UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number O - 22083
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GLOBAL MED TECHNOLOGIES, INC.
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(Exact name of small business issuer as specified in its charter)
COLORADO 84-1116894
- - --------------------------------- --------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
12600 West Colfax, Suite A-500, Lakewood, Colorado 80215
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(Address of principal executive offices)
(303) 238-2000
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(Issuer's telephone number)
Not Applicable
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(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 the past 90 days.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
As of August 10, 1998, 8,148,255 shares of the issuer's Common Stock were
outstanding.
Transitional Small Business Disclosure Format Yes No X
----- -----
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GLOBAL MED TECHNOLOGIES, INC.
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
TABLE OF CONTENTS
PAGE NO.
Part I. Financial Information
Item 1. Financial Statements
a. Consolidated Balance Sheets as of
June 30, 1998 (unaudited) and
December 31, 1997.................................. 3-4
b. Unaudited Consolidated Statements of Operations
for the three months ended June 30, 1998
and June 30, 1997.................................. 5
c. Unaudited Consolidated Statements of Operations
for the six months ended June 30, 1998 and
June 30, 1997...................................... 6
d. Unaudited Consolidated Statements of Cash Flows
for the six months ended June 30, 1998
and June 30, 1997.................................. 7-8
e. Notes to Unaudited Consolidated Financial
Statements......................................... 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 12
Part II. Other Information
Item 5. Other Information................................... 16
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits............................................ 16
b. Reports on Form 8-K................................. 16
Signatures........................................................ 17
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Global Med Technologies, Inc.
Consolidated Balance Sheets
(In thousands)
JUNE 30,
1998 DECEMBER 31,
(UNAUDITED) 1997
----------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 708 $2,370
Accounts receivable-trade, net of
allowance for uncollectible accounts of
$275 and $175 at June 30, 1998 and
December 31, 1997, respectively 289 175
Unbilled revenues, net of allowance for
uncollectible accounts of $25 and $125 at
June 30, 1998 and December 31, 1997,
respectively 33 158
Prepaid expenses and other assets 103 256
----------------------------
Total current assets 1,133 2,959
Deferred financing costs, net of amortization
of $1,237 and $-0- at June 30, 1998
and December 31, 1997, respectively 6,183 ---
Furniture, fixtures and equipment, at cost:
Furniture and fixtures 367 367
Machinery and equipment 311 303
Computer hardware and software 1,135 1,166
----------------------------
1,813 1,836
Less accumulated depreciation
and amortization (902) (665)
----------------------------
911 1,171
Capitalized software development costs,
less accumulated amortization of $567
and $403 at June 30, 1998 and
December 31, 1997, respectively 506 136
Other assets 60 ---
----------------------------
Total assets $8,793 $4,266
============================
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
3
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Global Med Technologies, Inc.
Consolidated Balance Sheets (continued)
(In thousands, except par value amounts)
JUNE 30,
1998 DECEMBER 31,
(UNAUDITED) 1997
---------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 383 $ 324
Accrued expenses 1,138 599
Accrued payroll 313 398
Accrued compensated absences 441 449
Noncompete accrual 35 150
Unearned revenue 2,786 2,761
Current portion of capital lease obligations 168 229
Short term debt 900 ---
Net liabilities of discontinued
operations --- 631
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Total current liabilities 6,164 5,541
Capital lease obligations,
less current portion 130 198
---------------------------
Total liabilities 6,294 5,739
---------------------------
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
at June 30, 1998 and December 31, 1997 82 82
Additional paid-in capital 20,840 13,420
Accumulated deficit (18,423) (14,975)
---------------------------
Total stockholders' deficit 2,499 (1,473)
---------------------------
Total liabilities and stockholders'
deficit $ 8,793 $ 4,266
===========================
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
4
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Global Med Technologies, Inc.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per common share information)
THREE MONTHS ENDED
JUNE 30,
1998 1997
----------------------------
Revenues:
Software sales and consulting $ 1,294 $ 365
Hardware and software, obtained
from vendors 316 50
----------------------------
1,610 415
Cost of revenues:
Software sales and consulting 606 289
Hardware and software, obtained
from vendors 245 25
----------------------------
851 314
----------------------------
Gross profit 759 101
Operating expenses:
General and administrative 306 814
Sales and marketing 352 52
Research and development 184 649
Depreciation and amortization 144 102
----------------------------
Loss from continuing operations
before other income (expense) (227) (1,516)
Interest income 1 65
Interest expense (22) (16)
Financing costs (1,237) ---
Other --- (2)
----------------------------
Loss from continuing operations (1,485) (1,469)
Loss from discontinued operations --- (336)
----------------------------
Net loss $(1,485) $(1,805)
============================
Basic and diluted loss per share of common stock:
Loss from continuing operations $ (0.18) $ (0.21)
Loss from discontinued operations --- (0.04)
----------------------------
$ (0.18) $ (0.25)
============================
Weighted average number of common shares
outstanding 8,148 7,153
============================
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
5
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Global Med Technologies, Inc.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per common share information)
SIX MONTHS ENDED
JUNE 30,
1998 1997
----------------------------
Revenues:
Software sales and consulting $ 2,062 $ 1,365
Hardware and software, obtained
from vendors 356 220
----------------------------
2,418 1,585
Cost of revenues:
Software sales and consulting 1,077 590
Hardware and software, obtained
from vendors 283 168
----------------------------
1,360 758
----------------------------
Gross profit 1,058 827
Operating expenses:
General and administrative 775 1,618
Sales and marketing 687 486
Research and development 1,355 1,078
Depreciation and amortization 288 154
Restructuring charges 138 ---
----------------------------
Loss from continuing operations
before other income (expense) (2,185) (2,509)
Interest income 13 115
Interest expense (39) (47)
Financing Costs (1,237) ---
Other --- (81)
----------------------------
Loss from continuing operations (3,448) (2,522)
Loss from discontinued operations --- (880)
----------------------------
Net loss $(3,448) $(3,402)
============================
Basic and diluted loss per share of common stock:
Loss from continuing operations $ (0.42) $ (0.35)
Loss from discontinued operations --- (0.13)
----------------------------
$ (0.42) $ (0.48)
============================
Weighted average number of common shares
outstanding 8,148 7,153
============================
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
6
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Global Med Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
SIX MONTHS ENDED
JUNE 30,
1998 1997
---------------------------
OPERATING ACTIVITIES
Net loss $(3,448) $(3,402)
Adjustments to reconcile net loss to
net cash used in operating activities:
Loss from discontinued operations --- 880
Depreciation and amortization 288 274
Loss on asset disposals 41 2
Expense related to issuance of
common stock, options and warrants 1,237 63
Other long term assets (60) ---
Changes in operating assets and liabilities:
Accounts receivable-trade, net (214) 75
Unbilled revenues, net 225 (13)
Prepaid expenses and other assets 153 95
Capitalized software development costs (370) ---
Accounts payable 59 (227)
Accrued expenses 539 (302)
Accrued payroll (85) (36)
Accrued compensated absences (8) 28
Noncompete accrual (115) ---
Unearned revenue 25 468
----------------------------
Net cash used in continuing operations (1,733) (2,095)
Net cash used in discontinued operations (631) (1,255)
----------------------------
Net cash used in operating activities (2,364) (3,350)
INVESTING ACTIVITIES
Purchases of equipment and fixtures (69) (438)
Capital expenditures of discontinued
operations --- (58)
----------------------------
Net cash used in investing activities (69) (496)
FINANCING ACTIVITIES
Borrowings on short-term debt 900 ---
Principal payments on short-term debt --- (1,097)
Principal payments under capital
lease obligations (129) (95)
Principal payments under capital
lease obligations of discontinued
operations --- (107)
Principal payments on notes payable --- (327)
Issuance of common stock --- 8,272
Deferred offering costs --- 486
----------------------------
Net cash provided by financing activities 771 7,132
----------------------------
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
7
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Global Med Technologies, Inc.
Consolidated Statements of Cash Flows (continued)
(Unaudited)
SIX MONTHS ENDED
June 30,
1998 1997
----------------------------
(IN THOUSANDS)
Net (decrease) increase in cash and
cash equivalents $(1,662) $ 3,286
Cash and cash equivalents at
beginning of period 2,370 489
----------------------------
Cash and cash equivalents at
end of period $ 708 $ 3,775
============================
Supplemental disclosures:
The Company entered into capital lease obligations of approximately $57,000
during the six months ended June 30, 1997.
Interest expense approximates interest paid.
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
8
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GLOBAL MED TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Global Med
Technologies, Inc. (the "Company") have been prepared by management in
accordance with generally accepted accounting principles for interim financial
information and with the regulations of the Securities and Exchange Commission.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of only normal recurring
adjustments) considered necessary for a fair presentation of its financial
position at June 30, 1998 and the results of its operations for the three and
six months ended June 30, 1998 and 1997 have been included.
While management believes the disclosures presented are adequate to prevent
misleading information, it is suggested that the accompanying unaudited
consolidated financial statements be read in conjunction with the audited
consolidated financial statements and the notes thereto contained in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1997, as
filed with the Securities and Exchange Commission. The interim results of
operations for the three and six months ended June 30, 1998 are not necessarily
indicative of the results that may be expected for any other interim period of
1998 or for the year ending December 31, 1998.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company's management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The unaudited consolidated financial statements reflect the Company's DataMed
International division, which was sold on December 15, 1997, as discontinued
operations in accordance with Accounting Principles Board Opinion No. 30.
2. LIQUIDITY AND MANAGEMENT'S PLANS
From inception to June 30, 1998, the Company incurred cumulative net losses of
approximately $25 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)),
is established in its markets. In April 1998, the Company entered into two
financing agreements with two related parties, which were previously not
affiliated with the Company, as follows: a loan of $1.5 million and a line of
credit of up to $1.65 million. Both the loan and the line of credit accrue
interest 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 cash finder's fee of 9% of the amounts drawn upon the
line of credit to American Fronteer Financial Corporation, formerly known as 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 had certain rights which included 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. The lenders have appointed
five members to the Board of Directors.
In consideration for the $1.5 million loan, the lender received 6 million
detachable warrants, exercisable at $.25 per warrant, for 6 million shares of
the Company's common stock. The exercise price of the detachable warrants was
substantially below the market price for the Company's common stock at the grant
date of April 14, 1998. In consideration of extending the $1.65 million line of
9
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credit, the lender received 1 million detachable warrants, exercisable at $.25
per warrant, for 1 million shares of the Company's common stock. If the Company
draws upon the $1.65 million line of credit, the lender will receive an
additional 5 million detachable warrants, exercisable at $.25 per warrant, for 5
million shares of the Company's common stock. The warrants are exercisable over
a 10-year period from April 14, 1998. The Company was required to use its best
efforts to register the common stock underlying the detachable warrants on or
before July 14, 1998. Accordingly, a Form SB-2 , not yet effective, was filed
with the Securities and Exchange Commission on May, 15, 1998, to register the
common stock. If the Company defaults on the $1.5 million loan or the $1.65
million line of credit, the debt, including any interest, can be converted into
shares of the Company's common stock on the basis of one share for each $.05 of
debt. Through June 30, 1998, the Company had drawn $900 thousand on the loan.
The issuance of the discounted warrants resulted in a significant noncash
transaction in the Company's 1998 consolidated financial statements. Based on a
managerial assessment, using the Black-Scholes pricing model, $7.42 million was
recorded as deferred financing costs to be amortized over twelve months. For the
quarter ended June 30, 1998, $1.237 million was amortized to financing cost
expense in the statement of operations.
In light of the Company's projected net losses and negative cash flows,
management believes the Company has the financial resources with this additional
financing to maintain its planned level of operations until April 1999 without
obtaining additional financing. Management, however, recognizes that even with
the current financing, the Company will need to obtain additional capital in
1999, or it may be required to substantially reduce its software development
programs and other operating expenses.
The Company has signed a letter of intent with an underwriter for a $20 million
convertible bond offering within the next nine months with conversion rights
after five years. This offering will enable Global Med to continue its research
and development programs which will maintain the company's superiority in the
blood center industry. In addition, the offering will enable Global Med to
continue to market its current products and services as well as maintain its
operations.
In addition, with proceeds from the offering, Global Med will be able to
aggressively market and sell its new transfusion service product currently
referred to as the TX application, after receiving 510(K) clearance from the FDA
applied for on July 23, 1998. This will complete Global Med's vein-to-vein(TM)
strategy of management information systems for the worldwide blood center
industry. The vein-to vein strategy will provide the blood centers industry with
information systems designed to track blood and blood products from the point of
donor collection through patient transfusion.
3. 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 direction and control of
the business and operations of DataMed. Accordingly, NMRO managed the business
and assumed ownership responsibility for the operational results from July 1,
1997 through the date of final close. On December 15, 1997, upon stockholders'
approval, the Company finalized the sale of the assets and operations of DataMed
to NMRO.
10
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The operating results of the discontinued operations reflected in the Company's
unaudited consolidated statements of operations are summarized as follows (in
thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1997
------------------ ----------------
Substance abuse testing
and other revenue $ 1,534 $ 2,953
Cost of revenue 1,062 2,151
---------------- ----------------
Gross profit $ 472 $ 802
================ ================
Net loss $ (336) $ (880)
================= ================
The net liabilities of the discontinued operations are summarized as follows (in
thousands):
JUNE 30, 1997 DECEMBER 31, 1997
---------------- -----------------
Current assets $ 913 $ ---
Equipment and fixtures, net 472 ---
Current liabilities (1,789) (631)
Long-term liabilities (262) ---
---------------- -----------------
Net liabilities $ (666) $ (631)
================ =================
4. REVENUE RECOGNITION
As of January 1, 1998, the Company adopted AICPA Statement of Position (SOP)
97-2, "SOFTWARE REVENUE RECOGNITION", which is effective for transactions that
the Company entered into during the three and six months ended June 30, 1998 and
for transactions which the Company will enter into in the future. Prior periods
were not restated. The most significant impact of SOP 97-2 on the Company's
revenue recognition accounting policies is that for licenses with multiple
elements, revenue would be recognized at a later date than under past practices.
The Company has made changes in its business operations to minimize the impact
of SOP 97-2. However, the Company has delayed recognizing revenues of $443,000
under the provisions of SOP 97-2. Previously, these revenues would have been
recognized.
5. RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the current
period presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
- - --------
Global Med Technologies, Inc. (the "Company"), through its operating division,
Wyndgate Technologies ("Wyndgate"), designs, develops, markets and supports
information management software products for blood centers, hospitals,
centralized transfusion centers and other healthcare related facilities.
Revenues for Wyndgate are derived from the licensing of software, providing
consulting and other value-added support services and the resale of hardware and
software obtained from vendors. On December 15, 1997, the Company sold its
DataMed International division ("DataMed") which is in the business of substance
abuse testing management services. The unaudited consolidated financial
statements and related footnotes herein reflect DataMed as discontinued
operations.
In April 1998, the Company entered into two debt financing agreements with Heng
Fung Finance Ltd. and Fronteer Capital, Inc. which provided the Company up to
$3.150 million in borrowings in exchange for up to 12 million warrants
exercisable at $.25 each into 12 million shares of the Company's common stock.
The value of these warrants, which were issued with an exercise price
significantly below market value, was recorded as deferred financing costs of
$7.42 million and will be amortized as additional interest expense over the term
of twelve months. Should the Company not repay the outstanding balance, and
accrued interest thereon, on or before April 15, 1999, the outstanding balance,
including interest thereon, is convertible into approximately 70 million shares
of common stock at $0.05 per share.
The Company has signed a letter of intent with an underwriter for a $20 million
convertible bond offering within the next nine months with conversion rights
after five years. This offering will enable Global Med to continue its research
and development programs which will maintain the Company as one of the leaders
in the blood center industry. In addition, the offering will enable Global Med
to continue to market its current products and services as well as maintain its
operations.
In addition, with proceeds from the offering, Global Med will be able to
aggressively market and sell its new transfusion service product currently
referred to as the TX application, once the product is cleared by the FDA. This
will complete Global Med's vein-to-vein(TM) strategy of management information
systems for the worldwide blood center industry. The vein-to-vein strategy will
provide the blood center industry with information systems designed to track
blood and blood products from the point of donor collection through patient
transfusion.
The Company completed its initial public offering of securities in the first
quarter of 1997, from which it received net proceeds of approximately $8.2
million from the sale of 1,456,988 Units, each of which consisted of two shares
of common stock and one Class A common stock purchase warrant (the "February
1997 public offering"). Through June 30, 1998, the Company has used all of the
$8.2 million net proceeds from this offering. The Company's use of the $8.2
million net proceeds was principally to repay short-term debt, notes payable,
accounts payable and other accrued expenses; to fund Wyndgate's research and
development of a transfusion management information software product ("SAFETRACE
TX(TM)"); to fund Wyndgate's sales and marketing efforts, as well as for general
working capital purposes. Delays in software license fee revenues, delays in the
implementation cycles and software development delays related to the SAFETRACE
TX(TM) software product, contributed to the Company's use of net proceeds from
the February 1997 public offering prior to realization of significant revenue.
In April 1998, SAFETRACE TX(TM) entered beta testing at the Institute for
Transfusion Medicine in Pittsburgh, Pennsylvania. Beta testing was completed in
July 1998 and the transfusion service management information system product was
submitted to the U.S. Food and Drug Administration (FDA) for 510(K) pre-market
notification, required since SAFETRACE TX(TM) is a regulated medical device
software product. FDA 510(K)clearance is expected by the end of 1998 or early
1999.
On January 20, 1998, a Form 8-K was filed to report an instance of
non-compliance with new requirements for continued listing on NASDAQ, which
12
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became effective February 23, 1998, whereby a Company must maintain at least $2
million of net tangible assets. In addition, the Company reported it would be
adopting SOP 97-2, "SOFTWARE REVENUE RECOGNITION" in 1998.
In 1996, the Company entered into an Exclusivity and Software Development
agreement (the "Exclusivity Agreement") with Ortho Clinical Diagnostics, Inc.
("OCD") successor to Ortho Diagnostic Systems Inc. ("ODSI"), a wholly-owned
subsidiary of Johnson & Johnson. The Exclusivity Agreement provided ODSI the
exclusive right to negotiate with the Company with respect to the Company's
activities and developments in information technology and intellectual property
relating to donor and transfusion medicine.
In May 1997, the Company received a request from ODSI to continue its evaluation
of the Company's technology, on a non-exclusive basis, with the intent of
responding to the Company by July 14, 1997 regarding whether or not ODSI would
propose some form of transaction with the Company. The Company and ODSI have
agreed to further extensions of this non-exclusive agreement through December
31, 1998. This additional time will enable OCD to complete its strategic
evaluation.
The Company also agreed to perform certain software development services. In
connection with the extension to December 31, 1998, the parties agreed that OCD
has until June 30, 1999 to elect to require the Company to provide the software
development services as defined in the Exclusivity Agreement.
From inception to June 30, 1998, the Company incurred cumulative net losses of
approximately $25 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 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.
The results of operations for the three and six months ended June 30, 1998 are
not necessarily indicative of the results of operations that may be expected for
any other interim period of 1998 or for the year ending December 31, 1998.
The following discussion of the Company's results of operations and of its
liquidity and capital resources is derived from and should be read in
conjunction with the unaudited consolidated financial statements and the
related notes herein; and the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1997.
This Quarterly Report contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 including,
without limitation, statements regarding the sufficiency of the Company's
liquidity and sources of capital.
Any statements contained herein which are not historical facts or which contain
the words expect, believe or anticipate, or words of similar import shall be
deemed to be forward-looking statements. These forward-looking statements are
subject to certain risks, uncertainties and other factors
which could cause actual results to differ materially. Additional information
regarding factors that could potentially affect the Company or its financial
results may be included in the Company's filings with the Securities and
Exchange Commission.
Results of operations for the three and six months ended June 30, 1998 and 1997
- - -------------------------------------------------------------------------------
REVENUES. Revenues are comprised of software sales and consulting revenues, and
the resale of hardware and software obtained from vendors.
During the three months ended June 30, 1998, total revenues of $1.61 million
increased $1.195 million or 288% from the revenues of $415 thousand for the
comparable 1997 quarter. For the six month period ended June 30,1998, total
revenues increased $833 thousand to $2.418 million or 53% from total revenues
for the six month period ended June 30, 1997. Revenue increases are due to the
signing of new customers and bringing existing customers live. In addition, the
Company's revenue base for maintenance fees is increasing.
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Gross profit for the three and six months ended June 30, 1998 was $759 thousand
and $1.058 million, respectively compared to $101 thousand and $827 thousand for
the comparable 1997 periods respectively. Gross profit as a percentage of
revenue was 47% for the three months ended June 30, 1998 compared to 24% for the
respective 1997 period. Gross profit percentages were 44% and 52% for the six
month periods ended June 30, 1998 and 1997. During the second quarter of 1998,
the Company resumed an upward trend of software sales and deliveries from a
decreased basis in 1997. Software product licenses typically carry a greater
profit margin than revenue from consulting and implementation related services.
In the second quarter of 1998, research and development costs began to be
capitalized in accordance with Statement of Financial Accounting Standard No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." The Company achieved technological feasibility on the TX
product.
General and administrative expenses for both the three and six months ended June
30, 1998 decreased significantly from the comparable 1997 periods. This is due
to management's continuing efforts to reduce overhead costs and streamline
administrative processes further discussed below. In addition, payroll and
overhead costs are being charged directly to the appropriate departments
beginning in 1998, such as to sales and marketing and research and development.
As described above, the Company recognized $6.183 million of net deferred
financing costs on the balance sheet and a charge to the statement of operations
of $1.237 million, a total of $7.42 million relating to warrants issued in
connection with the private financing arrangements. In accordance with the
provisions of Financial Accounting Standards Board Statement No. 123 (SFAS No.
123), "Accounting for Stock Based Compensation", this charge is not reflected as
an extraordinary item. However, the net loss for the six months ended June 30,
1998 was $2.211 million or $(.27) per share before the $1.237 million charge,
compared to a net loss of $3.402 million or $(.47) per share for the comparable
1997 period.
RESTRUCTURING CHARGES. Restructuring charges were $-0- and $138 thousand for the
three and six months ended June 30, 1998 respectively. During the period ended
March 31, 1998, management proposed and the Company's board of directors
approved a substantial cost reduction program which initially resulted in a
decrease of over 30 full time employees in addition to a decrease in the number
of contracted developers. This cost reduction program is anticipated to assist
in the reduction of the Company's operating expenses. Restructuring charges
incurred during the six months ended June 30, 1998 are primarily attributable to
costs associated with future outlays related to individuals no longer employed
by the Company, fees related to restructuring Wyndgate's office lease and other
costs. Management currently believes the current and anticipated employee base
will be able to successfully service and market to Wyndgate's existing and
anticipated SAFETRACE(R) customers, complete beta testing and receive 510(k)
clearance for SAFETRACE TX(TM) within the next eighteen months and successfully
and timely implement a sales and marketing program for SAFETRACE TX(TM). In
addition, management believes the current employee base will be able to continue
to provide effective and market-driven SAFETRACE(R) enhancements and upgrades to
current and future customers. However, there can be no assurance that the
Company will be successful as a result of the cost reduction program. During the
remainder of 1998, management does not anticipate substantial additional
restructuring charges.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The Company had cash and cash equivalents of $708 thousand at June 30, 1998,
compared to the balance at December 31, 1997 of $2.370 million. There are no
restrictions on cash and cash equivalent balances.
The Company had working capital deficits of approximately $4.977 million and
$2.582 million at June 30, 1998 and December 31, 1997, respectively. The change
in working capital during the six months ended June 30, 1998 was primarily due
to an increase in short term debt and the Company's use of approximately $1.66
million in cash during the same period. Upon completion of the SAFETRACE TX(TM)
product in March, 1998, the Company implemented the restructuring plan discussed
above and during April 1998, the Company entered into financing agreements which
provided the Company up to approximately $3.150 million in borrowings.
Management currently anticipates that these borrowings will be sufficient to
satisfy the Company's liquidity and working capital requirements until April
1999 although, it is anticipated, the Company will continue to incur operating
losses and negative cash flows during that period.
14
<PAGE>
To the extent that the net borrowings provided by the April 1998 financing
agreements are insufficient to fund the Company's liquidity and capital
requirements in the short or long term, the Company may need to raise additional
capital through debt financings or through public or private equity financings
or the Company may be required to substantially reduce its existing software
development programs and other operating expenses. As described above, the
Company signed a letter of intent with an underwriter for a $20 million
convertible bond offering.
The Company used $2.36 million in net cash for operating activities during the
six months ended June 30, 1998, compared to $3.3 million of net cash used for
operating activities during the same period in 1997. These amounts include $631
thousand of net cash used for discontinued operations during the six months
ended June 30, 1998 and $1.255 million of net cash used by discontinued
operations during the same period in 1997. The cash used in continuing
operations of $1.8 million during the six months ended June 30, 1998 consisted
primarily of the net loss from continuing operations of approximately $3.45
million net of noncash items for financing costs and depreciation of $1.53
million for a total of $1.7 million.
Net cash provided by financing activities was $7.1 million during the six months
ended June 30, 1997. During the six months ended June 30, 1997, the Company
completed its initial public offering and received approximately $8.2 million in
net proceeds. In addition, the Company received $450,000 in borrowings related
to certain 12% notes. The company used a portion of these proceeds to repay
short term debt and notes payable, and also to pay certain offering and
distribution costs related to the initial public offering. Sixty nine thousand
dollars were used in investing activities for the purchase of equipment.
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); and SAFETRACE TX(TM); 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.
POTENTIAL LITIGATION DUE TO THE SALE OF DATAMED
DataMed's substance abuse testing service agreements have contract terms that
vary from one to five years and, unless canceled generally ninety days prior to
the end of the license term, most are automatically renewable. Generally, such
contracts are not assignable. The Asset Purchase Agreement for the sale of
DataMed provides that the Company will assign all of DataMed's customer
contracts to the purchaser, and if DataMed customers do not consent to the
assignment, the purchaser can require the Company to terminate any
non-consenting customers' contracts. The Company will not be in the substance
abuse testing business in the future. While the Company does not consider it
likely, it is possible than non-consenting customers could commence litigation
against the Company for failure to provide substance abuse testing pursuant to
such customers' contracts with DataMed.
15
<PAGE>
ITEM 3. QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NOT APPLICABLE
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Effective June 29, 1998, the United States Securities and Exchange Commission
adopted new rules relating to stockholder proposals which stockholders do not
request be included in the Company's proxy statement to be used in connection
with the Company's Annual Meeting of Stockholders. Under these new rules,
proxies that confer discretionary authority will not be able to be voted on a
stockholder proposal to be presented at the Annual Meeting of Stockholders if
the stockholder provides the Company with advance written notice of the
stockholder's proposal on a date in the current year that is at least 45 days
prior to the date the prior year's proxy materials were mailed to the Company's
stockholders. If a stockholder fails to so notify the Company, proxies that
confer discretionary authority will be able to be voted when the proposal is
presented at the Annual Meeting of Stockholders.
In accordance with the new rules, proxies which confer discretionary authority
will be able to be voted on stockholder proposals that the stockholders do not
request be included in the Company's proxy statement but plan to present at the
Company's next Annual Meeting of Stockholders unless the Company receives notice
of the proposals by no later than September 6, 1998.
At the close of business on May 15, 1998, William J. Collard resigned as a
director of the Company.
On August 13, 1998, Robert L. Long resigned as a director of the Company, as a
director of Fronteer Financial Holdings Ltd. and as a director and officer of
subsidiaries of Fronteer Financial Holdings, Ltd.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule for June 30, 1998
(b) Reports on Form 8-K:
Current Report on Form 8-K dated January 20,1998, filed January 20,
1998, reporting an instance of non-compliance with new requirement for
continued listing on NASDAQ which became effective February 23, 1998
whereby a Company must maintain at least $2 million of net tangible
assets. In addition, the Company reported it would be adopting
Statement of Position 97-2 "Software Revenue Recognition" in 1998.
Current Report on Form 8K dated June 19, 1998, filed June 30, 1998, as
amended, reporting a Change in the Registrant's certifying Accountants
and an Other Item. The Other Item reported was the change in control
of the Company brought on by new financing agreements with Heng Fung
Finance Company Limited and Fronteer Capital Inc.
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GLOBAL MED TECHNOLOGIES, INC.
Date August 19, 1998 By /s/ MICHAEL I. RUXIN
---------------- ---------------------------------
Michael I. Ruxin
Chief Executive Officer
Date August 19, 1998 By /s/ ALAN K. GEDDES
---------------- ---------------------------------
Alan K. Geddes
Chief Financial Officer
EXHIBIT INDEX
Exhibit Description
- - ------- -----------
27.0 Financial Data Schedule
17
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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