As filed with the Securities and Exchange Commission on August 5, 1997
Registration No. 333-11723
- -------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
Post Effective 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 Industrial Classification Identification
or 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.
Brenman Bromberg & Tenenbaum, P.C.
Mellon Financial Center
1775 Sherman Street, Suite 1001
Denver, Colorado 80203
(303) 894-0234
(303) 839-1633 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
=============================================================================
1,456,988 Units, each
consisting of 2 shares
of Common Stock and 1
1 Class A Common Stock
Purchase Warrant (2) 1,456,988 $ 9.00 $13,112,892 $4,552
- ----------------------------------------------------------------------------
Common Stock (3) 2,913,976 $ -0- -0- -0-
- ----------------------------------------------------------------------------
Class A Common Stock
Purchase Warrants (3) 1,456,988 $ -0- -0- -0-
- ----------------------------------------------------------------------------
Common Stock Underlying
Class A Common Stock
Purchase Warrants (4) 1,456,988 $ 5.85 8,523,380 2,939
- ----------------------------------------------------------------------------
Common Stock (5) 921,003 $ 4.50 4,144,514 1,429
- ----------------------------------------------------------------------------
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 133,700 $ -0- -0- -0-
Representative's Units (6)
- ----------------------------------------------------------------------------
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: $30,445,610 $10,499(7)
============================================================================
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rules 457(a) and (g).
(2) Reflects 1,337,000 Units sold in the firm portion of the of the
Offering and 119,988 Units sold pursuant to the exercise of a portion
of the Underwriters' over-allotment option.
(3) Included in the 1,456,988 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 Security
Holders.
(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; Plan of
Distribution
6 Selling Security Holders. . . . . . . . . . Selling Security
Holders
7 Plan of Distribution. . . . . . . . . . . . Prospectus Summary;
Plan of Distribution
8 Legal Proceedings . . . . . . . . . . . . . Legal Proceedings
9 Directors, Executive Officers,
Promoters and Control Persons . . . . . . . Management - Directors
and Executive Officers
10 Security Ownership of Certain
Beneficial Owners and Management. . . . . . Security Ownership of
Certain Beneficial
Owners and Management
11 Description of Securities . . . . . . . . . Description of
Securities
12 Interest of Named Experts and
Counsel . . . . . . . . . . . . . . . . . . Experts
13 Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities . . . . . . . . . . . . . . Statement as to
Indemnification
14 Organization within Last Five Years . . . . The Company; Interests
of Management and
Others in Certain
Transactions
15 Description of Business . . . . . . . . . . Prospectus Summary;
Risk Factors; The
Company
16 Management's Discussion and
Analysis or Plan of Operation . . . . . . . Management's Discussion
and Analysis or Plan of
Operation
17 Description of Property . . . . . . . . . . The Company
18 Certain Relationships and Related
Transactions. . . . . . . . . . . . . . . . Interests of Management
and Others in Certain
Transactions
19 Market for Common Equity and
Related Stockholder Matters . . . . . . . . Risk Factors; Market
for Common Equity,
Dividend Policy and
Related Shareholder
Matters
<PAGE>
20 Executive Compensation. . . . . . . . . . . Management - Executive
Compensation
21 Financial Statements. . . . . . . . . . . . Index to Financial
Statements
22 Changes In and Disagreements With
Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . Experts
23 Indemnification of Directors and
Officers. . . . . . . . . . . . . . . . . . Indemnification of
Directors and Officers
24 Other Expenses of Issuance and
Distribution. . . . . . . . . . . . . . . . Other Expenses of
Issuance and
Distribution
25 Recent Sales of Unregistered
Securities. . . . . . . . . . . . . . . . . Recent Sales of
Unregistered Securities
26 Exhibits. . . . . . . . . . . . . . . . . . Exhibits
27 Undertakings. . . . . . . . . . . . . . . . Undertakings
<PAGE>
PROSPECTUS
GLOBAL MED TECHNOLOGIES, INC.
1,108,803 SHARES
This Prospectus relates to the resale by the holders (the "Selling
Security Holders") named herein, for their own accounts, of up to 1,108,803
shares of Common Stock, including 187,800 shares which underly warrants
exercisable at $3.75 per share (hereinafter sometimes referred to as the
"Shares"). The Company's Common Stock and Common Stock Purchase Warrants
(the "Warrants") have been traded on NASDAQ Small-Cap Market since March
13, 1997, under the trading symbols GLOB and GLOBW. See MARKET FOR COMMON
EQUITY, DIVIDEND POLICY AND RELATED STOCKHOLDER MATTERS and DESCRIPTION OF
SECURITIES.
The shares of Common Stock being offered hereby are not being
underwritten in this offering, and the Company will not receive any
proceeds from their sale, although the Company will receive up to
approximately $704,250 if Selling Security Holders holding 187,800 warrants
exercise their warrants at $3.75 per share, of which there is no assurance.
However, these Selling Security Holders will have to exercise their
warrants in order to sell the underlying shares of Common Stock. See
SELLING SECURITY HOLDERS.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK TO
INVESTORS. PROSPECTIVE PURCHASERS SHOULD CONSIDER CAREFULLY THE DISCUSSION
UNDER RISK FACTORS COMMENCING ON PAGE 6 OF THIS PROSPECTUS.
Brokers and dealers who propose to effect transactions in the Shares
should assure themselves of the existence of appropriate exemptions from
the securities registration requirements of the securities laws of the
applicable jurisdictions or effectuate such registrations in connection
with any offers or sales of the Shares.
------------
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.
--------------------
THE DATE OF THIS PROSPECTUS IS AUGUST __, 1997.
<PAGE>
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.
<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. 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.
TABLE OF CONTENTS
Summary. . . . . . . . . . . . . . . 1 Executive Compensation . . . . . . .56
The Offering . . . . . . . . . . . . 2 Security Ownership of Certain
Summary Financial Information. . . . 3 Beneficial Owners and Management. .63
Risk Factors . . . . . . . . . . . . 5 Certain Relationships and Related
Use of Proceeds. . . . . . . . . . .16 Transaction . . . . . . . . . . . .65
Market For Common Equity, Description of Securities. . . . . .65
Dividend Policy and Related Selling Security Holders. . . . . . 68
Shareholder Matters . . . . . . . .16 Plan of Distribution . . . . . . . .74
Unaudited Pro Forma Consolidated Legal Matters. . . . . . . . . . . .75
Financial Information . . . . . . .17 Experts. . . . . . . . . . . . . . .75
Selected Financial Information . . .22 Shares Eligible for Future Sale. . .75
Management's Discussion and Additional Information. . . . . . . 76
Analysis or Plan of Operations. . .24 Glossary . . . . . . . . . . . . . .77
The Company. . . . . . . . . . . . .33 Financial Statements . . . . . . . F-1
Legal Proceedings. . . . . . . . . .51
Management . . . . . . . . . . . . .52
ii
<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
through its Wyndgate Technologies ("Wyndgate") Division. Wyndgate
develops, markets, licenses and supports software for the healthcare
industry. The Company has entered into a letter of intent to sell,
subject to shareholder approval, its DataMed International ("DataMed")
Division, which provides substance abuse (which includes drug and alcohol)
testing program services to companies, including certain Fortune 1000
companies.
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. 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 approximately $1.1 million paid by eight California blood
centers, Wyndgate has completed development and commenced marketing of the
SAFETRACE(R) 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(R) software product.
The Company was permitted to market the SAFETRACE(R) software product
during the review process. In April 1997, Wyndgate received notification
from the FDA of their finding of "substantial equivalence" of the Company's
SAFETRACE(R) software product. This determination permits the Company to
continue to market the SAFETRACE(R) software product.
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. On November 14, 1996, the
Company and Ortho Diagnostic Systems Inc. ("ODSI") entered into an
Exclusivity and Software Development Agreement (the "Exclusivity
Agreement") in which the Company and ODSI agreed to negotiate, on an
exclusive basis until May 14, 1997, 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"). The parties have agreed to continue such negotiations, on
-1-
<PAGE>
a non-exclusive basis, until September 30, 1997. 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 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 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. 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 and unregulated segments of the substance abuse
testing market. See THE COMPANY - DATAMED INTERNATIONAL DIVISION.
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.
In February 1997, the Company completed an initial public offering of
1,337,000 Units, each consisting of two shares of Common Stock and one
Class A Common Stock Purchase Warrant, from which the Company realized net
proceeds of approximately $7.9 million. On March 12, 1997, the Company
received additional net proceeds of approximately $720,000 from the sale of
an additional 119,988 Units included in Underwriters' over-allotment
option. The Units were initially quoted on the NASDAQ Small-Cap Market.
On March 13, 1997, the Common Stock and Warrants began trading separately.
THE OFFERING
Common Stock Offered for
Selling Security Holders . . 1,108,803 shares of Common Stock
Use of Proceeds . . . . . . The Company will not receive any
proceeds from the sale of the Shares.
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 should be considered
only by persons who can afford the loss
of their entire investment.
Prospective purchasers should review
-2-
<PAGE>
carefully the entire Prospectus and
should consider, among other things the
matters set forth under Risk Factors.
NASDAQ Symbols(1) . . . . . Common Stock: GLOB
Warrants: GLOBW
____________________
(1) 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.
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, 1996 and 1995 and the consolidated
balance sheet data at December 31, 1996 and 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.
-3-
<PAGE>
The selected financial data as of, and for the three months ended
March 31, 1997 and 1996, 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 unaudited financial statements. The results of operations
for the three months ended March 31, 1997 and 1996 are not necessarily
indicative of the results for a full year.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA:
(In Thousands, except per share amounts)
Years Ended Three Months Ended
December 31, March 31,
---------------- ------------------
1996 1995 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 11,034 $ 6,674 $ 2,588 $ 1,689
Cost of sales 6,470 3,218 1,533 1,071
Gross profit 4,564 3,456 1,055 618
Selling, general and
administrative 8,497 5,980 2,565 1,770
Loss from operations (3,933) (2,524) (1,510) (1,152)
Net loss $ (4,492) $ (2,685) $ (1,597) $ (1,209)
====== ====== ====== ======
Net loss per common share(1) $ (1.02) $ (.64) $ (.26) $ (.28)
===== ==== ==== ====
Common shares used in
computing net loss per
common share(1) 4,384 4,211 6,203 4,384
</TABLE>
BALANCE SHEET
(In Thousands)
December 31, 1996 March 31,1997
----------------- -------------
Cash and cash equivalents $ 489 $ 6,219
Working capital (deficit) $ (4,267) $ 2,572
Total assets $ 4,999 $ 9,926
Long-term liabilities $ 698 $ 605
Stockholders' equity (deficit) $ (3,360) $ 3,535
- --------------------
(1) See Note 1 to the consolidated Financial Statements for a description
of the computation of net loss per common share.
The Company has agreed, subject to shareholder approval, to sell
DataMed. See UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION which
illustrates the effect of the sale of DataMed.
-4-
<PAGE>
RISK FACTORS
The Shares offered hereby are speculative in nature and involve a high
degree of risk. The Shares 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 years ended December 31, 1996 and 1995, the Company
incurred a loss in the approximate amounts of $4.5 million and $2.7
million, respectively. The 1995 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 increased loss in 1996 was primarily due to
increases in overall staffing and related expenses necessary to handle
recent and anticipated future growth of the Company. For the three months
ended March 31, 1997, the Company had a loss of $1.6 million and expects to
show a loss of approximately $4.2 million for the six months ended June 30,
1997. As of December 31, 1996, the Company had a working capital deficit
of approximately $4.3 million and the Company had a negative net worth of
approximately $3.4 million. 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.
ANTICIPATED NEGATIVE CASH FLOW
Management anticipates that the Company's current and anticipated cash
balances will not be sufficient to meet the Company's capital requirements,
given the Company's current cost structure. Even if the sale of DataMed is
approved by the Company's shareholders, the Company will require additional
funds to operate in the fourth quarter of 1997. Accordingly, the Company
must generate additional capital, consider modification to its software
development programs or sharply curtail its operating costs to enable it to
continue operations with available resources. The sale of DataMed would
provide additional, but not sufficient, resources to assure the
continuation of the Company's operations and its software development
programs. The Company is currently evaluating potential investment banking
relationships to assist it in raising equity capital. However, no
assurances can be given that the Company will be successful in raising
additional capital or that the sale of DataMed will be approved by the
Company's shareholders. Further, there can be no assurance, assuming the
sale of DataMed is approved by the Company's shareholders, that the Company
will achieve profitability or positive cash flow. If the Company is unable
to obtain adequate financing, management will be required to sharply
curtail the Company's software development programs and all of its
operating expense categories.
REVENUE FLUCTUATIONS
The Company has experienced revenue fluctuations when its SAFETRACE(R)
software product is delivered. The SAFETRACE(R) software product license
fees have historically been recognized as
-5-
<PAGE>
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. Quarter to
quarter revenue fluctuations could also be affected by the decision on
whether or not to recognize revenues based upon the length of time the
Company's customers take to implement the Company's software products. The
implementation cycle of Wyndgate's SAFETRACE(R) software products is taking
longer than originally anticipated. Based on recent experience, management
now anticipate that the implementation cycle will typically take
approximately 14 months. Further, special development projects required by
customers concurrent with the licensing of the Company's software products
could result in revenue recognition delays. Software sales and consulting
revenues have not followed seasonal patterns. 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-capitalization, limitations with respect
to personnel, financial and other resources and limited customers and
revenues. As of the date hereof, only seven of the licensees of the
SAFETRACE(R) software product, Wyndgate's blood tracking system, have the
SAFETRACE(R) software product in operation. There is no assurance that the
additional licensees of the SAFETRACE(R) software product to date will ever
become operational with their SAFETRACE(R) software product, that the
Company will be able to license the SAFETRACE(R) 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. The U.S.
Department of Transportation 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 in the future the FDA
determines that the Company's SAFETRACE TX(TM) product requires FDA
clearance prior to the marketing of such product, the time delay to market
the SAFETRACE TX(TM) software product could materially and negatively
impact the Company's business. The Company cannot predict the effect of
possible future legislation and regulation. The Company will also be
required to follow applicable Good Manufacturing Practices ("GMP")
regulations of the FDA, which include testing, control and documentation
requirements, as well as similar requirements in other countries, including
-6-
<PAGE>
International Standards Organization ("ISO") 9001 standards. Failure to
meet these requirements would preclude the Company from marketing its
products on a commercial basis, and therefore would materially and
adversely affect the Company's business, financial condition and results or
operations. See THE COMPANY - WYNDGATE TECHNOLOGIES DIVISION - INDUSTRY
OVERVIEW and THE COMPANY - DATAMED INTERNATIONAL DIVISION.
FLUCTUATIONS IN OPERATING RESULTS
Results of operations are expected to fluctuate significantly from
quarter to quarter depending upon numerous factors, including demand for
the Company's products; the timing of new software license agreements with
Wyndgate customers; the ability of the Company to develop, introduce and
market new and enhanced versions of the Company's products on a timely
basis; personnel changes; changes in Company strategy, and the level of
international sales. Quarter to quarter operating results could also be
affected by the timing of the receipt of individual customer orders and
other revenue fluctuation factors discussed above.
LIMITED SALES, MARKETING AND DISTRIBUTION SYSTEMS
The Company's Wyndgate division has made limited sales of its
SAFETRACE(R) software product to date. The Company currently markets its
SAFETRACE(R) software product through a small direct sales force, both in
the U.S. and internationally. Establishment of a complete sales force
capable of effectively commercializing the Company's SAFETRACE(R) software
product, and other software products currently under development, will
require substantial efforts and require significant management and
financial resources. The Company has also been evaluating other strategic
business alliances, which may assist in the development of a national and
international sales, marketing and distribution system. Any alliance which
is developed by the Company could require substantial capital and financial
resources. There can be no assurance that the Company will be able to
establish such a sales capability on a timely basis, if at all. Moreover,
there can be no assurance that any business alliance entered into by the
Company would be successful in such commercialization efforts.
POTENTIAL DIFFICULTIES IN MANAGING BUSINESS UNDERGOING RAPID GROWTH
The Company's future success will depend to a significant extent on
the ability of its current and future management personnel to operate
effectively, both independently and as a group. Most of the Company's
management team have no prior experience as senior executives of a public
corporation. There can be no assurance that the management team will
operate together effectively. To compete successfully against current and
future competitors, to complete research and development in progress and to
develop future products, the Company believes that it must continue to
expand its operations, particularly in the areas of research and
development, sales and marketing, and training. If the Company were to
experience significant growth in the future, such growth would likely place
significant strain upon the Company's management, operating and financial
systems and resources. To accommodate such growth and compete effectively,
the Company must continue to implement and improve information systems,
procedures and controls, and to expand, train, motivate and manage its work
force. There can be no assurance that the Company's personnel, systems,
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procedures and controls will be adequate to support the Company's future
operations. Any failure to implement and improve the Company's
operational, financial and management systems or to expand, train, motivate
or manage employees could materially and adversely affect the Company's
business, financial condition and results of operations.
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. See THE
COMPANY.
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 SHRINKAGE OF MARKET DUE TO MULTIPLE SITE CONTRACTS
Presently, the Company has one specific contract which covers multiple
blood banks. The potential number of customers for the Company's
SAFETRACE(R) market could be reduced if the Company were to enter into
additional multiple site contracts. While the Company believes the
license fee charged for such multi-site arrangements is comparable to the
license fee which would be earned on an equivalent number of single site
licenses, there can be no assurance that the
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Company's revenues will be equivalent to what it would have earned under
single site licenses. See THE COMPANY - WYNDGATE TECHNOLOGIES DIVISION -
CUSTOMERS.
PRODUCT AND REPORTING LIABILITY
As of the date hereof, only seven of the Company's licensees have the
SAFETRACE(R) software product in operation. Currently, the Company has
product liability exposure for defects in its SAFETRACE(R) software product
which may become apparent through widespread use of the SAFETRACE(R)
software product. No claims have been filed against the Company involving
the SAFETRACE(R) software product and the Company is not aware of any
material problems involving the SAFETRACE(R) 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(R) software product in the aggregate of at least $4
million. There can be no assurance 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.
DEPENDENCE ON MAJOR CUSTOMERS
During the year ended December 31, 1996, one DataMed customer, Laidlaw
Transit, Inc. and one Wyndgate customer, Gulf Coast Regional Blood Center,
accounted for approximately 14% and 11.5%, respectively, of the Company's
revenues. During 1995, two DataMed customers, Laidlaw Transit, Inc. and
Chevron Corporation, one Wyndgate customer, 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. 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(R) software
product. Non-renewal or termination of the contractual arrangements with
these key Wyndgate 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. With the sale of DataMed,
the Company will lose the revenues from that division's customers. See THE
COMPANY - CUSTOMERS.
SUBSTANTIAL COMPETITION
There is substantial competition in all aspects of the blood bank and
hospital information management. Numerous companies are developing
technologies and marketing products and services in the health care
information management area. 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
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to compete with these competitors successfully. See THE COMPANY - WYNDGATE
TECHNOLOGIES DIVISION - COMPETITION and THE COMPANY - DATAMED INTERNATIONAL
DIVISION.
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. The Company has
entered into an agreement to sell DataMed subject to shareholder approval.
There is no assurance that the Company will be able to expand its business
operations. The current activities of Wyndgate in the blood center market
does 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.
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
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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.
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. See MARKET FOR COMMON EQUITY, DIVIDEND POLICY
AND RELATED SHAREHOLDER MATTERS.
AUTHORIZED STOCK AVAILABLE FOR ISSUANCE BY THE COMPANY
The Company presently has 8,135,755 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. These amounts do not, however,
include 1,456,988 shares issuable upon exercise of the Warrants or
1,414,029 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 DESCRIPTION OF SECURITIES.
LIMITED CAPITALIZATION
The Company has only limited capitalization available to it. The
Company anticipates it will need additional capital during the fourth
quarter of 1997 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 OFFICERS AND DIRECTORS
The Company's officers and directors, own approximately 33% 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
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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.
POSSIBLE ANTI-TAKEOVER EFFECTS OF PROXIES GRANTED TO ODSI, PREFERRED STOCK
AND SEVERANCE PAYMENTS
Certain of the Company's officers, directors and major shareholders
beneficially owning 3,001,500 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.
The grant of the proxies 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.
ADVERSE IMPACT OF SALES OF SHARES ON MARKET FOR COMPANY'S SECURITIES
Sales of Shares by Selling Security Holders hereunder 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 of Shares pursuant to this Prospectus may have on the
then prevailing market price of the Common Stock. The sale of the Shares
may have a depressive effect on the prices of the Company's Common Stock
and Warrants. See DESCRIPTION OF SECURITIES.
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POSSIBLE VOLATILITY OF PRICE OF SHARES, SHARES OF COMMON STOCK AND WARRANTS
The prices of securities of publicly traded corporations tend to
fluctuate widely. It can be expected, therefore, that there may be wide
fluctuations in price of the Company's Common Stock and Warrants. Although
a trading market for the Company's Common Stock and Warrants currently
exists, there can be no assurance that a market will be sustained.
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 Common Stock and the Warrants.
NASDAQ MAINTENANCE REQUIREMENTS AND EFFECTS OF POSSIBLE DELISTING; RISKS
RELATED TO LOW-PRICED STOCKS
Although the Company's shares of Common Stock and the Warrants are
currently trading on the NASDAQ Small-Cap Market, the Company must continue
to meet certain maintenance requirements in order for such securities to
continue to be listed on NASDAQ. 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 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 Common Stock and Warrants.
WARRANTS TO REPRESENTATIVE
At the closing of the Company's recent Public Offering, the Company
sold to the Representative and its designees, for a nominal cost, warrants
to purchase up to 133,700 Units (the "Representative's Warrants"),
exercisable at $11.55 per Unit. The Representative's Warrants are
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 granted certain registration rights with regard to the shares
underlying the Representative's Warrants and issuable upon exercise of the
Warrants included in the Representative's Warrants, and such registration
could result in substantial expense to the Company.
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POTENTIAL LITIGATION DUE TO THE SALE OF DATAMED
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, such contracts are not assignable. The Asset
Purchase Agreement for the sale of DataMed provides that the Company will
assign its customers contracts to the purchaser, and if the customer does
not consent to the assignment, the purchaser can require the Company to
terminate any such non-consenting customer's contract. The Company will
not conduct any form of substance abuse testing if the sale of DataMed is
approved by the Company's shareholders. While the Company does not
consider it likely, it is possible non-consenting customers could commence
litigation against the Company for failure to provide substance abuse
testing pursuant to such customer's contract with DataMed.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and the
Company intends that such forward-looking statements be subject to the safe
harbors for such statements under such sections. The Company's forward-
looking statements include the plans and objectives of management for
future operations, including plans and objectives relating to the Company's
planned national advertising campaign and future economic performance of
the Company. The forward-looking statements and associated risks set forth
in the Prospectus include or relate to: (i) the ability of the Company to
obtain a meaningful degree of consumer acceptance for its software products
and proposed software products, (ii) the ability of the Company to market
its software products and proposed software products on a national and
international basis at competitive prices, (iii) the ability of the
Company's software products and proposed software products to meet
government regulations and standards, (iv) the ability of the Company to
develop and maintain an effective national and international sales network,
(v) success of the Company in forecasting demand for its software products
and proposed software products, (vi) the ability of the Company to maintain
pricing and thereby maintain adequate profit margins, (vii) the ability of
the Company to achieve adequate intellectual property protection for the
Company's software products and proposed software products and (viii) the
ability of the Company and its customers to successfully and timely
implement the Company's software products.
The forward-looking statements herein are based on current
expectations that involve a number of risk and uncertainties. Such
forward-looking statements are based on assumptions that the Company will
market and provide software products on a timely basis, that there will be
no material adverse competitive or technological change in condition of the
Company's business, that demand for the Company's software products will
significantly increase, that the Company's Chief Executive Officer will
remain employed as such by the Company, that the Company's forecasts
accurately anticipate market demand, that the shareholders will approve the
sale of DataMed and that there will be no material adverse change in the
Company's operations, business or governmental regulation affecting the
Company or its suppliers. The foregoing assumptions are based on
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judgments with respect to, among other things, future economic, competitive
and market conditions, and future business decisions, all of which are
difficult or impossible to predict accurately and many of which are beyond
the Company's control. Accordingly, although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any
such assumption could prove to be inaccurate and therefore there can be no
assurance that the results contemplated in forward-looking statements will
be realized. In addition, as disclosed elsewhere in the "Risk Factors"
section of the Prospectus, there are a number of other risks inherent in
the Company's business and operations which could cause the Company's
operating results to vary markedly and adversely from prior results or the
results contemplated by the forward-looking statements. Growth in absolute
and relative amounts of cost of goods sold, research and development and
selling, general and administrative expenses or the occurrence of
extraordinary events could cause actual results to vary materially from the
results contemplated by the forward-looking statements. Management
decisions, including budgeting, are subjective in many respects and
periodic revisions must be made to reflect actual conditions and business
developments, the impact of which may cause the Company to alter its
marketing, capital investment and other expenditures, which may also
materially adversely affect the Company's results of operations. In light
of significant uncertainties inherent in the forward-looking information
included in the Prospectus, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
Company's objectives or plans will be achieved, See MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATIONS and
THE COMPANY.
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USE OF PROCEEDS
None of the proceeds from the sale of the shares of Common Stock by
the Selling Security Holders will be received by the Company. See SELLING
SECURITY HOLDERS and PLAN OF DISTRIBUTION.
If holders of the 187,800 warrants exercised their warrants at $3.75
per share, of which there can be no assurance, the Company would receive
approximately $704,250 from such exercises.
MARKET FOR COMMON EQUITY, DIVIDEND POLICY AND
RELATED SHAREHOLDER MATTERS
MARKET INFORMATION. The Units, each of which consisted of two shares
of Common Stock and one Warrant, commenced trading on the NASDAQ Small-Cap
Market on February 12, 1997. On March 13, 1997, the Common Stock and
Warrants included in the Units began to trade separately and the Units
ceased to trade.
The following table sets forth the high and low bid prices for the
Company's Common Stock since the Common Stock commenced trading on March
13, 1997. The quotations reflect inter-dealer prices, with retail mark-up,
mark-down or commissions, and may not represent actual transactions. The
information presented has been derived from the National Quotation Bureau,
Inc. Library.
1997 Fiscal Year High Bid Low Bid
---------------- -------- -------
First Quarter (from March 13) . . . . . . $3.875 $3.00
Second Quarter. . . . . . . . . . . . . . $3.00 $2.75
Third Quarter (through August ___). . . . $____ $____
On August __, 1997, the last reported bid and asked prices for the
Common Stock were $____ and $____, respectively, and the last reported bid
and asked prices for the Warrants were $______ and $______, respectively.
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.
SHAREHOLDER INFORMATION. As of July 23, 1997, the Company had
approximately 135 holders of record of the Company's Common Stock.
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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated balance sheet and
consolidated statements of operations (collectively, the "Unaudited Pro
Forma Consolidated Financial Information") illustrate the effect of the
disposition of DataMed. The Unaudited Pro Forma Consolidated Statement of
Operations presents the results of the Company and its two divisions for
the three months ended March 31, 1997 and for the year ended December 31,
1996 as if the disposition occurred on December 31, 1995. The Unaudited
Pro Forma Consolidated Balance Sheet as of March 31, 1997 presents the
financial position of the Company as if the disposition had occurred on
March 31, 1997.
The Unaudited Pro Forma Consolidated Financial Information is
presented for illustrative purposes only, and does not purport to represent
what the Company's financial position or results of operations would have
been had the transaction described in fact occurred on the dates indicated
above or to represent the Company's financial position or results of
operations as of or for the six months ended June 30, 1997 or for any other
future date or period. Based on preliminary estimates, management
anticipates that the pro forma financial information as of and for the six
months ended June 30, 1997 will not be consistent with the accompanying
Unaudited Pro Forma Financial Information due to the expected continued
losses of the DataMed division for the three months ended June 30, 1997 and
due to the anticipated decrease in software and related revenue expected
from the Company's Wyndgate division during the three months ended June 30,
1997.
The following Unaudited Pro Forma Consolidated Financial Information
should be read in conjunction with the audited consolidated financial
statements and the notes thereto set forth herein.
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UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
(In thousands)
HISTORICAL PRO FORMA
BALANCE SHEET BALANCE SHEET
MARCH 31, PRO FORMA MARCH 31,
1997 ADJUSTMENTS 1997
---------- ----------- ----------
Assets
Current Assets:
Cash and cash equivalents $ 6,219 $ 1,200 $ 7,419
Accounts receivable-trade,
net of allowance for
uncollectible accounts of
$220 at March 31, 1997 1,195 (894) 301
Unbilled revenues, net of allowance
for uncollectible accounts
of $150 at March 31, 1997 804 (75) 729
Prepaid expense and other assets 140 (3) 137
---------- ---------- ----------
Total current assets 8,358 228 8,586
Equipment and fixtures, at cost:
Furniture and fixtures 197 (128) 69
Machinery and equipment 390 (225) 165
Computer hardware and software 1,334 (647) 687
---------- ---------- ----------
1,921 (1,000) 921
Less accumulated depreciation
and amortization (669) 369 (300)
---------- ---------- ----------
1,252 (631) 621
Capitalized software development
costs, less accumulated
amortization of $223 at
March 31, 1997 316 --- 316
---------- ---------- ----------
Total assets $ 9,926 $ (403) $ 9,523
========== ========== ==========
See Notes to Unaudited Pro Forma Consolidated Financial Statements.
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UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET (CONTINUED)
(In thousands, except par value amounts)
HISTORICAL PRO FORMA
BALANCE SHEET BALANCE SHEET
MARCH 31, PRO FORMA MARCH 31,
1997 ADJUSTMENTS 1997
---------- ----------- ----------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,331 $ (997) $ 334
Accrued expenses 1,225 (550) 675
Accrued payroll 283 (91) 192
Accrued compensated absences 415 (40) 375
Noncompete accrual 150 --- 150
Unearned revenue 1,582 --- 1,582
Short-term debt 39 --- 39
Notes payable (including $50 to
related parties at March 31, 1997) 324 --- 324
Current portion of capital lease
obligations 437 (232) 205
---------- ---------- ----------
Total current liabilities 5,786 (1,910) 3,876
Capital lease obligations, less
current portion 605 (313) 292
Commitments and contingencies --- --- ---
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 10,000
None issued or outstanding --- --- ---
Common stock, $.01 par value:
Authorized shares - 40,000
Issued and outstanding shares -
7,909 at March 31, 1997 79 --- 79
Additional paid-in capital 12,745 12,745
Accumulated deficit (9,289) 1,820 (7,469)
---------- ---------- ----------
Total stockholders' equity 3,535 1,820 5,355
---------- ---------- ----------
Total liabilities and
stockholders' equity (deficit) $ 9,926 $ (403) $ 9,523
========== ========== ==========
See Notes to Unaudited Pro Forma Consolidated Financial Statements.
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UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except common share and per common share information)
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1997 1996
---- ----
Revenue:
Software sales and consulting $ 1,000 $ 3,648
Hardware and software, obtained
from vendors 170 928
---------- ----------
Total revenue 1,170 4,576
Cost of revenue and product development:
Software sales and consulting 301 937
Hardware and software, obtained
from vendors 143 946
---------- ----------
Total cost of revenue and product
development 444 1,883
---------- ----------
Gross profit 726 2,693
Operating expenses
Payroll and other 496 1,524
General and administrative 237 925
Sales and marketing 434 903
Research and development 429 1,538
Provision for doubtful accounts 70 19
Depreciation and amortization 60 198
---------- ----------
Loss from operations (1,000) (2,414)
Interest income 50 25
Interest expense (36) (239)
Other (79) (250)
---------- ----------
Loss before provision for income taxes (1,065) (2,878)
Provision for income taxes --- ---
---------- ----------
Net loss $ (1,065) $ (2,878)
Net loss per common share $ (0.17) $ (0.66)
Common shares used in computing net
loss per common share 6,203 4,384
See Notes to Unaudited Pro Forma Consolidated Financial Statements.
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<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
BALANCE SHEET PRO FORMA ADJUSTMENTS
Certain assets and liabilities attributable to the DataMed International
division ("DataMed") have been eliminated to reflect the sale of specified
assets and liabilities of DataMed to National Medical Review Offices, Inc.,
a privately owned company, pursuant to the June 20, 1997 Letter of Intent.
In exchange for the specified assets and liabilities of DataMed and in
accordance with the Letter of Intent, the Company is to receive $1.2
million in cash.
STATEMENTS OF OPERATIONS PRO FORMA ADJUSTMENTS
The results of DataMed have been reported in the historical
consolidated statements of operations for Global Med Technologies, Inc.
The accompanying Unaudited Pro Forma Consolidated Statements of Operations
excludes all of the operating results related to DataMed, which are shown
below:
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1997 1996
---- ----
(In thousands except common share
and per common share information)
Substance abuse testing and other revenue $ 1,418 $ 6,458
Cost of revenue 1,089 4,587
---------- ----------
Gross Profit 329 1,871
Operating expenses:
Payroll and other 322 1,200
General and Administrative 181 603
Sales and marketing 175 900
Research and development 78 327
Provision for doubtful accounts 14 88
Depreciation and amortization 69 272
---------- ----------
Loss from operations (510) (1,519)
Interest Expense (22) (79)
Other --- (16)
---------- ----------
Loss before provision for income taxes (532) (1,614)
Provision for income taxes --- ---
---------- ----------
Net loss (532) (1,614)
========== ==========
Net loss per common share $ (0.09) $ (0.36)
Common shares used in computing
net loss per common share 6,203 4,384
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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 consolidated financial
statements of the Company as of December 31, 1996 and 1995 and for the
years ended December 31, 1996 and 1995 have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report included elsewhere
in this Prospectus. This data should be read in conjunction with the
Company's consolidated financial statements (including the notes thereto)
appearing elsewhere in this Prospectus and in conjunction with MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
The selected financial data as of, and for the three months ended
March 31, 1997 and 1996, 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 unaudited financial statements. The results of
operations for the three months ended March 31, 1997 and 1996 are not
necessarily indicative of the results for a full year.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA:
(In Thousands)
Years Ended Three Months Ended
December 31, March 31,
---------------- ------------------
1996 1995 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Substance abuse testing and
other revenue $ 6,458 $ 5,740 $ 1,418 $ 1,450
Software sales and consulting 3648 934 1,000 189
Hardware and software,
obtained from vendors 928 -- 170 50
-------- -------- -------- --------
Total revenue 11,034 6,674 2,588 1,689
Cost of revenue and product
development 6,470 3,218 1,533 1,071
-------- -------- -------- --------
Gross profit $ 4,564 $ 3,456 $ 1,055 $ 618
OPERATING EXPENSES
Payroll and other 2,724 1,998 818 438
General and administrative 1,528 1,234 418 259
Sales and marketing 1,803 1,732 609 502
Research and development 1,865 655 507 451
Provision for doubtful accounts 107 244 84 27
Depreciation and amortization 470 117 129 93
-------- -------- -------- --------
Loss from operations $ (3,933) $ (2,524) $ (1,510) $ (1,152)
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA, CONTINUED
- ---------------------------------------
(In Thousands)
Years Ended Three Months Ended
December 31, March 31,
---------------- ------------------
1996 1995 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest expense, net (293) (61) (8) (43)
Other (266) (71) (79) (14)
-------- -------- -------- --------
Loss before provision for
income taxes (4,492) (2,656) (1,597) (1,209)
Provision for income taxes -- 29 -- --
-------- -------- -------- --------
Net loss $ (4,492) $ (2,685) $ (1,597) $ (1,209)
======== ======== ======== ========
</TABLE>
BALANCE SHEET DATA:
(In Thousands)
December 31, March 31,
1996 1995 1997
---- ---- ----
Working capital (deficit) . . . . . . . $ (4,267) $ (2,172) $ 2,572
Total assets . . . . . . . . . . . . . . $ 4,999 $ 2,721 $ 9,926
Accumulated deficit. . . . . . . . . . . $ (7,692) $ (3,200) $ (9,289)
Stockholders' equity (deficit) . . . . . $ (3,360) $ (1,459) $ 3,535
-23-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
Global Med Technologies, Inc. is comprised of two operating divisions,
Wyndgate Technologies ("Wyndgate") and DataMed International ("DataMed").
Wyndgate designs, develops, markets and supports health care information
management software products for blood banks, hospitals and other
facilities. Revenues for Wyndgate are derived from the licensing of software,
the provision of consulting and other value-added support services and the
sale of related hardware and software obtained from vendors. DataMed is in
the business of substance abuse testing and medical surveillance management
services, including medical review function, data management, record
storage and coordination of all substance abuse testing program elements.
Revenues for DataMed are derived from the provision of substance abuse
testing management services and the coordination of laboratory and
collection site services for substance abuse tests. The Company, has
entered into an agreement to sell DataMed, subject to shareholder approval.
During the three months ended March 31, 1997, the Company completed an
initial public offering in which approximately 2,914,000 shares of common
stock were issued and provided the Company with approximately $8.3 million,
net of expenses. Through July 1997 the Company has used approximately $4.5
million of the net proceeds from the initial public offering. The use of
proceeds, to date, have been principally expended to repay certain debt and
the payment of accounts payable and other accrued expenses. Management
anticipates that the remaining funds will not be sufficient to fund
Wyndgate's software development and the continued expected losses of the
DataMed division.
From inception to March 31, 1997, the Company incurred cumulative net
losses of approximately $9.3 million. The Company expects to continue to
incur losses until 1999, and possibly thereafter, until its existing
SAFETRACE(R) software product is fully implemented and fully operational
within the Company's customers information system environment and until its
transfusion management information system software product, which is
currently under development, is established in its markets.
Management recently became aware of the now expected delays in the
previously anticipated increase in future software license fee revenues
expected from certain large internationally based blood centers and
hospital organizations. See Liquidity and Capital Resources below for
further discussion of the Company's cash requirements and management's
plans.
The Company's Wyndgate division has historically incurred, and expects
to continue to incur, losses related to its operations, including the
continued costs for research and development of new software products by
Wyndgate and the expansion of sales and marketing resources. The timing
and amounts of the Company's expenditures will depend upon a number of
factors, including the progress of the Company's research and development
process, the status and timing of regulatory approval, the timing of market
acceptance of the Company's products, the level of support needed
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<PAGE>
by the Company's customers to implement the software products they license
from Wyndgate, and the efforts required to develop the Company's sales and
marketing organization. The Company's DataMed division has incurred
cumulative losses from inception of approximately $5.2 million through
March 31, 1997.
RESULTS OF OPERATIONS
The results of operations for the three months ended March 31, 1997
are not necessarily indicative of the results that may be expected for any
other interim period of 1997 or for the year ending December 31, 1997.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
1996
REVENUES. Revenues are comprised of substance abuse testing and other
revenue, software sales and consulting revenues, and sales of hardware and
software obtained from vendors.
Revenues from substance abuse testing and other services decreased
$32,000, or 2%, for the three months ended March 31, 1997 compared to the
same three months in 1996. This decrease in substance abuse testing and
other revenue was primarily the result of decreased average price per donor
record during the three months ended March 31, 1997. While the Company
earned increased substance abuse testing revenues from new clients during
the three months ended March 31, 1997, these increases were offset by the
termination of contracts with certain smaller accounts in late 1996 and
early 1997.
Revenues from software sales and consulting increased $811,000 or
429%, for the three months ended March 31, 1997 compared to the same three
months in 1996. This increase in software sales and consulting revenue is
primarily the result of approximately $700,000 of software revenue
recognized in conjunction with certain deliveries of Wyndgate's
SAFETRACE(R) software products sold during the three months ended March 31,
1997.
Revenues from hardware and software, obtained from vendors increased
$120,000, or 240%, for the three months ended March 31, 1997 compared to
the same three months in 1996. This increase was primarily due to an
increase in the average price per order and in the number of Wyndgate
customers which ordered third party hardware and software through Wyndgate.
Because the Company's marketing and sales efforts will continue to be
focused on its current and future Wyndgate products and services, revenues
from the Company's software products and related services are expected to
increase in the future. If, however, future sales of Wyndgate's
SAFETRACE(R) software product licenses are less than management
anticipates, the Company's revenues, gross margins, and liquidity may be
materially adversely affected.
COST OF REVENUE AND PRODUCT DEVELOPMENT. Cost of revenue and product
development as a percentage of revenues was 59% for the three months ended
March 31, 1997 compared to 63% for the same three months in 1996.
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<PAGE>
Cost of substance abuse testing and other services as a percentage of
the related revenue was 77% for the three months ended March 31, 1997
compared to 60% for the same three months in 1996. This increase was
primarily due to increases in average cost per donor record during the
three months ended March 31, 1997.
Cost of software sales and consulting as a percentage of the related
revenue was 30% for the three months ended March 31, 1997 compared to 85%
for the same three months in 1996. This decrease was primarily a result of
increased sales of Wyndgate's SAFETRACE(R) software product licenses which
are typically priced at higher profit margins than revenues from consulting
and implementation related services. These higher profit margin sales were
offset by an increase in amortization of capitalized software development
costs. Amortization of capitalized software development costs was $60,000
for the three months ended March 31, 1997 and $15,000 for the same three
months in 1996.
Cost of hardware and software, obtained from vendors as a percentage
of the related revenue was 84% for the three months ended March 31, 1997
compared to 90% for the same three months in 1996.
GROSS PROFIT. Gross profit as a percentage of revenues was 41% for
the three months ended March 31, 1997 compared to 37% for the same three
months in 1996 as a result of the increased sales of higher margin products
discussed above.
PAYROLL AND OTHER. Payroll and other increased $380,000, or 87%, for
the three months ended March 31, 1997 compared to the same three months in
1996. The increase in payroll and other was primarily due to increased
salary and employee benefit costs incurred as a result of the hiring of
additional client service personnel necessary to manage the Company's new
customers and increased management personnel.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased $159,000, or 61%, for the three months ended March 31, 1997
compared to the same three months in 1996. The increase in general and
administrative expenses was attributable primarily to increases in outside
contract services, insurance related expenses, leased office space expenses
and other general and administrative expenses which were related to the
increase in the number of employees.
SALES AND MARKETING. Sales and marketing expenses increased $107,000,
or 21%, for the three months ended March 31, 1997 compared to the same
three months in 1996. The increase in sales and marketing expenses was
primarily due to $155,000 of expenses related to certain stock options
granted to a business advisory enterprise. This increase was partially
offset by decreased activity in trade shows and direct sales 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.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$56,000, or 12%, for the three months ended March 31, 1997 compared to the
same three months in 1996. The increase in research and development
expenses was primarily due to an increase in the number of employees
assigned to software development at Wyndgate. Management expects research
and
-26-
<PAGE>
development expenses to increase as additional software development related
to Wyndgate's transfusion management information system software product is
planned within 1997.
PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts
increased $57,000, or 211% for the three months ended March 31, 1997
compared to the same three months in 1996. The provision for doubtful
accounts for the three months ended March 31, 1997 included $70,000
provided for potential uncollectability of certain accounts receivable.
This $70,000 expense was offset by a $13,000 decrease in write-offs of
accounts receivable.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
increased $36,000, for the three months ended March 31, 1997 compared to
the same three months in 1996. The increase in depreciation and
amortization is due to the increases in fixed assets.
INTEREST INCOME. Interest income increased $50,000 for the three
months ended March 31, 1997 compared to the same three months in 1996. The
increase was primarily due to interest income on the net proceeds received
from the Company's initial public offering.
INTEREST EXPENSE. Interest expense increased $15,000 for the three
months ended March 31, 1997 compared to the same three months in 1996.
This increase was primarily due to increases in interest expense on capital
lease obligations and notes payable.
OTHER. Other expenses increased $65,000, or 464%, for the three
months ended March 31, 1997 compared to the same three months in 1996.
This increase was primarily due to $79,000 of expenses incurred during the
first quarter in 1997 in conjunction with the issuance and registration of
warrants to two individuals.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $6,219,000 at March 31,
1997, none of which is restricted. Management recently became aware of the
now expected delays in future software license fee revenues expected from
certain large internationally based blood centers and hospital organizations.
These delays are expected to cause a greater use of liquidity and capital
resources during the remainder of 1997 than originally anticipated. Based
on this recent information, management anticipates that the Company's current
and anticipated cash balances will not be sufficient to meet the Company's
capital requirements as the Company is presently structured, even if
DataMed is sold. Management recognizes that the Company must generate
additional capital resources or consider modifications to its software
development programs or sharply curtail its operating costs to enable it to
continue operations with available resources. Management's plans include
consideration of the sale of additional equity securities and the sale of
DataMed which would provide sufficient resources to continue the Company's
operations and its software development programs for the remainder of 1997.
The Company anticipates it will continue to incur losses until 1999, and
possibly thereafter; accordingly, the Company will require additional
capital beyond current capital raising efforts.
The Company had working capital of $2,572,000 at March 31, 1997
compared to a working capital deficit of $4,267,000 at December 31, 1996.
The change in working capital during the three months ended March 31, 1997
was primarily due to the completion of the Company's initial public
-27-
<PAGE>
offering which generated approximately $8.3 million in net proceeds, offset
by changes in operating assets and liabilities.
The Company used $1,406,000 in net cash for operating activities for
the three months ended March 31, 1997, compared to $855,000 for the same
three months in 1996. The cash used in operations for the three months
ended March 31, 1997 consisted primarily of the net loss for the period
offset by depreciation and amortization expense, other non-cash expenses
and decreases in accounts receivable balances, accounts payable and other
accrued expenses and increases in unbilled revenues, net, and unearned
revenue.
Net cash used in investing activities was $125,000 and $39,000 for the
three months ended March 31, 1997 and 1996, respectively. For both
periods, net cash used in investing activities consisted entirely of
purchases of equipment and fixtures related to the increase in the number
of employees of the Company and occupation of additional office space.
Net cash provided by financing activities was $7,261,000 and
$1,004,000 for the three months ended March 31, 1997 and 1996,
respectively. During the three months ended March 31, 1997, the Company
completed its initial public offering and received approximately $8.3
million in net proceeds. The Company used a portion of these net proceeds
to repay approximately $1.4 million in short term debt and notes payable,
and also to pay certain offering and distribution costs related to the
initial public offering. In addition, the Company paid $98,000 in
principal payments on its capital lease obligations during the three months
ended March 31, 1997.
The implementation cycle of Wyndgate's SAFETRACE(R) software products
is running longer than originally anticipated. Based on recent experience,
management now anticipates that the implementation cycle will typically
take an average of approximately 14 months. The implementation cycles are
dependent on various items including the clients' size and the complexity
of the clients' standard operating procedures. Seven of the current
twenty-five SAFETRACE(R) software product clients are implemented and are
operational on the SAFETRACE(R) software product. The results of the
implementation cycle delays are expected to delay future SAFETRACE(R)
software product maintenance revenues, future milestone payments from
clients as defined in the SAFETRACE(R) software product license agreements,
the anticipated increase in future software license fee revenue from
further sales of the SAFETRACE(R) software product, and cause a greater use
of liquidity and capital resources than originally anticipated.
The Company is currently evaluating potential investment banking
relationships to assist it in the possible sale of equity securities. The
Company also has entered into a letter of intent to sell DataMed, subject to
shareholder approval. Assuming the Company successfully raises additional
funds and/or shareholders approve the sale of DataMed, there can be no
assurance that the Company will achieve profitability or positive cash
flow. If the Company is unable to obtain adequate financing or enter into
such business transaction, management will be required to sharply curtail
the Company's software development programs and all of its operating
expense categories. If the Company is successful in raising additional
funds through the sale of additional equity securities, such a change in
capitalization could also increase the number of shares of Common Stock
outstanding, thus diluting ownership of current shareholders in the
Company.
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<PAGE>
In April 1997, the Company committed to incurring certain costs
related to relocation of Wyndgate's offices to another location within the
Sacramento, California metropolitan area. The purpose of this relocation
is to accommodate the increased office space requirements as a result of
the increase in the number of employees at Wyndgate. These costs, include,
without limitation, approximately $250,000 in additional equipment and
fixtures which may be purchased or financed via capital leases,
approximately $50,000 in leasehold improvements, approximately $40,000 in
deposits on the new facility's leased space, and approximately $60,000
related to estimated moving expenses and other expenses related to the
relocation of Wyndgate's offices. Completion of this move is expected
during the third quarter of 1997. The result of the above and additional
relocation costs are expected to adversely affect future operating results
due to increased depreciation and amortization expense, increased interest
cost, increased office rent expense, and increased losses on disposal of
fixed assets during 1997. In addition, cash used to fund the relocation
costs will not be available to fund operations, which is expected to
adversely affect the Company's liquidity and working capital during 1997.
FISCAL 1996 COMPARED TO FISCAL 1995
REVENUES. Revenues increased by $4.3 million, or 64%, to $11.0
million for 1996 compared to $6.7 million for 1995. The increase was
primarily the result of the introduction of Wyndgate's SAFETRACE(R)
software product and related sales of hardware and software obtained from
vendors which accounted for approximately $3.6 million of the increase. In
addition, substance abuse test volume increased approximately 6%, from
approximately 210,000 tests in 1995 to approximately 222,000 tests in 1996.
COST OF SALES AND PRODUCT DEVELOPMENT. Cost of sales and product
development as a percentage of revenues was 59% in 1996 compared to 48% in
1995. This increase was primarily a result of the following: increased
royalty fee expenses based on increased sales of Wyndgate's SAFETRACE(R)
software product licenses; increased sales of hardware and software
obtained from vendors 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(R) software product.
GROSS PROFIT. Gross profit as a percentage of revenues was 41% in
1996 compared to 52% in 1995 as a result of the increased costs discussed
above.
PAYROLL AND OTHER. Payroll and other increased $726,000, or 36%, in
1996 compared to 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.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased $294,000, or 24%, in 1996 compared to 1995. The increase in
general and administrative expenses was attributable primarily to increases
in outside contract services, product liability insurance, leased office
space and other general administrative expenses which were related to the
increase in the
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<PAGE>
number of employees. These expenses were offset by a significant decline
in merger and reorganization expenses.
SALES AND MARKETING. Sales and marketing expenses increased $71,000
or 4% in 1996 compared to 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 SAFETRACE TX(TM) software product.
RESEARCH AND DEVELOPMENT. Research and development expenses were
$1.87 million in 1996 compared to $655,000 in 1995 representing an increase
of 185%. 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 year.
PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts
decreased $137,000, or 56%, in 1996 compared to 1995. The provisions for
doubtful accounts in both 1996 and 1995 were generally consistent with
management's expectations.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
increased $353,000, in 1996 compared to 1995. The increase in depreciation
and amortization is due to the increases in fixed assets.
INTEREST INCOME (EXPENSE), NET. Net interest expense increased
$233,000, or 380%, in 1996 compared to 1995. This increase was primarily
due to increases in capital lease financing, interest incurred related to
the 10% Notes, and increases in other short-term borrowings. Management
used a portion of the net proceeds from the Company's February 1997 public
offering to repay certain short-term borrowings and certain of the 10% Notes
not converted into Common Stock.
OTHER. Other expenses increased $195,000, or 275%, in 1996 compared
to 1995. These expenses included $250,000 provided for potential
uncollectability of a note receivable. This $250,000 expense was offset by
a $55,000 decrease in losses on disposal of fixed assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of approximately $4.3
million as of December 31, 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 $2.6 million during its fiscal year
ended December 31, 1996 compared to approximately $553,000 during its
fiscal year ended December 31, 1995. The increase in cash used in
operations during fiscal 1996 is attributable primarily to an increase of
approximately $1.3 million in accounts receivable and unbilled receivables
and an increase in prepaid expenses and other assets of $173,000, offset by
increases in accrued liabilities and deferred revenue. The Company used
cash in investing activities of
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<PAGE>
approximately $242,000 during fiscal 1996 compared with approximately
$191,000 during the comparable period in fiscal 1995. During fiscal 1996,
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 fiscal 1996 and received net short-term borrowings of
$597,000 for the same period. Additionally, the Company received proceeds
of approximately $1.74 million from the private placement of its Common
Stock after deducting commissions and expenses of $260,000 during the
fiscal 1996. During fiscal 1996, the Company also used cash from the
financing activities by making approximately $353,000 in principal payments
on capital leases and by payment of $486,000 of issuance and distribution
costs for the Company's February 1997 public offering.
Cash provided by financing activities for fiscal 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. These loans were repaid with accrued interest
of approximately $5,000 in February 1997. The proceeds of the loans were
used for short-term 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
is using proceeds from the Company's February 1997 public 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.
The Company maintained a $1 million line of credit with a bank which
matured February 12, 1997. The amount drawn on this line of credit at
December 31, 1996 was $970,000. During February 1997, the Company used net
proceeds from the Company's February 1997 public offering to repay
approximately $970,000 for the $1 million line of credit plus accrued
interest of approximately $4,000. A principal stockholder of the Company
had personally guaranteed the repayment of 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 year ended December 31, 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 SAFETRACE(R) software
product implementations for the Company's customers within a short period
of time and delays experienced in implementation of the SAFETRACE(R)
software product has created billing and collection delays.
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<PAGE>
The Company incurred a loss of approximately $4.5 million during
fiscal 1996. The Company expects to continue to incur losses until 1999,
and possibly thereafter, until its software products are better established
in its markets. There can be no assurance that the Company can generate
sufficient revenues, earnings and cash collections from software 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 SAFETRACE TX(TM)
software product, other new products, as well as new applications for its
present core products, which include both SAFETRACE(R) and the SAFETRACE
TX(TM) software products. Additionally, the Company's working capital
requirements may depend upon its success in obtaining a FDA 510K clearance
letter for its SAFETRACE TX(TM) software product within the next 12 months.
Failure to receive such clearance letter 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.
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<PAGE>
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. Formerly known as National MRO, Inc.,
which was founded in 1989, the Company changed its name to Global Data
Technologies, Inc. in 1995 in connection with the merger of National MRO,
Inc. and The Wyndgate Group, Ltd. in May 1995. The Company 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. As more fully described below, the Company has
entered into a letter of intent to sell, subject to shareholder approval,
specified assets and liabilities of DataMed.
Founded in 1984, Wyndgate initially developed a Student Information
System ("SIS"), an integrated software package for colleges and
universities to track student information. 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 approximately $1.1 million paid by the Royalty Group, Wyndgate has
completed development and commenced marketing of the SAFETRACE(R) 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(R) software product. The Company was permitted to continue to
market the SAFETRACE(R) software product during the review process. In
April 1997, the Company's Wyndgate division received notification from the
FDA of their finding of "substantial equivalence" of the Company's
SAFETRACE(R) software product. This determination permits the Company to
continue to market the SAFETRACE(R) software product. See THE COMPANY -
WYNDGATE TECHNOLOGIES DIVISION - INDUSTRY OVERVIEW.
The Company continues to concentrate its development efforts on
Wyndgate's existing SAFETRACE(R) software product and Wyndgate's SAFETRACE
TX(TM) product which is currently under development.
The Company's internally developed software development tool,
EDEN-OA(R), was used in the development of Wyndgate's existing character-
based SAFETRACE(R) software product and EDEN-OA(R) provides the foundation
for Wyndgate's existing SAFETRACE(R) software product. Until recently,
management planned to continue to focus research and development efforts for
further development of EDEN-OA(R).
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Based on management's now anticipated development requirements of
Wyndgate's graphical user interface version of the SAFETRACE(R) software
product and the SAFETRACE TX(TM) software product, management plans to shift
Wyndgate's development efforts towards enhancements of commercially
available, graphical software development tools. Management intends to
continue EDEN-OA(R) support for the existing character-based SAFETRACE(R)
software product. As a result, management no longer expects EDEN-OA(R) to
be essential to the Company's strategic goals or to be critical to the
Company's competitive advantages.
Management believes purchasing and using commercially available,
graphical software development tools for development provides Wyndgate cost
and time effective software development tool solutions when compared to the
estimated time and costs of further development and enhancements of EDEN-OA(R).
DataMed was founded in 1989 by Michael I. Ruxin, M.D. to offer the
services of a Medical Review Officer ("MRO") to the regulated and
unregulated segments 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. The Company intends to increase its
sales and marketing efforts by hiring additional field sales and other
marketing personnel during the twelve months following its February 1997
public offering. The Company's Wyndgate division currently has four sales
and marketing personnel and DataMed currently has four sales and marketing
personnel. The Company believes it can increase its presence in the U.S.
blood bank information management market through its planned increases in
its 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. In the future, the Company intends to introduce
a transfusion management information system, to be known as the SAFETRACE
TX(TM) software product.
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EXPAND INTERNATIONAL MARKETS. The Company is focused on expanding
international markets. The Company 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.
MAINTAIN TECHNOLOGY ADVANTAGE. The Company will continue to focus
research and development on evolving its software development environment.
Additional financing will be required to enable the Company to accomplish
its goals in this area.
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
and hospitals.
CUSTOMERS
The Company currently has 25 (including the Royalty Group) customers
for its SAFETRACE(R) software product and intends to continue to target
domestic and international blood banks, plasma centers and hospitals.
During the year ended December 31, 1996, one DataMed customer, Laidlaw
Transit, Inc. and one Wyndgate customer, Gulf Coast Regional Blood Center,
accounted for approximately 14% and 11.5%, respectively, of the Company's
revenues. During 1995, two DataMed customers, Laidlaw Transit, Inc. and
Chevron Corporation and one Wyndgate customer, the Royalty Group, accounted
for approximately 18%, 12% and 10%, respectively, of the Company's
revenues. See WYNDGATE TECHNOLOGIES DIVISION - DEVELOPMENT AGREEMENTS.
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(R) 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. With the sale of DataMed, the Company will
lose the revenues from DataMed's customers. See THE COMPANY - SALES AND
MARKETING.
RESEARCH AND DEVELOPMENT
During the fiscal years ended December 31, 1996 and 1995, the Company
expended approximately $1.87 million, and $655,000, respectively, for
research and development.
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EMPLOYEES
As of June 30, 1997, the Company had 137 full-time employees,
consisting of 8 employees for the corporate office, 72 at Wyndgate and 57
at DataMed. As a result of the Interim Management Agreement relating to
DataMed, the number of DataMed employees is expected to decline. 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. As a
result of the Interim Management Agreement and consummation of the Asset
Purchase Agreement, the Company's need for a substantial portion of such
space will be eliminated, and it is presently anticipated that the Company
will enter into a new lease for a reduced amount of office space. The
Company also leases approximately 22,000 square feet of office space in
Sacramento, California pursuant to a lease that expires on September 7,
2002. 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 year ended
December 31, 1996, office lease expenses per month were approximately
$25,000.
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(R) 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.
In addition, Wyndgate provides training and consulting services for
installation, implementation, special programming, system design, and
maintenance for its software products. The majority of customers for
Wyndgate's software products use all or a portion of these services.
Historically, maintenance and product upgrades from Wyndgate's software
products 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(R) software product.
INDUSTRY OVERVIEW
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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 more accurate information.
With the spread of AIDS and Hepatitis-B, stringent FDA guidelines have
been imposed on blood banks in order to insure 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(R) 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.
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. In April 1997, the Company's Wyndgate
Division received notification from the FDA of their finding of
"substantial equivalence" of the Company's SAFETRACE(R) software product.
This determination provides a 501(k) clearance and permits the Company to
continue to market the SAFETRACE(R) software product. A competitor also
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(R) 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 include:
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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(R) software product.
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. In the future, the
Company intends to introduce a transfusion management information system
(the SAFETRACE TX(TM) software product). However, there can be no
assurance that such introduction to the market will occur as the Company is
currently researching whether a 510(k) application is required to be
submitted to the FDA for the SAFETRACE TX(TM) software product. If the
determination is made that a 510(k) submission is required, the SAFETRACE
TX(TM) software product may not be marketed by the Company until clearance
is received from the FDA. There can be no assurance as to the length of
time required for the FDA to review a 510(k) submission made by the
Company, or that the Company would ultimately receive a clearance letter
relating to the SAFETRACE TX(TM) software product.
STRATEGIC RELATIONSHIPS AND SELECTIVE ACQUISITIONS. Wyndgate intends
to continue to pursue strategic relationships to further develop uses for
its technology.
SOFTWARE PRODUCTS
The SAFETRACE(R) 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, distribution and
billing. The Company currently markets its SAFETRACE(R) 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.
SAFETRACE(R) 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 Maintains current inventories of all
DISTRIBUTION available blood products which have been
tested and labeled. Records the movement of
blood products from
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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(R) 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(R)
software product has an 85% table driven structure which permits it to
easily adapt to each customer's individual and unique operations. The
SAFETRACE(R) software product has been developed using industry standards,
common operating systems and database managers to ensure portability.
Because of the independence of the SAFETRACE(R) software product's
database, operating systems and hardware, customers have freedom and
flexibility in selecting computer hardware and software components. The
SAFETRACE(R) software product permits customers to preserve their
application software and training investment as customer systems needs and
technology change. Currently, management estimates the SAFETRACE(R)
software product consists of more than 1.5 million lines of code, 481 data
tables, 6,054 data elements, 59 labeling occurrences of component and
release logic, 3,000 discrete programs and over 1,000 screens and windows.
SERVICES
Wyndgate believes that the high quality of the services component of
the business is the key to retaining current customers and enhancing
Wyndgate's reputation for quality and increasing its market presence.
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 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.
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(R) 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
approximately fourteen months from the date of delivery of the software to
the customer to implement the SAFETRACE(R) software product and a portion
of Wyndgate's resources are used
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during that time. Installation and implementation services are not
considered part of the SAFETRACE(R) software product license fee or usage
fee, and are typically invoiced 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 Wyndgate's 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 SAFETRACE(R) 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 request 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(R) software product customers.
PRODUCT DEVELOPMENT
SAFETRACE TX(TM) - TRANSFUSION MANAGEMENT INFORMATION SYSTEM.
Wyndgate has begun the development of the SAFETRACE TX(TM) software
product, a transfusion management information system that can be utilized
by hospitals to help them insure the safety of the blood transfused into
patient-recipients. If completely developed, it will provide electronic
cross-matching capabilities to help insure 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 SAFETRACE
TX(TM) software product will complement the SAFETRACE(R) software product
as it can integrate hospitals with blood centers that supply blood
products. The Company is currently researching whether a 510(k)
application is required to be submitted to the FDA for the SAFETRACE TX(TM)
software product. If the determination is made that a 510(k) submission is
required, the SAFETRACE TX(TM) software product may not be able to be
marketed by the Company until clearance is received from the FDA. There
can be no assurance as to the length of time required for the FDA to review
a 510(k) submission made by the Company, or that the Company would
ultimately receive a clearance letter relating to the SAFETRACE TX(TM)
software product.
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DEVELOPMENT AGREEMENTS
Pursuant to the development agreement between Wyndgate and the Royalty
Group, Wyndgate developed the SAFETRACE(R) software product and Wyndgate
must make royalty payments to the Royalty Group based on a percentage of
Wyndgate's SAFETRACE(R) software product license sales, measured by invoice
amounts to purchasers of the SAFETRACE(R) software product, 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 SAFETRACE TX(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:
Percentage of License Fee Percentage of License Fee
if ITxM Initiates Sale if Company 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%
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CUSTOMERS
Wyndgate currently has SAFETRACE(R) software product contracts with
the following blood centers, which are in various stages of implementation:
* 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(1)
* 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
* Lifeblood/Mid-South Regional Blood Center, Memphis, TN
* Peninsula Blood Bank, Inc., Burlingame, CA
* Rhode Island Blood Center, Providence, Rhode Island
* Sacramento Medical Foundation Blood Center, Sacramento, CA(1)
* Samuel W. Miller Memorial Blood Center, Bethlehem, PA(1)
* San Diego Blood Bank, San Diego, CA
* Siouxland Community Blood Bank, Sioux City, IA(1)
* Stanford Medical School Blood Center, Palo Alto, CA(1)
* The Blood Center of Central Iowa, Des Moines, IA
* The Blood Center for Southeast Louisiana, New Orleans, LA(1)
* Tri-Counties Blood Bank, Santa Barbara, CA(1)
* The Memorial Blood Centers of Minnesota, Inc., Minneapolis, MN
* Oklahoma Blood Institute, Oklahoma City, OK
- --------------------
(1) Implemented and operational.
See SERVICES, above, for a description of a typical license agreement.
Based upon its installation experience, management now estimates that
SAFETRACE(R) software product implementations will take approximately 14
months from the date of delivery of the software to the customer depending
on the blood center's size and complexity of the blood center's standard
operations procedures ("SOPs").
On February 13, 1997, Wyndgate entered into a multi-million dollar,
10-year contract with Haemonetics Corporation ("Haemonetics"), a New York
Stock Exchange listed company located in Braintree, Massachusetts.
Licensing and other fees are payable by Haemonetics over the life of the
contract. Under the contract, Wyndgate will provide the use of its
SAFETRACE(R) blood bank information management software to Haemonetics for
its entry into the service side of blood banking in multiple locations,
including one of the blood banks listed above which was previously
contracted
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by Wyndgate. Haemonetics has traditionally provided blood separation
products to blood banks and hospitals domestically and internationally.
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(R) software
product to manage their business and comply with FDA regulations to help
insure the safety of the blood supply. The SAFETRACE(R) software product
allows the CBCs to enter the FDA guidelines, consistent with the CBC's
SOPs, into SAFETRACE(R) software product tables which then provide system
control over the manufacturing 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 SAFETRACE TX(TM)
software product). All acute care hospitals and alternate transfusion
sites will be potential customers for the SAFETRACE TX(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(R) 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 SAFETRACE TX(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 had 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 "Technology") and that, during the Exclusivity
Period, the Company would not, directly or through any intermediary,
accept, encourage, solicit, entertain or otherwise discuss any acquisition
of any of the Company's Common Stock, 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.
Prior to the expiration of the Exclusivity Period, the Company
received communication from ODSI that it had not yet completed an internal
evaluation of the Company's Technology and would not be prepared at the
conclusion of the Exclusivity Period to discuss any form of proposed
transaction between the Company and ODSI. ODSI requested, and the Company
agreed, that ODSI be permitted to continue its evaluation of the Company's
Technology, on a non-exclusive basis, with the intent of responding to the
Company by July 14, 1997 regarding whether or not ODSI would propose some
form of transaction with the Company. On July 14, 1997, the parties agreed
to a further extension to September 30, 1997.
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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 payments to the Company towards any
consideration payable to the Company in connection with a 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 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 a security interest with a bank which was in effect at the time
the Exclusivity Agreement was negotiated) of any kind or nature any of the
Technology. In connection with the extension of the agreement to September
30, 1997, ODSI relinquished its 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 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
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of the Company's Common Stock, then the Company shall pay ODSI an amount
equal to $2 million 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.
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
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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(R) 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 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 monitors the
performance of: testing laboratories; specimen collection providers; MROs;
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.
ASSET PURCHASE AGREEMENT/INTERIM MANAGEMENT AGREEMENT
On June 20, 1997, the Company and National Medical Review Offices,
Inc. ("NMRO") entered into a letter of intent which provided for the sale
of DataMed to NMRO. The sale is subject to the approval of the Company's
shareholders at a meeting tentatively scheduled to be held in September
1997. The following is a summary of what the Company believes are material
features of the Asset Purchase Agreement, which is still being negotiated
by the parties, and the Interim Management Agreement.
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PURCHASED ASSETS. NMRO will purchase from the Company all of the
assets associated with DataMed at June 30, 1997. The assets include
accounts receivable, accrued accounts receivable (unbilled revenue),
pre-paid expenses, customer list of DataMed, customer contracts, furniture,
fixtures and equipment, names, telephone numbers, tradenames and copyrighted
materials.
PURCHASE PRICE. In consideration for the Assets, NMRO shall pay
$1,200,000 at closing, $600,000 of which has been placed in an escrow
account, and assume certain obligations of DataMed at June 30, 1997.
Included in the obligations assumed by NMRO are accounts payable (excluding
intercompany payables), accrued expenses, capitalized leases, including
a new lease on approximately 10,500 square feet of office space in which
DataMed's operations are located, accrued payroll and vacation pay for
DataMed employees and certain sales commissions.
FINANCING OF SALE. NMRO has advised the Company that it received the
$600,000 which has been placed in escrow from Substance Abuse Technologies,
Inc. ("SAT"), a publicly traded company. On July 15, 1997, the Company was
notified that NMRO had assigned the Management Agreement to SAT.
EMPLOYEES. At Closing, NMRO or SAT will offer to employ certain
employees of DataMed then actively employed by the Company at compensation
levels to be negotiated, provided that NMRO or SAT may make changes in job
description and other terms to meet operational objectives. Included in the
employees expected to be employed is Bart K. Valdez, Acting Chief Financial
Officer and Director of Operations of DataMed.
CONDITIONS. Each party's obligations pursuant to the Asset Purchase
Agreement are subject to certain conditions, including the consent of the
Company's shareholders.
TERMINATION. The Asset Purchase Agreement may be terminated by
mutual consent of both parties prior to the Closing Date. The Asset
Purchase Agreement may also be terminated by either of the parties on the
Closing Date in the event that all of the conditions precedent to a party's
obligation to consummate the Closing have not been satisfied on or before
the Closing Date.
The Asset Purchase Agreement may be terminated by the Company in the
event (i) a voluntary or involuntary proceeding involving NMRO is commenced
under the United States Bankruptcy Code or if NMRO makes or commences
negotiations for partial or complete assignment of its assets for the
benefit of creditors; (ii) a receiver, custodian, examiner or trustee is
appointed for any of NMRO's property or assets; (iii) NMRO is terminated,
liquidated or dissolved; (iv) in the event the Company's shareholders do
not approve the sale of DataMed within the time required, but only if the
Company is not in breach of any material duty or obligation imposed upon the
Company under the Asset Purchase Agreement and no event has occurred which
with the giving of notice or the passage of time would constitute a breach
by NMRO of any such material duty or obligation;(v) NMRO defaults in the
performance of any material duty or obligation imposed on it pursuant to the
Asset Purchase Agreement, which default is not corrected after written
notice is given to NMRO by the Company. If the Company terminates the Asset
Purchase Agreement as a result of any of the foregoing, except the failure
of the Company's shareholders to approve the Asset Purchase Agreement, or
if the Company terminates the Asset Purchase Agreement following the
failure to
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satisfy any of its conditions precedent set forth therein, then the Asset
Purchase Agreement and the Management Agreement will terminate, the
Company will not be obligated to reimburse NMRO for its Expenses (as
defined in the Management Agreement), and the Company will assume all rights
(including rights to accounts receivable of DataMed) and all obligations
and liabilities (including accounts payable) relating to the operation of
DataMed after the date of such termination. If the Company terminates the
Asset Purchase Agreement because the Company's shareholders do not approve
the Asset Purchase Agreement, then the Company retains all rights and all
obligations and liabilties relating to the operation of DataMed prior to the
Closing, and the Company will reimburse NMRO for its Expenses, as defined in
the Management Agreeent.
The Asset Purchase Agreement may be terminated by NMRO in the event
(i) a voluntary or involuntary proceeding against the Company is commenced
under the United States Bankruptcy Code or if the Company makes or
commences negotiations for partial or complete assignment of its assets for
the benefit of creditors; (ii) a receiver, custodian, examiner or trustee
is appointed for any of the Company's property or assets; (iii) the Company
is terminated, liquidated or dissolved, except if a third party expressly
assumes the obligations and succeeds to the interests of the Company under
the Asset Purchase Agreement; (iv) in the event the Company's shareholders
do not approve the Asset Purchase Agreement and the transactions contemplated
therein within the time required, but only if NMRO is not then in breach of
any material duty or obligation imposed upon NMRO, and no event has occurred
which the giving of notice or the passage of time would constitute a breach
by NMRO of any such duty or obligation; or (v) the Company defaults in the
performance of any material duty or obligation imposed on it pursuant to the
Asset Purchase Agreement, which default is not corrected after written notice is
given to the Company by NMRO. If NMRO terminates the Asset
Purchase Agreement as a result of any of the foregoing or following the
Company's failure to satisfy the conditions precedent set forth in the
Asset Purchase Agreement (except the requirement to obtain the consents of
other persons), the Company will retain all rights (including rights to
accounts receivable of DataMed) and all obligations and liabilities
(including accounts payable) prior to the Closing, and the Company will
reimburse NMRO for its Expenses, as defined in the Management Agreement.
INTERIM MANAGEMENT AGREEMENT. Effective at Closing, the existing
Interim Management Agreement (the "Management Agreement"), which was
entered into between the Company and NMRO on July 7, 1997, effective June
30, 1997, will terminate. Under the Management Agreement, NMRO assumed the
direction and control of the business and operations of DataMed. On July
15, 1997, the Company was notified that NMRO had assigned the Management
Agreement to SAT.
Under the Management Agreement, NMRO has the right (i) to sell,
assign, dispose of or transfer any or all of the assets or contractual
obligations of DataMed, (ii) reduce DataMed's work force, (iii) assign or
transfer DataMed's administrative responsibilities, (iv) administer the
DataMed's contracts with its customers, service providers, vendors or
purchasers of services or supplies, including negotiating, amending,
maintaining and entering into such contracts, but not the termination of
any such contract, or any service provided by DataMed to any customer,
without the prior consent of the Company, (v) to bill for services rendered
by DataMed, and collect accounts receivable of the Company relating to
DataMed and (vi) to fix, change or relocate the offices used
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by DataMed. NMRO also agreed to pay and discharge all Expenses (as
defined below) incurred by NMRO in the operation of DataMed.
As compensation for its management services, NMRO receives a monthly
management fee in an amount equal to the Net Income (which is defined as
Revenues less Expenses, as determined on an accrual basis in accordance
with generally accepted accounting principles consistently applied).
Revenues are defined as all fees and payments to which the Company is
entitled during the term of the Management Agreement in connection with the
provision of services or supplies by DataMed, investment income and any
other income collected by or on behalf of DataMed during the term of the
Management Agreement. Expenses are defined as all expenses which were
fully disclosed and recorded on DataMed's June 30, 1997 balance sheet and
profit and loss statement, expenses incurred in the ordinary course of
operation of DataMed during the term of the Management Agreement and other
non-reimbursed or insured expenses. Excluded from the definition of Expenses
in the Agreement are (i) interest on borrowed funds, (ii) legal accounting
and other consulting expenses incurred by the Company, (iii) property taxes
and taxes based on the Company's income, (iv) insurance expenses (other than
health insurance for employees providing services exclusively to DataMed),
(v) judgements and expenses of litigation (except legal actions initiated
by NMRO to collect accounts receivable of DataMed), (vi) bank charges on
Company accounts, (vii) employee bonuses or compensation increases for
employees of DataMed not disclosed on the June 30, 1997 profit and loss
statement; (viii) compensation and benefits paid to Company employees whose
services are not rendered exclusively to DataMed, (ix) intercompany charges
or allocations for overhead and loans, as mutually agreed by the parties, and
(x) expenses paid by the Company relating to DataMed's operations that are
not disclosed and recorded in the June 30, 1997 profit and loss statement
of DataMed.
Based upon the historical financial results of DataMed, the Company
and NMRO anticipate that the operations of DataMed during the term of the
Management Agreement will result in a Net Loss. Net Loss is defined as the
amount by which Expenses exceed Revenue. Any Net Loss is to be the sole
responsibility of NMRO if the Company's shareholders approve the proposal
to sell the DataMed to NMRO. If the Management Agreement is terminated by
NMRO pursuant to NMRO's right to terminate (as described below), then the
Company shall be solely responsible for the Net Loss incurred in the
operation of DataMed. If the Company is obligated to reimburse NMRO for
any Net Losses, the Company has the right to have the Net Loss reviewed and
verified by the Company's independent accountants.
The Management Agreement may be terminated by the Company in the event
(i) a voluntary or involuntary proceeding involving NMRO is commenced under
the United States Bankruptcy Code or negotiations for partial or complete
assignment of its assets for the benefit of creditors are commenced, (ii)
a receiver, custodian, examiner or trustee is appointed for any of NMRO's
property or assets, (iii) NMRO is terminated, liquidated or dissolved, (iv)
NMRO defaults in the performance of any material duty or obligation under
the Management Agreement and such default is not cured within 30 days after
written notice thereof is provided to NMRO, and (v) if the Company's
shareholders do not approve the proposal to sell DataMed to NMRO. The
Management Agreement may be terminated by NMRO in the event (i) the
Company's shareholders do not approve the proposal to sell DataMed to NMRO,
(ii) a voluntary or involuntary proceeding involving the
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Company is commenced under the United States Bankruptcy Code, or the Company
is terminated, liquidated or dissolved (except if a third party expressly
assumes the obligations and succeeds to the interests of the Company
thereunder), (iii) a receiver, custodian, examiner or trustee is appointed
for any of the Company's property or assets or (iv) the Company defaults in
the performance of a material duty or obligation under the Management
Agreement, which default is not cured within 30 days of written notice of
such default is provided to the Company. If NMRO terminates the Management
Agreement pursuant to any such provision, the Company shall retain all
rights (including rights to accounts receivable of DataMed) and all
obligations and liabilities (including accounts payable) relating to the
operation of DataMed, and will reimburse NMRO's Expenses.
The Management Agreement also provides that the Company would assign
Bart K. Valdez, Acting Chief Financial Officer of the Company and Director
of DataMed Operations, to provide services on behalf of DataMed. The
Management Agreement provides that Mr. Valdez may not allocate in excess of
8 hours per week of his time to the Company and shall not be required to
travel more than twice for the Company during the term of the Management
Agreement, each of which may be for a maximum of three days.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings which management
believes to be material, and there are no such proceedings which are known
to be contemplated
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MANAGEMENT
The following table sets forth the names and positions of the
director, executive officers and key employees of the Company:
Officer or
Name Age Position 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
Bart K. Valdez 34 Chief Financial Officer 1996
and Director of
DataMed Operations
Gordon E. Segal, M.D. 45 Director 1997
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
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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 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.
BART K. VALDEZ has been the Director of Operations for DataMed since
October 1996 and the Principal Financial Officer since June 1997. 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.
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GORDON E. SEGAL, M.D., has been a director of the Company since April
1997. Since December 1995, he has been co-founder and principal of M & S
Ventures, a privately held investment venture capital firm specializing in
biotechnology and health care companies. From January 1992 to December
1995, Dr. Segal was a private venture capitalist. Dr. Segal received a
B.A. degree in 1973 from Southern Methodist University and an M.D. degree
in 1978 from the University of Tennessee. Dr. Segal is a licensed physician
in New York and is a board certified anesthesiologist.
The Company's Audit/Systems Committee acts as the liaison between the
Company and its independent public accountants. Its members consisted of
Dr. Ruxin and Mr. Gleason, who resigned from the Board in April 1997.
The Company will seek to replace Mr. Gleason with another independent
director, who will also be appointed to the Audit Committee. The Audit
Committee did not hold any meetings during 1996. 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.
The Company's Compensation Committee, which will recommend
compensation levels to the Board of Directors, consists of Dr. Ruxin and
Mr. Collard. 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
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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 and which
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.
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.
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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 and
reimbursement for a vacation in the approximate amount of $8,000.
(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 for which Dr.
Ruxin was to be paid
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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 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
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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 was paid during the six months ended
June 30, 1997. The employment agreement with Mr. Dudziak has expired;
however, he is continuing to be employed under the same terms.
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 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.
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 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,
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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.
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
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<PAGE>
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.
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
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<PAGE>
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:
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
Bart K. Valdez 30,000(2) 13.0% $2.50 09/30/96
____________
(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.
(2) Options to purchase 6,000 shares vest each year Mr. Valdez 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 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
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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 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.
Amount and Nature of
Name and Address Beneficial
of Shareholder Ownership (1) Percent of Class
- -------------- -------------------- ----------------
Michael I. Ruxin, M.D.(8) 906,250 (2) 11.1%
12600 W. Colfax
Suite A-500
Lakewood, CO 80215
Joseph F. Dudziak 66,914 (3) 0.8%
12600 W. Colfax Ave.
Suite A-500
Lakewood, CO 80215
William J. Collard(8) 613,006 (4)(5) 7.5%
11121 Sun Center Drive
Suite C
Rancho Cordova, CA 95670
Gerald F. Willman, Jr.(8) 882,514 (6) 10.9%
11121 Sun Center Drive
Suite C
Rancho Cordova, CA 95670
Lori J. Willman(8) 882,514 (7) 10.9%
11121 Sun Center Drive
Suite C
Rancho Cordova, CA 95670
Gordon E. Segal 256,250 (9) 3.1%
340 W. 57th
Apt. 9J
New York, NY 10019
Bart K. Valdez 8,800 (10) 0.1%
12600 W. Colfax
Suite A-500
Lakewood, CO 80215
All Directors and
Executive Officers as
a group (6 persons) 2,733,734 33.2%
___________________
(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 6,250 shares underlying warrants issued in connection with
the purchase of the 10% Notes.
(3) Includes options exercisable from June 28, 1996 until June 27, 2005 to
purchase 40,000 shares at $2.45 per share, 13,333 shares underlying
10% Notes purchased by Joseph F. Dudziak in the principal amount of
$50,000, and 1,081 shares from accrued interest on the 10% Notes and
12,500 shares underlying warrants
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issued in connection with the purchase of the 10% Notes. Does not
include 85,000 shares underlying the unvested portion of Mr. Dudziak's
options.
(4) Includes 15,000 shares underlying warrants issued in connection with
the purchase of the 10% Notes.
(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) Includes 536,033 shares owned by Gerald F. Willman, Jr., the spouse of
Lori J. Willman.
(8) 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. In July 1997, ODSI relinquished the right of first
refusal in connection with the Company's extension of ODSI's right to
negotiate with the Company, on a non-exclusive basis, with respect to
the Technology. See THE COMPANY -WYNDGATE TECHNOLOGIES DIVISION -
AGREEMENTS WITH ORTHO DIAGNOSTIC SYSTEMS INC.
(9) Includes 6,250 shares underlying warrants issued in connection with
the 10% Notes. Does not include 10,000 shares underlying unvested
options.
(10) Includes 2,800 shares underlying warrants issued in connection with
the 10% Notes, options exercisable from June 5, 1996 until June 5,
2005 to purchase 4,000 shares at $2.45 per share and options
exercisable from September 21, 1996 until September 21, 2005 to
purchase 2,000 shares at $2.45 per share. Does not include 44,000
shares underlying unvested options.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1996, Gordon Segal, 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. 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.
In March 1997, Drs. Segal and Ruxin, and Messrs. Collard and Valdez were
repaid the principal amounts of their 10% Notes, plus interest thereon.
Joseph F. Dudziak converted his 10% Note, plus the accrued interest
thereon, into a total of 14,414 shares of Common Stock ($3.75 per share).
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.
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.
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. 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 personally guaranteed the Company's $1 million line of
credit and various leases totalling approximately $1.2 million. The line
of credit was repaid from the proceeds of the Company's February 1997
public offering.
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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
COMMON STOCK
The Company is authorized to issue up to 40,000,000 shares of Common
Stock, $.01 par value. There are 8,135,755 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 135 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 shareholders.
The Company has outstanding options and warrants to purchase an
aggregate of 1,414,029 shares of Common Stock. 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 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.
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
-65-
<PAGE>
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.
10% NOTES
The Company issued $751,200 principal amount of convertible 10% Notes
accruing interest at the rate of 10% per annum until maturity, which was
March 6, 1997. Holders of $423,500 principal amount of 10% Notes have
converted the principal amount of their 10% Notes, plus accrued interest
thereon, into an aggregate of 121,003 shares of Common Stock, of which
28,000 were converted at December 31, 1996, at the rate of one share per
$3.75 of interest and principal. In addition, 187,800 shares of Common
Stock are issuable upon exercise of warrants issued in conjunction with
the 10% Note offering. The 121,003 shares issued upon conversion of the
10% Notes and the 187,800 shares underlying the Warrants are being offered
for sale hereby.
WARRANTS
Each Warrant entitles the holder thereof to purchase one share of
Common Stock at an exercise price of $4.55 (130% of the initial public
offering price of the Common Stock) per share, subject to adjustment in
certain events, at any time prior to February 11, 2000. 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.
The Warrants are subject to redemption by the Company at $.55 per
Warrant at any time until February 11, 1999, 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 $5.46 (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 are subject to the terms of a Warrant Agreement dated as
of February 11, 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.
-66-
<PAGE>
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 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.
SELLING SECURITY HOLDERS
This Prospectus covers the proposed sale of 1,108,803 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) 121,003 shares issued to holders of the
10% Notes who elected to convert the principal amount of their 10% Notes,
plus accrued interest thereon, to shares of Common Stock and (iii) 187,800
shares of Common Stock underlying warrants issued in connection with the
sale of the 10% Notes. The shares of Common Stock and warrants are held by
87 persons. Included in the persons who hold Common Stock and/or warrants
issued in connection with the 10% Notes are Michael I. Ruxin, Chief
Executive Officer of the Company, Joseph F. Dudziak, President of the
Company, William J. Collard, a Director and Secretary of the Company, Bart
K. Valdez, Director of Operations of DataMed and Chief Financial Officer of
the Company and LMU & Company, a consultant to the Company.
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Security Holders.
-67-
<PAGE>
The following table sets forth certain information concerning the
beneficial ownership of Common Stock by each Selling Security Holder as of
August 4, 1997:
<TABLE>
<CAPTION>
Shares Owned After
Shares Offering
Shares to be Underlying -------- Warrants
Shares Owned Warrants Sold Warrants to Owned
Prior to Owned Prior in the be Sold in After
Name Offering to Offering Offering the Offering Number Percentage Offering
---- -------- ----------- -------- ------------ ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert M. 180,334 (1) 28,500 40,000 -0- 97,000 1.2 % 28,500
Kassenbrock
Hugo Brooks 10,000 -0- 10,000 -0- -0- -0- -0-
Lawrence M. 33,835 25,000 5,000 25,000 28,835 0.4 % -0-
Underwood
Paul R. Hoover 10,000 -0- 10,000 -0- -0- -0- -0-
and Janet F.
Hoover, JTWROS
Battersea 10,000 -0- 10,000 -0- -0- -0- -0-
Capital, Inc.
ESN Financial, 20,000 -0- 20,000 -0- -0- -0- -0-
LP
Anil & Bina 10,000 -0- 10,000 -0- -0- -0- -0-
Patel, JTWROS
Michal & 50,000 -0- 50,000 -0- -0- -0- -0-
Renata Pivonka
JTWROS
William B. & 10,000 -0- 10,000 -0- -0- -0- -0-
Cheryl A. Bacon
JRWROS
Vannette F. 20,000 -0- 20,000 -0- -0- -0- -0-
Poole
John L. Moran 20,000 -0- 20,000 -0- -0- -0- -0-
William R. 10,000 -0- 10,000 -0- -0- -0- -0-
Teele
Alan David
Cohen 10,000 -0- 10,000 -0- -0- -0- -0-
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<PAGE>
Peter and Luba 40,000 -0- 40,000 -0- -0- -0- -0-
Bondra JTWROS
Harvey D.
Rhoads 2,500 -0- 2,500 -0- -0- -0- -0-
E. Pat Manuel 25,000 -0- 25,000 -0- -0- -0- -0-
Allen E. Hoyt 10,000 -0- 10,000 -0- -0- -0- -0-
Richard Kay 20,000 -0- 20,000 -0- -0- -0- -0-
Mildred J.
Geiss 7,000 -0- 7,000 -0- -0- -0- -0-
Clyde William 10,000 -0- 10,000 -0- -0- -0- -0-
and Valerie J.
Pray JTWROS
Barry Slosberg 10,000 -0- 10,000 -0- -0- -0- -0-
Bradley Subler 2,000 -0- 2,000 -0- -0- -0- -0-
Andrew E.
Kauders 6,000 -0- 6,000 -0- -0- -0- -0-
Richard J. N. 6,000 -0- 6,000 -0- -0- -0- -0-
Leonard
David Hickey 10,000 -0- 10,000 -0- -0- -0- -0-
Georgia M. 10,000 -0- 10,000 -0- -0- -0- -0-
Dunston
TradeLink,
L.L.C. 10,000 -0- 10,000 -0- -0- -0- -0-
Laurence P. 4,000 -0- 4,000 -0- -0- -0- -0-
Emrie
Larry and 5,000 -0- 5,000 -0- -0- -0- -0-
Michelle
Weinstein, JTWROS
Underwood Family
Partners, LTD 20,000 -0- 20,000 -0- -0- -0- -0-
Amar J. & 6,000 -0- 6,000 -0- -0- -0- -0-
Vangie Romero,
JTWROS
-69-
<PAGE>
Consulting on 10,000 -0- 10,000 -0- -0- -0- -0-
Government
Procurement
FBO J. S.
Sansome
Lawrence E. and 10,000 -0- 10,000 -0- -0- -0- -0-
Jeanne F. Keith,
JTWROS
Riley Wilson 20,000 -0- 20,000 -0- -0- -0- -0-
Enterprises
John Solomita 10,000 -0- 10,000 -0- -0- -0- -0-
William Vasey 10,000 -0- 10,000 -0- -0- -0- -0-
Tadahiko
Nakamura 30,000 -0- 30,000 -0- -0- -0- -0-
Robert W. and 4,000 -0- 4,000 -0- -0- -0- -0-
Rhonda W. Braun,
JTWROS
Donald H. & 2,000 -0- 2,000 -0- -0- -0- -0-
Mary Lou Wilbois,
JTWROS
Jon and Laurie 4,000 -0- 4,000 -0- -0- -0- -0-
Lindvall
Maurice S. Cohen 10,000 -0- 10,000 -0- -0- -0- -0-
Wilbert D. 10,000 -0- 10,000 -0- -0- -0- -0-
Pearson
Georgina S. 10,000 -0- 10,000 -0- -0- -0- -0-
Caslavka
Lynne D. 6,000 -0- 6,000 -0- -0- -0- -0-
Caslavka
Voss Boreta 10,000 -0- 10,000 -0- -0- -0- -0-
Keith D. & 10,000 -0- 10,000 -0- -0- -0- -0-
Carolyn P.
McDonald,
JTWROS
-70-
<PAGE>
Howard I.
Saiontz 10,000 -0- 10,000 -0- -0- -0- -0-
James A.
Newsham III 5,000 -0- 5,000 -0- -0- -0- -0-
& Vivian M.
Newsham, JTWROS
William C. & 10,000 -0- 10,000 -0- -0- -0- -0-
Mary Claire
McCormick,
JTWROS
Patrick M. 4,000 -0- 4,000 -0- -0- -0- -0-
Sheridan
Thomas D. 20,000 -0- 20,000 -0- -0- -0- -0-
Fiorino
Richard G. 10,000 -0- 10,000 -0- -0- -0- -0-
Belcher
Scot C. Irwin 5,000 -0- 5,000 -0- -0- -0- -0-
Alan Goldstein 10,000 -0- 10,000 -0- -0- -0- -0-
Maurice and 10,000 -0- 10,000 -0- -0- -0- -0-
Stacy Gozlan,
JTWROS
Howard Wall 20,000 -0- 20,000 -0- -0- -0- -0-
William C. 4,000 -0- 4,000 -0- -0- -0- -0-
Meyer
Jeffery M. 7,000 -0- 7,000 -0- -0- -0- -0-
Savell
James A. & 15,000 -0- 15,000 -0- -0- -0- -0-
Joann
Wiedenhoeft,
JTWROS
A. Thomas 6,000 -0- 6,000 -0- -0- -0- -0-
Tenenbaum
Brenman Key & 10,000 -0- 10,000 -0- -0- -0- -0-
Bromberg 401K
Profit Sharing
Plan FBO
Thomas R.
Bromberg
-71-
<PAGE>
Brenman Key & 20,000 -0- 20,000 -0- -0- -0- -0-
Bromberg 401K
Profit Sharing
Plan FBO Albert
Brenman
Stuart McNab 1,000 -0- 1,000 -0- -0- -0- -0-
Kenneth R. 5,000 -0- 5,000 -0- -0- -0- -0-
Higgens
George D.
Thompson 9,500 -0- 9,500 -0- -0- -0- -0-
Delaware Charter 20,000 -0- 20,000 -0- -0- -0- -0-
G&T TTEE FBO
Richard T.
Baldwin, IRA
Brenman Key & 14,000 -0- 14,000 -0- -0- -0- -0-
Bromberg 401K
Profit Sharing
Plan FBO A.
Thomas Tenenbaum
Thomas R. Ulie -0- 12,500 -0- 12,500 -0- -0- -0-
Wilshire Center 14,000 12,500 14,000 12,500 -0- -0- -0-
Geriatrics
Medical Group
Eugene H. 17,333 12,500 14,000 12,500 3,333 .04% -0-
Seymour
Bart K. 8,800 2,800 -0- 2,800 6,000 0.1% -0-
Valdez(2)
Richard Sher 14,440 12,500 14,440 12,500 -0- -0- -0-
Arnold E. 7,218 6,250 7,218 6,250 -0- -0- -0-
Prince
Gordon Segal(2) 256,250 6,250 -0- 6,250 250,000 3.1% -0-
Jeffery Appel -0- 6,250 -0- 6,250 -0- -0- -0-
Ellen Sakaguchi 1,000 3,125 1,000 3,125 -0- -0- -0-
Benjamin R. 14,500 2,500 -0- 2,500 12,000 0.1% -0-
Budraitis
William J. 613,006 15,000 -0- 15,000 598,006 7.4% -0-
Collard(2)
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<PAGE>
Neill & Nita 7,207 6,250 7,207 6,250 -0- -0- -0-
Freeman
Joseph F. 14,414 12,500 14,414 12,500 -0- -0- -0-
Dudziak(2)
Michael Lipkin 10,090 8,750 10,090 8,750 -0- -0- -0-
Thomas R. 1,600 5,000 1,600 5,000 -0- -0- -0-
Sakaguchi
James Sakaguchi 1,000 6,875 1,000 6,875 -0- -0- -0-
Harris A. Cahn 7,199 6,250 7,199 6,250 -0- -0- -0-
Michael I. 906,250 6,250 -0- 6,250 900,000 11.1% -0-
Ruxin(2)
Joel C. & -0- 6,250 -0- 6,250 -0- -0- -0-
Lorainne
Newman
Ralph A. -0- 12,500 -0- 12,500 -0- -0- -0-
Grills, Jr.
</TABLE>
- --------------------
(1) Includes 83,334 shares underlying warrants to purchase Common Stock,
exercisable at $2.975 per share which have been previously registered
for sale.
(2) See SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PLAN OF DISTRIBUTION
Sales of the Selling Security Holders' Shares may be effected from
time to time in transactions (which may include block transactions) in the
over-the counter market, in negotiated transactions, or a combination of
such methods of sale, at fixed prices which may be changed, at market
prices prevailing at the time of sale, or at negotiated prices. The
Selling Security Holders have advised the Company that they have not
entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of its securities. The
Selling Security Holders may effect such transactions by selling Common
Stock directly to purchasers or to or through broker-dealers which may act
as agents or principals. Such broker-dealers may receive compensation in
the form of discounts, concessions, or commissions from the Selling
Security Holders and/or the purchasers of Common Stock for whom such
broker-dealers may act as agents or to whom they sell as principals, or
both (which compensation as to a particular broker-dealer might be in
excess of customary commissions). The Selling Security Holders and any
broker-dealers that act in connection with the sale of the Common Stock
might be deemed to be "underwriters" within the meaning of Section 2(11) of
the Securities Act and any commission received by them and any profit on
the resale of the shares of Common Stock as principal might be deemed to be
underwriting discounts and commissions under the Securities Act. The
Selling Security Holders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the
shares against certain liabilities, including liabilities arising under the
Securities Act.
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<PAGE>
If any of the following events occurs, this Prospectus will be amended
to include additional disclosure before offers and sales of the Selling
Shareholders' shares are made: (a) to the extent the securities are sold
at a fixed price or by option at a price other than the prevailing market
price, such price would be set forth in the prospectus, (b) if the
securities are sold in block transactions and the purchaser wishes to
resell, such arrangements would be disclosed in the prospectus and (c) if
the compensation paid to broker-dealers is other than usual and customary
discounts, concessions or commissions, disclosure of the terms of the
transaction in the prospectus would be included.
Because the Selling Security Holders may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act,
the Selling Security Holders will be subject to prospectus delivery
requirements under the Securities Act.
LEGAL MATTERS
Legal matters in connection with the Shares being offered hereby have
been passed on for the Company by the law firm of Brenman Bromberg &
Tenenbaum, P.C., Denver, Colorado. Members of the firm of Brenman
Bromberg & Tenenbaum, P.C. own 50,000 shares of the Company's Common Stock.
EXPERTS
The consolidated financial statements of Global Med Technologies, Inc.
as of December 31, 1996 and 1995 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 report appearing
elsewhere herein, and are included in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
SHARES ELIGIBLE FOR FUTURE SALE
The Company presently has outstanding 8,135,755 shares of Common
Stock. Holders of 4,254,936 shares have entered into lock up agreements
with the Representative. The Shares registered hereby are no longer
subject to such lock up agreements, effective August 11, 1997.
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 one year 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 two 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.
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<PAGE>
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 shares of
Common Stock and Warrants and could impair the Company's ability to raise
capital through the sale of its equity securities. See RISK FACTORS.
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. The Company is 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 interim
reports and such other reports as the Company may determine necessary.
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.
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<PAGE>
GLOSSARY
COMMUNITY BLOOD CENTERS - Community Blood Centers or CBCs are typically
not for profit blood centers usually affiliated with a 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(R) 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(R) 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(R) software product.
GUI - GUI refers to the Graphical User Interface, most commonly seen as the
icon driven windows on PCs. Special software development 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(R)SOFTWARE PRODUCT - The SAFETRACE(R) 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(R) software product contains the following application modules:
Donor Recruitment; Donor Management; Laboratory Management; Special
Procedures; Inventory-Distribution; and Billing.
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<PAGE>
SAFETRACE TX(TM) Software Product - The SAFETRACE TX(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.
-77-
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
GLOBAL MED TECHNOLOGIES, INC.
(FORMERLY GLOBAL DATA TECHNOLOGIES, INC.)
YEARS ENDED DECEMBER 31, 1996 AND 1995
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
Global Med Technologies, Inc.
Consolidated Financial Statements
Years ended December 31, 1996 and 1995
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.) as of December
31, 1996 and 1995, 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.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Global Med
Technologies, Inc. at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
----------------------------
Ernst & Young LLP
Denver, Colorado
March 11, 1997
F-1
<PAGE>
Global Med Technologies, Inc.
Consolidated Balance Sheets
(In thousands)
DECEMBER 31
1996 1995
------------------------
Assets
Current assets:
Cash and cash equivalents $ 489 $ 422
Accounts receivable-trade, net of
allowance for uncollectible
accounts of $150 and $200 in 1996
and 1995, respectively 1,812 608
Unbilled receivables, net of
allowance for uncollectible
accounts of $150 and $100 in 1996
and 1995, respectively 411 307
Prepaid expenses and other assets 196 23
Deferred offering costs 486 -
------------------------
Total current assets 3,394 1,360
Equipment and fixtures, at cost:
Furniture and fixtures 195 206
Machinery and equipment 361 432
Computer hardware and software 1,213 724
------------------------
1,769 1,362
Less accumulated depreciation and
amortization (540) (404)
------------------------
1,229 958
Capitalized software development costs,
less accumulated amortization of $163
and $66 in 1996 and 1995, respectively 376 403
------------------------
Total assets $ 4,999 $ 2,721
========================
F-2
<PAGE>
Global Med Technologies, Inc.
Consolidated Balance Sheets (continued)
(In thousands, except par value amounts)
DECEMBER 31
1996 1995
------------------------
LIABILITIES AND STOCKHOLDERS'DEFICIT
Current liabilities:
Accounts payable $ 1,967 $ 1,457
Accrued expenses 1,278 297
Accrued payroll 362 188
Accrued compensated absences 382 261
Noncompete accrual 150 325
Unearned revenue 1,359 271
Short-term debt 1,097 500
Notes payable (including $181 to
related parties) 651 -
Current portion of capital lease
obligations 415 233
------------------------
Total current liabilities 7,661 3,532
Capital lease obligations,
less current portion 698 648
Commitments and contingencies
Stockholders' deficit
Preferred stock, $.01 par value:
Authorized shares - 10,000
None issued or outstanding - -
Common stock, $.01 par value:
Authorized shares - 40,000
Issued and outstanding shares - 4,994
and 3,949 at December 31,
1996 and 1995, respectively 50 39
Additional paid-in capital 4,282 1,702
Accumulated deficit (7,692) (3,200)
------------------------
Total stockholders' deficit (3,360) (1,459)
------------------------
Total liabilities and
stockholders' deficit $ 4,999 $ 2,721
========================
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
Global Med Technologies, Inc.
Consolidated Statements of Operations
(In thousands)
YEAR ENDED DECEMBER 31
1996 1995
------------------------
Revenues:
Drug testing and other $ 6,458 $ 5,740
Software sales and consulting 3,648 934
Hardware and software,
obtained from vendors 928 -
------------------------
11,034 6,674
Cost of sales and product development 6,470 3,218
------------------------
Gross profit 4,564 3,456
Operating expenses:
Payroll and other 2,724 1,998
General and administrative 1,528 1,234
Sales and marketing 1,803 1,732
Research and development 1,865 655
Provision for doubtful accounts 107 244
Depreciation and amortization 470 117
------------------------
Loss from operations (3,933) (2,524)
Other expense:
Interest income (expense), net (293) (61)
Other (266) (71)
------------------------
Loss before provision for income taxes (4,492) (2,656)
Provision for income taxes - 29
------------------------
Net loss $ (4,492) $ (2,685)
========================
Net loss per common share $ (1.02) $ (.64)
Common shares used in computing net
loss per common share 4,384 4,211
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
Global Med Technologies, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
(In thousands)
Common Stock Additional
---------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
----------------------------------------------
Balance, December 31, 1994 3,619 $36 $ 719 $ (478) $ 277
Issuance of common stock 300 3 732 - 735
Issuance of common stock-
finder's fee 30 - 74 - 74
Issuance of common stock
warrants - - 15 - 15
Compensation related to
i ssuance of common stock
options by principal
stockholders - - 162 - 162
Distribution to stockholders
(Wyndgate) - - - (37) (37)
Net loss - - - (2,685) (2,685)
----------------------------------------------
Balance, December 31, 1995 3,949 39 1,702 (3,200) (1,459)
Issuance of common stock-
exercise of common
stock warrants 150 2 448 - 450
Issuance of preferred
stock converted to
common stock 67 1 249 - 250
Issuance of common stock
under employees' stock
option plan - - 1 - 1
Issuance of common stock 800 8 1,732 - 1,740
Issuance of common stock
options to a business
advisory enterprise - - 45 - 45
Issuance of common stock-
note conversion 28 105 - 105
Net loss - - - (4,492) (4,492)
----------------------------------------------
Balance, December 31, 1996 4,994 $50 $4,282 $(7,692) $(3,360)
==============================================
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
Global Med Technologies, Inc.
Consolidated Statements of Cash Flows
(In thousands)
YEAR ENDED DECEMBER 31
1996 1995
------------------------
OPERATING ACTIVITIES
Net loss $ (4,492) $ (2,685)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 567 167
Loss on disposal of assets 16 47
Deferred income taxes - 29
Issuance of common stock options 45 162
Issuance of common stock-finder's fee - 74
Changes in operating assets and
liabilities:
Accounts receivable-trade, net (1,204) 63
Unbilled receivables, net (104) (49)
Prepaid expenses and other assets (173) 24
Accounts payable 510 871
Accrued payroll 174 136
Accrued expenses 981 145
Accrued compensated absences 121 171
Noncompete accrual (175) 325
Unearned revenue 1,088 (33)
------------------------
Net cash used in operating activities (2,646) (553)
INVESTING ACTIVITIES
Purchases of equipment and fixtures (172) (32)
Increase in software development costs (70) (159)
------------------------
Net cash used in investing activities (242) (191)
FINANCING ACTIVITIES
Borrowings on short-term debt 715 1,355
Principal payments on short-term debt (118) (1,105)
Principal payments under capital
lease obligations (353) (108)
Issuance of notes payable 651 -
Issuance of common stock 2,546 735
Deferred offering costs (486) -
Issuance of common stock warrants - 15
Distribution to stockholders (Wyndgate) - (37)
------------------------
Net cash provided by financing activities 2,955 855
------------------------
F-6
<PAGE>
Global Med Technologies, Inc.
Consolidated Statements of Cash Flows (continued)
YEAR ENDED DECEMBER 31
1996 1995
------------------------
(IN THOUSANDS)
Net increase in cash and cash equivalents $ 67 $ 111
Cash and cash equivalents at beginning
of year 422 311
------------------------
Cash and cash equivalents at end of year $ 489 $ 422
========================
Supplemental disclosures:
The Company entered into capital lease obligations of $585,000 and
$941,000 in 1996 and 1995, respectively.
Interest expense approximates interest paid.
During 1994, the Company loaned approximately $162,000 to a related
party in exchange for a note receivable which accrued interest at an
annual rate of 8%. During 1995, the Company forgave the note
receivable in consideration of the forgiveness of a note payable by
the Company to a principal stockholder which also was for
approximately $162,000 and which also accrued interest at an annual
rate of 8%.
During 1996, convertible 10% notes payable of $105,000 including
accrued interest of $5,000 were converted into 28,000 shares of common
stock (see Note 7).
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements
December 31, 1996
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 (Wyndgate), 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 1995 financial statements include the
results of operations as if the merger had been consummated on January 1,
1995. 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 $164,000 which included a
$130,000 finder's fee, which consisted of $75,000 in common stock of the
Company and $55,000 in cash, and $34,000 related to legal and other fees.
The related merger costs are included in general and administrative
expenses in the accompanying consolidated statements 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
TO
JUNE 30, 1995
---------------
(In thousands)
Net sales:
National MRO $ 2,381
Wyndgate 883
----------
Combined $ 3,264
==========
Net income (loss):
National MRO $ (93)
Wyndgate 76
----------
Combined $ (17)
==========
F-8
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
LIQUIDITY AND MANAGEMENT'S PLANS
The development of the Company's divisions has resulted in losses, which
aggregated approximately $7.7 million and $3.2 million at December 31, 1996
and 1995, respectively. In addition, the Company had working capital
deficits of approximately $4.3 million and $2.2 million at December 31,
1996 and 1995, respectively. While management anticipates that its software
revenues will continue to increase in future periods, management expects to
continue to incur losses until 1998. Management expects that the net
proceeds of approximately $7.9 million from its initial public offering
which was completed in February 1997, will enable the Company to meet its
liquidity and capital requirements for approximately twelve to eighteen
months (see Note 11).
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its divisions. All significant interdivision 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)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
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
Unbilled amounts at December 31, 1996 and 1995 have been reduced by an
allowance for doubtful accounts of $150,000 and $100,000, respectively, and
are generally billable and collectible within one year.
UNEARNED REVENUE
Included in unearned revenue at December 31, 1996 and 1995 is approximately
$52,000 and $200,000, respectively, of unperformed professional services
related to an agreement between the Royalty Group and Wyndgate (see Note
9). At December 31, 1996, $500,000 of the unearned revenue balance is
related to an agreement between the Company (through its Wyndgate division)
and Ortho Diagnostic Systems, Inc., a subsidiary of Johnson & Johnson (see
Note 9). The remaining balance of $807,000 at December 31, 1996 primarily
consists of unearned software maintenance revenue, sales of software
licenses and related postcontract customer support, and sales of hardware
obtained from vendors which are not recognizable as revenue at December 31,
1996 pursuant to the Company's revenue recognition accounting policies
discussed above.
SIGNIFICANT CUSTOMERS
During 1996, one DataMed customer-Laidlaw Transit, Inc. and one Wyndgate
customer-Gulf Coast Regional Blood Center, each accounted for approximately
14% and 11.5%, respectively, of the Company's revenues.
F-10
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
During 1995, two DataMed customers-Laidlaw Transit, Inc. and Chevron
Corporation and one Wyndgate customer-the Royalty Group (see Note 9), each
accounted for approximately 18%, 12% and 10%, respectively, of the
Company's revenues.
Accounts receivable from the above customers were approximately $325,000
and $516,000 at December 31, 1996 and 1995, respectively. Unbilled
receivables from the above customers were approximately $34,000 and
$198,000 at December 31, 1996 and 1995, respectively. In order to reduce
credit risk, the Company requires substantial down payments and progress
payments during the course of an installation of 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
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.
Losses, allowances and accounts receivable turnover trends have generally
been within management's expectations. The provision for doubtful accounts
was $107,000 and $244,000 for the years ended December 31, 1996 and 1995,
respectively.
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.
NOTE RECEIVABLE
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
F-11
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
conditions, be further extended until June 30, 1998. The Note accrues
interest at an annual rate of prime plus two percent and is primarily
collateralized by the Development Company's technology. At December 31,
1996, the Company has offset the Note with an allowance in the amount of
$250,000 and the related expense is included in other expenses in the
accompanying consolidated statements of operations. The Company believes
it prudent to fully reserve for the Note based on the current financial
position of the Development Company.
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
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 adopted SFAS No. 121
during 1996, with no impact on its financial statements.
SOFTWARE DEVELOPMENT COSTS
Certain software development costs incurred after the determination of
technological feasibility of the related software product 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
F-12
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $97,000 and $50,000 for the
years ended December 31, 1996 and 1995, respectively, and is included in
cost of sales in the accompanying consolidated statements of operations.
MALPRACTICE INSURANCE
The Company maintains 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.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For purposes of the accompanying consolidated statements 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 supplemental net loss after elimination of the $150,000
one-time charge was ($2,835,000) for the year ended December 31, 1995.
F-13
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET 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 initial public offering
price for the Company's common stock).
In February 1997, the Company completed an initial public offering of
1,337,000 units, each consisting of two shares of common stock and one
Class A common stock purchase warrant (the Offering). Management intends
to use a portion of the net proceeds from the Offering of approximately
$7.9 million to repay borrowings under the Company's $1 million revolving
line of credit and certain notes payable. If the Offering had occurred on
January 1, 1995, the loss per common share would have been ($.92) and
($.64) for the years ended December 31, 1996 and 1995, respectively (see
Note 11).
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.
2. NONCOMPETE AGREEMENTS
During 1995, the Company entered into noncompete agreements with three 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 1997 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 statements of operations.
F-14
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
3. INCOME TAXES
The components of income tax expense for the years ended December 31, 1996
and 1995 are as follows:
1996 1995
------------------------
(IN THOUSANDS)
Provision for income taxes:
Current:
State $ - $ -
Deferred:
Federal - 25
State - 4
------------------------
Total deferred - 29
------------------------
Provision for income taxes $ - $29
========================
The Company has net operating loss carryforwards of approximately
$4,408,000 which expire in the years 2006 to 2011. Such net operating loss
carryforwards may be subject to separate return limitation laws.
The components of the deferred tax provision, which arise from temporary
differences between financial and tax reporting, are presented below:
1996 1995
------------------------
(IN THOUSANDS)
Cash to accrual adjustment $ 59 $ (239)
Allowance for uncollectible
accounts receivable (98) (96)
Accelerated depreciation 46 12
Deferred revenue and accrued expenses (435) (195)
Capitalized software 10 (11)
Net operating loss carryforward (1,236) (450)
Valuation allowance 1,654 1,008
------------------------
Total deferred provision $ - $ 29
========================
F-15
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
3. INCOME TAXES (CONTINUED)
Variations from the federal statutory rate are as follows:
1996 1995
------------------------
(IN THOUSANDS)
Expected benefit from federal income
taxes at statutory rate of 34% $ (1,527) $ (903)
Termination of S corporation election
by Wyndgate - 150
Wyndgate income nontaxable due to
S corporation status - (77)
Valuation allowance 1,780 1,008
State tax benefit, net of federal
benefit (247) (146)
Other (6) (3)
------------------------
$ - $ 29
========================
Loss before benefit from
income taxes $(4,492) $(2,656)
========================
Effective rate - (1.1)%
========================
F-16
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
3. INCOME TAXES (CONTINUED)
The components of the net accumulated deferred income tax asset as of
December 31, 1996 and 1995 are as follows:
1996 1995
------------------------
(IN THOUSANDS)
Deferred tax assets:
Cash to accrual adjustment $ 296 $ 874
Excess of capital losses over
capital gains 79 79
Net operating loss carryforward 1,731 495
Allowance for uncollectible
accounts receivable 217 119
Deferred revenue and accrued expenses 666 231
Valuation allowance (2,784) (1,130)
------------------------
205 668
Deferred tax liabilities:
Cash to accrual adjustment - 489
Capitalized software 149 159
Accelerated depreciation 56 20
------------------------
205 668
------------------------
Deferred tax asset, net $ - $ -
========================
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 in the accompanying statements of operations, for
the years ended December 31, 1996 and 1995 was $294,000 and $217,000,
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
F-17
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
4. LEASES (CONTINUED)
equipment and fixtures in the accompanying consolidated balance sheets are
the following assets held under capital leases (in thousands):
DECEMBER 31
1996 1995
------------------------
Furniture and fixtures $ 180 $ 144
Machinery and equipment 338 294
Computer hardware and software 1,028 550
------------------------
Assets under capital lease 1,546 988
Less accumulated amortization (502) (93)
------------------------
Assets under capital lease, net $ 1,044 $ 895
========================
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, 1996 (in thousands):
CAPITAL OPERATING
LEASES LEASES
------------------------
1997 $ 561 $ 335
1998 542 297
1999 172 243
2000 77 237
2001 2 -
------------------------
Total minimum lease payments 1,354 $ 1,112
==========
Less amount representing interest (241)
---------
Present value of minimum lease payments 1,113
Less current portion of obligations
under capital lease (415)
---------
Obligations under capital lease,
less current portion $ 698
=========
5. SHORT-TERM DEBT
The Company maintains a $25,000 unsecured revolving credit line with a bank
which bears interest at an annual rate of prime plus one percent or a
minimum of ten percent and matured on March 1, 1997. Although the Company
has not yet repaid this amount, the bank has not called the credit line.
Amounts outstanding under this revolving line of credit were $25,000 and
$100 at December 31, 1996 and 1995, respectively.
F-18
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
5. SHORT-TERM DEBT (CONTINUED)
The Company maintains a $1 million 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 an annual rate of
prime plus two percent and which matured on February 12, 1997. Amounts
outstanding under this line of credit were $970,000 and $500,000 at
December 31, 1996 and 1995, respectively. The balance under the line was
repaid in February 1997.
The Company maintains a $55,000 unsecured line of credit with a bank which
bears interest at an annual rate of 14.75 percent. Amounts outstanding
under this line of credit were $50,000 and $0 at December 31, 1996 and
1995, respectively.
During 1996, the Company entered into a $25,000 unsecured promissory note
with an individual which bears interest at an annual rate of twelve
percent. At December 31, 1996, $25,000 was outstanding under this
promissory note. The note was repaid in February 1997.
The Company incurred interest expense on outstanding borrowings of
approximately $151,000 and $43,000 for the years ended December 31, 1996
and 1995, 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 one-hundred
percent 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 one-hundred and ten percent of the fair
market
F-19
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
6. STOCK OPTION PLANS (CONTINUED)
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-five percent of the fair market value of the common
stock on the grant date.
The Company has elected to continue to follow Accounting Principles Board
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25), and
related Interpretations in accounting for its stock options because, as
discussed below, the alternative fair value accounting provided for by
Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION (Statement No. 123), requires use of option valuation models
that were not developed for use in valuing the stock options. Under APB
25, because the exercise price of the Company's stock options equals or
exceeds the estimated market price of the underlying stock on the date of
grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement No. 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value of these options was estimated at the date of
grant using the minimum value method available to nonpublic companies under
Statement No. 123. Under this method, option value is determined as the
excess of the fair value of the stock at the date of grant over the present
value of both the exercise price and the expected dividend payments, each
discounted at the risk-free rate, over the expected exercise life of the
option. A risk-free rate of 5.3%, a weighted-average expected life of ten
years and a dividend yield of 0% were used for the years ended December 31,
1996 and 1995. As a result of the Company's initial public offering, which
was completed in February 1997, the Company will use the Black Scholes
option pricing model to determine the fair value of options granted
subsequent to December 31, 1996.
For the purposes of pro forma disclosures, the estimated fair value of the
employee options is amortized to expense over the options' vesting period.
The Company's pro forma information follows (in thousands, except per share
amounts):
1996 1995
------------------------
Pro forma net loss $(4,582) $(2,703)
Pro forma net loss per share $ (1.05) $ (0.64)
F-20
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
6. STOCK OPTION PLANS (CONTINUED)
Because Statement No. 123 is applicable only to options granted subsequent
to December 31, 1994, its pro forma effect will not be fully reflected
until 2001.
A summary of the Company's stock option activity and related information
regarding the Plan are as follows:
INCENTIVE STOCK NONQUALIFIED STOCK
OPTION PLAN OPTION PLAN
-----------------------------------------------------
STOCK STOCK
NUMBER OF OPTION NUMBER OF OPTION
STOCK PRICE STOCK PRICE
OPTIONS RANGE OPTIONS RANGE
-----------------------------------------------------
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 (480) 1.54 - -
Forfeited (4,920) 1.54 - 2.50 - -
-----------------------------------------------------
Outstanding,
December 31, 1996 504,100 $1.00 - $3.75 63,529 $1.54 - $3.75
=====================================================
During 1995, certain of the Company's principal stockholders granted
options to certain employees for the right to buy 111,067 shares of the
Company's common stock from the principal stockholders at an exercise price
of $1.00 per share. This transaction has been accounted for as if the
options were granted to the employees directly from the Company. The
Company recorded compensation expense related to this transaction of
$162,000 as such options were issued for prior service, were fully vested
at the grant date, and were granted at an exercise price which was less
than the estimated fair market value of the underlying shares of common
stock of the Company at the grant date. The related compensation expense
is included in general and administrative expenses in the accompanying
consolidated statements of operations. To date, no options have been
exercised as a result of these agreements.
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. The
Company recognized expense in 1996 related to these options of $45,000.
This amount is included in general and administrative expenses in the
accompanying consolidated statements of operations. To date, no options
have been exercised as a result of this agreement.
F-21
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
7. STOCKHOLDER'S EQUITY AND NOTES PAYABLE
Certain members of the Company's Scientific Advisory Committee serve as
officers and directors of certain of the Company's 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
7).
In May 1995, the Company completed a private placement of 150,000 units at
$5 per unit (the May 1995 Private Placement). 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 May 1995 Private Placement. 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. In addition, the May
1995 Private Placement provided for a share adjustment of 120,000 shares in
the event the price per common share in the Company's initial public
offering was less than $4.90 per share (see Note 9).
The Company has 10,000 warrants outstanding to a nonrelated investor which
are convertible into common stock at an exercise price of $1.54 per share
and which expire in October 1997.
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 second quarter of 1996, the Company conducted an offering
consisting of convertible notes with detachable common stock warrants and
which accrue interest at an annual rate of ten percent (the 10% Notes).
The 10% Notes mature in three years from the date of issuance and are
convertible into common stock of the Company at $3.75 per share. In
addition, each investor received one detachable 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 10% Note offering amounted to approximately
$751,000. Approximately $181,000 of the proceeds from the 10% Notes
issuance were received from a beneficial owner of over 5% of the
outstanding common stock of the Company and other officers, directors and
employees of the Company on the same terms and conditions as nonaffiliates.
Common stock 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% Note
amounts to 93,003 shares (see Note 9). Common stock issuable related to
the detachable warrants provided in conjunction with the 10% Notes
F-22
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
7. STOCKHOLDER'S EQUITY AND NOTES PAYABLE (CONTINUED)
amounts to 187,800 shares (see Note 9). During the fourth quarter of 1996,
certain noteholders converted $100,000 of principal and $5,000 of related
accrued interest into 28,000 shares of common stock. Interest expense
related to the 10% Notes was approximately $43,000 in 1996.
The Company intends to pay approximately $355,000 related to certain
noteholders who have given the Company notice of their intent not to
convert their 10% Notes from a portion of the net proceeds of approximately
$7.9 million from its initial public offering which was completed in
February 1997 (see Note 11).
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 $1.74 million.
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 1996 or 1995. Retirement
plan administrative expenses were approximately $4,000 and $8,000 for the
years ended December 31, 1996 and 1995, respectively, and are included in
general and administrative expenses in the accompanying consolidated
statements of operations.
9. COMMITMENTS AND CONTINGENCIES
The Company has entered into ten 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, 1996, the aggregate commitment for future
salaries payable through May 2000, excluding bonuses, is approximately $1.9
million. If all agreements are extended, the additional commitment for
future salaries will be approximately $1.5 million.
F-23
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
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. While the Company
has not yet received regulatory approval for its blood bank software, it
has no reason to believe it will not receive such approval in the future.
In the meantime, the Company is permitted by the appropriate federal agency
to market certain of its blood bank software products pursuant to previous
arrangements made with the appropriate federal agency.
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 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. Royalty expenses related to this agreement were
approximately $323,000 and $0 for the years ended December 31, 1996 and
1995, respectively, and are included in cost of sales and product
development in the accompanying consolidated statements of operations. 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 ten or five percent in year one to two or one percent in year ten and
F-24
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
thereafter. To date, the Company has not incurred any royalty expenses
related to this agreement.
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 (see Note 1). The 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 "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,
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.
As of December 31, 1996, the Company had 1,805,082 shares of common stock
reserved for future issuance as a result of the following: 1,234,279
shares issuable from the Company's Amended and Restated Stock Option Plan
(see Note 6); 187,800 shares issuable upon the exercise of certain
detachable warrants outstanding as a result of the 1996 10% Note offering
(see Note 7); 93,003 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 7); 10,000 shares
issuable upon the exercise of certain warrants granted to a nonrelated
investor (see Note 7); 160,000 shares underlying certain stock options
granted to a business advisory enterprise during the second quarter of 1996
(see Note 6); and 120,000 shares pursuant to the terms of the May 1995
Private Placement which provided for a share adjustment in the event the
price per common share of the Company's initial public offering was less
than $4.90 per share (see Note 7). See Note 11 for additional shares
reserved for future issuance as a result of certain transactions which
occurred subsequent to December 31, 1996.
F-25
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
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, 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, 1996
-----------------------------------
WYNDGATE DATAMED CONSOLIDATED
-----------------------------------
(IN THOUSANDS)
Revenues $4,576 $6,458 $11,034
Loss from operations (1,479) (2,454) (3,933)
Identifiable assets 2,724 2,275 4,999
Depreciation and amortization 259 308 567
Capital expenditures 417 340 757
YEAR ENDED DECEMBER 31, 1995
-----------------------------------
WYNDGATE DATAMED CONSOLIDATED
-----------------------------------
(IN THOUSANDS)
Revenues $ 934 $5,740 $6,674
Loss from operations (1,707) (817) (2,524)
Identifiable assets 1,016 1,705 2,721
Depreciation and amortization 85 82 167
Capital expenditures 602 371 973
F-26
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
11. SUBSEQUENT EVENTS
During February 1997, the Company completed an initial public offering (the
Offering) whereby it issued 1,337,000 units at $7.00 per unit. Net
proceeds from the Offering were approximately $7.9 million. The Offering
consisted of 1,337,000 units, each consisting of two shares of common stock
and one Class A Common Stock Purchase Warrant (the Units).
During January 1997, the Company received $450,000 from two nonrelated
investors related to an offering consisting of notes which accrued interest
at an annual rate of twelve percent (the 12% Notes). In connection with
the 12% Notes, the Company issued 150,000 common stock warrants which are
exercisable at eighty-five percent of the price per share of the Company's
common stock included in the Units of the Offering. During February 1997,
the Company used a portion of the net proceeds from the Offering to repay
$450,000 plus accrued interest of approximately $5,000 related to the 12%
Notes. In addition, the Company used net proceeds from the Offering to
repay approximately $970,000 plus accrued interest of approximately $5,000
on its $1 million line of credit (see Note 5).
On February 13, 1997, the Wyndgate Technologies division (Wyndgate) of
Global Med Technologies, Inc. entered into a multimillion dollar, 10-year
contract with Haemonetics Corporation (Haemonetics), a New York Stock
Exchange listed company located in Braintree, Massachusetts. Licensing and
other fees are payable by Haemonetics over the life of the contract. Under
the contract, Wyndgate will provide the use of its Blood Bank Information
Management Software to Haemonetics for its entry into the service side of
blood banking in multiple locations, including one of the blood banks
previously contracted by Wyndgate. Haemonetics has traditionally provided
blood separation products to blood banks and hospitals domestically and
internationally.
F-27
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
1,108,803 Shares
-------------------------
PROSPECTUS
-------------------------
AUGUST __, 1997
<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.
7-109-108. 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 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.
7-109-109. 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
II-4
<PAGE>
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.
7-109-110. 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(1)
NASD filing fee . . . . . . . . . . . . . . . . . . 3,777(1)
Printing. . . . . . . . . . . . . . . . . . . . . . 5,000(2)
Accounting fees and expenses. . . . . . . . . . . . 30,000(2)
Legal fees and expenses . . . . . . . . . . . . . . 15,000(2)
Blue Sky fees and filing fees . . . . . . . . . . . -0-(2)
Transfer and Warrant Agent fees . . . . . . . . . . -0-(2)
Miscellaneous . . . . . . . . . . . . . . . . . . . 5,000(2)
-------
Total . . . . . . . . . . . . . . . . . . . . . . . $ 70,080
========
___________
(1) Reflects filing fees paid with the original filing of the
Registration Statement
(2) 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
--------------------------
Share
Name No. of Unit (1) Consideration Adjustment (2)
- ---- --------------- ------------- --------------
Ms. Elizabeth Kitchen & 10,000 $ 50,000 8,000
Guy B. Nutter
I. Stephen Davis, MD 10,000 50,000 8,000
William C. Dickey, MD 1,000 5,000 800
Metropolitan Pathologists 5,000 25,000 4,000
Profit Sharing Trust
FBO Gary D. Dickey, MD
Metropolitan Pathologists 19,000 95,000 15,200
Profit Sharing Trust
FBO William C. Dickey, MD
Herbert H. Maruyama, MD 10,000 50,000 8,000
Wilshire Center Geriatrics 10,000 50,000 8,000
Medical Group, Inc. DBPP
FBO Eugene Seymour, MD
Resources Trust Company 10,000 50,000 8,000
FBO Nancy S. Rogers
IRA dtd 3/22/84
# I ###-##-####
Robert L. Messenbaugh, MD 10,000 50,000 8,000
Herbert L. Jacobs, MD 15,000 75,000 12,000
Stewart Weinerman, MD 10,000 50,000 8,000
Patrick A. Zoellner, MD 5,000 25,000 4,000
Hal Cohn, MD 5,000 25,000 4,000
Susan H. Sipf 10,000 50,000 8,000
Kenneth Manfre, MD 20,000 100,000 16,000
------- -------- -------
TOTAL 150,000 $750,000 120,000
======= ======== =======
_____________
(1) 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.
(2) In March, 1997, each Unit holder received a pro rata "Share
Adjustment" based upon the extent that the initial public offering
price per share of Common Stock in the Company's public offering
($3.50) was less than $4.90.
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 1,000 $ 3,000
& Karen N. Dickey
Metropolitan Pathologists 19,000 57,000
Profit Sharing Trust
Robert L. Messenbaugh, MD 10,000 30,000
Metropolitan Pathologists 5,000 15,000
Profit Sharing Trust
FBO Gary D. Dickey, MD
Resources Trust Company 10,000 30,000
FBO Nancy S. Rogers
IRA dtd 3/22/84 #I ###-##-####
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 6,667 20,001
Medical Group DBPP, Inc.FBO
Eugene Seymour, M.D.
Herbert L. Jacobs, MD 15,000 $ 45,000
Kenneth Manfre, MD 20,000 60,000
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.
II-9
<PAGE>
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 June 30, 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 50,000 12,500
Medical Group, Inc.
Eugene Seymour, M.D. Trustee
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
Michael I. Ruxin, M.D. 25,000 6,250
II-12
<PAGE>
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
---------------------------
Name Number of Consideration
---- --------- -------------
Shares Paid
------ ----
Hugo Brooks 10,000 $ 25,000
Lawrence M. Underwood 5,000 12,500
Paul R. Hoover & 10,000 25,000
Janet F. Hoover, JTWROS
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
William B. & 10,000 25,000
Cheryl A. Bacon, JTWROS
II-13
<PAGE>
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 & 10,000 25,000
Valerie J. Pray, JTWROS
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 5,000 12,500
Weinstein, JTWROS
Underwood Family Partners, LTD 20,000 50,000
Amar & Vangie Romero, JTWROS 6,000 15,000
Consulting on Government 10,000 25,000
Procurement-FBO J.S. Sansome
Lawrence E. & 10,000 25,000
Jeanne R. Keith, JTWROS
Riley Wilson - dba
RW Enterprises 20,000 50,000
John Solomita 10,000 25,000
II-14
<PAGE>
William Vasey 10,000 25,000
Tadahiko Nakamura 30,000 75,000
Robert W. & 4,000 10,000
Rhonda W. Braun, JTWROS
Donald H. & 2,000 5,000
Mary Lou Wilbois, JTWROS
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. & 10,000 25,000
Carolyn P. McDonald, JTWROS
Howard I. Saiontz 10,000 25,000
James A. Newsham III & 5,000 12,500
Vivian M. Newsham, JTWROS
William C. & 10,000 25,000
Mary Claire McCormick, JTWROS
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. & 15,000 37,500
Joann Wiedenhoeft, JTWROS
A. Thomas Tenenbaum 6,000 15,000
II-15
<PAGE>
Brenman Key & Bromberg 10,000 25,000
401K Profit Sharing Plan
FBO Thomas R. Bromberg
Brenman Key & Bromberg 20,000 50,000
401K Profit Sharing Plan
FBO Albert Brenman
Stuart McNab 1,000 2,500
George Thompson 9,500 23,750
Brenman Key & Bromberg 14,000 35,000
401K Profit Sharing Plan
FBO A. Thomas Tenenbaum
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
330,000 incentive stock options and approximately 78,000 non-qualified
stock options to approximately 60 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 five employees have exercised their
options, for an aggregate of 14,480 shares of the Company's Common Stock. The
issuance of the options and sales of the shares were made in reliance upon
the exemption from
II-16
<PAGE>
registration provided by Section 3(b) of the 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 were repaid
with proceeds from the Registrant's February, 1997 public offering. 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
$2.975 per share of the Common Stock included in the Units sold in the
Registrant's recent public offering. One of the lenders, Robert M.
Kassenbrock, is also a shareholder of the Registrant. 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*
4.1 Form of Representative's Warrants to Purchase Units*
II-17
<PAGE>
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 February 11, 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*
10.17 Interim Management Agreement, dated July 7, 1997, between the
Registrant and National Medical Review Offices, Inc.
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.
II-19
<PAGE>
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
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 August 4, 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 August 4, 1997
- --------------------------- of Directors, Principal
Michael I. Ruxin Executive Officer and Director
/s/ Joseph F. Dudziak President and Chief August 4, 1997
- --------------------------- Operating Officer
Joseph F. Dudziak
/s/ Bart K. Valdez Chief Financial Officer August 4, 1997
- ---------------------------
Bart K. Valdez
/s/ William J. Collard Secretary/Treasurer and August 4, 1997
- --------------------------- Director
William J. Collard
/s/ Gerald F. Willman, Jr. Director August 4, 1997
- ---------------------------
Gerald F. Willman, Jr.
/s/ Gordon Segal Director August 4, 1997
- ---------------------------
Gordon Segal
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 March 11, 1997 in Post-Effective Amendment No. 3 to the
Registration Statement (Form SB-2 No. 333-11723) and related Prospectus of
Global Med Technologies, Inc. dated August 5, 1997.
/s/ ERNST & YOUNG LLP
-------------------------------
Ernst & Young LLP
Denver, Colorado
August 4, 1997
EXHIBIT 10.17
INTERIM MANAGEMENT AGREEMENT
by and between
GLOBAL MED TECHNOLOGIES, INC.
a Colorado corporation
and
NATIONAL MEDICAL REVIEW OFFICES, INC.
a Michigan corporation
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TABLE OF CONTENTS
PAGE
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AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. Preliminary Agreements. . . . . . . . . . . . . . . . . . . . . . 1
1.1 Transfer of DataMed Operations . . . . . . . . . . . . . . . 1
1.2 Completion of Due Diligence. . . . . . . . . . . . . . . . . 2
1.3 Operations Prior to Election . . . . . . . . . . . . . . . . 2
1.4 Operations After Election. . . . . . . . . . . . . . . . . . 2
1.5 Effect of Election Not to Proceed with Acquisition . . . . . 2
2. Representations and Warranties of Company . . . . . . . . . . . . 2
3. Further Representations and Warranties of Company . . . . . . . . 3
4. Representations and Warranties of Manager . . . . . . . . . . . . 3
5. Management of DataMed by Manager. . . . . . . . . . . . . . . . . 4
5.1 Authority of Manager . . . . . . . . . . . . . . . . . . . . 4
5.2 Discharge of Operating Expenses. . . . . . . . . . . . . . . 4
5.3 Non-Assignment of Agreements . . . . . . . . . . . . . . . . 4
5.4 Limitation of Liabilities. . . . . . . . . . . . . . . . . . 5
5.5 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.6 Events Excusing Performance. . . . . . . . . . . . . . . . . 5
5.7 No Limitation on Other Projects. . . . . . . . . . . . . . . 5
6. Compensation to Manager . . . . . . . . . . . . . . . . . . . . . 5
6.1 Revenue Defined. . . . . . . . . . . . . . . . . . . . . . . 5
6.2 Expenses Defined . . . . . . . . . . . . . . . . . . . . . . 6
6.3 Net Income and Net Loss. . . . . . . . . . . . . . . . . . . 6
6.4 Management Fee . . . . . . . . . . . . . . . . . . . . . . . 6
6.5 Net Loss Allocation. . . . . . . . . . . . . . . . . . . . . 6
6.6 Net Loss Reimbursement by Company. . . . . . . . . . . . . . 7
6.7 Assignment of Accounts Receivable. . . . . . . . . . . . . . 7
7. Obligations of Company. . . . . . . . . . . . . . . . . . . . . . 7
7.1 Exclusive Manager. . . . . . . . . . . . . . . . . . . . . . 7
7.2 Assignment of Key Employee . . . . . . . . . . . . . . . . . 8
7.3 Reimbursement Obligations. . . . . . . . . . . . . . . . . . 8
7.4 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 8
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7.5 Cooperation and Further Assurances . . . . . . . . . . . . . 8
7.6 Access to Facilities . . . . . . . . . . . . . . . . . . . . 8
7.7 Access to Records. . . . . . . . . . . . . . . . . . . . . . 9
7.8 Adverse Actions. . . . . . . . . . . . . . . . . . . . . . . 9
7.9 Events Excusing Performance. . . . . . . . . . . . . . . . . 9
8. Term and Termination. . . . . . . . . . . . . . . . . . . . . . . 9
8.1 Term of Agreement. . . . . . . . . . . . . . . . . . . . . . 9
8.2 Termination by Company . . . . . . . . . . . . . . . . . . . 9
8.3 Termination by Manager . . . . . . . . . . . . . . . . . . . 10
8.4 Effect of Termination by Manager . . . . . . . . . . . . . . 10
8.5 Non-Solicitation by Manager. . . . . . . . . . . . . . . . . 11
9. General Provisions. . . . . . . . . . . . . . . . . . . . . . . . 11
9.1 Independent Relationship . . . . . . . . . . . . . . . . . . 11
9.2 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.3 Resolution of Disputes . . . . . . . . . . . . . . . . . . . 11
9.4 Entire Agreement; Modification . . . . . . . . . . . . . . . 12
9.5 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.6 Binding on Successors. . . . . . . . . . . . . . . . . . . . 12
9.7 Waiver of Provisions . . . . . . . . . . . . . . . . . . . . 12
9.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . 12
9.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . 12
9.10 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . 13
9.11 Time is of the Essence . . . . . . . . . . . . . . . . . . . 13
9.12 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . 13
9.13 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . 13
9.14 Language Construction. . . . . . . . . . . . . . . . . . . . 13
EXHIBIT A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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INTERIM MANAGEMENT AGREEMENT
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THIS INTERIM MANAGEMENT AGREEMENT ("AGREEMENT"), is made and dated as
of the 7th day of July, 1997, by and between Global Med Technologies, Inc.,
a Colorado corporation ("COMPANY"), and National Medical Review Offices,
Inc., a Michigan corporation ("MANAGER"), with regard to the operation of
DataMed International, a division of the Company ("DATAMED"). Company and
Manager are sometimes referred to herein individually as a "PARTY" or
collectively as the "PARTIES."
WITNESSETH
WHEREAS, the Board of Directors of the Company has determined that it
is in the best interests of the Company, its shareholders and customers, to
divest its interests in DataMed;
WHEREAS, Company and Manager are parties to that certain Letter of
Intent for Proposed Acquisition dated June 20, 1997 (the "LETTER OF
INTENT"), which incorporates by reference the Term Sheet and other terms of
a previous Letter of Intent for Proposed Acquisition dated June 18, 1997;
WHEREAS, the Letter of Intent describes the terms of the proposed
acquisition by Manager from Company of the assets used by Company in the
operation of DataMed (the "ACQUISITION"), which terms include the transfer
of direction and control of the operations of DataMed from Company to
Manager as of June 30, 1997, on an interim basis subject to the final
approval of the Acquisition by the shareholders of Company, and the closing
of the Acquisition in accordance with the terms of mutually acceptable
definitive agreements reflecting the Acquisition (the "PURCHASE
AGREEMENTS"); and
WHEREAS, Manager and Company desire to enter into this Agreement with
the purpose and intent of memorializing their agreements regarding the
terms and conditions for the transfer of direction and control of the
operations of DataMed to Manager on an interim basis, and the related
transactions described herein.
AGREEMENTS
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NOW, THEREFORE, in consideration of the premises and the mutual
covenants of the Parties set forth herein, and of other good and valuable
consideration, the receipt and adequacy of which each Party hereby
acknowledges, the Parties hereto agree as follows:
1. PRELIMINARY AGREEMENTS.
1.1 TRANSFER OF DATAMED OPERATIONS. The operation and control of
DataMed shall be transferred from Company to Manager in accordance with
this Agreement, as of midnight (Mountain Time) on June 30, 1997 (the
"EFFECTIVE DATE").
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1.2 COMPLETION OF DUE DILIGENCE. Subject to and in accordance with
the Letter of Intent, Manager agrees to work diligently and in good faith
to complete all of its due diligence investigations of DataMed as soon as
reasonably practical, but in no event later than 5:00 p.m. (Mountain Time)
on Friday, July 11, 1997 (the "DUE DILIGENCE DEADLINE"). Manager agrees to
provide written notice to Company, prior to the Due Diligence Deadline, of
Manager's election to proceed, or not to proceed, with the Acquisition (the
"ELECTION"). Company agrees to cooperate with Manager diligently and in
good faith so as to facilitate the completion by Manager of its due
diligence investigations prior to the Due Diligence Deadline.
1.3 OPERATIONS PRIOR TO ELECTION. During the period beginning on the
Effective Date, and ending on the date upon which Manager makes its
Election, Manager and Company agree to the following: (i) all accounts
payable with regard to DataMed operations shall be frozen, I.E., Company
and Manager agree not to pay or discharge any loans, trade accounts, or
other indebtedness with regard to DataMed operations, except for payments
to physicians who provide medical review officer services to DataMed, and
such other payments as the Parties mutually agree are reasonable and
necessary, which shall be separately identified and recorded by the
Parties; and (ii) all accounts receivable with regard to DataMed operations
shall be frozen, I.E., Company and Manager agree to continue to collect and
hold accounts receivable, but not to sell, assign, transfer, compromise,
write-off or otherwise adjust such accounts receivable.
1.4 OPERATIONS AFTER ELECTION. If Manager's Election is to proceed
with the Acquisition, then after Manager makes such Election, Manager shall
be obligated: to pay and discharge all accounts payable that are Expenses
as defined in Section 6.2, and to bill for DataMed services and collect
accounts receivable of the Company relating to the business and operations
of DataMed.
1.5 EFFECT OF ELECTION NOT TO PROCEED WITH ACQUISITION. If Manager
elects not to proceed with the Acquisition, then this Agreement will
terminate as of the date of such Election, and the obligations of Company
and Manager, respectively, shall be governed by Section 8 of this
Agreement.
2. REPRESENTATIONS AND WARRANTIES OF COMPANY. Company hereby covenants,
represents, and warrants as follows:
2.1 Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Colorado.
2.2 Company has full legal power and authority to enter into and
deliver this Agreement and perform the transactions contemplated herein.
2.3 All consents, approvals, resolutions, authorizations, actions or
orders required of Company for the authorization, execution and delivery
of, and for the consummation of the transactions contemplated by, this
Agreement have been obtained, except if and to the extent that the approval
of the shareholders of Company is required.
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2.4 This Agreement when executed and delivered will constitute
Company's legal, valid and binding obligation enforceable in accordance
with its terms.
2.5 The execution and delivery of this Agreement, and the fulfillment
of and compliance with the terms and provisions hereof do not conflict with
or violate any judicial or administrative order, award, judgment or decree
applicable to Company, or violate or conflict with any of the terms,
conditions or provisions of Company's Articles of Incorporation, Bylaws, or
other organizational documents or any contract between Company and any
third person or entity (whether with or without notice or passage of time).
3. FURTHER REPRESENTATIONS AND WARRANTIES OF COMPANY. Company covenants,
represents, and warrants that as follows:
3.1 Company has sole and complete ownership or lawful control over
the property and facilities used by Company in the operation of DataMed.
3.2 Company has operated its property and facilities, and as of the
commencement of this Agreement will be, in substantial compliance with all
applicable federal, state and local laws, rules and regulations any
violation of which could have a material adverse impact on DataMed, its
operations, financial condition, or its business prospects.
3.3 Company shall have sole and absolute responsibility for and shall
pay when and as due, any and all income taxes imposed on Company.
4. REPRESENTATIONS AND WARRANTIES OF MANAGER. Manager hereby covenants,
represents, and warrants as follows:
4.1 Manager is a corporation duly organized, validly existing and in
good standing under the laws of the State of Michigan.
4.2 Manager has full legal power and authority to enter into and
deliver this Agreement and perform the transactions contemplated herein.
4.3 All consents, approvals, resolutions, authorizations, actions or
orders required of Manager for the authorization, execution and delivery
of, and for the consummation of the transactions contemplated by, this
Agreement have been obtained.
4.4 This Agreement when executed and delivered will constitute
Manager's legal, valid and binding obligation enforceable in accordance
with its terms.
4.5 The execution and delivery of this Agreement, and the fulfillment
of and compliance with the terms and provisions hereof do not conflict with
or violate any judicial or administrative order, award, judgment or decree
applicable to Manager, or violate or conflict with any of the terms,
conditions or provisions of Manager's Articles of Incorporation, Bylaws, or
other organizational documents or any contract between Manager and any
third person or entity (whether with or without notice or passage of time).
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5. MANAGEMENT OF DATAMED BY MANAGER.
5.1 AUTHORITY OF MANAGER. Subject to the covenants, conditions and
restrictions set forth in this Agreement, and subject to existing
contractual obligations of the Company, Manager shall have and Company
hereby delegates to Manager, sole and exclusive responsibility, authority
and discretion to conduct, manage, direct and control all aspects of the
business and operations of DataMed. Without limiting the generality of the
foregoing, Manager shall have the following authorities and
responsibilities:
(a) to conduct, manage, direct and control all aspects of the
business and operations of DataMed, in the exercise of Manager's good faith
business judgment, consistent with applicable laws, and without any
obligation to seek or obtain from Company its advice, recommendation,
concurrence or consent;
(b) effective after the Due Diligence Deadline, to conduct,
manage, direct and control the transition of the ownership of DataMed,
including without limitation, (i) the sale, assignment, or other
disposition or transfer of any or all of the assets or contractual
obligations of DataMed, (ii) the reduction of DataMed's employee or other
work force, and (iii) the assignment or transfer of DataMed's
administrative responsibilities;
(c) to administer Company's contracts with customers, service
providers, and other vendors or purchasers of services or supplies,
including the authority and responsibility to negotiate, enter into,
maintain, amend, any or all of such contracts, provided, however, that
Manager shall not terminate any contract with any DataMed customer, or any
service provided to any DataMed customer, without the prior consent of
Company, which consent Company agrees not to unreasonably withhold or
delay;
(d) to bill for DataMed services and collect accounts receivable
of the Company relating to the business and operations of DataMed;
(e) effective after the Due Diligence Deadline, to fix and to
change the location of the offices used by Company for the transaction of
DataMed business, and to locate or relocate from time to time such offices
within or outside of the State of Colorado; and
(f) to rely on information, opinions, reports or statements,
including financial statements and other financial data and records,
prepared or presented to Manager by Company, its officers, agents or
employees, at any time prior to or during the term of this Agreement.
5.2 DISCHARGE OF OPERATING EXPENSES. Subject to the covenants,
conditions and restrictions set forth in this Agreement, Manager agrees to
pay and discharge all Expenses, as defined in Section 6.2 below, incurred
by Manager in the operation of DataMed.
5.3 NON-ASSIGNMENT OF AGREEMENTS. Notwithstanding Manager's
obligation under Section 5.2 above, nothing in this Agreement is intended
to be or shall be construed to
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constitute an assignment by Company of any agreement or contractual
obligation, whether express or implied, that exists between Company and any
other person or entity. Similarly, nothing in this Agreement is intended
to be or shall be construed to constitute an assumption by Manager of any
agreement or contractual obligation, whether express or implied, that
exists between Company and any other person or entity. The Parties
acknowledge and agree that agreements and contractual obligations of
Company cannot be assigned by Company or assumed by Manager except with the
approval of the Company shareholders to the Acquisition and the Purchase
Agreements.
5.4 LIMITATION OF LIABILITIES. Manager makes no warranties, express
or implied, as to the following: the results of operation of DataMed;
any actions that will or will not be taken by Manager in the operation of
DataMed; any services or supplies that will or will not be provided by
DataMed; any customers or clients that will or will not be retained or
acquired by DataMed; or any net book value, net worth, liquidation value,
or any other value of DataMed or any of its assets upon termination of this
Agreement. Except for any Net Loss that is allocable to Manager in
accordance with Section 6.5 of this Agreement, in no event will Manager be
liable to Company, or any person or entity engaged by or under contract
with Company, for any losses, liabilities, or damages, including, without
limitation, any lost profits, lost savings, or other incidental, special or
consequential damages, incurred by Company, its agents or employees, as a
result of Manager's operation of DataMed in the exercise of Manager's good
faith business judgment, even if Manager has been advised of the
possibility of such damages, except for any such damages or liability
caused by the unlawful conduct or negligence, of Manager, or its agents and
employees.
5.5 INSURANCE. Throughout the term of this Agreement, Manager shall
provide and maintain comprehensive general liability, workers compensation,
and professional liability insurance for all employees of Manager (but not
Company employees), with such limits as the Parties agree are commercially
reasonable.
5.6 EVENTS EXCUSING PERFORMANCE. Manager shall not be liable to
Company for failure to perform any of the services required herein in the
event of any strike, lock-out, calamity, act of God, unavailability of
supplies or other event over which Manager has no control, for so long as
such event continues, and for a reasonable period of time thereafter.
5.7 NO LIMITATION ON OTHER PROJECTS. Nothing contained in this
Agreement shall preclude, limit or otherwise affect the right of Manager to
engage in, or possess interests in, other business ventures of every kind
and description.
6. COMPENSATION TO MANAGER
6.1 REVENUE DEFINED. For purposes of this Agreement, "REVENUE" shall
mean and include: (i) all fees and payments to which Company becomes
entitled, either during the term of this Agreement or following termination
or expiration thereof, for or in connection with, the provision of services
or supplies by DataMed, regardless of where such services or supplies are
rendered, or what method of payment is used; and (ii) all investment
income, proceeds of sale of assets, and other income collected by or on
behalf of DataMed during the
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term of this Agreement. Revenue shall be determined on an accrual basis in
accordance with generally accepted accounting principles consistently
applied.
6.2 EXPENSES DEFINED.
(a) For purposes of this Agreement, "EXPENSES" shall mean and
include all expenses that: (i) were fully disclosed and recorded on the
June 30, 1997, balance sheet and the profit and loss statement of DataMed,
copies of which shall be attached to this Agreement as Exhibit A; (ii) are
necessary and appropriate and incurred in the ordinary course of the
operation of DataMed during the term of this Agreement and after the
Effective Date; (iii) are not otherwise insured or subject to reimbursement
or indemnity from a third party; and are not excluded by Section 6.2(b)
below.
(b) For purposes of this Agreement, "EXPENSES" shall not include
any expenses for: (i) borrowed money or interest charges thereon,
including any intercompany loans (but not including capital leases or
similar equipment financing arrangements with third parties); (ii) legal,
accounting and other consulting expenses incurred by Company; (iii) real
property taxes, or taxes based on income or revenue of the Company; (iv)
expenses associated with the purchase and maintenance of insurance (other
than employee health insurance for employees providing services exclusively
to DataMed); (v) any judgments, settlements, and expenses of litigation
(except for such legal actions as may be initiated by Manager to collect
DataMed accounts receivable); (vi) bank charges on any Company accounts or
transactions; (vii) DataMed employee bonuses or compensation increases not
disclosed and recorded in the June 30, 1997, profit and loss statement of
DataMed; (viii) compensation and benefits paid to Company employees whose
services are not rendered exclusively to DataMed; (ix) intercompany charges
for, or allocations of, overhead and support, and intercompany loans, as
mutually agreed by the Parties; and (x) any expenses paid by Company
relating to DataMed operations that are not disclosed and recorded in the
June 30, 1997 profit and loss statement of DataMed. All expenses described
in this Section 6.2(b) shall be the sole and complete responsibility of
Company.
(c) Expenses shall be determined on an accrual basis in
accordance with generally accepted accounting principles consistently
applied.
6.3 NET INCOME AND NET LOSS. For purposes of this Agreement, "NET
INCOME" of DataMed shall mean the amount by which Revenue exceeds Expenses
for the applicable period and "NET LOSS" shall mean the amount by which
Expenses exceed Revenue for the applicable period. Net Income and Net Loss
shall be determined on an accrual basis in accordance with generally
accepted accounting principles consistently applied.
6.4 MANAGEMENT FEE. In consideration for performing its obligations
under this Agreement, Company shall pay to Manager a monthly management fee
in an amount equal to the Net Income, if any, during the applicable month
(the "MANAGEMENT FEE").
6.5 NET LOSS ALLOCATION. Based upon DataMed's previous financial
performance, Company and Manager anticipate that the operation of DataMed
during the term of this
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Agreement will result in a Net Loss. Accordingly, the Parties agree that
any Net Loss resulting from the operation of DataMed in accordance with
this Agreement shall be allocated between the Parties as follows: (i) if
Company shareholders approve the Acquisition within the time and in the
manner required by the Purchase Agreements, and this Agreement is in full
force and effect, and no event has occurred which with the giving of notice
or the passage of time would constitute a breach by Company of any of its
obligations under this Agreement, then any Net Loss incurred hereunder by
Manager shall be the sole responsibility of Manager; and (ii) if Company
shareholders do not approve the Acquisition within the time and in the
manner required by the Purchase Agreements, or if this Agreement has been
terminated in accordance with Section 8.3 below, or if an event has
occurred which with the giving of notice or the passage of time would
constitute a breach by Company of any of its obligations under this
Agreement, then any Net Loss incurred hereunder in the operation of DataMed
shall be the sole responsibility of Company.
6.6 NET LOSS REIMBURSEMENT BY COMPANY. If Company is obligated to
reimburse Manager for Net Losses in accordance with Section 6.5, then
Company agrees to pay to Manager the total amount of such Net Loss in
accordance with the following: (i) within five (5) business days following
Manager's delivery to Company of a written statement showing the total
amount of such Net Loss (the "Net Loss Statement"), Company shall have the
right, at its sole expense, to have the Net Loss Statement reviewed and
verified by Ernst & Young; (ii) any such review and verification by Ernst
& Young must be completed within thirty (30) days of Company's receipt of
the Net Loss Statement from Manager, and a written report of such review
and verification shall be provided by Ernst & Young to Manager concurrently
with the provision of such report to Company; (iii) if Ernst & Young
concludes that any portion of the Net Loss Statement is inaccurate, then
Company agrees to immediately pay to Manager that portion of Net Loss that
is not in dispute, and to resolve the disputed portion in accordance with
Section 9.3 below.
6.7 ASSIGNMENT OF ACCOUNTS RECEIVABLE. Effective as of the Due
Diligence Deadline, Company hereby assigns (or reassigns, as the case may
be), exclusively to Manager all accounts receivable of DataMed, and all
claims, demands and rights of Company to charge, bill and collect from
third parties for services and supplies rendered by DataMed. Company
agrees to execute any and all documents necessary to secure and perfect
Manager's interest in such accounts receivable and revenue, and agrees to
cooperate with Manager in any reasonable manner to effectuate an efficient
billing process and to obtain maximum allowable collection consistent with
the services provided. All payments received by DataMed directly, shall be
promptly delivered to Manager. Company further agrees and hereby appoints
Manager, for the term hereof, to be its true and lawful attorney-in-fact
for purposes of (a) billing and collecting in the name of DataMed; and (b)
receiving, taking possession of and endorsing in the name of DataMed any
notes, checks, money orders, insurance payments and other instruments
received in payment of accounts receivable.
7. OBLIGATIONS OF COMPANY
7.1 EXCLUSIVE MANAGER. During the term of this Agreement and except
as otherwise provided herein, Company engages Manager to act as the sole
and exclusive
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manager and administrator of the business and operations of DataMed.
Manager is expressly authorized by Company to perform its services
hereunder in whatever manner it deems appropriate to meet the day-to-day
requirements of the operations of DataMed, in accordance with standards
established by Manager, including, without limitation, performance of some
of the business functions at other locations. Company further agrees that
during the term of this Agreement, Company shall not, without the prior
written consent of Manager, contract for or otherwise purchase or provide
any of the management, administrative or other services, supplies or
equipment provided by Manager to Company hereunder.
7.2 ASSIGNMENT OF KEY EMPLOYEE. Upon execution of this Agreement by
both Parties, Company agrees to assign Bart Valdez to provide services on
behalf of DataMed, on the following terms: (i) Mr. Valdez shall not be
required to allocate more than eight (8) hours per week of his time to
Company during the term of this Agreement; (ii) Mr. Valdez shall not be
required to travel for the Company during the term of this Agreement more
than two (2) trips, and each trip may last not more than three (3) days in
duration; (iii) scheduling of Mr. Valdez' time shall be by mutual agreement
of the Parties; (iv) Company agrees to reimburse Manager for the Company's
pro-rata share of salary and benefits paid by Manager to Mr. Valdez; and
(v) such other terms as the Parties may mutually agree.
7.3 REIMBURSEMENT OBLIGATIONS. Company agrees to perform its
reimbursement obligations under Section 6 above.
7.4 INSURANCE. During the term of this Agreement, Company agrees to
obtain and maintain commercial general liability insurance covering the
operations of DataMed, and fire and extended casualty insurance covering
the offices and property of DataMed, upon such terms and with such
coverages as the Parties agree are commercially reasonable. Upon request
of Manager, Company shall provide evidence of such insurance coverage
required hereunder. The Parties agree that premiums for the foregoing
insurance shall be included in Expenses as defined in Section 6.2(a), and
that Manager shall reimburse Company for such Expenses in accordance with
this Agreement.
7.5 COOPERATION AND FURTHER ASSURANCES. Company agrees to cooperate
with Manager, and to execute such other documents and take such other
actions as may be reasonably necessary or desirable, in connection with the
efficient management of the day-to-day operations of DataMed by Manager,
including, without limitation, the addition of Manager and its designated
employee or employees as an authorized signatory or signatories on any and
all bank or depository accounts used by Company in connection with the
operation of DataMed, including the right to make deposits and cash
withdrawals from such accounts when and as required to pay for obligations
arising in connection with the operation of DataMed as required by this
Agreement, and to pay Manager any amounts due to Manager under Section 6 of
this Agreement.
7.6 ACCESS TO FACILITIES. During the term of this Agreement, Manager
shall have the right to enter and use all DataMed offices and facilities at
all times necessary, in the discretion of Manager, to perform its duties
under this Agreement, including, but not limited to, the right for Manager
employees, contractors and agents, and any equipment, inventory
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or other supplies or documents owned or leased by Manager, to be in such
offices and facilities.
7.7 ACCESS TO RECORDS. During the term of this Agreement, and for a
period of one (1) year thereafter, Manager, and its respective designees,
shall have the right during Company's normal business hours and upon
reasonable prior notice, to inspect, copy and make extracts from, DataMed's
books of account and records, and the Company's books of account and
records relating to the operations of DataMed and maintained by Company
during the period from and including June 20, 1997 through and including
the termination date of this Agreement, including specifically but without
limitation, records of billings, collections, expenses and disbursements,
records of meetings of the Company's shareholders, board of directors and
any and all committees thereof, and records of agreements, instruments,
judgments orders and other written obligations of Company that materially
affect Manager's rights or the performance of its duties hereunder.
7.8 ADVERSE ACTIONS. Except as otherwise permitted in this
Agreement, Company agrees not to take any action or implement any decision
that would have a material adverse effect on Manager's authority and
discretion to conduct, manage, direct and control all aspects of the
business and operations of DataMed, or the amount of Manager's Management
Fee, or that otherwise would have a material adverse effect on Manager's
financial interests under this Agreement, unless Company obtains the prior
written approval of Manager to such action or decision.
7.9 EVENTS EXCUSING PERFORMANCE. Company shall not be liable to
Manager for failure to perform any of the services required herein in the
event of any strike, lock-out, calamity, act of God, unavailability of
supplies or other event over which Company has no control, for so long as
such event continues, and for a reasonable period of time thereafter.
8. TERM AND TERMINATION
8.1 TERM OF AGREEMENT. The term of this Agreement shall commence as
of July 1, 1997, and shall extend until the closing of the Acquisition in
accordance with the Purchase Agreements, unless earlier terminated pursuant
to the terms of Sections 8.2 or 8.3 below, or pursuant to mutual agreement
of the Parties or any other provision of this Agreement.
8.2 TERMINATION BY COMPANY. Company may terminate this Agreement
under the following circumstances:
(a) The commencement of any voluntary proceeding by Manager
under any reorganization arrangement, readjustment, moratorium law or
statute, including without limitation, the United States Bankruptcy Code or
any successor federal statute, or if any involuntary proceeding under any
reorganization arrangement, readjustment, moratorium law or statute,
including without limitation the United States Bankruptcy Code or any
successor federal statute, is commenced against Manager, or if Manager
makes, negotiates or commences negotiations for partial or complete
assignment of its assets for the benefit of creditors, pursuant to
statutory or common law;
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(b) Manager suffers an appointment of a receiver, custodian,
examiner or a trustee for any of its property or assets;
(c) The termination, liquidation or dissolution of Manager;
(d) In the event that Manager shall default in the performance
of any material duty or obligation imposed upon it by this Agreement and
such default shall continue for a period of thirty (30) days after written
notice thereof has been given to Manager by Company; or
(e) in the event that Company shareholders do not approve the
Acquisition within the time and in the manner required by the Purchase
Agreements.
8.3 TERMINATION BY MANAGER. Manager may terminate this Agreement
under the following circumstances:
(a) the commencement of any voluntary proceeding by Company
under any reorganization arrangement, readjustment, moratorium law or
statute, including without limitation, the United States Bankruptcy Code or
any successor federal statute, or if any involuntary proceeding under any
reorganization arrangement, readjustment, moratorium law or statute,
including without limitation the United States Bankruptcy Code or any
successor federal statute, is commenced against Company; or if Company
makes, negotiates or commences negotiations for partial or complete
assignment of its assets for the benefit of creditors, pursuant to
statutory or common law;
(b) Company suffers an appointment of a receiver, custodian,
examiner or a trustee for any of its property or assets;
(c) the termination, liquidation or dissolution of Company,
except any such action that causes a third party to expressly assume the
obligations and succeed to the interests of Company hereunder;
(d) in the event that Manager makes, prior to the Due Diligence
Deadline, the written Election not to proceed with the Acquisition;
(e) in the event that Company shareholders do not approve the
Acquisition within the time and in the manner required by the Purchase
Agreements; or
(f) in the event Company shall default in the performance of any
material duty or obligation imposed upon it by this Agreement and such
default shall continue for a period of thirty (30) days after written
notice thereof has been given to the Company.
8.4 EFFECT OF TERMINATION BY MANAGER. If Manager terminates this
Agreement pursuant to Section 8.3, then in addition to any other right or
remedies to which Manager may be entitled hereunder, or by law, Company
will retain all rights (including rights to accounts receivable of
DataMed), and all obligations and liabilities (including accounts
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payable) relating to the operation of DataMed, and Company will reimburse
Manager's Expenses.
8.5 NON-SOLICITATION BY MANAGER. Manager agrees for a period of two
(2) years following the termination of this Agreement, not to directly
solicit any persons who are employees of DataMed as of the date of such
termination. Manager further agrees for a period of one (1) year following
the termination of this Agreement, not to directly solicit any persons or
entities who are customers of DataMed as of the date of such termination,
provided, however, that the foregoing shall not restrict Manager from
soliciting any former customer of DataMed, or from responding to any
existing customer of DataMed that has generally submitted a request for
proposal to any persons or entities other than DataMed.
9. GENERAL PROVISIONS
9.1 INDEPENDENT RELATIONSHIP. The Parties to this Agreement shall be
and remain independent legal entities, without obligation to each other or
to any third person or entity, except as may be expressly set forth in this
Agreement. The Parties do not intend this Agreement, or any aspect of the
operation of DataMed, to form a partnership, joint venture, or any other
form of legal association under any California or Colorado law. The
Parties to this Agreement do not intend to be partners to one another, or
partners as to any third person or entity not a Party to this Agreement.
Except as otherwise expressly set forth in this Agreement, or as otherwise
may be required by applicable law, no Party shall be held to be a fiduciary
or trustee, or to have any fiduciary obligation, to any other Party.
9.2 ASSIGNMENT. Either Party shall have the right to assign its
rights and delegate its duties hereunder, without the prior consent of the
other Party.
9.3 RESOLUTION OF DISPUTES. In the event of any controversy, claim
or dispute between any Parties arising out of or relating to this
Agreement, or the making, performance or interpretation of it (the
"Dispute"), the Parties agree to comply diligently and in good faith with
the following procedure in order to resolve the Dispute:
(a) A meeting (the "Initial Meeting") shall promptly be held at
which all Parties are present or represented by individuals with full
decision making authority regarding the Dispute. If within thirty (30)
days following the Initial Meeting the Parties have not succeeded in
negotiating a resolution of the Dispute, the Dispute shall be submitted to
mediation facilitated by a mediator ("Mediator"). Such Mediator shall be
a retired judge or mature practicing attorney. Each Party shall bear its
proportionate share of the costs of the mediation, including the Mediator's
fee. The Parties agree to participate in good faith in the mediation and
negotiations related thereto and in all mediation conferences.
(b) If within a period of thirty (30) days following the final
adjournment of the mediation conference(s), the Parties are unable to
resolve the Dispute, the Dispute shall be settled by binding arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association then existing, including, but not limited to, the
Commercial Arbitration Rules relating to selection of arbitrators and the
place of arbitration.
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Arbitrators will be persons experienced in negotiating, making, and
consummating acquisition agreements. Judgment upon the arbitration award
may be entered in any court having jurisdiction over the subject matter of
the controversy.
9.4 ENTIRE AGREEMENT; MODIFICATION. There are no other agreements or
understandings, written or oral, between the parties regarding the subject
matter of this Agreement, other than as set forth herein. All Exhibits
referred to in this Agreement are intended to and shall be incorporated
into this Agreement by reference and shall be deemed to be a part of this
Agreement. This Agreement shall not be modified or amended except by a
written document executed by both Parties. Each written modification shall
be attached hereto.
9.5 NOTICES. All notices required, desired or permitted to be given
under this Agreement shall be in writing and shall be deemed to have been
duly made and given when given in person, by nationally recognized
overnight courier, or when sent by United States mail, postage prepaid,
registered or certified mail, return receipt requested, or by overnight
delivery addressed as follows:
If to Manager: National Medical Review Offices, Inc.
5750 Wilshire Boulevard, Suite 275
Los Angeles, California 90036
Attention: President
If to Company: Global Med Technologies, Inc.
12600 West Colfax, Suite A-500
Lakewood, Colorado 80215
Attention: Michael I. Ruxin,
Chief Executive Officer
Any such notice sent by United States mail shall be deemed to have been
given forty-eight (48) hours after posting (if addressed and prepaid as set
forth above) and notices which are personally delivered or delivered by
overnight delivery shall be deemed to have been given when delivered. Each
Party may change the address to which its notices are to be delivered
hereunder, by giving notice as hereinabove provided.
9.6 BINDING ON SUCCESSORS. Subject to Section 9.1, this Agreement
shall be binding upon the Parties, and the Parties' respective successors,
assigns, heirs and beneficiaries.
9.7 WAIVER OF PROVISIONS. Any waiver of any term or provision hereof
must be made in writing, and signed by the Parties hereto. Any such waiver
shall not be construed as a waiver of any other term or provision hereof,
not expressly provided for a written waiver signed by the Parties.
9.8 GOVERNING LAW. The validity, interpretation and performance of
this Agreement shall be governed by and construed in accordance with the
laws of the State of Colorado.
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9.9 SEVERABILITY. The provisions of this Agreement shall be deemed
severable and if any provision hereof shall be held invalid, illegal or
unenforceable for any reason, the remainder of this Agreement shall be and
remain effective and binding upon the Parties, and Company.
9.10 ATTORNEYS' FEES. If legal action is commenced by either Party to
enforce or defend its rights under this Agreement, or to interpret or
enforce this Agreement, the prevailing Party in such action shall be
entitled to recover its costs and reasonable attorneys' fees from the other
Party, in addition to any other relief granted.
9.11 TIME IS OF THE ESSENCE. Time is hereby expressly declared to be
of the essence in this Agreement.
9.12 CONFIDENTIALITY. Except for disclosure to its attorneys and
consultants, or as necessary for the conduct of its business, neither Party
shall disclose to any third party (other than Company) any provision of
this Agreement, or any financial or other information regarding the other
Party obtained by disclosing Party, regardless of when obtained, without
the prior written consent of the other Party.
9.13 REMEDIES CUMULATIVE. No remedy set forth in this Agreement or
otherwise conferred upon or reserved to any Party by law, shall be
considered exclusive of any other remedy available to such Party.
9.14 LANGUAGE CONSTRUCTION. The language in all parts of this
Agreement shall be construed, in all cases, according to its fair meaning,
and not for or against either Party.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first written above.
"Company" "Manager"
GLOBAL MED TECHNOLOGIES, INC. NATIONAL MEDICAL
a Colorado corporation REVIEW OFFICES, INC.
a Michigan corporation
By: /s/ MICHAEL I. RUXIN By: /s/ KEITH PATTEN
---------------------------- ---------------------------
Its: CEO Its: COO
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EXHIBIT A
June 30, 1997
Balance Sheet and Profit and Loss Statement
