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 September 30, 1999
OR
[ ] 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, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the 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. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of November 11, 1999, 11,074,511 shares of the issuer's Common Stock
were outstanding.
Transitional Small Business Disclosure Format [ ] Yes [X] No
GLOBAL MED TECHNOLOGIES, INC.
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
a. Balance Sheets as of September 30, 1999 (Unaudited)
and December 31, 1998.......................................... 3
b. Unaudited Statements of Operations for the three months
ended September 30, 1999 and 1998.............................. 5
c. Unaudited Statements of Operations for the nine months
ended September 30, 1999 and 1998.............................. 6
d. Unaudited Statement of Stockholders' (Deficit)
Equity for the nine months ended September 30, 1999............ 7
e. Unaudited Statements of Cash Flows for the nine months
ended September 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................................ 16
PART II - OTHER INFORMATION
Item 2. Changes in Securities............................................... 20
Item 4. Submission of Matters to a Vote of Security Holders................. 21
Item 5. Other Information................................................... 21
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits....................................................... 21
b. Reports on Form 8-K............................................ 21
Signatures................................................................... 22
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GLOBAL MED TECHNOLOGIES, INC.
BALANCE SHEETS
(IN THOUSANDS)
September 30, December 31,
1999 1998
------------ -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .......................................... $ 120 821
Accounts receivable-trade, net of allowance for uncollectible
accounts of $75 and $50 at September 30, 1999 and
December 31, 1998, respectively ................................ 111 413
Accrued revenues, net of allowance for uncollectible accounts
of $15 at September 30, 1999 and December 31, 1998 ............. 278 43
Prepaid expenses and other assets .................................. 70 118
------- -------
Total current assets .................................................. 579 1,395
EQUIPMENT, FURNITURE AND FIXTURES, AT COST:
Furniture and fixtures ............................................. 171 229
Machinery and equipment ............................................ 306 308
Computer hardware and software ..................................... 1,567 1,145
------- -------
2,044 1,682
Less accumulated depreciation and amortization ..................... (1,423) (1,117)
------- -------
Net equipment, furniture and fixtures .............................. 621 565
DEFERRED FINANCING COSTS,
net of amortization of $10,764 and $6,031 at
September 30, 1999 and December 31, 1998, respectively ............. 84 4,649
CAPITALIZED SOFTWARE DEVELOPMENT COSTS,
net of accumulated amortization of $973 and $653 at
September 30, 1999 and December 31, 1998, respectively ............. 1,535 920
OTHER ASSETS .......................................................... 60 60
------- -------
Total assets .......................................................... $ 2,879 7,589
======= =======
See accompanying notes to unaudited financial statements.
3
GLOBAL MED TECHNOLOGIES, INC.
BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
September 30, December 31,
1999 1998
------------ -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable .............................................. $ 381 234
Accrued expenses .............................................. 582 637
Accrued payroll ............................................... 147 53
Accrued compensated absences .................................. 414 438
Noncompete accrual ............................................ 35 35
Deferred revenue .............................................. 1,650 1,935
Current portion of capital lease obligations .................. 146 91
Current portion of financing agreements ....................... 3,400 500
-------- --------
Total current liabilities ........................................ 6,755 3,923
CAPITAL LEASE OBLIGATIONS, less current portion .................. 208 105
FINANCING AGREEMENTS, less current portion ....................... -- 2,200
-------- --------
Total liabilities ................................................ 6,963 6,228
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' (DEFICIT) EQUITY:
Preferred stock, $.01 par value: 10,000 shares authorized;
none issued or outstanding ................................. -- --
Common stock, $.01 par value: 40,000 shares authorized;
11,075 and 8,882 shares issued and outstanding at
September 30, 1999 and December 31, 1998, respectively ..... 111 89
Additional paid-in capital .................................... 25,825 24,884
Accumulated deficit ........................................... (30,020) (23,612)
-------- --------
Total stockholders' (deficit) equity ............................. (4,084) 1,361
-------- --------
Total liabilities and stockholders' (deficit) equity ............. $ 2,879 7,589
======== ========
See accompanying notes to unaudited financial statements.
4
GLOBAL MED TECHNOLOGIES, INC.
UNAUDITED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER COMMON SHARE INFORMATION)
Three months ended
September 30,
1999 1998
---- ----
REVENUES:
Software sales and consulting .................................... $ 888 1,097
Hardware and software sales, obtained from vendors ............... 76 27
-------- --------
964 1,124
-------- --------
COST OF REVENUES:
Software sales and consulting .................................... 909 455
Hardware and software sales, obtained from vendors ............... 89 17
-------- --------
998 472
-------- --------
Gross profit ........................................................ (34) 652
OPERATING EXPENSES:
General and administrative ....................................... 536 129
Sales and marketing .............................................. 461 151
Research and development ......................................... 77 332
Depreciation and amortization .................................... 129 139
-------- --------
Loss from operations ................................................ (1,237) (99)
OTHER INCOME (EXPENSE):
Interest income .................................................. 4 2
Interest expense ................................................. (116) (46)
Amortization of deferred financing costs ......................... (46) (1,855)
Other ............................................................ 3 459
-------- --------
Net loss ............................................................ $ (1,392) (1,539)
======== ========
Basic and diluted loss per common share ............................. $ (0.13) (0.19)
======== ========
Basic and diluted weighted average number of
common shares outstanding ........................................ 11,058 8,217
======== ========
See accompanying notes to unaudited financial statements.
5
GLOBAL MED TECHNOLOGIES, INC.
UNAUDITED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER COMMON SHARE INFORMATION)
Nine months ended
September 30,
1999 1998
---- ----
REVENUES:
Software sales and consulting .................................. $ 3,972 3,159
Hardware and software sales, obtained from vendors ............. 235 383
-------- --------
4,207 3,542
-------- --------
COST OF REVENUES:
Software sales and consulting .................................. 2,113 1,532
Hardware and software sales, obtained from vendors ............. 247 300
-------- --------
2,360 1,832
-------- --------
Gross profit ...................................................... 1,847 1,710
OPERATING EXPENSES:
General and administrative ..................................... 1,541 904
Sales and marketing ............................................ 1,145 838
Research and development ....................................... 255 1,687
Depreciation and amortization .................................. 379 427
Restructuring charges .......................................... -- 138
-------- --------
Loss from operations .............................................. (1,473) (2,284)
OTHER INCOME (EXPENSE):
Interest income ................................................ 106 15
Interest expense ............................................... (334) (85)
Amortization of deferred financing costs ....................... (4,733) (3,092)
Other .......................................................... 26 459
-------- --------
Net loss .......................................................... $ (6,408) (4,987)
======== ========
Basic and diluted loss per common share ........................... $ (0.63) (0.61)
======== ========
Basic and diluted weighted average number of
common shares outstanding ..................................... 10,219 8,172
======== ========
See accompanying notes to unaudited financial statements.
6
GLOBAL MED TECHNOLOGIES, INC.
UNAUDITED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
(IN THOUSANDS)
Common Stock Additional
----------------- paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ---------- ----------- -----
Balances, December 31, 1998 ......................................... 8,882 $ 89 24,884 (23,612) 1,361
Stock options granted to employees ............................... -- -- 3 -- 3
Issuance of shares for forgiveness of debt ....................... 2,000 20 480 -- 500
Issuance of shares for financing agreement fees .................. 143 1 167 -- 168
Issuance of shares for services .................................. 50 1 53 -- 54
Warrants granted to non employees ................................ -- -- 238 -- 238
Net loss for nine months ended September 30, 1999 ................ -- -- -- (6,408) (6,408)
------- ------- ------- ------- -------
Balances, September 30, 1999 ........................................ 11,075 $ 111 25,825 (30,020) (4,084)
======= ======= ======= ======= =======
See accompanying notes to unaudited financial statements.
7
GLOBAL MED TECHNOLOGIES, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Nine months ended
September 30,
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ....................................................................... $(6,408) (4,987)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ............................................. 629 669
Amortization of financing costs ........................................... 4,733 3,092
Changes in allowances for uncollectible amounts ........................... 25 (235)
Loss on disposal of assets ................................................ 38 --
Expense related to issuance of common stock, options and
warrants ............................................................. 295 43
Increase in other long term assets ........................................ -- (40)
Changes in operating assets and liabilities:
Accounts receivable-trade, net ......................................... 277 235
Accrued revenues, net .................................................. (235) 225
Prepaid expenses and other assets ...................................... 48 176
Accounts payable ....................................................... 147 44
Accrued expenses ....................................................... (55) 3
Accrued payroll ........................................................ 94 (269)
Accrued compensated absences ........................................... (24) (10)
Noncompete accrual ..................................................... -- (115)
Deferred revenue ....................................................... (285) (523)
------- -------
Net cash used in continuing operations ........................... (721) (1,692)
Net cash used in discontinued operations ......................... -- (631)
------- -------
Net cash used in operating activities ............................ (721) (2,323)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software development costs ......................................... (865) (791)
Purchases of equipment, furniture and fixtures ................................. (206) (66)
Proceeds from sales of property and equipment .................................. 6 10
------- -------
Net cash used in investing activities ............................ (1,065) (847)
------- -------
(Continued)
See accompanying notes to unaudited financial statements.
8
GLOBAL MED TECHNOLOGIES, INC.
UNAUDITED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
Nine months ended
September 30,
1999 1998
---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on short-term debt .................................................. $ 450 1,500
Borrowing on bridge loan ....................................................... 950 --
Repayments on bridge loan ...................................................... (200) --
Principal payments under capital lease obligations ............................. (115) (183)
------- -------
Net cash provided by financing activities ........................ 1,085 1,317
------- -------
Net decrease in cash and cash equivalents ...................................... (701) (1,853)
Cash and cash equivalents, at beginning of period .............................. 821 2,370
------- -------
Cash and cash equivalents, at end of period .................................... $ 120 517
======= =======
SUPPLEMENTAL DISCLOSURES OF OTHER INVESTING AND FINANCING ACTIVITIES:
Forgiveness of debt in exchange for exercise of warrants .................... $ 500 --
======= =======
Common stock issued for financing fees ...................................... $ 168 --
======= =======
Common stock issued for services, net ....................................... $ -- 121
======= =======
Equipment financed under capital lease ...................................... $ 273 --
======= =======
Cash paid for interest approximates interest expense.
See accompanying notes to unaudited financial statements.
9
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 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
September 30, 1999 and the results of its operations for the three and nine
months ended September 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 nine months
ended September 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 included: (1) an $8,000,000
preferred stock private placement through American Fronteer Financial
Corporation (AFFC), a wholly owned subsidiary of eVision USA.Com, Inc.
(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)
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 with eBanker, which
bears interest at 12% per annum.
The agreement with AFFC for the proposed $8,000,000 preferred stock private
placement was withdrawn and terminated effective September 20, 1999.
In April 1999, $500,000 was due to Online Credit Limited (Online Credit),
formerly known as Heng Fung Finance Company Limited. Online Credit 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 shares were issued in
April 1999.
10
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
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, paid 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 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 paid in 13,275 shares of common stock of the
Company. As of September 30, 1999, $750,000 had been drawn on this loan.
In April 1999, the Company entered into an agreement with Online Credit 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, as of April 13, 1999. The line of credit will be
convertible, at Online Credit'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.
In September 1999, the Board of Directors voted to replace the $2,000,000 bridge
loan with Online Credit, at the request of Online Credit, with a line of credit
with the same terms with eBanker. In exchange for assuming the commitment, the
86,957 shares of common stock of Global will be transferred to eBanker. In
October and November 1999, the Company drew a total of $600,000 on this line of
credit.
On October 25, 1999, Company entered into a Lockup Agreement with eBanker and a
Lockup Agreement with eVision. The agreements provide that eBanker and eVision
will not, between October 25, 1999 and October 28, 2000, without the Company's
prior written consent, publicly offer, sell, contract to sell, grant any option
for the sale of, or otherwise dispose of, directly or indirectly, (i) Warrants
to purchase 9,000,000 shares of the Company's Common Stock at $0.25 per share
held by eBanker or the Warrants to purchase 1,000,000 shares of the Company's
Common Stock at $0.25 per share held by eVision and (ii) any shares (the
"Shares," and, together with the Warrants, the "Securities") of Common Stock
issuable upon the exercise of the Warrants; provided, however, that eBanker or
eVision may offer, sell, contract to sell, grant an option for the sale of, or
otherwise dispose of all or any part of the Securities or other such security or
instrument of the Company during such period if such transaction is private in
nature and the transferee of such Securities or other securities or instruments
agrees, prior to such transaction, to be bound by all of the provisions of the
lockup agreements. In exchange for entering into the agreements, eBanker and
eVision were issued 450,000 shares and 50,000 shares of common stock of the
Company, respectively.
11
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
In addition, the agreements provide (i) eBanker and eVision will not be
restricted from disposing of the Securities in the event that an unaffiliated
third party commences a tender offer for the outstanding Common Stock, and (ii)
eBanker and eVision will not be restricted from disposing of 450,000 and 50,000
shares, respectively, of the Securities in the aggregate if the closing sale
price for the Common Stock on the principal market on which it then trades
equals or exceeds $5.00 per share for any ten consecutive trading day period
preceding the date of such sale, and (iii) that there will be no restrictions
upon the ability of eBanker or eVision to exercise the Warrants.
1998 AGREEMENTS
On April 14, 1998, Fronteer Capital, Inc. (Fronteer Capital), then, a wholly
owned subsidiary of eVision, and Online Credit 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, Online Credit 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
Online Credit, $1,000,000 of the balance outstanding to Online Credit, and
4,000,000 warrants held by Online Credit 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.
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 September
30, 1999, the unamortized balance was $84,000.
12
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
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 $0.78 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 $0.78 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. On June 2, 1999, the
employee option grants were amended to incentive stock options. 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 authorized management 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 noncash 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.
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 beginning June 2, 2000 and are exercisable for a period
of 10 years.
On September 20, 1999, nonqualified options to purchase 100,000 shares of Global
common stock at $0.78 per share were granted to two directors. The options vest
40% immediately and then 20% per year thereafter; exercisable for a period of
ten years. Nonqualified options to purchase 200,000 shares of Global common
stock at $0.78 per share were also issued to two officers. The options vest at
the rate of 20% per year beginning September 20, 2000, and are exercisable for a
period of ten years.
On September 20, 1999, the Board of Directors approved incentive stock options
to purchase 10,000 shares of Global common stock at $1.03 per share effective
April 30, 1999, and 20,000 shares of Global common stock at $0.78 per share
effective September 20,1999, to two employees. Both grants vest at the rate of
20% per year beginning in 2000 and are exercisable for ten years.
13
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
Effective August 1, 1999, a director was issued 50,000 shares of common stock of
Global for the approximate value of $54,000 in exchange for legal consulting
services. This issuance was in accordance with terms of the Consulting Agreement
dated August 1, 1998.
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 (OCD Agreement) during June
1999. The total of $1,000,000 was included in deferred revenue as of December
31, 1998. Per the final agreement, $500,000 of the $1,000,000 was released as of
August 15, 1999 in consideration of the exclusivity agreement. The $500,000 will
be amortized to income over the remaining term of the OCD Agreement which
expires and is subject to renewal on June 15, 2001. The remaining $500,000 will
be recognized when the Company performs software development services for OCD,
as provided by the agreement.
6. SOFTWARE SALES AND CONSULTING REVENUE
Software sales and consulting revenues of $3,972,000 for the nine months ended
September 30, 1999, include $919,000 of accelerated software license fee
payments in connection with a multiple site customer agreement that was
terminated and replaced by two separate agreements.
14
GLOBAL MED TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
7. SUBSEQUENT EVENTS
On October 1, 1999, the Company implemented a plan to reduce operating costs by
approximately 50%. Included in the temporary reduction were approximately 50% of
the employee positions. This was necessitated by a reduction in the anticipated
sales of SAFETRACE and delays in purchase commitments for SAFETRACE TX (TM) due
to customer concerns about Year 2000 issues.
8. RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the current
period presentation.
15
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.
While management believes the disclosures presented are adequate to prevent
misleading information, it is suggested that the accompanying management's
discussion and analysis be read in conjunction with the management's discussion
and analysis 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.
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 (OCD Agreement) during June
1999 making OCD the exclusive in-vitro diagnostics manufacturer's representative
for the SafeTrace Tx product in defined territories around the world. The total
of $1,000,000 was included in deferred revenue as of December 31, 1998. Per the
final agreement, $500,000 of the $1,000,000 was released as of August 15, 1999
in consideration of the exclusivity agreement. The non-refundable $500,000 will
be amortized to income over the remaining term of the OCD Agreement which
expires and is subject to renewal on June 15, 2001. The remaining $500,000 will
be recognized when the Company performs software development services for OCD,
as provided by the agreement.
Shared Medical Systems
On September 23, 1999, the Company signed a Marketing Agreement with Shared
Medical Systems Corporation (SMS), Malvern, Pennsylvania, a major network
computing company in the healthcare industry. SMS will resell Global Med's
SAFETRACE TX(TM) hospital transfusion management information software product.
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. Online
Credit 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. Online Credit 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.
16
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, thereby owing eBanker a total of $2,650,000.
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, with 42,400 shares of the Company's common stock.
In March 1999, the Company entered into agreements for a comprehensive financing
package that included: (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 with eBanker,
which bears interest at 12% per annum.
The letter agreement with AFFC for the proposed $8,000,000 convertible preferred
stock private placement was withdrawn and terminated effective September 20,
1999.
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 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. As of September 30, 1999, $750,000 had been drawn on this loan.
In April 1999, the Company entered into an agreement with Online Credit 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 Online
Credit'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.
In September 1999, the Board of Directors voted to replace the $2,000,000 bridge
loan with Online Credit, at the request of Online Credit, with a line of credit
with the same terms with eBanker. In exchange for assuming the commitment, the
86,957 shares of common stock of Global will be transferred to eBanker. In
October and November 1999, the Company drew a total of $600,000 on this line of
credit.
RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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. On January 29,
1999, the Company received FDA 510(k) clearance on SAFETRACE TX(TM).
17
During the three months ended September 30, 1999, total revenues of $964
thousand decreased $160 thousand or 14.2% from the revenues of $1.124 million
for the comparable 1998 quarter. For the nine month period ended September 30,
1999, total revenues increased $665 thousand to $4.207 million or 18.8% from
total revenues for the nine month period ended September 30, 1998 of $3.542
million. Revenues from software sales and consulting decreased 19.1% but
increased 25.6% for the three and nine months ended September 30, 1999,
respectively, primarily due to sales of SAFETRACE TX(TM). In addition, during
the nine months ended September 30, 1999, the Company received $919 thousand of
accelerated software license fee payments in connection with a multiple site
customer agreement that was terminated and replaced by two separate agreements.
During the quarter ended September 30, 1999, software product license sales
decreased significantly due to customer concerns about the Year 2000 impact on
the SAFETRACE product lines and related delays in making purchase commitments.
Because the end of the calendar year 1999 is fast approaching, many potential
customers have advised the Company of their decisions to wait until the year
2000 to execute any purchase agreements for such software. These concerns and
temporary delays in purchase decisions and commitments are being experienced
throughout the health care software industry.
Gross profit (loss) for the three and nine months ended September 30, 1999 were
($34) thousand and $1.847 million, respectively, compared to $652 thousand and
$1.710 million for the comparable 1998 periods, respectively. Gross profit
percentages of revenue were 43.9% and 48.3% for the nine month period ended
September 30, 1999 and 1998. Software product licenses typically have a higher
profit margin than revenue from consulting and implementation related services.
In the third quarter of 1999, consulting and implementation service costs and
sales and marketing expense increased due to the addition of personnel and
equipment needed to accommodate anticipated sales of SAFETRACE TX(TM). Many of
these costs were eliminated in the cost reduction program implemented in October
1999.
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." At the time the Company achieved technological feasibility
on the SAFETRACE TX(TM) product, research and development expense for the three
and nine months ended September 30, 1999 were $77 thousand and $255 thousand,
respectively, compared to $332 thousand and $1.687 million for the comparable
periods of 1998. Capitalized software development costs were $1.535 million, net
of accumulated amortization of $973 thousand as of September 30, 1999 compared
to $920 thousand, net of accumulated amortization of $653, as of December 31,
1998. Once SAFETRACE TX(TM) was available for release, software development
costs, except those associated with the product upgrades, ceased to be
capitalized and are a component of income (loss) from operations.
General and administrative expenses for both the three and nine months ended
September 30, 1999 increased significantly from the comparable 1998 periods. For
the three month period ended September 30, 1999, general and administrative
expenses increased $407 thousand. For the nine month period, they increased $637
thousand or 70.4%. The increases are due primarily to legal fees associated with
the Ortho-Clinical Diagnostics, Inc. agreement, collection procedures, possible
acquisitions, future business development and other projects.
As a result of the financing agreements described above, the Company has
recognized significant noncash financing costs. For the three and nine months
ended September 30, 1999, the charges were $46 thousand and $4.733 million
respectively. For the three and nine month periods of 1998, the charges were
$1.855 million and $3.092 million, respectively. As of September 30, 1999, the
Company had deferred financing costs remaining of $84 thousand.
18
COST REDUCTION PROGRAMS
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.
On October 1, 1999, the Company implemented a second cost reduction program
designed to reduce operating costs by approximately 50%. Included in the
temporary reduction were approximately 50% of the employee positions. This was
necessitated by a reduction in the anticipated sales of SAFETRACE and delays in
purchase commitments for SAFETRACE TX (TM) due to customer concerns about Year
2000 issues.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently has $3.4 million in short-term debt that matures in
varying amounts in December 1999 and in April 2000. The Company may be able to
obtain the cash necessary to repay the loans from sales of its products, through
exercises of warrants or stock options, additional debt financing or public or
private equity financing. In the event the Company cannot repay the loans or
negotiate an extension of the due date with the lender, the debt is convertible
into shares of the Company's common stock.
On January 29, 1999, Global received FDA 510(k) clearance on the product,
SAFETRACE TX(TM). In June 1999, the Company finalized the Manufacturer's
Representative and Software Development Agreement with Ortho-Clinical
Diagnostics, Inc. (OCD), successor to Ortho Diagnostic Systems Inc., a
wholly-owned subsidiary of Johnson & Johnson. It was anticipated that the
Company would experience significant growth through an increased sales volume
within a relatively short period of time as a result of these events. In order
to prepare to effectively manage the growth and the corresponding demands for
customer service, the Company expanded its administrative staff, sales staff,
programmers and research and development staff. However, with the advent of the
Year 2000 concerns, the anticipated growth was not realized. As a result, the
Company has temporarily reduced its work force to a minimum until the market
concerns over the Year 2000 issues have been eliminated and sales resume.
In October 1999, the Bonfils Blood Center in Denver, Colorado signed the first
contract for the software, SAFETRACETX(TM).com, that provides hospitals with a
coordinated system to fully integrate blood inventory, testing and management
over the Internet or intranet. This software, which was developed by Global,
allows hospitals to interface with other hospitals and blood centers through the
Internet using 128-bit encryption technology or an intranet system, increasing
efficiency and patient safety while decreasing blood waste and hospital blood
costs.
Management anticipates that the net proceeds from the eBanker line of credit for
$2.0 million, 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, general working capital
purposes, and negative cash flows during the remainder of 1999 and portions of
2000. It is expected that the proceeds available from the eBanker line of credit
are sufficient to fund the Company's liquidity and capital requirements in the
short term excluding acquisitions or major new product development initiatives.
19
To the extent that the 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 further reduce its existing software development programs and other operating
expenses.
YEAR 2000 DISCLOSURE
The Company has continued with the Year 2000 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. As of September 30, 1999, testing
was completed, although testing will continue through the end of the year and
into the first quarter of 2000. 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 September 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.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(c) Recent Sales of Unregistered Securities
Theissuance 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. No underwriters were
involved in the transaction.
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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 September 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 September 30, 1999
(b) Reports on Form 8-K:
A Current Report on Form 8-K dated September 3, 1999, was filed on September 3,
1999. The Current Report contained information under Item 4 relating to Changes
in Registrant's Independent Accountants. The Current Report contained
information regarding the dismissal of KPMG LLP as the independent accountants
for the Company.
A Current Report on Form 8-K dated September 13, 1999, was filed on September
14, 1999. The Current Report contained information under Item 4 relating to
Changes in Registrant's Independent Accountants. The Current Report contained
information regarding the appointment of Deloitte & Touche LLP as the
independent accountants for the Company for the year ending December 31, 1999.
21
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: November 22, 1999 By /s/ Michael I. Ruxin
----------------------------------------------
Michael I. Ruxin, M.D.
Chairman and Chief Executive Officer
Date: November 22, 1999 By /s/Alan K. Geddes
---------------------------------------------
Alan K. Geddes Vice President, Finance,
Chief Financial Officer, Principal Accounting
Officer and Treasurer
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