FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-22083
Global Med Technologies, Inc.
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(Exact name of registrant as specified in its charter)
Colorado 84-1116894
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(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
12600 West Colfax, Suite A-500, Lakewood, CO 80215
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(Address of principal executive offices)
(303) 238-2000
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(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the pat 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of October 30, 1998, 8,318,255 shares of the issuer's Common Stock were
outstanding.
Transitional Small Business Disclosure Format [ ] Yes [X] No
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
a. Consolidated Balance Sheets as of September 30, 1998
(unaudited) and December 31, 1997..................................... 3
b. Unaudited Consolidated Statements of Operations for the three months
ended September 30, 1998 and September 30, 1997...................... 5
c. Unaudited Consolidated Statements of Operations for the nine months
ended September 30, 1998 and September 30, 1997...................... 6
d. Unaudited Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and September 30, 1997...................... 7
e. Notes to Unaudited Consolidated Financial Statements................. 9
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations................................ 12
PART II - OTHER INFORMATION
Item 5. Other Information................................................... 16
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits......................................................... 17
b. Reports on Form 8-K.............................................. 17
Signatures.................................................................. 17
2
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
GLOBAL MED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
September 30, December 31,
1998 1997
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ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................................. $ 517 $ 2,370
Accounts receivable-trade, net of
allowance for uncollectible accounts of
$50 and $175 at September 30, 1998 and
December 31, 1997, respectively ...................................... 65 175
Unbilled revenues, net of allowance for
uncollectible accounts of $15 and $125 at
September 30, 1998 and December 31, 1997,
respectively ......................................................... 43 158
Prepaid expenses and other assets .......................................... 158 256
-------- --------
Total current assets ....................................................... 783 2,959
Deferred financing costs, net of amortization
of $ 3,092 and $-0- at September 30, 1998
and December 31, 1997, respectively .................................. 4,328 --
Furniture, fixtures and equipment, at cost:
Furniture and fixtures ............................................... 369 367
Machinery and equipment .............................................. 309 303
Computer hardware and software ....................................... 1,146 1,166
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1,824 1,836
Less accumulated depreciation and amortization ............................... (1,044) (665)
-------- --------
780 1,171
Capitalized software development costs, less accumulated ..................... 685 136
amortization of $645 and $403 at September 30, 1998
and December 31, 1997, respectively
Other assets ................................................................. 60 --
-------- --------
Total assets ................................................................. $ 6,636 $ 4,266
======== ========
See notes to unaudited consolidated financial statements
3
<PAGE>
<CAPTION>
GLOBAL MED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS (Continued
(IN THOUSANDS, EXCEPT SHARE DATA)
September 30, December 31,
1998 1997
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ............................... (Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable ........................................................ $ 368 $ 324
Accrued expenses ........................................................ 602 599
Accrued payroll ......................................................... 129 398
Accrued compensated absences ............................................ 439 449
Noncompete accrual ...................................................... 35 150
Unearned revenue ........................................................ 2,238 2,761
Current portion of capital lease obligations ............................ 129 229
Short term debt ......................................................... 1,500 --
Net liabilities of discontinued operations .............................. -- 631
-------- --------
Total current liabilities .................................................... 5,440 5,541
Capital lease obligations, less current portion .............................. 115 198
-------- --------
Total liabilities ............................................................ 5,555 5,739
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.01 par value: Authorized shares - 10,000,000
None issued or outstanding ........................................... -- --
Common stock, $.01 par value: Authorized shares - 40,000,000
Issued and outstanding shares-8,318,255 and 8,148,255
at September 30, 1998 and December 31, 1997, respectively ............ 82 82
Additional paid-in capital .............................................. 20,961 13,420
Accumulated deficit ..................................................... (19,962) (14,975)
-------- --------
Total stockholders' equity (deficit) ......................................... 1,081 (1,473)
-------- --------
Total liabilities and stockholders' equity (deficit) ......................... $ 6,636 $ 4,266
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
4
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<TABLE>
<CAPTION>
GLOBAL MED TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT COMMON SHARE INFORMATION)
Three Months Ended
September 30,
1998 1997
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<S> <C> <C>
Revenues:
Software sales and consulting ............. $ 1,097 $ 564
Hardware and software, obtained
from vendors .......................... 27 46
----------- -----------
1,124 610
Cost of revenues:
Software sales and consulting ............. 455 477
Hardware and software, obtained
from vendors .......................... 17 22
----------- -----------
472 499
----------- -----------
Gross profit ................................... 652 111
Operating expenses:
General and administrative ................ 129 727
Sales and marketing ....................... 151 614
Research and development .................. 332 716
Depreciation and amortization ............. 139 115
----------- -----------
Loss before other income (expense) ............ (99) (2,061)
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Interest income ................................ 2 32
Interest expense ............................... (46) (20)
Amortization of deferred financing costs ....... (1,855) --
Other .......................................... 459 --
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Net loss ....................................... $ (1,539) $ (2,049)
=========== ===========
Basic and diluted loss per share of common stock $ (0.19) $ (0.27)
=========== ===========
Weighted average number of common shares
outstanding - basic and diluted .......... 8,217,603 7,484,000
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
5
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<TABLE>
<CAPTION>
GLOBAL MED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT COMMON SHARE INFORMATION)
Nine Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Revenues:
Software sales and consulting ........................ $ 3,159 $ 1,929
Hardware and software, obtained
from vendors ..................................... 383 266
------- -------
3,542 2,195
Cost of revenues:
Software sales and consulting ........................ 1,532 1,067
Hardware and software, obtained
from vendors ...................................... 300 190
------- -------
1,832 1,257
------- -------
Gross profit .............................................. 1,710 938
Operating expenses:
General and administrative .............................. 904 2,345
Sales and marketing ..................................... 838 1,100
Research and development ................................ 1,687 1,794
Depreciation and amortization ........................... 427 269
Restructuring charges ................................... 138 --
------- -------
Loss before other income (expense) ........................ (2,284) (4,570)
Interest income ........................................... 15 147
Interest expense .......................................... (85) (67)
Amortization of deferred financing costs .................. (3,092) --
Other ..................................................... 459 (81)
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Loss from continuing operations ........................... (4,987) (4,571)
Loss from discontinued operations ......................... -- (880)
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Net loss .................................................. $(4,987) $(5,451)
======= =======
Basic and diluted loss per share of common stock:
Continuing operations ................................ $ (0.61) $ (0.61)
Discontinued operations .............................. -- (0.12)
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$ (0.61) $ (0.73)
======= =======
Weighted average number of common shares
outstanding - basic and diluted 8,171,625 7,484,000
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
GLOBAL MED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Nine Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss .......................................................... $(4,987) $(5,451)
Adjustments to reconcile net loss to
net cash used in operating activities:
Loss from discontinued operations ............................ -- 880
Shares issued for services, net .............................. 43 502
Changes in allowances for uncollectible amounts .............. (235) --
Depreciation and amortization ................................ 427 269
Amortization of financing costs .............................. 3,092 --
Amortization of software costs ............................... 242 180
Increase in other long term assets ........................... (60) --
Other ........................................................ 20 2
Changes in operating assets and liabilities:
Accounts receivable-trade, net ............................... 235 50
Unbilled revenues, net ....................................... 225 213
Prepaid expenses and other assets ............................ 176 (79)
Capitalized software development costs ....................... (791) --
Accounts payable ............................................. 44 23
Accrued expenses ............................................. 3 (226)
Accrued payroll .............................................. (269) (24)
Accrued compensated absences ................................. (10) 37
Noncompete accrual ........................................... (115) --
Unearned revenue ............................................. (523) 563
------- -------
Net cash used in continuing operations ........... (2,483) (3,061)
Net cash used in discontinued operations ......... (631) (1,255)
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Net cash used in operating activities ............ (3,114) (4,316)
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INVESTING ACTIVITIES
Purchases of equipment and fixtures ............................... (66) (670)
Proceeds from sales of property and equipment ..................... 10 --
------- -------
Net cash used in investing activities ............ (56) (670)
------- -------
7
<PAGE>
<CAPTION>
GLOBAL MED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(UNAUDITED)
(IN THOUSANDS)
Nine Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
FINANCING ACTIVITIES
Borrowings on short-term debt ....................................... 1,500 450
Principal payments on short-term debt ............................... -- (1,547)
Principal payments under capital
lease obligations ................................................ (183) (150)
Principal payments on notes payable ................................. -- (327)
Issuance of common stock, net ....................................... -- 8,272
Deferred offering costs ............................................. -- 486
Changes in net long term assets of discontinued operations .......... -- (165)
------- -------
Net cash provided by financing activit1,317 7,019
------- -------
Net (decrease) increase in cash and cash equivalents ................ $(1,853) $ 2,033
Cash and cash equivalents at beginning of period .................... 2,370 489
------- -------
Cash and cash equivalents at end of period .......................... $ 517 $ 2,522
======= =======
</TABLE>
Supplemental disclosures:
Cash paid for interest approximates interest expense.
Shares of Common Stock were issued in exchange for services and recorded as
prepaid expense in the amount of $78 thousand. This amount represents fair
market value of the 100,000 shares at the date of issuance.
In exchange for services, 70,000 shares of Common Stock were issued during
1998 at the then market value of $81 thousand and previously issued shares
with a value of $38 thousand were rescinded.
See notes to unaudited consolidated financial statements.
8
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Global Med
Technologies, Inc. (the "Company") have been prepared by management in
accordance with generally accepted accounting principles for interim financial
information and with the regulations of the Securities and Exchange Commission.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of only normal recurring
adjustments) considered necessary for a fair presentation of financial position
at September 30, 1998 and the results of operations for the three and nine
months ended September 30, 1998 and 1997 and cashflows for the nine months ended
September 30, 1998 and 1997 have been included.
While management believes the disclosures presented are adequate to prevent
misleading information it is suggested that the accompanying unaudited
consolidated interim financial statements be read with the audited consolidated
financial statements and the notes thereto contained in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1997, as filed with the
Securities Exchange Commission. The interim results of operations for the three
and nine months ended September 30, 1998 are not necessarily indicative of the
results that may be expected for any other interim period of 1998 or for the
year ending December 31, 1998.
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 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.
The unaudited consolidated financial statements reflect the Company's DataMed
International division, which was sold on December 15, 1997, as discontinued
operations in accordance with Accounting Principles Board Opinion No. 30.
2. LIQUIDITY AND MANAGEMENT'S PLANS
From inception through September 30, 1998, the Company has incurred significant
cumulative net losses. The Company expects to continue to incur net losses
through 1999, and possibly thereafter, until its existing SafeTrace(R) software
product is completely implemented and operational within the Company's
customers' information system environments and until its transfusion services
software product (to be known as SafeTrace Tx(TM)), is established in its
markets. In April 1998, the Company entered into two financing agreements with
two related parties, which were previously not affiliated with the Company, as
follows: a loan of $1.5 million and a line of credit of up to $1.65 million.
Both the loan and the line of credit accrue interest to be repaid upon maturity
of 366 days after April 14, 1998. The Company agreed to pay a cash finder's fee
of 9% of the amounts drawn upon the line of credit to American Fronteer
Financial Corporation (AFFC), formerly known as RAF Financial Corporation. AFFC
is related to the lenders and was also the lead underwriter for the Company's
February 1997 initial public offering.
In consideration for the $1.5 million loan, the lender received 6 million
detachable warrants, exercisable at $.25 per warrant, for 6 million shares of
the Company's common stock. The exercise price of the detachable warrants was
substantially below the market price for the Company's common stock at the grant
date of April 14, 1998. In consideration of extending the $1.65 million line of
9
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GLOBAL MED TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
credit, the lender received 1 million detachable warrants, exercisable at $.25
per warrant, for 1 million shares of the Company's common stock. When the
Company draws upon the $1.65 million line of credit, the lender will receive an
additional 5 million detachable warrants, exercisable at $.25 per warrant, for 5
million shares of the Company's common stock. The warrants are exercisable over
a 10-year period from April 14, 1998. The Company was required to use its best
efforts to register the common stock underlying the detachable warrants on or
before July 14, 1998. If the Company defaults on the $1.5 million loan or the
$1.65 million line of credit, the debt, including any interest, can be converted
into shares of the Company's common stock on the basis of one share for each
$.05 of debt. Through September 30, 1998, the Company had drawn $1.5 million on
the $1.5 million loan and $ -0- on the line of credit. On October 30, 1998, the
Company drew $400,000 on the line of credit.
In accordance with the borrowing agreements, a Form SB-2, not yet effective, was
filed with the Securities and Exchange Commission on May 15, 1998, to register
the common stock. The Company plans to update the Form SB-2 prior to the end of
the year.
The issuance of the discounted warrants resulted in a significant noncash
transaction in the Company's 1998 consolidated financial statements. Based on a
managerial assessment, using the Black-Scholes pricing model, $7.42 million was
recorded as the fair value of the warrants and deferred financing costs to be
amortized over the twelve month term of the debt. For the quarter and nine
months ended September 30, 1998, $1.855 million and $3.092 million,
respectively, were amortized to financing cost expense in the statement of
operations.
In light of the Company's projected net losses and negative cash flows,
management believes the Company has the financial resources with this additional
financing to maintain its planned level of operations until April 1999 without
obtaining additional financing. Management, however, recognizes that even with
the current financing, the Company will need to obtain additional capital in
1999, or it may be required to substantially reduce its software development
programs and other operating expenses.
3. DISCONTINUED OPERATIONS
On August 18, 1997, the Company entered into an asset purchase agreement with
National Medical Review Office, Inc. (NMRO) to sell its DataMed division to NMRO
contingent upon approval from the Company's stockholders. In conjunction with
the sale, the Company and NMRO also entered into a management agreement where
NMRO agreed effective July 1, 1997 to assume the direction and control of the
business and operations of DataMed. Accordingly, NMRO managed the business and
assumed ownership responsibility for the operational results from July 1, 1997
through the date of final close. On December 15, 1997, upon stockholders'
approval, the Company finalized the sale of the assets and operations of DataMed
to NMRO.
The operating results of the discontinued operations reflected in the Company's
unaudited consolidated statements of operations are summarized as follows (in
thousands):
Nine Months Ended
September 30, 1997
------------------
Substance abuse testing and other revenue ........... $ 2,953
Operating expenses .................................. (2,151)
-------
Gross profit ........................................ $ 802
=======
Net loss ............................................ $ (880)
=======
10
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The net liabilities of the discontinued operations were $631 thousand at
December 31, 1997.
4. REVENUE RECOGNITION
As of January 1, 1998, the Company adopted AICPA Statement of Position (SOP)
97-2, "Software Revenue Recognition", which is effective for transactions that
the Company entered into during the three and nine months ended September 30,
1998 and for transactions which the Company will enter into in the future. SOP
97-2 prohibits retroactive application of its provisions. The most significant
impact of SOP 97-2 on the Company's revenue recognition accounting policies is
that for arrangements with multiple elements, revenue may be deferred and
amortized over an extended delivery period and revenue will be recognized based
on the fair value of each multiple element. The Company has made changes in its
business operations to minimize the impact of SOP 97-2.
5. STOCKHOLDERS' EQUITY
Stock Options & Warrants
On August 27, 1998, options to purchase 2,784,000 Class A Common Shares were
granted to officers, directors and employees, with an exercise price of $ .75
per share, the fair market value of the stock on the date of the grant.
On October 14, 1998, 130,000 options to purchase Class A Common Shares were
granted to employees. Warrants to purchase 600,000 shares were issued to a
director. The options and warrants were granted at an exercise price of $.75 per
share, the fair market value of the stock on the date of the grant.
The options and warrants are exercisable over a ten-year period.
Common Stock
On August 3, 1998, the Company issued 50,000 shares of its common stock to a
director in exchange for services. The fair value of the stock on the date of
the grant was $65,125, and is reflected in the statement of operations as
general and administrative expense.
On September 1, 1998, 120,000 shares of the Company's common stock were issued
in exchange for services. The cost of the services and the fair market value of
the shares were $93,750 of which $15,625 has been recorded in general and
administrative expenses and $78,125 as prepaid expenses, pending completion of
the services.
6. CONTINGENCIES
During 1997, the Company sold its DataMed International division ("DataMed").
DataMed's substance abuse testing service agreements have contract terms that
vary from one to five years and, unless canceled generally ninety days prior to
the end of the license term, most are automatically renewable. Generally, such
contracts are not assignable. The Asset Purchase Agreement for the sale of
DataMed provides that the Company will assign all of DataMed's customer
contracts to the purchaser, and if DataMed customers do not consent to the
assignment, the purchaser can require the Company to terminate any
non-consenting customers' contracts. The Company will not be in the substance
abuse testing business in the future. While the Company does not consider it
likely, it is possible than non-consenting customers could commence litigation
against the Company for failure to provide substance abuse testing pursuant to
such customers' contracts with DataMed.
11
<PAGE>
During the quarter ended September 30, 1998, the Company revised certain
estimates of loss contingencies. The revision resulted in the reversal of $421
thousand of potential liabilities related to the DataMed sale, which is
reflected as other income/expenses in the statements of operations.
7. RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the current
period presentation.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Global Med Technologies, Inc. (the "Company"), through its operating division,
Wyndgate Technologies ("Wyndgate"), designs, develops, markets and supports
information management software products for blood centers, hospitals,
centralized transfusion centers and other healthcare related facilities.
Revenues for Wyndgate are derived from licensing software, providing consulting
and other value-added support services and the resale of hardware and software
obtained from vendors. On December 15, 1997, the Company sold its DataMed
International division ("DataMed") which is in the business of substance abuse
testing management services. The unaudited consolidated financial statements and
related footnotes herein reflect DataMed as discontinued operations in
accordance with Accounting Principles Board Opinion No. 30.
In April 1998, the Company entered into two debt financing agreements. One
agreement is with Heng Fung Finance Ltd., (Heng Fung) and the other with
Fronteer Development Finance Inc., (Fronteer) which provided the Company up to
$3.150 million in borrowings in exchange for up to 12 million warrants
exercisable at $.25 each into 12 million shares of the Company's common stock.
The value of these warrants, which were issued with an exercise price
significantly below market value, was recorded as deferred financing costs of
$7.42 million and will be amortized as additional interest expense over the
twelve month term of the agreements. Should the Company not repay the
outstanding balance, and accrued interest thereon, on or before April 15, 1999,
the outstanding balance, including interest thereon, is convertible into
approximately 70 million shares of common stock at $0.05 per share. As of
October 30, 1998, the Company had borrowed $1.5 million on the Heng Fung loan
and $400,000 on the line of credit with Fronteer.
The Company completed its initial public offering of securities in the first
quarter of 1997, from which it received net proceeds of approximately $8.2
million from the sale of 1,456,988 Units, each of which consisted of two shares
of common stock and one Class A common stock purchase warrant (the "February
1997 public offering"). Through June 30, 1998, the Company had used all of the
$8.2 million net proceeds from this offering. The Company's use of the $8.2
million net proceeds was principally to repay short-term debt, notes payable,
accounts payable and other accrued expenses; to fund Wyndgate's research and
development of a transfusion management information software product ("SafeTrace
Tx"); to fund Wyndgate's sales and marketing efforts, as well as for general
working capital purposes. Delays in software license fee revenues, delays in the
implementation cycles and software development delays related to the SafeTrace
Tx software product, contributed to the Company's use of net proceeds from the
February 1997 public offering prior to realization of significant revenue from
operations.
Also, in April 1998, SafeTrace Tx entered beta testing at the Institute for
Transfusion Medicine in Pittsburgh, Pennsylvania. Beta testing was completed in
July 1998 and the transfusion service management information system product was
submitted to the U.S. Food and Drug Administration (FDA) for 510(K) pre-market
notification, required since SafeTrace Tx is a regulated medical device software
product. FDA 510(K) clearance is expected in early 1999.
12
<PAGE>
From inception to September 30, 1998, the Company has incurred significant
cumulative net losses. The Company expects to continue to incur losses until
1999, and possibly thereafter, until its existing SafeTrace software product is
fully implemented and fully operational within the Company's customers
information system environments and until SafeTrace Tx is established in its
markets. The timing and amounts of the Company's expenditures will depend upon a
number of factors, including the progress of the Company's research and
development processes, the status and timing of regulatory approval, the timing
of market acceptance of the Company's products, the level of support needed by
the Company's customers to implement the software products they license from
Wyndgate, and the efforts required to develop the Company's sales and marketing
organization.
In 1996, the Company entered into an Exclusivity and Software Development
agreement (the "Exclusivity Agreement") with Ortho-Clinical Diagnostics, Inc.
("OCD") successor to Ortho Diagnostic Systems Inc. ("ODSI"), a wholly-owned
subsidiary of Johnson & Johnson. The Exclusivity Agreement provided ODSI 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.
In May 1997, the Company received a request from ODSI to continue its evaluation
of the Company's technology, on a non-exclusive basis, with the intent of
responding to the Company by July 14, 1997 regarding whether or not ODSI would
propose some form of transaction with the Company. The Company and ODSI have
agreed to further extensions of this non-exclusive agreement through December
31, 1998. This additional time will enable OCD to complete its strategic
evaluation.
The Company also agreed to perform certain software development services for
OCD. In connection with the extension to December 31, 1998, the parties agreed
that OCD has until June 30, 1999 to elect to require the Company to provide the
software development services as defined in the Exclusivity Agreement.
ALL STATEMENTS CONTAINED HEREIN, AS WELL AS STATEMENTS MADE IN PRESS RELEASES
AND ORAL STATEMENTS THAT MAY BE MADE BY THE COMPANY OR ITS OFFICERS, DIRECTORS,
OR EMPLOYEES ACTING ON ITS BEHALF, THAT ARE NOT STATEMENTS OF HISTORICAL FACT
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. SUCH FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT
COULD CAUSE THE ACTUAL RESULTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM
HISTORICAL RESULTS OR FROM ANY FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS AND RISK FACTORS DESCRIBED FROM TIME TO TIME IN THE
COMPANY'S REPORTS FILED WITH THE COMMISSION. IN ADDITION TO STATEMENTS THAT
EXPLICITLY DESCRIBE SUCH RISKS AND UNCERTAINTIES, READERS ARE URGED TO CONSIDER
STATEMENTS THAT INCLUDE THE TERMS "BELIEVES," "BELIEF," "EXPECTS," "PLANS,"
"ANTICIPATES," "INTENDS," OR THE LIKE TO BE UNCERTAIN AND FORWARD-LOOKING. ALL
CAUTIONARY STATEMENTS MADE HEREIN SHOULD BE READ AS BEING APPLICABLE TO ALL
FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR.
Results of operations for the three and nine months ended September 30, 1998 and
1997:
The results of operations for the three and nine months ended September 30, 1998
are not necessarily indicative of the results of operations that may be expected
for any other interim period of 1998 or for the year ending December 31, 1998.
The following discussion of the Company's results of operations and of its
liquidity and capital resources is derived from and should be read with the
unaudited consolidated financial statements and the related notes herein; and
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1997.
13
<PAGE>
REVENUES
Revenues are comprised of software sales, consulting, and maintenance revenues,
and the resale of hardware and software obtained from vendors.
During the three months ended September 30, 1998, total revenues of $ 1.124
million increased $ 514 thousand or 84% from the revenues of $610 thousand for
the comparable 1997 quarter. For the nine month period ended September 30, 1998,
total revenues increased $ 1.347 million to $ 3.542 million or 61% from total
revenues for the nine month period ended September 30, 1997, of $2.195 million.
Revenue increases are due to the signing of new customers and completing the
installation for existing customers. In addition, the Company's revenue base for
maintenance fees is increasing.
Gross profit for the three and nine months ended September 30, 1998 was $ 652
thousand and $ 1.710 million, respectively, compared to $ 111 thousand and $ 938
thousand for the comparable 1997 periods respectively. Gross profit as a
percentage of revenue was 58% for the three months ended September 30, 1998
compared to 18% for the respective 1997 period. Gross profit percentages of
revenue were 48% and 43% for the nine months periods ended September 30, 1998
and 1997. During the second and third quarters of 1998, the Company experienced
increased software sales and deliveries from a decreased basis in 1997. Software
product licenses typically have a higher profit margin than revenue from
consulting and implementation related services. In addition, for the three month
period, the Company has realized benefit from the cost reduction program
described below.
In the second quarter of 1998, software development costs began to be
capitalized in accordance with Statement of Financial Accounting Standard No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed," when the Company achieved technological feasibility on the
SafeTrace Tx product. Research and development expense for the three and nine
months ended September 30, 1998, were $332 thousand and $1.687 million,
respectively compared to $716 thousand and $1.794 million for the comparable
periods of 1997.
General and administrative expenses for both the three and nine months ended
September 30, 1998 decreased significantly from the comparable 1997 periods due
to management's continuing efforts to reduce overhead costs and streamline
administrative processes as discussed below.
During the quarter ended September 30, 1998, the Company revised certain
estimates of loss contingencies. The revision resulted in the reversal of $421
thousand of potential liabilities related to the DataMed sale, which is
reflected as other income/expenses in the statements of operations.
As described above, the Company recognized a non-cash charge to the statement of
operations of $3.092 million for the amortization of deferred financing costs
related to a total of $7.42 million for warrants issued in connection with the
private financing arrangements.
COST REDUCTION PROGRAM
During the period ended March 31, 1998, management proposed and the Company's
board of directors approved a substantial cost reduction program which initially
resulted in a decrease of over 30 full time employees in addition to a decrease
in the number of contracted developers. This cost reduction program is
anticipated to assist in the reduction of the Company's operating expenses.
Management currently believes the current and anticipated employee base will be
able to successfully service and market to Wyndgate's existing and anticipated
SafeTrace customers, and receive 510(k) clearance for SafeTrace Tx anticipated
early in 1999, and successfully implement a sales and marketing program for
SafeTrace Tx. In addition, management believes the current employee base will be
able to continue to provide effective and market-driven SafeTrace enhancements
and upgrades to current and future customers. However, there can be no assurance
that the Company will be successful as a result of the cost reduction program.
During the remainder of 1998, management does not anticipate substantial
additional cost reduction charges.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $517 thousand at September 30,
1998, compared to $2.370 million at December 31, 1997. There are no restrictions
on cash and cash equivalent balances.
The Company had working capital deficits of approximately $4.657 million and
$2.582 million at September 30, 1998 and December 31, 1997, respectively. The
change in working capital during the nine months ended September 30, 1998 was
primarily due to an increase in short term debt and the Company's use of
approximately $1.853 million in cash during the same period. Upon completion of
the SafeTrace Tx product in March, 1998, the Company implemented the cost
reduction program discussed above and during April 1998, the Company entered
into financing agreements which provided the Company up to approximately $3.150
million in borrowings.
Management currently anticipates that these borrowings will be sufficient to
satisfy the Company's liquidity and working capital requirements until April
1999 although, it is anticipated, the Company will continue to incur operating
losses and negative cash flows during that period.
To the extent that the net borrowings provided by the April 1998 financing
agreements are insufficient to fund the Company's liquidity and capital
requirements in the short or long term, the Company will require additional
capital through debt financing or public or private equity financing, or the
Company may be required to substantially reduce its existing software
development programs and other operating expenses.
The Company used $3.114 million in net cash in operating activities during the
nine months ended September 30, 1998, compared to $4.316 million of net cash
used in operating activities during the same period in 1997. These amounts
include $631 thousand of net cash used for discontinued operations during the
nine months ended September 30, 1998 and $1.255 million of net cash used by
discontinued operations during the same period in 1997. The cash used in
continuing operations of $2.483 million during the nine months ended September
30, 1998 consisted primarily of the net loss from continuing operations of
approximately $4.987 million net of noncash items for financing costs, changes
in allowances for uncollectible amounts and depreciation and amortization for a
total of $2.5 million.
Net cash provided by financing activities was $7.0 million during the nine
months ended September 30, 1997. During the nine months ended September 30,
1997, the Company completed its initial public offering and received
approximately $8.2 million in net proceeds. During 1998, the Company obtained
$1.5 million of short-term debt financing.
YEAR 2000 COMPLIANCE
The "Year 2000" problem which is common to most corporations concerns the
inability of information systems, primarily computer software programs, to
properly recognize and process date sensitive information as the year 2000
approaches. Management has completed a Year 2000 compliance review of SafeTrace
Tx, other Wyndgate developed software, and the Company's internal systems. As a
result, management has developed a plan to address the Company's Year 2000
compliance issues and is in the process of modifying and identifying actions to
address affected systems in time to minimize any detrimental effects on sales of
Wyndgate's software products and on the Company's operations. Management
anticipates that the costs to insure its software products developed for sale
and that the Company's internal systems are Year 2000 compliant will not be
material to the Company's results of operations, liquidity, or financial
position. Based upon information currently available, management does not
anticipate that the Company will incur substantial costs to update its internal
use computer software programs and applications to be Year 2000 compliant.
15
<PAGE>
The Company's failure to resolve Year 2000 issues on or before December 31, 1999
could result in system failures or miscalculations causing disruption in
operations, including, among other things, a temporary inability to process
transactions, send invoices, send and/or receive e-mail, or engage in similar
normal business activities. Additionally, failure of third parties upon whom the
Company's business relies to timely remediate their Year 2000 issues could
result in disruption in the Company's supplies, materials late, missed or
unapplied payments, temporary disruptions in order processing and other general
problems related to the Company's daily operations. While the Company believes
its Year 2000 plans will adequately address the Company's internal Year 2000
issues, until the Company receives information from a significant number of the
Company's suppliers and customers, the overall risks associated with the Year
2000 issue remain difficult to accurately describe and quantify, and there can
be no guarantee that the Year 2000 issue will not have a material adverse effect
on the Company and its operations.
The Company has implemented a Year 2000 Contingency Plan and has advised its
customers to do the same. It is the Company's goal to have the major Year 2000
Issues resolved before the end of 1999. As part of the Company's Year 2000
Project, the Company may retain the services of an outside consultant to verify
and validate the Company's Year 2000 compliance.
POTENTIAL LITIGATION DUE TO THE SALE OF DATAMED
DataMed's substance abuse testing service agreements have contract terms that
vary from one to five years and, unless canceled generally ninety days prior to
the end of the license term, most are automatically renewable. Generally, such
contracts are not assignable. The Asset Purchase Agreement for the sale of
DataMed provides that the Company will assign all of DataMed's customer
contracts to the purchaser, and if DataMed customers do not consent to the
assignment, the purchaser can require the Company to terminate any
non-consenting customers' contracts. The Company will not be in the substance
abuse testing business in the future. While the Company does not consider it
likely, it is possible that non-consenting customers could commence litigation
against the Company for failure to provide substance abuse testing pursuant to
such customers' contracts with DataMed.
ITEM 3. QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Not Applicable
16
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
---------- -----------
27.0 Financial Data Schedule for September 30, 1998
(b) Reports on Form 8-K:
Current Report on Form 8-K dated October 2, 1998, filed October 7,
1998, reported a Change in the Registrant's Certifying Accountants. On
October 2, 1998, KPMG Peat Marwick, LLP was engaged as Registrant's
certifying accountants for the year ending December 31, 1998.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GLOBAL MED TECHNOLOGIES, INC.
Date: November 12, 1998 By: /s/ Michael I. Ruxin
------------------ --------------------
Michael I. Ruxin
Chief Executive Officer
Date: November 12, 1998 By: /s/ Alan K. Geddes
------------------ ------------------
Alan K. Geddes
Chief Financial Officer
17
<PAGE>
Exhibit Index
Exhibit Description
- ------- -----------
27.0 Financial Data Schedule
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