As filed with the Securities and Exchange Commission on March 18, 1997
Registration No. 333-11723
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post Effective Amendment No. 1
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 Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
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)
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.
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CALCULATION OF REGISTRATION FEE
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Title of each Proposed
class of Amount Proposed maximum Amount of
securities to to be maximum aggregate registration
be registered registered offering price (1) offering price (1) fee
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1,456,988 Units, each consisting of 2 shares of
Common Stock and 1 Class A Common Stock
Purchase Warrant (2) 1,456,988 $ 9.00 $13,112,892 $4,522
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Common Stock (3) 2,913,976 $ -0- -0- -0-
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Class A Common Stock Purchase Warrants (3) 1,456,988 $ -0- -0- -0-
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Common Stock Underlying Class A Common
Stock Purchase Warrants (4) 1,456,988 $ 5.85 8,523,380 2,939
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Common Stock (5) 921,003 $ 4.50 4,144,514 1,429
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Shares Underlying Outstanding Warrants to
Purchase Common Stock (5) 337,800 $ 4.50 1,520,100 524
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Representative's Warrants to Purchase
Units 1 $ 100.00 100 Nil
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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
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Common Stock included in Representative's Units
(6) 267,400 $ -0- -0- -0-
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Class A Common Stock Purchase Warrants
included in the Representative's Units (6) 133,700 $ -0- -0- -0-
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Common Stock Underlying Class A Common
Stock Purchase Warrants included in the 133,700 $ 8.67 1,159,179 400
Representative's Units (4)
================================================================================================================================
Total: $30,445,610 $10,499(7)
================================================================================================================================
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(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 offering and
119,988 Units sold pursuant to the exercise of a portion of the
Underwriters' over- allotment option. The remaining 80,562 Units which were
previously registered are being de-registered hereby.
(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. Reflects de-registration of 161,124 shares
of Common Stock and 80,562 Warrants which were included in the 80,562 Units
being de-registered hereby.
(4) Reflects de-registration of 80,562 shares underlying 80,562 Class A Common
Stock Purchase Warrants being de-registered hereby. 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.
Reflects a decrease of 26,967 shares, which are being de-registered hereby.
(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.
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Cross Reference Sheet
Form SB-2
Item No. Sections in Prospectus
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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
<PAGE>
19 Market for Common Equity and Related
Stockholder Matters........................................... Risk Factors; Market for Common Equity,
Dividend Policy and Related Shareholder Matters
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
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<PAGE>
PROSPECTUS SUBJECT TO COMPLETION, DATED MARCH 18, 1997
GLOBAL MED TECHNOLOGIES, INC.
150,000 Shares
This Prospectus relates to the resale by the holders (the "Selling Security
Holders") named herein, for their own accounts, of up to 150,000 shares of
Common Stock which underly warrants exercisable at $2.975 (85% of the price per
share of the Common stock included in the Units) (hereinafter sometimes
collectively referred to as the "Shares"). The Common Stock and the Warrants
comprising the Units sold in the Company's recent public offering became
separately tradeable and transferable on March 13, 1997, and the Units ceased to
trade as of that same date. The Common Stock and Warrants trade on the NASDAQ
Small-Cap Market 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 $446,250 (based on an
exercise price of $2.975 per share of Common Stock) upon exercise of the 150,000
warrants to purchase Common Stock, of which there is no assurance. However, the
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.
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The date of this Prospectus is March __, 1997.
<PAGE>
(Red herring language)
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 any State in which such offer, solicitation or sale wuld 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.
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TABLE OF CONTENTS
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The Offering........................3 Security Ownership of Certain
Summary Financial Information.......5 Beneficial Owners and Management ..................57
Risk Factors........................6 Certain Relationships and Related
Use of Proceeds ...................16 Transaction..........................................59
Market For Common Equity, Description of Securities............................60
Dividend Policy and Related Selling Security Holders.............................62
Shareholder Matters..............16 Plan of Distribution.................................63
Selected Financial Information ....17 Legal Matters........................................64
Management's Discussion and Experts..............................................64
Analysis or Plan of Operations ..19 Shares Eligible for Future Sale......................64
The Company .......................24 Additional Information...............................66
Legal Proceedings .................43 Glossary.............................................67
Management ........................44 Financial Statements................................F-1
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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 and
provides substance abuse (which includes drug and alcohol) testing program
services to companies, including certain Fortune 1000 companies. The Company
consists of two divisions, Wyndgate Technologies ("Wyndgate") and DataMed
International ("DataMed"), both of which operate under their respective trade
names. Wyndgate develops, markets, licenses and supports software for the
healthcare industry. DataMed manages and markets a variety of services that are
designed to assist companies with administering substance abuse testing
programs.
Founded in 1984, Wyndgate initially developed a Student Information System
("SIS") software product, an integrated software package for colleges and
universities to track student information. Wyndgate currently has six contracts
for the SIS software product still in effect. Pursuant to an agreement with
eight California blood centers, Wyndgate began development of a blood tracking
system to assist community blood centers, hospitals, and plasma centers in the
U.S. in complying with the quality and safety standards of the Food and Drug
Administration ("FDA") for the collection and management of blood and blood
products. After several years of development and approximately $1.1 million paid
by eight California blood centers, Wyndgate has completed development and
commenced marketing of the SAFETRACE(TM) software product, which is a blood bank
management information software system, and which the Company believes to be the
most comprehensive and flexible system of its type available today. In
accordance with FDA regulations, the Company submitted a 510(k) application to
the FDA in October, 1995 for review of its SAFETRACE(TM) software product, which
is still pending. The Company is able to continue marketing the SAFETRACE(TM)
software product during the review process. There are no assurances that the
Company will receive a 510(k) clearance letter from the FDA. If not, the Company
will be required to discontinue marketing and licensing the SAFETRACE(TM)
software product.
In 1989, Wyndgate developed EDEN-OA(R) to utilize new technologies in the
evolving open systems computer market. EDEN-OA(R) is a rapid applications
development tool that can be used by software developers to produce software
products that operate in accordance with industry standards based computer
environments. EDEN-OA(R) can operate on different types of computer hardware
from different manufacturers and on several different operating systems.
Since its acquisition of Wyndgate in 1995, the Company has been seeking a
strategic alliance with a multi-national health care corporation in order to
attempt to enhance its acceptance in health care markets and more efficiently
and rapidly market its current and possible future product lines. To accomplish
this goal, the Company's management held numerous discussions with several
different companies over the past year. On November 14, 1996, the Company and
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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 in good faith towards reaching a definitive agreement
relating to a transaction or transactions with respect to the Company's
activities and developments in information technology and intellectual property
relating to donor and transfusion medicine (the "Technology"). ODSI is a wholly
owned subsidiary of Johnson & Johnson. Any such transaction or transactions
could take any form or structure, including, without limitation, a sale or
exchange of assets of the Company, including the Technology. There can be no
assurance that the Company and ODSI will be able to reach a definitive agreement
on these or any other arrangements. If the Company and ODSI are unable to reach
a definitive agreement, then the Company will renew its search for a strategic
partner. The Company also agreed to perform certain software development
services in consideration of the payment from ODSI of $500,000 in November 1996,
and an additional $500,000 received in January 1997. If the Company and ODSI
enter into a definitive agreement relating to the Technology, the Company's
other assets or Common Stock, then ODSI may decline the software development
services and apply the payments to the Company towards any consideration payable
to the Company in connection with the definitive agreement. The Company also
granted ODSI a right of first refusal during the period May 14, 1997 through
November 14, 1997, in the event the Company proposes to transfer, dispose of,
sell, lease, license (except on a non-exclusive basis pursuant to the ordinary
course of its business), mortgage or otherwise encumber or subject to any
pledge, claim, lien or security interest of the Technology. See The Company -
Wyndgate Technologies Division - Agreement with Ortho Diagnostic Systems Inc.
DataMed was founded in 1989 by Michael I. Ruxin, M.D., the Chairman and CEO
of the Company, to offer the services of a Medical Review Officer ("MRO") to the
regulated segment of the substance abuse testing market. Due to federal
regulations, companies involved in commercial transportation must comply with
requirements mandating substance abuse testing of employees in safety sensitive
positions and substance abuse awareness education for supervisors and employees.
Additionally, federal substance abuse testing requirements applicable to
commercial transportation mandate the use of an MRO to evaluate the quality and
accuracy of the testing laboratory and to determine legal or illegal use of
substances. Corporate outsourcing has been a positive factor for DataMed as some
large companies have contracted with DataMed to outsource the management of
their substance abuse testing programs.
DataMed provides customized program management services to companies in an
attempt to increase total program quality and decrease total program costs.
DataMed provides substance abuse testing management services which coordinate
and actively manage the specimen collection process, the laboratory testing
process, the MRO review process, the random testing process, the blind sample
quality control process, the substance abuse testing process, and the data
management process including compliance reporting and record keeping.
Key elements of the Company's strategy include (i) expanding its sales and
marketing efforts to attempt to increase its customer base nationally and
internationally, (ii) developing new healthcare management software products and
services utilizing the Company's existing technology and experience in blood
bank management software and substance abuse management services, (iii)
expanding international markets within the transportation and healthcare
industries,
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<PAGE>
(iv) developing strategic relationships and selective acquisitions to
capitalize on opportunities in its industry, and (v) maintaining its technology
advantage in developing regulatory compliance tracking software and quality
assurance software products by continuing to focus on research and development.
National MRO, Inc., founded in 1989, changed its name to Global Data
Technologies, Inc. in June 1995 in connection with the merger of National MRO,
Inc. and The Wyndgate Group, Ltd. in May 1995, and changed its name again in May
1996 to Global Med Technologies, Inc. The Company's executive offices are
located at 12600 West Colfax, Suite A-500, Lakewood, Colorado 80215, and its
telephone number is (303) 238-2000.
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 the 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 .................. 150,000 shares of Common Stock
Use of Proceeds ........................... The Company will not receive any
proceeds from the sale of the
Shares. Any proceeds which the
Company may receive upon exercise
of the warrants held by the Selling
Security Holders or the Warrants
will be used for general corporate
purposes. See Use of Proceeds and
The Company.
Risk Factors ............................. An investment in the securities
offered by this Prospectus involves
a high degree of risk and should be
considered only be persons who can
afford the loss of their entire
investment. Prospective purchasers
should review 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
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(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.
Other Securities Being Registered
As a result of agreements of the Company, the Registration Statement of
which this Prospectus is a part has registered for resale by certain persons an
additional 1,108,803 shares of Common Stock. The 1,108,803 shares will be
eligible for sale commencing August 11, 1997. The Company will amend its
Registration Statement and this Prospectus to permit such persons to publicly
offer and sell such Common Stock at the appropriate time. See Shares Eligible
for Future Sale - Concurrent Registration by Selling Shareholders.
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<PAGE>
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.
Statement of Operations Data:
Years Ended December 31,
(In Thousands, except per share amounts)
1996 1995
---- ----
Revenues $ 11,034 $ 6,674
Cost of sales 6,470 3,218
Gross profit 4,564 3,456
Selling, general and administrative 8,497 5,980
Loss from operations (3,933) (2,524)
Net Loss $ (4,492) $ (2,685)
----- -----
Net Loss per common share(1) $ (1.02) $ (.64)
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Common shares used in computing net
loss per common share(1) 4,384 4,211
Balance Sheet Data:
(In Thousands)
December 31,
1996 1995
---- ----
Cash and cash equivalents $ 489 $ 422
Working capital (deficit) $ (4,267) $(2,172)
Total assets $ 4,999 $ 2,721
Long-term liabilities $ 698 $ 648
Stockholders' deficit $ (3,360) $(1,459)
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(1) See Note 1 to the Consolidated Financial Statements for a description of
the computation of net loss per common share.
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<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. 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. While the Company anticipates that its software revenue will continue
to increase in future periods, the Company expects to continue to incur losses
until 1998, and possibly thereafter, until its software products are better
established in its markets. There can be no assurance that the Company will be
able to generate sufficient revenues to operate profitably in the future or to
pay the Company's debts as they become due. See Management's Discussion and
Analysis or Plan of Operations and Financial Statements.
Revenue Fluctuations
The Company has experienced revenue fluctuations when software for the
SAFETRACE(TM) software product is delivered and towards year end, when clients
of the Company historically tend to increase their substance abuse testing
activity. The SAFETRACE(TM) software product license fees are recognized as
revenue upon delivery of the software if no significant vendor obligations exist
as of the delivery date, and therefore are subject to delays of the delivery
service and customer delayed delivery requests. Software sales and consulting
revenues have not followed seasonal patterns. The substance abuse testing
business has historically experienced higher volumes of testing in the last six
months of every year compared to the first six months of the same year. As a
result, the Company's operating results could fluctuate widely from quarter to
quarter and investors should put more emphasis on the Company's results for a
full year rather than on the Company's quarterly results.
Lack of Significant Operating History
The Company has been in existence since 1989. As such, the Company is
subject to many of the risks common to enterprises with a limited operating
history, including potential under- capitalization, limitations with respect to
personnel, financial and other resources and limited customers and revenues. As
of the date hereof, only three of the licensees of the SAFETRACE(TM) software
product, Wyndgate's blood tracking system, have the SAFETRACE(TM) software
product in
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<PAGE>
operation. There is no assurance that the additional licensees of the
SAFETRACE(TM) software product to date will ever become operational with their
SAFETRACE(TM) software product, that the Company will be able to license the
SAFETRACE(TM) software product to additional persons, that the Company will be
able to develop and license new products or that the Company will be successful.
The likelihood of success of the Company must be considered in light of the
problems, expenses, difficulties, complications and delays frequently
encountered in connection with the development and marketing of new products.
See The Company.
Government Regulation
The Company's products and services are subject to regulations adopted by
governmental authorities, including the FDA, which governs blood center computer
software products regulated as medical devices, and the U.S. Department of
Transportation which issues regulations regarding procedures applicable to
substance abuse testing programs required in six transportation industries.
Government regulations can be burdensome and may result in delays and expense to
the Company. In addition, modifications to regulations could adversely affect
the timing and cost of new products and services introduced by the Company.
Failure to comply with applicable regulatory requirements can result in, among
other things, operating restrictions and fines. For instance, if the Company is
unable to obtain a 510(k) clearance letter from the FDA for the Company to
market the SAFETRACE(TM) software product, or if in the future the FDA also
determines that the Company's SAFETRACETX(TM) product requires FDA clearance
prior to the marketing of such product, the time delay to market the
SAFETRACE(TM) and/or the SAFETRACETX(TM) software products could materially and
negatively impact the Company's business. The Company cannot predict the effect
of possible future legislation and regulation. See The Company - Wyndgate
Technologies Division - Industry Overview and The Company - DataMed
International Division - Industry Overview.
Rapidly Changing Technology
The market for applications software is characterized by rapidly changing
technology and by changes from mainframe to client/server computer technology,
including frequent new product introductions and technological enhancements in
the applications software business. During the last five years the use of
computer technology in the information management industry has expanded
significantly to create intense competition. With rapidly expanding technology
there can be no assurance that the Company, with its limited resources, will be
able to acquire or maintain any technological advantage. The Company's success
will be in large part dependent on its ability to use the developing technology
to its maximum advantage and to remain competitive in price and product
performance. If the Company is unable to acquire or maintain a technological
advantage, or if the Company fails to stay current and evolve in the
applications software and information management fields, its efforts may not be
successful and shareholders may lose their entire investment. See The Company.
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<PAGE>
Royalty Agreements
Pursuant to certain royalty agreements, the Company is required to pay
certain of its sales proceeds directly to outside parties. Such payments may
adversely affect the Company's available cash to fund future operations and the
Company's future profitability. See The Company - Wyndgate Technologies Division
- - Development Agreements.
Possible Loss of Software Licenses Due to Failure to Meet Maintenance Schedules
The Wyndgate software license agreements have a license term that varies,
but are typically five year licenses which are automatically renewable. The
software license may be terminated by the customer if Wyndgate fails to deliver
the maintenance services consisting of product bug fixes, regulatory compliance
and updates. Wyndgate may terminate the license if the customer fails to meet
its contractual obligations, primarily the payment of usage fees. However, there
can be no assurance that the Company will be able to meet all of the maintenance
services and contractual commitments required to keep the license agreements in
force or that the customers will continue to make the usage fee payments.
Possible Loss of DataMed Substance Abuse Management Contracts Due to Material
Default
DataMed's substance abuse testing service agreements have contract terms
that vary from one to five years and, unless cancelled generally ninety days
prior to the end of the license term, most are automatically renewable.
Generally, either party may terminate the service agreement upon material
default or bankruptcy of the other party, if such default or bankruptcy is not
cured within thirty days. Some of the service agreements permit DataMed to
terminate the service agreement if the customer does not agree to permit price
increases due to changes in regulations or technology or due to the percentage
of positive results increasing beyond those negotiated in the agreement.
However, there can be no assurance that the Company will be able to meet all of
its contractual obligations, or that the customers will continue to use the
DataMed services required to keep the service agreements in force.
Possible Shrinkage of Market Due to Multiple Site Contracts
The potential number of customers for the Company's SAFETRACE(TM) market
could be reduced if the Company were to enter into additional multiple site
contracts. Presently, the Company has one such contract, which covers multiple
blood banks. 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 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
The Company has only recently completed the final testing stages for the
SAFETRACE(TM) software product and is in the beginning stages of marketing and
customer implementation. As
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<PAGE>
of the date hereof, only three of the Company's licensees have the SAFETRACE(TM)
software product in operation. Currently, the Company has product liability
exposure for defects in its SAFETRACE(TM) software product which may become
apparent through widespread use of the SAFETRACE(TM) software product. No claims
have been filed against the Company involving the SAFETRACE(TM) software product
and the Company is not aware of any material problems involving the
SAFETRACE(TM) software product. While the Company will continue to attempt to
take appropriate precautions, there can be no assurance that it will completely
avoid product liability exposure. The Company maintains product liability
insurance on a claims made basis for the SAFETRACE(TM) software product in the
aggregate of at least $4 million. There can be no assurance that such coverage
will be available in the future, that it will be available at reasonable prices,
or that it will be available in amounts adequate to cover any product
liabilities that may be incurred by the Company.
Similarly, if DataMed were to release an erroneous substance abuse test
report to an employer stating that an employee's test had shown positive results
(a "false positive"), the Company could be held liable for the publication of
such information. Although the Company carries medical professional liability
insurance which insures against liability associated with such an occurrence,
there can be no assurance that a recovery or multiple recoveries may not exceed
the insurance limit, or that such coverage will continue to be available at
reasonable prices. See The Company.
Dependence on Major Customers
During the 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, 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(TM) software product. Gulf Coast Regional Blood Center
is a blood center located in Texas. Non-renewal or termination of the
contractual arrangements with these key customers could have a material adverse
effect on the Company. There can be no assurance that the Company will be able
to retain these key customers or, if such customers are not retained, that the
Company would be able to attract and retain new customers to replace the
revenues currently generated by these customers. See The Company - Customers.
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Substantial Competition
There is substantial competition in all aspects of the blood bank and
hospital information management and substance abuse testing industries. Numerous
companies are developing technologies and marketing products and services in the
health care information management area and many companies are engaged in
substance abuse testing. Many of these competitors have been in business longer
than the Company and have substantially greater personnel and financial
resources available to them than the Company, and there can be no assurance that
the Company will be able to compete with these competitors successfully. See The
Company - Wyndgate Technologies Division - Competition and The Company - DataMed
International Division Competition.
Dependence on Development of New Businesses
Through the merger with The Wyndgate Group, Ltd., the Company became
engaged in the information management section of the blood center market. To
effect its plan of operations, which includes the generation of increased
revenues, the Company must expand its operations significantly beyond the
historical operations of DataMed and Wyndgate to other markets which require
similar management information services. There is no assurance that the Company
will be able to expand its business operations. The current activities of
DataMed and Wyndgate in the substance abuse and blood center markets do not
assure future business expansion or profitability. See The Company.
Proprietary Rights and Licenses
The Company's success depends in part on its ability to obtain and enforce
intellectual property rights for its technology and software, both in the United
States and in other countries. The Company's proprietary software is protected
by the use of copyrights, trademarks, confidentiality agreements and license
agreements that restrict the unauthorized distribution of the Company's
proprietary data and limit the Company's software products to the customer's
internal use only. While the Company has attempted to limit unauthorized use of
its software products or the dissemination of its proprietary information, there
can be no assurance that the Company will be able to retain its proprietary
software rights and prohibit the unauthorized use of proprietary information.
The Company may file additional applications for patents, copyrights, and
trademarks as management deems appropriate. There can be no assurance that any
patents, copyrights, or trademarks the Company may obtain will be sufficiently
broad to protect the Company's products, or that applicable law will provide
effective legal or injunctive remedies to stop infringement on the Company's
patents (if obtained), trademarks, or copyrights. In addition, there can be no
assurance that any patent, trademark, or copyright obtained by the Company will
not be challenged, invalidated, or circumvented, that intellectual property
rights obtained by the Company will provide competitive advantages, or that the
Company's competitors will not independently develop technologies or products
that are substantially equivalent or superior to those of the Company. In
addition, if the Company's software tools or products infringe upon
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the rights of others, the Company may be subject to suit for damages or an
injunction to cease the use of such tools or products. The Company is not aware
of any claims or infringements of the Company's software tools or products upon
the rights of others. See The Company.
Future Capital Needs; Uncertainty of Additional Financing
The Company anticipates, based on its current proposed plans and
assumptions relating to its operations, that the proceeds of its recent Public
Offering, together with projected cash flow from operations, will be sufficient
to satisfy its contemplated cash requirements for the next 12 to 18 months,
although the Company anticipates that it will continue to incur operating losses
and significant capital expenses during that period. Thereafter, the Company
will likely require substantial funds in addition to the proceeds of its Public
Offering in order to continue to develop and market its products. See
Management's Discussion and Analysis or Plan of Operations, Use of Proceeds and
The Company.
Dependence on Personnel
The Company is significantly dependent on a limited number of personnel,
including Michael I. Ruxin, M.D. (Chairman and Chief Executive Officer), Joseph
F. Dudziak (President and Chief Operating Officer), William J. Collard
(Secretary/Treasurer, Director and President of the Wyndgate division), and
Gerald F. Willman, Jr. (Director and Vice President of the Wyndgate division).
Although all of these individuals are subject to employment agreements, such
agreements are difficult to enforce against employees. If the Company fails to
retain the services of one or more of these employees, the Company's operations
may be adversely affected. The Company does not have key man insurance on any of
its officers or employees; however, the Company is the designated beneficiary of
a term life insurance policy for Dr. Ruxin in the face amount of $1,000,000. See
Management.
One Outside Director
Presently, only one of the Company's Directors, John D. Gleason, is an
"outside" director, i.e., not a member of management. Mr. Gleason is a member of
the Company's Audit/Systems Committee, but not a member of the Compensation
Committee. See Management.
No Dividends
The Company does not anticipate paying any cash dividends for the
foreseeable future. The Company expects that future earnings, if any, will be
used to finance growth. No person seeking dividend income from an investment
should invest in this Offering. See Market for Common Equity, Dividend Policy
and Related Shareholders Matters - Dividend Policy.
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Authorized Stock Available for Issuance by the Company
The Company presently has 7,908,752 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. It does not, however, include 1,456,988 shares issuable upon
exercise of the Warrants or 1,075,429 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.
No Prior Joint Operations
Both of the Company's divisions have prior operating histories and
revenues. However, the principals of the Company have worked together only since
May 1995 and have experience in the industries only in which their respective
divisions were engaged. Consequently, there can be no assurance that the Company
will be able to successfully operate either division or both divisions.
Furthermore, the Company should be considered as being in an early stage of
development due to the lack of operating history in its two business segments.
See The Company.
Limited Capitalization
The Company has only limited capitalization available to it. The Company
may need additional capital to pursue its intended business plan; however, the
Company has received no commitment from any person for that financing, and there
can be no assurance that adequate financing will be available on reasonable
terms, if and when needed. See The Company.
Control by Officers, Directors and 5% Holders of Common Stock
The Company's officers, directors, holders of more than 5% of the Company's
outstanding Common Stock and their affiliates own approximately 30% of the
outstanding Common Stock of the Company and will be able to substantially
influence all matters requiring approval by the shareholders of the Company,
including the election of directors. The Company does not provide for cumulative
voting in the election of directors; hence, purchasers of the securities offered
hereby should not expect to be able to elect any directors to the Company's
Board of Directors. See Security Ownership of Certain Beneficial Owners and
Management.
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Possible Anti-Takeover Effects of Proxies and Right of First Refusal Granted to
ODSI, Preferred Stock and Severance Payments
Certain of the Company's officers, directors and major shareholders
beneficially owning 3,001,500 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. Each of the shareholders granting a proxy
to ODSI has also granted ODSI a right of first refusal in the event a
shareholder proposes to transfer, dispose of or otherwise sell such
shareholder's shares to a third party or grant an option to acquire the shares
to any third party. The grant of the proxies and rights of first refusal to ODSI
could have the effect of delaying, deferring or preventing a change in control
of the Company or a bid by a third person for the Company and/or the Technology.
See Security Ownership of Certain Beneficial Owners and Management.
The Board of Directors of the Company may issue shares of Preferred Stock
without stockholder approval on such terms as the Board may determine. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be issued
in the future. In addition, as discussed under Management - Employment
Agreements, if the Company terminates the employment of Michael I. Ruxin,
William J. Collard, Gerald F. Willman, Jr. or Joseph F. Dudziak for any reason
other than cause or disability, the Company will be required to pay a lump sum
per individual ranging from approximately $220,000 (representing approximately
two years salary) to $2.5 million. The effect of the severance payment
provisions is to increase the likelihood that a potential purchaser will seek to
negotiate directly with the Board of Directors and management in order to gain
control of the Company or its assets rather than directly approaching the
Company's shareholders as a group. All of the foregoing could have the effect of
delaying, deferring or preventing a change in control of the Company and could
limit the price that certain investors might be willing to pay in the future for
shares of the Company's Common Stock. See Management - Employment Agreements and
Description of Securities - Preferred Stock.
Shares Eligible for Future Sale
Of the shares of Common Stock presently outstanding, 4,966,776 shares are
"restricted securities" as that term is defined under Rule 144 promulgated under
the Securities Act of 1933, as amended. Of this amount, 4,166,296 shares have
been held in excess of one year, and will be available for sale in May 1997
pursuant to Rule 144. In addition, 1,258,803 shares, including 187,800 shares
underlying warrants exercisable at $3.75 per share, have been registered for
sale under the Registration Statement of which this Prospectus is a part. Of
this amount, 150,000 shares are currently eligible for sale. The remaining
1,108,803 shares will be eligible for sale in August 1997. Before the Company's
recent Public Offering, there was no public market for the securities of the
Company. Sales of substantial amounts of shares by shareholders after such six
month period pursuant to this Prospectus or sales made pursuant to Rule 144 or
otherwise
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could adversely affect the market price of the Company's securities and make it
more difficult for the Company to sell equity securities in the future at a time
and price which it deems appropriate. The Company is unable to predict the
effect that sales made after such six month period or Rule 144 or otherwise may
have on the then prevailing market price of the Common Stock. Nonetheless, the
possibility exists that the sale of these shares may have a depressive effect on
the prices of the Company's Common Stock and Warrants. See Description of
Securities.
No Prior Public Market and Possible Volatility of Price of 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
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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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<PAGE>
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.
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.
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 March 1, 1997, the Company had approximately
134 holders of record of the Company's Common Stock.
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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.
Statement of Operations Data:
(In Thousands)
Years Ended December 31,
------------------------
1996 1995
----- -----
Drug testing and other $ 6,458 $ 5,740
Software sales and consulting 3,648 934
Hardware and software, obtained from vendors 928 --
----- -----
Total revenue 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)
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Statement of Operations Data, continued
- ----------------------------
(In Thousands)
Years Ended December 31,
------------------------
Other Income (Expense) 1996 1995
---- ----
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)
===== =====
Balance Sheet Data:
(In Thousands)
December 31,
1996 1995
---- ----
Working capital (deficit) $(4,267) $(2,172)
Total assets $ 4,999 $ 2,721
Accumulated (deficit) $(7,692) $(3,200)
Stockholders' (deficit) $(3,360) $(1,459)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
General
The Company and its two divisions are in the business of providing
information management software products and services to the healthcare industry
and substance abuse testing program services to companies.
Wyndgate is primarily involved in providing software products, services and
maintenance to purchasers of licenses for its SAFETRACE(TM) software product.
Revenues from the sales of software licenses are recognized upon delivery of the
software product to the customer unless the Company has significant related
vendor obligations remaining. Revenue from post contract customer support is
recognized over the period the customer support services are provided, and
software services revenue is recognized as services are performed.
DataMed provides substance abuse testing management services. Revenues from
DataMed are recognized as services are provided. DataMed typically contracts
with its customers to provide for laboratory and collection site services (which
DataMed obtains from others), Medical Review Officer ("MRO") services, data
management, record storage and coordination of all substance abuse testing
program elements. DataMed serves international, national and regional clients in
a variety of industries.
In November 1996, DataMed elected to terminate its contracts with
approximately 560 customers, representing an estimated $535,000 of revenue for
the year ended December 31, 1996. DataMed's election was made to improve
operating efficiencies with its remaining customer contracts. The terminated
contracts represented customers each contributing average annual revenues of
less than $1,000. DataMed expects it will be able to improve its gross profit
margins by eliminating the inefficiencies associated with these smaller
accounts, thus improving its ability to serve its remaining customers.
Results of Operations
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(TM) 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(TM) software product
licenses; increased sales of hardware and software obtained from
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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(TM) 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. Management
does not expect significant increases in payroll and other costs for the
foreseeable future.
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 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 SAFETRACETx (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
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used a portion of the net proceeds from its February 1997 offering to repay
certain short-term borrowings and 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 uncollectablity 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 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 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
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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 software installations for the Company's customers within a
short period of time has created billing and collection delays. Management
intends to aggressively pursue more timely billing and collection of accounts
receivable to correct these delays.
The Company incurred a loss of approximately $4.5 million during fiscal
1996. While the Company anticipates that its software revenues will continue to
increase in future periods, the Company expects to continue to incur losses
until 1998, and possibly thereafter, until its software products are better
established in its markets. Management expects that the net proceeds of the
Company's February 1997 public offering and this Offering will enable the
Company to meet its liquidity and capital requirements for approximately twelve
to eighteen months. There can be no assurance that the Company can generate
sufficient revenues, earnings and cash collections from software sales and
substance abuse testing sales to satisfy its working capital requirements after
such time. The Company's working capital requirements will depend on numerous
factors, including progress of the Company's research and development of the
SAFETRACETx(TM) software product, other new products, as well as new
applications for its present core products, which include both SAFETRACE(TM) and
the SAFETRACETx(TM) software products. Additionally, the Company's working
capital requirements may depend upon its success in obtaining a FDA 510(k)
clearance letter within the next twelve to eighteen months. Failure to receive
such clearance letter 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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THE COMPANY
Global Med Technologies, Inc. (the "Company") provides information
management software products and services to the healthcare industry and
provides substance abuse testing program services to companies, including
certain Fortune 1000 companies. National MRO, Inc., founded in 1989, changed its
name to Global Data Technologies, Inc. in June 1995 in connection with the
merger of National MRO, Inc. and The Wyndgate Group, Ltd. in May 1995, and
changed its name again in May 1996 to Global Med Technologies, Inc. The Company
now consists of two divisions, Wyndgate Technologies ("Wyndgate") and DataMed
International ("DataMed"), both of which operate under their respective trade
names. Wyndgate develops, markets, licenses and supports software for the
healthcare industry. DataMed manages and markets a variety of services that are
designed to assist companies with administering substance abuse testing
programs.
The Company has received several indications of interest regarding a
possible acquisition of the DataMed division. While the Company has no specific
plans for divestiture of this division, or any segment of the Company, any offer
which enhances return on invested capital and shareholder value and which
furthers the Company's strategic goals will be seriously evaluated to insure
that the best interests of the Company and its shareholders are served.
Founded in 1984, Wyndgate initially developed a Student Information System
("SIS"), an integrated software package for colleges and universities to track
student information. Wyndgate currently has six contracts for SIS still in
effect. Pursuant to an agreement with eight California blood centers (the
"Royalty Group"), Wyndgate began development of a blood tracking system to
assist community blood centers, hospitals, plasma centers and outpatient clinics
in the U.S. in complying with the quality and safety standards of the FDA for
the collection and management of blood and blood products. After several years
of development and approximately $1.1 million paid by the Royalty Group,
Wyndgate has completed development and commenced marketing of the SAFETRACE(TM)
software product (Wyndgate's blood bank management information system software),
which it believes to be the most comprehensive and flexible system of its type
available today. In accordance with FDA regulations, the Company submitted a
510(k) application to the FDA in October, 1995 for review of its SAFETRACE(TM)
software product, which is still pending. The Company is able to continue
marketing the SAFETRACE(TM) software product during the review process. There
are no assurances that the Company will receive a FDA clearance letter for its
510(k) application. If not, the Company will be required to discontinue
marketing and licensing the SAFETRACE(TM) software product. See The Company -
Wyndgate Technologies Division Industry Overview.
In 1989 Wyndgate developed EDEN-OA(R) to utilize new technologies in the
evolving open systems computer market. EDEN-OA(R) is a rapid applications
development tool that can be used by software developers to produce software
products that operate in accordance with industry standards based computer
environments. EDEN-OA(R) interfaces with database management systems and
operates on multiple computer and operating system platforms. The Company plans
to continue to use EDEN-OA(R) to develop other medical software applications.
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DataMed was founded in 1989 by Michael I. Ruxin, M.D. to offer the services
of a Medical Review Officer ("MRO") to the regulated segment of the substance
abuse testing market. Due to federal regulations, companies involved in
commercial transportation must comply with requirements mandating substance
abuse testing of employees in safety sensitive positions and substance abuse
awareness education for supervisors and employees. Additionally, federal
substance abuse testing requirements applicable to commercial transportation
mandate the use of an MRO to evaluate the quality and accuracy of the testing
laboratory and to determine legal or illegal use of substances. Corporate
outsourcing has been a positive factor for DataMed as some large companies have
contracted with DataMed to outsource the management of their substance abuse
testing programs.
DataMed provides customized program management services to companies in an
attempt to increase total program quality and decrease total program costs.
DataMed provides substance abuse testing management services which coordinate
and actively manage the specimen collection process, the laboratory testing
process, the MRO review process, the random testing process, the blind sample
quality control process, the substance abuse testing process, and the data
management process including compliance reporting and record keeping.
Strategy
The following are key elements of the Company's strategy; however, there
can be no assurance that the Company will be successful in its strategy.
Expand sales & marketing efforts. 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 currently has six sales and marketing personnel. The Company
believes it can increase its penetration of the U.S. blood bank information
management market as well as the substance abuse testing program management
market through its planned sales and marketing staff.
Develop new healthcare management software products and services. The
Company believes that it can develop new products and services from its existing
technology base. The Company plans to build upon its technology base by using
EDEN-OA(R) to develop new applications. In the future, the Company intends to
introduce a transfusion management information system, to be known as the
SAFETRACETx(TM) software product.
Expand international markets. The Company is focused on expanding
international markets. The Company continues to pursue new international
customers within the transportation industries, including but not limited to,
international shipping. The Company also plans to pursue international growth as
it relates to blood banks, plasma centers and hospitals.
Develop strategic relationships. The Company intends to pursue strategic
relationships in order to further develop uses for its technology. Additionally,
the Company may work with other healthcare information providers to develop
applications based on EDEN-OA(R).
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Maintain technology advantage. The Company believes that the foundation of
its SAFETRACE(TM) software product, EDEN-OA(R), is an important technological
advancement, and that the maintenance of this technological advancement is
essential in order for the Company to compete effectively. The Company will
continue to focus research and development on evolving this software development
tool. The funds generated by the Company's February 1997 public offering and
this Offering may not be sufficient to enable the Company to accomplish its
goal, and additional financing may be required.
Sales and Marketing
The Company intends to continue to sell and market its medical information
management products and services through a direct sales force. Each sales
representative will have a geographic area and will market all products and
services. Additionally, the Company will continue to respond to requests for
proposals ("RFPs") issued by blood banks, plasma centers, hospitals and other
entities which are usually Fortune 1000 companies. The Company is pursuing
opportunities within the blood bank industry and will continue to focus on
Fortune 1000 companies to market DataMed's services.
Customers
The Company's current customer base includes Fortune 1000 companies that
are required by the U.S. Department of Transportation or their own company
policy to have a substance abuse testing program and small to large community
blood banks.
During the 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(TM) software product. Gulf Coast Regional
Blood Center is a blood bank located in Texas. Non-renewal or termination of the
contractual arrangements with these key customers could have a material adverse
effect on the Company. There can be no assurance that the Company will be able
to retain these key customers or, if such customers were not retained, that the
Company will be able to attract and retain new customers to replace the revenues
currently generated by these customers. See The Company - Sales and Marketing.
The Company currently has 23 (including the Royalty Group) customers for
its SAFETRACE(TM) software product and intends to continue to target domestic
and international blood banks, plasma centers and hospitals. DataMed has a
number of customers for its substance abuse testing services, including certain
Fortune 1000 and other transportation companies.
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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.
Employees
As of December 31, 1996, the Company had 123 full-time employees,
consisting of 11 employees for the Company, 50 at Wyndgate and 62 at DataMed. Of
the 123 full-time employees, 28 employees were in research and development, 14
employees were in sales and marketing, 21 employees were in administration, and
60 employees were in program management and implementation. The Company has
employment agreements with certain personnel. See Management. The Company's
employees are not represented by a labor union or subject to collective
bargaining agreements. The Company has never experienced a work stoppage and
believes that its employee relations are satisfactory.
Properties
The Company currently occupies two primary locations. The Company occupies
approximately 17,000 square feet of office space in Lakewood, Colorado pursuant
to a lease that expires on December 31, 2000. The Company also leases
approximately 8,800 square feet of office space in Sacramento, California
pursuant to a lease that expires on August 31, 1998. The Company also has
employees located in Virginia, Illinois, Pennsylvania and Texas. No office lease
is required at those locations because the employees work out of their homes.
During the year ended December 31, 1996, office lease expenses per month were
approximately $25,000. Additional leased space will be required to accommodate
the planned personnel increases.
Wyndgate Technologies Division
Wyndgate designs, develops, markets, licenses and supports software for the
healthcare industry. Pursuant to an agreement with eight California blood
centers, Wyndgate developed a blood tracking system called the SAFETRACE(TM)
software product to assist community blood centers, plasma centers, hospitals
and outpatient clinics in the U.S. in complying with the quality and safety
standards of the FDA for the collection and management of blood and blood
products. Wyndgate incorporates and integrates products and services for the
management of the blood supply and its derived products from donor recruitment
to shipment from the blood bank to the hospital, clinic, medical research
institution or other purchaser. The SAFETRACE(TM) software product was developed
using the Company's application development tool, EDEN-OA(R). The Company
intends to utilize its proprietary EDEN-OA(R) software development tool to
attempt to develop new products for the medical information market.
In addition, Wyndgate provides training and consulting services for
installation, implementation, special programming, system design, and
maintenance for the SAFETRACE(TM) software product. The majority of customers
for the SAFETRACE(TM) software product and the Student Information System
software product ("SIS") use all or a portion of these services.
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Historically, maintenance and product upgrades from Wyndgate's SIS software
product have provided an on-going revenue stream and information concerning
Wyndgate's customers' requirements and satisfaction. Special programming
services can result in customer funded development, as was done with the
SAFETRACE(TM) software product.
Industry Overview
The management of the Company believes that market driven forces to
increase quality while containing rising healthcare costs have resulted in an
increasing demand for healthcare information systems that meet the changing
needs of the marketplace. This shift has resulted in systems that utilize new
technologies to provide higher-accuracy information.
With the spread of AIDS and Hepatitis-B, stringent FDA guidelines have been
imposed on blood banks in order to ensure a safe blood supply. Some community
blood centers ("CBCs") have been cited by the FDA for noncompliance and some
have even been closed. The American Red Cross and Blood Systems, Inc. blood
centers are currently under consent decrees requiring them to comply with FDA
guidelines. The blood banking industry has developed various in-house systems to
track blood collection, testing, processing, distribution and transfusion
activities. The Company believes that most blood center in-house developed
systems are not fully integrated and do not offer the capabilities required by
the FDA in view of the fact that the Company's current customers are switching
from their in-house systems to the Company's SAFETRACE(TM)software product.
While laboratory equipment vendors have developed automated testing and
reporting procedures directed at a segment of the community blood center
process, these systems address only the laboratory function and are not fully
integrated. The Company believes that blood centers and the laboratory equipment
products vendors are looking for a way to meet the FDA guidelines and minimize
their risk and cost.
The FDA required all blood tracking application software vendors to submit
a 510(k) application for review by March 31, 1996. The application process for
FDA review and compliance with the new guidelines relates to computer software
products regulated as medical devices. The FDA considers software products
intended for the following to be medical devices: (i) use in the manufacture of
blood and blood components; or (ii) maintenance of data used to evaluate the
suitability of donors and the release of blood or blood components for
transfusion or further manufacturing. As medical device manufacturers, the
Company and its competitors are required to register with the Center for
Biologics Evaluation and Research ("CBER"), list their medical devices, and
submit a pre-market notification or application for pre-market review. There is
no deadline to receive a clearance letter from the FDA and the FDA has allowed
those vendors that have submitted a 510(k) by March 31, 1996, to market and
license their product. A competitor recently received a 510(k) clearance letter
from the FDA for certain modules of its blood bank management information system
software product. The Company does not believe this will impact Wyndgate's
marketing of its SAFETRACE(TM) software product because the Company does not
believe that this competitor offers the spectrum of software modules offered by
the Company.
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Wyndgate Strategy
The key elements of Wyndgate's strategy to address the market include:
Expand sales and marketing efforts to increase its customer base nationally
and internationally. In the near-term, the Company will aggressively pursue
opportunities in the U.S. and abroad in blood tracking and management with its
SAFETRACE(TM) software product. The Company has no reason to believe that it
will not receive an FDA 510(k) clearance letter in the future. The Company plans
to continue to respond to any and all requests by the FDA for additional
information up to and including resubmission of the 510(k) application. However,
there can be no assurance that the Company will receive an FDA 510(k) clearance
letter.
Develop new healthcare management software products and services. By using
its background in healthcare information systems, the Company will continue to
attempt to develop new applications based upon its EDEN-OA(R) architecture. In
the future, the Company intends to introduce a transfusion management
information system (the SAFETRACETx(TM) software product). However, there can be
no assurance that such introduction to the market will occur.
Strategic relationships and selective acquisitions. Wyndgate intends to
continue to pursue strategic relationships to further develop uses for its
technology.
Software Products
The SAFETRACE(TM) software product is a set of integrated software modules
that are used to manage and control multiple aspects of blood and plasma
operations, from recruiting of donors and collecting donated blood or plasma, to
testing and manufacturing of blood products, distribution and billing. The
Company currently markets its SAFETRACE(TM) software product to blood banks and
plasma centers and eventually will market it to hospitals and transfusion
centers. A customer can license one or more modules as needed to automate its
operations.
SAFETRACE(TM) Modules Function
- --------------------- --------
Donor Recruitment Used by the marketing department
of a blood or plasma center to systematically
solicit, recruit and schedule donors.
Facilitates the recruiting process by
producing call lists on demand or scheduling
calls by batch processing.
Donor Management Provides a means for registering donors and
recording necessary medical and personal
donor data. All real-time donor deferral and
eligibility information is used to determine
current eligibility status of the donor to be
registered.
Laboratory Management Performs a number of data recording and
evaluation functions. Permits the posting of
tests either by interfacing directly with
testing equipment or manually. Also performs
inventory label validation, which helps to
ensure that all blood components are suitable
for distribution and have been properly
tested, validated and labeled.
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Blood Invventory and Distribution Maintains current inventories of all
available blood products which have been
tested and labeled. Records the movement of
blood products from the blood or plasma
center to the customer and between customers.
Also maintains records for imported blood
related products.
Special Procedures Registers patients and tracks blood
requirements for surgeries. Also provides the
capabilities to define and manage special
requests for autologous, designated and
therapeutic donations.
Billing Implements the pricing and billing practices
associated with each blood product for
customers. Also provides financial
information for management control.
The SAFETRACE(TM) software product relies on its donor identification,
laboratory component, labeling and release site-based logic technology to assist
blood banks in complying with FDA regulations. The SAFETRACE(TM) software
product has an 85% table driven structure which permits it to easily adapt to
each customer's individual and unique operations. The SAFETRACE(TM) software
product has been developed using industry standards, common operating systems
and database managers to ensure portability. Because of the independence of the
SAFETRACE(TM) software product's database, operating systems and hardware,
customers have freedom and flexibility in selecting computer hardware and
software components. The SAFETRACE(TM) software product permits customers to
preserve their application software and training investment as customer systems
needs and technology change. Currently, management estimates the SAFETRACE(TM)
software product consists of more than 1.5 million lines of code, 390 data
tables, 59 labeling occurrences of component and release logic, 3,000 discrete
programs and over 1,000 screens and windows.
Services
Wyndgate believes that the high quality of the services component of the
business is the key to retaining current customers, enhancing Wyndgate's
reputation for quality and improving market penetration. Wyndgate's services
begin with initial customer contact and continue throughout the relationship.
Services include complete installation and implementation, training, consulting
and maintenance. The license agreements currently being used by Wyndgate
typically commit a customer to five years of maintenance service. The fees
associated with the maintenance service are typically invoiced monthly,
quarterly or annually in advance. The Company believes that service fees,
excluding maintenance, range from 10% to 50% of the initial software license
fee. Under the Company's current license agreements, only the software license
fee and the maintenance fee are required to be paid and the other fees are
optional. However, many customers that have licensed the SAFETRACE(TM) software
product to date have contracted for additional services.
Installation and Implementation Services. Installation and implementation
services assist the customers with the selection of hardware and software
systems and, if necessary, the initial installation of the software on the
customer's system. Implementation services include assisting customers in
analyzing work flow and standard operating procedures ("SOPs"), developing
tables, screen layouts, reports, and installation specific requirements.
Management estimates that it takes
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from six to twelve months from the date of delivery of the software to the
customer to implement the SAFETRACE(TM) software product and a portion of
Wyndgate's resources are used during that time. Installation and implementation
services are not considered part of the SAFETRACE(TM) software product license
fee or usage fee, and are typically billed separately.
Training Services. Training services are provided to customers either at
the customer site or at Wyndgate's offices. Training includes hands-on access to
the applications software and usually includes building initial tables and
screens. All customers to date have purchased initial training services which
range from five to fifteen days depending on the customer size and number of
people to be trained. Wyndgate also offers follow-up training services to assist
customers in training new staff on new product functions.
Maintenance Services. Fees for maintenance services are required to be paid
under certain of the relevant SAFETRACE(TM) software product license agreements
for the term of the license. Maintenance services are optional under the other
license agreements. Maintenance services include "bug" fixing, enhancements and
product upgrades. Wyndgate provides an 800-Help Line number for customer service
calls that permits access to Wyndgate's technical resources directly during the
working day and on a paged call-back basis at all other times.
Consulting Services. Consulting services are provided to customers who want
special features, assistance with system configurations, database consulting,
systems management, networking or additional capabilities beyond those included
in the applications software. Wyndgate also performs special applications
development projects under certain development agreements. The Company has been
contracted to provide consulting services by some of its SAFETRACE(TM) software
product customers.
Product Development
SAFETRACETx(TM) - Transfusion Management Information System. Wyndgate has
begun the development of the SAFETRACETx(TM) software product, a transfusion
management information system that can be utilized by hospitals to help them
ensure the safety of the blood transfused into patients. If completely
developed, it will provide electronic cross-matching capabilities to help ensure
blood compatibility with the recipients and will track, inventory, bill and
document all activities with the blood product from the time it is received in
inventory to the time the blood product is used or sent back to the blood
center. The SAFETRACETx(TM) software product will complement the SAFETRACE(TM)
software product as it will integrate hospitals with blood centers that supply
blood products. The Company anticipates that the SAFETRACETx(TM) software
product will be released in 1997; however, there can be no assurance that the
software will be released as scheduled, if at all.
EDEN-OA(R) Development Tool. EDEN-OA(R) is a software tool set and
methodology that the management of the Company believes enables programmers to
easily build and maintain information management systems. It runs on different
hardware, operating system and database management system products. The
EDEN-OA(R) tool set allows the programmer to focus on the business logic and
rules (how data relates and the formulas for calculations) and on the
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presentation (viewing and printing) of the information to the user. Management
believes that EDEN-OA(R) (i) reduces application product development time and
cost; (ii) reduces application software project risk; (iii) focuses the software
developer on the user's concerns, not on the hardware, operating system or
database management system; and (iv) reduces the time and cost for modifying and
maintaining a software application. EDEN-OA(R) is the basis for the
SAFETRACE(TM) software product, and it is planned that EDEN-OA(R) will be the
basis for future products from Wyndgate.
The Company believes that a major advantage of EDEN-OA(R) is that it allows
local user modifications to the application. Additionally, it coordinates and
tracks user modifications with upgrades, "bug" fixes or enhancements made by
Wyndgate, a feature that assisted Wyndgate in documenting the SAFETRACE(TM)
software product for FDA 510(k) review. The entire maintenance process is
integrated into the application, thereby eliminating the common problem of user
changes not integrating with vendor supplied code, which often prevents
upgrading applications because of the high cost and risk. This maintenance
feature permits the customers to make changes dictated by business requirements
as opposed to the ability of the application to accommodate such changes. For
example, adding a data element such as a suffix for a zip code, adding a new
table to track service information or adding new FDA mandated blood tests would
be a very difficult and time consuming task with most applications.
EDEN-OA(R) includes an On-Line User-System Repository Manager which
consists of the following: an Active Data Dictionary; a Database Maintenance
Manager for automatic generation of database structure and I/O procedures; a
Panel (Screen) System Manager providing a Screen Definition Language and GUI;
use of a Procedural Language; and Interactive Utility Programs and Procedures
including a software maintenance system manager and a systems development
procedures manager. This combination of capabilities makes EDEN-OA(R) portable
and easy to tailor and maintain.
EDEN-OA(R) facilitates application maintenance through the integrated
Active Data Dictionary, common applications functions and development and
maintenance tools. Each client organization has specific needs for tailoring
functions, screens, reports and processes. By making changes to the Active Data
Dictionary, the user invokes the Applications Manager tools which generate the
code. A single Active Data Dictionary entry modifies all application modules,
screens and reports impacted by that change. Since the Active Data Dictionary
separates the application from front-end (screen generators) and the back-end
(database manager and hardware systems), development and on-going maintenance
costs are often reduced. Traditionally, on-going maintenance has been the most
costly part of any applications development and implementation. EDEN-OA(R) is
modular and can be used to replace or extend existing application systems and
provides end-user flexibility.
EDEN-OA(R) will continue to be developed and refined. It is currently
planned that EDEN-OA(R) will be the foundation to any new medical applications
developed by Wyndgate in the future.
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Development Agreements
Pursuant to the development agreement between Wyndgate and the Royalty
Group, Wyndgate developed the SAFETRACE(TM) software product and Wyndgate must
make royalty payments to the Royalty Group based on a percentage of Wyndgate's
SAFETRACE(TM) software product license sales, measured by invoice amounts to
purchasers of the software, net of certain fees and charges. The time period
under the royalty schedule is based upon the first date of customer invoicing,
which was September 14, 1995. The Wyndgate royalty payment schedule is as
follows:
Date Royalty Percentage
---- ------------------
September 1995 to September 1997 12%
September 1997 to September 1998 9%
September 1998 to September 1999 6%
After September 1999 3%
Pursuant to a Development Agreement ("Agreement") between the Company and
The Institute for Transfusion Medicine ("ITxM"), the Company has agreed to
develop Commercial Centralized Transfusion System Software ("Commercial CTS
Software"), which it is planned will become Wyndgate's SAFETRACETx(TM) software
product. This Agreement requires that the Commercial CTS Software be completed
by December 16, 1997. If not timely completed, the Company would be subject to
monetary penalties. The Agreement provides for a royalty payment to ITxM for
revenues received from the sale of the Commercial CTS Software, net of certain
fees and charges. The royalty period starts with the first commercial transfer
for value of the Commercial CTS Software. The royalty that would be paid is as
follows:
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Percentage of 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%
Customers
Wyndgate currently has SAFETRACE(TM) software product contracts with the
following blood centers:
o Belle Bonfils Memorial Blood Center, Denver, CO
o Blood Bank of Alameda-Contra Costa Medical Association, Oakland, CA
o Blood Bank of San Bernardino and Riverside Counties, San Bernardino, CA
o Blood Bank of the Redwoods, Santa Rosa, CA
o Coffee Memorial Blood Center, Albuquerque, NM
o Community Blood Bank of Erie County, Erie, PA
o Community Blood Bank of Lancaster County Medical Society, Lincoln, NE
o Community Blood Center of Appleton, Appleton, WI
o Gulf Coast Regional Blood Center, Houston, TX
o Institute For Transfusion Medicine, Pittsburgh, PA
o Irwin Memorial Blood Center, San Francisco, CA
o Peninsula Blood Bank, Inc., Burlingame, CA
o Rhode Island Blood Center, Providence, Rhode Island
o Sacramento Medical Foundation Blood Center, Sacramento, CA
o Samuel W. Miller Memorial Blood Center, Bethlehem, PA
o San Diego Blood Bank, San Diego, CA
o Siouxland Community Blood Bank, Sioux City, IA
o Stanford Medical School Blood Center, Palo Alto, CA
o The Blood Center of Central Iowa, Des Moines, IA
o The Blood Center for Southeast Louisiana, New Orleans, LA
o Tri-Counties Blood Bank, Santa Barbara, CA
o The Memorial Blood Centers of Minnesota, Inc., Minneapolis, MN
o Oklahoma Blood Institute, Oklahoma City, OK
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See Services, above, for a description of a typical license agreement.
Management of the Company estimates that SAFETRACE(TM) software product
implementations take approximately six to twelve months 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 sandard operations procedures ("SOPs").
All of the above blood centers are in various stages of implementation, with the
exception of Tri-Counties Blood Bank and Sacramento Medical Foundation Blood
Center in which the SAFETRACE(TM) software product is fully operational.
On February 13, 1997 the Wyndgate Technologies division ("Wyndgate") of
Global Med Technologies, Inc. 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(TM) 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 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(TM) software product to manage
their business and comply with FDA regulations to help ensure the safety of the
blood supply. The SAFETRACE(TM) software product allows the CBCs to enter the
FDA guidelines, consistent with the CBC's SOPs, into SAFETRACE(TM) software
product tables which then provide system control over the manufacture and
processing of blood and blood products. In the future, the Company plans to
introduce a transfusion management information system (which it is planned will
be the SAFETRACETx(TM) software product). All acute care hospitals and alternate
transfusion sites will be potential customers for the SAFETRACETx(TM) software
product.
In the transfusion market the potential customer base is easily identified
but presents a challenge in reaching the volume of clients for product
demonstrations. Customers will require a product demonstration before making a
commitment to purchase. In addition, the transfusion product being developed
will face severe competition from established vendors in this market. Wyndgate
believes that by penetrating blood centers with the SAFETRACE(TM) software
product, hospitals that receive blood from these centers may want to link their
existing transfusion product to the blood center. There can be no assurance that
hospitals will desire to establish this link using Wyndgate's SAFETRACETx(TM)
software product.
Agreements with Ortho Diagnostic Systems Inc.
On November 14, 1996, the Company entered into an Exclusivity and Software
Development Agreement (the "Exclusivity Agreement") with Ortho Diagnostic
Systems Inc. ("ODSI"), a wholly-owned subsidiary of Johnson & Johnson. The
Exclusivity Agreement
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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 (other than in this Offering),
business, property or know-how, including the Technology, with any person or
entity other than ODSI or an affiliate thereof and will not otherwise encumber
the ability of ODSI or an affiliate thereof to enter into any arrangement with
the Company concerning the Technology. The Exclusivity Period is subject to
extension at the Company's option for up to 60 days in the event approval of the
transaction by the Company's shareholders is required to be obtained.
The Company also agreed to perform certain software development services in
consideration of the payment by ODSI of $500,000 on November 14, 1996, and
$500,000 received in January, 1997. If the Company and ODSI enter into a
definitive agreement relating to the Technology, the Company's other assets or
Common Stock, then ODSI may elect to decline the software development services
and apply the payment to the Company towards any consideration payable to the
Company in connection with the definitive agreement. If the parties are unable
to come to terms with respect to a definitive agreement, then the Company will
provide the software development services selected by ODSI and the parties will
negotiate a definitive software development agreement. If ODSI has not elected
to decline the Company's services and the Company fails to provide the software
development services, unless ODSI has breached its obligations under the
definitive agreement and is then in breach, the Company shall have been deemed
to have granted ODSI a non-exclusive license (with the right to sub-license) to
the Technology with a royalty rate not to exceed 4% of net sales, and the
parties agreed they would negotiate a definitive license agreement.
Pursuant to the Exclusivity Agreement, the Company has granted ODSI a right
of first refusal for a period of six months after the expiration of the
Exclusivity Period in the event the Company proposes to transfer, dispose of,
sell, lease, license (except on a non-exclusive basis in the ordinary course of
its business), mortgage or otherwise encumber or subject to any pledge, claim,
lien, charge, encumbrance or security interest (except for the security interest
with the Company's current lender) of any kind or nature any of the Technology
(the "Sale"). Prior to consummating any Sale of any of the Technology, the
Company has agreed to present ODSI with a copy of the written offer by or
agreement with any third party (the "Third Party Offer"). ODSI shall have a
period of 30 days from receipt of a copy of the Third Party Offer to notify the
Company of its intention to enter into a similar transaction with the Company
upon substantially the same terms and conditions specified therein. If the
purchase price specified in the Third Party Offer is payable in property other
than cash, ODSI has the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If ODSI chooses not to exercise
its right of first refusal, the Company has 60 days thereafter in which to sell
or otherwise dispose of the Technology upon terms and conditions (including the
purchase price) no less favorable to the Company than those specified in the
Third Party Offer. In the event the Company does not sell or otherwise dispose
of the Technology during such 60-day period, ODSI has a right of first
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<PAGE>
refusal with respect to any subsequent sale of the Technology by the Company
during the six-month period of the right of first refusal.
The Company has agreed in the Exclusivity Agreement that in the event (a)
the Company breaches any covenant, agreement, representation or warranty
contained in the Exclusivity Agreement and the Company shall have had contracts
or entered into negotiations relating to a Business Combination (as hereafter
defined) at any time during the Exclusivity Period, as such may be extended, and
with respect to any person, entity or group with whom such contacts or
negotiations have occurred, a Business Combination shall have occurred or the
Company shall have entered into a definitive agreement providing for a Business
Combination; or (b) any definitive agreement entered into between the Company
and ODSI fails to receive the requisite affirmative vote of the shareholders of
the Company at a shareholders' meeting called for the purpose of voting on such
agreement and at the time of such meeting there exists a Competing Transaction
(as hereafter defined); or (c) (i) the Board of Directors of the Company shall
withdraw, modify or change its recommendation of the Exclusivity Agreement or
any subsequent agreement in a manner adverse to ODSI, or shall have resolved to
do any of the foregoing; (ii) if the Board of Directors of the Company shall
have recommended to the shareholders of the Company a Competing Transaction;
(iii) a tender offer or exchange offer for 20% or more of the outstanding shares
of Common Stock of the Company is commenced and the Company's Board of Directors
recommends that the shareholders of the Company tender their shares in such
tender or exchange offer; or (iv) any person shall have acquired beneficial
ownership or the right to acquire beneficial ownership of or any "group" (as
such term is defined under Section 13(d) of the Securities Exchange Act of 1934,
and the rules and regulations promulgated thereunder) shall have been formed
which beneficially owns, or has the right to acquire "beneficial ownership" of
more than 20% of the then outstanding shares of the Company's Common Stock, then
the Company shall pay ODSI an amount equal to $2,000,000 plus ODSI's expenses.
For purposes of the Exclusivity Agreement, the term "Business Combination" means
(i) a merger, consolidation, share exchange, business combination or similar
transaction involving the Company; (ii) a sale, lease, exchange, transfer or
disposition of 20% or more of the assets of the Company and its subsidiaries, if
any, taken as a whole, in a single transaction or series of transactions,
including, without limitation, any sale that would trigger ODSI's right of first
refusal described in the immediately preceding paragraph; or (iii) the
acquisition by a person or entity, or any "group" (as such term is defined under
Section 13(d) of the Exchange Act and the rules and regulations thereunder) of
"beneficial ownership" of 20% or more of the Company's Common Stock whether by
tender offer or exchange offer or otherwise. A "Competing Transaction" means any
of the following involving the Company or any or its subsidiaries (either
existing or hereafter created): (i) any merger, consolidation, share exchange,
business combination, or other similar transaction; (ii) any sale, lease,
exchange, mortgage, pledge, transfer, license (except for a non-exclusive
license in the ordinary course of the Company's business) or other disposition
of 20% or more of the assets, taken as a whole, in a single transaction or
series of transactions, or any of the Technology; (iii) any tender offer or
exchange offer for 20% or more of the outstanding shares of Common Stock of the
Company or the filing of a registration statement under the Securities Act of
1933 in connection therewith; (iv) any person having acquired beneficial
ownership or the right to acquire beneficial ownership of, or any "group" (as
such term is defined under Section 13(d) of the Securities Exchange Act of 1934
and the rules and regulations
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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
30 days to exercise its right of first refusal after being notified of the
proposed third party transaction. In the event ODSI declines to enter into such
transaction, then the Shareholder has 90 days after the end of the 30 day
acceptance period to consummate the proposed transaction on the terms and
conditions as proposed. In the event the transaction is not consummated within
90 days, then ODSI has the right of first refusal with respect to any future
proposed transactions by Shareholders to a third party. ODSI's right of first
refusal is not assignable except to an affiliate of ODSI.
Competition
Currently, Wyndgate is aware of five primary competitors in the blood bank
industry segment including MAK from France, Blood Trac Systems, Inc. from
Canada, Information Data Management ("IDM"), Blood Bank Computer Systems and
Systec from the United States. Some of these competitors are larger and have
greater resources than the Company. The Company believes it is able to compete
on the basis of the capabilities of the technology in its SAFETRACE(TM) software
product; however, the Company can provide no assurances in this regard.
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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 appropriately
monitors the performance of: testing laboratory(ies); urine collection
providers; the MRO; and the overall quality of information that is received,
stored and reported. DataMed currently provides substance abuse testing
management services to a number of clients worldwide.
Industry Overview
In the Company's experience, most substance abuse testing programs for
Fortune 1000 companies are internally managed. Companies contract with
laboratory and collection sites and utilize internal resources to manage the
process. However, the Company believes that some companies appear to be shifting
to outsourced substance abuse program management in an attempt to reduce overall
costs as well as to increase overall quality.
The current market for the substance abuse testing industry consists of the
regulated markets and the unregulated markets. The regulated markets include all
employees that fall under federal regulations for commercial transportation,
with the largest concentration in the motor carrier industry. Additionally,
regulated employees are subject to random substance abuse testing, post-accident
testing and "reasonable suspicion" testing. The unregulated market primarily
consists of companies testing new employees.
Currently, the urine specimen substance abuse testing industry has several
large nationally known laboratories, such as Corning Clinical Laboratories, Lab
Corp. and SmithKline-Beecham, offering drug testing lab analysis.
The U.S. Department of Transportation ("DOT") has ruled that activities
involving the management of MRO services or activities that give the appearance
of any type of financial arrangement between an MRO and a laboratory are
prohibited from being conducted by the laboratory. The net effect of this ruling
is to limit the laboratory's ability to provide drug testing management
services. Therefore, with respect to testing performed under DOT regulations
(which is the standard by which all substance abuse testing programs are
measured), the
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laboratory cannot provide full service substance abuse testing program
management and meet DOT requirements.
Companies that manage their own substance abuse testing programs are
required to remain abreast of changing DOT regulations and their implications as
well as maintain significant amounts of data that must be processed, audited and
stored. A significant amount of work is required in administering substance
abuse testing programs, and these programs are complex to manage. The Company
believes that these factors have created a market opportunity for third-party
administrators or program management companies since it appears some companies
are moving to outsource substance abuse testing program management.
Strategy
The key elements of DataMed's strategy to address the market opportunity
include:
Expand sales and marketing efforts to increase its customer base nationally
and internationally. The Company will continue to market complete program
management services principally to Fortune 1000 companies. The Company's
complete program management services (ProScreen PlusTM) typically provide higher
profit margins for the Company. For the year ended December 31, 1995, the
Company's complete program management services accounted for 48% of DataMed's
revenues. For the year ended December 31, 1996, DataMed's complete program
management services accounted for approximately 70% of DataMed's revenues.
Expand international markets within the transportation and healthcare
industries. The Company has customers in international markets outside the U.S.
Many international customers have some local requirements for substance abuse
testing, primarily in the shipping industry. The Company has dedicated personnel
to continue to pursue these opportunities.
Develop new healthcare management software products and services. With
federal regulations mandating substance abuse testing, the Company will continue
to provide additional products and services for complete substance abuse testing
management.
Maintain its technological advantage in developing regulatory compliance
tracking software and quality assurance software products. Since the substance
abuse testing management process is labor intensive due to the amount of data
that must be processed and audited, DataMed intends to use Wyndgate's technology
to attempt to develop an advanced system to reduce the costs and increase the
quality of its services. There can be no assurance that the Company will be
successful in developing an automated test tracking system or that it will
operate effectively.
Services
DataMed's service allows a company that no longer wants to micro-manage its
substance abuse program to outsource the administration of its entire substance
abuse program. DataMed's goal is to help a company increase total program
quality and decrease total program costs. DataMed can coordinate or actively
manage the specimen collection process, the laboratory testing
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<PAGE>
process, the medical review process, random testing process, the blind sample
quality control process, the substance abuse testing process and the data
management process, including compliance reporting and record storage. DataMed's
services can be purchased independently or as a management package. DataMed has
two basic levels of management services: ProScreen(TM) and ProScreen Plus(TM).
ProScreen(TM) is DataMed's program coordination service and is designed to
attract the medium to large customer operating in either a regulated or
unregulated environment. ProScreen(TM) is a solution for clients that realize
their programs are large enough to have become a burden, but small enough not to
warrant a full time employee. DataMed, through its ProScreen(TM) service, offers
companies a limited range of "pro-active" management services designed to ease
the burden of an internally managed program. ProScreen(TM) can also be an entry
point for a client that wants to eventually move to a ProScreen Plus(TM) level
of service.
ProScreen Plus(TM) is a customized service designed to attract Fortune 1000
clients who have decided to outsource the management of their entire program.
Through its ProScreen Plus(TM) product, DataMed focuses its efforts on helping
the large organization concentrate on its core business, increase program
quality and reduce total program costs. ProScreen Plus(TM), in its truest form,
allows DataMed to function as a company's substance abuse department.
Customers
A customer may have programs that are federally regulated, unregulated or
both. Fortune 1000 customers tend to have both regulated and unregulated
programs. The Federal Highway Administration oversees the largest percentage of
regulated testing. Companies regulated by the Federal Aviation, Transit and
Railroad Administrations (and other federal organizations) are also subject to
federally mandated programs. Unregulated testing accounts for the largest market
segment and is driven by company policy, state and local laws.
International companies are also potential customers. DataMed currently
provides substance abuse testing management services to a number of companies
internationally. However, the management of the Company believes that the
international market is expected to grow at a slower rate due to lack of
governmental regulations. Department of Transportation regulations adopted after
the passage of The North American Free Trade Agreement require Mexican and
Canadian transportation companies using U.S. road systems in cross-border trade
to comply with U.S. Department of Transportation regulations, including
substance abuse testing.
DataMed believes it is ahead of its competition when it comes to offering
international substance abuse testing management services because the Company
has taken many years to develop an overseas collection site network and has
developed procedures to timely usher specimens through customs for analysis.
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<PAGE>
Competition
When examining competitors it is important to distinguish between program
coordination and program management. There are hundreds of companies capable of
providing program coordination services. Some of these direct competitors are:
Substance Abuse Management, Inc. ("SAMI"); Concord, Inc.; National Safety
Alliance ("NSA"); Drug Intervention Services of America ("DISA"); Equifax
Services, Inc.; First Lab; and University Services. If any of these companies
change their marketing and operational approach, they could quickly become more
of a presence in the program management marketplace.
The Company believes that DataMed's primary competitive advantage is
quality and name recognition. DataMed has established policies and procedures in
an attempt to achieve total quality management and continuous quality
improvement goals.
The Company believes that corporate outsourcing trends and regulatory
burdens (e.g., substance abuse testing) will continue to increase and DataMed
will attempt to capitalize on these trends. Program management companies are
increasing in number. The Company believes that SAMI, DISA, NSA, University
Services, FirstLab and Concord, Inc. are the largest competitors present in the
marketplace.
LEGAL PROCEEDINGS
The Company currently is not involved in any legal proceedings.
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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
Name Age Position or Director Since
---- --- -------- -----------------
Michael I. Ruxin, M.D. 51 Chairman of the Board 1989
and CEO
Joseph F. Dudziak 59 President and COO 1995
William J. Collard 55 Secretary/Treasurer, 1995
Director and Wyndgate
President
Gerald F. Willman, Jr. 39 Director and Wyndgate 1995
Vice-President
Gregory R. Huls 45 Chief Financial Officer 1996
and General Counsel
John D. Gleason 38 Director 1994
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
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CBL management, in 1993, CBL filed a Petition under Chapter 7 of the Federal
Bankruptcy Code to liquidate due to a change in the workers compensation
regulations in the State of California. Dr. Ruxin received a B.A. degree from
the University of Pittsburgh and an M.D. degree from the University of Southern
California. Dr. Ruxin is a licensed physician in California and Colorado. He is
a member of the American Association of Medical Review Officers.
Joseph F. Dudziak has been President and Chief Operating Officer of the
Company since June 1995. From January 1993 to June 1995, he was employed as a
"site executive" with Analysts International Corporation, a contract consulting
firm engaged primarily in development and support of software. From August 1991
to December 1992, he was a self-employed executive consultant, during which time
he provided consulting services primarily to The Wyndgate Group, Ltd. in the
areas of product development and marketing and the development of a business
plan. For the 30 years prior to August 1991, Mr. Dudziak was employed in various
capacities (most recently as a group Vice President) by Control Data Corporation
("CDC"), which was involved in the computer systems, software and information
management businesses.
William J. Collard has been a director and the Secretary/Treasurer of the
Company and the President of the Wyndgate division since May 1995. From 1984 to
May 1995 he was president and a director of The Wyndgate Group, Ltd., and
responsible for directing the sales, operations and research and development
efforts of The Wyndgate Group, Ltd. From 1976 to 1984, Mr. Collard was the
executive director of Sigma Systems, Inc., a company that provides colleges and
other institutions with administrative computer applications. Mr. Collard
received a B.S. degree in Business Administration (Finance) and an M.S. degree
in Business Administration (Quantitative Methods) from California State
University.
Gerald F. Willman, Jr. has been a director of the Company and the Vice
President of the Wyndgate division since May 1995. Mr. Willman was director and
then a Vice President of The Wyndgate Group, Ltd., from 1984 to 1995 and was
responsible for the overall design and development of the products developed by
The Wyndgate Group, Ltd., including research of new technologies. Prior to his
employment at The Wyndgate Group, Ltd., he was employed as a development team
leader at Systems Research, Inc. Mr. Willman received a B.S. degree from Hampden
Sydney College and M.B.A. degree from National University.
Gregory R. Huls has been the Chief Financial Officer and General Counsel of
the Company since October, 1996. From May, 1996 through October, 1996, Mr. Huls
was engaged in the private practice of law. From 1993 through 1995, Mr. Huls was
a full time student at the University of Denver, College of Law. From 1992 to
1993, Mr. Huls was Senior Vice President and Chief Financial Officer for
Comprecare Holdings, Inc., and from 1987 to 1992, Vice President of Finance and
Chief Financial Officer for AMISUB (Comprecare), Inc. where he directed the
financial, provider contracting and information system functions of that health
maintenance organization (HMO). Mr. Huls received a B.S. degree in Business
(Accounting) from Indiana University and a J.D. degree from the University of
Denver, College of Law. He is also a certified public accountant. He is a member
of the American Institute of Certified Public Accountants, the Colorado Society
of Certified Public Accountants, and the Colorado and American Bar Associations.
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John D. Gleason has been a director of the Company since 1994. Since
November, 1990 he has been employed with MDS Inc., formerly MDS Health Group
Limited ("MDS"), a publicly held Canadian company that is engaged in the
business of medical laboratory testing, currently as Vice President of Corporate
Strategic Initiatives and previously as Chief Financial Officer and Vice
President of Finance. Mr. Gleason received an Honors degree (the Canadian
equivalent of a bachelors degree) from Queens University in Ontario, Canada and
a masters degree from the University of Toronto. Mr. Gleason is a chartered
accountant.
The Company's Audit/Systems Committee acts as the liaison between the
Company and its independent public accountants. Its members consist of Dr. Ruxin
and Mr. Gleason who were recently appointed in such capacity and have not yet
met as a committee. The Audit/Systems Committee is responsible for reviewing and
approving the scope of the annual audit undertaken by the Company's independent
accountants and will meet with the accountants to review the progress and
results of their work, as well as any recommendations the accountants may offer.
The Audit/Systems Committee will also review the fees of the independent
accountants and make recommendations to the Board of Directors as to the
appointment of the accountants. In connection with the Company's internal
accounting controls, the Audit/Systems Committee will review the internal audit
procedures and reporting systems in place at the Company and review their
accuracy and adequacy with management and with the Company's independent
accountants.
The Company's Compensation Committee, which will recommend compensation
levels to the Board of Directors, consists of Dr. Ruxin and Mr. Collard who were
recently appointed in such capacity and have not yet met as a committee. The
Compensation Committee will review salaries, bonuses, and other forms of
compensation for officers and key employees of the Company and its subsidiaries,
and will establish salaries, benefits, and other forms of compensation for new
employees. Included in the Compensation Committee's responsibility is the
issuance of stock bonuses and stock options under the Company's two stock
option/bonus plans. In addition, the Compensation Committee will review other
matters concerning compensation and personnel as the Board of Directors may
request. The Compensation Committee will design the Company's compensation to
enable the Company to attract, retain, and reward highly qualified executives,
while maintaining a strong and direct link between executive pay, the Company's
financial performance, and total stockholder return. The Compensation Committee
believes that officers and certain other key employees should have a significant
stake in the Company's stock price performance under programs which link
executive compensation to stockholder return.
Scientific Advisory Committee
The Board of Directors has established a Scientific Advisory Committee to
advise and consult with the Board of Directors as may be requested by the Board
from time-to-time.
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Currently, the Scientific Advisory Committee consists of William C. Dickey,
M.D., Cathy Bryan and Ronald O. Gilcher, M.D. It is not presently contemplated
that the Scientific Advisory Committee will have formal meetings as a group. The
members of the Scientific Advisory Committee will not receive any cash
compensation from the Company for serving in that capacity, but each will be
reimbursed for any expenditures incurred on behalf of the Company. In connection
with their appointment to the Scientific Advisory Committee, in January, 1996,
Dr. Dickey, Ms. Bryan and Dr. Gilcher were issued options to purchase 2,500,
1,000 and 1,000 shares, respectively, of the Company's Common Stock, exercisable
at $3.75 per share, which options vest over a five year period and are
exercisable until January, 2006.
William C. Dickey, M.D., Chairman of the Scientific Advisory Committee, has
been the Medical Director, Chief Executive Officer and President of the Belle
Bonfils Memorial Blood Center, Denver, Colorado since July 1990. From 1972 to
1974, he was the Director of the Blood Bank for Irwin Army Hospital, located in
Texas, and from 1974 to 1991, he was the Director of the Blood Bank for St.
Anthony Hospital, Denver, Colorado. He graduated from the University of Denver
with a B.S. degree and received his M.D. degree from the University of Colorado
School of Medicine. He was certified by the American Board of Pathology for
Anatomic and Clinical Pathology in 1972, and is licensed to practice medicine in
Colorado and Kansas.
Cathy Bryan has been the Chief Executive Officer, Administrator and FDA
Responsible Head for the Blood Bank of the Redwoods, Santa Rosa, California,
since July 1987. She received a B.A. degree in social sciences from San Jose
State University. She was one of the founders of the Blood Centers of
California, of which she served as a Director (1987) and President (1994), and
is a member of the California Blood Bank Society, of which she served as
Chairman of the Administrator Program from 1992 - 1994, and the American
Association of Blood Banks.
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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Significant Employees
The following employees make a significant contribution to the business of
the Company:
Bart K. Valdez, age 33, has been the Director of Operations for DataMed
since October, 1996. He was Director of Finance and Operations and also acted as
the Principal Financial Officer for the Company from June 1995 through
mid-October 1996. Mr. Valdez functions under the direct supervision of the
President and is accountable for the effective operations of the account
management team, medical review, data management, vendor management and
information systems departments. From 1989 to joining the Company in 1995, he
was employed by Baxter International, Inc., a medical supply and manufacturing
company, most recently as Regional Director of Operations for the Mountain
Region. Mr. Valdez received a B.S. degree in Management from Colorado State
University and a M.B.A. degree from the University of Colorado.
L.E. "Gene" Mundt, age 58, has been the Senior Vice President for Wyndgate
since February, 1996, where he is responsible for medical applications. Prior to
joining Wyndgate, from 1967 to 1996, Mr. Mundt was employed by Control Data
Systems, Inc., a computer hardware and software manufacturer, most recently as
the Director, Integration and Consulting Services, Central Region, North and
South America Operations. Mr. Mundt received a Bachelors degree in Math from the
University of Iowa.
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information regarding compensation paid
to the Company's CEO and the other executive officers of the Company who
received in excess of $100,000 of salary and bonus from the Company during the
year ended December 31, 1996:
<TABLE>
<CAPTION>
Annual Compensation ($$) Long Term Compensation
------------------------ ----------------------
Awards
------
Restricted
Name and Stock Options Other
Position Year Salary Bonus Awards & SARs Compensation
-------- ---- ------ ----- ------ ------ ------------
($$) ($$) ($$) (##) ($$)
<S> <C> <C> <C> <C> <C> <C>
Michael I. Ruxin, 1996 $195,000 -0- -0- -0- $ 16,520 (1)
Chairman and CEO 1995 $190,000 -0- -0- -0- $ 16,520 (1)
1994 $180,000 -0- -0- -0- $ 8,216 (2)
Joseph F. Dudziak, 1996 $110,000 -0- -0- 25,000(3) $ 4,800 (4)
President and COO 1995 $105,000 -0- -0- 100,000(3) $ 4,800 (4)
1994 -0- -0- -0- -0- $ -0-
William J. Collard, 1996 $100,000 -0- -0- -0- $ 180,400 (5)
Secretary/Treasurer 1995 $100,000 -0- -0- -0- $ 30,400 (5)
and Director, 1994 $ 75,000 $ 100(6) -0- -0- $ -0-
Wyndgate President
</TABLE>
- ----------
(1) Dr. Ruxin receives $5,000 per annum in life insurance premiums and a $960
per month car allowance.
(2) Dr. Ruxin received a car allowance of $368 per month, and $3,800 in life
insurance premiums.
(3) In June 1995, Mr. Dudziak received options to purchase 100,000 shares
exercisable at $2.45 per share. In September 1996, Mr. Dudziak received
options to purchase 25,000 shares exercisable at $2.50 per share. These
options vest at the rate of 20% per year. No value has been attributed to
these options since the exercise price was the estimated fair value of the
Company's shares at the time of grant.
(4) Mr. Dudziak receives $400 per month car allowance.
(5) Mr. Collard receives a $450 per month car allowance. In 1995, Mr. Collard
received $25,000 under his non- compete agreement. In 1996, Mr. Collard
received $175,000 under his non-compete agreement.
(6) In 1994, Mr. Collard received a performance bonus of $100.
Employment Agreements
The Company has entered into an employment agreement with Dr. Ruxin for a
period of five years commencing May 24, 1995. The initial term of this agreement
can be extended at the close of the second year for an additional two years
beyond the initial term (creating a term of seven years from May 24, 1995).
Under the agreement, Dr. Ruxin receives a salary of $190,000 per year and
certain other fringe benefits. Dr. Ruxin's employment agreement includes a
cost-of-living increase at the rate of 2 1/2% per annum, plus any other increase
which may be determined from time to time at the discretion of the Company's
Board of Directors. Pursuant to the employment agreement, Dr. Ruxin is provided
with a car on such lease terms to be determined by the Company, provided that
the monthly operating costs (including lease payments) to be paid by the Company
will not exceed $960. The agreement also includes a covenant not to compete
-47-
<PAGE>
for which Dr. Ruxin was to be paid a lump sum of $115,000 on January 1, 1996. No
payments have been made in connection with the covenant not to compete. The
covenant not to compete will terminate the later of five years from the date of
the agreement or the term of the agreement; hence, the Company will not receive
any benefit from the covenant not to compete unless the agreement is terminated
prior to May 24, 2000. Dr. Ruxin has now agreed that such payment will have to
be made only if and when the Company has sufficient cash flow, as determined by
the Board of Directors. Proceeds from this offering will not be used to make any
payments in connection with the covenant not to compete. Dr. Ruxin's employment
under the employment agreement may be terminated by Dr. Ruxin upon the sale by
the Company of substantially all of its assets, the sale, exchange or other
disposition of at least 40% of the outstanding voting shares of the Company, a
decision by the Company to terminate its business and liquidate its assets, the
merger or consolidation of the Company with another entity or an agreement to
such a merger or consolidation or any other type of reorganization, or if the
Company makes a general assignment for the benefit of creditors, files for
voluntary bankruptcy or if a petition for the involuntary bankruptcy of the
Company is filed in which an order for relief is entered and remains in effect
for a period of thirty days or more, or if the Company seeks, consents to, or
acquiesces in the appointment of a trustee, receiver or liquidator of the
Company or any material part of its assets. Dr. Ruxin's employment under the
employment agreement also may be terminated by reason of Dr. Ruxin's death or
disability or for cause as set forth in the employment agreement. If the
agreement is terminated by the Company for any reason other than cause or
permanent disability, the Company must pay Dr. Ruxin a lump sum severance
payment of $2.5 million.
On May 24, 1995, the Company also entered into a five year employment
agreement with William J. Collard which contains the same extension provision
and reasons for termination as does Dr. Ruxin's agreement, and provides for an
annual salary of $100,000. Mr. Collard's employment agreement includes a
cost-of-living increase at the rate of 2 1/2% per annum, plus any other increase
which may be determined from time to time at the discretion of the Company's
Board of Directors. Mr. Collard's agreement also contains a covenant not to
compete, with payments of $100,000 for the covenant to have been made on January
1, 1996 and May 24, 1996, respectively. Aggregate payments of $200,000 were made
as follows: $25,000 in December, 1995; $75,000 in January, 1996; and $100,000 in
May, 1996. The covenant not to compete will terminate the later of five years
from the date of the agreement or the term of the agreement; hence, the Company
will not receive any benefit from the covenant not to compete unless the
agreement is terminated prior to May 24, 2000. If Mr. Collard's agreement is
terminated by the Company any time after two years from the date of this
Prospectus for any reason other than cause or permanent disability, the Company
must pay him a lump sum severance payment of $2.5 million. Mr. Collard also
receives a car allowance of $450 per month.
The Company also has an employment agreement with Gerald F. Willman, Jr.
which contains an extension provision for the term of the agreement and reasons
for termination similar to those of Dr. Ruxin and Mr. Collard with an annual
salary of $95,000, except the initial term is for three years commencing May 24,
1995 and the extension is for an additional two years. Mr. Willman's employment
agreement includes a cost-of-living increase at the rate of 2 1/2% per
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<PAGE>
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 any time after two years from
the date of this Prospectus for any reason other than cause or permanent
disability, the Company must pay Mr. Willman a lump sum severance payment of
$1.0 million.
On June 28, 1995, the Company entered into an employment agreement with
Joseph F. Dudziak for a two year term pursuant to which Mr. Dudziak earns a
salary of $105,000 per year. Mr. Dudziak's employment agreement contains the
same reasons for termination as the other employment agreements described above,
but does not include the same extension provision or an annual cost-of-living
increase. However, if increased, his salary may not be decreased thereafter
during the term of the agreement without Mr. Dudziak's consent. If Mr. Dudziak's
employment is terminated by the Company for any reason other than for cause or
permanent disability, the Company is required to pay Mr. Dudziak his salary and
benefits for the full two years. Mr. Dudziak is entitled to certain incentive
compensation based on the Company's pre-tax profits for 1996. The agreement also
grants Mr. Dudziak options to purchase an aggregate of 100,000 shares of the
Company's Common Stock. Subject to early vesting in certain circumstances, the
options vest over a five year period at the rate of 20% per year and are
exercisable at $2.45 per share, which was the estimated fair value of the shares
at the time of grant. Mr. Dudziak receives a car allowance of $400 per month.
The Company has agreed to pay Mr. Dudziak approximately $25,000 for moving
expenses which have not been paid as of the date of this Prospectus.
On February 8, 1996, the Company entered into an employment agreement with
L. E. "Gene" Mundt for a three year term pursuant to which Mr. Mundt earns a
salary of $95,000 per year. Mr. Mundt's employment agreement contains the same
reasons for termination as the other employment agreements described above, but
does not include an extension provision or an annual cost-of-living increase. If
Mr. Mundt's salary is increased, it may not be decreased thereafter during the
term of the agreement without Mr. Mundt's consent. If Mr. Mundt's employment is
terminated for any reasons other than for cause or permanent disability, the
Company is required to pay Mr. Mundt his salary and benefits for the full three
year period. Mr. Mundt is entitled to certain incentive compensation based on
the Company's pre-tax profits for 1996. The agreement also grants Mr. Mundt
options to purchase an aggregate of 75,000 shares of the Company's Common Stock
at an exercise price of $3.75 per share which was the estimated fair value of
the shares at the time of grant. Under the terms of the agreement, Mr. Mundt
receives non-qualified stock options to purchase 25,000 shares of Common Stock
which are exercisable for ten years from the date of the agreement and incentive
stock options to purchase 50,000 shares of common stock which, subject to early
vesting in certain circumstances, vest over a five year period at the rate of
20% per year. Mr. Mundt receives a car allowance of $400 per month. During 1996,
the Company paid Mr. Mundt approximately $42,000 for moving expenses.
The Company also has an employment agreement with Bradley V. Maberto which
contains an extension provision for the term of the agreement and reasons for
termination similar to those
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<PAGE>
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.
On October 14, 1996, the Company hired Gregory R. Huls as Chief Financial
Officer and General Counsel for the Company. According to the terms of his
employment arrangement, which has not yet been reduced to a written employment
agreement, Mr. Huls is to receive an annual salary of $95,000 and an annual
automobile allowance of $4,800. In addition, Mr. Huls was granted incentive
stock options to purchase 75,000 shares, which vest over a five year period at
20% per year and are exercisable at $2.50 per share, and the Company agreed to
pay the premium on a $15,000 life insurance policy for Mr. Huls.
Compensation of Directors
Members of the Company's Board of Directors are not compensated in their
capacities as Board Members. However, the Company reimburses all of its
officers, directors and employees for accountable expenses incurred on behalf of
the Company.
Stock Option Plan
The Company has adopted its Amended and Restated Stock Option Plan (the
"Plan") which provides for the issuance of options to purchase up to 1,234,279
shares of Common Stock to employees, officers, directors and consultants of the
Company. The purposes of the Plan are to encourage stock ownership by employees,
officers, directors and consultants of the Company so that they may acquire or
increase their proprietary interest in the Company, to (i) reward employees,
officers, directors and consultants for past services to the Company and (ii)
encourage such persons to become employed by or remain in the employ of or
otherwise continue their association with the Company and to put forth maximum
efforts for the success of the business of the Company.
The Plan is administered by a Committee consisting of the Board of
Directors or Compensation Committee, if appointed. At its discretion, the
Committee may determine the persons to whom Options may be granted and the terms
thereof. As noted above, the Committee may issue options to the Board.
The terms of any Options granted under the Plan are not required to be
identical as long as they are not inconsistent with the express provisions of
the Plan. In addition, the Committee may interpret the Plan and may adopt, amend
and rescind rules and regulations for the administration of the Plan.
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<PAGE>
Options may be granted as incentive stock options ("Incentive Options")
intended to qualify for special treatment under the Internal Revenue Code of
1986, as amended (the "Code"), or as non-qualified stock options ("Non-Qualified
Options") which are not intended to so qualify. Only employees of the Company
are eligible to receive Incentive Options. The period during which Options may
be exercised may not exceed ten years. The exercise price for Incentive Options
may not be less than 100% of the fair market value of the Common Stock on the
date of grant; except that the exercise price for Incentive Options granted to
persons owning more than 10% of the total combined voting power of the Common
Stock may not be less than 110% of the fair market value of the Common Stock on
the date of grant and may not be exercisable for more than five years. The
exercise price for Non-Qualified Options may not be less than 85% of the fair
market value of the Common Stock on the date of grant. The Plan defines "fair
market value" as the last sale price of the Company's Common Stock as reported
on a national securities exchange or on the NASDAQ NMS or, if the quotation for
the last sale reported is not available for the Company's Common Stock, the
average of the closing bid and asked prices of the Company's Common Stock as
reported by NASDAQ or on the electronic bulletin board or, if none, the National
Quotation Bureau, Inc.'s "Pink Sheets" or, if such quotations are unavailable,
the value determined by the Committee in accordance with its discretion in
making a bona fide, good faith determination of fair market value.
The Plan contains provisions for proportionate adjustment of the number of
shares issuable upon the exercise of outstanding Options and the exercise price
per share in the event of stock dividends, recapitalizations resulting in stock
splits or combinations or exchanges of shares.
In the event of the proposed dissolution or liquidation of the Company, or
any corporate separation or division, including, but not limited to, split-up,
split-off or spin-off, merger or consolidation of the Company with another
company in which the Company is not the survivor, or any sale or transfer by the
Company of all or substantially all its assets or any tender offer or exchange
offer for or the acquisition, directly or indirectly, by any person or group for
more than 50% of the then outstanding voting securities of the Company, the
Committee may provide that the holder of each Option then exercisable will have
the right to exercise such Option (at its then current Option Price) solely for
the kind and amount of shares of stock and other securities, property, cash or
any combination thereof receivable upon such dissolution, liquidation, corporate
separation or division, merger or consolidation, sale or transfer of assets or
tender offer or exchange offer, by a holder of the number of shares of Common
Stock for which such Option might have been exercised immediately prior to such
dissolution, liquidation, or corporate separation or division, merger or
consolidation, sale or transfer of assets or tender offer or exchange offer; or
in the alternative the Committee may provide that each Option granted under the
Plan will terminate as of a date fixed by the Committee; provided, however, that
not less than 30 days written notice of the date so fixed will be given to each
recipient, who will have the right, during the period of 30 days preceding such
termination, to exercise the Option to the extent then exercisable. To the
extent that Section 422(d) of the Code would not permit this provision to apply
to any outstanding Incentive Options, such Incentive Options will immediately
upon the occurrence of the dissolution or liquidation, etc., be treated for all
purposes of the Plan as Non- Qualified Options and shall be immediately
exercisable as such.
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<PAGE>
Except as otherwise provided under the Plan, an Option may not be exercised
unless the recipient then is an employee, officer or director of or consultant
to the Company or a subsidiary of or parent to the Company, and unless the
recipient has remained continuously as an employee, officer or director of or
consultant to the Company since the date of grant of the Option.
If the recipient ceases to be an employee, officer or director of, or
consultant to, the Company or a subsidiary or parent to the Company (other than
by reason of death, disability or retirement), other than for cause, all Options
theretofore granted to such recipient but not theretofore exercised will
terminate three months after the date the recipient ceased to be an employee,
officer or director of, or consultant to, the Company.
If the recipient ceases to be an employee, officer or director of, or
consultant to, the Company or a subsidiary or parent to the Company by reason of
termination for cause, all Options theretofore granted to such recipient but not
theretofore exercised will terminate thirty days after the date the recipient
ceases to be an employee, officer or director of, or consultant to, the Company.
If a recipient dies while an employee, officer or director of or a
consultant to the Company, or if the recipient's employment, officer or director
status or consulting relationship, shall terminate by reason of disability or
retirement, all Options theretofore granted to such recipient, whether or not
otherwise exercisable, unless earlier terminated in accordance with their terms,
may be exercised by the recipient or by the recipient's estate or by a person
who acquired the right to exercise such Options by bequest or inheritance or
otherwise by reason of the death or disability of the recipient, at any time
within one year after the date of death, disability or retirement of the
recipient; provided, however, that in the case of Incentive Options such
one-year period will be limited to three months in the case of retirement.
Options granted under the Plan are not transferable other than by will or
by the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, or the rules thereunder. Options may be exercised,
during the lifetime of the recipient, only by the recipient and thereafter only
by his legal representative.
The Committee may suspend, terminate, modify or amend the Plan, but without
shareholder approval the Board may not materially increase the number of shares
as to which Options may be granted, change the eligibility requirements for
persons entitled to participate in the Plan or materially increase the benefits
to be received by any participant under the Plan. The Board may not adversely
affect any Option previously granted without the consent of the participant.
Unless sooner terminated, the Plan will expire on May 31, 2000.
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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:
<TABLE>
<CAPTION>
Option Grants in 1996
Number of
Securities
Underlying % of Total Options
Options Granted to
Name Granted Employees in 1996 Exercise Price Expiration Date
----- ------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C>
Joseph F. Dudziak 25,000(1) 10.8% $2.50 09/30/06
</TABLE>
- ------------
(1) Options to purchase 5,000 shares vest each year Mr. Dudziak remains in the
employ of the Company, beginning September 30, 1997 and continuing each
September 30 thereafter. Once vested, the options are exercisable for a ten
year period.
There were no options exercised during the last fiscal year by the
Company's executive officers, and no value has been ascribed to their
unexercised options at December 31, 1996 as there was and is no public market
for the Company's Common Stock.
Limitations on Directors' and Officers' Liability
The Company's Articles of Incorporation limit the liability of directors to
shareholders for monetary damages for breach of a fiduciary duty except in the
case of liability: (i) for any breach of their duty of loyalty to the Company or
its shareholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) for unlawful
distributions as provided in Section 7-108-403 of the Colorado Business
Corporation Act; or (iv) for any transaction from which the director derived an
improper personal benefit.
The Company's Articles of Incorporation and Bylaws provide for the
indemnification of directors and officers of the Company to the maximum extent
permitted by law, including Section 7-109-102 of the Colorado Business
Corporation Act, against all liability and expense (including attorneys' fees)
incurred by reason of the fact that the officer or director served in such
capacity for the Company, or in a certain capacity for another entity at the
request of the Company. Section 7-109-102 of the Colorado Business Corporation
Act provides generally for indemnification of directors against liability
incurred as a result of actions, suits or proceedings if they acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the Company. The Company has entered into employment
agreements with certain of its employees which provide for indemnification in
addition to the indemnification
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<PAGE>
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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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of the date hereof, the ownership of the
Company's Common Stock by (i) each director and executive officer of the
Company, (ii) all executive officers and directors of the Company as a group,
and (iii) all persons known by the Company to beneficially own more than 5% of
the Company's Common Stock prior to the Offering.
<TABLE>
<CAPTION>
Amount and Nature of
Name and Address of Shareholder Beneficial Ownership (1) Percent of Class
- ------------------------------- ------------------------ ----------------
<S> <C> <C>
Michael I. Ruxin, M.D.(1) (9) 906,250(2) 11.4%
12600 W. Colfax
Suite A-500
Lakewood, CO 80215
Joseph F. Dudziak(1) 46,914(3) 0.6%
12600 W. Colfax Ave.
Suite A-500
Lakewood, CO 80215
William J. Collard(1) (9) 613,006(4)(5) 7.7%
11121 Sun Center Drive
Suite C
Rancho Cordova, CA 95670
Gerald F. Willman, Jr.(1) (9) 882,514(6) 11.2%
11121 Sun Center Drive
Suite C
Rancho Cordova, CA 95670
Gregory R. Huls(1) -0-(7) -0-%
12600 W. Colfax Ave.
Suite A-500
Lakewood, CO 80215
Lori J. Willman(1) (9) 882,514(8) 11.2%
11121 Sun Center Drive
Suite C
Rancho Cordova, CA 95670
John D. Gleason -0- -0-%
100 International Blvd.
Etobicoke, Ontario
Canada M9W 6J6
All Directors and Executive Officers as 2,448,684 30.7%
a group (6 persons)
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</TABLE>
<PAGE>
- ------------
(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, 2006 to
purchase 20,000 shares at $2.45 per share, 13,333 shares underlying 10%
Notes purchased by Joseph F. Dudziak in the principal amount of $50,000,
and 1,081 shares from accrued interest on the 10% Notes and 12,500 shares
underlying warrants issued in connection with the purchase of the 10%
Notes. Does not include 105,000 shares underlying the unvested portion of
Mr. Dudziak's options.
(4) Includes 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) Does not include 75,000 shares underlying the unvested portion of Mr. Huls'
option.
(8) Includes 536,033 shares owned by Gerald F. Willman, Jr., the spouse of Lori
J. Willman.
(9) On November 14, 1996, Michael I. Ruxin, William J. Collard, Gerald F.
Willman, Jr., Lori J. Willman, Timothy J. Pellegrini and Gordon Segal
(collectively, the "Shareholders") entered into a Proxy and Right of First
Refusal Agreement (the "Shareholders Agreement") with ODSI pursuant to
which each of the Shareholders granted an irrevocable proxy to ODSI to vote
their shares of the Company's Common Stock (i) in favor of a proposal to
approve any definitive agreement between the Company and ODSI relating to
the Technology, or (ii) on any other proposal relating to the sale of any
of the stock of the Company or all or substantially all of the assets of
the Company or any of the Technology, unless prior to the date of the
shareholders' meeting, the definitive agreement has been terminated under
certain conditions. Unless earlier terminated, the proxy granted by each of
the Shareholders expires November 14, 1997. Each of the Shareholders also
granted ODSI a right of first refusal to purchase the Shareholder's shares
until November 14, 1997, in the event such Shareholder proposes to
transfer, dispose of, or otherwise sell such Shareholder's shares to any
third party or grant to any third party an option or other right to buy any
shares of the Company's Common Stock held by such Shareholder. See The
Company -Wyndgate Technologies Division Agreements with Ortho Diagnostic
Systems Inc.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 5, 1995, the shareholders of the Company approved a loan in the
amount of $161,500, with interest at 8% per annum, made by the Company to Sonya
M. Levine, the wife of Michael I. Ruxin, in 1994, which had not previously been
approved by the shareholders in accordance with Colorado corporate law.
Effective June 30, 1995, the Company forgave Ms. Levine's note in consideration
of the forgiveness of a note payable by the Company to Dr. Ruxin in the same
amount and at the same interest rate as Ms. Levine's note.
In May 1996, Gordon Segal, a beneficial owner of over 5% of the outstanding
Common Stock of the Company, and Michael I. Ruxin, William J. Collard, Joseph F.
Dudziak and Bart K. Valdez, officers and directors of the Company, purchased 10%
Notes in the principal amounts of $25,000, $25,000, $60,000, $50,000 and
$11,200, respectively, in the 10% Note offering by the Company. 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.
The Board of Directors of the Company has also adopted a resolution that
provides that the areas of business in which the Company shall be interested for
the purpose of the doctrine of corporate opportunities shall be the business of
information management software products and services. Any business opportunity
which falls within such areas of interest must be brought to the attention of
the Company for acceptance or rejection prior to any officer or director of the
Company taking advantage of such opportunity. John D. Gleason has been excluded
from such requirement. Any business opportunity outside such areas of interest
may be entered into by any officer or director of the Company without the
officer or director first offering the business opportunity to the Company.
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<PAGE>
Dr. Ruxin has personally guaranteed the Company's $1 million line of credit
which was repaid from proceeds of the Company's February 1997 public offering
and various leases totaling approximately $1.2 million.
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 7,908,752 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 134 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 1,075,429 shares of Common Stock which are exercisable at prices ranging
from $1.00 to $3.75 per share and expiration dates ranging from October 15, 1997
to September 30, 2006, including (i) 187,800 warrants outstanding issued in
conjunction with the 10% Notes, and (ii) 150,000 warrants issued in January,
1997 in connection with borrowing $450,000, which warrants are exercisable at
$2.975 per underlying share. 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 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,
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<PAGE>
of which 66,667 were issued and subsequently converted into an equal number of
shares of the Company's Common Stock. The remaining shares of preferred stock
may be issued in one or more series from time to time with such designations,
rights, preferences and limitations as the Company's board of directors may
determine without approval of its shareholders. Series A Preferred Stock has the
same voting rights of Common Stock, except that the holders of Series A
Preferred Stock are entitled to elect as a class one director to the Company's
Board of Directors. The holders of the Series A Preferred Stock shall be
entitled to dividends when, as and if declared on the same basis as the holders
of the Company's Common Stock. The rights, preferences and limitations of
separate series of serial preferred stock may differ with respect to such
matters as may be determined by the Company's Board of Directors, including
without limitation, the rate of dividends, method or nature or prepayment of
dividends, terms of redemption, amounts payable on liquidation, sinking fund
provisions, conversion rights and voting rights. The ability of the Board to
issue preferred stock could also be used by it as a means for resisting a change
of control of the Company and can therefore be considered an "anti-takeover"
device. The Company currently has no plans to issue any shares of Preferred
Stock.
10% Notes
The 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 notified the
Company of their intention to convert 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 due and payable. In addition, 187,800
shares of Common Stock are issuable upon exercise of warrants issued in
conjunction with the 10% Note offering.
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.
Commencing on the date the Warrants are separately tradeable and
transferable, the Warrants are subject to redemption by the Company at $.55 per
Warrant at any time until the end of the second year after the date of this
Prospectus and thereafter at $.75 per Warrant at any time until their
expiration, on 30 days' prior written notice to the holders of Warrants,
provided that the daily trading price per share of Common Stock has been as
least $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
-59-
<PAGE>
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.
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
The 150,000 shares of Common Stock have been registered on behalf of
certain persons (the "Selling Security Holders"). The shares underly Common
Stock purchase warrants issued to two persons who lent the Company $450,000, and
which are exercisable at $2.975 per share. The Selling Security Holders are not
required, and may choose not, to sell any of their Shares.
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<PAGE>
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Security Holders.
The following table sets forth certain information concerning the
beneficial ownership of Common Stock by each Selling Security Holder as of March
13, 1997:
<TABLE>
<CAPTION>
Shares Owned After
Offering
Shares to be ------------------ Warrants
Shares Owned Sold Owned After
Name Prior to Offering in the Offering Number Percentage Offering
---- ----------------- --------------- ------ ---------- --------
<S> <C> <C> <C> <C> <C>
Robert M. Kassenbrock 180,334 (1) 83,334 97,000 1.2% 28,500
John D. Prudden 66,666 (2) 66,666 -0- -0- -0-
</TABLE>
- -------------
(1) Includes 83,334 shares underlying warrants to purchase Common Stock,
exercisable at $2.975 per share.
(2) Represents shares underlying warrants to purchase Common Stock, exercisable
at $2.975 per share.
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.
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
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<PAGE>
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 of Common Stock and Warrants
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 reports appearing elsewhere herein,
and are included in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
SHARES ELIGIBLE FOR FUTURE SALE
The Company presently has outstanding 7,908,752 shares of Common Stock.
Approximately 4,166,296 shares are "restricted securities" within the meaning of
Rule 144 under the Securities Act of 1933, as amended (the "Act") have been held
in excess of one year, and, therefore, will be able to be publicly sold in May
1997. Holders of 4,133,933 shares have entered into lock up agreements with the
Representative.
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
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<PAGE>
restricted securities by the Company or their acquisition from an affiliate,
such securities may be sold without limitation by persons who are not affiliates
under Rule 144.
Sales of substantial amounts of Common Stock by shareholders of the Company
under Rule 144 or otherwise, or even the potential for such sales, are likely to
have a depressive effect on the market price of the shares of Common Stock and
Warrants and could impair the Company's ability to raise capital through the
sale of its equity securities.
Concurrent Registration by Selling Shareholders
The Company has registered under the Registration Statement of which this
Prospectus is a part, 1,258,803 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 LMU & Company, a consultant to the
Company. The Company will amend its Registration Statement and this Prospectus
to permit such persons to publicly offer and sell all such shares of Common
Stock commencing in August 1997.
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<PAGE>
ADDITIONAL INFORMATION
The Company has filed a Registration Statement under the Securities Act of
1933, as amended with respect to the securities offered hereby with the United
States Securities and Exchange Commission ("SEC"), 450 Fifth Street, N.W.,
Washington, D.C. 20549. This Prospectus, which is a part of the Registration
Statement, does not contain all of the information contained in the Registration
Statement and the exhibits and schedules thereto, certain items of which are
omitted in accordance with the rules and regulations of the SEC. For further
information with respect to the Company and the securities offered hereby,
reference is made to the Registration Statement, including all exhibits and
schedules therein, which may be examined at the SEC's Washington, D.C. office,
450 Fifth Street, N.W., Washington, D.C. 20549 without charge, or copies of
which may be obtained from the SEC upon request and payment of the prescribed
fee. Statements made in this Prospectus as to the contents of any contract,
agreement or document are not necessarily complete, and in each instance
reference is made to the copy of such contract, agreement or other document
filed as an exhibit to the Registration Statement, and each such statement is
qualified in its entirety by such reference. 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 semi-annual reports and such other reports as the Company
may determine. The SEC maintains a Web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the SEC at http://www.secgov.
-64-
<PAGE>
GLOSSARY
Community Blood Centers - Community Blood Centers or CBCs are the not for profit
blood centers usually affiliated with the local city or community. These are
different from the American Red Cross Blood Centers that maintain national
affiliation.
Donor Identification and Laboratory Component Labeling and Release Site-Based
Logic - Multiple-occurring program logic that is designed to help control and
help manage those areas of a blood center's operation in which the hazard
potential of the purity, potency and safety of the blood and blood products
effects a recognized level of concern.
EDEN-OA(R) - EDEN-OA(R) (OA is for Open Architecture) is the proprietary
Wyndgate application development product and environment used as a basis for the
SAFETRACE(TM) software product. It provides basic functions common to
applications plus maintenance management features and processes.
FDA 510(k) - FDA 510(k) refers to the Federal Drug Administration process number
510(k) which governs a clearance letter distributed by the FDA. Software such as
the SAFETRACE(TM) software product is classified as a medical device. The 510(k)
process is a stringent set of testing, verification and review of products like
the SAFETRACE(TM) software product.
GUI - GUI refers to the Graphical User Interface, most commonly seen as the icon
driven windows on PC's. Special tools are needed to develop GUI windows.
Help Line - Help Line refers to the service line number provided by Wyndgate for
use of its customers to receive assistance regarding Wyndgate products. Wyndgate
provides a 1-800 number for its customers who have a maintenance contract.
Module - Refers to pieces of applications computer code used to perform a
certain set of tasks or functions. Generally, modules have a name commensurate
with the major function of that set of computer code, e.g., Billing Module
refers to handling the processing of invoices.
MRO - Medical Review Officer
SAFETRACE(TM) Software Product - The SAFETRACE(TM) software product is the blood
bank information management system developed by Wyndgate using EDEN-OA(R) in
conjunction with eight California blood centers. The SAFETRACE(TM) software
product contains the following application modules: Donor Recruitment; Donor
Management; Laboratory Management; Special Procedures; Inventory-Distribution;
and Billing.
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<PAGE>
SAFETRACETx (TM) Software Product - The SAFETRACETx(TM) software product is the
transfusion management software system under development. This transfusion
system, if fully developed, will service hospitals and those blood centers that
not only supply blood or blood components to a hospital but also manage the
transfusion process.
Substance Abuse - Substance abuse refers to the use of chemical products which
may have an adverse effect on humans. Classified under substance abuse are drugs
such as cocaine and heroin and chemicals such as alcohol.
-66-
<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.
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
======================
See accompanying notes.
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>
<TABLE>
<CAPTION>
Global Med Technologies, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
(In thousands)
Common Stock Additional
------------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
issuance 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)
===========================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
<TABLE>
<CAPTION>
Global Med Technologies, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Year ended December 31
1996 1995
-------------------------------
<S> <C> <C>
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
------------------------------
</TABLE>
See accompanying notes.
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 fo 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:
<TABLE>
<CAPTION>
1996 1995
----------------------------------
(In thousands)
<S> <C> <C>
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)%
==================================
</TABLE>
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):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
--------------------------------
<C> <C> <C>
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
========
</TABLE>
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
Interpretaions 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:
<TABLE>
<CAPTION>
Incentive Stock Option Plan Nonqualified Stock Option Plan
------------------------------------------------------------------------------
Stock Stock
Number of Option Number of Option
Stock Price Stock Price
Options Range Options Range
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, December 31, 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
=========================================================================
</TABLE>
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 Note
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% Notes 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).
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.
<TABLE>
<CAPTION>
Year ended December 31, 1996
--------------------------------------------------------
Wyndgate DataMed Consolidated
--------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
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 expenditure 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
</TABLE>
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.
150,000 Shares
PROSPECTUS
March , 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 this 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>
<TABLE>
<CAPTION>
I.
May 1995 Private Placement
--------------------------
Name No. of Unit (1) Consideration Share Adjustment (2)
- ---- ----------- ------------- ----------------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
- -------------
(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
Name No. of Shares* (No. of Wyndgate Shares)
- ---- -------------- ------------------------
William J. Collard 653,006 1,999
Gerald F. William, 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 Number of Options Expiration Date
- ---- ----------------- ---------------
William C. Dickey, MD 2,500 January, 2006
Cathy Bryan 1,000 January, 2006
Ronald O. Gilcher, MD 1,000 January, 2006
The options issued to the members of the Registrant's Scientific Advisory
Committee were made in reliance upon the exemption from registration provided by
Section 4(2) of the 1933 Act. The consideration for the issuance of the options
was the agreement by the named individuals to serve on the Registrant's
Scientific Advisory Committee. The options were issued pursuant to the
Registrant's nonqualified stock option plan and are exercisable at $3.75 per
share, and vest over a five year period. No broker/dealers were involved in the
sale and no commissions were paid. All option certificates were impressed with a
restrictive legend advising that the options represented by the certificates may
not be sold, transferred, pledged or hypothecated without having first been
registered or the availability of an exemption from registration established.
II-11
<PAGE>
VIII.
In April, 1996, the Registrant entered into an agreement with LMU & Company
("LMU"), which was amended in November, 1996. As partial consideration for LMU's
services under the agreement, the Registrant issued LMU an option to purchase
160,000 shares of the Registrant's common stock, exercisable at $2.50 per share.
The option becomes exercisable in the event that the average bid price for the
Registrant's common stock is at least $5.00 for five consecutive trading days
prior to January 31, 1997 as quoted on NASDAQ. The issuance of the option to LMU
was made in reliance upon the exemption from registration provided by Section
4(2) of the 1933 Act. No broker/dealers were involved in the sale and no
commissions were paid. LMU represented that LMU acquired the option for
investment and not with a view to distribution.
IX.
1996 10% 3-Year Convertible Notes*
----------------------------------
Name Consideration No. of Warrants**
- ---- ------------- -----------------
Arnold E. Prince $25,000 6,250
Richard Sher 50,000 12,500
Bart Valdez 11,200 2,800
Wilshire Center Geriatrics 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
---------------------------
Number of Consideration
Name Shares Paid
---- ------ ----
Hugo Brooks 10,000 $ 25,000
Lawrence M. Underwood 5,000 12,500
Paul R. Hoover & Janet F. Hoover, 10,000 25,000
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. & Cheryl A. Bacon, JTWROS 10,000 25,000
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 & Valerie J. Pray, 10,000 25,000
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 Weinstein, JTWROS 5,000 12,500
Underwood Family Partners, LTD 20,000 50,000
Amar & Vangie Romero, JTWROS 6,000 15,000
Consulting on Government Procurement- 10,000 25,000
FBO J.S. Sansome
Lawrence E. & Jeanne R. Keith, 10,000 25,000
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. & Rhonda W. Braun, 4,000 10,000
JTWROS
Donald H. & Mary Lou Wilbois, 2,000 5,000
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. & Carolyn P. McDonald, 10,000 25,000
JTWROS
Howard I. Saiontz 10,000 25,000
James A. Newsham III & Vivian M. 5,000 12,500
Newsham, JTWROS
William C. & Mary Claire McCormick, 10,000 25,000
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. & Joann Wiedenhoeft, 15,000 37,500
JTWROS
A. Thomas Tenenbaum 6,000 15,000
II-15
<PAGE>
Brenman Key & Bromberg 401K Profit 10,000 25,000
Sharing Plan FBO Thomas R. Bromberg
Brenman Key & Bromberg 401K Profit 20,000 50,000
Sharing Plan FBO Albert Brenman
Stuart McNab 1,000 2,500
George Thompson 9,500 23,750
Brenman Key & Bromberg 401K Profit 14,000 35,000
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
428,200 incentive stock options and approximately 31,500 non-qualified stock
options to approximately 59 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 three
employees have exercised their options, for an aggregate of 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 85% of the price per share of the Common
Stock included in the Units sold in the Company's recent public offering. One of
the lenders, Robert M. Kassenbrock, is also a shareholder of the Registrant. The
150,000 shares of Common Stock underlying the warrants are being registered for
resale as a part of this registration statement. The issuance of the promissory
notes and the warrants were made in reliance upon the exemption from
registration provided by Section 3(b) of the Securities Act of 1933, as amended,
and Rule 504 of Regulation D adopted thereunder. No commissions were paid to any
broker/dealers in connection with the issuances. The warrant certificates issued
to the lenders were impressed with a restrictive legend advising that the
warrants and underlying shares may not be sold, transferred, pledged or
hypothecated without having first been registered or the availability of an
exemption from registration established.
Item 27. Exhibits and Financial Schedules
The following is a complete list of exhibits filed as part of this
Registration Statement, which Exhibits are incorporated herein.
Exhibit
Number Description
- ------ -----------
1.1 Form of Underwriting Agreement, as revised*
3.1 Amended and Restated Articles of Incorporation, filed June 2, 1995*
3.2 Articles of Amendment to the Articles of Incorporation, filed
March 5, 1996*
3.3 Articles of Amendment to the Articles of Incorporation, filed
May 30, 1996*
3.4 Bylaws, as amended*
II-17
<PAGE>
4.1 Form of Representative's Warrants to Purchase Units*
4.2 Form of Class A Common Stock Purchase Warrant Certificate*
4.3 Specimen copy of stock certificate for Common Stock, $.01 par value*
4.4 Form of Unit Certificate*
5.1 Opinion of Brenman Key & Bromberg, P.C.*
10.1 Lease Agreement, dated April 15, 1992, and Lease Addendums, dated
April 8, 1992 and October 21, 1994*
10.2 Lease Agreement, dated July 19, 1995, and Lease Addendum*
10.3 Employment Agreement, dated May 24, 1995. between the Registrant
and Michael I. Ruxin, as amended July 8, 1995, August 1, 1995,
September 21, 1995 and July 15, 1996*
10.4 Employment Agreement, dated May 24, 1995, between the Registrant and
William J. Collard, as amended July 22, 1996*
10.5 Employment Agreement, dated June 28, 1995, between the Registrant and
Joseph F. Dudziak*
10.6 Employment Agreement, dated February 8, 1996, between the Registrant
and L.E. "Gene" Mundt*
10.7 Amended and Restated Stock Option Plan, as amended on May 5,1995,
May 29, 1996 and December 11, 1996*
10.8 Voting Agreement, dated May 23, 1995*
10.9 Shareholders' Agreement dated August 16, 1991, as amended on
May 5, 1995 September 1996, June 24, 1996, July 25, 1996,
Consent and Waiver, dated July 12, 1996, and Rescission of
Shareholder's Agreement, dated June 22, 1996*
10.10 Agreement dated April 8, 1996, between the Registrant and LMU &
Company,and Stock Purchase Option, dated April 8, 1996*
10.11 Form of Drug Testing Service Contract*
10.12 Form of License Agreements*
II-18
<PAGE>
10.13 Warrant Agreement, dated February 11, 1997, between Global Med
Technologies, Inc. and American Securities Transfer & Trust, Inc.*
10.14 Exclusivity and Software Development Agreement, dated November 14,
1996, between and among Global Med Technologies, Inc. and Ortho
Diagnostic Systems Inc.*
10.15 Amendment, dated November 14, 1996, to Agreement dated April 8,
1996, between the Registrant and LMU & Company, and Stock Purchase
Option, dated April 8, 1996*
10.16 Amendment, dated January 14, 1997, to Agreement dated April 8, 1996,
between the Registrant and LMU & Company, and Stock Purchase Option,
dated April 8, 1996*
11 Statement re: Computation of Per Share Earnings
21 Subsidiaries of the Company*
24.1 Consent of Brenman Key & Bromberg, P.C. (included in Exhibit 5)
24.2 Consent of Ernst & Young LLP
27.1 Financial Data Schedule
99.1 Proxy and Right of First Refusal Agreement, dated November 14, 1996,
between and among Ortho Diagnostic Systems Inc. and Michael I.
Ruxin, William J. Collard, Gerald F. Willman, Jr., Lori J. Willman,
Timothy J. Pellegrini and Gordon Segal*
- ------------
* Previously filed.
Item 28. Undertakings
------------
The undersigned Registrant will:
(a)(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to: (i) include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) reflect in
the prospectus any facts or events which, individually or together, represent a
fundamental change in the information in the registration statement; and (iii)
include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
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 March 13,
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.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Michael I. Ruxin Chairman of the Board March 18, 1997
- --------------------------- of Directors, Principal
Michael I. Ruxin Executive Officer and Director
/s/ Joseph F. Dudziak President and Chief Operating March 18, 1997
- -------------------------- Officer
Joseph F. Dudziak
/s/ Gregory R. Huls Chief Financial Officer and March 18, 1997
- --------------------------- General Counsel
Gregory R. Huls
/s/ William J. Collard Secretary/Treasurer and March 18, 1997
- ---------------------------- Director
William J. Collard
/s/ John D. Gleason Director
- ---------------------------- March 18, 1997
John D. Gleason
/s/ Gerald F. Willman, Jr. Director March 18, 1997
- ---------------------------
Gerald F. Willman, Jr.
</TABLE>
II-21
Exhibit 11 - Statement re: Computation of per share loss
Years ended
(In thousands, except per share amounts) December 31,
-----------
1996 1995
------------- -------------
Average shares outstanding 3,993 3,820
Net effect of common stock,
stock options and warrants -
based on the treasury stock
method using estimated
initial public offering price 391 391
------------- -------------
Total 4,384 4,211
============= =============
------------- -------------
Net loss $ (4,492) $ (2,685)
============= =============
Per share amount $ (1.02) $ (0.64)
============= =============
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. 1 to the
Registration Statement (Form SB-2 No. 333-11723) and related Prospectus of
Global Med Technologies, Inc. dated March 18, 1997.
/S/ ERNST & YOUNG LLP
----------------------------------------
ERNST & YOUNG LLP
Denver, Colorado
March 17, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 489
<SECURITIES> 0
<RECEIVABLES> 2,523
<ALLOWANCES> (300)
<INVENTORY> 0
<CURRENT-ASSETS> 3,394
<PP&E> 1,769
<DEPRECIATION> (540)
<TOTAL-ASSETS> 4,999
<CURRENT-LIABILITIES> 7,661
<BONDS> 698
0
0
<COMMON> 4,994
<OTHER-SE> (3,410)
<TOTAL-LIABILITY-AND-EQUITY> 4,999
<SALES> 3,349
<TOTAL-REVENUES> 11,034
<CGS> 1,377
<TOTAL-COSTS> 6,470
<OTHER-EXPENSES> 8,656
<LOSS-PROVISION> 107
<INTEREST-EXPENSE> 293
<INCOME-PRETAX> (4,492)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,492)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,492)
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> (1.02)
</TABLE>
