FORM 10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
----------- -----------
Commission file number 0-22083
Global Med Technologies, Inc.
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(Exact name of small business issuer as specified in its charter)
Colorado 84-1116894
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
12600 West Colfax, Suite C-420, Lakewood, CO 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 pat 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of July 26, 1999, 11,024,511 shares of the issuer's Common Stock were
outstanding.
Transitional Small Business Disclosure Format [ ] Yes [X] No
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
a. Balance Sheets as of June 30, 1999 (Unaudited)
and December 31, 1998.......................................... 3
b. Unaudited Statements of Operations for the three months
ended June 30, 1999 and 1998................................... 5
c. Unaudited Statements of Operations for the six months
ended June 30, 1999 and 1998................................... 6
d. Unaudited Statement of Stockholders' (Deficit)
Equity for the six months ended June 30, 1999................... 7
e. Unaudited Statements of Cash Flows for the six months
ended June 30, 1999 and 1998.................................... 8
f. Notes to Unaudited Financial Statements....................... 10
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations................................ 14
PART II - OTHER INFORMATION
Item 2. Changes in Securities............................................... 18
Item 4. Submission of Matters to a Vote of Security Holders................. 18
Item 5. Other Information................................................... 18
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits...................................................... 18
b. Reports on Form 8-K........................................... 18
Signatures................................................................... 18
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
GLOBAL MED TECHNOLOGIES, INC.
BALANCE SHEETS
(IN THOUSANDS)
June 30, December 31,
1999 1998
--------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................. $ 589 821
Accounts receivable-trade, net of allowance for uncollectible
accounts of $100 and $50 at June 30, 1999 and
December 31, 1998, respectively ................................... 482 413
Accrued revenues, net of allowance for uncollectible accounts
of $15 at June 30, 1999 and December 31, 1998 ..................... 284 43
Prepaid expenses and other assets ..................................... 71 118
------- -------
Total current assets ..................................................... 1,426 1,395
EQUIPMENT, FURNITURE AND FIXTURES, AT COST:
Furniture and fixtures ................................................ 120 229
Machinery and equipment ............................................... 297 308
Computer hardware and software ........................................ 1,492 1,145
------- -------
1,909 1,682
Less accumulated depreciation and amortization ........................ (1,294) (1,117)
------- -------
Net equipment, furniture and fixtures ................................. 615 565
DEFERRED FINANCING COSTS,
net of amortization of $10,718 and $6,031 at
June 30, 1999 and December 31, 1998, respectively ..................... 130 4,649
CAPITALIZED SOFTWARE DEVELOPMENT COSTS,
net of accumulated amortization of $749 and $653 at
June 30, 1999 and December 31, 1998, respectively ..................... 1,396 920
OTHER ASSETS ............................................................. 60 60
------- -------
Total assets ............................................................. $ 3,627 7,589
======= =======
See accompanying notes to unaudited financial statements.
3
<PAGE>
<CAPTION>
GLOBAL MED TECHNOLOGIES, INC.
BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
June 30, December 31,
1999 1998
--------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................ $ 275 234
Accrued expenses ............................................ 594 637
Accrued payroll ............................................. 208 53
Accrued compensated absences ................................ 451 438
Noncompete accrual .......................................... 35 35
Deferred revenue ............................................ 1,784 1,935
Current portion of capital lease obligations ................ 42 91
Current portion of financing agreements ..................... -- 500
-------- --------
Total current liabilities ...................................... 3,389 3,923
CAPITAL LEASE OBLIGATIONS, less current portion ................ 334 105
FINANCING AGREEMENTS, less current portion ..................... 2,650 2,200
-------- --------
Total liabilities .............................................. 6,373 6,228
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' (DEFICIT) EQUITY:
Preferred stock, $.01 par value: Authorized shares - 10,000;
none issued or outstanding ............................... -- --
Common stock, $.01 par value: Authorized shares - 40,000;
issued and outstanding shares - 11,025 and 8,882 at
June 30, 1999 and December 31, 1998, respectively ........ 110 89
Additional paid-in capital .................................. 25,772 24,884
Accumulated deficit ......................................... (28,628) (23,612)
-------- --------
Total stockholders' (deficit) equity ........................... (2,746) 1,361
-------- --------
Total liabilities and stockholders' (deficit) equity ........... $ 3,627 7,589
======== ========
</TABLE>
See accompanying notes to unaudited financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
GLOBAL MED TECHNOLOGIES, INC.
UNAUDITED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER COMMON SHARE INFORMATION)
Three months ended
June 30,
1999 1998
---- ----
<S> <C> <C>
REVENUES:
Software sales and consulting ............................... $ 1,848 1,294
Hardware and software sales, obtained from vendors .......... 159 316
-------- --------
2,007 1,610
-------- --------
COST OF REVENUES:
Software sales and consulting ............................... 660 606
Hardware and software sales, obtained from vendors .......... 158 245
-------- --------
818 851
-------- --------
Gross profit ................................................... 1,189 759
OPERATING EXPENSES:
General and administrative .................................. 513 306
Sales and marketing ......................................... 432 352
Research and development .................................... 162 184
Depreciation and amortization ............................... 122 144
-------- --------
Loss from operations ........................................... (40) (227)
OTHER INCOME (EXPENSE):
Interest income ............................................. 99 1
Interest expense ............................................ (91) (22)
Amortization of deferred financing costs .................... (702) (1,237)
Other ....................................................... 23 --
-------- --------
Net loss ....................................................... $ (711) (1,485)
======== ========
Basic and diluted loss per share of common share ............... $ (0.07) (0.18)
======== ========
Weighted average number of common shares outstanding -
basic and diluted ........................................... 10,695 8,148
======== ========
</TABLE>
See accompanying notes to unaudited financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
GLOBAL MED TECHNOLOGIES, INC.
UNAUDITED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER COMMON SHARE INFORMATION)
Six months ended
June 30,
1999 1998
---- ----
<S> <C> <C>
REVENUES:
Software sales and consulting ............................... $ 3,084 2,062
Hardware and software sales, obtained from vendors .......... 159 356
------- -------
3,243 2,418
------- -------
COST OF REVENUES:
Software sales and consulting ............................... 1,204 1,077
Hardware and software sales, obtained from vendors .......... 158 283
------- -------
1,362 1,360
------- -------
Gross profit ................................................... 1,881 1,058
OPERATING EXPENSES:
General and administrative .................................. 1,005 775
Sales and marketing ......................................... 684 687
Research and development .................................... 178 1,355
Depreciation and amortization ............................... 250 288
Restructuring charges ....................................... -- 138
------- -------
Loss from operations ........................................... (236) (2,185)
OTHER INCOME (EXPENSE):
Interest income ............................................. 102 13
Interest expense ............................................ (218) (39)
Amortization of deferred financing costs .................... (4,687) (1,237)
Other ....................................................... 23 --
------- -------
Net loss ....................................................... $(5,016) (3,448)
======= =======
Basic and diluted loss per share of common share ............... $ (0.51) (0.42)
======= =======
Weighted average number of common shares outstanding -
basic and diluted ........................................... 9,786 8,148
======= =======
</TABLE>
See accompanying notes to unaudited financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
GLOBAL MED TECHNOLOGIES, INC.
UNAUDITED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
(IN THOUSANDS)
Common Stock Additional
---------------- paid-in Accumulated
Shares Amount capital Deficit Total
------ ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1998 ................................. 8,882 $ 89 24,884 (23,612) 1,361
Stock options granted to employees ....................... -- -- 3 -- 3
Cancellation of common stock issued for services ......... (30) -- (23) -- (23)
Issuance of common stock for services .................... 30 -- 23 -- 23
Issuance of shares for forgiveness of debt ............... 2,000 20 480 -- 500
Issuance of shares for financing agreement fees .......... 143 1 167 -- 168
Warrants granted to non-employees ........................ -- -- 238 -- 238
Net loss for six months ended June 30, 1999 .............. -- -- -- (5,016) (5,016)
------- ------- ------- ------- -------
Balances, June 30, 1999 ..................................... 11,025 $ 110 25,772 (28,628) (2,746)
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
GLOBAL MED TECHNOLOGIES, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Six months ended
June 30,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................................................... $(5,016) (3,448)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ................................................ 346 288
Amortization of financing costs .............................................. 4,687 1,237
Changes in allowances for uncollectible amounts .............................. 50 --
Loss on disposal of assets ................................................... 37 41
Expense related to issuance of common stock, options and
warrants ................................................................ 241 --
Increase in other long term assets ........................................... -- (60)
Changes in operating assets and liabilities:
Accounts receivable-trade, net ............................................ (119) (214)
Accrued revenues, net ..................................................... (241) 225
Prepaid expenses and other assets ......................................... 47 153
Accounts payable .......................................................... 41 59
Accrued expenses .......................................................... (43) 539
Accrued payroll ........................................................... 155 (85)
Accrued compensated absences .............................................. 13 (8)
Noncompete accrual ........................................................ -- (115)
Deferred revenue .......................................................... (151) 25
------- -------
Net cash provided by (used in) continuing operations ................ 47 (1,363)
Net cash used in discontinued operations ............................ -- (631)
------- -------
Net cash provided by (used in) operating activities ................. 47 (1,994)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software development costs ............................................ (572) (370)
Purchases of equipment, furniture and fixtures .................................... (72) (69)
Proceeds from sales of property and equipment ..................................... 6 --
------- -------
Net cash used in investing activities ............................... (638) (439)
------- -------
(Continued)
See accompanying notes to unaudited financial statements
8
<PAGE>
<CAPTION>
GLOBAL MED TECHNOLOGIES, INC.
UNAUDITED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
Six months ended
June 30,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on short-term debt ..................................................... $ 450 900
Borrowing on bridge loan .......................................................... 200 --
Repayments on bridge loan ......................................................... (200) --
Principal payments under capital lease obligations ................................ (91) (129)
------- -------
Net cash provided by financing activities ........................... 359 771
------- -------
Net decrease in cash and cash equivalents ......................................... (232) (1,662)
Cash and cash equivalents, at beginning of period ................................. 821 2,370
------- -------
Cash and cash equivalents, at end of period ....................................... $ 589 708
======= =======
SUPPLEMENTAL DISCLOSURES OF OTHER INVESTING AND FINANCING ACTIVITIES:
Forgiveness of debt in exchange for exercise of warrants $ 500 --
======= =======
Cancellation of common stock issued for services $ (23) --
======= =======
Common stock issued for financing fees $ 168 --
======= =======
Common stock issued for services $ 23 --
======= =======
Equipment financed under capital lease $ 273 --
======= =======
Cash paid for interest approximates interest expense.
</TABLE>
See accompanying notes to unaudited financial statements.
9
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of Global Med Technologies, Inc.
(the Company or Global) 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, 1999 and the results of its operations for the three and six months ended
June 30, 1999 and 1998 have been included.
While management believes the disclosures presented are adequate to prevent
misleading information, it is suggested that the accompanying unaudited
financial statements be read in conjunction with the audited financial
statements and the notes thereto contained in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1998, as filed with the Securities
and Exchange Commission. The interim results of operations for the three and six
months ended June 30, 1999 are not necessarily indicative of the results that
may be expected for any other interim period of 1999 or for the year ending
December 31, 1999.
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.
2. FINANCING AGREEMENTS
1999 AGREEMENTS
In March 1999, the Company entered into agreements for a comprehensive financing
package (March 1999 Financing Agreements) that includes: (1) an $8,000,000
preferred stock private placement through American Fronteer Financial
Corporation (AFFC), a wholly owned subsidiary of eVision USA.Com, Inc., formerly
known as Fronteer Financial Holdings Ltd. (eVision); (2) exercise of 2,000,000
warrants at $0.25 per warrant; (3) extending the balance on the line of credit
with eBanker USA.com, Inc. (eBanker), formerly Fronteer Development Finance,
Inc., a majority owned subsidiary of eVision, until April 15, 2000, with a
change in the default conversion rate from $0.05 per share contained in the
original loan agreement to $0.25 per share; and (4) a $750,000 bridge loan,
which bears interest at 12% per annum.
The Company executed a letter agreement with AFFC for an $8,000,000 convertible
preferred stock private placement. The convertible preferred stock will be
convertible into common stock at $2.50 per share any time after twelve months of
the closing date of the sale of the stock. There will be a forced conversion of
the convertible preferred stock into common stock if the closing bid market
price of the common stock is at $4.00 or more for at least 15 business days. The
convertible preferred stock will carry a 15% coupon paid semi-annually in the
Company's common stock. This offering may be initiated in late 1999 or early
2000, based on cash requirements and market conditions.
10
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
The balance due to Heng Fung Finance of $500,000 was due April 1999. Heng Fung
Finance had warrants to purchase 2,000,000 shares of common stock of Global at
$0.25 per share. The promissory note for $500,000 was surrendered in exchange
for 2,000,000 shares of common stock of Global in exercise of the warrants.
The $2,650,000 loan from eBanker was extended until April 15, 2000, with the
previous conversion price of $0.05 per share increased to $0.25 per share. In
consideration for the extension, the Company paid a 2% fee to eBanker of
$53,000, payable in 42,400 shares of the Company's common stock.
The $750,000 bridge loan, as revised on May 7, 1999, bears interest at 12% and
is convertible into shares of common stock of the Company at the 15-day average
closing bid price prior to the date of conversion. The loan must be drawn on or
before October 15, 1999 and is due and payable December 31, 1999. In
consideration of the commitment for the bridge loan, the Company paid a fee of
2% or $15,000 payable in 13,275 shares of common stock of the Company. During
the quarter ended June 30, 1999, $200,000 was drawn and repaid on this loan.
In April 1999, the Company entered into an agreement with Heng Fung Finance for
a bridge loan in the amount of $2,000,000 (April 1999 Financing Agreement). The
agreement provides for a line of credit, with interest at 12% per annum payable
monthly, due April 12, 2000. As consideration for the line of credit, the
Company paid a fee equal to 5% of the total line of credit in 86,957 shares of
common stock of the Company, payable as of April 13, 1999. The line of credit
will be convertible, at Heng Fung's option, into shares of the Company's common
stock at a price based on the average closing bid price of the Company's common
stock for a period of 15 business days prior to April 13, 1999, which was $1.15.
1998 AGREEMENTS
On April 14, 1998, Fronteer Capital, Inc. (Fronteer Capital), a wholly owned
subsidiary of eVision, and Heng Fung Finance committed to provide to the Company
lines of credit for up to $1,650,000 and $1,500,000, respectively, for a total
combined loan commitment of $3,150,000 over the following twelve months (April
1998 Financing Agreements). The loans bear interest calculated at a rate of 12%
per annum, and were originally due on April 15, 1999 but have been extended to
April 15, 2000.
For issuing the $1,500,000 loan commitment, Heng Fung Finance earned warrants to
purchase 6,000,000 shares of Global common stock at $0.25 per share. For issuing
the $1,650,000 loan commitment, Fronteer Capital earned warrants to purchase
1,000,000 shares of Global common stock at $0.25 per share and when the loan was
drawn upon, would receive an additional warrant to purchase 5,000,000 shares of
Global common stock at $0.25 per share.
During the fourth quarter of 1998, the $1,650,000 loan commitment and the
unearned warrant rights to purchase 5,000,000 shares of Global common stock of
Fronteer Capital were assigned to eBanker. The $1,500,000 loan commitment of
Heng Fung Finance, $1,000,000 of the balance outstanding to Heng Fung Finance,
and 4,000,000 warrants held by Heng Fung Finance were sold to eBanker during the
last quarter of 1998. In October 1998, eBanker received the warrant to purchase
the 5,000,000 shares of Global common stock at $0.25 per share.
11
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
3. DEFERRED FINANCING COSTS
During 1998, the Company recognized deferred financing costs of $10,680,000,
which were being amortized over the term of the associated 1998 Financing
Agreements. As of April 1999, these costs were fully amortized.
In connection with the 1999 Financing Agreements, the Company recorded $168,000
in additional deferred financing costs, which are being amortized to financing
cost expense over the terms of the 1999 Financing Agreements. As of June 30,
1999, the unamortized balance was $130,000.
4. STOCKHOLDERS' EQUITY
On January 4, 1999, the board of directors authorized incentive stock option
grants to purchase a total of 45,000 shares of the Company's common stock to
three employees at $0.78 per share. The options are for ten years and 25,000
vest at 20% per year beginning in September 1999 and the remaining options for
20,000 shares vest at the rate of 50% immediately and 50% on March 28, 1999.
Also on January 4, 1999, non-qualified options to purchase 60,000 shares of the
Company's common stock at $.78 per share were granted to two employees, one of
which is an officer, and non-qualified options to purchase 500 shares of the
Company's common stock at $.78 per share were granted to a consultant. The
employee grants vest at the rate of 20% per year beginning in 1999, and the
consultant options were 100% vested on the grant date. All of the options are
for a term of ten years.
On February 16, 1999, the board of directors approved a resolution to authorize
registration of 1,829,788 shares of the Company's common stock which underlie
outstanding Class A Warrants (1,456,988 shares at $4.55), 10% Note Warrants
(187,800 shares at $3.75), and specified non-qualified stock options (185,000
shares at $2.50 and $1.81). As an incentive to exercise the aforementioned
warrants and options, the board of directors agreed to discount the exercise
price per share by an amount up to 33-1/3% of the bid price on the common stock
on the effective date of the registration statement. Should the Company complete
such registration, under current accounting guidance, this transaction would
result in a significant non-cash charge to the statement of operations on the
effective date of the registration statement. However, it could also result in a
significant infusion of cash to the Company for its operations.
On June 2, 1999, the board of directors authorized the extension of the 10% Note
Warrants. These warrants to purchase 187,800 shares of common stock of Global at
$3.75 per share were originally granted on June 26, 1996 and were exercisable
for a period of three years, through June 26, 1999. The expiration date was
extended to June 26, 2004 by the board of directors. All other terms remained
the same. The Company recognized $238,000 of financing costs expense on this
transaction.
12
<PAGE>
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
On June 2, 1999, an incentive stock option to purchase 10,000 shares of Global's
common stock at $1.375 per share was granted to an employee. The options vest at
the rate of 20% per year and are exercisable for a period of 10 years.
5. DEFERRED REVENUE
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., a wholly-owned subsidiary of
Johnson & Johnson. The Exclusivity Agreement provided OCD 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 connection with this agreement, the Company
received $500,000 in 1996.
In May 1997, the Company received a request from OCD 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 OCD would
propose some form of transaction with the Company. The Company received an
additional $500,000 from OCD during 1997. The Company and OCD agreed to further
extensions of this non-exclusive agreement through December 31, 1998 to 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 had until June 30, 1999, to elect
to require the Company to provide the software development services as defined
in the Exclusivity Agreement. The Company finalized the Manufacturer's
Representative and Software Development Agreement during June 1999. The total of
$1,000,000 is included in deferred revenue as of June 30, 1999 and December 31,
1998. Per the final agreement, $500,000 of the $1,000,000 may be recognized as
revenue by Global in August 1999.
6. SOFTWARE SALES AND CONSULTING REVENUE
Software sales and consulting revenues of $1.848 million and $3.084 million for
the three and six months ended June 30, 1999, respectively, include $850,000 of
accelerated software license fee payments in connection with a customer
termination agreement.
7. SUBSEQUENT EVENT
In August 1999, the Company drew $500,000 on the $750,000 bridge loan from
eBanker.
8 RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the current
period presentation.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Global Med Technologies, Inc. (the "Company" or "Global"), designs, develops,
markets and supports information management software products for blood banks,
hospitals, centralized transfusion centers and other healthcare related
facilities. Revenues are derived from the licensing of software, the provision
of consulting and other value-added support services and the resale of hardware
and software obtained from vendors.
Ortho-Clinical Diagnostics, Inc.
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., a wholly-owned subsidiary of
Johnson & Johnson. The Exclusivity Agreement provided OCD 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 connection with this agreement, the Company
received $500,000 in 1996.
In May 1997, the Company received a request from OCD 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 OCD would
propose some form of transaction with the Company. The Company received an
additional $500,000 from OCD during 1997. The Company and OCD agreed to further
extensions of this non-exclusive agreement through December 31, 1998 to 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 had until June 30, 1999, to elect
to require the Company to provide the software development services as defined
in the Exclusivity Agreement. The Company finalized the Manufacturer's
Representative and Software Development Agreement during June 1999. The total of
$1,000,000 is included in deferred revenue as of June 30, 1999 and December 31,
1998. Per the final agreement, $500,000 of the $1,000,000 may be recognized as
revenue by Global in August 1999.
Financing Agreements
On April 14, 1998, the Company entered into two debt financing agreements which
provided the Company up to $3,150,000 in gross proceeds in exchange for up to
12,000,000 warrants convertible into common stock at $0.25 per share. Heng Fung
Finance had warrants to purchase 2,000,000 shares of common stock of Global at
$0.25 per share and was owed $500,000 due April 1999. The remaining warrants and
debt were held by eBanker. Heng Fung Finance surrendered the promissory note in
the amount of $500,000 in exercise of the warrants to acquire 2,000,000 shares
of common stock of the Company. This transaction was completed on April 29,
1999.
As of December 31, 1998, the Company owed $2,200,000 to eBanker. In March 1999,
the Company drew the remaining $450,000 available on the line of credit with
eBanker USA.com, Inc. (eBanker), formerly Fronteer Development Finance, Inc., a
majority owned subsidiary of eVision USA.Com, Inc., formerly known as Fronteer
Financial Holdings, Ltd., thereby owing eBanker a total of $2,650,000.
14
<PAGE>
The $2,650,000 loan from eBanker was extended until April 15, 2000, with the
previous conversion price of $0.05 per share increased to $0.25 per share. In
consideration for the extension, the Company paid a 2% fee to eBanker, of
$53,000, payable in 42,400 shares of the Company's common stock.
In March 1999, the Company entered into agreements for a comprehensive financing
package that includes: (1) an $8,000,000 preferred stock private placement
through AFFC to be initiated as cash requirements and market conditions dictate
; (2) exercise of 2,000,000 warrants at $0.25 per warrant; (3) extending the
balance on the line of credit with eBanker until April 15, 2000, with a change
in the default conversion rate from $0.05 per share contained in the original
loan agreement to $0.25 per share; and (4) a $750,000 bridge loan which bears
interest at 12% per annum.
The $750,000 bridge loan, as revised on May 7, 1999, bears interest at 12% and
is convertible into shares of common stock of the Company at the 15-day average
closing bid price prior to the date of conversion. The loan must be drawn on or
before October 15, 1999 and is due and payable December 31, 1999. In
consideration of the commitment for the bridge loan, the Company paid a fee of
2% or $15,000 payable in 13,275 shares of common stock of the Company. During
the quarter ended June 30, 1999, $200,000 was drawn on this loan and repaid.
In April 1999, the Company entered into an agreement with Heng Fung Finance for
a bridge loan in the amount of $2,000,000 (April 1999 Financing Agreement). The
agreement provides a line of credit, with interest at 12% per annum payable
monthly, due April 12, 2000. As consideration for the line of credit, the
Company paid a fee equal to 5% of the total line of credit in 86,957 shares of
common stock of the Company. The line of credit will be convertible, at Heng
Fung's option, into shares of the Company's common stock at a price based on the
average closing bid price of the Company's common stock for a period of 15
business days prior to April 13, 1999, $1.15 per share.
RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998:
REVENUES
Revenues are comprised of software sales, consulting, and maintenance revenues,
and the resale of hardware and software obtained from vendors. In February 1999,
the Company received FDA 510(k) clearance on SAFETRACE TX(TM).
During the three months ended June 30, 1999, total revenues of $2.007 million
increased $397 thousand or 24.7% from the revenues of $1.610 million for the
comparable 1998 quarter. For the six-month period ended June 30, 1999, total
revenues increased $825 thousand to $3.243 million or 34.1% from total revenues
for the six-month period ended June 30, 1998, of $2.418 million. Revenues from
software sales and consulting increased 42.8% and 49.6% for the three and six
months ended June 30, 1999, respectively, primarily due to sales of SAFETRACE
TX(TM). In addition, in June 1999, the Company received $850,000 of accelerated
software license fee payments in connection with a customer termination
agreement.
Gross profit for the three and six months ended June 30, 1999 was $1.189 million
and $1.881 million, respectively, compared to $759 thousand and $1.058 million
for the comparable 1998 periods respectively. Gross profit as a percentage of
revenue was 59.2% for the three months ended June 30, 1999 compared to 47.1% for
the respective 1998 period. Gross profit percentages of revenue were 58.0% and
43.8% for the six months periods ended June 30, 1999 and 1998. Software product
licenses typically have a higher profit margin than revenue from consulting and
implementation related services. In addition, the 1999 percentages include the
$850,000 payment described above.
15
<PAGE>
In the second quarter of 1998, software development costs began to be
capitalized in accordance with Statement of Financial Accounting Standard No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed," when the Company achieved technological feasibility on the
SAFETRACE TX(TM) product. Research and development expense for the three and six
months ended June 30, 1999, were $162 thousand and $178 thousand, respectively
compared to $184 thousand and $1.355 million for the comparable periods of 1998.
Capitalized software development costs were $1.396 million, net of accumulated
amortization of $749 thousand as of June 30, 1999, compared to $506 thousand,
net of accumulated amortization of $567 thousand as of June 30, 1998. Beginning
in May 1999, SAFETRACE TX(TM) was available for release, and as a result,
software development costs ceased to be capitalized and are a component of
income (loss) from operations.
General and administrative expenses for both the three and six months ended June
30, 1999 increased significantly from the comparable 1998 periods. For the three
month period ended June 30, 1999, general and administrative expenses increased
$207 thousand or 67.6%. For the six month period, they increased $230 thousand
or 29.7%. The increases are due primarily to legal fees associated with the
Ortho-Clinical Diagnostics, Inc. contract and other projects.
As a result of the financing agreements described above, the Company has
recognized significant noncash financing costs. For the three and six months
ended June 30, 1999, the charges were $702 thousand and $4.687 million,
respectively. For the three and six month periods of 1998, the charges for both
periods totaled $1.237 million. As of June 30, 1999, Global had deferred
financing costs remaining of $130 thousand.
COST REDUCTION PROGRAM
During the period ended March 31, 1998, management proposed and the Company's
board of directors approved a substantial cost reduction program which initially
resulted in a decrease of over 30 full time employees in addition to a decrease
in the number of contracted developers. This cost reduction program was
anticipated to assist in the reduction of the Company's operating expenses. The
Company incurred $138 thousand in cost reduction program expenses; all of which
were paid prior to December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $589 thousand at June 30, 1999,
compared to $821 thousand at December 31, 1998. There are no restrictions on
cash and cash equivalent balances.
The Company had working capital deficits of approximately $1.963 million and
$2.528 million at June 30, 1999 and December 31, 1998, respectively. The change
in working capital during the six months ended June 30, 1999 was primarily due
to a decrease in the financing agreement balance of $500 thousand. The $500
thousand debt was exchanged for 2,000,000 shares of common stock with Heng Fung
Finance Company, Ltd.
It is expected that the net proceeds generated by the March 1999, April 1999 and
April 1998 Financing Agreements, as discussed above, a customer termination
agreement of $850,000 which was received in June 1999, and the $350,000 received
in April 1999 in payment of a note and accrued interest receivable previously
written off are sufficient to fund the Company's liquidity and capital
requirements in the short term excluding acquisitions or major new product
development initiatives. Management anticipates that the net proceeds
16
<PAGE>
from the 1999 and April 1998 financing agreements, proceeds from the exercise of
warrants, and any future financing activities will be used to fund the
Company;'s anticipated research and software development costs, sales and
marketing efforts, and negative cash flows during the remainder of 1999 and for
general working capital purposes.
To the extent that the net borrowings provided by the Financing Agreements are
insufficient to fund the Company's liquidity and capital requirements in the
short or long term, the Company will require additional capital through debt
financing or public or private equity financing, or the Company may be required
to substantially reduce its existing software development programs and other
operating expenses.
The Company generated $47 thousand in net cash from operating activities during
the six months ended June 30, 1999, compared to the use of $1.994 million of net
cash used in operating activities during the same period in 1998. These amounts
include $631 thousand of net cash used for discontinued operations during the
six months ended June 30, 1998. The cash provided by continuing operations of
$47 thousand during the six months ended June 30, 1999 consisted primarily of
the net loss from continuing operations of approximately $5.016 million net of
noncash items for financing costs of $4.687 million, changes in allowances for
uncollectible amounts of $50 thousand and depreciation and amortization of $346
thousand, for a total of $5.093 million.
Net cash provided by financing activities was $359 thousand during the six
months ended June 30, 1998. This source of cash was primarily the advance of the
remaining amount of $450,000 available from the 1998 Financing Agreements, net
of payments made on capital leases.
YEAR 2000 DISCLOSURE
The Company has continued with the plans in place as included in the Company's
Annual Report on Form 10-KSB as of the year ended December 31, 1998. The Company
has continued working with third-party suppliers of software and related
services in resolving Year 2000 issues. On June 2, 1999, the board of directors
approved the Year 2000 Project Plan which estimates that testing and evaluation
will be completed by September 6, 1999. No matters have come to the attention of
management of the Company, which would indicate that the estimated total cost of
the program for compliance should be revised. No unanticipated amounts were
expended during the quarter ended June 30, 1999. If the Company and the third
parties on which it relies are unable to address this issue in a timely manner,
it could result in a material financial risk to the Company.
All statements contained herein, as well as statements made in press releases
and oral statements that may be made by the Company or its officers, directors,
or employees acting on its behalf, that are not statements of historical fact
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
could cause the actual results of the Company to be materially different from
historical results or from any future results expressed or implied by such
forward-looking statements and risk factors described from time to time in the
Company's reports filed with the Commission. In addition to statements that
explicitly describe such risks and uncertainties, readers are urged to consider
statements that include the terms "believes," "belief," "expects," "plans,"
"anticipates," "intends," or the like to be uncertain and forward-looking. All
cautionary statements made herein should be read as being applicable to all
forward-looking statements wherever they appear.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(c) Recent Sales of Unregistered Securities
The issuance of the shares of common stock for payment of financing fees
totaling 142,632 shares were made in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended
(1933 Act). The purchasers had access to full information concerning the Company
and represented that they purchased the securities for the purchasers' own
accounts and not for the purpose of distribution. The shares contain a
restrictive legend advising that such securities may not be offered for sale,
sold or otherwise transferred without having first been registered under the
1933 Act or pursuant to an exemption from registration under the 1933 Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders during the quarter
ended June 30, 1999.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
---------- -----------
27.1 Financial Data Schedule for June 30, 1999.
(b) Reports on Form 8-K:
There were no Current Reports on Form 8-K filed during the three
months ended June 30, 1999.
18
<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.
GLOBAL MED TECHNOLOGIES, INC.
A Colorado Corporation
Date: August , 1999 By /s/ Michael I. Ruxin
---------------------------------------
Michael I. Ruxin, M.D.
Chairman and CEO
Date: August , 1999 By /s/ Alan K. Geddes
---------------------------------------
Alan K. Geddes Vice President, Finance,
Chief Financial Officer and Treasurer
19
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