, beginning September 30, 1997 and continuing
each September 30 thereafter. Once vested, the options are
exercisable for a ten year period.
There were no options exercised during the last fiscal year by the
Company's executive officers, and no value has been ascribed to their
unexercised options at December 31, 1996 as there was and is no public
market for the Company's Common Stock.
LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY
The Company's Articles of Incorporation limit the liability of
directors to shareholders for monetary damages for breach of a fiduciary
duty except in the case of liability: (i) for any breach of their duty of
loyalty to the Company or its shareholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) for unlawful distributions as provided in Section
7-108-403 of the Colorado Business Corporation Act; or (iv) for any
transaction from which the director derived an improper personal benefit.
The Company's Articles of Incorporation and Bylaws provide for the
indemnification of directors and officers of the Company to the maximum
extent permitted by law, including Section 7-109-102 of the Colorado
Business Corporation Act, against all liability and expense (including
attorneys' fees) incurred by reason of the fact that the officer or
director served in such capacity for the Company, or in a certain capacity
for another entity at the request of the Company. Section 7-109-102 of the
Colorado Business Corporation Act provides generally for indemnification of
directors against liability incurred as a result of actions, suits or
proceedings if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the Company. The
Company has entered into employment agreements with certain of its
employees which provide for indemnification in addition to the
indemnification provided for above. These agreements, among other things,
indemnify and hold harmless the employees against all claims, actions,
costs, expenses, damages and liabilities arising out of or in connection
with activities of the Company or its employees or other agents within the
scope of the employment agreements or as a result of being an officer or
director of the Company. Excluded is indemnification for matters resulting
from gross negligence or willful misconduct of
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the employee. The Company believes that these provisions and agreements
are necessary to attract and retain qualified persons as directors and
officers. Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act") may be permitted to
directors, officers and controlling persons of the Company pursuant to the
foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred
or paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the small business issuer will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
There is no pending litigation or proceeding involving a director,
officer, employee or other agent of the Company as to which indemnification
is being or may be sought, and the Company is not aware of any other
pending or threatened litigation that may result in claims for
indemnification by any director, officer, employee or other agent.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of the date hereof, the ownership
of the Company's Common Stock by (i) each director and executive officer of
the Company, (ii) all executive officers and directors of the Company as a
group, and (iii) all persons known by the Company to beneficially own more
than 5% of the Company's Common Stock prior to the Offering. The effect of
conversion of $516,200 of principal plus accrued interest of 10% Notes into
147,970 shares of Common Stock has been included in the percentages shown
below.
Amount and
Nature of Percent of Class
Name and Beneficial Before After
Address of Shareholder Ownership(1) Offering Offering
- ---------------------- ------------ -------- --------
Michael I. Ruxin, M.D.(1) (12) 913,417 (2) 18.3% 11.5%
12600 W. Colfax
Suite A-500
Lakewood, CO 80215
Joseph F. Dudziak(1) 46,833 (3) 0.9% 0.6%
12600 W. Colfax Ave.
Suite A-500
Lakewood, CO 80215
William J. Collard(1) (12) 630,206 (4)(5) 12.6% 7.9%
11121 Sun Center Drive
Suite C
Rancho Cordova, CA 95670
Gerald F. Willman, Jr.(1) (12) 882,514 (6) 17.8% 11.2%
11121 Sun Center Drive
Suite C
Rancho Cordova, CA 95670
Gregory R. Huls(1) -0- (7) -0-% -0-%
12600 W. Colfax Ave.
Suite A-500
Lakewood, CO 80215
Lori J. Willman(1) (12) 882,514 (8) 17.8% 11.2%
11121 Sun Center Drive
Suite C
Rancho Cordova, CA 95670
Timothy J. Pellegrini(1)(9)(12) 343,480 (9) 6.9% 4.3%
11121 Sun Center Drive
Suite C
Rancho Cordova, CA 95670
MDS (US) Inc.(1)(11) 325,000 6.5% 4.1%
100 International Blvd.
Etobicoke, Ontario
Canada M9W 6J6
Gordon Segal(10)(12) 263,417 (10) 5.3% 3.3%
550 5th Ave.
New York, NY 10019
John D. Gleason -0- -0-% -0-%
100 International Blvd.
Etobicoke, Ontario
Canada M9W 6J6
All Directors and 2,472,970 48.7% 30.9%
Executive Officers
as a group (6 persons)
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____________________
(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting
and investment power with respect to all such shares. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage
owned by such person, but are not deemed outstanding for the purpose
of calculating the percentage owned by each other person listed.
(2) Includes 6,667 shares underlying 10% Notes purchased by Michael I.
Ruxin, M.D. in the principal amount of $25,000, an estimated 500
shares from accrued interest on the 10% Notes and 6,250 shares
underlying warrants issued in connection with the purchase of the 10%
Notes. Dr. Ruxin has advised the Company he does not intend to
convert his 10% Notes into shares and therefore the principal and
accrued interest will be paid from the proceeds of this offering. See
USE OF PROCEEDS.
(3) Includes options exercisable from June 28, 1996 until June 27, 2006 to
purchase 20,000 shares at $2.45 per share, 13,333 shares underlying
10% Notes purchased by Joseph F. Dudziak in the principal amount of
$50,000, an estimated 1,000 shares from accrued interest on the 10%
Notes and 12,500 shares underlying warrants issued in connection with
the purchase of the 10% Notes. Does not include 105,000 shares
underlying the unvested portion of Mr. Dudziak's options.
(4) Includes 16,000 shares underlying 10% Notes purchased by William J.
Collard in the principal amount of $60,000, an estimated 1,200 shares
from accrued interest on the 10% Notes and 15,000 shares underlying
warrants issued in connection with the purchase of the 10% Notes. Mr.
Collard has advised the Company that he does not intend to convert his
10% Notes into shares and therefore the principal and accrued interest
will be paid from the proceeds of this offering. See USE OF PROCEEDS.
(5) William J. Collard has granted individual options to an employee of
Wyndgate to purchase all or any part of 1,633 of his shares of the
Company, exercisable until September 21, 2005.
(6) Includes 346,481 shares owned by Lori J. Willman, the spouse of Gerald
F. Willman, Jr. Gerald F. Willman, Jr. has granted individual options
to certain employees of Wyndgate to purchase all or any part of
109,434 of his shares of the Company, exercisable until September 21,
2005.
(7) Does not include 75,000 shares underlying the unvested portion of Mr.
Huls' option.
(8) Includes 536,033 shares owned by Gerald F. Willman, Jr., the spouse of
Lori J. Willman.
(9) Includes 5,000 shares underlying an option owned by Catherine
Pellegrini, the spouse of Mr. Pellegrini.
(10) Includes 6,667 shares underlying 10% Notes purchased by Gordon Segal
in the principal amount of $25,000, an estimated 500 shares from
accrued interest on the 10% Notes and 6,250 shares underlying warrants
issued in connection with the purchase of the 10% Notes.
(11) MDS (US) Inc., formerly known as MDS Inc., is a wholly owned
subsidiary of MDS Health Group Limited. The directors of MDS (US)
Inc. are Wilfred G. Lewitt, John A. Rogers and Douglas M. Phillips,
and the officers are Wilfred G. Lewitt, John A. Rogers, Douglas M.
Phillips, E.K. Rygiel, R.H. Yamada and Peter E. Brent.
(12) On November 14, 1996, Michael I. Ruxin, William J. Collard, Gerald F.
Willman, Jr., Lori J. Willman, Timothy J. Pellegrini and Gordon Segal
(collectively, the "Shareholders") entered into a Proxy and Right of
First Refusal Agreement (the "Shareholders Agreement") with ODSI
pursuant to which each of the Shareholders granted an irrevocable
proxy to ODSI to vote their shares of the Company's Common Stock (i)
in favor of a proposal to approve any definitive agreement between the
Company and ODSI relating to the Technology, or (ii) on any other
proposal relating to the sale of any of the stock of the Company or
all or substantially all of the assets of the Company or any of the
Technology, unless prior to the date of the shareholders' meeting, the
definitive agreement has been terminated under certain conditions.
Unless earlier terminated, the proxy granted by each of the
Shareholders expires November 14, 1997. Each of the Shareholders also
granted ODSI a right of first refusal to purchase the Shareholder's
shares until November 14, 1997, in the event such Shareholder proposes
to transfer, dispose of, or otherwise sell such Shareholder's shares
to any third party or grant to any third party an option or other
right to buy any shares of the Company's Common Stock held by such
Shareholder. See THE COMPANY -WYNDGATE TECHNOLOGIES DIVISION -
AGREEMENTS WITH ORTHO DIAGNOSTIC SYSTEMS INC.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 5, 1995, the shareholders of the Company approved a loan in the
amount of $161,500, with interest at 8% per annum, made by the Company to
Sonya M. Levine, the wife of Michael I. Ruxin, in 1994, which had not
previously been approved by the shareholders in accordance with Colorado
corporate law. Effective June 30, 1995, the Company forgave Ms. Levine's
note in consideration of the forgiveness of a note payable by the Company
to Dr. Ruxin in the same amount and at the same interest rate as Ms.
Levine's note.
In May 1996, Gordon Segal, a beneficial owner of over 5% of the
outstanding Common Stock of the Company, and Michael I. Ruxin, William J.
Collard, Joseph F. Dudziak and Bart K. Valdez, officers and directors of
the Company, purchased 10% Notes in the principal amounts of $25,000,
$25,000, $60,000, $50,000 and $11,200, respectively, in the 10% Note
offering by the Company. The notes are convertible into 6,667, 6,667,
16,000, 13,333 and 2,986 shares of the Company's Common Stock,
respectively, ($3.75 of principal amount per share). Drs. Segal and Ruxin
and Messrs. Collard, Dudziak and Valdez were also issued warrants to
purchase 6,250, 6,250, 15,000, 12,500 and 2,800 shares of the Company's
Common Stock, respectively, at $3.75 per share in connection with their
purchase of the 10% Notes. The purchases of the 10% Notes were on the same
terms and conditions as purchases by non-affiliates.
The Board of Directors of the Company has adopted resolutions that no
business transaction, loan or advance will be made by the Company to any
officer, director or holder of more than 5% of the Company's Common Stock,
or any affiliate thereof, unless it has been established that a bona fide
business purpose exists, that all future transactions between the Company
and its officers, directors, or principal shareholders, or any affiliate of
any of such person, must be approved or ratified by a majority of the
disinterested directors of the Company, and the terms of such transaction
must be no less favorable to the Company than could have been realized by
the Company in an arms-length transaction with an unaffiliated person. The
Company believes that all ongoing transactions with the Company's
affiliates are on terms no less favorable than could be obtained from
unaffiliated third parties.
The Board of Directors of the Company has also adopted a resolution
that provides that the areas of business in which the Company shall be
interested for the purpose of the doctrine of corporate opportunities shall
be the business of information management software products and services.
Any business opportunity which falls within such areas of interest must be
brought to the attention of the Company for acceptance or rejection prior
to any officer or director of the Company taking advantage of such
opportunity. John D. Gleason has been excluded from such requirement. Any
business opportunity outside such areas of interest may be entered into by
any officer or director of the Company without the officer or director
first offering the business opportunity to the Company.
Dr. Ruxin has personally guaranteed the Company's $1 million line of
credit and various leases totaling approximately $1.2 million.
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In June 1995, the Company agreed to pay approximately $20,000 in tax
liability incurred by the shareholders of The Wyndgate Group, Ltd. (an "S"
corporation) in connection with the merger between The Wyndgate Group, Ltd.
and the Company.
DESCRIPTION OF SECURITIES
UNITS
Each Unit consists of two shares of Common Stock and one Warrant.
The Common Stock and Warrants must be purchased together. The Common Stock
and the Warrants will not be separately tradeable or transferrable for a
period of six months from the date of this Prospectus or earlier at the
discretion of the Representative.
COMMON STOCK
The Company is authorized to issue up to 40,000,000 shares of Common
Stock, $.01 par value. There are 4,966,626 shares presently outstanding.
All shares of Common Stock have equal voting rights and, when validly
issued and outstanding, have one vote per share in all matters to be voted
upon by shareholders. There are approximately 119 holders of record of the
Company's Common Stock. The shares of Common Stock have no preemptive,
subscription, conversion or redemption rights and may be issued only as
fully paid and non-assessable shares. Cumulative voting in the election of
directors is not allowed, which means that the holders of a majority of the
outstanding shares represented at any meeting at which a quorum is present
will be able to elect all of the directors if they choose to do so and, in
such event, the holders of the remaining shares will not be able to elect
any directors. On liquidation of the Company, each common shareholder is
entitled to receive a pro rata share of the Company's assets available for
distribution to common stockholders.
The Company has outstanding options and warrants to purchase an
aggregate of 1,077,929 shares of Common Stock, including (i) 187,800
warrants outstanding issued in conjunction with the 10% Notes, at exercise
prices ranging from $1.00 to $3.75 per share and expiration dates ranging
from October 15, 1997 to September 30, 2006 and (ii) 150,000 warrants
issued in January, 1997 in connection with borrowing $450,000, which
warrants are exercisable at a price equal to 85% of the price per share of
the shares of Common Stock included in the Units. In addition to customary
anti-dilution provisions, the exercise price of the warrants may be
adjusted if the Company issues Common Stock or Common Stock purchase rights
at a price less than the then exercise price. Additionally, there are
137,646 shares (plus approximately 10,324 shares issuable upon conversion
of accrued interest) issuable upon conversion of the 10% Notes. The
Company has no stock option plan or similar plan which may result in the
issuance of stock options, stock purchase warrants or stock bonuses other
than: (i) the Amended and Restated Stock Option Plan adopted by the Company
pursuant to which an aggregate of 1,234,279 shares of Common Stock have
been reserved for issuance pursuant to options or warrants; and (ii) the
right of shareholders of the Company who purchased shares in the
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Company's May 1995 private placement to receive a "share adjustment" to the
extent the public offering price per share of Common Stock is less than
$4.90. Based upon an anticipated offering price per share of $3.50, an
additional 120,000 shares of Common Stock would be issuable to such
shareholders.
PREFERRED STOCK
The Company is authorized to issue up to a total of 10,000,000 shares
of preferred stock, $.01 par value, with the shares to be issued in series
by the Board of Directors. The Company's Board of Directors has designated
100,000 shares of preferred stock as Series A Preferred Stock, of which
66,667 were issued and subsequently converted into an equal number of
shares of the Company's Common Stock. The remaining shares of preferred
stock may be issued in one or more series from time to time with such
designations, rights, preferences and limitations as the Company's board of
directors may determine without approval of its shareholders. Series A
Preferred Stock has the same voting rights of Common Stock, except that
the holders of Series A Preferred Stock are entitled to elect as a class
one director to the Company's Board of Directors. The holders of the
Series A Preferred Stock shall be entitled to dividends when, as and if
declared on the same basis as the holders of the Company's Common Stock.
The rights, preferences and limitations of separate series of serial
preferred stock may differ with respect to such matters as may be
determined by the Company's Board of Directors, including without
limitation, the rate of dividends, method or nature or prepayment of
dividends, terms of redemption, amounts payable on liquidation, sinking
fund provisions, conversion rights and voting rights. The ability of the
Board to issue preferred stock could also be used by it as a means for
resisting a change of control of the Company and can therefore be
considered an "anti-takeover" device. The Company currently has no plans
to issue any shares of Preferred Stock.
10% NOTES
The $751,200 principal amount of outstanding 10% Notes accrue interest
at the rate of 10% per annum until maturity, which is 20 days after the
date of the closing of this Offering. See USE OF PROCEEDS. The dates of
the Notes vary from May 2, 1996 to June 25, 1996, depending upon the date
funds were received from subscribers. The 10% Notes may be prepaid in
whole or in part from time to time without penalty. The 10% Notes are
convertible to Common Stock at the rate of one share per $3.75 of interest
and principal due and payable. Holders of $516,200 in principal amount of
10% Notes have advised the Company they wish to convert the principal and
interest on their 10% Notes into an aggregate of 137,646 shares and
approximately 10,324 shares, respectively, of Common Stock upon the date
hereof. In addition, 187,800 shares of Common Stock are issuable upon
exercise of warrants issued in conjunction with the 10% Note offering.
WARRANTS
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Each Warrant entitles the holder hereof to purchase one share of
Common Stock at an exercise price of $_______(130% of the initial public
offering price of the Common Stock) per share, subject to adjustment in
certain events, at any time prior to ______, 2000.
Commencing on the date the Warrants are separately tradeable and
transferable, the Warrants are subject to redemption by the Company at $.55
per Warrant at any time until the end of the second year after the date of
this Prospectus and thereafter at $.75 per Warrant at any time until their
expiration, on 30 days' prior written notice to the holders of Warrants,
provided that the daily trading price per share of Common Stock has been as
least $________(120% of the Warrant exercise price) for a period of at
least 20 consecutive trading days ending within 10 days prior to the date
upon which the notice of redemption is given. For purposes of determining
the daily trading price of the Company's Common Stock, if the Common Stock
is listed on a national securities exchange, is admitted to unlisted
trading privileges on a national securities exchange, or is listed for
trading on a trading system of the NASD such as the NASDAQ Small Cap Market
or the NASDAQ/NMS, then the last reported sale price of the Common Stock on
such exchange or system each day shall be used or if the Common Stock is
not so listed on such exchange or system or admitted to unlisted trading
privileges then the average of the last reported high bid prices reported
by the National Quotation Bureau, Inc. each day shall be used to determine
such daily trading price. The Warrants will be exercisable until the close
of the business day preceding the date fixed for redemption, if any.
The Warrants will be issued in registered form pursuant to the terms
of a Warrant Agreement dated as of _______, 1997, (the "Warrant Agreement")
between the Company and American Securities Transfer & Trust Inc., as
Warrant Agent. Reference is made to said Warrant Agreement (which has been
filed as an Exhibit to the Registration Statement of which this Prospectus
is a part) for a complete description of the terms and conditions thereof.
The description herein is qualified in its entirety by reference to the
Warrant Agreement.
The exercise prices and number of shares of Common Stock or other
securities issuable on exercise of the Warrants are subject to adjustment
in certain circumstances, including in the event of a stock dividend, stock
split, recapitalization, reorganization, merger or consolidation of the
Company. Fractional shares will not be issued and such shares will have no
value.
The Warrants may be exercised upon surrender of the Warrant
certificate on or prior to the expiration date at the offices of the
Warrant Agent, with the exercise form on the reverse side of the Warrant
certificate completed and executed as indicated, accompanied by full
payment of the exercise price (by cashier's or certified check payable to
the Company) to the Warrant Agent for the number of warrants being
exercised. The Warrant holders do not have the rights or privileges of
holders of Common Stock.
DIVIDEND POLICY
Dividends are payable on Common Stock when, as, and if declared by the
Board of Directors out of funds legally available to pay dividends, subject
to any preferences which may
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be given to holders of preferred stock. The Company has paid no cash
dividends to date and it does not anticipate payment of cash dividends in
the foreseeable future.
STOCK TRANSFER AGENT
The Company has designated American Securities Transfer & Trust, Inc.
as its transfer agent for the Common Stock and as its Warrant Agent.
UNDERWRITING
The Underwriters named below, acting through the Representative, have
jointly and severally agreed, subject to the terms and conditions of the
Underwriting Agreement, to purchase from the Company and the Company has
agreed to sell to the Underwriters, the respective number of Units set
forth opposite their names below at the initial public offering price less
the underwriting discount set forth on the cover page of this Prospectus:
UNDERWRITERS NUMBER OF UNITS
R A F Financial Corporation
----------
Total
==========
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the securities offered
hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to
purchase 1,337,000 Units, if any are purchased.
The Underwriters propose to offer part of the Units offered hereby
directly to the public at the offering price and part of such Units to
certain dealers at a price that represents a concession within the
discretion of the Representative. The Underwriters do not intend to
confirm sales to accounts over which they exercise discretionary authority.
The Underwriters may allow, and such dealers may re-allow, a concession
within the discretion of the Representative. After the initial offering,
the offering price and the selling terms may be changed by the
Underwriters.
The Units offered by the Underwriters are subject to prior sale. The
Underwriters reserve the right to withdraw, cancel or modify such offer
(which may be done only by filing an amendment to the Registration
Statement) and to reject orders in whole or in part for the purchase of the
Units and to cancel any sale even after the purchase price has been paid if
such sale, in the opinion of the Underwriters, would violate federal or
state securities laws or a rule or policy of the NASD.
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The Company and the Underwriters have agreed to indemnity each other
and related persons against certain liabilities, including liabilities
under the Securities Act, and, if such indemnifications are unavailable or
are insufficient, the Company and the Underwriters have agreed to damage
contribution arrangements between them based upon the relative benefits
received from the Offering and the relative fault resulting in such
damages. Such relative benefits and relative fault would be determined in
legal actions among the parties. Under such contribution arrangements, the
maximum amount payable by any Underwriter would be the public offering
price of the Units underwritten and distributed by such Underwriter.
Except for the outstanding securities described herein and except upon
the exercise of the options and warrants described herein, the Company has
agreed not to sell any additional securities for six months after the date
of this Prospectus without the Representative's prior written consent. The
officers and directors of the Company, holders of more than 5% of the
Company's outstanding Common Stock prior to the Offering, and their
affiliates have entered into agreements which provide that such persons,
who own an aggregate of 3,333,933 shares of Common Stock, may not sell any
of such shares during a 13 month period commencing on the closing date of
the Offering. This restriction does not apply to nine persons who have
received options to purchase 111,067 shares of the Company's Common Stock
from William J. Collard and Gerald F. Willman, Jr. The agreements also
provide that any sales of Common Stock by such persons pursuant to Rule 144
will be executed through the Representative. See SHARES ELIGIBLE FOR
FUTURE SALE.
The Company has granted to the Underwriters an option exercisable for
30 days from the date of this Prospectus to purchase up to 200,550
additional Units from the Company at the respective Prices to Public less
the Underwriting Discounts solely to cover over-allotments, if any. In
addition, the Company has agreed to pay to the Representative at the
closing of the Offering, a non-accountable expense allowance of 3% of the
aggregate initial public offering price of the Units to cover expenses
incurred by the Representative in connection with the Offering, reduced by
$40,000 previously advanced by the Company.
The Company has agreed to issue for $100.00, warrants to the
Representative and its designees to purchase 133,700 Units (the
"Representative's Warrants). The Warrants are exercisable at any time
during the forty nine month period commencing 11 months after the date of
their issuance, at $_____ per Unit (165% of the initial public offering
price). The Representative's Warrants are not transferable except (i) to
an Underwriter or a partner or officer of an Underwriter or (ii) by will or
operation of law. Any profit realized on the sale of the Representative's
Warrants or the underlying securities may be deemed additional underwriting
compensation. Commencing one year and ending five years from the date
hereof, holders of the Representative's Warrants and the securities
underlying the Representative's Warrants will have a one time right to
demand registration of the securities underlying the Representative's
Warrants at the Company's expense. The Representative's Warrants, the
Units issuable upon exercise of the Representative's Warrants and the
shares of Common Stock underlying the Warrants included
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in such Units have been registered under the Securities Act by means of the
Registration Statement of which this Prospectus is a part.
Each of the Units issuable upon exercise of the Representative's
Warrants consists of two shares of Common Stock and one Warrant. Each of
such Warrants contains the same terms and conditions as the Warrants except
that (i) the exercise price of the Warrants included in the Units issuable
upon exercise of the Underwriter's Warrants will be 165% of the exercise
price of the Warrants, and (ii) these Warrants will not be transferable
except (i) to an Underwriter or a partner or officer of an Underwriter, or
(ii) by will or operation of law.
If any of the Representative's Warrants are exercised during the first
year after the date of this Prospectus, the Units and any underlying
securities acquired as a result of any such exercise may not be transferred
or assigned except to an Underwriter or a partner or an officer of an
Underwriter, or by will or operation of law until after the expiration of
such one year period.
For a period of three years from the date hereof, the Representative
has a preferential right to purchase for its account or to sell for the
account of the Company, or any parent or subsidiaries of the Company, any
securities with respect to which any of them may seek to sell, publicly or
privately, for cash.
The Price to Public of the Units has been determined by negotiations
between the Company and the Representative, with consideration being given
to the current status of the Company's business, its financial condition,
its present and prospective operations, the general status of the
securities market, and the market conditions for new offerings of
securities. The price bears no relationship to the assets, net worth, book
value, sales price of securities issued to shareholders of the Company, or
any other criteria of value.
The Company has agreed to give the Representative notice of meetings
of its Board of Directors and to grant access to such meetings to a
representative of the Representative. Any such representative will have no
official status or voting rights at any such meeting.
For a period of five years after the date of this Prospectus, the
Company has agreed to pay the Representative a consulting fee in connection
with any merger, consolidation, stock exchange or acquisition or sale of
all or a material part of the assets or business of any entity, if such
transaction involves the Company, its parent company, or any of its
subsidiaries, if such transaction was initiated by the Representative. The
total fee will be from 1% to 5% of the value of the transaction. In
connection with any such transaction, the Representative has agreed to
provide consulting services which are customary in the industry. If the
Company, its parent company, or any of its subsidiaries, proposes to engage
in any such type of transaction which is not initiated by the
Representative, but in connection with which the Company, its parent
company, or any of its subsidiaries, proposes to obtain services from an
investment banker, the Company has agreed that the Representative will have
the first opportunity to provide consulting
-70-
<PAGE>
services which are customary in the industry, in connection therewith. In
such event, the fee to be paid to the Representative will be 50% of the
total fee described above.
If the Representative, at its election, at any time one year after the
date of this Prospectus, solicits the exercise of the Warrants, the Company
will be obligated, subject to certain conditions, to pay the Representative
a solicitation fee equal to 10% of the aggregate proceeds received by the
Company as a result of the solicitation. No solicitation fee will be paid
within one year after the date of this Prospectus, no solicitation fee will
be paid if the market price of the Common Stock is lower than the then
exercise price of the Warrants, no solicitation fee will be paid if the
Warrants being exercised are held in a discretionary account at the time of
exercise, except where prior specific approval for exercise is received
from the person exercising the Warrants, and no solicitation fee will be
paid unless the person exercising the Warrants states in writing that the
exercise was solicited and designates in writing the Representative or
other broker-dealer to receive compensation in connection with the
exercise. The Representative may reallow a portion of the fee to
soliciting broker-dealers.
LEGAL MATTERS
Legal matters in connection with the shares of Common Stock and
Warrants being offered hereby have been passed on for the Company by the
law firm of Brenman Key & Bromberg, P.C., Denver, Colorado. Members of the
firm of Brenman Key & Bromberg, P.C. own 50,000 shares of the Company's
Common Stock. The law firm of Smith, McCullough & Ferguson, P.C., Denver,
Colorado has acted as legal counsel to the Representative in connection
with certain legal matters relating to the Offering.
EXPERTS
The consolidated financial statements of Global Med Technologies, Inc.
as of December 31, 1995 and 1994 and for the years then ended included in
this Prospectus and Registration Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports appearing
elsewhere herein, and are included in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
7,908,596 shares of Common Stock, which includes 137,646 shares (plus an
estimated additional 10,324 shares issuable upon conversion of accrued
interest) which are to be issued upon conversion of $516,200 principal
amount of 10% Notes and 120,000 shares of Common Stock issuable to certain
shareholders of the Company pursuant to the terms of a private placement
which provided for a share adjustment in the event the price per share in
the Company's initial public offering is less than $4.90 per share. The
shares of Common Stock offered hereby (other than those which may be
acquired by affiliates of the Company) will be freely tradeable, without
restrictions, under the
-71-
<PAGE>
Securities Act of 1933, as amended (the "Act"). Approximately 1,659,221
shares are "restricted securities" within the meaning of Rule 144 under the
Act, have been held in excess of two years, and, as a result, will be able
to be publicly sold 90 days after the date hereof in the event a public
market for the Company's Common Stock develops. Holders of 4,133,933
shares have entered into a lock up agreements with the Representative.
See UNDERWRITING.
In general, under Rule 144, as currently in effect, any person (or
persons whose shares are aggregated), including persons deemed to be
affiliates, whose restricted securities have been fully paid for and held
for at least two years from the later of the date of payment therefor to
the Company or acquisition thereof from an affiliate, may sell such
securities in brokers' transactions or directly to market makers, provided
that the number of shares sold in any three month period may not exceed the
greater of 1% of the then outstanding Common Stock or the average weekly
trading volume of the Common Stock during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain notice
requirements and the availability of current public information about the
Company. After three years have elapsed from the later of the issuance of
restricted securities by the Company or their acquisition from an
affiliate, such securities may be sold without limitation by persons who
are not affiliates under Rule 144.
Sales of substantial amounts of Common Stock by shareholders of the
Company under Rule 144 or otherwise, or even the potential for such sales,
are likely to have a depressive effect on the market price of the Units,
Common Stock and Warrants and could impair the Company's ability to raise
capital through the sale of its equity securities.
CONCURRENT REGISTRATION BY SELLING SHAREHOLDERS
The Company has registered under the Registration Statement of which
this Prospectus is a part, 1,285,770 shares of Common Stock which includes
(i) 800,000 shares which the Company has agreed to register on behalf of
purchasers in the Company's Private Placement completed in September, 1996,
(ii) 137,646 shares to be issued to holders of the 10% Notes who have
elected to convert their 10% Notes to shares of Common Stock, plus
approximately 10,324 shares to be issued in exchange for interest on such
10% Notes, (iii) 187,800 shares of Common Stock underlying warrants
issued in connection with the sale of the 10% Notes and (iv) 150,000 shares
of Common Stock underlying warrants exercisable at 85% of the price per
share of Common Stock included in the Units. The shares of Common Stock
and warrants are held by 87 persons. Included in the persons who hold
securities to be sold under the Registration Statement are Joseph F.
Dudziak, President of the Company, Bart K. Valdez, Director of Operations
of DataMed and LMU & Company, a consultant to the Company. After the
completion of this offering, the Company will amend its Registration
Statement and this Prospectus to permit such persons to publicly offer and
sell all such shares of Common Stock.
-72-
<PAGE>
ADDITIONAL INFORMATION
The Company has filed a Registration Statement under the Securities
Act of 1933, as amended with respect to the securities offered hereby with
the United States Securities and Exchange Commission ("SEC"), 450 Fifth
Street, N.W., Washington, D.C. 20549. This Prospectus, which is a part of
the Registration Statement, does not contain all of the information
contained in the Registration Statement and the exhibits and schedules
thereto, certain items of which are omitted in accordance with the rules
and regulations of the SEC. For further information with respect to the
Company and the securities offered hereby, reference is made to the
Registration Statement, including all exhibits and schedules therein, which
may be examined at the SEC's Washington, D.C. office, 450 Fifth Street,
N.W., Washington, D.C. 20549 without charge, or copies of which may be
obtained from the SEC upon request and payment of the prescribed fee.
Statements made in this Prospectus as to the contents of any contract,
agreement or document are not necessarily complete, and in each instance
reference is made to the copy of such contract, agreement or other document
filed as an exhibit to the Registration Statement, and each such statement
is qualified in its entirety by such reference. As of the date of this
Prospectus, the Company became a reporting company under the Securities
Exchange Act of 1934, as amended, and in accordance therewith in the future
will file reports and other information with the SEC. All of such reports
and other information may be inspected and copied at the public reference
facilities maintained by the SEC at the address set forth above in
Washington, D.C. and at regional offices of the SEC located at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, Suite 1300, New York, New York 10048. In addition, the Company
intends to provide its shareholders with annual reports, including audited
financial statements, unaudited semi-annual reports and such other reports
as the Company may determine. The SEC maintains a Web site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC at http://www.secgov.
-73-
<PAGE>
GLOSSARY
COMMUNITY BLOOD CENTERS - Community Blood Centers or CBCs are the not for
profit blood centers usually affiliated with the local city or community.
These are different from the American Red Cross Blood Centers that maintain
national affiliation.
DONOR IDENTIFICATION AND LABORATORY COMPONENT LABELING AND RELEASE SITE-BASED
LOGIC - Multiple-occurring program logic that is designed to help
control and help manage those areas of a blood center's operation in which
the hazard potential of the purity, potency and safety of the blood and
blood products effects a recognized level of concern.
EDEN-OA(R) - EDEN-OA(R) (OA is for Open Architecture) is the proprietary
Wyndgate application development product and environment used as a basis
for the SAFETRACE(TM) software product. It provides basic functions
common to applications plus maintenance management features and processes.
FDA 510(k) - FDA 510(k) refers to the Federal Drug Administration process
number 510(k) which governs a clearance letter distributed by the FDA.
Software such as the SAFETRACE(TM) software product is classified as a
medical device. The 510(k) process is a stringent set of testing,
verification and review of products like the SAFETRACE(TM) software
product.
GUI - GUI refers to the Graphical User Interface, most commonly seen as the
icon driven windows on PC's. Special tools are needed to develop GUI
windows.
HELP LINE - Help Line refers to the service line number provided by
Wyndgate for use of its customers to receive assistance regarding Wyndgate
products. Wyndgate provides a 1-800 number for its customers who have a
maintenance contract.
MODULE - Refers to pieces of applications computer code used to perform a
certain set of tasks or functions. Generally, modules have a name
commensurate with the major function of that set of computer code, e.g.,
Billing Module refers to handling the processing of invoices.
MRO - Medical Review Officer
SAFETRACE(TM) Software Product - The SAFETRACE(TM) software product is the
blood bank information management system developed by Wyndgate using
EDEN-OA(R) in conjunction with eight California blood centers. The
SAFETRACE(TM) software product contains the following application modules:
Donor Recruitment; Donor Management; Laboratory Management; Special
Procedures; Inventory-Distribution; and Billing.
-74-
<PAGE>
SAFETRACETX(TM) Software Product - The SAFETRACETX(TM) software product is
the transfusion management software system under development. This
transfusion system, if fully developed, will service hospitals and those
blood centers that not only supply blood or blood components to a hospital
but also manage the transfusion process.
SUBSTANCE ABUSE - Substance abuse refers to the use of chemical products
which may have an adverse effect on humans. Classified under substance
abuse are drugs such as cocaine and heroin and chemicals such as alcohol.
-75-
<PAGE>
Consolidated Financial Statements
GLOBAL MED TECHNOLOGIES, INC.
(formerly Global Data Technologies, Inc.)
Nine months ended September 30, 1996 and 1995
(unaudited) and years ended December 31, 1995 and
1994 with Report of Independent Auditors
<PAGE>
Global Med Technologies, Inc.
Consolidated Financial Statements
Nine months ended September 30, 1996 and 1995 (unaudited)
and years ended December 31, 1995 and 1994
CONTENTS
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . .F-1
Consolidated Financial Statements
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . . .F-2
Consolidated Statements of Operations. . . . . . . . . . . . . . . . .F-4
Consolidated Statements of Stockholders' Equity (Deficit) . . . . . .F-5
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . .F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . .F-8
<PAGE>
Report of Independent Auditors
Board of Directors
Global Med Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Global Med
Technologies, Inc. (formerly Global Data Technologies, Inc.) and divisions
as of December 31, 1995 and 1994, and the related consolidated statements
of operations, stockholders' equity (deficit), and cash flows for the years
then ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about 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. We believe that our audits
provide a reasonable basis for our opinion.
Since the date of completion of our audit of the accompanying financial
statements and initial issuance of our report thereon dated May 15, 1996,
the Company, as discussed in Note 1, has experienced losses and working
capital deficiencies that adversely affect the Company's current results of
operations and liquidity. Note 1 describes management's plan to address
these issues.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Global Med
Technologies, Inc. and divisions at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
---------------------------
Ernst & Young LLP
Denver, Colorado
May 15, 1996,
except for Note 1, as
to which the date is
November 13, 1996
F-1
<PAGE>
Global Med Technologies, Inc.
Consolidated Balance Sheets
DECEMBER 31 SEPTEMBER 30
1995 1994 1996
---------------------------------------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $ 421,743 $ 309,851 $ 587,724
Accounts receivable-trade,
net of allowance for
uncollectible accounts
of $200,000, $56,000
and $200,000 at December
31, 1995 and 1994 and
September 30, 1996,
respectively 607,987 671,218 2,420,327
Unbilled receivables, net 306,975 257,677 1,084,490
Prepaid expenses and
other assets 23,316 47,020 104,320
Deferred offering costs - - 350,000
Deferred income taxes - 36,229 -
---------------------------------------
Total current assets 1,360,021 1,321,995 4,546,861
Note receivable - - 250,000
Equipment and fixtures, at cost:
Furniture and fixtures 206,471 70,000 193,117
Machinery and equipment 432,162 259,435 384,349
Computer and software 723,536 133,042 1,139,627
---------------------------------------
1,362,169 462,477 1,717,093
Less accumulated depreciation
and amortization (404,556) (311,105) (428,860)
---------------------------------------
957,613 151,372 1,288,233
Capitalized software development
costs, less accumulated
amortization of $65,852,
$15,502 and $114,582 at
December 31, 1995 and 1994
and September 30, 1996,
respectively 403,228 294,627 424,498
---------------------------------------
Total assets $2,720,862 $1,767,994 $6,509,592
=======================================
F-2
<PAGE>
Global Med Technologies, Inc.
Consolidated Balance Sheets
DECEMBER 31 SEPTEMBER 30
1995 1994 1996
---------------------------------------
LIABILITIES AND STOCKHOLDERS' (UNAUDITED)
EQUITY (DEFICIT)
Current liabilities:
Accounts payable $1,457,263 $ 586,215 $1,779,905
Accrued expenses 296,293 151,445 1,244,860
Accrued payroll and other 187,661 53,050 408,978
Accrued vacation 261,100 90,342 420,000
Noncompete accrual 325,000 - 150,000
Unearned revenue 271,188 304,408 669,158
Short-term debt 500,100 250,100 970,100
Notes payable - - 751,200
Current portion of capital
lease obligations 232,813 24,151 402,968
---------------------------------------
Total current liabilities 3,531,418 1,459,711 6,797,169
Capital lease obligations,
less current portion 647,929 23,059 804,517
Deferred income taxes - 7,498 -
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.01 par value:
Authorized shares - 40,000,000
Issued and outstanding shares
- 3,949,629, 3,619,221 and
4,966,626 at December 31, 1995
and 1994 and September 30,
1996, respectively 39,496 36,192 49,666
Preferred stock, $.01 par value:
Authorized shares - 10,000,000
None issued or outstanding - - -
Additional paid-in capital 1,701,629 719,386 4,131,967
Accumulated deficit (3,199,610) (477,852) (5,273,727)
---------------------------------------
Total stockholders' equity
(deficit) (1,458,485) 277,726 (1,092,094)
---------------------------------------
Total liabilities and
stockholders' equity (deficit) $2,720,862 $1,767,994 $6,509,592
=======================================
See accompanying notes.
F-3
<PAGE>
Global Med Technologies, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
YEAR ENDED DECEMBER 31 (UNAUDITED)
1995 1994 1996 1995
--------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Drug testing and other $ 5,740,487 $ 3,836,136 $ 4,680,448 $ 3,957,936
Software sales and consulting 933,631 1,140,119 4,249,101 883,578
--------------------------------------------------
6,674,118 4,976,255 8,929,549 4,841,514
Cost of sales and product
development 3,217,595 2,429,789 5,016,101 2,308,078
--------------------------------------------------
Gross profit 3,456,523 2,546,466 3,913,448 2,533,436
Operating expenses:
Payroll and other 1,998,452 708,718 1,574,799 1,431,242
General and administrative 1,478,666 605,459 1,418,894 1,240,230
Sales and marketing 1,731,533 657,988 1,903,569 1,471,986
Research and development 654,500 403,714 547,387 442,342
Depreciation and amortization 116,979 51,504 347,399 72,218
--------------------------------------------------
Income (loss) from operations (2,523,607) 119,083 (1,878,600) (2,124,582)
Other income (expense):
Interest income (expense), net (61,112) 6,339 (179,464) (20,581)
Other (70,608) - (16,053) (4,943)
--------------------------------------------------
Income (loss) before provision
for (benefit from)
income taxes (2,655,327) 125,422 (2,074,117) (2,150,106)
Provision for (benefit from)
income taxes 29,531 (46,825) - (108,758)
--------------------------------------------------
Net income (loss) $(2,684,858) $ 172,247 $(2,074,117) $(2,041,348)
==================================================
Net income (loss) per
common share $(.59) $.04 $(.44) $(.45)
Common shares used in
computing net income
(loss) per common share 4,579,848 4,379,028 4,679,028 4,546,547
</TABLE>
See accompanying notes.
F-4
<PAGE>
Global Med Technologies, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 3,619,221 $36,192 $ 719,386 $ (650,099) $ 105,479
Net income - - - 172,247 172,247
--------------------------------------------------------------
Balance, December 31, 1994 3,619,221 36,192 719,386 (477,852) 277,726
Issuance of common stock 300,000 3,000 732,000 - 735,000
Issuance of common stock-
finder's fee 30,408 304 74,196 - 74,500
Issuance of common stock
warrants - - 15,000 - 15,000
Compensation related to
issuance of common stock
options by principal
stockholders - - 161,047 - 161,047
Distribution to stockholders
(Wyndgate) - - - (36,900) (36,900)
Net loss - - - (2,684,858) (2,684,858)
--------------------------------------------------------------
Balance, December 31, 1995 3,949,629 39,496 1,701,629 (3,199,610) (1,458,485)
Issuance of common stock-
exercise of common stock
warrants (unaudited) 150,000 1,500 448,500 - 450,000
Issuance of preferred stock
converted to common stock
(unaudited) 66,667 667 249,333 - 250,000
Issuance of common stock
under employee's stock
option plan (unaudited) 330 3 505 - 508
Issuance of common stock
(unaudited) 800,000 8,000 1,732,000 1,740,000
Net loss (unaudited) - - - (2,074,117) (2,074,117)
--------------------------------------------------------------
Balance, September 30, 1996
(unaudited) 4,966,626 $49,666 $4,131,967 $(5,273,727) $(1,092,094)
==============================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
Global Med Technologies, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
YEAR ENDED DECEMBER 31 (UNAUDITED)
1995 1994 1996 1995
----------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(2,684,858) $ 172,247 $(2,074,117) $(2,041,348)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 167,329 51,504 396,129 107,893
Loss on disposal of assets 49,857 - 16,053 4,943
Issuance of common stock options
by principal stockholders 161,047 - - 161,047
Issuance of common stock-finder's fee 74,500 - - 74,500
Changes in operating assets and
liabilities:
Accounts receivable-trade, net 63,231 (29,479) (1,812,340) (120,603)
Unbilled receivables, net (49,298) (14,744) (777,515) 77,932
Note receivable - - (250,000) -
Short-term investments - 98,450 - -
Prepaid expenses and other assets 23,704 (18,572) (81,004) 14,541
Deferred income taxes 28,731 (47,625) - 121,376
Accounts payable 871,048 191,099 322,642 414,495
Accrued payroll and other 134,611 17,294 221,317 90,413
Accrued expenses 144,848 49,369 948,567 107,387
Accrued vacation 170,758 29,451 158,900 170,758
Noncompete accrual 325,000 - (175,000) 350,000
Unearned revenue (33,220) (160,236) 397,970 34,239
--------------------------------------------------
Net cash provided by (used in)
operating activities (552,712) 338,758 (2,708,398) (432,427)
INVESTING ACTIVITIES
Purchases of equipment and fixtures (31,653) (26,990) (113,754) (109,012)
Increase in software development costs (158,951) (271,058) (70,000) (158,951)
--------------------------------------------------
Net cash used in investing activities (190,604) (298,048) (183,754) (267,963)
FINANCING ACTIVITIES
Borrowings on short-term debt 1,354,500 820,000 575,000 1,204,500
Principal payments on short-term
debt (1,104,500) (731,150) (105,000) (1,104,500)
Principal payments under capital
lease obligations (107,892) (30,391) (253,575) (44,166)
Issuance of notes payable - - 751,200 -
Issuance of common stock 735,000 - 2,440,508 735,000
Deferred offering costs - - (350,000) -
Issuance of common stock warrants 15,000 - - 15,000
Distribution to
stockholders (Wyndgate) (36,900) - - (36,900)
--------------------------------------------------
Net cash provided by financing
activities 855,208 58,459 3,058,133 768,934
--------------------------------------------------
</TABLE>
F-6
<PAGE>
Global Med Technologies, Inc.
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
YEAR ENDED DECEMBER 31 (UNAUDITED)
1995 1994 1996 1995
------------------------------------------------
<S> <C> <C> <C> <C>
Net increase in cash and
cash equivalents $111,892 $ 99,169 $165,981 $ 68,544
Cash and cash equivalents at
beginning of period 309,851 210,682 421,743 309,851
------------------------------------------------
Cash and cash equivalents at
end of period $421,743 $309,851 $587,724 $378,395
================================================
</TABLE>
Supplemental disclosures:
The Company entered into capital lease obligations of $941,424 and
$51,653 in 1995 and 1994, respectively, and entered into capital lease
obligations of $580,318 and $335,944 during the nine months ended
September 30, 1996 and 1995, respectively. The Company paid income
taxes of $800 in both 1995 and 1994. Interest expense approximates
interest paid. During 1996, the Company completed a private placement
whereby it issued 66,667 shares of Series A convertible preferred
stock at $3.75 per share which were converted into 66,667 shares of
common stock (See Note 11). During 1994, the Company paid $161,500 to
a related party in exchange for a note receivable which accrued
interest at 8% per year. During 1995, the Company forgave the note
receivable in consideration of the forgiveness of a note payable from
the Company to a principal stockholder which also was for $161,500 and
which also accrued interest at 8% per year.
See accompanying notes.
F-7
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements
(Information subsequent to December 31, 1995 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
On May 23, 1995, The Wyndgate Group, Limited (Wyndgate) merged with
National MRO, Inc. (National MRO) in accordance with the terms and
provisions of an Agreement of Merger and National MRO changed its name to
Global Data Technologies, Inc., which subsequently changed its name to
Global Med Technologies, Inc. (the Company). Also, the National MRO and
Wyndgate divisions are now referred to as DataMed International (DataMed)
and Wyndgate Technologies, respectively. All shares of Wyndgate common
stock were exchanged for a total of 1,960,000 shares of common stock of
the Company. This merger transaction was accounted for as a pooling of
interests; therefore, the Company's financial statements include the results
of operations as if the merger had been consummated at the beginning of all
periods presented. Subsequent to the merger, the businesses of both
Wyndgate and DataMed have been operated as divisions of the Company. The
Company incurred expenses related to the merger of $164,500, which included
a $130,000 finder's fee, which consisted of $74,500 in common stock of the
Company and $55,500 in cash, and $34,500 related to legal and other fees.
The related merger costs are included in general and administrative
expenses in the accompanying consolidated statement of operations.
Separate results of operations for the periods up to the date of the merger
are as follows (operating results for the period ended May 23, 1995
approximate the results for the period ended June 30, 1995, as shown):
JANUARY 1, 1995 JANUARY 1, 1994
TO TO
JUNE 30, 1995 DECEMBER 31, 1994
------------------------------------
Net sales:
National MRO $2,380,790 $3,836,136
Wyndgate 883,578 1,140,119
--------------------------------
Combined $3,264,368 $4,976,255
================================
Net income (loss):
National MRO $ (93,344) $ (140,141)
Wyndgate 76,266 312,388
--------------------------------
Combined $ (17,078) $ 172,247
================================
F-8
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
(Information subsequent to December 31, 1995 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LIQUIDITY AND MANAGEMENT'S PLANS
The Company is involved in the development of certain software products for
the blood bank industry as well as in the operation of substance abuse
testing and medical surveillance management services, including medical
review functions, data management, record storage and coordination of all
substance abuse testing program elements.
The development of the businesses has resulted in losses, which aggregated
$3,199,610 and $5,273,727 at December 31, 1995 and September 30, 1996,
respectively. In addition, the Company had working capital deficits of
$2,171,397 and $2,250,308 at December 31, 1995 and September 30, 1996,
respectively. Management intends to fund these deficiencies from the
proceeds of an initial public offering.
DESCRIPTION OF BUSINESS
The Company and its two divisions are in the business of providing
information management software products and substance abuse testing and
medical surveillance management services, including medical review
functions, data management, record storage and coordination of all
substance abuse testing program elements. The Company serves
international, national and regional clients in a variety of industries.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its divisions. All significant intercompany accounts and
transactions have been eliminated.
REVENUE RECOGNITION
Revenue from substance abuse testing services is recognized as services are
provided.
Revenue from sales of software licenses is recognized upon delivery of the
software product to the customer, unless the Company has significant
related vendor obligations remaining. When significant obligations remain
after the software product has been delivered, revenue is not recognized
until such obligations have been completed or are no longer significant.
The costs of any insignificant obligations are accrued when the related
revenue is recognized.
F-9
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
(Information subsequent to December 31, 1995 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue from postcontract customer support is recognized over the period
the customer support services are provided, and software services revenue
is recognized as services are performed.
Revenue from software development contracts is recognized on a
percentage-of-completion method with progress to completion measured
based upon labor costs incurred or achievement of contract milestones.
Revenue from the sale of hardware and software, obtained from vendors, is
recognized at the time the hardware and software are delivered to the
customer.
UNBILLED RECEIVABLES, NET
Unbilled amounts at December 31, 1995 and 1994 and September 30, 1996 have
been reduced by an allowance for doubtful accounts of $100,000, $0 and
$100,000, respectively, and are generally billable and collectible within
one year.
UNEARNED REVENUE
Included in unearned revenue at December 31, 1995 and September 30, 1996 is
approximately $200,000 and $70,000, respectively, of unperformed
professional services related to an agreement between the Royalty Group and
Wyndgate (see Note 9).
SIGNIFICANT CUSTOMERS
During 1995, three of the Company's customers-Laidlaw Transit, Inc.,
Chevron Corporation, and the Royalty Group (see Note 9)-accounted for
approximately 18%, 12% and 10% respectively, of the Company's revenues.
During 1994, two of the Company's customers-Chevron Corporation and the
Royalty Group-accounted for approximately 19% and 18% respectively, of the
Company's revenues.
During the nine months ended September 30, 1996, two of the Company's
customers-Laidlaw Transit, Inc. and Gulf Coast Regional Blood Center-each
accounted for approximately 13% and 13.5% respectively, of the Company's
revenues.
Accounts receivable from principal customers were approximately, $516,000,
$119,000 and $855,000 at December 31, 1995, December 31, 1994, and
September 30, 1996, respectively. Unbilled receivables from principal
customers were approximately $198,000, $68,000 and $314,000, at December
31, 1995, December 31, 1994 and
F-10
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
(Information subsequent to December 31, 1995 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
September 30, 1996, respectively. In order to reduce credit risk, the
Company requires substantial down payments and progress payments during the
course of an installation of Wyndgate's software products. See further
discussion of credit and market risks below.
CREDIT AND MARKET RISK
Accounts receivable from the sale of substance abuse testing program
services are due from customers primarily located throughout the United
States in transportation and other various industries. Accounts receivable
from the sale of software licenses and other postcontract support are
derived entirely from sales to blood banks and universities. The Company
performs ongoing credit evaluations of its customers' financial conditions
and maintains allowances for potential credit losses. The Company
generally does not require collateral or other security to support customer
receivables. The Company establishes allowances for doubtful accounts
based upon factors surrounding the credit risk specific to customers,
historical trends and other information. Actual losses, allowances and
accounts receivable turnover trends generally have been within management's
expectations. The provision for doubtful accounts included in general and
administrative expenses was $244,000 in the year ended December 31, 1995
and $156,000 during the nine months ended September 30, 1996.
FOREIGN CURRENCY AND INFLATION RISK
The Company believes sales to customers in foreign countries and operations
located in foreign countries have not been material. Additionally, the
Company believes foreign currency translation gains (losses) and domestic
inflation have not had a material effect on the Company's financial
position or results of operations.
EQUIPMENT AND FIXTURES
Equipment and fixtures are stated at cost. Depreciation and amortization,
which includes amortization of assets under capital leases (see Note 4), is
based on the straight-line method over the following estimated useful
lives:
Furniture and fixtures 3 - 5 years
Machinery and equipment 3 - 5 years
Computer and software 3 - 5 years
F-11
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
(Information subsequent to December 31, 1995 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments approximate
fair value due to the short maturity of these items.
LONG-LIVED ASSETS
In March 1995, the FASB issued Statement of Financial Accounting Standard
No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF (SFAS No. 121), which requires impairment
losses to be recorded on long-lived assets used in operations when
indications of impairment are present. The Company is required to adopt
SFAS No. 121 in the year ended December 31, 1996 and, based on current
circumstances, does not believe the effect of adoption will be material.
SOFTWARE DEVELOPMENT COSTS
Certain software development costs incurred after the technological
feasibility of the related software development product has been
established are capitalized and amortized on a straight-line basis over the
life of the related software product. Costs incurred prior to the
establishment of the technological feasibility of the related software
product are expensed as incurred as research and development. Costs of
maintenance and customer support are expensed as incurred. Amortization of
capitalized costs commences when the product is available for general
release to the public or when software development revenue has begun to be
recognized. Amortization of capitalized software development costs was
$50,350 and $15,282 for the years ended December 31, 1995 and 1994,
respectively, and is included in cost of sales in the accompanying
consolidated statements of operations.
MALPRACTICE INSURANCE
The Company maintains its malpractice insurance coverage on a claims made
basis through a commercial insurance carrier. Should the current claims
made policy not be renewed or replaced with equivalent insurance at a
future date, claims based on occurrences during its term but subsequently
reported will be uninsured. Based upon historical experience, the
Company's management believes the Company has adequately provided for the
ultimate liability, if any, from the settlement of such potential claims.
F-12
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
(Information subsequent to December 31, 1995 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
In October 1995, the FASB issued Statement of Financial Accounting Standard
No. 123, ACCOUNTING AND DISCLOSURE OF STOCK-BASED COMPENSATION (SFAS No.
123). SFAS No. 123 is applicable for fiscal years beginning after December
15, 1995 and gives the option to follow either fair value accounting or
Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES (APB No. 25), and related Interpretations.
The Company has elected to continue to follow APB No. 25 and related
Interpretations in accounting for outstanding stock options. Under APB No.
25, because the exercise price of the Company's stock options equals or
exceeds the market price of the underlying stock on the date of grant, no
compensation is recognized. However, the Company will be required to
provide fair value disclosures relating to stock options effective with the
year ended December 31, 1996.
STATEMENTS OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less
when purchased to be cash equivalents.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standard No. 109, ACCOUNTING FOR INCOME TAXES (SFAS
No. 109), which requires that the Company account for income taxes using
the liability method. Under SFAS No. 109, deferred income taxes are
provided for temporary differences in recognizing certain income and
expense items for financial reporting and tax reporting purposes. Upon
completion of the merger in May 1995, Wyndgate terminated its S corporation
status and began providing for current and deferred income taxes as a C
corporation as part of the Company. Accordingly, Wyndgate adopted SFAS No.
109 in May 1995, and the statement of operations for the year ended
December 31, 1995 includes a one-time charge (included in the provision for
income taxes) of approximately $150,000 to record the related deferred tax
liability. The following supplemental net income (loss) eliminates the
one-time charge and reflects income tax expense in all periods presented.
Supplemental net income (loss) is ($2,834,771) and $46,979 for the years
ended December 31, 1995 and 1994, respectively.
F-13
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
(Information subsequent to December 31, 1995 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME (LOSS) PER COMMON SHARE
Earnings per common share is based upon the weighted average of common and
common equivalent shares outstanding during the period. Primary and fully
diluted earnings per share are the same. Pursuant to Securities and
Exchange Commission Staff Accounting Bulletins and Staff Policy, common and
common equivalent shares issued during the 12-month period prior to an
initial public offering at prices below the public offering price are
presumed to have been issued in contemplation of the public offering, even
if antidilutive, and have been included in the calculation as if these
common and common equivalent shares were outstanding for all periods
presented (using the treasury stock method, and the estimated initial
public offering price for the Company's common stock).
The Company has filed a Registration Statement under Form SB-2 covering the
proposed sale of 1,337,000 Units, each consisting of two shares of common
stock and one Class A common stock purchase warrant in an initial public
offering (the Offering). Management intends to use a portion of the
proceeds from the Offering to repay borrowings under the Company's
revolving line of credit and notes payable. If the Offering had occurred
on January 1, 1995, the loss per common share would have been ($.56) and
($.42) for the year ended December 31, 1995 and the nine months ended
September 30, 1996, respectively.
ACCOUNTING ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
RECLASSIFICATION
Beginning in 1996, certain expenses which were previously classified as
general and administrative expenses and as payroll and other expenses have
been reclassified to cost of sales and product development and to sales and
marketing expenses to more accurately reflect the Company's cost structure.
All prior year amounts have been reclassified to conform with the current
period's presentation.
F-14
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
(Information subsequent to December 31, 1995 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Certain other prior year amounts have been reclassified to conform with the
current period's presentation.
2. NONCOMPETE AGREEMENTS
During 1995, the Company entered into noncompete agreements with certain
key employees for $350,000. The terms of the agreements are for the
greater of five years or the term of the related employee's employment
contract. Of the $350,000, $25,000 was paid in 1995, $175,000 was paid in
1996, with the remaining $150,000 payable in 1996 or whenever cash is
available. The entire amount of $350,000 was expensed in the second half
of 1995 and is included in general and administrative expenses in the
accompanying consolidated statement of operations.
3. INCOME TAXES
The components of income tax expense for the years ended December 31, 1995
and 1994 are as follows:
1995 1994
-------------------------
Provision for (benefit from) income taxes:
Current:
State $ 800 $ 800
Deferred:
Federal 25,048 (42,612)
State 3,683 (5,013)
-------------------------
Total deferred 28,731 (47,625)
-------------------------
Provision for (benefit from) income taxes $29,531 $(46,825)
=========================
The Company has net operating loss carryforwards of approximately
$1,253,000 which expire in the years 2006 to 2010. Such net operating loss
carryforwards may be subject to separate return limitation laws.
F-15
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
(Information subsequent to December 31, 1995 is unaudited)
3. INCOME TAXES (CONTINUED)
The components of the deferred tax provision (benefit), which arise from
timing differences between financial and tax reporting, are presented
below:
1995 1994
-------------------------
Cash to accrual adjustment $(250,208) $ (48,534)
Allowance for uncollectible
accounts receivable (96,380) (1,900)
Accelerated depreciation 12,141 3,800
Noncompete accrual (128,375) -
Accrued vacation (67,450) (991)
Net operating loss carryforward (449,872) (27,101)
Valuation allowance 1,008,875 27,101
-------------------------
Total deferred provision (benefit) $ 28,731 $(47,625)
=========================
Variations from the federal statutory rate are as follows:
1995 1994
--------------------------
Expected provision for (benefit from)
federal income taxes at statutory rate
of 34% $(902,811) $ 42,643
Termination of S corporation election
by Wyndgate 149,913 -
Wyndgate income nontaxable due to S
corporation status (77,199) $(119,011)
Valuation allowance 1,008,875 27,101
State tax expense (benefit), net of
federal expense (benefit) (146,043) 6,898
Other (3,204) (4,456)
--------------------------
$ 29,531 $ (46,825)
==========================
Income (loss) before provision for
(benefit from) income taxes $(2,655,327) $ 125,422
==========================
Effective rate (1.1)% (37)%
==========================
F-16
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
(Information subsequent to December 31, 1995 is unaudited)
3. INCOME TAXES (CONTINUED)
The components of the net accumulated deferred income tax asset as of
December 31, 1995 and 1994 are as follows:
1995 1994
-------------------------
Deferred tax assets:
Cash to accrual adjustment $ 873,899 $ 254,542
Excess of capital losses over
capital gains 79,000 79,000
Net operating loss carryforward 495,031 45,159
Allowance for uncollectible
accounts receivable 118,500 22,120
Noncompete accrual 128,375 -
Accrued vacation 103,135 35,685
Valuation allowance (1,130,034) (121,159)
---------------------------
667,906 315,347
Deferred tax liabilities:
Cash to accrual adjustment 648,395 279,246
Accelerated depreciation 19,511 7,370
---------------------------
667,906 286,616
---------------------------
Deferred tax asset, net $ - $ 28,731
===========================
4. LEASES
The Company primarily leases equipment and office space. An operating
lease expiring in 2000 is personally guaranteed by a principal stockholder.
Rental expense under operating leases, included in general and
administrative expenses, for the years ended December 31, 1995 and 1994 was
$216,795 and $139,000, respectively. Certain leases for furniture and
fixtures and machinery and equipment are classified as capital leases. A
principal stockholder of the Company has personally guaranteed repayment of
substantially all capital lease obligations. Included in equipment and
fixtures in the accompanying consolidated balance sheets are the following
assets held under capital leases:
DECEMBER 31
1995 1994
-------------------------
Furniture and fixtures $143,658 $ 10,433
Machinery and equipment 294,530 28,323
Computer and software 549,891 54,201
-------------------------
Assets under capital lease 988,079 92,957
Less accumulated amortization (92,926) (26,873)
-------------------------
Assets under capital lease, net $895,153 $ 66,084
=========================
F-17
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
(Information subsequent to December 31, 1995 is unaudited)
4. LEASES (CONTINUED)
The following represents the minimum lease payments remaining under capital
leases and the future minimum lease payments for all noncancelable
operating leases at December 31, 1995:
CAPITAL OPERATING
LEASES LEASES
--------------------------
1996 $ 345,690 $ 275,725
1997 329,662 275,725
1998 318,577 247,353
1999 69,592 203,117
2000 67,903 203,117
--------------------------
Total minimum lease payments 1,131,424 $1,205,037
============
Less amount representing interest (250,682)
----------
Present value of minimum lease payments 880,742
Less current portion of obligations under
capital lease (232,813)
----------
Obligations under capital lease, less
current portion $ 647,929
=========
5. SHORT-TERM DEBT
The Company maintains an unsecured revolving credit line of $25,000 which
bears interest at prime (8.5% at December 31, 1995) plus one percent and
matures on January 1, 1997. Amounts outstanding under this revolving line
of credit were $100 at December 31, 1995 and 1994.
In addition, the Company maintains a $1,000,000 line of credit with a bank
secured by substantially all of the Company's assets except for those
assets under lease agreements (see Note 4), which bears interest at prime
(8.5% at December 31, 1995) plus two percent and which matured on November
14, 1996. Amounts outstanding under this line of credit were $970,000,
$500,000 and $250,000 at September 30, 1996 and December 31, 1995 and 1994,
respectively. A principal stockholder of the Company has personally
guaranteed the repayment of any amounts outstanding under the line of
credit. At December 31, 1995, the Company was in violation of a certain
bank covenant, which requires the Company to maintain positive net worth of
at least $1,000,000. Under the terms of the agreement, upon violation of
this covenant, amounts outstanding may become due and payable in full at
the bank's request.
F-18
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
(Information subsequent to December 31, 1995 is unaudited)
5. SHORT-TERM DEBT (CONTINUED)
During the nine month period ended September 30, 1996, the Company obtained
covenant relief through an amendment to the original borrowing agreement.
The covenant, which requires the Company to maintain a positive net worth
of at least $1,000,000, has been waived effective June 1, 1996 through
November 30, 1996. The Company is in the process of extending both the
maturity date and the covenant waiver through January 31, 1997. The bank
has notified the Company in writing that the bank does not consider the
line of credit to be in default. (See also Note 11 for updated terms on
the line of credit).
The Company incurred interest expense on outstanding borrowings of
approximately $43,000 and $13,400 for the years ended December 31, 1995 and
1994, respectively.
6. STOCK OPTION PLANS
During 1990, the Company adopted an incentive stock option plan and a
nonqualified stock option plan, and in 1995 consolidated these plans by
adopting the Company's Amended and Restated Stock Option Plan (the Plan).
The Plan provides for the issuance of options to purchase up to 1,234,279
shares of common stock to employees, officers, directors and consultants of
the Company.
The terms of any options granted under the Plan are not required to be
identical as long as they are not inconsistent with the express provisions
of the Plan. Options may be granted as incentive options or as
nonqualified options; however, only employees of the Company are eligible
to receive incentive options. The period during which options vest may not
exceed ten years; however, the majority of the options granted under the
Plan vest over five years at the rate of twenty percent per year. The
exercise price for incentive options may not be less than 100% of the fair
market value of the common stock on the grant date, except that the
exercise price for incentive options granted to persons owning more than
ten percent of the total combined voting power of the common stock may not
be less than 110% of the fair market value of the common stock on the grant
date and may not be exercisable for more than five years. The exercise
price for nonqualified options may not be less than eighty percent of the
fair market value of the common stock on the grant date.
F-19
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
(Information subsequent to December 31, 1995 is unaudited)
6. STOCK OPTION PLANS (CONTINUED)
Activity and price information regarding the Plan are as follows:
<TABLE>
<CAPTION>
INCENTIVE STOCK NONQUALIFIED STOCK
OPTION PLAN OPTION PLAN
---------------------------------------------------
STOCK STOCK
NUMBER OF OPTION NUMBER OF OPTION
STOCK PRICE STOCK PRICE
OPTIONS RANGE OPTIONS RANGE
---------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, December 31, 1993 81,300 $1.00-$1.54 38,029 $1.54
Granted 15,400 1.54 - -
---------------------------------------------------
Outstanding, December 31, 1994 96,700 1.00-1.54 38,029 1.54
Granted 206,050 1.54-3.75 - -
Forfeited - - (6,000) 1.54
---------------------------------------------------
Outstanding, December 31, 1995 302,750 1.00-3.75 32,029 1.54
Granted 206,750 2.50-3.75 31,500 3.75
Exercised (330) 1.54
Forfeited (2,570)
---------------------------------------------------
Outstanding, September 30, 1996 506,600 $1.00-$3.75 63,529 $1.54-$3.75
===================================================
</TABLE>
During 1995, certain of the Company's principal stockholders granted
personal stock options to certain employees for the right to buy shares
from the principal stockholders at an exercise price of $1.00 per share.
This transaction has been accounted for as if the options were issued to
the employees directly from the Company. The Company recorded compensation
expense related to this transaction of $161,047, as such options were
issued for prior service and are fully vested. The related compensation
expense is included in general and administrative expenses in the
accompanying consolidated statement of operations.
During the second quarter of 1996, the Company entered into an agreement
with a business advisory enterprise. As part of the agreement, the Company
granted 160,000 stock options at an exercise price of $2.50 per share. To
date, no options have been exercised as a result of this agreement.
Certain members of the Company's Scientific Advisory Committee serve as
officers and directors of certain of the Company's significant customers.
In addition, these members also are beneficial owners of the Company
through grants of stock options and through the Company's ten percent note
offering (see Note 11).
F-20
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
(Information subsequent to December 31, 1995 is unaudited)
7. COMMON STOCK WARRANTS
In May 1995, the Company completed a private placement of 150,000 units at
$5 per unit. Each unit consisted of two shares of common stock ($2.45
each) and one common stock warrant ($.10 each), exercisable at $3.00 per
share for a period of three years from the closing date of the offering.
The Company has the right to call the common stock warrants at $.12 per
warrant at any time during the period commencing six months from the date
of issuance and terminating on the expiration date of such warrants. In
addition, the Company has outstanding an additional 12,000 warrants to a
nonrelated investor which are convertible into common stock at an exercise
price of $1.54 per share. Of these warrants, 2,000 expired in July 1996
with the remaining 10,000 warrants expiring in October 1997.
During the first quarter of 1996, 150,000 common stock warrants issued in
conjunction with the May 1995 private placement were exercised for
$450,000.
8. CONTRIBUTIONS TO RETIREMENT PLAN
During April 1992, the Company established a 401(k) retirement plan which
covers eligible employees, as defined, of the Company. Employees may defer
up to sixteen percent of their annual compensation up to the maximum amount
as determined by the Internal Revenue Service. Under the retirement plan
agreement, the Company, at its discretion, may make contributions to the
plan. No contributions were made to the plan in 1995 or 1994. Retirement
plan administrative expense was approximately $8,000 and $3,000 for the
years ended December 31, 1995 and 1994, respectively.
9. COMMITMENTS AND CONTINGENCIES
The Company has entered into nine employment agreements with certain
management employees; the initial terms are generally for three to five
years. Certain of the agreements may be extended for two additional years.
Such agreements, which can be revised from time to time, provide for
minimum salary levels as adjusted for cost-of-living changes, as well as
for incentive bonuses which are payable when specified management goals are
attained. At December 31, 1995, the aggregate commitment for future
salaries payable through May 2000, excluding bonuses, is approximately
$2,600,000. If all agreements are extended, the additional commitment for
future salaries will be approximately $1,400,000.
F-21
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
(Information subsequent to December 31, 1995 is unaudited)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company maintains product liability insurance for Wyndgate's
software-related products. To date, no claims have been filed against
the Company related to its Wyndgate software products. In addition, the
Company applied for certain regulatory approval of its blood bank software.
The Company has not received regulatory approval to date.
In January 1993, Wyndgate entered into an agreement with the EDEN-OA Blood
Bank Users Group (the Royalty Group) to develop Blood Bank Management
Information System Software (BBMIS). As part of the consideration for
funding the development of the BBMIS, Wyndgate agreed to pay to the Royalty
Group certain royalty payments on future software license fees. All
payments are due 30 days after each quarter and are based on software
license fees collected. The Company did not incur any royalty expenses
related to this agreement in 1995. Royalty expense related to this
agreement, included in cost of sales in the nine months ended September 30,
1996 was approximately $320,000. The time period under the royalty
schedule is based upon the first date of customer invoicing, which was
September 14, 1995. The royalty payment schedule is as follows:
From September:
1995 - 1997 12 percent
1997 - 1998 9 percent
1998 - 1999 6 percent
1999 - thereafter 3 percent
In July 1996, the Company (through its Wyndgate division) entered into a
Development Agreement (Agreement) with The Institute for Transfusion
Medicine (ITxM), to develop Commercial Centralized Transfusion System
Software (Commercial CTS Software). This Agreement requires that the
Commercial CTS Software be completed by December 16, 1997. If not timely
completed, the Company would be subject to certain monetary penalties. The
Agreement provides for a royalty payment to ITxM from the Company for
revenues received from the eventual sale of the Commercial CTS Software,
net of certain fees and charges. The royalty period starts with the first
commercial transfer for value of the Commercial CTS Software by the
Company. The royalty amounts for each year are higher if the sales of the
Commercial CTS Software are initiated by ITxM. The royalty payments range
from 10% or 5% in year one to 2% or 1% in year 10 and thereafter. To date,
the Company has not incurred any royalty expenses related to this
agreement.
F-22
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
(Information subsequent to December 31, 1995 is unaudited)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
As of September 30, 1996, the Company had 1,074,775 shares of common stock
reserved for future issuance as a result of the following: 506,600 and
63,529 shares issuable from the Company's incentive and nonqualified stock
option plans, respectively (see Note 6); 187,800 shares issuable upon the
exercise of certain warrants outstanding as a result of the 1996 10% note
offering (see Note 11); 146,846 shares issuable upon conversion of certain
of the 10% notes, including principal and accrued interest, related to
certain noteholders who have given the Company notice of their intent to
convert their 10% notes to shares of common stock (see Note 11); 10,000
shares issuable upon the exercise of certain warrants granted to a
nonrelated investor (see Note 7), and 160,000 shares underlying certain
stock options granted to a business advisory enterprise during the second
quarter of 1996 (see Note 6).
10. SEGMENT INFORMATION
The Company's major operations are in information management software
products for the blood bank industry (Wyndgate), and substance abuse
testing program management services for transportation and other various
industries (DataMed).
Revenue, income (loss) from operations, identifiable assets, depreciation
and amortization, and capital expenditures pertaining to the segments are
presented below. Revenues by segment include sales to unaffiliated
customers. In addition, there were no intersegment sales for any period
presented.
YEAR ENDED DECEMBER 31, 1995
------------------------------------------
WYNDGATE DATAMED CONSOLIDATED
------------------------------------------
Revenues $ 933,631 $5,740,487 $6,674,118
Income (loss) from operations (1,706,751) (816,856) (2,523,607)
Identifiable assets 1,015,623 1,705,239 2,720,862
Depreciation and amortization 85,184 82,145 167,329
YEAR ENDED DECEMBER 31, 1994
------------------------------------------
WYNDGATE DATAMED CONSOLIDATED
------------------------------------------
Revenues $ 1,140,119 $3,836,136 $4,976,255
Income (loss) from operations 299,491 (180,408) 119,083
Identifiable assets 606,391 1,161,603 1,767,994
Depreciation and amortization 19,542 31,962 51,504
F-23
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
(Information subsequent to December 31, 1995 is unaudited)
10. SEGMENT INFORMATION (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------
WYNDGATE DATAMED CONSOLIDATED
------------------------------------------
Revenues $4,249,101 $4,680,448 $8,929,549
Income (loss) from operations (630,935) (1,247,665) (1,878,600)
Identifiable assets 4,225,729 2,283,863 6,509,592
Depreciation and amortization 164,788 231,341 396,129
NINE MONTHS ENDED SEPTEMBER 30, 1995
------------------------------------------
WYNDGATE DATAMED CONSOLIDATED
------------------------------------------
Revenues $ 883,578 $3,957,936 $4,841,514
Income (loss) from operations (1,456,761) (667,821) (2,124,582)
Identifiable assets 860,435 1,495,975 2,356,410
Depreciation and amortization 55,628 52,265 107,893
11. UNAUDITED INTERIM FINANCIAL INFORMATION
The Company, in its opinion, has included all adjustments, consisting only
of normal recurring accruals, necessary for a fair presentation of its
financial position at September 30, 1996 and the results of its operations
for the nine months then ended. The results of operations for the nine
months ended September 30, 1996 are not necessarily indicative of the
results for a full year.
During the first quarter of 1996, the Company completed a private placement
whereby it issued 66,667 shares of Series A convertible preferred stock at
$3.75 per share. During 1996, the preferred shares were converted into
66,667 shares of common stock.
During the first quarter of 1996, the Company advanced $250,000 to a
development company in California (the Development Company), in exchange
for a convertible promissory note (the Note), due February 26, 1997.
During the fourth quarter of 1996, the maturity date of the Note was
extended to December 31, 1997 and can, upon certain conditions, be further
extended until June 30, 1998. The Note accrues interest at the prime rate
plus two percent and is primarily collateralized by the Development
Company's technology.
During the second quarter of 1996, the Company conducted an offering
consisting of convertible notes with detachable common stock warrants. The
notes accrue interest at ten percent per annum, mature in three years from
the date of issuance and are convertible
F-24
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
(Information subsequent to December 31, 1995 is unaudited)
11. UNAUDITED INTERIM FINANCIAL INFORMATION (CONTINUED)
into common stock of the Company at $3.75 per share. In addition, each
investor received one common stock warrant for the right to purchase one
share of common stock at $3.75 per share for each $4 invested. The
warrants are exercisable over a period of three years. Total proceeds from
the note offering amounted to $751,200. Common stock issuable upon
conversion of the notes, including principal and accrued interest, amounts
to 146,846 shares. Common stock issuable related to the warrants provided
in conjunction with the note offering amounts to 187,800 shares.
During the third quarter of 1996, the Company completed a private placement
whereby it issued 800,000 shares of common stock at $2.50 per share. Net
proceeds from the private placement were approximately $1,740,000.
During the third quarter of 1996, two former employees of the Company
exercised certain stock options through the Company's employee stock option
plan for 330 shares of common stock at $1.54 per share.
During November 1996, the Company (through its Wyndgate division) entered
into an Exclusivity and Software Development Agreement (Agreement) with
Ortho Diagnostic Systems, Inc. (ODSI), a subsidiary of Johnson & Johnson.
This Agreement requires the Company to perform certain software development
services in consideration of the payment by ODSI of $500,000, received by
the Company in November 1996, and an additional payment of $500,000
received by the Company in January 1997.
During January 1997, the Company extended the maturity date on its
$1,000,000 line of credit through February 12, 1997. In addition, the
positive net worth covenant was eliminated by the bank.
During the first quarter of 1997, the Company borrowed $250,000 from one
individual and an additional $200,000 from another individual at 12%
interest. The two notes are due either on, or before five days after, the
closing of the Company's proposed initial public offering. If there is not
a closing on the offering, the $250,000 note is due March 23, 1997 and the
$200,000 note is due March 24, 1997. In connection with the notes, the
Company issued warrants to purchase 150,000 shares of common stock
exercisable at 85% of the initial public offering price per share of the
common stock of the Company, or in the event of no public offering, at
$3.00 per share. The Company has reserved for future issuance of 150,000
shares of common stock related to the above-mentioned notes. (See note 9
for description of additional shares of common stock reserved for future
issuance.)
F-25
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
1,337,000 Units
___________________________
PROSPECTUS
___________________________
RAF FINANCIAL CORPORATION
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
A. The Colorado Business Corporation Act (the "Act") allows
indemnification of directors, officers, employees and agents of the Company
against liabilities incurred in any proceeding in which an individual is
made a party because he was a director, officer, employee or agent of the
Company if such person conducted himself in good faith and reasonable
believed his actions were in, or not opposed to, the best interests of the
Company, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. A person must be
found to be entitled to indemnification under this statutory standard by
procedures designed to assure that disinterested members of the Board of
Directors have approved indemnification or that, absent the ability to
obtain sufficient numbers of disinterested directors, independent counsel
or shareholders have approved the indemnification based on a finding that
the person has met the standard. Indemnification is limited to reasonable
expenses. In addition, the Company's By-Laws provide that the Company
shall have the power to indemnify its officers, directors, employees and
agents to the extent permitted by the Act.
Specifically, the Act provides as follows:
"7-109-102. AUTHORITY TO INDEMNIFY DIRECTORS
(1) Except as provided in subsection (4) of this section, a
corporation may indemnify a person made a party to a proceeding
because the person is or was a director against liability incurred in
the proceeding if:
(a) The person conducted himself or herself in good faith;
and
(b) The person reasonably believed:
(I) In the case of conduct in an official capacity
with the corporation, that his or her conduct was in the corporation's
best interests; and
(II) In all other cases, that his or her conduct was at
least not opposed to the corporation's best interests; and
(c) In the case of any criminal proceeding, the person had
no reasonable cause to believe his or her conduct was unlawful.
(2) A director's conduct with respect to an employee benefit
plan for a purpose the director reasonably believed to be in the
interests of the participants in or beneficiaries
II-1
<PAGE>
of the plan is conduct that satisfies the requirement of subparagraph
(II) of paragraph (b) of subsection (1) of this section. A
director's conduct with respect to an employee benefit plan for a
purpose that the director did not reasonably believe to be in the
interests of the participants in or beneficiaries of the plan shall be
deemed not to satisfy the requirements of paragraph (a) of subsection
(1) of this section.
(3) The termination of a proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent is not, of itself, determinative that the director did not
meet the standard of conduct described in this section.
(4) A corporation may not indemnify a director under this
section:
(a) In connection with a proceeding by or in the right of
the corporation in which the director was adjudged liable to the
corporation; or
(b) In connection with any other proceeding charging that
the director derived an improper personal benefit, whether or not
involving action in an official capacity, in which proceeding the
director was adjudged liable on the basis that he or she derived an
improper personal benefit.
(5) Indemnification permitted under this section in connection
with a proceeding by or in the right of the corporation is limited to
reasonable expenses incurred in connection with the proceeding.
7-109-103. MANDATORY INDEMNIFICATION OF DIRECTORS
Unless limited by its articles of incorporation, a corporation
shall indemnify a person who was wholly successful, on the merits or
otherwise, in the defense of any proceeding to which the person was a
party because the person is or was a director, against reasonable
expenses incurred by him or her in connection with the proceeding.
7-109-105 COURT-ORDERED INDEMNIFICATION OF DIRECTORS
(1) Unless otherwise provided in the articles of incorporation,
a director who is or was a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another
court of competent jurisdiction. On receipt of an application, the
court, after giving any notice the court considers necessary, may
order indemnification in the following manner:
(a) If it determines that the director is entitled to
mandatory indemnification under section 7-109-103, the court shall
order indemnification, in which case the court shall also order the
corporation to pay the director's reasonable expenses incurred to
obtain court-ordered indemnification.
II-2
<PAGE>
(b) If it determines that the director is fairly and
reasonably entitled to indemnification in view of all the relevant
circumstances, whether or not the director met the standard of conduct
set forth in section 7-109-102(1) or was adjudged liable in the
circumstances described in section 7-109-102(4), the court may order
such indemnification as the court deems proper; except that the
indemnification with respect to any proceeding in which liability
shall have been adjudged in the circumstances described in section
7-109-102(4) is limited to reasonable expenses incurred in connection
with the proceeding and reasonable expenses incurred to obtain
court-ordered indemnification.
7-109-106. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION OF
DIRECTORS
(1) A corporation may not indemnify a director under section
7-109-102 unless authorized in the specific case after a determination
has been made that indemnification of the director is permissible in
the circumstances because the director has met the standard of conduct
set forth in section 7-109-102. A corporation shall not advance
expenses to a director under section 7-109-104 unless authorized in
the specific case after the written affirmation and undertaking
required by section 7-109-104(1)(a) and (1)(b) are received and the
determination required by section 7-109-104(1)(c) has been made.
(2) The determinations required by subsection (1) of this
section shall be made:
(a) By the board of directors by a majority vote of those
present at a meeting at which a quorum is present, and only those
directors not parties to the proceeding shall be counted in satisfying
the quorum; or
(b) If a quorum cannot be obtained, by a majority vote of
a committee of the board of directors designated by the board of
directors, which committee shall consist of two or more directors not
parties to the proceeding; except that directors who are parties to
the proceeding may participate in the designation of directors for the
committee.
(3) If a quorum cannot be obtained as contemplated in paragraph
(a) of subsection (2) of this section, and a committee cannot be
established under paragraph (b) of subsection (2) of this section, or,
even if a quorum is obtained or a committee is designated, if a
majority of the directors constituting such quorum or such committee
so directs, the determination required to be made by subsection (1)of
this section shall be made:
(a) By independent legal counsel selected by a vote of the
board of directors or the committee in the manner specified in
paragraph (a) or (b) of subsection (2) of this section or, if a
quorum of the full board cannot be obtained and a committee cannot be
established, by independent legal counsel selected by a majority vote
of the full board of directors; or
(b) By the shareholders.
II-3
<PAGE>
(4) Authorization of indemnification and advance of expenses
shall be made in the same manner as the determination that
indemnification or advance of expenses is permissible; except that, if
the determination that indemnification or advance of expenses is
permissible is made by independent legal counsel, authorization of
indemnification and advance of expenses shall be made by the body that
selected such counsel.
7-109-107. INDEMNIFICATION OF OFFICERS, EMPLOYEES, FIDUCIARIES, AND
AGENTS
(1) Unless otherwise provided in the articles of incorporation:
(a) An officer is entitled to mandatory indemnification
under section 7-109-103, and is entitled to apply for court-ordered
indemnification under section 7-109-105, in each case to the same
extent as a director;
(b) A corporation may indemnify and advance expenses to an
officer, employee, fiduciary, or agent of the corporation to the same
extent as to a director; and
(c) A corporation may also indemnify and advance expenses
to an officer, employee, fiduciary, or agent who is not a director to
a greater extent, if not inconsistent with public policy, and if
provided for by its bylaws, general or specific action of its board
of directors or shareholders, or contract.
7-109-109. LIMITATION OF INDEMNIFICATION OF DIRECTORS
(1) A provision treating a corporation's indemnification of, or
advance of expenses to, directors that is contained in its articles of
incorporation or bylaws, in a resolution of its shareholders or board
of directors, or in a contract, except an insurance policy, or
otherwise, is valid only to the extent the provision is not
inconsistent with sections 7-109-101 to 7-109-108. If the articles
of incorporation limit indemnification or advance of expenses,
indemnification and advance of expenses are valid only to the extent
not inconsistent with the articles of incorporation.
(2) Sections 7-109-101 to 7-109-108 do not limit a corporation's
power to pay or reimburse expenses incurred by a director in
connection with an appearance as a witness in a proceeding at a time
when he or she has not been made a named defendant or respondent in
the proceeding.
7-109-108. INSURANCE
A corporation may purchase and maintain insurance on behalf of a
person who is or was a director, officer, employee, fiduciary, or
agent of the corporation, or who, while a director, officer, employee,
fiduciary, or agent of the corporation, is or was serving at the
request of the corporation as a director, officer, partner, trustee,
employee, fiduciary, or agent
II-4
<PAGE>
of another domestic or foreign corporation or other person or of an
employee benefit plan, against liability asserted against or incurred
by the person in that capacity or arising from his or her status as a
director, officer, employee, fiduciary, or agent, whether or not the
corporation would have power to indemnify the person against the same
liability under section 7-109-102, 7-109-103, or 7-109-107. Any such
insurance may be procured from any insurance company designated by the
board of directors, whether such insurance company is formed under the
laws of this state or any other jurisdiction of the United States or
elsewhere, including any insurance company in which the corporation
has an equity or any other interest through stock ownership or
otherwise.
7-109-110. NOTICE TO SHAREHOLDERS OF INDEMNIFICATION OF DIRECTOR
If a corporation indemnifies or advances expenses to a director
under this article in connection with a proceeding by or in the right
of the corporation, the corporation shall give written notice of the
indemnification or advance to the shareholders with or before the
notice of the next shareholders' meeting. If the next shareholder
action is taken without a meeting at the instigation of the board of
directors, such notice shall be given to the shareholders at or before
the time the first shareholder signs a writing consenting to such
action."
B. Article VI of the Registrant's Amended and Restated Articles of
Incorporation provides for the elimination of personal liability for
monetary damages for the breach of fiduciary duty as a director except for
liability (i) resulting from a breach of the director's duty of loyalty to
the Registrant or its shareholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the
law; (iii) for approving payment of distributions to shareholders to the
extent that any such actions are illegal under the Act; or (iv) for any
transaction from which a director derives an improper personal benefit.
This Article further provides that the personal liability of the
Registrant's directors shall be eliminated or limited to the fullest extent
permitted by the Act.
C. The Underwriting Agreement between the Registrant and the Underwriters
provides that the Underwriters will indemnify and hold harmless the
Registrant, the directors of the Registrant, and each person, if any, who
controls the Registrant within the meaning of Section 15 of the Securities
Act of 1933, as amended (the "1933 Act"), against any and all losses,
claims, demands, liabilities and expenses (including reasonable legal or
other expenses) to which it may become subject, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or in any Blue Sky Application or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, resulting from the use of written information furnished to the
Registrant by the Underwriters or any participating dealer for use in the
preparation of the Registration Statement or in any Blue Sky Application.
II-5
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Registrant in connection
with the issuance and distribution of the securities being offered. All
expenses are estimated except the registration fee.
Registration and filing fee . . . . . . . . . . . . . $ 11,303
NASD filing fee . . . . . . . . . . . . . . . . . . . 3,777
Printing . . . . . . . . . . . . . . . . . . . . . . 25,000*
Accounting fees and expenses . . . . . . . . . . . . 25,000*
Representative's expense allowance . . . . . . . . . 280,770*
Legal fees and expenses . . . . . . . . . . . . . . . 100,000*
Blue Sky fees and filing fees . . . . . . . . . . . . 65,000*
Transfer and Warrant Agent fees . . . . . . . . . . . 5,000*
Miscellaneous . . . . . . . . . . . . . . . . . . . . 4,920*
---------
Total . . . . . . . . . . . . . . . . . . . . . . . . $520,770
=========
___________
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has issued its securities
to the following persons for the cash or other consideration indicated in
transactions that were not registered under the 1933 Act.
II-6
<PAGE>
I.
May 1995 Private Placement
--------------------------
Name No. of Units* Consideration
---- ------------- -------------
Elizabeth Kitchen &
Guy B. Nutter 10,000 $ 50,000.00
I. Stephen Davis, MD 10,000 50,000.00
William C. Dickey, MD 1,000 5,000.00
Metropolitan Pathologists
Profit Sharing Trust
FBO Gary D. Dickey, MD 5,000 25,000.00
Metropolitan Pathologists
Profit Sharing Trust
FBO William C. Dickey, MD 19,000 95,000.00
Herbert H. Maruyama, MD 10,000 50,000.00
Wilshire Center Geriatrics
Medical Group, Inc. DBPP
FBO Eugene Seymour, MD 10,000 50,000.00
Resources Trust Company
FBO Nancy S. Rogers
IRA dtd 3/22/84 # I ###-##-#### 10,000 50,000.00
Robert L. Messenbaugh, MD 10,000 50,000.00
Herbert L. Jacobs, MD 15,000 75,000.00
Stewart Weinerman, MD 10,000 50,000.00
Patrick A. Zoellner, MD 5,000 25,000.00
Hal Cohn, MD 5,000 25,000.00
Susan H. Sipf 10,000 50,000.00
Kenneth Manfre, MD 20,000 100,000.00
------- ----------
TOTAL 150,000 $750,000.00
======= ==========
_____________
* Each unit consisted of two shares of Common Stock and one Common Stock
Purchase Warrant exercisable at $3.00 per share until June 1, 1998.
II-7
<PAGE>
The offers and sales set forth in I above were made in reliance upon
the exemption from registration provided by Section 4(2) of the 1933 Act
and/or Regulation D and Rule 506 adopted thereunder. All of the purchasers
are known to the Registrant's president, Michael I. Ruxin, or were referred
to him by other purchasers in this offering or by clients of the
Registrant. Based upon Dr. Ruxin's knowledge of the purchasers and upon
written representations made by the purchasers, the Registrant believes all
but four of the purchasers were accredited investors at the time of their
purchases. The four non-accredited purchasers are medical doctors and,
therefore, based upon their knowledge of Registrants's business and their
representations, the Registrant believes each was capable of evaluating the
merits and risks of an investment in the Registrant. No broker/dealers were
involved in the sale and no commissions were paid. All purchasers
represented that they purchased the securities for investment, and all
certificates issued to the purchasers were impressed with a restrictive
legend advising that the shares represented by the certificates may not be
sold, transferred, pledged or hypothecated without having first been
registered or the availability of an exemption from registration
established. The Registrant's transfer agent will be advised to place
"stop transfer" instructions against the transfer of these certificates.
II.
May 1995 Wyndgate Merger
------------------------
Consideration
(No. of
Name No. of Shares* Wyndgate Shares)
---- ------------- -------------
William J. Collard 653,006 1,999
Gerald F. Willman, Jr. 570,033 1,745
Lori J. Willman 368,481 1,128
Timothy J. Pellegrini 368,480 1,128
--------- -----
TOTAL 1,960,000 6,000
========= =====
_____________
* Based upon the conversion factor of 326.6667 multiplied by the number
of Wyndgate shares.
The offers and sales set forth in II above were made in reliance upon
the exemption from registration provided by Section 4(2) of the 1933 Act.
No broker/dealers were involved in the sale and no commissions were paid.
All such persons represented that they acquired the securities for
investment, and all certificates issued to the persons were impressed with
a restrictive legend advising that the shares represented by the
certificates may not be sold, transferred, pledged or hypothecated without
having first been registered or the availability of an exemption from
registration established. The Registrant's transfer agent will be advised
to place "stop transfer" instructions against the transfer of these
certificates.
II-8
<PAGE>
III.
In June, 1995, in connection with Joseph F. Dudziak being employed as
the president of the Registrant, the Registrant issued Mr. Dudziak an
Incentive Stock Option to purchase 100,000 shares exercisable at $2.45 per
share until June 2005. The Registrant relied on Section 4(2) of the
Securities Act of 1933, as amended, in connection with the issuance of the
option to Mr. Dudziak.
IV.
January 1996 Warrant Exercises
------------------------------
Name No. of Shares Consideration*
---- ------------- -------------
William C. Dickey, MD
& Karen N. Dickey 1,000 $ 3,000
Metropolitan Pathologists
Profit Sharing Trust 19,000 57,000
Robert L. Messenbaugh, MD 10,000 30,000
Metropolitan Pathologists
Profit Sharing Trust
FBO Gary D. Dickey, MD 5,000 15,000
Resources Trust Company
FBO Nancy S. Rogers
IRA dtd 3/22/84 #I ###-##-#### 10,000 30,000
Patrick A. Zoellner, MD 5,000 15,000
Eric D. Sipf 10,000 30,000
Herbert H. Maruyama, MD 10,000 30,000
Stewart Weinerman, MD 10,000 30,000
Eugene Seymour, MD 3,333 9,999
Wilshire Center Geriatrics
Medical Group DBPP, Inc.FBO
Eugene Seymour, M.D. 6,667 20,001
Herbert L. Jacobs, MD 15,000 $ 45,000
Kenneth Manfre, MD 20,000 60,000
II-9
<PAGE>
Hal Cohn, MD 15,000 45,000
Charles Citrin 10,000 30,000
------- -------
TOTAL 150,000 $450,000
======= =======
_____________
* Based upon an exercise price of $3.00 per share.
The offers and sales set forth in IV above were made in reliance upon
the exemption from registration provided by Section 4(2) of the 1933 Act
and/or Regulation D and Rule 506 adopted thereunder. The purchasers set
forth in this section IV are the same purchasers as set forth under I above
who exercised the warrants they acquired as part of the units sold
described under I above. All but four of the purchasers were accredited
investors. See the description under I above. No broker/dealers were
involved in the sale and no commissions were paid. All purchasers
represented that they purchased the securities for investment, and all
certificates issued to the purchasers were impressed with a restrictive
legend advising that the shares represented by the certificates may not be
sold, transferred, pledged or hypothecated without having first been
registered or the availability of an exemption from registration
established. The Registrant's transfer agent will be advised to place
"stop transfer" instructions against the transfer of these certificates.
V.
January 1996 Series A Preferred Stock Offering
----------------------------------------------
Name No. of Shares* Consideration
---- ------------- -------------
Ronald O. Gilcher, MD 66,667 $250,000
_____________
* Initially issued as Series A Preferred Stock, but converted into a
like number of shares of Common Stock in May, 1996.
The offer and sale to Dr. Gilcher was made in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act. No
broker/dealers were involved in the sale and no commissions were paid. Dr.
Gilcher represented that he purchased the securities for investment, and
the certificate issued to him was impressed with a restrictive legend
advising that the shares represented by the certificate may not be sold,
transferred, pledged or hypothecated without having first been registered
or the availability of an exemption from registration established. The
Registrant's transfer agent will be advised to place "stop transfer"
instructions against the transfer of his stock certificate.
II-10
<PAGE>
VI.
Shares issued pursuant to Settlement Agreements
-----------------------------------------------
Name No. of Shares Consideration
---- ------------- -------------
Frontline Marketing, Inc. 20,408 Release of Claims
(shares issued Oct.
1995)
Robert S. Verhey 10,000 Release of Claims
------ (shares issued May
1996)
TOTAL 30,408
======
The issuances set forth in VI above were made in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act. No
broker/dealers were involved in the sale and no commissions were paid. The
persons represented that they acquired the securities for investment, and
the certificates issued to the persons were impressed with a restrictive
legend advising that the shares represented by the certificates may not be
sold, transferred, pledged or hypothecated without having first been
registered or the availability of an exemption from registration
established. The Registrant's transfer agent will be advised to place
"stop transfer" instructions against the transfer of these certificates.
VII.
Options issued to Scientific Advisory Committee
-----------------------------------------------
Name No. of Options Expiration Date
---- -------------- ---------------
William C. Dickey, MD 2,500 January, 2006
Cathy Bryan 1,000 January, 2006
Ronald O. Gilcher, MD 1,000 January, 2006
The options issued to the members of the Registrant's Scientific
Advisory Committee were made in reliance upon the exemption from
registration provided by Section 4(2) of the 1933 Act. The consideration
for the issuance of the options was the agreement by the named individuals
to serve on the Registrant's Scientific Advisory Committee. The options
were issued pursuant to the Registrant's nonqualified stock option plan and
are exercisable at $3.75 per share, and vest over a five year period. No
broker/dealers were involved in the sale and no commissions were paid. All
option certificates were impressed with a restrictive legend advising that
the options represented by the certificates may not be sold, transferred,
pledged or hypothecated without having first been registered or the
availability of an exemption from registration established.
II-11
<PAGE>
VIII.
In April, 1996, the Registrant entered into an agreement with LMU &
Company ("LMU"), which was amended in November, 1996. As partial
consideration for LMU's services under the agreement, the Registrant issued
LMU an option to purchase 160,000 shares of the Registrant's common stock,
exercisable at $2.50 per share. The option becomes exercisable in the
event that the average bid price for the Registrant's common stock is at
least $5.00 for five consecutive trading days prior to January 31, 1997 as
quoted on NASDAQ. The issuance of the option to LMU was made in reliance
upon the exemption from registration provided by Section 4(2) of the 1933
Act. No broker/dealers were involved in the sale and no commissions were
paid. LMU represented that LMU acquired the option for investment and not
with a view to distribution.
IX.
1996 10% 3-Year Convertible Notes*
----------------------------------
Name Consideration No. of Warrants*
---- ------------- ----------------
Arnold E. Prince $25,000 6,250
Richard Sher 50,000 12,500
Bart Valdez 11,200 2,800
Wilshire Center Geriatrics
Medical Group, Inc.
Eugene Seymour, M.D. Trustee 50,000 12,500
Eugene H. Seymour, M.D. 50,000 12,500
Underwood Family Partners 100,000 25,000
Jeffrey Appel 25,000 6,250
Benjamin R. Budraitis 10,000 2,500
Joseph F. Dudziak 50,000 12,500
Neill and Nita Freeman 25,000 6,250
Thomas R. Sakaguchi 20,000 5,000
James Sakaguchi 27,500 6,875
Ellen Sakaguchi 12,500 3,125
Michael Lipkin 35,000 8,750
Thomas R. Ulie 50,000 12,500
William J. Collard 60,000 15,000
II-12
<PAGE>
Michael I. Ruxin, M.D. 25,000 6,250
Ralph Grills, Jr. 50,000 12,500
Gordon Segal, MD 25,000 6,250
Harris A. Cahn 25,000 6,250
Joel C. Newman, MD 25,000 6,250
------- -------
Total $751,200 187,800
======= =======
__________________
* Convertible at $3.75 per share.
** One warrant for each $4 purchase exercisable over a three year
period commencing June 26, 1996 at $3.75 per share.
The offers and sales set forth in IX above were made in reliance upon
the exemption from registration provided by Section 4(2) of the 1933 Act
and/or Regulation D and Rule 506 adopted thereunder. Based upon
information known to the Registrant, and representations made by each of
the purchasers, the Registrant believes that all but three of the
purchasers were accredited investors. The three non-accredited purchasers
are family members of one of the Registrant's employees. Based upon such
relationship, upon information known to the Registrant and representations
made by each of these three purchasers, the Registrant believes that they
were able to evaluate the merits and risks of an investment in the
Registrant. No broker/dealers were involved in the sale and no commissions
were paid. All of such purchasers represented that they purchased the
securities for investment, and all Notes issued to the purchasers were
impressed with a restrictive legend advising that the Notes may not be
sold, transferred, pledged or hypothecated without having first been
registered or the availability of an exemption from registration
established.
X.
July 1996 Private Placement
---------------------------
Number of Consideration
Name Shares Paid
---- ------------- -------------
Hugo Brooks 10,000 $ 25,000
Lawrence M. Underwood 5,000 12,500
Paul R. Hoover &
Janet F. Hoover, JTWROS 10,000 25,000
Battersea Capital, Inc. 10,000 25,000
ESN Financial, LP 20,000 50,000
Anil & Bina Patel, JTWROS 10,000 25,000
Michal & Renata Pivonka, JTWROS 50,000 125,000
II-13
<PAGE>
William B. &
Cheryl A. Bacon, JTWROS 10,000 25,000
Vannette F. Poole 20,000 50,000
John L. Moran 20,000 50,000
William R. Teele 10,000 25,000
Alan David Cohen 10,000 25,000
Peter & Luba Bondra, JTWROS 40,000 100,000
Harvey D. Rhoads 2,500 6,250
E. Pat Manuel 25,000 62,500
Allen E. Hoyt 10,000 25,000
Richard Kay 20,000 50,000
Mildred J. Geiss 7,000 17,500
Clyde William &
Valerie J. Pray, JTWROS 10,000 25,000
Barry Slosberg 10,000 25,000
Bradley Subler 2,000 5,000
Andrew E. Kauders 6,000 15,000
Richard J. N. Leonard 6,000 15,000
David Hickey 10,000 25,000
Georgia M. Dunston 10,000 25,000
TradeLink, L.L.C. 10,000 25,000
Robert M. Kassenbrock 40,000 100,000
Laurence P. Emrie 4,000 10,000
Larry & Michelle
Weinstein, JTWROS 5,000 12,500
Underwood Family Partners, LTD 20,000 50,000
Amar & Vangie Romero, JTWROS 6,000 15,000
Consulting on Government
Procurement-FBO J.S. Sansome 10,000 25,000
Lawrence E. &
Jeanne R. Keith, JTWROS 10,000 25,000
Riley Wilson - dba RW Enterprises 20,000 50,000
II-14
<PAGE>
John Solomita 10,000 25,000
William Vasey 10,000 25,000
Tadahiko Nakamura 30,000 75,000
Robert W. &
Rhonda W. Braun, JTWROS 4,000 10,000
Donald H. &
Mary Lou Wilbois, JTWROS 2,000 5,000
Jon and Laurie Lindvall 4,000 10,000
Maurice S. Cohen 10,000 25,000
Wilbert D. Pearson 10,000 25,000
Georgina S. Caslavka 10,000 25,000
Lynne D. Caslavka 6,000 15,000
Voss Boreta 10,000 25,000
Keith D. &
Carolyn P. McDonald, JTWROS 10,000 25,000
Howard I. Saiontz 10,000 25,000
James A. Newsham III &
Vivian M. Newsham, JTWROS 5,000 12,500
William C. &
Mary Claire McCormick, JTWROS 10,000 25,000
Patrick M. Sheridan 4,000 10,000
Thomas D. Fiorino 20,000 50,000
Richard G. Belcher 10,000 25,000
Scot C. Irwin 5,000 12,500
Alan Goldstein 10,000 25,000
Maurice and Stacy Gozlan, JTWROS 10,000 25,000
Howard Wall 20,000 50,000
William C. Meyer 4,000 10,000
Jeffrey M. Savell 7,000 17,500
James A. &
Joann Wiedenhoeft, JTWROS 15,000 37,500
A. Thomas Tenenbaum 6,000 15,000
II-15
<PAGE>
Brenman Key & Bromberg
401K Profit Sharing Plan
FBO Thomas R. Bromberg 10,000 25,000
Brenman Key & Bromberg
401K Profit Sharing Plan
FBO Albert Brenman 20,000 50,000
Stuart McNab 1,000 2,500
George Thompson 9,500 23,750
Brenman Key & Bromberg
401K Profit Sharing Plan
FBO A. Thomas Tenenbaum 14,000 35,000
Kenneth Higgins 5,000 12,500
Richard T. Baldwin 20,000 50,000
------- ---------
Total 800,000 $2,000,000
======= =========
The offers and sales set forth in X above were made in reliance upon
the exemption from registration provided by Section 4(2) of the 1933 Act
and/or Regulation D and Rule 506 adopted thereunder. RAF Financial
Corporation acted as the Placement Agent for the offering for which it
received a commission of 10% of the amount of securities sold in the
offering and a 3% expense allowance. Based upon representations made by
each of the purchasers in the offering, the Registrant believes that all
but four of the purchasers are "accredited investors" as that term is
defined in Rule 501 of Regulation D. With respect to the four
non-accredited investors, the Registrant believes, based upon each
investor's representations, that each non-accredited investor was capable of
evaluating the merits and risks of their investment in the Registrant. All
of such purchasers represented that they purchased the securities for
investment, and all certificates issued to purchasers were impressed with
a restrictive legend advising that the shares represented by the
certificates may not be sold, transferred, pledged or hypothecated without
having first been registered or the availability of an exemption from
registration established. The Registrant's transfer agent will be advised
to place "stop transfer" instructions against the transfer of these
certificates.
XI.
Employee Stock Options
----------------------
During the past three years, the Registrant has granted approximately
432,550 incentive stock options and approximately 31,500 non-qualified
stock options to approximately 66 employees of the Registrant and others
pursuant to the Registrant's Amended and Restated Stock Option Plan not
shown elsewhere within Item 26. The options are exercisable at prices
ranging from $1.54 to $3.75 over a ten year period. No consideration was
paid by the employees of the Registrant or others in connection with the
issuance of the options. Only two employees have exercised their options,
for 180 and 150 shares. The issuance of the options and sales of the shares
were made in reliance upon the exemption from registration provided by
Section 3(b) of the
II-16
<PAGE>
Securities Act of 1933, as amended, and Rule 701 adopted thereunder. No
broker/dealers were involved in the sale and no commissions were paid. All
purchasers purchased the securities for investment, and all option
certificates issued to purchasers were impressed with a restrictive legend
advising that the shares represented by the certificates may not be sold,
transferred, pledged or hypothecated without having first been registered
or the availability of an exemption from registration established.
XII.
JANUARY 1997 BRIDGE FINANCING
-----------------------------
In January, 1997, the Registrant borrowed $450,000 from two
individuals. The loans were evidenced by promissory notes, and are due and
payable the earlier of the receipt of proceeds from the Registrant's
proposed public offering or March 23, 1997. The Registrant issued warrants
to purchase 150,000 shares of Common Stock to the two lenders in connection
with the loans, which are exercisable at 85% of the price per share of the
Common Stock included in the Units to be sold in the public offering. One
of the lenders, Robert M. Kassenbrock, is also a shareholder of the
Registrant. The 150,000 shares of Common Stock underlying the warrants are
being registered for resale as a part of this registration statement. The
issuance of the promissory notes and the warrants were made in reliance
upon the exemption from registration provided by Section 3(b) of the
Securities Act of 1933, as amended, and Rule 504 of Regulation D adopted
thereunder. No commissions were paid to any broker/dealers in connection
with the issuances. The warrant certificates issued to the lenders were
impressed with a restrictive legend advising that the warrants and
underlying shares may not be sold, transferred, pledged or hypothecated
without having first been registered or the availability of an exemption
from registration established.
ITEM 27. EXHIBITS AND FINANCIAL SCHEDULES
The following is a complete list of exhibits filed as part of this
Registration Statement, which Exhibits are incorporated herein.
Exhibit
Number Description
- ------- -----------
1.1 Form of Underwriting Agreement, as revised*
3.1 Amended and Restated Articles of Incorporation, filed June 2,
1995*
3.2 Articles of Amendment to the Articles of Incorporation, filed
March 5, 1996*
3.3 Articles of Amendment to the Articles of Incorporation, filed May
30, 1996*
3.4 Bylaws, as amended*
II-17
<PAGE>
4.1 Form of Representative's Warrants to Purchase Units*
4.2 Form of Class A Common Stock Purchase Warrant Certificate*
4.3 Specimen copy of stock certificate for Common Stock, $.01 par
value*
4.4 Form of Unit Certificate*
5.1 Opinion of Brenman Key & Bromberg, P.C.*
10.1 Lease Agreement, dated April 15, 1992, and Lease Addendums, dated
April 8, 1992 and October 21, 1994*
10.2 Lease Agreement, dated July 19, 1995, and Lease Addendum*
10.3 Employment Agreement, dated May 24, 1995. between the Registrant
and Michael I. Ruxin, as amended July 8, 1995, August 1, 1995,
September 21, 1995 and July 15, 1996*
10.4 Employment Agreement, dated May 24, 1995, between the Registrant
and William J. Collard, as amended July 22, 1996*
10.5 Employment Agreement, dated June 28, 1995, between the Registrant
and Joseph F. Dudziak*
10.6 Employment Agreement, dated February 8, 1996, between the
Registrant and L.E. "Gene" Mundt*
10.7 Amended and Restated Stock Option Plan, as amended on May 5,
1995, May 29, 1996 and December 11, 1996*
10.8 Voting Agreement, dated May 23, 1995*
10.9 Shareholders' Agreement dated August 16, 1991, as amended on May
5, 1995 September 1996, June 24, 1996, July 25, 1996, Consent and
Waiver, dated July 12, 1996, and Rescission of Shareholder's
Agreement, dated June 22, 1996*
10.10 Agreement dated April 8, 1996, between the Registrant and LMU &
Company, and Stock Purchase Option, dated April 8, 1996*
10.11 Form of Drug Testing Service Contract*
10.12 Form of License Agreements*
10.13 Warrant Agreement, dated _____, 1997, between Global Med
Technologies, Inc. and American Securities Transfer & Trust,
Inc.*
II-18
<PAGE>
10.14 Exclusivity and Software Development Agreement, dated November
14, 1996, between and among Global Med Technologies, Inc. and
Ortho Diagnostic Systems Inc.*
10.15 Amendment, dated November 14, 1996, to Agreement dated April 8,
1996, between the Registrant and LMU & Company, and Stock
Purchase Option, dated April 8, 1996*
10.16 Amendment, dated January 14, 1997, to Agreement dated April 8,
1996, between the Registrant and LMU & Company, and Stock
Purchase Option, dated April 8, 1996*
11 Statement re: Computation of Per Share Earnings*
21 Subsidiaries of the Company*
24.1 Consent of Brenman Key & Bromberg, P.C. (included in Exhibit 5)
24.2 Consent of Ernst & Young LLP
27.1 Financial Data Schedule*
99.1 Proxy and Right of First Refusal Agreement, dated November 14,
1996, between and among Ortho Diagnostic Systems Inc. and
Michael I. Ruxin, William J. Collard, Gerald F. Willman, Jr.,
Lori J. Willman, Timothy J. Pellegrini and Gordon Segal*
_____________
* Previously filed.
ITEM 28. UNDERTAKINGS
The undersigned Registrant will:
(a)(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) include any prospectus required by Section 10(a)(3) of the Securities
Act; (ii) reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and (iii) include any additional or changed
material information on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
II-19
<PAGE>
The undersigned Registrant will provide to the Underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriters
to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
II-20
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City and County of Denver, State of
Colorado on January 31, 1997.
GLOBAL MED TECHNOLOGIES, INC.
By: /s/ Michael I. Ruxin
-------------------------------
Michael I. Ruxin, Chairman
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement was signed by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Michael I. Ruxin Chairman of the Board January 31, 1997
- -------------------------- of Directors, Principal
Michael I. Ruxin Executive Officer and
Director
/s/ Joseph F. Dudziak President and Chief January 31, 1997
- -------------------------- Operating Officer
Joseph F. Dudziak
/s/ Gregory R. Huls Chief Financial Officer January 31, 1997
- -------------------------- and General Counsel
Gregory R. Huls
/s/ William J. Collard Secretary/Treasurer and January 31, 1997
- -------------------------- Director
William J. Collard
/s/ John D. Gleason Director January 31, 1997
- --------------------------
John D. Gleason
/s/ Gerald F. Willman, Jr. Director January 31, 1997
- --------------------------
Gerald F. Willman, Jr.
II-21
EXHIBIT 24.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Summary
Financial Information", "Selected Financial Information", and "Experts"
and to the use of our report dated May 15, 1996, except for Note 1,
as to which the date is November 13, 1996, in Amendment No. 3 to the
Registration Statement (Form SB-2 No. 333-11723) and related
Prospectus of Global Med Technologies, Inc. dated January 31, 1997.
/s/ ERNST & YOUNG LLP
----------------------------
ERNST & YOUNG LLP
Denver, Colorado
January 30, 1997
