U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[ X ] Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended:
December 31, 1997
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[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ___________
to __________
COMMISSION FILE NUMBER: 0 - 22083
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GLOBAL MED TECHNOLOGIES, INC.
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(Name of small business issuer in its charter)
Colorado 84-116894
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12600 West Colfax
Suite A-500
Lakewood, Colorado 80215
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (303) 238-2000
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Securities to be registered under Section 12(b) of the Act: None
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Securities registered under Section 12(g) of the Act:
Common Stock, $.01 par value
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Class A Common Stock Purchase Warrants
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing requirements
for at least the past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to this Form 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year: $ 2,506,000
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Aggregate market value of voting stock held by non-affiliates as of April
13, 1998: $6,035,023
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Shares of Common Stock, $.01 par value, outstanding as of April 13, 1998:
8,148,255
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Documents incorporated by reference: Exhibits to Issuer's Registration
Statement on Form SB-2, No. 333-11723.
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GLOBAL MED TECHNOLOGIES, INC.
FORM 10-KSB
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS REPORT CONTAINS
"FORWARD-LOOKING STATEMENTS" WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-
LOOKING TERMINOLOGY, SUCH AS "BELIEVES," "EXPECTS," "MAY," "WILL," "SHOULD"
OR "ANTICIPATES" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR
COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY. SEE "ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS." NO ASSURANCE
CAN BE GIVEN THAT THE FUTURE RESULTS COVERED BY THE FORWARD-LOOKING
STATEMENTS WILL BE ACHIEVED. THE FOLLOWING MATTERS INCLUDE CAUTIONARY
STATEMENTS IDENTIFYING IMPORTANT FACTORS WITH RESPECT TO SUCH FORWARD-
LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, THAT COULD
CAUSE ACTUAL RESULTS TO VARY MATERIALLY FROM THE FUTURE RESULTS COVERED IN
SUCH FORWARD-LOOKING STATEMENTS. OTHER FACTORS COULD ALSO CAUSE ACTUAL
RESULTS TO VARY MATERIALLY FROM THE FUTURE RESULTS COVERED IN FORWARD-
LOOKING STATEMENTS.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
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BUSINESS DEVELOPMENT AND BUSINESS OF ISSUER.
Global Med Technologies, Inc. (the "Company") was organized under the
laws of the State of Colorado in December 1989. 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 "Warrants").
On April 14, 1998, the Company entered into two debt financing
agreements which provided the Company up to $3 million in gross proceeds
in exchange for up to 12 million warrants convertible into Common Stock at
$0.25 per share. Should the Company not repay the financing proceeds and
accrued interest thereon on or before April 15, 1999, the convertible
financing proceeds, including interest thereon, are convertible into
approximately 70 million shares of Common Stock at $0.05 per share. See
"FINANCING AGREEMENTS" below for a further discussion of these agreements.
Formerly known as National MRO, Inc., which was founded in 1989, the
Company changed its name to Global Data Technologies, Inc. in 1995 in
connection with the merger of National MRO, Inc. and The Wyndgate Group,
Ltd. in May 1995. The Company changed its name again in May 1996 to Global
Med Technologies, Inc.
The Company, through its one operating division Wyndgate Technologies
("Wyndgate"), designs, develops, markets and supports information
management software products for blood banks, hospitals, centralized
transfusion centers and other healthcare related facilities. Pursuant to
an agreement with eight California blood centers, Wyndgate developed a
blood tracking system ("SAFETRACE(R)") 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, through its SAFETRACE(R)
software, incorporates and integrates products and services for the
management of the blood supply and blood products from donor recruitment to
shipment from blood centers to hospitals, clinics, medical research
institutions and other healthcare related facilities.
Wyndgate provides training and consulting services for installation,
implementation, special programming, system design, and maintenance for
licensees of SAFETRACE(R). The majority of SAFETRACE(R) licensees use all
or a portion of these services. Management believes that SAFETRACE(R)
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maintenance and upgrades will provide the Company an on-going revenue
stream and valuable information concerning the blood bank industry.
Special programming services can result in customer funded development, as
was done with SAFETRACE(R).
Effective December 15, 1997, the Company sold its DataMed
International ("DataMed") division for gross proceeds of $1.2 million and
the assumption of certain liabilities and capital leases (the "DataMed
Sale"). Net proceeds from the DataMed Sale were approximately $775,000
through April 15, 1998. 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"), an integrated software package for colleges and
universities to track student information. Pursuant to an agreement with
eight California blood centers (the "Royalty Group"), Wyndgate began
development of a blood tracking system to assist community blood centers,
hospitals, plasma centers and outpatient clinics in the U.S. in complying
with the quality and safety standards of the FDA for the collection and
management of blood and blood products. After several years of development
and approximately $1.1 million paid by the Royalty Group, Wyndgate
completed development and commenced marketing of SAFETRACE(R), 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 SAFETRACE(R).
In April 1997, the Company's Wyndgate division received notification from
the FDA of their finding of "substantial equivalence" of SAFETRACE(R). This
determination permits the Company to continue to market SAFETRACE(R).
The Company continues to concentrate its development efforts on its
enhancements to SAFETRACE(R) and on SAFETRACE TX(TM), Wyndgate's transfusion
management information system software product. On April 6, 1998, SAFETRACE
TX(TM) entered beta testing. Wyndgate's development of SAFETRACE TX(TM)
began in 1996.
The Company's internally developed software development tool EDEN-OA(R),
was used in the development of Wyndgate's existing character-based version of
SAFETRACE(R). Based on management's now anticipated development requirements
of Wyndgate's graphical user interface version of SAFETRACE(R) and continued
enhancements to SAFETRACE TX(TM) as a result of beta testing and future
SAFETRACE TX(TM) version upgrades, management has ceased development
efforts for new versions of EDEN-OA(R). Management intends to continue
EDEN-OA(R) support for the
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existing character-based version of SAFETRACE(R). As a result, management
no longer expects EDEN-OA(R) to be essential to the Company's strategic
goals or to be critical to the Company's competitive advantages.
STRATEGY
The following are key elements of the Company's strategy for its
Wyndgate Technologies division; however, there can be no assurance that the
Company will be successful in its strategy. Additional financing may be
required to enable the Company to accomplish its goals.
EXPAND SALES & MARKETING EFFORTS. The Company's Wyndgate division
currently has five sales and marketing personnel. The Company believes it
can continue to increase its presence in the world-wide blood bank industry
market through future increases in Wyndgate's sales and marketing staff and
through the development of strategic relationships.
DEVELOP NEW BLOOD BANK MANAGEMENT SOFTWARE PRODUCTS AND SERVICES. The
Company believes that it can develop new products and services by
using its existing technology base and its existing software development
talent. During the next eighteen months, management anticipates
completion of the SAFETRACE TX(TM) beta testing, submission of a 510(k)
application to the FDA for review of SAFETRACE TX(TM) and receipt of
notification from the FDA of their finding of "substantial equivalence"
of SAFETRACE TX(TM). Upon market availability of SAFETRACE TX(TM) and in
concert with Wyndgate's existing SAFETRACE(R) software, management believes
Wyndgate will be able to provide a complete "vein to vein" system.
However, there can be no assurance as to the length of time required for
completion of SAFETRACE TX(TM) beta testing or as to the length of time
required for the FDA to review a 510(k) submission made by the Company or
that the Company would ultimately receive a clearance letter relating to
SAFETRACE TX(TM).
OBTAIN SUBSTANTIAL INTERNATIONAL MARKET SHARE. The Company is focused
on the world-wide potential for its blood bank and transfusion industry
products and services. The Company plans to pursue international growth by
marketing its current and future software products and services through its
internal sales and marketing organization and through strategic relationships.
DEVELOP STRATEGIC RELATIONSHIPS. The Company intends to continue to
pursue strategic relationships in order to provide effective and efficient
sales and distribution channels for its software products and services.
Additionally, the Company may work with other healthcare information
providers to develop new software applications and to develop further uses
for Wyndgate's technology.
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MAINTAIN TECHNOLOGICAL ADVANTAGE. The Company plans to continue to
focus research and development expenditures on new technology and continued
enhancements of software development tools and software development
methodologies. Management believes that evolving Wyndgate's current
technology base and its software development talent are both critical
elements to the long-term competitive advantages of Wyndgate's software
products and services.
CUSTOMERS
The Company, through its Wyndgate division, currently has 24
(including the Royalty Group) customers and intends to continue to target
domestic and international blood centers, plasma centers and hospitals.
During the year ended December 31, 1997, two Wyndgate customers, Belle
Bonfils Memorial Blood Center, Denver, Colorado and Haemonetics Corporation,
Braintree, Massachusetts each accounted for approximately 10% and 33% of the
Company's total revenues from continuing operations. During the year ended
December 31, 1996, one Wyndgate customer, Gulf Coast Regional Blood Center,
Houston, Texas, accounted for approximately 29% of the Company's total
revenues from continuing operations. Accounts receivable from the above
customers as of December 31, 1997 and 1996 was approximately $60,000 and
$205,000, respectively. Unbilled revenues from the above customers was
approximately $160,000 as of December 31, 1997. In order to attempt to
reduce its credit risks, the Company generally requires substantial down
payments and progress payments during SAFETRACE(R) implementations.
Non-renewal or termination of the contractual arrangements with these key
and other Wyndgate customers could have a material adverse effect on the
Company. There can be no assurance that the Company will be able to retain
these or other customers or, if Wyndgate's 24 existing 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.
RESEARCH AND DEVELOPMENT
During the years ended December 31, 1997 and 1996, the Company
incurred approximately $3.76 million and $1.5 million, respectively, for
research and development of Wyndgate's software products. Management
believes leveraging Wyndgate's research and development methodologies,
experience and talent are keys to the long-term success and evolution of
Wyndgate's software products. Research and development expenses are
anticipated to continue to be a substantial portion of the Company's
operating expenses if the Company is successful in its current capital
raising efforts.
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EMPLOYEES
As of April 15, 1998, the Company has 51 full-time employees, consisting
of 9 employees in the corporate offices in Denver, Colorado and 42 at
Wyndgate's offices in Sacramento, California. The Company has employment
agreements with certain personnel. See ITEM 9. DIRECTORS AND EXECUTIVE
OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF
THE EXCHANGE ACT. The Company's employees are not represented by a labor
union or subject to collective bargaining agreements. In March 1998,
management began the implementation of a cost reduction program which
initially resulted in a substantial decrease to its previous employee
base. The Company has never experienced a work stoppage and believes
that its employee relations are satisfactory.
FINANCING AGREEMENTS
On April 14, 1998, the Company entered into two financing agreements,
which, as amended on April 16, 1998, provide for a loan and a line of
credit in the aggregate amount of $3 million to the Company. The first
loan in the amount of $1.5 million from Heng Fung Finance Company Limited
("Heng Fung") (the "Heng Fung Loan") bears interest at 12% per annum, which
is payable monthly, and matures on April 15, 1999, and is senior to any
other agreements, contracts or joint ventures to which the Company is, or
may be, a party. In consideration for the Heng Fung Loan, the Company
agreed to grant Heng Fung warrants to purchase 6,000,000 shares of Common
Stock (the "Heng Fung Warrants"), exercisable until April 14, 2008 at $.25
per share, on the basis of one Heng Fung Warrant for one share of Common
Stock, and agreed to register the Common Stock underlying the Heng Fung
Warrants no later than July 14, 1998. Heng Fung also has the right to
convert any part of the loan into the Heng Fung Warrants at the rate of one
share of Common Stock for each $.25 of debt converted. The Heng Fung Loan
also grants Heng Fung the right to appoint five members to the Company's
Board of Directors, which will now consist of a maximum of nine members,
who will be entitled to receive warrants consistent with the duties
required. The current members of the Company's Board of Directors and
management were required to execute resignation letters, which have been
delivered to Heng Fung, which will hold such letters in escrow pending any
default under the terms of the Heng Fung Loan. Included in the Officers,
Directors and employees who have submitted resignations to Heng Fung are
Michael I. Ruxin, William J. Collard, Gerald F. Willman, Gordon E. Segal,
Thomas F. Marcinek, Hollis Gailey, the wife of William J. Collard, Lori
Willman, the wife of Gerald F. Willman, Timothy Pellegrini and Bradley V.
Maberto. Heng Fung has the right to veto any future contracts not in the
ordinary course of business, and any contract for employment, loans, leases
or with a value in excess of $250,000.
The Company will be in default under the terms of the Heng Fung Loan
if the principal and interest payments are not paid on or before April 15,
1999, or within a seven day grace period, or any other terms of the Heng
Fung Loan are not complied with. If a default occurs, the resignations of
all of the Company's existing Directors and management will be effective,
Heng Fung has the right to re-employ any of such persons in its discretion,
and Heng Fung can convert the outstanding amount of the loan, including
interest, into shares of the Company's Common Stock on the basis of one
share for each $.05 of debt.
Once the Company has drawn the full amount of the Heng Fung Loan
proceeds, the Company has the right to draw on the second loan commitment
from Fronteer Capital, Inc. ("Fronteer")(the "Fronteer Line of Credit") in
the amount of $1.65 million. The Fronteer Line of Credit also bears
interest at the rate of 12% per annum, payable monthly, and matures on
April 15, 1999. In consideration of extending the Line of Credit, the
Company agreed to grant Fronteer warrants to purchase 1,000,000 shares of
the Company's Common Stock, exercisable until April 14, 2008 at $.25 per
share. If the line of credit is drawn on, Fronteer will earn warrants to
purchase an additional 5,000,000 shares of Common Stock, exercisable at
$.25 per share until April 14, 2008 (all the warrants issuable to Fronteer
are hereinafter referred to as the "Fronteer Warrants"). If Heng Fung
does not exercise its right to appoint Directors, then Fronteer has the
right to appoint five members to the Company's Board of Directors.
Fronteer also has the right to cancel all management and employee
contracts. Dr. Ruxin has personally guaranteed repayment of $1.5 million
of the Fronteer Line of Credit from certain of his personal assets.
Fronteer has the same rights as does Heng Fung with respect to
registration of the shares underlying the Fronteer Warrants, rights on
default and right to veto contracts.
The Company agreed to pay a finder's fee of 9% of the Fronteer Line of
Credit to RAF Financial Corporation, payable as the Fronteer Line of Credit
is drawn.
In the event the Heng Fung Loan and the Fronteer Line of Credit
warrants, or a portion thereof, are exercised at $0.25 per share and in
the event the Heng Fung Loan and the Fronteer Line of Credit proceeds,
including unpaid interest, or a portion thereof, are converted at $0.05 per
share, ownership of existing shareholders will be proportionally diluted.
Management anticipates that the net proceeds from the Heng Fung Loan
and from the Fronteer Line of Credit will be sufficient to satisfy the
Company's contemplated cash requirements for the next twelve months,
although the Company anticipates that it will continue to incur operating
losses, negative cash flows from operations and capital expenditures during
that period. Correspondingly, there can be no assurance as to the length
of time such proceeds will satisfy such cash requirements. The Company's
cash requirements beyond this period will depend upon many factors,
including, but not limited to, the Company's net cash flows from
operations; the length of time it may take for the Company to develop,
acquire, or receive regulatory approval to market its products or
services; the market acceptance of these products or services and the
response of competitors who may develop competing products or services at
lower costs. To the extent that the net proceeds generated by these two
financing agreements are insufficient to fund the Company's activities
in the short or long term, the Company may need to raise additional
capital through debt financing or through public or private equity
financing. The Company has no commitment for any such financing, and
there can be no assurance that any additional financing will be
available when needed, on reasonable terms, or at all. See "RISK
FACTORS" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES."
BLOOD BANK AND TRANSFUSION INDUSTRY OVERVIEW
With the spread of AIDS and Hepatitis-B, stringent FDA guidelines have
been imposed on domestic blood centers in order to attempt to improve the
quality of the U.S. blood supply. Several domestic blood centers have been
cited by the FDA for noncompliance and certain blood centers have been
closed as a result of non-compliance with FDA requirements. Management
believes numerous blood centers throughout the worldwide blood bank
industry have internally developed their own software applications and
systems to track blood collection, testing, processing, distribution and
transfusion activities. These internally developed systems which have been
developed for domestic blood center use are also designed to comply with
FDA requirements. The Company believes that most blood center developed
systems are not fully integrated and do not offer the capabilities required
by the FDA in view of the fact that many of the Company's current
SAFETRACE(R) customers have or intend to replace their internally developed
blood tracking systems with SAFETRACE(R). While laboratory information
system providers have developed automated testing and reporting procedures
designed for a portion of the blood tracking process, these systems address
only the laboratory management function and are not fully integrated with
other blood tracking functions required for effective FDA compliant
blood tracking systems. The Company believes that blood centers and
laboratory information system providers are looking for a way to meet the
FDA guidelines while minimizing their risks and costs.
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 FDA 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
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suitability of donors and the release of blood or blood components for
transfusion or further manufacturing. As medical device manufacturers, the
Company and its competitors are required to register with the Center for
Biologics Evaluation and Research ("CBER"), list their medical devices, and
submit a pre-market notification or application for pre-market review. In
April 1997, the Company's Wyndgate division received notification from the
FDA of its finding of "substantial equivalence" of SAFETRACE(R). This
determination provides a 510(k) clearance and permits the Company to
continue to market SAFETRACE(R). A competitor also recently received a
510(k) clearance letter from the FDA for certain modules of its blood bank
management information system software product. Management does not
believe this will have a material adverse impact on Wyndgate's marketing of
SAFETRACE(R) because management does not believe that this competitor
provides the spectrum of software modules currently available in
SAFETRACE(R).
SOFTWARE PRODUCTS
SAFETRACE(R) is a set of integrated 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 SAFETRACE(R) to blood banks and plasma centers worldwide.
Currently, most of Wyndgate's SAFETRACE(R) licensees have licensed the use
of all of the following six SAFETRACE(R) modules. However, a potential
licensee can license one or more modules as needed to automate its
operations.
SAFETRACE(R) MODULES AND FUNCTION
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DONOR RECRUITMENT Used by marketing departments of blood or plasma
centers to systematically solicit, recruit and schedule
donors. Facilitates recruiting processes by producing
call lists on demand or by scheduling calls by batch
processing.
DONOR MANAGEMENT Provides a system for registering donors and recording
necessary medical and personal donor information. All
real-time donor deferral and eligibility information is
used to determine current eligibility status of
registered donors.
LABORATORY Performs a number of data recording and evaluation
MANAGEMENT functions. Permits the posting of tests either by
interfacing directly with testing equipment or
manually. Also performs inventory label validation,
which helps to insure that all blood components are
suitable for distribution, have been properly tested,
validated and labeled.
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BLOOD INVENTORY Maintains current inventories of all available blood
AND DISTRIBUTION products which have been tested and labeled. Records
the movement of blood products from blood or plasma
centers to customers and between customers. Also
maintains records for imported blood related products.
SPECIAL PROCEDURES Registers patients and tracks blood requirements for
surgeries. Also provides capabilities to define and
manage special requests for autologous, designated and
therapeutic donations.
BILLING Implements pricing and invoicing practices associated
with each blood product for customers. Also provides
financial information for management review.
SAFETRACE(R) relies on its donor identification, laboratory
management, labeling and release site-based logic technology to assist
blood centers in complying with FDA regulations. SAFETRACE(R) has an 85%
table driven structure which permits it to easily adapt to each customer's
unique operations. SAFETRACE(R) has been developed using industry
standards, common operating systems and database managers which is designed
to help insure portability. Since SAFETRACE(R) is database, operating
system and hardware independent, management believes blood centers choosing
SAFETRACE(R) are permitted flexibility in selecting their computer hardware
and software configurations. SAFETRACE(R) provides the opportunity for
blood centers to preserve their application software and training
investments as their system and technology requirements evolve. Currently,
management estimates that SAFETRACE(R) consists of more than 1.5 million
lines of code, 481 data tables, 6,054 data elements, 59 labeling
occurrences of component and release logic, 3,000 discrete programs and
over 1,000 screens and windows.
SERVICES
Management believes continuing to provide Wyndgate customers high
quality services is critical to retaining its current customer base.
Additionally, management believes that providing high quality service to
Wyndgate's customers will continue to enhance Wyndgate's reputation for
quality and will help to increase Wyndgate's market presence. Wyndgate's
services begin with initial customer contact and continue throughout the
licensing relationship. Services include installation, implementation,
training, consulting and customer support. Historically, Wyndgate's
SAFETRACE(R) license agreements typically provide for five years of
customer support services. The fees associated with customer support
services are either invoiced monthly, quarterly or annually. Installation,
implementation and other related service fees, excluding customer support,
typically range from 10% to 50% of the SAFETRACE(R) license fees. Under
the Company's current license agreements, only software license fees and
customer support fees are required to be contracted for and the other
installation and implementation related fees are optional. However, many
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customers that have licensed SAFETRACE(R) to date have contracted for these
and other additional services.
INSTALLATION AND IMPLEMENTATION SERVICES. Installation and
implementation services assist customers with the selection of hardware
and software systems and, if necessary, the initial SAFETRACE(R)
installation. Implementation services include assisting customers in
analyzing work flow and standard operating procedures, developing tables,
screen layouts, reports and implementation specific requirements.
Management estimates that it takes approximately sixteen months from the
date of delivery of the software to the customer to implement SAFETRACE(R)
and a portion of Wyndgate's resources are used during that time.
TRAINING SERVICES. Training services are provided to customers either
at customer sites or at Wyndgate's offices. Training includes hands-on
access to SAFETRACE(R) and usually includes building initial tables and
screens. Wyndgate also offers follow-up training services to train
customers on new SAFETRACE(R) functions.
CUSTOMER SUPPORT SERVICES. Fees for customer services are required
to be paid under certain SAFETRACE(R) license agreements for the term of
the license. Maintenance services include "bug" fixing, enhancements and
SAFETRACE(R) upgrades. Wyndgate provides an 800-Help Line number for
customer service calls that permits access to Wyndgate's technical
resources directly during the working day and on a paged call-back basis at
all other times.
CONSULTING SERVICES. Consulting services are provided to customers who
request special features, assistance with system configurations, database
consulting, systems management, networking or additional capabilities
beyond those readily available in SAFETRACE(R). Wyndgate also performs
special applications development projects under certain development
agreements. The Company has been contracted to provide consulting services
by some of its SAFETRACE(R) customers.
PRODUCT DEVELOPMENT
SAFETRACE TX(TM) - TRANSFUSION MANAGEMENT INFORMATION SYSTEM.
Wyndgate has completed the initial development of SAFETRACE TX(TM), a
transfusion management information system that is designed to be used by
hospitals and centralized transfusion centers to help insure the quality
of blood transfused into patient-recipients. SAFETRACE TX(TM) is expected
to provide electronic cross-matching capabilities to help insure blood
compatibility with patient-recipients and will track, inventory, bill and
document all activities with blood products from the time blood products are
received in inventory to the time the blood products are used or returned
to blood centers. Management expects SAFETRACE TX(TM) will complement
SAFETRACE(R) as the combined SAFETRACE TX(TM) and SAFETRACE(R) software
system will be able to integrate hospitals with blood centers. SAFETRACE
TX(TM) entered beta testing on April 6, 1998. Upon completion of beta
testing, a 510(k) submission of SAFETRACE TX(TM) will be made to the FDA.
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Therefore, SAFETRACE TX(TM) may not be able to be marketed by the Company
in the United States until FDA 510(k) clearance is received; however,
during the FDA's review of SAFETRACE TX(TM), management believes SAFETRACE
TX(TM) could be marketed internationally. There can be no assurance as to
the length of time required for the FDA to review a 510(k) submission made
by the Company for SAFETRACE TX(TM), or that the Company will ultimately
receive a clearance letter relating to SAFETRACE TX(TM).
DEVELOPMENT AGREEMENTS
Pursuant to a development agreement between Wyndgate and the Royalty
Group, Wyndgate developed SAFETRACE(R) and must make royalty payments to
the Royalty Group based on a percentage of Wyndgate's SAFETRACE(R) license
sales, measured by cash received from SAFETRACE(R) licensees, net of certain
fees and charges. The time period under the royalty schedule is based upon
the first date of SAFETRACE(R) license invoicing, which was September 14,
1995. The royalty payment schedule is as follows:
Date Royalty Percentage
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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 ("Development Agreement") dated
July 1996, between the Company and The Institute for Transfusion Medicine
("ITxM"), the Company agreed to develop and has completed the initial
development of Commercial Centralized Transfusion System Software
("Commercial CTS Software"), which is Wyndgate's SAFETRACE TX(TM) software
product. The Development Agreement required that the Commercial CTS Software
be completed by December 16, 1997. If not timely completed, the Company
would be subject to monetary penalties. The Development Agreement provided
for a royalty payment to ITxM for revenues received from the sale of the
Commercial CTS Software, net of certain fees and charges. The royalty period
starts with the first commercial transfer for value of the Commercial CTS
Software. The royalty that would be paid is as follows:
Percentage of Percentage of
License Fee 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%
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Percentage of Percentage of
License Fee License Fee
if ITxM Initiates Sale if Company Initiates Sale
---------------------- -------------------------
6 Year 4% 2%
7 Year 4% 2%
8 Year 4% 2%
9 Year 4% 2%
Thereafter 2% 1%
The Development Agreement further granted ITxM a non-exclusive,
perpetual and fully-paid license to operate SAFETRACE TX(TM) for internal
use, which includes companies which ITxM controls as defined in the
Development Agreement and companies which ITxM has the ability to cause the
direction of management, whether through ownership of voting securities, by
contract or otherwise.
In January 1998, the Company and ITxM agreed (the "January 1998
Agreement") that the Company would not be required to pay monetary
penalties in the approximate amount of $485,000 to ITxM, which were
incurred as a result of delays in development of SAFETRACE TX(TM), in
consideration of the Company providing to ITxM additional maintenance
services and product upgrades and substitute liquidated damage provisions
for delays. The first of such revised dates and liquidated damage
provisions was April 3, 1998, by which the Company was to initiate beta
testing of SAFETRACE TX(TM) or pay $500 per day. SAFETRACE TX(TM) was
delivered to ITxM for beta testing on April 6, 1998, which was within the
grace period provided for in the January 1998 Agreement. Pursuant to the
January 1998 Agreement, beta testing of SAFETRACE TX(TM) is to be completed
by July 17, 1998, or the Company will face liquidated damages of $1,000 per
day. While management believes that beta testing can be completed as
currently scheduled, there can be no assurance that beta testing will be
completed by July 17, 1998, as required by the January 1998 Agreement.
The Company and ITxM have recently commenced negotiations relating to
eliminating the liquidated damage provisions. In addition, the Company is
seeking to renegotiate certain provisions of the Development Agreement
relating to potential limitations on the Company's ability to distribute
the Company's products, including SAFETRACE TX(TM), within the blood
transfusion industry and ITxM's ability to use the SAFETRACE TX(TM) software
product pursuant to the non-exclusive, perpetual license granted to ITxM in
the Development Agreement. There can be no assurance that the parties will
reach agreement as to any modifications of the Development Agreement.
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CUSTOMERS
Wyndgate currently has SAFETRACE(R) contracts with the following blood
centers, which are in various stages of implementation:
* Belle Bonfils Memorial Blood Center, Denver, CO(1)
* Blood Bank of San Bernardino and Riverside Counties, San Bernardino,
CA(1)
* Blood Bank of the Redwoods, Santa Rosa, CA(1)
* Coffee Memorial Blood Center, Albuquerque, NM
* Community Blood Bank of Erie County, Erie, PA(1)
* Community Blood Bank of Lancaster County Medical Society, Lincoln, NE
* Community Blood Center of Appleton, Appleton, WI
* Gulf Coast Regional Blood Center, Houston, TX
* Institute For Transfusion Medicine, Pittsburgh, PA
* Irwin Memorial Blood Center, San Francisco, CA(2)
* Lifeblood/Mid-South Regional Blood Center, Memphis, TN
* Peninsula Blood Bank, Inc., Burlingame, CA(2)
* Rhode Island Blood Center, Providence, Rhode Island
* Sacramento Medical Foundation Blood Center, Sacramento, CA(1)
* Samuel W. Miller Memorial Blood Center, Bethlehem, PA(1)
* San Diego Blood Bank, San Diego, CA
* Siouxland Community Blood Bank, Sioux City, IA(1)
* Stanford Medical School Blood Center, Palo Alto, CA(1)
* The Blood Center of Central Iowa, Des Moines, IA
* The Blood Center for Southeast Louisiana, New Orleans, LA(1)
* Tri-Counties Blood Bank, Santa Barbara, CA(1) (3)
* The Memorial Blood Centers of Minnesota, Inc., Minneapolis, MN(1)
* Oklahoma Blood Institute, Oklahoma City, OK(3)
* South Texas Blood and Tissue Center, San Antonio, TX
* Stewart Regional Blood Center, Tyler, TX
* University of Cincinnati, Cincinnati, OH
- ----------------------
(1) Implemented and operational.
(2) Merged to form Blood Centers of the Pacific, San Francisco, CA.
(3) Managed and/or owned by Haemonetics Corporation. See below.
See SERVICES, above, for a description of a typical license agreement.
Based upon its installation experience, management now estimates that
SAFETRACE(R) implementations will take approximately 16 months from the
date of delivery of the software to the customer depending on the blood
center's size and complexity of the blood center's standard operations
procedures.
On February 13, 1997, Wyndgate entered into a multi-million dollar,
10-year contract with Haemonetics Corporation ("Haemonetics"), a New York
Stock Exchange listed company located
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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 SAFETRACE(R) to Haemonetics for its entry into the
service side of blood banking in multiple locations, including two of the
blood centers listed above which were 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 SAFETRACE(R) and SAFETRACE
TX(TM) software products include blood centers, hospitals, out-patient
centers, centralized transfusion services, blood bank industry data centers
and stand alone transfusion sites. Blood centers are able to use
SAFETRACE(R) to assist in the management of their business and comply with
FDA regulations to help insure the safety of the blood supply.
SAFETRACE(R) allows blood centers to enter FDA guidelines, consistent with
their standard operating procedures into tables which then provide system
control over the manufacturing and processing of blood and blood products.
In the future, the Company plans to begin marketing SAFETRACE TX(TM).
The potential market for Wyndgate's SAFETRACE TX(TM) software product
includes all acute care hospitals, centralized transfusion services ,
alternate transfusion sites and other entities dong business in the
worldwide transfusion industry. Potential SAFETRACE TX(TM) licensees and
potential re-sellers and distributors of SAFETRACE TX(TM) will most likely
require extensive product demonstrations before agreeing to license
SAFETRACE TX(TM). In addition, SAFETRACE TX(TM) will face severe
competition from established vendors in this market. Wyndgate believes
hospitals that receive blood and blood related products from blood centers
using SAFETRACE(R) may find it useful to use SAFETRACE TX(TM) as their
transfusion software in order to be readily compatible with blood centers
using SAFETRACE(R). There can be no assurance that hospitals will desire
to establish this link using Wyndgate's SAFETRACE TX(TM) software product.
AGREEMENTS WITH ORTHO DIAGNOSTIC SYSTEMS INC.
On November 14, 1996, the Company entered into an Exclusivity and
Software Development Agreement (the "Exclusivity Agreement") with Ortho
Diagnostic Systems Inc. ("ODSI"), a wholly-owned subsidiary of Johnson &
Johnson. The Exclusivity Agreement provides that until May 14, 1997 (the
"Exclusivity Period"), ODSI had the exclusive right to negotiate with the
Company with respect to the Company's activities and developments in
information technology and intellectual property relating to donor and
transfusion medicine (the "Technology") and that, during the Exclusivity
Period, the Company would not, directly or through any intermediary,
accept, encourage, solicit, entertain or otherwise discuss any acquisition
of any of the Company's Common Stock, business, property or know-how,
including the Technology, with any person or entity other than ODSI or an
affiliate thereof and would not otherwise encumber the ability of ODSI or an
affiliate thereof to enter into any arrangement with the Company concerning
the Technology.
In May 1997, the Company received communication from ODSI that it had
not yet completed an internal evaluation of the Company's Technology and
would not be prepared at the conclusion of the Exclusivity Period to
discuss a transaction between the Company and ODSI. ODSI requested, and
the Company agreed, that ODSI be permitted to continue its evaluation of
the
13
<PAGE>
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 June 30, 1998.
The Company also agreed to perform certain software development
services in consideration of the payment by ODSI of $500,000 on November
14, 1996, and $500,000 received in January 1997. If the Company and ODSI
enter into a definitive agreement relating to the Technology, the Company's
other assets or Common Stock, then ODSI may elect to decline the software
development services and apply the payments to the Company towards any
consideration payable to the Company in connection with a definitive
agreement. If the parties are unable to come to terms with respect to a
definitive agreement, then the Company will provide the software
development services selected by ODSI and the parties will negotiate a
definitive software development agreement. If ODSI has not elected to
decline the Company's services and the Company fails to provide the
software development services, unless ODSI has breached its obligations
under the definitive agreement and is then in breach, the Company shall
have been deemed to have granted ODSI a non-exclusive license (with the
right to sub-license) to the Technology with a royalty rate not to exceed
4% of net sales, and the parties agreed they would negotiate a definitive
license agreement. On September 17, 1997, the parties agreed to extend the
time for ODSI's election with respect to the software development services
until June 30, 1998. In connection with the extension to June 30, 1998,
the parties agreed that ODSI has until December 31, 1998 to elect to require
the Company to provide the software development services as defined in the
Exclusivity Agreement.
Pursuant to the Exclusivity Agreement, the Company granted ODSI a
right of first refusal for a period of six months after the expiration of
the Exclusivity Period in the event the Company proposed to effect certain
transactions with respect to the Technology. In connection with the
extension of the Exclusivity Agreement to September 30, 1997, ODSI
relinquished its right of first refusal.
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 granted an irrevocable proxy to ODSI to vote their
shares of the Company's Common Stock upon the occurrence of certain events.
The Shareholders Agreement expired November 14, 1997.
14
<PAGE>
COMPETITION
Currently, Wyndgate is aware of four primary competitors to its
SAFETRACE(R) software product, including MAK from France, 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 currently available in
SAFETRACE(R); however, the Company can provide no assurances in this
regard.
15
<PAGE>
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.
On August 18, 1997, the Company and National Medical Review Offices,
Inc. ("NMRO") entered into an Asset Purchase Agreement (the "Asset Purchase
Agreement") which provided for the sale of DataMed to NMRO. NMRO advised
the Company that it had agreed to sell DataMed to Substance Abuse
Technologies, Inc. ("SAT"), a publicly held company. The sale of DataMed
was approved by the Company's shareholders on December 2, 1997 and the
Asset Purchase Agreement was closed with NMRO and SAT on December 15, 1997.
NMRO paid the Company $1.2 million at the closing and purchased
certain assets and assumed certain liabilities associated with DataMed at
June 30, 1997. The assets include accounts receivable, accrued accounts
receivable (unbilled revenue), pre-paid expenses, customer list of DataMed,
customer contracts, furniture, fixtures and equipment, names, telephone
numbers, trade names and copyrighted materials. Included in the
obligations assumed by NMRO are accounts payable (excluding intercompany
payables), certain accrued expenses not to exceed approximately $127,000,
various capital lease obligations, a new lease on approximately 10,500
square feet of office space in which DataMed's operations are located,
accrued payroll and vacation pay for DataMed employees and certain sales
commissions. In March 1998, the Company, NMRO and SAT agreed to settle
DataMed's accrued expenses, certain other provisions of the Asset Purchase
Agreement and certain provisions of the Interim Management Agreement entered
into between the Company and NMRO effective July 1, 1997 by payment of
approximately $200,000 by the Company to SAT.
Following the closing, SAT employed certain employees of DataMed,
including Bart K. Valdez, who was the Chief Financial Officer of the
Company and the Director of Operations of DataMed.
16
<PAGE>
RISK FACTORS
An investment in the securities of the Company involves a high degree
of risk, and accordingly should be purchased only by persons who can afford
to lose their entire investment. 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 Annual Report on Form 10-KSB, including the information contained in
the audited consolidated financial statements herein.
SIGNIFICANT OPERATING LOSSES; NEGATIVE NET WORTH; NET WORKING CAPITAL DEFICIT
For the fiscal years ended December 31, 1997 and 1996, the Company
incurred a net loss of approximately $7.3 million and $4.5 million,
respectively. For the fiscal years ended December 31, 1997 and 1996, the
Company incurred a net loss from continuing operations of approximately
$7.4 million and $2.8 million, respectively. The net loss from continuing
operations in 1996 of approximately $2.8 million was primarily due to
increases in overall staffing and related expenses necessary to operate
Wyndgate's research and development programs and the anticipated future
growth of the Company. The increased net loss from continuing operations
in 1997 was primarily due to a substantial decrease in SAFETRACE(R) license
sales, relative increases in revenues derived from lower margin
SAFETRACE(R) related implementation and customer support services,
increases in sales and marketing expenses for Wyndgate's current and future
software products and services, and a substantial increase in research and
development expenses incurred for the software development of SAFETRACE
TX(TM), which entered beta testing on April 6, 1998. At December 31, 1997,
the Company had a net working capital deficit of approximately $2.6
million and cumulative net losses of approximately $15 million. There can
be no assurance that the Company will be able to generate sufficient
revenues to operate profitably in the future or to pay its liabilities as
they become due. See ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN
OF OPERATIONS.
ANTICIPATED NEGATIVE CASH FLOW
Management anticipates that the Company will continue to generate
negative cash flows from operations and from investing activities until
1999 and possibly thereafter. Accordingly, the Company must obtain
additional capital, substantially reduce its software development programs
and/or substantially reduce its other operating expenses to enable it to
continue its planned operations with available cash resources. The sale of
DataMed in 1997 provided additional, but not sufficient, resources to
assure the continuation of the Company's operations and its software
development programs. No assurances can be given that the Company will be
successful in raising additional capital or that the Company will achieve
profitability or positive cash flow. If the Company is unable to obtain
adequate financing, management will be required to substantially reduce the
Company's software development programs and other operating expenses.
REVENUE FLUCTUATIONS
The Company has experienced revenue fluctuations when SAFETRACE(R) has
been delivered. SAFETRACE(R) license fees have historically been recognized
as revenue upon delivery of the
17
<PAGE>
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. Revenue fluctuations could also be
affected by the decision on whether or not to recognize revenues based upon
the length of time the licensees take to implement SAFETRACE(R). The
implementation cycle of Wyndgate's SAFETRACE(R) software product is taking
longer than originally anticipated. Based on recent experience, management
currently anticipates that the average implementation cycle will typically
take approximately 16 months. The implementation cycles are dependent on
various items, including the blood center's size and the complexity of the
blood center's standard operating procedures. Further, special development
projects required by customers concurrent with the licensing of the
Company's software products and other significant obligations could result
in revenue recognition delays. As a result, the Company's operating
results could fluctuate significantly.
In October 1997, the AICPA issued Statement of Position 97-2 ("SOP 97-
2"), which changes the requirements for revenue recognition effective for
transactions that the Company will enter into beginning January 1, 1998.
Prior years are not required to be restated. Management's current plans to
address the revenue recognition requirements of SOP 97-2 include
substantial revisions to Wyndgate's current standard terms and conditions
included as part of Wyndgate's SAFETRACE(R) software license agreements and
establishing relationships with other business for the provision of
SAFETRACE(R) implementation and other support services. There can be no
assurance that management's plans to address the revenue recognition
requirements of SOP 97-2 will be successfully and timely implemented, that
substantial revisions to Wyndgate's existing standard terms and conditions
currently included as part of Wyndgate's SAFETRACE(R) software license
agreements will be accepted by potential SAFETRACE(R) licensees or that
changes to Wyndgate's provision of implementation and customer support
services will be accepted by potential SAFETRACE(R) licensees. Failure to
effectively address the revenue recognition requirements of SOP 97-2 and
future revenue recognition guidance regarding the software industry will
have a material adverse affect on the Company's revenues, gross margins and
operating results. As a result, future capital raising efforts may also be
adversely affected.
LACK OF SIGNIFICANT OPERATING HISTORY AND DIFFICULTIES IN ANTICIPATING
REVENUES, EXPENSES AND NET CASH FLOWS
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. Currently, eleven of the twenty-four SAFETRACE(R) licensees
have SAFETRACE(R) in operation. There is no assurance that the additional
thirteen SAFETRACE(R) licensees will ever become operational using
SAFETRACE(R), that the Company will be able to license SAFETRACE(R) to
additional customers, that the Company will be able to develop and license
new products or that the Company will be successful. Additionally, the
development and marketing of new software products may cause difficulties
in accurately anticipating implementation and development schedules, future
revenues, expenses, financial condition and net cash flows. 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 software products and
related services.
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<PAGE>
POSSIBLE COMPLETE CHANGE IN MANAGEMENT AND CONTROL
In April 1998, the Company entered into financing arrangements with
two non-affiliated companies pursuant to which, among other things, the
Company's Officers, Directors and certain employees executed resignations,
which are being held in escrow by the lenders. Under the loan commitment
documents, the lenders have the right to cancel all management and employee
contracts, and if the Company defaults on the terms of the commitments, the
resignations of the Directors, Officers and employees will immediately be
effective. The lenders also have the right to appoint five members to the
Company's Board of Directors, which will then consist of a maximum of nine
members. There can be no assurance that the lenders will not invoke their
right to terminate such contracts, thus effecting an immediate change in the
management and control of the Company.
POSSIBLE SUBSTANTIAL DILUTION TO CURRENT SHAREHOLDERS
As consideration for loan commitments extended to the Company by two
non-affiliated companies, the Company has agreed to issue warrants to
purchase 7,000,000 shares of Common Stock, exercisable over a ten year
period at $.25 per share. An additional 5,000,000 warrants, exercisable on
the same terms, will be issuable in the event the Company draws down any
amounts on a line of credit extended as part of the commitments. If the
lenders, or either of them, exercise their warrants, the Company will issue
an additional 7,000,000 to 12,000,000 shares of Common Stock. In addition,
in the event the Company were to default under the terms of the loan
commitments, the outstanding principal and any unpaid interest may be
converted, at the option of the lenders, into approximately 70 million
shares of the Company's Common Stock on the basis of one share of Common
Stock for each $.05 of debt. If the lenders were to exercise their
warrants, or convert any of the outstanding debt into Common Stock upon
default, the ownership of the present shareholders of the Company would be
significantly diluted.
INCREASED NET LOSS RELATED TO ISSUANCE OF DISCOUNTED WARRANTS AND
CONVERTIBLE DEBT
In connection with the April 14, 1998 loan commitments, the Company
has agreed to issue warrants to purchase a minimum of 7,000,000 shares at
$.25 per share, which is substantially below the market price for the
Company's Common Stock on that date. In the event the Company defaults on
the loans, the lenders have the right to convert all of the outstanding
principal and any accrued interest into shares of Common Stock at $.05 per
share. Under the Securities and Exchange Commission rules and regulations
regarding discounted warrants, these financings may result in a material,
non-cash charge to the Company's statement of operations. Management has
not completed its assessment of the amount to be charged to expense. It is
likely that the resulting expense amount will substantially increase the
Company's net loss for the remaining quarterly periods in 1998 and for the
fiscal year ended December 31, 1998.
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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. Compliance with
government regulations can be burdensome and may result in delays and
substantial costs incurred by the Company. In addition, modifications to
such regulations could materially and 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, since SAFETRACE TX(TM)
requires FDA clearance prior to the marketing of such product, the time
delay to market SAFETRACE TX(TM) could materially and adversely affect the
Company's business, financial condition and results of operations. The
Company cannot predict the effect of possible future legislation and
regulation. The Company will also be required to follow applicable Good
Manufacturing Practices ("GMP") regulations of the FDA, which include
testing, control and documentation requirements, as well as similar
requirements in other countries, including International Standards
Organization ("ISO") 9001 standards. Failure to meet these requirements
would preclude the Company from marketing its products on a commercial
basis, and therefore would materially and adversely affect the Company's
business, financial condition and results of operations.
FLUCTUATIONS IN OPERATING RESULTS
Results of operations are expected to fluctuate substantially
depending upon numerous factors, including demand for the Company's
products; the timing of new software license agreements with Wyndgate
customers; the ability of the Company to develop, introduce and market new
and enhanced versions of the Company's products on a timely basis; personnel
changes; changes in Company strategy, and the level of international sales.
Operating results could also be affected by the timing of the receipt of
individual customer orders and other revenue fluctuation factors discussed
above.
LIMITED SALES, MARKETING AND DISTRIBUTION SYSTEMS
The Company's Wyndgate division has made limited sales of SAFETRACE(R)
to date. The Company currently markets SAFETRACE(R) through a small direct
sales force, both in the U.S. and internationally. Establishment of a
complete sales force capable of effectively commercializing SAFETRACE(R)
and SAFETRACE TX(TM), which entered beta testing on April 6, 1998, will
require substantial efforts and require substantial management and
financial resources. The Company also continues to evaluate various
strategic business alliances, which may assist in the development of a
national and international sales, marketing and distribution system. Any
alliance which is developed by the Company could require substantial
capital and financial resources. There can be no assurance that the
Company will be able to establish such a sales capability on a timely
basis, if at all. Moreover, there can be no assurance that any business
alliance entered into by the Company would be successful in such
commercialization efforts.
POTENTIAL DIFFICULTIES IN MANAGING BUSINESS UNDERGOING RAPID GROWTH
The Company's future success will depend to a significant extent on
the ability of its current and future management personnel to operate
effectively, both independently and as a group. Most of the Company's
management team have no prior experience as senior executives of a public
corporation. There can be no assurance that the management team will
operate together effectively. To compete successfully against current and
future competitors, to timely complete research and development projects
and to develop future products, the Company believes that it must continue
to expand its operations, particularly in the areas of research and
development, sales and marketing and training. If the Company were to
experience significant growth in the future, such growth would likely place
significant strain upon the Company's management, operating and financial
systems and other resources. To accommodate such growth and compete
effectively, the Company must continue to implement and improve its
information systems, procedures and controls, and to expand, train,
motivate and manage its work force. There can be no assurance that the
Company's personnel, systems, procedures and controls will be adequate to
support the Company's future operations. Any failure to implement and
improve the Company's operational, financial and management systems or to
expand, train, motivate or manage its work force could materially and
adversely affect the Company's business, financial condition and results of
operations.
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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 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.
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 and materially affect the Company's available cash to fund
future operations and the Company's future profitability.
POSSIBLE LOSS OF SOFTWARE LICENSES DUE TO FAILURE TO MEET MAINTENANCE
SERVICE REQUIREMENTS
The Wyndgate software license agreements have license terms that
vary, but are typically multi-year licenses which are automatically
renewable. The software licenses may be terminated by customers if
Wyndgate fails to deliver various maintenance services consisting of
product bug fixes, continued regulatory compliance and product updates.
Generally, Wyndgate may terminate its software license agreements if
customers fail to meet 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 customers will
continue to make usage fee payments.
POSSIBLE SHRINKAGE OF MARKET DUE TO MULTIPLE SITE CONTRACTS AND DUE TO
FURTHER CONSOLIDATION WITHIN THE BLOOD BANK INDUSTRY
Presently, the Company has one specific contract which covers multiple
blood banks. The potential number of available SAFETRACE(R) licensees could
be reduced if the Company were to enter into additional multiple site
contracts. While the Company believes the license fee charged for such
multi-site arrangements is comparable to the license fee which would be
earned on an equivalent number of single site licenses, there can be no
assurance that the Company's revenues will be equivalent to what it would
have earned under single site licenses.
To date, approximately five of Wyndgate's SAFETRACE(R) licensees have
or are expected to merge to form two SAFETRACE(R) licensees. There can be
no assurance that further consolidation throughout the domestic blood bank
industry will not have a material adverse affect on the Company's ability
to successfully and timely market its software products. Further, there
can be no assurance that the existing and future consolidation throughout
the blood bank industry, will not cause substantial implementation cycle
delays and delays in obtaining new customer orders for Wyndgate's software
products. Such delays due to consolidation within the blood bank industry
may cause additional and unanticipated use of the Company's financial
resources and may also have a material and adverse affect on the Company's
business, financial condition and results of operations.
PENALTIES AND POTENTIAL LIMITATIONS OF MARKET SHARE DUE TO ITXM
DEVELOPMENT AGREEMENT
The Company has a software development agreement with ITxM which
provides for penalties to be paid by the Company to ITxM in the event that
beta testing of SAFETRACE TX(TM) is not completed by July 17, 1998. The
Agreement also contains certain potential limitations on the Company's right
to market its products, including, SAFETRACE TX(TM), within the blood
transfusion industry and grants ITxM the ability to use SAFETRACE TX(TM)
pursuant to a non-exclusive, perpetual license. The Company and ITxM have
recently commenced negotiations relating to these provisions, which the
Company believes will have a material and adverse affect on its business if
not satisfactorily resolved. There can be no assurance that the negotiations
will result in the penalty payments being eliminated and/or the resolution of
the Company's and ITxM's respective rights to market and use SAFETRACE TX(TM).
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PRODUCT AND REPORTING LIABILITY
As of the date hereof, eleven of the twenty-four SAFETRACE(R)
licensees have SAFETRACE(R) in operation. Currently, the Company has
product liability exposure for defects in SAFETRACE(R) which may become
apparent through widespread use of SAFETRACE(R). To date, no claims have
been filed against the Company involving SAFETRACE(R) and the Company is
not aware of any material problems involving SAFETRACE(R). 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 SAFETRACE(R) in the aggregate of at least $4 million. There can be no
assurance that such coverage will be available in the future, that it will
be available at reasonable prices, or that it will be available in amounts
adequate to cover any product liabilities that may be incurred by the
Company.
DEPENDENCE ON MAJOR CUSTOMERS
During the year ended December 31, 1997, two Wyndgate customers, Belle
Bonfils Memorial Blood Center, Denver, Colorado and Haemonetics Corporation,
Braintree, Massachusetts each accounted for approximately 10% and 33% of the
Company's total revenues from continuing operations. During the year ended
December 31, 1996, one Wyndgate customer, Gulf Coast Regional Blood Center,
Houston, Texas, accounted for approximately 29% of the Company's total
revenues from continuing operations. Accounts receivable from the above
customers as of December 31, 1997 and 1996 was approximately $60,000 and
$205,000, respectively. Unbilled revenues from the above customers was
approximately $160,000 as of December 31, 1997. In order to attempt to
reduce its credit risks, the Company generally requires substantial down
payments and progress payments during SAFETRACE(R) implementations. Non-
renewal or termination of the contractual arrangements with these key and
other Wyndgate customers could have a material adverse effect on the Company.
There can be no assurance that the Company will be able to retain these or
other customers or, if Wyndgate's 24 existing customers are not retained,
that the Company would be able to attract and retain new customers to replace
the revenues currently generated by these customers.
With the sale of DataMed, the Company has lost all of the revenues,
accounts receivable and unbilled revenue from that division's customers,
and its audited consolidated financial statements for the fiscal years
ended December 31, 1997 and 1996 and related footnotes reflect DataMed as
discontinued operations.
SUBSTANTIAL COMPETITION
There is substantial competition in all aspects of the blood bank and
hospital information management industry. Numerous companies are
developing technologies and marketing products and services in the health
care information management area. Many of these competitors have been in
business longer than the Company and have substantially greater personnel
and financial resources available to them than does the Company, and there
can be no assurance that the Company will be able to compete with these
competitors successfully.
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DEPENDENCE ON DEVELOPMENT OF NEW BUSINESSES
Through the merger with The Wyndgate Group, Ltd., the Company became
engaged in the information management section of the blood bank industry.
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 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 Wyndgate in the blood bank industry does not assure future
business expansion, profitability or long-term and sustainable success.
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 products infringe upon the rights of
others, the Company may be subject to suit for damages or an injunction to
cease the use of such products. The Company is currently not aware of any
claims or infringements of the Company's software products upon the rights
of others.
23
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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.
AUTHORIZED STOCK AVAILABLE FOR ISSUANCE BY THE COMPANY
The Company presently has 8,148,255 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. The amount of Common Stock
outstanding, however, does not include 1,456,988 shares issuable upon
exercise of publicly held Class A Common Stock Purchase Warrants, 1,759,118
shares issuable upon exercise of other outstanding options and warrants
1,412,802 shares issuable but not outstanding in connection with the
Company's stock option and stock compensation plans or warrants to purchase
from 7,000,000 to 12,000,000 shares of Common Stock issued or issuable in
connection with the Heng Fung Loan and the Fronteer Line of Credit. 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. As part of the Company's current capital raising
efforts, the Company will likely be required, if financing is obtained, to
issue or reserve additional shares of its Common Stock and/or Preferred
Stock. Although there are no existing agreements involving the issuance of
such shares, 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.
LIMITED CAPITALIZATION
The Company has only limited capitalization available to it. The
Company anticipates it will 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.
CONTROL BY OFFICERS AND DIRECTORS
The Company's officers and directors, own approximately 33% of the
outstanding Common Stock of the Company and will be able to substantially
influence all matters requiring approval by the shareholders of the
Company, including the election of directors. The Company does not provide
for cumulative voting in the election of directors; hence, shareholders
should not expect to be able to elect any directors to the Company's Board
of Directors.
24
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POSSIBLE ANTI-TAKEOVER EFFECTS OF PREFERRED STOCK, SEVERANCE PAYMENTS AND
BELOW-MARKET WARRANTS
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, certain of
the Officers of the Company have employment agreements with the Company
which provide for lump-sum payments to them of up to $2.5 million if the
Company terminates their employment for any reason other than cause or
disability. Each of these Officers have executed a release of their
employment contract in favor of the Company; however, until the releases
are accepted by the lenders, the employment contracts are still in effect.
In addition, certain lenders have a minimum of 7,000,000 warrants to
purchase Common Stock, exercisable at $.25 per share until April 14,
2008. The existence of the severance payment provisions and the large
number of outstanding low-priced warrants increases the likelihood that a
potential purchaser would seek to negotiate directly with the holders of
the warrants and/or the Board of Directors in order to gain control of
the Company or its assets rather than 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.
POSSIBLE VOLATILITY OF PRICE OF SHARES, SHARES OF COMMON STOCK AND WARRANTS
The prices of securities of publicly traded corporations tend to
fluctuate significantly. It can be expected, therefore, that there may be
significant fluctuations in the market 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
Common Stock outstanding, Common Stock reserved for future issuance,
operating results, financial condition and prospects could have a material
adverse affect on the market prices for the Common Stock and the Warrants.
WARRANTS TO REPRESENTATIVE
At the closing of the Company's February 1997 initial public offering,
the Company sold to RAF Financial Corporation (the "Representative") and
its designees, for $100, 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,
which commenced January 14, 1998. The Representative will be given the
opportunity to profit from a rise in the market price of the Company's
Common Stock with a resulting dilution of the interest of stockholders.
Furthermore, the Company granted certain registration rights with regard to
the shares of Common Stock 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.
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
25
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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, non-consenting customers
could commence litigation against the Company for failure to provide
substance abuse testing pursuant to such customers' contracts with DataMed.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-KSB contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), and the Company intends that such forward-looking statements be
subject to the safe harbors for such statements under such sections. The
Company's forward-looking statements include the plans and objectives of
management for future operations, including plans and objectives relating
to the Company's planned marketing efforts and future economic performance
of the Company. The forward-looking statements and associated risks set
forth in the this Annual Report on Form 10-KSB include or relate to: (i)
the ability of the Company to obtain a meaningful degree of consumer
acceptance for its software products and proposed software products, (ii)
the ability of the Company to market its software products and proposed
software products on a national and international basis at competitive
prices, (iii) the ability of the Company's software products and proposed
software products to meet government regulations and standards, (iv) the
ability of the Company to develop and maintain an effective national and
international sales network, (v) success of the Company in forecasting
demand for its software products and proposed software products, (vi) the
ability of the Company to maintain pricing and thereby maintain adequate
profit margins, (vii) the ability of the Company to achieve adequate
intellectual property protection for the Company's software products and
proposed software products and (viii) the ability of the Company and its
customers to successfully and timely implement the Company's software
products.
The forward-looking statements herein are based on current
expectations that involve a number of risk and uncertainties. Such
forward-looking statements are based on assumptions that the Company will
market and provide software products on a timely basis, that there will be
no material adverse competitive or technological change in condition of the
Company's business, that demand for the Company's software products will
significantly increase, that the Company's Chief Executive Officer will
remain employed as such by the Company, that the Company's forecasts
accurately anticipate market demand and that there will be no material
adverse change in the Company's operations, business or governmental
regulation affecting the Company or its suppliers. The foregoing
assumptions are based on judgments with respect to, among other things,
future economic, competitive and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately
and many of which are beyond the Company's control. Accordingly, although
the Company believes that the assumptions underlying the forward-looking
statements are reasonable, any such assumption could prove to be inaccurate
and therefore there can be no assurance that the results contemplated in
forward-looking statements will be realized. In addition, as disclosed
elsewhere in the "Risk Factors" section of this Annual Report on Form 10-
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KSB, there are a number of other risks inherent in the Company's business
and operations which could cause the Company's operating results to vary
markedly and adversely from prior results or the results contemplated by
the forward-looking statements. Growth in absolute and relative amounts of
cost of sales, research and development, sales and marketing and other
operating expenses or the occurrence of other events could cause actual
results to vary materially from the results contemplated by the forward-
looking statements. Management decisions, including budgeting, are
subjective in many respects and periodic revisions must be made to reflect
actual conditions and business developments, the impact of which may cause
the Company to alter its marketing, capital investment and other
expenditures, may also materially and adversely affect the Company's
liquidity, financial position and results of operations. In light of
significant uncertainties inherent in the forward-looking information
included in this Annual Report on Form 10-KSB, the inclusion of such
information should not be regarded as a representation by the Company or
any other person that the Company's objectives or plans will be achieved.
ITEM 2. DESCRIPTION OF PROPERTY.
- --------------------------------
The Company currently occupies two primary locations. The Company
occupies approximately 3,439 square feet of office space in Lakewood,
Colorado pursuant to a lease that expires on December 31, 2000. The
Company also leases approximately 22,000 square feet of office space in
Sacramento, California for its Wyndgate division pursuant to a lease
that expires on September 7, 2002. The Company also has employees located
in Iowa, Utah and Texas. No office leases are required at those locations
because the employees work out of their homes. During the year ended
December 31, 1997, office lease expenses were approximately $325,000.
ITEM 3. LEGAL PROCEEDINGS.
- --------------------------
The Company is not a party to any legal proceedings which management
believes to be material, and there are no such proceedings which are known
to be contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------
The Annual Meeting of the Company's shareholders was held on December
2, 1997. Proxies for the meeting were solicited pursuant to Section 14A
of the Securities Exchange Act of 1934, as amended, and there was no
solicitation in opposition to Management's nominees for Director.
27
<PAGE>
The following matters were submitted to and approved by the Company's
shareholders:
1. A proposal to amend the Articles of Incorporation to divide the
Board of Directors into three Classes, each of which, after an interim
arrangement, will serve for staggered three year terms.
For Against Not Voted
--- ------- ---------
5,162,698 44,436 2,097,157
2. The election of four (4) directors to serve until the Annual
Meeting of Shareholders in the year indicated and until their successors
have been elected and qualified.
For Withhold
--- --------
Michael I. Ruxin (2000) 7,249,691 54,600
William J. Collard (2000) 7,241,691 62,600
Gerald F. Willman, Jr. (1999) 7,249,691 54,600
Gordon Segal (1998) 7,249,691 54,600
3. A proposal to approve the sale of the Company's DataMed
International division to National Medical Review Offices, Inc. for $1.2
million, the assumption of certain liabilities and other conditions.
For Against Not Voted
--- ------- ---------
5,261,433 25,050 2,017,808
4. To increase the number of available shares under the Company's
Second Amended and Restated Stock Option Plan for employees, officers,
directors and consultants of the Company and to ratify and approve the
actions of the Board of Directors of the Company authorizing amendments to
the Company's Second Amended & Restated Stock Option Plan.
For Against Not Voted
--- ------- ---------
5,034,918 103,205 2,166,168
28
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PART II
ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND RELATED
- -------------------------------------------------------------------
SECURITY HOLDER MATTERS.
- -----------------------
MARKET INFORMATION
The Units sold by the Company in its initial public offering, 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. On February 9, 1998, the
Company's Common Stock and Warrants were delisted from the Nasdaq Small-Cap
Market, and commenced trading on the Bulletin Board.
The following table sets forth the high and low bid prices for the
Company's Common Stock since the Common Stock commenced trading on March
13, 1997. The quotations reflect inter-dealer prices, with retail mark-up,
mark-down or commissions, and may not represent actual transactions. The
information presented has been derived from the National Quotation Bureau,
Inc. Library.
1997 Fiscal Year High Bid Low Bid
---------------- -------- -------
First Quarter (from March 13) . . . . . . . . $3.875 $3.00
Second Quarter . . . . . . . . . . . . . . . $3.00 $2.75
Third Quarter . . . . . . . . . . . . . . . . $2.9375 $1.8125
Fourth Quarter. . . . . . . . . . . . . . . . $3.0625 $2.125
1998 Fiscal Year
----------------
First Quarter (through April 13). . . . . . . $2.00 $0.78125
On April 13, 1998, the last reported bid and asked prices for the
Common Stock were $1.03125 and $1.15625, respectively, and the last reported
bid and asked prices for the Class A Common Stock Purchase Warrants were
$.24 and $.375, respectively.
HOLDERS
As of April 13, 1998, the Company had approximately 134 holders of
record of the Company's Common Stock.
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DIVIDENDS
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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
- -------------------------------------------------------------------
GENERAL
Global Med Technologies, Inc. (the "Company"), through its one
operating division Wyndgate Technologies ("Wyndgate"), designs, develops,
markets and supports information management software products for blood
banks, hospitals, centralized transfusion centers and other healthcare
related facilities. Revenues for Wyndgate are derived from the licensing of
software, the provision of consulting and other value-added support
services and the re-sale 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 audited financial statements and related footnotes herein
reflect DataMed as discontinued operations in accordance with Accounting
Principles Board Opinion No. 30 ("APB 30").
On April 14, 1998, the Company entered into two debt financing
agreements which provided the Company up to $3 million in gross proceeds
in exchange for up to 12 million warrants convertible into Common Stock at
$0.25 per share. Should the Company not repay the financing proceeds and
accrued interest thereon on or before April 15, 1999, the convertible
financing proceeds, including interest thereon, are convertible into
approximately 70 million shares of Common Stock at $0.05 per share.
See "ITEM 1. DESCRIPTION OF BUSINESS - FINANCING AGREEMENTS" above
for a further discussion of these agreements.
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 December
31, 1997, the Company has used approximately $7.69 million of the net
proceeds from the February 1997 public offering. The use of proceeds to
date have been principally expended to repay short-term debt, notes
payable, accounts payable and other accrued expenses; to fund Wyndgate's
research and development of a transfusion managements information software
product ("SAFETRACE TX(TM)"); to fund Wyndgate's sales and marketing
efforts, as well as for general working capital purposes. Due to delays in
software license fee revenues and delays in the implementation cycles
discussed below as part of Liquidity and Capital Resources, the Company's
use of the net proceeds from the February 1997 public offering for research
and development and for general working capital purposes has been, and is
expected to continue to be, greater than originally anticipated.
From inception to December 31, 1997, the Company incurred cumulative
net losses of approximately $15 million. The Company expects to continue
to incur losses until 1999, and possibly thereafter, until its existing
SAFETRACE(R) software product is fully implemented and fully operational
within the Company's customers information system environments and until
SAFETRACE TX(TM) is established in its markets. The timing and amounts of
the Company's expenditures will
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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.
Management's Discussion and Analysis or Plan of Operations contains
certain forward-looking statements as more fully described as part of Risk
Factors.
The results of operations and cash flows for the year ended December
31, 1997 are not necessarily indicative of the results of operations and
cash flows that may be expected during 1998 or for any other year.
YEAR ENDED DECEMBER 31, 1997 ("FISCAL 1997) AS COMPARED TO YEAR ENDED
DECEMBER 31, 1996 ("FISCAL 1996")
RESULTS OF OPERATIONS
REVENUES. Revenues are comprised of software sales and consulting
revenues, and the re-sale of hardware and software obtained from vendors.
Revenues from software sales and consulting decreased by $1.4 million,
or 39%, to $2.2 million for Fiscal 1997 compared to $3.6 million for Fiscal
1996. This decrease in software sales and consulting revenue is primarily
the result of substantially reduced sales and related deliveries of
Wyndgate's SAFETRACE(R) software product, which were partially due to the
delays in software license fee revenue previously expected from certain
large internationally based hospitals and blood centers (See LIQUIDITY AND
CAPITAL RESOURCES and RISK FACTORS - REVENUE FLUCTUATIONS for a further
discussion of these delays).
Revenues from the re-sale of hardware and software, obtained from
vendors decreased by $631,000, or 68%, to $297,000 for Fiscal 1997 compared
to $928,000 for Fiscal 1996. This decrease was primarily due to decreases
in the average price per order and in the number of Wyndgate customers
which ordered third party hardware and software through Wyndgate.
The Company's sales and marketing efforts and its software development
programs will continue to be focused on current and future Wyndgate
software products and services. If future sales of Wyndgate's SAFETRACE(R)
licenses are less than management anticipates; if future sales of
Wyndgate's SAFETRACE(R) licenses require Wyndgate to complete significant
customization upon delivery; if there are further delays in the currently
anticipated implementation schedules for Wyndgate's existing SAFETRACE(R)
customers; if there are delays in the currently anticipated beta testing
schedule, regulatory clearance timing and market acceptance for SAFETRACE
TX(TM) which is currently in beta testing, the Company's revenues, gross
margins, and liquidity may be materially and adversely affected.
31
<PAGE>
COST OF REVENUE. Cost of revenue as a percentage of total revenues
was 64% and 41% for Fiscal 1997 and Fiscal 1996, respectively.
Cost of software sales and consulting as a percentage of the related
revenue was 62% and 26% for Fiscal 1997 and Fiscal 1996, respectively.
This increase was primarily a result of decreased sales of Wyndgate's
SAFETRACE(R) software product licenses which are typically priced at
higher profit margins than revenues from consulting and implementation
related services. Additionally, relative increases in personnel and
related benefit and travel expenses incurred during Fiscal 1997 for the
high number of SAFETRACE(R) implementations, customer training and customer
support services also contributed to the increase in the cost of software
sales and consulting.
Cost of hardware and software, obtained from vendors as a percentage
of the related revenue was 75% and 102% for Fiscal 1997 and Fiscal 1996,
respectively. Typically, revenues from the re-sale of hardware and
software, obtained from vendors are priced at lower profit margins than
revenues from software sales and consulting.
GROSS PROFIT. Gross profit as a percentage of total revenue was 36%
and 59% for Fiscal 1997 and Fiscal 1996, respectively. This decrease in
gross profit was primarily a result of the decreased sales of the higher
margin SAFETRACE(R) software products discussed above. Additionally,
relative increases in revenues derived from the provision of lower margin
consulting, implementation and customer support services also contributed
to the decrease in gross profit experienced by the Company during Fiscal
1997.
PAYROLL AND OTHER. Payroll and other decreased $37,000, or 2%, to
$1.487 million for Fiscal 1997 compared to $1.524 million for Fiscal 1996.
The decrease in payroll and other was primarily due to decreased
administrative and other management personnel expenses as a result of less
administrative and management personnel deemed necessary by management for
the Company's remaining Wyndgate operations. During 1998, management does
not anticipate substantial increases in the number of administrative and
management personnel.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased $236,000, or 27%, to $1.115 million for Fiscal 1997 compared to
$879,000 for Fiscal 1996. The increase in general and administrative
expenses was attributable primarily to expenses of approximately $136,000
related to grants of certain stock options and increases in expenses for
outside contract services, various insurance related items, leased office
space and other general and administrative activities which were related to
the increase in the number of Wyndgate employees. During 1998, management
does not anticipate substantial increases in the Company's general and
administrative expenses.
SALES AND MARKETING. Sales and marketing expenses were $1.458 million
and $948,000 for Fiscal 1997 and Fiscal 1996, respectively, an increase of
$510,000, or 54%, compared Fiscal 1996. The increase in sales and marketing
expenses was primarily due to expenses of approximately $301,000 related
to grants of certain stock options to a business advisory enterprise and to
others involved in corporate marketing efforts for the Company. Management
anticipates there will be
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<PAGE>
additional increases in sales and marketing efforts if the Company is
successful in timely completing the SAFETRACE TX(TM) beta testing and
timely submitting for and receiving FDA 510(k) clearance for SAFETRACE
TX(TM) during the next eighteen months.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$2.2 million, or 144%, from Fiscal 1996 to Fiscal 1997. The increase in
research and development expenses was primarily due to an increase in the
number of employees and contracted developers assigned to the development
of Wyndgate's SAFETRACE TX(TM) transfusion management information system
software product. Additionally, the Company incurred $485,000 in research
development expenses in Fiscal 1997 in connection with a January 1998
agreement between the Company and The Institute for Transfusion Medicine
("ITxM") regarding the Company's payment avoidance of certain monetary
penalties as a result of anticipated SAFETRACE TX(TM) development delays.
Management anticipates research and development expenses to continue to be
a substantial portion of the Company's operating expenses. Management's
plans for Wyndgate's future software products and services require
continual research and development expenditures in order to continue to
capitalize on Wyndgate's existing technological base and its existing
software development talent.
PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts
increased $81,000, or 426%, from Fiscal 1996 to Fiscal 1997. Management
believes it prudent to reserve for the potential uncollectability of
certain accounts receivable due from Wyndgate's SAFETRACE(R) customers.
Management does not anticipate significant increases in the provision for
doubtful accounts during 1998 as management believes that its accounts
receivable collection efforts and SAFETRACE(R) implementation efforts will
improve the collectability of accounts receivable and unbilled revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
increased $247,000, or 152%, from Fiscal 1996 to Fiscal 1997. The increase
in depreciation and amortization expense is due to the increases in
purchased fixed assets and due to the increases in fixed assets underlying
new capital lease financing obtained during Fiscal 1997.
INTEREST INCOME. Interest income increased $143,000 from Fiscal 1996
to Fiscal 1997. This increase was primarily due to interest income derived
from the net proceeds of the February 1997 public offering.
INTEREST EXPENSE. Interest expense decreased $123,000 from Fiscal
1996 to Fiscal 1997. This decrease was primarily due to the repayment of
approximately $1.9 million in short term debt and notes payable from the
net proceeds of the February 1997 public offering, which was partially
offset by an increase in interest expense on capital lease obligations.
OTHER. Other expenses decreased $169,000 from Fiscal 1996 to Fiscal
1997. This decrease was primarily due to Fiscal 1996 expenses of $250,000
incurred in connection with the Company's allowance for a $250,000 note
receivable, which was partially offset by $79,000 of expenses
33
<PAGE>
incurred during the first quarter of 1997 in conjunction with the issuance
and registration of warrants to two unrelated investors who provided the
Company with approximately $450,000 through the January 1997 issuance of
certain 12% notes. The 12% notes plus accrued interest thereon were repaid
in full from a portion of the net proceeds from the February 1997 public
offering.
LOSS FROM CONTINUING OPERATIONS. The Company's loss from continuing
operations during Fiscal 1997 as compared to Fiscal 1996 increased $4.6
million. The increased loss experienced during Fiscal 1997 was primarily
attributable to a substantial decrease in sales and related deliveries of
SAFETRACE(R), relative increases in revenue derived from the provision of
lower margin services, increased research and development expenses incurred
for SAFETRACE TX(TM) development, and increased sales and marketing expenses.
During the first quarter of 1998, management began the implementation of a
cost reduction program which, it is anticipated, will assist in management's
efforts to reduce the Company's operating expenses. However, there can be
no assurance that management's cost reduction program will be successful.
LOSS FROM DISCONTINUED OPERATIONS AND GAIN ON SALE OF DISCONTINUED
OPERATIONS. The Company's loss from discontinued operations during Fiscal
1997 as compared to Fiscal 1996 decreased $801,000. The decreased loss from
discontinued operations experienced during Fiscal 1997 was primarily
attributable to a interim management agreement which was entered into between
the Company and National Medical Review Offices, Inc. ("NMRO"). This interim
management agreement transferred direction and control of the business and
operations of DataMed to NMRO effective July 1, 1997 and was terminated upon
the December 15, 1997 sale of DataMed. In connection with the sale of DataMed,
the Company reported an approximate $1 million gain as a result of this
transaction.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $2.37 million at December
31, 1997, none of which is restricted. During Fiscal 1997, management
became aware of delays in future software license fee revenues previously
expected from certain large internationally based blood centers and
hospital organizations. During Fiscal 1997, management became aware of
certain SAFETRACE(R) implementation delays. Currently and based on
Wyndgate's implementation schedules for SAFETRACE(R) customers which are
not yet operational using SAFETRACE(R), management expects the average
implementation cycle to take approximately 16 months from date of
delivery of SAFETRACE(R) to customers. During fourth quarter of 1997,
management became aware of SAFETRACE TX(TM) development delays. Through
December 31, 1997, these delays caused a greater use of liquidity and
capital resources than originally anticipated. Based on this information
and in light of the Company's current cash and projected cash flow,
management believes the Company has the financial resources to maintain its
planned level of operations for the next twelve months, although the
Company anticipates that it will continue to incur operating losses,
negative cash flows and capital expenditures during that period.
To the extent that the net proceeds generated by the April 14, 1998
financing agreements are insufficient to fund the Company's liquidity
and capital requirements in the short or long term, the Company may
need to raise additional capital through debt financings or through
public or private equity financings. The Company has no commitment
for any such financings, and there can be no assurance that any
additional financing will be available when needed, on reasonable
terms, or at all. Management anticipates that the net proceeds from
the April 14, 1998 financing agreements will be used to fund the
Company's anticipated research and development costs, sales and
marketing efforts, negative cash flows during the remainder of 1998
and for general working capital purposes.
34
<PAGE>
The Company has historically financed its negative cash flows through
various forms of short-term debt financings, a number of equity private
placements and through the February 1997 public offering.
The Company had net working capital deficits of $2.6 million and $4
million at December 31, 1997 and 1996, respectively. Excluding the net
liabilities of the discontinued operations, the Company had net working
capital deficits of $1.95 million and $2.9 million at December 31, 1997 and
1996, respectively. The decrease in the Company's net working capital
deficit during Fiscal 1997 was primarily due to the completion of the
February 1997 public offering which generated approximately $8.2 million in
net proceeds, consummation of the sale of DataMed which yielded gross
proceeds of $1.2 million and which yielded net proceeds of approximately
$775,000 through April 15, 1998, offset by the Company's negative cash flows
and net losses incurred during the period. To date, the net proceeds from
the February 1997 public offering have principally been expended to repay
short term debt, notes payable, accounts payable and other accrued expenses,
to fund Wyndgate's research and development and sales and marketing efforts
and for general working capital purposes.
The Company used $5.3 million in net cash for operating activities
during Fiscal 1997, compared to $2.7 million of net cash used for operating
activities during Fiscal 1996. These amounts include $1.3 million of net
cash used by discontinued operations during Fiscal 1997 and $1 million of
net cash used by discontinued operations during Fiscal 1996. The cash used
in continuing operations of $4 million during Fiscal 1997 consisted
primarily of the net loss from continuing operations of $7.4 million; the
non-cash gain on the sale of DataMed of $1 million; net changes in other
assets and various current liabilities; offset by depreciation and
amortization and other non-cash expenses related to the issuance of common
stock, options and warrants; net decreases in accounts receivable and
unbilled revenue and a $1.4 million increase in deferred revenue.
Management expects that the Company will continue to experience negative
cash flows from operating activities until 1999 when, it is anticipated,
Wyndgate's SAFETRACE(R) software will become operational at an increasing
number of current and future SAFETRACE(R) customer locations and Wyndgate's
SAFETRACE TX(TM) software product will be established in its markets. As
a result, the Company may be required to obtain additional capital beyond
its current capital raising efforts.
Net cash provided by investing activities was $161,000 during Fiscal
1997. Net cash used by investing activities was $242,000 during Fiscal
1996. Net cash provided by investing activities during Fiscal 1997
consisted of $ 1 million in net proceeds through December 31, 1997 related
to the sale of DataMed, off-set by capital expenditures of $781,000 for
continued operations and $58,000 of capital expenditures for discontinued
operations.
Net cash provided by financing activities was $7 million and $2.96
million during Fiscal 1997 and Fiscal 1996, respectively. These amounts
include capital lease principal payments for discontinued operations of
$107,000 and $223,000 during Fiscal 1997 and Fiscal 1996,
35
<PAGE>
respectively. During Fiscal 1997, the Company completed its February 1997
public offering and received approximately $8.2 million in net proceed and
also received other proceeds from certain exercises of stock options. The
Company used a portion of these net proceeds to repay approximately $1.9
million in short term debt and notes payable, and also to pay certain
offering and distribution costs related to the February 1997 public
offering. In addition, the Company paid $207,000 in principal payments on
capital lease obligations for continuing operations during Fiscal 1997.
The implementation cycle of Wyndgate's SAFETRACE(R) software is
running longer than originally anticipated. Based on recent experience,
management now anticipates that the average implementation cycle will
typically take an average of approximately 16 months. The implementation
cycles are dependent on various items including the clients' size and the
complexity of the clients' standard operating procedures. Eleven of the
current twenty-four SAFETRACE(R) clients are implemented and operational
using SAFETRACE(R). The results of the implementation cycle delays
have and are expected to continue to delay future SAFETRACE(R) maintenance
revenues previously expected from the provision of customer support
services, future progress payments from clients as defined in the
SAFETRACE(R) license agreements, the previously anticipated increase in
future software license fee revenue from further sales of SAFETRACE(R), and
cause a greater use of liquidity and capital resources than originally
anticipated. Correspondingly, the implementation delays have created
billing and collection delays. Management recognizes the significant
impact accounts receivable, accounts receivable turnover trends and
unbilled revenues have on the Company's liquidity and working capital and
is continuing to attempt to reduce the implementation cycles for Wyndgate's
SAFETRACE(R) software.
The Company incurred a net loss of approximately $7.3 million during
Fiscal 1997. The Company expects to continue to incur net losses until 1999,
and possibly thereafter, until its software products are better established
in their respective markets. There can be no assurance that the Company
can generate sufficient revenues, earnings and cash collections from
software sales to satisfy its working capital requirements. The Company's
working capital requirements will depend on numerous factors, including
progress of the beta testing of SAFETRACE TX(TM), the development of other
new software products, as well as new applications for its present core
products, which include both SAFETRACE(R) and SAFETRACE TX(TM).
Additionally, the Company's working capital requirements may depend upon
its success in timely obtaining a FDA 510K clearance letter for its
SAFETRACE TX(TM) software product. Failure to receive such clearance
letter may require the Company to seek additional financing beyond the
financing commitments it obtained on April 14, 1998. The Company may
seek financing to meet its working capital requirements through strategic
alliances within the Company's industry, through collaborative
arrangements with other suppliers to the Company's customers and/or
through raising additional capital through private placements of its
Common or Preferred Stock. There can be no assurance, however, that
additional funds, if required, will be available from sources historically
available to the Company or from other sources on favorable terms, if at
all. If the Company is unable to obtain adequate financing when and if
such financing is required, management will be required to substantially
reduce the Company's software development programs and other operating
expenses. If the Company is successful in raising additional funds through
the sale of additional equity securities, such a change in capitalization
could also further increase the number of shares of Common Stock
outstanding, thus diluting ownership of the then current shareholders in
the Company.
36
<PAGE>
EFFECT OF INFLATION AND FOREIGN CURRENCY EXCHANGE FLUCTUATIONS
The Company has not experienced material unfavorable effects on its
results of operations, cash flows or financial position due to foreign
currency exchange fluctuations or due to domestic inflation. As the
Company plans to market Wyndgate's products and services internationally,
the effect of inflation and foreign currency exchange fluctuations could
have a material adverse affect on the Company's future liquidity, cash
flows, financial position and results of operations.
USE OF PROCEEDS
In February 1997, the Company completed an initial public offering of
securities, from which it received net proceeds of approximately $8.2
million from the sale of 1,456,988 Units (the "February 1997 Public Offering).
Each Unit consisted of two shares of Common Stock and one Class A Common Stock
Purchase Warrant. On March 13, 1997, the Common Stock and the Warrants began
trading separately.
Through December 31, 1997, the Company has used a total of
approximately $7.69 million of the net proceeds from the February 1997
public offering. The net proceeds to the Company from the February 1997
public offering of approximately $8.2 million have been applied as follows:
approximately $2.7 million for research and development costs, including
approximately $481,000 in capital expenditures, incurred primarily for the
development of Wyndgate's SAFETRACE TX(TM) software, which is currently in
beta testing; $860,000 for sales and marketing expenses incurred for sales
and marketing for Wyndgate's software products and services; approximately
$300,000 of other capital expenditures for general operating purposes
related to the increased number of employees assigned to customer support,
customer implementations, customer training and general operating purposes
for Wyndgate; approximately $ 1.874 million for the principal repayment of
certain short-term debt, approximately $181,000 of which was paid, under
the same terms and conditions as nonaffilates, to certain significant
owners, directors, officers and other related parties of the Company, who
held 10% notes; approximately $536,000 for general working capital
requirements for the Company's continuing operations; and approximately
$1.42 million for the Company's DataMed International division, which is
reflected as discontinued operations in accordance with APB 30 in the
consolidated audited financial statements herein.
The remaining net proceeds of approximately $510,000 have been
invested in short-term investment grade money market instruments.
37
<PAGE>
YEAR 2000 COMPLIANCE
Based upon information currently available, management does not
anticipate that the Company will incur substantial costs to update its
computer software programs and applications to be "Year 2000" compliant.
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(R); SAFETRACE TX(TM), which is currently in beta testing; 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.
In addition, the Company relies on third party providers for some of
its internal systems support. To the extent that the Company will be
relying on outside software vendors, Year 2000 compliance matters will not
be entirely within the Company's direct control. In addition, the Company
has relationships with vendors, customers and other third parties that rely
on computer software that may not be Year 2000 compliant. There can be no
assurance that Year 2000 compliance failures by such third parties will not
have a material adverse effect on the Company or that the Company will be
successful in its own Year 2000 Compliance efforts.
ITEM 7. FINANCIAL STATEMENTS.
- -----------------------------
The Company's audited consolidated financial statements follow the
signature page of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE.
- --------------------
None.
38
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
- -------------------------------------------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
- -------------------------------------------------
IDENTIFICATION OF DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES.
The following sets forth certain information with respect to the
officers and directors of the Company.
Name Age Position
- ---- --- --------
Michael I. Ruxin 52 Chairman of the Board, Chief Executive
Officer and a Director since 1989
Thomas F. Marcinek 44 President and Chief Operating Officer since
April 1998
William J. Collard 56 Secretary, Treasurer, Director since 1995
and Wyndgate President
Gerald F. Willman, Jr. 40 Chief Financial Officer since April 1998,
Director since 1995 and Wyndgate Vice-President
Gordon E. Segal, M.D. 46 Director since 1997
The directors of the Company are elected to hold office until the next
annual meeting of shareholders and until their respective successors have
been elected and qualified. Officers of the Company are elected 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.
39
<PAGE>
MICHAEL I. RUXIN, M.D., the founder of the Company, has been an
officer and director of the Company since its incorporation in 1989 and is
currently the Chairman and Chief Executive Officer of the Company. From
1982 to 1994, Dr. Ruxin was a director of GeriMed of America, Inc., a
private company administering senior health care centers. From 1985 to
1993, Dr. Ruxin was an officer and director of CBL Medical, Inc. ("CBL"),
a public company which managed multiple medical groups, including Medcomp
Medical Group which was a group of small clinics owned by Dr. Ruxin. CBL
focused on providing second opinions on workers compensation claims. Dr.
Ruxin left CBL management in 1988 to found the Company although he remained
on the board of CBL due to his continued ownership of clinics until 1993.
Five years after Dr. Ruxin left CBL management, in 1993, CBL filed a
Petition under Chapter 7 of the Federal Bankruptcy Code to liquidate due to
a change in the workers compensation regulations in the State of
California. Dr. Ruxin received a B.A. degree from the University of
Pittsburgh and an M.D. degree from the University of Southern California.
Dr. Ruxin is a licensed physician in California and Colorado. He is a
member of the American Association of Medical Review Officers.
THOMAS F. MARCINEK was elected as President and Chief Operating Officer
upon Mr. Joseph F. Dudziak's retirement in March 1998. From 1994 until
joining the Company, he was the President and owner of Prax Information
Systems, Wantagh, New York, a practice management software consulting
company. From 1990-1994, he was the President of the Data Technologies
Group, a division of Henry Schein, Inc., Melville, New York. From 1985-1990,
he was the Vice President of MIS for that same company.
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 and Chief Financial
Officer since April 1998. 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.
40
<PAGE>
GORDON E. SEGAL, M.D., has been a director of the Company since April
1997. Since December 1995, he has been co-founder and principal of M & S
Ventures, a privately held investment venture capital firm specializing in
biotechnology and health care companies. From January 1992 to December
1995, Dr. Segal was a private venture capitalist. Dr. Segal received a
B.A. degree in 1973 from Southern Methodist University and an M.D. degree
in 1978 from the University of Tennessee. Dr. Segal is a licensed physician
in New York and is a board certified anesthesiologist.
COMMITTEES
The Company's Audit/Systems Committee acts as the liaison between the
Company and its independent public accountants. Its sole current member is
Dr. Ruxin. The Audit Committee did not hold any meetings during 1997. 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 accounting controls 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 have met once 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
41
<PAGE>
Company's stock price performance under programs which link executive
compensation to stockholder return.
SCIENTIFIC ADVISORY COMMITTEE
The Board of Directors has established a Scientific Advisory Committee
to advise and consult with the Board of Directors as may be requested by
the Board from time-to-time. Currently, the Scientific Advisory Committee
consists of William C. Dickey, M.D., Cathy Bryan, Edward P. Scott and
Ronald O. Gilcher, M.D. The Scientific Advisory Committee has had two
formal meetings as a group, and it is anticipated that the Scientific
Advisory Committee will meet semi-annually. 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
42
<PAGE>
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.
EDWARD P. SCOTT, M.D. has been the Medical Director and Chief
Executive Officer of Lifeblood/Mid-South Regional Blood Center, Memphis,
Tennessee from 1986 to present. Dr. Scott graduated from Mississippi State
University in 1970 and received his M.D. degree from the University of
Mississippi Medical School in 1973. He is certified by the American Board
of Internal Medicine, the American Board of Pathology, Blood Banking (1981)
and the American Board of Internal Medicine, Hematology (1982). He was a
member of the American Association of Blood Banks Managerial Think Tank in
1989, and a member of its Standards Committee from 1993-1996. He is the
author or co-author of numerous published medical journal articles, book
chapters and abstracts.
FAMILY RELATIONSHIPS
There are no family relationships among any of the Company's officers
and directors.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
Other than as discussed above with respect to Michael I. Ruxin, no
officer, director, significant employee, promoter or control person of the
Company has been involved in any event of the type described in Item 401(d)
of Regulation S-B during the past five years.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Based solely on a review of Forms 3 and 4 and amendments thereto
furnished to the Company, during the fiscal year ended December 31, 1997,
no officer, director or beneficial owner of more than ten percent of the
Company's Common Stock failed to file reports on Forms 3 or 4 on a timely
basis.
43
<PAGE>
ITEM 10. 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 $100,000 of salary and bonus from the Company during
the year ended December 31, 1997:
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Restricted
Name and Principal Stock Options All Other
Position Year Salary Bonuses($) Awards & SARs Compensation
-------- ---- ------ ---------- ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Michael I. Ruxin, 1997 $190,000 -0- -0- -0- $ 17,936(1)
Chairman and CEO 1996 $195,000 -0- -0- -0- $ 16,520(2)
1995 $190,000 -0- -0- -0- $ 16,520(2)
Joseph F. Dudziak, 1997 $110,000 -0- -0- 125,000(3) $ 29,800(4)
President and COO 1996 $110,000 -0- -0- 25,000(5) $ 4,800(6)
1995 $105,000 -0- -0- 100,000(5) $ 4,800(6)
William J. Collard, 1997 $100,000 -0- -0- -0- $ 16,400(7)
Secretary/Treasurer 1996 $100,000 -0- -0- -0- $188,400(7)
and Director, 1995 $100,000 -0- -0- -0- $ 30,400(7)
Wyndgate President
Bart K. Valdez, 1997 $100,000 -0- -0- 50,000(8) $ 55,000(8)
CFO and Director 1996 $ 98,000 -0- -0- 30,000(9) -0-
of Operations for 1995 $ 49,000 -0- -0- 20,000(9) -0-
DataMed
Gerald F. 1997 $ 95,000 -0- -0- -0- $ 25,000(10)
Willman, Jr. 1996 $ 95,000 -0- -0- -0- $ 8,000(10)
CFO and Director, 1995 $ 87,000 -0- -0- -0- -0-
and Vice President
of Wyndgate
</TABLE>
- ------------------
(1) Dr. Ruxin received $5,000 per annum in life insurance premiums and a
$1,078 per month car allowance.
(2) Dr. Ruxin received $5,000 per annum in life insurance premiums and a
$960 per month car allowance.
(3) In August 1997, Mr. Dudziak's 125,000 options were modified in the
following respects: (a) such options become immediately and fully
vested and became exercisable over a ten year period and (b) the
exercise price of the options was reduced to $1.81 per share which was
the estimated fair value of the Company's shares of Common Stock of
the time of grant.
(4) Mr. Dudziak received a $400 per month car allowance and received
$25,000 for moving expenses.
(5) 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.
(6) Mr. Dudziak received a $400 per month car allowance.
(7) Mr. Collard received a $450 per month car allowance in 1995, 1996 and
1997. In 1995, Mr. Collard received $25,000 under his non-compete
agreement. In 1996, Mr. Collard received $175,000 under his non-
compete agreement and reimbursement for a vacation in the approximate
amount of $8,000. In 1997, Mr. Collard received approximately $11,000
for tax expenses related to the May 1995 Wyndgate merger.
(8) Mr. Valdez received a lump sum payment of $55,000 in December 1997
upon the sale of DataMed and immediately and fully vested options to
purchase 50,000 shares granted in August 1997 exercisable over a ten
year period at $1.81 per
44
<PAGE>
share. 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.
(9) In 1995, Mr. Valdez received options to purchase 20,000 shares
exercisable at $2.45 per share. In September 1996, Mr. Valdez
received options to purchase 30,000 shares exercisable at $2.50 per
share. These options vested at the rate of 20% per year. These
options were effectively forfeited upon the sale of DataMed and were
re-granted as described in footnote (8) above. 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.
(10) In 1996, Mr. Willman received approximately $8,000 for reimbursement
for a vacation. In 1997, Mr. Willman received approximately $25,000
for tax expenses related to the May 1995 Wyndgate merger.
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
2,200,000 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.
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
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<PAGE>
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, recapitalization
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.
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
46
<PAGE>
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.
STOCK COMPENSATION PLAN
The board of directors of the Company has approved the 1997 Employee
Stock Compensation Plan ("Stock Compensation Plan"), to support and
increase the Company's ability to attract, retain and compensate persons of
experience and ability and whose services are considered valuable.
A maximum of 100,000 shares of the Company's common stock are issuable
under the terms of the Stock Compensation Plan. The Stock Compensation
Plan provides for compensation through
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<PAGE>
the award of Common Stock in payment for services rendered or in
recognition of past services of performances rendered to the Company or as
a bonus. Shares subject to a stock award are valued at not less than 100%
of their fair market value on the date the award is granted, whether or not
they are subject to restrictions.
The Stock Compensation Plan is administered by the Compensation
Committee appointed by the Board or, in the absence of a designated and
qualified Committee, the entire Board must serve as the Committee. Stock
Compensation Plan participants may be selected by the Board from: (i) key
employees of the Company; (ii) officers and directors of the Company; (iii)
consultants or advisors to the Company; and a (iv) lawyer, law firm,
accountant or accounting firm, or other professionals or professional firms
engaged by the Company. The Committee has broad discretion to determine
the number of shares which may be granted to participants. The award of
Common Stock will be granted on such terms and conditions as the Board
determines. The Committee also may interpret the Stock Compensation Plan
and is empowered to make all other determinations deemed necessary or
advisable for the administration of the Stock Compensation Plan. The Board
may suspend, terminate, modify or amend the Stock Compensation Plan.
Under the present provisions of the Internal Revenue Code ("Code") and
regulations thereunder, the recipient of an award of common stock will
recognize ordinary income upon award of the stock, in an amount equal to
the fair market value of the shares on the date of the award, and the
Company will be entitled to a deduction (as a compensation expense) in the
same amount in the year the shares are awarded. The recipient's tax basis
for the Common Stock issued under a stock award will generally be equal to
the fair market value of the shares on the date of award. Upon disposition
of those shares, the recipient will realize a capital gain (or loss) equal
to the difference between the tax basis and the amount realized upon
disposition. Any subsequent resale of these shares will not result in any
further tax consequences to the Company. The Stock Compensation Plan is
not qualified under Section 401(a) of the Code.
Stock awards granted under the Stock Compensation Plan confer no right
upon any participant with respect to continuation of employment and do not
interfere with the employee's or the Company's right to terminate
employment at any time.
OPTION/SAR GRANTS TABLE
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, 1997:
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OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise Expiration
Name Granted in 1997 Price Date
---- ------- ------- ----- ----
<S> <C> <C> <C> <C>
Joseph F. Dudziak 125,000(1) 25.5% $1.81 08/25/07
Bart K. Valdez 50,000(2) 10.2% $1.81 08/25/07
</TABLE>
________________
(1) On August 25, 1997, Mr. Dudziak's received options to purchase 125,000
shares of Common Stock, such options are immediately vested and the
exercise price of the options is $1.81 per share.
(2) On August 25, 1997, Mr. Valdez received options to purchase 50,000
shares of Common Stock and such options are immediately vested, the
options are exercisable for a period of ten years, without regard to
Mr. Valdez's employment status with the Company and the exercise price
is $1.81 per share.
AGGREGATED OPTION EXERCISES IN 1997 AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Unexercised
Number of In-the-Money
Unexercised Options at
Shares Options at FY-end Fy-end($)
Acquired Value Exercisable/ exercisable
Name on Exercise Realized Unexercisable /unexercisable
---- ----------- -------- -------------- --------------
<S> <C> <C> <C> <C>
Joseph F. Dudziak --- --- 100,000/0 $0.00
Bart K. Valdez --- --- 50,000/0 $0.00
</TABLE>
No options were exercised during 1997 by the Company's executive
officers.
TERM INCENTIVE PLAN ("LTIP") AWARDS TABLE.
Not applicable.
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COMPENSATION OF DIRECTORS
STANDARD ARRANGEMENTS. 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. Currently, the
Company does not pay any directors fees for attendance at board meetings.
OTHER ARRANGEMENTS. The Company has no other arrangements pursuant to
which any director of the Company was compensated during the year ended
December 31, 1997, for services as a director.
EMPLOYMENT CONTRACTS
As a condition to the April 14, 1998 financing discussed under
ITEM 1. DESCRIPTION OF BUSINESS - FINANCING AGREEMENTS above, each of the
Company's Officers and certain employees provided the lenders with undated
releases of their respective employment agreements and tendered
resignations, which are being held in escrow. Until the releases are
accepted by the lenders, the employment agreements between the Company and
each of its Officers are still in effect.
The Company has entered into an employment agreement with Dr. Ruxin
for a period of five years commencing May 24, 1995. The initial term of
this agreement can be extended at the close of the second year for an
additional two years beyond the initial term (creating a term of seven
years from May 24, 1995). Under the agreement, Dr. Ruxin receives a salary
of $190,000 per year and certain other fringe benefits. Dr. Ruxin's
employment agreement includes a cost-of-living increase at the rate of 2
1/2% per annum, plus any other increase which may be determined from time
to time at the discretion of the Company's Board of Directors. Pursuant to
the employment agreement, Dr. Ruxin is provided with a car on such lease
terms to be determined by the Company, provided that the monthly operating
costs (including lease payments) to be paid by the Company will not exceed
$960. The agreement also includes a covenant not to compete for which Dr.
Ruxin was to be paid a lump sum of $115,000 on January 1, 1996. Payment
of the $115,000 was made in January 1998, after having been voluntarily
deferred by Dr. Ruxin. 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'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
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Company for any reason other than cause or permanent disability, the
Company must pay Dr. Ruxin a lump sum severance payment of $2.5 million.
On May 24, 1995, the Company also entered into a five year employment
agreement with William J. Collard which contains the same extension
provision and reasons for termination as does Dr. Ruxin's agreement, and
provides for an annual salary of $100,000. Mr. Collard's employment
agreement includes a cost-of-living increase at the rate of 2 1/2% per
annum, plus any other increase which may be determined from time to time at
the discretion of the Company's Board of Directors. Mr. Collard's
agreement also contains a covenant not to compete, with payments of
$100,000 for the covenant to have been made on January 1, 1996 and May 24,
1996, respectively. Aggregate payments of $200,000 were made as follows:
$25,000 in December, 1995; $75,000 in January, 1996; and $100,000 in May,
1996. The covenant not to compete will terminate the later of five years
from the date of the agreement or the term of the agreement; hence, the
Company will not receive any benefit from the covenant not to compete
unless the agreement is terminated prior to May 24, 2000. If Mr. Collard's
agreement is terminated by the Company for any reason other than cause or
permanent disability, the Company must pay him a lump sum severance payment
of $2.5 million. Mr. Collard also receives a car allowance of $450 per
month. Mr. Collard received approximately $8,000 for vacation related
expenses during 1996. During 1997, Mr. Collard received approximately
$11,000 for tax expenses related to the may 1995 Wyndgate merger.
The Company also has an employment agreement with Gerald F. Willman,
Jr. which contains an extension provision for the term of the agreement and
reasons for termination similar to those of Dr. Ruxin and Mr. Collard with
an annual salary of $95,000, except the initial term is for three years
commencing May 24, 1995 and the extension is for an additional two years.
Mr. Willman's employment agreement includes a cost-of-living increase at
the rate of 2 1/2% per annum, plus any other increase which may be
determined from time to time in the discretion of the Company's Board of
Directors. The employment agreement requires that if he is terminated by
the Company for any reason other than cause or permanent disability, the
Company must pay Mr. Willman a lump sum severance payment of $1.0 million.
Mr. Willman received approximately $8,000 for vacation related expenses in
1996. During 1997, Mr. Willman received approximately $25,000 for tax
expenses related to the May 1995 Wyndgate merger.
On June 28, 1995, the Company entered into an employment agreement
with Joseph F. Dudziak, which expired on June 28, 1997, pursuant to which
Mr. Dudziak earns a salary of $105,000 per year. Mr. Dudziak retired from
the Company in March 1998. The agreement also granted 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 agreed to pay Mr. Dudziak approximately $25,000 for moving
expenses, which was paid in 1997.
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<PAGE>
In December 1997, the Company entered into a severance agreement with Mr.
Dudziak, pursuant to which Mr. Dudziak agreed to remain in the Company's
employ through June 30, 1998 in consideration of a 10% raise, effective
January 1, 1998, a payment to Mr. Dudziak in the amount of $50,000 on June
30, 1998, extension of Mr. Dudziak's medical benefits through December 31,
1998, and the Company's agreement to indemnify Mr. Dudziak from various
potential claims as a result of Mr. Dudziak's employment with the Company.
The Company and Mr. Dudziak have recently commenced negotiations relating
to these severance agreement provisions; however, there can be no assurance
that the parties will reach agreement as to any modifications of the
December 1997 severance agreement with Mr. Dudziak.
The Company also has an employment agreement with Bradley V. Maberto
which contains an extension provision for the term of the agreement and
reasons for termination similar to those of Mr. Willman. The agreement
provides for an annual salary of $55,000. The initial term for the
agreement is three years commencing on May 24, 1995 and the extension is
for an additional two years. Mr. Maberto's employment agreement includes
a cost-of-living increase at the rate of 2 1/2% per annum, plus any other
increase which may be determined from time to time in the discretion of the
Company's Board of Directors. The agreement requires that if Mr. Maberto
is terminated by the Company for any reason other than cause or permanent
disability, the Company must pay Mr. Maberto a lump sum severance payment
of $1.0 million.
REPORTING ON REPRICING OF OPTIONS/SARS.
Not Applicable.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ------------------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the date hereof, the ownership
of the Company's Common Stock by (i) each director and executive officer of
the Company, (ii) all executive officers and directors of the Company as a
group, and (iii) all persons known by the Company to beneficially own more
than 5% of the Company's Common Stock.
Amount and Nature of
Name and Address Beneficial
of Shareholder Ownership (1) Percent of Class
- -------------- -------------------- ----------------
Michael I. Ruxin, M.D.(1) 906,250(2) 11.1%
12600 W. Colfax
Suite A-500
Lakewood, CO 80215
Thomas F. Marcinek(1) 0 0.0%
11121 Sun Center Drive
Suite C
Rancho Cordova, CA 95670
William J. Collard(1) 613,006(3)(4) 7.5%
11121 Sun Center Drive
Suite C
Rancho Cordova, CA 95670
Gerald F. Willman, Jr.(1) 882,514(5) 10.8%
11121 Sun Center Drive
Suite C
Rancho Cordova, CA 95670
Lori J. Willman(1) 882,514(6) 10.8%
11121 Sun Center Drive
Suite C
Rancho Cordova, CA 95670
Gordon E. Segal(1) 256,250(7) 3.1%
340 W. 57th Apt. 9J
New York, NY 10019
All Directors and 2,658,020 32.6%
Executive Officers as
a group (5 persons)(1)
______________________
(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
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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 15,000 shares underlying warrants issued in connection with
the purchase of the 10% Notes.
(4) 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.
(5) 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.
(6) Includes 536,033 shares owned by Gerald F. Willman, Jr., the spouse of
Lori J. Willman.
(7) Includes 6,250 shares underlying warrants issued in connection with
the 10% Notes. Does not include 30,000 shares underlying Mr. Segal's
unvested options.
CHANGES IN CONTROL
In April 1998, the Company entered into financing arrangements with
two non-affiliated companies pursuant to which, among other things, the
Company's Officers, Directors and certain employees executed releases of
their employment agreements and resignations, which are being held in
escrow by the lenders. Under the loan commitment documents, the lenders
have the right to cancel all management and employee contracts, and if the
Company defaults on the terms of the commitments, the resignations of the
Directors, Officers and employees will immediately be effective. There can
be no assurance that the lenders will not invoke their right to terminate
such contracts, thus effecting an immediate change in the management and
control of the Company.
In addition, the lenders have the right to appoint five members to the
Company's Board of Directors, which would then consist of nine members.
The lender's designees will consititue a majority of the then Board of
Directors, and will be able to shape the policies and procedures of the
Company, to determine when and if dividends would be paid, and to determine
the circumstances under which the Company may be sold or merged, along with
other important corporate decisions.
As consideration for the loan commitments, the Company has agreed to
issue warrants to purchase from 7,000,000 to 12,000,000 shares of Common
Sock at $.25 per share. In addition, in the event the Company were to
default under the terms of the loan commitments, the outstanding principal
and any unpaid interest may be converted, at the option of the lenders,
into approximately 70 million shares of the Company's Common Stock on the
basis of one share of Common Stock for each $.05 of debt. If the lenders
were to exercise their warrants, or convert any of the outstanding debt
into Common Stock upon default, the lenders would own and control a
majority of the then outstanding Common Stock. Since the Company does not
have cumulative voting, this concentration of voting control would mean
that the lenders would be able to elect all of the Directors of the
Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------
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 convertible notes which accrued interest at the rate
of 10% per annum ("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).
Dr. Ruxin 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 capital lease obligations currently totaling
approximately $160,000. Additionally, Dr. Ruxin has personally guaranteed
the $1.5 million of the Fronteer Line of Credit. See "ITEM 1. DESCRIPTION
OF BUSINESS - FINANCING AGREEMENTS."
In August 1997, the Company entered into a four year employment
agreement with Hollis Gailey, the spouse of William J. Collard, an Officer
and Director of the Company. Ms. Gailey provides international business
services for Wyndgate, including researching international requirements for
exporting Wyndgate's software, securing international business, working
with the
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Australian Red Cross and New Zealand Blood Service and acting as a liaison
to certain potential international clients. The agreement provides for an
annual salary of $86,000 and cost of living increases at the rate of 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. During 1997, the
Company also paid Ms. Gailey $30,000 in consideration of her entering into
the employment agreement with the Company, and agreed to pay $60,000 in
deferred compensation, payable in three equal annual installments in 1998,
1999, and 2000. In January 1998, the Company paid Ms. Gailey $20,000 in
connection with the deferred compensation amount. Ms. Gailey's employment
under the employment agreement may be terminated by Ms. Gailey in the event
of the sale by the Company of substantially all of its assets, the sale,
exchange or other disposition in one transaction or a series of
transactions 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, the Company files
a voluntary bankruptcy petition, or a petition seeking to reorganize,
dissolve or liquidate, an petition for involuntary bankruptcy or similar
proceeding is filed, and remains undismissed for a period of 30 days, or
the Company seeks or consents to the appointment of a trustee, receiver or
liquidator or there are material changes in her duties and responsibilities
without her written consent. The Company may terminate the employment
agreement by reason of Ms. Gailey's death or permanent disability or for
cause as set forth in the employment agreement.
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. 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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PARENTS OF THE COMPANY
The parents of the Company are Michael I. Ruxin, William J. Collard,
Gerald F. Willman, Jr. and Lori J. Willman. See ITEM 11, above, for the
percentage of securities owned by each such person.
TRANSACTIONS WITH PROMOTERS
See above.
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PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
- ----------------------------------------------------------------
(a) The following documents are filed as a part of this Form 10-KSB:
Consolidated Financial Statements of Global Med Technologies,
Inc.:
Report of Independent Auditors
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statement of Operations - Years ended December 31,
1997 and 1996
Consolidated Statement of Stockholders' Deficit - Years ended
December 31, 1997 and 1996
Consolidated Statement of Cash Flows - Years ended December 31,
1997 and 1996
Notes to Consolidated Financial Statements - December 31, 1997
and 1996
Exhibits required to be filed are listed below and, except where
incorporated by reference, immediately follow the Financial Statements.
57
<PAGE>
Number Description
- ------ -----------
3.1 Amended and Restated Articles of Incorporation, filed June 2,
1995 (1)
3.2 Articles of Amendment to the Articles of Incorporation, filed
March 5, 1996 (1)
3.3 Articles of Amendment to the Articles of Incorporation, filed May
30, 1996 (1)
3.4 Bylaws, as amended (1)
4.1 Form of Representative's Warrants to Purchase Units (1)
4.2 Form of Class A Common Stock Purchase Warrant Certificate (1)
4.3 Specimen copy of stock certificate for Common Stock, $.01 par
value (1)
10.1 Lease Agreement, dated April 15, 1992, and Lease Addendums, dated
April 8, 1992 and October 21, 1994 (1)
10.2 Lease Agreement, dated July 19, 1995, and Lease Addendum (1)
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 (1)
10.4 Employment Agreement, dated May 24, 1995, between the Registrant
and William J. Collard, as amended July 22, 1996 (1)
10.5 Employment Agreement, dated June 28, 1995, between the Registrant
and Joseph F. Dudziak (1)
10.6 Employment Agreement, dated February 8, 1996, between the
Registrant and L.E. "Gene" Mundt (1)
10.7 Amended and Restated Stock Option Plan, as amended on May 5,
1995, May 29, 1996 and December 11, 1996 (1)
10.7(A) Amendment, dated March 31, 1997, to the Amended and Restated
Stock Option Plan. (2)
58
<PAGE>
10.8 Voting Agreement, dated May 23, 1995 (1)
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 (1)
10.10 Agreement dated April 8, 1996, between the Registrant and LMU &
Company, and Stock Purchase Option, dated April 8, 1996 (1)
10.11 Form of Drug Testing Service Contract (1)
10.12 Form of License Agreements (1)
10.13 Warrant Agreement, dated February 11, 1997, between Global Med
Technologies, Inc. and American Securities Transfer & Trust, Inc.
(1)
10.14 Exclusivity and Software Development Agreement, dated November
14, 1996, between and among Global Med Technologies, Inc. and
Ortho Diagnostic Systems Inc. (1)
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 (1)
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 (1)
10.17 Interim Management Agreement, dated July 7, 1997, between the
Registrant and National Medical Review Offices, Inc. (1)
10.18 Asset Purchase Agreement, dated August 18, 1997, between the
Registrant and National Medical Review Offices, Inc. (1)
10.19 Third Amendment to Exclusivity and Software Development
Agreement, dated September 17, 1997 between Global Med
Technologies, Inc. and Ortho Diagnostic Systems, Inc. (1)
10.20 Second Amended and Restated Stock Option Plan, as amended October
3, 1997 and December 2, 1997 (3)
59
<PAGE>
10.21 Fourth Amendment to Exclusivity and Software Development
Agreement, dated December 22, 1997 between Global Med
Technologies, Inc. and Ortho Diagnostic Systems, Inc.
10.22 Development Agreement, dated July 12, 1996 between
Global Med Technologies, Inc. and The Institute for Transfusion
Medicine, dated July 12, 1996, as amended January 12, 1998
10.23 Loan Commitment, dated April 14, 1998, between Heng Fung
Finance Company Limited and the Company, as amended on
April 16, 1998
10.24 Loan Commitment, dated April 14, 1998, between Fronteer
Capital, Inc. and the Company, as amended on April 16, 1998
10.25 Amendment to Loan Commitment, dated April 16, 1998, between
Heng Fung Finance Company Limited and the Company
10.26 Amendment to Loan Commitment, dated April 16, 1998, between
Fronteer Capital, Inc. and the Company
10.27 Second Amendment to Loan Commitments, dated April 20, 1998
between the Company, Heng Fung Finance Company Limited and
Fronteer Capital, Inc.
21 Subsidiaries of the Company (1)
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule for December 31, 1997
27.2 Restated Financial Data Schedule for December 31, 1996
99 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 (1)
_____________
(1) The documents identified are incorporated by reference from the
Company's Registration Statement on Form SB-2 (No. 333-11723).
(2) Incorporated by reference from the Company's Registration Statement on
Form S-8 (No. 333-28155).
(3) Incorporated by reference from the Company's Registration Statement on
Form S-8 (No. 333-45031).
(b) During the last quarter of the year ended December 31, 1997, the
Company filed one Current Report on Form 8-K, dated December 15,
1997, reporting the closing of the sale of the Company's DataMed
International division under Item 2 thereof.
(c) Required exhibits are attached hereto or are incorporated by
reference and are listed in Item 13(a)(3) of this Report.
(d) Required financial statements are attached hereto and are listed
in Item 13 of this Report.
60
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
Date: April 21, 1998 GLOBAL MED TECHNOLOGIES, INC.
By /s/ Michael I. Ruxin
----------------------------------
Michael I. Ruxin, Chairman and
Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Michael I. Ruxin Chairman of the Board April 21, 1998
- --------------------------- of Directors, Principal
Michael I. Ruxin Executive Officer and
Director
/s/ Thomas F. Marcinek President and Chief April 21, 1998
- --------------------------- Operating Officer
Thomas F. Marcinek
/s/ William J. Collard Secretary/Treasurer and April 21, 1998
- --------------------------- Director
William J. Collard
/s/ Gerald F. Willman, Jr. Chief Financial Officer April 21, 1998
- --------------------------- and Director
Gerald F. Willman, Jr.
61
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
GLOBAL MED TECHNOLOGIES, INC.
YEARS ENDED DECEMBER 31, 1997 AND 1996
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
Global Med Technologies, Inc.
Consolidated Financial Statements
Years ended December 31, 1997 and 1996
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' 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. as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' 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, 1997 and 1996, and the consolidated
results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/
Denver, Colorado
April 10, 1998, except for
Note 1 as to which the date
is April 20, 1998
F-1
<PAGE>
Global Med Technologies, Inc.
Consolidated Balance Sheets
(In thousands except par value information)
DECEMBER 31
1997 1996
-----------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,370 $ 489
Accounts receivable-trade, net of
allowance for uncollectible accounts
of $175 and $75 at December 31, 1997
and 1996, respectively 175 875
Unbilled revenues, net of allowance
for uncollectible accounts of $125
at December 31, 1997 and 1996 158 326
Prepaid expenses and other assets 256 196
Deferred offering costs - 486
-------------------------------
Total current assets 2,959 2,372
Equipment and fixtures, at cost:
Furniture and fixtures 367 67
Machinery and equipment 303 -
Computer hardware and software 1,166 613
-------------------------------
1,836 680
Less accumulated depreciation and
amortization (665) (189)
-------------------------------
1,171 491
Capitalized software development costs,
less accumulated amortization of $403
and $163 at December 31, 1997 and
1996, respectively 136 376
-------------------------------
Total assets $ 4,266 $ 3,239
===============================
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
DECEMBER 31
1997 1996
------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 324 $ 483
Accrued expenses 599 731
Accrued payroll 398 243
Accrued compensated absences 449 352
Noncompete accrual 150 150
Unearned revenue 2,761 1,359
Short-term debt - 1,097
Notes payable (including $181 to
related parties at December 31,
1996) - 651
Current portion of capital lease
obligations 229 169
Net liabilities of discontinued
operations 631 1,132
-------------------------------
Total current liabilities 5,541 6,367
Capital lease obligations, less
current portion 198 232
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 -
8,148 and 4,994 at December
31, 1997 and 1996, respectively 82 50
Additional paid-in capital 13,420 4,282
Accumulated deficit (14,975) (7,692)
-------------------------------
Total stockholders' deficit (1,473) (3,360)
-------------------------------
Total liabilities and stockholders'
deficit $ 4,266 $ 3,239
===============================
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
Global Med Technologies, Inc.
Consolidated Statements of Operations
(In thousands except per common share information)
YEAR ENDED DECEMBER 31
1997 1996
------------------------------
Revenues:
Software sales and consulting $ 2,209 $ 3,648
Hardware and software, obtained
from vendors 297 928
-------------------------------
2,506 4,576
Cost of revenues:
Software sales and consulting 1,373 937
Hardware and software, obtained
from vendors 224 946
-------------------------------
1,597 1,883
-------------------------------
Gross profit 909 2,693
Operating expenses:
Payroll and other 1,487 1,524
General and administrative 1,115 879
Sales and marketing 1,458 948
Research and development 3,757 1,538
Provision for doubtful accounts 100 19
Depreciation and amortization 409 162
-------------------------------
Loss from continuing operations before
other income (expense) (7,417) (2,377)
Other income (expense):
Interest income 168 25
Interest expense (86) (209)
Other (81) (250)
--------------------------------
Loss from continuing operations (7,416) (2,811)
Loss from discontinued operations (880) (1,681)
Gain on sale of discontinued operations 1,013 -
-------------------------------
Net loss $ (7,283) $ (4,492)
===============================
Basic and diluted loss per share of
common stock:
Loss from continuing operations $(0.96) $(0.63)
Gain (loss) from discontinued
operations 0.02 $(0.37)
-------------------------------
Net loss $(0.94) $(1.00)
===============================
Weighted average of common shares
outstanding 7,728 4,499
===============================
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
Global Med Technologies, Inc.
Consolidated Statements of Stockholders' Deficit
(In thousands)
Common Stock Additional
--------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
----------------------------------------------
Balance, December 31, 1995 3,949 $39 $ 1,702 $(3,200) $(1,459)
Issuance of common stock-
January 1996 exercise
of common stock warrants
related to May 1995
private placement 150 2 448 - 450
January 1996 issuance of
Series A preferred
stock converted to
common stock 67 1 249 - 250
Issuance of common stock
from exercise of stock
options under Company's
stock option plan - - 1 - 1
Issuance of common stock
related to July 1996
private placement 800 8 1,732 - 1,740
Grants of common stock
options to a business
advisory enterprise - - 45 - 45
Issuance of common stock
related to conversion of
certain 10% notes 28 105 - 105
Net loss - - - (4,492) (4,492)
----------------------------------------------
Balance, December 31, 1996 4,994 50 4,282 (7,692) (3,360)
Issuance of warrants related
to January 1997 12% notes - - 79 - 79
Issuance of common stock
related to conversion
of certain 10% notes 93 1 348 - 349
Initial public offering,
including underwriter's
overallotment option-
net of offering expenses 2,914 29 8,197 - 8,226
Share adjustments related to
May 1995 private placement
common stock 120 1 (1) - -
Issuance of common stock
from exercise of stock
options under Company's
stock option plan 15 - 21 - 21
Issuance of common stock to
a corporate marketing
enterprise 12 1 25 - 26
Option grants under the
Company's stock option
plan - - 314 - 314
Option grants to a business
advisory enterprise - - 155 - 155
Net loss - - - (7,283) (7,283)
----------------------------------------------
Balance, December 31, 1997 8,148 $82 $13,420 $(14,975) $(1,473)
==============================================
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
Global Med Technologies, Inc.
Consolidated Statements of Cash Flows
(In thousands)
YEAR ENDED DECEMBER 31
1997 1996
------------------------------
OPERATING ACTIVITIES
Net loss $ (7,283) $ (4,492)
Adjustments to reconcile net loss to
net cash used in operating activities:
Loss from discontinued operations 880 1,681
Gain on sale of discontinued
operations (1,013) -
Depreciation 409 162
Amortization 240 97
Loss on disposal of assets 2 -
Expense related to issuance of
common stock, options and warrants 549 45
Changes in operating assets and
liabilities:
Accounts receivable-trade, net 700 (857)
Unbilled revenues, net 168 (326)
Prepaid expenses and other assets (60) (190)
Accounts payable (159) 418
Accrued expenses (132) 645
Accrued payroll 155 207
Accrued compensated absences 97 91
Noncompete accrual - (175)
Unearned revenue 1,402 1,088
-------------------------------
Net cash used in continuing operations (4,045) (1,606)
Net cash used in discontinued operations (1,255) (1,040)
-------------------------------
Net cash used in operating activities (5,300) (2,646)
INVESTING ACTIVITIES
Purchases of equipment and fixtures (781) (67)
Capital expenditures of discontinued
operations (58) (105)
Net proceeds from sale of discontinued
operations 1,000 -
Increase in software development costs - (70)
-------------------------------
Net cash provided by (used in)
investing activities 161 (242)
FINANCING ACTIVITIES
Borrowings on short-term debt 450 715
Principal payments on short-term debt (1,547) (118)
Principal payments under capital lease
obligations (207) (130)
Principal payments under capital lease
obligations of discontinued operations (107) (223)
Principal payments on notes payable (327) -
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
Global Med Technologies, Inc.
Consolidated Statements of Cash Flows (continued)
(In thousands)
YEAR ENDED DECEMBER 31
1997 1996
-------------------------------
FINANCING ACTIVITIES (CONTINUED)
Issuance of notes payable $ - $ 651
Issuance of common stock 8,272 2,546
Deferred offering costs 486 (486)
-------------------------------
Net cash provided by financing
activities 7,020 2,955
-------------------------------
Net increase in cash and cash
equivalents 1,881 67
Cash and cash equivalents at beginning
of period 489 422
-------------------------------
Cash and cash equivalents at end
of period $ 2,370 $ 489
================================
Supplemental disclosures:
The Company entered into capital lease obligations of approximately
$130,000 and $585,000 in 1997 and 1996, respectively, including $343,000
related to discontinued operations in 1996.
During 1997, convertible 10% notes payable of approximately $324,000 and
related accrued interest of approximately $25,000 were converted into
93,003 shares of common stock at $3.75 per share (see Note 8).
During 1996, convertible 10% notes payable of approximately $100,000 and
related accrued interest of approximately $5,000 were converted into 28,000
shares of common stock at $3.75 per share (see Note 8).
Interest expense approximates interest paid.
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
Global Med Technologies, Inc.
Notes to Consolidated Financial Statements
December 31, 1997
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). 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. Subsequent to the merger, the businesses of both Wyndgate and
National MRO have been operated as divisions of the Company. Also, the
National MRO and Wyndgate divisions are now referred to as DataMed
International (DataMed) and Wyndgate Technologies (Wyndgate), respectively
(see Note 2).
DESCRIPTION OF BUSINESS
The Company, through Wyndgate, provides information management software
products and services to the health care industry. The Company, through
its DataMed division, which is shown in the accompanying consolidated
financial statements as discontinued operations (see Note 2), was in the
business of providing substance abuse testing management services.
LIQUIDITY AND MANAGEMENT'S PLANS
From inception to December 31, 1997, the Company incurred cumulative net
losses of approximately $15 million. The Company expects to continue to
incur net losses until 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),
which is currently in beta testing, is established in its markets (see
Note 10 and Note 11). On April 14, 1998 and as amended on April 16, 1998
and on April 20, 1998, the Company entered into two financing agreements
with two related parties, which are 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 at 12%
per annum to be paid monthly, with principal and any unpaid interest to be
repaid upon maturity of 366 days after April 14, 1998. The Company agreed
to pay a finder's fee of 9% of the amounts drawn upon the line of credit to
RAF Financial Corporation (RAF). RAF is related to the lenders and was
also the lead underwriter for the Company's February 1997 initial public
offering.
Pursuant to the agreements, the lenders will have certain rights which will
include the right to appoint five members to the Company's Board of
Directors, the option to cancel all management and employee contracts and
the right to veto any contract for employment, loans or leases valued over
$250,000.
Upon signing of the loan, the lender received 6 million detachable warrants
which are convertible at $.25 each for one share of the Company's common
stock. If the Company draws upon the line of credit, the lender will
receive 6 million detachable warrants, in total, which are convertible at
$.25 each for one share of the Company's common stock. If the Company does
not draw upon the line of credit, the lender will receive 1 million
detachable warrants with the same conditions. The warrants are exercisable
over a 10-year period from April 14, 1998. The Company must 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 loan or the
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.
F-8
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Under current accounting rules regarding discounted warrants, these
financings may result in material non-cash charges to the Statement of
Operations in 1998. Management has not completed the assessment of the
amounts to be charged to expense.
In light of the Company's projected earnings and cash flow, management
believes the Company has the financial resources with this additional
financing to maintain its planned level of operations for the next twelve
months without obtaining additional financing. Management, however,
recognizes that even with the current financing, the Company will need to
obtain additional capital in 1999, or may be required to substantially
reduce its software development programs and other operating expenses.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its Wyndgate division. All significant interdivision
accounts and transactions have been eliminated.
REVENUE RECOGNITION
Revenue from the provision of maintenance services, included in software
sales and consulting revenue, is recognized on a straight-line basis over
the maintenance term.
Revenue from the provision of implementation and consulting services,
included in software sales and consulting revenue, is recognized as
services are performed.
Revenue from software development contracts, included in software sales and
consulting revenue, 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 re-sale of hardware and software, obtained from vendors,
is recognized at the time the hardware and software are delivered to
customers.
Revenue from sales of software licenses, included in software sales and
consulting revenue, 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)
In October 1997, the AICPA issued Statement of Position ("SOP") 97-2, SOFTWARE
REVENUE RECOGNITION, which changes the requirements for revenue recognition
effective for transactions the Company will enter into beginning January 1,
1998. Prior years are not required to be restated. The Company hasn't yet
completed its assessment of the impact SOP 97-2 will have on its financial
statements.
UNBILLED REVENUES
Unbilled revenues at December 31, 1997 and 1996 are generally billable and
collectible within one year.
UNEARNED REVENUE
Included in unearned revenue at December 31, 1997 and 1996 is approximately
$33,000 and $52,000, respectively, of unperformed professional services
related to an agreement between the EDEN-OA Blood Bank Users Group (the
Royalty Group) and Wyndgate (see Note 10). At December 31, 1997, $1
million 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 10). At December 31,
1997, approximately $485,000 and $400,000 of the unearned revenue balance
is related to agreements between The Institute for Transfusion Medicine and
the Company for a transfusion services software product (to be known as
SAFETRACE TX(TM)) development agreement (see Note 10 and Note 11) and a
SAFETRACE(R) software license agreement, respectively. The remaining
unearned revenue balance at December 31, 1997 of $843,000 primarily
consists of unearned SAFETRACE(R) maintenance revenue, sales of
SAFETRACE(R) licenses and related postcontract customer support, and
re-sales of hardware and software which are not recognizable as revenue at
December 31, 1997 pursuant to the Company's revenue recognition accounting
policies discussed above.
SIGNIFICANT CUSTOMERS
During 1997, two Wyndgate customers - Haemonetics Corporation and Belle
Bonfils Memorial Blood Center, each accounted for approximately 33% and 10%
of the Company's total revenues from continuing operations.
F-10
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
During 1996, one Wyndgate customer, Gulf Coast Regional Blood Center,
accounted for approximately 29% of the Company's total revenues from
continuing operations.
Accounts receivable from the above customers was approximately $60,000 and
$205,000 at December 31, 1997 and 1996, respectively. Unbilled revenues
from the above customers was approximately $160,000 at December 31, 1997.
CREDIT AND MARKET RISK
Accounts receivable at December 31, 1997 are derived entirely from
SAFETRACE(R) sales and related services and re-sales of hardware and
software to blood centers and blood center service providers located in the
United States. The Company, historically, does not require collateral or
other security to support customer receivables. In order to reduce credit
risk, the Company requires substantial down payments and progress payments
during the course of an installation of its software products. The Company
establishes allowances for doubtful accounts based upon factors surrounding
the credit risk specific to customers. Losses and allowances have
generally been within management's expectations.
Accounts receivable turnover trends have generally slowed from previously
expected rates due to certain delays experienced to date related to
implementation of Wyndgate's blood bank management information system
software product (SAFETRACE(R)).
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 initially
extended to December 31, 1997 and was 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 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.
F-11
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EQUIPMENT AND FIXTURES
Equipment and fixtures are stated at cost. Depreciation and amortization,
which includes amortization of assets under capital leases (see Note 5), 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
The Company records impairment losses on long-lived assets used in
operations when events and circumstances indicate assets might be impaired
and the undiscounted cash flows estimated to be generated by these assets
are less than the carrying amounts of those assets.
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes certain software development and production costs
once technological feasibility has been achieved. Software development
costs incurred prior to achieving technological feasibility are included in
research and development expense in the accompanying consolidated statement
of operations.
Capitalized software development costs are reported at the lower of
unamortized costs or net realizable value. Commencing upon the initial
product release or when software development revenue has begun to be
recognized, these costs are amortized based on the straight line method
over the estimated life, generally two to five years. Fully amortized
software costs are removed from the financial records. For the years ended
December 31, 1997 and 1996, the Company recorded approximately $240,000 and
$97,000 of amortization of capitalized software costs, respectively, based
on the straight-line method. Amortization of capitalized software costs is
included in cost of revenues in the accompanying consolidated statement of
operations.
F-12
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, management believes
the Company has adequately provided for the ultimate liability, if any,
from the settlement of such potential claims (see Note 11).
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 using the liability method. Deferred
income taxes are provided for temporary differences in recognizing certain
income and expense items for financial reporting and tax reporting
purposes.
LOSS PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, EARNINGS PER SHARE. Statement 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All loss per share amounts for
all periods have been presented, and where appropriate, restated to conform
to the Statement 128 requirements.
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
F-13
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
2. DISCONTINUED OPERATIONS
On August 18, 1997, the Company entered into an asset purchase agreement
with National Medical Review Offices, 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 directions and control of the business and operations of DataMed.
Accordingly, NMRO has managed the business and assumed ownership
responsibilities 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
for approximately $1 million in proceeds net of various closing costs and
the assumption of certain liabilities.
The accompanying consolidated financial statements and related footnotes
reflect DataMed as discontinued operations.
F-14
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. DISCONTINUED OPERATIONS (CONTINUED)
The operating results of the discontinued operations reflected in the
Company's Statement of Operations are summarized as follows (in thousands):
SIX MONTHS
ENDED YEAR ENDED
JUNE 30 DECEMBER 31
1997 1997
------------------------------
Substance abuse testing
and other revenue $ 2,953 $ 6,458
Cost of revenue 2,151 4,587
-------------------------------
Gross profit $ 802 $ 1,871
===============================
Net loss $ (880) $ (1,681)
===============================
The net liabilities of the discontinued operations are summarized as
follows (in thousands):
DECEMBER 31
1997 1996
------------------------------
Current assets $ - $ 1,022
Equipment and fixtures, net - 738
Current liabilities (631) (2,426)
Long-term liabilities - (466)
-------------------------------
Net liabilities $ (631) $ (1,132)
===============================
3. NONCOMPETE AGREEMENTS
The Company has entered into noncompete agreements with three key
employees, two of which also serve on the Company's Board of Directors, 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 (see Note 10). At
December 31, 1997, $150,000 remains payable whenever sufficient cash flow
is available as determined by the Company's Board of Directors (see Note
11).
F-15
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. INCOME TAXES
The Company has net operating loss carryforwards of approximately
$10,276,000 which expire in the years 2006 to 2012. Such net operating
loss carryforwards are subject to limitation on usage due to the change in
ownership resulting from the February 1997 initial public offering (see
Note 8).
The components of the deferred tax provision, which arise from temporary
differences between financial and tax reporting, are presented below:
1997 1996
-------------------------------
(IN THOUSANDS)
Cash to accrual adjustment $ (296) $ (59)
Allowance for uncollectible
accounts receivable - 98
Accelerated depreciation (243) (46)
Unearned revenue and accrued expenses 800 435
Capitalized software 203 (10)
Net operating loss carryforward 2,328 1,236
Valuation allowance (2,792) (1,654)
-------------------------------
Total deferred provision $ - $ -
===============================
Variations from the federal statutory rate are as follows:
1997 1996
-------------------------------
(IN THOUSANDS)
Expected benefit from federal income
taxes at statutory rate of 34% $ (2,476) $ (1,527)
Effect of permanent differences 17 -
Valuation allowance 2,792 1,780
State tax benefit, net of federal
benefit (401) (247)
Other 68 (6)
-------------------------------
$ - $ -
===============================
F-16
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. INCOME TAXES (CONTINUED)
The components of the net accumulated deferred income tax asset as of
December 31, 1997 and 1996 are as follows:
1997 1996
-------------------------------
(IN THOUSANDS)
Deferred tax assets:
Cash to accrual adjustment $ - $ 296
Excess of capital losses over
capital gains 79 79
Net operating loss carryforward 4,059 1,731
Allowance for uncollectible accounts
receivable 217 217
Unearned revenue and accrued expenses 1,466 666
Valuation allowance (5,576) (2,784)
-------------------------------
245 205
Deferred tax liabilities:
Capitalized software (54) 149
Accelerated depreciation 299 56
-------------------------------
245 205
-------------------------------
Deferred tax asset, net $ - $ -
===============================
F-17
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. LEASES
The Company leases equipment and office space. Rental expense under
operating leases, included in general and administrative expenses in
the accompanying statements of operations, for the years ended December 31,
1997 and 1996 was approximately $325,000 and $135,000, respectively.
Certain leases of equipment and fixtures are classified as capital leases.
A principal stockholder of the Company has personally guaranteed repayment
of certain capital lease obligations. Included in equipment and fixtures
in the accompanying consolidated balance sheets are the following assets
held under capital leases on behalf of continuing operations:
DECEMBER 31
1997 1996
-------------------------------
(IN THOUSANDS)
Furniture and fixtures $127 $ 55
Machinery and equipment 179 -
Computer hardware and software 582 507
-------------------------------
Assets under capital lease 888 562
Less accumulated amortization (468) (166)
--------------------------------
Assets under capital lease, net $420 $396
================================
The following represents the minimum lease payments remaining under capital
leases and the future minimum lease payments for all noncancelable
operating leases included in continuing operations at December 31, 1997:
CAPITAL OPERATING
LEASES LEASES
-------------------------------
(IN THOUSANDS)
1998 $ 282 $ 417
1999 116 421
2000 73 433
2001 37 396
2002 21 268
-------------------------------
Total minimum lease payments 529 $1,935
=================
Less amount representing interest (102)
--------------
Present value of minimum lease payments 427
Less current portion of obligations
under capital lease (229)
--------------
Obligations under capital lease,
less current portion $ 198
==============
F-18
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. SHORT-TERM DEBT
The Company maintained a $25,000 unsecured revolving credit line with a
bank which accrued interest at an annual rate of prime plus one percent or
a minimum of ten percent and matured on March 1, 1997. Amounts
outstanding under this revolving line of credit were $25,000 at December
31, 1996. In April 1997, the Company repaid this revolving line of credit,
including accrued interest, from a portion of the net proceeds of the
February 1997 initial public offering (the Offering). See Note 8 for a
further description of the Offering.
The Company maintained 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 5), which accrued 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 at December 31, 1996.
In February 1997, the Company repaid this line of credit, including accrued
interest, from a portion of the net proceeds of the Offering.
The Company maintained a $55,000 unsecured line of credit with a bank which
accrued interest at an annual rate of 14.75 percent. Amounts outstanding
under this line of credit were $50,000 at December 31, 1996. In February
1997, the Company repaid this line of credit, including accrued interest,
from a portion of the net proceeds of the Offering.
During 1996, the Company entered into a $25,000 unsecured promissory note
with an individual which accrued interest at an annual rate of twelve
percent. At December 31, 1996, $25,000 was outstanding under this
promissory note. In February 1997, the Company repaid this promissory note,
including accrued interest, from a portion of the net proceeds of the
Offering.
As of December 31, 1997, the Company does not have any outstanding or
available short term debt other than its capital lease obligations (see
Note 5).
The Company incurred interest expense on short term debt, excluding
interest expense on capital lease obligations, of approximately $10,000 and
$151,000 for the years ended December 31, 1997 and 1996, respectively (see
Note 8).
F-19
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. STOCK OPTION PLANS
The Company has a Second Amended and Restated Stock Option Plan for
employees, officers, directors and consultants of the Company (the Stock
Option Plan). The Stock Option Plan provides for the issuance of options
to purchase up to 2.2 million shares of common stock. As of December 31,
1997, the Company has issued 14,480 shares of common stock in connection
with the exercise of 14,480 stock options granted under the Stock Option
Plan (see Note 8). As of December 31, 1997, there were a total of
2,185,520 shares of common stock reserved for future issuance under the
Stock Option Plan, including 860,218 shares of common stock underlying
stock options outstanding and unexercised. Additionally and as of December
31, 1997, there were a total of approximately 445,000 vested stock options
under the Stock Option Plan which were exercisable at an average exercise
price of approximately $1.85 per share and which expire in 2002 to 2007(see
Note 10).
The terms of any options granted under the Stock Option Plan are not
required to be identical as long as they are not inconsistent with the
express provisions of the Stock Option 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 Stock Option Plan are either fully vested upon
the date of grant or 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 value of the common stock on the grant date and may not be
exercisable for more than five years. The exercise price for nonqualified
options may not be less than eighty-five percent of the fair market value
of the common stock on the grant date.
The Company has elected to continue to follow Accounting Principles Board
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25), and
related Interpretations in accounting for its stock options because, as
discussed below, the alternative fair value accounting provided for by
Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION (Statement No. 123), requires use of option valuation models
that were not developed for use in valuing the stock options. Pursuant to
APB 25 and because the exercise price of the Company's stock options,
granted to employees, equals or exceeds the estimated market price of the
underlying common stock on the date of grant, no compensation expense is
recognized.
F-19
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. STOCK OPTION PLANS (CONTINUED)
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. Prior to the Offering, 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 (see Note 8). Under this
method, option value is determined as the excess of the fair value of the
common 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. As a result
of the Offering, the Company uses the Black-Scholes option pricing model to
determine the fair value of options granted subsequent to December 31, 1996.
A risk-free rate of approximately 5.8% and 5.3% for the years ended December
31, 1997 and 1996, respectively; and a weighted-average expected life of ten
years and a dividend yield of 0% were used for the years ended December 31,
1997, 1996 and 1995; volatility factors of the expected market price of the
Company's stock of $1,394 and $1.362 for the year ended December 31, 1997.
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):
1997 1996
-------------------------------
Pro forma net loss $(7,513) $(4,582)
Pro forma net loss per share $ (0.97) $ (1.02)
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.
F-21
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. STOCK OPTION PLANS (CONTINUED)
A summary of the Company's stock option activity and related information
regarding the Stock Option Plan are as follows:
INCENTIVE STOCK NONQUALIFIED STOCK
OPTION PLAN OPTION PLAN
---------------------------------------------------------
STOCK STOCK
NUMBER OF OPTION NUMBER OF OPTION
STOCK PRICE STOCK PRICE
OPTIONS RANGE OPTIONS RANGE
---------------------------------------------------------
Outstanding,
December 31, 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
Granted 371,248 1.54 - 2.00 381,691 1.00 - 2.875
Exercised (14,000) 1.54 - -
Forfeited (421,350) 1.00 - 3.75 (25,000) 2.50
---------------------------------------------------------
Outstanding,
December 31, 1997 439,998 $1.81 - $3.75 420,220 $1.00 - $3.75
=========================================================
The weighted average fair value of options granted during the year ended
December 31 were:
1997 1996
--------------------------
Stock price equals exercise price $1.96 $2.90
Stock price greater than exercise price $1.89 $ -
Stock price less than exercise price $1.85 $ -
During the second quarter of 1996, the Company entered into an agreement
with a business advisory enterprise (the 1996 Stock Option Agreement). In
connection with the 1996 Stock Option 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. During
1997, the Company and the business advisory enterprise agreed to change
certain terms and conditions of the 1996 Stock Option Agreement. As a
result, the Company recognized expense in 1997 of $155,000. These amounts
are included in sales and marketing expense in the accompanying
consolidated statements of operations. These options were not granted as
part of the Company's Stock Option Plan and are not included in the summary
of the Company's stock option activity table above. To date, no options
have been exercised as a result of the 1996 Stock Option Agreement.
During 1997, the Company recognized expense of $314,000 related to certain
grants of stock options within the Company's Stock Option Plan. This amount
consists of approximately $146,000 included in sales and marketing expense,
$136,000 included in general and administrative expense, $22,000 included
in research and development expense and $10,000 included in costs of
revenue in the accompanying 1997 consolidated statement of operations.
F-22
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. STOCKHOLDERS' EQUITY AND NOTES PAYABLE
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 ($0.10
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 and as a
result of the Offering, the Company issued 120,000 shares of common stock
during the first quarter of 1997 in connection with the May 1995 Private
Placement provision for a share adjustment since the price per common share
in the Company's Offering was less than $4.90 per share.
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 matured in three years from the date of issuance and were
convertible into common stock of the Company at $3.75 per share. In
addition, each note holder 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 net proceeds from the 10% Note offering amounted to approximately
$751,000. Approximately $181,000 of the net proceeds from the 10% Notes
issuance were received from certain individuals who individually are
beneficial owners of over 5% of the outstanding common stock of the Company
and other officers, directors and employees of the Company under the same
terms and conditions as nonaffiliates. During the first quarter of 1997,
certain note holders converted approximately $349,000 of principal and
accrued interest into 93,003 shares of common stock. Common stock issuable
related to the detachable warrants provided in conjunction with the 10%
Notes amounts to 187,800 shares (see Note 10). During the fourth quarter
of 1996, certain note holders converted $105,000 of principal and accrued
interest into 28,000 shares of common stock. Interest expense related to
the 10% Notes was approximately $5,000 in 1997 and approximately $43,000 in
1996.
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 and
were primarily used for working capital purposes.
F-23
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. STOCKHOLDERS' EQUITY AND NOTES PAYABLE (CONTINUED)
During January 1997, the Company received $450,000 from two unaffiliated
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 Offering. In the first quarter of 1997, the
Company incurred $79,000 of expense in connection with the issuance and
registration of the 150,000 warrants which is included in other expenses in
the accompanying 1997 consolidated statement of operations. 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.
During February 1997, the Company completed an initial public offering (the
Offering) whereby it issued 1,337,000 units, each unit consisting of two
shares of common stock and one common stock purchase warrant (the Units),
at $7.00 per Unit. Net proceeds from the Offering (including net proceeds
from the underwriter's overallotment option) were approximately $8.2
million.
In March 1997, the Company paid approximately $355,000 to certain holders
of the 10% Notes, who did not convert their 10% Notes and accrued interest
into common stock, from a portion of the net proceeds of the Offering (see
Note 11). Approximately $190,000 of the $355,000 was paid to affiliates of
the Company under the same terms and conditions as nonaffiliates.
During 1997, holders of 14,000 common stock options, which were originally
within the Company's Stock Option Plan, exercised their options at an
exercise price of $1.54 per share (see Note 7).
In the fourth quarter of 1997, the Company adopted a stock compensation
plan (the Stock Compensation Plan). The Stock Compensation Plan provides
for the issuance of up to 100,000 shares of common stock to employees,
consultants and others involved in the Company's business. During the
fourth quarter of 1997, the Company issued 12,500 shares of common stock to
a corporate marketing enterprise. These shares were issued under the Stock
Compensation Plan. The Company recognized approximately $26,000 in expense
related to this issuance. This amount is included in sales and marketing
expense in the accompanying 1997 consolidated statement of operations. As
of December 31, 1997, there were a total of 87,500 shares of common stock
reserved for future issuance under the Stock Compensation Plan (see Note
10).
F-24
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. STOCKHOLDERS' EQUITY AND NOTES PAYABLE (CONTINUED)
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's common stock
through grants of stock options and through the Company's 1996 10% Note
offering (see Note 7).
9. CONTRIBUTIONS TO RETIREMENT PLAN
The Company has a 401(k) retirement plan which covers eligible employees,
as defined, of the Company (the 401(k) Plan). Employees may defer up to
fifteen percent of their annual compensation up to the maximum amount as
determined by the Internal Revenue Service. Under the 401(k) Plan , the
Company, at its discretion, may make contributions to the plan. No Company
contributions were made to the 401(k) Plan in 1997 or 1996. The Company
paid 401(k) Plan administrative expenses of approximately $4,000 for the
years ended December 31, 1997 and 1996. Such 401(k) Plan expenses are
included in general and administrative expenses in the accompanying
consolidated statements of operations.
10. COMMITMENTS AND CONTINGENCIES
The Company has entered into ten long term employment agreements with
certain management employees, eight of which are in effect at December 31,
1997 and the initial terms are generally for three to five years. Certain
of the eight employment 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. Four of the employment agreements would require the Company
to pay a lump-sum payment of up to $2.5 million if the Company terminates
employment for any reason other than cause or disability. At December 31,
1997, the aggregate commitment for future salaries payable through May 2001,
excluding bonuses, is approximately $1.4 million. If all agreements are
extended, the additional commitment for future salaries will be approximately
$1.5 million. During 1997, the Company incurred and paid approximately
$830,000 in connection with the eight employment agreements described above.
This amount consists of $500,000 included in payroll and other expense and
$330,000 included in research and development expense in the accompanying
1997 consolidated statements of operations.
F-25
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. 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 developed SAFETRACE(R) software product and
services or any other of its software-related products and services. In
addition, the Company applied for certain regulatory approval of its
SAFETRACE(R) software product during October 1995. The Company was
permitted to market the SAFETRACE(R) software product during the review
process. In April 1997, Wyndgate received notification from the United
States Food and Drug Administration of their finding of substantial
equivalence of the SAFETRACE(R) software product. This determination
permits the Company to continue to market the SAFETRACE(R) software product
in the United States.
In January 1993, Wyndgate entered into an agreement with the Royalty Group
to develop the Blood Bank Management Information System Software (BBMIS).
As part of the consideration for the Royalty Group funding approximately
$1.1 million of the development of BBMIS (currently known as SAFETRACE(R))
Wyndgate agreed to pay 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 $65,000 and $323,000 for the years ended
December 31, 1997 and 1996, respectively, and are included in cost of
revenues 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 (see Note 1). 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 (the ITxM Agreement) with The Institute for
Transfusion Medicine (ITxM), to develop Commercial Centralized Transfusion
System Software (Commercial CTS Software). The ITxM Agreement requires
that the Commercial CTS Software (the Company's transfusion services
software product, currently in beta testing and to be known as SAFETRACE
TX(TM)) be completed by December 16, 1997. If not timely completed, the
Company would be subject to certain monetary penalties. The ITxM
F-26
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Agreement provides for a royalty payment to ITxM from the Company for
revenues received from the eventual sale of SAFETRACE TX(TM), net of
certain fees and charges. The royalty period starts with the first
commercial transfer for value of SAFETRACE TX(TM) by the Company. The
royalty amounts for each year are higher if the sales of SAFETRACE TX(TM)
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 thereafter. Through
December 31, 1997, the Company has not incurred any royalty expenses
related to the ITxM Agreement. During the fourth quarter of 1997, the
Company recognized $485,000 in SAFETRACE TX(TM) development expense related
to a further agreement between the Company and ITxM regarding certain
monetary penalties as defined in the ITxM Agreement (see Note 1 and Note
11). This amount is included in research and development expense in the
accompanying 1997 consolidated statement of operations.
During November 1996, the Company (through its Wyndgate division) entered
into an agreement with Ortho Diagnostic Systems, Inc. (ODSI), a subsidiary
of Johnson & Johnson (the Ortho Agreement). The Ortho Agreement requires
the Company to perform certain software development services in
consideration of the payment by ODSI of $500,000 received by the Company in
November 1996, and an additional payment of $500,000 received by the
Company in January 1997 (see Note 1). The Ortho Agreement provided that
until May 14, 1997 (the Exclusivity Period), ODSI had the exclusive right
to negotiate with the Company with respect to the Company's activities and
developments in information technology and intellectual property relating
to donor and transfusion medicine (the Technology) and that, during the
Exclusivity Period, the Company would not, directly or through any
intermediary, accept, encourage, solicit, entertain or otherwise discuss
any acquisition of any of the Company's common stock, business, property or
know-how, including the Technology, with any person or entity other than
ODSI or an affiliate thereof and would not otherwise encumber the ability
of ODSI or an affiliate thereof to enter into any arrangement with the
Company concerning the Technology.
Pursuant to the Ortho Agreement, the Company granted ODSI a right of first
refusal for a period of six months after the expiration of the Exclusivity
Period in the event the Company proposes to transfer, dispose of, sell,
lease, license (except on a non-exclusive basis in the ordinary course of
its business), mortgage or otherwise encumber or subject to any pledge,
claim, lien, charge, encumbrance or security interest (except for a
security interest with a bank which was in effect at the time the Ortho
Agreement was negotiated) of any kind or nature, any of the Technology.
F-27
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In May 1997, the Company received communication from ODSI that it had not
yet completed an internal evaluation of the Company's Technology and would
not be prepared at the conclusion of the Exclusivity Period to discuss a
transaction between the Company and ODSI. ODSI requested, and the Company
agreed, that ODSI be permitted to continue its evaluation of the Company's
Technology, on a non-exclusive basis, with the intent of responding to the
Company by July 14, 1997 regarding whether or not ODSI would propose some
form of transaction with the Company. On July 14, 1997, the Company and
ODSI (collectively the Parties) agreed to a further extension to September
30, 1997. In connection with the extension to September 30, 1997, ODSI
relinquished its right of first refusal. On September 17, 1997, the
Parties agreed to a further extension to December 31, 1997. On December
22, 1997, the Parties agreed to a further extension to June 30, 1998. In
connection with the extension to June 30, 1998, the Parties agreed that
ODSI has until December 31, 1998 to elect to require the Company (through
Wyndgate) to provide certain software development services as defined in
the Ortho Agreement (see Note 1).
As of December 31, 1997, the Company had 4,628,908 shares of common stock
reserved for future issuance as a result of the following: 2,185,520 shares
underlying unexercised stock options granted within the Company's Stock
Option Plan, 860,218 of which are outstanding and exercisable at $1.00 to
$3.75 per share and which expire in 2002 through 2007 (see Note 7); 160,000
shares underlying unexercised stock options granted to a business advisory
enterprise pursuant to the 1996 Stock Option Agreement, which are
exercisable at $2.50 per share and expire in 2002 (see Note 7); 187,800
shares underlying warrants granted in connection with the 10% Note
offering, which are exercisable at $3.75 per share and expire in 1999 (see
Note 8); 1,858,088 shares underlying warrants issued in connection with the
Offering, the underwriter's overallotment option and other warrants granted
to the Company's underwriter, which are exercisable at $4.55 to $7.51 per
share and which expire in 2000 through 2002 (see Note 8); 150,000 shares
underlying warrants granted in connection with the 12% Notes, which are
exercisable at $2.98 per share and which expire in 1999 (see Note 8) and
87,500 unissued shares in connection with the Stock Compensation Plan (see
Note 8).
F-28
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. SUBSEQUENT EVENTS
In January 1998, the Company and ITxM agreed (the "January 1998 Agreement")
that the Company would not be required to pay monetary penalties in the
approximate amount of $485,000 to ITxM, which were incurred as a result of
delays in development of SAFETRACE TX(TM), in consideration of the Company
providing to ITxM additional maintenance services and product upgrades and
substitute liquidated damage provisions for delays. The first of such
revised dates and liquidated damage provisions was April 3, 1998, by which
the Company was to initiate beta testing of SAFETRACE TX(TM) or pay $500 per
day. SAFETRACE TX(TM) was delivered to ITxM for beta testing on April 6,
1998, which was within the grace period provided for in the January 1998
Agreement. Pursuant to the January 1998 Agreement, beta testing of
SAFETRACE TX(TM) is to be completed by July 17, 1998, or the Company will
face liquidated damages of $1,000 per day.
In January 1998 and in connection with a May 1995 noncompete agreement, the
Company's Board of Directors approved payment of $115,000 to the Company's
Chairman and Chief Executive Officer. The remaining noncompete amount of
$35,000 remains payable to a management employee of the Company's Wyndgate
division who is also a shareholder of the Company (see Note 3).
In January 1998, the Company and its Chairman and CEO, were informed of a
lawsuit filed by a former employee of a DataMed customer seeking
undisclosed damages as a result of a March 1995 alleged erroneous substance
abuse test result issued by a DataMed Medical Review Officer (MRO).
Management believes that all mandated and necessary MRO procedures were
performed and correctly executed. Legal proceedings tend to be
unpredictable and costly. However, based on the currently available
information, management believes that the resolution of this legal
proceeding will not have a material adverse effect on the Company's
operating results, financial position or cash flow. Although the Company
has not received a final determination from its malpractice insurance
carrier regarding insurance coverage for this matter, management believes
that any damages arising out of this pending case are adequately covered by
the Company's malpractice insurance coverage and recorded accruals. No
range of a reasonably possible loss can be estimated because in this
matter, the complaint is silent as to the amount of damages sought. The
Company's deductible for such claims is approximately $5,000 and is
included in accrued expenses in the accompanying consolidated balance sheet
as of December 31, 1997 (see Note 1).
On February 9, 1998, the Company's common stock and warrants were delisted
from the Nasdaq Small-Cap Market, and commenced trading on the Bulletin
Board.
F-29
EXHIBIT 10.21
FOURTH AMENDMENT TO
EXCLUSIVITY AND SOFTWARE DEVELOPMENT AGREEMENT
This Fourth Amendment to Exclusivity and Software Development
Agreement (the "Fourth Amendment"), dated this 22nd day of December, 1997,
is made by and between Global Med Technologies, Inc. ("Global"), a Colorado
corporation, and Ortho Diagnostic Systems Inc. ("ODSI"), a New Jersey
corporation.
WHEREAS, on November 14th, 1996, Global and ODSI entered into an
Exclusivity and Software Development Agreement, as amended (the
"Exclusivity Agreement"); and
WHEREAS, the Exclusivity Agreement provided, among other things, that
(i) ODSI would have the exclusive right to negotiate with Global with
respect to the Technology (as defined in the Exclusivity Agreement) through
the close of business on May 14, 1997 and (ii) by June 4, 1997, or upon
ODSI giving notice to Global, ODSI had the right to require Global to
provide certain Services (as defined in the Exclusivity Agreement); and
WHEREAS, on May 14, 1997, Global and ODSI entered into an Amendment to
Exclusivity and Software Development Agreement (the "Amendment") whereby
the parties agreed to continue to negotiate, on a non-exclusive basis,
through the close of business on July 14, 1997; and
WHEREAS, on July 14, 1997, Global and ODSI entered into a Second
Amendment to Exclusivity and Software Development Agreement (the "Second
Amendment") whereby the parties agreed to continue to negotiate, on a non-
exclusive basis, through the close of business on September 30, 1997; and
WHEREAS, on September 17, 1997, Global and ODSI entered into a Third
Amendment to Exclusivity and Software Development Agreement (the "Third
Amendment") whereby the parties agreed to continue to negotiate, on a non-
exclusive basis, through the close of business on December 31, 1997; and
WHEREAS, Global and ODSI have agreed to further extend the time for
negotiations between the parties relating to the Technology and for the
Services;
NOW, THEREFORE, the parties thereto, intending to be legally bound,
agree as follows:
1. EXTENSION OF NEGOTIATION PERIOD. From December 31, 1997 through
5:00 p.m. New York City time on June 30, 1998, Global agrees that ODSI
shall have the non-exclusive right to negotiate with Global with respect to
reaching an agreement relating to the Technology.
<PAGE>
2. EXTENSION OF TIME FOR SOFTWARE DEVELOPMENT SERVICES. The parties
agree that ODSI has until December 31, 1998 to elect to require Global to
provide certain software development Services as more fully described in
Section II of the Exclusivity Agreement.
3. NO OTHER CHANGES. Except as set forth herein, all the other
provisions of the Exclusivity Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed and delivered this
Fourth Amendment as of the date first written above.
GLOBAL MED TECHNOLOGIES, INC.
a Colorado corporation
By: /s/ MICHAEL I. RUXIN
-------------------------------
Michael I. Ruxin
Chairman and CEO
ORTHO DIAGNOSTIC SYSTEMS, INC.
a New Jersey corporation
By: /s/ GERARD VAILLANT
-------------------------------
Gerard Vaillant,
Chairman
2
EXHIBIT 10.22
EXECUTION COPY
CERTAIN CONFIDENTIAL INFORMATION IN THE FOLLOWING EXHIBIT HAS BEEN
OMITTED. THE CONFIDENTIAL INFORMATION HAS BEEN FILED SEPARATELY WITH
THE SECRETARY OF THE COMMISSION.
DEVELOPMENT AGREEMENT
THIS DEVELOPMENT/AGREEMENT (this "Agreement") is made and entered into
this 12th day of July, 1996, by and between The Institute for Transfusion
Medicine, a non-profit Pennsylvania corporation ("ITxM") and Global Med
Technologies, Inc., a Colorado corporation doing business as Wyndgate
Technologies ("Wyndgate").
RECITALS:
ITxM has developed and is the owner of a proprietary Patient
Transfusion Service software system (the "PTS Software") and related
documentation. Wyndgate is engaged in the development of commercial
software products for use in the blood banking industry. Subject to the
terms and conditions of this Agreement, ITxM has agreed to provide the PTS
Software and related documentation to Wyndgate in order to facilitate the
rapid application development of a commercial central transfusion services
software system (the "Commercial CTS Software") capable of distribution by
Wyndgate to third party end users including ITxM. Wyndgate has agreed to
provide such development programming services in accordance with design and
functionality specifications to be approved by ITxM and to assume
responsibility with respect to the commercial development, maintenance,
support and regulatory compliance of the Commercial CTS Software.
NOW, THEREFORE, the parties intending to be legally bound, do hereby
agree as follows:
SECTION 1. RECITALS
--------
The recitals set forth above are hereby incorporated into this
Agreement.
SECTION 2. DEFINITIONS
-----------
Capitalized terms used herein and not otherwise defined shall have the
following meanings:
"AFFILIATE" shall mean. with respect to ITxM, [CONFIDENTIAL INFORMATION
OMITTED] any entity which directly or indirectly controls or is controlled
by, or is under common control with, ITxM. As used in This definition, the
term "control" shall mean, with respect to any entity, the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of such entity, whether through ownership of voting
securities, by contract or otherwise.
<PAGE>
"AGREEMENT" shall collectively mean this Development Agreement and the
appendixes and exhibits thereto, as amended from time to time by agreement
of the parties.
"CODE" shall mean computer programming code, including object code and
source code as well as associated procedural code.
"COMMERCIAL CTS SOFTWARE" shall mean the central transfusion software
Code to be developed by Wyndgate which Code may incorporate the PTS
Software or be a Derivative Work thereof.
"DELIVERABLE" shall mean the Commercial CTS Software, Documentation
and all other materials developed and delivered to ITxM under this
Agreement.
"DESIGN SPECIFICATIONS" shall mean a written description of the
software functionality, data relationships, including screen designs and
screens, reports, processing functions, relationships between functions,
screens and software modules, program data files and similar items together
with an overall system flow diagram. Such design specifications shall
provide an assessment of the complexity of development as high, medium or
low and for each high or medium complexity function shall include a flow
diagram. The Design Specifications will include the identification of
critical items to be part of beta testing pursuant to Section 3.4 hereof.
"DERIVATIVE WORK" shall mean a work that is based on one or more
preexisting works, or any part thereof, such as a revision, modification,
translation, abridgment, condensation, expansion, or any other form in
which such preexisting works or any part thereof may be recast,
transformed, or adapted, and which, if prepared without authorization of
the owner of the copyright in such preexisting work, would constitute a
copyright infringement or other infringement of the propriety rights of the
owner therein. For purposes hereof, a Derivative Work shall also include
any compilation that incorporates such a preexisting work.
"DEVELOPMENT SCHEDULE" shall mean the schedule for completion of the
development services related to the Commercial CTS Software and each other
Deliverable hereunder as set forth on Exhibit D attached hereto.
"DEVELOPMENT TOOL(S)" shall mean any device, programming,
documentation, media, and other materials, including compilers,
workbenches, programming tools, and higher-level or proprietary
-2-
<PAGE>
languages used or required for the development, maintenance, or
implementation of the Commercial CTS Software.
"DOCUMENTATION" shall mean all textual material relating to the
Commercial CTS Software, including flow charts, operating instructions, and
related technical information thereto that generally relate to the
Commercial CTS Software. Documentation shall also include customary end-user
materials, such as user manuals.
"FUNCTIONAL SPECIFICATIONS" shall mean written description of the
software functionality, the data relationships, preliminary screen designs
and relationships between functions, screens and software modules.
"UPGRADES" shall mean changes or additions (other than Maintenance
Modifications), including all new releases, made by Wyndgate to the
Commercial CTS Software that add significant new functions or substantially
improve the performance of the Commercial CTS Software by changes in system
design or coding and related Documentation.
"LICENSE FEE REVENUES" shall mean all license fees or equivalent
revenue sources accruing to Wyndgate with respect to the transfer, sale,
license or other distribution of the Commercial CTS Software or other
Products of Wyndgate developed hereunder.
"LIVE OPERATION" shall mean the use in actual operation of the
Commercial CTS Software.
"MAINTENANCE MODIFICATIONS" shall mean modifications or revisions to
the Commercial CTS Software or Documentation by Wyndgate, other than
Upgrades, including both the source code and object code thereto, that
correct Program/Documentation Errors, support new releases of the operating
systems with which the Commercial CTS Software is designed to operate or
provide other updates and corrections.
"PRODUCT(S)" shall mean any product offered by Wyndgate that includes
the Commercial CTS Software, PTS Software, PTS Documentation, or a
Derivative Work of any or all of the foregoing. For purposes hereof,
Product(s) shall not be deemed to include Wyndgate's SAFETRACE(TM) or
EDEN-OA(R) Code or any portion thereof.
"PROGRAM/DOCUMENTATION ERROR" shall mean any error, problem, or defect
caused by or resulting from (1) an incorrect
-3-
<PAGE>
functioning of the Commercial CTS Software or (2) an incorrect or
incomplete statement or diagram in Documentation, if such error, problem,
or defect renders the Commercial CTS Software inoperable, causes the
Commercial CTS Software to fail to meet the Specifications thereof, causes
Documentation to be inaccurate or incomplete in any material respect,
causes incorrect results, or causes incorrect functions to occur when any
such materials are used for their intended purposes.
"PROTOTYPE" shall mean a prototype version of the Commercial CTS
Software Code which demonstrates compliance with the Functional
Specifications provided, that, the final graphical user interface, reports
or batch programs need not be included in such prototype.
"PTS DOCUMENTATION" shall mean user manuals and other written
materials provided and licensed under this Agreement that relate to the PTS
Software, including materials useful for design (for example, logic
manuals, flow charts, and principles of operation), as more fully described
on Exhibit B attached hereto.
"PTS SOFTWARE" shall mean the patient transfusion services software
Code provided and licensed under this Agreement by ITxM as more fully
described in Exhibit A attached hereto.
"SPECIFICATIONS" OR "PROJECT SPECIFICATIONS" shall mean Functional
Specifications, Design Specifications and any and all other technical
specifications including a detailed project plan defining the project
milestones and project completion timetable relating to the Commercial CTS
Software to be developed in accordance with the terms hereof.
SECTION 3 ITXM OBLIGATIONS
----------------
3.1 GRANT OF DEVELOPMENT LICENSE. ITxM hereby grants to Wyndgate, and
Wyndgate hereby accepts an exclusive developmental license to use, test and
evaluate the PTS Software and PTS Documentation in connection with the
design, development and manufacture of the Commercial CTS Software
including the right to create Derivative Works therefrom and to copy,
merge, or incorporate the PTS Software and PTS Documentation into other
Code or Products of Wyndgate. Such license shall terminate or convert to a
non-exclusive license upon a breach or termination of this Agreement in
accordance with the provisions of Section 11 hereof.
3.2 DELIVERY OF PTS SOFTWARE AND PTS DOCUMENTATION. Within ten (10)
days of the execution of this Agreement, ITxM shall
-4-
<PAGE>
deliver to Wyndgate copies of the PTS Software and PTS Documentation.
3.3 TECHNICAL ASSISTANCE AND SUPPORT. ITxM shall make its personnel
available to provide technical assistance and support with respect to the
development activities of Wyndgate related to the Commercial CTS Software.
ITxM shall identify a designated representative as reflected on Exhibit E
attached hereto to represent ITxM in connection with the performance of its
obligations under this Agreement. ITxM shall mutually define with Wyndgate
(a) the functional, technical and design specifications for the Commercial
CTS Software, (b) completion criteria for the development activities
related to the Commercial CTS Software, and (c) acceptance and testing
criteria for the Commercial CTS Software. It is acknowledged that ITxM
shall have the right to approve the functional, technical and design
specifications with respect to the version of the Commercial CTS Software
to be licensed to ITxM provided that nothing contained herein shall
restrict or limit Wyndgate's development activities with respect to other
features or Upgrades to be incorporated into other Products of Wyndgate.
3.4 BETA TEST SITE. ITxM shall serve as a beta test site for the
Commercial CTS Software and shall participate jointly with Wyndgate in the
beta testing of the Commercial CTS Software in accordance with installation
and testing procedures to be mutually agreed upon.
3.5 PERSONNEL COSTS. [CONFIDENTIAL INFORMATION OMITTED]
3.6 DATA CONVERSION AND VALIDATION. ITxM shall be responsible for
data conversion and validation testing of the Commercial CTS Software
SECTION 4 WYNDGATE OBLIGATIONS
--------------------
4.1 EVALUATION OF PTS SOFTWARE. Wyndgate shall be responsible for
the evaluation of the PTS Software and PTS Documentation to determine its
suitability for use in the design and/or development of the Commercial CTS
Software and Products. Wyndgate shall not be required to use any portion of
the PTS Software or PTS Documentation as long as the Commercial CTS
Software to be developed hereunder provides the same or similar
-5-
<PAGE>
functionality as now exists in the PTS Software and ITxM otherwise approves
the Functional and Design Specifications in accordance with Section 4.2
hereof.
4.2 DEVELOPMENT OBLIGATIONS. Wyndgate shall develop functional and
technical requirements for the Commercial CTS Software and shall prepare
Design Specifications for the development of the Commercial CTS Software.
Such Specifications shall be submitted to ITXM for approval which approval
shall not be unreasonably withheld. Upon approval of the Specifications,
Wyndgate shall begin the development and programming of the Commercial CTS
Software in conformance with such Specifications. In connection with such
development activities, Wyndgate hereby assumes all responsibility for the
following:
a) The selection of the Code and Development Tools to achieve
Wyndgate's intended purposes);
b) The results obtained therefrom;
c) Testing and determining the adequacy and marketability of the
Commercial CTS Software or other Products;
d) Providing assistance to ITxM in connection with implementation,
training, and data conversion with respect to the Commercial CTS
Software installed on ITxM's designated environment, and
e) Liability to end-users for any authorized or unauthorized use of
the Commercial CTS Software or other Products by end-users.
4.3 REGULATORY COMPLIANCE. Wyndgate shall be solely responsible for
compliance with all governmental and relevant trade organization
regulations and accreditation standards relating to the development,
manufacture, design, operation and distribution of the Commercial CTS
Software including medical device regulations promulgated by the U.S. Food
and Drug Administration (UFDA.) To the extent required by the FDA, Wyndgate
shall be responsible for the submission and active pursuit of premarket
notification (510(k)) with respect to the Commercial CTS Software and any
other Products of Wyndgate covered by this Agreement; provided however that
Wyndgate covenants and agrees to perform its design and development
activities hereunder in strict compliance with all applicable standards so
as to be in a position to submit a 510(k) filing to the FDA and actively
pursue premarket approval.
-6-
<PAGE>
4.4 CORRECTION OF PROGRAM/DOCUMENTATION ERRORS. Wyndgate and ITxM
shall promptly agree to a mutually acceptable time frame for correction by
Wyndgate of all Program/Documentation Errors identified in the Commercial
CTS Software during beta site testing. Testing and correction of
Program/Documentation Errors shall not be deemed completed until compliance
of the Commercial CTS Software with the Specifications hereof has been
demonstrated in accordance with acceptance test procedures to be agreed
upon.
4.5 DEVELOPMENT SCHEDULE. Wyndgate shall perform its development
services and cause the Commercial CTS Software and each other Deliverable
to be created and delivered to ITxM in accordance with the Development
Schedule. Wyndgate agrees to notify ITxM promptly of any factor, occurrence
or event coming to its attention that may affect Wyndgate's ability to meet
the development obligations hereunder or that is likely to cause any
material delay in the Development Schedule.
4.6 COST OF DEVELOPMENT. [CONFIDENTIAL INFORMATION OMITTED]
4.7 FAILURE TO MEET DEVELOPMENT REQUIREMENTS. The failure of Wyndgate
to meet any of the development requirements set forth in this Section 4 in
accordance with the Development Schedule shall constitute a material breach
of this Agreement under Section 11 hereof, and, in addition to any and all
other remedies available to it under this Agreement or otherwise at law or
equity, ITXM shall be entitled, at its option, to recover from Wyndgate
liquidated delay damages as follows:
-7-
<PAGE>
[CONFIDENTIAL INFORMATION OMITTED]
ItxM acknowledges that the Development Schedule milestones set forth above
are subject to changes required by the FDA or other governmental or
regulatory agencies and may be extended in the event ITxM shall fail to
timely complete its obligations with respect to the development of Project
Specifications or completion of beta site testing.
4.8 ACCOUNTING FOR ROYALTIES. Wyndgate shall collect License Fee
Revenues for the sale, license or distribution of the Commercial CTS
Software and any Products marketed by Wyndgate. Wyndgate shall maintain
detailed and accurate records with respect to such License Fee Revenues and
shall pay to ITxM royalties as set forth in Section 7 based on such License
Fee Revenues received for Products.
Section 5 GRANT-BACK LICENSE IN COMMERCIAL CTS SOFTWARE AND PRODUCTS
----------------------------------------------------------
5.1 GRANT-BACK LICENSE. Wyndgate hereby grants to ITxM and its
Affiliates a non exclusive, perpetual, fully-paid license to use internally
the Commercial CTS Software, Documentation and any other Product resulting
from the development activities under this Agreement. Internal use shall
include the use of the Commercial CTS Documentation, Software and other
Products in the
-8-
<PAGE>
course of business for ITxM or its Affiliates and shall include copying
rights for backup purposes.
5.2 DEFINITIVE LICENSE AGREEMENT. Upon the completion of the
development of the Commercial CTS Software and any other Product resulting
from the development activities hereunder, Wyndgate and ITxM shall enter
into a definitive software license agreement evidencing the license
relationship set forth in Section 5.1 hereof and containing such other
terms and conditions as are customary in license transactions of this type.
5.3 MAINTENANCE SERVICES. Maintenance services to be provided by
Wyndgate shall be described in the definitive license agreement and shall
be provided to ITxM at [CONFIDENTIAL INFORMATION OMITTED]
Wyndgate shall have the right to increase such maintenance fee on an
annual basis in an amount not to exceed the greater of (a) five percent
(5%) or (b) the percentage change in the All Urban Consumer Index (CPI-U),
U.S. Cities Average, All Items 1982-1948 = 100 percentage. In no event
shall such maintenance fee (or any percentage increase therein) exceed
[CONFIDENTIAL INFORMATION OMITTED]
5.4 UPGRADES. Wyndgate shall provide, [CONFIDENTIAL INFORMATION
OMITTED] copies of the first Upgrade to the Commercial CTS Software and
such other Upgrades as are developed by Wyndgate [CONFIDENTIAL INFORMATION
OMITTED]. Thereafter, ITxM will receive Upgrades to the Commercial CTS
Software [CONFIDENTIAL INFORMATION OMITTED].
SECTION 6 DISTRIBUTION AND MARKETING ARRANGEMENTS
---------------------------------------
6.1 WYNDGATE DETERMINATION OF MARKETING AND PRICING. Wyndgate shall
own and have the exclusive worldwide right to market the Commercial CTS
Software and Products. Wyndgate shall retain full discretion with respect
to all decisions relating to distribution and marketing of the Commercial
CTS Software and any Producer, including, without limitation, the
determination to introduce or withdraw the Product, and the terms,
conditions, and pricing of the Product, [CONFIDENTIAL INFORMATION OMITTED].
-9-
<PAGE>
It is expressly acknowledged that (a) the sale, license or distribution of
the PTS Software and PTS Documentation, the Commercial CTS Software or any
other Product(s) [CONFIDENTIAL INFORMATION OMITTED].
6.2 CONTINUING RIGHTS OF ITxM. ITxM shall retain all ownership of and
full rights to continue use of the PTS Software and PTS Documentation or
any enhancements thereto subject to the rights and licenses granted
hereunder.
6.3 CONSULTING OPPORTUNITIES. Wyndgate and ITxM acknowledge that
ITxM's specialized knowledge and experience in the operation of a
centralized transfusion system may be valuable in the promotion and
marketing of the Commercial CTS Software. Wyndgate shall make ITxM and its
Affiliates aware of opportunities to provide consulting services in
connection with the operation of centralized transfusion systems.
Additionally, ITxM shall make Wyndgate aware of opportunities for the
promotion and sale of the Commercial CTS Software. In the event that ITxM
or any Affiliate is engaged to perform consulting services initiated by
Wyndgate, [CONFIDENTIAL INFORMATION OMITTED] ITxM shall provide Wyndgate
within thirty (30) days following the end of each calendar quarter a report
reflecting (i) the consulting fee and revenue received during such quarter
and (ii) a calculation of the royalties accruing to Wyndgate. ITxM shall,
upon written request once each calendar year, provide access to printed
records with respect to applicable consulting fee revenues and royalties,
during normal business hours, to an independent accounting organization
chosen and compensated by Wyndgate for purposes of a confirming audit with
respect to royalty payments.
SECTION 7 ROYALTIES AND PAYMENTS
----------------------
7.1 OBLIGATION TO MAKE ROYALTY PAYMENT. In consideration of the
rights in and licenses to the PTS Software and PTS Documentation granted by
this Agreement, Wyndgate shall make the payments required by this Section
7.
7.2 ROYALTIES. With respect to all transfers for value by Wyndgate
of the Commercial CTS Software or any Products, ITxM shall be paid a
royalty determined as a percentage of the License Fee Revenues accruing to
Wyndgate with respect to such transfers. The royalty percentage shall be as
reflected in Exhibit C
-10-
<PAGE>
attached hereto. It is understood that Wyndgate may license copies of the
Commercial CTS Software or Products at volume discounts, promotion or
special charges, dealer discounts, special bids, and other pricing
arrangements and may increase or decrease any prices, charges, or fees
relating to the Commercial CTS Software or any Product without notice to or
approval of ITxM. Royalties shall [CONFIDENTIAL INFORMATION OMITTED].
Royalties accrued from each calendar quarter shall be paid to ITxM within
thirty (30) days following the end of each such quarter.
7.3 Reporting. Wyndgate shall provide to ITxM within thirty (30)
days following the end of each calendar quarter a report reflecting (i) the
number of copies of the Commercial CTS Software or other Products
transferred during the preceding quarter, (ii) the License Fee Revenue
accrued during such quarter and (iii) a calculation of the royalties
accruing to ITxM.
7.4 ROYALTY BASE CONFIRMATION. Wyndgate shall, upon written request
once each calendar year, provide access to printed records with respect to
applicable License Fee Revenues and royalties, during normal business
hours, to an independent accounting organization chosen and compensated by
ITxM for purposes of a confirming audit with respect to royalty payments.
SECTION 8 OWNERSHIP AND RIGHTS
--------------------
8.1 OWNERSHIP OF COMMERCIAL CTS SOFTWARE. All right, title and
interest (including all patents, copyrights and other intellectual property
rights) in the Commercial CTS Software or other Products to the extent
comprising Derivative Works of the PTS Software and PTS Documentation shall
be owned exclusively by Wyndgate. Nothing herein shall be construed to
assign or transfer any intellectual property rights in the PTS Software or
PTS Documentation, in which ITxM retains all right, title, and interest
subject only to the rights and license granted hereunder
8.2 ASSIGNMENT OF OWNERSHIP. If ownership of all right, title, and
interest in the Commercial CTS Software or other Products to the extent
comprising Derivative Works of the PTS Software and PTS Documentation,
shall not otherwise be deemed vest exclusively in Wyndgate, ITxM, without
additional compensation, agrees to assign and, upon creation thereof,
automatically assigns to Wyndgate the ownership of all intellectual
property rights in the Commercial CTS Software to the extent comprising
Derivative Works of the PTS Software and PTS Documentation, together with
all rights arising from such
-11-
<PAGE>
ownership, and Wyndgate shall have the right to register such rights in its
own name.
8.3 IMPROVEMENTS AND DISCOVERIES ARISING FROM COMMERCIAL CTS SOFTWARE
WORK. Any new or improved idea, design, concept, or other invention made
or developed solely by ITxM or jointly by ITxM and Wyndgate in the course
of creation or adaptation of the Commercial CTS Software shall be promptly
disclosed to Wyndgate and ITxM. [CONFIDENTIAL INFORMATION OMITTED].
8.4 LICENSE-BACK TO ITXM. [CONFIDENTIAL INFORMATION OMITTED].
SECTION 9 WYNDGATE PERFORMANCE; LIMITATION OF LIABILITY
---------------------------------------------
9.1 PERFORMANCE WARRANTY. Wyndgate warrants that the development
services to be provided hereunder will be performed with due diligence and
skill in a professional and workmanlike manner and in accordance with
applicable professional standards. Wyndgate further warrants that the
Commercial CTS Software and each Deliverable will conform substantially to
the Specifications agreed to in writing by ITxM.
9.2 LIMITATION OF LIABILITY. EXCEPT AS PROVIDED ABOVE IN SECTION 9.1
HEREOF, WYNDGATE MAKES NO OTHER WARRANTY OF ANY KIND, EITHER EXPRESS OR
IMPLIED, INCLUDING, BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. In no event shall
Wyndgate be liable for consequential, exemplary or incidental damages
(including, but not by way of limitation, lost profits or lost savings)
even if Wyndgate has been advised of the possibility of such damages.
9.3 DISCLAIMER OF ALL OTHER WARRANTIES AND REPRESENTATIONS.
ITxM DISCLAIMS ANY AND ALL WARRANTIES, CONDITIONS, OR REPRESENTATIONS
(EXPRESS OR IMPLIED, ORAL OR WRITTEN), WITH RESPECT TO THE PTS SOFTWARE
OR PTS DOCUMENTATION OR ANY PART THEREOF, INCLUDING ANY AND ALL IMPLIED
WARRANTIES OR CONDITIONS OF MERCHANTABILITY, OR FITNESS OR SUITABILITY FOR
ANY PURPOSE WHETHER OR NOT ITxM KNOWS, HAS REASON TO KNOW, HAS BEEN ADVISED,
OR IS OTHERWISE IN FACT AWARE OF ANY SUCH PURPOSE), WHETHER ALLEGED TO ARISE
BY LAW, BY REASON OF CUSTOM OR USAGE IN THE TRADE, OR BY COURSE OF DEALING.
IN ADDITION, ITxM EXPRESSLY DISCLAIMS ANY WARRANTY OR REPRESENTATION TO ANY
PERSON WITH
-12-
<PAGE>
RESPECT TO THE PTS SOFTWARE OR PTS DOCUMENTS OR ANY PART THEREOF AND SHALL
HAVE NO LIABILITY TO ANY PERSON BY REASON OF THE USE OF THE COMMERCIAL CTS
SOFTWARE OR ANY PRODUCT OF WYNDGATE.
10.1 ITxM INDEMNIFICATION. ITxM hereby agrees to indemnify and defend
Wyndgate against all claims that the PTS Software or Documentation
infringes any patent, copyright, trademark, or trade secret rights of a
third party in the United States, and ITxM will pay all costs, damages, and
attorney fees finally awarded by a court of competent jurisdiction arising
from or in connection with any such claim. ITxM further agrees to submit to
personal jurisdiction in any forum in which Wyndgate may be sued on any
claim subject to indemnification. ITXM shall have no obligation to defend
Wyndgate, or to pay any such costs, damages, and attorney fees for any
claim based upon the combination, operation, or use of PTS Software with
any programs or data not supplied by ITxM if such infringement would have
been avoided by the combination, operation, or use of PTS Software without
such particular programs or data.
10.2 WYNDGATE INDEMNIFICATION. Wyndgate hereby agrees to indemnify
and defend ITxM against (a) all claims of third parties fox damages, costs
or losses resulting from or arising out of such third parties use of the
Commercial CTS Software or any Product of Wyndgate, (b) all claim that the
Commercial CTS Software infringes any patent, copyright, trademark, or
trade secret rights of a third party in the United States, and Wyndgate
will pay all costs, damages, and attorney fees finally awarded by a court
of competent jurisdiction arising from or in connection with any such
claim. Wyndgate further agrees to submit to personal jurisdiction in any
forum in which ITXM may be sued on any claim subject to indemnification.
Wyndgate shall have no obligation to defend ITxM, or to pay any such costs,
damages, and attorney fees for any claim based upon the combination,
operation, or use of the Commercial CTS Software with any programs or data
not supplied by Wyndgate if such infringement would have been avoided by
the combination, operation, or use of the Commercial CTS Software without
such particular programs or data.
10.3 CONDITIONS TO INDEMNIFICATION. The foregoing indemnities are
conditioned on (a) prompt written notice of any claim or proceeding subject
to indemnity; (b) reasonable cooperation by the indemnified party in the
defense and settlement of such claim at the expense of the indemnifying
party; and (c) prior written approval by the indemnifying party
-13-
<PAGE>
of any settlement, which approval shall not be unreasonably withheld.
SECTION 11 TERM AND TERMINATION
---------------------
11.1 BASIC TERM AND RENEWALS. This Agreement shall be effective on
the date hereof and shall remain in force until the scope of work related
co the development of the Commercial CTS Software is completed unless
terminated earlier pursuant to this Section 11.
11.2 TERMINATION BY ITxM. This Agreement may be terminated by ITxM
prior to its expiration upon the occurrence of any of the following events:
(a) Upon fifteen (15) day's written notice by ITxM to Wyndgate
upon the failure by Wyndgate to meet any performance or deliverable
milestone identified in the Development Schedule;
(b) In the event that Wyndgate shall breach any provision of this
Agreement or default in the performance of its obligations hereunder, which
breach or default shall not have been cured or waived in writing by ITxM
within fifteen (15) days of receipt by Wyndgate of written notice from ITxM
setting forth in detail the nature of such breach; or
(c) Immediately, without the need for written notice or other
action on the part of ITxM, in the event that a receiver or trustee shall
be appointed over the whole or any part of the assets of Wyndgate, Wyndgate
shall make an assignment for the benefit of creditors or declare its
inability to pay its debts generally as they become due, or a petition
shall be filed by or against Wyndgate initiating any bankruptcy or
insolvency proceeding.
11.3 TERMINATION BY WYNDGATE. This Agreement may be terminated by
Wyndgate prior to its expiration upon the occurrence of any of the
following events:
(a) In the event that ITxM shall breach any provision of this
Agreement or default in the performance of its obligations hereunder, which
breach or default shall not have been cured or waived in writing by
Wyndgate within fifteen (15) days of written notice from Wyndgate setting
forth in detail the nature of such breach or default; or
(b) Immediately without need for notice or other the part of
Wyndgate, in the event that a receiver or
-14-
<PAGE>
trustee shall be appointed over the whole or any part of the assets of
ITxM, ITxM shall make an assignment for the benefit of creditors or declare
its inability to pay its debts generally as they become due, or a petition
shall be filed by or against ITxM initiating any bankruptcy or insolvency
proceeding.
11.4 OBLIGATIONS OF PARTIES FOLLOWING TERMINATION. Upon termination
of this Agreement, Wyndgate shall inform ITxM of the extent to which
performance has been completed through such termination date and collect
and deliver to ITxM all work in progress including copies of the Code
Documentation and all Specifications. Wyndgate agrees to wind up its work
in a commercially reasonable manner in order to preserve the value of the
work created prior to termination. Wyndgate shall use its best efforts to
make the services of its employees available to ITxM on a consulting basis
in order to facilitate the continued and further development of the
Commercial CTS Software by another vendor selected by ITxM. Additionally,
Wyndgate shall license or otherwise make available to ITxM all Development
Tools utilized by Wyndgate in the performance of its development services
hereunder including EDEN-OA(R).
11.5 OBLIGATIONS TO CONTINUE FOLLOWING TERMINATION. The provisions of
Sections 3.1, 5.1, 7, 10 and 12 hereof and the licenses granted hereunder
shall survive termination of this Agreement and shall continue in full
force and effect thereafter provided, however, that the license granted
pursuant to Section 3.1 hereof shall terminate if the Agreement is
terminated prior to completion of the Project Specifications Milestones set
forth on the Development Schedule and shall otherwise be converted to a
non-exclusive license on and after the effective date of such termination.
SECTION 12 CONFIDENTIAL INFORMATION
------------------------
12.1 CONFIDENTIAL INFORMATION. Both parties acknowledge that, in the
course of performing their respective obligations under this Agreement,
they may have access to information which is proprietary and confidential
to the disclosing party and which the disclosing party wishes to protect
from public disclosure. For purposes of this Agreement, all proprietary
software (including the PTS Software, PTS Documentation and the Commercial
CTS Software), algorithms, and any information pertaining to the
operations, patient information or files, products, and business plans of
a party to this Agreement shall be deemed "Confidential Information,"
unless such information has been previously disclosed or is otherwise in
the public domain.
-15-
<PAGE>
Both parties will hold such Confidential Information in confidence and
not disclose it, except to their employees, clients, or representatives to
whom disclosure is necessary to effect the purposes of this agreement and
who are similarly bound to hold such information in confidence. In
addition, each party shall use its best efforts to prevent inadvertent or
unauthorized disclosure, publication, or other dissemination of any
Confidential Information.
12.2 PATIENT INFORMATION. The parties recognize ITXM and its
Affiliates are engaged in the blood bank industry and that the information
available within the offices of ITxM and its Affiliates is highly
confidential and that its exposure could expose ITxM and its Affiliates to
liability, and that such disclosure might also adversely effect donors to
ITxM and its Affiliates, and that under certain circumstances, disclosure
of such information by Wyndgate employees will expose such employees to
criminal prosecution and/or civil liability for damages.
SECTION 13 MISCELLANEOUS
--------------
13.1 AMENDMENTS. This Agreement may be amended only by a writing
signed by ITXM and Wyndgate and any such amendment shall be effective only
to the extent specifically set forth in such writing.
13.2 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and by each of the parties on separate counterparts, each of
which, when so executed, shall be deemed an original, but all of which
shall constitute but one and the same instrument.
13.3 ENTIRE AGREEMENT. This Agreement contains the entire agreement
of the parties with respect to the transactions contemplated hereby and
supersedes all prior written and oral agreements, and all contemporaneous
oral agreements, relating to such transactions.
13.4 EXHIBITS AND SCHEDULES. The Exhibits and Schedules attached
hereto are an integral part hereof and all references herein to this
Agreement shall include such Exhibits and Schedules.
13.5 FURTHER ASSURANCES. The parties shall from time to time do and
perform such additional acts and execute and deliver such additional
documents and instruments as may be required by applicable governmental
rules or reasonably requested by any
-16-
<PAGE>
party to establish, maintain or protect its rights and remedies or to
effect the intents and purposes of this Agreement.
13.6 GOVERNING LAW. This Agreement shall be a contract under the
laws of the Commonwealth of Pennsylvania and for all purposes shall be
governed by and construed and enforced in accordance with the laws of said
Commonwealth.
13.7 HEADINGS. All titles and headings in this Agreement are intended
solely for convenience of reference and shall in no way limit or otherwise
affect the interpretation of any of the provisions hereof.
13.8 NOTICES. Unless otherwise specifically provided herein, all
notices, consents, requests, demands and other communications required or
permitted hereunder:
(i) shall be in writing;
(ii) shall be sent by messenger, certified or registered
U.S. mail, a reliable express delivery service (including, without
limitation, "second day" express) or telecopier (with a copy sent by one of
the foregoing means or first class U.S. mail), charges prepaid as
applicable, to the appropriate address(es) or number(s) set forth below;
and
(iii) shall be deemed to have been given on the date of
receipt by the addressee (or, if the date of receipt is not a business day,
on the first business day after the date of receipt), as evidenced by (A)
a receipt executed by the addressee (or a responsible person in his or her
office) or a notice to the effect that such addressee refused to accept
such communication, if sent by messenger, U.S. mail or express delivery
service, or (B) a receipt generated by the sender's telecopier showing that
such communication was sent to the appropriate number on a specified date,
if sent by telecopier.
All such communications shall be sent to the following addresses or
numbers, or to such other addresses or numbers as any party may inform the
other by giving five business day's prior notice:
If to ITxM: If to Wyndgate:
- ---------- --------------
The Institute for Transfusion Global Med Technologies, Inc.
Medicine 12600 West Colfax
3636 Boulevard of the Allies Lakewood, CO 80215-3734
Pittsburgh, PA 15213 Attn: Joseph F. Dudziak
Attn: Nancy Bromall Telecopier No.: (303) 238-3368
-17-
<PAGE>
13.9 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining portions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
13.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of each of the parties and their respective
heirs, successors and permitted assigns.
13.11 WAIVERS. The due performance or observance by the parties of
their respective obligations hereunder shall not be waived, and the rights
and remedies of the parties hereunder shall not be affected, by any course
of dealing or performance or by any delay or failure of any party in
exercising any such right or remedy. The due performance or observance by
a party of any of its obligations hereunder may be waived only by a writing
signed by the party against whom enforcement of such waiver is sought and
any such waiver shall be effective only to the extent specifically set
forth in such writing.
13.12 INDEPENDENT CONTRACTOR STATUS. Wyndgate is an independent
contractor under this Agreement, and nothing herein shall be construed to
create any partnership, joint venture, or agency relationship between the
parties hereto. Neither party is granted authority under this Agreement to
enter into agreements of any kind on behalf of the other, or to bind or
obligate the other in any manner to any third party.
-18-
<PAGE>
IN WITNESS THEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized representatives as set forth
below:
The Institute for Transfusion Medicine
By: /s/ NANCY BROMALL
-----------------------------------
Title: EVP - CFO
--------------------------------
Date: July 10, 1996
--------------------------------
Global Med Technologies, Inc.
doing business as Wyndgate Technologies
By: /s/ JOSEPH F. DUDZIAK
-----------------------------------
Title: President and COO
--------------------------------
Date: July 12, 1996
--------------------------------
-19-
<PAGE>
EXHIBIT A
PATIENT TRANSFUSION SERVICE
COMPUTER SYSTEM
For a
Centralized Transfusion Service
INSTITUTE FOR TRANSFUSION MEDICINE
3636 BOULEVARD OF THE ALLIES
PITTSBURGH, PA 15213
The Institute for Transfusion Medicine. All Rights Reserved. 1996
<PAGE>
[CONFIDENTIAL INFORMATION OMITTED]
<PAGE>
EXHIBIT B
Institute for Transfusion Medicine
3636 Boulevard of the Allies
Pittsburgh, PA 15213
Patient Transfusion Services (PTS) System
Deliverables
------------
for Wyndgate Technologies
-------------------------
[CONFIDENTIAL INFORMATION OMITTED]
<PAGE>
Institute for Transfusion Medicine
3636 Boulevard of the Allies
Pittsburgh, PA 15213
PTS System
-----------
Requirements for Outstanding Enhancements
-----------------------------------------
[CONFIDENTIAL INFORMATION OMITTED]
<PAGE>
EXHIBIT C
ROYALTY SCHEDULE(3)
-------------------
[CONFIDENTIAL INFORMATION OMITTED]
<PAGE>
Centralized Transfusion System Preliminary Development Plan
[CONFIDENTIAL INFORMATION OMITTED]
<PAGE>
EXHIBIT E
DESIGNATION OF REPRESENTATIVES
------------------------------
ItxM Rich Sikon, Linda Hahn
Wyndgate Bill Collard, Will Willman
<PAGE>
The Institute
For Transfusion
Medicine
January 12, 1998
Mr. Joe Dudziak
President and COO
Global Med Technologies, Inc.
12600 West Colfax, Suite A500
Lakewood, CO 80215-3734
Dear Joe:
This letter confirms our earlier discussions regarding modifications of
certain provisions of the DEVELOPMENT AGREEMENT ("agreement") made between
ITxM and Global Med Technologies, Inc., dba Wyndgate Technologies, dated
July 12, 1996, such modifications to be effective as of August 7, 1997.
Section 4.7 of the agreement provides for liquidated delay damages in the
event that certain development milestones are not met. [CONFIDENTIAL
INFORMATION OMITTED].
ITxM will waive imposition of the damage amounts that Wyndgate otherwise
would be required to pay to ITxM as specified in the agreement with respect
and limited to these particular delays only, in consideration of (1)
additional maintenance services and upgrades, as specified in the following
two paragraphs and (2) imposition of substitute liquidated delay damages
provisions as specified in the third following paragraph.
Section 5.3 of the agreement specifies that maintenance services to be
provided by Wyndgate will be described in the definitive license agreement.
We have agreed that such maintenance services charges will begin
[CONFIDENTIAL INFORMATION OMITTED] and that charges for maintenance
services will be [CONFIDENTIAL INFORMATION OMITTED], after which the rates
specified in Section 5.3 will resume.
Section 5.4 of the agreement provides that Wyndgate will provide,
[CONFIDENTIAL INFORMATION OMITTED], copies of the first Upgrade to the
Commercial CTS software and any other upgrades [CONFIDENTIAL INFORMATION
OMITTED]. We have agreed that this period [CONFIDENTIAL INFORMATION
OMITTED], after which the [CONFIDENTIAL INFORMATION OMITTED] price
provisions specified in Section 5.4 will apply.
<PAGE>
Mr. Joe Dudziak
January 12, 1996
Page Two
Specified dates and liquidated delay damages in section 4.7 are revised as
follows:
System Test and Beta
Test Plan Milestone April 3, 1998 $500 per day
Commercial CTS
Development Project
Milestone
(completion of beta test) July 17, 1998 $1,000 per day
ITxM appreciates the continuing commitment of Wyndgate to this project that
is of vital importance to the future of both our organizations. Please
indicate your agreement by executing both copies of this letter where
indicated below, return one copy to me and retain the other for your
records.
Sincerely,
/s/ NANCY L. BROMALL
Nancy L. Bromall
Executive Vice President
and Chief Financial Officer
Accepted and Agreed
By Global Med Technologies, Inc.
By: /s/ JOSEPH F. DUDZIAK
------------------------------
President & COO
Date: 13 January 1998
----------------------------
EXHIBIT 10.23
Loan Commitment
---------------
Date: April 14, 1998
For good and valuable consideration -
Heng Fung Finance Company Limited (Heng Fung) agrees to provide Global Med
Technologies, Inc. (Global) a short term bridge loan of one million five
hundred thousand U.S. dollars ($1.5 million) and Global Med Technologies
Inc. for good and valuable consideration has agreed to accept this short
term loan on the following terms:
* INTEREST: The interest, calculated at the rate of 12% per annum, will
be paid to the lender at the end of each month.
* REPAYMENT: Principal and any remaining interest shall be repaid on
maturity.
* MATURITY: The full loan shall mature 366 days after the date of this
loan commitment.
* BOARD OF DIRECTORS:
1. Heng Fung has the right to appoint three members to the
Board of Directors of Global. These Board members shall
receive warrants consistent with the duties required. This
shall be determined mutually by Global and Heng Fung. The
Board of Global shall have no more than seven members. Any
additional members need the written consent of Heng Fung.
2. The current Board of Directors of Global will sign a
resignation letter to be held in escrow.
* MANAGEMENT AND EMPLOYEES:
1. Heng Fung is given an option to cancel all management and
employee contracts.
2. All Global Management has to sign a resignation letter to be
held in escrow by Heng Fung Finance Company Limited.
* FUNDING: Global has the right to call the $1.5 million from Heng Fung
upon need. The funds will be put in a separate bank account. For
Global to withdraw there is a need for two signatures, one from Global
and one from a Heng Fung appointee. Heng Fung will not unreasonably
withhold approval of payment.
* DETACHABLE WARRANTS: Heng Fung earns 6,000,000 units of detachable
warrants upon the issuance and signing of the loan commitment. These
warrants are a fee for this loan commitment. These warrants are
earned regardless of whether Global requests to draw this funding or
not. These 6,000,000 units of detachable warrants will entitle the
holder to subscribe in cash at an exercise price of U.S. $.025 (25
cents) each for one common stock.
The warrants can be exercised in full or by tranches of U.S. $250,000.
Global will register the common stock underlying the warrants for
re-sale under the Securities Act of 1933. Global agrees to register
this common stock underlying the warrants
<PAGE>
to be effective no more than 60 days after this loan commitment. If
Global does not register the stock then this is considered a default
under the contract.
Heng Fung shall have the right to request Global to register the
detachable warrants under the Act of 1933. Global must comply within
60 days or is in default.
Heng Fung has the right to convert any part of the loan into the
purchase of detachable warrants. All detachable warrants can be
exercised any time within 10 years after this commitment letter.
* ADDITIONS/FEES: Global has to pay a finders fee of 5% of the
principal to RAF Financial Corporation as introductory fees. This fee
is only due on that part of the loan which is drawn down.
* DEFAULT: Global is in default if it has not repaid Heng Fung all
principal and interest by seven days after the maturity date. If
Global is in default if it violates any terms of the loan commitment.
In case of default the following shall apply:
1. All existing board members of Global have to resign and Heng
Fung has the right to appoint all new members to the Board
of Directors representing Heng Fung.
2. Heng Fung can convert the outstanding amount of the loan
into stock of the Borrower at a conversion price of U.S.
$0.05 (five cents) per share.
3. All the employment contracts of the management and officers
of Global will be invalid immediately and their employment
is subject to re-confirmation by Heng Fung.
Other:
1. Heng Fung has the right to veto any future contracts not in
the ordinary course of business. Heng Fung may veto the
issuing of additional stock or warrants.
2. Heng Fung has the right to veto any contract for employment,
loans, leases or contract with a value over $250,000.
3. It is agreed that any prior agreements, contracts, joint-
ventures or mergers that contradict the terms of the loan
commitment shall be subordinated to this loan commitment.
This loan commitment shall not be circumvented by any prior
agreements.
4. This document constitutes the entire agreement of the
parties. Any modification, amendment, addendum, thereto or
cancellation thereof must be in writing and by mutual
consent.
5. All parties agree to fully cooperate in the execution of
debt instruments and other legal documents typical in the
issuance of a short-term bridge loan.
2
<PAGE>
In consideration of mutual promised and covenants contained herein and for
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree to this loan. All parities have
full approval of their respective Board of Directors and are legally
appointed to sign this contract.
Agreed to by:
For Global Med Technologies, Inc. For Heng Fung Finance Company Limited
/s/ THOMAS F. MARCINEK /s/ FAI CHAN
- --------------------------------- ------------------------------------
President President
Thomas F. Marcinek
/s/ /s/
- --------------------------------- ------------------------------------
Secretary Secretary
3
EXHIBIT 10.24
Loan Commitment
---------------
Date: April 14, 1998
For good and valuable consideration:
Fronteer Capital Inc. (Fronteer) agrees to commit to provide Global Med
Technologies, Inc. (Global) a short term line of credit for up to one
million five hundred thousand U.S. dollars ($1.5 million) and Global Med
Technologies Inc. for good and valuable consideration has agreed to accept
this line of credit under the following terms:
* INTEREST: The interest, calculated at the rate of 12% per annum, will
be paid to the lender at the end of each month.
* REPAYMENT: Principal and any remaining interest shall be repaid on
maturity.
* MATURITY: The full loan shall mature 366 days after the date of this
loan commitment.
* BOARD OF DIRECTORS:
1. If Heng Fung Finance Company Limited does not exercise their
Board of Directors rights or can not exercise Board of
Directors right derived from their loan commitment then
Fronteer shall have the following rights:
2. Fronteer has the right to appoint three members to the Board
of Directors of Global. The Board of Global shall have no
more than seven members. Any additional members need the
written consent of Heng Fung.
3. The current Board of Directors of Global will sign a
resignation letter to be held in escrow.
* MANAGEMENT AND EMPLOYEES:
1. Fronteer is given an option to cancel all management and
employee contracts.
2. All Global Management has to sign a resignation letter to be
held in escrow by Fronteer.
* FUNDING: Global has the right to call the $1.5 million from Fronteer
after 180 days after final draw on Heng Fung Finance Company Limited
loan. The funds will be put in a separate bank account. For Global
to withdraw there is a need for two signatures, one from Global and
one from Fronteer Capital Inc. appointee. Fronteer will not
unreasonably withhold approval of payments.
* DETACHABLE WARRANTS: IF LOAN IS DRAWN, Fronteer earns 6,000,000 units
of detachable warrants. These warrants are a fee for this loan
commitment. These 6,000,000 units of detachable warrants will entitle
the holder to subscribe in cash at an exercise price of U.S. $.025 (25
cents) each for one common stock.
The warrants can be exercised in full or by tranches of U.S. $250,000.
Global will register the common stock underlying the warrants for re-
sale under the Securities Act of 1933. Global agrees to register this
common stock underlying the warrants
<PAGE>
to be effective no more than 60 days after this loan commitment. If
Global does not register the stock then this is considered a default
under the contract.
Fronteer shall have the right to request Global to register the
detachable warrants under the Act of 1933. Global must comply within
60 days or is in default.
Fronteer has the right to convert any part of the loan into the
purchase of detachable warrants.
All detachable warrants can be exercised anytime within 10 years after
this commitment letter.
IF LOAN IS NOT DRAWN - Fronteer earns 1,000,000 detachable warrants.
These 1,000,000 detachable warrants will entitle the holder to
subscribe in cash at an exercise price of U.S. $.025 (25 cents) each
for one common stock. The warrants can be exercised in full or by
Tranche of U. S. $250,000. The detachable warrant can be exercised
anytime within 10 years after this commitment.
Global will register the common stock underlying the warrants for re-
sale under the Securities Act of 1933. Global agrees to register this
common stock underlying the warrants to be effective no more than 60
days after this loan commitment. If Global does not register the
stock , then this is considered a default under the contract.
Fronteer shall have the right to request Global to register the
detachable warrants under the Act of 1933. Global must comply within
60 days is in default.
* DEFAULT: In case of default - Heng Fung Finance Company Limited shall
have the right to exercise their default provision. If Heng Fung
Finance Company Limited does not, can not, or is not defaulted then
Fronteer may exercise the following provision under default:
Global is in default if it has not repaid Fronteer all principal and
interest by seven days after the maturity date. If Global is in
default if it violates any terms of the loan commitment.
In case of default the following shall apply:
1. All existing board members of Global have to resign and
Fronteer has the right to appoint all new members to the
Board of Directors representing Fronteer.
2. Fronteer can convert the outstanding amount of the loan into
stock of the Borrower at a conversion price of U.S. $0.05
(five cents) per share.
3. All the employment contracts of the management and officers
of Global will be invalid immediately and their employment
is subject to re-confirmation by Fronteer.
Other:
1. Fronteer has the right to veto any future contracts not in
the ordinary course of business.
2. Fronteer has the right to veto any contract for employment,
loans, leases or valued over $250,000.
3. It is agreed that any prior agreements, contracts, joint-
ventures or mergers that contradict the terms of the loan
commitment shall be subordinated to this loan commitment.
This loan commitment shall not be circumvented by any prior
agreements.
4. This document constitutes the entire agreement of the
parties. Any modification, amendment, addendum, thereto or
cancellation thereof must be in writing and by mutual
consent.
2
<PAGE>
5. All parties agree to fully cooperate in the execution of
debt instruments and other legal documents typical in the
issuance of a short-term bridge loan.
In consideration of mutual promised and covenants contained herein and for
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree to this loan commitment. All
parities have full approval of their respective Board of Directors and are
legally appointed to sign this contract.
Agreed to by:
For Global Med Technologies, Inc. For Fronteer Capital Inc.
/s/ THOMAS F. MARCINEK /s/ FAI CHAN
- --------------------------------- ------------------------------------
President President
Thomas F. Marcinek
/s/ /s/
- --------------------------------- ------------------------------------
Secretary Secretary
3
<PAGE>
Personal Guarantee
------------------
Dr. Mick Ruxin personally guarantees the $1.5 million loan from
Fronteer Capital Inc. Dr. Mick Ruxin's guarantee excludes his home and its
contents, the land and all contingous parcels and improvements that the
house resides on, all his vehicles and his 401(k) plan and salary.
Date: 14 Apr 98 /s/ MICHAEL I. RUXIN, M.D,
-------------- ------------------------------------
Michael I. Ruxin, M.D.
/s/
------------------------------------
Witness
EXHIBIT 10.25
Amendment
---------
April 16, 1998
For good and valuable consideration:
Heng Fung Finance Company Limited (Heng Fung) and Global Med Technologies,
Inc. agree to the following changes to the loan commitment dated April 14,
1998. The parties agree to the following terms.
1. The section entitled Board of Directors:
Board of Directors:
- ------------------
1. Heng Fung has the right to appoint three members to the
Board of Directors of Global. These Board members shall
receive warrants consistent with the duties required. This
shall be determined mutually by Global and Heng Fung. The
Board of Global shall have no more than seven members. Any
additional members need the written consent of Heng Fung.
2. The current Board of Directors of Global will sign a
resignation letter to be held in escrow.
shall be voided and the amended section shall read as follows:
"Board of Directors:
------------------
1. Heng Fung has the right to appoint five members to the Board
of Directors of Global. These board members shall receive
warrants consistent with the duties required. The Board of
Global shall be no more than nine members.
2. The current Board of Directors of Global will sign a
resignation letter to be held in escrow."
2. The section entitled Funding:
Funding:
- -------
Global has the right to call the $1.5 million from Heng Fung upon
need. The funds will be put in a separate bank account. For Global
to withdraw there is a need for two signatures, one from Global and
one from a Heng Fung appointee. Heng Fung will not unreasonably
withhold approval of payment.
shall be voided and the amended section shall read as follows:
"Funding:
- --------
Global has the right to call the $1.5 million fron Heng Fung upon
need."
1
<PAGE>
3. The section entitled Additions/Fees:
Additions/Fees:
- --------------
Global has to pay a finders fee of 5% of the principal to RAF
Financial Corporation as introductory fees. This fee is only due on
that part of the loan which is drawn down.
shall be voided.
The section entitled Detachable Warrants that reads:
Detachable warrants:
- -------------------
Heng Fung earns 6,000,000 units of detachable warrants upon the
issuance and signing of the loan commitment. These warrants are a fee
for this loan commitment. These warrants are earned regardless of
whether Global requests to draw this funding or not. These 6,000,000
units of detachable warrants will entitle the holder to subscribe in
cash at an exercise price of U.S. $.025 (25 cents) each for one common
stock.
The warrants can be exercised in full or by tranches of U.S. $250,000.
Global will register the common stock underlying the warrants for re-
sale under the Securities Act of 1933. Global agrees to register this
common stock underlying the warrants to be effective no more than 60
days after this loan commitment. If Global does not register the
stock then this is considered a default under the contract.
Heng Fung shall have the right to request Global to register the
detachable warrants under the Act of 1933. Global must comply within
60 days or is in default.
Heng Fung has the right to convert any part of the loan into the
purchase of detachable warrants. All detachable warrants can be
exercised any time within 10 years after this commitment letter.
Shall be changed to read:
"Detachable warrants:
- --------------------
Heng Fung earns 6,000,000 units of detachable warrants upon the
issuance and signing of the loan commitment. These warrants are a fee
for this loan commitment. These warrants are earned regardless of
whether Global requests to draw this funding or not. These 6,000,000
units of detachable warrants will entitle the holder to subscribe in
cash at an exercise price of U.S. $.025 (25 cents) each for one common
stock.
The warrants can be exercised in full or by tranches of U.S. $250,000.
Global will register the common stock underlying the warrants for re-
sale under the Securities Act of 1933. Global agrees to register this
common stock underlying the warrants to be effective no more than 60
days after this loan commitment. If Global does not register the
stock then this is considered a default under the contract.
Heng Fung shall have the right to request Global to register the
detachable warrants under the Act of 1933. Global must comply within
60 days or is in default.
Heng Fung has the right to convert any part of the loan into the
purchase of these detachable warrants. All detachable warrants can be
exercised any time within 10 years after this commitment letter."
2
<PAGE>
In consideration of mutual promised and covenants contained herein and for
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree to this amendment. All parities
have full approval of their respective Board of Directors and are legally
appointed to sign this amendment.
Agreed to by:
For Global Med Technologies, Inc. For Heng Fung Finance Company Limited
/s/ MICHAEL I. RUXIN /s/ FAI CHAN
- --------------------------------- ------------------------------------
CEO President
3
EXHIBIT 10.26
Amendment
---------
April 16, 1998
For good and valuable consideration:
Fronteer Capital Inc. (Fronteer) and Global Med Technologies, Inc. agree to
the following changes to the loan commitment dated April 14, 1998. The
parties agree to the following terms.
The section entitled Funding:
Funding:
- -------
Global has the right to call the $1.65 million from Fronteer after 180
days after final draw on Heng Fung Finance Company Limited loan. The
funds will be put in a separate bank account. For Global to withdraw
there is a need for two signatures, one from Global and one from
Fronteer Capital Inc. appointee. Fronteer will not unreasonably
withhold approval of payments.
shall be voided and the amended section shall read as follows:
"Funding:
- --------
Global has the right to call the $1.65 million from Fronteer after the
total loan from Heng Fung Finance Company Limited is drawn down.
The first section:
For good and valuable consideration
- -----------------------------------
Fronteer Capital Inc. (Fronteer) agrees to commit to provide Global
Med Technologies, Inc. (Global") a short term line of credit for up to
one million five hundred thousand U.S. dollars ($1.5 million) and
Global Med Technologies Inc. for and good and valuable consideration
has agreed to accept this line of credit under the following terms:
shall be amended to repeat as follows:
"For good and valuable consideration -
- ------------------------------------
Fronteer Capital Inc. (Fronteer) agrees to commit to provide Global
Med Technologies, Inc. (Global") a short term line of credit for up to
one million six hundred and fifty thousand U.S. dollars ($1.65 million)
and Global Med Technologies Inc. for good and valuable consideration
has agreed to accept this line of credit under the following terms:"
The following section shall be added to the contract:
"Additions/Fees:
- ---------------
Global has to pay a finder's fee of 5% of the principal to RAF
Financial Corporation as introductory fees. This fee is only due
on that part of the loan which is drawn down."
In consideration of mutual promised and covenants contained herein and for
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree to this amendment. All parities
have full approval of their respective Board of Directors and are legally
appointed to sign this amendment.
Agreed to by:
For Global Med Technologies, Inc. For Fronteer Capital Inc.
/s/ MICHAEL I. RUXIN /s/ FAI CHAN
- -------------------------------- --------------------------------
CEO President
EXHIBIT 10.27
SECOND AMENDMENT TO LOAN COMMITMENTS
------------------------------------
THIS SECOND AMENDMENT TO LOAN COMMITMENTS is entered into on April 20,
1998, by and between GLOBAL MED TECHNOLOGIES, INC., a Colorado corporation
("GLOBAL"), Heng Fung Finance Company Limited, a New York corporation
("HENG FUNG") and FRONTEER CAPITAL, INC., a New York corporation
("FRONTEER").
RECITALS
--------
A. On April 14, 1998, Global and Heng Fung entered into that certain
Loan Commitment ("Heng Fung Loan"), which was amended on April
16, 1998, which provided that Global was to register the shares
of Global Common Stock underlying the 6,000,000 detachable
warrants to be issued to Heng Fung pursuant to the Heng Fung Loan
within 60 days of April 14, 1998;
B. On April 14, 1998, Global and Fronteer entered into that certain
Loan Commitment (the "Fronteer Line of Credit"), which was
amended on April 16, 1998, which provided that Global was to
register the shares of Global Common Stock underlying up to
6,000,000 detachable warrants issuable to Fronteer within 60 days
of April 14, 1998. (The warrants issuable to Heng Fung and to
Fronteer are, collectively, referred to herein as the
"Warrants"). The Fronteer Line of Credit further provided that
Global would pay RAF Financial Corporation ("RAF") a finder's fee
of 5% of the principal amount of the Fronteer Line of Credit,
payable as the Fronteer Line of Credit was drawn;
C. Global, Heng Fung and Fronteer now wish to extend the time period
by which the shares of Common Stock underlying the Warrants must
be registered and increase the amount of the finder's fee payable
to RAF in accordance with the agreements set forth herein.
AGREEMENT
---------
1. Global shall have until July 14, 1998 to register the shares of
Common Stock underlying the Warrants with the Securities and Exchange
Commission ("SEC"); PROVIDED, HOWEVER, that so long as Global has used its
reasonable best efforts to file such registration statement covering such
shares with the SEC and responded to any comments from the SEC in a
timely fashion, Global shall not be deemed to be in default under the Heng
Fung Loan or the Fronteer Line of Credit if the registration statement is
not declared effective by July 14, 1998.
2. Global agrees to pay RAF a finder's fee equal to 9% of the amount
of the Fronteer Line of Credit, payable as the Fronteer Line of Credit is
drawn down.
3. All of the terms, provisions and conditions of this Second
Amendment to Loan Commitments shall be binding upon and shall inure to the
benefit of and be enforceable by the parties hereto, and their successors
and assigns.
<PAGE>
4. This Second Amendment to Loan Commitments may be executed in one
or more counterparts by the parties hereto. All counterparts shall be
construed together and shall constitute one agreement. Each counterpart
shall be deemed an original hereof notwithstanding that less than all of
the parties may have executed it.
5. This Agreement shall be governed by, and shall be construed and
enforced in accordance with, the internal laws of the State of Colorado,
without reference to principles of conflicts of laws.
6. This Agreement embodies the entire agreement and understanding
of the parties hereto regarding its subject matter and supersedes all
prior agreements, correspondence, arrangements and understandings relating
to the subject matter hereof.
IN WITNESS WHEREOF, the parties have caused the execution and
delivery of this Second Amendment to Loan Commitments as of the date first
above written.
GLOBAL MED TECHNOLOGIES, INC.,
a Colorado corporation
By: /s/ MICHAEL I. RUXIN
-----------------------------
Michael I. Ruxin,
Chief Executive Officer
HENG FUNG FINANCE COMPANY LIMITED,
A New York corporation
By: /s/ FAI CHAN
-----------------------------
Fai Chan,
President
FRONTEER CAPITAL, INC.,
A New York corporation
By: /s/ FAI CHAN
-----------------------------
Fai Chan,
President
2
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the following registration
statements of our report dated April 10, 1998 except for Note 1 as to which
the date is April 20, 1998, with respect to the consolidated financial
statements of Global Med Technologies, Inc. included by reference in this
Form 10-KSB for the year ended December 31, 1997:
1. Registration Statement on Form S-8 (No. 333-28155) pertaining to the
registration of 1,234,279 shares of Global Med Technologies, Inc. stock
dated May 30, 1997 for the Amended and Restated Option Plan.
2. Registration Statement on Form S-8 (No. 333-39193) pertaining to the
registration of 100,000 shares of Global Med Technologies, Inc. stock
dated October 31, 1997 for the 1997 Employee Stock Compensation Plan.
3. Registration Statement on Form S-8 (No. 333-45031) pertaining to the
registration of 965,721 shares of Global Med Technologies, Inc. stock
dated January 27, 1998 for the Second Amended and Restated Stock Option
Plan.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Denver, Colorado
April 20, 1998
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SEC FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.00
<CASH> 2,370
<SECURITIES> 0
<RECEIVABLES> 633
<ALLOWANCES> (300)
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<CURRENT-ASSETS> 2,959
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0
0
<COMMON> 82
<OTHER-SE> (1,555)
<TOTAL-LIABILITY-AND-EQUITY> 4,266
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<CGS> 224
<TOTAL-COSTS> 1,597
<OTHER-EXPENSES> 8,226
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 86
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<DISCONTINUED> (880)
<EXTRAORDINARY> 1,013
<CHANGES> 0
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<EPS-PRIMARY> (0.94)
<EPS-DILUTED> (0.94)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM SEC FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.00
<CASH> 489
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<RECEIVABLES> 1,401
<ALLOWANCES> (200)
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<CURRENT-ASSETS> 2,372
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<DEPRECIATION> (189)
<TOTAL-ASSETS> 3,239
<CURRENT-LIABILITIES> 6,367
<BONDS> 0
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<TOTAL-REVENUES> 4,576
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<TOTAL-COSTS> 1,883
<OTHER-EXPENSES> 5,051
<LOSS-PROVISION> 19
<INTEREST-EXPENSE> 209
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<INCOME-TAX> 0
<INCOME-CONTINUING> (2,811)
<DISCONTINUED> (1,681)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,492)
<EPS-PRIMARY> (1.00)
<EPS-DILUTED> (1.00)
</TABLE>
